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    Problem 1-10 (AICPA) : Solution

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    Ella Rence Tablizo
    Farr Company charges customers deposits for reusable containers. As of December 31, 2020 there were 337,000 in outstanding deposits based on containers delivered in 2018-2020 that had not yet been returned. Black Company requires advance payments for special machinery orders. As of year-end, there was 880,000 in outstanding advances from customers based on advances received minus those applied to shipped and canceled orders. Kent Company maintains escrow accounts for mortgage customers and pays real estate taxes. As of December 31, the escrow accounts liability was 605,000 based on payments received, taxes paid, and interest earned on the accounts throughout the year.

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    Problem 1-10 (AICPA) : Solution

    Uploaded by

    Ella Rence Tablizo
    4K views3 pages
    Farr Company charges customers deposits for reusable containers. As of December 31, 2020 there were 337,000 in outstanding deposits based on containers delivered in 2018-2020 that had not yet been returned. Black Company requires advance payments for special machinery orders. As of year-end, there was 880,000 in outstanding advances from customers based on advances received minus those applied to shipped and canceled orders. Kent Company maintains escrow accounts for mortgage customers and pays real estate taxes. As of December 31, the escrow accounts liability was 605,000 based on payments received, taxes paid, and interest earned on the accounts throughout the year.

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    Problem 10-12

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    Farr Company charges customers deposits for reusable containers. As of December 31, 2020 there were 337,000 in outstanding deposits based on containers delivered in 2018-2020 that had not yet been returned. Black Company requires advance payments for special machinery orders. As of year-end, there was 880,000 in outstanding advances from customers based on advances received minus those applied to shipped and canceled orders. Kent Company maintains escrow accounts for mortgage customers and pays real estate taxes. As of December 31, the escrow accounts liability was 605,000 based on payments received, taxes paid, and interest earned on the accounts throughout the year.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    4K views3 pages

    Problem 1-10 (AICPA) : Solution

    Uploaded by

    Ella Rence Tablizo
    Farr Company charges customers deposits for reusable containers. As of December 31, 2020 there were 337,000 in outstanding deposits based on containers delivered in 2018-2020 that had not yet been returned. Black Company requires advance payments for special machinery orders. As of year-end, there was 880,000 in outstanding advances from customers based on advances received minus those applied to shipped and canceled orders. Kent Company maintains escrow accounts for mortgage customers and pays real estate taxes. As of December 31, the escrow accounts liability was 605,000 based on payments received, taxes paid, and interest earned on the accounts throughout the year.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Problem 1-10 (AICPA)

    Farr Company sells products with reusable and expensive containers. The customer is charged
    a deposit for each container delivered and receives a refund for each container returned within
    two years after the year of delivery.

    Containers held by customers on January 1, 2020 from deliveries in:

    2018 75,000
    2019 215,000 290,000
    Containers delivered in 2020 390,000

    Containers returned in 2020 from deliveries in:

    2018 45,000
    2019 125,000
    2020 143,000 313,000

    Required: What is the liability for deposits on December 31, 2020?

    ANSWER: P 337,000

    Solution:

    Liability
    P 290,000 12/31 /19 balance
    390,000 2020 deliveries
    2020 returns P 313,000
    2020 sales 30,000

    P 337,000 12/31 /20 balance

    Explanation:

    When customers pay the deposit for a container, cash is debited and the liability is credited.
    Therefore, at 12/31/19, the liability consists of deposits for containers still held by customers
    from the last two years P 290, 000. During 2020, the liability is increased for deposits on
    containers delivered P 390, 000. When containers are returned, the deposits are returned to
    the customers; in 2020, the liability was debited and cash credited for P 313, 000 . Also,
    at 12/31/20, some customers still held containers from 2016 (P 75,000 – P 45,000 = P
    30,000). The two-year time limit has expired on these, so the company no longer is obligated to
    return the deposit. The containers are considered sold to the customers, so the liability
    account is debited and sales credited for P 30,000. These transactions result in a 12/31/98
    liability balance of P 337,000.

    Problem 1-11 (AICPA)


    Black Company required non-refundable 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 applied to orders canceled 500,000

    What amount should be reported as current liability for advances from customers at year-end?

    ANSWER: P 880,000

    Solution:

    Beginning balance P 1,180,000


    Advances received with orders 1,840,000
    Total P 3,020,000
    Advances applied to orders shipped (1,640,000)
    Advances applied to orders canceled (500,000)
    Year-end balance P 880,000

    Explanation:

    When advances are received P 1,840,000 cash is debited and the liability account is credited.
    When advances are applied to orders shipped P 1,640,000 the liability account is debited and a
    sale is credited. When an order is cancelled P 500,000, the liability account is debited and
    either cash or a revenue account is credited, depending upon whether or not the
    deposit is returned to the customer

    Problem 1-12 (AICPA)

    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, 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 1 700,000


    Escrow payments received 1,580,000
    Real estate taxes paid 1,720,000
    Interest on escrow funds 50,000

    What amount should be reported as escrow accounts liability on December 31?

    ANSWER: P 605,000
    Solution:

    Escrow accounts liability, January 1 P 700,000


    Escrow payments received 1,580,000
    Real estate taxes paid (1,720,000)
    Interest on escrow funds (P 50-000- P 5,000) 45,000
    Accounts liability on December 31 P 605,000

    Explanation:

    The liability at the beginning of the year was P 700,000. Escrow payments of P 1,580,000 were
    credited and taxes paid of P 1,720,000 were debited to the account during the year.
    Furthermore, interest of P45, 000 [P50, 000 – (P50,000 × 10%) service fee] was credited. Thus,
    the year-end balance was P605, 000 (P700,000 + P1,580,000 – P 1,720,000 + P 45,000).

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