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Hello Company is considering two different proposals for computing...

Hello Company is considering two different proposals for computing the bonus for its new company president.

The first plan states that the bonus would be equal to 6% of profits after the bonus but before tax have been

deducted. The second method is based on profits after both tax and bonus have been deducted at the rate of

12%. Income before income tax and bonus for 2018 is P 9,000,000. Income tax rate is 35%.

5. How much is the amount of bonus under the first plan?


6. How much is the amount of bonus under the second plan?


Winter Co. is being sued for illness caused to local residents as a result of negligence on the company's part in

permitting the local residents to be exposed to highly toxic chemicals from its plant. Winter's lawyer states that

it is probable that Winter will lose the suit and be found liable for a judgment costing Winter anywhere from

P1,200,000 to P6,000,000. However, the lawyer states that the most probable cost is P3,600,000.

7. As a result of the above facts, Winter should accrue

a. a loss contingency of P1,200,000 and disclose an additional contingency of up to P4,800,000.

b. a loss contingency of P3,600,000 and disclose an additional contingency of up to P2,400,000.

c. a loss contingency of P3,600,000 but not disclose any additional contingency.

d. no loss contingency but disclose a contingency of P1,200,000 to P6,000,000.

On December 25, 2020, an employee filed a P3,000,000 lawsuit against Oslo Company for damages suffered

when one of Oslo's equipment malfunctioned in August of 2020. The legal counsel of the company believes that

it is probable that Oslo will pay the damages ranging between P500,000 to P1,000,000 but P820,000 is considered

to be the best estimate of the obligation. On March 1, 2021, the employee has offered to settle the lawsuit out of

court for P925,000 and the company accepted the offer and settled the amount. The financial statements were

authorized to be issued on March 31, 2021.

8. How much is the provision that should be recognized on December 31, 2020?


On January 1, 2019 Cheese Company acquired and installed an oil rig. The was acquired at its fair value of

P20,000,000 and the company incurred a total P2,000,000 to install and prepare the asset for its intended use.

The estimated useful life of the rig is 10 years and after which the company has an obligation to dismantle

immediately. Initial estimate of the cash outflow to dismantle the rig is P500,000. The discount rate is 10%. On

January 1, 2021 Cheese Company revised the estimate to dismantle the rig to P700,000.

9. What is the carrying value of the oil rig immediately after the revised estimate was accounted for?


Vargas Company has 35 employees who work 8-hour days and are paid hourly. On January 1, 2019, the company

began a program of granting its employees 10 days of paid vacation each year. Vacation days earned in 2019

may first be taken on January 1, 2020. Information relative to these employees is as follows:

Hourly Vacation Days Earned Vacation Days Used

Year Wages by Each Employee by Each Employee

2019 P70.00 10 0

2020 75.00 10 8

2021 80.00 10 10

10. If Vargas has chosen to accrue the liability for compensated absences at the current rates of pay

in effect when the compensated time is earned. What is the amount of the accrued liability for

compensated absences that should be reported in Vargas's statement of financial position for the year

ended December 31, 2021?


11. If Vargas has chosen a policy to record the liability existing at the end of each year at the wage

rate for that year. What is the amount of the accrued liability for compensated absences that should

be reported in Vargas's statement of financial position for the year ended December 31, 2021?


On December 31, 2019, the bookkeeper of Grand Company provided the following information:

Accounts payable, net of suppliers' debit balance

of P500,000 P 2,000,000

Notes payable, including note payable to bank due on

December 31, 2021 for P1,000,000 3,000,000

Share dividends payable 800,000

Credit balance in customers' accounts 400,000

Serial bonds, payable in semiannual installments of P1,000,000 10,000,000

Accrued interest on bonds payable 300,000

Contingent liabilities 600,000

Unearned rent income 100,000

12. In the December 31, 2019 Statement of Financial Position, how much current liabilities should

be reported?

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