INTERMEDIATE ACCOUNTING 2 PROF: JOHN BO S.

CAYETANO, CPA, MBA

09 University of Caloocan City March 25, 2022

Quiz 01: Trade and Other Payable, Provisions and Contingent Liabilities

1) T’challa Company reported the following information on December 31, 2017:

Accounts payable 800,000

Bonds payable, due 2018 3,000,000
Premium on bonds payable 150,000
Deferred tax liability 250,000

The deferred tax liability is not related to an asset for financial reporting purposes and is expected to reverse in 2018.

What total amount should be reported as current liabilities on December 31, 2017?
A. 3,650,000 B. 4,200,000 C. 3,900,000 D. 3,950,000

2) Erik Killmonger Company reported the following liability account balances on December 31, 2017:
Accounts payable 2,000,000
Bonds payable, due 2018 4,000,000
Discount on bonds payable 400,000
Deferred tax liability 500,000
Dividend payable due on February 15, 2019 1,000,000
Income tax payable 800,000
Note payable due January 15, 2019 1,200,000

The deferred tax liability is based on temporary differences stemming from different depreciation method for financial
reporting and income tax purpose.

What total amount should be reported as current liabilities on December 31, 2017?
A. 6,400,000 B. 7,200,000 C. 7,400,000 D. 7,600,000

3) Fatima Corporation’s account payable at December 31, 2017, totaled P900,000 before any necessary year-end
adjustments relating to the following transactions:
• On December 27, 2017, Fatima wrote and recorded checks to creditors totaling P350,000 causing an overdraft of
P100,000 in Fatima’s bank account at December 31, 2017. The checks were mailed out on January 10, 2018.
• On December 28, 2017, Fatima purchased and received goods for P200,000, terms 2/10, n/30. Fatima records
purchases and accounts payable at net amount. The invoice was recorded and paid January 3, 2018.
• Goods shipped FOB destination on December 20, 2017 from a vendor to Fatima were received January 2, 2018. The
invoice cost was P65,000.

At December 31, 2017, what amount should Fatima report as total accounts payable?
A. 1,511,000 C. 1,150,000
B. 1,446,000 D. 1,100,000

4) On December 31, 2014, Combustion Company reported inventory and accounts payable amounting to P2,500,000 and
P4,000,000, respectively, before possible adjustment for the following:

• Goods in transit from a vendor to Combustion on December 31, 2014 with an invoice cost of P200,000 FOB shipping
point was not yet recorded.
 • Goods shipped FOB shipping point from a vendor to Combustion was lost in transit. The invoice cost of P80,000 was
not yet recorded.

• Goods shipped FOB shipping point from a vendor to Combustion on December 31, 2014 amounting to P32,000 was
recorded and included in the year-end physical count as “goods in transit”.

• Goods in transit from a vendor to Combustion on December 31, 2014 with an invoice cost of P40,000 purchased FOB
destination was not yet recorded. The goods were received in January 2015.

• Goods with invoice cost of P60,000 was recorded and included in the year-end physical count as “goods in transit.” It
was found out that the goods were shipped from a vendor under FOB destination.

What is the adjusted accounts payable on December 31, 2014?

A. 4,340,000 B. 4,292,000 C. 4,252,000 D. 4,220,000

5) The profit for 2019 of Dwight Company before any deduction for bonus and income tax amounted to P2,500,000. Under
an incentive compensation plan, the general manager is entitled to year-end bonus of 10% of the profit before deducting
the bonus but after deducting the income tax. Income tax rate is 30%. The manager’s bonus for 2019 was
A. 169,903 B. 180,412 C. 227,273 D. 163,551

6) On January 1,2017 Precision Company sold appliance service contracts agreeing to repair appliances for a 2-year period.
Precision’s past experience is that, of the total amount spent for repairs on service contracts, 40% is incurred evenly in the
first contract year and 60% evenly in the second contract year. Receipts from service contract sales for the past two years
were P500,000 in 2017 and P600,000 in 2018. All contract sales are made evenly during the year. What is the correct
balance of unearned service contract revenue as of December 31, 2018?
A. 790,000 B. 630,000 C. 360,000 D. 0

7) On the first day of each month, Denise Company received from a customer an escrow deposit of P25,000 for real estate
tax. The entity recorded the P25,000 in escrow account. The customer’s real estate tax is P280,000, payable in equal
installments of the first day of each calendar quarter. On January 1, 2019, the balance of the escrow account was P30,000.
On September 30, 2019, what amount should be reported as escrow liability?
A. 15,000 B. 45,000 C. 85,000 D. 115,000

8) Shuri Company reported the following liability balance on December 31, 2017:

12% note payable issued on March 1, 2016, maturing on March 1, 2018 5,000,000
10% note payable issued on October 1, 2016, maturing October 1, 2018 3,000,000

The 2017 financial statements were issued on March 31, 2018. On January 31, 2018, the entire P5,000,000 balance of the
12% note payable was refinanced through issuance of a long-term obligation payable lump sum.

Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the obligation for at least
twelve months after December 31, 2017.

What amount of the note should be classified as current on December 31, 2017?
A. 8,000,000 B. 5,000,000 C. 3,000,000 D. 0

9) T’Chaka Company reported the following liabilities on December 31, 2017:

Accounts payable 750,000
Short-term borrowings 400,000
Mortgage payable, current portion P100,000 3,500,000
Bank loan payable, due June 30, 2018 1,000,000
 The P1,000,000 bank loan was refinanced with a 5-year loan on January 15, 2018, with the first principal payment due
January 15, 2019. The financial statements were issued February 28, 2018.

What total amount should be reported as current liabilities on December 31, 2017?
A. 1,150,000 B. 2,250,000 C. 1,250,000 D. 850,000

10) The following information pertains to Malabon Company as at September 30, 2022:

• Note payable – bank, P3,500

• Accounts payable arising from purchase of goods, P112,500
• Dividends in arrears on preference shares, not yet declared, P25,000
• Share dividends payable, P20,000
• Income tax payable, P13,400
• Accrued liabilities, P4,200
• Mortgage payable, P225,000
• Customers’ deposit, P8,900
• Reserve for contingencies, P25,000

Based on the above date, what is the total amount of actual liabilities to be reported on the balance sheet of September
30, 2022?
A. 367,500 B. 297,500 C. 437,500 D. 142,500

11) On December 25, 2024, an employee filed a P3,000,000 a lawsuit against Ox Ford Company for damages suffered when
one of Ox Ford’s equipment malfunctioned in August of 2024. The legal counsel of the company believes that it is probable
that Ox Ford will pay the damages raging between P500,000 to P1,000,000. Each point within the range is as likely as any
other. On March 1, 2025, the employee has offered to settle the lawsuit out of court for P900,000 and the company
accepted the offer and settled the amount. The financial statements were authorized to be issued on March 31, 2025.

How much is the provision that should be recognized as of December 31, 2024?
A. 820,000 B. 900,000 C. 750,000 D. 1,000,000

12) During 2019, Angles company guaranteed a supplier’s P750,000 loan from a bank. On October 1, 2019, Angels was notified
that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel believes Angels will probably have
to pay between P375,000 and P675,000 under its guarantee. As a result of the supplier’s bankruptcy, Angels entered into
a contract in December 2019 to retool its machines to that Angles could accept parts from other suppliers. Retooling costs
are estimated to be P450,000.

What amount should Angels report as a liability in its December 31, 2019, statement of financial position?
A. 375,000 B. 525,000 C. 675,000 D. 975,000

13) A court case decided on December 31, 2019 awarded damages against Rangers. The judge has announced that the amount
of damages will be set at a future date, expected to be in March 2020. Ranger has received advice from its lawyer that the
amount of the damages could be anything between P20,000 and P7,000,000.

As of December 31, 2019, how much should be recognized in the statement of financial position regarding this court case?
A. 20,000 B. 7,000,000 C. 3,510,000 D. 0

14) Ace Company was involved in litigation regarding a faulty product sold in a prior year. The entity consulted with an
attorney and determined that it is possible that it may lose the case. The attorney estimated that there is a 50% chance
of losing. If this is the case, the attorney estimated that the amount of any payment would be P500,000.
 What is the required journal entry as a result of this litigation?
A. Debit Litigation Expense and credit Litigation Liability P500,000.
B. No Journal entry is required but disclosure is necessary.
C. Debit Litigation Expense and credit Litigation Liability P250,000.
D. No journal entry and disclosure are required.

15) Mill Company sells washing machines that carry a three-year warranty against manufacturer’s defects. Based on the
entity’s experience, warranty costs are estimated at P300 per machine. During the current year, the entity sold 2,400
washing machines and paid warranty costs of P170,000. What amount should be reported as warranty expense and
warranty liability at year-end?
A. B. C. D.
Warranty expense 550,000 240,000 550,000 720,000
Warranty liability 170,000 550,000 720,000 550,000

16) In 2019, Shiftry Corporation began selling a 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 4%

Second year of warranty 6%

Sales and actual expenditures for 2019 and 2020 are presented below:
2018 2019
Sales 500,000 700,000
Actual warranty expenditures 15,000 47,000

What amount should Shiftry report as its estimated warranty liability at December 31, 2019?
A. 0 B. 16,000 C. 42,000 D. 58,000

17) Pilfering Company introduced in 2017 a new TV model with a two-year warranty against defect. Pilfering Company
estimates the warranty costs at 2% of sales within 12 months following the sales and 4% in the second 12 months following
the sale. Sales and actual warranty costs for the year ended December 31, 2017 are P3,000,000 and P45,000 respectively.

Pilfering Company should report an estimated warranty liability in its December 31, 2017 balance sheet is
A. 180,000 B. 150,000 C. 135,000 D. 75,000

18) Xoiswa Company manufactures a product that is packaged and sold. A plate is offered to customers sending in three
wrappers accompanied by a remittance of P10. Data with respect to the premium offer are summarized below:

2018 2019
Sales 3,600,000 4,200,000
Purchase of premium, P50 per plate 390,000 580,000
Number of plates distributed as premiums 5,000 9,000
Estimated number of plates to be distributed in next period 2,000 3,000
Distribution cost P20 per plate

What is the premium expense for 2019?

A. 600,000 B. 400,000 C. 700,000 D. 720,000

19) Topsy Company stated a new promotional program. For every 10 box tops returned, customers received a basketball. The
entity estimated that only 60% of the box tops reaching the market would be redeemed.
 Units Amount
Sales of product 100,000 30,000,000
Basketballs purchased 5,500 4,125,000
Basketball distributed 4,000

What is the amount of year-end estimated liability associated with this promotion?
A. 4,125,000 B. 1,500,000 C. 3,000,000 D. 4,500,000

20) Fatima Corporation’s account payable at December 31, 2017, totaled P900,000 before any necessary year-end
adjustments relating to the following transactions:
• On December 27, 2017, Fatima wrote and recorded checks to creditors totaling P350,000 causing an overdraft of
P100,000 in Fatima’s bank account at December 31, 2017. The checks were mailed out on January 10, 2018.
• On December 28, 2017, Fatima purchased and received goods for P200,000, terms 2/10, n/30. Fatima records
purchases and accounts payable at net amount. The invoice was recorded and paid January 3, 2018.
• Goods shipped FOB destination on December 20, 2017 from a vendor to Fatima were received January 2, 2018. The
invoice cost was P65,000.

At December 31, 2017, what amount should Fatima report as total accounts payable?
A. 1,511,000 C. 1,150,000
B. 1,446,000 D. 1,100,000

21) On December 31, 2014, Combustion Company reported inventory and accounts payable amounting to P2,500,000 and
P4,000,000, respectively, before possible adjustment for the following:

• Goods in transit from a vendor to Combustion on December 31, 2014 with an invoice cost of P200,000 FOB shipping
point was not yet recorded.

• Goods shipped FOB shipping point from a vendor to Combustion was lost in transit. The invoice cost of P80,000 was
not yet recorded.

• Goods shipped FOB shipping point from a vendor to Combustion on December 31, 2014 amounting to P32,000 was
recorded and included in the year-end physical count as “goods in transit”.

• Goods in transit from a vendor to Combustion on December 31, 2014 with an invoice cost of P40,000 purchased FOB
destination was not yet recorded. The goods were received in January 2015.

• Goods with invoice cost of P60,000 was recorded and included in the year-end physical count as “goods in transit.” It
was found out that the goods were shipped from a vendor under FOB destination.

What is the adjusted accounts payable on December 31, 2014?

A. 4,340,000 B. 4,292,000 C. 4,252,000 D. 4,220,000

22) On December 25, 2024, an employee filed a P3,000,000 a lawsuit against Ox Ford Company for damages suffered when
one of Ox Ford’s equipment malfunctioned in August of 2024. The legal counsel of the company believes that it is probable
that Ox Ford will pay the damages raging between P500,000 to P1,000,000. Each point within the range is as likely as any
other. On March 1, 2025, the employee has offered to settle the lawsuit out of court for P900,000 and the company
accepted the offer and settled the amount. The financial statements were authorized to be issued on March 31, 2025.
How much is the provision that should be recognized as of December 31, 2024?
A. 820,000 B. 900,000 C. 750,000 D. 1,000,000

23) On December 15, 2017, an employee filed a lawsuit against Bojack Company for damages suffered when one of Bojack’s
equipment malfunctioned in August of 2017. The legal counsel of the company believes that it is probable that Bojack will
pay the following damages:
Probability Estimated Litigation Cost
 50% P400,000
30% 700,000
20% 550,000

Bojack Company provided a 10% risk adjustment factor.

Using the expected value method, how much is the provision that should be recognized by Bojack Company on December
31, 2017?
A. 1,815,000 C. 572,000
B. 1,650,000 D. 520,000

24) On December 12, 2016, an explosion in Vancouver Company’s plant caused extensive damages to nearby properties. By
March 1, 2017, claims have been asserted against Vancouver Company. Vancouver Company’s management and their
legal counsel concluded that it is probable that Vancouver Company would be liable for damages estimated at P4,000,000.
Vancouver Company has a P6,000,000 comprehensive public liability insurance policy. This policy has a P500,000
deductible clause. What should be reported in the December 31, 2016 financial statements that were issued on March
25, 2017 in relation to the above-mentioned events?
A. 500,000 C. 6,000,000
B. 4,000,000 D. 5,000,000

25) Mill Company sells washing machines that carry a three-year warranty against manufacturer’s defects. Based on the
entity’s experience, warranty costs are estimated at P300 per machine. During the current year, the entity sold 2,400
washing machines and paid warranty costs of P170,000. What amount should be reported as warranty expense and
warranty liability at year-end?
A. B. C. D.
Warranty expense 550,000 240,000 550,000 720,000
Warranty liability 170,000 550,000 720,000 550,000

26) On December 31, 2019, Leanna Company’s estimated premiums payable amounted to P1,400,000. On 2020 the company
has an on-going promotional program whereby each washing machine sold comes with 5 coupons, 25 coupons plus P2,000
shall entitle the customer a dryer which originally costs P6,000. The dryers can be redeemed 2 years after receipt of the
coupons upon purchase. The company estimates that 40% of the coupons issued with the washing machine sold will
ultimately be presented for the premiums redemption.

The beginning inventory of dryings was at 300 units. During the year additional 1,000 dryers were acquired. An inventory
of the remaining dryers on hand at year-end places the count at 240 units. The company sold 12,000 units of washing
machine during the current year. What is the correct estimated premiums payable as of December 31, 2020?
A. 1,120,000 B. 1,000,000 C. 960,000 D. 990,000

27) On January 2, 2019, Athletics Company introduced a new line of products that carry a three-year warranty against factory
defects. Estimated warranty costs related to peso sales are as follows: 1% of sales in the year of sale, 2% in the year after
sales and 3% in the second year after sale. Sales and actual warranty expenditures for the period 2019 to 2021 were as
follows:
Sales Actual warranty Expenditures
2019 200,000 1,500
2020 500,000 7,500
2021 700,000 22,500
1,400,000 31,500

What amount should Athletics report as warranty expense in 2021?

A. 52,500 B. 22,500 C. 23,000 D. 42,000

28) Usopp Company sells goods with a warranty under which customers are covered for the cost of any manufacturing defects
that become apparent within the first year after the purchase. If minor defects were detected in all products sold, repair
costs of P2,000,000 would result. If major defects were detected in all products sold, repair costs of P5,000,000 would
result. The enterprise’s past experience and future expectations indicate that 65% of the goods sold have no defect, 25%
of the goods sold have minor defects and 10% of the goods sold have major defects.
 What is the provision for warranties that should be shown on the financial statement at December 31, 2015?
A. 3,500,000 B. 2,000,000 C. 1,000,000 D. 0

Use the following information for the next four (4) questions:
Love Company included one coupon in each package sold. A premium is offered to customers who send in 10 coupons.
2019 2020
Number of packages sold 500,000 800,000
Number of premiums purchased at P40 each 30,000 60,000
Number of premiums distributed 20,000 50,000
Number of premiums to be distributed next period 5,000 3,000

29) What is the premium expense for 2020?

A. 2,400,000 B. 2,000,000 C. 2,120,000 D. 1,920,000

30) What is the estimated premium liability on December 31, 2020?

A. 320,000 B. 400,000 C. 120,000 D. 520,000

******* END OF EXAMINATION *******