IA2_Chapter 1
B
If a long-term debt becomes callable due to the violation of a loan covenant a. The debt may continue to be classified as noncurrent if the covenant can be renegotiated. b. The debt should be reclassified as current. c. Cash must be reserved to pay the debt. d. Retained earnings must be restricted.
A
All else equal, a large increase in unearned revenue in the current period would be expected to produce what effect on revenue in a future period? a. Large increase because unearned revenue becomes revenue when earned. b. Large decrease because unearned revenue implies that less revenue has been earned which reduces future revenue. c. No effect because unearned revenue is a liability. d Large decrease because unearned revenue indicates collection problems that will reduce net revenue in future period.
C
An entity had a loan due for repayment in six months' time, but the entity had the right to defer settlement for two years later. The entity planned to refinance this loan. In which section of the statement of financial position should this loan be presented? a. Current liabilities b. Current assets c. Noncurrent liabilities d. Noncurrent assets.
A
An entity had a note payable due next year. After the end of reporting period and before the issuance of the current year financial statements, the entity issued long-term bonds payable. Proceeds from the bonds were used to repay the note when due. How should the entity classify the note payable at current year-end? a. Current liability with separate disclosure of the note refinancing b. Current liability with no disclosure required c. Noncurrent liability with separate disclosure of the note refinancing d. Noncurrent liability with no separate disclosure required
D
An entity sells appliances that include a three-year warranty. Service calls under the warranty are performed by an independent mechanic under a contract with the entity. Based on experience, warranty costs are expected to be incurred for each machine sold. When should the entity recognize the warranty costs? a. Evenly over the life of the warranty b. When the service calls are performed c. When payments are made to the mechanic d. When the machines are sold
C
At the end of the current year, an entity received an advance payment of 60% of the sale price for special order goods to be manufactured and delivered within five months. At the same time, the entity subcontracted for production of the special order goods at a price equal to 40% of the main contract price. What liabilities should be reported in the year-end statement of financial position? a. None b. Deferred revenue equal to 60% of the main contract price and payable to subcontractor equal to 40% of the main contract price c. Deferred revenue equal to 60% of the main contract price and no payable to subcontractor d. No deferred revenue but payable to subcontractor is reported at 40% of the main contract price
D
At year-end, an entity classified a note payable as current liability. Under what condition could the entity reclassify the note payable from current to noncurrent? a. If the entity had the intent and ability to reclassify the note before the end of reporting period. b. If the entity had executed an agreement to refinance the note before issuance of the financial statements. c. If the entity had the intent and ability to reclassify the note before the issuance of the financial statements. d. If the entity had executed an agreement to refinance the note before the end of reporting period.
C
Black Company required nonrefundable advance payments with special orders for machinery constructed to customer specifications. The entity provided the following information for the current year: Customer advances-beginning of year (1,180,000) Advances received with orders (1,840,000) Advances applied to orders shipped (1,640,000) Advances applicable to orders canceled (500,000) What amount should be reported as current liability for advances from customers at year-end? a. 1,480,000 b. 1,380,000 c. 880,000 d. 0
A
Burma Company disclosed the following information about liabilities at year-end: Accounts payable, after deducting debit balances in suppliers' accounts amounting to P100,000 (4,000,000) Accrued expenses (1,500,000) Credit balances of customers' accounts (500,000) Share dividend payable (1,000,000) Claims for increase in wages and allowance by employees of the entity, covered in a pending lawsuit (400,000) Estimated expenses in redeeming prize coupons presented by customers (600,000) What total amount should be reported as current liabilities at year-end? a. 6,700,000 b. 6,600,000 c. 7,100,000 d. 7,700,000
15,650,000
Cavalier Company provided the following information on December 31, 2021: Accounts payable (6,500,000) Notes payable-bank (8,000,000) Interest payable (150,000) Mortgage note payable - 10% (2,000,000) Bonds payable (4,000,000) Bank notes payable include two separate notes payable to First Bank. A P3,000,000, 10% note issued March 1, 2020, payable on demand. Interest is payable every six months. A one-year, P5,000,000, 11% note issued January 2, 2021. On December 31, 2021, the entity negotiated a written agreement with First Bank to replace the note with a 2-year, P5,000,000, 10% note to be issued January 2, 2022. The 10% mortgage note was issued October 1, 2020 with a term of 10 years. Terms of the note give the holder the right to demand immediate payment if the entity fails to make a monthly interest payment within 10 days of the date the payment is due. On December 31, 2021, the entity is three months behind in paying the required interest payment. The bonds payable are 10-year, 8% bonds, issued June 30, 2012. Interest is payable semiannually on June 30 and December 31. Compute total current liabilities on December 31, 2021.
A
Christian Company had a bonus agreement which provided that the general manager shall receive an annual bonus of 10% of the income after bonus and tax. The income tax rate is 25%. The general manager received P300,000 for the current year as bonus. What amount should be reported as income before bonus and tax? a. 4,300,000 b. 4,000,000 c. 3,000,000 d. 3,700,000
C
Dean Company had a P2,000,000 note payable due June 30, 2022. On December 31, 2021, the entity signed an agreement to borrow up to P2,000,000 to refinance the note payable on a long-term basis. The financing agreement called for borrowing not to exceed 80% of the value of the collateral the entity was providing. On December 31, 2021, the value of the collateral was P1,500,000. On December 31, 2021, what amount of the note payable should be reported as current liability? a. 2,000,000 b. 1,500,000 c. 800,000 d. 500,000
14,100,000
Easy Company provided the following information on December 31, 2021: Notes payable: Trade (3,000,000) Bank loans (2,000,000) Advances from officers (500,000) Accounts payable (4,000,000) Bank overdraft (300,000) Dividends payable (1,000,000) Withholding tax payable (100,000) Mortgage payable (3,800,000) Income tax payable (800,000) Estimated warranty liability (600,000) Estimated damages payable by reason of breach of contract (700,000) Accrued liabilities (900,000) Estimated premium liability (200,000) Claim for increase in wages by employees covered in a pending lawsuit (3,500,000) Contract entered into for the construction of building (5,000,000) Compute total current liabilities on December 31, 2021.
C
Gar Company disclosed the following liability account balances on December 31, 2021: Accounts payable (1,900,000) Bonds payable (3,400,000) Premium on bonds payable (200,000) Deferred tax liability (400,000) Dividends payable (500,000) Income tax payable (900,000) Note payable, due January 31, 2022 (600,000) On December 31, 2021, what amount should be reported as current liabilities? a. 7,100,000 b. 4,300,000 c. 3,900,000 d. 4,100,000
A
Hart Company sells subscriptions to a specialized directory that is published semiannually and shipped to subscribers on April 15 and October 15. Subscriptions received after the March 31 and September 30 cut-off dates are held for the next publication. Cash from subscribers is received evenly during the year and is credited to deferred subscription revenue. Deferred subscription revenue-January 1 (1,500,000) Cash receipts from subscribers during the current year (7,200,000 ) What amount should be reported as deferred subscription revenue on December 31? a. 1,800,000 b. 3,300,000 c. 3.600,000 d. 5,400,000
D
How would the proceeds received from the advance sale of nonrefundable tickets for a theatrical performance be reported in the statement of financial position before the performance? a. Revenue for the entire proceeds b. Revenue to the extent of related costs expanded c. Unearned revenue to the extent of related costs expended d. Unearned revenue for the entire proceeds
C
Kent Company, a realty entity, maintains escrow accounts and pays real estate taxes for the mortgage customers. Escrow funds are kept in interest-bearing accounts. Interest income less a 10% service fee is credited to the mortgagee's account and used to reduce future escrow payments. The entity provided the following additional information for the current year. Escrow accounts liability, January 1 Escrow payments received Real estate taxes paid 1,580,000 1,720,000 50,000 Interest income on escrow funds What amount should be reported as escrow accounts liability on December 31? a. 510,000 b. 515,000 c. 605,000 d. 610,000
B
Magazine subscriptions collected in advance should be treated as a. A contra account to magazine subscriptions receivable b. Deferred revenue in the liability section c. Deferred revenue in the shareholders' equity section d. Magazine subscription revenue in the income statement in the period collected
8,100,000
Manchester Company provided the following information on December 31, 2021: Income taxes withheld from employees (900,000) Cash balance at First State Bank (2,500,000) Cash overdraft at Harbor Bank (1,300,000) Accounts receivable with credit balance (750,000) Estimated expenses of meeting warranties on merchandise previously sold (500,000) Estimated damages as a result of unsatisfactory performance on a contract (1,500,000) Accounts payable (3,000,000) Deferred serial bonds, issued at par and bearing interest at 12%, payable in semiannual installment of P500,000 due April 1 and October 1 of each year, the last bond to be paid on October 1, 2027. Interest is also paid semiannually. 5,000,000 Share dividend payable (2,000,000) Compute the total current liabilities on December 31, 2021.
1. 2,450,000 2. 2,000,000
Multiple Company provided the following information on December 31, 2021: Accounts payable after deducting debit balances in suppliers' accounts of P100,000 (500,000) Accrued liabilities (50,000) Note payable- due March 31, 2022 (1,000,000) Note payable-due May 1, 2022 (800,000) Bonds payable-due December 31, 2023 (2,000,000) On March 1, 2022 before the 2021 financial statements were issued, the note payable of P1,000,000 was replaced by an 18-month note for the same amount. The entity is considering similar action on the P800,000 note due on May 1, 2022. The financial statements were issued on March 31, 2022. 1. Compute total current liabilities. 2. Compute total noncurrent liabilities.
C
Nasaktan Company requires advance payments with special orders for machinery constructed to customer specification. These advances are non- refundable. Information for the current year is as follows: Advances from customers - January 1 1,180,000 Advances received with orders 1,840,000 Advances applied to orders shipped 1,640,000 Advances applicable to orders cancelled 500,000 What amount should be reported as current liability for advances from customers at year-end? a. 1,480,000 b. 1,380,000 c. 880,000 d. 0
3,700,000
On December 31, 2021, Glare Company provided the following information: Accounts payable, including deposits and advances from customer of P250,000 (1,250,000) Notes payable, including note payable to bank due on December 31, 2023 of P500.000 (1,500,000) Share dividend payable (400,000) Credit balances in customers' accounts (200,000) Serial bonds payable in semiannual installment of P500,000 (5,000,000) Accrued interest on bonds payable (150,000) Contested BIR tax assessment-possible obligation (300,000) Unearned rent income (100,000) Compute total current liabilities on December 31, 2021.
A
On December 31, 2021, Largo Company had a P750,000 note payable outstanding due July 31, 2022. The entity planned to refinance the note by issuing long-term bonds. Because the entity temporarily had excess cash, it prepaid P250,000 of the note on January 15, 2022. In February 2022, the entity completed a P1,500,000 bond offering. The entity will use the bond offering proceeds to repay the note payable at maturity. On March 31, 2022, the 2021 financial statements were authorized for issue. What amount of the note payable should be included in current liabilities on December 31, 2021? a. 750,000 b. 500,000 c. 250,000 d. 0
1. Current Liability 2. Current Liability 3. Non-current Liability 4. Current Liability
On December 31, 2021. Cordillera Company reported the following liabilities: Note payable- 9% (3,000,000) Note payable 8% (6,000,000) Note payable 10% (4,000,000) Note payable- 11% (5,000,000) The 9% note payable is noncancelable and matures on July 31, 2022. Sufficient cash is expected to be available to retire the note at maturity. The 8% note payable matures on May 31, 2027 but the creditor has the option of calling the note or demanding payment on June 30, 2022, However, the call option is not expected to be exercised given the prevailing market condition. The 10% note payable is due on March 31, 2023. A debt covenant requires Cordillera Company to maintain current assets at least equal to 150% of current liabilities. On December 31, 2021, Cordillera Company is in violation of this covenant. However, Cordillera Company obtained a waiver from the creditor until June 2022 having convinced the creditor that Cordillera Company's normal 2 to 1 ratio of current assets to current liabilities shall be reestablished during the first half of 2022. The 11% note payable matures on June 30, 2022. On January 31, 2022 before the issuance of the 2021 financial statements, the note payable was refinanced on a long-term basis. Explain the appropriate classification of the notes payable as current or noncurrent in the statement of financial position on December 31, 2021.
B
On the first day of each month, Bell Company received from Kaye Company an escrow deposit of P250,000 for real estate taxes. The entity recorded the P250,000 in an escrow account. Kaye's 2021 real estate tax is P2,800,000, payable in equal installments on the first day of each calendar quarter. On January 1, 2021, the balance in the escrow account was P300,000. On September 30, 2021, what amount should be reported as. an escrow liability? a. 250,000 b. 450,000 c. 850,000 d. 150,000
B
Ronald Company had an incentive compensation plan under which a branch manager received 10% of the branch income after deduction of the bonus but before deduction of income tax. Branch income for the current year before the bonus and income tax was P1,650,000. The income tax rate was 25%. What amount should be reported as bonus for the current year? a. 126,000 b. 150,000 c. 165,000 d. 180,000
b
Saunalang Company sells equipment service contracts that cover a two-year period. The sale price of each contract is P600. The past experience is that, of the total pesos spent for repairs on servicer contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second contract year. The entity sold 1,000 contracts evenly throughout 2015. What amount should be reported as deferred service revenue on December 31, 2015? a. 540,000 b. 480,000 c. 360,000 d. 300,000
C
Short-term obligations are reported as noncurrent if a. The entity has a long-term line of credit. b. The entity has tentative plan to issue long-term bonds payable. c. The entity has the right at the end of the reporting period to defer settlement of the liability for at least 12 months after the end of the reporting period. d. The entity has the ability to refinance on a long-term basis.
C
The most relevant measurement of liabilities at initial recognition should always reflect a. The expectation of the management b. Historical cost c. The credit standing of the entity d. The single most likely minimum possible amount
d
Umasa Company sells office equipment service contracts agreeing to service equipment for a two-year period. Cash receipts from contracts are credited to unearned service contract revenue and service contract costs are charged to service contract expense as incurred. Revenue from service contracts is recognized as earned over the lives of the contracts. Additional information for the current year is as follows: Unearned service contract revenue at January 1 520,000 Cash receipts from service contracts sold 980,000 Service contract revenue recognized 860,000 Service contract expense 520,000 What amount should be reported as unearned service contract revenue on December 31? a. 380,000 b. 400,000 c. 410,000 d. 640,000
B
Under a royalty agreement with another entity, an entity shall receive royalties from the assignment of a patent for four years. The royalties received in advance should be reported as revenue a. In the period received b. In the period earned c. Evenly over the life of the. royalty agreement d. At the date of the royalty agreement
B
What is the classification of debt callable by the creditor? a. Noncurrent liability b. Current liability c. Current liability if the creditor intends to call the debt within one year d. Current liability if it is probable that the creditor will call the debt within one year
A
Which does not meet the definition of a liability? a. The signing of a an employment contract at fixed salary b. An obligation to provide goods or services in the future c. A note payable with no specified maturity date d. An obligation that is estimated in amount
C
Which of the following is not an acceptable presentation of current liabilities? a. Listing current liabilities in the order of maturity b. Listing current liabilities according to amount c. Offsetting current liabilities against assets that are to be applied to their liquidation d. Showing current liabilities in the order of liquidation preference
B
Which of the following represents a liability? a. The obligation to pay for goods that an entity expects to order from suppliers next year b. The obligation to provide goods that customers have ordered and paid for during the current year c. The obligation to pay interest on a five-year note payable that was issued the last day of the year d. The obligation to distribute an entity's own shares