Intacc 2 liabilities 2 - accounting PDF

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Summary

SUNS Company requires advance payments with special orders from customers for machinery constructed to their specification. Information for 2021 follows: Customer advances, 12/31/20 P 475, Advances received with orders in 2021 650,Advances applied to orders shipped in 2021510,Advances applicable to ...

Description

1. SUNS Company requires advance payments with special orders from customers for machinery constructed to their specification. Information for 2021 follows: Customer advances, 12/31/20 P 475,000 Advances received with orders in 650,000 2021 Advances applied to orders shipped 510,000 in 2021 Advances applicable to orders 165,000 cancelled in 2021 a. The liability balance if the collections made are refundable b. The liability balance if the collections made are nonrefundable SUNS Company - Customer Advance balance at 31st Dec 2020 = P 475,000 Advances received for orders in 2021 = P 650,000 Advances applicable to shipped orders = P 510,000 So liabilities from 2021 orders = P 650,000 - P510,000 = P 140,000 Orders cancelled in 2021 = P 165,000 1) Liability balance if the advances are refundable = P 475,000 + P 140,000 - P 165,000 (We are considering only performance obligation liabilities hence subtracting cancelled orders) = P 450,000 2) If the advances are non refundable then the liabilities is zero, as the company is not obligated to return the money

2. HAWKS Company sells its products in expensive reusable containers. The customer is charged a deposit for each container delivered and received a refund for each container returned within two years after the year of delivery. HAWKS Company accounts for the containers not returned within the time limit as being sold at the deposit amount. Information for 2021 is as follows: Containers held by customers at December 31, 2021, from deliveries in 2019 P 250,000 2020 P 450,000 Containers delivered in 2021 P 1,300,000 Containers returned in 2021 from deliveries in 2019 - P 220,000; 2020 - P 2021 300,000 P950,000 The liability balance to be reported in the 2021 statement of financial position is The key point here is after 2 years the company considers the containers as sold and hence these won't come under liabilities. Hence no matter the balance is from 2019 since its been 2 years, there is no liability We only need to calculate for 2020 and 2021 2020 purchased Containers held = P 450,000 2020 purchased Containers returned = P 300,000

Liability from 2020 containers = P 450,000 - P 300,000 = P 150,000 2021 purchased Containers held = P 1,300,000 2021 purchased containers returned = P 950,000 Liability from 2021 containers = P 1,300,000 - P 950,000 = P 350,000 Total Initial Liability

500 service contracts x P4,800

2,400,000

Actual Expenses

(350,000)

Warranty Liability

2,050,000

liability = P 350,000 + P 150,000 = P 500,000

3. KNICKS Company sells portable DVD players for P12,000 each and offers to each customer a 3-year service contract for an additional P4,800. During 2021, the company sold 800 DVD players and 500 service contracts for cash. Expenses related to the service contracts for 2021 amounted to P350,000. Past records of the company indicate that the pattern of repairs has been 50% in the year after the sale, 30% in the second year, and 20% in the third year. Sales of the contracts were made evenly during the year The liability balance to be reported in the 2021 statement of financial position is

4. HEAT Company sells subscriptions to a semi-annual magazine that is delivered to customers at the end of June 30 and December 31. Subscriptions are P450 for one year and are received as follows for the months of October 2,000; November 3,000; and December 4,500 The liability balance to be reported in the 2021 statement of financial position is October

2,000 x P450 x 9/12

675,000

November

3,000 x P450 x 10/12

1,125,000

December

4,500 x P450 x 11/12

1,856,250

Warranty Liability

3,656,250

5. CAVS Company offers audio discs featuring local bands for 2020 as a premium for every 5 chocolate wrappers presented by customers together with P5. The company sells the chocolate bars to distributors for P70 each. The purchase price of each audio disc is P12; in addition, it costs P2 to mail each CD. The results of the premium plan for the years 2020 and 2021 are as follows: 2020 2021 Audio discs purchased 70,000 90,000 Chocolate bars sold 425,000 595,000 Wrappers redeemed 290,000 320,000 2019 wrappers expected to be 60,000 redeemed in 2020

2020 wrappers expected to be redeemed in 2021

80,000

a. The liability balance to be reported in the 2020 statement of financial position is b. The liability balance to be reported in the 2021 statement of financial position is Wrappers to be redeemed (Equal to the chocolates sold) Wrappers to be redeemed (Equal to the chocolates sold) Wrappers redeemed in 2020 (Including 60K from 2019) Wrappers redeemed in 2021 (Including 80K from 2020) Balance Balance Premiums to be distributed (135,000/5) Premiums to be distributed (275,000/5) Estimated liability for 2020 (27,000x9) Estimated liability for 2021 (55,000x9)

425,000 595,000 (290,000) (320,000) 135,000 275,000 27,000 55,000 243,000 495,000

Estimated liability for 2020 (27,000x9)

243,000

Estimated liability as of 2021

738,000

The liability from 2020 is added because the problem asks for the balance of liability. Since liability is a permanent account, the balance from the previous year shall be forwarded in the current year.

6. 76ERS Company places one coupon in each box. Five coupons are redeemable for a puppet together with P5. In 2021 76ERS Company purchases 700,000 puppets at P21 and sells 2,500,000 boxes of “PHILLY” at P120 a box. Based from its experience with other similar premium offers, 76ERS Company estimates that 80% of the coupons will be mailed back for redemption and will cost P4. In 2021, 1,100,000 coupons were presented for redemption of which 70,000 coupons remains under processing at December 31, 2021 a) Premiums expense reported in 2021 is b) The estimated liability reported in the 2021 1. Total Estimated redemption of Coupons = (2,500,000*80%/5) =400,000 Total Cost of Redemption =21+4 =25 Thus, Total Premium Expense =400,000*25 =10,000,000 2. Total Estimated redemption of Coupons = 2,500,000*80%

=2,000,000 Total Coupons redeemed =1,100,000-70,000 =1,030,000 Total Cost of Redemption =25+4 =25 Total Premium Liability to be recognised =(2,000,000-1,030,000)/5*25 =4,850,000

7. In packages of its products, RAPTORS Company includes coupons that may be presented at retail stores to obtain discounts on other RAPTORS Company products. Retailers are reimbursed for the face amount of the coupons redeemed plus 8% of that amount for handling costs. RAPTORS Company honors requests for coupon redemption by retailers up to 3 months after the consumer expiration date. RAPTORS Company estimates that 25% of all coupons issued will ultimately be unredeemed. Information relating to coupons issued by RAPTORS Company during 2021 is as follows: Consumer expiration dates 9/30/21 12/31/21 Face amount of coupons P 1,650,000 issued 900,000 180, 450,500 Redemption payments made 000 The liability for unredeemed coupons in the December 31, 2021 balance sheet is 8. WARRIORS Company sold 3,000,000 boxes of strawberry-cheese pie mix under a new sales promotional program. Each box contains one coupon, in which 10 coupons, submitted with P4 entitles the customer to a baking pan. WARRIORS Company pays P12 per pan and P1.50 for handling and shipping. WARRIORS Company estimates that 80% of the coupons will be redeemed, even though only 1,350,000 coupons had been processed during 2021 The liability for Unredeemed Coupons in its December 31, 2021 is Boxes sold Multiply by: Est. Redemption rate Est. coupons to be redeemed Coupons redeemed during the year Est. Coupons to be redeemed in the next period Divide by: # of coupons required for each premium Est. Premiums still outstanding Multiply by: Cost per premium including handling and shipping

3,000,000 80% 2,400,000 - 1,350,000 1,050,000 10 105,000 13.50

Liability for unredeemed coupons

1,417,500

9. TRAILBLAZERS Company sells goods with a warranty under which customers are covered for the cost of repairs of any manufacturing defects within 12 months after purchase. If minor defects were detected in all products sold, repair cost is around P300,000 and if major defects are detected on all products sold repair cost is around P1,500,000. TRAILBLAZERS Company’s past experience and future expectations indicate that 70% will have no defects; while 25% will have minor defects and 5% will have major defects. The expected value of the loss is Rate (b)

Weighted average (a x b)

Est. cost (a) No defects

-

Minor defects

300,000

Major defects

1,500,000

Total expected cost of warranty/loss

70%

-

25%

75,000

5%

75,000 150,000...