QUIZ 1- CURRENT LIAB.

Question 1
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Apachi Company must determine the December 31, 2016 year-end accrual for advertising rent expenses. On
January 3, 2017, Apachi Company receive P100,000 advertising bill, comprising of P37,500 for newspaper
advertisements in December 2016 and P62,500 for magazine advertisements that will be published monthly in the
year 2017.
The store lease effective August 1, 2016 calls for fixed rent of P120,000 per month payable on or before the 5th
day of the current month. Included in the lease contract is contingent rent equal to 3% of net sales over
P2,000,000 per month that is required to be paid on the 20th day of the following month. Net sales for December
2016 were P5,500,000.
In its December 31, 2016 statement of financial income, Apachi Company should report accrued liabilities of
Select one:
a. P167,500
Accrued advertising P 37,500
Contingent rent (5.5M - 2M) x 3% 105,000
Accrued liabilities, December 31, 2016 P142,500
b. P105,000
c. P262,500
d. P142,500
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The correct answer is: P142,500

Question 2
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Under a customer loyalty program, if a third party supplies the awards and the entity is collecting the
consideration for the award credits as principal in the transaction
Select one:
a. The entity shall recognize immediately revenue equal to the gross consideration allocated to the award credits.
b. The entity shall not recognize revenue from the award credits.
c. The entity shall recognize initially a deferred revenue equal to the difference between the consideration for the
award credits and the amount paid by the entity to the third party.
Incorrect
d. The entity shall recognize initially a deferred revenue equal to the gross consideration allocated to the award
credits.
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The correct answer is: The entity shall not recognize revenue from the award credits.

Question 3
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An entity received an advance payment for special order goods that are to be manufactured and delivered within
six months. The advance payment is reported in the statement of financial position as
Select one:
a. Current liability
Correct
b. Contra asset account
c. Deferred charge
d. Noncurrent liability
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The correct answer is: Current liability
QUIZ 1- CURRENT LIAB.

Question 4
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On September 1, 2015, Tom Company borrowed on a P1,650,000 note payable from ABN Bank, The note bears
interest at 12% and is payable in three equal annual payments of P550,000. On this date, the bank's prime rate is
11%. The first annual payment for interest and principal was made in September 1, 2016.
At December 31, 2016, what amount should Tom Company report as accrued interest payable?
Select one:
a. P60,500
b. P66,000
c. P44,000
Accrued interest payable, December 31, 2016 (1.1M x 12% x 4/12) P44,000
d. P40,333
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The correct answer is: P44,000

Question 5
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In its 2016 financial statements, Toronto Company reported interest expense of P85,000 in its statement of
comprehensive income and cash payments for interest at P68,000 in its statement of cash flows. There was no
prepaid interest or interest capitalization either at the beginning or end of 2016. Accrued interest payable at
December 31, 2016 was P15,000
What amount should Toronto Company report as accrued interest payable in its December 31, 2016 statement of
financial position?
Select one:
a. P2,000
b. P15,000
c. P32,000
Accrued interest payable, December 31, 2015 P15,000
Interest expense for year 2016 85,000
Interest payments during 2016 (68,000)
Accrued interest payable, December 31, 2016 P32,000
d. P17,000
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The correct answer is: P32,000

Question 6
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Which of the following is a characteristic of a current liability but not a noncurrent liability?
Select one:
a. Settlement is expected within the normal operating cycle or within 12 months, whichever is longer.
Correct
b. Unavoidable obligation.
c. The obligating event creating the liability has already occurred.
d. Present obligation requires settlement by probable future transfer or use of cash, goods or services.
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The correct answer is: Settlement is expected within the normal operating cycle or within 12 months, whichever is
longer.
QUIZ 1- CURRENT LIAB.

Question 7
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Buffy Company provides an incentive compensation plan under which its president is to receive a bonus equal to
10% of the profit in excess of P1,000,000 before deducting income tax but after deducting the bonus. Profit after
income tax of 30% is P2,100,000

How much is the president's bonus?

Select one:
a. P129,888
b. P200,000
Profit before tax and after bonus (2,100,000/0.70) = P3.0M
Bonus 10% x (3.0M - 1.0M) = P200,000
c. P210,000
d. P220,000
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The correct answer is: P200,000

Question 8
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The award credits granted to customers under a customer loyalty program is often described as
Select one:
a. Points
b. Royalty
c. Credits
d. Awards
Incorrect
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The correct answer is: Points

Question 9
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The consideration allocated to the award credits is measured at
Select one:
a. Fair value of the award credits
b. Fair value of the goods to be received in exchange
c. Carrying amount of goods to be received in exchange
d. The proportion of the fair value of the award credits relative to the total consideration received from the initial
sale of the goods
Incorrect
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The correct answer is: Fair value of the award credits

Question 10
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Which of the following circumstances may result in the classification of a liability as current?
Select one:
a. Violation of provisions of a debt agreement
Correct
b. Short-term obligations refinanced with long-term debt at the end of reporting period
QUIZ 1- CURRENT LIAB.

c. Debts to be liquidated from funds that have been accumulated and are reported as noncurrent assets
d. Obligations for advance collections that involve long-term deferment of the delivery of goods or services
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The correct answer is: Violation of provisions of a debt agreement

Question 11
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Cobb Company sells gift certificates redeemable only when merchandise is purchased. Upon redemption, Cobb
Company recognizes the unearned revenue as realized. Information for the current year is as follows:
Unearned revenue, January 1 - P650,000
Gift certificates sold - P2,250,000
Gift certificates redeemed - P1,950,000
Gift certificates unredeemed for a long time - P100,000
Cost of goods sold - 60%
What amount should be reported as unearned revenue at year-end?
Select one:
a. 950,000
b. 510,000
c. 850,000
d. 570,000
Unearned revenue - January 1 650,000
Add: Gift certificates sold 2,250,000
Total 2,900,000
Less: Gift certificates redeemed 1,950,000
Unredeemed gift certificates 100,000 2,050,000
Unearned revenue - December 31 850,000
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The correct answer is: 850,000

Question 12
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Jam Company had P2,000,000 note payable due on March 1, 2015. The entity borrowed P1,500,000 on December
31, 2014 which has a five-year term and used the proceeds to pay down the note payable and used other cash to
pay the balance at maturity. The financial statements were issued on March 31, 2015. What amount of the note
payable should be classified as current on December 31, 2014?
Select one:
a. 2,000,000
Current portion of note payable (2,000,000 - 1,500,000) 500,000
b. 1,500,000
c. 500,000
d. 0
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The correct answer is: 500,000
QUIZ 1- CURRENT LIAB.

Question 13
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Which of the following is not an acceptable presentation of current liabilities?
Select one:
a. Showing current liabilities in the order of liquidation preference.
b. Listing current liabilities according to amount.
c. Offsetting current liabilities against assets that are to be applied to their liquidation.
Correct
d. Listing current liabilities in the order of maturity.
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The correct answer is: Offsetting current liabilities against assets that are to be applied to their liquidation.

Question 14
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Dan Company sells contracts agreeing to service air-conditioners for a three year period. Information for the year
ended December 31, 2016 is as follows:
Unearned service contracts revenue, January 1 - P270,000
Cash receipts from service contracts sold - 480,000
Service contracts revenue recognized in profit or loss - 390,000
What amount should Dan Company report as unearned service contract revenue in its December 31, 2016
statement of financial position?
Select one:
a. P275,000
b. P120,000
c. P360,000
Unearned service contract revenue, January 1 P270,000
Service contracts sold during the year 480,000
Service contracts revenue (390,000)
Unearned service contract revenue, December 31 P360,000
d. P195,000
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The correct answer is: P360,000

Question 15
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THE NEXT ITEM(S) IS/ARE BASED ON THE FOLLOWING
Rye Company sells equipment service contracts that cover a two-year period. The sales price of each contract is
P5,000. Rye Company's past experience shows that of the total pesos spent for repairs in service contracts, 40% in
incurred evenly during the first contract year and 50% evenly during the second contract year. Rye Company sold
1,000 contracts evenly throughout 2015 and 800 contracts evenly throughout 2016.
In its December 31, 2015 statement of financial position, what amount should Rye Company report as unearned
revenue?
Select one:
a. P1,500,000
b. P4,000,000
Contracts sold in 2015 (1,000 x 5000) P5,000,000
Revenue recognized in 2015 (5.0M x 40% x ½) 1,000,000
Unearned revenue, December 31, 2015 P4,000,000
c. P3,000,000
d. P0
QUIZ 1- CURRENT LIAB.

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The correct answer is: P4,000,000

Question 16
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Which of the following is a noncurrent liability?
Select one:
a. Estimated warranty liability
b. Unearned interest income related to noninterest-bearing long-term note receivable
Correct
c. Income tax payable
d. One-year magazine subscription received in advance
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The correct answer is: Unearned interest income related to noninterest-bearing long-term note receivable

Question 17
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Which of the following is not considered a characteristic of a liability?
Select one:
a. Liquidation is reasonably expected to require use of current assets
Correct
b. Arises from past event
c. Results in an outflow of resources
d. Present obligation
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The correct answer is: Liquidation is reasonably expected to require use of current assets

Question 18
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What is the relationship between present value and the concept of a liability?
Select one:
a. Present value is used to measure certain liabilities.
Correct
b. Present value is only used to measure noncurrent liabilities.
c. Present value is not used to measure liabilities.
d. Present value is used to measure all liabilities.
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The correct answer is: Present value is used to measure certain liabilities.

Question 19
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THE NEXT ITEM(S) IS/ARE BASED ON THE FOLLOWING
The Jones Company enjoys profitable operations for its past ten years of existence. The company president
proposed to the Board of Directors an incentive compensation plan where the general manager would be entitled
to a year-end bonus under the following alternative schemes.
Alternative 1: 8% bonus based on profit before bonus and income tax in excess of P5,000,000.
Alternative 2: 5% bonus based on profit after both bonus and income tax.
Alternative 3: 3% bonus based on profit after bonus but before income tax.
QUIZ 1- CURRENT LIAB.

Jones Company's profit before bonus and income tax for the year ended December 31, 2016 is P8,000,000.
Assume an income tax rate of 30%.

How much is the general manager's bonus for 2016 under Alternative 3?
Select one:
a. P233,010
Alternative 3 B=.03 x (8.0M - B); B=240,000 -.03B
B +.03B = 240,000; B=240,000/1.03 = P233,010
b. P184,615
c. P247,423
d. P240,000
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The correct answer is: P233,010

Question 20
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Edifice Company provided extended service contracts on electronic equipment sold through major retailers. The
standard contract is for three years. During the current year, the entity provided 42,000 such warranty contracts at
an average price of P81 each. Related to these contracts, the entity spent P400,000 servicing the contracts during
the current year and expected to spend P2,100,000 more in the future. What amount of net income should be
recognized in the current year related to these contracts?
Select one:
a. 734,000
Service contract revenue 1,134,000
Service expense (400,000)
Net income 734,000
b. 902,000
c. 3,402,000
d. 1,134,000
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The correct answer is: 734,000

Question 21
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What is the classification of debt callable by the creditor?
Select one:
a. Current liability if the creditor intends to call the debt within one year.
b. Noncurrent liability
c. Current liability if it is probable that the creditor will call the debt within one year.
d. Current liability
Correct
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The correct answer is: Current liability

Question 22
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Miyuki Company operates a retail store. All items are sold subject to a 12% value added tax which the entity
collects and records as sales revenue. The entity files quarterly sales tax returns when due by the twentieth day
following the end of the sales quarter. However, in accordance with state requirements, the entity remits value
added tax collected by the twentieth day of the month following any month such collections exceed P50,000. The
QUIZ 1- CURRENT LIAB.

entity takes these payments as credits on the quarterly sales tax return. The value added taxes paid are charged
against sales revenue. Following is a monthly summary appearing in the first quarter sales revenue for 2014:
Debit Credit
January - 560,000
February 60,000 392,000
March - 448,000
On March 31, 2014, what amount should be reported as value added taxes payable?
Select one:
a. 90,000
Sales including VAT 1,400,000
Sales excluding VAT (1,400,000 / 1/12) 1,250,000
Output VAT 150,000
Payment (60,000)
VAT payable 90,000
b. 168,000
c. 150,000
d. 108,000
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The correct answer is: 90,000

Question 23
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At the end of the current year, an entity received an advance payment of 60% of the sales price for special order
goods to be manufactured and delivered within five months. At the same time, the entity subcontracted for
production of the special order goods at a price equal to 40% of the main contract price. What liabilities should be
reported in the year-end statement of financial position?
Select one:
a. Deferred revenue equal to 60% of the main contract price and no payable to subcontractor
Correct
b. None
c. No deferred revenue but payable to subcontractor is reported at 40% of the main contract price
d. Deferred revenue equal to 60% of the main contract price and payable to subcontractor equal to 40% of the
main contract price
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The correct answer is: Deferred revenue equal to 60% of the main contract price and no payable to subcontractor

Question 24
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Which of the following statements best describes the term "liability"?
Select one:
a. Resources to meet financial commitments as they fall due
b. The residual interest in the assets of the entity after deducting all of the liabilities
c. A present obligation of the entity arising from past events
Correct
d. An excess of equity over current assets
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The correct answer is: A present obligation of the entity arising from past events

Question 25
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QUIZ 1- CURRENT LIAB.

THE NEXT ITEM(S) IS/ARE BASED ON THE FOLLOWING

The Jones Company enjoys profitable operations for its past ten years of existence. The company president
proposed to the Board of Directors an incentive compensation plan where the general manager would be entitled
to a year-end bonus under the following alternative schemes.
Alternative 1: 8% bonus based on profit before bonus and income tax in excess of P5,000,000.
Alternative 2: 5% bonus based on profit after both bonus and income tax.
Alternative 3: 3% bonus based on profit after bonus but before income tax.
Jones Company's profit before bonus and income tax for the year ended December 31, 2016 is P8,000,000.
Assume an income tax rate of 30%.

How much is the general manager's bonus for 2016 under Alternative 2?
Select one:
a. P270,531
b. P262,911
Alternative 2 T=.30 x (8.0M - B); B=.05 x (8.0M - B - T)
B=.05 x [8.0M - B - .30 (8M - B)]
B=.05 x (8.0M - B - 2.4M + .30B)
B=280,000 -.05B + .015B
B +.05B - .015B = 280,000; B=280,000/1.035 = P270,531
c. P290,155
d. P215,835
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The correct answer is: P270,531

Question 26
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Aubrey Company has a 12-month accounting period ending December 31. On April 1, 2013, it introduced a new
contractual bonus scheme covering the year to March 31 each year. It is reasonably anticipated that the bonuses
for the year to March 31, 2014 will amount to P900,000. What amount of liability for bonuses should be recorded
on December 31, 2013?
Select one:
a. 0
b. 900,000
c. 675,000
Bonus payable from April 1 to December 31, 2013 (900,000 x 9/12) 675,000
d. 225,000
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The correct answer is: 675,000

Question 27
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On December 31,2014, Ace Company had P40,000,000 note payable due on February 28,2015. On December 31,
2014, the entity arranged a line of credit with City Bank which allows the entity to borrow up to P35,000,000 at
one percent above the prime rate for three years. On February 15,2015, the entity borrowed P25,000,000 from
City Bank and used P5,000,000 additional cash to liquidate P30,000,000 note payable. The financial statements
were issued on March 31,2015. What amount of note payable should be reported as current liability on December
31,2014?
Select one:
a. 10,000,000
b. 0
c. 5,000,000
QUIZ 1- CURRENT LIAB.

d. 40,000,000
The refinancing occurred on February 15, 2015, which is after the end of the reporting period and before issuance
of the 2014 financial statement. Thus, the note payable is classified totally as current.
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The correct answer is: 40,000,000

Question 28
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Which of the following represents a liability?
Select one:
a. The obligation to provide goods that customers have ordered and paid for during the current year.
b. The obligation to distribute an entity's own shares next year as a result of a stock dividend declared near the end
of the current year.
c. The obligation to pay for goods that an entity expects to order from suppliers next year.
Incorrect
d. The obligation to pay interest on a five-year note payable that was issued the last day of the current year.
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The correct answer is: The obligation to provide goods that customers have ordered and paid for during the
current year.

Question 29
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During 2016, Mega Publishing, a newly organized magazine publisher, received payment of P444,000 for the
subscriptions of their two high-end magazines that were being issued monthly (twelve times a year).
Number of Annual
Magazine Subscriptions Subscription Price
Universal Time 100 P3,000
Condo International 60 2,400
Of the 100 Universal Time subscriptions, effectivity date of the 55 subscriptions was January 1, 2016 while the
remainder had April 1, 2016 effectivity. All of the Condo international magazine subscriptions started with the
maiden issue published in May 2016.

What amount should Mega Publishing report in its December 31, 2016 statement of financial position as unearned
subscriptions revenue?
Select one:
a. P81,750
b. P89,250
c. P197,250
d. P129,750
Universal Time unearned subscriptions (45 x 3,000 x 3/12) P33,750
Condo International unearned subscriptions (60 x 2,400 x 4/12) 48,000
Unearned subscriptions revenue P81,750
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The correct answer is: P81,750

Question 30
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The fair value of a liability is defined as
Select one:
a. The carrying amount of the liability on the date of transaction.
QUIZ 1- CURRENT LIAB.

b. The price that would be received to assume the liability in an orderly transaction between market participants.
Incorrect
c. The appraised value of the liability.
d. The amount that would be paid when transferring a liability in an orderly transaction between market
participants.
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The correct answer is: The amount that would be paid when transferring a liability in an orderly transaction
between market participants.