CPA REVIEW SCHOOL OF THE PHILIPPINES Manila FINANCIAL ACCOUNTING AND REPORTING — VALDWSIY/VALIW/ESCALA/SANTOS/DELA CRUZ, SELF TEST - LIABILITIES 1. In package of the products, an entity included coupons that may be presented at retail stores to obtain discounts. Retailers were reimbursed for the face amount of coupons redeemed plus 10% of that amount for handling costs, The entity honored requests for coupon redemption by retailers up to three months after the consumer expiration date. The entity estimated that 70% of all coupons issued would ultimately be redeemed. The consumer expiration date is December 31, 2020. The total face amount of coupons issued was P6,000,000 and the total payments to retailers during 2020 amounted to P2,200,000. What amount should be reported as liability for unredeemed coupons on December 31, 2020? a, 3,080,000 b. 2,000,000 ©. 2,420,000 a. 0 . An entity frequently borrowed from the bank in order to maintain sufficient operating cash. The following loans were at a 12% interest rate with interest payable at maturity. The entity repaid each loan on scheduled maturity date. Date loan Amount Maturity date Term of loan November 1, 2019 500,000 October 31, 2020 l year February 1, 2020 1,500,000 July 31,2020 6 months May 1, 2020 3,000,000 January 31, 2021 9 months The entity recorded interest expense when the loans are repaid. As a result, interest expense of P150,000 was recorded in 2020. If no correction is made, by what amount would interest expense be understated for 2020? a. 380,000 b. 230,000 ©. 240,000 d. 350,000 An entity reported in the first year of operations pretax financial income of P6,000,000. The current ‘year tax rate is 30% and the enacted rate for future years is 25%. Tax return Accounting record Uncollectible accounts expense 200,000 300,000 Depreciation expense 800,000 500,000 Tax exempt interest revenue - 150,000 1. Whatis the current tax expense? a, 1,695,000 b. 1,755,000 c. 1,740,000 4. 1,600,000 2. What is the net deferred tax expense or benefit? a. 75,000 expense b. 25,000 benefit 50,000 expense . 4, $0,000 benefit 3. What is the total tax expense? a. 1,755,000 b. 1,462,500 ©. 1,795,000 d. 1,745,000 6789Page 2 4. On January 1, 2020, an entity entered into an 8-year lease of a floor of building with useful life of 15 years with the following terms: ‘Annual rental for the first three years payable at the end of each year 300,000 ‘Annual rental for the next five years payable at the end of each year 400,000 Implicit interest rate 10% PV of an ordinary annuity of | at 10% for three periods 2.49 PV of an ordinary annuity of | at 10% for five periods 3.79 PV of | at 10% for three periods 0.75 1. What is the interest expense for 2020? a. 188,400 b. 226,300 c. 151,600 d. 169,725 2. What is the lease liability on December 31, 2020? a. 1,772,400 b. 1,649,640 c. 1,584,000 4. 1,514,604 3. What is the interest expense for 20237 a. 151,460 b. 126,606 c. 164,964 4. 200,000 5. An entity provided the following information for the current year: Current service cost 500,000 Past service cost during the year 300,000 Interest on PBO 600,000 Interest income on plan assets 350,000 Loss on plan settlement before normal retirement date 250,000 Present value of benefit obligation settled in advance 950,000 Actual return on plan assets 850,000 ‘Actuarial loss on PBO during the year 200,000 Contribution to the plan 1,500,000 Benefits paid to retirees 1,000,000 Discount or settlement rate 10% 1. What is the employee benefit expense for the current year? a. 1,300,000 b. 1,050,000 c. 1,500,000 d. 1,100,000 nv What is the net remeasurement of the defined benefit plan for the current year? a. $00,000 gain b. 500,000 loss ©. 300,000 gain d. 300,000 loss 3. What is the fair value of plan assets at year-end? a. 3,650,000 b. 4,650,000 c. 4,900,000 d. 5,850,000 4. What is the projected benefit obligation at year-end? a. 5,650,000 b. 6,650,000 c. 6,400,000 d. 6,450,000 END 6789