RAMON MAGSAYSAY MEMORIAL COLLEGES

College of Accountancy
General Santos City, Philippines

ACCTG 24
Intermediate Accounting 2

Lecture 1 and Lecture 2 Quiz

Answer Section
____ 1. Time is running Department Store sells gift certificates, redeemable for store merchandise and with no expiration date . The entity has the
following information pertaining to the gift certificates and redemptions :
Unearned revenue on Jnauary 1 , 2020 700,000
2020 sales 2,800,000
2020 redemptions of prior year sales 230,000
2020 redemptions of current year sales 1,600,000
On December 31, 2020 , what amount should be reported as unearned revenue ?

ANS: 1,670,000
Unredeemed - January 1, 2020 700,000
Sales of gift certificates - 2020 2,800,000
Total 3,500,000
Redemptions of prior year sales (230,000)
Redemptions of current year sales ( 1,600,000)
Unearned revenue - Dec. 31, 2020 1,670,000

PTS: 1

____ 2. In November and December 2015 , Dorr Company , a newly organized magazine publisher , received P720,000 for 1000 3 year
subscriptions at P240 per year, starting with the January 2016 issue. The entity selected to include the entire P720,000 in the 2015 income
tax return .

What amount should be reported in the income statement for subscription revenue for 2016 ?

ANS: 240,000
The 720,000 shall be recognized starting in Year 2016 as subscription revenue.
720,000 divided by 3 years = 240,000

PTS: 1

____ 3. COVIDQ Company sells magazine subscriptions for a 1 year , 2 year or 3 year period . Cash receipts from subscribers are credited to
magazine subscriptions collected in advance and this account had a balance of P1,500,000 on January 1, 2020 . Information for the current
year is follows:
Cash receipts from subscribers 1,100,000
Magazine subscriptions revenue credited on December 500,000
1, 2020
On December 31, 2020 , what amount should be reported as the balance for magazine subscriptions collected in advance ?

ANS: 2,100,000
Subscriptions collected in advance - January 1, 2020 1,500,000
Cash receipts from subscribers in 2020 1,100,000
Total 2,600,000
Subscription revenue credited in 2020 (500,000)
Subscription collected in advance - December 31, 2020 2,100,000

____ 4. Dont cheat Company requires advance payments with special orders for machinery constructed to customer specifications. These advances
are nonrefundable. Information for the current year is as follows:
Advances from customers- Jan 1 1,050,000
Advances received with orders 1,430,000
Advances applied to orders shipped 1,250,000
Advances applicable to orders canceled 300,000
What amount should be reported as current liability for advances from customers at year end?

ANS: 930,000
Advances from customers - January 1 1,050,000
Add: Advances received with orders 1,430,000
 Total 2,480,000
Less : Advances applied to orders shipped (1,250,000)
Advances applicable to orders canceled (300,000) (1,550,000)
Advances from customers - December 31 930,000

PTS: 1

____ 5. Be Honest FCompany has an incentive compensation plan under which a branch manager received 7% of the branch income after deduction
of the bonus but before deduction of income tax. Branch income for the current year before the bonus and income tax was P1,220,000 . The
tax rate is 30%.
What is the bonus for the current year ?

ANS: 79,813
Income after bonus before tax (1,220,000 / 1.07) 1,1,40,187
Multiplied by : Bonus rate 7%
Bonus 79, 813

PTS: 1

____ 6. Kemp Company must determine the December 31, 2020 accruals for advertising and rent expense.
A P50,000 advertising bill was received on January 7, 2021 , comprising costs of P15,000 for advertisements in December 2020 issues, and
P35,000 for advertisements in January 2021 issues of the newspaper.
A store lease , effective December 16,2020, calls for fixed rent of P80,000 per month , payable one month from the effective date and
monthly thereafter.
In addition , rent equal to 2% of net sales over P4,000,000 per calendar year is payable on January 31 of the following year. Net sales for
2020 totaled P6,000,000 .
On December 31, 2020 , what amount should be reported as acrued liabilities ?

ANS: 95,000
Advertisement for December 2020 15,000
Accrued rent from December 16 to
December 31, 2020 (80,000 X 1/2) 40,000
Accrued additional rent (2,000,000 X 2%) 40,000
Total accrued liabilities 95,000

PTS: 1

____ 7. Gail Company manufactures furniture upholstery according to specifications. A nonrefundable seposit of 10% of the contract price is
required from customers. This deposit is credited to a customer’s advances account which has a balance of P670,000 on January 1, 2015 .
In 2015 , the entity received and accepted orders with a total contract price of P11,500,000 . On December 31, 2014 , the entity had already
made shipments to customers of P9,220,000 while orders for P1,200,000 were canceled and sales of P890,000 were returned for minor
design modifications.
What is the balance of the customer’s advances on December 31, 2015 ?

ANS: 783,000
Advances from customers - January 1, 2015 670,000
Orders accepted (11,500,000 X 10%) 1,150,000
Less: Shipments made to customers (9,220,000 X 10% ) 922,000
Orders canceled (1,150,000 X 10%) 115,000 (1,037,000)
Advances from customers - December 31, 2015 783,000

PTS: 1

____ 8. ABC Company has an agreeement to pay its sales manager a bonus of 5% of the income after bonus and before tax . The income for the year
before bonus and tax is P5,230,000. The income tax rate is 30% of income after bonus .
What is the bonus for the year ?

ANS: 79,813
Income after bonus before tax (5,230,000 / 1.05) 4,980,952
Multiplied by : Bonus rate 5%
Bonus 249, 048

PTS: 1

____ 9. In an effort to increase sales , Relax Lang Company inaugurated a sales promotional campaign on June 30,2015 . The entity placed a coupon
redeemable for a premium in each package of cereal sold. Each premium cost P15 and four coupons must be presented by a customer to
receive a premium. The entity estimated that only 60% of the coupons would be redeemed . For the six months ended December 31, 2015 ,
the following information is available :
Packages of cereal sold Premiums purchased Coupons redeemed
200,000 12,000 60,000
 What is the estimated liabilty for premiums on December 31, 2015 ?

ANS: 225,000
Coupons to be redeemed (200,000 X 60%) 120,000
Less: Coupons redeemed 60,000
Balance 60,000

Number of premiums (60,000/4) 15,000

Estimated liability (15,000 X 15) 225,000

PTS: 1

____ 10. During the current year, Dont Cheat Company sold 400,000 boxes of cake mix under a new sales promotional program. Each box contained
one coupon , which entitled the customer to a baking pan upon remittance of P50. The entity paid P65 per pan and P2 for handling and
shipping and estimated that 80% of the coupons would be redeemed, even though only 200,000 coupons had been processed during the year.
What amount should be reported as liabilty for unredeemed coupons at year end ?

ANS: 2,040,000
Net premium expense ( 65+2-50) 17
Coupons to be redeemed (80% X 400,000) 320,000
Less: Coupons redeemed 200,000
Coupons outstanding 120,000
Liability for unredeemed coupons (120,000 X 15) 2,040,000

PTS: 1

____ 11. In December 2020, Milan Company began including one coupon in each package of candy that it sells and offering a toy in exchange for
P20 and three coupons. The toys cost P70 each. Eventually, 60% of the coupons will be redeemed. During the December, the entity sold
150,000 packages of candy and no coupons were redeemed.
On December 31, 2020 , what amount should be reported as estimated liability for coupons ?

ANS: 1,500,000
Coupons to be redeemed (60% X 150,000) 90,000
Divided by 3
Number of toys 30,000
Multiply by net cost of toy (70-20) 50
Estimated liability - December 2015 1,500,000

PTS: 1

____ 12. Bold Warrior Company estimated the annual warranty expense at 3% of annual net sales . The net sales for 2020 amounted to P5,000,000.
On January 1, 2020 , the warranty liability was P55,000 and the warranty payments during 2020 totaled P60,500.
What is the warranty liability on December 31, 2020 ?

ANS: 144,500
Warranty liability - Jan.1 , 2020 55,000
Add; Warranty expense in 2020 (3% X 5M) 150,000
Total 205,000
Less: Warranty payments during 2020 60,500
Warranty liability - December 31, 2020 144,500

PTS: 1

____ 13. Jeane Company , a grocery retailer , operates a customer loyalty program. The entity grants program members loyalty points when they
spend a specified amount on groceries . Program members can redeem the points for further groceries . The points have no expiry date.

During 2015 , the entity granted 10,000 points. Management expects that 8,500 of these points will be redeemed. The fair value of each
loyalty point is estimated at P60. The sales during 2015 amounted to P8,000,000 including the loyalty points.

On December 31 , 2015 , 3,000 points have been redeemed in exchange dor groceries . In 2016 , the management revised its expectations
and now expects 9,000 points to be redeemed altogether. During 2016 , the entity redeemed 4,100 points.
What is the revenue earned from loyalty points for the year ended December 31, 2016 ?

ANS: 261,568
Fair Value points (10,000 X 60) 600,000
Revenue earned from points in 2015
(600,000 X 3,000/8,500) 211,765
Points redeemed in 2015 3,000
Points redeemed in 2016 4,100
Total points redeemed to date 7,100
 Cumulative revenue earned to date
(600,000 X7,100/9,000) 473,333
Revenue earned from points in 2015 (211,765)
Revenue earned from points in 2016 261,568

PTS: 1

____ 14. ABC Co. has an exisiting long term liability of P1,000,000 on Dec. 31, 20x1 payable next year. On December 31, 20x2, ABC Co. entered
into a refinancing agreement with a bank to refinance the loan on a long-term basis. Both parties are financially capable of honoring the
agreement’s provisions. ABC’s financial statements were authorized for issue on March 15, 20x2.
How much is presented as non current liability in relation to the loan in ABC’s 20x2 year-end financial statements?

ANS: 1,000,000
The refinancing agreement was completed on December 31, 2020. The currently maturing obligation shall be presented as noncurrent
liability.

PTS: 1

____ 15. *ABC Co. has an exisiting long term liability of P1,000,000 on Dec. 31, 20x1 maturing next year. On January 31, 20x1, ABC Co. entered
into a refinancing agreement with a bank to refinance the loan on a long-term basis. Both parties are financially capable of honoring the
agreement’s provisions.

*The entity also has a 10 year mortgage payable of 500,000 on Dec. 31, 20x1 maturing next year. On February 1, 20x2, ABC Co. entered
into a refinancing agreement with a bank to refinance the loan on a long-term basis. The entity has the discretion to refinance or roll over the
loan for at least twelve months from December 31, 20x1 under an existing loan facility. ABC’s financial statements were authorized for issue
on March 15, 20x2.
How much is presented as non current liability in relation to the loan in ABC’s 20x2 year-end financial statements?
ANS: 500,000
Refinance on Feb. 1 - at discretion 500,000
Total 500,000

PTS: 1