Situation 8 11

SITUATION 8
Shade Company developed a new machine which it had patented. The following cost were
incurred in developing and patenting the machine.
Purchase of special equipment to be used solely for development of new P1,800,000

machine
Research salaries and fringe benefits for engineers and scientist 200,000
Cost of testing prototype 250,000
Legal cost of filing patent 300,000
Fees paid to government patent office 500,000
Drawings required by patent office to be filed with patent application 400,000
Legal fees incurred in a successful defense patent 200,000
Koral Company incurred the following cost during the current year:
Modification to the formulation of a chemical product P135,000

Trouble Shooting in connection with breakdowns during 150,000
commercial production
Design of tools, jigs, molds and dies involving new technology 170,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 215,000
On January 1, 2021 Rolex Company reported 9% bonds payable of P8,000,000 less unamortized
discount of P640,000. Further examination revealed that these bond were issued at a 10% yield.
The discount amortization was recorded using the effective interest method. Interest paid
semiannually on June 30 and December 31. On July 1, 2021. The entity retired bonds with face
amount of P2,000,000 at 103 before maturity.
This study source was downloaded by 100000778300516 from CourseHero.com on 05-05-2022 09:45:04 GMT -05:00
https://www.coursehero.com/file/84835387/SITUATION-8-11docx/
On November 2021, Mason Company issued P8,000,000 of 10-year, 8% term bonds dated
October 1, 2020. The bonds were sold to yield 10% with total proceeds of P7,000,000 plus
accrued interest. Interest is paid every April 1 and October 1
30. What amount should shade capitalized of as cost patent?
a. 1,200,000
b. 1,400,000
c. 1,450,000
d. 3,450,000
31. What total amount should Koral report as research and development expense for the current
year?
a. 520,000
b. 470,000
c. 385,000
d. 335,000
32. What amount should Rolex recognize as loss on retirement of bonds in 2021?
a. 218,000
b. 220,000
c. 216,000
d. 240,000
33. What is the carrying amount of the remaining bonds on December 31, 2022?
a. 5,526,000
b. 5,532,300
c. 6,000,000
d. 5,520,000
34. What amount should Mason report as accrued interest payable on December 31, 2021?
a. 175,000
b. 160,000
c. 116,667
d. 106,667
SITUATION 9
On December 31, 2020, Glimmer company had outstanding P3,000,000 8% convertible

bonds that mature on December 31, 2022. Interest is payable annually every December
31 and each P1,000 bind is convertible into 30 ordinary shares with a P20 par value per
share. The unamortized discount was P250,000 and the equity component when the
bonds were sold was P180,000. On the same date 1,200 of the bonds were converted
when the fair value of Glimmer’s share was P40
Magnum Company granted share options to its employee under a performance-based

share option plan on January 1, 2020. The number of share options to be granted is based
on the net sales. The plan provided for share options to be awarded to the employee on
the following basis:
Net Sales range Options Granted

Less than P5,000,000 30,000
P5,000,000 to P8,000,00 50,000
Above P8,000,000 80,000
Options become exercisable on December 31,2022. The option price is P100 while the
par value per share is P80. The market prices for 2020, 2021, and 2022 were P180, P220
and P240 respectively. The net sales for 2020,2021 and 2022 were P3,500,000,
P8,500,000 and P7,500,00 respectively. The fair value of the share options cannot be
determined reliably. The options were exercised on December 31. 2022.
Entrapta Company sells laptop computers with two-year warranty. The entity estimate its
warranty cost as a percentage of sales. Based on past experience, It is estimated that 4%
will be repaired during the first year of warranty and 10% will be repaired during the
second year of warranty. Sales for 2021 and 2022 were P5,000,000 and P9,000,000
respectively. The entity also incurred actual cost of P200,000 and P560,000 on 2021 and
2022 respectively. Sales and Repairs occur evenly throughout the year.
35. What amount of share premium should Glimmer recognize as a result of the
conversation?
a. 380,000
b. 452,000
c. 180,000
d. 0
36. What is the compensation expense that Magnum should recognize for the year 2022?\
a. 7,000,000
b. 6,400,000
c. 800,000
d. 600,000
37. What amount was recorded by Entrapta of warranty liability on December 31, 2022?
a. 1,200,000
b. 1,260,000
c. 500,000
d. 700,000
38. What should be reported by Entrapta as predicted warranty cost covering sales of 2021
and 2022 still under warranty on December 31, 2022?
a. 1,115,000
b. 1,200,000
c. 1,205,000
d. 1,080,000\
SITUATION 10
Wall Company leased office premises to Fox Company for five-year term beginning January 1,
2021. Under the terms of the operation lease, rent for the first year is P1,000,000 and rent for
next 2 years is P1,250,000 per annum. However, as an inducement to enter the lease, Wall
granted Fox the first six months of the lease rent-free.
Miracle Company leased machinery with useful life of 10 years for 10 years on January 1, 2021.
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 rate interest implicit in the lease is 10%
Keith Company purchased for P1,900,000, 20,000 preference shades of Lance Company. The
preference shares have a P30 par value and pays dividend at 6%. Each preference share had one
share warrant which entitled Keith to purchase Lance’s ordinary share for P20 and exercising
two warrants. The market price of the preference share ex-warranty is P90 and the market price
of the share warrant is P10
At the beginning of the current year, Hold Company was authorized to issue 100,000 shares with
a P50 par value. The entity had the following share capital transactions during the year
Jan 1 Sold 80,000 shares at P60 per share

Apr. 1 Reacquired 4,000 treasury shares at P95 per share
May 1 Approve a 5-for 1 share split
Sept. 30 Issued a 10% share dividend when the market value of a share was P30
Nov. 30 Reissued 4,000 treasury shares at P40 per share
Dec. 1 Net income for the year was P3,000,000
39. What amount should be reported as rental income for 2021?
a. 1,400,000
b. 1,500,000
c. 700,000
d. 500,000
40. What total liability (principal and interest) should be recognized on December 31, 2021 by
Miracle?
a. 4,100,000
b. 4,190,000
c. 4,200,000
d. 5,390,000
41. What is Keith’s initial cost of investment in share warrants?
a. 345,455
b. 190,000
c. 380,000
d. 0
42. What amount of share capital should Holt report.
a. 1,560,000
b. 1,660,000
c. 1,420,000
d. 1,700,000
43. What unrestricted retained earnings should Holt report at year-end?
a. 2,800,000
b. 2,560,000
c. 2,620,000
d. 2,860,000
SITUATION 11
On January 1, 2021, Hagar Company had 200,000 ordinary shares outstanding. The following
transactions occurred during the year:
March 1 120,000 ordinary shares were issued

May 1 6,000 ordinary shares were reacquired as treasury
October 1 100,000 cumulative preference shares were issued. Each preference share can
be converted into 3 ordinary shares. The preference dividend per share is P5
November 1 A 10% bonus issue on the ordinary shares was distributed.
December 31 Profit for the year is P3,500,000.
During 2021. Niklaus Company reported sales P10,000,000 cost of goods sold P5,300,000 and
operating expenses P3,800,000. Beginning and ending balance were:
December 31 January 1
Prepaid operating expense 1,00,000 700,000
Accounts payable 1,350,000 1,200,000
Inventory 2,500,000 2,100,000
Accounts receivable 1,400,000 1,375,000
Cash 1,000,000
44. What is basic EPS should Hagar present on December 31, 2021?
a. 10.71
b. 10.13
c. 8.69
d. 9.21
45. What diluted EPS should Hagar present on December 31, 2021
a. 7.35
b. 8.58
c. 8.74
d. 5.34
46. What amount of cash did Niklaus collect from the customers?
a. 9,975,000
b. 10,025,000
c. 10,975,000
d. 11,025,000
47. What amount of cash did Niklaus pay its supplier of inventory?
a. 5,150,000
b. 5,700,000
c. 5,850,000
d. 5,550,000
48. What is Niklaus’s cash balance on December 31, 2021?
a. 1,175,000
b. 1,225,000
c. 1,325,000
d. 1,925,000
Powered by TCPDF (www.tcpdf.org)

Situation 8 11

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Situation 8 11

Uploaded by

Copyright:

Available Formats

SITUATION 8

Purchase of special equipment to be used solely for development of new P1,800,000

Modification to the formulation of a chemical product P135,000

On December 31, 2020, Glimmer company had outstanding P3,000,000 8% convertible

Magnum Company granted share options to its employee under a performance-based

Net Sales range Options Granted

Jan 1 Sold 80,000 shares at P60 per share

39. What amount should be reported as rental income for 2021?

March 1 120,000 ordinary shares were issued

You might also like