Current Liabilities - Wholesome PDF

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My Answer Correct Answer Grip Company started a new promotional campaign program. For every 10 box tops returned to Grip, customers receive a ballpen. Grip estimates that only 40% of the box tops reaching the market will not be redeemed. Additional information is as follows: Units Amount Sales of pr...

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Current Liabilities My Answer Correct Answer 1. Grip Company started a new promotional campaign program. For every 10 box tops returned to Grip, customers receive a ballpen. Grip estimates that only 40% of the box tops reaching the market will not be redeemed. Additional information is as follows: Units Amount Sales of product 100,000 30,000,000 Ballpens purchased 5,500 4,125,000 Ballpens distributed 4,000 What is the amount of year-end estimated liability associated with this promotion? (a) 4,125,000 (b) 1,500,000 (c) 3,000,000 (d) 4,500,000 Solution: 100,000 units/10 =10,000*60% = 6,000 (expected to be redeemed) (4,000) distributed Balance: 2,000*750 (4,125,000/5,500) =1,500,000 2. On April 1, 2002, Art Corporation began offering a new product for sale under a one-year warranty. Of the 50,000 units in inventory at April 1, 2002, 30,000 had been sold by June 30, 2002. Based on its experience with similar products, Art estimated that the average warranty cost per unit sold would be P80. Actual warranty costs incurred from April 1 through June 30, 2002 were P700,000. At June 30, 2002, what amount should Art report as warranty expense? (a) 700,000 (b) 900,000 (c) 1,700,000 (d)2,400,000(30k*80) 3. Right Store sells gift certificates, redeemable for store merchandise, that expire one year after their issuance. Right has the following information pertaining to its gift certificate sales and redemptions: Unredeemed at 12/31/2002 750,000 2003 sales 2,500,000 2003 redemptions of prior year sales 250,000 2003 redemptions of current year sales 1,750,000 Right’s experience indicates that 10% of gift certificates sold will not be redeemed. In its December 31, 2003 income statement, what amount should Right report as revenue? (a) 2,500,000 (b) 2,000,000 (c) 1,250,000 (d) 500,000 Solution: Redemptions current1.75M+Estimated not to be redeemed (2.5M*10%)-Sales 2.5M 4. Kite Company sells magazine subscriptions of one to three-year periods. Cash receipts from subscribers are credited magazine subscriptions collected in advance, and this account had a balance of P2,400,000 at December 31, 2002 before year-end adjustment. Outstanding subscriptions at December 31, 2002 expire as follows: During 2003 600,000 During 2004 900,000 During 2005 400,000 In its December 31, 2002 balance sheet, what amount should Kite report as the balance for magazine subscriptions collected in advance? (a) 500,000 (b) 1,200,000 (c) 1,900,000 (d) 2,400,000

Current Liabilities 5. Jar Company must determine the December 31, 2002 year-end accruals for advertising and rent expense. A P50,000 advertising bill was received January 7, 2003 comprising costs of P35,000 for advertisements in December 2002 issues, and P15,000 advertisements in January 2003 issues of the newspaper. A store lease, effective December 16, 2001, calls for fixed rent of P120,000 per month, payable one month from the effective date and monthly thereafter. In addition, rent equal to 5% of net sales over P6,000,000 per calendar year is payable on January 31 of the following year. Net sales for 2003 were P9,000,000. In its December 31, 2002 balance sheet, Jar should report accrued liabilities of: (a) 260,000 (b) 185,000 (c) 210,000 (d) 245,000 6. On March 1, 2002, Fine Company borrowed P1,000,000 and signed a 2-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, 2004. What amount should Fine report as a liability for accrued interest at December 31, 2003? (a) 112,000 (b) 120,000 (c) 232,000 (d) 0 For items 22 and 23: On December 31, 2001, the bookkeeper of Glory Corporation provided the following information: Accounts payable, including deposits and advances from CL NCL customers of P25,000 P125,000 125 Notes payable, including note payable to bank on December 31, 2003 of P50,000 150,000 100 50 Acceptances payable 10,000 10 Liabilities under trust receipts 80,000 80 Stock dividends payable 200,000 Credit balances in customers’ accounts 20,000 20 Serial bonds payable in semiannual installment of P50,000 500,000 100 400 Accrued interest on bonds payable 15,000 15 Dividends in arrears on preferred stock 70,000 Contested BIR assessment 30,000 30 Unearned rent income 5,000 5 7. The amount of current liabilities on December 31, 2001 is: (a) P455,000 (b) P480,000 (c) P450,000

(d) P485,000

8. The amount of noncurrent liabilities on December 31, 2001 is: (a) P455,000 (b) P480,000 (c) P450,000

(d) P485,000

9. Anette Video Company sells 1-and 2-year subscriptions for its video-of-the-month business. Subscriptions are collected in advance and credited to sales. An analysis of the recorded sales activity revealed the following: 1997 1998 Sales P420,000 P500,000 Less: Cancelations 20,000 30,000 Net sales P400,000 P470.000

Current Liabilities

Subscription expirations: 1997 1998 1999 2000

P120,000 155,000 P130,000 125,000 200,000 ________ 140,000 P400,000 P470,000 In Anette’s December 31, 1998 balance sheet, the balance for unearned subscriptions revenue should be: (a) P495,000 (b) P470,000 (c) P465,000 (d) P340,000 Solution: 470,000 – 130,000 = 340,000 10. Felly Company operates a retail grocery store that is required by law to collect refundable deposits of P5 on soda cans. Information for 2001 follows: Liability for refundable deposits – 12/31/2000 P150,000 Cans of soda sold in 2001 100,000 Soda cans returned in 2001 110,000 On February 1, 2001, Felly subleased space and received a P25,000 deposit to be applied against rent at the expiration of the lease in 2005. In Felly’s December 31, 2001 balance sheet, the current and noncurrent liabilities for deposits were: Current Noncurrent (a) P125,000 P 0 (b) 100,000 25,000 (c) 100,000 0 (d) 25,000 100,000 Soultion: 150,000+500,000 from (100k*5) – 550,000 from (110k*5) = 100,000 11. In an effort to increase sales, Mills Company inaugurated a sales promotional campaign on June 30, 1998. Mills placed a coupon redeemable for a premium in each package of cereal sold. Each premium cost Mills P20 and a customer to receive a premium must present five coupons. Mills estimated that only 60% of the coupons issued will must be redeemed. For the 6 months ended December 31, 1998, the following information is available: Packages of cereal sold Premiums purchased Coupons redeemed 160,000 12,000 40,000 What is the estimated liability for premium claims outstanding at December 31, 1998? (a) P160,000 (b) P224,000 (c) P288,000 (d) P384,000 Solution: 160,000 units/5 =32,000*60% = 19,200 (expected to be redeemed) (8,000) redeemed (40,000/5) Balance: 11,200*20 = 224,000 12. During 1998, Day Company sold 500,000 boxes of cake mix under a new sales promotional program. Each box contains one coupon, which entitle the customer to a baking pan upon remittance of P4.00. Day pays P5.00 per pan and P0.50 for handling and shipping. Day estimates that 80% of the coupons will be redeemed, even though only 300,000 coupons had been processed during 1998. What amount should Day report as a liability for unredeemed coupons at December 31, 1998? (a) P100,000 (b) P150,000 (c) P300,000 (d) P500,000 Solution: 400,000 from (500k*80%) – 300,000 processed = 100,000*(5.50-4)= 150,000

Current Liabilities 13. Mill Company sells washing machines that carry a three-year warranty against manufacturer’s defects. Based on company experience, warranty costs are estimated at P30 per machine. During 1998, Mill sold 24,000 washing machines and paid warranty costs of P170,000. In its income statement for the year ended December 31, 1998, Mill should report warranty expense of: (a) P170,000 (b) P240,000 (c) P550,000 (d) P720,000 Solution: 24,000 washing machines*P30 estimated warranty costs = 720,000 14. Bold Company estimates its annual warranty expense at 2% of annual net sales. The following data are available: Net sales P4,000,000 Warranty liability: December 31, 1997 P60,000 credit Warranty payments during 1998 P50,000 debit After recording the 1998 estimated warranty expense, the warranty liability account would show a December 31, 1998 balance of: (a) P10,000 (b) P70,000 (c) P80,000 (d) P90,000 Solution: Warranty Liab beg. 60,000 +30,000 from (4M*2%-50,000) = 90,000 warranty liab end 15. At December 31, 1998, Raft Boutique had 1,000 gift certificates outstanding, which had been sold to customers during 1998 for P70 each. Raft operates on a gross margin of 60% of its sales. What amount of revenue pertaining to the 1,000 outstanding gift certificates should be deferred at December 31, 1998? (a) P 0 (b) P28,000 (c) P42,000 (d) P70,000 Solution: 1,000*70 = 70,000*60% = 42,000...