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8/12/2019 Problems solving in accounting
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PROBLEMS:Part I
1)On December 31, 2014, the bookkeeper of Graduating Company providedthe following information:
Accounts payable, including deposits and advances
from customers of P500,000 P2,500,000
Notes payable, including note payable to bank due on
December 31, 2016 for P1,000,000 3,000,000
Share dividends payable 800,000
Credit balance in customers accounts 400,000
Serial bonds, payable in semiannual installments
of P1,000,000 10,000,000
Accrued interest on bonds payable 300,000
Contested BIR tax assessment 600,000Unearned rent income 100,000
In December 31, 2014 Statement of Financial Position, how much current
liabilities should be reported?
Answer: ______________ 7,300,000
2)Brave Company sells appliance service contracts, agreeing to repairappliances for a two-year period. Braves 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 duringthe second contract year.
Receipts from service contract sales for the past two years ended
December 31, 2014 are as follows:
2013....... P500,000 2014.......... P600,000
Receipts from contracts are credited to unearned service contract
revenue. Assume that all contract sales are made evenly during the
year.
What amount should Brave Company report as unearned service contract
revenue at December 31, 2014?
Answer: ______________ 630,000
3)Bugs Appliance Companys accountant has been reviewing the firms pastMashing Machine sales. For the past years, Bugs has been offering a
special service warranty on all Mashing Machine sold. With the
purchase of the Mashing Machine, the customer has the right to
purchase a three-year service contract for an extra P600.
Information concerning past Mashing Machine and warranty contract
sales is given below:
2014 2013 o
Mashing Machine sales in units 550 460
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Sales price per unit P5,000 P 4,000
Number of service contracts sold 350 300
Expenses relating to warranties P38,520 P13,400
Bugs accountant has estimated from past records that the pattern of
repairs has been 40% in the year of sale, 36% first year after saleand 24% on 2ndyear of sale. Sales of service contract are made evenly
during the year.
What is the adjusted balance of the unearned service contract revenue
as of December 31, 2014?
Answer: ___________ 243,600
4)Strand Incorporated provides an incentive compensation plan underwhich its president receives a bonus equal to 10% of the corporations
income in excess of P600,000 before income tax but after deduction ofthe bonus. If income before income tax and bonus is P1,920,000 and the
tax rate is 32%, how much the amount of the bonus would be?
Answer: ___________ 120,000
5)Lancer Company inaugurated a promotional campaign on January 2, 2014to promote the salability of their product. Lancer company placed a
coupon redeemable for a premium in each package of napkin sold at
P200. Each premium costs P25 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,
2014, the following transactions occurred:
Packages of napkin sold P120,000
Premium purchased 30,000
Coupons redeemed 54,000
How much should be reported as estimated liability for coupons on the
fiscal year ended July 31, 2014?
Answer: _____________ 75,000
6)A new product introduced by Ven Beauty Promotions which carries a two-year warranty against defects. The estimated warranty cost related to
sales are as follows:
Year of sale 3%
Year after sale 5%
Sales and actual warranty expenditures for the years ended December
31, 2013 and 2014 are as follows:
Sales Actual Warranty Expenditures
2013 P 800,000 P20,000
2014 1,000,000 70,000
What amount should Ven Beauty report as its estimated liability as of
December 31, 2014?
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Answer: ____________54,000
7)On January 1, 2014, Trader Company issued its 8%, 5-year convertibledebt instrument with a face amount of P6,000,000 for P5,900,000.
Interest is payable every December 31 of each year. The debtinstrument is convertible into 50,000 ordinary shares with a par value
of P100. When the debt instruments were issued, the prevailing market
interest rate for similar debt without conversion option is 10%.
How much of the proceeds represent the equity component? (Round off
your PV factor at 3 decimal places)
Answer: ______________ 354,320
8)On January 1 2014, Alison Company issued its 10%, 5-year convertibledebt instrument with a face amount of P5,000,000 for P5,100,000.Interest is payable every December 31 of each year. The debt
instrument is convertible into 50,000 ordinary shares with a par value
of P100. When the debt instruments were issued, the prevailing market
interest rate for similar debt without conversion option is 11%. The
company incurred transaction cost of P70,000 related to the issue of
the compound financial instrument.
How much of the proceeds represent the equity component? (Round off
your PV factor at 3 decimal places)
Answer: ______________ 283,059
9)On June 30, 2014, Reflex Corporation had outstanding 10 percent,P2,000,000 face amount, 15-year bonds maturing on June 30, 2018.
Interest is paid on June 30 and December 31 and related amortization
is done on those dates. The unamortized balances on June 30, 2014 of
bond premium and bond issue costs were P110,000 and P40,000
respectively. Reflex reacquired all of its bonds at 96 on June 30,
2014, and retired them. Ignoring income taxes, how much gain or loss
should Reflex record on the bond retirement?
Answer: ______________ gain 150,000
10) On January 1, 2014, Nickel Co. signed a 10-year operating leasefor office space at 576,000 per year. The lease included a provision
for additional rent of 5% annual company sales in excess of
P3,000,000. Nickels sales for the year ended December 31, 2014 were
P3,600,000. Upon execution of the lease, Nickel paid P144,000 as a
bonus for the lease. How much should be Nickels rent expense for the
year ended December 31, 2014?
Answer: _____________ 620,400
11) On January 2, 2014, Florence Co. signed an 8-year non-cancelablelease for a new machine, requiring P120,000 annual payments at the
beginning of each year. The machine has an estimated life of 12 years,
with no salvage value. Title passes to Florence at the lease
expiration date. Florence uses straight-line depreciation for all of
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its plant assets. Aggregate lease payments have a present value of
P864,000 based on an appropriate rate of interest. For 2014, how much
should Florence record as depreciation (amortization) expense for
leased machine?
Answer: ______________ 72,000
12) Iron Co. leased equipment for its nine year economic life,agreeing to pay P500,000 at the start of the lease term on December
31, 2014 and P500,000 annually on December 31 for the next eight
years. The present value on December 31, 2014 of the nine lease
payments over the lease term using the rate implicit which Iron knows
to be 10%, was P3,165,000. The December 31 2014 present value of the
lease payments using Irons incremental borrowing rate of 12% was
P2,895,000. Iron made a timely second payment. What amount should Iron
report as finance lease liability in its December 31, 2015 Statementof Financial Position?
Answer: ______________P2,431,500
13) On December 30, 2014, Slim Co. leased equipment under a financelease. Annual lease payments of P200,000 are due on December 31 for 10
years. The equipments economic life is 10-years and the interest rate
implicit in the lease is 10%. The finance lease obligation was
recorded on December 30, 2014 at P1,350,000, and the first lease
payment was made on that date. What amount should Slim include in
current liabilities for this finance lease in its December 31, 2014
Statement of Financial Position?
Answer: ______________85,000
14) On August 1, 2014, Argon Co. leased a machine to Barium companyfor a 6-year period requiring payments of P100,000 at the beginning of
each year. The machine cost P480,000, with an economic life of eight
years and no residual value. Argons implicit interest rate is10%.
Argon appropriately recorded the lease as a direct financinglease. At the inception of the lease, how much shall be the gross
lease receivables account balance? (Round off your PV factor at 3
decimal places)
Answer: ______________ 600,000
15) The accounts shown below appear in the December 31, 2014 trialbalance of Hollow co.
Preference share, authorized, P50 par P10,000,000
Unissued preference share 3,600,000
Ordinary share, authorized, P20 par 4,000,000
Unissued ordinary share 2,000,000
Subscription receivable, PS 380,000
Subscription receivable, OS 360,000
Subscribed preference share
Subscribed ordinary share
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20) Promise Companys capitalstructure is shown below:12.31.14 12.31.13
Outstanding shares of stock:
Ordinary Shares 110,000 110,000
Convertible Shares 10,000 10,000
During 2014, Promise paid dividends of P3.00 per share on its
preference share. The preferred shares are convertible into 20,000
shares of ordinary share. Net income for 2014 was P850,000. Assume
that tax rate of 32%, how much is the diluted earnings per share for
2014?
Answer: ______________ 6.54