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BL-ACTG-6251-LEC-1922S INTERMEDIATE ACCOUNTING 2

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6. Prelim Examination
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Started on Friday, 28 February 2020, 3:42 PM

State Finished
Completed on Friday, 28 February 2020, 4:43 PM
Time taken 1 hour
Marks 5.00/30.00
Grade *1.67* out of 10.00 (*17*%)

Question 1

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Statement 1: For bond outstanding method, the procedure is simply to

divide the amount of bond premium or bond discount by the life of the
bonds to arrive at the periodic amortization.

Statement 2: Under the effective interest method, a constant interest

rate based on the carrying (book) value of the bonds is recognized as
interest expense each period, resulting in unequal recorded amounts of
interest expense.

Select one:
a. Statement 1 is False; Statement 2 is True //
b. Both statements are True
c. Statement 1 is True; Statement 2 is False
d. Both statements are False

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When another party will reimburse some or all of the expenditure

required to settle a provision, the reimbursement should only be
recognized when its receipt is...

Select one:
a. More probable than not
b. Probable
c. Possible //
d. Virtually certain

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Question 3

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Contingent liabilities will or will not become actual liabilities

depending on

Select one:
a. The outcome of a future event //
b. Whether they are probable and estimable
c. The present condition suggesting a liability
d. The degree of uncertainty

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Question 4

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These are liabilities arising from the purchase of goods, materials,

supplies or services on an open charge account basis.

Select one:
a. Accounts payable/trade payable //
b. Deferred revenue
c. Provisions
d. Contingencies

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On January 1, 2016, Crown Company sold property to Leary Company. There

was no established exchange price for the property, and Leary gave Crown
a P2,000,000 zero-interest-bearing note payable in 5 equal annual
installments of P400,000, with the first payment due December 31, 2016.
The prevailing rate of interest for a note of this type is 9%. The
present value of the note at 9% was P1,442,000 at January 1, 2016. What
should be the balance of the Notes Payable account on the books of Leary
at December 31, 2016 after adjusting entries are made, assuming that the
effective-interest method is used?

Select one:
a. P1,442,000
b. P2,000,000 //
c. P1,571,780
d. P1,553,600

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Question 6

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Under this method, the Purchases account and the Accounts Payable are
recorded at the gross invoice price.

Select one:
a. Net method
b. Accrual method
c. Gross method
//
d. Expense method

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Question 7

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The features most frequently associated with preference shares include

all of the following except

Select one:
a. Non-voting.
b. Callable at the option of the shareholder. //
c. Preference as to assets in the event of liquidation.
d. Convertible into ordinary shares.

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The following relates to debt financing except:

Select one:
a. present owners remain in control of the corporation
b. interest incurred is a deductible expenses in arriving at taxable
income //
c. dividends on shares are declared at the discretion of the board of
directors
d. can be availed if it has adequate security offered to creditors

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Question 9

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Which of the following is not considered a characteristic of a liability?

Select one:
a. Results in an outflow of resources.
b. Arises from past events.
c. Present obligation.
d. Liquidation is reasonably expected to require use of existing
resources classified as current assets.

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The 10% bonds payable of Nixon Company had a net carrying amount of
P570,000 on December 31, 2016. The bonds, which had a face value of
P600,000, were issued at a discount to yield 12%. The amortization of
the bond discount was recorded under the effective-interest method.
Interest was paid on January 1 and July 1 of each year. On July 2, 2017,
several years before their maturity, Nixon retired the bonds at 102. The
interest payment on July 1, 2017 was made as scheduled. What is the loss
that Nixon should record on the early retirement of the bonds on July 2,
2017? Ignore taxes.

Select one:
a. P37,800.
b. P33,600.
c. P12,000.
d. P42,000.

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Current liabilities are measured at

Select one:
a. Discounted value
b. Face value
c. Historical cost
d. Present value
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Current liabilities or short-term obligations are not discounted anymore

but measured, recorded and reported at their face amount.

Select one:
True
False

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An entity has been served a legal notice at year-end by the Department

of Environment and Natural Resources to fit smoke detectors in its
factory on or before middle of the next year. The cost of fitting smoke
detector can be measured reliably. How should the entity treat this in
its financial statements at year-end?

Select one:
a. Ignore this for purposes of the financial statements at year-end.
b. No provision is recognized at year-end because there is no present
obligation for the future expenditure since the entity can avoid the
future expenditures by changing the method of operations, but disclosure
is required.
c. Recognize a provision for the current year equal to one-half only of
the estimated amount.
d. Recognize a provision for the current year equal to the estimated
amount.

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These are amounts collected in advance that have not yet been earned and
recorded as revenues pending completion of the earning process.

Select one:
a. Unearned revenue
b. Loyalty program
c. Premiums
d. Contra asset

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Question 15

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Pending litigation would generally be considered

Select one:
a. Non-monetary liability
b. Estimated liability
c. Current liability
d. Contingent liability

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Question 16

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At the beginning of 2016, Winston Corporation issued 10% bonds with a

face value of P600,000. These bonds mature in five years, and interest
is paid semiannually on June 30 and December 31. The bonds were sold for
P555,840 to yield 12%. Winston uses a calendar-year reporting period.
Using the effective-interest method of amortization, what amount of
interest expense should be reported for 2016? (Round your answer to the
nearest dollar.)
Select one:
a. P66,700
b. P66,901
c. P66,500
d. P68,832

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Bonds that are secured by a lien against real estate

Select one:
a. coupon bonds
b. registered bonds
c. real estate mortgage
d. chattel mortgage bond

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Derivative that confers the right, but not the obligation, to buy or
sell a security - normally an equity - at a certain price before expiration.

Select one:
a. Warrants
b. Reminder
c. Notice
d. Memo

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 Question 19

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An investment technique used to offset a potential loss on one

investment by purchasing a second investment with the expectations that
it will perform in the opposite way.

Select one:
a. Warrants
b. Heging
c. Hedging
d. Swaps

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Question 20

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An entity operates chemical plants. Its published policies include a

commitment to making good any damage caused to the environment by its
operations. It has always honored this commitment. Which of the
following scenarios relating to the entity would give rise to an
environmental provision?

Select one:
a. The government has outlined plans for a new law requiring all
environmental damage to be rectified.
b. One past experience it is likely that a chemical spill which would
result in having to pay fines and penalties will occur in the next year.
c. Recent research suggests there is a possibility that the entity's
actions may damage surrounding wildlife.
d. A chemical spill from one of the entity's plants has caused harm to
the surrounding area and wildlife. //

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Question 21

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Callable preference shares permit the corporation at its option to

redeem the outstanding preference shares at stipulated prices.

Select one:
True
False

Question 22

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Financial liability is any liability that is:

Select one:
a. a contractual obligation to exchange financial assets or financial
liabilities with another entity under conditions that are potentially
unfavorable to the entity
b. an equity instrument of another entity
c. a contract that will or may be settled in the entity's own equity
instruments
d. a contractual obligation to deliver cash or another financial asset
to another entity

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When a corporation desires to raise additional funds for a long-term

purposes, it may borrow by issuing bonds and notes ___________ or it may
obtain funds by issuing additional share capital to shareholders
_______________.

Select one:
a. debt financing ; equity financing
b. equity financing ; debt financing
c. equity financing ; equity financing
d. debt financing ; debt financing

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An entity receives an advance payment for special order goods that are
to be manufactured and delivered within 6 months. The advance payment
shall be reported in the entity’s balance sheet as

Select one:
a. Contra asset account
b. Current liability
c. Deferred charge
d. Noncurrent liability

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A business borrowed P40,000 on March 1 of the current year by signing a

30 day, 6% interest bearing note. When the note is paid on March 31, the
entry to record the payment should include a

Select one:
a. Debit to Interest Payable P200
b. Debit to Interest Expense P200
c. Credit to Cash for P40,000
d. Credit to Cash for P42,400

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Question 26
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The likelihood that the future event will or will not occur can be
expressed by a range of outcome. Which range means that the future event
occurring is very slight?

Select one:
a. Remote
b. Certain
c. Probable
d. Reasonably possible

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Question 27

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For a liability to exist

Select one:
a. The exact amount must be known
b. An obligation to pay cash in the future must exist
c. A past transaction or event must have occurred
d. The identity of the party owed must be known

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During May, CircuitSound sold 500 portable CD players for P50 each. Each
CD player cost CircuitSound P25 to purchase and carried a one-year
warranty. If 10 percent typically need to be replaced over the warranty
period, what amount should CircuitSound debit Product Warranty Expense
for in June?

Select one:
a. 1,250
b. 2,500
c. 1,000
d. 250

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Question 29

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The effective interest on a 12-month, zero-interest-bearing note payable

of P300,000, discounted at the bank at 10% is

Select one:
a. 10.87%.
b. 11.11%.
c. 9.09%.
d. 10%.

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Question 30

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Under IFRIC 12, an entity shall account for the award credits as a
"separately component of the initial sale transaction".

Select one:
True
False

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