INTERMEDIATE ACCOUNTING VOLUME TWO Valix Peralta Valix 2019 Edition SOLUTION MANUAL CHAPTER 1 1.900000 280.000 1,000,000 1.000.000 150.000 5.00.00 4.00.00 (000.00 «12% = 12) isousn ‘Toul curt abies perry ‘Te bonds wil be pid ove 5 years because the semana payments PS00,00. Since the ast bond will tpl on October 1. 2026, the fist bond wil be pido Apel 1, 2022. Accordiagly, thet is o ctenly atring bond 2021 ‘The stock dividend payable not an accounting lisbilty bu presented as pt of sharchaes”egity as ae ‘ndion to share capiProblem 1-4 Accounts payable (300,000 + 100,000) 600000 ‘Accrued Habis $0,000 Note payable - refinanced 1.000.000 Note payable ~ due May 1, 2021 awa Toul cere! lables Zoom Nomeuren adit: Bonds payable, due December 31,2021 prnnny Problem 1-5 ‘Curent ability: P3,000,000 The dee shouldbe repre a acumen ail Hecuse His payable nthe oping year ai will at be ‘efinaced wih np tm oblegaen ‘Current abitiey: P6,000,000 The requirement o recast currently maturing deb 2s 2 crn ibility isles deb ht i alle by the reer he upmang ea? even he et ana expect called. Noncurrent lability: PS,000,000 ‘The cant ty clasticton cade sno whic he ce tthe gt demand pant Seasie a eustig volun af provision ofthe Jet ape! kes cllabe les robe io wil be Served wat the grace pied Ie hs ae the xing vlan expected Be saree witha Smet ad ‘Beer the ity shel he afd as sceent ‘Curren liability: PS,000,000 ‘The note payable was refinanced oma longerm basis on nary 31,2021 afr the en of he current epaing period: Ts th ee pale hu sil be casi os cre aii. Problem 1-6 1, Caren ais Accounts payable 7,0,000 Note payable bak 12,000,000 Acer expenses Lova.nda 23,000,000 ‘Noncurtenliasites Mortgage payable 4.00,000 ‘Note payable due 2022 omom — _zoon.000 “Teal ais Tien ‘The nt payee wba is pai om the prsceds ofthe sane of sare capital of 4.00.00 Janay 31, 2021 andthe aslo oF 2 francingapeemet om February 15, 2021 with» Geancially capable comes ‘Problem 1-7 Accouns payable 6,500,000 Note payable bank $5.000,00 Ancerest payable 150,00 ‘Mortgage note payable 2,000,000 Bonds payable SoooProblem 1-8 Answer A. ‘Accounts payable (4,000,000 ~ 100,000) 4,100,000 ‘Accrued expenses 1,500,000 ‘Credit balances in customers’ accounts 00,000 Estimated lablity for coupons 08.000 ‘Tota current liabilities amo Problem 1-9 Answer C 1,900,000, 00.000 90,000 fiona Lemon 14% note payable due 2021 30,000 '% note payable maturing December 31,2021 oe.000 Total current maturities Lana Problem I-11 Answer B 12% note payable - refinanced on Jamuary 31, 20201 somnono Problem 1-12 Answer C Accounts payable and accrued interest 1.000.000 Debcatures payable - current partion 00.000 Toval current liabilities Tao {the refinancing occurs on oF before the end of the reporting period, the refinancing is an adjusting ‘event, meaning. the obligation i classified as noncurrent lability ‘Accordingly, the 12% note payable shall be classified as moncurrent because the refinancing is made on December 31, 2020. Problem 1-13 Answer A ‘The emtine amount of P7S0,000 is shown ns curent lability because the note payable is due to be settled ‘within one year regardless of the issuance of bonds payable Problem 1-14 Answer C Note payable 2,000,000 Refinanced on December 31, 2020 - noncurrent portion (80% x 1,500,000) Laea.000 "Note payable - not refinanced, current portion a Problem I-1S Answer B 22sono Problem 1-16 Answer © Uncamed revenue ~ January 1 650,000 Add: Gift certificates sold 22so000 Toul 37900,000 Less: Gift cenifieates redeemed 1,930,000 Uncedeemed git certificates iano = 0so.000 ‘Uncamed revenue = December 31 SeonProblem I-17 Answer A. Uncamed revenue - January 1 750,000 Sales of git centificates~ 2020 2sa0000 Total 5250.00 Redemption of prior yea sles 250,000) Redemption of current year sales (1230.00 ‘neared revenue = December 31 PRIM Problem 1-1 First contract year (40% x 600,000) 240,000 Second contract year (60% x 600,000) 200.000 ‘otal contracts soldi 2020 ‘sono Since the contracts are sold evenly, only one-half of the 40% is eamed in 2020 and one-half will be eamed {in 2021. One-half of the 60% will be earned in 2021 and one-half willbe armed in 2022. Question | Answer A Question 2 Answer B ‘otal contracts sold (1,000 x 600) 600,000 ‘Less: Contracts earmed in 2020 (240,000 x 1/2) 420.000 Deferred service revenue - December 31, 2020 pub Question 3 Answer © Remaining one-half of frst contract year (240,000 x 1/2) 120,000 First one-half ofthe second contract year (360,000 x 1/2) tgo.c00 Total service contract revenue earned in 2021 per Question 4 Answer © Remaining one-half of second contract year (360,000 x 1/2) 430.000 Summary Contract revenue in 2020 120,000 CConsract revenue in 2021 300,000 Contract revere in 2022 1so.00 ‘so0.900 Problem 1-19 Question 1 Answer A Question 2 Answer B 2020 sales 40% x $00,000 equals P200,000, This amount is eamed one-half in 2020 or PO0,000 and one-half in 2021 or P100,000, (607% x $00,000 equals P300,000, This amount is eared one-half in 2021 or P1S0,000 and one-half in 2022 or P150,000, ‘Tota contracts sold in 2020 00,000 Contract revere in 2020 0.000) ‘Uneamed contract revenue ~ December 31, 2020 agoo0g‘Question 3 Answer C Question 4 Answer D 2021 sales 40% x 600,000 equals P240,000. This amount is eamed one-half in 2021 or P120,000 and one-balf in 2022 ‘oF P120,000, {60% x 600,000 equals 360,000. This amount is eamed one-half in 2022 and one-half in 2023, ‘Remaining one-half of first contract year ~ 2020 sales (200,000 x 1/2) 100,000 First one-half of second contract year ~ 2020 sales (300,000 x 1/2) 150,000 First one-half of first contract year ~ 2021 sales (240,000 x 1/2) 120.000 ‘Total contract revenue for 2021 om ‘Total contracts sold in 2020 and 2021 1,100,000 Contract revenue in 2020 100,000) ‘Contract revenue in 2021 370.000) ‘Uncamed contract revenue ~ December 31, 2021 530.000 ‘The uncarned contract revenue on December 31, 2021 is P150,000 for the 2020 sales and 480,000 for 2021 sales ora total of P630,000. Problem 1-20 Answer A Monthly subscriptions (7,200,000 / 12) sono The subscriptions afler the September 30 cut-ofT ae: Ocwbee 00.000 November 600,000 Deverber 00.08 ‘Total unearned subscription revenue ~ December 31, 2020 Tame ‘The above subscriptions wil be served inthe next publication in 2021 Problem 1-21 Answer B amo Problem 1-22 Question 1 Answer C Question 2 Answer C ‘Subscriptions received in 2020 that will expire in 2022 125,000 ‘Subscriptions received in 2021 that will expire in 2022 200,000 ‘Subscriptions received in 2021 that will expire in 2023 140.000 ‘Uncamed subscription revenue - December 31, 2021 65.000 ‘Subscription revenve for 2021 (155,000 + 130,000) pectinyProblem 1-23 Answer C ‘Containers’ deposit on January 1, 2020 applicable wo 2018 deliveries ‘Less: Containers returned in 2020 applicable to 2018 deliveries Balance ~ expired and no longer refundable ‘Contaiers” deposit January 1, 2020 Add: Containers’ deposit in 2020 Toul Less: Containers etumed in 2020 313,000 Containers not returned and expired oo ‘Containers’ deposit - December 31, 2020 Problem 1-24 Answer © ‘Advances —Janaary | 1,380,000 1,720,000 Problem 1-26 Answer B Escrow lability, January 1, 2020 Escrow deposit received from January 1 to September 30, 2020 (280,000 x 9 months) Total Less: Payment for realestate tx from January | wo September 30, 2020 ‘or three quarters (2,800,000 x 34) Escrow liability, September 30,2020 Problem 1-27 1. Bonus (8% x 5,250,000) 2 B= .05 (5.250.000 -B) = 262,500 «088 B+ OSB = 262.500 L0SR ~ 262,500 B= 250,000 300,000 2.230.000 350,000183,750/ 1035 B 177836 Proof come before bora and before 8 owas Tacome afer bonus before tax Tax 0% x 3072468) come afer bonus and afer x Muiipy by owas 4 1B 05,5 250,000 1) T= 30(3280,000-B) B = 05 [5 250.00 30 (5.250.000 By) “05 5.250,000 - 1,578,000 + 308) 9888 = 183750 B= 183,750/ 985 B= tn6 sas Proof Icom before bons and beers 8 “Tax (3.280.000 18648 x 30%) locome afer iax and before bors Mulipy by Bonus Problem 128 Answer B 101,650,000 -8) 165,00 108) 163,000 165,00 165,001.10 oo eecess é 5250000 $000,000 5250000 qua 3730968Problem 1-29 Answer A Income after bonus and tax (280,000 / 10%) Income before tax (2,800,000 / 70%) Income before bonus and tax (4,000,000 + 280,000) Proof Income before bonus and tax. Less: Bonus Income before tax Less: Tax (30% x 4,000,000) Income after bonus and tas Problem 1-30 Answer A Income after bonus before tax (600,000 / 125%) Bonus (25% x 480,000) Problem 1-31 Answer B Problem 1-32 Problem 1-33 Lb .N 2B zc 3B 3A ac ac sD sD 6B LA ac 2D wc Problem 1-36 LB 2B ac ae 3.0 6B 7.8 SA 9D wc 2,800,000 4,000,000 4.280.000 480,000Problem 2-1 2020 1 Cash 3,600,000 Sales 3,600,000 2. Premiums 390,000 ‘Cash 390,000 3. Cash (5,000 x 10) 50,000 Premium expense (5,000 x 40) 200,000 Premiums (5,000 x $0) 250,000 4 Premium expense (5,000 x 20) 106,000 Cash 100,000 5. Premium expense (2.000 x 60) 120,000 Estimated premium ability 120,000 201 1. Estimated premium lability 120,000 Premium expense 120,000 Reversing entry Cash 4.200.000 Sales 4.200.000 2. Promiuns 580,000 Cash 580,000 3. Cash (9,000 x 10) ‘90,000 Premium expense (9,000 x 40) 300,000 ‘Premiums (9,000 x 50) 450,000 4. Promium expense (9,000 x 20) 180,000 Cash 180,000 S. Premium expense (3,000 x 60) 180,000 Estimated premium liability 180,000 Problem 2-2 2020 1 Cash 2,500,000 Sales 2,500,000 2 Premiums - towels 175,000 Cash 175,000 3, Cash (1,000 x 20) 20,000 Premium expense 0,000 Premiums — towels (1,000 x 100) 100,000 4. Promium expense (1,000 x $) 5,000 Cash $,000 5. Premium expense $1,000 Estimated premium lisbility (600 x 85) 51,0002021 1. Estimated premiam liability Premium expense Cash Sales 2. Premiums - towels Cash 3. Cash (1,800 x 20) ‘Premium expense Premiums ~ towels (1.800 x 100) 4, Premium expense (1,800 x 5) ‘Current asset? Premiums towels ‘Current liability: Estimated premium liability ‘Selling expense: Premium expense Problem 2-3 1. Cash (400,000 x 9) Sales 2 Premiums Cash 3. Premium expense Cash A. Cash (8,000 5) Premium expense (8,000 x 85) Premiums (8,000 x 90) '. Premium expense (2,000 x 85) Estimated premium ability Boitle cups to be redeemed (25% x 400,000) ‘Less: Bottle caps redeemed (8,000 pens x 10) Bottle caps outstanding Pretniums tobe distributed on the balance of bustle caps (20,00010) (6 Premium expense ‘Cash (30 x 5,000) 51,000 3,125,000 36,000 144,000 9.000 2018 75,000 51,000 136.000 3,600,000, 30,000 680,000 170,000 150,000 10 51,000 3,125,000 2019 95,000 68,000Problem 2-4 1. Rebate expense Estimated rebate ibility (80% x 20,000 x PSO) 2 Estimated rebate ibility Cash Problem 2-5 2020 Cash (7,000,000 / 8,000,000 » 7,000,000) Sales (1,000,000 000,000 7,000,000) neared reveowe - pois Unearmed revenue points Sales ois to be redcemed (80% x 50,000) Revenue to be eeognized in 2020 (15,000 / 40,000 x $75,000) 2021 ‘Unearmed revenue — points ‘Sales ois to be redeemed (85% x $0,000) ‘Total points redeemed o 12/31/2021 (15,000 + 7,980) ‘Cumulative revenue - 12/31/2021 (22,980 /42,$00 x 875,000) ois tobe redeemed (85% x 50,000) ‘Total points redeemed to 12/31/2022 (15,000 + 7,980 + 2,850) ‘Cumulative revenue ~ 12/31/2022 (25.500 / 42,500 x $75,000) Revenve recognized in 2021 even to be recognized in 2022 2028 ‘Uncamed revenue points Sales Poin toe redeemed (90% x $0,000) ‘otal points redeemed to 12/31/2023 (15,000 + 7,980 + 2,$50 + 15,000) ‘Cumulative revenue ~ 12/31/2023 (40,500 / 45,000 x $75,000) Revenue recognized in 2022 even to be recognized in 2023 7,000,000 328,128 14aa75 52,500 350,000 un 6,125,000 175,000 328125Problem 2-6 ‘Coupons 1 be redeemed (160,000 x 60%) ‘Less: Coupons redeemed Balance Question | Answer B Premium expense (96,000 / $= 19.200 x 20) Question 2 Answer B "Number of premiums (56,000 $) Amount of lability (11,200 x 20) Problem 2-7 ‘Coupons t be redcemed (80% x $00,000) Less: Coupons redeemed ‘Coupons outstanding ‘Question 1 Answer A ‘Premium expense (400,000 x 15) Question 2 Answer B Liability for unredeemed coupons (100,000 x 15) Problem 2-8 Answer B Premium expense (6,000 x 750) ‘Basketballs 1 be distributed (100,000 x 40% / 10) Baskethall distated Balance Multiply by cost of basketball (4,125,000 / $500) Estimated abslity Problem 2-9 Answer A Coupons expected to be redeemed ‘Multiply by payment for each coupon (45 +5) ‘Total liability for coupons Payments as of December 31, 2020 Liability for coupons, Decemiber 31, 2020 2 EE E GR EE E ree | 6,000 E 2.000 12,000 “00,000 ‘The coupon liability on December 31, 2020 is not reduced by the $,000 coupons on hand because the ‘coupons had not been processed for payment Problem 2-10 ‘Question 1 Answer © ‘Question 2 Answer © ‘Total coupons ised and to he redeemed (600,000 x 70% x 110%) Less: Total payments to retailer Liability for redeemed coupons ~ 12/31/2020 EFProblem 2-11 Answer B Problem 2-12 Answer B Problem 2-13 Question 1 Answer A. (405,000/3 x 18) Boxtops to be vedeemed (675,000 x 60%) Boxtops redeemed Boxtops outstanding Question 2 Answer B Estimated liability ~ December 31, 2620 (78.000 /3 x 15) Problem 2-14 Answer C ox tops to be redeerned (50% x 100,000) Box tops redeemed ‘Outstanding timated lisilty at yearend (10,000 /2 = $,000 x 150) Problem 2-15 Question 1 Answer D Cost of towel Remittance from customer Distribution cost Net premium cost ‘Coupons to be redeemed in 2020 (2,000,000 x 30%6) ‘Coupons redeemed in 2020 ‘Coupons oustanding ~ December 31, 2020 Premium expense for 2020 (600,000 / 10x 45) Question 2 Answer D ‘stimated Hiabilty ~ 12/31/2020 (200,000 / 10 x 48) Question 3 Answer © ‘Coupons to be redeemed in 2021 (2,500,000 x 30%6) Premium expense for 2021 (750,000 10x 45) Question 4 Answer © ‘Coupons outstanding - December 31, 2020 ‘Coupons to be redeemed in 2021 (2,500,000 x 30%) ‘Tol coupons to be redeemed ‘Covgpons redeemed in 2021 ‘Coupons outstanding ~ December 31, 2021 Estimated lisility - 12/9112021 (250,000 / 10 x 45) 3 rE OEE. Eee: E EE e 419) Bp 600,000 OEE E EE 930,000 EEEProblem 2-16 ‘Question 1 Answer A Number of premiums distributed in 2020 ‘Number of premiums to be distributed in 2020 Total premiums in 2020 Premium expense for 2020 (25,000 x 40) ‘Question 2 Answer B timated Habilty ~ 12/31/2020 (5,000 x 40) Question 3 Answer D Premiums distributed in 2021 Premiums t be distributed in 2021 Total Premiums arising from 2020 sales distributed in 2021 Premiums applicable 192021 ent aetna ‘Question 4 Answer C cet a 9 Poti he 8 P38 he € iain cen aio reenter = pps cn Question 2 Answer B rane coment a rte Points redeemed in 2020 Points redeemed in 2021 Total points redeemed to December 31, 2021 ‘Cumulative revenue December 31, 2021 (37,800 / $4,000 x 1,020,000) Revenite recognized in 2020 Revenue tobe recognized in 2021 14 3 E Eb $0,000 33,000 (S0001s Problem 2-20 Question 1 Answer © ‘600,000 Question 2 Answer B 200,000 Problem 2-21 ou>o>(CHAPTER 3 Problem 31 ‘Requirement | - Expense as incurred approach 2020 1.Cash Sales 2 Warranty expeme ‘Cash 221 1 Cah ‘Sales 2 Warranty expense ‘Cah ‘Requirement 2- Accrual approach 2020 1 €ash (300 x 15,00) Sales 2. Warranty expense Fatmated warranty laity (60% x 300 ~ 180 x 800) 5. atimated warranty bait ‘Cash 2021 1 ash (S00 « 15,00) Salee 2. Warranty exper stad warrany laity (60% x $00 =300 x 800) 4. timated warranty laity ‘Cash Regulecment 3 Warany expense: 2000 201 ‘Actual waranty payments 2000 2001 Pstimated warranty ibility 12/31/2021 ‘Requirement 4 ~ Warranty expense related to 2020 sales 2020 First contract year of 1/1/2020 sles (150 x 20% x P800) First contract year of 7/1/2020 sales (180 x 20% x PROO x 6/12) 4500.00 7,500,000, 150,00 4.500.000 f: 2 ib: EE EEE 16 -4300,000 700,000 130,000 4,300,000, 144.000 7500.00 240,000 130,900 H2021 First contract year of 7/1/2020 sales (150 x 20% x P800 x 6/12) Second contract year of 1/1/2020 sales (150 x 40% x PSOO) Second contract year of 7/1/2020 sales (150 x 40% x PAOD x 6/12) 2022 ‘Second contract year of 7/1/2020 sales (150 x 40% x PNOO x 6/12) ‘Warranty expense for 2020 ‘Warranty expense related to 2021 sales 2001 First contract year of 1/1/2021 sales (250 x 20% x PROO) First contract year of 71/2021 sales (250 x 20% x P8OO x 6/12) 2022 First contract year of 71/2021 sales (250 x 20% x P800 x 6/12) Second contract year of 1/1/2021 sales (250 x 40% x PS00) Second contract year of 7/1/2021 sales (250 x 40% x PSOO x 6/2) 2028 ‘Second contract year of 7/1/2021 sales (250 x 40% x P8OO x 6/12) ‘Warranty expense for 2021 Requirement $ 2020 sles sil under warranty afer 12/31/2021 ‘Second contract year of 7/1/2020 sales 2021 sales stil under warranty ater 12/31/2021 irs contract year of 71/2021 sales ‘Second contract year of 1/1/2021 sales ‘Second contract yea of 7/1/2021 sales (40,000 + 40,000) Estimated warranty liability 1231/2021 1.Cash 2. Warranty expense Cash 7 12.000 48,000 24,000 40,000 20,000 20,000 80,000 40,000 24000 10,000 10,000 5,000,000 5,000,000 200,000 200,000 9,000,000 9,000,000 500,000‘Requirement 2 - Accrual approach 2020 1. Cash Sales 2. Warranty expense stimated warranty liability (14% x 5,000,000) 3. Estimated warranty liability Cash 2021 Cash Sales 2, Warranty expense Fstimated warranty liability (14% x 9,000,000) 3. Estimated warranty liability Cash, Requirement 3 ‘Warranty expense: 2020 2021 Actual warranty repairs: 2020 2021 Estimated warranty iabitity 12/31/2021 ‘Requirement 4 ~ Warranty expense related to 2020 sales 2020 First contract year of 1/1/2020 sales (2,500,000 x 4%) Furst contract year of 7/1/2020 sales (2,500,000 x 49% x 6/12) 2021 First contract year of 7/1/2020 sales (2,500,000 x 4% x 6/12) Second contract year of 1/1/2020 sales (2,500,000 x 10%) Second contract year of 7/1/2020 sales (2.500,000 x 10% x 6/12) 2022 Second contract year of 7/1/2020 sales (2,500,000 x 10% x 6/12) Warranty expense for 2020 5,000,000 700,000 9,000,000 1,260,000 700,000 200,000 18 1,960,000 100,000 $0,000 50,000 250,000 125,000‘Warranty expense related to 2021 sales 2021 First contract year of 1/1/2021 sales (4,500,000 x 4%) First contract year of 7/1/2021 sales (4 500,000 x 4% x 6/12) 2022 First contract year of 7/1/2021 sales (4,500,000 x 4% x 6/12) ‘Second contract year of 1/1/2021 sales (4,500,000 x 10%) ‘Sevond contract year of 7/1/2021 sales (450,000 x 10% x 6/12) 2023 ‘Second contract year of 7/1/2021 sales (4,500,000 x 10% x 6/12) ‘Warranty expense for 2021 Requirement $ 2020 sles stil under warranty afer 12/31/2021, Second contract year of 7/1/2020 sales 2021 sakes stil under warranty after 12/91/2021, Fist contract year of 7/1/2021 sales Second contract year of 1/1/2021 sales Second contract year of 7/1/2021 sales {Estimated warranty liability ~ 12/31/2021 Estimated warranty liability per book ‘Decrease in warranty lability Estimated warranty liability ‘Warranty expense Problem 3-3 Requirement 1 2020 1 Cash ‘Sales 2. Warranty expense Estimated warranty liability (5,000,000 x 12%) 3. Fstimated warranty liability Cash 2021 1. Cash ‘Sales 2 Warranty expense Estimated warranty lisbility (7,000,000 x 12%) 3. Estimated warranty liability Cash 19 180,000 99,000 90,000 450,000 225,000 85,000 85,000 5,000,000 5,000,000 600,000 600,000 100,000 100,000 7,000,000 7,000,000 840,000 40,000 250,000Requirement 2 ‘Warranty expense for 2020 and 2021 (600,000 + 840,000) 1,440,000 Actual warranty repairs (100,000 + 250,000) —3s0.000 Estimated warranty liability 12/31/2021 ‘Too ‘Warranty expense related t0 2020 sales 2020 First contract year of 01/01/2020 sales (2.500,000 x 3%) 75,000 First contract year of 07/01/2020 sales (2,500,000 x 3% x 6/12) 37.500 2021 First contract year f 07/01/2020 sales (2,500,000 x 3% x 6/12) 37,500 ‘Second contract year of 01/01/2020 sales (2-500,000 x 9%) 225,000 ‘Second contract year of 07/01/2020 sales (2,500,000 x 9% x 6/12) 112,500 2022 ‘Second contract year of 07/01/2020 sales (2,500,000 x 996 x 6/12) uns ‘Warranty expense for 2020 soac00 ‘Warranty expense related to 2021 sales 2021 First contract year of 01/01/2021 sales (3,500,000 x 3%) 105,000 First contract year of 67/01/2021 sales (3,500,000 x 3% x 6/12) 52.500 2022 First contract year of 07/01/2021 sales 52,500 ‘Second contract year of 01/01/2021 sales (3,500,000 x 996) 315,000 ‘Second contract year of 07/01/2021 sales (3,500,000 x 9% x 6/12) 157,500 2023 ‘Second contract year of 07/01/2021 sales (3,500,000 x 9% x 6/12) 10 ‘Warranty expense for 2021 ‘sano00 2020 sales stil under warranty afr 12/31/2021 Second contract year of 07/01/2020 sales 112,500 2021 sales stil under warranty afer 12/31/2021 Furst contract year of 07/01/2021 sales 52,500 Second contract year of 01/01/2021 sales 315,000 Second contract year of 07/01/2021 sales 315.000 Estimated warranty liability ~ 12/31/2021 795.000 Estimated warranty liability per book 1.090.000 Decrease in warranty lability a Estimated warranty liability 295,000 ‘Warranty expense 295,000Problem 3-4 ‘Requirement 2019 1. Cash Sales 2. Warranty expense ‘Estimated warranty liability (1,000 x 450) 2020 1 Cash ‘Sales 2 Warranty expense Estimated warranty liability (900 x 480) 3. Estimated warranty liability Cash 2021 1. Estimated warranty liability (280,000 + 190,000) Cash Requirement 2 ‘Warranty expense related to 2019 sales 2020 First contract year of 12/31/2019 sales (450,000 x 40%) 2021 Second contract year of 12/31/2019 sales (450,000 x 60%) ‘Warranty expense for 2019 ‘Warranty expense related to 2020 sales 2021 First contract year of 12/31/2020 sales (405,000 x 40%) 2022 Second contract year of 12/31/2020 sales (405,000 x 60%) ‘Warranty expense for 2020 2019 sales stil under warranty after 12/31/2021 2020 sales sill under warranty after 12/31/2021. ‘Second contract year of 12/31/2020 sales Estimated warranty liability ~ 12/31/2021 Estimated warranty liability per book Decrease in warranty lability Estimated warranty liability ‘Warranty expense 9,000,000 450,000 8.325,000 405,000 180,000 470,000 38,000 2 9,000,000 450,000 325,000 405,000 180,000 470,000 180,000 162,000 - EE 23.000 243,000 EE aK 2Problem 3-5 Requirement 1 Total Returns after, Sales Percent returns 06/30/2020 Amount January 4,200,000 Mm 294.000 10% 29400 Febroary £700,000 me 9.000 20% 65.800 March 3,900,000 Pe 27.000 30% 81900 April 3,280,000 ™ 7500 Some 113.780 May 2/400,000 1% 240,000 70% 168000 June 1,900,000 Ws 190,000 ors = 0.009 erry —Latterm of sles seturm —__ Total returns. Sales January February March April, “May June as of 30/2020 Januaey : 30% HHO. 90% February : : % 2) oo % March = : » » » % Api a . - » »% % May > + 3 ” Requirement 2 Manufacturing cost 70% Freight = Total 75% Salvage value ay) ‘et fxs on component reared Py ‘Required estimated warranty liability — 06/30/2020 (648,850 x 65%) 421,753 Estimated waranty liability per book 220.00 Increase in warranty liability EORTSY Requirement 3 ‘Warrany expense 301253 stimated warranty tabty s01383 Problem 3-6 Unit sol ‘Ociber 32.000 November 2000 December ino Tou To0.000 Mutiply by = “Tol fares expected T00 Less: Faire already recorded: ‘October sles 0 November sales 3 December sales 12 au Expected fsure failures 0 Mulply by ie Fitimated cos on Warranty expense 123,000 Estimated warranty lability 123,000Problem 3-7 ‘Requirement 1 2020 Cash Sales ‘Uneamed warranty revenue 2028 Unearned warranty revenue ‘Warranty revere (243,000 3) Warranty expense Inventory Cash ‘Requirement 2 ‘Current liabilities: Uneamed warranty revenue ‘Noncurrent Habilities Uneamed warranty revenue Problem 3-8 Answer B Problem 3-9 Answer A Problem 3-10 Answer C Problem 3-11 Question 1 Answer D_ Warranty expense (2,400 x 300) Question 2 Answer A silty (720,000 ~ 170,000) ‘Question 2 Answer D. Warranty liability — January 1, 2020 ‘Add: Warranty expense 2020 (2% x 4,000,000) Tout Less: Warranty payments during 2020 ‘Warranty liability ~ December 31, 2020 2.943.000 11,000 60,000 23 2,700,000 243,000Problem 3-13 Question 1 Answer A ‘Waranry expense (30,000 x 80) Question 2 Answer © ‘Warranty lability ~ June 30,2020 Problem 3-14 Answer A et sales (640,000 /%) Problem 3-18 Question 1 Answer A, ‘Warranty expense (5,000,000 x 7%) Question? Answer B Warraney expense for 2020 ‘Warranty cost in 2020 ‘Warranty liability ~ December 31,2020 Question 3 Answer € Warranty expense (7,000,000 7%) Question 4 Answer B ‘Warranty liability ~ December 31, 2020 ‘Warrany expense for 2021 Toul ‘Warranty cos in 2021 ‘Warranty lability ~ December 31,2021 Problem 3:16 pasos 24 280,000 740,000CHAPTER 4 Problem 41 1. With espect wo the frst awit, the entity would recognize a oss and accrue ait PI,000,000 851% would be viewed as probable 2 In relation tothe acond laws the entity Would recognize and accrue a lability forthe midpoint of the range P8,000,00, 3. With respec to the third lawsuit, the entity would consider the time vale of money and 0 would ecagnize a loss. and accrue liability forthe midpoint ofthe range P200,000, 4 In relation othe fourth laws, the city would make no accrual as 25% would not be viewed as probable Only a disclosure noe is appropriate Problem 42 1. Los from litigation 500,000 Litigation ibility +4.500,000 2. No entry. The labor dispute is los contingency and cannot be accrued wes itis bath probable and reasonably estimable. Costs cannot be adequnely predicted. A disclosure noe is appropriate 3. No entry. The lawsuit filed by Accord Company is loss contingsacy and cannot be accrued because i ssoalyreasondhy possible that loss wil esl diclosere noe APPOPNS| 4. No entry The environmental violation i a wnansried assessment. must int be prabsble that an assesment will be made and cannot be accrued unless bath probable and reasonably estimable that the assessment wil result 8 ass. Problem 4-3 1. Only a disclosure is necessary because is nt probable tht the company willbe lable, although the amount can be measured reliably 2. Retained camings 200,000 [Estimated habiity for income 1 200,000 3. Accounts receivable ~ Sunset 120,000 ‘Vows on guaramty 0,000 ‘Note payable bank 200,000 Problem 44 1. Loss.on lawsuit ‘300,000 Estimated bility for lawsuit (0% x 1,600,000) 00,000 2. Environmental cost 1,500,000 ‘Estumated lability for envionment cost 1,500,000 3. No provision is recognized forthe guaranty because thers is only a emote likslibood that irae payment wil be made, 4 Contamination clean up cost 500,000 Estimated lability for clean up cost $00,000 5. Loss on laws 300,000 "Estimated lability for ws 300,00026 Problem 4-5 ‘The shipping company shall recognize 2 provision for PS,000,100 because the claim of the international fteight forwarding company is probable [No provision oF disclosure would be needed for the P2,000,000 claim of the intemationl fright forwarding company because there sa remete possiblity forthe payment ‘The shipping company shall also recognize a contingent ase of P4,S00,000 (90% x PS,000,000), because the amount is vitally cenain of collection Problem 4-6 ‘Restractaring cots ‘estimated laity for restructuring costs 1.730.000 Unpaid entitlement of rettncbed 200 employees 1,500,000 ‘Uap rtenchiment package of onc executive tasked to complete «losure of Mindanao branch | 200,000 Unpaid salary of the executive related to closure of Mindanao tranch (60% x 50,000) _40.000 ‘Total provision fr restructuring Time ‘The cost of P400,000 expected to be incurred in transferring the $0 employees to Manila are not included ‘nthe esrturing provinion bosauae they relate ongoing operation (Only 60% of the January salary ofthe executive is included in the resrucurng provision because the ‘remand relates to the transfer ofthe $0 cmployccs to Manila and general administration Problem 4-7 Lease eminaton penalty 4.000.000 Cost fn etpacemet fem oon Employee enti ost Bernt Toul estucturng prow ooo Probie 48 1, Dobe accounts 99.000 ‘Allowance for duu account (3% x P000,000) 10.00 2. Warranty expose 250.00 Estimate warranty lability (2% x P30,000,00 ~P380.000) 250.00 2 Loss om pode recall 1.00000 Estimated habits ~ product recall 100.000 4. Los trom tiation 4201000 Litigation iby 4200000 ‘5. No-ntry. The lawsuit against a custome isa gain contingency. Contingent gain isnot accrued even if the xan is probable and reasonably estimable. The gain should be recognized only when realized. A disclosure note is appropriate Problem 4.9 1 No disclosure is required hecausea claim by the city goverment i as yet unasserted and an assessment isnot probe, 2. The lawsuit against Faye Company it again contingency. Contingent gain is ot accrued even ifthe ‘ins probable and reasonably estimable The gain shoo be recognized only when realized Baron ‘Sill dnclossmnormation nthe not the inane statementsa7 3. The case with the provincial govemment is a loss contingency. Baron can use the information occurring after the end ofthe yearn determining appropriate disclosure. Baron should accrue the P2,000,000 loss ‘because the ultimate outcome appears settled and the loss is probable, Litigation loss 2,000,000 Litigation lability 2,000,000 44. The dispute with a customer isa loss contingency. Baron can use the information occurring after the tend ofthe year in determining appropriate disclosure. Wis unlikely that Baron would choose to accrue the P1,K00,000 loss because the judgment will be appealed and that the outcome is uncertain. A sisclosure note is appropriate Problem 4-10 Requirement 1 2020 Jan. 1 Oil tanker depot 6,000,000 Cash 6,000,000 1 Oil tanker depot 930,000 ‘Decommissioning liability (1 $00,000 x.62) 930,000 Dee. 31, Depreciation 1,386,000 ‘Accumulated depreciation (6,930,000 5) 1.386.000 31 Interest expense 93,000 Decommissioning lability (10% x 930,000) 93,000 Requirement 2 2024 Dee. 31 Accumulated depreciation 6,930,000 (il tanker depot 6,930,000 31 Decommissioning ibility 1,500,000 [Loss on settlement of decommissioning liability 200,000 Cash 1,700,000 Problem 4-11 Requirement 1 2020 Jan. 1 Mining site §,000,000 Cash §,000,000 1 Mining site 926,400 ‘Decommissioning liability (2,000,000 x 4632) 926.400 Dec. 31 Interest expense 7412 ‘Decommissioning liability (926.400 x 8%) 74,12 Requirement 2 2029 Dec. 31, Decommissioning lability 2,000,000 ‘Cash 1,800,000 Gain on setlement of decommissioning liability 200,000Problem 4-12 Jan. 1 Detoxification fairy 9,000,000 Cash 1 Detoxification facility $40,000 ‘Decommissioning liability (1,500,000 x $6) Dec. 31. Depreciation 984,000 ‘Accumulated depreciation (9,840,000 / 10) 31 Interest expense $0,400 ‘Decommissioning liability (6% x 840,000) Jan. | Detoxification fiity 126,000 ‘Decommissioning liability (200,000 x .63) Dec. 31 Depreciation 999,80 ‘Accumulated depreciation Original cost Additonal cost (126,000 / 8) “Total depreciation ‘Dec. 31 Interest expense 64.189 ‘Decommissioning lability Original liabiity Interest for 2020 (6% x $40,000) Carrying amount ~ 12/31/2020 Interest for 2021 (6% x 890.400) (Carrying amount ~ 12/31/2021 Interest for 2022 (6% x 943,824) Interest for 2022 on additional liability (6% x 126,000) ‘Total intrest for 2022 Dec. 31 Accumulated depreciation 9,966,000 u ‘Detoxification facility Purchase price Onginal decommissioning cost Adahitonal decommissioning cost ‘Total cost Decommissioning lisbiity 1,700,000 Lou on seen a orommiiningihity 300,000 Problem 4-13 Answer A ‘Nonmal defect (500 x P10,000 x 25%) Significant defect (S00 x P30,000 x 15%) 9,000,000 pif ; 999,750 Eke i Eke EE 9,966,000 9,000,000 140,000 EE 2,000 2 HeProblem 4-14 Answer C Major defect (3% x PS,00,000) Minor defect (5% x P3,000,000) Total warranty provision Problem 4-15 Question 1 Answer D Question 2 Answer D Weighted probabilities: 20% x 200,000 x 70% 80% x 100,000 x 70% Weighted cash flows Multiply by risk adjustment factor (100% + 7%%) Adjusted cash flows. Multiply by PV of | at $% for one period Present value of cash flows Problem 4-16 Question 1 Answer A Question 2 Answer C ‘Weighted probabilities: 60% x 2,000,000 x 8% 40% x 1,000,000 x Hor, Weighted cash flows Risk adjustment factor (8% x 1,280,000) Adjusted cash lows Present value of cashflows (1,382,400 x 89) Problem 4-17 Question | Answer C Question 2 Answer B Cost of minor repair Cost of major repair Total cost. Muluply by Total cash flow afer risk adjustment Expenditure m 2020 ($30,000 x $0%) Expenditure in 2021 (530,000 ~ 265,000 = 265,000 x 0.94) ‘Warranty expense in 2020 ‘Warranty lability ~ December 31, 2020 EEE ELekebs30 Problem 4-18 Answer C The decision of the Supreme Court was made on February 15. 2021 which is before the issuance of the statements on February 20, 2021. Accordingly, the accrued provision should be equa 1 the ammount of 'P3,$00,000 decided by the Supreme Court, The date of issue of financial statements is the date when the board of directors approved the financial statements. Problem 4-19 Answer D The provision should be accrued because itis probable and measurable. The accrued amount is P3S0,000 ‘which is the midpoint of the range in the abscace ofthe best estimate within the range, Problem 4-20 Answer A ‘The guarantee should be accrued as a provision because the loss is probable and the amount can be reasonably estimated, Problem 4.21 Answer © ‘The best estimate is recorded. ‘The accepted BIR offer is not recorded because it was made after the statements are issued, Problem 4-22 Answer D ‘The loss is accrued as a provision because itis probable and the amount can be reasonably estimated. Problem 4.23 Question 1 Answer C Question 2 Answer A Estimate of liability 3,500,000 Extent of liability ~ deductible clause 300.000) Insurance claim ~ reimbursement asset emo The amount of loss is PSO0,000 only because it is the extent of liability of Rex under the comprehensive insurance policy. However, the amount of liability to be reported is equal to the total estimated amount. PAS 37, paragraph $3, provides that the reimbursement claim shall be trated as a separate asset, ‘The amount of floss may be presented met of the amount recognized for a reimbursement, Problem 424 Answer B Problem 425 Answer B The probable loss is recorded but the possible loss is only disclosed. Problem 4-26 Answer A Haze can report a. gain of P 1,500,000 in its 2020 income statement because this amount is already settled ‘on December 31, 2020, However, the remainder of P3,000,000 is only disclosed because the defendant has appealed the said amount.31 Problem 4-27 Answer D Contingent assets are not recognized in financial statements since this may result in the recognition of ‘income that may never be realized. A contingent asset and the related contingent gain are disclosed only “where the inflow of economic benefits is probable Problem 4-28 Answer D Problem 4-29 Answer D ‘The contingent asset is disclosed only because the case is unresolved on December 31, 2020. The issue is ‘what amount of asset will be disclosed. Since the ease is settled in March 2021 after the issuance of the 2020 financial statements, the amount P1,500,000 should be disclosed. However, if the case is settled ‘before the issuance of the statements, the actual award of P1,000,000 should be disclosed. Problem 4-30 Answer C The entry on December 31, 2019 is: Loss on lawsuit 400,000 Estimated lability for lawsuit 400,000 ‘The entry on December 31, 2020 is: Estimated liability for lawsuit 400,000 Cash 250,000 Copyright 60,000 Gain on settlement 90,000 Problem 4-31 Problem 4-32 Problem 4-33 ennse >>> BORCNOD anenrenvee vheneCHAPTER S$ Problem $-1 Requirement 1 2020 ‘April Cash (7,000,000 x 106%) Bes payable Premium on bonds payable Oct 1 Interest expense (7,000,000 x 12% x 6/12) Cash Dee. 31 Interest expense (7,000,000 x 12% x VI2) Interest payable 31 Premium bonds payable Inerest expense (420,000 / 10 x 9/12) 2021 Jan. 1 Accrued interest payable Interest expense: April 1 laerest expense Cash Oct 1 Interest expense ‘Cash Dec. 31 Interest expense ‘Accrued interest payable 11 Premium on bonds payable Interext expense (420,000 / 10) Requirement 2 Noncurrent liabilities Bonds payable Premium on bonds payable Carrying amount Problem $-2 Requirement t 2020 Jan, 1 Unissued bonds payable ‘Authorized bonds payable Jan. 1 Cash (5,000,000 x 95%) Discount on bonds payable Unissued bonds payable June 30 Increst expense (5,000,000 x 12% x 6/12) Cash 7.420.000 420,000 210,000 31,500 210,000 420,000 420,000 210,000 42,000 8,000,000 4,750,000 "280,000 300,000 32 7,000,000 420,000 210.000 31,500 210,000 420,000 420,000 210,000 2,000 LE 5,000,0002020 Dec. 31 Interest expense Cash 31 Interest expense (250,000 / 10) Discount on bonds payable 2021 ‘Hane 30 Interest expense Cash Sept. 1 Cash. Unissved bonds payable Premium on bonds payable Interest expense (2,000,000 x 12% x 2/12) Dec. 31. Interest expense ‘Cash (7,000,000 x 12% x 6/12) 31 Interest expense ‘Discount on bonds payable 31 Premium on bonds payable Taterest expense 120 months ~ 20 = 100 months remaining {60,000 / 100 = 600 monthly 6004 = 2.400 Requirement 2 Noncurrent liabilities: ‘Authorized bonds payable Less: Unissued bonds payable Issued bonds payable Premium on bonds payable Total Discount on bonds payable ‘Carrying amount Problem 5-3 Requirement 1 2020 ‘April 1 Cash Discount on bonds payable Bond issue cost ‘Bonds payable Oct. 1 Interest expense Cash (5,000,000 x 12% x 6/12) Dec. 31 Interest expense Accrued interest payable (5,000,000 x 12% x 3/12) 31. erest expense ‘Discount on bonds payable (100,000 / 5x 9/12) Bond issue cost (50,000 5 x 9/12) 2,100,000 420,000 25,000 2.400 44.50.00 100,000 33 2,000,000 60,000 25,000 2.400 7,000,000 sn 7057.60 5,000,000 150,000 15,000 7,5002021 Jan, 1 Accrued interest payable Interest expense ‘April 1 Interest expense Cash July 1 Interest expense ‘Discount on bonds payable (20,000 x 6/12) ‘Bond insite cost (10,000 x 6/12) Retirement price (2,000,000 x 99%%) 300,000 15,000 ‘Add: Accrued interest from April Ito July 1, 2021 (2,000,000 x 12% x 3/12) Total payment ‘Bonds payable retired Less: Applicable discount (2/5 x 75,000) Applicable issue cost (2/5 x 37,500) ‘Carrying amount of bonds retired Less: Retirement price [Loss on early retirement July 1 Bonds payable Interest expense Loss on eatly retiement of bonds ‘Cash Discount on bonds payable Rand issue cost ‘Oct. 1 Interest expense ‘Cash (3,000,000 x 129% x 6/12) Dec. 31 Interest expense ‘Accrued interest payable (3,000,000 x 12% x 312) Dec. 31 Interest expense Discount on bonds payable (12,000 x 6/12) Bond issue cost (6,000 x 6/12) Revised annual amortization: ‘Discount (3/5 x 20,000) Issue cost (3/8 x 10,000) Requirement 2 Noncurrent liabilities: ‘Bonds payable ‘Discount on bonds payable Bond issue cost ‘Carrying amount 30,000 15.000 2,000,000 ‘60,000 25,000 180,000 9,000, 150,000 10,000 5,000 1,980,000 2,000,000 48000 1.955.000 30,000 15,000 180,000 6,000 3,000 12,000 3,000,000 (39,000)Problem $-4 Requirement 1 2020 Jan. 1 Cash ‘Bonds payable Premium on bonds payable ‘Dec. 31 Interest expense ‘Cash (4,000,000 x 1296) 31 Premium on bonds payable ‘Interest expense (200,000 / 5) 31 Bonds payable Premium on bonds payable Cash Gain on carly retirement of bonds Face of bonds payable retired ‘Add: Applicable premium (1/4 x 160,000) Carying amount ‘Less: Retirement price (1,000,000 x 98%) Gain on retirement 2021 Dec. 31 Interest expense ‘Cash (3,000,000 x 12%) 31 Premium on bonds payable Ingerest expense (40,000 x 34) Requirement 2 Noncuerent liabilities: ‘Bonds payable Premium on bonds payable Carrying amount Problem 5-5 |. Total bonds payable issued ‘Less: Face value boads payable reticed Bonds payable ~ December 31, 2020 Discount on bonds payable ‘Less: Amortization from 2013 to 2019 (300,000 / 10 x 7) Balance ~ January 1, 2020 Less: Discount applicable to bonds retired (3/6 x 90,000) ‘Adjusted balance ‘Less: Amortation for 2020 (45,000 / 3) Discount on bonds payable ~ December 31, 2020 Aaterest (3,000,000 x 12%) ‘Amortization of discount for 2020 Interest expense for 2020 4,200,000 480,000 1,000,000 30,000 35 4,000,000 200,000 480,000 40,0003. Adjusting caries on December 31,2020: 4. Retained eamings 210,000 Discount om bonds payable Bonds payable 300,000 Dscaunt on bonds payable Gain o early retirement of bonds Bonds payable rtrd Lest: Applicable dicount Carrying amount Less Retirement price Gain on carly reticent Interest expense 15.000 ‘acount on bonds payable Amestzation foe 2020 4 Iatrest expense 10,000 Accrued intrest payable (3,000,000 x 12% x 12) Problem $6 1. Cash 3.900.000 Discount on bonds payable 100,000 Bonds payable = new 2. Bonds payable - old 3.000.000 Premium on bonds peyable 50,000 [Accrued intrest payable 10,000 {oss on early retirement of bonds To,000 ‘Cash Bonds payable - okt Premium on bonds payable Carrying amount ess: Retirement price (300,000 x 102) Loss om ely retirement Reusemeat price [Add Accrd intrest payable ‘Total payment Problem -7 ‘a. Amortization table Bond Discount Interest ‘Year outstanding Fraction amortization pad 2021 000,000 840 64000 940,060 2022 000,000 840 64000 960,000 2033 7,000,000 740 56.000 $40,000 20m 16,0,.000 oo 448.000 720,000 2028 $000,000 S40 40.000 600.000 2026 4,000,000 440 32.000 480,000, 207 aan09 240 isom — _2an.00 Kono Zoom = Lame 4,000,000 3.240,000 3,000,000 2.000 Ps0.000 1.024.000 1024.00 768.000 512,000bb Journal entries 2020 Doe. 31 Cash Discount on bonds payable ‘Bonds payable 2021 Dec. 31 Interest expense Cash 31 rest expense ‘Discount on bonds payable Dee. 31 Interest expense Cah S31 Interest expense ‘Discount on bonds payable 31 Bonds payable Cash 2023 Dec. 31 laterest expense Cosh [3 terest expeme ‘Discount on bonds payable 31 Bonds payable Cash Problem $8 Amortization table Bond Year outstanding 2021 7,000,000 202 6,000,000 203 $,000,000 204 4,000,000 202s 3,000,000 2026 2,000,000 27 Loman oon 2020 Dee. 31 Cash ‘Bonds payable Premium on Bonds payable Fraction m8 028 528 428 328 28 28 105,000 ‘90,000 75.000 60,000 45.000 30,000 S000 Doom 7,680,000 320,000 40,000 720,000 60,900 480,000 360,000 240,000 ao Laon 7420000 37 64.000 64.000 1,000,000 iat 733.000 630,000 $25,000 420,000 315,000 210,000 7,000,000 420,0002021 Dec. 31 Interest expense 40,000 Cash 31 Premium on bonds payable 105,000 Interest expense 31 Bonds payable 1,000,000 Cash 2022 Dec. 31 Interest expense 720,000 Cash 31 Premium on bonds payable 90,000 Interest expense 31 Bonds payable 1,000,000 Cash 31 Bonds payable 1,000,000 Premium on bonds payable 30,000 Loss on carly retirement of bonds 20,000 ‘Cash (1,000,000 x 105) 420,000 / 28,000,000 = 015 per yeae 1,000,000.015x2 = 30.000 Problem 5-9 Answer D %% debentures 11% Collateral trust boads Total terms bonds Problem 5-10 Question | Answer A. Question 2 Answer A $F Registered bonds 2,750,000 11% Convertible bonds 10% Commodity backed bonds 2.000.000 Total ce Problem $-11 Answer A Issue price (5,000,000 x 110) Accrued interest from July | to October 1, 2020 (5,000,000 x 12% x 3/12) Total ‘Less: Bond issue cost ‘Net cash received 38 105,000 90,000 1,000,000 1,050,000 3,500,000Problem $-12 Answer C Issue price (4,000,000 x 99%) ‘Accrued interest from January 1 to April 1, 2020 (4,000,000 x 8% x 3/12) Total Less: Bond issue cost Net cash received Problem 5-13 Answer B ‘Bonds payable Premium on bonds payable (4% x 5,000,000) Bond issue cost Bond liability Problem 5-14 Answer B All costs incurred Problem $-15 Answer B Cash received ‘Accrued interest from June 30 to Novernber 1, 2020 (5,000,000 x 6% x 4/12) Issue price of bonds payable Face value Premium on bonds payable Problem S-16 Answer B ‘Accrued interest payable from October 1 1o December 31, 2020 (4,000,000 » 8% x 3/12) ‘The nominal interest of 8% is used in determining the acereed interest payable. Problem $-17 Answer D ‘Accrued interest payable from July 1 to September 30, 2020 (3,000,000 x 12% x 3/12) Problem $-18 Answer B Bonds payable ‘Add: Premium on bonds payable Total Less: Retirement price (5,000,000 x 98%) Gain on retirement Problem -19 Answer D Bonds payable Less: Discount on bonds payable Carrying amount Carrying amount retired (4,000,000 / 8,000,000 x 7,570,000) Less: Retirement price (4,000,000 + 100,000) Loss on early extinguishment 39 3,960,000 340,000 5,000,000 200,000 5,150,000 5,050,000Problem $-20 Question 1 Answer A Interest expense (6% x 4,000,000) Question 2 Answer D ‘Bonds payable 1/1/2020 Fair value ~ 12/31/2020 (4,000,000 x 95%) Increase in fat value of bonds payable ~ loss ‘Loss from change in fir valve Bonds payable Question 3 Answer B Question 4 2020 Jan. 1 Cash Bonds payable Dec. 31 Imerest expense Cash 31 Loss from change in fair value Bonds payable Problem $-21 Question 1 Answer A ‘Nominal interest (12% x 5,000,040) Question 2 Answer A Carrying amount ~ 1/1/2020 Carrying amount ~ 12/31/2020 Decrease in liability ~ gain Question 3 Answer B Question + 2020 Jan 1 Cash Bonds payable June 30 Interest expense Cash, Dec. 31 Interest expense Cash 31 Bonds payable Gain from change in fair value 3,677,600 240,000 122,400 5,385,000 300,000 3,677,600 122.40041 Problem $-22 Question 1 Answer A. Question 2 Answer B Question 3. Answer C Carrying amount ~ 1/1/2020 7,600,000 Carrying amount - 12/31/2020 sanoooa Increase in liability — loss 300,000 Lows on credit isk 130.000 Los from change in fir value arcs Question 4 2020 Jan. 1 Cash 7,600,000 Bonds payable 7,600,000 1 Transsetion cost 150,000 Cash 130,000 Dec, 31 lntcrest expense $00,000 Cash 00,000 31 Loss om credit rick 130,000 Loss from change in fair value 650,000 Bonds payable 100,000 Problem $23 Question 1 Answer B Carrying amount — Jauary 1, 2020 ozi200 Question 2 Answer A Interest expense for 2020 (12% x 1,000,000) 220.000 ‘Under the fale value option. the interest expense 1s computed using the nominal rate ‘Question 3 Answer C Fair vale January 1, 2020 1077200 Fair value ~ December 31, 2020 Lieto Gain fom change in fir value Lae PERS 9, paragraph 4.2.2, allows the measurement ofa financial liability at fair value Under the fair value option. the bord payable is measured at fair vale at every year-end and any change in fair value is recognized generally in profit or loss. The accounting rules for discount or premium montzation no longer apply. Question 4 Answer A Carrying amount ~ December 31, 2020 Loc 600 Under the fair value option, the carrying amount of the bonds payable is always the fair value at every year-end,42 Question $ 2020 Jan. 1 Cash 1,077,200 ‘Bonds payable 1,077,200 July 1 Interest expense 6,000 Cash 6.000 Dec. 31 Imerest expense 6,000 Interest payable 6,000 Bonds payable 12,600 Gain from change in fair value (1,077,200 — 1,064,600) 12,600 Problem 5-24 Problem 5-25 PORDS>>>>o Sopususepe no>or>o>a>Problem 6-1 Requirement 1 Jan 1 Cash ‘Bonds payable Premium on bonds payable Dec. 31 Interest expense (6,000,000 x 12%) ‘Cash 31 Premium on bonds payable Interest expense lowered Interest expense (10% x 6,737,000) Premium amortization Requirement 2 ‘Noncurent labitics ‘Bonds payable ‘Premium on bonds payable (737,000 — 46,300) Camrying amount Problem 6-2 Requirement 1 Interest Date paid i200 6/30/2020 150,000 12312020 150,000 3072021 150,000 12312021, 150,000 Requirement 2 2020 Jan. 1 Cash Discount on bonds payable ‘Bonds payable June 30 Interest expense ‘Cash Discount on bonds payable ee. 3 Interest expense Cash Interest ‘expense 192,740 194450 196.228 198.082 6,737,000 720,000 2.040 44450 46.228 48.082 4.818.500 181,500 192,740 194.450 a3 16,000,000 737.000 720,000 46300 720,000 Psrkiny 2 46,000,000 20.700 ‘Reoozee Carrying amount 4.818500 4.861240 4,905,690 4951918 $1000.00 5,000,000 130,000 42.740 150,000 444502021 June 30 Interest expense Cash Discount on bonds payable Dec. 31 Interest expense Cash Discount on bonds payable 31 Boods payable Cash Problem 6-3 4 Amortization table Interest Date paid wize20 6730/2020 240,000 1231/2020 240,000 6730/2021, 240,000 rav2021 240,000 673072022 240,000 18202 240,000 'b Journal entries 2020 Jan. 1 Cash Discount on bonds payable Bonds payuble June 30- Interest expense ‘Cash ‘Discount on bonds payable 2022 Dec. 31, Interest expense ‘Cash Discount on bonds payable 2023 Jan. 1 Bonds payable ‘Cash Problem 6-4 | Amortization table Interest Date paid 412020 1001/2020 120.000 4/2021 120000 1001/2021, 120,000 2022 120.000 toor/2022 120.000 1/2023 120,000 273,868 277255 280,980 285.078 289,586 204351 expense 105,076 104,330 103,546 102.724 101.860 100,944 196,228 198,082 5,000,000 Discount amortization 33,868 37.255 40.980 45,078 49,586 S451 2,738,682 261,318 273,868 294,551 3,000,000 14924 15,670 16s 17276 18140 19,056 150,000 150,000 48.082 5,000,000 3.000.000 240,000 33,868 240,000 S458 3,000,000 Carrying ‘amount 2,101,520 2.086.596 2.070.926 2.054472 2,037,196 2.019.056 2,000,0002 Journal entries: 2020 1 Cash Bonds payable Premium on bonds payable Oct. 1 Interest expense Premium on bonds payable Cash Dec. 31 Interest expense ‘Accrued interest payable 31 Premium on bonds payable Interest expense (15,670 x 1/2) 2021 Jan, | Accrued interest payable Interest expense Ape. | Interest expense Cash 1 Premium on bonds payable Interest expense Oct, 1 Interest expense Premium on bonds payable Cash Dee. 31 Interest expense ‘Accrued interest payable 31 Premium on bands payable Interest expense (17.276 x 16) Problem 6-5 1 Interest expense for 2021 (3,805,600 x 10%) Interest paid for 2021 Discount amortization Bonds payable Issue price proceeds from issuance Discount on bonds payable - 12/31/2020 Amortization for 2021 Discount on bonds payable - 12/31/2021 Bonds payable Payment on 12/31/2021 Bonds payable — 12/31/20: 2,101,520 105,076 14928 7838 120,000 7835 103,546 16.454 60,000 5638 45 2,000,000 101,520 120,000 7835 60,000 120,000 7.838 120,000 60,000 8,638 380,560 4,000,000 198.400 4,000,000 5200,000Requirement 2 1. Cash Discount on bonds payable Bonds payable Interest expense Cash 3. Interest expense ‘Discount oa bonds payable 4. Bonds payable Cash Problem 66 1. December 31, 2020 Principal payment Interest payment (6,000,000 x 6%) Total payment ~ 12/31/2020 ‘December 31, 2021 Principal payment Interest payment (4,000,000 » 6%) Total payment ~ 12/31/2021 December 31, 2022 Principal payment Interest payment (2,000,000 x 6%) ‘Total payment ~ 12/31/2022 Present value ‘December 31, 2020 (2.360,000 x 9259) December 31, 2021 (2.240.000 x 8573) December 31, 2022 (2,120,000 x.7938) Total present value 2 Cash Discount on bonds payable ‘Bonds payable Interest expense ‘Cash (6% x 6,000,000) Interest expense Discount on bonds payable Interest expense (8% x 5,788,332) Interest paid Discount amortization Bonds payable Cash 3. Bonds payable - 1/1/2020 Discount on bonds payable Principal payment on 12/31/2020 Carrying amount ~ 12/31/2020 3,805,600 194.400 320,000 5,788,332 211,668 103,067 4,900,000 320,000 60,560 103,067 463,067 non iow 2,000,000 6,000,000 (108,601), (2.g0n.000) LianeProblem 6-7 1. Interest (P1,000,000 x 11.47) Principal (P20,000,000 x 0.31180) 2 Cash Discount on bonds payable Bonds payable 3. Interest expense (6% x 17,706,000) ‘Discount on boads payable ‘Cash (5% x 20,000,000) 4. Interest expense Discount oa boods payable Cash ‘Carying amount January 1, 2020 Amortization of discount January to June Carrying amount — June 30, 2020 Interest expense Duly to December 2020 (6% x 17,768,360) Problem 6-8 1. Interest (P1,000,000 x 12.46) Principal (P20,000,000 x 0.377) 2 Cash ‘Premium on bonds payable Bonds payable 3, Interest expense (5% x 22,492,000) 4. Interest expense Premium on bonds payable Cash ‘Carrying amount - January 1, 2020 Promaur amortization January to tune ‘Carrying amount ~ June 30, 2020 Interest expense July to December 2020 (5% x 22,416,600) Problem 6.9 Requirement 1 PV of interest payment on 6/30/2020 (240,000 x 9615) 17,706,000 2.294.000 1,066,102 22,492,000 1,124,600 75,400 1,120,830 79.170 PV of principal and interest payment on 12/31/2020 (2,000,000 + 240,000 x .9246) PV of interest payment on 6/30/2021 (120,000 x 8890) PV of principal and interest payment on 12/31/2021 (2,000,000 + 120,000 x .8548) Total present value 47 11,470,000 6.236.000 hte 20,000,000 62300 1,000,000 66,102 1,000,000 17,706,000 ie Lipkin ele 14,952,000 140.000 a 2.294,000 20,000,000 1.200.000 1,200,000 22,492,000 (2.40) eet os 230,760 2071,108 106,680