PROBLEM NO.

3 – Various current liabilities

The following information relates to Candelaria Company’s obligations as of December 31, 2010. For each
of the numbered items, determine the amount if any, that should be reported as current liability in the
Candelaria’s December 31, 2010 statement of financial position.

1. Accounts payable:
Accounts payable per general ledger control amounted to P5,440,000, net of P240,000 debit
balances in suppliers’ accounts. The unpaid voucher file included the following items that had not
been recorded as of December 31, 2010:
a) A Company – P244,000 merchandise shipped on December 31, 2010, FOB destination;
received on January 10, 2011.
b) B, Inc. – P192,000 merchandise shipped on December 26, 2010, FOB shipping point; received
on January 16, 2011.
c) C Super Services – P144,000 janitorial services for the three-month period ending January 31,
2011.
d) MERALCO – P67,200 electric bill covering the period December 16, 2010 to January 15, 2011.

On December 28, 2010, a supplier authorized Candelaria to return goods billed at P160,000 and
shipped on December 20, 2010. The goods were returned by Candelaria on December 28, 2010,
but the P160,000 credit memo was not received until January 6, 2011.

a. P5,923,200 c. P5,712,000
b. P5,601,600 d. P5,841,600

2. Payroll:
Items related to Candelaria’s payroll as of December 31, 2010 are:
Accrued salaries and wages P776,000
Payroll deductions for:
Income taxes withheld 56,000
SSS contributions 64,000
Philhealth contributions 16,000
Advances to employees 80,000

a. P776,000 c. P992,000
b. 832,000 d. P912,000

3. Litigation:

In May, 2010, Candelaria became involved in a litigation. The suit being contested, but
Candelaria’s lawyer believes there is probable that Candelaria may be held liable for damages
 estimated in the range between P2,000,000 and P3,000,000 and no amount is a better estimate of
potential liability than any other amount.

a. P 0 c. P2,000,000
b. P3,000,000 d. P2,500,000

4. Bonus obligation:
Candelaria Company’s president gets an annual bonus of 10% of net income after bonus and
income tax. Assume the tax rate of 30% and the correct income before bonus and tax is P9,600,000.
(Ignore the effects of other given items on net income.)

a. P 722,600 c. P395,000
b. P2,240,000 d. P628,000

5. Note payable:

A note payable to the Bank of the Philippine Islands for P2,400,000 is outstanding on December
31, 2010. The note is dated October 1, 2009, bears interest at 18%, and is payable in three equal
annual installment of P800,000. The first interest and principal payment was made on October 1,
2010.

a. P800,000 c. P908,000
b. P 72,000 d. P872,000

6. Purchase commitment:
During 2010, Candelaria entered in a noncancellable commitment to purchase 320,000 units of
inventory at fixed price of P5 per unit, delivery to be made in 2011. On December 31, 2010 the
purchase price of this inventory item had fallen to P4.40 per unit. The goods covered by the
purchase contract were delivered on January 28, 2011.

a. P 0 c. P1,600,000
b. P1,408,000 d. P 192,000

7. Deferred taxes:
On December 31, 2010, Candelaria’s deferred income tax account has a 2010 ending credit balance
of P772,800, consisting of the following items:
Caused by temporary differences in accounting Deferred tax
For gross profit on installment sales P376,000 Cr
For depreciation on property and equipment 576,000 Cr
For product warranty expense 179,200 Dr
P772,000 Cr

a. P772,800 c. P952,000
b. P196,800 d. P 0