Business Accounting 2 PDF

Preview

Summary

BUSINESSACCOUNTING 2MODULE2MIDTERMStudent Name:Joan T. GarminoBSBAFMFS-GProfessor:Normand John G. MirandaIncome tax payable 800, Estimated warrant liability 600, Estimated damages payable by reason of breach of contract 700, Accrued liabilities 900, Estimated premium liability 200, Claim for increas...

Description

BUSINESS ACCOUNTING 2

MODULE 2 MIDTERM

Student Name: Joan T. Garmino BSBAFMFS-G

Professor: Normand John G. Miranda

TASK 1- LIABILITIES Problem A On December31, 2017, Glare Company provided the following information: Accounts payable, including deposits and advances from 1,250,0 00 customer of P250, 000 Notes payable, including note payable to bank due on December 1,500,0 31, 2019 of P500, 000 00 Stock dividend payable 400,000 Credit balances in customers’ accounts 200,000 Serial bonds payable in semiannual installment of P500, 000 5,000,0 00 Accrued interest on bonds payable 150,000 Contested BIR tax assessment - Possible Obligation 300,000 Unearned rent income 100,000 Answer Accounts payable, including deposits and advances from customer of P250, 000 Notes payable, including note payable to bank due on December 31, 2019 of P500, 000 Credit balances in customers’ accounts Serial bonds payable in semiannual installment of P500, 000 Accrued interest on bonds payable Unearned rent income Total current liabilities 12/31/17

1,250,00 0 1,000,00 0 200,000 1,000,00 0 150,000 100,000 3,700,0 00

Problem B Easy Company provided the following information on December 31, 2017 Notes Payable: Trade 3,000,00 0 Bank loans 2,000,00 0 Advance from officers 500,000 Accounts payable – trade 4,000,00 0 Bank overdraft 300,000 Dividends payable 1,000,00 0 Withholding tax payable 100,000 Mortgage payable 3,800,00 0

Income tax payable 800,000 Estimated warrant liability 600,000 Estimated damages payable by reason of breach of contract 700,000 Accrued liabilities 900,000 Estimated premium liability 200,000 Claim for increase in wages by employees covered in a pending 3,500,00 lawsuit 0 Contract entered into for the construction of building 5,000,00 0 Answer Notes payable Trade Bank loans Advance from officers Accounts payable – trade Bank overdraft Dividends payable Mortgage payable Withholding tax payable Income tax payable Estimated warrant liability Estimated damages payable by reason of breach of contract Accrued liabilities Estimated premium liability Claim for increase in wages by employees covered in a pending lawsuit (P3 500 000) Contract entered into for the construction of building Total current liabilities 12/31/17

3,000,000 2,000,000 500,000 4,000,000 300,000 1,000,000 (3,800,00 0) 100,000 800,000 600,000 700,000 900,000 200,000 (5,000,00 0)

14,100,0 00

Problem C Miracle Company manufactured a product that is packed and sold. A plate is offered to customer sending in three wrappers accompanied by a remittance of P10. Data with respect to the premium offer are summarized below: 2020 2021 Sales 3,600,000 4,200,000 Purchase of premium, P50 per plate 390,000 580,000 Number of plate distributed as premiums 5,000 9,000 Estimated number of plates to be distributed In subsequent period 2,000 3,000

Distributed cost P20 per plate Required: Prepare journal entries that would be made in 2020 and 2021 to record sales, premium purchases and redemptions, and year-end adjustments. Answer: Journal Entries Made In 2020 And 2021 2020 1. Cash 3,600,000 Sales 2. Premiums 390,000 Cash 3. Cash (5,000*10) 50,000 Premium expense (5,000*40) 200,000 Premiums (5,000*50) 4. Premium expense (5,000*20) 100,000 Cash Premium expense 2,000*60 120,000 Estimated premium liability 2021 1. Estimated premium liability 120,000 Premium expense Reversing entry Cash 4,200,000 Sales 2. Premiums 580,000 Cash 3. Cash (9,000*10) 90,000 Premium expense(9,000*40) 360,000 Premiums(9,000*50) 4. Premium expense(9,000*20) 180,000 Cash 5. Premium expense(3,000*60) 180,000 Estimated premium liability

3,600,000 390,000

250,000 100,000 120,000

120,000

4,200,000 580,000

450,000 180,000 180,000

Problem D Socorro company sells color television sets with a two year repair warranty. The sale price for each set is P15, 000. The average repair cost per set is P800. Research has shown that 20% of all sets sold are repaired in the first year and 40% in the second year. 2020

2021

Number of sets sold Total payments for warranty repairs

300 40,000

500 150,000

Required: 1. Prepare journal entries in connection with warranty using the “expense as incurred” approach. 2. Prepare journal entries in connection with the warranty using “accrual” approach. 3. Determine the estimated warranty liability on December 31,2021 4. Analyze the estimated warranty liability account to ascertain whether actual warranty costs approximate the estimate. The sales and warranty repairs are made evenly during the year. 5. Prepare journal entry to correct the estimated warranty liability on December 31, 2021 Answer: Requirements 1 – Expense as Incurred Approach 2020 1. Cash 4,500,000 Sales 4,500,000 2. Warranty Expense 40,000 Cash 40,000 2021 1. Cash 7,500,000 Sales 7,500,000 2. Warranty Expense 150,000 Cash 150,000 Requirements 2 – accrual approach 2020 1. Cash (300*15,000) 4,500,000 Sales 4,500,000 2. Warranty expense 144,000 Estimated warranty liability (60%*300=180*800) 144,000 3. Estimated warranty liability 40,000 Cash 40,000 2021 1. Cash (500*15,000) 7,500,000 Sales 7,500,000 2. Warranty expense 240,000

Estimated warranty liability (60%*500=300*800) 240,000 3. Estimated warranty liability Cash Requirements 3 Warranty expense: 2020 2021 Actual warranty payments: 2020 2021 Estimated warranty liability 12/31/2021 Requirements 4 – warranty expense related to

150,000 150,000 144,000 240,000 40,000 150,000

384,000

190,000 194,000

2020 sales

2020 First contract year of 1/1/2020 sales (150x20%xP800) 24,000 First contract year of 7/1/2020 sales (150x20%XP800x6/12) 2021 First contract year of 7/1/2020 sales (150x20%xP800x6/12) Second contract year of 1/1/2020 sales (150x40%xP800) 48,000 Second contract year of 7/1/2020 sales (150x40%xP800x6/12) 24,000 2022 Second contract year of 7/1/2020 sales (150x40%xP800x6/12) 24,000 Warranty expense for 2020

12,000

12,000

144,000

Warranty expense related to 2021 sales 2021 First contract year of 1/1/2021 sales (250x20%xP800) 40,000 First contract year of 7/1/2021 sales (250x20%xP800x6/12 ) 20,000 2022 First contract year of 1/1/2021 sales (250x20%xP800x6/12) Second contract year of 1/1/2021 sales (250x40%xP800) 80,000 Second contract year of 7/1/2021 sales (250x40%xP800x6/12) 40,000 2023

20,000

Second contract year of 7/1/2021 sales (250x40%xP800x6/12) 40,000 Warranty expense for 2021 Requirements 5

240,000

2020 sales still under warranty after 12/31/2021: Second contract year of 7/1/2020 sales 2021 sales still under warranty after 12/31/2021: First contract year of 7/1/2021 sales 20,000 Second contract year of 1/1/2021 sales Second contract year of 7/1/2021 sales (40,000+40,000) 80,000 Estimated warranty liability – 12/31/2021 Estimated warranty liability per book 194,000 Increase in warranty liability

10,000

Warranty expense Estimated warranty liability

10,000

24,000

80,000

204,000

10,000

Problem E Cascade company manufacturers a special laundry soap. A towel is offered as premium to customer who send in two proof-of-purchase seals from the soap boxes and a remittance of P20. Distribution cost is P5 per towel. Data for the premium offer are. 2020 2021 Soap sales 2,500,000 3,125,000 Towel purchases, P100 per towel 175,000 200,000 Number of towels distributed as premium 1,000 1,800 Number of towels expected to be distributed In subsequent period 600 800 Required: 1. Prepare journal entries for 2020 and 2021. 2. Statement classification of the account balances pertaining to the premium plan. 2020 1. Cash 2,500,000 Sales 2,500,000 2. Premiums – Towels 175,000 Cash 175,000 3. Cash (1000x20) 20,000 Premium expense 80,000

Premium – Towels (1,000x100) 100,000 4. Premium expense (1,000x5) Cash 5. Premium expense Estimated premium liability (600x85) 51,000 2021 1. Estimated premium liability Premium expense Cash Sales 2. Premium – Towels Cash 3. Cash (1,800x20) Premium expense Premium – Towels (1,800x100) 180,000 4. Premium expense (1,800x5) Cash 5. Premium expense Estimated premium liability (800x85) 68,000 Statement classification

5,000 5,000 51,000

51,000 51,000 3,125,000 3,125,000 200,000 200,000 36,000 144,000

9,000 9,000 68,000

2018 Current asset: Premium – Towels Current liability: Estimated premium liability Selling expense: Premium expense

2019 75,000

95,000

51,000

68,000

136,000

170,000

Problem F Eastern company provided the following information on December 31, 2020.  In May 2020, eastern company became involved in litigation. In December 2020, the assessed a judgement for P1, 600,000 against eastern company. The entity is appealing the amount of the judgement. The attorney believed it is probable that the assessment can be reduced on appeal by 50%. The appeal is expected to take at least a year.  In July 2020, Pasig city brought action against eastern company for polluting the Pasig River with its waste products.

It is probable that Pasig city will be successful but the amount of damage the entity might have to pay should not exceed P1, 500,000.  Eastern company has signed as guarantor for a P1, 000,000 loan by first bank to northern company, a principal supplier to eastern company. At this time, there is an only a remote likelihood that eastern company will have to make payment on behalf of northern company.  Eastern company has long owned a manufacturing site that has now been discovered to be contaminated with toxic waste. The entity has acknowledge its responsibility for the contamination. An initial clean up feasibility study has shown that it will cost at least P500, 000 to clean up the toxic waste.  Eastern company has been sued for patent infringement and lost the case. A preliminary judgement of P300, 000 was issued and is under appeal. The entity’s attorneys agree that it is probable that the entity will loss this appeal. Required: Prepare journal entries to recognize any provision at the end of current year. Answer: 1. Loss on lawsuit 800,000 Estimated liability for lawsuit (50%x1, 600,000) 2. Environmental cost

800,000 1,500,000

Estimated environmental cost 1,500,000 3. No provision is recognized for the guaranty because there is only a remote likelihood that future payment will be made. 4. Contamination clean-up cost

500,000

Estimated liability for clean-up cost 5. Loss on lawsuit Estimated liability for lawsuit

500,000 300,000 300,000

TASK 2- Bonds Payable Problem A A.Amortization Table: Year Bonds Fraction Discount outstandin amortizatio g n 2021 8,000,000 8/40 64,000 2022 8,000,000 8/40 64,000 2023 7,000,000 7/40 56,000 2024 6,000,000 6/40 48,000 2025 5,000,000 5/40 40,000 2026 4,000,000 4/40 32,000 2027 2,000,000 2/40 16,000 40,000,00 320,000 0 B.Journal Entries 2020 Dec 31 Cash Discount on bonds payable Bonds payable 2021 Dec 31 interest expense Cash 31 interest expense Discount on bonds payable 2022 Dec 31 interest expense Cash 31 interest expense Discount on bonds payable 31 bonds payable Cash 2023 Dec 31 interest expense Cash 31 interest expense Discount on bonds payable 31 bonds payable Cash Problem B Required 1 2020 Jan 1

unissued bonds payable Authorized bonds payable

Interest paid

Interest expense

960,000 960,000 840,000 720,000 600,000 480,000 240,000 4,800,00 0

1,024,000 1,024,000 896,000 768,000 640,000 512,000 256,000 5,120,00 0

7,680,000 320,000 8,000,000 960,000 960,000 64,000 64,000 960,000 960,000 64,000 64,000 1,000,000 1,000,000 840,000 840,000 56,000 56,000 1,000,000 1,000,000

8,000,000 8,000,000

Jan

1

2020 Dec 31 31

2021 June 30

cash (5,000,000 x 12% x 6/12) Cash

300,000 300,000

interest expense Cash interest expense (250,000 / 10) Discount on bods payable

300,000

interest expense Cash

300,000

300,000 25,000 25,000

300,000

Sept 1

cash 2,100,000 Unissued bonds payable 2,000,000 Premium on bonds payable 60,000 Interest expense (2,000,000 x 12% x 2/12) 40,000

Dec

31

interest expense Cash (7,000,000 x 12% x 6/12) 420,000 31 interest expense Discount on bonds payable 31 premium on bonds payable Interest expense

420,000

25,000 25,000 2,400 2,400

120 months – 20= 100 months remaining 60,000/100= 600 monthly 600 x 4= 2,400 Required 2 Non-current liabilities Authorized bonds payable Less: unissued bonds payable Issued bonds payable Premium on bonds payable Total Discount on bonds payable Carrying amount Problem C

8,000,000 (1,000,000) 7,000,000 57,600 7,057,600 (200,000) 6,857,600

Question 1 Interest expense (6% x 4,000,000)

240,000

Question 2 Bonds payable 1/1/2020 Fair value – 12/31/2020 (4,000,000 x 95%) Increase in fair value of bonds payable - Loss Loss from change in fair value -122,400 Bonds payable

3,677,600 3,800,000 (122,400) 122,400

Question 3

Question 4 2020 Jan 1 cash

3,677,600 Bonds payable

interest expense 240,000 Cash 31 loss from change in fair value 122,400 Bonds payable Task 3- Effective Interest Method Problem A.

3,677,600

Dec 31

240,000 122,400...