RsSA: The Review School ofAccountancy Page 2 of 15

3. How much is the total liabilities?

a. 2,177,3A0 b. 2,L27,3OO c. 2,246,30O d. 2,252,3OO

eBgBlEr{-a You are auditing the 2O14 liabilities of Bat Inc. which follows the calendar year financial
statements reporting. The following information were available with regards to its currently maturing
obligations:

a- OnDecember3L,2QL4,BatInc.hadPlMofshort-termnotespayabledueFebruaryT,ZOL5. On
lanuary 15, 2015f the company issued bonds with a face value of PgO0rOOo at 96; brokerage fees
and other costs of issuance were P3,450. On January 22t 2al5t the proceeds from the bond
issue plus additional cash held by the company on December 31, 2014 were used to liquidate the
PlM of short-term notes.

b. Another short-term debt in the form of notes payable totaling

to p5OO,O0O were due on June 1,
2A15. On February 2, 2O75t Batali entered an agreement with National Life Insurance Co.
whereby National will lend Batali P4OO,0OO payable in 5 years
at 14olo, the proceeds of which is
intended to be used to partly refinance the said notes The money will be available to the
cornpany on May 2A,2A15.

c- Another PSOO,OOO notes payable is due on June 15, 2015. At the financial statement date
December 31t 2a14t Batali signed an agreement to borrow up to PSOOrOoo to refinance the notes
payable on a long-term basis. The financing agreement called for borrowings not to exceed gO
Per cent of the value of the collateral Batali was providing. At the date of issue of the December
31, 2O!4 finanical statements, the value of the collateral was P6OOTOO0 and was not expected to
fall below this amount during 2015.

Assuming that the financial statements of Batali were authorized to be issued on March 31, 2O15:

4. How much liabilities above are short term as of the balance sheet date?
a. 1,500,000 b. 1,52O,O00 c. 1,980,000 d. Z,OOO,0OO

5. How much liabilities above are long term as of the balance sheet date?
a. 2.000.000 b. 1,500.000 c. 980 C00 d.480,000
fl
E$99LEU-X Rado Inc- a manufacturerof heavy machinery, grants a 2-year warranty on its products.
The Estimated Liability for Product Warranty account shows tfre following entries for the year:

Beginning balance P225,000

Provision during the year (quarterly accrual) 200,-qQQ
Total Pi25-0qo
A review of the company's policy of accounting for warranties revealed that based on the company,s
past
experience, warranty claims averaged 5olo on net sales- Moreover, the company provides for. quarterly
a
accrual of the estimated warranties expenditure based on rough estimates.

The following additional information is available from the company,s records:

.
P7,250,000
Gross sales
Sales returns and allowances 150,000
Cost of sales 3,678,000
The cost of sales included P415/500 cost of servicing the warranty claims for the year.

6' what is the correct balance of the es_t]T_ated liability for product warranty at the end of the year?
a. P164,5O0. c. p355,000.
b. 264,500. d. P364,500.

PROBLEM 4: SAN MIG CORP. began operation on January 21 2oL4 with 250 employees. The company
provides its employees 2 weeks paid sick leave and 2 weeks paid vacation leave for every operating yea,:,
The company's policy on sick leave and vacation leave allows each employee to carry over accumulated
leaves for the current period over the next year only. The same shall be forfeited if not availed of over
the said period allowed.

On December 31, 2a14, records show that there are 55 employees who are yet to avail of any leaves,
while there are 25 employees who have remaining 2 weeks unused vacation and sick leaves combined.
Employees had an average daily wage rate of P250 for a 5-day weekly operation in 2014.

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