PROBLEM NO.

2 – Current and noncurrent liabilities

Atimonan Corporation is selling audio and video appliances. The company’s fiscal year ends on March 31.
The following information relates to the obligations of the company as of March 31, 2010:

Notes Payable

Atimonan has signed several long-term notes with financial institutions. The maturities of these notes are
given below. The total unpaid interest for all of these notes amounts to P408,000 on March 31, 2010.
Due date Amount
April 31, 2010 P 720,000
July 31, 2010 1,080,000
September 1, 2010 540,000
February 1, 2011 540,000
April 1, 2011 – March 31, 2012 3,240,000
P 6,120,000

Estimated warranties
Atimonan has a one-year product warranty on some selected items. The estimated warranty liability in sales
made during the 2008-2009 fiscal year and still outstanding as of March 31, 2009, amounted to P302, 400.
The warranty costs on sales made from April 1, 2009 to March 31, 2010, are estimated at P756,0 00. The
actual warranty costs incurred during 2009-2010 fiscal year are as follows:

Warranty claims honored on 2008-2009 sales P 302,400

Warranty claims honored on 2009-2010 sales 342,000
Total P 644,400

Trade payables
Accounts payable for supplies, goods, and services purchases on open account amount to P672,000 as of
March 31, 2010.

Dividends
On March 10, 2010, Atimonan’s board of directors declared a cash dividend of P0.30 per ordinary share
and a 10% ordinary share dividend. Both dividends were to be distributed on April 5, 2010 to shareholders
on record at the close of business on March 31, 2010. As of March 31, 2010 Atimonan has 6 million, P2
par value, ordinary shares issued and outstanding.
Bonds payable
Atimonan issued P6,000,000, 12% bonds, on October 1, 2004 at 96. The bonds will mature on October 1,
2014. Interest is paid semi-annually on October 1 and April 1. Atimonan uses the straight line method to
amortize bond discount.

QUESTIONS:
Based on the foregoing information, determine the adjusted balances of the following as of March 31,2010:

1. Estimated warranty payable

a. P414,000 c. P 302,400
b. P756,000 d. P1,058,400

2. Unamortized bond discount

a. P132,000 c. P 240,000
b. P108,000 d. P 120,000

3. Bond interest payable

a. P360,000 c. P 180,000
b. P300,000 d. P 0

4. Total current liabilities

a. P7,734,000 c. P 6,534,000
b. P6,126,000 d. P 4,734,000

5. Total noncurrent liabilities

a. P9,240,000 c. P 9,108,000
b. P9,132,000 d. P 9,000,000

Answers: 1) A 2) B 3) A 4) C 5) B

Suggested Solution:

Question No. 1
Warranty payable, 3/31/09 P 302,400
Add warranty expense accrued during 2009-2010 756,000
Total 1,058,400
Less payments during 2009-2010 644,400
Warranty payable, 3/31/10 P 414,000
Question No. 2
Bond discount, 10/1//04 (P6,000,000 x .04) P 240,000
Discount amortization, 10/1/04 to 3/31/10 (P240,000 x 5.5/10) 132,000
Bond discount, 3/31/10 P 108,000

Question No. 3

Bond interest payable, 10/1/09 to 3/31/10 (P6,000,000 x 12% x 6/12) P 360,000

Question No. 4
Notes payable – current (maturing up to 3/31/11) P 2,880,000
Accrues interest payable – Notes Payable 408,000
Estimated warranty payable (see no. 1) 414,000
Accounts payable 672,000
Cash dividend payable (6 million shares x P0.30) 1,800,000
Accrued interest payable – Bonds payable 360,000
Total current liabilities P 6,534,000

Question No. 5
Notes payable – noncurrent P 3,240,000
Bonds payable, net of discount of P108,000 5,892,000
Total noncurrent liabilities P 9,132,000