ACN 2105 – Intermediate Accounting II

Activity No. 1
Problem 1: The balance in A Co.’s account payable account at December 31, 2021 was
P1,170,000 before any year-end adjustments relating to the following:

 Goods were in transit from a vendor to A Co. on December 31, 2021. The invoice
cost was P65,000 and the goods were shipped FOB shipping point on December
27, 2021. The goods were received on January 5, 2022.
 Goods shipped FOB shipping point on December 15, 2021 from a vendor to A Co.
were lost in transit. The invoice cost was P32,500. On January 8, 2022, A Co. filed
a P32,500 claim against the common carrier.
 Goods shipped FOB destination on December 21, 2021 from a vendor to A Co.
were received on January 3, 2022. The invoice cost was P19,500.

What amount should A Co. report as accounts payable on its December 31, 2021
balance sheet?

Problem 2: The balance in the accounts payable account of A Co. at December 31, 2021 was
P1,350,000 before any necessary year-end adjustments relating to the following:

 Goods were in transit to A Co. from a vendor on December 31, 2021. The invoice
cost was P75,000. The goods were shipped FOB shipping point on December 28,
2021 and were received on January 3, 2022.
 Goods shipped FOB destination on December 21, 2021 from a vendor to A Co.,
were received on January 5, 2022. The invoice cost was P37,500.
 On December 25, 2021, A Co. wrote and recorded checks totaling to P60,000 which
were mailed on January 9, 2022.

In the statement of financial position of A Co. on December 31, 2021, how much
should be the balance of accounts payable?

Problem 3: The accounts payable of A Co. at December 31, 2021 has a balance of P1,600,000
before any necessary year-end adjustments relating to the following transactions:

 On December 27, 2021, A Co. wrote and recorded checks to creditors totaling
P700,000 causing an overdraft of P200,000 in the bank account of A Co. at
December 31, 2021. The checks were mailed out on January 10, 2022.
 On December 28, 2021, A Co. purchased and received goods for P300,000, terms
2/10, n/30. A Co. records purchases and accounts payable at net amounts. The
invoice was recorded and paid on January 3, 2022.
 Goods shipped FOB destination on December 20, 2021 from a vendor was received
on January 2, 2022. The invoice price was P130,000.

At December 31, 2021, what amount should A Co. report as total accounts payable?

Problem 4: Manna Company reported on June 30, 2022 a 10% note payable in the amount of
P7,200,000. The note is dated October 1, 2020 and payable in three equal annual payments of
P2,400,000 plus interest. The first interest and principal payment was made on October 1, 2021.
ACN 2105 – Intermediate Accounting II
Activity No. 1
On June 30, 2022, what amount should Manna Company report as accrued interest
payable?

Problem 5: Ray Company declared a 5% share dividend on 100,000 issued and outstanding shares
of P20 par value which had a fair value of P50 per share before the share dividend was declared.
The share dividend was distributed 60 days after the declaration date.

What amount should be reported as an increase in current liabilities as a result of the

share dividend declaration?

Problem 6: Apple Company’s accounts payable on December 31, 2020 totaled P750,000 before
any necessary year-end adjustments relating to the following transactions and information:

 On December 27, 2020, Apple wrote and issued checks to creditors in the amount of
P180,000. The checks were dated January 5, 2021 and were recorded in 2021.
 On December 28, 2019, Apple wrote and issued checks dated December 28, 2019 to
creditors in the amount of P190,000. The checks were recorded in 2020.
 On December 29, 2019, Apple wrote checks in the amount of P170,000 and issued these
to creditors in 2020. These checks were recorded in 2019.
 Goods shipped on December 29, 2020 from a vendor to Apple under terms F.O.B.
shipping point were recorded when the goods were received on December 31, 2020. The
invoice cost was P150,000.
 The accounts payable general ledger balance of P750,000 is net of the following debit
balances:
o P50,000 debit balance in one supplier’s account representing deposit made in
2020 on goods to be delivered in 2021.
o P90,000 debit balance in another supplier’s account representing deposit made in
October 2020 on goods which were delivered as agreed upon on December 31,
2020.

What is the adjusted balance of Accounts payable as of December 31, 2020?

What is the net adjustment to Purchases for the year ended December 31, 2020?

Problem 7: Busy Company’s accounts payable on December 31, 2021 was P875,000 before
considering the following information:

 Goods shipped on December 20, 2021 under FOB Destination, were lost in transit. The
company recorded the claims receivable from the common carrier and the accounts
payable to the supplier in 2021. The invoice costs P120,000.
 On December 28, 2021, Busy was authorized by the vendor to return goods that were
billed for P30,000. The vendor’s credit memo was received on January 3, 2022, but the
company recorded the purchase return in 2021.
 Goods costing P100,000, which was inclusive of freight of P10,000 were purchased from
TRY Trading. The goods were shipped in 2021 but were received in 2022. These were
recorded as purchase on account for the total amount of P100,000 in 2021.
ACN 2105 – Intermediate Accounting II
Activity No. 1
 Goods costing P120,000, net of freight of P15,000, were purchased from DRY Trading.
These were shipped in 2021 and were received in 2022 at the net amount of P120,000.
These were recorded in 2022.

What is the adjusted balance of Accounts Payable as of December 31, 2021?

Problem 8: On September 30, 2020, A Co. issued a note payable to BPI in the amount of
P2,400,000, with the stated rate of 12% and payable in 3 equal annual installments. On this date,
the bank’s prime rate is 11%. The first interest and principal payment was made on September 30,
2021.

How much should A Co. record as accrued interest payable at December 31, 2021?

Journalize the transactions from September 30, 2020 up to the extinguishment of the
note.

Problem 9: On September 30, 2020, Chestnut Company purchased an equipment. The terms of
the sale called for Chestnut to pay P4,928,400 on September 30, 2022. Chestnut gave the seller a
non-interest bearing note for this amount. At the date of purchase, the interest rate for this type of
loan was 11%. Chestnut recorded this transaction as a debit to purchases and a credit to note
payable at P4,928,400. The company depreciates the equipment at 10% per annum accordingly.

What is the understatement (overstatement) in the company’s profit for the year ended
December 31, 2020?

Journalize the entry to record the issuance of the note at the time of acquisition of the
equipment.

Problem 10: On March 1, 2020, Diamond Company discounted its own P5,000,000 non-interest
bearing note with Bangko Real at 12%. The note is due on February 28, 2021.

At what amount should the interest expense be presented in the financial statement for
the year ended December 31, 2020?

Journalize the transactions from March 1, 2020 up to the extinguishment of the note.

Problem 11: On November 1, 2020, the Everlasting Company issued a 10% promissory note with
a face value of P10,000,000 for a piece of land. The principal and interest compounded annually
are due on October 31, 2023.

What is the amount to be shown as non-current liability as of December 31, 2021?

What is the amount to be shown as interest expense for the year ended December 31,
2022?

Journalize the transactions from November 1, 2020 up to the extinguishment of the note.
ACN 2105 – Intermediate Accounting II
Activity No. 1
Problem 12: On June 1, 2020, Fern Company purchased an equipment by issuing a five-year, non-
interest bearing, P3,500,000 note. The note is payable in annual installments of P700,000. The
first installment is due on May 31, 2021. There was no equivalent cash price for the equipment
and the note had no ready market. The prevailing interest rate for a note of this type is 8%. The
present value factors are as follows:

Present value factor of P1 lump-sum using 8% for 5 years is 0.6806

Present value factor of P1 ordinary annuity using 8% for 5 years is 3.9927

What is the amount to be shown as current liability as of December 31, 2020?

What is the amount to be shown as non-current liability as of December 31, 2021?

Journalize the transactions from June 1, 2020 up to the extinguishment of the note.