Republic of the Philippines

Tarlac State University

College of Business and Accountancy

FAR 2 – Handouts for Liabilities

1. Ducky Company reported the following information at the end of the reporting period:

Accounts payable 1,000,000

Advances to employees 45,000
Unearned rent revenue 300,000
Estimated warranty liability 250,000
Cash surrender value 75,000
Bonds payable 5,000,000
Discount on bonds payable 500,000
Trademark 50,000

What amount should be reported in the statement of financial position as total liabilities?

a. 6,050,000 b. 1,550,000 c. 7,050,000 d. 6,095,000

2. Mill Company revealed the following account balances on December 31, 2019:

Accounts payable 1,500,000

Bonds payable, due 2020 2,500,000
Discount on bonds payable 300,000
Dividends payable 800,000
Note payable, due 2019 2,000,000

What amount should be reported in the statement of financial position as current liabilities?

a. 4,500,000 b. 5,100,000 c. 6,500,000 d. 7,800,000

3. Gar Company discloses the following liability account balances on December 31, 2019:

Accounts payable 1,900,000

Bonds payable 3,400,000
Premium on bonds payable 200,000
Deferred tax liability 400,000
Dividends payable 500,000
Income tax payable 900,000
Note payable, due January 31, 2020 600,000
The deferred tax liability is based on temporary differences that will reverse in 2020.

On December 31, 2019, what total amount should be reported as current liabilities?

a. 7,100,000 b. 4,300,000 c. 3,900,000 d. 4,100,000

4. Bake Company reported the following information on December 31, 2019:

Accounts payable 800,000

Bonds payable, due 2020 3,000,000
Premium on bonds payable 150,000
Deferred tax liability 250,000

The deferred tax liability is not related to an asset for financial accounting purposes and is expected to
reverse in 2020.

On December 31, 2019, what total amount should be reported as current liabilities?

a. 3,650,000 b. 4,200,000 c. 3,900,000 d. 3,950,000

5. Grace Company reported the following liability account balances on December 31, 2019:

Accounts payable 2,000,000

Bonds payable, due 2020 4,000,000
Discount on bonds payable 400,000
Deferred tax liability 500,000
Dividends payable due on February 15, 2021 1,000,000
Income tax payable 800,000
Note payable due January 15, 2021 1,200,000

The deferred tax liability is based on temporary differences stemming from different depreciation
method for financial reporting and income tax purposes.

On December 31, 2019, what total amount should be reported as current liabilities?

a. 6,400,000 b. 7,200,000 c. 7,400,000 d. 7,600,000

6. Brite Company reported the following liabilities on December 31, 2019:

Accounts payable 550,000

Unsecured note payable, 8% due, July 1, 2020 4,000,000
Accrued expenses 350,000
Contingent liability 450,000
Deferred tax liability 250,000
Senior bonds payable, 7%, due March 31, 2020 5,000,000
On December 31, 2019, what total amount should be reported as current liabilities?

a. 10,350,000 b. 10,150,000 c. 9,900,000 d. 4,900,000

7. Gumamela Company provided the following data on December 31, 2019:

Trade accounts payable, including cost of goods received on

consignment of P150,000…………............................................... 1,350,000
Accrued taxes payable……………………………………………………………… 125,000
Customers’ deposit………………………………………………………………….. 100,000
Gumamela Company as guarantor…………………………………………… 200,000
Bank overdraft…………………………………………………………………………. 55,000
Accrued electric and power bills………………………………………………. 60,000
Reserve for contingencies……………………………………………………….. 150,000

On December 31, 2019, what total amount should be reported as current liabilities?

a. 1,840,000 b. 1,740,000 c. 1,650,000 d. 1,540,000

8. Able Company had the following amounts of long-term debt outstanding on December 31, 2019:

14% term note, due 2020 30,000

11% term note, due 2022 1,070,000
8% note, due in 11 equal annual principal payments
plus interest beginning December 31, 2020 1,100,000
7% guaranteed debentures, due 2021 1,000,000
Total 3,200,000
The annual sinking fund requirement on the guaranteed debentures is P40,000 per year.

What total amount should be reported as current liabilities on December 31, 2019?

a. 40,000 b. 70,000 c. 100,000 d. 130,000

9. Tagkawayan Company reported the following liability balances on December 31, 2019:

12% note payable issued on March 1, 2018, maturing

on March 1, 2020 5,000,000
10% note payable issued on October 1, 2018, maturing
on October 1, 2020 3,000,000

The 2019 financial statements were issued on March 31, 2020.

On January 31, 2020, the entire P5,000,000 balance of the 12% note payable was refinanced through
issuance of a long term obligation payable lump sum.
Under the loan agreement for the 10% note payable, the note includes a clause that allows the entity to
reschedule the note’s maturity date for at least twelve months after December 31, 2019.

What amount of notes payable should be classified as current on December 31, 2019?

a. 8,000,000 b. 5,000,000 c. 3,000,000 d. 0

10. Witt Company reported the following liability account balances on December 31, 2019:

6% note payable issued on October 1, 2018, maturing

on October 1, 2020 500,000
8% note payable issued on April 1, 2018, maturing
on April 1, 2020 800,000

The 2019 financial statements were issued on March 31, 2020.

On March 1, 2020, the entire P800,000 balance of 8% note was refinanced by issuance of a long-term
obligation payable lump sum.

On December 31, 2019, what amount of the notes payable should be classified as current?

a. 1,300,000 b. 500,000 c. 800,000 d. 0

11. Eliot Company reported the following liabilities on December 31, 2019:

Accounts payable and accrued interest 1,000,000

12% note payable issued on November 1, 2018, maturing
on July 1, 2020 2,000,000
10% debentures payable, next annual principal installment
of P500,000 due February 1, 2020 7,000,000

On December 31, 2019, the entity consummated a non-cancelable agreement with the lender to
refinance the 12% note payable on a long-term basis.

On December 31, 2019, what total amount should be reported as current liabilities?

a. 3,500,000 b. 3,000,000 c. 1,500,000 d. 2,500,000

12. On December 31, 2019, Largo Company had a P750,000 note payable outstanding due July 31, 2020.
The entity planned to refinance the note by issuing long-term bonds.

Because the entity temporarily had excess cash, it prepaid P250,000 of the note on January 15, 2020.

In February 2020, the entity completed a P1,500,000 bond offering. The entity will use the bond offering
process to repay the note payable at maturity.

On March 31, 2020, the 2019 financial statements were authorized for issue.
What amount of the note payable, should be included in current liabilities on December 31, 2019?

a. 750,000 b. 500,000 c. 250,000 d. 0

13. Dean Company has a P2,000,000 note payable due on June 30, 2020. On December 31, 2019, the
entity signed an agreement to borrow up to P2,000,000 to refinance the note payable on a long-term
basis.

The refinancing agreement called for borrowing not to exceed 80% of the value of the collateral the
entity was providing.

On December 31, 2019, what amount of the note payable should be reported as current liability?

a. 2,000,000 b. 1,500,000 c. 800,000 d. 500,000

14. Dana Company had P2,000,000 note payable due on June 30, 2020. Under the existing loan facility,
the entity had the discretion to roll over the note payable for at least twelve month after the end of the
reporting period.

On December 31, 2019, what amount of the note payable should be reported as noncurrent liability?

a. 2,000,000 b. 2,400,000 c. 3,000,000 d. 0

15. Willem Company reported the following liabilities on December 31, 2019:

Accounts payable 750,000

Short-term borrowings 400,000
Mortgage payable, current portion P100,000 3,500,000
Bank loan, payable, due June 30,2020 1,000,000

The P1,000,000 bank loan was refinanced with a 5-year loan on January 15, 2020, with the first principal
payment due January 15, 2020.

The financial statements were issued February 28, 2020.

What total amount should be reported as current liabilities on December 31, 2019?

a. 1,150,000 b. 2,250,000 c. 1,250,000 d. 850,000