Identify the choice that best completes the statement or answers the question. Strictly no erasures allowed.

____ 1. Lazy Builders has entered into a very profitable fixed price contract for constructing a high-rise building over
a period of three years. It incurs the following costs relating to the contract during the first year.
Cost of material P25 Million
Site labor cost P20 Million
Agreed administrative costs per contract to be reimbursed by the customer P10 Million
Depreciation of the plant used for the construction P5 Million
Marketing costs for selling apartments when they are ready P10 Million
Total estimated cost of the project - P180 Million
The percentage of completion of this contract at year-end is:
a. 33% b. 28% c. 25% d. 39%
____ 2. RALPHALY Corp. was contracted by Ms. M. A. Bilbao to construct a warehouse for her business. The
estimated total cast was P29 Million. RALPHALY Corp. bills its clients at 125% of total costs estimated to
complete a project. Details regarding the contract are given below:
Costs incurred Est. costs to complete
2010 8,637,500 25,912,500
2011 15,770,000 13,142,500
2012 10,842,500 -
Billings, based on the contract price, were made as follows: 25% in 2010, 35% in 2011, 40% in 2012. Using
zero profit method, what is the balance of the construction in progress account, net of progress billings, on
December 31, 2011?
a. 5,707,500 c. 2,657,500
b. 1,042,000 d. 1,357,500
____ 3. JFK partnership engaged in steel manufacturing business had the following condensed financial position prior
to liquidation:
Assets Liabilities and Capital
Cash 120,000 Liabilities 350,000
Noncash assets 1,800,000 Loan payable to J 150,000
J, Capital (50%) 450,000
F, Capital (30%) 700,000
K, Capital (20%) 270,000
Total 1,920,000 Total 1,920,000
Assuming assets with a book value of P700,000 were sold for P500,000 and that all available cash was
distributed.
For what amount would the remaining assets have to be sold in order for Partner F to receive a total of
P790,000 cash after liquidation?
a. 1,550,000 c. 1,500,000
b. 1,600,000 d. 1,650,000
____ 4. A, B, and C are partners sharing profits in the ratio of 2:1:2, respectively. On December 31, 2010, C decided
to withdraw from the partnership. Their capital balances on this date were as follows:
A, Capital 80,000
B, Capital 92,000
C, Capital 164,000
C decided to retire and accepts cash of P140,000 and an equipment with a current fair value of P18,000. The
equipment costs P60,000, is 60% depreciated, and has no residual value. What is the balance of B’s capital
after the retirement of C?
a. 92,000 c. 90,800
b. 91,200 d. 90,000

General de Jesus College | Discipline, Integrity & Excellence for God & Country 1
____ 5. CD Partnership begins its first year of operations with the following capital balances: C, Capital, P224,000;
D, Capital, P112,000. According to the partnership agreement, all profits will be distributed as follows: C will
be allowed a salary of P268,800 and P134,400 to D. The partners will be allowed with interest equal to 10%
of the beginning capital balance of the year. C will be allowed a bonus of 10% of the net income after bonus.
The remainder will be divided on the basis of the beginning capital for the first year and equally for the
second year. Each partner is allowed to withdraw up to P11,200 per year. Assume that the income summary
has a debit balance of P16,800 on the first year and a credit balance of P61,600 on the second year. Assume
further that each partner withdraws the maximum amount from the business each period. What is the balance
of D’s capital account at the end of the second year?
a. 95,200 b. 201,600 c. 39,480 d. 296,520

____ 6. Dante Construction Company uses the percentage-of-completion method of accounting. During 2011, Dante
contracted to build an apartment house for Rizza for P10,000,000. Dante estimated that total costs would
amount to P8,000,000 over the period of construction. In connection with this contract, Dante incurred
P1,000,000 of construction costs during 2011. Dante billed and collected P1,500,000 from Rizza in 2011.
How much gross profit should Dante recognize in 2011?
a. 300,000 c. 187,500
b. 250,000 d. 125,000

____ 7. When Mikki and Mylene, partners who share earnings equally, were incapacitated in an airplane accident, a
liquidator was appointed to wind up their business. The accounts showed cash, P35,000; other assets,
P110,000; liabilities, P20,000; Mikki, Capital, P71,000; and Mylene, Capital P54,000. Because of highly
specialized nature of the noncash assets, the liquidator anticipated that considerable time would be required to
dispose them. The expenses of liquidatimg the business (advertising, rent, travel, etc.) are estimated at
P10,000.

How much cash can be distributed safely to each partner at this point?
a. P5,000 to Mikki; and P0 to Mylene
b. P5,000 to Mikki; and P500 to Mylene
c. P3,000 to Mikki; and P0 to Mylene
d. P5,000 to Mikki; and P1,000 Mylene

____ 8. A construction contract has a fixed price contract of P9,000. The initial amount of revenue agreed in the
contract is P9,000. The contractor’s initial estimate of contract costs is P8,000. It will take 3 years to build the
bridge.

By the end of year 1, the contractor’s estimate of contract costs has increased to P8,050.

In year 2, the customer approves a variation resulting in an increase in contract revenue of P200 and estimated
additional contract costs of P150. At the end of year 2, costs incurred include P100 for standard materials
stored at the site to be used in year 3 to complete the project.

The contractor determines the stage of completion of the contract by calculating the proportion that contract
costs incurred for work performed to date bear to the latest estimated total contract costs. A summary of the
financial data during the construction period is as follows:

Yr.1 Yr.2 Yr.3

Contract costs incurred to date 2,093 6,168 8,200

The amounts of revenue, expenses and profit recognized in the statement of comprehensive income in year 2
are:
a. 6,808; 6,068;740 c. 4,468; 3,975; 493
b. 2,340; 2,093; 247 d. 4.468; 6,768; 493

____ 9. The partners in ABC Co. decided to liquidate their business when their capital balances were:

General de Jesus College | Discipline, Integrity & Excellence for God & Country 2
 A, Capital (40%) 480,000
B, Capital (40%) 780,000
C, Capital (20%) 576,000

The noncash assets were sold on installment and partial distributions to the partners were made as cash was
made available. After the second sale of noncash assets, all of the three partners received the same amounts
from the partial distribution. On the third sale of noncash assets, the available cash for distribution to the
partners is P20,000.

How much does C received in the third distribution?

a. 4,000 c. 3,333
b. 6,667 d. 5,000

____ 10. A and B formed a partnership. The partnership agreement stipulates the following:

i. Annual salary allowance of P200,000 for A.

ii. Interest of 10% on the weighted average capital balance of B.
iii. The partners share profits and losses in a 60:40 ratio.
During the period the partnership earned profit of P400,000.
The movement in B’s capital is as follows:
Beginning 240,000
Additional investment-April 1 80,000
Additional investment-Sept. 30 160,000
Additional investment-Dec. 31 40,000
Withdrawal-July 31 120,000
How much is e share of B in the partnership profit?
a. 302,600 b. 97,400 c. 304,400 d. 94,400
____ 11. Mr. A, a partner in ABC co. is deciding on whether to accept a salary of P32,000 or a salary of P20,000 plus a
bonus of 10% of profit. The bonus shall be computed on profit after salaries and bonus. Salaries of the other
partners amount ton P80,000.
What amount of profit would be necessary so that Mr. A would be indifferent between the choices?
a. 120,000 b. 140,000 c. 220,000 d. 232,000
____ 12. Jeremy and Eli are partners. The capital accounts of the partners have the following balances:
Jeremy 180,000
Eli 70,000
Thadez desires to join the firm and offered to invest 96,000 for a 1/3 interest. Jeremy and Eli declined his
offer, but they extended a counter-offer to Thadez of 88,000 for a 25% interest in the capital and profits and
losses of the firm. If Thadez accepted the offer, what would be the balance of Jeremy’s capital account after
Thadez’s admission?
a. 182,520 c. 183,500
b. 181,750 d. 70,980
____ 13. HK, NP and RT share profits in the ratio of 2:3:5. On January 20, RT opted to retire from the partnership. The
capital balances on this date follow:
HK 175,000
NP 280,000
RT 245,000
How much will be the capital of NP, assuming RT sold his interest to NP for 70,000?
a. 350,000 c. 175,000
b. 525,000 d. 280,000
____ 14. Using the previous question, how much is to be debited from HK, assuming RT is paid P273,000 by the
partnership in full settlement of his interest?
a. 16,800 c. 11,200
b. 21,000 d. 28,000
____ 15. A partner’s drawing account is:
General de Jesus College | Discipline, Integrity & Excellence for God & Country 3
 a. an expense account c. a contra-capital account
b. a capital account d. a liability account
____ 16. A partnership is an association of two or more persons who carry on as co-owners of a business for profit. The
persons who form the partnership may be:
i. Individuals
ii. Corporations
iii. Fraternal nonprofit organization
a. i only c. i, ii and iii
b. i and iii d. i and ii
____ 17. Which of the following statements about partnership accounts is true?
a. Two accounts are generally maintained for each partner, a drawing account and a capital
account
b. The drawing account is credited with the partner’s withdrawals of cash or other assets
during the period.
c. Answer (a) and (c) are correct but (b) is false.
d. Answers (a), (b), and (c) are all correct.

____ 18. Cherry, Inc. charges an initial franchise fee of P115,000, with P25,000 paid when the agreement was signed
and the balance in five annual payments. The present value of the future payments, discounted at 10% is
P68,234. The franchisee has the option to purchase P15,000 of equipment for P12,000. Cherry has
substantially provided all initial services required and collectability of the payments is reasonably assured.
The amount of the revenue from the franchise fees is:
a. 25,000 c. 93,234
b. 90,234 d. 115,000

____ 19. Jolibi, Inc. enters into an agreement with Ronald’s Co., clothing the later with full authority to operate as its
franchisee for a period of ten years. An initial franchise fee of P275,000, among others, was stipulated in the
contract and was promptly paid during the year 2011.

Assuming that Jolibi was able to perform the initial services during 2011, what is the franchise revenue to be
recognized in its year-end income statement?
a. 0 c. 137,500
b. 27,500 d. 275,000

____ 20. At the beginning of the year, AJD got the franchise of Tony’s, a known steak house of upscale patronage. The
franchise agreement required a P500,000 franchise fee payable P100,000 upon signing of the franchise and
the balance in four annual installments starting the end of the current year. At present value using 12% as
discount rate, the four installments would approximate P199,650. The fees once paid are refundable. The
franchise may be cancelled subject to the provisions of the agreement. Should there be unpaid franchise fee
attributed to the balance of the main fee (P500,000), same would become due and demandable upon
cancellation. Further, the franchisor is entitled to a 5% fee on gross sales payable monthly within the first ten
days of the following month.

The Credit Investigation of Bureau rated AJD as AAA credit rating. The balance of the franchise fee was
guaranteed by a commercial bank.

The first year of operations yielded gross sales of P9,000,000. Tony’s earned franchise fees for the first year
is:
a. 550,000 c. 749,650
b. 450,000 d. 950,000

____ 21. On September 30, 2011, Criselda’s, Inc., received from Ambo P550,000 representing franchise fee. Franchise
services were immediately started by Criselda’s and these were completed on October 31, 2011 at a cost
amounting to P330,000. The franchise fee revenue to be reported by Criselda’s in its October 31, 2011 income
statement is:
a. 0 b. 137,500 c. 220,000 d. 550,000

General de Jesus College | Discipline, Integrity & Excellence for God & Country 4
____ 22. The Tigridia Company has entered into a 5 year fixed price construction contract to build a factory. The
contract value is P20 Million and the estimated costs are P16 Million. At the end of the first year, Tigridia can
estimate the outcome of the contract reliably. It has received cash payments to the value of P8.6 Million and
incurred costs of P6 Million.

At the end of the first year, what amount should be recognized as revenue in the financial statements?
a. P3.2 Million b. P7.5 Million c. P6 Million d. P8.6 Million

____ 23. Zoe Corporation, sells a franchise for an initial fee of P700,000. A down payment of P200,000 is required,
with the balance covered by a P500,000, 10% note payable in five equal annual installments. If all the
material services have been performed and collectability of the notes is reasonably assured, but the refund
period has not yet expired, what journal entry is needed to record the transaction?
a. Cash 200,000
Notes Receivable 500,000
Franchise Fees 700,000
b. Cash 200,000
Notes Receivable 500,000
Unearned Franchise Fees 700,000
c. Cash 200,000
Notes Receivable 500,000
Franchise Fee 200,000
Unearned Franchise Fees 500,000
d. Cash 200,000
Notes Receivable 500,000
Franchise Fees 500,000
Unearned Franchise Fees 200,000
____ 24. Saisaki Corporation grants a franchise to Mity for an initial franchise fee of P1,000,000. The agreement
provides that Saisaki has the option within one year to acquire franchisee’s business, and it seems certain that
Saisaki will exercise this option. On Saisaki’s books, how should the initial fee be recorded?
a. Deferred and treated as reduction in Saisaki’s investment when the option is exercised.
b. Realized revenue.
c. Extraordinary revenue.
d. Deferred revenue to be amortized.
____ 25. Each of Pizza Pie Co.’s 21 new franchisees contracted to pay an initial franchise fee of P30,000. By
December 31, 2011, each franchisee had paid a non-refundable P10,000 fee and signed a note to pay P10,000
principal plus the market rate of interest on December 31, 2012, and December 31, 2013. Experience
indicates that one franchise will default on the additional payments. Services for the initial fee will be
performed in 2011. What amount of net unearned franchise fees would Pizza report on December 31, 2011?
a. 400,000 b. 600,000 c. 610,000 d. 630,000
____ 26. On September 1, 2011, Cindy Company entered into franchise agreements with two franchisees. The
agreements required an initial fee payment of P700,000 plus four P300,000 payments due every four months,
the first payment due December 31, 2011.The market interest rate is 12%. The initial deposit is refundable
until substantial performance has been completed. The following table describes each agreement:
Services Performed Total Costs
Probability of by Franchisor Incurred to
Franchisee Full Collection December 31, 2011 December 31, 2011
A Likely Substantially P700,000
B Doubtful 25% N/A
The present value and future value tables at 4% for four (4) periods were as follows:
Present value of P1 0.8548
Present value of an ordinary annuity of P1 3.6299
Future value of P1 1.1699
Future value of an ordinary annuity of P1 4.2465
What amount of net income to be reported in 2011, assuming P1,000,000 was received from each franchisee
during the year?

General de Jesus College | Discipline, Integrity & Excellence for God & Country 5
 Franchisee A Franchisee B
a. P1,088,970 P 0
b. 1,788,970 0
c. 1,132,529 0
d. 1,132,529 43,559
____ 27. EXECRATION Co. is contracted to construct an amusement park for CURSE, Inc. EXECRATION
subcontracted a large portion of the contract. EXECRATION uses the efforts-expended method in
determining the stage of completion of the contract. Information on efforts expended is shown below:
20X1 20X2
Total direct labor hours to date 1,600 6,000
Estimated direct labor hours to complete 6,400 1,500
What is the percentage of completion of the contract as of December 31, 20X1?
a. 20% b. 25% c. 30% d. 42%
____ 28. Using the same data in No. 27,. was is the percentage of work completed in 20X2?
a. 80% c. 75%
b. 58% d. 70%
____ 29. The primary issue in accounting for construction contracts is
a. The allocation of contract revenue to the accounting periods in which construction work is
performed.
b. The allocation of contract costs to the accounting periods in which construction work is
performed.
c. The determination of the percentage of completion.
d. a and b.
e. all of these

____ 30. Which of the following is included in the cost of a construction contract?
a. Cost of equipment used in the construction.
b. Advertising costs of the asset.
c. Depreciation of the idle plant and equipment that is not used on a particular contract.
d. General administration costs for which reimbursement is not specified in the contract.

____ 31. In 20X1, Bagito Co. started work on a P4 Million fixed price contract. All costs incurred are recoverable. The
contract was completed in 20X3. Information on the construction is shown below:

20X1 20X2 20X3

Costs incurred to date 800,000 3,300,000 3,800,000
Est. Costs to complete 2,400,000 1,100,000 -
Estimated Total Cont. Costs 3,200,000 4,400,000 3,800,000

Progress Billings to Date 1,400,000 2,800,000 4,000,000

How much is the profit (loss) recognized in 20X2?

a. 200,000 b. (600,000) c. (400,000) d. 0

____ 32. The following are the capital account balances and profit and loss ratios of the partners in AB partnership as
of July 1, 20X1.

Capital Accounts Profit and Loss ratios

A, Capital 600,000 40%
B, Capital 1,000,000 60%

On July 1, 20X1, C was admitted to the partnership when he purchased a proportionate interest from A and B
representing 20% interest in the net assets and profits of the firm for P400,000. The net assets of the firm as of
this date approximate their fair values.

The entry in the books of the partnership to record the admission of C includes.

General de Jesus College | Discipline, Integrity & Excellence for God & Country 6
 a. A debit to cash for P400,000 c. A debit to A’s capital for P128,000
b. A credit to C’s capital for P400,000 d. No entry in the partnership books.

____ 33. Using the same data in No. 32, how much is the capital balance of B after the admission of C?
a. 472,000
b. 808,000
c. 320,000
d. The same as before the admission of C.

____ 34. Using the same data in No. 32, the new profit and loss sharing ratio of the old partners would be:
a. A 32%; B 48%
b. A 40%; B 40%
c. The same as before the admission of C
d. A 1/3; B 1/3

____ 35. A and B formed a partnership. The partnership agreement stipulates the following:

i. Monthly salary of P20,000 for A.

ii. 20% bonus to A, before deductions for salary, interest and bonus.
iii. 10% interest on the weighted average capital of B.
iv. Salary, interest and bonus are considered partnership expenses.

The results of operations show the following:

Revenues 600,000
Expenses (480,000)
Profit 120,000

The weighted average capital balance of B’s capital account is P400,000.

How much is the bonus to A?

a. 100,000 c. 25,000
b. 80,000 d. 16,000

____ 36. On January 1, 20X1, the partners of ABC Co. decided to liquidate their partnership. The following
information was made available:
Cash 80,000
Accounts Receivable 240,000
Inventory 480,000
Equipment 1,200,000
Total 2,000,000
Accounts Payable 120,000
Payable to B 80,000
A, Capital (20%) 400,000
B, Capital (30%) 600,000
C, Capital (50%) 800,000
Total 2,000,000
Information on the conversion of non-cash assets is as follows:
i. P200,000 was collected on Accounts Receivable; the balance is uncollectible.
ii. P280,000 was received for the entire inventory.
iii. The equipment was sold for P1,000,000.
iv. P8,000 liquidation expenses were paid.
How much did A receive from the settlement of his interest in the partnership?
a. 310,400 c. 481,400
b. 545,600 d. 324,600
____ 37. Using the same information in No. 36, assuming the partnership will be liquidated over a prolonged period of
time. Distributions to owners shall be made as cash becomes available. Information on the conversion of non-
cash assets is as follows:
General de Jesus College | Discipline, Integrity & Excellence for God & Country 7
 i. 75% of the accounts receivable was collected for only P120,000.
ii. Half of the inventory was sold for P160,000.
iii. An equipment with carrying amount of P800,000 was sold for P480,000.
iv. P8,000 liquidation expenses were paid. Estimated future liquidation expenses
totaled P4,000.
v. P36,000 cash was retained in the business for potential unrecorded liabilities and
anticipated expenses.
How much did B receive from the partial settlement of his interest in the partnership?
a. 310,400 c. 317,600
b. 545,600 d. 324,600
____ 38. On January 1, 20X1, A and B, who share profits and losses on a 60:40 ratio, decided to liquidate their
partnership. As of this date, their capital balances were P1,200,000 and P600,000, respectively. Before
liquidation, the partnership has total assets of P2,000,000. Net proceeds received from the sale of non-cash
assets amounted to P1,200,000. A received P768,000 in the settlement of the partners’ capital balances.
How much is the total loss on the sale of partnership assets?
a. 432,000 b. 720,000 c. 868,000 d. 0
____ 39. Using the same information in No. 38, how much did B receive in the settlement of his capital balance?
a. 218,000 b. 280,000 c. 312,000 d. 0
____ 40. Using the same information in No. 38, how much was the total liabilities of the partnership?
a. 320,000 b. 200,000 c. 180,000 d. 50,000
____ 41. Using the same information in No. 38, how much was the balance of cash before the sale of non-cash assets?
a. 80,000 b. 60,000 c. 40,000 d. 0
____ 42. On January 2, 2011, RR Enterprises, Inc. authorized XX Company to operate as a franchisee over a twenty-
year period for an initial franchise fee of 60,000 received on signing the agreement. XX started operations on
June 30, 2011, by which date RR had performed all of the required initial services. In its income statement for
the six months ended June 30, 2011, what amount should RR report as revenue from franchise fees in
connection with XX franchise?
a. 0 b. 1,500 c. 30,000 d. 60,000
____ 43. State the proper order of liquidation.
i. Outside creditors
ii. Owner’s interests
iii. Inside creditors
a. i, iii, ii b. i, ii, iii c. iii, ii, i d. ii, i, iii
____ 44. Which of the following may be used to compute for the contract revenue in a construction contract?
a. Contract price c. Escalation clauses
b. Change orders d. All of these

____ 45. If the outcome of a construction contract cannot be estimated reliably, which method is used to account for the
construction contract?
a. Percentage of completion method c. Sales type method
b. Zero profit method d. a or b as an accounting policy choice

46. What determines substantial performance for purposes of recognizing the initial franchise fee?
a. When the franchise actually commence operation.
b. When the franchisee pays the initial franchise fee in full.
c. When the franchisee pays a cash down payment.
d. When the franchisee signs the franchise contract.

47. When the initial franchise fee is not paid in full and the collectability of the note for the balance is reasonably
assured, the method to be used by the franchisor to recognized revenue from the initial franchise fee is:
a. Installment method.
b. Gross profit method.
c. Accrual method.
d. Cash basis

General de Jesus College | Discipline, Integrity & Excellence for God & Country 8
48. What costs of initial services are to be deferred by the franchisor?
a. Indirect costs.
b. Direct costs.
c. Period costs.
d. Conversion costs.

49. What conditions are to be met to determine the franchisor’s services are substantially performed?
a. The franchisor is not obligated in any way to refund cash already received or forgive unpaid debt.
b. The initial services required of the franchisor by contact or otherwise have been substantially performed.
c. No other material conditions or obligations exist.
d. All of the above.

50. Before the year of completion, under the zero profit method, the year-end balance of the construction in
progress account is equal to:
a. Cost incurred to date.
b. Cost incurred this year.
c. Cost incurred to date plus gross profit earned to date.
d. Gross profit earned to date.

Prepared by:

_________________________
John Lyndon D. Rayos, CPA

Noted and Approved by:

__________________________
Jeffrey P. Franco, CPA, MBA

General de Jesus College | Discipline, Integrity & Excellence for God & Country 9
Dean, CAAT DepartmentMULTIPLE CHOICE

1. ANS: A PTS: 1
2. ANS: D PTS: 1
3. ANS: B PTS: 1
4. ANS: A PTS: 1
5. ANS: C PTS: 1
6. ANS: B PTS: 1
7. ANS: A PTS: 1
8. ANS: C PTS: 1
9. ANS: A PTS: 1
10. ANS: B PTS: 1
11. ANS: D PTS: 1
12. ANS: A PTS: 1
13. ANS: B PTS: 1
14. ANS: C PTS: 1
15. ANS: C PTS: 1
16. ANS: A PTS: 1
17. ANS: C PTS: 1
18. ANS: B
The revenue from the franchise fee would be as follows:
Cash 25,000
PV of Note 68,234
Less: Reasonable profit
on sale of equipment
(15,000-112,000) 3,000
Total Revenue 90,234

PTS: 1
19. ANS: D PTS: 1
20. ANS: B
Since the initial franchise fee is refundable, therefore, no amount from the P500,000 initial franchise fee be
considered as revenue. The only revenue to be recognized is the cnotinuing franchise fee of P450,000 (5% x
P9,000,000).

PTS: 1
21. ANS: D PTS: 1
22. ANS: B PTS: 1
23. ANS: B PTS: 1
24. ANS: A PTS: 1
25. ANS: C
 Initial franchise fees are not recognized as revenue until the franchisor makes substantial performance of the
required services, and collection is reasonably assured. Since Pizza Pie has not yet performed the required
services, the initial franchiase fee (21 x 30,000 = P630,000) is reported as unearned franchise fees at 12/31/11.
The estimated uncollectible amount (P20,000) normally would be recorded as debit to bad debt expense and a
credit to allowance for uncollectible accounts. However, since no revenue has yet been recognized, it is
inappropriate to record bad debt expense. Instead, unearned franchise fees is debited, because an unearned
revenue should not be recorded when, in effect, no related asset has been received. Therefore, the net
unearned franchise fees is P610,000 (630,000-20,000).

PTS: 1
26. ANS: D
Franchise Revenue: (FRANCHISE A)
Downpayment 700,000
PV of Installment (300,000 x 3.6299) 1,088,970
Total 1,788,970
Less: Cost of Franchise 700,000
Gross Profit 1,088,970
Add: Interest Income (1,088,970 x 4%) 43,559
Net income 1,132,529

FRANCHISE B:
Since there is no substantial performance of services (only partial collection) rendered it also follows
that the period of refund has not yet been expired and at the same time there is doubtful of collection.
Therefore, no initial franchise fee is recognized as revenue in 2011. However, because the first payment of
P300,000 was made, interest income of P43,559 would be recognized (P1,088,970 x 4%).

PTS: 1
27. ANS: A PTS: 1
28. ANS: B PTS: 1
29. ANS: D PTS: 1
30. ANS: A PTS: 1
31. ANS: B PTS: 1
32. ANS: C PTS: 1
33. ANS: B PTS: 1
34. ANS: A PTS: 1
35. ANS: A PTS: 1
36. ANS: A PTS: 1
37. ANS: C PTS: 1
38. ANS: B PTS: 1
39. ANS: C PTS: 1
40. ANS: B PTS: 1
41. ANS: A PTS: 1
42. ANS: D PTS: 1
43. ANS: A PTS: 1
44. ANS: D PTS: 1
45. ANS: B PTS: 1
46. A 47. C 48. B 49. D 50. A