Prelim Lecture 1 Assignment

Multiple Choice
Identify the choice that best completes the statement or answers the question.

_d__ 1. Sonia Company reported gross payroll of P600,000 for the month of January. The entity paid the payroll net
of the following deductions:
Income tax 70,000
SSS 10,000
PhilHealth 5,000
PagIbign 7,000
In addition , the entiy recognized its additional contributions for the following in relation to January payroll:
SSS 15,000
PhilHealth 6,000
Pagibig 8,000
How much is the total current liability ?
a. 70,000 c. 92,000
b. 29,000 d. 121,000

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% is
incurred evenly during the first contract year and 60% evenly during the second contract year . The entity sold
1,000 contracts evenly throughout 2020 .

__a_ 2. What amount should be reported as deferred service revenue on December 31, 2020?
a. 480,000 c. 360,000
b. 540,000 d. 300,000
_d__ 3. What is the contract revenue for 2020 ?
a. 300,000 c. 150,000
b. 240,000 d. 120,000
_a__ 4. Kent Company , a division of National Realty Corporation maintains an escrow account and pays real 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.
Escrow account 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 the escrow account liability on December 31 ?
a. 605,000 c. 510,000
b. 610,000 d. 515,000
_c__ 5. Gail Company manufactures furniture upholstery according to specifications. A nonrefundable seposit of 10%
of the contract price is required from customers. This deposit is credited to a customer’s advances account
which has a balance of P850,000 on January 1, 2015 .
In 2015 , the entity received and accepted orders with a total contract price of P12,400,000 . On December
31, 2014 , the entity had already made shipments to customers of P9,650,000 while orders for P1,200,000
were canceled and sales of P890,000 were returned for minor design modifications.
What is the balance of the customer’s advances on December 31, 2015 ?
 a. 1,036,000 c. 1,005,000
b. 916,000 d. 1,125,000
_d__ 6. 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 returned within 2 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.
The entity provided the following information for 2020:
Container deposits on December 31, 2019 from deliveries in :
2018 150,000
2019 430,000 580,000
Deposits for containers delivered in 2020 780,000
Deposits for containers returned in 2020 from deliveries in :
2018 90,000
2019 250,000
2020 286,000 626,000
On December 31, 2020 , what is the liability for deposits ?
a. 584,000 c. 734,000
b. 494,000 d. 674,000
_c__ 7. Kemp Company must determine the December 31, 2020 accruals for advertising and rent expense.
A P50,000 advertising bill was received on January 7, 2021 , comprising costs of P35,000 for advertisements
in December 2020 issues, and P15,000 for advertisements in January 2021 issues of the newspaper.
A store lease , effective December 16,2020, 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 2020 totaled P9,000,000 .
On December 31, 2020 , what amount should be reported as acrrued liabilities ?
a. 185,000 c. 245,000
b. 260,000 d. 210,000
_d__ 8. Black Company requires advance payments with special orders for machinery constructed to customer
specifications. These advances are nonrefundable. Information for the current year is as follows:
Advances from customers- Jan 1 1,180,000
Advances received with orders 1,840,000
Advances applied to orders shipped 1,640,000
Advances applicable to orders canceled 500,000
What amount should be reported as current liability for advances from customers at year end?
a. 1,380,000 c. 0
b. 1,480,000 d. 880,000
__d_ 9. Weaver Company sells magazine subscriptions for a 1 year , 2 year or 3 year period . Cash receipts from
subscribers are credited to magazine subscriptions collected in advance and this account had a balance of
P1,700,000 on January 1, 2020 . Information for the current year is follows:
Cash receipts from subscribers 2,100,000
Magazine subscriptions revenue credited on 1,500,000
December 1, 2020
On December 31, 2020 , what amount should be reported as the balance for magazine subscriptions collected
in advance ?
a. 2,100,000 c. 1,900,000
b. 1,400,000 d. 2,300,000
__c_ 10. ABC Company has an agreeement 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 income tax rate is 30% of income after
bonus .
What is the bonus for the year ?
a. 250,000 c. 262,500
b. 186,548 d. 177,536
_b__ 11. In November and December 2015 , Dorr Company , a newly organized magazine publisher , received
P720,000 for 1000 3 year subscriptions at P240 per year, starting with the January 2016 issue. The entity
selected to include the entire P720,000 in the 2015 income tax return .

What amount should be reported in the income statement for subscription revenue for 2015 ?
a. 720,000 c. 240,000
b. 0 d. 40,000
__b_ 12. Cobb Company sells appliance service contracts agreeing to repair appliances for a two year period. The past
experience is that of the total amount spent for repairs on service contracts , 40% is incurred evenly during the
first contract year and 60% evenly during the second contract year . Receipts from service contract sales are
P500,000 for 2019 and P600,000 for 2020 . Receipts from contracts 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, 2019 ?
a. 400,000 c. 480,000
b. 630,000 d. 470,000
_c__ 13. 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 escrow account.
The 2020 real estate taxes is P2,800,000, payable in equal installments on the first day of each calendar
quarter.
On January 1, 2020 , the balance in the escrow account was P300,000.
On September 30, 2020 , what amount should be reported as escrow liability?
a. 1,150,000 c. 450,000
b. 850,000 d. 150,000
_c__ 14. Ronald Company has an incentive compensation plan under which a 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 30%.
What is the bonus for the current year ?
a. 165,000 c. 150,000
b. 126,000 d. 180,000
_b__ 15. Regal Department Store sells gift certificates, redeemable for store merchandise and with no expiration date .
The entity has the following information pertaining to the gift certificates and redemptions :
Unearned revenue on January 1 , 2020 750,000
2020 sales 2,500,000
2020 redemptions of prior year sales 250,000
2020 redemptions of current year sales 1,750,000
On December 31, 2020 , what amount should be reported as unearned revenue ?
a. 1,250,000 c. 1,125,000
b. 500,000 d. 1,000,000