FINACC 2

QUIZ 4 – CURRENT LIABILITIES

THEORIES
1. Current abilities are obligations whose liquidation is reasonably expected to require
the use of existing current assets or the creation of other current labilities within
A. One year or operating cycle, whichever is longer
B.. One year
C. One year or operating cycle, whichever is shorter
D. An operating cycle
2. A liability shall be classified as current when it satisfies any of the following criteria,
except
A. It is expected to be settled in the entity's normal operating cycle
B. It is held primarily for the purpose of being traded
C. It is due to be settled within twelve months after the balance sheet date.
D.) The entity has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date
3. When can a "provision" be recognized in accordance with IAS 37?
A. When there is a legal obligation arising from a past (obligating) event, the probability of the
outflow of resources is more than remote (but less than probable), and a reliable estimate can
be made of the amount of the obligation.
B. When there is a constructive obligation as a result of past (obligating) event, the outflow of
resources is probable, and a reliable-estimate can be made of the amount of the obligation.
C. When there is a possible obligation arising from a past event, the outflow is resources is
probable, and an approximate amount can be set aside toward the obligation.
D. When management decides that it is essential that a provision be made for unforeseen
circumstances and keeping in mind this year the profits were enough but next year there may
be losses.
4. Which of the following is true about accounts payable?
1. Accounts payable should not be reported at their present value.
2. When accounts payable are recorded at the net amount. a Purchase Discounts account will
be used.
3. When accounts payable are recorded at the gross amount, a Purchase Discounts Lost
account will be used.
A. 1
B. 2
C. 3
D. Both 2 and 3 are true.
5. Where the provision being measured involves a large population of items, the
obligation is estimated by weighting all possible outcomes by their associated
probabilities. This statistical method of estimation is called
A. Expected value C. Interpolation
B. Bifurcation D. Normal distribution
6. Which of the following transactions would not result to a transfer of liability to revenue
account?
A. Redemption of gift certificates
B. Return of customer's deposit on returnable containers
C. Redemption of points in a customer loyalty program
D. Realization of revenue from service contract
7. When an entity breaches an undertaking under a long-term loan agreement on or
before the balance sheet date with the effect that the liability becomes payable on
demand, the liability is:
Statement I: Current, even if the lender agreed after the reporting period and before the
authorization of financial statements for issue not to demand payment
Statement II: Non-current if the lender agreed by the end of the reporting period to provide a
grace period for more than 12 months after the balance sheet date within which the entity can
rectify the breach.
A. Only statement is true
B. Only statement II is true
C. Both statements are true
D. Both statements are false
8. Which of the following is a current liability?
I. Noncurrent portion of long-term debt
II. Long-term liability due in 3 months from the balance sheet date and refinanced on a long-
term basis between the balance sheet date and the date of the issuance of financial statements.
III. Long-term liability due in 3 months from the balance sheet date and refinanced on a long-
term basis on or before the balance sheet date
IV. Currently maturing obligation where the entity has the discretion to refinance or roll over the
obligation for more than twelve months after the balance sheet date under the existing loan
facility.
A. I only C. III only
B. ll only D. IV only
9.Which of the following statements is not true?
A. A dividend payable in shares of the issuing company's stock is not reported as a current
liability.
B. Interest and dividends accrue as a liability as time passes.
C. The declaration of a dividend may not result in a current liability.
D. Undeclared dividends in arrears on cumulative preferred stock are not recognized as a
liability
10. Unearned or deferred revenue can occur when
A. Services are provided prior to receipt of cash
B. Goods are sold on account
C. Services are provided after the receipt of cash
D. Goods are sold for cash
11. A department store received cash and issued a git certificate that a redeemable in
merchandise. When the gift certificate was redeemed
A. Deferred revenue account will decrease C. Gross Profit will increase
B. Revenue account will increase D. All of the above
12. What is the relationship between present value and the concept of a liability?
A. Present values are used to measure certain liabilities.
B. Present values are not used to measure liabilities.
C. Present values are used to measure all liabilities.
D. Present values are only used to measure long-term liabilities.

13. The entity sold appliances with 2-year warranty during the current period and
recognized the related warranty expense and liability. This transaction le an example of
expense recognition based on
A. Immediate recognition C. Cause and effect association
B. Systematic and rational allocation D. All of the above

14. A magazine company sells space to advertisers. The company requires an advertiser
to pay for service one month before publication. Advertising revenue should be
recognized when
A. An advertiser places an order C. The related cash is received
B. A bill is sent to an advertiser D. The related ad is published

15. Which of the following items is an example of liability?

A. Dividends payable in property C. Advances to employees
B. Supplier's debit balance D. Factor's holdback

16. It is an event that creates a legal or constructive obligation because the entity has no
other realistic alternative but to settle the obligation.
A. Events after the balance sheet date C. Adjusting event
B. Contingent event D. Obligating event

17. Where there is continuous range of possible outcomes, and each point in that range
is as likely as any other, the provision being measured is
A. The midpoint of the range C. The expected value method
B. The minimum of the range D. The middle of nowhere

18. Contingent liability will or will not become actual abilities depending on
A. the outcome of a future event C. Whether measurable
B. The degree of uncertainty D. Whether probable and estimable

19. Contingent liability will or will not become provision depending on

A. The outcome of a future event . C. Whether measurable
B. The degree of uncertainty D. Whether probable and estimable

20. A 'probable' contingent asset (gain contingency) should be

A. Accrued and disclosed
B. Accrued but not disclosed
C. Disclosed but not accrued
D. Ignored
 PROBLEMS
Problem A
On June 18, 2017, Darrel Company received goods from X Corporation, with invoice of
P80,000 and credit terms of 2/10, 1/30. The goods were shipped FOB Destination, freight
collect, Darrel paying freight of P 1,500. Darrel paid this account on July 18 Darrel records
purchases net of cash discount offered
1. At what amount should the accounts payable to X Corporation be shown on Darrel's
June 30, 2017 balance sheet?

Problem B
Thanos Co. sells 3-year service contracts for air-conditioning units for P1,500 each. Sales of
service contract are made evenly throughout each year. The company estimated that 10% of
repairs are done in the first year from the date of sale. 35% in the second year and 55% in the
third year.
Service contracts sold are as follows:
2016 2017 2018
Number of service contracts sold 1,800 2,100 2,500
2. How much revenue from service contract sold in 2016 is realized in 2017?
3. How much is the service contract revenue for the year 2018?
4. How much is the unearned revenue from service contracts as of December 31, 2017?

Problem C
Sentinel Corp.'s accounts payable at December 31, 2018, totaled P2,500,000 before any
necessary year-end adjustments relating to the following transactions:
 On December 27, 2018, Sentinel wrote and recorded checks to creditors totaling
P100,000 .The checks were mailed out on December 30, 2018.
 Goods shipped FOB Shipping point on December 20, 2018 from a vendor to Sentinel were
lost in transit. The invoice cost was P35,000
 Goods shipped FOB Destination on December 26, 2018 from a vendor were received
December 29, 2018. The Invoice price was P150,000
 Goods shipped FOB Buyer on December 21, 2015, from a vendor to Sentinel, were still in
transit on December 31, 2018. The invoice cost was P47,500.

5. At December 31, 2018. what amount should Sentinel report as total accounts payable?
PROBLEM D
On December 31, 2017, the bookkeeper of Maya Company provided the following information:
Accounts payable P 2,500,000
Long-term advances to officers 500,000
Other trade payables ( payable normally in 15 months) 250,000
Bonds Payable 2,000,000
Share dividends payable 800,000
Credit balance in customers' accounts 400,000
Provision for litigation 50,000
Salaries payable 600,000
Contingent liabilities 100,000
Discount on bonds payable 700,000
Suppliers debit balance 200,000

6. In the December 31, 2017 statement of financial position, how much current abilities
should be reported?
7. In the December 31, 2017 statement of financial position, how much non current
abilities should be reported?

PROBLEM E
State Incorporated started selling microwave oven with a four year warranty against factory
defects in 2014. Estimated warranty costs related to pesos sales are as follows: 3% of sales in
the year of sale, 8% of sales in the year after sale, 12% of sales two years after sale and 20% of
sales three years after sale. Information relating to sales and actual warranty expenditures for
the years 2014 through 2017 are as follows:
Sales Actual warranty expenditures

2014 P3,200,000 P 150,500

2015 4,350,000 200,500
2016 4,580,800 300,650
2017 5,320,200 400,450

8. How much is the warranty expense in 2016?

9. How much is the estimated liability for warranty at December 31 2017?

PROBLEM F
Rome, Inc., places a coupon in each box of its product. Customers may send in ten coupons
and P3.00, and the company will send them a CD. Sufficient CDs were purchased at P5.40
apiece. A certain number of boxes of product were sold in 2017. It was estimated that total of
5% of the coupons will be redeemed. In 2017, 18,000 coupons were redeemed. At December
31, 2017, the following adjusting entry was made to record the estimated ability for premium
outstanding:
Premium expense 10,800
Estimated liability for premium 10,800

10. Compute the number of boxes of product sold in 2017.

PROBLEM G
Ellen Company sells radio with a two-year warrasty and estimated warranty costs as percentage
of peso sales as follows: first year of warranty. 6%; second year of warranty 10%. The company
recorded sales of P 5,000,000 and P 8,000,000 in 2016 and 2017, respectively and incurred
actual repair costs op.250.000 and 2.400,000 in 2016 and 2017. respectively.
11. Assume that sales and repairs occur evenly throughout each year. How much repair costs
relating to 2016 and 2012 sales are expected to be incurred after 2017?

Problem H
Malta Sportswear regularly buys Sweaters from Russia Company and is allowed trade
discounts of 20% and 10%. Malta made a purchase on May 10, 2DV and received the goods
with a list price of P600,000 with payment terms of SALA DA. The goods were shipped FOB
Destinatian fraint prepaid of 1,700 Malta records purchases net of cash discount offered..
12. How much should be the total payment if the company settle the account on on May 24,
2017?
PROBLEM I
Bangkok Company is considering two different proposals for computing the bonus for its new
company CEO. The first plan states that the bonus would be equal to 5% of profit after
deducting both bonus and tax. The second plan states that the bonus would be equal to 12%
based on profit after deducing tax but before bonus. Profit before Income tax and bonus for
2017 is P10,000,000. Income tax rate 30%.
13. How much is the amount of bonus under the first plan?
14. How much is the income tax under the second plan?

PROBLEM J
As part of the company's strategy to increase sales, Nevada Corporation offered a premium of
slipper for every five bottle caps of energy drink plus remittance of P4. Each slipper costs P19,
Information for the company for years 2017 and 2018 follow:
2017 2018
Bottles of energy drink sold 1,000,000 1,500,000
Number of slipper distributed 50,000 85,000
Number of slipper expected to be distributed in future
Period/s, as estimated at year end 30,000 90,000

15. How much is the premium expense for the year 2018?
16. How much is the premium liability on December 31, 2017?

PROBLEM K
A truck owned and operated by Oslo Company was involved in an accident with an auto driven
by Norway on December 12, 2015. Oslo Company received notice on December 24, 2015 of a
lawsuit for P350,000 damages for a personal injury suffered by Norway. Oslo's counsel believes
that it is probable that Norway will be successful against the company for an estimated amount
in the range between P100,000 and P400,000. Each point within that range of amounts is
considered as likely as any other point. On December 25, 2015, an employee filed a P3,000,000
lawsuit against Oslo Company for damages suffered when one of Oslo's equipment
malfunctioned in August of 2015. The legal counsel of the company believes that it is probable
that Oslo will pay the damages ranging between P500,000 to 1,000,000 but P820,000 is
considered to be the best estimate of the obligation. On March 31, 2016, the employee has
offered to settle the lawsuit out of court for P925,000 000 and the company accepted the offer.
On January 12, 2016. a fire at the production area of Oslo Company damaged a number of
adjacent buildings. Oslo Company's Insurance policy does not cover damages to property of
others. The adjacent neighbors have filled a P2M damages suit against the company and the
legal counsel opines that it is probable that such damages will be awarded to them. The
financial statements were authorized to be issued on March 1, 2016.

17. How much is total provision that should be recognized as of December 31,2015?

PROBLEM L
Jay Company operates a customer loyalty program. The entity grants loyalty points for goods
purchased. The loyalty points can be used by the customers in exchange for goods of the entity.
During 2018, the entity sold goods for a total consideration of g 3,000,000.for which 10,000
points were granted. The fair value of each loyalty point is P50. The company expects that 60%
of the award credits shall be redeemed. Furthermore, 1.500 points and 2,000 points were
redeemed for the years 2018 and 2019 respectively. However, during 2019, the company
revised its expectations and now expects that 80% of the award credits will be redeemed
altogether.
18. How much is the liability to be presented in the 2018 statement of financial
position relating to customer loyalty awards?
19. Determine the amount of revenue recognized as a result of redemption for the year
2019.
PROBLEM M
Beginning in the year 2015, the Onyok Corp. began marketing a new beer product in powder
form which is mixed with 1 litter of water. To help promote the product, the management is
offering one free gallon of bottled water for every 4 proofs of purchase. Each gallon of water
costs P100. The company estimates that only or all tetra packs sold will be redeemed.
Information relating to packs sold and premiums redeemed during 2015 and 2016 are as
follows:
Tetra packs sold Premium redeemed
2015 350,000 34,000
2016 425,000 32,000

20. How much is the premium liability as of December 31, 2016?

21. How much is the premium expense for the year 2016?

PROBLEM N
London Company reported a total current liabilities amounting to P1,250,000 on December 31,
2015. The unpaid voucher file included the following items that had not been recorded as of
December 31, 2015:
a. P14,400 payroll from 12/22/15 to 1/5/16 ( 12 working days; 4 days in January)
b. P192,000 merchandise shipped on 12/26/15 FOB shipping point, received on 1/3/16
c. P4,500 legal services received on 12/28/15
d. P135,000 janitorial services for the three month period ending February 28, 2016.
e. P22,900 electric bill covering the period December 16, 2015 to January 15, 2016
f. P2,000 repair services received on 1/10/16
g. P224,000 merchandise shipped on 12/31/15, FOB destination, received on 1/10/16.

22. How much is the total adjusted current liabilities as of December 31, 2015?

PROBLEM O
The following information was provided to you by Manila Corporation with regard to its currently
maturing obligations as of December 31, 2015:
 On December 31, 2015, Manila had P1.000.000 short-term notes payable due
February 14, 2016. On January 15, 2016, the company issued bonds with a face value of
P900,000. The proceeds from the issuance of bond plus additional cash held by the
company on December 31, 2015 were used to liquidate the P1,000,000 of short-term
notes.
 Another P500,000 notes payable is due on March 15, 2016. On December 31, 2015,
Manila signed an agreement to borrow up to P 500,000 to refinance the notes payable on
a long-tem basis. The financing agreement called for borrowings not to exceed 30
percent of the value of collateral Manila was providing. At the date of Issue of the
December 31, 2015 financial statements, the value of collateral was P450,000 and was
not expected to fall below this amount during 2016 .
 The financial statements of Manila were authorized to be issued on March 31, 2016,

23. How much liabilities are current as of December 31, 2015?

24. How much liabilities are long term as of December 31, 2015?
PROBLEM P
Accounts payable per general ledger control of Country Company amounted to P 5,400,000 net
of P240,000 debit balances in supplier's accounts. The unpaid voucher file included the
following items that had not been recorded as of December 31, 2017:
a. A company. P 224,000 merchandise shipped on December 31, 2017. FOB destination,
received on January 10, 2018.
b. B, Inc. P 192,000 merchandise shipped on December 26, 2017 FOB shipping point,
received on January 6, 2018.
c. C Super Clean Services. P 135,000 janitorial services for the three month period ending
February 28, 2018.
d. Meralco- P 22,900 electric bill covering the period December 16, 2017 to January 15.

On December 28, 2017,a supplier authorized Country Company to return goods billed at
P160,000 and shipped on December 20, 2017. The goods were returned by Country Company
on December 28, 2017 but the P 160,000 credit meme was not received unti January 6, 2018

25. How much is the current labilities at December 31, 2017?

PROBLEM Q
Toy Department store sells gift certificates redeemable only when merchandise is purchased..
Upon redemption or expiration, Tokyo recognizes the unearned revenue as realized.
Information for the current year is as follows:
Unearned revenue from gift certificate , 1/1/17 600,000
Gift certificates redeemed 1,550,000
Gift Certificates sold 2,450,000
Gross profit rate based on sales 30%

26. How much is the balance of Unearned revenue from gift certificate as of December
31,2017?

PROBLEM R
On November 5, 2017, Hulk Company truck was in an accident with an auto driven by Bell. Hulk
received notice on January 12, 2018 of a lawsuit for P 700,000 damages for personal Injuries
suffered by Bell. Hulk's counsel belleves it is probable that Bell will be awarded an estimated
amount in the range between P 200,000 and P450,000 and no amount is a better estimate of
potential liability than any other amount. Hulk's accounting year ends on December 31, and the
2017 financial statements were issued on March 2, 2018.
27. What amount of loss should Hulk accrue at December 31, 2017?
28. How much additional possible loss should the company disclose in the notes to
financial statements?
 THEORIES PROBLEMS

1. A 1. 78,500

2. D 2. 607,500

3. B 3. 2,111,250

4. A 4. 4,950,000

5. A 5. 2,585,000

6. B 6. 3,800,000

7. C 7. 1,300,000

8. B 8. 1,969,744

9. B 9. 6,451,830

10. C 10. 1,260,000

11. D 11. 1,290,000

12. A 12. 419,040

13. C 13. 338,164

14. D 14. 2,738,589

15. A 15. 2,175,000

16. D 16. 450,000

17. A 17. 1,070,000

18. A 18. 375,000

19. D 19. 93,750

20. C 20. 1,150,000

21. 4,250,000

22. 1,512,550

23. 1,140,000

24. 360,000

25. 5,728,450

26. 1,500,000

27. 325,000

28. 125,000

QUIZ 4
FINACC 2 CURRENT LIABILITIES