CURRENT LIABILITIES- KEY ASNWER AND SOLUTIONS

1. Solution:
Accounts payable P 4,000
Utilities payable 14,000
Accrued interest expense 12,000
Obligation to deliver own shares
worth a fixed amount of cash 20,000
Cash dividends payable 8,000
Finance lease liability 70,000
Bonds payable 240,000
Discount on bonds payable (30,000)
Security deposit 4,000
Redeemable preference shares 28,000
Total financial liabilities P370,00
0

2. Solution:
a. Trade accounts payable gross of debit balance, unreleased check, and postdated
check
(600,000 + 10,000 + 8,000 + 4,000). P622,000
b. Advances from customers (Credit balance in customers’ accounts) 4,000
c. Financial liability designated at FVPL 100,000
d. Current portion of bonds payable 200,000
e. Interest payable on note payable 6,000
(P200,000 x 12% x 3/12)
g. Unearned rent 8,000
Total current liabilities P940,000

3. Solution:
a. Trade accounts payable, net of cost of goods received on consignment (600,000
– 20,000) P 580,000
b. Held for trading financial liabilities 100,000
c. Bank overdraft 20,000
d. Income tax payable 100,000
e. Accrued expenses 10,000
Total current liabilities P 810,000

4. Answer: P2,000,000
5. Answer: None
6. Answer: None
7. Answer: (2M x 10% x 6/12) = 100,000
8. Answer: 2,000,000
9. Answer: None
10. Answer: 2,000,000

11. Solution:
Unadjusted accounts payable P2,000,000
a. Purchases on FOB shipping point not yet recorded 100,000
b. Purchases on FOB shipping point lost in transit, not
yet recorded 40,000
e. Purchases on FOB destination inappropriately recorded ( 30,000)
f. Unreleased checks and postdated checks (12,000 + 5,000) 34,000
g. Purchase return ( 50,000)
h. Unrecorded freight on FOB SP, freight prepaid 6,000
i. Freight shouldered on behalf of the seller ( 10,000)
Adjusted accounts payable P2,090,000

12. Solutions:
Requirement (a): Advances are non-refundable
Unearned income
2,000,000 Jan. 1, 20x1
Advances earned 16,000,000 20,000,000 Advances received
Orders cancelled 600,000
Dec. 31, 20x1 5,400,000

Answer to requirement (a): P5,400,000

Requirement (b): Advances are refundable

Unearned income
  2,000,000 Jan. 1, 20x1
Advances earned 16,000,000 20,000,000 Advances received
Orders cancelled 600,000  
Dec. 31, 20x1 5,400,000  

Unearned income – Dec. 31, 20x1 P5,400,000

Refundable deposits 600,000
Total current liability for advances received P6,000,000

13. Solutions:
      20x1 20x2 20x3 Total
Percentage earned
- 1st yr.     40% 60%    
Percentage earned
- 2nd yr.   40% 60%
First half (2M / 2) 1M 400,000 600,000
Second half
(2M / 2) 1M 400,000 600,000
Earned portions     400,000 1,000,000 600,000 2,000,000

Requirement (a): Current and noncurrent portions – December 31, 20x1

Current portion of deferred revenue

(earned portion in 20x2) P1,000,000
Noncurrent portion of deferred revenue
(earned portion in 20x3) 600,000
Total deferred revenue
(P1M less earned portion in 20x1 of P200,000) P1,600,000

Requirement (b): Service revenue – 20x2

Service revenue in 20x2 (600,000 + 400,000) P1,000,000

14. Solutions:
Requirement (a): Unearned revenue – Dec. 31
Total receipts during the year 48,000,000
Divide by: No. of months in a year 12
Average monthly collections 4,000,000
 Receipts from Nov. 1 to Dec. 31 (4M x 2) 8,000,000
Total unearned revenue - Dec. 31 8,000,000

Requirement (b): Subscriptions revenue – 20x1

Unearned revenue
6,000,000 Jan. 1
Subscriptions revenue - 20x1
(squeeze) 46,000,000 48,000,000 Receipts during 20x1
Dec. 31 (as computed) 8,000,000

15. Solution:
Total receipts during the year 48,000,000
Divide by: No. of months in a year 12
Average monthly collections 4,000,000

Receipts from April 1 to Oct. 1 [(4M x 6) x 1/2] 12,000,000

Receipts from Oct. 1 to Dec. 31 (4M x 3) 12,000,000
Total unearned revenue - Dec. 31 24,000,000

16. Solution:
a. Cash on hand 200,000
Unearned revenue – gift certificates 200,000
b. Unearned revenue – gift certificates 160,000
Sales 160,000
c. Unearned revenue – gift certificates 20,000
Other income – gift certificates 20,000
forfeited
d. Unearned revenue – gift certificates 4,000
Other income– gift certificates 4,000
forfeited

17. Solution:
Gift certificates sold during 20x1 P2,000,000
Gift certificates sold and redeemed in 20x1 ( 1,400,000)
Amount estimated not to be redeemed (1,000,000 x 10%) ( 200,000)
Unearned revenue – Dec. 31, 20x1 P 400,000

18. Solution:
Deposits received in 20x2 P 90,000
Deposits for containers returned in 20x3 from
deposits in 20x2 ( 50,000)
Deposits received in 20x3 180,000
Deposits for containers returned in 20x3 from
deposits in 20x3 ( 92,000)
Liability for deposits for returnable containers
– Dec. 31, 20x3 P128,000

19. Solution:
Requirement (a): Noncurrent liability – Jan. 1, 20x1
Security deposit x PV of P1 @10%, n=10 = noncurrent liability on Jan. 1, 20x1
200,000 x 0.385543 = P77,109

Requirement (b): Noncurrent liability – Dec. 31, 20x1

77,109 + (77,109 x 10%) = P84,820

20. Solution:
Escrow accounts
400,000 Jan. 1, 20x1
3,000,000 Escrow payments received
Interest on escrow funds net of 10% service
Taxes paid 1,000,000 180,000 fee (200,000 x 90%)
Dec. 31, 20x1 2,580,000

21. Solution:
Utility expense for December 20x1 P60,000
Advertising costs incurred in December 20x1 30,000
Rent expense from December 16 to 31, 20x1 (200K ÷ 2) 100,000
Contingent rent expense
[(P2.4M see T-account – P2M) x 5%] 20,000
Additional commission expense* 60,000
Total accrued liabilities P270,000

Sales on accrual basis are computed as follows:

Accounts receivable
Beg. bal. 0  
Total net sales (inclusive of cash Total collections (inclusive of cash
sales) squeezea 2,400,000 2,000,000 sales)
400,000 Net increase

a
*Total commission expense (2.4M x 15%) P 360,000
Commission expense paid (2M cash sale x 15%) ( 300,000)
Additional commission expense P 60,000