You were able to obtain the following from the accountant for Paterno Corp.

related to the companys liabilities as of December 31, 2006.

Accounts payable
Notes payable trade
Notes payable bank
Wages and salaries payable
Interest payable
Mortgage notes payable 10%
Mortgage notes payable 12%
Bonds payable

P 650,000
190,000
800,000
15,000
?
600,000
1,500,000
2,000,000

The following additional information pertains to these liabilities.

a. All trade notes payable are due within six months of the balance sheet date.
b. Bank notes-payable include two separate notes payable to Allied Bank.
(1) A P300,000, 8% note issued March 1, 2004, payable on demand. Interest
is payable every six months.
(2) A 1-year, P500,000, 11 % note issued January 2, 2006. On December 30,
2006, Paterno negotiated a written agreement with Allied Bank to replace
the note with a 2-year, P500,000, 10% note to be issued January 2, 2007.
The interest was paid on December 31, 2006.
c. The 10% mortgage note was issued October 1, 2003, with a term of 10 years.
Terms of the note give the holder the right to demand immediate payment if the
company fails to make a monthly interest payment within 10 days of the date
the payment is due. As of December 31, 2006, Paterno is three months behind
in paying its required interest payment.
d. The 12% mortgage note was issued May 1, 2000, with a term of 20 years. The
current principal amount due is P1,500,000. Principal and interest payable
annually on April 30. A payment of P220,000 is due April 30, 2007. The
payment includes interest of P180,000.
e. The bonds payable is 10-year, 8% bonds, issued June 30, 1997. Interest is
payable semi-annually every June 30 and December 31.
QUESTIONS:

Based on the above and the result of your audit, answer the following:
1. Interest payable as of December 31, 2006 is
a. P155,000
b. P143,000
P215,000

c. P203,000

d.

2. The portion of the Note Payable-bank to be reported under current liabilities

as of December 31, 2006 is
a. P300,000
b. P500,000
c. P800,000
d. P0
3. Total current liabilities as of December 31, 2006 is
a. P3,950,000
b. P4,138,000
c. P3,938,000

d. P3,998,000

4. Total noncurrent liabilities as of December 31, 2006 is

a. P1,760,000
b. P2,560,000
c. P3,960,000

d. P1,960,000

5. Which of the following is incorrect regarding the classification of financial

liabilities?
a. An entity classifies financial liabilities as current when they are due to be
settled within 12 months after the balance sheet date.
b. If the entity expects, and has the discretion, to refinance or roll over an
obligation for at least 12 months after the balance sheet date under an
existing loan facility, it classifies obligation as non-current, even if it
would be otherwise due within a shorter period.
c. When refinancing or rolling over is not at the discretion of the entity, the
potential to refinance is not considered and the obligation is classified as
current.
d. When an entity breaches an undertaking under a long-term loan agreement
on or before the BS date with the effect that the liability becomes payable
on demand, the liability is classified as non-current, if, after the BS date,
and before the FS are authorized for issue, the lender has agreed not to
demand payment as a consequence of the breach.