MULTIPLE CHOICE – LIABILITIES (principal and interest due at maturity) 900,000

1. William Company has reported the following account balances on December 31, 2019: 10% 3-Year Note Payable, annual payments of P1,200,000 issued on Oct 1, 2018
Accounts payable, net of P50,000 debit balances in supplier’s account 750,000 (Principal and interest due every Oct 1 beginning Oct 1, 2019) 2,400,000
Accrued Expenses 270,000 10% 5-year Bonds Payable due Dec 31, 2021 (including premium of P200,000)
Advances to employees 140,000 (interest due every December 31) 2,200,000
Unearned rent revenue 300,000 What should be reported in current liabilities as accrued interest payable on December 31, 2019?
Stock Dividend Payable, to be distributed during 2020 a. 196,500 b. 297,000 c. 301,500 d. 522,300
800,000
Cash Dividend Payable 340,000 4. Bag-End Company sells equipment service contracts that cover a 2-year period. The sale price of
Cash Surrender Value 150,000 each contract is P600. The past experience is that, of the total pesos spent for repairs on service
Short-term borrowings 400,000 contracts, 40% is incurred evenly during the first contract year and 60% evenly during the second
Estimated Warranty Liability 190,000 contract year. The entity sold 1,000 contracts evenly throughout 2020. What is the contract revenue
Contingent Liability 200,000 for 2021?
Bank Overdraft 100,000 a. 120,000 (YR 1) b. 180,000 c. 300,000(YR 2) d. 360,000
Income Tax Payable 180,000
Deferred Tax Liability, due to reversed 2020 120,000 5. Black Company required non-refundable advance payments with special orders for machinery
What total amount should be reported as current liabilities on December 31, 2019? constructed to customer specifications. The entity provided the following information for the current
a. 2,400,000 b. 2,580,000 c. 2,680,000 d. 2,800,000 year:
Customer advances – beginning of year 1,180,000
2. Included in Wichita Company’s liability account balances on December 31, 2019 were the following: Advances received with orders 1,840,000
6% note payable issued Oct 1, 2019 maturing Oct 1, 2020 500,000 Advances applied to orders shipped 1,640,000
8% note payable issued Apr 1, 2018 maturing Apr 1, 2020 800,000 Advances applicable to orders cancelled 500,000
9% note payable issued Mar 1, 2018 maturing Mar 1, 2020 600,000 What amount should be reported as current liability for advances from customers at year-end?
The December, 2019 financial statements were issued on March 31, 2020. On December 31, 2019 a. 1,480,000 b. 1,380,000 c. 880,000 d. 0
Wichita consummated a noncancelable agreement with the lender to refinance the 6% note on a long-
term basis. On January 1, 2020 Wichita Company signed an agreement to borrow up to P800,000 to 6. Miyuki operates a retail store. All items are sold subject to a 12% VAT which the entity collects and
refinance the 8% note on a long-term basis. The financing agreement called for borrowing not to records as sales revenue. The entity files quarterly sales tax returns when due by the 20 th day
exceed 80% of the value of the collateral the entity was providing. On December 31, 2019, the value following the end of the sales quarter.
of the collateral was P1,000,000. On March 1, 2020, the entire P600,000 balance of the 9% note was However, in accordance with the state requirements, the entity remits the VAT collected by the 20 th
refinanced by issuance of a long-term obligation payable in lump sum. day of the month following any month such collections exceed P500,000. The entity takes these
On December 31, 2019, what amount of notes payable should be classified as current? payments as credits on the quarterly sales tax return. The VAT paid are charged against sales
a. 1,900,000 b. 1,400,000 c. 800,000 d. 600,000 revenue.
Following is a monthly summary appearing in the first quarter sales revenue for the current year:
3. The following liabilities accounts will be used for determining accruals for 2019: Debit Credit
6% Mortgage payable, semi-annual installment of P350,000 January 0 582,400
(principal and interest payable every Jul 1 and Jan 1) 3,500,000 February 82,400 515,200
5% Bank Loan Payable due September 30, 2021 March 15,200 604,800
(interest payable every end of the month) 1,500,000 What amount should be reported as VAT payable on March 31?
12% 3-year Note Payable due March 31, 2021 a. 182,400 b. 117,600 c. 97,600 d. 84,800
(interest compounded annually payable with principal at maturity) 1,000,000
9% 1-year Note Payable, quarterly payments of P264,200
(Quarterly payments on Jan 1, Apr 1, Jul 1, and Oct 1, 2020) 1,000,000 7. Kent Company, a realty entity, maintains escrow accounts and pays real estate taxes for the mortgage
8% 2-Year Note Payable due May 31, 2020 customers. Escrow funds are kept in interest-bearing accounts. Interest less a 10% service fee, is
 credited to the mortgagee’s account and used to reduce future escrow payments. The entity provided During 2020, the entity issued 80,000 award credits and expects that 80% of these award credits shall
the following additional information for the current year: be redeemed. The stand-alone selling price of the award credits is reliably measured at P1,800,000.
Escrow Accounts Liability, Jan 1 700,000 In 2020, the entity sold goods to customers for a total consideration of P9,000,000 based on stand-
Escrow payments received 1,580,000 alone selling price. The award credits redeemed and the total award credits expected to be redeemed
Real Estate taxes paid 1,720,000 each year are as follows: Redeemed expected to redeemed
Interest on escrow funds 50,000 2020 16,000 80%
On December 31, what amount should be reported as escrow account liability? 2021 10,400 75%
a. 510,000 b. 515,000 c. 605,000 d. 610,000 2022 14,880 86%
2023 13,920 92%
8. On July 1, 2019, the city government issued realty tax assessments for the fiscal year ended June 30, What is the deferred revenue from points on December 31, 2022?
2020. On September 1, 2019, Gina company purchased a warehouse within the city. The purchase a. 240,000 b. 900,000 c. 660,000 d. 600,000
price was reduced by a credit for accrued realty taxes.
The entity did not record the entire year’s real estate tax obligation, but instead records tax expenses 13. Prank Company sold electrical goods covered by a one-year warranty for any defects. It had a
at the end of each month by adjusting prepaid real estate taxes or real estate taxes payable, as warranty liability of P150,000 at the beginning of the current year. Of the sales of P70,000,000 for
appropriate. On November 1, 2019, the entity paid the first of two equal installments of P12,000 for the year, the entity estimated that 3% will have major defect, 5% will have minor defect and 92%
realty taxes. What amount should be reported as real estate taxes payable on December 31, 2019? will have no defect.
a. 0 b. 4,000 c. 8,000 d. 12,000 The cost of repairs would be P5,000,000 if all products sold had major defect and P3,000,000 if all
had minor defect. The actual warranty repairs for the current period costs P250,000.
9. After three profitable years, Gretchen Company decided to offer a bonus to the branch manager of What amount should be reported as estimated warranty liability at year-end?
25% of income over P1,000,000 earned by the branch during the current year. a. 400,000 b. 300,000 c. 250,000 d. 200,000
The income of the branch was P1,600,000 before tax and before bonus for the current year.
The bonus is computed on income in excess of P1,000,000 after deducting the bonus but before In 2020, Dreams Company began selling a new condenser that carried a 2-year warranty against defects.
deducting tax. The income tax rate is 30%. What is the net income for the current year? Dreams projected the estimated warranty cost (as a percent of sales) as follows:
a. 1,036,000 b. 1,024,000 c. 1,015,000 d. 1,057,446 1st Year of Warranty 4% 2nd Year of Warranty 9%
10. Baker Company sold consumer products that are packaged in boxes. The entity offered an Sales and actual warranty repairs were: 2020 2021
unbreakable glass in exchange for two tops and P50 as a promotion during the current year. The cost Sales 4,000,000 8,000,000
Actual Warranty 250,000 450,000
of the glass was P200. The entity estimated at the end of the year that it would be probable that 50%
The sales and repairs were made evenly during the two year.
of the box tops will be redeemed. The entity sold 100,000 boxes of the product during the current
14. What is the estimated warranty liability at the end of 2021 before adjustments?
year and 40,000 box tops were redeemed during the year. What amount should be reported as
a. 590,000 b. 630,000 c. 750,000 d. 860,000
estimated liability at year-end?
15. What amount should be reported as estimated warranty liability at the end of 2021?
a. 750,000 b. 1,500,000 c. 3,000,000 d. 3,750,000
a. 890,000 b. 810,000 c. 720,000 d. 630,000
11. In packages of products, Curran Company included coupons that may be presented at retail stores to
obtain discounts on other Curran products. Retailers were reimbursed for the face amount of 16. Edifice Company provided extended service contracts on electronic equipment sold through major
coupons redeemed plus 10% of that amount for handling costs. The entity honored requests from retailers. The standard contract is for three years. During the current year, the entity provided 45,000
retailers up to three months after the consumer expiration date. The entity estimated that 70% of all such warranty contracts at an average price of P80 each. Related to these contracts, the entity spent
coupons issued would ultimately be redeemed. The consumer expiration date is December 31, 2017. P400,000 servicing the contracts during the current year and expected to spend P800,000 and
The total face amount of the coupons issued was P600,000 and the total payments to retailers during P1,200,000 during the following years. What amount of net income should be recognized in the
2017 amounted to P220,000. What is the premium expense for 2017? second year related to these contracts?
a. 600,000 b. 462,000 c. 242,000 (liability) d. 198,000 a. 400,000 b. 600,000 c. 800,000 d. 1,200,000
12. Nimitz Company operates a customer loyalty program. The entity grants loyalty points for goods 17. During 2017, Lily Company is the defendant in a breach of patent lawsuit. The lawyers believed
purchased. The loyalty points can be used by the customers in exchange for goods of the entity. The there is an 80% chance that the court will not dismiss the case and the entity will incur outflow of
points have no expiry date. benefits.
 If the court rules in favor of the claimant, the lawyers believe that there is a 60% chance that the
entity will be required to pay damages of P2,000,000 and 40% chance that the entity will be required
to pay 1,000,000. Other amounts of damages are unlikely. The court is expected to rule in late
December, 2018. There is no indication that the claimant will settle out of court.
A 7% risk adjustment factor to the cashflows is considered appropriate to reflect the uncertainties in
the cashflow estimates. An appropriate discount rate is 10%. The present value of 1 at 10% for one
period is 0.91. What is the measurement of the provision on December 31, 2017?
a. 1,246,336 b. 1,557,920 c. 1,083,264 d. 1,164,800
18. Eastern Company has several contingent liabilities. The auditor obtained the following brief
description of each liability.
In May, 2017, Eastern company become involved in litigation. In December 2017, the court
assessed a judgment for P1,600,000 against Eastern Company. The entity is appealing the amount of
judgment and their attorney’s believed it is probable that the assessment can be reduced by 50%.
In July, 2017 Pasig City brought action against Eastern Company for polluting the Pasig River with
its waste products. It is probable that Pasig City will be successful but the amount of damages
Eastern might have to pay should not exceed P1,500,000.
During 2017 Eastern Company became involved in a tax dispute with the BIR. On December 31,
2017, the entity’s tax advisor believed that an unfavourable outcome was probable and the best
estimate of additional tax was P500,000, but could be as much as P650,000. After the 2017 financial
statements were issued, the entity received and accepted a BIR settlement offer of P550,000.
What total amount should be accrued as provision on December 31, 2017?
a. 3,600,000 b. 2,800,000 c. 2,850,000 d. 2,300,000
19. Belen Company decided on November 1, 2018 to restructure the entity’s operations. Factory A
would be closed and put on sale. Special machineries would be relocated to Factory B. Employees
working in Factory A would either be retrenched or transfer to Factory B. One employee, Mr. Juan,
remains in order to complete administrative tasks relating to the closure, relocation of machineries
and transfer of employees. The following are estimated cost to be incurred during the restructure:
Unpaid entitlements of retrenched employees 500,000
Cost of transferring employees to Factory B 200,000
Cost of relocating machineries 250,000
Retraining of employees transferred 150,000
Unpaid retrenchment package for Mr. Juan 400,000
Salary of Mr. Juan for January 100,000
During January, 2019, Mr. Juan would spend 50% of his time administering the closure, 20%
administering relocation of the machineries, 20% administering the transfer of employees, and 10%
for general administration.
What amount should be recognized as restructuring provision on December 31, 2018?
a. 900,000 b. 950,000 c. 1,150,000 d. 1,200,000
20. On January 1, 2020, Creampie Company purchased a gas detoxification facility for P6,000,000. The
cost of cleaning up the routine contamination caused by the initial location of gas on the property is
estimated to be P1,600,000. This cost will be incurred in 5 years when all the existing stockpile of
gas is detoxified and the facility is decommissioned. The appropriate discount rate is 8%. The present
value of 1 at 8% is 0.68 for 5 periods.
What amount should be reported as estimated decommissioning liability on December 31, 2021?
a. 1,600,000 b. 1,354,240 c. 1,269,043 d. 1,175,040
21. Winter Company is being sued for illness caused to local residents as a result of negligence on the
entity’s part in permitting the local residents to be exposed to highly toxic chemicals from its plant.
The entity’s lawyer stated that it is probable that the entity will lose the suit and be found liable for a
judgement costing the entity anywhere from P1,200,000 to P6,000,000. However, the lawyer
estimated that the most probable cost is P4,000,000. What amount should be disclosed as contingent
liability in the financial statements?
a. 0 b. 2,000,000 c. 4,000,000 d. 6,000,000
22. On November 1, 2019, Vienna Company was awarded a judgment of P1,500,000 in connection with
a lawsuit. The decision is being appealed by the defendant and it is expected that the appeal process
will be completed by the end of 2020. The attorney believed that it is highly probable that an award
will be upheld on appeal but that the judgment may be reduced by an estimated 40%. What amount
should be reported as a receivable on December 31, 2019?
a. 0 b. 600,000 c. 900,000 (Contingent asset) d. 1,500,000
23. On April 1, 2020, an entity issued bonds with face amount of P5,000,000 at P5,228,000 plus accrued
interest. The bonds are dated January 1, 2020, mature in 5 years and pays 12% interest semiannually
on January 1 and July 1. The bond is amortized using the straight line method. All the bonds were
retired at 98 on March 31, 2022. What amount of gain on retirement of bonds is to be recognized on
March 31, 2022?
a. 232,000 b. 282,000 c. 364,000 d. 382,000
24. On January 1, 2019, Cain Company issued at 97 4,000 9% bonds with face amount of P1,000 per
bond. The bonds are dated January 1, 2019 and mature on December 31, 2021. Interest is paid every
end of the year. Also, the entity paid bond issue cost of P180,000.
The bond is amortized using the straight line method. On July 1, 2020, the entity reacquired the
bonds for P4,120,000 including accrued interest and placed it in the treasury. What is the gain or
(loss) to be recognized in the reacquisition of the bonds payable?
a. (90,000) b. (270,000) c. 0 d. 60,000
25. On January 1, 2016 an entity issued 10% bonds with a face amount of P6,000,000. These bonds
mature in five years, and interest is paid semiannually on June 30 and December 31. These bond
were sold for P5,500,000 to yield 12%. Also, the entity paid bond issue cost of P100,000.
The entity elected to use fair value option in measuring financial liabilities. On December 31, 2016
the bonds were quoted at 105. Out of the total fair value change, a P250,000 loss is attributable to the
entity’s own credit risk.
What total amount shall be deducted in the income statement for 2016 in connection with the bonds?
 a. 1,210,000 b. 1,250,000 c. 1,460,000 d. 1,500,000 worth P700,000 and note receivable from a Versatile Company’s customer with carrying amount of
P2,700,000. The equipment had an original cost of P900,000 and accumulated depreciation of
26. On July 1, 2018, Colt Company issued six-year bonds with a face amount of P5,000,000 and a stated P300,000. What amount should be recognized as gain from debt extinguishment on December 31,
interest rate of 8% payable annually every July 1 beginning July 1, 2019. The bonds were priced to 2017?
yield 10%. The entity amortized the bond discount by the interest method. a. 700,000 b. 600,000 c. 400,000 d. 300,000
Present value of 1 for 6 periods at 10% 0.56
Present value of an ordinary annuity of 1 for 6 periods at 10% 4.36 Guardians Company is threatened with bankruptcy due to its inability to meet interest payments and
What is the interest expense to be recognized during 209? fund requirements to retire P 6,000,000 note payable with accrued interest payable of P600,000. The
a. 90,880 b. 91,424 c. 91,968 d. 80,000 entity has entered into an agreement with the creditor to exchange equity instruments for the
financial liability. The terms of the exchange are 100,000 ordinary shares with P15 par value and P25
27. On January 1, 2019, Bontoc Company issued P3,000,000, 10% serial bonds to be repaid in the market value, and 50,000 preference shares with P60 par value and P75 market value. The fair value
amount of P1,000,000 each year. Interest is payable annually on December 31. The bonds were of the liability is P 5,100,000.
issued to yield 8% in a year. The entity amortized the bond discount by the interest method. 32. What is the gain from extinguishment of debt as a result of the equity swap?
Present value of 1 for 1 periods at 8% 0.93 a. 0 b. 350,000 c. 1,100,000 d. 1,500,000
Present value of 1 for 2 periods at 8% 0.86
Present value of 1 for 3 periods at 8% 0.79 33. What amount should be recognized as share premium preference shares from the issuance of shares,
On December 31, 2019, what is the carrying amount of the bonds payable? if the fair value of the liability is used to extinguish the debt?
a. 3,058,800 b. 2,161,200 c. 2,058,800 d. 2,110,000 a. 60,000 b. 300,000 c. 600,000 d. 750,000

On December 31, 2019, Bart Company purchased a machine from Fell Company in exchange for a Winchester Company has an overdue 10% note payable to CitiFinancial at P5,000,000 and recorded
noninterest bearing note requiring eight payments of P250,000. The first payment was made on accrued interest of P500,000. As a result of a settlement on January 1, 2018, CitiFinancial agreed to the
December 31, 2019 and the others are due annually every December 31. At date of issuance, the following restructuring agreement.
prevailing rate of interest for this type of note was 11%.  Reduced the principal obligation to P4,500,000.
PV of an ordinary annuity of 1 at 11% for 7 periods 4.712  Forgave the P 500,000 accrued interest.
PV of an annuity of 1 in advance at 11% for 8 periods 5.712  Extended the maturity date to December 31, 2020.
 Annual interest of 9% is to be paid annually on arrears.
28. What is the cost of the machine on December 31, 2019? The present value of 1 at 10% for three periods is 0.75, and the present value of an ordinary annuity of 1
a. 2,000,000 b. 1,750,000 c. 1,428,000 d. 1,178,000 at 10% for three periods is 2.50.
34. What is gain on extinguishment of debt on January 1, 2018?
a. 612,500 b. 1,112,500 c. 2,125,000 d. 1,000,000
29. On December 31, 2020, what is the carrying amount of the note payable?
35. What is the carrying amount of the note payable on December 31, 2018?
a. 1,178,000 b. 1,270,920 c. 1,048,420 d. 825,920
a. 4,421,250 b. 3,442,500 c. 4,545,000 d. 4,241,500
On December 31, 2017, Moses Compnay issued P5,000,000 face amount, 5-year bonds at 109. Each
P1,000 bond was issued with 50 detachable share warrants, each of which entitled the holder to purchase
one ordinary share of P10 par value at P25. Immediately after issuance the market value of each warrant
30. On August 31, 2018, Starman Company borrowed P2,500,000 cash to fund the extension of its
was P5. The stated interest rate on the bonds is 11% payable annually every December 31. However the
building. The loan was granted by Stardust Bank under a short-term credit line. Starman issued a
prevailing rate of interest for similar bonds without warrants is 12%. The present value of 1 at 12% for 5
10-month discounted at 12%. The fiscal period is the calendar year.
periods is 0.57 and the present value of an ordinary annuity of 1 at 5% for 5 periods is 3.60.
What is the carrying amount of the note payable on December 31, 2018?
36. What is the equity component arising from the issuance of bonds payable?
a. 2,500,000 b. 2,350,000 c. 2,300,000 d. 2,200,000
a. 300,000 b. 450,000 c. 500,000 d. 620,000
37. What is the share premium if all the warrants were exercised?
31. Versatile Company, after having experienced financial difficulties in 2017, negotiated with a major
a. 4,370,000 b. 3,750,000 c. 5,870,000 d. 5,620,000
creditor and arrived at an agreement to restructure a note payable on December 31, 2017. The
creditor was owed principal of P3,600,000 and interest of P400,000.but agreed to accept equipment
Moriones Company issued P4,000,000 face amount 12% convertible bonds at 110 on January 1, 2017, 43. What amount should be recognized as cost of goods sold on January 1, 2020?
maturing on January 1, 2021 and paying interest semi-annually on January 1 and July 1. It is estimated a. 1,988,400 b. 2,000,000 c. 2,150,000 d. 2,311,600
that the bonds would sell only at 103 without the conversion feature. The effective rate is 11%. Each 44. What is the pretax total income derived by Undisputed from the lease for the year ended December
P1,000 bond is convertible into 10 ordinary shares with P100, par value. 2,000 bonds were converted on 31, 2020?
January 1, 2018. 1,000 bonds were settled on July 1, 2018 for P1,200,000 including accrued interest. a. 3,850,000 b. 1,925,904 c. 2,189,200 d. 3,914,304
1,000 bonds were settled at maturity. The market value of the bonds payable without the conversion
feature is 105 on July 1, 2018. On January 1, 2020, Ericson Company leased an asset to another entity. The cost of the asset was
38. What is the increase in shareholders’ equity arising from the issuance of the convertible bonds P4,346,000. Terms of the lease specify four-year life for the lease, an annual interest rate of 15% and
payable? four rental payments beginning January 1, 2020 and every January 1 after. The lease qualified as a direct
a. 280,000 b. 180,000 c. 120,000 d. 400,000 financing lease. The lease provided for a transfer of title to the lessee at the end of the lease term.
39. What amount of share premium should be recognized on January 1, 2018 for the conversion of bonds The asset has a useful life of six years and the residual value was estimated at P901,052. The PV of 1 at
after the payment of interest? 15% for 4 periods is 0.57 and the PV of an ordinary annuity of 1 at 15% for 4 periods is 2.86. PV of an
a. 232,463 b. 372,463 c. 186,232 d. 140,000 annuity due of 1 at 15% for 4 periods is 3.28.
40. What is the loss on the extinguishment of convertible bonds payable on July 1, 2018? 45. What is the annual rental payable?
a. 120,613 b. 90,613 c. 60,613 d. 30,613 a. 1,325,000 b. 1,340,000 c. 1,168,415 d. 1,519,580

41. Jade Company purchased a new machine for P2,750,000 on January 1, 2017 and leased it to East 46. What is net lease receivable on December 31, 2020?
Company the same day for three years. The machine has an estimated 5-year life and residual value a. 2,149,150 b. 2,116,900 c. 3,456,900 d. 3,474,150
of P250,000. The lease is for a three-year period expiring January 1, 2020 at an annual rental of
P720,000 payable at the beginning of the year. Additionally, East paid P180,000 to Jade as a lease On January 1, 2020, Betty Company negotiated a 5-yr lease for an equipment owned by Veronica
bonus and P120,000 as security deposit to obtain the three-year lease. Jade incurred initial direct cost Company. The underlying asset has a remaining useful life of 7 years and estimated residual value of
of P150,000 and executory costs of P90,000 for the leased asset during 2017. What is the operating P460,000. Before commencement, Betty incurred P92,400 of initial direct costs and provided Veronica
profit on the leased asset for 2017? Company a lease bonus of P46,000.
a. 140,000 b. 170,000 c. 100,000 d. 260,000 Annual payments of P1,000,000 are payable to Veronica every end of the year. Betty has an option to
purchase the machine by paying P420,000 on January 1, 2025. It is reasonably certain that the purchase
42. As an incentive to enter a noncancelable operating lease for office premises for 8 years, Valley
option will be exercised. The lease was negotiated to assure the lessor a 16% rate of return.
Company as lessor has offered the lessee a rent-free period of 15 months. Annual rental payment for
PV of an ordinary annuity of 1 at 16% for 5 periods 3.27
the first five years was fixed in the amount of P500,000. Beginning on the sixth year of lease, the
PV of an annuity due of 1 at 16% for 5 periods 3.80
agreement called for a 10% increase in the annual rental per annum. What should be the balance of PV of 1 at 16% for 5 periods 0.48
the rent receivable at the end of 6th year? 47. What is the lease liability on December 31, 2020?
a. 625,000 b. 346,625 c. 505,450 d. 461,938 a. 2,481,856 b. 3,049,328 c. 3,027,056 d. 2,504,128
Undisputed Company used leases as a method of selling products. On January 1, 2020, Undisputed 48. What is cost of the equipment, if Betty actually purchased the underlying asset from Veronica for
Company leased equipment to First Things First Company with the following information: P1,255,385 on January 1, 2022?
Annual rental payable at the end of each lease year 700,000
a. 1,430,777 b. 1,454,000 c. 1,094,000 d. 1,862,100
Cost of equipment to Undisputed 2,000,000
Unguaranteed Residual Value 400,000
Lease Term 8 years On January 1, 2020, Silver Company entered into a 5-year lease of a building:
Useful Life 10 years Annual Rental for the first two years payable at the end of each year 200,000
Initial Direct Cost paid by Undisputed 150,000 Annual Rental for the next three years payable at the end of each year 250,000
Implicit interest rate in the lease 12% Initial direct cost paid by lessor 120,000
PV of OA of 1 for 8 periods at 12% 4.968 Leasehold Improvement (6 years useful life) 300,000
PV of 1 for 8 periods at 12% 0.404 Present Value of restoration cost required by contract 172,000
At the end of the lease the equipment will revert to the lessor. Undisputed Company report on a calendar Useful life of building 6 years Implicit interest rate 8%
year basis, depreciate all assets on a straight line, and use the perpetual inventory system. PV of OA of 1 at 8% for two periods 1.78
PV of OA of 1 at 8% for three periods 2.58
 PV of 1 at 8% for two periods 0.86 Depreciation on tax return in excess of book depreciation 200,000
The underlying asset will revert to the lessor at the end of the lease term. Interest on municipal bonds 50,000
49. What is the carrying amount of right of use asset on December 31, 2022? Warranty expense 40,000
a. 433,080 b. 541,350 c. 481,080 d. 601,350 Actual warranty repairs 30,000
On January 1, 2020, Made Company entered into a lease for floor space with the following information: Bad debt expense 60,000
Beginning balance in allowance for bad debts 0
Floor space 5,000 square meters
Annual rental payable at the end of the year 200,000 Ending balance in allowance for bad debts 40,000
Rent received in advance that will be recognized evenly
Lease Term 5 years
Implicit rate in the lease 10% over the next three years 300,000
What is the taxable income for the first year?
PV of an OA of 1 for 10% for 3 periods 3.79
On January 1, 2022, Made Company and the lessor agreed to amend the original terms of the lease with a. 4,150,000 b. 4,200,000 c. 4,400,000 d. 4,450,000
the following information:
Floor space 3,750 square meters 54. Punk Company reported the following partial income statement after the first year of operations:
Income before income tax 3,750,000
Annual rental payable at the end of the year 150,000
Implicit rate in the lease 8% Income tax expense
Current 1,035,000
PV of an OA of 1 for 8% for 3 periods 2.58
50. What amount is to be recognized as termination gain or (loss) because of the decrease in scope on Deferred . 90,000 1,125,000
Net income 2,625,000
January 1, 2022?
a. 14,155 b. 10,595 c. (14,115) d. (12,595) The entity used the straight line method of depreciation for financial reporting purposes and
accelerated depreciation for tax purposes. The amount charged to depreciation expense per book was
51. On December 31, 2020, Lane Company sold equipment to Noll Company and simultaneously leased P1,500,000. No other differences existed between book income and taxable income except for the
amount of depreciation. The income tax rate is 30%. What amount was deducted for depreciation in
it back for 3 years. The leaseback is appropriately considered a low value lease.
Sale Price 480,000 the tax return for the current year?
a. 1,200,000 b. 1,425,000 c. 1,590,000 d. 1,800,000
Cost of equipment (accum. depreciation 80,000) 440,000
Present Value of lease rentals 336,000 55. Shear Company began operations in 2017. Included in the 2017 financial statements were bad debts
expense of P400,000 and profit from an instalment sale of P1,000,000. For tax purposes, the bad
Estimated remaining economic life 5 years
What amount should be reported as gain from sale of equipment for 2020? debts will be deducted and the profit from the instalment sale will be recognized in 2018. The tax
rate is 30%. In the 2017 income statement, what amount should be reported a deferred tax expense?
a. 144,000 b. 40,000 c. 120,000 d. 104,000
a. 0 b. 120,000 c. 180,000 d. 300,000
52. At the beginning of the current year, Glam Company sold an equipment with remaining life of 10
years and leased it back immediately for 3 years. 56. Aloha Company provided the following information at year-end:
Carrying amount Tax base
Sale Price 1,200,000
Carrying Amount 2,500,000 Accounts receivable 1,500,000 1,750,000
Motor vehicle 1,650,000 1,250,000
Annual Rental Payable at the end of each year 500,000
Implicit Interest Rate 12% Provision for warranty 120,000 0
Deposit received in advance 150,000 0
PV of an OA of 1 at 12% for 3 periods 2.4
It was reliably determined that the transfer of the asset by the seller lessee does not satisfy the The depreciation rates for accounting and taxation are 15% and 25% respectively. The deposits are
taxable when received and warranty costs are deductible when paid. An allowance for doubtful debts
recognition of sale. What is the lease liability on Glen Company at the end of the current year?
a. 0 b. 700,000 c. 844,000 d. 1,200,000 of P250,000 has been raised against accounts receivable for accounting purposes but such debts are
deductible only when written off as uncollectible. The tax rate is 30%. What amount should be
53. Jasco Company is in the first year of operations and reported pretax accounting income of reported as deferred tax liability?
a. 156,000 b. 120,000 c. 81,000 d. 36,000
P4,000,000. The entity provided the following information for the first year:
Premium on life insurance of key officers 100,000
During 2017 and 2018, the accounts of Simple Company have the same basis for accounting and tax
purposes, except with the following accounts and related accounting and tax treatments:
In January 2017 the entity paid P900,000 for fire insurance premiums on a three-year policy and prepaid
the amount. The entity used the cash basis for tax purposes.
In January 2017, the entity incurred cost of P6,000,000 in relation to the development of a computer
software product. The software cost was appropriately capitalized and amortized over 4 years for
accounting purposes using straight line. However, the total amount was expensed in 2017 for tax
purposes.
The equipment was acquired on January 1, 2017 for P30,000,000. The useful life is 5 years with no
residual value. The equipment is depreciated using the straight line for accounting purposes and sum of
years’ digits method for tax purposes.
During 2017, the entity received advance rental from clients of P1,200,000. These were recognized as
income for tax purposes during 2017 but will be recognized equally on 2018 and 2019 for accounting
purposes when earned.
During 2018, The entity accrued estimated litigation loss of P2,000,000. The lawsuit was resolved in
February 2019 at which time a P2,000,000 loss was recognized for tax purposes. The entity used the cash
basis for tax purposes.
The pretax accounting income is P12,000,000 for 2017 and the taxable income is P10,000,000 for 2018.
The tax rate is 30% and there are no deferred taxes on January 1, 2017.
57. What is the current tax expense for 2017?
a. 3,240,000 b. 2,370,000 c. 1,230,000 d. 510,000
58. What is the income tax expense for 2018?
a. 2,640,000 b. 3,390,000 c. 3,210,000 d. 5,010,000
Bond Company started to manufacture in 2017 copy machines that are sold on the instalment basis. The
entity recognized gross profit of P6,000,000 for financial reporting purposes, and when instalment
payments are received for tax purposes.
In 2017, the entity recognizes revenue when equipment is sold for financial reporting purposes and
P1,500,000 for tax purposes. The amounts of gross profit expected to be recognized for tax purposes in
2018 and 2019 are P2,500,000 and P2,000,000 respectively.
The entity guaranteed the copy machines for two years. Warranty costs are recognized on the accrual
basis for financial accounting reporting purposes and when paid for tax purposes. Waranty expense
accrued in 2017 is P2,500,000 but only P500,000 of warranty cost is paid in 2017. It is expected that in
2018 and 2019, P1,000,000 and P1,000,000 respectively of warranty costs will be paid.
In addition during 2017, P500,000 interest, net of 20% final income taxes, was received and earned and
P100,000 insurance premium on life insurance policy that covered the life of the president was paid. The
entity was the beneficiary.
Pretax accounting income in 2017 was P2,000,000. Any operating loss will be carried to 2018. The tax
rate is 30%.
59. What is the deferred tax asset?
a. 870,000 b. 600,000 c. 480,000 d. 270,000
60. What is the total tax expense for the current year?
a. 630,000 b. 600,000 c. 480,000 d. 0

ANSWER SHEET (Use CAPITAL LETTERS only)

1 16 31 46
2 17 32 47
3 18 33 48
4 19 34 49
5 20 35 50

6 21 36 51
7 22 37 52
8 23 38 53
9 24 39 54
10 25 40 55

11 26 41 56
12 27 42 57
13 28 43 58
14 29 44 59
15 30 45 60