ILLUSTRATIVE PROBLEMS

PROBLEM 1
Titan Construction enters into a contract with a customer to build a warehouse for P 650,000 on March 3, 2022 with a
performance bonus of P 50,000 if the building is completed by July 31, 2015. The bonus is reduced by P 10,000 each
week that completion is delayed. Titan commonly includes these completion bonuses in its contracts and based on prior
experience, estimates the following completion outcomes:
Completed by Probability
July 31, 2022 65%
August 7, 2022 25%
August 14, 2022 5%
August 21, 2022 5%

What is the transaction price for this contract?

PROBLEM 2
On November 1, 2023, Kinder Farm entered into a contract to buy 3 units of harvester at a selling price of 75,000 each
from Crop Trading. The contract required Kinder to pay at least 1 unit in advance on November 4, 2023. The harvesters
(cost of P 55,000) were delivered on November 30, 2023. Kinder also paid P 20,000 for the delivery of the units which
will be provided by AP Cargo and onsite machine operation training worth 15,000. The demo will be done by Crop
Trading during the harvest season next year. Prepare the journal entry in the book of Crop Trading.

PROBLEM 3
On June 1, 2023, Caballero Inc. sold equipment to James Landscaping Services. The contracts include down payment of
25,000 and a zero-interest bearing note with a face value of the balance of P 170,000, with payment due in 12 months.
The fair value of the equipment on the date of sale was P 160,000. On June 5, the equipment was delivered to the buyer.
The total amount of revenue to be recognized on this transaction in 2023 is______________

PROBLEM 4
Bella Pool Company offers customize rubber pools that cost P 100,000 to customers for P 180,000. This type of pool is
offered to resort owners and villas. The contract stated the sales price which includes an installation fee of P 25,000.
Separately the pool can be sold for P 160,000. The client can hire a separate third party to install the pool, but it would
take 2 months to complete. The transaction price allocated to the pool and the installation is________________________

PROBLEM 5
Arizona Communications contracted to set up a call center for the City of Phoenix. Under the terms of the contract,
Arizona Communications will design and set-up a call center with the following costs:
Design of call center P 10,000
Computers, servers, telephone equipment P 275,000
Software P 85,000
Installation and testing of equipment P 15,000
Selling commission P 25,000
Annual service contract P 50,000

In addition, Arizona Communications will maintain and service the equipment and software to ensure smooth operations
of the call center for an annual fee of P 90,000. Ownership of equipment installed remains with the City of Phoenix. The
contract costs that should be capitalized is______________________

PROBLEM 6
Meyer & Smith is a full-service technology company. They provide cash-counting machine, machine software and
installation services as well as training. The machine requires a specific software made by Meyer & Smith. The buyer has
the option to avail the installation service and a 6 month training. Container Corporation was interested of this product and
purchased for a total cost of P 120,000 on March 15, 2022. Once the software is installed, updates will be promoted to
client buy additional payment of 30,000 is required to avail the 3-year software updates. Container Corp paid for this
software updates. Estimated standalone fair values of the machine, installation, and training are P 75,000, P 50,000, and P
25,000, respectively. How much of the transaction price will be allocated to the installation service? How much will be
the revenue of December 31, 2022?
PROBLEM 7
Windsor Windows manufactures and sells custom storm windows for enclosed porches. Windsor also provides
installation service for the windows. The installation process does not involve changes in the windows, so this service can
be provided by other vendors. Windsor enters into the following contract on June 1, 2022, with a local homeowner. The
customer purchases windows for a price of P 3,500 and chooses Windsor to do the installation. Windsor charges the same
price for the windows irrespective of whether it does the installation or not. The price of the installation service is
estimated to have a fair value of P 900. The customer pays Windsor P 3,000 (which equals the fair value of the windows,
which have a cost of P 1,700) upon delivery and the remaining balance upon installation of the windows. The windows
are delivered on August 1, 2022, Windsor completes installation on September 15, 2022, and the customer pays the
balance due. Prepare the journal entries for Windsor in 2022.

PROBLEM 8
On December 31, 2022, Biker Company sells equipment to Tabor Inc. for P 62,500. Biker includes a 1-year assurance
warranty service with the sale of all its equipment and installation service. The customer receives and pays for the
equipment on December 31, 2022. Biker estimates the prices to be P 57,000 for the equipment and P 1,500 for the cost of
the warranty. Biker opted to use residual value method for goods and services with no stand-alone prices. The equipment
was delivered on January 12 and installed a day after the delivery. Compute the revenue in January 2023.

FIRST OUTPUT (DEADLINE BEFORE PRELIM EXAM)

Instructions:
Respond to the requirements related to the following independent revenue arrangements for Zen Gallery products and
services.

a. Zen Gallery offers contract which is comprised of a free-standing gas grill for small patio use plus installation to a
customer’s gas line for a total price P 7,000. On a standalone basis, the grill sells for P 6,000 (cost P 3,500), and
Zen Gallery estimates that the fair value of the installation service (based on cost-plus estimation) is P 1,500. Zen
Gallery signed the contracts on May 30, 2023, and customers paid the contract price in cash. The grills were
delivered and installed on June 15, 2023. Prepare journal entries for Zen Gallery for MG100 in May and June
2023.

b. Zen Gallery sells its specialty combination gas/wood-fired grills to local restaurants. Each grill is sold for P 9,000
(cost P 5,000) on credit with terms 2/20, net/60. Prepare the journal entries for the sale of 20 grills on August 1,
2023, and upon payment, assuming the customer paid on (1) August 20, 2023, and (2) September 29, 2023.
Assume the company records sales net.