Chapter 12

Problem I – 5-Step Process

Recognize revenue in the accounting period when the performance obligation is satisfied.
Step 1: Identify the contract with customers.
A contract is an agreement between two parties that creates enforceable rights or obligations. In
this case, Maritime Ship Manufacturers contract to deliver cargo ships to Kim and Dreicy Shipping
Lines.
Step 2: Identify the separate performance obligations in the contract.
Maritime Ship Manufacturers has only one performance obligation—to deliver cargo ships to Kim
and Dreicy Shipping Lines. If Maritime Ship Manufacturers also agreed to maintain the cargo ships,
a separate performance obligation is recorded for this promise.
Step 3: Determine the transaction price.
Transaction price is the amount of consideration that a company expects to receive from a
customer in exchange for transferring a good or service. In this case, the transaction price is
straight forward—it is P720,000,000.
Step 4: Allocate the transaction price to the separate performance obligations.
In this case, Maritime Ship Manufacturers has only one performance obligation—to deliver cargo
ships to Kim and Dreicy Shipping Lines.
Step 5: Recognize revenue when each performance obligation is satisfied.
Maritime Ship Manufacturers recognizes revenue of P720 million for the sale of the cargo ships to
Kim and Dreicy Shipping Lines when it satisfies its performance obligation—the delivery of the
cargo ships to Kim and Dreicy Shipping Lines.
Problem II – Revenue Recognition
1. May 10, 20x5.
No entry is required on May 10, 20x5, because neither party has performed on the
contract. That is, neither party has an unconditional right as of May 10, 20x5. On June 15,
20x5, Marc delivers the product and therefore should recognize revenue as it received an
unconditional right to consideration on that date. In addition, Marc satisfies its
performance obligation by delivering the product to Josh.

2. June 15, 20x5

The journal entry to record the sale and related cost of goods sold is as follows.
June 15, 20x5
Accounts Receivable...............................................................4,000
Sales Revenue........................................................................ 4,000
Cost of Goods Sold..................................................................2,600
Inventory................................................................................ 2,600
3. July 15, 20x5
After receiving the cash payment on July 15, 20x5, Marc makes the following entry.
July 15, 20x5
Cash................................................................................................. 4,000
Accounts Receivable............................................................... 4,000
A key attribute of the revenue arrangement is that the signing of the contract by the two parties is
not recorded until one or both of the parties perform under the contract. Until performance
occurs, no net asset or net liability occurs.

Problem III
Correction should be December 20, 20x6 not 20x7
1. December 20, 20x6: Robcom Computers orders 200 games-boxes at a price of
P7,600 each, promising payment within thirty (30) days after delivery. Anton
Video Tech has received the order but hasn’t fulfilled its performance obligation to deliver
PSP games-boxes.
 Given that situation and other indicators, Anton’s judgment is that control has not been
transferred and revenue should not be recognized.

2. January 1, 20x7: Anton delivers 200 PSP game-boxes to Robcom Computers,

and title to the PSP game-boxes transfers to Robcom Computers. Anton has
delivered the game-boxes, and Nathan has accepted delivery, so Robcom has physical
possession, legal title, the risks and rewards of ownership, and an obligation to pay Anton.
Anton’s performance obligation has been satisfied, so Robcom can recognize
revenue (at a point in time) and a related account receivable of P1,520,000.
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,520,00
..
.... . 0
Revenues from sales of 1,520,000
goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
To record revenue sales of goods.

Cost of xxx
sales. . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxx
....
To record cost of goods sold.

3. January 25, 20x7: Anton receives P1,520,000 from Robcom. This transaction does
not affect revenue. Recognize revenue when performance obligations are
satisfied, not when cash is received. Anton simply records collection of the account
receivable.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,520,00
.
.. . 0
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,520,000
.
To record collections.

Correction should be December 20, 20x6 not 20x7

4. 20x6: None or Zero. Refer to No. 1 above for further discussion.

Correction should be January 1, 20x7 not 20x8

5. P1,520,000

Correction should be January 25, 20x7 not 20x8

6. January 25, 20x7, no revenue recognize but simply a collection.

Problem IV
1. January 1, 20x7, Anton records the following journal entry at the time of sale:
Cash. (P400 x 105) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42,000
.......
Deferred revenue . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . 42,000
...
To record unearned revenue.

Anton recognizes no revenue on January 1. Rather, Anton recognizes a deferred

revenue (a liability) for P42,000 associated with receiving cash prior to satisfying its
performance obligation to provide customers with access to the Kimdrei video games for a
year.
Subscribers receive benefits each day they have access to the Kimdrei network, so Anton
uses “proportion of time” as its measure of progress toward completion.
2. January 31, 20x7 – December 31, 20x7. At the end of each of the 12 months
(revenue is recognize overtime or over a period of time) following the sale,
Anton would record the following entry to recognize Kimdrei’s revenue:
Deferred revenue (P42,000 / 12 = P20,000). . . . . . . . . . . . . . . . . . . . 3,500
...
Service/Subscription revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
.....
To record earned service revenue.

3. No revenue to be recognized.
4. P3,500 per month (refer to No. 2)
After 12 months Anton will have recognized the entire P42,000 of Kimdrei subscription revenue, and the
deferred revenue liability will be reduced to zero. Performance obligations can be satisfied either at a point in
time or over a period of time, and revenue with respect to a performance obligation is recognized when (or as)
the performance obligation is satisfied. The timing does not depend on whether a performance
obligation:
1. Is the only one in a contract or
2. One of the several performance obligations in a contract.

The purpose of such situation is to determine the timing of revenue recognition for each performance obligation
individually.

Problem V
In 20x6 AA has transferred the land, and the construction company has an obligation to pay
AA. Apache’s performance obligation has been satisfied, and revenue and a related
accounts receivable of P3,000,000 can be recognized. Under accrual accounting, revenue is
recorded when goods and services are transferred to customers (20x6), not necessarily
when cash changes hands in future periods.

Problem VI – Timing of Revenue Recognition - Point in time when revenue should be

recognized
The following items should be taken into consideration by Cerise Outsourcing Company:
 Cerise Outsourcing Company does not create an asset with an alternative use because it is
prohibited from redirecting the software to another customer.
 Cerise Outsourcing Company is entitled to payments for performance to date and expects
to complete the project.
 Consequently, Cerise Outsourcing Company concludes that the contract meets the criteria
for recognizing revenue over time.

Problem VII
This contract qualifies for revenue recognition over time, because the performance
obligation (to provide technology consulting services upon request) is consumed by the
customer as the seller’s work is performed. Therefore, Shirley should recognize revenue of
P4,000 (P6,000 × 8/12 months) in 20x6.

Journal entries (not required):

May 1, 20x6
Cash 6,000
Deferred revenue 6,000

December 31, 20x6 adjusting entry

Deferred revenue 4,000
Service revenue (P6,000 x 8/12) 4,000

Problem VIII – Contract Costs

The following items should be taken into consideration by Espi Outsoucing Company:
 The P48,000 selling commission costs related to obtaining the contract are recognized as an
asset.
  The design services cost of P72,000 and the hardware for the platform of P240,000 are also
capitalized.
 As the technology platform is independent of the contract, the pattern of amortization of this
platform may not be related to the terms of the contract.
 The migration and testing costs of P156,000 are expensed as incurred; in general, these costs
are not recoverable.

Problem IX - Contract Assets

On February 1, 20x7, Janine records the following entry:
Contract Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
....
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000
......

On February 1, JJ does not record an accounts receivable because it does not have an unconditional
right to receive the P240,000 unless it also transfers Product Y to DD.

When JJ transfers Product Y on March 1, 20x7, it makes the following entry:

Accounts 240,000
receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract 72,000
Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168,000
.....
Problem X - Contract Liabilities
There is no entry is required on March 1, 20x7 for the following reasons:
 Neither party has performed on the contract.
 Neither party has an unconditional right as of March 1, 20x7.
On receiving the cash on April 15, 20x7, Asser records the following entry:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . 24,000
....
Unearned Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
.....

On satisfying the performance obligation on July 31, 20x7, Janine records the following
entry to record the sale:
Unearned Sales Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
...
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
.....

In addition, Asser records cost of goods sold as follows:

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
...
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
....
Costs to Fulfill a Contract

Companies divide fulfillment costs (contract acquisition costs) into two categories:
 Those that give rise to an asset.
 Those that are expensed as incurred.
Companies recognize an asset for the incremental costs if these costs are incurred to obtain a
contract with a customer. In other words, incremental costs are those that a company would not incur
if the contract had not been obtained, such as:
a. Sales commissions;
b. Direct labor, direct materials, and allocation of costs that relate directly to the contract (e.g.,
costs of contract management and supervision, insurance, and depreciation of tools and
equipment); and;
 c. Costs that generate or enhance resources of the company that will be used in satisfying
performance obligations in the future. Such costs include intangible design or engineering
costs that will continue to give rise to benefits in the future.
Other costs that are expensed as incurred include general and administrative expenses (unless those
costs are explicitly chargeable to the customer under the contract) as well as costs of waste, labor, or
other resources to fulfill the contract that were not reflected in the price of the contract.

In summary, companies only capitalize costs that are direct, incremental, and recoverable
(assuming that the contract period is more than one year).

Problem XI – Revenue Recognition Constraint

The following items should be taken into consideration by Ging and Associates:
1. Recognized the management fee each quarter based on the performance of its services
during the year.
2. The incentive fee should not be recorded until the end of the year. Therefore, this fee is
constrained (not recognized) until the incentive is determinable at the end of the year.

Problem XII – Transaction Price

(a) Grey would recognize revenue of P2,000,000 at delivery.
(b) Grey would recognize revenue of P1,600,000 at the point of sale.
(c) Grey would recognize revenue of P928,000 at the point of sale.

Problem XIII – Discounted Transaction Price

The following items should be taken into consideration by Toby’s Store:
 As indicated, the standalone price for product 1, 2, 3, and 4 is P21,240, but the bundled price
for all four products is P18,600.
 The discount applies to the performance obligations related to products 1, 3, and 5.
Accordingly, Toby’s Store: allocates the discount to product 1, 3, and 4, and not to products
2, as follows:
Allocated Amounts
Product 1, 3, and 4…………………………………… P 16,200
Product 2……………………………………………….. 6,000

Problem XIV
Based on relative stand-alone selling prices, the software comprises 70% of the total fair
values (P70,000 ÷ [P30,000 + P70,000]), and the technical support comprises 30%
(P30,000 ÷ [P30,000 + P70,000]). Therefore, Ging would recognize
P56,000 (P80,000  70%) in revenue when the software is delivered and defer the
remaining P24,000 (P80,000  30%) to be recognized evenly over the next six months as
the technical support service is provided.

P80,000
Transaction Price

70% 30%

P56,000
P24,000
TechnicalSoftware
Support Service
The journal entry is recorded as follows:
Cash 80,000
Sales revenue(for software) 56,000
Deferred revenue(for tech support) 24,000

Problem XV – Allocate Transaction Price

1. The entry to record the sale and related cost of goods sold is as follows.
Accounts Receivable.............................................820,000
 Sales Revenue............................................................. 740,000
Unearned Service Revenue......................................... 80,000

2. First Quarter
Sales revenue..................................................................... P740,000
The revenue for installation will be recognized in the second quarter.

Problem XVI – Allocate Transaction Price

1. January 2, 20x5
Cash......................................................................300,000
Unearned Sales Revenue ............................................ 300,000
(To record upfront payment for sales of products A and B)

December 31, 20x5

Interest Expense (P300,000 X 6%)..........................18,000
Interest Payable........................................................... 18,000
(To record interest on the contract liability)

2, December 31, 20x6

Interest Expense
([P300,000 + P18,000] X 6%)...............................19,084
Interest Payable........................................................... 19,084
(To record interest on the contract liability)

3. January 2, 20x7
Unearned Sales Revenue.........................................75,000
Interest Payable ([P18,000 + P19,080] X 25%).........9,270
Sales Revenue............................................................. 84,270
(To record revenue on transfer of product A)
Note: Interest will continue to accrue on product B over the next 3 years.

Problem XVII
If a seller is purchasing distinct goods or services from a customer at the fair value of those
goods or services, we account for that purchase as a separate transaction. Otherwise,
excess payments by the seller are treated as a refund of the customer’s purchase. If the
payments are made (or are expected to be made) at the time of the original sale, the
transaction price of the customer’s purchase is reduced immediately by the refund. If
payment is not expected at the time of the sale, revenue is recorded based on the full
transaction price, and any subsequent payment by the seller above fair value results in a
reduction of the transaction price at that time.

There is no indication that Aljons’ payment to Ana for P10,000, which is P2,500 more than
the fair value of those services (P7,500), was expected at the time of the original sale.
Therefore, the original sale would be recorded based on the full transaction price of P60,000.
The overpayment of P2,500 reduces the P60,000 transaction price of the goods sold by Aljon
to Ana at the time the P10,000 is paid, resulting in a downward adjustment of revenue of
P2,500 at that time and net revenue over the period of P60,000 – P2,500 = P57,500.

Problem XVIII – Variable Consideration

1. Anton determines that the transaction price for the 100 policies is P11,000 [(P200 X
100) + (P20 X 4.5 X 100)].
2. January, 20x5
Cash (100 X P200).................................................... 20,000
Accounts Receivable…………………………....................9,000
Service Revenue (Commissions).................................. 29,000
 Because on average, customers renew for 4.5 years, Anton includes that amount in its
estimate for the transaction price. When Anton satisfies its performance obligation by
selling the insurance policy to the customer, it recognizes revenue of P290
(P29,000/100) on each policy because it determines that it is reasonably assured to be
entitled to that amount. Anton concludes that its past experience is predictive, even
though the total amount of commission received depends on the actions of a third
party (that is, policyholder behavior). As circumstances change, Anton updates its
estimate of the transaction price and recognizes revenue (or a reduction of revenue)
for those changes in circumstances.

Problem XIX – Extended Payment Terms

July 1, 20x7: Record the Sale
Notes 894,697.
receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,000.0
... 0
Unearned Interest income (discount on notes receivable). . . . . . 354,697.8
0
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,000.
.
... 00
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 354,000.0
.... 0
December 31, 20x7: Record interest revenue:
Unearned interest income (Discount on notes receivable). . . . . . . . . . 32,400.0 .
... 0
Interest income (12% x ½ x P540,000). . . . . . . . . . . . . . . . . . . . . . . 32,400.00
.....
The revenue that James Company should record on July 1, 20x7 should amount to P540,000. While the
amount of revenue (i.e., interest income) that should be report related to this transaction on December
31, 20x7 also amounted to P32,400.
For practical considerations, companies are not required to reflect the time value of money if
the time period for payment is less than a year.

Problem XX
Requirement 1
Number of performance obligations in the contract: 2.

Delivery of gold is one performance obligation. The additional insurance is a second

performance obligation. The insurance service is capable of being distinct because the bank
could choose to receive similar services from another insurance provider, and it is separately
identifiable, as it is not highly interrelated with the other performance obligation of
delivering gold, and the seller’s role is not to integrate and customize them to create one
service or product. So, the insurance qualifies as a performance obligation. The receipt of
cash prior to delivery is not a performance obligation, but rather gives rise to deferred
revenue associated with performance obligations to be satisfied in the future.

Requirement 2
Value of the gold bars:
P14,400/unit 100 units = P 1,440,000
Stand-alone selling price of the insurance:
P600  100 units = ___60,000
Total of stand-alone prices P1,500,000
Fermin first identifies each performance obligation’s share of the sum of the stand-alone
selling prices of all deliverables:
P144,000
Desktop computers: = 96%
P1,440,000 + P60,000
P6,000
Insurance: = 4%
P1,440,000 + P60,000
100%

Fermin then allocates the total selling price based on stand-alone selling prices, as follows:

P1,470,000
Transaction Price

96% 4%

P1,411,200
P5,880
Gold
Insurance
Entry on March 1, 20x6:
Cash 147,000
Deferred revenue–gold bars 141,120
Deferred revenue–insurance 5,880

Requirement 3
Entry on March 30, 20x6:
Deferred revenue–gold bars 141,120
Sales revenue 141,120

Fermin recognizes only the portion of revenue associated with passing of the legal title. The
revenue associated with insurance coverage will be earned only when that performance
obligation is satisfied.

Requirement 4
Entry on April 1, 20x6:
Deferred revenue–insurance 5,880
Service revenue 5,880

Problem XXI
1. Anton Video Tech would recognize revenue if these two items were sold as a package
deal for a single price.
 January 1, 20x7, Anton records the following journal entry at the time of the sale to Nathan
Computers with multiple performance obligations. Therefore, the total transaction price of
P1,540,000 (P7,700 per system x 200) would be allocated as follows:
Module: [P1,540,000 x *(P7,600)/(P7,600 + P400)]……………………….P 1,463,000
Subscription: [P1,540,000 x **(P400)/(P7,600 + P400)]………………….. 77,000
*95%; **5%

Anton Video Tech, have the P1,463,000 of revenue associated with the PSP game-box
recognized when those modules are delivered to Nathan Computers on January 1
(point in time), but the P77,000 of revenue associated with the subscriptions is
recognized over (over time) the one-year subscription term.
Accounts 1,540,00
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Revenues from sales of goods (P1,540,000 x 95%), [PT]. . . . . . . . 1,463,000
. .....
Deferred revenue (P1,540,000 x 5%), 77,000
[OT] . . . . . . . . . . . . . . . . . . . . . . . . .
 To record sales on account.
Cost ofxxx
sales . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Xxx
To record cost of sales.

2. December 31, 20x7, In each of the 12 months (over time) following the sale, Anton Video Tech
records the following entry to recognize subscription revenue:
Deferred revenue (P77,000 / 12 = 6,417
P6,417). . . . . . . . . . . . . . . . . . . . . . .
Service/Subscription revenue (OT) . 6,417
.............................
To record earned service revenue.
After 12 months Anton Video Tech will have recognized the entire P77,000 of
subscription revenue, and the deferred revenue liability will have been reduced to
zero.

3. January 1, 20x7, revenue amounted to P1,463,000 (refer to No. 1)

4. Revenue per month starting January 31, 20x7, amounted to P6,417 (refer to No. 2)

Problem XXII – Multiple Performance Obligations

The following items should be taken into consideration by AA Maritime Industries, Inc.
 The first condition for separation into a standalone unit for the bridge simulator is met. That is,
the bridge simulator, installation, and training are distinct and not interdependent (or
independent) - they are three separate products or services, and each of these items
has a standalone selling price.
 The total revenue of P42,000,000 should be allocated to the three components based on their
relative fair values.

1. The fair value of the bridge simulator should be considered P42,000,000, the installation fee is
P840,000, and the training is P420,000. The total fair value to consider amounted to:
Bridge simulator (P40,740,000/P42,000,000) x P40,740,000……………………...
P39,517,80
0
Installation (P840,000/P42,000,000) x 814,800
P40,740,000……………………………..
Training (P420,000/P42,000,000) x___407,400
P40,740,000….........................................
Total…………………………………………………………………………………….. P40,740,00
0

2. AA Maritime Industries, Inc makes the following entry on November 1, 20x7, to record
both sales revenue and service revenue on the installation, as well as unearned service
revenue:
Cash. . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . .40,740,0
.... 00
Service revenue (installation). . . . . . . . . . . . . . . . . . . . . . . 814,800
....
Unearned service 407,400
revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,517,80
...... 0

(Not required)
Assuming the cost of the bridge simulator is P28,518,000 the entry on November 1, 20x7 to
record cost of goods sold is as follows:
Cost of goods sold. . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . .28,518,0
..... 00
 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,518,00
. ... 0

As indicated by the above entries, AA Maritime Industries, Inc recognizes revenue from the
sale of the bridge simulator once the installation is completed on November 1, 20x7. In
addition, it recognizes revenue for the installation fee because these services have been
performed.

3. AA Maritime Industries, Inc recognized the training revenues on a straight-line basis

starting on November 1, 20x7, or P101,000 (P407,400/4 months) per month for four (4) months.
The journal entry on December 31 20x7 to recognize the training revenue of two (2)
months in 20x7 is as follows:
Unearned service revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 202,000
..
Service revenue (P101,000 x 2 months). . . . . . . . . . . . . . . 202,000
...

Therefore, AA Maritime Industries, Inc recognizes revenue on December 31, 20x7, in the
amount of P40,534,600 (P39,517,800 + P814,800 + P202,000). AA Maritime Industries, Inc
makes the following journal entry on December 31, 20x7 to recognize the training revenue in
20x8, assuming adjusting entries are made at year-end:
Unearned service revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,400
..
Service revenue (P407,400 – P202,000). . . . . . . . . . . . . . . 205,400
...

Problem XXIII – Contract Modification

1. January 1, 20x5
Cash .......................................................................20,000
Unearned Service Revenue....................................... 20,000
December 31, 20x5
Unearned Service Revenue.....................................20,000
Service Revenue....................................................... 20,000
January 1, 20x6
Cash .......................................................................20,000
Unearned Service Revenue....................................... 20,000
December 31, 20x6
Unearned Service Revenue.....................................20,000
Service Revenue....................................................... 20,000
2. January 1, 20x7
Cash (P16,000 + P40,000).......................................56,000
Unearned Service Revenue....................................... 56,000
December 31, 20x7
Unearned Service Revenue (P56,000 ÷ 4)...............14,000
Service Revenue....................................................... 14,000

In this case, the modification of the contract does not result in new performance
obligation. As a result, the remaining service revenue is recognized evenly over the
remaining four years.

3. Given the change in services in the extended contract period, the services are distinct;
the modification should not be considered as part of the original contract – Tucson
recognizes revenue on the remaining services at different rates. Tucson will recognize
P13,333 (P40,000 ÷ 3) per year in the extended period (20x8–20y0). For 20x7, Tucson
makes the following entry.
January 1, 20x7
 Cash (P16,000 + P40,000).......................................56,000
Unearned Service Revenue....................................... 56,000
December 31, 20x7
Unearned Service Revenue.....................................16,000
Service Revenue....................................................... 16,000

Problem XXIV – Contract Modification

1. Cash .......................................................................18,000
Sales Revenue (90 X P200)....................................... 18,000
Cost of Goods Sold....................................................9,720
Inventory (90 X P108)............................................... 9,720
2. Cash .........................................................................2,000
Sales Revenue (10 X P200)....................................... 2,000
Cost of Goods Sold....................................................1,080
Inventory (10 X P108)............................................... 1,080
In this situation, the contract modification for the additional 90 products is, in effect, a
new and separate contract for future products that does not affect the accounting for
the previously existing contract.
3. In this case, because the new price does not reflect a standalone selling price,
Giordano allocates a modified transaction price (less the amounts allocated to
products transferred at or before the date of the modification) to all remaining
products to be transferred.

Under the prospective approach, Giordano determines the transaction price for
subsequent sales (P195.71) as follows:

Consideration for products not yet delivered

under original contract [P200 X (150-90)] P 12,000
Consideration for products to be delivered
under the contract modification (P190 x 45) 8,550
Total remaining revenue P 20,550
Revenue per remaining unit [P20,550  (150-45)] = P195.71.

As indicated, the numerator includes products not yet transferred under original
contract (P200 X 60) plus products to be transferred under the contract modification
(P190 X 45), which is divided by the remaining 105 products.

The journal entries to record subsequent sales and related cost of goods sold for 10
units is as follows.
Cash (10 X P195.71)..............................................1957.10
Sales Revenue.......................................................... 1,957.10

Cost of Goods Sold...............................................1,080.00

Inventory................................................................... 1,080.00

Problem XXV – Contracts and Recognition

The above new contract, AB recognizes additional total revenue of P63,720,000, computed as follows
Original contract [(120,000 units – 72,000 units) x P900]………………………P 43,200,000
New product (24,000 units x P855)……………………………………………….. 20,520,000
Total revenue after the modification………………………………….…………P 63,720,000

In this situation, the contract modification for the additional 24,000 products is, as a result, a new and
separate contract, which does not affect the accounting for the original contract.
Problem XXVI
Under the adjusted market assessment approach, O’Hara would base its estimate of the
stand-alone selling price of the club-fitting services on the prices charged by other vendors
for those services, adjusted as necessary. Because O’Hara typically charges 10% more than
what other vendors charge, O’Hara would estimate the stand-alone selling price of the club-
fitting service to be P110 × 110% = P121.

Problem XXVII
Under the expected cost plus margin approach, Espenilla would base its estimate of the
stand-alone selling price of the club-fitting service on the P600 cost it incurs to provide the
services, plus its normal margin of P600 × 30% = P180. Therefore, O’Hara would estimate
the stand-alone selling price of the club-fitting services to be P600 + P180 = P780.

Problem XXVIII
Under the residual approach, Espenilla would base its estimate of the stand-alone selling
price of the club-fitting services on the total selling price of the contract (P15,000) minus the
observable stand-alone selling price of clubs (P14,000). Therefore, Espenilla would estimate
the stand-alone selling price of the club-fitting services to be P15,000 – P14,000 = P1,000.

Problem XXIX
When a contract includes variable consideration, sellers are constrained to recognize only
the amount of revenue they believe is probable that they won’t have to reverse (adjust
downward) in the future if the variable consideration changes. In this case, factors outside
the seller’s control (stock market volatility) make the seller’s estimate of variable
consideration very uncertain, so the amount of revenue that Asser, Inc. will recognize during
the year is limited to the fixed annual management fee, which is P1.5 million (1% of the
client’s P150 million total assets under management). Therefore, Asser, Inc. would use P1.5
million as its estimate of the transaction price. Any performance bonus earned by Asser,
Inc. will be recognized as revenue if and when it is earned.

Problem XXX – Volume Discount

The entries that Samsung recognize as revenue for the first three months of 20x7 (March 31, 20x7) are
as follows:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .407,400
....
Sales [P420,000 - (P420,000 x 407,400
3%)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..
Samsung should reduce its revenue by P12,600 (P420,00 x 3%) because it is probable that it will
provide this rebate.

Assuming Samsung’s customer meets the discount threshold, Samsung makes the following entry:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .407,400
. . . . ..
Accounts 407,400
receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
If Samsung’s customer fails to meet the discount threshold, Samsung makes the following entry upon
payment.
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .420,000
. . . . ..
Accounts 407,400
receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales discount 12,600
lost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407,400
. . . . ..
Accounts 407,400
 receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Problem XXXI
Number of performance obligations in the contract: 1.

A right of return is not a performance obligation. Instead, the right of return represents a
potential failure to satisfy the original performance obligation to deliver goods to the
customer. Because the total amount of cash received from the customer depends on the
amount of returns, a right of return is a type of variable consideration.

Aria should estimate sales returns and reduce revenue by that amount in order to arrive at
“net revenue,” which would be the transaction price (the amount to be recorded as revenue
on the seller’s books). The total net revenue in this situation is P280,233:
Revenue P288,900 (P90 × 3,210 units)
Sales returns 8,667 (P288,900 × 3%)
Net revenue P280,233
Problem XXXII – Sales with Returns
1. January 2, 20x5
Accounts Receivable..........................................3,000,000
Refund Liability (P3,000,000 X 20%)......................... 600,000
Sales Revenue.......................................................... 2,400,000
Estimated Inventory Returns.......................... 320,000*
Cost of Goods Sold.............................................1,280,000
Inventory................................................................... 1,600,000
* (20% X P1,600,000)
2. March 1, 20x5
Refund Liability......................................................200,000
Accounts Receivable................................................ 200,000
Inventory........................................................ 106,667*
Estimated Inventory Returns..................................... 106,667
* (P1,600,000 ÷ P3,000,000) x P200,000
Companies record the returned asset in a separate account from inventory to provide
transparency.
3. If CPF is unable to estimate returns, it defers recognition of revenue until the return
period expires on May 2, 20x5.

Problem XXXIII – Sales with Discounts

1. The journal entry to record the sale and related cost of goods sold are as follows.
Accounts Receivable..........................................1,200,000
Sales Revenue (P1,220,000 – P20,000) 1,200,000
Cost of Goods Sold.............................................1,000,000
Inventory .................................................................. 1,000,000
2. Cash ..................................................................1,220,000
Sales Revenue.......................................................... 20,000
Accounts Receivable................................................. 1,200,000
Problem XXXIV – Sales with Returns and Discounts
1. The journal entries to record sales and related cost of goods sold are as follows.
June 3, 20x5
Accounts Receivable........................................16,000
Refund Liability.............................................. 1,600
Sales Revenue............................................... 14,400
Estimated Inventory Returns.................... 1,120*
Cost of Goods Sold........................................10,,080
 Inventory....................................................... 11,200
* (P11,200 ÷ P16,000) x P1,600
The journal entries to record the return is as follows.
June 5, 20x5
Refund Liability............................................................ 600
Accounts Receivable......................................... 600
Returned Inventory *..............................................240
Estimated Inventory Returns.......................... 240
* Because these goods were damaged and might not be sold at a profit, they
likely will be separated from other inventory. A loss may be subsequently
recognized if this inventory is sold or disposed of at an amount lower than cost.

The journal entry to record delivery cost is as follows.

June 7, 20x5
Delivery Expense.....................................................48
Cash.................................................................. 48
The journal entry to record payment within the discount period is as follows.
June 12, 20x5
Cash.................................................................15,092
Sales Discounts (2% X P15,400*).................308
Accounts Receivable (Austin)............................ 15,400
*P16,000 – P600
2. August 5, 20x5
Cash.................................................................14,400
Accounts Receivable (Austin).......................... 15,092
Sales Discounts Forfeited
(2% X P15,400).............................................. 308

Problem XXXV – Bill and Hold

GG Company determines when it has satisfied its performance obligation to transfer a product by
evaluating when CC obtains control of that product. For CC to have obtained control of a product in a
bill-and-hold arrangement, all of the following criteria should be met:
- The reason for the bill-and-hold arrangement must be substantive.
- The product must be identified separately as belonging to CC.
- The product currently must be ready for physical transfer to CC
- Gianne cannot have the ability to use the product or to direct it to another customer.

In this case, it appears that the above criteria were met, and therefore revenue recognition
should be permitted at the time the contract is signed.
GG makes the following entry to record the sale:
Accounts 1,080,00
receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,000
......
GG makes an entry to record the related cost of goods sold as follows.
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .672,000
...
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 672,000
....
Problem XXXVI
Lazada will recognize revenue of P1,500, its commission on the sale. In this transaction,
Lazada never has primary responsibility for delivering a product or service, and it is not
vulnerable to risks associated with holding inventory or delivering the product or service.
Therefore, Lazada serves as an agent, and will only recognize revenue on the transaction
equal to the amount of the commission it receives.

Problem XXXVII – Identifying Separate Performance Obligations

1. The sale of the computer and related assurance warranty are one performance
obligation as they are interdependent (mutually dependent) and interrelated (or
unified) with each other.
2. The extended warranty is separately sold and is not interdependent (independent),
therefore, two performance obligation.

Problem XXXVIII - Warranties

JJ Company sold 2,400 units during 20x7 at a total price of P14,400,000, with a warranty guarantee
that the product was free of any defects. The cost of each unit sold is P9,600,000. The term of the
assurance warranty is two years, with an estimated cost of P72,000. In addition, Jack sold extended
warranties related to 800 units for three years beyond the two-year period for P28,800.
1. To record the revenue and liabilities related to the warranties:
Cash (P14,400,000 +14,428,8
P28,800). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 00
Warranty 72,000
expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty 72,000
liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unearned Warranty Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,800
.....
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,000,00
... .. 0

2. To reduce inventory and recognize cost of goods sold:

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,600,00
.
... 0
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,600,000
....

Problem XXXIX
Number of performance obligations in the contract: 2.

In addition to the subscription, the renewal option is a performance obligation because it

provides a material right that allows the customer to renew at a better price than could be
obtained without the right. The renewed protection is capable of being distinct, as it could
be sold or provided separately, and it is separately identifiable, as the customer can use the
renewed protection on its own. Therefore, the renewed protection is distinct, and qualifies
as a performance obligation.

Problem XL
Requirement 1
Number of performance obligations in the contract: 2.
The delivery of Flood-Boots is one performance obligation. The discount coupon for
additional future purchases is a second performance obligation because it provides a
material right to the customer that the customer would not receive otherwise. That right to
receive a discount is both capable of being distinct, as it could be could be sold or provided
separately, and it is separately identifiable, as it is not highly interrelated with the other
performance obligation of delivering Flood-Boots, and the seller’s role is not to integrate and
customize them to create one product. So, the discount coupon is distinct and qualifies as a
performance obligation.
Requirement 2
If Balli can’t estimate the stand-alone selling price of Flood-Boots, it will use the residual
method to calculate that price as the amount of the total transaction price minus the value
of the discount.
Cash (1,000 x P700) 700,000
Sales revenue (to balance) 640,000
Deferred revenue (discount option) 60,000*
*(1,000 pairs  P1,000 average purchase price × 30% discount 20% of customers
estimated to redeem coupon)

Problem XLI – same with XXXVIII

Problem XLII – Sales with Repurchase

1. In this case, due to the agreement to repurchase the equipment, Joanna continues to
have control of the asset and therefore this agreement is a financing transaction and
not a sale. Thus the asset is not removed from the books of Joanna. The entries to
record the financing are as follows.
July 1, 20x5
Cash .......................................................................80,000
Liability to Hazel Company........................................ 80,000
2. December 31, 20x5
Interest Expense........................................................2,400
Liability to Hazel Company
(P80,000 X 6%* X 1/2)........................................... 2,400
(*) An interest rate of 6% is imputed from the agreement.
3. June 30, 20x6
Interest Expense........................................................2,400
Liability to Hazel Company
(P80,000 X 6% X 1/2)............................................. 2,400
Liability to Hazel Company......................................84,800
Cash (P80,000 + P2,400 + P2,400)........................... 84,800

Problem XLIII
1. March 1, 20x5
If the selling price of the ingots was P400,000, Zayn would record the following entry
when it receives the consideration from the customer:
Cash .....................................................................400,000
Liability to Werner Metal Company........................... 400,000
(To record repurchase agreement with Wade Metal Company)
2. May 1, 20x5
Interest Expense (P400,000 X 2%).............................8,000
Liability to Wade Metal Company...........................400,000
Cash.......................................................................... 408,000
(To record payment plus interest on financing)

Problem XLIV – Repurchase Agreement

MM Inc., an equipment dealer, sells equipment on January 1, 20x7, to RR Company for P200,000. It
agrees to repurchase this equipment on December 31, 20x8, for a price of P290,400.
1. Assuming an interest rate of 10 percent is imputed from the agreement, MM makes the following
entry to record the financing on January 1, 20x7:
Cash. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000
...
Liability to RR Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240,000

2. MM Inc. records interest on December 31, 20x8, as follows:

Interest 24,000
 Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability to RR Company (P240,000 x 24,000
10%). . . . . . . . . . . . . . . . . . . . . .
3. MM Inc. records interest and retirement of its liability to RR Company on December 31, 20x9, as
follows:
Interest 26,400
Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liability to RR Company [P240,000 + P24,000) x 26,400
10%]. . . . . . . . . . . . . . . .
Liability to RR290,400
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .
Cash [P240,000 + P24,000 + P26,400] . . . . . . . . . . . . . . . . . . . . . . 290,400
. . . . ..

Multiple Choice Problems

1. b - Written contract between Globemart, Inc. and Kim & Dreicy
2. c - Performance obligations (PO):
PO No. 1: Network services (monthly/installment plan)
PO No. 1: Apple I-Phone Handset
3. d - The transaction price:
Monthly fee…………………………………………………………….. P 1,200
Months of subscription (effective March 31, 20x7)……………... 12
Total transaction price (P1,200 x 12 months)…………………….. P14,400
4. d - Allocate the transaction price to the performance obligations:
PFRS 15 requires allocating the transaction price to individual performance
obligations. In this case, the telecommunications company must allocate total
contract price between the revenue from the sale of handset and sale of monthly
plan.
Stand-
alone Allocated Billing
Selling Transaction (per
Performance Obligations Price Price Revenue month)
Network services (P800 x
12) P 9,600 (9.6/12) P11,520 *P 960.00 P1,200
Apple I-Phone Handset __2,400 (2.4/12) __2,880 2,880.00 0
Total P12,000 P14,400
*P11,520/12 months

5. c - Recognize revenue when (or as) an entity satisfies a performance obligation

PO No. 1: Network services (monthly plan) over time, as
monthly network
services are provided
PO No. 1: Apple I-Phone Handset at the point in time, when
handset
is delivered to Kim
As a result, the timing of revenue recognition changes and another implication
of this treatment is that the revenue recognition does not correspond with
monthly billing to customers, as there will be some deferral accounts involved.

6. a-
Journal Entries:
March 1, 20x7
Contract assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,880
.
Revenues from sales of 2,880
goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
 To record revenue sales of goods (handset).

March 31, 20x7

Accounts receivable.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200
.
Contract assets (1/12 x 240
P2,880) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues from network services . .. . . . . . . . . . . . . . . . . . . . . . . . . 960
.....
To record revenue from services for first month.
Total revenue in 20x7:
Revenues from sales of goods – P
handset……………............................................... 2,880.00
Revenues from network services (10 months x P960)……………………………… __9,600.0
0
Total revenue……………………………………………………………………………………….. P12,480.0
0
7. b – nearest answer (refer to No. 6) – exact answer is P2,880.

8. c – refer to No. 6

9. b – refer to No. 6

10. d – nearest answer (refer to No. 6) – exact answer is P12,480.

Notes:
Further challenges in telecommunications industry are:
 Contract modifications:
What happens when customers modify their contracts with operators, for example – change the
amount of prepaid minutes or add new services? Here, it will be necessary to assess whether such a
change shall be accounted for retrospectively (one-off adjustment) or prospectively (as a “catch-
up” adjustment to future revenues), or even as for a separate contract
 Time value of money and discounting:
 IFRS (PFRS) 15 strictly defines the “financing component” and requires accounting for such a
component separately from revenue. As a result, maybe it would need to carefully incorporate time
value of money into some long-term advances received or paid, or contracts settled after more than
12 months.
 Costs related to obtaining a customer:
 Any industry, not only telecommunications industry, pays so-called “success fees” or commissions
for obtaining a client. Before, these costs were normally expensed and recognized in profit or loss.
However, PFRS 15 requires capitalizing them and recognizing them in profit or loss in line with
revenue recognition.

11. d – No sale has taken place as control of the goods has not been transferred, but
Cambridge Co. must recognize a contract liability to reflect the fact that it has received
P90,000 prior to transferring goods to its customer.

12. d - (P55,000  P50,000)  7/12 = P2,917.

13. b – As the asset is being repurchased for less than the selling the transaction must be
accounted for as a lease.

14. c – P500 per month for 6 months = P3,000.

15. b - Only revenue for three months should be recognized; the advanced payment for the
second three months is presented in current liabilities. Refer also to No. 17.

16. b – P200 profit per month for 6 months = P1,200.

17. b – Only revenue for three months should be recognized; the payment for the second
three months is an advanced payment and should be presented in current liabilities.

18. d – The criteria for revenue recognition have not yet been met and so the payment is
an advanced payments and should be presented in current liabilities.

19. b – Variable consideration is included in the transaction price inly if its highly probable
that a significant amount will not be reversed. In the first six months it is not expected
than more than 400 coats will be sold to the retailer and therefore a significant reversal
of reversal of revenue is not highly probable. First half-sales (P200 x 150) are P30,000 as
the price is reduction of revenue is not highly probable. In the second six months of the
contract, an unexpected increase in units sold means that the price reduction is
triggered. The revenue recognized in this period includes an adjustment to revenue
recognized in the frist half of the contract:
Second half-sales (P175 x 500)…………………………………………………………..P87,500
Less: Adjustment to first-half sales (P25 x 150)………………………………………..
( 3,750)
Revenue……………………………………………………………………………………..P83,750

20. d – The criteria for revenue recognition have not yet been met so the advanced payment
should be recognized as current liability.

21. d – P5,000,000 + P1,000,000 = P6,000,000

22. a
On January 1, 20x9
There is no entry is required on January 1, 20x9 for the following reasons:
 Neither party has performed on the contract.
 Neither party has an unconditional right as of January 1, 20x9.
On February 1, 20x9, Conrad records the following entry:
Contract 60,000
Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales 60,000
Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

On February 1, 20x9, Conrad does not record an accounts receivable because it does not have an
unconditional right to receive the P200,000 unless it also transfers Product Y to Piolo.

When Conrad transfers Product Y on March 1, 20x9, it makes the following entry:
Accounts 200,000
receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contract Asset. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000
..
Sales 140,000
Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23. a – refer to No. 22

24. b – refer to No. 22
25. d – refer to No. 22
26. c – refer to No. 22

27. a
There is no entry is required on March 1, 20x9 for the following reasons:
 Neither party has performed on the contract.
 Neither party has an unconditional right as of March 1, 20x9.
 On receiving the cash on April 15, 20x9, Evelyn records the following entry:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
. . ..
Contract Liability/Unearned Sales 20,000
Revenue . . . . . . . . . . . . . .

On satisfying the performance obligation on July 31, 20x9, Evelyn records the following entry to
record the sale:
Contract Liability/Unearned Sales Revenue . . . . . . . . . . . . . . 20,000
..
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
...

In addition, Evelyn records cost of goods sold as follows:

Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
...
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000
....

28. a – refer to No. 27

29. a – refer to No. 27
30. d – refer to No. 27
31. d – refer to No. 27
32. b-
The transaction includes a significant financing component that benefits Wood Designs Co. On July
1, 20x5, the cash advance is recognized by Wood Designs Co as a contract liability. Over the year
to June 30, 20x6, in accordance with PFRS 15 the contract liability balance accrues interest at
Wood Designs Co’s incremental borrowing rate (the rate that reflects the credit characteristics of
the party receiving financing).
P’000
Contract liability (1 July 20x5) 5,144
Interest at 7% 360
Contract liability (30 June 20x6) 5,504

33. c –
Revenue should be recognized as the contract progresses using either input or output methods.
Time elapsed (as opposed to hours worked on contract) is not an appropriate method to assets
progress. The number of calls made as a proportion of all calls is an appropriate output method
and therefore 35 per cent of revenue is recognized. As the amount invoiced exceeds the
performance obligation that has been satisfied, a contract liability is also recognized.

34. b
No entry is required on March 1, 20x7, because neither party has performed on the contract. That
is, neither party has an unconditional right as of March 1, 20x7. On July 31, 20x7, Giordano delivers
the product and therefore should recognize revenue as it received an unconditional right to
consideration on that date. In addition, Giordano satisfies its performance obligation by delivering
the product to Hotter.
No entry – neither party has performed on March 1, 20x7.

The entry on July 31, 20x7, to record the sale and related cost of goods sold is as follows:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,00 .
. 0
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
...

Cost of34,20
sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,200
...
 The entry to record the receipt of cash on August 31, 20x7 is a follows:
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57,00
..... 0
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,000
......

A key attribute of the revenue arrangement is that the signing of the contract by the two parties is
not recorded until one or both of the parties perform under the contract. Until performance
occurs, no net asset or net liability occurs.

35. a - refer to No. 34

36. c - refer to No. 34
37. c - refer to No. 34
38. c - refer to No. 34
39. a - refer to No. 34
40. b-
The following items should be taken into consideration by Rema Pulido Outsourcing
Company:
 The P40,000 selling commission costs related to obtaining the contract are recognized as an
asset.
 The design services cost of P60,000 and the hardware for the platform of P200,000 are also
capitalized.
 As the technology platform is independent of the contract, the pattern of amortization of this
platform may not be related to the terms of the contract.
The migration and testing costs of P130,000 are expensed as incurred; in general, these costs are
not recoverable.
41. b – refer to No. 40.
42. d - P75,000 + P50,000 + P25,000 = P150,000
P75,000/ P150,000  P120,000 = P60,000
P50,000/ P150,000  P120,000 = P40,000
P25,000/ P150,000  P120,000 = P20,000.

43. c - P75,000 + P50,000 + P25,000 = P150,000

(P25,000/ P150,000)  P120,000 = P20,000.

44. a - P160,000 + P25,000 = P185,000.

P160,000/ P185,000  P180,000 = P155,676
P25,000/ P185,000  P180,000 = P24,324

45. d

46. a -
SONI first must identify each performance obligation’s share of the sum of the stand-
alone selling prices of all performance obligations:
P17,000
TV: P17,000 + P1,000 + P2,000 = 85%

P1,000
Remote: P17,000 + P1,000 + P2,000 = 5%

P2,000
Installation: = 10%
P17,000 + P1,000 + P2,000
100%
SONI would allocate the total selling price of the package ($1,900) based on stand-alone
selling prices, as follows:
TV: P19,000 x 85% = P16,150
 Remote: P19,000 x 5% = P 950
Installation: P19,000 x 10% = P 1,900

47. d -
Under the adjusted market assessment approach, SONI would base its estimate of the
stand-alone selling price of the installation service on the prices charged by other
vendors for that service, adjusted as necessary. Given that the other vendors are similar
to SONI, no adjustment is necessary. Therefore, SONI would estimate the stand-alone
selling price of the installation service to be P1,500, the amount charged by competitors
for that service.

48. c -
Under the expected cost plus margin approach, VP would base its estimate of the stand-
alone selling price of the installation service on the P1,000 cost it incurs to provide the
service, plus its normal margin of 40% × P1,000 = P400. Therefore, VP would estimate
the stand-alone selling price of the installation service to be P1,000 + P400 = P1,400.

49. b -
Under the residual approach, SONI would base its estimate of the stand-alone selling
price of the installation service on the total selling price of the package (P19,000) less
the observable stand-alone selling prices of the TV (P17,500) and universal remote
(P1,000). Therefore, VP would estimate the stand-alone selling price of the installation
service to be P19,000 – (P17,500 + P1,000) = P500.

50. d -
The expected value would be calculated as follows:

Possible Amounts Probabilities Expected Amounts

P70,000 (P50,000 fixed fee + P20,000 bonus) × 20% = P14,000
P50,000 (P50,000 fixed fee + P0 bonus) × 80% = 40,000
Expected contract price at inception P54,000
Or, alternatively: P50,000 + (P20,000 × 20%) = P54,000

51. c -
The most likely amount is the flat fee of P50,000, because there is a greater chance of
not qualifying for the bonus than of qualifying for the bonus, so that is the transaction
price.

52. c -
Because Mercedes is very uncertain of its estimate, Mercedes can’t argue that it is
probable that it won’t have to reverse (adjust downward) a significant amount of
revenue in the future because of a change in returns. Therefore, Mercedes would not
include the bonus estimate in the transaction price, and the transaction price would be
the flat fee of P50,000.

53. a -
January income...................................................................... P 0
February income (P8,000 – P6,000) X 50%............................ P1,000
March income (P8,000 – P6,000) X 30%)............................... P 600
April income (P8,000 – P6,000) X 20%)................................. P 400

54. c
Number of performance obligations in the contract: 2.
 Performing the grass-cutting services is one performance obligation. The 50% discount coupon on
any barbecue grill with a list price in excess of P200 qualifies as a second performance obligation.
First, it is an option that conveys a material right to the recipient (as opposed to a general
marketing offer), so it is a performance obligation. Second, it is both capable of being distinct, as it
could be sold or provided separately, and it is separately identifiable, as it is not highly interrelated
with the other performance obligation of delivering grass-cutting services, so it is distinct and
qualifies as a performance obligation. Mohawk will record deferred revenue associated with the
coupons, and recognize revenue when either the coupon is exercised or the company estimates
that it will not be redeemed.

55. b -
Mohawk must first establish stand-alone selling prices of each performance obligation:
Value of the discount coupon: 50% discount × P400 average purchase price = P200
Estimated redemption × 40%
Stand-alone selling price of coupon P 80
Stand-alone selling price of grass-cutting service P2,000
Total of stand-alone prices P2,080
Mohawk should identify each performance obligation’s share of the sum of the stand-alone
selling prices of all deliverables:
P2,000
Grass-cutting services: = 96.15%
P2,000 + P80
P80
Discount coupon for grills: = 3.85%
P2,000 + P80
Mohawk would allocate the total selling price of P2,000 based on the stand-alone selling
prices, as shown below:
Grass-cutting services: P2,000 × 96.15% = P1,923
Discount coupon for grills: P2,000 × 3.85% = 77
Total: 100% P2,000
Upon receiving P2,000, the journal entry would be:
Cash 2,000
Deferred revenue (grass-cutting services) 1,923
Deferred revenue (discount option) 77

Note: The amount of revenue Mohawk should recognize upon receipt of the service fee is P0.
Mohawk has not delivered goods or services at the time of the payment, so it should be
viewed as a prepayment for future delivery of goods or services. Hence, Mohawk should
record deferred revenue (current liability). Later, when services are delivered, deferred
revenue will be reduced and revenue would be recognized.

56. c -
Number of performance obligations in the contract: 2.
Delivery of keyboards is one performance obligation. The special discount coupon is a
second performance obligation, as it provides a material right that the customer would
not receive otherwise. In this particular instance, the customer has the right to receive a
25% discount, which is a 20% discount in addition to the normal 5% discount offered to
other customers. The coupon is both capable of being distinct, as it could be sold or
provided separately, and it is separately identifiable, as it is not highly interrelated with
the other performance obligation of delivering keyboards, and the seller’s role is not to
integrate and customize them to create one product. So, it is distinct and qualifies as a
performance obligation.
57. a -
When two or more performance obligations are associated with a single transaction
price, the transaction price must be allocated to the performance obligations on the
basis of respective stand-alone selling prices (estimated if not directly available).
Chrome’s estimated stand-alone selling price of the discount option is:
Value of the discount:
(25% discount – 5% normal discount)  P20,000 = P 4,000
 Estimated redemption  50%
Stand-alone selling price of discount: P 2,000

Stand-alone selling price of the keyboards:

P19.6  5,000 keyboards = 98,000
Total of stand-alone prices P100,000
Chrome first must identify each performance obligation’s share of the sum of the stand-
alone selling prices of all deliverables:
P2,000
Discount: = 2%
P2,000 + P98,000
P98,000
Keyboards: = 98%
P2,000 + P98,000
100%
Meta then allocates the total selling price based on stand-alone selling prices, as follows:
P95,000
Transaction Price

98% 2%
P93,100
P1,900
Keyboards
Discount
The journal entry to record the sale is:
Cash 95,000
Deferred revenue–keyboards 93,100
Deferred revenue–discount option 1,900
The deferred revenue for the keyboards will become earned June 1 st.
The deferred revenue for the option to exercise the discount coupon is earned when
the coupon either is exercised or expires in six months.

58 c-
All customers are eligible for a 5% discount on all sales. Therefore, the 5% discount
option issued to Bionics, Inc. does not give any material right to the customer, so it is not
a performance obligation in the contract, and Meta would account for both (a) the
delivery of keyboards and (b) the 5% coupon as a single performance obligation.

Cash 95,000
Deferred revenue–keyboards 95,000

59. a -
The amount of revenue Manhattan Today should recognize upon receipt of the
subscription fee: P0.

Even though Manila Today received payments from customers for an annual
subscription, payment of the subscription activity does not transfer goods or services to
customers. Therefore, the annual fee is viewed as a prepayment for future delivery of
goods or services and would be recognized as deferred revenue – subscription (a
liability) when received. Later, when newspapers are delivered, deferred revenue –
subscription will be reduced and revenue recognized.

60. c -
Number of performance obligations in the contract: 2.
Delivering newspapers is one performance obligation. The coupon for a 40% discount on
a carriage ride qualifies as a second performance obligation. First, it is an option that
conveys a material right to the recipient (as opposed to just a general marketing offer).
 Second, it is both capable of being distinct, as it could be sold or provided separately,
and it is separately identifiable, as it is not highly interrelated with the other
performance obligation of delivering newspapers, so it is distinct and qualifies as a
performance obligation. The seller’s role is not to integrate and customize them to create
one product. The seller will record deferred revenue – coupon for that performance
obligation and recognize revenue when either the coupons are exercised or Manhattan
Today estimates that they will not be redeemed.
61. d -
Value of the coupon: 40% discount  P1,250 carriage fee = P 500
Estimated redemption  30%
Stand-alone selling price of coupon P 150
Stand-alone selling price of a normal subscription 1,350
Total of stand-alone prices P1,500
Manila Today must identify each performance obligation’s share of the sum of the stand-
alone selling prices of all deliverables:
P150
Coupon: = 10%
P150 + P1,350
P1,350
Subscription: = 90%
P150 + P1,350
100%
Manila Today allocates the total selling price based on stand-alone selling prices, as
follows:
P1,300
Transaction Price

90% 10%
P1,170
P130
Subscription
Coupon
Upon receiving the fee for 10 subscriptions, the journal entry should be:
Cash (P1,300  10) 13,000
Deferred revenue – subscription (P1,170  10) 11,700
Deferred revenue – coupon (P130  10) 1,300

62. c -
Number of performance obligations in the contract: 2.

The delivery and installation of new tires is one performance obligation. The discount coupon for
additional future purchases is a second performance obligation, because it provides a material
right to the customer that the customer would not receive otherwise. This discount option is both
capable of being distinct, as it could be sold or provided separately, and it is separately
identifiable, as it is not highly interrelated with the other performance obligation of delivering and
installing new tires. Hence, the discount coupon is distinct and qualifies as a performance
obligation. The seller’s role is not to integrate and customize them to create one product.
63. c -
Cash 350
Sales revenue (to balance) 335
Deferred revenue (discount option)* 15
*
P75 average purchase price × 25% discount × 80% coupon utilization rate
64. b – refer to No. 63

65. c – same with No. 54

66. a – refer to No. 55

67. d – (P1,923 + P77) refer to No. 55

68. c -
Number of performance obligations in the contract: 2

The delivery of computer workstations is one performance obligation. The discount coupon for
additional future purchases is a second performance obligation, because it provides a material
right to the customer that the customer would not receive otherwise. This discount option is both
capable of being distinct, as it could be sold or provided separately, and it is separately
identifiable, as it is not highly interrelated with the other performance obligation of delivering
computer workstations. Hence, the discount coupon is distinct and qualifies as a performance
obligation. The seller’s role is not to integrate and customize them to create one product.

69. c
Cash 360,000
Sales revenue (to balance) 354,960
Deferred revenue (discount option)* 5,040
*
120 units × P350 average purchase price × 40% discount × 30% coupon
utilization rate

70. b – refer to No. 69

71. c -
The fact that the customer can return the product means that the consideration is variable.
Using an expected value method, the estimated variable consideration is P5,760,000 (48 products
x P120,000). The variable consideration should be included in the transaction price because, based
on Blesilda, Virgie and Nanette’s experience, it is highly probable that a significant reversal in the
cumulative amount of a revenue recognized (P120,000) will not occur.
Therefore, revenue of P5,760,000 and a refund liability of P240,000 (P120,000 x 2 products
expected to be returned) should be recognized.
Blesilda, Virgie and Nanette will derecognize the inventory transferred to its customers. However,
it should recognize an asset of P96,000 (2 products x P48,000), as well as a corresponding credit to
cost of sales, for its right to recover products from customers on setting the refund liability.

72. d – refer to No. 71

73. c –
74. c -
The journal entry to record the sale and related cost of goods sold are as follows.
January 1, 20x5:
Accounts Receivable.................................................................................. 1,200,000
Sales Revenue (P1,220,000 – P20,000)......................................... 1,200,000
Cost of Goods Sold.................................................................................... 1,000,000
Inventory ...................................................................................... 1,000,000
January 31, 20x5:
Cash 1,220,000
Sales Revenue............................................................................... 20,000
Accounts Receivable
1,200,000
If payment is received after 5 days, Jordan Company recognizes P1,200,000 sales revenue and P20,000 of
additional revenue, using an account such as Sales Discounts Forfeited.

75. b – refer to No. 74

76. c -
Mandigma accounts for the contract as a single performance obligation to perform the services for
12 months because the services are interdependent and interrelated. To recognize revenue for
satisfying the performance obligation over time, Mandigma selects an output method of measuring
 progress towards completing the satisfaction of the performance obligation. Mandigma has had a
numerous of these types of contracts with customers in the past.
The following items should be taken into consideration by Mandigma and Associates:
1. Recognized the management fee each quarter based on the performance of its services
during the year.
2. The incentive fee should not be recorded until the end of the year. Therefore, this fee is
constrained (not recognized) until the incentive is determinable at the end of the year.

77. a -
Geri should recognize P0 of revenue upon delivery to distributors. Given the uncertainty
about estimated returns, Geri can’t argue that it is probable that it won’t have to reverse
(adjust downward) a significant amount of revenue in the future because of a change in
returns. Therefore, Geri won’t recognize revenue until it either can better estimate
returns or sales to end consumers occur. Essentially, because Geri can’t estimate
returns, it treats this transaction as if it is placing those goods on consignment with
independent distributors.

78. c -
NN records the sale as follows with the expectation that three products will be returned:
Cash. . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,000
...
Sales (P100 x (240 – 13,400
6)]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refund Liability (P100 x 6 600
units). . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cost of sales (P14,400 – 14,040

P360). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated inventory returns (P60 x 6). . . . . . . . . . . . . . . . . . . . . . . . . . 360
..
Inventory (P60 x 240 units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,400
...
When a return occurs, assuming 4 units were returned: NN records the following entries:
Refund Liability (4 units x P100) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 400
...
Accounts 400
Payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Returned Inventory (4 x P60) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240

..
Estimated inventory returns . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . 240
. ..
Companies record the returned asset in a separate account from inventory to provide
transparency.

79. b – refer to No. 78

80. c – refer to No. 78
81. b – refer to No. 78
82. d – refer to No. 78
83. b – refer to No. 78

84. b -
Number of performance obligations in the contract: 1.

A right of return is not a performance obligation. Instead, the right of return represents a potential
failure to satisfy the original performance obligation to deliver goods to the customer. Because the
 total amount of cash received from the customer depends on the amount of returns, a right of
return is a type of variable consideration.

Allan should estimate sales returns and reduce revenue by that amount in order to arrive at “net
revenue,” which would be the transaction price (the amount to be recorded as revenue on the
seller’s books). The total net revenue in this situation is P280,233:
Revenue P288,900 (P90 × 3,210 units)
Sales returns 8,667 (P288,900 × 3%)
Net revenue P280,233

85. c – refer to No. 84

86. b – refer to No. 84
87. c - P1,500/ P3,000 = 5; P200  .5 = P100.
88. b–
1.12.20X5 35,500 x (control of the asset is not transferred to the P17,750
customer on delivery, as the goods can be returned.
Revenue is recognised when control transfers, i.e. when
goods are sold to third party)
15.12.20X5 (10,000 / 12,500 x 10,000) + ((2,500 / 12,500 X 10,000) / 4 x 8,250
½) (the transaction price is allocated to performance
obligations based on their fair values)
31.12.20X5 P10,000 X 3 30,000
P56,000

89. d-
There are three performance obligations in this contract:
1. Promise to provide the excavator.
2. Promise to provide spare parts.
3. Custodial services related to the spare parts.

90. a and b
Gloria obtains control of the spare parts on July 1 because all of the criteria are met (i.e.
there is a substantive reason for Stephen Lane to hold the spare parts, the parts separately
identified and ready to transfer and Stephen Lane on cannot use the parts or transfer them to
another customer).

Stephen Lane recognizes revenue for the excavator and spare parts on July 1 when
the excavator is transferred to Gloria and Gloria had obtained control of the spare
parts (Point-in-Time).

Stephen Lane recognizes revenue on the custodial services over the three years
(Overtime) for which the service is provided.

91. d -
In a bill-and-hold arrangement, the key issue normally is that the customer does not have
physical possession of the asset until the seller has delivered it. However, since the customer
requested that Horowitz hold the goods, has been paid for the goods, and the goods are separated
from Horowitz’s inventory and ready for shipment, Horowitz likely would be viewed as shifting
control to the customer in June.

92. b - Joey is acting as principal in the contract based on the following indicators:
 Joey is responsible for fulfilling the contract because it is responsible for ensuring that the
excavator meets specifications.
 Joey has inventory risk because it is responsible for correcting error in specifications, even
though the manufacturer has inventory risk during production.
 Joey has discretion in establishing the selling price
 Joey’s consideration is in the form of profit, not commission
Joey has credit risk for the P46,200,000 receivable from Tanner
93. c -
Thelma and Lilibeth is an agent. It doesn’t have primary responsibility for delivering the statistics
services and doesn’t collect payment from the customer. Rather, Thelma and Lilibeth is an agent,
with its primary performance obligation being to facilitate transactions between customers and
statisticians. Therefore, Thelma and Lilibeth would recognize as revenue only its commission of
P1,125 (computed as 25% x P4,500).

94. c –
Although the invoiced amount is P180,000, P30,000 of this has not yet been earned and must be
deferred until the servicing work has been completed.

95. c -
In this case, two performance obligations exist:
1. one related to the sale of the computer and the assurance warranty (it should
be noted that quality-assurance warranty is part of performance obligation), and
2. the other to the extended warranty (service warranty).
The sale of the computer and related assurance warranty (quality-assurance)
are one performance obligation as they are interdependent and interrelated
with each other.
However, the extended warranty is separately sold and is not interdependent
(or not connected).

96. b -
Number of performance obligations in the contract: 1.

Consider three aspects of the vacuum contract: delivery of the vacuum, the one-year quality-
assurance warranty, and the option to purchase the three-year extended warranty. Delivery of
the vacuum cleaner is a performance obligation. The one-year warranty that is included
as part of the purchase (the quality-assurance warranty) is not a performance
obligation, but rather is part of the obligation to deliver a vacuum of appropriate quality.

However, if the option to purchase an extended 3-year warranty is simply providing the
customer with the ability to acquire additional goods or services at a price reflective of the
stand-alone selling price, then this option does not provide a “material right” even
though such an option may only be obtained as a result of entering into a contract.

The extended warranty* sells for the same amount regardless of whether it is
purchased at the same time as the vacuum cleaner or at some other time”

*The option to purchase a three-year extended warranty is not a performance obligation within the
contract to purchase a vacuum, because customers can purchase that warranty for the
same amount at other times, so the opportunity to buy it at the sough such an option may only
be obtained as a result of entering into a contract.

97. c -
Number of performance obligations in the contract: 2.

Consider three aspects of the vacuum contract: delivery of the vacuum, the one-year quality-
assurance warranty, and the option to purchase the three-year extended warranty.
Delivery of the vacuum cleaner is a performance obligation. The one-year warranty that is
included as part of the purchase (the quality-assurance warranty) is not a performance obligation,
but rather it is part of the obligation to deliver a vacuum of appropriate quality. The option to
purchase the extended warranty, though, is a performance obligation within the
contract to purchase a vacuum. Customers can purchase that warranty at a 20%
discount if they do so when they buy the vacuum, so the opportunity to buy the
extended warranty constitutes a material right. Also, the option is capable of being distinct,
as it could be sold or provided separately, and it is separately identifiable, as the vacuum could be
 sold without the option to purchase an extended warranty, so the option is distinct, and qualifies as
a performance obligation.

98. c – same with No. 95

99. d -

100. d

101. a – Note: Call Option – A Financing Arrangement, no revenue.

March 1, 20x5
If the selling price of the ingots was P400,000, Zayn would record the following entry when it
receives the consideration from the customer:
Cash ............................................................................................ 400,000
Liability to Wade Metal Company....................................... 400,000
(To record repurchase agreement with Wade Metal Company)
May 1, 20x5
Interest Expense (P400,000 X 2%)........................................................ 8,000
Liability to Wade Metal Company........................................................400,000
Cash.................................................................................... 408,000
(To record payment plus interest on financing)

102. a – refer to No. 101.

103. c -
Number of performance obligations in the contract: 2

In addition to the subscription since it was already sold, the renewal option (was already
sold) is a separate performance obligation because it provides a material right
(different sales price) that allows the customer to renew at a better price than could be
obtained without the right. The renewed protection is capable of being distinct, as it could be
sold or provided separately, and it is separately identifiable, as the customer can use the renewed
protection on its own. Therefore, the renewed protection is distinct, and qualifies as a
performance obligation.

104. c -
The sale of a gift card creates deferred revenue, as it is a prepayment by a customer for goods or
services to be delivered at a future date. Revenue is recognized when goods or services are
delivered or when the likelihood of redemption is remote. In this case, P5,400,000 were
redeemed and another P450,000 were viewed as broken, yielding total revenue of P5,850,000.

105. b -
Sale of a gift card created deferred revenue, as it is a prepayment by a customer for goods or
services to be delivered at a future date. Revenue is recognized when goods or services are
delivered or when the likelihood of redemption is remote. In this case, P1,800,000 were
redeemed and another P150,000 were viewed as broken, yielding total revenue of P1,950,000.

106. b -
Colombo should not recognize revenue when it sells the gift cards, because it has not yet satisfied
its performance obligation to deliver goods upon redemption of the cards. Colombo should
recognize revenue only to the extent gift cards are redeemed, plus the amount it estimates will
never be redeemed. Hence, the revenue to be recognized for 20x6 is P3,000 + P1,500 + P26,000
= P30,500.

107. d – refer to No. 106.

108. b-
Moretti should recognize revenue only to the extent gift cards are redeemed, plus the amount it
estimates will never be redeemed. Hence, the revenue to be recognized for 20x6 is P1,500 +
P800 + P22,000 + P40,000 = P64,300.
109. d – refer to No. 108

Theories
1. d 8. b 15. c 22. c 29 a 36. a
.
2. c 9. d 16. c 23. b 30 c 37. c
.
3. b 10 a 17. b 24. d 31 b
. .
4. d 11 d 18. a 25. a 32 c
. .
5. a 12 b 19. d 26. b 33 b
. .
6. c 13 d 20. b 27. c 34 c
. .
7. b 14 a 21. a 28. d 35 a
. .