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7. When bonds are sold between interest dates, any accrued interest is credited to
a. Interest payable c. Interest receivable
b. Interest revenue d. Bonds payable
10. When the effective interest method is used, the periodic amortization would
a. Increase if the bonds were issued at a discount
b. Increase if the bonds were issued at a premium
c. Decrease if the bonds were issued at a premium
d. Increase if the bonds were issued at either a discount or a premium
11. Harden Company reported the following information on December 31, 2016:
Bonds payable P5,000,000
UNIVERSITY OF LUZON
PEREZ BLVD. DAGUPAN CITY
COLLEGE OF ACCOUNTANCY
Discount on bonds payable 500,000
Loan payable, with P500,000 payable
semi-annually starting 06/30/2017 2,500,000
Accounts payable 1,000,000
Unearned rent income 300,000
Income tax payable 250,000
Cash dividends payable 100,000
Cash surrender value of officers' life insurance 75,000
Patent 50,000
Advances to employees 45,000
Deferred tax liability 15,000
Share dividends payable 150,000
Total liabilities to be reported in the company’s December 31, 2016 statement of financial position is:
a. 8,835,000 c. 7,545,000
b. 8,665,000 d. 7,325,000
12. An analysis of Howard Company’s liabilities on December 31, 2016 disclosed the following information:
The deferred tax liability is based on temporary differences that will reverse in 2017.
13. Tim Co. has a 10%, P2,000,000 loan payable as of December 31, 2016 that is maturing on July 1, 2017.
Interest on the loan is due every July 1 and December 31. On February 1, 2017, Tim Co., entered into a
refinancing agreement with a bank to refinance the loan on a long-term basis. Both parties are financially
capable of honouring the agreement’s provision. Tim’s financial statements were authorized for issue on
March 15, 2017?
How much is presented as current liability in relation to the loan in Tim’s 2016 year-end financial
statements?
a. 2,000,000 c. 100,000
b. 200,000 d. Nil
14. On January 1, 2016, Allen Co, availed a 3-year, P2,000,000 loan from a bank. The loan agreement requires
Allen to maintain a current ratio of 2:1. If the current ratio falls below 2:1, the loan becomes payable on
demand. As of December 31, 2016, Allen’s current ratio is 1:8:1. On January 5, 2017, the bank agreed not to
collect the loan in 2017 and gave Allen 12 months to rectify the breach of loan agreement.
How much is presented as current liability in relation to the loan in Allen’s 2016 year-end financial
statements?
UNIVERSITY OF LUZON
PEREZ BLVD. DAGUPAN CITY
COLLEGE OF ACCOUNTANCY
a. 2,000,000 c. 100,000
b. 200,000 d. Nil
15. Duncan Company’s account payable balance at December 31, 2016 was P8,000,000 before considering the
following data:
Goods shipped to Duncan FOB shipping point on December 15, 2016 were lost in transit. The
invoice cost of P500,000 was not recorded by Duncan. On January 15, 2017, Duncan filed a
P500,000 claim against the common carrier.
On December 30, 2016, a vendor authorized Duncan to return for full credit goods shipped and billed
at P200,000 on December 15, 2016. The returned goods were shipped by Duncan on December 31,
2016. A P200,000 credit memo was received and recorded on January 5, 2017.
16. Tony Co. provides an incentive compensation plan under which its chief executive officer receives a bonus
equal to 10% of the company in excess of P880,000 before bonus and income tax. If income before bonus
and income tax for 2016 amounted to P2,200,000 and income tax rate is 30% the amount of bonus would be
a. 220,000 c. 132,000
b. 200,000 d. 120,000
17. On January 1, 2017, Davao Company bought a machine from Tagum Co. In lieu of cash payment, Davao
gave Tagum a 4-year, P4,000,000, 15% note payable. Principal is due on December 31, 2020 but interest is
due annually every December 31. The prevailing interest rate for this type of note is 10%
Based on the above data, answer the following (carry all decimal places in computing for the present value)
A) How much is the cost of the machinery acquired on January 1, 2017?
a. 3,783,973 c. 4,000,000
b. 3,796,160 d. 4,633,973
B) How much is the carrying amount of the note on December 31, 2017?
a. 4,000,000 c. 4,497,370
b. 4,347,107 d. 4,578,468
C) How much is the current portion of the note on December 31, 2017?
a. Nil c. 150,263
b. 71, 077 d. 4,497,370
D) How much is the noncurrent portion of the note on December 31, 2017?
a. Nil c. 150,263
b. 71, 077 d. 4,497,370
18. On January 1, 2016, Compostela Co. acquired machinery from Nabunturan Co. In lieu of cash paymen,
Compostela giave Nabunturan a 3-year, P1,200,000 noninterest-bearing note payable. Principal is due in
equal payments every December 31 beginning on December 31, 2016. The prevailing interest rate for this
type of note is 12%.
B) How much is the carrying amount of the note on December 31, 2016?
a. 676,006 c. Nil
b. 800,000 d. 357,127
C) How much is the current portion of the note on December 31, 2016?
a. Nil c. 357,127
b. 318,879 d. 38,248
D) How much is the noncurrent portion of the note on December 31, 2016?
a. Nil c. 357,127
b. 318,879 d. 38,248
UNIVERSITY OF LUZON
PEREZ BLVD. DAGUPAN CITY
COLLEGE OF ACCOUNTANCY
19. On January 1, 2016, Occidental Co. borrowed 10% , P2,500,000 five-year loan from the National Bank.
Interests are payable annually starting December 31, 2016. National charges 5% non-refundable loan
origination fee representing service fee. The effective interest rate for this type of loan is 11.3866%.
B) How much is the carrying amount of the loan payable on December 31, 2017?
a. 2,395,432 c. 2,443,540
b. 2,418,190 d. 2,375,000
20. On January 1, 2016, Bukidnon Co. issued 3-year bonds with a face value of P1,200,000 and stated interest of
8% per year. The bonds mature in 3 equal annual installments every December 31. The interest is also
payable every December 31.
The bonds were acquired to yield 10%. The bonds were appropriately classified as financial liability at
amortized cost?
21. On January 1, 2016, Lanao del Norte Company issued 10%, 3-year bonds with face value of P5,000,000 at
98. Additionally, Lanoa del Norte Company paid bond issue cost of P140,000. After consideration of bond
issue costs to the initial measurement, the calculated effective rate is 12%. The interest is payable annually
on December 31.
Lanao del Norte Company uses the effective interest method in amortizing discount and issue cost. What is
the carrying value of the payable on December 31, 2016?
a. 5,000,000 c. 4,848,600
b. 4,840,000 d. 4,831,200
22. On December 31, 2016, Misamis Oriental Company issued 5,000 of its 8% 10-year P1,000 face value bonds
with detachable warrants at 110. Each bonds carried a detachable warrant for 10 ordinary shares of Misamis
Oriental’s P100 par value at a specified option price of P120. Immediately after issuance, the market value of
the bonds without warrants as P4,800,000 and the market value of the warrants was P1,200,000. In the
December 31, 2016 statements of financial position, what amount should Misamis Oriental report as bonds
payable?
a. 5,500,000 c. 5,000,000
b. 4,800,000 d. 4,400,000
GODBLESS!
“If you remain in me and my words remain in you, ask whatever you wish and it will be done for you.”
- John. 15:7