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FINACC3: SOLUTION MANUAL CHAPTER 1 AND 2!!

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.FINANCIAL ACCOUNTING
Volume Two
Valix and Peralta
2008 Edition
SOLUTION MANUAL
1
CHAPTER 1
Problem 1-1

Problem 1-2

Problem 1-3

Problem 1-4

1.
2.
3.
4.
5.

1.
2.
3.
4.
5.

1.
2.
3.
4.
5.

1.
2.
3.
4.
5.

A
D
A
C
A

A
C
B
A
A

6.
7.
8.
9.
10.

A
A
D
C
C

C
B
D
A
D

Problem 1-6

B
B
C
A
A

Problem 1-5
1.
2.
3.
4.
5.

A
D
A
D
B

6. A
7. A
8. C
9. B
10. B

Problem 1-7

Accounts payable
1,000,000
Note payable – trade
3,000,000
Deposits and advances
Note payable – bank
2,000,000
from customers
250,000
Note payable – officers
500,000
Notes payable
1,000,000
Accounts payable – trade
4,000,000
Credit balances in
Bank overdraft
300,000
customers’ accounts
200,000
Dividends payable
1,000,000
Serial bonds payable 1,000,000
Withholding tax payable
100,000
Accrued interest on
Income tax payable
800,000
bonds payable
150,000
Estimated warranty liability
600,000
Provision for tax
Estimated damages payable 700,000
assessment
300,000
Accrued liabilities
900,000
Unearned rent income
100,000
Estimated premium liability
200,000
Total current liabilities 4,000,000
Total current liabilities
14,100,000
Problem 1-8
Accounts payable
(500,000 + 100,000)
Accrued liabilities
Note payable - refinanced
Note payable – due May 1, 2009
Total current liabilities

600,000
50,000
1,000,000
800,000
2,450,000

000.000 23.000.000 3. 2009 and the availment of a financing agreement on February 15.000. September 1. Nevertheless.800.000 4.000 12.000. 2009 with a financially capable commercial bank on April 1.000.000 Note payable – shareholder: Amortization of discount from July 1 – December 31.000 on January 31.000 386.200.000 113.000 x 12% x 9/12) 189.000 x 6/12) Total interest expense 273.000 Problem 1-10 1. Problem 1-11 Answer B Note payable. September 1.000.000 .000.000 April 1 – December 31. 2008 (226.000 189. 2007 Less: Payment on September 1.000 1.000 2 Problem 1-9 a.000 4. Note payable – bank: January 1 – April 1.000 2.000 1. 2008 Balance. The note payable to bank is paid from the proceeds of the issuance of share capital of P4.Noncurrent liabilitiy: Bonds payable.000 2.000 7.000 113. the note payable should continue to be classified as current.100.000.776.000.000.000 2.000. 2008 (2.000 30. Current liabilities: Note payable – bank Note payable – shareholder Less: Discount on note payable Accrued interest payable Total current liabilities 700. 2008 (2. 2008 1.000. 2009 in the amount of P3.887.800.000 600. Current liabilities: Accounts payable Note payable – bank Accrued expenses Noncurrent liabilities: Mortgage payable Note payable due 2010 Total liabilities 7.000 b. due December 31.000 x 12% x 3/12) 84.000. 2010 2.

000 30.000 4 Problem 1-16 Answer A .200. 2008 (800.000.000.000 If the interest is compounded annually.000 x 12% x 10/12) Total accrued interest payable.000 + 120. October 1. 2008 Balance.000 112. 2008 (1.000 x 15% x 3/12) Interest expense for 2008 1.000 x 12% x 8/12) Total interest expense of 2008 Less: Recorded interest expense Understatement of interest expense 50.000 165.000 204.000 232. 2008 (800.500. 2007 to February 28. October 1.000 x 12% x 6/12) May 1 – December 31.200.000 x 15% x 9/12) Interest accrued from October 1 to December 31.000 400. 2008 Interest paid from January 1 to September 30.000 135. 2007 Less: Payment on October 1.000 Problem 1-14 Answer C Accrued interest from March 1.000 54. 2008 (1. it means that the accrued interest for one year will also earn interest. 2008 (1.000 x 12%) Accrued interest from March 1 to December 31.3 Accrued interest payable from September 1 to December 31.000 800.000 90.000 x 12% x 4/12) 48.000 150. 2008 120. 2008 (1. 2008 (500.000 Problem 1-13 Answer A January 1 – October 31.000 64. December 31.200.000. Problem 1-15 Answer B 12% note payable – refinanced 5.000 Problem 1-12 Answer A Note payable.000 x 12% x 10/12) February 1 – July 31. 2008 (1.

Problem 1-18 2008 1.000 x 50) 50.000 x 20) Cash 100.000 4.500.600.000 800.000 100.000 3. provides that an entity shall classify its financial liabilities as current when they are due to be settled within twelve months after balance sheet date even if an agreement to refinance or reschedule payment on a long-term basis is completed after balance sheet date and before the financial statements are authorized for issue.000 250.000.000 2.000 150. Cash (5.000. paragraph 63.200.650. Premium expense (5.000 x 10) Premium expense (5.000 2.000 3.000 5 2009 1.000 120.600. Cash 120.000 4.000 .000 4.000 200. Premium expense (2. Cash Sales 3.000 x 40) Premiums (5.300.000 3.000 Problem 1-17 Answer A 6% Note payable 8% Note payable Total current liabilities 500.000 x 60) Estimated premiums payable 120. Estimated premiums payable Premium expense Reversing entry. Premiums Cash 390.000.000 15.000 5.000 390.000 120.000 PAS 1.Accounts payable Note payable – bank Interest payable Mortgage note payable Bonds payable 6.000 1.

000 x 90) 40.000 4.000 x 10) Premium expense (9.000 x 85) Estimated premiums payable 170.000 30.000) Less: Bottle caps redeemed (8.000 900.200.000 450.000 Bottle caps to be redeemed (25% x 400.000 x 40) Premiums (9. Cash (400.000 Problem 1-19 1.600.000 x 20) Cash 180.000) Problem 1-20 2008 2.000 5.000 170.000 pens x 10) Bottle caps outstanding 100. Premium expense (3.000 x 85) Premiums (8. Premium expense (2. Cash (8.000 80.000 x 50) 90.000 2.000 x 9) Sales 2. Premium expense (9.000 4.000 180.000 150.000 3.000 6 Premiums to be distributed on the balance of bottle caps (20. Cash (9.000 x 5) Premium expense (8.000 720.000 150.000 /10) 6.000 360.000 5.000 20.000 580. Premiums Cash 3.000 30.000 180.000 680.000 900.000 x 60) Estimated premiums payable 180. Premium expense Cash (30 x 5.Sales 4.000 3. Premiums Cash 580.600.000 . Premium expense Cash 3.

800 x 20) Premiums expense Premiums – towels (1.000 x 100) 20.000 2008 2009 75.500.800 X 5) Cash 9.1.000 4.000 .000 144.towels Cash 3.000 200. Premiums .000 175.000 170.000 2009 1.000 9.500.000 175.000 2.000 180.000 36. Estimated premiums payable Premium expense Cash Sales 2.000 X 5) Cash 5. Premium expense Estimated premiums payable (800 X 85) 68. Cash (1.000 200.000 95.125.000 100.000 4. Cash Sales 2.000 68.000 51.800 x 100) 51.000 7 5.000 5.125.000 51. Premium expense Estimated premiums payable (600 X 85) 5.000 x 20) Premiums expense Premiums – towels (1.towels Cash 2.000 68.000 80.000 51.000 51.000 3.000 3. Premium expense (1. Premiums .000 3. Cash (1. Premium expense (1.000 Statement classification Current asset: Premiums – towels Current liability: Estimated premiums payable Selling expense: Premium expense 136.

500 Estimated premiums in 2009 500 Coupons to be redeemed 80% x 500.000 8 Problem 1-26 Accrual approach 2008 1.000 15. Warranty expense Estimated warranty liability (60% x 300 = 180 x 800) 3.000 4.000 x 60%) Less: Coupons redeemed Balance Problem 1-22 Answer D 96.000 Total 300.000) 6.500.200 Premiums to be distributed (250.000 / 5) 11.000 40.000 40.000) Sales 2.500.000 x 15) 400.000 100.Problem 1-21 Answer B Coupons to be redeemed (160.000 Less: Coupons redeemed Less: Estimated premiums in 2008 200 Coupons outstanding Premiums applicable to 2009 5.000 Premium liability (5.000 Amount of liability (11.000 1.000 x 100) 500.800 Liability for unredeemed Premium expense (5. Cash (300 x 15.000 Problem 1-23 Answer B Problem 1-24 Answer B Premiums distributed in 2009 5.000 144.500.800 x 60) 348.000 56.000 5.000 coupons (100.000 40.000 144.000 Number of premiums (56.000 242.200 x 20) 224.000 x 70% x 110%) Less: Total payments to retailer Liability for underdeemed coupons – 12/31/2008 462.000 .000 Problem 1-25 Answer C Total coupons issued and to be redeemed (600.000 x 80% / 10) Premiums distributed Balance 20. Estimated warranty liability Cash 4.000 220.

500.000 9 Problem 1-27 Accrual approach 2008 1.000 9.000 . Warranty expense Cash 40. Cash Sales 9.2009 1. Warranty expense Estimated warranty liability (14% x 5. Cash Sales 2.000 40. Warranty expense Estimated warranty liability (60% x 500 = 300 x 800) 3.260.000 390. Estimated warranty liability Cash 5. Estimated warranty liability Cash 240.000) 3.000 150. Cash Sales 4.000 2.500.000 150. Warranty expense 1.000.000 390.500.000. Warranty expense Cash 150.000) Sales 7.000 150.000 2.000 2.000.000 240. Cash Sales 7.000.000 2009 1.000 Expense as incurred approach 2008 1.000 2009 1.500.500.000 2. Cash (500 x 15.000 5.000 7.000 4.000 700.500.000 700.000.000 7.

180 820 150 123.000 5.000 390. Warranty expense Cash 5.000 640 360 180 1. Cash Sales 2. Cash Sales 2.000 .000.000 390.000 28.000 123.260.000 10 Problem 1-28 Units sold: October November December Total Multiply by Total failures expected Less: Failures already recorded: October sales November sales December sales Expected future failures Multiply by Estimated cost Warranty expense Estimated warranty liability 32.000 900.000 900.Estimated warranty liability (14% x 9.000 900.000 “Expense” approach 2008 1.000) 3. Warranty expense Cash 2009 1. Estimated warranty liability Cash 1.000.000 2% 2.000 9.000 100.000.000.000 40.000 9.000 900.000.000 123.

Cash 900.000 Problem 1-30 Answer C Warranty expense (3.000 Problem 1-35 1.000 840.000 440.Problem 1-29 Answer D Warranty expense (2.000 .000 400.250.000 40. 2008 Problem 1-31 Answer A 240.000 / 8%) Problem 1-34 Answer A 8.000 Normal defect (500 x P10.000.000 Problem 1-36 1. 2009 350.000) 500.000 170.000 40.000 11 Problem 1-33 Answer A Net sales (640.000 Warranty expense (5% x 5.000.000 300.000 490.000 x 7%) 2009 (7.000 x 7%) Warranty costs: 2008 2009 Warranty liability – December 31.000 100.000 2. Gift certificates payable Forfeited gift certificates (8% x 500. Gift certificates payable Sales 400.000 x 15%) 1.000 x 80) Less: Actual warranty cost Warranty liability–June 30.500.250.000 x 25%) Significant defect (500 x P30.000.400 x 300) 720.000 400.000 70.000 2.000. Cash Gift certificates payable 500.000 3.000 Problem 1-32 Answer B Warranty expense: 2008 (5.000 3.000) 250.

000 520.000 500.000 Problem 1-39 Answer D 1.050.250.000 Unearned revenue – January 1 Add: Gift certificates sold Total Less: Gift certificates redeemed Expired gift certificates Unearned revenue – December 31 780.000 820.Gift certificates payable 900.000 850. Cash Unearned service contract revenue Service contract expense 980.000 2. 2008 2.950.000 Unredeemed – January 1.000 340.000 1.000 780.000 1.500.000 2.000 40.750.000 Problem 1-38 Answer D 2008 Sales of gift certificates (2.000 980.000 250.000 12 Problem 1-37 Answer C Unearned revenue – January 1 Add: Gift certificates sold Total Less: Gift certificates redeemed Expired gift certificates Unearned revenue – December 31 650.160.250.900.000 100. Gift certificates payable Sales 780. Gift certificates payable Forfeited gift certificates 40.000 2.000 1.000 500.000 2.000 .000 x 90%) Less: 2007 Redemption of current year sales Unearned revenue – December 31.000 900.000 260.000 3.000 40. 2008 Less: 2008 Redemption of prior year sales Expired gift certificates 750.

000 . Problem 1-43 Answer C 600.000 600.200.000 600.000 100.000 600. 2008 that will expire during 2009 2010 2011 Unearned service contract revenue 150.000 225.000 980.000 860.000 will be considered deferred revenue on December 31. Unearned revenue – January 1 Cash receipts from contracts sold Total Less: Service revenue recognized Unearned revenue – December 31 860.000 Problem 1-41 Answer A The entire amount of P720.000 2. 2008 because the subscriptions start with the January 2009 issue.000 860.Cash Unearned service contract revenue Service contract revenue 520.800.000 600.000 13 Problem 1-40 Answer B Outstanding contracts on December 31.000 1. 2008 The above subscriptions will be served in the next publication in 2009.000 720.000 1.580.000 / 12) The subscriptions after the September 30 cut-off are: October November December Total unearned subscription revenue – December 31.000 475. Problem 1-42 Answer A Monthly subscriptions (7.

000 / 1.000 260.000 1.000 100.000 The lease deposit is a noncurrent liability.000 + 260.000 x 5) Total Less: Deposits refunded in 2008 (110.000 650.000 / 65%) Income before bonus and tax (4.000 165.000.840.600.260.000 4.650.000 .000 140.000 1.000.000 4.000) Income after bonus and tax 4.600.000 .000 3.000 Problem 1-44 Answer B Liability for refundable deposit – January 1 Deposits made in 2008 (100.000 2.Subscriptions received in 2008 that will expire in 2010 Subscriptions received in 2009 that will expire in 2010 Subscriptions received in 2009 that will expire in 2011 Unearned subscription revenue – December 31.000.000) 2.000 (1.10 (1.10B 1.10B B B = = = = = = .000 4. 2009 125.000) ( 500.000 x 5) Balance – December 31(current liability) 150.000) 880.600.10B 165.000 165.000 550.10 150.180.000 200.640.000 / 10%) Income before tax (2.000.000 Problem 1-46 Answer B B B B + .020..000 Proof Income before bonus and tax Less: Bonus Income before tax Less: Tax (35% x 4.400.000 465.000 Problem 1-47 Answer A Income after bonus and tax (260.000 – B) 165.000 500.260. 14 Problem 1-45 Answer C Advances – January 1 Advances received Total Advances applied Advances canceled Advances – December 31 1.

05B .500 / 1.750.000.0325B B B = = = = = = = = = .000 – 157.000 30.35B) 250.000 – B)] .500 + .000.000.000 30.05 [5.05 (5.000 Containers’ deposit Containers 30.05 (5.000.694. 2008 applicable to 2006 deliveries Less: Containers returned in 2008 applicable to 2006 deliveries Balance – expired and no longer refundable 2.000 343.385 – 1.000 680.500 162.0325 157.000 337..915) B = 157.0175B 1. Containers’ deposit – January 1.000 Containers’ deposit on January 1.000 Containers’ deposit Cash 313.000.35 (5.000 – .000 – B – T) .000 313. Only a disclosure is necessary because it is not probable that the company will liable.385 15 T = .000 30.915 Proof of bonus B = .000 45.000 – B .0175B 250.000 390.35 (5.35 (5.000 – 87.05B .87.000 – B) .1. be .500 162. Cash Containers’ deposit 390.000 – B .000 Problem 1-50 1..000. although the amount can be measured reliably.000.385) T = 1.385 Problem 1-49 1.Problem 1-48 Answer B B T B B B B + .000 390.000 290. 2008 75.000 + .000 – 157.05 (5.694.000 313. 2008 Add: Containers’ deposit in 2008 Total Less: Containers returned in 2008 Containers not returned and expired Containers’ deposit – December 31.

Unearned subscription revenue Subscription revenue (3.300. if the case is settled before the issuance of the statements.000. the actual award of P1.000 16 Problem 1-51 1.000 1.000 1.000 should be disclosed. Loss on damages Estimated liability for damages 3.000 which is the midpoint of the range in the absence of the best estimate within the range. Problem 1-55 Answer D The contingent asset is disclosed only because the case is unresolved on December 31.000) 2. The accrued amount is P350.2. 2008.500. Retained earnings Estimated liability for income tax 3.000 Problem 1-52 Answer A The probable loss is recorded but the possible loss is only disclosed. Loss on damages Estimated liability for damages 700.500. The accepted BIR offer is not recorded because it was made after the statements are issued. Problem 1-54 Answer D The provision should be accrued because it is probable and measurable. the amount P1.000 80.000.000 200.000 200.000 700.000 – 2.000 120.000 1. However. Problem 1-56 Answer A .000 1.000. Since the case is settled in March 2009 after the issuance of the 2008 financial statements.000.000 should be disclosed.500. The issue is what amount of asset will be disclosed. Accounts receivable – Sunset Loss on guaranty Note payable – bank 200. ` Problem 1-53 Answer C The best estimate is recorded.

Haze can report a gain of P1.000 is only disclosed because the defendant has appealed the said amount. Problem 1-58 Answer B Environmental cost Litigation cost Total accrued liability 500.000 800.000 in its 2008 income statement because this amount is already settled on December 31. However.000 . the remainder of P3.500.500.000 2. 17 Problem 1-57 Answer A The loss on the first lawsuit is both probable and measurable and therefore can be accrued as a provision.000) Environmental cost Total provision The loss from the guaranty is not accrued because it is remote.600.000 1.000 Both are accrued as provision because the loss is probable and measurable. 2008.000. Problem 1-59 Answer D Assessment on appeal (50% x 1.000 300. 800.300.