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PRACTICAL ACCOUNTING 2 RE
HERMOSILLA/BN CASTUCIANO
SOLUTION to Booklet 2 - INSTALLMENT, LTCC, FRANCHISE ACCOUNTING & HOME OFFICE

QUIZZER:

1. Realized gross profit on installment sales during 2011:

2011 2010 2009
Installment sales/Beginning bal. P500,000 P240,000 P50,000
Less: Ending balance ( 80,000) ( 20,000) ( 5,000)
Default ( 5,000) ( 10,000) ( 8,000)
Collections P415,000 P210,000 P37,000
Gross profit rate * x 38% x 40% x 45%
P157,700 P 84,000 P16,650 P258,350
Realized gross profit on regular sales:
Regular sales P192,000
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) ( 150,000) 42,000
Total realized gross profit during 2011 P 300,350 C

* 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 P40,650 B

3. Repossessed value P10,000

Unrecovered costs:
2011 5,000 x 62% P3,100
2010 10,000 x 60% 6,000
2009 8,000 x 55% 4,400 13,500
Correct loss on repossession P 3,500 C

4. Total realized gross profit during 2011 P300,350

Less: Loss on repossession ( 3,500)
Less: Operating expenses (300,000)
Operating loss (P 3,150) B

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 A
OR
Total assets above P257,000
Less: Deferred gross profit on installment sales (refer to no. 4) ( 40,650)
Total assets P216,350 D

Note: Both are acceptable in accounting. Possible answers are A and D.

Practical Accounting 2 2

6. Point of sale:
Repossessed value P 2,000
Installment account balance (P10,800 - P6,400) 4,400
Loss on repossession P 2,400 D
Installment sale:
Repossessed value P 2,000
Unrecovered cost (4,400 x 62.5%) ( 2,750)
Loss on repossession P 750 D
GP rate for 2010 (36/96) = 37.5%

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 B
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% P 31,500
2011 sales (600,000 - 390,000) x 40% 84,000
2012 sales (990,000 - 780,000) x 35% 73,500
Total realized gross profit in 2012 P 189,000 C
2010 sales (120,000 x 30%) P 36,000
2011 sales (390,000 x 40%) 156,000
2012 sales (780,000 x 35%) 273,000
Total deferred gross profit at the end of 2012 P 465,000
GP rates for:
2010 (180/600) = 30%
2011 (324/810) = 40%
2012 (346.5/990) = 35%

9. Total sales reported both regular and installment P500,000

Less: Regular sales:
Collected charge accounts P96,000
Uncollected balance 20,000
Less: charge account beginning balance ( 16,000) ( 100,000)
Installment sales during the year P400,000
Total realized gross profit during 2014:
Realized gross profit on installment sales:
2014 160,000 x 50% P80,000
2013 - 120,000 x 55% 66,000 P146,000
Realized gross profit on regular sales:
Regular sales (see above) P100,000
Cost of regular sales:
Beginning inventory P30,000
Add: Purchases
Reported P258,000
Merchandise repossessed ( 10,000)
Correct purchases 248,000
Add: Repossessed inventory 8,000
Available for sale P 286,000
Less: Ending inventory ( 26,000)
Total cost of sales P 260,000
Less cost of installment sales (400,000 x 50%) ( 200,000)
P 60,000 40,000
Total realized gross profit before gain or loss on repossession P 186,000 C

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 P 153,000 A

11. Repossessed value P 8,000

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 P 480,000
Principal not yet collected:
Notes receivable end P 810,000
Less: Discount on 2013 notes receivable ( 90,000) 720,000
Total sales in 2013 P 1,200,000
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 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 C

Sales 2014:
Principal collected 2014 sales P 504,000
Principal not yet collected:
Notes receivable ending P 900,000
Less: Discount on 2014 notes receivable ( 84,000) 816,000
Total sales 2014 P 1,320,000
Gross profit rate (1,320 - 924/1,320) = 30%

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 C

3. Contract price (fixed) P 7,500,000

Total estimated cost 7,800,000
Anticipated loss to date (P 300,000)
Add: Gross profit recognized in 2012:
Contract price P 7,500,000
Total estimated cost 6,900,000
Estimated gross profit P 600,000
Percentage of completion (2.3/6.9) x 1/3 ( 200,000)
Total loss recognized in 2011 (P 500,000) C

4. Gross profit to date:

Contract price P 3,000,000
Total estimated costs (1,800,000 + 600,000) ( 2,400,000)
Estimated gross profit P 600,000
Percentage of completion (1.8/2.4) x 75% P 450,000
Less: Gross profit in prior year, 2010 ( 300,000)
Gross profit this year, 2011 P 150,000 D

5. Contract price (fixed) P 3,000,000

Total estimated costs:
Cost incurred to date P 930,000
Practical Accounting 2 4
Add: Estimated cost to complete 2,170,000 ( 3,100,000)
Gross profit (loss) recognized (P 100,000) B

6. San Carlos Dagupan Total

Contract price P 10,500,000 P 7,500,000
Total estimated costs:
Cost incurred to date P 6,000,000 P 7,000,000
Estimated costs to complete 3,000,000 1,000,000
Total P 9,000,000 P 8,000,000
Estimated gross profit (loss) P 1,500,000 (P 500,000)
Percentage of completion (6/9 or 2/3) x 2/3 x 100%
Gross profit (loss) recognized P 1,000,000 (P 500,000) P 500,000 D

7. Project 1 Project 2 Total

Contract price P 420,000 P 300,000
Total estimated costs:
Cost incurred during 2011 P 240,000 P 280,000
Estimated costs to complete 120,000 40,000
Total P 360,000 P 320,000
Estimated gross profit (loss) P 60,000 (P 20,000)
Percentage of completion (240/360) x 2/3 x 100%
Gross profit (loss) recognized P 40,000 (P 20,000) P 20,000 B

8. Contract price in 2012 (9,600,000 + 480,000) P 10,080,000

Total estimated costs:
Cost incurred to date P 8,640,000
Estimated costs to complete 2,160,000 10,800,000
Anticipated loss (P 720,000)
Less: Gross loss recognized in 2011:
Contract price P 9,600,000
Total estimated costs:
Cost incurred to date P 4,920,000
Estimated costs to complete 4,920,000 9,840,000 ( 240,000)
Loss recognized this year, 2012 (P 480,000) B

9. Project 1:
Contract price P 560,000
Total estimated costs:
Costs incurred during 2013 P 450,000
Est. additional costs to complete 140,000 590,000
Gross loss during the year totally recognized P(30,000)
Project 2:
Contract price P 670,000
Total estimated costs:
Costs incurred during 2013 P 126,000
Est. additional costs to complete 504,000 630,000
Estimated gross profit 40,000
Percentage of completion (126/630 or 20%) x 20%
Gross profit realized during the year 8,000
Project 3:
Contract price P 500,000
Total actual costs incurred 330,000
Actual gross profit realized during the year 170,000
Total income from construction recognized during the year P 148,000 D

10. Contract price P 80,000,000

Total estimated costs
Costs incurred P 12,000,000
Estimated costs to complete 48,000,000 60,000,000
Estimated gross profit P 20,000,000
Percentage of completion (12,000,000/60,000,000) x 20%
Income from construction P 4,000,000 A

11. Contract price Quezon City P 4,800,000

Total costs incurred (3,500,000 + 1,240,000) 4,740,000
Actual total gross profit P 60,000
Less: Gross profit recognized in prior years:
Contract price P 4,800,000
Practical Accounting 2 5
Percentage of completion x 75%
Contract revenue in prior years P 3,600,000
Costs incurred in prior years 3,500,000 ( 100,000)
Gross loss recognized this year 2014 P(40,000)
Contract price Pampanga P 960,000
Percentage of completion x 15%
Contract revenue recognized this year P 144,000
Costs incurred during the year 140,000
Gross profit recognized during 2014 4,000
Total loss recognized during the year P(36,000) C

12. Contract price P 1,000,000

Total estimated costs 2014:
Cost incurred to date P 600,000
Estimated costs yet to be incurred 200,000 800,000
Estimated gross profit, 2014 P 200,000
Percentage of completion 2014 (600,000/800,000) x 75%
Gross profit to date 2014 P 150,000
Less: Gross profit 2013
Contract price P 1,000,000
Total estimated costs (320 + 480) ( 800,000)
Estimated gross profit 2013 200,000
Percent completed in 2013 (320/800) x 40% ( 80,000)
Gross profit recognized in 2014 P 70,000 C

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% C

14. 2012 2013 2014

Contract price P 19,500,000 P 19,500,000 P 19,500,000
Total estimated costs 15,000,000 20,000,000 21,000,000
Estimated (Actual) Profit (loss) P 4,500,000 P( 500,000) P( 1,500,000)
Percentage of completion:
1,500,000/15,000,000 x 10%
Recognized in full x 100% x 100%
Gross profit to date P 450,000 P( 500,000) P( 1,500,000)
Less: Gross profit(loss) prior year - 450,000 ( 500,000)
Gross profit(loss) during the year P 450,000 P( 950,000) P( 1,000,000) C

FRANCHISE ACCOUNTING FRANCHISE ACCOUNTING

1. Franchise fees earned during the year:

Initial franchise fee earned:
Down payment P 100,000
Installments 303,735
Continuing franchise fee (5% x 9 million) 450,000 P 853,735 B

2. Franchise fee earned during the year:

Down payment (100,000/5) P 20,000
Continuing franchise fee (500,000 x 1%) 5,000 P 25,000 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) P 630,000

Less: Default (2 additional payments) ( 20,000)
Unearned franchise fee, December 31, 2010 P 610,000 C

8. Present value of franchise fee:

Down payment P 20,000
Installments (10,000 x 2.91) 29,100
Franchise revenue earned P 49,100 B

9. Under the accrual method the franchise fee will be considered earned at December 31, 20x6. Therefore,
the deferred franchise revenue must be zero. D

10. D
11. B
12. D
13. D
14. D
15. A

HOME AND BRANCH ACCOUNTING

1. B 11. A
2. C 12. B
3. A 13. B
4. C 14. C
5. B 15. A
6. C 16. D
7. C 17. B
8. C
9. A
10. A

18. Total ending inventories of G Wholesale Company.

Home office P 550,000
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 20,000 195,000 P 745,000 C

19. 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 P 950,000

Correct cost of sales:
Beginning inventory (150,000 x 5/6) P 125,000
Add: Purchases from outsiders 240,000
Practical Accounting 2 7
Add: Shipments from home office at cost
(450,000 + 30,000 x 5/6) 400,000
Less: Ending inventory (refer to no. 2) ( 195,000) ( 570,000)
Gross profit P 380,000
Less: Correct expenses (160,000 + 10,000) ( 170,000)
Correct net income of the branch P 210,000 B

21. Beginning inventory:

Home office P 700,000
Branch (refer to no. 3) 125,000 P 825,000
Add: Purchases:
Home office P 2,900,000
Branch 240,000 3,140,000
Available for sale P 3,965,000
Less Ending inventory (refer to no. 2) ( 745,000)
Cost of sales of G Wholesale Company P 3,220,000 D

22. Sales of the home office reported P 4,400,000

Less: Sales to branch (450,000 + 30,000) ( 480,000)
Correct sales of the home office P 3,920,000
Correct sales of the branch 950,000
Total correct sales of the company P 4,870,000 C

/reh