Chapter 1
Current Liabilities
PROBLEM 1: TRUE OR FALSE
1. FALSE
2. TRUE
3. TRUE
4. FALSE
5. TRUE
6. TRUE
7. FALSE
8. FALSE
9. TRUE
10. FALSE - minus
PROBLEM 2: FOR CLASSROOM DISCUSSION
1. A
2. C
3. Solution:
Accounts payable
Preference shares issued with mandatory
redemption
Utilities payable
Rent payable
15,000
100,000
16,000
9,000
140,00
0
Total financial liabilities
4. Solution:
Accounts payable
500,000
Held for trading financial liabilities
Current portion of Note payable
1
1,000,000
1,000,000
Unearned revenue
300,000
Dividends payable
800,000
Current liabilities
3,600,000
5. Solution:
Unadjusted accounts payable
2,200,000
40,00
0
(70,000
)
2,170,000
Shipment lost - FOB S.P.
Purchase returns
Adjusted accounts payable
6. Solution:
Currently maturing long-term debt (a)
5-year loan that is payable on demand (b)
Loan with breach of provision (b)
Current liabilities
10,000,000
6,000,000
14,000,00
0
30,000,000
(a)
“An entity classifies its financial liabilities as current when they
are due to be settled within twelve months after the reporting
period, even if:
a) the original term was for a period longer than twelve months,
and
b) an agreement to refinance, or to reschedule payments, on a
long-term basis is completed after the reporting period and
before the financial statements are authorised for issue.”
(PAS
1.72)
(b)
“When an entity breaches a provision of a long-term loan
arrangement on or before the end of the reporting period with the
effect that the liability becomes payable on demand, it classifies
the liability as current, even if the lender agreed, after the
reporting period and before the authorisation of the financial
2
statements for issue, not to demand payment as a consequence of
the breach. An entity classifies the liability as current because, at
the end of the reporting period, it does not have an unconditional
right to defer its settlement for at least twelve months after that
date.”
(PAS
1.74)
7. Solution:
Redemptions - prior
yr.
Redemptions - current
yr.
Estimate - not
redeemed
end
Unearned
revenue
ignored
2,000,00
ignored
0
1,400,00
0
beg.
2006
sales
200,000
400,000
8. Solution:
Total tax for the year (72,000 x 2)
Divide by: No. of months in a year
Monthly tax
144,000
12
12,000
April 1, 20x1
Land
xxx
Cash
Real property tax payable (12K x 3 mos.)
xxx
36,000
April 30, 20x1
Real property tax expense
Real property tax payable
12,000
12,000
3
May 1, 20x1
Real property tax payable
Prepaid real property tax
Cash
48,000
24,000
72,000
4
PROBLEM 3: EXERCISES
1. Solution:
a. Trade accounts payable gross of debit balance,
unreleased check, and postdated check
(600,000 + 10,000 + 8,000 + 4,000).
b. Advances from customers (Credit balance in
customers’ accounts)
c. Financial liability designated at FVPL
d. Current portion of bonds payable
e. Interest payable on note payable
(P200,000 x 12% x 3/12)
g. Unearned rent
Total current liabilities
P622,00
0
4,000
100,000
200,000
6,000
8,000
P940,00
0
2. Solution:
1,300,000
(40,000)
60,000
Unadjusted balance
(a)
(b)
(c)
1,320,000
Adjusted accounts payable
3. Solution:
Accounts payable and accrued interest
12% note payable issued Nov. 1, 2004 maturing July
1,
2006
10% debentures payable (current portion)
Total current liabilities
5
1,000,00
0
2,000,00
0
500,000
3,500,00
0
4. Solution: (2M + 5M) = 7,000,000
5. Solution: 2,000,000
6. Solution:
Plan
#1
#2
#3
Initial payment per
child
500
200
-
No. of
children
15
12
9
Multiply by: Unexpired portion
Unearned revenue
Total
7,500
2,400
9,900
8/12
6,600
7. Solutions:
20x1
20x2
40%
60%
First half (2M ÷ 2) 1M
Second half (2M÷2) 1M
400,000
40%
600,000
400,000
Earned portions
400,000
1,000,000
Percentage earned
- 1st yr.
Percentage earned
- 2nd yr.
20x3
Total
60%
600,000
600,000
2,000,000
Requirement (a): Current and noncurrent portions – December 31,
20x1
Current portion of deferred revenue
(earned portion in 20x2)
Noncurrent portion of deferred revenue
(earned portion in 20x3)
Total deferred revenue
(P1M less earned portion in 20x1 of P200,000)
6
P1,000,000
600,000
P1,600,000
Requirement (b): Service revenue – 20x2
Service revenue in 20x2 (600,000 + 400,000)
P1,000,000
8. Solution:
Advertising expense - December
35,000
Rent expense (120,000 x 1/2)
60,000
Contingent rent [(9M - 6M) x 5%]
150,000
Accrued liabilities
245,000
PROBLEM 4: MULTIPLE CHOICE – THEORY
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
D
A
D
B
A
D
C
A
A
B
PROBLEM 5: MULTIPLE CHOICE – COMPUTATIONAL
1. A – The currently maturing notes are classified as current
liabilities.
2. B (1M x 80%) = 800,000 noncurrent; (1M – 800K) = 200,000
current
3. D
Solution:
Accounts payable-trade
750,000
7
Short-term borrowings
Bank loan (breach of loan covenant)
Other bank loan, matures June 30, 20x2
Total current liabilities
400,000
3,500,000
1,000,000
5,650,000
4. D
Solution:
Redemptions - prior yr.
Redemptions - 20x3
Estimate of sales not to
be
redeemed
end.
Unearned revenue
ignored
ignored 250,000
175,000
beg.
Sales - 20x3
25,000
50,000
The gift certificates sold in 20x2 and their related redemptions are
ignored because they have expired during the current year.
Hence, they do not affect the year-end liability.
5. C (125,000 + 200,000 expiring in 20x4) + 140,000 expiring in
20x5 = 465,000 balance of unearned subscription revenue on
Dec. 31, 20x3
6. B
Solution:
Two equal installments of real estate tax
Multiply by: No. of installments in a year
Annual real estate tax
Divide by:
Real estate tax expense per month
12,000
2
24,000
12
2,000
Accrued tax on warehouse - July and Aug. (2,000 x
2)
Accrued tax - Sept. and Oct. (2,000 x 2)
Real estate tax payable
4,000
4,000
8,000
8
7. B
Solution:
Advances from
customers
118,000
Advances applied
Advances
cancelled
164,000
12/31/x0
88,000
184,000
1/1/x0
Advances 20x0
50,000
8. C
Solution:
Liability for escrow account
700,000 1/1/x9
Taxes
paid
1,720,000
1,580,000
45,000
12/31/x0
Escrow received
Interest, net (50K x
90%)
605,000
9. A
Solution:
Accounts payable, unadjusted
Add back: Debit balance
Add back: Undelivered check
Accounts payable, adjusted
360,000
50,000
100,000
510,000
10. C
Solution:
9
Liability for deposits
2004
returns
2005
returns
2006
returns
end
ignored
250,000
ignored
430,0
00
780,000
286,000
674,000
10
2004
deposits
2005
deposits
2006
deposits