PROBLEM NO. 1 - Heats Corporation
Requirement no. 1 Notes payable: Arising from purchase of goods Arising from bank loans, on which marketable marketable securities valued valued at P600,000 have pledged as security, due Dec. 31, 2005 Arising from advances advances by officers, due June 30, 2005 Employees’ income tax withheld Advances received received from customers customers on purchase purchase orders Containers’ deposit Accounts payable payable arising from purchase purchase of goods goods (P170,000 (P170,000 + P30,000) P30,000) Customers' account with credit balance Cash dividends payable Current portion of serial bonds (P50,000 x 2) Overdraft with Allied Bank Est Est. da damage mages s to to be be pai paid d as as a resu result lt of unsa nsatisfa isfact ctor ory y pe perfo rforma rmance on a con contract ract Est. Est. expe expens nses es on meet meetin ing g gua guara rant ntee ee for for serv servic ice e req requi uire reme ment nts s on mech mechan andi dise se sold sold Estimated premiums payable Deferred revenue Accrued interest interest on bonds bonds payable Provision - deficiency income tax assessment TOTAL CURRENT LIABILITIES Convertible bonds, due January 31, 2007 Noncurrent portion of serial bonds (P2,000,000 - P100,000) TOTAL NONCURRENT LIABILITIES
304,000
500,000 50,000 20,000 64,000 50,000 200,000 40,000 80,000 100,000 90,000 160 160,00 ,000 120, 120,00 000 0 75,000 87,000 360,000 200,000 2,500,000 A
1,000,000 1,900,000
TOTAL LIABILITIES (Requirement no. 2)
2,900,000
B
5,400,000
C
PROBLEM NO. 3 - Pistons Company
Item no. 2
Item no. 6
Item no. 8
Item no.10
Item no.11
Item no.12
Item no.19
Insurance expense (P24,000/12 x 1/2) Prepaid insurance
1,000
Prepaid dues and subscription Dues and subscription exp
5,000
Vouchers payable Inventory
1,000
5,000 111,500 111,500
Legal and professional expense Vouchers payable
46,000
Medical expense Vouchers payable
25,000
Inventory Vouchers payable
55,000
Machinery and equipment Vouchers payable
46,000
25,000
55,000 254,000 254,000
PROBLEM NO. 2 - Sonic Corporation 1 Accounts payable per general ledger
Debit balances in suppliers' accounts Goods in transit on 12/31/05, FOB shipping point Unrecorded purchase return Adjusted accounts payable Accrued janitorial expenses (P144,000 x 2/3) Accrued utilities (P67,200 x 15/30) Total 2 Accrued salaries and wages
Income taxes withheld SSS contributions payable Philhealth contributions Total 3 Since the outcome is only possible, the matter will only be disclosed. 4
5,440,000 240,000 192,000 (160,000) 5,712,000 96,000 33,600 5,841,600 D 776,000 56,000 64,000 16,000 912,000 -
D A
B = 10% (P9,600,000 - B - T) T = 30% (P9,600,000 - B) T = P2,880,000 - .3B B = 10% [P9,600,000 - B - (P2,880,000 - .3B)] B = 10% (P9,600,000 - B - P2,880,000 + .3B) B = 10% (P6,720,000 - .7B) B = P672,000 - .07B 1.07B = P672,000 B = P628,000 (rounded off)
5 Principal amount due, 10/1/06
Accrued interest payable (P1,600,000 x 18% x 3/12) Total 6 Estimated liability on purchase commitment [320,000 x (P5 - P4.40)] 7 Deferred tax assets and liabilities should not be presented as current 8 Warranty payable, 12/31/04
Add warranty expense accrued during 2005 Total Less payments during 2005 Warranty payable, 12/31/05 9 Estimated coupons to be redeemed (160,000 x 60%)
Less coupons redeemed Coupons outstanding Divide by exchange rate Premiums to be issued Multiply by net premium cost (P100+P20-P30) Estimated liability for coupons, 12/31/05
D 800,000 72,000 872,000
D
192,000
D
-
D
416,000 1,504,000 1,920,000 1,408,000 512,000
D
96,000 64,000 32,000 5 6,400 90 576,000
D
1,280,000
D
10 Advances against accounts receivable assigned are generally classified as
borrowing and treated as current liabilities.
PROBLEM NO. 4 - Rockets Company
Requirement no. 1 1) Discount on bonds payable (P10,000,000 - P9,500,000) Bonds payable To correct the original entry on issuance of 10,000 bonds Retained earnings (P500,000 x 14/102) Interest expense (P500,000 x 12/102) Discount on bonds payable To record discount amortization for the prior and current years 2) Bonds payable (P2,100,000 - P2,000,000) Premium on bonds payable To recognize premium on bonds payable Premium on bonds payable (P100,000 x 6/82) Interest expense To record premium amortization for the year
500,000 500,000
68,627 58,824 127,451
100,000 100,000
7,317 7,317
3) Retained earnings (P10,000,000 x 12% x 2/12) Interest expense To correct interest exp pertaining to year 2004
200,000
4) Interest expense (P12,000,000 x 12% x 2/12) Accrued interest payable To record accrual of interest
240,000
200,000
240,000
Requirement no. 2 a) Bonds payable (P10,000,000 + P2,000,000)
12,000,000
b) Bond discount (P500,000 x 76/102)
372,549
c) Bond premium (P100,000 x 76/82)
92,683
d) Accrued interest (P12,000,000 x 12% x 2/12) e) Interest expense P10,000,000 x 12% P2,000,000 x 12% x 6/12 Bond discount amortization (P500,000 x 12/102) Bond premium amortization (P100,000 x 6/82)
240,000
1,200,000 120,000 58,824 (7,317) 1,371,506
PROBLEM NO. 5 - Wizards Company
Computation of amortization rate Period covered From To
Bond year 1st 2nd 3rd 4th 5th 6th
10.02.03 10.01.04 10.01.05 10.01.06 10.01.07 10.01.08
09.30.04 09.30.05 09.30.06 09.30.07 09.30.08 09.30.09
Amount Outstanding
Percent to total
5,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 20,000,000
25% 25% 20% 15% 10% 5% 100%
Computation of amortization amount 2003 2004 2005 2006 2007 2008 2009
October to December (P100,000 x 25% x 3/12) January to September (P100,000 x 25% X 9/12) October to December (P100,000 x 25% x 3/12) January to September (P100,000 x 25% X 9/12) October to December (P100,000 x 20% x 3/12) January to September (P100,000 x 20% X 9/12) October to December (P100,000 x 15% x 3/12) January to September (P100,000 x 15% X 9/12) October to December (P100,000 x 10% x 3/12) January to September (P100,000 x 10% X 9/12) October to December (P100,000 x 5% x 3/12) January to September (P100,000 x 5% X 9/12)
6,250
18,750 6,250 18,750 5,000 15,000 3,750 11,250 2,500 7,500 1,250
25,000 23,750 18,750 13,750 8,750 3,750 100,000
Requirement no. 1 a)
Bonds payable (P5,000,000 - P1,000,000)
b)
Bond discount Original amount Amortization : Prior years (2003 and 2004) Current year (2005)
c)
Accrued interest (P4,000,000 x 5% x 3/12)
e)
Interest expense P4,000,000 x 5% P1,000,000 x 5% x 9/12 Bond discount amortization (see letter b above)
4,000,000 100,000 31,250 23,750
55,000 45,000 50,000 200,000 37,500 23,750 261,250
Requirement no. 2 1)
2)
3)
4)
Discount on bonds payable Bond payable
100,000 100,000
Retained earnings Bond interest expense Discount on bonds payable
31,250 23,750
Accrued interest payable Bond interest expense
62,500
Bond interest expense Accrued interest payable
50,000
55,000
62,500
50,000
PROBLEM NO. 6 - Suns, Inc.
Question No. 1 - B Total proceeds Less liability component: Present value of the principal (P2,000,000 x 0.6830) Present value of the interest [(P2,000,000 x 8% x 3.1699) Equity component
Int. exp. Jan. 1, 2004 Dec. 31. 2004 Dec. 31. 2005 Dec. 31. 2006 Dec. 31. 2007
187,318 190,050 193,055 196,361
Int. paid
Int. exp.
160,000 160,000 160,000 160,000
2,000,000 1,366,000 507,184
Amort.
Int. paid
CV 1,873,184 1,900,502 1,930,553 1,963,608 1,999,969
27,318 30,050 33,055 36,361 126,785 Amort.
Jan. 1, 2004 Dec. 31. 2004 Dec. 31. 2005
187,318 190,050
160,000 160,000
27,318 30,050
Dec. 31. 2006 Dec. 31. 2007
48,264 49,090
40,000 40,000
8,264 9,090 74,723
Question no. 2 - D Carrying value, 1/1/04 (see no. 1) Add discount amortization for 2004: Effective interest (P1,873,184 x 10%) Nominal interest (P2,000,000 x 8%) Carrying value, 12/31/04
CV 1,873,184 1,900,502 1,930,553 965,276 482,638 490,902 499,992
1,873,184
Question no. 3 - D Effective interest (P1,900,502 x 10%) Question no. 4 - A Bonds Payable Discount on bonds payable (P1,000,000 - P965,276) Common stock APIC
187,318 160,000
Question no. 5 - C Reacquisiton price (P500,000 x 110%) Carrying value of bonds reacquired (P1,930,553 x 1/4) Loss on bond reacquisition
27,318 1,900,502
190,050
1,000,000 34,724 600,000 365,276
Carrying value of bonds converted (P1,930,553* x 1/2) Par value of common stock received (P1,000,000/P1,000 x 10 x P100) Amount to be credited to APIC Carrying value, 12/31/04 (see no. 2) Add discount amortization for 2005: Effective interest (P1,900,502 x 10%) Nominal interest (P2,000,000 x 8%) Carrying value, 12/31/05
1,873,184 126,816
965,276 600,000 365,276 1,900,502
190,050 160,000
30,050 1,930,553
550,000 482,638 67,362
*
PROBLEM NO. 7 - Ginebra Corporation
Question No. 1 - B Liability under capital lease Balance, 1/1/05 Less principal payment on 12/31/05: Total payment Applicable to interest (P430,000 x 14%) Balance, 12/31/05
430,000 100,000 60,200
Question No. 2 - D 15% Note payable, bank Balance, 12/31/05 (P5,600,000 - P1,400,000) Less installment due on April 1, 2006 Liability under capital lease Balance, 1/1/05 Less principal payment on 12/31/05: Total payment 100,000 Applicable to interest (P430,000 x 14%) 60,200 Balance, 12/31/05 Less principal payment due on 12/31/06: Total payment 100,000 Applicable to interest (P390,200 x 14%) 54,628 10% bonds payable due 7/1/2014 Carrying value, 7/1/05 Add discount amortization: Effective interest (1,774,000 x 12% x 6/12) 106,440 Nominal interest (2,000,000 x 10% x 6/12) 100,000 Deferred income tax liability Balance, 1/1/05 Provision for deferred income tax (P312,500 x 32%) Total noncurrent liabilities, 12/31/05
39,800 390,200
4,200,000 1,400,000 430,000
39,800 390,200
45,372
Question No. 5 - C Note payable, bank (P5,600,000 x 12% x 3/12) (P4,200,000 x 12% x 9/12) Liability under capital lease (see no. 1) Bonds payable Nominal (P2,000,000 x 10% x 6/12) Discount amortization (see no. 2) Total interest expense for 2005
6,440
700,000 100,000
PROBLEM NO. 8
CBBCD ACBBB AADCB ADCAA
378,000 100,000 478,000
168,000 378,000
100,000 6,440
344,828
1,774,000
Question No. 3 - A Note payable, bank - due 4/1/06 Capital lease liability - principal payment due on 12/31/06 (see no. 1) Current portion of long-term liabilities, 12/31/05 Question No. 4 - D Note payable, bank (P4,200,000 x 12% x 9/12) Bonds payable (P2,000,000 x 10% x 6/12) Accrued interest payable, 12/31/05
2,800,000
546,000 60,200
106,440 712,640
1,780,440
800,000 5,725,268 1,400,000 45,372 1,445,372
