14. 12 13. 1a. Ls. CHAPTER 1 PROVISIONS, CONTINGENCIES AND OTHER LIABILITIES Problems The following shall result in the recognition of liabilities aGe.9,h.i,m,n, 0, p Case 1- None Case 2 - P800,000 Case 3 - P400,000 Case 4 - P350,000 Case 5 - P100,000 = (1M x 10%) + (200,000 x 30%) - 60,000 Case 6 - None (Garfield Company) (2) B= 8,000,000 x 8% = (b) B= 8% (800,000 - 8} 8 = 640,000 -.08B B = 640,000/1.08 = (©) B= .08 (8,000,000 -T) T = .30 (8,000,000 - B) 8 = .08 {8,000,000 - .30 (8,000,000 - 8) + B = .08 {8,000,000 - 2,400,000 + .308} B= B= 448,000 + .0248 448,000/0.976 = (@) = .08 {8,000,000-B-T} 30 (8,000,000 - B) .08{8,000,000 - B - .30 (8,000,000 - 8)} .08 {8,000,000 ~ B - 2,400,000 + .308} 448,000 - .056B, = 448,000/1.056 = 8 T 8 8 B B (Arthur Corporation) a. Bonus to sales manage Bonus to each sales agent b. Total Bonus = .36 {3,000,000 - 8 -T) -30 {3,000,000 - B } ‘36 {3,000,000 - B - .30 (3,000,000 - B)} 36 {3,000,000 - B - 900,000 + 308} 756,000 - .2528, B= 756,000/1.252 = 603,834 (total) B (Each): 603,834 /3 = cB =.32 {3,000,000-B } B = 960,000 -.328 B = 960,000/1.32 = 727,273 (total) B (Sales Manager): 727,273 x 12/32, = B (Each Sales Agent): 727,273 x 10/32 (Cleveland, inc.) B = 06 {9,000,000-B-T} T = -30 (9,000,000 - B) B = .06 (9,000,000 - B -.30 (9,000,000 - B} } 06 { 9,000,000 - B - 2,700,000 + .308 } 8 = 378,000 - .0428 B = 378,000 / 1.042 = 362,764 T 30 (9,000,000 - 362,764) =Chapter 1 - Provisions, Contingencies and Other Liabilities 1-6. Yackson Company) 2019 2020 2021 Sale of product Accts. Receivable/Cash 1,000,000 2,500,000 3,500,000 Sales 1,000,000 2,500.00 3,500,000 o Accrual of repairs Warranty Expense 60,000 150,000 210,000 Warranty Liability 60,000 150,00 210,000 ° ‘Actual repairs Warranty Liability 8,000 38,000 122,500 Cash AP, etc. 8,000 38,000 122,500 1-7, (Filmore Company) (a) 2020 Warranty Liability, January 1 P 0 P187,200 Warranty expense (8% x 4,200,000)/(8% x 6,960,000) 336,000 556,800 Actual repair costs incurred (148,800)__(180,000) Warranty liability, December 31 P187,200 _ P564,000 ( (On 2019 sales (4,200,000 x 5% x ¥4) 105,000 (On 2020 sales [(1/2 of 3%) + 5%] x 6,960,000 452,400 Predicted warranty liability at December 31, 2020 1.8. Johnson Company) (a) Cash 720,000 864,000 Unearned Revenue from Warranty Contracts 720,000 864,000 Cost of Warranty Contracts 25,000 100,000 ‘Cash, Materials, ete. 25,000 100,000 Unearned Revenue from Warranty Contracts 72,000 266,400 Revenue from Warranty Contracts 72,000 266,400 20% x ¥2 x 720,000 = 72,000 20% x ¥2 x 720,000 = 72,000 30% x % x 720,000 = 108,000 20% x %2 x 864,000 = 86,400 Total for 2020 266.400 (b)_Unearned Revenue from Warranty Contracts, Dec. 31, 2019 (720,000 - 72,000) 648,000, Unearned Revenue recorded during 2020 864,000 Revenue recognized during 2020 - (266,400) Unearned Revenue from Warrant Contracts, Dec. 31, 2020 1.245.600 or From 2019 contracts 720,000 x 65% 468,000 From 2020 contracts 864,000 x 90% 172,600 Total 1.245.600 0 Revenue from warranty contracts ~ see (a) 72,000 266,400 Cost of warranty contracts 25.000 1100.00 Profit from warranty contracts 47,000 166.400 1.9. (Tyler Corporation) (@) Premium Inventory 225,000 Cash/Accounts Payable 225,000,Chapter 1 - Provisions, Contingencies and Other Liabilities 1,500 x 150 (b) —_CashyAccounts Receivable 15,000,000 Sales 14,062,500 Unearned Revenue for Premium Claims 937,500 Basis of allocation of sales price of main product Selling price of main product 15,000,000 Selling price of premium (2,000,000 x 40%1/100 = 4,000 x 250 1,000,000 Total 16.000.000 Allocation of sales price To main product 15,000,000 x (15M4/16M) 14,062,500 To premium 15,000,000 x (1M/16™) 937/500 Total 5.000.000 (Cash 50,000 Unearned Revenue for Premium Claims 234,375 Sales 284,375, 1,000 x 50 = 50,000 {937,500 x (1,000/4,000) = 234,375 110. (Polk Company) (a) Basis of allocation of sales price of main product Selling price of main product 300,000 x 30 9,000,000 Selling price of premium (300,000 x 30%)/20 = 4,500 x 40 180.000 Total 2.280.000 Allocation of sales price ‘To main product 9,000,000 x (94/9. 180M 8,823,529 To premium 9,000,000 x (180,000/9,180,000) 76.47. Total ‘2.000.000 Unearned revenue for unredeemed coupons before redemption 176,471 Reduction resulting fram redemption 176,471 x (4,000/4,500) 156,863, Unearned revenue for unredeemed coupons, December 31, 2020 19,608 ‘or 176,471 x (500/4,500) (b) Additional sales upon redemption (see above) 156.863 1.11, (Taylor Company) NOTE: Please provide the sales price of the main product of P500, missing in the problem. a 2019 Total sales price of main product (140,000 units x P500), 70,000,000 Total sales price of premiums (40,000 + 30,000)/5 = 14,000 units x P150 2,100,000 Total (basis of allocation) 72.100,000 Allocation: Main (70/72.1) x 70M 67,961,165 Premium (2.1/72.1) x 70M 2038,535 Total 720.000.0090 Provision for unredeemed coupons at the end of 2019 2,038,835 x (6,000*/14,000) P_ 873.786 *(30,000/5) 2020 Total sales price of main product (200,000 x P500) 100,000,000 Total sales price of premiums (90,000-30,000+80,000)/5 = 28,000 units x P150 4,200,000 104,200,000 Total (basis of allocation) Allocation: Main (100/104.2) x 100m P 95,969,290 Premium (4.2/104.2) x 100M 4,030,710112, 113, aa. Las. Chapter 1 - Provisions, Contingencies and Other Liabilities Total 190,000,000 mn for unredeemed coupons at the end of 2020 4,030,710 x (16,000*/28,000) p2 *(80,000/5) 2) 2019 2020 Sales of main product 67,961,165 95,969,200 Redemption of premiums ‘Cash received 8,000 x 50 400,000 18,000 x 50 900,000, 2,038,835 x (8,000%/14,000) 1,165,049 2/038,835 x (6,000/14,000) 873,786 4,030,710 x (12,000*/28,000) 1.727.447, Total revenue PEoS26214 99'470,523 *"40,000/5 = 8,000 premiums *#(80,000-30,000)/5 = 12,000 premiums (Van Department Store) ( Allocation of original consideration received: Sales revenue (98% x P5,000,000) Liability for Customer Loyalty Awards (2% x P5,000,000) Revenue in 2019 as a result of redemption 100,000 x 25/90 Revenue in 2020 as a result of redemption ‘Total accumulated revenue from redemption as of 12/31/20 (100,000 x 60/95) Less revenue earned in 2019 Revenue in 2020 as a result of redemption (o) Liability as of 12/31/19 (100,000 - 27.778) Liability as of 12/31/20 (100,000 - 63,158) (Pierce Corporation) cash 2,000,000 Unearned Revenue from Gift Certificates Outstanding Unearned Revenue from Gift Certificates Outstanding 1,280,000 ‘sales 4,900,000 P "100,000 B_20778 P 63,158 22.778 p_ 353380 22222 236,842 2,000,000 1,280,000 Note: The gift certificates estimated to expire is recognized as revenue at the date of actual expiration, (Buchanan Company) Cash 3,000,000 Unearned Revenue from Gift Certificates Outstanding Unearned Revenue from Gift Certificates Outstanding 2,750,000 ‘sales Unearned Revenue from Gift Certificates Outstanding 150,000 Revenue from Forfeited Gift Certificates (Lincoln Company) Refundable Deposits, january 1, 2020 Deposits received during the year Deposits refunded during the year Deposits forfeited during the year (100,000 - 82,000) Refundable Deposits, December 31, 2020 3,000,000 2,750,000 150,000 250,000 200,000 (267,000) (a8.000) 265,000116. (Grant Publication) (@) ‘Subscriptions sold in 2017 and 2018 (5,000,000 + 4,500,000) Expired subscriptions in 2017 2018 (2,800,000 + 1,200,000) Unearned subscriptions, January 1, 2019 (b) 2019 Cash Unearned Subscription Revenue Unearned Subscription Revenue ‘Subscription Revenue 11,200,000 + 2,000,000 + 1,800,000 2020 Cash Unearned Subscription Revenue Unearned Subscription Revenue ‘Subscription Revenue 1,300,000 + 2,400,000 + 2,000,000 © Unearned Subscription Revenue, January 1 ‘Subscription received during the year ‘Subscription revenue for the year Unearned Subscription Revenue, December 31 (Coolidge Company) ‘Accounts Payable Mortgage Notes Payable Current portion of Bank Notes Payable Interest Payable Liability for Damages Value Added Tax Payable Income Tax Payable ‘SSS Premiums Payable (45,000 + 50,000) Philheaith Contributions Payable (22,000 + 28,000) Pag-ibig Contributions Payable (18,000 + 20,000) withholding Tax Payable Total current liabilities, December 31, 2020 1,000,000 4.000.000 5,500,000 5,000,000 7,000,000 5,700,000 2019 4,500,000 5,500,000 4{5.900,000) 'P5,000,000 P_ 270,000 1,300,000 100,000 7,500 750,000 288,000 315,000 95,000 50,000 38,000 120,000 P9,500,000 5.000.000 4,500,000 5,500,000 5,000,000 7,000,000 5,700,000 2020 5,000,000 7,000,000 45,700,000) 126,300,000.r 1 - Provis ting ther Liabilit MULTIPLE CHOICE QUESTIONS Theory mci _18 MCE. D Mc? 1A MCS. 5 mcs 10. McIO [A mca 1c MCLL_[A MC5__| 8 mci |B. MCé | 0. Mci3___| 0 Mc? 18 mela 3 Problems MC15 B__ Midpoint (5M + 6.5M);2 Mele ¢ MCI7 Accrued salaries payable, 12/31/19 Salaries expense during the year Salaries paid during the year Accrued salaries payable, 12/31/20 MC18. B Accrued electricity expense (1/2 x 8,500) Accrued telephone bill Total accrued liabilities MC19-B__Uneared service contract revenue, January 1 Cash receipts from service contracts sold Service contract revenue recognized during the year Unearned service contract revenue, December 31, 2020 MC20. © —_Uneamed revenue from 2018 sales (67.5% x 2,100,000) Unearned revenue from 2019 sales (92.5% x 2,730,000) Unearned revenue, December 31, 2019 MC21_ From 2018 contracts 2,100,000 x ¥s x (35% + 50%) From 2019 contracts 2,730,000 x ¥ x (15% + 35%) From 2020 contracts 2,475,000 x ¥ x 15% Revenue from service contracts recognized in 2020 Mc22. B Revenue from service contracts sold in 2020 realized in 2021 2,475,000 x % x (15% + 35%) MC23_ A From 2018 contracts (2,100,000 x ¥ x 50%) From 2019 contracts (2,730,000 x ¥ x 67.5%) From 2020 contracts (2,475,000 x 92.5%) Unearned revenue from service contracts, December 31, 2020 MC24 Warranty contracts (500 x 2,250) Earned during 2020 (1,125,000 x % x 30%) Unearned revenue from service contracts at Dec. 31, 2020, Revenue earned from service contracts Cost of servicing contracts Profit from service contracts. Mc25 (20,000 x 75%)/20 = 750 premiums x 300 = 225,000 225,000/12,225,000 Mc26 (500/750) x 220,859 5,750,000 5,500,000 P 130,000 1,630,000 (2.560.000) P_200,000 4a 2 1,080,000 1,920,000 (2.560.000) 1,440,000 P1,417,500 2.525.250 3,942,750 a92,500 682/500, 185.625, 1,760,625, P618,750 P 525,000 1,842,750 2.289.375 4.657.125 P1,125,000 168.750 P_956,250 168,750 95,000 273,750 220,859 P147,239Mc27 mc2s wc29 Mc30 Mc3i wc32 Mc33 wc3a Mc3s Mc36 wc37 wc3s Mc39 cao Mcar Chapter 1 - Provisions, Contingencies and Other Liabilities Deferred revenue from gift certificates outstanding 11,000 x 750 Accrued biweekly salaries (3/10 x 1,125,000) ‘Accrued overtime pay. ‘Accrued salaries, July 31, 2020 Est. number of coupons to be redeemed (80% x 500,000) Number of coupons already processed Estimated unredeemed coupons Cost per premium (50 +5 ~ 40) Estimated liability for unredeemed coupons Estimated total number of premiums {60% x 3,000,000 = 1,800,000; 1,800,000/10 Number of premiums already distributed Estimated outstanding premiums Cost per premium (40,000/80,000) Estimated cost of potential prizes outstanding Estimated total coupons (400,000 x 70%) Coupons redeemed Outstanding coupons Estimated outstanding premiums (180,000/5) Cost per premium Estimated lability for premiums outstanding Estimated value of redemptions (720,000 x 50%) ‘Amount already disbursed for redemptions Liability for unredeemed coupons, December 31, 2020 Warranty expense for 2020 (24,000 units x P300) Total warranty expense Less warranty costs paid Estimated liability for warranty 1,500 x 4% 8 AS {2,000,000 ~ B - .30 (2,000,000 - B)} Total Bonus = .35 {2,000,000 - 8) = 518,519 Bonus to Sales Manager (518,519 x 15/35) Bonus to Each Sales Agent (518,519 x 1/35) Bonus B = .10 {2,500,000 - 30 x (2,500,000 - 8)} Outstanding subscriptions expiring in 2021, 2022 and 2023: (600,000 + 900,000 + 400,000) Magazine subscriptions received in advance before adjustments Unearned subscriptions as of December 31, 2020 Magazine subscriptions revenue for year 2020 Cash payment Carrying amount of patent transferred Total payment Accrued loss reported on December 31, 2019 Decrease in profit at December 31, 2020 750,000 337,500 63.000 400,500 400,000 300-000 100,000 P 15.00 P1,500,000 180,000 42.000 138,000, 0.50 69,000 280,000 190.000 110.000 36,000 20.00 720,000 360,000 300,000, 7,200,000 7,200,000 1,700,000 ‘25,500,000 60,000 479,087 222,222 Plaga 180,412 1,900,000 2,400,000 1,900,000 P_500,000 3,800,000 2,000,000 5,800,000 5,000,000 P800,000