SHM Corporation establishes a P90million liability at the end of 2019 for the estimated litigation settlement for manufacturing defects. All related costs will be paid and deducted on the tax return in 2020. Also at the end of 2019, the Company has P50million of temporary differences due to excess depreciation for tax purposes, P7million will reverse in 2020.

The enacted tax rate for all years is 40% and the Company pays taxes of P64million on P160million of taxable income in 2012. SHM expects to have taxable income in 2020.

Instructions:

(a) Determine the deferred taxes to be reported at the end of 2019

(b) Indicate how the deferred taxes computed in (a) are to be reported in the balance sheet.

(c) Assuming that the only deferred tax account at the beginning of 2012 was a deferred tax liability of P10,000,000, draft the income tax expense portion of the income statement for 2019 beginning with the line "Income before income taxes.

WL Company sold 1,500 color laser copiers in 2019 for P40, 000 per piece, together with a one year warranty. Maintenance on each copier during the warranty period averages P3, 000.

Instructions:

(a) Prepare entries to record the sale of copiers and the related warranty costs, assuming that the accrual method is used. Actual warranty costs incurred in 2019 were P170, 000.

(b) On the basis of data above, prepare the appropriate entries, assuming that the cash basis method is used.

BTS Music Shop carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. BTS uses two sales promotions techniques - warranties and premiums - to attract customers.

Musical instruments and sound equipment are sold with one year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience is 2% of sales.

The premium is offered on the recorded and sheet music. Customers may exchange 2,000 coupons and P200 for a Bluetooth speaker. BTS pays P320 for each speaker and estimates that 60% of the coupons given to customers will be redeemed.

BTS's total sales for 2019 were P72, 000,000 - P57, 000,000 from musical instruments and sound reproduction equipment and P15, 000,000 from recorded music and sheet. Replacement parts and labor for warranty work totalled P1, 640,000 during 2019. A total of 65,000 Bluetooth speakers used in the premium program were purchased during the year and there were P12, 000,000 coupons redeemed in 2019.

The accrual method is used by BTS to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2019 were shown below:

Inventory of premiums P376,000

Premium Liability 44,800

Warranty Liability 136,000

Instructions:

BTS Music Shop is preparing its financial statements for the year ended December 31, 2019. Determine the amounts that will be shown in on the 2019 financial statements for the following:

(1) Warranty expense

(2) Warranty Liability

(3) Premium Expense

(4) Inventory of Premiums

(5) Premium Liability