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ExtAud 3 Quiz 4 Wo Answers

1. Bad Blood Company should report P4,461,000 as current liabilities on its December 31, 2020 statement of financial position. 2. The balance of unearned premium at the end of 2023 is P60,000. 3. Blank Space Company should report P200,000 as unearned service contract revenue at December 31, 2023.

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52 views

ExtAud 3 Quiz 4 Wo Answers

1. Bad Blood Company should report P4,461,000 as current liabilities on its December 31, 2020 statement of financial position. 2. The balance of unearned premium at the end of 2023 is P60,000. 3. Blank Space Company should report P200,000 as unearned service contract revenue at December 31, 2023.

Uploaded by

JANET ILLESES
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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PROBLEM 1

Bad Blood Company had the following information as of December 31, 2020:

Notes payable arising from a 3-year bank loans, due on December 31,
2022, on which assets valued at P1,000,000 have been pledge as collateral 1,800,000
Accounts payable, net of debit balances of P100,000 1,160,000
Trade notes payable due in 15 months 360,000
Salaries payable 240,000
Phil health, and PAG-IBIG payable 25,000
Accounts receivable, net of credit balances of P80,000 220,000
SSS payable 16,000
Employees income tax withheld 25,000
Bonus and profit sharing payable 120,000
Liability for income taxes 300,000
Cash dividends payable 120,000
Contingent liability 174,000
Share dividend payable 150,000
Dividend in arrears on preference shares 200,000
Estimated liability for damages 130,000

1. How much should Bad Blood report as current liabilities on its December 31, 2020
statement of financial position?

PROBLEM 2

Beginning year 2023, the Shake It Off Company began marketing a new beer called
“Wonderland”. Each bottle of beer sells for P30. To help promote the product, management is
offering a special beer mug to each customer for every 20 bottles of Wonderland. Shake It Off
estimates that out of the 300,000 bottles of Wonderland sold during 2023, only 30% of the
bottles will be redeemed. For the year 2023, 5,000 beer mugs were purchased by the company
at a total cost of P140,000. These 5,000 mugs have a total sales value of P200,000. A total of
4,000 mugs were distributed to the customers during 2023.

2. How much is the balance of unearned premium at the end of 2023?

PROBLEM 3

Blank Space Company sells office equipment contracts agreeing to service equipment for a two-
year period. Cash receipts from contracts are credited to unearned service contract revenue
and service contract costs are charged to service contract expense as incurred. Revenue from
service contract is recognized as earned over the lives of the contracts. Additional information
for the year ended December 31, 2023 is as follows:

Unearned service contract revenue, January 1, 2023 P300,000


Cash receipts from service contracts sold 580,000
Service contract revenue recognized 680,000
Service contract expense 520,000

3. What amount should Blank Space report as unearned service contract revenue at
December 31, 2023?

PROBLEM 4
During 2016, Yamashita 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
first year of sale,
3% in the year after sale, and
4% in the second year after sale.
Sales and actual
warranty expenditures for the
first three-year period were as
follows:
During 2016, Yamashita 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
first year of sale,
3% in the year after sale, and
4% in the second year after sale.
Sales and actual
warranty expenditures for the
first three-year period were as
follows:
During 2023, Out Of The Woods, Inc. introduced a new line of machines that carry a four-year
warranty against manufacturer’s defects. Based on industry experience, warranty costs are
estimated at 1% of sales in the first year of sale, 2% in the year after sale, 3% in the second
year after sale, and 4% in the third year after sale. Sales and actual warranty expenditures for
the first four-year period were as follows:

Sales Actual Warranty Expenditures


2023 P800,000 P18,000
2024 1,350,000 45,000
2025 1,260,000 90,000
2026 900,000 22,000

4. What amount should Out Of The Woods report as liability at December 31, 2026?

Warranty expense:
2016 (9% x 600,000) 54,000
2016 (9% x 1,200,000)
108,000
2017 (9% x 1,600,000)
144,000 306,000
Actual warranty expenditures
2016 4,000
2016 35,000
2017 120,000
159,000
Warranty liability – December
31, 2018 147,000
PROBLEM 5

This Love Company has 55 employees who work 8 hours a day and are paid on an hourly
basis. On January 1, 2023, the company began a program of granting its employees 12 days of
paid vacation each year. Vacation days earned in 2023 may first be taken on January 1, 2024.
Information relative to these employees are as follows:

Year Hourly Wages Vacation Days Earned Vacation Days Used


by Each Employee by Each Employee
2023 P46.00 12 0
2024 47.00 12 7
2025 48.00 12 8

5. What is the balance of liability for compensated absences at the end of 2025?

PROBLEM 6

Style Company has 8% bonds payable in its trial balance amounting to P3,400,000 which will
mature in four years. The 8% bonds payable is a serial bond dated January 2, 2023 and
matures at P1,000,000 at the end of 2023, P900,000 at the end of 2024, P800,000 at the end of
2025 and P700,000 at the end of 2026. Interest based on the outstanding balance of the bonds
are paid annually every December 31. The prevailing market rate of interest on the issuance
date was 10%. The first principal and interest collection were recorded correctly at the end of
the year. Use the exact PV factor. Round your final answer to the nearest whole number.

6. What is the carrying amount of the serial bonds payable as of December 31, 2025?

PROBLEM 7

On January 1, 2023, Clean Company issued 800 of its January 1, 2018, 12%, ten-year, P1,000
face value bonds with detachable stock warrants at P1,010,000. Each bond, which pays
interests every April 30, August 31 and December 31 carried 5 detachable warrants which
entitle the holder to acquire one share of Clean Company’s par value ordinary shares for every
warrant at a specified option price of P55 per share. Immediately after the issuance, the
prevailing market rate of interest was at 9% and the market value of a warrant was P30. Use
the exact PV factor. Round your final answer to the nearest whole number.

7. What is the balance of the bonds payable as of May 1, 2026?

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