Accounting Exam.docx

1. AK and BK decided to form a partnership on October 1, 2013. Their Statement of Financial Position on this date are: AK BK Cash P 65,625 P164,062.50 Accounts Receivable 1,487,500 896,875 Merchandise Inventory 875,000 885,937.50 Equipment 656,250 1,268,750 Total 3,084,375 3,215,625 Accounts Payable AK, Capital BK, Capital Total

459,375 2,625,000 3,084,375

1,159,375 2,056,250 3,215,625

They agreed to have the following adjustments shall be made: - Equipment of AK is underdepreciated by P87,500 and that BK is overdepreciated by P131,250. - Allowance for doubtful account is to be set up amounting to P297,500 for AK and P196,875 for BK. - Inventories of P21,875 and P15,312.50 are worthless in the books of AK and BK respectively. - The partnership agreement provides for a profit and loss ratio of 70% to AK and 30% to BK. Assuming the use of transfer of capital method, how much is the agreed capital of AK to bring the capital balances proportionate to their profit and loss ratio.

A. P2,390,937.50 B. P2,218,125

C. P2,935,406.25 D. P1,024,687.50

2. On December 1, 2013 MV and CD agreed to invest equal amounts and share profits equally to form a partnership. MV invested P3,120,000 cash and a piece of equipment. CD invested some assets which are shown below. Book Value Accounts Receivable P 400,000 Inventory 1,120,000 Machineries, net 2,240,000 Intangibles, net 920,000 The assets invested by CD are not properly valued. P32,000 of the accounts receivable are proven uncollectible. Inventories are to be written down to P1,040,000. Included in the machineries is an obsolete apparatus acquired for P384,000 with an accumulated depreciation balance of P336,000. Part of the intangibles is a patent with a carrying value of P56,000 which was sued upon by a competitor. CD unsuccessfully defended the case and the final decision of the court was released on November 29, 2013. What is the fair value of the equipment invested by MV? A. P1,400,000 B. P1,344,000

C. P968,000 D. P1,560,000

3. On December 1, 2012, AB invited MZ to join him in his business. MZ agreed provided that AB will adjust the accumulated depreciation of his Equipment account to a certain amount, and will recognize additional accrued expenses of P50,000. After that, MZ is to invest additional pieces of equipment to make her interest equal to 45%. If the capital balances of AB before and after adjustment were P695,000 and P605,000 respectively, what is the effect in the carrying value of the equipment as a result of the admission of MZ? A. P495,000 B. P(40,000)

C. P455,000 D. P(405,000)

4. On December 1, 2013, MG and AN are combining their separate businesses to form a partnership. Cash and noncash assets are to be contributed. The noncash assets to be contributed and the liabilities to be assumed are as follows: MG AN Book Value Fair Value Book Value Fair Value Accounts Receivable P 250,000 P 262,000 P 200,000 P 195,000 Inventory 400,000 450,000 200,000 207,500 PPE 1,000,000 912,500 862,500 822,500 Accounts Payable 150,000 1,475,000 112,500 1,112,500 MG and AN are to invest equal amounts of cash such that the contribution of MG would be 10% more than the investment of AN. What is the amount of cash presented on the partnership’s Statement of Financial Position on December 1, 2013. A. P2,762,500 B. P5,525,000

C. P2,512,500 D. P5,025,000

5. PJ, SR and MJ are partners sharing profits and losses of 5:3:2, respectively. As of Dec 31, 2012, their capital balances were P997,500, P840,000 and P630,000 respectively. On January 1, 2013, the partners admitted AX as a new partner and according to their agreement AX will contribute P840,000 in cash to the partnership and also pay P105,000 for 15% of SR’s share. AX will be given a 20% share in profits, while the original partner’s share will be proportionately the same as before. After admission of AX, the total capital will be P3,465,000 and AX capital will be P735,000. The amount of asset revaluation is: A. P231,000 C. P157,500 B. P73,500 D. P388,500 6. The following Statement of Financial Position for the Partnership of CD, NH and GV were taken from the books on October 1, 2013. Assets Liabilities and Capital Cash P100,000 Liabilities P200,000 Other Assets 400,000 CD, Capital 120,000 NH, Capital 95,000 GV, Capital 85,000 Total Assets 500,000 Total Liabilities and Capital 500,000

The partners agreed to distribute profits as follows:  Annual salaries to CD and NH of P50,000 each  Annual interest of 5% on beginning capital  Bonus of 15% to CD based on income after salaries, interest and bonus  Remaining profit: 25% to CD, 35% to NH and 40% to GV The amount of bonus in the admission of AX would be: A. P69,300 B. P115,500

C. P126,000 D. P231,000

7. PV, BK and TF were partners with capital balances on January 2, 2013 of P350,000, P525,000 and P700,000, respectively. Their profit ratio is 5:3:2 while their capital interest ratio is 4:4:2. On July 1, 2013, JP was admitted by the partnership for 20% interest in capital and 25% in profits by contributing P87,500 cash, and the old partners agreed to bring their interest to their old capital and profit interest sharing ratio. The partnership had net income of P210,000 before admission of JP and the partners agree to revalue its overvalued equipment by P35,000. The capital balance of PV after admission of JP is: A. P297,500 B. P588,000

C. P354,200 D. P470,400

8. A, B and C are partners in a business being liquidated. The partnership has cash of P22,000, noncash assets with a book value of P264,000 and liabilities of P173,250. The following data relates to the patterns as of June 1, 2013: (a) A has a capital balance of P129,250, personal assets of P27,500, personal liabilities of P13,750. (b) B extended a loan to the partnership in the amount of P13,750,deficit of P38,500, personal asset of P41,250,personal liabilities of P16,500. (c) C has a capital balance of P8,250, personal assets of P68,750 and personal liabilities of P41,250. (d) Their profit and loss ratio is 3:1:1, A, B and C, respectively. On June 12, 2013, assets with a book value of P82,500 were sold for P55,000 cash. The proceeds were used to pay off liabilities of the partnership. During the remainder of June, no additional assets were realized and outside creditors began to pressure the partnership for payment. On July 3, the partners agreed to contribute personal assets, to whatever extent possible, in order to eliminate their respective deficits. Shortly thereafter, assets with book value of P55,000 and a fair value of P63,250 were distributed to A. Assuming additional noncash assets with book value of P110,000 were sold in July for P148,500. How much cash would be distributed to C? A. P12,100 B. P8,800

C. P3,850 D. P550

9. JCA Partnership is entering into liquidation and you are given the following account balances: Cash Noncash assets

P 775,000 6,750,000

Total Assets

7,525,000

Liabilities Loan from A J, Capital (20%) C, Capital (20%) A, Capital (60%) Total Liabilities and capital

P 1,100,000 150,000 1,275,000 1,625,000 3,375,000 7,525,000

During June, noncash assets with a book value of P1,875,000 were sold for P1,600,000. JCA paid P175,000 for the liquidation expenses it incurred and it also paid half of its liabilities to outside creditors. Creditors whose account balances amount to P150,000 decided to condone JCA’s liabilities to ¾ of the cash received from the sale of noncash assets were distributed to the partners. How much is (1) J’s share in the maximum possible loss? (2) A’s interest after the first cash distribution? A. P985,000; P3,105,000 B. P985,000; P2,955,000

C. P975,000; P2,955,000 D. P975,000; P2,805,000

10. SCA Partnership has the following account balances before liquidation: Cash P 350,000 Liabilities P 1,125,000 Noncash assets 7,375,000 Loan from A 50,000 Loan to C 150,000 S, Capital (40%) 1,250,000 Receivable from S 20,000 C, Capital (40%) 1,900,000 Expenses 2,230,000 A, Capital (20%) 1,000,000 Revenues 4,800,000 During June, some noncash assets were sold that results to a loss of P46,125. Liquidation expenses of P175,000 were paid and additional expenses amounting to P90,000 were expected to be incurred through the following months of liquidation the partnership. Liabilities to outsiders amounting to P875,000 were paid. What is the book value of the noncash assets which were sold for C to receive P555,550? A. P2,375,000 B. P2,328,875

C. P2,130,000 D. P2,083,875

Problems 11-13, refer to the problem below: The partnership of C, A, and G decided to liquidate their partnership on May 31, 2013. Before liquidating and sharing of net income, their capital balances are as follows: C (30%) P1,250,000, A (30%) P900,000, and G (40%) P1,100,000. Net income from January 1 to May 31 is P600,000. Liabilities of the partnership amounted to P1,050,000 and its total assets include cash amounting P350,000. Unsettled liabilities are P550,000. C invested additional cash enough to settle their partnership’s indebtedness. A is personally solvent, G is personally insolvent, and C becomes insolvent after investing the cash needed by the partnership.

11. How much were the partnership’s non-cash sold for? A. P150,00 B. P225,000

C. P4,400,000 D. P750,000

12. How much cash will A invest in the partnership? A. P450,000 B. P240,000

C. P420,000 D. P100,000

13. How much will C receive as a result of their liquidation? A. P550,000 C. P450,000 B. 0 D. P660,000 On January 1, 2013, ACJ Partnership entered into liquidation. The partner’s capital balances on this date are as follows: A (25%) P625,000

C (35%) P1,350,000

J (40%) P925,000

The partnership has liabilities amounting to P1,100,000, including a loan from C (P150,000). Cash on hand before the start of liquidation is P200,000. With the information given, answer the following independent situations: 14. Noncash assets amounting to P1,850,000 were sold at book value and the rest of the noncash assets will be sold at a loss of P1,050,000. How much cash will be distributed to the partners? A. P2,000,000 B. P1,850,000

C. P1,100,000 D. P2,950,000

15. After exhausting the noncash assets of the partnership, assuming all partners has personal assets more than their personal liabilities. How much cash must be invested by the partners to satisfy the claims of the outside creditors and to pay the amount due to the partner/s? A. P920,000 B. P1,090,000

C. P1,120,000 D. P950,000

16. If C received P563,750, How much was the loss from the realization of the noncash assets? A. P1,313,750 B. P2,631,000

C. P2,675,000 D. P2,486,250

17. The following information are related to Terminal 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 the recorded amount. b. Of the P195,600 accounts payable, P55,000 is secured by equipment with a carrying amount of P76,800 which is 70% realizable. c. Building with a carrying amount of P129,000 has a net realizable value of P99,000. d. Other unrecorded liabilities are accrued interest payable 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 Terminal Corp. Presented in the statement of financial position prior to liquidation amounts to P480,000, except for prepaid expenses and goodwill with recorded amounts of P7,600 and P22,000, respectively, remaining assets other than those whose realizable values were mentioned above have a realizable value of 60% of the recorded amount. g. Total liabilities of Terminal Corp. Presented in the statement of financial position prior to liquidation amounts to P380,000. Compute for the estimated deficiency to unsecured liabilities. A. P51,696 B. P120,020

C. P108,120 D. P67,520

18. Ended Corporation is undergoing liquidation. The trustee of Ended Corp. Presents the following information:  P70,000 assets are available to unsecured creditors, P10,000 of which represents Inventories. It was ascertained that inventories were not pledged to any liabilities.  Unpaid liabilities are as follows: administrative expenses: P3,500; taxes: P6,000 and wages: P2,500  Accounts payable and notes payable totalled P100,000. No assets were pledged on the said liabilities.  Payment to fully secured creditors and partially secured creditors amounts to P68,000 and P135,000 respectively. If the recovery percentage is 35 percent, determine the amount of (1) Assets pledged to fully secured liabilities and (2) partially secured liabilities. A. B. C. D.

(1) P150,000; (2) P100,000 (1) P150,000; (2) P200,000 (1) P140,000; (2) P200,000 (1) P140,000; (2) P100,000

19. Finish Corporation has been undergoing liquidation since January 1. As of June 30, its condensed statement of realization and liquidation is presented below: Assets realized P525,000 Interest on Investment 2,625 Purchases 26,250 Assets Acquired 87,500 Liabilities Assumed 26,250 Payments of Expense of Trustee 131,250 Liabilities to be liquidated 1,137,500 Sales on Account 87,500 Assets not realized 735,000 Liabilities not liquidated 557,375 Sales for cash 437, 500 Assets to be realized 1,662,500 Liabilities Liquidated 612,500 The net gain (loss) on realization and liquidation is: A. P 306,250 B. P(306,250)

C. P(126,000) D. P 126,000

20. The following data were taken from the statement of realization and liquidation of Gone Corporation for the quarter ended June 30, 2013 Liabilities to be liquidated Supplementary charges Liabilities not liquidated Supplementary credits Assets acquired Liabilities liquidated Assets to be realized Assets realized Liabilities assumed

P 285,000 169,100 210,000 192,500 136,000 158,000 107,500 175,000 83,000

The beginning capital balances of ordinary shares and retained earnings are P102,000 and P29,600, respectively. A net of P87,400 for the period. How much is the ending balance of cash? A. P293,000 B. P296,500

C. P209,100 D. P309,100

21. A, B, and C formed a joint venture. The contractual arrangement provides that C is to manage the venture and is to receive a salary of 13% of the profit after deduction of the salary as an expense.

The net profit after the salary is to be divided as follows: A, 40%; B, 25% and C, 35%. No separate books are used for the Joint Venture. Joint venture is terminated after six months of operation. The trial balance prepared by C shows the following balances. . Credit

Debit Joint Venture Cash P 315,000 Joint Venture P 209,500 A, Capital 180,000 B, Capital 85,000 The venture has still some unsold merchandise worth P10,850 which is to be taken by C. How much is the total interest of C? A. B. C. D.

P P P P

294,100 283,250 200,500 93,600

22. N, J, and B formed a joint venture on June 1, 2013. N acts as manager of the venture and is allowed a bonus of 25% of the profit after the bonus. J and B are to be allowed 6% interest on their original investments. The balance of the profit after bonus is to be divided equally. J and B contributed merchandise of P99,000 and P135,000 respectively. The venture sales on account amounted to P360,000. Sales discount of P1,875 were taken. Sales return amounted to P4,200 and P9,675 were written off. Venture expenses of P87,840 were paid. They decide to terminate the joint venture on August 31 and to charge unsold merchandise of P22,500 and P17,100 to J and B respectively. How much cash was received by J and B upon settlement? A. B. C. D.

P108,499 ; P138,249 P94,296 ; P137,256 P110,202 ; P152,682 P93,351 ; P135,291

23. On September 1, 2013 entities A and B each acquired 30% of the ordinary shares that carry voting rights at a general meeting of shareholders of entity Z for P950,000 and transaction cost of P12,500. Entities A and B immediately agreed to share control over entity Z. For the year ended December 31, 2013 entity Z recognized a profit of P1,200,000. On December 30, 2013, entity Z declared and paid a dividend of P105,000 for the year 2012. At December 31,2013 the fair value of each venturers’ investment in entity Z is P1,065,000 and cost to sell of P18,000. However, there is no published price quotation for entity Z. Under fair value model,

The amount of profit or loss to be reported by Entity A is: A. P116,000 B. P134,000

C. P31,500 D. P146,500

24. On March 1, 2013 entities X and Y each acquired 25% of the ordinary shares that carry voting rights at a general meeting of shareholders of entity C for P680,000. Transaction cost is 6% of the transaction price. Entities X and Y immediately agreed to share control over entity C. For the year ended December 31, 2013 entity C recognized a profit of P750,000. On December 30,2013 entity C declared and paid a dividend of P320,000 for the year 2013. On December 31, 2013 the fair value of each venturers’ investment in entity C is P840,000. Cost to sell is 4% of the fair value. However, there is no published price quotation for entity C. Assuming Entity X uses the equity model to account for its investment in entity C, How much is the investment in Dec. 31, 2013? A. P806,400 B. P840,000

C. P797,050 D. P828,300

25. On May 1, 2013 entities J and K each acquired 40% of the ordinary shares that carry voting rights at a general meeting of shareholders of entity F for P918,000. Transaction cost amount to P5,000. Entities J and K immediately agreed to share control over entity F. On December 31, 2013 entity F declared a dividend of P30,000 for the year 2013. Entity F reported a loss of P270,000 for the year ended December 31, 2013. On December 31, 2013 the fair value of investment is P862,500 and costs to sell is P9,000. There is a published price quotation for entity F. Assuming Entity K uses cost model to account for its investment. The amount of profit or loss to be reported by entity K is: A. P57,500 B. P14,500

C. P62,500 D. P48,500

26. RV, KP, and JM formed a joint venture during 2012 to sell school supplies. RV is assigned to manage the venture. The three of them agreed to divide profits and losses equally. After two months, the joint venture was terminated and there were unsold school supplies. RV’s trial balance contains the following: Dr(Cr) Joint Venture Cash P 297,500 Joint Venture 131,250 KP, Capital 78,750 JM, Capital (183,750)

JM received P194,250 as settlement for her interest in the venture while RV agreed to be charged for the unsold products. What is the cost of the unsold merchandise at the termination of the venture? A. P99,750 B. P105,000

C. P162,750 D. P31,500

27. QR Appliances sells home theatre set both on instalment and cash basis. Mr. X purchased a set from QR Appliances on March 30, 2013 for P367,500 which has a cost of P289,800. A used set is accepted as down payment, P89,600 being allowed on the trade in. The used set can be resold for P112,140 after reconditioning cost of P5,362. The company expects to make a 20% gross profit on the sale of used set. The balance of the sale is to be paid on a 10-month instalment basis starting May 1, 2013. Mr. X defaulted payment starting November 1, 2013 and the set was immediately reprocessed. The reprocessed merchandise was appraised at a value of P65,625 at the time of repossession. QR had to incur additional cost of repairs amounting to P6,475 before the car was subsequently resold on December 1, 2013 for P90,125 cash to Mr. Y. Compute for the net income to be recognized for the year 2012. A. P69,293 B. P51,415

C. P44,940 D. P68,243

For numbers 28-30, refer to the problem below: On July 1, 2012, Foundation Construction Corp. Contracted to build an office building for Western, Inc. For a total contract price of P3,900,000. Contract cost incurred to date Estimated costs to complete the contract Billings to Western, Inc.

2012 P300,000 2,700,000 600,000

2013 P2,400,000 1,600,000 2,200,000

2014 P4,200,000 1,100,000

28. How much is the Construction in Progress account balance at December 31, 2013, using the percentage of completion method? 29. How much is the Construction in Progress, net of Progress Billings at December 31, 2012, using the zero-profit method? 30. How much is the realized gross profit/(loss), using percentage of completion method in 2013? A. P2,300,000; P100,000; P(300,000) B. P2,390,000; P100,000; P(200,000) C. P2,300,000; P500,000; P(300,000) D. P2,300,000; P500,000; P(200,000)

31. AGC Inc., franchisor, entered into franchise agreement with AYZ Inc., franchisee on July 1, 2013. The initial franchise fees agreed upon is P5,950,000, of which P1,050,000 is payable upon signing and the balance to be covered by a non-interest bearing note payable in four equal annual instalments. It was agreed that the down payment is not refundable, notwithstanding lack of substantial performance of services by franchiser. Probability of collection is unlikely. The following expenses were incurred: Direct cost: Initial services, P1,645,000 and Continuing Services, P167,300. Indirect Cost: Initial Services, P448,000 and Continuing Services, P63,000. The management of AYZ has estimated that they can borrow loan at the rate of 12%. The franchise commenced its operations on July 31, 2013. Continuing franchise fee is equal to 5% of its monthly gross sales. AYZ reported gross sales of P6,650,000 for the month. When AGC prepares its financial statements on August 31,2013, How much is the net income to be reported? PV factor is 3.04. A. P342,370 B. P379,610

C. P416,850 D. P509,670

32. On July 10, 2013, PM Motors, which maintains a perpetual inventory records sold a new automobile to ANX for P1,700,000. The car costs the seller P1,301,250. The buyer paid 30% down and received P160,000 allowance for an old car traded, the balance being payable in equal monthly instalment payments. The monthly amortization amounts to P60,000 inclusive of 12% interest on the unpaid amount of the obligation. The car traded in has a wholesale value of P240,000 after expending the reconditioning cost of P45,000. After paying three instalments, the buyer suffered major financial setback incapacitating him to continue paying so the car was subsequently repossessed. When reacquired, the car was appraised to have a fair value of P600,000. How much is the realized gross profit on instalment sales during the year? A. P212,500 B. P213,899

C. P221,250 D. P205,149

33. Builders Corporation entered in a long term project in 2012 and continued through 2013. Builders Corp. presently has available dependable and reliable estimates. As of 2013, Builders billed 2/5 of the total contract price. Some other information about the project were as follows:

Construction cost to date Excess of Construction in Progress Over Billings – due from/ (due to) Contract Billings Collections from the contract Compute the percentage of completion rate as of 2012: A. 28% B. 12%

C. 36% D. 44%

2012 P148,750 38,750

2013 P420,000 (61,250)

145,000 135,000

612,500 437,500

34. TY restaurant sold a fastfood restaurant franchise to VJ. The sale agreement, signed on January 2013 called for a P100,000 down payment plus two P50,000 annual payments representing the value of initial franchise services rendered by TY restaurant. In addition, the agreement required the franchisee to pay 8% of its gross revenues to the franchisor. The restaurant opened early in 2013 and its sales for the year amounted to P750,000 Assuming a 12% interest rate is appropriate, TY’s 2013 total revenue will be (PV of annuity of P1 at 12% for two periods is 1.6901) A. P84,505 B. P244,505

C. P254,646 D. P266,646

35. Prestige Corporation began operations on July 1, 2013. The following information extracted from its records at year-end: Cost of instalment sales Cost of regular sales Mark-up on instalment sales Mark-up on regular sales Balances at December 31, 2013: Accounts Receivable Operating expenses Net Income

P546,875 525,000 140% of cost 33 1/3 on sales 367,500 398,125 170,625

A write-off of installment receivable amounting to P126,000 was made prior to the closing of 2013. What is the ending balance of installment receivable as of Dec. 31, 2013? A. P661,500 B. P787,500

C. P211,500 D. P114,625

36. On January 1, 2012, LMN Construction Corp. Began constructing a P10,500,000 contract. As of year-end, the following are relevant information provided by the corporation: 2012 2013 2014 Construction in Progress P 2,205,000 P 6,746,250 ? Estimated costs to complete 7,998,750 3,753,750 Costs Incurred 2,126,250 4,845,000 P 3,378,750

How much is the (1) realized gross profit(loss) in 2013 using the percentage of completion method and (2) realized gross profit(loss) in 2014 using zero profit method? A. P(146, 250) ; P291,750 B. P(303,750) ; P0

C. P(225,000), P375,000 D. P(303,750), P375,000

37. On August 1, 2013, HIJ Inc. Entered into a franchise agreement with IJK franchisee. The initial franchise fees agreed upon is P246,900, of which P46,900 is payable upon signing and the balance to be covered by a non-interest bearing note payable in four equal annual installments. The down payment is refundable within 95 days. IJK Inc. Has a high credit rating, thus, collection of the note is reasonably assured. Out-of-pocket costs of P125,331 and P12,345 were incurred for direct expenses and indirect expenses respectively. Prevailing market rate is 8%. PV factor is 3.2397. On the fiscal year ended October 31, 2013, How much revenue will the franchisor recognize? A. P6,131 B. 0

C. P161,985 D. P3,645

38. The following selected accounts appeared in the trial balance of Velocity Company as of December 31, 2013: Installment Receivable – 2012 sales Installment Receivable – 2013 sales Inventory, December 31, 2011 Purchases Freight in

P144,000 1,920,000 672,000 5,228,000 100,000

Loss on repossession Installment Sales Regular Sales Selling expenses

Additional Information: Installment receivable – 2012 sales, January 1, 2013-02-12 Inventory of new and repossessed merchandise as of January 1, 2014

P 15,840 4,080,000 3,696,000 1,104,000

P1,370,400 912,000

Mark-up on regular sales in 2013 is 10% lower than the gross profit percentage on installment sales in 2012. There was an installment account written-off amounting to P100,000 in 2013 pertaining to the 2013 sales. The write-off was made during the year and was recorded correctly. Repossession was made during the middle of the year and was recorded correctly. It was a 2012 sale and the corresponding uncovered cost is P44,640 ; related gross profit is P29,760.

What is the net income for 2013? A. P1,300,320 B. P1,170,560

C. P1,232,560 D. P1,286,400

39. Jpurney Cop. Enters into a contract with Terminal CO. To construct a 10-storey building for P8,000,000. The following data were taken from the corp’s files: 2013 2014 Costs incurred P 3,136,418 Percentage of completion 60% Estimated costs to complete P 6,004,024 3,091,616 Income recognized to date 98,994 162,576 What is the percentage of completion in 2012 of this conduction contract? A. 20% B. 35%

C. 40% D. 25%

40. On December 1, 2012, ZTE Inc. Authorized Fast Track Company to operate as a franchisee for an initial fee of P600,000. Of this amount, P240,000 was received upon signing the agreement and the balance, represented by a note, is due in three annual payments of P120,000 each beginning December 31, 2014. The present value on December 31, 2013, for three annual payment appropriately discounted a P288,000. According to the agreement, the non-refundable down payment represents a fair measure for the services already performed by the ZTE and substantial future services are still to be rendered. However, collectability of the note is reasonably certain. ZTE’s December 31, 2013 Statement of Financial Position should report unearned franchise fee from Fast Track Company in the amount of A. P528,000 B. P360,000

C. P400,000 D. P288,000