Reference no: EM133292300

EXERCISES - Current Liabilities Problem 1:
1. A liability can result from past, present or future events.
2. A liability can exist even if the party to whom the obligation is owed is not specifically identified.
3. A long-term debt that is maturing within 12 months from the end of the reporting period is a current liability.
4. A currently maturing debt that the entity's management intends to refinance is presented as noncurrent.
- If refinancing is completed on or before the entity's reporting period, it is presented as noncurrent
- discretion
- grace period
5. Trade payables are normally presented as current liabilities.
6. Amortized cost liabilities are subsequently measured at the present value of the cash outflows from the instrument.
- you are computing the present value as of the given period
7. Entity A's long-term loan can be accelerated by the creditor if Entity A fails to maintain a current a current ratio of at least 2:1. At the reporting date, Entity A's current ratio is 3:1. The loan should be classified as a current liability.
- current asset : current liability or vice versa
- accelerated (payable on demand)
- no violation, favorable yung 3:1
8. A deferred tax liability that is expected to reverse within 12 months after the reporting period is presented as a current liability.
- deferred tax liability is ALWAYS presented as noncurrent liability regardless of reversal
9. Liabilities for cash dividends are normally presented as current liabilities unless the dividends are clearly due beyond twelve months after the reporting period.
10. Financial liabilities, except those that are classified as FVPL, are initially measured at fair value plus transaction costs.

Problem 2 - Financial Liabilities

Entity A's liabilities as of December 31, 2020 include the following:

Accounts payable	15,000
Preference shares issued with mandatory redemption	100,000
Unearned income	7,000
Utilities payable	16,000
Warranty obligation	7,000
Deferred tax liability	2,000
Philhealth contribution payable	5,000
Obligation to deliver a fixed number of own	12,000
shares worth a fixed amount of cash
Share dividends payable	3,000
Rent payable	9,000

Required: Compute for the total financial liabilities to be disclosed in Entity A's 2020 notes to the financial statements.

Problem 3 - Current Liabilities

Venerable Respected Co. has the following liabilities as of December 31, 2020.

a. Trade accounts payable, net of debit balance in supplier's account of P10,000, net of unreleased checks of P8,000, and net of postdated
checks of 4,000.

b. Credit balance in customers' accounts 4,000
c. Financial liability designated at FVPL 100,000
d. Bonds payable maturing in 10 equal annual installments of P200,000 2,000,000
e. 12%, 5-year note payable issued in Oct. 1, 2020 200,000
f. Deferred tax liability 10,000
g. Unearned rent 8,000
h. Contingent liability 20,000
i. Reserve for contingencies 50,000

Required: How much is the total current liabilities?

Problem 4 - Trade Payable

Kew Co.'s account payable balance at December 31, 2020 was P2,200,000 before considering the following data:
• Goods shipped to Kew FOB shipping point on December 22, 2020 were lost in transit. The invoice cost of P40,000 was not recorded by Kew. On January 7, 2021, Kew filed a P40,000 claim against the common carrier.

Purchases 40k Accounts payable 40k
• On December 27, 2020, a vendor authorized Kew to return, for full credit, goods shipped and billed at P70,000 on December 3, 2020. The returned goods were shipped by Kew on December 28, 2020. A P70,000 credit memo was received and recorded by Kew on January 5, 2021.

Accounts payable   40k
Purchase returns    40k

• Goods shipped to Kew FOB destination on December 20, 2020 were received and recorded on January 6, 2021. The invoice cost was P50,000.

Required: What amount should Kew report as accounts payable in its December 31, 2020 statement of financial position?

Problem 5 - Refinancing Agreement

Entity C's liabilities as of December 31, 2020 (current year-end) include the following:
• P10,000,000, 8-year loan maturing on December 31, 2021. Entity C intends to refinance this liability on a long-term basis on February 2, 2021. Entity C's financial statements were authorized for issue on March 31, 2021.
• P6,000,000 loan that is payable on demand. There is no indication as of December 31, 2020 that the creditor will demand repayment within the next 12 months.
• P14,000,000 loan due on December 31, 2028. Entity C breached a loan provision accelerating the repayment of this loan within the next 12 months. However, on January 12, 2021, the creditor granted Entity C a 12-month grace period to rectify the breach, within which the creditor will not demand immediate repayment.

Required: Compute for the total current liabilities as of December 31, 2020.

Problem 6 - Liabilities payable on demand

Eliot Corporation's liabilities at December 31, 2020 were as follows:

Accounts payable and accrued interest                                        2,000,000

5-year 10% Notes Payable - due December 31, 2023                                             5,000,000

Part of the loan agreement is for Elliot to appropriate a fixed amount out of its accumulated profits and losses annually until the amount of appropriation has equaled the face amount of the obligation. Non-compliance will render the note as payable on demand by the lender. As of December 31, 2020, Elliot Corporation has yet to comply with the loan agreement.

Required:

a. What amount of current liabilities should Elliot Corporation report in its December 31, 2020 statement of financial position?

b. Assume the lender agreed on December 31, 2020 to provide Elliot a grace period of 12 months to rectify the breach and within which, the lender will not demand payment. What amount of current liabilities should Elliot Corporation report in its December 31, 2020 statement of financial position?

Problem 7 - Unearned Income/Deferred Revenue

Gallery Department Store sells gift certificates redeemable for store merchandise. The certificates expire one year after their issuance. Gallery has the following information pertaining to its gift certificates sales and redemptions:

Unearned at December 31, 2019	600,000
2020 sales	2,000,000
2020 redemptions of prior-year sales	200,000
2020 redemptions of current-year sales	1,400,000

Gallery's experience indicates that 10% of gift certificates sold will not be redeemed.
Required: In its December 31, 2020 statement of financial position, what amount should Gallery report as unearned revenue?

Problem 8 - Liability for Deposits received

Kent Co., a division of National Realty, Inc., maintains escrow accounts and pays real estate taxes for National's mortgage customers. Escrow funds are kept in interest-bearing accounts. Interest, less a 10% service fee, is credited to the mortgagee's account and used to reduce future escrow payments.

Additional information follows:

Escrow accounts liability, 1/1/2020	P    700,000
Escrow payments received during 2020	1,580,000
Real estate taxes paid during 2020	1,720,000
Interest on escrow funds during 2020	50,000

What amount should Kent report as escrow accounts liability in its December 31, 2020 balance sheet?

Problem 9 - Liability for Deposits received

Inter Company sells its products in reusable, expensive containers. The customer charged deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery. Inter accounts for the containers not returned within the limit as being retired by sale at the deposit amount. Information for 2020 is as follows:
Deposits for containers at December 31, 2019 from deliveries in: 2018 150,000
2019 430,000 580,000

Deposits for containers delivered in 2020 780,000

2018                                                                 150,000

2019                                                         430,000     580,000

Deposits for containers delivered in 2020                            780,000

Deposits for containers returned in 2020 from deliveries in:

2018	90,000
2019	250,000
2020	286,000    626,000

What amount should Inter Company report as a liability for deposit in returnable containers at December 31, 2020?

Problem 10 - Accrued Expenses

Entity D acquired a piece of land on April 1, 2020. The purchase price was reduced by a credit for the real property taxes accrued during the year. Entity D records real property taxes at each month-end by adjusting the prepaid tax or tax payable account as appropriate. On May 1, 2020, Entity D paid the first of two equal installments of P72,000 for real property taxes.
What is the entry to record the payment on May 1?

Problem 11 - Accrued Expenses

Kemp Company must determine the December 31, 2020, year-end accruals for advertising and rent expense. A P50,000 advertising bill was received on January 7, 2021, comprising P35,000 for advertisements in December 2020 issues of a newspaper and P15,000 for advertisements in January 2021. A store lease, effective October 16, 2020, calls for a fixed rent of P120,000 per month, payable one month from the effective date and monthly thereafter. In addition, rent equal to 5% of net sales over P6,000,000 per calendar year is payable on January 31 of the following year. Net sales for 2020 were P9,000,000.

Required: How much are the accrued liabilities in the December 31, 2020 statement of financial position?

Problem 12 - Accrued Expenses
On July 1, 2019, Ran County issued a realty tax assessment for its fiscal year ended June 30, 2020. On September 1, 2019, Day Co. purchased a warehouse in Ran County. The purchase price was reduced by a credit for accrued realty taxes. Day did not record the entire year's real estate obligation, but instead records tax expenses at the end of each month by adjusting prepaid real estate taxes payable, as appropriate. On November 1, 2019, Day paid the first of two equal installments of P12,000 for realty taxes.

Required: What amount of this payment should Day record as a debit to real estate taxes payable?