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Problem 1-1

In an effort to increase sales, Mills Company inaugurated a sales promotional campaign

on June 30, 2013. The entity placed a coupon redeemable for premium in each
package of cereal sold. Each premium cost P20 and five coupons must be presented by
a customers to receive a premium. The entity estimated that only 60% of the coupons
issued would be redeemed. For the six months ended December 31,2013, the following
information is available.
Package of cereal sold Premiums purchased Coupons redeemed

160,000 12,000 40,000

What is the estimated liability for premiums on December 31,2013?
a. 160,000
b. 224,000
c. 288,000
d. 384,00

Problem 1-2

During 2013, Day Company sold 500,000 boxes of cake mix under a new sales
promotional program. Each box contained one coupon, to which entitled the customer to
a banking pan upon remittance of P40. The entity paid P50 per pan and P5 for handling
and shipping and estimated that 80% of coupons would redeemed, even though only
300,000 coupons had been processed during 2013. What amount should be reported
as a liability for unredeemed coupons on December 31, 2013?
a. 1,000,000
b. 1,500,000
c. 3,000,000
d. 5,000,000


In packages of the products, Curran Company included coupons that may presented at
a retail stores to obtain discounts on other Curran products. Retailers were reimbursed
for the face amounts of coupons redeemed plus 10% of that amount for handling costs.
The entity honored requests for coupon redemption by retailers up to three months after
the consumer expiration date. The entity estimated that 70% of all coupons issued
would ultimately be redeemed. The customer expiration date is December 31,2013. The
total face amount of coupons issued was P600,000 and the total payments to retailers
during 2013 amounted to P220,000. What amount should be reported as liability for
unredeemed coupons on December 31,2013.
a. 0
b. 200,000
c. 242,000
d. 308,000

Problem 1-4

Case Cereal Company distributed coupons to promote new products. On October

1,2013, the entity mailed 100,000 coupons for P45 of each box of cereal purchased.
The entity expected 12,000 of these coupons to be redeemed before December
31,2013 expiration date. It takes 30 days from the redemption date for the entity to
receive the coupons from the retailers. The entity reimbursed the retailers an additional
P5 for each coupon redeemed. On December 31,2013, the entity had a paid retailers
P250,000 related to these coupons and had 5,000 coupons on hand that had not been
processed for payment. What amount should be reported as liability for coupons on
December 31,2013.
a. 350,000
b. 290,000
c. 250,000
d. 225,000

Problem 1-5

Topsy Company started a new promotional program. For every 10 box tops returned,
customers receive a basketball. The entity estimate that the only 60% of the box tops
reaching the market would be redeemed. Additional information is as follow:
Units Amount

Sales of Product 100,000 30,000,000

Basketballs purchased 5,500 4,125,000
Basketball Distributed 4,000
What is the amount of the year-end estimated liability associated with this promotion?
a. 4,125,000
b. 1,500,000
c. 3,000,000
d. 4,500,000
Problem 1-6

Beginning 2013, Daisy Company began marketing a new beer called Serbesa. To help
promote the product, The management is offering a special Serbesa beer mug to each
customer for every 20 specially marked bottle caps of Serbesa, The emtity estimated
that out of the 300,000 bottles of Serbesa sold during 2013, only 50% of the marked
bottle caps would be redeemed. During 2013, the entity purchased 8,000beer mugs at a
total costs of P360,000 or P45 each. During the year, the entity already distributed
4,500 mugs to customers. What is the premium liability on December 31,2013?
a. 135,000
b. 337,500
c. 202,500
d. 360,000

Problem 1-7

Bare Company included one coupon in each box of laundry soap sold. A towel is offered
as a premium to customers who send in 10 coupons and a remittance of P20.
2013 2014
Coves of soap sold 500,000 800,000
Number of towel purchased (P100 per towel) 20,000 25,000
Coupons redeemed 140,000 200,000
The entity estimated that only 30% of the coupons would be redeemed.
What is the premium liability on December 31, 2014.
a. 500,000
b. 400,000
c. 320,000
d. 80,000

Problem 1-8

Love Company included one coupon in each package sold. A towel is offered as a
premium to customers who send in 10 coupons:
2013 2014

Package of cereal sold 500,000 800,000

Number of towels purchased at 40 per towel 30,000 60,000
Number of towel distributed as premium 20,000 50,000
Number of towels to be distributed as
premiumnext period 5,000 3,000

What amount should be reported as premium expense in 2014?

a. 2,400,000
b. 2,000,000
c. 2,120,000
d. 1,920,000
Problem 1-9

Claim Company offers the customers a pottery cereal bowl if they send in three boxtops
would be redeemed . In 2013, the entity sold 675,000 boxes and customers redeemed
330,000 boxtops receiving 110,000 bowls. The cost of each bowl is P25. What is the
liability for outstanding premium on December 31,2013.
a. 250,000
b. 375,000
c. 625,000
d. 875,000
Problem 1-10

Energy Company offered a cash rebate of P10 on each P40 package of batteries sold
during 2013. Historically, 10% of customers mail in the rebate form. During 2013,
6,000,000 packages of batteries are sold, and 210,000 P10 rebates are mailed to
customers. What amount of rebate expense and liability for rebates should be reported
respectively, on December 1,2014.
a. 6,000,000 and 6,000,000
b. 6,000,000 and 3,900,000
c. 3,900,000 and 3,900,000
d. 2,100,000 and 3,900,000

James Company, a grocery retailer, operates a customer loyalty program. The entity
grants program members loyalty points when they spend a specified amount on
groceries. Program members can redeem the points for further groceries. The points
have on expiry date. During 2013, the entity granted 10,000 points. Management
expects that 8,000 of these point will be redeemed. The fair value of each loyalty point
is estimated at P100. The sales during 2013 amounted to 8,000,000 including the
loyalty points. On December 31,2013, 4,000 points have been redeemed in exchange
for groceries. In 2014, the management revised its expectation and now expects 9,000
points to be redeemed altogether. During 2014, the entity redeemed 4,100 points. What
is the revenue earned from loyalty points for the year ended December 31,2014?
a. 100,000
b. 400,000
c. 500,000
d. 80,000

Problem 1-12

Jeane Company, a retailer of electrical goods, participates in a customer loyalty

program operated by an airline. The entity grants program members one air travel point
for every P1,000 spent on electrical goods. Program members can redeemed the points
for travel with the airline subject to availability. The entity pays the airline P90 for each
point. During 2013, the entity sold electrical goods for consideration totaling P5,000,000
and granted 5,000 points. The fair value of a point is P100. If the entity has collected the
consideration allocated to the point on its own account, What is the revenue to be
recognized in 2013 in relation to the points?
a. 500,000
b. 450,000
c. 50,000
d. 0

Program 1-13

Erika Company operates a customer loyalty program. The entity grants loyalty points for
goods purchased. The loyalty points can be used by the customers in exchange for
goods of the entity. The points have no expiry date. During 2013, the entity issued
50,000 award credits. The fair value of the award credit is reliably measured at
P2,000,000. In 2013, the entity sold goods to customers for a total consideration of
P9,000,000 including the fair value of the award credit. The total award credit expected
to redeem are 80% in 2013 and 85% in 2014.The award credit actually redeem are
15,000 in 2013 and 7,950 in 2014. What is the revenue earned from points in 2014.
a. 600,000
b. 750,000
c. 330,000
d. 318,000

Problem 1-14

Mill Company sells washing machines that carry a three-year warranty against
manufacturers defect. Based on the entitys experience, warranty costs are estimated
at P300 per machine. During the current year, entuty sold 2,400 washing machines and
paid warranty expense for the current year?
a. 170,000
b. 240,000
c. 550,000
d. 720,000

Problem 1-15

On April 1, 2013, Ash Company began offering a new product for sales under a one-
year warranty. Of 5,000 units in inventory on April 1,2013, 30,000 had been sold by
June 30,2013. Based on its experience with similar products, the entity estimated that
the average warranty cost per unit sold would be P80. Actual warranty costs incurred
from April 1 through June 30,2013 amounted to P700,000. On June 30,2013, What is
the estimated warranty liability?
a. 900,000
b. 1,600,000
c. 1,700,000
d. 3,300,000

Problem 1-16

During 2013, Rex Company introduce a new carrying a two-year warranty against
defects. The estimated warranty costs related to peso sales are 2% within 12 months
following sake and 4%in the second12 months following sale. Sale are P6,000,000 for
2013 and P10,000,000 for 2014. Actual warranty expenditures are 90,000 for 2013 and
P300,000 for 2014. On December 31,2014 what is the estimated warranty liability?
a. 570,000
b. 100,000
c. 450,000
d. 0

Problem 1-17

Bold Company estimated the annual warranty expense at 2% of annual set sales. The
net sales for 2013 amounted to 4,000,000. On January 1, 2013, the warranty liability
was P60,000 and the warranty payments during 2013 totaled P50,000. What is the
warranty liability on December 31,2013
a. 10,000
b. 70,000
c. 80,000
d. 90,000

Problem 1-18

Based Company manufactures high-end hone electronics system. The entity provides a
one-year warranty for all products sold. The entity estimated that the warranty cost is
P200 per unit sold and reported a liability for estimated warranty costs of P650,000 on
January 1, 2013. During the current year, the entity sold 5,000 units for total of
P9,000,000 and paid warranty claims of P750,000 on current and prior year sales. What
is the warranty liability on December 31,2013?
a. 250,000
b. 350,000
c. 900,000
d. 750,000

Problem 1-19

Edifice Company provides extended service contracts on electronic equipment sold

through major retailer. The standard contract is for three years. During the current year,
the entity provide 42,000 such warranty contracts at an average price of 81 each.
Related to these contracts, the entity spent P400,000 servicing the contracts during the
current year and expected to spend P2,100,000 more in future. What amount of net
income should be recognized in the current year related to these contracts?
a. 3,402,000
b. 1,134,000
c. 902,000
d. 734,000
Problem 1-20

Toyo Company owns a car dealership that it uses for servicing cars under warranty. The
entitys experience with warranty claims is that 60% of all cars sold in a year have zero
defect, and 15% of all cars sold in a year have significant defect. The cost of rectifying a
normal defect in a car is P10,000. The cost of rectifying a significant defect in a car is
30,000. The entity sold 500 cars during the year. What is the expected value of the
provision for warranty for the current year?
a. 3,500,000
b. 1,750,000
c. 1,400,000
d. 4,000,000

Problem 1-21

Chato Company sold electrical goods covered by a one-year warranty for any defects.
Of the sales of P70,000,000 or the year, the entity estimated that 3% will have major
defect,5% will have minor defect and 925 will have no defect. The costs of repairs would
be P5,000,000 if all the products sold had major defect and P3,000,000 if all had minor
defect. What amount should be recognized as a warranty provision?
a. 8,000,000
b. 5,600,000
c. 300,000
d. 190,000

Problem 1-22

Bizarre Company gives warranties at the time of sale to purchase of its product,
The entity undertakes to take good, by repair or replacement, manufacturing defects
that become apparent within one year from the date of sale. Sales of P10,000,000 were
made evenly throughout 2013. The expenditures for warranty repairs and replacement
for the products sold in 2013 are expected to be made 50% in 2013 and 50% in 2014.
The 2014 outflows of economics benefits related to the warranty will take place on June
The entity estimated that 95%of products sold require no warranty repairs,3% of
products sold require minors repair costing 10% of the sale price, and 2%of products
sold require major repairs or replacement costing 90%of sale price.
The appropriate discount factor for cash flows expected to occur on June 30,2014 is
0.94. An appropriate risk adjustment factor to reflect the uncertainties in the cash flow
estimates is an increment of 6% to theprobability-weighted expected cash flows. What
is the warranty provision on December 31, 2013.?
a. 210,000
b. 222,600
c. 111,300
d. 105,735

Problem 1-23

Humanizer Company gives warranties at the time of sale to purchasers of its product.
Under the terms of the sale,the entity undertakes to make good, by repair or
replacement, manufacturing defects that become apparent within one year from the
date of sale.
On December 31,2013, the entity appropriately recognized P50,000 warranty provision.
The entity incurred and charged P140,000 against the warranty provision in 2014. Out
of the P140,000, an amount of P80,000 related to warranties for sales made in 2014.
The increase during 2014 in the discounted amount recognized as a provision on
December 31,2013 arising from the passage of time is P2,000.
On December 31,2014, the entity estimated that would incur expenditures in 2015 to
meet its warranty obligations on December 231,2014 as follows :
5% probability of P400,000
20% probability of P200,000
50% probability of P 80,000
25% probability of P 20,000
Assume for simplicity that the 2015 cash flows for warranty repairs and replacements
take place on June 30,2015.
An appropriate discount rate is 10% per year. The PV of 1 at 10% for ane year is 0.91
and the PV of 1 at 10% for 6months is 0,95. An appropriate risk adjustment factor to
reflect the uncertainties in the cash flow estimate is an increment of 8% to the
probability-weighted expected cash flows.
What is the warranty expense to be recognized in 2014?
a. 107,730
b. 195,730
c. 187,730
d. 185.000
Problem 2-1

Cobb Department Store sells gift certificates redeemable only when merchandise is
purchased. These gift certificates have no expiration date. Upon redemption or
expiration, the entity recognizes the unearned revenue as realized.
Information for the current year as follows:
Unearned revenue, January 1,2013 650,000
Gift certificates sold 2,250,000
Gift certificates redeemed 1,950,000
Gift certificates expected not to be redeemed 100,000
Cost of Goods sold 6%
On December 31,2013, what amount should be reported as unearned revenue?
a. 510,000
b. 570,000
c. 850,000
d. 950,000

Problem 2-2

Regal Department Store sells gift certificates, redeemable for store merchandise and
with no expiration date. The entity has following information pertaining to the gift
certificate sales and redemption:
Unearned revenue on January 1,2013 750,000
2013 sales 2,500,000
2013 redemptions of prior year of sales 250,000
2013 redemption of current year sales 1,750,000
On December 31,2013, What amount should be reported as unearned revenue?
a. 1,250,000
b. 1,125,000
c. 1,000,000
d. 500,000
Problem 2-3

Marr Company sells its products in reusable containers. The customer is charged a
deposit for each container delivered and receives a refund for each container and
returned within two years after the year of delivery. The entity accounts for the
containers not returned within the time limit as being retired by sale at the deposit
amount. Information for 2013 is as follow:
Container deposits on December 31,2012 from deliveries in:
2011 150,000
2012 430,000 580,000
Deposit for containers delivered in 2013 780,000
On December 31,2013, what is the liability for deposits?
a. 494,000
b. 584,000
c. 674,000
d. 734,000
Problem 2-4

Fell Company operates retail grocery store that is required by law to collect refundable
deposit of P5 on soda cans. Information for the current year follows:
Liability for refundable deposit January 1 150,000
Cans of soda sold 100,000
Soda cans return 110,000
During current year, the entity subleased space and receive a P25,000 deposit to be
applied against rent at the expiration of the lease in 5years. What amount should be
reported as current liability for deposit on December 31?
a. 125,000
b. 140,000
c. 100,000
d. 25,000
Problem 2-5

Kent Company sells magazine subscription of one to three year periods. Cash receipt
from subscribers are credited to magazine subscriptions collected in advance, and this
account has a balance of P2,400,000 on December 31,2013 expires as follow:

During 2014 600,000

During 2015 900,000
During 2016 400,000
On December 31,2013, what amount should be reported as magazine subscription
collected in advance?
a. 500,000
b. 1,200,000
c. 1,900,000
d. 2,400,000

Problem 2-6

Greene Company sells office equipment service contracts agreeing to service

equipment for two-year period. Cash receipt from contracts are credited to unearned
service contract revenue and service contract cost 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 year ended December 31,2013 is as
Unearned service contract revenue at January 1 600,000
Cash receipt from service contract 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
a. 460,000
b. 480,000
c. 490,000
d. 720,000
Problem 2-7

Ryan Company sells major household appliance service contracts for cash. The service
contracts are for a one-year, two-year, or three-year period. Cash receipt from contract
are credited to unearned service contact revenue. This account has a balance of
P720,000 on December 31,2013 before year-end adjustment. Service contract costs
are charged as incurred to the service contract expense account, which has a balance
of P180,000 on December 31,2013 outstanding service contracts on December 21,2013
expire as follows:
During 2014 150,000
During 2015 225,000
During 2016 100,000
What amount should be reported as unearned service contract revenue on December
a. 540,000
b. 475,000
c. 295,000
d. 245,000

Problem 2-8

Dunne 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 service contracts, 40% evenly during the second contract year. The entity
sold 1,000 contract evenly throughout 2013.What amount should be reported as
deferred service revenue on December 31,2014?
a. 540,000
b. 480,000
c. 360,000
d. 300,000

Problem 2-9

Cobb Company sells appliance service contract ageing to repair appliances for a two-
year period. The past experience is that, of the total amount spent for repairs on service
contract, 40%is incurred evenly during the first contract year and 60% evenly during the
second contract year. Receipt from service contract sales are P500,000 for 2013 and
P600,000 for 2014.Receipet from contract are credited to unearned service contract
revenue. All sales are made evenly during the year. What amount should be reported as
unearned revenue on December 31,2014?
a. 360,000
b. 470,000
c. 480,000
d. 630,000

Problem 2-10

Hart Company sells subscription to a specialized directory that is publish semiannually

and shipped to subscribers on April 15 and October 15.Subscription received after the
March 31 and September 30 cut-off dates are held for the next year and is credited to
deferred revenue from subscriptions. Data relating to 2013 are as follows:
Deffered revenue from subscription-January 1 1,500,000
Cash receipt from subscribers 7,200,000
On December 31,2013, what amount should be reported as deferred revenues
a. 1,800,000
b. 3,300,000
c. 3,600,000
d. 5,400,000

Problem 2-11

Anette Video Company sells 1-amd 2-year subscription for its video of the
month business. Subscription are collected in advance and credited to sales.
An analysis of the recorded sales activity revealed the following:

2013 2014
Sales 420,000 500,000

Less cancelation 20,000


Net sales 400,000 470,000

Subscription expiration:

2013 120,000

2014 155,000
2015 125,ooo

2016 140,000

400,000 470,000

On December 31,2014, what amount should be reported as unearned

subscription revenue?

a. 495,000
b. 470,000
c. 465,000
d. 340,000

Problem 2-12

Dunn Company records stamp service revenue and provides for the cost of
redemptions in the year stamps are sold to license. The past experience indicates that
the only 80% of the stamps sold to license would be redeem. The liability for stamp
redemption was P6,000,000 on January 1,2013. Additional information for 2013 is as
Stamp service revenue from stamps sold to license 5,000,000
Cost of redemption of stamps sold prior to 1/1/2013 2,750,000
If all the stamps sold in 2013 were presented for redemption in 2014, the redemption
cost would be P2,259,000. What amount should be reported as a liability for stamp
redemption on December 31, 2013.
a. 7,250,000
b. 5,500,000
c. 5,050,000
d. 3,250,000

Problem 2-13

Gail Company manufactures furniture upholstery according to specification. A

nonrefundable deposit of 10% of the contract price is require from the customers. The
deposit is credited to a customers advances account which has a balance of P850,000
on January 1, 2013. In 2013, the entity received and accepted orders with the total
contract price of 12,400,000. On December 31, 2013, the entity had already made
shipments to customers of 9,650,000 while orders for P1,200,000 were canceled and
sales of 890,000 were returned for minor design modifications. What is the balance of
the customers advance on December 31,2013?
a. 1,125,000
b. 1,005,000
c. 1,036,000
d. 916,000

Problem 2-14

Black Company requires advance payments with special orders for machinery
constructed to customers specifications. These advances are non refundable.
Information for the current year as follow:
Advance from customer- January 1 1,180,000
Advance received with orders 1,840,000
Advance applied to orders shipped 1,640,000
Advance applicable to orders canceled 500,000
What amount should be reported as current liability for advances from customers at

a. 1,480,000
b. 1,380,000
c. 880,000
d. 0

Problem 2-15

Lovie Company offers three payments on September 1, 2013, and 324,000 of monthly
fees during the period September 1 though December 31,2013. On December 31,2013,
what amount should be reported as deferred revenue?
a. 330,000
b. 438,000
c. 660,000
d. 990,000

Problem 3-1

Kemp Company must determine the December 31,2013 accruals for advertising and
rent expense. A P50,000 advertising bill was received January 7, 2014, comprising cost
of P35,000 for advertisements in December 2013 issues, and P15,000 for
advertisements in January 2014 issues of the news paper.
A Store lease, effective December 16,2013,calls for 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 2013 totaled P9,000,000. On December 31,2013,
what amount should be reported as accrued liabilities?
a. 260,000
b. 185,000
c. 210,000
d. 245,000

Problem 3-2

Sonia Company reported gross payroll of P600,00 for the month of January. The entity
paid the payroll net of the following deduction:
Income tax 70,000
SSS 10,000
Philhealth 5,000
Pagibig 7,000
In addition, the entity recognized its additional contribution for the following in relation to
January payroll:
SSS 15,000
Philhelath 6,000
Pagibig 8,000
What is the total payroll tax liability?
a. 121,000
b. 70,000
c. 92,000
d. 29,000
Problem 3-3

Chester Company reported payroll for the month of January 2013 as follows:
Total wages 500,000
Income tax withheld 60,000
All wages paid were subject to SSS. The SSS tax rates were 7% each for employee
and employer. Chester remits payroll taxes on the 5 th of the following month. In the
financial statements for the month ended January 31,2013, What amount should be
reported respectively as total payroll tax liability and payroll tax expense?
a. 60,000 and 70,000
b. 95,000 and 70,000
c. 95,000 and 35,000
d. 135,000 and 35,000

Problem 3-4

Miyuki Company operates a retail store. All items are sold subject to a12% value added
tax., which entity collects and record sales revenue. The entity files quarterly sales tax
returns when due by the twentieth day following the end of the sales quarter. However,
in accordance with state requirements, the entity remits value added tax collected
by the twentieth day of the month following any month such collection exceed P50,000.
The entity takes this payments as credits on the quarterly sales tax return. The value
added taxes paid by the entity are charged against sales revenue. Following is a
monthly summary appearing in the first quarter 2013 sales revenue account:
Debit Credit
January - 560,000
February 60,000 393,000
March - 448,000
On March 31,2013, what amount should be reported as value added taxes payable?
a. 150,000
b. 168,000
c. 108,000
d. 90,000

Problem 3-5
Marie Hotel collects 15% in city sales taxes on room rental in addition to a P200 per
room, per night, occupancy tax. Sales taxes for each month are due at the end of the
following month, and occupancy taxes are due fifteen days after the end of each
calendar quarter. On January 3,2014, the entity paid the November 2013 sales taxes
and the fourth quarter 2013 occupancy taxes. Additional information for the fourth
quarter of 2013 is as follow:
Room rentals Room nights
October 1,000,000 1,100
November 1,100,000 1,200
December 1,500,000 1,800
What amount should be reported respectively as sales taxes payable and occupancy
taxes payable on December 31,2013?
a. 390,000 and 600,000
b. 390,000 and 820,000
c. 540,000 and 600,000
d. 540,000 and 820,000
Problem 3-6

Under state law, Stephen Company may pay 3% of eligible gross wages or it may
reimburse the state directly for actual unemployment claims. The entity believes that
actual unemployment claims will 2% of eligible gross wages and has chosen to
reimburse the state. Eligible gross wages are defined as the first P100,000 of gross
wages paid to each employee. The entity had five employees, each of whom earned
P200,000 during 2013. On December 31,2013, what amount should be reported as
liability for unemployment claims?
a. 10,000
b. 15,000
c. 20,000
d. 0

Problem 3-7

Aubrey Company has a 12-month accounting period ending December 31. On April 1,
2013.It introduce a new contractual bonus scheme covering the year to March 31 each
year. It is reasonably anticipated that the bonuses for the year to March 31,2014 will
amount to P900,000. What amount of liability bonuses should be recorded on
December 31?
a. 225,000
b. 900,000
c. 675,000
d. 0

Problem 3-8

Ronald Company has an incentive compensation plan under which 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 tax rate is 301%. What is the bonus of the current year?
a. 126,000
b. 150,000
c. 165,000
d. 180,000

Problem 3-9

After three profitable year. Cairo Company decided to offer a bonus to the branch
manager of 25% of income over P1,000,000 earned by the branch. The income for the
branch was P1,600,000 before tax and bonus for the current year. The bonus s
computed on income in excess of P1,000,000 after deducting the bonus but before
deducting excess of 1,000,000 after deducting the bonus but deducting tax. What is the
bons if the branch manager for the current year?
a. 120,000
b. 150,000
c. 250,000
d. 320,000

Problem 3-10

The bonus agreement of Christian Company provides that the general manager shall
receive an annual bonus of 10% of the net income after bonus and tax. The income tax
rate is 30%. The general manager received P280,000 for the current year as bonus.
What is the income before bonus and tax?
a. 262,500
b. 250,000
c. 177,536
d. 186,548

Problem 3-11

Tobruk Company has an agreement to pay its sales manager a bonus of 5% of the
income after bonus and after tax. The income for the year before bonus and tax is
P5,250,000. The tax rate is 30% of income after bonus. What is the bonus of the year?
a. 262,500
b. 250,000
c. 177,536
d. 186,548

Problem 3-12

On July 1, 2013, the Quezon City government issued realty tax assessment for the
fiscal year ended June 30,2014. On September 1, 2013, Zuma Company purchased a
land in Quezon City. The purchase price was reduced by a credit for accrued reality
taxes. The entity does not record the entire years real estate tax obligation but instead
records tax expense at the end of each month by adjusting prepaid real estate taxes or
real estate taxes payable as appropriate. O November 1,2013, the entity paid the first
of two equal installments of P600,000 for real taxes. What amount of the payment
should be recorded as a debit to real estate taxes payable?
a. 200,000
b. 400,000
c. 500,000
d. 600,000

Problem 3-13

Leslie Company pays all salaries employees on a Monday for the five-day work week
ended the previous Friday. The last payroll recorded for the year ended December
31,2013 was for the week ended December 25, 2013. The payroll for the week ended
January 1,2014 included regular weekly salaries of P80,000 and vacation pay P25,000
for the vacation time earned in 2013 not taken by December 31,2013. The entity has
accrued a liability of P10,000 for a vacation pay on December 31,2012. On December
31,2013, what amount should be reported as accrued salary and vacation pay ?
a. 64,000
b. 68,000
c. 69,000
d. 89,000
Problem 3-14

Kent Company, a division of National Realty Corporation maintains escrow accounts

and pays real estate taxes for Nationals mortgage customers. Escrow fund are kept in
interest-bearing accounts. Interest, less a 10% service fee, is credited to the mortagees
account and use to reduce future escrow payments.
Escrow accounts liability- January 1 700,000
Escrow payments received during the year 1,580,000
Real Estate taxes paid during the year 1,720,000
Interest on escrow funds 50,000
What is escrow accounts liability on December 31?
a. 510,000
b. 515,000
c. 605,000
d. 610,000

Problem 3-15

On the first day of each month, Bell Company received from Kent Company an escrow
deposit of P250,000 for real estate taxes. Bell Company recorded the P250,000 in an
escro account. The 2013 real estate tax is P2,800,000, payable in equal installment on
the first day each calendar quarter. On January 1,2013, the balance in the escrow
account was P300,000, On September 30,2013, What amount should be reported as
escrow liability?
a. 1,150,000
b. 450,000
c. 850,000
d. 150,000