INTERMEDIATE ACCOUNTING 3 | MOCK MIDTERM EXAM by Sir A

1 Which of the following is not a characteristic of a liability?

a. obligation always arises from past events
b. probably requires future sacrifice of resources
c. requires sacrifice of cash or other current asset in the current period
d. present obligation

2 Which of the following represents a liability?

a. The obligation to pay for goods that a company expects to order from its suppliers next year
b. The obligation to provide goods that customers have ordered and paid for during the current year
c. The obligation to pay interest on a five-year note payable that was issued the last day of the year
d. All of these represent a liability

3 Accounts payable are usually measured at

a. Invoice price b. Present value c. Future value d. Amortized cost

4 Under the FOB destination, accounts payable is recognized upon

a. Shipment of goods from the company’s supplier
b. Receipt of the goods by the company
c. Payment of the invoice
d. Sale of the goods to the company customers.

5 On September 1, IA3 Co. purchased P9,200 of inventory items on credit with the terms 1/15, net 30,
FOB destination. Freight charges were P300. Payment for the purchase was made on September 18.
Assuming IA3 uses the perpetual inventory system and the gross method of accounting for purchase
discounts, what amount is recorded on September 1 as accounts payable from this purchase?
a. P9,500 b. P9,408 c. P9,200 d. P9,108

6 On December 31, 2023, IA3 Co. has accounts payable of P1.5 million before possible adjustments for
the following:
o Goods in transit from a vendor to IA3 on December 31, 2023 with an invoice cost of P75,000
purchased FOB shipping point was not yet recorded. The goods were received in January 2024;
o Goods in transit from a vendor to IA3 on December 31, 2023 with an invoice cost of P15,000
purchased FOB destination was not yet recorded. The goods were received in January 2024.
o Goods shipped FOB shipping point from a vendor to IA3 was lost in transit. The invoice cost of
P30,000 was not yet recorded.
o Goods shipped FOB destination from a vendor to IA3 was lost in transit. The invoice cost of
P15,000 was not yet recorded.
o Good with invoice cost of P22,500 was recorded. It was found out that the goods were shipped
from a vendor under FOB destination. These goods were actually received by IA3 on January 3,
2024.
What amount should IA3 report as trade accounts payable on December 31, 2023?
a. 1,492,500 b. 1,518,000 c. 1,582,500 d. 1,608,000

7 If the present value of the note issued in exchange for a property is less than its face amount, the
difference should be
a. Included in the cost of the asset
b. Included in interest expense in the year of issuance
c. Amortized as interest expense over the term of the note
d. Amortized as interest expense over the useful life of the asset

8 When a note payable with no ready market is exchanged for a property whose fair value is not
determinable,
a. The note payable should not be recorded until the fair value of the property becomes evident
b. The entity receiving the property should estimate a value for the property
c. Both entities involved in the transaction should negotiate a value to be assigned to the property
d. The present value of the note payable must be determined using the market rate of interest on the
date of issuance
9 IA3 Co. signed a three-month, zero-interest-bearing P303,000 note on November 1, 2023 for the
purchase of P250,000 of inventory. If IA3 makes adjusting entries only at the end of the year, the adjusting
entry made at December 31, 2023 will include a ________.
a. debit to Note Payable for P17,667 b. debit to Interest Expense for P35,333
c. credit to Note Payable for P17,667 d. credit to Interest Expense for P35,333

10 IA3 Co. borrowed P33,000 from CAF Bank on June 1 of the current year. The bank required 6%
interest. Interest will be paid when the nine-month note becomes due. What is the interest expense for the
current year?
a. P0 b. P1,980 c. P1,155 d. P990

11 IA3 Co. issued 3,000 term bonds with a face value of P1,000 each and no additional features for
P3,200,000. The bonds' selling price indicated that the bonds were paying interest that was ________.
a. lower than the market rate b. the rate the bond investors wanted
c. equal to par value d. higher than the market rate

12 The selling price of a bond is the ________.

a. par value of the bond
b. par value plus the discount of the bond or minus the premium of the bond
c. present value of the par value plus the present value of the interest payments
d. present value of the par value minus the present value of the interest payments

13 P100,000 of five-year bonds are sold for P98,000 on the issue date. Interest of P4,000 is paid each year
until the bonds are repaid. What is the total interest expense to the company for issuing these bonds?
a. P18,000 b. P20,000 c. P19,600 d. P22,000

14 Given the following information from an amortization table, compute the interest expense and the
carrying value for the next line of the table:

4% Cash 3% Effective Premium Carrying

Interest Interest Amortization Value
P1,760 P1,357 P403 P44,842

a. Interest Expense P1,345; Carrying Value P44,427

b. Interest Expense P1,345; Carrying Value P46,187
c. Interest Expense P1,357; Carrying Value P44,427
d. Interest Expense P1,357; Carrying Value P46,187

15 IA3 Co. issued P9,000,000 of 5% bonds on April 1 at par value. The bonds were dated January 1. The
company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the
company in accrued interest at purchase and how much will the buyer receive in interest on June 30?
a. pay April 1, P0; receive June 30 P225,000
b. pay April 1 P450,000; receive June 30 P450,000
c. pay April 1 P450,000; receive June 30 P225,000
d. pay April 1 P112,500; receive June 30 P225,000
16 IA3 Co. issued P12,000,000 of 7% bonds on March 31st at par value. The bonds were dated January
1. The company pays interest on June 30 and December 31 each year. How much will the buyer need to
pay the company in accrued interest?
a. P840,000 b. P420,000 c. P280,000 d. P210,000

17 IA3 Co. issued P5,000,000 of 5% bonds on May 1 at par value. The bonds were dated January 1. The
company pays interest on June 30 and December 31 each year. How much will the buyer need to pay the
company in accrued interest at purchase and how much will the buyer receive in interest on June 30?
a. pay May 1, P0; receive June 30 P125,000
b. pay May 1 P83,333; receive June 30 P125,000
c. pay May 1 P125,000; receive June 30 P83,333
d. pay May 1 P125,000; receive June 30 P125,000

18 IA3 Co. had P1,300,000 of 6%, P1,000 par callable bonds outstanding on December 31, 2023, with a
carrying value of P1,400,000. IA3 decides to call the bonds on January 2, 2024. The call price is 102.
Compute the gain or loss on early extinguishment of debt.
a. no gain or loss b. loss of P100,000 c. gain of P74,000 d. loss of P26,000

19 There is substantial modification of terms if the gain or loss on modification is

a. At least 1% of the old financial liability
b. At least 5% of the old financial liability
c. At least 10% of the old financial liability
d. At least 20% of the old financial liability

20 Under a debt restructuring involving substantial modification of terms, the future cash flows under the
new terms shall be discounted using
a. Original effective interest rate
b. Interest rate under the new terms
c. Market rate of interest as of the date of restructuring
d. Any of these interest rates

21 IA3 Co. is indebted to CAF Co. under a P10 million, 12%, 3-year note dated December 31, 2020.
Because of IA3’s financial difficulties developing in 2022, IA3 owed accrued interest of P1.2 million on
the note on December 31, 2022. Under a debt restructuring on December 31, 2022, CAF Co. agreed to
settle the note and accrued interest for a tract of land having a fair value of P9 million. The carrying amount
of the land is P7.2 million. Under IFRS 9, what amount should be reported as gain on extinguishment of
liability?
a. P1,800,000 b. P2,200,000 c. P2,800,000 d. P4,000,000

22 At year-end, IA3 Co. showed the following data with respect to an obligation already matured:
o Note payable, P7,500,000;
o Interest payable, P750,000
The company is threatened with a court suit if it could not pay the above obligation. Accordingly, the
company entered into an agreement with the creditor for the issuance of share capital in full settlement of
the note payable. The agreement provided for the issue of 52,500 shares with par value of P100. The share
is currently quoted at P130. The fair value of the note payable on the date of restructuring is P7,050,000.
What amount should be recognized as gain on extinguishment of debt?
a. P1,200,000 b. P1,425,000 c. P1,500,000 d. P3,000,000

23 During 2022, IA3 Co. experienced financial difficulties and is likely to default on a P2.5 million, 15%,
3-year note dated January 1, 2020 payable to CAF Bank. On December 31, 2022, the bank agreed to settle
the note and unpaid interest of P375,000 for P2,050,000 cash payable on January 2, 2023. What amount
shall be reported as gain on extinguishment of debt in the 2022 income statement?
a. P375,000 b. P450,000 c. P825,000 d. P1,200,000
24 Under IFRS, provisions for contingent losses are accrued when the likelihood of an unfavorable
outcome is ________.
a. virtually certain b. more likely than not
c. reasonably possible d. more than remote

25 Which of the following would not be considered when evaluating whether to record a contingent loss
for pending litigation?
a. the type of litigation involved
b. the ability to make a reasonable estimate of the amount of the loss
c. time period in which the underlying cause of action occurred
d. the probability of an unfavorable outcome

26 Statement 1: If a litigation-related loss is not probable, it should not be accrued as a liability. Statement
2: Contingencies should not be accrued but should be disclosed if they are either (1) probable, but not
estimable, or (2) reasonably possible.
a. True, True b. True, False c. False, True d. False, False

27 IA3 Co. is being sued for illness caused to local residents as a result of negligence on the company's
part in permitting the local residents to be exposed to highly toxic chemicals from its plant. IA3's lawyer
states that it is probable that IA3 will lose the suit and be found liable for a judgment costing IA3 anywhere
from P1,900,000 to P4,800,000. However, the lawyer states that the most probable cost is P3,900,000. As
a result of the above facts, what accounting recognition, if any, should be accorded this situation under
IFRS?
a. IA3 should accrue a loss contingency of P3,900,000 and disclose an additional contingency of up to
P900,000.
b. IA3 should accrue a loss contingency of P1,900,000 and disclose an additional contingency of up to
P2,900,000.
c. IA3 should not accrue a loss contingency but disclose a contingency of up to P1,900,000.
d. IA3 should not accrue a loss contingency or disclose any contingency.

28 In February 2023, an explosion occurred at an IA3 Co. manufacturing plant, causing damage to area
properties. By April 15, 2023, no claims had yet been asserted against IA3. However, IA3's management
and legal counsel have concluded that it is possible but not probable that IA3 might be held responsible
for negligence. Furthermore, they have determined that a reasonable estimate for damages might be as
much as P5,000,000. IA3's comprehensive public liability policy contains a P900,000 deductible clause.
For IA3's December 31, 2022 financial statements, for which the auditor's fieldwork was completed in
April 2023, how should this possible casualty loss be reported, if at all?
a. as an accrued liability of P900,000
b. as a note disclosing a contingent loss of P900,000
c. as a note disclosing a contingent loss of P5,000,000
d. No disclosure or accrual is required.

29 IA3 Co., a manufacturer of cleaning products, is preparing its annual financial statements at December
31, 2022. Because of a recently proven health hazard in one of its cleaning products, the government has
clearly indicated its intention of having IA3 recall all bottles of that product sold in the last six months.
The management of IA3 estimates that this recall would cost P850,000. What accounting recognition, if
any, should be accorded this situation?
a. expense and equity restriction of P850,000 b. expense and contingent liability of P850,000
c. note disclosure only d. no recognition

30 IA3 Co. considered two contingencies at the end of 2022:

** a probable loss in the range of P400,000 to P900,000

** a reasonably possible loss of P180,000

Under IFRS, what is the balance for contingent liabilities at the end of 2022?
a. P400,000 b. P650,000 c. P580,000 d. P1,080,000
31 IA3 Co. is running a video game promotion. For every 5 video games purchased, the customer receives
a coupon upon checkout to receive a free game. The coupons expire in one year. IA3 estimates that about
half of its video game customers will qualify to receive a coupon. In the past, the store has recognized a
gross profit margin of 25% of the selling price on video games. What would the expected redemption
percentage be to calculate the premium expense and related contingent liability? (Remember to use the
gross profit margin to arrive at cost.)
a. 14.00% of total video game sales b. 7.50% of total video game sales
c. 20.00% of total video game sales d. 5% of total video game sales

32 Which of the following statements best distinguishes provisions from accruals?

a. Accruals involve uncertainty about the timing or amount of future expenditure, similar to provisions.
b. Accruals are typically reported separately from trade and other payables, unlike provisions.
c. Accruals involve estimated amounts or timing, but the uncertainty is generally much less compared to
provisions.
d. Accruals involve uncertainty about the timing or amount of future expenditure, unlike provisions which
is certain as to timing or amount.

33 Accrued liabilities are disclosed in the financial statement by

a. a footnote to the statements
b. disclosed in the notes or recognized in the current liabilities, at the option of the management
c. an appropriation of retained earnings
d. appropriately classifying them as regular liabilities in the balance sheet

34 IA3 Company, operates a retail store and must determine the proper December 31, 2023, year-end
accruals for the following expenses:
o The store lease calls for fixed rent of P2,000 per month, payable at the beginning of the month, and
additional rent equal to 6% of net sales over P400,000 per calendar year, payable of January 31, of
the following year. Net sales for 2022 are P2,000,000.
o IA3 has personal property subject to a city property tax. The city’s fiscal year runs from July 1 to
June 30 and the tax, assessed at 3% of personal property on hand at April 30, is payable on June 30.
IA3 estimates that its personal property tax will amount to P12,000 for the city’s fiscal year ending
June 30, 2024.
In its December 31, 2023, balance sheet, IA3 should report accrued expenses of:
a. P78,000 b. P79,200 c. P102,000 d. P103,200

35 In its 2023 financial statements, IA3 Co. reported interest expense of P170,000 in its income statement
and cash paid for interest of P156,000 in its cash flow statement. There was no prepaid interest or interest
capitalization either at the beginning or end of 2023. Accrued interest at December 31, 2022, was P45,000.
What amount should IA3 report as accrued interest payable in its December 31, 2023, balance sheet?
a. P14,000 b. P31,000 c. P59,000 d. P111,000

36 IA3 Co. operates a retail store and must determine the proper December 31, 2022 year-end accrual for
the following expenses:
o A P9,000 electric bill covering the month of December through January 15, 2023 was received
January 22, 2023;
o A P4,000 telephone bill was received January 7, 2023 covering:
✓ Service in advance for January 2023, P1,500;
✓ Local and toll calls for December 2022, P2,500
In its December 31, 2022 statement of financial position, IA3 should report accrued liabilities of
a. P5,250 b. P6,750 c. P8,500 d. P11,000

37 Statement 1: Mandatory deductions for SSS, Philhealth, and PAGIBIG are normally accrued at period-
end because the remittance of payments is normally done on the following period. Statement 2:
Withholding tax for compensation cannot be accrued at month-end because the payroll is already
disbursed to the employees even if the remittance to BIR will just be made on the following month.
a. Both statements are correct. b. Both statements are incorrect.
c. Statement 1 is correct. d. Statement 2 is correct.
38 In identifying the amount of liability for bonus which is based on profit before bonus but after income
tax, which of the following represents the correct expression, assuming bonus is 12%, income tax is 25%
and profit is P2 million?
a. B = 12% (P2M – 0.75(P2M)) b. B = 12% (P2M – 0.25(P2M))
c. B = 12% (P2M – 0.25(P2M-B)) d. B = 12% (P2M – 0.75(P2M-B))

39 IA3 Co.’s salaried employees are paid twice a month. Information relating to salaries for the calendar
year 2023 is as follows:
o Salaries payable, beginning of the year, P250,000
o Salaries expense during the year, P2,540,000
o Salaries paid during the year, P2,430,000
On December 31, 2023, what amount should IA3 Co. report for salaries payable?
a. P110,000 b. P140,000 c. P360,000 d. P2,540,000

40 IA3 Co. reported gross payroll of P600,000 for the month of January. The entity paid the payroll net of
the following deductions:
o Income tax, P70,000;
o SSS, P15,000;
o Philhealth, P8,000;
o Pag-IBIG, P7,000
In addition, the entity recognized its additional contributions for the following in relation to January
payroll:
o SSS, P20,000;
o Philhealth, P9,000;
o Pag-IBIG, P6,000
What amount should be reported as total payroll-related liability?
a. P135,000 b. P100,000 c. P90,000 d. P65,000

41 An entity sells appliances that include a 3-year warranty. Service calls under the warranty are
performed by an independent mechanic under a contract with the entity. Based on experience, warranty
costs are expected to be incurred for each machine sold. When should the entity recognize these warranty
costs?
a. Evenly over the life of the warranty
b. When the service calls are performed
c. When payments are made to the mechanic
d. When the machines are sold

42 The accrual approach in accounting for product warranty cost

a. Is required for income tax purposes
b. Is frequently justified on the basis of expediency when warranty cost is immaterial
c. Finds the expense account being charged when the seller performs in compliance with the warranty
d. Represents accepted practice and should be used whenever the warranty is an integral and
inseparable part of the sale

43 During 2021, IA3 Co. introduced a new line of machines that carry a three-year warranty against
manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the
year of sale, 3% in the year after sale, and 6% in the second year after sale. Sales and actual warranty
expenditures for the first three-year period were as follows:

Actual
Warranty
Sales Expenditures
2021 P700,000 6,000
2022 1,100,000 27,000
2023 2,200,000 100,000
P4,000,000 P133,000

What amount should IA3 report as warranty expense for 2021?

a. P6,000 b. P71,000 c. P77,000 d. P83,000
44 On January 1, 2021, IA3 Co. offered a 3-year warranty from date of sale on any of its products sold
after that date. The offer was part of a program to increase sales. Meeting terms of the warranty was
expected to cost 2% of sales. Sales made under warranty in 2021 amounted to P9 million. One-fifth of the
units sold in 2021 were returned. These units were repaired or replaced at a cost of P32,500. What amount
of warranty expense should be shown on IA3’s profit or loss?
a. P32,500 b. P36,000 c. P147,500 d. P180,000

45 When a premium is purchased by an entity, the effect in the assets section would be
a. increase b. decrease c. no effect

46 Premium expense is accounted for as

a. part of the cost of goods sold b. part of other comprehensive income
c. part of operating expenses d. a direct reduction in the related liability

47 In an effort to increase sales, IA3 Co. inaugurated a sales promotion campaign on June 30, 2023,
whereby IA3 placed a coupon in each package of blades sold. The coupon being redeemable for a
premium. Each premium costs IA3 P50.00 and five coupons must be presented by a customer to receive
a premium. IA3 estimated that only 60% of the coupon issued will be redeemed. For the six months ended
December 31, 2023, the following information is available:
Packages of blades sold 1,600,000
Premiums purchased 120,000
Coupons redeemed 200,000
What is the amount of liability for premium claims outstanding at December 31, 2022?
a. P4,400,000 b. P5,600,000 c. P7,600,000 d. P9,600,000

48 IA3 Co. includes one coupon in each order of burger it sells. A planner is offered as a premium to
customers who send in 10 coupons and a remittance of P10. Distribution cost of premium is P5.
Experience indicates that only 30% of the coupons will be redeemed.
2022 2023
Order of burger sold 800,000 1,000,000
No. of planners purchased at P50 each 20,000 32,000
Coupons redeemed 160,000 280,000

What is the estimated premium liability on December 31, 2023?

a. 400,000 b. 450,000 c. 500,000 d. 550,000

49 The award credits granted to customers under a customer loyalty program is often described as
a. Points b. Awards c. Credits d. Royalty

50 Under a customer loyalty program, if the entity supplies the award itself, the consideration allocated to
the award credits
a. shall be recognized as a revenue immediately
b. shall not be accounted for as revenue separately
c. shall be recognized initially as deferred revenue and amortized as revenue over a reasonable period
not exceeding 5 years
d. shall be recognized initially as deferred revenue and subsequently recognized as revenue upon the
redemption of the award credits

REFER TO THIS IN ANSWERING THE NEXT TWO QUESTIONS:

IA3 Co. operates a customer loyalty program. The entity grants program members loyalty points when
they spend a specified amount of purchases. Program members can redeem the points for further
purchases. The points have no expiry date. During 2021, the customer earned 30,000 points. Management
expects that 100% of these points will be redeemed. The stand-alone selling price of each loyalty point is
estimated at P20. The sales during 2021 amounted to P3.4 million based on stand-alone selling price. On
December 31, 2021, 14,400 points have been redeemed in exchange for purchases. In 2022, the
management revised expectations and now expects 90% of the points to be redeemed. In 2022, the entity
redeemed 4,500 points.
51 What amount of the transaction price should be allocated to the points?
a. Zero b. P510,000 c. P600,000 d. P900,000

52 What is the revenue earned from the loyalty points for 2021?
a. Zero b. P244,800 c. P255,000 d. P288,000

53 Which of the following situations typically results in unearned revenues?

A) charging customers a deposit for returnable containers
B) short-term zero-interest notes payable
C) providing manufacturer warranties
D) selling magazine subscriptions

54 How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical
performance be reported in the seller’s financial statements before the performance?
a. revenue for the entire proceeds
b. revenue to the extent of related costs expended
c. unearned revenue to the extent of related costs expended
d. unearned revenue for the entire proceeds

55 On June 1, 2022, IA3 collected P470,000 for a 2-year insurance policy beginning on the same date.
The company has a December 31 year end. How much of the amount collected will remain unearned in
2022?
a. P332,917 b. P137,083 c. P235,000 d. P97,917

56 IA3 Co. received P792,000 in November and December 2020 for 1,000 3-year subscriptions at P264
per issue per year, beginning with the January 2021 issue. For tax purposes, IA3 chose to put the entire
P792,000 in its 2020 income statement. What amount should IA3 report in its 2020 statement of financial
position as unearned subscription revenue?
a. None b. P44,000 c. P264,000 d. P792,000

57 Fully participating preference share means that:

a. the ordinary stockholders receive a dividend rate per share equal to the preference share and all
excess dividends given to the ordinary shareholder
b. the ordinary stockholders receive a dividend rate per share equal to the preference share and all
excess dividends go to preference shareholder
c. the ordinary stockholders receive a dividend rate per share equal to the preference share and all
excess dividends are shared proportionately between the two classes.
d. The preference stockholders received their full dividend and any excess dividends go to ordinary
stockholders

58 Cash dividend is recognized as a liability on the date of ________ and paid on the basis of the number
of shares __________.
A. Declaration, outstanding
B. record, issued
C. declaration, outstanding less the number of treasury shares
D. record, outstanding less the number of treasury shares

59 At its meeting on December 1, 2023, the board of directors of IA3 Co. declares a cash dividend of
P3.50 per share, payable on February 1, 2024 to shareholders of record on December 25, 2023. The
following are the ordinary shares outstanding on different dates:
o December 1, 2023 – 40,000 shares
o December 25, 2023 – 50,000 shares
o December 31, 2023 – 55,000 shares
o February 1, 2024 – 55,000 shares
On December 31, 2023, what is the amount of dividend payable that should be recognized in the statement
of financial position?
a. 140,000 b. 150,000 c. 175,000 d. 192,500

60 On July 1, 2023, the board of directors of IA3 Co. declares a 15% share dividend. The market price of
IA3’s 800,000 outstanding ordinary shares with a par value of P50 on the date of declaration was P75 per
share. When the share price was P85 per share on September 1, 2023, the dividend was paid. As a result
of the dividend declaration, how much should be the increase in the current liability section of IA3’s
financial statement?
a. Nil b. P1.2 million c. P3 million d. P6 million

61 IA3 Co. had the following classes of shares outstanding as of December 31, 2023:
o Ordinary share, P20 par value, 20,000 shares outstanding
o Preference share, 6%, P100 par value, cumulative, 2,000 shares outstanding
No dividends were paid on preferences share beginning 2021. On December 31, 2023, a total cash
dividend of P200,000 was declared.

What are the amounts of dividends payable on both the ordinary and preference share, respectively:
a. P-0- and P200,000 b. P176,000 and P24,000
c. P164,000 and P36,000 d. P188,000 and P12,000

62 When a company receives a deposit from a customer to protect itself against nonpayment for future
services, the deposit should be classified by the company as
A) revenue
B) a liability
C) part of the allowance for doubtful accounts
D) a deferred credit deducted from accounts receivable

63 When an entity received an advanced payment for special order goods that are to be manufactured and
delivered within 6 months, the advance payment shall be reported as
a. Deferred charge
b. Contra asset account
c. Current liability
d. Non-current liability

64 IA3 Co. requires customers to pay P50 for each toter used for trash collection and charges this amount
when delivered. When toters are returned, the amount is refunded to the customer. If a customer cancels
the trash collection contract, but does not return the toter, the amount is forfeited by the customer. During
the current year, 70 customers cancelled their contracts and failed to return their toter, while 115 toters are
returned upon cancellation. Which of the following would be included in the journal entry to reflect the
forfeiture?
A) debit to Deposit Liability for P5,750
B) debit to Deposit Liability for P3,500
C) credit to Deposit Liability for P5,750
D) credit to Deposit Liability for P9,250

65 IA3 Co. distributes perishable electronic products in reusable containers. Each container requires a
deposit from the customer. The deposit is equal to the cost of the container. When the container is returned,
the customer receives a refund. Deposits on containers exported totaled P700,000 for the current year. If
containers are not returned within 18 months, deposits are forfeited. Customers held P330,000 in
containers at the start of the year. During the current fiscal year, a total of P410,000 was reimbursed, with
deposits of P25,000 forfeited. What amount should be reported as liability for refundable deposit at year-
end?
a. P290,000 b. P595,000 c. P620,000 d. P645,000

-end of Sir A’s mock midterm exam-