PROBLEM 5
PROBLEM 5 (STARS COMPANY): Stars Company is a business that has been incorporated for over 25 years. The company adopts a fiscal year from April 1 to March 31. The following information relates to the liabilities of Stars for the current fiscal-year ended March 31, 2022: Notes Payable: Stars has signed several notes with financial institutions and insurance companies. The maturities of these notes are given below. As of March 31, 2022, interest expense recorded before any accruals amounts to P60,000. The total unpaid interest for all these notes, which are left unaccrued. amounts to P90,000. Maturity Date Amount Due April 1, 2022 P100,000 July 1, 2022 200,000 October 1, 2022 100,000 January 1, 2023 200,000 April 1, 2023 600,000 June 30, 2023 400,000 August 31, 2023 400,000 November 1, 2023 500,000 December 31, 2023 500,000 TOTAL P3,000,000 Premiums: Stars has initiated a promotion program last fiscal year where each box of Product X contains one coupon, which if submitted with P40, entitles the customer to a complementary Product Y. The company expects that 80% of the coupons will be redeemed. Stars pays P90 for each Product Y and incurs additional P10 for handling and shipping costs upon redemption. The following information is available on the promotional program of Stars: Last Fiscal Year Current Fiscal Year Number of Product X boxes sold 70,000 95,000 Selling price per box P70 P75 Number of complementary Product Y 26,000 32,000 purchased Number of complementary Product Y 5,000 4,000 remaining at fiscal year-end Warranties: Stars commenced a two-year warranty program during the current year. It is estimated that warranty costs shall be approximately P75 in parts and P50 in labor per unit returned. The company further estimates that 2/3 of the units sold shall be returned during the warranty period, with 40% returned on the year of sale and 60% on the year following the sale. For the current fiscal year, the company recorded sales of P6,000,000 from the products covered by the warranty with each unit sold at P2,000. Moreover, actual warranty costs incurred amounted to P98,000 which the company charged to warranty expense. No other entries were made by Stars related to the warranty program. Bonus: Stars grants its company president an annual bonus. Said bonus is composed a basic amount equivalent to 10% of the company's net income before deducting the bonus but after deducting the corporate income tax, which is deductible in computing the company's taxable income. Stars registered a net income of P1,000,000 for the current fiscal year before deducting both the annual bonus and the corporate income tax based on a 30% rate. Dividends: On March 15, 2022, Stars Company's board of directors declared a cash dividend of PO.75 per share and a 15% stock dividend. Both dividends were to be distributed on April 12, 2022 to the ordinary shareholders of record at the close of business on March 31, 2022. Data regarding the company's ordinary shares were as follows: Par value per share P5 Number of shares issued 2,500,000 Number of shares outstanding 2,000,000 Market value per share: March 15, 2022 P22.00 March 31, 2022 P21.50 April 12, 2022 P22.50
