AFAR Problem.doc

# The franchisee started operation on july 1 2018 and

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The franchisee started operation on July 1, 2018 and reported sales revenue amounting to P50,000 for the year ended December 31, 2018. The franchisee paid the first installment on its due date. 44. If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by the entity for the year ended December 31, 2018 in relation to the initial franchise fee? A. 66,028 B. 44,014 C. 22,009 D. 88,037 45. If the collection of the note receivable is reasonably assured, what is the net income to be reported by the entity for the year ended December 31, 2018? A. 98,850 B. 94,850 C. 70,028 D. 92,037

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Page 17 Numbers 46, 47 and 48 (Construction contract - Percentage of Completion Method) On January 1, 2018, Solid Company accepted a long-term construction project for an initial contract price of P1,000,000 to be completed on June 30, 2020. On January 1, 2019, the contract price was increased to P1,500,000 by reason of change in the design of the project. The outcome of the construction contract can be estimated reliably. The project was completed on December 31, 2020 which resulted to penalty amounting to P200,000. The entity provided the following data concerning the direct costs related to the said project for 2018 and 2019: 2018 2019 Costs during the year 440,000 680,000 Remaining estimated costs to complete at year-end 660,000 280,000 46. What is the construction revenue for the year ended December 31, 2018? A. 340,000 B. 400,000 C. 440,000 D. 360,000 47. What is the realized gross profit for the year ended December 31, 2019? A. 200,000 B. 80,000 C. 180,000 D. 100,000 48. What is the balance of construction in progress on December 31, 2019? A. 1,200,000 B. 1,020,000 C. 1,120,000 D. 900,000
Page 18 Numbers 49, 50 and 51 (Construction contract - Cost Recovery Method) On January 1, 2018, Hardrock Company started the construction of a building at a fixed contract price of P1,000,000. On the same date, the customer paid a mobilization fee equal to 5% of contract price that will be deductible from the first billing. The outcome of construction contract cannot be estimated reliably During 2018, the entity billed the customer equivalent to 30% of the contract price. During 2019, the entity billed again the customer amounting to 20% of the contract price. During 2020, the entity billed again the customer amounting to 40% of the contract price. The remaining billing was made at the year of completion of the project. The entity made collection from the customer at the end of 2018, 2019 and 2020, in the amount of P120,000, P450,000 and P180,000, respectively. The entity provided the following data concerning the direct costs related to the said project: 2018 2019 2020 Cumulative costs incurred at year-end 360,000 800,000 870,000 Remaining estimated costs to complete at year-end 840,000 250,000 50,000 49. What is the realized gross profit for the year ended December 31, 2019? A. 50,000 B. 200,000 C. 150,000 D. 0 50. What is the excess of construction in progress over progress billings or excess of progress billings over construction in progress on December 31, 2020? A. 30,000 excess billings B. 80,000 excess billings C. 20,000 excess construction in progress D. 50,000 excess construction in progress 51. What is the balance of accounts receivable on December 31, 2020?

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