CHAPTER 4 ACCRUED LIABILITIES Bonus computation Problem 4-1 (AICPA Adapted) Kemp Company must determine the December 31, 2024 accruals for the following expenses: A P500,000 advertising bill was received January 7, 2025, comprising cost of P350,000 for advertisement in December 2024 issues, and P150,000 for advertisement in January 2025 issues of the newspaper. * Aone-year lease, effective December 16, 2024, 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, 2025. The entity estimated that the real property tax will amount to P600,000 for the city’s fiscal year ending June 30, 2025. On December 3 1. 2024, what amount should be reported as accrued expenses? * a. 950,000 b. 770,000 c. 650.000 d. 710,000 Solution 4-1 Answer d Advertisement for December 2024 350,000 Accrued rent from December 16 to December 31, 2024 (120,000 x 6/12) 60.000 Accrued real property tax (600,000 x 6/12) 300,000 Total accrued expenses December3 1, 2024 710,000 41Problem 4-2 (AICPA Adapted) Total wages Income tax withheld Chester Company reported the following payroll for the month of January: 500,000 60,000 All wages paid were subject to SSS. The SSS tax rates were 7% each foremployee and employer. Chester remits payroll taxes onthe 15thof the following month. Inthe financial statements for the month ended January31, wha amount should be reported respectively as total payroll tax lability and payroll tax expense? a. 60,000 and 70,000 (7%x 500,000) (7¥%x 500,000) ‘The pertinent entries for the month of January in relation to the payroll 00,000 Payroll tax expense 35,000 ‘SSS payable - employer ee ge Problem 4-3 (AICPA Adapted) Mi i Company operates aretail store. All itemsare sold subject 9 & 1 N enided tar, which the entity collects and records as sales revenue. ‘The entity files quarterly sales tax retums when due day following the end of the sales quarter. However, in accordance with tate requirements, the entity remits valve fed by the twentieth day of the month following any ions exceed P50,000. .ese payments as credits on the quarterly sales tax ided taxes paid by the entity are charged against by the twentieth Following is a monthly summary appearing in the first quarter sales revenue account: Debit ‘Credit January - 560,000 February 60,000 392,000 — 448,000 60,000 392,000 448,000 Sales including VAT 1,400,000 Sales excluding VAT (1,400,000//1.12) 1'250,000 Output VAT Payment of VAT in February oaey VAT payable - March 31 90,000eer trate nee ee ee eee ‘account and pays real esi ayers, Escrow funds are Kept in interest rs oc sevice fee, i credited tothe ature escrow payments. 700,000 1 80.000 1,720,000 c.000 account bility at yearend? 700,000 ‘Add: Escrow payn 1,580,000 Interest on escrow funds 50,000 1,630,000 Total : 2,330,000 Less: Real estate taxes paid 1,720,000 Servic ,000) 5,000 1,725,000 £05.00 Adapted) On the first day of each month, Bell Gompany received from Carr Company an escrow: deposit -of P250,000 for real estate taxes. Bell ‘Company recorded the P250,000 in an escrow account. ‘The real estate tax forthe current year is P2, 800,000 payable in equal aan Rey ofeach clea ee Bean te balance in the escrow account was P300,000. ‘What amount should be reported a escrow liability on September 30? 300,000 2,250,000 Teal 2,550,000 Less: Payment for real estate tax January 110 September 50 or three quarters (2,800,000 x 3/4) 2,100,000 Escrow liability ~ September 30 450,000 54 problem 4-6 (AICPA Adapted) ‘On July 1, 2023, the Quezon City, gove! mnded June 30, 2024. assessment forthe fiscal yore land in Quezon #95023, Zuma Company purchased purchase price was Pan Pia credit for accrued realty taxes: The enit rercenot record the entre year's realestate tax ODLIEE DY The entity docs tan expenses at the end of £2ch month by Pitasting prepaid real estate taxes or Feal estate t@xcS payable as appropriate. : On Novernber 1,2023, the entity paid the first of two equal installments ‘of P600,000 for realty taxes. What amountof the payment should be recorded a5 debit to real estate taxes payable? 100,000 Journal entries Sept. Land (100,000 x 2) 200,000 200,000 Sept.30 Taxes (for September) spi "000° 100.000 Tax . fone 100,000 100,000 Nov. Taxes . cen ae 400.000 Cash 200,000 600.000 The payment is charged first eae wines vane 58 i os ee et MS | ae arated tie Oe tie, nt eM aes A Rr aOO _—————————— ets Problem 4-7 (ACP) ‘Nature Company had an agreement to pay the sales manager a bonus of 10% of the entity's income. The income for the year before bonus and tax was P4,400,000. The income tax rate is 25%, Determine the bonus under each of the following independent assumptions: 1 Bonsisn cain een fein bibs 2, Bonus is certain erent ofincom after bons but befor: tax. 3. Bonusis a certain percent of income after bonus and after tax. 4, Bonusis certain percent of income after tax but before bonus. Solution 4-7 (Case 1 - Before bonus and before tax Income before bonus and before tax 4,400,000 “Maltiply by 10% Bonus 440,000 Case 2—After bonus but before tax B) 4,400,000 400,000) 4,000,000 10% 400,000 Case3—After bonus and after tax Income before bonus and before tax Bonus Tax Income after bonus and after tax Multiply by Bonus Case 4—After tax but before bor B= Ts B= 400,000 - B)] B= ‘+ .25B) B Income before bonus and before tax 4,400,000 ‘Tax (4,400,000 ~ 338,462 x25%) (1,015,384) Income after tax but before bonus Multiply by Ase Bonus, 338,462es Gy he Problem 4-8 (AICPA Adapted) Christian Company had a bonus agreement which provided thatthe {general manager shall receive an annual bonus of 10% of the net income after bonus and after tax. The income tax rate is 25%. The genera] ‘manager received P300,000 forthe current year as bonus. ‘What amount should be reported as income before bonussand before tax? 3,000,000 4,000,000 4,300,000 Problem 4-9 (AICPA Adapted) ‘After three profitable years, Cairo Company decided to offer a bonus to the branch manager of 25% of income over P5,000,000 earned by the branch. The income for the branch was P8,000,000 before tax and before ‘bonus for the current year. The bonus is computed on income in excess Of P5,000,000 after deducting the bonus but before deducting tax. The income tax rate is 25%. ‘What amount should be reported as bonus of the branch manager for the current year? ©. “600, 4750/0 Solution 4-9 Answer e 750,000 / 1.25 600,000 58 Problem 4-10 (ACP) ‘Tobruk Company had an agreement to pay its sales manager Doses of 3% of the income. The income forthe current Y&%, Before wx isP5250,000,The income taxrateis 25% 1. ‘What amount should be reported as bonus based on income: ‘bonus but before tax? a. 262,500 b. 250,000 ¢. 210,000 d. 237,500 What amount should be reported as bonus based on income after bonus and after tax? a, 262,500 2 Solution 4-10 Question | Answer b B= .05(5,250,000-B) B = 262,500-.05B B+.0SB = 262,500 1.05B = 262,500 B= 262,500/ 1.05 B= 250,000 Question 2 Answer ¢