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In the course of your audit of Jurassic World Inc.'s December 31, 2021 liabilities the following schedule was presented to you by Jurassic World Inc.'s bookkeeper: Accounts payable P225,000 Estimated premiums liability ? Estimated warranties payable 320,750 Accrued salaries 240,400 Deferred tax liability ? Notes payable, 20% due 4/1/22 Serial bonds payable, 10% Total ? Audit notes: Continuation in the photos* Assuming that the premuims are considered as a separate performance obligation under PFRS 15 (each t shirt has a stand alone sales price at 100 each), what is the correct unearned income as of December 31, 2021?

In the course of your audit of Jurassic World Inc.'s December 31, 2021 liabilities the following schedule was presented to you by Jurassic World Inc.'s bookkeeper: Accounts payable P225,000 Estimated premiums liability ? Estimated warranties payable 320,750 Accrued salaries 240,400 Deferred tax liability ? Notes payable, 20% due 4/1/22 Serial bonds payable, 10% Total ? Audit notes: Continuation in the photos* Assuming that the premuims are considered as a separate performance obligation under PFRS 15 (each t shirt has a stand alone sales price at 100 each), what is the correct unearned income as of December 31, 2021?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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In the course of your audit of Jurassic World Inc.'s December 31, 2021 liabilities the following schedule was presented to you by Jurassic World Inc.'s bookkeeper: Accounts payable P225,000 Estimated premiums liability ? Estimated warranties payable 320,750 Accrued salaries 240,400 Deferred tax liability ? Notes payable, 20% due 4/1/22 Serial bonds payable, 10% Total ? Audit notes: Continuation in the photos* Assuming that the premuims are considered as a separate performance obligation under PFRS 15 (each t shirt has a stand alone sales price at 100 each), what is the correct unearned income as of December 31, 2021? A. 305,555 B. 95,486 C. 138,889 D. 444,444
ount which amounted to P b. The company started a promotional program in 2021 whereby for every five product labels customer surrenders with P25 cash, a customer shall receive an especially designed t-shirt. The company sold 40,000 units (P150 sales price per unit) of the product covered by the said promotional program and purchased 4,500 t- shirts in anticipation of the premium's redemption which the company appropriately debited to premiums inventory account upon purchase, Each t-shirt costs P95. The company estimates that 60% of the product labels accompanying sales shall ultimately be presented for the redemption of premiums. 1,200 t-shirts remained on hand as of December 31, 2021. Actual redemptions during the year were appropriately recorded, while accrual at year-end is yet to be made. c. The company also has a two-year warranty (assurance-type) on its products. The warranty estimate is at 8% of the peso sales, two thirds of which is expected to be incurred during the year of sale and one-third on the year following the year of sale. The summary of the company's total sales and actual warranty costs incurred for the past three years are presented below (Assume sales were made evenly throughout the year): Net Sales LActual costs paid 2019 P4,000,000 2020 4,525,000 233,750 | 2021 5,275,000 285,250 127,500 The company is yet to update its warranty liabilities as of December 31, 2021. d. The 20% Notes payable was to a bank and was originally dated April 1, 2019 with a 3 year term with interest payable annually every April 1. On December 31, 2021, the company entered into an agreement with the bank to refinance the notes payable by issuing another 5 year notes payable, the proceeds of which shall be used to refinance the obligation maturing currently. As part of the agreement, the company is to offer an asset as a security/collateral on the loan and that the loan amount will be set at 75% of the fair market value of the asset being offered as collateral. As of December 31, 2021 the asset offered as collateral had a fair market value of P600,000. Due to the nature of the asset, its fair market value is not expected to materially change at any time up to the execution of the refinancing agreement.
Transcribed Image Text:ount which amounted to P b. The company started a promotional program in 2021 whereby for every five product labels customer surrenders with P25 cash, a customer shall receive an especially designed t-shirt. The company sold 40,000 units (P150 sales price per unit) of the product covered by the said promotional program and purchased 4,500 t- shirts in anticipation of the premium's redemption which the company appropriately debited to premiums inventory account upon purchase, Each t-shirt costs P95. The company estimates that 60% of the product labels accompanying sales shall ultimately be presented for the redemption of premiums. 1,200 t-shirts remained on hand as of December 31, 2021. Actual redemptions during the year were appropriately recorded, while accrual at year-end is yet to be made. c. The company also has a two-year warranty (assurance-type) on its products. The warranty estimate is at 8% of the peso sales, two thirds of which is expected to be incurred during the year of sale and one-third on the year following the year of sale. The summary of the company's total sales and actual warranty costs incurred for the past three years are presented below (Assume sales were made evenly throughout the year): Net Sales LActual costs paid 2019 P4,000,000 2020 4,525,000 233,750 | 2021 5,275,000 285,250 127,500 The company is yet to update its warranty liabilities as of December 31, 2021. d. The 20% Notes payable was to a bank and was originally dated April 1, 2019 with a 3 year term with interest payable annually every April 1. On December 31, 2021, the company entered into an agreement with the bank to refinance the notes payable by issuing another 5 year notes payable, the proceeds of which shall be used to refinance the obligation maturing currently. As part of the agreement, the company is to offer an asset as a security/collateral on the loan and that the loan amount will be set at 75% of the fair market value of the asset being offered as collateral. As of December 31, 2021 the asset offered as collateral had a fair market value of P600,000. Due to the nature of the asset, its fair market value is not expected to materially change at any time up to the execution of the refinancing agreement.
Audit notes: a. Your purchases cut-off procedures resulted to the following information: December Purchase Journal Entries: Receiving Report Date Dec. 26 Dec. 22 Dec. 28 Dec. 29 Dec. 30 Amount Remarks P52,000 FOB destination 66,000 FOB shipping point 22,000 From donsignor 35,000 Sale with repurchase agreement 48,000 FOB destination January Purchase Journal Entries: Receivino Report Date Jan. 2 Jan. 2 Amount Remarks FOB destination (In-transit as of Dec. 31) P32,000 38,000 FOB Shipping point (In-transit as of Deč. 31) 15,000 From consignior 41.000 Bill and Hold agreement (completed in Dec.) 55,000 FOB destination Jan. 3 Jan. 3 Jan. 4 *The accounts payable balance is net of a P12,000 debit balance in one of the supplier's account. This is eventually offset by a receipt of merchandise in January. **Inventories are counted on December 29, thus all goods received on or before December 29 were included in the physical count which amounted to P201.00o. b. The company started a promotional program in 2021 whereby for every five product labels customer surrenders with P25 cash, a customen shall receive art especially designed t-shirt. The company sold 40,000 units (P150 sales price per unit) of the product covered by the said promotional program and purdhased 4,500 t- shirts in anticipation of the premium's redemption which the company appropriately debited to premiums inventory account upon purehase, Each t-shirt costs P95. The company estimates that 60% of the product labels accompanying sales shall ultimately be presented for the redemption of premiums. 1200 t-shirts ramained on hand as of December 31, 2021. Actual redemptions during the year were appropriately recorded, while acarual at year-end is vet to be made.
Transcribed Image Text:Audit notes: a. Your purchases cut-off procedures resulted to the following information: December Purchase Journal Entries: Receiving Report Date Dec. 26 Dec. 22 Dec. 28 Dec. 29 Dec. 30 Amount Remarks P52,000 FOB destination 66,000 FOB shipping point 22,000 From donsignor 35,000 Sale with repurchase agreement 48,000 FOB destination January Purchase Journal Entries: Receivino Report Date Jan. 2 Jan. 2 Amount Remarks FOB destination (In-transit as of Dec. 31) P32,000 38,000 FOB Shipping point (In-transit as of Deč. 31) 15,000 From consignior 41.000 Bill and Hold agreement (completed in Dec.) 55,000 FOB destination Jan. 3 Jan. 3 Jan. 4 *The accounts payable balance is net of a P12,000 debit balance in one of the supplier's account. This is eventually offset by a receipt of merchandise in January. **Inventories are counted on December 29, thus all goods received on or before December 29 were included in the physical count which amounted to P201.00o. b. The company started a promotional program in 2021 whereby for every five product labels customer surrenders with P25 cash, a customen shall receive art especially designed t-shirt. The company sold 40,000 units (P150 sales price per unit) of the product covered by the said promotional program and purdhased 4,500 t- shirts in anticipation of the premium's redemption which the company appropriately debited to premiums inventory account upon purehase, Each t-shirt costs P95. The company estimates that 60% of the product labels accompanying sales shall ultimately be presented for the redemption of premiums. 1200 t-shirts ramained on hand as of December 31, 2021. Actual redemptions during the year were appropriately recorded, while acarual at year-end is vet to be made.
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