MULCHO THEORIES
2. Which of the following best describes the accrual method of accounting for
warranty costs? *
2 points
Expensed when incurred
Expensed based on estimate in year of sale
Expensed when paid
Expensed when warranty claims are certain
14. BTS Company has a loan due for repayment in six-month time, but it has discretion
to refinance for repayment fifteen months later. BTS exercised its discretion by
entering into a refinancing agreement that was signed after the balance sheet date but
before financial statements were authorized for issue. Based on the foregoing facts,
in which section of the statement of financial position should the loan be presented? *
2 points
Non-current assets
Current assets
Non-current liabilities
Current liabilities
11. A legal obligation is an obligation that is derived from all of the following, except *
2 points
Legislation
An established pattern of past practice
A contract
Other operation of law
12. How are the proceeds from issuing a compound instrument allocated between the
liability and equity components? *
2 points
The proceeds are not allocated because the compound instrument is accounted for either as
liability or equity.
The proceeds are allocated to the liability and equity based on carrying amount.
The proceeds are allocated to the liability and equity based on relative fair value.
First, the liability component is measured at fair value, and then the remainder of the proceeds is
allocated to the equity component.
6. In a debt extinguishment in which the debt is continued with modified terms and the
carrying amount of the debt is more than the fair value of the debt *
2 points
A loss should be recognized by the debtor.
A gain should be recognized by the debtor.
A new effective-interest rate must be computed
No interest expense should be recognized in the future.
3. Which of the following is the proper way to report a contingent asset, receipt of
which is virtually certain? *
2 points
As unearned revenue
As an asset
No disclosure or accrual required
As a disclosure only
4. If the bonds were issued at a premium, this indicates that *
2 points
The market and nominal rates coincided
No necessary relationship exists between the two rates
The market rate of interest exceeded the stated rate
The nominal rate of interest exceeded the market rate
15. A department store received cash and issued a gift certificate that is redeemable
in merchandise. When the gift certificate was issued: *
2 points
Revenue account should be decreased.
Deferred revenue account should be decreased.
Deferred revenue account should be increased.
Revenue account should be increased.
5. A discount on notes payable is charged to interest expense *
2 points
Only in the year the note is issued
Equally over the life of the note
Using the effective interest method
Only in the year the note matures
7. S1: An onerous contract is one in which the unavoidable costs of satisfying the
obligations outweigh the economic benefits to be received. S2: Constructive
obligations, in which the company has created a valid expectation on the part of other
parties that it will discharge certain responsibilities, are disclosed in the notes to
financial statements. *
2 points
Both statements are correct
Both statements are incorrect
Only statement 2 is correct
Only statement 1 is corrrect
10. Which obligation are classified as current even if they are due to be settled after
more than twelve months from balance sheet date? *
2 points
Notes payable – non-trade
Dividends payable
Bank overdrafts
Trade payables and accruals from operations
8. "Provisions" under PAS 37 are liabilities of *
2 points
Certain timing but uncertain amount
Uncertain timing or amount
Uncertain timing but certain amount
Certain timing or amount
9. Bond issuance costs, including the printing costs and legal fees associated with the
issuance, should be *
2 points
Recorded as a reduction in the carrying value of the bonds payable
Reported as an expense in the period the bonus mature or are retired
Accumulated in a deferred charge account and amortized over the life of the bonds.
Expensed in the period when the debt is issued
13. Under the effective interest method, as a discount is amortized each period, the *
2 points
Interest expense recorded increases
Carrying value decreases
Amortization amount decreases
Interest paid on bondholders increases
1. Which of the following is a current liability? *
2 points
Bonds payable due in three years.
Bonds payable due in two years for which there is an adequate sinking fund.
Bonds payable due in eight months and refunded at the end of reporting period
Bonds payable due in eleven months for which there is an appropriation of retained earnings.
MULCHO PROB SOLVING
3. On April 1, 2020, CASHEW Company sold 12,000 of its ₱1,000 11%, 5-year face
value bonds at 96. The bonds are dated April 1, 2020 and interest payment dates are
April 1 and October 1, and the company uses the straight-line method of bond
discount amortization. On March 31, 2021, CASHEW took advantage of favorable
prices of its shares to extinguish all of the bonds by issuing 800,000 shares of its
₱P10 par value ordinary shares. At this time, accrued interest was paid in cash. The
company’s shares was selling for ₱30 per share on March 1, 2021. How much is the
increase in share premium due to the conversion of CASHEW’s bonds? *
2 points
₱ 4,000,000
₱0
₱ 3,520,000
₱ 3,616,000
7. On January 1, 2021, MACADAMIA Company issued 5 year bonds with face value of
₱5,000,000 at 110. The company paid bond issued cost of ₱80,000 on same date. The
stated interest rate on the bonds is 8% payable annually every December 31. After
consideration of bond issue costs to be initially measured, the bonds were determined
to yield 6% per annum. On December 31, 2021, what should MACADAMIA report as
interest expense for the year ended, December 31, 2021? *
2 points
₱ 433,600
₱ 295,200
₱ 300,000
₱ 325,200
4. WALNUT Department Store sells gift certificates, redeemable for store merchandise
that expires one year after their issuance. WALNUT has the following information
pertaining to its gift certificates sales and redemptions: Unearned at December 31,
2020 - ₱600,000; 2021 sales - ₱2,000,000; 2021 redemptions of prior-years sales ₱200,000; 2021 redemptions of current-year sales-₱1,400,000. In its December 31,
2021 statement of financial position, what amount should WALNUT report as
unearned revenue? *
2 points
₱ 800,000
₱ 1,000,000
₱ 400,000
₱ 600,000
13. On December 31, 2021, PISTACHIO Company had outstanding ₱20 million face
value convertible bonds maturing on December 31, 2024. Interest is payable annually
on December 31. Each ₱1,000 bond is convertible into 60 shares of PISTACHIO’s
₱P10 par ordinary shares. The unamortized premium balance on December 31, 2021
is ₱350,000. The balance of Share premium arising from bond conversion privilege is
₱640,000. On this date, assume that on December 31, 2021, PISTACHIO retired the
₱2,000,000 issue at 103. Without the conversion privilege, these bonds would have
been sold at 102. How much is the gain or loss on retirement taken to profit or loss? *
2 points
₱ 20,000 GAIN
₱ 25,000 LOSS
₱ 5,000 LOSS
₱ 25,000 GAIN
15. A new product introduced by COCONUT Enterprise carries a two-year warranty
against defects. The estimated warranty costs related to dollar sales are as follows: *
2 points
What amount should COCONUT report as its estimated liability as of December 31, 2021?
₱ 540,000
₱ 740,000
₱ 240,000
₱ 40,000
2. PECAN Company issued ₱10,000,000 face value bonds at 95 plus accrued interest
on March 1, 2021. PECAN Company paid bond issue cost of ₱1,000,000. The bonds
were dated November 1, 2020, mature on November 1, 2025, and bear interest at 12%
payable semiannually on November 1 and May 1. What amount did PECAN receive
from the bond issuance? *
2 points
₱ 8,900,000
₱ 8,700,000
₱ 9,500,000
₱ 8,500,000
12. On December 31, 2021, PISTACHIO Company had outstanding ₱20 million face
value convertible bonds maturing on December 31, 2024. Interest is payable annually
on December 31. Each ₱1,000 bond is convertible into 60 shares of PISTACHIO’s
₱P10 par ordinary shares. The unamortized premium balance on December 31, 2021
is ₱350,000. The balance of Share premium arising from bond conversion privilege is
₱640,000. On this date, an individual holding 2,000 of the bonds exercised the
conversion privilege when the market value of PISTACHIO’s ordinary share was ₱18.
What is the amount credited to share premium upon conversion of the bonds? *
2 points
₱-0₱ 1,790,000
₱ 800,000
₱ 899,000
14. CHESTNUT Company pays all salaried employees on a bi-weekly period (twice a
month). CHESTNUT accrued salaries expense only at its June 30 yearend. *
2 points
Assuming a 5-day work week and a fiscal year ending June 30, 2021, how much should CHESTNUT report as
accrued salaries liability?
₱ 450,000
₱ 492,000
₱ 225,000
₱ 267,000
8. ALMOND Bottling Corporation embarked on a promotional program whereby a can
opener costing ₱13 each is given away for every 10 bottle crowns returned plus ₱5.
ALMOND also pays ₱2 per can opener for handling and shipping cost. ALMOND
estimates that only 40% of the bottle crowns in the hands of consumers will be
presented for redemption. The following information is available: Bottles sold 1,000,000 units amounting to ₱5,000,000; Can openers bought for giveaways - 15,000
units amounting to ₱195,000; Can openers distributed to customers - 10,000 units. At
the close of the first year, how much should ALMOND recognize as estimated liability
for promotional items outstanding? *
2 points
₱ 250,000
₱ 375,000
₱ 300,000
₱ 450,000
6. On January 1, 2021, MACADAMIA Company issued 5 year bonds with face value of
₱5,000,000 at 110. The company paid bond issued cost of ₱80,000 on same date. The
stated interest rate on the bonds is 8% payable annually every December 31. After
consideration of bond issue costs to be initially measured, the bonds were determined
to yield 6% per annum. On December 31, 2021, what should MACADAMIA report as
carrying amount of the bonds payable? *
2 points
₱ 5,414,800
₱ 5,345,200
₱ 5,000,000
₱ 5,430,800
5. On July 1, 2020, KOLA Corporation issued a five-year note payable with a face value
of ₱250,000 and a 10% interest rate. The terms of the note require KOLA to make five
annual payments of ₱50,000 plus accrued interest, with the first payment due on June
30, 2021. With respect to the note, how much would be included in the current
liabilities section of KOLA’s December 31, Statement of Financial Position? *
2 points
₱ 12,500
₱ 62,500
₱ 50,000
₱ 75,000
10. On July 1, 2021, HAZELNUT Company acquired machinery worth ₱2,500,000 from
PINE NUTS Corporation. Terms of the contract calls for a downpayment of ₱500,000
and signing a 2-year 10% note payable for the balance. Interest is payable quarterly.
The existing loan agreement does not carry a provision to refinance. During
September, HAZELNUT was experiencing financial difficulty and was unable to pay the
periodic interest. What total amount of current liability should HAZELNUT report in its
December 31, 2021 statement of financial position assuming PINE NUT agreed at
report date not to demand payment as a consequence of the breach? *
2 points
₱ 50,000
₱ 2,100,000
₱ 100,000
₱0
9. ALMOND Bottling Corporation embarked on a promotional program whereby a can
opener costing ₱13 each is given away for every 10 bottle crowns returned plus ₱5.
ALMOND also pays ₱2 per can opener for handling and shipping cost. ALMOND
estimates that only 40% of the bottle crowns in the hands of consumers will be
presented for redemption. The following information is available: Bottles sold 1,000,000 units amounting to ₱5,000,000; Can openers bought for giveaways - 15,000
units amounting to ₱195,000; Can openers distributed to customers - 10,000 units. At
the close of the first year, how much should ALMOND recognize as expense for the
promotional program? *
2 points
₱ 150,000
₱ 100,000
₱ 400,000
₱ 300,000
11. PEANUTS Company, a grocery retailer operates a customer loyalty program. It
grants program members loyalty points when they spend a specified amount of
groceries. Program members can redeem the points for further groceries. The points
have no expiry date. During the year 2020, the entity grants 100,000 points, but
management expects that only 80,000 points will be redeemed. The management of
PEANUTS estimates the fair value of each loyalty point to be ₱1, and defers revenue in
the amount of ₱100,000. During the year 2020, the company had redeemed 40,000
points. But during the year 2021, the management revises their expectation, it now
expects to redeem 90,000 points. In 2021, the company redeemed 45,000 points.
What amount of revenue from loyalty program should PEANUTS recognize for the year
ended December 31, 2021? *
2 points
₱ 25,000
₱ 50,000
₱ 45,000
₱ 20,000
1. On January 1, 2021, ACORN Company offered a three-year warranty from date of
sale on any of its products sold after that date. The offer was part of a program to
increase sales. Meeting the terms of the warranty was expected to cost 2% of sales.
Sales made under warranty in 2021 amounted to ₱9,000,000. One fifth of the units
sold in 2021 were returned. These units were repaired or replaced at a cost of
₱32,500. What amount of warranty expense should be shown on ACORN’s 2021
income statement? *
2 points
₱ 35,500
₱ 68,500
₱ 32,500
₱ 180,000
LONG PROBLEMS
7. SESAME-SEED Company has a bonus agreement which provides that the senior
managers will receive an annual bonus of 12% of the net income after bonus and tax.
The income tax rate is 30%. The senior managers received ₱250,000 for the current
year as bonus. What is the net income before bonus and tax? *
5 points
Your answer
2. On March 1, 2021, FLAXSEED Inc. issued at 97, including accrued interest, 2,550 of
its 10%, ₱1,000 bonds. The bonds are dated January 1, 2021 to mature on January 1,
2031. Interest is payable semi-annually on January 1 and July 1. From the bond
issuance, how much cash did FLAXSEED receive? *
5 points
Your answer
3. The following accounts and their balances appear in an unadjusted trial balance of
CASHEW Company as of December 31, 2021: *
5 points
What is the total current liabilities to be presented in the statement of financial position as of December
31, 2021?
Your answer
6. On April 30, CHIA-SEED Company issued 7,000 of 15% ₱1,000 bonds at 95. The
bonds have a five-year term and interest is payable semi-annually, May 1 and
November 1. The entity elected the fair value option. The entity paid bond issue cost
of ₱125,000. On December 31, 2021, the fair value of the bonds is 104. It is reliably
determined that the fair value increase comprised of 25% attributable to credit risk
and the remainder is attributable to change in market interest rate. What is the interest
expense for the year ended December 31, 2021? *
5 points
Your answer
1. During 2021, PUMPKIN Company experienced financial difficulties and is likely to
default on a ₱5,000,000, 15% three-year note dated January 1, 2019, payable to
Summit Bank. On December 31, 2021, the bank agreed to settle the note and unpaid
interest of ₱750,000 for 2021 for ₱4,100,000 cash payable on January 31, 2022. What
amount should PUMPKIN report as gain or loss from extinguishment of debt in its
2021 income statement? (If gain, maintain as is; if loss, put a negative (-) sign before
the numerical figure) *
5 points
Your answer
8. GINKGO-NUTS Enterprises' purchases per purchase invoice is ₱150,000. The
purchase discount is 2/10, n/30. Freight is ₱500, FOB Shipping point prepaid. At what
amount is the accounts payable debited upon payment? *
5 points
Your answer
4. The following information pertains to BARU NUTS Company's issuance of bonds on
July 1, 2021: *
5 points
What should be the issue price of the bonds?
Your answer
5. On April 30, CHIA-SEED Company issued 7,000 of 15% ₱1,000 bonds at 95. The
bonds have a five-year term and interest is payable semi-annually, May 1 and
November 1. The entity elected the fair value option. The entity paid bond issue cost
of ₱125,000. On December 31, 2021, the fair value of the bonds is 104. It is reliably
determined that the fair value increase comprised of 25% attributable to credit risk
and the remainder is attributable to change in market interest rate. What amount of
gain or loss should be recognized in profit or loss for 2021 to conform with the fair
value option? *
5 points
Your answer