Professional Documents
Culture Documents
Chapter(1((*((Current(Liabilities,(Provisions(and(Contingencies(
!
1#1.! The!following!shall!result!in!the!recognition!of!liabilities!
! a,!c,!e,!g,!h,!i,!m,!n,!o!
!
1#2.! Case!1!–!None!
! Case!2!–!P800,000!
! Case!3!–!P400,000!
! Case!4!–!P350,000!
! Case!5!#!P100,000!=!(1M!x!10%)!+!(200,000!x!30%)!–!60,000!
! Case!6!#!None!
!
1#3.! (a)(1)! Gross!method!
! Dec.!16! Purchases! ! ! ! 66,000!
! ! Freight!in! ! ! ! !!!1,400!
! ! ! Accounts!payable!–!Intel! ! ! 67,400!
!
! !!!!!!!!!19! Purchases! ! ! ! 72,000!
! ! ! Accounts!payable!–!Celeron! ! 72,000!
!
! !!!!!!!!!26! Accounts!payable!–!Intel! ! ! 67,400!
! ! ! Purchase!discounts!(66,000!X!2%)! ! !!!1,320!
! ! ! Cash! ! ! ! ! 66,080!
!
! !!!!!!!!!31! Accounts!payable!–!Celeron! ! 72,000!
! ! ! Purchase!discounts!(72,000!X!2%)! ! !!1,440!
! ! ! Cash! ! ! ! ! 70,560!
!
! (a)(2)! Net!method!
! Dec.!16! Purchases!(66,000!X!98%)! ! ! 64,680!
! ! Freight!in! ! ! ! !!!1,400!
! ! ! Accounts!payable!–!Intel! ! ! 66,080!
!
! !!!!!!!!!19! Purchases!(72,000!x!97%)! ! ! 69,840!
! ! ! Accounts!payable!–!Celeron! ! 69,840!
!
! !!!!!!!!!26! Accounts!payable!–!Intel! ! ! 66,080!
! ! ! Cash! ! ! ! ! 66,080!
!
! !!!!!!!!!31! Accounts!payable!–!Celeron! ! 69,840!
! ! Purchase!discounts!lost!(72,000!x!1%)! !!!!!!720!
! ! ! Cash! ! ! ! ! 70,560!
!
! (b)! Adjusting!entry!at!December!31!under!the!net!method!
! Dec.!31! Purchase!discounts!lost! ! ! !!!!!!720!
! ! ! Accounts!payable!–!Celeron! ! !!!!!!720!
!
1#4.! Reported!amount!of!accounts!payable!at!December!31,!2015! ! P1,000,000!
! Adjustments:!
! ! Unrecorded!check!written!and!issued!on!December!27! ! !!!!(350,000)!
! ! Unrecorded!purchases!received!on!December!28,!net!(150,000!x!98%)!!!!!!147,000!
! ! Goods!purchased!FOB!shipping!point!still!in!transit!and!not!
! ! ! yet!recorded!at!year!end! ! ! ! ! !!!!!!120,000!
! ! Debit!balance!in!a!supplier’s!account!netted!in!the!balance! ! !!!!!!!!!80,000!
! Correct!amount!of!accounts!payable!at!December!31,!2015!! ! P!!!!997,000!
Page(1(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
Page(2(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
! 2015!
! May!1! Equipment! ! ! ! ! 8,304,928!
! ! ! Premium!on!notes!payable! ! ! ! !!!304,928!
! ! ! Notes!payable! ! ! ! ! ! 8,000,000!
! !
! Dec.!31! Interest!expense!! ! ! ! !!!!276,715!
! ! Premium!on!notes!payable! ! ! !!!!203,285!
! ! ! Interest!payable!! ! ! ! ! !!!!480,000!
! ! ! ! 304,928!x!8/12!!=!203,285!
! ! ! ! 8M!x!9%!x!8/12!=!480,000!
! 2016!
! Apr.!30! Interest!expense!! ! ! ! !!!!138,357!
! ! Premium!on!notes!payable! ! ! !!!!101,643!
! ! Interest!payable!! ! ! ! !!!!480,000!
! ! Notes!payable! ! ! ! ! 8,000,000!
! ! ! Cash! ! ! ! ! ! ! 8,720,000!
! ! ! ! 304,928!–!203,285!=!101,643!
!
Notes!payable! ! ! ! ! ! P8,000,000!
Premium!on!notes!payable! ! ! ! !!!!!101,643!
Interest!payable! ! ! ! ! ! !!!!!480,000!
Carrying!amount!at!December!31,!2015! ! ! P8,581,643
! !
! (b)!! Market!rate!of!interest!is!12%!
! ! Principal! ! ! ! ! ! P8,000,000!
! ! Stated!interest!(8M!x!9%)! ! ! ! !!!!!!720,000!
! ! Maturity!value! ! ! ! ! ! P8,720,000!
! ! PV!factor!at!12%!for!1!period! ! ! ! !!!!!!!!!0.8929!
! ! Present!value!of!note!at!May!1,!2015! ! ! P7,786,088!
! ! Face!value!of!note! ! ! ! ! !!!8,000,000!
! ! Discount!on!notes!payable! ! ! ! P!!!!213,912!
!
! 2015!
! May!1! Equipment! ! ! ! ! 7,786,088!
! ! Discount!on!notes!payable! ! ! !!!213,912!
! ! ! Notes!payable! ! ! ! ! ! 8,000,000!
! !
! Dec.!31! Interest!expense!! ! ! ! !!!!622,608!
! ! ! Discount!on!notes!payable! ! ! !!!!! !!!!142,608!
! ! ! Interest!payable!! ! ! ! ! !!!!480,000!
! ! ! ! 213,912!x!8/12!!=!142,608!
! ! ! ! 8M!x!9%!x!8/12!=!480,000!
! 2016!
! Apr.!30! Interest!expense!! ! ! ! !!!!311,304!
! ! Interest!payable!! ! ! ! !!!!480,000!
! ! Notes!payable! ! ! ! ! 8,000,000!
! ! ! Discount!on!notes!payable! ! ! ! !!!!!!71,304!
! ! ! Cash! ! ! ! ! ! ! 8,720,000!
! ! ! ! 213,912!–!142,608!=!71,304!
!
Notes!payable! ! ! ! ! ! P8,000,000!
Discount!on!notes!payable! ! ! ! !!!!!(71,304)!
Interest!payable! ! ! ! ! ! !!!!!480,000!
Carrying!amount!at!December!31,!2015! ! ! P8,408,696
Page(3(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
Page(4(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
1#15.! (a)!
Allocation!of!original!consideration!received:! !! !
!!!!!Sales!revenue!(98%!x!P5,000,000)!! P4,900,000!
!!!!!Liability!for!Customer!Loyalty!Awards!(2%!x!P5,000,000)! ! P!!!100,000!
Revenue!in!2014!as!a!result!of!redemption! ! !
!!!!!100,000!x!25/90! P!!!!!27,778!
! ! !
Revenue!in!2015!as!a!result!of!redemption! !
!!!!!Total!accumulated!revenue!from!redemption!as!of!12/31/15!! !
!!!!!!!!!!!!!(100,000!x!60/95)! P!!!!63,158!
Less!revenue!earned!in!2014! ! 27,778!
Revenue!in!2015!as!a!result!of!redemption! ! P!!!!35,380!
!
! (b)!
Liability!as!of!12/31/14!(100,000!–!27,778)! !! P!!!72,222!
Liability!as!of!12/31/15!(100,000!–!63,158)! ! P!!!36,842!
!
1#16.! !
! 2013! 2014! 2015!
Sale!of!product! ! ! !
!
!!!!Accts.!Receivable/Cash! 1,000,000! 2,500,000! 3,500,000!
!!!!!!!!!!Sales! !!!!!!!!!!!!!!!!!1,000,000! !!!!!!!!!!!!!!!!2,500,000! !!!!!!!!!!!!!!3,500,000!
! ! ! !
Accrual!of!repairs! ! ! !
!
!!!!Warranty!Expense! !!!!!60,000! !!!150,000! !!!210,000!
!!!!!!!!!!Warranty!Liability! !!!!!!!!!!!!!!!!!!!!!!!60,000! !!!!!!!!!!!!!!!!!!!150,000! !!!!!!!!!!!!!!!!!210,000!
! ! ! !
Actual!repairs! ! ! !
!
!!!!Warranty!Liability! !!!!!!!8,000! !!!!!38,000! !!!112,500!
!!!!!!!!!!Cash/!AP,!etc.! !!!!!!!!!!!!!!!!!!!!!!!!!8,000! !!!!!!!!!!!!!!!!!!!!!38,000! !!!!!!!!!!!!!!!!!112,500!
!
1#17.! !
(a)! 2014! 2015!
Warranty!Liability,!January!1! P!!!!!!!!!!!!0! P187,200!
Warranty!expense!(8%!x!4,200,000)/(8%!x!6,960,000)! 336,000! 556,800!
Actual!repair!costs!incurred! (148,800)! (180,000)!
Warranty!liability,!December!31! P187,200! P564,000!
!
(b)!
On!2014!sales!(4,200,000!x!5%!x!½)! !! P105,000!
On!2015!sales![(1/2!of!3%)!+!5%]!!x!!6,960,000! ! 452,400!
Predicted!warranty!liability!at!December!31,!2015! ! P557,400!
!
1#18.! !
Cash! 2,000,000! !!
!!!!!Unearned!Revenue!from!Gift!Certificates!Outstanding! ! 2,000,000!
! ! !
Unearned!Revenue!from!Gift!Certificates!Outstanding! 1,280,000! !
!!!!!Sales! !! 1,280,000!
! !
! Note:!!The!gift!certificates!estimated!to!expire!is!recognized!as!revenue!at!the!date!of!actual!expiration.!
!
!
!
Page(5(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
1#19.! !
Cash! 3,000,000! !!
!!!!!Unearned!Revenue!from!Gift!Certificates!Outstanding! ! 3,000,000!
! ! !
Unearned!Revenue!from!Gift!Certificates!Outstanding! 2,750,000! !
!!!!!Sales! ! 2,750,000!
! ! !
Unearned!Revenue!from!Gift!Certificates!Outstanding! 150,000! !
!!!!!Revenue!from!Forfeited!Gift!Certificates! ! 150,000!
!
1#20.!
Refundable!Deposits,!January!1,!2015! !! P250,000!
Deposits!received!during!the!year! ! 200,000!
Deposits!refunded!during!the!year! ! !!(267,000)!
Deposits!forfeited!during!the!year!(100,000!–!82,000)! ! (18,000)!
Refundable!Deposits,!December!31,!2015! ! P165,000!
!
1#21.! !
(a)! !! 2014! 2015!
! Cash! 720,000! ! 864,000! !
! !!!!Unearned!Service!Contract!Revenue! ! 720,000! ! 864,000!
! ! ! ! ! !
! Cost!of!Service!Contract! 25,000! ! 100,000! !
! !!!!!Cash,!Accounts!Payable,!etc.! ! 25,000! ! 100,000!
! ! ! ! ! !
! Unearned!Service!Contract!Revenue! 72,000! !! 266,400! !
! !!!!!Service!Contract!Revenue! ! 72,000! ! 266,400!
! !!!!!!!!!!!!2014:!720,000!x!20%!x!½=72,000! ! ! ! !
! !!!!!!!!!!!!2015:!720,000!x!20%!x!½=72,000! ! ! ! !
! !!!!!!!!!!!!!!!!!!!!!!!720,000!x!30%!x!½=108,000! ! ! ! !
! !!!!!!!!!!!!!!!!!!!!!!!864,000!x!20%!x!½=86,400! ! ! ! !
! !!!!!!!!!!!!!!!!!!!!!!!72,000+108,000+86,400=266,400! ! ! ! !
(b)! !! 2014! 2015!
! Unearned!Service!Contract!Revenue,!Jan.!1! !! #####! !! P648,000!
! Sale!of!contracts!during!the!year! ! P720,000! ! 864,000!
! Service!contracts!earned!during!the!year! ! (72,000)! ! (266,400)!
! Unearned!Service!Contract!Revenue,!Dec.!31! ! P648,000! ! P1,245,600!
! !
! Unearned!Service!Contract!Revenue!at!December!31,!2015!may!also!be!computed!as:!
! ! 720,000!x!65%!(30%!x!½)!+!50%!! ! !468,000!
! ! 864,000!x!90%!(20%!x!½)!+!30%!+!50%)! ! !777,600!
! ! Total! ! ! !!! ! !!!!!!!!!!!!!!1,245,600!
!
(c)! !! 2014! 2015!
! Revenue!from!service!contracts! !! P72,000! !! P266,400!
! Cost!of!service!contracts! ! 25,000! ! 100,000!
! Profit!from!service!contracts! ! P47,000! ! P166,400!
!
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Page(6(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
1#22.! !
(a)! !! !! !! !! !!
! Subscriptions!sold!in!2012!and!2013! ! ! ! !
! !!!!!(5,000,000!+!4,500,000)! ! ! ! P9,500,000!
! Expired!subscriptions!in! ! ! ! !
! !!!!!2012! ! P1,000,000! ! !
! !!!!!2013!(2,800,000!+!1,200,000)! ! 4,000,000! ! 5,000,000!
! Unearned!subscriptions,!Jan.!1,!2014! ! ! ! P4,500,000!
! ! !! !
!(b)! 2014!
! Cash! 5,500,000! !
! !!!!!Unearned!Subscription!Revenue! ! 5,500,000!
! ! ! !
! Unearned!Subscription!Revenue! 5,000,000! !
! !!!!!Subscription!Revenue! ! 5,000,000!
! !!!!!!!!!!1,200,000!+!2,000,000!+!1,800,000! ! !
(
! 2015! !! !
! Cash! 7,000,000! !
! !!!!!Unearned!Subscription!Revenue! ! 7,000,000!
! ! ! !
! Unearned!Subscription!Revenue! 5,700,000! !
! !!!!!Subscription!Revenue! ! 5,700,000!
! !!!!!!!!!!1,300,000!+!2,400,000!+!2,000,000! ! !
! ! ! !
(c)! ! 2014! 2015!
! Unearned!Subscription!Revenue,!January!1! P4,500,000! P5,000,000!
! Subscription!received!during!the!year! 5,500,000! 7,000,000!
! Subscription!revenue!for!the!year! (5,000,000)! (5,700,000)!
! Unearned!Subscription!Revenue,!December!31! P5,000,000! P6,300,000!
!
1#23.! (a)! B!=!8,000,000!x!8%!=!640,000!
!
(b)! B!=!8%!(8000,000!–!B)!
B!=!640,000!#!.08B!!
B!=!640,000/1.08!!=!!592,593!
!!
(c)! B!=!.08!(8,000,000!–!T)!
T!=!.30!(8,000,000!–!B)!
B!=!.08!{8,000,000!#!.30!(8,000,000!–!B)}!
B!=!.08!{8,000,000!–!2,400,000!+!.30B}!
B!=!448,000!+!.024B!
B!=!448,000/0.976!=!459,016!
!! !
(d)! B!=!.08!{8,000,000!–!B!–!T!}!
T!=!.30!(8,000,000!–!B)!
B!=!.08{8,000,000!–!B!#!.30!(8,000,000!–! B)}!
B!=!.08!{8,000,000!–!B!–!2,400,000!+!.30B}!
B!=!448,000!#!.056B!
B!=!448,000/1.056!=!424,242!
Page(7(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
b.! Total!Bonus!=!.36!{3,000,000!–!B!–!T)!
T!=!.30!{3,000,000!–!B}!
B!=!.36!{3,000,000!–!B!#!.30!(3,000,000!–!B)}!
B!=!.36!{3,000,000!–!B!–!900,000!+!.30B}!
B!=!756,000!#!.252B!
B!=!756,000/1.252!! ! ! ! =!! 603,834!(total)!
B!(Each):!603,834!/!3!! ! ! ! =!! 201,278!
!
c.! B!=!.32!{3,000,000!–!B}!
B!=!960,000!#!.32B!!
B!=!960,000/1.32! ! ! ! =!! 727,273!(total)! !
B!(Sales!Manager):!!727,273!x!12/32!! ! =!! 272,727!
B!(Each!Sales!Agent):!!727,273!x!10/32!! ! =!! 227,273!
!
1#25.! !
B!=!.06!{9,000,000!–!B!–!T}!
T!=!.30!(9,000,000!–!B)!
!
B!=!.06!(9,000,000!–!B!#!.30!(9,000,000!–!B)}!
B!=!.06!{9,000,000!–!B!–!2,700,000!+!.30B}!
B!=!378,000!#!.042B!
B!=!378,000!/!1.042!=!362,764!
!!
T!=!.30!(9,000,000!–!362,764)!
T!=!2,591,171!
!
1#26.! !
Accounts!payable! P!!!270,000!
Mortgage!notes!payable! 1,300,000!
Current!portion!of!bank!notes!payable! 100,000!
Interest!payable! 7,500!
Liability!for!damages!(600,000!+!900,000)/2! 750,000!
Value!added!tax!payable! 288,000!
Income!tax!payable!!! !315,000!
SSS!premiums!payable!(45,000!+!50,000)! 95,000!
Philhealth!contributions!payable!(22,000!+!28,000)! 50,000!
Pag#ibig!contributions!payable!(18,000!+!20,000)! 38,000!
Withholding!tax!payable! 120,000!
Total!current!liabilities! P3,333,500!
!!
!
MULTIPLE(CHOICE(QUESTIONS(
Theory(
!
MC1! D! MC12! B!
MC2! B! MC13! D!
MC3! C! MC14! B!
MC4! B! MC15! B!
MC5! B! MC16! A!
MC6! A! MC17! B!
MC7! D! MC18! A!
MC8! C! MC19! B!
MC9! B! MC20! C!
MC10! C! MC21! D!
MC11! D! MC22! D!
Page(8(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
Problems(
!
MC23! D! Reported!!accounts!payable! !P540,000!
! ! Goods!in!transit!shipped!FOB!shipping!point! 30,000!
! ! Goods!lost!in!transit!shipped!FOB!shipping!point! 15,000!
! ! Adjusted!amount!of!accounts!payable! P585,000!
(
MC24! A! Proceeds!=!100%!#!10%!=!90%!;!Effective!interest!=!10%/90%!!!!!!!!!!!!!!!!!!!!!!!=!11.11%!
(
MC25! D! P5,000,000,!which!is!the!reasonable!estimate!
(
MC26! C! Given!(Kindly!note!the!typographical!error!in!the!textbook;!amount!should!be!
P5,500,000!instead!of!P550,000)!
(
MC27! A! Accrued!salaries!payable,!December!31,!2014! P130,000!
! ! Salaries!expense!during!2015! 1,630,000!
! ! Salaries!paid!during!2015! (1,560,000)!
! ! Accrued!salaries!payable,!December!31,!2015! P200,000!
(
MC28! D! Contingent!/!Additional!rent!!!6%!x!(4.5M!–!2.5M)! P120,000!
! ! Electricity!(8,500!x!½)! 4,250!
! ! Telephone!bill!for!December! 2,500!
! ! Accrued!liabilities,!December!31,!2015! P126,750!
(
MC29! D! Unearned!service!contract!revenue,!January!1! P1,080,000!
! ! Cash!receipts!from!service!contracts!sold!during!the!year! 1,920,000!
! ! Service!contract!revenue!recognized!during!the!year! (1,560,000)!
! ! Unearned!service!contract!revenue,!December!31! P1,440,000!
(
MC30! C! 2013!contracts:!!1,400!x!1,500!=!2.1M!x!!67.5%! P1,417,500!
! ! 2014!contracts:!!1,820!x!1,500!=!2.73M!x!!92.5%! 2,525,250!
! ! Unearned!revenue!from!service!contracts,!December!31,!2014! P3,942,750!
(
MC31! C! 2013!contracts:!!2.1M!x!{½!x!(15%!+!35%)}! P525,000!
! ! 2014!contracts:!!2.73M!x!(1/2!!x!!15%)! 204,750!
! ! Revenue!from!service!contracts!recognized!in!2014! P729,750!
(
MC32! A! Revenue!from!service!contracts!sold!in!2014!realized!in!2015:! !
! ! !!!!!½!x!(15%!+!35%)!x!2.73!M! P682,500!
(
MC33! A! 2013!contracts:!!2.1M!x!(50%!x!½)! P!!!525,000!
! ! 2014!contracts:!!2.73M!x!{(1/2!x!35%)!+!50%}! 1,842,750!
! ! 2015!contracts:!!2.475M!x!{(1/2!x!15%)!+!35%!+!50%}!! 2,289,375!
! ! Unearned!revenue!from!service!contracts,!December!31,!2015! P4,657,125!
(
MC34! D! Unearned/deferred!revenue!from!gift!certificates! !
! ! !!!!!1,000!x!750! P750,000!
(
MC35! B! Accrued!recurring!biweekly!salaries!(1,125,000!x!3/10)! P337,500!
! ! Accrued!overtime!pay! 63,000!
! ! Accrued!salaries,!July!31! P400,500!
(
(
(
(
Page(9(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
Page(10(
Chapter(1(–(Current(Liabilities,(Provisions(and(Contingencies(
MC49! A! Current!liabilities!consist!of:! !!
! ! !!!!!Notes!payable!arising!from!purchases!of!goods! P472,000!
! ! !!!!!Notes!payable!from!loans!from!banks! 200,000!
! ! !!!!!Employees’!income!taxes!payable! 9,600!
! ! !!!!!Advances!from!customers!on!purchase!orders! 64,000!
! ! !!!!!Accounts!payable!arising!from!purchases!of!goods! 380,000!
! ! !!!!!Customers’!accounts!with!credit!balances! 26,000!
! ! !!!!!Current!portion!of!mortgage!serial!bonds!(50,000!x!2)! 100,000!
!!!!! ! !!!!!Bank!overdraft! 50,000!
! ! !!!!!Estimated!liability!for!damages! 24,000!
! ! !!!!!Estimated!expenses!for!guarantee! 48,000!
! ! !!!!!Accrued!interest!on!bonds!payable! 57,500!
! ! Total!current!liabilities! P1,431,100!
(
(
!
Page(11(
Chapter(2(*(Non*current(Liabilities(
Chapter(2(–(Noncurrent(Liabilities(
(
2"1.%
% %%%%%%%%%%(a)%%8%% %%%(b)%12%%
Bond%issue%price% 5,405,725% 4,632,025%
Nominal%interest%for%2015% 250,000% 250,000%
Interest%expense%(Effective%interest)%for%2015% 216,229% 277,922%
Premium/discount%amortization%in%2015% 33,771% 27,922%
Bond%carrying%value%at%December%31,%2015% 5,371,954% 4,659,947%
Nominal%interest%for%2016% 500,000% 500,000%
Interest%expense%for%2016% 428,351% 560,970%
Premium/discount%amortization%in%2016% 71,649% 60,970%
Bond%carrying%value%at%December%31,%2016% 5,300,305% 4,720,917%
%
% Computations:%
% At%8%:% % Issue%price%=%(5,000,000%x%0.6756)%+%(250,000%x%8.1109)%%
% % %%%%%%%% % %%%%%%=%3,378,000%+%2,027,725%=%5,405,725%
%
% Interest% Interest% Premium% Bond%%
Date% Paid% %Expense% Amortization% Carrying%Value%
06/30/15% % % % 5,405,725%
12/31/15% 250,000% 216,229% 33,771% 5,371,954%
06/30/16% 250,000% 214,878% 35,122% 5,336,832%
12/31/16% 250,000% 213,473% 36,527% 5,300,305%
% %
% At%12%:%% Issue%price%=%(5,000,000%x%0.5584)%+%(250,000%x%7.3601)%%
% % %%%%%%% % %%%%%%=%2,792,000%+%1,840,025%=%4,632,025%
% % % % %
% Interest% %Interest% Discount% Bond%%
Date% Paid% %Expense% Amortization% Carrying%Value%
06/30/13% % % % 4,632,025%
12/31/13% 250,000% 277,922% 27,922% 4,659,947%
06/30/14% 250,000% 279,597% 29,597% 4,689,544%
12/31/14% 250,000% 281,373% 31,373% 4,720,917%
%%
%
%2"2.% %(a)% Issue%price%%
Present%value%of%face%value%%%%%%%%%%%%%(4,000,000%x%0.6756)%% P2,702,400%
Present%value%of%interest%payments%%(200,000%x%8.1109)% 1,622,180%
Issue%price% P4,324,580%
%
(b) %%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%Amortization%Table%
% Interest% Interest% Premium% Bond%%
Date% Paid% Expense% Amortization% Carrying%Value%
3/01/15% "% "% "% 4,324,580%
8/31/15% 200,000% 172,983% 27,017% 4,297,563%
2/28/16% 200,000% 171,903% 28,097% 4,269,466%
8/31/16% 200,000% 170,779% 29,221% 4,240,245%
2/28/17% 200,000% 169,610% 30,390% 4,209,855%
%
%
%
%
%
Page(12
Chapter(2(*(Non*current(Liabilities(
%(c)%
2015%
Mar.%%1% Cash% 4,324,580% %
% %%%%%Bonds%payable% % 4,000,000%
% %%%%%Premium%on%bonds%payable% % 324,580%
Aug.%31% Interest%expense% 172,983% %
% Premium%on%bonds%payable% 27,017% %
% %%%%%Cash% % 200,000%
% % % %
Dec.%31% Interest%expense%(171,903%x%4/6)% 114,602% %
% Premium%on%bonds%payable% 18,731% %
% %%%%%Interest%payable%(320,000%x%4/6)% % 133,333%
(
2016% % % %
Feb.%28% Interest%expense%(171,903%–%114,602)% 57,301% %
% Prem.%on%bonds%payable%(28,097–18,731)% 9,366% %
% Interest%payable%% 133,333% %
% %%%%%Cash% % 200,000%
%
2"3.% %(a)%
% 2015%
% Aug.%1% Cash% % % % % 4,458,429%
% % Discount%on%bonds%payable%% % %%%708,238%
% % % Interest%payable%% % % % % %%%%166,667%
% % % Bonds%payable% % % % % % 5,000,000%
% % % % 5M%x%8%%x%5/12%=%166,667%
% % % % 4,458,429%–%166,667%=%4,291,762%
% % % % 5,000,000%–%4,291,762%=%708,238%
%
% Dec.%31% Interest%expense% % % % %%%178,823%
% % % Interest%payable%% % % % % %%%166,666%
% % % Discount%on%bonds%payable% % % % %%%%%%12,157%
% % % % 5M%x%8%%x%5/12%=%166,666%
% % % % 4,291,762%x%10%%x%5/12%=%178,823%
% % % % 178,823%–%166,666%=%12,157%
% 2016% % %
% Mar.%1% Interest%expense%% % % % %%71,529%
% % Interest%payable% % % % 333,333%
% % %% Discount%on%bonds%payable% % % % %%%%%4,862%
% % % Cash% % % % % % % 400,000%%
% % % % 4,291,762%x%10%%x%2/12%=%71,529%
% % % % 5M%x%8%%x%2/12%=%66,667%
% % % % 71,529%–%66,667%=%4,862%
% % % % 5M%x%8%%=%400,000%
%
% Dec.%31% Interest%expense% % % % 359,065%
% % % Discount%on%bonds%payable% % % % %%%25,732%
% % % Interest%payable%% % % % % 333,333%
% % % % 4,291,762%+%12,157%+%4,862%=%4,308,781%
% % % % 4,308,781%x%10%%x%10/12%=%359,065%
% % % % 5M%x%8%%x%10/12%=%333,333%
% % % % 359,065%–%333,333%=%25,732%
%
%
%
Page(13
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Page(14
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Page(15
Chapter(2(*(Non*current(Liabilities(
2018%
June%30% Interest%expense% 91,386% %
% %%%%%Discount%on%bonds%payable% % 11,386%
% %%%%%Cash% % 80,000%
2019% % % %
June%30% Interest%expense% 92,752% %
% %%%%%Discount%on%bonds%payable% % 12,752%
% %%%%%Cash% % 80,000%
2020% % % %
June%30% Interest%expense% 94,316% %
% %%%%%Discount%on%bonds%payable% % 14,316%
% %%%%%Cash% % 80,000%
% % % %
%% Bonds%payable% 800,000% %
% PIC%arising%from%bond%conversion%privilege% 57,696% %
% %%%%%Cash% % 800,000%
% %%%%%PIC%from%unexercised%bond%conversion%privilege% % 57,696%
% %%%%%%%%%%(144,240%–%86,544)%% % %
%
2"7.% Refer%to%the%following%table%for%the%amounts%included%in%the%journal%entries.%
% Interest% Interest% Discount% Bond%%
Date% Paid% Expense% Amortization% Carrying%Value%
01/02/15% %% %% %% 4,620,820%
12/31/15% 400,000% 462,082% 62,082% 4,682,902%
12/31/16% 400,000% 468,290% 68,290% 4,751,192%
12/31/17% 400,000% 475,119% 75,119% 4,826,311%
12/31/17% % % % (965,262)%
12/31/17% %% % % 3,861,049%
12/31/18% 320,000% 386,105% 66,105% 3,927,154%
12/31/18% % % % (1,963,577)%
12/31/18% % % % 1,963,578%
12/31/19% 160,000% 196,422*% 36,422*% 2,000,000%
% *% Adjusted%due%to%rounding%off%
%
(a)% Cash% 5,200,000% %
% Discount%on%bonds%payable% 379,180% %%
% %%%%Bonds%payable% % 5,000,000%
% %%%%PIC%arising%from%bond%conversion%privilege% % 579,180%
% % % (5M%x%.6209)%+%(400,000%x%3.7908)%=%4,620,820%
% % % (5M%x%1.04)%–%4,620,820%=%579,180%
% % % 5M%–%4,620,820%=%379,180%
% % % %
(b)% Interest%expense% 468,290% %
% %%%%%Cash% % 400,000%
% %%%%%Discount%on%bonds%payable% % 68,290%
% % % %
(c)% Interest%expense% 475,119% %
% %%%%%Cash% % 400,000%
% %%%%%Discount%on%bonds%payable% % 75,119%
%
% Bonds%payable%% 1,000,000% %
% PIC%arising%from%bond%conversion%privilege% 115,836% %
% %%%%%Discount%on%bonds%payable% % 34,738%
% %%%%%Ordinary%share%capital%(200%x%40%x%100)% % 800,000%
% %%%%%Share%Premium%"%ordinary% % 281,098%
% %%%%%%%%%%579,180%x%1/5%=%115,836% % %
Page(16
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Page(17
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Page(18
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2"10.% %
% Nominal% Effective% Discount% %Bond%
Date% Interest%% Interest%% Amortization% Carrying%value%
03/01/15% % % % %%3,926,000%
09/01/15% 170,000% 176,670% 6,670% %%3,932,670%
03/01/16% 170,000% 176,970% 6,970% %%3,939,640%
09/01/16% 170,000% 177,284% 7,284% %3,946,924%
03/01/17% 170,000% 177,612% 7,612% %%3,954,536%
09/01/17% 170,000% 177,954% 7,954% %%3,962,490%
03/01/18% 170,000% 178,312% 8,312% %%3,970,802%
09/01/18% 170,000% 178,686% 8,686% %%3,979,488%
03/01/19% 170,000% 179,077% 9,077% %%3,988,565%
(
(a)% Interest%expense%recorded%on%September%1,%2015% % 176,670%
% Discount%amortization%recorded%on%September%1,%2015% % 6,670%
% % % %
(b)% Carrying%amount%of%the%bonds,%September%1,%2016% % 3,946,924%
% Amortization%through%December%31,%2016%(7,612%x%4/6)% % 5,075%
% Carrying%amount%of%the%bonds,%December%31,%2016% % 3,951,999%
% % % %
(c)% Retirement%price%(4M%x%1.01)% % 4,040,000%
% Accrued%interest%(4,000,000%x%8.5%%x%1/12)% % 28,333%
% Amount%of%cash%paid%on%September%30,%2018% % 4,068,333%
% % % %
%(d)% Carrying%value,%September%1,%2018%(see%table)% % 3,979,488%
% Amortization%through%September%30,%2018%(9,077%x%1/6)% % 1,513%
% Carrying%value,%September%30,%2018% % 3,981,001%
% Retirement%price%(4%M%x%1.01)% % 4,040,000%
% Loss%on%retirement%of%bonds% % 58,999%
%
2"11.% %
(a)% Issue%price%of%the%bonds%
% % Principal% Interest% Amount% % %
Due%Date% Due% Due% Due% PV%Factor% Present%Value%
% 12/31/16% 2,000,000% 800,000% 2,800,000% 0.8929% %%2,500,120%
% 12/31/17% 2,000,000% 640,000% 2,640,000% 0.7972% %%2,104,608%
% 12/31/18% 2,000,000% 480,000% 2,480,000% 0.7118% %%1,765,264%
% 12/31/19% 2,000,000% 320,000% 2,320,000% 0.6355% %%1,474,360%
% 12/31/20% 2,000,000% 160,000% 2,160,000% 0.5674% %%1,225,584%
% Selling%price%of%bonds% %%P9,069,936%
%
(b)% Amortization%Table%
% % Principal% Interest% Effective% Discount% Carrying%
Due%Date% Due% Due% Interest% Amortization% Value,%end%
% 12/31/15% % % % % %P9,069,936%
% 12/31/16% 2,000,000% 800,000% 1,088,392% 288,392% 7,358,328%
% 12/31/17% 2,000,000% 640,000% %%%882,999% 242,999% 5,601,327%
% 12/31/18% 2,000,000% 480,000% %%%672,159% 192,159% 3,793,486%
% 12/31/17% 2,000,000% 320,000% %%%455,218% 135,218% 1,928,704%
% 12/31/18% 2,000,000% 160,000% %%%231,296% %%%%71,296*% "0"%
*Adjusted;%difference%is%due%to%rounding%off.%
%
%
%
Page(19
Chapter(2(*(Non*current(Liabilities(
(c)% %% %% %
2016% % % %
Dec.%31% Interest%expense% 1,088,392% %
% %%%%%Discount%on%bonds%payable% % 288,392%
% %%%%%Cash% % 800,000%
% % % %
% Bonds%payable% 2,000,000% %
% %%%%%Cash% % 2,000,000%
2017% % % %
Dec.%31% Interest%expense% 882,999% %
% %%%%%Discount%on%bonds%payable% % 242,999%
% %%%%%Cash% % 640,000%
% % % %
% Bonds%payable% 2,000,000% %
% %%%%%Cash% % 2,000,000%
%
2"12.% %
(a)% Issue%price%of%the%bonds%
% % Principal% Interest% Amount% % %
Due%Date% Due% Due% Due% PV%Factor% Present%Value%
% 12/31/15% 2,000,000% 960,000% 2,960,000% 0.9259% 2,740,664%
% 12/31/16% 2,000,000% 720,000% 2,720,000% 0.8573% 2,331,856%
% 12/31/17% 2,000,000% 480,000% 2,480,000% 0.7938% 1,968,624%
% 12/31/18% 2,000,000% 120,000% 2,240,000% 0.7350% 1,646,400%
% Selling%price%of%bonds% 8,687,544%
%(b)% Amortization%Table%
% % Principal% Interest% Effective% Premium% Carrying%
Due%Date% Due% Due% Interest% Amortization% Value,%end%
% 01/01/15% % % % % 8,687,544%
% 12/31/15% 2,000,000% 960,000% 695,004% 264,996% 6,422,548%
% 12/31/16% 2,000,000% 720,000% 513,804% 206,196% 4,216,352%
% 12/31/17% 2,000,000% 480,000% 337,308% 142,692% 2,073,660%
% 12/31/18% 2,000,000% 240,000% 166,340*% 73,660% "0"%
*Adjusted;%difference%is%due%to%rounding%off.%
(
(c)% %% %% %
2015% % % %
Jan.%1% Cash% 8,687,544% %
% %%%%%Bonds%payable% %% 8,000,000%
% %%%%%Premium%on%bonds%payable% % 687,544%
% % % %
Dec.%31% Interest%expense% 695,004% %
% Premium%on%bonds%payable% 264,996% %%
% %%%%%Cash% % 960,000%
% % % %
% Bonds%payable% 2,000,000% %
% %%%%%Cash% % 2,000,000%
% % % %
2016% % % %
Dec.%31% Interest%expense% 513,804% %
% Premium%on%bonds%payable% 206,196% %%
% %%%%%Cash% % 720,000%
% % % %
% Bonds%payable% 2,000,000% %
% %%%%%Cash% % 2,000,000%
Page(20
Chapter(2(*(Non*current(Liabilities(
2017% % % %
Dec.%31% Interest%expense% 337,308% %
% Premium%on%bonds%payable% 142,692% %%
% %%%%%Cash% % 480,000%
% % % %
% Bonds%payable% 2,000,000% %
% %%%%%Cash% % 2,000,000%
2018% % % %
Dec.%31% Interest%expense% 166,340% %
% Premium%on%bonds%payable% 73,660% %%
% %%%%%Cash% % 240,000%
% % % %
% Bonds%payable% 2,000,000% %
% %%%%%Cash% % 2,000,000%
%
2"13.% %
(a)% 6,949,800/9,000,000%=%0.7722%%%%This%present%value%factor%for%three%periods%is%under%
the%rate%of%9%%(Table%II,%Present'Value'of'a'Single'Payment).''Hence,%effective%interest%
for%this%transaction%is%9%.%
%
(b)% Date% Amortization% Carrying%Value%of%Note%
% 04/01/15% % 6,949,800%
% 03/31/16% 9%%x%6,949,800%=%625,482% 7,575,282%
% 03/31/17% 9%%x%7,575,282%=%681,775% 8,257,057%
% 03/31/18% 9%%x%8,257,057%=%742,943*% 9,000,000%
%% % *Adjusted;%difference%is%due%to%rounding%off.%
%
% %
(c)% Interest%expense%for%2015%(625,482%x%9/12)% % 469,112%
% % % %
% Carrying%value,%April%1,%2015% %% 6,949,800%
% Amortization%through%December%31,%2015%(625.482%x%9/12% % 469,112%
% Carrying%value,%December%31,%2015% % 7,418,912%
% % %
(d)% %% %% %
2015% % % %
Apr.%1% Land% 6,949,800% %
% Discount%on%notes%payable% 2,050,200% %
% %%%%%Notes%payable% % 9,000,000%
% % % %
Dec.%31% Interest%expense% 469,112% %
% %%%%%Discount%on%notes%payable% % 469,112%
2016% % % %
Mar.%%31% Interest%expense%(625,482%–%469,112)% 156,370% %
% %%%%%Discount%on%notes%payable% % 156,370%
% % % %
Dec.%31% Interest%expense%(681,775%x%9/12)% 511,331% %
% %%%%%Discount%on%notes%payable% % 511,331%
2017% % % %
Mar.%31% Interest%expense%(681,775%–%511,331)% 170,444% %
% %%%%%Discount%on%notes%payable% % 170,444%
% % % %
Dec.%31% Interest%expense%(742,943%x%9/12)% 557,207% %
% %%%%%Discount%on%notes%payable% % 557,207%
% % % %
(
(
Page(21
Chapter(2(*(Non*current(Liabilities(
2018% % % %
Mar.%31% Interest%expense%(742,943%–%557,207)% 185,736% %
% %%%%%Discount%on%notes%payable% % 185,736%
% % % %
% Notes%payable% 9,000,000% %
% %%%%%%Cash% % 9,000,000%
%
2"14.%% %
(a)% %% 2015% 2016% 2017%
% 6,949,800%x%9%=%625,482% % % %
% %%%%%625,482%x%8/12% 416,988% % %
% %%%%%625,482%x%4/12% % 208,494% %
% 6,949,800%x%1.09%=%7,575,282% % % %
% 7,575,282%x%9%=%681,775% % % %
% %%%%%681,775%x%8/12% % 454,517% %
% %%%%%681,775%x%4/12% % % 227,258%
% 7,575,282%x%1.09%=%8,257,057% % % %
% 8,257,057%x%9%=%743,135% % % %
% %%%%%743,135%x%8/12% _______% _______% 495,423%
% Totals% 416,988% 663,011% 722,681%
%
(b)% Notes%payable% % % 6,949,800%
% Accrued%interest%(416,988%+%663,011)% % % 1,079,999%
% Total,%December%31,%2016% % % 8,029,799%
%
(c)% Noncurrent%liabilities:% % % %
% %%%%%%Notes%payable% % % 6,949,800%
% %%%%%%Accrued%interest%(416,988%+%663,011)% % % 1,079,999%
% %%%%%%Total,%December%31,%2016% % % 7,802,540%
% % % %% %%
% Noncurrent%liabilities:% % %% %
% %%%%%%Notes%payable% % % 6,949,800%
% %%%%%%Accrued%interest% % %% 1,802,680%
% %%%%%%Total,%December%31,%2017% % %% 8,752,480%
% %
(d)% %% %% %
2015% % % %
May%1% Land% 6,949,800% %
% %%%%%Notes%payable% % 6,949,800%
% % % %
Dec.%31% Interest%expense% 416,988% %
% %%%%%Interest%payable% % 416,988%
% % % %
2016% % % %
Dec.%31% Interest%expense% 663,011% %
% %%%%%Interest%payable% % 663,011%
% % % %
2017% % % %
Dec.%31% Interest%expense% 722,681% %
% %%%%%Interest%payable% % 722,681%
(
2018% % % %
Apr.%30% Interest%expense%(adjusted)% 247,520% %
% Interest%payable% 1,802,680% %
% Notes%payable% 6,949,800% %
% %%%%%Cash% % 9,000,000%
Page(22
Chapter(2(*(Non*current(Liabilities(
2"15.% %
% (a)% Present%value%of%note%(800,000%x%3.2397)% % % %%%2,591,760%
%
% (b)% %%%Date% %%%%%Principal%Due% %%%%%%%%%%%%Amortization%% % Carrying%Value%of%Note%
% % % 4/01/15% % % % % % % 2,591,760%
% % % 3/31/16%%%%%%%800,000% % %%%%233,258% % % 2,025,018%
% % % 3/31/17%%%%%%%800,000% % %%%%182,252% % % 1,407,270%
% % % 3/31/18%%%%%%%800,000% %%%%%%%%%%%%%%%%%%%%126,654% % % %%%733,924%
% % % 3/31/19%%%%%%%800,000%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%66,076*% % %%%%%%%%%%%%%%%%%%%%%"0"% % %
*Adjusted;%difference%is%due%to%rounding%off.%
%
(c)% %% % %%
2015% % % %
Apr.%1% Equipment% 2,591,760% %
% Discount%on%notes%payable% 608,240% %
% %%%%%Notes%payable% % 3,200,000%
% % % %
Dec.%31% Interest%expense%(233,258%x%9/12)% 174,944% %
% %%%%%Discount%on%notes%payable% % 174,944%
% % % %
2016% % % %
Mar.%31% Notes%payable% 800,000% %
% Interest%expense% 58,314% %
% %%%%%Cash% % 800,000%
% %%%%%Discount%on%notes%payable%(233,258"174,944)% % 58,314%
% % % %
Dec.%31% Interest%expense%(182,252%x%9/12)% 136,689% %
% %%%%%Discount%on%notes%payable% % 136,689%
% % % %
2017% % % %
Mar.%31% Notes%payable% 800,000% %
% Interest%expense% 45,463% %
% %%%%%Cash% % 800,000%
% %%%%%Discount%on%notes%payable%(182,252"136,689)% % 45,563%
% % % %
Dec.%31% Interest%expense%(126,654%x%9/12)% 94,991% %
% %%%%%Discount%on%notes%payable% % 94,991%
% % % %
2018% % % %
Mar.%31% Notes%payable% 800,000% %
% Interest%expense% 31,663% %
% %%%%%Cash% % 800,000%
% %%%%%Discount%on%notes%payable%(126,654"94,991)% % 31,663%
% % % %
Dec.%31% Interest%expense%(66,076%x%9/12)% 49,557% %
% %%%%%Discount%on%notes%payable% % 49,557%
% % % %
2019% % % %
Mar.%31% Notes%payable% 800,000% %
% Interest%expense% 16,519% %
% %%%%%Cash% % 800,000%
% %%%%%Discount%on%notes%payable%(66,076"49,557)% % 16,519%
%
%
%
%
Page(23
Chapter(2(*(Non*current(Liabilities(
%2"16.% %
%(a)% % % Principal% %
Date% Annual%Payment% Interest% Payment% Carrying%Value%
10/01/15% % % % 2,591,760%
09/30/16% 800,000% 233,258% 566,742% 2,025,018%
09/30/17% 800,000% 182,252% 617,748% 1,407,270%
09/30/18% 800,000% 126,654% 673,346% %%%733,924%
09/30/19% 800,000% %%66,076*% 733,924% "0"%
% % *Adjusted%
%
%(b)% %% %% %
2015% % % %
Oct.%1% Equipment% 2,591,760% %
% %%%%%Notes%Payable% % 2,591,760%
% % % %
Dec.%31% Interest%Expense%(233,258%x%3/12)% 58,315% %
% %%%%%Interest%Payable% % 58,315%
% % % %
2016% % % %
Sept.%30% Interest%Payable% 58,315% %
% Interest%Expense%(233,258%–%58,315)% 174,943% %
% Notes%Payable% 566,742% %
% %%%%%Cash% % 800,000%
% % % %
Dec.%31% Interest%Expense%(182,252%x%3/12)% 45,563% %
% %%%%%Interest%Payable% % 45,563%
% % % %
2017% % % %
Sept.%30% Interest%Payable% 45,563% %
% Interest%Expense%(182,252%–%45,563)% 136,689% %
% Notes%Payable% 617,748% %
% %%%%%Cash% % 800,000%
% % % %
Dec.%31% Interest%Expense%(126,654%x%3/12)% 31,663% %
% %%%%%Interest%Payable% % 31,663%
% % % %
2018% % % %
Sept.%30% Interest%Payable% 31,663% %
% Interest%Expense%(126,654%–%31,663)% 94,991% %
% Notes%Payable% 673,346% %
% %%%%%Cash% % 800,000%
% % % %
Dec.%31% Interest%Expense%(66,076%x%3/12)% 16,519% %
% %%%%%Interest%Payable% % 16,519%
% % % %
2019% % % %
Sept.%30% Interest%Payable% 16,519% %
% Interest%Expense%(66,076%–%16,519)% 49,557% %
% Notes%Payable% 733,924% %
% %%%%%Cash% % 800,000%
% % % %
(c)% Current%portion%at%December%31,%2016% % %
% %%%%%Notes%Payable% % 617,748%
% %%%%%Interest%Payable% % 45,563%
% % % %
% Noncurrent%portion%at%December%31,%2016% % %
% %%%%%Notes%Payable% % 1,407,270%
Page(24
Chapter(2(*(Non*current(Liabilities(
2"17.%
(a)% Notes%payable% 900,000% %
% Interest%payable% 90,000% %
% Accumulated%depreciation% 400,000% %
% %%%%Equipment% % 1,000,000%
% %%%%Gain%on%disposal%of%equipment% % 200,000%
% %%%%Gain%on%debt%restructuring% % 190,000%
%
(b)% Bonds%payable% 10,000,000% %
% Interest%payable% 900,000% %
% %%%%%Ordinary%share%capital%(300,000%x%25)% % 7,500,000%
% %%%%%Share%premium%–%ordinary%(300,000%x%%3)% % 900,000%
% %%%%%Gain%on%debt%restructuring% % 2,500,000%
% %%%%%%%%%%%%%(10,900,000%–%8,400,000%=%2,500,000)% % %
(
(c)% Notes%payable% 10,000,000% %
% Interest%payable% 1,000,000% %
% %%%%%Restructured%notes%payable% % 7,459,264%
% %%%%%Gain%on%debt%restructuring% % 3,540,736%
% % % %
% Present% value% of% future% payments% at% historical% %
rate%(10%)%
% %%%%%8,000,000%x%0.8264%%%%%%%%%%%%%%%%%%%%%%6,611,200% %
% %%%%%8,000,000%x%8%%x%1.7355%%%%%%%%%%%1,110,720% %
% %%%%%Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% %%%%%%%%%%7,721,920% %
% Carrying%value%of%liability%%%%%%%%%%%%11,000,000%%%%% %
% Difference%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%3,278,080%% %
% % %
% 3,278,080/11,000,000% =% 30%,% thus% the% %
restructuring% qualifies% as% a% derecognition% of% the%
old%liability%and%creation%of%a%new%liability.%%%
%
The% old% liability% shall% be% cancelled;% the% new%
liability% shall% be% measured% based% on% the%
discounted% cash% flow% of% the% future% payments%
based%on%the%entity’s%incremental%borrowing%rate%
considering%its%credit%rating:%
%
% Present% value% of% future% payments% at% incremental% %
borrowing% rate,% considering% its% credit% rating%
(12%):%
% %%%%%8,000,000%x%0.7972%%%%%%%%%%%%%%%%%%%%%%%6,377,600% %
% %%%%%8,000,000%x%8%%x%1.6901%%%%%%%%%%%%1,081,664% %
% %%%%%Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% %%%%7,459,264% %
% %%%%%Carrying%value%of%the%old%%%%%%%%%%11,000,000% %
% %%%%%Gain%on%debt%restructuring%%%%%%%%%3,540,736% %
% %
(d)% Notes%payable% 3,000,000% %
% Interest%payable% 330,000% %
% %%%%%Restructured%notes%payable% % 3,111,024%
% %%%%%Deferred%gain%on%debt%restructuring%% % 218,976%
% % % %
(
(
Page(25
Chapter(2(*(Non*current(Liabilities(
% Present%value%of%future%payments% % %
% %%%%%3,000,000%x%0.5935%%%%%%%%%%%%%%%%%%%%%%%1,780,500% % %
% %%%%%3,000,000%x%12%%x%3.6959%%%%%%%%%%1,330,524% % %
% %%%%%Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% %%%%%%%%3,111,024% % %
% Carrying%value%of%liability%%%%%%%%%%%%%%%%3,330,000%%%%% % %
% Difference%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%218,976%% % %
% % % %
% 218,976/3,330,000%<%10%%of%3,330,000.% % %
%
% Thus,%the% debt% restructuring% does%not% qualify%for% % %
derecognition%of%the%old%obligation.%%No%gain%shall%
be% recognized% and% a% new% effective% interest% rate%
shall%be%computed.%%%
%
% Alternatively,%the%restructuring%may%be%recorded%as:% % %
% Notes%payable% 3,000,000% %
% Interest%payable% 330,000% %
% %%%%Premium%on%restructured%notes%payable% %% 111,024%
% %%%%Restructured%notes%payable% % 3,000,000%
% %%%%Deferred%gain%on%debt%restructuring% % 218,976%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
Page(26
Chapter(2(*(Non*current(Liabilities(
MULTIPLE(CHOICE(QUESTIONS(
%
Theory(
%
MC1% D% MC12% C%
MC2% D% MC13% B%
MC3% D% MC14% B%
MC4% A% MC15% D%
MC5% A% MC16% B%
MC6% C% MC17% D%
MC7% D% MC18% A%
MC8% D% MC19% A%
MC9% C% MC20% A%
MC10% C% MC21% A%
MC11% C% MC22% B%
%
Problems(
(
MC23% D% Present%value%of%maturity%value% %
%%%%%%%%1.0M%x%0.38554%% P385,540%
% % Present%value%of%interest%payments% %
%%%%%%%%1.0M%x%8%%x%6.14457% 491,566%
% % Total%issue%price% P877,106%
(
MC24% B% Present%value%of%P1000%face%value%(1,000%x%0.31)%%% P310.00%
Present%value%of%interest%(1,000%x%4%%x%11.47)=%768.80% 458.80%
% % Issue%price%for%each%P1,000%bond% P768.80%
(
MC25% A% Bond%issue%price%(2.0M%x%97%)% P1,940,000%
Accrued%interest%(2.0M%x%10%%x%3/12)%% 50,000%
% % Net%cash%received%from%bond%issuance% P1,990,000%
(
MC26% B% Amount%allocated%to%bonds%(2,000%x%1,040)%%% P2,080,000%
% % Face%value%of%bonds% 2,000,000%
% % Premium%on%bonds%payable%on%May%1,%2015% P%%%%%80,000%
(
MC27%% B% Retirement%price%(4.0M%x%97%)%%% P3,880,000%
Accrued%interest%(4.0M%x%12%%x%3/12)%% 120,000%
% % Total%cash%paid%for%the%retirement%of%bonds% P4,000,000%
(
MC28% C% Redemption%price%(96%%x%1.0M)%% P%960,000%
% % Carrying%amount%of%bonds%retired%(1.0M%+%70,000)% 1,070,000%
% % Gain%on%redemption%of%bonds% P110,000%
(
MC29% A% Accrued%interest%(1.0M%x%12%%x%1/12)% P10,000%
(
MC30% B% %Issue%price%(1,000,000%x%1.02)%–%50,000%% P1,020,000%
% % Transaction%costs% (50,000)%
% % Initial%carrying%amount%on%February%1,%2015% P%%970,000%
(
(
(
(
Page(27
Chapter(2(*(Non*current(Liabilities(
Page(28
Chapter(2(*(Non*current(Liabilities(
MC42% D% Carrying%value,%December%31,%2015%% %%
%%%%%%%%%%%(2.4M%–%1.0M%+%288,000)%=%P1,688,000%%
% % Principal%payment% P1,000,000%
% % Interest%%(1,688,000%x%%12%)% 202,560%
% % Amount%applicable%to%principal%due%on%December%31,%2016% P797,440%
(
MC43% B% Discount%balance,%January%1,%2015% P600,000%
% % Amortization%of%discount%in%2015% 288,000%
% % Discount%balance,%December%31,%2015% P312,000%
(
MC44% B%% Interest%expense%for%2015%(49,737%x%10%)%% P4,974%
% % Notes%payable,%January%1,%2015% P49,737%
% % Reduction%in%principal%during%2015%%%%(10,000%–%4,974)% 5,026%
% % Notes%payable,%December%15,%2015% P44,711%
(
MC45% D% Carrying%amount%of%liability%(5.0M%+%500,000)%% P5,500,000%
% % Carrying%value%of%real%estate%transferred% 3,000,000%
% % Total%amount%recognized%in%profit% P2,500,000%
% % %%%(Includes%P1.0M%gain%on%restructuring%and%P1.5M%gain%on%exchange)% %
(
MC46% D% Carrying%value%of%liability%(6M%+%600,000)% P6,600,000%%%
Present%value%of%restructured%debt% %
%%%%%(6M%x%0.621)%+(6000,000%x%12%%x%3.791)% 6,455,520%%
Gain% P%%144,480%
144,480/6,600,000%is%less%than%10%;%%No%gain%is%recognized% %%%
(
MC47% C% Carrying%value%of%liability%(6M%+%600,000)% P6,600,000%
Present%value%of%restructured%debt% %
%%%%%%%%(5M%x%.6209)%+%(5M%%x%.12%x%3.7908)% 5,378,980%
Gain% P1,221,020%
(
MC48% B% Carrying%value%of%liability%(8M%+%640,000)% P8,640,000%%%
Present%value%of%restructured%debt% %
%%%%%%(6M%x%0.8573)%+%(6M%x%10%%x%1.7833)%% 6,213,780%%
Gain% P2,426,220%
(
MC49% B% Carrying%value%of%liability%%(10M%+%1M)% P11,000,000%
Market%value%of%shares%issued%(150,000%x%65)%% 9,750,000%
Gain%on%restructuring%of%debt% P%%1,250,000%%
%
%
%
Page(29
Chapter(3(–(Shareholders’(Equity(
Chapter(3(–(Shareholders’(Equity(
(
3"1.%
• Cash%(20,000%x%500)% 10,000,000% %
% %%%%%Ordinary%share%capital% % 10,000,000%
% % % %
• Legal%expense/Professional%fees% 150,000% %
% %%%%%Ordinary%share%capital%(250%x%500)% % 125,000%
% %%%%%Share%premium%"%ordinary% % 25,000%
% % % %
• Land% 5,000,000% %
% Building% 3,000,000% %
% %%%%%Ordinary%share%capital%(12,500%x%500)% % 6,250,000%
%%%% %%%%%Share%premium%"%ordinary% % 1,750,000%
% % % %
• Cash%(6,500%x%550)% 3,575,000% %
% %%%%%Ordinary%share%capital%(6,500%x%500)% % 3,250,000%
% %%%%%Share%premium%"%ordinary% % 325,000%
% % % %
• Cash%(20,000%x%550%x%%25%)% 2,750,000% %
% Subscription%receivable%–%ordinary%(11M%x%75%)% 8,250,000% %
% %%%%%%Subscribed%ordinary%share%(20,000%x%500)% % 10,000,000%
% %%%%%%Share%premium%–%ordinary% % 1,000,000%
% % % %
• Cash% 4,950,000% %
% %%%%%%Subscription%receivable%–%ordinary% % 4,950,000%
% %%%%%%%%%%%%12,000%shares%x%550%x%75%% % %
% % % %
• Subscribed%ordinary%share% 6,000,000% %
% %%%%%%Ordinary%share%capital% % 6,000,000%
% %%%%%%%%%%%%12,000%shares%x%500% % %
%
%3"2.% %
a.% Cash%(10,000%x%200)% 2,000,000% %%
% %%%%%Ordinary%share%capital%(10,000%x%150)% % 1,500,000%
% %%%%%Share%premium%"%ordinary% % 500,000%
% % % %
% Share%premium"ordinary% 60,000% %
% %%%%%Cash% % 60,000%
% % % %
b.% Land%(3,500%x%560)% 1,960,000% %
% %%%%%Ordinary%share%capital%(3,500%x%200)% % 700,000%
% %%%%%Share%premium%–%ordinary% % 1,260,000%
% % % %
c.% Cash% 18,000,000% %
% %%%%%Preference%share%capital%(5,000%x%500)% % 2,500,000%
% %%%%%Ordinary%share%capital%(100,000%x%100)% % 10,000,000%
% %%%%%Share%premium%–%preference% % 2,000,000%
% %%%%%Share%premium%–%ordinary% % 3,500,000%
% %%%%%%%%%%MV:%%%Pref%–%5,000%x%800=4M% % %
% %%%%%%%%%%%%%%%%%%%%Ord%–%100,000%x%120%=%12M% % %
% %%%%%%%%%%Allocation:% % %
% %%%%%%%%%%%%%%Pref:%%18M%x%4/16%=%4.5M% % %
% %%%%%%%%%%%%%%Ord:%%%18M%x%12/16%=%13.5M% % %
Page(30(
Chapter(3(–(Shareholders’(Equity(
Page(31(
Chapter(3(–(Shareholders’(Equity(
3"5.% %
(a)% Preference%share%capital%(4,000%x%20)% 80,000% %%
% Share%premium%–%preference%(4,000%x%1.60)% 6,400% %
% %%%%%PIC%from%retirement%of%preference%shares% %% 2,400%
% %%%%%Cash%(4,000%x%21)% % 84,000%
% % % %
(b)% Preference%share%capital%(4,000%x%20)% 80,000% %%
% Share%premium%–%preference%(4,000%x%1.60)% 6,400% %
% Retained%earnings% 17,600% %
% %%%%%Cash%(4,000%x%26)% % 104,000%
% % % %
% % Average%preference%share%premium%per%share:%%160,000/100,000%shares%=%1.60%%
3"6.% %
(a)% Preference%share%capital%%(10,000%x%20)% 200,000% %%
% Share%premium%–%preference%(10,000%x%1.60)% 16,000% %
% Retained%earnings% 84,000% %
% %%%%%Ordinary%share%capital%(10,000%x%30)% % 300,000%
% % % %
(b)% Preference%share%capital%(10,000%x%20)% 200,000% %%
% Share%premium%–%preference%(10,000%x%1.60)% 16,000% %
% %%%%%Ordinary%share%capital%(5,000%x%30)% % 150,000%
% %%%%%Share%premium%–%ordinary%% % 66,000%
3"7.% %
(a)% Retained%earnings%(10,000%shares%x%P20)% 200,000% %
% %%%%%%%%%Share%dividends%distributable%% % 100,000%
% %%%%%%%%%Share%premium%"%ordinary% % 100,000%
% % % %
% Share%%dividends%distributable% 100,000% %
% %%%%%%%%%Ordinary%share%capital% % 100,000%
% % % %
(b)% Retained%earnings%(30,000%x%10)% 300,000% %
%%%%%%%%%Share%dividends%distributable% 300,000%
% % % %
% Share%dividends%distributable% 300,000% %
% %%%%%%%%%Ordinary%share%capital% % 300,000%
% %
(c)% Memo:%% Effected% a% 2% for%1% stock% split%on% 100,000% shares% P100% par% previously%issued%
and%outstanding.%%
%
Page(32(
Chapter(3(–(Shareholders’(Equity(
3"8.% %
Capital%structure:%
% % Preference% Ordinary%
Number%of%shares%outstanding% % 20,000% 250,000%
Total%par%value% % P2,000,000% P2,500,000%
%
(a)% Preference%share%is%non"cumulative%and%non"participating%
2013% % Preference% Ordinary%
Current% preference% dividends% (9%% x% 2,000,000% =% % % P0%
180,000;%dividends%declared%were%P150,000%only.%% P%%%150,000%
Dividend%per%share% % P7.50% P0%
% % % %
2014% % Preference% Ordinary%
Current%preference%dividends%(9%%x%2,000,000)% % P%%%180,000% %
Excess%(240,000%–%180,000)% % % P80,000%
Dividend%per%share% % P9.00% P0.32%
% % % %
2015% % Preference% Ordinary%
Current%preference%dividends%(9%%x%2,000,000)% % P%%%180,000% %
Excess%(540,000%–%180,000)% % % P360,000%
Dividend%per%share% % P9.00% P1.44%
%
(b)% Preference%share%is%cumulative%and%non"participating.%
2013% % Preference% Ordinary%
Current%on%preference%is%P180,000% % P150,000% %
Arrears,%end%(P180,000%–%150,000%=%30,000)% % % P0%
Dividend%per%share% % P7.50% P0%
%
2014% % Preference% Ordinary%
Arrears,%beginning%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%P%%%30,000% % % %
Current%year%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%180,000% % % %
Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%P210,000% % P210,000% %
Excess%to%ordinary%=%260,000%–%210,000% % % P50,000%
% % % %
Dividend%per%share% % P10.50% P0.20%
% % % %
2015% % Preference% Ordinary%
Current%year%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% % P180,000% %
Excess%–%to%ordinary%%=%540,000%–% 180,000% % % P360,000%
Dividend%per%share% % P9.00% P1.44%
%
(c) Preference%share%is%cumulative%and%fully%participating%
%
2013% % Preference% Ordinary%
Current%dividends:% % % %
%%%%%9%%x%2,000,000%=%P180,000% % P%%%150,000% P0%
Arrears,%end%=%180,000%–%150,000%=%30,000% % % %
Dividend%per%share% % P%%%7.50% %P0%
(
(
(
(
(
Page(33(
Chapter(3(–(Shareholders’(Equity(
Page(34(
Chapter(3(–(Shareholders’(Equity(
3"10.%
Retained%earnings% % 500,000% %
%%%%%%%%%Share%dividends%distributable% % % 500,000%
%%%%%%%%%%%%%%%%%50%%x%100,000%%x%10%=%500,000% % % %
(
Share%dividends%distributable% % 500,000% %
%%%%%%%%%Ordinary%share%capital% % % 450,000%
%%%%%%%%%Fractional%share%warrants%outstanding% % % 50,000%
% % % %
Fractional%share%warrants%outstanding% % 50,000% %
%%%%%%%%%Ordinary%share%capital%(80%%x%50,000)% % % 40,000%
%%%%%%%%%PIC%from%unexercised%fractional%share%warrants% % % 10,000%
%
3"11.% 2015%
Oct.%31%
Financial%assets%at%FV%through%profit%or%loss% % 10,000% %%
%%%%%%%Unrealized%gain%on%financial%assets%at%FVPL% % % 10,000%
%%%%%%%%%%%%%%10,000%shares%%x%(15%–%14)% % % %
% % % %
Retained%earnings% % 150,000% %
%%%%%%%Property%dividends%payable% % % 150,000%
%%%%%%%%%%%%%%10,000%shares%x%15% %%% % %
% % % %
Financial%assets%at%FV%through%profit%or%loss% % 20,000% %
%%%%%%%%Unrealized%gain%on%financial%assets%at%FVPL% % % 20,000%
%%%%%%%%%%%%%%%10,000%shares%x%(17%–%15)% % % %
% % % %
Retained%earnings% % 20,000% %
%%%%%%%%%Property%dividends%payable% % % 20,000%
% % % %
%2016% % % %
Feb.%28% % % %
Retained%earnings% % 30,000% %
%%%%%%%Property%dividends%payable% % % 30,000%
% % % %
Property%dividends%payable% % 200,000% %
%%%%%%%Financial%assets%at%FV%through%profit%or%loss% % % 170,000%
%%%%%%%Gain%on%disposal%of%financial%assets%at%FVPL% % % 30,000%
3"12.%%%%%
2015% % % %
Oct.%1%%%%%Depreciation%expense%% % 33,750% %
%%%%%%%%%%%%%%%%%%%%%%%%%%Accumulated%depreciation%–%equipment% % % 33,750%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%450,000/10%x%9/12%%% % % %
% % % %
%%%%%%%%%%%%%%%Retained%earnings% % 190,000% %
%%%%%%%%%%%%%%%%%%%%%%%%%Property%dividends%payable%% % % 190,000%
% % % %
%%%%%%%%%%%%%%Assets%held%for%distribution%% % 180,000% %
%%%%%%%%%%%%%%Accumulated%depreciation%–%equipment%% % 270,000% %
%%%%%%%%%%%%%%%%%%%%%%%%Equipment%% % % 450,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Cost%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%P450,000% % % %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Acc.%Deprn%%450,000/10%x%6%%%%%270,000% % % %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Carrying%value%%%%%%%%%%%%%%%%%%%%%%%% %%%P180,000% %%% % %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%FV%(amount%is%higher)%%%%%%%%%%%%%P190,000% % % %
Page(35(
Chapter(3(–(Shareholders’(Equity(
Dec.%31%%%Impairment%loss% % 20,000% %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Assets%held%for%distribution%% % % 20,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%180,000%–%160,000%=%20,000% % % %
% % % %
%%%%%%%%%%%%%%%%%Property%dividends%payable% % 30,000% %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Retained%earnings%% % % 30,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%190,000%–%160,000%=%30,000%decrease%% % % %
% % % %
2016% % % %
Jan.%31%%%%Retained%earnings%% % 15,000% %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%Property%dividends%payable%% % % 15,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%175,000%–%160,000%=%15,000%increase% % % %
% % % %
%%%%%%%%%%%%%%%%%%Property%dividends%payable% % 175,000% %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%Assets%held%for%distribution% % % 160,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%Gain%on%disposal%of%assets% % % 15,000%
%
3"13.%
%
(a)% Number%of%preference%shares%issued%and%outstanding% 26,000%
(b)% Number%of%ordinary%shares%issued% 200,000%
% Number%of%ordinary%shares%outstanding%(200,000%–%12,000)% 188,000%
(c)% Cost%of%remaining%treasury%shares%acquired%by%purchase% P400,000%
(d)% Amount%of%total%dividends% %
%%%%%(26,000%shares%x%%P200%x%12%)%+%(188,000%x%P1)% P812,000%
(e)% Total%shareholders’%equity,%December%31,%2015% P16,294,000%
%
% % %
Total% Preference% Ordinary% Treasury%shares%
% shareholders’% shares% shares% Number%of% %
equity% issued% issued% Shares% Cost%
12/31/14%balances% P16,500,000% %30,000% 100,000% % %
2015%transactions:% % % % % %
a)%4,000%x%280% (1,120,000)% (4,000)% % % %
b)%8,000%x%80%% (640,000)% % % 8,000% P640,000%
c)%2:1%share%split%% % % 100,000% 8,000% %
d)%6,000%x%45%% 270,000% % % (6,000)% (240,000)*%
e)%4,000%x%46% % % % 4,000%% %
f)%2,000%x%48% 96,000% % % (2,000)% %
g)%Dividends% (812,000)% % % % %
h)%Profit% 2,000,000% % % % %
12/31/15%balances% P16,294,000% 26,000% 200,000% 12,000% P400,000%
*P640,000%x%6,000/16,000%=%240,000%
%
3"14.% %
% (a)%
2015% % % %
June%15% Cash% 6,000,000% %%
% %%%%%Ordinary%share%capital% % 5,000,000%
% %%%%%Share%premium%–%ordinary% % 1,000,000%
% % % %
Sept.%30% Retained%earnings%(80,000%x%5%%x%110)% 440,000% %
% %%%%%Share%dividends%distributable%(4,000x100)% % 400,000%
% %%%%%Share%premium%–%ordinary% % 40,000%
Page(36(
Chapter(3(–(Shareholders’(Equity(
Page(37(
Chapter(3(–(Shareholders’(Equity(
3"15.%
(a)% Total%lump%sum%price%is%P147,000%(1,500%x%98),%allocated%as%follows:%
%
Securities% Market%value% Allocation% Allocated%Price%
Preference%% 90% 147,000%x%90/100% 132,300%
Warrant% 10% 147,000%x%10/100% %%14,700%
(
Entry% Cash% 147,000% %
% %%%%%Preference%share%capital%(1,500%x%30)% % 45,000%
% %%%%%Share%premium%–%preference% % 87,300%
% %%%%%Share%warrants%outstanding% % 14,700%
% % % %
(b)% Cash%(600%x%40)% 24,000% %
% Share%warrants%outstanding% 11,760% %
% %%%%%Ordinary%share%capital% % 6,000%
% %%%%%Share%premium%–%ordinary% % 29,760%
%
3"16.%
(a)% Value%of%each%option% P8%
% Number%of%shares%granted% %x%30,000%
% Total%value%assigned%to%share%options% P240,000%
% Required%service%period% ÷%3years%
% Annual%compensation%expense% P%%80,000%
%
(b)% % % %
2015% % % %
Jan.%1% Memo:% % Granted% share% options% to% selected% senior% % %
employees% for% the% purchase% of% 30,000% ordinary%
shares%at%P35%per%share,%from%January% 1,% 2018% to%
December%31,%2019.%
(
Dec.%31% Compensation%expense% 80,000% %
% %%%%%%%%%Share%options%outstanding% % 80,000%
% % % %
2016% % % %
Dec.%31% Compensation%expense% 80,000% %
% %%%%%%%%%Share%options%outstanding% % 80,000%
% %%%%%%%%%%%%%%%%%30,000%x%8%x%1/3% % %
% % % %
2017% % % %
Dec.%31% Compensation%expense% 80,000% %
% %%%%%%%%%Share%options%outstanding% % 80,000%
%
2018% % % %
Dec.%31% Share%options%outstanding%(28,000%x%8)% 224,000% %
% Cash%(28,000%x%35)% 980,000% %
% %%%%%%%%%Ordinary%share%capital%(28,000%x%20)% % 560,000%
% %%%%%%%%%Share%premium%%"%ordinary% % 644,000%
3"17.% %
2015% %
Jan.%2% Memo:% % granted% 50,000% share% options% to% certain% officers% for% the% purchase% of% the%
company’s%P100%par%ordinary%shares%at%P280%per%share.%%%
%
Dec.%31% Compensation%expense% 450,000% %
% %%%%%%%%%%Share%options%outstanding% % 450,000%
% %%%%%%%%%%%%%%%%%%%%(45,000%x%30)%÷%3%years%%% % %
(
Page(38(
Chapter(3(–(Shareholders’(Equity(
2016% % % %
June% Memo:%%6,000%share%options%were%cancelled.% % %
% % % %
Dec.%31% Compensation%expense% 430,000% %
% %%%%%%%%%%Share%options%outstanding% % 430,000%
% % % % (50,000"6,000)%x%30%x%2/3%=%880,000%
% % % % 880,000%–%450,000%=%430,000%
2017% %
August% Memo:%1,500%share%options%were%cancelled.%
%
Dec.%31% Compensation%expense% 395,000% %
% %%%%%%%%%%Share%options%outstanding% % 395,000%
% %%%%%%%%%%%%%%%%%%Total%accrued%compensation%expense% % %
% %%%%%%%%%%%%%%%%%%%%(44,000%–%1,500)%x%30%%%%%%%%%%%%%%%% 1,275,000% % %
% %%%%%%%%%%%%%%%%%%Less:%previously%accrued% %%880,000% % %
% %%%%%%%%%%%%%%%%%%Compensation%expense"2017%% %%395,000% % %
%
2018% % % %
% Cash%(42,500%x%280)% 11,900,000% %
% Share%options%outstanding%(42,500%x%30)% 1,275,000% %
% %%%%%%%%Ordinary%share%capital%(42,500%x%100)% % 4,250,000%
% %%%%%%%%Share%premium%–%ordinary% % 8,925,000%
%
3"18.% %
(a)%%Compensation%expense% %
2015% Estimated%options%to%vest% %
% %%%%%%%%%%200%–%10%–%15%=%175%employees%x%100%options)% 17,500%
% Fair%value%of%option% P32%
% Estimated%total%fair%value%of%options%to%vest% P560,000%
% Compensation%expense%for%the%year%(560,000%x%1/3)% 186,667%
% % %
2016% Estimated%options%to%vest% %
% %%%%%%%%%%200%–%10%–%12%–%5%%=%173%employees%x%100%options)% 17,300%
% Fair%value%of%option% P32%
% Estimated%total%fair%value%of%options%to%vest% P553,600%
% Compensation%expense%for%the%years%2015%and%2016% %%
% %%%%%553,600%x%2/3%=%% P369,067%
% Compensation%expense%previously%recognized% 186,667%
% Compensation%expense%for%the%year% P182,400%
% % %
2017% Number%of%options%that%vested%(200%–%10%–%12%–%8)% 17,000%
% Fair%value%of%option% P32%
% Total%compensation%expense%(2015"2017)% P544,000%
% Compensation%expense%previously%recognized% 369,067%
% Compensation%expense%for%the%year% P174,933%
(
(b)% % % %
2015% % % %
Jan.%1% Granted%100%share%options%to%each%of%its%200%employees%to%buy%P100%par% % %
ordinary%share%at%P220% per%share.%The% options%are%exercisable%starting%
January% 1,% 2011% provided% that% the% employees% are% still% in% the% service.%%%
Options%expire%on%December%31,%2012.%
% % % %
Dec.%31% Compensation%expense% 186,667% %
% %%%%%Share%options%outstanding% % 186,667%
Page(39(
Chapter(3(–(Shareholders’(Equity(
2016% % % %
Dec.%31% Compensation%expense% 182,400% %
% %%%%%Share%options%outstanding% % 182,400%
% % % %
2017% % % %
Dec.%31% Compensation%expense% 174,933% %
% %%%%%Share%options%outstanding% % 174,933%
% % % %
2018% Cash%(140%x%100%x%220)% 3,080,000% %
% Share%options%outstanding%(14,000%x%32)% 448,000% %
% %%%%%Ordinary%share%capital%(14,000%x%200)% % 2,800,000%
% %%%%%Share%Premium%"%ordinary% % 728,000%
% % % %
2019% Cash%(10%x%100%x%220)% 220,000% %
% Share%options%outstanding%(1,000%x%32)% 32,000% %
% %%%%%Ordinary%share%capital%(1,000%x%200)% % 200,000%
% %%%%%Share%premium%–%ordinary% % 52,000%
(
% Share%options%outstanding%(20%x%100%x%32)% 64,000% %
% %%%%%PIC%from%forfeited%share%options% % 64,000%
3"19.% (a)%
2015% %
Jan.%1% Memo:%%Granted%10,000%share%options%for%the%purchase%of%P100%par%ordinary%shares%
at% P120% per% share.% % The% options% vest% once% the% market% price% of% ordinary% shares%
reached%P200,%up%to%December%31,%2017.%%%%Options%expire%at%the%end%of%2018.%
%
Dec.%31% Compensation%expense% 66,667% %
% %%%%%%%%Share%options%outstanding%% % 66,667%
% %%%%%%%%(10,000%x%20)%/%3%years%%% % %
% % % %
2016% % % %
Dec.%31% Compensation%expense% 133,333% %
% %%%%%%%%Share%options%outstanding%% % 133,333%
% %%%%%%%%(10,000%x%20)%%"%66,667% % %
% % % %
2017% Cash%(10,000%x%120)% 1,200,000% %
% Share%options%outstanding% 200,000% %
% %%%%%%%%%Ordinary%share%capital%(10,000%x%100)% % 1,000,000%
% %%%%%%%%%Share%premium"ordinary% % 400,000%
% (b)%
2015% %
Jan.%1% Memo:%%Granted%10,000%share%options%for%the%purchase%of%P100%par%ordinary%shares%
at% P120% per% share.% % The% options% vest% once% the% market% price% of% ordinary% shares%
reached%P200.%%Options%expire%at%the%end%of%2018.%
%
Dec.%31% Compensation%expense% 66,667% %
% %%%%%%%%Share%options%outstanding%% % 66,667%
% %%%%%%%%(10,000%x%20)%/%3%years%%% % %
% % % %
2016% % % %
Dec.%31% Compensation%expense% 66,667% %
% %%%%%%%%Share%options%outstanding%% % 66,667%
% % % %
2017% % % %
Dec.%31% Compensation%expense% 66,666% %
% %%%%%%%%Share%options%outstanding%% % 66,666%
Page(40(
Sept.%30% Interest%Payable% 16,519% %
% Interest%Expense%(66,076%–%16,519)% 49,557% %
% Notes%Payable% 733,924% %
% %%%%%Cash% % 800,000%
% % % %
(c)% Current%portion%at%December%31,%2016% % %
% %%%%%Notes%Payable% % 617,748%
% %%%%%Interest%Payable% % 45,563%
% % % %
% Noncurrent%portion%at%December%31,%2016% % %
% %%%%%Notes%Payable% % 1,407,270%
Page(24
Chapter(2(*(Non*current(Liabilities(
2"17.%
(a)% Notes%payable% 900,000% %
% Interest%payable% 90,000% %
% Accumulated%depreciation% 400,000% %
% %%%%Equipment% % 1,000,000%
% %%%%Gain%on%disposal%of%equipment% % 200,000%
% %%%%Gain%on%debt%restructuring% % 190,000%
%
(b)% Bonds%payable% 10,000,000% %
% Interest%payable% 900,000% %
% %%%%%Ordinary%share%capital%(300,000%x%25)% % 7,500,000%
% %%%%%Share%premium%–%ordinary%(300,000%x%%3)% % 900,000%
% %%%%%Gain%on%debt%restructuring% % 2,500,000%
% %%%%%%%%%%%%%(10,900,000%–%8,400,000%=%2,500,000)% % %
(
(c)% Notes%payable% 10,000,000% %
% Interest%payable% 1,000,000% %
% %%%%%Restructured%notes%payable% % 7,459,264%
% %%%%%Gain%on%debt%restructuring% % 3,540,736%
% % % %
% Present% value% of% future% payments% at% historical% %
rate%(10%)%
% %%%%%8,000,000%x%0.8264%%%%%%%%%%%%%%%%%%%%%%6,611,200% %
% %%%%%8,000,000%x%8%%x%1.7355%%%%%%%%%%%1,110,720% %
% %%%%%Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% %%%%%%%%%%7,721,920% %
% Carrying%value%of%liability%%%%%%%%%%%%11,000,000%%%%% %
% Difference%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%3,278,080%% %
% % %
% 3,278,080/11,000,000% =% 30%,% thus% the% %
restructuring% qualifies% as% a% derecognition% of% the%
old%liability%and%creation%of%a%new%liability.%%%
%
The% old% liability% shall% be% cancelled;% the% new%
liability% shall% be% measured% based% on% the%
discounted% cash% flow% of% the% future% payments%
based%on%the%entity’s%incremental%borrowing%rate%
considering%its%credit%rating:%
%
% Present% value% of% future% payments% at% incremental% %
borrowing% rate,% considering% its% credit% rating%
(12%):%
% %%%%%8,000,000%x%0.7972%%%%%%%%%%%%%%%%%%%%%%%6,377,600% %
% %%%%%8,000,000%x%8%%x%1.6901%%%%%%%%%%%%1,081,664% %
% %%%%%Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% %%%%7,459,264% %
% %%%%%Carrying%value%of%the%old%%%%%%%%%%11,000,000% %
% %%%%%Gain%on%debt%restructuring%%%%%%%%%3,540,736% %
% %
(d)% Notes%payable% 3,000,000% %
% Interest%payable% 330,000% %
% %%%%%Restructured%notes%payable% % 3,111,024%
% %%%%%Deferred%gain%on%debt%restructuring%% % 218,976%
% % % %
(
(
Page(25
Chapter(2(*(Non*current(Liabilities(
% Present%value%of%future%payments% % %
% %%%%%3,000,000%x%0.5935%%%%%%%%%%%%%%%%%%%%%%%1,780,500% % %
% %%%%%3,000,000%x%12%%x%3.6959%%%%%%%%%%1,330,524% % %
% %%%%%Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% %%%%%%%%3,111,024% % %
% Carrying%value%of%liability%%%%%%%%%%%%%%%%3,330,000%%%%% % %
% Difference%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%218,976%% % %
% % % %
% 218,976/3,330,000%<%10%%of%3,330,000.% % %
%
% Thus,%the% debt% restructuring% does%not% qualify%for% % %
derecognition%of%the%old%obligation.%%No%gain%shall%
be% recognized% and% a% new% effective% interest% rate%
shall%be%computed.%%%
%
% Alternatively,%the%restructuring%may%be%recorded%as:% % %
% Notes%payable% 3,000,000% %
Interest payable 330,000
% Interest%payable% 330,000% %
% %%%%Premium%on%restructured%notes%payable% %% 111,024%
% %%%%Restructured%notes%payable% % 3,000,000%
% %%%%Deferred%gain%on%debt%restructuring% % 218,976%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
%
Page(26
Chapter(2(*(Non*current(Liabilities(
MULTIPLE(CHOICE(QUESTIONS(
%
Theory(
%
MC1% D% MC12% C%
MC2% D% MC13% B%
MC3% D% MC14% B%
MC4% A% MC15% D%
MC5% A% MC16% B%
MC6% C% MC17% D%
MC7% D% MC18% A%
MC8% D% MC19% A%
MC9% C% MC20% A%
MC10% C% MC21% A%
MC11% C% MC22% B%
%
Problems(
(
MC23% D% Present%value%of%maturity%value% %
%%%%%%%%1.0M%x%0.38554%% P385,540%
% % Present%value%of%interest%payments% %
%%%%%%%%1.0M%x%8%%x%6.14457% 491,566%
% % Total%issue%price% P877,106%
(
MC24% B% Present%value%of%P1000%face%value%(1,000%x%0.31)%%% P310.00%
Present%value%of%interest%(1,000%x%4%%x%11.47)=%768.80% 458.80%
% % Issue%price%for%each%P1,000%bond% P768.80%
(
MC25% A% Bond%issue%price%(2.0M%x%97%)% P1,940,000%
Accrued%interest%(2.0M%x%10%%x%3/12)%% 50,000%
% % Net%cash%received%from%bond%issuance% P1,990,000%
(
MC26% B% Amount%allocated%to%bonds%(2,000%x%1,040)%%% P2,080,000%
% % Face%value%of%bonds% 2,000,000%
% % Premium%on%bonds%payable%on%May%1,%2015% P%%%%%80,000%
(
MC27%% B% Retirement%price%(4.0M%x%97%)%%% P3,880,000%
Accrued%interest%(4.0M%x%12%%x%3/12)%% 120,000%
% % Total%cash%paid%for%the%retirement%of%bonds% P4,000,000%
(
MC28% C% Redemption%price%(96%%x%1.0M)%% P%960,000%
% % Carrying%amount%of%bonds%retired%(1.0M%+%70,000)% 1,070,000%
% % Gain%on%redemption%of%bonds% P110,000%
(
MC29% A% Accrued%interest%(1.0M%x%12%%x%1/12)% P10,000%
(
MC30% B% %Issue%price%(1,000,000%x%1.02)%–%50,000%% P1,020,000%
% % Transaction%costs% (50,000)%
% % Initial%carrying%amount%on%February%1,%2015% P%%970,000%
(
(
(
(
Page(27
Chapter(2(*(Non*current(Liabilities(
Chapter(2(*(Non*current(Liabilities(
MC42% D% Carrying%value,%December%31,%2015%% %%
%%%%%%%%%%%(2.4M%–%1.0M%+%288,000)%=%P1,688,000%%
% % Principal%payment% P1,000,000%
% % Interest%%(1,688,000%x%%12%)% 202,560%
% % Amount%applicable%to%principal%due%on%December%31,%2016% P797,440%
(
MC43% B% Discount%balance,%January%1,%2015% P600,000%
% % Amortization%of%discount%in%2015% 288,000%
% % Discount%balance,%December%31,%2015% P312,000%
(
MC44% B%% Interest%expense%for%2015%(49,737%x%10%)%% P4,974%
% % Notes%payable,%January%1,%2015% P49,737%
% % Reduction%in%principal%during%2015%%%%(10,000%–%4,974)% 5,026%
% % Notes%payable,%December%15,%2015% P44,711%
(
MC45% D% Carrying%amount%of%liability%(5.0M%+%500,000)%% P5,500,000%
% % Carrying%value%of%real%estate%transferred% 3,000,000%
% % Total%amount%recognized%in%profit% P2,500,000%
% % %%%(Includes%P1.0M%gain%on%restructuring%and%P1.5M%gain%on%exchange)% %
(
MC46% D% Carrying%value%of%liability%(6M%+%600,000)% P6,600,000%%%
Present%value%of%restructured%debt% %
%%%%%(6M%x%0.621)%+(6000,000%x%12%%x%3.791)% 6,455,520%%
Gain% P%%144,480%
144,480/6,600,000%is%less%than%10%;%%No%gain%is%recognized% %%%
(
MC47% C% Carrying%value%of%liability%(6M%+%600,000)% P6,600,000%
Present%value%of%restructured%debt% %
%%%%%%%%(5M%x%.6209)%+%(5M%%x%.12%x%3.7908)% 5,378,980%
Gain% P1,221,020%
(
MC48% B% Carrying%value%of%liability%(8M%+%640,000)% P8,640,000%%%
Present%value%of%restructured%debt% %
%%%%%%(6M%x%0.8573)%+%(6M%x%10%%x%1.7833)%% 6,213,780%%
Gain% P2,426,220%
(
MC49% B% Carrying%value%of%liability%%(10M%+%1M)% P11,000,000%
Market%value%of%shares%issued%(150,000%x%65)%% 9,750,000%
Gain%on%restructuring%of%debt% P%%1,250,000%%
%
%
%
Page(29
Chapter(3(–(Shareholders’(Equity(
Chapter(3(–(Shareholders’(Equity(
(
3"1.%
• Cash%(20,000%x%500)% 10,000,000% %
% %%%%%Ordinary%share%capital% % 10,000,000%
% % % %
• Legal%expense/Professional%fees% 150,000% %
% %%%%%Ordinary%share%capital%(250%x%500)% % 125,000%
% %%%%%Share%premium%"%ordinary% % 25,000%
% % % %
• Land% 5,000,000% %
% Building% 3,000,000% %
% %%%%%Ordinary%share%capital%(12,500%x%500)% % 6,250,000%
%%%% %%%%%Share%premium%"%ordinary% % 1,750,000%
% % % %
• Cash%(6,500%x%550)% 3,575,000% %
% %%%%%Ordinary%share%capital%(6,500%x%500)% % 3,250,000%
% %%%%%Share%premium%"%ordinary% % 325,000%
% % % %
• Cash%(20,000%x%550%x%%25%)% 2,750,000% %
% Subscription%receivable%–%ordinary%(11M%x%75%)% 8,250,000% %
% %%%%%%Subscribed%ordinary%share%(20,000%x%500)% % 10,000,000%
% %%%%%%Share%premium%–%ordinary% % 1,000,000%
% % % %
• Cash% 4,950,000% %
% %%%%%%Subscription%receivable%–%ordinary% % 4,950,000%
% %%%%%%%%%%%%12,000%shares%x%550%x%75%% % %
% % % %
• Subscribed%ordinary%share% 6,000,000% %
% %%%%%%Ordinary%share%capital% % 6,000,000%
% %%%%%%%%%%%%12,000%shares%x%500% % %
%
%3"2.% %
a.% Cash%(10,000%x%200)% 2,000,000% %%
% %%%%%Ordinary%share%capital%(10,000%x%150)% % 1,500,000%
% %%%%%Share%premium%"%ordinary% % 500,000%
% % % %
% Share%premium"ordinary% 60,000% %
% %%%%%Cash% % 60,000%
% % % %
b.% Land%(3,500%x%560)% 1,960,000% %
% %%%%%Ordinary%share%capital%(3,500%x%200)% % 700,000%
% %%%%%Share%premium%–%ordinary% % 1,260,000%
% % % %
c.% Cash% 18,000,000% %
% %%%%%Preference%share%capital%(5,000%x%500)% % 2,500,000%
% %%%%%Ordinary%share%capital%(100,000%x%100)% % 10,000,000%
% %%%%%Share%premium%–%preference% % 2,000,000%
% %%%%%Share%premium%–%ordinary% % 3,500,000%
% %%%%%%%%%%MV:%%%Pref%–%5,000%x%800=4M% % %
% %%%%%%%%%%%%%%%%%%%%Ord%–%100,000%x%120%=%12M% % %
% %%%%%%%%%%Allocation:% % %
% %%%%%%%%%%%%%%Pref:%%18M%x%4/16%=%4.5M% % %
% %%%%%%%%%%%%%%Ord:%%%18M%x%12/16%=%13.5M% % %
Page(30(
Chapter(3(–(Shareholders’(Equity(
Page(31(
Chapter(3(–(Shareholders’(Equity(
(b)% Total%shareholders %equity,%December%31,%2014% %% P2,200,000%
% (1)%Purchase%of%treasury%shares%(10,000%x%14)% % (140,000)%
% (2)%Sale%of%treasury%shares%(4,000%x%15)% % 60,000%
% (3)%Sale%of%treasury%shares%(5,000%x%13)% % 65,000%
% Profit%for%the%year% % 280,000%
% Dividends%declared% % (200,000)%
% Total%shareholders’%equity,%December%31,%2015% % P2,265,000%
%
The% total% shareholders’% equity% may% also% be% obtained% by% determining% the% balance% of% the%
shareholders’%equity%accounts,%as%follows:%
% % Ordinary%share%capital,%P10%par%(99,000%shares%issued%and%outstanding)P%%%990,000%
% % Share%premium%"%ordinary% % % % % %%%%%%%%%%%%%297,000%
% % Retained%Earnings% % % % % % %%%%%%%%%%%%%978,000%
% % Total%shareholders’%equity% % % % % %%%%%%%P2,265,000
3"5.% %
(a)% Preference%share%capital%(4,000%x%20)% 80,000% %%
% Share%premium%–%preference%(4,000%x%1.60)% 6,400% %
% %%%%%PIC%from%retirement%of%preference%shares% %% 2,400%
% %%%%%Cash%(4,000%x%21)% % 84,000%
% % % %
(b)% Preference%share%capital%(4,000%x%20)% 80,000% %%
% Share%premium%–%preference%(4,000%x%1.60)% 6,400% %
% Retained%earnings% 17,600% %
% %%%%%Cash%(4,000%x%26)% % 104,000%
% % % %
% % Average%preference%share%premium%per%share:%%160,000/100,000%shares%=%1.60%%
3"6.% %
(a)% Preference%share%capital%%(10,000%x%20)% 200,000% %%
% Share%premium%–%preference%(10,000%x%1.60)% 16,000% %
% Retained%earnings% 84,000% %
% %%%%%Ordinary%share%capital%(10,000%x%30)% % 300,000%
% % % %
(b)% Preference%share%capital%(10,000%x%20)% 200,000% %%
% Share%premium%–%preference%(10,000%x%1.60)% 16,000% %
% %%%%%Ordinary%share%capital%(5,000%x%30)% % 150,000%
% %%%%%Share%premium%–%ordinary%% % 66,000%
3"7.% %
(a)% Retained%earnings%(10,000%shares%x%P20)% 200,000% %
% %%%%%%%%%Share%dividends%distributable%% % 100,000%
% %%%%%%%%%Share%premium%"%ordinary% % 100,000%
% % % %
% Share%%dividends%distributable% 100,000% %
% %%%%%%%%%Ordinary%share%capital% % 100,000%
% % % %
(b)% Retained%earnings%(30,000%x%10)% 300,000% %
%%%%%%%%%Share%dividends%distributable% 300,000%
% % % %
% Share%dividends%distributable% 300,000% %
% %%%%%%%%%Ordinary%share%capital% % 300,000%
% %
(c)% Memo:%% Effected% a% 2% for%1% stock% split%on% 100,000% shares% P100% par% previously%issued%
and%outstanding.%%
%
Page(32(
Chapter(3(–(Shareholders’(Equity(
3"8.% %
Capital%structure:%
% % Preference% Ordinary%
Number%of%shares%outstanding% % 20,000% 250,000%
Total%par%value% % P2,000,000% P2,500,000%
%
(a)% Preference%share%is%non"cumulative%and%non"participating%
2013% % Preference% Ordinary%
Current% preference% dividends% (9%% x% 2,000,000% =% % % P0%
180,000;%dividends%declared%were%P150,000%only.%% P%%%150,000%
Dividend%per%share% % P7.50% P0%
% % % %
2014% % Preference% Ordinary%
Current%preference%dividends%(9%%x%2,000,000)% % P%%%180,000% %
Excess%(240,000%–%180,000)% % % P80,000%
Dividend%per%share% % P9.00% P0.32%
% % % %
2015% % Preference% Ordinary%
Current%preference%dividends%(9%%x%2,000,000)% % P%%%180,000% %
Excess%(540,000% %180,000)% % % P360,000%
Dividend%per%share% % P9.00% P1.44%
%
(b)% Preference%share%is%cumulative%and%non"participating.%
2013% % Preference% Ordinary%
Current%on%preference%is%P180,000% % P150,000% %
Arrears,%end%(P180,000%–%150,000%=%30,000)% % % P0%
Dividend%per%share% % P7.50% P0%
%
2014% % Preference% Ordinary%
Arrears,%beginning%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%P%%%30,000% % % %
Current%year%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%180,000% % % %
Total%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%P210,000% % P210,000% %
Excess%to%ordinary%=%260,000%–%210,000% % % P50,000%
% % % %
Dividend%per%share% % P10.50% P0.20%
% % % %
2015% % Preference% Ordinary%
Current%year%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%% % P180,000% %
Excess%–%to%ordinary%%=%540,000%–% 180,000% % % P360,000%
Dividend%per%share% % P9.00% P1.44%
%
(c) Preference%share%is%cumulative%and%fully%participating%
%
2013% % Preference% Ordinary%
Current%dividends:% % % %
%%%%%9%%x%2,000,000%=%P180,000% % P%%%150,000% P0%
Arrears,%end%=%180,000%–%150,000%=%30,000% % % %
Dividend%per%share% % P%%%7.50% %P0%
(
(
(
(
(
Page(33(
Chapter(3(–(Shareholders’(Equity(
Page(34(
Chapter(3(–(Shareholders’(Equity(
3"10.%
Retained%earnings% % 500,000%
%%%%%%%%%Share%dividends%distributable% % % 500,00
%%%%%%%%%%%%%%%%%50%%x%100,000%%x%10%=%500,000% % %
(
Share%dividends%distributable% % 500,000%
%%%%%%%%%Ordinary%share%capital% % % 450,00
%%%%%%%%%Fractional%share%warrants%outstanding% % % 50,00
% % %
Fractional%share%warrants%outstanding% % 50,000%
%%%%%%%%%Ordinary%share%capital%(80%%x%50,000)% % % 40,00
%%%%%%%%%PIC%from%unexercised%fractional%share%warrants% % % 10,00
%
3"11.% 2015%
Oct.%31%
Financial%assets%at%FV%through%profit%or%loss% % 10,000%
%%%%%%%Unrealized%gain%on%financial%assets%at%FVPL% % % 10,00
%%%%%%%%%%%%%%10,000%shares%%x%(15%–%14)% % %
% % %
Retained%earnings% % 150,000%
%%%%%%%Property%dividends%payable% % % 150,00
%%%%%%%%%%%%%%10,000%shares%x%15% %%% %
% % %
Financial%assets%at%FV%through%profit%or%loss% % 20,000%
%%%%%%%%Unrealized%gain%on%financial%assets%at%FVPL% % % 20,00
%%%%%%%%%%%%%%%10,000%shares%x%(17%–%15)% % %
% % %
Retained%earnings% % 20,000%
%%%%%%%%%Property%dividends%payable% % % 20,00
% % %
%2016% % %
Feb.%28% % %
Retained%earnings% % 30,000%
%%%%%%%Property%dividends%payable% % % 30,00
% % %
Property%dividends%payable% % 200,000%
%%%%%%%Financial%assets%at%FV%through%profit%or%loss% % % 170,00
%%%%%%%Gain%on%disposal%of%financial%assets%at%FVPL% % % 30,00
3"12.%%%%%
2015% % %
Oct.%1%%%%%Depreciation%expense%% % 33,750%
%%%%%%%%%%%%%%%%%%%%%%%%%%Accumulated%depreciation%–%equipment% % % 33,75
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%450,000/10%x%9/12%%% % %
% % %
%%%%%%%%%%%%%%%Retained%earnings% % 190,000%
%%%%%%%%%%%%%%%%%%%%%%%%%Property%dividends%payable%% % % 190,00
% % %
%%%%%%%%%%%%%%Assets%held%for%distribution%% % 180,000%
%%%%%%%%%%%%%%Accumulated%depreciation%–%equipment%% % 270,000%
%%%%%%%%%%%%%%%%%%%%%%%%Equipment%% % % 450,00
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Cost%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%P450,000% % %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Acc.%Deprn%%450,000/10%x%6%%%%%270,000% % %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Carrying%value%%%%%%%%%%%%%%%%%%%%%%%% %%%P180,000% %%% %
%%%%%%%%%%%%%%%%%%%%%%%%%%%%FV%(amount%is%higher)%%%%%%%%%%%%%P190,000% % %
Page(35(
Chapter(3(–(Shareholders’(Equity(
Dec.%31%%%Impairment%loss% % 20,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Assets%held%for%distribution%% % % 20,00
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%180,000%–%160,000%=%20,000% % %
% % %
%%%%%%%%%%%%%%%%%Property%dividends%payable% % 30,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%Retained%earnings%% % % 30,00
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%190,000%–%160,000%=%30,000%decrease%% % %
% % %
2016% % %
Jan.%31%%%%Retained%earnings%% % 15,000%
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%Property%dividends%payable%% % % 15,00
%%%%%%%%%%%%%%%%%%%%%%%%%%%%%%175,000%–%160,000%=%15,000%increase% % %
Chapter(4(–(Leases(
Page(61((
Chapter(4(–(Leases(
Page(62((
Chapter(4(–(Leases(
! ! Carrying!value!of!leased!asset! ! ! ! ! !!3,200,000!
! ! Gross!Profit! ! ! ! ! ! ! P!!!800,000!
! !! Lease!arrangement!cost!!!!! ! ! ! !!!!!!!!!!!!!!!!!!!!!(!85,000)!
! ! Interest!income!!(377,756!x!3/12)!!see!table! !!!!!!!!!! ! !!!!!!!!94,439!
! ! Total!income!in!2015!! ! ! ! ! ! P!!!809,439!
c.! ! ! ! !
! ! ! ! Amortization!Table!
! ! Periodic! ! Reduction!in! Balance!of!
Date! Payment! Interest!!! Principal! Principal!
Oct.!1,!2015! ! ! ! 4,000,000!
Oct.!1,!2015! 850,365! ! 850,365! 3,149,635!
Oct.!1,!2016! 850,365! 377,956! 472,409! 2,677,226!
Oct.!1,!2017! 850,365! 321,267! 529,098! 2,148,490!
!
Books!of!Ruby!(Lessor)!
2015!
Oct.!!1! Finance!lease!receivable!(850,365!x!6)!+!166,300!!!!!!!!!!5,268,490!
! Cost!of!goods!sold!(3,200,000!–!84,253)! ! !!!!!!!3,115,747!
! ! Inventory! ! ! ! ! ! !!!! !3,200,000!
! ! Sales!! ! ! ! ! ! ! !!!!! !3,915,747!
! ! Unearned!interest!revenue! ! ! ! !!!! !1,268,490!
!
!!!!!!!!!!1! Selling!expense! ! ! ! ! !!!!!!!!!!!!85,000!
! ! Cash! ! ! ! ! ! ! ! !!!!!!85,000!
!
!!!!!!!!!!1! Cash! ! ! ! ! ! !!!!!!!!!!850,365!
! ! Finance!lease!receivable! ! ! ! ! ! !!!!850,365!
!
Dec.!31! Unearned!interest!revenue! ! ! !!!!!!!!!!!!94,489!
! ! Interest!revenue!! ! ! ! ! ! !!!!!!94,489!
! ! ! 377,956!x!3/12!
!
2016!
Oct.!1! Cash! ! ! ! ! ! !!!!!!!!!!!850,365!
! Unearned!interest!revenue! ! ! !!!!!!!!!!!283,467! !
! ! Finance!lease!receivable! ! ! ! ! ! !!!!850,365!
! ! Interest!revenue!! ! ! ! ! ! !!!!283,467!
! ! ! 377,956!–!94,489!=!283,467!
!
Dec!31! Unearned!interest!revenue! ! ! !!!!!!!!!!!!!!!80,317!
! ! Interest!revenue!! ! ! ! ! ! !!!!!!80,317!
! ! ! 321,267!x!3/12!
!
d. ! ! ! Amortization!Table!for!Emerald!(Lessee)!
! Periodic! ! Reduction!in! Balance!of!
Date! Payment! Interest!!! Principal! Principal!
Oct.!1,!2015! ! ! ! 3,915,747!
Oct.!1,!2015! 850,365! ! 850,365! 3,065,382!
Oct.!1,!2016! 850,365! 367,846! 482,519! 2,582,863!
Oct.!1,!2017! 850,365! 309,944! 540,421! 2,042,442!
!
2015!
Oct.!1! Leased!equipment! ! ! ! 3,915,747!
! ! Finance!lease!obligation! ! ! ! ! ! 3,915,747!
!
Page(63((
Chapter(4(–(Leases(
Page(64((
Chapter(4(–(Leases(
! (c!)! Carrying!value!of!equipment!
! ! ! Cost! ! ! ! ! ! ! P12,000,000!
! ! ! Accumulated!depreciation!
! ! ! !! (12,000,000!–!2,000,000)!x!2/5! ! ! !!(4,000,000)!
! ! ! Carrying!value,!December!31,!2015! ! ! !P!8,000,000!
!
! (d)! Interest!revenue!for!2016!!!(452,076!+!408,249)! ! ! !!!!!P860,325!
!
! (e)! Current!Assets:!
! ! ! Finance!Lease!Receivable,!net!(834,806!+!876,546)! !!P1,711,352!
! ! ! Interest!Receivable! ! ! ! ! !!!!!!!!493,816!
! ! Non#current!Assets!
! ! ! Finance!Lease!Receivable,!net! ! ! ! !!P8,164,973!
!
4#20.! !
! (a)! Selling!price!of!the!machinery!(150,000!x!4.0373)! ! ! P605,595!
! (b)! Deferred!gain!on!January!1,!2015!(605,595!–!411,750)! ! P193,845!
! (c)! Depreciation!expense!for!2015!(605,595!/!5!years)! ! P121,119!
! (d)! Interest!expense!for!2015!!(605,595!–!150,000)!x!12%!! !!!! P!!54,671!
! (e)! Gain!on!sale#leaseback!for!2015!(193,845!/!5!years)! !!! P!!38,769!
!
4#21.! !
! (a)!
2015! !! !! !
July!!!!1! Cash! 540,000! !
! Accumulated!depreciation! 350,000! !
! !!!!!Equipment! ! 800,000!
! !!!!!Gain!on!sale!leaseback! ! 90,000!
!
!July!!!1! Rent!expense! 80,000! !
! !!!!!Cash! ! 80,000!
!! ! ! !
Dec.!31! Prepaid!rent! 40,000! !
! !!!!!Rent!expense! ! 40,000!
!! !
(b)!
2014! !! !! !
July!!!!1! Cash! 540,000! !
! Accumulated!depreciation! 350,000! !
! !!!!!Equipment! ! 800,000!
! !!!!!Gain!on!sale!leaseback! ! 50,000!
! !!!!!Unearned!profit!on!sale!leaseback! ! 40,000!
! ! ! !
Page(65((
Chapter(4(–(Leases(
!(c)! ! ! !
2014! ! ! !
July!!!!1! Cash! 400,000! !
! Accumulated!depreciation! 350,000! !
! Loss!on!sale!leaseback! 50,000! !
! !!!!!Equipment! ! 800,000!
! ! ! !
!!!!!!!!!!1! Rent!expense! 80,000! !
! !!!!!Cash! ! 80,000!
! ! ! !
Dec.!31! Prepaid!rent! 40,000! !
! !!!!!Rent!expense! ! 40,000!
!(d)! ! ! !
2015! ! ! !
July!!!!1! Cash! 350,000! !
! Accumulated!depreciation! 350,000! !
! Deferred!loss!on!sale!leaseback! 100,000! !
! !!!!!Equipment! ! 800,000!
! ! ! !
!!!!!!!!!!1! Rent!expense! 80,000! !
! !!!!!Cash! ! 80,000!
! ! ! !
Dec.!31! Prepaid!rent! 40,000! !
! !!!!!Rent!expense! ! 40,000!
! ! ! !
!!!!!!!!31! Rent!expense/Loss!on!sale!leaseback! 12,500! !
! !!!!!!!Deferred!loss!on!sale!leaseback! ! 12,500!
! !!!!!!!!!!!100,000/4!=!25,000;!25,000!x!6/12! ! !
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
!
Page(66((
Chapter(4(–(Leases(
MULTIPLE(CHOICE(QUESTIONS(
Theory(
MC28! D! This!is!an!operating!lease;!thus,!there!is!no!interest!expense!involved.! !
MC35! B! Lease!liability,!December!31,!2015,!after!1st!payment!! !!
! ! !!!!!!!!!!1,350,000!–!200,000! P1,150,000!
! ! Current!portion!(payable!on!December!31,!2016)! !
! ! !!!!!!!!!!200,000!–!(10%!x!1,150,000)! P!!!!!!85,000!
Page(67((
Chapter(4(–(Leases(
MC37! D! Depreciation!is!based!on!the!economic!life!of!the!asset! !
! ! !!!!!!!!!!(2,400,000!–!200,000)!/!8!years! P275,000!
MC39! C! Depreciation!is!based!on!the!lease!term! !
! ! !!!!!!!!!(6,894,311!–!1,200,000)!/!4! P1,423,578!
MC41! D! Depreciation!is!based!on!the!lease!term! !
! ! !!!!!!!!!!6,074,699!/!4!! P1,518,675!
Page(68((
Chapter(4(–(Leases(
MC50! D! Present!value!of!lease!payments!!(30,000!x!3.1699)!!!!!!!!!!!!!!!95,097! !!
! ! Present!value!of!guaranteed!residual!value!(5,000!x!.683)!!!!!3,415! !
! ! Capitalized!cost!of!asset!/Liability,!Jan.!1,!2014!!!!!!!!!!!!!!!!!!!!!!!!98,512!!!! !
! ! Interest!expense!for!2014!(98,512!x!10%)!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!9,851!!!! !
! ! Liability!balance,!December!31,!2014!!!95,097!–!(30,000!–!9,851)! P78,363!
! ! Interest!expense/payable,!December!31,!2015!!(78,363!x!10%)! P7,836!
MC51! C! Depreciation!is!based!on!the!lease!term! !
! ! !!!!!!!!!!(98,512!–!5,000)!/!4! P23,378!
MC52! D! Minimum!lease!payments!for!the!remaining!two!years! !
!!!!!!!!!!!!!!!!(30,000!x!2)!! P60,000!
! ! Guaranteed!residual!value! 5,000!
! ! Total! P65,000!
MC53! A! Initial!direct!costs!increase!the!net!investment!in!lease!recorded!by!the!lessor.!! !
The!terms!of!the!lease!already!indicated!that!the!residual!value!is!guaranteed;!
hence,!it!could!not!be!taken!as!the!reason!for!the!variance.!!However,!if!the!
residual!value!is!unguaranteed,!then!it!could!be!considered!as!a!reason!for!the!
variance.!
MC54! A! This!excess!over!the!limited!hours!should!be!accrued!by!the!end!of! !
2016,!even!if!payment!would!be!made!at!January!1,!2017.!
MC60! D! If!selling!price!is!at!fair!value,!full!amount!of!gain!is!recognized! !
immediately!(800,000!#!650,000)! P150,000!
MC61! B! Additional(information,(lease(term(is(12(years(out(of(total(life( !!
of(25(years.(
! ! Deferred!loss!(650,000!–!470,000)! P180,000!
! ! Amortized!loss!in!2015!(180,000/12!=!15,000;!15,000!x!9/12! 11,250!
! ! Deferred!loss,!December!31,!2015! P168,750!
!
!
Page(69((
Chapter 5 - Income Taxes
Chapter(5(–(Income(Taxes(
(
PROBLEMS(
!
!
5#1.! 1.! C!
! 2.! D!
! 3.! B!
! 4.! B!
! 5.! D!
! 6.! D!
! 7.! C!
! 8.! A!
! 9.! A!
! 10.! C!
! 11.! C!
! 12.! B!
! 13.! D!
!
5#2.! !
! (a)! a.! Permanent!difference!–!Non#taxable!revenue!
! ! b.! Permanent!difference!–!Non#deductible!expense!
! ! c.! Neither!a!permanent!nor!a!temporary!difference!
! ! d.! Temporary!difference!–!Taxable!temporary!difference!
! ! e.! Temporary!difference!–!Taxable!temporary!difference!
! ! f.! Temporary!difference!–!Deductible!temporary!difference!
! ! g.! Temporary!difference!–!Deductible!temporary!difference!
!
(b)!!!!!!!!Pretax!financial!income! P10,000,000!
!!!!!!!!!!!!!!Add!Nondeductible!expenses!(b)!! 400,000!
!!!!!!!!!!!!!!Less!Nontaxable!income!(a)! (2,000,000)!
!!!!!!!!!!!!!!Financial!income!subject!to!tax! P!8,400,000!
!!!!!!!!!!!!!!Add!Future!deductible!amounts!(f!and!g)!! 1,150,000!
!!!!!!!!!!!!!!Less!Future!taxable!amounts!(d!and!e)!! (2,500,000)!
!!!!!!!!!!!!!!Taxable!income! P7,050,000!
(c)!!!!!!!!!Income!tax!payable!(7,050,000!x!30%)! P2,115,000!
!!!!!!!!!!!!!!Deferred!tax!asset!(1,150,000!x!30%)! P!!!345,000!
!!!!!!!!!!!!!!Deferred!tax!liability!(!2,500,000!x!30%)! P!!!750,000!
!!
! (d)!
Income!tax!expense!–!Current! 2,115,000! !
!!!!!Income!tax!payable! ! 2,115,000!
!
Income!tax!expense!–!Deferred! 750,000! !
!!!!!Deferred!tax!liability! ! 750,000!
!!
Deferred!tax!asset! 345,000! !
!!!!!Income!tax!expense!–!Deferred! ! 345,000!
!
! or!!one!compound!entry!may!be!made!as!follows:!
!
Income!tax!expense!–!Current! 2,115,000! !
Income!tax!expense!–!Deferred! 405,000! !!
Deferred!tax!asset! 345,000! !
!!!!!Income!tax!payable! ! 2,115,000!
!!!!!Deferred!tax!liability! ! 750,000!
Page%70%
Chapter 5 - Income Taxes
! (e)! Income!tax!expense:!
! ! ! Current!! ! ! ! ! P2,115,000!
! ! ! Deferred!!(750,000!–!345,000)! ! ! !!!!!!405,000!
! ! ! Total!income!tax!expense! ! ! P2,520,000!
!
5#3.! (Luzon!Corporation)!
! (a)! Pretax!financial!income! ! ! ! ! P3,000,000!
! ! Future!taxable!amount! ! ! ! ! (1,800,000)!
! ! Taxable!income! ! ! ! ! ! P1,200,000!
! ! Income!tax!expense!#!current!!!!(30%!x!1.2M)! ! P!!!!360,000!
! ! Deferred!tax!liability,!December!31,!2015!(30%!x!1.8M)!!!!!!!P!!!!540,000!
!
! (b)! Income!tax!expense!–!Current! ! ! 360,000!
! ! Income!tax!expense!–!Deferred! ! ! 540,000!
! ! !!!!!Income!tax!payable!! ! ! ! ! !!360,000!
! ! !!!!!Deferred!tax!liability!! ! ! ! ! !!!540,000!
!
5#4.! !
! (a)! Pre!tax!financial!income! ! ! ! ! P2,000,000!
! ! Future!deductible!amount! ! ! ! !!1,550,000!
! ! Taxable!income! ! ! ! ! ! P3,550,000!
! ! Income!tax!expense!#!current!!(30%!x!3,550,000)! ! P1,065,000!
! ! Deferred!tax!asset,!December!31,!2015!(30%!x!1,550,000)!!P!!!!465,000! !!
! !
! (b)! Income!tax!expense#Current! ! ! 1,065,000!
! ! Deferred!tax!asset! ! ! !!!!!!!!!!!!!!!!!!!!465,000!
! ! !!!!!!!Income!tax!payable! ! ! ! ! !!!!1,065,000!
! ! !!!!!!!Income!tax!benefit#Deferred! ! ! ! !!!!!!!465,000!
! !
5#5.! !
! Income!tax!expense!–!Current! ! ! !!!!!!!!!!!!!!!!!1,560,000!
!! Deferred!tax!asset! ! ! ! !!!! !!!!!600,000!
! !!!!!Deferred!tax!liability! ! ! ! ! ! !! !!!!!!185,000!
! !!!!!Income!tax!expense!–!Deferred!(Benefit)! ! ! ! !!!!!!415,000!
! !!!!!Income!tax!payable! ! ! ! ! ! ! !!!1,560,000!
! ! 30%!x!5,200,000!=!1,560,000!
! ! 30%!x!2,000,000!=!600,000!
! ! (30%!x!500,000)!+!(35%!x!100,000)!=!185,000!
!
5#6.!! !
! Income!tax!expense!–!Current!(30%!x!2,000,000)! ! ! ! P!!600,000!
! Income!tax!expense!–!Deferred!(267,000!–!72,000)!! ! ! !!!!195,000!
! Income!tax!expense!–!Total! ! ! ! ! ! P!!795,000!
!
! Deferred!tax!asset!!!(30%!x!!240,000)! ! ! ! ! P!!!!72,000!
! Deferred!tax!liability!!!30%!x!(530,000!+!360,000)! ! ! ! P!!267,000!
! Income!tax!payable!! ! ! ! ! ! ! P!!600,000!
! !
5#7.! !
! Taxable!income! ! ! ! ! ! !!!!!!!P12,000,000!
! Future!deductible!amount:!
! !!!!!Book!depreciation!in!excess!of!tax!depreciation! ! !!!!!!!!!!!!!(430,000)!
! Nontaxable!income:!
! !!!!!Interest!on!government!securities! ! ! !!!!!!!!!!!!!!!!450,000!
! Pretax!financial!income! ! ! ! ! !!!!!!!!P12,020,000!
Page%71%
Chapter 5 - Income Taxes
5#8.!
(a)! Schedule!of!reversal!of!the!temporary!differences!
2016! 140,000!x!32%! ! ! ! ! P!!44,800!
2017! 320,000!x!34%! ! ! ! ! !!108,800!
2018! 240,000!x!36%! ! ! ! ! !!!!86,400!
Total! ! ! ! ! ! ! P240,000!
!
! ! Pretax!financial!income! ! ! ! !!!!!!!!!!!!!P2,200,000!
! ! Add!nondeductible!expenses! ! ! !!!!!!!!!!!!!!!!!!!400,000!
! ! Less!nontaxable!revenues! ! ! ! (140,000)!
! ! Financial!income!subject!to!tax! ! ! !!!!!!!!!!!!!P2,460,000!
! ! Future!taxable!amounts! ! ! ! ! !(700,000)!
! ! Taxable!income! ! ! ! ! !!!!!!!!!!!!!P1,760,000!
! ! Tax!rate!! ! ! ! ! ! !!!x!!!!30!%!
! ! Income!tax!payable! ! ! ! ! P!!!528,000!
! ! Deferred!tax!liability!(see!above)! ! ! ! P!!!240,000!
! !
! (b)! Income!tax!expense!–!Current! ! ! 528,000!
! ! !!!!!Income!tax!payable! ! ! ! ! !!!528,000!
!
! ! Income!tax!expense!–!Deferred! ! ! 240,000!
! ! !!!!!Deferred!tax!liability! ! ! ! !!! !!!!240,000!
!
! (c)! Income!from!continuing!operations!before!income!taxes! P2,200,000!
! ! Income!tax!expense!
! ! !!!!!Current! ! ! ! P528,000!
! ! !!!!!Deferred! ! ! ! !!240,000!!!!!!!!!!!!!!!!!!!!768,000!
! ! Profit! ! ! ! ! ! !!!!!!!!!!!!!!!!P1,432,000!
!
5#9.! !
! (a)!
! Straight!Line! SYD! Difference!
2015! 500,000! 800,000! (300,000)!
2016! 500,000! 600,000! (100,000)!
2017! 500,000! 400,000! 100,000!
2018! 500,000! 200,000! 300,000!
!
! ! Carrying!Amount! Tax!Base! Difference!
December!31,!2015! 1,500,000! 1,200,000! 300,000!
December!31,!2016! 1,000,000! !!!600,000! 400,000!
December!31,!2017! !!!500,000! !!!200,000! 300,000!
December!31,!2018! 0! 0! 0!
!
! ! 2015! 2016! 2017! 2018!
Taxable!income! 800,000! 890,000! 1,200,000! 1,500,000!
Future!taxable!amount! 300,000! 100,000! ! !
Additional!taxable!amount! ! ! ! !!
(reversal)! (!100,000)! !(300,000)!
Pretax!accounting!profit! 1,100,000! 990,000! 1,100,000! 1,200,000!
!
(b)! Deferred!tax!liability!at!the!end!of!each!year!is!as!follows:!
2015! 300,000!x!30%! P!!!90,000!
2016! 400,000!x!30%! 120,000!
2017! 300,000!x!30%! !90,000!
2018! 0! 0!
Page%72%
Chapter 5 - Income Taxes
!(c)!
! Journal!entries!to!record!income!taxes!and!deferred!income!taxes!
! December!31,!2015!!
! Income!tax!expense! (30%!x!800,000)! !!!!!!!!!!!240,000!
! ! Income!tax!payable! ! ! ! ! !!!240,000!
! !
! Income!tax!Expense#Deferred! ! ! ! 90,000!
! ! Deferred!tax!liability! ! ! ! !!!!!!!!!!!!!!!!!!!90,000!
!
! December!31,!2016!
! Income!tax!expense!–!current!! ! ! ! 267,000!
! ! Income!tax!payable! ! ! ! ! !!!!!267,000!
! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!30%!x!!890,000!
!
! Income!tax!expense!–!deferred! ! ! ! !!!30,000!
! ! !Deferred!tax!liability! ! ! ! !!!!!!!!!!!!!!!!!!!!!!!30,000!
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!120,000!–!90,000!=!30,000!
! !
! December!31,!2017!
! Income!tax!expense!–!current! ! ! !!!!!!!!!!!!!!!!360,000!
! ! Income!tax!payable!! ! ! ! ! !!!!!360,000!
! ! ! 30%!x!1.2M!
! !
! Deferred!!tax!liability! ! ! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!30,000!
! ! !Income!tax!expense!#!deferred!(benefit)!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!30,000!
! ! !!!!!!!!!!!!!!90,000!–!120,000!=!30,000!decrease!
! !
! December!31,!2018! !
! Income!tax!expense!–!current! ! ! !!!!!!!!!!!!!!!450,000!
! ! Income!tax!payable!! ! ! ! ! !!!!!450,000!
! ! ! 30%!x!1.5M!
!
! Deferred!!tax!liability! ! ! ! !!!!!!!!!!!!!!!!!90,000!
! ! !Income!tax!expense#Deferred!(Benefit)! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!90,000!
! ! !!! 0!–!90,000!=!90,000!Decrease!
! !
! (d)! !
! ! 2015! 2016! 2017! 2018!
Income!tax!expense! ! ! ! !
!!!!!Current! P!!!240,000! P!!!267,000! P!!!360,000! P!!!450,000!
!!!!!Deferred!(Benefit)! !!!!!!90,000! !!!!!!30,000! !!(!!30,000)! !!!!(90,000)!!!!!
Total!income!tax!expense! P!!!330,000! P!!!297,000! P!!!330,000! P!!!360,000!
! !
! (e)! ! !
! ! ! 2015! 2016! 2017! 2018!
Income!before!income!tax! P1,100,000! P!990,000! P1,100,000! P1,200,000!
Less!income!tax!expense! ! ! ! !
see!(d)!! !!!!!330,000! !!!!297,000! !!!!330,000! !!!!!360,000!
Profit! P!!!770,000! P!!!693,000! P!!770,000! P!!!840,000!
!
5#10.! !
! (a)! Carrying!amount!of!inventories!>!Tax!Base! ! !!!!P!!!!100,000!
! ! Carrying!amount!of!building!&!equipment!!>!Tax!Base!!!!!! !!!!!!!!1,800,000!
! ! Future!taxable!amount,!December!31,!2015!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!P!1,900,000!
!
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! !!!!!!!!!!!!!!!!!!Carrying!amount!of!accounts!receivable!<!Tax!Base! !!!!!!!P!!!!200,000!
! ! !!Carrying!amount!of!warranty!>!Tax!Base!! ! !!!!!!!!!!!!!!800,000!
! ! !!Carrying!amount!of!unearned!rent!>!Tax!Base!! !! !!!!!!!!!!!!!!500,000!
! ! !!Future!deductible!amount,!December!31,!2015! ! !!!!!!!P!1,500,000!
!
(b)! Income!tax!payable!(5,000,000!X!30%)! ! ! !!!!!!!!P1,500,000!
! Deferred!tax!asset!(1,500,000!x!30%)! ! ! !!!!!!!!P!!!450,000!
! Deferred!tax!liability!(1,900,000!x!30%)! ! ! !!!!!!!!P!!!570,000!
!
(c)! Income!tax!expense#current! ! 1,500,000!
! !!!!!!Income!tax!payable! ! ! ! ! !!!!1,500,000!
!
! Income!tax!expense#deferred! ! !!!!!!75,000!
! !!!!!!Deferred!tax!asset! ! ! ! ! !!!!!!!!!75,000!
! ! 450,000!–!525,000!
!
! Deferred!tax!liability! ! !!!!!!!!!!!!!!!!!!!!830,000!
! !!!!!!Income!tax!benefit#deferred! ! ! ! !!!!!!!!830,000!
! ! 570,000!–!1,400,000!
!
5#11.! !
! (a)! Income!tax!expense!–!current! ! ! ! 900,000!
! ! ! Income!tax!payable! ! ! ! ! ! 900,000!
! ! ! ! 30%!x!3.0M!
!
! ! Deferred!tax!asset! ! ! ! ! !!90,000!
! ! Income!tax!expense!–!deferred! ! ! ! !!60,000!
! ! ! Deferred!tax!liability! ! ! ! ! ! 150,000!
! ! ! ! 30%!x!800,000!=!240,000!
! ! ! ! 240,000!–!150,000!=!90,000!
! ! ! ! 30%!x!1.5M!=!450,000!
! ! ! ! 450,000!–!300,000!=!150,000!
!
! (b)! 1.! Current!income!tax! ! ! ! P!!!900,000!
! ! ! Deferred!income!tax!! ! ! ! !!!!!!!!60,000!
! ! ! Total!income!tax!expense! ! ! P!!!960,000!
!
! ! 2.! Taxable!income! ! ! ! ! P3,000,000!
! ! ! Future!taxable!amount!
! ! ! ! 1.5M!–!(300,000/30%)! ! ! !!!!!!500,000!
! ! ! Future!deductible!amount!
! ! ! ! 800,000!–!(150,000/30%)! ! !!!!(300,000)!
! ! ! Accounting!profit!subject!to!tax! ! ! P3,200,000!
!
! ! 3.! Accounting!profit!subject!to!tax! ! ! P3,200,000!
! ! ! Non#taxable!revenue! ! ! ! !!!!!!200,000!
! ! ! Non#deductible!expense! ! ! ! !!!(600,000)!
! ! ! Accounting!profit!before!income!tax! ! P2,800,000!
!
5#12.! !
! Tax!rate!=!180,000/600,000!=!30%!
Income!tax!expense!–!current! 300,000! !
!!!!!Income!tax!payable! ! 300,000!
!!!!!!!!!!30%!x!1,000,000! ! !
! ! !
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Deferred!tax!asset! 60,000! !
!!!!!Income!tax!benefit!–!deferred! ! 60,000!
!!!!!!!!!!DTA,!end!(30%!x!800,000)!!!!!!!!!!!!!!!!!240,000! ! !
!!!!!!!!!!DTA,!beginning!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!180,000!
!!!!!!!!!!Increase!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!60,000!
!
5#13.! !
(a)! Deferred!tax!liability,!December!31,!2015! !! !
! !!!!!2.0M!x!30%! P600,000! !
! ! ! !
(b)!! Income!tax!expense! ! !
! !!!!!!Current!! P900,000! !
! !!!!!!Deferred!(decrease!in!DTLiability)! (40,000)! !
! !!!!!!Total!income!tax!expense! P860,000! !
! ! ! !
(c)! Income!tax!expense!–!current! 900,000! !
! !!!!!Income!tax!payable! ! 900,000!
! !!!!!!!!!!3.0M!x!30%! ! !
! ! 40,000! !
Deferred!tax!liability!
! !!!!!Income!tax!expense!–!deferred! ! 40,000!
! !!!!!!!!!!DTL,!beg!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!640,000! ! !
!!!!!!!!!!DTL,!end!revised!due!to!!
!!!!!!!!!!!!change!in!tax!rate!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!600,000!
!!!!!!!!!!Decrease!in!DTL!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!40,000!
! !
5#14.! !
(a)! Income!tax!expense!–!current! !! !
! !!!!!3.0M!x!30%! ! P900,000!
! Previous!payment!in!2015! ! 500,000!
! Income!tax!payable,!December!31,!2015! ! P400,000!
! ! ! !
(b)! Income!tax!expense!–!current! 400,000! !
! !!!!!!!!!!Income!tax!payable! ! 400,000!
! !!!!!!!!!!!!!!!!!!(900,000!–!500,000)! ! !
! Deferred!tax!liability! 30,000! !
! !!!!!!!!!!Deferred!tax!asset! ! 30,000!
! !!!!!!!!!!!!!!!!!!!DTL,!Dec.!31,!2015!(400,000!x!30%)! 120,000! !
! !!!!!!!!!!!!!!!!!!!DTL,!Jan.!1,!2015!!! 150,000! !
! !!!!!!!!!!!!!!!!!!!Decrease!in!DTL! 30,000! !
! ! ! !
! !!!!!!!!!!!!!!!!!!!DTA,!Dec.!31,!2015!!!(200,000!x!30%)!!! 60,000! !
! !!!!!!!!!!!!!!!!!!!DTA,!Jan.!1,!2015! 90,000! !
! !!!!!!!!!!!!!!!!!!!Decrease!in!DTA! 30,000! !
! ! ! !
(c)! Total!income!tax!expense!!! ! !
! !!!!!!!!!!!Current! ! P900,000!
! !!!!!!!!!!!Deferred! ! #0#!
! !!!!!!!!!!!Total!income!tax!expense! ! P900,000!
! Pretax!profit! ! P2,800,000!
! Income!tax!expense! ! 900,000!
! Profit! ! P1,900,000!
!
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Chapter 5 - Income Taxes
5#13! !
! (a)! Income!tax!expense!–!current! ! ! !!!!!600,000!
! ! Deferred!tax!asset! ! ! ! !!!!!100,000!
! ! ! Income!tax!payable! ! ! ! ! 700,000!
!
! (b)! Income!tax!expense!–!current! ! ! !!!!!700,000!
! ! ! Income!tax!payable! ! ! ! ! 700,000!
!
!
!
MULTIPLE(CHOICE(QUESTIONS(
Theory(
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Chapter 5 - Income Taxes
MC35! B! Deferred!tax!liability,!December!31,!2015! !
!!!!!!!!!!!!!!150,000!x!35%!!!!!!!!!!!!!!!!!!!!!!!!!!!52,500!! !
!!!!!!!!!!!!!!150,000!x!35%!!!!!!!!!!!!!!!!!!!!!!!!!!!52,500!! !
!!!!!!!!!!!!!!150,000!x!30%!!!!!!!!!!!!!!!!!!!!!!!!!!!45,000! P150,000!
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Chapter 5 - Income Taxes
Page%78%
Chapter(6(–(Employee(Benefits(
Chapter(6(–(Employee(Benefits(
(
PROBLEMS(
!
6–1.! !
!(a)! Liability!for!compensated!absences,!December!31,!2014!
! 6!!x!!420!! ! ! ! ! =! P2,520!
! !
(b)! Employee!Benefit!Expense!for!Sick!Leave!and!Vacation!Leave!
!
Sick!Leave! 5!x!P450! P2,250! !
! 10!x!420! !4,200! !
! 2!x!400! 800! !
! 2!!x!!380! 760! P8,010!
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! ! Compensated!Absences! ! ! ! !!!!!!!!!!!!!!!301,500!
! ! !!!!!!!Cash!! ! ! ! ! ! ! !!!!!!301,500!
! ! ! Payment!of!compensated!absences!
! !
! ! Compensated!Absences! ! ! ! ! !36,000!
! ! !!!!!!Liability!for!Compensated!Absences! ! ! ! !!!!!!!!36,000!
! ! ! YearTend!accrual!of!liability!for!!
! ! ! compensated!absences!
!
6T3.! !
! (a)! Vacation!earned!for!work!in!20145! ! ! P400,000!
! ! Adjustment!for!10%!salary!increase!on!unused!vacation!at!!
! ! ! beginning!of!year!10%!x!(500,000!–!300,000)! ! !!!!20,000!
! ! Vacation!pay!expense!for!year!2015! ! ! ! P420,000!
!
! (b)! Liability!for!accumulated!vacations,!12/31/14! ! ! P500,000!
! ! Vacations!taken!during!2015! ! ! ! ! (300,000)!
! ! Vacation!pay!expense!for!2015! ! ! ! ! !!420,000!
! ! Liability!for!accumulated!vacations,!12/31/15! ! ! P620,000!
!
6T4.! !
(a)! Retirement!Benefit!Expense!=!Required!Contribution!
!!!!!!!!!!!(P6.0M!x!8%)!+!!5%!x!(P35.0M!T!P10.0M)!! !!!!! ! =!P1,730,000!
! !
(b)! 1.! Retirement!Benefit!Expense! ! 1,730,000!
! ! ! Prepaid!Retirement!Benefit!Cost!!!!!!!!!!!!!!!!!!!!!!!!!70,000!
! ! ! !!!!!!Cash!! ! ! ! ! ! 1,800,000!
! ! !
2.! Retirement!Benefit!Expense! ! 1,730,000!
! ! ! !!!!!!Cash!! ! ! ! ! ! 1,500,000!
! ! ! !!!!!!Accrued!Retirement!Benefit!Cost! !! ! !!!230,000!
!
6T5.! !
! Defined!Benefit!Cost! Benefit!Liability!(Asset)!
! ! Other! ! !
Profit!or! Comprehensive! Benefit! !
Loss! Income!! Obligation! Plan!Assets!
Beginning!balances! ! ! P3,000,000! P2,600,000!
Current!service!cost! P1,000,000! ! 1,000,000! !
Interest!cost! ! ! ! !
!!10%!x!3.0M! 300,000! ! 300,000! !
!!10%!x!2.0M! (260,000)! ! ! 260,000!
Actuarial!gain!or!loss! ! ! ! !
!!Benefit!obligation! ! 100,000! 100,000! !
!!Plan!assets! ! ! ! !
!!!300,000!T260,000! ! (40,000)! ! 40,000!
Benefits!paid! ! ! (350,000)! (350,000)!
Contributions! ! ! ! 900,000!
Ending!balances!! 1,040,000! 60,000! 4,050,000! 3,450,000!
!
(a) Net!Prepaid/Accrued!Benefit!Cost,!December!31,!2014!
! !!!!!!!!!!!P3,000,000!–!P2,600,000!! ! ! ! ! !!!!!!!!!P!!!!400,000!!
!
(b) Retirement!benefit!expense!in!2015! !!! ! !!!!!!!!!!!!!!!!!!!!!!!!!!P1,040,000!
!
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6T7.! !
! Defined!Benefit!Cost! Benefit!Liability!(Asset)!
! ! Other! ! !
Profit!or! Comprehensive! Benefit! !
Loss! Income!! Obligation! Plan!Assets!
Beginning!balances! ! ! 8,200,000! 8,500,000!
Current!service!cost! 1,200,000! ! 1,200,000! !
Interest!cost! ! ! ! !
!!!10%!x!8,200,000! 820,000! ! 820,000! !
!!!10%!x!8,500,000! (850,000)! ! ! !850,000!
Actuarial!gain!or!loss! ! ! ! !
!!!On!Benefit! ! (40,000)! (40,000)*! !
Obligation!
!!!On!Plan!Assets! ! ! ! !
!!!!!!780,000T850,000! 70,000! !!(70,000)!
Contribution! ! ! ! 1,500,000!
Ending!balances! 1,170,000! 30,000! 10,180,000! 10,780,000!
! ! *Squeezed!
!
(a) Defined!benefit!liability/!asset,!January!1,!2015!
! ! P8,200,000!–!P8,500,000!! ! ! ! !P300,000!asset!
!
(b) Actuarial!gain!or!loss!
! (1)! On!plan!assets!! (780,000!–!850,000)!!!!!!!!!! !!!!! !!!!!P70,000!loss!
! (2)! On!benefit!obligation!(squeezed,!see!above)!!! ! !!!!!P40,000!gain!
!
(c) Retirement!Benefit!Cost!taken!to!
! ! Profit!or!loss! ! ! ! ! !!!!!!!!! !!!!!!!P1,170,000!
! ! Other!comprehensive!income! ! ! !!!!!!!!!!!!!!!!!!!!!!!P!!!!!!30,000!
!
(d) Retirement!Benefit!Expense! ! ! 1,170,000!
! Remeasurement!of!Defined!Benefit!
! !!!!Asset/Liability!–!OCI! ! ! !!!!!!!!!!!!!!!!!!!!!!30,000!
! Defined!Benefit!Liability/Asset! ! ! !!!300,000!
! ! Cash! ! ! ! ! ! ! 1,500,000!
! ! ! !
(e) Defined!Benefit!Asset!
! ! Beginning!balance! ! ! ! ! P300,000!
! ! Overfunding!(1,500,000!–!1,200,000)! ! ! !!300,000!
! ! Ending!balance!–!asset! ! ! ! ! P600,000!
!
(f) Remeasurement!of!Defined!Benefit!!
! !!!!!!Asset/Liability!–!OCI! ! ! ! !!!!!!50,000!
! ! Defined!Benefit!Asset/Liability! ! ! ! !!!!50,000!
!
6T8.! !
! (a)! Fair!value!of!plan!asset,!ending! ! ! ! ! P4,950,000!
! ! Fair!value!of!plan!assets,!beginning! ! P4,600,000!
! ! Contributions!to!the!plan!! ! ! !!!!!!500,000!
! ! Benefits!paid! ! ! ! ! !!!!(700,000)!
! ! Balance,!before!actual!return! ! ! ! ! P4,400,000!
! ! Actual!return!on!plan!assets! ! ! ! ! P!!!!550,000!
!
!
!
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Chapter(6(–(Employee(Benefits(
MULTIPLE(CHOICE(QUESTIONS(
Theory(
!
MC1! C! MC6! D! MC11! D! MC16! A!
MC2! A! MC7! A! MC12! D! MC17! B!
MC3! B! MC8! A! MC13! A! MC18! D!
MC4! A! MC9! A! MC14! C! ! !
MC5! D! MC10! A! MC15! B! ! !
!
Problems(
(
MC19! B! Current!service!cost! P140,000!
! ! Expected!return!on!plan!assets!(9%!x!3.0M)! (270,000)!
! ! Interest!on!defined!benefit!obligation!(9%!x!3.2M)! 288,000!
! ! Retirement!benefit!expense!for!2015! P158,000!
MC26! A! Actuarial!gain!or!loss!is!taken!to!other!comprehensive!income,! !
not!in!profit!or!loss! Zero!
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Page(85(
Chapter(6(–(Employee(Benefits(
Page(86(