Self Test – Liabilities
Problem 1
In package of the products, an entity included coupons that may be presented at retail
stores to obtain discounts. Retailers were reimbursed for the face amount 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 consumer expiration date is December 31, 2020. The total face amount
of coupons issued was P6,000,000 and the total payments to retailers during 2020
amounted to P2,200,000. What amount should be reported as liability for unredeemed
coupons on December 31, 2020?
A. 3,080,000
B. 2,000,000
C. 2,420,000
D. 0
Problem 2
An entity frequently borrowed from the bank in order to maintain sufficient operating
cash. The following loans were at a 12% interest rate with interest payable at maturity.
The entity repaid each loan on scheduled maturity date.
Date of Loan Amount Maturity Date Term of loan
November 1, 2019 500,000 October 31, 2020 1 year
February 1, 2020 1,500,000 July 31, 2020 6 months
May 1, 2020 3,000,000 January 31, 2021 9 months
The entity recorded interest expense when the loans are repaid. As a result, interest
expense of P150,000 was recorded in 2020. If no correction is made, by what amount
would interest expense be understated in 2020?
A. 380,000
B. 230,000
C. 240,000
D. 350,000
Problem 3
An entity reported in the first year of operations pretax financial income of
P6,000,000. The current year tax rate is 30% and the enacted rate for future years is
25%.
Tax Return Accounting record
Uncollectible accounts expense 200,000 300,000
Depreciation expense 800,000 500,000
Tax exempt interest revenue - 150,000
1. What is the current tax expense?
a. 1, 695,000
b. 1,755,000
c. 1,740,000
d. 1,600,000
2. What is the net deferred tax expense or benefit?
a. 75,000 expense
b. 25,000 benefit
c. 50,000 expense
d. 50,000 benefit
3. What is the total tax expense?
a. 1,755,000
b. 1,462,500
c. 1,795,000
d. 1,745,000
Problem 4
On January 1, 2020, an entity entered into an 8-year lease of a floor of building with
useful life of 15 years with the following terms:
Annual rental for the first three years payable at the end of 300,000
each year
Annual rental for the next five years payable at the end of 400,000
each year
Implicit interest rate 10%
PV of an ordinary annuity of 1 at 10% for three periods 2.49
PV of an ordinary annuity of 1 at 10% for five periods 3.79
PV of 1 at 10% for three periods 0.75
1. What is the interest expense for 2020?
A. 188,400
B. 226,300
C. 151,600
D. 169,725
2. What is the lease liability on December 31, 2020?
A. 1,772,400
B. 1,649,640
C. 1,584,000
D. 1,514,604
3. What is the interest expense for 2023?
A. 151.460
B. 126.606
C. 164,964
D. 200,000
Problem 5
An entity provided the following information for the current year:
Current service cost 500,000
Past service cost during the year 300,000
Interest on PBO 600,000
Interest income on plan assets 350,000
Loss on plan settlement before normal retirement 250,000
date
Present value of benefit obligation settled in 950,000
advance
Actual return on plan assets 850,000
Actuarial loss on PBO during the year 200,000
Contribution to the plan 1,500,000
Benefits paid to retirees 1,000,000
Discount or settlement rate 10%
1. What is the employee benefit expense for the current year?
A. 1,300,000
B. 1,050,000
C. 1,500,000
D. 1,100,000
2. What is the net remeasurement of the defined benefit plan for the current year?
A. 500,000 gain
B. 500,000 loss
C. 300,000 gain
D. 300,000 loss
3. What is the fair value of plan assets at year-end?
A. 3,650,000
B. 4,650,000
C. 4,900,000
D. 5,850,000
4. What is the projected benefit obligation at year-end?
A. 5,650,000
B. 6,650,000
C. 6,400,000
D. 6,450,000
