AE211 - Intermediate Accounting 2

I. THEORIES
PART 1: MULTIPLE CHOICE
Instructions: Select the best answer for each of the following questions. CLICK only one answer for
each item. (30 POINTS)

1. Gross investment in the lease is equal to *

Present value of lease payments under a finance lease of the lessor and any unguaranteed residual
value.
Sum of the lease payments receivable by a lessor under a finance lease and any unguaranteed
residual value accruing to the lessor
The lease payments under a finance lease of the lessor
Present value of the lease payments under a finance lease of the lessor.

2. Which statement is incorrect regarding recognition of employee benefits? *

The enterprise should recognize the expected cost years of service. of profit-sharing and bonus
payments when, and only when, it has a legal or constructive obligation to make such payments
as a result of past events and a reliable estimate of the expected cost can be made
For short-term employee benefits, the undiscounted amount of the benefits expected to be paid in
respect of service rendered by employees in a period should be recognized in that period.
The cost of providing employee benefits should be recognized in the period in which the benefit is
earned by the employee, rather than when it is paid or payable.
For post-employment benefits, the cost to be recognized in the period is the contribution payable in
exchange for service rendered by employees during the period.

3. The purpose of an inter-period income tax allocation is to *

Allow reporting entities whose tax liabilities vary significantly from year to year to smooth payments to
taxing agencies.
Allow reporting entities to fully utilize tax losses carried forward from a previous year.
Recognize an asset or liability for the tax consequences of temporary differences that exist at
the balance sheet date.
Amortize the deferred tax liability shown on the balance sheet.

4. The accounting concept that is principally used to classify leases into operating and finance is *
Prudence
Completeness
Substance over form
Neutrality

5. Under IFRS 16, lessors are required to account for lease receipts from operation leases as *
Income, on inception date of the lease
Revenue, on a reducing balance basis over the lease term
Revenue, at the end of lease term
Income, on a straight-line basis over the lease term

6. An employer's obligation for post-retirement benefits that are expected to be provided to an employee
must be fully accrued by the date the *
Employee retires
Benefits are paid
Benefits are utilized
Employee is fully eligible for benefits

7. A deferred tax liability uses *

Expected future tax law, regardless of whether those expected laws have been enacted
Either current or expected future tax laws, regardless of whether those expected laws have been
enacted.
The current tax laws, regardless of expected or enacted future tax laws
Current tax laws, unless enacted future tax laws are different

8. An amount paid by the lessee to the lessor in addition to the periodic rental which is treated by the
lessor as an unearned rent income to be amortized over the lease term. *
Initial direct cost
Security deposit
Lease bonus
Contingent rent

9. Vested benefits *
Usually require a certain minimum number of years of service
Are those that the employee is entitled to receive even if fired
Are not contingent upon conditional service under the plan
Are defined by all of the above statements

10. The deferred tax consequence attributable to a deductible temporary difference and operating loss
carry forward is known as *
Tax asset
Tax expense
Current tax
Tax liability

11. Under IAS 19 on Employee Benefits, which of the following terms best describes other long-term
employee benefits *
Benefits which are payable after completion of employment
Benefits which fall due within twelve months of the end of the period in which the service is rendered.
Benefits payable as a result of an entity's decision to end an employment before the normal retirement
care.
Benefits not falling due wholly within twelve months of the end of the period in which the service
is rendered.

12. Which of the following best describes the possible result of treasury share transactions? *
May decrease but not increase retained earnings.
May increase but not decrease retained earnings.
May increase net income if the cost method is used.
May decrease but not increase net income.

13. Which of the following is most likely to be regarded as an estimated liability that is subject to
provision? *
Payroll liabilities
Deferred revenues
Vacation pay liability
Current portion of a long-term debt

14. The major difference between a convertible debt and share warrants is that upon exercise of the
warrants *
No share premium can be part of the transaction.
The shares involved are restricted and can only be sold by the recipient after a set period of time
The shares are held by the entity for a definite period of time before they are issued to the warrant
holder.
The holder has to pay a certain amount of cash to obtain the shares.

15. The amortization of a premium on bonds payable *

Decreases the carrying amount of the bonds payable
Increase the amount of interest expense reported
Decrease the balance of bonds payable
Increases the cash payment to bondholders
II. PROBLEM SOLVING
PART 2A - MULTIPLE CHOICE
Instructions: Select the best answer for each of the following questions. CLICK only one answer for
each item. No need to present solutions (30 POINTS)

1. On January 1, 2021, CHRISTMAS Company (lessee) entered into a 5-year lease for drilling
equipment. CHRISTMAS accounted for the acquisition as a finance lease for ₱2,400,000, which includes
a ₱100,000 purchase option that is reasonably certain to be exercised. CHRISTMAS estimates that the
fair value of will be ₱200,000 at the end of its 8-year economic life. CHRISTMAS regularly uses the
straight-line depreciation on similar equipment. For the year ended December 31, 2021, what amount
should CHRISTMAS recognize as depreciation expense on the leased asset? *
₱ 300,000
₱ 460,000
₱ 275,000
₱ 480,000

2. On January 1, 2019, KRIS KRINGLE Company purchased a ₱600,000 machine, with a five-year useful
life and no residual value. The machine was depreciated by an accelerated method for book and tax
purposes. The carrying amount was ₱240,000 on December 31, 2020. On January 1, 2021, the entity
changed to the straight-line method for financial reporting purposes. The income tax rate is 30%. On
January 1, 2021, what amount should be reported as deferred tax liability as a result of the change? *
₱-0-
₱ 36,000
₱ 120,000
₱ 72,000

3. What is the total financial or interest revenue over the lease term? *

₱ 1,498,594
₱ 1,379,156
₱ 1,558,538
₱ 1,439,100

4. How much is the gross investment that should be initially recognized as lease receivable? *
₱ 4,140,056
₱ 4,000,000
₱ 3,000,000
₱ 3,840,150

5. What is the defined benefit cost for the current year? *

₱ 2,500,000
₱ 2,200,000
₱ 2,000,000
₱ 2,100,000

6. What amount should be recorded as pension liability on December 31, 2021? *

₱ 45,000
₱ 25,000
₱ 20,000
₱ -0-
7. What amount of current income tax liability should be reported at year end? *

₱ 2,880,000
₱ 1,780,000
₱ 2,280,000
₱ 2,580,000

8. How much is the total income tax expense for the year? *

₱ 2,280,000
₱ 2,100,000
₱ 3,300,000
₱ 3,120,000

9. How much is the annual retirement benefit expense for the year ended December 31, 2021? *
₱ 1,390,675
₱ 104,301
₱ 312,902
₱ 417,203

10. In its December 31, 2021 income statement, what amount should SNOWMAN report as rental
income? *

₱ 120,000
₱ 52,000
₱ 116,000
₱ 128,000

11. How much rent receivable should be recognized by SNOWMAN in 2021? *

₱ 68,000
₱ 64,000
₱-0-
₱ 80,000
₱ 76,000
12. What is the carrying amount of the lease liability on December 31, 2021? *

₱ 1,025,000
₱ 1,065,000
₱ 1,035,000
₱ 1,115,000

13. What is the carrying value of the right of use asset on December 31, 2021? *

₱ 1,125,000
₱ 1,087,500
₱ 1,135,833
₱ 1,175,000

14. The balance in the retained earnings at December 31, 2020 and 2021 respectively are ₱720,000 and
₱582,000. The net income for 2021 was ₱500,000. A share dividend was declared and distributed which
increased ordinary share capital by ₱200,000 and share premium by ₱110,000. A cash dividend was
declared and paid. What is the amount of cash dividends declared and paid? *
₱ 248,000
₱ 328,000
₱ 638,000
₱ 442,000

15. GINGERBREAD Company is involved in a litigation regarding a faulty product sold in a prior year.
The entity has consulted with lawyer and determined that there is a 50% chance of losing. The lawyer
estimated that the amount of any payment would be between ₱500,000 to ₱800,000 with ₱500,000 as
the best estimate. What is the required journal entry as a result of this litigation? *
Debit Litigation expense and credit Litigation liability for ₱ 500,000
Debit Litigation expense and credit Litigation liability for ₱ 250,000
Debit Litigation expense and credit Litigation liability for ₱ 650,000
No journal entry is required

II. PROBLEMS
PART 2B - LONG PROBLEMS
Provide the FINAL ANSWERS to the problems below. In writing your numerical figures, DO NOT use
any peso signs, commas, or leave spaces in between figures. Negative answers are done by putting a
negative symbol (-) to the number (Example: "-8000") Round off answers to the nearest whole
number.
Points distribution: 1 point for the answer in the google form; 4 points for the solution as to be seen in
the submitted attachment.
FULL CREDIT of the score is given only upon attaching in the google classroom images (converted to
pdf and create only one file LABEL it in this format: "Family Name-Class code-FDE" example: COPE-
1223-FDE) of your solutions presented in good form written in any clean WORKSHEET. DOUBLE
RULE and ENCIRCLE FINAL answers. Keep your worksheet as neat and tidy. Write legibly.
Please follow instructions strictly.

1. On August 1, 2021, DASHER Company leased a machine to SANTA Company for a 6-year period
requiring payments of ₱100,000 at the end of each year. The machine cost ₱480,000, with an economic
life of eight years and no residual value. DASHER’s implicit interest rate is 10% and present value factors
are as follows: Present value of annuity due of P1 at 10% for 6 periods – 4.791; Present value of an
annuity of P1 at 10% for 8 periods – 5.868. DASHER recorded the lease as a direct financing lease. At
the inception of the lease, how much should the gross lease receivable account balance be? *

2. How much is the income tax payable to be presented in the statement of financial position at year
end? *
3. At the beginning of 2020, VIXEN Company leased an equipment with the following information: Annual
rental payable at the end of each year ₱450,000; residual value guarantee ₱50,000; Lease incentive
received ₱20,000; Lease term 4 years; Useful life of the equipment 8 years; implicit interest rate 10%;
present value of an ordinary annuity of 1 at 10% for 4 periods 3.17; present value of 1 at 10% for 4
periods 0.68. What is the cost of right of use asset? *

4. On January 1, 2021 COMET Company provided the following data in connection with the defined
benefit plan: Fair value of plan assets – ₱6,700,000; Projected benefit obligation – ₱7,600,000. The
accountant revealed the following information for the current year: Current service cost – ₱1,750,000;
Past service cost –₱300,000; Discount rate – 10%; Expected return on plan assets – 12%; Actual return
on plan assets –₱500,000; Contributions to the plan – ₱2,000,000; Benefit paid to retirees – ₱1,250,000.
What is the employee benefit expense on December 31, 2021? *

5. CUPID Corporation leased equipment to a lessee on April 1, 2021 for an eight-year period expiring
April 1, 2029. Equal payments under the lease are ₱600,000 and are due on April 1 of each year. The
first payment was made on April 1, 2021. The list selling price of the equipment is ₱3,520,000 and the
carrying amount is ₱2,800,000. The lease is appropriately accounted for as a sales-type lease. The
present value of the lease payments is ₱3,300,000. What is the amount of profit on the sale that should
be reported for 2021? *
6. On January 1, 2021, DONNER Corporation purchased investment securities for ₱1,200,000. The
securities are classified as trading. By December 31, 2021, the securities had a fair value of ₱1,680,000
but had not yet been sold. The company recognized a ₱320,000 restructuring charge during the year.
The restructuring charge is composed of an impairment write-down on a manufacturing facility. Tax rules
do not allow a deduction for the write-down unless the facility is actually sold. The facility was not sold by
the end of the year. Excluding the trading securities and the restructuring the charge, income before
taxes for the year was ₱4,000,000. The income tax rate for the current year and future years is 30%.
What is DONNER's current tax expense? *

7. On January 1, 2020, BLITZEN Company granted the president, 20,000 share appreciation rights for
past services. Those rights are exercisable immediately and expire on January 1, 2023. On exercise, the
grantee is entitled to receive cash for the excess of the market price on the exercise date over the market
price on the grant date. The grantee did not exercise any of the rights in 2020. The market price of share
was ₱30 on January 1, 2020 and ₱45 on December 31, 2020. What amount should be recognized as
compensation expense for 2020? *

8. On January 1, 2021, RUDOLPH Company received ₱107,720 for a ₱100,000 face amount, 12% bond,
a price that yields 10%. The bonds pay interest semi-annually. The entity elects the fair value option for
valuing financial liabilities. On December 31, 2021, the fair value of the bond is determined to be
₱106,460. The entity recognized interest expense of ₱12,000 in the 2021 income statement. What was
the gain or loss recognized in the income statement to report this bond at fair value? (IF gain, leave the
numerical figure as is; if LOSS, put a negative (-) sign before the numerical figure) *