ACTIVITY CHAPTER 4
1. On March 1, 20X4, Fine Co. borrowed ₱10,000 and signed a two-year note
bearing interest at 12% per annum compounded annually. Interest is payable in full
at maturity on February 28, 20X6. What amount should Fine report as a liability for
accrued interest at December 31, 20X5?
Ans. 2,320
Solution:
Interest expense in 20x4 (10,000 x 12% x 10/12)
Interest expense in 20x5 [(10,000 + 1,000) x 12%]
Interest payable (compounded) - 12/31/x5
1,000
1,320
2,320
2. On December 30, 20X6, Bart, Inc., purchased a machine from Fell Corp. in
exchange for a noninterest bearing note requiring eight payments of ₱20,000. The
first payment was made on December 30, 20X6, and the others are due annually on
December 30. At the date of issuance, the prevailing rate of interest for this type of
note was 11%. On Bart's December 31, 20X6, balance sheet, the note payable to
Fell was
Ans. 94,240
Solution:
Cash flow
PV of annuity due of 1 @11%, n=8
PV of note on Dec. 30, 20x6
Less: First installment on Dec. 31, 20x6
PV of note on Dec. 31, 20x6
20,000
5.712
114,240
(20,000)
94,240
3. House Publishers offered a contest in which the winner would receive ₱1,000,000,
payable over 20 years. On December 31, 2000, House announced the winner of the
contest and signed a note payable to the winner for ₱1,000,000, payable in ₱50,000
installments every January 2. Also on December 31, 2000, House purchased an
annuity for ₱418,250 to provide the ₱950,000 prize monies remaining after the first
₱50,000 installment, which was paid on January 2, 2001.
In its December 31, 20x0, balance sheet, what amount should House report as note
payable-contest winner, net of current portion?
Ans. 418,250
Solution:
418,250 – The cash price equivalent of the annuity purchased
4. House Publishers offered a contest in which the winner would receive ₱1,000,000,
payable over 20 years. On December 31, 2000, House announced the winner of the
contest and signed a note payable to the winner for ₱1,000,000, payable in ₱50,000
installments every January 2. Also on December 31, 2000, House purchased an
annuity for ₱418,250 to provide the ₱950,000 prize monies remaining after the first
₱50,000 installment, which was paid on January 2, 2001.
In its 20x0 income statement, what should House report as contest prize expense?
Ans. 468,250
Solution:
(418,250 + 50,000 first payment made immediately) = 468,250 total contest
prize expense
5. On December 1, 20x5, Money Co. gave Home Co. a ₱200,000, 11% loan. Money
paid proceeds of ₱194,000 after the deduction of a ₱6,000 non-refundable loan
origination fee. Principal and interest are due in 60 monthly installments of ₱4,310,
beginning January 1, 20x6. The repayments yield an effective interest rate of 11% at
a present value of ₱200,000 and 12.4% at a present value of ₱194,000. What
amount of income from this loan should Money report in its 20x5 income statement?
Ans. 2,005
Solution:
(194,000 x 12.4% x 1/12) = 2,005
FINANCIAL ACCOUNTING & REPORTING 2
ALL IN - THEORIES
1) Which of the following is not considered a characteristic of a liability?
A. Present obligation
B. Arises from past events
C. Result in an outflow of resources
D. Liquidation is reasonably expected to require use of existing resources classified as current asset
2) Which of the following is not considered when evaluating whether or not to record a liability for pending litigation?
A. Time period in which the underlying cause of action occurred.
B. The type of litigation involved.
C. The probability of an unfavorable outcome.
D. The ability to make reasonable estimate of the amount of the loss.
3) Which of the following is not acceptable for the presentation of current liabilities?
A. Listing current liabilities in order of maturity
B. Listing current liabilities according to amount
C. Offsetting current liabilities against asset that are to be applied to their liquidation
D. Showing current liabilities in order of liquidation preference
4) Which of the following describes a liability?
Statement I – It is a present obligation of an entity arising from past transactions.
Statement II – The settlement of a liability is expected to result in an outflow of resources embodying economic benefits.
A.
I only
C. Both I and II
B. II only
D. Neither I nor II
5) Which one of the following items is not a liability?
A.
Dividends payable in shares
C. Advances from customers on contracts
B. Accrued estimated warranty
D. Maturing portion of long-term debt
6) Which of the following should not be included in the current liabilities section of the balance sheet?
A.
Trade notes payable
C. Trade accrued expenses
B. Deferred tax liability
D. Short-term non-interest bearing notes payable
7) Under PAS 37, liabilities are present obligations which represent
A.
Legal obligations only
C. Both legal and constructive obligations
B. Constructive obligations only
D. Neither legal nor constructive obligations
8) It is an event that creates a legal or constructive obligation because the entity has no other realistic alternative but to
settle the obligation.
A.
Contingent event
C. Events after the balance sheet date
B. Adjusting event
D. Obligating event
9) A present obligation that is probable and for which the amount can be reasonably estimated shall
A. Not be accrued but shall be disclosed in the notes to the financial statements
B. Be accrued by debiting an appropriated retained earnings account and crediting a liability account
C. Be accrued by debiting an expense account and crediting an appropriated retained earnings account
D. Be accrued by debiting an expense account and crediting a provision account.
10) Under PAS 37, provisions are liabilities of
A.
Certain timing or amount
C.
B. Uncertain timing or amount
D.
Uncertain timing but certain amount
Uncertain timing and amount
11) An outflow of resources embodying economic benefits is deemed as ‘probable’ when the probability that
A The event will occur is greater than the probability that the event will not occur
B The event will not occur is greater than the probability that the vent will not occur.
C The vent will occur is the same as the probability that the event will not occur
D The event will occur is at least 90% likely.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• TOPIC•
• SUBJECT •
• PAGE 1 OF 31 •
12) Management can estimate the amount of loss that will occur if a foreign government expropriates some company
assets. If expropriation is reasonably possible, a loss contingency should be
A.
Disclosed and accrued as a liability
C. Accrued as a liability but not disclosed
B. Disclosed but not accrued as a liability
D. Neither accrued as a liability nor disclosed
13) A contingent liability
A. Has a most probable value of zero but may require payment if a given future event occurs
B. Definitely exists as a liability but its amount or due date is indeterminate
C. Is commonly associated with operating loss carry-forward
D. Is not disclosed in the financial statements
14) What statistical method is used when the provision is estimated by weighting all possible outcomes by their associated
probabilities given that provision being measured involves a large population of items?
A.
Expected value
C. Interpolation
B. Realizable value
D. Normal distribution
15) When an entity breaches an undertaking under a long-term loan agreement on or before the balance date with the
effect that the liability becomes payable on demand, the liability is:
Statement – I: Current, event if the lender agreed after the reporting period and before the authorization of financial
statements for issue not to demand payment.
Statement – II: Non current if the lender agreed by the end of the repotting period to provide a grace period for at least
12 months after the balance sheet date within which the entity can rectify the breach.
A.
B.
Only statement I
Only statement II
C.
D.
Both statement are true
Both statements are false
16) Which of the following transactions would not result to a transfer of liability to revenue account?
A. Redemption of gift certificates
B. Return of customer’s deposit on returnable containers
C. Redemption of points in a customer loyalty program
D. Realization of revenue from service contract
17) A liability shall be classified as current when it satisfies any of the following criteria, except
A. It is expected to be settled in the entity’s normal operating cycle
B. It is held primarily for the purpose of being traded
C. Is is due to be settle within twelve months after the balance sheet date
D. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance
sheet date
18) A department store received cash and issued a gift certificate that is redeemable in merchandise. When the gift
certificate was issued
A.
Deferred revenue account should be decreased
C.
Revenue account should be decreased
B. Deferred revenue account should be increased
D.
Revenue account should be increased
19) Where the provision being measured involves a large population of items, the obligation estimated by weighting all
possible outcomes by their associated probabilities. This statistical method of estimation is called
A.
Expected value
C.
Interpolation
B. Bifurcation
D.
Normal distribution
20) Liabilities are
A. Any accounts having credit balances after closing entries are made.
B. Deferred credits.
C. Obligations to transfer ownership shares to other entities in the future.
D. Present obligations arising from past events and result in an outflow of resources.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 2 OF 31 •
21) Which of the following should not be classified as a current liability?
A. Current maturities of long-term debt
B. Value added taxes payable
C. Short-term obligations refinanced at the end of reporting period
D. Unearned revenue
22) What is the relationship between current liabilities and an entity’s operating cycle?
A. Liquidation of current liabilities is reasonably expected within the operating cycle or one year, whichever is longer.
B. Current liabilities are the result of operating transactions.
C. Current liabilities cannot exceed the amount incurred in one operating cycle.
D. There is no relationship between the two.
23) Which of the following best describes the accrual method of accounting for warranty costs?
A.
Expensed when paid
C.
Expensed based on estimate in year of sale
B. Expensed when warranty claims are certain
D.
Expensed when incurred
24) what condition is necessary to recognize an environmental liability?
A. The entity has an existing legal obligation and can reasonably estimate the liability.
B. The entity can reasonably estimate the amount of the liability.
C. The entity has an existing legal obligation.
D. Obligation event as occurred.
25) Under IFRS, a provision is
A.
An event which is not recognized
B. An event which is probable and measurable
C.
D.
An event which is probable, possible, or remote and measurable
An event which is probable but not measurable
26) A contingency is described as
A. An estimated liability
B. An event which is not recognized because it is not probable that an outflow will be required or the amount cannot
be reasonably estimated
C. A potentially small liability
D. A potentially large liability
27) Reserves for contingencies for general or unspecified risks should
A. Be accrued in the financial statements and disclosed in the notes.
B. Not be accrued in the financial statements and need not be disclosed in the notes.
C. Not be accrued in the financial statements bit should be disclosed in the notes.
D. Be accrued in the financial statements but need not be disclosed in the notes.
28) If a long-term debt becomes callable due to the violation of a loan covenant
A. The debt may continue to be classified as noncurrent if the entity believes the covenant can be renegotiated.
B. The debt must be reclassified as current.
C. Cash must be reserved to pay the debt.
D. Retained earnings must be restricted in the amount of the debt.
29) Which statement is incorrect regarding a liability?
A. An essential characteristic of a liability is that the entity has a present obligation.
B. A liability may be legally enforceable as a consequence of a binding contract or statutory requirement.
C. A liability may arise from normal business practice, custom and a desire to maintain good business relations or act
in an equitable manner.
D. A decision by the management of an entity to acquire assets in the future gives rise to a present obligation.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 3 OF 31 •
30) The settlement of a present obligation usually involves the entity giving up resources embodying economic benefits in
order to satisfy the claim of the other party. Settlement of a present obligation may occur in a number of ways, for
example, by:
I. Payment of cash.
II. Transfer of other assets.
III. Provision of services.
IV. Replacement of that obligation with another obligation.
V. Conversion of the obligation to equity.
VI. A creditor waiving or forfeiting its right.
A.
B.
I, II, III, IV, V and VI
I, II, III, IV and VI only
31) Premium on bonds payable is a(n)
A.
Valuation account
B. Contra account
C.
D.
C.
D.
I, II, II, V, and VI only
I,II and III only
Accumulation account
Adjunct account
32) The rate of interest that is used to discount the future cash payments on a debit to the cash equivalent is least likely to
be described by which of the following terms
A.
Effective interest rate
C. Stated interest rate
B. Yield interest rate
D. Prevailing interest rate
33) If a bond was sold at 105, then the stated rate of interest was:
A.
Equal to market rate
C. Higher than market rate
B. Not related to market rate
D. Lower than market rate
34) The bond interest expense for a period is more than interest paid when bonds are sold at
A.
A premium
C. A discount
B. Par
D. A yield
35) The market price of a bond issued at a discount is the present value of its principal amount at the market (effective) rate
of interest
A. Less than present value of all future interest payments at the market (effective) rate of interest
B. Less than present value of all future interest payments at the rate of interest stated on the bond
C. Plus the present value of all future interest payments at the market (effective) rate of interest
D. Plus the present value of all future interest payments at the rate of interest stated on the bond
36) For bonds payable, the cash interest paid in each interest period is:
A. The same amount regardless of whether the bonds were sold at a discount or a premium
B. Not the same amount when the stated and yield interest rates are different
C. Dependent on the initial amount of accrued interest
D. Different depending upon the date of sale
37) Costs incurred in issuing ten-year bonds which sold at a slight premium should be
A. Capitalized as organization cost
B. Expensed in the year in which incurred
C. Charged to retained earnings when the bonds are issued
D. Reported on the balance sheet as a deduction from bonds payable and amortized over the bond term
38) When interest payment dates of a bond are May 1 and November 1, and a bond issue is sold June 1, the amount of
cash received by the issue will be
A. Decreased by accrued interest from June 1 to November 1
B. Increased by accrued interest from June 1 to November 1
C. Decreased by accrued interest from May 1 to June 1
D. Increased by accrued interest from May 1 to June 1
39) The proceeds from a bond issued with detachable share warrants should be accounted for
A.
Entirely as equity
C. Partially as equity and partially as bonds payable
B. Entirely as bonds payable
D. Partially as unearned revenue and partially as bonds payable
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 4 OF 31 •
40) Which of the following is incorrect about bonds sold at a discount?
A. The carrying amount of the bond increases each year
B. The discount on bonds payable account decreases each year
C. At maturity, the face value and carrying amount of the bonds will be equal
D. The balance of the bonds payable account increases each year
41) When all mature on a single date, they are called
A.
Term bond
C. Debenture bond
B. Serial bond
D. Callable bond
42) A compound financial instrument shall be accounted for as
A.
Financial liability only
C.
B. Equity only
D.
Partly financial liability and partly equity
Neither financial liability nor equity
43) How would the carrying value of a bond payable be affected by amortization of each of the following?
Discount
Premium
Discount
Premium
A.
No effect
No effect
C.
Increase
Decrease
B. Increase
No effect
D.
Decrease
Increase
44) Under the effective interest method of bond discount or premium amortization, the periodic interest expense is equal to
A. The stated rate of interest multiplied by the face value of bonds
B. The effective rate of interest multiplied by the face value of the bonds
C. The stated rate multiplied by the beginning of the period carrying amount of the bonds
D. The effective rate multiplied by the beginning of the period carrying amount of the bonds
45) What is the market arte of interest for a bond issue that sells for more than its face value?
A.
Lower than the rate stated on the bond
C.
Higher than the rate stated on the bond
B. Equal to the rate stated on the bond
D.
Independent of the rate of the bond
46) Bonds with a par value of P5.0 million carrying a stated interest rate of 12% payable semiannually on March 1 and
September 1 were issued on July 1. The total proceeds from the issue amounted to P5,200,000. The best explanation
for the excess amount received over the par is
A. The bonds were sold at a premium
B. The bonds were sold at a higher effective interest rate
C. The bonds were issued at par value plus accrued interest
D. No explanation is possible without knowing the maturity date of the bond issue
47) The periodic amortization of a bond discount
A.
Is increasing as the bond nears maturity
B. Is decreasing as the bonds nears maturity
C.
D.
Remains the same throughout the life of the bond
Is higher than the interest paid during the period
48) Which of the following is not true about bonds being sold at a premium?
A. The interest expense gets larger each year
B. The premium on bonds payable account get smaller each year
C. At maturity, the face value and carrying amount will be equal
D. The periodic amortization of bond premium increases each year
49) What is the market rate of interest for a bond issue that sells for more than its face value?
A.
Higher than the rate stated on the bond
C.
Independent of the rate of the bond
B. Equal to rate stated on the bond
D.
None of the above
50) Upon retirement of the bonds, any resulting gain on retirement of the bonds should be reported in income statement
when
A. Retirement price is less than the carrying value of the bonds
B. Retirement price is greater than the carrying value of the bonds
C. Retirement price is equal to the carrying amount of the bonds
D. None of the above
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 5 OF 31 •
51) If the bonds were issued at a premium, this indicates that
A. The effective yield or market rate of the interest exceeded the stated rate.
B. The nominal rate of interest exceeded the market rate.
C. The market and nominal rates coincided.
D. No necessary relationship exists between the two rates.
52) Bond issuance cost should be
A. Expensed in the period when the bond payable is issued.
B. Recorded as a reduction in the carrying amount of bond payable.
C. Accumulated in a deferred charge account and amortized over the life of the bond.
D. Reported as an expense in the period the bond matures or its retired.
53) If bonds are issued between interest dates, the entry of the issuing entity could include a
A.
Debit in interest payable
C.
Credit to increased expense
B. Credit to interest receivable
D.
Credit to unearned interest
54) The amortization of a premium on bonds payable
A.
Decreases the balance of the bond payable
B. Increases the cash payment to bondholders
C.
D.
Decreased the carrying amount of the bond payable
Increased the amount of interest expense reported
55) The market price of a bond issued at a discount is the present value of the principal amount at market rate of interest
A. Less the present value of all future interest payments at the market rate
B. Less the present value of all future interest payments at the stated rate
C. Plus the present value of all future interest payments at the market rate
D. Plus the present value of all future interest payments at the stated rate
56) What method may be used to report the bonds payable at year-end
A. Amortized cost
B. Fair value through other comprehensive income
C. Amortized cost and fair value through other comprehensive income
D. Amortized cost and fair value through profit or loss
57) What is the accounting for issued convertible debts?
A. The instrument should be presented solely as debt.
B. The instrument should be presented between debt and equity
C. The instrument should be presented solely as equity
D. The instrument should be presented as part debt and part equity
58) An entity issued bonds with a 5% stated rate. If the market rate for comparable bonds is 6%, which of the following is
correct?
A.
The issuer will collect a premium
C.
The issuer will sell the bonds at face amount
B. The issue will have to sell the bonds at a discount
D.
The amount of interest paid is based on the market
59) Which statement is true bout the fair value option for measuring bonds payable?
A. The effective interest method of amortization must be used to calculate interest expense.
B. Discount or premium is disclosed in the notes to the financial statements.
C. The fair value of the bond and the principal obligation value must be disclosed.
D. If the fair value option is elected, it must be applied to all bonds.
60) A troubled debt restructuring will generally result in a
A.
Loss by both the debtor and the creditor
B. Gain by both the debtor and the creditor
C.
D.
Loss by the debtor and a gain by the creditor
Gain by the debtor and a loss by the creditor
61) Under PAS 39, the difference between the carrying amount of a financial liability extinguished and the consideration
given shall
A.
Be recognized in profit or loss
C.
Be included in retained earnings
B. Be included in equity
D.
Not be recognized
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 6 OF 31 •
62) In a debt settlement in which the debt is continued with modified terms, a gain should be recognized at the date of
settlement whenever the
A. Carrying amount of the debt is less than the total future cash flows.
B. Carrying amount of the debt is greater than the present value of the future cash flows.
C. Present value of the debt is less than the present value of the future cash flows.
D. Present value of the debt is greater than the present value of the future cash flow.
63) There is substantial modification of terms of an old financial liability if the gain or loss on extinguishment is
A.
At least 10% of the new liability
C.
At least 10% of the carrying amount of the old liability
B. Less than 10% of the new liability
D.
Less than 10% of the carrying amount of the old liability
64) Which of the following is not a characteristic of a corporation
A.
Limited liability of shareholders
C.
B. Separate legal entity
D.
Flexible ownership
Nontaxable entity
65) The residual interest in a corporation belongs to the
A.
Management
B. Creditors
C.
D.
Ordinary shareholders
Preference shareholders
66) Categories of equity include all of the following, except
A.
Noncontrolling interest
B. Cumulative other comprehensive income
C.
D.
Liquidating dividends
Treasury shares
67) Shares that have a fixed per-share amount printed on each share certificate are called
A.
Stated value shares
C.
Uniform value shares
B. Fixed value shares
D.
Par value shares
68) What is a primary element that distinguishes accounting for corporation from accounting for other legal form of business
organization (e.g., partnership)?
A. The corporation draws sharper distinction in accounting for sources of capital
B. The entity theory relates primarily to the other forms of business organization
C. In corporation, retained earnings may be reduced only by the declaration of dividends
D. GAAP apply to corporations but have only little applicability to other forms of organization
69) Which of the following is not among the basic rights of a shareholders?
A. To share in corporate earnings
B. To vote in the election of directors
C. To subscribe for additional share issues
D. To represent himself in the name of the corporation
70) The par value of an ordinary share represents
A. the book value of the share
B. the liquidation value of the share
C. the legal nominal value assigned to the share
D. the amount received by the corporation when the share was originally issued
71) When shares are sold at an amount higher than par value, the excess over par shall be credited to
A.
Share premium
C.
Share options
B. Share warrants
D.
Retained earnings
72) Any direct costs incurred to issue shares above par value (i.e., share issue cost) shall be debited to
A.
Expense
C.
Organization cost
B. Share premium
D.
Retained earnings
73) Share issued for noncash consideration such as property, plant and equipment shall be measured at
A.
Par value of the share issued
C.
Fair value of the non cash consideration received
B. Fair value of the shares issued
D.
Carrying amount of the noncash consideration received
74) Shares issued to extinguish financial liability shall be measured initially at
A.
Fair value of liability extinguish
C.
Far value of instrument issued
B. Par value of equity instrument issued
D.
Carrying amount of liability extinguish
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 7 OF 31 •
75) Which of the following is issued to shareholders of a corporation to acquire its unissued or treasury shares within a
specific time at a specific price?
A.
Share option
C.
Share dividend
B. Share warrants
D.
Share split
76) An entity issued rights to its existing shareholders to purchase unissued ordinary shares at more than par value. share
premium would be recorded when the rights
A.
Are issued
C.
Are exercisable
B. Are exercised
D.
Are not exercised
77) Treasury shares are recorded at
A. Par value of the shares reacquired
B. Cost only if acquired below par value
C. Cost only if acquired above par value
D. Cost regardless of whether they are acquired above or below par value
78) The purchase (acquisition) of treasury shares
A.
Decreases shares outstanding
B. Increases share outstanding
C.
D.
Decreases share issued
Increases share issued
79) How should a corporation reflect treasury shares on its balance sheet?
A.
As part of current assets
C.
As a deduction form retained earnings
B. As part of noncurrent assets
D.
As a deduction from shareholders’ equity
80) The ‘gain’ on sale (re-issuance) of treasury shares is
A.
Credited to retained earnings
B. Credited to share premium
C.
D.
Disclosed in the notes to the financial statements
Considered in the computation of profit or loss
81) The ‘loss’ on sale (re-issuance) of treasury shares is
A. Considered in the computation of profit or loss
B. Disclosed in the notes to the financial statements
C. Debited to retained earnings even when share premium is sufficient to absorb the loss
D. Debited to retained earnings only when share premium is insufficient to absorb the loss
82) A restriction of retained earnings is most likely to be required by the
A. Purchase of treasury stock
B. Amortization of past service cost
C. Payment of last maturing series of a serial bond issue
D. Exhaustion of potential benefits of the investment credit
83) A retained earnings appropriation is used to
A. Smooth periodic income
B. Restrict earnings available for dividends
C. Absorb a fire loss when a company is self-insured
D. Provide for a contingent loss that is probable and measurable
84) Which dividend when declared does not create a liability?
A.
Cash dividend
C.
B. Share dividend
D.
Scrip dividend
Property dividend
85) Dividend paid out of preference shares with mandatory redemption (i.e., financial liability) are
A.
Not recorded
C.
Charged against retained earnings
B. Charged as expense
D.
Charged against related financial liability
86) When dividends are declared and paid in shares of stock
A.
Current ratio increases
C.
B. Working capital decreases
D.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
Total shareholders’ equity decreases
Total shareholders’ equity does not change
• ALL IN THEORIES•
• FAR 2 •
• PAGE 8 OF 31 •
87) At what amount per share should retained earnings be reduced for a 20% stock dividend?
A.
Zero
C.
Market value at the date of declaration
B. Par value
D.
Market value at the date of issuance
88) If the stock dividend is less than 20%, how much of the retained earnings should be capitalized?
A.
Par value of the shares
C.
Fair value of the shares on the date of issuance
B. Fair value of the shares on the date of record
D.
Fair value of the shares on the date of declaration
89) Dividends in arrears are
A. Dividends on common stock that have not been declared
B. Dividends on preferred stock that have been declared but not paid
C. Cumulative preferred dividends that have not been declared for a given period of time
D. Noncumulative preferred dividends that has not been declared for a given period of time
90) When the total shareholders’ equity is smaller than the contributed capital, this deficiency is called
A.
A net loss
C.
A liability
B. A dividend
D.
A deficit
91) The primary purpose of a quasi-reorganization is to give the entity the opportunity to
A. Obtain relief from its creditors
B. Eliminate a deficit in retained earnings
C. Revalue understated assets to their fair value
D. Distribute shares of a newly created subsidiary to shareholders
92) When an entity goes through a quasi-reorganization, the balance sheet carrying amounts are stated at
A.
Original cost
C.
Replacement value
B. Original book value
D.
Fair value
93) Immediately after the quasi-reorganization, the retained earnings account
A. Has a zero balance
B. Remains the same as it was before the quasi-reorganization
C. Has a debit balance equal to the write-down of the assets which were overstated
D. Is appropriated to the full amount until the company shows sign of financial recovery
94) The accounting for quasi-reorganization usually involves
A. Write-up of assets and write-down of retained earnings
B. Write-up of both assets and retained earnings
C. Write-down of assets and elimination of a deficit
D. Write-up of assets and elimination of deficit
95) A company mate effect a stock split in order to
A.
Lower the market price per share
B. Raise the unit market price of its share
C.
D.
Decrease the number of shares outstanding
Narrow down distribution of its hares to shareholders
96) Choose the most correct statement regarding a 2-for-1 share split and a 100% share dividend.
A. Neither affect par value
B. Both double the number of share outstanding
C. Both cause the same reduction in retained earnings
D. Both cause significant increase in the ordinary shares account
97) Which of the following items does not affect the retained earnings of a corporation?
A. Transfer of cumulative balance of unrealized gain on investment at fair value through other comprehensive income
upon sale.
B. Transfer of revaluation surplus of PPE upon disposal.
C. Write-down of assets and elimination of deficit during quasi-reorganization
D. Dividends paid to holders of equity instrument classified as financial liability
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 9 OF 31 •
98) Which of the following transactions would not lead to the recognition of a share premium?
A. Donation of land by a shareholder
B. Gain on sale of shares as a result of exercise of stock rights
C. Issuance of convertible bonds
D. Appropriation of retained earnings for treasury share
99) When treasury shares are purchased for more than the par value of the shares and the cost method is used to account
for treasury shares, what account should be debited?
A. Treasury shares for the par value and share premium for the excess of the purchase price over the par value.
B. Share premium for the purchase price
C. Treasury shares for the purchase price
D. Treasury shares for the par value and retained earnings for the excess of the purchase price over the par value.
100) Share premium could not arise from
A.
Donated capital
B. resale of treasury stock
C.
D.
Distribution of “large” bonus issue
Distribution of “small” bonus issue
101) What is the corporation’s legal capital?
A. It is the portion of the paid-in capital arising from the issuance of capital stock that cannot be returned to the
stockholders in any form during the lifetime of the corporation.
B. In case of par value stock, legal capital is the aggregate par value of all shares issued and subscribed.
C. In case of no-par value stock, legal capital is the aggregate stated value of shares issued and subscribed plus any
excess over stated value.
D. All of the above statements would describe the concept of legal capital.
102) The retained earnings account represents the cumulative balance of periodic net income, dividend distribution,
retroactive adjustments and other capital adjustments. One of the following refers to appropriated retained earnings:
A. This is known as a debit balance in the retained earnings.
B. This results when the deficit exceeds the total of all the stockholders’ equity account.
C. This represents that portion that is free and can be declared as dividends to stockholders.
D. This represents that portion that is restricted and hence cannot be declared as dividends.
103) Which of the following is an invalid approach of recording various dividends?
A.
Property dividend as liability
C.
Stock dividend distributable as liability
B. Property dividend at market value
D.
Stock dividend distributable as equity
104) It is defined as the issuance by an entity of its own ordinary shares to its ordinary shareholders without considerations
and under conditions indicating that such action is prompted mainly by a desire to increase the number of shares
outstanding for the purpose of effecting a reduction in their unit market price
A.
Share split
C.
Share option
B. Rights issue
D.
Share appreciation rights
105) Motherhood Company declared a 10% stock dividend. The declaration
A. Would decrease both retained earnings and total stockholders’ equity
B. Would decrease retained earnings but would have no effect on total stockholders’ equity
C. Would have no effect on retained earnings but would decrease total stockholders’ equity
D. Would have no effect both retained earnings and total stockholders’ equity
106) Unlike a share split, a bonus issue requires a formal journal entry in the financial accounting records because
A. Bonus issue increase the book value of an individual’s shareholdings
B. Bonus issue increase the shareholders’ equity in the issuing firm
C. Bonus issue is payable on the date they are declared
D. Bonus issue represents a transfer from retained earnings to share capital
107) The retirement of the treasury shares
A.
Decreases share outstanding
B. Decreases shares authorized
• J.S. CAYETANO ♣ •
• FEU – MANILA •
C.
D.
Decreases shares issued
Has no effect on shares issued
• ALL IN THEORIES•
• FAR 2 •
• PAGE 10 OF 31 •
108) Dividends paid out of a financial liability (e.g., preference shares with mandatory redemption) are
A.
Not recorded
C.
Charged against retained earnings
B. Charged as expense
D.
Charged against related financial liability
109) The retained earnings balance is nil after a company undergoes
A.
Corporate reorganization
C.
Equity swap
B. Modification of terms
D.
Asset swap
110) Which feature of preference shares makes the security more like debt than an equity instrument?
A.
Participating
C.
Redeemable
B. Voting
D.
Noncumulative
111) When preference shares ratably with the ordinary shareholders in any profit distribution beyond the prescribed rate
this is known as the
A.
Cumulative feature
C.
Callable feature
B. Participating feature
D.
Redeemable feature
112) Which dividends do not reduce equity?
A.
Cash dividend
B. Share dividend
C.
D.
Property dividends
Liquidating dividends
113) An entity makes only a memorandum entry when
A. Entities give warrants to executives and employees as a form of compensation
B. Entities include warrants to make a security more attractive
C. Entities issue rights to existing shareholders.
D. All of the choices are correct
114) The distribution of share rights to existing shareholders would increase share premium at
A.
Date of issuance of rights
C.
Date of expiration of rights
B. Date of exercise of rights
D.
All of these are correct choices
115) When bonds are issued with detachable warrants, the amount to be recorded as share premium is preferably
A. Zero
B. Calculated as the excess of the proceeds over the face amount of the bonds.
C. Equal to the market value of the warrants.
D. Calculated as the excess of the proceeds over the fair value of the bonds.
116) The major difference between convertible debt and share warrants is that upon exercise of the warrants
A. The shares are held by the entity for a definite period of time before they are issued to the warrant holder.
B. The holder has to pay a certain amount of cash to obtain the shares.
C. The share involved are restricted and can only be sold by the recipient after a certain period.
D. No share premium can be a part of the transactions
117) When convertible debt is not converted at maturity
A. A gain or loss is recorded for the difference between the carrying amount of the debt and the present value of the
cash flows.
B. The amount originally allocated to equity is recorded as a gain on retirement,
C. The amount allocated to the equity component at the issuance date is recorded as a loss on retirement.
D. The carrying amount of the bond equals face amount and it is removed from the books.
118) The conversion of preference shares into ordinary shares requires than any excess of the par value of the ordinary
shares issued over the carrying amount of the preference shares converted should be
A.
Reflected currently in income
C.
Treated as a prior period adjustment
B. Reflected currently in OCI
D.
Treated as a direct reduction of retained earnings
119) When collectability is reasonably assured, the excess of the subscription price over the stated value of the no par
ordinary shares subscribed should be recorded as
A. No par ordinary share
B. Additional paid-in capital when the subscription is recorded
C. Additional paid-in capital when the subscription is collected
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 11 OF 31 •
D. Additional paid-in capital when the ordinary shares are issued
120) Which statement is incorrect regarding equity
A. Equity is the residual interest in the assets of the equity after deducting all its liabilities.
B. Equity may be sub-classified in the balance sheet.
C. The amount at which equity is shown in the balance is depended on the measurement of assets and liabilities.
D. All the statement are correct.
121) The components of equity generally recognized by companies in the Statement of Financial Position are:
I. Provisions
II. Debentures
III. Share capital
IV. Other reserves
V. Retained earnings
A.
B.
I, II and III only
I, III, IV and V only
C.
D.
II, III and V only
III, IV and V only
122) Which statement is true concerning share capital transactions?
A. Deposits on subscription to a proposed increase in share capital should be reported as part of shareholders’ equity.
B. Subscription receivable from sale of share capital not currently collectible should be reflected as deduction from the
related subscripted share capital.
C. Discount on share capital should be shown as deduction from total shareholders’ equity.
D. All of these statements are true concerning share capital transactions.
123) Earnings per share (EPS) disclosures are strictly required for
A.
Small and medium entities (SMEs)
C.
B. Public accountable entities (PAEs)
D.
Both SMEs and PAEs
Neither SMEs and PAEs
124) Which of the following EPS should be disclosed on the face of income statement?
A.
Basic EPS only
C.
Both basic and diluted EPS
B. Diluted EPS only
D.
Neither basic nor diluted EPS
125) In computing the basic EPS, the numerator used is the
A Income before interests and taxes
B Income available to ordinary shares
C Income available to ordinary and preference shares
D Income after interests and taxes but before preference share dividends
126) In computing the basic EPS, the denominator used is the
A. Ordinary shares outstanding at the end of the year
B. Ordinary shares outstanding at the beginning of the year
C. Weighted average ordinary shares outstanding during the year
D. Weighted average ordinary and preference shares outstanding during the year
127) For the purpose of computing the weighted average number of shares outstanding during the year, a midyear event
that must be treated as occurring at the beginning of the year is the
A.
Issuance of share warrants
C.
Sale of additional ordinary shares
B. Purchase of treasury shares
D.
Declaration and payment of share dividend
128) To compute basic EPS, the amount of preferred dividends on noncumulative preferred stock should be
A.
Deducted from net income, only when declared
C.
Deducted from net income, whether declared or not
B. Added to net income, only when declared
D.
Disregarded
129) To compute basic loss per share, the annual preferred dividend on cumulative preferred stock is
A.
Deducted from net income, only when declared
C.
Added from net income, whether declared or not
B. Added to net income, only when declared
D.
Disregarded
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 12 OF 31 •
130) It is a financial instrument or other contract that may entitle its holder to ordinary shares
A.
Ordinary shares
C.
Treasury share
B. Preference share
D.
Potential ordinary share
131) Which of the following is not an example of a potential ordinary share (i.e., diluters)?
A.
Treasury shares
C.
Financial liabilities that are convertible to ordinary share
B. Options and warrants
D.
Equity instruments that are convertible to ordinary share
132) It is the reduction in EPS or increase in loss per share resulting from the assumption that potential ordinary shares will
materialize (e.g., warrants are exercised; convertibles are converted).
A.
Diminution
C.
Dilution
B. Demolition
D.
Delusion
133) In computing diluted EPS, dividends on non-convertible cumulative preferred stock should be
A.
Deducted form net income only when declared
C.
Deducted form net income whether declared or not
B. Added to net income, net of related tax
D.
Ignored
134) In computing diluted EPS, dividends on convertible cumulative preferred stock should be
A.
Deducted form net income only when declared
C.
Deducted form net income whether declared or not
B. Added to net income, net of related tax
D.
Ignored
135) What is the inherent justification underlying the concept of potential ordinary shares (diluters) in EPS computation?
A.
Cost benefit
C.
Materiality
B. Substance over form
D.
Timeliness
136) Options and warrants are dilutive if
A. The options price is lower than the average market price
B. The option price is higher than the average market price
C. The option price is equal to the average market price
D. The option shares represent 50% of the outstanding shares
137) Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per
share is the security with the
A.
Greater earnings adjustment
C.
Greater earnings adjustment per share adjustment
B. Smaller earnings adjustment
D.
Smaller earnings adjustment per share adjustment
138) In computing the diluted earnings per share, convertible securities are assumed converted at the
A. Beginning of the year in all cases
B. End of the year in all cases
C. Beginning of the earliest period or at the time of issuance whichever comes later
D. Beginning of the earliest period or at the time of issuance whichever comes earlier
139) The following statements are based on PAS 33 Earnings Per Share:
Statement 1: Convertible preference shares are dilutive whenever the amount of the dividend on such shares declared
for the current period per ordinary share obtainable on conversion exceeds basic earnings per share.
Statement 2: Options and warrants are dilutive when they would result in the issue of ordinary shares for less than the
average market price of ordinary shares during the period.
Statement 3: Convertible debt is dilutive whenever its interest (net of tax) per ordinary share obtainable on conversion
exceeds basic earnings per share.
A.
B.
Only statement 1 is false
Only statement 2 is true
C.
D.
Only statement 3 is false
All of the statement are true
140) Under PAS 33, Earnings per share applies to
A. All public and non-public enterprises
B. Entities whose ordinary shares or potential shares are publicly traded or in the process of issuing shares in the
public markets
C. Entities whose ordinary shares or potential ordinary shares are publicly traded
D. Entities who issue ordinary shares and potential ordinary shares
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 13 OF 31 •
141) In computing weighted average number of shares outstanding, when a bonus issue or share split occurs the
additional shares are
A. Weighted by the number of days outstanding
B. Weighted by the number of months outstanding
C. Considered outstanding at the beginning of the year
D. Considered outstanding at the beginning of the earliest year or at the date the issuance of the related shares,
whichever comes later
142) In applying the treasury share method to determine the dilutive effect of share options and warrants, the proceeds
assumed to be received upon exercise of the options and warrants
A. Are used to calculate the number of ordinary shares repurchased at the average market price, when computing
diluted earnings per share.
B. Are added, net of tax, to the numerator of the calculation for diluted earnings per share.
C. Are disregarded in the computation of earnings per share if the exercise price of the options and warrants is less
than the average market price of ordinary shares.
D. Are completely disregarded,
143) The earnings per share computation is not required for
A.
Net income
C.
B. Discontinued operations
D.
Income from continuing operations
Income from operations
144) In determining earnings per share, interest expense net of income tax, on dilutive convertible debt should be
A. Added back to weighted-average shares outstanding for diluted earnings per share.
B. Added back to net income for diluted earnings per share.
C. Deducted from net income for diluted earnings per share.
D. Deducted from weighted-average shares outstanding for diluted earnings per share.
145) An entity has outstanding both ordinary shares and nonparticipating, noncumulative preference shares. The
liquidation value of the preference shares is equal to the par value. The book value per share of the ordinary shares is
unaffected by
A. The declaration of a share dividend on preference payable in preference shares when the market price of the
preference is equal to the par value.
B. The declaration of a share dividend on ordinary shares payable in ordinary shares when the market price of the
ordinary shares is equal to the par value.
C. The payment of a previously declared cash dividend on the ordinary shares.
D. A 2-for-1 split of the ordinary shares.
146) Liability may be recognized
A. Only if the entity to which the obligation is owed is specifically identified.
B. Even if the entity to which the obligation is owed is not specifically identified so long as the liability is probable and
can be measured.
C. On legal obligation arising from future events which are probable of occurrence.
D. Any of these
147) Deferred tax liabilities are
A. Always presented as noncurrent when an entity presents a classified statement of financial position.
B. Presented as noncurrent only when the reversal date extends beyond 12 months from the end of reporting period.
C. Always presented as current when an entity presents a classified statement of financial position
D. Always presented as non current when the deferred tax liabilities are required under the standards to be recognized
directly in equity.
148) Share dividends payable
A. Are always presented as non current liabilities.
B. May or may not be presented as current liabilities depending on their expected dates of settlement.
C. Are not liabilities but rather presented as part of equity as a deduction to share capital.
D. Are not liabilities but rather presented as part of equity as a addition to share capital.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 14 OF 31 •
149) A currently maturing obligation is presented as current. Which of the following instances would a currently maturing
obligation is nonetheless presented as non current?
A. Refinancing is completed as of the end of reporting period.
B. Refinancing made after the end of reporting period but before authorization of financial statement for issue is at the
discretion of the entity.
C. Grace period is received as of end of reporting period to rectify breach of loan agreement ending at least 12 months
after the end of reporting period.
D. In any of these situations.
150) Bulbasaur, Inc., had a P4,000,000 note payable due on March 15, 2012. On January 28, 2012 before the issuance
of its 2011 financial statements, Bulbasaur issued long term bonds in the amount of P4,500,000. Proceeds from the
bonds were used to repay the note when it came due. How should Bulbasaur classify the note in its December 31,
2011, financial position?
A. As a current liability, with separate disclosure of the note refinancing.
B. As a current liability, with no separate disclosure of the note refinancing.
C. As a non current liability, with separate disclosure of the note refinancing.
D. As a non current liability, no with separate disclosure of the note refinancing.
151) Liabilities are
A. Any accounts having credit balances after closing entries are made.
B. Deferred credit that are recognized and measured in conformity with generally accepted accounting principles.
C. Obligations to transfer ownership shares to other entities in the future.
D. Obligations arising from past transactions and payable in assets or services in the future.
152) Which of the following is not one of the essential characteristics for an item to be reported as a liability on the balance
sheet?
A.
It is a present obligation of a particular entity
C.
It involves a future sacrifice of economic benefits
B. Is is payable to specifically identifiable payees
D.
It is reasonably measureable in terms of money
153) Which of the following liabilities is a financial liability?
A. Deferred revenue.
B. A warranty obligation.
C. A constructive obligation.
D. An obligation to deliver own shares worth a fixed amount of cash.
154) Goku Corporation does not elect the fair value option for recording its financial liabilities. The discount resulting from
determination of a note payable’s present value should be reported on its balance sheet as an/a
A.
Addition to the face amount of the note
C.
Deferred credit separate from the note
B. Deferred charge separate from the note
D.
Direct deduction from the face amount of the note
155) In which of the following may an entity not incur any obligation?
A.
Using a credit card to purchase merchandise
C.
Replacing an accounts payable with note payable
B. Using a debit card to purchase merchandise
D.
Breaching a loan agreement
156) Which of the following statements concerning dividends is untrue?
A. Once declared, a cash dividend on ordinary shares becomes a liability of the corporation.
B. Since a dividend is generally paid within a month or so, it usually is classified as current.
C. Preference dividends in arrears should not be accrued as a liability.
D. Preference dividend declared but not yet paid should be disclosed only in the notes.
157) Which of the following is an accrued liability?
A.
Cash dividend payable
B. Wages payable
C.
D.
Rent revenue collected one month in advance
Portion of long term debt payable
158) An automobile dealer sells service contracts. The contract stipulate that the dealer will perform specific repaid on
covered vehicles. The contracts vary in length from 12 to 36 months. Do the following increase when service contracts
are sold?
Deferred revenue
Service revenue
Deferred revenue
Service revenue
A.
Yes
No
C.
No
Yes
B.
No
No
D.
Yes
No
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 15 OF 31 •
159) Which of the following statement is incorrect?
A. A contract to purchase goods in the near future does not require the recording of a current liability.
B. The receipt of a grace period from a lender by the reporting period to rectify a breach loan covenant ending at least
12 months from reporting period may warrant a non current classification of a debt that would otherwise be
presented as current.
C. Unearned revenue arises from the acceptance of payment in advance for a service to be performed.
D. The actual replacement of a short term obligation with another short term obligation after the reporting period but
before the financial statements are authorized for issue is sufficient to demonstrate an entity’s ability to refinance the
short term obligation on a long term basis.
160) Liability may be recognized (choose the incorrect statement)
A. Even if the entity to which the obligation is owed is not specifically identified for as long as the liability is probable
and can be measured reliability.
B. Even if the goods purchased under FOB shipping point have not yet been received; provided that, the delivery to
the carrier has already been made by the seller.
C. If the entity has present obligation arising from past events and the obligation is probable and measure reliably.
D. If the entity has a present obligation which is probable and can be measured reliably; provided, the payee of the
obligation has been specifically identified.
161) A liability shall be recognized
A. If the entity incurs a present obligation that is both probable and reliably measurable; provided the other party to
which the obligation owed is specifically identified.
B. If the entity incurs a future obligation that is both probable and reliably measurable.
C. If the entity incurs a present obligation with improbable outflow of resources embodying economic benefits.
D. If the entity incurs a present obligation that is both probable and reliably measureable, even if the other party to
which the obligation is owed is not specifically identified.
162) How will the annual interest or dividend affect total liabilities each year?
A. Accrued interest due periodically is a current liability each year until paid.
B. Cumulative preferred dividends in arrears are a current liability each year until paid.
C. Both interest and cumulative preference dividends in arrears are noncurrent liabilities each year until paid.
D. Interest and cumulative preference dividends in arrears are current liabilities each year until paid.
163) Which of the following is true about accounts payable?
I
Accounts payable are normally not discounted to their present value except when their payment is deferred
beyond the normal operating cycle and the effect of time value of money is material
II
When account payable are recorded at the net amount, a “Purchase Discount” account will be used.
III When accounts payable are recorded at the gross amount, a “Purchase Discount Lost” account will be used.
A.
I only
B.
II only
C.
III only
D.
I, II and III
164) A liability is classified as current if (choose the incorrect statement)
A. It is expected to be settled within the normal operating cycle
B. It is held primarily for the purpose of trading
C. It is to be settled within one year
D. The entity has an unconditional right to defer settlement of the liability for at least twelve months after the reporting
period.
165) Deferred tax liabilities
I
May be presented as current when they are expected to reverse within 12 months from the end of reporting
period.
II
Are always presented as noncurrent when an entity presents a classified statement of financial position.
A.
I or II
B.
I
C.
II
D.
None
166) A currently maturing obligation is normally presented as current. In which of the following instances may a currently
maturing obligation be presented as non current?
A. Refinancing is completed as of end of reporting period.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 16 OF 31 •
B. Refinancing after the end of reporting period but before authorization of financial statements for issue is at the
discretion of the entity.
C. Grace period is received as of the end of reporting period to rectify a breach of loan agreement ending at least 12
months after the end of reporting period.
D. In any of these instances.
167) Determine the correct classification of the following liabilities:
I
Financial liability measured at fair value through profit or loss
II
Liability refinanced with long term debt between the balance sheet date and date of issuance of balance sheet.
III Liability which will be refinanced on a long term basis between the balance sheet date and date of issuance of
balance sheet through an irrevocable agreement signed by debtor.
IV Liability paid between the balance sheet date and date of issuance of balance sheet with cash the cash is
replenished with proceeds from long term debt also between the balance sheet date and date of issuance
of balance sheet.
A.
B.
All are current liabilities
All are long term liabilities
C.
D.
Only IV is a current liability
Only I is a long term liability
168) Which of the following statements is true?
A. A short term deferred venue should be classified as a current liability.
B. A current liability may be classified as a ling term liability if the entity has the intention to refinance it after the balance
sheet date.
C. Liability must be due within 12 months of the current balance sheet to be classified as current liabilities.
D. Deposit taken from customers by public utilities should always be reported as current liability by the utility.
169) Determine the correct classification of the following liabilities:
I
Liability with a due date which can be accelerated to within one year of the balance sheet date; a reasonable
probability exists that the due date will be accelerated.
II
Liability due on demand by creditor; probability of the creditor calling in the liability within one year from end of
reporting period is remote.
III Liability due on demand by creditor; probability of the creditor calling in the liability within one year of the balance
sheet date is reasonable but not likely.
A.
B.
Only I and III are long term liabilities
All are long term liabilities
C.
D.
Only I is long term liability
All are current liabilities
170) Which of the following items would be excluded from current liabilities?
A. A long term liability callable or due on demand by the creditor but the creditor has given no indication that the debt
will be called.
B. Normal accounts payable which had been assigned by the creditor to a finance company.
C. Long term debt callable within one year or less because the debtor violated a debt provision.
D. A short term debt which at the discretion of the entity can be rolled over at least 12 months after the balance sheet
date.
171) Which of the following statements is correct?
A. A company may exclude a short term obligation from current liabilities if the firm intends to refinance the obligation
on a long term basis.
B. A company may exclude a short term obligation rom current liabilities of the firm can demonstrate an ability to
consummate a refinancing short of discretion to roll over the liability for at least 12 months after the reporting
period.
C. A company my exclude a short term obligation from current liabilities if it is paid off after the balance sheet date and
subsequently replaced by long term debt before the balance sheet is issued.
D. A company may exclude a short term obligation from current liabilities if the firm has consummated and completed
a long term refinancing as of reporting period.
172) An entity wants to exclude short term debt from its current liabilities to improve its current ratio. Which of the
following would help the entity accomplish its goal?
A. Refinance the debt before the end of the reporting period.
B. Pay the debt after the end of the reporting period and replenish the cash used to pay the debt with the proceeds
from long term debt issued before issuance of the statement of financial position.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 17 OF 31 •
C. Enter into a refinancing agreement before the end of the reporting period which permits the refinancing of the debt
with other debt due 8 months after the end of the reporting period.
D. Plan not to pay the debt until after the end of the next reporting period.
173) Which of the following is not a current liability?
A. Income tax payable
B. One year magazine subscription received in advance
C. Discount related to a noninterest bearing long term note payable
D. Estimated warranty liability
174) A currently maturing obligation expected to be refinanced:
A. May be classified as noncurrent if refinancing arrangements are made and signed as of the end of the reporting
period.
B. May be classified as noncurrent if there is an intention to refinance.
C. Must always be reported as a current liability.
D. May be classified as non current if off balance sheet financing is to be obtained after the end of the reporting period
but before the financial statements are authorized for issue.
175) Which of the following statements is correct?
A. A company may exclude a short term obligation from current liabilities if the firm intends to refinance the obligation
on a long term basis.
B. A company may exclude a short term obligation from current liabilities if the company can demonstrate an ability to
consummate a refinancing even if refinancing is not under an existing loan facility.
C. A company may exclude a short term obligation from current liabilities if it paid off after the balance sheet date and
subsequently replaced by long term debt before the balance sheet is issued.
D. None of these.
176) Which of the following should not be included in the current liabilities section of the balance sheet?
A.
Trade notes payable
C.
The discount on short term notes payable
B. Short term zero interest bearing notes payable
D.
All of these are included
177) Which of the following is a current liability?
A.
Preferred dividends in arrears
B. A dividend payable in the form of additional share
C.
D.
A cash dividend payable to preferred stockholders
None of these
178) Of the following items, the only one which should not be classified as a current liability is
A.
Currently maturing long term debt
C.
Deferred tax liabilities
B. Sales taxes payable
D.
Unearned revenue
179) Which of the following may be a current liability?
A.
Withheld income taxes
B. Deposits received from customers
C.
D.
Unearned revenue
All of these
180) Which of the following items is a current liability?
A. Bonds (for which there is an adequate sinking fund properly classified as a long term investment) due in 3 years.
B. Bonds (for which there is no sinking fund set up) due in 13 months.
C. Bonds (for which there is an adequate appropriation of retained earnings) due in 11 years.
D. Bonds (for which there is an adequate sinking fund set up) due in 11 months.
181) Which of the following statement is false?
A. An entity may exclude a short term obligation from current liabilities if refinancing is at the discretion of the entity
under an existing loan facility.
B. Cash dividends should be recorded as a liability when they are declared by the board of directors.
C. Under the cash basis method, warranty costs are charged to expense as they are paid.
D. Income taxes withheld from employees payroll checks should never be recorded as a liability since the employer will
eventually remit the amounts withheld to the appropriate taxing authority.
182) Which of the following statements is true?
A. If ability to refinance a currently maturing obligation is present, but no arrangements are made as of the balance
sheet date, the obligation should be classified as non current debt.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 18 OF 31 •
B. If no reasonable estimate can be made of the minimum amount expected to be available for future refinancing, the
entire outstanding short term obligation must be disclosed as a non current.
C. Obligation that are due on demand should be classified as an current liability even though liquidation of the liability is
not expected with the next year or operating cycle, whichever is longer.
D. If a refinancing is soon to be accomplished by issuing ordinary shares, a currently maturing short term obligation
should be included in shareholder’s equity on the current balance sheet.
183) Which of the following statements is incorrect regarding PAS 37?
A. A provision is a liability of certain timing or amount.
B. A provision is recognized if there is present obligation requiring outflow of resources embodying economic benefits
that is both probable and measured reliably.
C. Provisions necessarily requires estimates.
D. Provisions are presented separately from other liabilities.
184) Which of the following statements are correctly stated?
I
Note payable include short term indebtedness supported by drafts drawn by the supplier on the purchase of
goods.
II
Liabilities may also be measured by estimates of a definitive character when then amount of liability cannot be
measured more precisely.
III When realization of a gain is virtually certain, such gain is not a contingency, and accrual of the gain is appropriate.
IV In general, liabilities are recorded when the corresponding assets, expense or losses are recognized.
V Adequate disclosure shall be made f contingencies that might result in gains, but care should be exercised to avoid
misleading implications as to the likelihood of realization.
A.
I, II, III, IV and V
B.
II, III, IV and V
185) An example of an item which is not a liability is
A.
Dividends payable in stock
B. Advances from customers on contracts
C.
C.
D.
III, IV and V
D.
II and IV
Accrued estimated warranty costs
The portion of long term debt due within one year
186) Which of the following should be classified as a current liability?
A. Customers’ unredeemed gift certificates
B. The difference between the present value and the face amount of a one year note payable
C. Stock dividend payable
D. Overdrawn account with City Bank in which a second account with a positive balance is also maintained.
187) Which of the following statements is not correct?
A. Conceptually, liabilities should be valued at the present value of all cash to be paid in the future.
B. All liabilities must have a definite amount owed and must not be contingent on a future event.
C. If a note payable is secured, disclosures must specify what assets are pledged.
D. Long term debts should be reported at their present values computed on the basis of both principal and interest.
188) Which of the following statements is incorrect regarding PAS 37?
A. When measuring a provision, an entity uses best estimate, expected value, or mid-point value, whichever is the
most appropriate in a given circumstance.
B. Where details of a proposed new law have yet to be finalized, an obligation arises only when the legislation is
virtually certain to be enacted as drafted.
C. Gains from the expected disposal of assets hall not be taken into account in measuring a provision.
D. Reimbursements are considered only when their receipt is probable.
189) Vegetta Company is finalizing its annual financial statements. According to PAS 37, which of the following should be
disclosed in the financial statements as a contingent liability?
A. The company has accepted liability prior to the year end for unfair dismissal of an employee and is to pay damages.
B. The company has received a letter from a supplier complaining about an old unpaid invoice.
C. The company is involved in a legal case which it may possibly lose, although this is not probable.
D. The company has not yet paid certain claims under sales warranties.
190) Which of the following statements is not true?
A. No loss contingencies shall be disclosed if there is just a remote possibility of a loss.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 19 OF 31 •
B. Indirect guarantees should normally be disclosed by note, not by accrual.
C. In the case of loss contingencies, accrual can be made even if the exact payee and payment date are not known.
D. Losses should be accrued for unasserted claims and other potential unfiled lawsuits.
191) According to PAS 37, a contingent liability is
A. A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or
non occurrence of one or more uncertain future events not wholly within the control of the entity.
B. A present obligation that arises from past events but is not recognized because it is not probable that an outflow of
resources embodying economic benefits will be required to settle the obligation.
C. A present obligation that arises from past events but is not measured with sufficient reliability.
D. Any of these.
192) Which of the following does not imply the existence of a contingent liability?
A.
A dividend declared but not yet paid
C.
Potential liability from a lawsuit
B. Discounted notes receivable
D.
A disputed additional tax assessment
193) Which of the following statements is correct regarding liabilities?
A. Sales tax payable is an example of estimated liability.
B. Because accounting measures should be verifiable, liabilities should not be estimated.
C. Warranties fall under the category of definitely determinable liabilities.
D. It is not important that the party whom an obligation is owed to is specifically identifiable before a liability is
recognized.
194) Which of the following is correct regarding liabilities?
I
If inventory is sold in year 1 and is returned and replace under warranty in year 2, warranty expense should be
recorded in year 2.
II
Potential vacation pay should be accounted for as contingent liability or as provision depending on whether the
liability recognition criteria are met.
A.
I only
B.
II only
C.
195) One of these is not a contingent liability:
A.
Notes receivable discounted
B. Pending income tax assessment in dispute
C.
D.
I and II
D.
Neither
Pending civil case in the court
Real property tax assessment for 1 year
196) An estimated loss from contingency that is probable and for which the amount of the loss can be reasonably
estimated should
A. Not be accrued but should be disclosed on the notes to the financial statements.
B. Be accrued by debiting an appropriated retained earnings account and reciting a liability account or an asset
account.
C. Be accrued by debiting an expense account and crediting an appropriated retained earnings account.
D. Be accrued by debiting an expense account and crediting a liability account or an asset account.
197) When can a “provision” be recognized in accordance with PAS 37?
A. When there is a legal obligation arising from a past event, the probability of the outflow of resources is more that
remote (but les than probable), and a reliable estimated can be made of the amount of the obligation.
B. When there is a constructive obligation as a result of a past event, the outflow of resources is probable, and a
reliable estimate can be made of the amount of obligation.
C. When there is possible obligation arising from a past event, the outflow of resources is probable, and an
appropriate amount can be set aside toward the obligation.
D. When management decides that it is essential that a provision be made for unforeseen circumstances and keeping
in mind this year the profit were enough but next year there may be losses.
198) In calculating present value in a situation with a range of possible outcomes all discounted using the same interest
rate, the expected present value would be
A.
The most likely outcome
C.
The minimum outcome
B. The maximum outcome
D.
The sum probability weighted present values
199) If a contingent loss is probable and can be reasonably estimated to be within a given range, but no amount within the
range is a better estimated than any other amount within the range, the amount to be accrued should be
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 20 OF 31 •
A.
B.
Zero
The upper limit of the range
C.
D.
The lower limit of the range
The mid point value
200) Bulma Company is being sued for illness caused to local residents as a result of negligence on the company’s part in
permitting the local residents to be exposed to highly toxic chemicals from its plant. Bulma’s lawyer stated that it is
probable that Bulma will lose the suit and be found liable for a judgment costing Bulma anywhere from P500,000 to
P2,500,000. However the lawyer states that the more probable cost is P1,000,000. As a result of the above facts,
Bulma should accrue
A. A loss contingency of P500,000 and disclose an additional contingency of up to P2,000,000.
B. A loss contingency of P1,000,000 and disclose an additional contingency of up to P1,500,000.
C. A loss contingency of P1,000,000 but not disclose any additional contingency.
D. No loss contingency but disclose a contingency of P500,000 to P2,500,000.
201) Trunks Company sells appliances that include a three year warranty. Service calls under the warranty are performed
by an independent mechanic under a contract with Trunks. Based on experience, warranty costs are estimated at P30
for each machine sold. When should Trunks recognize these warranty costs?
A.
Evenly over the life of the warranty
C.
When payment are made to the mechanic
B. When the service calls are performed
D.
When the machines are sold
202) When the occurrence of a gain contingency is reasonably possible and its amount can be reasonably estimated, the
gain contingency
A. Should be included in profit or loss and disclosed
B. Should be included as appropriation of retained earnings
C. Should be disclosed but not included in profit or loss
D. Should not be included in profit or loss and need not be disclosed
203) When the occurrence of a gain contingency is probable and its amount can be reasonable estimated, the gain
contingency should be
A. Disclosed but not recognized in the income statement.
B. Recognized in the income statement and disclosed.
C. Neither recognized in the income statement nor disclosed.
D. Classified as an appropriation of retained earnings.
204) Unamortized bond discount should be reported on the financial statements of the issuer as a
A.
Deferred charge
C.
Direct deduction from the present value of the bond
B. Part of the issue costs
D.
Direct deduction from the face amount of the bond
205) Straight line amortization of bond premium or discount:
A. Can be used as an optional method of amortization in all situations.
B. Provides the same total amount of interest expense and interest revenue as at he effective interest method over the
life of the bonds.
C. Provides the same amount of interest expense and interest revenue each interest period as the effective interest
method.
D. Is appropriate when the bond term is especially long.
206) For a bond issue which sells fro less than its face amount, the market rate of interest is
A.
Dependent on the rate stated on the bond
C.
Less than the rate stated on the bond
B. Equal to rate stated on the bond
D.
Higher than the rate stated on the bond
207) The market price of a bond issued at a discount is the present value of its principal amount at the market rate of
interest
A. Less the present value of all future interest payments at the market rate of interest
B. Less the prevent value of all interest payments at the rate of interest stated on the bond.
C. Plus the present value of all future interest payments at the market rate of interest.
D. Plus the present value of all interest payments at the rate of interest stated on the bond.
208) The issue price of a bond is equal to the present value of the future cash flows for interest and principal when the
bond is issued: (1) at face (2) at a discount (3) at a premium
A. Yes; no; yes
B. Yes; no; no
C. No; yes; yes
D. Yes; yes; yes
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 21 OF 31 •
209) Costs incurred in connection with the issuance of ten year bonds which sold at a slight premium should be
A. Charged to retained earnings when the bonds issued
B. Expenses in the year in which incurred
C. Capitalized as organization cost
D. Reported on the balance sheet as a deduction from bonds payable and amortized over the 10 year bond term.
210) Bulba Company issued bonds with detachable share warrants. Both the warrants and the bonds have separate
identifiable fair values. The sum of the fair value of the warrants and face amount of the bonds exceeds the cash
proceeds but the proceeds assigned to the bonds are less than the face amount of the bonds. The excess of the face
amount over the assigned proceeds to the bonds is reported as
A.
Discount on the bonds
C.
Share premium in excess of par
B. Premium on the bonds
D.
None of these
211) On January 1 of the current year, Ivy Company issued bonds at a discount. Ivy incorrectly used the straight line
method instead of the effective interest method to amortize the discount. How were the following amounts, as of
December 31 of the current year, affected by the errors? (1) Bond carrying amount; (2) Net income.
A.
Overstated, overstated
C.
Overstated, understated
B. Understated, understated
D.
Understated, overstated
212) When an entity retires bonds with an unamortized discount at a premium, there is
A. Gain
B. Loss
C. Either gain or loss
D.
Neither gain or oss
213) Use of the effective-interest method in amortizing bond premiums and discount result in
A. A greater amount of interest expense over the life of the bond issue than would result from the use of the straight
line method.
B. A varying amount being recorded as interest expense from period to period.
C. A variable effective rate on the bond issue from period to period over life of the bonds.
D. A smaller amount of interest expense over the life of the bond issue than would result from use of the straight line
method.
214) When an entity retires bonds with an unamortized discount at a premium
A. The unamortized discount decreases loss on retirement.
B. The unamortized discount increases loss on retirement.
C. The unamortized discount increases gain on retirement.
D. The unamortized discount decreases gain on retirement.
215) An entity uses the effective interest method in amortizing bond discount, which of the following is incorrect regarding
the bond discount amortization?
A. Periodic interest expense increase over the life of the bonds.
B. Periodic interest expense is greater than periodic interest payments.
C. The carrying amount of the bonds increases over the life of the bonds.
D. Amortization decreases over the life of the bonds.
216) An entity uses the effective interest method in amortizing bond discount, which of the following is incorrect regarding
the bond premium amortization?
A. Periodic interest expense increase over the life of the bonds.
B. Periodic interest expense is greater than periodic interest payments.
C. The carrying amount of the bonds increases over the life of the bonds.
D. Amortization decreases over the life of the bonds.
217) Which of the following is true for a bond maturing on a single date when the effective interest method of amortizing
bond discount is used?
A. Interest expense as a percentage of the bond’s carrying amount varies from period to period.
B. Interest expense increases each six month period
C. Interest expense remains constant each six month period
D. Nominal interest rate exceeds effective interest rate.
218) The term used for bonds that are unsecured as to principal is
A. Junk bonds
B. Indenture bonds
C. Debenture bonds
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
D.
Callable bonds
• PAGE 22 OF 31 •
219) If bonds are initially sold at a discount and the straight-line method of amortization is used, interest expense in the
earlier years will
A. Exceed what it would have been had the effective interest method of amortization been used.
B. Be less than what it would have been had the effective interest method of amortization been used.
C. Be the same as what it would have been had the effective interest method of amortization been used.
D. Be less than the stated rate of interest.
220) On January 2, 2010, Squire Co. issued 8% bonds with a face amount of P1,000,000 that mature on January 2,
2016. The bonds were issued to yield 12%, resulting in a discount of P150,000. Squire incorrectly used the straight line
method instead of the effective interest method to amortize the discount. How is the carrying amount of the bonds
affected by the errors? (1) at December 31, 2010, (2) at January 2, 2016:
A.
Overstated; understated
C.
Understated; overstated
B. Overstated; no effect
D.
Understated; no effect
221) A bond issued on June 1, 2011, has interest payment dates of April 1 and October 1. Bond interest expense for the
year ended December 31, 2011 is for a period of:
A. 3 months
B. 4 months
C. 6 months
D. 7 months
222) If a company issued bonds at a discount, the discount is amortized over the life of the bonds and:
A. Decreases the periodic interest payment below the interest expense charged.
B. Increases the periodic interest expense charged above the interest payment made.
C. Increases the periodic interest payment made above the interest expense charged.
D. Decreases the periodic interest expense charged below the interest payment made.
223) Which of the following statements is not correct?
A. Bond premium (or discount) may be amortized by using the straight line method and is especially appropriate for
very ling term bonds and when the stated and market rates are markedly different.
B. Bonds market prices fluctuates inversely with the changes in the market rate of interest.
C. Bonds purchased at a premium have a higher rate of interest than the effective rate.
D. A bond premium results when the effective rate is less than the stated rate; part of the periodic cash receipts for
interest, in effect, will be treated as a reduction of the premium paid and not as interest revenue.
224) Which of the following statements is incorrect?
A. If the cash proceeds obtained from issuing a bond payable is less than the face amount, there is discount.
B. If the cash proceeds obtained from issuing a bond payable is more than the face amount, there is premium.
C. If the face amount of bonds issued is less than the cash proceeds from issuance, there is discount.
D. If the cash paid to acquire an investment in bonds is less than the face amount, there is discount.
225) Which of the following statements provides evidence of the existence of a discount on a financial instrument?
A. The effective interest rate is less than the nominal rate.
B. The nominal rate is greater than the effective rate.
C. The interest expense recognized during a period is greater than the interest paid.
D. The interest expense recognized during a period is less than the interest paid.
226) What is the principle of accounting for a compound instrument?
A. The issuer shall classify a compound instrument as either a liability or equity based on an evaluation of the
predominant characteristics of the contractual arrangement.
B. The issuer shall classify the liability and equity components of the compound instrument separately as financial
liabilities, financial assets, or equity instruments.
C. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity, unless the
equity component is detachable and separately transferable, in which case the liability and equity components shall
be presented separately.
D. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity.
227) How are the proceeds from issuing a compound instrument allocated between the liability and equity components?
A. First, the liability component is measured at fair value, and then the remainder of the proceeds is allocated to the
equity component (with and without method).
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 23 OF 31 •
B. First, the equity component is measured at fair value, and then the remainder of the proceeds is allocated to the
liability component (with and without method).
C. First, the fair values of both equity component and the liability component and are estimated. The the proceeds are
allocated to the liability and equity component based on the relation between the estimated fair value (relative fair
value method).
D. The equity component is measured at its instrinsic value. The liability component is measured at the face amount
less the intrinsic value of the equity component.
228) When share warrants attached to a bond issue are exercised
A. The bonds are extinguished
B. The equity component initially allocated from the issue price is transferred to profit or loss.
C. The equity component initially allocated from the issue price is transferred directly to retained earnings.
D. The equity component initially allocated from the issue price is transferred within equity.
229) Which of the following statements correct?
A. The present value of a bond is determined by adding the discounted value of the payment at maturity to the
discount value of a series of fixed interest payments.
B. When a bond premium is amortized, the bond interest expense recorded is greater than the cash paid.
C. When bonds are issued at a discount, the total interest cost to the issuing corporation equals the interest payments
minus the bond discount.
D. When bonds are converted into shares, the conversion is a discontinued operation.
230) Which of the following statement is incorrect?
A. When bonds are retired, all of the premium or discount associated with the bonds must be canceled.
B. When convertible bonds are retired before they are converted, a gain or loss may be recorded.
C. When convertible bonds are retired before they are converted, the retirement price must be allocated to both the
debt component and equity feature of the convertible bonds.
D. At the date of retirement of convertible bonds which were not converted, the excess of the retirement price over the
fair value of the convertible bonds without the equity features measured on initial recognition is recognized as gain
or loss on extinguishment of debt.
231) Which of the following is incorrect regarding a compound financial instrument?
A. A compound financial instrument is a financial instrument that, from the issuer’s perspective, contains both a liability
and an equity elements.
B. The issuer accounts for the elements of a compound financial instrument separately.
C. Convertible bonds and bonds with detachable share warrants are examples of compound financial instruments.
D. The issues price of a compound financial instrument is allocated to the liability and equity components based on
their relative fair values.
232) Which of the following may be used to determine the amount to be assigned to the equity component of a
compound financial instrument?
A. Cash proceeds from issuance of the compound instrument minus the fair value of the liability component without
the equity feature.
B. Cash proceeds multiplied by the fair value of the equity component over the sum of the fair values of the liability and
equity component.
C. Present value of future cash flows from the liability component discounted using an effective interest rate.
D. Cash proceeds divided by two.
233) Which of the following statements is incorrect regarding the subsequent accounting for compound financial
instrument?
A. Upon the conversion of convertible bonds, the equity component recognized on initial recognition of the convertible
bonds is recognized in profit or loss.
B. Upon the conversion of convertible bonds, the equity component recognized on initial recognized of the convertible
bonds is transferred within equity.
C. Upon the conversion of convertible bonds, any conversion costs incurred is deducted directly in equity.
D. Share capital is credited only when the convertible bonds are actually converted.
234) Which of the following statements is incorrect regarding the subsequent accounting for compound financial
instruments?
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 24 OF 31 •
A. Upon the retirement of convertible bonds, the retirement price is allocated to both the liability and equity
components, similar to the allocation of issue price.
B. Upon the retirement of convertible bonds, the difference between the carrying amount of the bonds retired and the
retirement price allocated to the bonds is recognized in profit or loss.
C. Upon the retirement of convertible bonds, the balance of the equity component allocated from the issue price after
deduction of allocated retirement price is closed to the share premium account.
D. Upon the retirement of convertible bonds, the equity component recognized on initial recognition of the convertible
bonds is recognized in profit or loss.
235) Which of the following statements is correct regarding the accounting for compound financial instruments?
A. Whether the equity feature is exercised (converted) or not, the equity component allocated from the issue price of
compound financial instrument remains in equity.
B. The issuer of a compound instrument shall classify the instrument either as a financial liability or own equity
depending on the substance of the instrument.
C. Upon the retirement of convertible bonds, the difference between the carrying amount of the bonds retired and the
allocated retirement price is recognized direct in equity.
D. Upon the conversion of convertible bonds, any conversion costs incurred is allocated to the bonds converted and
the equity feature exercised.
236) Flogras Co. neglected to amortize the premium on outstanding ten year bonds payable. What is the effect of the
failure to record premium amortization on interest expense and bond carrying amount, respectively?
A.
Understate; understate
C.
Overstate; overstate
B. Understate; overstate
D.
Overstate; understate
237) The equity component of a compound financial instrument is determined
A. By allocating the issue price to the liability and equity components based on their relative fair values.
B. By allocating the equity component its fair value
C. By deducting the fair value of the liability component without the equity feature from the net proceeds from the
issuance of the compound instrument
D. None of these
238) Upon conversion of convertible bonds,
A. No gain or loss recognized
B. Any share premium recognized on the conversion feature is transferred directly to retained earnings
C. Any unamortized discount is derecognized by a debit
D. A and B
239) Upon retirement of convertible bonds,
A. No gain or loss is recognized
B. Gain or loss is recognized as the difference between the retirement price and the carrying amount of the liability
component.
C. Any share premium recognized on the conversion feature is recognized in profit or loss
D. Gain or loss is recognized as the difference between the retirement price allocated to the liability component and
the carrying amount of the liability component.
240) The share premium recognized on a convertible bond
A. Remains in equity only if the bonds are actually converted
B. Reclassified out of equity to profit or loss if the bonds are not converted
C. Remains in equity whether the bonds are actually converted or not converted
D. A and B
241) When the equity feature of a compound instrument is exercised, the related share premium is
A.
Transferred directly to retained earnings
C.
Transferred with equity
B. Transferred to profit or loss
D.
A and B
242) When debt is issued at a discount, interest expense over the term of the debt equals the cash interest paid:
A.
Minus discount
C.
Plus discount
B. Minus discount minus face amount
D.
Plus discount plus face amount
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 25 OF 31 •
243) Which of the following statements is true?
A. A noninterest bearing note sometimes is called discounted note because the cash received is more than the face
amount of the note.
B. A debtor’s December 31, 2011 statement of financial position is to be published on March 31, 2012. An obligation
with a due date of December 31, 2016 is also due on demand by the creditor. At December 31, 2011, there is no
indication that the creditor intends to call in the debt. The obligation is a current liability.
C. The market rate of interest is the interest rate used to determine the amount of cash interest that will be paid on the
principal.
D. A debtor’s December 31, 2011 statement of financial position is to be published on March 31, 2012. An obligation
due December 31, 2016 has a due date which can be accelerated by the creditor to the present date if the current
ratio falls below 2:1. The current ration on December 31, 2011, is 2.2:1. The obligation is a current liability.
244) Interest expense are
A. incurred only on interest bearing obligations
B. incurred due to passage of time
C. not incurred on redeemable preference shares issued
D. incurred only when the effective interest rate is stated in the instrument.
245) Which of the following is not true about the discount on short term notes payable?
A. The discount on notes payable account has a debit balance.
B. The discount on notes payable account should be reported as an asset on the balance sheet.
C. When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate.
D. All of these are true.
246) Which of the following statements is not correct?
A. The principal amount of a debt is the cash or cash equivalent amount borrowed.
B. When a non cash asset is acquired and the stated rate of interest is different from the current market rate of
interest, the cost of the asset is the present value of the future cash payments discounted at the current market rate
of interest rather than at the stated interest rate.
C. A company that receives cash in an amount less than the face amount of a noninterest bearing note payable should
record the note at its discounted present value.
D. The carrying amount of a non interest bearing note payable due in lump sum will decrease as time goes by.
247) Which of the following statements about non interest bearing notes is false?
A. The face amount of a non interest bearing note may include both the principal and interest as a single amount to be
paid back at maturity date.
B. The principal amount of a non interest bearing note is its future cash flows discounted at its effective interest rate.
C. The effective rate on a short term non interest bearing note, with a specified term, cannot be determined unless it is
given on the face of the note.
D. Noninterest bearing is not a descriptive designation for this type of note because such note do bear interest.
248) Discount on notes payable is charged to interest expense
A.
Equally over the life of the note
C.
B. Only in the year the note is issued
D.
Using the effective interest method
Only in the year the note matures
249) A company borrowed P10,000 on a bank note for ninety days at 12 percent interest. The interest was included in the
face of the note. The entry to record this transaction on the company’s books would include a
A.
Debit to cash for P10,000
C.
Credit to note payable for P9,700
B. Debit to discount on note payable P300
D.
Credit to discount interest expense for P300
250) When accounting for a note whose interest is included in the face amount, the account discount on notes payable
eventually is converted into
A. Interest receivable
B. Interest expense
C. Interest payable
D. Interest income
251) On September 1, 2011, a company borrowed cash and signed a one year interest bearing note on which both the
principal and interest are payable on September 1, 2012. How will the note payable and the related interest be
classified on the December 31, 2011, balance sheet?
Note payable
Accrued interest
A.
Current liability
Non current liability
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 26 OF 31 •
B.
C.
D.
Non current liability
Current liability
Non current liability
Current liability
Current liability
No entry
252) The discount resulting from the determination of a note payable’s present value should be reported on the balance
sheet as a (an):
A.
Addition to the face amount of the note
C.
Deferred credit separate from the note
B. Deferred charge separate from the note
D.
Direct reduction from the face amount of the note
253) Which of the following statements is incorrect?
A. The account “discount on notes payable” is normally associated with notes whose interest rate is stated separately
on the face of the note.
B. A disadvantage of issuing long term debt is the increased risk of default.
C. Theoretically, the carrying amount of an outstanding note payable at any given point of time is equal to the present
value of future cash flows on the note discounted at the note’s original effective interest rate over the remaining
period to the note’s maturity date.
D. When a note payable is issued for a noncash consideration, the note payable’s fair value as of initial recognition is
equal to the cash price equivalent of the non cash consideration received.
254) Contingent liability will or will not become actual liabilities depending on
A.
The degree of uncertainty
C.
The present condition suggesting a liability
B. The outcome of future events
D.
Whether they are probable and estimable
255) Contingent liability will or will not be recognized as provision depending on
A.
The degree of uncertainty
C.
The present condition suggesting a liability
B. The outcome of future events
D.
Whether they are probable and estimable
256) If the market rate of interest is lower than the face interest rate on the date of issuance, the bonds will
A. Sell at face value
B. Sell at a discount
C. Sell at a premium
D. Not sell until the face interest is adjusted
257) Under the effective interest method, as a discount is amortized each period, the
A.
Amount amortized decreases
C.
Interest expense recorded increases
B. Bonds’ carrying amount decreases
D.
Interest paid on bondholder increases
258) Gain or losses from the early extinguishment of debt, if material, should be
A. Amortized over the life of the new issue.
B. Amortized over the remaining life of the extinguished issue
C. Recognized in income before taxes in the period of extinguishment
D. Recognized as an extraordinary item in the period of extinguishment
259) Freeza Company has a loan due for repayment in 6 month time, but it has discretion to refinance for repayment 15
months later. Freeza exercised its discretion by entering into 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 this loan be presented?
A.
Current asset
C.
Non current assets
B. Current liabilities
D.
Non current liabilities
260) The following statements relates to discount on notes payable, which of the following statements is correct?
I
The discount on note payable is an adjunct liability account which is shown as a deduction from note payable.
II
The discount on note payable represents interest charges applicable to future periods.
A.
Both
B.
I only
C.
II only
D.
261) On the part of debtor, debt restructuring generally will result in
A. Gain on exchange
B. Loss on exchange
C. Gain on restructuring
D.
Neither
Loss on restructuring
262) A bond or similar instrument convertible by the holder into a fixed number of ordinary shares of the entity is
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 27 OF 31 •
A.
B.
A compound financial instrument
A derivate financial instrument
C.
D.
A primary financial instrument
An equity instrument
263) What is the principle of accounting for a compound instrument?
A. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity.
B. The issuer shall classify the liability and equity components of a compound instrument separately as financial
liability, financial assets or equity instrument.
C. The issuer shall classify a compound instrument as either a liability or equity based on an evaluation of the
predominant characteristics of the contractual arrangement.
D. The issuer shall classify a compound instrument as a liability in its entirely, until converted into equity, unless the
equity component shall be presented separately.
264) Under current GAAP, which approach is used to bifurcate compound financial liability instruments?
A.
Residual approach
C.
Net of tax approach
B. Asset and liability approach
D.
Periodic expense approach
265) Debentures are
A. Unsecured bonds
B.
Secured bonds
C.
Ordinary bonds
D.
Serial bonds
D.
At maturity value
266) Callable bonds
A. Can be redeemed by the issuer at some time at a pre specified price.
B. Can be converted to share capital.
C. Mature in series of payments.
D. None of the above.
267) The effective interest rate on bonds is higher than the stated rate when bonds sell
A. At face value
B. Above face value
C. Below face value
268) Bonds usually sell at a premium
A. When the market rate of interest is greater than the stated rate of interest on the bonds.
B. When the stated rate of interest on the bonds is greater than the market rate of interest.
C. When the price of the bonds is greater than their maturity value.
D. In none of the above cases.
269) To compute the price to pay for a bond, what present value concept is used?
A. Only the present value of P1 concept.
B. Only the present value of annuity of P1 concept.
C. Both the present value of P1 concept and present value of an annuity of P1 concept.
D. Neither the present value of P1 concept and present value of an annuity of P1 concept.
270) When interest expense is calculated using the effective interest amortization method, interest expense (assuming that
interest is paid annually) always equals the
A. Actual amount of interest paid.
B. Carrying amount of the bonds multiplied by the stated rate.
C. Carrying amount of the bonds multiplied by the effective rate.
D. Maturity value bonds multiplied by the effective rate.
271) Which of the following is true of accrued interest on bonds that are sold between interest dates?
A.
It is computed at the effective market rate
C.
It will be paid to the seller when the bonds mature
B. It is extra income to the buyer
D.
None of the above
272) The issuer of a 10 year bond sold at par three years ago with interest payable February 1 and August 1 each year
should be reported in its December 31 statement of financial position.
A.
Liability for accrued interest
C.
Increase in deferred charge
B. An addition to bond payable
D.
Contingent liability
273) In January 2016, Popo Co. gives a guarantee on a loan of Kame Corporation amounting to P3,000,000. During the
year, the financial condition of Popo deteriorates and at year end, Popo files a petition for bankruptcy. In its year end
financial statement, Kame should
A.
Disclose the possible loss of P3,000,000
C.
Not accrue and need not disclose the guarantee
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 28 OF 31 •
B.
Accrued a provision for liability of P3,000,000
D.
Accrue and disclose the provision of P3,000,000
274) Current liabilities are normally recorded at the amount that the entity expects to pay rather than at their present value.
This practice can be supported according to the concept of:
A. Matching
B. Consistency
C. Materiality
D. Conservatism
275) What is the relationship between present value and the concept of a liability?
A. Present values are not used to measure liabilities.
B. Present values are used to measure all liabilities.
C. Present values are only used to measure non current liabilities.
D. Present values are used to measure certain liabilities.
276) Shenron Corporation is a wine distiller, with five year normal wine fermentation period. The following are found in the
trial balance of Shenron Corporation at December 31, 2014:
I
Trade notes payable due on March 31, 2016
II
Long term notes payable, due March 31, 2015. (Shenron already completed negotiation on December 31, 2014 for
refinancing of the note on a long term basis)
III Bonds payable due June 30, 2017
IV Bonds payable due June 30, 2016, settlement is expected to be financed by a sinking fund.
Which of the foregoing shall be classified as non current liabilities at December 31, 2014?
A. I, II, III and IV
B. II, III and IV
C. III only
D.
277) Bonds maturing on a single date are called
A. Callable bonds
B. Debenture bonds
278) Bonds payable should be initially recognized at
A.
Issue price
B. Issue rice plus accrued interest
C.
C.
D.
Serial bonds
D.
III and IV
Term bonds
Issue price minus transaction costs incurred
Face value
279) For accounting purposes, the interest expense recognized on bonds payable should be based on the
A. Effective interest rate, considering the issue price and transaction costs.
B. Nominal interest rate.
C. Rate stated on the face of the bonds.
D. Market rate of interest on the reporting date.
280) How should the issue price of bonds with non detachable share warrants be accounted for?
A. The proceeds are fully assigned to bonds.
B. The proceeds shall be assigned first to the warrants, at their market value and the remainder to the bonds.
C. The proceeds shall be assigned first to the bonds, at their market value if sold without the warrants; then the
remainder of the issue price is assigned to the warrants as part of equity.
D. The proceeds shall be allocated to the bonds and to the warrants based on relative fair values.
281) The proceeds from a bond issued with detachable share warrants should be account for
A. Entirely as bond payable
B. Entirely as shareholders equity
C. Partly as unearned revenue and partly as bonds payable
D. Partly as liability for the bonds payable and party as shareholders equity for the warrants
282) Bonds with face value of P5,000,000 carrying a stated interest rate of 12% payable semi annually on March 1 and
September 1 were issued on July 1. The total proceeds from the issue amounted to P5,200,000. The best explanation
for the excess amount received over the face value is that
A. The bonds were sold at a premium
B. The bonds bear an interest rate lower than the market rate of interest at the date of bond issuance
C. The bonds were issued at face value plus accrued interest
D. The bonds were sold at a discount plus accrued interest
283) In theory, the proceeds from the sale of a bond will equal to the
A. Face amount of the bond.
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 29 OF 31 •
B. Present value of the principal amount due at the end of the life of the bond plus the present value of the interest
payments made during the life of the bond.
C. Face amount of the bond plus the present value of the interest payments during the life of the bond.
D. Sum of the face amount of the bond and the periodic interest payment.
284) When a corporation issues a callable bond, this means that the
A. Investor may convert bonds held to cash at his or her option.
B. Issuer may retire the bonds paying a specified call price during a specified period.
C. Issuer may retire the bonds by paying a specified market price at the open market at any point in the life of the
bond.
D. Issuer may convert the bonds to some form of equity security during a specified period.
285) Under the effective interest method of bond discount or premium amortization, the periodic interest expense is equal
to the
A. Stated rate of interest multiplied by the face value of bonds.
B. Effective rate of interest multiplied by the face value of the bonds.
C. Stated rate multiplied by the beginning of period carrying amount of the bonds.
D. Effective rate multiplied by the beginning of period carrying amount of the bonds.
286) Yamcha Company failed to amortize discount on outstanding 10 year bonds payable. What is the effect of the failure
to record amortization on interest expense, profit and bond carrying amount respectively?
A.
Understated, overstate, understate
C.
Understate, overstate, overstate
B. Overstate, understate, overstate
D.
Overstate, understate, understate
287) The market price of a bond issued at a premium is the present value of the principal amount at the effective rate of
interest.
A. Plus the present value of all future interest payments at the effective rate of interest.
B. Plus the present value of all future interest payments at the stated rate of interest on the bond.
C. Minus the present value of all future interest payments at the effective rate of interest.
D. Plus the total amount of all future interest payments.
288) The gain or loss on the retirement of bonds prior to maturity should be
A. Recognized in profit or loss during the period of retirement.
B. Credited or debited to share premium.
C. Amortized over the remaining term of the bond.
D. Ignored.
289) Which of the following is incorrect about bonds sold at a discount?
A. Carrying amount of the bond increases each year.
B. The discount on bonds payable account decreases each year.
C. At maturity date, the face value and carrying amount of the bonds will be equal
D. The balance of bonds payable account increases each year.
290) Bond premium should be reported in the statement of financial position
A. At the present value of the future reduction in bond interest expense due to the premium.
B. As a deferred credit.
C. Along with other premium accounts such as those resulting from share capital transaction.
D. As a direct addition to the face amount of the bonds.
291) If bonds are held to maturity, any premium or discount on bonds payable
A. Should be written off directly to a bond retirement account as the bond will be redeemed.
B. Are carried forward and written off in the same manner as the used prior to the maturity date.
C. Will be fully amortized as their amortization period is designed to coincide with the life of the bond issue.
D. Should be used to calculate the gain or loss resulting from the maturity of the bonds.
292) Which of the following bonds pay no interest until maturity?
A. Zero coupon bonds
B. Registered bonds
C.
Serial bonds
D.
Debenture bonds
293) Which of the following statements is incorrect?
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 30 OF 31 •
A. A bond sold at a discount will incur interest expense and yield interest revenue at a rate that is higher than the
stated rate.
B. A bond sold at a discount has a present value at the date of sale/purchase less than its face amount.
C. A bond sold at a premium will reduce the effective interest expense for the issuer below what it would have been
had the bond sold at par.
D. Bond premium equates the stated interest rate on a bond to a higher effective rate related to the bond.
294) Which of the following statements is true?
A. The yield or effective interest rate on a bond is equal to the stated rate if the bond premium or discount is amortized
by using the straight line method.
B. The terms, “yield rate”, “stated rate”, and “market rate” are generally interchangeable when referring to interest on
bonds.
C. Interest revenue and expense related to bonds are always computed using the stated rate of interest.
D. If a bond is sold at its face amount, the stated and effective interest rates are the same.
295) Which of the following statements is not correct?
A. Bond premium (or discount) may be amortized by using the straight line method and is especially appropriate for
very long term bonds and when the stated and market rates are markedly different.
B. Bond market prices fluctuate inversely with changes in the market rate of interest.
C. Bonds purchased at a premium have a higher stated rate of interest than the effective rate.
D. A bond premium result when the effective rate is less than the stated rate; part of the periodic cash receipts for
interest, in effect, will be treated as a reduction of the premium paid and not as interest revenue.
296) Contingent liabilities are
Not liabilities at the present
May or may not become liabilities in the future
A
Yes
Yes
B
No
No
C
Yes
No
D
No
Yes
297) When a loss contingency exists the likelihood that the future event or events will or will not occur can be expressed
by the range of outcome. The area within the range that the future event are likely to occur is identified as
A. Probable
B. Remote
C. Highly possible
D. Reasonable probable
298) Loss contingencies may arise from all of the following, except:
A.
Collectability of receivable
C.
Risk of loss of enterprise property by fire or explosion
B. Obligations related to product warranties
D.
Cumulative, preferred stock dividend in arrears
299) A loss on contingency for which the amount of loss can be reasonably estimated should be accrued when the
occurrence of the loss is
Reasonably possible
Remote
Reasonably possible
Remote
A.
Yes
No
C.
No
No
B.
Yes
Yes
D.
No
Yes
300) Do not share this reviewer
A. Yes
B.
Of course
C.
Either A or B
D.
All of the choice
J END OF ALL-IN THEORIES J
• J.S. CAYETANO ♣ •
• FEU – MANILA •
• ALL IN THEORIES•
• FAR 2 •
• PAGE 31 OF 31 •
Page |1
Audi
t
i
ngPr
obl
emsAct
i
vi
t
y
1. Thea
c
c
ount
i
ngs
t
a
nda
r
dsus
e
di
nt
hePhi
l
i
ppi
ne
sa
r
ea
da
pt
e
df
r
om t
hes
t
anda
r
dsi
s
s
ue
db
yt
he
a
. Fe
de
r
a
lAc
c
ount
i
ngSt
a
ndar
dsBoa
r
d(
F
ASB)
.
b
.I
nt
e
r
na
t
i
ona
lAc
c
ount
i
ngS
t
anda
r
dsBoa
r
d(
I
ASB)
.
c
. Phi
l
i
ppi
neI
ns
t
i
t
ut
eofCe
r
t
i
fie
dPubl
i
cAc
c
ount
a
nt
s(
PI
CP
A)
.
d. De
moc
r
a
t
i
cPe
opl
e
'
sRe
publ
i
cofKor
e
aAc
c
ount
i
ngSt
a
ndar
dsCommi
t
t
e
e(
DPKRASC)
.
2
. ThePFRSsc
ons
i
s
tofa
l
loft
hef
ol
l
o
wi
nge
x
c
e
pt
a
. PFRSs
.
b
.P
ASs
.
c
.I
nt
e
r
pr
e
t
a
t
i
ons
.
d. Conc
e
pt
ua
lFr
a
me
wor
k.
3
. Thei
s
s
ua
nc
eoffina
nc
i
a
lr
e
por
t
i
ngs
t
anda
r
dsi
nt
hePhi
l
i
ppi
ne
si
st
her
e
s
pons
i
bi
l
i
t
yoft
he
a
. PI
CP
A
b
. FRSC
c
. AASC
d. CPECounc
i
l
4
. OnNove
mbe
r1
,
2
0
x1
,ac
ompanypur
c
ha
s
e
dane
w ma
c
hi
net
ha
ti
tdoe
sno
tha
v
et
opa
yf
orunt
i
l
Nove
mbe
r1
,2
0
x3.Thet
ot
a
lpa
yme
ntonNo
ve
mbe
r1
,2
0x
3
,wi
l
li
nc
l
udebot
hpr
i
nc
i
pa
la
nd
i
nt
e
r
e
s
t
.As
s
umi
ngi
nt
e
r
e
s
ta
ta1
0
%r
a
t
e
,t
hec
os
toft
hema
c
hi
newoul
dbet
het
ot
a
lpa
yme
nt
mul
t
i
pl
i
e
dbywha
tt
i
meval
ueofmone
yc
onc
e
pt
?
a
.
PVofannui
t
yof₱1
.
c
.FVofa
nnui
t
yof₱1
.
b
.
PVof₱1
.
d.
FVof₱1
.
5
.I
nt
e
r
e
s
tpa
yme
ntda
t
e
sofabondi
s
s
uear
eMar
c
h1a
ndS
e
pt
e
mbe
r1,2
0
x
1
.Thebondwa
si
s
s
ue
d
onJ
une1
,
2
0x1
.
I
nt
e
r
e
s
te
x
pe
ns
ef
ort
hey
e
a
re
nde
dDe
c
e
mbe
r3
1,
2
0
x1woul
dbef
or
:
a
.
f
our(
4
)mont
hs
c
.s
e
v
e
n(
7
)mont
hs
b
.
s
i
x(
6
)mont
hs
d.
t
e
n(
1
0)mont
hs
6
. Whe
nanot
epa
ya
bl
ei
si
s
s
ue
df
orpr
ope
r
t
y
,
goods
,
ors
e
r
vi
c
e
s
,
t
henot
ei
si
ni
t
i
a
l
l
yme
a
s
ur
e
da
t
a
.t
hef
a
i
rva
l
ueoft
hepr
ope
r
t
y
,
g
oods
,ors
e
r
vi
c
e
s
.
b
.t
hef
a
i
rva
l
ueoft
henot
e
.
c
. us
i
nga
ni
mput
e
di
nt
e
r
e
s
tr
a
t
et
odi
s
c
ounta
l
lf
ut
ur
epa
yme
nt
sont
henot
e
.
d. c
hoi
c
e(
a
)e
x
c
e
ptwhe
nt
hi
si
snotde
t
e
r
mi
nabl
e
,i
nwhi
c
hc
a
s
e
,whi
c
he
ve
ri
st
hemor
ec
l
e
a
r
l
y
de
t
e
r
mi
nabl
ebe
t
we
e
n(
b)a
nd(
c
)
.
7
. Whe
nanot
epa
ya
bl
ei
se
x
c
ha
nge
df
orpr
ope
r
t
y
,goods
,ors
e
r
vi
c
e
s
,t
hes
t
a
t
e
di
nt
e
r
e
s
tr
a
t
ei
s
pr
e
s
ume
dt
obef
a
i
runl
e
s
s
a
. noi
nt
e
r
e
s
tr
a
t
ei
ss
t
a
t
e
d.
b
.t
hes
t
a
t
e
di
nt
e
r
e
s
tr
a
t
ei
sunr
e
a
s
ona
bl
e
.
c
.t
hes
t
a
t
e
df
a
c
ea
mountoft
henot
ei
sma
t
e
r
i
a
l
l
ydi
ffe
r
e
ntf
r
om t
hec
ur
r
e
ntc
as
hs
a
l
e
spr
i
c
ef
or
s
i
mi
l
a
ri
t
e
msorf
r
om c
ur
r
e
ntma
r
ke
tval
ueoft
henot
e
.
d. a
nyoft
he
s
e
.
8
. Whe
nde
bti
si
s
s
ue
da
tadi
s
c
ount
,i
nt
e
r
e
s
te
xpe
ns
eove
rt
het
e
r
m oft
hede
bte
qua
l
st
hec
a
s
h
i
nt
e
r
e
s
tpa
i
d:
a
.
Mi
nusdi
s
c
ount
.
c
.Pl
usdi
s
c
ount
.
b
.
Mi
nusdi
s
c
ountmi
nusf
a
c
ea
mount
.
d.
Pl
usdi
s
c
ountpl
usf
a
c
ea
mount
.
Page |2
9
. Whi
c
hoft
hef
ol
l
o
wi
ngs
t
a
t
e
me
nt
si
st
r
ue
?
a
. A noni
nt
e
r
e
s
t
be
ar
i
ngnot
es
ome
t
i
me
si
sc
a
l
l
e
dadi
s
c
ount
e
dnot
ebe
c
aus
et
hec
as
hr
e
c
e
i
ve
d
i
smor
et
ha
nt
hef
a
c
ea
mountoft
henot
e
.
b
. A de
bt
or
’
sDe
c
e
mbe
r31
,2
0
x
1s
t
a
t
e
me
ntoffina
nc
i
a
lpos
i
t
i
oni
st
obepubl
i
s
he
donMar
c
h3
1
,
2
0
x2
.Anobl
i
ga
t
i
onwi
t
hadueda
t
eofDe
c
e
mbe
r3
1
,2
0
x6i
sal
s
odueonde
ma
ndbyt
he
c
r
e
di
t
or
.AtDe
c
e
mbe
r3
1,2
0
x1
,t
he
r
ei
snoi
ndi
c
a
t
i
ont
ha
tt
hec
r
e
di
t
ori
nt
e
ndst
oc
a
l
li
nt
he
de
bt
.
Theobl
i
ga
t
i
oni
sac
ur
r
e
ntl
i
a
bi
l
i
t
y
.
c
. Thema
r
ke
tr
a
t
eofi
nt
e
r
e
s
ti
st
hei
nt
e
r
e
s
tr
a
t
eus
e
dt
ode
t
e
r
mi
net
hea
mountofc
a
s
hi
nt
e
r
e
s
t
t
ha
twi
l
lbepa
i
dont
hepr
i
nc
i
pa
l
.
d. A de
bt
or
’
sDe
c
e
mbe
r31
,2
0
x
1s
t
a
t
e
me
ntoffina
nc
i
a
lpos
i
t
i
oni
st
obepubl
i
s
he
donMar
c
h31
,
2
0
x2
.Anobl
i
ga
t
i
ondueDe
c
e
mbe
r3
1,2
0
x
6ha
sadueda
t
ewhi
c
hc
a
nbeac
c
e
l
e
r
a
t
e
db
yt
he
c
r
e
di
t
ort
ot
hepr
e
s
e
ntda
t
ei
ft
hec
ur
r
e
ntr
a
t
i
of
a
l
l
sbe
l
o
w2
:
1
.Thec
ur
r
e
ntr
a
t
i
oonDe
c
e
mbe
r
3
1
,2
0
x
1i
s2.
2
:
1
.Theobl
i
ga
t
i
oni
sac
ur
r
e
ntl
i
a
bi
l
i
t
y
.
1
0
.As
hor
t
t
e
r
m not
epa
ya
bl
ema
yi
nc
l
udea
l
loft
hef
ol
l
owi
nge
x
c
e
pt
:
a
.
t
r
adenot
e
spa
ya
bl
e
.
c
.
une
a
r
ne
dr
e
ve
nue
.
b
.
nont
r
adenot
e
spa
yabl
e
.
d.
ac
ur
r
e
ntma
t
ur
i
t
yofal
ong
t
e
r
ml
i
a
bi
l
i
t
y
.
1
1
.I
nt
e
r
e
s
te
x
pe
ns
e
sar
e
a
.i
nc
ur
r
e
donl
yoni
nt
e
r
e
s
t
be
a
r
i
ngobl
i
ga
t
i
ons
b
.i
nc
ur
r
e
dduet
opas
s
a
geoft
i
me
.
c
. noti
nc
ur
r
e
donr
e
de
e
ma
bl
epr
e
f
e
r
e
nc
es
ha
r
e
si
s
s
ue
d
d. i
nc
ur
r
e
donl
ywhe
nt
hee
ffe
c
t
i
v
ei
nt
e
r
e
s
tr
a
t
ei
ss
t
a
t
e
di
nt
hei
ns
t
r
ume
nt
1
2
.Whi
c
hoft
hef
ol
l
owi
ngi
snott
r
uea
boutt
hedi
s
c
ountons
hor
t
t
e
r
m not
e
spa
ya
bl
e
?
a
. TheDi
s
c
ountonNot
e
sPa
ya
bl
ea
c
c
ountha
sade
bi
tba
l
anc
e
.
b
. TheDi
s
c
ountonNot
e
sPa
ya
bl
ea
c
c
ounts
houl
dber
e
por
t
e
da
sa
na
s
s
e
tont
heba
l
a
nc
es
he
e
t
.
c
. Whe
nt
he
r
ei
sadi
s
c
ountonanot
epa
yabl
e
,t
hee
ffe
c
t
i
vei
nt
e
r
e
s
tr
a
t
ei
shi
ghe
rt
ha
nt
hes
t
a
t
e
d
di
s
c
ountr
a
t
e
.
d. Al
loft
he
s
ea
r
et
r
ue
.
1
3
.Whi
c
hoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
snotc
or
r
e
c
t
?
a
. Thepr
i
nc
i
pa
la
mountofade
bti
st
hec
as
horc
as
he
qui
va
l
e
ntamountbor
r
o
we
d.
b
. Whe
nanonc
a
s
ha
s
s
e
ti
sa
c
qui
r
e
da
ndt
hes
t
a
t
e
dr
a
t
eofi
nt
e
r
e
s
ti
sdi
ffe
r
e
ntf
r
om t
hec
ur
r
e
nt
ma
r
ke
tr
a
t
eofi
nt
e
r
e
s
t
,t
hec
os
toft
hea
s
s
e
ti
st
hepr
e
s
e
ntva
l
ueoft
hef
ut
ur
ec
a
s
hpa
yme
nt
s
di
s
c
ount
e
da
tt
hec
ur
r
e
ntmar
ke
tr
a
t
eofi
nt
e
r
e
s
tr
a
t
he
rt
hana
tt
hes
t
a
t
e
di
nt
e
r
e
s
tr
a
t
e
.
c
. Ac
ompa
nyt
ha
tr
e
c
e
i
ve
sc
as
hi
na
na
mountl
e
s
st
ha
nt
hef
a
c
ea
mountofanoni
nt
e
r
e
s
t
be
a
r
i
ngno
t
epa
yabl
es
houl
dr
e
c
or
dt
henot
ea
ti
t
sdi
s
c
ount
e
dpr
e
s
e
ntva
l
ue
.
d. Thec
a
r
r
yi
nga
mountofanoni
nt
e
r
e
s
t
be
a
r
i
ngnot
epa
ya
bl
eduei
nl
umps
um wi
l
lde
c
r
e
a
s
ea
s
t
i
megoe
sby
.
Us
et
hef
ol
l
owi
ngi
nf
or
mat
i
onf
ort
hene
xtfiveque
s
t
i
ons
:
On J
anua
r
y1
,20
x1
,ABRI
DGE TO SHORTEN Compa
nyi
s
s
ue
d a4
y
e
a
r
,₱1
,
00
0
,
0
0
0noni
nt
e
r
e
s
t
be
a
r
i
ng not
epa
ya
bl
eduei
nf
oure
qua
la
nnua
li
ns
t
a
l
l
me
nt
s
.Thee
ffe
c
t
i
vei
nt
e
r
e
s
tr
a
t
ei
s12
%.
ABRI
DGEpr
e
par
e
dt
hef
ol
l
o
wi
ngpr
of
or
maamor
t
i
z
a
t
i
ont
a
bl
eonane
l
e
c
t
r
oni
cs
pr
e
a
ds
he
e
t
:
A
B
C
D
E
1
Dat
e
Cas
hpai
d
I
nt
e
r
e
s
te
x
pe
ns
e
Amor
t
i
z
at
i
on
Pr
e
s
e
ntval
ue
2 J
a
n.
1,
2
0
x1
3 De
c
.
3
1
,
2
0
x1
4 De
c
.
3
1
,
2
0
x2
5 De
c
.
3
1
,
2
0
x3
6 De
c
.
3
1
,
2
0
x4
Page |3
1
4
.Thea
mountt
obepl
a
c
e
donc
e
l
lE2i
s
a
.(
1
M ÷4xPVofor
di
nar
ya
nnui
t
yof₱1@1
2
%,
n=4
)
b
.(
1
M xPVof₱1@1
2
%,
n=4
)
c
.(
1
M xPVofor
di
nar
ya
nnui
t
yof₱1@1
2
%,n=4
)
d. (
1
M xPVof₱1@1
2
%,
n=4
)+(
1
M x1
0
% xPVofor
di
na
r
ya
nnui
t
yof₱1@1
2
%,
n=4)
1
5
.Thea
mountt
obepl
a
c
e
donc
e
l
lE6i
s
a
.
(
1M ÷4xPVofor
di
nar
ya
nnui
t
yof₱1@1
2
%,
n=4
)
b
.
(
1
M xPVof₱1@1
2%,
n=4)
c
.1
M
d.
0
1
6
.I
nt
e
r
e
s
te
x
pe
ns
er
e
c
ogni
z
e
di
n2
0x
2i
sc
omput
e
das
a
.
1
2
% xE3
c
.C4–D4
b
.
12
% xE4
d.
1
M x1
2
%
1
7
.Thec
a
r
r
yi
nga
mountoft
henot
epa
ya
bl
eonDe
c
e
mbe
r31
,
2
0
x2i
se
qua
lt
o
a
.
E3–D4
c
.E4–D4
b
.
E3+D4
d.
1
M
1
8
.Thev
al
uepl
a
c
e
di
nc
e
l
lB4i
se
qua
lt
o
a
.
1
M x1
2%
b
.
25
0
,
0
0
0
c
.
1M –D3
d.
E4–D5
1
9
.Thec
ur
r
e
ntpor
t
i
onoft
heno
t
epa
yabl
ea
sofDe
c
e
mbe
r31
,
2
0
x2i
se
qualt
o
a
.
D4
c
.D5
b
.
D3
d.
E5
2
0
.Thenonc
ur
r
e
ntpor
t
i
onoft
henot
epa
yabl
ea
sofDe
c
e
mbe
r31
,
2
0x
2i
se
qua
lt
o
a
.
E4
c
.E3
b
.
D5
d.
E5
Us
et
hef
ol
l
owi
ngi
nf
or
mat
i
onf
ort
hene
xtni
neque
s
t
i
ons
:
On J
anua
r
y 1,20
x
1,HEARTEN ENCOURAGE CHEER Co
mpa
ny i
s
s
ue
d a4
ye
a
r
,₱1
,
0
0
0
,
0
0
0,
noni
nt
e
r
e
s
t
be
ar
i
ngnot
edueonDe
c
e
mbe
r31
,2
0
x4
.Thee
ffe
c
t
i
vei
nt
e
r
e
s
tr
a
t
ei
s12
%.HEARTEN
pr
e
pa
r
e
dt
hef
ol
l
owi
ngpr
of
or
maa
mor
t
i
z
a
t
i
ont
a
bl
eonane
l
e
c
t
r
oni
cs
pr
e
a
ds
he
e
t
:
A
1
2
3
4
5
6
Dat
e
B
I
nt
e
r
e
s
t
e
x
pe
ns
e
C
Di
s
c
oun
t
D
Pr
e
s
e
nt
val
ue
J
a
n.
1
,
2
0x
1
De
c
.
3
1
,
2
0x
1
De
c
.
3
1
,
2
0x
2
De
c
.
3
1
,
2
0x
3
De
c
.
3
1
,
2
0x
4
2
1
.Thea
mountt
obepl
a
c
e
donc
e
l
lB4i
s
a
.
1
0
% xE3
c
.₱1
M ÷4
b
.
12
% xD3
d.
s
a
mewi
t
hB3
2
2
.Thea
mountt
obepl
a
c
e
donc
e
l
lD2i
sc
omput
e
da
s
a
.(
1
M xPVof₱1@1
2
%,
n=4
)+(
1
M xPVofor
di
nar
ya
nnui
t
yof₱1@1
2
%,
n=4
)
b
.(
1
M xPVof₱1@1
2
%,
n=4
)
Page |4
c
.(
1
M xPVofor
di
nar
ya
nnui
t
yof₱1@1
2
%,n=4
)
d. (
1
M xPVof₱1@1
2
%,
n=4
)+(
1
M x1
0
% xPVofor
di
na
r
ya
nnui
t
yof₱1@1
2
%,
n=4)
2
3
.I
nt
e
r
e
s
te
x
pe
ns
er
e
c
ogni
z
e
di
n2
0x
3i
sc
omput
e
das
a
.
1
2
% xD3
c
.C4–D4
b
.
12
% xD4
d.
1
M x1
2
%
2
4
.Thea
mountt
obepl
a
c
e
di
nc
e
l
lC3i
sc
omput
e
da
s
a
.
C2+B3
c
.e
qua
lt
oC4
b
.
C2–B3
d.
I
’
mc
onf
us
e
d
2
5
.Thec
a
r
r
yi
nga
mountoft
henot
epa
ya
bl
eonDe
c
e
mbe
r31
,
2
0
x2i
se
qua
lt
o
a
.
D3–B4
c
.B4+C4
b
.
D3+B4
d.D3+C4
2
6
.Thec
ur
r
e
ntpor
t
i
onoft
heno
t
epa
yabl
ea
sofDe
c
e
mbe
r31
,
2
0
x2i
se
qualt
o
a
.
D4
c
.D5
b
.
D3
d.
none
2
7
.Thenonc
ur
r
e
ntpor
t
i
onoft
henot
epa
yabl
ea
sofDe
c
e
mbe
r31
,
2
0x
2i
se
qua
lt
o
a
.
E4
c
.E3
b
.
D5
d.
noneoft
he
s
e
2
8
.Thes
um ofc
e
l
lC4a
ndc
e
l
lD4i
s
a
.
e
qua
lt
oD3
b
.
e
qua
lt
oD5
c
.1
M
d.
noneoft
he
s
e
2
9
.Thev
al
ueofc
e
l
lD6i
s
a
.
e
qua
lt
oD3
b
.
e
qua
lt
oD5
c
.1
M
d.
z
e
r
o
3
0
.Whi
c
hoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
sa
boutnoni
nt
e
r
e
s
t
be
a
r
i
ngnot
e
si
sf
a
l
s
e
?
a
. Thef
a
c
ea
mountofanoni
nt
e
r
e
s
t
be
a
r
i
ngno
t
ema
yi
nc
l
udebot
ht
hepr
i
nc
i
pa
la
ndi
nt
e
r
e
s
ta
s
as
i
ngl
ea
mountt
obepa
i
dba
c
ka
tma
t
ur
i
t
yda
t
e
.
b
. Thepr
i
nc
i
pa
la
mountofanoni
nt
e
r
e
s
t
be
a
r
i
ngnot
ei
si
t
sf
ut
ur
ec
as
hflo
wsdi
s
c
ount
e
da
ti
t
s
e
ffe
c
t
i
vei
nt
e
r
e
s
tr
a
t
e
.
c
. Thee
ffe
c
t
i
ver
a
t
eonas
hor
t
t
e
r
m noni
nt
e
r
e
s
t
be
ar
i
ngnot
e
,wi
t
has
pe
c
i
fie
dt
e
r
m,c
a
nnotbe
de
t
e
r
mi
ne
dunl
e
s
si
ti
sgi
v
e
nont
hef
a
c
eoft
henot
e
.
d. Noni
nt
e
r
e
s
tbe
ar
i
ngi
snotade
s
c
r
i
pt
i
vede
s
i
gna
t
i
onf
ort
hi
st
ypeofnot
ebe
c
a
us
es
uc
hnot
e
s
dobe
a
ri
nt
e
r
e
s
t
.
3
1
.I
nt
e
rCompany s
e
l
l
si
t
spr
oduc
t
si
nr
e
us
abl
e
,e
x
pe
ns
i
v
ec
ont
ai
ne
r
s
.Thec
us
t
ome
rc
ha
r
ge
da
de
pos
i
tf
ore
a
c
hc
ont
a
i
ne
rde
l
i
ve
r
e
dandr
e
c
e
i
v
e
sar
e
f
undf
ore
a
c
hc
ont
a
i
ne
rr
e
t
ur
ne
dwi
t
hi
n
t
woye
a
r
sa
f
t
e
rt
heye
a
rofde
l
i
ve
r
y
.
I
nt
e
ra
c
c
ount
sf
ort
hec
ont
a
i
ne
r
snotr
e
t
ur
ne
dwi
t
hi
nt
het
i
me
l
i
mi
ta
sbe
i
ngr
e
t
i
r
e
db
ys
al
ea
tt
hede
pos
i
tamount
.
I
nf
or
ma
t
i
onf
or2
0
0
6i
sa
sf
ol
l
ows
:
De
pos
i
t
sf
orc
ont
ai
ne
r
sa
tDe
c
e
mbe
r3
1
,
2
0
0
5f
r
om de
l
i
ve
r
i
e
si
n:
2
0
04
P
1
5
0,
0
0
0
2
0
05
4
30
,
0
0
0
P
De
pos
i
t
sf
orc
ont
ai
ne
r
sde
l
i
ve
r
e
di
n2
0
06
De
pos
i
t
sf
orc
ont
ai
ne
r
sr
e
t
ur
ne
di
n2
0
0
6f
or
m de
l
i
ve
r
i
e
si
n:
2
0
04
P
9
0
,
0
0
0
2
0
05
2
5
0
,
0
00
5
8
0,
0
0
0
7
8
0,
0
0
0
Page |5
2
0
06
2
86
,
0
0
0
6
2
6,
0
0
0
Wha
ta
mounts
houl
dI
nt
e
rCompa
nyr
e
por
ta
sal
i
a
bi
l
i
t
yf
orde
pos
i
t
sonr
e
t
ur
na
bl
ec
ont
a
i
ne
r
sa
t
De
c
e
mbe
r31
,
2
0
06
?
a
.4
9
4
,
0
0
0
b
.6
44
,
0
0
0
c
. 67
4
,
0
00
d. 7
3
4,
0
0
0
2
0
05be
g.
5
8
0
,
0
0
0
2
0
06i
nc
r
e
a
s
e
7
8
0
,
00
0
2
0
06de
c
r
e
a
s
e
/r
e
t
ur
ns
(
6
2
6
,
0
00
)
2
0
042
yr
.
r
e
f
unde
xpi
r
e
d(
1
50
k
-9
0
k)(
60
,
0
00
)
67
4
,
0
00
3
2
.I
mpr
e
s
s
e
dCompa
ny
,adi
vi
s
i
onofPhi
l
i
ppi
neRe
a
l
t
yCor
por
a
t
i
onmai
nt
ai
nse
s
c
r
o
wa
c
c
ount
sand
pa
ysr
e
a
le
s
t
a
t
et
ax
e
sf
orPhi
l
i
ppi
ne
’
smor
t
ga
gec
us
t
ome
r
s
.Es
c
r
ow f
undsa
r
eke
pti
ni
nt
e
r
e
s
t
be
a
r
i
nga
c
c
ount
s
.I
nt
e
r
e
s
t
,l
e
s
sa1
0
%s
e
r
vi
c
ef
e
e
,i
sc
r
e
di
t
e
dt
ot
hemor
t
ga
ge
e
’
sa
c
c
ountandus
e
d
t
or
e
duc
ef
ut
ur
ee
s
c
r
ow pa
yme
nt
s
.
Addi
t
i
ona
li
nf
or
ma
t
i
onf
ol
l
o
ws
:
Es
c
r
o
wa
c
c
ount
sl
i
a
bi
l
i
t
y
,
J
anua
r
y1
,
2
0
08
Es
c
r
o
w pa
yme
nt
sr
e
c
e
i
ve
ddur
i
ng2
0
0
8
Re
a
le
s
t
a
t
et
a
x
e
spa
i
ddur
i
ng2
0
08
I
nt
e
r
e
s
tone
s
c
r
ow f
undsdur
i
ng2
0
0
8
P9
0
0
,
0
0
0
1
,
5
00
,
0
0
0
1
,
9
00
,
0
0
0
9
0,
0
0
0
Wha
ta
mounts
houl
dI
mpr
e
s
s
e
dr
e
por
ta
se
s
c
r
ow a
c
c
ount
sl
i
a
bi
l
i
t
yi
ni
t
sDe
c
e
mbe
r3
1
,
2
0
0
8bal
a
nc
e
s
he
e
t
?
a
.4
9
1
,
0
0
0
b
.5
00
,
0
0
0
c
. 58
1
,
0
00
d. 5
9
0,
0
0
0
Escrow account jan. 1, 20x8
Escrow payments received 20x8
Real estate taxes paid 20x8
900,000
1,500,000
(1,900,000
)
Interest on escrow funds (90k- (10% x 90k)
81,000
Escrow account liability December 31, 20x8
581,000
3
3
.Ga
l
l
e
r
yDe
pa
r
t
me
ntSt
or
es
e
l
l
sgi
f
tc
e
r
t
i
fic
a
t
e
s
,r
e
de
e
ma
bl
ef
ors
t
or
eme
r
c
handi
s
et
ha
te
xpi
r
e
s
one ye
a
ra
f
t
e
rt
he
i
ri
s
s
ua
nc
e
.Gal
l
e
r
y ha
st
he f
ol
l
owi
ng i
nf
or
ma
t
i
on pe
r
t
a
i
ni
ng t
oi
t
sgi
f
t
c
e
r
t
i
fic
a
t
e
ss
al
e
sandr
e
de
mpt
i
ons
:
Une
ar
ne
da
tDe
c
e
mbe
r3
1
,2
0
0
5
2
0
06s
al
e
s
2
0
06r
e
de
mpt
i
onsofpr
i
or
ye
a
rs
al
e
s
2
0
06r
e
de
mpt
i
onsofc
ur
r
e
nt
ye
a
rs
al
e
s
P6
0
0
,
0
0
0
2
,
0
00
,
0
0
0
2
0
0,
0
0
0
1
,
4
00
,
0
0
0
Ga
l
l
e
r
y’
se
x
pe
r
i
e
nc
ei
ndi
c
a
t
e
st
ha
t1
0% ofgi
f
tc
e
r
t
i
fic
a
t
e
ss
ol
dwi
l
lnotber
e
de
e
me
d.
I
ni
t
sDe
c
e
mbe
r3
1
,2
0
0
6ba
l
a
nc
es
he
e
t
,
wha
tamounts
houl
dGa
l
l
e
r
yr
e
por
ta
sune
a
r
ne
dr
e
v
e
nue
?
a
. 4
00
,
0
0
0
Page |6
b
. 6
00
,
0
0
0
c
. 8
00
,
0
0
0
d. 1
,
0
00
,
0
0
0
2006 sales
2006 redemption
total
less: 10% gift certificate ( 2M x 10%)
Unearned revenue
2,000,000
(1,400,000
)
600,000
(200,000)
400,000
3
4
.I
vyCo.
ope
r
a
t
e
sar
e
t
a
i
ls
t
or
e
.Al
li
t
e
msa
r
es
ol
ds
ubj
e
c
tt
oa6
%s
t
a
t
es
a
l
e
st
ax
,
whi
c
hI
vyc
ol
l
e
c
t
s
a
ndr
e
c
or
dsass
a
l
e
sr
e
v
e
nue
.I
vyfil
e
squar
t
e
r
l
ys
al
e
st
axr
e
t
ur
nswhe
ndue
,byt
he2
0
t
hda
y
f
ol
l
o
wi
ng t
hee
nd oft
hes
a
l
e
squa
r
t
e
r
.Howe
v
e
r
,i
na
c
c
or
da
nc
ewi
t
hs
t
a
t
er
e
qui
r
e
me
nt
s
,I
vy
r
e
mi
t
ss
a
l
e
st
a
xc
ol
l
e
c
t
e
db
yt
he2
0
t
hda
yoft
hemont
hf
ol
l
o
wi
nga
nymont
hs
uc
hc
ol
l
e
c
t
i
ons
e
x
c
e
e
d₱50
0
.I
vyt
a
ke
st
he
s
epa
yme
nt
sa
sc
r
e
di
t
sont
hequa
r
t
e
r
l
ys
a
l
e
st
a
xr
e
t
ur
n.
Thes
a
l
e
st
a
x
e
s
pa
i
dbyI
vya
r
ec
ha
r
ge
da
ga
i
ns
ts
a
l
e
sr
e
v
e
nue
.Fol
l
owi
ngi
samont
hl
ys
umma
r
ya
ppe
ar
i
ngi
n
I
vy'
sfir
s
tquar
t
e
r20
0
2s
a
l
e
sr
e
ve
nuea
c
c
ount
:
De
bi
t
Cr
e
di
t
J
a
nuar
y
10
,
6
0
0
Fe
br
ua
r
y
6
0
0
7
,
4
2
0
Ma
r
c
h
8
,
4
8
0
6
0
0
2
6
,
5
0
0
I
ni
t
sMa
r
c
h31
,
2
0x
2,
ba
l
a
nc
es
he
e
t
,
wha
ta
mounts
houl
dI
vyr
e
por
ta
ss
a
l
e
st
ax
e
spa
ya
bl
e
a
.
6
0
0
b
.
9
0
0
c
.1
,
5
0
0
d.
1
,
5
9
0
Total Sales collected [Total sales inclusive of sales
tax (total cr.) 26,500 x (6%/106%)]
Less: Remittance of sales tax in february
Sales tax payable
1,500
(600)
900
3
5
.OnJ
a
nua
r
y1
,2
0
x1WRECK RUI
N Co.a
c
qui
r
e
dl
a
ndbyi
s
s
ui
ngat
hr
e
e
ye
ar
,12
%,₱4
,
0
0
0
,
0
0
0
not
epa
ya
bl
e
.Pr
i
nc
i
pa
landi
nt
e
r
e
s
tar
edueonDe
c
e
mbe
r31
,2
0
x3
.Ho
w muc
hi
st
hei
nt
e
r
e
s
t
e
xpe
ns
ei
n2
0x
2
?
a
.
1
,
0
1
7
,
6
00
c
.5
3
7
,
6
0
0
b
.
96
0
,
0
0
0
d.
7
6
4
,
2
1
3
Notes payable
Multiply:
4,000,000
112%
4,480,000
Multiply:
Interest Expense in 20x2
12%
537,600
3
6
.Ka
r
maCompa
nys
e
l
l
st
e
l
e
vi
s
i
onsa
ta
na
ve
r
a
gepr
i
c
eofP7
,
5
0
0a
nda
l
s
ooffe
r
st
oe
a
c
hc
us
t
ome
ra
s
e
par
a
t
e3
y
e
a
rwa
r
r
a
nt
yc
ont
r
a
c
tf
orP7
5
0t
ha
tr
e
qui
r
e
st
hec
ompa
ny t
o pe
r
f
or
m pe
r
i
odi
c
Page |7
s
e
r
vi
c
e
sa
ndt
or
e
pl
a
c
ede
f
e
c
t
i
vepa
r
t
s
.Dur
i
ng2
00
6
,t
hec
ompa
nys
ol
d3
0
0t
e
l
e
vi
s
i
onsa
nd2
7
0
wa
r
r
a
nt
yc
ont
r
ac
t
sf
orc
a
s
h.I
te
s
t
i
ma
t
e
st
he3
ye
a
rwa
r
r
a
nt
yc
os
t
sa
sP20
0f
orpa
r
t
sa
ndP4
0
0f
or
l
a
bora
nd a
c
c
ount
sf
orwar
r
ant
i
e
ss
e
pa
r
a
t
e
l
y
.As
s
umes
a
l
e
soc
c
ur
r
e
d on De
c
e
mbe
r3
1
,20
0
8
,
i
nc
omei
sr
e
c
ogni
z
e
d on t
hewa
r
r
a
nt
i
e
s
,a
nd s
t
r
ai
ghtl
i
ner
e
c
ogni
t
i
on ofwa
r
r
a
nt
yr
e
ve
nue
s
oc
c
ur
s
.
Wha
ta
mountofc
ur
r
e
nta
ndnonc
ur
r
e
ntl
i
abi
l
i
t
yr
e
l
a
t
i
v
et
owar
r
a
nt
yr
e
ve
nuewoul
da
ppe
a
ront
he
De
c
e
mbe
r31
,
2
0
09ba
l
a
nc
es
he
e
t
,
r
e
s
pe
c
t
i
ve
l
y
?
a
.
0a
nd 2
0
2
,
5
00
b
. 6
7,
5
0
0and 13
5
,
0
00
c
.1
3
5,
0
0
0and 6
7
,
5
0
0
d. 2
0
2,
5
0
0and
0
750 peseos x 270 warranty contracts
202,500
Divided: years
3
To be earned in 20x9 current liability warranty revenue
67,500
Multiply: years( 2010 &2011)
Non-current Liability
2
135,000
3
7
.ABCCo
.
i
sc
ont
e
mpl
a
t
i
ngoni
s
s
ui
nga1
2%,
3
y
e
a
r
,₱1
,
0
0
0
,
00
0bonds
.Pr
i
nc
i
pa
li
sduea
tma
t
ur
i
t
y
buti
nt
e
r
e
s
ti
sdues
e
mi
a
nnua
l
l
ye
v
e
r
yJ
ul
y1a
ndDe
c
e
mbe
r3
1
.ABCde
t
e
r
mi
ne
st
ha
tt
hec
ur
r
e
nt
ma
r
ke
tr
a
t
eonJ
anua
r
y1
,2
0x
1i
s14
%.How muc
hi
st
hee
s
t
i
ma
t
e
di
s
s
uepr
i
c
eoft
hebonds
a
s
s
umi
ngABCi
s
s
ue
sbondsonJ
a
nua
r
y1
,
2
0x
1
?
a
.6
6
6
,
3
4
2
b
.2
85
,
9
9
2
c
. 95
2
,
3
34
d. 9
6
2,
5
6
3
Future Cash Flows
Principal
Interest
1,000,000
60,000
PV @7%, n=6
PV factors
Present Values
Pv of 1
0.666342
666,342
Pv of OA of 1
4.766540
285,992
estimated issue prive on Jan.1,201
952,334
Us
et
h
ef
o
l
l
o
wi
n
gi
nf
o
r
ma
t
i
o
nf
o
rt
h
ene
xtt
hr
e
eq
ue
s
t
i
o
ns
:
OnJ
a
nuar
y1
,
20
x
1,S
CRAWNYS
KI
NNYCo.i
s
s
ue
d1
,
0
0
0
,₱4
,
0
0
0
,1
0
%,3
ye
arbondsf
or₱3
,
8
0
7,
8
5
2
.
Pr
i
nc
i
pa
li
sdueonDe
c
e
mbe
r3
1,2
0
x3buti
nt
e
r
e
s
t
sa
r
eduea
nnua
l
l
ye
v
e
r
yye
a
r
e
nd.I
na
ddi
t
i
on,
SCRAWNYi
nc
ur
r
e
dbondi
s
s
uec
os
t
sof₱1
7
9
,
3
1
6.Thee
ffe
c
t
i
v
ei
nt
e
r
e
s
tr
a
t
ei
s1
2
%b
e
f
o
r
eadj
us
t
me
nt
f
orbondi
s
s
uec
os
t
sa
nd1
4
%a
f
t
e
ra
dj
us
t
me
ntf
orbondi
s
s
uec
os
t
s
.
3
8
.Ho
w muc
hi
st
hec
a
r
r
yi
nga
mountoft
henot
eoni
ni
t
i
a
lr
e
c
ogni
t
i
on?
a
.
3
,
6
2
8
,
5
36
b
.
4
,
0
0
0,
0
0
0 c
.3
,
6
3
5
,
3
4
0 d.
3
,
7
5
4
,
3
0
9
Bond cost
Bond issue cost
Carrying amount of notes in initial recognition
3,807,852
(179,316)
3,628,536
Page |8
3
9
.Ho
w muc
hi
st
hei
nt
e
r
e
s
te
x
pe
ns
ei
n2
0x
1?
a
.
4
3
5
,
4
2
4
b
.
57
6
,
2
4
0
c
.5
0
7
,
9
9
5
d.
4
0
0,
0
0
0
4
0
.Ho
w muc
hi
st
hec
a
r
r
yi
nga
mountoft
henot
eonDe
c
e
mbe
r3
1
,
2
0
x1
?
a
.
3
,
4
0
1
,
8
32
b
.
3
,
3
9
1,
5
8
0 c
.3
,
2
8
8
,
7
7
6 d.
3
,
7
3
6,
5
31
Date
Jan. 1,20x1
Dec.
31,20x1
Interest
Payment
400,000
Interest
Exp.
507,995
Amortization
Present
value
3,628,536
107,995
3,736,531
4
1
.Ent
i
t
yA i
s
s
ue
sc
onve
r
t
i
bl
ebondswi
t
hf
a
c
ea
mountof₱2
,
0
00
,
0
0
0f
or₱2
,
6
00
,
0
0
0.Ea
c
h₱1
,
0
00
bondi
sc
onve
r
t
i
bl
ei
nt
o10s
har
e
swi
t
hpa
rva
l
ueof₱6
0pe
rs
har
e
.Oni
s
s
ua
nc
eda
t
e
,t
hebonds
a
r
es
e
l
l
i
ng a
t1
0
2wi
t
houtt
hec
onve
r
s
i
on opt
i
on.Wha
ti
st
hev
al
uea
l
l
oc
a
t
e
dt
ot
hee
qui
t
y
c
ompone
ntoni
ni
t
i
a
lr
e
c
ogni
t
i
on?
a
.2
,
0
4
0
,
0
0
0
b
.5
40
,
0
0
0
c
. 56
0
,
0
00
d. 4
6
0,
0
0
0
Issue price
FV of debt instrument w/out equity feature (2mx102%)
Equity component
2,600,000
(2,040,000)
560,000
4
2
.OnSe
pt
e
mbe
r3
0
,2
0x
1
,ADMONI
SH WARN Co.i
s
s
ue
dne
w bondswi
t
hf
a
c
ea
mountof₱1
0
M
f
orane
ti
s
s
ua
nc
epr
oc
e
e
dsof₱4
3
,
2
0
0,
0
0
0
.ADMONI
SH us
e
dt
hepr
oc
e
e
dst
or
e
t
i
r
ea
ne
x
i
s
t
i
ng
1
0
y
e
a
r
,1
2
%,₱3
2
,
0
0
0,
0
0
0 bondsi
s
s
ue
d fiveye
a
r
se
a
r
l
i
e
r
.Thebondsha
v
ea
n unamor
t
i
z
e
d
di
s
c
ountof₱1,
3
6
0
,
00
0a
sofSe
pt
e
mbe
r3
0
,2
0
x1
.ADMONI
SH r
e
a
c
qui
r
e
dt
hee
nt
i
r
eout
s
t
a
ndi
ng
bondsa
tac
a
l
lpr
e
mi
um of₱1
,
6
00
,
0
0
0.Cos
t
si
nc
ur
r
e
dt
ha
ta
r
edi
r
e
c
t
l
ya
t
t
r
i
but
a
bl
et
ot
he
r
e
t
i
r
e
me
nta
mount
e
dt
o₱2
0
0
,
0
0
0.ADMONI
SH ha
sa
ni
nc
omet
axr
a
t
eof3
0
%.Ho
w muc
hi
st
he
ga
i
n(
l
os
s
)ont
her
e
t
i
r
e
me
ntoft
hebondst
ober
e
c
ogni
z
e
di
n2
0
x
1
?
a
.
3
,
1
6
0
,
0
00
)
b
.
(
2
,
9
6
0
,
00
0
)
c
.
2,
9
6
0
,
00
0 d.
(
3
,
1
60
,
0
0
0
)
4
3
.On J
anua
r
y 1,20
x1
,POTENT POWERFUL Co.i
s
s
ue
d5
ye
ar
,1
2
%,₱4
,
00
0
,
0
0
0 bondsf
or
₱4
,
3
03
,
2
6
4
.Pr
i
nc
i
pa
li
sduea
tma
t
ur
i
t
ybuti
nt
e
r
e
s
t
sa
r
eduea
nnual
l
y
.Thee
ffe
c
t
i
v
ei
nt
e
r
e
s
tr
a
t
e
i
s1
0
%.On J
ul
y 1,2
0x
3,POTENT c
a
l
l
e
di
nt
hee
nt
i
r
ebondsa
nd r
e
t
i
r
e
dt
he
ma
t1
0
2
.The
r
e
t
i
r
e
me
ntpr
i
c
ei
nc
l
ude
spa
yme
ntf
oranya
c
c
r
ue
di
nt
e
r
e
s
t
.How muc
hi
st
hega
i
n(
l
os
s
)ont
he
e
xt
i
ngui
s
hme
ntoft
hebonds
?
a
.
3
2
8
,
8
9
7
b
.
(
3
2
8
,
8
96
) c
.(
11
8
,
9
4
8) d.
11
8
,
9
48
4
4
.On J
anua
r
y1,2
0
x1
,TI
PSY UNS
TEADY Co.i
s
s
ue
d 10
%,₱1
2
,
0
0
0
,
0
0
0bondsf
or₱1
1
,
6
0
1,
2
2
0
.
Pr
i
nc
i
pa
lont
hebondsma
t
ur
e
si
nt
hr
e
ee
qua
la
nnuali
ns
t
a
l
l
me
nt
s
.I
nt
e
r
e
s
ti
sa
l
s
oduea
nnual
l
y
a
te
a
c
h ye
a
r
e
nd.Thee
ffe
c
t
i
v
ei
nt
e
r
e
s
tr
a
t
eont
hebondsi
s1
2
%.How muc
hi
st
hec
a
r
r
yi
ng
a
mountoft
hebondsonDe
c
e
mbe
r31
,
2
0x
1
?
a
.
7
,
8
4
4
,
6
35
b
.
7
,
7
9
3,
3
6
6 c
.7
,
6
8
3
,
3
4
3 d.
7
,
5
4
3
,
3
4
1
4
5
.Li
a
bi
l
i
t
i
e
sa
r
i
s
ef
r
om e
i
t
he
rl
e
ga
lorc
ons
t
r
uc
t
i
veobl
i
ga
t
i
on.Whi
c
hoft
hef
ol
l
owi
ngi
sas
our
c
eof
c
ons
t
r
uc
t
i
veobl
i
ga
t
i
on?
a
.c
ont
r
a
c
t
c
.
qua
s
i
c
ont
r
a
c
t
b
.l
a
w
d.
a
ne
s
t
a
bl
i
s
he
dpa
t
t
e
r
nofpa
s
tpr
ac
t
i
c
e
Page |9
4
6
.Ac
c
or
di
ngt
oP
AS37
,
pr
ovi
s
i
onsar
eme
a
s
ur
e
da
t
a
.t
hee
nt
i
t
y’
sbe
s
te
s
t
i
ma
t
eoft
hes
e
t
t
l
e
me
nta
mount
.
b
.t
hee
x
pe
c
t
e
dva
l
ueoft
hes
e
t
t
l
e
me
nta
mount
.
c
.t
hemi
dpoi
nta
mountofar
a
ngeofe
s
t
i
ma
t
e
s
.
d. a
nyoft
he
s
e
,
whi
c
he
ve
ri
smos
ta
ppr
opr
i
a
t
e
4
7
.Ac
c
or
di
ngt
oP
AS37
,
apr
o
vi
s
i
ondoe
snota
r
i
s
ef
r
om
a
.r
e
s
t
r
uc
t
ur
i
ng
.
c
.pr
oduc
twar
r
a
nt
i
e
s
.
b
.f
ut
ur
eope
r
a
t
i
ngl
os
s
e
s
.
d.
c
ons
t
r
uc
t
i
veobl
i
ga
t
i
on.
4
8
.Ac
c
or
di
ngt
oP
AS37
,
apr
o
vi
s
i
oni
s
a
. apr
e
s
e
ntobl
i
ga
t
i
ont
ha
tc
a
nnotbeme
as
ur
e
dr
e
l
i
a
bl
y
.
b
. apos
s
i
bl
eobl
i
ga
t
i
ont
ha
ta
r
i
s
e
sf
r
om pa
s
te
ve
nt
s
.
c
. al
i
a
bi
l
i
t
yofunc
e
r
t
a
i
nt
i
mi
ngora
mount
.
d. a
l
loft
he
s
e
4
9
.Ac
c
or
di
ngt
oP
AS37
,
c
ont
i
nge
ntl
i
a
bi
l
i
t
i
e
sa
r
e
a
.r
e
c
ogni
z
e
da
nddi
s
c
l
os
e
d.
b
.a
l
wa
ysdi
s
c
l
os
e
d.
c
. di
s
c
l
os
e
donl
y
,
i
ft
he
i
re
xpe
c
t
e
doc
c
ur
r
e
nc
ei
spr
oba
bl
e
.
d. notdi
s
c
l
os
e
di
ft
he
i
re
x
pe
c
t
e
doc
c
ur
r
e
nc
ei
sr
e
mot
e
.
5
0
.Whi
c
hoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
sc
or
r
e
c
t
?
a
. Apr
ovi
s
i
oni
sr
e
c
ogni
z
e
donl
ywhe
ni
tr
e
pr
e
s
e
nt
sapr
e
s
e
ntobl
i
ga
t
i
on.
b
. Ane
v
e
ntort
r
a
ns
a
c
t
i
ont
ha
tme
e
t
sbot
ht
he“pr
obabl
eout
flow ofe
c
onomi
cbe
ne
fit
s
”a
nd
“
r
e
l
i
a
bl
eme
a
s
ur
e
me
nt
”c
r
i
t
e
r
i
ai
sa
l
wa
ysr
e
c
ogni
z
e
d.
c
. Ac
ont
i
nge
nta
s
s
e
tt
ha
ti
spos
s
i
bl
ei
si
gnor
e
d.
d. Ac
ont
i
nge
ntl
i
a
bi
l
i
t
yt
ha
ti
spos
s
i
bl
ei
si
gnor
e
d.
5
1
.I
n2
0x
1,EXHAUSTI
VE COMPLETE Co.r
e
c
e
i
ve
d ac
our
tor
de
rr
e
qui
r
i
ng t
he c
l
e
a
nup of
e
nvi
r
onme
nt
a
lda
ma
ge
sc
a
us
e
dbyoneofEXHAUSTI
VE’
sf
ac
t
or
y
.EXHAUS
TI
VEha
snoot
he
r
r
e
a
l
i
s
t
i
cal
t
e
r
na
t
i
vebutt
oc
ompl
ywi
t
ht
hec
our
tor
de
r
.Ot
he
re
nt
i
t
i
e
sha
vei
nc
ur
r
e
d ar
ound
₱6
0
Mf
ors
i
mi
l
a
rc
l
e
a
nup;howe
ve
r
,
EXHAUSTI
VE’
sbe
s
te
s
t
i
ma
t
eoft
hec
os
tofc
l
e
a
nupi
s₱8
0M.
Ho
w muc
hi
st
hepr
o
vi
s
i
ont
ober
e
c
ogni
z
e
d?
a
.
6
0
M
b
.
8
0M
c
.7
0
M
d.
0
5
2
.I
n2
0
x1
,LUMI
NOUSSHI
NI
NG Co.r
e
c
a
l
l
e
d apr
oduc
tduet
oapos
s
i
bl
ede
f
e
c
tc
a
us
e
d bya
ma
l
f
unc
t
i
oni
ng f
a
c
t
or
ye
qui
pme
nt
.The pr
oduc
t
sr
e
c
a
l
l
e
d wi
l
lbe r
e
pa
i
r
e
df
r
e
e ofc
ha
r
ge
.
LUMI
NOUSi
sunc
e
r
t
a
i
nwhe
t
he
ra
l
lpr
oduc
t
sr
e
c
a
l
l
e
dwi
l
lha
vet
hepos
s
i
bl
ede
f
e
c
t
.Howe
ve
r
,
t
hef
ol
l
o
wi
nge
s
t
i
ma
t
ewa
smadebyLUMI
NOUS’
se
ngi
ne
e
r
sa
ndma
na
ge
r
i
a
la
c
c
ount
a
nt
sa
nd
a
ppr
ove
dbyt
heboar
dofdi
r
e
c
t
or
s
.
Pr
obabi
l
i
t
Re
pai
rc
os
t
y
8
0
,
0
00
,
0
0
0
5%
6
0
,
0
00
,
0
0
0
20
%
4
0
,
0
00
,
0
0
0
35
%
2
0
,
0
00
,
0
0
0
40
%
1
0
0%
Ho
w muc
hi
st
hepr
o
vi
s
i
ont
ober
e
c
ogni
z
e
d?
a
.
3
8
M
b
.
5
0M
c
.4
8
M
d.
3
2M
P a g e | 10
5
3
.I
n2
0
x1
,a l
a
ws
ui
t was fil
e
da
ga
i
ns
t WI
NSOME CAUSI
NG PLEASURE Co.f
or pa
t
e
nt
i
nf
r
i
nge
me
nt
.Thepl
a
i
nt
i
ffi
sc
l
a
i
mi
ng ₱4
0
0M i
nda
ma
ge
s
.WI
NS
OME’
sl
e
ga
lc
ouns
e
lbe
l
i
e
ve
s
t
ha
ti
ti
spr
obabl
et
ha
tWI
NS
OMEwi
l
ll
os
et
hel
a
ws
ui
ta
ndpa
ydama
g
e
sofnotl
e
s
st
han₱4
0
M
butnotmor
et
ha
n₱4
0
0
M.Thepr
oba
bi
l
i
t
yofa
nyamountwi
t
hi
nt
her
a
ngei
sa
sl
i
ke
l
ya
sany
ot
he
ra
mounta
l
s
owi
t
hi
nt
her
ange
.Thepl
a
i
nt
i
ffha
soffe
r
e
dt
os
e
t
t
l
et
hel
a
ws
ui
toutofc
our
tf
or
₱3
6
0
M butWI
NS
OMEdi
dnota
gr
e
et
ot
hes
e
t
t
l
e
me
nt
.Ho
w muc
hi
spr
ovi
s
i
ont
ober
e
por
t
e
di
n
WI
NSOME’
sy
e
a
r
e
ndfinanc
i
a
ls
t
a
t
e
me
nt
s
?
a
.
3
6
0
M
b
.
2
20
M
c
.
40
0
M
d.
4
0
M
5
4
.A ma
nuf
a
c
t
ur
e
rgi
ve
swar
r
ant
i
e
sa
tt
het
i
meofs
a
l
et
opur
c
ha
s
e
r
sofi
t
spr
oduc
t
.
Unde
rt
het
e
r
ms
oft
hec
ont
r
ac
tofs
a
l
e
,t
hemanuf
a
c
t
ur
e
runde
r
t
a
ke
st
oma
kegood,byr
e
pa
i
rorr
e
pl
a
c
e
me
nt
,
ma
nuf
a
c
t
ur
i
ngde
f
e
c
t
st
ha
tbe
c
omea
ppa
r
e
ntwi
t
hi
noney
e
a
rf
r
om t
heda
t
eofs
al
e
.Ont
heba
s
i
s
ofe
xpe
r
i
e
nc
e
,i
ti
spr
oba
bl
e(
i
.
e
.
,mor
el
i
ke
l
yt
ha
nnot
)t
ha
tt
he
r
ewi
l
lbes
omec
l
a
i
msunde
rt
he
wa
r
r
a
nt
i
e
s
.
S
al
e
sof₱4
0mi
l
l
i
onwe
r
emadee
ve
nl
yt
hr
oughout2
0
X1
.
AtDe
c
e
mbe
r3
1
,2
0
x1t
hee
xpe
ndi
t
ur
e
sf
orwa
r
r
a
nt
yr
e
pa
i
r
sa
ndr
e
pl
a
c
e
me
nt
sf
ort
hepr
oduc
ts
ol
d
i
n2
0
x
1ar
ee
xpe
c
t
e
dt
obema
de5
0% i
n2
0
x
1and5
0
%i
n2
0
x
2
.As
s
umef
ors
i
mpl
i
c
i
t
yt
ha
ta
l
lt
he2
0
x2
out
flowsofe
c
onomi
cbe
ne
fit
sr
e
l
a
t
e
dt
ot
hewa
r
r
a
nt
yr
e
pa
i
r
sa
ndr
e
pl
a
c
e
me
nt
st
a
kepl
a
c
eonJ
une
3
0
,2
0
x
2
.
Ex
pe
r
i
e
nc
ei
ndi
c
a
t
e
st
ha
t9
5
% ofpr
oduc
t
ss
ol
dr
e
qui
r
enowar
r
a
nt
yr
e
pa
i
r
s
;3
% ofpr
oduc
t
ss
ol
d
r
e
qui
r
emi
norr
e
pa
i
r
sc
os
t
i
ng1
0
% oft
hes
a
l
epr
i
c
e
;a
nd2
% ofpr
oduc
t
ss
ol
dr
e
qui
r
ema
j
orr
e
pa
i
r
sor
r
e
pl
a
c
e
me
ntc
os
t
i
ng9
0
% ofs
al
epr
i
c
e
.Thee
nt
i
t
yha
snor
e
as
ont
obe
l
i
e
vef
ut
ur
ewar
r
ant
yc
l
a
i
ms
wi
l
lbedi
ffe
r
e
ntf
r
om i
t
se
xpe
r
i
e
nc
e
.
AtDe
c
e
mbe
r3
1,2
0
x1
,t
hea
ppr
opr
i
a
t
edi
s
c
ountf
a
c
t
orf
orc
a
s
hflo
wse
xpe
c
t
e
dt
ooc
c
uronJ
une3
0,
2
0
x2i
s0
.
9
5
2
38
.Fur
t
he
r
mor
e
,a
nappr
opr
i
a
t
er
i
s
ka
dj
us
t
me
ntf
a
c
t
ort
or
e
fle
c
tt
heunc
e
r
t
a
i
nt
i
e
si
nt
he
c
as
hflow e
s
t
i
ma
t
e
si
sa
ni
nc
r
e
me
ntof6pe
rc
e
ntt
ot
hepr
oba
bi
l
i
t
ywe
i
ght
e
de
xpe
c
t
e
dc
as
hflo
ws
.
Ho
w muc
hi
st
hewar
r
a
nt
ypr
ovi
s
i
ona
tDe
c
e
mbe
r3
1
,
2
0
x1
?
a
.
4
2
4
,
0
0
0
b
.8
4
0
,
0
0
0
b
.
80
0
,
0
0
0
d.
7
5
2
,
0
0
0
Us
et
h
ef
o
l
l
o
wi
n
gi
nf
o
r
ma
t
i
o
nf
o
rt
h
ene
xtt
woq
ue
s
t
i
o
ns
:
RI
SI
BLE FUNNY Co
.pr
o
vi
de
s3ye
a
rwa
r
r
a
nt
yf
ort
hepr
oduc
t
si
ts
e
l
l
s
.RI
SI
BLE e
s
t
i
ma
t
e
st
ha
t
wa
r
r
a
nt
yc
os
t
s₱4
0
0pe
runi
ts
ol
d.AsofJ
anua
r
y1,2
0
x
1
,t
hel
i
a
bi
l
i
t
yf
orwa
r
r
a
nt
yha
saba
l
a
nc
eof
₱8
0
0
,
0
00f
oruni
t
ss
ol
di
n2
0
x0
.Dur
i
ngt
heye
arRI
SI
BLEs
ol
d5
,
0
0
0uni
t
sanda
c
t
ua
lwa
r
r
ant
yc
os
t
s
i
nc
ur
r
e
dwe
r
e₱1
,
24
0
,
0
0
0.
5
5
.Ho
w muc
hi
st
hewa
r
r
a
nt
ye
xpe
ns
et
ober
e
c
ogni
z
e
di
n2
0
x1
?
a
.
2
,
0
0
0
,
0
00
b
.
1
,
2
4
0,
0
0
0 c
.3
,
2
4
0
,
0
0
0 d.
4
,
2
4
0
,
0
0
0
5
6
.Ho
w muc
hi
st
heba
l
a
nc
eoft
hewa
r
r
ant
yobl
i
ga
t
i
ona
sofDe
c
e
mbe
r3
1,
2
0
x1
?
a
.
1
,
5
6
0
,
0
00
b
.
2
,
0
0
0,
0
0
0 c
.3
,
5
6
0
,
0
0
0 d.
2
,
8
0
0
,
0
0
0
5
7
.I
ti
sat
ypeofr
e
t
i
r
e
me
ntpl
anwhe
r
et
hee
mpl
oye
ras
s
ur
e
sade
fini
t
ea
mountofbe
ne
fitt
obe
r
e
c
e
i
ve
d by t
hee
mpl
o
ye
e
.Ther
i
s
kt
ha
tf
undsne
e
de
dt
o pa
yt
hea
gr
e
e
d be
ne
fit
sma
y be
i
ns
uffic
i
e
nti
sr
e
t
a
i
ne
db
yt
hee
mpl
o
ye
r
.
a
. De
fine
dc
ont
r
i
but
i
onpl
a
n
b
. De
fine
dbe
ne
fitpl
a
n
P a g e | 11
c
. Le
c
hepl
a
n
d. Pl
a
nvs
.
z
ombi
e
s
5
8
.Ent
i
t
yA’
se
mpl
oye
e
sa
r
ee
nt
i
t
l
e
dt
os
i
xda
yspa
i
ds
i
c
kl
e
a
ve
spe
rye
a
r
.Anyunus
e
ds
i
c
kl
e
a
vei
s
c
onve
r
t
e
dt
oc
a
s
hwhe
nt
hee
mpl
o
ye
er
e
s
i
gnsorr
e
t
i
r
e
s
.
Thes
i
c
kl
e
a
vebe
ne
fit
sa
r
ec
ons
i
de
r
e
d
a
. ve
s
t
i
ng.
c
.nonac
c
umul
a
t
i
ng.
b
. nonve
s
t
i
ng.
d.
mone
t
i
z
i
ng.
59. Co
mpe
ns
a
t
e
dabs
e
nc
e
st
ha
tc
a
nbec
a
r
r
i
e
df
or
wa
r
da
ndus
e
di
nf
ut
ur
epe
r
i
odsi
fnotf
ul
l
yus
e
di
n
t
hec
ur
r
e
ntpe
r
i
odofe
nt
i
t
l
e
me
nta
r
er
e
f
e
r
r
e
dt
oa
s
a
.c
ont
r
i
but
or
y
.
c
.
a
c
c
umul
a
t
i
ng.
b
. nonc
ont
r
i
but
or
y
.
d.
v
e
s
t
i
ng
.
6
0
.Unde
rapr
ofit
s
ha
r
i
ngpl
a
n,Ent
i
t
yA a
gr
e
e
st
opa
yi
t
se
mpl
o
ye
e
s5
% ofi
t
sa
nnua
lpr
ofit
.The
bonuss
ha
l
lbedi
vi
de
da
mong t
hee
mpl
o
ye
e
sc
ur
r
e
nt
l
ye
mpl
o
ye
da
sa
tye
a
r
e
nd.Re
l
e
va
nt
i
nf
or
ma
t
i
onf
ol
l
ows
:
Pr
ofitf
ort
hey
e
a
r
Empl
o
ye
e
sa
tt
hebe
gi
nni
ngoft
heye
a
r
Ave
r
a
gee
mpl
o
ye
e
sdur
i
ngt
hey
e
a
r
Empl
o
ye
e
sa
tt
hee
ndoft
hey
e
a
r
₱8
,
0
00
,
0
0
0
8
7
6
I
fyoua
r
eoneoft
hee
mpl
oye
e
sofEnt
i
t
yA,how muc
hbonusdoyoue
x
pe
c
tt
or
e
c
e
i
ve
?
a
.6
6
,
66
7
c
.5
0
,
0
0
0
b
.5
7
,
14
3
d.
0
6
1
.Unde
rt
hi
spos
t
e
mpl
oyme
ntbe
ne
fitpl
a
n,t
her
e
t
i
r
e
me
ntbe
ne
fitc
os
ti
se
qua
lt
ot
hec
ont
r
i
but
i
on
duef
ort
hepe
r
i
od.
a
. De
fine
dc
ont
r
i
but
i
onpl
a
n
c
.S
t
a
t
epl
a
n
b
. De
fine
dbe
ne
fitpl
a
n
d.
Mul
t
i
e
mpl
oye
rpl
a
n
6
2
.WASTRELSPENDTHRI
FTCo.pa
yss
a
l
ar
i
e
st
wi
c
eamont
ha
nddoe
snotpa
ys
al
a
r
i
e
si
na
dva
nc
e
.
Empl
o
ye
e
swor
kfiveda
ysawe
e
ka
ndc
ompe
ns
a
t
i
ona
r
ec
omput
e
dont
he
s
ewor
ki
ngda
ys
.I
n
De
c
e
mbe
r20
x
1,WAS
TRELCo.pa
i
dt
hes
e
c
onds
e
mi
mont
hl
ys
a
l
a
r
i
e
sonDe
c
e
mbe
r2
6whi
c
h
f
a
l
l
son aFr
i
da
y
.Thene
x
tnonwor
ki
ng hol
i
da
yi
son Ne
w Ye
ar
’
sDa
y
.WAS
TREL ha
s1
0
0
e
mpl
oye
e
swhoe
a
r
n₱4
,
0
0
0pe
rda
y
.WAS
TREL’
sc
os
ta
c
c
ount
a
nti
de
nt
i
fie
dt
ha
t7
0
% ofs
al
a
r
i
e
s
i
nc
ur
r
e
dpe
r
t
a
i
nt
ot
hepr
oduc
t
i
onofgoods
.Ho
w muc
hi
st
hea
c
c
r
ue
ds
a
l
a
r
i
e
sa
sofDe
c
e
mbe
r
3
1
,2
0
x
1
?
a
.
3
6
0
,
0
0
0
b
.
84
0
,
0
0
0
c
.1
,
6
0
0
,
0
0
0 d.
1
,
2
0
0
,
0
0
0
6
3
.Ane
nt
i
t
yha
s10
0e
mpl
o
ye
e
s
,whoa
r
ee
a
c
he
nt
i
t
l
e
dt
ofive(
5
)wor
ki
ngda
ysofpa
i
ds
i
c
kl
e
a
vef
or
e
a
c
hye
a
r
.Unus
e
ds
i
c
kl
e
a
vema
ybec
a
r
r
i
e
df
or
wa
r
df
oronec
a
l
e
nda
ry
e
a
r
.S
i
c
kl
e
a
vei
st
a
ke
n
fir
s
toutoft
hec
ur
r
e
ntye
a
r
’
se
nt
i
t
l
e
me
nta
ndt
he
noutofa
nyba
l
anc
ebr
oughtf
or
wa
r
df
r
om t
he
pr
e
vi
ousy
e
a
r(
aLI
FO ba
s
i
s
)
.AtDe
c
e
mbe
r30
,2
0
x1
,t
hea
ve
r
a
geunus
e
de
nt
i
t
l
e
me
nti
st
woda
ys
pe
re
mpl
o
ye
e
.Thee
nt
i
t
ye
x
pe
c
t
s
,ba
s
e
donpas
te
x
pe
r
i
e
nc
ewhi
c
hi
se
x
pe
c
t
e
dt
oc
ont
i
nue
,t
ha
t9
2
e
mpl
oye
e
swi
l
lt
akenomor
et
ha
nfiveda
ysofpa
i
ds
i
c
kl
e
a
vei
n20
x
2a
ndt
ha
tt
her
e
ma
i
ni
ng8
e
mpl
oye
e
swi
l
lt
a
kea
na
v
e
r
a
geofs
i
xa
ndaha
l
fda
yse
a
c
h.Thea
ve
r
a
ges
a
l
a
r
ype
rda
y
,pe
r
e
mpl
oye
ei
n2
0
x1i
s₱4
,
0
0
0a
ndi
ti
snote
xpe
c
t
e
dt
oc
ha
ngei
n2
0
x
2.Ho
w muc
hi
st
heac
c
r
ue
d
s
al
a
r
i
e
sa
sofDe
c
e
mbe
r31
,
2
0
x1
?
a
.
2
4
,
0
0
0
b
.
48
,
0
0
0
c
.2
0
8
,
0
0
0
d.
0
P a g e | 12
6
4
.OnJ
a
nua
r
y1
,2
0x
1,P
AGEANTSHOW Co
.i
s
s
ue
d1
0
%,₱1
2
,
0
0
0,
0
0
0bondsa
tayi
e
l
dt
oma
t
ur
i
t
y
i
nt
e
r
e
s
tof1
8
%.Pr
i
nc
i
pa
la
ndi
nt
e
r
e
s
ta
r
edueonDe
c
e
mbe
r3
1
,2
0
x
3.How muc
hi
st
hec
ar
r
yi
ng
a
mountoft
hebondsoni
ni
t
i
a
lr
e
c
ogni
t
i
on?
a
.
1
5
,
9
7
2,
0
0
0
b
.
9
,
7
21
,
0
5
2 c
.
9,
0
2
8
,
3
41 d.
9
,
1
8
3
,
27
3
6
5
.OnJ
a
nuar
y1
,2
0
x
1,VI
GI
LANTWATCHFULCo.i
s
s
ue
di
t
s10
%,3
ye
a
r
,₱4
,
0
0
0,
0
0
0c
onve
r
t
i
bl
e
bondsf
ort
hef
a
c
ea
mountof₱4
,
0
0
0
,
0
0
0.Ea
c
h₱4
,
0
0
0bondi
sc
onve
r
t
i
bl
ei
nt
o8s
har
e
swi
t
hpa
r
va
l
ueof₱40
0pe
rs
ha
r
e
.Whe
nt
hebondswe
r
ei
s
s
ue
d,t
he
ywe
r
es
e
l
l
i
ng a
t9
8wi
t
houtt
he
c
onve
r
s
i
onopt
i
on.VI
GI
LANT i
nc
ur
r
e
d ₱20
0
,
0
0
0t
r
a
ns
a
c
t
i
onc
os
t
sont
hei
s
s
ueoft
hebonds
.
Ho
w muc
hi
st
hee
qui
t
yc
ompone
ntoft
hec
ompoundi
ns
t
r
ume
nt
?
a
.
8
0
,
0
0
0
b
.
20
0
,
0
0
0
c
.7
6
,
0
0
0
d.
1
2
3
,
4
8
9
6
6
.On J
a
nua
r
y1
,2
0x
1,CRYS
TALLI
NE TRANS
P
ARENT Co.i
s
s
ue
di
t
s10
%,3ye
a
r
,₱4,
0
0
0,
0
0
0
c
onve
r
t
i
bl
ebondsa
t1
0
5
.Ea
c
h₱4
,
0
0
0bondi
sc
onve
r
t
i
bl
ei
nt
o8s
har
e
swi
t
hpa
rva
l
uepe
rs
ha
r
e
of₱4
00
.Pr
i
nc
i
pa
li
sdueonDe
c
e
mbe
r3
1,2
0
x
3buti
nt
e
r
e
s
t
sa
r
eduea
nnual
l
ya
te
a
c
hy
e
a
r
e
nd.
Whe
nt
hebondswe
r
ei
s
s
ue
d,t
he
ywe
r
es
e
l
l
i
nga
tayi
e
l
dt
oma
t
ur
i
t
yma
r
ke
tr
a
t
eof1
2
%wi
t
hout
t
hec
onve
r
s
i
on opt
i
on.On De
c
e
mbe
r31
,20
x2
,a
l
loft
hebondswe
r
ec
onve
r
t
e
di
nt
oe
qui
t
y
.
Conve
r
s
i
onc
os
t
si
nc
ur
r
e
da
mount
e
dt
o₱8
0
,
0
0
0
.
Ho
w muc
hi
st
hene
ti
nc
r
e
as
ei
ne
qui
t
yon De
c
e
mbe
r3
1
,2
0x
2duet
ot
hec
onve
r
s
i
onoft
he
bonds
?
a
.
3
,
3
9
2
,
1
48
+b
.
3
,
2
3
4,
9
9
8 c
.3
,
8
9
4
,
7
5
9 d.
3
,
8
4
8
,
5
7
1
Us
et
h
ef
o
l
l
o
wi
n
gi
nf
o
r
ma
t
i
o
nf
o
rt
h
ene
xtt
hr
e
eq
ue
s
t
i
o
ns
:
OnJ
a
nua
r
y1,2
0
x1
,ELABORATECOMPLI
CATED Co.i
s
s
ue
d3
ye
a
r
,1
0%,₱4
,
0
0
0
,
0
00c
onve
r
t
i
bl
e
bondsf
or₱4
,
4
0
0
,
00
0
.Pr
i
nc
i
pa
li
sduea
tma
t
ur
i
t
ybuti
nt
e
r
e
s
ti
spa
ya
bl
ee
v
e
r
yy
e
a
r
e
nd.Thebonds
a
r
ec
onve
r
t
i
bl
ei
nt
o6,
0
0
0or
di
na
r
ys
ha
r
e
swi
t
hpa
rva
l
ueof₱4
0
0
.Ati
s
s
ua
nc
eda
t
e
,t
hepr
e
va
i
l
i
ng
ma
r
ke
tr
a
t
eofi
nt
e
r
e
s
tf
ors
i
mi
l
a
rde
btwi
t
houtc
onve
r
s
i
onf
e
a
t
ur
ei
s1
2
%.
OnDe
c
e
mbe
r3
1,2
0
x2
,a
l
lt
hec
onv
e
r
t
i
bl
ebondswe
r
er
e
t
i
r
e
df
or₱4
,
0
0
0
,
0
00
.Thepr
e
v
ai
l
i
ngr
a
t
eof
i
nt
e
r
e
s
tonas
i
mi
l
a
rde
bti
ns
t
r
ume
ntasofDe
c
e
mbe
r3
1
,
2
0
x2i
s1
1% wi
t
houtt
hec
onv
e
r
s
i
onf
e
a
t
ur
e
.
6
7
.Ho
w muc
hi
sga
i
n(
l
os
s
)ont
hee
x
t
i
ngui
s
hme
ntoft
hebondsonDe
c
e
mbe
r31
,
2
0x
2
?
a
.
3
5
,
3
9
2
b
.
(
3
5
,
3
9
2)
c
.3
2
,
4
1
3
d.
(
32
,
4
1
3)
6
8
.Ho
w muc
hi
st
hene
tc
r
e
di
tt
o“
s
ha
r
epr
e
mi
um”ac
c
ountonDe
c
e
mbe
r3
1,
2
0
x2
?
a
.
5
5
6
,
1
1
0
b
.
54
1
,
1
6
7
c
.5
1
4
,
5
7
1
d.
5
5
7,
3
6
8
6
9
.Ho
w muc
hi
st
hene
ti
nc
r
e
a
s
e(
de
c
r
e
a
s
e
)i
ne
qui
t
y duet
ot
her
e
t
i
r
e
me
ntoft
hebondson
De
c
e
mbe
r31
,
2
0
x2?
a
.
(
36
,
0
36
)
b
.
36
,
0
3
6
c
.(
5
92
,
1
4
8) d.
0
7
0
.Themot
he
rofa
c
c
ount
i
ngi
s
a
. Mr
s
.F
r
aLukaGa
ga
b
. Ac
c
ount
a
ntMa
ma
c
. MommyS
ho
wpa
o
d. Noneoft
he
s
e
“Consider it pure joy, my brothers and sisters, whenever you face trials of many
kinds, because you know that the testing of your faith produces perseverance.”(James
1
:
23
)
- END -
Page|1
Chapter 25
Bonds Payable & Other Concepts
NAME:LOVERSMAEB.BASERGO
Pr
of
e
s
s
or
:MRS.GWENDOLYN HOLLANES
Sec
t
i
on:
2
0
A00
3
Da
t
e:J
AN.2
9,
2
02
1
Sc
or
e:
QUI
Z1:
1
. Ther
e
s
ul
tont
heye
ar
e
ndbal
anc
es
he
e
tofani
s
s
ueofa1
0ye
art
e
r
m bonds
ol
da
tf
ac
eamount
f
ourye
a
r
sa
gowi
t
hi
nt
e
r
e
s
tpa
ya
bl
eJ
une1a
ndDe
c
e
mbe
r1e
a
c
hye
ar
,i
sa
(
an)
a
.
l
i
abi
l
i
t
yf
ora
c
c
r
ue
di
nt
e
r
e
s
t
c
.i
nc
r
e
as
ei
nde
f
e
r
r
e
dc
ha
r
ge
s
b
.a
ddi
t
i
ont
obondspa
ya
bl
e
d.
c
ont
i
nge
ntl
i
a
bi
l
i
t
y
2
. Unamor
t
i
z
e
dbonddi
s
c
ounts
houl
dber
e
por
t
e
dont
hefinanc
i
a
ls
t
a
t
e
me
nt
soft
hei
s
s
ue
rasa
a
. Di
r
e
c
tde
duc
t
i
onf
r
om t
hef
ac
ea
mountoft
hebond
b
. Di
r
e
c
tde
duc
t
i
onf
r
om t
hepr
e
s
e
ntval
ueoft
hebond
c
. De
f
e
r
r
e
dc
har
ge
d. Pa
r
toft
hei
s
s
uec
os
t
s
3
. St
r
ai
ght
l
i
neamor
t
i
z
a
t
i
onofbondpr
e
mi
um ordi
s
c
ount
:
a
.c
a
nbeus
e
da
sa
nopt
i
onalme
t
hodofamor
t
i
z
a
t
i
oni
na
l
ls
i
t
ua
t
i
ons
.
b
. pr
ovi
de
st
hes
a
met
ot
ala
mountofi
nt
e
r
e
s
te
xpe
ns
eand i
nt
e
r
e
s
tr
e
ve
nuea
st
hee
ffe
c
t
i
ve
i
nt
e
r
e
s
tme
t
hodove
rt
hel
i
f
eoft
hebonds
.
c
. pr
ovi
de
st
hes
amea
mount
sofi
nt
e
r
e
s
te
xpe
ns
eandi
nt
e
r
e
s
tr
e
ve
nuee
ac
hi
nt
e
r
e
s
tpe
r
i
odas
t
hee
ffe
c
t
i
vei
nt
e
r
e
s
tme
t
hod.
d. i
sa
ppr
opr
i
a
t
ewhe
nt
hebondt
e
r
mi
se
s
pe
c
i
al
l
yl
ong.
e
.i
sa
ppr
opr
i
a
t
ef
orde
e
pdi
s
c
ountbonds
.
4
. Forabondi
s
s
uewhi
c
hs
e
l
l
sf
orl
e
s
st
hani
t
sf
a
c
ea
mount
,
t
hemar
ke
tr
a
t
eofi
nt
e
r
e
s
ti
s
a
. De
pe
nde
ntont
her
a
t
es
t
a
t
e
dont
hebond.
b
. Equalt
or
a
t
es
t
a
t
e
dont
hebond.
c
. Le
s
st
hanr
a
t
es
t
a
t
e
dont
hebond.
d. Hi
ghe
rt
ha
nr
a
t
es
t
a
t
e
dont
hebond.
5
. Themar
ke
tpr
i
c
eofabondi
s
s
ue
da
tadi
s
c
ounti
st
hepr
e
s
e
ntva
l
ueofi
t
spr
i
nc
i
pa
la
mounta
tt
he
mar
ke
t(
e
ffe
c
t
i
ve
)r
a
t
eofi
nt
e
r
e
s
t
a
. Le
s
st
hepr
e
s
e
ntva
l
ueofa
l
lf
ut
ur
ei
nt
e
r
e
s
tpa
yme
nt
sa
tt
hemar
ke
t(
e
ffe
c
t
i
ve
)r
a
t
eofi
nt
e
r
e
s
t
.
b
. Le
s
st
hepr
e
s
e
ntv
al
ueofa
l
lf
ut
ur
ei
nt
e
r
e
s
tpa
yme
nt
sa
tt
her
a
t
eofi
nt
e
r
e
s
ts
t
a
t
e
d ont
he
bond.
c
. Pl
ust
hepr
e
s
e
ntva
l
ueofa
l
lf
ut
ur
ei
nt
e
r
e
s
tpa
yme
nt
sa
tt
hemar
ke
t(
e
ffe
c
t
i
ve
)r
a
t
eofi
nt
e
r
e
s
t
.
d. Pl
ust
hepr
e
s
e
ntva
l
ueofa
l
lf
ut
ur
ei
nt
e
r
e
s
tpa
yme
nt
sa
tt
her
a
t
eofi
nt
e
r
e
s
ts
t
a
t
e
d ont
he
bond.
6
. Whi
c
hoft
hef
ol
l
o
wi
ngi
snotar
e
l
e
va
ntc
ons
i
de
r
a
t
i
onwhe
ne
va
l
ua
t
i
ngwhe
t
he
rt
ode
r
e
c
ogni
zea
financ
i
all
i
a
bi
l
i
t
y
?
a
. Whe
t
he
rt
heobl
i
ga
t
i
onha
sbe
e
ndi
s
c
har
ge
d.
b
. Whe
t
he
rt
heobl
i
ga
t
i
onha
sbe
e
nc
a
nc
e
l
e
d.
c
. Whe
t
he
rt
heobl
i
ga
t
i
onha
se
xpi
r
e
d.
d. Whe
t
he
rs
ubs
t
ant
i
a
l
l
ya
l
lt
her
i
s
ksandr
e
war
dsoft
heobl
i
ga
t
i
onha
vebe
e
nt
r
a
ns
f
e
r
r
e
d.
Page|2
7
. Wha
ti
st
hee
ffe
c
t
i
vei
nt
e
r
e
s
tr
a
t
eofabondorot
he
rde
bti
ns
t
r
ume
ntme
a
s
ur
e
da
tamor
t
i
z
e
dc
os
t
?
a
. Thes
t
a
t
e
dc
ouponr
a
t
eoft
hede
bti
ns
t
r
ume
nt
.
b
. Thei
nt
e
r
e
s
tr
a
t
ec
ur
r
e
nt
l
yc
har
ge
db
yt
hee
nt
i
t
yorbyot
he
r
sf
ors
i
mi
l
arde
bti
ns
t
r
ume
nt
s
(
i
.
e
.
,s
i
mi
l
a
rr
e
mai
ni
ng ma
t
ur
i
t
y
,c
as
h flow pa
t
t
e
r
n,c
ur
r
e
nc
y
,c
r
e
di
tr
i
s
k,c
ol
l
a
t
e
r
al
,a
nd
i
nt
e
r
e
s
tba
s
i
s
)
.
c
. Thei
nt
e
r
e
s
tr
a
t
et
ha
te
xa
c
t
l
ydi
s
c
ount
se
s
t
i
ma
t
e
df
ut
ur
ec
as
hpa
yme
nt
sorr
e
c
e
i
pt
st
hr
ough
t
hee
x
pe
c
t
e
dl
i
f
eoft
hede
bti
ns
t
r
ume
ntor
,whe
na
ppr
opr
i
a
t
e
,as
hor
t
e
rpe
r
i
odt
ot
hene
t
c
a
r
r
yi
nga
mountoft
hei
ns
t
r
ume
nt
.
d. Thebas
i
c
,
r
i
s
k
f
r
e
ei
nt
e
r
e
s
tr
a
t
et
ha
ti
sde
r
i
ve
df
r
om obs
e
r
vabl
egov
e
r
nme
ntbondpr
i
c
e
s
.
8
. Whi
c
hoft
hef
ol
l
owi
ngs
t
a
t
e
me
nt
si
sf
al
s
e
?
a
. Bondsc
ar
r
ynoc
or
por
a
t
eowne
r
s
hi
ppr
i
vi
l
e
ge
s
.
b
. Abondi
safina
nc
i
alc
ont
r
a
c
t
.
c
. Bondpr
i
c
e
sr
e
ma
i
nfix
e
do
ve
rt
i
me
.
d. Abondi
s
s
ue
rmus
tpa
ype
r
i
odi
ci
nt
e
r
e
s
t
.
9
. Mos
tbonds
:
a
.a
r
emone
ymar
k
e
ts
e
c
ur
i
t
i
e
s
.
b
.a
r
efloa
t
i
ng
r
a
t
es
e
c
ur
i
t
i
e
s
.
c
. gi
vebondhol
de
r
savoi
c
ei
nt
hea
ffa
i
r
soft
hec
or
por
a
t
i
on.
d. a
r
ei
nt
e
r
e
s
t
be
a
r
i
ngobl
i
ga
t
i
onsofgove
r
nme
nt
sorc
or
por
a
t
i
ons
.
1
0.I
na
n“
a
s
s
e
ts
wa
p,
”whe
r
eal
i
abi
l
i
t
yi
ss
e
t
t
l
e
dt
hr
ought
het
r
a
ns
f
e
rofnonc
as
has
s
e
t
,
a
.t
hega
i
norl
os
sons
e
t
t
l
e
me
nti
sc
omput
e
da
st
hedi
ffe
r
e
nc
ebe
t
we
e
nt
hec
a
r
r
yi
ngamountof
t
hel
i
abi
l
i
t
ye
xt
i
ngui
s
he
dandt
hef
a
i
rva
l
ueoft
henonc
a
s
ha
s
s
e
tt
r
a
ns
f
e
r
r
e
d.
b
.t
hega
i
norl
os
sons
e
t
t
l
e
me
nti
sc
omput
e
da
st
hedi
ffe
r
e
nc
ebe
t
we
e
nt
hec
a
r
r
yi
ngamountof
t
hel
i
abi
l
i
t
ye
xt
i
ngui
s
he
dandt
hec
a
r
r
yi
nga
mountoft
henonc
a
s
ha
s
s
e
tt
r
a
ns
f
e
r
r
e
d.
c
.t
hega
i
norl
os
sons
e
t
t
l
e
me
nti
sc
omput
e
da
st
hedi
ffe
r
e
nc
ebe
t
we
e
nt
hec
a
r
r
yi
ngamountof
t
hel
i
a
bi
l
i
t
ye
xt
i
ngui
s
he
dandt
hemor
ec
l
e
a
r
l
yde
t
e
r
mi
na
bl
ebe
t
we
e
nt
hef
ai
rval
ueoft
he
l
i
a
bi
l
i
t
ye
xt
i
ngui
s
he
da
ndt
hec
ar
r
yi
nga
mountoft
henonc
as
has
s
e
tt
r
ans
f
e
r
r
e
d.
d. noga
i
norl
os
si
sr
e
c
ogni
ze
d
“There is a time for everything, and a season for every activity under the heavens;”
(Ecclesiastes 3:1)
- END –
NAME:
LOVERSMAEBASERGO
Pr
of
e
s
s
or
:MRS.GWENDOLYN HOLLANES
Sec
t
i
on:
2
0
A00
3
Da
t
e:
J
AN.2
9
,
2
02
1
Sc
or
e:
QUI
Z2:
1
. OnJ
a
nua
r
y2
,2
0
x1
,Na
s
tCo.i
s
s
ue
d8
% bondswi
t
haf
a
c
ea
mountof₱1
,
00
0
,
0
00t
ha
tma
t
ur
eon
J
anua
r
y2,2
0x
7.Thebondswe
r
ei
s
s
ue
dt
oyi
e
l
d12
%,r
e
s
ul
t
i
ngi
nadi
s
c
ountof₱1
50
,
00
0
.Na
s
t
i
nc
or
r
e
c
t
l
yus
e
dt
hes
t
r
ai
ght
l
i
neme
t
hodi
ns
t
e
a
doft
hee
ffe
c
t
i
vei
nt
e
r
e
s
tme
t
hodt
oamor
t
i
z
et
he
di
s
c
ount
.How i
st
hec
ar
r
yi
nga
mountoft
hebondsa
ffe
c
t
e
db
yt
hee
r
r
or
?
AtDe
c
.3
1,
2
0
x1 AtJ
an.2
,2
0
x7 AtDe
c
.3
1
,2
0x
1 AtJ
an.2
,2
0
x7
a
.
Ove
r
s
t
a
t
e
d
Unde
r
s
t
a
t
e
d c
.Unde
r
s
t
a
t
e
d
Ove
r
s
t
a
t
e
d
Page|3
b
.Ove
r
s
t
a
t
e
d
Noe
ffe
c
t
d.Unde
r
s
t
a
t
e
d
Solution:
EFFECT ON DECEMBER 31, 20X1:
Using straight line method:
Discount on bonds - 1/2/x1
Divide by: Term
Annual amortization of discount
Noe
ffe
c
t
150,000
6
25,000
Discount on bonds - 1/2/x1
Amortization - 20x1
Discount on bonds - 12/31/x1
150,000
(25,000)
125,000
Face amount
Discount on bonds - 12/31/x1
Carrying amount - 12/31/x1
1,000,000
(125,000)
875,000
Using effective interest method:
Date
Interest expense
1/2/x1
12/31/x1
102,000
Payments
Amortization
80,000
22,000
Carrying amounts - 12/31/x1:
Straight line (erroneous)
Effective interest method
Difference - overstatement
Present Value
850,000
872,000
875,000
872,000
(3,000)
J
an2
,
20
x7
The
r
ewi
l
lbenoe
ffe
c
tbe
c
a
us
et
hedi
s
c
ountwoul
dha
vebe
l
lf
ul
l
ya
mor
t
i
z
e
dunde
rs
t
r
ai
ghtl
i
nea
nd
e
ffe
c
t
i
vei
nt
e
r
e
s
tme
t
hod.
2
. OnJ
ul
y1,20
0
3
,af
t
e
rr
e
c
or
di
ngi
nt
e
r
e
s
ta
nda
mor
t
i
z
a
t
i
on,Yor
kCo
.c
onve
r
t
e
d ₱1,
0
00
,
00
0ofi
t
s
1
2% c
onve
r
t
i
bl
ebondsi
nt
o5
0
,
0
00s
har
e
sof₱1pa
rval
ueor
di
na
r
ys
har
e
.Ont
hec
onve
r
s
i
onda
t
e
t
hec
ar
r
yi
ngamountoft
hebondswa
s₱1
,
3
0
0,
0
00
,t
hef
a
i
rva
l
ueoft
hebondswa
s₱1
,
4
0
0,
00
0
,
a
ndYor
k’
sor
di
nar
ys
ha
r
ewa
spubl
i
c
l
yt
r
adi
nga
t₱3
0pe
rs
har
e
.Wha
ta
mountofs
har
epr
e
mi
um
s
houl
dYor
kr
e
c
or
da
sar
e
s
ul
toft
hec
onve
r
s
i
on?
a
.
9
50
,
0
0
0
b
.1
,
2
5
0,
00
0 c
.1
,
3
5
0,
00
0 d.
1
,
5
00
,
0
0
0
Solution:
Carrying amount of bonds converted
1,300,000
Par value of shares issued (50,000 x 1)
(50,000)
Share premium
1,250,000
3
. OnApr
i
l3
0,2
0
x5
,Wi
t
tCor
p.ha
dout
s
t
a
ndi
ng8%,₱1,
00
0
,
0
0
0f
a
c
ea
mount
,c
onve
r
t
i
bl
ebonds
ma
t
ur
i
ngonApr
i
l30
,2
0x
9.I
nt
e
r
e
s
ti
spa
yabl
eonApr
i
l30a
ndOc
t
obe
r31
.OnApr
i
l3
0
,2
0
x5
,al
l
t
he
s
ebondswe
r
ec
onve
r
t
e
di
nt
o 40
,
00
0s
har
e
sof₱2
0 pa
ror
di
nar
ys
har
e
.On t
heda
t
eof
c
onve
r
s
i
on:
 Una
mor
t
i
z
e
dbonddi
s
c
ountwa
s₱3
0
,
0
00
.
Page|4


Ea
c
hbondha
daf
a
i
rva
l
ueof₱1,
0
80
.
Ea
c
hs
ha
r
eofs
t
oc
khadaf
ai
rva
l
ueof₱28
.
Wha
tamounts
houl
dWi
t
tr
e
c
or
da
sal
os
sonc
onve
r
s
i
onofbonds
?
a
.
1
50
,
0
0
0
b
.1
10
,
00
0
c
.3
0
,
0
00
d.
0
Expl
a
na
t
i
on:when convertible bonds are converted into equity instrument no gain or loss is
recognized
4
. Ra
yCor
p.i
s
s
ue
dbondswi
t
haf
ac
eamountof₱2
0
0,
00
0
.Eac
h₱1
,
0
0
0bondc
ont
a
i
ne
dde
t
ac
ha
bl
e
s
t
oc
kwa
r
r
ant
sf
or10
0s
ha
r
e
sofRa
y'
sc
ommons
t
oc
k.Tot
alpr
oc
e
e
dsf
r
om t
hei
s
s
ueamount
e
dt
o
₱2
4
0,
00
0
.Thef
ai
rva
l
ueofe
ac
hwa
r
r
antwa
s₱2
,andt
hef
ai
rva
l
ueoft
hebondswi
t
houtt
he
war
r
ant
swa
s₱1
9
6,
00
0
.Thebondswe
r
ei
s
s
ue
da
tadi
s
c
ountof
a
.
0
b
.6
78
c
.4
,
0
0
0
d.
3
3,
89
8
Solution:
Fair value of bonds without the warrants
196,000
Face amount of bonds
200,000
Discount on bonds
(4,000)
5
. OnJ
une3
0,20
x
9,Ki
ngCo.ha
dout
s
t
andi
ng9%,₱5,
0
00
,
0
0
0f
ac
eval
uebondsma
t
ur
i
ngonJ
une
3
0,2
x1
4
.I
nt
e
r
e
s
twa
spa
ya
bl
es
e
mi
a
nnua
l
l
ye
ve
r
yJ
une3
0andDe
c
e
mbe
r3
1.OnJ
une3
0
,2
0x
9
,
a
f
t
e
ra
mor
t
i
z
a
t
i
onwa
sr
e
c
or
de
df
ort
hepe
r
i
od,t
heuna
mor
t
i
z
e
dbondpr
e
mi
um a
ndbondi
s
s
ue
c
os
t
swe
r
e₱3
0
,
0
0
0a
nd ₱5
0,
0
00
,r
e
s
pe
c
t
i
ve
l
y
.Ont
ha
tda
t
e
,Ki
nga
c
qui
r
e
d al
li
t
sout
s
t
a
ndi
ng
bondsont
heope
nmar
ke
ta
t98a
ndr
e
t
i
r
e
dt
he
m.AtJ
une3
0,2
0
x9
,wha
tamounts
houl
dKi
ng
r
e
c
ogni
zea
sga
i
nonr
e
de
mpt
i
onofbonds
?
a
.
2
0,
00
0
b
.8
0,
0
00
c
.1
2
0,
00
0
d.
1
80
,
0
0
0
Solution:
Redemption price (5M x 98%)
4,900,000
Less: Carrying amount of bonds:
Face amount
5,000,000
Unamortized premium
30,000
Unamortized issue costs
(50,000)
4,980,000
Gain on retirement
80,000
6
. OnJ
ul
y3
1,
20
x0
,DomeCo.i
s
s
ue
d₱1,
00
0
,
0
0
0of1
0
%,1
5
ye
arbondsa
tpa
ra
ndus
e
dapor
t
i
onof
t
hepr
oc
e
e
dst
oc
a
l
li
t
s6
00out
s
t
andi
ng1
1%,₱1
,
0
00f
a
c
eva
l
uebonds
,dueonJ
ul
y3
1,2
x1
0
,a
t
1
02
.
Ont
ha
tda
t
e
,unamor
t
i
z
e
dbondpr
e
mi
um r
e
l
a
t
i
ngt
ot
he11
% bondswas₱6
5,
00
0
.I
ni
t
s2
0x
0
i
nc
omes
t
a
t
e
me
nt
,wha
tamounts
houl
dDomer
e
por
ta
sgai
norl
os
s
,be
f
or
ei
nc
omet
ax
e
s
,f
r
om
r
e
t
i
r
e
me
ntofbonds
?
a
.
5
3,
00
0gai
n
b
.0
c
.
(
6
5
,
0
0
0)l
os
s
d.(
7
7,
0
00
)l
os
s
Solution:
Redemption price (600 x 1,000 x 102%)
612,000
Less: Carrying amount of bonds:
Face amount (600 x 1,000)
600,000
Unamortized premium
65,000
665,000
Gain on retirement
53,000
7
. Dur
i
ng20
x
4Pe
t
e
r
s
onCompa
nye
xpe
r
i
e
nc
e
dfina
nc
i
a
ldi
ffic
ul
t
i
e
sa
ndi
sl
i
ke
l
yt
ode
f
a
ul
tona
₱5
0
0,
00
0
,15
%,t
hr
e
e
ye
a
rnot
eda
t
e
dJ
a
nuar
y1
,2
0
X2,pa
ya
bl
et
oFor
e
s
tNa
t
i
onalBa
nk.On
De
c
e
mbe
r3
1
,2
0X4,
t
hebanka
gr
e
e
dt
os
e
t
t
l
et
henot
ea
ndunpai
di
nt
e
r
e
s
tof₱75
,
00
0f
or2
0X4f
or
₱5
0,
0
00 c
as
ha
nd mar
ke
t
abl
es
e
c
ur
i
t
i
e
sha
vi
ng a c
a
r
r
yi
ng a
mountof₱37
5
,
0
0
0.Pe
t
e
r
s
on'
s
Page|5
a
c
qui
s
i
t
i
onc
os
toft
hes
e
c
ur
i
t
i
e
si
s₱38
5
,
0
0
0.Wha
tamounts
houl
dPe
t
e
r
s
onr
e
por
tasagai
nf
r
om
t
hede
btr
e
s
t
r
uc
t
ur
i
ngi
ni
t
s2
0
x4i
nc
omes
t
a
t
e
me
nt
?
a
.
6
5,
00
0
b
.7
5,
0
00
c
.1
4
0,
00
0
d.
1
50
,
0
0
0
Solution:
Payment for the liability:
Cash
50,000
Carrying amount of investment securities
375,000
425,000
Carrying amount of liability settled:
Principal
500,000
Accrued interest
75,000
575,000
Gain on settlement
150,000
8
. Cas
e
yCor
por
a
t
i
one
nt
e
r
e
di
nt
oat
r
oubl
e
dde
btr
e
s
t
r
uc
t
ur
i
nga
gr
e
e
me
ntwi
t
hFi
r
s
tS
t
a
t
eBa
nk.
Fi
r
s
tSt
a
t
ea
gr
e
e
dt
oa
c
c
e
ptl
a
ndwi
t
hac
a
r
r
yi
nga
mountof₱8
5,
0
00a
ndaf
ai
rval
ueof₱1
20
,
00
0
i
ne
x
c
hangef
oranot
ewi
t
hac
a
r
r
yi
nga
mountof₱1
8
5,
00
0
.Wha
tamounts
houl
dCa
s
e
yr
e
por
ta
s
ga
i
ni
ni
t
si
nc
omes
t
a
t
e
me
nt
?
a
.
0
b
.3
5,
0
00
c
.6
5
,
0
00
d.
1
00
,
0
0
0
Solution:
=carrying amt. of note - carrying amt. of land
=185,000 -85,000 = 100,000 gain
9
. WoodCor
p.
,ade
bt
orunde
r
goi
ngfina
nc
i
aldi
ffic
ul
t
i
e
sgr
ant
e
da
ne
qui
t
yi
nt
e
r
e
s
tt
oac
r
e
di
t
ori
n
f
ul
ls
e
t
t
l
e
me
ntofa₱2
8,
0
00de
btowe
dt
ot
hec
r
e
di
t
or
.Att
heda
t
eoft
hi
st
r
a
ns
a
c
t
i
on,t
hee
qui
t
y
i
nt
e
r
e
s
tha
d af
a
i
rva
l
ueof₱2
5
,
0
00and pa
rva
l
ueof₱2
0,
00
0
.Wha
ta
mounts
houl
d Wood
r
e
c
ogni
zea
sga
i
nonr
e
s
t
r
uc
t
ur
i
ngofde
bt
?
a
.
0
b
.3
,
0
0
0
c
.5
,
0
0
0
d.
8
,
0
00
Sol
ut
i
on:
28,000 – 25,000 = 3,000
1
0.I
n20
X2,Ma
yCor
p.ac
qui
r
e
dl
andb
ypa
yi
ng₱75
,
0
0
0do
wna
nds
i
gni
nganot
ewi
t
hama
t
ur
i
t
y
va
l
ueof₱1,
0
00
,
0
0
0.Ont
henot
e
’
sdueda
t
e
,De
c
e
mbe
r31
,2
0X7,Ma
yowe
d₱4
0
,
0
00ofac
c
r
ue
d
i
nt
e
r
e
s
ta
nd₱1
,
0
0
0,
0
00pr
i
nc
i
palont
henot
e
.Ma
ywasi
nfinanc
i
a
ldi
ffic
ul
t
ya
ndwasunabl
et
o
makea
nypa
yme
nt
s
.Ma
ya
ndt
heba
nka
gr
e
e
dt
oa
me
ndt
henot
ea
sf
ol
l
ows
:
 The₱4
0
,
0
00ofi
nt
e
r
e
s
tdueonDe
c
e
mbe
r31
,
20
X7,
wa
sf
or
gi
ve
n.
 Thepr
i
nc
i
pa
loft
henot
ewa
sr
e
duc
e
df
r
om ₱1
,
0
0
0,
00
0t
o₱95
0
,
0
00a
ndt
hema
t
ur
i
t
yda
t
e
e
xt
e
nde
d1ye
a
rt
oDe
c
e
mbe
r3
1,
2
0X8.
 Ma
ywoul
d ber
e
qui
r
e
dt
oma
keonei
nt
e
r
e
s
tpa
yme
ntt
ot
al
i
ng ₱30
,
00
0onDe
c
e
mbe
r3
1
,
2
0X8.
 Theor
i
gi
na
le
ffe
c
t
i
vei
nt
e
r
e
s
tr
a
t
ei
s1
0
% whi
l
et
hec
ur
r
e
ntma
r
ke
tr
a
t
eonDe
c
e
mbe
r3
1,2
0
X7
i
s1
2%.
Asar
e
s
ul
toft
het
r
oubl
e
dde
btr
e
s
t
r
uc
t
ur
i
ng,Ma
ys
houl
dr
e
por
tagai
n,be
f
or
et
ax
e
s
,i
ni
t
s20
X7
i
nc
omes
t
a
t
e
me
ntof
a
.
0
b
.1
65
,
00
0
c
.6
0
,
0
00
d.
1
49
,
0
9
2
Solution:
The modification is analyzed as follows:
Old terms
New terms
Principal
1,000,000
950,000
Accrued interest
40,000
30,000
Remaining term ('n')
1 year
Page|6
The present value of the modified liability is computed as follows:
Future cash flows
Principal
Interest
Present value of the modified liability
PV of 1 @10%, n=1
950,000
30,000
0.90909
0.90909
The difference between the old liability and the new liability is tested for substantiality.
Carrying amount of old liability
(1M principal + 40,000 accrued interest)
Present value of modified liability
Difference
“Blessed are the pure in heart, for they will see God.” (Matthew 5:8)
- END –
Present
value
863,636
27,273
890,908
1,040,000
890,908
149,092
RAMON MAGSAYSAY MEMORIAL COLLEGES
College of Accountancy
General Santos City, Philippines
ACCTG 24
Intermediate Accounting 2
Lecture 1 and Lecture 2 Quiz
Answer Section
____
1.
Time is running Department Store sells gift certificates, redeemable for store merchandise and with no expiration date . The entity has the
following information pertaining to the gift certificates and redemptions :
Unearned revenue on Jnauary 1 , 2020
700,000
2020 sales
2,800,000
2020 redemptions of prior year sales
230,000
2020 redemptions of current year sales
1,600,000
On December 31, 2020 , what amount should be reported as unearned revenue ?
ANS: 1,670,000
Unredeemed - January 1, 2020
Sales of gift certificates - 2020
Total
Redemptions of prior year sales
Redemptions of current year sales
Unearned revenue - Dec. 31, 2020
PTS:
____
2.
700,000
2,800,000
3,500,000
(230,000)
( 1,600,000)
1,670,000
1
In November and December 2015 , Dorr Company , a newly organized magazine publisher , received P720,000 for 1000 3 year
subscriptions at P240 per year, starting with the January 2016 issue. The entity selected to include the entire P720,000 in the 2015 income
tax return .
What amount should be reported in the income statement for subscription revenue for 2016 ?
ANS: 240,000
The 720,000 shall be recognized starting in Year 2016 as subscription revenue.
720,000 divided by 3 years = 240,000
PTS:
____
3.
1
COVIDQ Company sells magazine subscriptions for a 1 year , 2 year or 3 year period . Cash receipts from subscribers are credited to
magazine subscriptions collected in advance and this account had a balance of P1,500,000 on January 1, 2020 . Information for the current
year is follows:
Cash receipts from subscribers
1,100,000
Magazine subscriptions revenue credited on December
500,000
1, 2020
On December 31, 2020 , what amount should be reported as the balance for magazine subscriptions collected in advance ?
ANS: 2,100,000
Subscriptions collected in advance - January 1, 2020
Cash receipts from subscribers in 2020
Total
Subscription revenue credited in 2020
Subscription collected in advance - December 31, 2020
____
4.
1,500,000
1,100,000
2,600,000
(500,000)
2,100,000
Dont cheat Company requires advance payments with special orders for machinery constructed to customer specifications. These advances
are nonrefundable. Information for the current year is as follows:
Advances from customers- Jan 1
1,050,000
Advances received with orders
1,430,000
Advances applied to orders shipped
1,250,000
Advances applicable to orders canceled
300,000
What amount should be reported as current liability for advances from customers at year end?
ANS: 930,000
Advances from customers - January 1
Add: Advances received with orders
1,050,000
1,430,000
Total
Less : Advances applied to orders shipped
Advances applicable to orders canceled
Advances from customers - December 31
PTS:
____
5.
2,480,000
(1,250,000)
(300,000)
(1,550,000)
930,000
1
Be Honest FCompany has an incentive compensation plan under which a branch manager received 7% of the branch income after deduction
of the bonus but before deduction of income tax. Branch income for the current year before the bonus and income tax was P1,220,000 . The
tax rate is 30%.
What is the bonus for the current year ?
ANS: 79,813
Income after bonus before tax (1,220,000 / 1.07)
Multiplied by : Bonus rate
Bonus
PTS:
____
6.
1
Kemp Company must determine the December 31, 2020 accruals for advertising and rent expense.
A P50,000 advertising bill was received on January 7, 2021 , comprising costs of P15,000 for advertisements in December 2020 issues, and
P35,000 for advertisements in January 2021 issues of the newspaper.
A store lease , effective December 16,2020, calls for fixed rent of P80,000 per month , payable one month from the effective date and
monthly thereafter.
In addition , rent equal to 2% of net sales over P4,000,000 per calendar year is payable on January 31 of the following year. Net sales for
2020 totaled P6,000,000 .
On December 31, 2020 , what amount should be reported as acrued liabilities ?
ANS: 95,000
Advertisement for December 2020
Accrued rent from December 16 to
December 31, 2020 (80,000 X 1/2)
Accrued additional rent (2,000,000 X 2%)
Total accrued liabilities
PTS:
____
7.
1,1,40,187
7%
79, 813
15,000
40,000
40,000
95,000
1
Gail Company manufactures furniture upholstery according to specifications. A nonrefundable seposit of 10% of the contract price is
required from customers. This deposit is credited to a customer’s advances account which has a balance of P670,000 on January 1, 2015 .
In 2015 , the entity received and accepted orders with a total contract price of P11,500,000 . On December 31, 2014 , the entity had already
made shipments to customers of P9,220,000 while orders for P1,200,000 were canceled and sales of P890,000 were returned for minor
design modifications.
What is the balance of the customer’s advances on December 31, 2015 ?
ANS: 783,000
Advances from customers - January 1, 2015
Orders accepted (11,500,000 X 10%)
Less: Shipments made to customers (9,220,000 X 10% )
Orders canceled (1,150,000 X 10%)
Advances from customers - December 31, 2015
PTS:
____
8.
(1,037,000)
783,000
ABC Company has an agreeement to pay its sales manager a bonus of 5% of the income after bonus and before tax . The income for the year
before bonus and tax is P5,230,000. The income tax rate is 30% of income after bonus .
What is the bonus for the year ?
PTS:
9.
922,000
115,000
1
ANS: 79,813
Income after bonus before tax (5,230,000 / 1.05)
Multiplied by : Bonus rate
Bonus
____
670,000
1,150,000
4,980,952
5%
249, 048
1
In an effort to increase sales , Relax Lang Company inaugurated a sales promotional campaign on June 30,2015 . The entity placed a coupon
redeemable for a premium in each package of cereal sold. Each premium cost P15 and four coupons must be presented by a customer to
receive a premium. The entity estimated that only 60% of the coupons would be redeemed . For the six months ended December 31, 2015 ,
the following information is available :
Packages of cereal sold
Premiums purchased
Coupons redeemed
200,000
12,000
60,000
What is the estimated liabilty for premiums on December 31, 2015 ?
ANS: 225,000
Coupons to be redeemed (200,000 X 60%)
Less: Coupons redeemed
Balance
120,000
60,000
60,000
Number of premiums (60,000/4)
Estimated liability (15,000 X 15)
PTS:
____
10.
15,000
225,000
1
During the current year, Dont Cheat Company sold 400,000 boxes of cake mix under a new sales promotional program. Each box contained
one coupon , which entitled the customer to a baking pan upon remittance of P50. The entity paid P65 per pan and P2 for handling and
shipping and estimated that 80% of the coupons would be redeemed, even though only 200,000 coupons had been processed during the year.
What amount should be reported as liabilty for unredeemed coupons at year end ?
ANS: 2,040,000
Net premium expense ( 65+2-50)
Coupons to be redeemed (80% X 400,000)
Less: Coupons redeemed
Coupons outstanding
Liability for unredeemed coupons (120,000 X 15)
PTS:
____
11.
In December 2020, Milan Company began including one coupon in each package of candy that it sells and offering a toy in exchange for
P20 and three coupons. The toys cost P70 each. Eventually, 60% of the coupons will be redeemed. During the December, the entity sold
150,000 packages of candy and no coupons were redeemed.
On December 31, 2020 , what amount should be reported as estimated liability for coupons ?
PTS:
12.
3
30,000
50
1,500,000
Bold Warrior Company estimated the annual warranty expense at 3% of annual net sales . The net sales for 2020 amounted to P5,000,000.
On January 1, 2020 , the warranty liability was P55,000 and the warranty payments during 2020 totaled P60,500.
What is the warranty liability on December 31, 2020 ?
PTS:
13.
90,000
1
ANS: 144,500
Warranty liability - Jan.1 , 2020
Add; Warranty expense in 2020 (3% X 5M)
Total
Less: Warranty payments during 2020
Warranty liability - December 31, 2020
____
120,000
2,040,000
1
ANS: 1,500,000
Coupons to be redeemed (60% X 150,000)
Divided by
Number of toys
Multiply by net cost of toy (70-20)
Estimated liability - December 2015
____
17
320,000
200,000
55,000
150,000
205,000
60,500
144,500
1
Jeane Company , a grocery retailer , operates a customer loyalty program. The entity grants program members loyalty points when they
spend a specified amount on groceries . Program members can redeem the points for further groceries . The points have no expiry date.
During 2015 , the entity granted 10,000 points. Management expects that 8,500 of these points will be redeemed. The fair value of each
loyalty point is estimated at P60. The sales during 2015 amounted to P8,000,000 including the loyalty points.
On December 31 , 2015 , 3,000 points have been redeemed in exchange dor groceries . In 2016 , the management revised its expectations
and now expects 9,000 points to be redeemed altogether. During 2016 , the entity redeemed 4,100 points.
What is the revenue earned from loyalty points for the year ended December 31, 2016 ?
ANS: 261,568
Fair Value points (10,000 X 60)
Revenue earned from points in 2015
(600,000 X 3,000/8,500)
Points redeemed in 2015
Points redeemed in 2016
Total points redeemed to date
600,000
211,765
3,000
4,100
7,100
Cumulative revenue earned to date
(600,000 X7,100/9,000)
Revenue earned from points in 2015
Revenue earned from points in 2016
PTS:
____
14.
473,333
(211,765)
261,568
1
ABC Co. has an exisiting long term liability of P1,000,000 on Dec. 31, 20x1 payable next year. On December 31, 20x2, ABC Co. entered
into a refinancing agreement with a bank to refinance the loan on a long-term basis. Both parties are financially capable of honoring the
agreement’s provisions. ABC’s financial statements were authorized for issue on March 15, 20x2.
How much is presented as non current liability in relation to the loan in ABC’s 20x2 year-end financial statements?
ANS: 1,000,000
The refinancing agreement was completed on December 31, 2020. The currently maturing obligation shall be presented as noncurrent
liability.
PTS:
____
15.
1
*ABC Co. has an exisiting long term liability of P1,000,000 on Dec. 31, 20x1 maturing next year. On January 31, 20x1, ABC Co. entered
into a refinancing agreement with a bank to refinance the loan on a long-term basis. Both parties are financially capable of honoring the
agreement’s provisions.
*The entity also has a 10 year mortgage payable of 500,000 on Dec. 31, 20x1 maturing next year. On February 1, 20x2, ABC Co. entered
into a refinancing agreement with a bank to refinance the loan on a long-term basis. The entity has the discretion to refinance or roll over the
loan for at least twelve months from December 31, 20x1 under an existing loan facility. ABC’s financial statements were authorized for issue
on March 15, 20x2.
How much is presented as non current liability in relation to the loan in ABC’s 20x2 year-end financial statements?
ANS: 500,000
Refinance on Feb. 1 - at discretion
500,000
Total
500,000
PTS:
1
Page |1
Chapter 3
Bonds Payable & Other Concepts
NAME:
Professor:
Section:
Date:
Score:
QUIZ 1:
1. The result on the year-end balance sheet of an issue of a 10-year term bond sold at face amount
four years ago with interest payable June 1 and December 1 each year, is a(an)
a. liability for accrued interest
c. increase in deferred charges
b. addition to bonds payable
d. contingent liability
2. 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
3. Straight-line amortization of bond premium or discount:
a. can be used as an optional method of amortization in all situations.
b. provides the same total amount of interest expense and interest revenue as the effective
interest method over the life of the bonds.
c. provides the same amounts of interest expense and interest revenue each interest period as
the effective interest method.
d. is appropriate when the bond term is especially long.
e. is appropriate for deep discount bonds.
4. For a bond issue which sells for less than its face amount, the market rate of interest is
a. Dependent on the rate stated on the bond.
b. Equal to rate stated on the bond.
c. Less than rate stated on the bond.
d. Higher than rate stated on the bond.
5. The market price of a bond issued at a discount is the present value of its principal amount at the
market (effective) rate of interest
a. Less the present value of all future interest payments at the market (effective) rate of interest.
b. Less the present value of all future interest payments at the rate of interest stated on the
bond.
c. Plus the present value of all future interest payments at the market (effective) rate of interest.
d. Plus the present value of all future interest payments at the rate of interest stated on the
bond.
6. Which of the following is not a relevant consideration when evaluating whether to derecognize
a financial liability?
Page |2
a.
b.
c.
d.
Whether the obligation has been discharged.
Whether the obligation has been canceled.
Whether the obligation has expired.
Whether substantially all the risks and rewards of the obligation have been transferred.
7. What is the effective interest rate of a bond or other debt instrument measured at amortized
cost?
a. The stated coupon rate of the debt instrument.
b. The interest rate currently charged by the entity or by others for similar debt instruments
(i.e., similar remaining maturity, cash flow pattern, currency, credit risk, collateral, and
interest basis).
c. The interest rate that exactly discounts estimated future cash payments or receipts through
the expected life of the debt instrument or, when appropriate, a shorter period to the net
carrying amount of the instrument.
d. The basic, risk-free interest rate that is derived from observable government bond prices.
8. Which of the following statements is false?
a. Bonds carry no corporate ownership privileges.
b. A bond is a financial contract.
c. Bond prices remain fixed over time.
d. A bond issuer must pay periodic interest.
9. Most bonds:
a. are money market securities.
b. are floating-rate securities.
c. give bondholders a voice in the affairs of the corporation.
d. are interest-bearing obligations of governments or corporations.
10. In an “asset swap,” where a liability is settled through the transfer of noncash asset,
a. the gain or loss on settlement is computed as the difference between the carrying amount of
the liability extinguished and the fair value of the noncash asset transferred.
b. the gain or loss on settlement is computed as the difference between the carrying amount of
the liability extinguished and the carrying amount of the noncash asset transferred.
c. the gain or loss on settlement is computed as the difference between the carrying amount of
the liability extinguished and the more clearly determinable between the fair value of the
liability extinguished and the carrying amount of the noncash asset transferred.
d. no gain or loss is recognized
“There is a time for everything, and a season for every activity under the
heavens;” (Ecclesiastes 3:1)
- END –
Page |3
NAME:
Professor:
Section:
Date:
Score:
QUIZ 2:
1. On January 2, 20x1, Nast Co. issued 8% bonds with a face amount of ₱1,000,000 that mature on
January 2, 20x7. The bonds were issued to yield 12%, resulting in a discount of ₱150,000. Nast
incorrectly used the straight-line method instead of the effective interest method to amortize the
discount. How is the carrying amount of the bonds affected by the error?
At Dec. 31, 20x1 At Jan. 2, 20x7
At Dec. 31, 20x1 At Jan. 2, 20x7
a. Overstated
Understated c. Understated
Overstated
b. Overstated
No effect
d. Understated
No effect
2. On July 1, 2003, after recording interest and amortization, York Co. converted ₱1,000,000 of its
12% convertible bonds into 50,000 shares of ₱1 par value ordinary share. On the conversion date
the carrying amount of the bonds was ₱1,300,000, the fair value of the bonds was ₱1,400,000, and
York’s ordinary share was publicly trading at ₱30 per share. What amount of share premium
should York record as a result of the conversion?
a. 950,000
b. 1,250,000
c. 1,350,000
d. 1,500,000
3. On April 30, 20x5, Witt Corp. had outstanding 8%, ₱1,000,000 face amount, convertible bonds
maturing on April 30, 20x9. Interest is payable on April 30 and October 31. On April 30, 20x5, all
these bonds were converted into 40,000 shares of ₱20 par ordinary share. On the date of
conversion:
 Unamortized bond discount was ₱30,000.
 Each bond had a fair value of ₱1,080.
 Each share of stock had a fair value of ₱28.
What amount should Witt record as a loss on conversion of bonds?
a. 150,000
b. 110,000
c. 30,000
d. 0
4. Ray Corp. issued bonds with a face amount of ₱200,000. Each ₱1,000 bond contained detachable
stock warrants for 100 shares of Ray's common stock. Total proceeds from the issue amounted to
₱240,000. The fair value of each warrant was ₱2, and the fair value of the bonds without the
warrants was ₱196,000. The bonds were issued at a discount of
a. 0
b. 678
c. 4,000
d. 33,898
5. On June 30, 20x9, King Co. had outstanding 9%, ₱5,000,000 face value bonds maturing on June
30, 2x14. Interest was payable semiannually every June 30 and December 31. On June 30, 20x9,
after amortization was recorded for the period, the unamortized bond premium and bond issue
costs were ₱30,000 and ₱50,000, respectively. On that date, King acquired all its outstanding
bonds on the open market at 98 and retired them. At June 30, 20x9, what amount should King
recognize as gain on redemption of bonds?
a. 20,000
b. 80,000
c. 120,000
d. 180,000
Page |4
6. On July 31, 20x0, Dome Co. issued ₱1,000,000 of 10%, 15-year bonds at par and used a portion of
the proceeds to call its 600 outstanding 11%, ₱1,000 face value bonds, due on July 31, 2x10, at
102. On that date, unamortized bond premium relating to the 11% bonds was ₱65,000. In its 20x0
income statement, what amount should Dome report as gain or loss, before income taxes, from
retirement of bonds?
a. 53,000 gain
b. 0
c. (65,000) loss
d. (77,000) loss
7. During 20x4 Peterson Company experienced financial difficulties and is likely to default on a
₱500,000, 15%, three-year note dated January 1, 20X2, payable to Forest National Bank. On
December 31, 20X4, the bank agreed to settle the note and unpaid interest of ₱75,000 for 20X4 for
₱50,000 cash and marketable securities having a carrying amount of ₱375,000. Peterson's
acquisition cost of the securities is ₱385,000. What amount should Peterson report as a gain from
the debt restructuring in its 20x4 income statement?
a. 65,000
b. 75,000
c. 140,000
d. 150,000
8. Casey Corporation entered into a troubled-debt restructuring agreement with First State Bank.
First State agreed to accept land with a carrying amount of ₱85,000 and a fair value of ₱120,000
in exchange for a note with a carrying amount of ₱185,000. What amount should Casey report as
gain in its income statement?
a. 0
b. 35,000
c. 65,000
d. 100,000
9. Wood Corp., a debtor undergoing financial difficulties granted an equity interest to a creditor in
full settlement of a ₱28,000 debt owed to the creditor. At the date of this transaction, the equity
interest had a fair value of ₱25,000 and par value of ₱20,000. What amount should Wood
recognize as gain on restructuring of debt?
a. 0
b. 3,000
c. 5,000
d. 8,000
10. In 20X2, May Corp. acquired land by paying ₱75,000 down and signing a note with a maturity
value of ₱1,000,000. On the note’s due date, December 31, 20X7, May owed ₱40,000 of accrued
interest and ₱1,000,000 principal on the note. May was in financial difficulty and was unable to
make any payments. May and the bank agreed to amend the note as follows:
 The ₱40,000 of interest due on December 31, 20X7, was forgiven.
 The principal of the note was reduced from ₱1,000,000 to ₱950,000 and the maturity date
extended 1 year to December 31, 20X8.
 May would be required to make one interest payment totaling ₱30,000 on December 31,
20X8.
 The original effective interest rate is 10% while the current market rate on December 31, 20X7
is 12%.
As a result of the troubled debt restructuring, May should report a gain, before taxes, in its 20X7
income statement of
a. 0
b. 165,000
c. 60,000
d. 149,092
“Blessed are the pure in heart, for they will see God.” (Matthew 5:8)
- END –
Page |5
SOLUTIONS TO QUIZ 2:
1. B
Solution:
EFFECT ON DECEMBER 31, 20X1:
Using straight line method:
Discount on bonds - 1/2/x1
Divide by: Term
Annual amortization of discount
150,000
6
25,000
Discount on bonds - 1/2/x1
Amortization - 20x1
Discount on bonds - 12/31/x1
150,000
(25,000)
125,000
Face amount
Discount on bonds - 12/31/x1
Carrying amount - 12/31/x1
1,000,000
(125,000)
875,000
Using effective interest method:
Date
Interest expense
Payments
Amortization
80,000
22,000
1/2/x1
12/31/x1
102,000
Carrying amounts - 12/31/x1:
Straight line (erroneous)
Effective interest method
Difference - overstatement
Present Value
850,000
872,000
875,000
872,000
(3,000)
EFFECT ON JANUARY 2, 20X7:
On January 2, 20x7, maturity date, there will be NO EFFECT of the error on the carrying amount of the
bonds because on this date, the discount would have been fully amortized under both the straight line
method and the effective interest method.
2. B
Solution:
Carrying amount of bonds converted
Par value of shares issued (50,000 x 1)
Share premium
1,300,000
(50,000)
1,250,000
3. D – No gain or loss is recognized when convertible bonds are converted into equity instrument.
4. C
Solution:
Fair value of bonds without the warrants
Face amount of bonds
Discount on bonds
5. B
196,000
200,000
(4,000)
Page |6
Solution:
Redemption price (5M x 98%)
Less: Carrying amount of bonds:
Face amount
Unamortized premium
Unamortized issue costs
Gain on retirement
4,900,000
5,000,000
30,000
(50,000)
6. A
Solution:
Redemption price (600 x 1,000 x 102%)
Less: Carrying amount of bonds:
Face amount (600 x 1,000)
Unamortized premium
Gain on retirement
4,980,000
80,000
612,000
600,000
65,000
7. D
Solution:
Payment for the liability:
Cash
Carrying amount of investment securities
Carrying amount of liability settled:
Principal
Accrued interest
Gain on settlement
50,000
375,000
500,000
75,000
665,000
53,000
425,000
575,000
150,000
8. D (185,000 carrying amt. of note - 85,000 carrying amt. of land) = 100,000 gain
9. B (28,000 – 25,000) = 3,000
10. D
Solution:
The modification is analyzed as follows:
Old terms
Principal
1,000,000
Accrued interest
40,000
Remaining term ('n')
New terms
950,000
30,000
1 year
The present value of the modified liability is computed as follows:
Future cash flows
Principal
950,000
Interest
30,000
Present value of the modified liability
PV of 1 @10%, n=1
0.90909
0.90909
The difference between the old liability and the new liability is tested for substantiality.
Carrying amount of old liability
(1M principal + 40,000 accrued interest)
Present value of modified liability
Difference
Present value
863,636
27,273
890,908
1,040,000
890,908
149,092
Page |7
Difference
Divide by: Carrying amount of old liability
149,092
1,040,000
14.34%
The modification is considered substantial because the modification resulted to a present value of the
new obligation different by at least 10% of the present value (carrying amount) of old obligation.
Therefore, the old liability is extinguished and the difference of ₱149,092 is recognized as gain on
extinguishment.
Page |1
Chapter 1
Current Liabilities
:
1. A debtor firm’s 12/31/05 balance sheet is to be published 3/1/06. An obligation with a due date of
3/4/11 is also due on demand by the creditor. At 12/31/05, there is no indication that the creditor
intends to call in the debt. The obligation is a current liability.
2. Deposits taken from customers by public utilities should always be reported as current liabilities
by the utility.
3. Since a dividend is generally paid within a month or so, it usually is classified as current.
4. All liabilities must be due within 12 months of the current balance sheet to be classified as
current liabilities.
5. A current liability may be classified as a long-term liability if the entity has the intention to
refinance it after the balance sheet date.
6. Trade notes payable are normally presented as current liabilities.
7. Unearned revenue is considered a financial liability.
8. Financial liabilities are initially measured at fair value plus direct costs, except for financial
liabilities that are classified as financial liabilities measured at fair value through profit or loss,
whose transaction costs are expensed immediately.
9. Non-financial liabilities are initially measured at the best estimate of the amounts needed to
settle those obligations or the measurement basis required by other applicable standard.
10. The fact that a liability is used to fund trading activities does not in itself make that liability one
that is held for trading.
“If you want to earn more, learn more” – Anonymous
- END -
Page |2
ANSWERS
1. TRUE
2. FALSE
3. TRUE
4. FALSE
5. FALSE
6.
7.
8.
9.
10.
TRUE
FALSE
FALSE
TRUE
TRUE
Page |3
Use the following information for the next two questions:
Eliot Corporation’s liabilities at December 31, 2008 were as follows:
Accounts payable and accrued interest
5-year 10% Notes payable – due December 31, 2011
P
2,000,000
5,000,000
Part of the loan agreement is for Elliot to appropriate a fixed amount out of its accumulated profits
and losses annually until the amount of appropriation has equaled the face of the obligation. Failure
to comply with the loan agreement will make the loan payable on demand. As of December 31, 2008,
Elliot Corporation has yet to comply with the loan agreement.
1. In its December 31, 2008 balance sheet, Elliot should report current liabilities at
a.
b.
c.
d.
2,000,000
2,500,000
5,000,000
7,000,000
2. Assuming the lender agreed on December 31, 2008 to provide a grace period of 12 months for
the entity to rectify the breach and assured Elliot Corporation that no demand of payment is to
be made within the grace period, what amount of current liabilities should Elliot Corporation
report in its December 31, 2008 balance sheet?
a.
b.
c.
d.
2,000,000
2,500,000
5,000,000
7,000,000
3. Hudson Hotel collects 15% in city sales taxes on room rentals, in addition to a ₱2 per room, per
night, occupancy tax. Sales taxes for each month are due at the end of the following month, and
occupancy taxes are due 15 days after the e+nd of each calendar quarter. On January 3, 20x1,
Hudson paid its November 20x0 sales taxes and its fourth quarter 20x0 occupancy taxes.
Additional information pertaining to Hudson's operations is:
20x0
October
November
December
Room rentals
100,000
110,000
150,000
Room nights
1,100
1,200
1,800
What amounts should Hudson report as sales taxes payable and occupancy taxes payable in its
December 31, 20x0, balance sheet?
Page |4
Sales taxes
a. ₱39,000
b. ₱39,000
Occupancy taxes
₱6,000
₱8,200
Sales taxes
Occupancy taxes
c. ₱54,000
₱6,000
d. ₱54,000
₱8,200
Use the following information for the next two questions:
BUGS Appliance Company’s accountant has been reviewing the firm’s past television sales. For the
past years, BUGS has been offering a special service warranty on all televisions sold. With the
purchase of a television, the customer has the right to purchase a 3-year service contract for an extra
P600.
Information concerning past television and warranty contract sales is given below:
Television sales in units
Sales price per unit
Number of service contracts sold
Expenses relating to television warranties
2007
550
P5,000
350
38,520
2006
460
P4,000
300
13,400
BUGS’ accountant has estimated from past records that the pattern of repairs has been 40% in the
year of sale, 36% first year after sale and 24% on 2nd year of sale. Sales of the contracts are made
evenly during the year.
4. What is the adjusted balance of the unearned service contract as of December 31, 2007?
a. 111,600
b. 168,600
c. 211,200
d. 243,600
5. How much profit on service contract would be recognized in year 2007?
a.
b.
c.
d.
42,000
68,400
71,880
110,400
“Pride goes before destruction, a haughty spirit before a fall.” (Proverbs 16:18)
Page |5
- END SOLUTIONS
1. D 2M + 5M = 7M
2. A 2M
3. B
Solution:
20x0
October
November
December
Total
Multiply by: Tax
Total 20x0 unpaid taxes
Room rentals
110,000
150,000
260,000
15%
39,000
Room nights
1,100
1,200
1,800
4,100
2
8,200
4. D
2007
2006
Number of service contracts
sold
Price per contract
Total
Divide by: (*sold 'evenly')
350
600
210,000
2
300
600
180,000
2
Totals
105,000
90,000
From 2007:
Percentages earned in each period
First 105,000 assumed to have been sold at the beg. of
the pd.: (105K x 40%; x 36%; x 24%)
2007
40%
2008
36%
2009
24%
42,000
37,800
25,200
0%
40%
36%
24%
-
42,000
37,800
25,200
2006
40%
2007
36%
2008
24%
2009
2010
36,000
32,400
21,600
0%
40%
36,000
36%
32,400
Percentages earned in each period
Remaining 105,000 assumed to have been sold at the
end of the pd.: (105K x 0%; 40%; x 36%; x 24%)
From 2006:
Percentages earned in each period
First 90,000 assumed to have been sold at the beg. of
the pd.: (105K x 40%; x 36%; x 24%)
Percentages earned in each period
Remaining 90,000 assumed to have been sold at the
end
24%
21,600
2010
Page |6
of the pd.: (105K x 0%; 40%; x 36%; x 24%)
Total earned portions (2006 & 2007 contracts)
36,000
Earned portion in:
2008
2009
2010
Total unearned portion as of Dec. 31,
2007
5. C
Earned portion in 2007
Expenses relating to television
warranties
Profit
133,800
84,600
25,200
243,600
110,400
(38,520)
71,880
110,400
133,80
0
84,600
25,200