1.

Trade payables and accruals for employee and other operating costs are classified as
current liabilities even if they are to be settled more than twelve months after the
reporting period.A
2. Non-current liabilities are measured at their present value.B
3. Liabilities can arise from future transactions or events as in the case of liabilities on
purchase commitments.B
4. For a liability to exist, the entity liable must be identified.A
5. Conceptually, all liabilities are measured at present value or discounted amount and
subsequently measured at amortized cost.A
6. For a liability to exist, it is not necessary that the payee to whom the obligation is
owed be identified.A
7. For a liability to exist, the exact amount of the obligation need not be known.A
8. Short-term obligations are measured, recorded and reported at face amount.A
9. For a liability to be classified as non-current, the entity liable must not have an
unconditional right to defer settlement of the liability for at least twelve months after
the reporting period.B
10. If certain conditions relating to covenants are breached, the liability shall be classified
as current unless the lender has agreed after the reporting period and before the
statements are authorized for issue, not to demand payment as a consequence of the
breach.B
11. Warranty liabilities are incurred at the point of sale. A
12. Rent revenue collected one year in advance should be reported as a current liability.
A
13. The container’s deposit account is usually classified as a current liability. A
14. The accrual approach in recognizing warranty costs properly matches cost with
revenue. A
15. Premiums are generally designed to reward customers for past purchases and to
provide them incentives to make further purchases. B
16. The redemption and lapse of gift certificates would both decrease the deferred
revenue (gift certificates payable) account. A
17. The consideration allocated to the award credits is measured at fair value of the
award credits less any costs to distribute them. B
18. Under a customer loyalty program, if the entity supplies the award itself, the
consideration allocated to the award credits shall be recognized as revenue
immediately. B
19. When premiums are purchased, an entry debiting premium expense shall be made. B
20. An obligation to distribute an entity’s assets as a result of a dividend declared near
the end of the current year is classified as part of equity rather than an accounting
liability.B

PROBLEM 1:On December 31, 2011, the bookkeeper of Glare Company provided the
following information:
Accounts payable, including deposits and advances
from customer of P250,000 P 1,250,000
Notes payable, including note payable to bank on De- 1,500,00
cember 31, 2013 of P500,000 0
Stock dividend payable 400,000
Credit balances in customer’s accounts 200,000
Serial bonds payable in quarterly installments of
P500,000 5,000,000
Accrued interest on bonds payable 150,000
Contested BIR tax assessment – possible obligation 300,000
Unearned rent income 100,000
1. Compute the total current liabilities on December 31, 2011.4,700,000

PROBLEM 2:Easy Company provided the following information on December 31, 2011.
Accounts payable – trade P 4,000,000
Notes payable:
Trade 3,000,000
Bank loans 2,000,000
Advances from officers 500,000
Bank overdraft 300,000
Contract entered into for the construction of building 5,000,000
Dividends payable 1,000,000
Withholding tax payable 100,000
Mortgage payable 3,800,000
Estimated damages payable by reason of breach of
contract 700,000
Income tax payable 800,000
 Estimated warranty liability 600,000
Accrued liabilities 900,000
Estimated premium payable 200,000
Claim for increase in wages by employees covered in
a pending lawsuit 3,500,000
2. Compute the total current liabilities on December 31, 2011.14,100,000
PROBLEM 3:Multiple Company had the following liabilities on December 31, 2011:
Accounts payable after deducting debit balances in
supplier’s accounts of P100,000 P 500,000
Accrued liabilities 50,000
Note payable – due March 31, 2012 1,000,000
Note payable – due May 1, 2012 800,000
Bonds payable – due December 31, 2013 2,000,000
On March 1, 2012 before the 2011 financial statements were issued, the note payable of
P1,000,000 was replaced by an 18-month note for the same amount. The entity is
considering similar action on the P800,000 note due on May 1, 2012. The financial
statements were issued on March 31, 2012.
3. Compute the total current liabilities as of December 31, 2011.2,450,00
PROBLEM 4:Loeb Corporation frequently borrows from the bank in orderto maintain
sufficient operating cash. The following loanswere at a 12% interest rate, with interest
payable at maturity.
Loeb repaid each loan on its scheduled maturity date.
Date of Loan Amount Maturity Date Term of Loan
11/1/2010 P 500,000 10/31/2011 1 year
2/1/2011 1,500,000 7/31/2011 6 months
5/1/2011 800,000 1/31/2012 9 months
Loeb records interest expense when the loans are repaid. As a result, interest expense of
P150,000 was recorded in 2011.
4. Ifno correction is made, by what amount would 2011 interest expense be overstated
(understated)? 54,000 understated

PROBLEM 5: Able Company had the following amounts of long-term debt outstanding on
December 31, 2011:
14% term note, due 2012 P 30,000
11% term note, due 2014 1,070,000
8% note, due in 11 equal annual principal payments,
plus interest beginning December 31, 2012 1,100,000
7% guaranteed debentures, due 2013 1,000,000
The annual sinking fund requirement on the guaranteed debenture is P40,000 per year.
5. What amount should Able Company report as current maturities of long-term debt in
its December 31, 2011 statement of financial position?130,000

PROBLEM 6: Included in Tagkayawan Company’s liability balances on December 31, 2011

were the following:
10% note payable issued on October 1, 2010, matur-
ing October 1, 2012 P 3,000,000
12% note payable issued on March 1, 2010, maturing
on March 1, 2012 5,000,000
The 2011 financial statements were issued on March 31, 2012. On January 31, 2012, the
entire P5,000,000 balance of the 12% note payable was refinanced through issuance of a
long-term obligation payable lump sum. Under the loan agreement for the 10% note
payable, Tagkayawan Company has the discretion to refinance the obligation for at least
twelve months after December 31, 2011.
6. What amount of the notes payable should be classified as non-current on December
31, 2011?3,000,000

PROBLEM 7-8: Cascade Company manufactures a single laundry soap. A towel is offered as
a premium to customers who send in two proof-of-purchase seals from the soap boxes and a
remittance of P20. The corporation incurs a distribution cost of P5 per towel. Data for the
premium offer are:
2011
P
Soap sales 2,500,000
Towel purchases (P100 per towel) 175,000
Number of towels distributed as pre- 1,000
mium pieces
Number of towels expected to be dis-
tributed as premium in the subse-
quent period 600 pieces
7. What is the premium expense for 2011? 136,000
8. What is the balance of the estimated premium liability at December 31, 2011?
51,000
PROBLEM 9: On January 1, 2011, Rocamora Company began marketing a new soft drink. To
help promote the soft drink, the management is offering a special gift, a t-shirt, to each
customer who returns 10 bottle caps. Roca Company estimates that out of the 250,000
bottles sold in 2011, only 80% will be redeemed. On December 31, 2011, the following
information was collected:
Units Amount
P
T-shirts purchased 18,000 3,600,000
T-shirts distributed 15,000
9. What is the estimated liability on December 31, 2011? 1,000,000

PROBLEM 10: In 2011, Plumpton Company started selling new computer that carried a 2
year warranty against defects. Based on the manufacturer’s recommendations, Plumpton
Company projects estimated warranty costs as a percentage of sales as follows:
First year of warranty 3%
Second year of warranty 9%
Sales and actual warranty repairs for 2011 and 2012 are as follows:
2012 2011
P P
Sales 7,000,000 5,000,000
Actual warranty repairs 250,000 100,000

10. What is the estimated warranty liability on December 31, 2012? 1,090,000
PROBLEM 11: Cobb Company sells gift certificates redeemable only when merchandise is
purchased. These gift certificates have an expiration date of two years after issuance date.
Upon redemption or expiration, Cobb Company recognizes the unearned revenue as
realized. Information for 2011 is as follows:
Unearned revenue, January 1 P 650,000
Gift certificates sold 2,250,000
Gift certificates redeemed 1,950,000
Expired gift certificates 100,000
Cost of goods sold 60%
11. On December 31, 2011, what amount should be reported as unearned revenue?
850,000

PROBLEM 11-14: An entity operates a customer loyalty program. The entity grants
program members loyalty points when they spend a specified amount of purchases.
Program members can redeem the points for further purchases. The points have no
expiry date. During 2024, the customer earned 60,000 points. Management expects
the 100% of these points will be redeemed. The stand-alone selling price of each
loyalty point is P20. The sales during 2024 amounted to P6,800,000 based on stand-
alone selling price. On December 31, 2024, 28,800 points have been redeemed in
exchange for purchases. In 2025, the management revised expectations and now
expects 90% of the pointsto be redeemed. In 2025, the entity redeemed 9,000
points.
12. The transaction price allocated to the loyalty points on January 1, 2024 is
1.02M
13. he revenue from the points in 2024 is P489,600
14. The revenue from the points in 2025 is P224,400

PROBLEM 15-16: An entity sells bedsheets for P3,000 per set. If a customer buys 4
sets in a single transaction the customer shall receive a coupon for one additional
set for free. It is expected that 80% of the free product coupons will be redeemed.
During 2024, the entity sold 1,000 sets at P3,000 per set or P3,000,000. During
2025, the entity delivered 75 free additional sets to customers. The stand-alone
selling price of free product coupon is equal to the selling price of the free product
adjusted by the expected redemption.
15. The sales revenue for 2024 should reported at P2,500,000.
16. The deferred revenue from coupons should be reported on December 31,
2025 at P350,000

PROBLEM 17: During the current year, an entity sold gift certificates worth
P16,000,000 to customers in exchange for future delivery of its product. The
certificates are nonrefundable and the entity expected that 15% of the gift
certificates will not be redeemed. During the year the entity redeemed gift
certificates worth P10,200,000.
17. What amount should be recognized as breakage revenue from gift certificates
for current year? P1,800,000
PROBLEM 18-21: Natural Company has an agreement to pay the sales manager a bonus of
5% of the entity's earnings. The income for the year before bonus and tax is P5,250,000.
The income tax rate is 30% of income after bonus.

Required: Determine the bonus under each of the following independent assumptions:
1. Bonus is a certain percent of the income before bonus and before tax. P262,500
2. Bonus is a certain percent of income after bonus but before tax. P250,000
3. Bonus is a certain percent of income after bonus and after tax. P177,535
4. Bonus is certain percent of income after tax but before bonus. P186,548

PROBLEM 22-23: Dress Company is a retailer that sells clothing. The entity has launched a
promotional campaign whereby if a customers buy clothing with a single purchase of at least
P4,000, the entity shall issue “30% discount coupons” on selected items. The coupon may
be used for 3 months following the campaign.

During the current year, the entity sold clothing worth P5,400,000 and issued 500 “30%
discount coupons”. The entity expected that 80% of the coupons will be redeemed and
customer using coupons buy clothing at an average price of P5,000.

21. What amount of transaction price should be allocated to the discount coupons?
P540,000
22. What amount should be recorded initially as sales revenue? P4,860,000
23. What amount should be recorded as sales revenue from the redemption of
coupons? PP1,940,00

PROBLEM 24-25: Baker Company sold consumer products that are packaged in boxes. The
entity offered an unbreakable glass in exchange for two box tops and P50 as a promotion
during the current year. The cost of the glass was P200.

The entity estimated at the end the year that it would be probable that 50 % of the box tops
will be redeemed.

The entity sold 100,000 boxes of the product during the current year and 40,000 box tops
were redeemed during the year.

24. What amount should be reported as premium expense for the current year?
P3.75M
25. What amount should be reported as estimated premium liability at year-end?
P750K
PROBLEM 4: On January 1, 2011, Rocamora Company began marketing a new soft drink. To
help promote the soft drink, the management is offering a special gift, a t-shirt, to each
customer who returns 10 bottle caps. Roca Company estimates that out of the 250,000
bottles sold in 2011, only 80% will be redeemed. On December 31, 2011, the following
information was collected:
Units Amount
P
T-shirts purchased 18,000 3,600,000
T-shirts distributed 15,000
1. What is the estimated liability on December 31, 2011? 1,000,000