For Retake

YELLOW - ORANGE - not RED -
Sure sure wrong
CURRENT LIABILITIES
Submissions
Here are your latest answers:
Question 1
Which statement is incorrect where the expenditure required to settle a provision is expected to
be reimbursed by another party?
Response: The reimbursement shall not be treated as separate asset
and therefore netted against the estimated liability for the provision.
Question 2
Magazine subscriptions collected in advance are treated as
Response: Deferred revenue in the liability section.
Question 3
As of December 31, 2021, analyze the following scenario and choose the best answer.
The 10%, P1,500,000 Note Payable matures on June 30, 2022. Interest on the loan is due
every June 30 and December 31. On December 31, 2021 the Company entered into a
refinancing agreement with a bank to refinance the note on a long-term basis. The refinancing
and roll-over transaction was completed on December 31, 2021.
Response: Noncurrent liability
Question 4
Property dividends payable amounting to P75,000 to be settled on February 1, 2022.
Response: Current liability
Question 5
Advances from Affiliates amounting to P75,000
Question 6
During the current year, Ren Corporation sold 80,000 reversible belts under a new sales
promotional program. Each belt carried once coupon which entitled the customer to a P50 cash
rebate. The entity estimated that 70% of the coupons will be redeemed even though only 35,000
coupons had been processed during the current year.
What amount should be reported as rebate expense for the current year?
Response: 2,800,000
Question 7
For a liability to exist
Response: A past transaction or event must have occurred.
Question 8
During the current year, Ren Corporation sold 80,000 reversible belts under a new sales
promotional program. Each belt carried once coupon which entitled the customer to a P50 cash
rebate. The entity estimated that 70% of the coupons will be redeemed even though only 35,000
coupons had been processed during the current year.
What amount should be reported as rebate liability for unredeemed coupons at year end?
Response: 1,050,000
Question 9
Which of the following does not meet the definition of a liability?
Response: The signing of a three-year employment contract at a fixed annual salary.
Question 10
In 2020, Eirine Corporation introduced a laptop carrying a 2-year warranty against defects. The
estimated warranty costs related to peso sales are 4% within 12 months following sale and 6%
in the second 12 months following sale. The entity reported sales of P5,000,000 for 2020 and
P6,000,000 for 2021. The actual expenditures incurred amounted to P150,000 for 2020 and
P550,000 for 2021.
What is the estimated warranty liability as of December 31, 2020?
Response:350,000
Question 11
A competitor has sued an entity for unauthorized use of its patented technology. The amount
that the entity may be required to pay the competitor if the competitor succeeds in the lawsuit is
determinable with reliability, and according to the legal counsel it is less than probable but more
than remote that an outflow of the resources would be needed to meet the obligation. The entity
that was sued shall at year end
Response: Make a disclosure of the possible obligation in the notes to financial statements
Question 12
Under a customer loyalty program, if the entity supplies the awards itself, the consideration
allocated to the award credits
Response: Shall be recognized initially as deferred revenue and subsequently recognized
as revenue upon redemption of the award credits.
Question 13
An entity has been served a legal notice at yearend by the Department of Environment and
Natural Resources to fit smoke detectors in its factory on or before middle of the next year. The
cost of fitting smoke detector can be measured reliably. How should the entity treat this at year
end?
Response: No provision required at year-end because there is no present obligation for the
future expenditure since the entity can avoid the future expenditure by changing the method of
operations but disclosure is required.
Question 14
For an event to be an obligating event, it is necessary that the entity has no realistic
alternative but to settle the obligation created by the event and this is the case only:
I. Where the settlement of the obligation can be enforced by law.
II. Where the event creates valid expectation in other parties that the entity will
discharge the obligation as in the case of a constructive obligation.
Response: Either I or II
Question 15
The bonus agreement of Eirine Corporation provides that the General Manager shall
receive an annual bonus of 10% of the net income after bonus and tax. The income tax rate
is 30%. The General Manager received P280,000 for the current year as bonus. What is the
income before bonus and tax?
Response: 4,280,000
Question 16
What amount should be reported as premium expense in 2020?

Response: 2,700,000
Question 17
Held for Trading Financial Liabilities amounting to P60,000.
Question 18
Angela Company offered a cash rebate of P20 on each P150 package of batteries sold during
the current year. Historically, 10% of customers mail in the rebate form. During the year, 600,000
packages of batteries are sold and 25,000 P20 rebates are mailed to customers.
What amount should be reported as rebate liability at year-end?
Response: 700,000
Question 19
Check payment to supplier dated January 6, 2022 amounting to P500,000 already on the hands
of the supplier at year-end.
Question 20
49. Isabella Corporation is the defendant in a lawsuit filed by Edward Company in 2019
disputing the validity of copyright held by Isabella. On December 31, 2019, Isabella determined
that Edward would probably be successful against Isabella for an estimated amount of
P2,000,000. Appropriately, a P2,000,000 loss was accrued by a charge to income for the year
ended December 31, 2019. On December 31, 2020, Isabella and Edward agreed to a
settlement providing for cash payment of P1,250,000 by Isabella to Edward and transfer of
Isabella’s copyright to Edward. The carrying amount of the copyright on Isabella’s accounting
records was P250,000 on December 31, 2020. What would be the effect of the settlement on
Isabella's income before tax in 2020?
Response: 500,000 increase
Question 21
What amount should be reported as year-end estimated liability associated with this promotion?
Response: 1,500,000
Question 22
On December 31, what amount should be reported as the balance for subscription collected in
advance?
Response: 2,300,000
Question 23
What is the relationship between present value and the concept of a liability?
Response: Present value is used to measure certain liabilities.
Question 24
Estimated liabilities are disclosed in the financial statements by
Response: Appropriately classifying them as regular liabilities in the statement of financial
position.
Question 25
Ansley Corporation provided the following facts regarding pending litigation at year-end:
• The entity is defending against a first lawsuit and believes there is a 51% chance it will
lose in court. The entity estimates damages will be P1,000,000.
• The entity is defending against a second lawsuit for which management believes it
virtually certain to lose in court. If it loses the lawsuit, management estimates thatdamages
will fall somewhere in the range of P3,000,000 to P5,000,000 with each amount in that range
equally likely to occur.
• The entity is defending against a third lawsuit but the relevant loss will only occur far
into the future. The present values of the endpoints of the range are P1,500,000
andP2,500,000. The management believes the effects of time value of money on these
amounts are material.
• The entity is defending against a fourth lawsuit and believes there is only a 25% chance it
will lose in court. If the entity loses, management believes damages will fallsomewhere in the
range of P3,000,000 to P4,000,000 with each amount in the range equally likely to occur.
What amount should be reported as litigation liability at yearend?
Response: 7,000,000
Question 26
For a fixed amount a month, an entity visits the customer’s premises and performs insect control
services. If customers experience problems between regularly scheduled visits, the entity
makes service calls at no additional charge. Instead of paying monthly, customers may pay a
certain annual fee in advance. For a customer who pays the annual fee in advance, the entity
should recognize the related revenue
Response: Evenly over the contract year as the services are performed
Question 27
The consideration allocated to the award credits is measured at
Response: Fair value of the award credits
Question 28
On November 1, 2019, Eunice Corporation was awarded a judgment of P6,000,000 in
connection with a lawsuit. The decision being appealed by the defendant and it is expected
that the appeal process will be completed by the end of 2020. The attorney believed that it is
highly-probable that an award will be upheld on appeal but the judgment may be reduced by
40%. What amount should be reported as receivable on December 31, 2019?
Response: 0
Question 29
What amount should be reported as premium expense for the year?

Response: 4,500,000
Question 30
What amount should be reported as premium expense in 2021?

Response: 3,375,000
Question 31
Bonds Payable, amounting to P500,000, maturing in five equal semi-annual installments.
Response: Current liability amounting to 200,000; noncurrent liability amounting to P300,000
Question 32
As of December 31, what amount should be reported as unearned revenue?

Response: 850,000
Question 33
At December 31, 2019, what amount should be reported as liability for deposits?
Response: 674,000
Question 34
The 12% P750,000 loans payable is maturing on July 1, 2022. Interest on the loan is due every
July 1 and December 31. On January 15, 2022, the Company entered into a refinancing
agreement with a bank to refinance the loan on a long-term basis. Both parties are financially
capable of honoring the agreement's provisions. The Company has the discretion to refinance
or roll over the loan for at least twelve months from December 31, 2021 under an existing loan
policy.
Question 35
What amount is recognized as provision?
Response: Best estimate of the expenditure
Question 36
Angela Company offered a cash rebate of P20 on each P150 package of batteries sold during
the current year. Historically, 10% of customers mail in the rebate form. During the year, 600,000
packages of batteries are sold and 25,000 P20 rebates are mailed to customers.
What amount of rebate expense should be reported for the current year?
Response: 1,200,000
Question 37
Which of the following statements is not true regarding the presentation of current liabilities in
accordance with IFRS?
Response: The noncurrent liabilities follow the current liabilities.
Question 38
Angela Company must determine the December 31, 2019 accruals for the following expenses:
• A P500,000 advertising bill was received January 7, 2020, comprising cost of
P350,000 for advertisement in December 2019 issues and P150,000 for advertisement
inJanuary 2020 issues of the newspaper.
• A one-year lease, effective December 16, 2019, calls for fixed rent of P120,000 per
month, payable one month from the effective date and monthly thereafter.
• The entity has real property subject to real property tax. The city’s fiscal year runs July 1
to June 30 and the tax assessed at 3% of real property on hand is payable on June30, 2020.
The entity estimated that the real property tax will amount to P600,000 for the city’s fiscal year
ending June 30, 2020.
At December 31, 2019, what amount should be recorded as accrued expenses?
Response: 710,000
Question 39
After 3 profitable years, Ren Corporation decided to offer a bonus to the branch manager of
25% of income over P1,000,000 earned by the Branch. The income of the Branch was
P1,600,000 before tax and before bonus for the current year. The bonus is computed on
income in excess of P1,000,000 after deducting the bonus but before deducting tax. What
amount should be reported as bonus of the branch manager for the current year?
Response: 120,000
Question 40
The entity sells furnaces that include a three-year warranty. The entity can contract with a
third party to provide these warranty services. The entity elects the fair value option for
reporting financial liabilities. At what amount should the entity report the warranty liability?
Response: The fair value of the contract to settle the warranty services
Question 41
In the financial statements for the month ended January 31, what amount should be reported
respectively as total payroll tax liability and payroll tax expense?
Response: 130,000 and 35,000
Question 42
P550,000 for 2021.
What amount should be reported as estimated warranty liability as of December 31, 2021?
Response: 400,000
Question 43
P550,000 for 2021.
What amount should be reported as warranty expense for 2020?
Response: 500,000
Question 44
At year-end, an entity classified a note payable as current liability. Under what conditions could
the entity reclassify the note payable from current to noncurrent?
Response: If the entity has executed an agreement to refinance the note before end of the
reporting period.
Question 45
Purchases in transit shipped FOB destination amounting to 15,000.
Response: Not applicable
Question 46
What is the revenue from points for 2019?

Response: 328,125
Question 47
Which of the following represents a liability?
Response: The obligation to provide goods that customers have ordered and paid for during
the current year.
Question 48
What amount should be reported as total payroll tax liability?

Response: 135,000
Question 49
The most relevant measurement of liabilities at initial recognition and fresh start measurement
should always reflect
Response: The credit standing of the entity
Question 50
As of December 31, 2021, analyze the following scenario and choose the best answer. Bank
overdraft amounting to P10,000
Question 51

Response: 52,500
Question 52
What amount should be reported as es mated premium liability as of December 31, 2020?
Response: 900,000
Question 53
What amount should be reported as current liability for deposit as of December 31?
Response: 100,000
Question 54

Response: 144,375
Question 55
What is the classification of a debt callable by the creditor?
Question 56
The accrual approach in accounting for product warranty cost
Response: Represents accepted practice and should be used whenever the warranty is an
integral and inseparable part of the sale.
Question 57
As of December 31, 2021, analyze the following scenario and choose the best answer. Goods
received on consignment amounting to P10,000
Response: Not applicable
Question 58
What is the revenue from points in 2022?

Response: 262,500
Question 59
P550,000 for 2021.
What amount should be reported as warranty expense in 2021?
Response: 600,000
Question 60
What amount should be reported as estimated premium liability as of December 31, 2021?
Response: 1,125,000
NOTES AND BONDS PAYABLE

Question 1
Ren Company is authorized to issue P5,000,000 of 6%, 10-year bonds dued July 1, 2019 with
interest payments on June 30 and December 31. When the bonds are issued on November 1,
2019, the entity received cash of P5,150,000 including accrued interest. What amount was
recorded as discount or premium on bonds payable?
Response: 50,000 bond premium
Question 2
Which of the following statements is true about electing the fair value option for measuring
bonds payable?
Response: The fair value of the bond and the principal obligation value must be disclosed.
Question 3
Which of the following statements is/are correct in relation to the fair value option of measuring
note payable?
Response: At initial recognition, an entity may irrevocably designate the note payable as at fair
value through profit or loss
Response: The interest expense on the note payable is recognized using the nominal or stated
interest rate
Response: After initial recognition, the note payable is remeasured at fair value at every
year-end and any changes in fair value are recognized in profit or loss
Question 4
On January 1, 2019, Ross Company signed a P1,000,000 noninterest bearing note due in three
years at a discount rate of 10%. The entity elected the fair value option for reporting the note
payable.
On December 31, 2019, the credit rating and risk factors indicated that the rate of interest
applicable to its borrowings was 9%.
Present value factors at 10% and 9%
What is the carrying amount of the note payable on December 31, 2019?
Response: 842,000
Question 5
When an entity failed to recognize amortization of discount on bonds payable for the current
year, what is the effect of the error on abilities and equity respectively.
Response: Understated and overstated
Question 6
Ave Company offered a contest in which the winner would receive P1,000,000 payable over
twenty years. On December 31, 2019, Ave 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, 2019, Ave 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, 2029.
On December 31, 2019, what amount should be reported us note payable contest winner, net of
current portion?
Response: 418,250
Question 7
On December 31, 2019, Roxy Company purchased a machine from Reicel Company in
exchange for a non interest bearing note requiring 8 payments of 200.000. The first payment
was made on December 31, 2019 and the others are due annually on December 31. The
following are the relevant PV factors was on V factors: PV of ordinary annuity of 1 at 11% for 8
periods-5.146
PV of annuity of 1 in advance at 11% for 8 periods-5,712
On December 31, 2019, what is the carrying amount of the notes payable!
Response: 942,400
Question 8
Ace Company had the following long-term debt Bonds maturing in installments, secured by
machinery-P1,000,000
Bonds maturing on a single date, secured by realty-P1,800,000
Collateral trust bonds-P2,000,000
What is the total amount of debenture bonds?

Response: 0
Question 9
When a note payable is issued for property, the present value of the note is measured by
Response. All of these are considered in measuring the present value of the note payable
Question 10
On September 1, 2019, Kevin Company issued a note payable to National Bank in the amount
of P1,800,000, bearing an interest at 12% and payable in three equal annual principal payments
of P600,000. On this date, the bank's prime rate was 11%. The first principal and interest
payment were made on September 1, 2020
What amount should be reported as interest expense for 20207
Response: 192,000
Question 11
Angela Company reported the following liabilities on December 31, 2019:
On December 31, 2019, the entity consummated a noncancelable agreement with the lender to
refinance the 12% note payable on a long-term basis. The entity has the discretion to refinance
the 10% note payable for at least 12 months after the end of the reporting period. What total
amount should be reported as current liabilities on December 31, 2019?
Response: 1,500,000
Question 12
Aira Company issued P8,000,000 12% bonds payable on December 31, 2021 at 96, Interest is
payable annually on December 31,
Bond maturity
December 31
2023-1,000,000
2024-1,000,000
2025-1.000.000
2026-1,000,000
2027-2,000,000
2028-2,000,000
How much is the interest expense for the year ended December 31, 2022
Response: 1,024,000
Question 13
Aira Company issued P8,000,000 12% bonds payable on December 31, 2021 at 96. Interest is
payable annually on December 311
Bond maturity
December 31:
2023-1,000,000
2024-1,000,000
2025-1,000,000
2026-1,000,000
2027-2,000,000
2028-2,000,000
How much is the discount/premium on bonds payable?
Response: 320,000 discount
Question 14
Aly Company had the following loans at 12% interest payable at maturity. The entity repaid
each loan on scheduled maturity date.
The entity recorded interest expense when the loans are repaid. As a result, interest expense of
P150,000 was recorded in 2019.
If no correction is made, by what amount would interest expense for 2019 be understated
Response: 230,000
Question 15
The market price of the band issued at a discount is the present value of the principal amount at
the market rate of interest
Response: Plus the present value of all future interest payments at the market rate of interest
Question 16
Green Company issued, in a private placement with an investment house, P3,000,000 face
amount of 3-year 16% bonds payable. Interest is payable semi-annually on June 30 and
December 31 of each year. The bonds were issued on January 1, 2021 at a price yielding the
entity of P2.738.682 which represents an effective interest cost of 20% per year.
How much is the total discount amortization on the last year of the bond?
Response: 104,137
Question 17
On December 31, 2019, Roxy Company purchased a machine from Reicel Company in
exchange for a noninterest beating note requiring 8 payments of 200.000. The first payment
was made on December 31, 2019 and the others are due annually on December 31. The
following are the relevant PV factors:
PV of ordinary annuity of 1 at 11% for 8 periods-5.146

PV of annuity of 1 in advance at 11% for 8 periods -5.712
What amount should be reported as interest expense for 2020?
Response: 103,664
Question 18
How would the amortization of premium on bonds payable affect the carrying amount of the
bond and the net income, respectively
Response: Decrease, increase
Question 19.
On January 1, 2021, Bright Company received P5,385,000 Sor a P5,000,000 face amount 12%
bonds payable, a price that yields 10%. The bonds pay interest semiannually on June 30 and
December 31. The entity elected the fair value option. On December 31, 2021, the fair value of
the bonds payable is determined to be P5,125,000 based on market and interest factors.
What amount should be reported as interest expense for 2021
Response: 600,000
Question 20
Ave Company offered a contest in which the winner would receive P1,000,000 payable over
twenty years. On December 31, 2019, Ave 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
Jamry 31. On December 31, 2019, Ave 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,
2020.
What amount should be reported as contest prize expense for 2019?
Response: 468,250
Question 21
amount of 3-year 16% bonds payable. Interest is payable semi annually on June 30 and
entity of P2,738,682 which represent an effective interest cost of 20% per year
What is the carrying amount as of December 31, 2022?
Response: 2,895.863
Question 22
On September 1, 2019, Kevin Company issued a note payable to National Bank in the amount
of P1,800,000, bearing an interest at 12% and payable in three equal annual principal payments
of P600,000. On this date, the bank's prime rate was 11%. The first principal and interest
payment were made on September 1, 2020.
On December 31, 2020, what amount should be reported as interest payable?
Response: 48,000
Question 23
On January 1, 2021. Bright Company received P5.385,000 for a P5,000,000 fisce amount 12%
December 31. The entity elected the fair value option. On December 31, 2021, the fair value of
the bonds payable is determined to be P5,125,000 based on market and interest factors.
What amount should be recognized as gain or loss to change in fair value in 2021
Response: 260,000 gain
Question 24
payable. On December 31, 2019, the credit rating and risk factors indicated that the rate of
interest applicable to its borrowings was 9%.

What is the result of the remeasurement to fair value?
Response: 91,000 loss
Question 25
After initial recognition, bonds payable shall be measured at
Response: Either amortized cost using the effective interest method or fair value through profit
or loss
Question 26
On January 1, 2021, Evangeline Company reported 10% bonds payable with a carrying amount
of P5,700,000. The bonds had a face amount of P5,000,000 and were inued to yield 12%. The
interest method of amortization is used. Interest was paid on January I and July 1 of each year.
On July 1, 2021, the entity retired the bonds payable at 102. The interest payment on July 1,
2021 was made as scheduled
What amount should be recorded as loss and early extinguishment of bonds payable?
Response: 378,000
Question 27
On January 1, 2021, Bright Company received P5,385,000 for a P5,000,000 face amount 12%
December 31. The antity elected the fair value option. On December 31, 2021, the fair value of
the bonds payable is determined to be P5.125,000 based on market and interest factors.
What is the carrying amount of the bonds payable in December 31, 2021?
Response: 5,125,000
Question 28
At issuance date, the present value of a note payable should be equal to the face amount if the
note
Response: Bears stated rate of interest which is realistic
Question 29
JP Company incurred the following costs in connection with the issuance of bonds
Promotion cost-P200,000
Printing and engraving-P150,000
Legal fees-P800,000
Fees paid to independent accountants for registration-P100,000
Commissions paid to underwriter-P1,500,000
What amount should be recorded as bond issue costs to be amortized over the term of the
bonds?
Response: 2,750,000
Question 30
payable. On December 31, 2019, the credit rating and risk factors indicated that the rate of
interest applicable to its borrowings was 9%.
What is the carrying amount of the note payable on January 1, 2019?
Response: 751,000
Question 31
If the present value of the note issued in exchange for a property less than face amount, the
difference should be
Response: Amortized as interest expense over the life of the note
Question 32
On January 1, 2019, Amsley Company sold land to Louie Company. There was no established
market price for the land. Louie gave Ansley a P2,400,000 noninterest bearing note payable in
three equal annual installments of P800,000 with the first payment due December 31, 2019, The
note has no ready market. The prevailing rate of interest for a note of this type is 10%. The
present value of a P2,400,000 note payable in three equal annual installments P800,000 at 10%
rate of interest is P1,989,600
What amount should be reported as interest expense for 2019 ber
Response: 198,960
Question 33
Aira Company issued P8,000,000 12% bonds payable on December 31, 2021 at 96. Interest is
payable annually on December 31. Bord maturity
December 31:
2023-1,000,000
2024-1,000,000
2025-1,000,000
2026-1,000,000
2027-2,000,000
2028-2,000,000
How much is the interest expense for the year ended December 31, 20247
Response: 895,000
Question 34
On April 1, 2019, KC Company issued at 99 plus accrued interest, 2,000 of 8% P1,000 face
amount of bonds. The bonds are dated January 1, 2019, mature on January 1, 2029 and pay
interest on January 1 and July 1. The entity paid bond he cost of P70.000. How much is the net
cash received
Response: 1,950,000
Question 35
At year end, Ansley Company issued a 13,000,000 face amount note payable to Louie
Company in exchange for services rendered to Ansley. The note made at usual trade terms, is
due in nine months and bears interest, payable at maturity, at the annual rate of 3%, The
market interest rate is 8%, The compound interest factor of 1 due in 9 months at 8% is 0.944. At
what amount should the nose payable be reported at year end?
Response: 3,000,000
Question 36
The issue of a 10-year term bond sold at par three years ago with interest payable May 1 and
November I each year shall report at year end
Response: Liability for accrued interest
Question 37
On January 1, 2019, Ansley Company sold land to Louie Company. There was no established
market price for the land. Louie gave Ansley a P2,400,000 noninterest bearing note puyable in
three equal annual installments of P800,000 with the first payment due December 31, 2019. The
note has no ready market. The prevailing mite of interest for a note of this type is 10%. The
present value of a P2.400,000 note payable in three equal annual installments of P800,000 at a
10% rate of interest is P1,989,600.
What is the carrying amount of the note payable on December 31, 2019?
Response: 1,388,560
Question 38
On January 1, 2021, Evangeline Company reported 10% bonds payable with carrying amount of
P5,700,000. The bunds had a face amount of P5,000,000 and were issued to yield 12%. The
interest method of amortization is used. Interest was paid on January 1 and July 1 of each year.
On July 1, 2021, the entity retired the honds payable at 102. The interest payment on July 1,
2021 was made as scheduled
What is the carrying amount of the bonds payable on July 1, 20217
Response: 5,742.000
Question 39
Aly Company had the following loans at 12% interest payable at maturity. The entity repaid
each loan on scheduled maturity date.
The entity recorded interest expense when the loans are repaid. As a result, interest expense of
P150,000 was recorded in 2019.
What amount should be recorded as interest expense for 2019

Response: 380,000
Question 40
amount of 3-year 16% bonds payable. Interest is payable semi-annually on June 30 and
entity of P2.738.682 which represents an effective interest cost of 20% per year.
How much is the interest expense on 2022?
Response: 566,067
SA ATTEMPT (nia)
1. At the beginning of the current year, Krist Company leased a machine to Singto Company.
The machine had an original cost of P6,000,000. The lease term was five years and the
implicit interest rate on the lease was 15%. The lease is properly classified as a direct
financing lease. The annual lease payments of P1,750,000 are made each December 31.
The machine reverts to Krist at the end of the lease term, at which time the residual value
of the machine will be P275,000. The residual value is unguaranteed.
What amount should be reported as interest income for the current year?
- 900,000
2. On January 1, 2021, Ansley Company issued convertible bonds with a face amount of
P5,000,000 for P6,000,000. The bonds are convertible into 50,000 shares with P100 par
value. The bonds have a 5-year life with 10% stated interest rate payable annually every
December 31. The fair value of the convertible bonds without conversion option is
computed at P5,399,300 on January 1, 2021. On December 31, 2023, the convertible
bonds were not converted but fully paid for P5,550,000. On such date the fair value of the
bonds without conversion privilege is P5,400,000 and the carrying amount is P5,178,300.
What amount should be recorded as loss on the extinguishment of the convertible bonds
payable on December 31, 2023?
- 221,700
3. On January 1, 20x4, Day Corp. entered into a 10-year lease agreement with Ward, Inc. for
industrial equipment. Annual lease payments of P100,000 are payable at the end of each
year. Day knows that the lessor expects a 10% return on the lease. Day has a 12%
incremental borrowing rate. The equipment is expected to have an estimated useful life of
10 years. In additional, a third party has guaranteed to pay Ward a residual value of P50,000
at the end of the lease.
The present value of an ordinary annuity of P1 at
12% for 10 years is 5.6502
10% for 10 years is 6.1446
The present value of P1 at
12% for 10 years is .3220
In Day’s October 31, 20x4 , statement of financial position, the principal amount of the lease
obligation was
- 614,460
4. In 2020, Eirine Corporation introduced a laptop carrying a 2-year warranty against defects.
The estimated warranty costs related to peso sales are 4% within 12 months following sale
and 6% in the second 12 months following sale. The entity reported sales of P5,000,000
for
2020 and P6,000,000 for 2021. The actual expenditures incurred amounted to P150,000 for
2020 and P550,000 for 2021.
What is the estimated warranty liability as of December 31, 2020?
- 350,000
5. Convertible bonds
- May be exchanged for equity shares
6. Webb Company has a P2,500,000, 7%, 10-year bond. The bond was originally sold
to yield 6% interest. The entity used the interest method to amortize the premium. On
January 1, 2020, the carrying amount of the outstanding bond was P2,625,000.
What amount of premium on bond payable should be reported on December 31, 2020?
- 107,500
7. On January 1, 2021, Ling Company issued 9% bonds in face amount of P4,000,000

which mature on January 1, 2031. The bonds were issued for P3,756,000 to yield 10%,
resulting in bond discount of P244,000. The entity used the interest method of
amortizing bond discount Interest is payable annually on December 31. On December
31, 2021, what is the unamortized bond discount?
- 228,400
8. James Company leased a new machine to Jerry Company on January 1, 2020. The
lease expires on January 1, 2025. The annual rental is P900,000. Additionally, on
January 1, 2020, Jerry paid P500,000 to James as a lease bonus and P250,000 as a
security deposit to be refunded upon the expiration of the lease. In James’ 2020
income statement, the amount of rental revenue should be
- 1,000,000
9. On January 1, 2020, Princess Co. issued P2,500,000, 12% nonconvertible bonds at

103 due in 5 years. Each P1000 bond was issued 30 share warrants each of which
entitles the holder to purchase for P25, one share of Princess Co. par value P!2.50.
Interest payable annually every end of year. On the issuance date, the shares were
selling at P20 and the warrants are selling at P2. The yield for similar bonds ex-warrant
is 14%.
PV of 1 at 14% for 5 periods is .52
PV of 1 at 12% for 5 periods is .57
PV of an ordinary annuity of 1 at 14% for 5 periods is 3.43
What amount should be recognized as discount or premium on the original issuance of
the bonds?
- 171,000 premium
10. Minimum lease payments are payments the lessee is obligated to make or can be
expected to make in connection with the leased property. In computing the
minimum lease payments, all the following would be included except for the
- penalty for failure to renew or extend the lease
11. At the beginning of current year, Saber Company leased computer equipment to Selena
Company under a direct financing lease. The equipment has no residual value at the
end of the lease and the lease does not contain bargain purchase option. The entity
wishes to earn 8% interest on a 5-year lease of equipment with a cost of P3,234,000.
The present value of an annuity due of 1 at 8% for 5 years is 4.312.
What is the total interest revenue that Saber will earn over the lease term?
- 516,000
12. On January 1, 2020, Snow Co. issued 10% bonds in the face amount of P1,250,000,
which mature on January 1, 2030. The bonds were issued for P 1,418,750 to yield
8%, resulting in a bond premium of P 168,750. The entity used the interest method
and interest is payable every December 31.
On December 31, 2020, what is the carrying amount of bonds payable?
- 1,407,250
13. On January 1, 2021, Ling Company issued 9% bonds in face amount of

P4,000,000 which mature on January 1, 2031.
The bonds were issued for P3,756,000 to yield 10%, resulting in bond discount of
P244,000.
The entity used the interest method of amortizing bond discount Interest is payable
annually on December 31.
What is the carrying amount of bonds payable on December 31, 2021?
- 3,771,600
14. On January 1, 2020, Sensible company issued 9% bonds in the face amount of
P10,000,000, which mature on January 1, 2030. The bonds were issued for
P9,390,000 to yield 10%. Interest is payable annually every December 31. The entity
uses the effective interest method.
What is the carrying amount of the bonds payable on December 31, 2020?
- 9,429,000
15. At the beginning of current year, Popol Company leased a new machine from Kupa with
the following pertinent information:
Lease term = 5 years
Annual rental payable at beginning of each year = 500,000
Useful life of machine = 8 years
Implicit interest rate in lease = 12%
Present value of an annuity of 1 in advance for 5 periods at 12% = 4.04
Present value of an ordinary annuity of 1 for 5 periods at 12% = 3.6
The lease is not renewable and the machine reverts to Kupa at the termination of the
lease. The cost of the machine on Kupa's accounting records is P3,755,000. At the
beginning of the lease term, what amount should be recorded as cost of right of use
asset?
- 2,020,000
16. During the latter part of the year, Offgun Company won a litigation award for
P1,500,000 which was tripled to P4,500,000 to include punitive damages. The
defendant, who is financially stable, has appealed only the P3,000,000 punitive
damages. The entity was awarded P5,000,000 in an unrelated suit filed, which is being
appealed by the defendant. Counsel is unable to estimate the outcome of these
appeals. What amount should be reported as pretax gain for the year?
- 1,500,000
17. Rafaela Company had an overdue 8% note payable to Lolita Bank at P8,000,000
and accrued interest of P640,000. As a result of a restructuring agreement on
January 1, 2021, Lolita Bank agreed to the following provisions:
The principal obligation is reduced to P7,000,000.
The accrued interest of P640,000 is forgiven.
The date of maturity is extended to December 31, 2024.
Annual interest of 10% is to be paid for 4 years every December 31
The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary
annuity of 1 at 8% for 4 periods is 3.31.
- 596,960
18. On July 1, 2019, Pat Co. leased a piece of land from Luke Corporation under a 3-
year operating lease. Total rent for the term of the lease will be P3,600,000, payable
as follows:
12 months at 50,000 = 600,000
12 months at 75,000 = 900,000
12 months at 175,000 = 2,100,000
All payments were made every July 1 starting 2019.
How much is Luke’s rent revenue for the fiscal year ended June 30, 2020?
- 1,200,000
19. James Company leased a new machine to Lake Company on January 1, 2013.
The lease expires on January 1, 2018. The annual rental is P900,000. Additionally,
on January 1, 2013, Lake paid P500,000 to James as a lease bonus and P250,00
as a security deposit to be refunded upon the expiration of the lease.
In James’ 2013 income statement, the amount of rental revenue should be
- 1,000,000
20. On December 31, 2019, Namtan Company leased equipment with annual lease
payments of P200,000 due December 31 for 10 years. The equipment’s useful life is
10 years and the interest rate implicit in the lease is 10%. The lease obligation was
recorded on December 31, 2019 at P1,350,000 and the first lease payment was made
on that date.
What amount should be included in current liabilities in relation to the lease on
December 31 2019?
- 85,000
21. Ace Company had the following long-term debt:

Bonds maturing in installments, secured by machinery – P1,000,000
Bonds maturing on a single date, secured by realty – P1,800,000
Collateral trust bonds – P2,000,000
- 0
22. Reicel company operates a customer loyalty

program… What is the revenue from points for 2020?
- 144,375
23. Glade Company leases computer equipment to customers under direct financing lease.
The equipment has no residual value at the end of the lease and the leases do not
contain bargain purchase options. Glade wishes to earn 8% interest on a five-year
lease of equipment with a fair value of P323,400.
What is the total amount of interest revenue that Glade will earn over the life of the
lease?
- 51,600
24. On January 1, 2021, Silvanna Company leased a building to Terizla Company for a
ten-year term at an annual rental of P500,000. At inception of the lease, Silvanna
received P2,000,000 covering the first two years' rent of P1,000,000 and a security
deposit of P1,000,000.This deposit will not be returned to Terizla upon expiration of the
lease but will be applied to payment of rent for the last two years of the lease. What
portion of the P2,000,000 should be reported as noncurrent liability on December 31,
2021?
- 1,000,000
25. When measuring the discounted amount of future rentals to be capitalized as part of
the purchase, identifiable payments to cover taxes, insurance and maintenance should
be
- Excluded from future rentals to be capitalized
26. Neal Corp. entered into a 9-year finance lease on a warehouse on December 31, 20x4.
The land and building are capitalized as a single unit. Lease payments of P52,000,
which include real estate taxes of P2,000, are due annually, beginning on December
31, 20x5, and every December 31 thereafter. Neal does not know the interest rate
implicit in the lease; Neal’s incremental borrowing rate is 9%. The rounded present
value of an ordinary annuity for 9 years at 9% is 5.6. What amount should Neal report
as capitalized lease liability at December 31, 20x4?
- 280,000
27. Based on the standards on Leases, which of the following arrangements is a lease?
- AireOne Cargo Inc. has wet-leased an A300-600F aircraft from Skyyflug of
Iceland for a service between Paris Charles de Gaulle Airport CDG and
Malabo in Equatorial Guinea for a period of 5 years
Present value of an annuity of 1 in advance for 5 periods at 12% = 4.04
Present value of an ordinary annuity of 1 for 5 periods at 12% = 3.6
The lease is not renewable and the machine reverts to Kupa at the termination of the
lease. The cost of the machine on Kupa's accounting records is P3,755,000.
What amount should be reported as depreciation of the right of use asset for the current
year?
- 404,000
29. Cactus Co. issued P625,000 face amount 12% convertible bonds at 110 on January 1,
2020 paying interest semi-annually on January 1 and July 1. It is estimated that the
bonds would sell only at 103 without the conversion feature. Each 1,000 bond is
convertible into 10 ordinary shares with P12.50 par value. What is the increase in
shareholder’s equity arising from the original issuance of the convertible bonds?
- 43,750
30. On July 1, 2021, Jungkook Company leased a delivery truck to Jimin Company under
a 3-year operating lease.
Total rent for the term of the lease will be P3,600,000 payable as follows:
First 12 months at P50,000 per month, next 12 months at P75,000 per month and the
last 12 months at 175,000 per month.
All payments were made when due. On June 30, 2023, what amount should be reported
as accrued rent receivable?
- 900,000
31. The lease receivable in a direct financing lease is

- the present value of the lease payments
32. Rapmon Company, a high street chain, is offering a promotion whereby a customer who
purchases two boxes of chocolates at P250 per box in a single transaction receives a
coupon for one free box of chocolates if the customer fills out a request form and mails
it before a set expiration date. It is expected that 75% of the coupons will be redeemed.
During 2021, the entity sold 55,000 boxes of chocolates at P250 per box. During 2022,
the entity delivered 5,000 additional free boxes of chocolates to the customers.
What amount should be reported as sales revenue in 2021?
- 10,000,000
33. Reicel operates a customer loyalty
program… What is the revenue from points in
2022?
- 262,500
34. Lessors shall recognize asset held under a finance lease as a receivable at an
amount equal to the
- Net investment in the lease
value. The bonds have a 5-year life with 10% stated interest rate payable annually
every December 31. The fair value of the convertible bonds without conversion option is
bonds were not converted but fully paid for P5,550,000. On such date the fair value of
the bonds without conversion privilege is P5,400,000 and the carrying amount is
P5,178,300.
What should be recorded as equity component arising from issuance of bonds payable
on January 1, 2021?
- 600,700
36. It is that portion of the lease payments that is not fixed in amount but is based on
the future amount of a factor that changes other than the passage of time, for
example, percentage of future sales
- Contingent rent
37. Using international accounting standard, the valuation method used for bond payable is
- discounted cash flow valuation at yield rate at issuance.
38. Kevin Company has an agreement to pay its sales manager a bonus of 5% of the
income after bonus and after tax. The income for the current year before bonus and
tax is P5,250,000. The income tax rate is 30% of income after bonus. What amount
should be reported as bonus of the sales manager for the current year?
- 177,536
39. The Navajo Company has leased an asset on a finance lease. The present value of the
minimum lease payments is P686,000. Its fair value is P700,000. The asset has a
useful life of 5 years and the lease is for a period of 4 years, after which the asset can
be acquired for a near zero cost, which is substantially below the expected value of the
asset at that date. The asset is depreciated on a straight line basis. How much should
the annual depreciation expense be?
- 137,200
40. At the beginning of the current year, Mixxiw Company leased a building from a lessor
with the following pertinent information:
Annual rental payable at end of each year – P1,000,000
Initial direct cost paid – P400,000
Lease incentives received – P100,000
Leasehold improvement – P200,000
Purchase option that is reasonably certain to be exercised – P500,000
Lease term – 5 years
Useful life of the building – 8 years
Implicit interest rate – 10%
PV of an ordinary annuity of 1 for 5 periods at 10% - 3.79
Present value of 1 for 5 periods at 10% - 0.62
What is the cost of the right-of-use asset?
- 4,400,000
41. Rafaela Company had an overdue 8% note payable to Lolita Bank at P8,000,000
and accrued interest of P640,000.
As a result of a restructuring agreement on January 1, 2021, Lolita Bank agreed to the
following provisions:
What amount should be reported as gain on extinguishment of debt for 2021?
- 1,178,000
42. On January 2, 2020, Raphael Mining Company (lessee) entered into a 5-year lease
for drilling equipment. Raphael accounted for the acquisition as a finance lease for
P2,400,000, which includes a P100,000 bargain purchase option. At the end of the
lease, Raphael expects to exercise the bargain purchase option. Raphael estimates that
the equipment’s fair value will be P200,000 at the end of its 8-year life. Raphael
regularly uses straight-line depreciation on similar equipment. For the year ended
December 31, 2013, what amount should Raphael recognize as depreciation expense
on the leased asset?
- 275,000
43. Abraham company issued P1,250,000 face amount, 5 yr bonds at 109. Each 1000 bond
was issued with 10 share warrants each of which entitled the bondholder to purchase
one share of P25 par value at P30 immediately after issuance. The market value of
each share warrant is P1.25. The stated interest rate of the bonds is 11% payable
annually every end of year. However, the prevailing market rate of interest for similar
bonds without warrant is 12%. PV of 1 at 12% for 5 periods is .57, PV of an ordinary
annuity of 1 at 12 % for 5 periods is 3.60.
What is the equity component arising from the issuance of bonds payable?
- 155,000
44. On January 1, 2020, Mercury Co. issued 10% bonds payable in the face amount of
P1,500,000. The bonds mature on January 1, 2030. The bonds were issued for
P1,329,000 to yield 12% resulting in bond discount of P171,000. The entity used the
interest method and interest is payable semi-annually on January 1 and July 1. For the
6 months ended, June 30, 2020, what amount should be reported as bond interest
expense?
- 79,725
a 3-year operating lease.
Total rent for the term of the lease will be P3,600,000 payable as follows:
First 12 months at P50,000 per month, next 12 months at P75,000 per month and the
last 12 months at 175,000 per month.
All payments were made when due.
What amount should be reported as rent revenue for the year ended June 30, 2022?
- 1,200,000
46. At the beginning of current year, Anna Company leased a building from a lessor with the
following pertinent information:
Annual rental payable at the end of each year = 1,000,000
Initial direct cost paid = 400,000
Lease incentive received = 100,000
Leasehold improvement = 200,000
Purchase option that is reasonably certain to be exercised = 500,000
Useful life of building = 8 years
Implicit interest rate = 10%
PV of an ordinary annuity of 1 for 5 periods at 10% = 3.79
Present value of 1 for 5 periods at 10% = 0.62
What is the depreciation for current year?
- 550,000
What amount should be recorded initially as discount or premium on bonds payable?
- 42,500 discount
48. Mickey Company sells equipment service contracts that cover a two-year period.
The sale price of each contract is P600.
The past experience is that, of the total pesos spent for repairs on service contracts,
40% is incurred evenly during the first contract year and 60% evenly during the second
contract year.
The entity sold 1,000 contracts evenly throughout 2021.
What amount should be reported as contract revenue for 2023?
- 180,000
49. A six-year finance lease entered into on December 31, Year 4, specified equal minimum
annual lease payments due on December 31 of each year. The first minimum annual
lease payment, paid on December 31, Year 4, consists of which of the following?
Answer format: Interest Expense, Lease liability
- No, Yes
What amount is credited to share premium if all of the share warrants are exercised?
- 405,000
EA COMPOUND
1. Off Company had outstanding share capital with par value of P50,000,000 and a 12%
convertible bond payable in the face amount of P10,000,000. Interest payment dates of
the bond issue are June 30 and December 31. The conversion clause in the bond
indenture entitled the bondholders to receive 40 shares of P20 par value in exchange for
each P1,000 bond. On June 30, the holders of bonds with face amount of P5,000,000
exercised the conversion privilege. The market price of the bonds on that date was
P1,100 per bond and the market price of the share was P30. The total unamortized
bond discount at the date of conversion was P500,000. The share premium from
conversion privilege has a balance of P2,000,000 on June 30. What amount of share
premium should be recognized by reason of the conversion of bonds payable into share
capital?
1,750,000
2. Phuwin Corporation issued 5,000 convertible bonds at the beginning of the year. The
bonds had a four-year term with a stated rate of interest of 6% and were issued at par
with a face amount of P1,000 per bond. Interest is payable annually on December 31.
Each bond is convertible into 50 ordinary shares with a par value of P10. The market
rate of interest on similar nonconvertible bond is 9%. At the issuance date, the amount
of P485,000 was credited to share premium from conversion privilege. The bonds were
not converted and instead, the entity paid off the convertible bondholders at maturity.
What amount should be recorded as gain or loss on the full payment of convertible
bonds at maturity?
0
3. On January 1, 2021, Ren Company issued convertible bonds with a face amount of
P5,178,300.
What should be recorded as equity component arising from issuance of bonds payable
on January 1, 2021?
600,700
4. On December 31, 2020, Sanely Company showed the following balances:
The interest is payable annually every December 31. The convertible bonds are not
converted but fully paid on December 31, 2020. On such date, the quoted price of the
convertible bonds with conversion option is 105 which is the payment to the bondholders
plus interest. However, the quoted price of the bonds without the conversion privilege is
95. What is the gain or loss from the extinguishment of the bonds?
300,000 loss
5. the beginning of the current year, Win Company issued P5,000,000 face amount 5-year
bonds at 109. Each P1,000 bond was issued with 50 detachable share warrants, each
of which entitled the bondholder to purchase one ordinary share of P5 par value at P25.
Immediately after issuance, the market value of each warrant was P5. The stated
interest rate on the bonds is 11% payable annually every December 31. However, the
prevailing market rate of interest for similar bonds without warrants is 12%. The present
value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity of 1
at 12% for 5 periods is 3.60.
What amount should be recorded as share premium if all of the warrants are exercised?
5,620,000
6. Gun Company had P600,000 convertible 8% bonds payable outstanding on June 30.
Each P1,000 bond was convertible into 10 ordinary shares of P50 par value. On July
1, the interest was paid to bondholders, and the bonds were converted into ordinary
shares, which had a fair value of P75 per share. The unamortized premium on these
bonds was P12,000 at the date of conversion. No equity component was recognized
when the bonds were originally issued.
What amount should be recorded as increase in share capital as a result of bond
conversion?
300,000
7. When bonds are issued with share warrants, the equity component is equal to
The excess of the proceeds over the fair value of the bonds payable without the share warrants
8. On December 31, 2020, Sanely Company showed the following balances:
The interest is payable annually every December 31. The convertible bonds are not
converted but fully paid on December 31, 2020. On such date, the quoted price of the
convertible bonds with conversion option is 105 which is the payment to the bondholders
plus interest. However, the quoted price of the bonds without the conversion privilege is
95.
What is the total payment to bondholders on December 31, 2020?
4,440,000
9. At year-end, Mixxiw Company had outstanding 10%, P1,000,0000 face amount of
convertible bonds payable maturing in 3 years. Interest is payable on June 30 and
December 31. Each P1,000 bond is convertible into 50 shares of P10 par value.
The unamortized premium on bonds payable was P60,000 at year-end. At year-end,
400 bonds were converted when Mixxiw's share had a market price of P24. The
entity incurred P4,000 in connection with the conversion. No equity component was
recognized when the bonds were originally issued. What amount should be recorded as
share premium from the issuance of shares as a result of bond conversion at year-end
220,000
10. When convertible bond is not converted but paid at maturity
The carrying amount of the bond equal to face amount is
derecognized
11. The major difference between convertible bonds and bonds issued with share
warrants is that upon exercise of the warrants
The holder has to pay a certain amount to obtain the shares
12. How are proceeds from issuing a compound instrument allocated between liability and
equity?
The liability component is measured at fair value and the remainder of the proceeds is allocated
to the equity component.
13. At the beginning of the current year, Singto Company issued 5,000 convertible bonds
payable. The bonds have a three-year term and are issued at 110 with a face amount
of P1,000 per bond. Interest is payable annually in arrears at a nominal 6% interest
rate. Each bond is convertible at anytime up to maturity into 100 ordinary shares with
par value of P5. When the bonds are issued, the prevailing market interest rate for
similar debt instrument without conversion option is 9%. The present value of 1 at 9%
for 3 periods is 0.77 and the present value of an ordinary annuity of 1 at 9% for 3
periods is
2.53. What amount should be reported as equity component of the original issuance of
the convertible bonds payable?
891,000
14. New New Company issued P5,000,000 face amount 12% convertible bonds at 110 at
the beginning of current year. The bonds pay interest semiannually on January 1 and
July 1. It is estimated that the bonds would sell only at 103 without the conversion
feature. Each P1,000 bond is convertible into 10 ordinary shares with P100 par
value. What is the increase in shareholder's equity arising from the original issuance
of the convertible bonds payable
350,000
15. At the beginning of the current year, Kevin Company issued 12% P5,000,000
nonconvertible bonds payable at 103 which are due in 5 years. In addition, each P1,000
bond was issued 30 share warrants, each of which entitled the bondholder to purchase
for P50 one share of Kevin Company, par value P25. Interest is payable annually every
end of the year. On the date of issuance, the market value of the share was P40 and the
market value of the share warrant was P4. The market rate of interest for similar bond
ex-warrants is 14%. The present value of 1 at 14% for 5 periods is 0.52 and the present
value of an ordinary annuity of 1 at 14% for 5 periods is 3.43.
What amount should be recognized as discount or premium on the original issuance of
the bonds payable
342,000 discount
16. When an entity issued bonds payable that ca be converted into ordinary shares,
what will be the effect on liabilities and equity, respectively?
Increase and increase
What amount should be credited to share premium if all of the share warrants are
exercised?
4,242,000
18. At year-end, Bright Company issued 5,000 8% 10-year bonds, P1,000 face amount
with detachable share warrants at 110. Each bond carried a detachable warrant for 10
ordinary shares of Bright Company at a specified option price of P25 per share. The par
value of the ordinary share is P20. Immediately after issuance, the market value of the
bonds without warrants was P5,400,000 and the market value of the warrants was
P600,000. What is the carrying amount of bonds payable at yearend?
5,400,000
19. At the beginning of the current year, Win Company issued P5,000,000 face amount
5-year bonds at 109. Each P1,000 bond was issued with 50 detachable share warrants,
each of which entitled the bondholder to purchase one ordinary share of P5 par value at
P25. Immediately after issuance, the market value of each warrant was P5. The stated
What amount should be recorded initially at discount or premium on bonds payable?
170,000 discount
20. Gun Company had P600,000 convertible 8% bonds payable outstanding on June 30.
Each P1,000 bond was convertible into 10 ordinary shares of P50 par value. On July
1, the interest was paid to bondholders, and the bonds were converted into ordinary
shares, which had a fair value of P75 per share. The unamortized premium on these
bonds was P12,000 at the date of conversion. No equity component was recognized
when the bonds were originally issued.
What amount should be recorded as increase in share premium as a result of the bond
conversion?
312,000
21. The proceeds from an issue of bonds payable with share warrants should not
be allocated between the liability and equity components when
The proceeds should be allocated between liability and equity under all circumstances
22. At the beginning of the current year, Tay Company issued P5,000,000 of 12%
nonconvertible 5-year bonds at 103. In addition, each P1,000 bond was issued with
30 detachable share warrants, each of which entitled the bondholder to purchase for
P50, one ordinary share of Tay Company, par value P25. The quoted market value of
each warrant wad P4. The market value of the bonds ex-warrants at the time of
issuance is 95.
What amount of the proceeds from the bond issue should be recognized as an increase
in shareholder's equity?
400,000
What amount should be reported as equity component arising from the issuance of the
bonds payable?
620,000
24. At the beginning of the current year, Tay Company issued P5,000,000 of 12%
nonconvertible 5-year bonds at 103. In addition, each P1,000 bond was issued with
30 detachable share warrants, each of which entitled the bondholder to purchase for
P50, one ordinary share of Tay Company, par value P25. The quoted market value of
each warrant was P4. The market value of the bonds ex-warrants at the time of
issuance is 95.
What is the carrying amount of the bonds payable?
4,750,000
What is the initial carrying amount of the bonds payable?
4,830,000
26. What is the principal accounting for a compound financial instrument?
The issuer shall classify the liability and equity components of a compound instrument
separately as liability or equity instrument
27. When the cash proceeds from bonds payable issued with share warrants exceed the
fair value of the bonds payable without the warrants, the excess should be credited to
Share premium - share warrants
What amount should be recorded as equity component arising from the issuance of
bonds payable?
492,000
29. Bondholders exchange their convertible bonds for ordinary shares. The carrying amount
of these bonds was lower than market value but greater than the par value of the
ordinary shares issued. If the book value method is used, which of the following
correctly states an effect of the conversion?
Shareholders' equity is increased
30. An entity issued bonds payable with nondetachable share warrants. In
computing interest expense for the first year, the effective interest rate is
multiplied by the
Fair value of the bond ex-warrant
EA LEASE
1. Under IFRS, a lessee is required to recognize
Right of use asset and lease liability
2. The lease may apply the operating lease model under what condition?
Both short-term lease and low vale lease
3. The accounting concept that is principally used to classify leases into operating
and finance on the part of the lessor is
Substance over form
4. A short-term lease is defined as
Twelve months or less
5. January 1, 2019, Kevin Company leased an equipment for 6 years from another entity.
The entity recorded the right of use asset at P4,800,000 which included a purchase
option of P100,000. On this date, Kevin is certain to exercise the option. The
equipment had an 8-year useful life and a fair value of P300,000 at end of the useful
life. On January 1, 2025, the entity did not exercise the option. What amount should be
recognized as loss on finance lease in 2025?
1,325,000
6. At the beginning of current year, Earth Company leased a building from a lessor with the
What is the interest expense for the current year?
410,000
7. Net investment in a direct financing lease is equal to
Cost of the asset plus initial direct cost paid by the lessor
8. At the beginning of the current year, Off Company leased office premises to Gun
Company for a 5-year term. Under the terms of the operating lease, rent for the first
year is P800,000 and rent for years 2 through 5 is P1,250,000 per annum. However, as
an inducement to enter the lease, Off Company granted Gun Company the first six
months of the lease rent-free.
What is the total rental revenue over the lease term?
5,400,000
9. Ren Company prepared the following lease payments schedule for the lease of a
machine from another entity. The machine had an economic life of 6 years. The lease
agreement required four annual payments of P33,000 and the machine will be
returned to the lessor at the end of the lease term.
What is the residual value guarantee?
5,000
10. Aly Company entered into a lease of a building on January 1, 2019 with the
following information:
What should be reported as lease liability on December 31, 2021?
867,245
11. The primary difference between a direct financing and a sales type lease is
the Recognition of dealer profit at inception of the lease
12. At the beginning of the current year, Mixxiw Company leased a machinery with the
following information
925,000
13. At the beginning of the current year, Off Company leased office premises to Gun
Company for a 5-year term. Under the terms of the operating lease, rent for the first
year is P800,000 and rent for years 2 through 5 is P1,250,000 per annum. However, as
an inducement to enter the lease, Off Company granted Gun Company the first six
months of the lease rent-free
What amount should be reported as rental income for the current year?
1,080,000
On June 30, 2020, what would Ren record in relation to the lease?
An interest payable of P9,851
What is the lease liability at year-end?
2,861,000
16. Which statement is true about low value lease?
All of these statements are true about low value lease
17. The lease receivable in a direct financing lease is
The present value of the lease payments
What should be reported as lease liability on December 31, 2021?
867,245
What is the carrying amount of right-of-use asset on January 1, 2022?
2,839,595
20. On January 1, 2019, Singto Company entered into a lease for floor space with
the following information:
What amount should be recorded as termination gain or loss on January 1, 2021?
10,620 gain
21. Sanely Company leased machinery with a useful life of 10 years for 10 years on
January 1, 2019. At that date the fair value of the machinery was P4,900,000. Annual
rentals of P700,000 are payable in advance on January 1 and the interest rate implicit in
the lease is 9%.
What amount should be reported as total liability (principal and interest) on December
31, 2019?
4,578,000
What amount should be recorded as increase in the lease liability due to modification on
January 1, 2021?
13,535
What is the amount of executory cost?
3,000
24. Sanely Company leased machinery with a useful life of 10 years for 10 years on
January 1, 2019. At that date the fair value of the machinery was P4,900,000. Annual
rentals of P700,000 are payable in advance on January 1 and the interest rate implicit in
the lease is 9%.
378,000
25. Which is correct accounting treatment for a finance lease in the accounts of a lessor?
Receivable equal to net investment in the lease and recognize finance payments by reduction of
debt and taking interest to income statement
What amount should be reported as lease liability on December 31, 2020 before the
modification?
497,374
What amount should be reported as depreciation for 2019?
379,000
28. A right of use asset is initially measured at
Cost
What is the initial lease liability?
3,510,000
What is the cost of right-of-use asset?
4,200,000
What amount should be reported as new lease liability on January 1, 2022?
2,948,840
32. At the beginning of the current year, Tay Company signed a 10-year noncancelable
lease agreement to lease a storage building to a lessee. The agreement required equal
rental payments at the end of each year. The fair value of the building is P3,075,000.
However, the carrying amount of the building is P2,460,000. The building has an
estimated economic life of 10 years with no residual value. At the termination of the
lease, the title to the building will be transferred to the lessee. Tay Company set the
annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by
the lessee. The annual total lease payment included P100,000 of executory cost
related to taxes on the property. The present value of an ordinary annuity of 1 at 10%
for 10 periods is 6.15.
What is the minimum annual lease payment?
500,000
What is the cost of right of use asset?
4,400,000
34. At the beginning of the current year, Namtan Company leased computer equipment to
Pond Company under a direct financing lease. The equipment has no residual value at
the end of the lease and the lease does not contain bargain purchase option. The entity
wishes to earn 8% interest on 5-year lease of equipment with a cost of P3,234,000.
What amount should be reported as interest revenue for the current year?
198,720
What is the annual depreciation expense?
23,378
What is the depreciation for the current year?
550,000
What amount should be reported as depreciation for 2022?
405,656
following pertinent information
3,510,000
39. At the beginning of the current year, Namtan Company leased computer equipment to
Pond Company under a direct financing lease. The equipment has no residual value at
the end of the lease and the lease does not contain bargain purchase option. The entity
wishes to earn 8% interest on 5-year lease of equipment with a cost of P3,234,000.
What is the total interest revenue that Namtan will earn over the lease term?
516,000
40. At the beginning of the current year, Tay Company signed a 10-year noncancelable
lease agreement to lease a storage building to a lessee. The agreement required equal
rental payments at the end of each year. The fair value of the building is P3,075,000.
However, the carrying amount of the building is P2,460,000. The building has an
estimated economic life of 10 years with no residual value. At the termination of the
lease, the title to the building will be transferred to the lessee. Tay Company set the
annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by
the lessee. The annual total lease payment included P100,000 of executory cost
related to taxes on the property. The present value of an ordinary annuity of 1 at 10%
for 10 periods is 6.15.
What is the total annual lease payment?
600,000
SA Attempts
1. Which of the following statements about lessor accounting and minimum lease
payment is true?
a. for both lessors and lessees, minimum lease payments include any
residual value guarantee given by an independent third party
b. Minimum lease payments are defined in the same way for lessors as they are
for lease
c. Lessors should always used the implicit interest rate to circulate the
present value of the minimum lease payments
d. Little chance exist of a lessor and lessee classifying a lease differently
because they generally have a common understanding of definition of
minimum leases payments
2. Which of the following is true about the subsequent measurement of the liability
and asset held under finance leases?
a. The depreciation period for the assets held under a finance lease is always
the useful life of the assets
b. The finance charge is spread evenly over the lease term to ensure that
the absolute amount remains construct over the lease term
c. After inception period, expense includes only these compounds
depreciation expenses and finance expense
d. After commencement of the lease, the minimum lease payments are
apportioned between the finance charge and the reduction of the outstanding
liability
3. Rafaela Company had an overdue 8% note payable to Lolita Bank at
P8,000,000 and accrued interest of P640,000.
answer: 596,960
4. How would an entity calculate the net proceeds to be moved from bond issuance?
a. Discount the bonds at nominal rate
b. Discount the bonds at the market rate and deduct bond issuance cost
c. Discount the bonds at the nominal rate and deduct bond issuance cost
d. discuss the bonds at the market rate
5. Which of the following statements is not true when a lessee is initially recording
the assets and obligations under finance leases?
a. Both the fair value of the leases property and the present value of the
minimum lease payments are measured at the inception of the lease
b. The amount recorded is equal to the fair value of the leased property or, if
higher, the present value of the minimum lease payments
c. The amount recorded is equal to the fair value of the leased property or, if lower,
the present value of the minimum lease payments
d. Any initial direct costs of the lessee are added to the amount recognized as
an asset, whether this is the fair value of the minimum lease payments.
6. Reicel Company operates a customer loyalty program. The entity grant loyalty points
for goods purchased. The loyalty points can be used by the customers in exchange for
goods of the entity. The points have no expiry date.
During 2019, the entity issued 50,000 award credits and expect that 80% of these award
credits shall be redeemed. The total stand-alone selling price of the award credits
granted is reliably measured at P1,000,000. In 2019, the entity sold goods to customers
for a total consideration of P7,000,000 based on stand alone selling price.
The award credits redeemed and the total credits expected to be redeemed each years
are as follows
(insert table)
answer: 328,150
answer: 144,375
answer: 52,500
answer: 262,500
7. What is the correct accounting treatment for a finance lease in the accounts of a lessor?
answer: Treat as a receivable equal to the net investment in the lease. Recognize
finance payment by reducing debtor and taking interest to the income statement.
8. On January 1, 2020, Sensible company issued 9% bonds in the face amount of
P10,000,000, which mature on January 1, 2030. The bonds were issued for
P9,390,000 to yield 10%. Interest is payable annually every December 31. The entity
uses the effective interest method.
answer: 939,000
9. Which of the following lease arrangements would most likely be accounted for as
an operating lease by the lessee?
answer: the lessee may renew the two-year lease for an additional two years at the
same rental
10. Rapmon Company, a high street chain, is offering a promotion whereby a customer who
purchases two boxes of chocolates at P250 per box in a single transaction receives a
coupon for one free box of chocolates if the customer fills out a request form and mails
it before a set expiration date. It is expected that 75% of the coupons will be redeemed.
During 2021, the entity sold 55,000 boxes of chocolates at P250 per box. During 2022,
the entity delivered 5,000 additional free boxes of chocolates to the customers.
what amount should be reported as sales revenue from the delivery of free products in
2022?
a. 727,273.00
b. 681,818.00
c. 409,091.00
d. 1,250,000.00
11. On July 1, 2019, Pat Co. leased a piece of land from Luke Corporation under a 3-
year operating lease. Total rent for the term of the lease will be P3,600,000, payable
as follows:
12 months at 50,000 = 600,000
12 months at 75,000 = 900,000
12 months at 175,000 = 2,100,000
All payments were made every July 1 starting 2019.
What is the amount reported in Luke’s balance sheet at June 30, 2020?
a. 1,500,000 unearned rent
b. 600,000 rent receivable
c. 1,500,000 rent receivable
d. 900,000 unearned rent
12. All of the following situations would prime facie lead to a lease being classified as
a finance lease except
answer: The present value of the lease payments is 50% of the fair value of the asset.
13. A right of use of asset is initially measured at
answer: cost
14. The XBF Company leased out a freehold building for 20 years with effect from 1
January 2020. The useful life of the building is 40 years. As part of the negotiations for
the lease the lessor granted XBF a rent-free period. Annual rentals of P1.6 million are
payable in advance on 1 January, commencing in 2022. What income should XBF
recognize in profit or loss in the year ended 31 December 2020?
answer: 1.44 million
14. Which of the following dates are used to identify the inception of a
lease? answer: The date of the lease agreement
15. Bright Corporation is the defendant in a lawsuit filed by Win Company in 2019 disputing
the validity of copyright held by Bright. On December 31, 2019, Bright determined that
Win would probably be successful against Bright for an estimated amount of
P2,000,000. Appropriately, a P2,000,000 loss was accrued by a charge to income for
the year ended December 31, 2019. On December 31, 2020, Bright and Win agreed to a
settlement providing for cash payment of P1,250,000 by Bright to Win and transfer of
Bright’s copyright to Win. The carrying amount of the copyright on Bright’s accounting
records was P250,000 on December 31, 2020. What would be the effect of the
settlement on Bright’s income before tax in 2020?
Answer: 500,000 increase
16. What is the rate of interest actually incurred?
answer: market interest
17. When substantially all of the risks and rewards incident to ownership are transferred
to the lessee, the arrangement is treated as:
answer: a finance lease
18. On January 1, 20x4, Harrow Co. as lessee signed a 5-year noncancelable equipment
lease with annual payments of P100,000 beginning December 31, 20x4. Harrow
treated this transaction as finance lease. The five lease payments have a present value
of
P379,000 at January 1, 20x4, based on interest of 10%. What amount should Harrow
report as interest for the year ended December 31, 20x4?
answer: 37,900
19. Dominic Company leased a new machine from Isidore Company on May 1, 2020, under
a lease with the following information: Lease term – 10 years; useful life of machine – 12
years Annual rental payable at the beginning of each year P400,000 Implicit interest
rate 14% Dominic has the option to purchase the machine on May 1, 2025 by paying
P500,000, which approximates the expected fair value of the machine on the option
exercise date. On May 1, 2020, Dominic should record a capitalized leased asset of
answer: 2,344,000
20. Interest expense is
answer: the effective rate times the carrying amount of the bond during the interest
period.
21. Where there is a lease of land and building and the title of the land is not transferred
, generally the lease is treated as if
answer: the land is operating and the building is finance
22. When bonds are sold at a premium, and the interest method is used, at each
interest payment date, the interest expense
a. remains the same
b. decreases
c. increases
d. is equal to the change in the carrying amount
23. At the beginning of the current year, Krist Company leased a machine to Singto
Company. The machine had an original cost of P6,000,000. The lease term was five
years and the implicit interest rate on the lease was 15%. The lease is properly
classified as a direct financing lease. The annual lease payments of P1,750,000 are
made each December 31. The machine reverts to Krist at the end of the lease term, at
which time the residual value of the machine will be P275,000. The residual value is
unguaranteed.
At the commencement of the lease, what would be the net lease receivable on the part
of the lessor?
answer: 6,000,000
24. In the long-term liabilities section of its statement of financial position, 20x3, Mene Co.
reported a finance lease obligation of P75,000, net of current portion of P1,364.
Payments of P9,000 were made on both January 2, 20x4, and January 2, 20x5.
Mene’s incremental borrowing rate on the date of the lease was 11% and the lessor’s
implicit rate, which was known to Mene, was 10%. In its December 31, 20x4, statement
of financial position, what amount should Mene report as finance lease obligation, net
current portion?
a. 73,636
b. 66,000
c. 73,500
d. 74,250
25. How do you account for convertible bonds issued?
answer: The instrument should be recorded solely as bond
26. During the latter part of the year, Offgun Company won a litigation award for
P1,500,000 which was tripled to P4,500,000 to include punitive damages. The
defendant, who is financially stable, has appealed only the P3,000,000 punitive
damages. The entity was awarded P5,000,000 in an unrelated suit filed, which is being
appealed by the defendant. Counsel is unable to estimate the outcome of these
appeals. What amount should be reported as pretax gain for the year?
Correct answer: 1,500,000
27. Ace Company had the following long-term debt:
Bonds maturing in installments, secured by machinery – P1,000,000
Bonds maturing on a single date, secured by realty – P1,800,000
Collateral trust bonds – P2,000,000
answer: 0
28. On January 1, 2020, STAR Co. issued 10% bonds payable in the face amount of
P1,125,000. The bonds mature on January 1, 2030. The bonds were issued for
P996,750 to yield 12% resulting in bond discount of P513,000. The entity used the
6 months ended June 30, 2020, what amount should be reported as bond interest
expense?
answer: 59,805
P5,178,300. What should be recorded as equity component arising from issuance of
bonds payable on January 1, 2021?
answer: 600,700
answer: 3,510,000
31. Minimum lease payments are payments the lessee is obligated to make or can be
expected to make in connection with the leased property. In computing the
minimum lease payments, all the following would be included except for the
answer: penalty for failure to renew or extend the lease
32. Net investment in a direct financing lease is equal to
answer: cost of the asset plus initial direct cost paid by the lessor
What amount should be recorded initially as discount or premium on bonds payable?
answer: 42,500 discount
34. On January 1, 2020, Mercury Co. issued 10% bonds payable in the face amount of
P1,500,000. The bonds mature on January 1, 2030. The bonds were issued for P
1,329,000 to yield 12% resulting in bond discount of P171,000. The entity used the
6 months ended, June 30, 2020, what amount should be reported as bond interest
expense?
answer: 79,725
35. On January 1, 20x4, Day Corp. entered into a 10-year lease agreement with Ward, Inc.
for industrial equipment. Annual lease payments of P100,000 are payable at the end of
each year. Day knows that the lessor expects a 10% return on the lease. Day has a 12%
incremental borrowing rate. The equipment is expected to have an estimated useful life
of 10 years. In additional, a third party has guaranteed to pay Ward a residual value of
P50,000 at the end of the lease.
The present value of an ordinary annuity of P1 at
12% for 10 years is 5.6502
10% for 10 years is 6.1446
The present value of P1 at
In Day’s October 31, 20x4 ,
statement of financial position, the principal amount of the lease obligation was
answer: 614,460
What amount of premium on bond payable should be reported on December 31, 2020?
answer: 107,500
37. For a bond issue which sells for less than the face value, the market rate of interest
is answer: higher than the rate stated in the bond.
What is the carrying amount of the bond payable on December 31, 2020?
answer: 2,607,500
39. James Company leased a new machine to Lake Company on January 1, 2013. The
January 1, 2013, Lake paid P500,000 to James as a lease bonus and P250,00 as a
answer: 1,000,000
40. When interest expense for the current year is more than the interest paid, the
bonds were issued at
answer: a discount
Present value of an annuity of 1 in advance for 5 periods at 12% =
4.04 Present value of an ordinary annuity of 1 for 5 periods at 12% =
3.6 The lease is not renewable and the machine reverts to Kupa at the
termination of the lease. The cost of the machine on Kupa's accounting records is
P3,755,000.
What amount should be reported as depreciation of the right of use asset for the current
year?
Correct answer: 404,000
42. JHope Company provided the following selected transactions related to
contingencies. The fiscal year ends on December 31, 2019 and financial statements
are issued on March 31, 2020.
1. JHope is involved in a lawsuit resulting from a dispute with a customer over a 2019
transaction. On December 31, 2019, the legal counsel advised that it was probable
that Jhope would lose P3,000,000 in an unfavorable outcome. On February 15, 2020,
judgment was rendered against JHope in the amount of P4,000,000 plus interest
P500,000. JHope does not plan to appeal the judgment.
2. JHope is the defendant in a lawsuit filed in January 2020 in which V Company seeks
P5,000,000 as an adjustment to the purchase price related to the sale of JHope's
hardwood division in 2019. The lawsuit alleged that JHope misrepresented the division's
assets and liabilities. Legal counsel advised that it is reasonably possible that Bourne
could lose P2,000,000 but that it is extremely unlikely it could lose the P5,000,000
asked for.
3. On March 1, 2020, the provincial government is in the process of investigating the
possibility of environmental violation at one of JHope's sites but has not proposed a
penalty assessment. Management believed an assessment is reasonably possible up to
P4,000,000.
What total amount should be reported as accrued liability on December 31, 2019?
answer: 4,500,000
Which statement is correct regarding the lease capitalization criteria?
answer: the lease term is equal to at least 75% of the economic life of the underlying
asset
43. Ave Company offered a contest in which the winner would receive P1,000,000 payable
over twenty years. On December 31, 2019, Ave 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, 2019, Ave 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, 2020. On December 31, 2019,
what amount should be reported as note payable contest winner, net of current
portion?
answer: 418,250
44. A six-year finance lease entered into on December 31, Year 4, specified equal minimum
annual lease payments due on December 31 of each year. The first minimum annual
lease payment, paid on December 31, Year 4, consists of which of the following?
Answer format: Interest Expense, Lease liability
answer: No, Yes
45. On July 1, 2021, Jungkook Company leased a delivery truck to Jimin Company under a
3-year operating lease. Total rent for the term of the lease will be P3,600,000 payable
as follows: First 12 months at P50,000 per month, next 12 months at P75,000 per
month and the last 12 months at 175,000 per month. All payments were made when
due.
What amount should be reported as rent revenue for the year ended June 30, 2022?
answer: 1,200,000
46. A bond convertible by the holder into a fixed number of shares of the issuer
is answer: a compound financial instrument
47. Cactus Co. issued P625,000 face amount 12% convertible bonds at 110 on January 1,
2020 paying interest semi-annually on January 1 and July 1. It is estimated that the
bonds would sell only at 103 without the conversion feature. Each 1,000 bond is
convertible into 10 ordinary shares with P12.50 par value. What is the increase in
shareholder’s equity arising from the original issuance of the convertible bonds?
answer: 43,750
48. On August 1, 2012, Gabriel Company leased a machine to Way Company for a six-year
period requiring payments of P100,000 at the beginning of each year. The machine cost
P480,000, which is the fair value at the lease date, and has a useful life of eight years
with no residual value. Gabriel’s implicit interest rate is 10%. Gabriel appropriately
recorded the lease as a direct financing lease.
How much is the interest revenue relating to the lease for the year ended December 31,
2012?
answer: 15,833
What is the cost of the right-of-use asset?
answer: 4,400,000
50. Under IFRS, a lessee is required to recognize
answer: Right of use asset and lease liability
51. Patrick Company sells equipment service contracts that cover a two-year period. The
sale price of each contract is P600. The past experience is that, of the total pesos spent
for repairs on service contracts, 40% is incurred evenly during the first contract year
and 60% evenly during the second contract year. The entity sold 1,000 contracts evenly
throughout 2021. What amount should be reported as contract revenue for 2021?
answer: 120,000
52. James Company leased a new machine to Jerry Company on January 1, 2020. The
January 1, 2020, Jerry paid P500,000 to James as a lease bonus and P250,000 as a
answer: 1,000,000
53. At the beginning of current year, Anna Company leased a building from a lessor with the
answer: 550,000
54. On December 31, 2020, Simon Company leased a new machine from
Junction Company with the following pertinent information:
Lease term - 6 years, Useful Life of machine - 6
years Annual rental payment every December 31
P500,000 Simon’s incremental borrowing rate 15%
Implicit interest rate in lease (known by Simon) 12%
The machine reverts to Junction at the termination of the lease. The cost of the machine
on Junction’s accounting records is P3,755,000.
Assuming that Simon uses straight-line method of depreciation, how much is the
depreciation expense for the year ended December 31, 2020?
a. 288,125
b. 271,875
c. 383,333
d. 384,167
55. Rafaela Company had an overdue 8% note payable to Lolita Bank at
P8,000,000 and accrued interest of P640,000.
What amount should be reported as gain on extinguishment of debt for 2021?
a. 1,000,000
b. 1,178,000
c. 538,000
d. 1,640,000
56. On December 31, 2019, Namtan Company leased equipment with annual lease payments
of P200,000 due December 31 for 10 years. The equipment's useful life is 10 years and the
interest rate implicit in the lease is 10%. The lease obligation was recorded on December 31,
2019 at P1,350,000 and the first lease payment was made on that date. What amount should
be included in current liabilities in relation to the lease on December 31, 2019?
a. 200,000
b. 65,000
c. 85,000
d. 115,000
57. Star Company sells equipment service contracts that cover a two year period. The sale
price of each contract is P600. The past experience is that, of the total pesos spent for repairs
on service contracts, 40% is incurred evenly during the first contract year and 60% evenly
during the second contract year. The entity sold 1,000 contracts evenly throughout 2021. What
amount should be reported as deferred contract revenue on December 31, 2021?
a. 360,000
b. 480,000
c. 300,000
d. 540,000
58. Phuwin Company leased a new machine to Pond Company on January 1, 2019. The
lease expires on January 1, 2024. The annual rental is P900,000. Additionally on January 1,
2019,
Pond paid P500,000 to Phuwin as a lease bonus and P250,000 as a security deposit to be
refunded upon the expiration of the lease. What amount of rental revenue should be reported for
2019?
a. 1,250,000
b. 900,000
c. 1,000,000
d. 1,400,000
59. On January 1, 2020, Princess Co. issued P2,500,000, 12% nonconvertible bonds at 103
due in 5 years. Each P1000 bond was issued 30 share warrants each of which entitles the
holder to purchase for P25 one share of Princess Co. par value P12.50. Interest payable
annually every end of year. On the issuance date, the shares were selling at P2. The yield for
similar bonds ex warrant is 14%.
PV of 1 at 14% for 5 periods is 52
PV of 1at 12% for 5 periods is 57
What amount is credited to share premium if all of the share warrants are exercised?
a. 1,750,000
b. 2,121,000
c. 1,800,000
d. 1,975,000
60. At the beginning of the current year, Angela Company leased a building from a lessor with
What is the lease liability at year end?
a. 3,169,000
b. 3,950,000
c. 3,510,000
d. 3,719,000
61. On December 31, 2020, Lazarus Corporation leased equipment under a finance lease.
Annual lease payments of P200,000 are due December 31 for 10 years. The equipment’s
useful life is 10 years, and the interest rate implicit in the lease is 10%. The finance lease
obligation was recorded on December 31, 2020 at P1,350,000, and the first lease payment was
made on that date. What amount should Lazarus include in the current liabilities for the finance
lease in its December 31, 2020, balance sheet?
a. 200,000
b. 115,000
c. 85,000
d. 65,000
was issued with 10 share warrants each of which entitled the bondholder to purchase one
share of P25 par value at P30 immediately after issuance. The market value of each share
warrant is P1.25. The stated interest rate of the bonds is 11% payable annually every end of
year. However, the prevailing market rate of interest for similar bonds without warrant is 12%.
PV of 1 at 12% for 5 periods is .57, PV of an ordinary annuity of 1 at 12 % for 5 periods is 3.60.
What is the equity component arising from the issuance of bonds payable?
a. 155,000
b. 112,500
c. Zero
d. 125,000
63. On August 1, 2012, Gabriel Company leased a machine to Way Company for a six-year
period requiring payments of P100,000 at the beginning of each year. The machine cost
P480,000 which is the fair value at the lease date, and has a useful life of eight years with
no residual value. Gabriel’s implicit interest rate is 10%.
Gabriel appropriately recorded the lease as a direct financing lease.
At the inception of the lease, the gross lease receivables account balance should be
a. 480,000
b. 479,100
c. 600,000
d. 586,800
64. Tawan Corporation provided the following facts regarding pending litigation at year-end:
> The entity is defending against a first lawsuit and believes there is a 51% chance it will lose
in court. The entity estimates damages will be P1,000,000.
> The entity is defending against a second lawsuit for which management believes it virtually
certain to lose in court. If it loses the lawsuit, management estimates that damages will fall
somewhere in the range of P3,000,000 to P5,000,000 with each amount in that range
equally likely to occur.
> The entity is defending against a third lawsuit but the relevant loss will only occur far into
the future. The present values of the endpoints of the range are P1,500,000 and P2,500,000.
The management believes that effects of time value of money on these amounts are material.
> THe entity is defending against a fourth lawsuit and believes there is only a 25% chance it will
lose in court. If the entity loses, management believes damages will fall somewhere in the
range of P3,000,000 to P4,000,000 with each amount in the range equally likely to occur.
What amount should be reported as litigation liability at year-
end? a. 7,000,000
b. 8,600,000
c. 8,500,000
d. 5,500,000
65. Glade Company leases computer equipment to customers under direct financing lease. The
equipment has no residual value at the end of the lease and the leases do not contain bargain
purchase options. Glade wishes to earn 8% interest on a five-year lease of equipment with a
fair value of P323,400.
What is the total amount of interest revenue that Glade will earn over the life of the lease?
a. 139,450
b. 129,360
c. 75,000
d. 51,600
66. When measuring the discounted amount of future rentals to be capitalized as part of
the purchase, identifiable payments to cover taxes, insurance and maintenance should be
a. Included with future rentals to be capitalized
b. Capitalized but at different discount rate and recorded in a different account from
future rentals
c. Excluded from future rentals to be capitalized
d. Capitalized but at a different discount rate and for a relevant period that tends to
be different from the future rental payments
67. On January 1, 2020, Snow Co. issued 10% bonds in the face amount of P1,250,000, which
mature on January 1, 2030. The bonds were issued for P1,418,750 to yield 8% resulting in a
bond premium. The entity used the interest method and interest is payable every December
31.
On December 31, 2020, what is the balance of the premium on bonds payable?
a. 157,250
b. 126,875
c. 168,750
d. 151,875
68. At the beginning of current year, Saber Company leased computer equipment to Selena
Company under a direct financing lease. The equipment has no residual value at the end of
the lease and the lease does not contain bargain purchase option. The entity wishes to earn
8% interest on a 5-year lease of equipment with a cost of P3,234,000. The present value of an
annuity due of 1 at 8% for 5 years is 4.312.
What amount should be reported as interest revenue for the current year?
a. 258,720
b. 198,720
c. 103,200
d. 646,800
69. On December 31, 2020, Simon Company leased a new machine from Junction
Company with the following pertinent information:
Lease term - 6 years, Useful life of machine - 6 years
Annual rental payment every December 31 P500,000
Simon’s incremental borrowing rate 15%
Implicit interest rate in lease (known by Simon) 12%
The machine reverts to Junction at the termination of the lease. The cost of the machine on
Junction’s accounting records is P3,755,000.
What is the lease liability at December 31, 2020 balance sheet?
a. 1,581,600
b. 1,516,000
c. 1,800,000
d. 1,851,600
was issued with 10 share warrants each of which entitled the bondholder to purchase one
share of P25 par value at P30 immediately after issuance. The market value of each share
warrant is P1.25. The stated interest rate of the bonds is 11% payable annually every end of
year. However, the prevailing market rate of interest for similar bonds without warrant is 12%.
PV of 1 at 12% for 5 periods is .57, PV of an ordinary annuity of 1 at 12 % for 5 periods is 3.60.
What is the carrying mount of the bonds payable on the date of issuance?
a. 1,362,500
b. 1,095,000
c. 1,250,000
d. 1,207,500
71. On January 1, 2020, Snow Co. issued 10% bonds in the face amount of P1,250,000, which
mature on January 1, 2030. The bonds were issued for P1,418,750 to yield 8% resulting in a
bond premium. The entity used the interest method and interest is payable every December
31.
On December 31, 2020, what is the carrying amount of bonds payable?
a. 1,407,250
b. 1,418,750
c. 1,250,000
d. 1,217,750
a 3-year operating lease. Total rent for the term of the lease will be P3,600,000 payable as
follows: First 12 months at P50,000 per month, next 12 months at P75,000 per month and the
last 12 months at 175,000 per month. All payments were made when due.
On June 30, 2023, what amount should be recorded as accrued rent receivable?
a. 1,200,000
b. 900,000
c. 2,100,000
d. 0
73. Neal Corp. entered into a 9-year finance lease on a warehouse on December 31, 20x4.
The land and building are capitalized as a single unit. Lease payments of P52,000, which
include real estate taxes of P2,000, are due annually, beginning on December 31, 20x5, and
every December 31 thereafter. Neal does not know the interest rate implicit in the lease. Neal’s
incremental borrowing rate is 9%. The rounded present value of an ordinary annuity for 9 years
at 9% is 5.6. What amount should Neal report as capitalized lease liability at December 31,
20x4?
a. 468,000
b. 280,000
c. 291,200
d. 450,000
74.74.

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What amount should be reported as premium expense in 2020?

What amount should be reported as premium expense for the year?

What amount should be reported as premium expense in 2021?

As of December 31, what amount should be reported as unearned revenue?

What is the revenue from points for 2019?

What amount should be reported as total payroll tax liability?

What is the revenue from points for 2021?

What is the revenue from points for 2020?

What is the revenue from points in 2022?

NOTES AND BONDS PAYABLE

Response: 50,000 bond premium

What is the total amount of debenture bonds?

Response: 320,000 discount

PV of ordinary annuity of 1 at 11% for 8 periods-5.146

What amount should be reported as interest expense for 2020?

What amount should be reported as interest expense for 2021

What amount should be reported as contest prize expense for 2019?

What is the carrying amount as of December 31, 2022?

Response: 260,000 gain

Present value factors at 10% and 9%

Response: 91,000 loss

Response: Bears stated rate of interest which is realistic

Response: Amortized as interest expense over the life of the note

What amount should be reported as interest expense for 2019 ber

Response: Liability for accrued interest

What is the carrying amount of the bonds payable on July 1, 20217

What amount should be recorded as interest expense for 2019

How much is the interest expense on 2022?

7. On January 1, 2021, Ling Company issued 9% bonds in face amount of P4,000,000

9. On January 1, 2020, Princess Co. issued P2,500,000, 12% nonconvertible bonds at

13. On January 1, 2021, Ling Company issued 9% bonds in face amount of

21. Ace Company had the following long-term debt:

22. Reicel company operates a customer loyalty

31. The lease receivable in a direct financing lease is

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