LIABILITIES

LIABILITY is a PRESENT OBLIGATION arising from PAST EVENT, the settlement of which is expected to RESULT IN AN OUTFLOW
from the enterprise of resources embodying economic benefits.

CURRENT LIABILITIES
a) Expected to be settled in the entity’s normal operating cycle;
b) Held primarily for trading;
c) Due to be settled within 12 months after the reporting period; or
d) The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting
period.

PROBLEM 1
ABC Company had the following liabilities at December 31, 2019.

Trade accounts payable, net of debit balances totaling P1, 125, 000
P65,000 in a supplier’s accounts
Accrued expenses 136,000
Interest Payable 96,000
Income Tax Payable 150,000
Mortgage Payable due in equal annual installments until 750,000
October 31,2024
Share dividends declared but not yet issued 300,000
Claims for the unclaimed wages by employees of the 250,000
company covered in a pending lawsuit (not considered to
be probable)

How much is the total current liabilities of Ray Company be shown on its December 31, 2019 statement of financial position?

REFINANCING: It is the replacement of an existing debt with a new one but of different terms.
a) The currently maturing obligation shall be reported as non-current only if the agreement to refinance is completed on or
before the reporting date.
b) If an entity expects, and has the discretion, to refinance or roll over an obligation for more than 12 months after the reporting
date under an existing loan facility, it classifies the obligation as non-current, even if it would be due within a short period.

PROBLEM 2
In October 2016, DEF Corp. acquired special equipment from JKL Company by paying P1, 000,000 down and signing a note with a
face value of P4,000,000 due October 2020. Under the terms of the financing agreement, DEF Corp. has the discretion to roll over the
obligation for at least 15 months. In October 2019, management decides to exercise its discretion to roll over the liability up to October
31, 2021. How much is to be reported as current liability on December 31, 2019?

ACCOUNTS PAYABLE/TRADE ACCOUNTS PAYABLE: Liabilities arising from the purchase of goods, materials, supplies, services.

PROBLEM 3
On December 31,2019, ABC Co. has accounts payable of P1,000,000 before possible adjustment for the following:
a) Goods in transit from a vendor to ABC on December 31,2019 with an invoice cost of P50,000 purchased FOB shipping point
was not yet recorded.
b) Goods shipped FOB shipping point from a vendor to ABC was lost in transit. The invoice cost of P20,000 was not yet
recorded.
c) Goods shipped FOB shipping point from a vendor to ABC on December 31,2019, amounting to P8,000 was recorded and
included in the year-end physical count as “goods in transit.”
d) Goods in transit from a vendor to ABC on December 31, 2019 with an invoice cost of P10,000 purchased FOB destination was
not yet recorded. The goods were received in January 2, 2020.
e) Goods with an invoice cost of P15,000 was recorded and included in the year-end physical count as “goods in transit.” It was
found out that the goods were shipped from a vendor under FOB destination.

Compute for the adjusted accounts payable on December 31,2019.

UNEARNED REVENUE: It is the advanced collection of income that is not yet earned.
PROBLEM 4
ABC Co. requires advance payments for custom-built guitar effects, gadgets, and racks. The records of ABC Co. show the ff:
Unearned Revenue, January 1,2019 P1,000,000
Advances received during 2019 10,000,000
Advances applied to orders shipped in 2019 8,000,000
Advances pertaining to orders cancelled in 2019 300,000

Compute for the current liability assuming:

a) the advance payments received are non-refundable
b) the advance payments received are refundable

PROBLEM 5
ABC Service Company sells service contracts for computer units that cover a two-year period. The sales price of each contract is P750.
ABC’s past experience show that of the total pesos spent for repairs in service contracts, 40% is incurred evenly during the first contract
year and 60% evenly during the second contract year. During 2018, ABC sold 1000 contracts. Cost of servicing the units (direct labor,
materials, etc) during 2018 amounted to P80,000.

During 2019, additional service contracts of 1,200 were sold and repairs were made evenly during the year. Cost of servicing the
contracts during 2019 were P220,000.

a) How much is the service contract revenue earned during the year 2018?
b) How much is the balance of Unearned Service Contract Revenue on December 31,2018?
c) How much is the service contract revenue earned during the year 2019?
d) How much is the balance of Unearned Service Contract Revenue on December 31,2019?

PROBLEM 6
Records of MOA Corp. show the following:
Unearned Revenue from Gift Certificates Outstanding, January 1, P500,000
2019
Gift Certificates sold during the year 1,800,000
Gift Certificates issued relating to sales promotion during the year 200,000
Gift Certificates redeemed during the year 1,800,000
Gift Certificates relating to the entity’s promo that expired during 25,000
the year
Additional outstanding gift certificates expected to expire during 12,000
2020.

How much is the balance of Unearned revenue from gift certificates on December 31, 2019?

DEPOSITS AND ADVANCES: Cash/Property received but which are returnable to the depositor or which have been collected or
otherwise accumulated to be remitted to 3rd parties.

PROBLEM 7
JKL Co. has the following data from deposit transactions during the year ended December 31, 2019.
Balance of Deposits for Returnable Containers, 01/01/2019 P250,000
Deposits received for containers of products sold during 2019 800,000
Deposits refunded during 2019 upon return of containers 720,000
Deposits forfeited for containers not returned within the prescribed 60,000
period
Cost of containers not returned within the prescribed period 55,000
Accumulated depreciation on containers not returned within the 15,000
prescribed period

PROVISION FOR PREMIUMS AND COUPONS: As part of marketing strategy to increase sales, premiums are offered to customers in
exchange for labels, coupons, box tops, wrappers or any other evidence of purchase.

PROBLEM 8
DEF Co. is having a new sales promotional program. For every 10 product box HOwtops returned to the company, customers receive
an attractive prize. The company estimates that only 60% of the product box tops reaching the consumer market will be redeemed.
Additional information is as follows:
 UNITS AMOUNT
Sales of products (in boxes) 2,000,000 P90,000,000
Purchase of premiums (prizes) 100,000 800,000
Premiums distributed to customers 82,000

1) How much is the Estimated Premium Claims Outstanding on December 31, 2019?
2) How much is the Premiums Inventory on December 31, 2019?
3) How much is the Premiums Expense during the period ended December 31, 2019?

CUSTOMER LOYALTY AWARDS: These are rewards to customers’ patronage of the entity’s products and services.

PROBLEM 9
SM Corporation grants its customers one reward point for each P200 sales. Each point is redeemable in the form of merchandise and
equivalent to P1. The points accumulate and may be used by the customer as part of payment for merchandise purchases in the future.
During the month of April 2019, total sales of the company amounted to P24,000,000. Fair values of merchandise and the reward
points are P23,880,000 and P120,000, respectively.

By the end of the first year, 45% of the points have been redeemed, and it is expected that only a total of 90% of the points granted will
be redeemed by the customers.

During the second year, the company redeemed an additional 40% and it revised its estimate of total points expected to be redeemed
at 100%.

1) How much is the revenue from redemption of customer loyalty awards for the year ended December 31, 2019?
2) How much is the balance of liability for customer loyalty awards on December 31, 2019?
3) How much is the revenue from redemption of customer loyalty awards for the year ended December 31, 2020?
4) How much is the balance of liability for customer loyalty awards on December 31, 2020?

NOTES PAYABLE: A promissory note is a written promise to pay a certain sum of money to the bearer at a designated future time.

PROBLLEM 10

On May 1, 2019, DLK Corporation purchased from HDK Company, a piece of special equipment by issuing a 14%, one year note for
P320,000. There is no equivalent cash price for this equipment, but the market rate of interest on similar notes is 8%.

How much is the amount of current liabilities arising from the said transaction that is to be reported December 31, 2019 statement of
financial position?