ANSWERS:

Estimated CV of assets pledged to fully secured 190,00

creditors 0
Add: Estimated CV of free assets 140,00
0
Total 330,00
0
Less liabilities:
Fully secured 130,000
With priority 20,000 150,00
0
Net free assets 180,00
0
Divide: Unsecured claims [(100,000-60,000) +260,000] 300,00
0
Estimated recovery % 0.60
Multiply: Unsecured portion of partially secured 40,000
creditors
Total 24,000
Add: Secured portion 60,000
Total claims of partially secured creditors 84,000
CORPORATE LIQUIDATION
1.

2. a.
Estimated CV of free assets 160,000
Less: Preferred claims 16,000
Total amount available to unsecured 144,000
creditors

b.
Estimated CV of free assets 160,00
0
Less: Preferred claims 16,000
 Total amount available to unsecured creditors 144,00
0
Divide: Total unsecured claims 180,00
(155,000+25,000) 0
Estimated liquidating dividend per peso claim 0.80

c.
Net free assets 144,000
Less: Total unsecured liabilities 180,000
Deficiency to creditors (36,000)

3.

Estimated value upon completion 50,00

4. a.
0
Less: Cost to complete
Marketable securities (320,000-280,000) 40,000
Raw Materials
Land and building[10,000 x
(450,000-250,000) 5,000 200,000
(20,000/40,000)]
Estimated amount available out of assets pledged to fully secured 240,000
Conversion Cost 10,00 15,00
creditors
0 0
Amount expected to realized upon 35,00
b.
completion 0
Marketable securities (320,000-280,000) 40,000
Land and building (450,000-250,000) 200,000
Unpledged portion of inventories (70,000-40,000) 30,000
Total amount of net free assets 270,000

5.
Total free assets 700,000
Less: Unsecured claims with priority:
Accrued Salaries 15,000
Unpaid income taxes 35,000 50,000
Net free assets 650,000
Divide: Total unsecured claims without priority:
Total unsecured claims of all classes
(with or without priority) 1,050,0
00
Less: Unsecured claims with priority 50,000 1,000,00
0
 % of recovery 65%

Realizable amount of A/R (40,000 x 60%) 24,000

Add: Unsecured portion [(30,000-24,000) x 65%] 3,900
Total amount realized by partially secured 27,900
creditors

INSTALLMENT SALES

1.
2015 2016
Sales 900,000 600,000
Collections (300,000) (200,000)
(100,000)
Write-offs (50,000) (50,000)
(150,000)
Installment A/R 12/31/15 550,000 100,000
Multiply: Gross profit % 40% 30%
Deferred gross profit 220,000 30,000

Deferred gross profit

12/31/16 250,000

2. a.
Down payment (20% x 545,000) 109,000
Installments (545,000 x 80% x 40%) 174,400
Total collections in year 1 283,400
Mutiply: Gross profit rate 35/135
 Realized gross profit year 1 73,474

b.
Installment sales year 2 785,00
0
Less: Down payment (20%) 157,00
0
Balance 628,00
0
Less: Collections year of sale
(40% x 628,000) 251,20
0
Receivable bal. -year 2 at the end year 2 376,80
0
Mutiply: Gross profit rate 335/13
5
Unrealized gross profit year 2 97,689

c.
YEAR 2 YEAR 3
Installment Sales 785,000 968,000
Down payment (157,00 (193,60
0) 0)
Balance 628,000 774,400
Collections:
Year of sale (40%) (251,20 (309,76
0) 0)
Year after sale (35%) (219,80 -
0)
Installment A/R, end of year 157,000 464,640
3

d.
Installment A/R, end of year 3 621,6
40
Multiply: Gross profit rate on sales 35/13
5
Unrealized gross profit, end of year 161,1
3 66

3. a.
Installment receivable, 2014 sales 120,000
12/31/2014
Installment receivable, 2014 sales (15,000)
 12/31/2015
Total credits 105,000
Defaulted contracts (7,750)
Collections, 2015 97,250
Multiply: Gross profit on sales 45%
(54,000/120,000)
Gross profit realized on collections, 2014 43,762.5
sales 0

b.
Installment sales, 2015 425,000
Less: Cost of installment sales:
Inventory, 12/31/2014 70,000
Purchases 555,00
0
Repossessed merchandise 3,000
Total goods for sale 628,00
0
Less: Inventory of new and repossessed
merchandise, 12/31/2015 95,000
Total cost of goods sold 533,00
0
Less: Cost of goods sold, regular sales
(385,000 x 70%) 269,50 263,500
0
Gross profit on installment sales 161,500

Installment sales, 2015 425,000

Installment receivable, 2015 200,000
Collections, 2015 sales in 2015 225,000
Multiply: Gross profit rate, installment sales
(161,500/425,000) 38%
Gross profit realized on collections from 2015
sales in 2015 85,500

c.
Value of repossessed merchandise 3,000.00
Less: Unrecovered cost (7,750 x 55%) 4,262.50
Loss on repossession 1,262.50

4. a.
Lot A Lot B Lot C and house
Sales Price 171,428 240,000 420,000
 Acquisition cost 160,000 240,000
Allocated cost (40,000) (60,000) 100,000
Cost of house 152,000
Total 120,000 180,000 252,000
Gross profit 51,428 60,000 168,000
Gross profit rate 30% 25% 40%

Lot A:
Collections Interest Principal Balance
Sales Price 171,428.00
Down payment 51,428.00 - 51,428.00 120,000.00
June 30 12,000.00 3,000.00 9,000.00 111,000.00
September 30 12,000.00 2,775.00 9,225.00 101,775.00
December 31 12,000.00 2,544.38 9,455.62 92319.38
Total 8,319.38 79,108.62

Lot B:
Collections Interest Principal Balance
Sales Price 240,000.00
Down payment 80,000.00 - 80,000.00 160,000.00
December 31 20,000.00 2,666.67 17,333.33 142,666.67
Total 2,666.67 97,333.33

Lot C:
Collections Interest Principal Balance
Sales Price 420,000.00
Down payment 180,000.00 180,000.00 240,000.00
December 31 40,000.00 12,000.00 28,000.00 212,000.00
Total 12,000.00 208,000.00

Lot A (79,108.62 x 30%) 23,732.5

8
Lot B (97,333.33 x 25%) 24,333.3
3
Lot C and house (208,000 x 40%) 83,200.0
0
Total realized gross profit, 12/31/2014 13,265.9
1
 b.
Cost of Lot C and house 252,000
Less accumulated depreciation
house
(152,000/20 years) 7,600
Book value, date of repossession 244,400
Less unrecovered cost:
Total cost (152,000 + 100,000) 252,000
Less cost recovered (208,000 x 124,800 127,200
60%)
Gain on repossession 117,200

5.
Cash basis (250,000 x 25/125) 50,000
Charge basis (400,000 x 33 1/3 / 133 100,000
1/3)
Installment basis (240,000 x 50/150 80,000
Total realized gross profit 230,000
 CONSTRUCTION CONTRACTS
1.
2014 2015
Contract price 1,100,000 1,100,000
Less total estimated cost
(390,000 + 260,000) 650,000
(390,000 + 280,000) 670,000
Gross profit 450,000 430,000
Multiply by percentage of
completion
[390,000/(390,000 + 260,000)] 60%
100%
Realized revenue to date 270,000 430,000
Less realized revenue in prior - 270,000
year(s)
Realized revenue in current year 270,000 160,000

2.
Initially agreed fixed contract 800,000
Variation in the contract 100,000
Penalty (30,000)
Total contract revenue 870,000

3. a.
Contract price P
1,200,000
Less total estimated cost (590,000 + 1,000,000
410,000)
Estimated gross profit 200,000
Multiply by percentage of completion
(590,000/ 1,000,000) 59%
Realized gross profit for 2014 P 118,000

A turn-key contract is a type of construction contract where by the construction firm will
provide not only the professional services but also the manpower and the materials
needed. When completed the project will be turned over to the customer, hence the term
turn key.

b.
Cost incurred to date P 590,000
Profit recognized on project in progress (a) 118,000
 Balance of construction in progress, Dec.31 P 708,000
2014

4. a.
Cost incurred Estimated Cost to Total Estimated
Complete Cost
Original Contract 16,000,000 50,050,000 66,050,000
Change No. 1 100,000 100,000 200,000
Change No. 2 - 100,000 100,000
Change No. 3 600,000 600,000 1,200,000
Change No. 4 250,000 - 250,000
Total 16,950,000 50,850,000 67,800,000

Total cost incurred 16,950,000

Divided by total estimated cost 67,800,000
Percentage of completion 25%

b.
Total contract price
(80,000,000 + 250,000 + 1,200,000 + 81,650,00
200,000) 0
Multiply by percentage of completion 25%
Estimated gross profit 20,412,50
0
Less cost actually incurred in 2014 (a) 16,950,00
0
Gross profit to be recognized in 2014 3,462,500

5. Under zero-profit method, revenue is recognized in an amount equal to costs incurred

until reasonable estimates of percentage of completion are available. Thus, the
amount of revenue to be recognized in 2014 is the amount of cost incurred in the said
period.
 FRANCHISE ACCOUNTING
1.
a) Adjusted initial franchise fee:
Total initial F.F.................................................... P4,500,000
Less: Face Market value of kitchen equipment. _1,800,000
Adjusted initial FF.............................................. P2,700,000
Revenues:
Initial FF. . ......................................................... P2,700,000
Sale of kitchen equipment................................ 1,800,000
Continuing F.F. (P2,000,000 x 2%)..................... ___40,000
Total ................................................................ 4,540,000
Expenses:
Initial expenses.................................................P 500,000
Cost of kitchen equipment................................1,500,000_2,000,000
Net income. . ......................................................... P2,540,000

b) Journal Entries:
Jan. 2:. .Cash. ........................................................ 1,500,000
Notes receivable..........................................3,000,000
Deferred revenue from FF (adjusted SV)... 2,700,000
Revenue from FF (Market value of equipment) 1,800,000

Cost of kitchen equipment...........................1,500,000

Kitchen equipment.................................... 1,500,000

Jan. 18: Franchise expense.....................................500,000

Cash. ........................................................ 500,000

April 1: Cash. ........................................................ 2,000,000

Notes receivable....................................... 2,000,000

Dec. 31:....Cash..................................................... 1,000,000

Notes receivable....................................... 1,000,000

Cash / Account receivable............................ 40,000

Revenue from continuing FF..................... 40,000
 Deferred revenue from FF............................2,700,000
Revenue from FF....................................... 2,700,000

2.
Acquisition cost 50,000
Less franchise amortization (50,000/10) 5,000
Franchise - December 31,2014 45,000

3.
Down payment 18,000
Present value of annual payments 58,315
Total franchise fee 76,315
Less: Loss on sale of equipment
(20,000 16,000) 4,000
Net revenue from franchise fee 72,315

4.
Deferred Revenue from franchise fee:
Downpayment P6,000,000
Present value of the note (P1,000,000 X 2.91) 2,910,0008,910,000
Less: Cost of franchise fee _2,000,000
Deferred gross profit P6,910,000

Gross profit rate (6,910,000 8,910,000) 77.55%

Downpayment (collection during 2008) 6,000,000

Gross profit rate ___77.55%
Realized gross profit from initial franchise fee 4,653,000
Add: Continuing franchise fee (5,000,000 X .05) __250,000
Total 4,903,000
Less: Franchise expense ___50,000
Operating income 4,853,000
Interest income, 12/31/05 (P2,910,000 X 14%) X 6/12 __203,700
Net income 5,056,700

5.
Down payment (3,125,000 x 40%) P1,250,000
Present value of notes receivable ( 1,875,000/4) 468,750 x 3.04
1,425,000
Adjusted sales value of initial franchise fee 2,675,000
Direct cost of service s 802,500
Gross profit 1,872,500
Gross profit rate (1,872,500 2,675,000) 70%
Date Collection Interest Principal Balance of PV of NR
1/1 P1,425,000
6/30 468,750 171,000 297,750 1,127,250
12/30 468,750 135,270 333,480 793,770
Total collection applying to principal 631,230
Down payment 1,250,000
Total collection 1,881,230
Gross profit rate 70%
Realized gross profit on
initial franchise fee 1,316,861