Intermediate accounting by robles empleoanswers 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

9

1

Gross Method
Purchases
Freight in
Accounts Payable – Intel Company
Cash
Purchases
Accounts
Corporation

6

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
1

3

Accounts Payable – Celeron Corporation

1,320
64,680
72,000

Purchase Discount (2% x 72,000)
Cash
(a) (2)
Dec.
16

Net Method

Purchases
Freight in
Accounts Payable – Intel Company
Cash

1,440
70,560
64,680
1,400
64,680
1,400


Chapter 1 – Current Liabilities, Provisions and Contingencies

1
9

Accounts
Corporation
2

6

1

69,840
Payable

–

Celeron

Accounts Payable – Intel Company

69,840
64,680

Cash
3

(b)
Dec.
31

1-4.

Purchases

64,680

Accounts Payable – Celeron Corporation

69,840

Purchase Discounts Lost
Cash

720

Purchase Discounts Lost

720

Accounts
Corporation

Payable

–

Celeron

70,560

720

(Blue Bird Company)

(a)
10/01/09

12/31/09

10/01/10

Automobiles (1,747,200 ÷ 112%)
Discount on Notes Payable
Notes Payable
Interest Expense

Discount on Notes Payable
1,560,000 x 12% x 3/12
Interest Expense
Discount on Notes Payable
187,200 – 46,800
Notes Payable
Cash

1,560,000
187,200
1,747,200
46,800
46,800
140,400

1,747,200
1,747,200

(b) At December 31, 2009:
Current Liabilities:
Notes Payable, net of P140,400 Discount
1-5.

140,400

P1,606,800

(Matagumpay Corporation)

(a)

06/01/09

Cash
Discount on Notes Payable
Notes Payable

1,080,000
120,000

12/31/09

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

2

1,200,00
0

70,000

50,000


Chapter 1 – Current Liabilities, Provisions and Contingencies

Notes Payable
Cash

1,200,000
1,200,00
0

(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
be
successful.
1-7.

(Graphics Corporation)
a.

Premium Inventory

225,00
0

Cash / Accounts Payable
b.

Premium Expense

100,00
0
50,000

Cash (1,000 x 50)
Premium Inventory (1,000 x 150)
c.

Premium Expense

(Alcatel Company)

(a) Premium Expense (300,000 x 30%)/20

x 28

Cost of mugs already distributed (4,000 x 28)
Estimated
liability
for
premium
claims
outstanding
(b
)
1-9.

150,00
0

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.

225,00
0

Premium Expense for 2009 (see a)

300,00
0

P126,00
0
112,000
P
14,000
P126,00
0

(Adventure Company)
2009

Sale of product
Accts.
Receivable/Cash
Sales

1,000,000

2010
2,500,000

1,000,0

3

2011
3,500,000

2,500,

3,500,0


Chapter 1 – Current Liabilities, Provisions and Contingencies

00
Accrual of repairs
Warranty Expense
Warranty Liability

000
60,000

00

150,000
60,

000

210,000
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

2,000,00
0

4

2009
P187,20
0
556,800
(180,000
)
P564,00
0


Chapter 1 – Current Liabilities, Provisions and Contingencies

Unearned Revenue from Gift Certificates
Outstanding
Unearned Revenue from Gift Certificates Outstanding

2,000,00
0
1,280,00

0

Sales

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

3,000,00
0

Unearned Revenue from Gift Certificates
Outstanding
Unearned Revenue from Gift Certificates Outstanding
Sales
Unearned Revenue from Gift Certificates Outstanding
Revenue from Forfeited Gift Certificates
1-14.

3,000,00
0
2,750,00
0

150,000

150,000

(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.

2,750,00
0

(DOS Company)
(a)

2009

Cash

720,000

Unearned Service Contract Revenue
Cost of Service Contract

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

5

100,00
0

266,40
0


Chapter 1 – Current Liabilities, Provisions and Contingencies

720,000 x 30% x
½=108,000
864,000 x 20% x
½=86,400
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)

(b
)

(b
)

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

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

6

7,000,000
5,700,000


Chapter 1 – Current Liabilities, Provisions and Contingencies

(c)

Unearned Subscription Revenue, January 1
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
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

7

2009
P4,500,00
0
5,500,000
(5,000,00
0)
P5,000,00
0

P
36,000
(24,000)

2010
P5,000,00
0

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


Chapter 1 – Current Liabilities, Provisions and Contingencies

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

0

Current

Non-current

Case 3.

Sylvester Corporation
Situation A

-0-

6,000,000

P2,880,000

8


Chapter 1 – Current Liabilities, Provisions and Contingencies

Situation B
Situation C
Situation D

6,000,000
-0-0-

0
6,000,000
6,000,000

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)
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

MC11
MC12
MC13
MC14
MC15
MC16
MC17
MC18
MC19
MC20

C
B
D

B
A
B
A
B
B
D

Problems
MC21
MC22
MC23

D
C
A

MC24
MC25

D
C

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

9


Chapter 1 – Current Liabilities, Provisions and Contingencies

MC26
MC27

A
D

MC28
MC29
MC30
MC31

D
D
B
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

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
{(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