PROBLEM NO.

1A t i m on a n C o r p o r a t i o n i s s e l l i n g a u d i o a n d v i d e o
a p p l i a nc e s . Thecompany’ s fiscal year ends on March 31. The
following informationrelates to the obligations of the company as of March 31,
2006:Notes payableAtimonan has signed several long-term notes with
financial institutions.The maturities of these notes are given below. The
total unpaid interestfor all of these notes amounts to P408,000 on March 31,
2006.Due dateAmountApril 31, 2006P 720,000July 31,
20061,080,000September 1, 2006540,000February 1, 2007540,000April 1,
2007 – March 31, 20083,240,000P 6,120,000Estimated warrantiesAtimonan
has a one-year product warranty on some selected items. Theestimated
warranty liability on sales made during the 2004 – 2005 fiscalyear and still
outstanding as of March 31, 2005, amounted to P302,400.The warranty
costs on sales made from April 1, 2005 to March 31, 2006,are estimated at
P756,000. The actual warranty costs incurred during2005 – 2006 fiscal
year are as follows:Warranty claims honored on 2004 – 2005 salesP
302,400Warranty claims honored on 2005 – 2006 sales342,000TotalP
644,400Trade payablesAccounts payable for supplies, goods, and services
purchases on openaccount amount to P672,000 as of March 31,
2006.DividendsOn Ma rc h 1 0 , 2 0 0 6 , A t i mona n’ s b oard o f d i re c t ors
d e c l a re d a c a sh dividend of P0.30 per common share and a 10% common
stock dividend.B oth d i vi d e nd s w e re t o b e d i st ri b ut e d o n A p ri l 5 ,
2 0 0 6 t o c ommon stockholders on record at the close of business on March
31, 2006. As ofMarch 31, 2006, Atimonan has 6 million, P2 par value,
common sharesissued and outstanding.191

Bonds payableAtimonan issued P6,000,000, 12% bonds, on October 1, 2000

at 96. Thebonds will mature on October 1, 2010. Interest is paid semi-
annually onO c t o b e r 1 a n d A p r i l 1 . Atimonan uses the straight line
method toamortize bond discount.QUESTIONS:Based on the foregoing
information, determine the adjusted balances ofthe following as of March 31,
2006:1.Estimated warranty payablea. P414,000c. P 302,400b. P756,000d.
P1,058,4002.Unamortized bond discount3.Bond interest payablea. P360,000c.
P180,000b. P300,000d. P 04.Total current liabilities5.Total noncurrent liabilitiesa.
P9,240,000c. P9,108,000b. P9,132,000d. P9,000,000Suggested
Solution:Question No. 1Warranty payable, 3/31/05P302,400Add warranty
expense accrued during 2005-2006756,000Total1,058,400Less payments
during 2005-2006644,400Warranty payable, 3/31/06P 414,000192
Question No. 2Bond discount, 10/1/00 (P6,000,000 x .04)P240,000Discount
amortization, 10/1/00 to 3/31/06 (P240,000 x 5.5/10)132,000Bond discount,
3/31/06P 108,000Question No. 3Bond interest payable, 10/1/05 to 3/31/06
(P6,000,000 x 12% x 6/12)P 360,000Question No. 4Notes payable - current
(maturing up to 3/31/07)P2,880,000Accrued interest payable – Notes
payable408,000Estimated warranty payable (see no. 1) 414,000Accounts
payable672,000Cash dividends payable (6 million shares x
P0.30)1,800,000Accrued interest payable – Bonds payable360,000Total current
liabilitiesP6,534,000Question No. 5Notes payable –
noncurrentP3,240,000Bonds payable, net of discount of
P108,0005,892,000Total noncurrent liabilitiesP 9,132,000Answers: 1) A; 2) B; 3)
A; 4) C, 5) B