CHAPTER 1- LIABILITIES

Problem 1-1 IAA (P.15)

On December 31, 2020, Glare company provided the following information:

Account payable 1,000,000

Deposits and advances from customers 250,000

Notes Payable 1,000,000

Credit balances in customers accounts 200,000

Serial bonds payable 1,000,000

Accrued interest on bonds payable 150,000

Unearned rent income 100,000

Total Current Liabilities 3,700,000

Problem 1-2
Easy Company provided the following information on December 31, 2020:

Notes Payable- trade 3,000,000

Notes Payable- bank 2,000,000

Notes Payable- officers 500,000

Accounts Payable- trade 4,000,000

Bank overdraf 300,000

Dividends payable 1,000,000

Witholding Tax payable 100,000

Income Tax payable 800,000

Estimated warranty Liability 600,000

Estimated damages payable 700,000

Accrued Liabilities 900,000

Estimated premium liability 200,000

Total Current Liabilities 14, 100, 000

Problem 1-3 (P.16)

Manchester company provide the following information on December 31, 2020:

Income taxes withheld from employees 900,000

Cash overdraf at Harbor Bank 1,300,000

Accounts Receivable with credit balance 750,000

Estimated warranty liability 500,000

Estimated damages payable 1,500,000

Accounts Payable 3,000,000

Accrued interest on bonds payable from October 1 to December 31, 2020 150,000

(5,000,000 x 12% x 3/12)

Total Current Liabilities 8,100,000

Problem 1-4

Accounts payable (500,000 + 100,000) 600,000

Accrued Liabilities 50,000

Note payable – refinanced 1,000,000

Note payable – due May 1, 2021 800,000

Total Current Liabilities 2,450,000

Noncurrent liability
Bonds Payable, due December 31, 2021 2,000,000

Problem 1-5 (P.17)

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

Problem 1-6 (P.18)

Interson Company is planning to refinance certain short-term obligations on a long term basis. The 2020
financial statements are issued on March 15, 2021.

Accounts Payable 6,500,000

Note payable- bank 3,000,000

Interest payable 150,000

Mortgage note payable 2,000,000

Bonds payable 4,000,000

Total current liabilities 15, 650,000

Problem 1-7 (P. 19)

Cavalier Company provided the following information on December 31, 2020.

Accounts Payable 6,500,000

Note payable- bank 3,000,000

Interest Payable 150,000

Mortgage note payable 2,000,000

Bonds payable 4,000,000

Total Current liabilities 15,650,000

Problem 1-8 (P. 20)

Burma Company disclosed the following information about liabilities at year-end:

What total amount should be presented as current liabilities at year-end?

Solution.

Problem 1-9

Gar company disclosed the following liability account balances on December 31, 2020:

Accounts Payable 1,900,000

Dividends Payable 500,000

Income tax Payable 900,000
Note Payable 600,000

Total Current Liabilities 3,900,000

Problem 1-10 (P. 21)

Able company had the following amounts of long-term debt outstanding on December 31, 2020:

14% note payable due 2021 30,000

8% note payable maturing December 31, 2021 100,000

Total Current maturities 130,000

Problem 1-11
Achilles Company reported the following liability balances on December 31, 2020

12% note payable – redefined on January 31, 2021 5,000,000

Problem 1-12 (P. 22)

Eliot Company reported the following liabilities on December 31, 2020:

Accounts payable and accrued interest 1,000,000

Debentures payable – current portion 500,000

Total current liabilities 1,500,000

Problem 1-13
On December 31, 2020, Largo Company had a P750,000 note payable outstanding due July 31, 2021.
The entity planned to refinance the note by issuing long-term bonds.
What amount of the note payable should be included in current liabilities on December 31, 2020?

- The entire amount of P750,000 is shown as current liability because the note payable is due to
be settled within one year regardless of the issuance of bonds payable.

PROBLEM 1-14 (P. 23)

Dean Company has a P2,000,000 note payable due June 30, 2021. On December 31, 2020 the entity
signed an agreement to borrow up to P2,000,000 to refinance the note payable on a long-term basis.

On December 31, 2020 what amount of the note payable should be reported as current liability?
Note payable 2,000,000

Less: Refinanced on December 31, 2020 – noncurrent portion

(80% x 1,500,000) 1,200,000

Note payable – not refinanced, current portion 800,000

Problem 1-15

Willem company reported the following liabilities on December 31, 2020

What total amount should be reported as current liabilities on December 31, 2020?

Accounts payable 750,000

Short-term borrowings 400,000

Mortgage payable, current portion 100,000

Bank loan payable due June 30, 2021 1,000,000

Total current liabilities 2,250,000

Problem 16

Cobb company sells gif certificates redeemable only when merchandise is purchase. Upon redemption,
Cobb company recognizes the unearned revenue as realized.

Information for the current year.

What amount should be reported as unearned revenue at year-end?

Problem 1-17

Regal company sells gif certificates redeemable for store merchandise is purchase. The gif certificates
have no expiration date.

The entity has the following information pertaining to the gif certificate sales and redemptions.

What amount should be reported as unearned revenue on December 31, 2020?

Problem 1-18 (p. 25)

Greene company sells office equipment service contracts agreeing to service equipment for a two-year
period. Cash receipts from contracts are credted to unearned contract revenue. Service contract costs
are charged to service contract expense as incurred. Revenue from service contracts is recognized as
earned over the term of the contracts.

What is unearned service contract revenue on December 31?

Problem 1-19

Ryan Company sells major household appliance service contracts for cash. The service contracts are for a
one year, two-year, or three-year period. Cash receipts from contracts are credited to unearned contract
revenue. This account had a balance of P720,000 on December 31, 2020 before year-end adjustment.
What amount should be reported as unearned contract revenue on December 31, 2020?

Problem 1-20 (P.26)

Dunne Company sells equipment service contracts that cover a two-year period. The sale price of each
contract is P600.
1. What is the contract revenue for 2020?

40% x 600,000 =240,000 / ½ = 120,000

 2. What amount should be reported as deferred service revenue on December 31, 2020?

Total contracts sold 2020 600,000

Less: contract revenue in 2020 120,000

Total deferred service revenue 480,000

3. What is the contract revenue for 2021?

600,000 / ½ = 300,000

4. What is the contract revenue for 2022?

60% x 600,000 =360,000 / ½ = 180,000

Problem 1-21 (P.27)

Cobra company sells appliance service contracts ageing to repair appliances for two-year period.

The past experience is that, of the total amount spent for repairs on service contracts, 40% is incurred
evenly and during the first contract year and 60% is incurred evenly during the second contract year.

Receipts from service contract sales are P500,000 for 2020 and P600,000 for 2021.

1. What is the contract revenue for 2020?

40% x 500,000 =250,000 / ½ = 100,000

2. What amount should be reported as deferred service revenue on December 31, 2020?

Total contracts sold 2020 500,000

Less: contract revenue in 2020 100,000

Total deferred service revenue 400,000

3. What is the contract revenue for 2021?

4. What is the unearned revenue on December 31, 2021?

Problem 1-22

Hart company sells subscriptions to a specialized directory that is published semiannually and shipped to
subscribers on April 15 and October 15.

Subscriptions received afer the march 31 and September 30 cut-off dates are held for the next
publication.

What amount should be reported as deferred revenue from subscription on December 31?

Problem 1-24

Anette Video Company sells 1- and 2year subscriptions for the video of the month business.
1. On December 31, 2021, what amount should be reported as unearned subscription revenue
465,000

2. What amount dholud be refoted as subscription revenue for 2021

Problem 1-25

Farr company sells products with reusable and expensive containers.

Containers returned in 2020 from deliveries in

What is the liability for deposits on December 31, 2020?

Problem 1-26 (P.30)

Black company rewuired nonrefundable advance payments with special orders for machinery
constructed to customers specifications.

What amount should be reported as current liability for advances from customers at year-end?