Activity 1: Current Liabilities

Name: _________________________________

Direction: Provide what is asked. Show your solution. No solution means wrong.

Use the following information for the next two questions:

Eliot Corporation’s liabilities at December 31, 2008 were as follows:

Accounts payable and accrued interest P 2,000,000
5-year 10% Notes payable – due December 31, 2011 5,000,000

Part of the loan agreement is for Elliot to appropriate a fixed amount out of its accumulated profits and losses annually until the amount
of appropriation has equaled the face of the obligation. Failure to comply with the loan agreement will make the loan payable on
demand. As of December 31, 2008, Elliot Corporation has yet to comply with the loan agreement.

1. In its December 31, 2008 balance sheet, Elliot should report current liabilities at
a. 2,000,000 b. 2,500,000 c. 5,000,000 d. 7,000,000

2. Assuming the lender agreed on December 31, 2008 to provide a grace period of 12 months for the entity to rectify the breach and
assured Elliot Corporation that no demand of payment is to be made within the grace period, what amount of current liabilities should
Elliot Corporation report in its December 31, 2008 balance sheet?

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a. 2,000,000 b. 2,500,000 c. 5,000,000 d. 7,000,000

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3. Hudson Hotel collects 15% in city sales taxes on room rentals, in addition to a ₱2 per room, per night, occupancy tax. Sales taxes
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for each month are due at the end of the following month, and occupancy taxes are due 15 days after the end of each calendar

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quarter. On January 3, 20x1, Hudson paid its November 20x0 sales taxes and its fourth quarter 20x0 occupancy taxes. Additional
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information pertaining to Hudson's operations is:
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20x0 Room rentals Room nights

October 100,000 1,100
November 110,000 1,200
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December 150,000 1,800

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What amounts should Hudson report as sales taxes payable and occupancy taxes payable in its December 31, 20x0, balance sheet?

Sales taxes Occupancy taxes Sales taxes Occupancy taxes

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a. ₱39,000 ₱6,000 c. ₱54,000 ₱6,000

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b. ₱39,000 ₱8,200 d. ₱54,000 ₱8,200

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Use the following information for the next two questions:

BUGS Appliance Company’s accountant has been reviewing the firm’s past television sales. For the past years, BUGS has been
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offering a special service warranty on all televisions sold. With the purchase of a television, the customer has the right to purchase a 3-
year service contract for an extra P600.
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Information concerning past television and warranty contract sales is given below:

2007 2006
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Television sales in units 550 460

Sales price per unit P5,000 P4,000
Number of service contracts sold 350 300
Expenses relating to television warranties 38,520 13,400

BUGS’ accountant has estimated from past records that the pattern of repairs has been 40% in the year of sale, 36% first year after
sale and 24% on 2nd year of sale. Sales of the contracts are made evenly during the year.

4. What is the adjusted balance of the unearned service contract as of December 31, 2007?
a. 111,600 b. 168,600 c. 211,200 d. 243,600

5. How much profit on service contract would be recognized in year 2007?

a. 42,000 b. 68,400 c. 71,880 d. 110,400

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 6. Archilles Company reported the following liability balances on December 31, 2020:
12% note payable issued on March 1, 2019, maturing on March 1, 2021 5,000,000
10% note payable issued on October 1, 2019, maturing October 1, 2021 3,000,000

The 2020 financial statements were issued on March 31, 2021.

On January 31, 2021, the entire P 5,000,000 balance of the 12% note payable was refinanced through issuance of a long-term
obligation payable lump sum.

Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the obligation for at least twelve
months after December 31, 2020.

What amount of the notes payable should be classified as current on December 31, 2020?
a. P 8,000,000 b. P 5,000,000 c. P 3,000,000 d. P 0

7. Willem Company reported the following liabilities on December 31, 2020:

Accounts payable 750,000
Short-term borrowings 400,000
Mortgage payable, current portion P 100,000 3,500,000
Bank loan payable, due June 30, 2021 1,000,000

The P 1,000,000 bank loan was refinanced with a 5-year loan on January 15, 2021, with the first principal payment due January

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15, 2022.

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The financial statements were issued February 28, 2021.
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What total amount should be reported as current liabilities on December 31, 2020?
a. P 1,150,000 b. P 2,250,000 c. P 1,250,000 d. P 850,000

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8. Weaver Company sells magazine subscription for a 1-year, 2-year or 3-year period.
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Cash receipts from subscribers are credited to magazine subscriptions collected in advance and this account had a balance of P
1,700,000 on January 1, 2020.
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The entity provided the following information for the year ended December 31, 2020:
Cash receipts from subscribers 2,100,000
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Magazine subscriptions revenue credited on December 31, 2020 1,500,000

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On December 31, 2020, what amount should be reported as the balance for magazine subscription collected in advance?
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a. P 1,900,000 b. P 2,300,000 c. P 1,400,000 d. P 2,100,000

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