Chapter 8 Liabilities Exercises T3AY2021
Chapter 8 Liabilities Exercises T3AY2021
Chapter 8 Liabilities Exercises T3AY2021
LIABILITIES
1
Exercise 8-3: Liability Classification
Identify the liability classification of the items described below by writing CL for current
liability and NCL for noncurrent liability.
2
4. Which of the following terms is associated with recognizing a provision?
5. Bond discount should be presented in the financial statements of the issuer as a(n)
a. contra liability
b. adjunct liability
c. deferred charge
d. contra asset
3
10. From a liquidity standpoint it is more desirable for a firm to have current
2. Accounts Payable. King Co.’s accounts payable at December 31, 2020 was ₱1,400,000
before considering the following data:
Goods shipped to King on December 22, 2020, FOB shipping point, were lost in transit.
The invoice cost of ₱80,000 was not recorded by King. On Jan. 5, 2021, King filed a
₱80,000 claim against the common carrier.
Goods shipped to King on Dec. 20, 2020, FOB destination, were received on Jan. 6,
2021. The invoice cost was ₱50,000.
What amount should King report as accounts payable in its December 31, 2020 statement of
financial position?
3. Unearned Income. Star Pro Magazine sold 10,000 annual subscriptions on August 1, 2020,
for ₱200 each. How much is the unearned subscription income on August 1, 2020? How much
is the unearned subscription income balance on December 31, 2020?
4. Premiums. Regal Studios, in an effort to promote the release of their new movie "Ninjas from
Space," began a national sales promotion campaign. Two coupons from specially marked
boxes (one coupon in each box) of "Sugar Charms" cereal are redeemable for one ticket to the
show. Tickets cost Regal ₱15 each. Regal estimates that 40 percent of the coupons will be
redeemed. At the end of 2020, the following information is available:
4
Boxes of cereal sold 640,000
Movie tickets purchased by Regal 140,000
Coupons redeemed 250,000
What is the estimated liability for premium claims outstanding at December 31, 2020?
5. Warranties. In the calendar year 2020, Golden Enterprises sold 4,000 units of its product for
₱10,000 each. The selling price included a one-year warranty on parts. It is expected that 3%
of the units would be defective and that repair costs would average ₱1,500 per unit. In 2020,
warranty contracts were honoured on 80 units of product for a total cost of ₱120,000. The
Provision for Warranty account had a balance of ₱120,000 at January 1, 2020.
What amount should Golden accrue on December 31, 2020 for estimated warranty costs?
6. Notes Payable – Interest bearing note. On January 1, 2020, Barney Corporation acquired a
tract of land for ₱10,000,000. Barney Corporation paid ₱1,000,000 and signed a 3-year
promissory note for the balance plus 10% interest compounded annually. The note matures on
January 1, 2023. Determine the total amount to be paid on the maturity date of the note?
7. Notes Payable – Noninterest bearing note. On January 1, 2020, JFK Inc. acquired a building
for ₱12,000,000. JFK paid ₱2,000,000 and signed a noninterest bearing note for the balance
which is payable in 4 annual installments every December 31 of each year. The prevailing
interest rate for a note of this type is 12%. The present value of an ordinary annuity of 1 for
four periods is 3.03735.
a. Determine the present value of the note on January 1, 2020.
b. Determine the discount on notes payable on January 1, 2020.
8. Contingent Liabilities. In August, 2020, a worker was injured in the factory in an accident
partially the result of his own negligence. The worker has sued Lester Co. for ₱800,000.
Counsel believes it is possible but not probable that the outcome of the suit will be unfavorable
and that the settlement would cost the company from ₱250,000 to ₱500,000.
Discuss the proper accounting treatment, including any required disclosures for the situation.
9. Bonds Payable. On January 1, 2020, Gillian Co. issued its 10% bonds at face amount of
₱3,000,000, which will mature on January 1, 2025. The bonds were issued for ₱3,405,000 to
yield 8%, resulting in bond premium of ₱405,000. Gillian uses the effective-interest method
of amortizing bond premium. Interest is payable annually on December 31.
5
a. What is the issue price of the bonds?
b. What should be the carrying value of the bonds at December 31, 2020?
10. Bonds Payable. On January 1, Dion Inc. issued ₱5,000,000, 9% bonds for ₱4,695,000. The
market rate of interest for these bonds is 10%. Interest is payable annually on December 31.
Dion uses the effective-interest method of amortizing bond discount.
a. How much is the interest expense for year?
b. What amount should be reported as bonds payable at the end of the first year
11. Total Liabilities. The following data pertain to PO Company as of June 30, 2020:
a. Accounts payable arising from purchased of goods, ₱115,000.
b. Cash dividends payable, ₱30,000.
c. Income tax payable, ₱18,000.
d. Accrued salaries payable, ₱20,000.
e. Customer’s deposits, ₱9,900.
f. Provision for warranty, ₱5,200,
g. Reserve for contingencies, ₱50,000
h. Mortgage payable, ₱2,000,000
Based on the above data, what is the total amount of actual liabilities to be reported on the
statement of financial position of June 30, 2020?
12. Liquidity and Solvency Ratio. Presented below is information available for Martin
Company.