REVIEW QUESTIONS Liabilities and Current Liabilities

Answer the following questions: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. What are liabilities? What are the characteristics of liabilities? How are liabilities valued on the balance sheet? What are the two classifications of liabilities? What are current liabilities? What are examples of current liabilities? What are estimated liabilities? Give examples of estimated liabilities. What are provisions? What amounts are included as provision for restructuring? What are the accounting treatments for contingent liabilities and contingent assets?

Classroom Exercises on Current Liabilities
Journalize the following: 1. ABS Corporation offered P50 cash rebates on a particular model of hand-held hair dryers. To receive the rebate, customers must mail in a rebate certificate enclosed in the package plus the cash register receipt. Previous experience indicates that 30% of the coupons will be redeemed. One million hair dryers were sold in 2011 and total payments to customers were P225,000. 2. GMA Corporation began including one coupon in each package of candy that it sells and offering a toy in exchange for P10 and five coupons. The toys cost GMA Corp. P18 each. GMA Corp. bought 15,000 toys. It is estimated that 60% of the coupons will be redeemed. For year 2011, GMA Corp. sold 110,000 packages of candy with a selling price of P20 per package. Only 30,000 coupons were redeemed during 2011. 3. ETC Company, a supplier of in-home health care products introduced a new therapeutic chair carrying a two ± year warranty against defects. Estimates based on industry experience indicate warranty costs of 3% of sales during the first 12 months following the date of sale and 4% the next 12 months. During December 2011, its first month of operations, ETC Co. sold P2 million of the chairs. Assume that the company incurs P61,000 for repairs during 2012. 4. HBO Boutique sold 1,000 gift certificates to customers during 2011 for P500 each. Certificates having a sales value of P400,000 were redeemed during the year. It is estimated that 8% of the certificates issued will not be redeemed by reason of expiration. 5. AXN Chemical Company sells combustible chemicals in expensive reusable containers. Customers are charged a deposit for each container delivered and receive a refund when the container is returned. Deposits collected on containers delivered in 2011 were P300,000. Deposits are forfeited if containers are not returned within one year. Ninety percent of the containers were returned within the allotted time. Deposits charged are twice the actual cost of containers. The inventory of containers remains on the company books until deposits are forfeited. 6. RPN Company motivates its sales manager by giving him bonus. The following information are available for year 2011: Income before bonus and tax Bonus rate Income tax rate a. b. c. d. P1,100,000 10% 32%

Bonus is 10% of income before bonus and tax. Bonus is 10% of income after bonus but before tax. Bonus is 10% of income before bonus but after tax. Bonus is 10% of income after bonus and tax.

7. MAXX Publications collects magazine subscriptions from customers at the time subscriptions are sold. Subscription revenue is recognized over the term of the subscription. MAXX Publications collected P20 million in subscription sales during their first year of operations. At the end of the year, only ¼ of the subscription was earned. 8. An employee filed a P2M lawsuit against FOX Company for damages suffered when one of FOX¶s plants exploded a year ago. FOX¶s legal counsel expects the company will lose the lawsuit and estimate the loss to be between P500,000 and P1,000,000.

Homework on Current Liabilities
1. In an effort to increase sales, Ana Company inaugurated a sales promotional campaign on June 30, 2011. Ana Co. placed a coupon redeemable for a premium in each package of cereal sold. Each premium cost Ana Co. P20. To receive a premium, a customer must present five coupons. Ana Co. estimates that only 60% of the coupons issued will be redeemed. For the six months ended December 31, 2008, the following information are available: Packages of cereal sold ± 160,000 Premiums purchased ± 12,000 Coupons redeemed ± 40,000 What is the estimated liability for premiums claims outstanding on December 31, 2011? 2. On January 2, 2011, Ben Company began marketing a new soft drink. To help promote the soft drink, management is offering a special gift, a T-shirt, to each customer who returns 10 bottle caps. Ben Co. estimates that out of the 250,000 bottles sold in 2008, only 80% will be redeemed. On December 31, 2011, the following information are collected: Units Amount T-shirts purchased 18,000 P1,800,000 T-shirts distributed 15,000 What is the premium liability on December 31, 2011? 3. Cora Company manufactures a special product. To promote the sale of the product, a premium is offered to customers who send in three wrappers and remittance of P25. The distribution cost per premium is P5. Data for the premiums are: 2010 2011 Sales P4,000,000 P5,000,000 Premium purchase at P80 each 400,000 416,000 Number of premiums distributed 4,000 5,500 Number of premiums to be distributed in next period 200 500 What is the premium expense in 2011? 4. Dan Company sells washing machines that carry a three-year warranty against manufacturer¶s defects. Based on company experience, warranty costs are estimated at P300 per machine. During 2011, Dan Co. sold 2,400 washing machines and paid warranty costs of P170,000. What amount of warranty expense should Dan Co. report in its income statement for the year ended December 31, 2011? 5. On April 1, 2011, Eva Company began offering a new product for sale under a one-year warranty. Of the 5,000 units in inventory at April 1, 2011, 3,000 units had been sold by June 30, 2011. Based on its experience with similar products, Eva estimated that the average warranty cost per unit sold would be P80. Actual warranty costs incurred from April 1 through June 30, 2011 were P70,000. At June 30, 2011, what amount should Eva Co. report as estimated warranty liability? 6. In 2010, Fred Company began selling new line of products that carry a two-year warranty against defects. Based upon past experience with other products, the estimated warranty costs related to peso sales are as follows: first year of warranty ± 2%; second year of warranty ± 5%. Sales and actual warranty expenditures for 2007 and 2008 are presented below:

000 at December 31. In its December 31.000 Cash receipts from subscribers 7.000 Gift certificates sold 2.000 at December 31. 2008 expire as follows: During 2012 P150.000 2011 P7. 2011 P1.750.000 During 2013 225.950. This account had a balance of P720.000 100. two-year or three-year period. The service contracts are for a oneyear. what amount should Gem report as unearned revenue? 8. Hope has the following information pertaining to its gift certificate sales and redemptions: Unredeemed at January 1.000 What is the estimated liability on December 31.500.000 300. Gem recognizes the unearned revenue as realized. 2011.000 What amount should Lyn report as deferred revenue from subscription in its December 31.000.000 During 2014 100.500. 2011 are as follows: Unearned service contract revenue at January 1. Information for 2011 are as follows: Unearned revenue.000 Cost of goods sold 60% On December 31. 2011 P750.000 What amount should Jay Company report as unearned service contract revenue at December 31.Sales Actual warranty costs 2010 P5. 2011 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account which had a balance of P180. Jay Company sells office equipment service contracts agreeing to service equipment for a two-year period. Cash receipts from contracts are credited to unearned service contract revenue. These gift certificates have an expiration date of two years after issuance date. Upon redemption or expiration.000 2011 redemptions of current year sales 1.000 What amount should be reported as unearned service contract revenue in Kay¶s December 31. what amount should Hope report as unearned revenue? 9. 2011.200. 2011 P600. 2011 statement of financial position? 11.000 Service contract revenue recognized 860. 2011 statement of financial position? . 2011? 10.000 Cash receipts from service contracts sold 980. Cash receipts from contracts are credited to unearned service contract revenue and service contract costs are charged to service contract expense as incurred. 1/1/2011 P650.000 Service contracts expense 520.000. Data relating to 2011 are as follows: Deferred revenue from subscriptions balance on January 1. 2011? 7.000 Expired gift certificates 100. Revenue from service contracts is recognized as earned over the lives of the contract. Gem Department Store sells gift certificates redeemable only when merchandise is purchased. Subscriptions received after the March 31 and September 30 cut-off dates are held for the next publication. 2011 statement of financial position. Outstanding service contracts at December 31.000 Hope¶s experience indicates that 10% of gift certificates sold will not be redeemed.000 2011 sales 2.000 Gift certificates redeemed 1. Hope Department Store sells gift certificates redeemable for store merchandise that expire one year after their issuance. Kay Company sells major household appliance service contracts for cash.250. Cash from subscribers is received evenly during the year and is credited to deferred revenue from subscriptions. Lyn Company sells subscriptions to a specialized directory that is published semi-annually and shipped to subscribers on April 15 and October 15. Additional information for the year ended December 31.000 2011 redemptions of prior year sales 250.

Branch income for 2011 is P1.000.000 P130. Compute the bonus received by the branch manager under the following cases: a. Olga received and accepted a BIR settlement offer of P550.000 143.000 as a result of this lawsuit. Olga Company¶s tax advisor believed that an unfavorable outcome was probable and a reasonable estimate of additional tax was P500.000. Bonus is 10% of branch income after bonus and after tax. Bonus is 10% of branch income after bonus but before tax. Mon Video Company sells 1 and 2 year subscriptions for its video of the month business. 16. Bonus is 10% of branch income before bonus and tax.000 2012 125. Ned Company was a defendant in a pending lawsuit. 2011 statement of financial position? 14.000 and it is reasonably possible that Ned will have to pay P600. At December 31. 2011 statement of financial position? 15.000 P470. During 2011. .000 What amount should Mon Video Company report as unearned subscription revenue in its December 31.000 200. b. An analysis of the recorded sales activity revealed the following: 2010 2011 Sales P420.000 P470. After the 2011 financial statements were issued.000 2011 390. What amount of accrued liability should Ned report on its December 31. What amount of accrued liability would Olga Co. 2011.000 30.000 Required: Prepare all indicated entries in 2011 in connection with the containers. 2011 from deliveries in 2009 P75.000 Subscription expirations 2010 P120. The tax rate is 35%.000 2013 140.000 P500.000 125.000 but could be as much as P650. report in its December 31.000 P400.000 Containers returned in 2008 from deliveries in 2009 2010 2011 P45. Subscriptions are collected in advance and credited to sales. Olga Company became involved in a tax dispute with the BIR.000 2010 215.650. d. In the opinion of Ned¶s attorney. Pio Company sells its products with reusable expensive containers.000 Less: Cancellations 20. The suit arose from the alleged defect of a product that Ned sold in 2010. Information for 2011 is as follows: Containers held by customers at January 1. 2011 statement of financial position? 13. Compute the liability for containers on December 31. Quayle Company has an incentive compensation plan under which a branch manager receives a bonus of 10% . Bonus is 10% of branch income before bonus but after tax. 2011. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery.000 Net sales P400. c. On December 31.000 2011 155.12. 2011.000 before bonus and tax. it is probable that Ned will have to pay P500.

700 by issuing a 4 year note. By comparison with similar transactions. 2014. Narra Company purchased a package-labeling machine from DEF Company by issuing a 12% P700.000 down and signed a non-interest bearing note for the balance which is due on January 1. 2011. paid P200..074.250. 39? What are bond issue costs? How is this amortized? How are notes payable initially measured? After initial recognition. Prevailing market rate is 14%. Homework on Notes Payable Journalize the following: 1.REVIEW QUESTIONS Non-Current Liabilities Answer the following questions: 1. 8. 3. Molawin Company acquired a building for P5M. Interest of 12% is payable annually on the unpaid balance. Ipil Company acquired a machinery with cash price of P750. 2. 2011. 9. Molawin Company paid P500. At the beginning of 2011. 4. Ipil Co. Cameron Inc. On January 1. Banuyo Co.000. 2011. borrowed P700. a product labeling and graphics firm. . Apitong Company signed an interest bearing note for P600. Interest is 10% of the unpaid balance to be paid at the end of each year. On January 1. Assume prevailing interest rate is 10%. 3. American Company issued a four year interest bearing note to be paid in four equal payments at the end of each year. 7. Banuyo Company acquired a tract of land for P5.000 three-year note that requires interest to be paid annually. how shall notes payable be measured How is a long term zero interest note payable valued on the balance sheet? What is the effect of amortizing discount on note payable on interest expense? Classroom Exercises on Notes Payable Journalize the following: 1. On January 1.000. American Company acquired a packaging machine from Barton Corporation. 2011. 2011.000. The prevailing interest rate for this type of note was 12%. The warehouse was custom-built for Harmon.000 payable in two annual equal installments every December 31 of each year. On January 1. VHF Industries acquired a machine with a cash price of P6.000 and signed a non ±interest bearing promissory note for the balance which is payable in 4 equal installments every December 31 of each year. What is the amortization method prescribed in PAS No. 2011. Barton completed the construction of the machine on January 1. On January 1. 5.000 down and signed a non ± interest bearing note for the balance which is payable in 3 equal annual installments every December 31 of each year.250. 2011.000 four year note that required 7% interest to be paid on December 31 of each year. 2. On January 1. 2. What are non-current liabilities? What are examples of non-current liabilities? What is a bond? What is the difference between a bond indenture and a bond certificate? What are the different types of bonds? Briefly describe each. 3. Apitong Company acquired an equipment for P600. constructed for Harmon Distributors a warehouse that was completed and ready for occupancy on January 2. Interest is payable semi-annually every June 30 and December 31. 2011.000 cash from ABC Bank and issued a three . it was determined that an appropriate interest rate was 10%. In payment for the P4 million machine. Acacia Inc. 4. Harmon paid for the warehouse by issuing a P900. 10.000. Assume prevailing interest rate is 12%. paid P1. 5. 6. so its cash price was not known. 6. non-interest bearing note in the face amount of P8 million. The note is payable in four annual installments of P2 million at the end of each year.000 for P1.year 12% promissory note.

Issuance of Bonds on Interest Payment Date ± Premium On December 31. CBN Company issues a three .000.year 12% P2. 2. 2011 and mature on April 1. Greene Company purchased equipment for P250. RPN Company sells a three-year 12% P2. Partial Bond Retirement Prior to Maturity Date IBC Company is building a new gymnasium at a cost of P4. Prepare: Prepare all pertinent entries. 3. Required: Prepare all pertinent entries.000 face value bonds at a price that will yield a 10% effective interest rate. Prevailing interest rate is 11%. It received a down payment of P1. 2010.000. GMA Company sells a two-year 8% P2.000 face value bonds are sold on January 1. Prepare entry to record the bond retirement together with the payment of last semi-annual interest. Interest is payable annually every December 31. 2011.000. The bonds are dated December 31. 5.000 by issuing a 5-year non interest bearing promissory note payable in 5 equal annual payments on every December 31 of each year. Prepare all necessary journal entries. Issuance of Bonds Between Interest Payment Dates ± Discount On February 1. Required: Prepare all pertinent entries. On January 1.000. The bonds yield 10%. 2011. The bonds are dated December 31. 6.000 face value bonds are sold on April 1. 2010. 2016 with 12% interest payable semi-annually on April 1 and October 1. All the bonds are retired on August 1. Issuance of Bonds Between Interest Payment Dates ± Premium On March 1. The interest is payable annually every December 31.000 and signed a non-interest bearing note for the balance which is due after 3 years.000.000. Interest is payable semiannually on June 30 and December 31.000.000. On January 1. Classroom Exercises on Bonds Payable 1. 4. 2011. 2011. The company paid P50.000.000 to complete the project. The prevailing market rate for a note of this kind is 11%. Ellen Company purchased land for P200.000 from local businesses to support the project and need to borrow P3. ABS Company issues a two. Bond Retirement on Maturity Date Assume that P2.year 8% P 2.000 face value bonds at a price that will yield a 10% effective interest rate. 2013 at 98. 2011. 5.000.000 face value bonds at a price that will yield a 10% effective interest rate. Issuance of Bonds on Interest Payment Date ± Discount On December 31. 2011.000. 2011.000 face value bonds at a price that will yield a 10% effective interest rate. It will mature on December 31. 7. Bond Retirement Prior to Maturity Date Assume that P10. 2008 with 12% interest payable every July 1 and December 31. Prepare all pertinent entries. It therefore . Interest is payable semi-annually on June 30 and December 31.4.

the prevailing market rate is 10% without the conversion privilege.000 face value each with warrants to acquire ordinary shares at P50 per share. The records of Amy Company show the following information on December 31. 2014 and interest is payable annually on December 31. the adjusted effective rate is 11%. the following took place: Cash of P11. 1. 2011. Prepare journal entries on October 1. 2011 and pay interest annually every January 1.000. 2011 and January 1. half of the bonds were retired at P1. Bonds With Warrants On January 1. It is estimated that without warrants the bonds would sell at P98.000 Accrued interest 540.000. The bond price with warrants is 105. When the bonds were issued. On July 1.000 plus accrued interest.000.000 semi-annually on January 1 and July 1 On January 1. 2011. The bonds are issued with an effective yield of 10%.000 bonds are converted into ordinary shares.000.000. Compute for the bond issue cost.000 . CNN Company issued a 3-year bond with face value of P1. 2013.000 bond is convertible into 8 shares of P100 par value common stock.decided to issue P3. Prepare entries in connection with bond issuance and exercise of warrants. These bonds were issued on January 1. Because of the bond issue costs. The bonds mature on January 1. The bonds yield 12%. HBO Corporation closes its books annually on December 31. b. Convertible Bonds HBO Corporation issued P2. 2016 at 105. 9. Each P1. 2011. Prepare the amortization table using effective interest method. Cash from the new issue was used for the retirement of the 12% bonds at a call price of 102. c. All warrants are exercised on December 31.600. Prepare all pertinent entries. Prepare all necessary journal entries. 2011: Bonds Payable Discount on bonds payable P2.000 Bond issue cost 90. NBN Corporation issued 3.000 10-year bonds of 12% P1.000. Required: a. 2013. 2011 due on October 1. On January 1. Prepare the pertinent entries 11. 2013. Amortization of Bond Issue Costs Using Effective Interest Method On January 1.000 and a 9% stated rate. 2011 show the following accounts: Premium on bonds payable P150. Each bond contains one warrant which can be used to acquire 5 shares of P40 par value ordinary shares.700. Homework on Bonds Payable 1. The interest is to be paid twice a year on April 1 and October 1.000 Bonds payable due January 2015 interest at 12% payable 9.000 of 10.5 % 10-year bonds.000 was made available from the sale of P12.000 100. Bond Refunding The records of ABC Corporation on January 1. The interest on the bonds is payable annually every December 31. The company also paid bond issue costs.000 of 8% bonds on October 1.000 of 10-year 10% bonds. 8. At this time. 10. the share has a market value of P150 per share and the bonds are quoted at 102. 2011.

000. At December 31.000 Fees paid to independent accountants for registration information 35.? 7. The bonds were sold for P538. On July 1.000 which mature on January 1.774. Nimpha uses the effective interest method of amortizing bond discount. Edith Co. 2011.000 bond was issued 15 detachable warrants each of which entitled the bondholder to purchase for P50 one ordinary share of Maxine Inc.500 to yield 10%. the market value of the share is P120 and the bonds P102. what is the adjusted unamortized bond premium of Helen Co. Interest is payable annually on December 31.000.000 to yield 10%.000 The bonds are convertible into 7 ordinary shares for every P1.500. Interest is payable semiannually on April 1 and October 1. 2011.000 of its 10% bonds for P442. The bonds were sold to yield an effective interest rate of 10%. The firm uses the effective interest method. On January 1. Interest is payable annually on June 30. On February 1.000 shares issued.000 Commissions paid to underwriters 300. issued P2.648 to yield 12%. sold 12% bonds with a face value of P500. with a par value P25. 2011. sold P500. each P1. 2009.540.000 1. 2011.000 of 8% debentures on May 1. Using the effective interest method. 2011? 9. The bonds were issued for P4. issued 9% bonds in the face amount of P1. what is Nimpha¶s adjusted unamortized bond discount? 8. In addition. What amount should Mavic Company report as interest expense for the six months ended June 30. Gina Industries Inc. What amount did Cora receive from the bond issuance? 6. 2011. the entire bond issue was converted and on this date. 2019. 2011 as carrying value of the bonds? 3. Donna Company incurred the following costs in connection with the issuance of bonds: Printing and engraving P50.000. the fair market value of the ordinary share was P40 per share. Helen uses the effective interest method of amortizing bond premium. Required: Prepare the journal entry for the conversion of the bonds on December 31. the fair market value of the warrant was P4 and the fair market value of the bond ex-warrant was 101. During 2011.000 to yield 8%.000 bond. 2017. Maxine Inc. The bonds were issued for P939. Mavic Co. 2011. The bonds mature in 5 year and interest is paid semi-annually on June 30 and December 31. Rodiel Company issued 200 of its 10% P1.000. P100 par Accumulated Profits 4. 2011. 2018. how much is interest expense for year 2011? 5.000 Legal expenses 275. On February 1. 2011. 2018. Calculate the total amount of discount or premium amortization during the first year (5/1/10 through 4/30/11) these bonds were outstanding. 2016. The bonds pay interest semi-annually on May 1 and November 1. 2010 and received cash totaling P1. Interest is payable semiannually on January 1 and July 1. 2011 and mature on April 1. .000 What amount should be recorded as bond issue cost to be amortized over the term of the bonds? 4. The bonds are dated April 1. 2.Ordinary Share Capital ± 100. On July 1. Nimpha Inc. The maturity date on these bonds is November 1.000 which mature on July 1. 40.000. On December 31.526. On January 1. 2011.000 shares authorized . On January 1. Helen Company issued its 10% bonds in the face amount of P4.000.000 of 12% bonds at 104 which are due on January 31. 2011. At June 30.000 bonds at a price that will yield a 12% effective interest plus accrued interest. issued a P2. What amount should the corporation record on February 1.

Inventory balances under each method were as follows: FIFO Weighted Average January 1 P710. An accounting change was made in 2011 to reflect these additional data.200. The machine is being depreciated on a straight line basis. 2010. 4. 2011.000 1.000 2010 2011 Prepare necessary journal entries in 2010 and 2011. On January 1. Carrot Company determined that the machine had a useful life of 6 years from the date of acquisition and will have a salvage value of P240.000 830. On January 2.000.000 3. 8. Pink Panther Company determined that the machine had a useful life of eight years from the date of acquisition with no salvage value.000 and depreciated it by the straight line method using an estimated life of 8 years with no salvage value.800. 3. 1. On January 1. 2. 6. At the date of acquisition. On June 1.000. Carrot Company purchased a machine for P2. 9.000 P770.000 Cash dividends 700. 8? What are accounting policies? Give examples. Calculate the carrying amount of the bonds at December 31. REVIEW QUESTIONS Accounting Changes 1. The bonds are to be accounted for under the effective interest method.10. 10. What is a change in accounting estimate? Give examples. The bonds pay interest annually on May 31 of each year.500. Homework on Accounting Changes 1. 1. 2008. Bart reported the following net income and dividends: Net income 2. Bean Company decided to change from FIFO method of inventory valuation to the weighted average method.000.000.000 4.000 BV acquired 2. What should be the depreciation for the year 2011? 2. 7.000 Excess of cost 500.¶s ordinary shares to be held as ³available for sale.000. 2011 Interest 15% 30% Acquisition cost 2. 2008 for P3.000. 2010 Mr.000 1. What are prior period errors? What is the meaning of retrospective application? What is the meaning of prospective application? How are changes in accounting policies applied? How are changes in accounting estimates applied? How are changes in reporting entity applied? How are material prior period errors corrected in the financial statements? Classroom Exercises on Accounting Changes 1.000 December 31 790.000. 2011.000 Ignoring income tax. report as the effect of the accounting change? 3. Mr. in its year 2011 statement of retained earnings. 5. What is the objective of PAS No. Pink Panther Company purchased a machine on January 1. Bean Co.000 in long-term bonds for P438.000.000 5. Neil Bottling Company sold P500. . the machine had a life of six years with no salvage value. Simpson Company acquired Bart Inc. what amount should Mr. On January 1. The bonds will mature in 10 years and have a stated interest rate of 8% and a yield rate of 10%. 2010 Jan.000.´ as follows: Date Jan.000 The excess of cost is attributable to investee¶s undervalued depreciable assets with remaining life of 5 years. 2011.640. During 2011.

000 at December 31.900.000 and remaining useful life of 2 years. 2011. the machine had an estimated selling price of P250. 2009. On January 1. All companies have their financial year end at December 31. It is estimated that selling costs associated with the disposal of the machine will be P25. Egg Co. Bailey Company has a building with a cost of P5. Determine the carrying value of the machinery ± held for sale on December 31.000 and accumulated depreciation of P1. On December 31. As a result of this change. 2011? 4.000.000 increase in the beginning inventory at January 1. 2010. The entity feels that it would cost P1 million to sell the disposal group. On March 31. the assets were revalued to P18 million.000. What should be the depreciation expense on this machine for the year ended December 31.500. 2009. a. management announced its plan to dispose of Jolli. 2009. Egg Company purchased for P2. An entity is planning to dispose of a collection of assets. Dish Company determined that machinery previously depreciated over a seven-year life had a total estimated useful life of only five years. The change resulted in a P600. Explain your answers. 2009.000. 2009.400. As of April 1. 2009. 2009. 3. The carrying amount of these assets immediately before classification as held for sale was P20 million. On December 31.000.536. Graphitic Company has machinery with a cost of P2. Jolli. the initial classification of the building as held for sale on March 31. 2011? 2.000. Upon being classified as held for sale. In mid September. the estimated selling price of the building has increased to P1. with estimated selling costs increasing to P40. the estimated selling price of the machine had increased to P375.000. management decided to dispose of one of its subsidiaries.000. Required: Make the journal entries necessary to record a. On April 1. Graphitic decided to sell the machine within one year.000 on December 31.000. changed to the straight line method on January 1. with estimated selling costs remaining at P150. 2009. Jolli is selling baby dolls all over Asia and is profitable.000 greater. and it is estimated that selling costs associated with the disposal of the building will be P150.500. Prepare a journal entry to effect this change. 2011. 2009.000 and accumulated depreciation of P3. 2010. 2009.How much is accumulated depreciation for this machine on December 31.900. and b. 2009. On April 1. included in the baby doll segment. The income tax rate was 35%. Determine if the following activities are discontinued operations. The company commits to a plan to sell the building by January 7. In June 2007. On January 1. a.000. 2011. 2010 instead of P600. During 2011. Make the entry to record the initial classification of the machine as held for sale on April 1. b.000. 2. Classroom Exercises on Non-Current Asset Held for Sale and Discontinued Operations 1.000 a machine with a useful life of ten years and no salvage value. accumulated depreciation would have been P800. The entity designates these assets as a disposal group.000. Bread Company changed its inventory cost flow method to FIFO from LIFO for both financial statement and income tax reporting purposes to comply with the new standard. baby dolls and office equipment. the building has an estimated selling price of P1.000. Egg Co. What amount of adjustment should be made on retained earnings to effect the change in estimated useful life of the machinery? 3. The machine was depreciated by the double declining balance method and the carrying amount of the machine was P1. If the change had been made in 2010. . any adjustment necessary on December 31. Springtime Company has three product groups which are reported as separate segments: baby¶s clothes. the 2011 depreciation expense was P50. can justify the change. An accounting change was made in 2011 to reflect the change in estimate. What would be the carrying amount of the disposal group in the entity's statement of financial position after its classification as held for sale? 4. On March 31.

000 Carrying amount at December 31 P8. Management announced its plan to the press after its January 2009 board meeting. An announcement of the plan was made the same day. Management has decided to discontinue producing ice cream containing nuts. information relating to a discontinued operation should be presented separately from continuing operations. In September 2008. one of the segments of Fall Corporation has been operating at a loss since 2005. some other facilities within the segment would probably be disposed of.000.000 500. management decided to dispose of this segment and worked out a detailed plan for the disposal. Required: As you are aware.000 5. One of the segments is producing desiccated coconut candies.000 4. Four Seasons Inc. In 2008. The expected termination cost is P800.000 4. if not successful by the end of 2009.000.000 4. biomedical research. ice cream. A month later the company enters into a legally binding sales agreement with one of the major car producers in the world. Feather Corporation has four segments: telecommunications. Management has already formalized the plan and informed its employees of its decision.000. Carrying amount at September 30 P9. The factories where these are produced are located in fields where the coconut trees are grown. 2009. Also comment on what other information must be given regarding the discontinued operation. The processed meat division. dispose of the assets in the segment in a piecemeal fashion.000 4.000.000 Assets Liabilities Equity Revenue Operating expenses Financial expenses The sales agreement obliges management of Feather Corporation to terminate the employment of certain employees in the car segment. In its October 2008 board meeting. Assume a corporate tax of 30%. . has four different business segments. real estate and insurance.000. the board of directors voted in favor of a disposal plan which would either try to sell off the car segment as a whole or.000. c.000.000. IT consulting and cars.000 Recoverable amount at September 30 P8. The facilities are included in the cosmetics segment together with the facilities in the United States.000. Summer Company has four segments: soft drinks. d. Spain and the Philippines. the management of Winter Company decided to close one of its three facilities in the United States as it is much cheaper to produce its products in the Philippines. The following information for the car segment is available for the financial year 2009. These are situated in Southern Luzon. On September 30.000. The board cannot agree whether to continue the segment¶s activities. 5. In 2009. it will add ice cream containing fruits to its assortment. which is to concentrate on products and services for the ³new economy´.500.000 4. The parties expect the sale to be completed in February 2010. Instead. You should now prepare the income statement for the car segment (the discontinued operation) for year 2009.000 2.b. the board of directors has been discussing during several of its meetings whether to dispose of this segment. e. The necessary adjustment to the amounts above has not yet been made. In November 2008.000. The car segment is deemed inconsistent with the long term direction of the company. the board members finally agree to dispose of at least some of the facilities within the processed meat division in the remaining quarter of the year.000 6.

2009. On May 1. The sale will occur on March 31.000 P3.000.000 as a direct result of the discontinued operation.000. On January 1. Onyx Company had net income of P2. Diamond Manufacturing Group has a disposal group held for sale with the following details: Goodwill P 306.000 1.295.000. the carrying amount of segment was P3. The income tax rate is 30%. On December 31.000 Property. 2009.700 The investment property is measured by using the fair value model.000 in 2009 and P562. how much should Emerald Company report as income from ordinary activities of the discontinued segment for the period ending 2009 and 2008? 4.000 May 1 to December 31 1. the carrying amount of the net assets of the segment was P3. 2010. The carrying amount of the machine is P188. and its fair value is P225. The revenues and expenses of the discontinued segment during 2009 were: Revenues Expenses January 1 to April 30 P2. Emerald Company entered into an agreement to sell the assets and product line of a business segment. In the comparative income statements for 2009 and 2008.000 from January 1 to September 30 and P375.000.000 and the recoverable amount was P3. 2009 Ruby Corporation approved a plan to dispose of a business segment. net of tax for the year 2009? 3.000 and the net recoverable amount was P2. The plastics manufacturing segment was sold June 30. Operating loss from January 1 to June 30 for the plastics manufacturing segment amounted to P150.880.000 for the quarter ended December 31.500. Determine impairment loss and evaluate the financial implication of the reclassification of the disposal group as held for sale.000. The decision was made January 2 to discontinue the plastics manufacturing segment. The fair value less costs to sell of the disposal group is P1. Determine impairment loss.000 at the date of the disposal group being reclassified as held for sale under PFRS 5.000 for the year ended December 31. The segment had operating income of P2.700.050.350.000.250.500. On December 31.000 was sold for P1. the company paid employee severance and relocation costs of P150. 2009 and resulted in a gain on disposition of P1. 6.700 Carrying amount of disposal group P1. The sale was consummated on December 31. For the year ended December 31.500 in 2008. .000 How much will be reported as loss from ordinary activities of the discontinued segment for the year 2009? 2.837. ESL expects the fair value of the machine is P184. The tax rate was 30%. Other assets have already been remeasured in accordance with the applicable accounting standards before the reclassification as held for sale.000.000 while its cost to sell is P24. The income tax rate is 30%. Silver Company considers a restructuring plan to commit a disposal of its garment machine and its financial implication.000.Homework on NCA-Held-for-Sale and Discontinued Operations 1. Plastics manufacturing equipment with a book value of P1. 2009. 2009 Jasper Corporation approved a formal plan to sell a business segment. It is expected that the sale will occur on March 31. The machine¶s value in use before the reclassification is P180.000.500.125. 2009.000 before tax benefit.000 Investment property 254.000. During 2009.700.750.000 Intangible assets 480. How much will be reported as income from ordinary activities of the discontinued segment. On October 1. 2010. 2009 after giving effect to the following events which occurred during the year. how much was Onyx Company¶s after tax income from continuing operations? 5. The segment¶s operations resulted in income before tax of P375. 2009. plant and equipment 840.

and the fair value less estimated costs to sell is also around P1. the retailer sells electrical goods for consideration totaling P1 million. subject to availability.200. In the third year. 2.000. The planned disposal fulfilled the criteria under PFRS 5.000. 2. ATA decided to sell it. Compute the revenue earned for year 1. In one period. year 2 and year 3. It grants programme members one air travel point with each P1 they spend on electrical goods. In the second year. How much is the allocation of consideration to travel points? 2. In one period. Calculate the income statement effect of the changes to a plan of sale assuming that at year-end the estimated recoverable amount is (a) P1. Programme members can redeem the points for air travel with the airline. 9. Awards supplied by a third party. It now expects 90 points to be redeemed altogether.000 or (b) P900. At the end of the first year. 6. 7. REVIEW QUESTIONS Cash Basis and Accrual Basis 1. 4. On January 1. 3. Management expects 80 of these points to be redeemed. It grants 1 million points. Programme members can redeem the points for further groceries.000 (with no residual value and depreciated on a straight-line basis). management revises its expectations.200. Management estimates the fair value of each loyalty point to be P1 per unit and defers revenue of P100. 8. how much is the revenue allocated to them? . ATA decided to withdraw the sale and use the vehicle for its own use. 10. a further nine points are redeemed and management continues to expect that only 90 points will ever be redeemed.009 for each point.125. It grants programme members loyalty points when they spend a specified amount on groceries. The retailer pays the airline P0. 41 points are redeemed. If the retailer has collected the consideration allocated to the points on its own account. Gold Company acquired a motor vehicle with an estimated useful life of 10 years at P1. 2009. A grocery retailer operates a customer loyalty programme. At year-end of 2009. A retailer of electric goods participates in a customer loyalty programme operated by an airline.7. During the second year. 40 of the points have been redeemed in exchange for groceries. After the receipt of the vehicle 5 days later.01. The retailer estimates that the fair value of a point is P0. 1. When are revenues recognized under the accrual basis? When are expenses recognized under the accrual basis? What are the three expense recognition criteria under accrual basis? When are revenues recognized under the pure cash basis? When are expenses recognized under the pure cash basis? How are property assets treated under the pure cash basis? What is the modified cash basis? What is the extent of modifications that may be done under the modified cash basis? How are accrual basis financial statements prepared from cash basis records? What are the procedures when converting from cash basis to accrual basis? CLASSROOM EXERCISES CUSTOMER LOYALTY PROGRAMMES Awards supplied by the entity 1. the entity grants 100 points. When is revenue from loyalty awards recognized? 3. The points have no expiry date. 5.

2. 10. What is the double entry bookkeeping system? What is the single entry bookkeeping system? What are the characteristics of a single entry system? What are the usual books maintained under the single entry system? Briefly describe each. 2011: Cash received from customers Rent received Interest received P7. 2. 7. 6. Actfin Company had the following balances in the accounts it maintains at Security Bank: Checking account No. how much is the revenue allocated to them? REVIEW QUESTIONS Single Entry Bookkeeping System or Incomplete Records 1.500. If the retailer has collected the consideration on behalf of the airline.200. 90 days due March 1.000 150.000 75. Explain the treatment of the following in a statement of cash flows:  Dividend received  Dividend paid  Interest received  Interest paid  Income taxes Classroom Exercises on Statement of Cash Flows 1. 2011. 5. The following information is available from the accounting records of Acmod Corporation for the year ended December 31. What is the statement of cash flows? What is the objective of a statement of cash flows? How might a statement of cash flows be used? What is the meaning of µcash equivalent¶? What are the examples of cash equivalents? What are the required classifications of cash flows under PAS 7? What the two methods of reporting cash flows from operating activities? Explain the differences between the direct method and indirect method of reporting cash flows from operating activities.000 In its December 31. 8. 2011 statement of financial position. 401 Checking account No. 4. 10. 3.000 .4. What documents may be used in determining the cash balance? What documents may be used in determining the receivables balance? What documents may be used in determining the payables balance? How is owner¶s equity determined under the single entry system? How is net income computed under the single entry system? How is the income statement prepared under the single entry system? REVIEW QUESTIONS Statement of Cash Flow 1. 2012 P1. At December 31. 4. Explain the treatment of non-cash investing and financing transactions. what amount should Actfin report as cash equivalents? 2. 3. 5.000) 750. 6. 402 Money market account BSP treasury bill.000 (150. 9. 7. 9. 8.000 450. 2012 Time deposit 120 days due January 31.000 600.

000) In the 2011 cash flow statement.000 600.000 5.000 300. how much is the reported net cash provided by operating activities? 5. How much is the cash provided by operating activities during 2011? 4.000 and P40.000 750.000 Net income 800. 2011: Ending Balances Accounts receivable Allowance for bad debts Sales for the year Net income for the year Bad debt expense for the year Write-off of uncollectible amounts for the year Cash expenses for the year How much is the net cash flows from operating activities? P10. Changes occurred in several balance sheet accounts during 2011 as follows: Investment in ACT Company shares carried on the equity basis Accumulated depreciation.000 2.000 increase 21.000 Income tax expense 400.000 decrease 18. Audpra Company has the following activities related to its financing operations: P3.000 Finance cost 50. The income statement of Actwo Company for 2011 contains the following: Revenue from sales P5.000 Salaries 300.Cash paid to suppliers and employees Taxes paid Interest paid on long term debt Cash dividends paid 4.900 50.000.000 for 2011.000 2. During 2011.000 Cost of goods sold 3.000.000 Beginning Balances P12.500.000 increase In the 2011 cash flow statement.500 .000 1.000 All sales were for cash except a P50.000 300.000 Selling expenses 250.800.000 decrease 14.000 Depreciation and amortization 200. Actpri Corporation reported net income of P1. 2010 and 2011 were P50. Income tax expense includes P50.000 of deferred tax liability. Finance cost includes P5.000 sale resulting in the acceptance of a tract of land valued at P100.000 Payment for the early retirement of long-term bonds payable (carrying amount is P3. caused by major repair to project equipment Premium on bonds payable Deferred tax liability P55.000 600 44.000 500. P430. Accrued salaries at December 31.000.700.000 respectively.000 How much is the net cash provided by operating activities for 2011? 3.000 of amortization of bond discount.000 sale resulting in the acceptance for one-year 12% note receivable and a P100. The following information pertains to Actdev Company for the year ended December 31.500. how much is the net cash used in financing activities? 6.000) Payment in 2011 of cash dividend declared in 2010 to preference shareholders Carrying amount of convertible preference shares converted into ordinary shares Proceeds from sale of treasury shares (carrying amount at cost.000 600.

000 30.000 6.410.000. P310.000 P1. 2011 Revenue Sales Interest Gain on sale of plant Total Expenses Cost of goods sold Wages and salaries expense Depreciation ± plant and equipment Finance Cost Other expenses Income before tax Income tax expense Income after tax P1.000 50.000 8.300 P 90.000 8.000 140.900) 18.000 24. P460.100 158.000 P 960.000 240.000 Purchase of trading securities Sale of trading securities Purchase of available-for-sale securities Sale of available-for-sale securities Advacost had no investment securities at the beginning of the year. The net income for the year was P1.000 (100) 10.000 330. Assume that net income does not include any noncash items except for those related to investment securities.000 P814. 2007 P 120.7.000 Cash and cash equivalents Accounts receivable Interest receivable Inventory Prepaid expenses Plant and equipment Investments Intangibles Accounts payable Wages and salaries payable .000 300. Homework on Statement of Cash Flows Blest Corporation provides the following data: Blest Corporation Income Statement For the year ended December 31. the cost of the available-for-sale securities sold was P150.000 Blest Corporation Comparative Statements of Financial Position as at: December 31.000 900.000 P208.000 P 148.000. The cost of the trading securities sold was P300.000 8.300 P 84.000.618.000 220. 2008 P 109.000 300 130.000 P730.000 3.000 16.000 10.000 30.000 Increase (Decrease) P( 10.000 19.000 152.000 28. The market value of the remaining securities on December 31 was as follows: trading securities. Advacost Company entered into the following transactions during the year: P500.000.000.000. Compute (1) cash flow from operating activities (2) cash flow from investing activities.000 200 140.000 10. available-for-sale securities.600.000 December 31.000 4.000 2.000 60.000 470.000 1.000 30.

000 25.000 18. Explain the treatment of year-end bonuses in interim reporting. Investments of P4.000 . 2. 3.000 400.000 20. 7.200.000 5.000. Plant that had a written-down of P20. direct method b.500.000.000 400.000.000 400.300 400 3.000.000. 2. 4. What is ³interim financial reporting´? Explain the two views in presenting financial statements. 2011: Cash Accounts receivable Inventory Prepaid insurance Note receivable Land Building and Equipment Accounts payable Share capital Share premium Retained earnings Sales Purchases Selling expenses Administrative expenses P1. Which view is generally acceptable? What are the components of an Interim report? Explain the presentation of interim financial statements.000 2.300 P730.000 120.000. Give examples of disclosures required in a condensed interim financial report.000 38. 10. Explain the treatment of a change in accounting policy in interim reporting. Dividends paid in cash were P100. 3. Explain the treatment of contingencies in interim reporting.000 74.Accrued interest Other expenses payable Income tax payable Long-term borrowings Share capital Accumulated Profit 6.000 P8.000. Explain the treatment of inventory in interim reporting.600 48.300 400 (2.000.000 48. CLASSROOM EXERCISES ON INTERIM REPORTING 1. A borrowing of P20.000 were acquired for cash. indirect method REVIEW QUESTIONS Interim Reporting Answer the following questions: 1.000 3.000 and intangibles of P30. Psalm Company is in the process of developing its first quarter interim report. 2011 using the: a.000 Additional information extracted from the company¶s records: 1. Explain the treatment of uneven cost in interim reporting.000.000 122. 8.000 5.000 4. 9.000 140.000.000 1. 6.300 P814. 4.400) 10.000 17.000 was sold for P28.500.400.000 1. It has developed the following condensed trial balance of March 31.000 9. Required: Prepare a cash flow statement for the year ended December 31. 5.500. 5.000 2.500.000. New equipment purchased for cash amounted to P100.000 was made during the year and received in cash.

000 Required: 1. A. matures on January 1. Historical gross profit has averaged 40% of net sales. Indicate the proper classification or presentation of the following items.000 General expenses 1. The worksheet showed the following income statement accounts: Sales 20. Require: Prepare an income statement for the first quarter ending March 31. On January 1. and carries a 12% interest rate.500. F.000 Interest revenue 250. 2012.000 Selling expenses 2. B. Use the following classifications.000 300.000. the company accountant completed a worksheet in preparing the year to date income statement.000) P1. Uncollectible accounts typically average 1% of net sales.500. C. 2. 2.000) (400. 2011.500. 2011. 2011. Available for sale securities D. 3.P52. Assume the income tax rate is 35% and the income tax will be paid on or before April 15.000. 4. 2011 for Psalm Company.000 Dividend revenue 500.000 Additional information: 1.300.000 Income tax expense 1.000) (400.500.000 On June 30. 2011 is as follows: Sales Cost of sales Gross income Dividend income Total income Selling expenses General expenses Depreciation Interest expense Income tax Net income P7. 2013.000.000 P52. 2011. the company had purchased a one-year insurance policy debiting the payment to prepaid insurance.000 Cost of sales 11.000) (500.000 (4.000 (900. E. The note receivable is dated January 1. On January 1. building and equipment have an average life of 10 years. The company uses the straight line method. Trisha Company prepares quarterly and year to date interim reports. One-third of the account balance consists of assets related to selling activities. The gross profit method is used to determine the interim inventory.000.000) (100.000 Depreciation 700. Interest will be collected annually starting January 1.000) 3. Noncurrent liabilities Equity Notes to financial statements . The interim income statement for the quarter ended March 31.300. Prepare an interim income statement for the second quarter of 2011.000. Current assets Noncurrent assets Current liabilities 1. 2.000 Interest expense 300.100. Deficit 2. 2012. 6. 2011 and a statement of financial position on March 31. Prepare a year to date income statement for the first 6 months of 2011. Classroom Exercises on Presentation of Financial Statements 1.000 3. 5.

2011. Fully depreciated machinery still in use. Sinking fund 8. Land held for future plant site 11. Emerald Company provides the following on December 31. Jasper Corporation reported net assets totaling P13. Franchise 16. Correction of error made last year when computing amortization resulting to understatement of income previous year. The checks were mailed on August 10.000 15.000 P300.500. Accrued commission income 2. what amount should Precious Co. Long-term refundable deposit 10. 17.000 180. plant and equipment. Land held for resale was sold for cash on August 10. When preparing a draft of its December 31. 2011: Trade payable Cash dividends payable Dividends in arrears Accrued expenses Unearned interest income Mortgage payable Customers¶ deposit Appropriation reserve Income tax withheld Income tax payable What amount should be reported as total current liabilities? 4.3. Revaluation surplus 4. net Accounts payable and accrued expenses Share capital Share premium Retained earnings Total P150. 2011. 2011.000.250.000 1. Cash dividends payable 5.000 2. 2011 balance sheet. Stock dividends payable 14.000 375. Provisions for warranty 7.000 1.500 225.000 37. 2011. The following is Precious Company¶s July 31.000.000 7.000 were written to suppliers and recorded on July 30. Precious issued its financial statements on August 31. Retained earnings appropriated 12.125.000 Checks amounting to P450. Accrued interest on notes payable 19. Share capital 20. In its July 31.000 480. resulting in a cash overdraft of P150. Leasehold improvement 9. report as current assets? 3.000 75. Included in the asset section of the statement of financial position were the following: Treasury shares of Jasper at cost.000 30. 2011 trial balance: Cash overdraft Accounts receivable. 2011 statement of financial position. Investment in associates 6.000 870.000 1.425. 13.000 .500. Treasury stock 15.000 P525.245.000 ________ P4.500.500 45.500 22.000 P4. Advances to affiliated companies 18.000 150. which approximates market value on December P375. net Inventory Prepaid expenses Land held for sale Property.

2011 was as follows: Net sales Cost of sales Marketing and distribution expenses General and administrative expenses Finance cost Adjustment due to prior period error Gain on sale of equipment Total P12. at call 150 000 Cash on hand 4 000 Cost of goods sold 2 987 000 Current tax payable 25 000 Deferred tax 135 000 Distribution expenses 86 000 Dividends 150 000 Dividends reinvested 30 000 . Ending inventory is twice as much as the beginning. Finance cost is 5% of sales. 2011 included the following: Sales Cost of goods sold General expenses Loss on sale of land Commission expense Interest income Freight out Loss on earthquake Doubtful accounts P4.000 P3.000.200. Ruby Corporation¶s trial balance of income statement accounts for the year ended December 31. 2011 statement of financial position? 5.000 At what amount should Jasper¶s net assets be reported in the December 31.500.750. The expenses other than finance cost of Pearl Company for 2011 is 40% of cost of sales but only 20% of sales.000 750.000 In Ruby¶s income statement for 2011.650.500.000 450. The amount of purchases is 120% of cost of sales.000 Cash surrender value of life insurance on corporate executives 225.500 1.000 300.000 187.500 300.000 ________ P4. Onyx Company¶s trial balance of income statement accounts for the year ended December 31.Idle machinery 150.300. The income after tax of 35% for the current year is P487.000 150. for the year ended 30 June 2011 is detailed below: Dr Cr Accumulated depreciation ± land and buildings 36 000 Accumulated depreciation ± plant and equipment 564 000 Administration expenses 252 000 Allowance for doubtful debts 14 000 Bank loans 66 000 Cash on deposit.000 How much was the income before tax from continuing operations? 6. what is the income from continuing operations? 7.800.000 P7.575.000 P12.000 270.000 P1. a manufacturing company.000 90. What is the amount of sales for 2011? Homework on Presentation of Financial Statements The summarized general trial balance of Worthy Company.000 90.000 P10.125.000 Allowance for decline in value of inventory 75.000 1.000 300.762.

. statement of comprehensive income and statement of changes in equity of Worthy Company for the year ended 30 June 2011 in accordance with the requirements of PAS 1. Required Prepare the statement of financial position. 30 June 2010 Share issue Short-term borrowings Tax on investment revaluation increment Tax on land revaluation increment Trade creditors Trade debtors Warranty provision 93 000 714 000 870 000 85 000 6 000 44 000 35 000 257 000 15 000 225 000 4 000 93 000 570 000 45 000 1 260 000 188 000 326 000 10 000 50 000 820 000 P4 469 000 1 541 000 120 000 50 000 P3 000 15 000 510 000 450 000 37 000 Additional information P30 000 of bank loans is repayable within one year. 30 June 2010 Listed investments (available for sale) Other borrowing expenses Other debtors Other loans Patents Plant and equipment Raw materials Retained earnings.Employee benefit provisions Finished goods Goodwill Income tax expense Interest Interest Investments revaluation reserve. Employee benefit provisions include P62 000 payable within one year. 30 June 2010 Revaluation increment on available-for-sale investments Revaluation increment on land Sales and marketing expenses Sales of goods Share capital. The warranty provision is in respect of a nine-month warranty given on certain goods sold. P110 000 of other loans is repayable within one year. 30 June 2010 Land and buildings Land revaluation reserve. using statement captions that a listed company is likely to use.

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