Accrued Liability

1. _Container’s Outstanding_ Represents cash received from customers refundable once the
returnable containers of the seller that needs to be returned is indeed returned.
2. __VAT___________ An entity is required to pay this to the government arising from customers on
sales of tangible property and of certain services.
3. Christine Company has a bonus agreement which provides that the general manager shall receive
an annual bonus of 10% of the net income after bonus and tax. The income tax rate is 30%. The
general manager received 840,000 for the current year as bonus.
What is the income after bonus and tax?
a. 12,840,000 c. 8,400,000
b. 12,000,000 d. 11,160,000

4. Clarence company sells magazine subscriptions of one to three year periods. Cash receipts from
subscribers are credited to Unearned Magazine Subscriptions and this account had a balance of
2,400,000 on December 31, 2017. Outstanding subscriptions on December 31, 2017 expire as
follows:
During 2018 800,000
During 2019 1,000,000
During 2020 600,000

What amount should be reported as Unearned subscriptions revenue at the end of December 31,
2019.
Answer: 600,000

5. Restie Company sells gift certificates, redeemable for store merchandise. The gift certificates
have no expiration date.
The entity has the following information pertaining to the gift certificate sales and redemptions:
Gift certificates payable on January 1, 2017 150,000
2017 sales 500,000
2017 redemptions of prior year sales 50,000
2017 redemptions of current year’s sales 350,000
What amount should be reported as gift certificates payable or the unearned revenue portion
December 31, 2017?
a. 250,000 b. 225,000 c. 200,000 d. 100,000

6. Keepsakes Company has the following relevant data on sales and purchases of its merchandise
for sale:
Cash sales, inclusive of VAT 1,120,000
Sales on Account, inclusive of VAT 2,240,000
Purchases made for cash, inclusive of VAT 448,000
Purchases made on account, inclusive of VAT 896,000

In addition, the company’s data for the gross payroll for the month end of December are as follows:
Office staff Officers Sales staff
Gross payroll 30,800 62,000 40,000
Income tax 4,800 12,600 8,400
SSS 1,600 1,800 1,700
Philhealth 900 2,000 1,200
Pag-ibig 800 1,000 900

The employer’s contributions in relation to the December payroll are as follows:

Office staff Officers Sales staff
SSS 2,000 1,000 2,200
Philhealth 1,200 2,200 1,600
Pag-ibig 1,000 1,400 1,200
Required: Prepare the necessary entries in connection with the data presented above.

Cash 1,120,000
Sales 1,000,000
VAT Output 120,000

Accounts receivable 2,240,000

Sales 2,000,000
Output VAT 240,000

Purchases 400,000
Input VAT 48,000
Cash 448,000

Purchases 800,000
Input VAT 96,000
Accounts payable 896,000

Salaries Expense – Office 92,800

Salaries expense – Sales 40,000
Cash 95,100
Inc. Tax withheld 25,800
SSS premiums payable 5,100
Philhealth premiums payable 4,100
Pag ibig premiums payable 2,700

Payroll tax expense – Office 8,800

Payroll Tax expense – Sales 5,000
SSS premiums payable 5,200
Philhealth premiums payable 5,000
Pag ibig premiums payable 3,600
Let’sAnalyze

Problem 1 (Adapted) None Company has an agreement to pay the sales manager a bonus of 5% of
the entity’s earnings. The income for the year before bonus and tax is 2,625,000. The income tax
rate is 30% of income after bonus.
Required: Determine the bonus under each of the following independent assumptions:
1. Bonus is a certain percent of the income before bonus and before tax.
2. Bonus is a certain percent of income after bonus but before tax.
3. Bonus is a certain percent of income after bonus and after tax.
4. Bonus is certain percent of income after tax but before bonus.
Answer:
1. B = 5% (2,625,000)
= 131,250

Checking
2. B= 5% (2,625,000-B) Income 2,625,000
= 131,250 - .05B -B 125,000
1.05 B = 131,250/1.05 NI after B= 2,500,000 * . 05= 125,000
B= 125,000
 3. B = 5% ( 2,625,000-B-T) Checking:
T = 30%( 2,625,000-B) Tax= (2,625,000-88,768)=2,536,232
B= 5% (2,625,000-B-30%(2,625,000-B) * 30%
B= 5% (2,625,000 – B – 787,500+.30B) =760,870
B= 131,250-.05B-39,375+.015B
B= 91,875 -.035B NI-B-T= 2,625,000-88,768-760,870
1.035B=91,875 = 1,775,362
B = 91,875/1.035 * .05=88,768
B= 88,768

4. B= 5% (2,625,000-30%(2,625,000-B) Checking:
B= 5% (2,625,000 – 787,500 + .30B) NI – T=2,625,000-759,518
B= 5% (1,837,500+.30B) = 1,865,482
B= 91,875 + .015B *. 05
.985B= 91,875 = 93,274
B= 91,875/.985 Tax = 2,625,000 – 93,274
B = 93,274 = 2,531,726 *.30= 759,518
In a Nutshell

The problem (Adapted) Fairy Company sells products with reusable and expensive containers. 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.
Number of Containers held by customers on January 1, Year 1 from deliveries in:
Year 1 112,,500
Year 2 322,500 435,000
Containers delivered in year 3 585,000
Containers returned in year 3 from deliveries in
Year 1 67,500
Year 2 187,500
Year 3 214,500 469,500

The current year’s selling price of each product is at P600 each container. The company maintains a
mark up on cost of 50%. Customers are required for a cash deposit per container amounting to P70.
The unit cost of each container is P75 each.
The company’s tax rate is at 30%; general and administrative expense totalled 10% of sales while
selling and distribution cost amounted to 18%.

Required:
1. Prepare the Income statement for the 3rd year.
Answer: Sales 600* 585,000 = 351,000,000
Cost of Sales 234,000,000
Gross profit 117,000,000
GA Exp. .10*351,000,000 35,100,000
S&D Exp. 18%*351,000,000 63,180,000
Loss on sale of containers 225,000
NI before tax 18,495,000
Tax 5,548,500
NIAT 12,946,500

2. Be able to answer the following question:

a. What is the liability for deposits on December 31, year 3?
Answer: 435,000 + 322,500 + 585,000= 1,342,500-67,500-187,500-214,500= 873,000-45,000
expired in year 1= 828,000 * 70= 57,960,000
b. Prepare the journal entries in connection with the containers deposit transactions for year 3.
Cash 351,000,000
Sales 351,000,000

Cash 585,000*70 40,950,000

Container’s Outstanding 40,950,000
Deposit received in year 3.

Container’s Outstanding 469,500*70 32,865,000

Cash 32,865,000
For containers returned in year 3.

Containers Outstanding 3,150,000

Loss on sale of containers 225,000
Containers 75 * ( 112,500-67, 500)3,375,000
For containers expired in year 1.