Problem 1 Accrued Liabilities

Kemp Company must determine the December 31, 2019 accruals for advertising and
rent expense.

A P500,000 advertising bill was received January 7, 2020, comprising costs of

P350,000 for advertisement in December 2019 issues, and P150,000 for
advertisements in January 2020 issues of the newspaper.

A one-year lease, effective December 16, 2019, calls for fixed rent of P120,000 per
month, payable one month from the effective date and monthly thereafter.

In addition, rent equal to 5% of net sales over P6,000,000 per calendar year is payable
on

January 31 of the following year. Net sales for 2015 totalled P9, 000, 000.

On December 31, 2019, what amount should be reported as accrued expenses?

A. 950,000
B. 770,000
C. 650,000
D. 710,000

Answer = D

Advertisement for
December 350,000
Accrued rent 120,000*1/2 60,000
Acrrued real property tax 600,000*6/12 300000
Total accrued Expenses 710,000

Problem 2 Accrued Liabilities

Bronson Company operates a retail store and must determine the proper. December
31, 2019 year-end accrual for the following expenses.

The store lease calls for fixed rent of P10, 000 per month payable at the beginning of
the month.

Additional rent equals to 6% of net sales over P2,000,000 per year payable on January
31 of the following year. Net sales for 2019 amounted to P8,000,000.

The entity has real property subject to real property tax. The city’s fiscal year runs July 1
to June 30 and the tax assessed at 3% of real property on hand is payable on June 30,
2020
The entity estimated that the real property tax will amount to P60,000 for the city’s fiscal
year ending June 30, 2020.

On December 31, 2019, what amount should be reported as accrual expenses?

A. 516,000
B. 390,000
C. 510,000
D. 396,000

Answer = B

Accrued rent 6,000,000*.06 360,000

Acrrued real property tax 600,00*6/12 30000
Total accrued Expenses 390,000

Problem 3 Accrued Liabilities

Sonia Company reported gross payroll of P600, 000 for the month of January. The
entity paid the payroll net of the following deductions:

Income tax 70,000

SSS 15,000
Philhealth 8,000
Pagibig 7,000

In addition, the entity recognized its additional contributions for the following in relation
to January payroll:

SSS 20,000
Philhealth 9,000
Pag-ibig 6,000

What is the total payroll tax liability?

A. 135,000
B. 100,000
C. 90,000
D. 65,000

Answer = A
Salaries and wages 600,000
 Withholding tax payable 70,000
SSS payable- employee 15,000
Philhealth payable-
employee 8,000
Pagibig payable- employee 7,000
500,00
Cash
0

SSS payable- employer 20,000

Philhealth payable- employer 9,000
Pagibig payable- employer 6,000
Payroll tax expense 35,000

Total payroll liability 100,000+35,000 135000

Problem 4 Provision and Contingent liability

Prime Company has long owned a manufacturing site that has now been discovered to
be contaminated with toxic waste. The entity has acknowledge its responsibility for the
contamination. An initial clean-up feasibility study has shown that it will cost at least
P500,000 to clean up the toxic waste. During the current year, the entity has been sued
for patent infringement and lost the case. A preliminary judgement of P300,000 was
issued and is under appeal. The entity’s attorneys agree that it is probable that the
entity will lose this appeal.

What amount of provision should be accrued as liability?

A. 500,000
B. 800,000
C. 300,000
D. 0

Answer = B

Clean up 500,000
Preliminary judgement 300,000
Accrued Liability 800,000

Problem 5 Provision and Contingent liability

On November 5, 2019, a Dunn Company truck was in an accident with an auto driven
by Bell. Dunn received notice on January 15, 2020 of a lawsuit for P700,000 damages
for personal injuries suffered by Bell. The entity’s counsel believed it is probable that
bell will be awarded an estimated amount in the range between P200,000 and
P450,000, and no amount is a better estimate of potential liability than any other amount
because each point in the range is as likely as any other. The 2019 financial statements
were issued on March 1, 2020.
What amount of loss should be accrued on December 31, 2019?
A. 450,000
B. 200,000
C. 325,000
D. 0

Answer = C

Midpoint of the range 200,000+450,000/2 325,000

Problem 6 Provision and Contingent liability

On March 1, 2019, a suit was filed against Dean Company for patent infringement.
Dean’s legal counsel believed an unfavourable outcome is probable and estimated that
Dean will have to pay between P850,000 and P900,000 in damages. However, Dean’s
legal counsel is of the opinion that P600,000 is a better estimate than any than other
amount in the range. The situation was unchanged when the December 31, 2019
financial statements were released on February 15, 2020.

What amount should be accrued as liability on December 31, 2019 in connection with
this suit?
A. 900,000
B. 600,000
C. 500,000
D. 0

Answer = B

Accrued liability best estimate 600,000

BONDS PAYABLE

Problem 7 Bonds Payable

Glen Company had the following long-term debt:

Sinking fund bonds, maturing in instalment 2,200,000

Industrial revenue bonds, maturing in instalments 1,800,000
Subordinate bonds, maturing on a single date 3,000,000

What is the total amount of serial bonds?

a. 3,000,000
 b. 4,000,000
c. 4,800,000
d. 7,000,000

Answer = B
4,000,00
Total serial bonds 2,200,000+1,800,000 0

Problem 8 Bonds Payable

Blue company reported the following financial liabilities on December 31, 2019.

9% debentures, callable in 2020, due in 2021 3,500,000

11% collateral trust bonds convertible into share capital
beginning in 2020, due in 2021 3,000,000
10% debentures, P300,000 maturing annually 1,500,000

What is the total amount of the term bonds?

a. 3,000,000
b. 3,500,000
c. 5,000,000
d. 6,500,000

Answer = D
Registered debentures 3,500,000
Collateral trust bonds 3,000,000
Total term bonds 6,500,000

Problem 9 Bonds Payable

Zola Company had the following long-term debt:

Bonds maturing in instalments, secured by machinery 1,000,000

Bonds maturing on a single date, secured by realty 1,800,000
Collateral trust bonds 2,000,000

What is the total amount of debenture bonds?

a. 2,000,000
 b. 1,000,000
c. 1,800,000
d. 0

Answer = D
Debenture binds are unsecure bonds or without collateral security
Collateral trust bonds are bonds secured by investments in shares and bonds
All bonds are given an secure date of maturity so none of them is unsecure.

Problem 10 Bonds Payable

On April 1, 2019, Greg Company issued, at 99 plus accrued interest, 2,000 8% bonds
with face amount of P1,000 per bond. The bonds are dated January 1,2019, mature on
January 1, 2029, and pay interest on January 1 and July 1. The entity paid bond issue
cost of P70,000.
Find the bond issuance, what is the net cash received?
a. 2,020,000
b. 1,980,000
c. 1,950,000
d. 1,910,000
Answer = D

1,980,00
Issue Price (2000*1000)*.99 0
Accrued Interest (2,000,000*.08)*3/12 40,000
2,020,00
Total
0
Bond Issue cost 70,000
1,950,00
Net cash
0

Joelo D. De Vera
3rd year BSA
Intermediate Accounting II
SEC 3