ASSIGNMENT NO.

III
DEFERRED REVENUE

Problem 1
Greene Company sells office equipment service contracts agreeing to service equipment for a
two-year period. Cash receipts from contracts are credited to unearned contract revenue.
Service contract costs are charged to service contract expense as incurred. Revenue from
service contracts is recognized as earned over the lives of the contracts. Additional information
for the current year:

Unearned contract revenue at January 1 600,000

Cash receipts from service contracts sold 980,000
Service contract revenue recognized 860,000
Service contract expense 520,000

What amount should be reported as unearned contract revenue on December 31?

a. 460,000
b. 480,000
c. 490,000
d. 720.000

Problem 2
Ryan Company sells major household appliance service contracts for cash. The service contracts
are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to
unearned contract revenue. The unearned contract revenue had a balance of P720.000 on
December 31, 2023 before year-end adjustment. Service contract costs are charged as incurred
to the service contract expense account which had a balance of P180.000 on December 31,
2023.

Outstanding service contracts on December 31, 2023 expire:

During 2024 150,000

During 2025 225,000
During 2026 100,000

What amount should be reported as unearned contract revenue on December 31, 2023?
a. 540,000
b. 475,000
с. 295,000
d. 245,000

Problem 3
Dunne Company sells equipment service contracts that cover a two-year period. The sale price
of each contract is P600. The past experience is that. of the total pesos spent for repairs on
service contracts. 40% is incurred evenly during the first contract year and 60% evenly during
the second contract year. The entity sold 1,000 contracts evenly throughout 2023.

1. What amount should be reported as contract revenue for 2023?

a. 120,000
b. 240,000
c. 300,000
d. 150,000

2. What amount should be reported as deferred contract revenue on December 31, 2023?
a. 540,000
b. 480,000
c. 360.000
d. 300,000

3. What amount should be reported as contract revenue for 2024?

a. 180,000
b. 360,000
c. 300,000
d. 120,000

4. What amount should be reported as contract revenue for 2025?

a. 240,000
b. 360,000
c. 180,000
d. 0

Problem 4
Cobb Company sells appliance service contracts agreeing to repair appliances for a two-year
period. The past experience is that, of the total amount spent for repairs on service contracts,
40% is incurred evenly during the first contract year and 60% evenly during the second contract
year. Receipts from service contract sales are P500,000 for 2023 and P600,000 for 2024.
Receipts from contracts are credited to unearned contract revenue. All sales are made evenly
during the year.

1. What amount should be reported as contract revenue for 2023?

a. 100.000
b. 200,000
c. 250.000
d. 500.000

2. What amount should be reported as unearned contract revenue on December 31, 2023?
a. 300,000
b. 400,000
c. 200,000
d. 150,000

3. What amount should be reported as contract revenue for 2024?

a. 240,000
b. 360,000
с. 370.000
d. 250,000

4. What amount should be reported as unearned contract revenue on December 31, 2024?
a. 360,000
b. 470,000
c. 480,000
d. 630.000

Problem 5
Hart Company sells subscriptions to a specialized directory that is published semiannually and
shipped to subscribers on April 15 and October 15. Subscriptions received after the March 31
and September 30 cut-off dates are held for the next publication. Cash from subscribers is
received evenly during the current year and is credited to deferred subscription revenue.

Deferred subscription revenue - January 1 1,500,000

Cash receipts from subscribers during the current year 7,200,000

1. What amount should be reported as deferred subscription revenue on December 31?

a. 1,800,000
b. 3,300,000
c. 3,600,000
d. 5,400,000

2. What amount should be reported as subscription revenue for the current year?
a. 7,200,000
b. 6,900,000
c. 8,700,000
d. 5,100,000

Problem 6
Anette Video Company sells 1- and 2-year subscriptions for the video-of-the-month business.
Subscriptions are collected in advance and credited to sales.

2023 2024
Sales 420,000 500,000
Less Cancellation 20,000 30,000
Net Sales 400,000 470,000

Subscription expirations:

2023 120,000
2024 155,000 130,000
2025 125,000 200,000
2026 140,000
400,000 470,000
1. On December 31, 2024, what amount should be reported as unearned subscription
revenue?
a. 495,000
b. 470,000
c. 465,000
d. 340,000

2. What amount should be reported as subscription revenue for 2024?

a. 175,000
b. 305,000
c. 285,000
d. 250,000

Problem 7
Weaver Company sells magazine subscriptions for a 1-year, 2-year or 3-year period. Cash
receipts from subscribers are credited to magazine subscriptions collected in advance and this
account had a balance of P1,700,000 on January 1.

Cash receipts from subscribers during current year 2,100,000

Subscription revenue credited on December 31 1,500,000

What amount should be reported as the balance for subscriptions collected in advance on
December 31?
a. 1,900,000
b. 2,300,000
c. 1,400,000
d. 2,100,000

Problem 8
Kent Company sells magazine subscriptions for one-year, two-year or three-year period. Cash
receipts from subscribers are credited to subscription collected in advance and this account had
a balance of P2,400,000 on December 31, 2023 before year-end adjustment.

Outstanding subscriptions on December 31, 2023 expire:

During 2024 600.000

During 2025 900.000
During 2026 400,000

On December 31, 2023. what amount should be reported as subscription collected in

advance?
a. 500.000
b. 1,200.000
c. 1,900,000
d. 2,400,000
Problem 9
Black Company required advance payments with special orders for machinery constructed to
customer specifications. These advances are nonrefundable

Advances from customers – beginning 1,180,000

Advances received with orders during the year 1,840,000
Advances applied to orders shipped during the year 1,640,000
Advances applicable to orders canceled 500,000

What amount should be reported as advances from customers at year-end?

a. 1,480,000
b. 1,380,000
c. 880,000
d. 0

Problem 10
Diversified Company sells perishable electronic products that are shipped in reusable
containers. Customers pay a deposit for each container. The deposit is equal to the container
cost. Customers receive a refund when the container is returned. During the current year,
deposits collected on containers shipped amounted to P700,000. Deposits are forfeited if
containers are not returned in 18 months. Containers held by customers at the beginning of the
year totaled P330,000. During the current year, an amount of P410,000 was refunded and
deposits of P25,000 were forfeited.

What amount should be reported as liability for refundable deposit at year-end?

a. 595,000
b. 620,000
c. 645.000
d. 290.000

Problem 11
Marr Company sells its products in reusable containers. The customer is charged a deposit for
each container delivered and receives a refund for each container returned within two years
after the year of delivery. The entity accounts' for the containers not returned within the time
limit as being retired by sale at the deposit amount. The entity provided the following
information for 2023:

Container deposits on January 1, 2023 from deliveries in:

2021 150,000
2022 430,000 580,000
Deposits for containers delivered in 2023 780,000

Deposits for containers returned in 2023 from deliveries in:

2021 90,000
2022 250,000
2023 286,000 626,000
On December 31, 2023, what amount should be reported as liability for deposits?
a. 494,000
b. 584,000
c. 674,000
d. 734,000

Problem 12
Montessori Company offered three payment plans on twelve-month contracts.
The entity provided the following information on the three plans and the number of children
enrolled in each plan from September 1, 2023 through August 31, 2024 contract year:

Initial payment per child Monthly fee per child Number of children
#1 50,000 __ 15
#2 20,000 3,000 12
#3 __ 5,000 9

The entity received P990,000 of initial payments on September 1, 2023, and P324,000 of
monthly fees during the period September 1 through December 31, 2023.

On December 31, 2023, what amount should be reported as deferred revenue?

a. 330,000
b. 438,000
c. 660,000
d. 990,000