BAICC2X-Solution Supplementary - Week 1docx

MODULE 1
LIABILITIES (Activity – Supplementary)
Problem 1-1 (IAA)

On December 21,2020, Glare Company provided the following information:
Accounts payable. including deposit and advances
from customer of P250,000 1,250,000
Notes payable, including note payable to bank due on
December 31, 2022 of P500,000 1,500,000
Share dividend payable 400,000
Credit balances in customer’s account 200,000
Serial bonds payable in semiannual installment of P500,000 5,000,000
Accrued interest on bonds payable 150,000
Contested BIR tax assessment – possible obligation 300,000
Unearned rent income 100,000
Required:
Compute the total current liabilities on December 31,2020.
SM Baliwag Complex, Dona Remedios Trinidad Highway, Brgy. Pagala, Baliwag, Bulacan
(+63) 927-533-0342 – (+63) 923-949-5265 admissions-nubaliwag@nu.edu.ph
Problem 1-2 (IAA)
Easy Company provided the following information on December 31,2020:
Notes payable
Trade 3,000,000
Bank loans 2,000,000
Advances from officers 500,000
Accounts payable – trade 4,000,000
Bank overdraft 300,000
Dividends payable 1,000,000
Withholding tax payable 100,000
Mortgage payable 3,800,000
Income tax payable 800,000
Estimated warranty liability 600,000
Estimated damages payable by reason of breach of contract 700,000
Accrued liabilities 900,000
Estimated premium liability 200,000
Claim for increase of wages by employees covered in a pending lawsuit 3,500,000
Contract entered into for the construction of building 5,000,000
Required:
Compute the total current liabilities on December 31, 2020.
Problem 1-3 (IAA)
Manchester Company provided the following information on December 31, 2020:
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
semiannual installment of P500,000 due April 1 and October 1 of
each year, the last bond to be paid on October 1, 2026. Interest is also
paid semiannually. 5,000,000
Stock dividend payable 2,000,000
Required:
Problem 1-4 (IAA)

Multiple Company provided the following information on December 31, 2020:
Accounts payable after deducting debit balances in supplier’s accounts
of P100,000 500,000
Accrued liabilities 50,000
Note payable – due March 31, 2021 1,000,000
Note payable – due May 1, 2021 800,000
Bonds payable – due December 31, 2022 2,000,000
On March 1, 2021 before the 2020 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, 2021. The financial
statements were issued on March 1, 2021
Required:
1. Compute total current liabilities.
2. Compute total noncurrent liabilities.
Problem 1-5 (IAA)

On December 31, 2020, Cordillera Company reported the following liabilities:
Note payable – 9% 3,000,000
Note payable – 8% 6,000,000
Note payable – 10% 4,000,000
Note payable – 11% 5,000,000
The 9% note payable is noncancelable and matures on July 31, 2021. Sufficient cash is expected to be
available to retire the note at maturity.
However, the call option is not expected to be exercised given the prevailing market condition.
The 10% note payable is due on March 31, 2022. A debt covenant requires Cordillera Company to
maintain current assts at least equal to 150% of current liabilities.
On December 31,2020, Cordillera Company is in violation of this covenant.
However, Cordillera Company obtained a waiver from the creditor until June 2021 having convinced
the creditor that Cordillera’s normal 2 to 1 ratio of current assts to current liabilities will be
reestablished during the first half of 2021.
The 11% note payable matures on June 0, 2021. On January 31, 2021, before the issuance of the 2020
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, 2020.
Problem 1-6 (IAA)
Intercon Company is planning to refinance certain short-term obligations on a long-term basis. the
2020 financial statements are issued on March 15, 2021.
On December 31, 2020. before reclassification of short-term debt, the liabilities are:
Note payable – bank 12,000,000
Accrued expenses 4,000,000
Mortgage payable 4,000,000
Note payable – due in 2022 3,000,000
The entity intends to refinance P9,000,000 of the P12,000,000 bank note payable on a long-term basis.
Although the entire P12,000,000 is due on June 30, 2021, the bank has informally agreed to extend the
maturity date for P6,000,000 on June 30, 2022, if necessary.
On January 31, 2021, the entity issued share capital for P4,000,000, net of issue costs and underwriting
fees of P500,000.
On February 15, 2021, the entity entered into a financing agreement with a financially capable
commercial bank, permitting the entity to borrow up to P3,000,000.
Borrowings available at the entity’s option on April 1, 2021, will mature five years after the loan date.
The entity used the entire proceeds of the issue of share capital to retire part of the current note payable
and now intended to draw down the entire available commitment of the five-year debt on April 1, 2021.
Required:
1. Present the liabilities on December 31, 2020.
2. Describe any financial statement disclosures.
Problem 1-7 (IAA)

Cavalier Company provided the following information on December 31, 2020:
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, 2019, payable on demand. Interest is payable every
six months.
A one-year, P5,000,000, 11% note issued January 2, 2020. On December 31, 2020, the entity
negotiated a written agreement with First Bank to replace the note with 2-year, P5,000,000,
10% note to be issued January 2, 2021.
 The 10% mortgage note was issued October 1, 2019, 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, 2020, the entity is three months behind in paying the required interest payment.
 The bonds payable is 10-year, 8% bonds, issued June 30, 2011. Interest is payable semiannually
on June 30 and December 31.
Required:

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MODULE 1

LIABILITIES (Activity – Supplementary)

Problem 1-1 (IAA)

Problem 1-4 (IAA)

Problem 1-5 (IAA)

Problem 1-7 (IAA)

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