40. Lyle, Inc. is preparing its financial statements for the year ended December 31, year 2.

Accounts payable amounted to P360,000 before any necessary year-end adjustment related
to the following:

At December 31, year 2, Lyle has a P50,000 debit balance in its accounts payable to Ross, a
supplier, resulting from a P50,000 advance payment for goods to be manufactured to Lyles
specifiations.
Checks in the amount of P100,000 were written to vendors and recorded on December 29,
year 2. The checks were mailed on January 5, year 3. What amount should Lyle report as
accounts payable in its December 31, year 2 balance sheet?
a. P510,000
b. P410,000
c. P310,000
d. P210,000
ANSWER: C
Accounts Payable- beg. P 360,000
Advance Payment 50,000
Accounts Payable- end P310,000

43. Company ABC sells loans with a P2,200 fair value and a carrying amount of P2,000. ABC
Company obtains an option to purchase similar loans and assumes a recourse obligation to
repurchase loans. ABC Company also agrees to provide a flating rate of interest to the
transferee company. The fair values are listed.

Fair values
Cash proceeds P2,100
Interest rate swap 140
Call option 80
Recourse obligation (120)

What is the gain (loss) on the sale?

a. P320
b. P200
c. P(100)
d. P120
ANSWER: B

Net proceeds
Cash received P2,100
Plus: Interest rate swap 140
Call option 80
Less: Recourse obligation (120)
Net proceeds P2,200

The gain is computed as follows:

Net proceeds P2,200
Carrying amount of loans sold ____ 2,000
Gain on sale P 200

45. Assume for this problem that ABC Company agreed to service the loans without explicitly
stating the compensation. The fair value of the service is P50. What are the net proceeds
received and the gain (loss) on the sale?

Net proceeds received Gain (loss)

a. P2,200 , P200
b. P2,250 , P250
c. P2,150 , P150
d. P2,200 , P(250)
ANSWER: C

The calculation of net proceeds:

Cash received P2,100
Plus: Interest rate swap 140
Call option 80
Less: Recourse obligation (120)
Servicing obligation (50)
Net proceeds P2,150

The gain is:

Net proceeds P2,150
Carrying amount of loans sold 2,000
Gain on sale P 150

49. Lyle, Inc. is preparing its fiancial statements for the year ended December 31, year 2.
Accounts payable amounted to P360,000 before any necessary year-end adjustment related
to the following:

At December 31, year 2, Lyle has a P50,000 debit balance in its accounts payable to Ross,
supplier, resulting from a P50,000 advance payment for goods to be manufactured to
Lyles specifiations.
Checks in the amount of P100,000 were written to vendors and recorded on December 29,
year 2. The checks were mailed on January 5, year 3. What amount should Lyle report as
accounts payable in its December 31, year 2 balance sheet?
a. P510,000
b. P410,000
c. P310,000
d. P210,000
ANSWER: A

Unadjusted AP P360,000
Reclassifiation of advance 50,000
Error correction 100,000
AP, End P510,000

50. Rabb Co. records its purchases at gross amounts but wishes to change to recording
purchases net of purchase discounts. Discounts available on purchases recorded from
October 1, year 1, to September 30, year 2, totaled P2,000. Of this amount, P200 is still
available in the accounts payable balance. The balances in Rabbs accounts as of and for the
year ended September 30, year 2, before conversion are :
Purchases P100,000
Purchase discounts taken 800
Accounts payable 30,000

What is Rabbs accounts payable balance as of September 30, year 2, after the conversion?
a. P29,800
b. P29,200
c. P28,800
d. P28,200
ANSWER: A

Gross accounts payable P30,000

Less: Discount 200
Accounts Payable.9/30/Y2 P29,800

51. On March 1, year 1, Fine Co. borrowed P10,000 and signed a two-year note bearing
interest at 12% per annum compounded annually. Interest is payable in full at maturity on
February 28, year 3. What amount should Fine report as a liability for accrued interest at
December 31, year 2?
a. P0
b. P1,000
c. P1,200
d. P2,320

ANSWER: D
Interest, beginning (P10,000 12%) P1,200
Accrued Interest (P11,200 12% 10/12) 1,120
Accrued Interest, end P2,320

52. On September 1, year 1, Brak Co. borrowed on a P1,350,000 note payable from Federal
Bank. The note bears interest at 12% and is payable in three equal annual principal
payments of P450,000. On this date, the banks prime rate was 11%. The first annual
payment for interest and principal was made on September 1, year 2. At December 31, year
2, what amount should Brak report as accrued interest payable?

a. P54,000
b. P49,500
c. P36,000
d. P33,000
ANSWER: C

Note payable Balance P1,350,000

Less: Principal payment 450,000
Ending Balance 900,000

Interest Payable (P900,000 12% 4/Y3) 36,000

53. In its year 2 fiancial statements, Cris Co. reported interest expense of P85,000 in its
income statement and cash paid for interest of P68,000 in its cash flow statement. There
was no prepaid interest or interest capitalization either at the beginning or end of year 2.
Accrued interest at December 31, year 1, was P15,000. What amount should Cris report as
accrued interest payable in its December 31, year 2 balance sheet?

a. P2,000
b. P15,000
c. P17,000
d. P32,000
ANSWER: D

Interest payable

15,000 68,000

85,000

Bal. 32,000
54. Ames, Inc. has P500,000 of notes payable due June 15, year 3. Ames signed an
agreement on December 1, year 2, to borrow up to P500,000 to refiance the notes payable
on a long-term basis with no payments due until year 4. The financing agreement stipulated
that borrowings may not exceed 80% of the value of the collateral Ames was providing.
At the date of issuance of the December 31, year 2 financial statements, the value of the
collateral was P600,000 and is not expected to fall below this amount during year 3. In
Ames December 31, year 2 balance sheet, the obligation for these notes payable should be
classified as

Short-term Long-term
a. P500,000 P0
b. P100,000 P400,000
c. P20,000 P480,000
d. P0 P500,000
ANSWER: C

Refinance- long term (80% P600,000) P480,000

Short term 20,000
Notes Payable 500,000

57. On December 31, year 2, Largo, Inc. had a P750,000 note payable outstanding, due
July 31, year 3. Largo borrowed the money to fiance construction of a new plant.Largo
planned to refiance the note by issuing long-term bonds. Because Largo temporarily had
excess cash, it prepaid P250,000 of the note on January 12, year 3. In February year 3, Largo
completed a P1,500,000 bond offering. Largo will use the bond offering proceeds to repay
the note payable at its maturity and to pay construction costs during year 3. On March 3,
year 3, Largo issued its year 2 fiancial statements.What amount of the note payable should
Largo include in the current liabilities section of its December 31, year 2 balance sheet?

a. P750,000
b. P500,000
c. P250,000
d. P0

Answer: C

Notes Payable, 7/31/Y3 750,000

Cash 500,000
Notes Payable, beg. 250,000

58. Rice Co. salaried employees are paid biweekly. Advances

made to employees are paid back by payroll deductions.
Information relating to salaries follows:
 12/31/Y1 12/31/Y2
Employee advances P24,000 P 36,000
Accrued salaries payable 40,000 ?
Salaries expense during the year P420,000, Salaries paid during the year (gross) P390,000
In Rices December 31, year 2 balance sheet, accrued salaries payable was?

a. P94,000
b. P82,000
c. P70,000
d. P30,000

ANSWER C

SALARIES PAYABLE
SE 420,000 GSP 390,000
ASP 40,000

BAL. 70,000

59. Fay Corp. pays its outside salespersons fixed monthly salaries and commissions on net
sales. Sales commissions are computed and paid on a monthly basis (in the month following
the month of sale), and the fixed salaries are treated as advances against commissions.
However, if the fixed salaries for salespersons exceed their sales commissions earned for a
month, such excess is not charged back to them. Pertinent data for the month of
March year 2 for the three salespersons are as follows:
Salesperson Fixed salary Net sales Commission rate
A P10,000 P 200,000 4%
B 14,000 400,000 6%
C 18,000 600,000 6%
Totals P42,000 P1,200,000

What amount should Fay accrue for sales commissions payable at March 31, year 2?

a. P70,000
b. P68,000
c. P28,000
d. P26,000

ANSWER : C

Commissions earned - Fixed salary Paid = Commissions payable

B (6% P400,000) - P14,000 = P10,000
C (6% P600,000) - P18,000 = 18,000
 P28,000

61. Under state law, Acme may pay 3% of eligible gross wages or it may reimburse the state
directly for actual unemployment claims. Acme believes that actual unemployment claims
will be 2% of eligible gross wages and has chosen to reimburse the state. Eligible gross
wages are defined as the first P10,000 of gross wages paid to each employee. Acme have
employees, each of whom earned P20,000 during year 2. In its December 31, year 2 balance
sheet, what amount should Acme report as accrued liability for unemployment claims?

a. P1,000
b. P1,500
c. P2,000
d. P3,000

ANSWER: A

accrued liability (2% P50,000) P1,000

63. Able Co. provides an incentive compensation plan under which its president receives a
bonus equal to 10% of the
corporations income before income tax but after deduction of
the bonus. If the tax rate is 40% and net income after bonus
and income tax was P360,000, what was the amount of the
bonus?
a. P36,000
b. P60,000
c. P66,000
d. P90,000

ANSWER: B

INCOME BEFORE TAX (360,000/1-40%) 600,000

INC. TAX. RATE 10%
BONUS 60,000

67. Kemp Co. must determine the December 31, year 2 year-end accruals for advertising
and rent expenses. A P500 advertising bill was received January 7, year 3, comprising
costs of P375 for advertisements in December year 2 issues, and P125 for advertisements in
January year 3 issues of the newspaper. A store lease, effective December 16, year 1, calls
for fixed rent of P1,200 per month, payable one month from the effective date and monthly
thereafter. In addition, rent equal to 5% of net sales over P300,000 per calendar year is
payableon January 31 of the following year. Net sales for year 2 were P550,000. In its
December 31, year 2 balance sheet, Kemp should report accrued liabilities of?

a. P12,875
b. P13,000
c. P13,100
d. P13,475

ANSWER: D

RENT [5% (P550,000 P300,000)] P12,500

ADVERTISING EXPENSE 375
RENT EXPENSE 600
ACCRUED LIABILITY, DEC.31 P13,475

69. Black Co. requires advance payments with special orders for machinery constructed to
customer specifiations. These advances are nonrefundable. Information for year 2 is as
follows:
Customer advances balance 12/31/Y1 P118,000
Advances received with orders in year 2 184,000
Advances applied to orders shipped in year 2 164,000
Advances applicable to orders cancelled in year 2 50,000

In Blacks December 31, year 2 balance sheet, what amount should be reported as a current
liability for advances from customer?
a. P0
b. P88,000
c. P138,000
d. P148,000

ANSWER: B

CUSTOMER ADVANCES,Y2 (184,000-164,00) P 20,000

CUSTOMER ADVANCES, Y1 118,000
TOTAL P 138,000
CANCELLATIONS ( 50,000)
CURRENT LIABILITY 88,000

70. Marr Co. sells its products in reusable 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. Marr accounts for the containers not returned within the
time limit as being retired by sale at the deposit amount. Information for year 3 is as
follows: Container deposits at December 31, year 2, from deliveries in Year 1- P150,000,
Year 2 - P580,000. Deposits for containers delivered in year 3 780,000, Deposits for
containers returned in year 3 from deliveries in Year 1 P 90,000, Year 2 250,000, Year 3
626,000. In Marrs December 31, year 3 balance sheet, the liability for deposits on
returnable containers should be?

a. P494,000
b. P584,000
c. P674,000
d. P734,000

ANSWER: C

BALANCE, Y2 580,000
DELIVERIES, Y3 780,000
RETURN, Y3 (626,000)
SALES, Y2, (P150,000 P90,000) (60,000)
LIABILITY P674,000

71. Kent Co., a division of National Realty, Inc., maintains escrow accounts and pays real
estate taxes for Nationals mortgage customers. Escrow funds are kept in interest-bearing
accounts. Interest, less a 10% service fee, is credited tothe mortgagees account and used to
reduce future escrow payments. Additional information follows:

Escrow accounts liability, 1/1/Y2 P 700,000

Escrow payments received during year 2 1,580,000
Real estate taxes paid during year 2 1,720,000
Interest on escrow funds during year 2 50,000

What amount should Kent report as escrow accounts liability in its December 31, year 2
balance sheet?
a. P510,000
b. P515,000
c. P605,000
d. P610,000
ANSWER: C
TAXES P1,720,000
RECEIPTS (1,580,000)
TOTAL 140,000

ESCROW LIABILITY P700,000

TAX EXPENSE (140,000)
NET INTEREST (P50,000 (10% P50,000) 45,000
LIABILITY P605,000

72. Cobb Company sells appliance service contracts agreeing to repair appliances for a two-
year period. Cobbs past experience is that, of the total dollars spent for repairs on service
contracts, 40% is incurred evenly during the first contract year and 60% evenly during the
second contract year. Receipts from service contract sales for the two years ended
December 31, year 2, are as follows:

Year 1 P500,000
Year 2 600,000

Receipts from contracts are credited to unearned service contract revenue. Assume that all
contract sales are made evenly during the year. What amount should Cobb report as
unearned service contract revenue at December 31, year 2?

a. P360,000
b. P470,000
c. P480,000
d. P630,000
ANSWER: D
UNEARNED REVENUE,Y2
(P600,000 40% ) P120,000
(P600,000 60%) 360,000
TOTAL P480,000
UNEARNED REVENUE, Y1 (P500,000 60% ) 150,000
TOTAL UNEARNED REVENUE P630,000

73. Toddler Care Co. offers three payment plans on its twelve-month contracts. Information
on the three plans and the number of children enrolled in each plan for the
September 1, year 2 through August 31, year 3 contract year
follows:

36.Plan Initial payment per child Monthly fees per child Number of children
#1 P500 P -- 15
#2 200 30 12
#3 -- 50 9

Toddler received P9,900 of initial payments on September 1, year 2, and P3,240 of monthly
fees during the period September 1 through December 31, year 2. In
its December 31, year 2 balance sheet, what amount should Toddler report as deferred
revenues?
a. P3,300
b. P4,380
c. P6,600
d. P9,900

ANSWER: C

8/Y3 (P9,900 8/12= P6,600).

80. Brite Corp. had the following liabilities at December 31, year 2:

Accounts payable P55,000

Unsecured notes, 8%, due 7/1/Y3 400,000
Accrued expenses 35,000
Contingent liability 450,000
Deferred income tax liability 25,000
Senior bonds, 7%, due 3/31/Y3 1,000,000

The contingent liability is an accrual for possible losses ona P1,000,000 lawsuit fixed against
Brite. Brites legal counsel expects the suit to be settled in year 4, and has estimated that
Brite will be liable for damages in the range of P450,000 to P750,000. The deferred income
tax liability is not related to an asset for fiancial reporting and is expected to reverse in
year 4. What amount should Brite report in its December 31, year2 balance sheet for
current liabilities?
a. P515,000
b. P940,000
c. P1,490,000
d. P1,515,000
ANSWER: C
Accounts payable P 55,000
Accrued expenses 35,000
Unsecured notes 8%due 7/1/Y3 400,000
Senior bonds 7%due 3/31/Y3 1,000,000
Total current liabilities P1,490,000

92. North Corp. has an employee benefi plan for compensated absences that gives
employees 10 paid vacation days and 10 paid sick days. Both vacation and sick days can be
carried over indefiitely. Employees can elect to receive payment in lieu of vacation days;
however, no payment is given for sick days not taken. At December 31, year 2, Norths
unadjusted balance of liability for compensated absences was P21,000. North estimated
that there were 150 vacation days and 75 sick days available at December 31, year 2.
Norths employees earn an average of P100 per day. In its December 31, year 2 balance
sheet, what amount of liability for compensated absences is North required to report?
a. P36,000
b. P22,500
c. P21,000
d. P15,000
ANSWER: D
AVE. NO OF DAYS X SALARY = COMPENSATED LIABILITY
150 X P100 = P15,000

93. Ross Co. pays all salaried employees on a Monday for the fie-day workweek ended the
previous Friday. The last payroll recorded for the year ended December 31, year 2, was for
the week ended December 25, year 2. The payroll for the week ended January 1, year 3,
included regular weekly salaries of P80,000 and vacation pay of P25,000 for vacation time
earned in year 2 not taken by December 31, year 2. Ross had accrued a liability of P20,000
for vacation pay at December 31, year 1. In its December 31, year 2 balance sheet, what
amount should Ross report as accrued salary and vacation pay?
a. P64,000
b. P68,000
c. P69,000
d. P89,000
ANSWER: D
accrued salaries- 12/31/Y2 (4/5 P80,000) P64,000
VACATION PAY 25,000
TOTAL ACCRUED SALARY AND VACATION PAY P89,000

94. Gavin Co. grants all employees two weeks of paid vacation for each full year of
employment. Unused vacation time can be accumulated and carried forward to succeeding
years and will be paid at the salaries in effect when vacations are taken or when
employment is terminated. Therewas no employee turnover in year 2. Additional
information relating to the year ended December 31, year 2, is as
follows: Liability for accumulated vacations at 12/31/Y1 P35,000, Pre-year 2 accrued
vacations taken from 1/1/Y2 to 9/30/Y2 (the authorized period for vacations)- 20,000,
Vacations earned for work in year 2 (adjusted to current rates)- 30,000.Gavin granted a 10%
salary increase to all employees on October 1, year 2, its annual salary increase date. For the
yearended December 31, year 2, Gavin should report vacation pay expense of?
a. P45,000
b. P33,500
c. P31,500
d. P30,000
ANSWER: C
ADJUSTED CURRENT RATES,Y2 P30,000
PREEXISTING LIABILITY BALANCE
[(P35,000 P20,000) 10% 1,500
TOTAL VACATION EXPENSE P31,500

97. During year 1, Gum Co. introduced a new product carrying a two-year warranty against
defects. The estimated warranty costs related to dollar sales are 2% within twelve months
following the sale and 4% in the second twelve months following the sale. Sales and actual
warranty expenditures for the years ended December 31, year 1 and year 2, are as follows:
Sales Actual warranty expenditures
Year 1 P150,000 P2,250
Year 2 250,000 7,500
P400,000 P9,750

What amount should Gum report as estimated warranty

liability in its December 31, year 2 balance sheet?

a. P2,500
b. P4,250
c. P11,250
d. P14,250

ANSWER: D
Warranty Liability:
PAYMENTS, Y1 P2,250
PAYMENTS, Y2 7,500
TOTAL PAYMENTS P9,750

EXPENSE, Y1 P 9000
EXPENSE, Y2 15000
TOTAL EXPENSE P24,000
TOTAL EXPENSE- TOTAL PAYMENTS =WARRANTY LIABILITY
P24,000 P 9,750 = P14250

100. Case Cereal Co. frequently distributes coupons to promote new products. On
October 1, year 2, Case mailed 1,000,000 coupons for P.45 off each box of cereal purchased.
Case expects 120,000 of these coupons to be redeemed before the December 31, year 2,
expiration date. It takes thirty days from the redemption date for Case to receive the
coupons from the retailers. Case reimburses the retailers an additional P.05 for each coupon
redeemed. As of December 31, year 2, Case had paid retailers P25,000 relatedto these
coupons and had 50,000 coupons on hand that hadnot been processed for payment. What
amount should Case report as a liability for coupons in its December 31, year 2 balance
sheet?

a. P35,000
b. P29,000
c. P25,000
d. P22,500
ANSWER: A
EXPECTED REDEMPTION (120,000 P.50) P60,000
PAYMENT OF COUPON 25,000
TOTAL LIABILITY, 12,31, Y2 P35,000

101. Dunn Trading Stamp Co. records stamp service revenue and provides for the cost of
redemptions in the year stamps are sold to licensees. Dunns past experience indicates that
only 80% of the stamps sold to licensees will be redeemed.Dunns liability for stamp
redemptions was P6,000,000 at December 31, year 1. Additional information for year 2 is as
follows:

Stamp service revenue from stamps sold to licensees P4,000,000

Cost of redemptions (stamps sold prior to 1/1/Y2) 2,750,000

If all the stamps sold in year 2 were presented for redemption in year 3, the redemption
cost would be P2,250,000. What amount should Dunn report as a liability for stamp
redemptions at December 31, year 2?

a. P7,250,000
b. P5,500,000
c. P5,050,000
d. P3,250,000
ANSWER: C
LIABILITY FOR STAMP REDEMPTIONS, 12/31/Y1 P6,000,000
COST OF REDEMPTIONS (2,750,000)
LIABILITY OF STAMP (80% X 2,250,000) 1,800,000
LIABILITY OF STAMP REDEMPTIONS, 12/31/Y2 P5,050,000
 1. In December 2012, Mikyll Company began including one coupon in each package of
candy that it sells and offers a toy in exchange for P5 and 5 coupons. The toys cost
P12 each and an additional P5 to deliver it to customers. Eventually, 65% of the
coupons will be redeemed. During December, Mikyll Company sold 335,000
packages of candy, 110,000 coupons were already sent for redemption of which
30,000 is still under processing by year end.

The estimated liability in the December 31, 2012 balance sheet of Mikyll Company is

A. 330,200 B. 330,800 C. 330,400 D. 330,600

Answer: D

Total coupons issued 335,000

Multiply by: 65%
Coupons expected to be redeemed 217,750
Less: coupons received and processed (110,000 - 30,000) 80,000
Remaining coupons expected to be redeemed (and processed) 137,750
in the future
Divide by: conversion rate toys/coupons 5
Expected number of toys to be given away 27,550
Multiply by: cost per unit (12 + 5 -5) 12
Total estimated liability 12/31/10 330,600

66. On December 31, 2016, Frye Co. has P2,000,000 of short-term notes payable due on
February 14, 2017. On January 10, 2017, Frye arranged a line of credit with County Bank
which allows Frye to borrow up to P1,500,000 at one percent above the prime rate for
three years. On February 2, 2017, Frye borrowed P1,200,000 from County Bank and used
P500,000 additional cash to liquidate P1,700,000 of the short-term notes payable. The
amount of the short-term notes payable that should be reported as current liabilities on the
December 31, 2016 balance sheet which is issued on March 5, 2017 is
a. P0.
b. P300,000.
c. P500,000.
d. P800,000.

Answer: D
P2,000,000 P1,200,000 = P800,000.

70. Holbert Corporation has P2,500,000 of short-term debt it expects to retire with proceeds
from the sale of 75,000 shares of common stock. If the stock is sold for P20 per share
subsequent to the balance sheet date, but before the balance sheet is issued, what
amount of short-term debt could be excluded from current liabilities?
a. P1,500,000
b. P2,500,000
c. P1,000,000
d. P0

ANSWER: A
75,000 P20 = P1,500,000

84. During 2016, Younger Co. introduced a new line of machines that carry a three-year
warranty against manufacturers defects. Based on industry experience, warranty costs
are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the
second year after sale. Sales and actual warranty expenditures for the first three-year
period were as follows:
Sales Actual Warranty Expenditures
2016 P 600,000 P 9,000
2017 1,500,000 45,000
2018 2,100,000 135,000
P4,200,000 P189,000

What amount should Younger report as a liability at December 31, 2018?

a. P0
b. P15,000
c. P204,000
d. P315,000

ANSWER: D
(P4,200,000 .12) P189,000 = P315,000.

96. Presented below is information available for Norton Company.

Current Assets
Cash P 4,000
Short-term investments 75,000
Accounts receivable 61,000
Inventories 110,000
Prepaid expenses 30,000
Total current assets P280,000

Total current liabilities are P120,000. The acid-test ratio for Norton is

a. 2.33 to 1.
b.2.08 to 1.
c. 1.17 to 1.
d. .54 to 1.

ANSWER: C
P4,000 + P75,000 + P61,000/ P120,000 = 1.17 to 1.

Norris Co. has a contract with its president to pay her a 5% bonus for 2016 and 2017. The income tax
rate is 30% during these two years.
97. In 2016, income before deductions for the bonus and income taxes was P600,000.
If the bonus is based on income before deduction of the bonus but after deduction of
income tax, the bonus (ROUNDED OFF) is
a. P20,690.
b. P21,000.
c. P21,320.
d. P30,000

ANSWER: C
B = {P600,000 [(P600,000 B) .3]} .05
B = P21,320.

99. Farr Products Corp. provides an incentive compensation plan under which its president
receives a bonus equal to 20% of the corporation's income in excess of P300,000 before
income tax but after the bonus. If income before tax and bonus is P1,200,000 and the
effective tax rate is 30%, the amount of the bonus would be
a. P126,000.
b. P150,000.
c. P180,000.
d. P240,000.

ANSWER: B
B = .20 [(P1,200,000 P300,000) B]
B = P150,000.

102. On September 1, 2016, Looper Co. issued a note payable to National Bank in the amount
of P1,200,000, bearing interest at 12%, and payable in three equal annual principal
payments of P400,000. On this date, the bank's prime rate was 11%. The first payment for
interest and principal was made on September 1, 2017. At December 31, 2017, Looper
should record accrued interest payable of
a. P48,000.
b. P44,000.
c. P32,000.
d. P29,334.

ANSWER: C
P800,000 .12 4/12 = P32,000

107. Utley Trading Stamp Co. records stamp service revenue and provides for the cost of
redemptions in the year stamps are sold to licensees. Utley's past experience indicates
that only 80% of the stamps sold to licensees will be redeemed. Utley's liability for stamp
redemptions was P7,500,000 at December 31, 2005. Additional information for 2016 is as
follows:

Stamp service revenue from stamps sold to licensees P5,000,000

Cost of redemptions 3,400,000

If all the stamps sold in 2016 were presented for redemption in 2017, the redemption cost
would be P2,500,000. What amount should Utley report as a liability for stamp redemptions
at December 31, 2016?

a. P9,100,000.
b. P6,600,000.
c. P6,100,000.
d. P4,100,000
ANSWER: C
(P2,500,000 .8) + P7,500,000 P3,400,000 = P6,100,000

104. Barr Companys salaried employees are paid biweekly. Occasionally, advances made to
employees are paid back by payroll deductions. Information relating to salaries for the
calendar year 2017 is as follows:
12/31/06 12/31/07
Employee advances P12,000 P 18,000
Accrued salaries payable 65,000 ?
Salaries expense during the year 650,000
Salaries paid during the year (gross) 625,000

At December 31, 2017, what amount should Barr report for accrued salaries payable?
a. P90,000.
b. P84,000.
c. P72,000.
d. P25,000.

ANSWER: A
P650,000 + P65,000 P625,000 = P90,000.

79. A company offers a cash rebate of P1 on each P4 package of light bulbs sold during 2017.
Historically, 10% of customers mail in the rebate form. During 2017, 4,000,000 packages
of light bulbs are sold, and 140,000 P1 rebates are mailed to customers. What is the
rebate expense and liability, respectively, shown on the 2017 financial statements dated
December 31?

a. P400,000; P400,000
b. P400,000; P260,000
c. P260,000; P260,000
d. P140,000; P260,000

ANSWER: B
4,000,000 .10 P1 = P400,000; P400,000 P140,000 = P260,000.