Flag Question: Question 2: Expensed Based On Estimate in Year of Sale

If the bonds were issued at a premium, this indicates that
Group of answer choices
The effective yield or market rate of the interest exceeded the stated rate.
The nominal rate of interest exceeded the market rate.
The market and nominal rates coincided.
No necessary relationship exists between the two rates.

Flag question: Question 2
Question 21 pts
Which of the following best describes the accrual method of accounting for warranty
costs?
Expensed when paid
Expensed based on estimate in year of sale
Expensed when warranty claims are certain
Expensed when incurred

Question 31 pts
Which of the following is the proper way to report probable contingent asset?
As an asset
As deferred revenue
As a disclosure only
No disclosure or accrual required

Question 41 pts
The market price of a bond issued at a discount is the present value of the principal
amount at market rate of interest
Less the present value of all future interest payments at the market rate
Less the present value of all future interest payments at the stated rate
Plus the present value of all future interest payments at the market rate
Plus the present value of all future interest payments at the stated rate

Question 51 pts
If a bond was sold at 105, then the stated rate of interest was:
Equal to market rate
Not related to market rate
Higher than market rate
Lower than market rate

Question 61 pts
Under the effective interest method of bond discount or premium amortization, the
periodic interest expense is equal to
The stated rate of interest multiplied by the face value of bonds
The effective rate of interest multiplied by the face value of the bonds
The stated rate multiplied by the beginning of the period carrying amount of the bonds
The effective rate multiplied by the beginning of the period carrying amount of the bonds

Question 71 pts
When bonds mature on a single date, they are called
Term bond
Serial bond
Debenture bond
Callable bond

Question 81 pts
Costs incurred in issuing ten-year bonds which sold at a slight premium should be
Capitalized as organization cost
Expensed in the year in which incurred
Charged to retained earnings when the bonds are issued
Reported on the balance sheet as a deduction from bonds payable and amortized over
the bond term

Question 91 pts
An entity issued bonds with a 5% stated rate. If the market rate for comparable bonds is
6%, which of the following is correct?
The issuer will collect a premium
The issue will have to sell the bonds at a discount

The issuer will sell the bonds at face amount
The amount of interest paid is based on the market

Question 101 pts
A liability shall be classified as current when it satisfies any of the following criteria,
except
It is expected to be settled in the entity’s normal operating cycle
It is held primarily for the purpose of being traded
Is is due to be settle within twelve months after the balance sheet date
The entity has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date

Question 111 pts
Liabilities are
Any accounts having credit balances after closing entries are made.
Deferred credits.
Obligations to transfer ownership shares to other entities in the future.
Present obligations arising from past events and result in an outflow of resources.

Question 121 pts
The discount on note payable should be reported as
Addition to the face amount of the note
Deferred charge separate from the note
Deferred credit separate from the note
Direct deduction from the face amount of the note

Question 131 pts
A debt instrument with no ready market is exchanged for property whose fair value is
currently indeterminable. When such a transaction takes place
The present value of the debt instrument must be approximated using an imputed
interest rate.
It should not be recorded until the fair value of the property becomes evident.
The board of directors of the entity receiving the property should estimate a value for
the property that will serve as a basis for the transactions.
The directors of both entities involved in the transactions should negotiate a value to be
assigned to the property.

Question 141 pts
There is substantial modification of terms of an old financial liability if the gain or loss on
extinguishment is
At least 10% of the new liability
Less than 10% of the new liability
At least 10% of the carrying amount of the old liability
Less than 10% of the carrying amount of the old liability

Question 151 pts
In a debt settlement in which the debt is continued with modified terms, a gain should be
recognized at the date of settlement whenever the
Carrying amount of the debt is less than the total future cash flows.
Carrying amount of the debt is greater than the present value of the future cash flows.
Present value of the debt is less than the present value of the future cash flows.
Present value of the debt is greater than the present value of the future cash flow.

Question 161 pts
A department store received cash and issued a gift certificate that is redeemable in
merchandise. When the gift certificate was redeemed
Deferred revenue account will decrease
Revenue account will increase
Gross profit will increase
All of the choices are correct

Question 171 pts
How would the carrying value of a bond payable be affected by amortization of each of
the following?
Discount Premium Discount Premium
A. No effect No effect C. Increase Decrease
B. Increase No effect D. Decrease Increase

D

Question 181 pts
Bonds with a par value of P5.0 million carrying a stated interest rate of 12% payable
semiannually on March 1 and September 1 were issued on July 1. The total proceeds
from the issue amounted to P5,200,000. The best explanation for the excess amount
received over the par is
The bonds were sold at a premium
The bonds were sold at a higher effective interest rate
The bonds were issued at par value plus accrued interest
No explanation is possible without knowing the maturity date of the bond issue

Question 191 pts
When a note payable is issued for property, goods or services, the present value of the
note is measured by
The fair value of the property, goods or services.
The fair value of the note.
Using imputed interest rate to discount all future payments on the note.
Any of these

Question 201 pts
Which of the following is incorrect about bonds sold at a discount?
The carrying amount of the bond increases each year
The discount on bonds payable account decreases each year
At maturity, the face value and carrying amount of the bonds will be equal
The balance of the bonds payable account increases each year

Question 211 pts
On December 31, 2019, Claudine Company issued 5,000 of 8% 10-year P1,000 face
value bonds with detachable warrants at 110. Each bond carried a detachable warrant
for 10 ordinary shares of P100 par value at a specified option price of P120.
Immediately after issuance, the market value of the bonds without warrants was
P4,800,000 and the market value of the warrants was P1,200,000.
 On December 31, 2019, what is the carrying amount of bonds payable?
4,000,000

Question 221 pts
On December 31, 2019, Claudine Company issued 5,000 of 8% 10-year P1,000 face
value bonds with detachable warrants at 110. Each bond carried a detachable warrant
for 10 ordinary shares of P100 par value at a specified option price of P120.
Immediately after issuance, the market value of the bonds without warrants was
P4,800,000 and the market value of the warrants was P1,200,000.
 What is the share premium from the subsequent exercise of all share
warrants?
1,200,000

Question 231 pts
On January 1, 2021, Rowlet Corporation. Issued a 3 year, 8,000, P1,000 convertible
bonds at 110. Interest is to be paid annually at the stated coupon rate of 12% every
December 31. Each bond is convertible, at the holder’s option, into 30, P25 par value
common share at any time up to maturity. On the date of issuance, prevailing market
interest rate for similar debt without the conversion privilege was 9%. On the same date
market price of one common share was P30.
 What is the equity component of the convertible debt?
(PVF 4 Decimal)
192,352

Question 241 pts
interest rate for similar debt without the conversion privilege was 9%.
 On the same date market price of one common share was P30. What is
the resulting bonds payable carrying value as of December 31, 2021?
(PVF 4 Decimal)
8,422,236

Question 251 pts
interest rate for similar debt without the conversion privilege was 9%. On the same date
market price of one common share was P30.
 Assuming that the convertible bonds above were converted on January

1, 2023, how much should be credited to Share premium from the equity
conversion?
(PVF 4 Decimal) 2412699

Question 261 pts
Daz Company owed P2,000,000 plus P180,000 of accrued interest to Bonez Bank
which is due to be paid on December 31, 2022. During 2022, Daz’s business
deteriorated because of faltering regional economy. On December 31, 2022, Bonez
Bank agrees to accept an old machine and cancel the entire debt. The machine has a
cost of P3,900,000, accumulated depreciation of P2,210,000 and a fair value of
P1,900,000. How much is the total amount to be reported in its profit or loss as a result
of the financial liability de-recognition?280000

Question 271 pts
In 2019, Habiba Company sold 40,000 vacuum sweepers. Habiba estimated that 10%
of the sweepers would require repairs under the two-year warranty, at an average cost
of P30. During 2019, Habiba had an actual outlay of P100,000 for repairs under
warranty. At what amount should the company record warranty expense for 2019?
120000

Question 281 pts
In May 2019, Houston Company filed suit against Wayne, Inc. seeking P1,900,000
damages for patent infringement. A court verdict in November 2019 awarded Houston
P1,500,000 in damages, but Wayne’s appeal is not expected to be decided before
2020. Houston’s counsel believes it is probable that Houston will be successful against
Wayne for an estimated amount in the range between P800,000 and P1,100,000, with
P1,000,000 considered the most likely amount. What amount should Houston record as
income from the lawsuit in the year ended December 31, 2019?
0

Question 291 pts
Mae Jong Corporation issues 1,000 convertible bonds at the beginning of 2021. The
bonds have a four-year term with a stated rate of interest of 6 percent, and are issued at
par with a face value of P1,000 per bond (total proceeds received from issuance of the
bonds are P1,000,000). Interest is payable annually at December 31. Each bond is
convertible into 250 ordinary shares with a par value of P1. The market rate of interest
on similar non-convertible debt is 9 percent. Compute the liability component of Mae
Jong’s convertible debt.
PV of 1 for 4 periods PV of Ordinary Annuity for 4 periods
6% 0.79209 3.46611
9% 0.70843 3.23972
The issuance of convertible bonds increased the entity’s equity by:
97187

Question 301 pts
On January 1, 2017, Bege Company acquired a tract of land for P5,250,000. Bege
Company paid P1,250,000 down and signed a noninterest bearing note for the balance
which is due on January 1, 2021. There was no established exchange price for the land
and the note had no ready market. The prevailing interest rate for this type of the note
was 12%. How much is the current portion of notes payable on December 31, 2017?
(PVF 4 Decimal)
0

Question 311 pts
The balance in Cowboy Corporation’s accounts payable at December 31, 2019 was
P1,350,000 before any necessary year-end adjustment relating to the following:
 Goods were in transit to Cowboy from a vendor on December 31, 2019.

The invoice cost was P75,000. The goods were shipped FOB shipping
point on December 29, 2019 and were received on January 2, 2020.
 Goods shipped FOB destination on December 21, 2019, from a vendor to
Cowboy, were received on January 6, 2020. The invoice cost was
P37,500.
 On December 27, 2019, Cowboy wrote and recorded checks totaling
P60,000 which were mailed on January 10, 2020.
In Cowboy’s December 31, 2019 statement of financial position, how much should be
the accounts payable?
1,485,000

Question 321 pts
On December 31, 2019, Kakuna Co. issued 10,000 shares with par value of P100 share
in settlement of a 12%, P4,000,000 loan payable with a related unamortized discount of
P80,000, and accrued interest of P360,000. The remaining term of the loan is 3 years.
The fair value of the shares is not reliably determinable. The prevailing market rate for
similar debt on December 31, 2019 is 8%. How much is the gain (loss) on the
extinguishment of the debt? (PVF 4 decimal)
132333

Question 331 pts
The 12% bonds payable of Eira Company had a carrying amount of P832,000 on
December 31, 2021. The bonds, which had a face value of P800,000, were issued at a
premium to yield 10%. Eira uses the effective-interest method of amortization. Interest is
paid on June 30 and December 31. On June 30, 2022, several years before their
maturity, Eira retired the bonds at 104 plus accrued interest. The loss on retirement is:
64000

Question 341 pts
Silencing Company, after having financial difficulties in 2021, negotiated with a major
creditor and arrived at an agreement to restructure its loan on December 31, 2021.
Principal loan balance is P7,200,000 and interest of P800,000. The creditor accepted an
equipment with a fair value of P1,400,000 and a note receivable from Silencing’s
customer with a carrying amount of P5,400,000. The equipment’s original cost was
P1,800,000 and its related depreciation was P600,000. The amount of gain recognized
arising from the debt restructuring by way of an “asset swap” is
1400000

Question 351 pts
Nabu Company sells contracts agreeing to service equipment for a three-year period.
Information for the year ended December 31, 2024 is as follows:
Cash receipts from service contracts sold P 1,920,000
Service contract revenue recognized 1,560,000

Unearned service contract revenue, January 1, 2024 1,080,000
In its December 31, 2024 statement of financial position, what amount should Nabu
report as unearned service contract revenue?
1440000

Question 361 pts
Kansas Company bought 40,000 dolls at P5 each to give away in a proof of purchase
promotion. Two proofs of purchases entitle a customer to one doll. Past experience
indicates that approximately 55 percent of the available proof of purchases will be
redeemed. The number of proof of purchases on soup boxes sold during the current
year was 76,000. The amount of expense to be recognized during the current year
would be:
104500

Question 371 pts
On January 1, 2022, Marshall Corporation acquired an equipment for P1,000,000
payable in four equal annual installment every December 31 starting December 31,
2022. There is no agreed interest and no cash price is available for the equipment. The
prevailing market interest rate for this type of note is 12%.
How much is the non-current portion of notes payable on December 31, 2022?
(PVF 3 Decimal)
194522

Question 381 pts
Aviator Company had bonds payable with face amount of P10,000,000 and a carrying
amount of P9,600,000. In addition, unpaid interest on the bonds was accrued in the
amount of P500,000. The creditor had agreed to the settlement of the bonds payable in
exchange for 50,000 shares of P100 par value. The shares have no reliable measure of
fair value. However, the bonds are quoted at P7,000,000. What is the gain on the
extinguishment of the bonds payable?
3,100,000

Question 391 pts
During 2025, Pasadena Company introduced a new product carrying a two-year
warranty against defects. The estimated warranty costs related to peso sales are 4%
within 12 months following sale and 6% in the second 12 months following sale. Sales
and actual warranty expenditures for the years ended December 31, 2025 and 2026,
are as follows:
Sales Actual expenditures
2025 5,000,000 170,000
2026 8,000,000 460,000
Pasadena Company’s estimated warranty liability at December 31, 2026 is
670,00

Question 401 pts
On March 1, 2022, Erik Company issued 10,000 of its P1,000 face value bonds at 95
plus accrued interest. Erik Company paid bond issue cost of P1,000,000. The bonds
were dated November 1, 2021, mature on November 1, 2031, and bear interest at 12%
payable semiannually on November 1 and May 1. The net amount that Erik receive from
the bond issuance is
8900000

Question 411 pts
Mantra Inc. signed a P200,000 non-interest bearing note due in five-years from a
production company eager to do business. Comparable borrowings have carried an
11% interest rate. At what amount should this debt be carried at its inception? (PVF 5
Decimal)
118600
Question 421 pts
Ducky Company reported the following information at the end of reporting period:
Accounts payable 1,000,000
Advances to employees 45,000
Unearned rent revenue 300,000
Estimated liability under warranties 250,000
Cash surrender value of officers’ life insurance 75,000
Bonds payable 5,000,000
Discount on bonds payable 500,000
Trademark 50,000
What amount should be reported in the statement of financial position as total liabilities?
6050000
Question 431 pts
Aviator Company had bonds payable with face amount of P10,000,000 and a carrying
amount of P9,600,000. In addition, unpaid interest on the bonds was accrued in the
amount of P500,000. The creditor had agreed to the settlement of the bonds payable in
exchange for 50,000 shares of P100 par value. The shares have no reliable measure of
fair value. However, the bonds are quoted at P7,000,000. What amount of share
premium should be recognized as a result of the equity swap?
2000000

Question 441 pts
Chocora Company acquired new manufacturing equipment on January 1, 2026, on
installment basis. The deferred payment contract provides for a down payment of
P300,000 and an 8-year note for P3,104,160. The note is to be paid in 8 equal annual
installment payment of P388,020, including 10% interest. The payments are to be made
on December 31 each year, beginning December 31, 2026. The equipment has a cash
price equivalent of P2,370,000. Chocora’s financial year-end is December 31. The
amount of interest expense to be recognized in 2027 is
310416

Question 451 pts
On December 31, 2025, Tail Company was involved in a tax dispute with BIR. Tail’s tax
counsel believed that an unfavorable outcome was probable and a reasonable estimate
of additional taxes was P275,000, with a chance that the additional taxes could be as
much as P425,000. After the 2025 financial statements were issued, Tail accepted the
BIR settlement offer of P325,000. What amount of additional taxes should have been
accrued in 2025?
325000

Question 461 pts
On January 1, 2022, Marshall Corporation acquired an equipment for P1,000,000
payable in four equal annual installment every December 31 starting December 31,
2022. There is no agreed interest and no cash price is available for the equipment. The
prevailing market interest rate for this type of note is 12%.
How much is the carrying value of the notes on December 31, 2022?
(PVF 3 Decimal)

462320

Question 471 pts
On January 1, 2019, Rossana Company issued 10-year bonds with face value of
P5,000,000 for P5,775,000. The entity paid bond issue cost of P100,000 on same date.
The stated interest rate on the bonds is 10% payable annually every December 31. The
bonds have an 8% yield per annum after considering the bond issue cost. The entity
used the effective interest method of amortizing bond premium.
 What is the interest expense for 2019?
454000

Question 481 pts
Frieza Company enjoys profitable operations for its past ten years of existence. The
Company president proposed to the Board of Directors as incentive compensation plan
where the general manager would be entitled to a year-end bonus under the following
alternative schemes:
Alternative 1: 8% bonus based on profit before bonus and income tax in excess of P5,000,000.
Alternative 2: 5% bonus based on profit after bonus and income tax.
Alternative 3: 3% bonus based on profit after bonus but before income tax.
Frieza Company’s profit before bonus and income tax for the year ended December 31,
2019 is P8,000,000. Assume an income tax rate of 30%.
 How much is the general manager’s bonus for 2019 under Alternative 1?
240000

Question 491 pts
8% bonus based on profit before bonus and income tax in excess of

Alternative 1:
P5,000,000.
270531

Question 501 pts
8% bonus based on profit before bonus and income tax in excess of

Alternative 1:
P5,000,000.
233010

Flag Question: Question 2: Expensed Based On Estimate in Year of Sale

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If the bonds were issued at a premium, this indicates that

Group of answer choices

The nominal rate of interest exceeded the market rate.

The market and nominal rates coincided.

No necessary relationship exists between the two rates.

Expensed when paid

Expensed based on estimate in year of sale

Expensed when warranty claims are certain

Expensed when incurred

No disclosure or accrual required

Equal to market rate

Not related to market rate

Higher than market rate

Lower than market rate

The stated rate of interest multiplied by the face value of bonds

Capitalized as organization cost

Expensed in the year in which incurred

Charged to retained earnings when the bonds are issued

The issuer will collect a premium

The issue will have to sell the bonds at a discount

The amount of interest paid is based on the market

It is expected to be settled in the entity’s normal operating cycle

It is held primarily for the purpose of being traded

Obligations to transfer ownership shares to other entities in the future.

Deferred charge separate from the note

Deferred credit separate from the note

Direct deduction from the face amount of the note

At least 10% of the new liability

Less than 10% of the new liability

At least 10% of the carrying amount of the old liability

Less than 10% of the carrying amount of the old liability

Deferred revenue account will decrease

Revenue account will increase

Gross profit will increase

All of the choices are correct

Discount Premium Discount Premium

A. No effect No effect C. Increase Decrease

B. Increase No effect D. Decrease Increase

The bonds were sold at a premium

The bonds were sold at a higher effective interest rate

The bonds were issued at par value plus accrued interest

The fair value of the property, goods or services.

The fair value of the note.

The carrying amount of the bond increases each year

The discount on bonds payable account decreases each year

The balance of the bonds payable account increases each year

 On December 31, 2019, what is the carrying amount of bonds payable?

 What is the equity component of the convertible debt?

 Assuming that the convertible bonds above were converted on January

(PVF 4 Decimal) 2412699

The issuance of convertible bonds increased the entity’s equity by:

 Goods were in transit to Cowboy from a vendor on December 31, 2019.

Cash receipts from service contracts sold P 1,920,000

Service contract revenue recognized 1,560,000

Sales Actual expenditures

2025 5,000,000 170,000

2026 8,000,000 460,000

Pasadena Company’s estimated warranty liability at December 31, 2026 is

Advances to employees 45,000

Unearned rent revenue 300,000

Estimated liability under warranties 250,000

Cash surrender value of officers’ life insurance 75,000

Bonds payable 5,000,000