PROBLEMS Problem 2-1 Multiple choice (FRIC 18) 1 It igs marketing echome whereby an entity grante award ‘relitstocustomera and the entity ean bedcem the aera txedita in exchange for fove oF discounted goods or 8. Customer loyalty program Promium plan ©. Marketing progress & Loyalty award ‘The award credite granted to customers under a customer loyalty program in often decribed! as 8. Points B Awards Credits & Revalty ‘The consideration allocated to the award eredita is 2. Fair value of the award credits 1. Carrying amount of goods tobe received in exchanges ¢. Falr value of the goods to be recived in exchange ‘4 The proportion of the fair value ofthe award credits relative to the fotal consideration received froin the Initial sale of the goods A Under a eu alty program, if the entity auppliee the awards iteelf the consideration allocated to the awed fa. Shall be recognized as ravenue immediately. Shall not bo acsounted for ns revenue separately Shall be recognized as deferred sevene and amorlized fas revenue over a yeasanable period not exceeding 5 years 4 Shall bo rocognized initially ao deferred revenue and subsequently recognized as roveaue upon the redemption ofthe nward credits, 60 18. Under a customer loyalty program, if a third party ‘upplios the awards and the entity is collecting Cae fnnsideration for tho award credita a8 principal in the tranesction ‘4 Thacntity shall not recognise revenue from the award b, The ontity shall recognize initially «deferred revenue ‘equal to the gross consideration allocated to the award credits. ¢. The entity shell rcognize initially a deferred revenue equal to the difference between the consideration for the award credits and the emount paid by the entity to the third party 4. The ontity shall eengnize immediately to the gross considerstion allocated f credits, wens equal rroblem 2-2 Multiple choice (AICPA Adapted) 1.An entity sells appliances that include & two-year ‘warranty, Service calla andar the warranty ere perforined by an independent mechani under contract with the entity. Based on experience, warranty costs are fstimaied at a certain amount for each appliance sold ‘When should the entity recognize these wanvanty cata ‘2 Evenly over the life of the warranty 1. When tho serve calls are performed ©. Whon paymenta are made t the m 24. When the appliances are sold }2.A department store received cash and issued « gift ‘ortfcate that is redeemable in merchandise, When the ft certificate was issued &. Deferred revenue account should be decreased 1b Deferred revenus account should be increased ©. Revenue aconunt should ke decreased 4. Revonus account should be inorehsed 68. An entity oosivad an a ce payment for special order ‘Goods that are to be manufactured and delivered within f monthe, Th advance payment i reported in the ‘Statement of Ginsncial position a. Deferred charge 1 Contes asset account © Current lability 4 Noncurrent liability Anentiyios retailer ofhame planned afer srvie contract on each appliance wld The entity wells appliances on instalment contracts bt all service conracta ust be Paid in fall at th time of sale. Collections received for Service contract shouldbe recorded aan increase in Deforred revenue account Sales contracts receivable valuation account Shareholder equity valuation acount Service revenue account [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 teported in the year-end statement of financial a. None 1b Deferred revenue equal to 60% of the main contract Brice and payable to wubcontrator equal to 10% of Deferred revenue equ to 606 of the main contract price and no payable to subcontractor 4 No deferred revenue but payable to subcontractor is reported at 40% of the main contract prise " 62 ‘6.In Juno of the current yoar, an entity sold refundable orhandice pana The enticyroceived a certain amount {Be cach eoupon fedcernabie from July 1 to December 81 of foocursent your for merchandise with acerca otal price rvent year, ow should the ently eport fa Uneered revenue at the merchandive's retail price © Unearned revenue at the cash recened Revenue atthe merchandise’ price Revenue atthe cash roeived 17, How would the proses received from the advance sale of omefundable tickets for a theatrical performance be {eported in the statement of Enancial postion before the performance? 1a. Revenve for the entire proceeds 1 Revenue to the extnt of related costs expanded ©. Unearned revenue to the extent of related costs expended 4. Uncerned revenue for tho entire proceeds 8 Magazine subscription collected in advance should be treated ‘Acontra account to magazine subscriptions reeivable Deferred revenue in the lability section Deferred revenue in the shareholders equity section ‘Magazine subscription refund inthe income statement in the period collected pore 9.Under a royalty agreement, an entity will receive royaltios from the ataigament ofa patent forfour years, ‘The royalties reosived in advance should be recognized a. In the poriod received 1. In the peried earned ©. Evenly over the life of tho royalty agreement Ab the date ofthe royalty agroement 6a x10. Unearned rent revenue would norm ‘ateen of finn postion ap = SPREE inthe 8. Plant asset Current Tiabitisy . Noncurcent lil 4 Corrent aeset Problem 23 Multiple choice (LAA) 1 The accrual approach warranty cost, raised ‘9 Is required for income t ax purposes, fied onthe basi of expodiency when immaterial. ‘Finds th expense account being charged when the 4, ile performs in compliance withthe warranty Repretnte assented practive and shouldbe tard henevr the warraney ian integral and neeparable 2 Which ofthe following best describes Approach of wanting or warrenty cates Sera Expensed when paid . Expensed when warranty claims are certain © Expensed based on estimate in year of ale 4. Expensed when incurred 8 Which of the following best describ ig beat describos the expense ‘approach of accounting for warranty cost? Expense based on estimate in your of ale 3. Expensed when lability is accrued. & Expeneed when waranty as oe cera d. Expensed when incurred. ™ 64 4An entity has a continuing policy of gusrantecing new products against defects for tee years. Any lability for « the warranty ‘a. Should be reported as noncurrent. Should be reported as current fe Should be teported 26 part current and part 4. Need not be disclosed. 15, Which of the following isa characteristic ofthe accrual fof warranty but not the sale of warranty? ‘a. Warranty liability 1b. Warranty expense ¢ Unearned warranty revenue 4. Warranty revenue Problem 2-4 (IAA) Miracle Company manufacturers @ product that is packaged fend eold, A plate je offered to customers sending in threo wrappers accompanied by a remittance of PIO. Data with spect to the premium offer are summarized below. ams moe ame ‘600.000 4.200000, Parchaseafpremium (50 perplate) "590000 580,000 Number ofplatesdstsbutodanpremiums 50001000 inated numer of plates abe itibted in eubeoguen period 2000-000 Distebution cost P20 pe plate Required: ant would be made in 2019 and 2044 Prepare journal ents aid to record sales, premium purchases and redemptio ‘year-end adjustments 65Problem 2-5 (AA) Pop Company sells banana juice. In order to promote the drink ‘among teenagers and others who might otherwise be indierent to the produc, the entity inaugurates in the current year a Premium plan called ‘Drnk-N-Win" For every 10 bottle cape and P5 tured in, customers rocive an siractive ball pen and ‘become eligible fora grand prize of PS,000 in'eash which awarded for every 100 tops tarned in, ‘The entity eninatas that only 2596 of bottle expe reaching the hands of customers will be presented for redemption, Daring the current your, the entity elle 40,000 ttn of teananajc t P each: pachasr 16000 all pt peas oe titan oP 00 ance nodrablesons P58 ‘ppicable tothe premium plan hata ef A000 posse foe ‘epod oi tern prin ar onthe Sid of each your, then rcs sn tase habs qual tthe estimated cont of paca autstaning Required: ‘Prepare journal entries to record the transactions relating to he premium plan fr the curent Year aaa Problem 2-6 (IAA) {senda Company manufacture special laundry ssp. towel is offred as a premium to curiae who send i we pene Purchase sel from the soap buen and a reraiions of PN Distinct 9 pe towel Data tho premiums oe we 3a lea 2.509000 9.25000 ‘Tore perches 100 porto i Néntercliowldutristedaepreniom "tomo 0 Number f owes espced tie sitnbuted inrubaquent prod oo ‘00 Required: 1 Prepare journal entries for 2019 and 2014 2 ‘Statement clasifieation of the acoodnt balances pertaining to the promium plan, 66 Problem 2-7 (AICPA Adapted) In an effort to increase sales, Mills Company inaugurated a = {ales promotional campaign on June 30, 2015. The entity ‘laced coupon relcemable for 8 premium in each package cereal sold Each pom ort 0 and ve coupons must te precentod by 8 customer to receive a premium. The entity stimated that only 60% of the coupon issued will bo ‘Scdoomed: Far the si months ended December 31, 2013, the lowing information in avalabl: nck Preeaiamne Compas Reretfeoit purchased redeemed 160000 2.000 000 ‘What ia the eotimated liability for premtim claims outstanding on December 31, 2013? opin te be ntemed (1-004 607%) ge 169,000 Ler tapers redeemed 224,000 Balance © BB000 pe oF prtmivms (94600) 4. 386000 Anson of aby (1,080 20) Problem 28 (CGAC) (on January 1, 2013, Rea Company began marketing @ new tah rn Ton roan th mat rik te managment Siting a epectl git ahi, to each customer w 40 bottle cape, The entity eatimated that out ofthe 250,000 {utes sl tn 2013, only 60% wil be redcomed On Deceber Bi, 201, the flowing fformation was collet Unite Amount Tahir purchased 14000 1,800,000 ‘Pabirs Grebe’ 15000 ‘What i the etimated premium Hability on December 31, 2013? Teele cap be redeemed Thole fae 9 200000, 700,000 H 2on000 1h we dtd - © gon000- 286000 se ‘ 200 S Sootova Uses Teenie atiewted exe 500,000 - sero no “7 Ustnated panna Cte lae er 10)Problem 2.9 (IAA) Summa Company manufactures a special product. To promote the aalaof the product a premium i alted teasers who sendin three wrappers and remittance of P28 To dition cost per premium is PS Data forthe premium ee, wis am 44900000 000,000 Naser of prema dtrbted “tom S00 Numer of premiums tote a lstebuted in est period ar) What amount shoul bo reported as prem 2a on ao a em OS Bema 2s dtu 198 =. 464000. Sst om et 848.000. Prnis ing tom ea aks fe 360,000 Pash apobe C8 104 4. 380,000 remiow epee (9800448) shexo Problem 2-10 (AICPA Adapted) During 2013, Day Company xd 60,00 ten of cle mix Und me sae prota progam, Rach bx antag cee cipon wos thantrong sae fence o P40. Th ety aoe P40 po pan and Par handling and shipping. ™ ” arse The entity estimated that 80% of th a of the coupons willbe redeemed, eventhough only 200,000 coupons bad Provessed during 2013. a ‘What amount should be reported as liability for unredeet coupons on December 31, 2013? met Tops tbe reed C40" 603000) a 1,000,000 Tans sltened © 1500000 cee sng 4 800.00 eid vmedene es Corl 6) os Problem 2-11 (AICPA Adapted) In an effort to increase sales, Blue Company inaugurated flee promotion campaign on dune 30, 2013, whereby the tntity placed a coupon in each package of razor Blades sold, She coupons being redeemable ora premium. Exch premium torte P50 and five coupons must be presented by a customer {2 receive a premium, The entity estimated that only 60 percent of the coupons ieaued will be redoomed. Por the six onthe ended December 3, 2013, the following information fs availabe Package ofreor Haden ald 00.000 Promina pureheped sno ‘Couponarescemed 106.000 What is the estimated liability for premium claims ‘outstanding on December 31, 20137 Deputies (eaten cow) 240,000 Lona 000 SE aon! eines 1B. 11400,000 Curtendlng spore ear © 1.800.000 prrmivms ( wer000 18) 24.000 €, 2.400.000 Feeimated Kabilty (29:800 7 750) 400.000 Problem 2-12 (AICPA Adapted) Cereal Company frequently distributes coupons to promote tow products, On Octaber 1, 2013, the entity mailed 100,000 ‘oupons for PAS off each box of coeal purchased and expected {2.000 of theee coupons tobe redeemed before the December Si, 2019 expiration date, Tt takes 30 days from the redemption date for the entity to receive the coupons from the retailers. The entity reimburses the retailers an ‘tdditonal PS for each coupon redeemed. On Decomber 31, 4018, the entity bad paid retailers P250,000 related to thoes coupons and had 8,000 coupons on hand that had not been Drocessed for payment. What amount should be reported as Liability for coupons on December 31, 2013? Se ee atin ae 350,000 nado Er tne pei dan each coupe Pag CREE EET ME Eee perce ee = ER ms yore ow Talis tr ops sueProblem 2-13 (CGAC) ‘Topsy Company started a new promotional program, Ror very 10 box tops returned, customers recrte ¢ hashetbel The entity estimated that only O08 ofthe box tape reaching the market willbe redeemed. Additional marinate oe tliow’ Unite Amount Sartre tos Basa paed 2conen9 Seapets smo “Sisson Whats the amount of yearend estimated lability sci with this promotion? ew race ‘san Nites nar es flee se © 3000000 glee A 45 40.00 Ro tctacasiany “2 Problem 2-14 (IAA) ne Fe.000 Baro Company iced one coupon in each box S24o eld A towel in ofred toa promi to cag Sho send in 10 coupons anda Satan Bae the premium offer are: peaeinans at eae RET materi BR er ae oe The entity’ experience indicated that only 20% of the ‘coupons will be redeemed. Hy 50% of ths What amount should be report as estimated laity for premiums on December 91,011? ve apis Ine ndcemed ib 10904 & son Rete eat somo 429,000 tayo vane o 108 9 70 © Snow kiya 4 Aono _ 4. “30,000 pale oy ply by cont of me (100-29) 0 Problem 2-15 (TAA) las Palmas Company includes one coupon in each package ‘fcoreal it sella'Atowe! in fered ae a premium to customers ‘tho send in 10 coupone, Data for the premium off ere: acageenfora a sojaoo 500000 Runtircfiwclspurchseds:P4Opertowsl "30000 "60.00 Nunteroftowelsditebedsepremism 20000 £0.00 [Nupber af towels tobe citnbuted a ‘emi next pero 500 - so00 Whut amount should be reported ae premium expense for Fem girl fot “er me ramorns 8 be dhtributed 1 4S 060 ‘& 2,400,000 for 'b. 2,000,000 remions arising from ted 861 sow) PREIS hw cuasce Ra ae Problem 2-16 (AICPA Adapted) In packages of its products, Curran Company includes Coupons that may be prosenied at retail stores to obtain Gincounte. Retailers are seimbureed forthe face amouat of Coupons redeemed plus 10% of that amount for handling fonta'The entity honors requests for coupon redemption by fetatiors up to throe months after tho consumer expiration Ane. The entity estimated that 70% of all coupons issued ‘vl ultimately be redeemed, Conmuer epiratin date December 81,2013 ‘Total fac amount oforapnsisoued ‘00.000 ‘TolalpaymentatowtalereasofDecemberS1,2013 220,000, ‘What amount should be reported as lability fr unredeemed ‘coupons on Deserber 81, 2013? ene ceupone ioued aed & oedema 0 ee Sbéree0 0% 3 0%) 200,000 Tobe! pris ‘ 242.000 Unity Re ween eur 308,000 nProblem 217 (AA) Cam Company offers its customers « pottery cereal bowl if they send in three boxtope from its products and PIO. The ‘entity eatimated that 60% of the bostops will be redsemed In 2013, the entity sold 675,000 bones and custome redeemed 320,000 boxtops receiving 110,000 bowls, The cost of each bowl is P25. What is the liability for outstanding Premiums on December $1, 20137 odo © eerécene’ (uote Kurscee) —4o.000 ‘4. 250,000 est atop acemed Sse.oo 1. 378000- Oestandiny woes ae ©. 625000, Sse by 3 4. s7e000 Book exsranding wig pH by ease €P23> ROD . Problem 2-18 (IAA) eee Energy Company offors a cash rebate of P10 on each P40, package of batteries sold during 2013. Historically, 10% of customers mail inthe rebate form. During 2013, 6,000,000 Packages of batteries are eold, and 210,000 PLO rebates are mailed to customers. What amount of rebate expense and liability for robates'should be shown respectively in the December 31, 2013 financial statements? Rebate expense Liability for rebates 6,000,000 6,000,000 6,000,000, 3,300,000, © 3,900,000, 3,900,000, 42,100,000, 33.90.00, nm Problem 2-19 (IFRS) ‘Rrika Campany operates a customer lovilty program. The! ‘Satity grants loyally pointe for goods purchased. Tho loyalty | points can be used by the customers in exchange for goods of The entity. The point have no expiry date. During 2013, the tntityintued 60,000 award credits and expects that 80% of Sheee award crediteabal be redeemed. The fair vale of the ‘af the award credite ia tebably measured at P2000,000. In Bor3, the entity sold goods to customers for a total ‘Eonsideration of P9,000,000 including the fair value of the ‘ard credit, ‘The award credits redeomed and the total award eredite ‘Expected to be redeemed each yoar are as follows: Redeemed _Expectedto beredeemed aoa 15.000 0% ane 7980 om p 2015, 2550 a ani8 15,000 oo Required Prepare journal entries from 2013 to 2016. Problem 2-20 (IFRS) ‘Susan Company participates in a customer loyalty program opersted by an airline in which customers earn ait travel points when they purchase goods from the entity. The air Eravel points can be redeomed for fre ai travel. Tho entity pays the airine P50 per air travel pont and conaiders that {he fair value ofthe ar travel pain is P00, During the current year, the entity sold goods for P5,000,000 and granted 8,000, points Required ‘Propare journal entries for the current yoar assuming the ‘nity le the principal in the transaction and the entity i fan agent of the airline. 2Problem 2-21 (IFRS) James Company operates a customer loyalty program. The ‘entity grants program members layalty points when they spend a specified amount on purchases. Program members ‘an redeom the pointe for farther purchases, The points have ‘no expiry date. During 2013, the entity granted 80.000 points, Management expects that 90% of these pointe will be redeemed. The fair value of each lyalty point is estimated ‘st P20. The sales during 2013 amounted to P9,000,000 {including the loyalty points. On Deormber 31, 2018, 28800 points have been redeemed in exchango for purchases. In 2014, the management revieed ite expectations and now ‘expecta 88% ofthe points tbe redeemed altogether. During 2014, the entity redeemod 12,000 points, What ia the revenue ‘earned from loyalty points forthe year ended December 31 aon? 2 640,000 5 860,000 © 320,000, 240,000 Problem 2-22 ((FRS) Jeane Company participates in a customer loyalty progeam ‘operated by an airline. Tho entity grante program members fone air travel point for every P1,000 spent on goods purchased. Program members can redeem the points for {ave with the alsline subject to avallability. The entity pays the airline P100 foreach point. During the current year, the entity sold goods for consideration totaling P8,000,000' and ‘ranted 8,000 points. The far value ofa pont ts P120, 1 If the entity has collected the consideration allocated to the points on ite own account ae principal, what fe the revenue tobe recognized inthe current year in rl tw the paints? 960,000 © 300.000 © 160000 a ° 1“ 2. Ifthe entity has ealacted the consideration allocated to the pints o behalf ofthe airline, what isthe revenus fa Ihereaognized in the current year in elation to the point a. 960,000 800,000 A 160,000 4 ° Problem 2-23 (IAA) ea Required: 1. Propare journal entries in connection with the warranty tating the “expense as incurred” approach. 2. Prepare journal entree in connection with the warranty using the "acerval” approach 8. Determine the estimated warranty ik 31,2014 ity on Docomber 4. Analyze the eitimated warranty liability account to sucortain whether actual warranty costa approximate the ‘estimate, Tho sales and warranty repairs are made evenly Aluring the year {Proper journal entry to correct the eatinnated warranty Listy On Downer 1,201 1sProblem 2-24 (AICPA Adapted) In 2013, Dare Company began selling a nw calculator that carvied a two-year warranty against defects Dare projected the estimated warranty cost (as «peri ‘sales) as follows: eure et year of warzan Sood gear weany oe Sales and actual warranty repairs were: ms om Sake 5.000.000 9,000,000, ‘Actal warrenty repre ‘zoi00—'Se.o00 Required: 1. Prepare journal entries in connection with the warranty ‘using the “expense aa incdred” approach 2 Propare journal er ae in connection with the warran using the "accru: " ‘approach 8 Determino the estimated warranty lability on December 51 2014 4 Analyze the estimated warranty libility account to ascertain if adjustment is necessary. The sales and ‘warranty repairs are made evenly during the year 5. Prepare the adjustment to correct the estimated warranty liability on December 81, 2014, Probe 225 0AN) 1.208 Png Cony te lig snp Samet Pacey a tt ss sini Mommas ea teint Sega Spee ietyoarof waranty * Second yea of warranty om 7% Sales and actual warranty repairs for 2019 and 2014 ame a8 fellows om oo Sates 5000000 7.000.000 ‘Actual warnenty epaics 10,900 > * 20,000 Requir 1. Prepare journal entries to record the tranescton® for 2013, and 2014 2, Analyze the estimated warranty liability account on December $1, 2014 to ascertain if tho actual repairs approximate the estimate. The sales and repairs occur ‘evenly throughout the year. jimated warranty 8. Prepare the adjustment of the liabty on December 31, 2014 Problem 2-26 (IAA) ‘Sony Company sll stereos under a 2-year warranty contract that requires the entity to replace defective parts and provide free labor on all repairs. During 2012, 1,000 unite were gold at P8,000 each. In 2013, the entieyeoid an addtional 900 units at P9,250 each. Sales oncurved on the last day of the yoar for both 2012 and 2013, Based on past experience, the estimated 2year warranty nate are P200 for parts and P250 for labor por unit. Iie also otimated that 40% of the warranty expenditures will ccur Inthe frst year and 60% in the second year. Aetual warranty expenditures were as follows Stores in 2012 190000 280000 ‘Storee old n2013, soRequired: 1. Prepare journal entries for 2012, 2019 and 2014 2 Analyze the estimated warranty liability account ta prove the reasonable accuracy ofthe balance 3. Prepare tho adjustment of the estimated warranty liability on Desember 81, 2014, Problem 2-27 (AICPA Adapted) Dawson Company’ manufactures television components and sells them with a G-month warranty under which defective ‘components wil be roplaced without charge” On January 1, 2018, the warranty lability had» balance of PG20,000. By ‘June 30, 2013, this balance had been reduoed to P120,400 by debits for estimated not cost of components returned that had been sold in 2012 ‘The entity started out in 2013 expocting 7% of sales to be returned. However, due to the introduction of new models uring the year, this estimated percentage of returns was {increased to 10% on May 1 Ie is assumed that no components sold during given month are returned in that month, Each component is stamped with a date ae time of sale ao thatthe warranty may be properly administored : the following table of percentages indicates the likely pattern of sales returns during the 6-month period of the warranty, starting with the month fallowing the sale of ‘components Percentage ofto returne expected 1 Month following Second Ff Fourth through eeth~ 10% each month so 18 Gross eales of components were as follows forthe frat six month of 2015: Month Amount Month Amount Saoary 44200000 Ape 200,000 Pebructy ‘Stono0 Nay 200.000 March gm000 Sane oe 00 ‘The warranty also covers the payment of fecight cost on elective components returned and on the new compononts| Gent out ae replacements. This freight cost runs ‘pproximately 5% of the sales price of the components turned ‘The manufacturing cost of the components is roughly 70% of tales price, and the salvage value of returned components Svorages 10% of their sales price, Returned components on hand on January 1, 2013, were thus falued in inventory at 10% of their original sles price Required: 1, Determine the estimated eales returns subsequent to ‘June 20, 2013, 2 Determine the requited estimated warranty Liability on ‘ne 30, 2013, 3. Prepare the adjustment of the estimated warranty Problem 2-28 (CGAC) Procite Company sells an electric timer thet carrioe a ‘0-day wmoonditional warranty ageinst product fhilure ‘Based on a rolinbe statistical analysis, the entity knows that ‘between the eale and lapee of the product warranty, 2% of tints old wil require a average cost of PISO per unit - 0‘The following data ref he recent experience ofthe entity for the current year: * ° October November December Unite zem0 20m 40000 ‘Known pact aires ae of Cather wom Noveler | e 1 Required: Prepare a journal entry to record properly the estimated liability for warranty on December 81, Tho warzanty costs of known failures have already been reflected inthe records, Problem 2-29 (IAA) ‘Anneliese Company sollstalevisions at an average price of 9,000 and also offere a separate three-year warranty contract for P8900 that require the entity to perfarm period services and replace defective parts. During 2013, the entity Sold 300 tolovison sets and 270 extended warrenty contracts for cash. The entity estimated the three-year warranty cost ‘as P200 for parts and P400 for Inbor and nocounta for the ‘of warranty separately le occurred on December 31, 2019, The entity recognizes incom from the sale of warranty on a straight. line basis. In 2014, the entity incurred actual cot relative to the warrenty of P30,000 for parts and P40,000 for labor. Required: 1. Prepare journal entries in 2013 and 2014, 2 How is the unearned revenue from warranty contracts presented in the statement of Gnancial position on December 31, 2014 50 Problem 2-30 (AICPA Adapted) Mile Company sells washing machines that carry a three.” Year warranty against manufacturer’ defecte, Based on atity experienos, warranty corta are estimated at F300 per fachine, During the current your, tho entity sold 2,400 ‘Washing machines and paid warranty costs af P170,000. What [mount should be reported as warranty expense for the current jeer? 2. 170,000 enh expense “3,400 9 300) Problem 2-81 (AICPA Adapted) * On April 1, 2013, Arh’ Company bogan offoring a new product for sale under a one-year warranty. Of the 5,000 units in inventory at Apel 1, 2013, 8,000 had boen wold by June 90, 2013. Based on its experience with similar products, the entity evtimated thatthe average warranty cost per unit eld srould be P80. Actual warranty costs incurred from April 1 ‘through June 80,2013, were P70,000, On June 30, 2018, what famount abould be reported as estimated warranty lability? ‘90,000 Dorantyexpmie {007 20) B re0.000 ete! earraaty © 17000 waranty riety 330,000 Problem 2-82 (AICPA Adapted) old Company estimates its annual warranty expense at 2% of annual not tales. The net sales for 2013 amounted to 'P4.000,000. On January 1, 2013, the warranty liability is 60,000 and tho warranty paymente during 2018 totaled 50000, What is tho warranty bility on December 31, 2013? vera nb e|—baon aha “hid” anaes pense Tae 80.000 [ie aawranty pagnents 90,000 Fi 2.000 aoty in eliky7" Problem 2-38 (AICPA Adapted) During 2013, Rex Company introduced a new product carrying a two-year warranty against defects. The estimated arranty coats related to poso sslen are 2% within 12 monthe following ale and 4% in the second 12 months Pllowing rats Sue re P00 000 for 2019 and 1,000 2014 Acta artanty expenditures are P90,000 for 2013 and 500,000 for 2014. On December 1, 2014, what 1s tho estimated warranty Habilty? 870.000 MATA setrneo.ie) — 34000 ee Eat 1808 Seay apa 68 ES 8B sma Problem234 (AICPA Adapted) Eas Company ana rst aya ene wary i ana taco Tarpeya tte are arta, aout Bos ed wey fsb Ered, What amount ane eeionccd meas Spe me he 250,000 | (binated warconby ot i ee Cre oe say smnco0 2 19008 teat” meray moe & 25000 me Problem 2.35 (AICPA Adapted) Erwin Company offers a three-year warranty on its products, ‘The entity previously eatimated warranty coms tose Det tales. Due to a tochnology advance in'production ot he beginning of 2013, the entity now believes 1% of sales to be a boter estimate of warranty costa, Warranty ess of P80,000 and P96,000 were reported in 2011 und 2012, respeceron, Sales for 2013 amounted to P5,000,000, What emourt should bo reported as warranty expense 50,000 8.000 a Doug 100,000 138,000 82 + Problem 2-36 (AICPA Adapted) In 2013, Dubious Company began selling new line of products that catry a bwo-yoar warranty agaiast defect. Based upon past experience with other product, the estimaied wareanty fonte related to paso sales tre as fellows Firs yon of warranty S Second your ofwarranty . Sales and actual warranty expenditures are prevented below Sake 5.000000 7.0.00 ‘Actual warranty costs 0.000 "30,000 ‘What ia the ectimated warranty liability on December 31, 2014? rants pt Seo me 330,000 ‘on 3 4 a 290,000 Soya 9.000000" 77) Se B.-A4,000 pci! wary ot sie fe. 490,000 *“~ige,seo + 400,000) 4. 840,000 Problem 2-37 (AICPA Adapted) Villa Company estimated its annual warranty expense at 8% of net aaa, The following data relato to 2013: Worn December 31,2012 Weg abit aun ee Aerators 4,00 eet ‘What isthe amount of net sales forthe current year? ‘ihren tess nee 8,000,000 16,750,000 500,000, 1/280,000 a3Problem 2-38 (IAA) Bass Company manufactures highend home electronic ‘stems. The entity provides a one-year warranty forall products wold. The entity estimated that the warranty east ‘is P200 por unit sold and reported a liability for estimated warranty cost of P650,000 on January 1, 2013. During the current year, the entity sold 5,000 units for « total of 'P2,450,000 and paid warranty claims of P750,000 oa eurrent fand prior year sales, What amount of liability should be reported inthe statoment of Snancil position on Docember 312013? 250,000 380000 900,000 750,000 Problem 2.39 (IAA) Eaifice Company provides extended service contracts on electronic equipment told through major retailers, The ‘standard contract is for three years, During the current y the entity provided 42,000 such warranty contracte at a average price of PS1 each, Related to these contract, the entity apent P400,000 servicing the contracte during the ‘current year and expected to spend P2,100,000 more in the future. What amount of net income should be rvogaized in the current year related to these contracts? 2 3,402,000 1,134,000 © ‘302.000 a 734000 8 Problem 2-40 (IAA) Sonia Company reported groes payroll of P600,000 for the" month of January. The entity prud the payroll net of the following deductions: Income tax 2,000 ss 19000 Philslth 5 3000 Pawie 250 In addition, the entity recognized its additional contributions forthe following in relation to January payrol sss 5000 Phibeslth 600 Pasig 8000 Required: Prepare journal entries to record the payroll for the month of January and the accrual ofthe additional contributions. Problem 2-41 (IAA) ‘Angel Company sells agricultural products. Angel Company ‘paysite salespeople a salary plus a contmission. The salary Jn the same for each salesperson, P10,000 per month. The commission varies by length of employment and is pergencage of tho entty’s total gross sales Bach salesperson starts with «commission of 1.0%, which is inereased by an additional 0.5% for each full year of employment to e maximum of 0% ‘The total gross ans for the month of January amounted to 'P2,400,000. 85‘The entity has six saleepeople as follows: Number ofyearsemplayed a 1 Salome ° fim Min inet Required: Compute the total salar Problem 2-42 (IAA) Justine Company : aye its employees athe end of ea ‘month. The perl Daconber revealed the fase” Office stat Oicrs Sales atatt rma 14000 sueen0ax0.00 tts sume “etoo ee Piealih is some hae Paes too So Soon ‘The employers contributions in relation to the Da payroll are as follows: Sanam Otticestatt —Omcers 233 10 Pale Som show Poste S000 "teco Required: Prepare journal entries to record the Decent {he eral ef employers cntrbutonas = Ta amd 86 Problem 2-13 (AICPA Adapted) Chester Company's payzll for the month of January 2013 is summarized a2 follows: ‘Tol wages 00600 Tnoome ax withbold cae All wages paid were aubjct to SSS, The SSS tax rates were Fa cach for employee and employer. The entity remits payroll taxes on the 16th of the following month. In the Financial statements forthe month ended January 31, 2013, ‘what amount should be reported respectively as total payroll, {as liability and payroll tax expense? ‘a 60,000 and 70,000 95,000 and 70,000 98,000 and 35,000 @ 130,000 ana 25,000 Problem 2-44 (AICPA Adapted) ‘Miyuki Company operates a retail store. All toms are sold abject to a 125% value added eax which the entity collects vd records as gles revenie The entity flee quarterly salen {ne returns when due by the twentioth day following the tnd of the eae quarter, However, in accordance with state Soquiremente, the entity romits Value added tax collected ‘Sy tie twenticth day ofthe month folowing any month such ‘Collections exceed P50,000, The entity takes these payments St podite on the quarterly ealoe tax return, The value added ‘hes paid are charged against aalos revenue. Following is a monthly summary appearing in te fret quarter 2018 ales Debit Credit January .: ae Febrasry oo Sezo00 2 sero (On March 31, 2018, what amount should be reported as value ‘added taxea payable? “a 150.000 & 168,000 a i 87Problem 2-45 (AICPA Adapted) Marie Hotal collects 15% in city sales taxes on room rentals, in addition to a P2 per room, pee nigh, cupancy tec Seles {axes for each month are due at the end of the following ‘month, and occupancy taxes are due fifteen days after the fend of each calendar quarter. On January 82011, the oatig paid ite November 2013 sales taxes and ite fourth quarter 2018 occupancy taxes, Additional information forthe fourth «qwarter of 2013 isa follows: Room rentals Room nights Senta 100.000 1.100 Noveaber 11000 ino December fey 120 ‘What amounts should be reported respectively as sales taxes Dyable and occupancy taxes payable on December 31, 0137 88,000 and 6,000 39,000 and 8 200 © 54.000 and 6,000, 4. 34,000 and 8.200, Problem 2-46 (AICPA Adapted) ‘Under state law, Stephon Company may pay 3% of eligible sroas wagns or if may reimburse the state directly for tual anemploymentcleims. The entity believes that actaal uunomployment claims will be 256 of eligible gross wages aad ‘han chosen to reimburse the state, Eligible grose sence one defined as the frst P100,000 of gross wages paid © each employee. The entity had five employees, each of whee earned 200,000 during the current year. Wi should be reported a x That amount ability for unemployment claims at 85 Problem 2-47 (ACP) erg sin ante Sea eS ese ear (of 30% of wolling price. Daring the currnt year, the entity wld 500,000 worth of ‘pill certificates and redeemed cortificates having a ‘ale of P400,000. act bo sa eimate tnt 8 ft crests esd wit ett ney tae the pono imeatry meter Required: Prepare journal entries in connection with the gift contifiates. Problem 2-48 (AICPA Adapted) sa Department Store sls gift cerifiates redeemable {GE Vn morandic is pucnsed. Upon edemption, the Cnticy recognises the unenrned revenue as Fealized Fntormation for 209 tn a flows it cette payable, anaaey 1 0 Sibert a Giterentn ape nottoberedeemed ‘ac Genco ondn ld Required: 1. Prepare journal entries for 2013. 2 Compute the unearned revenue on December $1, 2013.Problem 2-49 (AICPA Adapted) Cobb Company sels gift certificates redeemable only when ‘merchandise is purchesed. Upon redemption, ebb Company recognizes the unearned revenue as realized. Information for 2013 ia as follows: sooo a.00 {sqo00 Gin eeratn sedated fora long tine Gantt nde id co On December 31 2018 what amount shoud be reported ax 1. 510,000 520,00, 850,000, 950,000, Problem 2.50 (AICPA Adapted) Regal Company sells gift certificates, redeemable for store aerchandie. The ei-certfcatas have no expiration date ‘Tho entity has the following information perainiog te ts ft certificate sales and redemptions Uowarned even on January 12013 70000 2Didredemptont pce yar sles “en 2013 edumptonct eure years sn00 ‘What amount should be reported as unearned revenue on December 31, 20137 90 Problem 2-51 (AICPA Adapted) ea Bee cn cates nae one F service contract expense as incurred. Revenue from service si ae nee ‘Unearaed serio contract even on January 1 20 00 {Can revi fom nrice contrac eld seoo0o ‘Sora cmiractevonse recognised ee ‘Servis contract expence Required: 1. Prepare journal entries for 2019. 2 Compute the unearned service contract revenue on December 31, 2013. Problem 252 (AICPA Adapted) rere a sihich had balance af P180,000 on December 91,2013 eee During 2014 ape During 2014 225000 Dasiog 2016 cd What amount should be reported as unearned service contract revenue on December 81, 20137 a 540,000 415,000 295,000 245,000 aProblem 2-53 (AICPA Adapted) Hart Company sells subscriptions to specialized directory that ia published semiannually end shipped to subscribers fon April 15 and October 16. Subscriptions received after the March 31 and September $0 cut-off dates are held for the ‘ext publication. Cash from subscribers ie received evenly uring the year and is credited to defecred revenue from subecriptions. Data relating to 2013 are as follows Deferred revenue rom subscription on January 1 (Cah receipts from mabsribe i tam. What amount should be reported as deferred revenue from subscription on December 31, 20137 © 1,800,000 9,300,000 ©. 8,600,000 4. 5,400,000 Problem 2.54 (AICPA Adapted) ‘Kent Company sells magazine subscriptions of one to three year periods, Cash receipts from subscribers are credited fo ‘magazine subocriptions collected in advance and this asount had a balance of P2,400,000 on December 31, 2019 before year-end adjustment. Outstanding subscriptions om December $1, 2013 expire as follows: During 2014 00000. Daring 2018 sco .o00| Daring 2016 s.cca- ‘What amount should be reportod as magezine subscriptions collected in advance on December 31, 20189 = 500,000 J 1,200,000 1,900,000 2,400,000, Problem 2-55 (AICPA Adapted) Yovember and December 2013, Dorr Company, a newly” Sense naguson pcr ried PHN05 for 0 three year eabciption at PS40 per sen, starting with he Sty lord ant The ety eed ace he ere PranbGotn te 2018 me tex rer. Wt amount shad [iimored a subrptin secu nthe nae sate bese . ° B 40.000 240,000 720,000 Problem 2-86 (AICPA Adapted) — as pen a oe ae Pe aa se Ee a ae On December 31, 2014, what amount should be reported as Uneamed subscription revenue? 1. 496,000 ‘70,000 @) 465.000, $40,000Problem 2.67 (AICPA Adapted) Fare Company sella ite products with reusable, expensive containers. The customer is charged a deposit for each ‘container delivered and recsives a refund fr each container returned within two years aftor the year of delivery Information for 2018 is as fllors: Containers held by customers on January i deliveries in: 1, 2018 from ou 7,000 218000 290,000 (Containers delivered in 2019 390.000 Containers returned in 2013 from deliveries in 22 ieee ae 1300 sts00 Required: 4. Propare journal entries is 2013 in connection with the 2 Compute he laity or containers on Decor 2013. mai 4 Problem 2-58 (AICPA Adapted) Fell Company operates a retail grocery etre the is allowed + by law to collec refundable deposice Of PS cn soda cans Taformation for 2013 follows: Linbiity for refundable depots January 1 1so900 ‘Gannof wen old {00.000 Sods cane returned Hoo On February 1, 019, the entity eubleased space and received 1'P25,000 deposit tobe applied against rent atthe expiration tt the lease in 2015, In the December 31, 2013 statement of financial postion, ‘what amounts should be reported ss current and noncurrent Tiabiitiee for deposit? Current Noneurrent 125,000 ° 100,000 25,000 = 100,000 ° a. "25,000 100,000, » Problem 2-59 (AICPA Adapted) Black Company requires advance payments with special borders for machinery constracted to Custamer specifications ‘These advances are nonrefundable. Information for 2013, nas follows: Caster advances January 1 1.180000 ‘Advances recswed wih ordre ea o00 ‘Advanonsaprlied a orders hipped 1Yeea000 ‘Advancet appiable to crderecaneued sa0.000 In the December 31, 2019 statement of financial position, ‘what amount should be reported an current Laility fr ‘Mvances from customers? 1,480,000 1/380,000 "80,000 0 95Problem 2-60 (AICPA Adapted) Duna Trading Stamp Company records stamp service ‘revenue and provides for the coat of redemptions i the yess #0ld to licensees. Past experience indicates that only 80% of the stamps sold to licensees will be redsemedh ‘Tho liability for stamp redemptions was PS,000000 er Jenuary 1, 2013. Additional information for the curmeot gent i au follows: os Signy erie revenue from saps edo tzenees 500 Conetredention oampascldproretiiiay” Seen tall the stamps sold in 2018 were prosented for redemption {in 2014, the redemption cont would be 2,250,000, What amount should be reported redemptions on December 31, 2013? ‘7,250,000 1b 5,500,000, 5,050,000 8,250,000 liability for stamp Problem 2.61 (AICPA Adapted) Kent Company, realty entity, maintains escrow accounts pays real estate taxes fr ite martgage customers Eoctow funde are kept in interest-bearing aosounta, Interest, hos & 10% service fee, is credited to the mortgagee's ssonunt eng ted to reduce future escrow payments, Additionel {information for 2013 fllowe Escrow acount ity, Jay 1 zo0000 cow pamontaecrived sso Hesleutis axe pid Hanon. Internton env fade ‘00 What amount should be reported as escrow accounts on December 3120137 ad 510,000 B 515,000 £05,000, era000 { Problem 2-62 (AICPA Adapted) 3m the Gat day of ach month, Bll Company receives fos! aye Company an excow ope of 250,00 fr real ete {env The ony ror the P250000in am etrow secon pce 2019 roa uate ten ie P290000, payable snc Instalinenta the Bist ay of cach elena quater 8 Sfanney 2018 the blastn he secow scent was 300,000. (On September $0, 2013, what emount should be reported a fan escrow ability? 13sa.000 & “ssa0% © somo Sea. Problem 2-63 (AICPA Adapted) 1m July 1, 2018, the city government issued realty tax tuowtemente forte Svea Jour ended June 90, 2013, On SEpember I, £018" cin Company purchased x werehowe sitin te aly: Ths puree ps wanton hy real Er acu ry tan Shon a mares maura cae What amount of the payment should be recorded as a debit to teal estate taxes payable? 400 bgo00 ©. 10000 1,000 t 7Problem 2-64 (AICPA Adapted) Lovie Company offers three payment plans on ita twelve ‘month contracts. Information on the thro pene and the ‘umber of children enroled in each plan forthe September 1, 2018 through August 31, 2014 contract year follows Initial payment Monthly fee Numbor ‘per eh perebiid” —“iteren a sa,000| : 1 2 2000 3.000 2 3 : 5000 ° The entity received, P990,000 of initial payments on September 1, 2019 and P324,000 of monthly fees during the period Septeinber I though December 31, 2013. On Decesabor 31, 2013, what amount should be reported ae deferred 2. 330,000 435000, ©) 660,000 990,000 Problem 245 (ACP) ‘Nature Company has an agreement to pay its sales manager a bons of ho the nity eaminge The iene for fe Year before bonus and tx is P5250,000. The income tax rate is 30% of income ater bonus Required: Determine the bonus wnder each of the followin independent assumptions: eee 4 Bonus is a certain porcont of the income before Bonus oo if the before bonus Bonus ie eertain percent of income after bonus bu before tax. er bopes bat 3 Bonu is ertain percent ofincome after Bons and after Bonus is certain percent of income after tax but Bonus of or tax but before Problem 2-66 (AICPA Adapted) Ronald Company has an incentive compensation plan under tihich abranch manager sseived 10% of the branch's income Iter deduction of the bonus but bofore deduction of income ax Brench income for the current year before the bonus land income tax was PL,850,000. The tax rato was 30%, What is the bonus forthe current year? 126000 b tgem 150,000 ogcoaine © 165000 "sow ‘8. 180,000 Problem 2-67 (ACP) ‘The bonus agreement of Christian Company provides that the general manager aball receive an annual bonus of 10% of the net income after bonus and tax. The income tax rate is + 50% ‘The general manger recsives P280,000 for the current ‘ear as bonus. What is the income before bonus and tax? ‘a. 4.280.000 - 4,000,000 2,800,000 3,730,000 Problem 2-68 (AICPA Adapted) [After three profitable years, Gretchen Company decided to tice a bonus to its branch manager of 25% of inoome over 1,000,000 eared by the branch during the current year ‘The income for the branch waa P1,600,000 before tax and before bonus fr the current year. The bonud is computed on ncome in excess of P1,000,000 after deducting the bonus but before deducting fax. What fs the bon forthe current year? a. 1200000 150,000 250,000 4. 320,000