PROBLEM 1
On 1 July 20x1, Jag Inc. entered into contract to deliver one of its
specialty machines to Wars Co. The contract requires Wars Co. to pay the
contract price of P125,000 in advance on 15 July 20x1. Wars Co. pays Jag
Inc. on 15 July 20x1, and Jag Inc. delivers the machine (with cost of
₱80,000) on 31 July 20x1.
Required:
Prepare the journal entries on 1 July, 15 July and 31 July for Wars Co.
If no entries should be recorded for said date, indicate N/A or “no
entries” for that transaction date.
PROBLEM 2
Jonah Co. manufactures various types of guitars to third party vendors.
On August 1, 2022, Jonah delivers a bulk order of guitars to Maria Co.
Under their sales agreement, Maria should pay Jonah P250,000 within four
months. On September 1, Jonah purchased for cash the right to advertise
its products during Maria’s annual guitar show event for P5,000. Maria
usually charges P4,000 for such services. On October 1, 2022, Maria pays
Jonah Co. all amounts owed.
Required:
Prepare journal entries on August 1, September 1 and October 1 for Jonah.
If no entries should be recorded for said date, indicate N/A or “no
entries” for that transaction date.
PROBLEM 3
Anemo Airflows manufactures and sells various types of air-conditioning
units. Anemo also provides installation services for their products. The
installation process doesn’t include maintenance and other services, so
this can be provided by other vendors. Anemo enters into the ff contract:
On February 1, 2022, with a local homeowner, the customer purchases a
split-type aircon for a price of P42,000 and chooses Anemo to do the
installation. Anemo charges the same price for the air-conditioning unit
irrespective of whether it does the installation or not. The price of
the installation service is estimated to have a fair value of P5,000.
The customer pays Anemo P40,000 (which equals the fair value of the unit.
Cost is P35,000) upon delivery and the remaining balance upon
installation of the air-conditioning unit.
The unit was delivered on April 1, 2022.
On April 5, 2022, Anemo completely installed the unit and the customer
pays the balance due.
Required:
1. How many performance obligations exist in this contract on 02/01/22?
2. How many performance obligations exist in this contract on 04/01/22?
3. Journalize the entries on February 1, April 1 and April 5, 2022. If
no entries should be recorded for said date, indicate N/A or “no
entries” for that transaction date. Round off to the nearest peso.
PROBLEM 4
CPA Co. provided consultancy services to Gastadora Inc. in order to
implement cost-saving initiatives. CPA Co.’s contract specifies that
they will receive a flat fee of P50,000 and an additional P20,000 if
Gastadora reaches a pre-specified target amount of cost savings. CPA Co.
feels that this is a hopeless condition as Gastador just loves spending
money. Nevertheless, CPA Co. still estimates that there is a 20% chance
that Gastadora will achieve the cost-savings target.
Required:
1. Assuming that CPA Co. uses the expected value as its estimate of
variable consideration, calculate the transaction price
2. Assuming that CPA Co. uses the most likely value as its estimate
of variable consideration, calculate the transaction price
PROBLEM 5
Zhongli enters into a contract offering variable consideration. The
contract pays him P1,000/month for six months of continuous consulting
services. In addition, there is a 60% chance the contract will pay an
additional P2,000 and a 40% chance the contact will pay an additional
P3,000, depending on the outcome of the consulting contract. Zhongli
concludes that this contract qualifies for revenue recognition over time.
Note: the additional payments are to be paid on a one-time basis
Required:
1. Assume Zhongli estimates variable consideration as the most likely
amount. What is the amount of revenue Zhongli would recognize in
the first month of the contract? Show your calculation.
2. Assume Zhongli estimates variable consideration as the expected
value. What is the amount of revenue Zhongli would recognize for
the first month of the contract? Show your calculation.
