Quiz No.

5 - Consignment Sales, Franchise , Installment, and Home Office & Branch Accounting
March 11, 2025

1. Boston Inc. consigned ten (10) one-horsepower; ten (10) two-horsepower air
conditioning units to City Hardware Trading and paid ₱10,000 for the freight. The
consignee is allowed a commission of 5% on sales. City Hardware Trading
submitted the following report at the end of the period:
Sales - 6 units of 1 HP and 8 2 HP units at P25,000 and P35,000 each
respectively
Advances to Boston, Inc. – 10% of the cost of the aircon units which is 80% of
the Selling Price
Selling expenses – 3% of the Selling price chargeable to the consignor
Installation and delivery – charged to the customer at approximately 4,500 per
unit

How much was Boston’s profit or loss on the consignment?

a. 51,600 profit b. 44,600 profit c. 60,800 loss d. 77,400
loss
Solution: Sales (6x25,0000)+(8X35,000)=430,000
Cost of Sales (430,000*80%) 344,000
Freight (10000/20)x14 7,000
Gross Profit 79,000
Selling Expenses (430,000*3%) 12,900
Commission (430,000*5%) 21,500
Profit 44,600
2. Based on. No. 1, what is the amount remitted by City Hardware to Boston, Inc.?
a. 430,000 b. 395,600 c. 361,200 d. 331,100
Sales 430,000
Less: Commission 21,500
Selling expenses 12,900
Advances (344,000*10) 34,400
Net Remittance 361,200
Use the following information for the next three questions:
3. Plum Co. consigned eight heavy machineries to Breeze Co. Each machine costs
₱500,000 and has a suggested retail price of ₱960,000. Plum paid ₱80,000 in
transporting the machines to the consignee’s place of business. At the end of the
period, Breeze reported three unsold machines and remitted the collections on
sales during the period, after deducting the following:
Commission (based on sales net of commission) 20%
Finder’s fee (based on commission) 5%
Delivery, installation and testing (on each unit sold) ₱5,000
Materials generated from the testing were sold for ₱1800 and included in the
remittance to Plum Co.
How much profit is earned by the consignor from the sale?
a. 2,250,000 c. 1,406,800
b. 1,450.000 d. 606,800
Solution: Sales (8-3=5*960,000) 4,800,000
Cost of sales (5*500,000) 2,500,000
Freight (80,000/8)*5 50,000
Gross Profit 2,250,000
Commission (4,800,000/120%*20%) 800,000
Finders fee (800,000*5%) 40,000
 Delivery & Installation (5,000-1800) 3,200
Profit 1,406,800

4. How much was the net remittance to the consignor?

a. 3,956,800 c. 8,850,500
b. 4,800,000 d. 7,891,500
Solution: Sales 4,800,000
Less: Commission 800,000
Finders Fee 40,000
Delivery & Installation 3,200
Remittance 3,956,800
5. How much is the cost of the unsold machines?
a. 2,075,000 c. 1,025,000
b. 1,500,000 d. 1,530,000
Inventory (500,000*3)+(10,000*3) = 1,530,000
6. The following information was taken from the records of a branch:
4,200,
Sales by branch 000
Beginning inventory -
Billings to branch by home 4,400,
office 000
400,
Operating expenses 000
Ending inventory at billed 1,400,
price 000

The following information was taken from the records of the home office:
2,600,
Branch current account 000
4,000,
Shipments to branch 000
Allowance for markup - 400,0
Unadjusted 00

What is the billing rate based on cost?

a. 10% b. 20% c. 120% d. 110%
Solution = 4,400,000/4,000,000=110%
7. What is markup percentage based on cost?
a. 10% b. 20% c. 120% d. 110%
400,000/4,000,000=10%
8. How much is the sales of branch to be included in the combined financial
statements?
a. 2,800,000 b. 4,200,000 c. 4,000,000 d. 1,800,000

9. How much is the realized markup of the branch?

a. 300,000 b. 240,000 c. 200,000 d. 270,000
solution: 400,000* 3,000,000/4400,000=272,727
10. How much is the cost of goods sold of the branch to be included in the combined
financial statements?
a. 1,800,000 c. 1,200,000 d. 900,000 d. 2,727,273
solution: (3,000,000/4400,000)x4,000,000=2,727,272
11. How much is the ending inventory of the branch to be included in the combined
financial statements?
a. 1,000,000 b. 833,333 c. 1,250,000 d. 1,272.727
Solution: (1,400,000/4400,000)*4,000,000=1,272,727

12. How much is the unrealized markup in ending inventory?

a. 200,000 b. 127,272 c. 230,000 d. 266,667
solution: 1,400,000/4,400,000*400,000=127,272
13. How much is the individual profit of the branch?
a. 800,000 b. 900,000 c. 920,000 d. 1,020,000
Solution: 4,200,000-3000,000-400,000=800,000
14. How much is the true profit of the branch?
a. 1,200,000 b. 1,100,000 c. 1,250,000 d. 1,080,000
Solution: 4,200,000-2,727,273=1,472,727-400,000=1,072,727
15. How much is the adjusted balance of the branch current account immediately prior
to combining the financial statements?
a. 3,800,000 b. 3,400,000 c. 3,500,000 d. 3,666,667
Solution: 2,600,000+800,000=3,400,000
16. On December 31, 2024, Entity A enters into a contract with Customer X to transfer
a license for a fixed fee of ₱200,000 payable as follows:
 50% payable upon signing of contract.
 50% due in four equal annual installments starting December 31, 2025. The
appropriate discount rate is 10%.
The license provides Customer X rights over Entity A’s patented processes. Customer
X continues to operate using its trade name and has the discretion of developing a new
product name for the products it will produce using the patented processes. The
license does not explicitly require Entity A to undertake activities that will significantly
affect the intellectual property to which Customer X has rights. Neither does Customer
X expect that Entity A will undertake such activities. Entity A grants the license to
Customer X on December 31, 2024. How much revenue from the franchise contract
will Entity A recognize in 2024?
a. 80,747 b. 21,187 c. 200,000 d. 190,900
Solution: 200,000x50%=100,000+(200,000x(1/1.1))=190,900
17. Garden Co. uses the installment sales method. Garden Co. sells a good costing
₱10,000 for an installment sale price of ₱16,000. Garden Co. accepts old
merchandise as down payment and gives the customer a trade-in value of ₱4,000
for this merchandise. The fair value of the old merchandise is ₱4,000. Subsequent
cash collections during the period amount to ₱6,000. How much is the realized
gross profit recognized in the year of sale?
a. 6,000 b. 5,966 c. 6,333 d. 3,750
Solution: 4000+6000=10,000x(1-(10,000/16000)=3,750
18. Franchise fees should be recognized
a. when the franchise commence its business operation
b. on the date of the franchise contract is signed
c. when the performance obligation is already satisfied
d. on the date when the consideration is received

19. Continuing franchise shall be recognized as revenue

a. When the uncertainty related to variable consideration is resolved
b. When collected
c. The initial franchise has been collected
d. Based on the agreement
20. The best evidence of the stand alone selling price is
a. Unadjusted market prices for similar goods or services
b. Expected cost
c. The observable price of good or service when the entity sells that good or
service separately
d. An estimate that maximizes the use of observable inputs

21. The home office transfers inventory worth ₱600,000 to Branch #1. Freight paid by
the home office is ₱40,000. Later on, the home office instructs Branch #1 to
transfer the merchandise to Branch #2. Branch #1 pays freight of ₱12,000. If the
merchandise had been shipped directly from the home office to Branch #2, the
freight cost would have been ₱56,000. The entries to record the transactions
described includes
a. a credit to savings on freight of ₱4,000 in the books of Branch #1.
b. a credit to savings on freight of ₱4,000 in the books of Branch #2.
c. a credit to savings on freight of ₱4,000 in the books of the home office.
d. none of these

22. X Ltd., a large manufacturer of cosmetics, sells merchandise to Y Ltd., a retailer,

which in turn sells the goods to the public at large through its chain of retail
outlets. Y Ltd. purchases merchandise from X Ltd. under a consignment contract.
When should revenue from the sale of merchandise to Y Ltd. Be recognized by X
Ltd.?
a. When goods are delivered to Y Ltd.
b. When goods are sold by Y Ltd.
c. It will depend on the terms of delivery of the merchandise by X Ltd. to Y Ltd.
(i.e., CIF [cost, insurance, and freight] or FOB).
d. It will depend on the terms of payment between Y Ltd. and X Ltd. (i.e., cash or
credit).

23. According to PFRS 15, a good or service is distinct if

I. the customer can benefit from it, either on its own or together with other
resources that are readily available to the customer
II. the good or service is separately identifiable.
a. True, True c. False, True
b. True, False d. False, False

24. An entity, a movie distribution company, licenses Movie XYZ to a customer. The
customer, an operator of cinemas, has the right to show the movie in its cinemas
for six weeks. In exchange for providing the license, the entity will receive a portion
of the operator’s ticket sales for Movie XYZ. Which of the following statements is
incorrect?
a. The only performance obligation in the contract is the promise to grant the
license.
b. The fact that the performance obligation in the contract is satisfied over time or
at a point in time is irrelevant when determining how revenue is recognized on
the contract.
c. The transaction price is a variable consideration.
d. The entity shall estimate the variable consideration, subject the estimate to the
“constraining’ principle of PFRS 15, and recognize the resulting amount at the
point in time when the license is transferred to the customer.
25. On Nov. 1, 20x1, DRINK Co. entered into a franchise contract with TIPPLE Co. The
franchise agreement requires an initial franchise fee that is payable as follows: 20%
down payment at the signing of the contract, and the balance due in four equal
annual payments starting November 1, 20x2. The license period is 4 years. The
franchise contract requires DRINK Co. to undertake pre-opening activities
necessary to setup the contract and post-opening activities that would further
improve the intellectual property to which the franchisee has rights. All the
preopening activities are completed, and TIPPLE Co. started operations, on January
31, 20x2. How should DRINK Co. recognize revenue from the initial franchise fee?
a. The sum of the cash down payment and the present value of the deferred
balance are recognized as revenue in full on January 31, 20x1.
b. The sum of the cash down payment and the present value of the deferred
balance are recognized as revenue over the license period.
c. The cash down payment is recognized in full on January 1, 20x2 but the balance
is amortized over the license period.
d. The cash down payment is recognized in full on January 31, 20x2 but the
balance is amortized over the license period.