PROBLEMS
Problem 1-1 (IAA)
On December 31, 2020, Glare Company provided the following
information:
.:\cmunts payable, including deposits and advances
from customer of P250,000 1,250,000
Sot.es payable, including note payable to bank dueon
December 31, 2022 of P500,000 1,500,000
Sb.are dividendpayable 400,000
Credit balances in customers' accounts 200,000
Serial bonds payable in semiannual installment
ofP500,000 5,000,000
Accrued interest onbonds payable 150,000
Contested BIR tax assessment- possible obligation 300,000
Lnearned rentincome 100,000
Required:
Compute the total current liabilities on December 31, 2020.
Problem 1-2 (IM)
Easy Company provided the following information on
Decem.ber 31, 2020:
Notes payable:
Trade 3,000,000
Bank loans 2,000,000
Advances from officers 500,000
Accounts payable- trade 4,000,000
Bank overdraft 300,000
Dividends payable 1,000,000
Withholding tax payable 100,000
Mortgage payable 3,800,000.
Income tax payable 800,000
Estimated warranty liability 600,000
Estimated damagespayable by reason ofbreach ofcontract 700,000
Accrued liabilities 900,000
Estimatep. premium liability . 200,000
Claim for increase in wages by employees covered in
a pending lawsuit . 3,500,000
Contract entered intofor the construction of building 5,000,000
Required:
Compute the total current liabilities on December .31, 2020.
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PROBLEMS
Problem 2-1 (IAA)
Miracle Company manufacturers a product that ,is packaged
and sold. A plate is offered to customers sending in three
wrappers accompanied by a remittance of PlO.
Data with respect t:o the premium offer are summarized below.
2020 2021
Sales 3,600,000 4,200,000
?"urchase of premium, P50 per plate 390,000 580,000
Xamber of platesdistrih'uted as premiums 5,000 9,000
t=:-tim.ated number of plates to be
distributed in subsequent period 2,000 3,000
Y..stribution cost P20per plate
Required:
Prepare journal entries that would be made in 2020 and 2021
:o record sales , premium purchases and redemptions, and
year-end adjustments.
Problem 2-2 (IAA)
Cascade Company manufactures a special laundry soap
A towel is offered as a premium to customers who send in two
proof-of-purchase seals from the soap boxe_s and a
remittance Jf P20. Distribution cost is P5 per towel.
Data for the premium offer are .
2020 2021
Soap sales 2,500,000 3,125,000
'rowel purchases, PlOO per towel 175,000 200,000
umber of towels distributed as 1,000 1,800
premium
umberof towels expected to be
distributedin subsequent pP.riod 600 800
Required:
1. Prepare journal entries for 2020 and 2021.
2. Stat.ement clas·sification of the account balances pertaining
t.o the premium plan.
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..._,Iem 3-2 (AICPA Adapted)
• 20, Dare Company began selling a new calculator that
• e-:i a two-year warra n_t·y against defects.
entity projected the estimated warranty cost as a percent
,L 5ales. .
.f:rs:: year of warranty
5ec:cndyear of warranty 4%
10%
5--ales and actual warranty repairs were:
2020 2021
5a)es
5,000,000 9,000,000
.Jalwarranty repairs 200,000 560,000
&equired: ·
L Prepare journal entries in connection with the warranty
using the expense a.s incurred approach.
1 Prepare journal entries in connection with the warranty
using the accrual approach.
1 Determine the estimated warranty liability on December
31, 2021..
t. Analyze the estimated warranty liability account to
ascertain if adjustment is necessary. The sales and
warranty repairs are made evenly during the year.
i. Prepare the adjustment to correct the estimated
warranty liability on December 31, 2021. ·
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PKOBLEMS
Problem 4-1 (IAA)
:'::-Company provided the following facts regarding pending
i=:·gation on December 31, 2020:
• :lieentity is defending against a first lawsuit and believes
: here is a 51% chance it will lose in court. The entity
=Sstimates that damages will be Pl ,000,000.
• The entity is defending against a second lawsuit for which
management believes it is virtually certain to lose in
court.
If it loses the lawsuit, management estimates damages
will fall somewh re in the range of P 3, 000,000 to
P5,000,000 with each amount in that range equally likely
to occur.
• The entity is defending against a third lawsuit but the
relevant loss will only occur far into the future. The
present values of the endpoint s of the range are
Pl,500,000 and P2,5-00,000.
Th e management believes the effects of time value of
money on these amounts are material but also believes
the timing of these• amounts is uncertain.
.. The entity is defending against a fourth lawsui t and
believes there is only a 25% chance it will lose in
court.
If the entity loses, management believes damages will
fall somewhere in the range of P3,000,000 to P4,000,000
with each amount in that range equally likely to occur.
Requ ire d:·
Indicate how the entity would disclose or account for the
four lawsuits under IFRS in the financial statements for the
year ended December 31, 2020.
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