NAME:

YEAR AND SECTION:

1. During 2021, Siquijor Company guaranteed a supplier's P500,000 loan from a bank. On October 1, 2021, Siquijor was
notified that the supplier had defaulted on the loan and filed for bankruptcy protection. Counsel believes Siquijor will probably
have to pay between P250,000 and P450,000 under its guarantee. As a result of the supplier's bankruptcy, Siquijor entered
into a contract in December 2021 to retool its machines so that Siquijor could accept parts from other suppliers. Retooling
costs are estimated to be P300,000.
What amount should Manfred report as a liability in its December 31, 2021, statement of financial position?
A. P 250,000
B. P 450,000
C. P 350,000
D. P 650,000

2. A court case decided on December 21, 2021 awarded damages against Siquijor. The judge has announced that the amount
of damages will be set at a future date, expected to be in March 2022. Siquijor has received advice from its lawyers that the
amount of the damages could be anything between P20,000 and P7,000,000. As of December 31, 2021, how much should be
recognized in the statement of financial position regarding this court case?
A. Nil
B. P 20,000
C. P 3,510,000
D. P 7,000,000

3. Beginning 2021, Siquijor Company began marketing a new beer called "Red Colt. To help promote the product, the
management is offering a special beer mug to each customer for every 20 specially marked bottle caps of Red Colt. Siquijor
estimates that out of the 300,000 bottles of Red Colt sold during 2021, only 50% of the marked bottle caps will be redeemed.
For the year 2021, 8,000 mugs were ordered by the company at a total cost of P360,000. A total of 4,500 mugs were already
distributed to customers. What is the amount of the liability that Siquijor Company should report on its December 31, 2021
statement of financial position?
A. P 135,000
B. P 202,500
C. P 337,500
D. P 360,000

LEYTE MUSIC EMPORIUM carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and
sheet music. To promote the sale of its products, Leyte uses two promotion techniques—premiums and warranties.
PREMIUMS: The premium is offered on the recorded and sheet music. Customers receive a coupon for each P10 spent on
recorded music and sheet music. Customers may exchange 200 coupons and P200 for a power bank. Leyte pays P340 for each
power bank and estimates that 60% of the coupons given to customers will be redeemed. A total of 6,500 power banks used in
the premium program were purchased during the year and there were 1,200,000 coupons redeemed in 2022.
WARRANTIES: Musical instruments and sound reproduction equipment are sold with a one-year warranty for replacement of
parts and labor. The estimated warranty cost, based on past experience, is 2% of sales. Replacement parts and labor for
warranty work totaled P1,640,000 during 2022. Leyte uses the accrual method to account for the warranty and premium costs
for financial reporting purposes. Leyte’s sales for 2022 totaled P72,000,000—P54,000,000 from musical instruments and
sound reproduction equipment and P18,000,000 from recorded music and sheet music. The balances in the accounts related
to warranties and premiums on January 1, 2022, were as shown below:
Inventory of power banks P 399,500
Estimated premium claims outstanding 448,000
Estimated liability from warranties 1,360,000

4. How much warranty expense should be reported in 2022?

A. P 1,640,000
B. P 1,080,000
C. P 800,000
D. P 360,000
5. What is the Estimated liability from warranties balance on December 31, 2022?
A. P 1,920,000
B. P 1,080,000
C. P 240,000
D. P 800,000
6. How much Premium expense should be reported in 2022?
A. P 1,836,000
B. P 840,000
C. P 756,000
D. P 2,189,500
7. What is the Inventory of power banks on December 31, 2022?
A. P 399,500
B. P 569,500
C. P 2,210,000
D. P 739,500
8. What is the Estimated premium claims outstanding balance on December 31, 2022?
A. P 364,000
B. P 840,000
C. P 756,000
D. P 672,000

On January 1, 2020, Samar Corporation issued 2,000 of its 5-year, P1,000 face value, 11% bonds dated January 1 at an effective
annual interest rate (yield) of 9%. Interest is payable each December 31. Samar uses the effective interest method of
amortization. On December 31, 2021, the 2,000 bonds were extinguished early through acquisition in the open market by
Samar for P1,980,000 plus accrued interest.
On July 1, 2020, Samar issued 5,000 of its 6-year, P1,000 face value, 10% convertible bonds at par. Interest is payable every
June 30 and December 31. On the date of issue, the prevailing market interest rate for similar debt without the conversion
option is 12%. On July 1, 2021, an investor in Samar's convertible bonds tendered 1,500 bonds for conversion into 15,000, P1
par value, ordinary shares of Samar. Based on the above and the result of your audit, determine the following. (Round off
present value factors to four decimal places.)

9. The issue price of the 2,000 5-year, P1,000 face value bonds on January 1, 2020 is
A. P 2,147,800
B. P 1,844,400
C. P 2,155,500
D. P 2,000,000
10. The carrying amount of the 2,000 5-year, P1,000 face value bonds at December 31, 2020 is
A. P 2,121,100
B. P 1,898,400
C. P 2,129,500
D. P 2,000,000
11. The gain on early retirement of bonds on December 31, 2021 is
A. Nil
B. P 20,000
C. P 112,000
D. P 121,200
12. The carrying amount of the 5,000 6-year, P1,000 face value bonds at December 31, 2020 is
A. P 4,605,800
B. P 4,615,400
C. P 4,732,875
D. P 5,000,000
13. The conversion of the 1,500 6-year, P1,000 face value bonds on July 1, 2021 will increase net share premium by
A. P 1,374,600
B. P 1,377,697
C. P 1,415,054
D. P 1,485,000
Biliran Company issued 10-year bonds on January 1, 2018. The company’s year-end is December 31, and financial statements
are prepared annually. The amortization and interest schedule below reflects the bond issuance and the subsequent interest
payments and charges.
AMORTIZATION SCHEDULE
Date Interest Paid Interest Expense Amount Unamortized Carrying Value
01/01/2018 --- --- P 28,253 P 471,747
12/31/2018 P 55,500 P 56,610 26,643 473,357
12/31/2019 55,500 56,803 24,840 475,160
12/31/2020 55,500 57,019 22,821 477,179
12/31/2021 55,500 57,261 20,560 479,440
12/31/2022 55,500 57,533 18,027 481,973
12/31/2023 55,500 57,837 15,190 484,810
12/31/2024 55,500 58,177 12,013 487,987
12/31/2025 55,500 58,558 8,455 491,545
12/31/2026 55,500 58,985 4,470 495,530
12/31/2027 55,500 59,470 --- 500,000
14. The bonds were issued at
A. A premium C. Face Value
B. A discount D. Par Value
15. What amortization method is used in the amortization schedule presented?
A. Straight-line method C. Effective interest method
B. Bonds outstanding method D. Declining balance method
16. What is the nominal (stated) interest rate of the bonds issued on January 1, 2018?
A. 11% C. 10%
B. 12% D. 6%
17. What is the effective interest rate of the bonds issued on January 1, 2018?
A. 11% C. 10%
B. 12% D. 6%
18. On the basis of the schedule presented, the journal entry to record the issuance of the bonds on January 1, 2018 should
include a
A. debit to Cash of P500,000 C. credit to Interest Expense of P28,253
B. debit to Bond Premium of P28,253 D. debit to Bond Discount of P28,253