1

Colegio de San Juan de Letran

Intramuros, Manila

COLLEGE OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

Accountancy and Accounting Technology Program

FINAL EXAMINATION
Second Sem., Academic Year 2019 - 2020
AC 108 - INTERMEDIATE ACCOUNTING 2

Name: TOMAWIS, SULTAN P. Score: _____________ Grade: ____________

Year & Section: AC2B Permit No.:__________ Date: MAY 11 2020
Prof. U.C. Valladolid
Multiple Choice
Identify the choice that best completes the statement or answers the question.

1. On January 1, 2019, an entity leased a building from a lessor with the following pertinent information

Annual rental payable at the end of each year 800,000

Lease incentive received 150,000
Leasehold Improvement 200,000
Purchase option that is reasonably certain to
To be exercised 350,000
Lease term 4 years
Useful life of building 10 years
Implicit interest rate 8%
PV of an ordinary annuity of 1 for 4 periods at 8% 3.31
PV of 1 for 4 periods at 8% 0.735

What is the cost of the right of use asset?

a. 2,855,250
b. 3,055,250
c. 2,955,250
d. 2,755,250
ANSWER: D (2755,250)
800,000X3.31= 2,648,000
350,000X0.735= 257,250
__________
2,905,250
-150,000
__________
2,755,250

2. On March 1, 2019, Cain Company issued at 103 plus accrued interest 4,000 bonds of 9%, 1,000 face amount. The
bonds are dated January 1, 2019 and mature on January 1, 2029.

Interest is payable semi-annually on January 1 and July 1. The entity paid bond issue cost of 200,000.

What is the net cash received from the bond issuance?

a. 4,320,000
b. 4,180,000
c. 4,120,000
d. 3,980.000
ANSWER: D (3,980,000)
Issue price (4,000,000x103%) 4,120,000
Accrued interest from January 1 to march 1,2019
(4,000,000x9%2/12) 60,000
_________
Total 4,180,000
Bond issue cost (200,000)
________
Net cash received from bond issuance 3,980,000
 2

3. Benson Company had a noncontributory defined benefit pension plan. The entity received the projected benefit
obligation report from the independent actuary at year-end.

Pension Fund P135,000

PBO December 31 2,160,000
Interest expense 120,000
Discount rate 8%

What is the current service cost for the current year?

a. 675,000
b. 810,000
c. 540,000
d. 225,000
ANSWER: A (225,000)
120,000x8%= 1,500,000

PBO, JAN 1 1,500,000

CURRENT SERVICE COST 675,000
INTEREST EXPENSE 120,000
________
TOTAL 2,295,000
PENSION FUND (135,000)
________
PBO, DEC 31 2,160,000
4. Angel Company acquired a patent for a drug with a remaining legal and useful life of six years on January 1, 2017 for
5,400,000. The entity used straight line amortization.

On January 1, 2019, a new patent is received for an improved version of the same drug. The new patent has a legal
and useful life of twenty years.

What is the amount of amortization expense for 2019?

a. 900,000
b. 200,000
c. 180,000
d. 300,000
ANSWER: C (180,000)
5,400,000-1,800,000=3,600,000 /20
=180,000
5. Clayton Company owned three properties which are classified as investment properties. Details of the properties are
as follows:
Fair Value Fair Value
12/31/2018 12/31/2019
Property 1 3, 150, 000 3, 200, 000
Property 2 3, 050, 000 2, 950, 000
Property 3 3, 750, 000 3, 500, 000

Each property was acquired in 2018 with a useful life of 30 years. The accounting policy is to use the fair value model
for investment properties. What is the gain or loss to be recognized for the year ended December 31, 2019?
a. 250, 000
b. 300, 000
c. 450, 000
d. 500, 000
ANSWER: B. (300, 000) LOSS
9,950,000-9,650,000= 300,000
 3

6. Hye kyo acquires a patent from Joongki Co. in exchange for 4,500 shares of Hye kyo Corp.’s P5 par value common
stock and P100,000 cash. When the patent was initially issued to Joongki Co., Hye kyo Corp.’s stock was selling at
P7.50 per share. When Hye kyo Corp. acquired the patent, its stock was selling for P10 a share. Hye kyo Corp.
should record the patent at what amount?
a. 102,500
b. 108,750
c. 145,000
d. 90,000
ANSWER: C. 145,000
4,500 SHARES X 10 45,000
CASH 100,000
_______
145,000
7. On January 1, 2022, WAO Company leased a building to OOF Company for a ten year term at an annual rental of
500,000. At inception of the lease, WAO received 2,000,000 covering the first two years’ rent of P1,000,000 and a
security deposit of P1,000,000.

This deposit will not be returned to OOF upon expiration of the lease but will be applied to payment of rent for the last
two years of the lease.

What portion of the 2,000,000 should be reported as current liability on December 31, 2022?
a. 1,500,000
b. 1,000,000
c. 500,000.
d. 0
ANSWER: B. (1,000,000)

8. Majiin Buu Company received a cash from a bonds payable of 767,000 on January 1, 2020. The bonds have a face
amount 650,000 with a stated rate of 10% and expected to yield at 9%. Interest payment of the bonds are made
semi-annually every July 1 and December 31. On year-end of 2020, the Fair value of the bonds is determined to be
749,000. The company recognized interest expense of 76,700 on its current year income statement. What is the
recognized gain/loss in 2020 if the bond is reported using the Fair Value option?
a. 58,000 Loss
b. 58,000 Gain
c. 18,000 Gain
d. 18,000 Loss
ANSWER: C. 18,000 Gain
767,000-749,000=18,000 GAIN

9. Jasper Company has a 4,000,000 note payable due June 30, 2021. On December 31, 2020, the entity signed an
agreement to borrow up to 4,000,000 to refinance the note payable on a long-term basis. The financing agreement
called for borrowing not to exceed 80% of the value of the collateral the entity was providing. On December 31, 2020,
the value of the collateral was 3,000,000. On December 31, 2020, what amount of the note payable should be
reported as current liability?
a. 1,000,000
b. 1,600,000
c. 3,000,000
d. 4,000,000
ANSWER: B 1,600,000
4,000,000
(3,000,000 X 80%) 2,850,000
_________
1,600,000
 4

10. Moja Company was granted a patent on a product on January 1, 2010 with a 20-year useful life. To protect the
patent, the entity purchased on January 1, 2020 for 9,000,000 a patent on a competing product which was originally
issued on January 1, 2015. Because on the unique plant, the entity does not feel the competing patent can be used
in producing a product. What is the amortization of the competing patent for 2020?
a. 0
b. 450,000
c. 600,000
d. 900,000

ANSWER: D (900,000)
9,000,000/10= 900,000
11. Tier One Entertainment Company promotes famous bloggers and streamers in the country. With the prevalence of
social media, the company decided to create an incentive compensation plan for its head manager. The head
manager will receive 10% of the entity’s earnings after deduction of the bonus but before the deduction of income
tax.

The entity’s earnings for the current year before the bonus and income tax was 2,760,000. The given tax rate is
30%. What is the bonus entitled to the head manager for the current year
a. 276,000
b. 250,909
c. 75,273
d. 175,636
ANSWER: 250,909
2,760,000/110%= 2,509,091
2,509,091X10%= 250,909

12. Sakura Company distributes coupons to promote new products. On May 5, 2020, the entity mailed 100, 000 coupons
for P45 off each box of cereal purchased and expected 12,000 of these coupons to be redeemed before the
December 31, 2020 expiration date. It takes 30 days from the redemption date for the entity to receive the coupons
from the retailers. The entity reimburses the retailers an additional P5 for each coupon redeemed. On December 31,
2020, the entity paid the retailers P250, 000 related to these coupons.

What amount should be reported as liability for coupons on December 31, 2020?
a. 350, 000
b. 300, 000
c. 290, 000
d. 250, 000
ANSWER: A (350,000)
12,000X50= 600,000
(250,000)
________
350,000

13. Asia Tech Company is a provider of good quality laptops and gaming console. Upon its third year as a business, it
added another product to improve its operations, they now sell gadget service contracts that cover a two-year period.
Each service contract has a selling price of 430.

According to their operation history, of the total amount spent for repairs on these service contracts, 30% is incurred
evenly at the first contract year while the remaining 70% is incurred evenly during the second year.

For the year 2020, Asia Tech Company was able to sell 2,500 contracts evenly. What is the contract revenue for
2020 and what amount should be reported as deferred service revenue on December 31, 2020
a. Contract Revenue 543,350 and Deferred Revenue 769,000
b. Contract Revenue 322,500 and Deferred Revenue 752,500
c. Contract Revenue 752,500 and Deferred Revenue 322,500
d. Contract Revenue 161,250 and Deferred Revenue 913,750
ANSWER: D Contract Revenue 161,250 and Deferred Revenue 913,750
Total contracts sold in 2020 (2500 × 430) 1,075,000
(1,075,000 × 30%) 322,500
÷2
Contract revenue for 2020 161,250
Total contracts sold in 2020 (2500 × 430) 1,075,000
 5

Earned Contract revenue for 2020 (161,250)

Deferred Service Revenue 913,750

14. PCY Enterprises is experiencing financial distress and is negotiating debt restructuring with its creditor to relieve its
financial difficulty. PCY Enterprises has a 5,000,000 note payable to SM Financials. SM Financials accepted an
equity interest in the form of 10,000 ordinary shares with a par value of 40 and quoted at 45. The fair value of the
note payable on the date of restructuring is 4,400,000. What amount should be recognized as gain from
extinguishment as a result of equity swap?
a. 500,000
b. 600,000
c. 1,000,000
d. No gain is recorded.
ANSWER: 4,500,000
NOTES PAYABLE 5,000,000
(10,000X45) 450,000
________
4,500,000

15. Janna Company purchased an investment property in January 1, 2017 for P3, 450, 000. The property had a useful
life of 35 years and on December 31, 2019 had a fair value of P4, 000, 000. On December 31, 2019, the property
was sold for net proceeds of P3, 900, 000. The entity used the cost model to account the investment property. What
is the gain or loss to be recognized for the year ended December 31, 2019 regarding the disposal of the property?
a.645, 315
b.735, 451
c.745, 715
d.815, 669
ANSWER: C (745,451)
3,450,000- 295,714= 3,154,286
3,900,000 – 3,154,286 = 745,715
 6

16. The equity section of Myeon Company provides the following data:

Ordinary Shares, 10 par value 1,050,000

Share Premium – Ordinary Shares 475,000
Preference Shares, 50 par value 750,000
Share Premium – Preference Shares 295,000
Subscribed Ordinary Share Capital 1,285,000
Subscription Receivable – Ordinary Share 1,500,000
Retained Earnings 4,890,000
What is the amount of Myeon’s legal capital?
a. 3,085,000
b. 5,355,000
c. 7,975,000
d.10,245,000
ANSWER: D (10,245,000)
PREFERENCE SHARE CAPITAL 750,000
ORDINARY SHARE CAPITAL 1,050,000
SUBSCRIBE ORDINARY SHARE CAPITAL 1,285,000
__________
3,085,000

17. Lincoln Company bought a trademark worth 300,000 on January 1, 2015 having a remaining useful life of 15 years.
In January 2020, Lincoln Company paid legal fees for a successful defense of the trademark worth P40, 000.

What amount of expense should be recorded by Lincoln Company for the year 2020?
a. 260, 000
b. 140, 000
c. 100, 000
d. 60, 000
ANSWER: D (60,000)
AMORTIZATION (300,000/15) 20,000
LEGAL FEES 40,000
TOTAL 60,000
 7

18. At the beginning of the current year, Rapoo Company had the following balances related to a defined benefit plan:
Fair value of plan assets 4,500,000
Projected benefit obligation 5,600,000
Current service cost 600,000
Settlement discount rate 10%
Expected return on plan assets 9%
Actual return on plan assets 700,000
Contribution to the plan 600,000
Benefits paid to retirees 200,000
What amount should be reported as employee benefit expense?
a. 690,000
b. 695,000
c. 705,000
d. 710,000
ANSWER: D. (710,000)
600,000
INT EXP (10%X 5,600,000) 560,000
INT EXP (10%X 4,500,000) 450,000
_______
710,000

19. At December 31, 2020 the following balances existed on the books of Tris Corporation:
Bonds Payable 2,000,000
Discount on Bonds Payable 160,000
Interest Payable 50,000
Unamortized Bond Issue Costs 120,000
If the bonds are retired on January 1, 2021, at 102, what will Tris report as a loss on redemption?
a. 370,000
b. 320,000
c. 270,000
d. 200,000

ANSWER: b. 320,000

20. Natsu Company is authorized to issue 4,500,000 of 8%, 10-year bonds dated July 1, 2020 with interest payments on
June 30 and December 31.

When the bonds are issued on November 1, 2020, the entity received cash of 5,000,000 including accrued interest.

What is the discount or premium on bonds payable?

a. 380,000 bond premium.
b. 380,000 bond discount
c. 120,000 bond premium
d. 120,000 bond discount
ANSWER: A (380,000 BOND PREMIUM)
5,000,000
4.5M x 8% = 120,000
4,880,000
4,500,000
380,000

21. On December 31, 2019, Juvia Company purchased a machine from Mira Company in exchange for a noninterest
bearing note requiring eight payments of P400,000.

The first payment was made on December 31, 2019 and the others are due annually on December 31.

At date of issuance, the prevailing note of interest for this type of note was 11%. The PV of an ordinary annuity of 1 at
11% for 8 periods is 5.146, and the PV of an annuity of 1 in advance at 11% for 8 periods is 5.712.
 8

On December 31, 2019, what is the carrying amount of the note payable?
a. 2,284,800
b. 1,884,800.
c. 2,058,400
d. 1,658,400
ANSWER: 1,884,800
PV of note payable (400,000 x 5,712) = 2.284,800
Payment Dec 31 2019 (400,000)
1,884,800

22. Tris Company owned a single investment property which had an original cost 5,800,000 on January 1, 2021. On
December 31, 2023, the fair value was 6,000,000 and on December 31, 2024, the fair value was 5,900,000. On
acquisition, the property had a useful life of 40years. What is the expense to be recognized in profit or loss for the
year ended December 31, 2024, under the fair value model and cost model??
Fair Value Model Cost Model
a. 147,500 145,000
b. 100,000 145,000
c. 145,000 100,000
d. 100,000 147,500
ANSWER: B 100,000 145,000
FV 2023 6,000,000
FV 2024 5,900,000
__________
100,000
COST MODEL
5,800,000/40= 145,000

23. Lusiana Company started its operation at the beginning of the year 2021. At its reporting period, it provided the
following information:

Accounts payable – Trade 390,100

Share dividend payable 1,560,789
Accrued liabilities 473,580
Cash overdraft at BPI 3,564,712
Estimated damages payable as a result of a breach of contract 2,370,645
Contested BIR tax assessment – possible obligation 150,000
Note Payable – due August 2023 3,100,100
Income Taxes withhold from employees 2,500,000

What is the total amount of the current liabilities of Lusiana Company on December 31, 2021?
a. 9,299,037
b. 12,399,137
c. 12,549,137
d. 14,109,926
ANSWER: B (12,399,137)
AP 390,100
ACCRUED LIAB 473,580
CASH OVERDRAFT 3,564,712
ESTIMATED DAMAGE 2,370,645
NOTE PAYABLE 3,100,000
INCOME TAX 2,500,000
__________
12,399,137

24. Jerome Company provides the following data for their first year of operations:

Pretax financial income 1,500,000

Nontaxable interest received (100,000)
Depreciation in excess of financial depreciation 50, 000
Rent received in advance 150,000
Corporate tax rate 30%
 9

What amount should be reported as total income tax expense?

a. 420,000
b. 540,000
c. 450,000
d. 0
ANSWER: C (450,000)
1,500,000X30%= 450,000

25. On June 30, 2019, Helga Company issued at 99, 5,000 bonds of 8%, 1,000 face amount. The bonds were issued
through an underwriter to whom the entity paid bond issue cost of 425,000.

On June 30, 2019, what amount should be reported as bond liability?

a. 4,950,000
b. 4,525,000.
c. 4,575,000
d. 5,000,000
ANSWER: B (4,525,000)
5,000,000 x 99% = 4,950,000
(425,000)
4,525,000

26. Mish Corporation signed a 15-year lease for warehouse space January 1, 2019. During January 2020, Mish made
substantial improvements to the warehouse. The cost of these improvements was P800,000, with an estimated
useful life of 20 years. In the December 31, 2020 balance sheet, the carrying amount of this leasehold improvement
should be
a. 742,857
b. 700,000
c. 600,000
d. 666,666
ANSWER: C. 600,000

27. Luffy Company acquired a building on January 1, 2021 for 15,000,000. at that date, the building had a useful life of
25 years.

One December 31, 2021, the fair value of the building was 15,500,000 and on December 31, 2022, the fair value was
16,000,000.

The building was classified as an investment property and accounted for under cost model.

What is the depreciation of the investment property for 2021?

a. 640,000.
b. 620,000.
c. 600,000
d. 0.
ANSWER: C. 600,000
15,000,000/25= 600,000

28. Maraguinot Inc. had outstanding 10%, P3 Million face value, convertible bonds maturing on December 31, 2022 on
which interest is paid June 30 and December 31. After amortization through June 30, 2020, the unamortized balance
in the bond discount account was 145,000. The paid in capital from bond conversion privilege had a balance of
50,000. On that date, all of these bonds were converted into 120,000 ordinary shares with 20 par value. At that time,
each share of Maraguinot ordinary share capital sells for 23. Maraguinot incurred expenses of 180,000 in connection
with the conversion.

The conversion of the bonds to ordinary shares shall result to an increase in share premium by
a. 160,000
b. 230,000
c. 180,000
 10

d. 225,000
ANSWER: D 225,000

3,000,000 -145,000 = 2,855,000

120,000 x 20 (2,400,000)
455,000
(180,000)
275,000
(50,000)
225,000Solution:
3,000,000 -145,000 = 2,855,000
120,000 x 20 (2,400,000)
455,000
(180,000)
275,000
(50,000)
225,000

29. On January 1, 2022, Gray Company owned an investment property which had an original cost of 6,000,000 and
useful life of 40 years.

On December 31, 2024, the fair value was 7,000,000 and on December 31, 2025, the fair value was 6,500,000.

Under the fair value model, what is the expense to be recognized for the year ended December 31, 2025?
a. 200,000
b. 300,000
c. 400,000
d. 500,000
ANSWER: D. (500,000)
FV 2024 7,000,000
FV 2025 (6,500,000)
_________
500,000

30. Hideous Company 2021 income statement showed following data for 2021:

Interest income from bank deposits 25,000

Rent income received in advance 20,000
Depreciation deducted for tax purposes in excess of
depreciation deducted for financial statements 40,000
Estimated income tax payments 100,000
Corporate income tax rate 30%

The company have a pretax income of 800,000.

What amount of current income tax liability should be included in Hideous Company in December 31, 2021 statement
of financial position?
a. 226,500
b. 126,500
c. 250,500
d. 0
 11

ANSWER: B. 126,500
800,000-25,000=775,000
20,000
(40,000)
_______
7,550,000X30%=226,500 – 100,000= 126,500