Enabling Assessment 1 1

Enabling Assessment 1
B-ACTG214
Question 1
Ansley Corporation provided the following facts regarding pending litigation at year-end:
● The entity is defending against a first lawsuit and believes there is a 51% chance it will
lose in court. The entity estimates damages will be P1,000,000
● The entity is defending against a second lawsuit for which management believes it
virtually certain to lose in court. If it loses the lawsuit, management estimates that
damages will fall somewhere in the range of P3,000,000 to P5,000,000 with each
amount in that range equally likely to occur.
● The entity is defending against a third lawsuit but the relevant loss will only occur far into
the future. The present values of the endpoints of the range are P1,500,000 and
P2,500,000. The management believes the effects of time value of money on these
amounts are material.
● The entity is defending against a fourth lawsuit and believes there Is only a 25% chance
it will lose in court. If the entity loses, management believes damages will fall somewhere
in the range of P3,000,000 to P4,000,000 with each amount in the range equally likely to
occur.
What amount should be reported as litigation liability at year-end?
A. 7,000,000
B. 8,500,000
C. 8,600,000
D. 5,500.000
Question 2
For a fixed amount a month, an entity visits the customer's premises and performs insect control
services. If customers experience problems between regularly scheduled visits, the entity makes
service calls at no additional charge. Instead of paying monthly, customers may pay a certain
annual fee in advance. For a customer who pays the annual fee in advance, the entity should
recognize the related revenue
A. Evenly over the contract year as the services are performed

B. When the cash is collected
C. At the end of the contract year after all the services have been performed
D. At the end of the fiscal year
Question 3
Which of the following statements is not true regarding the presentation of current liabilities in
accordance with IFRS?
A. Current liabilities are generally recorded at face amount
B. Current liabilities should not be offset against the assets for liquidation.
C. Current liabilities may be listed in the order of maturity, in descending order of
magnitude, or in the order of liquidity preference.
D. The noncurrent liabilities follow the current liabilities.
Question 4
Which statement is incorrect where the expenditure required to settle a provision is expected to
be reimbursed by another party?
A. The reimbursement shall be recognized only when it is virtually certain that the
reimbursement would be received if the entity settles the obligation.
B. In the income statement, the expense relating to the provision may be presented net of
the reimbursement.
C. The reimbursement shall not be treated as separate asset and therefore netted against
the estimated liability for the provision.
D. The amount of the reimbursement shall not exceed the amount of the provision.
Question 5
Isabella Corporation is the defendant in a lawsuit filed by Edward Company in 2019 disputing
the validity of copyright held by Isabella On December 31 2019, Isabella determined that
Edward would probably be successful against Isabella for an estimated amount of P2,000.000
Appropriately, a P2,000,000 loss was accrued by a charge to income for the year ended
December 31, 2019. On December 31, 2020, Isabella and Edward agreed to a settlement
providing for cash payment of P1,250,000 by Isabella to Edward and transfer of Isabella's
copyright to Edward The carrying amount of the copyright on Isabella's accounting records was
P250,000 on December 31, 2020. What would be the effect of the settlement on Isabella's
income before tax in 2020?
A. 750,000 decrease
B. 500,000 decrease
C. 500,000 increase
D. 750,000 increase
Question 6
Reicel Company reports 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
Pagibig 7,000
Total 100,000
In addition, the entity recognized its additional contributions for the following in relation to
January payroll:
SSS 20,000
Philhealth 9,000
Pagibig 6,000
Total 35,000
What amount should be reported as total payroll tax liability?
A. 65,000
B. 100,000
C. 90,000
D. 135,000
Question 7
What is the relationship between present value and the concept of a liability?
A. Present value is used to measure all liabilities.

B. Present value is not used to measure liabilities.
C. Present value is used to measure certain liabilities.
D. Present value is used to measure noncurrent liabilities only.
Question 8
As of December 31, 2021, analyze the following scenario and choose the best answer.
Property dividends payable amounting to P75,000 to be settled on February 1, 2022.
A. Current liability
B. Noncurrent liability
C. Not applicable
Question 9
Bonds Payable, amounting to P500,000, maturing in five equal semi-annual installments.
A. Current liability amounting to 500,000

B. Noncurrent liability amounting to 500,000
C. Current liability amounting to 200,000; noncurrent liability amounting to P300,000
Question 10
Advances from Affiliates amounting to P75,000
C. Not applicable
Question 11
During the current year, Ren Corporation sold 80,000 reversible belts under a new sales
promotional program. Each beit carried one coupon which entitled the customer to a P50 cash
rebate. The entity estimated that 70% of the coupons will be redeemed even though only 35,000
coupons had been processed during the current year
What amount should be reported as rebate liability for unredeemed coupons at year end?
A. 1,225,000
B. 1,750,000
C. 0
D. 1,050,000
Question 12
The bonus agreement of Elrine Corporation 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 P280,000 for the current year as bonus. What is the income before
bonus and tax?
A. 3,720,000
B. 4,000,000
C. 4,280,000
D. 2,800,000
Question 13
Kevin Company operates a retail grocery store that is required by law to collect refundable
deposits of P5 on soda cans.
The entity provided the following information for the current year:
Liability for refundable deposits - January 1 150,000

Cans of soda sold 100,000
Soda cans returned 110,000
During the current year, the entity leased space and received a P25,000 deposit to be applied
against rent at the expiration of the lease in 5 years. The lessor appropriately classified the
lease as an operating lease.
What amount should be reported as current liability for deposits as of December 31?
A. 100,000
B. 140,000
C. 25,000
Question 14
Angela Company offered a cash rebate of P20 on each P150 package of batteries sold during
the current year Historically, 10% of customers mail in the rebate form. During the year, 600,000
packages of batteries are sold and 25,000 P20 rebates are mailed to customers.
What amount should be reported as rebate liability at year-end?
A. 500,000
B. 700,000
C. 400,000
D. 350,000
Question 15
Goods received on consignment amounting to P10,000
A. Not applicable
B. Current liability
C. Noncurrent liability
Question 16
Aly Corporation includes one coupon in each box of laundry soap it sells. A towel is offered as a
premium to customers who send in 10 coupons and remittance of P10.
Distribution cost of premium is P5. Experience indicates that only 30% of the coupons will be
redeemed.
2020 2021
Boxes of soap sold 2,000,000 2,500,000
Number of towels purchased at P50 each 50,000 80,000
Coupons redeemed 400,000 700,000
A. 3,000,000
B. 3,375,000
C. 3,750,000
D. 4,000,000
Question 17
Aly Company sells magazine subscription for a 1-year, 2-year or 3-year period. Cash receipts
from subscribers are credited to magazine subscriptions collected in advance, and this account
had a balance of P1,700,000 on January 1.
Cash receipts form subscribers 2,100,000
Subscription revenue credited on December 31 1,500,000
On December 31, what amount should be reported as the balance for subscription collected in
advance?
A. 2,300,000
B. 1,900,000
C. 1,400,000
D. 2,100,000
Question 18
An entity has been served a legal notice at year end by the Department of Environment and
Natural Resources to fit smoke detectors in its factory on or before middle of the next year. The
cost of fitting smoke detector can be measured reliably. How should the entity treat this at year
end?
A. Ignore this for purposes of the financial statements at year end

B. Recognize a provision for the current year equal to 12 only of the estimated amount.
C. No provision required at year-end because there is no present obligation for the future
expenditure since the entity can avoid the future expenditure by changing the method of
operations but disclosure is required.
D. Recognize a provision for the current year equal to the estimated amount.
Question 19
Held for Trading Financial Liabilities amounting to P60,000.
B. Not applicable
Question 20
Estimated liabilities are disclosed in the financial statements by
A. Appropriately classifying them as regular liabilities in the statement of financial position.

B. Note to the financial statements
C. An appropriation of retained earnings.
D. Showing the amount among the liabilities but not extending to the liability total.
Question 21
In 2020, Einne Corporation introduced a laptop carrying a 2-year warranty against defects. The
estimated warranty costs related to peso sales are 4% within 12 months following sale and 6%
in the second 12 months following sale. The entity reported sales of P5,000,000 for 2020 and
P6,000,000 for 2021 The actual expenditures incurred amounted to P150,000 for 2020 and
P550,000 for 2021.
What amount should be reported as estimated warranty liability as of December 31. 2021?
A. 240,000
B. 100,000
C. 400,000
D. 350,000
Question 22
Reicel Company operates a customer loyalty program. The entity grants loyalty points for goods
purchased. The loyalty points can be used by the customers in exchange for goods of the entity.
The points have no expiry date.
During 2019, the entity issued 50,000 award credits and expects that 80% of these award
credits shall be redeemed. The total stand alone selling price of the award credits granted is
reliably measured at P1,000,000. In 2019, the entity sold goods to customers for a total
consideration of P7,000,000 based on stand alone selling price.
The award credits redeemed and the total award credits expected to be redeemed each year
are as follows:
Redeemed Expected to be redeemed
2019 15,000 80%
2020 7,950 85%
2021 2,550 85%
2022 15,000 90%
What is the revenue from points for 2021?
A. 78,850
B. 525,000
C. 350,000
D. 52,500
Question 23
Eunice company sells gift certificates redeemable only when merchandise is purchased. These
gift certificates have no expiration date. Upon redemption or expiration, the entity recognizes the
unearned revenue as realized.
Unearned revenue, January 1 650,000

Gift certificates sold 2,250,000
Gift certificates redeemed 1,950,000
Gift certificates expected not to be redeemed 100,000
Cost of goods sold 60%
As of December 31, what amount should be reported as unearned revenue?
A. 850,000
B. 950,000
C. 570,000
D. 510,000
Question 24
The accrual approach in accounting for product warranty cost
A. Finds the expense account being charged when the seller performs in compliance with
the warranty
B. is frequently justified on the basis of expediency when warranty cost is immaterial
C. Represents accepted practice and should be used whenever the warranty is an integral
and inseparable part of the sale
D. is required for income tax purposes
Question 25
In 2020, Eirine Corporation introduced a laptop carrying a 2-year warranty against defects. The
P6,000,000 for 2021. The actual expenditures incurred amounted to P150,000 for 2020 and
P550 for 2021.
What amount should be reported as warranty expense for 2020?
A. 500,000
B. 300,000
C. 200,000
D. 250,000
Question 26
As of December 31, 2021 analyze the following scerand and choose the best answer.
Check payment to supplier dated January 6, 2022 amounting to P500.000 already on the hands
of the supplier a year-end.
A. Noncurrent liability
C. Not applicable
Question 27
remium to customers who send in 10 coupons and remittance of P10.
redeemed.
2020 2021
What amount should be reported as premium expense in 2020?
A. 2,700,000
B. 2,500,000
C. 2,400,000
D. 1,800,000
Question 28
The consideration allocated to the award credits is measured at
A. Fair value of the goods to be received in exchange

B. Fair value of the award credits
C. The proportion of the fair value of the award credits relative to the total consideration
received from the initial sale of goods
D. Carrying amount of the goods to be received in exchange
Question 29
are as follows:
2019 15,000 80%
2020 7,950 85%
2021 2,550 85%
2022 15,000 90%
A. 415,625
B. 472,500
C. 236,250
D. 144,375
Question 30
are as follows:
2019 15,000 80%
2020 7,950 85%
2021 2,550 85%
2022 15,000 90%
A. 175,000
B. 700,000
C. 328,125
D. 875,000
Question 31
Bank overdraft amounting to P10,000
B. Not applicable
Question 32
After 3 profitable years, Ren Corporation decided to offer a bonus to the branch manager of
25% of income over P1,000,000 earned by the branch. The income of the branch was
P1,600,000 before tax and before bonus for the current year. The bonus is computed on income
in excess of P1,000,000 after deducting the bonus but before deducting tax. What amount
should be reported as bonus of the branch manager for the current year?
a. 250,000
b. 120,000
c. 150,000
d. 320,000
Question 33
The entity sells furnaces that include a three-year warranty. The entity can contract with a third
party to provide these warranty services. The entity elects the fair value option for reporting
financial liabilities.
At what amount should the entity report the warranty liability?
A. The fair value of the contract to settle the warranty services

B. The present value of expected warranty costs
C. The fair value of the contract less the cost to provide the services
D. The cost of expected warranty services
Question 34
P550,000 for 2021.
What amount should be reported as warranty expense in 2021?
A. 650,000
B. 500,000
C. 550,000
D. 600,000
Question 35
At year-end, an entity classified a note payable as current liability. Under what conditions could
the entity reclassify the note payable from current to noncurrent?
A. if the entity has executed an agreement to refinance the note before issuance of the
financial statements
B. if the entry has executed an agreement to refinance the note before end of the reporting
period
C. If the entity has the intent and ability to reclassify the note before the end of the reporting
period
D. it me entity as the intent and ability to reclassify the note before the issuance of the
financial statements
Question 36
Ivi Company reported the following payroll for the month of January:
Total Wages 500,000

Income tax withheld 60,000
All wages paid were subject to SSS. The SS tax rates were 7% each for employee and
employer. Ivi remits payroll taxes on the 15th of the following month.
In the financial statements for the month ended January 31, what amount should be reported
respectively as total payroll tax liability and payroll tax expense?
A. 95,000 and 70,000

B. 130,000 and 35,000
C. 95,000 and 35,000
D. 60,000 and 70,000
Question 37
The 10%, P1,500,000 Note Payable matures on June 30, 2022. Interest on the loan is due
every June 30 and December 31. On December 31, 20201 the Company entered into a
refinancing agreement with a bank to refinance the note on a long-term basis. The refinancing
and roll-over transaction was completed on December 31, 2021.
C. Not applicable
Question 38
Angela Company must determine the December 31, 2019 accruals for the following expenses:
● A P500,000 advertising bill was received January 7, 2020, comprising costs of P350,000
for advertisement in December 2019 issues, and P150,000 for advertisements in
January 2020 issues of the newspaper.
● A one-year lease, effective December 16, 2019, calls for fixed rent of P120,000 per
month, payable one month from the effective date and monthly thereafter.
● The entity has real property subject to real property tax. The city’s fiscal year runs July 1
to June 30 and the tax assessed at 3% of real property on hand is payable on June 30,
2020. The entity estimated that the real property tax will amount to P600,000 for the
city’s fiscal year ending June 30, 2020.
At December 31, 2019, what amount should be recorded as accrued expenses?
A. 710,000
B. 650,000
C. 950,000
D. 770,000
Question 39
Angela Company offered a cash rebate of P20 on each P150 package of batteries sold during
the current year. Historically, 10% of customers mail in the rebate form. During the year, 600,000
packages of batteries are sold and 25,000 P20 rebates are mailed to customers. What amount
of rebate expense should be reported for the current year?
A. 600,000
B. 1,500,000
C. 500,000
D. 1,200,000
Question 40
Kevin Company started a new promotional program. For every 10 box tops returned, customers
receive 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
Basketball purchased 5,500 4,125,000
Basketball distributed 4,000
What amount should be reported as premium expense for the year?

A. 4,500,000
B. 7,500,000
C. 4,125,000
D. 1,500,000
Question 41
The most relevant measurement of liabilities at initial recognition and fresh start measurement
should always reflect
A. The single most likely or maximum possible amount

B. The expectation of the management
C. Historical cost
D. The credit standing of the entity
Question 42
Which of the following does not meet the definition of a liability?
A. The signing of a three-year employment contract at a fixed annual salary

B. A note payable with no specified maturity date
C. An obligation to provide goods or services in the future
D. An obligation that is estimated in amount
Question 43
redeemed.
2020 2021
What amount should be reported as estimated premium liability as of December 31, 2020?
A. 1,000,000
B. 1,100,000
C. 900,000
D. 800,000
Question 44
P550,000 for 2021. What is the estimated warranty liability as of December 31, 2020?
A. 350,000
B. 150,000
C. 100,000
D. 50,000
Question 45
As of December 31, 2021, analyze the following scenario and choose the best answer. The 12%
P750,000 loans payable is maturing on July 1, 2022. Interest on the loan is due every July 1
and December 31. On January 15, 2022, the Company entered into a refinancing agreement
with a bank to refinance the loan on a long-term basis. Both parties are financially capable of
honoring the agreement's provisions. The Company has the discretion to refinance or roll over
the loan for at least twelve months from December 31, 2021 under an existing loan policy.
B. Not applicable
C. Current liability
Question 46
What amount is recognized as provision?
A. Midpoint of the range

B. Maximum of the range
C. Minimum of the range
D. Best estimate of the expenditure
Question 47
What is the classification of a debt callable by the creditor?
A. Current liability if the creditor intends to call the debt within one year
C. Current liability if it is probable that the creditor will call the debt within one year
D. Noncurrent liability
Question 48
EPMI Company sells its product in reusable containers. The customer is charged a deposit for
each container delivered and receives a refund for each container returned within 2 years after
the year of delivery.
The entity accounts for the containers not returned within the time limit as being retired by sale
at the deposit amount.
The entity provided the following information for 2019:
Container deposits on January 1, 2019 from deliveries in:

2017 150,000
2018 430,000 580,000
Deposits from containers delivered in 2019 from deliveries in:

2017 90,000
2018 250,000
2019 286,000 626,000
At December 31, 2019, what amount should be reported as liability for deposits?
A. 734,000
B. 494,000
C. 674,000
D. 584,000
Question 49
redeemed.
2020 2021
What amount should be reported as estimated premium liability as of December 31, 2021?
A. 100,000
B. 1,375,000
C. 1,125,000
D. 1,250,000
Question 50
For an event to be an obligating event, it is necessary that the entity has no realistic alternative
but to settle the obligation created by the event and this is the case only:
I. Where the settlement of the obligation can be enforced by law.
II. Where the event creates valid expectation in other parties that the entity will discharge the
obligation as in the case of a constructive obligation.
A. I only
B. II only (Try natin)
C. Neither I or II
D. Either I or II
Question 51
Purchases in transit shipped FOB destination amounting to 15,000.
C. Not applicable
Question 52
Kevin Company started a new promotional program. For every 10 box tops returned, customers
receive 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
Basketball purchased 5,500 4,125,000
Basketball distributed 4,000
What amount should be reported as year-end estimated liability associated with this promotion?
A. 3,000,000
B. 1,500,000
C. 4,125,000
D. 4,500,000
Question 53
A competitor has sued an entity for unauthorized use of its patented technology. The amount
that the entity may be required to pay to the competitor if the competitor succeeds in the lawsuit
is determinable with reliability, and according to the legal counsel, it is less than probable (but
more than remote) that an outflow of the resources would be needed to meet the obligation. The
entity that was sued should at year end:
A. Recognize a provision for this possible obligation.

B. Make disclosure of the possible obligation in footnotes to the financial statements.
C. Make no provision or disclosure and wait until the lawsuit is finally decided and then
expense the amount paid on settlement if any.
D. Set aside, as an appropriation, a contingency reserve, an amount based on the best
estimate of the possible liability.
Question 54
During the current year, Ren Corporation sold 80,000 reversible belts under a new sales
promotional program. Each belt carried once coupon which entitled the customer to a P50 cash
rebate. The entity estimated that 70% of the coupons will be redeemed even though only 35,000
coupons had been processed during the current year.
What amount should be reported as rebate expense for the current year?
A. 2,250,000
B. 4,000,000
C. 1,750,000
D. 2,800,000
Question 55
Which of the following represents a liability?
A. The obligation to pay interest on a five-year note payable that was issued the last day of
the current year.
B. The obligation to provide goods that customers have ordered and paid for during the
current year.
C. The obligation to pay for goods that a company expects to order from suppliers next
year.
D. The obligation to distribute shares of a company's own common stock next year as a
result of a stock dividend declared
Question 56
Under a customer loyalty program, if the entity supplies the awards itself, the consideration
allocated to the award credits
A. Shall not be accounted for as revenue separately.

B. Shall be recognized initially as deferred revenue and amortized as revenue over a
reasonable period not exceeding five years.
C. Shall be recognized as revenue immediately.
D. Shall be recognized initially as deferred revenue and subsequently recognized as
revenue upon redemption of the award credits.
Question 57
For a liability to exist
A. The exact amount must be known.

B. The identity of the party owed must be known.
C. An obligation to pay cash in the future must exist.
D. A past transaction or event must have occurred.
Question 58
credits shall be redeemed. The total stand-alone selling price of the award credits granted is
consideration of P7,000,000 based on stand-alone selling price.
are as follows:

2019 15,000 80%
2020 7,950 85%
2021 2,550 85%
2022 15,000 90%
What is the revenue from points in 2022?
A. 183,750
B. 787,500
C. 131,250
D. 262,500
Question 59
On November 1, 2019, Eunice Corporation was awarded a judgment of P6,000,000 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. The attorney believed that it is
highly-probable that an award will be upheld on appeal but the judgment may be reduced by
40%. What amount should be reported as receivable on December 31, 2019?
A. 2,400,000
B. 6,000,000
C. 0
D. 600,000
Question 60
Magazine subscriptions collected in advance are treated as
A. Magazine subscription refund in the income statement in the period collected.

B. Deferred revenue in the shareholder’s equity section.
C. Deferred revenue in the liability section.
D. A contra account to magazines subscription receivable.
ADDITIONAL QUESTIONS
Question 61
redeemed.
2020 2021
What amount should be reported as premium expense in 2021?
A. 3,375,000
B. 4,000,000
C. 3,000,000
D. 3,750,000
Question 62
P550,000 for 2021.
What amount should be reported as estimated warranty liability as of December 31, 2021?
A. 360,000
B. 100,000
C. 400,000
D. 240,000

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Enabling Assessment 1

What amount should be reported as litigation liability at year-end?

A. Evenly over the contract year as the services are performed

Income Tax 70,000

What amount should be reported as total payroll tax liability?

A. Present value is used to measure all liabilities.

Property dividends payable amounting to P75,000 to be settled on February 1, 2022.

Bonds Payable, amounting to P500,000, maturing in five equal semi-annual installments.

A. Current liability amounting to 500,000

Liability for refundable deposits - January 1 150,000

What amount should be reported as rebate liability at year-end?

Goods received on consignment amounting to P10,000

A. Ignore this for purposes of the financial statements at year end

Held for Trading Financial Liabilities amounting to P60,000.

A. Appropriately classifying them as regular liabilities in the statement of financial position.

What is the revenue from points for 2021?

Unearned revenue, January 1 650,000

As of December 31, what amount should be reported as unearned revenue?

What amount should be reported as warranty expense for 2020?

What amount should be reported as premium expense in 2020?

A. Fair value of the goods to be received in exchange

What is the revenue from points for 2020?

What is the revenue from points for 2019?

Bank overdraft amounting to P10,000

At what amount should the entity report the warranty liability?

A. The fair value of the contract to settle the warranty services

What amount should be reported as warranty expense in 2021?

Total Wages 500,000

A. 95,000 and 70,000

At December 31, 2019, what amount should be recorded as accrued expenses?

What amount should be reported as premium expense for the year?

A. The single most likely or maximum possible amount

A. The signing of a three-year employment contract at a fixed annual salary

A. Midpoint of the range

The entity provided the following information for 2019:

Container deposits on January 1, 2019 from deliveries in:

Deposits from containers delivered in 2019 from deliveries in:

A. Recognize a provision for this possible obligation.

A. Shall not be accounted for as revenue separately.

A. The exact amount must be known.

Redeemed Expected to be redeemed

What is the revenue from points in 2022?

A. Magazine subscription refund in the income statement in the period collected.

What amount should be reported as premium expense in 2021?

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