Current Liabilities Quiz

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Chapter 1
Current Liabilities
NAME: Date:
Professor: Section: Score:
QUIZ
1. Which of the following is not one of the essential characteristics for an item to be reported as a
liability on the balance sheet?
a. it is a present obligation of a particular entity
b. it is payable to specifically identifiable payees
c. it involves a future sacrifice of economic benefits
d. it is reasonably measurable in terms of money
2. A retail store received cash and issued gift certificates that are redeemable in merchandise. The
gift certificates lapse two years after they are issued. How would the balance of deferred revenue
be affected by each of the following transactions?
Redemption of certificates Lapse of certificates
a. Decrease No effect
b. Decrease Decrease
c. No effect No effect
d. No effect Decrease
3. Which of the following instruments would not be classified as a financial liability?

a. A preference share that will be redeemed by the issuer for cash on a future date (i.e., the
entity has an outstanding share that it will repurchase at a future date).
b. A contract for the delivery of as many of the entity’s ordinary shares as are equal in value to
₱100,000 on a future date (i.e., the entity will issue a variable number of own shares in return
for cash at a future date).
c. A written call option that gives the holder the right to purchase a fixed number of the
entity’s ordinary shares in return for a fixed price (i.e., the entity would issue a fixed number
of own shares in return for cash, if the option is exercised by the holder, at a future date).
d. An issued perpetual debt instrument (i.e., a debt instrument for which interest will be paid
for all eternity, but the principal will not be repaid).
4. VENERABLE RESPECTED Co. has the following liabilities as of December 31, 20x1.
a. Trade accounts payable, net of debit balance in supplier’s account of ₱10,000, net of
unreleased checks of ₱8,000, and net of postdated checks of ₱4,000. ₱600,000
b. Credit balance in customers’ accounts 4,000
c. Financial liability designated at FVPL 100,000
d. Bonds payable maturing in 10 equal annual installments of ₱200,000 2,000,000
e. 12%, 5-year note payable issued on Oct. 1, 20x1 200,000
f. Deferred tax liability 10,000

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g. Unearned rent 8,000
h. Contingent liability 20,000
i. Reserve for contingencies 50,000
How much is the total current liabilities?

a. 896,000 b. 918,000 c. 940,000 d. 960,000
5. PALLID DULL PALE Co. has a 10%, ₱2,000,000 loan payable as of December 31, 20x1 which will
be maturing on July 1, 20x2. Interest on the loan is due every July 1 and December 31 and all the
interests that have accrued in 20x1 were paid on these scheduled dates. On February 1, 20x2,
PALLID Co. 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
contract on the ₱2,000,000 loan payable does not state any refinancing or roll over option.
PALLID’s 20x1 financial statements were authorized for issue on March 15, 20x2. In PALLID’s
20x1 financial statements, how much is presented as current liability in relation to the loan
payable?
a. 2,100,000 b. 2,000,000 c. 100,000 d. 0
6. Eliot Corporation’s liabilities at December 31, 2008 were as follows:

Accounts payable and accrued interest 2,000,000
5-year 10% Notes payable – due December 31, 2011 5,000,000
Part of the loan agreement is for Elliot to appropriate a fixed amount out of its accumulated profits
and losses annually until the amount of appropriation has equaled the face amount of the obligation.
Non-compliance will render the note as payable on demand by the lender. As of December 31, 2008,
Elliot Corporation has not yet complied with the loan agreement. What amount of current liabilities
should Elliot Corporation report in its December 31, 2008 statement of financial position?
a. 2,000,000 b. 5,000,000 c. 7,000,000 d. 0
7. On December 31, 20x1, THESPIAN ACTOR Co. has accounts payable of ₱2,000,000 before
possible adjustment for the following:
a) Goods in transit from a vendor to THESPIAN on December 31, 20x1, with an invoice cost of
₱100,000 and purchased FOB shipping point, was not yet recorded.
b) Goods shipped FOB shipping point from a vendor to THESPIAN was lost in transit. The invoice
cost of ₱40,000 was not yet recorded.
c) Goods shipped FOB shipping point from a vendor to THESPIAN on December 31, 20x1
amounting to ₱16,000 was recorded and included in the year-end physical count as “goods in
transit.”
d) Goods in transit from a vendor to THESPIAN on December 31, 20x1 with an invoice cost of
₱20,000 purchased FOB destination was not yet recorded. The goods were received in January
20x2.
e) Goods with invoice cost of ₱30,000 was recorded and included in the year-end physical count as
“goods in transit.” It was found out that the goods were shipped from a vendor under FOB
destination.
f) Checks drawn but not yet released to payees amounted to ₱24,000 while checks drawn and
released to payees but were postdated amounted to ₱10,000.
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g) On December 28, 20x1, a vendor authorized THESPIAN to return for full credit goods shipped
and billed at ₱50,000 on December 14, 20x1. THESPIAN shipped the returned goods on
December 31, 20x1 but the credit memo was received and recorded only on January 3, 20x2.
h) Goods shipped FOB shipping point, freight prepaid from a vendor on December 28, 20x1 was
recorded at invoice cost at shipment date. The invoice cost is ₱28,000, while the freight cost is
₱6,000.
i) Goods shipped FOB destination, freight collect were received on December 29, 20x1. The invoice
cost of ₱80,000 was credited to accounts payable on date of receipt and the related freight of
₱10,000 was debited to an expense account.
How much is the adjusted accounts payable on December 31, 20x1?

a. 2,090,000 c. 2,270,000
b. 2,130,000 d. 2,330,000
8. Offset Co. sells gift certificates as part of its sales promotion. During the year, Offset Co. sells gift
certificates worth ₱500,000, of which ₱360,000 were redeemed. Based on Offset Co.’s past
experience, 10% of gift certificates sold are never redeemed. Under PFRS 15, what amounts of (1)
total revenue and (2) liability should be reported in Offset Co.’s 20x1 financial statements?
a. 400,000; 100,000 c. 410,000; 90,000
b. 360,000; 90,000 d. 360,000; 100,000
9. FLUNK TO FAIL Co. requires advance payments for custom-built guitar effects, gadgets, and
racks. The records of FLUNK show the following:
● Unearned revenue, January 1, 20x1 ₱ 2,000,000
● Advances received during 20x1 20,000,000
● Advances applied to orders shipped in 20x1 16,000,000
● Advances pertaining to orders cancelled in 20x1 600,000
How much is presented as current liability assuming the advance payments received are
non-refundable?
a. 4,500,000 b. 5,400,000 c. 6,000,000 d. 6,600,000
10. WAIVE TO GIVE UP Co. maintains escrow accounts and pays real estate taxes for its customers.
Escrow funds are kept in interest-bearing accounts. Interest, less a 10% service fee, is credited to
the mortgagee’s account and used to reduce future escrow payments. Information on escrow
accounts are shown below:
Escrow accounts liability, January 1, 20x1 400,000
Escrow payments received during 20x1 3,000,000
Real estate taxes paid during 20x1 1,000,000
Interest on escrow funds during 20x1 200,000
How much is the current liability for the escrow accounts on December 31, 20x1?
b. 2,580,000 b. 2,600,000 c. 2,400,000 d. 2,420,000
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“Pride goes before destruction, a haughty spirit before a fall.” (Proverbs 16:18)
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ANSWERS
1. B
2. B
3. C
4. C
a. Trade accounts payable gross of debit balance, unreleased check, and postdated check
(600,000 + 10,000 + 8,000 + 4,000).
622,000
b. Advances from customers (Credit balance in customers’ accounts) 4,000
c. Financial liability designated at FVPL 100,000
d. Current portion of bonds payable 200,000
e. Interest payable on note payable 6,000
(200,000 x 12% x 3/12)
g. Unearned rent 8,000
Total current liabilities 940,000
5. B – the refinancing agreement is disregarded because it does not meet the conditions under PAS
1
6. C (2M + 5M) = 7,000,000
7. A
Unadjusted accounts payable 2,000,000
a. Purchases on FOB shipping point not yet recorded 100,000
b. Purchases on FOB shipping point lost in transit, not
yet recorded 40,000
e. Purchases on FOB destination inappropriately recorded (30,000)
f. Unreleased checks and postdated checks (12,000 + 5,000) 34,000
g. Purchase return (50,000)
h. Unrecorded freight on FOB SP, freight prepaid 6,000
i. Freight shouldered on behalf of the seller (10,000)
Adjusted accounts payable 2,090,000
8. A
Redemption 360,000
Breakage (500,000 x 10% x 80%*) 40,000
Total revenue in 20x1 400,000
* 360,000 ÷ (500,000 x 90%) = 80%
Gift cards sold 500,000

Redemption (360,000)
Breakage (40,000)
Gift card liability - 12/31/x1 100,000
9. B
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Unearned income
2,000,000 Jan. 1, 20x1
Advances earned 16,000,000 20,000,000 Advances received
Orders cancelled 600,000
Dec. 31, 20x1 5,400,000
10. A
Escrow accounts
400,000 Jan. 1, 20x1
3,000,000 Escrow payments received
Interest on escrow funds net of 10% service
Taxes paid 1,000,000 180,000 fee (200,000 x 90%)
Dec. 31, 20x1 2,580,000
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Chapter 2
Notes Payable
NAME: Date:
QUIZ:
1. A short-term, non-trade, note payable with no stated rate of interest issued in a transaction that
contains a significant financing component should be
a. recorded at maturity value.
b. recorded at the face amount.
c. discounted to its present value.
d. reported separately from other short-term notes payable.
2. On August 1, 20x1, an entity acquired a new machine that it does not have to pay for until
September 1, 20x5. The total payment on September 1, 20x5 will include both principal and
interest. The initial measurement of the note and the machine is equal to the
a. payment for the principal multiplied by PV of ₱1
b. payment for interest multiplied by PV of ordinary annuity of ₱1
c. a plus b
d. total payment on the note multiplied by PV of ₱1
3. On January 1, 20x1, BLATANT NOISY Co. acquired a piece of equipment by paying cash of
₱400,000 and issuing a noninterest-bearing note of ₱4,000,000 due on January 1, 20x4. There is no
cash price equivalent for the equipment. The effective interest rate on the note is 12%. How
much is the carrying amount of the note on initial recognition?
a. 2,847,120 c. 3,247,120
b. 2,000,000 d. 2,786,309
4. On January 1, 20x1, Sunday Calm Co. issued a ₱4,800,000, 3-year, noninterest-bearing note due
in equal semi-annual payments starting July 1, 20x1. The effective interest rate is 10%. How
much interest expense should Sunday Calm Co. recognize in 20x1?
a. 203,028 c. 350,780
b. 279,830 d. 376,207
5. On January 1, 20x1, Beautiful Morning Co. acquired a machine in exchange for a ₱4,800,000
noninterest-bearing note due as follows:
Date Amount
December 31, 20x1 ₱ 2,400,000
December 31, 20x2 1,600,000
December 31, 20x3 800,000
Total ₱ 4,800,000
The effective interest rate is 10%. How much is the carrying amount of the note on initial
recognition?
a. 4,105,184 c. 3,980,134
b. 4,100,341 d. 3,086,394
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6. On January 1, 20x1, Unforgiven Co. purchased an inventory with a list price of ₱4,400,000 and a
cash selling price of ₱4,000,000 in exchange for a ₱4,800,000 noninterest-bearing note due on
December 31, 20x3. The effective interest rate on the note is most approximately equal to
a. 5.2659%. b. 6.2695%. c. 8.7893%. d. 9.2625%.
7. On January 1, 20x1, DWINDLE DECREASE Co. acquired a vehicle in exchange for cash of
₱400,000 and a noninterest-bearing note of ₱4,000,000 due in 4 equal annual installments starting
on December 31, 20x1. The prevailing rate of interest for this type of note is 12%. How much is
the current portion of the note on December 31, 20x1?
a. 613,409 c. 814,342
b. 711,780 d. 718,324
8. On January 1, 20x1, VELVETY SMOOTH Co. acquired an intangible asset by paying cash of
₱400,000 and issuing a noninterest-bearing note payable of ₱4,000,000 due in 4 equal annual
installments. The first installment is due on January 1, 20x1. The prevailing rate of interest for
this type of note is 12%. How much is the interest expense in 20x1?
a. 0 c. 334,357
b. 288,220 d. 432,000
9. STUNTED Co. issued a 3-year, noninterest-bearing note of ₱4,000,000 to DWARFISH, Inc., a

related party. The proceeds from the issuance of the note were ₱2,847,120. The note matures on
December 31, 20x3. The prevailing interest for similar type of obligation is 12%. The entry on
initial recognition of the note includes a
a. credit to notes payable for ₱2,847,120.
b. debit to discount on notes payable for ₱1,152,880.
c. credit to discount on notes payable for ₱1,152,880.
d. a and b
10. On January 1, 20x1, SHABBY WORN OUT Co. acquired a machine by issuing a 3-year, 3%,
₱4,000,000 note payable. Principal and interest are due on January 1, 20x4. The prevailing
interest rate for this type of note is 12%. How much is the carrying amount of the note on initial
recognition?
a. 3,114,884 c. 3,111,126
b. 4,370,908 d. 3,114,879
“He who obeys instructions guards his life, but he who is contemptuous of his ways will die.” (Proverbs 19:16)
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ANSWERS:
1. C
2. D
3. A (4,000,000 x PV of 1 @12%, n=3) = 2,847,121
4. D
Initial measurement:
(4,800,000 ÷ 6 semiannual payments) = 800,000 x PV of ordinary annuity @5%, n=6 = 4,060,554
Subsequent measurement:
Date Payments Interest expense Amortization Present value
Jan. 1, 20x1 4,060,554
July 1, 20x1 800,000 203,028 596,972 3,463,582
Dec. 31, 20x2 800,000 173,179 626,821 2,836,761
Interest expense in 20x1: (203,028 + 173,179) = 376,207
5. A
Cash flows PV of 1 @10% PVF PV
Dec. 31, 20x1 2,400,000 n=1 0.909091 2,181,818
Dec. 31, 20x2 1,600,000 n=2 0.826446 1,322,314
Dec. 31, 20x3 800,000 n=3 0.751315 601,052
4,105,184
6. B
Choice (a): 4.8M x PV of 1 @ 5.2659%, n=3 = 4,115,078

Choice (b): 4.8M x PV of 1 @ 6.2695%, n=3 = 3,999,589
Choice (c): 4.8M x PV of 1 @ 8.7893%, n=3 = 3,728,058
Choice (d): 4.8M x PV of 1 @ 9.2625%, n=3 = 3,679,831
7. B
Initial measurement: (1,000,000 x PV of ordinary annuity @12%, n=4) = 3,037,349
Jan. 1, 20x1 3,037,349
Dec. 31, 20x1 1,000,000 364,482 635,518 2,401,831
Dec. 31, 20x2 1,000,000 288,220 711,780 1,690,051
8. B
Initial measurement: (1,000,000 x PV of an annuity due @12%, n=4) = 3,401,831
Jan. 1, 20x1 3,401,831
Jan. 1, 20x1 1,000,000 - 1,000,000 2,401,831
Dec. 31, 20x1 1,000,000 288,220 711,780 1,690,051
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9. B
Future cash flow 4,000,000
Multiply by: PV of ₱1, @12%, n=3 0.71178
Present value 2,847,120
Jan. 1, Cash 2,847,120

20x1
Discount on N/P (4M – 2,847,120) 1,152,880
Note payable 4,000,000
10. C
⮚ (PV = Future cash flows x PV factor)
⮚ Future cash flows (principal plus compounded interest) = (4,000,000 x 103% x 103% x 103%) =
4,370,908
⮚ PV = 4,370,908 x PV of 1 @12%, n=3 = 3,111,126
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Chapter 3
Bonds Payable & Other Concepts
NAME: Date:
QUIZ
1. Which of the following is the least relevant consideration when evaluating whether to
derecognize a financial liability?
a. Whether the obligation has been discharged.
b. Whether the obligation has been canceled.
c. Whether the obligation has expired.
d. Whether the obligation has a potential to cause inflows of economic benefits to the issuer.
2. When bonds are redeemed by the issuer prior to their maturity date, any material gain or loss on
the redemption, is
a. amortized over the period remaining to maturity and reported as an extraordinary item in
the income statement.
b. amortized over the period remaining to maturity and reported as part of income from
continuing operations in the income statement.
c. reported in the income statement as an extraordinary item in the period of redemption.
d. reported in the income statement as part of income from continuing operations in the period
of redemption.
3. On January 1, 20x1, SMUDGE BLUR Co. issued 1,000, ₱4,000, 12%, 3-year bonds for ₱4,198,948.
Principal is due on December 31, 20x3 but interests are due annually every year-end. The
effective interest rate is 10%. How much is the unamortized discount or premium on bonds
payable as of December 31, 20x1?
a. 198,948 c. 138,843
b. 135,204 d. 143,134
4. On January 1, 20x1, SLOPPY UNTIDY Co. issued 10%, ₱4,000,000 bonds at face amount.
SLOPPY paid underwriter’s commission of ₱192,147. The bonds mature on December 31, 20x3.
Interest is due annually. The effective interest on the bond issue is approximately equal to
a. 9.2659% c. 12%
b. 11.3692% d. 13.5%
5. On March 1, 2002, Pyne Furniture Co. issued ₱700,000 of 10 percent bonds to yield 8 percent.
Interest is payable semiannually on February 28 and August 31. The bonds mature in ten years.
Pyne Furniture Co. is a calendar-year corporation. How much is the issue price of the bonds?
a. 792,335 c. 802,336
b. 795,132 d. 809,667
6. On January 1, 20x1, SPITEFUL MALICIOUS Co. issued 1,000, ₱4,000, 10%, 3-year bonds for
₱3,807,852. Principal is due on December 31, 20x3 but interests are due annually every year-end.
The effective interest rate is 12%. SPITEFUL Co. incorrectly used the straight line method instead
of the effective interest method to amortize the discount. What is the effect of the error on the
carrying amount of the bonds on December 31, 20x1? (over) understated
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a. 7,107 c. 6,341
b. (7,107) d. (6,341)
7. On April 1, 20x1, SQUALID FILTHY Co. issued 12%, ₱4,000,000 bonds dated January 1, 20x1 at
97 including accrued interest. The bonds mature in ten years and pay interest annually every
year-end. How much is the initial carrying amount of the bonds?
a. 3,760,000 d. 3,812,341
b. 3,880,000 c. 4,000,000
8. On January 1, 20x1, POTENT POWERFUL Co. issued 12% bonds with face amount of ₱4,000,000
for ₱4,303,264. The bonds mature in five years and pay annual interest every year-end. The
effective interest rate is 10%. On July 1, 20x3, POTENT called-in the entire bonds and retired
them at 102, which is inclusive of payment for accrued interest. How much is the gain (loss) on
the extinguishment of the bonds?
a. 328,897 c. (118,948)
b. (328,896) d. 118,948
9. On January 1, 20x1, TIPSY UNSTEADY Co. issued 10%, ₱12,000,000 bonds for ₱11,601,220.
Principal on the bonds matures in three equal annual installments. Interest is also due annually
at each year-end. The effective interest rate on the bonds is 12%. How much is the carrying
amount of the bonds on December 31, 20x1?
a. 7,844,635 c. 7,683,343
b. 7,793,366 d. 7,543,341
10. On December 31, 20x1, CONFLAGRATION LARGE FIRE Co. agreed to the following
modification of its existing liability:
● The principal remained unchanged at ₱20,000,000.
● The repayment of the accrued interest of ₱600,000 was waived.
● The maturity date was extended from December 31, 20x2 to December 31, 20x4.
● The stated rate was reduced from 12% to 10%.
Interest is payable annually at each year-end. The original effective interest rate is 12%.
CONFLAGRATION Co. incurred costs of ₱200,000 which were directly attributable to the
restructuring. The costs were paid to third parties. How much is the gain (loss) on the
extinguishment of the debt?
a. (1,360,732) c. (200,000)
b. 1,360,732 d. 0
“Blessed are the pure in heart, for they will see God.” (Matthew 5:8)
- END –
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ANSWERS:
1. D – inflows relate to assets not liabilities
2. D
3. C
Interest
Date payments Interest expense Amortization Present value
Jan. 1, 20x1 4,198,948
Dec. 31, 20x1 480,000 419,894 60,106 4,138,842
4,000,000 face amount – 4,138,842 = 138,842
4. C
Initial measurement: (4,000,000 – 192,147) = 3,807,853
Trial using 12%:

☞ (4M x PV of ₱1 @ 12%, n=3) + [400,000 x PV of an ordinary annuity of ₱1 @ 12%, n=3] = 3,807,853
☞ (2,847,120 + 960,733) = 3,807,853 is equal to 3,807,853
❖ The effective interest is 12%.
5. B
Solution:
☞ (700,000 x PV of 1 @4%(a), n=20(b)) + (35,000(c) x PV ordinary annuity @4%, n=20) =
☞ 319,471 + 475,661 = 795,132
(a)
8% ÷ 2 = 4%
(b)
10 yrs. x 2 payments in a year = 20
(c)
700,000x 10% x ½ = 35,000
6. B
Erroneous amortization of discount using straight line:
The erroneous straight-line amortization of the discount on bonds payable is computed as follows:
Face amount of bonds 4,000,000
Cash proceeds (3,807,852)
Discount on bonds payable - Jan. 1, 20x1 192,148
Divide by: Term of bonds (in years) 3
Annual amortization (straight line method) 64,049
Interest expense for 20x1 recognized under straight-line method:

Interest paid (4,000,000 x 10%) 400,000
Amortization of discount (see computation above) 64,049
Interest expense under straight-line method 464,049
Carrying amount of bonds on Dec. 31, 20x1 under straight-line method:

Carrying amount - Jan. 1, 20x1 3,807,852
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Amortization of discount (see computation above) 64,049

Carrying amount - Dec. 31, 20x1 3,871,901
Amortization of discount under effective interest method:

Amortization table:
Interest Interest Amortizatio Present
Date payments expense n value
Jan. 1, 20x1 3,807,852
Dec. 31, 20x1 400,000 456,942 56,942 3,864,794
Effect on carrying amount of bonds as of Dec. 31, 20x1

Carrying amounts on Dec. 31, 20x1:
Straight-line 3,871,901
Effective interest rate 3,864,794
Difference - overstatement under straight-line 7,107
The carrying amount of the bonds on December 31, 20x1 under the straight line method is overstated
by ₱7,107.
7. A
Solution:
Cash proceeds including accrued interest (4M x 97%) 3,880,000
Accrued interest sold (4M x 12% x 3/12) (120,000)
Carrying amount of the bonds, April 1, 20x1 3,760,000
8. A
Interest
Date payments Interest expense Amortization Present value
Jan. 1, 20x1 4,303,264
Dec. 31, 20x1 480,000 430,328 49,672 4,253,592
Dec. 31, 20x2 480,000 425,360 54,640 4,198,948
July 1, 20x3 240,000 209,948 30,052 4,168,896
Carrying amount of bonds retired: (see table above) 4,168,896

Retirement price (Call price):
Retirement price including payment for
accrued interest (4M x 102%) 4,080,000
Accrued interest (4M x 12% x 6/12) (240,000) 3,840,000
Gain on extinguishment of bonds 328,896
9. B
Principal Interest on outstanding
Date payments principal balance Interest payments Total payments
Dec. 31, 20x1 4,000,000 12,000,000 x 10% 1,200,000 5,200,000
Dec. 31, 20x2 4,000,000 8,000,000 x 10% 800,000 4,800,000
Dec. 31, 20x3 4,000,000 4,000,000 x 10% 400,000 4,400,000
Date Total payments Interest expense Amortization Present value

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Jan. 1, 20x1 11,601,220

Dec. 31, 20x1 5,200,000 1,392,148 3,807,852 7,793,368
10. D
The modification is analyzed as follows:
Old terms New terms
Principal 20,000,000 20,000,000
Accrued interest 600,000 -
Remaining term ('n') 3 years
Nominal rate 12% 10%
Direct costs of modification 200,000
Future cash flows PV factors @12%, n=3 Present value

Principal 20,000,000 0.711780 14,235,600
Interest 2,000,000 2.401831 4,803,662
Present value of the modified liability 19,039,262
Carrying amt. of old liability (20M + 600K accrued int.) 20,600,000

Present value of modified liability 19,039,262
Difference 1,560,738
Difference 1,560,738
Divide by: Carrying amount of old liability 20,600,000
7.58%
❖ The modification is NOT substantial. The old liability is not extinguished and NO GAIN OR
LOSS on extinguishment is recognized. The direct costs of modification are treated as an
adjustment to the carrying amount of the existing liability.
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Chapter 4
Provisions, Contingent Liabilities & Contingent Assets
NAME: Date:
QUIZ:
1. To record an asset retirement obligation (ARO), i.e., provision for decommissioning and
restoration costs, the cost associated with the ARO is
a. expensed.
b. included in the carrying amount of the related long-lived asset.
c. included in a separate account.
d. none of these.
2. The board of directors of ABC Inc. decided on December 15, 20XX, to wind up international
operations in the Far East and move them to Australia. The decision was based on a detailed
formal plan of restructuring as required by PAS 37. This decision was conveyed to all workers
and management personnel at the headquarters in Europe. The cost of restructuring the
operations in the Far East as per this detailed plan was ₱2 million. How should ABC Inc. treat
this restructuring in its financial statements for the year-end December 31, 20XX?
a. Because ABC Inc. has not announced the restructuring to those affected by the decision and
thus has not raised an expectation that ABC Inc. will actually carry out the restructuring
(and as no constructive obligation has arisen), only disclose the restructuring decision and
the cost of restructuring of ₱2 million in footnotes to the financial statements.
b. Recognize a provision for restructuring since the board of directors has approved it and it
has been announced in the headquarters of ABC Inc. in Europe.
c. Mention the decision to restructure and the cost involved in the chairman’s statement in the
annual report since it a decision of the board of directors.
d. Because the restructuring has not commenced before year-end, based on prudence, wait
until next year and do nothing in this year’s financial statements.
3. In 20x1, LUMINOUS SHINING Co. recalled a product due to a possible defect caused by
malfunctioning factory equipment. The products recalled will be repaired free of charge.
LUMINOUS is uncertain whether all products recalled will have the possible defect. However,
the following estimate was made by LUMINOUS’s engineers and managerial accountants and
approved by the board of directors.
Probabilit
Repair cost y
80,000,000 5%
60,000,000 20%
40,000,000 35%
20,000,000 40%
100%
How much is the provision to be recognized?

a. 38M c. 48M
b. 50M d. 32M
Page | 2
4. A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms
of the contract of sale, the manufacturer undertakes to make good, by repair or replacement,
manufacturing defects that become apparent within one year from the date of sale. On the basis
of experience, it is probable (i.e., more likely than not) that there will be some claims under the
warranties.
Sales of ₱40 million were made evenly throughout 20X1.
At December 31, 20x1 the expenditures for warranty repairs and replacements for the product sold
in 20x1 are expected to be made 50% in 20x1 and 50% in 20x2. Assume for simplicity that all the 20x2
outflows of economic benefits related to the warranty repairs and replacements take place on June
30, 20x2.
Experience indicates that 95% of products sold require no warranty repairs; 3% of products sold
require minor repairs costing 10% of the sale price; and 2% of products sold require major repairs or
replacement costing 90% of sale price. The entity has no reason to believe future warranty claims
will be different from its experience.
At December 31, 20x1, the appropriate discount factor for cash flows expected to occur on June 30,
20x2 is 0.95238. Furthermore, an appropriate risk adjustment factor to reflect the uncertainties in the
cash flow estimates is an increment of 6 per cent to the probability-weighted expected cash flows.
How much is the warranty provision at December 31, 20x1?

a. 424,000 c. 800,000
b. 840,000 d. 752,000
5. SENTIENT AWARE Co. is engaged in logistics services. During the year, a warehouse was
destroyed by fire. It was estimated that SENTIENT will probably pay around ₱200M in damages
caused to the goods owned by customers that were contained in the destroyed warehouse. The
contents of the warehouse are insured for ₱80M. SENTIENT’s claim for the insurance has been
approved for payment by the insurance company. How much is the provision to be recognized?
a. 200M c. 60M
b. 120M d. 0
6. On April 30, 20x2, an explosion occurred at CONVOLUTE TWIST Co.’s plant causing extensive
property damage to area buildings. CONVOLUTE’s management and counsel concluded that it
is likely that claims will be asserted and that it is probable that CONVOLUTE will be held
responsible for damages. CONVOLUTE’s management believed that ₱5,000,000 would be a
reasonable estimate of its liability. CONVOLUTE’s ₱20,000,000 comprehensive public liability
policy has a ₱1,000,000 deductible clause. CONVOLUTE’s financial statements were authorized
for issue on March 30, 20x2. How should the event above be reported in CONVOLUTE’s
December 31, 20x1 financial statements?
a. accrue a provision of ₱1M.
b. disclose only ₱1M.
c. accrue and disclose ₱1M.
d. neither accrue nor disclose.
Page | 3
7. In 20x1, JUBILEE REJOICING Co. recognized a provision for a probable loss on a pending
lawsuit amounting to ₱2,000,000. In 20x2, the lawsuit remains unsettled and JUBILEE
determined that the provision on the pending law suit must be increased by ₱800,000. In 20x3,
JUBILEE won the lawsuit. Nothing was paid on the settlement. The effect of the settlement on
the 20x3 profit is: increase (decrease)
a. 2,800,000 c. 2,000,000
b. (2,800,000) d. 0
8. On January 1, 20x1, DECRY Co. signed a three year, non-cancelable purchase contract, which
allows DECRY Co. to purchase up to 60,000 units of a microchip annually from BELITTLE Co. at
₱100 per unit and guarantees a minimum annual purchase of 15,000 units. At year-end, it was
found out that the goods are obsolete. DECRY had 10,000 units of this inventory at December 31,
20x1, and believes these parts can be sold as scrap for ₱20 per unit. How much is the loss on
purchase commitment?
a. 2,400,000 c. 3,200,000
b. 800,000 d. 9,600,000
9. RISIBLE FUNNY Co. provides 3-year warranty for the products it sells. RISIBLE estimates that
warranty costs ₱400 per unit sold. As of January 1, 20x1, the liability for warranty has a balance
of ₱800,000 for units sold in 20x0. During the year RISIBLE sold 5,000 units and actual warranty
costs incurred were ₱1,240,000. How much is the warranty expense to be recognized in 20x1?
a. 2,000,000 c. 3,240,000
b. 1,240,000 d. 4,240,000
10. CANDID FRANK Co. launched a sales promotion in 20x1. For every five bottles returned to
CANDID, customers will receive a T-shirt. The unit cost of T-shirt is ₱400. CANDID estimates
that 80% of sales will be redeemed. Additional information is as follows:
Units
Sales in 20x1 500,000
Sales in 20x2 900,000
T-shirts distributed in 20x1 60,000
T-shirts distributed in 20x2 147,600
How much is the liability for premiums as of December 31, 20x2?

a. 6,650,000 c. 6,870,000
b. 7,860,000 d. 6,560,000
"So, if you think you are standing firm, be careful that you don’t fall! No temptation has overtaken you
except what is common to mankind. And God is faithful; he will not let you be tempted beyond what you can
bear. But when you are tempted, he will also provide a way out so that you can endure it."
(1 Corinthians 10:12-13)
- END -
Page | 4
ANSWERS:
1. B
2. A
3. A (80M x 5%) + (60M x 20%) + (40M x 35%) + (20M x 40%) = 38M
4. A
Minor repairs (40M x 3% x 10%) 120,000
Major repairs (40M x 2% x 90%) 720,000
Total 840,000
Multiply by: Present value factor (given) 0.95238
Total 800,000
Multiply by: Risk adjustment (100% + 6%) 106%
Total 848,000
Multiply by: Amount to be settled in 20x2 50%
Warranty provision – Dec. 31, 20x1 424,000
5. A 200M – without deduction for reimbursement of impairment loss
6. D
7. A (0 actual settlement – 2,800,000 carrying amount of provision) = 2,800,000 gain on settlement
8. A [15,000 guaranteed annual purchase x 2 years x (₱100 - ₱20)] = 2,400,000
9. A (5,000 units sold x ₱400) = 2,000,000
10. D
Estimated premium liability
- Jan. 1, 20x1
Actual cost of premiums
distributed - 20x1 (60,000 x Premium expense - 20x1 (500,000
₱400) 24,000,000 32,000,000 x 80% ÷ 5 x ₱400 )
Actual cost of premiums

distributed - 20x2 (147,600 x Premium expense - 20x2 (900,000
₱400) 59,040,000 57,600,000 x 80% ÷ 5 x ₱400 )
Dec. 31, 20x2 6,560,000
Page | 1
Chapter 5
Employee Benefits Part 1
NAME: Date:
QUIZ:
1. Depending on the expected settlement date, the liability for accumulating and vesting paid
leaves already earned by employees are presented in the employer’s statement of financial
position as
a. current liability. c. a or b
b. noncurrent liability. d. not presented.
2. PAS 19 does not apply to which of the following?

a. educational assistance given by an employer to the employee’s children
b. an annual subsidy of one sack of rice given by an employer to the employee
c. an additional allowance given to the employee through a competitive bargaining agreement
d. compensation in the form of shares of stocks
3. Fay Corp. pays its outside salespersons fixed monthly salaries and commissions on net sales.
Sales commissions are computed and paid on a monthly basis (in the month following the
month of sale), and the fixed salaries are treated as advances against commissions. However, if
the fixed salaries for salespersons exceed their sales commissions earned for a month, such
excess is not charged back to them. Pertinent data for the month of March 20X5 for the three
salespersons are as follows:
Sales person Fixed salary Net sales Commission rate

A 10,000 200,000 4%
B 14,000 400,000 6%
C 18,000 600,000 6%
Totals 42,000 1,200,000
What amount should Fay accrue for sales commission payable at March 31, 20X5?
a. 70,000 b. 68,000 c. 28,000 d. 26,000
4. ADHERE TO STICK Co. has the following policy:

− Each employee is entitled to 12 days paid vacation leave each year.
− Unused vacation leaves in a year can be carried over to the immediately following year. Vacation
leaves not taken within two years are forfeited.
The following information was determined at the reporting date:

● Number of employees………………………………….………500
● Average salary per day……………………………………..₱2,000
● Average annual pay increase……………………………….….5%
● Vacation leaves taken during the period…………….5,400 days
● Unused vacation leaves from the previous period………..…..0
Page | 2
● Based on past experience, 90% of unused vacation leave for a year are taken in the immediately
following year.
What is the year-end adjusting entry to accrue a liability for the unused vacation leaves?
5. ARTIFACT MAN MADE OBJECT Co.’s retirement plan has the following details:
● Annual contribution to a fund held by a trustee, ₱400,000.
● Upon retirement, an employee shall receive retirement benefit based on whatever amount is
accumulated on the fund.
● Actual contributions to the fund were: ₱400,000 in 20x0; ₱160,000 in 20x1; and ₱900,000 in
20x2. An employee retired in 20x3 and was paid a total of ₱30,000 retirement benefits.
What is the journal entry in 20x2?
"…Have I not commanded you? Be strong and courageous. Do not be frightened, and do not be dismayed, for the
Lord your God is with you wherever you go."
(Joshua 1:9)
Page | 3
ANSWERS:
1. C
2. D
3. C
Sales Advances (Fixed Excess of commission
person Commission (Net sales x %) salary) over advances
A (200K x 4%) = 8,000 10,000 -
B (400K x 6%) = 24,000 14,000 10,000
C (600K x 6%) = 36,000 18,000 18,000
Commission payable 28,000
4. Answer:
Debit Credit
Salaries expense 1,134,000
Salaries payable 1,134,000
Total vacation leaves entitlement of employees in 20x1

(500 x 12) 6,000
Vacation leaves taken in 20x1 ( 5,400)
Unused vacation leave carried over 600
Multiply by: 90%
Estimated vacation leaves to be taken in 20x2 540
Multiply by: Pay rate in 20x2 (P2,000 x 105%) 2,100
Liability for unused vacation leaves 1,134,000
5. Answer:
20x1 Retirement benefits expense 400,000
Cash 160,000
Accrued retirement contributions payable 240,000
20x2 Retirement benefits expense 400,000
Accrued retirement contributions payable 240,000
Prepaid retirement contributions 260,000
Cash 900,000
Page | 1
Chapter 6
Employee Benefits Part 2
NAME: Date:
QUIZ:
1. Entity B, a trustee, undertakes to manage the retirement benefit fund of Entity A for the benefit
of Entity A’s employees. When reporting to Entity A regarding the status and performance of
the fund, Entity B would most likely apply which of the following standards?
a. PAS 19
b. PAS 24
c. PAS 26
d. PFRS 6
2. Which of the following statements is correct?

a. A pension plan is contributory when the employer makes payments to a funding agency.
b. An employer reports no liability on its balance sheet in a defined-contribution plan.
c. Employers are at risk with defined-benefit plans because they must contribute enough to
meet the cost of benefits that the plan defines.
d. The accounting for defined contribution plans is complex because actuarial assumptions are
required to measure the obligation and the expense and there is a possibility of actuarial
gains and losses
3. An entity has decided to improve its defined benefit pension scheme. The benefit payable will be
determined by reference to 60 years’ service rather than 80 years’ service. As a result, the defined
benefit pension liability will increase by ₱10 million. The average remaining service lives of the
employees is 10 years. How should the increase in the pension liability by ₱10 million be treated
in the financial statements?
a. The past service cost should be charged against retained profit.
b. The past service cost should be charged against profit or loss for the year.
c. The past service cost should be spread over the remaining working lives of the employees.
d. The past service cost should not be recognized.
4. On January 1, 2002, Crowther Co. has estimated a present value of defined benefit obligation of
₱440,000 based on a settlement rate of 12 percent. Pension benefits paid to retirees totaled
₱60,000. Service costs for 2002 amounted to ₱148,000. The fair values of the plan assets were
₱350,000 and ₱400,000 on December 31, 2001 and December 31, 2002, respectively. The present
value of the benefit obligation on December 31, 2002 was
a. 528,000. b. 580,800. c. 630,800. d. 640,800.
5. The following information relates to the defined benefit pension plan for the McDonald
Company for the year ending December 31, 2002.
Present value of defined benefit obligation, Jan. 1 4,600,000
Present value of defined benefit obligation, Dec. 4,729,000
31
Fair value of plan assets, January 1 5,035,000
Fair value of plan assets, December 31 5,565,000
Return on plan assets 450,000
Page | 2
Employer contributions 425,000

Benefits paid to retirees 390,000
Discount rate 10%
Current service cost for the year would be

a. 59,000. b. 94,000. c. 129,000. d. 390,000.
6. The following information relates to Irasly Inc. at December 31, 2002:

Fair value of plan assets 1,520,000
Market related asset value 1,440,000
Present value of defined benefit obligation 1,960,000
Projected benefit obligation 2,040,000
Past service cost (recognized in full during the 24,000
period)
Prepaid/accrued pension cost 0
The net defined benefit liability at December 31, 2002, for Irasly Inc. is
a. 0. b. 440,000. c. 480,000. d. 520,000.
7. The following information is taken from the actuarial valuation report for an entity’s defined
benefit plan:
Fair value of plan assets, Jan. 1 2,100,000

Present value of defined benefit obligation, Jan. 1 2,400,000
Past service cost (vesting period is 5 yrs.) 300,000
Current service cost 600,000
Benefits paid to retirees during the year 450,000
Net gain on settlement of plan during the year 60,000
Actuarial gain during the period 15,000
Return on plan assets during the period 270,000
Discount rate based on high quality corporate
12%
bonds
How much is the defined benefit cost?

a. 843,000 c. 876,000
b. 861,000 d. 879,000
Use the following information for the next two questions:

Information on STATUTE LAW Co.’s defined benefit plan is shown below:
● The fair value of the plan assets on January 1, 20x1 was ₱7,200,000.
● The actuarial valuation of the defined benefit obligation on January 1, 20x1 was ₱8,000,000. The
actuarial present value of future benefits earned by employees for services rendered in 20x1
amounted to ₱1,200,000.
● On July 1, 20x1, STATUTE Co. amended its retirement plan. The amendment increased the
present value of the defined benefit obligation by ₱1,600,000, 20% of which relates to benefits that
have already vested. The remaining portion will vest in 5 years.
● Changes in actuarial assumptions resulted to a decrease of ₱640,000 in the present value of the
defined benefit obligation. It was also determined that there was an ₱80,000 decrease in the fair
value of the plan assets due to changes in fair values.
Page | 3
● The return on plan assets amounting to ₱1,120,000 represents only the actual interest and other
investment income in 20x1.
● Benefits paid during 20x1 amounted to ₱200,000. No contributions were made to the fund during
20x1.
● The discount rate is 9%.
8. How much is the net defined benefit liability (asset) on December 31, 20x1?
a. 1,040,000 asset c. 2,640,000 liability
b. 1,040,000 liability d. 2,640,000 asset
9. What amounts of the total defined benefit cost for the period are recognized in: increase/(decrease)
Profit or loss OCI
a. 2,624,000 248,000
b. 2,764,000 (248,000)
c. 2,872,000 (1,032,000)
d. 2,872,000 1,032,000
10. On January 1, 20x1, BESET TO TROUBLE Co. had the following information regarding its
defined benefit plan:
❖ Fair value of plan assets (FVPA), Jan. 1 ₱480,000
❖ Present value of the defined benefit obligation, Jan. 360,000
1
❖ Discount rate based on high quality corporate 5%
bonds
Information regarding the defined benefit plan as of December 31, 20x1 is as follows:
❖ Contributions made to the fund, July 1, 20x1 800,000
❖ Benefits paid to retirees, September 30, 20x1 200,000
❖ Fair value of plan assets (FVPA), Dec. 31 1,128,000
❖ Present value of the defined benefit obligation, Dec.

720,000
31
How much is the remeasurement to the net defined benefit liability (asset) to be recognized in other
comprehensive income?
a. 5,000 loss c. 6,500 loss
b. 5,000 gain d. 6,500 gain
“Education is the passport to the future, for tomorrow belongs to those who prepare for it
today.” - Malcolm X
- END -
Page | 4
ANSWERS:
1. C
2. C
3. B
4. B
PV of defined benefit obligation
440,000 Jan. 1
Benefits paid 60,000 148,000 Current service cost
52,800 Interest cost

Dec. 31 580,800
5. A
4,600,000 Jan. 1
Benefits paid 390,000 59,000 Current service cost
460,000 Interest cost

Dec. 31 4,729,000
6. B (1,960,000 – 1,520,000) = 440,000
7. A
Service cost:
(a) Current service cost 600,000
(b) Past service cost 300,000
(c) (Gain) or loss on settlement (60,000)
840,000
Net interest on the net defined benefit liability (asset):
(a) Interest cost on the defined benefit obligation (2.4M x 12%) 288,000
(b) Interest income on plan assets (2.1M x 12%) (252,000)
(c) Interest on the effect of the asset ceiling -
36,000
Defined benefit cost recognized in profit or loss 876,000
Remeasurements of the net defined benefit liability (asset):

(a) Actuarial (gains) and losses (15,000)
(b) Difference between interest income on plan assets
and return on plan assets (252K - 270K) (18,000)
(c) Difference between the interest on the effect of the asset
ceiling and the change in the effect of the asset ceiling -
Defined benefit cost recognized in OCI (33,000)
Total defined benefit cost 843,000

Page | 5
8. C
8,000,000 Jan. 1
Benefits paid 200,000 1,200,000 Current service cost
Actuarial gain a 640,000 720,000 Interest cost (8M x 9%)
1,600,000 Increase due to plan amendment
Dec. 31 10,680,000
a
The actuarial gain pertains to the decrease in the obligation due to changes in actuarial
assumptions.
Fair value of plan assets

Jan. 1 7,200,000
Return on plan assets b 1,040,000 200,000 Benefits paid
Contributions to the fund -
8,040,000 Dec. 31
b
The adjusted return on plan assets is computed as follows:
Realized gains 1,120,000
Unrealized loss due to changes in fair values (80,000)
Return on plan assets 1,040,000
Fair value of plan assets, Dec. 31 8,040,000

PV of defined benefit obligation, Dec. 31 10,680,000
Net defined benefit liability - Dec. 31 (deficit) (2,640,000)
9. C
Current service cost 1,200,000
Past service cost (increase in obligation due to the amendment) 1,600,000
Net loss on settlement of plan during the year -
Net interest on the net defined benefit liability (asset) c 72,000
Defined benefit cost recognized in profit or loss 2,872,000
Actuarial (gain) loss (640,000)
Difference between return and interest income on plan asset (392,000)
Difference between change and interest on effect of
-
asset ceiling
Defined benefit cost recognized in OCI (1,032,000)
Total defined benefit cost 1,840,000
c
The net interest on the net defined benefit liability (asset) is computed as follows:
Fair value of plan assets, Jan. 1, 20x1 7,200,000
Present value of defined benefit obligation, Jan. 1, 20x1 8,000,000
Net defined benefit liability - Jan. 1 (deficit) 800,000
Multiply by: Discount rate 9%
Net interest on the net defined benefit liability 72,000
Page | 6
10. D
Return on plan assets (a) 48,000
Interest income on plan assets (b) (41,500)
Gain, OCI 6,500
(a)
Fair value of plan assets

Jan. 1 480,000
Return on plan assets (squeeze) 48,000 200,000 Benefits paid
Contributions to the fund 800,000
1,128,000 Dec. 31
(b)
Interest income on the beginning balance of FVPA

24,000
(480,000 x 5% x 12/12)
Interest income on the contributions made on July 1, 20x1 (800,000 x 5% x 6/12) 20,000
Reduction in interest income due to the benefits paid out of the plan assets on Sept.
(2,500)
30, 20x1 (200,000 x 5% x 3/12)
Interest income on plan assets 41,500
Page | 1
Chapter 7
Leases Part 1
NAME: Date:
QUIZ:
1. Customer X enters into a five-year contract with Supplier Y for the use of a rolling stock specifically
designed for Customer X. The rolling stock is designed to transport materials used in Customer X’s
production process and is not suitable for use by other customers. The rolling stock is not explicitly
specified in the contract, but Supplier Y owns only one rolling stock that is suitable for Customer
X’s use. If the rolling stock does not operate properly, the contract requires Supplier Y to repair or
replace the rolling stock. Supplier Y does not have a substantive substitution right. Is the rolling
stock an identified asset?
a. Yes, because the rolling stock is implicitly specified in the contract.
b. Yes, because the contract extends beyond 12 months.
c. No, because the rolling stock is not explicitly specified in the contract.
d. No, because I don’t know what a rolling stock is.
2. Security deposits, which are refundable to the lessee upon lease termination,
a. are treated as prepaid rent by lessees and as unearned income by lessors.
b. are never discounted.
c. are treated as receivable by lessees and as payable by lessors.
d. are discounted only by lessees but not by lessors
3. On December 30, 20x5, Haber Co. leased a new machine from Gregg Corp. The following data
relate to the lease transaction at the inception of the lease:
Lease term 10 years
Annual rental payable at the end of each lease year ₱100,000
Useful life of machine 12 years
Implicit interest rate 10%
The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease
terminates. At the inception of the lease, Haber should record a lease liability of (rounded-off)
a. 0 c. 630,000
b. 615,000 d. 676,000
4. On January 1, 20x7, Babson, Inc., leased two automobiles for executive use. The lease requires
Babson to make five annual payments of ₱13,000 beginning January 1, 20x7. Babson expects to pay
₱10,000 on the residual value guarantee. The interest rate implicit in the lease is 9%. Babson's
recorded lease liability on initial recognition is
a. 48,620 c. 35,620
b. 44,070 d. 31,070
5. On January 1, 20x1, Row Co. leased a machine from Boat, Inc. Information on the lease is as follows:
Annual rent payable at the beginning of each year ₱200,000
Lease term 10 years
Useful life of machine 12 years
Implicit interest rate 10%
Page | 2
The lease contract provides Row Co. an option to purchase the machine at the end of the lease term for
₱100,000. The option price approximates the machine’s expected fair value at the end of the lease. Row
Co. is reasonably certain to the exercise the option. What amount of interest expense should Row Co.
recognize on the lease in 20x1?
a. 139,036 b. 135,181 c. 119,036 d. 115,181
6. On January 1, 20x1, Lock Co. enters into a 4-year lease of office equipment. The rent in 20x1 is
₱10,000 and this will increase by 10% annually starting on January 1, 20x2. Lock Co. pays the lessor
a lease bonus of ₱5,000 on January 1, 20x1. Lock Co. opts to use the practical expedient allowed
under PFRS 16 for leases of low value assets. How much is the lease expense in 20x1?
a. 10,000 c. 11,603
b. 11,000 d. 12,853
7. On January 1, 20x6, Day Corp. entered into a 10-year lease agreement with Ward, Inc. for a piece of
industrial equipment. Annual lease payments of ₱10,000 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 addition, a third party,
unrelated to Day, has guaranteed to pay Ward a residual value of ₱5,000 at the end of the lease. In
Day's January 1, 20x6 balance sheet, the principal amount of the lease obligation was
a. 63,374 c. 58,112
b. 61,446 d. 56,502
8. On January 1, 20x1, Fingerstyle Co. (lessee) enters into a ten-year lease of equipment, with fixed
annual payments of ₱200,000 due at the start of each lease year. The contract itemizes the fixed
annual payments as follows: ₱156,000 for rent, ₱39,000 for maintenance and ₱5,000 of
administrative tasks. The itemized amounts reflect the relative stand-alone prices of the
components. The lessor's implicit interest rate in the lease, known to Fingerstyle Co., is 10%. How
much are the (1) lease liability as of January 1, 20x1 and (2) total lease-related expenses for 20x1?
a. 1,080,366; 236,074 c. 921,444; 240,289
b. 1,080,366; 241,074 d. 921,444; 245,289
9. Use the information in the preceding problem. In addition, the contract requires Fingerstyle Co. to
restore the equipment to its original condition at end of the lease term. At contract inception,
Fingerstyle Co. estimates that the fair value of its restoration obligation is ₱100,000. How much are
the (1) right-of-use asset and (2) lease liability as of January 1, 20x1?
a. 1,181,444; 921,444 c. 1,180,366; 1,080,366
b. 1,021,444; 921,444 d. 1,180,366; 1,180,366
10. On January 2, 20x9, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori
recognized a lease liability of ₱240,000 at the commencement date. This amount includes the
₱10,000 exercise price of a purchase option. At the end of the lease, Nori expects to exercise the
purchase option. Nori estimates that the equipment's fair value will be ₱20,000 at the end of its
8-year life. Nori regularly uses straight-line depreciation on similar equipment. For the year ended
December 31, 20x9, what amount should Nori recognize as depreciation expense on the leased
asset?
a. 48,000 c. 30,000
b. 46,000 d. 27,500
"I have set the Lord continually before me. Because He is at my right hand, I will not be shaken." – (Psalm 16:8)
Page | 3
ANSWERS:
1. A – The rolling stock is an identified asset because, although it is not explicitly specified in the
contract (e.g., by serial number), it is implicitly specified because Supplier Y has only one that meets
the specification of Customer X, and therefore must use that one to fulfil the contract.
Side note: Rolling stock refers to locomotives, carriages, wagons, or other vehicles used on a railroad.
2. C
3. B
Annual rent 100,000
PV of ordinary annuity of 1 @10%, n=10 6.15
PV of minimum lease payments 615,000
4. A
Cash flows PV factors PV
Annual rent 13,000 PV annuity due @9%, n=5 4.2397 55,116
Guaranteed RV 10,000 PV of 1 @9%, n=5 0.6499 6,499
Total 61,615
First payment due immediately (13,000)
Lease liability – initial recognition 48,615
5. C
Lease payments PV factors @10%, n=10 PV
Fixed payments 200,000 PV of annuity due of 1 6.759024 1,351,805
Purchase option 100,000 PV of 1 0.385543 38,554
1,390,359
Date Payments Interest Amortization Present value

1/1/x1 1,390,359
1/1/x1 200,000 - 200,000 1,190,359
1/1x2 200,000 119,036 80,964 1,109,395
6. D
20x1 10,000
20x2 (10K x 110%) 11,000
20x3 (11K x 110%) 12,100
20x4 (12.1K x 110%) 13,310
Lease bonus 5,000
Total 51,410
Divide by: 4
Annual lease expense 12,853
Page | 4
7. B (10,000 x PV ordinary annuity @10%, n=10) = 61,446. The residual value is ignored because it is
unguaranteed, (i.e., guaranteed by a third party unrelated to the lessee rather than by the lessee or a
party related to the lessee)
8. C
Allocation of total consideration:
Stand-alone prices Allocation
Rent 156,000 (200K x 156/195) 160,000
Maintenance 39,000 (200K x 39/195) 40,000
Totals 195,000 200,000
Lease liability as of Jan. 1, 20x1:

Annual rent 160,000
PV of annuity due of 1 @10%, n=10 6.759024
PV of lease payments 1,081,444
Date Payments Interest Amortization Present value

1/1/x1 1,081,444
1/1/x1 160,000 - 160,000 921,444
1/1x2 160,000 92,144 67,856 853,558
Journal entry:
Jan. 1, Right-of-use asset 1,081,444
20x1 Maintenance expense (Prepaid asset) 40,000
Cash 200,000
Lease liability 921,444
Total lease-related expenses in 20x1:

Interest expense 92,144
Depreciation (1,081,444 ÷ 10) 108,144
Maintenance 40,000
Total lease-related expenses in 20x1 240,289
9. A
Journal entry:
Jan. 1, Right-of-use asset 1,181,444
20x1 Maintenance expense (Prepaid asset) 40,000
Cash 200,000
Lease liability 921,444
Provision for restoration costs (ARO) 100,000
10. D
Cost 240,000
Residual value (fair value at the end of the asset’s useful life) (20,000)
Depreciable amount 220,000
Useful life 8
Depreciation expense 27,500
Page | 1
Chapter 8
Leases Part 2
NAME: Date:
QUIZ:
1. A lessor’s gross investment in a finance lease is computed as
a. lease payments plus unguaranteed residual value.
b. present value of (a).
c. difference between (a) and (b).
d. sum of (a) and (b).
2. Which of the following statements is false regarding the accounting for leases?
a. The lessor may not use the straight line basis for recognizing lease income under an
operating lease if another systematic basis is more representative of the pattern in which
benefit from the use of the underlying asset is diminished.
b. The amount of lease income recognized each year under an operating lease is typically
constant even though the contractual payments increase every year by a certain amount
specified in the contract.
c. It is possible that the lessor does not depreciate the leased asset even if the lease is classified
as an operating lease.
d. Under an operating lease, the lessor capitalizes initial direct costs. These costs will increase
the lease income each year.
3. Security deposits that are refundable

a. are treated as unearned income by lessors under an operating lease.
b. are not discounted because they are normally of a short-term nature
c. are treated as receivable by lessees and as payable by lessors.
d. are discounted only by lessees but not by lessors

On January 1, 20x1, VACILLATE Financing Co. leased equipment to HESITATE, Inc. Information on
the lease is shown below.
Cost of equipment ₱1,394,740
Useful life of equipment 5 years
Lease term 4 years
Annual rent payable at the start of each year ₱400,000
Interest rate implicit in the lease 10%
4. How much is the total interest income (finance income) to be recognized by VACILLATE over
the lease term?
a. 400,000 c. 205,260
b. 605,260 d. 365,260
5. How much is the carrying amount of the net investment in the lease as of December 31, 20x1?
a. 694,215 c. 735,260
b. 1,094,215 d. 1,165,260
Page | 2
6. On January 1, 20x1, OFFICIOUS Financing Co. leased equipment to MEDDLESOME, Inc. under
direct financing lease. Information on the lease is shown below:
Lease term 4 years
Annual rent payable at the end of each year ₱440,000
Non-lease component included in annual rent ₱36,196
Initial direct costs 80,000
Implicit rate of interest in the lease 10%
The non-lease component pertains to payment for supplies and other consumables relating to the
operation of the equipment. The stand-alone selling prices are: ₱36,196 for the supplies and ₱403,804
for the rent.
On January 1, 20x3, due to cash flow problems, OFFICIOUS agreed to sell the equipment to
MEDDLESOME, Inc. for ₱600,000. How much is the gain (loss) on the sale?
a. (100,816) c. 20,816
b. 100,816 d. 0
7. On January 1, 20x1, UPPITY Co. leased a piece of equipment to ARROGANT, Inc. Information
on the lease is shown below.
Lease term 4 years
Annual rent payable at the end of each year ?
UPPITY Co. incurred direct costs of ₱80,000 in negotiating the lease. If UPPITY Co. desires a fair rate
of return of 10%, what amount of annual rental should it charge ARROGANT, Inc.?
a. 440,000 c. 340,000
b. 403,803 d. 200,000

On January 1, 20x1, POLTROON Co. leased a piece of equipment to COWARD, Inc. Information on
the lease is as follows:
Lease term 4 years
Residual value ₱80,000
The equipment will revert back to POLTROON at the end of the lease term. The lease is classified as
sales type lease.
8. How much is the gross investment in the lease on January 1, 20x1 assuming the residual value is
guaranteed?
a. 1,600,000 c. 1,520,000
b. 1,680,000 d. 1,267,948
Page | 3
9. How much are the sales and cost of sales if the residual value is unguaranteed?
Sales Cost of sales Sales Cost of sales
a. 1,267,946 1,145,359 c. 1,322,587 1,200,000
b. 1,267,946 1,200,000 d. 1,322,587 1,145,359
10. On June 1, 20x0, Oren Co. entered into a five-year nonrenewable lease, commencing on that date,
for office space and made the following payments to Cant Properties:
Bonus to obtain lease 30,000
First month's rent 10,000
Last month's rent 10,000
In its income statement for the year ended June 30, 20x0, what amount should Cant report as rent
income?
a. 10,000 c. 40,000
b. 10,500 d. 0
"Come to me, all you who are weary and burdened, and I will give you rest." - (Matthew 11:28-30)
- END -
Page | 4
ANSWERS:
1. A
2. D
Choice (c) is a correct statement – for example, if the leased asset is land.
3. C
4. C
Gross investment before first collection (400K x 4) 1,600,000
Net investment before first collection (see below) (1,394,741)
Unearned interest income - 1/1/20x1 205,259
Annual rent 400,000

Multiply by: PV of annuity due of ₱1 @10%, n=4 3.486852
Net investment in the lease - 1/1/20x1 (before first collection) 1,394,741
5. B
Date Collections Interest Amortization Present value
1/1/x1 1,394,741
1/1/x1 400,000 0 400,000 994,741
1/1/x2 400,000 99,474 300,526 694,215
1/1/x3 400,000 69,422 330,578 363,637
1/1/x4 400,000 36,364 363,636 0
694,215 + 400,000 = 1,094,215
6. A
⮚ Initial measurement:
Fixed lease payments (440,000 – 36,196) 403,804
Multiply by: PV of ordinary annuity of ₱1 @10%, n=4 3.169865
Net investment in the lease 1,280,004
⮚ Subsequent measurement:
Interest Amortizatio Present
Date Collections
income n value
1,280,00
Jan. 1, 20x1
4
1,004,20
Dec. 31, 20x1 403,804 128,000 275,804
0
Dec. 31, 20x2 403,804 100,420 303,384 700,816
Jan. 1, Cash 600,000

20x3 Loss on sale (squeeze) 100,816
Finance lease receivable – net 700,816
7. B
Step 1: Place the given information in the equation.
Page | 5
? + 0 = 1,200,000 (equal to cost) + 80,000
Step 2: Squeeze for ‘PV of lease payments.’

⮚ ? = 1,200,000 + 80,000 – 0
⮚ PV of lease payments = 1,280,000
Step 3: Squeeze for the lease payments

⮚ PV of lease payments = Lease payments x PV factor
⮚ 1,280,000 = Lease payments x PV of ordinary annuity @ 10%, n=4
⮚ 1,280,000 = Lease payments x 3.169865

⮚ Lease payments = (1,280,000 ÷ 3.169865) = 403,803

On January 1, 20x1, POLTROON Co. leased a piece of equipment to COWARD, Inc. Information on
the lease is as follows:
Lease term 4 years
Residual value ₱80,000
The equipment will revert back to POLTROON at the end of the lease term. The lease is classified as
sales type lease.
8. B (400,000 x 4 years) + 80,000 = 1,680,000
9. A
Guaranteed residual value Unguaranteed residual value
Sales (PV of annual rentals) 1,267,946 Sales (PV of annual rentals) 1,267,946
Add: PV of GRV 54,641 Cost of sales
Adjusted sales 1,322,587 1,200,000
Cost of sales (1,200,000) Less: PV of URV (
Gross profit 122,587 54,641)
Adjusted cost of sales
(1,145,359)
Gross profit
122,587
⮚ PV of annual rentals: (400K x PV ordinary annuity @10%, n=4) = 1,267,946
⮚ PV of residual value: (80,000 x PV of 1 @10%, n=4) = 54,641

Page | 6
10. B {10,000 + [(30,000 ÷ 5 years) x 1/12]} = 10,500

Page | 1
Chapter 9
Income Taxes
NAME: Date:
QUIZ:
1. Which of the following creates a permanent difference between financial income and taxable
income?
a. Interest received on government bonds
b. Accrual method of recognizing revenue
c. Unearned rent revenue
d. Accelerated cost recovery on plant and equipment
2. Which of the following creates a temporary difference between financial and taxable income?
a. Interest on treasury debt securities
b. Accelerated depreciation on plant and equipment
c. Fines from violation of law
d. Premiums paid for officer's life insurance (the company is the beneficiary)
3. Which of the following is the most likely item to result in a deferred tax asset?
a. Using accelerated depreciation for tax purposes but straight-line depreciation for accounting
purposes
b. Using the completed-contract method of recognizing construction revenue tax purposes, but
using percentage-of-completion method for financial reporting purposes
c. Prepaid expenses
d. Unearned revenues
4. The purpose of an interperiod income tax allocation is to

a. allow reporting entities to fully utilize tax losses carried forward from a previous year.
b. allow reporting entities whose tax liabilities vary significantly from year to year to smooth
payments to taxing agencies.
c. recognize an asset or liability for the tax consequences of temporary differences that exist at
the balance sheet date.
d. amortize the deferred tax liability shown on the balance sheet.
5. For the year ended December 31, 20x1, Tyre Co. reported pretax financial statement income of
₱750,000. Its taxable income was ₱650,000. The difference is due to accelerated depreciation for
income tax purposes. Tyre's effective income tax rate is 30%, and Tyre made estimated tax
payments during 20x1 of ₱90,000. What amount should Tyre report as current income tax
expense for 20x1?
a. 105,000 c. 195,000
b. 135,000 d. 225,000
6. Pine Corp.'s books showed pretax income of ₱800,000 for the year ended December 31, 20x1. In
the computation of federal income taxes, the, following data were considered:
Gain on an involuntary conversion 350,000
Page | 2
Depreciation deducted for tax purposes in excess

of
depreciation deducted for book purposes 50,000
Estimated tax payments during 20x1 70,000
Income tax rate 30%
What amount should Pine report as its current income tax liability on its December 31, 20x1, balance
sheet?
a. 50,000 c. 120,000
b. 65,000 d. 135,000
7. Scott Corp. received cash of ₱20,000 that was included in revenues in its 20x4 financial
statements, of which ₱12,000 will not be taxable until 20x5. Scott's enacted tax rate is 30% for
20x4, and 25% for 20x5. What amount should Scott report in its 20x4 balance sheet for deferred
income tax liability?
a. 2,000 b. 2,400 c. 3,000 d. 3,600
8. West Corp. leased a building and received the ₱36,000 annual rental payment on June 15, 20x9.
The beginning of the lease was July 1, 20x9. Rental income is taxable when received. West’s tax
rates are 30% for 20x9 and 40% thereafter. West had no other permanent or temporary
differences. West determined that no valuation allowance was needed. What amount of deferred
tax asset should West report in its December 31, 20x9, balance sheet?
a. 5,4000 b. 7,200 c. 10,800 d. 14,400
9. Huff Corp. began operations on January 1, 20x8. Huff recognizes revenues from all sales under
the accrual method for financial reporting purposes and appropriately uses the installment
method for income tax purposes. Huff's gross margin on installment sales under each method
was as follows:
Year Accrual method Installment method
20x8 800,000 300,000
20x9 1,300,000 700,000
Enacted income tax rates are 30% for 20x9 and 25% thereafter. There are no other temporary
differences. In Huff's December 31, 20x9, balance sheet, the deferred income tax liability should be
a. 150,000 b. 180,000 c. 275,000 d. 330,000
10. Stone Co. began operations in 20x1 and reported ₱225,000 in income before income taxes for the
year. Stone’s 20x1 tax depreciation exceeded its book depreciation by ₱25,000. Stone also had
nondeductible book expenses of ₱10,000 related to permanent differences. Stone’s tax rate for
20x1 was 40%, and the enacted rate for years after 20x1 is 35%. In its December 31, 20x1, balance
sheet, what amount of deferred income tax liability should Stone report?
a. 8,750 b. 10,000 c. 12,250 d. 14,000
“The roots of education are bitter, but the fruit is sweet.” – Aristotle
Page | 3
ANSWERS:
1. A
2. B
3. D
4. C
5. C (650,000 taxable income x 30%) = 195,000 current tax expense
6. A
Multiply by
Description of items Description of items
Tax rate
Pretax income 800,000
Permanent differences:
Less: Non-taxable income
Gain on involuntary conv. (350,000)
Accounting profit subject to tax 450,000 30% Income tax expense 135,000
Temporary differences:
Less: 🡡 Taxable temporary difference Less: 🡡 Deferred tax
(TTD) 'FI>TI': liability (DTL):
Excess depreciation (50,000) 30% (15,000)
Taxable profit 400,000 30% Current tax expense 120,000
Current tax expense 120,000

Estimated tax payments during 20x1 (70,000)
Income tax payable - Dec. 31, 20x1 50,000
7. C (12,000 x 25%) = 3,000

8. B
Rent income - Financial reporting (36,000 x 6/12) 18,000
Rent income - Taxation 36,000
Deductible temporary difference (FI < TI) 18,000
Multiply by: Future tax rate 40%
Deferred tax asset 7,200
9. C
Year Accrual method Installment method Difference
20x8 800,000 300,000
20x9 1,300,000 700,000
Totals 2,100,000 1,000,000 1,100,000
Multiply by: Tax rate 25%
Deferred tax liability - Dec. 31, 20x9 275,000
10. A (25,000 taxable temporary difference x 35%) = 8,750

Page | 1
Chapter 10
Shareholders’ Equity (Part 1)
NAME: Date:
QUIZ:
1. If shares are issued below par or issued value, the deficiency of the consideration received is
recorded as “discount on share capital.” The discount is presented in the statement of financial
position
a. under current assets as a receivable from the shareholder concerned.
b. as a deduction in shareholders’ equity.
c. as an addition in shareholders’ equity.
d. a and b
2. Legal capital is the portion of contributed capital that cannot be distributed to the owners during
the lifetime of the corporation unless the corporation is dissolved and all of its liabilities are settled
first. For no-par value shares, legal capital is
a. the aggregate par value of shares issued and subscribed.
b. the total consideration received or receivable from shares issued or subscribed.
c. the aggregate stated value of shares issued and subscribed.
d. the aggregate market value of shares issued and subscribed.
3. How should the excess of the subscription price over the par value of ordinary subscribed be
recorded?
a. As share premium when the subscription is received.
b. As share premium when the subscription is collected.
c. As retained earnings when the subscription is received.
d. As share premium when the capital stock is issued.
4. Share issuance costs are recognized directly in equity. If the related share premium is insufficient to
offset any share issuance costs, the issuance costs are
a. recognized as expense in profit or loss
b. charged directly to retained earnings
c. charged directly to share capital
d. a or b
5. Zinc Co.'s adjusted trial balance at December 31, 20x1, includes the following account balances:
Ordinary shares, ₱3 par ₱600,000
Share premium 800,000
Treasury stock, at cost 50,000
Accumulated other comprehensive income (Debit) 20,000
Retained earnings appropriated for uninsured earthquake losses 150,000
Retained earnings - unappropriated 200,000
What amount should Zinc report as total stockholders' equity in its December 31, 20x1, balance sheet?
a. 1,680,000 b. 1,720,000 c. 1,780,000 d. 1,820,000
Page | 2
6. The stockholders' equity section of Peter Corporation's balance sheet at December 31, 20x2 was as
follows:
Ordinary shares (₱10 par, authorized 1M sh., issued and outst. 900K sh.) ₱ 9,000,000
Share premium 2,700,000
Retained earnings 1,300,000
On January 2, 20x3, Peter purchased and retired 100,000 shares of its stock for ₱1,800,000. Immediately
after retirement of these 100,000 shares, the balances in the share premium and retained earnings
accounts should be
Share premium Retained earnings Share premium Retained earnings
a. ₱ 900,000 ₱1,300,000 c. ₱1,900,000 ₱1,300,000
b. ₱1,400,000 ₱ 800,000 d. ₱2,400,000 ₱ 800,000
7. On April 1, 20x9, Hyde Corp., a newly formed company, had the following stock issued and
outstanding:
● Ordinary shares, ₱1 par value, 20,000 shares originally issued for ₱30 per share.
● Preference shares, ₱10 par value, 6,000 shares originally issued for ₱50 per share.
Hyde’s April 1, 20x9, statement of shareholders’ equity should report

Ordinary shares Preference shares Share premium
a. ₱20,000 ₱60,000 ₱820,000
b. ₱20,000 ₱300,000 ₱580,000
c. ₱600,000 ₱300,000 ₱0
d. ₱600,000 ₱60,000 ₱240,000
8. Asp Co. was organized on January 2, 20x1, with 30,000 authorized shares of ₱10 par ordinary
shares. During 20x1 the corporation had the following capital transactions:
Jan. 5 Issued 20,000 shares at ₱15 per share.
July 14 Purchased 5,000 shares at ₱17 per share.
Dec. 27 Reissued the 5,000 shares held in treasury at ₱20 per share.
Asp used the cost method to record the purchase and reissuance of the treasury shares. In its December
31, 20x1, balance sheet, what amount should Asp report as additional paid-in capital in excess of par?
a. 100,000 b. 125,000 c. 140,000 d. 115,000
9. On March 1, 20x1, Rya Corp. issued 1,000 shares of its ₱20 par value ordinary shares and 2,000
shares of its ₱20 par value convertible preference shares for a total of ₱80,000. At this date, Rya’s
ordinary share was selling for ₱36 per share, and the convertible preference share was selling for
₱27 per share. What amount of the proceeds should be allocated to Rya’s convertible preference
share?
a. 60,000 b. 54,000 c. 48,000 d. 44,000
10. In 20x1, Fogg, Inc., issued ₱10 par value ordinary share for ₱25 per share. No other share
transactions occurred until March 31, 20x1, when Fogg acquired some of the issued shares for ₱20
per share and retired them. Which of the following statements correctly states an effect of this
acquisition and retirement?
a. 20x1 profit is decreased. c. Share premium is decreased.
b. 20x1 profit is increased. d. Retained earnings is increased.
"A cheerful heart is good medicine but a crushed spirit dries up the bones." - (Proverbs 17:22)
- END -
Page | 3
ANSWERS:
1. B
2. B
3. A
4. B
5. A
Ordinary shares, ₱3 par 600,000
Treasury stock, at cost (50,000)
Accumulated other comprehensive income (Debit) (20,000)
Retained earnings appropriated for uninsured
earthquake losses 150,000
Retained earnings - unappropriated 200,000
Total shareholders' equity 1,680,000
6. D
Solution:
Jan. 2, Share capital (100,000 x ₱10) 1,000,000
20x3
Sh. premium – orig. issuance (2.7M x 100K/900K) 300,000
Retained earnings 500,000
Cash 1,800,000
Share premium Retained earnings

Dec. 31, 20x2 2,700,000 1,300,000
Debit (300,000) (500,000)
Jan. 2, 20x3 2,400,000 800,000
7. A
Ordinary Preference
Total issue price 600,000 300,000
Par value 20,000 60,000
Share premium 580,000 240,000 820,000
8. D
Solution:
Jan. 5, Cash (20,000 x 15) 300,000
20x1
Ordinary share (20,000 x 10) 200,000
July 14, Treasury shares (5,000 x 17) 85,000
20x1
Cash 85,000
Dec. 27, Cash (5,000 x 20) 100,000
20x1
Treasury shares (5,000 x 17) 85,000
Share premium – Treasury shares 15,000
9. C
No. of sh. Fair value Totals Allocation
Page | 4
Ordinary sh. 1,000 36.00 36,000 32,000

Preference sh. 2,000 27.00 54,000 48,000
90,000 80,000
10. C
Page | 1
Chapter 11
Shareholders’ Equity (Part 2)
NAME: Date:
QUIZ
1. The use of equity reserves under PFRSs
a. is strictly voluntary on the part of the management of a company.
b. is based on whether a reserve is part of distributable or non-distributable equity.
c. is primarily for the benefit of shareholders rather than creditors.
d. results in the elimination of the retained earnings category from the total equity of a
company.
2. Which of the following is most likely to be true regarding the payment of dividends?
a. Dividends may be paid from legal capital.
b. Retained earnings are available for dividends unless restricted by contract or by statute.
c. Unrealized capital is available for any type of dividend.
d. Capital from donated assets is available for dividends.
3. When a property dividend is declared and the carrying amount of the property exceeds its fair
value, the dividend is recorded at the
a. fair value of the property at the date of distribution.
b. carrying amount of the property at the date of declaration.
c. carrying amount of the property at the date of distribution if it still exceeds the fair value of
the property at the date of declaration.
d. fair value of the property at the date of declaration.
4. Selected information from the accounts of Row Co. at December 31, 20x1, follows:
Total profit since incorporation ……….…………………….₱420,000
Total cash dividends paid ………………………….……….....130,000
Total value of property dividends distributed ………………..30,000
Excess of proceeds over cost of treasury stock sold,
accounted for using the cost method …………..………….110,000
In its December 31, 20x1, financial statements, what amount should Row report as retained
earnings?
a. 260,000 b. 290,000 c. 370,000 d. 400,000
5. Nest Co. issued 100,000 shares of common stock. Of these, 5,000 were held as treasury stock at
December 31, 20x1. During 20x2, transactions involving Nest's common stock were as follows:
● May 3 - 1,000 shares of treasury stock were sold.
● August 6 - 10,000 shares of previously unissued stock were sold.
● November 18 - a 2-for-1 stock split took effect.
Laws in Nest's state of incorporation protect treasury stock from dilution. At December 31, 20x2,
how many shares of Nest's common stock were issued and outstanding?
Page | 2
Shares Issued Outstanding Shares Issued Outstanding

a. 220,000 212,000 c. 222,000 214,000
b. 220,000 216,000 d. 222,000 218,000
6. On June 27, 20x1, Brite Co. distributed to its ordinary shareholders 100,000 shares of Quik, Inc.,
an unrelated party, held as investment in held for trading securities. The carrying amount of the
investment on June 27, 20x1 was ₱1 per share, while the fair value was ₱2 per share. On
distribution date, the fair value of Quik’s stock was ₱2.50 per share. In its income statement for
the year ended June 30, 20x1, what amount should Brite report as gain relating to the disposal of
the stock?
a. 250,000 b. 200,000 c. 50,000 d. 0
7. The Gradison Corporation had the following classes of shares outstanding as of December 31,
2002:
● Ordinary shares, ₱20 par value, 20,000 shares outstanding
● Preference shares, 6 percent, ₱100 par value, cumulative, 2,000 shares outstanding
No dividends were paid on preference shares for 2000 and 2001. On December 31, 2002, a total cash
dividend of ₱200,000 was declared. What amount of dividends is payable to the ordinary
shareholders?
a. 156,000 c. 176,000
b. 167,000 d. 184,000
8. Late Co. has the following shareholders’ equity:

Share capital, ₱100 par, 10,000 shares 1,000,000
Total shareholders’ equity 1,500,000
Late Co. recalled the 10,000 outstanding shares and replaced them with 20,000 no-par shares with
stated value of ₱5 per share. How much is the share premium after the recapitalization?
a. 200,000 c. 1,100,000
b. 1,000,000 d. 0
9. During 2002, the following transactions related to the capital stock of the Buffet-Line Corp.
occurred:
Jan. 7 Declared a ₱.75 cash dividend on 150,000 shares of preferred stock.

Feb. 7 Paid dividends on preferred stock.
March 4 Declared a ₱.50 cash dividend on 200,000 shares of common stock with a ₱20 par
value.
Mar. 18 Paid dividends on common stock.
June 30 Split common stock 4-for-1.
July 9 Purchased 12,000 shares of Buffet-Line's own common stock at ₱32 per share;
acquisition recorded at cost.
Sept. 10 Declared a cash dividend of ₱.40 per share on common stock outstanding.
Sept. 18 Paid dividends on common stock.
Page | 3
What total amount is debited to retained earnings for the transactions above?
a. 432,300 c. 527,700
b. 498,700 d. 614,700
10. The stockholders' equity section of Brown Co.'s December 31, 20x1, balance sheet consisted of
the following:
Ordinary shares, ₱30 par, 10,000 shares authorized and outstanding ₱300,000
Retained earnings (deficit) (210,000)
On January 2, 20x2, Brown put into effect a stockholder-approved quasi-reorganization by reducing

the par value of the stock to ₱5 and eliminating the deficit against share premium. Immediately after
the quasi-reorganization, what amount should Brown report as share premium?
a. (60,000) c. 190,000
b. 150,000 d. 0
"Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its
own." - (Matthew 6:34)
- END -
Page | 4
ANSWERS:
1. B
2. B
3. D
4. A
Total profit since incorporation 420,000
Total cash dividends paid

(130,000)
Total value of property dividends
distributed (30,000)
Retained earnings to date 260,000
The excess proceeds on the sale of treasury shares are credited to share premium.
5. A
Outstandin

Issued g
100,00
Issued as of Dec. 31, 20x1
0 100,000
Treasury shares as of Dec. 31, 20x1 (5,000)
20x2 transactions:
May 3 - reissuance of treasury
shares 1,000
Aug. 6 - issuance of new shares 10,000 10,000
110,00
Totals
0 106,000
Nov. 18 - 2-for-1 share split 2 2
220,00
Ending balances 212,000
0
6. C (2.50 – 2) x 100,000 = 50,000
7. C
Total dividends declared 200,000
PS: (6% x 100 x 2,000 x 2 yrs.) (24,000)
Dividend to ordinary shares 176,000
8. C
Date Share capital 1,000,000

Share capital (20,000 x ₱5) 100,000
Share premium – recapitalization 1,100,000
9. C - 112,500 + 100,000 + 315,200 = 527,700

Page | 5
Jan. 7 Retained Earnings (150,000 x ₱.75) .. 112,500

Cash Dividends Payable--Preferred
Stock ............................ 112,500
Feb. 7 Cash Dividends Payable--Preferred

Stock .............................. 112,500
Cash .............................. 112,500
Mar. 4 Retained Earnings (200,000 x ₱.50) .. 100,000

Cash Dividends Payable--Common
Stock ............................. 100,000
Mar. 18 Cash Dividends Payable--Common Stock 100,000

Cash .............................. 100,000
June 30 Memorandum entry ....................
July 9 Treasury Stock--Common .............. 384,000

Cash .............................. 384,000
Sept. 10 Retained Earnings ................... 315,200

Cash Dividends Payable--Common
Stock [(800,000 - 12,000) x ₱.40] . 315,200
Sept. 18 Cash Dividends Payable--Common Stock 315,200

Cash .............................. 315,200
10. C
Jan. 2, Share capital [(₱30 – ₱5) x 10,000 sh.] 250,000

20x2
to record the reduction of par value
Jan. 2, Share premium 210,000
20x2
Retained earnings
to wipe out the deficit 210,000
Share premium - Dec. 31, 20x1 150,000

Credit (see journal entries above) 250,000
Debit (see journal entries above) (210,000)
Share premium after quasi-reorganization 190,000
Page | 1
Chapter 12
Share-based Payments (Part 1)
NAME: Date:
QUIZ:
1. Which of the following standards addresses the accounting for transactions that involve the
issuance of an entity’s own equity instruments in exchange for goods or services?
a. PAS 2 c. PFRS 2
b. PAS 32 d. PFRS 12
2. The exercise price and market price of stock under a fixed compensatory stock option plan are
equal on the grant date. The fair value of the options is greater than the option price. Under the
fair value method
a. Compensation expense will be recognized in connection with the option plan.
b. No compensation expense will be recognized in connection with the option plan.
c. Deferred compensation will be recognized.
d. No paid-in capital from stock options will be recognized.
3. Many shares and most share options are not traded in an active market. Therefore, it is often
difficult to arrive at a fair value of the equity instruments being issued. Which of the following
option valuation techniques should not be used as a measure of fair value in the first instance?
a. Black-Scholes model. c. Monte-Carlo model.
b. Binomial model. d. Intrinsic value.
4. On February 1, 20x1, NOTION IDEA Co. offered its key employees share options that enable
them to acquire NOTION shares for ₱320. The shares are selling at ₱480. On February 5, 20x1,
the key employees counter-offered an exercise price of ₱280 which was accepted by the board on
February 6, 20x1. The share options were approved by the shareholders on a general meeting on
April 1, 20x1. The key employees received the share options on May 1, 20x1 and are to be
exercised on before December 31, 20x1. Information on the fair value of the share options is
shown below:
1-Feb 160 1-Apr 166
5-Feb 162 1-May 168
6-Feb 164
What amount of fair value is assigned to the share options?

a. 160 c. 166
b. 164 d. 168
5. East Co. issued 1,000 shares of its ₱5 par ordinary share to Howe as compensation for 1,000
hours of legal services performed. Howe usually bills ₱160 per hour for legal services. However,
other lawyers have different bill prices for essentially the same legal service. On the date of
issuance, the stock was trading on a public exchange at ₱140 per share. By what amount should
the share premium account increase as a result of this transaction?
Page | 2
a. 135,000
b. 140,000
c. 155,000
d. 160,000

On January 1, 20x1, THRIVE PROSPER Co. grants 1,000 share options to each of its 100 key
employees conditional upon each employee remaining in THRIVE’s employ over the next three
years. THRIVE estimates that the fair value of each share option is ₱60. On the basis of a weighted
average probability, THRIVE Co. estimates on December 31, 20x1 and December 31, 20x2 that 20 per
cent of the employees will leave during the three-year period and therefore forfeit their rights to the
share options. Twenty (20) employees actually left the company during the three-year period. Fifteen
(15) employees left in 20x1 and the other five (5) left in 20x3.
6. How much is the accumulated share premium from share options outstanding as of December
31, 20x2?
a. 3,300,000
b. 3,200,000
c. 1,700,000
d. 1,600,000
7. How much is the salaries expense in 20x3?

a. 2,000,000
b. 1,700,000
c. 1,600,000
d. 0

On January 1, 20x1, Waterproofing Co. granted 1,000 share options to each of its 100 key employees
conditional upon each employee remaining in Waterproofing’s employ over the next three years.
Waterproofing estimated that the fair value of each share option is ₱60. On the basis of a weighted
average probability, Waterproofing Co. estimated on January 1, 20x1 that 20 per cent of employees
will leave during the three-year period and therefore forfeit their rights to the share options. During
20x1, 2 employees left. Waterproofing revised its estimate of total employee departures over the
three-year period from 20 per cent to 15 per cent. During 20x2, additional 3 employees left.
Waterproofing again revised its estimate of total employee departures over the three-year period
from 15 per cent to 12 per cent. During 20x3, additional 5 employees left.
8. How much is the accumulated share premium from share options outstanding as of December
31, 20x2?
a. 3,200,000
b. 3,300,000
c. 3,520,000
d. 3,570,000
Page | 3
9. How much is the salaries expense in 20x3?

a. 1,600,000
b. 1,880,000
c. 1,900,000
d. 0
10. On January 1, 20x1, November Rain Co. granted 1,000 share options to each of its 20 key
employees conditional upon the employee completing a 3-year service period. The fair value per
share option on Jan. 1, 20x1 was ₱12. On Jan. 1, 20x2, November added a subscription price of
₱10 to the share options. This decreased the fair value from ₱12 to ₱2. A total of two employees
left as at Dec. 31, 20x2. November Co. expects that 8 more employees will leave before the end of
20x3. How much is the cumulative amount of equity recognized from the grant as of Dec. 31,
20x2?
a. 24,000
b. 36,000
c. 54,000
d. 80,000
“Love is patient, love is kind. It does not envy, it does not boast, it is not proud. It does not dishonor others, it is not
self-seeking, it is not easily angered, it keeps no record of wrongs. Love does not delight in evil but rejoices with the
7
truth. It always protects, always trusts, always hopes, always perseveres.” – (1 Corinthians 13:4-8)
- END -
Page | 4
SOLUTIONS:
1. C
2. A
3. D
4. C
5. A (140 – 5) x 1,000 = 135,000. The ₱160 billing price is not deemed the fair value of the legal
services received.
6. B (1,000 x 100 x 80% x ₱60 x 2/3) = 3,200,000
7. C (1,000 x 100 x 80% x ₱60 x 3/3) – 3.2M see solution in preceding problem = 1,600,000
8. C - (1,000 x 100 x 88% x ₱60 x 2/3) = 3,520,000
9. B – [1,000 x (100 – 2 – 3 – 5) x ₱60 x 3/3] – 3.52M see solution in preceding problem = 1,880,000
10. D – 1,000 sh. opt. x (20 employees – 2 – 8) x ₱12 x 2/3* = 80,000
* The addition of an exercise price (when supposedly the share options are exercisable for free) is not
beneficial to the employee.
November ignores the repricing and continues to account for the grant under the original terms.
Page | 1
Chapter 13
Share-based Payments (Part 2)
NAME: Date:
QUIZ:
Use the following information for the next five questions:
Lightning Company granted 5,000 share appreciation rights (SARs) to employees for services on
January 1, 2008. Employees earn a cash payment equal to the appreciation in the share price between
January 1, 2008 and December 31, 2010. The share appreciation rights vest on December 31, 2010.
Date Fair value of each SAR No. of SARs expected to vest
1-Jan-08 10 4,500
31-Dec-08 12 4,500
31-Dec-09 21 4,750
31-Dec-10 18 4,850
1. What is the journal entry on January 1, 2008?
2. What is the journal entry on December 31, 2008?
5. What amount of ‘Salaries payable’ is recognized as of December 31, 2009?
“Therefore encourage one another and build each other up, just as in fact you are doing.” – (1 Thessalonians 5:11)
- END -
Page | 2
ANSWERS:
1. Answer: None.
2. Answer:
Salaries expense (4,500 x 12 x 1/3) 18,000
Accrued salaries payable 18,000
3. Answer:
Salaries expense (4,750 x 21 x 2/3) – 18K 48,500
4. Answer:
Salaries expense 20,800
(4,850 x 18 x 3/3) – 18K – 48.5K
5. Answer: (4,750 x ₱21 x 2/3) = 66,500

Page | 1
Chapter 14
Book Value per Share
NAME: Date:
QUIZ:
1. Which of the following is incorrect when computing for preference shareholders’ equity for
purposes of book value per share computation?
a. The liquidation value or, in the absence thereof, the aggregate par value is allocated to the
preference shareholders’ equity.
b. If the preference shares are cumulative, all dividends in arrears are allocated.
c. If the preference shares are noncumulative, only the current year dividend is allocated.
d. If there are no dividends in arrears, only one-year dividends are allocated to the preference
shareholders’ equity.
2. The numerator used in the computation of book value per share is

a. market value of net assets
b. carrying amount of net assets
c. total outstanding shares
d. authorized capitalization
3. The denominator used in the computation of book value per share is

a. number of outstanding shares
b. weighted average outstanding shares
c. number of issued shares
d. number of authorized shares
4. Which of the following is excluded when computing for the number of shares outstanding?
a. outstanding shares
b. subscribed but unpaid shares
c. issued shares
d. treasury shares
5. Which of the following is incorrect when computing for book value per share when there are fully
participating preference shares?
a. The ordinary shareholders’ equity is allocated the aggregate par value and one-year dividend in
arrears before participation by the participating classes of shares.
b. The amount subject to participation is allocated to the participating preference shares and
ordinary shares based on aggregate par values.
c. Only the participating preference shares and ordinary shares share on the amount subject to
allocation.
d. Ordinary shares are not entitled to participate in any excess net assets.
6. Boe Corporation's stockholders' equity at December 31, 2008 was as follows:

6% noncumulative preference shares, ₱100 par (liquidation value ₱105 per share) 1,000,000
Ordinary shares, ₱100 par 3,000,000
Page | 2
Preferred dividends have been paid up to December 31, 2008.
At December 31, 2008, Boe's book value per ordinary share was
a.131.70
b.130.00
c.129.70
d.128.00
7. Nova Corporation has an authorized capital of 10,000 shares of ₱100 par, 8% cumulative preferred
stock and 20,000 shares of ₱100 par common stock. The equity account balances at December 31,
2008 are as follows:
Cumulative preferred stock (Preference share) 500,000
Common stock (Ordinary share) 1,100,000
Additional paid in capital (Share premium) 200,000
Treasury stock, common-1,000 shares at cost

(150,000)
Dividends on preferred stock are in arrears for 2007 and 2008. The book value of a share of common
stock at December 31, 2008 should be
a. 125
b. 191
c. 133
d. 141
8. Georgia, Inc. has an authorized capital of 1,000, ₱100 par, 8% cumulative preference shares and
100,000, ₱10 par, ordinary shares. The equity account balances at December 31, 20x1, are as follows:
Cumulative preference share 50,000
Ordinary share 90,000
Share premium 9,000
Treasury shares, ordinary – 100 shares at cost (2,000)
Total 160,000
Dividends on preferred stock are in arrears for the year 20x1. The book value per ordinary share at
December 31, 20x1, should be
a. 11.78
b. 11.91
c. 12.22
d. 12.36
9. Hoyt Corp.’s current balance sheet reports the following stockholders’ equity:
5% cumulative preference shares, ₱100 par value 250,000
Ordinary share, par value ₱3.50 per share 350,000
Share premium on ordinary shares 125,000
Page | 3
Dividends in arrears on the preference share amount to ₱25,000. If Hoyt were to be liquidated, the
preference stockholders would receive par value plus a premium of ₱50,000. The book value per
ordinary share is
a. 7.75
b. 7.50
c. 7.25
d. 7.00
10. Maga Corp.'s shareholders' equity at December 31, 20x1, comprised the following:
6% cumulative preference share, ₱100 par; liquidating value ₱110
per share; authorized, issued, and outstanding 50,000 shares 5,000,000
Ordinary share, ₱5 par; 1,000,000 shares authorized; issued
and outstanding 400,000 shares 2,000,000
Retained earnings 1,000,000
Dividends on preferred stock have been paid through 20x0 but have not been declared for 20x1. At
December 31, 20x1, Maga's book value per ordinary share was
a. 5.50
b. 6.25
c. 6.75
d. 7.50
“When you pass through the waters, I will be with you; and when you pass through the rivers, they will not sweep
over you. When you walk through the fire, you will not be burned; the flames will not set you ablaze.” - (Isaiah 43:2)
- END -
Page | 4
ANSWERS:
1. D
2. B
3. A
4. D
5. D
6. B
Solution:
Preference shareholders' equity:
Liquidation value (10,000 shares x ₱105) 1,050,000
Dividends in arrears - (1,050,000)
Ordinary shareholders' equity 3,900,000

Divide by: No. of ordinary shares outstanding 30,000
Book value per share (Ordinary shares) 130.00
7. C
Solution:
Aggregate par value 500,000
Dividends in arrears (500K x 8% x 2 yrs.) 80,000 (580,000)

Divide by: No. of ordinary sh. outstanding
10,000
(1.1M / 100par) - 1,000 treasury sh.
8. B
Solution:
Total shareholders' equity 160,000
Par value 50,000
Dividends in arrears (50,000 x 8%) 4,000 (54,000)
Ordinary shareholders' equity 106,000
Divide by: Ordinary shares outstanding* 8,900
* (₱90,000 ÷ ₱10 par) – 100 treasury shares = 8,900 shares
9. D
Page | 5
Solution:
Liquidation value (250K par x 50K premium) 300,000
Dividends in arrears 25,000 (325,000)
Ordinary shareholders' equity 700,000
Divide by: Ordinary shares outstanding (350K ÷ ₱3.50) 100,000
10. A
Solution:
Liquidation value (50,000 x ₱110) 5,500,000
Dividends in arrears (5,000,000 x 6%) 300,000 (5,800,000)
Divide by: Ordinary shares outstanding (350K ÷ ₱3.50) 400,000
Page | 1
Chapter 15
Earnings Per Share
NAME: Date:
QUIZ:
1. What is the correct treatment of a stock dividend (share dividend) issued in mid-year when
computing the weighted-average number of common (ordinary) shares outstanding for earnings
per share purposes?
a. The stock dividend should be weighted by the length of time that the additional number of
shares are outstanding during the period.
b. The stock dividend should be included in the weighted-average number of common shares
outstanding only if the additional shares result in a decrease of 3 percent or more in earnings
per share.
c. The stock dividend should be weighted as if the additional shares were issued at the beginning
of the year.
d. The stock dividend should be ignored since no additional capital was received.
2. When computing diluted earnings per share, stock options are

a. considered only if they are dilutive.
b. considered only if they are antidilutive.
c. considered only if they were exercised.
d. ignored.
3. Mail Co.'s issued and outstanding share capital throughout the period consists of 500,000 ordinary
shares of ₱0.20 par and 80,000 preference shares of ₱1 par. Profit after tax for the period is ₱320,000
and the preference dividend is ₱8,000. Basic EPS for the period is:
a. 0.602 b. 0.624 c. 0.642 d. 0.660
4. Jack Co. has the following share capital outstanding during 20x1 and 20x2:
Preference shares, ₱100 par, 10% cumulative 2,000,000
Ordinary shares, ₱50 par 5,000,000
Jack reported profit of ₱4,000,000 for the year ended December 31, 20x2. Jack paid no preferred
dividends during 20x1 and paid ₱200,000 in preferred dividends during 20x2. What basic earnings per
share is presented in Jack Co.’s December 31, 20x2 statement of profit or loss?
a. 42.00 b. 38.00 c. 37.60 d. 36.70
5. On 1 January 2015, N-Stall, Inc.'s issued share capital consisted of 120,000 ordinary shares of ₱1. On
1 May 2015, N-Stall issued another 30,000 ordinary shares and on 1 July 2015 N-Stall issued a
further 50,000 shares. Both issues were made at full market price. The weighted average number of
shares outstanding during the year to 31 December 2015 was:
a. 165,000 b. 166,340 c. 167,500 d. 168,000
6. A company's profit after tax for the year to 30 June 2016 was ₱10,000,000. The company's issued
share capital at 1 July 2015 consisted of 2,400,000 ordinary shares of ₱0.50 par each. A further
300,000 shares were issued at full market price on 1 September 2015. Basic EPS for the year is:
Page | 2
a. 3.33 b. 3.56 c. 3.63 d. 3.77
7. A company's profit after tax for the year to 31 December 2015 was ₱150,000. The comparative figure
for 2014 was ₱135,000. The company's issued share capital at 1 January 2014 consisted of 240,000
ordinary shares. A 1 for 4 bonus issue was made on 1 July 2015. There were no other share issues in
either year. Basic EPS for 2015 and restated basic EPS for 2014, respectively are:
2015 2014 2015 2014
a. 0.45 0.50 c. 0.55 0.48
b. 0.48 0.52 d. 0.50 0.45
8. On January 1, 20x6, Hage Corporation granted options to purchase 9,000 of its ordinary shares at ₱7
each. The market price was ₱10.50 per ordinary share on March 31, 20x6, and averaged ₱9 per share
during the quarter then ended. There was no change in the 50,000 shares of outstanding common
stock during the quarter ended March 31, 20x6. Profit for the quarter was ₱8,268. The number of
shares to be used in computing diluted earnings per share for the quarter is
a. 59,000 b. 50,000 c. 53,000 d. 52,000
9. Information relating to the capital structure of the Galaxy Company is as follows:

Dec. 31, Dec. 31,
Outstanding shares of:
20x5 20x6
Ordinary shares 90,000 90,000
Convertible preference
shares 10,000 10,000
9% convertible bonds 1,000,000 1,000,000
During 20x6 Galaxy paid dividends of ₱6.00 per share on its preference shares. The preference share is
convertible into 10,000 ordinary shares. The 9% convertible bonds are convertible into 30,000 ordinary
shares. The profit for the year ended December 31, 20x6, is ₱485,000. The income tax rate is 50%. What
should be the diluted earnings per share for the year ended December 31, 20x6?
a. 3.79 b. 3.92 c. 4.08 d. 4.72
10. Throughout 1998, J Co. had 10,000 ordinary shares outstanding. There was no potential dilution of
earnings per share except as follows:
In 20x7, J Co. agreed to issue 2,000 additional shares of its stock to the former stockholders of an
acquired company if the acquired company's earnings for any of the five years 20x8 through 2x12
exceeded ₱5,000.
Results of operations for 20x8 were:

Profit of J Co. ₱10,000
Profit of acquired company 4,000
Consolidated profit ₱14,000
Diluted earnings per share for 1998 on a consolidated basis would be

a. ₱14,000 ÷ 10,000 = ₱1.40 c. ₱15,000 ÷ 10,000 = ₱1.50
b. ₱14,000 ÷ 12,000 = ₱1.17 d. ₱15,000 ÷ 12,000 = ₱1.25
Page | 3
“Have I not commanded you? Be strong and courageous. Do not be afraid; do not be discouraged, for the LORD your
God will be with you wherever you go.” – (Joshua 1:9)
- END -
Page | 4
ANSWERS:
1. C
2. A
3. B
Profit or loss less Preferred dividends

Basic EPS =
Weighted average number of outstanding ordinary shares
320,000 – 8,000
Basic EPS =
500,000
Basic EPS = 312,000 ÷ 500,000 = 0.624
4. B

Basic EPS =
4,000,000 – (2,000,000 x 10%)
Basic EPS =
(5,000,000 ÷ 50 par)
Basic EPS = 3,800,000 ÷ 100,000 = 38.00
5. A (120,000 x 12/12) + (30,000 x 8/12) + (50,000 x 6/12) = 165,000
6. D

Basic EPS =
10,000,000 –0
Basic EPS =
(2,400,000 x 12/12) + (300,000 x 10/12)
Basic EPS = 10,000,000 ÷ 2,650,000 = 3.77
7. D
2015: [150,000 ÷ (240,000 x 125%*)] = 150,000 ÷ 300,000 = 0.50
*100% + (1 ÷ 4 stock dividend) = 125%
2014: [135,000 ÷ (240,000 x 125%*)] = 135,000 ÷ 300,000 = 0.45
8. D
Solution:
Option shares 9,000
Multiply by: Total exercise price 7
Proceeds from assumed exercise of options 63,000
Divide by: Average market price 9
Treasury shares assumed to have been purchased 7,000
Option shares 9,000

Treasury shares assumed to have been purchased (7,000)
Page | 5
Incremental shares 2,000

Add: Actual shares outstanding 50,000
Total weighted average shares outstanding 52,000
9. B
Solution:
The multiple potential ordinary shares are ranked in accordance with their dilutive effect as follows:
Incremental
Potential ordinary shares Incremental shares Incremental EPS Rank
earnings
a b c=a÷b
a. Convertible PS 60,000 10,000 6.00 2nd
(₱6.00 x 10,000); (10,000)
b. Convertible bonds 45,000 30,000 1.50 1st
(1,000,000 x 9% x 50%);
(30,000)
Diluted EPS is calculated by gradually considering the potential ordinary shares starting with the first in
rank as shown below:
Profit Ordinary shares EPS

a b c=a÷b
Basic EPS from continuing operations 425,000* 90,000 4.83
Convertible Bonds - (1st) 45,000 30,000
Diluted EPS #1 470,000 120,000 3.92 Dilutive
Convertible PS - (2nd) 60,000 10,000
Diluted EPS #2 530,000 130,000 4.08 Anti-dilutive
* Numerator for basic EPS, net of preferred dividends: (485,000 – 60,000) = 425,000.
10. A The contingent shares are ignored because the condition is not met.

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3. Which of the following instruments would not be classified as a financial liability?

b. Credit balance in customers’ accounts 4,000

c. Financial liability designated at FVPL 100,000

d. Bonds payable maturing in 10 equal annual installments of ₱200,000 2,000,000

e. 12%, 5-year note payable issued on Oct. 1, 20x1 200,000

f. Deferred tax liability 10,000

g. Unearned rent 8,000

h. Contingent liability 20,000

i. Reserve for contingencies 50,000

How much is the total current liabilities?

6. Eliot Corporation’s liabilities at December 31, 2008 were as follows:

How much is the adjusted accounts payable on December 31, 20x1?

6. C (2M + 5M) = 7,000,000

Gift cards sold 500,000

9. STUNTED Co. issued a 3-year, noninterest-bearing note of ₱4,000,000 to DWARFISH, Inc., a

Interest expense in 20x1: (203,028 + 173,179) = 376,207

Choice (a): 4.8M x PV of 1 @ 5.2659%, n=3 = 4,115,078

Jan. 1, Cash 2,847,120

4,000,000 face amount – 4,138,842 = 138,842

Trial using 12%:

❖ The effective interest is 12%.

☞ 319,471 + 475,661 = 795,132

Interest expense for 20x1 recognized under straight-line method:

Carrying amount of bonds on Dec. 31, 20x1 under straight-line method:

Amortization of discount (see computation above) 64,049

Amortization of discount under effective interest method:

Effect on carrying amount of bonds as of Dec. 31, 20x1

Carrying amount of bonds retired: (see table above) 4,168,896

Date Total payments Interest expense Amortization Present value

Jan. 1, 20x1 11,601,220

Future cash flows PV factors @12%, n=3 Present value

Carrying amt. of old liability (20M + 600K accrued int.) 20,600,000

How much is the provision to be recognized?

Sales of ₱40 million were made evenly throughout 20X1.

How much is the warranty provision at December 31, 20x1?

How much is the liability for premiums as of December 31, 20x2?

3. A (80M x 5%) + (60M x 20%) + (40M x 35%) + (20M x 40%) = 38M

5. A 200M – without deduction for reimbursement of impairment loss

7. A (0 actual settlement – 2,800,000 carrying amount of provision) = 2,800,000 gain on settlement

8. A [15,000 guaranteed annual purchase x 2 years x (₱100 - ₱20)] = 2,400,000

9. A (5,000 units sold x ₱400) = 2,000,000

Actual cost of premiums

2. PAS 19 does not apply to which of the following?

Sales person Fixed salary Net sales Commission rate

4. ADHERE TO STICK Co. has the following policy:

The following information was determined at the reporting date:

What is the journal entry in 20x2?

Total vacation leaves entitlement of employees in 20x1

2. Which of the following statements is correct?

Employer contributions 425,000

Current service cost for the year would be

6. The following information relates to Irasly Inc. at December 31, 2002:

Fair value of plan assets, Jan. 1 2,100,000

How much is the defined benefit cost?

Use the following information for the next two questions:

❖ Present value of the defined benefit obligation, Jan. 360,000

❖ Benefits paid to retirees, September 30, 20x1 200,000

❖ Fair value of plan assets (FVPA), Dec. 31 1,128,000

❖ Present value of the defined benefit obligation, Dec.

6. B (1,960,000 – 1,520,000) = 440,000

Remeasurements of the net defined benefit liability (asset):

Total defined benefit cost 843,000