HOMEWORK ON CURRENT LIABILITIES

1. Upland Company borrowed P400,000 on November 1, 2017, by signing a P400,000, 9%, 3-month note.
(a) Prepare Uplands November 1, 2017, entry.
(b) Prepare the December 31, 2017, annual adjusting entry.
(c) Prepare the February 1, 2018, entry.

2. Takemoto Corporation borrowed P60,000,000 on November 1, 2017, by signing a P61,350,000 3-month,

zero-interest-bearing note.
(a) Prepare Takemotos November 1, 2017, entry.
(b) Prepare the December 31, 2017, annual adjusting entry.
(c) Prepare the February 1, 2018, 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 2017 is as follows:
Containers held by customers in 2017 from deliveries in
2015 P 75,000
2016 215,000
2017 390,000
Containers returned in 2017 from deliveries in
2015 P 45,000
2016 125,000
2017 143,000
Prepare all required entries in 2017 in connection with the containers and compute the liability for
containers on December 31, 2017.

4. Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2017, for P18 each.
(a) Prepare Sport Pros August 1, 2017, journal entry
(b) Prepare the December 31, 2017, annual adjusting entry.

5. 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, 2017 are as follows:
Unearned Service Contract Revenue, 1/1/2017 P 600,000
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, 2017?

6. 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, 2017 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, 2017. Outstanding service contracts at December 31, 2017
expire as follows:
 During 2017 P395,000
During 2018 225,000
During 2019 100,000
What amount should be reported as Unearned Service Contract Revenue in the companys December 31,
2017 Statement of Financial Position?

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 2017 are as follows:
Gift Certificates Payable, 1/1/2017 P 650,200
Gift certificates sold 2,251,800
Gift certificates redeemed 1,975,300
Expired gift certificates 250,400
On December 31, 2017, what amount should the store report as Gift Certificates Payable?

8. Lexington Corporations 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 Lexingtons payroll.

9. Kasten Inc. provides paid vacations to its employees. At December 31, 2017, 30 employees have each
earned 2 weeks of vacation time. The employees average salary is P700 per week. Prepare Kastens
December 31, 2017, adjusting entry.

10. Kansas Company has an incentive compensation plan under which a branch manager receives a bonus of
10%. Branch income for 2017 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. Scorcese Inc. is involved in a lawsuit at December 31, 2017.

(a) Prepare the December 31 entry assuming it is probable that Scorcese 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 Scorcese will be liable for any
payment as a result of this suit.

12. On December 31, 2017, Illinois Company was a defendant in a pending lawsuit. The suit arose from the
alleged defect of a product that the firm sold in 2016. In the opinion of the companys 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, 2017 Statement of Financial Position?

13. During 2017, Indiana Company became involved in a tax dispute with the BIR. At December 31, 2017, the
Companys 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 2017 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, 2017 Statement of Financial Position?
14. Arkansas Company sells washing machines that carry a three-year warranty against manufacturers defects.
Based on Company experience, warranty costs are estimated at P450 per machine. During 2017, the
company sold 1,400 washing machines and paid warranty costs of P170,000. What amount of warranty
expense should the firm report in its income statement for the year ended December 31, 2017?

15. On April 1, 2017, California Company began offering a new product for sale under a one-year warranty. Of
the 5,000 units in inventory as of April 1, 2017, 3,000 units had been sold by June 30, 2017. Based on its
experience with similar products, the company estimated that the average warranty cost per unit sold would
be P80. Actual warranty costs incurred from April 1 through June 30, 2017 were P120,800. At June 30,
2017, what amount should the entity report as estimated warranty liability?

16. In an effort to increase sales, Alabama Company inaugurated a sales promotional campaign on June 30,
2017. The company placed a coupon redeemable for a premium in each package of cereal sold. Each
premium cost the firm P18. To receive a premium, a customer must present five (5) coupons. The company
estimates that only 65% of the coupons issued will be redeemed. For the six months ended December 31,
2017, the following information are available:
Packages of cereal sold 170,000
Premiums purchased 25,000
Coupons redeemed 80,000
(a) How much is the premium expense for the year ended December 31, 2017?
(b) How much is the estimated liability for premium claims as of December 31, 2017?
(c) How much is the inventory of premium items as of December 31, 2017?

17. On January 1, 2017, Alaska Company began marketing a new soft drink. To help promote the soft drink,
management is offering a special gift, a T-shirt, to each customer who returns 10 bottle caps. The firm
estimates that out of the 250,000 bottles sold in 2017, only 70% will be redeemed. On December 31, 2017,
the following information were collected:
Units Amount
T-shirts purchased 20,000 P1,800,000
T-shirts distributed 15,000
(a) How much is the premium expense for the year ended December 31, 2017?
(b) How much is the premium liability on December 31, 2017?

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