MULTIPLE CHOICE

1 Der 31, 2015, the end of the reporting period, the liabilities outstanding of Plane
C
Corporation included the following
on January 15, 2016.
Cash dividends on ordinary shares, P550,000,duepayable
January 20, 2016.
Notes Payable to National Bank, P4,700,000 mature during 2016.
Serial Bonds, P20,000,000, of which P5,000,000
27, 2016.
Notes Payable to China Bank, P4,000,000 due January
The following transactions occurred early in 2016:

January 15 The cash dividends on ordinary shares were paid.

January 20 The note payable to National Bank

was paid.

agreement with National Bank

January 25 The corporation entered into a financing
at any time through the end of 2016.
enabling it to borrow up to P5,000,000 would bear interest at 1% above
Amounts. borrowed under the agreement
mature three years from the date of the
the bank's prime rate and would
borrowed P4,000,000 to replace the cash
loan. The corporation immediately
the bank.
used in paying the January 20 note to

issued for P5,000,000. P4,000,000 of the

January 26 400,000 ordinary shares were

used to liquidate the note payable to China Bank.

proceeds was

The financial statements for 2015 were

issued.
February 1
would be classified as current liabilities on the Company's
How much of the above obligations
December 31, 2015 statement of financial position?

A. P6,250,000
B P9,550,000
C. P10,250,000
D P14,250,000

Ttems 2 through 7 are based on the following information:

examine the financial statements of Gloria Company

for the years
Your company has been engaged to liabilities
2014. You have been assigned to review the
ended December 31, 2015 and December 31, issued
have learned that on January 1, 2013, Gloria Company
and shareholders equity balances. You
bonds P5,000,000 bonds for P5,500,000. Each P1,000 bond is convertible into 8
a five year, 8% Interest on the
Gloria Company, at the option of the bondholder.
shares of P100 par ordinary share of the bonds would have
annually on December 31. Without the conversion feature,
bonds is payable
value factors to four decimal places.
sold to yield 10% to the holders. (Round present

2 The issue price that was attributable to the debt is

P5,420,000
B P5,399,350
C. P5,000,000
D. P4,620,820
 What the correct December 31,
3 was
carrying value of the bonds on 2013
A. P4,682,902
B. P4,744,984
C. P5,000,000
D. P5,467,4002
What is the interest expense on these bonds for the year ending December 31, 2017*
4.

P400,000
B. P437,392
C. p468,290
D. P500,000
5. P2,000,000 of the bonds were converted into ordinary shares on January 1,,2015. VWnat

amount should have been credited to share

premium, upon conversion
A. P652,149
B. P520,000
C p400,000
D. P300,477
6. Disregard the information given in item 5. Assume, instead, that on January 1, 2015,
P2,000,000 of the bonds were retired 109. The bonds without the conversion feature
would have sold @ 105 on this date. What amount of gain or (loss) should be recognized
on the retirement of the bonds?
A. P40,000
B. P160,000
C. (P59,523)
D. (P199,523)
7. Disregard the assumption in item 5. Assume that on January 1, 2015, P2,000,000 of the
bonds were retired @ 109. The bonds without the conversion feature would have sold
@
105 on this date. What should be the interest
expense for the year endd December 31,
2015?

A. P252,374
B. P285,072
C. P300,000
D. P475,119
Items 8 through 11 are based on the following information:
In the course of your examination of the liabilities accounts of Vista Company, you found that the entity
on January 2, 2015 issued at a premium bonds payable with a face value of P500,000. The
was erroneously credited by the company to Interest Income. The bonds are payable on December premium
2022 and interest 31,
pay semiannually on June 30 and December 31. You instructed your audit staff to
compute the premium amortization using the interest method and he provided with the you following:
Premium amortization from January 2, 2015 to June 30, 2015 P
Bond carrying value as of June 30, 2015 1,562
Total interest paid on bonds for the year 2015 555,738
On June 30 and
(payments made
December 31)
70,000
 8. The annual stated interest rate on the bonds is

A. 10%
B. 11%
C 12%
D. 14%

9. The effective annual interest rate on the bonds is

A. 10%
B. 11%
C. 12%
D. 14%

10. The premium amortization on the bonds payable for 2015 is

A. P3,124
B P3,218
C. P5,574
D. P8,022
11. Interest expense on the bonds for 2015 is

A. P61,978
B. P66,782
C. P66,876
D. P70,000
Items 12 through 14 are based on the following information:

accounts of Velasco Fashion Store as of

You arereviewing the Notes Payable and Interest Expenseborrows from the bank in order to finance
December 31, 2015. You noted that the company regularly at
shows loans with 12% interest rate, with interest payable
working capital. The following schedule recorded when
scheduled maturity dates, and interest expense is
maturity. All loans are repaid on their
at yearend:
the loans are repaid, with no adjustments taken up

Date of L0an Amount Maturity Date_ Termof loan

October 31, 2015 one year
November 1, 2014 P1,500,000
July 31, 2015 SIX months
February 1, 2015 2,500,000
January 31, 2016 nine months
May 1, 2015 1,000,000

12. How much did Velasco Fashion Store record as interest expense during the year 2015?

A. P225,000
B. P300,000
C. P330,000
D. P390,000
 What is the correct interest expense during the year 2015 as a result of the above loan
13
P300,000
B. P330,000
C P380,000
D. P390,000
14. How much Notes Payable, inclusive of Interest Payable should be shown in the current a o i e s
section of the statement of financial position as a result of the foregoing loans
P1,000,000
P1,080,000
C. P3,500,000
P3,855,000

Items 15 through 20 are based on the folowing information:

Your audit staf for the audit of Golden Bells Corporation turned over to you his working papers
containing information on the company's liabilities. You noted the following:

Accounts Payable

o The general ledger balance is P5,000,000.

The balance is net of debit balances in a supplier's account amounting to P200,000.

Unrecorded vouchers include the following:

X Company for P300,000. The merchandise was shipped December 31,

2015, FOB shipping point. The goods were received on January 3, 2016.
Y Company for P120,000. The merchandise was shipped on December 28,
2015, FOB destination. The goods were received on January 4, 2016.

The company, as consignee, held goods worth P90,000. These goods were not
included in the physical inventory on December 31, 2015 but were included in the
Accounts Payable.

Bonds Payable

Golden Bells issued 2,000 of its 5-year P1,000 face value 11% bonds on
January 1,
2013. These bonds were sold for P2,155,800 a price that yields 9%. The bonds
were dated January 1, 2013 and pay interest
annually every December 31. On July
1, 2015, 1,000 of the bonds were retired, the company paying P1, 100,000 inclusive
of accrued interest. This amount was charged by the
company to the Bonds
Payable account. On December 31, 2015, the company charged Interest Expense
for the amount of interest paid. No entry was made by the company during 2015
for the amortization of bond premium.

Other Obligations:

In October 2015, an employee was injured on the parking lot in an accident

partially the result of his own negligence. The employee has sued for P500,000.
 The legal counse tselievres t orobable that the otrome of the artion will be
vobie ard that the cettiement would cost the corporation from P2no,000 to
P300,000, with P240,000 the most probable amount within this range

olden Bells sells gooxds with a warranty under which customers are covered frar
the cost of any manufacturing deferts that berome apparent within the first year
after the purchase. Tf minor defects were deterted in all products sold, rapair costs
of P2,000,000 would resut. If major defects were detected in all products sold,
repair costs of P5,000,00O would result. The enterprise's past experience and
uture expectations indicate that 65% of the goods sold have no defects, 25% of
the goods sold have minor defects and 10% of the goods sold have major defects.

On September 30, 2013, Golden Bells acquired special equipment from Doodle

Company by paying P2,000,000 down and signing a note with a fce vaue of
Market
P4,000,000 due September 30, 2016. The note is non-interest bearing.
rate of interest for similar notes at the date of its
issuance was 10% (Round
present value factor to five decimal places.).

Payable at December 31, 2015 is

15 adjusted balance of Accounts

PS,010,000
PS,410,000
P5,530,000
PS,500,000
at December 31, 2015s
on Bonds Payable
The adjusted iedger balance of Premium
16
P155,800
P101,506
P70,642
D P35,321
of bonds payable during 2015
is
(loss) on retirement
The amount of gain or
17
P(1,963)
B. P(56,963)
C. P(5,753)
D P1,963
statement of
on December 31, 2015
will be shown
amount of Notes Payable that
The carrying
18. financial position is

A. P4,000,000
B. P3,727,255
C. P3,636,240
P3,388,408
D
 19. The provision for litigation' expenses that should be shown on the statement of financial
position at December 31, 2015 is

P200,000
B. P240,000
C. P250,000
D. PS00,000
20 The provision for warranties that should be showh on the statement of financial position at
December 31, 2015 is
A. PO
B.
P1,000,00
P2,000,000
D. P3,500,0000
Items 21 through 25 are based on the following information:

In your initial audit of Jay Gorporation, you find the following ledger account balances

12% Bonds Payable, due March 31, 2018

10-01-15 P3,060,000 03-31-13 P10,000,000

Premium on Bonds Payable

03-31-13 772,144

Bond Interest Expense

03-31-15 P600,000
09-30-15 600,000
The bonds pay interest semiannualy on March 31 and September 30. The bonds were issued on
March 31 at a price to yield 10%%.

On October 1, 2015, P3,000,000 of the bonds were redeemed for permanent cancellation at 102.

For your convenience, fil up the following columns in the amortization table

Effective Interest Premium Amortized Cost, End

Interest Date Interest Paid Amortizaticon
March 31, 2013 P10,772,144
Sept. 30, 2013
March 31, 2014
Sept. 30, 2014
March 31, 2015
Sept.30, 2015
March 31, 2016

The company adopts the calendar year as its reporting period.

21. he adjusted ledger balance of Bonds Payable account at December 31, 2015 is
A P10,000,000
B.
C.
P7,505,500
P7,275,613
D P7,000,000
22. The adjusted ledger balance of Premium on Bonds Payable at December 31, 2015 is

P540,500
B P393,733
P303,037
D. P275,613
23. Interest Payable at December 31, 2015 is

A P90,000
B. P182,576
C. P210,000
D P260,823

24. Interest Expense for the year 2015 is

A P735,465
B. P972,418
C. P1,050,665
D. P1,054,307
25. The gain (loss) on bond redemption is

A. P69,873
B P(156,643)
C. P60,000
D. P(60,000)