The Professional CPA Review School Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila (032) 735 8901 / 735 9031 Branch: Rudel Bldg. V, Lower Mabini cor Diego Silang, Baguio City (074) 304 2015 email add:
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PRACTICAL ACCOUNTING 2 HERMOSILLA/BN CASTUCIANO
RE
SOLUTION to Booklet 2 - INSTALLMENT, LTCC, FRANCHISE ACCOUNTING & HOME OFFICE QUIZZER: 1. Realized gross profit on installment sales during 2011: 2011 2010 Installment sales/Beginning bal. P500,000 P240,000 Less: Ending balance ( 80,000) ( 20,000) Default ( 5,000) ( 10,000) Collections P415,000 P210,000 Gross profit rate * x 38% x 40% P157,700 P 84,000 Realized gross profit on regular sales: Regular sales Cost of regular sales: Beginning inventory P 30,000 Add: Purchases 455,000 Repossessed merchandise 10,000 Available for sale P495,000 Less: Ending inventory ( 35,000) Total cost of sales P460,000 Less: Cost of installment sales ( 310,000) Total realized gross profit during 2011
2009 P50,000 ( 5,000) ( 8,000) P37,000 x 45% P16,650
P258,350
P192,000
( 150,000)
42,000 P 300,350
* Gross profit rates: 2011 = 500,000 – 310,000/500,000 = 38% 2010 = 96,000/240,000 = 40% 2009 = 22,500/50,000 = 45% 2. Total deferred gross profit as of December 31, 2011: 2011 = 80,000 x 38% P30,400 2010 = 20,000 x 40% 8,000 2009 = 5,000 x 45% 2,250 3. Repossessed value Unrecovered costs: 2011 – 5,000 x 62% 2010 – 10,000 x 60% 2009 – 8,000 x 55% Correct loss on repossession
P40,650
B
P10,000 P3,100 6,000 4,400
13,500 P 3,500
C
4. Total realized gross profit during 2011 Less: Loss on repossession Less: Operating expenses Operating loss 5. Cash P 25,000 Accounts receivable 40,000 Installment accounts receivable 105,000 Inventories 35,000 Other assets 52,000 Total assets P257,000 OR Total assets above Less: Deferred gross profit on installment sales (refer to no. 4) Total assets
P300,350 ( 3,500) (300,000) (P 3,150)
B
A P257,000 ( 40,650) P216,350 D
Note: Both are acceptable in accounting. Possible answers are A and D.
C
Practical Accounting 2
2
6. Point of sale: Repossessed value Installment account balance (P10,800 - P6,400) Loss on repossession Installment sale: Repossessed value Unrecovered cost (4,400 x 62.5%) Loss on repossession GP rate for 2010 (36/96) = 37.5%
P 2,000 4,400 P 2,400
D
P 2,000 ( 2,750) P 750
D
7. 2009 sales (30,000 x 42%) P 12,600 2010 sales (96,000 - 24,000 - 4,400) x 37.5% 25,350 2011 sales (300,000 - 130,000) x 20% 34,000 Total realized gross profit in 2011 P 71,950 Sales 2011: Gross profit P 60,000 GP to cost ÷ 25% Cost of sales P240,000 Add: Gross profit 60,000 P300,000 GP rate (60/300) = 20% 8. Repossessed value P 30,000 Unrecovered cost (45,000 x 70%) 31,500 Loss from repossession P 1,500 C 2010 sales (270,000 - 120,000 - 45,000) x 30% 2011 sales (600,000 - 390,000) x 40% 2012 sales (990,000 - 780,000) x 35% Total realized gross profit in 2012 2010 sales (120,000 x 30%) 2011 sales (390,000 x 40%) 2012 sales (780,000 x 35%) Total deferred gross profit at the end of 2012 GP rates for: 2010 (180/600) = 30% 2011 (324/810) = 40% 2012 (346.5/990) = 35% 9. Total sales reported both regular and installment Less: Regular sales: Collected charge accounts Uncollected balance Less: charge account beginning balance Installment sales during the year Total realized gross profit during 2014: Realized gross profit on installment sales: 2014 – 160,000 x 50% 2013 - 120,000 x 55% Realized gross profit on regular sales: Regular sales (see above) Cost of regular sales: Beginning inventory Add: Purchases Reported Merchandise repossessed Correct purchases Add: Repossessed inventory Available for sale Less: Ending inventory Total cost of sales Less cost of installment sales (400,000
B
P 31,500 84,000 73,500 P 189,000 P 36,000 156,000 273,000 P 465,000
C
P500,000 P96,000 20,000 ( 16,000)
( 100,000) P400,000 P80,000 66,000
P146,000
P100,000 P30,000 P258,000 ( 10,000)
x 50%)
248,000 8,000 P 286,000 ( 26,000) P 260,000 ( 200,000) P 60,000
40,000 P 186,000
Total realized gross profit before gain or loss on repossession 10. Total deferred gross profit as of December 31, 2014: 2013 sales – 60,000 x 55% P 33,000 2014 sales – 240,000 x 50% 120,000 11. Repossessed value
P 8,000
P 153,000
A
C
Practical Accounting 2
3
Unrecovered cost = 10,000 x 45% 4,500 Gain on repossession P 3,500 B 12. Installment sales in 2013: Principal collected Principal not yet collected: Notes receivable end P 810,000 Less: Discount on 2013 notes receivable ( 90,000) Total sales in 2013 Cost of installment sales for 2013 Gross profit rate (1,200 - 900/1,200) = 25% Realized gross profit in 2013 (25% x 480,000) P 120,000 B 13. Notes receivable beginning P 810,000 Notes receivable ending 540,000 Notes receivable collected P 270,000 Less: Discount collected (90,000 - 66,000) (24,000) Principal collected for 2013 sales P 246,000 Gross profit rate for 2013 x 25% Realized gross profit 2013 sales in 2014 P 61,500
720,000 P 1,200,000
A
14. Revenues - principal collected 2014 P 750,000 Less: Revenue - principal collected for 2013 sales (246,000) Revenue - principal collected for 2014 sales P 504,000 Gross profit rate 2014 x 30% Realized gross profit 2014 sales P 151,200 Sales 2014: Principal collected 2014 sales Principal not yet collected: Notes receivable ending Less: Discount on 2014 notes receivable Total sales 2014 Gross profit rate (1,320 - 924/1,320) = 30%
P 480,000
C
P 504,000 P 900,000 ( 84,000)
816,000 P 1,320,000
15. A LONG-TERM CONSTRUCTION CONTRACTS 1. Total Contract Price P 80,000,000 Total Estimated costs 2009 P 20,100,000 2010 30,150,000 2011 16,750,000 67,000,000 Estimated gross profit P 13,000,000 2011 gross profit: 16,750,000/67,000,000 x 13,000,000 = P 3,250,000 B 2. Gross profit realized (100 million x 25% x 50%)
P 12.5 million
3. Contract price (fixed) Total estimated cost Anticipated loss to date Add: Gross profit recognized in 2012: Contract price Total estimated cost Estimated gross profit Percentage of completion (2.3/6.9) Total loss recognized in 2011
P 7,500,000 7,800,000 (P 300,000) P 7,500,000 6,900,000 P 600,000 x 1/3
4. Gross profit to date: Contract price Total estimated costs (1,800,000 + 600,000) Estimated gross profit Percentage of completion (1.8/2.4) Less: Gross profit in prior year, 2010 Gross profit this year, 2011 5. Contract price (fixed) Total estimated costs: Cost incurred to date
( 200,000) (P 500,000)
P 3,000,000 ( 2,400,000) P 600,000 x 75%
C
P 450,000 ( 300,000) P 150,000
P 3,000,000 P 930,000
C
D
Practical Accounting 2
Add: Estimated cost to complete Gross profit (loss) recognized 6. Contract price Total estimated costs: Cost incurred to date Estimated costs to complete Total Estimated gross profit (loss) Percentage of completion (6/9 or 2/3) Gross profit (loss) recognized 7. Contract price Total estimated costs: Cost incurred during 2011 Estimated costs to complete Total Estimated gross profit (loss) Percentage of completion (240/360) Gross profit (loss) recognized
4 2,170,000
( 3,100,000) (P 100,000)
San Carlos P 10,500,000
Dagupan P 7,500,000
P 6,000,000 3,000,000 P 9,000,000 P 1,500,000 x 2/3 P 1,000,000
P 7,000,000 1,000,000 P 8,000,000 (P 500,000) x 100% (P 500,000)
Project 1 P 420,000
Project 2 P 300,000
P 240,000 120,000 P 360,000 P 60,000 x 2/3 P 40,000
P 280,000 40,000 P 320,000 (P 20,000) x 100% (P 20,000)
8. Contract price in 2012 (9,600,000 + 480,000) Total estimated costs: Cost incurred to date Estimated costs to complete Anticipated loss Less: Gross loss recognized in 2011: Contract price Total estimated costs: Cost incurred to date P 4,920,000 Estimated costs to complete 4,920,000 Loss recognized this year, 2012 9. Project 1: Contract price Total estimated costs: Costs incurred during 2013 P 450,000 Est. additional costs to complete 140,000 Gross loss during the year totally recognized Project 2: Contract price Total estimated costs: Costs incurred during 2013 P 126,000 Est. additional costs to complete 504,000 Estimated gross profit Percentage of completion (126/630 or 20%) Gross profit realized during the year Project 3: Contract price Total actual costs incurred Actual gross profit realized during the year Total income from construction recognized during the year
B Total
P 500,000
D
Total
P 20,000
B
P 10,080,000 P 8,640,000 2,160,000
10,800,000 (P 720,000)
P 9,600,000 9,840,000
( 240,000) (P 480,000)
B
P 560,000 590,000 P(30,000) P 670,000 630,000 40,000 x 20% 8,000 P 500,000 330,000 170,000 P 148,000
10. Contract price Total estimated costs Costs incurred P 12,000,000 Estimated costs to complete 48,000,000 Estimated gross profit Percentage of completion (12,000,000/60,000,000) Income from construction
P 80,000,000
11. Contract price – Quezon City Total costs incurred (3,500,000 + 1,240,000) Actual total gross profit Less: Gross profit recognized in prior years: Contract price P 4,800,000
P 4,800,000 4,740,000 P 60,000
60,000,000 P 20,000,000 x 20% P 4,000,000
A
D
Practical Accounting 2
5
Percentage of completion Contract revenue in prior years Costs incurred in prior years Gross loss recognized this year 2014 Contract price – Pampanga Percentage of completion Contract revenue recognized this year Costs incurred during the year Gross profit recognized during 2014 Total loss recognized during the year
x 75% P 3,600,000 3,500,000
(
100,000) P(40,000)
P 960,000 x 15% P 144,000 140,000 4,000 P(36,000)
12. Contract price Total estimated costs 2014: Cost incurred to date Estimated costs yet to be incurred Estimated gross profit, 2014 Percentage of completion 2014 (600,000/800,000) Gross profit to date 2014 Less: Gross profit 2013 Contract price Total estimated costs (320 + 480) Estimated gross profit 2013 Percent completed in 2013 (320/800) Gross profit recognized in 2014
P 1,000,000 P 600,000 200,000
P 1,000,000 ( 800,000) 200,000 x 40%
800,000 P 200,000 x 75% P 150,000
( P
80,000) 70,000
13. Cost incorrect January 10, 2012 through December 31, 2013 P 1,800,000 Estimated cost to complete, December 31, 2013 600,000 Total estimated cost P 2,400,000 Total percentage of completion as of December 31, 2013: 1,800,000/2,400,000 75% Less percentage of completion prior year Income recognized December 31, 2012 = P 300,000 Total estimated profit prior year (3,000,000 – 2,250,000) = P 750,000 Percentage of completion prior year (300,000/750,000) 40% Percent completed in 2013 35% 14. Contract price Total estimated costs Estimated (Actual) Profit (loss) Percentage of completion: 1,500,000/15,000,000 Recognized in full Gross profit to date Less: Gross profit(loss) prior year Gross profit(loss) during the year
2012 P 19,500,000 15,000,000 P 4,500,000 x
10%
P
450,000 450,000
P
C
C
C
2013 P 19,500,000 20,000,000 P( 500,000)
2014 P 19,500,000 21,000,000 P( 1,500,000)
x 100% P( 500,000) 450,000 P( 950,000)
x 100% P( 1,500,000) ( 500,000) P( 1,000,000)
C
FRANCHISE ACCOUNTING FRANCHISE ACCOUNTING 1.
2.
Franchise fees earned during the year: Initial franchise fee earned: Down payment Installments Continuing franchise fee (5% x 9 million)
P 100,000 303,735 450,000
P 853,735
Franchise fee earned during the year: Down payment (100,000/5) Continuing franchise fee (500,000 x 1%)
P 20,000 5,000
P 25,000
B
C
3.
Unearned franchise fee must be equal to the present value of installments because the franchisee has an option to cancel the franchise should the outlet prove to be unprofitable. 100,000/5 = 20,000 x 2.798 = P 55,964 D
4.
Franchise fee revenue must be P 0. The fee is still refundable because no services were performed yet by the franchisor. D
Practical Accounting 2
6
5.
The option is determined to be probable or certain. Therefore the answer must be D.
6.
B
7.
Down payment (21 x 30,000) Less: Default (2 additional payments) Unearned franchise fee, December 31, 2010
P 630,000 ( 20,000) P 610,000
Present value of franchise fee: Down payment Installments (10,000 x 2.91) Franchise revenue earned
P 20,000 29,100 P 49,100
8.
9.
10. 11. 12. 13. 14. 15.
C
B
Under the accrual method the franchise fee will be considered earned at December 31, 20x6. Therefore, the deferred franchise revenue must be zero. D
D B D D D A
HOME AND BRANCH ACCOUNTING
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
B C A C B C C C A A
11. 12. 13. 14. 15. 16. 17.
A B B C A D B
18. Total ending inventories of G Wholesale Company. Home office Branch office: From home office P 180,000 Shipments in transit (No. 5) 30,000 Total P 210,000 Less: Mark up (1/6 of 210) ( 35,000) P 175,000 From outsiders 20,000 19.
P 550,000
P 745,000
C
Branch account Home office account Unadjusted balance P 200,000 P 90,000 1) Furniture purchased by the branch ( 40,000) 2) Collection of branch accounts ( 20,000) 3) Remittance in transit ( 50,000) 4) Error on allocated expenses 10,000 5) Shipment in transit 30,000 Adjusted balance P 110,000 P 110,000
A
20. Correct sales Correct cost of sales: Beginning inventory (150,000 x 5/6) Add: Purchases from outsiders
195,000
P 950,000 P 125,000 240,000
Practical Accounting 2
Add: Shipments from home office at cost (450,000 + 30,000 x 5/6) Less: Ending inventory (refer to no. 2) Gross profit Less: Correct expenses (160,000 + 10,000) Correct net income of the branch 21. Beginning inventory: Home office P 700,000 Branch (refer to no. 3) 125,000 Add: Purchases: Home office P 2,900,000 Branch 240,000 Available for sale Less Ending inventory (refer to no. 2) Cost of sales of G Wholesale Company 22. Sales of the home office reported Less: Sales to branch (450,000 + 30,000) Correct sales of the home office Correct sales of the branch Total correct sales of the company
/reh
7 400,000 ( 195,000)
( 570,000) P 380,000 ( 170,000) P 210,000
P 825,000 3,140,000 P 3,965,000 ( 745,000) P 3,220,000
D
P 4,400,000 ( 480,000) P 3,920,000 950,000 P 4,870,000
C
B
