Chapter 22

Current Liabilities

PROBLEM 22-1: TRUE OR FALSE

1. TRUE 6. TRUE
2. TRUE 7. FALSE
3. FALSE 8. TRUE
4. FALSE 9. TRUE
5. TRUE 10. TRUE

PROBLEM 22-2: TRUE OR FALSE

1. TRUE 6. TRUE
2. FALSE 7. FALSE
3. TRUE 8. FALSE
4. FALSE 9. TRUE
5. FALSE 10. TRUE

PROBLEM 22-3: MULTIPLE CHOICE – THEORY

1. B 6. D
2. C 7. A
3. A 8. D
4. A 9. D
5. D 10. A

PROBLEM 22-4: THEORY & COMPUTATIONAL

1. A

2. A

3. D

4. A

5. A

6. A

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7. D

8. A (500,000 + 800,000) = 1,300,000

An entity classifies its financial liabilities as current when they are due
to be settled within 12 months after the reporting period, even if:
a. the original term was for a period longer than 12 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 authorized for issue.

9. A (2,000,000 + 12,000,000 + 3,000,000) = 17,000,000

10. B The 2M note is classified as non-current.

11. D
Solution:
Unearned revenue
ignored* 12/31/2007
Redemptions - prior yr. ignored* 2,500,000 2008 sales
Redemptions - current yr. 1,750,000
Estimate - not redeemed
(10% x 2.5M) 250,000
12/31/2008 500,000

* The 2007 sales of gift certificates are ignored because the gift certificates
expire in one year – meaning, the 2007 sales will not affect the 2008 year-end
liability.

12. B (600 x 1,000) ÷ 2 = 300,000;

[(300,000 x 60%) + 300,000] = 480,000

13. A [(300,000 x 60%) + (300,000 x 40%)] = 300,000

14. C
Solution:
Unearned revenue
12/31/2007
6,000,000
Redemptions Redemption cost (2008
- prior yr. 2,750,000 1,800,000 sales) (2.250M x 80%)

12/31/2008 5,050,000

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15. C

Solution:
Escrow liability
900,000 beg.
Real estate taxes 1,900,00 1,500,00 Escrow payments
paid 0 0 received
81,000 Interest (90K x 90%)
end. 581,000

16. B
Solution:
Total tax in a year (600,000 x 2) 1,200,000
Divide by: No. of months in a year 12
Monthly tax 100,000
Multiply by: Accrued taxes payable (July to Oct.) 4
Debit to real estate taxes payable 400,000

17. C
Solution:
Customer advances
885,000 beg.
Advances applied 1,230,000 1,380,000 Advances received
Advances cancelled 375,000
Customer advances -
end. 660,000
Liability for refundable
deposit 375,000
Current liability 1,035,000

Although the ₱375,000 advance is cancelled, it remains a liability because it is

refundable.

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PROBLEM 22-5: 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
Short-term borrowings 400,000
Bank loan (breach of loan covenant) 3,500,000
Other bank loan, matures June 30, 20x2 1,000,000
Total current liabilities 5,650,000

4. D
Solution:
Unearned
revenue
ignored beg.
Redemptions - prior yr. ignored 250,000 Sales - 20x3
Redemptions - 20x3 175,000
Estimate of sales not to be
redeemed 25,000
end. 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 12,000
Multiply by: No. of installments in a year 2
Annual real estate tax 24,000
Divide by: 12
Real estate tax expense per month 2,000

Accrued tax on warehouse - July and Aug. (2,000 x 2) 4,000

Accrued tax - Sept. and Oct. (2,000 x 2) 4,000

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 Real estate tax payable 8,000

7. B
Solution:
Advances from
customers
118,000 1/1/x0
Advances Advances -
applied 164,000 184,000 20x0
Advances
cancelled 50,000
12/31/x0 88,000

8. C
Solution:
Liability for escrow account
700,000 1/1/x9
Taxes paid 1,720,000 1,580,000 Escrow received
45,000 Interest, net (50K x 90%)
12/31/x0 605,000

9. C
Solution:
Subscriptions expirations: Total
20x8 125,000 200,000
20x9 140,000
125,000 340,000 465,000

10. A
Solution:
Accounts payable, unadjusted 360,000
Add back: Debit balance 50,000
Add back: Undelivered check 100,000
Accounts payable, adjusted 510,000

11. B
Solution:
Total sales inclusive of sales tax (total credit) 26,500
Multiply by: 6%/106%
Total sales taxes collected 1,500
Remittance of sales tax in February (600)
Sales taxes payable 900

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12. B
Solution:
20x0 Room rentals Room nights
October - 1,100
November 110,000 1,200
December 150,000 1,800
Total 260,000 4,100
Multiply by: Tax 15% 2
Total 20x0 unpaid taxes 39,000 8,200

PROBLEM 22-6: EXERCISES

1. Solution:

Accounts payable 500,000

Held for trading financial liabilities 1,000,000
Current portion of Note payable 1,000,000
Unearned revenue 300,000
Dividends payable 800,000
Current liabilities 3,600,000

2. Solution:
Unadjusted accounts payable 2,200,000
Shipment lost - FOB S.P. 40,000
Purchase returns (70,000)
Adjusted accounts payable 2,170,000

3. Solution:
Accounts payable and accrued interest 1,000,000
12% note payable issued November 1, 2004 maturing July 1,
2006 2,000,000
10% debentures payable (current portion) 500,000

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 Total current liabilities 3,500,000

4. Solution:
14% term note, due 2009 30,000
8% note (current portion) - (1.1M / 11) 100,000
Current liabilities 130,000

5. Solution:
Long-term debt maturing currently 10,000,000
Note payable on demand 6,000,000
Serial bonds 1,000,000
Current liabilities 17,000,000

6. Solution: (2M + 5M) = 7,000,000

7. Solution: 2,000,000

8. Solution:

Unearned revenue
ignored beg.
Redemptions - prior yr. ignored 2,000,000 2006 sales
Redemptions - current yr. 1,400,000
Estimate - not redeemed 200,000
end 400,000

9. Solution:
Plan Initial payment per child No. of children Total
#1 500 15 7,500
#2 200 12 2,400
#3 - 9 -
9,900
Multiply by: Unexpired portion 8/12
Unearned revenue 6,600

10. Solution:
Advertising expense - December 35,000
Rent expense (120,000 x 1/2) 60,000

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 Contingent rent [(9M - 6M) x 5%] 150,000
Accrued liabilities 245,000

11. Solution:

Liability for deposits

ignored 2004 deposits
2004 returns ignored 430,000 2005 deposits
2005 returns 250,000 780,000 2006 deposits
2006 returns 286,000
end 674,000