Western Mindanao State University

Financial Accounting 2
Quiz

THEORIES:
1. An entity shall measure initially financial liability not designated at fair value
through profit or loss at
a. Fair value
b. Fair value plus directly attributable transaction cost
c. Fair value minus directly attributable transaction cost
d. Face amount
2. After initial recognition, an entity shall measure a financial liability at
a. Amortized cost using effective interest method.
b. Fair value through profit or loss.
c. Either at amortized cost using the effective interest method or fair
value through profit or loss.
d. Either at amortized cost using the straight line interest method or fair
value through profit or loss.
3. A financial liability that is due to be settled within twelve months after the
reporting period shall be classified as noncurrent
a. When it is refinanced on long-term basis before the issue of financial
statements.
b. When the entity has no discretion to refinance for at least twelve
months.
c. When it is refinanced on long-term basis after the end of the reporting
period.
d. When it is refinanced on a long-term basis on or before the end of
reporting period.
4. Which of the following represents a liability?
a. The obligation to pay for goods that an entity expects to order from
suppliers next year.
b. The obligation to provide goods that customers have ordered and paid
for during the current year.
c. The obligation to pay interest on five-year note payable that was
issued the last day of the year.
d. The obligation to distribute an entitys own shares next year as a result
of a stock dividend declared.
5. For a liability to exist
a. A past transaction or event must have occurred.
b. The exact amount must be known.
c. The identity of the party owed must be known.
d. An obligation to pay cash in the future must exist.
6. It is a marketing scheme whereby an entity grants award credits to customers
and the entity can redeem the award credits in exchange for free or
discounted goods or services.
a. Customer loyalty program
b. Premium plan
c. Marketing program
d. Loyalty award
 7. The award credits granted to customers under a customer loyalty program is
often described as
a. Points
b. Awards
c. Credits
d. Royalty

8. The consideration allocated to the points is measured at

a. Stand-alone selling price of the points
b. Carrying amount of goods to be received in exchange
c. Fair value of the goods to be received in exchange.
d. The proportion of the stand-alone selling price of the points relative to
the total of the stand-alone selling price of the points and the stand-
alone selling price of the goods.
9. Under the customer loyalty program, the consideration allocated to the award
credits
a. Shall be recognized as revenue immediately.
b. Shall be accounted for as revenue separately.
c. Shall be recognized as deferred revenue and amortized as revenue
over a reasonable period.
d. Shall be recognized initially as deferred revenue and subsequently
recognized as revenue upon the redemption of the award credits.
10.Which of the following best describes the accrual approach of accounting for
warranty cost?
a. Expense when paid.
b. Expense when warranty claims are certain.
c. Expensed based on estimate in year of sale.
d. Expense when incurred.

PROBLEM SOLVING:

11-15. (5 points) please show solution

Mhond Company provides the following information on December 31, 2016:

Notes Payable
Trade 3,000,000
Bank Loans 2,000,000
Advances from officers 500,000
Accounts payable trade 4,000,000
Bank overdraft 300,000
Dividends payable 1,000,000
Withholding tax payable 100,000
Mortgage payable 3,800,000
Income tax payable 800,000
Estimated warranty liability 600,000
Estimated damages payable by reason of breach of contract 700,000
Accrued liabilities 900,000
Estimated premium liability 200,000
Claim for increase in wages by employees covered in a
 pending lawsuit 3,500,000
Contract entered into for the construction of building 5,000,000

Required:
Compute the total current liabilities on December 31, 2016.

16-23. (2 points each question)

Charlene Company includes one coupon in each box of laundry soap it sells. A towel
is offered as a premium to customers who send in 10 coupons and a remittance of
P10.

Distribution cost of premium is P5. Experience indicates that only 30% of the
coupons will be redeemed.
2016 2017
Boxes of soup sold 2,000,000 2,500,000
Number of towels purchased at P50 each 50,000 80,000
Coupons redeemed 400,000 700,000

What is the premium expense for 2016?

a. 2,500,000
b. 2,400,000
c. 1,800,000
d. 2,700,000

What is the estimated premium liability on December 31, 2016?

a. 1,000,000
b. 1,100,000
c. 800,000
d. 900,000

What is the premium expense for 2017?

a. 3,000,000
b. 3,750,000
c. 3,375,000
d. 4,000,000

What is the estimated premium liability on December 31, 2017?

a. 1,000,000
b. 1,250,000
c. 1,125,000
d. 1,375,000

24-30. During 2016, Monica Ashley Company introduced a new product carrying a
two-year warranty against defects.
The estimated warranty cost related to peso sales are 4% within 12 months
following sale and6% in the second 12 months following sale.

The entity reported sales of P5,000,000 for 2016 and P6,000,000 for 2017.

The actual expenditures incurred amounted to P150,000 for 2016 and P550,000 for
2017.

What is the warranty expense for 2016? (1 point)

a. 500,000
b. 200,000
c. 250,000
d. 300,000

What is the estimated warranty liability on December 31, 2016? (2 points)

a. 350,000
b. 150,000
c. 100,000
d. 50,000

What is the warranty expense for 2017? (2 points)

a. 650,000
b. 600,000
c. 500,000
d. 550,000

What is the estimated warranty liability on December 31, 2017? (2points)

a. 360,000
b. 400,000
c. 240,000
d. 100,000