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Intermediate Accounting 2
Intermediate Accounting 2
BSMA 3101
Problem 1
On December 31, 2021, Mercury Company provided the following information:
Accounts payable, including deposits and advances from customer of P250,000 1,250,000
Notes payable, including note payable to bank due on December 31, 2023 of P500,000 1,500,000
Share dividend payable 400,000
Credit balances in customers' accounts 200,000
Serial bonds payable in semiannual installment of P500,000 5,000,000
Accrued interest on bonds payable 150,000
Contested BIR tax Unearned rent income assessment-possible obligation 300,000
Unearned rent income 100,000
Required:
Compute total current liabilities on December 31, 2021.
Required:
Compute total current liabilities on December 31, 2021.
Problem 3
Earth Company provided the following information December 31, 2021:
Income taxes withheld from employees 900,000
Cash balance at First State Bank 2,500,000
Cash overdraft at Harbor Bank 1,300,000
Accounts receivable with credit balance 750,000
Estimated expenses of meeting warranties on merchandise previously sold 500,000
Estimated damages as a result of unsatisfactory performance on a contract 1,500,000
Accounts payable 3,000,000
Deferred serial bonds, issued at par and bearing interest at 12%, payable in 5,000,000
Semiannual installment of P500,000 due April 1 and October 1 of each year, the last
bond to be paid on October 1, 2027. Interest is also paid semiannually.
Share dividend payable 2,000,000
Required:
Compute the total current liabilities on December 31, 2021.
Accrued interest on bonds payable from October 1 to December 31, 2021 150,000
On March 1, 2022 before the 2021 financial statements were issued, the note payable of P1,000,000
was replaced by an 18-month note for the same amount.
The entity is considering similar action on the P800,000 note due on May 1, 2022. The financial
statements were issued on March 31, 2022.
Required:
1. Compute total current liabilities
The 8% note payable matures on May 31, 2027 but the creditor has the option of calling the note or
demanding payment on June 30, 2022.
However, the call option is not expected to be exercised given the prevailing market condition.
The 10% note payable is due on March 31, 2023. A debt covenant requires Jupiter Company to maintain
current assets at least equal to 150% of current liabilities.
However, Jupiter Company obtained a waiver from the creditor until June 2022 having convinced the
creditor that Jupiter Company's normal 2 to 1 ratio of current assets to current liabilities shall be
reestablished during the first half of 2022. The 11% note payable matures on June 30, 2022. On January
31, 2022 before the issuance of the 2021 financial statements, the note payable was refinanced on a
long-term basis.
Required:
Explain the appropriate classification of the notes payable as current or noncurrent in the statement of
financial position on December 31, 2021.
Problem 6
Saturn Company provided the following information on December 31, 2021:
Accounts payable 6,500,000
Notes payable-bank 8,000,000
Interest payable 150,000
Mortgage note payable -10% 2,000,000
Bonds payable 4,000,000
● Bank notes payable include two separate notes payable to First Bank.
A P3,000,000, 10% note issued March 1, 2020, payable on demand. Interest is payable every six months.
A one-year, P5,000,000, 11% note issued January 2, 2021. On December 31, 2021, the entity negotiated
a written agreement with First Bank to replace the note with a 2-year, P5,000,000, 10% note to be
January 2, 2022.
● The 10% mortgage note was issued October 1, 2020 with a term of 10 years.
Terms of the note give the holder the right to demand immediate payment if the entity fails to make a
monthly interest payment within 10 days of the date the payment is due.
On December 31, 2021, the entity is three months behind in paying the required interest payment.
● The bonds payable are 10-year, 8% bonds, issued June 30, 2012. Interest is payable semiannually on
June 30 and December 31.
Required:
Compute total current liabilities on December 31, 2021.
Required:
On December 31, 2021, what total amount should be reported as current liabilities?
8% note payable, due in 11 equal annual principal payments, plus interest beginning
December 31, 2022 1,100,000
The annual sinking fund requirement on the guaranteed debentures is P40,000 per year.
Required
What total amount should be reported as current liabilities on December 31, 2021?
130,000
Problem 10
Sun Company reported the following liability balances on December 31, 2021
12% note payable issued on March 1, 2020, maturing on March 1, 2022 5,000,000
10% note payable issued on October 1, 2020, maturing October 1, 2022 3,000,000
On January 31, 2022, the entire P5,000,000 balance of the 12% note payable was refinanced through
issuance of a long-term obligation payable lump sum.
On December 31, 2021, the entity has the right to defer settlement of the 10% note payable for at least
twelve months after December 31, 2021.
Required:
What amount of the notes payable should be classified as current on December 31, 2021?
Problem 11
Miracle Company manufactures a product that is packaged and sold. A plate is offered to customers
sending in three wrappers accompanied by a remittance of P100 Data with respect to the premium offer
are summarized below.
2021 2022
Sales 3,600,000 4,200,000
Purchase of premium, P50 per plate 390,000 580,000
Number of plates distributed as premiums 5,000 9,000
Estimated number of plates to be distributed in subsequent period 2,000 3,000
Distribution cost P20 per plate
Required:
Prepare journal entries that would be made in 2021 and 2022 to record sales, premium purchases and
redemptions, and year-end adjustments.
Cash 3,600,000
Sales 3,600,000
To record sales
Cash 4,200,000
Sales 4,200,000
To record sales
Premium- plates 580,000
Cash 580,000
To record the purchase of premiums
A towel is offered as a premium to customers who send in two proof-of-purchase seals from the soap
boxes and a remittance of P20. Distribution cost is P5 per towel.
Required:
1. Prepare journal entries for 2021 and 2022.
2. Statement classification of the account balances pertaining to the premium plan.
Cash 3,125,000
Sales 3,125,000
To record sales
2.
- When the premiums are distributed to customers
- A towel is offered to customers sending in two proof of purchase accompanied by a remittance of P20
accompanied – be present or occur at the same time P80. (P100-20)
- Distribution costs (distribution expenses) are usually defined as the costs incurred to deliver the
product from the production unit to the end user.
- P100 (per towel) + P5 (distribution cost) – P20 (remittance accompanied for premium offered) *
(Net premium cost = cost of premium + shipping/distribution cost – customers remittance)
For every 10 bottle caps and P5 turned in, customers receive an attractive ball-pen and become eligible
for a grand prize of P5,000 in cash awarded for every 100 tops turned in.
The entity estimated that only 25% of bottle caps reaching the hands of customers will be presented for
redemption.
During the current year, the entity sold 400,000 bottles of banana juice at P9 each, purchased 10,000
ball point pens for a total cost of P900,000, and incurred non-deferrable costs of P30.000 applicable to
the premium plan.
A total of 8,000 pens have been redeemed and thirty grand prizes have been awarded.
Required:
Prepare journal entries to record the transactions relating to the premium plan for the current year.
JOURNAL ENTRIES
Problem 14
Topey Company started a promotional program. For every 10 box tops returned, customers receive a
basketball. The entity estimated that only 60% of the box tops reaching the market will be redeemed.
The entity provided the following information for the current year:
Units Amount
Sales of product 100,000 30,000,000
Basketball purchased 5,550 4,125,000
Basketball distributed 4,000
Required:
Prepare journal entries to record the transactions relating to the premium plan for the current year.
Problem 15
Victoria Company sells bedsheets for P3,000 per set. There is a promotion wherein if a customer buys
4 sets in a single transaction, the customer receives a coupon for one additional set for free. Customers
should go to the entity's website, fill out a request form, input the coupon number and submit online
before the expiration date. It is expected that 80% of the coupons will be redeemed.
During 2021, the entity sold 1,000 sets at P3,000 per set or P3,000,000. During 2022, the entity delivered
75 free additional sets.
Required:
1. Compute the stand-alone price of the coupons.
2. Allocate the transaction price to the products sold and the coupons.
3. Prepare journal entries for 2021 and 2022.
4. Compute the deferred revenue from coupons on December 31, 2022.
Problem 16
Anton Company sells one dozen doughnuts for P500 per box. There is a promotion wherein if a
customer buys 3 boxes in a single transaction, a customer receives a coupon for one additional box for
free. Customers can redeem coupons at any time following the month of sale of the 3 boxes before the
expiration date. It is expected 60% of the customers will redeem the coupons.
During 2021, the entity sold 15,000 boxes at P500 per box or P7,500,000. During 2022, the entity
delivered 2,000 free additional boxes to the customers.
Required:
1. Compute the stand-alone selling price of the coupons.
2. Allocate the transaction price to the products sold and the coupons.
3. Prepare the journal entry to record the sale of the products and issue of the free product coupons.
4. Prepare the journal entry to record the delivery of 2,000 free additional boxes.
Problem 17
Sydney Company is a retailer that sells clothing. The entity has launched a promotional campaign
wherein if customers buy clothing with a single purchase of at least P12,000, the entity shall issue 30%
discount coupons" on selected items for months following the campaign
During the campaign, the entity sold clothing worth P3,240,000 and had issued 100 "30% discount
coupons" It is expected that 80% of the coupons will be redeemed and customers using the coupons will
buy clothing at an average price of P15,000.
Required:
1. Compute the stand-alone selling price of the discount coupons.
2. Allocate the transaction price to the products sold and the discount coupons.
3. Prepare journal entries for the current year including the redemption of the coupons.
Problem 18
Nia Company is a retailer and has launched a promotional campaign wherein if customers buy clothing
with a single purchase of at least P4,000, the entity shall issue "40 discount coupons" on selected items.
The coupons may be used for 2 months following the campaign. During the campaign, the entity sold
clothing work P1,860,000 and issued 100 "40% discount coupons".
The entity expects that 70% of the coupons will be redeemed and customers using the coupons buy
clothing at an average price of P5,000.
Required:
1. Compute the stand-alone price of the discount coupons
2. Allocate the transaction price to the products sold and the discount coupons.
3. Prepare the journal entry to recognize the sale of the products and issue of discount coupons.
4. Prepare the journal entry to recognize the redemption of coupons.
Problem 19
Susan Company is a manufacturer of car shampoo and sells its product through local retailers. The
shampoo costs P550 to the retailer. Retailers sell the product to its customers and for each product
purchased by the customer, a coupon of P100 discount is given and may be used on future purchase of
the same product.
Retailers are reimbursed for the discount by the entity when customers redeem their coupons.
During the current year, the entity sold 8,000 products to local retailers at P550 each product or
P4,400,000, The entity expected that 75% of the coupons issued will be redeemed. At year end, the
entity paid the retailers P250,000 as reimbursement.
Required:
1. Compute the stand-alone selling price of the rebate coupons.
2. Allocate the transaction price to products sold and to the rebate coupons.
3. Prepare journal entries for the current year.
4. Compute the rebate liability at year-end.
Problem 20
Isabel Company is a manufacturer of deodorant and sells its product through local retailers. The
deodorant costs P64 to the retailer. Retailers sell the product to its customers and for each product
purchased by the customer, a coupon of P20 discount is given and may be used on future purchase of
the same product.
Retailers are reimbursed for the discount by the manufacturer when customers redeem their coupons.
During the current year, the entity sold 10,000 deodorants to local retailers at P64, each or P640,000.
The entity expected that 80% of the coupons issued will be redeemed. At year end, the entity paid the
retailers P50,000 as reimbursement.
Required:
1. Compute the stand-alone selling price of the rebate coupons.
2. Allocate the transaction price between the products sold and the rebate coupons.
3. Prepare journal entries for the current year.
Problem 21
Nature Company had an agreement to pay the sales manager a bonus of 5% of the entity's earnings. The
income for the year before bonus and tax was P5,250,000. The income tax rate is 25%.
Required:
Determine the bonus under each of the following independent assumptions:
1. Bonus is a certain percent of the income before bonus and before tax.
B= (5,250,000 * 5%)
B= (5,250,000) 0.05
B= 262,500