PROBLEM NO.

1 - Cavaliers Corporation
1 Warranty payable, 3/31/04 252,000
Add warranty expense accrued during 2004-2005 630,000
Total 882,000
Less payments during 2004-2005 537,000
Warranty payable, 3/31/05 345,000 B

2 Bond discount, 10/1/99 (P5,000,000 x .04) 200,000

Discount amortization, 10/1/99 to 3/31/05 (P200,000/10 x 5.5) (110,000)
Bond discount, 3/31/05 90,000 D

3 Bond interest payable, 10/1/04 to 3/31/05 (P5,000,000 x 12% x 6/12) 300,000 B

4 Notes payable - current (maturing up to 3/31/06) 2,400,000

Accounts payable 560,000
Estimated warranty payable (see no. 1) 345,000
Cash dividends payable (5 million shares x P0.30) 1,500,000
Accrued interest:
Notes payable 340,000
Bonds payable (see no. 3) 300,000 640,000
Total current liabilities 5,445,000 C

5 Bonds payable:
Face value 5,000,000
Unamortized bond discount (see no. 2) (90,000) 4,910,000
Notes payable - non current 2,700,000
Total non current liabilities 7,610,000 D

PROBLEM NO. 2 - Pirates' Music Emporium

Question No. 1 - A
Warranty expense (P5,400,000 x 2%) 108,000

Question No. 2 - D
Estimated liability from warranties, 1/1/05 136,000
Add warranty expense for 2005 108,000
Total 244,000
Less actual expenditures for 2005 164,000
Estimated liability from warranties, 12/31/05 80,000

Question No. 3 - A
Premium expense [(1,800,000 x 60%)/200 x P14] 75,600

Question No. 4 - D
Inventory of premium, 1/1/05 39,950
Add premium purchases (6,500 x P34) 221,000
Total premium available 260,950
Less premiums issued (1,200,000/200 x P34) 204,000
Inventory of premium, 12/31/05 56,950

Question No. 5 - C
Estimated premium claims outstanding, 1/1/05 44,800
Add premium expense for 2005 75,600
Total 120,400
Less premiums issued (1,200,000/200 x P14) 84,000
Estimated premium claims outstanding, 12/31/05 36,400
PROBLEM NO. 3 - Spurs Company
Date Voucher No. Creditor Amount Amount Discount
Per sked As adjusted Lost
Nov. 27 797 Duncan Supply Co. 78,400 80,000 1,600
Dec. 02 821 Ginobili Distributors 19,600 - -
11 829 Parker Sales 44,100 45,000 900
20 836 Mohamed Dealers 17,150 - -
21 842 Bowen Merchandising 22,050 22,500 450
22 856 Horry Mercantile 80,850 80,850 -
31 865 Jackson Traders 78,400 78,400 -
340,550 306,750 2,950

Note: All invoices dated prior to Dec. 22 are not entitled to discount anymore.

Adjustment
Purchase discount lost 8,000
Vouchers payable 8,000
Unpaid vouchers as adjusted 306,750
Balance of control account (P1,645,000-P1,309,500-P36,750) 298,750
Total purchase discount lost 8,000
Analysis
Original net vouchers payable 1,645,000
Less cancelled vouchers 36,750
Net vouchers payable 1,608,250
Less net vouchers payable still unpaid (P340,550-P36,750) 303,800
Payment that should have been made if all dicounts were taken 1,304,450
Less actual cash disbursements (per control account) 1,309,500
Dicount lost on paid vouchers 5,050
Dicount lost on unpaid vouchers 2,950
Total purchase discount lost 8,000
ANSWERS: 1) B; 2) B; 3) C; 4) C

PROBLEM NO. 4 - Bulls Finance Company

Question no. 1 - A
Total bonds issued 1,600,000
Face value of bonds retired {P216,000/[1.05 + (.12 x 3/12)]} 200,000
Adjusted balance of bonds payable, 12/31/03 1,400,000

Question no. 2 - C
Unamortized bond premium, 12/31/03 (P80,000 x 14/16 x 20/25) 56,000

Question no. 3 - B
Nominal interest
P1,400,000 x 12% 168,000
P200,000 x 12% x 9/12 18,000
Total 186,000
Less premium amortization
Bonds retired (P80,000/25 x 2/16 x 9/12) 300
Remaining bonds (P80,000/25 x 14/16) 2,800 3,100
Bond interest expense 182,900

Question no. 4 - A
Redemption price (P200,000 x 1.05) 210,000
Book value of bonds retired
Face value 200,000
Unamortized bond premium
(P80,000 x 2/16 x 20.25/25) 8,100 208,100
Loss on bond redemption 1,900