1ST QUIZ – Current Liabilities Rental income received in advance………………..

16,000
Intermediate Accounting 3 Notes payable, which are payable to a
35 points bank, with the exception of P20,000
trade notes payable, on June 30 of the
Test 1: Straight Problems. Write your complete solution following year 60,000
on a separate sheet of yellow papers. ALL FINAL Accounts payable which include account
ANSWERS should be encircled. with debit balance of P2,000 80,000
Notes Receivable which have been
Problem 1On December 31, 2021, Jeba Company reduced by notes discounted of P20,000
provided the following information: that are not yet due and on which the
Accounts payable, including deposits and 1,250,000 Corporation is contingently liable 100,000
advances from customer of P250,000 Accounts Receivable, which include accounts
Stock dividends payable 400,000 with credit balances of P10,000 and past due
Credit balances in customers’ accounts 200,000 accounts of P6,000 on which a loss
Deferred serial bonds, issued at par and 5,000,000 of 80% is anticipated 200,000
bearing interest at 12%, payable in Merchandise Inventory, which includes
semiannual installment of P500,000 due April goods held for consignment, P8,000,
1 and October 1 of each year, the last bond and goods received on December 31
to be paid on October 1, 2027. Interest is of P12,000; neither of these items
also paid semiannually. having been recorded as a purchase 180,000
Contested BIR tax assessment – possible 300,000
obligation 1. What is the amount of the current liabilities on
Unearned rent revenue 100,000 December 31? (2 points)
Notes payable: 2. The long-term debt at year-end is_____. (2 point)
Trade 3,000,000
Bank loans, including note payable to 2,000,000 PROBLEM 4 Jebie Department Store sells gift
bank due on December 31, 2023 of certificates redeemable only when the merchandise is
purchase. These gift certificates have no expiration date.
P500,000
Advances from officers 500,000 Upon redemption or expiration, the entity recognizes the
unearned revenue as realized.
Cash balance at First State Bank 2,500,000
Cash overdraft at Harbor Bank 1,300,000
The entity provided the following information for the current
Dividends payable 1,000,000 year:
Withholding tax payable 100,000 Unearned revenue, January 1 650,000
Mortgage payable 3,800,000 Gift certificates sold 2,250,000
Income tax payable 800,000 Gift certificates redeemed 1,950,000
Stock dividends payable Gift certificates expected not to be 100,000
Estimated warranty liability 600,000 redeemed
Estimated damages payable by reason of 700,000 Cost of goods sold 60%
breach of contract
Other accrued liabilities 900,000 On December 31, what amount should be reported as
Estimated premium liability 200,000 unearned revenue? (2 points)
Claim for increase in wages by employees 3,500,000
covered in a pending lawsuit PROBLEM 5 Freecs Company sells office equipment
Contract entered into for the construction of 5,000,000 service contracts agreeing to service equipment for a two-
building year period. Cash receipts from contracts are credited to
unearned contract revenue. Service contract costs are
Compute the total current liabilities on December 31, charged to service contract expense as incurred. Revenue
2021. (3 points) from service contracts is recognized as earned over the
term of the contracts.
PROBLEM 2 Accounts payable per general ledger Unearned contract revenue at January 1 600,000
control amounted to P5,440,000, net of P240,000 debit Cash receipts from service contracts sold 980,000
balances in suppliers’ accounts. The unpaid voucher file Service contract revenue recognized 860,000
included the following items that not had been recorded as Service contract expense 520,000
of December 31, 2021:
a) A Company – P242,000 merchandise shipped on What is the unearned service contract revenue on
December 31, 2021, FOB destination; received on December 31? (2 points)
January 10, 2022.
b) B, Inc. – P192,000 merchandise shipped on December PROBLEM 6 Jerome Company sells products with
26, 2021, FOB shipping point; received on January 16, reusable and expensive containers. The customer is
2022. charged a deposit for each container delivered and receives
c) C Super Services – P156,000 janitorial services for the a refund for each container returned within three years after
three-month period ending January 31, 2022. the year of delivery.
d) MERALCO – P67,200 electric bill covering the period Containers held by customers on January 1, 2022 from
December 16, 2021 to January 15, 2022. deliveries in
2019 50,000
On December 28, 2021, a supplier authorized Sonic to
2020 75,000
return goods billed at P160,000 and shipped on December
2021 215,000
20, 2021. The goods were returned by Sonic on December,
28, 2021, but the P160,000 credit memo was not received
until January 6, 2022. What is the total current Containers delivered in 2022………………390,000
Containers returned in 2022 from deliveries in:
liabilities? (3 points)
2019 46,000
PROBLEM 3 Jeba Company’s trial balance includes, 2020 45,000
among others, the following: 2021 125,000
Long-term Notes – which are payable 2022 143,000
in annual installment of P10,000 on
February 1 of each year ……… .………..P 60,000 What is the liability for deposits on December 31, 2022?
(2 points)
PROBLEM 7 Black Company required advance
payments with special orders for machinery constructed to
customer specifications. These advances are
nonrefundable.
The entity provided the following information for the current
year:
Advances from customers – beginning 1,180,000
Advances received with orders 1,840,000
Advances applied to orders shipped 1,640,000
Advances applicable to orders canceled 500,000
The entity records advances from customers using the
income method.
Required: (4 points)
1. Give the entry to record the P1,840,000.
2. Give the entry to record the P500,000.
3. Give the other year-end entry to adjust the income
account.
4. Compute the current liability for advances from
customers at year-end.
PROBLEM 8 On the first day of each month, Jerome
Company received from Meruem Company an escrow
deposit of P250,000 for real estate taxes. The entity
recorded the P250,000 in an escrow account.
Meruem’s 2021 real estate tax is P2,800,000, payable in
equal installments on the first day of each calendar quarter.
On January 1, 2021, the balance in the escrow account was
P300,000.
On September 30, 2021, what amount should be
reported as an escrow liability? (2 points)
PROBLEM 9 On December 31, 2014, McGrady Co. has
a 12%, P2,000,000, loan payable. Interest on the loan is
due every December 31. The financial statements were
authorized for issue on March , 2015. How much is
presented as current liability in relation to the loan on
December 31, 2014 statement of financial position? (4
points)
1. Assume that no other data are presented.
2. Assuming both parties are financially capable of
honoring the agreement’s provisions and McGrady Co
has the discretion to refinance or roll over the loan for
at least twelve months from December 31.
3. Assume that on December 15, 2014, McGrady Co.
entered into a refinancing agreement with a bank to
refinance the loan on a long-term basis. The
refinancing agreement was completed on December
31, 2014.
4. Assume that on January 5, 2015, McGrady Co. entered
into refinancing agreement with a bank to refinance the
loan on a long-term basis. The refinancing agreement
was completed on January 31, 2015.
PROBLEM 10 Dial Corp.'s accounts payable at December
31, 2004, totaled ₱800,000 before any necessary year-end
adjustments relating to the following transactions:
• On December 27, 2004, Dial wrote and recorded checks
to creditors totaling ₱350,000 causing an overdraft of
₱100,000 in Dial's bank account at December 31, 2004.
The checks were mailed out on January 10, 2005.
• On December 28, 2004, Dial purchased and received
goods for ₱200,000, terms 2/10, n/30. Dial records
purchases and accounts payable at net amounts. The
invoice was recorded and paid January 3, 2005.
• Goods shipped f.o.b. destination on December 20, 2004
from a vendor to Dial were received January 2, 2005.
The invoice cost was ₱65,000.
At December 31, 2004, what amount should Dial report
as total accounts payable? (2 points)
PROBLEM 11 The balance in Iwig Co.'s accounts payable
account at December 31, 2004 was ₱400,000 before any
necessary year-end adjustments relating to the following:
• Goods were in transit to Iwig from a vendor on December
31, 2004. The invoice cost was ₱50,000. The goods
were shipped f.o.b. shipping point on December 29,
2004 and were received on January 4, 2005.
• Goods shipped f.o.b. destination on December 21, 2004
from a vendor to Iwig were received on January 6, 2005.
The invoice cost was ₱25,000.
• On December 27, 2004, Iwig wrote and recorded checks
to creditors totaling ₱30,000 that were mailed on
January 10, 2005.
In Iwig's December 31, 2004 balance sheet, the accounts
payable should be_______. (2 points)
Test II. MCQ. Write your answers in the yellow papers.
(5 points)
1. Which is not a characteristic of a liability?
a. It represents a probable future sacrifice of
economic benefit
b. It must be payable in cash
c. It arises from present obligation to other entity
d. It results from past transaction or event
2. Which is the best definition of a current liability?
a. An obligation payable within one year
b. An obligation payable within one year after the end
of reporting period
c. An obligation payable within the normal operating
cycle
d. An obligation expected to be satisfied with current
assets or by the creation of other current liabilities
3. Statement 1: Trade notes payable are normally
presented as current liabilities.
Statement 2: Unearned revenue is considered a
financial liability.
Statement 3: Financial liabilities are initially measured
at fair value plus direct costs, except for financial
liabilities that are classified as financial liabilities
measured at fair value through profit or loss, whose
transaction costs are expensed immediately.
a. All statements are false
b. Only one statement is correct.
c. Two statements are correct.
d. All statements are true.
4. A landlord receives P12,000 in advance for a 6-month
lease to a tenant for a warehouse she owns on August
31. The landlord credits the whole amount received to
rental revenue account.
Statement A: On December 31, the landlord adjusts its
accounts by crediting unearned rental revenue of
P4,000.
Statement B: The landlord has an outstanding
obligation on December 31 equal to P8,000.
Statement C: The landlord recognizes total income on
December 31 amounting to P12,000.
Statement D: An adjusting entry on December 31 is
unnecessary because the amount received will
eventually be earned.
a. All statements are wrong.
b. Only 1 statement is correct.
c. All statements are correct.
d. Two statements are correct.
5. When an entity breaches under a long term loan
agreement on or before the end of the reporting period
with the effect that the liability becomes payable on
demand, the liability is classified as
a. Current under all circumstances.
b. Noncurrent under all circumstances.
c. Current if the lender has agreed after the reporting
period and before the issuance of the financial
statements not to demand payment as a
consequence of the breach.
d. Noncurrent if the lender has agreed after the
reporting period to provide a grace period for at
least twelve months after the reporting period.