Don Bosco Institute of Arts and Sciences Total Quality Management (TQM)

Pamantasan ng Cabuyao
Katapatan Subd., Brgy. Banay-banay
Cabuyao, Laguna

Financial Accounting Volume 2

Estimated Liabilities
Theories a. Premium Liability b. Gift Certs. Payable
1. Liabilities are present obligations of an entity arising c. Unearned Revenue d. Refundable Deposits
from past transactions or events; the settlement is 11. Income already received but not yet earned. It
unexpected to result in an outflow from entity of maybe realizable within one year or in more than
resources embodying economic benefits. one year from the end of the reporting period.
a. True b. False a. Premium Liability b. Gift Certs. Payable
2. Without payment of money, without transfer of non- c. Unearned Revenue d. Refundable Deposits
cash asset, without performance of service, there is 12. Formula for bonus after tax but before bonus.
no accounting liability. a. B = NI X BR
a. True b. False b. B = [NI / (1+BR)] X BR
3. I. Current liabilities or short-term obligations are not c. B = BR [NI X (1+TR)] / [1 – (BR X TR)]
discounted anymore but measured, recorded and d. B = BR [NI X (1+TR)] / [(1+BR) – (BR X TR)]
reported at their face amount. 13. Formula before bonus and before tax
II. The reason for this is that the discount or the a. B = NI X BR
difference between the face amount and the present b. B = [NI / (1+BR)] X BR
value is usually material and therefore ignored. c. B = BR [NI X (1-TR)] / [1 – (BR X TR)]
III. Liabilities are classified into current and non- d. B = BR [NI X (1-TR)] / [(1+BR) – (BR X TR)]
current liabilities.
a. All are True b. II and III are False 14. Formula after bonus but before tax
c. Only II is False d. Only III is True a. B = NI X BR
b. B = [NI / (1+BR)] X BR
4. I. Non-current liabilities or long-term obligations are
c. B = BR [NI X (1-TR)] / [1 – (BR X TR)]
measured at face amount or present value depending
d. B = BR [NI X (1-TR)] / [(1+BR) – (BR X TR)]
whether they are interest or non-interest bearing.
II. If it is interest bearing, it is measured at face 15. Formula after bonus and after tax
amount because in this case, the face amount is a. B = NI X BR
already the present value of the obligation. b. B = [NI / (1+BR)] X BR
III. if it is non-interest bearing, it is measured at c. B = BR [NI X (1-TR)] / [1 – (BR X TR)]
present value. This requires amortization of the d. B = BR [NI X (1-TR)] / [(1+BR) – (BR X TR)]
discount difference between the face amount and the
present value using the effective method. 16. Choose the incorrect one, typical entries for
a. All are True b. II and III are False estimated liability on gift certificates.
c. Only II is False d. Only III is True a. Dr Cash b. Cr GC Payable
c. Cr Forfeited GC d. None of these
5. Obligations which exist at the end of the reporting
period although their amount is not definite. 17. Choose the incorrect one, typical entries for
a. Estimated Liabilities b. Tax Liability estimated liability on refundable deposits.
c. Long-term Debt d. Short-term Borrowing a. Dr Cash b. Dr Gain on sale of containers
c. Cr Containers d. None of these
6. Home appliances like television sets, stereo sets,
refrigerators and the like are often sold under 18. Will it be possible that an entity have (Ignore
guarantee to provide free repair service or materiality of the amount) current assets of 400.00,
replacement during a specified period if the products non-current assets of 0.00, current liabilities of
are defective. 50.00, non-current liabilities of 100.00, and capital
a. Premium Liability b. Gift Certs. Payable of 250.00, assume it is involve in mining operations?
c. Warranty Liability d. Refundable Deposits a. Yes b. No
7. Consist of cash or property received from customers 19. Will it be possible that an entity have (Ignore
but which are refundable after compliance of certain materiality of the amount) current assets of 500.00,
conditions. non-current assets of 1,500.00, current liabilities of
a. Premium Liability b. Gift Certs. Payable 200.00, non-current liabilities of 350.00, and capital
c. Warranty Liability d. Refundable Deposits of 1,350.00, assume it is a laundry shop?
8. Refers to articles of value such as toys, dishes, a. Yes b. No
silverware and other goods given to customers as 20. Will it be possible that an entity have (Ignore
result of past sales or sales promotion activities. materiality of the amount) current assets of 0.00,
a. Premium Liability b. Bonus non-current assets of 400.00, current liabilities of
c. Warranty Liability d. Refundable Deposits 50.00, non-current liabilities of 100.00, and capital
9. The main purpose of this scheme is to motivate of 250.00?
officers and employees by directly relating their a. Yes b. No
well-being to the success of the entity.
a. Premium Liability b. Bonus "The world ends with you. If you want to enjoy life,
c. Warranty Liability d. Refundable Deposits expand your world. You gotta push your horizons out as
far as they'll go."
10. It is offers by megamalls, departments stores and
supermarkets which is redeemable in merchandise. -Mr. Hanekoma (The World Ends with You)

Prepared by: J. Salazar, ICB, RCA, CAT, CPA, MBA Page 1-4
 Pamantasan ng Cabuyao Financial Accounting P-2

Straight Problems Units Amount

Sales of product 100,000 30,000,000.00
1. In an effort to increase sales, Marian Company Basketball purchased 5,500 4,125,000.00
inaugurated sales promotional campaign on June 30, Basketball distributed 4,000
2014, Marian placed a coupon redeemable for a What amount of year-end estimated liability
premium in each package of cereal sold. Each associated with this promotion?
premium cost Marian 20.00 and five coupons must a. 1,500,000.00 b. 4,500,000.00
be presented by a customer to receive a premium. c. 4,125,000.00 d. 3,000,000.00
Marian estimated that only 60.00% of the coupons
issued will be redeemed. For the six months ended 6. Beginning 2014, Yani Company began marketing a
December 31, 2014, the following information is new beer called “Yan-yan”. To help promote the
available. product, the management is offering a special “Yan-
Packages of cereal Premiums Coupons Redeemed yan” beer mug to each customer for every 20
sold purchased
160,000 12,000 40,000 specially marked bottle caps of the product. Yani
estimates that out of the 300,000 bottles of beer sold
What is the estimated liability for premiums on during 2014, only 50% of the marked bottle caps
December 31, 2014? will be redeemed. During 2014, the entity purchased
a. 160,000 b. 224,000 c. 288,000 d. 384,000 8,000 beer mugs at a total cost of 360,000.00 or
45.00 each. During the year, the entity already
2. During 2014, Marian Company sold 500,000 boxes
distributed 4,500 mugs to customers. What is the
of cake mix under a new sales promotional program.
premium liability on December 31, 2014?
Each box contains one coupon, which entitles the
a. 337,500.00 b. 202,500.00
customer to a baking pan upon remittance of 40.00.
c. 135,000.00 d. 360,000.00
Marian pays 50.00 per pan and 5.00 for handling
and shipping. Marian estimates that 80.00% of the 7. Yani Company includes one coupon in each box of
coupons will be redeemed, even though only laundry soap it sells. A towel is offered as premium
300,000 coupons had been processed during 2014. to customers who send in 10 coupons and a
remittance of 20.00.
What amount should Marian report as liability for 2013 2014
unredeemed coupons on December 31, 2014? Boxes of soap sold 500,000.00 800,000.00
a. 1,500,000 b. 1,000,000 c. 3,000,000 d. 5,000,000 Number of towels purchased 20,000 25,000
(100.00 per towel)
3. In packages of its products, Marian Company Coupons redeemed 140,000 200,000
includes coupons that may be presented at retail
stores to obtain discounts on other Marian products. Experience indicates that only 30.00% coupons will be
Retailers are reimbursed for the face amount of the redeemed. What is the premium liability on December
coupons redeemed plus 10.00% of that amount for 31, 2014?
handling costs. Marian honors requests for coupon a. 500,000.00 b. 320,000.00
redemption by retailers up to three months after the c. 80,000.00 d. 400,000.00
consumer expiration date; Marian estimates that
70.00% of all coupons issued will ultimately be 8. Yani Company includes one coupon in each package
redeemed. it sells. A towel is offered as a premium to
customers who send in 10 coupons:
Information relating to coupons issued by Marian during 2013 2014
2014 is as follows: Packages of cereal sold 500,000.00 800,000.00
Consumer expiration date December 31, 2014 Number of towels purchased 30,000 60,000
at 40.00 per towel
Total face amount of coupons issued 600,000
Number of towels 20,000 50,000
Total payments to retailers 220,000
distributed as premium
Number of towels to be 5,000 3,000
What amount should Marian report as a liability for distributed as premium next
unredeemed coupons on December 31, 2014? period
a. 0.00 b. 242,000 c. 200,000 d. 308,000
What amount should be reported as premium expense in
4. Yani Cereal Company frequently distributes 2014?
coupons to promote new products. On October 01, a. 2,400,000.00 b. 2,000,000.00
2014, Yani mailed 100,000 coupons for 45.00 off c. 2,120,000.00 d. 1,920,000.00
each box of cereal purchased. Yani expected 12,000
of these coupons to be redeemed before the The following pertains to the selected accounts of Yani
December 31, 2014, expiration date. It takes 30 days Co.: (Nos. 9 to 10)
from redemption date for Yani to receive the Due to suppliers…………………. 11,121.12
coupons from the retailers. Yani reimburse the Trade Payables………………….. 122,121.21
retailers an additional 5.00 for each coupon Salaries Payable…………………. 21,122.22
redeemed. On December 31, 2014, Yani had paid Mortgage Payable………………… 2,211,121.11
retailers 250,000.00 related to these coupons and Taxes Payable…………………….. 22,121.12
Long-term debt………………….. 222,242.22
had 5,000 coupons on hand that not been processed
Due from customers……………… 11,211.21
for payment. Advances to suppliers…………….. 2,212.11
What amount should Yani report as a liability for Stocks dividends payable……….. 11,122.12
Advances from customers……….. 1,211.21
coupons on its December 31, 2014 statement of financial
Rent Payable……………………… 22,212.21
position? Interest payable…………………… 22,224.22
a. 290,000 b. 250,000 c. 350,000 d. 225,000
Assume that 50.00% of long-term debt is due within 12
5. Yani Company started a new promotional program. months from the balance sheet date and that the interest
For every 10 box “yans” returned to Yani, customers payable is associated with the current portion of the debt.
receive a basketball. Yani estimates that only 60%
of the box “yans” reaching the market will be 9. The amount to be classified as current liabilities is?
redeemed. Additional information is follows: a. 333,254.42 b. 2,680,042.08
c. 357,799.86 d. None of these

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 Pamantasan ng Cabuyao Financial Accounting P-2

10. The amount to be classified as non-current liabilities Discounts taken by customers……………… 40,000.00
to be reflected in the balance sheet is? Payment for the settlement of notes payable… 180,000.00
a. 2,346,787.66 b. 2,680,042.08
c. 2,322,242.22 d. None of these What is the amount of liabilities to reflected on
December 31, 2014 Statement of Financial Position?
Yhanie Supermalls is selling a gift certificate which a. 3,610,000.00 b. 4,150,000.00
entitles the holder the exchange the GC at a premium of c. 7,210,000.00 d. 3,310,000.00
110.00%. The said 10.00% on top of the cash given is to
be treated as promotional expense by the company. Due 17. When examining the accounts of PNC Company, it
to the premium on the GC, the company sets expiration is ascertained that balances relating to both
on October 31, 2014 but the company allowed the GC to receivables and payables are included in a single
be claimed until December 31, 2014. controlling account called receivables control that
has a debit balance of 4,850,000.00. An analysis of
The following are the GCs sold per denominations: the make-up of this account revealed the following:
No. Pieces Sold Denomination Total Cash Received
10,000 50.00 500,000.00 Debit Credit
2,500 100.00 250,000.00 Accounts receivable - customers 7,800,000.00
200 500.00 100,000.00 Accounts receivable – officers 500,000.00
150 1,000.00 150,000.00 Debit balance – creditors 300,000.00
Salaries Payable 100,000.00 100,000.00
On December 2014, 880,000.00 worth of merchandise Postdated check from customers 400,000.00
was redeemed and 50,000.00 worth of various GC Subscriptions receivable 800,000.00
presented are rejected due to defects. At the end of 2014, Accounts payable for merchandise 4,500,000.00
only 50.00% of the remaining GC are presented and Credit balance in customers’
honored thus any non-presented GC are forfeited. (Nos. 11 account 200,000.00
to 14) Cash received in advance from
customers 100,000.00
11. The value to be credited as other income from Expected bad debts 150,000.00
forfeited and dishonored GC will tantamount to? What amount should be reported as “trade and other
a. 50,000.00 b. 125,000.00 payables” under current liabilities?
c. 45,000.00 d. None of these a. 4,900,000.00 b. 4,800,000.00
c. 5,050,000.00 d. 4,950,000.00
12. The amount to be recorded as promotional expense
would be? 18. The following information is available for PNC
a. 95,000.00 b. 96,250.00 Company relating to 2014 operations:
c. 87,500.00 d. None of these Accounts payable, January 01……………. 4,000,000.00
Accounts payable payments.……………… 8,400,000.00
13. Assumed that income from forfeited GC is off-set Cash sales…………………………………… 2,000,000.00
with promotional expense, the net amount of Inventory, January 01……………………… 4,800,000.00
promotional expense would be? Inventory, December 31……………………. 4,400,000.00
a. (37,500) b. (45,000) c. 37,500 d. NIL Purchases……………………………………... 8,000,000.00
14. The amount of sales generated from GC redeemed Assume that 25.00% of the purchases are paid in cash,
products is? what is the amount to be reported as total liabilities on
a. 955,000.00 b. 962,500.00 December 31, 2014?
c. 875,000.00 d. None of these a. 1,600,000 b. 6,200,000 c. 3,600,000 d. 2,000,000

15. The following pertains to various prepayments made The following transactions occur for the month of July
the customers to Borja Products Co. 2014: (Nos. 19 to 21)
Prepayment Amount Actual Delivery Amount • Purchased merchandise on account
Date Date
01/30/2014 500,000.00 02/01/2014 300,000.00
dated July 01 terms 2/14, n/30 with
02/15/2014 150,000.00 trade discount of 10% and 10%............ 500,000.00
03/20/2014 200,000.00 03/21/2014 200,000.00 • Purchased merchandise on account
05/01/2014 1,000,000.00 05/30/2014 1,000,000.00 dated July 10 terms 2/10, n/20 with
06/23/2014 3,000,000.00 08/10/2014 2,700,000.00 trade discount of 15% and 5%............... 250,000.00
08/20/2014 100,000.00
08/07/2014 50,000.00 09/31/2014 50,000.00
11/01/2014 80,000.00 02/28/2015 80,000.00
19. Assume that both transactions were paid fully on
July 30, 2014. The amount of payables to be debited
Assume that partial delivery is existed, the amount of against cash and discounts if any, will be?
deferred income for December 31, 2014 will be? (payments beyond the discount period)
a. 0.00 b. 4,580,000 c. 250,000 d. 330,000 a. 750,000.00 b. 602,837.50
c. 606,875.00 d. 594,737.50
16. The following data were taken from the records of
PNC Company for the year ended December 31, 20. Assume that both transactions were paid in full on
2014: July 15, 2014. The amount of payables to be debited
Sales on account……………………………... 3,600,000.00 against cash and discounts if any, will be?
Notes received to settle accounts…………. 400,000.00 (payments within the discount period)
Provision for doubtful accounts……………… 90,000.00 a. 750,000.00 b. 602,837.50
Accounts receivable determined to be c. 606,875.00 d. 594,737.50
worthless………………………....................... 25,000.00
Purchases on account………………………… 3,900,000.00 21. Assume that both transactions were paid fully on
Discounts allowed by creditors………………. 260,000.00 July 19, 2014. The amount of payables to be debited
Merchandise returned by customer…………... 15,000.00 against cash and discounts if any, will be? (with
Collections received to settle accounts………. 2,450,000.00 payments within and beyond the discount period)
Notes given to creditors in settlement of the a. 750,000.00 b. 602,837.50
accounts……………………………………. 250,000.00 c. 606,875.00 d. 594,737.50
Payments on notes payable………………… 100,000.00

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 Pamantasan ng Cabuyao Financial Accounting P-2

22. The following data were taken from the records of Assume that the tax rate is 30.00%, the ending balance of
PNC Company for the year ended December 31, trade payable will be?
2014: a. 412,500 b. 400,000 c. 402,500 d. 410,000
Inventory, beg………………………………... 200,000.00
Inventory, end……………………………….. 150,000.00 The following transactions occur for the month of July
Cost of Sales………………………………… 650,000.00 2014: (Nos. 27 to 29)
Accounts Payable, beg………………………. 80,000.00 • Purchased merchandise on account
Cash purchases…………………………….. 230,000.00 dated July 01 terms 2/14, n/30 with
Payments of accounts payable…………….. 50,000.00 trade discount of 10% and 10%............. 500,000.00
• Purchased merchandise on account
The ending balance of accounts payable will be? dated July 10 terms 2/10, n/20 with
a. 450,000 b. 400,000 c. 600,000 d. NIL trade discount of 15% and 5%............... 250,000.00
23. The following data were taken from the records of 27. Assume that both transactions were paid fully on
PNC Company for the year ended December 31, July 30, 2014. The amount of cash to be is?
2014: a. 750,000.00 b. 602,837.50
Inventory, beg……………………………………... 210,000.00
c. 606,875.00 d. 594,737.50
Inventory, end……………………….…………….. 160,000.00
Sales………….…………………………….……… 850,000.00
28. Assume that both transactions were paid in full on
Accounts Payable, beg………………………..….. 90,000.00
Cash purchases…………………………………… 230,000.00
July 15, 2014. The amount of cash to be paid will
Gross Profit……………………………………….. 200,000.00 be?
Payments of accounts payable…………………… 60,000.00 a. 750,000.00 b. 602,837.50
c. 606,875.00 d. 594,737.50
The ending balance of accounts payable will be?
a. 450,000 b. 400,000 c. 600,000 d. NIL 29. Assume that both transactions were paid fully on
July 19, 2014. The amount of cash will be paid by
24. The following data were taken from the records of the company amounted to?
PNC Company for the year ended December 31, a. 750,000.00 b. 602,837.50
2014: c. 606,875.00 d. 594,737.50
Inventory, beg……………………………………... 190,000.00
Inventory, end…………………………………….. 140,000.00 30. Marian Company. A retailer of electrical goods,
Gross Sales………………………………………… 860,000.00 participates in a customer loyalty program operated
Accounts Payable, beg……………………………. 85,000.00 by an airline. The entity grants program members
Cash purchases……………………………………. 250,000.00 one air travel point for every 1,000 spent on
Sales return and allowances………………………. 10,000.00
electrical goods. Program members can redeem the
Net Income ……………………………………….. 75,000.00
Operating Expenses………………………………. 100,000.00
points for travel with the airline subject to
Marketing Expenses……………………………….. 25,000.00 availability. Marian Company sold electrical goods
Payments of accounts payable after cash payment for consideration totaling 5,000,000.00 and granted
discount of 2,500.00……………………………… 32,500.00 5,000.00 points. The fair value of a point is 100.00.

The ending balance of accounts payable will be? If Marian Company has collected the consideration
a. 450,000 b. 400,000 c. 402,500 d. NIL to the points on its own account, what is the revenue
to be recognized in 2014 in relation to the points?
25. The following data were taken from the records of a. 500,000 b. 450,000 c. 50,000 d. 0.00
PNC Company for the year ended December 31,
2014: Marian Company sells washing machines that carry a
Inventory, beg……………………………………... 190,000.00 three-year warranty against manufacturer’s defects.
Inventory, end…………………….……………….. 140,000.00 Based on the entity’s experience, warranty costs are
Gross Sales………………………………………… 860,000.00 estimated at 300.00 per machine. During the year,
Accounts Payable, beg……………………………. 85,000.00 Marian Company sold 2,400 washing machines and paid
Cash purchases…………………………………… 250,000.00
warranty costs of 170,000.00. (Nos. 31 to 32)
Sales return and allowances……………………… 10,000.00
Net Income ………………………………………. 75,000.00
Operating Expenses……………………………… 100,000.00 31. In its income statement for the current year, what
Marketing Expenses……………………………… 25,000.00 amount should Marian Company report as warranty
Payments of accounts payable before cash payment expense?
discount of 2,500.00……………………………… 32,500.00 a. 170,000 b. 240,000 c. 550,000 d. 720,000

The ending balance of accounts payable will be? 32. The balance of estimated warranty liability will be?
a. 450,000 b. 400,000 c. 402,500 d. NIL a. 170,000 b. 240,000 c. 550,000 d. 720,000

26. The following data were taken from the records of 33. On April 01, 2014, Yani Company began offering a
PNC Company for the year ended December 31, new product for sale under a one-year warranty. Of
2014: the 50,000 units in inventory on April 01, 2014,
Inventory, beg……………………………………... 190,000.00 30,000 had been sold by June 30, 2014. Based on its
Inventory, end………………………….………… 140,000.00
experience with similar products, Yani estimated
Gross Sales…………………………………..…….. 860,000.00
Accounts Payable, beg…………………………...... 85,000.00
that the average warranty cost per unit sold would be
Cash purchases…………………………………….. 250,000.00 80.00. Actual warranty costs incurred from April 1
Sales return and allowances………………………. 10,000.00 through June 30, 2014 amounted to 700,000.00. On
Net Income after tax ……………………………... 52,500.00 June 30, 2014, what is the estimated warranty
Purchases return and allowances………………… 2,000.00 liability?
Operating Expenses………………………………. 100,000.00 a. 900,000 b. 1,600,000 c. 1,700,000 d. 3,300,000
Marketing Expenses……………………………… 25,000.00
Salaries payable…………………………………… 10,000.00 “A comfort zone is a beautiful place, but nothing ever
Payments of accounts payable before cash payment
grows in there.” – Anonymous
discount of 2,500.00…………………………….. 32,500.00
*****End of Lecture*****

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