IMMACULATE CONCEPTION INTERNALTIONAL

COLLEGE OF ARTS AND TECHNOLOGY

Poblacion, Sta. Maria, Bulacan

COLLEGE OF BUSINESS, ENTREPRENEURSHIP AND ACCOUNTANCY

AE16 INTERMEDIATE ACCOUNTING 2

SPECIAL QUALIFYING EXAMINATION REVIEW

PART I: CURRENT LIABILITIES

MULTIPLE CHOICE THEORIES:

1. Which of the following is not an essential characteristic for a liability to exist?

a. The liability arises from an obligating event.
b. The settlement of the liability requires an outflow of resources embodying economic benefits.
c. The identification of the payee is a requirement.
d. None of the choices.

2. Which of the following is a liability item rather than equity item?

Redeemable Preference Shares Stock Dividends Payable Cash Dividends Payable
a. No Yes Yes
b. Yes Yes Yes
c. Yes No Yes
d. No No Yes

3. S1: Financial liabilities are classified as financial liabilities at fair value through profit or loss (FVPL), financial liabilities at fair
value through other comprehensive income (FVOCI) or financial liabilities at amortized cost.
S2: Transaction costs are expensed immediately if the financial liability is designated initially as at FVPL.
S3: Financial liabilities at amortized cost present gains or losses on changes in fair value within profit or loss.
a. True, false, false c. True, true, false
b. False, true, true d. False, true, false

4. An entity shall measure initially a financial liability designated at fair value through profit or loss at
a. Fair value c. Fair value plus transaction costs
b. Face amount d. Fair value less transaction costs

5. Which of the following statements is not true regarding the presentation of current liabilities in accordance with PFRS?
a. The noncurrent liabilities follow the current liabilities.
b. Current liabilities are generally recorded at face amount.
c. Current liabilities should not be offset against the assets used for liquidation.
d. Current liabilities may be listed in the order of maturity, in descending order of magnitude or in the order of liquidity
preference.

6. Which of the following is not a current liability?

a. Financial liabilities held for trading.
b. A loan obligation where the entity has an unconditional right to defer settlement of the liability for 6 months after the end
of the reporting period.
c. Deferred tax liability expected to reverse within 6 months.
d. Accrued operating expenses expected to be paid after 1 year.

7. Which of the following is a current liability?

I. Current portion of a long-term debt.
II. A long-term debt that is immediately demandable but the creditor agreed to provide before year-end a grace period of
12 months.
III. A long-term debt that currently maturing was refinanced after year-end.
IV. A breach of covenant on one of the company’s long-term debt where the creditor, after-year end, agreed to provide a
grace period of 7 months.
a. I, II and III c. I and III
b. I and IV d. I, III and IV

8. A retail store received cash and issued gift certificates that are redeemable in merchandise. How would the deferred revenue
account be affected by the redemption and non-redemption of certificates, respectively?

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 Redemption of certificates Non-redemption of certificates
a. No effect No effect
b. No effect Decrease
c. Decrease No effect
d. Decrease Decrease

9. Which of the following increases the balance of the accounts payable?

I. Post-dated checks issued to suppliers.
II. Goods in transit from a supplier shipped FOB Destination.
a. I only c. Both I and II
b. II only d. Neither I nor II

10. Which of the following liabilities that are not part of the normal operating cycle of an entity should be classified as noncurrent?
a. Bank overdrafts
b. Financial liabilities classified as held for trading
c. Current portion of noncurrent financial liabilities
d. Financial liabilities that provide financing but are not due for settlement within twelve months after the reporting period

11. Which of the following is the correct definition of liabilities?

a. Present obligations of an entity to transfer economic resources as a result of past events
b. Present obligations of an entity to transfer economic resources as a result of present events
c. Past obligations of an entity to transfer economic resources as a result of present events
d. Past obligations of an entity to transfer economic resources as a result of past events

12. Trade liabilities are classified as

a. Current liabilities
b. Non-current liabilities
c. Current liabilities if it is expected to be collected 12 months or less from the balance sheet date
d. Non-current liabilities if it is expected to be collected beyond 12 months from the balance sheet date

13. Under FOB Destination, accounts payable is recognized upon

a. Shipment of the goods from the company’s supplier
b. Receipt of the goods by the company
c. Payment of the invoice
d. Sale of the goods to the company customers

14. How would be the proceeds received from the advance sale of nonrefundable tickets for “Fifty Shades of Grey” is reported in
the statement of financial position before the movie showing?
a. Revenue for the entire proceeds
b. Unearned revenue for the entire proceeds
c. Revenue to the extent of related costs expended
d. Unearned revenue to the extent of related costs expended

15. An entity received cash and issued a gift certificate that can be used to purchase goods from the entity. When the gift certificate
was issued
a. Deferred revenue account should be increased
b. Revenue account should be increased
c. Deferred revenue account should be decreased
d. Revenue account should be decreased

16. Which of the following statement(s) is/are true regarding suppliers’ debit balances?
a. Supplier’s debit balances are debit balances in the accounts payable resulting from overpayments, returns and allowances,
and advance payments to suppliers
b. Suppliers’ debit balances are classified as current asset unless the amount is immaterial in which case an offset may be
made against the accounts payable account
c. Both a and b
d. Neither a nor b

PROBLEM 1 (1)

DAVAO COMPANY had the following accounts taken from the balance sheet as of December 31, 2021:

Trade accounts payable (net of debit balances in supplier’s accounts of P30,000) P 770,000

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 Trade accounts receivable (net of credit balance on SURIGAO INC. amounting to P20,000) 400,000
Cash in bank (net of bank overdraft of P40,000) 1,000,000
Trade notes payable (15 months left before maturity) 300,000
Non-trade notes payable (14 months left before maturity) 190,000
Advances from customers 210,000
Unearned rent income 100,000
Deferred income from service contracts 300,000
Financial liabilities held for trading 290,000
Accrued taxes payable 150,000
Accrued utilities expense 80,000
Cash dividends payable (payable after 15 months) 240,000
Property dividends payable (at fair value) 150,000
Share dividends payable 130,000
Estimated warranty liability 80,000
Estimated premiums liability 90,000
Contested BIR tax assessment – possible obligation 120,000
Taxes withheld from employees 140,000
VAT Payable 85,000
Loan of LANAO, INC, guaranteed by DAVAO – possible that DAVAO will be liable 105,000
Mortgage payable 250,000
8% serial bonds payable – with 5 equal annual payments, issued July 1 this year 500,000
10% 5-year loans payable (October 1, 2021) 200,000
Deferred tax liability – expected reversal is early next year 90,000
12% notes payable – maturing on October 31, 2022 1,500,000
10% notes payable – maturing on December 31, 2022 300,000
8% loans payable – maturing on July 1, 2023 500,000
15% notes payable – maturing on April 1, 2023 1,000,000
Bonds payable 2,000,000

Additional information:
 The cash in bank comprises 2 bank accounts in 2 different banks.
 Advances from customers account pertain to advances which the related goods will be delivered in 2022.
 In relation to the 12% notes payable, the entity entered into a refinancing agreement with BPIDO Bank to refinance
75% of the notes on December 15, 2021.
 The whole 10% notes payable was refinanced on January 7, 2022. DAVAO COMPANY has the discretion to roll over
the liability for at least 12 months from December 31, 2021.
 The bank loan agreement on 8% loans payable requires DAVAO to maintain a current ratio of 3:1. If the current ratio
falls below 3:1, the loan becomes automatically payable on demand. Unfortunately, DAVAO’s current ratio on
December 31, 2021 is 2:1. However, on January 2, 2022, the bank agreed not to collect the loan until 13 months from
December 31.
 The term of the 15% notes payable gives the holder a right to demand immediate payment if the entity falls to make
monthly interest payment within 10 days of the date of payment is due. On December 31, 2021, DAVAO is three
months behind in paying its required interest payment. On December 31, 2021, the bank agreed to give DAVAO a
180-day grace period to pay the outstanding balance.
 The bonds payable are 5-year 12% bonds issued March 31, 2017. Interest is payable semi-annually on March 31 and
September 30.
 Except for the 15% notes payable and bonds payable, all interest are payable annually. There were no interest accruals
made on any interest bearing liability as of year-end.

REQUIRED: How much is the total current liabilities to be presented on the balance sheet as of December 31, 2021?

PROBLEM 2 (8)

RIZAL COMPANY paid employees at the end of each month. The payroll for December revealed the following:
Office Staff Officers Sales Staff
Gross payroll P154,000 P310,000 P200,000
Income Tax 24,000 63,000 42,000
SSS 8,000 9,000 8,500
Philhealth 4,500 10,000 6,000
Pagibig 4,000 5,000 4,500

The employer’s contributions in relation to the December payroll are as follows:

Office Staff Officers Sales Staff

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 SSS P10,000 P 5,000 P11,500
Philhealth 6,000 11,000 8,000
Pagibig 5,000 7,000 6,000

REQUIRED: In the financial statements for the month of December, what amount should be reported as payroll tax liability and
payroll tax expense, respectively?

PART II: PROVISIONS, ESTIMATED LIABILITIES AND CONTINGENCIES

MULTIPLE CHOICE THEORIES:

17. Which of the following is correct regarding provisions?

a. The exact payee of estimated liabilities should be identified or determined in order for the liability to exist.
b. Provision is a present obligation arising from a future event called as an obligating event.
c. Uncertainty of the amount of the liability as well as the timing of its settlement differentiates provisions from other types
of liabilities.
d. None of the choices.

18. Which of the following creates a legal obligation?

a. Legislation or other operation of law
b. Entity established pattern of past practice
c. A contractual agreement between the entity and another party
d. Both a and c

19. A provision shall be recognized when

a. There is a possible obligation arising from a past event, the outflow of resources is probable, and an approximate amount
can be set aside toward the obligation.
b. There is a constructive obligation as a result of a past obligating event, the outflow of resources is probable, and a reliable
estimate can be made of the amount of the obligation.
c. Management decides that it is essential that a provision be made for unforeseen circumstances and keeping in mind this
year the profits were enough but next year there may be losses.
d. There is a legal obligation arising from a past obligating event, the probability of the outflow of resources is more than
remote but less than probable, and a reliable estimate can be made of the following amount of the obligation.

20. S1: When the provision involves a large population of items, the estimated liability shall be measured as the midpoint of the
possible outcomes.
S2: If an entity did not record an accrual for a present obligation and did not disclose the nature of the obligation and the
range of the loss, the loss is likely to be remote.
S3: If the provision is directly attributable to a certain asset, it is debited as cost of the asset.
a. True, false, false c. True, true, false
b. False, true, true d. False, false, true

21. Reporting is required for

a. All loss contingencies
b. Loss contingencies that are possible and can be reliably measured
c. Loss contingencies that are probable and can be reliably measured
d. Gain contingencies that are probable and can be reliably measured

22. An entity operates a plant in a foreign country. It is probable that the plant will be expropriated. However, the foreign
government has indicated that the entity will receive a definite amount of compensation for the plant. The amount of
compensation is less than the fair value but exceeds the carrying amount of the plant. The contingent asset should be reported
a. In the statement of financial position
b. In the notes to the financial statements
c. As a fixed asset valuation allowance account
d. As a valuation allowance as part of shareholders’ equity

23. Which of the following best describes the accrual approach of accounting for warranty cost?
a. Expensed when paid
b. Expensed when incurred
c. Expensed based on estimate in year of sale
d. Expensed when warranty claims are certain

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24. A provision should be recognized for which of the following?
a. Future operating losses
b. Possible losses from unfavorable outcome of court cases
c. Decline in value of the asset due to impairment
d. Liability for unredeemed coupons

25. A contingent Liability is a

I. Possible obligation arising from a past event, the existence of which will be established only by the occurrence or
nonoccurrence of one or more uncertain future events outside the entity’s control.
II. Present obligation arising from a previous occurrence for which an outflow of resources containing economic benefits is
unlikely to be required to satisfy the obligation or the amount of the obligation cannot be reliably measured
a. I only c. Both I and II
b. II only d. Neither I nor II

26. A contingent liability

a. Is accrued even though not reasonably estimated
b. Is the result of a loss contingency
c. Is not recognized but only disclosed in the financial statements
d. Exists as a liability but the amount and due date are indeterminable

27. The cost of customer premium offer should be charged to expense

a. When the related product is sold c. When the premium offer expires
b. When the premium is claimed d. Over the product life cycle

28. When a premium is purchased by an entity, the effect in the assets section would be
a. Increase c. No effect
b. Decrease d. None of the above

29. Premium expense is accounted for as

a. Part of cost of goods sold c. Part of operating expenses
b. Part of other comprehensive income d. Cannot be determined

30. A company sells appliances with a three-year warranty. Under the warranty, service calls are handled by an independent
mechanic who has a contract with the company. Warranty costs are estimated to be incurred for each equipment sold, based
on past experience. When should the warranty costs be recognized by the entity?
a. When the service calls are performed c. When payments are made to the mechanic
b. When the machines are sold d. Evenly over the life of the warranty

31. A company has a policy of guaranteeing new products for three years against defects. What is the estimated warranty liability’s
classification?
a. No need for disclosure c. Noncurrent
b. Partly current and partly noncurrent d. Current

PROBLEM 3

In relation to the estimated liability of KEMERUT COMPANY, the following information were presented to you for evaluation:

(a) On December 5, 2019, an employee filed a P3,000,000 lawsuit against KEMERUT for damages suffered when one of
KEMERUT’s equipment malfunctioned in August of 2019. KEMERUT’s legal counsel expects the company will lose the
lawsuit and estimates the loss to be between P500,000 and P1,500,000. The employee has offered to settle the lawsuit out
of court for P1,200,000 but KEMERUT will not agree to the settlement.

(b) KEMERUT recalled a product on August 1, 2019 due to recently proven health hazard. The products recalled will be
repaired free of charge. The company is uncertain whether all the products recalled will have a defect. The following
estimate was made by the company’s engineers and accountants and approved by the board of directors:

Repair cost Probability

P500,000 25%
600,000 20%
800,000 35%
900,000 20%

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 (c) During December 2019, a competitor filed suit against KEMERUT for industrial espionage, claiming P700,000 in damages.
Management and legal counsel believe it is probable that damages will be awarded to the plaintiff and the best estimate
of the damages is P600,000.

(d) At the beginning of the year, KEMERUT guaranteed a P300,000 loan obtained by CHARARAT from BDO Bank. On
December 31, CHARARAT defaulted from his loan and it is probable that KEMERUT will be held liable to the bank for the
loan of CHARARAT.

(e) In July 2019, BADAFF brought action against KEMERUT for polluting the Marilao River with its waste products. It is probable
that BADAFF will be successful but the amount of damages the entity might have to pay should not exceed P1,500,000.
The company’s P3,000,000 comprehensive public liability policy has a P200,000 deductible clause. KEMERUT estimates
that the cash outflow is equal to its net liability on the comprehensive public liability policy.

(f) The main production plan of KEMERUT is located on the shores of a lake. The lake has been rising for a number of years,
and the company has installed dikes to prevent flooding. The dikes are currently operating at or near capacity. Weather
forecasters have predicted that the lake will rise another 8 inches this coming summer (2020). If this occurs, significant
damage will likely result from stressing the dikes beyond capacity. KEMERUT estimated a P4,000,000 to P6,000,000 amount
of loss should the flooding will not be prevented.

(g) KEMERUT is involved in litigation regarding a faulty product sold in a prior year. The entity has consulted with an attorney
and determined that it is possible that the entity may lose the case. The attorney estimated that there is a 40% chance of
losing. If this is the case, the attorney estimated that the amount of any payment would be P1,000,000.

(h) During 2019, KEMERUT is the defendant in a breach of patent lawsuit. The lawyers believe there is a 60% chance that the
court will not dismiss the case and the entity will incur outflow of benefits. If the court rules in favor of the claimant, the
lawyers believe that there is a 70% chance that the entity will be required to pay damages of P800,000 and a 30% chance
that the entity will be required to pay damages of P600,000. Other amounts of damages will settle out of court. A 7% risk
adjustment factor to the cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An
appropriate discount rate is 10% per year.

REQUIRED: Based on the above information, how much is the total amount of provisions to be reported on the statement of
financial position as of December 31, 2019?

PROBLEM 4

LAFANG CORP. has initiated promotional program whereby each box of pancake mix contains one coupon. The customer is entitled
for a frying pan if the customer submitted 3 coupons plus P30. LAFANG pays P50 for each frying pan and incurs P10 for handling
and shipping costs upon redemption. The following information are deemed relevant:

2019 2020
Number of boxes sold 150,000 180,000
Selling price per box P70 P75
Number of frying pans purchased 30,000 25,000
Inventory of frying pans at year-end 18,000 16,000

The company estimates that 40% of the coupons issued from boxes sold will be presented for the premium redemption. Coupons
are redeemable within one year from the date of purchase of the related pancake mix.

REQUIRED: (1) How much is the premiums expense to be reported in 2019 and 2020? (2) How much is the estimated premiums
liability to be reported at the end of 2019 and 2020?

PROBLEM 5

During 2019, ISPLUK CORP. introduced a new line of machines that carries a two-year warranty against manufacturer’s defects.
Based on industry experience, the estimated warranty cost percentages related to peso sales are as follows:

Year of sale 1%
Year after sale 6%

Sales and actual warranty expenditures for 2019 and 2020 were as follows:

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 Year Sales Actual Warranty Expenditures
2019 P1,000,000 P54,000
2020 1,400,000 89,000

REQUIRED: (1) How much is the warranty expense to be reported in 2019 and 2020? (2) How much is the estimated warranty
liability to be reported at the end of 2019 and 2020?

PART III: NOTES AND LOANS PAYABLE

MULTIPLE CHOICE THEORIES:

32. In relation to proper measurement of notes payable, which of the following statements is incorrect?
a. If a note payable is irrevocably designated through profit or loss, any transaction cost shall be expensed immediately.
b. The difference between the face amount and present value of the note payable is amortized through interest expense
using the effective interest method if the note payable is classified as financial liability at amortized cost.
c. The difference between the face amount and present value of the note payable is amortized through interest expense
using the effective interest method if the note payable is classified as financial liability through profit or loss.
d. None of the above.

33. Which of the following notes payable at amortized cost is initially measured at present value?
I. Short-term non-interest bearing note containing a significant financing component
II. Long-term non-interest bearing note
III. Short-term interest bearing note
IV. Long-term note bearing an interest which is significantly different from the market rate of interest
a. II and IV c. I, II and IV
b. I, III and IV d. III and IV

34. On October 1, 2014, an entity borrowed cash and signed a three-year interest bearing note in which both the principal and
interest are payable on October 1, 2017. On December 31, 2014, accrued interest should
a. Not be reported c. Be reported as noncurrent liability
b. Be reported as current liability d. Be reported as part of the note payable

35. A company issued a note solely in exchange for cash. The present value of the note at issuance should be equal to the
a. Face amount of the note
b. Amount of cash received
c. Face amount of the note discounted at the prevailing interest rate
d. Amount of cash received discounted at the prevailing interest rate

36. Which statement concerning discount on note payable is incorrect?

a. The discount on note payable is a deduction from the face amount note payable
b. The discount on note payable represents interest charges applicable to future periods
c. Amortizing the discount on notes gradually decreases the carrying amount of the liability over the term of the note
d. Amortizing the discount on notes gradually increases the carrying amount of the liability over the term of the note

37. In computing initial amount of loans payable, which of the following properly shows the accounting of the items?
Direct origination costs Origination fees Direct origination costs Origination fees
a. Add Deduct c. Ignore Deduct
b. Deduct Add d. Ignore Ignore

PROBLEM 6

On January 1, 2021, HEAT COMPANY issued a 3-year promissory note with a face amount of P1,200,000. The nominal interest rate
of the loan is 8%.

REQUIRED: (1) What is the amount of interest expense to be reported for the year 2022? (2) What is the total amount to be
presented in the balance sheet as current and non-current liabilities? Under the following assumptions:
(a) If HEAT COMPANY is required to pay an annual equal payment with the accrued interest every September 1.
(b) If HEAT COMPANY is required to pay an annual interest every September 1.

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PROBLEM 7

On January 1, 2021, NUGGETS INC. purchased a new machinery and issued a 4-year non-interest bearing note with a face amount
of P8,000,000. The market rate of interest on January 1, 2021 and December 31, 2021 is 10% and 8% respectively.

REQUIRED: (1) What is the carrying amount of the note payable on January 1, 2021? (2) What is the carrying amount of note
payable on December 31, 2021? (3) What amount of interest expense is to be reported on the income statement of 2021? (4) What
is the total amount of current liabilities to be reported on December 31, 2021? Under the following assumptions:
(a) The P8,000,000 is payable fully 4 years after.
(b) The P8,000,000 is payable in 4 equal installments starting December 31, 2021.
(c) The P8,000,000 is payable in equal annual installments starting January 1, 2021.

PROBLEM 8

LAKERS CORP. obtains a 10%, P4,500,000 bank loan from WARRIORS BANK at the beginning of the current year, 2021. WARRIORS
charged a P273,465 non-refundable origination fee. The principal will mature 4 years after, which is December 31, 2024 but interest
is payable every December 31.

REQUIRED: (1) What is the initial carrying amount of the loan on January 1, 2021? (2) What is the carrying amount of the loan on
December 31, 2021? (3) What is the amount of interest expense to be reported on the 2021 statement of profit or loss?

PART IV: BONDS PAYABLE

MULTIPLE CHOICE THEORIES:

38. S1: Bond Certificate is known as the contract between the issuer of bonds and the bondholders.
S2: A bond is similar to term loans and notes except that the former is usually offered to the public and sold to investors.
a. True, false c. False, false
b. False, true d. True, true

39. Which of the following types of bonds is properly defined or characterized?

I. Debenture bonds are bonds with collateral security in the form of real properties.
II. Convertible bonds are bonds that can be exchanged by the issuer for equity shares of the issuing entity.
III. Junk bonds are high risk and high yield bonds issued by the entities that are heavily indebted or otherwise in weak financial
position.
IV. Serial bonds are bonds with a single date of maturity.
a. I and IV c. I and II
b. II and III d. II and IV

40. In relation to proper measurement of bonds payable, which of the following statements is correct?
a. Bonds payable at fair value through profit or loss is initially measured at fair value minus transaction costs.
b. Fair value of bonds payable shall include accrued interest if bonds are issued between interest payment dates.
c. For bonds measured at amortized cost, if the initial measurement of bonds is higher than its face value, the amortization,
the interest expense recorded is LOWER than the interest accrued or paid.
d. For bonds measured at amortized cost, if the initial measurement of bonds is lower than its face value, the amortization
is treated as a discount and amortized using the effective interest method. As a result of amortization, the interest expense
recorded is LOWER than the interest accrued or paid.

41. Which of the following is true of a premium on bonds payable?

a. The premium on bonds payable is a contra shareholder’s equity account.
b. The premium on bonds payable is an account that appears only on the books of the investor.
c. The premium on bonds payable increases when amortization entries are made until maturity date.
d. The premium on bonds payable decreases when amortization entries are made until the balance reaches zero at maturity
date.

42. How would the amortization of discount on bonds payable affect each of the following?
Carrying amount of bonds Net income Carrying amount of bonds Net income
a. Increase Decrease c. Decrease Decrease
b. Decrease Increase d. Increase Increase

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43. An entity neglected to amortize the premium on outstanding bonds payable. What is the effect of the failure to record
premium amortization on interest expense and bond carrying amount, respectively?
a. Overstated, overstated c. Understated, overstated
b. Overstated, understated d. Understated, understated

44. Bonds payable shall be measured initially at

a. Fair value c. Fair value minus bond issue costs
b. Fair value plus bond issue costs d. Face amount

45. After initial recognition, bonds payable shall be measured at

a. Face value c. Amortized cost
b. Fair value d. Fair value minus bond issue costs

46. What do you call the interest rate written on the face of the bonds?
I. Nominal interest rate
II. Stated interest rate
III. Effective interest rate
IV. Yield rate
V. Market interest rate
a. I or II c. III or IV
b. I or III d. III, IV or V

47. For a bond issue which sells for more than the face amount, the market rate of interest is
a. Equal to the rate stated on the bond
b. Less than the rate stated on the bond
c. Higher than the rate stated on the bond
d. May be equal, less than or more than the rate stated on the bond

48. If bonds are issued at a premium, this indicates that

a. The yield rate of interest exceeds the nominal rate
b. The nominal rate of interest exceeds the yield rate
c. The yield and nominal rates coincide
d. No necessary relationship exists between the two rates

49. When interest expense for the current year is more than the interest paid, the bonds were issued at
a. A discount c. At face amount
b. A premium d. Either discount or premium

50. An entity retired an issued bond prior to the original maturity date. If the bond retirement price is lower than the carrying
amount of the bonds on the retirement date, the entity should report
a. Gain on bond retirement
b. Loss on bond retirement
c. Share premium
d. Other comprehensive income

PROBLEM 9

GINEBRA INC. issued P3,000,000, 5 years, 10% bonds at 110 including accrued interest on June 1, 2021, but dated March 1, 2021.
Interest is payable semi-annually on March 1 and September 1. Transaction costs of P35,000 were incurred by GINEBRA in relation
to the bond issuance.

REQUIRED: (a) The net amount that GINEBRA receive from the bond issuance is (b) What is the initial measurement of the bonds?
(c) Assuming the bonds were issued at 98 plus accrued interest, what is the net cash receipt from the bond issuance and initial
measurement, respectively?

PROBLEM 10

On January 1, 2021, RAIN OR SHINE CORP. is contemplating on issuing an 8% 3-year, P10,000,000 bonds. Principal is due at
maturity but interest is payable semi-annually every July 1 and December 31. The company determines that the market rate of
interest on that date is 10%.

REQUIRED:
(a) What is the initial measurement of the bonds issued by the company?
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 (b) If the transaction took effect, what is the carrying amount of the bonds on December 31, 2021?
(c) What is the balance of unamortized discount or premium on December 31, 2021?

PROBLEM 11

On January 1, 2021, MAGNOLIA COOMPANY issued a 5%, P6,000,000 bonds. Principal on the bonds matures in three equal
installments. Interest is also due annually at each year-end. The market rate of interest on the bonds on January 1 is 6%.

REQUIRED:
(a) What is the initial measurement of the bonds issued by the company?
(b) If the transaction took effect, what is the carrying amount of the bonds on December 31, 2021?
(c) What is the balance of unamortized discount or premium on December 31, 2021?
(d) Redo requirements (a) to (c), but assuming the bonds matures in 6 equal semi-annual installments and the interest is paid
semi-annually.

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ICI – CBEA SPECIAL QUALIFYING EXAM REVIEW /RGP, 2023