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

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