Christ The King College Current Liabilities

CURRENT LIABILITIES
Quiz No. 1 (September 10, 2020)

1. On December 31, 2019, the book keeper of Grand company provided the following
information:

Accounts Payable, Including deposits and advances from

Customers of P500,000.00 P2,500,000
Notes Payable, including note payable to bank due on
December 31, 2021 for P1,000,000.00 3,000,000
Share Dividends Payable 800,000
Credit balances in Customer’s accounts 400,000
Serial Bonds, payable in semiannual installments of 1,000,000 10,000,000
Accrued interest on Bonds Payable 300,000
Contested BIR Tax Assessment 600,000
Unearned Rent Income 100,000

In December 31, 2019 statement of financial position, how much current

liabilities should be reported?

Solution:

Accounts Payable 2,000,000

Deposits and advances from customers 500,000
Notes Payable 2,000,000
Credit balances in Customer’s accounts 400,000
Serial Bonds Payable 2,000,000
Accrued interest on Bonds Payable 300,000
Unearned Rent Income 100,000
Total Current Liabilities 7,300,000

2. The balance in Coward Company’s accounts payable account in December 31, 2019
was P1,170,000 before any year-end adjustments relating to the following:

 Goods were in transit from a vendor on December 31, 2019. The invoice cost was
P65,000 and the goods were shipped FOB Shipping point on December 29, 2019.
The goods were received on January 2, 2020.
 Goods shipped FOB shipping point on December 20, 2019 from a vendor to
Coward, were lost in transit. The invoice cost was 32,500. On January 5, 2020,
Coward filed a 32,500 claim against the carrier
 Goods shipped FOB Destination on December 21, 2019, from a vendor to Coward,
were received on January 6, 2020. The invoice cost was 19,500.

What amount should Coward report as accounts payable on December 31, 2019.

Solution:

Reported amount of accounts payable at December 31, 2019 1,170,000

Adjustments:
Goods purchased FOB shipping point still in transit 65,000
Goods purchased FOB shipping point lost in transit 32,500
Goods purchased FOB destination 19,500
Correct amount of accounts payable at Dec. 31, 2019 1,287,000

3. GSM Corp.’s accounts payable at December 31, 2019, totaled 1,600,000 before any
year-end
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Christ The King College Current Liabilities

 On December 31, 2019, GSM wrote and recorded checks to creditors totaling
700,000, causing an overdraft of 200,000 in GSM’s bank account as December 31,
2019. The checks were mailed out on January 10, 2020
 On December 28, 2019, GSM purchased and received goods for 300,000, terms
2/10,n/30. GSM records purchases and accounts payable at net amounts. The
invoiced were recorded and paid January 2, 2020
 Goods shipped FOB destination on December 20, 2019 from a vendor was received
January 2, 2020. The invoice price was 130,000.

What amount should GSM report as accounts payable on December 31, 2019.

Solution:

Reported amount of accounts payable at Dec. 31, 2019 1,600,000

Adjustments:
Credit amount, including overdraft 700,000
Goods purchased as accounts payable, 2/10n/30 term.
Paid 5 days after purchase date. (300,000-6,000) 294,000
Goods purchased FOB destination not yet recorded 130,000
Total amount of accounts payable at Dec. 31, 2019 2,724,000

4. Lovely corporation’s current liabilities at December 31, 2019 totaled 1,500,000 before
any adjustment relating to the following:

 On December 23, 2019, a vendor authorized Lovely to return for full credit,
merchandise shipped and billed at 45,000 on December 9, 2019. Lovey shipped the
returned items on December 29, 2019. A 45,000 credit memo was received and
recorded by Lovely on January 2, 2020.
 During December 2019, Lovely received 75,000 from Pretty, a customer, as an
advance payment for a handicraft that Lovely will make to Pretty’s specifications.
From this transaction, Lovely has 75,000 credit balance on its accounts receivable
from Pretty at December 31, 2019

What amount should Lovely report as accounts payable on December 31, 2019.

Solution:

Reported amount of accounts payable before adjustments 1,500,000

Adjustments:
Credit memo for goods returned to supplier not yet recorded at year end (45,000)
Credit balance on customer 75,000
Total accounts payable after adjustments, Dec. 31, 2019 1,530,000

Problem 5 (1 pt)
The data below are from the records of Almanor Inc on December 31, 2016:

Accounts Payable 680,000

Cash Balance, ABC bank 1,240,000
Cash Balance, XYZ bank (80,000)
Customers’ accounts with credit balances 25,000
Dividends in arrears on Preference Shares 400,000
Employee’s Income Tax Payable 100,000
Estimated Warranty Payable 50,000
Estimated Premium claims outstanding 90,000
Income
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Christ The King College Current Liabilities

Notes Payable (issued in 2016 maturing

in 20 semi-annual installments beg
on April 1, 2017) 4,000,000
Salaries Payable 400,000

The amount to be shown as total current liabilities on statement of financial

position at December 31, 2016 is?

Solution:

Accounts Payable 680,000

Cash overdraft, XYZ bank 80,000
Customers’ accounts with credit balances 25,000
Employee’s Income Tax Payable 100,000
Estimated Warranty Payable 50,000
Estimated Premium claims outstanding 90,000
Income Tax Payable 400,000
Salaries Payable 400,000
Total current liability 2,225,000

Problem 6 (2 pts)
Omega Company sells its products in expensive, reusable containers. The customer is
charged a deposit for each container delivered and receives a refund for each container
returned within 2 years after the year of delivery. Omega accounts for the containers not
returned within the time limit as being sold at the deposit amount. Information for 2016 is as
follows:

Containers held by customers at

December 31, 2015,
From deliveries in: 2014 85,000
2015 240,000 325,000
Containers delivered in 2016 430,000
Containers returned in 2016
From deliveries in: 2014 57,500
2015 140,000 197,500
2016 157,000 354,500

A. How much revenue from container sales should be recognized for 2016?

Solution:

Containers delivered in 2016 430,000

Containers returned in 2016 157,000
Revenue in 2016 273,000

B. What is the total amount of Omega Company’s liability for returnable containers on
December 31, 2016?

Returns 2014-2015 197,500

Sales 2014-2015 325,000 127,500

Delivery 2016 430,000

Returns 2016 157,000

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Christ The King College Current Liabilities

Revenue 2014-2015 127,500 (284,500)

430,000
(284,500)
145,500
127,500
Liability 2016 273,000
Problem 7 (5 pts)
Olson Music Emporium carries a wide variety of musical instruments, sound
reproduction equipment, recorded music and sheet music. To promote the sale of its products,
Olson uses two promotion techniques- premiums and warranties.

PREMIUMS
The premium is offered on the recorded and sheet music. Customers receive a coupon
for each P10.00 spent on recorded and sheet music. Customers may exchange 200 coupons
and P200 for a CD player. Olson pays P340 for each CD player and estimates that 60% of the
coupons given to customers will be redeemed. A total of 6500 CD players used in the
premium program were purchased during the year and there were 1,200,000 coupons
redeemed in 2016.

WARRANTIES
Musical instruments and sound reproduction equipment are sold with a one-year
warranty for replacement of parts and labor. The estimated warranty cost, based on past
experience, is 2% of sales. Replacement parts and labor for warranty work totaled P1,640,000
during 2016.

Olson uses the accrual method to account for the warranty and premium costs for
financial reporting purposes., and Olson’s sales for 2016 totaled P72,000,000 and 54,000,000
from musical instruments and sound reproduction equipment 18,000,000 from recorded
music and sheet music. The balances in the accounts related to warranties and premiums on
January 1, 2016, were shown below:

Inventory of premium CD players P399,500

Estimated premium claims outstanding 448,000
Estimated liability from warranties 1,360,000

Based on the preceding information, determine the amounts that will be shown on the
2016 financial statements for the following:

A. Warranty Expense

Sale of musical instruments and sound reproduction equipment 54,000,000

Estimated warranty cost x2%
Warranty Expense for 2016 1,080,000

B. Estimated Liability from Warranties

Estimated liability from warranties, Jan. 1, 2016 1,360,000

Add: 2016 warranty expense 1,080,000
Total 2,440,000
Less: Actual warranty cost during 2014 (1,640,000)
Estimated liability from warranties, Dec. 31, 2016 800,000

C. Premium Expense
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Christ The King College Current Liabilities

Coupons issued (18,000/P10) 1,800,000

Estimated redemption rate x60%
Estimated number of coupons to be redeemed 1,080,000
Exchange rate (200 coupons for a CD) /200
Estimated number of CD players to be issued 5,400
Net cost of CD player (P340 – P200) x140
Premium expense for 2016 756,000

D. Inventory of premium CD players

Inventory of premium CD players 399,500

Add: Premium CD players purchased during 2016(340x6,500) 2,210,000
Total 2,609,500
Less: Premium CD players distributed to customers during 2016
(1,200,000/200=6,000x 340) 2,040,000
Inventory of premium CD players, Dec. 31, 2016 569,500

E. Estimated premium claims outstanding

Estimated premium claims outstanding, Jan. 1, 2016 448,000

Add: 2016 premium expense 756,000
Total 1,204,000
Less: 2016 actual redemptions(1.2M/200=6Kx140) 840,000
Estimated premium claims outstanding, Dec. 31, 2016 364,000

-end-

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