Question 1

For bonds payable, the cash interest paid in each interest period is
Select one:
A. different depending upon the date of sale
B. not the same amount when the stated and yield interest rates are different.
C. dependent on the initial amount of accrued interest.
D. the same amount regardless of whether the bond was sold at face value, a discount, or at a
premium.

Question 2
Which of the following statements is not correct?
Select one:
A. The principal amount of a debt is the cash or cash equivalent amount borrowed.
B. The reported net carrying amount of a non-interest bearing note payable recorded on a gross basis
will decresse as time goes by.
C. When a non-cash asset is acquired and the stated rate of interest is different from the current
market rate of interest, the cost of the asset is the present value of the future cash payments discounted at
the current market rate of interest rather than at the stated interest rate.
D. A company that receives cash in an amount less than the face amount of a non-interest bearing
note payable should be record the note at its present value.

Question 3
Marx Company becomes aware of a lawsuit after the date of the financial statements, but before they are
issued. A loss and related liability should be reported in the financial statements if the amount can be
reasonably estimated, an unfavorable outcome is highly probable, and
Select one:
A. the court will decide the case within one year.
B. the cause for action occurred during the accounting period covered by the financial statements.
C. the Marx Company admits guilt.
D. the damages appear to be material.

Question 4
Boost Company includes one coupon having no expiration date with its deluxe snack pack. Upon return
of 10 coupons, Boost will send a chip clip, which costs Boost P1.50 each. Past experience indicates that
30% of the coupons will be redeemed. Boost began this promotion in 2019 and sold 1,000,000 deluxe
snack packs. During 2019, 90,000 coupons were received and 9,000 chip clips were distributed to
customers. The December 31, 2019 Statement of Financial Position should include a liability for coupons
outstanding of:
Select one:
A. P315,000
B. P210,000
C. P31,500
 D. P13,500

Question 5
Which of the following statement is correct?
Select one:
A. Bonds maturing at specified single date are called ordinary bonds.
B. Equity securities and debt securities differ only in their effect on a company's cash flow.
C. One purpose in holding bonds as a long-term investment is to provide the inventor a voting voice
in the management of the issuing company.
D. On bonds, the yield rate and the nominal rate of interest are always different.

Question 6
A firm sells products covered by a three-year warranty. Based on the experience of other firms in the
same industry, the firm expects to incur warranty costs equal to 1% of sales. Firm sales were P40,000 and
P50,000 in 2018 and 2019, respectively. In 2019, the firm spent P200 to repair goods sold in 2018, and
P300 to repair goods sold in 2019. The firm received no warranty servicing demands from customers in
2018, the firm's first year of operations. What is the balance in the warranty liability account on January
1, 2020?
Select one:
A. P500
B. P0
C. P400
D. P300

Question 7
Stock dividends distributable should be classified on the
Select one:
A. balance sheet as a liability.
B. income statement as an expense.
C. balance sheet as an item of stockholders' equity.
D. balance sheet as an asset.

Question 8
Alabama includes a premium in each box of cereal sold. For five premiums plus P1.50, customers are
entitled to a plastic doll that costs Alabama P4.00. Alabama expects 40% of the premiums to be
redeemed. In 2019, Alabama sold 600,000 boxes of Cereals and distributed 20,000 dolls. What is
Alabama's estimated liability for unredeemed premiums on December 31, 2019?
Select one:
A. P70,000
B. P80,000
C. P30,000
 D. P160,000

Question 9
On December 31, 2014, Paz Company had the following liabilities: 1) Trade accounts payable -
P200,000; 2) 11% notes payable, maturing in 5 equal instalments every December 30 starting December
2015; 3) 12% notes payable, issued October 15, 2014, maturing February 15, 2015. On December 31,
2014, Paz Company signed a binding agreement with its bank to refinance the 12% note through February
14, 2017, at a variable interest rate. What is the amount of Paz's current liabilities on December 31,
2014?
Select one:
A. Answer not given
B. P500,000
C. P260,000
D. P200,000
E. P580,000

Question 10
Benton Company issues $10,000,000 of 10-year, 9% bonds on March 1, 2017 at 97 plus accrued interest.
The bonds are dated January 1, 2017, and pay interest on June 30 and December 31. What is the total cash
received on the issue date?
Select one:
A. P10,225,000
B. P9,700,000
C. P9,550,000
D. P9,850,000

Question 11
Which of the following would be excluded from current liabilities?
Select one:
a. A long-term liability due on demand by the creditor even though the creditor has given no
indication that the debt will be called.
b. Long-term debt due within one year or less because the debtor violated a debt provision.
c. Normal accounts payable which had been assigned by the creditor to a finance company.
d. A short-term debt which of the discretion of the entity can be rolled over at least twelve months
after the date of the Statement of Financial Position.

Question 12
On September 1, 2016, Looper Co. issued a note payable to National Bank in the amount of $1,200,000,
bearing interest at 12%, and payable in three equal annual principal payments of $400,000. On this date,
the bank's prime rate was 11%. The first payment for interest and principal was made on September 1,
2017. At December 31, 2017, Looper should record accrued interest payable of
Select one:
 A. $32,000.
B. $44,000.
C. $48,000.
D. $29,334.

Question 13
Which of the following statements is correct?
Select one:
A. If a bond is sold at its face amount, the nominal and effective interest rates are the same.
B. The yield or effective interest rate on a bond is equal to the stated rate if the bond premium or
discount is amortized by using the straight line method.
C. Interest revenue and expense related to bonds are always computed using the stated rate of
interest.
D. The terms "yield rate", "stated rate", and "market rate" are generally interchangeable when
referring to interest on bonds.

Question 14
Debentures are
Select one:
A. ordinary bonds.
B. secured bonds.
C. serial bonds.
D. unsecured bonds.

Question 15
Which of the following statements is false?
Select one:
A. When bonds are sold for cash between interest dates, the amount of cash paid by the purchaser to
the seller is increased by the amount of interest accrued from the last interest date to the date of sale
B. When the maturity date of bond issued is within one year of the operating (whichever is longer)
from the date of the statement of financial position, the bond liability should be reclassified as a current
liability (assuming that the payment will be made out of current assets).
C. Bonds maturing at several installment dates are called redeemable bonds.
D. Bonds that do not require registration of ownership for interest payments are called coupon bonds.

Question 16
Which of the following statements is incorrect?
Select one:
A. A bond sold a discount has a present value at the date of sale/purchase less that its face amount.
 B. A bond sold a premium will reduce the effective interest expense for the issuer below what it
would have been had the bond was sold at par.
C. Bond premium equates/reconciles the stated interest rate on a bond to a higher effective rate
related to the bond.
D. A bond sold at a discount will incur interest expense and yield interest revenue at a rate that is
higher than the nominal rate.

Question 17
Shock Company includes three coupons in each package of cracker it sells. In exchange for 20 coupons,
a customer will receive a cheese plate. Shock estimates that 70% of the coupons will not redeemed. In
2019, Shock sold 4,000,000 boxes of crackers and purchased 150,000 cheese plates at P2.50
each. During the year 970,000 coupons were redeemed. What amount should Shock record as premium
expense for 2019?
Select one:
A. P121,250
B. P375,000
C. P450,000
D. P500,000

Question 18
Which of the following provide the best explanation for why warranty expense should be estimated and
recorded in the year of the related sales?
Select one:
A. Revenue recognition
B. Matching
C. Materiality
D. Full disclosure

Question 19
Information available prior to the issuance of the financial statements indicates that it is probable that, at
the date of the financial statements, a liability has been incurred for obligations related to product
warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an
estimated loss contingency should be
Select one:
A. classified as an appropriation of retained earnings.
B. disclosed but not accrued.
C. accrued.
D. neither accrued nor disclosed.

Question 20
During 2016, ABC Company became involved in a tax dispute with the BIR. AT December 31, 2016,
ABC's tax advisor believed that an unfavorable outcome was probable and a reasonable estimate of
additional taxes was P5,000,000 but could be as much as P6,500,000. After the 2016 financial statements
were issued, ABC received and accepted a BIR settlement offer of P5,500,000. What amount of accrued
liability would ABC have to report in its December 31, 2016 Statement of Financial Position?
Select one:
A. P5,750,000
B. P5,500,000
C. P5,000,000
D. P6,500,000

Question 21
an entity uses the calendar year as its reporting period. When the interest payment dates of a bond issue
are March 1 and September 1, and the bond is issued on May 1, the amount of interest expense during the
year of issuance would be for
Select one:
A. six months
B. eight months
C. ten months
D. five months

Question 22
Probable future sacrifices of economic benefits arising from present obligations of a particular entity to
transfer assets or provide services to other entities as a result of past transactions or events defines
Select one:
A. Liabilities
B. Costs
C. Expenses
D. Revenues

Question 23
List Company's accounts payable balance at December 31, 2019 was P540,000 before the year-end
adjustments relating to the following information: 1) Goods with an invoice cost of P30,000 were in
transit from the vendor to List on December 31, 2019. The goods were shipped FOB shipping point on
December 29, 2019 and were received on January 3, 2020; 2) Goods with invoice cost of P15,000 which
were shipped FOB shipping point on December 22, 2019, from a vendor to List, were lost in transit. On
January 4, 2019, List filed a P15,000 claim against the transportation company; and 3) Good with an
invoice cost of P9,000 which were shipped FOB destination from a vendor to List were received on
January 5, 2019. What amount should List report as accounts payable on December 31, 2019?
Select one:
A. P564,000
B. P555,000
C. P585,000
 D. P570,000

Question 24
During 2016, ABC Company became involved in a tax dispute with the BIR. AT December 31, 2016,
ABC's tax advisor believed that an unfavorable outcome was probable and a reasonable estimate of
additional taxes was P5,000,000 but could be as much as P6,500,000. Before the 2016 financial
statements were issued, ABC received and accepted a BIR settlement offer of P5,500,000. What amount
of accrued liability would ABC have to report in its December 31, 2016 Statement of Financial Position?
Select one:
A. P5,500,000
B. P6,500,000
C. P5,000,000
D. P5,750,000

Question 25
We Machines introduced anew machine on January 1, 2018 which carries a two-year warranty against
defects. The estimated warranty costs related to peso sales were 3% in the year of sale and 5% in the year
after sale. In 2018, We Machines reported sales of P40,000 and actual warranty expenditure of P600. In
2019, We Machines reported sales of P60,000 and actual warranty expenditure of P2,200. If the accrual
method is used, what amount relating to warranties should be reflected in We Company's Statement of
Financial Position on December 31, 2019?
Select one:
A. P4,800
B. P5,200
C. P5,000
D. P7,400
E. Answer not given

Question 26
Which of the following statement is true?
Select one:
A. Liabilities must be due within 12 months from the date of the statement of financial position to be
classified as current liabilities.
B. Deposits taken from customers by public utilities should always be reported as current liabilities
by the utility.
C. A short-term deferred revenue should be classified as a current liability.
D. A current liability may be classified as a long-term liability if the entity has the intention to
refinance it after the date of the Statement of Financial Position.

Question 27
Accrued interest on bonds that are sold between interest dates
Select one:
A.
is recorded as a loss on the sale of the bonds.
B. increases the amount a buyer must pay to acquire the bonds.
C. decreases the amount a buyer must pay to acquire the bonds.
D. is ignored by both the seller and the buyer.

Question 28
In 2018, Ingrid Company sold 40,000 vacuum sweepers. Ingrid estimated that 10% of the sweepers
would require repairs under the two-year warranty period at an average cost of P300 per unit. During
2018, Ingrid had an actual cash outlay of P100,000 for repairs under warranty. Under the accrual method,
what amount should the company report as warranty expense?
Select one:
A. P100,000
B. P120,000
C. P220,000
D. P200,000

Question 29
On September 1, 2019, Vine Company issued a note payable to ABC Bank in the amount of P900,000,
bearing 12% interest and payable in three equal annual principal payments of P300,000. On this date, the
bank's prime rate was 11%. The first interest and principal payment was made on September 1, 2019. At
December 31, 2019, Vine Company should record accrued interest payable of:
Select one:
A. P33,000
B. P24,000
C. P22,000
D. P36,000

Question 30
Bonds usually sell at a discount when

Select one:
A.
investors are willing to invest in the bonds at the stated interest rate.
B. a capital gain is expected.
C. investors are willing to invest in the bonds only at rates that are higher than the stated interest
rate.
D. investors are willing to invest in the bonds at rates that are lower than the stated interest rate.
Question 31
Gain contingencies which are remote and can be reasonably estimated
Select one:
A. are permitted to be reported in the body of the financial statements
B. must be reported in the body of the financial statements
C. must be disclosed in a note to the financial statemetns
D. should not be reported or disclosed
E. may be disclosed in a note to the financial statements

Question 32
During 2018, Best Company introduced a new product line of appliances that carry a two-year warranty
against manufacturer defects. Based on industry experience, warranty costs are estimated at 3% of sales
in the year of sale and 7% in the year after sale. During 2018, Sales amounts to P30,000 while actual
warranty expenditures amounts to P900. During 2019, Sales amounts to P45,000 while actual warranty
expenditures amounts to P3,450. What amount should Argentina report as the warranty expense for
2019?
Select one:
A. P3,450
B. P4,050
C. P3,150
D. 3,300

Question 33
The net amount of a bond liability that appears on the balance sheet is the
Select one:
A.
call price of the bond plus bond discount or minus bond premium.
B. maturity value of the bond plus related discount or minus related premium
C. face value of the bond plus related premium or minus related discount
D. face value of the bond plus related discount or minus related premium.

Question 34
Which of the following is not a liability?
Select one:
a. Advances from customers on contracts.
b. Accrued estimated warranty costs.
c. The portion of long-term debt due within one year.
d. Dividends payable in shares.
Question 35
During 2019, Brave Company filed a suit against Cupper Company seeking damages for patent
infringement. AT December 31, 2019, Brave's legal counsel believed it was probable that Brave would
be successful against Cupper for an estimated amount in the range of P7.5 million to P15 million, with all
amounts in the range considered equally alike. In March 2020, Brave was awarded P10 million and
received full payment thereof. In its 2019 financial statements issued in February 2020, how should
Brave report this award?
Select one:
A. AS a disclosure of contingent gain of 10 million.
B. As a receivable and revenue of P10 million.
C. As a receivable and revenue of P11.25 million.
D. As a disclosure of a contingent gain of an undetermined amount in the range of P7.5 million to
P15 million.
.
Question 36
If a bond was sold at 108, the nominal interest rate was
Select one:
A. equal to effective interest rate
B. not related to market rate
C. lower than the effective interest rate
D. higher than the effective interest rate

Question 37
On December 31, 2016, the liability section of Texas Company's statement of financial position included
bonds payable of P10 million and unamortized premium on bonds payable of P180,000. Further
verification revealed that these bonds were issued on on December 31, 2014 and will become due on
December 31, 2024. Interest at 12% is payable every June 30 and December 31. On April 1, 2017, Texas
retired P4,000,000 of these bonds at 97 plus accrued interest. How much was the total amount of cash
paid for the retirement of the bonds on April 1, 2017?
Select one:
A. P4,040,000
B. P4,000,000
C. P4,180,000
D. P3,950,000

Question 38
The proceeds from a bond issued with detachable share warrants should be accounted for
Select one:
A. entirely as bonds payable
B. partly as a liability for the bonds payable and partly as shareholders' equity for the warrants.
C. entirely as shareholders' equity
 D. partly as unearned revenue and partly as bonds payable
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Question 39
On July 1, 2015, Riviera Manufacturing Co. issued a five-year note payable with a face amount of
$250,000 and an interest rate of 10 percent. The terms of the note require Riviera to make five annual
payments of $50,000 plus accrued interest, with the first payment due June 30, 2016. With respect to the
note, the current liabilities section of Riviera's December 31, 2015, balance sheet should include

Select one:
A. $62,500
B. $75,000
C. $12,500
D. $50,000

Question 40
Which of the following typically would not be classified as a current liability?
Select one:
A. A guarantee of the indebtedness of another party.
B. Bonds payable maturing within one year.
C. Non-trade notes payable.
D. Rent revenue received in advanced.

Question 41
Which of the following represents a liability?
Select one:
A. The obligation to pay interest on a five-year note payable that was issued the last day of the
current year.
B.
The obligation to pay for goods that a company expects to order from suppliers next year.
C. The obligation to distribute share of a company's own common stock next year as a ?1 sesult of a
stock dividend declared near the end of the current year.
D. The obligation to provide goods that customers have ordered and paid for during the current year.

Question 42
A contingency can be accrued when
Select one:
a. it is probable that an asset has been impaired or a liability incurred even though the amount of the
loss cannot be reasonably estimated.
b. the amount of the loss can be reasonably estimated and it is probable that an asset has been
impaired or a liability incurred.
 c. it is certain that funds are available to settle the disputed amount.
d. an asset may have been impaired.

Question 43
Sweet Company bought 8,000 premiums at P2 each to give away in a box top mail-in contest. two box
tops entitle a customer to one premium. Past experience indicates that approximately 45% of the
available box tops will be redeemed. The number of boxes sold during the current year 2as 15,200. The
amount of premium expenses for the current year would be:

Select one:
A. P16,000
B. P16,720
C. P6,840
D. P8,360

Question 44
Disclosure usually is not required for
Select one:
A. contingent losses that are reasonably possible and cannot be reasonably estimated
B. contingent losses that are remote and can be reasonably estimated
C. contingent gains that are reasonably possible and cannot be reasonably estimated
D. contingent gains that are probable and can be reasonably estimated

Question 45
Happy Company bought 40,000 dolls at P5 each to give away in a proof of purchase promotion. Two
proofs of purchases entitle a customer to one doll. Past experience indicates that approximately 55% of
the available proof of purchases will be redeemed. The number of proof purchases on soup boxes sold
during the current year was 76,000. The amount of expense to be recognized during the current year
would be:
Select one:
A. P110,000
B. P209,000
C. P104,500
D. P200,000

Question 46
On February 1, 2013, Lantern Corp. issued 12 percent, $2,000,000 face value, ten-year bonds for
$2,234,000 plus accrued interest. The bonds are dated November 1, 2012, and interest is payable on May
1 and November 1. Lantern reacquired all of these bonds at 102 on May 1, 2016, and retired them.
Unamortized bond premium on that date was $156,000. Ignoring the income tax effect, what was
Lantern's gain on the bond retirement?
Select one:
A. $234,000
B. $236,000
C. $116,000
D. $194,000

Question 47
Which of the following is an essential characteristic of a liability?
Select one:
A. It may be the result of future transactions.
B. The identity of the creditor must be known.
C. It must be an obligation to transfer assets or provide services in the future

Question 48
During 2018, Best Company introduced a new product line of appliances that carry a two-year warranty
against manufacturer defects. Based on industry experience, warranty costs are estimated at 3% of sales
in the year of sale and 7% in the year after sale. During 2018, Sales amounts to P30,000 while actual
warranty expenditures amounts to P900. During 2019, Sales amounts to P45,000 while actual warranty
expenditures amounts to P3,450. What amount should Argentina report as the warranty expense for
2019?
Select one:
A. P4,500
B. P3,450
C. P3,000
D. P7,500

Question 49
On December 31, 2019, Bing Company signed a P7,392, two-year non-interest bearing note payable in
full on August 31, 2021. Bing Company received P6,000 cash. What was the yield or effective rate of
interest?
Select one:
A. 23%
B. 18%
C. 14%
D. 11%

Question 50
Bob Company requires advance payments with special orders from customers for machinery constructed
to its specifications. information for 2019 follows: Customer Advances balance at December 31, 2018 -
P590,000; Advances received with orders in 2019 - P920,000; Advances applied to orders shipped in
2019 - P820,000; Advances applicable to orders cancelled in 2019 - P250,000. At December 31, 2019,
what amount should Bob report as a current liability for customer deposits?
Select one:
A. P440,000
B. P690,000
C. P0
D. P740,000

Question 51
Which of the following is a financial liability?
Select one:
A. A warranty obligation
B. an obligation to deliver own shares worth a fixed amount of cash.
C. A constructive obligation.
D. Deferred revenue

Question 52
On January 1, 2017, Ann Rosen loaned $45,078 to Joe Grant. A zero-interest-bearing note (face amount,
$60,000) was exchanged solely for cash; no other rights or privileges were exchanged. The note is to be
repaid on December 31, 2019. The prevailing rate of interest for a loan of this type is 10%. The present
value of $60,000 at 10% for three years is $45,078. What amount of interest income should Ms. Rosen
recognize in 2017?

Select one:
A. P4,508
B. P18,000
C. P13,524
D. P6,000

Question 53
Johnson Corporation bought a new machine and agreed to pay for it in equal annual installments of
$6,000 at the end of each of the next five years. Assume the prevailing interest rate for this type of
transaction is 12%. Assume the present value of an ordinary annuity of $1 at 12% for five periods is 3.60.
The future amount of an ordinary annuity of $1 at 12% for five periods is 6.35. The present value of $1 at
12% is 0.567. How much should Johnson record as the note payable on the balance sheet if financial
statements were prepared today?

Select one:
A. $38,100
B. $21,600
C. $17,010
 D. $30,000

Question 54
On November 5, 2018, Fun Corporation's truck was into a collision with a car driven by Well. Fun
received a notice on January 12, 2019, of a lawsuit for P350,000 in damages for personal injuries suffered
by Well. Fun Corporation's counsel believes it is probable that Well will be awarded an estimated
amount in the range between P100,000 and P225,000, and that P150,000 is a better estimate of potential
liability than any other amount. Fun's accounting year ends December 31, and the 2018 financial
statements were issued on March 2, 2019. What liability should Fun accrue at December 31, 2013?
Select one:
A. P0
B. P100,000
C. 150,000
D. P162,500
E. P225,000

Question 55
DV issued bonds and incurred underwriting, registration, and other issue costs, which amounted to 2% of
the maturity value of the bonds. These costs should be
Select one:
A. recorded as expense in the period of sale.
B. reported as unusual or infrequent expense
C. combined with the discount and reported along with it.
D. reported as a deferred charge

Question 56
In packages of its products, Candy Company includes coupons that may be presented at retail stores to
obtain discounts on other Candy products. Retailers are reimbursed for the face amount of coupons
redeemed plus 10% of that amount for handling costs. Candy honors requests for coupon redemption by
retailers up to three months after consumer expiration date. Candy estimates that 70% of all coupons
issued will ultimately be redeemed. information relating to coupons issued by Candy during 2019 is as
follows: Consumer expiration date, December 31, 2019; total face amount of coupons issued - P300,000;
total payments to retailers as of December 31, 2019 - P110,000. What amount should Candy report as
liability for unredeemed coupons at December 31, 2019?
Select one:
A. P100,000
B. P121,000
C. P0
D. P154,000
E. Some other answer
Question 57
Accrued liabilities are disclosed in financial statements by

Select one:
A. showing the amount among the liabilities but not extending it to the liability total.
B. appropriately classifying them as regular liabilities in the balance sheet.
C. an appropriation of retained earnings.
D. a footnote to the statements.

Question 58
Kenwood Co. neglected to amortize the premium on outstanding ten-year bonds payable. What is the
effect of the failure to record premium amortization on interest expense and bond carrying value,
respectively?
Select one:
A. Understate; understate
B. Understate; overstate
C. Overstate; overstate
D. Overstate; understate

Question 59
Under the effective interest method of amortizing bond premium on term bonds,
Select one:
A. Interest expense decreases each period
B. Interest expense remains the same for each period
C. Interest rate varies from period to period
D. Interest expense increases each period

Question 60
Which of the following statements is correct?
Select one:
a. If a bond is sold at a premium, the effective interest rate ont he bond is higher that the nominal
interest rate.
b. If a bond is sold at a discount, the effective interest rate on the bond is lower that the nominal
interest rate.
c. I f a bond is sold between interest dates, it is necessary to record the interest accrued since the last
payment date before the sale
d. A bond price at 98 means that the yield rate is 98% of the stated rate.