Accounts Payable, 12/31/13, before adjustments P 1,000,000 Unrecorded checks in payment to creditors (350,000) Unrecorded purchases (150,000 x 98%) Unrecorded goods purchased FOB shipping point 147,000 120,000 Accounts Payable, 12/31/13, as adjusted P 917,000
1-2. (Adams Company)
Accounts Payable, 12/31/13, before adjustments P1,500,000 Goods purchased FOB shipping point, lost in transit 240,000 Returned to supplier (80,000) Accounts Payable, 12/31/13, as adjusted P1,660,000
1-3. (Jefferson Corporation)
(a) (1) Gross Method Dec. 16 Purchases 66,000 Freight in 1,400 Accounts Payable Intel Company 67,400
(b) At December 31, 2013: Current Liabilities: Notes Payable, net of P50,000 Discount P 1,150,000
1-6. (Unison Company) (a) Market interest rate is 5% Principal P8,000,000 Stated interest (8,000,000 x 9%) 720,000 Maturity value P8,720,000 PV factor at 5% for 1 period 0.9524 Present value at May 1, 2012 P8,304,928 Face value of the note 8,000,000 Premium on Notes Payable P 304,928 Chapter 1 Current Liabilities, Provisions and Contingencies 3 05/01/13 Equipment 8,304,928 Notes Payable 8,000,000 Premium on Notes Payable 304,928
12/31/13 Interest Expense 276,715 Premium on Notes Payable (304,928 x 8/12) 203,285 Interest Payable(8,000,000 x 9% x 8/12) 480,000
4/30/14 Interest Expense 138,537* Premium on Notes Payable (304,928 203,285) 101,643 Interest Payable 480,000 Notes Payable 8,000,000 Cash 8,720,000 *balancing figure (difference is due to rounding off of present value factor)
Carrying value as of December 31, 2013 Notes Payable P8,000,000 Premium on Notes Payable 101,643 Interest Payable 480,000 Total (or 8,304,928 + 276,715) P8,581,643
b. Market rate of interest is 12%. Principal P8,000,000 Stated interest (8,000,000 x 9%) 720,000 Maturity value P8,720,000 PV factor at 12% for 1 period 0.8929 Present value at May 1, 2012 P7,786,088 Face value of the note 8,000,000 Discount on Notes Payable P 213,912
12/31/13 Interest Expense 622,608 Discount on Notes Payable (213,912 x 8/12)
142,608 Interest Payable(8,000,000 x 9% x 8/12) 480,000
4/30/14 Interest Expense 311,304* Interest Payable 480,000 Notes Payable 8,000,000 Discount on Notes Payable 71,304 Cash 8,720,000 *balancing figure (difference is due to rounding off of present value factor)
Carrying value as of December 31, 2013 Notes Payable P8,000,000 Discount on Notes Payable (71,304) Interest Payable 480,000 Total (or 7,786,088 + 622,608) P8,408,696
Chapter 1 Current Liabilities, Provisions and Contingencies 4 1-7. (Harrison Company)
Amount to be accrued on 12/31/13 (the best estimate of the obligation) P800,000
No obligation is recognized for the suit filed in September 2013 nor for the suit filed in October. However, disclosure is necessary in the notes to the financial statements for the suit filed in October 2013 by Pasig City government since it is reasonably possible the Pasig City government will be successful.
1-8. ( Tyler Corporation)
a. Premium Inventory 225,000 Cash / Accounts Payable 225,000
b. Premium Expense 100,000 Cash (1,000 x 50) 50,000 Premium Inventory (1,000 x 150) 150,000
c. Premium Expense 300,000 Estimated Liability for Premium Claims Outstanding 300,000 (40% x 1,000,000)/ 100 = 4,000 4,000 1,000 = 3,000; 3,000 x (150 50) = 300,000
1-9. (Polk Company) (a) Premium Expense (300,000 x 30%)/20 x 28 P126,000 Cost of mugs already distributed (4,000 x 28) 112,000 Estimated liability for premium claims outstanding P 14,000
(b) Premium Expense for 2013 (see a) P126,000
1-10. Taylor Company
(a) 2012 2013 Expected future redemption, beg - (30,000) Redeemed during the year 40,000 90,000 Expected future redemption, end 30,000 80,000 Total 70,000 140,000 5 5 14,000 28,000 Net cost of premium (120 50) x P70 x P70 Premium expense P980,000 P1,960,000
(b) Provision for premium claims outstanding 12/31/12 (30,000/5) x P70 P 420,000 12/31/13 (80,000/5) x P70 P1,120,000
Chapter 1 Current Liabilities, Provisions and Contingencies 5 1-11. (Van Department Store) (a) Allocation of original consideration received: Sales revenue (98% x P5,000,000)
P4,900,000 Liability for Customer Loyalty Awards (2% x P5,000,000) P 100,000 Revenue in 2012 as a result of redemption 100,000 x 25/90
P 27,778 Revenue in 2013 as a result of redemption Total accumulated revenue from redemption as of 12/31/12 (100,000 x 60/95)
P 63,158 Less revenue earned in 2012 27,778 Revenue in 2013 as a result of redemption P 35,380
(b) Liability as of 12/31/12 (100,000 27,778) P 72,222 Liability as of 12/31/13 (100,000 63,158) P 36,842
1-12. (Jackson Company) 2011 2012 2013 Sale of product Accts. Receivable/Cash 1,000,000 2,500,000 3,500,000 Sales 1,000,000 2,500,000 3,500,000
Accrual of repairs Warranty Expense 60,000 150,000 210,000 Warranty Liability 60,000 150,000 210,000 6% x 1M 6% x 2.5M 6% x 3.5M
Actual repairs Warranty Liability 8,000 38,000 112,500 Cash/ AP, etc. 8,000 38,000 112,500
1-13. (Fillmore Company) (a) 2012 2013 Warranty Liability, January 1 P 0 P187,200 Warranty expense (8% x 4,200,000)/(8% x 6,960,000) 336,000 556,800 Actual repair costs incurred (148,800) (180,000) Warranty liability, December 31 P187,200 P564,000
(b) On 2012 sales (4,200,000 x 5% x !) P105,000 On 2013 sales [(1/2 of 3%) + 5%] x 6,960,000 452,400 Warranty Liability, December 31, 2013, as analyzed P557,400
1-14. (Pierce Corporation) Cash 2,000,000 Unearned Revenue from Gift Certificates Outstanding 2,000,000
Unearned Revenue from Gift Certificates Outstanding 1,280,000 Sales 1,280,000
Note: The gift certificates estimated to expire will be recognized as revenue at the date of actual expiration. Chapter 1 Current Liabilities, Provisions and Contingencies 6 1-15. (Buchanan Company) Cash 3,000,000 Unearned Revenue from Gift Certificates Outstanding 3,000,000
Unearned Revenue from Gift Certificates Outstanding 2,750,000 Sales 2,750,000
Unearned Revenue from Gift Certificates Outstanding 150,000 Revenue from Forfeited Gift Certificates 150,000
1-16. (Lincoln Company) Refundable Deposits, January 1, 2013 P250,000 Deposits received during the year 200,000 Deposits refunded during the year (267,000) Deposits forfeited during the year (100,000 82,000) (18,000) Refundable Deposits, December 31, 2013 P165,000
Cost of Service Contract 25,000 100,000 Cash, Accounts Payable, etc. 25,000 100,000
Unearned Service Contract Revenue 72,000 266,400 Service Contract Revenue 72,000 266,400 2012: 720,000 x 20% x !=72,000 2013: 720,000 x 20% x !=72,000 720,000 x 30% x !=108,000 864,000 x 30% x !=86,400 72,000+108,000+86,400=266,400
(b) 2012 2013 Unearned Service Contract Revenue, Jan. 1 ----- P648,000 Sale of contracts during the year P720,000 864,000 Service contracts earned during the year (72,000) (266,400) Unearned Service Contract Revenue, Dec. 31 P648,000 P1,245,600
Unearned Service Contract Revenue at December 31, 2013 may also be computed as: 720,000 x 65% 468,000 864,000 x 20% x ! 86,400 864,000 x 80% 691,200 Total 1,245,600 (c) 2012 2013 Revenue from service contracts P72,000 P266,400 Cost of service contracts 25,000 100,000 Profit from service contracts P47,000 P166,400
Chapter 1 Current Liabilities, Provisions and Contingencies 7 1-18. (Grant Publication) (a) Subscriptions sold in 2010 and 2011 (5,000,000 + 4,500,000) P9,500,000 Expired subscriptions in 2010 P1,000,000 2011 (2,800,000 + 1,200,000) 4,000,000 5,000,000 Unearned subscriptions, Jan. 1, 2012 P4,500,000
(c) 2012 2013 Unearned Subscription Revenue, January 1 P4,500,000 P5,000,000 Subscription received during the year 5,500,000 7,000,000 Subscription revenue for the year (5,000,000) (5,700,000) Unearned Subscription Revenue, December 31 P5,000,000 P6,300,000
1-19. (Hayes Co.) Property Taxes Payable Property tax expense July 1 to Dec. 31 (72,000 x 6/12)
P 36,000
Payment in 2013 (Nov. payment = 72,000/3) (24,000) P 12,000 Income Tax Payable Pretax income before accrued property taxes P1,629,000 Less accrued property tax 12,000 Income subject to tax P1,617,000 Income tax rate 30% Income tax expense P 485,100 2013 payments for 2013 income tax (480,000190,000)
(290,000)
195,100 VAT Payable Output VAT (12% x 9,000,000) P 1,080,000 2013 payments of VAT (725,000) 355,000 Total current liabilities for taxes P562,100
1-20. (Garfield Company) a. B = 8,000,000 x 8% = 640,000
Chapter 1 Current Liabilities, Provisions and Contingencies 8 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
1-21. (Arthur Corporation) a. Bonus to sales manager = .08 x 3,000,000 = 240,000 Bonus to each sales agent = .06 x 3,000,000 = 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 = 603,834 (total) B (Each): 603,834 / 3 = 201,278
c. B = .32 {3,000,000 B } B = 960,000 - .32B B = 960,000/1.32 = 727,273 (total) B (Sales Manager): 727,273 x 12/32 = 272,727 B (Each Sales Agent): 727,273 x 10/32 = 227,273
1-22. (Cleveland, Inc.) B = .06 {9,000,000 B T } T = .30 (9,000,000 B)
B = .06 (9,000,000 B - .30 (9,000,000 B ) } B = .06 { 9,000,000 B 2,700,000 + .30B } B = 378,000 - .042B B = 378,000 / 1.042 = 362,764
T = .30 (9,000,000 362,764) T = 2,591,171
1-23. (Roosevelt Corporation) The full amount of P2,000,000 is classified as current liability because on December 31, 2013 (the reporting date), the enterprise has no unconditional right to defer the settlement of the obligation for a period of at least 12 months.
Chapter 1 Current Liabilities, Provisions and Contingencies 9 1-24. Current Non-current Case 1 . Taft, Inc. 3,600,000 x 80% P2,880,000 3,000,000 2,880,000 P 120,000
Case 2. Taft, Inc. 2,000,000 0
Case 3. Wilson Corporation Situation A 6,000,000 0 Situation B 0 6,000,000 Situation C 6,000,000 0 Situation D -0- 6,000,000
1-25. (Harding Company) Current Liabilities 14% Notes Payable, refinanced on March 10, 2013 P2,500,000 Current portion of 16% notes payable 1,600,000
Total current liabilities P4,100,000
1-26. (Coolidge 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 P2,400,500 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.
Chapter 1 Current Liabilities, Provisions and Contingencies 10 MULTIPLE CHOICE QUESTIONS
Theory MC1 D MC11 D MC2 B MC12 B MC3 C MC13 D MC4 B MC14 B MC5 B MC15 B MC6 A MC16 A MC7 B MC17 B MC8 C MC18 A MC9 C MC19 B MC10 C MC20 C MC21 D MC22 D
Problems MC23 D 540,000 + 30,000 + 15,000 = 585,000 MC24 C 100,000 + (100,000 x 0.3 x 9/12) = 102,250 x .944 = 96,524 MC25 A Proceeds = 100% - 10% = 90% ; Effective interest = 10%/90% = 11.11% MC26 D P5,000,000, which is the reasonable estimate MC27 C Given MC28 A 130,000 + 1,630,000 1,560,000 = 200,000 MC29 D 6% ( 4,500,000-2,500,000) = 120,000 + (8,500 x ! ) + 2,500 = 126,750 MC30 D 1,080,000 + 1,920,000 1,560,000 = 1,440,000 MC31 C [(67.5% x 2,100,000] + 92.5%(2,730,000) = 3,942,750 MC32 C [! (15% + 35%) x P2,100,000] + (1/2 x 15% x 2,730,000) = 729,750 MC33 A ! (15% + 35%) x P2,730,000 = 682,500 MC34 A (25% x 2,100,000)+(67.5% x 2,730,000)+(92.5% x 2,475,000) = 4,657,125 MC35 D 1,000 x 750 = 750,000 MC36 B 63,000 + (1,125,000 x 3/10) = 400,500 MC37 B {(500,000 x 80%) 300,000} = 100,000; 100,000 x (50+5-40) = 1,500,000 MC38 A { (3,000,000 x 60%) / 10 } 42,000 = 138,000; 138,000 x P0.50 = 69,000 MC39 A (400,000 x 70%) 100,000 = 180,000 ; ( 180,000 /5) x 20 = 720,000 MC40 B (720,000 x 50%) 300,000 = 60,000 MC41 D 24,000 x 300 = 7,200,000 MC42 C 7,200,000 1,700,000 = 5,500,000 MC43 D 1,500,000 x 4% = 60,000 MC44 C B = 0.45 {2,000,000 B - .30 (2,000,000 B}) ; B = 479,087 MC45 C 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 MC46 B B = 0.10 {2,500,000 - .30 (2,500,000 B)} = 180,412 MC47 C 600,000 + 900,000 + 400,000 = 1,900,000 MC48 A 2,400,000 1,900,000 = 500,000 MC49 D 3,800,000 + 2,000,000 5,000,000 = 800,000 decrease in profit MC50 A 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
Taxes for Small Business: The Ultimate Guide to Small Business Taxes Including LLC Taxes, Payroll Taxes, and Self-Employed Taxes as a Sole Proprietorship