UNIVERSITY OF SANTO TOMAS
AMV-COLLEGE OF ACCOUNTANCY
PRELIMINARY EXAMINATION
CA51010 - INTERMEDIATE ACCOUNTING II
TEST I. THEORIES (40%)
1. Bonds with a face value of P3,000,000 with a stated interest rate of 12%
payable semi-annually on March 1 and September 1 were issued on August
1. The total cash received for the issuance amounted to P3,100,000. The
best explanation for the excess amount received over the face value is that
A. The bonds were issued at a premium.
B. The bonds were issued at a discount plus accrued interest.
C.
D
The bonds were issued at face value plus accrued interest.
No explanation is possible without knowing the maturity date of the bonds
issued.
2. INTACC Company made a year-end amortization by decreasing interest
expense and carrying value of the bonds payable. The bonds must have
been issued:
A. At a Premium
B. At a Discount
C. At Face value
D. In the middle of Nowhere
3. There is a substantial modification of terms of an old financial liability if the
difference between the PV of modified cash flow and the carrying value of
the liability is
A. More than 10% of the carrying amount of the old liability
B. 10% or more of the carrying amount of the old liability
C. Less than 10% of the carrying amount of the old liability
D. At least 10% of the carrying amount of the new liability
4. If the fair value of the equity instruments issued cannot be reliably
measured, the equity instruments issued to extinguish a financial liability
shall be measured at
A. Fair value of the liability extinguished
B. Par value of the equity instruments issued
C. Fair value of liability or Par value of shares whichever is lower
D. Carrying amount of the liability extinguished
5.The cumulative unrealized gains or losses which are recognized separately in
equity of the statement of financial position are from securities classified
as
a. FVPL only
b. FVPL and FVOCI
c. FVOCI and Investment in Associate
d. FVOCI only
6. For an investment in equity securities classified as fair value investments
under PFRS 9, impairment loss is
a. The excess of fair value over the original cost
b. The excess of amortized cost over the fair value
c. The excess of original cost over the fair value
d. Not recognized
7. MACBABY Company neglected to amortize the discount on outstanding tenyear bonds payable. What is the effect of the failure to record the discount
amortization on interest expense and bond carrying value, respectively?
A. Understate; Understate
C. Overstate; Overstate
B. Understate; Overstate
D. Overstate; Understate
Page 1 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
8. When convertible bonds are retired before maturity date, the difference
between carrying value of the share premium-bond conversion privilege and
the retirement price on account of equity is
a. Treated as a gain and taken to profit or loss
b. Treated as a loss and taken to profit or loss
c.
Treated as either gain or loss and taken to equity
d. Not recognized.
9. The following statements are based on PAS 28 (Investment in Associate):
Statement I: Generally, the Investment in Associate shall be accounted for
using the equity method. True
Statement II: Cash dividend received should not be treated as dividend
income in all cases even if the investor loses significant influence over the
associate. False
Statement III: Impairment loss is recognized as the difference between
recoverable amount and the carrying value of the investment in all cases.
False
a. Only statement I is true
b. Only statement II is true
c.
Only statement III is false
d. All of the above statements are false
10. An entity has 20% investment in ordinary share and 25% investment in
preference share over the investee. Which of the following is true?
A. Only the cash dividend received related to 20% is treated as dividend
income
B. Only the cash dividend received related to 25% is treated as dividend
income
C. Cash dividend received for both investments should be treated as dividend
income
D. Cash dividend received for both investments should be treated as a
deduction from investment
11. If an associate has a preference share, the proper way of computing the
share in net income of an associate for the current year assuming the
preference share is cumulative would be
a. Deduct the preference dividend for the current year only, whether declared
or not
b. Deduct the preference dividend for the current year, if declared only
c.
Deduct the preference dividend for the current year including any previous
undeclared preference dividend
d. Deduct both the preference and ordinary dividend for the current year
only, whether declared or not
12. Which of the following is true about amortization of premium or discount
on the part of the issuer?
A. Amortization of discount decreases interest income
B. Amortization of premium increases interest expense
C. Amortization of discount increases interest expense
D. Amortization of premium decreases interest income
13. Theoretically, when bonds are issued between interest payment dates, any
accrued interest received is credited to
A. Interest income
B. Interest payable
C. Premium on bonds payable
D. Either A or B
14. When bonds are retired before maturity date, the difference between the
carrying value of the bonds and the retirement price is
a. Treated as a gain and taken to profit or loss
b. Treated as a loss and taken to profit or loss
c.
Treated as either gain or loss and taken to profit or loss
d. Treated as either gain or loss and taken to equity
Page 2 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
15. Which of the following items should be treated as dividend income?
a. Reverse stock split
b. Same class of share dividend
c.
Different class of share dividend
d. Cash dividend under equity method
16. If the present value of a note issued in exchange for a property is less than
its face value, the difference should be
a. Included in the cost of the asset
b. Amortized as interest expense over the life of the note
c.
Amortized as interest expense over the life of the asset
d. Included in interest expense in the year of issuance
17. Which of the following statements concerning non-interest bearing notes
payable is generally a false statement?
a. Discount on notes payable should be deducted to arrive at the carrying
value of notes payable.
b. Amortizing the discount causes the carrying amount of the notes payable
to gradually increase over the life of the note
c.
Amortizing the premium causes the carrying amount of the notes payable
to gradually decrease over the life of the note
d. interest expense is recognized even for non-interest bearing notes.
18. On September 1, 2020, an entity borrowed cash and signed a two-year
interest-bearing note on which the principal and interest are payable on
September 1, 2022. How many months of accrued interest should be included
in the liability for accrued interest on December 31, 2021?
a. 4 months
b. 8 months
c.
16 months
d. 24 months
19. Which of the following statements concerning interest-bearing notes
payable are generally true statement?
I.
Discount on notes payable should be deducted to arrive at the carrying value
of notes payable. True
II. Amortizing the discount causes the carrying amount of the notes payable to
gradually increase over the life of the note. True
III. Amortizing the premium causes the carrying amount of the notes payable to
gradually decrease over the life of the note. True
a.
b.
c.
d.
I and II
I and III
II and III
I, II, III
20. Which of the following shall be considered in the total comprehensive income of the
investor relating to its Investment in Associate?
a.
b.
c.
d.
Impairment loss on investment
Share in net loss reported by the associate
Share in other comprehensive income reported by the associate
All of these.
TEST II. PROBLEM SOLVING ( 60% )
Page 3 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
On January 1, 2020, LABANLANG Company issued P5,000,000 face value, 5-year bonds
at 109. Each P1,000 bond was issued with one non-detachable share warrant, each of
which entitled the bondholder to purchase 15 shares of P10 par ordinary share at P20. At
issuance date, the market value of each of the bonds without warrant sell at 99. The
stated rate on the bonds is 11% payable annually every December 31.
1. Assuming that ¾ of the warrants were exercised at a time when the
market value of the ordinary share is P25, how much is the total net
effect on equity upon exercise of the warrants?
a. 937,500
b. 1,125,000
c. 1,500,000
d. 562,500
MAYPAGASA Company issued 10-year bonds on January 1, 2019. The amortization and
interest schedule below reflects the bond issuance and the subsequent interest
payments and charges:
Date
01.01.19
12.31.19
12.31.20
12.31.21
12.31.22
12.31.23
12.31.24
12.31.25
12.31.26
12.31.27
12.31.28
Interest
Paid
---P55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
55,000
Interest
expense
---P56,610
56,803
57,019
57,261
57,533
57,837
58,177
58,558
58,985
59,470
Amount
Unamortized
P28,253
26,643
24,840
22,821
20,560
18,027
15,190
12,013
8,455
4,470
----
Carrying
value
P471,747
473,357
475,160
477,179
479,440
481,973
484,810
487,987
495,530
495,530
500,000
2. If all the bonds were retired at P485,000 on December 31, 2022, how
much is the loss on retirement of bonds taken to profit or loss?
485,000 – 479,440 = 5560
On January 1, 2018, KAPITPA Corporation issued its 8%, 5-year convertible debt
instruments with a face amount of P8,000,000 for P7,700,000. Interest is payable every
December 31 each year. The debt instruments are convertible into 50,000 ordinary
shares with a par value of P100. When the debt instruments were issued, the bonds
without the conversion option would have been sold for P7,393,312 yielding 10%. On
December 31, 2020, P6,000,000 face value of the convertible debt instruments were
converted. On December 31, 2021, P1,000,000 face value bonds were retired at 104.
Without the conversion privilege, these bonds would have sold on this date at 101.
3. How much is the total amount taken to profit or loss for the year 2020?
a. 0
b. 640,000
c. 760,191
d. 2,271,590
Date
Nominal
Jan. 1, 2018.
Dec. 31,2018
640,000
Dec. 31, 2019 640,000
Dec. 31, 2020 640,000
Dec. 31, 2020 conversion
Effective
Discount Amort
739,331
749,264
760,191
AC, end
7,393,312
7,492,643
7,601,907
7,722,098
(5,791,574)
99,331
109,264
120,191
6. How much is the gain on cancellation of conversion privilege taken to
Equity? 8,336
Retirement price on equity 3% x 1,000,000
CV of bond conversion privilege cancelled
(7,700,000 – 7,393,312) x 1/8
P30,000
38,336
Page 4 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
Gain
8,336
On May 1, 2019, PAPASAKA Company issued a five-year P 2,000,000 face value bonds
with stated rate of 16%. The bonds were issued to yield 14%. Interests are payable
semi-annually on March 1 and September 1. PAPASAKA Company uses the calendar year
and the effective interest method of amortization. Present value of 1 at 7% for 10 periods
is 0.5084. Present value of an ordinary annuity of 1 at 7% for 10 periods is 7.0236.
5. How much is the interest expense for the year 2020?
a. 160,000
b. 199,550
c. 296,447
PV on March 1, 2019
PV of Principal
PV of I
Total
Date
Mar. 1, 2019
Sept. 1, 2019
Mar. 1, 2020
Sept. 1, 2020
Mar. 1, 2021
Nominal
160,000
160,000
160,000
160,000
2,000,000 x .5084
160,000 x 7.0236
P1,016,800
1,123,776
P2,140,576
Effective
149,840
149,129
148,368
147,554
Amortization
10,160
10,871
11,632
12,446
Jan. 1 to Mar. 1
149,129 x 2/6
Mar. 1 to Sept. 1
Sept. 1 to Dec. 31
147,554 x 4/6
Total interest expense for 2020
Nominal
106,667
160,000
160,000
160,000
AC, end
2,140,576
2,130,416
2,119,545
2,107,913
2,095,467
P49,710
148,368
98,369
P296,447
May 1 selling price
At March 1
Amortization from March 1 to May 1 10,160 x 2/6
Approximated selling price May 1
Date
May 1, 2019
Sept. 1, 2019
Mar. 1, 2020
Sept. 1, 2020
Mar. 1, 2021
d. 295,360
Effective
99,735
149,118
148,356
147,541
2,140,576
3,387
2,137,189
Amortization
6,932
10,882
11,644
12,459
Interest expense for 2020
Jan. 1 to Mar. 1
149,118 x 2/6
Mar. 1 to Sept. 1
Sept. 1 to Dec. 31
147,541 x 4/6
Total interest expense for 2020
AC, end
2,137,189
2,130,257
2,119,375
2,107,731
2,095,272
P49,706
148,356
98,361
P296,423
Or you may use the short-cut method and determine the present value of from
September 1, 2019, preparing a table from that date and prorate.
On January 1, 2020, PAGODKANABA Company issued serial bonds with face value of
P6,000,000 and a stated rate of 12% payable annually every December 31. The bond
has a price that yields 10%. The bonds mature at an annual installment of P2,000,000
every December 31. The present value of 1 at 10% for one period is 0.91; for two
periods is 0.83 and for three periods is 0.75. The present value of an ordinary annuity of
1 at 10% for 3 periods is 2.49.
6. How much is the unamortized premium on bonds payable on December 31,
2021?
a. 0
b. 114,960
c. 46,456
d. 68,504
Page 5 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
Date
Interest due
Dec. 31, 2020
720,000
Dec. 31, 2021
480,000
Dec. 31, 2020
240,000
Total present value
Date
Nominal
Jan. 1, 2020
Dec. 31, 2020 720,000
Dec. 31, 2021 480,000
Principal due
Total due
2,000,000
2,720,000
2,000,000
2,480,000
2,000,000
2,240,000
Effective
Amortization
621,360
411,496
98,640
68,504
PV Factor PV at 01/01/2020
.91
2,475,200
.83
2,058,400
.75
1,680,000
P6,213,600
P Payment
AC, end
6213,600
2,000,000
4,114,960
2,000,000
2,046,456
PUNY Company’s Accounts Payable on December 31, 2020, totaled P1,000,000 before
any necessary year-end adjustments relating to the following transactions:




On December 21, 2020, Berlin purchased and recorded goods with an invoice price
of P300,000, terms 2/10, n/30 from ETA Company. This amount had not been paid
as of December 31, 2020. PUNY Company is using the net method for all
purchases.
Goods shipped FOB Destination on December 23, 2020 from a vendor were lost in
transit. The invoice cost of P35,000 was not recorded as of December 31, 2020.
Goods shipped FOB Shipping Point on December 26, 2020 from a vendor were still
in transit as of December 31, 2020. The invoice cost of P150,000 was recorded on
December 31, 2020.
Goods purchased and recorded goods with an invoice price of P50,000 from KAH
Company on December 28, 2020, terms 3/15, n/45. PUNY Company paid its account
in full on January 5, 2021.
7. How much is the total adjusted accounts payable on December 31, 2020?
a. 1,006,000
b. 1,007,500
c. 992,500
d. none of the choices
Before adjustments
Adjustment for discount lost 2% x 300,000
Accounts payable after adjustment
1,000,000
6,000
1,006,000
INA Company owed P1,500,000 to MOH Bank which is due to be paid on December 31,
2020. During 2020, INA’s business deteriorated because of faltering regional economy.
On December 31, 2020, MOH Bank agreed to accept an old equipment and cancel the
entire debt. The machine had a book value of P1,400,000, and a fair value of P1,200,000
on December 31, 2020.
8. How much is the total amount to be reported in profit or loss as a result of
the financial liability’s derecognition?
a. 100,000
b. 300,000
c. 200,000
d. 500,000
1,500,000 – 1,400,000 = 100,000
POOH Company is experiencing financial difficulty during 2020 and is negotiating a
trouble debt restructuring to relieve its financial stress. POOH Company owed P500,000
plus accrued interest of P50,000 to TACCA Bank to be paid on December 31, 2020.
TACCA bank accepted an equity interest from POOH Company in a form of 10,000
ordinary shares. The fair value of ordinary shares is P40 per share while the par value of
the ordinary shares is P30 per share. The fair value of the liability to be settled on
December 31, 2020 was P420,000.
9. How much is the gain on debt restructuring to be reported by POOH
Company in profit or loss as a result of the restructuring?
a. 130,000
b. 150,000
c. Either A or B
d. 100,000
Page 6 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
550,000 – (10,000 x 40) = 150,000
KAYAP Company has an overdue notes payable to ABA Bank of P800,000 and recorded
accrued interest of P96,000 as of December 31, 2020. ABA Bank agreed to the following
restructuring agreement on December 31, 2020 wherein the prevailing market interest
rate for similar debt instrument on this date is 12%:






Reduce the principal obligation by P100,000.
Waive the P96,000 accrued interest.
Extend the maturity date to December 31, 2022.
Annual interest of 10% of the new principal is to be paid on December 31, 2021
and December 31, 2022.
Present value of P1 at 12% for 2 periods is 0.7972. Present value of an ordinary
annuity of P1 at 12% for 2 periods is 1.6901.
Present value of P1 at 10% for 2 periods is 0.8264. Present value of an ordinary
annuity of P1 at 10% for 2 periods is 1.7355.
10. How much is the gain on debt restructuring? 219,653
CV of the debt
PV of modified cash flow
P700,000 x .7972 =
70,000 x 1.6901 =
Gain
P896,000
P558,040
118,307
676,347
219,653
On January 1, 2020, SANAOL Company acquired a tract of land for P5,000,000. SANAOL
Company paid P1,000,000 down and signed a non-interest bearing note for the balance
which is payable in 4 equal annual payments every December 31 of each year. There
was no established exchange price for the land and the note had no ready market. The
prevailing interest rate for this type of the note was 12%. The present value of note on
January 1, 2020 is P3,037,300.
11. How much is the non-current portion of notes payable on December 31,
2020? 1,689,989
Date
01/01/2020
12/31/2020
12/31/2021
PP
1,000,000
1,000,000
Applied to Interest
364,476
288,213
Applied to P
635,524
711,787
Balance, end
3,037,300
2,401,776
1,689,989
BAHALANA Company issued notes with a face value of P2,800,000 and interest rate of
15%. The note is dated April 1, 2019 and is payable in four equal annual installments of
P700,000 principal plus interest beginning April 1, 2020. The first principal and interest
payments were made on April 1, 2020.
12. How much is the total current liabilities that should be reported on
December 31, 2020?
a. 700,000
b. 936,250
c. 1,015,000
d. 971,250
Date
PP
April 1, 2019
Apr. 1, 2020 700,000
Applied to Interest
Applied to P
P due
Interest accrued 2,100,000 x 15% x 9/12
AC of Notes Payable classified as current
Balance, end
P2,800,000
2,100,000
P700,000
236,250
P936,250
KAYAK Company invested 50,000 ordinary shares of the total 200,000 outstanding
ordinary shares of OTO Corporation on January 1, 2019. The shares were acquired at
P140.
Page 7 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
The following are relevant information of OTO Corporation for the years 2019 and 2020 :
2019
P4,000,000
Net income for the year
2020
P5,000,000
OTO’s shares outstanding at December 31, 2019 follow:
Ordinary share
10% cumulative preference share
P4,000,000
1,000,000
During 2020, OTO declared and distributed preference dividends to its preference
shareholders. KAYAK received cash dividend of P10 per ordinary share. OTO did not
declare any dividends during 2019. The share capital of OTO did not change during 2020.
13. How much is the share in net income for the year 2020? 1,225,000
Profit of associate
P5,000,000
Annual dividend on cumulative preference (10% x 1,000,000)
100,000
Profit attributable to ordinary shareholders
P4,900,000
Underlying equity in ordinary
50/200
25%
Share in Profit of the Associate
P1,225,000
On January 1, 2020 TEH Corp. acquired 60,000 shares of the 200,000 shares outstanding
of KOYA Inc. at P25 per share. The company incurred P2 transaction per share. The book
value of KOYA Inc.’s net assets on this date amounted to P5,000,000. All other
identifiable assets had fair value approximating their book values except for the
Equipment having a remaining useful life of 8 years which had a fair value of P160,000
higher than book value.
KOYA Inc. reported total net income in 2020 at P800,000 and distributed dividends at
year-end at P300,000.
14. How much is the carrying value of investment on December 31, 2020?
a. 1,764,000
b. 1,770,000
c. 1,750,000
d. 1,644,000
Cost of investment (6,000 x 27)
Dividends received (30% x 300,000)
Share in profit
Initial (30% x 800,000)
Excess of cost
Cost
1,620,000
Equity (30% x5M).
(1,500,000)
FV>CV
Equipment 30%x160,000 (48,000)
Goodwill
72,000
Carrying amount
P1,620,000
(90,000)
P240,000
(6,000)
234,000
1,764,000
15. How much is the total net amount that should be reported in profit or loss
for the year 2020?
a. 240,000
b. 220,000
c. 206,000
d. 234,000
Share in profit before impairment
234,000
WATDA Corporation acquired 20,000 PAK Corporation’s shares on February 1, 2020 at
P1,000,000 including a P2 per share brokers’ fees and commissions. A P50,000 cash
dividends were received from PAK Corporation on July 1, 2020. PAK Corporation’s shares
were split 3 for 1 on November 1, 2020. The shares were selling at P30 per share on
December 31, 2020. The investments were classified as Investment at Fair Value through
Profit or Loss.
Page 8 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
16. How much is the total net amount that should be reported in the Profit or
Loss Statement for the year 2020?
a. 850,000
b. 930,000
c. 890,000
d. 810,000
Dividends received
Broker’s commission
Unrealized gain (loss).
FV. 60,000 x 30
Initial measurement
Total net amount in profit or loss
P 50,000
(40,000)
P1,800,000
960,000
840,000
P850,000
17. How much is the total net amount that should be reported in the
Statement of Comprehensive Income for the year 2020 assuming the
investments were classified as Investment at Fair value Through Other
Comprehensive Income? 850,000
Dividends in profit or loss
Unrealized gain (1,800,000 – 1,000,000)in OCI
Total amount in comprehensive income
P50,000
800,000
P850,000
SUKON Company acquired equity securities at the beginning of 2020. SUKON Company
provided you the following information:

Security
No. of shares
Acquisition Cost
AKO Co. shares
100,000 shares
P5,250,000
AKO shares were acquired and were designated as financial asset at fair value
through OCI. The shares were acquired at P52.50 per share which included a
P2.50 per share transaction cost. Half of the AKO shares were sold at P58 per
share on July 1, 2021.
Fair value,
Dec. 31, 2020
P55/share
Fair value,
Dec. 31, 2021
P62/share
18. How much is the cumulative balance of unrealized gain/loss transferred to
Retained Earnings upon sale of investment?
a. 125,000
b. 400,000
c. 150,000
d. 275,000
Selling price 50,000 x P58
Cost
50,000x 52.50
Change during the holding period
P2,900,000
2,625,000
P 275,000
19. How much is the carrying value of the Investment on December 31, 2021?
a. 3,100,000
b. 2,900,000
c. 2,750,000
d. none of the choices
FV at December 31, 2021.
50,000 x P62 = P3,100,000
On January 1, 2020, PAM Company invested P600,000 in equity securities representing 20,000
ordinary shares of BAWI Company. PAM Company incurred transaction cost of P5,000 related to the
acquisition of the securities. On December 31, 2020, these securities had a fair value of P35 per
share. Cost to sell on this date was P2,000.
20. How much is the carrying value of the Investment on December 31, 2020?
a. 700,000
b. 698,000
c. 595,000
d. 702,000
20,000 x 35 = P700,000
Page 9 of 9
This study source was downloaded by 100000873202307 from CourseHero.com on 10-06-2023 00:05:14 GMT -05:00
https://www.coursehero.com/file/151288313/PRELIM-EXAM-CA51010-with-answers-1doc/
Powered by TCPDF (www.tcpdf.org)