LIABILITIES

1. An analysis of Prince Company's liabilities disclosed the following information:

Accounts payable, after deducting debit balances in suppliers
accounts amounting to P100,000 4,000,00000
Accrued expenses 1,500,000
Credit balances in customers' accounts 500,000
Stock dividends payable 1,000,000
Estimated expenses in redeeming prize coupons from customers 600,000
Claims for increases in wages and allowance by employees of
the entity, covered in a pending lawsuit 400,000
What is the total amount of current liabilities in the statement of financial position?
A.) 6,600,000
B.) 6,700,000
C.) 7,100,000
D.) 7,700,000
2. The trial balance of Lisa Company reflected the following liability account balances on
December 31, 2023:
Accounts payable P 3,800,000
Accrued expenses 400,000
Unearned interest income 100,000
Bonds payable 6,800,000
Premium on bonds payable 400,000
Deferred tax liability 800,000
Dividends payable 1,000,000
Income tax payable 1,800,000
Note payable, due January 31, 2024 1,200,000
Note payable, due March 15, 2025 2,000,000
Mortgage payable 1,500,000
The deferred tax liability is based on temporary differences that will reverse the following
accounting period. What is the total amount of current liabilities in the statement of financial
position at the end of the year?
A.) 8,300,000
B.) 8,700,000
C.) 9,100,000
D.) 14,700,000
3. Included in Brown Company's liability balances on December 31, 2023 are:
10% note payable, issued 10/01/2020, maturing 10/01/2024 P6,000,000
12% note payable, issued 03/01/2022, maturing 03/10/2024 10,000,000

The 2023 financial statements were issued on March 31, 2024. On January 31, 2024, the entire
P10,000,000 note was refinanced through issuance of a long-term obligation payable lump sum.
Under the loan agreement, for the P6,000,000 note, the entity has the discretion to refinance the
obligation for at least 12 months after December 31, 2023.
What is the total amount to be reported as current liabilities on December 31, 2023?
A.) 16,000,000
B.) 10,000,000
C.) 6,000,000
D.) 0
4. On January 1, 2023, Mystique Company availed a 3-year, P2,000,000 loan from a bank. The
loan agreement requires Mystique to maintain a current ratio of 2:1. If the current ratio falls below
2:1, the loan becomes payable on demand. As of December 31, 2023, Mystique's current ratio is
1.5:1.
On January 5, 2024, the bank agreed not to collect the loan in 2024 and gave Mystique 12 months
to rectify the breach of loan agreement.
How much is presented as current liability in relation to the loan in Mystique's 2023 year-end
financial statements?
A.) 2,000,000
B.) 200,000
C.) 100,000
D.) 0
5. To increase sales, Russel Company inaugurated a promotional campaign on June 30, 2023.
Russel placed a coupon redeemable for a premium in each package of cereal sold at P300. Each
premium cost P200. A premium is offered to customers who send in 5 coupons and a remittance
of P50. The distribution cost per premium is P10. Russel estimated that only 80% of the coupons
issued will be redeemed. For the six months ended December 31, 2023, the following is available:
Packages of cereal sold 50,000
Premiums Purchased 8,000
Coupons redeemed 30,000
1. What is the 2023 premium expense?
A.) 1,600,000
B.) 1,500,000
C.) 1,280,000
D.) 1,200,000
2. What is the estimated liability for coupons on December 31, 2023?
A.) 1,500,000
B.) 1,280,000
C.) 400,000
D.) 320,000
6. Greta Company includes one coupon in each box of laundry soap it sells. A towel is offered as
a premium to customers who send in 10 coupons and a remittance of P5. Data for the premium
offer are:
2022 2023
Boxes of soap sold 1,000,000 1,500,000
Number of towels purchased at P50 per towel 40,000 65,000
Number of towels distributed as premium 35,000 58,000
Number of towels to be distributed as premium next period 3,000 5,000
1. What is the 2022 premium expense?
A.) 1,575,000
B.) 1,710,000
C.) 1,800,000
D.) 1,900,000
2. What is the December 31, 2022 premium liability?
A.) 135,000
B.) 250,000
C.) 225,000
D.) 315,000
3. What is the 2023 premium expense?
A.) 2.250,000
B.) 2,700,000
C.) 1,800,000
D.) 1,900,000
4. What is the December 31, 2023 premium liability?
A.) 225,000
B.) 250,000
C.) 360,000
D.) 315,000
7. During 2022, King Company introduced a new product carrying a two-year warranty against
defects. The estimated warranty costs related to peso sales are 3% within 12 months following sale
and 5% in the second 12 months following sale. Sales and actual warranty expenditures for the
years ended December 31, 2022 and 2023 are as follows:
2022 2023
Sales 40,000,000 50,000,000
Actual Expenditures 1,000,000 5,000,000

1. What is the 2022 warranty expense?

A.) 1,575,000
B.) 1,710,000
C.) 2,000,000
 D.) 3,200,000
2. What is the December 31, 2022 warranty liability?
A.) 1,000,000
B.) 1,200,000
C.) 2,000,000
D.) 3,200,000
3. What is the 2023 warranty expense?
A.) 2.250,000
B.) 2,500,000
C.) 4,000,000
D.) 1,900,000
4. What is the December 31, 2023 warranty liability?
A.) 1,200,000
B.) 1,500,000
C.) 1,900,000
D.) 3,000,000
8. In September 2023, lawyers for current and former employees of Larry Company filed a
P3,000,000 class action lawsuit, alleging that exposure to radiation has caused significant medical
problems. Lawyers for Larry are uncertain as to the outcome of the case. However, similar lawsuits
against other firms in the same industry have resulted in significant payments by the employer but
there was no reliable estimate as to the amount. Larry's December 31, 2023 financial statements
were issued on April 30, 2024. What amount should be reported in Larry's December 31, 2023
financial statements?
A). An accrual of P3,000,000
B.) No disclosure or accrual is necessary
C.) disclosure indicating a possible loss of P3,000,000
D.) If the payment can be estimated, a liability should be recognized, but if the amount of expected
payment cannot be estimated, only a note disclosure would be required.

9. On November 30, 2023, Amanda Company's delivery vehicle was in an accident with another
vehicle driven by private individual. Amanda received notice on January 15, 2024, of a lawsuit for
P200,000 damages for personal injuries suffered by the other driver. Amanda's counsel believes it
is probable that the complainant driver will be awarded an estimated amount in the range between
P50,000 and P150,000, and no amount is a better estimate of potential liability than any other
amount. The accounting year ends on December 31, and the 2023 financial statements were issued
on March 31, 2024. What amount of provision should Amanda accrue on December 31, 2023?
A.) 225,000
B.) 250,000
C.) 360,000
D.) 100,000
10. Aretha Company carries P5,000,000 comprehensive public liability insurance with a P500,000
deductible clause. A suit for personal injury damages was brought against Aretha in 2023. Aretha's
counsel believes it probable that the insurance company will settle out of court for an estimated
amount of P3,000,000.
1. What is the amount of provision on December 31, 2023?
A.) 5,000,000
B.) 1,500,000
C.) 1,900,000
D.) 3,000,000
2. What is the loss to be recognized in 2023
A.) 0
B.) 250,000
C.) 500,000
D.) 100,000

11. . The following information relate to Merck Company. Company Merck's reporting period is
December 31, 2023. Assume that Merck's financial statements are authorized for issue on March
31, 2024.
a. An amount of P350,000 owing to Company Z for services rendered during December 2023,
b. Long-service leave, estimated to be P5,000,000, owing to employees in respect of past services.
c. Costs of P2,300,000 estimated to be incurred for relocating an employee from Merck's head
office location to another city. The staff member will physically relocate during January 2024.
d. Provision of P200,000 for the overhaul of a machine. The overhaul is needed every five years
and the machine was five years old as of December 30, 2023.
e. Damages awarded against Merck Company resulting from a court case decided on December
20, 2023. The judge has announced that the value of damages will be set at a future date, expected
to be in April 2024. Merck Company has received advice from its lawyers that the amount of the
damages could be anything between P4,000,000 and P5,000,000
1. How much is Merck Company's provision)in its December 31, 2023, statement of financial
position?
A.) 5,000,000
B.) 9,500,000
C.) 9,900,000
D.) 3,000,000

BONDS PAYABLE
1. On March 1, 2023, Vitaly Company issued 5,000 of its P1,000 face value bonds at 110 plus
accrued interest. Vitaly Company paid bond issue cost of P100,000. The bonds were dated
November 1, 2022, mature on November 1, 2030, and bear interest at 12% payable semiannually
on November 1 and May 1. What is the net amount received by Vitaly from the bond issuance?
A.) 5,500,000
B.) 5,700,000
 C.) 5,600,000
D.) 3,000,000
2. On January 1, 2023, Trump Company issued 10,000 of its 12%, P1,000 face value bonds for
P10,600,000, including accrued interest. The bonds are dated October 1, 2022, mature on October
1, 2028, and pay interest annually on October 1. The bonds were issued through an underwriter to
whom Trump paid bond issue cost of P150,000. On January 1, 2023, what should Trump Company
report as bonds payable?
A.) 10,000,000
B.) 10,450,000
C.) 9,900,000
D.) 11,000,000
3. On January 1, 2023 Clinton Company issued eight year bonds with a face value of P500,000
and a stated interest rate of 6% payable semiannually on June 30 and December 31. The bonds
were sold to yield 8% Table values are:

1. What is the present value of the principal?

A.) 267,000
B.) 270,000
C.) 311,500
D.) 313,500
2. What is the present value of the interest?
A.) 267,000
B.) 174,780
C.) 186,500
D.) 313,500
3. What is the issue price of the bonds?
A.) 441,780
B.) 474,780
C.) 186,500
D.) 313,500
4. On December 31, 2023, Miriam Company issued serial bonds with face value of P4,000,000
and a stated 10% interest rate, payable annually every December 31. The bonds are issued on this
date with a 12% effective yield. The bonds mature at an annual installment of P1,000,000 every
December 31, starting December 31, 2023. The rounded present value of 1 at 12% for:
One period 0.89
Two periods 0.80
Three periods 0.71
Four periods 0.64
1. What is the carrying amount of the serial bonds on December 31, 2023?
A.) 2,903,000
B.) 3,842,000
C.) 2,928,000
D.) 1,500,000
5. On January 1, 2023, Lucian Company issued 9% bonds in the amount of P5,000,000 which
mature on December 31, 2030. The bonds were issued for P4,800,000 but Lucian had to pay for a
P107,000 bond issuance cost. The effective rate determined by Lucian is 10%. Interest is payable
annually on December 31. Lucian uses the interest method of amortizing bond discount. In its
December 31, 2023, statement of financial position, what amount should Lucian report as bonds
payable?
A.) 5,000,000
B.) 4,693,000
C.) 4,712,300
D.) 1,500,000
6. On January 1, 2023, Christian Company issued its 5-year, 5,000, 8% bonds that will mature on
December 31, 2025, and pay interest annually at 110. Christian however had to incur P80,000 of
bond issue cost. The effective rate on the same date was 6%. If Christian uses the effective interest
method of amortization, what is the carrying amount of this bonds payable on December 31, 2023?
A.)5,345,200
B.) 5,300,000
C). 5,420,000
D.) 5,375,600