1.

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

Accounts payable 1,900,000

Bonds payable 3,400,000

Premium on bonds payable 200,000

Deferred tax liability 400,000

Dividends payable 500,000

Income tax payable 900,000

Note payable, due January 31, 2021 600,000

On December 31, 2020, what total amount should be reported as current liabilities?

2. Heady Corporation provided the following salaries and wages information for the month of March:

Gross pay P750, 000

Income tax withheld 90, 000

All salaries and wages were subject to SSS deduction. The SSS rate was 15.50% each for employee and
employer. Such is based on the gross pay. The corporation remits income tax withheld and SSS
contributions on the 15th day of the following month. On the other hand, net pay is paid on the 1st day
of the following month.

Requirement/s: Determine the following amounts for the month of March:

a. Salaries and wages expense.

b. Salaries and wages payable.
c. Payroll expense.
d. Total due to the government.

3. Employee Rita is single. Rita had the following labor information for the month of February 2024:
Gross pay: P7, 400
Union dues: P—
Requirement/s:
1. Provide the following information:
a. Sum of employee and employer contributions to SSS
b. Sum of employee and employer contributions to PHIC
c. Sum of employee and employer contributions to HDMF
d. Withholding tax
e. Net pay
4. In 2022, You Are Wrong Inc. introduced an innovative product which carries a two-year warranty
against defects. The sale price for each unit is P25,500. The average repair cost per product is P700.

Based on historical experience, it was shown that 30% of all units sold are repaired in the first year and
60% in the second year. The corporation sold 450 units in 2022 and 750 units in 2023. The total
payments for warranty repairs amounted to P170,000 in 2022 and P225,000 in 2023.

Requirement/s: What is the balance of the estimated warranty liability account on December 31, 2023?

5. On October 1, 2023, Porter Co. (which prepares financial statements every December 31) borrowed
P4,500,000 from Bank of Bae Dy Oh by issuing a promissory note. The note bears an interest of 10% and
is payable in three equal annual principal payments of P1,500,000. The first interest and principal
payment is due on October 1, 2024, and every year thereafter until the note is paid in full. Assume that
the company complied with the terms of the note.

Requirement/s:

1. Prepare the journal entries during the life of the note.

2. Determine the balances of the following accounts to be reported on the 2023, 2024, 2025 and

2026 financial statements:a. Interest expense.b. Interest payable (identify if current or non-current) .c.
Notes payable (identify if current or non-current).

6. During 2019, Manfred Company guaranteed a supplier's P500,000 loan from a bank. On October 1,
2019, the entity was notified that the supplier had defaulted on the loan and filed for bankruptcy
protection. Counsel believed that the entity would probably have to pay P750,000 under the guarantee.
As a result of the supplier's bankruptcy, the entity entered into a contract in December 2019 to retool its
machines so that the entity could accept parts from other suppliers. Retooling costs are estimated to be
P900,000. What amount should be reported as liability on December 31, 2019?
7. In 2019, Dubious Company began selling new line of products that carry a two-year warranty against
defects. Based upon past experience with other products, the entity estimated warranty costs as a
percentage of peso sales.

First year of warranty 2%

Second year of warranty 5%
2019 2020
Sales 5,000,000 7,000,000
Actual warranty cost 100,000 300,000

A. What amount should be reported as warranty expense for 2019?

B. What amount should be reported as warranty liability on December 31, 2019?
C. What amount should be reported as warranty expense for 2020?
D. What amount should be reported as warranty liability on December 31, 2020?

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

Additional information for the current year:

Unearned service contract revenue at January 1 600,000
Cash receipts from service contracts sold 980,000
Service contract revenue recognized 860,000
Service contract expense 520,000

What amount should be reported as unearned service contract revenue on December 31?

9. During a particular quarter, Bat Co. purchased goods on account from suppliers for P8,000,000
excluding VAT. In the same quarter, it sold goods to customers on account for P5,600,000 including VAT.
 Requirement/s:
Determine the Refundable/Creditable VAT or VAT payable at the end of the quarter.

10. During a particular quarter, Bat Co. purchased goods on account from suppliers for P970,000
excluding VAT. In the same quarter, it sold goods to customers on account for P430,000 excluding VAT.

Requirement/s:
Determine the Refundable/Creditable VAT or VAT payable at the end of the quarter.

11. Ate Bulaga is a defendant in a trademark infringement suit. Its lawyers believe that there is a 51%
chance that the court will rule against the entity and in favor of the claimant. They further believe that
there is a 30% chance that the entity will be required to pay damages of P5,000,000 and an 70% chance
that the damages will be P2,500,000.
Requirement/s:
1. Determine the amount of provision, if any, to be recorded by Ate Bulaga on December 31, 2023.
2. Determine the amount of provision, if any, to be recorded by Ate Bulaga on December 31, 2023 under
the following hypothetical scenarios:
a. There is a possible chance that the court will rule against the entity.
b. There is a remote chance that the court will rule against the entity.
c. There is a 60% chance that the court will rule against the entity and the amount of damages to be paid
can be estimated.

12. I am Right, Inc. sells television sets which carry a 2-year warranty against defects. Based on historical
experience, the corporation expects an estimated warranty cost as a percentage of peso sales as
follows:
First year of warranty 7%
Second year of warranty 12%
The following pieces of information are available:
2022 2023
Sales P4,800,000 P7,100,000
Actual warranty cost 130,000 690,000
Requirement/s:
1. Prepare all the relevant journal entries for 2022 and 2023.
2. Determine the balances of the following accounts to be reported on the 2022 and 2023 financial
statements:
a. Warranty expense
b. Estimated warranty liability
13. Sunrise Company provided the following information on December 31, 2020:
 A personal injury liability suit for 500,000 was brought against Sunrise Company in March 2020.
The management and legal counsel of Sunrise Company concluded that it is not probable that
Sunrise Company will be responsible for damages and that P150,000 is the best estimate of the
damages.
 In July 2020, Sunrise Company became involved in a tax dispute with the BIR pertaining to 2019
income tax. In December 2020, a judgment for P400,000 was assessed against Sunrise Company
by the tax court. Sunrise Company is appealing the amount of the judgment. The tax advisor and
legal counsel of Sunrise Company believed it is probable that the assessment can be reduced on
appeal by 50%.
 Sunrise Company signed as guarantor for P200,000 loan by PNB to Sunset Company, a principal
supplier of Sunrise.
By reason of financial difficulties, it is probable that Sunrise Company shall pay the P200,000
loan with only a 60% recovery anticipated from Sunset Company.
Required: Determine the amount of provision.