Professional Documents
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Financial Accounting II
Financial Accounting II
Financial Accounting II
1. Paola Videoness Company provided the following information on January 1, 2013 prior
to the adoption of PAS 19R:
Fair value of plan assets 4,750,000
Unamortized past service cost 1,250,000
Projected benefit obligation 5,500,000
Unrecognized actuarial gain 850,000
2. Boom Panes Company started to manufacture in 2013 copy machines that are sold on the
installment basis. The entity recognized revenue when equipment is sold for financial
reporting purposes, and when installment payments are received for tax purposes. In
2013, the entity recognized gross profit of P 6,000,000 for financial reporting purposes
and P 1,500,000 for tax purposes. The amounts of gross profit expected to be recognized
for tax purposes in 2014 and 2015 are P 2,500,000 and 2,000,000, respectively. The
entity guaranteed the copy machines for two years. Warranty cost are recognized on the
accrual basis for financial accounting purposes and when paid for tax purposes. Warranty
expense accrued in 2013 is P 2,500,000 but only P 500,000 of warranty cost was paid in
2013. It is expected that in 2014 and 2015, P 1,000,000 and P 1,000,000, respectively, of
warranty cost will be paid. In addition during 2013, P 500,000 interest, net of 20% final
tax, was received and earned, and insurance premium of life insurance policy that
covered the life of the president was paid. The entity is the beneficiary. The tax rate is
30%. Pretax accounting income in 2013 was P 2,000,000. Any 2013 operating loss will
be carried to 2014.
What is the deferred tax asset on December 31, 2013?
a) 870,000
b) 600,000
c) 270,000
d) 480,000
3. Manila Company started a new promotional program. For every 10 box tops returned,
customers receive a basketball. The entity estimated that only 60% of the box tops
reaching the market would be redeemed. Additional information is as follows:
Units Amount
Sales of product 100,000 30,000,000
Basketballs purchased 5,500 4,125,000
Basketballs distributed 4,000
What is the amount of year end estimated liability associated with this promotion?
a) 4,125,000
b) 1,500,000
c) 3,000,000
d) 4,500,000
4. During 2013, Bea Company became involved in a tax dispute with the BIR. On
December 31, 2013, the tax advisor believed that an unfavorable outcome was probable
and a reasonable estimate of additional taxes was P 500,000. After the 2013 financial
statements were issued, the entity received and accepted a BIR settlement offer of
P 550,000. What amount of accrued liability should have been reported on
December 31, 2013?
a) 650,000
b) 550,000
c) 500,000
d) 0
5. Medrano Company issued 5,000 convertible bonds on January 1, 2013. The bonds have a
three-year term and are issued at 110 with a face value of P 1,000 per bond. Interest is
payable annually in arrears at a nominal 6% interest rate. Each bond is convertible at
anytime up to maturity into 100 ordinary shares with a par value of P5. When the bonds
are issued, the prevailing market interest rate for similar debt instrument without
conversion option is 9%. The present value of 1 at 9% for 3 periods is .77 and present
value of an ordinary annuity at of 1 at 9% for 3 periods is 2.53. what is the equity
component of the issuance of the convertible bonds on January 1, 2013?
a) 1,150,000
b) 1,650,000
c) 891,000
d) 391,000
6. Traders Company is threatened with bankruptcy due to its inability to meet interest
payments and fund requirements to retire P 6,000,000 note payable with accrued interest
payable of p 600,000. The entity has entered into an agreement with the creditor to
exchange equity instruments for the liability. The terms of the exchange are 300,000
ordinary shares with P5 par value and P10 market value, and 25,000 preference shares
with P10 par value and P60 market value.
7. On January 1. 2013m, Gaush Company sold land to Foe Company. There was no
established market price for the land. Foe gave Gaush a P 2,400,000 non-interest bearing
note payable in three equal annual installments of P 800,000 with the first payment due
December 31, 2013. The note has no ready market. The prevailing rate of interest for a
note of this type is 10%. The present value of a P 2,400,000 note payable in three equal
annual installment of P 800,000 at a 10% rate of interest is P 1,989,000. What is the
carrying amount note payable on December 31, 2013?
a) 1,989,600
b) 2,126,400
c) 1,388,560
d) 2,400,000
10. On December 31, 2013, Ichimoku Company reported a 9% bonds payable due December
31, 2019 with a carrying amount of P 15,405,000. The bonds were issued on December
31, 2009 and had a face amount of P 15,000,000 with interest payable semi-annually on
June 300and December 31 of each year. On January 1, 2014, the entity retired
P 5,000,000 of these bonds at 98. What amount should be reported as gain or loss on the
retirement of the bonds for 2014?
a) 235,000 gain
b) 235,000 loss
c) 100,000 gain
d) 100,000 loss
11. On July 1, 2013, Cosco Company leased office space for five years at P 150,000 a month.
On that date, the entity paid the lessor the following amounts:
Rent security deposit 350,000
First months rent 150,000
Last months rent 150,000
Nonrefundable reimbursement to lessor for
modifications to the leased premises 900,000
1,550,000
The entity made timely rental payments from August 1 through December 1, 2013. What
portion of payments to the lessor should be deferred on December 31, 2013?
a) 1,400,000
b) 1,310,000
c) 1,250,000
d) 500,000
12. Sino Company leased a warehouse with adjoining land for a period of 15 years. The fair
values of the leasehold interests in the land and the warehouse are P 5,000,000 and
P 2,500,000 respectively. The land has an indefinite economic life whereas the
warehouse has a useful life of 15 years. Title to the land is not expected to pass at the end
of the lease. At what amount should the asset in relation to finance lease be recognized in
the financial statements of the lessee?
a) 7,500,000
b) 5,000,000
c) 2,500,000
d) 0
13. Maxtor Company is in the business of leasing new sophisticated equipment. As lessor,
the entity expects a 12% return. At the end of the lease term, the equipment will revert to
Maxtor Company. On January 1, 2013, an equipment is leased to another entity under a
direct financing lease.
Cost of equipment Maxtor 5,500,000
Residual value unguaranteed 400,000
Annual rental payable in advance 959,500
Useful life and lease term 8 years
Implicit interest rate 12%
First lease payment January 1, 2013
14. Molave Company had P 600,000 convertible 8% bonds payable outstanding on June 30,
2013. Each P 1,000 bond was convertible into 10 ordinary shares of P50 par value. On
July 1, 2013, the interest was paid to bondholders, and the bonds were converted into
ordinary shares, which had a fair value of P75 per share. The unamortized premium on
these bonds was P 12,000 at the date of conversion. No equity component was recognized
when the bonds were originally issued. What is the increase in the share capital and share
premium, respectively, as a result of the bond conversion?
15. Vinzons Company is a dealer in machinery. On January 1, 2013, a machinery was leased
to another entity with the following provisions:
Annual rental payable at the end of each year 3,000,000
Lease term and useful life of machinery 5 years
Cost of machinery 8,000,000
Residual value-unguaranteed 1,000,000
Implicit interest rate 12%
PV of an ordinary annuity of 1 for 5 periods at 12% 3.60
PV of 1 for 5 periods at 12% 0.57
At the end of the lease term in December 31, 2017, the machinery will revert to Vinzons.
Vinzons incurred intial direct cost of P 300,000 in finalizing the lease agreement.
16. On July 1, 2013, Romulo Company leased office premises for a three year period at an
annual rental of P 360,000 payable on July 1 each year. The first rent payment was made
July 1, 2013. Additionally on July 1, 2013, the entity paid P 240,000 as a lease bonus to
obtain a three year lease instead of the lessors usual term of six years. On December 31,
2013, what amount should be reported as prepaid rent?
a) 180,000
b) 220,000
c) 240,000
d) 380,000
On December 31, 2013, what is the carrying amount of the bonds payable/
a) 3,005,600
b) 3,066,160
c) 2,982,000
d) 2,787,600
18. On December 31, 2013, Albatross Company purchased a tractor from Crane Company.
Simultaneous with the sale, Crane leased back the tractor for 12 years for use in the new
farm that it is developing. The sale price of the tractor was P 7,800,000, while the
carrying amount in the books of Crane on the date of the sale was P 5,850,000. Cranes
engineers have estimated that the remaining economic life of the tractor is 15 years.
Crane is a wholly-owned subsidiary of a US entity. It is required to follow US generally
accepted accounting principles in the reporting package for consolidation. What is the
amount that Crane should report as deferred gain from the sale of the tractor on
December 31, 2013?
a) 1,950,000
b) 1,820,000
c) 1,787,000
d) 0
19. On January 1, 2013, Yakal Company reported the fair value of plan assets at P 6,700,000
and projected benefit obligation at P 7,600,000. The entity revealed the following for the
current year:
20. On January 1, 2013, Marcventures Company (lessee) entered into a 5-year lease for
drilling equipment. The entity accounted for the acquisition as a finance lease for
P 2,400,000, which included a P 100,000 bargain purchase option. At the end of the
lease, the entity expects to exercise the bargain purchase option. The entity estimated that
the equipments fair value will be P 200,000 at the end of the 8-year life. The entity
regularly used straight line depreciation on similar equipment. For the year ended
December 31, 2013, what amount should be recognized as depreciation expense on the
leased asset?
a) 480,000
b) 460,000
c) 300,000
d) 275,000
21. Glee Company reported in the income statement for the year ended December 31, 2013
pretax income of P 1,000,000.
Tax return Accounting record
Rent income 70,000 120,000
Depreciation 280,000 220,000
Premiums on officers life insurance 90,000
Income tax rate 30%
All payables were made when due. On June 30, 2015, what amount should be reported as
accrued rent receivable?
a) 210,000
b) 120,000
c) 90,000
d) 0
23. Doji Company leased equipment for the entire nine-year useful life, agreeing to pay
P 500,000 at the start of the lease term on December 31, 2013, and P 500,000 annually on
each December 31 for the next eight years. The present value on December 31, 2013 of
the nine lease payments which Doji knows to be 10% was P 3,165,000. The December
31, 2013 present value of the lease payments using Dojis incremental borrowing rate at
12% was P 2,985,000. Doji made a timely second lease payment. What amount should be
reported as lease liability on December 31, 2014?
a) 3,500,000
b) 2,431,500
c) 2,283,200
d) 2,485,000
24. Bloomberry Company prepared the following reconciliation of the financial statement
and taxable income for 2014:
Pretax accounting income 6,000,000
Permanent difference ( 500,000 )
Temporary difference-capitalized interest for book and
expensed for tax ( 200,000 )
25. On January 1, 2013, MACD Compnay purchased a machine for P 1,400,000. This
machine has a 5-year useful life, a residual value of P 200,000 and is depreciated using
the straight line method for financial statement purposes. For tax purposes, depreciation
was P 500,000 for 2013 and P 400,000 for 2014. The 2014 income before tax and
depreciation was P 2,000,000 and the tax rate was 30%. The entity made estimated tax
payment of P 200,000 during 2014.
26. Real Company used leases as a method of selling products. In 2013, the entity completed
construction of a passenger ferry. On January 1, 2013, the ferry was leased to the Super
Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee
at the end of the lease period. Annual lease payments do not include executory costs.
27. BSC Company provided the following account balances on December 31, 2013:
Accounts payable 1,500,000
Bonds payable, due 2014 2,500,000
Discount on bonds payable 300,000
Dividends payable 800,000
Note payable, due 2015 2,000,000
29. Chemrez Company has one temporary difference at the end of 2013 that will reverse and
cause taxable amounts of P 1,100,000 in 2014, P 1,200,000 in 2015, and P 1,200,000 in
2016. The entity has also a deductible temporary difference of P 1,500,000. The pretax
accounting income for 2013 I P 6,000,000 and the tax rate is 30%. There are no deferred
taxes at the beginning of 2013.
30. On January 1, 2013, Alibaba Company leased a new machine from Cengage with the
following pertinent information:
The lease is not renewable, and the machine reverts to Cengage at the termination of the
lease. The cost of the machine on Cengages accounting records is P 3,755,000. At the
beginning of the lease term, what amount should be recorded as lease liability?
a) 2,055,000
b) 2,300,000
c) 3,755,000
d) 2,800,000
31. Century Company reported the following liability account balances on December 31,
2013:
Accounts payable 1,900,000
Bonds payable 3,400,000
Premium on bonds payable 200,000
Deferred tax liability 400,000
Dividends payable 500,000
Income tax payable 900,000
Note payable, due January 31, 2014 600,000
The deferred tax liability is based on temporary differences that will reverse in 2015. In
the December 31, 2013 statement of financial position, what total amount should be
reported as current liabilities?
a) 7,100,000
b) 4,300,000
c) 3,900,000
d) 4,100,000
32. DNL Company had the following liabilities on December 31, 2013:
Accounts payable 550,000
Unsecured note payable, 8%, due July 1, 2014 4,000,000
Accrued expenses 350,000
Contingent Liability 450,000
Deferred tax liability 250,000
Senior bonds payable, 7%, due March 31, 2014 5,000,000
33. On January 1, 2013, Luxent Company leased a machine to Accent Company. The
machine had an original cost of P 6,000,000. The lease term was five years and the
implicit interest rate on the lease was 15%. The lease is properly classified as a direct
financing lease. The annual lease payments of P 1,730,541 are made each December 31.
The machine reverts to Luxent at the end of the lease term, at which time the residual
value of the machine will be P 400,000. The residual value is unguaranteed.
35. On January 1, 2013, Ces Company entered into 10-year agreement with Gian Company
for industrial equipment. Annual lease payments of P 1,000,000 are payable at the end of
each year. The entity knows that the lessor expects 10% return on the lease which is the
implicit rate in the lease. The equipment is expected to have an estimated useful life of 10
years. In addition, a third party has guaranteed to pay Gian a residual value of P 500,000
at the end of the lease.
36. For the year ended December 31, 2013, Venture Company reported accounting income of
P 9,000,000 before income tax. Selected information for the current year is available as
follows:
Interest income on government bonds 700,000
Depreciation claimed on tax return in excess 1,300,000
of depreciation per book
Warranty expense on the accrual basis 600,000
Income from installment sale reported for tax purposes
in excess of income recognized per book 200,000
income tax rate 30%
What is the current tax liability on December 31, 2013?
a) 2,700,000
b) 2,250,000
c) 2,490,000
d) 2,130,000
e) None of the above
37. Compton company provided the following data on December 31, 2013:
Trade accounts payable, including cost of goods
Received on consignment of P 150,000 1,350,000
Accrued taxes payable 125,000
Customers deposit 100,000
Compton Company as guarantor 200,000
Bank Overdraft 55,000
Accrued electric and power bills 60,000
Reserve for contingencies 150,000
38. Fernbrook Company provided the following information on December 31, 2013:
Employee income taxes withheld 900,000
Cash balance at First Stare Bank 2,500,000
Cash overdraft at Comm Bank 1,300,000
Accounts receivable 750,000
Estimated expenses of meeting warranties 500,000
Estimated damages as a result of unsatisfactory
performance on a contract 1,500,000
Accounts payable 3,000,000
Deferred serial bonds issued at par and bearing
interest at 12&, payable in semi-annual installments
of P 500,000 due April 1 and October 1 of each
year, the last bond to be paid on October 1, 2019.
Interest is also paid semi-annually 5,000,000
What amount should be reported on the December 31, 2013 statement of financial
position as total current liabilities?
a) 8,100,000
b) 7,950,000
c) 9,100,000
d) 7,350,000
39. Molave Company provided the following schedule of liabilities on December 31,2013:
Accounts payable 6,500,000
Bank note payable 10% 3,000,000
Bank note payable 11% 5,000,000
Interest payable 150,000
Mortgage note payable 10% 2,000,000
Bonds payable 4,000,000
The P 3,000,000, 10% note was issued March 1, 2013, payable on demand. Interest is
payable every six months.
The one-year P 5,000,000, 11% note was issued January 15, 2013. On December 31,
2013, the entity negotiated a written agreement with the bank to replace the note with a 2-
year, P 5,000,000, 10% note to be issued January 15, 2014.
The 10% mortgage note was issued October 1, 2010, with a term of 10 years. Terms of
the note give the holder the right to demand immediate payment if the entity fails to make
a monthly interest payment within 10 days from the date the payment is due. On
December 31, 2013, the entity is three months behind in making its required interest
payment.
The bonds payable are ten-year, 8% bonds, issued June 30, 2004. Interest is payable
semi-annually on June 30 and December 31.
40. On December 31, 2013, Rockefeller Company leased equipment under a finance lease.
Annual lease payments of P 200,000 are due December 31 for 10 years. The equipments
useful life is 10 years and the interest rate implicit in the lease is 10%. The lease
obligation was recorded on December 31, 2013 at P 1,350,000 and the first lease payment
was made on that date. What amount should be included in current liabilities in relation
to the finance lease on December 31, 2013?
a) 65,000
b) 85,000
c) 115,000
d) 200,000
41. Gain contingencies that are remote and can be reliably measured
a) Must be disclosed in a note to the financial statements.
b) May be disclosed in a note to the financial statements.
c) Must be reported in the body of the financial statements.
d) Should not be reported or disclosed.
42. A legal obligation is an obligation that is derived from all of the following, except
a) Legislation
b) A contract
c) Other operation of law
d) An established pattern of past practice
43. It is abusive practice of manipulation and creative accounting by dumping all kinds of
provisions under the banner of provision for restructuring
a) Big bath provision
b) Creative accounting
c) Cookie jar
d) General reserve
44. A five year term bond was issued on January 1, 2010 at a premium. The carrying amount
of the bond at December 31, 2011 would be
a) The same as the carrying amount at January 1, 2010
b) Higher than the carrying amount at January 1, 2010
c) Higher than the carrying amount at December 31, 2012
d) Lower than the carrying amount at December 31, 2012
45. A five year term bond was issued on January 1, 2010 at a discount. The carrying amount
of the bond at December 31, 2011 would be
a) Higher than the carrying amount at December 31, 2010
b) Lower than the carrying amount at December 31, 2010
c) The same as the carrying amount at December 31, 2010
d) Higher than the carrying amount at December 31, 2012
47. The excess of the fair value of leased property at the inception of the lease over its
carrying amount shall be recognized by the dealer lessor as
a) Unearned income from a sales type lease
b) Unearned income from a direct financing lease
c) Manufacturers profit from a sales type lease
d) Manufacturers profit from a direct financing lease
48. In computing the change in deferred tax asset or liability, which tax rare is used?
a) Current tax rate
b) Estimated future tax rate
c) Enacted future tax rate
d) Prior tax rate
49. The gain or loss from extinguishment of a financial liability by issuing equity instrument
shall be presented in the statement of comprehensive income as
a) Other income or other expense
b) Separate line item in profit or loss
c) Component of other comprehensive income
d) Component of finance cost.