INTEGRATED REVIEW SECOND SEM 2023-2024

FINANCIAL ACCOUNTING & REPORTING (Problems) PROF. MICHAEL F. TIU

LIABILITIES

1. The following items were identified to comprise Lakers Company’s liabilities as of December
31, 2024
Accounts payable P 950,000
6% Notes payable – due January 15, 2025 1,000,000
7% Notes payable – due January 31, 2025 1,500,000
8% Notes payable – due January 31, 2025 2,000,000

The following information was made available at the time the 2024 financial statements were
being prepared:
• The accounts payable balance included a P150,000 advance from the company’s president
the due dates were P60,000 on June 30, 2025 and P90,000 on June 30, 2026
• The board of directors of Lakers Company in its December 28, 2024 meeting decided
unanimously that it would refinance its 6% notes from Ball Lending Company.
• At December 29, 2024, Lakers Company completed an agreement with Kuzma Financing
Company rescheduling the maturity date of the 7% notes to January 15, 2026.
• On January 4, 2025, Lakers Company completed an agreement with Ingram Financing
Company to refinance its existing note with another one maturing on January 31, 2026.

The amount to be presented as current and non-current liabilities in Lakers Company’s

December 31, 2024 balance sheet is:

2. On December 31, 2025, the bookkeeper of Golden State Company provided the following
information
Accounts payable, including advances from customers of 650,000
P250,000
Share dividends payable 200,000
Customer credit balances 110,000
Serial bonds, payable in semi-annual installments of P350,000 3,500,000
In the December 31, 2025 statement of financial position, how much should be reported as
current liabilities

3. The balance in Toronto Company’s accounts payable account at December 31, 2024 was
P1,500,000 before any adjustments relating to the following:
• Goods were in transit to Toronto Company on December 31, 2024. The invoice cost was
P200,000, FOB shipping point on December 29, 2024. The goods were received on
January 2, 2025.
• Goods shipped FOB shipping point on December 20, 2024 from a vendor to Toronto
Company, were lost in transit. The invoice cost was P300,000. On January 5, 2025,
Toronto Company filed an P300,000 claim against the common carrier.
• Goods shipped FOB destination on December 21, 2024, from a vendor to Toronto
Company, were received on January 6, 2025. The invoice cost was P150,000.
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• On December 28, 2024 Toronto Company wrote and recorded checks totaling P90,000
which were mailed on January 8, 2025

The amount that Toronto Company report as accounts payable on its December 31, 2024
balance sheet is

4. Houston Company’s employees earn 3 weeks of paid vacation for each year of employment.
Unused vacation time can be accumulated and carried forward to succeeding years and will be
paid based on the salary in effect when the vacation is taken. As of December 31, 2025,
Harden, an accounting staff had earned 6 weeks of vacation and had used 4 weeks of
accumulated vacation time. Harden’s salary was P9,500 per week. Houston Company has a
policy of providing an annual salary increase of 8%.

At December 31, 2025, how much should Houston Company include as a liability for
Harden’s accumulated vacation time?

5. Minnesota Company has a contract with its CEO to pay him a bonus annually starting 2022.
The profit before deductions for bonus and income taxes were P9,000,000 in 2022;
P12,500,000 in 2023; P18,000,000 in 2024; and P22,000,000 in 2025.
The bonus of 20% is deductible for tax purposes in each year. The tax rate is 15%.
• The 2022 bonus is based on profit before bonus and taxes
• The 2023 bonus is based on profit after bonus but before taxes
• The 2024 bonus is based on profit before bonus but after taxes
• The 2025 bonus is based on profit after bonus and taxes
Compute the amount of the bonus for each year.

6. Spurs Company maintains escrow accounts and pays real estate taxes for its mortgage
customers. Escrow funds are kept in interest-bearing accounts. Interest less a 9% service fee, is
credited to the mortgagee’s account and used to reduce future escrow payments. Additional
information follows:
Escrow accounts liability, January 1, 2025 P 900,000
Escrow payments received during 2025 1,500,000
Real estate taxes paid during 2025 1,800,000
Interest on escrow funds during 2025 150,000
Spurs Company should report escrow accounts payable in its December 31, 2025 balance sheet
of

7. Determine the amount of liability at December 31, 2025 for each of the following independent
cases:
• Memphis Company requires non-refundable advance payments with special orders from
customers for machinery constructed to their specification. Information for 2025 follows:
Customer advances, 12/31/23 P 475,000
Advances received with orders in 2025 650,000
Advances applied to orders shipped in 2025 510,000
Advances applicable to orders cancelled in 165,000
2025
• Indiana Company sells its products in expensive reusable containers. The customer is
charged a deposit for each container delivered and received a refund for each container
returned within two years after the year of delivery. Indiana Company accounts for the
containers not returned within the time limit as being sold at the deposit amount.
Information for 2025 is as follows:
Containers held by customers at December 31, 2025, from
deliveries in
2023 - P 265,000 2024 - P 685,000
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Containers returned in 2025 from deliveries in

2023 - P 180,000; 2024 - P 420,000 2025 - P470,000

• Oklahoma Company sells portable DVD players for P12,500 each and offers to each
customer a 3-year service contract for an additional P2,700. During 2025, the company
sold 575 DVD players and 400 service contracts for cash. Expenses related to the service
contracts for 2025 amounted to P180,000.
Past records of the company indicate that the pattern of repairs has been 50% in the year
after the sale, 30% in the second year, and 20% in the third year. Sales of the contracts are
made evenly during the year

• Portland Company sells subscriptions to a semi-annual magazine that is delivered to

customers at the end of June 30 and December 31. Subscriptions are P360 for one year and
are received as follows for the months of October 2,000; November 2,500; and December
3,200

8. Phoenix Company offers audio discs featuring local bands for 2022 as a premium for every 5
chocolate wrappers presented by customers together with P5. The company sells the
chocolate bars to distributors for P65 each. The purchase price of each audio disc is P11; in
addition, it costs P2 to mail each CD. The results of the premium plan for the years 2022 and
2023 are as follows:
2022 2023
Audio discs purchased 70,000 90,000
Chocolate bars sold 425,000 595,000
Wrappers redeemed 255,000 442,000
2022 wrappers expected to be redeemed in 2023 85,000
2023 wrappers expected to be redeemed in 2023 115,000

9. Miami Company places one coupon in each box. Five coupons are redeemable for a hand
puppet. In 2023 the company purchases 700,000 puppets at P14 and sells 1,920,000 boxes of
“Honey Puffs” at P40 a box. Based from its experience with other similar premium offers,
Miami Company estimates that 80% of the coupons will be mailed back for redemption and
will cost P5.
In 2023, 600,000 coupons were presented for redemption of which 50,000 coupons remains
under processing at December 31, 2023
a) Premiums expense reported in 2023 is
b) The estimated liability reported in the 2023 income statement is

10. New Jersey Company records stamp service revenue and provides for the cost of the
redemption in the year stamps are sold to licensees. New Jersey Company’s past experience
indicate that only 30% of the stamps sold to licensees will be refunded. New Jersey Company’s
liability for stamp redemptions was P650,000 at December 31, 2022.
Additional information for 2023 is as follows:
Stamp service revenue from stamps sold licensees P 6,500,000
Cost of redemption (stamps sold prior to 01/01/22) 575,000
If all the stamps sold in 2023 were presented for redemption, the redemption cost would be
P1,170,000.

The liability for stamp redemptions in the December 31, 2023 balance sheet is

11. In packages of its products, Milwaukee Company includes coupons that may be presented at
retail stores to obtain discounts on other Milwaukee Company products. Retailers are
reimbursed for the face amount of the coupons redeemed plus 8% of that amount for
handling costs. Milwaukee Company honors requests for coupon redemption by retailers up
to 3 months after the consumer expiration date. Milwaukee Company estimates that 25% of
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all coupons issued will ultimately be unredeemed. Information relating to coupons issued by
Milwaukee Company during 2023 is as follows:

Consumer expiration dates 9/30/23 12/31/23

Face amount of coupons issued P 900,000 1,250,000
Redemption payments made 680,000 937,250
The liability for unredeemed coupons in the December 31, 2023 balance sheet is

12. New York Company sold 3,000,000 boxes of strawberry-cheese pie mix under a new sales
promotional program. Each box contains one coupon, in which 10 coupons, submitted with
P4 entitles the customer to a baking pan. New York Company pays P12 per pan and P1.50 for
handling and shipping. Paige Company estimates that 80% of the coupons will be redeemed,
even though only 1,350,000 coupons had been processed during 2023.
The liability for Unredeemed Coupons in its December 31, 2023 is

13. Utah Company sells computers for P40,000 each and also gives each customer a 3-year
warranty that requires the company to perform periodic services and to replace defective parts.
During 2023, the company sold 800 computers. Based on experience, the company has
estimated the total 3-year warranty costs as P780 for parts and P420 for labor.

In 2023, Utah Company incurred actual warranty costs relative to 2023 computer sales of
P515,000 for parts and P180,000 for labor.
The amount reported as warranty expenses in 2023 is
The amount reported under estimated warranty obligation is

14. Minnesota Company a manufacture of electronic greeting cards has had a lawsuit filed against
it by Butler Company, another manufacturer of electronic greeting cards. The suit alleges
patent right infringements by Minnesota Company and asks for compensatory damages.
For the following likely situations, determine how Minnesota Company should report the
information concerning the lawsuit:

a. Minnesota Company’s legal counsel estimates that the case may result in a loss of
P1,000,000 but considers the likelihood of losing the case as remote
b. Minnesota Company’s legal counsel estimates that the case may result in a loss of
P1,200,000 but considers the likelihood of losing the case as reasonably possible
c. Minnesota Company’s legal counsel is convinced that the likelihood of losing the case is
probable, the potential amount of the loss, however, is currently undeterminable
d. Minnesota Company’s legal counsel is convinced that the likelihood of losing the case is
probable, the potential amount of the loss is estimated to be P 1,150,000
e. Minnesota Company’s legal counsel is convinced that the likelihood of losing the case is
probable, the potential amount of the loss, based on reliable evidences would be as follows:
20% that the liability would be P800,000; 50% that the liability would be at P1,000,000;
30% that the liability would be P1,200,000
f. Minnesota Company’s legal counsel is convinced that the likelihood of losing the case is
probable, the potential amount of the loss, based on reliable evidences would be around
P750,000 to P1,500,000.

15. During 2023, Cleveland Company is a defendant in a patent infringement lawsuit. The
company’s lawyers believe there is a 40% chance that the court will dismiss the case. However,
if the court rules unfavorably for Cleveland Company, there is a 20% chance that Cleveland
Company will be required to pay P600,000 and an 80% chance that Cleveland Company will
be required will require to pay damages of P200,000.
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A 7% risk adjustment factor for the probability-weighted expected cash flow is considered
appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount
rate is 4% per year.
The provision for the lawsuit is

16. On December 12, 2023, an explosion in Charlotte Company’s plant caused extensive damages
to nearby properties. By March 1, 2024, claims have been asserted against Charlotte Company.
Charlotte Company’s management and their legal counsel concluded that it is probable that
Charlotte Company would be liable for damages estimated at P4,600,000. Charlotte Company
has a P7,000,000 comprehensive public liability insurance policy. This policy has a P600,000
deductible clause
What should be reported in the December 31, 2023 financial statements that were issued on
March 25, 2024 in relation to the above-mentioned events?

17. In March 2023, Washington Company filed a suit against Wall Company seeking P2,000,000
damages for patent infringement. A court decision on November 2023 awarded Washington
Company P1,750,000 in damages. Wall Company motioned to appeal the decision.
Washington Company’s counsel believed it is probable that it will be successful against Wall
Company for an estimated amount ranging from P1,400,000 to P1,750,000, with P1,500,000 as
the most likely amount.
The amount of income reported in the 2023 statement of profit or loss statement

18. The following are provided by Atlanta Company for the year:
• Amount owing to Vince Company for services rendered during December 2023, P450,000
• Estimated long service leave owing to employees in respect of prior years’ services,
P1,400,000
• Estimated cost of relocating an employee from main office to a branch in another city by
January 1, 2024, P200,000
• Estimated cost of overhauling a machine every 5 years (machine is 5 years old by
December 31, 2023, P180,000
Provision reported on December 31, 2023

19. On November 1, 2023, Dallas Company’s directors decided to restructure the company’s
operations as follows:
• Manila-Plant would be closed down and put on the market for sale
• Some employees in Manila-Plant would be retrenched on November 30, 2023 and would
be paid their accumulated entitlement plus six month’s salaries while some employees in
Manila-Plant would be transferred to Cebu-Plant which would continue operating
On December 31, 2023, the following transactions and events occurred:
• The retrenched employees have left and were paid their accumulated entitlement.
However, P800,000 representing a portion of the six months wages for retrenched
employees has still not been paid
• Estimated cost to transfer remaining employees to Cebu-Plant P120,000. Transfer date is
January 18, 2024
• Dirk remains in order to complete administrative task relating to closure of Manila-Plant
and the transfer to Cebu-Plant. Dirk would stay until January 31, 2024. His January salary
of P40,000 and her retrenchment package of P160,000 would be paid on the day he leaves.
Dirk would spend 60% administering the closure of Manila-Plant; 30% administering the
transfer to Cebu-Plant; and the remaining 10% on general administration.

The provision in relation to the restructuring is

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QUIZZER - LIABILITIES

1. C must determine the December 31, 2023 year-end accruals for advertising and rent expenses.
A P500 advertising bill was received January 7, 2024, comprising costs of P375 for
advertisements in December 2023 issues, and P125 for advertisements in January 2024 issues
of the newspaper.
A store lease, effective December 16, 2020, calls for fixed rent of P1,200 per month, payable 1
month from the effective date and monthly thereafter. In addition, rent equal to 5% of net
sales over P300,000 per calendar year is payable on January 31 of the following year. Net sales
for 2023 were P550,000.
In December 31, 2023 balance sheet, C should report accrued liabilities of
a. P 12,875 b. P 13,000 c. P 13,100 d. P 13,475

2. T sells gift certificates, redeemable for store merchandise that expires one year after their
issuance. T has the following information pertaining to its gift certificates sales and
redemption:
Unredeemed at 12/31/23 P 75, 000
2023 sales 250, 000
2023 redemption of prior year sales 25, 000
2023 redemption of current year 175, 000
sales
T’s experience indicates that 10% of gift certificates will not be redeemed.
T Company’s unearned revenue on December 31, 2023 is
a. P125, 000
b. P112, 500
c. P100, 000
d. P50, 000

3. On the first day of each month, N receives from O an escrow deposit of P2,500 for real estate
taxes. N records the P2,500 in an escrow account. O’s 2023 real estate tax is P28,000, payable
in equal installments on the first day of each calendar quarter. On December 31, 2022, the
balance in the escrow account was P3,000.
On September 30, 2023, N Company’s escrow liability to O Company is
a. P1,500
b. P4,500
c. P8,500
d. P11,500

4. R operates in a state with a 6% retail sales tax. Retailers may keep 2% of the sales tax
collected. R records the sales tax in the Sales account. The Sales account during May was
P222,600.
The amount of sales taxes (to the nearest peso) for May is
a. P13,089.
b. P12,600
c. P13,356.
d. P14,157.

5. S operates in a state with a 6% retail sales tax. Retailers may keep 2% of the sales tax collected.
S records the sales tax in the Sales account. The Sales account during May was P222,600.
The amount of sales taxes payable (to the nearest peso) to the state for the month of May is
a. P12,827.
b. P12,348
c. P13,089.
d. P13,874

/mft