Silver Construction Ltd recognizes gross profit of P80,000 in 2013 and P120,000 in 2014 using the percentage-of-completion method based on costs incurred. GPC Ltd recognizes gross profit of P150,000 in 2009 on contract #3814 using the percentage-of-completion method based on costs incurred and estimated costs to complete. Masikap Construction Co recognizes gross profit of P600,000 in 2010 and P840,000 in 2011 on a fixed-price construction contract using the percentage-of-completion method based on percentage of completion and estimated total costs.

1. ADFAR FIRST PREBOARD
1. Silver Construction Ltd uses the percentage-of-completion method, estimating the percentage of
completion on the cost-to-cost basis. In 2013, Silver Construction began work on a contract for
P1,200,000 and it was completed in 2014. Data on the costs are:
Year Ended 30 June
2013 2014
Costs incurred P400,000 P600,000
Estimated costs to complete 400,000 —
For the years 2013 and 2014, Silver Construction Ltd should recognize gross profit of
2013 2014
a. P0 P200,000
b. P80,000 P120,000
c. P160,000 P40,000
d. P200,000 P0
2. Rex Construction Company began operations on January 2011. During the year the company
entered into a contract with Lex Company to construct a manufacturing facility. At that time, Rex
estimates that it would take 10 years to complete the facility at a total cost of P3,000,000. The
total contract price for the construction of the facility is P5,000,000. During the year, the
company incurred P850,000 in construction costs related to the project. The estimated cost to
complete the contract is P2,550,000. Lex Company was billed 30% and paid 27% of the contract
price.
Using the percentage of completion, how much is the excess of Construction in Progress over
Progress Billings or Progress Billings over Construction in Progress?
a. P250,000 current asset
b. P250,000 current liability
c. P100,000 current asset
d. P100,000 current liability
3. In 2011, Makupad Corporation began construction work under a three-year contract. The
contract price is P4,200,000. Makupad uses the percentage-of-completion method for financial
accounting purposes. The income to be recognized each year is based on the proportion of
costs incurred to total estimated costs for completing the contract. The financial statement
presentations relating to this contract at December 31, 2011, follow:
Balance Sheet
Accounts receivable—construction contract billings P175,000
Construction in progress P525,000
Less contract billings 420,000
Costs and recognized profit in excess of billings 105,000
Income Statement
Income (before tax) on the contract recognized in 2011 P105,000
How much cash was collected in 2011 on this contract?
a. P175,000.
b. P245,000.
c. P35,000.
d. P420,000.
4. The following data pertained to KLM Company’s construction jobs, which commenced during
2011:
PROJECT 1 PROJECT 2
Contract Price P420,000 P300,000
Cost incurred during 2011 240,000 280,000
Estimated cost to complete 120,000 20,000
Billed to customers during 2011 150,000 270,000
Received from customers during 2011 90,000 250,000
If KLM company used the percentage of completion method, what amount of profit (loss) would
KLM Company report in its 2011 income statement?
a. P60,000 b. P20,000 c. P150,000 d. P40,000
5. The trustee for Talunan Corp. prepares a statement of affairs which shows that unsecured
creditors whose claims total P 540,000 may expect to receive approximately P 405,000 if assets
are sold for the benefit of creditors.
a. Norman Corp. holds a note for P22,500 on which interest of P1,350 is accrued, property
with a book value of P18,000 and a realizable amount of P 27,000 is pledged on the
note.
b. Eunice, an employee is owed P6,750 for his salary.
c. Aggy Corp. holds a note of P54,000 on which interest of P2,700 is accrued, securities with
a book value of P 58,500 and a realizable amount of P45,000 is pledged on the note.
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2. d. Gabo Corp. holds a note for P9,000 on which interest of P500 is accrued, nothing has
been pledged for the note.
How much may Norman Corp. and Eunice Corp. receive?
a. P 27,000 ; P5,063 c. P27,000 ; P6,750
b. P 23,850; P 5,063 d. P23,850; P6,750
6. Sodium Corporation has a normal gross profit on installment sales of 30%. A 2002 sale resulted
in a default early in 2010. At the date of default, the balance of the installment receivable was
P40,000, and the repossessed merchandise had a fair value of P22,500. Assuming the
repossessed merchandise is to be recorded at fair value, the gain or loss on repossession
should be
a. P0.
b. a P5,500 loss.
c. a P5,500 gain.
d. a P17,500 loss.
7. Santos Co. Sells heavy duty batteries, which cost P7,000 at a total installment price of
P12,000. A regular customer buys a unit and trades in his old unit for an allowance of P2,500.
Santos spends P250 to recondition each unit traded in and then sells them at P3,250 each. A
profit of 20% results from the sale of used batteries. What was the trade-in over(under)
allowance granted to the customer?
a. 150 over-allowance c. 500 over-allowance
b. 150 under allowance d. 500 under allowance
8.Marilag Co., which began operations on January 1, 2010, appropriately uses the installment-
sales method of accounting. The following information pertains to Marilag's operations for the
year 2010:
Installment sales P1,750,000
Regular sales 700,000
Cost of installment sales 1,050,000
Cost of regular sales 420,000
General and administrative expenses 140,000
Collections on installment sales 420,000
The deferred gross profit account in Marilag's December 31, 2010 balance sheet should be
a. P168,000.
b. P280,000.
c. P532,000.
d. P700,000.
9. On January 1, 2010, Jem Co. sold a used machine to Linn, Inc. for P210,000. On this date, the
machine had a depreciated cost of P147,000. Linn paid P30,000 cash on January 1, 2010 and
signed a P180,000 note bearing interest at 10%. The note was payable in three annual
installments of P60,000 beginning January 1, 2011. Jem appropriately accounted for the sale
under the installment method. Linn made a timely payment of the first installment on January
1, 2011 of P78,000, which included interest of P18,000 to date of payment. At December 31,
2011, Jem has deferred gross profit of
a. P42,000.
b. P39,600.
c. P36,000.
d. P30,600.
Use the following information for questions 10 and 11:
GPC Ltd began work in 2009 on contract #3814, which provided for a contract price of
P2,400,000. GPC uses the percentage-of-completion method of accounting. Other details
follow:
2009 2010
Costs incurred during the year P 400,000 P1,275,000
Estimated costs to complete, as at 30 June 1,200,000 0
Invoices during the year 450,000 1,950,000
Collections during the year 300,000 2,100,000
10. The amount gross profit to be recognized on contract #3814 in 2009 is
a. P150,000.
b. P200,000.
c. P100,000 loss.
d. P193,750.
11. Assume that GPC uses the completed-contract method of accounting. The amount gross
profit to be recognized on contract #3814 in 2010 is
a. P575,000.
b. P875,000.
c. P725,000.
d. P600,000.
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3. 12. Micah Builders, Inc. is using the completed-contract method for a P4,900,000 contract that
will take two years to complete. Data at December 31, 2010, the end of the first year, are:
Costs incurred to date P2,240,000
Estimated costs to complete 2,870,000
Billings to date 2,100,000
Collections to date 1,750,000
The gross profit or loss that should be recognized for 2010 is
a. P0.
b. a P210,000 loss.
c. a P105,000 loss.
d. a P92,400 loss.
13. Masikap Construction Co. has consistently used the percentage-of-completion method of
recognizing revenue. During 2010, Masikap entered into a fixed-price contract to construct an
office building for P12,000,000. Information relating to the contract is as follows:
At December 31
2010 2011
Percentage of completion 15% 45%
Estimated total cost at completion P9,000,000 P9,600,000
Gross profit recognized (cumulative) 600,000 1,440,000
Contract costs incurred during 2011 were
a. 2,880,000 b. 2,970,000 c. 3,150,000 d. 4,320,000
14. On January 1, 2010, Piston Co. sold a used machine to Acto, Inc. for P350,000. On this date,
the machine had a depreciated cost of P245,000. Acto paid P50,000 cash on January 1, 2010 and
signed a P300,000 note bearing interest at 10%. The note was payable in three annual
installments of P100,000 beginning January 1, 2011. Piston appropriately accounted for the sale
under the installment method. Acto made a timely payment of the first installment on January 1,
2011 of P130,000, which included interest of P30,000 to date of payment. At December 31, 2011,
Piston has deferred gross profit of
a. P70,000 b. P66,000 c. P60,000 d. P51,000
15. LBC Corporation filed a bankruptcy petition on January 2011. On March 1, 2011, the trustee
provided the following information about the corporation’s financial affairs:
Assets Book value Realizable Value
Cash P40,000 P40,000
Accounts receivable-net 200,000 150,000
Inventories 300,000 140,000
Plant assets-net 500,000 560,000
Total Assets P1,040,000
Liabilities
Liabilities for priority claims P160,000
Accounts payable-unsecured 300,000
Notes payable, secured by
Accounts receivable 200,000
Mortgage payable, secured by all
Plant assets 440,000
Total Liabilities P1,100,000
The expected recovery percentage of unsecured creditors:
a. 21.5% b. 41.5% c. 22.3% d. 40.0%
16. X and Y Inc., owes the Xylo Corporation P60,000 on account, which is secured by account
receivable with a book value of P50,000. The unsecured portion is considered a claim under
the bankruptcy law, X and Y has filed for bankruptcy. Its statement of affairs lists the
accounts receivable securing the Xylo account with an estimated realizable value of P45,000.
If the dividend general unsecured creditors are 80% how much can Xylo expect to receive?
a. P60,000 c. P57,000
b. P58,000 d. P48,000
17. Makati Exports Corp. sold metal crafts to a foreign firm for FC70,000 and pertinent information
on exchange conversion rates related to this transaction were as follows:
Conversion Rate
(Peso to FC)
November 04 Receipt of order P27.40
November 22 Date of Shipment 27.50
December 31 Balance sheet date 27.60
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4. January 06 Date of collection 27.00
The sale would be appropriately recorded at:
a. P1,890,000
b. P1,918,000
c. P1,925,000
d. P1,932,000
18. Certain balance sheet accounts of a foreign subsidiary of Roman, Inc., on December 31, 2010,
have been translated into Philippine peso as follows:
Translated at
Current Historical
Rates Rates
Note receivable, long term P240,000 P200,000
Prepaid rent 85,000 80,000
Patent 150,000 170,000
P475,000 P450,000
The subsidiary’s functional currency is the currency of the country in which it is located. What
total amount should be included in Roman’s December 31, 2010 consolidated balance sheet for
the above accounts?
a. P450,000
b. P455,000
c. P475,000
d. P495,000
19. Zamora and Co., Inc. purchased a Mustang automobile with a little cash down and signed a
note, secured by the Caddillac, for 48 easy monthly payment. When the company files for
bankruptcy, the balance due on the Mustang amount to P6,000,000. The car has a book value
of P8,000,000 and a net realizable value of P4,000,000. The unsecured creditors of Zamora and
Co. can expect to receive 50 percent of their claims. In the liquidation, the bank that holds the
note on the Mustang should receive:
a. 8 Million c. 4 Million
b. 6 Million d. 5 Million
Use the following information for questions 20 and 21:
On May 6, 2011, the statement of affairs of Ala-Pera Company, which is in bankruptcy
liquidation, included the following:
Assets pledged for fully secured liabilities…………….P120,000
(fair value, P110,000)
Assets pledged for partially secured liabilities………… 60,000
(fair value, P40,000)
Free Assets ……………………………………………. 120,000
Fully Secured liabilities ………………………………. 80,000
Partially secured liabilities ……………………………. 70,000
Unsecured liabilities with priority ……………………. 60,000
Unsecured liabilities without priority ………………… 90,000
20. The total estimated deficiency to unsecured creditors
a. 0
b. 40,000
c. 20,000
d. 30,000
21. The costs per peso that unsecured creditors may expect to receive from Ala-Pera Company
a. P0.90
b. P0.80
c. P0.67
d. P0.75
22. On October 1, 2010, Boni Co. purchased merchandise worth a total of 100,000 Swiss francs
from its Swiss supplier, payable within 30 days under an open account arrangement. Boni Co.
issued a 30-day, 6% note payable in Swiss francs. On October 31, 2010, Boni Co. paid the
note. The following information on spot rates (P/SF) is provided:
Buying Selling
October 01, 2010 P24.03 P24.15
October 31, 2010 24.10 24.22
Boni Co.’s foreign exchange gain or loss on the transaction is:
a. P 5,040 loss
b. P 7,000 loss
c. P12,075 gain
d. P19,110 loss
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5. 23. Paskin’s Corporation’s wholly-owned Canadian subsidiary has a Canadian dollar
functional currency. In translating its account balances into US dollars for
reporting purposes, which one of the following accounts would be translated at
historical exchange rates?
a. Accounts Receivable.
b. Notes Payable.
c. Capital Stock.
d. Retained Earnings.
Items 24 and 25 are based on the following information:
Wantai, Ltd. is a Philippine company in Taiwan. Wantai’s functional currency is the Taiwan
dollar (TWD). The following exchange rates were in effect during 2011:
Jan. 1 1 Php = TWD.625
June 30 1 Php = TWD.610
Dec. 31 1 Php = TWD.620
Weighted average rate for the year 1 Php = TWD.630
24. Wantai reported sales of TWD1,500,000 during 2011. What amount (rounded) would have
been included for this subsidiary in calculating consolidated sales?
a. P2,380,952. b. P2,400,000. c. P2,429,150. d. P2,419,355.
25. On December 31, Wantai had accounts receivable of TWD280,000. What amount (rounded)
would have been included for this subsidiary in calculating consolidated accounts receivable?
a. P444,444. b. P451,613. c. P142,600. d. P176,400.
26. Magneto Company began operations on January 2, 2009, and appropriately used the
installment sales method of accounting. The following data are available for 2009 and 2010:
2009 2010
Installment sales .......................... P3,000,000 P3,600,000
Gross profit on sales ...................... 30% 40%
Cash collections from:
2009 sales ............................... P1,000,000 P1,200,000
2010 sales ............................... -- P1,400,000
The realized gross profit for 2010 is
A a. P1,4
40,000.
b b. P1,040,000.
c c. P920,000.
d d. P780,000.
27. Shaggy Enterprises, which began operations on January 1, appropriately uses the installment
method of accounting. The following information is available for its first year:
Gross profit on sales ................................. 40%
Deferred gross profit at December 31 .................. P120,000
Cash collected, including down payments ............... P225,000
What is the total amount of Shaggy's installment sales for the first year?
a. P300,000
b. P345,000
c. P425,000
d. P525,000
28. Electro Marketing, which began operating on January 1, appropriately uses the installment
method of accounting. The following information pertains to Electro's operations for the first
year:
Installment sales ...................................... P1,000,000
Cost of installment sales .............................. 600,000
General and administrative expenses .................... 100,000
Collections on installment sales ....................... 200,000
The balance in the deferred gross profit account at December 31 should be
a. P400,000.
b. P320,000.
c. P240,000.
d. P200,000.
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6. 29. On May 1, 2009, Enviro Construction Company entered into a fixed-price contract to construct
an apartment building for P3,000,000. Enviro appropriately accounts for this contract under
the percentage-of-completion method. Information relating to the contract is as follows:
2009 2010
At December 31:
Percentage of completion ........ 20% 60%
Estimated costs at completion ... P2,250,000 P2,400,000
Income recognized (cumulative) .. P 150,000 P 360,000
What is the amount of contract costs incurred during the year ended December 31, 2010?
a. P600,000
b. P960,000
c. P990,000
d. P1,440,000
30. J & J Construction, Inc. has consistently used the percentage-of-completion method of
recognizing income. Last year J & J started work on a P4,500,000 construction contract, which
was completed this year. The accounting records disclosed the following data for last year:
Progress billings ..................................... P1,650,000
Costs incurred ........................................ 1,350,000
Collections ........................................... 1,050,000
Estimated cost to complete ............................ 2,700,000
How much income should J & J have recognized on this contract last year?
a. P105,000
b. P150,000
c. P300,000
d. P350,000
31. Cronus Co. Started operations on January 1, 2008, selling home appliances on installment
basis. For 2008 and 2009, the following information are available:
2008 2009
Installment Sales P1,200,000 P1,500,000
Cost of Installment sales 720,000 1,050,000
Collections
For 2008 sales 630,000 450,000
For 2009 sales 900,000
On January 6, 2010, an installment sales account balance of 2008 was defaulted and the
merchandise, with current market value of P15,000, was repossessed. The account balance
defaulted was P24,000.
The balance of the unrealized gross profit account as at the end of 2009 was
a. 214,800 b. 275,000 c. 228,000 d. 450,000
32. Dionysus Motor Co. Sells both new and used cars. On October 1, 2011, a new car which cost
P240,000, was sold for P330,000. A used car was accepted as down payment for a trade-in
allowance of P120,000, the balance payable in fifteen equal monthly installments starting
November 1, 2011. The company anticipated a resale price of P140,000 on the used car after
reconditioning costs of P15,000 (used car sales are set to yield a gross profit of 25%). During
2011, all installments were collected. Assuming revenue is recognized by the installment
method of accounting, the total gross profit realized in 2011 is
a. P20,000 b. P43,450 c. P23,600 d. P59,333
33. Hemera Enterprises started operations on October 1, 2006. The following information are
summarized for the first three months:
Installment Receivable, Dec. 31 P1,500,000
Deferred gross profit, Dec. 31 unadjusted 1,050,000
Gross profit on sales 25%
The realized gross profit on installment sales during the first three months amounted to
a. 675,000 b. 1,125,000 c. 810,000 d. 1,350,000
34. Erebus Co. Sells heavy duty batteries, which cost P7,000 at a total installment price of
P12,000. A regular customer buys a unit and trades in his old unit for an allowance of P2,500.
Erebus spends P250 to recondition each unit traded in and then sells them at P3,250 each. A
profit of 20% results from the sale of used batteries.
What was the trade-in over(under) allowance granted to the customer?
a. 150 over-allowance
b. 500 over-allowance
c. 150 under allowance
d. 500 under allowance
6

7. The following March information is available for Allen Manufacturing Company when it
produced 2,100 units:
Standard:
Material 2 pounds per unit @ P5.80 per pound
Labor 3 direct labor hours per unit @ P10.00 per hour
Actual:
Material 4,250 pounds purchased and used @ P5.65 per
pound
Labor 6,300 direct labor hours at P9.75 per hour
35. Refer to Allen Manufacturing. What is the material price variance?
a. P637.50 U
b. P637.50 F
c. P630.00 U
d. P630.00 F
36. Refer to Allen Manufacturing. What is the material quantity variance?
a. P275 F
b. P290 F
c. P290 U
d. P275 U
37. Refer to Allen Manufacturing. What is the labor rate variance?
a. P1,575 U
b. P1,575 F
c. P1,594 U
38. What is the labor efficiency variance?
a. P731.25 F
b. P731.25 U
c. P750.00 F
d. none of the answers are correct
39. Vulcan Co., uses the percentage of completion method. In May 2010, the company began work
on a project that has a contract price of P5,000,000. At the end of 2011, a summary of the
company’s cost data follows:
2010 2011
Cost incurred to date P1,125,000 P3,825,000
Estimated cost to complete 3,375,000 1,275,000
Total estimated cost P4,500,000 P5,100,000
In its income statement for the year 2011, the company would recognize a gross
profit(loss) of
a. (P100,000) b. (P200,000) c. P125,000 d. d. (P225,000)
40. Troy Construction Co. uses the percentage-of-completion method. In 2007, Troy began work
on a contract for P5,500,000; it was completed in 2008. The following cost data pertain to this
contract:
Year Ended December 31 2007 2008
Cost incurred during the year P1,950,000 P1,400,000
Estimated costs to complete at the end of year 1,300,000 —
The amount of gross profit to be recognized on the income statement for the year ended December
31, 2008 is
a. P800,000 b. P860,000 c. P900,000 d. P2,150,000
41. Chronos Furniture uses the installment-sales method. No further collections could be made on
an account with a balance of P18,000. It was estimated that the repossessed furniture could
be sold as is for P5,400, or for P6,300 if P300 were spent reconditioning it. The gross profit
rate on the original sale was 40%. The loss on repossession was
a. P4,800 b. P4,500 c. P12,000 d. P12,600
42. Tartarus Company sold some machinery to Selene Company on January 1, 2007. The cash
selling price would have been P568,620. Selene entered into an installment sales contract
which required annual payments of P150,000, including interest at 10%, over five years. The
first payment was due on December 31, 2007. What amount of interest income should be
included in Tartarus's 2009 income statement (the third year of the contract)?
a. P15,000 b. P47,548 c. P30,000 d. P37,303
43. On January 1, 2007, Triton Co. sold a used machine to Helios, Inc. for P350,000. On this date,
the machine had a depreciated cost of P245,000. Helios paid P50,000 cash on January 1, 2007
7

8. and signed a P300,000 note bearing interest at 10%. The note was payable in three annual
installments of P100,000 beginning January 1, 2008. Triton appropriately accounted for the sale
under the installment method. Helios made a timely payment of the first installment on January
1, 2008 of P130,000, which included interest of P30,000 to date of payment. At December 31,
2008, Triton has deferred gross profit of
a. P70,000. b. P66,000. c. P60,000. d. P51,000.
Use the following information for questions 44 to 50:
 On January 1, 2012 SME J and SME K each acquired 25% of the equity of entities L, M, and N
for P32,000, P29,000, and P18,500, respectively. SME J and SME K have joint control over the
strategic financial and operating decisions of entities L, M, and N. Transaction costs of 2% of
the purchase price of the shares were incurred by SME J and SME K.
 On December 31, 2012 Entity L declared dividends of P4,500 and Entity M, P7,500 for the year
2012. These dividends are to be paid by L and M in 2013.
 For the year ended December 31, 2012, entities L and M recognized profits of P15,000 and
P21,000, respectively. However, entity N recognized a loss of P10,000 for that year.
 Published price quotations do no exist for the shares or entities L, M, and N. using appropriate
valuation techniques the venturers determined the fair value of each of their investments in
entities L, M, and N at December 31, 2012 as P35,000, P32,500, and P13,500, respectively.
Costs to sell are estimated at 5% of the fair value of the investments. Neither SME J nor SME K
prepares consolidated financial statements because they do not have any subsidiaries.
44. What is the profit (loss) to be recognized by SME K in 2012 from entity L under the fair
value method?
a. P4,125 c. P3,485 e. answer not given
b. P3,000 d. P1,125
45. What is the profit (loss) to be recognized by SME J in 2012 from entity N using the fair value
model?
a. P(5,000) c. P(7,500) e. answer not given
b. P(5,370) d. P( 370)
46. What is the profit (loss) to be recognized by SME J in 2012 from entity M using the cost
model?
a. P 3,750 c. P 2,590 e. answer not given
b. P 4,900 d. P (1,160)
47. What is the profit (loss) to be recognized by SME K in 2012 from entity L using the cost
model?
a. P 1,125 c. P (640) e. answer not given
b. P 485 d. P 3,750
48. What is the profit (loss) to be recognized by SME K in 2012 from entity L using the equity
model?
a. P5,140 c. (P690) e. answer not given
b. P3,470 d. P 4,875
49. What is the profit (loss) to be recognized by SME J in 2012 from entity N using the equity
model?
a. P 3,750 c. P(6,045) e. answer not given
b. P 5,250 d. P( 2,500)
50. What is the investment balance of SME K at the end of 2012 in entity N under the cost
model?
a. P12,825 c. P29,580 e. answer not given
b. P13,500 d. P18,870
8