SEATWORK – OTHER LONG-TERM INVESTMENTS Dividends received in 2023 600,000

Equity securities acquisition in 2023 1,000,000

PROBLEM 1 Proceeds from sale of equity 4,600,000
Hug Company insured the life of the president for securities in 2023 (the carrying
P2,000,000, the entity being named as the beneficiary. amount of these securities amounted
The annual premium is paid in advance every January 1 to P4,000,000)
at P120,000. The policy was dated January 1, 2015 and Interest earned in 2023 1,500,000
carried the following cash surrender value: Administration costs in 2023 500,000

End of policy year Cash surrender value
December 31, 2015 - bonds payable is P12,000,000 which will mature on July
December 31, 2016 - 1, 2024. The entity appropriates at every year-end the
December 31, 2017 72,000
December 31, 2018 84,000
December 31, 2019 114,000
December 31, 2020 150,000
The entity reports financial statements every October 31.
The president died on June 1, 2020 and the face of the
policy was collected in July 31, 2020.
(The entity is applying the asset method of recording
prepayments.)
REQUIRED:
1. Determine whether each of the statements
below is correct or not. Write the word TRUE if
the statement is correct, otherwise write FALSE:
(16 points)
a. On October 31, 2015, Hug recorded
expense equal to P120,000.
b. On October 31, 2016, Hug reported
prepayment in the current asset section
amounting to P20,000.
c. On October 31, 2017, Hug reported Life
Insurance Expense equal to P120,000.
d. On December 31, 2017, Hug recorded an
adjustment of the beginning balance of
Retained Earnings, i.e., increase, equal to
P68,000.
e. On October 31, 2018, Hug carried Cash
Surrender Value in the non-current asset
section equal to P80,000.
f. On October 31, 2019, Hug reported to the
statement of comprehensive income a net
amount equal to P93,000.
g. On June 1, 2020, Hug carried CSV in the
books equal to P129,000.
h. The termination of the life insurance policy
due to the death of the president resulted to
a gain on settlement amounting to
P1,837,000.
As of December 31, 2022, the carrying amount of the
retained earnings as a matter of company’s policy for
sinking fund establishment.
Required:
Determine whether each of the statements below is
correct or not. Write the word TRUE if the statement is
correct, otherwise write FALSE: (14 points)
1. The sinking fund balance reported as a
component of the non-current assets on
December 31, 2022 is P10,910,000.
2. The appropriation of retained earnings on
December 31, 2022 had increased by
P3,910,000.
3. The bonds payable balance is classified as non-
current liability and the balance of the sinking
fund is classified as non-current asset as of
December 31, 2022.
4. The sale of equity securities in 2023 resulted to
a net increase in the sinking fund balance equal
to the total proceeds of P4,600,000.
5. The sinking fund balance as of December 31,
2023 amounted to P14,110,000.
6. The balance of the account “Retained Earnings
– appropriated for sinking fund” as of December
31, 2023 is P5,200,000.
7. The bonds payable balance is classified as
current liability and the balance of the sinking
fund is classified as non-current asset as of
December 31, 2023.

2. Compute the total Life Insurance Expense for

the fiscal year ended October 31, 2020. Show
your computations. (2 points)
3. Provide the journal entry to record the settlement
of the insurance on July 31, 2020. (3 points)

PROBLEM 2
The following information relates to the non-current
investment that Mc Jo Company placed in trust as
required by the underwriter of its bonds:
Bond Sinking Fund, January 1, 2022 P7,000,000
Additional funding of the Sinking Fund 1,000,000
in 2022
Dividends on Investments in 2022 510,000
Bond securities acquisition in 2022 2,000,000
Interest earned from bond 900,000
investments in 2022
Administration costs in 2022 500,000
Additional funding of the Sinking Fund 3,000,000
in 2023