HOMEWORK ON CURRENT LIABILITIES

1. Upland Company borrowed P500,000 on November 1, 2022, by signing a P500,000, 9%, 3-month note.
(a) Prepare Upland’s November 1, 2022, entry.
(b) Prepare the December 31, 2022, annual adjusting entry.
(c) Prepare the February 1, 2023, entry.

2. Takemoto Corporation borrowed P50,000,000 on November 1, 2022, by signing a P51,200,000 3-month,

zero-interest-bearing note.
(a) Prepare Takemoto’s November 1, 2022, entry.
(b) Prepare the December 31, 2022, annual adjusting entry.
(c) Prepare the February 1, 2023, entry.

3. Iowa Company sells its products with reusable expensive containers. The customer is charged a deposit for
each container delivered and receives a refund for each container returned within two years after the year of
delivery. Information for 2022 is as follows:

Containers held by customers in 2022 from deliveries in

2020 P 75,000
2021 215,000
2022 390,000

Containers returned in 2022 from deliveries in

2020 P 45,000
2021 125,000
2022 143,000

Prepare all required entries in 2022 in connection with the containers assuming that the amount charged
as deposit is equivalent to 120% of the cost of each returnable container and compute the liability for
containers on December 31, 2022.

4. Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2022, for P100 each.
(a) Prepare Sport Pro’s August 1, 2022, journal entry assuming the entity used the income method.
(b) Prepare the December 31, 2022, annual adjusting entry.

5. Georgia Company sells major household appliance service contracts for cash. The service contracts are for
a one-year, two-year, and three-year period. Cash receipts from contracts are credited to Unearned Service
Contract Revenue. This account had a balance of P720,000 at December 31, 2022 before year-end
adjustment. Service contract costs are charged as incurred to the Service Contract Expense account which
had a balance of P180,000 at December 31, 2022. Outstanding service contracts at December 31, 2022
expire as follows:

During 2022 P395,000

During 2023 225,000
During 2024 100,000

What amount should be reported as Unearned Service Contract Revenue in the company’s December
31, 2022 Statement of Financial Position?

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6. Florida Company sells office equipment service contracts agreeing to service equipment for a two-year
period. Cash receipts from contracts are credited to Unearned Service Contract Revenue and service
contract costs are charged to Service Contract Expense as incurred. Revenue from service contracts is
recognized as earned when services have been actually rendered. Additional information for the year ended
December 31, 2022 are as follows:

Unearned Service Contract Revenue, 1/1/2022 P 500,000

Cash receipts from service contracts sold 980,000
Service contract revenue recognized 860,000
Service contracts expense 520,000

What amount should the company report as Unearned Service Contract Revenue at December 31,
2022?

7. Connecticut Department Store sells gift certificates redeemable only when merchandise is purchased. These
gift certificates have an expiration date of two years after issuance date. Upon redemption or expiration, the
store recognizes the unearned revenue as realized. Information for 2022 are as follows:

Unearned Revenue from Gift Certificates, 1/1/2022 P 650,200

Gift certificates sold 2,251,800
Gift certificates redeemed 1,975,300
Expired gift certificates 250,400

On December 31, 2022, what amount should the store report as Unearned Revenue from Gift
Certificates?

8. Lexington Corporation’s weekly payroll of P240,000 included Social Security taxes withheld of P19,200,
income taxes withheld of P29,900, and insurance premiums withheld of P2,500. Prepare the journal entry
to record Lexington’s payroll.

9. Kirsten Inc. provides paid vacations to its employees. At December 31, 2022, 30 employees have each
earned 2 weeks of vacation time. The employees’ average salary is P1,000 per week. Prepare Kirsten’s
December 31, 2022, adjusting entry.

10. Kansas Company has an incentive compensation plan under which a branch manager receives a bonus of
10%. Branch income for 2022 is P1,650,000 before bonus and tax. The tax rate is 32%.

Compute the bonus received by the branch manager under the following cases:
(a) Bonus is 10% of branch income before bonus and tax.
(b) Bonus is 10% of branch income after bonus but before tax.
(c) Bonus is 10% of branch income before bonus but after tax.
(d) Bonus is 10% of branch income after bonus and after tax.

11. ESV Inc. is involved in a lawsuit at December 31, 2022.

(a) Prepare the December 31 entry assuming it is probable that ESV will be liable for P900,000 as a
result of this suit.
(b) Prepare the December 31 entry, if any, assuming it is not probable that ESV will be liable for any
payment as a result of this suit.

12. On December 31, 2022, Illinois Company was a defendant in a pending lawsuit. The suit arose from the
alleged defect of a product that the firm sold in 2021. In the opinion of the company’s attorney, it is probable
that Illinois will have to pay P600,000 and it is reasonably possible that the firm will have to pay P800,000 as
a result of this lawsuit. What amount of estimated liability should the firm report in its December 31,
2022 Statement of Financial Position?

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13. During 2022, Indiana Company became involved in a tax dispute with the BIR. At December 31, 2022, the
Company’s tax advisor believed that an unfavorable outcome was probable and a reasonable estimate of
additional tax was P500,000 but could be as much as P750,000. After the 2022 financial statements were
issued, the firm received and accepted a BIR settlement offer of P550,000. What amount of estimated
liability would the company report in its December 31, 2022 Statement of Financial Position?

14. Filmore Company started selling a new product that carried a two-year warranty against defects. The
warranty provides assurance that the new product will function as intended based on agreed-upon
specifications. Based upon past experience with other products, the estimated warranty costs related to peso
sales are computed as follows:

First year of warranty 3%

Second year of warranty 5%

Total sales and actual warranty repairs for 2019 and 2020 are as follows:

2021 2022
Sales of the new product P 4,200,000 P 6,960,000
Actual warranty expenditures 148,800 180,000

(a) How much is the estimated warranty liability on December 31, 2022?
(b) Prepare the journal entries for years 2021 and 2022.

15. Johnson Company sells personal computers. The company provides its customers an option to purchase a
three-year warranty for each unit of computer purchased. Each personal computer is sold for P40,000, while
the each warranty contract can be sold separately for P10,000. Based on industry trend, 20% of the repairs
are done in the first year of the warranty, 30% in the second year of warranty, and 50% in the third year of
the warranty.

Information related to the service contracts for years 2021 and 2022 are as follows:

2022
Sales of laptops P 25,000,000
Actual warranty expenditures 1,500,000

(a) How much is the unearned revenue from warranty contracts on December 31, 2022?
(b) Prepare the journal entries for year 2022.

16. In an effort to increase sales, Alabama Company inaugurated a sales promotional campaign on June 30,
2022. The company placed a coupon redeemable for a plushy in each package of cereal sold. To receive a
premium, a customer must present five (5) coupons. Each plushy cost the firm P20, while it can be sold by
Alabama for P50 each. The company estimates that only 45% of the coupons issued will not be redeemed.
For the six months ended December 31, 2022, the following information are available:

Packages of cereal sold 170,000

Selling price per box of cereal P100
Plushies purchased 25,000
Coupons actually redeemed 80,000

(a) How much is the premium expense for the year ended December 31, 2022?
(b) How much is the estimated liability for premium claims as of December 31, 2022?
(c) How much is the inventory of premium items as of December 31, 2022?

Updated August 2022

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