Problem 1 Albert reported the following items on its December 31, 2005 trial balance:

· Accounts Payable, P1089000

· Advances to officers and employees, P45000
· Unearned Income, P288000
· Outstanding gift certificates issued, redeemable with merchandise,
P258000
· Cash surrender value of life insurance,
P75000
· Bonds payable, face value, P5550000
· Discounts on bond payable, P225000
· Accrued interest receivable, P39000

How much should be reported in the December 31, 2005 balance sheet as total
liabilities?

ANS: 6960000

Problem 2 Albert Company’s salaried employees are paid biweekly. Occasionally,

advances made to employees are paid back by payroll deductions. Information relating
to salaries for the calendar year 2007 is as follows:
12/31/06 12/31/07
Employee advances P 12,000 P 18,000
Accrued salaries payable 65,000
Salaries expense during the year 815,000
Salaries paid during the year (gross) 780,000

On December 31, 2007, what amount should Albert report for accrued salaries
payable?

ANS 100000

Problem 3 On April 1, 2000, Hole Company began offering a new product for sale
under a one year warranty. Of the 5000 units of inventory at April 1, 2000, 3000 had
been sold by June 30, 2000. Based on its experience with similar products, Hole
estimated that the average warranty cost per unit sold would be P80. Actual warranty
costs incurred from April 1 through June 30, 2000, were P70000. At June 30, 2000,
what amount should Hole report as warranty liability, if based on experience, 90% of the
units sold would need repair?

ANS: 146000

Problem 4 East company manufactures stereo systems that carry a two-year warranty
against defects. Based on the past experience, warranty costs are estimated at 5% of
sales for the warranty period. During 2006, stereo system sales amounted to P5000000
and warranty costs of P100000 were incurred. In its income statement for the year
ended December 31, 2006 East should report warranty expense of?

ANS: 250000

Problem 5 G Company sells its only line product at average selling price of P500/unit.
To promote its sales, a gift item is offered to customers on the return of 5 empty
containers as proof of purchase, plus remittance of P50. The cost of gift item is
P150/pc., and it is estimated that 80% of the proof of purchase will be redeemed. For
the current year, G Company’s total sales for the product amounted to P6000000, of
which actual containers redeemed were 7600. How much of the estimated liability for
premium payable should be reported in its current year’s end balance sheet?

ANS: 40000

Problem 6 The following information pertains to SF’s issuance of bonds on July 1,

2005:

· Face value, P1,000,000

· Term, 10 years
· Nominal interest, 8%
· Interest dates, July 1 and January 1
· Issued at yield of 12%, (effective interest)
· PV of an ordinary annuity of 1 for 10 periods, @ 4% = 8.11 and @ 6% = 7.36
· PV of an ordinary annuity of 1 for 20 periods, @ 4% = 13.59 and @ 6% = 11.47
· PV of an ordinary annuity of 1 for 10 periods, @ 8% = 6.71 and @ 12% = 6.14
· PV of an ordinary annuity of 1 for 20 periods, @ 8% = 9.92 and @ 12% = 8.51

What should be the issue price for each P1,000 bonds?

ANS: 770.6

Problem 7 Michigan, Inc. issued P1 million, 12%, 20-year bonds at 102 plus accrued
interest on February 1, 2007. The bonds are dated January 1, 2007 and pay interest
semiannually every June 30 and December 31. The premium is to be amortized using
the straightline method over the period during which the bonds are outstanding. Bond
issue costs totaled P50000. The accrued interest on the bonds issuance date is –

ANS: 10000

Problem 8 The December 31, 2001 balance sheet of Ross Company included the
following items:

Bonds payable, 12% due December 31, 2010 4000000

Premium on bonds payable 108000

The bonds were issued on December 31, 2000, at 103, with interest payable on June
30 and December 31, of each year. On March 1, 2002, P2000000 bonds were retired at
99 plus accrued interest. What should be the gain on retirement of these bonds?

ANS: 73000

Problem 9 On June 30, 2003, King Co. had outstanding 9%, $5000000 face value
bonds maturing on June 30, 2008. Interest was payable semiannually every June 30
and December 31. On June 30, 2003, after amortization was recorded for the period,
the unamortized bond premium and bond issue costs were $30000 and $50000,
respectively. On that date, King acquired all its outstanding bonds on the open market
at 98 and retired them. At June 30, 2003, what amount should King recognize as gain
before income taxes on redemption of bonds?

ANS: 80000

Problem 10 On December 30, 2003, Fort, Inc. issued 1000 of its 8%, ten-year, $1000
face value bonds with detachable stock warrants at par. Each bond carried a
detachable warrant for one share of Fort’s common stock at a specified option price of
$25 per share. Immediately after issuance, the market value of the bonds without the
warrants was $1080000 and the market value of the warrants was $120000. In its
December 31, 2003 balance sheet, what amount should Fort report as bonds payable?

ANS: 900000

Problem 11 On December 31, 2003, Moss Co. issued $1000000 of 11% bonds at 109.
Each $1000 bond was issued with fifty detachable stock warrants, each of which
entitled the bondholder to purchase one share of $5 par common stock for $25.
Immediately after issuance, the market value of each warrant was $4. On December 31,
2003, what amount should Moss record as discount or premium on issuance of bonds?

ANS: 110000 discount

Problem 12 On January 1, 2004, Hart, Inc. redeemed its fifteen-year bonds of $500000
par value for 102. They were originally issued on January 1, 1992, at 98 with a maturity
date of January 1, 2007. The bond issue costs relating to this transaction were $20000.
Hart amortizes discounts, premiums, and bond issue costs using the straight-line
method. What amount of loss should Hart recognize on the redemption of these bonds?

ANS: 16000

Problem 13 Under state law, Acme may pay 3% of eligible gross wages or it may
reimburse the state directly for actual unemployment claims. Acme believes that actual
unemployment claims will be 2% of eligible gross wages and has chosen to reimburse
the state. Eligible gross wages are defined as the first $10000 of gross wages paid to
each employee. Acme had five employees, each of whom earned $20000 during 2003.
In its December 31, 2003 balance sheet, what amount should Acme report as accrued
liability for unemployment claims?

ANS: 1000

Problem 14 On December 31, 2003, Largo, Inc. had a $750000 note payable
outstanding, due July 31, 2004. Largo borrowed the money to finance construction of a
new plant. Largo planned to refinance the note by issuing long-term bonds. Because
Largo temporarily had excess cash, it prepaid $250000 of the note on January 12,
2004. In February 2004, Largo completed a $1500000 bond offering. Largo will use the
bond offering proceeds to repay the note payable at its maturity and to pay construction
costs during 2004. On March 3, 2004, Largo issued its 2003 financial statements. What
amount of the note payable should Largo include in the current liabilities section of its
December 31, 2003 balance sheet?

ANS: 250000

Problem 15 Case Cereal Co. frequently distributes coupons to promote new products.
On October 1, 2003, Case mailed 1000000 coupons for $.45 off each box of cereal
purchased. Case expects 120000 of these coupons to be redeemed before the
December 31, 2003, expiration date. It takes thirty days from the redemption date for
Case to receive the coupons from the retailers. Case reimburses the retailers an
additional $.05 for each coupon redeemed. As of December 31, 2003, Case had paid
retailers $25000 related to these coupons and had 50000 coupons on hand that had not
been processed for payment. What amount should Case report as a liability for coupons
in its December 31, 2003 balance sheet?

ANS: 35000