SEM-ENDER DRILLS FOR ACC 108

1. Which of the following statements best describes the term "liability"?

A. An excess of equity over current assets
B. A present obligation of the entity arising from past events
C. Resources to meet financial commitments as they fall due
D. The residual interest in the assets of the entity after deducting all of the liabilities

2. Arles Company is preparing its financial statements for the year ended December 31, 2009. Accounts
payable amounted to P5,000,000 before any necessary year-end adjusting entry related to the following
items:
* At December 31, 2009, Arles has a P500,000 debit balance in its accounts payable to a supplier,
resulting from a P500,000 advance payment for goods to be manufactured to Arles’s specifications.
* Checks in the amount of P700,000 were written to vendors and recorded on December 31, 2009. The
checks were mailed on January 15, 2010.
What amount should Arles report as accounts payable on December 31, 2009?
A. 5,200,000 C. 5,700,000
B. 5,500,000 D. 6,200,000
3. It is an event that creates a legal or constructive obligation because the enterprise has no other realistic
alternative but to settle the obligation.
A. Adjusting event C. Nonadjusting event
B. Event after balance sheet date D. Obligating event

4. In accordance with the new standard, an original long-term debt which is due to be settled within twelve
months after balance sheet date is classified as noncurrent
I. When an agreement to refinance or to reschedule payment on a long-term basis is completed after
balance sheet date and before the financial statements are authorized for issue.
II. When the entity has the discretion to refinance or roll over the liability for at least twelve months after
balance sheet date under an existing loan facility.
A. I only C. Both I and II
B. II only D. Neither I nor II
5. Mazda Company reported the following liability balances on December 31,2014:
10% note payable issued on October 1,2013, maturing October 1, 2015 2,000,000
12% note payable issued on March 1, 2013, maturing on March 1, 2015 4,000,000
The 2014 financial statements were issued on March 31,2015. Under the loan agreement for the 10%
note payable, the entity has the discretion to refinance the obligation for at least twelve months after
December 31, 2014. On March 1, 2015, the entire P4,000,000 balance of the 12% note payable was
refinanced through issuance of a long-term obligation payable lump sum. What amount of the notes
payable should be classified as current on December 31, 2014?
A. 0 C. 4,000,000
B. 2,000,000 D. 6,000,000

6. Burma Company disclosed the following information:

Accounts payable, after deducting debit balances
in suppliers' accounts amounting to P100,000 4,000,000
Accrued expenses 1,500,000
Credit balances of customers' accounts 500,000
Stock dividend payable 1,000,000
Claims for increase in wages and allowance by
employees of the entity, covered in a pending lawsuit 400,000
Estimated expenses in redeeming prize coupons 600,000
What amount should be reported as total current liabilities?
A. 6,600,000 C. 7,100,000
B. 6,700,000 D. 7,700,000
7. Gumamela Company provided the following data at year-end:
Trade accounts payable, including cost of goods
received on consignment of P150,000 1,350,000
Accrued taxes payable 125,000
Customers' deposit 100,000
Manila Company as guarantor 200,000
Bank overdraft 55,000
Accrued electric and power bills 60,000
Reserve for contingencies 150,000
What total amount should be reported as current liabilities?
A. 1,540,000 C. 1,740,000
B. 1,650,000 D. 1,840,000

8. Which of the following statements is true in relation to the fair value option of measuring a financial liability?
I. At initial recognition, an entity may irrevocably designate a financial liability at fair value through profit
or loss.
II. The financial liability is measured at every year-end and any changes in fair value are recognized in
profit or loss.
III. The interest expense on the financial liability is recognized using the nominal interest rate.
A. I and II only C. II and III only
B. I and III only D. I, II and III
9. An entity sells appliances that include a two-year warranty. Service calls under the warranty are performed
by an independent mechanic under contract with the entity. Based on experience, warranty costs are
estimated at a certain amount for each appliance sold. When should the entity recognize these warranty
costs?
A. When the appliances are sold
B. Evenly over the life of the warranty
C. When the service calls are performed
D. When payments are made to the mechanic
10. Which of the following characteristics may result in the classification of a liability as current?
A. Violation of provisions of a debt agreement
B. Short-term obligations refinanced with long-term debt at the end of reporting period
C. Obligations for advance collections that involve long-term deferment of the delivery of goods.
D. Debts to be liquidated from funds that have been accumulated and are reported as noncurrent assets

11. Tagkawayan Company reported the following liability balances on December 31, 2014:

10% note payable issued on October 1, 2013, maturing October 1, 2015 3,000,000
12% note payable issued on March 1, 2013, maturing on March 1, 2015 5,000,000

The 2014 financial statements were issued on March 31, 2015. On January 31, 2015, the entire
P5,000,000 balance of the 12% note payable was refinanced through issuance of a long-term obligation
payable lump sum. Under the loan agreement for the 10% note payable, the entity has the discretion to
refinance the obligation for at least twelve months after December 31, 2014. What amount of the notes
payable should be classified as current on December 31, 2014?
A. 0 C. 5,000,000
B. 3,000,000 D. 8,000,000

12. At year-end, Roth Company issued a P1,000,000 face value note payable in exchange for services
rendered. The note, made at usual trade terms, is due in nine months and bears interest, payable at
maturity, at the annual rate of 3%. The market interest rate is 8%. The compound interest factor of 1 due
in nine months at 8% is .944. At what amount should the note payable be reported at year-end?
A. 944,000 C. 1,000,000
B. 965,200 D. 1,030,000

13. When interest expense is calculated using the effective interest method, interest expense equals
A. Actual amount of interest paid.
B. Maturity value of the bonds multiplied by the effective interest rate.
C. Carrying amount of the bonds multiplied by the stated interest rate.
D. Carrying amount of the bonds multiplied by the effective interest rate
14. On January 1, 2013, Carrow Company issued 10% bonds in the face amount of P1,000,000 that mature on
January 1, 2023. The bonds were issued for P886,000 to yield 12%, resulting in bond discount of
P114,000. The entity used the interest method of amortizing bond discount. Interest is payable on
January 1 and July.
For the year ended December 31,2013, what amount should be reported as bond interest expense?
A. 50,000 C. 100,000
B. 53,160 D. 106,510

15. On January 1,2013, Samal Company issued P5,000,000, 8% serial bonds, to be repaid in the amount of
P1,000,000 each year. Interest is payable annually on December 31. The bonds were issued to yield 10%
a year. The bond proceeds were P4,757,000 based on the present value at January 1,2013 of five annual
payments. The entity amortized the bond discount by the interest method. On December 31, 2013, what is
the carrying amount of the bonds payable?
A. 3,805,600 C. 4,805,600
B. 3,832,700 D. 4,832,700

16. On January 1, 2013, Borg Company issued 4,000 of 8% P2,000 face value bonds at 97 plus accrued
interest. The bonds are dated October 1, 2012 and mature on October 1, 2022. Interest is payable
semiannually on April 1 and October 1. Accrued interest for the period October 1,2012 to January 1, 2013
amounted to P160,000. On January 1, 2013, what is the carrying amount of bonds payable?
A. 7,606,000 C. 7,766,000
B. 7,760,000 D. 7,840,000

17. Unamortized bond discount should be reported on the financial statements of the issuer as a
a. Direct deduction from the face amount of the bond
b. Direct deduction from the present value of the bond
c. Deferred charge
d. Part of the issue costs

18. On January 1, 20x1, ABC Co. issued a 3-year, 3%, ₱1,000,000 note payable in exchange for a machine.
Principal is due on January 1, 20x4 but interest is due annually every January 1. The prevailing interest rate for
this type of note is 12%. How much is the carrying amount of the note on December 31, 20x1?
a. 783,835 b. 883,664 c. 847,895 d. 919,643
19. In a debt restructuring that is considered an asset swap, the gain on extinguishment is equal to the
A. Excess of the fair value of the asset over its carrying amount
B. Excess of the carrying amount of the debt over the fair value of the asset
C. Excess of the fair value of the asset over the carrying amount of the debt
D. Excess of the carrying amount of the debt over the carrying amount of the asset
20. The following information pertains to the transfer of real estate pursuant to a debt restructuring by Knob
Company to Mene Company in full liquidation of Knob Company's liability to Mene Company:
Carrying amount of liability liquidated 1,500,000
Carrying amount of real estate transferred 1,000,000
Fair value of real estate transferred 1,200,000
What amount of pretax gain should Knob Company report as component of income from continuing
operations?
A. 0 C. 300,000
B. 200,000 D. 500,000
21. On December 31,2013, Sunshine Company showed the following data with respect to its matured
obligation: '
Note payable 5,000,000
Accrued interest payable 500,000
The entity is threatened with a court suit if it could not pay its maturing debt. Accordingly, the entity
entered into an agreement with the creditor for the issuance of share capital in full settlement of the note
payable. The agreement provided for the issue of 35,000 shares with par value of P100. The share is
currently quoted at P130. The fair value of the note payable on the date of restructuring is P4,700,000.
Under the "equity swap", what amount should be recognized as gain from extinguishment of debt?
A. 800,000 C. 1,000,000
B. 950,000 D. 2,000,000
22. To increase sales during the summer break and remainder of the year, Tamara Company inaugurated a
promotional campaign on February 1, 2009. Tamara placed a coupon redeemable for a premium in each
package of cereal sold at P300. Each premium cost P200. A premium is offered to customers who send in
5 coupons and a remittance of P50. The distribution expense per premium is P10. Tamara estimated that
80% of the coupons placed in each package will be redeemed. For the eleven months ended December
31, 2009, the following is available:
Packages of cereal sold 50,000
Premiums purchased 8,000
Coupons redeemed 30,000
What is the estimated liability for coupons on December 31, 2009?
A. 320,000 C. 1,280,000
B. 400,000 D. 1,500,000

23. During 2008, Torie Company introduced a new product carrying a two-year warranty against defects. The
estimated warranty costs related to peso sales are 3% within 12 months following sale and 5% in the
second 12 months following sale. Sales and actual warranty expenditures for the years ended December
31, 2007 and 2008 are as follows:
Sales Actual expenditures
2007 40,000,000 1,000,000
2008 50,000,000 4,000,000
At December 31, 2008, Torie would report estimated warranty liability of
A. 0 C. 2,200,000
B. 1,500,000 D. 2,500,000

24. Armco Company embarked on a promotional program whereby a T-shirt costing P15 each is given away for
every 10 bottle crowns returned plus P5. Armco Company estimates that only 40% of the bottle crowns in
the hands of consumers will be presented for redemption. The following information is available
Quantity Amount
Bottles 1,000,000 40,000,000
T-shirts bought for give-away 15,000 225,000
T-shirts distributed to customers 10,000
At the close of the first year , Armco should recognize an estimated liability for promotional items
outstanding amounting to
A. 250,000 C. 375,000
B. 300,000 D. 450,000
a.

26. Teresa Company sells gift certificates redeemable only when merchandise is purchased. The certificates
have an expiration date two years after issuance date. Upon redemption or expiration, Teresa recognizes
the unearned revenue as realized. Data for 2009 are as follows:
Unearned revenue, 1/1/2009 2,500,000
Gift certificates sold 6,000,000
Gift certificates redeemed 6,500,000
Expired gift certificates 500,000
Cost of goods sold 60%
At December 31, 2009, Teresa report unearned revenue for gift certificates of
A. 500,000 C. 1,500,000
B. 1,000,000 D. 2,000,000
27. The consideration allocated to the award credits is measured at
A. Fair value of the award credits
B. Fair value of the goods to be received in exchange
C. Carrying amount of goods to be received in exchange
D. The proportion of the fair value of the award credits relative to the total consideration received from the
initial sale of the goods

28. Under a customer loyalty program, if the entity supplies the awards itself, the consideration allocated to
the award credits
A. Shall be recognized as revenue immediately.
B. Shall not be accounted for as revenue separately.
C. Shall be recognized as deferred revenue and amortized as revenue over a reasonable period not
exceeding 5 years.
D. Shall be recognized initially as deferred revenue and subsequently recognized as revenue upon the
redemption of the award credits.

29. A provision shall be recognized as liability if it satisfies all of the following criteria, except
A. The amount of the obligation can be measured reliably.
B. The entity has a present obligation as a result of a past event.
C. It is probable that an outflow of resources embodying economic benefits will be required to settle the
obligation.
D. It is possible that an outflow of resources embodying economic benefits will be required to settle the
obligation.

30. What amount is accrued as a provision?

A. Best estimate C. Median
B. Maximum D. Minimum

31. Shortly before the year end, a company discovers that it has an obligation to rectify a serious fault in a
factory building that it has constructed for a customer. The work will take place early in the following financial
year and the cost of rectifying the fault is uncertain, although estimates are available. According to IAS 37
Provisions, Contingent Liabilities and Contingent Assets, what is the most appropriate way of treating the
obligation in the financial statements for the current year?
a. The company should recognize a provision, measured on the basis of the worst possible outcome
b. The company should recognize a provision, measured on the basis of the individual most likely
outcome
c. The company should disclose a contingent liability because it is impossible to arrive at a reliable
estimate
d. The company should recognize a provision measured on the basis of a weighted average of all
possible outcome

32. A customer of Blessel Sharpeners alleges that Blessel's new razor sharpener had a defect that resulted in
serious injury to the customer. Blessel believes the customer has a 51% chance of winning the case, and that
if the customer wins the case, there is a range of losses of between P1,000,000 and P3,000,000 in which any
number is equally likely to occur. Blessel should accrue a liability in the amount of:
a. P0 b. P2,000,000 c. P1,000,000 d. P3,000,000

33. On January 1, 20x1, CONFOUND Co. guaranteed a ₱4,000,000 loan obtained by CONFUSE, Inc. from a
bank. On December 31, 20x1, CONFUSE defaulted on its loan and it became probable that CONFOUND will
be held liable to the bank for the ₱4,000,000 loan taken by CONFUSE. How much is the provision to be
recognized?
a. 4,000,000 b. 2,000,000 c. 1,000,000 d. 0

35. According to PFRS 16, lease liabilities are presented in the lessee’s statement of financial position
a. separately from the other liabilities of the lessee.
b. together with other liabilities, with disclosure of the line items that include the lease liabilities.
c. a or b
d. not presented in the lessee’s financial statements but only in the lessor’s financial statements

36. Entity A (customer) enters into a contract with Entity B (supplier) for the use of a data processing
equipment. According to the contract, Entity A shall operate the equipment only in accordance with the
standard operating procedures stated in the accompanying user’s manual. In assessing the existence of a
lease, does Entity A have the right to direct the use of the asset?
a. No, because the asset’s use is restricted.
b. Yes, because Entity A has the right to direct how and for what purpose the asset is used.
c. Yes, because the asset’s use is predetermined and Entity B is precluded from changing that
predetermined use.
d. Maybe yes, maybe no, but exactly I don’t know.

37. Which of the following is not one of the criteria when determining whether a contract is or contains a lease?
a. Identified asset
b. Identified liability
c. Right to obtain substantially all of the economic benefits from use of an identified asset throughout the
period of use
d. Right to direct the use of the identified asset throughout the period of use
38. According to PFRS 16, right-of-use assets are presented in the lessee’s statement of financial position
a. separately from the other assets of the lessee.
b. together with other assets as if they were owned, with disclosure of the line items that include the right-
of-use assets.
c. a or b
d. not presented in the lessee’s financial statements but only in the lessor’s financial statements

39. Neal Corp. entered into a nine-year lease on a warehouse on December 31, 20x1. Lease payments of
₱52,000, which includes payment for non-lease component of ₱2,000 (at stand-alone selling price), are due
annually, beginning on December 31, 20x1, and every December 31 thereafter. Neal does not know the
interest rate implicit in the lease; Neal's incremental borrowing rate is 9%. What amount should Neal report as
lease liability at December 31, 20x1?
a. 280,000 b. 291,200 c. 450,000 d. 468,000

40. On January 2, 20x6, Ashe Company entered into a ten-year noncancellable lease requiring year-end
payments of ₱100,000. Ashe's incremental borrowing rate is 12% while the lessor's implicit interest rate,
known to Ashe, is 10%. Ownership of the property remains with the lessor at expiration of the lease. There is
no bargain purchase option. The leased property has an estimated economic life of 12 years. What amount
should Ashe capitalize for this leased property on January 2, 20x6?
a. 1,000,000 b. 614,500 c. 565,000 d. 0

41. On December 30, 20x5, Haber Co. leased a new machine from Gregg Corp. The following data relate to
the lease transaction at the inception of the lease:
Lease term 10 years
Annual rental payable at the end of each lease year ₱100,000
Useful life of machine 12 years
Implicit interest rate 10%
The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease
terminates. At the inception of the lease, Haber should record a lease liability of
a. 0 b. 615,000 c. 630,000 d. 676,000

42. Robbins, Inc., leased a machine from Ready Leasing Co. The lease requires 10 annual payments of
₱10,000 beginning immediately. The lease specifies an interest rate of 12% and a purchase option of ₱10,000
at the end of the tenth year, even though the machine's estimated value on that date is ₱20,000. It is
reasonably certain that Robbins will exercise the purchase option. Robbins' incremental borrowing rate is 14%.
What amount should Robbins record the right-of-use asset at the beginning of the lease term?
a. 62,160 b. 64,860 c. 66,500 d. 69,720

43. On January 1, 20x7, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to
make five annual payments of ₱13,000 beginning January 1, 20x7. At the end of the lease term, Babson
guarantees the residual value of the automobiles will total ₱10,000. The interest rate implicit in the lease is 9%.
Babson's recorded lease liability on initial recognition is
a. 48,620 b. 44,070 c. 35,620 d. 31,070

44. On January 1, 20x1, ABC Co. enters into a 4-year lease of office equipment. The rent in 20x1 is ₱10,000
and shall increase by 10% annually starting on January 1, 20x2. Rentals are payable at the end of each year.
ABC Co. pays the lessor a lease bonus of ₱5,000 on January 1, 20x1. ABC Co. opts to use the practical
expedient allowed under PFRS 16 for leases of low value assets. How much is the lease expense in 20x1?
a. 10,000 b. 11,000 c. 11,603 d. 12,853

45.On January 1, 20x1, Entity Y leases out an equipment to Entity X. Information on the lease is as follows:
Lease term 3 years
Annual rent payable at the end of each year 100,000
Interest rate implicit in the lease 10%
The lease provides for the transfer of ownership of the equipment to the lessee at the end of the lease term.
The relevant present value factor is as follows:
How much is the gross investment on January 1, 20x1?
a. 500,000 b. 400,000
c. 300,000 d. 200,000

46. In an attempt to alleviate liquidity problems, Banco Company entered into an agreement on January 1,2013
to sell the processing plant to another entity for P3,500,000 which is the fair value of the plant. At the date of
sale, the plant had a carrying amount of P2,750,000. The entity immediately leased the processing plant back
from the buyer. The terms of the lease agreement were:
Annual payment in arrears, commencing December 31, 2013700,000
Reimbursement to the lessor for maintenance cost
included in the annual payment 35,000
Lease term 6 years
Economic life of plant 8 years
What is the deferred gain on the sale and leaseback on December 31,2013?
A. 0 C. 656,250
B. 625,000 D. 750,000

47. What is the total finance charge over the lease term?
A. 490,000 C. 1,240,000
B. 700,000 D. 1,820,000
48. Taxable income
A. Is reported in the income statement.
B. Is based on international financial reporting standards.
C. Differs from accounting income due to differences in interperiod tax allocation.
D. Differs from accounting income due to differences in interperiod tax allocation and permanent
differences.
49. An item that would create a permanent difference in pretax financial and taxable income would be
A. Paying fines for violation of laws.
B. Purchasing equipment previously leased with an operating lease in prior years.
C. Using the percentage of completion method on long-term construction contracts.
D. Using accelerated depreciation for tax purposes and straight line depreciation for book purposes

50. Temporary differences arise when revenues are taxable

I. After they are recognized in financial income
II. Before they are recognized in financial income
A. I only C. Both I and II
B. II only D. Neither I nor II
51. Which of the following will NOT give rise to a taxable temporary difference?
a. Receipt of non-taxable government grant
b. Accelerated depreciation of a machine for tax purpose
c. Prepaid expenses that benefited from tax relief when paid
d. Capitalized development costs that were fully relived for tax purposes when paid

52. Cord Company reported the following items for the current year:
Payment of penalty 50,000
Insurance premium on life of an officer with Cord as beneficiary 100,000
What is the total amount of temporary differences?
A. 0 C. 100,000
B. 50,000 D.150,000

53. Marie Company reported a pretax accounting income of P5,000,000 for the current year. To compute
taxable income, the following items are noted:
Depreciation deducted for tax purposes in excess
of book depreciation 200,000
Proceeds received from life insurance on death of officer 500,000
Cash received included in accounting income of
which P120,000 will be taxable next year 200,000
Income tax rate 30%
What amount should be reported as total income tax expense for the current year?
A. 1,254,000 C. 1,500,600
B. 1,350,000 D. 1,650,000

54. On January 1, 2013, Midland Company purchased a machine for P1,400,000. This machine has a 5-year
useful life, a residual value of P200,000 and is depreciated using the straight line method for financial
statement purposes. For tax purposes, depreciation was P500,000 for 2013 and P400,000 for 2014. The 2014
income before tax and depreciation was P2,000,000 and the tax rate was 30%. The entity made estimated tax
payment of P200,000 during 2014.
What is the income tax payable on December 31,2014?
A. 250,000 C. 450,000
B. 280,000 D. 480,000
55. What is the total income tax expense that is reported in the 2014 income statement?
A. 450,000 C. 528,000
B. 480,000 D. 540,000
56. The financial reporting basis of a plant asset exceeded the tax basis because a different method of
reporting depreciation is used for financial, accounting purposes and tax purposes. What is reported if
there are no other temporary differences?
A. Current tax asset C. Deferred tax asset
B. Current tax payable D. Deferred tax liability

57. Jellie Company provided the following information relating to a defined benefit plan for the current year:
Current service cost 1,600,000
Actual return on plan assets 350,000
Interest income on plan assets 400,000
Past service cost during the year 50,000
Annual interest on pension liability 500,000
What amount should be reported as defined benefit cost for the current year?
A. 1,700,000 C. 1,800,000
B. 1,750,000 D. 2,150,000
58. On December 31, 2014, Bronson Company received the following report from the independent actuary in
relation to a defined benefit pension plan:
Pension benefits paid 135,000
PBO on December 31, 2014 2,160,000
Interest expense on PBO 120,000
Discount rate 8%
What is the current service cost for 2014?
A. 255,000 C. 675,000
B. 540,000 D. 810,000
59. Greenbelt Company provided the following information with respect to the defined benefit plan for the
current year:
Projected benefit obligation:
January 1 3,000,000
December 31 3,500,000
Contribution to the plan 600,000
Benefits paid to retirees 500,000
Settlement discount rate 10%
What is the current service cost for the current year?
A. 300,000 C. 600,000
B. 500,000 D. 700,000

60. On January 1, 2021, Parks Co. has the following balances:

Defined benefit obligation P4,200,000
Fair value of plan assets 3,750,000
The discount rate is 10%. Other data related to the pension plan for 2021 are:
Service cost P240,000
Past service costs 54,000
Contributions 270,000
Benefits paid 225,000
Actual return on plan assets 264,000
Net gain on defined benefit obligation 18,000
What is the balance of the defined benefit obligation at December 31, 2021?
a. P4,572,000 b. P4,629,000 c. P4,676,400 d. P4,635,000
“As you start to walk on the way, the way appears.” \m/ / map 😊