COLLEGE OF ACCOUNTANCY

FIRST GRADING EXAMINATION

ACCOUNTING 153B
INSTRUCTION:
o Make a summary of answer.
o Show your solutions for problem solving. No solution no points.
o Submit to my messenger account the picture of the summary of answer and solutions.
PART 1. MULTIPLE CHOICE THEORY
1. A short-term note payable may include all of the following except:
a. trade notes payable. c. unearned revenue.
b. nontrade notes payable. d. a current maturity of a long-term liability
2. Liabilities arise from either legal or constructive obligation. Which of the following is a source of
constructive obligation?
a. contract c. quasi-contract
b. law d. an established pattern of past practice
3. When a note payable is issued for property, goods, or services, the note is initially measured at
a. the fair value of the property, goods, or services.
b. the fair value of the note.
c. using an imputed interest rate to discount all future payments on the note.
d. choice (a) except when this is not determinable, in which case, whichever is the more clearly
determinable between (b) and (c).
4. Interest expenses are
a. incurred only on interest-bearing obligations
b. incurred due to passage of time.
c. not incurred on redeemable preference shares issued
d. incurred only when the effective interest rate is stated in the instrument
5. The result on the year-end balance sheet of an issue of a 10-year term bond sold at face amount
four years ago with interest payable June 1 and December 1 each year, is a(an)
a. liability for accrued interest c. increase in deferred charges
b. addition to bonds payable d. contingent liability
6. Unamortized bond discount should be reported on the financial statements of the issuer as a
a. Direct deduction from the face amount of the bond
b. Direct deduction from the present value of the bond
c. Deferred charge
d. Part of the issue costs
7. For a bond issue which sells for less than its face amount, the market rate of interest is
a. Dependent on the rate stated on the bond.
b. Equal to rate stated on the bond.
c. Less than rate stated on the bond.
d. Higher than rate stated on the bond.
8. In an “asset swap,” where a liability is settled through the transfer of noncash asset,
a. the gain or loss on settlement is computed as the difference between the carrying amount of the
liability extinguished and the fair value of the noncash asset transferred.
b. the gain or loss on settlement is computed as the difference between the carrying amount of the
liability extinguished and the carrying amount of the noncash asset transferred.
c. the gain or loss on settlement is computed as the difference between the carrying amount of the
liability extinguished and the more clearly determinable between the fair value of the liability
extinguished and the carrying amount of the noncash asset transferred.
d. no gain or loss is recognized
9. Financial liabilities are classified as
a. FVPL or amortized cost
b. FVPL or FVOCI
c. FVOCI or amortized cost
d. None of these
10.When the face amount is greater than the initial carrying amount
a. Premium b. Discount c. Loss d. Gain
11.When the effective rate is less than nominal rate
a. Premium
b. Discount
c. Loss
d. Gain
12.Under a debt restructuring involving substantial modification of terms, the future cash flows under
the new terms shall be discounted using
a. Original effective interest rate
b. Interest rate under the new terms
c. Market rate of interest
d. Prime interest rate

13.Bonds that mature on a single date are called

 a. Term bonds
b. Serial bonds
c. Debenture bonds
d. Callable bonds
14.Bonds issued with scheduled maturities at various dates are called
a. Convertible bonds
b. Term bonds
c. Serial bonds
d. Callable bonds
15.On November 1, 20x1, a company purchased a new machine that it does not have to pay for until
November 1, 20x3. The total payment on November 1, 20x3, will include both principal and
interest. Assuming interest at a 10% rate, the cost of the machine would be the total payment
multiplied by what time value of money concept?
a. PV of annuity of P1. c. FV of annuity of P1.
b. PV of P1. d. FV of P1.
16.Interest payment dates of a bond issue are March 1 and September 1, 20x1. The bond was issued
on June 1, 20x1. Interest expense for the year ended December 31, 20x1 would be for:
a. four (4) months c. seven (7) months
b. six (6) months d. ten (10) months
17.According to PAS 37, provisions are measured at
a. the entity’s best estimate of the settlement amount.
b. the expected value of the settlement amount.
c. the mid-point amount of a range of estimates.
d. any of these, whichever is most appropriate
18.According to PAS 37, a provision does not arise from
a. restructuring. c. product warranties.
b. future operating losses. d. constructive obligation.
19.According to PAS 37, a provision is
a. a present obligation that cannot be measured reliably.
b. a possible obligation that arises from past events.
c. a liability of uncertain timing or amount.
d. all of these
20.According to PAS 37, contingent liabilities are
a. recognized and disclosed.
b. always disclosed.
c. disclosed only, if their expected occurrence is probable.
d. not disclosed if their expected occurrence is remote.
21.Which of the following statements is correct?
a. A provision is recognized only when it represents a present obligation.
b. An event or transaction that meets both the “probable outflow of economic benefits” and “reliable
measurement” criteria is always recognized.
c. A contingent asset that is possible is ignored.
d. A contingent liability that is possible is ignored.
22.It is a type of retirement plan where the employer assures a definite amount of benefit to be
received by the employee. The risk that funds needed to pay the agreed benefits may be
insufficient is retained by the employer.
a. Defined contribution plan
b. Defined benefit plan
c. Leche plan
d. Plan vs. zombies
23.Entity A’s employees are entitled to six days paid sick leaves per year. Any unused sick leave is
converted to cash when the employee resigns or retires. The sick leave benefits are considered
a. vesting . c. non-accumulating.
b. non-vesting. d. monetizing.
24.Compensated absences that can be carried forward and used in future periods if not fully used in
the current period of entitlement are referred to as
a. contributory. c. accumulating.
b. non-contributory. d. vesting.
25.Under this post-employment benefit plan, the retirement benefit cost is equal to the contribution
due for the period.
a. Defined contribution plan c. State plan
b. Defined benefit plan d. Multi-employer plan

PART 2: Multiple Choice Problem

Gallery Department Store sells gift certificates, redeemable for store merchandise that expires one year
after their issuance. Gallery has the following information pertaining to its gift certificates sales and
redemptions:
 Unearned at December 31, 2005 P 600,000
2006 sales 2,000,000
2006 redemptions of prior-year sales 200,000
2006 redemptions of current-year sales 1,400,000
Gallery’s experience indicates that 10% of gift certificates sold will not be redeemed.
26.In its December 31, 2006 balance sheet, what amount should Gallery report as unearned
revenue?
a. 400,000 c. 800,000
b. 600,000 d. 1,000,000
The following information were taken from ABC records on December 31, 2021:
January 1,2021 December 31,2021
Accounts payable 250,000 ?
During 2021 the Company made the following transactions:
Purchases on accounts 500,000
Purchase returns 50,000
Purchase discount 25,000
Payment of accounts payable 200,000
Cash purchases 10,000
27.How much is the ending balance of accounts payable at the end of 2021?
a. 475,000
b. 465,000
c. 485,000
d. 490,000
e. None of these
In 2004, Slimon Corporation began selling a new line of products that carry a two-year warranty against
defects. Based upon past experience with other products, the estimated warranty costs related to sales are
as follows:
First year of warranty 2%
Second year of warranty 5%
Sales and actual warranty expenditures for 2004 and 2005 are presented below:
2004 2005
Sales P600,000 P800,000
Actual warranty expenditures 20,000 40,000
28.What is the estimated warranty liability at the end of 2005?
a. P38,000.
b. P58,000.
c. P98,000.
d. P16,000.
Inter Company sells its products in reusable, expensive containers. The customer charged a deposit for
each container delivered and receives a refund for each container returned within two years after the year
of delivery. Inter accounts for the containers not returned within the time limit as being retired by sale at
the deposit amount. Information for 2006 is as follows:
Deposits for containers at December 31, 2005 from deliveries in:
2004 P 150,000
2005 430,000 P 580,000
Deposits for containers delivered in 2006 780,000
Deposits for containers returned in 2006 form deliveries in:
2004 P 90,000
2005 250,000
2006 286,000 626,000
29.What amount should Inter Company report as a liability for deposits on returnable containers at
December 31, 2006?
a. 494,000
b. 644,000
c. 674,000
d. 734,000
30.On January 1, 20x1 WRECK RUIN Co. acquired land by issuing a three-year, 12%, P4,000,000
note payable. Principal and interest are due on December 31, 20x3. How much is the accrued
interest payable in 20x2?
a. 1,017,600 c. 960,000
b. 537,600 d. 764,213
On January 1, 20x1, PAGEANT SHOW Co. issued 10%, P12,000,000 bonds at a yield to maturity interest
of 18%. Principal and interest are due on December 31, 20x3.
31.How much is the carrying amount of the bonds on initial recognition?
a. 15,972,000
b. 9,721,052
c. 9,028,341
d. 9,183,273
 ABC Co. is contemplating on issuing a 12%, 3-year, P1,000,000 bonds. Principal is due at maturity but
interest is due semi-annually every July 1 and December 31. ABC determines that the current market rate
on January 1, 20x1 is 14%.
32.How much is the estimated issue price of the bonds assuming ABC issues bonds on January 1,
20x1?
a. 666,342
b. 285,992
c. 952,334
d. 962,563
Use the following information for the next three questions:
On January 1, 20x1, SCRAWNY SKINNY Co. issued 1,000, P4,000, 10%, 3-year bonds for P 3,807,852.
Principal is due on December 31, 20x3 but interests are due annually every year-end. In addition,
SCRAWNY incurred bond issue costs of P179,316. The effective interest rate is 14% after adjustment for
bond issue costs.
33.How much is the carrying amount of the note on initial recognition?
a. 3,628,536
b. 4,000,000
c. 3,635,340
d. 3,754,309
34.How much is the interest expense in 20x1?
a. 435,424
b. 576,240
c. 507,995
d. 400,000
35.How much is the carrying amount of the note on December 31, 20x1?
a. 3,401,832
b. 3,391,580
c. 3,288,776
d. 3,736 ,531
36.Entity A issues convertible bonds with face amount of P2,000,000 for P2,600,000. Each P1,000
bond is convertible into 10 shares with par value of P60 per share. On issuance date, the bonds
are selling at 102 without the conversion option. What is the value allocated to the equity
component on initial recognition?
a. 2,040,000
b. 540,000
c. 560,000
d. 460,000
37.ABC Company has accounts payable to customer the end of the year 2014 amounting to P40,
000, respectively. Gross Purchases for the year 2015 is P500, 000, purchase discount of P10, 000,
Purchase returns and allowances is P5, 000. ABC Company paid P350, 000 in 2015. The balance
of accounts payable in 2015 is:
a. 190, 000
b. 185, 000
c. 180, 000
d. 175, 0000
38.On September 1, 2004, Gaston Co. issued a note payable to National Bank in the amount of
P1,500,000, bearing interest at 12%, and payable in three equal annual principal payments of
P500,000. On this date, the bank's prime rate was 11%. The first payment for interest and
principal was made on September 1, 2005. At December 31, 2005, Gaston should record accrued
interest payable of
a. P60,000.
b. P55,000.
c. P40,000.
d. P36,667.

39.On December 31, 2011, ABC Co. agreed the following to the following modification of its existing
liability.
 Reduced the principal on the loan is reduced from P2, 500, 000 to P2, 000, 000
 Extended maturity date from December 31, 2012 to December 31, 2014(3 years).
 Forgave accrued interest of P300, 000.
 Reduced the loan’s nominal interest rate of 12% to 10%.
Interest is payable annually at each year end. The original effective rate of the debt instrument for both
ABC and the Bank is 12%. The prevailing market rate of interest as of December 31, 2011 is 11%.
Compute the gain or loss on extinguishment of old liability?
a. 896, 074 gain
b. 848, 875 gain
 c. 848, 875 loss
d. 0
40.Assume that the carrying amount of old liability is P2, 100, 000. Compute gain or loss using
problem number 20?
a. 196074 gain
b. 148, 875 gain
c. 148, 875 loss
d. 0
41.On December 31, 2015 Red issued 10, 000 shares with par value of P100 in settlement of P1,
000, 000 loan payable with a related unamortized discount of P20, 000, and accrued interest of
P90, 000. On December 31, 2015, the shares are selling at P120 per share. Compute the gain or
loss on extinguishment of liability?
a. 130, 000gain
b. 130, 000 loss
c. 70, 000 gain
d. 70, 000 loss
42.On January 1, 2006 W issued its 9% bonds in face amount of P4,000,000 which mature on
January 1, 2016. The bonds were issued for P3,756,000 to yield 10%, resulting in bond discount.
Interest is payable annually on December 31. At December 31, 2006, W’s un-amortized bond
discount would be
a. 204,000
b. 206,440
c. 208,000
d. 228,400
On December 31, 2005, Gumaca Company had a P15,000,000 note payable outstanding, due July 31,
2006. Gumaca borrowed the money to finance construction of a new plant. On March 1, 2006, the note
was replaced by an 18-month note for the same amount. On March 31, 2006, Gumaca issued its 2005
financial statements.
43.What amount of the note payable should Gumaca include in the current liabilities?
a. 15,000,000
b. 12,000,000
c. 3,000,000
d. 0
Wolf Company issued 12%, 3 year, P3, 000, 000 bonds. Principal is due in 3 equal annual installment
starting December 31, 2001. Interest is due annually at the end of each year. Wolf Company determined
that the current market rate on January 1, 2001 is 14%.
44.How much is the present value of the bonds on January 1, 2001?
a.2, 903, 090
b. 2, 930, 900
c. 2, 321, 632
d. 2, 952, 334
45.how much interest expense on December 31, 2001?
a. 406, 432
b. 410, 326
c. 325, 028
d. 413, 326
In 20x1, EXHAUSTIVE COMPLETE Co. received a court order requiring the cleanup of environmental
damages caused by one of EXHAUSTIVE’s factory. EXHAUSTIVE has no other realistic alternative but to
comply with the court order. Other entities have incurred around P60M for similar cleanup; however,
EXHAUSTIVE’s best estimate of the cost of cleanup is P80M.
46.How much is the provision to be recognized?
a. 60M
b. 80M
c. 70M
d. 0

In 20x1, LUMINOUS SHINING Co. recalled a product due to a possible defect caused by a malfunctioning
factory equipment. The products recalled will be repaired free of charge. LUMINOUS is uncertain whether
all products recalled will have the possible defect. However, the following estimate was made by
LUMINOUS’s engineers and managerial accountants and approved by the board of directors.
Repair Probabilit
cost y
80,000,000 5%
60,000,000 20%
40,000,000 35%
20,000,000 40%
100%
47.How much is the provision to be recognized?
a. 38M
 b. 50M
c. 48M
d. 32M
In 20x1, a lawsuit was filed against WINSOME CAUSING PLEASURE Co. for patent infringement. The
plaintiff is claiming P400M in damages. WINSOME’s legal counsel believes that it is probable that
WINSOME will lose the lawsuit and pay damages of not less than P40M but not more than P400M. The
probability of any amount within the range is as likely as any other amount also within the range. The
plaintiff has offered to settle the lawsuit out of court for P360M but WINSOME did not agree to the
settlement.
48.How much is provision to be reported in WINSOME’s year-end financial statements?
a. 360M
b. 220M
c. 400M
d. 40M
RISIBLE FUNNY Co. provides 3-year warranty for the products it sells. RISIBLE estimates that warranty
costs P400 per unit sold. As of January 1, 20x1, the liability for warranty has a balance of P800,000 for
units sold in 20x0. During the year RISIBLE sold 5,000 units and actual warranty costs incurred were
P1,240,000.
49.How much is the warranty expense to be recognized in 20x1?
a. 2,000,000
b. 1,240,000
c. 3,240,000
d. 4,240,000
50.How much is the balance of the warranty obligation as of December 31, 20x1?
a. 1,560,000
b. 2,000,000
c. 3,560,000
. Information on operations in 2011 is shown below:
d. 2,800,000
A Co. grants its managerial employees bonus in the form of profit sharing Profit before bonus and
tax P4,000,000
Bonus rate or percentage 10%
Income tax rate 30%
51.How much is the bonus “before bonus and before tax?”
a. 363,636
b. 280,000
c. 400,000
d. 288,660
52.How much is the bonus “after bonus and before tax?”
a. 400,000
b. 363,636
c. 261,684
d. 245,798
53.How much is the bonus “before bonus and after tax?”
a. 363,636
b. 261,684
c. 245,798
d. 288,660
54.How much is the bonus “after bonus and after tax?”
a. 363,636
b. 261,682
c. 245,798
d. 288,660

ABC Company determined that it has an obligation relating to employees rights to receive compensation
for future absences attributable to employee’s services already rendered. The obligation relates to rights
vest, and payment of the compensation is probable. The amounts of ABC’s obligation as of December 31
are reasonably estimated as follows:
Vacation pay P100, 000
Sick pay 10, 000
55.In its December 31 balance sheet, what amount of should ABC Company report as liability for
compensated absences?
a. 0
b. 10, 000
c. 100, 000
d. 110, 000

You don’t have to be great to start, but you have to start to be great.
 Zig Ziglar
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