1.

The use of the percentage of completion method of accounting for long term construction contracts is a measurement of revenue under the
a. Cost principle. b. Realization principle. c. Objectivity principle. d. Monetary principle.

2. When work to be done and costs to be incurred on a long-term contract can be estimated dependably, which of the following methods of revenue
recognition is preferable?
a. Installment method c. Completed-contract method
b. Percentage-of-completion method d. None of these

3. Which of the following is not an element identified by the AICPA as being necessary in order to use percentage-of-completion accounting?
a. The construction period can be reasonably estimated.
b. The buyer can be expected to satisfy obligations under the contract.
c. Dependable estimates can be made of the extent of progress toward completion.
d. Dependable estimates can be made of contract costs.

4. The profession requires that the percentage-of-completion method be used when certain conditions exist. Which of the following is not one of
those necessary conditions?
a. Estimates of progress toward completion, revenues, and costs are reasonably dependable.
b. The contractor can be expected to perform the contractual obligation.
c. The buyer can be expected to satisfy some of the obligations under the contract.
d.The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement.

5. The percentage-of-completion method of inventory valuation of long-term contracts

a. Recognizes income upon completion of work. c. Recognizes income based on the progress of work.
b. Recognizes income based on collected billings. d. Does not recognize income at the balance sheet date.

6. The accounting method that recognizes revenue prior to the point of sale based on either an input or an output measure of the earning process is
known as the
a. Deposit method. c. Installment sales method.
b. Cost recovery method. d. Percentage-of-completion method

7. The percentage-of-completion method violates the general rule on revenue recognition that:
A. Collection is reasonably assured. C. The earnings process is complete.
B. Costs are known or reasonably estimated. D. Collections have been received.

8. How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-
completion method of revenue recognition is used?
a. In a footnote to the financial statements until the customer is formally billed for the portion of the work completed.
b. As a receivable in the noncurrent asset section of the balance sheet.
c. As a construction in progress in the noncurrent asset section of the balance sheet.
d. As construction in progress in the current asset section of the balance sheet.

9. “Costs of uncompleted contracts in excess of related billings” in most cases is shown as a

a. Current liability, i.e., Accounts Payable. c. Current assets, i.e., Receivables.
b. Long-term debt, i.e, Notes Payable. d. Investments, i.e., Construction in Progress.

10. “Billings on uncompleted contracts in excess of related costs” in most cases is shown as a
a. Current liability, i.e., Accounts Payable. c. Current assets, i.e., Receivables.
b. Long-term debt, i.e., Notes Payable. d. Investments, i.e., Construction in Progress.

11. The Construction-in-Process account accumulates the following when the percentage-of-completion method is used
a. Construction costs to date. c. Construction costs to date less billings to date.
b. Construction costs to date less payments received. d. Construction costs plus gross profit earned to date.

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

13. How should earned but unbilled revenues at the balance sheet date on a long-term construction contract be disclosed if the percentage-of-
completion method of revenue recognition is used?
a. As construction in progress in the current asset section of the balance sheet.
b. As construction in progress in the noncurrent asset section of the balance sheet.
c. As a receivable in the noncurrent asset section of the balance sheet.
d. In a note to the financial statements until the customer is formally billed for the portion of work completed.

14. 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.

15. Cost estimates on a long-term contract may indicate that a loss will result on completion of the entire contract. In this case, the entire expected
loss should be
a. recognized in the current period, regardless of whether the percentage-of-completion or completed-contract method is employed.
b. recognized in the current period under the percentage-of-completion method, but the completed-contract method should defer recognition of the
loss to the time when the contract is completed.
c. recognized in the current period under the completed-contract method, but the percentage-of-completion method should defer the loss until the
contract is completed.
d. deferred and recognized when the contract is completed, regardless of whether the percentage-of-completion or completed-contract method is
employed
16. IFRS 11, Joint Arrangement, provides that a joint operator shall recognize the following, in relation to its interest in a joint operation, except
a. Its expenses, including its share of any expenses incurred jointly. c. Its interest as an investment using the equity method.
b. Its liabilities, including its share of any liabilities incurred jointly. d. Its assets, including its share of any asset held jointly.

17. IFRS 11, Joint Arrangement, provides that the classification of the arrangements will require entities to apply judgment when assessing their
rights and obligations arising from the arrangement by considering the following except
a. The terms agreed by the parties in the contractual arrangements.
b. The structure and legal form of the arrangement.
c. When structured in a legal entity, the choice between proportionate consolidation and the equity method.
d. When relevant, other facts and circumstances.

18. According to IFRS 11, Joint Arrangement, what is the method of accounting for investment in joint venture?
a. Proportionate consolidation method c. Equity method
b. Cost method d. Fair Value method

19. Which of the following is a characteristics of a joint arrangement?

a. The parties are bound by a contractual arrangement only.
b. The contractual arrangement gives two or more parties joint control over the arrangement only.
c. The parties are bound by a contractual arrangement and the contractual arrangement gives two or more parties joint control over the
arrangement.
d. A joint arrangement is neither a joint operation not joint venture.

20. It is a separately identifiable financial structure, including separate legal entities or entities recognized by statute, regardless of whether those
entities have legal personality.
a. Separate vehicle b. Party to a joint c. Joint operator
arrangement d. Joint venture

I. Northern Airline purchased airline gate rights at Newark International Airport for P 2,000,000 with a legal life of five years. However, Northern
has the ability and right to extend the rights every ten years for an indefinite period of time. Over what period of time should Northern amortize the
gate rights?
No Amortization

II. Mark Co. bought a franchise from Fred CO. on January 1, 2017 for P 204,000. An independent consultant retained by Mark estimated that the
remaining useful life of the franchise was 50 years. Its unamortized cost on Fred’s books at January 1, 2017 was P 68,000. Mark has decided to use
the franchise indefinitely. What amount should be amortized for the year ended December 31, 2017?
0

III. Fish Ball Co. charges P 90,000 for a franchise, with P 18,000 paid when the agreement is signed and the balance in four annual payments. The
present value of the annual payments, discounted at 9% is P 58,315. The franchise has the right to purchase P 20,000 of equipment for P 16,000. If
collectability of the payments is reasonably assured and substantial performance by Fish Ball has occurred, what is the amount of revenue from
franchise fee that should be recognize?
72315

IV. On July 1, 2017, Hart Corp. signed an agreement to operate as a franchisee of Ace Printers for an initial franchise fee of P 1,200,000. On the same
date, Hart paid P 400,000 and agree to pay the balance in four equal annual installments of P 200,000, beginning July 1, 2018. The down payment is
not refundable and no future services are required of the franchisor. Hart can borrow at 14% for a loan of this type. Present and future value
factors are as follows: PV of P1 a 14% for 4 periods, 0.59; PV of an annuity of P1 at 14% for 4 periods, 2.91; and Future amount of P1 at 14% for 4
periods, 1.69. At what amount should Hart record the franchise at the date of acquisition?
982000

V. BFG Construction was recently awarded a P 6,730,000 contract to construct a trade center for Ayala Inc. BFG Construction estimates it will take
46 months to complete the contract. The company uses the percentage of completion method to estimate profits. (Use two decimal places for the
percentage of completion.) The following information details the actual and estimated costs for the year 2017 – 2020:
Year Actual Cost Each Year Estimated Cost to Complete
2017 3,120,000 3,264,000
2018 1,584,000 1,800,000
2019 1,152,000 912,000
2020 1,080,000 -
How much is the balance of Construction in Progress account as of 2019?

VI. On July 1, 2016, the company contracted to build an office building for a total contract price of P 975,000. The company opted to use the zero-
profit method. Data relating to the project from 2016 – 2018 are as follows:
2016 2017 2018
Construction cost incurred to date 75,000 600,000 1,050,000
Estimated costs at completion 750,000 1,000,000 ?
Debit to accounts receivable 150,000 550,000 ?
What is the balance of the Construction-In-Progress net of billings at December 31, 2017?
Assuming the company uses the percentage of completion method, what is the gross profit/loss to be recognized for the year 2017?