CHAPTER 1 CURRENT LIABILITIES, PROVISIONS AND CONTINGENCIES PROBLEMS 1-1.
(Epson Company) Accounts Payable, 12/31/09, before adjustments
P 1,000,000 (350,000) 147,000 P 797,000
Unrecorded checks in payment to creditors Unrecorded purchases (150,000 x 98%) Accounts Payable, 12/31/09, as adjusted 1-2.
(Gay Company) Accounts Payable, 12/31/09, before adjustments
P1,500,00 0 240,000 (80,000) P1,660,00 0
Goods purchased FOB shipping point, lost in transit Returned to supplier Accounts Payable, 12/31/09, as adjusted 1-3.
(Megabytes Corporation) (a) (1) Dec. 16
1 9
6
Gross Method Purchases Freight in Accounts Payable – Intel Company Cash Purchases Accounts Corporation
2
66,000 1,400 66,000 1,400 72,000 Payable
–
Celeron
Accounts Payable- Intel Company
72,000 66,000
Purchase Discount (2% x 66,000) Cash 3 1
72,000
Purchase Discount (2% x 72,000) Cash
(a) (2) Dec. 16
1 9
Accounts Payable – Celeron Corporation
1,320 64,680
Net Method Purchases Freight in Accounts Payable – Intel Company Cash Purchases
1,440 70,560 64,680 1,400 64,680 1,400 69,840
Chapter 1 – Current Liabilities, Provisions and Contingencies
Accounts Corporation 6
2
Payable
–
Celeron
Accounts Payable – Intel Company
69,840 64,680
Cash 1
3
(b) Dec. 31
1-4.
64,680
Accounts Payable – Celeron Corporation
69,840
Purchase Discounts Lost Cash
720
Purchase Discounts Lost
720
Accounts Corporation
Payable
–
Celeron
(Blue Bird Company) (a) 10/01/09 Automobiles (1,747,200 ÷ 112%) Discount on Notes Payable Notes Payable 12/31/09
Interest Expense Discount on Notes Payable 1,560,000 x 12% x 3/12
10/01/10
Interest Expense Discount on Notes Payable 187,200 – 46,800 Notes Payable Cash
720
1,560,000 187,200 46,800
1,080,000 120,000
Interest Expense Discount on Notes Payable 120,000 x 7/12
70,000
05/31/10
Interest Expense Discount on Notes Payable 120,000 – 70,000
50,000
1,200,000
2
1,747,200
P1,606,800
12/31/09
Notes Payable Cash
46,800
140,400 1,747,200
(Matagumpay Corporation) (a) 06/01/09 Cash Discount on Notes Payable Notes Payable
1,747,200
140,400
(b) At December 31, 2009: Current Liabilities: Notes Payable, net of P140,400 Discount 1-5.
70,560
1,200,00 0 70,000
50,000
1,200,00 0
Chapter 1 – Current Liabilities, Provisions and Contingencies
(b) At December 31, 2009: Current Liabilities: Notes Payable, net of P50,000 Discount 1-6.
P 1,150,000
(Goliath Company)
Amount to be accrued on 12/31/09 P800,000
(the best estimate of the obligation)
No obligation is recognized for the suit filed in September 2009 nor for the suit filed in October. However, disclosure is necessary in the notes to the financial statements for the suit filed in October 2009 by Pasig City government since it is probable the Pasig City government will not be successful. 1-7.
(Graphics Corporation) a.
Premium Inventory
225,00 0
Cash / Accounts Payable b.
225,00 0
Premium Expense
100,00 0 50,000
Cash (1,000 x 50) Premium Inventory (1,000 x 150) c.
150,00 0
Premium Expense
300,00 0
Estimated Liability for Premium Claims Outstanding (40% x 1,000,000)/ 100 = 4,000 4,000 – 1,000 = 3,000; 3,000 x (150 – 50) = 300,000 1-8.
(Alcatel Company) (a) Premium Expense (300,000 x 30%)/20
x 28
P126,00 0 112,000 P 14,000
Cost of mugs already distributed (4,000 x 28) Estimated liability for premium claims outstanding (b ) 1-9.
Premium Expense for 2009 (see a)
(Adventure Company) Accts.
1,000,000
Receivable/Cash Sales
2010 2,500,000
1,000,0 00
Accrual of repairs Warranty Expense
P126,00 0
2009
Sale of product
3
2011 3,500,000
2,500, 000
60,000
300,00 0
150,000
3,500,0 00 210,000
Chapter 1 – Current Liabilities, Provisions and Contingencies
Warranty Liability
60, 000
150,0 00
210,0 00
6% x 1M 6% x 2.5M 6% x 3.5M Actual repairs Warranty Liability Cash/ AP, etc.
8,000
38,000 8,
000
112,500 38,0
00
112,5 00
1-10. (Ever Department Store) (a) Allocation of original consideration received: Sales revenue (98% x P5,000,000)
P4,900,00 0 P 100,000
Liability for Customer Loyalty Awards (2% x P5,000,000) Revenue in 2008 as a result of redemption 100,000 x 25/90
P 27,778
Revenue in 2009 as a result of redemption Total accumulated revenue from redemption as of 12/31/09 (100,000 x 60/95)
P 63,158 27,778 P 35,380
Less revenue earned in 2008 Revenue in 2009 as a result of redemption (b) Liability as of 12/31/08 (100,000 – 27,778) Liability as of 12/31/09 (100,000 – 63,158)
P P
72,222 36,842
1-11. (Packard Company) (a) 2008
Warranty Liability, January 1 Warranty expense (8% x 4,200,000)/(8% x 6,960,000) Actual repair costs incurred Warranty liability, December 31
P 0 336,000 (148,800 ) P187,20 0
(b) On 2008 sales (4,200,000 x 5% x ½)
P105,00 0 452,400 P557,40 0
On 2009 sales [(1/2 of 3%) + 5%] x 6,960,000 Warranty Liability, December 31, 2009, as analyzed
1-12. (Smart Corporation) Cash Unearned Revenue from Gift Certificates Outstanding
4
2009 P187,20 0 556,800 (180,000 ) P564,00 0
2,000,00 0
2,000,00 0
Chapter 1 – Current Liabilities, Provisions and Contingencies
Unearned Revenue from Gift Certificates Outstanding Sales
1,280,00 0
1,280,00 0
Note: The gift certificates estimated to expire will be recognized as revenues at the date of actual expiration. 1-13. (Robinson) Cash Unearned Revenue from Gift Certificates Outstanding Unearned Revenue from Gift Certificates Outstanding
3,000,00 0
3,000,00 0
2,750,00 0
Sales
2,750,00 0
Unearned Revenue from Gift Certificates Outstanding Revenue from Forfeited Gift Certificates
150,000
1-14. (Francesca Royale) Refundable Deposits, January 1, 2009
P250,00 0 200,000 (267,000 ) (18,000) P165,00 0
Deposits received during 2009 Deposits refunded during 2009 Deposits forfeited during 2009 (100,000 – 82,000) Refundable Deposits, December 31, 2009 1-15. (DOS Company) (a)
2009
Cash
720,000
Unearned Service Contract Revenue Cost of Service Contract
150,000
2010
864,00 0
720,00 0 25,000
Cash, Accounts Payable, etc.
864,00 0 100,00 0
25,000
Unearned Service Contract Revenue Service Contract Revenue
72,000
266,40 0 72,000
2009: 720,000 x 20% x ½=72,000 2010: 720,000 x 20% x ½=72,000 720,000 x 30% x ½=108,000 864,000 x 30% x ½=86,400
5
100,00 0
266,40 0
Chapter 1 – Current Liabilities, Provisions and Contingencies
72,000+108,000+86,400=266,40 0
(b )
Unearned Service Contract Revenue, Jan. 1 Sale of contracts during the year Service contracts earned during the year Unearned Service Contract Revenue, Dec. 31
2009
2010
-----
P648,000
P720,000 (72,000)
864,000 (266,400)
P648,000
P1,245,600
Unearned Service Contract Revenue at December 31, 2010 may also be computed as follows: 720,000 x 65% 468,000 864,000 x 20% x ½ 86,400 864,000 x 80% 691,200 Total 1,245,600 (c) 2009 2010 Revenue from service contracts P72,000 P266,400 Cost of service contracts 25,000 100,000 Profit from service contracts P47,000 P166,400 1-16. (Pioneer Publication) (a) Subscriptions sold in 2007 and 2008 (5,000,000 + 4,500,000) Expired subscriptions in 2007 2008 (2,800,000 + 1,200,000) Unearned subscriptions, Jan. 1, 2009 (b )
(b )
P9,500,000 P1,000,000 4,000,000
5,000,000 P4,500,000
2009 Cash Unearned Subscription Revenue
5,500,000
Unearned Subscription Revenue Subscription Revenue 1,200,000 + 2,000,000 + 1,800,000
5,000,000
5,500,000 5,000,000
2010 Cash Unearned Subscription Revenue
7,000,000
Unearned Subscription Revenue Subscription Revenue 1,300,000 + 2,400,000 + 2,000,000
5,700,000
(c) Unearned Subscription Revenue, January 1
6
7,000,000 5,700,000
2009 P4,500,00 0
2010 P5,000,00 0
Chapter 1 – Current Liabilities, Provisions and Contingencies
Subscription received during the year Subscription revenue for the year Unearned Subscription Revenue, December 31
1-17. (Ace Co.) Property Taxes Payable Property tax expense July 1 to Dec. 31 (72,000 x 6/12) Payment in 2009 (Nov. payment = 72,000/3) Income Tax Payable Pretax income before accrued property taxes Less accrued property tax Income subject to tax Income tax rate Income tax expense 2009 payments for 2009 income tax (480,000 – 190,000) VAT Payable Output VAT (12% x 9,000,000) 2009 payments of VAT Total current liabilities
5,500,000 (5,000,00 0) P5,000,00 0
P 36,000 (24,000)
7,000,000 (5,700,00 0) P6,300,00 0
P 12,000
P1,629,000 12,000 P1,617,000 30% P 485,100 (290,000) P 1,080,000 (725,000)
195,100
355,000 P562,100
1-17. (Extreme Company) a. B = 8,000,000 x 8% = 640,000 b.
B = 8% (8000,000 – B ) B = 640,000 - .08B B = 640,000/1.08 = 592,593
c.
B = .08 (8,000,000 – T ) T = .30 (8,000,000 – B ) B = .08 {8,000,000 - .30 (8,000,000 – B ) } B = .08 {8,000,000 – 2,400,000 + .30B} B = 448,000 + .024B B = 448,000/0.976 = 459,016
d.
B = .08 {8,000,000 – B – T } T = .30 (8,000,000 – B) B = .08{8,000,000 – B - .30 (8,000,000 – B)} B = .08 {8,000,000 – B – 2,400,000 + .30B} B = 448,000 - .056B B = 448,000/1.056 = 424,242
1-19. (San Roque Corporation) a. Bonus to sales manager = .08 x 3,000,000 Bonus to each sales agent = .06 x 3,000,000
7
= =
240,000 180,000
Chapter 1 – Current Liabilities, Provisions and Contingencies
b. Total Bonus = .36 {3,000,000 – B – T ) T = .30 {3,000,000 – B } B = .36 {3,000,000 – B - .30 (3,000,000 – B)} B = .36 {3,000,000 – B – 900,000 + .30B} B = 756,000 - .252B B = 756,000/1.252 = B (Each): 603,834 / 3 =
603,834 (total) 201,278
c. B = .32 {3,000,000 – B } B = 960,000 - .32B B = 960,000/1.32
=
727,273
=
272,727 = 227,273
B (Sales Manager): 727,273 x 12/32 B (Each Sales Agent): 727,273 x 10/32
(total)
1-20. (Globe, Inc.)
B = .06 {9,000,000 – B – T } T = .30 (9,000,000 – B) B B B B
= = = =
.06 (9,000,000 – B - .30 (9,000,000 – B ) } .06 { 9,000,000 – B – 2,700,000 + .30B } 378,000 - .042B 378,000 / 1.042 = 362,764
T = .30 (9,000,000 – 362,764) T = 2,591,171
1-21. (Desktop Company) a.
Vacation earned by employees in 2009 P 200,000 Adjustment in rate for unused vacation pay in previous periods (250,000 – 150,000) x 10% 10,000 Vacation pay expense in 2009 P 210,000
b.
Unused vacation pay in previous periods, adjusted to current rate (250,000 – 150,000) x 110% Vacation pay earned by employees in 2009 unused Liability for vacation pay, 12/31/09
P110,000 200,000 P310,000
1-22. (Jim Corporation)
The full amount of P2,000,000 is classified as current liability because on December 31, 2009 (the balance sheet date), the enterprise has no unconditional right to defer the settlement of the obligation for a period of at least 12 months.
1-23.
Current
Non-current
Case 1 . James, Inc. 3,600,000 x 80% 3,000,000 – 2,880,000
P 120,000
Case 2.
James, Inc.
2,000,000
0
Current
Non-current
Case 3.
Sylvester Corporation Situation A Situation B Situation C Situation D
-06,000,000 -0-0-
6,000,000 0 6,000,000 6,000,000
P2,880,000
1-24. (Trey Company)
8
Chapter 1 – Current Liabilities, Provisions and Contingencies
Current Liabilities 14% Notes Payable, refinanced on September 30, 2010 P2,500,000 Current portion of 16% notes payable 800,000 Total current liabilities P3,300,000
1-25. (Internet Company) Current Liabilities: Accounts Payable
P 270,000 Mortgage Notes Payable 1,300,000 Bank Notes Payable due currently 100,000 Interest Payable 7,500 Value Added Tax Payable 288,000 Income Tax Payable 315,000 Withholding Tax Payable 120,000 Total Current Liabilities P2,400,50 0 VAT: 2,688,000 / 1.12 = 2,400,000; 2,400,000 x 12% = 288,000 The damages claimed by employees cannot be recognized since the amount is not reasonably estimable. MULTIPLE CHOICE QUESTIONS
Theory MC1 MC2 MC3 MC4 MC5 MC6 MC7 MC8 MC9 MC10
D A C B A B B C C D
Problems MC21 D MC22 C MC23 A MC24 MC25 MC26 MC27
D C A D
MC28 MC29 MC30
D D B
MC11 MC12 MC13 MC14 MC15 MC16 MC17 MC18 MC19 MC20
C B D B A B A B B D
540,000 + 30,000 + 15,000 = 585,000 100,000 + (100,000 x 0.3 x 9/12) = 102,250 x .944 = 96,524 Proceeds = 100% - 10% = 90% ; Effective interest = 10%/90% = 11.11% Given Given 65,000 + 815,000 – 780,000 = 100,000 6% ( 4,500,000-2,500,000) = 120,000 + (8,500 x ½ ) + 2,500 = 126,750 540,000 + 960,000 – 780,000 = 720,000 1,000 x 750 = 750,000 42,000 + (750,000 x 3/10) = 267,000
9
Chapter 1 – Current Liabilities, Provisions and Contingencies
MC31
B
MC32
A
MC33 MC34 MC35 MC36 MC37 MC38 MC39
A B D C D C C
MC40 MC41 MC42 MC43
B C A A
{(500,000 x 80%) – 300,000} = 100,000; 100,000 x (50+5-40) = 1,500,000 { (3,000,000 x 60%) / 10 } – 42,000 = 138,000; 138,000 x P0.50 = 69,000 (400,000 x 70%) – 100,000 = 180,000 ; ( 180,000 /5) x 20 = 720,000 (180,000 x 50%) – 75,000 = 15,000 24,000 x 300 = 7,200,000 7,200,000 – 1,700,000 = 5,500,000 1,500,000 x 4% = 60,000 B = 0.45 {2,000,000 – B - .30 (2,000,000 – B}) ; B = 479,087 Total B = 0.35 {2,000,000 – B} ; total B = 518,519 B to Sales Manager = 518,519 x 15/35 = 222,222 B to Each Sales Agent = 518,519 x 10/35 = 148,148 B = 0.10 {2,500,000 - .30 (2,500,000 – B)} = 180,412 600,000 + 900,000 + 400,000 = 1,900,000 2,400,000 – 1,900,000 = 500,000 472,000+200,000+9,600+64,000+380,000+26,000+100,000+50,000 + 24,000+48,000+57,500= 1,431,100
10
