ACT1106_Intermediate Accounting 2

Problem 1
Pau Company’s accounts payable at December 31, 2023 totaled Php1,000,000 before the necessary year-end
adjustments relating to the following transactions:
 On December 27, 2023 Pau Company wrote and issued checks to creditors totaling Php350,000. The
issuance of the checks was recorded on January 3, 2024.-350,000
 On December 28, 2023, Pau Company purchased and received goods for php150,000, terms
2/10,n/30. Pau Company records purchases and accounts payable at net amounts. The invoice was
recorded and paid January 3, 2024.+150,000x.98= 147,000
 Goods shipped F.O.B destination on December 20, 2023 from a vendor to Pau Company were received
January 2, 2024. The invoice cost was Php65,000. The purchase was recorded on January 2, 2024.no
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Required:
What amount should Pau Company report as total accounts payable at December 31, 2023?
1,000,000-350,000 +147,000 = 797,000

Problem 2
The balance in Camil Company’s accounts payable at December 31, 2023 was Php1,500,000 before considering the
following information:
a. Goods shipped FOB shipping point on December 20, 2023 from a vendor to Camil were lost in transit.
Camil did not record the invoice cost of Php240,000. On January 6, 2024, Camil filed a Php240,000
claim against the common carrier.
b. On December 27, 2023, a vendor authorized Camil to return, for full credit goods shipped and billed at
Php80,000 on December 2, 2023. Camil shipped the returned goods on December 27, 2023. A credit
memo for Php80,000 was received and recorded by Camil on January 6, 2024.
Required: What amount should Camil Company report as Total accounts payable on December 31, 2023?

Problem 3
The following transactions were completed by Pau Corporation during December 2023:
Dec 16 Purchased merchandise from BDO Company, Php66,000, terms 2/10, n/30; FOB shipping
point. The company paid freight of Php1,400.
19 Received goods from Celeron Corporation, Php72,000; terms: 3/10; 2/15, n/30.
26 Paid the account with Intel Company in full.
31 Paid the account with Celeron Corporation in full.
Required:
(a) Record the foregoing transactions in the books of Pau Corporation using the
(1) Gross method of recording purchases
(2) Net method of recording purchases
(b) Give the necessary adjustment on December 31 assuming that Pau Corporation uses the net method and
assuming that account with Celeron is still unpaid at December 31.

Problem 4
On October 1, 2023, the Mari Company purchased two new company automobiles from Subaru Motors Corporation.
The terms of the sale called for Mari Company to pay Php1,747,200 on October 1, 2023. Mari Company gave the
seller a non-interest bearing note for this amount. At the date of purchase, the interest rate for short term loans of this
type was 12%.
Required:
(a) Present the journal entries on October 1, 2023, December 31, 2023 and October 31, 2024.
(b) Show how the notes payable would be presented in the December 31, 2023 statement of financial position
of Mari Company.
Problem 5
On June 1, 2023, Mari Corporation discounted its own Php1,200,000 non-interest bearing note with the BDN Bank at
10%. The note is due on May 31, 2024.
Required:
(a) Present the journal entries on June 12, 2023, December 31, 2023 and May 31, 2024.
(b) Determine the carrying value of the liability as of December 31, 2023.

Problem 6
On May 1, 2023, Pau Company purchased a special type of equipment from Madonna Corporation issuing a 9%
interest bearing note for Php8,000,000 due April 30, 2024. There is no established cash price for this equipment.
Required:
Give the entries on May 1, 2023, December 31, 2023 (year end adjustment) and April 30, 2024 and determine the
carrying value of the liability on December 31, 2023, assuming:
(a) The market rate of interest for a note of this type is 5%.
(b) The market rate of interest for a note of this type is 12%.

Problem 7
In August 2023, Lacoste Company became involved in lawsuit. As a result of this litigation, it is probable that Lacoste
Company will have to pay an amount ranging from Php700,000 to Php1,000,000 but Php800,000 is considered to be
the best estimate of the obligation.

In September 2023, a competitor commenced a suit against Lacoste Company alleging violation of antitrust laws
seeking damages of Php1,100,000. Lacoste Company denies the allegations, and the likelihood of Lacoste paying
any damages is remote.

In October 2023, Pasig City government brought action against Lacoste Company for Php1,900,000 for polluting
Pasig River. It is reasonably possible that Pasig City government will be successful, but the amount of damages
Lacoste Company will have to pay is not reasonably determinable.
Required:
What amount, if any, should be accrued by a charge to income in 2023.

Problem 8
Pau Corporation embarked on a promotional program whereby a “T” shirt costing Php150 each is given away for
every 100 bottle crowns returned plus Php50. Pau Corporation estimates that only 40% of the bottle crowns in the
hands of consumers will be presented for redemptions. The following information is available to you:

Quantity Amount
Bottles sold 1,000,000 5,000,000
“T shirts” bought for give away 1,500 225,000
“T shirts” distributed to customers 1,000
Required:
Prepare journal entries to record the following:
(a) Purchase of premiums
(b) Redemptions of premiums
(c) Year-end adjustments to establish estimated liability for outstanding premiums

Problem 9
Beginning the year 2023, the Pak Company began marketing a new beer called “Serbesa Meztiza”. To help promote
the product, the management of Pak is offering a special Serbesa Mestiza beer mug to each customer for every 20
specially marked bottles of Serbesa .Pak estimates that out of the 300,000bottles of Serbesa Mestiza sold during
2023, only 30% of the 300,000 bottle cap will be redeemed. For the year 2023, 5,000 beer mugs were ordered by the
company at a total cost of Php140,000. A total of 4,000 mugs were already distributed to customers.
Required:
(a) What is the amount of the liability that Pak should report on its December 31, 2023 statement of financial
position?
(b) How much is the premium expense reported on Pak’s profit or loss for the year ended December 31, 2023?

Problem 10
During the year 2021, Pau Company started a promotional campaign for the sale of its car wax product. A coupon is
attached for each unit of car wax sold. For every five coupons plus Php50, a customer can avail of a bottle of tire
black. Each tire black costs the company Php120. The following information relates to the sale of car wax and
coupons redeemed and expected to be redeemed in the future.
2022 2023
Sale of car wax 140,000 units 200,000 units
Coupons redeemed 40,000 90,000
Coupons expected to be redeemed in the future
(year end estimates) 30,000 80,000
Required:
Compute the following:
(1) Premium expense for 2022 and 2023
(2) Provision for premium claims outstanding at December 31, 2022 and December 2023.

Problem 11
Pau Department Store grants loyalty awards to its customers. For every Php500 purchase made by the customer, the
customer receives a credit of 10 points equivalent to Php10. The accumulated points may be used by the customer
as part or full payment for merchandise purchased in the future.

During 2022, the company made sales aggregating Php5,000,000 on which 100,000 points were awarded to
customers. Of the Php5,000,000, 2% is considered to be allocable to the customer loyalty awards. During the same
year, 25,000 points were redeemed, and at December 31, 2022, it is expected that a total of 90,000 points would be
redeemed relating to 2022 sales.

During 2023, an additional 35,000 points awarded in 2022 were redeemed and Pau Department Store revised its
estimate of total redemption for points granted in 2022 at 95,000 points.
Required:
(a) Determine the amount of revenue recognized as a result of redemption of reward points in years 2022 and
2023.
(b) Determine the amount of liability to be presented in the statement of financial position relating to customer
loyalty awards at December 31, 2022 and December 31, 2023?

Problem 12
On January 1, 2020 VST Company introduced a new line of product that carries a three-year warranty against factory
defects. Estimated warranty costs related to peso sales are as follows: 1% of sales in the year of sale, 2% of sales in
the year after sale, and 3% of sales in the second year after sale.
Sales and warranty expenditures for the period 2020 to 2022 were as follows:
2020 2021 2022
Sales Php1,000,000 Php2,500,000 Php3,500,000
Actual warranty expenditures 8,000 38,000 112,500
Required:
Prepare journal entries to record the foregoing for years 2020 to 2022. The company’s accounting period is the
calendar year.

Problem 13
Pau Company started selling a new product that carried a two-year warranty against defects. Based upon past
experience with other products, the estimated warranty costs related to peso sales are computed as follows:
First year of warranty 3%
Second year of warranty 5%
Total sales and actual warranty repairs for 2021 and 2022 are given below:

2021 2022
Sales Php4,200,000 Php6,960,000
Actual warranty expenditures 148,800 180,000
Required:
(a) What amount should Pau Company report as its estimated warranty liability as of December 31, 2022?
(b) Based on the above data, assuming that sales and repairs occur evenly throughout the year, how much
would be the predicted warranty expense covering 2021and 2022 sales still under warranty at December
31, 2022.

Problem 14
Pau Corportion issues gift certificates in denominations of Php200, Php300, and Php500. These gift certificates are
redeemable in merchandise and expire one year after issue date. The company’s gross profit is an average of 30%.

Based on past experience, an average of ½ of 1% of total gift certificates sold will not be redeemed by reason of
expiration. The company records revenue as certificates expire.

During 2022, the company sold Php2,000,000 gift certificates through its licensed distributors. At the end of the year,
total redeemed gift certificates had a sales value of Php1,280,000.

Required:
Prepare all entries pertaining to the above information. Assume that Pau Corporation uses periodic inventory system.

Problem 15
Avengers Company pays its general manager an annual bonus. For the year 2022, the company reported profit of
Php8,000,000 before deductions for bonus and corporate income taxes. The corporate income tax is 20%.

Required: Determine the amount of bonus under each of the following independent assumptions:
(a) Bonus is 8% of profit before deduction for both bonus and income taxes.
(b) Bonus is 8% of profit after deduction for bonus but before deduction for income taxes.
(c) Bonus is 8% of profit before deduction for bonus but after deduction for income taxes.
(d) Bonus is 8% of profit after deduction for both bonus and income taxes.
Problem 16
Angel Corporation pays bonuses to its sales manager and two sales agent. The company had profit for 2022 of
Php3,000,000 before bonus and income taxes. Assume the following independent assumptions:
a. The sales manager gets 8% and each sales agent gets 6% of profit before tax and bonuses.
b. Each bonus is 12% of profit after income tax and bonuses.
c. Sales manager gets 12% and each sales agent gets 10% of profit after bonuses but before income
taxes.
Required:
Determine the amount of bonus for the sales manager ad for each sales agent under the given independent
assumptions. Assume a tax rate of 20%

Problem 17
Camil Inc. pays general manager an annual bonus of 6% of profit after deduction for both bonus and corporate
income tax. For the year 2022, the company realized profit of Php9,000,000 before said deductions. The income tax
rate is 20%.
Required:
What is the corporate income tax liability on December 31, 2022?

Problem 18
Included in Pau Company’s liability account balances at December 31, 2022 were the following:
14% note payable issued, October 1, 2017, maturing September 20, 2023, Php2,500,000

16% note payable issued April 1, 2022 payable six equal annual installments of Php800,000 beginning April
1, 2023 Php4,800,000

Pau Company’s December 31, 2022 financial statements were issued on March 31, 2013. On March 10, 2023, Pau
Company consummated a non-cancelable agreement with the lender to refinance the 14% Php2,500,000 note on a
long-term basis, on readily determinable terms that have not yet been implemented.

Required:
On December 31, 2022 statement of financial position, what amount of notes payable should Pau Company classify
as current liabilities? (Disregard any amount of accrued interest as of December 31, 2022).

Problem 19
Following selected account balances and supplemental information were taken from the accounting records of Camil
Company as of December 31, 2022:
Sales Php9,675,000
Mortgage note payable 1,300,000
Bank notes payable 300,000
Accounts payable 270,000
Stock dividend payable 200,000
Withholding taxes payable 120,000
Supplemental information:
a. Mortgage note was refinanced on its due date, February 15, 2023 with a new 5-year mortgage note after
paying Php300,000 cash on the principal balance. The refinancing scheme was planned long before its
due date. There was no unpaid interest as of December 31, 2022.
 b. The bank notes are payable semi-annual installments of Php50,000 on February 1 and August 1 of each
year. Unpaid interest as of December 31, 2022 of php7,500 has not been taken up. This was paid on
January 5, 2023.
c. On August 1, 2022, a suit was filed by a dismissed employee against the company asking for Php100,000
damages. The company’s lawyer believes it is probable that the suit will result in a loss to the company, but
the amount could not be reasonably estimated as of December 31, 2022.
d. The sales account included the 12% VAT corresponding to the last quarter sales of Php2,688,000 (inclusive
VAT). This was remitted to the BIR on January 20, 2023.
e. Total income tax due for 2022 amounted to Php865,000. Quarterly remittances to BIR during the year for
income tax totaled to Php550,000. The balance due as of December 31, 2022 has not been taken up in the
books.
Required:
Compute the total current liabilities presented on the December 31, 2022 statement of financial position.

Problem 20
Mari Company sells its products in returnable containers. The customers are given a period of two years from the
year of delivery to return the containers. Containers not returned within the prescribed period are considered sold at
the amount of deposits forfeited. At January 1, 2022, the balance of the account Refundable Deposits on Returnable
Containers is Php250,000, consisting of the following:

For containers delivered to customers in

2020 Php 100,000
2021 150,000

During 2022, the company received additional deposits of Php200,000 for containers delivered to customers.
Deposits refunded to customers during 2022 for return of containers amounted to Php267,000, as follows:
Deliveries in 2020 Php 82,000
Deliveries in 2021 110,000
Deliveries in 2022 75,000
Required:
Compute the balance of Refundable Deposits for returnable Containers at December 31, 2022.