Chapter 1 - Liabilities
Chapter 1 - Liabilities
0.59
1.69
2.91
b.13,520,000
c. 8,720,000
d. 9,820,000
b. 120,000
c. 195,000
d. 135,000
7,500,000
2,700,000
3,900,000
3,000,000
7,200,000
6,000,000
4,500,000
b. 10,200,000
c. 12,000,000
d. 14,700,000
b. 17,700,000
c. 17,100,000
d. 16,200,000
LIABILITIES
5) Gullon Company reported the following information on December 31, 2013:
Accounts Payable
Advances to employees
Unearned rent revenue
Estimated liabilities under warranties
Cash surrender value of officers life insurance
Bonds Payable, due 2014
Discount on bonds payable
Dividends payable
Note payable, due 2014
1,200,000
50,000
500,000
150,000
35,000
2,500,000
300,000
700,000
350,000
b. 5,000,000
c. 5,100,000
d. 5,185,000
6) Pacio Company offers its customers a cereal bowl if they send in three boxtops from
its products and P10. The entity estimated that 70% of the boxtops will be redeemed.
In 2013, the entity sold 675,000 boxes and customers redeemed 330,000 boxtops
receiving 110,000 bowls. The cost of each bowl is P25. What is the liability for
outstanding premiums on December 31, 2013?
a. 475,000
b. 1,187,500
c. 337,500
d. 712,500
b. 300,000
c. 374,000
d. 320,000
8) On December 31, 2013, Yam Company was a defendant in a pending lawsuit. In the
opinion of the entitys attorney, it is probable that Yam Company will have to pay
P600,000 and it is reasonably possible that Yam Company will have to pay P800,000
as a result of this lawsuit. What should be reported in the 2013 financial statements?
a. An accrued liability of P600,000 only.
b. An accrued liability of P1,400,000.
c. An accrued liability of P600,000 and disclosure
d. An accrued liability of 800,000 only.of a contingent liability of P200,000.
BONDS PAYABLE
9) Red Company reported the following on December 31, 2013:
Unsecured
8% debentures, callable in 2014, due in 2015
10% debentures (P500,000 maturing annually)
11% convertible bonds, callable beginning in 2014, due 2015
3,500,000
4,000,000
1,300,000
Secured
12% guaranty security bonds, due in 2015
12% collateral trust bonds, convertible into share
capital beginning in 2014, due in 2015
8% commodity backed bonds (P500,000
maturing annually beginning in 2014)
5,000,000
2,000,000
4,500,000
What total amount of serial bonds, term bonds and debenture bonds should be
reported?
Serial bonds
a. 8,800,000
b. 8,500,000
c. 11,800,000
d. 8,500,000
Term bonds
11,800,000
8,800,000
8,500,000
11,800,000
Debenture bonds
8,500,000
11,800,000
8,800,000
8,800,000
10) The December 31, 2013 statement of financial position of Love Company included a
9% bonds payable due December 31, 2019 with a carrying amount of P15,405,000.
The bonds were issued on December 31, 2009 and have a face amount of
P15,000,000 with interest payable semi-annually on June 30 and December 31 of
each year. On January 1, 2014, the entity retired P5,000,000 of these bonds at 99.
What amount should be reported in the 2014 income statement as gain or loss on the
retirement of the bonds?
a. 235,000 gain
b. 235,000 loss
c. 185,000 gain
d. 185,000 loss
b. 208,000
c. 206,440
d. 228,400
12) A cash flow of P2,000,000 may be received by Ian Company in one year, two years
or three years, with probabilities of 25%, 45%, and 30% respectively. The rate of
interest on default risk-free investment is 5%. The present value factors are:
PV of 1 at 5% for 1 year
PV of 1 at 5% for 2 years
PV of 1 at 5% for 3 years
.952
.907
.864
b. 1,806,200
c. 1,814,000
d. 1,728,000
February 28. On March 1, 2013, the market value of the share was P40 and the
market value of the warrant is P4. The market rate of interest for similar bonds exwarrant is 14%. The present value of 1 at 14% for 5 periods is 0.52 and the present
value of an ordinary annuity of 1 at 14% for 5 periods is 3.43. What amount should
be recognized on March 1, 2013 as discount or premium on the issuance of the
bonds?
a. 450,000 discount b. 450,000 premium c. 342,000 discount d. 342,000 premium
14) On December 1, 2013, IGB Company issued at 105, five thousand of 9%, P1,000
face value bonds. Attached to each bond was one share warrant entitling the holder
to purchase 10 ordinary shares of the entity. On December 1, 2013, the fair value of
the bonds without the share warrants was 95, and the fair value of the share warrant
was P45. What amount of the proceeds from the bond issuance should be accounted
for as the initial carrying amount of the bonds payable?
a. 5,250,000
b. 5,150,000
c. 5,000,000
d. 4,750,000
b. 2,160,000
c. 6,350,000
d. 3,600,000
16) During 2013, Huhuhu Company experienced financial difficulties and is likely to
default on a P5,000,000, 15% three-year note dated January 1, 2011 payable to
Hahaha Bank. On December 31, 2013, the bank agreed to settle the note and unpaid
interest of P800,000 for 4,200,000 cash payable on January 31, 2014. What amount
should be reported as gain from extinguishment of debt in the 2013 income
statement?
a. 800,000
b. 1,600,000
c. 1,700,000
d. 0
OPERATING LEASE
17) On July 1, 2013, Red Company leased office premises for a three-year period at
annual rental of P400,000 payable on July 1 each year. The first rent payment was
made July 1, 2013. Additionally on July 1, 2013, Red Company paid P300,000 as a
lease bonus to obtain the three-year lease instead of the lessors usual term of six
years. In the December 31, 2013 statement of financial position, what amount should
be reported as prepaid rent?
a. 450,000
b. 250,000
c. 600,000
d. 380,000
18) Mama Company leased a new machine to Papa Company on January 1, 2013. The
lease expires on January 1, 2018. The annual rental is P600,000. Additionally, on
January 1, 2013, Papa Company paid P500,000 to Mama Company as a lease
bonus and P250,000 as a security deposit to be refunded upon the expiration of the
lease. In 2013 income statement, what amount should be reported as rent revenue?
a. 500,000
b. 700,000
c. 1,100,000
d. 1,350,000
b. 4,578,000
c. 700,000
d. 0
20) Ate Company has leased an asset under a finance lease. The present value of the
minimum lease payments is 676,000 and the fair value of the asset is 700,000. The
asset has a useful life of 5 years and the lease is for a period of 4 years, after which
the asset can be acquired at a near zero cost, which is substantially below the
expected value of the asset at that date. The asset is depreciated on a straight line
basis. What is the annual depreciation expense?
a. 140,000
b. 169,000
c. 135,200
d. 175,000
b. 648,000
c. 620,000
d. 639,000
22) Someday Company leased an asset to another entity. The cost of the asset was
P7,884,000. Terms of the lease specify four-year life for the lease, an annual interest
rate of 15%, and four year-end rental payments. The lease qualifies as a finance
lease and is classified as a direct financing lease. The lease provides for a transfer of
title to the lessee at the end of the lease term. After the fourth year, the residual value
is estimated to be P1,000,000. The PV of 1 at 15% for 4 periods is .572, and the PV
of an ordinary annuity of 1 at 15% for 4 periods is 2.855. What is the annual rental
payment?
a. 13,783,220
b. 5, 384,048
c. 2,761,471
d. 1,356,394
b. 125,000
c. 115,000
d. 0
24) Rhea Company leased equipment to another entity on January 1, 2013. The lease is
for an eight-year period expiring December 31, 2020. The first of eight equal annual
payments of P900,000 was made on January 1, 2013. Rhea Company had
purchased the equipment on December 29, 2012 for P4,800,000. The lease is
appropriately accounted for as a sales type lease by Rhea Company. The present
value on January 1, 2013 of all rent payments over the lease term discounted at a
10% interest rate was P5,280,000. What amount of interest revenue should be
recorded in 2014?
a. 391,800
b. 438,000
c. 480,000
d. 490,000
b. 250,000
c. 100,000
d. 0
26) What is the total finance charge over the lease term?
a. 1,500,000
b. 1,000,000
c. 500,000
d. 0
b. 315,000
c. 600,000
d. 615,000
28) In 2013, Lonely Company reported pretax financial income of P5,000,000. Included
in the pretax financial income are P800,000 of non-taxable life insurance proceeds
received as a result of the death of an officer, P1,300,000 of estimated warranty
expenses accrued on December 31, 2013, and P150,000 of life insurance premiums
for a policy for an officer. No income tax was previously paid during the year and the
income tax rate is 30%. What is the income tax payable on December 31, 2013?
a. 810,000
b. 825,000
c. 1,605,000
d. 1,695,000
a. 1,110,000
b. 750,000
c. 666,000
d. 450,000
30) Hello Company has a profit sharing bonus plan which requires the entity to pay 12%
of the income for the year to employees who serve throughout the current year and
who will continue to serve throughout the following year. The entity reported income
of P40,000,000 for 2013. The entity expects to save 5% of the maximum possible
bonus through staff turnover. The bonus will be paid on December 31, 2014. What is
the bonus expense for 2013?
a. 4,800,000
b. 2,400,000
c. 4,560,000
d. 2,280,000
SHAREHOLDERS EQUITY
31) Angry Company was incorporated on January 1, 2013 and provided the following
information:
Jan. 1
Feb. 1
July 1
Dec. 1
300,000
195,000
15,000
b. 90,000
c. 142,500
d. 45,000
32) The following accounts appear in the December 31, 2013 trial balance of Resilient
Company:
Preference share capital authorized, P100 par
Ordinary share capital authorized, P10 par
Unissued preference share capital
Unissued ordinary share capital
Subscriptions receivable, ordinary
Subscriptions receivable, preference
Preference share capital subscribed
Ordinary share capital subscribed
Treasury preference shares (1,400 shares at cost)
Retained Earnings
Cumulative translation adjustment credit
10,000,000
4,000,000
3,600,000
2,000,000
360,000
380,000
600,000
440,000
1,360,000
4,000,000
1,500,000
b. 11,670,000
c. 11,450,000
d. 12,840,000
RETAINED EARNINGS
33) Inday Company had 40,000 ordinary shares outstanding in January 2013. The entity
distributed a 15% stock dividend in March and a 10% stock dividend in June. After
acquiring 5,000 shares of treasury in July, the entity split its shares 2 for 1 in
December. How many ordinary shares are outstanding on December 31, 2013?
a. 91,200
b. 90,000
c. 90,400
d. 89,200
34) Lovely Company, a calendar year entity, had sufficient retained earnings in 2013 as
a basis for dividends but was temporarily short for cash. The entity declared a