Professional Documents
Culture Documents
PROBLEM 1
Maria Rosa, president of the Villa Nova Company, has a bonus arrangement with the company
under which she receives 10% of the net income (after deducting taxes and bonuses) each
year. For the current year, the net income before deducting either the provision for income taxes
or the bonus is P4,650,000. The bonus is deductible for tax purposes, and the tax rate is 32%.
The appropriate provision for income tax for the year is.
SOLUTIONS:
T = 32% (P4,650,000 P296,067.42) = P1,393,258.43
PROBLEM 2
At December 31,2012, Bawi Corporation owed notes payable of P 2,000,000 with a maturity of
April 30,2013. These notes did not arise from transactions in the normal course of business. On
February 1,2013, Bawi issued P 4,000,000 of ten year bonds with the intention of using part of
the bond proceeds to liquidate the P 2,000,000 of notes payable. Bawis December 31,2012
financial statements were issued on March 29,2013.
How much of the P2,000,000 notes payable should be classified as current liabilities in Bawis
statement of financial position at December 31,2012?
SOLUTIONS:
The full amount of P2,000,000 is classified as current liability because on December 31,
2012 (the reporting date), the enterprise has no unconditional right to defer the
settlement of the obligation for a period of at least 12 months.
PROBLEM 3
The December 31 trial balance of the Ruel Corporation includes, among others, the following:
installment of P10,000 on
P20,000 that are not yet due and on which the Corporation is
P8,000, and goods received on December 31 of P12,000; neither of these items having been
recorded as a purchase 180,000
SOLUTIONS:
PROBLEM 4
When the LUAYON MANUFACTURING COMPANY was expanding its metal window division, it
did not have enough capital to finance the expansion. So, management sought and received
approval from the board of directors to issue bonds. The company planned to issue P5,000,000
of 8 percent, five-year bonds in 2007. Interest would be paid on June 30 and December 31 of
each year. The bonds would be callable at 104, and each P1,000 bond would be convertible into
30 shares of P10 par value common stock.
On January 1, 2007, the bonds were sold at 96 because the market rate of interest for similar
investment was 9 percent. The company decided to amortize the bond discount by using the
effective interest method.
On July 1, 2009, management called and retired half the bonds, and investors converted the
other half into common stock. As inducement, the company agrees to pay additional P100,000
to the holders of the convertible bonds.
CarryingvalueofthebondsatDecember31,2007 is
SOLUTIONS:
5,000,000 * 4% = 200,000
PROBLEM 5
On July 1, 2007 Salem Corporation issued P2,000,000 of 7% bonds payable in 10 years. The
bonds pay interest semiannually. Each P1,000 bond includes a detachable stock purchase right.
Each right gives the bondholder the option to purchase for P30, one share of P1 par value
common stock at any time during the next 10 years. The bonds were sold for P2,000,000. The
value of the stock purchase rights at the time of issuance was P100,000.
SOLUTIONS:
PROBLEM 6
Mckinley Company grants all employees two weeks paid vacation for each full year of
employment. Unused vacation time can be accumulated and carried forward to succeeding
years, and will be paid at the salaries in effect when vacations are taken or when employment is
terminated. There was no employee turnover in 2012. Additional information relating to the year
ended December 31,2012, is as follows:
Mckinley granted a 10% salary increase to all employees on October 1,2012, its annual salary
increase date.
How much is the vacation pay expense for the year ended December 31,2012?
SOLUTIONS:
MODERATE
PROBLEM 7
Included in Struggle Companys liability account balances at December 31,2012 were the
following:
14% note payable issued, October 1,2007, maturing September 30,2013, P2,500,000
16% note payable issued April 1,2012 payable in six equal annual installments of P800,000
beginning April 1,2013, P4,800,000
struggles December 31,2012 financial statements were issued on March 31,2013. On march
10,2013, Struggle consummated a non-cancelable agreement with the lender to refinance the
14% P2,500,000 note on a long-term basis, on readily determinable terms that not yet been
implemented.
What amount of the notes payable should classify as current liabilities on December 31,2012?
SOLUTIONS:
PROBLEM 8
SOLUTIONS:
HARD
PROBLEM 9
During 2012, Iyakin Company sold 500,000 boxes of cake mix under a new sales promotional
program. Each box contains one coupon, which when submitted with P40.00 entitles the
customer to a baking pan. Iyakin pays P50.00 per pan and P5.00 for handling and shipping.
Iyakin estimates that 80% of the coupons will be redeemed, even though only 300,000 coupons
had been processed during the year.
What amount should Iyakin report as liability for unredeemed coupons at December 31,2012?
SOLUTIONS:
PROBLEM 10
Kapit Corporation sells washing machines that carry a three-year warranty against
manufacturers defects. Based on company experience, warranty costs were estimated at P300
per machine. During 2012, Kapit sold 24,000 washing machines and paid warranty costs of
P1,700,000.
In its profut or loss for the year ended December 31,2012, Kapit should report warranty expense
of?
SOLUTIONS:
24,000 x 300 = 7,200,000