Problem 1

On December 31,2020, ABC Co. has accounts payable of P1,000,000 before possible
adjustment for the following:

a. Goods in transit from a vendor to ABC on December 31,2020 with an invoice cost of
P50,000 purchased FOB shipping point was not yet recorded.

b. Goods shipped FOB shipping point from a vendor to ABC was lost in transit. The
invoice cost of P20,000 was not yet recorded.

c. Goods shipped FOB shipping point from a vendor to ABC on December 31,2020
amounting to P8,000 was recorded and included in the year-end physical count as
“goods in transit”.

d. Goods in transit from a vendor to ABC on December 31,2020 with an invoice cost of
P10,000 purchased FOB destination was not yet recorded. The goods were received in
January 2021.

e. Goods with an invoice cost of P15,000 was recorded and included in the year-end
physical count as “goods in transit”. It was found out that the goods were shipped from a
vendor under FOB destination.

Prepare for the journal entries and compute for the adjusted accounts payable on
December 31,2020.

PROBLEM 2

On December 31,2020, ABC Co. has accounts payable of P1,000,000 before possible
adjustment for the following:

a. Checks drawn but not yet released to payees amounted to P12,000, while checks
drawn and released to payees but were postdated amounted to P5,000.

b. On December 28, 2020, a vendor authorized ABC to return for the full credit goods
shipped and billed at P25,000 on December 14,2020. ABC shipped the returned goods
on December 31, 2020 but the credit memo was received and recorded only January
3.2021.

c. Goods shipped FOB shipping point, freight prepaid from a vendor on December
28,2020 was recorded at invoice cost at shipment date. The invoice cost is P14,000
while the freight of P5,000 was debited to an expense account.

Prepare for the necessary journal entries and compute for the adjusted accounts
payable on December 31,2020.
PROBLEM 3

ABC Co. requires advance payments for custom-built guitar effects, gadgets, and racks.
The records of ABC Co. show the following:

Unearned revenue, January 1,2020 1,000,000

Advances received during 2020 10,000,000

Advances applied to orders shipped in 2020 8,000,000

Advances pertaining to orders cancelled in 2020 300,000

Compute for the current liability assuming:

a. the advance payments received are non-refundable and

b. the advance payments received are refundable.

PROBLEM 4

ABC Co. sells service contracts that cover a 2-year period. The sales price of each
contract is P1,000. ABC sold 1,000 contracts evenly throughout 2020. ABC’s past
experience shows that of the total pesos spent for repairs on service contracts, 40%is
incurred evenly incurred during the first contract year and 60% evenly during the second
year.

Requirements:

a. How much are the current and noncurrent portions of the deferred revenue to be
presented in ABC’s 2020 statement of financial position?

b. How much is the service revenue recognized in 2021 with that sale occurred in 2020?

PROBLEM 5

ABC Co. has just opened a novelty store. ABC decided to sell gift certificates as part of
its sales promotion. Transactions relating to the gift certificates during the year are
shown below:

a. Sold gift certificates worth P100,000

b.Gift certificates worth P80,000 were redeemed

c. P10,000 gift certificates expired

d. P2,000 gift certificates were estimated not to be redeemed

Provide for the necessary journal entries and what is the amount of unearned revenue
from the gift certificate should be presented at year-end?

Referring from the given above, what should be the year-end balance of unearned
revenue if the gift certificates expire one year after its issuance?

PROBLEM 6

ABC Co. requires deposits from customers for the containers of goods sold. The
customers are refunded for the deposits received when the containers are returned
within two years from the date of sale of the related goods. Deposits for containers not
returned within the limit are regarded as proceeds from retirement of the containers.
Information for 20x3 is as follows:

Container deposits at December 31,20x2, from deliveries in:

20x1 20,000

20x2 45,000 65,000

Deposits for containers delivered in 20x3: 90,000

Deposits for containers returned in 20x3 from deliveries in:

20x1 9,000

20x2 25,000

20x3 46,000 80,000

Compute for the liability for deposits on returnable containers as of December 31, 20x3.

PROBLEM 7

ABC Co. is preparing its December 31, 2021 year-end financial statements. The
following information was gathered:

- The bill for December’s utility costs of P30,000 was received and paid on
January 10, 2022
- A P20,000 advertising bill was received on January 2, 2022. Of the total billing,
P15,000 pertain to advertisements in December 2021and P5,000 pertain to
advertisements in January 2022.
- A lease, effective December 16, 2020, calls for a fixed rent of P100,000 per
month, payable one month after the commence of the lease and every month
thereafter. In addition, rent equal to 5% of net sales over P1,000,000 per year is
payable on January 31 of the following year.
- Total cash sales and collections on accounts amounted to P1,000,000. Accounts
receivable has a net increase of P200,000. Commission of 15% 0of sales are
paid on the same day cash is received from customers.

Compute for the accrued liabilities on December 31, 2021.

PROBLEM 8

A manufacturer gives warranties at the time of sale to purchasers of its product.

Under the terms of the contract of sale, the manufacturer undertakes to make good,
by repair or replacement, manufacturing defects that become apparent within one
year from the date of sale. On the basis of experience, it is probable that there will
be some claims under the warranties.

Sales of P10,000,000 were made evenly throughout 2021.

At December 31, 2021 the expenditures for warranty repairs and replacements for
the products sold in 2021 are expected to be made 50% in 20 in 2022. Assume for
simplicity that all the 2022 outflows of economic benefits related to the warranty
repairs and replacements take place on June 30, 2022.

Experience indicates that 95% of products sold require no warranty repairs; 3% of

products sold require minor repairs costing 10% of the slaes price; and 2% of
products sold require major repairs or replacement costing 90% of sale price. The
entity has no reason to believe future warranty claims be different from its
experience.

At December 31, 2021,the appropriate discount factor for cash flows expected to
occur on June 30, 2022 is 0.95238. Furthermore, an appropriate adjustment factor to
reflect the uncertainties in the cash flow estimates is an increment of 6% percent to
the probability-weighted expected cash flows.

Compute for the warranty provision at December 31,2021

PROBLEM 9

As of December 31,20x1, ABC Co. has adopted a detailed formal plan to close one
of its toys divisions and put up a new division to manufacture warfare weapons. The
plan was communicated through a public announcement and all those affected by
the closure were informed. ABC estimates the following costs in relation to the
closure of the division:

Termination benefits of employees terminated

as a result of the closure P1,000,000

Costs of retraining and relocating retained employees 2,000,000

Payment of unpaid purchases made by the division 4,000,000

New systems and distribution networks for the

weapons division 20,000,000

Marketing costs for the weapons to be manufactured

by the new division 6,000,000

Expected losses during the first year of operations of

the weapons division 20,000,000

Compute for the provision on December 31, 20x1. How much is the accrued
payable?

PROBLEM 10

ABC Co. provides 3-year warranty for the products it sells. ABC estimates that
warranty costs P100 per unit sod. As of January 1, 20x1, the liability for warranty has
a balance of P200,000 for units sold in 20x0. During the year ABC sold 5,000 units
and actual warranty costs incurred were P310,000.

1. How much is the warranty expense to be recognized in 20x1?

2. How much is the balance of the warranty obligation as of Dec. 31, 20x1?

PROBLEM 11

ABC provides a 2-year warranty for products sold. Estimated cost of warranty is 2%
in the year of sale and 4% after the year of sale. Information on ABC’s sale is shown
below:

Year Sales Actual warranty costs

20x1 10,000,000 400,000
20x2 12,000,000 500,000

Prepare the necessary journal entries. How much is the balance of warranty
obligation on December 31, 20x2 assuming those pertaining to 20x1 sales have not
yet expired as of 20x22 year-end?