Quiz 2 Compound Financial Instruments Notes Payable
Quiz 2 Compound Financial Instruments Notes Payable
Quiz Instructions
Compute for the correct answers/Choose the letter of the best answer. Round off your answers to the
nearest whole number.
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Question 1 2 pts
(PVF 4 Decimal)
192,352
Question 2 2 pts
Question 3 2 pts
On December 31, 2019, Claudine Company issued 5,000 of 8% 10-year P1,000 face
value bonds with detachable warrants at 110. Each bond carried a detachable
warrant for 10 ordinary shares of P100 par value at a specified option price of P120.
Immediately after issuance, the market value of the bonds without warrants was
P4,800,000 and the market value of the warrants was P1,200,000.
What is the share premium from the subsequent exercise of all share warrants?
1,200,000
Question 4 2 pts
Assuming that the convertible bonds above were converted on January 1, 2023,
how much should be credited to Share premium from the equity conversion?
(PVF 4 Decimal)
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
2,412,699
Question 5 2 pts
Mae Jong Corporation issues 1,000 convertible bonds at the beginning of 2021. The
bonds have a four-year term with a stated rate of interest of 6 percent, and are issued
at par with a face value of P1,000 per bond (total proceeds received from issuance of
the bonds are P1,000,000). Interest is payable annually at December 31. Each bond
is convertible into 250 ordinary shares with a par value of P1. The market rate of
interest on similar non-convertible debt is 9 percent. Compute the liability component
of Mae Jong’s convertible debt.
6% 0.79209 3.46611
9% 0.70843 3.23972
902,813
Question 6 2 pts
On December 31, 2019, Claudine Company issued 5,000 of 8% 10-year P1,000 face
value bonds with detachable warrants at 110. Each bond carried a detachable
warrant for 10 ordinary shares of P100 par value at a specified option price of P120.
Immediately after issuance, the market value of the bonds without warrants was
P4,800,000 and the market value of the warrants was P1,200,000.
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
4,000,000
Question 7 2 pts
On January 1, 2019, Mayleen Company issued 5,000 convertible bonds with P1,000
face value per bond. The bonds matures in three years and are issued at 110.
Interest is payable annually every December 31 at nominal 6% interest rate. Each
bonds is convertible at anytime up to maturity into 100 shares with par value of P5. It
is reliably determined that the bonds would sell only at P4,600,000 without the
conversion privilege. What is the equity component of the original issuance of the
convertible bonds?
891,000
Question 8 2 pts
On December 31, 2019, after recording interest and amortization, Lyka Company
converted P5,000,000 of 12% convertible bonds into 50,000 shares of P50 par value.
on the conversion date, the carrying amount of the bonds payable was P6,000,000,
the market value of the bonds was P6,500,000, and the share was publicly trading at
P150. The entity incurred P100,000 in connection with the conversion. When the
bonds were originally issued, the equity component was recorded at P1,500,000.
What amount of share premium should be recorded as a result of the conversion?
1,000,000
Question 9 2 pts
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
During 2024, Warriors Corporation issued at 95, one thousand of its 8%, P5,000
bonds due in ten years. One detachable share warrants entitling the holder to buy 20
shares of Warriors ordinary shares was attached to each bond. Shortly after
issuance, the bonds are selling at 10% ex-warrants, and each warrants was quoted
at P60. What amount, if any, of the proceeds from the bond issuance should be
recorded as part of Warriors Shareholders’ equity? (PVF 4 Decimal)
367,000
Question 10 2 pts
On the same date market price of one common share was P30. What is the
resulting bonds payable carrying value as of December 31, 2021?
(PVF 4 Decimal)
8,422,236
Use the following information for the next five (5) questions:
Question 11 2 pts
Question 12 2 pts
Question 13 2 pts
How much is the carrying amount of the note on December 31, 2026?
Question 14 2 pts
How much is the noncurrent portion of the note on December 31, 2026?
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
Question 15 2 pts
How much is the current portion of the note on December 31, 2026?
Question 16 2 pts
A company purchased machinery on December 31, 2026, paying P80,000 down and
agreeing to pay the balance in 4 equal installments of P60,000 payable each
December 31. Implicit in the purchase price is an assume interest of 12%. What is
the carrying amount of the note at December 31, 2027?
(PVF 5 decimal)
Question 17 2 pts
Use the following information for the next three (3) questions:
(PVF 6 decimal)
Question 18 2 pts
341,654
Question 19 2 pts
How much is the carrying amount of the note on December 31, 2019?
2,505,464
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
Question 20 2 pts
How much is the noncurrent portion of the note on December 31, 2019?
2,847,120
Question 21 1 pts
When a note payable is issued for property, goods, or services, the note is initially
measured at
c. using an imputed interest rate to discount all future payments on the note.
d. choice (a) except when this is not determinable, in which case, whichever is the more
clearly determinable between (b) and (c).
Question 22 1 pts
When debt is issued at a discount, interest expense over the term of the debt equals
the cash interest paid:
a. Minus discount.
c. Plus discount.
Question 23 1 pts
A debt instrument with no ready market is exchanged for property whose fair value is
currently indeterminable. When such a transaction takes place
A. The present value of the debt instrument must be approximated using an imputed interest
rate.
B. It should not be recorded until the fair value of the property becomes evident.
C. The board of directors of the entity receiving the property should estimate a value for the
property that will serve as a basis for the transactions.
D. The directors of both entities involved in the transactions should negotiate a value to be
assigned to the property.
Question 24 1 pts
Question 25 1 pts
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
Interest payment dates of a bond issue are March 1 and September 1 20x1. The
bond was issued on June 1. 20x1. Interest expense for the year ended December 31,
20x1 would be for:
Question 26 1 pts
a. The principal amount of a debt is the cash or cash equivalent amount borrowed.
b. When a noncash asset is acquired and the stated rate of interest is different from the
current market rate of interest, the cost of the asset is the present value of the future cash
payments discounted at the current market rate of interest rather than at the stated interest
rate
c. A company that receives cash in an amount less than the face amount of a noninterest-
bearing note payable should record the note at its discounted present value.
d. The carrying amount of a noninterest-bearing note payable due in lump sum will decrease
as time goes by.
Question 27 1 pts
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
Question 28 1 pts
On November 1, 20x1, a company purchased a new machine that it does not have to
pay for until November 1, 20x3. The total payment on November 1, 20x3, will include
both principal and interest. Assuming interest at a 10% rate, the cost of the machine
would be the total payment multiplied by what time value of money concept?
a. PV of annuity of P1.
b. PV of P1.
c. FV of annuity of P1.
d. FV of P1.
Question 29 1 pts
When a note payable is exchanged for property, goods, or services, the stated
interest rate is presumed to be fair unless
c. the stated face amount of the note is materially different from the current cash sales price
for similar items or from current market value of the note.
d. any of these.
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
Question 30 1 pts
If the present value of a note which is issued in exchange for a plant asset is less
than its face amount. the difference should be
Question 31 1 pts
d. incurred only when the effective interest rate is stated in the instrument
Question 32 1 pts
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
Question 33 1 pts
c. unearned revenue.
Question 34 1 pts
Which of the following is not true about the discount on short-term notes payable?
b. The Discount on Notes Payable account should be reported as an asset on the balance
sheet.
c. When there is a discount on a note payable, the effective interest rate is higher than the
stated discount rate.
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
Question 35 1 pts
When a note payable is issued for property, goods or services, the present value of
the note is measured by
C. Using imputed interest rate to discount all future payments on the note.
D. Any of these
Question 36 1 pts
d. incurred only when the effective interest rate is stated in the instrument
Question 37 1 pts
a. When bonds are retired, all of the premium or discount associated with the bonds must be
canceled.
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3/14/22, 6:31 PM Quiz: Quiz #2: Compound Financial Instruments - Notes Payable
b. When convertible bonds are retired before they are converted, a gain or loss may be
recorded.
c. When convertible bonds are retired before they are converted, the retirement price must
be allocated to both the debt component and equity feature of the convertible bonds.
d. At the date of retirement of convertible bonds which were not converted, the excess of the
retirement price over the fair value of the convertible bonds without the equity feature
measured on initial recognition is recognized as gain or loss on extinguishment of debt.
Question 38 1 pts
b. The issuer accounts for the elements of a compound financial instrument separately.
c. Convertible bonds and bonds with detachable share warrants are examples of compound
financial instruments
d. The issue price of a compound financial instrument is allocated to the liability and equity
components based on their relative fair values.
Question 39 1 pts
Which of the following may be used to determine the amount to be assigned to the
equity component of a compound financial instrument?
a. Cash proceeds from issuance of the compound instrument minus the fair value of the
liability component without the equity feature
b. Cash proceeds multiplied by the fair value of the equity component over the sum of the fair
values of the liability and equity components
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c. Present value of future cash flows from the liability component discounted using an
effective interest rate
Question 40 1 pts
a. Upon the conversion of convertible bonds, the equity component recognized on initial
recognition of the convertible bonds is recognized in profit or loss.
b. Upon the conversion of convertible bonds, the equity component recognized on initial
recognition of the convertible bonds is transferred within equity.
c. Upon the conversion of convertible bonds, any conversion costs incurred is deducted
directly in equity.
d. Share capital is credited only when the convertible bonds are actually converted.
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