Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

1. Under a consignment arrangement, the consignor recognizes net revenue equal to the gross sales price less the consignee's commission. True False 2. A consignor

1. Under a consignment arrangement, the consignor recognizes net revenue equal to the gross sales price less the consignee's commission.

True

False

2. A consignor recognizes revenue when the consigned goods are transferred to the consignee.

True

False

3. If another party is primarily responsible for fulfilling a contract with a customer, this may indicate that the entity is an agent.

True

False

4. Pinewood Co. agrees to create an artifcat for Saga Co. Pinewood is primarily liable for the artifact's conformance with the customer's specifications. Pinewood does not have the required expertise so its subcontracts Saleng Co. to do the manufacturing. If the entire manufacturing process is outsourced from Saleng Co., Pinewood would be acting as an agent of Saleng.

True

False

5. Fight Club Co. enters into a contract with Tough Co., a promoter of mixed martial arts (MMA) fights. Under the contract, Fight Club Co. purchases MMA event tickets from Tough at a negotiated price and resells them to end customers at a marked-up price. Fight Club bears the loss for unsold tickets. The arrangement between Fight and Tough implies a principal-agent relationship whereby Fight is an agent of Tough.

True

False

6. Under IAS 18, what is the measurement of sales revenue from instalment sales?

a. Carrying amount of the consideration received or receivable.

b. Cost of the consideration received or receivable.

c. Book value of the consideration received or receivable.

d. Fair value of the consideration received or receivable.

7. Under IAS 18, if the company receives long-term non-interest bearing note receivable as consideration for the sale of its inventories on an installment basis, what it the

measurement of sales revenue from installment sales?

a. Face value of the note receivable

b. Maturity value of note receivable.

c. Present value of note receivable.

d. Undiscounted value of note receivable.

8. How shall the difference between the fair value and nominal amount of the long-term note received as consideration in an installment sales be accounted for?

a. It shall recognized as expense on the date of sale.

b. It shall be recognized as interest revenue over the term of the note using straight line method.

c. It shall be recognized as interest revenue over the term of the note using effective interest method.

d. It shall be recognized as expense on the date of sale.

9. In an instalment sales, if the collection of note receivable is not remote and not reasonably, how shall the gross profit be recognized?

a. It shall not be recognized.

b. It shall be fully recognized on the date of sale using accrual basis.

c. It shall be recognized in proportion to the amount of collection under installment method.

d. It shall be recognized fully only on the year the receivable is completely collected.

10. Under generally accepted accounting principles, what is the proper presentation of deferred gross profit from installment sales?

a. It shall be presented as contra-instalment receivable account.

b. It shall be presented as current liability.

c. It shall be presented as equity.

d. It shall be presented as deferred revenue.

11. If the fair value of the repossessed inventory cannot be estimated reliably at the date of repossession, what shall be the basis of initial measurement of repossessed inventory?

a. Estimated selling price less reconditioning cost less cost to sell less normal profit.

b. Estimated selling price less reconditioning cost.

c. Estimated selling price less reconditioning cost less cost to sell.

d. Estimated selling price less cost to sell.

12. If the initial measurement of repossessed inventory is lower than the net of defaulted installment receivable and its corresponding deferred gross profit, the difference shall be recognized as

a. Deferred loss on repossession to be presented as current asset.

b. Loss on repossession to be presented as part of income from continuing operation before tax.

c. Deferred gain on repossession to be presented as current liability.

d. Gain on repossession to be presented as part of other comprehensive income.

13. IFRS 17 was introduced principally for what reason?

a. To make improvement to insurance accounting.

b. As response to recent scandals within the insurance industry.

c. To completely overhaul insurance accounting.

d. Because of pressure from financial services authorities in several countries.

14. Which statement is TRUE about an insurance contract?

a. The insurer is the party that has an obligation under an insurance contract to compensate a policyholder if an insured event occurs.

b. The policyholder is the party that has a right to compensation under an insurance contract if an insured event occurs.

c. The insured event is an uncertain future event that is covered by an insurance contract and creates insurance risk.

d. All of these statements are true about an insurance contract.

15. If an entity gives a product warranty that has been issued directly by a manufacturer, dealer or retailer, which IFRS is likely to cover this warranty?

a. IAS 32 Financial instruments - Presentation

b. IAS 37 Provisions, contingent liabilities and contingent assets

c. IFRS 17 Insurance contracts

d. IFRS 9 Financial instruments

16. IFRS 17 provides that insurance contracts should

a. Be covered by IAS 32 and IFRS 9

b. Comply with all existing IFRS

c. Generally continue to be subject to existing accounting policies.

d. Comply with the IFRS Framework document.

17. An insurance contract can contain both deposit and insurance elements. An example might be a reinsurance contract where the cedant receives a repayment of the premiums at a future date if there are no claims under the contract. Effectively this constitutes a loan by the cedant that will be repaid in the future. IFRS 17 requires that

a. Each payment by the cedant is accounted for as loan advance and as payment for insurance cover.

b. The premium is not accounted for.

c. The premium paid is treated purely as a loan.

d. The insurance premium is accounted for a revenue.

18. An entity should apply IFRS 17 to which of the following?

a. Contingent consideration receiable in business combination.

b. Reinsurance contracts issued by the entity.

c. Product warrantis issued by an entity which is manufacturer.

d. Employer's asset and liabilities under employment benefit plans.

19. A reinsurance contract is

a. An insurance contract issued by one insurer to compensate another insurer for losses on one or more contract issued by the latter.

b. All of these reinsurance contract.

c. A financial guaratne contract

d. A direct insurance contract.

20. The cedant is

a. The guaranteed benefit under a reinsurance contract.

b. The insurer under a reinsurance contract.

c. The policyholder under a reinsurance contract.

d. The discretionary participation feature of an insurance contract.

Consignment sales

Problem 1

On October 20, 2016, Abrahan company consigned 40 freezers to Holden Company costing P14,000 each for sale of P20,000 each and paid P16,000 in transportation costs. On December 30, 2016, Holden reported the sale of 10 freezers and remitted P170,000. The remittance was net of the agreed 15% commission.

Q1: What amount should Grimm recognize as consignment sales revenue for 2016?

Problem 2

The following information was derived from the 2016 accounting records of SHARK Co.:

SHARK's Central Warehouse SHARK's Goods Held by Consignees

Beginning P55,000 P6,000

Inventory

Purchases 240,000 30,000

Freight-in 5,000

Transportation to 2,500

consignees

Freight-out 4,000

Ending inventory 10,000

Q2: What is SHARK's 2016 cost of sales?

Problem 3

Bulldog Manufacturing Corp. consigned ten refrigerators to Poodles Sales Co. These refrigerators had a cost of P180 each. Freight on the shipment was paid by Bulldog in the amount of P120.

Poodle Sales Co. submitted an account sales stating that it had sold six refrigerators and remitted the P1,365 balance due Bulldog after the following deductions from the selling price of the refrigerators:

Commission 15% of selling price

Marketing expenses P90

Delivery and installation of items sold P60

Cartage cost paid upon receipt of consignment P15

Q3 - The consignee sold the 6 refrigerators for a total of ____.

Q4 - The commission earned on the sale of the 6 refrigerators by Central Sales Co. was ____.

Q5 - The consignor's net profit from the sale of the consigned goods was ____.

Problem 4

Norwin Co. shipped inventory on consignment to Viyan Co. that cost P20,000. Viyan

paid P500 for advertising that was reimbursable from Norwin. At the end of the year, 70% of the inventory was sold for P30,000. The agreement states that a commission of 20% will be provided to Viyan for all sales.

Q6 - What amount of net inventory on consignment remains on the balance sheet for the first year for Norwin?

Installment Sales

Problem 5

The Japan Homes Corporation started operations on January 1, 2017 selling home appliance and furniture sets both for cash and on instalment basis. Data on the instalment sales operations of the company gathered for the years ending December 31, 2017 and 2018 were as follows:

2017 2018

Installment Sales P1,200,000 P1,500,000

Cost of Installment Sales 720,000 1,050,000

Cash collected on instalment sales

2017 installment contracts 630,000 450,000

2018 installment sales 900,000

On January 6, 2018 an instalment sale in 2017 was defaulted and the merchandise was repossessed. The fair market value of the merchandise after reconditioning costs amounted to P15,000. There is a 10% normal profit based on estimated resale value, the corporation incurred P3,000 disposal costs and P5,000 reconditioning cost. Related instalment receivable balance on January 6, 2018 was P17,000. The operating expenses incurred in 2017 and 2018 amounted to P50,000 and P100,000, respectively.

Q7 - What is the gross profit rate 2017 and 2018, respectively?

Q8 - What is the Deferred Gross Profit as of 2018 form 2017 sales?

Q9 - How much is the amount of estimated resale value?

Q10 - What is the amount to be debited as the value of Repossessed Merchandise at a time of repossession?

Q11 - How much is the gain/(loss) on repossession?

Q12 - How much is the RGP after gain or (loss) on repossession in December 31, 2017?

Q13 - How much is the RGP after gain or (loss) on repossession in December 31, 2018?

Problem 6

SUN CELL Company sold Cellphones on instalment basis on July 1, 2018. The Unit cost to the company was P388,800, but the instalment selling price was set at P550,800. Terms of payment included the acceptance of used Cellphones with trade in allowance of P194,400. Cash of P32,400 was paid in addition to the traded in Cellphones with the balance to be paid in ten monthly instalments due at the end of each month commencing the month after the month of sale. It would require P8,100 to recondition the used Cellphones so that it could be resold for P162,000. A 15% gross profit was usual from the sale of used cellphones.

Q14 - How much is the fair value traded in merchandise?

Q15 - How much is the under/ (over) allowance in trade in?

Q16 - What is the Gross Profit rate?

Q17 - How much is the monthly payment?

Q18 - How much is the total Realized Gross Profit in 2018?

Insurance Contract

Problem 7

AAA Insurance Company issues one year, motor/vehicle insurance for a total premium of

P15,000. If it was issued on January 1, 2019,

Q19 -How much is the earned portion for the month ended January 31, 2019?

Q20 - How much is the earned portion for the month ended December 31, 2019?

Q21 - How much is the unearned portion for the month ended January 31, 2019?

Q22 - How much is the unearned portion for the month ended December 31, 2019?

Q23 - How much is the provision for unearned premium on December 31, 2019?

Problem 8

On January 1, 2019, AAA insurance co. entered into reinsurance contract with CCC Co. for a premium of P2,000. Commission expense incurred on the reinsurance contract issued is 10%.

Q24 - How much is the amount due from ceding company (book of reinsurer)?

Q25 - How much is the amount of commission income recognized by cedant?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Managerial Accounting Tools for business decision making

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

6th Edition

978-0470477144, 1118096894, 9781118214657, 470477148, 111821465X, 978-1118096895

More Books

Students also viewed these Accounting questions