UNIVERSITY OF LUZON

COLLEGE OF ACCOUNTANCY
ACC 412 – PRELIM EXAM

NAME:_______________________________________________________ DATE:_____________________________

Summarize/write your answers on the space provided.

1. 16.
2. 17.
3. 18.
4. 19.
5. 20.
6. 21.
7. 22.
8. 23.
9. 24.
10. 25.
11. 26.
12. 27.
13. 28.
14. 29.
15. 30.

Problem 1
An entity includes one coupon in each box of laundry soap it sells. A towel is offered as a premium to
customers who send in 10 coupons and a remittance of P10. Distribution cost of premium is P5.
Experience indicates that only 30% of the coupons will be redeemed.

2018 2019
Boxes of soap sold 2,000,000 2,500,000
Number of towels purchased at P50 each 50,000 80,000
Coupons redeemed 400,000 700,000

1. What is the premium expense for 2018?

2. What is the estimated premium liability on December 31, 2018?

3. What is the premium expense for 2019?

4. What is the estimated premium liability on December 31, 2019?

Problem 2
You have been provided with the following data in connection with your audit of Los Angeles Company
for the year ended December 31, 2016, its first year of operations:

Warranty expense P85,000

Premium expense 270,000
Net income 1,935,000
Additional information:
Los Angeles Co. sells two products, washing machines and ovens. The washing machines carry a three
year warranty against manufacturer’s defects. Based on the reliable estimate, warranty costs are
estimated at P150 per machine. During 2016, the company sold 1,200 washing machines and paid
warranty costs of P85,000 which was charges to warranty expense.

Premium is offered on the oven. Customers receive a coupon for each peso spent on the oven. Customers
may exchange 400 coupons and P20 for t-shirt. Los Angeles pays P45 for each t-shirt and estimates that
60% of the coupons given to customers will be redeemed. Total sales for the oven amounted to
P1,200,000.

A total of 6,000 t-shirts used in the premium program were purchased during the year and there were
500,000 coupons redeemed during the current year. Premium expense of P270,000 was charged by the
company when it purchased the 6,000 t-shirts.

Questions: Based on the above data, determine the following:

5. Estimated warranty payable, December 31, 2016.

6. Estimated premium payable, December 31, 2016.

7. Adjusted net income during 2016.

8. Assuming a bonus of 20% is given to the president based on net income after bonus and before tax of
30%, how much is the bonus?

9. Assuming a bonus of 20% is given to the president based on net income after bonus and tax of 30%,
how much is the bonus?

Problem 3
You were able to obtain the following from the accountant of Warriors Company related to the company’s
liabilities as of December 31, 2016:

Current liabilities:
Accounts payable P1,350,000
14% note payable issued October 1, 2015, maturing September 30, 2017 1,250,000
16% note payable issued April 1, 2014, due on April 2017 3,000,000
Interest payable ?
Noncurrent liability:
10% 2-year note payable issued on July 1, 2016 2,000,000

The following additional information pertains to these liabilities:

a. The accounts payable balance of P1,350,000 was before any necessary year-end adjustments
relating to the following:
 Goods were in transit to Warriors from a vendor on December 31, 2016. The invoice cost was
P75,000. The goods were shipped FOB shipping point on December 29, 2016 and were
received on January 2, 2017.
 Goods shipped FOB destination on December 21, 2016, from a vendor to Warriors, were
received on January 6, 2017. The invoice cost was P37,500.
 On December 27, 2016, Warriors wrote and recorded checks totaling P60,000 which were
mailed on January 10, 2017.

b. The interest of the 14% note payable is payable every September 30.

c. On December 31, 2016, the company expects to refinance the P3,000,000 note by the issuance of a
long-term note payable in lump sum. The refinancing of the P3,000,000 is at the discretion of the
enterprise. Warriors’s December 31, 2016 financial statements were issued on March 31, 2017. On
January 15, 2017, the entire P3,000,000 balance of the 16% note was refinanced by issuance of
long-term obligation payable. The interest is payable every April 1.
 d. The note payable of P2,000,000 is payable to Baggao Corporation. The interest is payable
quarterly. The existing loan agreement does not carry a provision to refinance. During September,
Warriors was experiencing financial difficulty and was unable to pay the periodic interest. Baggao
Company agreed at the reporting date to provide a grace period ending at least twelve months to
rectify the breach.

Questions: Based on the above, answer the following:

10. In Warriors’s December 31, 2016 statement of financial position, how much should be the accounts
payable?

11. Total interest expense for the year 2016

12. Total interest payable as of December 31, 2016

13. Total current liabilities as of December 31, 2016

14. Total non-current liabilities as of December 31, 2016

Problem 4
In connection with your audit of Riley Corporation’s financial statements for the year 2018, you noted the
following liability account balances as of December 31, 2017:
12% Notes payable P2,800,000
10% Notes payable 2,000,000

Transactions during 2018 and other information relating to Riley’s liabilities were as follows:
a. The 12% note is dated May 1, 2017 and is payable in four equal annual instalments of P700,000
beginning May 1, 2018. The first principal and interest payment was made on May 1, 2018.
b. The 10%, P2,000,000 note payable will mature on July 1, 2019. Interest on the note is due every
July 1 and December 31. On December 1, 2018, the company entered into a refinancing agreement
with a bank to refinance the note on a longterm basis. The refinancing and roll over transaction
was completed on December 31, 2018.

Questions: Based on the above data, determine the following:

15. How much is the carrying amount of the note issued for delivery equipment on initial recognition

16. Noncurrent portion of the notes payable as of December 31, 2018

17. Current portion of the notes payable as of December 31, 2018

18. Accrued interest payable as of December 31, 2018

19. Total interest expense for the year 2018

Problem 5
You were able to obtain the following from the accountant for Mavericks Corp. Related to the company’s
liability as of December 31, 2020:

Accounts payable P 650,000

Notes payable – trade 190,000
Notes payable – bank 800,000
Wages and salaries payable 15,000
Interest payable ?
Mortgage notes payable – 10% 600,000
Mortgage notes payable – 12% 1,500,000
Bonds Payable 2,000,000

The following additional information pertains to these liabilities:

 a. All trade notes payable are due within six months of the balance sheet date.
b. Bank notes payable include two separate notes payable Allied Bank.
(1) A P300,000, 8% note issued March 1, 2018, payable on demand. Interest is payable every six
months.
(2) A 1-year, P500,000, 11 ½% note issued January 2, 2020. On December 30, 2020 Mavericks
negotiated a written agreement with Allied Bank to replace the note with 2-year, P500,000,
10% note to be issued January 2, 2021. The interest was paid on December 31, 2020
c. The 10% mortgage note was issued October 1, 2017, with a term of 10 years. Terms of the note
give the holder the right to demand immediate payment of the company fails to make a monthly
interest payment within 10 days of the date the payment is due. As of December 31, 2020,
Mavericks is three months behind in paying its required interest payment.
d. The 12% mortgage note was issued May 1, 2011, with a term of 20 years. The current principal
amount due is P 1,500,000. Principal and interest payable annually on April 30, A payment of
P220,000 is due April 30, 2021. The payment includes interest of P180,000.
e. The bonds payable is 10-year, 8% bonds, issued June 30, 2011. Interest is payable semi-annually
every June 30 and December 31.

Based on the above and the result of your audit, answer the following:

20. Interest payable as of December 31, 2020 is

21. The portion of the Notes payable – bank to be reported under current liabilities as of December 31,
2020 is

22. Total current liabilities as of December 31, 2020 is

23. Total noncurrent liabilities as of December 31, 2020 is

Problem 6
LABAN PA CO. has the following liabilities on December 31, 2016:
8% Note payable P2,000,000
10% Note payable 1,500,000
11% Note payable 1,250,000
10% Loan payable 1,000,000
12% Loan payable 750,000
15% Loan payable 500,000

Additional information:
1. The 8%, P2,000,000 note payable arises from purchase of merchandise which is to be paid on
December 31, 2018.
2. The 10%, P1,500,000 note payable plus interest matures on June 30, 2017. On January 15, 2017, the
entity entered into a refinancing agreement with a bank to refinance the note on a long term basis.
The refinancing and roll over transaction was completed on January 31, 2017.
3. The 11%, P1,250,000 5-year note payable was obtained by the entity from a bank. The agreement
requires the entity to maintain a current ratio of 3:1. If the current ratio falls below 3:1, the note
becomes payable on demand. As of December 31, 2016, the current ratio is 3.5:1.
4. The 10%, P1,000,000 loan payable was obtained last January 1, 2016 and is payable in 5 equal annual
installment starting January 1, 2017 for P200,000. The interest is payable every July 1 and January 1.
5. The 12%, P750,000 loan payable is maturing on July 1, 2017. Interest on the loan is due every July 1
and January 1. On January 15, 2017, the entity entered into a refinancing agreement with the bank to
refinance the loan on a long-term basis. Both parties are financially capable of honoring the
agreement’s provisions. LABAN PA CO. has the discretion to refinance or roll over the loan for at least
12 months from December 31, 2016 under an existing loan facility.
6. The 15%, loan payable was obtained last June 30, 2007 and is due on June 30, 2017. Interest on the
loan is payable every July 1 and January 1.

Requirements:

24. How much note payable will be shown as current liability?

25. How much note payable will be shown as noncurrent liability?

26. How much loan payable will be shown as current liability?

27. How much loan payable will be shown as noncurrent liability?

Problem 7

28. Star Corp.’s accounts payable at December 31, 2014, totaled P800,000 before any necessary year-end
adjustments relating to the following transactions:
 On December 27, 2014, Star Corp. wrote and recorded checks to creditors totaling P350,000
causing an overdraft of P100,000 in Star Corp.’s bank account at December 31, 2014. The
checks were mailed on January 10, 2015.
 On December 28, 2014, Star Corp. purchased and received goods for P200,000, terms 2/10,
n/30. Star Corp. records purchases and accounts payable at net amounts. The invoice was
recorded and paid January 3, 2015.
 Goods shipped FOB Destination on December 20, 2014 from a vendor to Star Corp. were
received January 2, 2015. The invoice cost was P65,000.
At December 31, 2014, what amount should Star Corp. report as total accounts payable?

29. Rosa Company as of December 31, 2016 provided the following balances:
Cash, net of a P5,000 overdraft P 50,000
Trading securities, (fair value at December 31, 2016, P19,000) 16,000
Receivables, net of allowance for bad debts P2,000 and customer credit 30,000
balances of P4,000
Inventory (P5,000 of which are held on consignment) 60,000
Prepayments, includes P2,000 of supplies already used up 10,000
Property, plant and equipment, net of accumulated depreciation 90,000
Accounts payable, (net of suppliers’ debit balance of P6,000) 45,000
Notes payable - bank, maturing annually at P50,000 450,000
Income tax payable 40,000
Stock dividends distributable 6,000

Current liability is

30. On September 18, Hydra purchased P13,300 of inventory items on credit with the terms 1/15, net 30,
FOB destination. Freight charges were P280. Payment for the purchase was made on October 18.
Assuming Hydra uses the perpetual inventory system and the net method of accounting for purchase
discounts, what amount is debited to accounts payable on October 18?

Be strong and do not give up, for your work will be rewarded. – 2 Chronicles 15:7