01 Current Liabilities – Trade & Other Payable

Trade Accounts Payable

1) Krillin, Inc. is preparing its financial statements for the year ended December 31, 2019. Accounts payable amounted
to P200,000 before any necessary year-end adjustment related to the following:

• At December 31, 2019, Krillin has a P50,000 debit balance in its accounts payable to Vegito, a supplier,
resulting from a P50,000 advance payment for goods to be manufactured to Krillin specifications.

• On December 27, 2019, Krillin wrote and recorded checks to creditors totaling P30,000 that were mailed on
January 10, 2020.

• Checks in the amount of P25,000 were written to vendors and recorded on December 29, 2019. The checks
were dated January 5, 2020.

What amount should Krillin report as accounts payable in its December 31, 2019 statement of financial position?

Balance as on Dec 31, 2019 200,000

Advance received from the customer 50,000

Checks that is written but not yet posted 30,000

Post dated checks 25,000

Total Accounts Payable for December 31, 2019 305,000

2) The balance in Denver Company’s accounts payable account at December 31, 2019 was P1,100,000 before any
adjustments relating to the following:

• Goods were in transit to Denver Company on December 31, 2019. The invoice cost was P150,000, FOB
shipping point on December 29, 2019. The goods were received on January 2, 2020.

• Goods shipped FOB shipping point on December 20, 2019 from a vendor to Denver Company, were lost in
transit. The invoice cost was P100,000. On January 5, 2020, Denver Company filed an P100,000 claim against
the common carrier.

• Goods shipped FOB destination on December 21, 2019, from a vendor to Denver Company, were received on
January 6, 2020. The invoice cost was P195,000.

• On December 28, 2019, Denver Company wrote and recorded checks totaling P70,000 which were mailed on
January 8, 2020.
The amount that Denver Company report as accounts payable on its December 31, 2019 balance sheet
is

Unadjusted Accounts Payable 1,100,000

Goods in transit FOB shipping point 150,000

Goods in FOB shipping lost in transit 100,000

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 Goods in transit FOB destination 0

Check issued by Denver Company (70,000)

Accounts Payable on December 31, 2019 1,420,000

Various Accrued Expenses

3) Tatay Company is preparing its December 31, 2019 financial statements. The following information was gathered:

• The bill for December’s utility cost of P30,000 was received and paid on January 10, 2020.

• A P20,000 advertising bill was received on January 2, 2020. Of the total billing, P15,000 pertain to
advertisements in December 2019 and P5,000 pertain to advertisements in January 2020.

• A lease, effective December 16, 2018, calls for a fixed rent of P100,000 per month, payable one month after the
commencement of the lease and every month after thereafter. In addition, rent equal to 5% of net sales over
P1,000,000 per year is payable on January 31 of the following year.

• Total cash sales and collections on accounts amounted to P1,000,000. Accounts receivable has a net increase
of P200,000. Commissions of 15% of sales are paid on the same day cash is received from customers.

What is the accrued liabilities on December 31, 2019?

December’s Utility Bill 30,000

Advertisement Bill 15,000

Rent 50,000

(200,000 x 15%) 30,000

10,000

Accrued Liabilities for December 31, 2019 135,000

Accrued Expenses – Bonus Payable

Numbers 4, 5, 6 and 7
Adhere Company grants its managerial employees bonus in the form of profit sharing. Information on operations in 2019
is shown below:
Profit before bonus & tax 4,000,000
Bonus rate or percentage 10%
Income tax rate 30%

4) How much is the bonus “before bonus and before tax”? 400,000
B= BR(P)
B= 10% (4,000,000)
B= 400,000

5) How much is the bonus “after bonus and before tax”? 363,636

B=BR(P-B)

B= 10% (4,000,000 – B)

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 B= 400,000 - 0.13

B+0.13 = 400,000

1.13=400,000/1.13

6) How much is the bonus “before bonus and after tax”? 288,660

B=BR(P-T)

T=TR(P-B)

T= 30% (400,000 – B)

B= 10% [4,000,000 – 0.30 (4M – B)]

B= 0.10 [4,000,000 – 1.2M + 0.30 B]

B= 400,000 – 120,000 + 0.03B

0.973 = 280,000/0.973

7) How much is the bonus “after bonus and after tax”? 261,682

B= BR(P-B-T)

T=TR(P-B)

T= 30% (4,000,000 – B)

B= 10% [4,000,000 – B – 30% (4,000,000 – B)]

B=0.10 (4,000,000 – B – 1.2M + 30B)

B= 400,000 – 0.10B – 170,000 + 0.03B

1.07B = 280,000/1.07B

Unearned Income – Unearned Revenue

Numbers 8, 9, 10 and 11
Dunne Company sells equipment service contracts that cover two-year period. The sale price of each contract is P600.

The past experience is that, of the total peso spent for repairs on service contracts, 40% is incurred evenly during the
first contract year and 60% evenly during the second contract year. The entity sold 1,000 contract evenly throughout
2019.

8) What is the contract revenue for 2019? = 120,000 (600,000 x 20%)

9) What amount should be reported as deferred service revenue on December 31, 2019? =480,000

(600,000 – 120,000)

10) What is the contract revenue for 2020? =300,000 (600,000 x 50%)

11) What is the contract revenue for 2021? =180,000 (600,000 x 30%)

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Unearned Income – Gift Certificates
12) Raditz Company sells gift certificates redeemable only when merchandise is purchased. The certificates have an
expiration date two years after issuance date. Upon redemption or expiration, Raditz recognizes the unearned
revenue as realized. Data for 2021 are as follows:

Unearned revenue, January 1 1,500,000

Gift certificate sold 5,000,000
Gift certificate redeemed 4,000,000
Expired gift certificates 300,000 Cost of goods sold 60%

At December 31, 2021, Raditz Company should report unearned revenue at

Unearned Revenue 1/1/21 1,500,000

Gift certificate sold 5,000,000

Gift certificate redeemed (4,000,000)

Expired gift certificate (300,000)

COGS 60%

Unearned revenue at December 31, 2021 2,200,000

Escrow Liability
13) On the first day of each month, Denise Company received from a customer an escrow deposit of P500,000 for real
estate tax. The entity recorded the P500,000 in escrow account. The customer’s real estate tax is P5,600,000,
payable in equal installments of the first day of each calendar quarter. On January 1, 2019, the balance of the
escrow account was P600,000. On September 30, 2019, what amount should be reported as escrow liability?

Beginning Balance 600,000

Add: 9 months pay (500,000 x 9) 4,500,000

Less: 3 quarter of property

tax installment (5,600,000/4*3) 4,200,000

Escrow Liability on September 30, 2019 900,000

14) Summer Company maintains escrow accounts for various mortgage entities. The entity collects the receipts and
pays real estate taxes on behalf of mortgage customers. Escrow funds are kept in interest-bearing account. Interest,
less a 10% service fee, is credited to the mortgagee’s account and used to reduce future escrow payments.

Escrow account liability – beginning of year 700,000

Escrow receipts during the year 1,600,000
Real estate taxes paid during the year 1,700,000
Interest earned on escrow funds 50,000

What is the escrow accounts liability at year-end?

Beginning Balance 700,000

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 Add: Escrow receipts during the year 1,600,000

Less: Real Estate taxes paid 1,700,000

Add: Interest earned during the year 50,000

Less: Maintenance fee charged to

mortgage customer (50,000 x 10%) 5,000

Escrow liability at the year end 645,000

Liability Classification
15) 49ers Company provided the following information on December 31, 2019:

Accounts payable, net of creditors’ debit balances P200,000 2,000,000

Accrued expenses 800,000
Bonds payable due December 31, 2020 2,500,000
Premium on bonds payable 300,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividend payable 600,000
Share dividend payable 400,000
Note payable – 6%, due March 1, 2020 1,500,000
Note payable – 8%, due October 1, 2020 1,000,000

The financial statements for 2019 were issued on March 31, 2020. On December 31, 2019, the 6% note payable
was refinanced on a long-term basis. Under the loan agreement for the 8% note payable, the entity has the
discretion to refinance the obligation for at least twelve months after December 31, 2019.

What amount should be reported as total current liabilities?

CURRENT NON-CURRENT

Adjusted Accounts Payable 2,200,000

Accrued Expenses 800,000

Bond Payable current maturing 2,800,000

Deferred tax liability 500,000

Income Tax Payable 1,100,000

Cash Dividend Payable 600,000

Share Dividend -

Note Payable – 6% 1,500,000

Note Payable – 8 1,000,000

TOTAL: 7,500,000 3,000,000

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