1.

A company reported accounts payable on Discount on Notes Payable 86,800

December 31, 2021 at P450,000 before taking into
account the following transactions: Notes Payable 500,000

Cash 200,000
● Undelivered checks - P200,000
● Unrecorded purchases - P73,500
3. On Jan. 1, 2021, Company VVV acquired an
● Goods in transit, shipped by vendor FOB
equipment of P1,000,000 payable in four equal
destination - P32,500
annual installments ever Dec. 31 starting Dec. 31,
2021. There was no agreed interest, and no cash
What amount should the company report as
price was available for the equipment. The
adjusted accounts payable on December 31, 2021?
prevailing market interest rate for this type of note
a. P723,500
was 12%. What amount of interest expense is
b. P556,000
reported in 2021?
c. P682,500
a. P0. The note is non-interest bearing
d. 756,000
b. P91,119
c. P72,053
Solution: 450,000 + 200,000 + 73,500 d. P120,000

2. On October 1, 2021, Company YYY purchased an Solution:

equipment which has no known market value. The 1,000,00 / 4 = 250,000
company paid a down payment of P200,000 and 250,000 x 3.0373 (present value of ordinary annuity, four years, 1.12)
signed a 2-year non-interest bearing note for = 759,325
500,000. The prevailing interest rate for similar Date Periodic Interest Reductio Carrying
note is 10%. The entry to record the issuance of the Payment Expense n of Value
(PP) (IE) Principal
note on October 1, 2021 is: (CV x (PP - IE)
12%)
Answer: Debit Equipment for P613,200, Debit
01/01/21 759,325
Discount on Notes Payable for 86,800, Credit Notes
Payable for P500,000, and Credit Cash for P200,000 12/31/21 250,000 91,119 158,881 600,444

12/31/22 250,000 72,053 177,947 422,497

Solution:
12/31/23 250,000 50,700 199,300 223,197
Down Payment 200,000
12/31/24 250,000 26,784 223,216 19
Add: Present Value of Note 413,200
(500,000 x 0.8264)
4. On June 20, a company purchased goods for
0.8264 = (1.10 / / = = = ) (2 years)
P30,000, terms 2/10, n/30. The invoice was paid on
Total Cost of Equipment P613,200 June 27. The company records purchases at gross
amount. The journal entry to record the payment of
the account would include:
Face Value of the Note 500,000
a. A credit to Cash for P30,000.
Less: Present Value at Date of Issuance 413,200 b. A credit to Purchase Discount for P600.
Discount on Notes Payable P86,800
c. A credit to Purchase Discount Loss for
P600.
d. A debit to Accounts Payable for P29,400.
Equipment 613,200

Solution:
June 20: 9. A company purchased merchandise on account
Purchases 30,000 for P9,000,000. The credit terms are 2/10, n/30.
The company’s accountant talked with the bank
Accounts Payable 30,000 and discovered that they could earn 8% on any
money invested in the company’s savings account.
June 27: What is the company’s savings or loss by taking the
Accounts Payable 30,000 discount?
a. P135,000 savings
Cash 29,400
b. P135,000 loss
Purchase Discount 600 c. P140,000 savings
d. P140,000 loss
5. On March 1, 2021, Company SSS borrowed P3
million and issued a 12% note payable on February 10. On Dec. 28, 2021, a company wrote and issued
29, 2023. The interest on the note is compounded a P50,000 check to its creditor. However, the
annually. What is the total amount of interest as of issuance was recorded only on January 3, 2022.
Dec. 31, 2021? Which of the following statements is correct in
a. P300,000 relation to the foregoing?
b. P360,000 a. The accounts payable on Dec. 31, 2021
c. P696,000 should be decreased by P50,000
d. P720,000 b. The accounts payable on Dec. 31, 2021
should be increased by P50,000
6. For note issued at a premium, interest expense is c. The accounts payable on Dec. 31, 2021 is
derived by multiplying the: fairly valued and no adjustment is
a. Nominal rate with the face value of the note necessary.
b. Nominal rate with the carrying value of the d. Answer is not given.
note at the beginning of the year
c. Effective rate with the face value of the note 11. Which of the following is a financial liability?
d. Effective rate with the carrying value of the a. Accounts payable
note at the beginning of the year. b. VAT payable
c. Unearned rental income
7. Which of the account titles is not used under the d. All of these are financial liabilities
gross method of accounting for cash discount?
a. Freight-in 12. At the end of the current year 2021, a company
b. Purchase discount wrote and issued a check to its creditor. The
c. Purchase discount lost issuance of the check was recorded in the
d. Accounts payable subsequent year 2022. Based only on this
information, which of the following statements is
8. Liabilities are: correct?
a. Any accounts having credit balances after a. The 2022 accounts payable is overstated
closing entries are made b. The 2022 accounts payable is understated
b. Deferred credits that are recognized and c. The 2022 accounts payable is correct
measured in conformity with GAAP. d. None of these statements is correct
c. Obligations to transfer ownership shares to
other entities in the future 13. On Oct. 1, 2020, Company WWW purchased an
d. Present obligations to transfer an economic equipment and issued four-year, 9% note at
resource as a result of past event. P2,591,760, The promissory note provided that the
company will pay the note by making annual
installment of P800,000 starting Sept. 30, 2021. Notes Payable 3,000,000
The periodic payment should be applied first to
interest and the balance to the principal obligation.
15. A company’s accounts payable at Dec. 31,
What is the current portion of the note on Dec. 31,
2021, totaled P1,200,000 before any necessary
2021?
year-end adjustments relating to the following
a. P800,000
transactions.
b. P566,742
● In December 2021, the company wrote and
c. P617,748
recorded checks to creditors totaling
d. P663,311
P525,000 causing an overdraft of P150,000
in the company’s bank account on Dec. 31,
Solution:
2021. The checks were mailed out on
Date Periodic Interest Reductio Carrying January 10, 2022.
Payment Expense n of Value
(CV x 9%) Principal ● On Dec. 29, 2021, the company purchased
and received goods for P220,500. The
10/01/20 2,591,760
invoice was recorded and paid on Jan. 3,
9/30/21 800,000 233,258 566,742 2,025,018 2022.
● Goods shipped FOB Destination on Dec. 20,
9/30/22 800,000 182,252 617,748 1,407,270
2021 from a vendor to the company were
9/30/23 800,000 126,654 673,345 733,924 received in Jan. 2022. The invoice cost was
P97,500.
9/30/24 800,000 66,076 733,924 -0-

At Dec. 31, 2021, what amount should the company

14. Company BBB purchased an equipment on April report as total accounts payable? P1,945,500
1, 2022 by issuing a 12% P3 million promissory
note payable in three equal annual payments of P1 Solution:
million plus interest on the unpaid balance every 1,200,000 + 525,000 + 220,500 = 1,945,500
March 31 starting March 31, 2023. At what amount
shall equipment be recorded on March 31, 2022? 16. A company records purchases at net amounts
a. P3,720,000 and uses periodic inventories. The following
b. 3,360,000 transactions occurred in June 2022.
c. 3,000,000 ● June 11 - Purchased merchandise on
d. 2,401,800 account, P5,000, terms 2/10, n/30
● June 15 - Returned P800 worth of goods
Solution: (from the June 11 purchases) and received
credit on account
Due Date Principal Interest Due Total
Due Amount
Due What amount should the company report as
accounts payable for fiscal year ended June 30,
Mar. 31, 2021 1,000,000 3M x 12% = 360,000 1,360,000
2022? P4,200
Mar. 31, 2022 1,000,000 2M x 12% = 240,000 1,240,000

Mar. 31, 2023 1,000,000 1M x 12% = 120,000 1,120,000 Solution:

5,000 - 800 = 4,200

DATE PARTICULARS DEBIT CREDIT

17. On Jan. 1, 2021, Company VVV acquired an
2022 equipment of P1,000,000 payable in four equal
annual installments ever Dec. 31 starting Dec. 31,
Mar. 31 Equipment 3,000,000
2021. There was no agreed interest, and no cash
price was available for the equipment. The Accounts Payable 400
prevailing market interest rate for this type of note
was 12%. What is the carrying value of the note on
Dec. 31, 2022? P422,497 Accounts Payable 11,376

Cash (10,976 + 400) 11,376

Date Periodic Interest Reductio Carrying
Payment Expense n of Value
(PP) (IE) Principal 20. On June 18, 2022, a company received goods
(CV x (PP - IE)
12%) from its vendor with a list price of P80,000 subject
to terms 20%, 10%, 2/10, n/30. The goods were
01/01/21 759,325 shipped FOB Shipping point, freight collect. The
12/31/21 250,000 91,119 158,881 600,444 freight was P1,500. The company paid the account
on July 8, 2022. Assuming the company records
12/31/22 250,000 72,053 177,947 422,497
purchases at net amount, at what amount should
12/31/23 250,000 50,700 199,300 223,197 the accounts payable be shown on the company’s
June 30, 2022, statement of financial position?
12/31/24 250,000 26,784 223,216 19
a. 56,448
b. 57,600
18. If the present value of a note issued in c. 57,948
exchange for a depreciable property is less than the d. 59,100
face amount, the difference between the present
value of the property and the face amount of the
June 18, 2022
note, is:
a. Amortized over the term of the note Purchases 56,448
(80,000 x 0.80 * 0.90 * 0.98)
b. Amortized over the useful life of the asset
c. Is reported as an outright interest expense Accounts Payable 56,448
d. Is not accounted for

19. On June 1, 2022, a company purchased Freight-in 1,500

merchandise with a list price of P20,000 on
Cash 1,500
account. The vendor allowed trade discounts of
30% and 20%. Credit terms were 2/15, n/40. The
vendor shipped the goods FOB shipping point and July 8, 2022
paid P400 of delivery costs as an accommodation.
On June 12, 2022, they paid the account in full. How Accounts Payable 56,448

much did the company pay on June 12, 2022? Purchase Discount Lost 1,152
a. 10,976
b. 11,368 Cash 57,600

c. 11,376
d. 11,196 AJE: (June 30, 2022)
Purchases 56,448
(80,000 x 0.80 * 0.90 * 0.98)
Purchases 10,976
(20,000 x 0.70 * 0.80 * 0.98)
Accounts Payable 56,448
Accounts Payable 10,976

Purchase Discount Lost 1,152

Freight-in 400
 Accounts Payable
A/P = 56,448 + 1,152 = 57,600
21. The effective interest on a 12-month
zero-interest-bearing note payable of P300,000,
discounted at the bank at 10% is
1,152 ● Goods costing P120,000 were purchased
from supplier with terms FOB shipping point
on Dec. 28, 2021. The company received the
goods and the invoice on Jan. 4, 2022.
● The P1,000,000 ledger balance of A/P is net
of P80,000 debit balance in one supplier’s
account representing deposit for goods to
be delivered in Feb. 2022.

a. 10.87%
What amount should the company report as total
b. 11.11%
accounts payable on Dec. 31, 2021? 1,697,000
c. 10.00%
d. 9.09%
24. Which of the following is not necessarily valid
relating to the presence of the “Interest Payable”
Solution:
account?
Net proceeds (100% - 10%) 90%

Effective interest rate (10% / 90%) 11.11% a. Note payable is interest bearing
b. Interest payment dates do not coincide with
the end of the reporting period
22. Which of the following is an example of a
c. Nominal rate of the note payable is
liability?
unrealistic
a. Signing of a purchase contract with a
d. Nominal rate of the note payable is more
supplier.
than zero.
b. The obligation to distribute an entity’s own
shares by virtue of share dividend
25. At the end of 2021, a company wrote and
c. The obligation to provide goods that
issued a check to its creditor. The issuance of the
customers have ordered and paid during the
check was recorded in 2022. Based only on this
current year.
information, which of the following statements is
d. All of these are reported as liability.
correct?

23. A company’s accounts payable dated Dec. 31,

a. The 2021 accounts payable is overstated.
2021, totaled P1,000,000 before any necessary
b. The 2021 accounts payable is understated.
year-end adjustments relating to the following
c. The 2021 accounts payable is correct.
transactions and information:
d. None of these statements is correct.
● On Dec. 27, 2021, the company wrote and
recorded checks totaling P350,000. The
26. Company BBB purchased an equipment on April
checks were issued on January 3, 2022.
1, 2022 by issuing a 12% P3 million promissory
● On Dec. 28, 2021, the company purchased
note payable in three equal payments of P1 million
and received goods for P150,000, terms
plus interest on the unpaid balance every March 31
2/10, n/30. The company records purchases
starting March 31, 2023. At what amount shall the
and A/P at net amounts. The invoice was
account “interest payable” be reported on
recorded and paid on Jan. 3, 2020.
December 31, 2023?
● Goods shipped FOB destination on Dec. 20,
2021, from a vendor to the company were
a. P270,000
received on Jan. 2, 2022. The invoice cost
b. P180,000
was P65,000.The purchase was recorded on
c. P240,000
Jan. 2, 2022.
d. P0
27. Company AAA borrowed P1,000,000 on July 1, Accounts payable P 300,000
2021 and issued a 9% one-year note payable every Notes payable 1,500,000
after three months starting Sept. 30, 2021. The
Income tax payable 150,000
quarterly payments were P264,200 inclusive of
Bonds payable 3,000,000
interest. If Company AAA paid the required
Unearned rent 50,000
quarterly payments when due, what is the carrying
value of the note payable on December 31, 2021? Warranties payable 100,000

a. P528,400 How much is the total financial liabilities?

b. P522,500
c. P511,162 a. 1,800,000
d. P488,156 b. 3,300,000
c. 4,800,000
28. On Jan. 1, 2021, Company XXX purchased a d. 4,950,000
land by issuing a 3-year non-interest bearing note of
P1,000,000 payable in five equal annual payments 31. For note issued at a discount, interest expense
with the first payment due on December 31, 2021. is derived by multiplying the:
The prevailing rate of notes of this type is 10%.
What amount will be reported as non-current a. Nominal rate with the face value of the note
payable on Dec. 31, 2023? b. Nominal rate with the carrying value of the
note at the beginning of the year
a. P347,111 c. Effective rate with the face value of the note
b. P181,822 d. Effective rate with the carrying value of the
c. P165,289 note at the beginning of the year
d. P400,000
32. When recording accounts payable, a purchase
29. A non-interest bearing note payable was issued discount is recorded if the company uses the:
at a discount on Jan. 1, 2022. The amortized cost
of this note payable on Dec. 31, 2022 is computed a. Net method and the payment is made within
by: the discount period
b. Gross method and the payment is made
a. Deducting the Dec. 31, 2022 balance of the within the discount period
discount on note payable from the face c. Net method and the payment is made
value of the note. beyond the discount period
b. Deducting the 2022 amortization of the d. Gross method and the payment is made
discount on note payable from the face beyond the discount period
value of the note
c. Adding the Dec. 31, 2022 balance of the 33. A note payable issued to acquire inventories
discount on note payable from the face had a remaining term of 18 months at the end of
value of the note. the reporting period. The note payable is:
d. Adding the 2022 amortization of the
discount on note payable from the face a. Reported as current liability
value of the note b. Reported as non-current liability
c. Reported as current liability if the operating
30. A company reported the following liabilities on cycle of the entity is less than 15 months
Dec. 31, 2021: d. None of these statements is correct
 37. The accounts below were taken from the
34. For notes issued with an unrealistic interest adjusted trial balance of a company on Dec. 31,
rate, discount occurs if the nominal rate 2022:

a. Is significantly lower than the market rate of Bonds payable P 125,000

similar note Share dividends distributable 7,500
b. Is significantly higher than the market rate
Notes receivable 46,000
of similar note
Trade accounts receivable 61,000
c. Approximates the market rate of similar
Notes payable 75,000
note
d. Is significantly different from the market Trade accounts payable 37,500
rate of similar note Cash and cash equivalents 62,000
Merchandise inventory 68,000
35. Company BBB had three loans evidenced by Trading securities 43,500
notes payable with interest rate of 12%. The first Income tax payable 14,000
was a 1-year loan due on Oct. 31, 2021 for 500,000. Allowance for uncollectible accounts 3,000
The second was P1,500,000 6-month loan due on
July 31, 2021. While the third was P800,000, a. 237,500
9-month loan due on Jan. 31, 2022. Company BBB b. 251,500
records the interest expense upon payment of the c. 256,000
loan. If Company BBB paid the loans when they d. 259,000
become due, by how much is the 2022 net income
be affected? 38. Company BBB purchased an equipment on April
1, 2022 by issuing a 12% P3 million promissory
a. 2022 income is overstated by 72,000 note payable in three equal annual payments of P1
b. 2022 income is understated by 72,000 million plus interest on the unpaid balance every
c. 2022 income is understated by 64,000 March 31 starting March 31, 2023. What amount of
d. 2022 income is understated by 8,000 non-current note payable shall be on Dec. 31, 2022?
Answer: P2,000,000
36. Company BBB had three loans evidenced by
notes payable with interest rate of 12%. The first 39. What is the entry to record the issuance of a
was a 1-year loan due on Oct. 31, 2021 for 500,000. note payable without stated interest rate in
The second was P1,500,000 6-month loan due on exchange for a depreciable asset without cash
July 31, 2021. While the third was P800,000, price equivalent and which the fair value is not
9-month loan due on Jan. 31, 2022. Company BBB available?
records the interest expense upon payment of the
loan. If Company BBB paid the loans when they a. Both the asset and the note payable are
become due, by how much is the 2021 interest recorded at face value
expense be understated? b. Both the asset and note payable are
recorded at present value using market rate
a. 72,000 of interest
b. 64,000 c. The asset is debited at face value, the note
c. 62,000 payable is credited at present value using
d. 54,000 market rate of interest, and the difference is
charged to discount on note payable.
d. The asset is debited at present value using
market rate of interest, the note payable is
 credited at face value, and the difference is
charged to discount on note payable
40. Which of the following is a non-current financial
liability?
a. Accounts payable
b. Bank overdraft
c. Bond payable that matures in two years
from the reporting date
d. Bank loan that matures in five years that is
currently in default
41. On Oct. 1, 2020, Company WWW purchased an
equipment and issued four-year, 9% note at
P2,591,760, The promissory note provided that the
company will pay the note by making annual
installment of P800,000 starting Sept. 30, 2021.
The periodic payment should be applied first to
interest and the balance to the principal obligation.
What is the non-current portion of the note on Dec.
31, 2021?
a. P2,025,018
b. P2,400,000
c. P1,407,270
d. P1,543,359
42. Which of the following is true for non-interest
bearing notes payable?
a. No interest expense is recorded
b. Interest expense is recorded with a credit to
discount on notes payable
c. Interest expense is recorded with a debit to
premium on notes payable
d. All of these statements are correct
43. On October 1, 2021, Company YYY purchased
an equipment which has no known market value.
The company paid a down payment of P200,000
and signed a 2-year non-interest bearing note for
500,000. The prevailing interest rate for similar note
is 10%. The entry to record the interest on Dec. 31,
2021 is:
Answer: Debit Interest expense for P10,330 and
Credit Discount on Note payable for P10,330.
44. When a note payable is issued at a discount:
a. The carrying value of the note is higher than
the face value of the note throughout the life
of the bond
b. The note is issued to yield a higher rate than
the rate indicated in the note
c. The note is issued to yield a lower rate than
the rate indicated in the note
d. None of these is correct
45. Using the gross method, purchase discount not
taken due to paying the account beyond the
discount period, is
a. Reported as interest expense
b. Deducted from interest income
c. Not accounted for
d. Absorbed by the cost of purchases
46. The interest actually incurred is more than
interest paid in case the note is issued at:
a. Face value
b. A discount
c. A premium
d. None of these is correct
47. On Jan. 1, 2021, Company XXX purchased a
land by issuing a 3-year non-interest bearing note of
P1,000,000 payable in five equal annual payments
with the first payment due on December 31, 2021.
The prevailing rate of notes of this type is 10%.
What amount will be reported as current note
payable on Dec. 31, 2023?
a. 153,263
b. 165,289
c. 181,822
d. 200,000
48. On Jan. 1, 2021, Company VVV acquired an
equipment of P1,000,000 payable in four equal
annual installments ever Dec. 31 starting Dec. 31,
2021. There was no agreed interest, and no cash
price was available for the equipment. The
prevailing market interest rate for this type of note
was 12%. At what amount will the equipment
account be debited on the date of acquisition

a. 1,000,000
b. 850,458
c. 759,325
d. 635,500