Intermediate Accounting 2 Quiz #3 Instructor: Ray Patrick S.

Guangco, CPA
Coverage: Chapter 8, Chapter 9 and
Chapter 10

Name: Claire M. Antido

BSA

INSTRUCTION: Answer the following problems below. SHOW YOUR SOLUTION.

NO SOLUTION, NO POINTS.

PROBLEM 1

PV of principal (4M x .7513) P3,005,200

PV of payment (600k x 2.4869) 1,492,140
P4,497,340 (A)

DATE PAYMENT INTEREST PRINCIPAL CARRYING AMOUNT

Jan. 2018 4,497,340
Dec. 2018 600,000 449,734 (B) 150,266 4,347,074 (C)
Dec. 2019 600,000 434,707 165,293 4,181,781
Dec. 2020 600,000 418,178 181,822 ` 4,000,000

D.) 0

E.) Note payable, due 12/31/20 P4,000,000

Premium on NP 497,340
less: Premium amortization 2018 150,266
Carrying amount P4,347,074

PROBLEM 2

FV P2,000,000
PV of Principal P1,423,560.50
PV of Payments 144,109.88 1,567,670.38 (A)
Discount P 432,329.62

DATE PAYMENT INTEREST PRINCIPAL CARRYING AMOUNT

Jan. 2018 1,567,670.38
Dec. 2018 60,000 188,120.44 (B) (128,120.44) 1,695,790.82 (C)
Dec. 2019 60,000 203,494.90 (143,494.9) 1,839,285.72
Dec. 2020 60,000 220,714.29 (160,714.29) 2,000,000

D.) Principal due on Dec. 2018 P1,200,000

less: Discount on NP 203,494.90
Carrying amount P1,403,494.9

E.) Principal due on Dec. 2019 and 2020 P800,000

Discount on NP (220,714.29)
60,000
Carrying amount P639,285.71

PROBLEM 3

A.) How much is the cost of the machinery acquired on January 1, 2018?

cash price = P994,760

B.) How much is the interest expense for 2018?

P994,760 x 10% = P99,476

Intermediate Accounting 2 Quiz #3 Instructor: Ray Patrick S. Guangco, CPA
Coverage: Chapter 8, Chapter 9 and
Chapter 10

C.) How much is the carrying amount of the note on December 31, 2018?

Notes payable P994,760

Interest payment P400,000
Interest expense (99,476) (300,524)
P694,236

D.) How much is the current portion of the note on December 31, 2018?

Notes payable P400,000

Discount (69,424)
P330,576

E.) How much is the noncurrent portion of the note on December 31, 2018?

Notes payable P400,000

Discount (36,366)
P363,634

DATE PAYMENT INTEREST PRINCIPAL CARRYING AMOUNT

Jan. 2018 994,760
Dec. 2018 400,000 99,476 300,524 694,236
Dec. 2019 400,000 69,424 330,576 363,660
Dec. 2020 400,000 36,366 363,660 -

PROBLEM 4

Ordinary gain on Disposal of land:

FV of land P5,000,000
less: Acquisition cost 3,500,000
Holding gain on sale of land P1,500,000

Gain on restructuring:
3 – year note P6,000,000
Accrued interest 600,000
Amount owed P6,600,000
Settlement amount 5,000,000
Gain on restructuring of debt P1,600,000

Total gain = P1,500,000 + P1,600,000 = P3,100,000

PROBLEM 5

How much is the share premium arising from the debt restructuring considered
as “equity swap”?

Notes Payable P5,000,000

Accrued Interest Payable 500,000
Total CA of Liability P5,500,000
less: FV of shares (50,000 x P70) 3,500,000
Gain on extinguishment of debt P2,000,000

FV of shares P3,500,000
less: Par value of shares (50,000 x P50) 2,500,000
Share premium P1,000,000
Intermediate Accounting 2 Quiz #3 Instructor: Ray Patrick S. Guangco, CPA
Coverage: Chapter 8, Chapter 9 and
Chapter 10

PROBLEM 6

A.) What is the gain on extinguishment of debt to be recognized by Koronodal

Company on December 31, 2018?

PV of principal (4M x .75) P3,000,000

PV of annual interest payments (320k x 2.49) 796,800
Total PV of new liability P3,796,800

Notes payable – old P5,000,000

Accrued interest payable 500,000
Total old liability P5,500,000
PV of new liability 3,796,800
Gain on extinguishment of debt P1,703,200

Notes payable – new P4,000,000

PV of new liability 3,796,800
Discounted on notes payable P 203,200

B.) What is the interest expense to be recognized by Koronadal Company for the
year 2019?

Interest expense for 2019 P379,680

(10% x 3,796,800)
Interest paid 320,000
(8% x 4,000,000)
Amortization of discount P 59,680

PROBLEM 7

A.) How much is the amount to be capitalized as machinery (leased asset) on

December 31, 2018?

PV of rentals (120,000 x 3.4018) 408,216

PV of bargain purchase option (20,000 x 0.6355) 12,710
420,926

B.) How much is the interest expense in 2019?

420,926 – 120,000 = 300,926 x 12% = 36,111,12

C.) How much is the lease-related liability to be shown as current in the statement
of financial position on December 31, 2018?

120,000 – 36,111 = 83,889

D.) How much is the lease-related liability to be shown as noncurrent in the

statement of financial position on December 31, 2018?

300,926 – 83,889 = 217,087

PROBLEM 8

PVOA of 1 @ 4 periods 3.16987

PV of 1 @ 4 periods 0.68301

PV of rentals (150,000 x 3.16987) 475,481

Intermediate Accounting 2 Quiz #3 Instructor: Ray Patrick S. Guangco, CPA
Coverage: Chapter 8, Chapter 9 and
Chapter 10
Advance payment 150,000 625,481

First annual payment 20,000

PV of insurance and payment tax 63,397 (83397)
(20,000 x 3.16987)
542,084
Indirect cost 30,000
PV guaranteed value (50,000 x 0.68301) 34,151
606,235 (A)

DATE PAYMENT INTEREST PRINCIPAL CARRYING AMOUNT

Jan. 2018 606,235
Dec. 2018 150,000 - 150,000 456,235
Dec. 2019 150,000 45,623 104,377 351,858

456,235 x 10% = 45,623.5 (B)

Carrying amount 456,235

less: Annual payment 150,000
Interest expense (45,623) (104,377)
351,858 (D)

PROBLEM 9

Case No. 1: At the end of the lease, Invest in Yourself expects to exercise the
bargain purchase option. Invest in Yourself estimated that the equipment’s fair
value will be ₱60,000 at the end of its useful life. How much is the depreciation
expense on December 31, 2018?

487,447
(60,000)
427,447/8 years = 53,430.88 or 53,431

Case No. 2: Assume instead that the cost of the machine include ₱50,000 gross
guaranteed residual value. How much is the depreciation expense on December
31, 2018?

487,447
(50,000)
437,447/ 4 years = 109,361.75 or 109,362