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MULTIPLE CHOICES

The following data were taken from the Statement of Affairs of ABC Company:

Assets pledged to fully secured liabilities P 218,750


Assets pledged to partially secured liabilities 157,500
Free Assets
152,250 Fully secured liabilities
175,000 Partially secured liabilities
192,250 Unsecured liabilities with priority
22,750 Unsecured liability without priority
157,500

1. Which of the following is correct?


a. Fully secured liabilities; estimated amount to be received is P218,750
b. Partially secured liabilities; estimated amount to be received is P192,500
c. Unsecured liabilities with priority; estimated amount to be received is P20,475
d. Unsecured liabilities without priority; estimated amount to be received is P141,750

The trustee for Palubog Corporation prepares a statement of affairs which shows that unsecured
creditors whose claims total P540,000 may expect to received approximately P405,000 if assets are sold
for the benefit of creditors. The following information is available:

 Jaka Corporation holds a note for P22,500 on which interest of P1,350 is accrued,
property with a book value of P18,000 and a NRV of P27,000 is pledged on the note.
 Martin, an employee, is owed P6,750 for his salary
 Leviste Corporation holds a note of P54,000 on which interest of P2,700 is accrued,
securities with a book value of P58,500 and a realizable value of P45,000 is pledged on
the note.
 Pinay Corporation holds a note for P9,000 on which interest of P500 is accrued, nothing
has been pledged for the note.
2. How much may each of the following creditors received? Kjaka, Martin Corporation, Leviste
Corporation and Pinay Corporation, respectively?
a. P27,000; P5,063; P53,775; P0
b. P23,850; P6,750; P56,700; P7,125
c. P27,000; P6,750; P56,700; P0
d. P23,850; P6,750; P53,775; P7,125

The following data were taken from the Statement of Affairs of ABC Company:

Assets pledged to fully secured liabilities P 218,750


Assets pledged to partially secured liabilities 157,500
Free Assets
152,250 Fully secured liabilities
175,000 Partially secured liabilities
192,500 Unsecured liabilities with priority
22,750 Unsecured liability without priority
157,500

3. Which of the following is correct?


a. Fully secured liabilities; estimated amount to be received is P218,750
b. Partially secured liabilities; estimated amount to be received is P192,500
c. Unsecured liabilities with priority; estimated amount to be received is P20,475
d. Unsecured liabilities without priority; estimated amount to be received is P141,750

The following data were taken from the Statement of Affairs of Ken Lee Company:

Shareholders’ equity P 441,000


Bonds Payable without security 735,000
Salaries Payable
50,000 Loss on realization of assets
551,250 Accounts payable without security
367,500 Taxes
72,500 Liquidation expenses
55,125

4. The total free assets amounted to:


a. P1,114,750
b. P1,059,625
c. P 992,250
d. P 953,575

The following information were taken from the Statement of Affairs or Orbit Company:

Asses pledged to fully secured liabilities, FV P375,000 P 450,000


Assets pledged to partially liabilities, FV P260,000 370,000
Free Assets (current fair value of P200,000)
350,000 Fully secured liabilities
150,000 Partially secured liabilities
300,000 Unsecured liabilities with priority
35,000 Unsecured liabilities without priority
560,000

5. The expected amount to be received by partially secured creditors amounted to:


a. P285,000
b. P286,000
c. P281,000
d. P263,500

The following are data for BMX Company:

Stockholders’ Equity per books:


Capital Stock P 350,000
Deficit
54,000 Estimated gain on realization of assets:
Land and buildings
78,750 Estimated loss on realization of assets:
Accounts receivable
23,100 Inventories
84,000 Prepared expenses
2,100 Machinery and
equipment 70,100 Goodwill and
patents 157,500 Estimated claims
requiring settlement, not recorded in the books:

Liquidation expenses 17,500


Contingent liabilities 26,250

6. The estimated deficiency to unsecured creditors amount to:


a. P 5,950
b. P 75,950
c. P 81,550
d. P 7,350

Use the following data to answer questions 7 & 8:

The following information is related to Smart Corporation which is undergoing liquidation:

a) Bonds payable amounting to P73,600 is secured by merchandise inventory with book


value of P123,000 and net realizable value of 2/3 of recorded amount.
b) Of the P195,600 accounts payable, P55,000 is secured by equipment with carrying
amount of P76,800 which is 70% realizable.
c) Building with carrying amount of P129,000 has a net realizable of P99,000
d) Other recorded liabilities are: accrued interest on bonds, P3,100; salaries payable,
P17,400; taxes payable, P11,600 and trustee’s fee, P8,500
e) Cash available prior to liquidation amounts to P11,900
f) Total assets of Smart Corporation presented in the Statement of How Financial Position
prior to liquidation amounts to P480,000. Except for prepaid expenses of P7,600 and
goodwill of P22,000 which has no value, the remaining assets, other than those
indicated in (a), (b), and (c) have net realizable value equivalent to 60% of recorded
amount.
g) Total liabilities of the company prior to liquidation amounts to P380,000.
7. How are the liabilities classified?
Preferred Fully Secured Partially Unsecured
a. P29,000 P73,600 P53,760 P223,740
b. P37,500 P76,700 P55,000 P210,800
c. P29,000 P76,700 P55,000 P219,300
d. P37,500 P73,600 P55,000 P213,900
8. How much is the total amount available to unsecured creditors?
a. P144,520
b. P167,160
c. P144,880
d. P182,380

Use the following data to answer questions 9 & 10:

Losing Company filed a voluntary bankruptcy petition on June 25 of the current year, and the statement
of affairs reflected the following amounts:

Book Values Est. NRV


Assets:
Pledged with fully secured creditors P 150,000
P 185,000 Pledged with partially secured creditors 90,000
60,000 Free Assets
210,000 160,000 Liabilities:
With priority
P 35,000 Fully secured creditors
130,000 Partially secured creditors
100,000 Unsecured creditors
270,000

9. Assume that the assets are converted into cash at the estimated net realizable values, and the
business is liquidated, how much will be available to unsecured liabilities?
a. P180,000
b. P405,000
c. P215,000
d. P175,000
10. Using the same data above, how much is the estimated deficiency to unsecured non-priority
credits
a. P 180,000
b. P 130,000
c. P 310,000
d. P 95,000

Questions 11 & 12 is based on the following:

The following data appears from the record of D-NKY Co.

Cost Book Value NRV


Warehouse Building P 7,000,000 P 3,500,000 P
2,000,000 Marketable Securities 1,600,000 1,600,000
2,000,000 Inventories 4,500,000 4,000,000
2,000,000 Accounts Receivable 2,000,000
1,500,000 1,200,000 Other current assets 1,000,000
700,000 300,000

Additional information:
 The Warehouse Building is pledged to First National Bank for P1,000,000 Mortgage
Payable with P150,000 as accrued interest.
 The Marketable Securities is pledged with Second National Bank for a note signed 5
years ago in the amount of P3,000,000 with accrued interest of P75,000.
 The Inventories is pledged with Third National Bank for a note of P2,000,000 with
accrued interest of P50,000.
 The rest are free assets
11. In the statement of affairs, the Inventories should be shown as:
a. Asset pledged with fully secured creditors, leaving a balance of P850,000 to unsecured
creditors
b. Asset pledged with fully secured creditors, leaving a balance of P1,150,000 to unsecured
creditors
c. Asset pledged with partially secured creditors; unsecured liabilities for P800,000
d. Asset pledged with partially secured creditors; unsecured liabilities for P850,000
12. What amount is available to unsecured creditors?
a. P 850,000
b. P1,500,000
c. P2,350,000
d. P 425,000

Use the following data to answer questions 13-15:


The Troublesome Company provides you the following balance sheet as of December 31 of the current
year:

Current Assets (NRV of P2,500,000) P 3,200,000


Property, plant and equipment (NRV of P4,500,000) 7,500,000
Other assets (NRV of P200,000)
650,000 Total
P11,350,000

Accounts Payable (secured by inventories with


NRV of P1,600,000 P 4,600,000
Loans Payable (secured by PPE with NRV of P2,800,000)
5,000,000 Ordinary Shares
3,000,000 Retained Earnings (deficit)
(1,250,000) Total Liabilities & Stockholders’ equity
P11,350,000

13. The amount available to unsecured creditors is


a. P6,950,000
b. P 900,000
c. P2,800,000
d. P2,600,000
14. The estimated deficiency to unsecured creditors is
a. P5,200,000
b. P2,600,000
c. P9,600,000
d. P2,400,000
15. The amount expected to be received by accounts payable group of creditors is
a. P3,215,000
b. P3,000,000
c. P4,600,000
d. P1,615,000

Below is the summary of accounts appearing in the statement of Realization & Liquidation of Aristotle
Company:

Assets to be Realized P 5,200,000


Assets Acquired 1,800,000
Assets Realized
3,800,000 Assets not Realized
2,700,000 Liabilities to be liquidated
4,200,000 Liabilities Assumed
900,000 Liabilities Liquidated
2,500,000 Liabilities not liquidated
P 1,900,000 Supplementary Charges
850,000 Supplementary Credits
600,000

16. The above situation resulted to


a. Loss of P50,000
b. Gain of P700,000
c. Loss of P250,000
d. Loss of P500,000

A trustee provided the following information about Justin Corporation’s financial affairs on February 28
of the current year:

Book Values Est. RV


Assets:
Cash P 20,000
P 20,000 Accounts Receivable, net 100,000
75,000 Inventories
150,000 70,000 Plant assets
250,000 280,000 Liabilities:
Liability for prior claims
80,000 Accounts payable-unsecured
150,000 Notes payable secured
by accts. Receivable 100,000 Mortgage payable,
secured by all plant assets 220,000

17. The amount available to unsecured creditors is:


a. P 150,000
b. P 90,000
c. P 70,000
d. P 95,000

A review of the assets and liabilities of ABC Company, a bankrupt Company, disclose the following:

a. A mortgage payable of P700,000 is secured by land and building valued at


P1,120,000.
b. Notes payable of P350,000 is secured by furniture and equipment valued at
P280,000.
c. Assets other than those referred to above have estimated market value of
P315,000
d. Liabilities other than those referred to above total P840,000 which included
preferred claims of P105,000.
18. The estimated percentage of recovery is:
a. 78%
b. 72%
c. 91%
d. 60%

Use the following information to answer questions 19&20:

Precious Flakes Corporation is being liquidated. All assets have been converted into cash and P1,872,500
cash is available to pay the following claims:

a) Liquidation expenses P 62,500


b) Merchandise creditors 495,000
c) Local government for taxes
20,000 d) Unsecured loan, including accrued interest of P22,500
172,000 e) BIR – Witholding tax
15,000 f) Unpaid wages to officers before filling bankruptcy
240,000 g) Advances by customers for merchandise not
delivered 7,500 h) Holders of the First Mortgage on the
company’s real estate that was sold for P1,200,000
(Principal P1,100,000 and accrued interest of P42,500)
P1,142,500

19. The amount available for preferred claims is


a. P 97,500
b. P 345,000
c. P 337,500
d. P 62,500
20. The amount available for Merchandise creditor is
a. P495,000
b. P342,172
c. P463,833
d. P287,833
Following data pertain to Automatic Appliances Store which sells appliances on the installment basis:

2014 2015 2016


Installment Sales P 850,000 P1,200,000 P
2,500,000 Cost of Installment Sales 544,000 720,000
1,450,000

Summary of 2016 transactions:

From Sales Made in


2014 2015 2016
Collections P80,000 P120,000
P1,800,000 Defaulted accounts 8,000
12,000 20,000 Value assigned to repossessed mdse. 2,500
3,000 6,000

21. The total amount of profit cancelled in 2016 due to repossession amounted to:
a. P 16,080
b. P 8,400
c. P 4,800
d. P 2,880

Questions 22&23 are based on the following:

On January 2, 2016, Sanyo Co. sold equipment costing P74,400 for P120,000. Old similar equipment was
accepted as a down payment, with the balance payable in 4 semi-annual installments commencing June
30, 2016. The old equipment was allowed an allowance of P36,000 but has an estimated market value of
P36,000 after reconditioning the same for P4,000. The company normally makes a 10% gross profit on
the sale of old equipment.

After paying two installments, the customer defaulted in the payment. The equipment was repossessed
and assessed to have an estimated sales price of P40,000 after reconditioning it for P5,000.

22. The entry to record the sale on January 1 includes:


a. Debit to Trade In Inventory of P36,000
b. Credit to Installment Sales of P120,000
c. Credit to Installment Sales of P112,400
d. Debit to Installment Receivable of P120,000
23. The realized profit on December 31, 2016 is:
a. P16,605
b. P23,802
c. P26,371
d. 20,565

Questions 24&25 are based on the following:

The data presented below were taken from the records of Mr. Lim Appliances Center before the
accounts are closed for the year 2016. The company sells exclusively on credit and uses the installment
sales method of recognizing profit.
2014 2015 2016
Installment sales P 800,000 P 880,000 P
840,000 Cost of Installment sales 480,000 545,600
512,400 Balance as of Dec 31
Installment Receivable-2014 440,000
220,000 56,000 Installment Receivable-2015
500,000 184,000 Installment Receivable-2016
476,000 Deferred Gross Profit-2014
176,000 88,000 ? Deferred Gross Profit-2015
190,000 ? Deferred Gross Profit-
2016 ?

During 2016, the following repossession were recorded by Mr. Lim Appliances Center as:

Repossessions 16,000
Loss on Repossessions 19,000
Installment Receivable
35,000

Unpaid balance Estimated Est. reconditioning


Selling Price Cost
2014 accounts P20,000 P10,000
P 1,500 2015 accounts P15,000 6,000
2,000

24. At the beginning of 2016, the total deferred gross profit amounted to:
a. P 277,960
b. P 107,400
c. P 69,920
d. P 185,640
25. The total cash collections made on installment contracts in 2016 amounted to:
a. P824,000
b. P789,000
c. P364,000
d. P425,000

Questions 26-28 are based on the following:

Presented below are the financial data taken from the books of Union Corp.

2014 2015 2016


Sales:
Regular P 250,000 P 380,000 P
550,000 Installment Sales 365,000 417,800
610,750 Cost of Goods sold:
Regular 175,000
258,400 357,500 Installment sales
233,920 254,858 366,450 Collections on account from:
Regular sales
200,000 280,000 450,000 Installment sales-2014
165,500 120,000 60,000 Installment
sales-2015 217,800 110,000
Installment sales-2016 310,750
Defaulted accounts
2014 accounts 20,000
2015 accounts 30,000
25,000 Value assigned to repossess merchandise:
2014 accounts
10,000 2015 accounts
15,000 12,500

26. The balance of the Deferred Gross Profit-2014 accounts on December 31, 2016 is
a. P 7,800
b. P 21,600
c. P 0
d. P 8,000
27. The realized profit on December 31, 2016 is
a. P184,000
b. P192,300
c. P179,050
d. P188,800
28. The total gain or loss on repossession on December 31, 2016 is
a. P6,100 loss
b. P7,000 loss
c. P5,500 loss
d. P2,750 loss

Madison Company had the following sales and gross profit percentage for the years 2013-2016.

Sales Mark up on cost


2013 P1,470,000 25%
2014 P1,450,000
28% 2015 P1,580,000
25% 2016 P1,610,000
28%

Historically 40% of sales are collected in the year of the sale, 40% in the following year, 20% in
the third year. Madison Company uses the installment method to account for installment sales.

29. The total realized profit in year 2016 is:


a. P419,520
b. P438,480
c. P330,712.50
d. P140,875
Johnson and Johnson use the installment method for all installment sales. Below is a summary of
financial data:

2014 2015 2016


Installment sales P 400,000.00 P 475,000.00 (1)
Cost of installment sales (2) 280,250.00
341,250.00 Gross profit rate 30% (3)
35% Cash collections:
2014 sales
128,000.00 232,000.00 78,000.00 2015 sales
114,000.00 (4) 2016 sales
162,750.00 Total Realized gross profit
(5) (6) P 138,172.50

30. The collections on 2015 accounts in the year 2016 amounted to:
a. P57,810.00
b. P141,000
c. P164,100
d. P46,368.60

Mabuhay Motors sells locally manufactured jeeps on installments. Information presented below relates
to Mabuhay’s operation for the last three calendar years.

2016 2015 2014


Costs of installment sales P 8,765,625 P 7,700,000 P
4,950,000 Gross profit on installment sales 32% 30%
28% Outstanding installment receivables
From 2016 sales P 9,728,125
From 2015 sales
3,025,000 P 8,387,500 From 2014 sales
1,512,000 P 4,812,500

Mabuhay Motors uses the installment method of accounting.

31. How much is the (1) total realized gross profit, and (2) the total deferred gross profit at
December 31, 2016:
a. P3,753,750; P4,020,500
b. P3,044,250; P4,125,000
c. P6,993,250; P3,113,000
d. P3,044,110; P4,020,500

Huge Company, which began operations on January 2, 2014 appropriately, uses the installment sales
method of accounting. The following information is available for 2016:

Installment Receivable, Dec. 31, 2016 P 800,000


Deferred gross profit, Dec. 31, 2016 (before adjustment) 560,000
Gross profit rate
40%
32. For the year ended Dec. 31, 2016, Cash collections and realized gross profit should be:
a. P400,000; P320,000
b. P600,000; P320,000
c. P400,000; P240,000
d. P600,000; P240,000

Dolce Company, which began operations on January 1, 2015, appropriately uses the installment method
of accounting for installment sales. The following information is available for the years ended December
31, 2015 and 2016:

2015 2016
Sales P1,000,000
P2,000,000 Gross profit realized on sales made in:
2015
150,000 90,000 2016
200,000 Gross profit percentage
30% 40%

33. What amount of installment accounts receivable should Dolce report in its December 31, 2016
balance sheet?
a. P1,225,000
b. P1,700,000
c. P1,200,000
d. P1,775,000

Questions 34-35 are based on the following:

The following data were taken from the records of Sommerset Company, before the accounts are closed
for the year 2016. The Company sells exclusively on the installment basis and uses the installment
method of recognizing profit.

2014 2015 2016


Installment sales P 400,000 P 440,000 P
420,000 Cost ratio 60% 62%
61% Operating expenses 100,000
94,000 104,000

Balances as of Dec. 31:


Inst. Receivable-2014 220,000 110,000
28,000 Inst. Receivable-2015 250,000
92,000 Inst. Receivable-2016
238,000 Deferred gross profit-2014 44,000
44,000 Deferred gross profit-2015
95,000 95,000

During 2016 because the customer can no longer be located, the company wrote off P9,000 of the 2014
accounts and P2,800 of the 2015 accounts as uncollectible, and the entry made was:
Uncollectible account expense 11,800
Installment Receivable-2014 9,000
Installment Receivable-2015
2,800

Also during 2016, a customer defaulted and the company repossessed merchandise appraised at P4,000
after costs of reconditioning estimated at P400. The merchandise had been purchased in 2014 by a
customer who still owed P5,000 at the date of repossession. The entry was made:

Repossessed merchandise 5,000


Installment Receivable-2014 5,000

34. The realized profit on installment sales for the year 2016
a. P 157,156
b. P 86,176
c. P 70,980
d. P 163,820
35. The net income at December 31, 2016 amounted to:
a. P53,156
b. P40,756
c. P52,556
d. P45,420

Automatic Company sells home appliances and furniture sells on charge and installment basis. Data on
the installment sales operations of the company for the tow years ending 2015 and 2016 were as
follows:

2015 2016
Installment sales P4M P5M
Cost ratio 60% 70%
Total Collections:
2015 accounts P2.1M
P1.5M 2016 accounts
P3M

Additional information:

The newly hired bookkeeper of Automatic Company records collections on installment sales as: Debit
cash and credit Installment Receivable for collection on principal and interest. The interest included in
the collections above are:

2015 collections – P120,000


2016 collections:
2015 accounts – P60,000
2016 accounts – P180,000

36. The required balance of the deferred gross profit account at December 31, 2016 is:

2015 Account 2016 Account


a. P232,000 P600,000
b. P184,000 P600,000
c. P160,000 P654,000
d. P232,000 P654,000

Questions 37-38 are based on the following:

Michael Johnson Imports Inc. had two customers who defaulted in their accounts:

1) A packaging machine was sold to Marlene Whitney for P90,000, including a 35% mark up on
selling price. Whitney made a down payment of 20%, four of the remaining 16 equal payments,
and then defaulted on further payments. The packaging machine, at which time, the fair value
was determined to be P35,000.
2) Another equipment that cost P60,000 was sold to Banjo Bailey for P80,000 on the installment
basis. Bailey made a down payment of P12,000 and paid P4,000 a month for six months, after
which he defaulted. The equipment was repossessed and the estimated value at time of
repossession was determined to be P32,500.
37. The total deferred gross profit cancelled upon repossession is
a. P31,500
b. P29,900
c. P51,500
d. P30,950
38. The total gain or loss on repossession is
a. P500 gain
b. P5,500 gain
c. P500 loss
d. P600 loss

Questions 39&40 are based on the following:

Taguig Motor House, a dealer of motorcycle sells on cash and installment basis. One of its valued
customers, Roman, bought 5 units of motorcycles, 3 units was paid in cash and 2 units by installments.
The cost of each motorcycle was P30,000 per unit. The selling price of each motorcycle was made at
25% gross profit rate for cash basis and at 40% gross profit rate for installment basis. Roman paid 20%
initial payment for the two units bought on installment and the balance is payable in 12 monthly
installments starting the end of August. Roman defaulted on the subsequent payments after paying 4
monthly installments. The two motorcycles were repossessed and has an appraised value equal to 75%
of the unpaid balance.

39. The total amount that Taguig Motor House recognized as realized profit on the 5 units of
motorcycles amounted to:
a. P18,667
b. P48,667
c. P70,000
d. P30,000
40. The amount of profit cancelled cue to the repossession of the two units of motorcycles
amounted to
a. P16,000
b. P32,000
c. P21,333
d. P48,667

Concepcion Industries sells merchandise on a consignment basis to dealers. Shipping costs are
chargeable to Concepcion, although in some cases the dealer pays them while advertising costs are
reimbursable from the consignor. The selling price of the merchandise averages 40% above cost of
merchandise exclusive of freight. The dealer is paid a 10% commission on the sales price for all sales
made. All dealer sales are made on cash basis. The following consignment sales activities occurred
during the current year.

Units shipped 100


Unit cost P
10,000 Freight cost incurred:
Paid by Concepcion
75,000 Paid by consignee
25,000 Advertising costs paid by the consignee
50,000

At the end of a month, the consignor receives a notification from the consignee that 80 units were sold
and that the amount due consignor is enclosed.

41. The amount remitted by the consignee is


a. P 993,000
b. P1,008,000
c. P 958,000
d. P1,112,000
42. The value of the inventory in the hands of the consignee is
a. P200,000
b. P215,000
c. P235,000
d. P245,000
43. The net income to be reported by the consignor as a result of the alone is
a. P70,000
b. P58,000
c. P73,000
d. Not given

Questions 44-45 are based on the following:

In 2016, Free shops Wholesalers transferred goods to a retailer on consignment. The goods cost
P450,000 and normally are sold at a 50% markup. Free shop paid P5,000 for the cost of shipment while
the retailer paid P3,800 for 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 2016,
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
reimbursable by the consignor.

44. The amount remitted by the retailer to the consignor is


a. P340,450
b. P344,250
c. P405,000
d. P337,650
45. The cost of inventory returned to Free shop
a. P183,680
b. P180,000
c. P182,000
d. Not given
46. The net income earned by the consignor on the above shipment is
a. P 64,650
b. P 62,650
c. P 405,000
d. P 61,530

IBM Makati consigned 1,000 units of ordinary printer, costing P700 each, to SN Company to be sold at
P1,200 per unit. The agreement calls for 20% commission on units sold and any expenses paid by SN
Company like advertising cost is reimbursable by the consignor. The consignor paid P25,000 freight and
insurance of P10,000 for the shipment. At the end of the month, SN Company reported that 190 units
are still on hand. It remitted P743,000 after deducting commission of P192,000 and advertising cost of
P25,000.

47. Th number of units sold and the net income recognized by the consignor is:
a. 810 units P147,650
b. 800 units P154,650
c. 810 units P141,000
d. 800 units P154,650

Questions 48-49 are based on the following:

In December, the Wenceslao Publishing Company ships 20 sets of books to a book dealer on
consignment. The consignor maintains a cost accounting system and perpetual inventories; the cost
manufacturing each set is P3,000.00. At the end of December, the dealer reports the sale of 6 sets at
P5,000.00 each and remits sales proceeds less 15% representing commissions and P1,500 for freight
paid by the consignee on the receipt of the sets. Delivery and installation expense was P1,200.

48. How much is the cash remittance?


a. P24,800
b. P24,300
c. P27,300
d. P24,000
49. How much is the net income related with the consignment sales?
a. P 5,850
b. P 6,690
c. P 4,800
d. P 10,350

On July 1, 2015, All Home Store shipped 150 La Germania Oven, costing P9,000 each on consignment
basis to SM Aura to be sold at P15,000 each. The consignee is to be allowed a commission of 15%. All
Home Store incurred P15,000 in shipping the 150 units. The agreement requires that SM Aura will
advance 50% of the cost of the oven, to be applied to periodic remittances in proportion to the units
sold. Any expenses related to the consigned units incurred by SM Aura are also deductible from the
remittance.

On October 31, 2015, SM Aura rendered an account sale that includes the following deductions:
Advertising costs of P15,000, delivery expenses to customers of P350 per unit; commission of P146,250.

50. How much was the remittance received by ALL HOME STORE at October 31, 2015?
a. P483,500
b. P520,900
c. P303,500
d. P498,500

FRANCHISING

On January 1, 2015, Evie Company signed an agreement to operate as a franchisee of St. Mark Café for
an initial franchise fee of P937,500 for 7 years of this amount, P175,000 was paid when the agreement
was signed and the balance payable in four annual payments beginning on December 31, 2015. Evie
signed a non-interest bearing note for the balance. Evie’s rating indicates that she can borrow money at
16% for the loan of this type. Assume that substantial services amounting to P283,500 had already been
rendered by St. Mark Café and that additional indirect franchise cost of P25,500 was also incurred.
(Round PV factor to 2 decimal places).

51. If the collection of the note is not reasonably assured, the net income for the year ended
December 31, 2015 is
a. P168,135
b. P228,035
c. P253,535
d. P313,435

On December 31, 2015, Mack Do authorized to grant Michael & Company to operate as a franchisee for
an initial fee of P150,000. Of this amount, P60,000 was received upon signing the agreement and the
balance, represented by a note, is due in three annual payments of P30,000 each beginning December
31, 2016. The present value on December 31, 2015 of the three annual payments appropriately
discounted is P72,000. According to the agreement, the nonrefundable down payment represents a fair
measure of the services already performed by Mack Do; however, substantial future services are
required of Mack do. Collectability of the note is reasonably certain.

52. Mack Do’s December 31, 2015 Balances Sheet, unearned franchise fees should be reported as
a. P 132,000
b. P 90,000
c. P 100,000
d. P 72,000

Questions 3&4 are based on the following:

December 31, 2015 – The Fast Track, Inc. charges an initial franchise fee of P4,500,000 for the right to
operate as a franchise fee of Fast Track of this amount, P500,000 is collected. The balance is collectible
in four annual installments of P1,000,000 each every December 31, starting 2016. The PV of 1 for 4
periods at 10% is .6830 while the PV of an annuity of 1 for 4 periods at 10% is 3.1699.

January 2016 – The franchisor visited the proposed site and gave the go signal to start the construction
of the building.

June 1, 2016 - Started training the manpower.


July 1, 2016 - The franchise started its operation.
December 31, 2016 - The first annual payment was received and the
franchisee reported total sales of P2,500,000.

The franchisor incurred P250,000 in relation to this franchise. Other terms of the agreement include a
continuing royalty fee equal to 5% of annual gross sales.

53. The entry to record the above activity on December 1, 2015 was:
a. Cash 500,000
Accounts Receivable 4,500,000
Deferred franchise revenue
4,500,000
b. Cash 500,000
Accounts Receivable 4,000,000
Deferred franchise revenue
3,669,900 Unearned interest revenue
830,000
c. Cash 500,000
Accounts Receivable 4,000,000
Franchise revenue
500,000 Deferred franchise revenue
3,169,900 Unearned interest revenue
830,100
d. Cash 500,000
Accounts Receivable 4,000,000
Franchise revenue
4,500,000
54. Assuming the initial down payment is not refundable and the collectability of the note is
assured, the amount of revenue recognized on December 31, 2015 is:
a. P 500,000
b. P4,500,000
c. P0
d. P3,669,000
55. The total revenue to be recognized by Fast Track, Inc on December 31, 2016 assuming the
collectability of the note is reasonably assured amounted to:
a. P3,669,900
b. P3,794,000
c. P3,294,900
d. P4,111,890

Lighthouse Company sells a franchise that requires an initial franchise fee of P70,000. A down payment
of P20,000 cash is required with the balance covered by the issuance of a P50,000, 10% notes payable
by the franchisee in five annual equal installments.

All the material services have been substantially performed by the franchisor, and the refund period has
expired, but the collectability of the note is not reasonably assured.

56. The (1) earned and (2) unearned franchise revenue at the opening of the outlet is
a. P70,000; P0
b. P0; P50,000
c. P50,000; P20,000
d. P20,000; P50,000

Henlin Food Inc. charges an initial franchise fee of P500,000 for the right to operate as a franchisee of
this amount, P100,000 is payable when the agreement was signed and the balance is a non-interest
bearing note in five annual payments of P80,000 each. In return for the initial franchise fee, the
franchisor will help locate the site, supervise the construction and training of store crews. The credit
rating of the franchisee indicates that the money can be borrowed at 8%. The present value of an
ordinary annuity of five annual receipts of P80,000 is P319,416.80. the discount represents the interest
revenue to be accrued by the franchisor over the payment period. The probability of refunding the initial
fee is extremely low, the franchisor had already performed substantial services as required by the
contract, and collectability of the note is reasonably assured.

57. The earned and unearned franchise fee would be


a. P0; P500,000
b. P0; P419,416.80
c. P419,416.80; P0
d. P319,416.80; P100,000

Reyes Barbecue charges an initial franchise fee of P200,000, with P50,000 paid when the agreement was
signed on January 1, 2015 and the balance in two annual payments starting December 31, 2015. The
P50,000 is non-refundable. The present value factor of an ordinary annuity discounted at 12% for2
periods is P1.6901. Reyes Barbecue has substantially provided the services required and collectability of
the note is reasonably assured. Reyes Barbecue is also entitled to a 5% of gross sales as Royalty fee.
During 2015, the franchisee reported a total sale of P1.2M.

58. The total revenue that Reyes Barbecue should recognize at December 31, 2015 is:
a. P125,210.90
b. P236,757.50
c. P260,000
d. P251,968.40

On September 30, 2015 Heaven & Egg entered into franchise agreement with Manuel. The agreements
required an initial franchise fee of P175,000 plus four P75,000 payments due every three months, the
first payment due December 31, 2015, the interest rate is 12%. The initial deposit is no longer
refundable if services performed have been 25% completed. The following table describes the
agreement.

Franchisee Probability of Services performed by Total costs


collection franchisor at December 31,
incurred as of 2015
Dec. 31, 2015

Manuel Likely Substantially P35,000

The present value factors at 3% for four periods were as follows:

Present value of P1, - .0885


Present value of an annuity of P1, - 3.7171

59. The net total revenue to be recognized by Heaven & Egg in 2015 is:
a. P464,933
b. P429,934
c. P462,146
d. P458,132

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