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Problems - Docx 1
Problems - Docx 1
PROBLEM SOLVING
a. 15,650,000 c . 20,650,000
b. 11,650,000 d. 13,650,000
15. On July 1, 2019, the Quezon City government issued realty tax
assessment for its fiscal year ended June 30, 2020. On
September 1, 2019, Zuma Company purchased a land in Quezon
City. The purchase price was reduced by a credit for accrued
realty taxes. Zuma does not record the entire year’s real estate
tax obligation but instead records tax expenses at the end of
each month by adjusting prepaid real estate taxes or real estate
taxes payable as appropriate. On November 1, 2019, Zuma paid
the first of two equal installments of P600,000 for realty taxes.
What amount of the payment should Zuma record as a debit to
real estate taxes payable?
a. 200,000
b. 400,000
c. 500,000
d. 600,000
5% probability of P400,000
20% probability of P200,000
50% probability of P 80,000
25% probability of P 20,000
Assume for simplicity that the 2021 cash flows for warranty
repairs and replacements take place on June 30, 2021.
An appropriate discount rate is 10% per year. The PV of 1 at 10%
for one year is 0.91 and the PV of 1 at 10% for six months is
0.95. An appropriate risk adjustment factor to reflect the
uncertainties in the cash flow estimates is an increment of 8% to
the probability-weighted expected cash flows.
21. On the first day of each month, Lesley Company receives from
Harley Company an escrow deposit of P250,000 for real estate
taxes. Lesley records the P250,000 in an escrow account.
Harley’s 2019 real estate tax is P2,800,000 payable in equal
installments on the first day of each calendar quarter. On January
1, 2019, the balance in the escrow account was P300,000. On
September 30, 2019, what amount should be reported as escrow
liability?
a. 1,150,000
b. 450,000
c. 850,000
d. 150,000
24. Zilong Company has long owned a manufacturing site that has
now been discovered to be contaminated with toxic waste. The
entity has acknowledged its responsibility for the contamination.
An initial clean up feasibility study has shown that it will cost at
least P500,000 to clean up the toxic waste. During the current
year, Zilong Company has been sued for patent infringement and
lost the case. A preliminary judgment of P300,000 was issued
and is under appeal. The entity’s attorneys agree that it is
probable that the entity will lose this appeal. What amount of
provision should be accrued as liability?
a. 500,000
b. 800,000
c. 300,000
d. 0
31. During the current year, Eddy Company incurred the following
costs in connection with the issuance of bonds:
32. At the beginning of the current year, Colt Company issued ten-
year bonds with a face amount of P5,000,000 and a stated
interest rate of 8% payable annually at the end of each year. The
bonds were priced to yield 10%. Present value factors are as
follows:
When the bonds are issued, the prevailing market interest rate
for similar debt instrument without conversion option is 9%.
42. Using data from problem no. 3, what is the interest expense to
be recognized for 2015?
East Company has the option to purchase the machine upon the
expiration of the lease term by paying P500,000. The purchase
option is reasonably certain to be exercised. What is the initial cost
of the right of use asset to recognized by East Company?
a. 2,515,000
b. 2,380,000
c. 2,245,000
d. 1,980,000
48. On December 31, 2020, Tiger Company leased equipment from
another entity with the following data:
➢ The estimated seven-year useful life coincides with the lease
term
➢ The first of the seven equal annual P800,000 lease payments
was paid on December 31, 2020
➢ The implicit interest rate is 12%
➢ Tiger’s incremental borrowing rate is 14%
➢ Present values of an annuity of 1 in advance for seven periods
are 5,11 at 12% and 4.89 at 14%
49. Oak Company leased equipment for the entire nine-year useful
life, agreeing to pay P500,000 at the start of the lease term on
December 31, 2020 and P500,000 annually on each December
31 for the next eight years. The present value on December 31,
2020 of the nine lease payments over the lease term, using the
rate implicit in the lease which Oak Company knows to be 10%,
was P3,165,000. The December 31, 2020, present value of the
lease payments using the incremental borrowing rate of 12% was
P2,985,000. What amount should be reported as lease liability on
December 31, 2021?
a. 3,500,000
b. 2,431,500
c. 2,283,200
d. 2,485,000
52. Refer to problem no. 34. What is the net investment in the
lease?
a. 5,000,000
b. 5,250,000
c. 4,400,000
d. 4,650,000
53. Refer to problem no. 34. What is the total interest income over
the lease term?
a. 2,550,000
b. 1,950,000
c. 3,150,000
d. 1,500,000
54. Refer to problem no. 34. What is the interest income for the
current year?
a. 594,000
b. 522,000
c. 630,000
d. 450,000
56. Refer to problem no. 38. What is the cost of right of use asset?
a. 1,639,980
b. 739,980
c. 822,200
d. 411,100
57. Refer to problem no. 38. What is the gain on right transferred to
buyer-lessor?
a. 800,000
b. 720,000
c. 717,780
d. 400,000
58. Refer to problem no. 38. What is the annual rental income of the
buyer-lessor?
a. 600,000
b. 329,272
c. 270,728
d. 300,000
64. Day Company holds 10,000 shares of P10 par value as treasury
reacquired in 2010 for P120,000. On December 31, 2019, Day
reissued all 10,000 shares for P190,000. Under the cost method
of accounting for treasury shares, what is credited for the excess
of the reissuance price over the cost of treasury shares?
a. Share capital of p100,000
b. Retained earnings of P70,000
c. Gain on sale of investment P70,000
d. Share premium of P70,000