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Rayos, Lyka Mae A - Ia3 Compilations
Rayos, Lyka Mae A - Ia3 Compilations
INTERMEDIATE ACCOUNTING 3
Due to adverse economic circumstances and poor management, BEBE Company had negotiated a
restructuring of its 12% P8,000,000 note payable with accrued interest payable amounting to P960,000 to
JAM REPUBLIC Company on December 31, 2020.
The creditor had agreed to reduce the face value to P7, 000,000 and extend the maturity to 4 years on
December 31, 2024. However, the new interest rate is 14% payable annually every December 31.
The entity paid P200, 000 to the creditor as an arrangement fee. The new effective rate is 10% after
considering the arrangement fee.
3. What is the carrying amount of the note payable on December 31, 2022?
4. Prepare amortization table and journal entries for 2020 and 2021.
The entity issued share capital with total par value of P2,200,000 and fair value of P3,525,000 in full
settlement of the bonds payable and accrued interest payable.
6. Assuming the fair value of the equity instrument issued cannot be determined, what will be the amount of
the gain/loss on extinguishment of debt to be reported in the income statement?
On January 1, 2023, RENA Company had an overdue 10% note payable of P3, 000,000 and accrued
interest payable of P300, 000. The entity is granted by the creditor in a debt restructuring agreement the
following concessions:
b. The new interest rate is 12% payable annually every December 31.
On January 1, 2022, LATRICE COMPANY entered into a debt restructuring agreement with REDLIC
COMPANY which was experiencing financial difficulties. LATRICE COMPANY restructured a P2, 000,000
note receivable as follows:
c. Extended the maturity date from January 1, 2022 to December 31, 2024.
d. Reduced the interest rate from 8% to 6%. Interest is payable annually every December 31.
8% 6%
11. What is the impairment loss on the note receivable for 2022?
13. What amount should be reported as present value of the new note payable on January 1, 2022?
On January 1, 2019, SB19 COMPANY leased a machine for use in its operations. The lease agreement
had the following information:
a. Fixed rental payment amounting to P750, 000 shall be paid at the end of each year, December 31.
b. The term of the lease is 6 years and the useful life of the machine is 10 years.
c. The entity’s incremental borrowing rate was 8% and the interest implicit in the lease, as known by SB19
COMPANY, was 10%.
d. SB19 COMPANY had the option to purchase the machine upon the lease expiration on January 1, 2025.
by paying P375, 000.
e. The estimated residual value of the machine at the end of its useful life is P450, 000.
Additional Information:
* The lessee is reasonably certain to exercise the purchase option at the commencement date of the lease.
On January 1, 2019, SB19 COMPANY leased a machine for use in its operations. The lease agreement
had the following information:
a. Fixed rental payment amounting to P750, 000 shall be paid at the end of each year, December 31.
b. The term of the lease is 6 years and the useful life of the machine is 10 years.
c. The entity’s incremental borrowing rate was 8% and the interest implicit in the lease, as known by SB19
COMPANY, was 10%.
d. SB19 COMPANY had the option to purchase the machine upon the lease expiration on January 1, 2024
by paying P375, 000.
e. The estimated residual value of the machine at the end of its useful life is P450, 000.
Additional Information:
* The lessee is reasonably certain to exercise the purchase option at the commencement date of the lease.
18. Supposed the purchase option was not exercised and the implicit rate cannot be readily determined, at
what amount of gain/loss on finance lease shall be recognized by the company?
At the beginning of the current year, STELL COMPANY leased a warehouse with the following information:
The lease provides for neither a transfer of title to the lessee nor a purchase option.
JVKE COMPANY entered into a lease of building on January 1, 2023 with the following information:
The lease contained an option for the lessee to extend for a further 6 years,
At the commencement date, the exercise of the extension option is not reasonably certain.
After 2 years on January 1, 2025, the lessee decided to extend the lease for a further 6 years. Information
related to the said extension is listed below:
21. What amount should be reported as lease liability on December 31, 2024?
22. What is the carrying amount of right of use of asset on January 1, 2025?
23. What amount should be reported as depreciation expense for 2025?
PABLO COMPANY is a dealer in machinery. At the beginning of the current year, machinery was leased
to another entity with the following provisions:
Additional Information
At the end of the 4-year lease term, the machinery shall revert to PABLO COMPANY.
The entity incurred initial direct cost of P250, 000 in finalizing the lease agreement.
The fair value of the machinery on December 31, 2026 is known to be P250,000.
On January 1, 2020, FELIP COMPANY leased equipment to a lessee under a direct financing lease. The
cost of the equipment to FELIP COMPANY was P 1,250,000.
The lease payments stipulated in the lease are P450, 000 per year payable at the end of each year over a
4-year period of the lease. The title to the equipment remains in the hands of FELIP COMPANY at the end
of the lease term, although only nominal residual value is expected at that time.
The implicit interest rate in the lease is 10%. The fiscal year of FELIP COMPANY ends in December 31.
27. What amount should be reported as total financial revenue over the lease term?
28. What amount should be reported as interest income for the current year?
29. What is the carrying amount of the lease receivable on December 31, 2020?
30. What is the carrying amount of the current portion of the lease receivable on December 31, 2020?
PART II (THEORIES)
TRUE/FALSE
31. An asset swap is a transaction whereby a debtor and creditor may renegotiate the terms of a financial
liability with the result that the liability is fully or partially extinguished by the debtor issuing equity
instruments to the creditor.
32. Any cost or fees incurred because of the substantial modification of terms shall be recognized as part of
the discount or premium on the liability to be amortized on the period given.
33. Dacion en pago arises when a mortgaged property is offered by the debtor in full settlement of the debt.
34. If the carrying amount of the liability is used in an equity swap transaction, there is no gain or loss on
extinguishment to be recognized.
35. If the lease transfers ownership of the underlying asset to the lessee at the end of lease term, the
depreciation of the right of use of asset is based on the useful life of the underlying asset.
36. If the increase in carrying amount of lease liability is higher than the increase carrying amount of right of
use of asset, the difference is a termination gain.
37. One of the criteria for finance lease is that the lease term should be for the major part of the economic
life of the underlying asset even if title is not transferred. Under USA GAAP, major part means at least 80%
of the economic life of an asset.
38. The balance of the deferred initial direct cost shall be presented as an addition to the carrying amount of
the asset.
39. Cost of goods sold is equal to the cost of the asset sold minus the present value of the guaranteed
residual value plus the initial direct cost paid by the lessor.
40. Sales revenue is equal to the net investment in the lease or fair value of the asset, whichever is lower.