Question 1

1 / 1 pts

A particular warranty obligation is probable and the amount of loss can be reasonably
estimated. The particular parties that will make claims under the warranty are not
identifiable. An estimated loss contingency should then be:

Correct!

accrued and disclosed

classified as an appropriation of retained earnings

neither accrued nor disclosed

disclosed but not accrued

Question 2
0 / 1 pts
NARUTO Corporation has the following liabilities at December 31, 2020:
8% note payable issued November 1, 2019, maturing October 31, 2021. 1,150,000
7% note payable dated August 1, 2020, payable in 12 equal annual
installments of P90,000 beginning August 1, 2021 1,080,000

NARUTO Company‘s December 31, 2020, financial statements were issued on March
19, 2021. On January 23, 2021, the entire P1,150,000 balance of the 8% note was
refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on
December 29, 2020, NARUTO Company consummated a n on-cancelable agreement
with the lender to refinance the 7% of P1,080,000 note on a long-term basis, on readily
determinable terms that have not yet been implemented.

On the December 31, 2020 statement of financial position, the amount of these notes
payable that NARUTO should classify as short-term obligation is

2,230,000

Correct Answer

1,150,000

You Answered

1,240,000

0
Question 3
0 / 1 pts

Kakashi Company's accounts payable at December 31, 2019 totaled P20,000,000 before
any necessary year-end adjustments relating to the following transactions:
Goods shipped FOB destination on December 31, 2019, from a vendor to Kakashi were
lost in transit. The invoice cost of P3,000,000 was not recorded by Kakashi. On January
5, 2020, Kakashi notified the vendor of the lost shipment.
On December 31, 2019, Kakashi wrote and recorded checks to creditors totaling
P5,000,000 causing an overdraft of P1,000,000. The checks were mailed on January 5,
2020.
Goods shipped FOB warehouse on December 31, 2019 from a vendor to Kakashi were
received and recorded on January 5, 2020. The invoice cost was P2,000,000
At December 31, 2019, what amount should Kakashi report as accounts payable?

You Answered

30,000,000

26,000,000

23,000,000

Correct Answer

27,000,000
Question 4
0 / 1 pts

A retail store received cash and issued gift certificates that are redeemable in
merchandise. The gift certificates lapse one year after they are issued. How would the
deferred revenue account be affected by each of the following transaction?
Redemption of certificates Lapse of certificates

No effect No effect

Correct Answer

Decrease No effect

You Answered

Decrease Decrease

No effect Decrease

Question 5
1 / 1 pts
On November 25, 2020, an explosion occurred at a Sakura Company plant causing
extensive property damage to area buildings. By March 10, 2021, claims had been
asserted against Sakura. Sakura’s management and counsel concluded that it is probable
Sakura will be responsible for damages, and that P3,500,000 would be reasonable
estimate of its liability. Sakura’s P10,000,000 comprehensive public liability policy has a
P500,000 deductible clause. Sakura’s December 31, 2020 financial statements, issued on
March 25, 2021, should report this item as

A footnote disclosure indicating the probable loss of P500,000.

Correct!

An accrued liability of P500,000

An accrued liability of P3,500,000

A footnote disclosure indicating the probable loss of P3,500,000.

Question 6
1 / 1 pts

NARUTO Co. is being used for illness caused to local residents as a result of negligence
on the company’s part permitting the local residents to be exposed to highly toxic
chemical from its plant. NARUTO’s lawyer states that it is probable that NARUTO will
lose the suit and be found liable for a judgment costing NARUTO anywhere from
P1,200,000 to P6,000,000. However, the lawyer states that the most probable cost is
P3,600,000.
As a result of the above facts, NARUTO should accrue

Correct!

A loss contingency of P3,600,000 and disclose an additional contingency of up to P2,400,000

A loss contingency of P3,600,000 but not disclose any additional contingency

No loss contingency but disclose a contingency of P1,200,000 to P6,000,000.

A loss contingency of P1,200,000 and disclose an additional contingency of up to P4,800,000

Question 7
1 / 1 pts

Naruto company offers a cash rebate of P1 on each P4 package of light bulbs sold during
2022. Historically, 10% of customers mail in the rebate form. During 2022, 4,000,000
packages of light bulbs are sold, and 140,000 P1 rebates are mailed to customers. What
is the rebate expense and liability, respectively, shown on the 2022 financial statements
dated December 31?

P140,000; P260,000
P100,000; P40,000

P260,000; P260,000

Correct!

P400,000; P260,000

Question 8
1 / 1 pts

On February 5, 2021, an employee filed a P2,000,000 lawsuit against Neji Company for
damages suffered when one of Neji’s plant exploded on December 29, 2020. Neji’s legal
counsel expects the company will probably lose the lawsuit and estimates the loss to be
P500,000. The employee has offered to settle the lawsuit out of court for P900,000, but
Neji will not agree to the settlement. In its December 31, 2020 balance sheet, what
amount should Neji report as liability from lawsuit?

2,000,000

1,000,000

Correct!
500,000

900,000

Question 9
1 / 1 pts

Assume that a manufacturing corporation has (1) good quality control, (2) a one-year
operating cycle, (3) a relatively stable pattern of annual sales, and (4) a continuing policy
of guaranteeing new products against defects for three years that has resulted in
material but rather stable warranty repair and replacement costs. Any liability for the
warranty

need not be disclosed.

should be reported as non-current.

Correct!

should be reported as part current and part non-current.

should be reported as current.

Question 10
1 / 1 pts

NARUTO Company provides extended service contracts on equipment sold through

major retailers. The standard contract is for three years. During 2021, NARUTO
Company provided 2,000 such warranty contracts at an average price of P810 each.
Related to these contracts, the company spent P200,000 servicing the contracts during
the current year and expects to spend P600,00 more in the future.

The net profit for 2021 related to the extended service contract is

540,000

405,000

Correct!

340,000

308,570

Question 11
1 / 1 pts
Jiraiya Company must determine the December 31,2020, year-end accruals for
advertising and rent expense. A P50,000 advertising bill was received January 7, 2021,
comprising costs of P35,000 for advertisements in December 2020 issues, and P15,000
for advertisements in January 2021 issues of the newspaper.
A store lease, effective December 16, 2019, calls for fixed rent of P120,000 per month,
payable one month from the effective date and monthly thereafter. In addition, rent
equal to 5% of net sales over P6,000,000 per calendar year is payable on January 31 of
the following year. Net sales for 2020 were p9,000,000. In its December 31, 2020
balance sheet, Jiraiya should report accrued liabilities of

210,000

185,000

Correct!

245,000

260,000

Question 12
0 / 1 pts

Tsunade Company provides an incentive compensation plan under which its president
received a bonus equal to 10% of the corporation’s income before income tax but after
deduction of the bonus. If the tax rate is 35% and net income after bonus and income
tax was P2,600,000, what was the amount of the bonus?
440,000

400,000

Correct Answer

260,000

You Answered

200,000

Question 13
1 / 1 pts

Information available prior to the issuance of the financial statements indicates that it is
probable that, at the date of the financial statements, a company has a present obligation
related to product warranties. The amount of the expense involved can be reasonably
estimated. Based on the above facts, the estimated warranty expense should be

classified as an appropriation of retained earnings

Correct!
accrued.

neither accrued nor disclosed.

disclosed but not accrued.

Question 14
0 / 1 pts

HINATA, INC., a dealer of household appliances, sells washing machines at an average

price of P8,100. The company also offers to each customer a separate 3-year warranty
contract for P810 that requires the company to provide periodic maintenance services
and to replace defective parts. During 2019, HINATA sold 300 washing machines and
270 warranty contracts for cash. The company estimates that the warranty costs are
P180 for parts and P360 for labor.

Assume sales occurred on December 31, 2019. HINATA’s policy is to recognize income
from the warranties on a straight-line basis. In 2020, HINATA incurred actual costs
relative to 2019 warranty sales of P18,000 for parts and P36,000 for labor.

What liability relative to the 2019 warranties would appear on the December 31, 2020,
statement of financial position and how would it be classified?
Current Noncurrent

P145,800 P72,900
You Answered

P72,900 P145,800

Correct Answer

P72,900 P72,900

P145,800 P 0

Question 15
1 / 1 pts

A retail store receive cash and issued a gift certificate that is redeemable in merchandise.
When the gift certificate was issued, a

Correct!

Deferred revenue account should be increased

Revenue account should be decreased

Revenue account should be increased

Deferred revenue account should be decreased

Question 16
0 / 1 pts

On December 31, 2020, NARUTO Company has a P4,000,000 note payable due on
February 28, 2021. On December 26, 2020, NARUTO arranged a line of credit with AAA
Bank which allows NARUTO Company to borrow up to P3,500,00 at one percent above
the prime rate for three years. On February 2, 2021, NARUTO Company borrowed
P2,500,000 from Aid Bank and used P500,000 additional cash to liquidate P3,000,000
note payable.

The amount of the note payable that should be reported as current liabilities on the
December 31, 2020 statement of financial position which is issued on March 15, 2021.

4,000,000

Correct Answer

500,000

You Answered
1,000,000

Question 17
1 / 1 pts

At the end of the current year, an entity received an advance payment of 60% of the
sales price for special order goods to be manufactured and delivered within five months.
At the same time, the entity subcontracted for production of the special order goods at a
price equal to 40% of the main contract price. What liabilities should be reported in the
entity’s year-end statement of financial position?

Correct!

Deferred revenue equal to 60% of the main contract price and no payable to subcontractor

No deferred revenue but payable to subcontractor is reported at 40%of the main contract price

Deferred revenue equal to 60% of the main contract price and payable to subcontractor equal to
40% of the main contract price

None
Question 18
1 / 1 pts

Can an entity which is applying PAS 37 for the first time, choose to forego a
retrospective restatement of prior periods and comparative figures?

Correct!

No. A full retrospective restatement is required.

None of the above.

Yes, provided that it accepts the transitional provisions available within PAS 37.

Yes. PFRS 1 exempts a first-time adopter from a full restatement of provisions set up before the
transition date under previous GAAPs.

Question 19
0 / 1 pts

If a corporation sells a land from its former subsidiary in the context of a restructuring,
when is the gain from the land recognized?

You Answered
When the costs of closure (restructuring provision) are measured: the gain from the land is set
off against the restructuring provision

Correct Answer

When the land is sold

When the land is listed as for sale

When there is an anticipated gain on the expected sale of the assets

When the subsidiary closed

Question 20
0 / 1 pts

NARUTO Company offered a bonus to its branch manager of 25% of income over
P1,000,000 earned by the branch. The income for the branch was P1,600,000 before tax
and before bonus for 2021. The bonus is computed on income in excess of P1,000,000
after deducting the bonus but before deducting tax.

The bonus of the branch manager for 2021 is

150,000

You Answered

320,000

Correct Answer

120,000

250,000

Question 21
0 / 1 pts

Which will demonstrate an agreement to refinance (choose the incorrect one)?

Correct Answer

Before the issuance of the financial statements, the enterprise has in fact entered into a
financing agreement that clearly permits the enterprise to refinance the currently maturing long-
term debt on a long-term basis.

You Answered
Preferred stock has in fact been issued before the issuance of financial statements for the
purpose of obtaining working capital.

Equity security has in fact been issued before the issuance of the financial statements for the
purpose of refinancing.

Long-term obligation has in fact been issued before the issuance of the financial statements for
the purpose of refinancing.

Question 22
1 / 1 pts

On November 5, 2020, a Kurama Corporation truck was in an accident with an auto

driven by Bell. Kurama received notice on January 12, 2021 of a lawsuit for P700,000
damages for personal injuries suffered by Bell. Kurama’s counsel believes it is probable
that Bell will be awarded an estimated amount in the range between P200,000 and
P450,000, and that P300,000 is a best estimate of potential liability than any other
amount. Kurama’s accounting year ends on December 31, and the 2020 financial
statements were issued on March 2, 2021. What amount of loss should Kurama accrue
at December 31, 2020?

Correct!

300,000

0
450,000

200,000

Question 23
1 / 1 pts

Which of the following statements is false?

Cash dividends should be recorded as a liability when they are declared by the board of
directors.

Correct!

Social security taxes withheld from employees' payroll checks should never be recorded as a
liability since the employer will eventually remit the amounts withheld to the appropriate taxing
authority.

Under the cash basis method, warranty costs are charged to expense as they are paid.

A company may exclude a short-term obligation from current liabilities if it intends to refinance
the obligation on a long-term basis and have an unconditional right to defer settlement of the
liability for at least 12 months.
Question 24
1 / 1 pts

NARUTO Corporation a manufacturer of cleaning products is preparing annual financial

statements at December 31, 2020. Because of a recently proven health hazard in one of
its cleaning products, the PH government has clearly indicated its intention of having
NARUTO recall all can of this paint sold in the last three months. The management of
NARUTO estimates that this recall would cost P5,800,000.

What accounting recognition, if any, should be accorded this situation?

Expense of P5,800,000 and retained earnings restrictions of P5,800,000

No recognition

Correct!

Expense of P5,800,000 and liability of P5,800,000

Note disclosure only

Question 25
0 / 1 pts

Magazine subscriptions collected in advance are treated as

Deferred revenue in the equity section

Magazine subscription refunds in the income statement in the period collected

You Answered

A contra account to magazine subscription receivable

Correct Answer

Deferred revenue in the liability section

Question 26
0 / 1 pts

NARUTO COMPANY sells its products in expensive, reusable containers. The customer
is charged a deposit for each container delivered and receives a refund for each
container returned within two years after the year of delivery. NARUTO accounts for
the containers not returned within the time limit as being sold at the deposit
amount. Information for 2019 is as follows:

Containers held by customers at

 December 31, 2018,
from deliveries in: 2017 85,000
2018 240,000 325,000
Containers delivered in 2019 430,000
Containers returned in 2019
from deliveries in: 2017 57,500
2018 140,000
2019. 157,000 354,500

How much revenue from container sales should be recognized for 2019?

P85,000

You Answered

P267,500

Correct Answer

P27,500

P127,500

Question 27
0 / 1 pts

Naruto Conglomerate is being sued for damages. When preparing the financial
statements as at 31 December 2018, the management was of the opinion that the
probability of any payments having to be made was remote. In preparing the 2019
financial statements the management changed its view and believed that it was possible
that such payments would have to be made, and in preparing the 2020 statements its
view was that such payments were probable. For the 2021 accounts the payment was
assessed to be virtually certain and effectively the payments were made in 2022. In
which financial statements should Naruto present a note for a contingent liability and in
which financial statement should Naruto set up a provision?

You Answered

Contingent liabilities in the 2020 financial statements and provision in the 2021 financial
statements

Contingent liabilities in the 2019 and 2020 financial statements and provision in the 2021
financial statements

Contingent liabilities and provision in the 2021 financial statements

Provision in the 2020 financial statements

Correct Answer

Contingent liabilities in the 2019 financial statements and provision in the 2020 financial
statements
Question 28
0 / 1 pts

On September 1, NARUTO Company purchased P950,000 of inventory items on credit

with the terms 1/15, net 30, FOB destination. Freight charges were P2,000.
Payment for the purchase was made on September 18. Assuming NARUTO
Company uses the perpetual inventory system and the net method of accounting for
purchase discounts.

What amount recorded on September 1 as accounts payable from this purchase?

96,050

Correct Answer

94,050

You Answered

95,000

96,030

Question 29
1 / 1 pts

In December 2021, NARUTO Company began including one coupon in each package of
candy that is sells and offering a toy in exchange of P5 and five coupons. The toys cost
P8 each. Eventually, 60% of the coupons will be redeemed. During December, NARUTO
Company sold 110,000 packages of candy and no coupons were redeemed.

NARUTO Company should report an estimated liability for coupons of

Correct!

39,600

105,600

198,000

528,000

Question 30
1 / 1 pts

NARUTO COMPANY sells its products in expensive, reusable containers. The customer
is charged a deposit for each container delivered and receives a refund for each
container returned within two years after the year of delivery. NARUTO accounts for
the containers not returned within the time limit as being sold at the deposit
amount. Information for 2019 is as follows:

Containers held by customers at

December 31, 2018,
from deliveries in: 2017 85,000
2018 240,000 325,000
Containers delivered in 2019 430,000
Containers returned in 2019
from deliveries in: 2017 57,500
2018 140,000
2019. 157,000 354,500

What is the total amount of NARUTO Company’s liability for returnable containers at
December 31, 2019?

P400,500

P267,500

Correct!

P373,000

P430,000
Question 31
0 / 1 pts

An entity sells appliances that include a three-year warranty. Service calls under the
warranty are performed by an independent mechanic under a contract with the entity.
Based on experience, warranty costs are expected to be incurred for each machine sold.
When should the entity recognize these warranty costs?

You Answered

When the machines are sold

Evenly over the life of the warranty

Correct Answer

When the service calls are performed

When payments are made to the mechanic

Question 32
1 / 1 pts
During 2020 Sasuke Company became involved in a tax dispute with the BIR. At
December 31, 2020, Sasuke’s tax advisor believed that an unfavorable outcome was
probable and a reasonable estimate of additional taxes was 500,000. After the 2020
financial statements were issued, Sasuke received and accepted a BIR settlement offer
of P550,000. What amount of accrued liability would Sasuke have reported in its
December 31, 2020 balance sheet?

550,000

650,000

Correct!

500,000

Question 33
1 / 1 pts

NARUTO Company manufacturers high end-whole electronic systems. The company

provides a one-year warranty for all products sold. The company estimates that the
warranty cost id P2,000 per unit sold and reported a liability for estimated warranty
costs P6.5 million at the beginning of this year. If during the current year, the company
sold 5,000 units for a total of P36.3 million and paid warranty claims of P7,500,000 on
current and prior year sales.
What amount of liability would the company report on its statement of financial position
at the end of the current year.

10,000,000

Correct!

9,000,000

2,500,000

3,500,000

Question 34
0 / 1 pts

Why does the concept of constructive liability exist?

Statement I: To identify situations in which the entity has committed itself commercially,
if not legally, to a particular course of action from which it can no longer withdraw
because other parties will now rely on it to carry out what it has said it will do
Statement II: To identify situations in which the entity committed itself legally to a
particular course of action

Neither statements
Correct Answer

Statement I only

Statement II only

You Answered

Both statements

Question 35
1 / 1 pts

The following information about Tenten Company is available at December 31, 2020:
Employee income taxes withheld 1,000,000
Cash balance at BPI 10,000,000
Cash overdraft at BDO 1,500,000
Accounts receivable with credit balance 2,000,000
Estimated expenses of meeting warranties on
merchandise previously sold 3,000,000
Estimated damages as a result of unsatisfactory
performance on a contract 4,000,000
Accounts payable 8,000,000
Deferred serial bonds, issued at par and bearing interest
at 12%, payable in semiannual installments of P500,000
due April 1 and October 1 of each year, the first bond to
be paid on April 1, 2022. Interest is also paid semiannually.
Interest accrued is not yet recorded 5,000,000
Stock dividend payable 2,000,000
The December 31, 2020 balance sheet should report current liabilities at

20,500,000

Correct!

19,650,000

19,500,000

20,650,000

Question 36
1 / 1 pts

Current liabilities are likely to arise from:

accrued interest on long-term loans.

receipt of advance payment for services to be rendered.

purchase of inventory and operating supplies.

Correct!

all of the above.

Question 37
0 / 1 pts

Lee Company owns a ranch which produces the livestock which it uses in its meat
processing operations. As at December 31, 2020, the liabilities of Lee Company are:
Unsecured notes, 8% due 6/1/21, P10,000,000; Deferred tax liability, P2,000,000;
Accounts payable, P5,000,000; Contingent liability, P3,000,000; Senior bonds, 7% due
3/31/21, P30,000,000; Accrued expenses; P1,000,000. The contingent liability
represents the accrual for possible and measurable loss on a legal suit filed by Mall
Company against Lee Company for damages in the amount of P6,000,000. The litigation
lawyer of Lee Company expects that the litigation shall be settled in 2021, and the
estimate of damages that Lee will be liable is in the range of P3,000,000 to P6,000,000.
The deferred tax liability is not an asset for financial reporting and is expected to reverse
in 2022. In the December 31, 2020 balance sheet, the amount that should be reported
by Lee Company for current liabilities should be

Correct Answer
46,000,000

You Answered

16,000,000

49,000,000

48,000,000

Question 38
1 / 1 pts

Gaara Company records its purchases at gross but wishes to change to recording
purchases at net. Discounts available on purchases recorded from October 1, 2020 to
September 30, 2021 totaled P400,000. Of this amount P50,000 is still available in the
accounts payable balance. The balances in the accounts before conversion are:
Purchases 8,000,000
Purchase discounts taken 100,000
Accounts payable 3,000,000
The adjusted accounts payable on September 30, 2021 should be

2,600,000
3,000,000

Correct!

2,950,000

2,900,000

UnansweredQuestion 39
0 / 1 pts

NARUTO Corporation sold 10,500 dishwashers for P1,100 each during 2020. The
dishwashers are under warranty for one year following the sale. Maintenance on the
dishwashers during the warranty period averages P90 each. Actual warranty costs
incurred during 2020 for units sold that year were P296,000.

The statement of financial position at year end will report a related liability of:

945,000

1,030,900
Correct Answer

649,000

296,000

UnansweredQuestion 40
0 / 1 pts

Complete the definition of contingent asset by selecting the appropriate words to fill in
the blanks.
A contingent asset is defined as a ________ asset that arises from ________ events and
whose ________ will be confirmed only by the occurrence or non-occurrence of one or
more future events not wholly within the control of the entity.

certain, current, maintenance

Correct Answer

possible, past, existence

certain, past, maintenance

possible, current, existence

UnansweredQuestion 41
0 / 1 pts

HINATA, INC., a dealer of household appliances, sells washing machines at an average

price of P8,100. The company also offers to each customer a separate 3-year warranty
contract for P810 that requires the company to provide periodic maintenance services
and to replace defective parts. During 2019, HINATA sold 300 washing machines and
270 warranty contracts for cash. The company estimates that the warranty costs are
P180 for parts and P360 for labor.

Assume sales occurred on December 31, 2019. HINATA’s policy is to recognize income
from the warranties on a straight-line basis. In 2020, HINATA incurred actual costs
relative to 2019 warranty sales of P18,000 for parts and P36,000 for labor.

What liability relative to these transactions would appear on the December 31, 2019,
statement of financial position and how would it be classified?
Current Noncurrent

P 0 P218,700

P145,800 P72,900

Correct Answer

P72,900 P145,800
P72,900 P72,900

UnansweredQuestion 42
0 / 1 pts

NARUTO Company must determine the December 31, 2021 year end accruals for
advertising and rent expenses. A P500 advertising received January 7, 2022, comprising
costs of P375 for advertisements in December 2021 issues, and P125 for
advertisements in January 2022 issues of the newspaper.
A store lease, effective December 16, 2020, calls for fixed rent of P1,200 per month,
payable 1 month from the effective date and monthly thereafter. In addition, rent equal
to 5% of net sales over P300,00 per calendar year is payable on January 31 of the
following year. Net sales for 2021 were P550,00.

In the December 31, 2021 balance sheet, NARUTO Company should report accrued
liabilities.

Correct Answer

13,475

13,000

12,875
13,100

UnansweredQuestion 43
0 / 1 pts

Which of the following is not taken into account when measuring a provision?

Future events that could affect the settlement amount when there is sufficient objective
evidence that they will occur

The risks and uncertainties surrounding the account

The discounted value in which the effect is material

Correct Answer

Gains from expected disposal of assets

UnansweredQuestion 44
0 / 1 pts
In an effort to increase sales, NARUTO Company inaugurated a sales promotional
campaign on June 30, 2021. NARUTO Company placed a coupon redeemable for a
premium in each package of cereal sold. Each premium cost NARUTO Company P20 and
five coupons must be presented by a customer to receive a premium. NARUTO
Company estimated that only 60% of the coupons issued will be redeemed. For the six
months ended December 31, 2021 the following information is available.
Package of cereal sold Premiums purchased Coupons redeemed
160,000 12,000 40,000

What is the estimated liability for premiums on December 31, 2021

160,000

384,000

Correct Answer

224,000

288,000

UnansweredQuestion 45
0 / 1 pts
NARUTO Company provides extended service contracts on equipment sold through
major retailers. The standard contract is for three years. During 2021, NARUTO
Company provided 2,000 such warranty contracts at an average price of P810 each.
Related to these contracts, the company spent P200,000 servicing the contracts during
the current year and expects to spend P600,00 more in the future.

The amount of liability included in the December 31, 2021 balance sheet is

1,420,000

Correct Answer

1,080,000

820,000

600,000

UnansweredQuestion 46
0 / 1 pts

A provision should be recognized as liability when (choose the incorrect one)

Correct Answer
It is possible that an outflow of resources embodying economic benefits will be required to settle
the obligation.

An enterprise has a present obligation as a result of a past event

The amount of the obligation can be measured reliably.

It Is probable that an outflow of resources embodying economic benefits will be required to

settle the obligation.

UnansweredQuestion 47
0 / 1 pts

NARUTO Company sells appliance service contracts agreeing to repair appliance for 2-
year period. NARUTO Company’s past experience is that, of the total amount for repairs
on service contracts, 40% is incurred evenly during the 1st contract year and 60% evenly
during the second contract year. Receipts from service contracts for the 2 years ended
December 31, 2021, are as follows: 2020, P500,000; 2021, P600,000. Receipts from
contracts are credited to unearned service contract revenue.

Assume that all contract sales are made evenly during the year.

470,000
480,000

Correct Answer

630,000

360,000

UnansweredQuestion 48
0 / 1 pts

NARUTO Inc. is involved in litigation regarding a faulty product sold in a prior year. The
company has consulted with its attorney and determined that is possible that they may
lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the
case, their attorney estimated that the amount of any payment would be P500,000.

What is the required journal entry as a result of this litigation?

Debit Litigation Expense for P200,00 and credit Litigation Liability for P200,000

Debit Litigation expense for P300,00 and credit Litigation Liability for P300,000.

Correct Answer
No journal entry is required

Debit Litigation Expense for P500,000 and credit Litigation liability for P500,000

UnansweredQuestion 49
0 / 1 pts

A long-term debt falling due within one year should be reported as noncurrent liability if
the following conditions are met (choose the incorrect one):

The intent to refinance is supported by an agreement to refinance which is completed before the
issuance of the financial statements.

The enterprise intends to refinance the obligation on a long-term basis.

Correct Answer

The intent to refinance is supported by an agreement to refinance which is completed after the
issuance of the financial statements.

The original term is for a period of more than one year.

UnansweredQuestion 50
0 / 1 pts

What is the definition of “constructive obligation?”

Correct Answer

An obligation that derives from an entity’s actions when by an established pattern of past
practice, published policies, or a sufficiently specific current statement the entity has indicated to
other parties that it will accept certain responsibilities; as a result, the entity has created a valid
expectation on the part of those other parties that it will discharge those responsibilities.

A contract in which the unavoidable costs of meeting the obligations under the contract exceed
the economic benefits expected to be received under it

A program that is planned and controlled by management and materially changes either the
scope of business undertaken by an enterprise, or the manner in which that business is
conducted

A present obligation of an entity, arising from past events, the settlement of which is expected to
result in an outflow from the enterprise of resources embodying economic benefits

Midterm Examinations
By starting the exam, you hereby pledge that you will not obtain assistance by improper
means or ask for help from or give help to other people taking the same exam; you are
aware of the university’s rules regarding misconduct during examinations; and you are
not in possession of, nor do you have access to any unauthorized material during the
examination.

Instructions:

Part 1: THEORY. Choose the best answer for each of the following items. [1 point each]

Part 2: PROBLEMS. Input the letter of the correct answer in the space provided. (Use
lowercase letters only) [3 points each]

**Examples**

Answer: a

Answer: b

Answer: c

Answer: d

This quiz was locked May 23 at 5pm.

Attempt History
Attempt Time Score
LATEST Attempt 1 119 minutes 20 out of 55
Score for this quiz: 20 out of 55
Submitted May 23 at 3:27pm
This attempt took 119 minutes.

Question 1
1 / 1 pts
Unamortized debt discount should be reported on the balance sheet of the issuer as
Deferred charges
Direct addition to the face amount of the debt
Correct!
Direct deduction form the face amount of the debt
Part of the issue costs

Question 2
1 / 1 pts
The sale of a gift certificate
Decreases revenue
Increases revenue
Correct!
Increases liability
Decreases liability

Question 3
1 / 1 pts
Information available prior to the issuance of the financial statements indicates that it is
probable that, at the date of the financial statements, a liability has been incurred for
obligations related to product warranties. The amount of the loss involved can be
reasonably estimated. Based on the above facts, an estimated loss contingency should
be
Correct!
Accrued.
Neither accrued nor disclosed.
Classified as an appropriation of retained earnings.
Disclosed but not accrued.

Question 4
0 / 1 pts
A contingency can be accrued when
Correct Answer
The amount of the loss can be reasonably estimated and it is probable that an asset has
been impaired or a liability incurred.
You Answered
It is certain that funds are available to settle the disputed amount.
An asset may have been impaired.
It is probable that an asset has been impaired or a liability incurred even though the
amount of the loss cannot be reasonably estimated.

Question 5
1 / 1 pts
An existing liability of uncertain timing or uncertain amount, and is both probable and
measurable
Contingent liability
Current liability
Noncurrent liability
Correct!
Provision
Question 6
0 / 1 pts
If an entity issues bonds at a discount, the interest expense recognized every interest
payment
Correct Answer
Is more than the actual interest paid
Cannot be determined
Is equal to the interest paid
You Answered
Is less than the actual interest paid

Question 7
1 / 1 pts
The issuance of convertible bonds
Correct!
Increases additional paid-in capital
Decreases assets
Increases the liability equal to the cash received
Increases share capital

Question 8
0 / 1 pts
If the actual amount used to settle a liability is more than the provision recognized in the
previous periods, the excess
Is not recognized
Correct Answer
Is recorded as an additional expense for the current period
 Is deducted from other liability accounts
You Answered
Is accounted for as an adjustment to the previous periods by adjusting the retained
earnings

Question 9
0 / 1 pts
Under a customer loyalty program where an entity is providing “points” or award credits,
the points are
Correct Answer
Accounted for separately
Not accounted for separately
Recorded as income upon grant, regardless whether redeemed or not
You Answered
Recorded as a liability or an income, depending on the significance of the amount

Question 10
0 / 1 pts
If the effective rate of the bonds is less than the stated rate, the bonds are said to be
issued at
You Answered
A discount
Face amount
Cannot be determined
Correct Answer
A premium

Question 11
1 / 1 pts
The initial value of the share warrant attached to a debt instrument
Is based from the fair value of the compound financial instrument; allocation is based
from the fair value of the debt instrument and the fair value of the share warrants
Is equal to its fair value at the time of the issuance of the compound financial
instrument
Correct!
Is the difference between the fair value of the compound instrument and the fair value
of the debt instrument without the warrants
Is the difference between the fair value of the compound instrument and the face value
of the debt instrument without the warrants

Question 12
1 / 1 pts
Warranty expense, under the accrual method, shall be recognized
Only if the actual expense is more than the recognized liability
When the repairs are provided
Correct!
On the same period the related revenue account was recognized
Within the period of the warranty agreement

Question 13
1 / 1 pts
Which of the following is not one of the qualifications for a liability to be classified as
current?
The entity holds the liability primarily for the purpose of trading
The entity expects to settle the liability within the entity’s operating cycle
Correct!
The entity has an unconditional right to defer the settlement of the liability
 The liability is due to be settled within twelve months after the reporting period

Question 14
1 / 1 pts
If the bonds are issued between interest dates, the entry of the issuer could include a
Credit to unearned interest
Correct!
Credit to interest expense
Debit to interest payable
Credit to interest receivable

Question 15
1 / 1 pts
Which of the following is used to determine the premium expense to be recognized per
premium item expected to be issued?
The cost of the premium item
The cost of the premium item, minus the cash remittance
Correct!
The cost of the premium item, minus cash remittance, plus distribution cost per
premium item
The cost of the premium, plus the cash remittance

Question 16
0 / 2 pts
ADOBO Company has the following accounts in its liabilities section of the Balance
Sheet as of December 31, 2020:
Credit Balance in customers’ accounts P120,000
Accounts Payable, net of debit balance from a supplier’s
Account of P64,000 211,000
Stock dividends Payable 23,000
Note Payable, due 12/31/21 400,000
Note Payable, due 5/30/22 200,000

How much of the above amounts shall be reported as current liabilities as of December
31, 2020?
a. P795,000 b. P667,000 c. P731,000 d. P818,000

Answer:
C

Answer 1:
You Answeredc
Correct Answer
A

Question 17
0 / 4 pts
DIVEO Video and Sound sells compact stereo systems with a two-year warranty. Past
experience indicates that 10% of all sets sold will need repair in the first year, and 20%
will need repairs in the second year. The average repair cost is P500 per system. The
company was able to sell 5,000 units and 6,000 units in 2019 and 2020, respectively.

Actual repair costs were P325,000 in 2019 and P650,000 in 2020. All repair costs
involved cash expenditures and were all charged to warranty expense on the year of
incurrence.

1. What is the correct warranty expense in 2020?

a. P750,000 b. P900,000 c. P2,500,000 d. P3,000,000

Answer:
C

2. What is the estimated warranty liability at the end of 2020?

a. P250,000 b. P675,000 c. P750,000 d. P900,000

Answer:
A

Answer 1:
You Answeredc
Correct Answer
B
Answer 2:
You Answereda
Correct Answer
B

Question 18
0 / 4 pts
BERRIES Company entered into a lawsuit on December 25, 2020 and recognized on the
same date a provision of P2,000,000. On February 28, 2021, when the financial
statements for the year ended December 31, 2020 had not yet been authorized for
issue, the case was settled and the court decided the final total damages to paid by the
entity at P3,000,000.
In addition, the Company has a loan payable of P2,000,000 due on June 30, 2021. On
January 1, 2021, before the authorization of the issuance of financial statements, the
bank agreed to refinance the loan, extending the maturity to June 30, 2023.
Also, another loan amounting to P7,000,000 due on December 1, 2021 was obtained by
the Company from BPI. BERRIES Company has the discretion to refinance or roll over
the loan for at least twelve months from December 31, 2021.

1. Compute for the current liability to be presented in the financial position

a. P12 million b. P10 million c. P5 million d. P4 million

Answer:
A

2. Compute for the noncurrent liability to be presented in the statement of financial

positon
a. Zero b. P2 million c. P7 million d. P9 million

Answer:
B

Answer 1:
You Answereda
Correct Answer
C
Answer 2:
You Answeredb
Correct Answer
C
Question 19
0 / 6 pts
GRAPES Corporation issued 6,000, 13%, 5-year, P1,000 face value bonds on January 1,
2019. Interest is payable every December 31. The bonds were issued such that the
effective rate is 10%. Round-off present value factors to four decimal places (e.g.
0.9091)

1. The bonds payable is initially measured for

a. P6,000,000 b. P6,447,491 c. P6,570,446 d. P6,682,224

Answer:
A

2. How much is the interest expense for 2019?

a. P600,000 b. P668,222 c. P657,045 d. P780,000

Answer:
D

3. What is the carrying value of the bonds at the end of 2019?

a. P6,000,000 b. P6,447,491 c. P6,570,446 d. P6,682,224

Answer:
A
Answer 1:
You Answereda
Correct Answer
D
Answer 2:
You Answeredd
Correct Answer
B
Answer 3:
You Answereda
Correct Answer
C

Question 20
6 / 6 pts
At the beginning of the current year, JELLY Corporation had the following balances
related to a defined benefit plan:

Fair value of plan assets

P5,750,000

Present value of defined benefit obligation

6,500,000

The actuary provided the following data for the year:

Current service cost

P600,000

Settlement discount rate

10%

Expected return on plan assets

8%

Actual return on plan assets

P700,000
Contribution to the plan

900,000

Benefits paid to retirees

100,000

Requirements:
1. What amount should be reported as employee benefit expense?
a. P600,000 b. P575,000 c. P675,000 d. Zero

Answer:
C

2. What amount should be reported as remeasurement gain under other comprehensive

income?
a. P100,000 b. P125,000 c. P150,000 d. Zero

Answer:
B
3. What amount should be reported as prepaid (accrued) benefit expense at year-end?
a. P400,000 b. (P400,000) c. P200,000 d. (P200,000)

Answer:
B

Answer 1:
Correct!c
Answer 2:
Correct!b
Answer 3:
Correct!b

Question 21
0 / 8 pts
On January 1, 2020, CHOCOLATE Corporation issued 3-year, 4,000 convertible bonds
at face value of P1,000 per bond. Interest is to be paid annually in arrears at the stated
coupon rate of 6%. Each bond is convertible, at the holder’s option, into 200 P2 par
value ordinary shares at any time up to maturity. On the date of issuance, the prevailing
market interest rate for similar debt without the conversion privilege was 9%. On the
same date, the market price of one ordinary share was P3. The bonds were converted on
December 31, 2021.

The following present value factors are obtained from the present value tables:

6%

9%
Present value of 1 for 3 periods

0.83962

0.77218

Present value of an ordinary annuity of 1 for 3 periods

2.67301

2.53130

Present value of an annuity due of 1 for 3 periods.

2.83339

2.75911

1. The liability component of the convertible bond is

a. P4,000,000 b. P3,696,232 c. P1,600,000 d. P3,730,242

Answer:
C

2. The equity component of the convertible bond is

a. P303,768 b. P1,973,621 c. P1,600,000 d. P2,400,000

Answer:
D

3. The interest expense to be reported in CHOCOLATE Company’s income statement

for the year ended December 31, 2021 is
a. P101,000 b. P110,107 c. P240,000 d. P341,000

Answer:
C

4. The entry to record the bond conversion on December 31, 2021 should include a
credit to share premium – issuance of
a. P2,289,893 b. P2,400,000 c. P2,593,661 d. Zero

Answer:
B

Answer 1:
You Answeredc
Correct Answer
B
Answer 2:
You Answeredd
Correct Answer
A
Answer 3:
You Answeredc
Correct Answer
D
Answer 4:
You Answeredb
Correct Answer
C

Question 22
4 / 10 pts
EAST Company included one coupon in each package sold. A premium is offered to
customers who send in 10 coupons.

2019

2020

Number of packages sold

500,000

800,000

Number of premiums purchased at P40 each

30,000
60,000

Number of premiums distributed

20,000

50,000

Number of premiums to be distributed next period

5,000

3,000

1. What is the premium expense for 2019?

a. P1,200,000 b. P1,000,000 c. P800,000 d. P200,000

Answer:
B

2. What is the estimated premium liability on December 31, 2019?

a. P1,200,000 b. P1,000,000 c. P800,000 d. P200,000

Answer:
C
3. What is the premium expense for 2020?
a. P2,400,000 b. P2,120,000 c. P2,000,000 d. P1,920,000

Answer:
A

4. What is the estimated premium liability on December 31, 2020?

a. P250,000 b. P200,000 c. P120,000 d. P80,000

Answer:
C

5. What is the balance of premium on December 31, 2020?

a. P800,000 b. P680,000 c. P600,000 d. P480,000

Answer:
D

Answer 1:
Correct!b
Answer 2:
You Answeredc
Correct Answer
D
Answer 3:
You Answereda
Correct Answer
D
Answer 4:
Correct!c
Answer 5:
You Answeredd
Correct Answer
A
Quiz Score: 20 out of 55

Final Examinations

THEORIES

Question 1
1 / 1 pts

When might an entity omit detailed information related to provisions and contingencies?

When disclosure would inform shareholders of any hedging planned for by the entity
Correct!

When disclosure would prejudice the entity’s position with other parties with whom it is in
dispute

When disclosure would affect the economic benefits to be derived from the provision or
contingency

When disclosure might indicate uncertainty about the amount of outflow of economic benefits

Question 2
1 / 1 pts

Which of the following is part of employee benefits and also part of estimated liabilities?

Other Long Term Benefits

Termination Benefits

Post-Retirement Benefits
Correct!

Short-Term Benefits

Question 3
1 / 1 pts

Which of the following is not taken into account when measuring a provision?

The discounted value in which the effect is material

Future events that could affect the settlement amount when there is sufficient objective
evidence that they will occur

The risks and uncertainties surrounding the account

Correct!

Gains from expected disposal of assets

Question 4
0 / 1 pts

An entity discounts its own noninterest-bearing note to a bank. Which of the following
statements is true about this transaction?

The entity will recognize a premium on note payable because of this.

You Answered

The entity will recognize a loss from note payable discounted

Correct Answer

The net proceeds from the note discounted is less than the face amount of the note.

There is no interest expense related to this note.

Question 5
0 / 1 pts

Which of the following is not a method of amortizing bond discount or premium?

Straight line method

Effective interest method

You Answered

Bonds outstanding method

Correct Answer

Nominal interest method

Question 6
1 / 1 pts

What standard is used in accounting for employee benefits?

PAS 9

PRFS 19

PFRS 9
Correct!

PAS 19

Question 7
0 / 1 pts

Statement 1: A gain or loss is recognized when convertible bonds are converted to share
capital.
Statement 2: A gain or loss is recognized when warrants attached to bonds are
exercised.

Correct Answer

Both statements are false

Only statement 2 is true

You Answered

Both statements are true

Only statement 1 is true

Question 8
1 / 1 pts

Which will demonstrate an agreement to refinance (choose the incorrect one)?

Equity security has in fact been issued before the issuance of the financial statements for the
purpose of refinancing.

Correct!

Before the issuance of the financial statements, the enterprise has in fact entered into a
financing agreement that clearly permits the enterprise to refinance the currently maturing long-
term debt on a long-term basis.

Preferred stock has in fact been issued before the issuance of financial statements for the
purpose of obtaining working capital.

Long-term obligation has in fact been issued before the issuance of the financial statements for
the purpose of refinancing.

Question 9
0 / 1 pts
A long-term debt falling due within one year should be reported as noncurrent liability if the
following conditions are met (choose the incorrect one):

The original term is for a period of more than one year.

You Answered

The intent to refinance is supported by an agreement to refinance which is completed before the
issuance of the financial statements.

Correct Answer

The intent to refinance is supported by an agreement to refinance which is completed after the
issuance of the financial statements.

The enterprise intends to refinance the obligation on a long-term basis.

Question 10
0 / 1 pts

Conceptually, notes shall be measured at present value. However, short-term notes are carried
at face because

The standards actually allow for deviations upon the discretion of the accounting professionals
Correct Answer

The effect of time value of money is usually insignificant

You Answered

Short term notes normally do not bear interest

The face amounts of short-term notes are usually insignificant

Question 11
0 / 1 pts

An entity issues an interest-bearing note for a piece of equipment. The entity does not account
for financial liabilities using the fair value option. The note in this transaction shall be carried at

the amortized cost of the note

You Answered

the present value of the note

Correct Answer
the face value of the note

the net realizable value of the note

Question 12
0 / 1 pts

The equity component of a compound financial instrument is initially recognized as

Correct Answer

the difference between the issue price of the entire compound financial instrument and the fair
value of the debt instrument.

the fair value of a similar equity instrument in an active market

You Answered

the difference between the issue price of the entire compound financial instrument and the fair
value of the equity component.

the difference between the fair value of the debt instrument and the fair value of the equity
component.
Question 13
1 / 1 pts

Dacion en pago as a type of debt restructuring may result to a gain or loss on extinguishment of
debt. Under our standards, in computing the amount of gain or loss, which of the following pairs
of amounts are used?

Fair value of the property given up and carrying value of the debt extinguished

Correct!

Carrying value of the property given up and the carrying value of the debt extinguished

Fair value of the property given up and the fair value of the debt extinguished

Carrying value of the property given up and the fair value of the debt extinguished

Question 14
0 / 1 pts
A particular warranty obligation is probable and the amount of loss can be reasonably
estimated. The particular parties that will make claims under the warranty are not
identifiable. An estimated loss contingency should then be:

Correct Answer

accrued and disclosed

You Answered

classified as an appropriation of retained earnings

disclosed but not accrued

neither accrued nor disclosed

Question 15
0 / 1 pts

Naruto Conglomerate is being sued for damages. When preparing the financial statements as at
31 December 2019, the management was of the opinion that the probability of any payments
having to be made was remote. In preparing the 2020 financial statements the management
changed its view and believed that it was possible that such payments would have to be made,
and in preparing the 2021 statements its view was that such payments were probable. For the
2022 accounts the payment was assessed to be virtually certain and effectively the payments
were made in 2023. In which financial statements should Naruto present a note for a contingent
liability and in which financial statement should Naruto set up a provision?
Correct Answer

Contingent liabilities in the 2020 financial statements and provision in the 2021 financial
statements

You Answered

Contingent liabilities in the 2020 and 2021 financial statements and provision in the 2022
financial statements

Contingent liabilities and provision in the 2022 financial statements

Provision in the 2021 financial statements

Contingent liabilities in the 2021 financial statements and provision in the 2022 financial
statements

PROBLEM SOLVING

Question 16
0 / 1 pts

On December 31, 2020, ABC Company defaulted in the payment of the 10% interest on its loan
from a bank of P1,000,000 because of financial difficulties. On the same date, ABC arranged a
dacion en pago transaction with the bank in payment of its obligations. The bank agreed to
accept the machinery of ABC Company acquired several years ago at P2,000,000 and will
accumulated depreciation as of this date of P1,200,000. The fair value of this machinery on this
date is P1,150,000. According to our standards, what amount of gain or loss from
extinguishment of debt shall ABC Company recognize on this transaction?

Correct Answer

P300,000 gain

P400,000 gain

You Answered

P50,000 gain

P50,000 loss

Question 17
1 / 1 pts

Lyons company deducts insurance expense of P84,000 for tax purposes in 2015, but the
expense is not yet recognized for accounting purposes. In 2016, 2017, and 2018, no
insurance expense will be deducted for tax purposes, but P28,000 of insurance expense
will be deducted for tax purposes, but P28,000 of insurance expense will be reported for
accounting purposes in each of these years. Lyons company has a tax rate of 40% and
income taxes payable of P72,000 at the end of 2015. There were no deferred taxes at
the beginning of 2015.
The deferred tax liability at the end of 2015 is

12,000

Correct!

33,600

28,800

Question 18
1 / 1 pts

ABC Corporation a manufacturer of cleaning products is preparing annual financial

statements at December 31, 2020. Because of a recently proven health hazard in one of
its cleaning products, the PH government has clearly indicated its intention of having
ABC recall all can of this paint sold in the last three months. The management of ABC
estimates that this recall would cost P5,800,000.
What accounting recognition, if any, should be accorded this situation?

Correct!

Expense of P5,800,000 and liability of P5,800,000

Expense of P5,800,000 and retained earnings restrictions of P5,800,000

No recognition

Note disclosure only

Question 19
0 / 1 pts

The following items are related to the lease transaction between Tessie Company and
Tessor Company:
Commencement of the lease January 1, 2020
Annual lease payments payable in arrears every December 31 P400,000
Purchase option reasonably certain to be exercised by Tessie P322,113
Implicit rate to the lease 10%
Lease term 5 years
Useful life of the asset 10 years
Initial Direct Costs incurred by Tessie P100,000
Lease bonus paid by Tessie to Tessor P50,000
The amount of lease liability Tessie is to recognize on January 1, 2020 is closest to

P1,866,320

You Answered

P1,816,320

Correct Answer

P1,716,320

P1,766,320

Question 20
0 / 1 pts

ABC Company must determine the December 31, 2021 year end accruals for advertising
and rent expenses. A P500 advertising received January 7, 2022, comprising costs of
P375 for advertisements in December 2021 issues, and P125 for advertisements in
January 2022 issues of the newspaper.
A store lease, effective December 16, 2020, calls for fixed rent of P1,200 per month,
payable 1 month from the effective date and monthly thereafter. In addition, rent equal
to 5% of net sales over P300,00 per calendar year is payable on January 31 of the
following year. Net sales for 2021 were P550,00.

In the December 31, 2021 balance sheet, ABC Company should report accrued liabilities.

You Answered

12,875

13,100

13,000

Correct Answer

13,475

Question 21
0 / 1 pts

On January 1, 2020, ABC Company issued a 3-year P500,000 face value note for a piece of
equipment. The note bears a compounded interest of 10% per year. What amount of interest
expense shall the company recognize on December 31, 2021?

Correct Answer
P55,000

You Answered

P50,000

P60,000

P105,000

Question 22
0 / 1 pts

On January 1, 2020, ABC Company issued P3,000,000 face value bonds maturing at the
rate of P1,000,000 every December 31. The first bond will mature on December 31,
2020. These bonds pay 10% interest every December 31. The market rate for a similar
bond is 12%. The present value factors are as follows:
PV of an ordinary annuity of 1 at 12% for 3 periods 2.40183
PV of 1 at 12% for 3 periods 0.71178
PV of 1 at 12% for 2 periods 0.79720
PV of 1 at 12% for 1 period 0.89286
The carrying value of the bonds on December 31, 2020 is closest to?
P2,000,000

P982,156

You Answered

P2,900,316

Correct Answer

P1,948,354

Question 23
1 / 1 pts

ABC Company provides extended service contracts on equipment sold through major
retailers. The standard contract is for three years. During 2021, ABC Company provided
2,000 such warranty contracts at an average price of P810 each. Related to these
contracts, the company spent P200,000 servicing the contracts during the current year
and expects to spend P600,00 more in the future.

The net profit for 2021 related to the extended service contract is

Correct!

340,000
405,000

540,000

308,570

Question 24
0 / 1 pts

ABC Company sells appliance service contracts agreeing to repair appliance for 2-year
period. ABC Company’s past experience is that, of the total amount for repairs on
service contracts, 40% is incurred evenly during the 1st contract year and 60% evenly
during the second contract year. Receipts from service contracts for the 2 years ended
December 31, 2021, are as follows: 2020, P500,000; 2021, P600,000. Receipts from
contracts are credited to unearned service contract revenue.

Assume that all contract sales are made evenly during the year.

Correct Answer

630,000

480,000
360,000

You Answered

470,000

Question 25
0 / 1 pts

Mathis co. at the end of 2016, its first year of operations, prepared reconciliation
between pretax financial income and taxable income as follows:
Pretax financial income 500,000
Estimated litigation expense 1,250,000
Installment sales (1,000,000)
Taxable income 750,000
The estimated litigation expense of P1,250,000 will be deductible in 2016 when it is
expected to be paid. The gross profit from the installment sales will be realized in the
amount of P500,000 in each of the next two years. The estimated liability for litigation is
classified as non-current and the installment accounts receivable are classified as
P500,000 current and P500,000 noncurrent. The income tax rate is 30% for all years.
Net deferred tax is

You Answered

375,000 asset
75,000 asset

Correct Answer

225,000 asset

300,000 liability

Question 26
1 / 1 pts

ABC Corporation has the following liabilities at December 31, 2020:

8% note payable issued November 1, 2019, maturing October 31, 2021. 1,150,000
7% note payable dated August 1, 2020, payable in 12 equal annual
installments of P90,000 beginning August 1, 2021 1,080,000

ABC Company‘s December 31, 2020, financial statements were issued on March 19,
2021. On January 23, 2021, the entire P1,150,000 balance of the 8% note was
refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on
December 29, 2020, ABC Company consummated a n on-cancelable agreement with the
lender to refinance the 7% of P1,080,000 note on a long-term basis, on readily
determinable terms that have not yet been implemented.

On the December 31, 2020 statement of financial position, the amount of these notes
payable that ABC should classify as short-term obligation is
2,230,000

1,1240,000

Correct!

1,150,000

Question 27
0 / 1 pts

On January 1, 2020, ABC Company issued P1,000,000 10% bonds paying interest every
December 31 of each year. The bonds were issued at 110 and will mature after 5 years. ABC
Company incurred bond issue costs amounting to P150,000 related to these bonds. What
amount of premium or discount on bonds payable shall the company recognize on January 1,
2020?

P150,000 discount

P100,000 premium
You Answered

P250,000 premium

Correct Answer

P50,000 discount

Question 28
0 / 1 pts

On January 1, ABC Company issued P1,000,000 face value bonds with warrants to purchase
ordinary shares of ABC Company for P20 per share. Each P1,000 bond has a warrant which can
be used to purchase 5 shares of P10 par value. The bonds pay 10% interest every December 31
and will mature on December 31, 2022. The bonds with the warrants were issued for 110 while
the bonds without the warrants will only sell for 107. All of the warrants were exercised on
December 31, 2020. What amount of share premium on the issuance of the shares as a result of
the exercise of the warrants was recognized by ABC Company on December 31, 2020?

P100,000

P40,000

Correct Answer
P90,000

You Answered

P140,000

Question 29
0 / 1 pts

The following items are related to the lease transaction between Tessie Company and
Tessor Company:
Commencement of the lease January 1, 2020
Annual lease payments payable in arrears every December 31 P400,000
Purchase option reasonably certain to be exercised by Tessie P322,113
Implicit rate to the lease 10%
Lease term 5 years
Useful life of the asset 10 years
The amount of Depreciation Expense to be recorded by Tessie on December 31, 2020 is
closest to

P171,632

You Answered

P303,264
Correct Answer

P343,264

P151,632

Question 30
0 / 1 pts

ABC Company provides extended service contracts on equipment sold through major
retailers. The standard contract is for three years. During 2021, ABC Company provided
2,000 such warranty contracts at an average price of P810 each. Related to these
contracts, the company spent P200,000 servicing the contracts during the current year
and expects to spend P600,00 more in the future.

The amount of liability included in the December 31, 2021 balance sheet is

820,000

You Answered

1,420,000

600,000
Correct Answer

1,080,000

Question 31
0 / 1 pts

NSync Manufacturing has a deferred tax asset account with a balance of P300,000 at
the end of 2015 due to a single cumulative temporary difference of P 750,00. At the end
of 2016, this same temporary difference has increased to a cumulative amount of
P1,000,000. Taxable income for 2016 is P1,700,000. The tax rate is 40% for 2016, but
enacted tax rates for all future years are 35%. Assuming it’s probable that 70% of the
deferred tax asset will be realized, what amount will be reported on NSync
manufacturing statement of financial position for the deferred tax asset at December 31,
2016?

595,000

262,500

You Answered

280,000

Correct Answer
245,000

Question 32
0 / 1 pts

The following information is related to ABC Company’s 10% convertible bonds as of

December 31, 2020:
Face value 1,000,000
Discount on Bonds Payable 90,000
Share premium – Conversion Privilege 200,000
On this date, all of the bonds were converted into ordinary shares. Each P1,000 bond
was converted to 10 shares of P50 par value. What amount of share premium on the
conversion of bonds shall ABC Company recognize on December 31, 2020?

Correct Answer

P610,000

You Answered

P410,000

P300,000
P700,000

Question 33
0 / 1 pts

On January 1, 2020, ABC Company issued a noninterest-bearing note for a piece of equipment
acquired at P500,000. ABC Company paid a down payment of P100,000 and issued the note for
the remaining P400,000 payable in installments of P100,000 every December 31. The cash price
of the equipment is P380,000. The entity does not account for financial instruments using the
fair value option. The entry to record this transaction will involve a

Correct Answer

Debit to Discount on Note Payable of P20,000

Credit to cash of P380,000

You Answered

Credit to Note Payable of P380,000

Debit to Equipment of P500,000

Question 34
0 / 1 pts

On October 1, 2020, ABC Company issued P1,000,000 face value bonds paying 12% interest
every January 1 and July 1 of each year. These bonds were issued at 95 plus accrued interest
and will mature after 5 years. What amount of cash did ABC Company receive on January 1,
2020?

Correct Answer

P980,000

You Answered

P920,000

P1,010,000

P950,000

Question 35
1 / 1 pts

ABC Company is in financial difficulties and agreed to issue 20,000 of its P20 par value shares in
settlement of its loan from a bank of P1,000,000. On this date, the accrued interest not yet paid
by ABC Company amounted to P120,000. The fair market value of the shares on this date is P40
per share while the fair market value of the liability is P1,200,000. According to our standards,
what amount of gain or loss from extinguishment of debt shall be recognized from this equity
swap?

P200,000 gain

P80,000 gain

P400,000 gain

Correct!

P320,000 gain

Question 36
1 / 1 pts

In December 2021, ABC Company began including one coupon in each package of candy
that is sells and offering a toy in exchange of P5 and five coupons. The toys cost P8
each. Eventually, 60% of the coupons will be redeemed. During December, ABC
Company sold 110,000 packages of candy and no coupons were redeemed.

ABC Company should report an estimated liability for coupons of

Correct!
39,600

528,000

105,600

198,000

Question 37
1 / 1 pts

ABC Corporation sold 10,500 dishwashers for P1,100 each during 2020. The
dishwashers are under warranty for one year following the sale. Maintenance on the
dishwashers during the warranty period averages P90 each. Actual warranty costs
incurred during 2020 for units sold that year were P296,000.

The statement of financial position at year end will report a related liability of:

Correct!

649,000

1,030,900
296,000

945,000

Question 38
1 / 1 pts

AJ Company computed a pretax accounting income of P5,000,000 for its first year of
operations ended December 31, 2016. In preparing the income tax return for 2016, the
following differences are noted between accounting income and taxable income.
Nondeductible expenses 200,000
Nontaxable revenue 500,000
Gross income on installment sales included in
Accounting income but not in taxable income
(Expected to reverse in 2017) 1,000,000
Bad debts expense (bad debts for tax purposes was P0) 100,000
Income tax rate 3%
The current tax expense is

1,680,000

1,110,000
Correct!

1,140,000

1,410,000

Question 39
1 / 1 pts

The following items are related to the lease transaction between Tessie Company and
Tessor Company:
Commencement of the lease January 1, 2020
Annual lease payments payable in arrears every December 31 P400,000
Purchase option reasonably certain to be exercised by Tessie P322,113
Implicit rate to the lease 10%
Lease term 5 years
Useful life of the asset 10 years
Initial Direct Costs incurred by Tessie P100,000
Lease bonus paid by Tessie to Tessor P50,000
The amount of Right of Use Asset Tessie is to recognize on January 1, 2020 is closest to

Correct!

P1,866,320
P1,716,320

P1,766,320

P1,816,320

Question 40
0 / 1 pts

ABC Company is in financial difficulties and was not able to pay the 10% interest of
P100,000 due on December 31, 2020 on its Mortgage Payable to a bank of P1,000,000.
On January 1, 2021, ABC Company negotiated that its debt be restructured and the
following were the details of the agreement:
The interest due is forgiven.
The principal will remain at P1,000,000 but will be paid on December 31, 2022 instead
of the original date of December 31, 2020.
Interest rate is increased to 11% from the original 10% per year.
The present value of 1 at 10% for two periods is 0.8264 while the present value of an
ordinary annuity of 1 at 10% for two periods is 1.7355. According to our standards, the
amount of gain from extinguishment of debt that the company will recognize on this
date is closest to?

P17,305
P182,695

You Answered

P100,000

Correct Answer

P82,695

Question 41
1 / 1 pts

On September 1, ABC Company purchased P950,000 of inventory items on credit with

the terms 1/15, net 30, FOB destination. Freight charges were P2,000. Payment for the
purchase was made on September 18. Assuming ABC Company uses the perpetual
inventory system and the net method of accounting for purchase discounts.

What amount recorded on September 1 as accounts payable from this purchase?

96,050

95,000
96,030

Correct!

94,050

Question 42
1 / 1 pts

ABC Company manufacturers high end-whole electronic systems. The company provides
a one-year warranty for all products sold. The company estimates that the warranty cost
id P2,000 per unit sold and reported a liability for estimated warranty costs P6.5 million
at the beginning of this year. If during the current year, the company sold 5,000 units for
a total of P36.3 million and paid warranty claims of P7,500,000 on current and prior year
sales.

What amount of liability would the company report on its statement of financial position
at the end of the current year.

2,500,000

Correct!

9,000,000
10,000,000

3,500,000

Question 43
0 / 1 pts

On December 31, 2020, ABC Company has a P4,000,000 note payable due on February
28, 2021. On December 26, 2020, ABC arranged a line of credit with AAA Bank which
allows ABC Company to borrow up to P3,500,00 at one percent above the prime rate
for three years. On February 2, 2021, ABC Company borrowed P2,500,000 from Aid
Bank and used P500,000 additional cash to liquidate P3,000,000 not payable.

The amount of the note payable that should be reported as current liabilities on the
December 31, 2020 statement of financial position which is issued on March 15, 2021.

1,000,000

Correct Answer

500,000

4,000,000

You Answered
0

Question 44
1 / 1 pts

ABC Inc. is involved in litigation regarding a faulty product sold in a prior year. The
company has consulted with its attorney and determined that is possible that they may
lose the case. The attorneys estimated that there is a 40% chance of losing. If this is the
case, their attorney estimated that the amount of any payment would be P500,000.

What is the required journal entry as a result of this litigation?

Correct!

No journal entry is required

Debit Litigation expense for P300,00 and credit Litigation Liability for P300,000.

Debit Litigation Expense for P200,00 and credit Litigation Liability for P200,000

Debit Litigation Expense for P500,000 and credit Litigation liability for P500,000
Question 45
0 / 1 pts

The following items are related to the lease transaction between Tessie Company and
Tessor Company:
Commencement of the lease January 1, 2020
Annual lease payments payable in arrears every December 31 P400,000
Residual value guaranteed by Tessie to Tessor P322,113
Implicit rate to the lease 10%
Lease term 5 years
Useful life of the asset 10 years
Assume that on January 1, 2025, the fair value of the property is P200,000. The entry on
the books of Tessie Company to record the return of the property to Tessor Company
will involve a

Debit to Cash of P122,113

You Answered

Credit to loss on finance lease of P122,113

Credit to lease liability of P322,113

Correct Answer
Debit to accumulated Depreciation of P1,394,207

Question 46
0 / 1 pts

In an effort to increase sales, ABC Company inaugurated a sales promotional campaign

on June 30, 2021. ABC Company placed a coupon redeemable for a premium in each
package of cereal sold. Each premium cost ABC Company P20 and five coupons must be
presented by a customer to receive a premium. ABC Company estimated that only 60%
of the coupons issued will be redeemed. For the six months ended December 31, 2021
the following information is available.
Package of cereal sold Premiums purchased Coupons redeemed
160,000 12,000 40,000

What is the estimated liability for premiums on December 31, 2021

You Answered

288,000

384,000

160,000

Correct Answer
224,000

Question 47
0 / 1 pts

On January 1, 2020, ABC Company issued P1,000,000 face value bonds. These bonds
pay interest every June 30 and December 31 and will mature after 3 years. The interest
rate stipulated at the bond indenture is 10% while the market rate for a similar bond is
12%. The present value factors are as follows:
PV of an ordinary annuity of 1 at 6% for 6 periods 4.91732
PV of 1 at 6% for 6 periods 0.70496
The carrying value of the bonds on December 31, 2020 is closest to?

P964,925

Correct Answer

P965,348

You Answered

P957,875

P950,826
Question 48
0 / 1 pts

Mathis co. at the end of 2016, its first year of operations, prepared reconciliation
between pretax financial income and taxable income as follows:
Pretax financial income 500,000
Estimated litigation expense 1,250,000
Installment sales (1,000,000)
Taxable income 750,000
The estimated litigation expense of P1,250,000 will be deductible in 2016 when it is
expected to be paid. The gross profit from the installment sales will be realized in the
amount of P500,000 in each of the next two years. The estimated liability for litigation is
classified as non-current and the installment accounts receivable are classified as
P500,000 current and P500,000 noncurrent. The income tax rate is 30% for all years.
The income tax expense is

You Answered

250,000

500,000

225,000

Correct Answer
150,000

Question 49
0 / 1 pts

ABC Company offered a bonus to its branch manager of 25% of income over
P1,000,000 earned by the branch. The income for the branch was P1,600,000 before tax
and before bonus for 2021. The bonus is computed on income in excess of P1,000,000
after deducting the bonus but before deducting tax.

The bonus of the branch manager for 2021 is

320,000

You Answered

150,000

250,000

Correct Answer

120,000
Question 50
1 / 1 pts

ABC Co. is being used for illness caused to local residents as a result of negligence on
the company’s part permitting the local residents to be exposed to highly toxic chemical
from its plant. ABC’s lawyer states that it is probable that ABC will lose the suit and be
found liable for a judgment costing ABC anywhere from P1,200,000 to P6,000,000.
However, the lawyer states that the most probable cost is P3,600,000.

As a result of the above facts, ABC should accrue

No loss contingency but disclose a contingency of P1,200,000 to P6,000,000.

A loss contingency of P3,600,000 and disclose an additional contingency of up to P2,400,000

A loss contingency of P1,200,000 and disclose an additional contingency of up to P4,800,000

A loss contingency of P3,600,000 but not disclose any additional contingency

Quiz Score: 19 out of 50