Answers - Chapter 1 Vol 2 2009

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
Gross Method
Purchases
Freight in
Accounts Payable Intel Company
Cash
Purchases
Accounts
Corporation
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
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
Payable
Celeron
69,840
64,680
Cash
1
(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
1,560,000 x 12% x 3/12
10/01/10
Interest Expense
187,200 46,800
Notes Payable
Cash
720
1,560,000
187,200
46,800
1,080,000
120,000
Interest Expense
120,000 x 7/12
70,000
05/31/10
Interest Expense
120,000 70,000
50,000
1,200,000
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
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
(b) At December 31, 2009:

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
2011
3,500,000
2,500,
000
60,000
300,00
0
150,000
3,500,0
00
210,000
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

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

(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 )
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
2009
P187,20
0
556,800
(180,000
)
P564,00
0
2,000,00
0
2,000,00
0
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
3,000,00
0
3,000,00
0
2,750,00
0
Sales
2,750,00
0

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

=72,000
2010: 720,000 x 20% x
=72,000
720,000 x 30% x
=108,000
864,000 x 30% x
=86,400
100,00
0
266,40
0
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
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

Subscription Revenue
1,200,000 + 2,000,000 + 1,800,000
5,000,000
5,500,000
5,000,000
2010
Cash
7,000,000

Subscription Revenue
1,300,000 + 2,400,000 + 2,000,000
5,700,000
(c)
Unearned Subscription Revenue, January 1
7,000,000
5,700,000
2009
P4,500,00
0
2010
P5,000,00
0
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
=
=
240,000
180,000
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
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)
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)

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 ) + 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
MC31
MC32
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

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Answers - Chapter 1 Vol 2 2009

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CHAPTER 1

CURRENT LIABILITIES, PROVISIONS AND CONTINGENCIES

Unrecorded checks in payment to creditors

Goods purchased FOB shipping point, lost in transit

Accounts Payable- Intel Company

Purchase Discount (2% x 66,000)

Purchase Discount (2% x 72,000)

Accounts Payable Celeron Corporation

Chapter 1 Current Liabilities, Provisions and Contingencies

Accounts Payable Intel Company

Accounts Payable Celeron Corporation

Purchase Discounts Lost

Purchase Discounts Lost

(Blue Bird Company)

(b) At December 31, 2009:

Chapter 1 Current Liabilities, Provisions and Contingencies

(b) At December 31, 2009:

Amount to be accrued on 12/31/09

(the best estimate of the obligation)

Cash / Accounts Payable

Cash (1,000 x 50)

Estimated Liability for Premium Claims

Cost of mugs already distributed (4,000 x 28)

Premium Expense for 2009 (see a)

Chapter 1 Current Liabilities, Provisions and Contingencies

1-10. (Ever Department Store)

Liability for Customer Loyalty Awards (2% x

Revenue in 2009 as a result of redemption

Less revenue earned in 2008

1-11. (Packard Company)

Warranty Liability, January 1

On 2009 sales [(1/2 of 3%) + 5%] x 6,960,000

1-12. (Smart Corporation)

Chapter 1 Current Liabilities, Provisions and Contingencies

Unearned Revenue from Gift Certificates Outstanding

Unearned Revenue from Gift Certificates Outstanding

1-14. (Francesca Royale)

Deposits received during 2009

Unearned Service Contract Revenue

Cash, Accounts Payable, etc.

Unearned Service Contract Revenue

2009: 720,000 x 20% x

Chapter 1 Current Liabilities, Provisions and Contingencies

Unearned Service Contract Revenue,

Unearned Service Contract Revenue at December 31, 2010 may also be

Unearned Subscription Revenue

Unearned Subscription Revenue

Chapter 1 Current Liabilities, Provisions and Contingencies

Subscription received during the year

1-17. (Ace Co.)

1-17. (Extreme Company)

1-19. (San Roque Corporation)

Chapter 1 Current Liabilities, Provisions and Contingencies

b. Total Bonus = .36 {3,000,000 B T )

B (Sales Manager): 727,273 x 12/32

1-20. (Globe, Inc.)

.06 (9,000,000 B - .30 (9,000,000 B ) }

T = .30 (9,000,000 362,764)

1-21. (Desktop Company)

Vacation earned by employees in 2009

Unused vacation pay in previous periods, adjusted to

1-22. (Jim Corporation)

The full amount of P2,000,000 is classified as current liability because on December

Case 1 . James, Inc.