Sample Problem 1

Valuation of Assets acquired and Liabilities assumed, Measurement of Consideration Transferred , Change
in value of Assets acquired, Pre-acquisition Contingency, In-process R&D
(A) 1Sandy Corporation’s balance sheet at January 2, 20x5 is as follows:
Sandy
Dr (Cr)
Cash and receivables………………………………………………………….. P200,000,000
Inventories………………………………………………………………………… 600,000,000
Property, plant and equipment, net…………………………………………. 7,500,000,000
Current liabilities………………………………………………………………….. (400,000,000)
Long-term debt…………………………………………………………………… (7,200,000,000)
Capital stock………………………………………………………………………. (7,200,000)
Retained earnings……………………………………………………………….. ( 25,000,000)
Accumulated other comprehensive income……………………………… (5,000,000)
(B) An analysis of Sandy’s assets and liabilities reveals that book values of some reported items do not reflect their
market values at the date of acquisition:
 Inventories are overvalued by P200,000,000
 Property, plant and equipment is overvalued by P2,000,000,000
 Long-term debt is undervalued by P100,000,000
(C) In addition, the following items are not currently reported on Sandy’s balance sheet:
 Customer contracts, valued at P25,000,000
 Skilled work force, valued at P45,000,000
 In-process research and development, valued at P300,000,000
 Potential contracts with prospective customers, valued at P15,000,000
 Sandy has not recorded expected future warranty liabilities with a present value of
P10,000,000
(D) On January 2, 20x5, Velasco issues new stock with a market value of P700,000,000 to acquire the assets and
liabilities of Sandy. Stock registration fees are P100,000,000, paid in cash. Consulting, accounting, and legal fees
connected with the merger are P150,000,000, paid in cash. In addition, Velasco enters into an earnings contingency
agreement, whereby Velasco will pay the former shareholders of Sandy an additional amount if Sandy’s
performance meets certain minimum levels. The present value of the contingency is estimated at P50,000,000.
(E) Required:
The sequence as mentioned for each sample problem is not MANDATORY (it is merely
suggestion)
Sequence of Analysis: E, D, C, B and A
Sample Problem 2
100% Owned Subsidiary: Computation of Goodwill,
Acquisition Costs with Contingent Consideration
(A) On June 30 20x4, SS Company reported the following account balances:

Receivables . . . . . . . . . . . . P 80,000 Current Liabilities . . . . . . . . . . . . P(10,000)

Inventory . . . . . . . . . . . . . . 70,000 Long- term liabilities . . . . . . . . . . (50,000)
Buildings (net) . . . . . . . . . . 75,000 Common stock . . . . . . . . . . . . . . (90,000)
Equipment (net) . . . . . . . . . . __25,000 Retained earnings . . . . . . . . . . . . (100,000)
Total Assets . . . . . . . . . . . P250,000 Total liabilities and equities . . . . P(250,000)

(B) On June 30, 20x4, PP paid P300,000 cash for all the outstanding stock of SS, which will still continue to exist as
a separate entity. In connection with the acquisition, PP paid P10,000 in indirect combination costs and agreed to
pay P50,000 to the former owners of SS contingent on meeting certain revenue goals during 20x4. PP estimated the
present value of its probability adjusted expected payment for the contingency at P15,000.

(C) In determining its offer, PP noted the following pertaining to SS:

 It holds a building with a fair value P40,000 more than its book value.
  It has developed a customer list appraised at P22, 000, although it is not recorded in its financial records.
 It has research and development activity in process with an appraised fair value of P30,000. However, the
project has not yet reached technological feasibility and the assets used in the activity have no alternative
future use.
 Book values for the receivables, inventory, equipment, and liabilities approximate fair values.
(D) Required:
Sequence of Analysis: D, C B and A

Sample Problem 3
(A) On January 1, 20x4, MM Inc., exchanged P178,000 for 25 percent of AD Corporation. MM appropriately
applied the equity method to this investment. At January I. the book values of AD’s assets and liabilities
approximated their fair values.

(B) On June 30, 20x4, MM paid P560,000 for an additional 70 percent of AD thus increasing its overall ownership
to 95 percent. The price paid for the 70 percent acquisition was proportionate to AD’s total fair value. At June 30,
the carrying values of AD’s assets and liabilities approximated their fair values. Any remaining excess fair value
was attributed to goodwill.

(C)AD reports the following amounts at December 31, 20x4 (credit balances shown in parentheses):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . P(210,000)
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,000
Retained earnings, January 1 . . . . . . . . . . (200,000)
Dividends, October 1 . . . . . . . . . . . . . . . . . . 20,000
Common stock . . . . . . . . . . . . . . . . . . . . . . (500,000)

(D) AD’s revenue and expenses were distributed evenly throughout the year and no changes in AD’s stock have
occurred.

(E) Required: Using the acquisition method, compute the following:

1. The acquisition-date fair value of AD to be included in MM’s consolidated financial statements.
2. The revaluation gain (or loss) reported by MM for its 25 percent investment in AD on June 30.
3. The amount of goodwill recognized by MM on its December 31 balance sheet (assume no impairments
have been recognized).
4. The non-controlling interest amount reported by MM on its:
a. June 30 consolidated balance sheet.
b. December 31 consolidated balance sheet.
Sequence of Analysis: E, D, A, B and C

Sample Problem 4
80%-Owned Subsidiary: Equity Method,
(A) Assume that on January 1, 20x4, Perfect Company acquires 80% of the common stock of Son Company for
P372,000. At that time, the fair value of the 20% non-controlling interest is estimated to be P93,000. On that the
following assets and liabilities of Son Company had book values that were different from their respective market
values:
Son Co. Son Co.
Book value Fair value
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P24,000 P 30,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,000 55,200
 Bonds payable (4 years) . . . . . . . . . . . . . . . . . . . . . . 120,000 115,200
All other assets and liabilities had book values approximately equal to their respective fair values.
(B) On January 1, 20x4, the equipment and buildings had a remaining life of 8 and 4 years, respectively. Inventory
is sold in 20x4 and FIFO inventory costing is used. Goodwill, if any, is reduced by a P3,750 impairment loss during
20x4 based on the fair value basis (or full-goodwill), meaning the management has determined that the goodwill
arising in the acquisition of Son Company relates proportionately to the controlling and non-controlling interests, as
does the impairment.

(C)There were no intercompany sales prior to 20x4, information resulting from intercompany sales, ending
inventory and gross profit rates are summarized below:
Downstream Sales:
Sales of Intercompany Profit
Year Parent to Intercompany Merchandise in (based on Selling Price)
Subsidiary 12/31 Inventory of S Company
20x4 P150,000 60% of sales 20%
20x5 120,000 80% of sales 25%
Upstream Sales:
Sales of Subsidiary Intercompany Profit
Year to Parent Intercompany Merchandise in (based on Selling Price)
12/31 Inventory of P Company
20x4 P 60,000 50% of sales 40%
20x5 75,000 40% of sales 20%

On December 31, 20x4, intercompany accounts payable and receivable arising from intercompany sales was fully
settled.

(D) Trial balances for the companies for the year ended December 31, 20x4 are as follows:
Debits Perfect Co. Son Co.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 232,800 P 90,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000 36,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P2,346,840 P1,224,000
Credits
Accumulated depreciation – equipment . . . . . . . . . P 135,000 P 96,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000 120,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480,000 240,000
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . 6,840 -
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P2,346,840 P1,224,000

(E) From the trial balances presented above, the following information available for Perfect and Son Company for
the year 20x4:
Perfect Co. Son Co.
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 480,000 P 240,000
Less: Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . 204,000 138,000
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 276,000 P 102,000

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 276,000 P 102,000

Less: Depreciation expense . . . . . . . . . . . . . . . . . . . . . . 60,000 24,000
Net income from its own separate operations . . . . . . . P 168,000 P 60,000
Add: Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 6,840 -
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 174,840 P 60,000
(F) The trial balances for the companies for the year ended December 31, 20x5 are as follows:
Debits Perfect Co. Son Co.
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 265,200 P 102,000
 Investment in Son Company . . . . . . . . . . . . . . . . . . . . 376,680 -
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,000 48,000
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P2,627,880 P1,392,000
Credits
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462,840 144,000
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,000 360,000
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . . 65,040 -
Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P2,627,880 P1,392,000
(G) Further, the following information available for Perfect and Son Company based on the above trial balance for
the year 20x5:
Perfect Co. Son Co.
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 540,000 P 360,000
Net income from its own separate operations . . . . . . P 192,000 P 90,000
Add: Investment income . . . . . . . . . . . . . . . . . . . . . . . . 65,040 -
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 257,040 P 90,000
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 72,000 P 48,000

(H) No goodwill impairment loss for 20x5. On December 31, 20x5, intercompany accounts payable and receivable
arising from intercompany sales was fully settled.
(I) Required: Using equity method – Partial Goodwill
Sequence of Analysis: I, B, C, B, E, F, G, D and A

Sample Problem 5
(A) On January 1, 20x4, P Company purchased 80 percent of the outstanding shares of S Company by paying
P700,000. On that date, S Company had P300,000 capital stock and P500,000 of retained earnings. An undervalued
asset attributable to building amounting to P75,000 with a remaining life of 25 years. All other assets and liabilities
of S Company had book value approximated their fair market value.
(B) On January 1, 20x5, P’s common stock and retained earnings amounted to P1,000,000 and P800,000,
respectively, while S Company’s retained earnings is P600,000.
The 20x5 net income and dividends using cost (or initial value) method was as follows:
Net Income Dividends
P Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P340,000 P100,000
S Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P150,000 P 50,000
(C) On April 1, 20x5, S Company sold equipment with a book value of P30,000 to P Company for P60,000. The
gain on the sale is included in the net income of S Company indicated above. The equipment is expected to have a
remaining useful life of five years from the date of the sale.
(D) On September 30, 20x5, P Company sold machinery with a book value of P40,000 to S Company for P75,000.
The gain on the sale is also included in the net income of P Company indicated above. The machinery is expected to
last for ten (10) years from the date of sale.

(E) Required:
Sequence of Analysis: E, A, B, C and D (note about the dates)

Sample Problem 6 - Translation of Foreign Subsidiary’s Financial Statements

(A) Assume that on January 2, 20x4, P Company, a Philippine based company, acquired for US$2,400,000 an 80%
interest in S Company maintains its books in U.S. dollars and they are in conformity with GAAP in the Philippines
(parent’s functional and presentation currency is the peso). S Company’s financial statements are prepared in the
local currency unit (the foreign currency unit – dollars. The translation process will be illustrated under two different
assumptions: (1) the U.S. dollars is the functional currency, and (2) the Philippine peso is the functional currency.
Exchange rates for the US dollars for the 20x4 fiscal year are as follows:

Date Spot Rate

January 2, 20x4 (date of acquisition) . . . . . . P40.00
 September 1, 20x4 . . . . . . . . . . . . . . . . . . . . . . 40.10
December 31, 20x4 . . . . . . . . . . . . . . . . . . . . . . 40.25
Average for the fourth quarter . . . . . . . . . . . . . . 40.22
Average for the year . . . . . . . . . . . . . . . . . . . . 40.20

(B) In translating the income statement accounts, it is assumed that revenues were generated and expenses
were incurred evenly during the year. It is also assumed that the company uses the FIFO cost flow
assumption, and that the ending inventory was acquired during the last quarter.

(C) The following accounts based on the adjusted trial balance are given as follows:
US Dollars
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,624,000
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,220,000
Depreciation expense . . . . . . . . . . . . . . . . . . . . . . . . . . 120,000
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 786,000
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . 98,400
Retained earnings, 1/1/20x4 . . . . . . . . . . . . . . . . . . . . 576,000
Dividends declared, 9/1/20x4 . . . . . . . . . . . . . . . . . . . . 360,000
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,116,000
Accounts receivable (net) . . . . . . . . . . . . . . . . . . . . . . 729,600
Inventory (FIFO) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996,000
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 600,000
Buildings (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 780,000
Equipment (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 516,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 768,000
Short-term notes payable . . . . . . . . . . . . . . . . . . . . . . 762,000
Bonds payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,080,000
Common stock, P10 par . . . . . . . . . . . . . . . . . . . . . . . . 1,152,000
Paid-in capital in excess of par . . . . . . . . . . . . . . . . . . . . 360,000

(D) Required:
1. Prepare a schedule to compute the translation adjustment for the year, assuming the subsidiary's functional
currency is the US dollars. [(Functional Currency Is the Local Currency Unit – Translation Into the
Presentation Currency (Current/Closing Rate Method)]
2. Prepare a schedule to compute the translation gain or loss, assuming the subsidiary's functional currency is
the peso. (Functional Currency Is Philippine Peso - Translation into the Functional Currency
(Remeasurement or Temporal Method)
3. Translate the financial statements using the trial balance approach, under:
a. Current Rate Method
b. Temporal Method
Sequence of Analysis: D, B, A, and C
Sample Problem 7
(A) In the early part of 20x4, the partners of Page, Childers, and Smith sought assistance from a local accountant.
They had begun a new business in 20x3 but had never used an accountant’s services.
(B) Page and Childers began the partnership by contributing P80,000 and P30,000 in cash, respectively. Page was to
work occasionally at the business, and Childers was to be employed full-time.
(C) They decided that year-end profits and losses should be assigned as follows:
 Each partner was to be allocated 10 percent interest computed on the beginning capital balances for the
period.
 A compensation allowance of P5,000 was to go to Page with a P20,000 amount assigned to Childers.
 Any remaining income would be split on a 4:6 basis to Page and Childers, respectively.
(D) In 20x3, revenues totaled P90,000, and expenses were P64,000 (not including the compensation allowance
assigned to the partners). Page withdrew cash of P8,000 during the year, and Childers took out P11,000. In addition,
the business paid P5,000 for repairs made to Page’s home and charged it to repair expense.
(E) On January 1, 20x4, the partnership sold a 20 percent interest to Smith for P43,000 cash. This money was
contributed to the business with the bonus method used for accounting purposes.
(F) Required:
1. Why was the original profit and loss allocation, as just outlined, designed by the partners?
2. Why did the drawings for 20x3 not agree with the compensation allowances provided for in the
partnership agreement?
3. What journal entries should the partnership have recorded on December 31, 20x3?
4. What journal entry should the partnership have recorded on January 1, 20x4?
Sequence of Analysis: F, D, A, E, B and C
Sample Problem 8
(A) Brian Snow and Wendy Waite formed a partnership on July 1, 20x2. Brian invested P20,000 cash, inventory
valued at P15,000, and equipment valued at P67,000. Wendy invested P50,000 cash and land valued at P120,000.
The partnership assumed the P40,000 mortgage on the land.
(B) On June 30, 20x3, the partnership reported a net loss of P24,000. The partnership contract specified that income
and losses were to be allocated by allowing 10% interest on the original capital investment, salaries of P15,000 to
Brian and P20,000 to Wendy, and the remainder to be divided in the ratio of 40:60.
(C) On July 1, 20x3, Alan Young was admitted into the partnership with a P70,000 cash in- vestment. Alan was
given a 30% interest in the partnership because of his special skills. The partners elect to use the bonus method to
record the admission. Any bonus should be divided in the old ratio of 40:60.
(D) On June 30, 20x4, the partnership reported a net income of P150,000. The new partner- ship contract stipulated
that income and losses were to be divided in a fixed ratio of 20:50:30.
(E) On July 2, 20x4, Brian withdrew from the partnership for personal reasons. Brian was given P40,000 cash and a
P60,000 note for his capital interest.

(F) Required: Prepare journal entries for each of the following events. Show computations.
1. Formation of the partnership.
2. Distribution of the net loss for the first year.
3. Admission of Alan into the partnership.
4. Distribution of the net income for the second year.
5. Withdrawal of Brian from the partnership.
Sequence of Analysis: F, A, B, C, D and E

Sample Problem 9
(A) Assume DJD International Tower (Phase II) is developing luxury residential real estate and begins to market
individual apartments during their construction.

(B) The Tower entered into a contract with Edwards for the sale of a specific apartment. Edwards pays a deposit that
is refundable only if the Tower fails to deliver the completed apartment in accordance with the contract.

(C) The remainder of the purchase price is paid on completion of the contract when Edwards obtains possession of
the apartment. When should revenue be recognized?
a. No transaction c. Point in Time
b. No revenue d. Over Time
Sequence of Analysis: C, B and A
Sample Problem 10
(A) On January 1, 20x6, Silver Construction Company signed a contract to build a custom garage for a customer and
received P10,000 in advance for the job. The new garage will be built on the customer’s land.

(B) To complete this project, Silver must first build a concrete floor, construct wooden pillars and walls, and finally
install a roof. Silver normally charges stand-alone prices of P3,000, P4,000, and P5,000, respectively, for each of
these three smaller tasks if done separately.

(C) How many performance obligations exist in this contract?

a. 0 c. 2
b. 1 d. 3
Sequence of Analysis: C, B and A

Sample Problem 11 - Initial Franchise Fee/Commingled Revenue and Continuing Franchise Fee (Royalty)
(A) Dominador’s Pizza Inc. enters into a franchise agreement on December 31, 20x7, giving Doming Corp. the right
to operate as a franchisee of Dominador’s Pizza for 5 years. Dominador’s charges Doming an initial franchise fee of
P475,000 for the right to operate as a franchisee. Of this amount, P190,000 is payable when Doming Corp. signs the
agreement, and the balance is payable in five annual payments of P57,000 each on December 31.
(B) Consider the following for allocation of the transaction price at December 31, 20x7.
Rights to the trade name, market area, technical and proprietary know-how. P 190,000.00
Services – training, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94,591.50
Machinery and equipments, etc. (costing, P95,000). . . . . . . . . . . . . . . . . . . . . . . _133,000.00
Total transaction price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P 417,591.50
(C) The credit rating of Doming indicates that money can be borrowed at 8%. The present value of an ordinary
annuity of five annual receipts of P57,000 each discounted at 8% is P227,591.50. The discount of P57,408.50
represents the interest revenue to be accrued by Dominador’s Pizza Inc. over the payment period.
(D) Training is completed in February 1, 20x8, the equipment is installed in February 2, 20x8, and Doming holds a
grand opening on February 4, 20x8. On February 4, 20x8, franchise opens. Dominador’s satisfies the performance
obligations related to the franchise rights, training, and equipment.
(E) Doming also promises to pay ongoing royalty payments of 1% of its annual sales (payable every January 31 of
the following year) and is obliged to purchase products from Dominador’s at its current standalone selling prices at
the time of purchase.
(F) Requirement:
1. How many performance obligations exist in this contract for franchise?
a. 2 c. 4
b. 3 d. 5
2. When Dominador should recognize revenue for the rights (combined) to the trade name, market area and
proprietary know-how which give rise to a single performance obligation?
a. No transaction c. Point in Time
b. No revenue d. Over Time
3. How much revenue (franchise revenue - rights to trade name, service revenue and sales revenue – machinery and
equipments) be recognized on December 31, 20x7?
a. Zero. c. P133,000.00
b. P 94,591.50 d. P190,000.00
4. How much revenue (franchise revenue, service revenue and sales revenue – machinery and equipment) be
recognized on February 4, 20x8?
a. P 94,591.50 c. P190,000.00
b. P133,000.00 d. P417,591.50
5. How much continuing franchise revenue be recognized on December 31, 20x8, assuming the sales of P4,987,500
was generated for the first year of operations ?
a. Zero. c. P190,000.00
b. P 49,875.00 d. P417,591.50
Sequence of Analysis: F, A, B, C, D and E

Sample Problem 12
TopChop sells hairstyling franchises. TopChop receives P50,000 from a new franchisee for providing initial
training, equipment and furnishings that have a stand-alone selling price of P50,000. TopChop also receives P30,000
per year for use of the TopChop name and for ongoing consulting services (starting on the date the franchise is
purchased). Carlos became a TopChop franchisee on July 1, 20x6, and on August 1, 20x6, had completed training
and was open for business. How much revenue in 20x6 will TopChop recognize for its arrangement with Carlos?
a. Zero c. P65,000
b. P10,000 d. P70,000
 Sample Problem 13
Pita Pal sells fast-food franchises. Pita Pal receives P75,000 from a new franchisee for providing initial training,
equipment, and furnishings that together have a stand-alone selling price of P75,000. Pita Pal also receives P36,000
per year for use of the Pita Pal name and for ongoing consulting services (starting on the date the franchise is
purchased). Rachel became a Pita Pal franchisee on March 1, 20x6, and on May 1, 20x6 Rachel had completed
training and was open for business. How much revenue in 20x6 will Pita Pal recognize for its arrangement with
Rachel?
a. Zero c. P 99,000
b. P75,000 d. P105,000

Sample Problem 14
Quality Assurance Warranty
Vacuums sells the Tornado vacuum cleaner. Each vacuum cleaner has a one-year warranty (quality-assurance) that
covers any product defects. When customers purchase a vacuum cleaner , they also have the option to purchase an
extended three-year warranty that covers any breakage or maintenance. The extended warranty sells for the same
amount regardless of whether it is purchased at the same time as the vacuum cleaner or at some other time. How
many performance obligations?
a. None c. Two
b. One d. Three

Sample Problem 15
Extended Warranty
Vacuums sells the Tornado vacuum cleaner. Each vacuum cleaner has a one-year warranty (quality-assurance) that
covers any product defects. When customers purchase a vacuum cleaner , they also have the option to purchase an
extended three-year warranty that covers any breakage or maintenance. The extended warranty sells for the same
amount regardless of whether it is purchased at the same time as the vacuum cleaner or at some other time. pays
Asser Tamayo pays 20% less for the extended warranty if they buy it at the same time they buy a Tornado. How
many performance obligations exist in the implied contract for the purchase of a vacuum cleaner? How many
performance obligations?
a. None c. Two
b. One d. Three