Current Liabilities 39 PROBLEMS PROBLEM 1: TRUE OR FALSE 1. A liability exists only if the party to whom the obligation is owed is specifically identified. 2. Legal obligations arise only from law. 3. A long-term debt that is maturing within 12 months from the end of the reporting period is a current liability. 4, Financial liabilities other than FVPL liabilities are initially measured at fair value plus transaction costs. 5. Amortized cost financial liabilities are subsequently measured at the present value of the cash outflows from the instrument. 6. Financial liabilities may be subsequently reclassified between the amortized cost and fair value measurement categories. 7. Trade payables and other liabilities that are part of an entity's working capital may be presented as current liabilities even if they are expected to be settled beyond one year. 8. According to PAS 1, a currently maturing debt that the entity’s management intends to refinance is presented as noncurrent. 9. According to PFRS 15, if an entity expects that a portion of gift certificates sold will not be redeemed, the entity recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised by customers. 10. Unearned revenue is revenue that is earned but not yet collected. PROBLEM 2: MULTIPLE CHOICE - THEORY 1. Which of the following is not one of the aspects of the definition of a liability under the Conceptual Framework? Obligation b. Transfer of an economic resource c. Present obligation as a result of past events d. Probable outflow of economic benefits Pp 2. Which of the following would most likely not give rise to a liability? Scanned with CamScannerChapter] a. An irrevocable purchase commitment becomes burdensome. b. Earning of taxable income. c. Signing an employment contract. d. Sale of product with implied warranty. Entity A enters into an executory contract. Entity A appropriately did not recognize any asset or liability from the contract. Which of the following statements is correct? a. If Entity A performs its obligation first, Entity A shall recognize an asset. b. If Entity A performs its obligation first, Entity A shall recognize.a liability. c. If the counterparty performs its obligation first, Entity A shall recognize an asset. d. Entity A should recognize a combined asset and liability upon signing the contract. According to PFRS 9, when should an entity recognize a financial liability? a. When the instrument imposes probable outflows of economic benefits that can be measured reliably. b. When the entity becomes a party to the contractual provisions of the instrument. c. Upon entering into the contract even if the contract is still executory. d. Any of these as a matter of an accounting policy choice. Which of the following liabilities is a financial liability? Advances from customers A constructive obligation Callable preference shares issued An obligation to deliver a variable number of own shares worth a fixed amount of cash. Bose Scanned with CamScannerCurrent Liabilities 41 6. According to PFRS 9, financial liabilities are classified as a. FVPL or amortized cost. ¢. FVPL or FVOCI. b. FVPL, FVOCI or amortized cost. d. none of these 7. Financial liabilities that are classified as amortized cost are subsequently measured at a. fair value with changes in fair value recognized in profit or loss. b. fair value with changes in fair value recognized in other comprehensive income. c. partly (a) and partly (b) depending on the change in the instrument's credit risk. d. the present value of the remaining cash flows of the instrument, discounted at the original effective interest rate. 8. According to PAS 1, which of the following statements is correct regarding the refinancing of long-term obligations? a. A currently maturing obligation is classified as current even if a refinancing agreement to reschedule payments on a long-term basis is completed after the reporting period and before the financial statements are authorized for issue. b. Acurrently maturing obligation is classified as current if a refinancing agreement to reschedule payments on a long- term basis is completed after the reporting period and before the financial statements are authorized for issue. c. A currently maturing obligation is always classified as a current liability, without exception. d. Acurrently maturing obligation is classified as noncurrent if the entity expects to refinance it on a long-term basis. 9. Which of the following is a trade payable? Income tax payable Note payable issued in exchange for inventories, Dividend payable |. Short-term bank loan aroPp Scanned with CamScannerChapter py 10. Which of the following is incorrect regarding the accounting for gift certificates under PFRS 15? a. The entity recognizes a contract liability when it sells gif, certificates. b. The entity derecognizes the contract liability and recognizes revenue when customers use gift certificates, c. The entity recognizes revenue for the full amount of expected breakage. d. If the entity expects that a portion of the gift certificates sold will not be redeemed, the entity recognizes the expected breakage amount as revenue in proportion to the pattern of rights exercised by the customer. PROBLEM 3: MULTIPLE CHOICE - COMPUTATIONAL 1. The account balances of Boast Co. include the following: Notes payable | 14,000 | PhilHealth cont. payable | 12,000 Interest payable _____| 12,000 | Cash dividends payable 8,000 | Uneamed revenue 2,000 | Share dividends payable | 6,000 | Rent payable 30,000 | Lease liability [70,000 Warranty obligation 10,000 | Bonds payable [240,000 | Discount on notes receivable) 6,000 | Premium on bonds payable! 20,000 | Income taxes payable 4,000 rity deposit ~ | 4,000 Obligation to deliver a fixed i plea ‘umber of own shares worth) 100,000 | Redeemable preference | 44 yy -afixed amount ofcash |__| Shares issued | {Ordinary shares issued | 20,000 | Constructive obiigation | 22,000 How much is Boast Co.'s total financial liabilities? a. 426,000 ‘b, 438,000 c. 444,000 d. 538,000 2. Proud Co.'s records on Dec. 31, 20x1 show the following account balances: Trade accounts payable (net of P10,000 debit balance in supplier's account and P8,000 unreleased checks drawn) 600,000 Deferred tax liability (expected to reverse in 20x2) 10,000 10%, 4-year note payable issued on Aug, 1, 20x1 240,000 = Scanned with CamScannerCurrent Liabilities 43 Bonds payable (maturing in 5 equal annual installments of 400,000) 2,000,000 Reserve for contingencies 50,000 Held for trading financial liabilities 100,000 Income tax payable 100,000 Accrued expenses 10,000 Stock dividends payable 24,000 How much is the total current liabilities? a. 1,120,000 —_b. 1,210,000. 1,220,000. 1,238,000 3. Keeper Co. has the following liabilities on December 31, 20x1: «Trade and other payables 2,000,000 ‘* Note payable (issued 3 yrs. ago, maturing on Dec. 31,20x2) 6,000,000 ¢ — Serial bonds payable (next annual principal installment of 800,000 due July 1,20x2) 5,600,000 On February 28, 20x2, Keeper Co. entered into a non-cancelable agreement with the lender to refinance the note payable on a long- term basis, on readily determinable terms that have not yet been implemented. Keeper Co.'s 20x1 financial statements were authorized for issue on March 31, 20x2, What amount of current liabilities should Keeper Co. report in its 20x1 statement of financial position? a. 2,000,000 —b. 2,800,000. 8,800,000. 13,600,000 4. Pam, Inc. has P1,000,000 notes payable due on June 15, 20x6. On December 31, 20x5, Pam signed an agreement to roll over the P1,000,000 note on a long-term basis. Under the agreement, the amount that can be rolled-over cannot exceed 80% of the value of the collateral Pam was providing. As of December 31, 20x5, the value of the collateral was P1,200,000 and was not expected to fall below this amount during 20x6. In its December 31, 20x5, balance sheet, Pam should classify the notes payable as : Short-term — Long-term Short-term Long-term a 0 1,000,000 c. 200,000 800,000 b. 40,000 960,000 d. 1,000,000 0 (AICPA - adapted) Scanned with CamScanner