FOREIGN CURRENCY TRANSACTIONS

FOREIGN CURRENCY TRANSACTIONS

DEFINITIONS OF TERMS

Conversion. The exchange of one currency for another.

Current exchange rate. The rate at which one unit of a currency can be exchanged for (converted into) another currency. For purposes of translation of financial statements, the current exchange rate is the rate at the end of the period covered by the financial statements or at the dates of recognition in those statements with respect to revenues, expenses, gains, and losses.

Foreign currency. A currency other than the functional currency of the reporting entity being referred to (for example, the Philipine peso could be a foreign currency for a foreign entity).

Foreign currency transactions. Transactions whose terms are denominated in a currency other than the reporting entity’s functional currency. Foreign currency transactions arise when an enterprise (1) buys or sells goods or services on credit whose prices are denominated in foreign currency, (2) borrows or lends funds and the amounts payable or receivable are denominated in foreign currency, (3) is a party to an unperformed forward exchange contract, or (4) for other reasons, acquires or disposes of assets or incurs or settles liabilities denominated in foreign currency.

Functional currency. The currency of the primary economic environment in which the entity operates; normally, the currency of the environment in which the entity primarily generates and expends cash.

Local currency. The currency of a particular country being referred to.

Monetary items. Cash, claims to receive a fixed amount of cash, and obligations to pay a fixed amount of cash.

Non-monetary items. All statement of financial position items other than cash, claims to cash, and cash obligations.

Reporting currency. The currency used by the entity to prepare its financial statements.

Spot rate. The exchange rate for immediate delivery of currencies exchanged.

Transaction date. The date on which a transaction (for example, a sale or purchase of merchandise or services) is recognized in accounting records in conformity with generally accepted accounting principles. A long-term commitment may have more than one transaction date (for example, the due date of each progress payment under a construction contract is an anticipated transaction date).

Transaction gain or loss. Transaction gains or losses result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated. They represent an increase or decrease in (1) the actual functional currency cash flows realized upon settlement of foreign currency transactions and (2) the expected functional currency cash flows on unsettled foreign currency transactions.

Rules for translating FOREIGN CURRENCY TRANSACTIONS (FCT) into the entity’s FUNCTIONAL CURRENCY:

a.       A FCT shall be recorded, on initial recognition the functional currency, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

b.      At each balance sheet date the foreign currency monetary item shall be adjusted to conform with the closing rate (the spot rate at the balance sheet date), which same adjustment is recognized as foreign exchange gain or foreign exchange loss, as the case maybe, and carried to current income determination even though such gain or loss is unrealized.

c.       At the date of settlement, any difference between the book carrying value of the foreign currency monetary item (established at the most recent balance sheet date) and the functional currency amount is recognized either as a foreign exchange gain or loss, as the case maybe, and carried to current income determination. The functional currency amount is calculated by applying to the foreign currency amount the spot exchange rate at the date of the settlement.        

Problem 1 (Importing transaction)

                Bacoor Corporation is a Philippine company in the Cavite area. Its functional currency is the Philippine peso.

 On December 10, 2019, Bacoor purchased equipment from an European Company invoiced at Euro50,000, to be settled on  February 28, 2020. The exchange rates between the euro currency and the peso at various dates follow:

      December 10, 2019                                        P         60.00

      December 31, 2019 (year-end)                            60.10

      February 28, 2020                                                      60.15

Required:

(a)    Prepare all pertinent entries for the above financial information.

(b)   At what amounts will the (1) Equipment? P_____  and (2) the Accounts payable? P_____

be shown on the 2019 balance sheets?

Answer:

(a)    Journal Entries:

Dec 10       Equipment                          P 3,000,000

                                     Accounts Payable            P 3,000,000

                     (Euro50,000 x 60)

Dec 31       Forex Loss                           P 5,000

                                     Accounts Payable            P 5,000

                     (Euro50,000 x (60.10 – 60))

Feb 28       Forex Loss                           P2,500

                     Accounts Payable            3,005,000

                                     Cash                                      P3,007,500

                     (Loss: Euro50,000 x (60.15 – 60.10))

                     (Cash: Euro50,000 x 60.15)

(b1) Equipment                     P3,000,000

(b2) Accounts Payable        P3,005,000         

 Problem 2 (Exporting transaction)

Tagaytay Enterprises, a Philippine exporter sells rattan baskets to an Australian importer that will pay AUD15,000. Tagaytay does not require immediate payment and allows its foreign buyer 90 days to pay for its purchases. Tagaytay shipped the goods on December 1, 2019, with payment to be received on March 1, 2020.

The following are the exchange rates between the Australian Dollar and the Philippine peso at pertinent dates:

      December 1, 2019                                                      AUD1: P46.30

      December 31, 2019 ( year-end)                           AUD1: P46.34

      March 1, 2020                                                              AUD1: P46.28

Required:

(a)    Prepare all pertinent journal entries for the above information in the books of Tagaytay Enterprises.

(b)   At what amounts will any foreign exchange gain/ (loss) be shown on the (1) 2019 income, statement P_______________ and on the (2) 2020 income statement P__________________.?

Answer:

(a)    Journal Entries:

Dec 1          Accounts Receivable                      P 694,500

                                     Sales                                                      P 694,500

                     (AUD15,000 x 46.30)

Dec 31       Accounts Receivable                      P 600

                                     Forex Gain                                          P 600

                     (AUD15,000 x (46.34 – 46.30))

Mar 1         Forex Loss                           P 900

                     Cash                                      694,200

                                     Accounts Receivable                                      P695,100

                     (Loss: AUD15,000 x (46.28 – 46.34))

                     (Cash: AUD15,000 x 46.28)

(b1) 2019 Forex Gain                           P 600

(b2) 2020 Forex Loss                           P 900

Problem 3 (Investment in Foreign Trading Securities)

Naic Company is a Philippine corporation doing in business in the Bacolod City area. On October 1, 2019 Naic purchased 1,500 shares of Nigger, Inc. (a listed company in the United states of America) at a price of USD80 per share. Naic classified the investment as trading securities. The PHL peso/ US dollar exchange rates on October 1, 2019 and December 31, 2019 were P50.20 and P50.25, respectively. The price of Nigger, Inc. shares at December 31, 2019 was USD100 each.

Required: Prepare all pertinent entries for the above financial information.

Answer:

Journal Entries:

Oct 1          Investment in Nigger Shares                       P 6,024,000

                                     Cash                                                                      P 6,024,000

                     (1,500 shares x USD80 x 50.20)

Dec 31       Investment in Nigger Shares                       P 1,513,500

                                     FV Gain                                                                                P1,507,500

                                     Forex Gain                                                          6,000

                     (AUD15,000 x (46.34 – 46.30))

Shares: (1,500 shares x USD100 x P50.25) – 6,024,000

FV Gain (1,500 shares x USD20 x P50.25)

Forex Gain [(1,500 shares x USD80) x .05]

FOREX PROBLEM

FOREX PROBLEM

On April 4, 2010, OBAMA Co. Products delivered to a Pakistan firm inventory it sold for 100,000 rupees. Payment is due to be received on August 2, 2010. The company’s fiscal year ends June 30. Also on April 4, OBAMA Products entered into a foreign exchange forward to sell 100,000 rupees on August 2, 2010.

	4 / 4/ 10	6 / 30 / 10	8 / 2 / 10
Spot rate (rupees)	P.80	P.84	P.82
Forward rate (rupees)……	.77	.83	.82

1. The June 30, 2010 profit and loss statement, foreign exchange gain or loss due to sale of inventory amounted to:

A. P6,000 gain                  B. P6,000 loss             C. P4,000 gain              D. P4,000 loss

2. The June 30, 2010 profit and loss statement, foreign exchange gain or loss due to hedging instrument:

A. P4,000 loss                   B. P4,000 gain            C. P6,000 loss             D. P6,000 gain

3. The June 30, 2010 net foreign exchange gain/loss in the profit and loss statement amounted to:        

     A. P -0-           B. P3,000 net gain      C. P2,000 net gain              D. P2,000 net gain

4. What amount will OBAMA disclose as the fair value of the forward contract on June       30,2010?

A. P0                     B. P4,000             C. P6,000               D. P 80,000

5. On settlement date, August 2, 2010 foreign exchange gain or loss due to forward contract/hedging instrument:

A. P1,000 gain                  B. P1,000 loss             C. P2,000 gain            D. P5,000 loss

6. What amount will OBAMA’ s fair value of the forward contract on August 2, 2010?

A. P1,000                     B. P5,000         C. P82, 000          D. P83,000

LTCC, INSTALLMENT SALES, FRANCHISE

LTCC, INSTALLMENT SALES, FRANCHISE

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____    1.         Which of the following best describes the condition(s) that must be present for the recognition of revenue?

a.	The revenue must be earned, measurable, and collected.
b.	The revenue must be earned, measurable, and collectible.
c.	The revenue must be earned and collectible.
d.	The revenue must be measurable and collectible.

____    2.         Dilla Construction Company's projects extend over several years and collection of receivables is reasonably certain. Each project has a contract that specifies a price and the rights and obligations of all parties. Both the contractor and the customer are expected to fulfill their contractual obligations on each project. Reliable estimates can be made of the extent of progress and cost to complete each project. The method that the company should use to account for construction revenue is

a.	installment sales.
b.	percentage-of-completion.
c.	completed-contract.
d.	cost recovery.

____    3.         How should the balances of Progress Billings and Construction in Progress be shown at reporting dates prior to the completion of a long-term contract?

a.	Progress Billings as income, Construction in Progress as inventory.
b.	Net, as income from construction if credit balance, and loss from construction if debit balance.
c.	Progress Billings as deferred income, Construction in Progress as a current asset.
d.	Net, as a current asset if debit balance and current liability if credit balance.

____    4.         If the percentage-of-completion method is used, what is the basis for determining the gross profit to be recognized in the second year of a three-year contract?

a.	Cumulative actual costs incurred only.
b.	Incremental cost for the second year only.
c.	Cumulative actual costs and estimated costs to complete.
d.	No gross profit would be recognized in year 2.

____    5.         If the completed-contract method is used, what is the basis for determining the income to be recognized in the second year of a three-year contract?

a.	Cumulative actual costs incurred only.
b.	Incremental cost for the second year only.
c.	Latest available estimated costs.
d.	No income would be recognized in year 2.

____    6.         Which of the following would be used in the calculation of the gross profit recognized in the third and final year of a construction contract that is accounted for using the percentage-of-completion method?

	Actual			Income
	Contract		Total	Previously
	Price		Costs	Recognized
a.		Yes           Yes            No
b.		Yes           Yes            Yes
c.		Yes           No             Yes
d.		No            Yes            Yes

____    7.         The installment method of recognizing revenue

a.	should be used only in cases in which no reasonable basis exists for estimating the collectibility of receivables.
b.	is not a generally accepted accounting principle under any circumstances.
c.	should be used for book purposes only if it is used for tax purposes.
d.	is an acceptable alternative accounting principle for a firm that makes installment sales.

____    8.         Assume the percentage-of-completion method of revenue recognition is used on a long-term construction contract. Under this method, revenues that are earned but unbilled at the balance sheet date should be disclosed

a.	as a long-term receivable in the noncurrent assets section of the balance sheet.
b.	only as a footnote disclosure until the customer is billed for the percentage of work completed.
c.	as construction in progress in the current assets section of the balance sheet.
d.	as construction in progress in the noncurrent assets section of the balance sheet.

____    9.         When using the installment sales method,

a.	gross profit is deferred until all cash is received, but revenues and costs are recognized in proportion to the cash collected from the sale.
b.	gross profit is recognized only after the amount of cash collected exceeds the cost of the item sold.
c.	revenue, costs, and gross profit are recognized proportionally as the cash is received from the sale of product.
d.	total revenues and costs are recognized at the point of sale, but gross profit is deferred in proportion to the cash that is uncollected from the sale.

____    10.       The completed-contract method of accounting for long-term construction-type contracts is preferable when

a.	a contractor is involved in numerous projects.
b.	the contracts are of a relatively long duration.
c.	estimates of costs to complete and extent of progress toward completion are reasonably dependable.
d.	there are inherent uncertainties in the contract beyond normal business risks.

____    11.       Which of the following is not a difference between the percentage-of completion and completed-contract methods of accounting for long-term construction contracts?

a.	They report different amounts for inventory during the construction period.
b.	They report different amounts for progress billings during the construction period.
c.	They cause a different cash inflow during the construction period.
d.	They report different amounts for accounts receivable during the construction period.

____    12.       The theoretical support for using the percentage-of-completion method of accounting for long-term construction projects is that it

a.	is more conservative than the completed-contract method.
b.	reports a lower Net Income figure than the completed-contract method.
c.	more closely conforms to the cost principle.
d.	produces a realistic matching of expenses with revenues.

____    13.       If a company uses the completed-contract method of accounting for long-term construction contracts, then during the period of construction, financial information related to a long-term contract will

a.	appear on both the income statement and balance sheet during the construction period.
b.	appear only on the income statement during the period of construction.
c.	appear only on the balance sheet during the period of construction.
d.	not appear on the financial statements.

____    14.       When the percentage-of-completion method of accounting for long-term construction projects is used, why is Construction in Progress increased by the annual recognized gross profit on long-term construction contracts?

a.	The cost of the contract has increased.
b.	The project's value has increased above cost.
c.	The economy experiences inflation over the construction period.
d.	Construction in Progress is not increased by the annual recognized profit.

____    15.       When comparing the percentage-of-completion and completed-contract methods of accounting for long-term construction contracts, both methods will report

a.	the same balances each period in the Progress Billings account.
b.	the same expense for cost of construction each year.
c.	the same amount of income in the year of completion.
d.	the same inventory carrying value each year during the construction period.

____    16.       The cost recovery method

a.	is used only when circumstances surrounding a sale are so uncertain that earlier recognition is impossible.
b.	is the most common method of accounting for real estate sales.
c.	is similar to percentage-of-completion accounting.
d.	is never acceptable under generally accepted accounting principles.

____    17.       Franchise fees are properly recognized as revenue

a.	when received in cash.
b.	when a contractual agreement has been signed.
c.	after the franchise business has begun operations.
d.	after the franchiser has substantially performed its service.

____    18.       Goods on consignment should be included in the inventory of

a.	the consignor but not the consignee.
b.	both the consignor and the consignee.
c.	the consignee but not the consignor.
d.	neither the consignor nor the consignee.

____    19.       In accounting for sales on consignment, sales revenue and the related cost of goods sold should be recognized by the

a.	consignor when the goods are shipped to the consignee.
b.	consignee when the goods are shipped to the third party.
c.	consignor when notification is received the consignee has sold the goods.
d.	consignee when cash is received from the customer.

____    20.       A company uses the percentage-of-completion method to account for a four year construction contract. Progress billings sent in the second year that were collected in the third year would

a.	be included in the calculation of the income recognized in the second year.
b.	be included in the calculation of the income recognized in the third year.
c.	be included in the calculation of the income recognized in the fourth year.
d.	not be included in the calculation of the income recognized in any year.

____    21.       In accounting for a long-term construction contract for which there is a projected profit, the balance in the Construction in Progress account at the end of the first year of work using the percentage-of-completion method would be

a.	zero.
b.	the same as the completed-contract method.
c.	higher than the completed-contract method.
d.	lower than the completed-contract method.

____    22.       On May 1, 2009, Green Construction Company entered into a fixed-price contract to construct an apartment building for P3,000,000. Green 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

____    23.       C & J Construction, Inc. has consistently used the percentage-of-completion method of recognizing income. Last year C & 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 C & J have recognized on this contract last year?

a.	P105,000
b.	P150,000
c.	P300,000
d.	P350,000

____    24.       Jessup Construction, Inc. has consistently used the percentage-of-completion method of recognizing income. During 2009, Jessup started work on a P1,500,000 fixed-price construction contract. The accounting records disclosed the following data for the year ended December 31, 2009:

Costs incurred ........................................	P  465,000
Estimated cost to complete ............................	1,085,000
Progress billings .....................................	550,000
Collections ...........................................	350,000

How much loss should Jessup have recognized in 2009?

a.	P15,000
b.	P35,000
c.	P50,000
d.	P115,000

____    25.       Shepard Construction Company has consistently used the percentage-of- completion method. On January 10, 2009, Shepard began work on a P3,000,000 construction contract. At the inception date, the estimated cost of construction was P2,250,000. The following data relate to the progress of the contract:

Gross profit recognized at December 31, 2009 ..........	P  300,000
Costs incurred Jan. 10, 1999, through Dec. 31, 2010 ...	1,800,000
Estimated cost to complete at December 31, 2010 .......	600,000

How much gross profit should Shepard recognize for the year ended December 31, 2010?

a.	P150,000
b.	P262,500
c.	P300,000
d.	P450,000

____    26.       For a construction firm using the completed-contract method, if costs exceed billings on some contracts by P1,000,000 and billings exceed costs by P800,000 on others, the contracts should ordinarily be reported as a

a.	current asset of P200,000.
b.	current liability of P200,000.
c.	current asset of P1,000,000 less a contra-current asset of P800,000.
d.	current asset of P1,000,000 and a current liability of P800,000.

____    27.       Salmon Construction Company uses the percentage-of-completion method of accounting. In 2009, Salmon began work on a project which had a contract price of P1,600,000 and estimated costs of P1,200,000. Additional information is as follows:

	2009	2010
Costs incurred during the year ............	P240,000	P1,060,000
Estimated costs to complete, as of   12/31/09 ................................	960,000
Billings during the year ..................	290,000	1,310,000
Collections during the year ...............	250,000	1,200,000

The amount of gross profit Salmon should recognize on this contract during 2009 is

a.	P40,000.
b.	P80,000.
c.	P100,000.
d.	P200,000.

____    28.       Brown Construction Company uses the percentage-of-completion method for long-term construction contracts. A specific job was begun in 2009 and completed in 2011. The contract price was P1,400,000 and cost information as of each year-end is given below:

	2009	2010	2011
End of year estimated cost to   complete ......................	P400,000	P200,000	P      0
Annual cost incurred ............	400,000	400,000	120,000

Assuming Brown correctly recorded gross profit in 2009, how much gross profit should the company record in 2010?

a.	P0
b.	P20,000
c.	P300,000
d.	P320,000

____    29.       The following data relate to a construction job started by Worthington Co. during 2009:

Total contract price ..................................	P300,000
Actual costs incurred during 2009 .....................	60,000
Estimated remaining costs .............................	120,000
Billed to customer during 2009 ........................	90,000
Received from customer during 2010 ....................	30,000

Under the completed-contract method, how much should Worthington recognize as gross profit for 2009?

a.	P0
b.	P30,000
c.	P40,000
d.	P90,000

____    30.       The following data relate to a construction job started by Worthington Co. during 2009:

Total contract price ..................................	P300,000
Actual costs incurred during 2009 .....................	60,000
Estimated remaining costs .............................	120,000
Billed to customer during 2009 ........................	90,000
Received from customer during 2009 ....................	30,000

Under the percentage-of-completion method, how much should Worthington recognize as gross profit for 2009?

a.	P0
b.	P40,000
c.	P80,000
d.	P100,000

____    31.       Rainbow Construction Company uses the percentage-of-completion method for long-term construction contracts. The company started a project with a contract price of P2,750 in 2009. Given the following data, what is the balance in Construction in Progress for this contract at the end of 2009?

	2009	2010
Costs incurred this year ..................	P  400	P  500
Total estimated costs remaining at end   of year .................................	1,600	1,000

a.	P150
b.	P400
c.	P550
d.	P1,750

____    32.       Lake Construction Company uses the percentage-of-completion method for long-term construction contracts. The company has a project with a contract price of P7,000 on which P600 of gross profit has been recognized in prior years. Information for the current year is as follows:

Total cost incurred through current year ...............	P5,000
Estimated costs remaining at end of current year .......	2,800

What is the loss that Lake should recognize in the current year?

a.	P600
b.	P800
c.	P1,400
d.	No loss should be recognized.

____    33.       Brooke Company began operations on January 1, 2009, and uses the installment sales method of accounting. The company has the following information available for 2009 and 2010:

	2009	2010
Installment sales .........................	P4,500,000	P5,400,000
Gross profit on sales .....................	30%	40%
Cash collections on 2009 sales ............	1,500,000	3,600,000
Cash collections on 2010 sales ............		4,200,000

The realized gross profit for 2010 would be

a.	P1,680,000.
b.	P2,760,000.
c.	P3,120,000.
d.	P4,320,000.

____    34.       Lake Construction Company uses the completed-contract method for long-term construction contracts. The information for a specific contract as of January 1, 2009, is shown below.

Costs incurred to date ................................	P  700,000
Contract price ........................................	2,000,000
Estimated remaining cost to complete ..................	800,000

P600,000 of cost was incurred during 2009 and on December 31, 2009, the estimated remaining cost to complete was still P800,000. The correct balance for the Construction in Progress at December 31, 2009 is

a.	P600,000.
b.	P700,000.
c.	P1,200,000.
d.	P1.300,000.

____    35.       In 2009, Aldaus Corp. began construction work under a three-year contract. The contract price is P800,000. Aldaus used 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 presentations relating to this contract at December 31, 2009, appear below.

Balance Sheet
Accounts receivable--construction contract   billings ..................................		P15,000
Construction in progress ....................	P50,000
Less contract billings ......................	(47,000)
Cost of uncompleted contract in excess of   billings ..................................		3,000
Income Statement
Income (before tax) on the contract   recognized in year 1 ......................		P10,000

How much cash was collected in 2009 on this contract?

a.	P32,000
b.	P35,000
c.	P47,000
d.	P50,000

____    36.       Paral Company began operations on January 2, 1999, 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.	P1,440,000.
b.	P1,040,000.
c.	P920,000.
d.	P780,000.

____    37.       Wedtec 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 Wedtec's installment sales for the first year?

a.	P300,000
b.	P345,000
c.	P425,000
d.	P525,000

____    38.       Leno Distributing, which began operating on January 1, appropriately uses the installment method of accounting. The following information pertains to Leno'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.

____    39.       On January 3, 2009, Lincoln Services, Inc., signed an agreement authorizing Lisa Company to operate as a franchisee over a 20-year period for an initial franchise fee of P100,000 received when the agreement was signed. Lisa commenced operations on July 1, 2009, at which date all of the initial services required of Lincoln had been performed. The agreement also provides that Lisa must pay a continuing franchise fee equal to 5% of the revenue from the franchise annually to Lincoln. Lisa's franchise revenue for 2009 was P800,000. For the year ended December 31, 2009, how much should Lincoln record as revenue from franchise fees in respect of the Lisa franchise?

a.	P140,000
b.	P90,000
c.	P45,000
d.	P42,500

____    40.       Assume the Randall Corporation sold P30,000 worth of merchandise on the installment basis. The cost of the merchandise was P24,000, and collectibility of the receivable is uncertain. Collection in the current year on the account is P8,000. How much gross profit should be reported as realized?

a.	P1,600
b.	P2,000
c.	P6,000
d.	P8,000

____    41.       On November 30, Northrup Company consigned 90 freezers to Watson Company for sale at P1,600 each and paid P1,200 in transportation costs. A report of sales was received on December 30 from Watson reporting the sale of 20 freezers, together with a remittance of the P27,200 balance due. The remittance was net of the agreed 15% commission. How much, and in what month, should Northrup recognize as consignment sales revenue?

November

December

a.	P0            P32,000
b.	P0            P27,200
c.	P144,000      P0
d.	P142,800      P0

____    42.       Layton Construction Company has consistently used the percentage-of completion method of recognizing income. During 2010, Layton entered into a fixed-price contract to construct an office building for P10,000,000. Information relating to the contract is as follows:

	December 31
	2009	2010
Percentage of completion ..............	20%	60%
Estimated total cost at completion ....	P7,500,000	P8,000,000
Income recognized (cumulative) ........	500,000	1,200,000

Contract costs incurred during 2010 were

a.	P3,200,000.
b.	P3,300,000.
c.	P3,500,000.
d.	P4,800,000.

____    43.       Hillson Company began operations on January 1, 2009, and appropriately uses the installment method of accounting. The following data are available for 2009 and 2010:

	2009	2010
Installment sales .....................	P1,200,000	P1,500,000
Cash collections from:
2009 sales ..........................	400,000	500,000
2010 sales ..........................	--	600,000
Gross profit on sales .................	30%	40%

The realized gross profit for 2010 is

a.	P240,000.
b.	P390,000.
c.	P440,000.
d.	P600,000.

____    44.       Seahawks, Inc. had the following consignment transactions during December:

Inventory shipped on consignment to Ashe Company ........	P18,000
Freight paid by Seahawks ................................	900
Inventory received on consignment from Fenn Company .....	12,000
Freight paid by Fenn ....................................	500

No sales of consigned goods were made through December 31. Seahawks' December 31 balance sheet should include consigned inventory at

a.	P18,900.
b.	P18,000.
c.	P12,500.
d.	P12,000.

Answer Section

MULTIPLE CHOICE

           1.                   B

           2.                   B

           3.                   D

           4.                   C

           5.                   D

           6.                   B

           7.                   A

           8.                   C

           9.                   D

           10.                 D

           11.                 C

           12.                 D

           13.                 C

           14.                 B

           15.                 A

           16.                 A

           17.                 D

           18.                 A

           19.                 C

           20.                 D

           21.                 C

           22.                 C

           23.                 B

           24.                 C

           25.                 A

           26.                 D

           27.                 B

           28.                 B

           29.                 A

           30.                 B

           31.                 C

           32.                 C

           33.                 B

           34.                 C

           35.                 A

           36.                 C

           37.                 D

           38.                 B

           39.                 A

           40.                 A

           41.                 A

           42.                 B

           43.                 B

           44.                 A