Documente Academic
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Documente Cultură
Volume Two
Valix and Peralta
2008 Edition
SOLUTION MANUAL
1
CHAPTER 1
Problem 1-1 Problem 1-2 Problem 1-3 Problem 1-4 Problem 1-5
1. A 1. A 6. A 1. C 1. B 1. A 6. A
2. D 2. C 7. A 2. B 2. B 2. D 7. A
3. A 3. B 8. D 3. D 3. C 3. A 8. C
4. C 4. A 9. C 4. A 4. A 4. D 9. B
5. A 5. A 10. C 5. D 5. A 5. B 10. B
Problem 1-8
Noncurrent liabilitiy:
Bonds payable, due December 31, 2010 2,000,000
2
Problem 1-9
a. Current liabilities:
Note payable – bank 700,000
Note payable – shareholder 2,000,000
Less: Discount on note payable 113,000 1,887,000
Accrued interest payable 189,000
Total current liabilities 2,776,000
Problem 1-10
1. Current liabilities:
Accounts payable 7,000,000
Note payable – bank 12,000,000
Accrued expenses 4,000,000 23,000,000
Noncurrent liabilities:
Mortgage payable 4,000,000
Note payable due 2010 3,000,000 7,000,000
Total liabilities 30,000,000
2. The note payable to bank is paid from the proceeds of the issuance of share capital of P4,000,000
on January 31, 2009 and the availment of a financing agreement on February 15, 2009 with a
financially capable commercial bank on April 1, 2009 in the amount of P3,000,000. Nevertheless,
the note payable should continue to be classified as current.
3
Accrued interest payable from September 1 to December 31, 2008
(1,200,000 x 12% x 4/12) 48,000
If the interest is compounded annually, it means that the accrued interest for one year will also earn
interest.
4
Problem 1-16 Answer A
PAS 1, paragraph 63, provides that an entity shall classify its financial liabilities as current when they
are due to be settled within twelve months after balance sheet date even if an agreement to refinance
or reschedule payment on a long-term basis is completed after balance sheet date and before the
financial statements are authorized for issue.
Problem 1-18
2008
1. Cash 3,600,000
Sales 3,600,000
2. Premiums 390,000
Cash 390,000
5
2009
1. Estimated premiums payable 120,000
Premium expense 120,000
Reversing entry.
Cash 4,200,000
Sales 4,200,000
2. Premiums 580,000
Cash 580,000
Problem 1-19
2. Premiums 900,000
Cash 900,000
6
Premiums to be distributed on the balance of bottle caps (20,000 /10) 2,000
Problem 1-20
2008
1. Cash 2,500,000
Sales 2,500,000
2009
1. Estimated premiums payable 51,000
Premium expense 51,000
Cash 3,125,000
Sales 3,125,000
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5. Premium expense 68,000
Estimated premiums payable (800 X 85) 68,000
Statement classification
2008 2009
Current asset:
Premiums – towels 75,000 95,000
Current liability:
Estimated premiums payable 51,000 68,000
Selling expense:
Premium expense 136,000 170,000
Problem 1-26
Accrual approach
2008
1. Cash (300 x 15,000) 4,500,000
Sales 4,500,000
2009
1. Cash (500 x 15,000) 7,500,000
Sales 7,500,000
2008
1. Cash 4,500,000
Sales 4,500,000
2009
1. Cash 7,500,000
Sales 7,500,000
9
Problem 1-27
Accrual approach
2008
1. Cash 5,000,000
Sales 5,000,000
2009
1. Cash 9,000,000
Sales 9,000,000
“Expense” approach
2008
1. Cash 5,000,000
Sales 5,000,000
2009
1. Cash 9,000,000
Sales 9,000,000
10
Problem 1-28
Units sold:
October 32,000
November 28,000
December 40,000
Total 100,000
Multiply by 2%
Total failures expected 2,000
Less: Failures already recorded:
October sales 640
November sales 360
December sales 180 1,180
Expected future failures 820
Multiply by 150
Estimated cost 123,000
Warranty expense:
2008 (5,000,000 x 7%) 350,000
2009 (7,000,000 x 7%) 490,000
840,000
Warranty costs:
2008 100,000
2009 300,000400,000
Warranty liability – December 31, 2009 440,000
11
1. Cash 500,000
Gift certificates payable 500,000
Problem 1-36
1. Cash 900,000
Gift certificates payable 900,000
12
1. Cash 980,000
Unearned service contract revenue 980,000
13
Problem 1-40 Answer B
2009 150,000
2010 225,000
2011 100,000
Unearned service contract revenue 475,000
The entire amount of P720,000 will be considered deferred revenue on December 31, 2008 because
the subscriptions start with the January 2009 issue.
B = .10 (1,650,000 – B)
B = 165,000 - .10B
B + .10B = 165,000
1.10B = 165,000
B = 165,000 / 1.10
B = 150,000
Proof
Income before bonus and tax 4,260,000
Less: Bonus 260,000
Income before tax 4,000,000
Less: Tax (35% x 4,000,000) 1,400,000
Income after bonus and tax 2,600,000
B = .05 (5,000,000 – B – T)
T = .35 (5,000,000 – B)
B = .05 [5,000,000 – B - .35 (5,000,000 – B)]
B = .05 (5,000,000 – B - 1,750,000 + .35B)
B = 250,000 – .05B - 87,500 + .0175B
B + .05B - .0175B = 250,000 – 87,500
1.0325B = 162,500
B = 162,500 / 1.0325
B = 157,385
15
T = .35 (5,000,000 – 157,385)
T = 1,694,915
Proof of bonus
B = .05 (5,000,000 – 157,385 – 1,694,915)
B = 157,385
Problem 1-49
1. Cash 390,000
Containers’ deposit 390,000
Problem 1-50
1. Only a disclosure is necessary because it is not probable that the company will be liable, although
the amount can be measured reliably.
The probable loss is recorded but the possible loss is only disclosed.
`
Problem 1-53 Answer C
The best estimate is recorded. The accepted BIR offer is not recorded because it was made after the
statements are issued.
The provision should be accrued because it is probable and measurable. The accrued amount is
P350,000 which is the midpoint of the range in the absence of the best estimate within the range.
The contingent asset is disclosed only because the case is unresolved on December 31, 2008. The
issue is what amount of asset will be disclosed. Since the case is settled in March 2009 after the
issuance of the 2008 financial statements, the amount P1,500,000 should be disclosed. However, if
the case is settled before the issuance of the statements, the actual award of P1,000,000 should be
disclosed.
Haze can report a gain of P1,500,000 in its 2008 income statement because this amount is already
settled on December 31, 2008. However, the remainder of P3,000,000 is only disclosed because the
defendant has appealed the said amount.
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Problem 1-57 Answer A
The loss on the first lawsuit is both probable and measurable and therefore can be accrued as a
provision.
Both are accrued as provision because the loss is probable and measurable.