Professional Documents
Culture Documents
PROBLEM 1
a b c d
b. Notes payable - trade, The notes are all with five months term
P70,000 bearing interest at 15%. P50,000 from the
notes is dated September 1, while the rest
are dated November 3.
e. Notes Payable - BPI, P200,000 This is a long term note for five years and are
being paid off at the rate of P4,000 per
month (monthly payment include interest)
k. Salaries and Wages Payroll for the period December 16, 2014 to
January 15, 2015 amounted to P68,000
l. Notes Receivable, P30,000 This note has been discounted in a bank on a
without recourse basis, where the company
received cash of P24,000
s. Installment notes payable, This is for the equipment purchase, only one
P75,000 third is due in 2015
On December 31, 2014, records show that there are 55 employees who are yet to avail
of any leaves, while there are 25 employees who have remaining 2 weeks unused
vacation and sick leave combined. Employees had an average daily wage rate of P250
for a 5-day weekly operation in 2014.
On December 31, 2015, records show that 925 days vacation and sick leaves carried over
from the last operating period were exercised and paid in 2015. In addition, there are 30
employees who have 6 weeks accumulated unused sick leaves and vacation leaves
combined; 25 employees who have accumulated 3 weeks unused sick leaves and 2 weeks
unused vacation leaves; 30 employees who have accumulated 3 weeks unused sick leaves
and vacation leaves combined 10 employees who have accumulated 1 week unused sick
leaves and 1 week unused vacation leaves. Employees had an average daily wage rate
of P275 for a 5 day weekly operation in 2015.
14. How much liability for compensated absences should be included as current liabilities
as of December 31, 2014?
a. 570,625 c. 412,500
b. 453,750 d. 337,500
15. How much liability for compensated absences should be included as current liabilities
as of December 31, 2015?
a. 570,625 c. 412,500
b. 453,750 d. 337,500
PROBLEM 5
Dragonball Corporation is selling electronic gadgets and home appliances. The company’s
fiscal year ends every March 31. The following information relates to all the obligations
of the company as of March 31, 2016:
Trade payables
Accounts payable for supplies, goods, and services purchases on open account amount
to P 1,344,000 as of March 31, 2016.
Estimated warranties
Dragonball has a one-year product warranty on selected gadgets. The estimated warranty
liability on sales made during the 2014 – 2015 fiscal year and still outstanding as of March
31, 2015, amounted to P 604,800. The warranty costs on sales made from April 1, 2015
to March 31, 2016 are estimated at P 1,512,000. The actual warranty costs incurred
during 2015 – 2016 fiscal year are as follows:
Warranty claims honored on 2014 – 2015 sales P 604,800
Warranty claims honored on 2015 – 2016 sales 684,000
Total P1,288,800
Bonds payable
Dragonball issued P 12,000,000, 12% bonds, on October 1, 2010 at 96. The bonds will
mature on October 1, 2020. Interest is paid semi-annually on October 1 and April 1.
Dragonball uses the straight line method to amortize bond discount.
Notes payable
Dragonball has signed long-term notes with financial institutions. The maturities of these
notes are given below. The unpaid interest for all of these amounts to P 816,000 on
March 31, 2016.
Due date Amount
April 31, 2016 P 1,440,000
July 31, 2016 2,160,000
September 1, 2016 1,080,000
February 1, 2017 1,080,000
April 1, 2017 – March 31, 2018 6,480,000
Dividends
On March 10, 2016, Dragonball’s board of directors declared a cash dividend of P 0.30
per ordinary share and a 10% ordinary share dividend. Both dividends were to be
distributed on April 5, 2016 to ordinary shareholders on record at the close of business
on March 31, 2016. As of March 31, 2016, Dragonball has 12 million, P 2 par value,
ordinary shares issued and outstanding.
REQUIRED: Determine any necessary adjustments and corrections, and compute for
the adjusted balances of the following accounts at March 31, 2016:
The accrual method is used by Pokemon to account for the warranty and premium costs
for financial reporting purposes. The balance in the accounts related to warranties and
premiums on January 1, 2016, were as shown below:
PROBLEM 7
Pikachu Corp. issued P10,000,000 of 10% bonds on January 1, 2016. The prevailing
market rate of interest for similar type of securities was at 12% on the date of issue. The
bonds will mature on January 1, 2026. Interests are being paid semi-annually every July
1 and January 1.
REQUIRED: Compute for the following items:
26. Total proceeds from the bond issuance
a. 10,000,000 c. 8,852,960
b. 8,917,186 d. 8,884,138
27. Correct interest expense in 2016
a. 1,743,068 c. 1,064,226
b. 1,200,000 d. 1,000,000
28. Adjusted balance of the bonds payable as of December 31, 2016
a. 8,989,350 c. 8,852,960
b. 8,917,186 d. 8,884,138
PROBLEM 8
ABC. Co. reported net income for the current year 2013 at P10,000,000 before taxes.
Included in the determination of the said net income were:
Permanent differences
Non-deductible expenses P 100,000
Non-taxable income 500,000
Temporary differences
Accrued warranty expenses 250,000
Rental payments made in advance 400,000
Advance collections from customers 500,000
Provision for probable losses 900,000
The income tax rate is 40% and is not expected to change in the future.
29. How much is the current tax expense?
a. 3,840,000 c. 4,000,000
b. 4,340,000 d. 3,340,000
30. How much is the total tax expense?
a. 3,840,000 c. 4,000,000
b. 4,340,000 d. 3,340,000
LONG PROBLEMS
PROBLEM 1
Adelaida Inc., had the following unadjusted liability balances as of December 31, 2014:
Audit notes:
a. Accounts payable is net of a P 50,000 debit balance in one of the company’s
suppliers accounts due to an overpayment made. The agreement with the
supplier simply calls for the supplier to deliver additional merchandise to
Adelaida Inc. to offset the overpayment. No deliveries were made as of the
balance sheet date.
The balance of the premiums liability account, reflects the accrual at the
end of the previous year (2013), no entry had been made during the current year
affecting the said account.
c. Deferred tax balance appearing above is the result of the deferred tax created
by the premiums liability in the previous year which is tax deductible upon
settlement. Adjustments are yet to be made to the said account to reflect the
movement in the account balance during the year. Moreover, another
temporary difference arising during the year created by the company’s excess
tax depreciation for the period amounted to P 150,000. The income tax rate is
at 30%.
d. The balance of the bonds payable account was the total proceeds from its
issuance on January 1, 2014. The bonds which shall mature on December 31,
2018 have a total face value of P 5,000,000 and are convertible into ordinary
shares at the rate of P 1,000 bond to 10, P 50 par value shares. On the issuance
date, the effective yield rate on similar securities without the convertibility
option was at 8% while each ordinary shares were selling at P 75 per share.
The only other entry made by the client in relation to the bonds was the
payment of interest on December 31, as interest are payable annually every
December 31.
PROBLEM 2
An excerpt of Jovi Company’s trial balance for the period ended December 31, 2016
revealed the following liability balances:
PROBLEM 3
You are auditing the financial statements of Labandera Inc., a company which carries a
wide variety of laundry appliance and supplies, for the year ended December 31, 2014.
In formation about the company’s varied liability accounts are as follows:
a. Premiums items are being offered to its Class A (residential use) washing machines
and dryers. Customers shall receive a coupon for each P50 spent on Class A
laundry appliance. Customers may exchange 400 coupons and P1000 for a dryer.
Labandera pays P5,100 for each dryer and estimates that 60% of the coupons
given to customers will be redeemed. A total of 4,500 dryers to be used on the
premium program were purchased during the year and there were 1,600,000
coupons redeemed during the year.
b. Class B laundry appliances are sold with a two-year warranty for replacement of
parts and labor. The estimated warranty cost, based on the past experience, is 1%
of sales to be incurred on the year of sale and 2% of sales to be incurred on the
year following the year of sale. Replacement parts and labor for warranty work
totaled P1,640,000 during 2014.
c. The company provides key employees 5% bonus based on the net income of the
company after tax. The same is yet to be accrued at year end.
d. Labandera uses the accrual method to account for the warranty and premium costs
for financial reporting purposes. Labandera’s sales for 2014 totaled 280,000,000 ,
60% of which is attributed to Class A laundry appliance sales.
e. The Company reported the following balances at year end:
Inventory of premium items 1,530,000
Premium expense 17,220,000
Warranties expense 1,640,000
Net income, before 35% income tax
and before any adjustments 80,164,000
REQUIRED:
What is the correct premiums liability as of December 31, 2014?
What is the correct net income?
PROBLEM 4
MNO Inc. reported the following information in its long-term liability portion of its
Statement of Financial Position for the period ended December 31, 2013
12% Bonds Payable
10% Note Payable – Bank
Deferred Tax Liability, net
Audit notes:
a. The bonds payable with a face value of P5M was issued with a conversion option
into 20,000, P100 par value ordinary shares at any time up to its maturity on June
30, 2018. These were issued on June 30, 2013 when the prevailing yield rate on
similar debt security without the conversion option was 10%. The company
recorded the transaction as debit to Cash and credit to Bonds payable for the total
consideration received. Interests are being paid semi-annually every December 31,
and June 30 and were recorded appropriately. No other entries were made by the
client affecting the carrying value of the bonds.
Half of the bonds were returned on December 31, 2014 at par value. The prevailing
yield rate on similar debt instrument without the conversion option on this date
was 14%. The transaction is yet to be recorded at year end.
b. The 10% note payable to the bank is dated September 1, 2013 and is payable at
the rate of P500,000, annually every September 1 of each year starting 2014.
Interest are also payable annually every September 1.
c. The deferred tax liability at the beginning of the year resulted to the following
cumulative temporary difference as of December 31, 2013:
Cumulative temporary difference creating
future taxable amount P1,050,000
Cumulative temporary difference creating
future deductible amount 200,000
At the end of the year the balance of the cumulative temporary differences were:
Cumulative temporary difference creating
future taxable amount P1,550,000
Cumulative temporary difference creating
future deductible amount 300,000
Income tax is at 40%
REQUIRED:
What is the equity portion of the Convertible Bonds?
What is the total interest expense for 2014?
MULTIPLE CHOICE SOLUTIONS
PROBLEM 1
Accounts Payable
a. No entry
b. Purchases 384,000 Accounts Payable
Accounts payable 384,000 320,000 10,880,000
Inventory 384,000 480,000
Cost of Good Sold 384,000 384,000
c. Janitorial Expense 192,000 192,000
Accrued Janitorial Expense 192,000 67,200
11,683,200
(288,000 x 2/3)
d. Utilities Expense 67,200
Utilities Payable 67,200
(134,400/2)
Accounts Payable 320,000
Payroll
Warranties
Premiums
Entry:
Premium expense 90
Cash 10
Premium Inventory 100
(100 + 20 – 30 = 90)
Est. Coupons 192,000
Redeemed coupons (128,000)
Coupons sold 320,000
64,000
Multiply by 60%
Est. Coupons divided by 5
redeemed 192,000 Premiums still to be
given 12,800
divided by 5
Multiply by 90
Premiums 38,400
Premium Liability 1,152,000
Multiply by 90
Premium expense 3,456,000
Notes Payable – assignment
PROBLEM 4
LIABILITY FOR COMPANY ABSENCES, 2014
55 Employees with 4 weeks 220
25 employees with 2 weeks 50 270
Multiply by (5 day daily operations) 5
TOTAL LIABILITY FOR COMPANY ABSENCES IN DAYS 1,350
Multiply by: daily rate 250
Required liability balance, 12,31,2104 337,500 14. d
LIABILITY FOR COMPANY ABSENCES, 2015
30 employees with 6 weeks (4 weeks limit) 120
25 employees with 5 weeks (4 weeks limit) 100
30 employees with 3 weeks 90
10 employees with 2 weeks 20 330
Multiply by: (5 day operation) 5
TOTAL LIAB FOR COMPANY ABSENCES IN DAYS 1,650
Multiply by: daily rate 275
Required balance of the Liability, 12/31/2015 453,750 15. b
PROBLEM 5
Year under audit 4/15 to 3/31/16
Warranties Payable
Warranties Payable
1,288,800 604,800
1,512,000
828,000
Bonds payable
1) Accrued interest
- Last paid 10/1/16
- Accrue 6 months ( 10/1/16 – 3/31/17 )
Interest Expense 720,000
Interest Payable 720,000
(12m x 12% x 6/12)
2) Valuation of Bonds payable at 3/31/16
Face Value 12,000,000
Issue price (12,000,000 x 96%) 11,520,000
Discount (480,000)
PROBLEM 6
Entries
Cash/Accounts Receivable 86,400,000
Sales 86,400,000
Warranty expense 1,278,000
Warranty payable 1,728,000
Warranty expense 2,624,000
Cash, Inventory 2,624,000
2) Provision for warranties
Warranties Payable
2,624,000 2,176,000
1,728,000
1,280,000
3) Premium expense
Premium cost:
Purchase price P 34/unit
Less: Remittance (20)
Journal Entries
582,400
Premiums Expense
1,209,600
PROBLEM 7
The temporary difference from excess tax depreciation over financial depreciation is future
taxable amount creating deferred tax liability:
PROBLEM 2
Accounts Payable, unadjusted balance 420,000
RR 2134 Consigned goods (19,000)
RR 2135 Goods in transit, FOB Dest. (24,000)
RR 2316 Goods in transit, FOB SP. 25,000
Accounts Payable, adjusted balance 402,000
Provision of Warranties, beg 273,000
Estimated expense, 2016;
(3,200 units * 50%)* P300 480,000
Less: Actual repairs cost incurred (388,000)
Provision of Warranties, end 365,000
Amortization Table:
Nominal Correct
Date Interest Interest Difference Amortization
1/1/15 initial
measurement 1,855,809*
12/31/2015 Amortization 200,000 222,697 22,697 1,878,506
12/31/2016 Amortization 200,000 225,421 25,421 1,903,927
PROBLEM 3
Class A laundry appliances sales (280,000,000 *60%) 168,000,000
Divide by 50
Number of coupons distributed 3,360,000
Multiply by: probable redemption 60%
Coupons that will probably redeemed 2,016,000
Divide by: number of coupons to acquire 1 premium 400
Estimated number of premiums to be redeemed 5,040
Number of premiums actually redeemed (1,680,000/400) (4,200)
Liability for premiums in units 840
Liability for premiums in Peso (840*4,100) 3,444,000
PROBLEM 4
Amortization Table
Date Nominal Current Amortization Balance
6/30/13 5,386,087
12/31/13 300,000 269,304 (30,696) 5,355,391
6/30/17 300,000 267,770 (32,230) 5,323,161
12/31/14 300,000 266,158 (33,842) 5,289,319