Pamantasan ng Cabuyao

Katapatan Subd., Banay Banay, Cabuyao, Laguna

Auditing and Assurance Services, Part 2 (ACCTG29&30) AP2 - 05

AUDIT OF ACCOUNTS IN THE PROFIT OR LOSS AND COMPREHENSIVE INCOME

1. On January 2, 2017 Company B provides a bundled service offering to Customer C. It charges Customer C P30,000 for
upfront advice and two ongoing-services – on call advice and access to Company B’s data bases over a 2-year period.
Company B determines that, if it were to charge a separate fee for each service if sold separately the fee would be:
upfront, P2,000; on-call, P26,000; access to databases, P8,000. What amount of revenue should Company B report in
its December 31, 2017 statement of comprehensive income?
A. P1,667 C. P15,833
B. P6,667 D. P30,000

2. Organic Choice sell natural supplements to customers with an unconditional right of return if they are not satisfied. The
right of returns extends 60 days. On February 10, 2017, a customer purchases P30,000 products (cost P15,000).
Assuming that bases on prior experience, estimated returns are 20%. The journal entry to record the sale and cost of
goods sold includes a
A. debit to Cash and credit to Sales Revenue of P30,000
B. credit to Refund Liability of P6,000 and a credit to Sales Revenue of P24,000.
C. debit to cost of Goods Sold and credit to inventory for P15,000.
D. credit to Estimated Inventory Returns of P3,000.

3. ChangeScamming Company sells one of its products for P500 per unit on credit. To encourage early settlement, the
company awards its customers a 10% early settlement discount provided that the customer settles within 30 days of
buying the goods. Normal credit terms are 60 days. Customer X pays P40,500, within 30 days of the date of purchase,
to settle the amount owing for 90 units bought from the entity. Customer Y pays P45,000, 60 days after the date of
purchase, to settle the amount owing for 90 units bought from the entity. If the company uses the net method of
recording receivables and sales, what amount of revenue from sales should the company disclosed in the statement of
comprehensive income?
A. P40,500 C. P81,000
B. 45,000 D. 85,500

4. ICON Company has a contract with a customer of selling goods and rendering the necessary services. The transaction
price is P1,000,000. The stand-alone selling prices of the goods and services are P900,000 and P200,000 respectively.
A discount of P100,000 is provided on the contract price. What amount of revenue from sale should ICON Company
recognized upon the completion of the sale transaction?
A. P800,000 C. P 900,000
B. 818,182 D. 1,000,000

5. For the quarter ended March 31, 2018, Close Hotel, grants customers who have stayed in the hotel a total of 5,000,000
points which can be used to redeem “free stay”, free food and beverages and or free spa treatment. The terms of the
redemption are as follows:

No. of points for redemption Normal selling price

Free one night stay 2,000 P4,000
Free food and beverages 1,000 1,000
Free spa treatment 1,500 1,800

Based on the operator’s past experience, there is 40% probability that customers will opt for free one-night and 30%
probability for each of the other two awards. It further estimates that 20% of the customers will not redeem their award
credits. What amount of deferred revenue should Closed Hotel recognize for the quarter ended March 31, 2018?
A. None C. P5,840,000
B. P1,460,000 D. 7,300,000

6. Watts Electricals, participates in a customer loyalty program operated by an airline company. It grants program
members one airmile with each P100 they spend on electrical goods. Program members can redeem the airmiles for air
travel with the airline, subject to availability. The retailer pays the airline P1.60 for each airmile. During the current year
2018, Watts Electricals sells electrical goods for consideration totaling P10,000,000 and grants 100,000 airmile. Watts
Electricals estimates that the fair value of the airmile is P2.00.

Assuming that Watts Electricals is collecting the award credits on its own account, what amount of revenue from the
airmile should Watts Electricals recognize?
A. None C. P160,000
B. P40,000 D. 200,000
 Assuming that Watts Electricals is collecting the award credits on behalf of the airline company (as an agent of the
airline), it measures the revenue as the net amount it retains on its own account, what amount of revenue should Watts
Electricals recognize?
C. None C. P160,000
D. P40,000 D. 200,000

7. Klose Company provided the following information for the current year:

Income from continuing operations 5,000,000

Income from discontinued operation 1,000,000
Unrealized gain on financial asset at FVTPL 2,500,000
Unrealized gain on financial asset at FVTOCI 1,500,000
Unrealized gain on futures contract designated as cash flow hedge 500,000
Actuarial loss during the year due to increase in PBO 400,000
Foreign translation adjustment – debit 100,000
Loss on credit risk of a financial liability designated at FVTPL 200,000
Revaluation surplus during the year 2,000,000

What amount should be reported as comprehensive income for the year?

A. P3,300,000 C. P6,000,000
B. 9,300,000 D. 9,500,000

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wep/acctg29&30/comprehensiveincome