1 Liabpdf PDF Free
1 Liabpdf PDF Free
PREMIUM LIABILITY
Problem 1-1(AICPAAdapted)
In an effort to
increase sales, Mill Company
inaugurated a sales
promotional campaign on June 30, 2018. The entity
redeemable for a placed a coupon
premium in each package of cereal sold.
Each premium cost P20 and five
coupons must be presented by a
customer to receive a premium. The
of the coupons issued would be entity estimated that only 60%%
redeemed.
For the six months ended December
31, 2018, the following
information is available:
Packages of cereal sold
Premium purchased 160,000
12,000
Coupons redeemed 40,000
1. What is the premium expense for 2018?
a. 640,000
b. 384,000
C. 240,000
d. 160,000
2. What isthe estimatedliability for premiumson December 31,2018?
a. 160,000
b. 224,000
C. 288,000
d. 384,000
Solution 1-1 Question 1 Answer b Question 2 Answer b.
a. 6,000,000
b. 7,500,000
c. 4,500,000
d. 2,000,000
2. What amount should be reported as liability for unredeemed
coupons at year-end?
a. 1,000,000
b. 1,500,000
C. 3,000,000
d. 5,000,000
Solution 1-2
Questionl Answera
Net premium expense (50 + 5 -
40)
2
Problem 1-3(AICPAAdapted)
In packages of the products, Curran
that may be presented at retail stores Company
included coupons
to obtain discounts on other
Curran products.
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 upP
to three months after the consumer expiration date.
The entity estimated that 70% ofall coupons issued would ultimately
be redeemed. The consumer expiration date is December 31, 2018.
The total face amount of coupons issued was P600,000 and the total
payments to retailers during 2018 amounted to P220,000.
1. What is the premium expense for 2018?
a. 600,000
b. 180,000
C. 462,000
d. 198,000
2. What amount should be reported as liability for unredeemed coupons
on December 31, 2018?
a. 308,000
b. 200,000
C. 242,000
d. 0
Solution 1-3
Question l Answer C
Question 2 Answer c
The Series A coupons already expired on June 30, 2018 and therefore
there is no more estimated liability.
4
Problem 1-5 (AICPAAdapted)
a. 350,000
b. 290,000
c. 250,000
d. 225,000
coupons
The entity estimated at the end the year that it would be probable that
50% of the box tops will be redeemed.
The entity sold 100,000 boxes of the product during the current year
and 40,000 box tops were redeemed during the year.
Solution 1-6
Questionl Answera
Cost of glass 200
Remittance from customer
(50)
Net premium cost 150
Box tops to be redeemed (50% x 100,000)
Box tops redeemed
50,000
40,000
Outstanding 10,000
Premium expense (50,000/2 25,000 x 1S0) 3,750,000
Question 2 Answer c
Units Amount
Sales of product 100,000 30,000,000
Basketballs purchased 5,500 4,125,Q00
Basketballs distributed 4,000
1. What is the premium expense for the year?
a. 4,500,000
b. 1,500,000
C. 4,125,000
d. 7,500,000
2. What is the amount of year-end estimated liability associated with
this promotion?
a. 4,125,000
b. 1,500,000
C. 3,000,0000
d. 4,500,000
Solution 1-7
Question l Answer a
60%/ 10) 6,000
Basketballs to be distributed (100,000
x
(4,125,000/5,500) 750
Cost of basketball
4,500,000
Premium expense (6,000 x 750)
Question 2 Answer b
1.500,000
Estimated liability (2,000 x 750)
Problem 1-8 (IAA)
Charlene Company includes one coupon in each box of laundry soap it
sells. A towel is offered as a premium to customers who send in 10
coupons and a remittance ofP10.
Distribution cost ofpremium is P5. Experience indicates that only 30%
ofthe coupons will be redeemed.
2018 2019
Boxes of soap sold 2,000,000 2,500,000
Number of towels purchased at PS0 each 50,000 80,000
Coupons redeemed 400,000 700,000
1. What is the premium expense for 2018?
a. 2,500,000
b.2,400,000
C. 1,800,000
d. 2,700,000
a. 1,000,000
b 1,100,000
C. 800,000
d. 900,000
3. What is the premium expense for 2019?
a. 3,000,000
b. 3,750,000
C. 3,375,000
d. 4,000,000
a. 1,000,000
b. 1,250,000
C 1,125,000
d. 1,375,000
Solution 1-8
Questionl Answer d
Cost of towel 50
Remittance from customer (10)
Distribution cost
Net premium cost
45
Coupons to be redeemed in 2018 (2,000,000 x 30%) 600,000
Coupons redeemed in 2018 (400,000)
Coupons outstanding - December 31, 2018
200,000
Ouestion 2 Answer d
Question 3 Answer c
Coupons to be redeemed in 2019 (2,500,000 x 30%) 750,000
Question 4 Answer c
Coupons outstanding
-
December 31, 2018 200,000
Coupons to be redeemed in 2019 (2,500,000 x 30%) 750,000
Total coupons to be redeemed 950,000
Coupons redeemed in 2019 (700,000)
Coupons outstanding
-
December 31, 2019 250,000
Estimated liability - 12/31/2019 (250,000/ 10 x 45) 1,125,000
Problem -9 (IAA)
Love Company included one
coupon in each package sold. A premium
is offered to customers who
send in 10 coupons.
2018 2019
Number of packages sold 500,000 800,000
Number of premiums purchased at P40 each 30,000 60,000
Number of premiums distributed 20,000 50,000
Number of premiums to be distributed next period 5,000 3,000
1. What amount should be reported as premiun1 expense for 2018?
a. 1,000,000
b. 1,200,000
C. 600,000
d. 500,000
2. What is the premium liability on December 31, 2018?
a. 400,000
b. 200,000
C. 600,000
d. 300,000
4. What is the
premum liability on December 31, 2019?
a. 320,000
b. 400,000
C. 120,000
d. 520,000
10
Solution 1-9
Ouestion l Answera
200,000
Question 3 Answer d
Premiums distributed in 2019 50,000
Premiums to be distributed in 2020 3,000
Total 53,000
Premiums arising from 2018 sales distributed in 2019 ( 5,000)
Premiums applicable to 2019 48,000
Premium expense for 2019 (48,000 x 40) 1,920,0000
Question 4 Answer c
Estimated liability -
12/31/2019 (3,000 x 40) 120,000
Problem 1-10 (LAA)
At the beginning of curent year, Clam Company offers the customers a
pottery cereal bowl if they send in three boxtops from the products and
P10. The entity estimated that 60% of the boxtops would be redeemed.
redeemed
During the year, the entity sold 675,000 boxes and customers
330,000 boxtopsreceiving 110,000 bowls.
The cost of each bowl is P25.
1. What is the premium expense for the current year?
a. 2,025,000
b. 6,075,000
C. 4,550,000
d. 1,650,000
2.
2. What is the liability for outstanding premiums at year-end?
a. 250,000
b. 375,000
C. 625,000
d. 875,000
Solution 1-10
Question l Answer a
Boxtops to be redeemed (60% x 675,000) 405,000
Boxtops redeemed (330,000)
Boxtops outstanding 75,000
Cost of cereal bowl 25
Remittance from customer
(10)
Net cost of premium
15
Premium expense (405,000/3 x 15) 2,025,000
Qruestion 2 Answerb
Estimated liability (75,000/3 x 15) 375,000
12
Problem 1-1 (AA)
Solution 1-11
Question l Answera
Rebate expense (10% x 600,000 x 20) 1,200,000
Question 2 Answer a
Rebate expense 1,200,000
Rebate paid (25,000 x 20) 500,000)
Rebate liability 700,000
Problem 1-12 IAA)
During the current year, Deluxe Company sold 80,000 reversible belts
under a new sales
promotional program. Each belt carried one coupon
which entitled the customer to a P50 cash rebate.
The entity estimated that 70% ofthe coupons will be redeemed even
though only 35,000 coupons had been processed during the urrent
year.
a. 1,750,000
b. 1,050,000
C. 1,225,000
d.
Solution 1-12
Questionl Answer b
Coupons to be redeemed (70% x 80,000) 56,000
Multiply by cash rebate per coupon 50
Rebate expense
2,800,000
Question 2 Answer b
Rebate expense
Rebate paid (35,000 x 50) 2,800,000
Rebate liability
(1,750,000)
1,050,000
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Problem 1-13 (IFRS)
Arianne Company, a grocery retailer, operates a customer loyalty
program. The entity grants program members loyalty points when they
spend a specified amount on groceries.
Program members can redeem the points for further groceries. The
points have no expirty date.
a. 7,000,000
b. 8,000,000
C. 6,125,000
d. 6,650,000
for 2019?
2. What is the revenue earned from loyalty points
a. 700,000
b. 210,000
c. 175,000
d. 200,000
Solution 1-13
Questionl Answerd
Product sales 7,000,000
Points granted during the year (10,000 x 100) 1,000,000
Total 8,000,000
Product sales (7,000,000/8,000,000 x 7,000,000) 6,125,000
Points (1,000,000 /8,000,000 x 7,000,000) 875,000
Total transaction price 7,000,000
Product saies 6,125,000
Revenue from points redeemed in 2018
(4,800/8,000 x 875,000) $25,000
Total revenue in 2018 6,650,000
Cash 7,000,000
Sales 6,125,000
Unearned revenue -points 875,000
Unearned revenue -points 525,000
Sales
525,000
Question2 Answerc
Points redeemed in 2018
Points redeemed in 2019
4,800
2,400
Total points redeemed to December 31, 2019 7.200
Cumulative revenue on December 31, 2019
(7,200/9,000 x 875,000)
Revenue from points recognized in 2018 700,000
Revenue from points earned in 2019
(525,000)
175,000
Unearned revenue points
Sales 175,000
175,000
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Problem 1-14 (IFRS)
Jamaica Company, a retailer of electrical goods, participates in a
customer loyalty program operated by an airline.
The entity grantsprogram members one air travel point for every Pl,000
spent on electrical goods.
Program members can redeem the points for travel with the airline
subject to availability. The entity pays the airline P60 for each point.
During the current year, the entity sold electrical goods for consideration
totaling P4,500,000 based on stand-alone selling price and granted
5,000points with stand-alone selling price ofP100 per point.
1. What amount should be recognized as produet sales revenue?
a. 4,500,000
b. 4,050,000
c. 5,000,000
2,500,000
2. What is the net revenue from points?
a. 450,000
b. 150,000
C. 200,000
d. 300,000
Answer b Ouestion 2 Answerb
Solution 1-14 Question 1
Selling price Fraction Allocated
are sold.
17
Problem 1-15 (IFRS)
Alyanna Company operates a customer loyalty program. The entity
grants program members loyalty points when they spend a specified
amount on purchases.
Program members can redeem the points for further purchases. The
points have no expiry date.
During 2018, the customer earmed 60,000 points. Management expects
that 100% ofthesepoints will be redeemed. The stand-alone selling
price of each loyalty point is P20.
The sales during 2018 amounted to P6,800,000 based on stand-alone
selling price.
On December 31, 2018, 28,800 points have been redeemed in
exchange for purchases.
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CHAPTER 2
WARRANTY LIABILITY
Problem 2-1 (AICPAAdapted)
Mill Company sells washing machines that carry a three-year
warranty ågainst manufacturer's defects.
Based on the entity's experience, warranty costs are estimated at
P300 per machine.
During the current year, the entity sold 2,400 washing machines and
paid warranty costs of P170,000.
1. What amount should be reported as warranty expense for the
year?
a. 170,000
b. 240,000
C. 550,000
d. 720,000
Solution 2-1
Ouestion 1 Answer d
20
Problem 2-2 (AICPA Adapted)
On April 1, 2018, Ash Company began offering a new product for
sale under a one-year warranty.
Actual waranty costs incurred from April 1 through June 30, 2018
amounted to P700,000.
a. 2,400,000
b. 4,000,000
C. 2,000,000
d. 1,200,000
Solution 2-2
Questionl Answer a
Question 2 Answerc
21
Problem 2-3 (AICPA Adapted)
Bold Company estimated the annual
warranty expens at 2% of
annual net sales. The net sales for 2018 amounted to P4,000,000.
On January 1, 2018, the warranty liability was P60,000 and the
warranty payments during 2018 totaled P50,000.
Solution 2-3
Question I Answer c
a 250,000
b. 350,000
C. 900,000
d. 750,000
Solution 2-5 Answer c
Warranty 1liability-January 1 650,000
(6,000 x 200) 1,000,000
Warranty expense for the year
Warranty payments 750,000)
Warranty liability-December 31 900,000
3
Problem 2-6 (AICPA Adapted)
In 2018, Dubious Company began selling new line ofproducts that
carry a two-year warranty against defects.
Based upon past experience with other products, the entity estimated
warranty costs as a percentage ofpeso sales.
First year of warranty 2 %
Second year of warranty 5%
2018 2019
Sales 5,000,000 7,000,000
Actual warranty cost 100,000 300,000
24
Solution 2-6
Question l Answer c
25