Fernandez, April Kate A.

Acctg 6
A. LIABILITIES
1. Which of the following conditions would
be required in the classification of
liability as current?
a. The entity does not have an
unconditional right to defer
settlement of the liability for at
least twelve months after the
reporting period.
b. The liability is due to be settled
beyond twelve months after the
reporting period.
c. The entity does not hold the liability
primarily for the purpose of trading.
d. The entity expects to settle the
liability beyond the entitys operating
cycle.
2. Chuy Koh Company provided the
following data on December 31, 2015:
Accounts Payable
750,000
15% Note Payable issued
October 1, 2014, maturing
June 30, 2016
950,000
12% debentures payable, next annual
principal installment of P600,000
due November 1, 2016
4,800,000
On December 31, 2015, the entity
consummated
a
noncancelable
agreement with the lender to refinance
the 15% Note Payable on a longterm
basis. On December 31, 2015, what total
amount should be reported as current
liabilities?
a. 5,550,000
b. 6,500,000
c. 1,350,000 (750,000+600,000)
d. 1,700,000
B. PREMIUM AND WARRANTY LIABILITY
3. Which approach has the soundest
theoretical support in accounting for
warranties because it properly matches
cost with revenue?
a. Accrual accounting
b. Accrual approach
c. Expense as incurred approach
d. Expense method
4. Money Company offers a cash rebate of
P15 on each P50 package of batteries
sold during 2015. Historically, 10% of
customer mail in the rebate form. During
2015, 4,000,000 packages of batteries

are sold, and 150,000 of P15 rebates are

mailed to customers. What amount of
liability for rebates should be reported
on December 31, 2015?
a. 12,500,000
b. 8,750,000
c. 3,750,000[(4,000,000X10%)150,000X15)]
d. 0
C. ACCRUED
LIABILITIES
AND
DEFERRED REVENUE
5. These amounts withheld from the
salaries of the employees and
are
contributed by both the employee and
employer except
a. SSS Contribution
b. PhilHealth Contribution
c. Withholding taxes
d. Pag-ibig Funds
6. Memeng
Company
has
a
bonus
agreement which provides that the sales
manager shall receive an annual bonus
of 10% of the net income after bonus
and tax. The income tax rate is 30%. The
sales manager received P210,000 for
the current year as bonus. What is the
income before bonus and tax?
a. 7,000,000
b. 7,210,000
c. 3,210,000
{[(210,000/.7)/.1)+210,000]}
d. 3,000,000
D. PROVISION
AND
CONTIGENT
LIABILITY
7. The very essence of a provision is
a. The timing or amount of liability
b. The uncertainty about the timing
or amount of liability
c. The certainty about the timing or
amount of liability
d. The uncertainty of either probable
timing or measurable amount of
liability
8. In March 2015, Mura Jowg Company
relocated an employee from the Davao
head office to Cotabato City. As of the
end of the reporting period on June 30,
2015, the costs were estimated to be
P350,000 analyzed as follows:
Cost for shipping goods
20,000
Airfare
10,000
Temporary accommodation on cost
for May and June
100,000
Temporary accommodation on cost
for July and August
80,000

Reimbursement for lease break

cost paid in July (lease was
terminated in May)
30,000
Reimbursement for cost of living
increases for the period May 1, 2015
to May 1, 2016
60,000
(60,000X2/12)
20,000
What amount should be reported as
provision for relocation cost on June 30,
2015?
a. 300,000
b. 220,000
c. 200,000
d. 170,000
E. BONDS PAYABLE
9. Bond issue cost is
a. Treated as outright expense
b. Treated as an outright expense but to
be recovered in future date
c. Not treated as an outright
expense
d. Not treated as an outright expense
and not amortized
10. On April 1, 2015, Kala-In Company
issued, at 97 plus accrued interest,
3,000 of 12% P1,000 bonds. The bonds
are dated January 1, 2015, maturing in
January 1, 2020 and pay interest on
January 1 and July 1. The entity paid
bond issue cost of P170,000. What
amount of accrued interest payable
should be reported on November 30,
2015?
a. 180,000
b. 150,000 (3,000,000X12%X5/12)
c. 330,000
d. 360,000
F. EFFECTIVE INTEREST METHOD
11. Effective rate is
a. The coupon or stated rate
b. Fair value rate
c. Rate
that
exactly
discounts
estimated cash future payments
d. Rate that is used in finding the
interest payment
12. On September 1, 2015, Batig Nawong
Company issued 10% bonds in the face
amount of P4,000,000 that mature on
September 1, 2020. The bonds were
issued for at 98 to yield 11% resulting in
the bond issue cost of P67,640. The
entity used the interest method. Interest
is payable annually every September 1.

What amount should be reported as

interest expense for 2015?
a. 423,760
b. 431,200
c. 141,253
{[(4Mx98)67,640]x11%}
d. 143,733
G. COMPOUND FINANCIAL INSTRUMENT
13. An entity issued bonds payable with
nondetachable
share
warrants.
In
computing interest expense for the first
year, the effective interest rate is
multiplied by the
a. Proceeds received from the sale of
the bonds
b. Share warrants outstanding
c. Fair value of the bonds only
d. Face value of the bonds
14. Hayahay Company issued 3,000 P1000
convertible bonds at par, with an annual
interest rate of 6% when the market rate
was 9%. The bonds are due in 5 years
and each P1000 bond is convertible into
5 ordinary shares. At what amount
should the liability component of the
bond be recognized? Round off PV factor
to 3 decimal places.
a. 265,200
b. 2,650,200
c. 2,999,160
d. 1,950,000
PV of Principal
1,950,000
PV of Interest
3.890) 700,200

(3M x 0.650)
(3m

6%

2,650,200

H. NOTE PAYABLE
15. When a note payable is exchanged for
property, the stated interest rate is
presumed to be fair when
a. The
stated
interest
rate
is
unreasonable
b. No interest rate is stated
c. The stated interest rate is equal
to the market rate
d. The face amount of the note is
materially different from the cash
sale price for similar property
16. Ming Hoy Company reported a note
payable of P3,500,000 on December 31,
2015. The note is dated September 1,
2015, bears interest at 15% and is
payable in five equal annual payments of
P700,000. The first interest and principal
payment was made on September 1,
2016. What amount should be reported

as interest expense for the year ended

December 31, 2016?
a. 525,000
b. 700,000
c. 116,667 {[700,000-(3.5Mx15%)]x
8/12}
d. 175,000
I. DEBT RESTRUCTURE
17. For a debt restructuring involving
substantial modification of terms, it is
appropriate for a debtor to recognize a
gain when the carrying amount of the
debt
a. Is less than the total future cash
payments specified
by the new
terms
b. Is less than the present value of the
future cash payments specified by
the new terms
c. Exceeds the present value of the
future cash payments specified
by the new terms
d. Exceeds the total future cash
payments specified by the new terms
18. During 2015, Walay Forever Company
experienced financial difficulties and is
likely to default on a P5,000,000, 12%
five-year note dated January 1, 2012 ,
payable to Bitter Bank. On December 31,
2015, the bank agreed to settle the note
and unpaid interest of P600,000 for
P5,100,000 cash payable on January 31,
2016. What amount should be reported
as gain from extinguishment of debt in
the 2015 income statement?
a. 1,100,000
b. 500,000
c. 400,000
d. 0
CA of Liability
5,600,000
Cash Payment
5,100,000
500,000
J. ACCOUNTING FOR INCOME TAX
19. Which is not considered to result in a
deferred tax asset?
a. Rent received in advance
b. Estimated product warranty cost
c. Impairment loss
d. Development cost
20. Shakit-Man-Diay
Company
reported
P700,000 income before provision for
income tax during the current year. To
compute the provision for income tax,
the following data are provided:
Rent received in advance
200,000
Interest Income on time

deposit
100,000
Depreciation deducted for income
tax purposes in excess depreciation
for accounting purposes
150,000
Estimated tax payment in the
current year
130,000
Income tax rate
30%
What amount of current tax liability
should be reported at year-end?
a. 130,000
b. 195,000
c. 65,000
d. 75,000
Pretax Income
700,000
Permanent Difference
100,000
Income subj. to tax
600,000
Rent in advance
Excess Depreciation
(150,000)
Taxable Income
650,000x30%
Current tax liability
=195,000
Payment

200,000

(130,000)
65,000

K. OPERATING LEASE
21. Which
statement
characterizes
an
operating lease?
a. The lessor transfer title of the leased
property to the lease for the duration
of the lease term
b. The lessor records lease expense and
depreciation
c. The lessor records depreciation
and lease revenue
d. The lessee records depreciation and
lease revenue
22. On January 1, 2015, Chuy Company
signed a 5-year operating lease for office
space at P850,000 per year. The lease
included unequal payments of P500,000,
P750,000, P1,000,000, P1,000,000, and
P1,000,000 for 2015, 2016, 2017, 2018,
and 2019, respectively. For the year
ended December 31, 2016, what amount
should be reported as rent expense?
a. 500,000
b. 850,000
[(500T+750T+1M+1M+1M)/5]
c. 750,000
d. 1,000,000

L. FINANCE LEASE- LESSEE

23. Finance lease is the equivalent of a/an
a. Operating lease
b. Capital lease
c. Periodic lease
d. Direct financing lease
24. On December 31, 2015, Hanginon
Company leased equipment under a
finance lease. Annual lease payment of
P100,000 are due every December 31
for 10 years. The equipments useful life
is 10 years, and the interest rate implicit
in the lease is 10%. The lease obligation
was recorded on December 31, 2015 at
P614,000. The first lease payment was
paid on December 31, 2015. What
amount should the finance lease liability
be reduced on December 31, 2015?
a. 61,400
b. 100,000 (Paid in advance)
c. 38,600
d. 42,460
M. DIRECT FINANCING LEASE- LESSOR
25. This is equal to the total financial
revenue of the lessor which is the
difference between the gross investment
and net investment in the lease.
a. Gross investment
b. Net investment
c. Unearned interest income
d. Initial direct cost
26. Shokmoy Company leases computer
equipment under a direct financing
lease. The equipment has no residual
value at the end of the lease and the
lease does not contain bargain purchase
option. The entity wishes to earn 10%
interest on a 5-year lease of equipment
with a cost of P4,244,800. What total
amount of interest revenue should be
recognized over the lease term? Round
off present value up to two decimal
places.
a. 1,355,200
b. 1,120,000
c. 700,000
d. 694,730
Cost of Equipment
4,244,800
PV of ordinary annuity of 1

3.79
Annual payment
1,120,000
Gross
Investment
5,600,000
Net Investment
(4,244,800)

(1,120,000x5)

Total Financial Revenue

1,355,200
N. SALES TYPE LEASE- LESSOR
27. Net investment in a sales type lease is
equal to
a. Cost of the leased asset
b. The minimum lease payments
c. Gross investment in the lease
less unearned finance income
d. The minimum lease payments less
unguaranteed residual value
28. On December 31, 2015, Pateke Leng
Company, a lessor, actually sold
machinery that it had been leasing
under a sales type lease. On January 1,
2015 after the receipt of the lease
payment for the year, the following
account balances were associated with
the lease:
Gross lease receivable
5,850,000
Unearned interest income
1,000,000
The interest rate implicit in the lease is
10%. On December 31, 2015, Pateke
Leng Company actually sold the leased
machinery to the lessee for P3,250,000
cash. What is the interest income for
2015?
a. 585,000
b. 485,000 [(5,850,000-1M)x10%]
c. 325,000
d. 0
O. SALE AND LEASEBACK
29. If the sale and leaseback transaction
results in an operating lease and the sale
price is above fair value, the excess of
the sale price over fair value is
a. Deferred and amortized over the
period for which the asset is
expected to be used.
b. Recognized immediately in profit or
loss.
c. Recognized in other comprehensive
income.
d. Not recognized.
30. Danghag Company sold a machinery on
January 1, 2015 at the fair value of
P2,500,00 when the carrying amount
was P2,000,000. Danghag Company
leased the asset back on that date for
the remaining useful life of 5 years.
Lease payments are P700,000 on
January 1 each year. What is the total
finance charge over the lease term?
a. 2,500,000

b. 1,500,000
c. 1,000,000
d. 700,000
Gross rentals (700Tx5)
3,500,000
Net
investment
equal
(2,500,000)
Total Financial Revenue
1,000,000

34. MakaSurviveRaKa Company had 350,000

ordinary shares authorized and 145,000
shares outstanding on January 1, 2015.

to

FV

P. SHAREHOLDERS EQUITY
31. A redeemable preference share shall be
classified in the statement of financial
position as
a. Noncurrent liability
b. Current liability
c. Either
current
liability
or
noncurrent liability depending on
redemption date
d. Part of shareholders equity
32. Gugmang Giatay Company revealed the
following shareholders equity at yearend:
Preference share capital, P50 par
1,500,000
Share premium PS
705,000
Ordinary share capital, P35
1,050,000
Share premium
2,100,000
Subscribed
ordinary
share
capital
875,000
Retained earnings
2,200,000
Note Payable
500,000
Subscriptions receivable ordinary
500,000
How much is the legal capital?
a. 6,230,000
b. 5,730,000
c. 3,425,000
d. 2,925,000
Q. RETAINED EARNINGS
33. Which of the following statements about
property dividends is not true?
a. A property dividend is usually in the
form of securities of other entities.
b. A property dividend is also called a
dividend in kind.
c. The accounting for a property
dividend should be based on the
carrying amount of the noncash
asset transferred.
d. All of these statements are true.

January
31
dividend
June
30
August
1
November 30
split

Declared

10%

stock

Purchased 100,000 shares

Reissued 50,000 shares
Declared 2-for-1 reverse

On December 31, 2015, how many

ordinary shares are outstanding?
a. 219,000
b. 167,500
c. 135,000
d. 54,750

Outstanding 145,000
Jan 31
159,500 (145,00x110%)
June 30
59,500 (159,500100,000)
Aug 1
109,500
(59,500
+50,000)
Nov 30
54,750
(109,500/2)
R. SHARE-BASED
COMPENSATION:
SHARE OPTIONS
35. It is the difference between the fair value
of the shares to which the counterparty
has the right to subscribe and the price
the counterparty is required to pay for
those shares.
a. Fair value
b. Intrinsic value
c. Market value
d. Book value
36. On January 1, 2015, Samokan Company
granted an employee an option to
purchase 10,000 ordinary shares with
P10 par value at P40 per share. The
option became exercisable on December
31, 2016, after the employee completed
two years of service. The fair value of
the share option is P20. The option was
exercised on January 10, 2017. The
share prices are P30 on January 1, 2015,
P45 on December 31, 2015, and P50 on
January 10, 2017.
What is the
compensation expense for 2015?
a. 150,000
b. 100,000 [(10,000x20)/2]

c. 300,000
d. 200,000
S. SHARE-BASED
COMPENSATION:
SHARE APPRECIATION RIGHT
37. What is the measurement date for sharebased payment to employees that is
classified as liability?
a. The service inception date
b. The grant date
c. The settlement date
d. The end of the reporting period
38. LastNaJud Company granted 200 share
appreciation rights to each of the 1,000

employees on January 1, 2015. The

management estimated that 90% of the
awards will vest on December 31, 2017.
The fair value of each share appreciation
right on December 31, 2015 is P30. What
is the fair value of the liability for the
share appreciation rights on December
31, 2015?
a. 2,000,000
b. 1,800,000
[(1,000x200x30X90%)/3]
c. 1,600,000
d. 900,000