Notes and Loans Receivable c. As a deduction from the related receivables.

d. As a deferred credit.
Long-term notes receivable which are
zero-interest-bearing or those whose rates are
In calculating the carrying amount of a loan,
unreasonably low may be stated at ____.
the lender adds to the principal
a. Face value.
A B
b.Book value.
Direct loan Loan origination
c.Amortized value
origination costs fees charged to
d.Maturity value.
incurred by the the borrower
lender
Dishonored note receivable should be debited a.A-yes; B-yes b.A-no; B-yes
to ____. c.A-yes; B-no d.A-no; B-no
a. Accounts receivable at face value plus
interest and other charges.
Notes receivable should be stated
b. Dishonored note receivable at face value.
subsequently at
c. Accounts receivable at face value.
a. Face amount
d. Accounts payable at face value plus
b.Maturity amount
interest and other charges.
c. Amortized amount
d.Net Realizable Amount
On October 1, 2015, a company received a
one-year note receivable bearing interest at
Pie Co. uses the installment sales method to
the market rate. The face amount of the note
recognize revenue. Customers pay the
receivable and the entire amount of the
installment notes in twenty-four equal monthly
interest are due on September 30, 2016. The
amounts, which include 12% interest. What is
interest receivable account at December 31,
an installment note’s receivable balance six
2015 would consist of an amount representing.
months after the sale?
a. Nine months of accrued interest income.
a.Less than the present value of the remaining
b. The excess at October 31, 2015 of the
monthly payments discounted at 12%.
present value of the note receivable over its
b. 75% of the original sales price.
face value.
c.The present value of the remaining monthly
c. One year of accrued interest income.
payments discounted at 12%.
d. Three months of accrued interest income.
d. Less than 75% of the original sales price.

On July 1 of this year, a company received a

Equestrain Roads sold P50,000 of goods and
one-year note receivable bearing interest at
accepted the customer's P50,000 10% 1-year
the market rate. The face amount of the note
note receivable in exchange. Assuming 10%
receivable and the entire amount of the
approximates the market rate of return, what
interest are due on June 30 of the next year. At
would be the debit in this journal entry to
December 31 of this year, the company should
record the sale?
report in its balance sheet.
a. Debit Notes Receivable for P45,000.
a. No interest receivable.
b. Debit Notes Receivable for P50,000.
b. Interest receivable for the interest accruing
c. No journal entry until cash is collected.
this year.
d. Debit Accounts Receivable for P50,000.
c. A deferred credit for interest applicable to
next year.
d. Interest receivable for the entire amount of Notes and Loans Receivable
the interest due on June 30 of next year.
Sta. Monica accepted a P2,500,000, 12%
interest-bearing note from Asiong Company on
How should unearned discounts, finance
December 31, 2016, in exchange for a
charges, and unearned interest included in the
machine with a list price of P2,000,000 and a
face amount of notes receivable be presented
cash price of P1,900,000. The note is payable
in the balance sheet?
on December 31, 2018. In its 2016 income
a. As a current liability.
statement, Sta. Monica should report the sale
b. In the notes to the financial statements.
at
a.P2,500,000 b.P2,600,000
c.P2,000,000 d.P1,900,000
On January 2, 2020, Emme Co. sold equipment
with a carrying amount of P480,000 in
exchange for a P600,000 non-interest-bearing
note due January 2, 2023. There was no
established exchange price for the equipment.
The prevailing rate of interest for a note of this
type at January 2, 2020, was 10%. The present
value of $1 at 10% for three periods is 0.75.
In Emme’s 2020 income statement, what
amount should be reported as interest income?
a. 50,000 b.45,000
c. 60,000 d.9,000
Based on question, In Emme’s 2020 income
statement, what amount should be reported as
gain (loss) on sale of machinery?
a.270,000 gain b.30,000 loss
c.120,000 gain d. 30,000 gain
On December 31, 2019, Flint Corporation sold
for P75,000 an old machine having an original
cost of P135,000 and a book value of P60,000.
The terms of the sale were as follows:
P15,000 down payment
P30,000 payable on December 31 each of the
next two years
The agreement of sale made no mention of
interest; however, 9% would be a fair rate for
this type of transaction. What should be the
amount of the notes receivable net of the
unamortized discount on December 31, 2019
rounded to the nearest peso? (The present
value of an ordinary annuity of 1 at 9% for 2
years is 1.75911.)
a. 105,546 b.67,773.
c.60,000 d.52,773.
On January 1, 2020, West Co. exchanged
equipment for a P400,000 zero-interest-bearing
note due on January 1, 2023. The prevailing
rate of interest for a note of this type at January
1, 2020 was 10%. The present value of P1 at 10%
for three periods is 0.75. What amount of
interest revenue should be included in West's
2021 income statement?
a.0 b. 33,000
c. 40,000 d.30,000
Duff, Inc. borrowed from Martin Bank under a
ten-year loan in the amount of P150,000 with a
stated interest rate of 6%. Payments are due
monthly, and are computed to be P1,665.
Martin Bank incurs P4,000 of direct loan
origination costs and P2,000 of indirect loan
origination costs. In addition, Martin Bank
charges Duff, Inc. a four-point or 4%
non-refundable loan origination fee based on
principal. Martin Bank, the lender, has an
initial carrying amount of the loan of _____.
a.P152,000 b.P150,000
c.P148,000 d.P144,000
On December 1, 2019, Money Co. gave Home
Co. a P200,000, 11% loan. Money Co. paid
proceeds of P194,000 after the deduction of a
P6,000 nonrefundable loan origination fee.
Principal and interest are due in sixty monthly
installments of P4,310, beginning January 1,
2020. The re-payments yield an effective
interest rate of 11% at a present value of
P200,000 and 12.4% at a present value of
P194,000. What amount of income from this
loan should Money report in its 2019 income
statement?
a.P2,005 b.P1,833
c.P0 d.P7,833
On December 31, 2019, Peter Company
received two P500,000 notes receivable from
customers in exchange for services rendered.
On both notes, interest is calculated on the
outstanding principal balance at the annual
rate of 3% and payable at maturity. The note
from Mini Corporation, made under customary
trade terms, is due in nine months and the note
from Maxi Company is due in five years. The
market interest rate for similar notes on
December 31, 2019 was 8%. The compound
interest factors to convert future value into
present value at 8% are:
Present value of 1 due in nine
months .944
Present value of 1 due in five
years .680
At what amounts should these two notes
receivable be reported in Peter’s December 31,
2019 balance sheet?
a.Mini P472,000 and Maxi P340,000
b.Mini P500,000 and Maxi P391,000
c.Mini P482,000 and Maxi P391,000
d.Mini P500,000 and Maxi P340,000
On January 2, 2019, Ryan Company sold
equipment with a carrying amount of
P2,000,000 in exchange for a P3,000,000
non-interest-bearing 3-year note. There was no
established exchange price for the equipment.
The prevailing rate of interest for a note of this Sale of equipment
type on January 2, 2019, was 10%. The present a.P250,000 gain b.P1,000,000 loss
value of 1 for three periods is 0.75. What c.P250,000 loss d.P1,000,000 gain
amount should be reported as gain or loss on
On December 30, 2020, Chang Co. sold a machine to Door Co. in exchange for a
non-interest-bearing note requiring ten annual payments of P10,000. Door made the first payment
on December 30, 2020. The market interest rate for similar notes at date of issuance was 8%.
Information on present value factors is as follows:

Period Present value of P1 at 8% Present value of ordinary annuity of P1 at 8%

9 0.50 6.25

10 0.46 6.71
In its December 31, 2020 balance sheet, what amount should Chang report as note receivable?
a. 62,500 b.46,000 c.67,100 d.45,000

On Dec 31, 2019, Over Bank recorded an investment of P500,000 in a loan granted to a client. The
loan has a 10% effective rate payable annually every December 31. The principal is due in full at
maturity on Dec 31, 2022. Unfortunately the borrower is experiencing financial difficulty and will
have a difficult time in making full payment. The bank projected that the entire principal will be
paid at maturity and 4% interest or 20,000 will be paid annually on Dec 31 of the next 3 years. There
is no accrued interest on Dec 31, 2019. The present value of 1 at 10% for three periods is 0.75 and
the present value of an ordinary annuity of 1 at 10% for three periods is 2.49. What is the impairment
loss for 2019?
a. 752,000 b.424,800 c.500,000 d.75,200

Notes Payable and Debt Restructuring

On September 1, 2016 Pine Company issued a note payable in the amount of P1.8M, bearing
interest at 12% and payable in three equal annual principal payments of P600,000. On this date the
prime rate was 11%. The first interest and principal payment was made on September 1, 2017. On
December 31, 2017, what amount should be reported as accrued interest payable?
a.44,000 b.48,000 c.72,000 d.66,000

On January 1, 2017, West Company acquired a tract of land for P1M. The entity paid P100,000 down
and signed a 2-year promissory for the balance plus 10% interest compounded annually. The note
matures on January 1, 2019. How much is the accrued interest on December 31, 2018?
a.90,000 b.100,000 c.199,000 d.99,000

Joshua Company bought a new machine and agreed to pay in equal annual installment of
P600,000 at the end of each of the next five years. The prevailing interest of this type of transaction
is 12%.
The PV of an ordinary annuity of 1 at 12% for five periods is 3.60
The FV of an ordinary annuity of 1 at 12% for five periods is 6.35.
The present value of 1 at 12% for five periods is 0.567
The amount should be reported as note payable if financial statements were prepared today?
A.3,810,000 b.1,700,000 c.2,160,000 d.3,000,000
On January 1, 2019, He Company lent P1,780,000 cash to She Company. The promissory note
made by Stone for P2M did not bear any interest and was due on December 31, 2020. The
prevailing interest rate for a loan of this type was 6%. The PV of 1 for two periods at 6% is 0.89. What
amount of interest expense shall be recognized for 2017?
a.110,000 b.0 c.120,000 d.106,800

On July 1, 2017, a company borrowed P1M on a 10% five year interest-bearing note. On December
31, 2017, the fair value of the note is determined to be P975,000. The entity irrevocably elected the
fair value option in measuring the notes payable. What amount should be reported as gain from
change in fair value of the notes payable for 2017? 25 00

Mann Company reported a 10% note payable of P3,600,000 on June 30,2020. The note is dated
October 1,2018 and payable in three equal annual payments of P1,200,000 plus interest. The first
interest and principal payment was made on October 1,2019.
On June 30, 2020, what amount should be reported as accrued interest payable for this note?
a.180,000 b.270,000 c.90,000 d.60,000

During 2020, Mann Company experienced a.0 b.306,000

financial difficulties and is likely to default on a
P5,000,000, 15% three-year note dated January
1,2018 payable to Summit Bank. On December
31,2020, the bank agreed to settle the note and
unpaid interest of P750,000 and P4,100,000
cash payable on January 31,2021.
What amount should be reported as gain from
extinguishment of debt in the 2021 income
statement?
a.750,000 b.1,650,000
c.0 d.900,000
On September 1, 2019, Pine Company issued a
note payable in the amount of P1,800,000,
bearing interest at 12%, and payable in three
equal annual principal payments of P600,000.
On this date, the prime rate was 11%. The first
interest and principal payment was made on
September 1, 2020.
On December 31, 2020, what amount should
be reported as interest expense for the year?
a.192,000 b.44,000 c.144,000
d.48,000
At the beginning of the current year, Pares
Company borrowed P3,600,000 from major
customer evidenced by a noninterest bearing
note due in three years.
The entity agreed to supply the customer’s
inventory needs for the loan period at an
amount lower than market price.
At the 12% imputed interest rate for this type of
loan, the present value of the note is P2,550,000
at the due date of issuance.
What amount of interest expense should be
reported in the income statement for the
current year?
c.350,000 d.432,000
On January 1, 2020, Granada Company had
an overdue 10% note payable to First Bank at
P8,000,000 and accrued interest of P800,000.
As a result of a restructuring agreement on
January 1, 2020, First Bank agreed to the
following provisions:
 The principal obligation is reduced to
P6,000,000.
 The accrued interest of P800,000 is forgiven.
 The date of maturity is extended to
December 31, 2023.
 Annual interest of 12% is to be paid for 4 yrs
every December 31.
The present value of 1 at 10% for 4 periods is
0.683 and the present value of an ordinary
annuity of 1 at 10% for 4 periods is 3.17.
What is the interest expense to be recognized
for 2021?
a.720,200 b.638,040
c. 629,849 d. 620,828
The following information pertains to the
transfer of real estate pursuant to a debt
restructuring by Knob Company to Mene
Company in full liquidation of Knob Company’s
liability to Mene Company.
Carrying Amount of liability liquidated
1,500,000
Carrying Amount of real estate transferred
1,000,000
Fair Value of real estate transferred
1,200,000
How much should be credited to land for the
extinguishment of debt?
a.500,000 b.1,500,000
c.1,000,000 d.1,200,000
Jason Company offered a contest in which the
winner would receive P1,000,000 payable over
twenty years.
On December 31, 2020, Jason Company
announced the winner of the contest and
signed a note payable to the winner for
P1,000,000 payable in P50,000 installments
every January 31.
On December 31, 2020, Jason Company
purchased an annuity for P418,250 to provide
the P950,000 prize remaining after the first
P50,000 installment which was paid on January
31, 2021.
On December 31, 2020 what amount should be
reported as the note payable-contest winner,
net of current portion.
a.900,000 b.468,250
c.418,250 d.950,000
On January 1,2020, Justine Company borrowed
P1,000,000 on a 10% five-year interest-bearing
note.
On December 31, 2020, the fair value of the
note is determined to be P975,000.
The entity irrevocably elected the fair value
option in measuring the note payable.
What is the carrying amount of the note
payable on Dec 31,2020?
a.500,000 b.900,000
c.975,000 d.1,000,000
Due to adverse economic circumstances and
poor management, Tagaytay Highlands
Company had negotiated a restructuring of a
9% P6,000,000 note payable to Second Bank
due on January 1, 2020. There was no accrued
interest on the note on January 1,2020.
The bank reduced the principal obligation from
P6,000,000 to P5,000,000 and extended the
maturity to three years on December 31, 2022.
However, the new interest rate is 13% payable
annually every December 31.
The present value of 1 at 9% for three periods
is .77 and the present value of an ordinary
annuity of 1 at 9% for three periods is 2.53.
What is the gain on modification of debt to be
recognized for 2021?
a.350,000 b.500,000
c.505,500 d.0
Hull Company is indebted to Apex Company
under a P5,000,000, 12% three-year note dated
December 31,2018.
Because of financial difficulties developing in
2020, Hull Company owed accrued interest of
P600,000 on the note on December 31,2020.
Under a debt restructuring on December
31,2020, Apex Company agreed to settle the
note and accrued interest for a tract of land
having a fair value of P4,500,000. The
acquisition cost of the land is P3,600,000.
What is the total liability related to this note to
be reported in the Statement of Financial
Position as of December31,2020?
a.5,600,000 b.5,000,000
C.0 d.2,000,000
Bond Investment and Bonds Payable
On January 1, 2020, Mishane Company
received P1,070,000 for 12% bonds with face
amount of P1,000,000. The bonds were sold to
yield 10%. Interest is payable
semiannually every January 1 and July 1. The
entity elected the fair value option for
measuring financial liabilities. On December 31,
2020, the fair value of the bonds is P1,065,000.
The change in fair value of the bonds
is attributable to market factors.
a.65,000 loss b.5,000 gain
c.65,000 gain d.5,000 loss
On January 31, 2020, Mishane Company issued
P3,000,000 maturity value, 12% bonds for
P3,000,000 cash. The bonds are
dated December 31, 2019, and mature on
December 31, 2029. Interest will be paid
semiannually on June 1 and December
1. What amount of accrued interest payable
should be reported on September 30, 2020?
a. 180,000 b.120,000
c.90,000 d.360,000
On January 1, 2019, Mishane Company
purchased 12% bonds with face amount of
P5,000,000 for P5,500,000 including transaction
cost of P100,000. The bonds provide an
effective yield of 10%. The bonds are dated
January 1, 2019 and pay interest annually on
December 31 of each year. The bonds are
quoted at 110 on December 31, 2019. The entity
has irrevocably elected to use the fair value
option. What amount of gain from change in
fair value should be reported for 2019?
a.0 b.100,000
c.350,000 d.200,000
On January 1, 2019, Mishane Company a. 2,000,000 b.3,100,000
acquired P4,000,000 of 10% face amount c.2,900,000 d.5,100,000
bonds for P3,767,000 to be held as
financial assets at amortized cost with a 14%
On July 1, 2019, Mishane Company paid
effective yield. Interest on bonds is payable
P1,198,000 for 10% bonds with a face amount of
annually on December 31 and the bonds
P1,000,000 to be held as financial assets at
mature on January 1, 2023. The effective
amortized cost. Interest is paid on June 30 and
interest method of amortization is used. What is
December 31. The bonds were purchased to
the carrying amount of the bond investment
yield 9%. The entity used the effective
on December 31, 2019?
interest method. What is the carrying amount of
a.3,767,000 b.3,894,380
the bond investment on December 31, 2019?
c.4,000,000 d.3,814,380
a.1,194,090 b.1,201,910
c.1,195,920 d.1,198,000
On October 1, 2020, Mishane Company issued
5,000 12% bonds with face amount of P1,000
On July 1, 2020, Mishane Company issued at
per bond at 110. The bonds which mature on
104, five thousand 10% bonds with face
January 1, 2025, pay interest semiannually
amount of P1,000 per bond. The bonds were
on January 1 and July 1. The entity paid bond
issued through an underwriter to whom the
issue cost of P140,000. How much cash was
entity paid bond issue cost of P100,000. On July
received from the issuance of the bonds?
1, 2020, what is the carrying amount of the
a.5,500,000 b.5,650,000
bonds payable?
c.5,510,000 d.5,450,000
a. 5,300,000 b.5,200,000
c.5,000,000 d.5,100,000
On July 1, 2019, Mishane Company purchased
P5,000,000 face amount, 9% bonds for
Mishane Company purchased 8,000, P1,000
P4,615,000 to yield 10% per year to be held as
face amount, 9% bonds to yield 10%. The
financial assets at amortized cost: The
carrying amount of the bonds on January 1,
bonds pay interest semiannually on January 1
2019 was 7,800,000. The bonds mature on
and July 1. On Dec 31, 2019, what amount
June 30, 2022 and pay interest semi-annually
should be reported as interest receivable?
on June 30 and December 31. The entity sold
a.225,000 b.250,000
4,000 bonds on March 1, 2019 for
c.230,750 d.200,000
P3,920,000 after the interest has been
received. What amount should be recognized
On January 1, 2020, Mishane Company issued as loss on sale of bonds?
6% bonds with face amount of P4,000,000 for a. 15,000 b.20,000
net proceeds of P3,677,600, a price that yields c.25,000 d.0
8%. Interest is payable annually
every December 31. The entity elected the fair
Mishane Company purchased bonds at a
value option. On December 31, 2020, the
discount of P100,000. Subsequently, the entity
bonds are quoted at 96. What amount should
sold these bonds at a premium of P150,000.
be reported as gain or loss from change in fair
During the period that the entity held this
value for 2020?
investment, amortization of the discount
a.162,400 loss b.122,400 gain
amounted to P40,000. What amount should be
c.162,400 gain d.122,400 loss
reported as gain on sale of bonds?
a. 200,000 b. 250,000
Mishane Company had the following long-term c.290,000 d.210,000
debt:
Sinking fund bonds, maturing in
installments 2,200,000
Industrial revenue bonds, maturing in
installments 900,000Subordinate
d bonds, maturing on a single
date 2,000,000
What is the total amount of serial bonds?
Mishane Company is authorized to issue
P5,000,000 of 6%, 10-year bonds dated July, 1,
2020 with interest payments on June 30 and
December 31. When the bonds are issued
on November 1, 2020, the entity received cash
of P5,180,000 including accrued interest. What
is the discount or premium from the issuance of
the bonds?
a.50,000premium
b.80,000 premium
c.80,000discount
d.50,000 discount
Mishane Company reported the following
financial liabilities on December 31, 2020:
9% debentures, callable in 2021, due in 2022
3,500,000
11% collateral trust bonds, convertible into
share capital beginning in 2021, due in 2022
1,000,000
10% debentures, P300,000 maturing annually
1,500,000
What is the total amount of term bonds?
a. 4,500,000 b.5,000,000
c.3,500,000 d.6,000,000
On January 1, 2020, Mishane Company
reported bonds payable of P8,000,000 and
related unamortized discount of P430,000.
On January 1, 2020, the entity retired P5,000,000
of the outstanding bonds at face amount plus a
call premium of P150,000
What amount should be reported in the 2020
income of debt? 41
From Midterm Exam
On September 1, 2016 Mishane Company
issued a note payable in the amount of P1.8M,
bearing interest at 12% and payable in three
equal annual principal payments of P600,000.
On this date the prime rate was 11%. The first
interest and principal payment was made on
September 1, 2017. On December 31, 2017,
what amount should be reported as accrued
interest payable?
a.66,000 b.72,000
c.48,000 d.44,000
On July 1, 2020, Mishane Company issued at
104, five thousand 10% bonds with face
amount of P1,000 per bond. The bonds were
issued through an underwriter to whom the
entity paid bond issue cost of P100,000. On July
1, 2020, what is the carrying amount of the
bonds payable?
a.5,100,000 b.5,000,000
c.5,300,000 d.5,200,000
Mishane Company purchased 8,000, P1,000
face amount, 9% bonds to yield 10%. The
carrying amount of the bonds on January 1,
2019 was 7,800,000. The bonds mature on
June 30, 2022 and pay interest semi-annually
on June 30 and December 31.
The entity sold 4,000 bonds on March 1, 2019
for P3,920,000 after the interest has been
received. What amount should be recognized
as loss on sale of bonds?
a.20,000 b.0
c.15,000 d.25,000
During 2020, Mishane Company experienced
financial difficulties and is likely to default on a
P5M, 15% 3-year note dated January 1, 2018
payable to Summit Bank.
On Dec 31, 2020, the bank agreed to settle the
note and unpaid interest of P750,000 for
P4,250,000 cash payable on Jan 31, 2021. What
amount should be reported as gain from
extinguishment of debt in the 2020 income
statement?
a.1,650,000 b.900,000
c.750,000 d.1,500,000
Mishane Company is authorized to issue
P5,000,000 of 6%, 10-year bonds dated July, 1,
2020 with interest payments on June 30 and
December 31. When the bonds are issued
on November 30, 2020, the entity received
cash of P5,180,000 including accrued
interest. What is the discount or premium from
the issuance of the bonds?
a.55,000 discount
b.55,000 premium
c.80,000 discount
d.80,000 premium
On January 1, 2019, Mishane Company
purchased 12% bonds with face amount of
P5,000,000 for P5,500,000 including transaction
cost of P100,000. The bonds provide an
effective yield of 10%. The bonds are dated
January 1, 2019 and pay interest annually on
December 31 of each year.
The bonds are quoted at 110 on December 31,
2019. The entity has irrevocably elected to use
the fair value option. What amount of gain from
change in fair value should be reported for On January 1, 2020, Mishane Company issued
2019? 6% bonds with face amount of P4,000,000 for
a.350,000 b.0 net proceeds of P3,677,600, a price that yields
c.100,000 d.200,000 8%. Interest is payable annually
every December 31.
The entity elected the fair value option. On
Due to the COVID pandemic, Mishane
December 31, 2020, the bonds are quoted at
Company negotiated the following to the bank:
96. What amount should be reported as gain or
OLD LOAN: P6M, 9% and due on Jan 1, 2020. No
loss from change in fair value for 2020?
accrued interest on the note on Jan 1, 2020
a.122,400 loss b.162,400 gain
NEW LOAN: P5M and extended maturity to 3
c.122,400 gain d.162,400 loss
years on Dec 31, 2022. New interest is 13%
payable annually every Dec 31.
Present value of 1 at 9% for three periods is 0.77 Mishane Company acquired a financial asset
and the present value of an ordinary annuity of at its market value of P3,200,000. Broker fees of
1 at 9% for three periods is 2.53. P200,000 were incurred in relation to the
What is the present value of the new note purchase.
payable on Jan 1, 2020? At what amount should the financial asset
a.5,494,500 b.3,850,000 initially be recognized respectively if it is
c.5,000,000 d.6,000,000 classified as at fair value through profit or loss,
or as at fair value through other comprehensive
income?
At year-end, Mishane Company issued a P1M
a.P3,200,000 and P3,400,000
face amount note payable in exchange for
b.P3,400,000 and P3,400,000
services rendered. The note, made at usual
c.P3,400,000 and P3,200,000
trade terms, is due in 9 months and bears
d.P3,200,000 and P3,200,000
interests, payable at maturity, at annual rate of
3%. The market rate of interest is 8%. The
compound interest factor of 1 due in 9 months On September 1, 2020, Mishane Co. borrowed
at 8% is 0.944. At what amount should the note on a P1,350,000 note payable from Federal
payable be reported at year-end? Bank. The note bears interest at 12% and is
a.944,000 b.965,200 payable in three equal annual principal
c.1,030,000 d.1,000,000 payments of P450,000. On this date, the bank’s
prime rate was 11%. The first annual payment
for interest and principal was made on
Mishane Company had the following long-term
September 1, 2021. At December 31, 2021,
debt:
what amount should Mishane report as
Sinking fund bonds, maturing in
accrued interest payable?
installments 2,200,000Industrial
a.33,000 b.49,500
revenue bonds, maturing in
c.36,000 d.54,000
installments 900,000
Subordinated bonds, maturing on a single
date 2,000,000 On January 1, 2020, Mishane Company
What is the total amount of term bonds? received P1,070,000 for 12% bonds with face
a.2,000,000 b.2,900,000 amount of P1,000,000. The bonds were sold to
c.3,100,000 d.5,100,000 yield 10%. Interest is payable
semiannually every January 1 and July 1. The
entity elected the fair value option for
On July 1, 2020 Mishane Company borrowed
measuring financial liabilities. On December 31,
P1,000,000 on a 10% 5-year interest-bearing
2020, the fair value of the bonds is P1,065,000.
note. On Dec 31, 2020, the fair value of the note
The change in fair value of the bonds
is determined to be P925,000. The entity
is attributable to market factors.
irrevocably elected the fair value option in
a.65,000 loss b.65,000 gain
measuring the note payable. What amount
c.5,000 gain d.5,000 loss
should be reported from the change in fair
value of the note payable?
a.75,000 gain b.0
c.75,000 loss d.25,000 loss
On Jan 1, 2020 Mishane Company showed the What is the contract between the issuer of the
following: bonds and the bondholders?
Note payable-due 1/1/2 -14% a.bond indenture
5,000,000 b.registered bond
Accrued interest payable c.bond coupon
1,000,000 d.bond debenture
Mishane was granted by the creditor the
following conditions:
The amortization of discount on bonds payable
1. Accrued interest of P1M is forgiven.
a.decreases the carrying amount of bonds
2. Principal obligation is reduced to P4M
payable
3. The new interest rate is 10% payable every
b.decreases the amount of interest expense
Dec 31
c.decreases the face amount of bonds
4. The new date of maturity is Dec 31, 2023.
payable
PV of 1 at 14% for 4 periods is 0.5921 and PV of
d. increases the carrying amount of bonds
an ordinary annuity of 1 at 14% for 4 periods is
payable
2.9137
How much is the gain on extinguishment of
loan? Bonds payable not designated at fair value
a.2,466,120 b.3,466,120 through profit or loss shall be measured initially
c.3,533,880 d.2,000,000 at
a.fair value plus bond issue cost
b.fair value minus bond issue cost
From Midterm Exam
c.face amount
d.fair value
If bonds are issued at a premium, this indicates
that
Bonds that mature on a single date are called
a. the nominal rate exceeds the yield rate
a.callable bonds b.term bonds
b.there is no relationship exists between the
c.serial bonds d.debenture bonds
two rates.
c.the yield rate exceeds the nominal rate
d. the yield and nominal rate coincides When an entity failed to recognize amortization
of discount on bonds payable for the current
year, what is the effect of the error on liabilities
When interest expense for the current year is
and equity, respectively?
less than interest paid, the bonds were issued
a.understated; overstated
at
b.overstated; understated
a.face amount
c.understated; understated
b. a discount
d.overstated; overstated
c. cannot be determined
d. a premium
The interest rate actually incurred.
a.yield rate b.nominal rate
For a bond issue which sells for less than face
c.coupon rate d.stated rate
value, the market rate of interest is
a.higher than rate stated on the bond
b.less than rate stated on the bond In a debt restructuring that is considered asset
c.equal to rate stated on the bond swap, the gain on extinguishment is equal to
d. dependent on the rate stated on the bond the
a.excess of the fair value of the asset over the
carrying amount of the debt
If bonds are issued between interest dates, the
b.excess of the carrying amount of the debt
entry of the issuer could include a
over the carrying amount of the asset
a.credit interest expense
c.excess of the fair value of the asset over its
b.credit unearned interest
carrying amount
c.debit to interest payable
d.excess of the carrying amount of the debt
d.credit to interest receivable
over the fair value of the asset
An entity shall measure initially a note payable
not designated at fair value through profit or
loss at
a.fair value minus transaction cost
b.fair value plus transaction cost
c.face amount
d.fair value

There is a substantial modification of terms of

an old financial liability if the gain or loss on
extinguishment is
a.at least 10% of the carrying amount of the old
liability
b.less than 10% of the carrying amount of the
old liability
c.less than 10% of the new liability
d.at least 10% of the new liability

The gain or loss from extinguishment of a

financial liability by issuing equity instruments
shall be presented in the statement of
comprehensive income as
a.separate line item in profit or loss
b.component of finance cost
c.other income or other expense
d.component of other comprehensive income

If both the fair value of the equity instruments

issued and the fair value of the financial liability
extinguished cannot be measured reliably, the
equity instruments issued shall be measured at
a.par value of equity instruments issued
b.carrying amount of the financial liability
extinguished
c.value assigned by the Board of Directors
d.book value of equity instruments issued