1.

In an effort to increase sales, Malta Company inaugurated a sales promotional campaign on June 30,
2018. The entity placed a coupon redeemable for a premium in each package of cereal sold

Each premium cost P 20 and five coupons must be presented by a customer to receive a premium. The
entity estimated that only 60% of the coupons issued would be redeemed.

For the six months ended December 31, 2018, the following information is available:

Packages of cereal sold 160,000

Premium purchased 12,000
Coupons redeemed 40,000

What is the premium expense for 2018?

a. 640,000 b. 384,000 c. 240,000 d. 160,000

COUPONS TO BE REDEEMED 160,000 * 60% 96,000

COUPONS REDEEMED (40,000)
COUPONS OUTSTANDING 56,000
PREMIUM EXPENSE 96,000 / 5 = 19,200 * 20 = 384,000
ESTIMATED LIABILITY 56,000 / 5 = 11,200 * 20 = 224,000
2. What is the estimated liability for premiums on December 31, 2018
a. 160,000 b. 224,000 c. 288,000 d. 384,000

3. Cobb Department Store sells gift certificates redeemable only when merchandise is purchased. These
gift certificates have no expiration date. Upon redemption or expiration, the entity recognizes the
unearned revenue as realized.

The entity provided the following information for the current year:

Unearned revenue, January 01, 2018 650,000

Gift certificates sold 2,250,000
Gift certificates redeemed 1,950,000
Gift certificates expected not to be redeemed 100,000
Cost of goods sold 60%

On December 31, 2018, what amount should be reported as unearned revenue?

a. 510,000 b. 570,000 c. 850,000 d. 950,000
UNEARNED REVENUE, BEG 650,000
GIFT CERTS SOLD 2,250,000
TOTAL 2,900,000
GIFT CERTS REDEEMED (1,950,000)
GIFT CERTS NOT REDEEMED (100,000)
UNEARNED REVENUE, END 850,000

4. Canada Company sells appliance service contracts ageing to repair appliances for a two-year period.

The past experience is that, of the total amount spent for repairs on service contract, 40% is incurred
evenly during the first contract year and 60% evenly during the second contract year.
 Receipts from service contract sales are P 500,000 for 2018 and 600,000 for 2019.

Receipts from contracts are credited to unearned contract revenue. All sales are made evenly during
the year.

What is the contract revenue for 2018?

a. 100,000 b. 200,000 c. 250,000 d. 500,000

JE, 2018
CASH 500,000
UNEARNED CONTRACT REVENUE 500,000
UNEARNED CONTRACT REVENUE 100,000
CONTRACT REVENUE 100,000
**500,000 * (40%/2) since incurred evenly
UNEARNED REVENUE BALANCE = 500,000 – 100,000 = 400,000

5. Same info of no. 4, what is the unearned contract revenue on December 31, 2018?
a. 300,000 b. 400,000 c. 200,000 d. 150,000

6. Same info of no. 4, What is the contract revenue for 2019?

a. 240,000 b. 360,000 c. 370,000 d. 250,000
JE, 2019

UNEARNED REVENUE 250,000

CONTRACT REVENUE 250,000
40% IS PERFORMED IN YEAR 1 EVENLY THROUGHOUT THE 2018.
500,000*.4/2= 100,000
60% IS PERFORMED IN YEAR 2 EVENLY THROUGHOUT 2019
500,000*.6/2=150,000

UNEARNED REVENUE, 2019 500,000 - 100,000 - 250,000 = 150,000

CASH 600,000
UNEARNED REVENUE 600,000

UNEARNED REVENUE 120,000

CONTRACT REVENUE 120,000

40% IS PERFORMED IN YEAR 1 EVENLY THROUGHOUT 2018

600,000*.4/2= 120,000

UNEARNED REVENUE 600,000 - 120,000 = 480,000

TOTAL CONTRACT REVENUE, 2019 250,000 + 120,000 = 370,000
TOTAL UNEARNED REVENUE, 2019 150,000 + 480,000 = 630,000

7. Same info of no. 4, What is the unearned contract revenue on December 31, 2019?
a. 360,0000 b. 470,000 c. 480,000 d. 630,000
 8. Case Cereal Company frequently distributes coupons to promote new products. On October 1, 2021
,Case mailed 100,000 coupons for P 45 off each box of cereal purchased. Case expected 12,000 of
these coupons to be redeemed before the December 31, 2021 ,expiration date. It takes 30 days from
the redemption date for Case to receive the coupons from the retailers. Case reimburses the retailers
an additional P 5 for each coupon redeemed. As of December 31, 2021, Case paid retailers P 250,000
related to these coupons and had 5,000 coupons on hand that had not been processed for payment.
What amount should Case report as a liability for coupons in its December 31, 2021 balance sheet?
a. 350,000 b. 290,000 c. 250,000 d. 225,000

COUPONS EXPECTED TO BE REDEEMED 12,000

TOTAL COST PER COUPON (45 + 5) 50
TOTAL EXPECTED REDEMPTIONS 600,000
PAID (250,000)
LIABILITY, 12/31/2021 350,000

9. Topsy Company started a new promotional program. For every 10 box tops returned to Topsy,
customers receive a basketball. Topsy estimates that only 60% of the box tops reaching the market will
be redeemed. Additional information is as follows:
Units Amount
Sales of product 100,000 30,000,000
Basketball purchased 5,500 4,125,000
Basketball distributed 4,000

What is the amount of year-end estimated liability associated with this promotion?
a. 4,125,000 b. 1,500,000 c. 3,000,000 d. 4,500,000

BASKETBALL TO BE DISTRIBUTED 100,000 * 60% /10 6,000

BASKETBALLS DISTRIBUTED (4,000)
OUTSTANDING 2,000
COST OF BASKETBALL 4,125,000 / 5,500 750
ESTIMATED LIABILITY 1,500,000
10. Bold Company estimates its annual warranty expense at 2% of annual net sales. The following data are
available:
Net sales 4,000,000
Warranty liability:
December 31, 2020 60,000 credit
Warranty payments during 2021 50,000 debit

After recording the 2021 estimated warranty expense, the warranty liability account would show a December
31, 2021 balance of
a. 10,000 b. 70,000 c. 80,000 d. 90,000

WARRANTY EXPENSE, 2021 4M * 2% 80,000

WARRANTY LIABILITY, BEG 60,000
TOTAL 140,000
WARRANTY PAYMENTS (50,000)
WARRANTY LIABILITY, END 90,000
11. Dunne Company sells equipment service contracts that cover a two-year period. The sales price of
each contract is P 600. Dunne’s past experience is that, of the total pesos spent for repairs on service
contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second
 contract year. Dunne sold 1,000 contracts evenly throughout 2021. In its December 31, 2021 balance
sheet, what amount should Dunne report as deferred service contract?
a. 540,000 b. 480,000 c. 360,000 d. 300,000
TOTAL REVENUE 1,000 * 600 600,000
REVENUE EARNED 40% INCURRED EVENLY DURING 1ST YEAR (600,000 *40%/ 2) = 120,000
DEFERRED REVENUE, 2021 600,000 – 120,000 = 480,000

12. Able Company provides an incentive compensation plan under which its president received a bonus
equal to 10% of the corporation’s income before income tax but after deduction of the bonus. If the tax
rate is 32% and net income after bonus and income tax was P 2,720,000, what was the amount of the
bonus?
a. 272,000 b. 400,000 c. 440,000 d. 299,200

AFTER TAX INCOME 2,720,000

TAX RATE 32%
PRE-TAX INCOME 2,720,000 / (100%-32%) 4,000,000
BONUS = PRE-TAX INCOME AFTER BONUS *10%
BONUS = 4,000,000 * 10% = 400,000
13. On January 1, 20x6, Break Company agreed to grant its employees ten vested vacation days each
year, with the provision that vacation days earned in a particular year could not be taken until the
following year. For the year ended December 31, 20x6, all ten of Break’s employees earned P300 per
day each and earned ten vacation days each. These vacation days were taken during the first half of
20x7. Wage rates remained the same for 20x7.

In Break’s 2016 income statement, how much expense should be reported for compensated absences?
a. 0 b. 3,000 c. 15,000 d. 30,000

NUMBER OF EMPLOYEES 10
VACATION DAYS 10
TOTAL NUMBER OF VACATION DAYS 100
EARNED PER DAY 300
ACCRUED SALARIES PAYABLE 30,000

SINCE VESTING:
SALARIES EXPENSE 30,000
ACCRUED SALARIES PAYABLE 30,000
14. Eliot Corporation’s liabilities at December 31, 20x6 were as follows:
Accounts payable and accrued interest P 2,000,000
5-year 10% Notes payable-due December 31, 20x9 5,000,000
Part of the loan agreement is for Eliot to appropriate a fixed amount out of its accumulated profits and losses
annually until the amount of appropriation has equaled the face of the obligation. As of December 31, 20x6,
Eliot Corporation has yet to comply with the loan agreement.

In its December 31, 20x6 balance sheet, Eliot should report current liabilities at
a. 2,000,000 b. 2,500,000 c. 5,000,000 d. 7,000,000
ACCOUNTS PAYABLE AND ACCRUED INTEREST 2,000,000
NOTES PAYABLE (PAYABLE IN DEMAND) 5,000,000
TOTAL CURRENT LIABILITIES 7,000,000
 15. Using the same data in no. 14, assuming the lender agreed on December 31, 20x6 to provide a grace
period of 12 months for the entity to rectify the breach and assured Elliot Corporation that no demand of
payment is to be made within the grace period, what amount of current liabilities should Elliot
Corporation report in its December 31, 20x6 balance sheet?
a. P2,000,000 b. 2,500,000 c. 5,000,000 d. 7,000,00
ACCOUNTS PAYABLE AND ACCRUED INTEREST 2,000,000
16. An analysis of Cool Company’s liabilities disclosed the following:

Accounts payable, after deducting debit balance in suppliers’ P 105,000

accounts amounting to P 22,500 (accounts payable included
non-trade liabilities of P 32,500)
Accrued expenses 15,000
Credit balances of customers’ accounts 13,500
Share dividends payable 70,000
Claims for increase in wages and allowances by employees of 125,000
the company, covered in a pending lawsuit
Estimated liabilities for premiums 60,000

How much should be presented as total current liabilities in the balance sheet?
a. 6,000 b. 168,500 c. 183,500 d. 216,000

ACCOUNTS PAYABLE 105,000 + 22,500 127,500

ACCRUED EXPENSES 15,000
CREDIT BALANCES OF CUSTOMER’S ACCOUNTS 13,500
ESTIMATED LIAB FOR PREMIUMS 60,000
TOTAL CURRENT LIABILITIES 216,000

17. Lancer Company inaugurated a promotional campaign on January 2, 20x6 to promote the salability of
their product. Lancer Company placed a coupon redeemable for a premium in each package of cereal
sold at P 200. Each premium costs P 25 and 10 coupons must be presented by a customer to receive a
premium. Lancer estimated that only 70% of the coupons issued would be redeemed. For the 6 months
ended July 31, 20x6, the following transactions occurred:

Packages of cereal sold P 120,000

Premiums purchased 30,000
Coupons redeemed 54,000

How much should be reported as premium expense and estimated liability for coupons on the fiscal year
ended July 31, 20x6, respectively?
a. 75,000 and 75,000
b. 135,000 and 135,000
c. 135,000 and 210,000
d. 210,000 and 75,000

COUPONS TO BE REDEEMED 120,000 * 70% 84,000

COUPONS REDEEMED (54,000)
COUPONS OUTSTANDING 30,000
PREMIUM EXPENSE 84,000 / 10 = 8,400 * 25 = 210,000
ESTIMATED LIABILITY 30,000 / 10 = 3,000 * 25 = 75,000
 18. Granada Company had an overdue 8% note payable to First Bank at P 8,000,000 and accrued interest
of P 640,000.

As a result of a restructuring agreement on January 01, 2018, First Bank agreed to the following
provisions:

 The principal obligation is reduced to P 7,000,000

 The accrued interest of P 640,000 is forgiven
 The data of maturity is extended to December 31, 2021.
 Annual interest of 10% is to be paid for 4 years every December 31
The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary annuity of 1 at 8%
for 4 periods is 3.31.

What is the gain on extinguishment of debt for 2018?

a. 1,000,000 b. 1,178,000 c. 1,640,000 d. 538,000
OLD LIABILITY 8,000,000
INTEREST 640,000
TOTAL LIABILITY 8,640,000
PV OF NEW LIABILITY 7,000,000 * 0.735 = 5,145,000
7,000,000 * 10% = 700,000 * 3.31 = 2,317,000
TOTAL PV OF NEW LIAB 7,462,000
GAIN ON EXTINGUISHMENT 1,178,000

19. Same info of 18, what is the interest expense for 2018?
a. 746,200 b. 700,000 c. 596,960 d. 640,000
PV OF NEW LIAB 7,462,000
EIR 8%
INTEREST EXPENSE 596,960

20. Dean Company had a P 2,000,000 note payable due June 30, 2019. On December 31, 2018, the entity
signed an agreement to borrow up to P 2,000,000 to refinance the note payable on a long- term basis.

The financing agreement called for borrowing not to exceed 80% of the value of the collateral the entity
was providing On December 31, 2018, the value of the collateral was P 1,500,000.

On December 31, 2018, what amount of the note payable should be reported as current liability?
a. 2,000,000 c. 1,500,000 d. 800,000 d. 500,000