INTERMEDIATE ACCOUNTING 3

LIABILITIES
 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

LIABILITIES
INTERMEDIATE ACCOUNTING 3
PREPARED BY: Maga, Hyacinth T.

DISCLAIMER: This paper is prepared by bonafide NUJPIANS for A.Y. 2021-2022.

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EXCLUSIVE FOR ACCOUNTANCY STUDENTS OF NATIONAL UNIVERSITY ONLY

1. These are the articles of values such as toys, dishes, silverware and other goods given to
customers as result of past sales or sales promotion activities.
a. Warranties
b. Premiums
c. Freebies
d. Cash Rebates

2. Cash register receipts, bar codes, rebate coupons and other proof of purchase often can be
mailed to the manufacturer for _____________.
a. Warranties
b. Premiums
c. Freebies
 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

d. Cash Rebates
3. It is the requirement that an outflow of resources embodying economic benefits would be
required to settle the obligation.
a. Possible
b. Actual
c. Estimate
d. Probable
4. This is given to customers of home appliances like television sets, stereo sets, radio sets,
refrigerators and the likes to provide free repair service or replacement during a specified
period if the products are defective.
a. Warranties
b. Premiums
c. Freebies
d. Cash Rebates
5. It is an income already received but not yet earned and may be realizable within one year or
in more than one year after the end of the reporting period.
a. Deferred expense
b. Revenue
c. Deferred revenue
d. Gross profit
6. These consists cash or properties received from customers but which are refundable after
compliance with certain conditions.
a. Refundable deposits
b. Refundable credits
c. Returns
d. Allowances
7. It is an existing liability of uncertain timing or uncertain amount
a. Contingent
b. Provision
c. Probable
d. Future events
8. It affects the amount required to settle an obligation and shall be reflected in the amount of a
provision where there is a sufficient evidence that they will occur.
a. Contingent
 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

b. Provision
c. Probable
d. Future events
9. This is a financial asset of the lender or creditor as notes receivable or loans receivable and a
financial liability of the borrower or the debtor as notes payable or loans payable.
a. Cash in Bank
b. Trade accounts
c. Notes and loans
d. Debt securities
10. This is a financial asset of the depositor and the financial liability of the depository bank.
a. Cash in Bank
b. Trade accounts
c. Notes and loans
d. Debt securities

PROBLEMS
Use the situation to answer item 11 and 12
In 2020, Abel Company sold 500,000 boxes of cake mix under a new sales promotionsl
program.
Each box contained 1 coupon, which entitled the customer to a baking pan upon remittance of
P45.

The entity paid P50 per pan and P6 for handling and shipping costs. They also
estimated that only 75% of the coupons will be redeemed, even though only 280,000
coupons had been processed during the year.
11. What amount should be reported as premium expense for the current year?
a. 1,375,000
b. 4,125,000
c. 1,395,000
d. 4,125,000
12. What mount should be reported as liability for unredeemed coupons at year-end?
a. 1,375,000
 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

b. 4,125,000
c. 1,395,000
d. 4,125,000

Use the situation to answer item 13

In 2020, Simbillo Company mailed coupons to consumers which may be represented at a
stated expiration date at retail food stores to obtain discounts on certain Simbillo products.
Retailers were reimbursed for the face value of coupons redeemed plus 10% of coupon face
value as compensation for handling costs.
The entity honored requests for coupon redemption by retailers received up to three months
after the expiration date. Based on past experience, 70% of the coupons issued ultimately are
redeemed.
The entity provided the following information with respect to the two separate series of
coupons issued during 2020:

Series A Series B
Consumer expiration date June 30, 2020 December 31,
2020
Total face value of coupons issued 1,000,000 2,000,000
Total payments to retailers on
12/31/2020 605,000 405,000
13. What amount should be reported as liability for unredeemed coupons on
December 31, 2019?
a. 1,135,000
b. 1,540,000
c. 1,405,000
d. 1,440,000
14. Montilla Co reported gross payroll of P600,000 for the month of January. The entity paid the
payroll net of the following deductions:
Income tax 70,000
SSS 15,000
Philhealth 8,000
Pag-ibig 7,000

In addition, the entity recognized its additional contributions for the following in relation to
January payroll:
SSS 20,000
Philhealth 9,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Pag-ibig 6,000
What amount should be reported as total payroll tax liability?
a.135,000
b. 100,000
c. 90,000
d. 65,000

15. Limheya Corporation has an incentive compensation plan under which a branch manager
received 10% of the branch income after deduction of the bonus but before deduction of the
income tax.

Branch income for the current year before the bonus and income tax was P3, 300,000. The tax
rate is 30%.

What amount should be reported as bonus for the current year?

a.3,000,000

b. 330,000

c. 300,000

d. 303,000

16. Mateos Realty Industries maintains an escrow account and pays real estate taxes for
the mortgage customers. Escrow funds are kept in interest-bearing accounts.
Interest, less a 10% service fee, is credited to the mortgagee’s account and used to
reduce future escrow payments.
Escrow account liability- January 1 800,000
Escrow payments received during the year 1,700,000
Real estate taxes paid during the year 1,800,000
Interest on escrow funds 60,000
a. 774,000
b. 407,000
c. 800,000
d. 754,000
17. On November 1, 2019, Lambino Company was awarded a judgment of P4,000,000 in
connection with a lawsuit. The decision is being appealed by the defendant and it is
expected that the appeal process will be completed by the end of 2020.
 NATIONAL UNIVERSITY
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The lawyer believed that it is highly probable that an award will be upheld on appeal
but that the judgment may be reduced by 40%.
What amount should be reported as a receivable on December 31, 2019?
a. 4,000,000
b. 1,600,000
c. 2,400,000
d. 0

18. During the latter part of the year, Haze Company won a litigation award for P2,
000,000 which was tripled to 6,000,000 to include punitive damages. The defendant,
who is financially stable, has appealed only the 4,000,000 punitive damages.
The entity was awarded 6,500,000 in an unrelated suit it filed, which is being
appealed by the defendant. Counsel is unable to estimate the outcome of these
appeals.
What amount should be reported as pretax gain for the year?
a. 2,000,000
b. 6,000,000
c. 4,000,000
d. 6,500,000

19. Intact Company had the following long-term debt:

Sinking funds, maturing in installments 4,000,000
Industrial revenue bonds, maturing on installments 2,000,000
Subordinated bonds, maturing on a single date 1,500,000
What is the total amount of serial bonds?
a. 6,000,000
b. 3,500,000
c. 1,500,000
d. 7,500,000

Use the situation to answer item 13

Use the situation to answer item 20 and 21
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Salighayag Co had a 5,000,000 note payable due June 30, 2021. On December 31,
2020, the entity signed an agreement to borrow up to P5, 000,000 to refinance the
note payable in a long-term basis.
The financing agreement called for borrowing notto exceed 80% of the value of the
collateral the entity was providing. On December 31, 2020, the value of the collateral
was P2, 000,000.
20. On December 31, 2020, what amount of the note payable should be reported as
current liability?
a. 2,000,000
b. 5,000,000
c. 3,400,000
d. 1,600,000
21. On December 31, 2020, what amount of the note payable should be reported as
noncurrent liability?
a. 2,000,000
b. 5,000,000
c. 3,400,000
d. 1,600,000

Use the situation to answer item 22 to 25

At the beginning of current year, Moses Company issued P5,000,000 face amount, 5-
year bonds at 109. Each 1,000 bond was issued with 50 detachable share warrants,
each of which entitled the bondholder to purchase one ordinary share of P5 par value
at P25. Immediately after issuance, the market value of each warrant was P5.
The stated interest rate on the bonds is 11% payable annually every December 31.
However, the prevailing market rate of interest for similar bonds without warrants is
12%.
The PV of 1 at 12% for 5 periods is 0.57 and the PV of an ordinary annuity of 1 at
12% for 5 periods is 3.60.
22. What was the initial carrying amount of the bonds payable?
a. 5,450,000
b. 4,830,000
c. 5,000,000
d. 4,380,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

23. What amount should be recorded initially as discount or premium on bonds

payable?
a. 170,000 discount
b. 450,000 premium
c. 450,000 discount
d. 800,000 discount
24. What amount should be reported as equity component arising from the issuance of
bonds payable?
a. 450,000
b. 500,000
c. 620,000
d. 0
25. What amount should be recorded as share premium if all of the warrants are
exercised?
a. 1,250,000
b. 2,500,000
c. 5,000,000
d. 5,620,000
 NATIONAL UNIVERSITY
JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

ANSWER KEY

1. B
2. D
3. D
4. A
5. C
6. A
7. B
8. D
9. C
10. A

11-12. D and A
Net premium expense (50 + 6 – 45) 11

Coupons to be redeemed (75% x 500,000) 375,000

Coupons redeemed (280,000)
Coupons outstanding 95, 000
Premium Expense (375,000 x 11) 4,125,000

Liability for unredeemed coupons ( 125,000 x 11) 1,375,000

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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

13. B
Total face value of coupons- Series B 2,000,000
Multiply by x 70%
Coupons to be redeemed 1,400,000
Compensation for handling costs (10% x 140,000) 140,000
Total liability for coupons 1,540,000
Payments to retailers- Series B (405,000)
Estimated Liability 1,135,000

14. B
Salaries and wages 600,000
Withholding tax payable 70,000
SSS Payable-employee 15,000
Philhealth payable 8,000
Pag-ibig payable-employee 7,000
Cash 500,000

Payroll tax expense 35,000

SSS Payable-employee 20,000
Philhealth payable 9,000
Pag-ibig payable-employee 6,000

Total payroll liability (100,000 + 35,000) 135,000

15. C

Income after bonus before tax (3,300,000 / 110%) 3,000,000

Bonus (10% x 3,000,000) 300,000

16. D
Escrow accounts liability-Jan 1 800,000
Add: Escrow payments received during the year 1,700,000
Interest on escrow funds 60,000 1,760,000
Total 2,560,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Less: Real estate taxes paid during the year 1,800,000

Service fee ( 10% x 60,000) 6,000 1,806,000
Escrow accounts liability- December 31 754,000

17. D
The contingeant asset is only disclosed when probable and measurable. The asset and related
gain are recognized only when realized.

18. A
A gain of P2,000,000 should be reported.
However, the remainder 4,000,000 is only disclosed because the defendant has appealed the
said amount.

19. A
Serial bonds that mature in series or by installments.
Total serial bonds (4,000,000 +2,000,000) 6,000,000

20-21. C and D
Note payable 5,000,000
Refinanced on Dec 31m 2020-noncurrent
(80% x 2,000,000) 1,600,000
Note payable-not refinanced, current 3,400,000

22. B
23. A
24. C
25. D
PV of principal (5,000,000 x .57) 2,850,000
PV of annual interest payments (550,000 x 3.60) 1,980,000
Total PV of Bonds payable (#22) 4,830,000
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JUNIOR PHILIPPINE INSTITUTE OF ACCOUNTANTS

Bonds payable 5,000,000

PV of Bonds Payable 4,830,000
Discount on Bonds payable (#23) 170, 000

Issue price of Bonds with warrants (5,000,000 x 109%) 5,450,000

PV of Bonds payable 4,830,000
Residual amount allocated to warrants (#24) 620,000

Cash 5,450,000
Discounts on Bonds payable 170,000
Bonds payable 5,000,000
Share warrants outstanding 620,000

Cash (5,000 x 50 x 25) 6,250,000

Share warrants outstanding 620,000
Share Capital (250,000 x P5) 1,250,000
Share premium 5,620,000

SOURCES:
Author. (200x). Book Title