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Krillin, Inc. is preparing its 2019 year-end financial statements. It had accounts payable of $200,000 before adjustments. It needs to increase accounts payable by $50,000 for an advance payment received, $30,000 for checks written but not mailed until 2020, and $25,000 for checks written but dated for 2020. Therefore, the amount of accounts payable to report is $305,000. Denver Company's accounts payable at year-end was $1,100,000 before adjustments. It needs to increase this amount by $150,000 for goods received in January, $195,000 for goods received in January, and decrease by $100,000

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320 views3 pages

Trades

Krillin, Inc. is preparing its 2019 year-end financial statements. It had accounts payable of $200,000 before adjustments. It needs to increase accounts payable by $50,000 for an advance payment received, $30,000 for checks written but not mailed until 2020, and $25,000 for checks written but dated for 2020. Therefore, the amount of accounts payable to report is $305,000. Denver Company's accounts payable at year-end was $1,100,000 before adjustments. It needs to increase this amount by $150,000 for goods received in January, $195,000 for goods received in January, and decrease by $100,000

Uploaded by

Alber Howell Magadia
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© © All Rights Reserved
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Trade Accounts Payable

1) Krillin, Inc. is preparing its financial statements for the year ended December 31, 2019.
Accounts payable amounted
to P200,000 before any necessary year-end adjustment related to the following:
• At December 31, 2019, Krillin has a P50,000 debit balance in its accounts payable to Vegito, a
supplier, resulting from a P50,000 advance payment for goods to be manufactured to Krillin
specifications.
• On December 27, 2019, Krillin wrote and recorded checks to creditors totaling P30,000 that
were mailed on January 10, 2020.
• Checks in the amount of P25,000 were written to vendors and recorded on December 29,
2019. The checks were dated January 5, 2020.
What amount should Krillin report as accounts payable in its December 31, 2019 statement of
financial position?
ANSWER: 305,000
SOLUTION: 200,000+50,000+30,000+25,000=305,000

2) The balance in Denver Company’s accounts payable account at December 31, 2019 was
P1,100,000 before any adjustments relating to the following:
• Goods were in transit to Denver Company on December 31, 2019. The invoice cost was
P150,000, FOB shipping point on December 29, 2019. The goods were received on January 2,
2020.
• Goods shipped FOB shipping point on December 20, 2019 from a vendor to Denver Company,
were lost in transit. The invoice cost was P100,000. On January 5, 2020, Denver Company filed
an P100,000 claim against the common carrier.
• Goods shipped FOB destination on December 21, 2019, from a vendor to Denver Company,
were received on January 6, 2020. The invoice cost was P195,000.
• On December 28, 2019, Denver Company wrote and recorded checks totaling P70,000 which
were mailed on January 8, 2020.
The amount that Denver Company report as accounts payable on its December 31, 2019
balance sheet is
ANSWER: 1,420,000

Various Accrued Expenses


3) Tatay Company is preparing its December 31, 2019 financial statements. The following
information was gathered:
• The bill for December’s utility cost of P30,000 was received and paid on January 10, 2020.
• A P20,000 advertising bill was received on January 2, 2020. Of the total billing, P15,000
pertain to advertisements in December 2019 and P5,000 pertain to advertisements in January
2020.
• A lease, effective December 16, 2018, calls for a fixed rent of P100,000 per month, payable
one month after the commencement of the lease and every month after thereafter. In addition,
rent equal to 5% of net sales over P1,000,000 per year is payable on January 31 of the
following year.
• Total cash sales and collections on accounts amounted to P1,000,000. Accounts receivable
has a net increase of P200,000. Commissions of 15% of sales are paid on the same day cash is
received from customers.

What is the accrued liabilities on December 31, 2019?


ANSWER: 135,000
SOLUTION: 30,000 – Utility cost that is not yet paid within the year 15,000 – Advertisement for
Dec 2019
100,000 – Fixed Rent
135,000 – Total Accrued Liabilities
The accounts that were not included are not related to Tatay Company accrued liabilities and
there are bills that will be received beyond the date asked.

Accrued Expenses – Bonus Payable Numbers 4, 5, 6 and 7


Adhere Company grants its managerial employees’ bonus in the form of profit sharing.
Information on operations in 2019 is shown below:
Profit before bonus & tax Bonus rate or percentage Income tax rate
4,000,0 00
10 30
4) How much is the bonus “before bonus and before tax”? ANSWER: 400,000 (4,000,000x10%)
5) How much is the bonus “after bonus and before tax”?
6) How much is the bonus “before bonus and after tax”?
7) How much is the bonus “after bonus and after tax”?
Unearned Income – Unearned Revenue Numbers 8, 9, 10 and 11
ANSWER: 363,636 (4,000,000 -
ANSWER: 288,660 (4,000,000 x
ANSWER: 261,682 (4,000,000 x
4,000,000 1+.10
)
)
%%
1−.30 1 −.30
.10 1−.30
Dunne Company sells equipment service contracts that cover two-year period. The sale price of
each contract is P600.

The past experience is that, of the total peso spent for repairs on service contracts, 40% is
incurred evenly during the first contract year and 60% evenly during the second contract year.
The entity sold 1,000 contract evenly throughout 2019.
8) What is the contract revenue for 2019?
Answer: 120,000
Solution: 600 x 1,000 = 600,000 600,000 x .40 = 240,000
240,000 x .5 = 120,000
9) What amount should be reported as deferred service revenue on December 31, 2019?
Answer: 480,000
Solution: 600,000 – 120,000 = 480,000

10) What is the contract revenue for 2020?


Answer: 300,000
Solution: 600 x 1,000 = 600,000 600,000 x 100% = 600,000
600,000 x .5 = 300,000
11) What is the contract revenue for 2021?
Answer: 180,000
Solution: 600 x 1,000 = 600,000 600,000 x .60 = 360,000
360,000 x .5 = 180,000

Unearned Income – Gift Certificates


12) Raditz Company sells gift certificates redeemable only when merchandise is purchased.
The certificates have an expiration date two years after issuance date. Upon redemption or
expiration, Raditz recognizes the unearned revenue as realized. Data for 2021 are as follows:
Unearned revenue, January 1 Gift certificate sold
Gift certificate redeemed Expired gift certificates
Cost of goods sold
On December 31, 2021, Raditz Company should report unearned revenue at
Answer: 2,200,000

Escrow Liability
13) On the first day of each month, Denise Company received from a customer an escrow
deposit of P500,000 for real
estate tax. The entity recorded the P500,000 in escrow account. The customer’s real estate tax
is P5,600,000, payable in equal installments of the first day of each calendar quarter. On
January 1, 2019, the balance of the escrow account was P600,000. On September 30, 2019,
what amount should be reported as escrow liability?
Answer: 900,000

14) Summer Company maintains escrow accounts for various mortgage entities. The entity
collects the receipts and pays real estate taxes on behalf of mortgage customers. Escrow funds
are kept in interest-bearing account. Interest, less a 10% service fee, is credited to the
mortgagee’s account and used to reduce future escrow payments.
Escrow account liability – beginning of year Escrow receipts during the year
Real estate taxes paid during the year Interest earned on escrow funds
What is the escrow accounts liability at year-end?
Answer: 645,000

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