_— Warranties ee ted below are two independent An: situations. iswer the f each situation questions situation 1 CO., a machi m ~~ " achinery di achi lealer, sells a ine for P22,200 und tive aay Se ‘O provide the ean ry repal at x cost to th z tomers. With sales being mi a on : lade evenly fia : : ut the year, Barradoines i half of the warranty expense is in- machines in 2014 eas of ast exPerence, the 1 sstimated to be 510 ty costs are in sells for cash 600 curred in 2014, hall year warranty costs are e: sume that in 2014, these warran parts and P660 labor. As- curred exactly as estimat- ed. ; What amount of warranty expense would be charged against 2014 ? a 702, ,000 C. P153,000 B. P351,000 D. 396,000 What amount of warranty liability would appear on the December a 2 31, 2014, statement of financial position? A. PO C. P702,000 B. 153,000 D. P351,000 Situation 2 DP, INC., a dealer of household appliances, sells washing machines at an average price of P8,100. The company also offers to each customer a separate 3-year warranty contract for P810 that requires the company to provide periodic maintenance services and to replace defective parts. During 2014, DP sold 300 washing machines and 270 warranty contracts for cash. The company estimates that the warranty costs are P180 for parts and P360 for labor. ‘Assume sales occurred on December 31, 2014. DP’s policy is to recog- nize income from the warranties on a straight-line basis. In 2015, DP incurred actual costs relative to 2014 warranty sales of P18,000 for parts and P36,000 for labor. 1. What liability- relative to these transactions would appear on the December 31, 2014, statement of financial position and how would it be classified? Current Noncurrent A P145,800 P72,900 B P72,900 P72,900 c P72,900 P145,800 C PO 218,700 x2 3. at amount of warranty expense would be shown on the income a ent for the year ended December 31, 2015? A, P18,000 C. P36,000 BPO D. P54,000 what liability relative to the 2014 Warranties would appear on the pecember 31, 2015, statement of financial Position and how would it be classified? Current Noncurrent A P145,800 P72,900 B. P72,900 P72,900 C P72,900 P145,800 D. P145,800 POqecounting for Noninterest-bearing Note ber 31, 2014, BAIKAL COMPANY acquired a piece of equi oat from Seller Company by issuing a P1,200,000 te, paybie b tea ber 31, 2018. Baikal’s credit rating permits it to borrow funds its several lines of credit at 10%. The equipment is expected to a 5-year life and a P150,000 salvage value. The present value of 1 at 10% for 4 periods is 0.68301. 1, What is the equipment’s book value on December 31, 2016? A. P551,767 C. P491,767 B. P630,000 D. P341,767 2, What is the carrying value of the note at December 31, 2016? A. P1,090,903 C. .P1,200,000 B. P991,730 D. P819,612Accounting for Noninterest-bearing Note (Payable in Installments) OHRID COMPANY purchased machinery on December 31, 2014, paying 0.000 don und Goreng to pay the balance in four equal installments of P60,000 payable each December 31. Implicit in the purchase price is an assumed interest of 12%. The following data are abstracted from the present value tables: Present value of 1 at 12% for 4 periods 0.63552 Present value of an ordinary annuity of 1 at 12% for 4 periods 3.03735 1. What is the cost of the machinery purchased on December 31, 2014? A. P233,083 C. P262,241 B. P320,000 D. P290,842 2. How much interest expense should be reported in Ohrid’s income statement for the year ended December 31, 2015? A. P38,131 C. P17,293 B. P21.869 f. p4?.707is the carrying value of the note at Decem| 3 Wm 120,000 C. P99,310 &. Pia4,110 D. P101,403 ber 31, 20167Soatyaing Various Transactior junction with your firm’s examination of the financj jn conjul 'Mancial staternents of qUR, INC. as of December 31, 2014, you obtained the information 3H ; : a the company’s Voucher register shown in the work paper below, nvolving Liabilitiescriptlon nome Ae Cay, Roferet D i “ hipped 08 destination, ved 4 samen 2 raed 3 12204 4128/14 5 1221n4 6 12214 7 122ae 8 1228/14 9 1228/14 10 125 11125 12 155 13° 10S 14 N05 18. 1215 9-200 Supplies § am 7itert4: eee 412.203 Auto insurance 42.200 Repalts services; FOB shipoing raat wea el 1224114 123,000 Inventory aT PIBLOD Suppes on, td 121876 22000 Pepin, recved 122074 19000 Rea mans y 12-240 Payrol, saming ~ tayetit4 (12 wong days) 68,000 Saas nd vgs 2.294 Subscription industy magazine for 2015 5,000 Dues & su : expense betta 12236 Utes for December 2014 24,000 Utes expense 42.241 Merchandise, shipped FOB destination, 1224/14; received 125 111,500 Inventory 12.242 Merchandise, shipped FOB destination, 1224/14; received 125 84,000 Inventory 141 Legal services; received 12/28/14 48,000 Legal and priessna fees expense 1-2. Medical services for employees for December 2014 25,000 Medical expenses 1-3 Merchandise, shipped FOB. shipping point, 12/2114; received 145 55,000 Inventory }4 Payroll, 1221/14 ~ 11515 (12 work ays in ttl 4 working se nt January 2015) 72,000 Salaries and wage 1-6 Merchandise, shipped FOB ; a shi point, 1/2/15; rected 16/15 64,000 Inventory 1-8 Merchandise, shipped FOB destination, 1/315, received 1/0 , 38,000 Inventory6 4n3its 1-9 Maintenance services; received 1/9/15 7 anarts 1-10 Interest on bank loan, : 10/10/14 ~ 110/15 9,000 Repairs & maintenance 30,000 Interest expense 1g 1815 HT Manacturing equipment instaed 754.000 Machinery & equipment yg 1815 1412 Dividend declared, 12/15/14 160,000 Dividend 7 is payable accrued liabilities as of December 31, 2014, were as follows: Accrued payroll Accrued interest payable e oe Dividends payable 160,000 The accrued payroll and accrued interest payable were reversed effective January 1, 2015. Required: Review the data given above and prepare journal entries to adjust the accounts on December 31, 2014. Assume that the company follows FOB terms for recording inventory purchases.Short-term Loan Refinancing Th i CARMEL € followi iter re based on the financial statements of Ollowing items al COMPaNy,Current assets Short-term loan payable P 750,000 Total liabilities : 600,000 Current ratio 000,000 Debt-to-equity ratio a rme| Com has arranged with its bi : GI very 9 its bank to refinance its short- jpan when it becomes due in 3 months, The new loan will have . term of 5 years. 1. Compute the following: a. Total current liabilities b. Total shareholders’ equity c. Total noncurrent liabilities 2. As the auditor of Carmel Company, how would you verify the validity of the short-term loan refinancing?—Ppeatructurinc © pebt Restructuring aaa aac nae U CORPORATION is having financial difficulty and the Maied Naawa Bank to restructure its P3 milion cor outstanding note has 3 years remaining and pays a current rate of inter oe 12%. The note was issued at its face value. presented below are two independent situations. Prepare the journal entry that Nakuru would make for each of the following types of debt restructuring. a. Neawa Bank agrees to accept land in exchange for telinquishing its daim on this note. The land has a book value of P2,000,000 and a fair value of P2,500,000. b. Naawa Bank agrees to reduce the principal balance due to P2,000,000 and interest rate to 10%. ‘The following present value factors are abstracted from the present val- ue tables, 12% 10% Present value of 1 for 3 periods 0.71178 0.75132 Present value of an ordinary annuity of 1 for 3 periods 2.40183 2.48685Analysis of Amortization Schedule LARIO COMPANY issued 10-year bonds on January 1, 2014. The com pany's year-end is December 31, and financial statements are prepara, annually. The amortization and interest schedule below reflects th, bond issuance and the subsequent interest payments and charges. AMORTIZATION SCHEDULE Interest Interest Amount Carrying Date Paid Expense = Unamortized Value 01/01/14 ~ - P28,253 = PA71,747 12/31/16 P 55,000 P.56,610 26,643 473,357 123115 55,000 56,803 24,840 475,160 12/31/16 55,000 57,019 22,821 477,179 1231/17 56,000 57,261 20,560 479,440 12/31/18 55,000 57,533 18,027 481,973 12/31/19 55,000 57,837 15,190 484,810 12/3120 55,000 58,177 12,013, 487,987 12/31/21 55,000 58,558 8,455 491,545 12/31/22 55,000 58,985 4,470 495,530 12/3123 55,000 59,470" . 500,000 * Adjustment dué to rounding,1 ‘The bonds were issued at A, Apremium C. Face val . lue B, Adiscount OD. Par value What amortization method is used | : ar in the amortization schedule pre A, Straight-line method C._ Effective interest method B, Bonds outstanding method D. Declining balance method What is the nominal (stated) interest rate of the bonds issued on * january 1, 2014? A 11% C. 10% B. 12% D, 6%. What is the effective interest rate of the bonds issued on January 1, 2014? A. 11% C. 10% B, 12% D. 6% On the basis of the schedule presented, what is the journal entry to record the issuance of the bonds on January 1, 2014? A. Cash 500,000 Bonds payable 500,000 B. Cash 471,747 Interest expense 28,253 Bonds payable 500,000 C. Cash : 500,000 Premium on bonds payable 28,253 Bonds payable 471,747 D. 471,747 Discount on bonds payable 28,253 500,000 Bonds payableClassifying Liabilities ELEANOR CORP. has been producing quality disposable dia pers for than two decades. The company’s fiscal year runs from April 1 Apres 31. The following information relates to the obligations of Eleanor as: March 31, 2014. BONDS PAYABLE Eleanor issued P10,000,000 of 10% bonds on July 1, 2012. The prevai- ing market rate of interest for these bonds was 12% on the date ofThe bonds will mature on July 1, 2022 ‘ F Interest Is Shon July 1 and January 1. Eleanor uses the effect hod to amortize bond premium or discount. Paid sernianny, ive interest rate jing present value fi mre f teloning pr factors are taken from the present value tables: present value of 1 at 12% for 10 periods it value of 1 at 6% for 20 periods nen present value of an ordinary annuity of 1 at 12% aa for 10 periods 5.65022 present value of an ordinary annuity of 1 at 6% for 20 periods 1.46992 NOTES PAYABLE zeanor has signed several long-term notes with financial institutions. The maturities of these notes are given in the schedule below. The total terest for all of these notes amounts to P600,000 on March 31, unpaid in 2014. Due Date Amount Due April 1, 2014 400,000 July 1, 2014 600,000 October 1, 2014 300,000 January 1, 2015 300,000 April 1, 2015 - March 31, 2016 1,200,000 April 1, 2016 - March 31, 2017 1,000,000 April 1, 2017 - March 31, 2018 1,400,000 April 1, 2018 - March 31, 2019 800,000 April 1,2019 - March 31, 2020 1,000,000 7,000,000 ESTIMATED WARRANTIES Bleanor has a oF jected Items in its ne-year product warranty on some Se! Pod line. The estimated warranty liability on sales made during ve 222013 ‘fscal_ year and stil outstanding a5 of Merc 31, 201 unted to P180,000. The warranty costs on sales made from April 1,1, 2014, are estimated at P520,000, The rough March 3 218, aT fe current 2013-2014 fiscal year. warranty costs incurred during th i follows: Warranty claims honored on 2012-2013 sales 180,009 Warranty claims honored on 2013-2014 sales 178,000 Total warranty claims honored P5800) OTHER INFORMATION 1. TRADE PAYABLES. ‘Accounts payable for supplies, goods and services purchased o» ‘open account amount to P740,000 as of March 31, 2014. 2. PAYROLL RELATED ITEMS Accrued salaries and wages 300,000 Withholding taxes payable 94,000 Other payroll deductions 10,000 Total ‘404,000 3. MISCELLANEOUS ACCRUALS Other accruals not separately classified amount to P150,000 2s March 31, 2014. 4. DIVIDENDS On March 15, 2014, Eleanor’s board of directors dectared a cash d idend of P0.20 per ordinary share and a 10% share dividend. dividends were to be distributed on April 12, 2014, to the shareboe ers of record at the close of business on March 31, 2014. Date ™ garding Eleanor ordinary share capital are as follows: Par value 5.00 per share Number of shares issued and outstanding _6, 000,000 shares Market values of ordinary shares: March 15, 2014 22,00 per shareMarch 31, 2014 April 12, 2014 21.50 per share 22.50 per share much was received by Eleanor from the I He 12? '@ sale of the bonds on A. P8,852,960 C. P10,500,000 B. 10,000,000 D. 10,647,040 what is the current portion of Eleanor’s notes payable at March 31 2014? ‘ ‘A. P2,800,000 C. P1,300,000 B. P1,600,000 D. 3,800,000 . The balance of the estimated warranties payable at March 31, 2014, is A. P342,000 C. P520,000 B. P18,000 D. P180,000 . On March 31, 2014, Eleanor’s statement of financial position would report total current liabilities of A. P5,286,000 C. 5,336,000 B, P4,386,000 D. 5,642,000 . On March 31, 2014, Eleanor’s statement of financial position would report total noncurrent liabilities of A. P14,389,350 C. P14,370,783 B. P14,352,217 D. P14,252,960Deferred Income Tax Asset and Liability id a temporary diff At December 31, 2013, GALILEE CORPORATION ha ifr. ence (related to depreciation) and reported a related deferred tax liabilt, of P60,000 on its statement of financial position. At December 31, 2014, Galilee has four temporary differences. An analysis of these reveals the ae Future Taxable (Deductible) Amounts Temporary Difference Later ae 2014 = 2015 Year 1. Use of straight-line depreciation for accounting purposes and accelerated depreciation for tax purposes P160,000 220,000 760,000 2. Rent collected in advance; recognized when earned for accounting purposes and when received for tax purposes (380,000) - 3. Various expenses accrued when incurred for accounting purposes; recognized for tax purposes when paid (90,000) 4, Recognition of gain on installment sales during the period of sale for accounting purposes and during the period of collection for tax Purposes 276,000 _210,000has income taxes of assume that the company s of P435,000 « i return for 2014. The installment receivable collectible in 2016 toe tax fied as noncurrent. The enacted tax rate is 30% for all Periods, 5 1. What amount of deferred tax asset should be shown on Galiliee’s statement of financial position at December 31, 2014? ‘ A. P114,000 C. P141,000 B. P514,800 D. 27,000 2. What amount of deferred tax liability should be shown on Galilies’s statement of financial position at December 31, 2014? A. P342,000 C. P141,000 B. P456,000 D. P487,800 3. How much is Galiliee’s pretax accounting income for 2014? A. P1,563,900 C. P1,450,000 B. P2,406,000 D. 2,606,000 4. How much is Galilee’s net income for 2014? A. P1,971,000 C. P2,406,000 B. P1,684,200 D. P1,450,000