PROBLEM 4
1. Financial and Non-financial liabilities
Accounts Payable
Preference shares issued
with mandatory redemption
Utilities Payable
Rent Payable
Total financial liabilities to be disclosed
in Mid-Earth Co.'s 20x1 notes to financial statement
2. Current and Noncurrent liabilities
Accounts Payable
Held for trading financial liabilities
Note payable due in 20x2
Unearned revenue
Dividends payable
Total current liabilities of Patience Co.'s as of 12/31/20x1
3. Refinancing agreement & Liabilities payable on demand
8-year loan maturing on December 31, 20x2
Planned refinancing on Feb 2, 20X2 is a non-adjusting event
and does not change classification
6,000,000 loan that is payable on demand
Turmeric Co. has no unconditional right to defer settlement
beyond 12 months, regardless of the creditor’s intention.
Loan with breach of loan provision
The breach accelerated repayment within 12 months. A grace
period was obtained Jan 12, 20X2 (after year-end), so at
12/31/20X1 Turmeric still lacked the right to defer for >12
months. Post-year-end waiver doesn’t change the
classification.
Total current liabilities as of 12/31/20x1
4. Accounts Payable
Unadjusted Accounts Payable
Goods on FOB shipping point, shipped on 12/28/20x1
not recorded at year-end
Goods on FOB destination, recorded at year-end,
received on 01/6/20x2
Adjusted balance of Accounts Payable on 12/31/20x1
5. Unearned Income
20x1
20x2
Subscription revenue
Unearned revenue, 12/31/20x2
6. Gift Certificates
Cash
Gift Card Liability
to record the sale of gift certificates
Gift Card Liability
Revenue
to record the redemption of gift certificates
Gift Card Liability
Breakage Revenue
to record the revenue from expected breakage
Computation:
Gift certificates sold
Multiply by
Total expected breakage
Gift certificates sold
Total expected breakage
Gift certificates sold net of expected breakage
Gift certificates redeemed
Divide by: Gift certificates sold net of expected breakage
Percentage of actual redemption
Total expected breakage
Multiply by: Percentage of actual redemption
Amount of expected breakage recognized as revenue
7. Accrued Liabilities
Unadjusted current liabilities
Utilities payable at year-end
Employee withholding taxes in 20x1 (understated)
Adjusted current liabilities
15,000 *Unearned income is excluded
*Warranty obligation is exclud
y redemption 100,000 *Deferred tax liability is exclud
16,000 *PhilHealth contribution payab
9,000 *Share dividends payable is ex
abilities to be disclosed 140,000
s 20x1 notes to financial statement
500,000 *1,800,000 remainder in notes
ancial liabilities 1,000,000
1,000,000
300,000
800,000
bilities of Patience Co.'s as of 12/31/20x1 3,600,000
ilities payable on demand
ng on December 31, 20x2 10,000,000
ancing on Feb 2, 20X2 is a non-adjusting event
change classification
t is payable on demand 6,000,000
has no unconditional right to defer settlement
onths, regardless of the creditor’s intention.
f loan provision 14,000,000
ccelerated repayment within 12 months. A grace
tained Jan 12, 20X2 (after year-end), so at
urmeric still lacked the right to defer for >12
year-end waiver doesn’t change the
bilities as of 12/31/20x1 30,000,000
ts Payable 1,200,000
ping point, shipped on 12/28/20x1
at year-end 70,000
ination, recorded at year-end,
(80,000)
e of Accounts Payable on 12/31/20x1 1,190,000
160,000
2,690,000
2,850,000
ue, 12/31/20x2 110,000
400,000
400,000
sale of gift certificates
216,000
216,000
redemption of gift certificates
24,000
24,000
revenue from expected breakage
400,000
10%
d breakage 40,000
400,000
d breakage (40,000)
es sold net of expected breakage 360,000
es redeemed 216,000
t certificates sold net of expected breakage 360,000
actual redemption 60%
d breakage 40,000
ercentage of actual redemption 60%
xpected breakage recognized as revenue 24,000
liabilities 5,480,000
year-end 50,000
ing taxes in 20x1 (understated) 20,000
liabilities 5,550,000
Unearned income is excluded because the obligation is to deliver goods/services, not cash
Warranty obligation is excluded because the obligation is to provide repair/replacement services
Deferred tax liability is excluded because the obligation is to pay taxes in the future, imposed by law not contra
PhilHealth contribution payable is excluded because it is a statutory obligation, not contractual
Share dividends payable is excluded because it is an equity transaction
1,800,000 remainder in notes payable is not due within 12 months
nt services
mposed by law not contract
