Beruflich Dokumente
Kultur Dokumente
SUBJECT REQUIREMENT
1. ACCRUED LIABILITIES
1. Chester Company reported payroll for the month of January 2018 as follows:
Total wages 500,000
Income tax withheld 60,000
All wages paid were subject to SSS. The SSS tax rates were 7% each for employee and
employer. Chester remits payroll taxes on the 15th of the following month.
In the financial statements for the month ended January 31,2018, what amount should be
reported respectively as total payroll tax liability and payroll tax expense?
2. Bloy Company pays all salaried employees on a biweekly basis. Overtime pay however is paid
in the next biweekly period. The entity accrues salaries expenses only at the December 31 year-
end.
Data relating to salaries earned in December 2018 are:
Last payroll was paid on December 26, 2018 for the 2-week period ended December 26, 2018
Overtime pay earned for the 2-week period ended December 26, 2018 was P420,000
Remaining work days in 2018 were December 29, 30 and 31 on which days there was no
overtime.
The recurring biweekly salaries totaled P7,500,000.
Assuming a 5-day work week, what amount should be recorded as accrued salaries payable on
December 31, 2019?
2. PROVISION AND CONTIGENT LIABILITY
1. On November 25,2018, an explosion occurred at a Rex Company plant causing extensive
property damage to area buildings. By March 10, 2019, claims had been asserted against the
entity.
The management and counsel concluded that it is probable that the entity would be responsible
for damages, and that P3,500,000 is a reasonable estimate of the liability.
Rex’s P10,000,000 comprehensive public liability policy has a P500,000 deductible clause. The
financial statements were issued on March 31, 2019.
What amount of loss from lawsuit should be reported for 2018?
What amount of liability from lawsuit should be reported on December 31, 2018?
2. Tone Company is the defendant in a lawsuit filed by Witt in 2018 disputing the validity of
copyright held by Tone.
On December 31, 2018, Tone determined that Witt would probably be successful against Tone
for an estimated amount of P400,000.
Appropriately, a P400,000 loss was accrued by a charge to income for the year ended December
31,2018.
On December 31, 2019, Tone and Witt agreed to a settlement providing for cash payment of
P250,000 by Tone and Witt, and transfer of Tone’s copyright to Witt.
The carrying amount of the copyright on Tone’s accounting records was P50,000 on December
31, 2019.
What would be the effect of the settlement on Tone’s income before tax in 2019?
3. NOTE PAYABLE (REFINANCING AND FAIR VALUE OPTION)
1. On September 1, 2018, Pine Company issued a note payable to National Bank in the amount
of P1, 800,000, bearing interest at 12% and payable in three equal annual principal payments of
P600,000. On this date, the bank’s prime rate was 11%.
The first interest and principal payment was made on September 1, 2019.
On December 31, 2019, what amount should be reported as accrued interest payable?
What amount should be reported as interest expense for 2019?
2. On January 1, 2018, Solemn Company sold land to Glory Company. There was no established
market price for the land. Glory gave Solemn a P2,400,000 noninterest bearing note payable in
three equal annual installments of P800,000 with the first payment due December 31, 2018.
The note has no ready market. The prevailing rate of interest for a note of this type is 10%.
The present value of a P2, 400,000 note payable in three equal annual installments of P800,000
at a 10% rate of interest is P1, 989,600.
What is the interest expense for 2018?
What is the carrying amount of the note payable on December 31, 2018?
4. DEBT RESTRUCTURE
1. Seal Company is experiencing financial difficulty and is negotiating debt restructuring with its
creditor to relieve its financial stress. Seal has a P2, 500,000 note payable to United Bank.
The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares
quoted at P12 per share. The par value is P10 per share.
The fair value of the note payable on the date of restructuring is P2, 200,000.
1. what amount should be recognized as gain from debt extinguishment as a result of the equity
swap?
2. what amount should be recognized as share premium from the issuance of the shares?
3. If the shares have no fair value, what amount should be recognized as gain on extinguishment?
5. BONDS PAYABLE
1. On June 30, 2018, Huff Company issued at 99, five thousand bonds of 8%, P1,000 face
amount.
The bonds were issued through an underwriter to whom the entity paid bond issue cost of
P425,000.
On June 30, 2018, what amount should be reported as bond liability?
2. On January 1, 2018, Ezekiel Company received P1, 077,200 for 12% bonds with the face
amount of P1, 000,000. The bonds were sold to yield 10%. Interest is payable semiannually
every January 1 and July 1.
The entity has elected the fair value option for measuring the financial liability.
On December 31, 2018, the fair value of the bonds is determined to be P1, 064,600 due to market
and interest factors.
1. What is the carrying amount of the bonds payable on January 1, 2018?
2. What is the interest expense for 2018?
3. What is the gain or loss from change in fair value of the bonds for 2018?
4. What is the carrying amount of the bonds payable on December 31, 2018?
2. On January 1, 2018, Moon Company reported 9% bonds payable of P4, 000,000 less
unamortized discount of P320,000.
Further examinations revealed that these bonds were issued to yield 10%. The amortization of
the bond discount was recorded using the effective interest method.
Interest was paid on January 1 and July 1 of each year. On July 1, 2018, the entity retired the
bonds at 103 before maturity.
What is the loss on retirement of bonds payable to be recognized on July 1, 2018?
2. On January 1, 2018, Arlene Company issued convertible bonds with a face amount of
P5,000,000 for P6,000,000.
The bonds are convertible into 50,000 shares with P100 par value. The bonds have a 5-year life
with 10% stated interest rate payable annually every December 31.
The fair value of the convertible bonds without conversion option is computed at P5, 399,300 on
January 1, 2018.
On December 31, 2020, the convertible bonds were not converted but fully paid for P5,550,000.
On Such date, the fair value of the bonds without conversion privilege is P5, 400,000 and the
carrying amount is P5, 178, 300.
1. what is the carrying amount of the bonds payable on January 1, 2018?
2. what is the premium on bonds payable on January 1, 2018?
3. what is the equity component arising from issuance of bonds payable on January 1, 2018?
4. what is the loss on the extinguishment of the convertible bonds payable on December 31,
2020?
8. LESSEE ACCOUNTING
1. At the beginning of current year, Lessee Company a machinery with the following
information:
Annual rental payable at the end of each year 1,000,000
Residual value guarantee 500,000
Payment to lessor to obtain a long-term lease 300,000
Cost of dismantling and restoring the asset as required
By contract at present value 390,000
Annual executory cost paid by lessee 50,000
Lease term 4 years
Useful life of machinery 8 years
Implicit interest rate 10%
Present value of an ordinary annuity of 1 at 10% for 4 periods 3.17
Present value of 1 at 10% for 4 periods 0.68
2. At the beginning of current year, Panaroma Company leased a building from a lessor with the
following pertinent information:
Annual rental payable at the end of each year 1,000,000
Initial direct cost paid 400,000
Lease incentive received 100,000
Leasehold improvement 200,000
Purchase option that is reasonably certain to be exercised 500,000
Lease term 5 years
Useful life of building 8 years
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
Present value of 1 for 5 periods at 10% 0.62
9. LEASE LIABILITY
1. On December 31, 2018, Rafferty Company leased equipment with annual lease payments of
P200,000 due to December 31 for 10 years.
The equipment’s useful life is 10 years and the interested rate implicit in the lease is 10%.
The lease obligation was recorded on December 31, 2018 at P1, 350,000 and the first payment
was made on that date.
What amount should be included in current liabilities in relation to the lease on December
31,2018?
2. Yemen Company leased an equipment for 6 years from another entity on January 1, 2018.
The entity recorded the right of use asset at P4, 800,000 which included a purchase option of
P100,000. On this date, Yemen company is certain to exercise the option.
The equipment had an eight-year useful life and a fair value of P300,000 at end of the useful life.
On January 1, 2024, the entity did not exercise the purchase option.
What is the loss on finance lease to be recognized in 2014?
1. Alyanna Company entered into a lease of building on January 1, 2018 with the following
information:
Annual rental payable at the end of each year 500,000
Lease term 5 years
Useful life building 20 years
Implicit interest rate 10%
PV of an ordinary annuity of 1 at 10% for 5 periods 3.79
The lease contained an option for the lessee to extend for a further 5 years.
At the commencement date, the exercise of the extension option is not reasonably certain.
After 3 years on January 1, 2021, the lessee decided to extend the lease for a further 5 years.
2. On January 1, 2018, Variety Company entered into an 8-year lease of a floor of a building
with useful life of 15 years with the following items:
Annual rental for the first three years payable at the
End of each year 300,000
Annual rental for the next five years payable at the
End of each year 400,000
Implicit interest rate 10%
PV of an ordinary annuity of 1 at 10% for three periods 2.49
PV of an ordinary annuity of 1 at 10% for five periods 3.79
PV of 1 at 10% for three periods
The lease provides for neither a transfer of title to the lessee nor a purchase option.
1. what is the lease liability on January 1, 2018?
2. what is the interest expense for 2018?
3. what is the interest expense for 2021?
4. what is the lease liability on December 31, 2021?
11. OPERATING LEASE-LESSOR
1. Wall Company leased office premises to Fox Company for a five-year term beginning January
1, 2018.
Under the terms of the operating lease, rent for the first year is P800,000 and rent for years 2
through 5 is P1, 250,000 per annum.
However, as an inducement to enter the lease, Wall granted Fox the first six months of the lease
rent-free.
1. what is the total rental income over the lease term?
2. what amount should be reported as rental income for 2018?
2. On July 1, 2018, Gee Company leased a delivery truck from Marr Company under a 3-year
operating lease.
Total rent for the term of the lease will be P360,000 payable as follows:
12 months at a P 5,000 = P60,000
12 months at a P7,500 = P90,000
12 months at a P17,500 = P210,000
All payments were made when due.
1. what is the rent revenue for the year ended June 30, 2019?
2. on June 30, 2020, what amount should be reported as accrued rent receivable?
2. Marianas Company adopted the policy of leasing as the primary method of selling its
products. The entity’s main product is a small helicopter that is very popular among politicians
and entity managers.
Marianas Company constructed such a helicopter for Jade Company at a cost of P8,500,000.
The terms of the lease provided for annual advance payments of P2,500,000 to be paid over 10
years with the ownership transferring to the lessee at the end of the lease period.
It is estimated that the helicopter will have a residual value of P1,600,000 at that date.
The lease payments began January 1, 2018. Marianas Company incurred initial direct cost of
P500,000 in financing the lease agreement with Jade. The cash sale price of the helicopter is
P14,875,000.
Financing the construction was at a 14% rate. The present value of an annuity due of 1 at 14%
for 10 periods is 5.95.
1. what is the gross profit on sale that should be recognized by Marianas company?
2. what is the unearned interest income on January 1, 2018?
3. what is the interest income for 2018?
2. At the beginning of current year, Hazel Company sold a machine are immediately leased it
back. The following data pertain to the sale and leaseback transaction:
Sale price at below fair value 4,000,000
Fair value of machine 4,500,000
Carrying amount of machine 3,600,000
Annual rental payable at the end of each year 500,000
Remaining life of machine 10 years
Lease term 3 years
Implicit interest rate 6%
Present value of an ordinary annuity of 1 at 6%
for 3 periods 2.67
2. At the beginning of current year, an entity announced the decision to close the factory located
in Mindanao and terminate all 200 employees as a result of economic downturn. The entity shall
pay P20,000 per employee upon termination.
However, to ensure that the windup of the factory occurs smoothly and all remaining customer
orders are completed, the entity needs to retain at least 20% of employees until closure of the
factory in eight months.
As a result, the entity announced that employees who agree to stay until the closing of the factory
shall receive P60,000 payment at the end of eight months in addition to receiving their current
wage throughout the period of closure instead of the P20,000. Based on this offer, the entity
expected to retain 50 employees until the factory is closed.
2. Dunn Company reported in the income statement for the current year P900,000 income before
provision for income tax.
Rent receive in advance 150,000
Interest income on time deposit 200,000
Depreciation deducted for income tax purposes
in excess of financial depreciation 100,000
Income tax rate 30%
1. what is the current provision for income tax for the current year?
2. what is the total tax expense?
2. Lion Company reported in the income statement for the first year of operations pretax
accounting income of P6,000,000. The current year tax rate is 30% and the enacted rate for
future years is 25%.
The following differences existed between the tax return and accounting record:
Tax return Accounting record
Uncollectible accounts expense 200,000 300,000
Depreciation 800,000 500,000
Tax-exempt interest revenue 50,000
1. what is the current tax expense?
2. what is the net deferred tax expense?
1. what amount should be reported as income tax expense current portion in the income
statement?
2. what amount should be reported as deferred tax liability at year-end?
3. what amount should be reported as deferred tax asset at year-end?
4. what amount should be reported as total expense for the first year?
2. On January 1, 2015, Easy Company acquired an equipment for P8,000,000. The equipment is
depreciation using straight line method based on a useful life of 8 years with no residual value.
On January 1, 2018, after 3 years, the equipment was revalued at a replacement cost of
P12,000,000 with no choice of useful life.
The pretax accounting income before depreciation for 2018 is P10,000,000. The income tax rate
is 30% and there are no other temporary differences at the beginning of the year.
1. what is the deferred tax liability on January 1, 2018 arising from the revaluation?
2. what is the current tax expense for the current year?
3. what is the deferred tax liability on December 31, 2018 arising from revaluation?
4. what is the total tax expense for the current year?
5. what is the revaluation surplus on December 31, 2018?
2. On January 1, 2018, Penn Company began operations by issuing at P15 per share one-
half of the 950,000 ordinary shares of P1 par value that had been authorized for issue.
In addition, the entity had 500,000 authorized preference shares of P5 par value.
During 2018, the entity had P1,025,000 of net income and declared P230,000 of
dividend.
During 2019, the entity had the following transactions:
Issued 100,000 ordinary shares for P17 per share.
Issued 150, 000 preference shares for P8 per share.
Authorized the purchase of a custom-made machine to be delivered in January
2020. The entity restricted P300, 000 of retained earnings for the purchase of the
machine.
Issued additional 50,000 preference shares for P9 per share.
Reported P1,215,000 of net income and declared on December 31, 2019 a
dividend of P635,000 to shareholders of record on January 15, 2020 to be paid on
February 1, 2020.
1. What is the total shareholders’ equity on December 31, 2018?
2. What is the total shareholders’ equity on December 31, 2019?
During the current year, the entity had the following transactions:
Acquired 10,000 treasury shares for P50 per share or P500,000.
Sold 5,000 treasury shares at P60 a share.
Sold 2,000 treasury shares at P45 per share.
Net income for the year was P2,500,000.
1. What is the total amount of share premium at year-end?
2. What is the share capital at year-end?
3. What is the total shareholders’ equity at year-end?
2. Juan Company was organized at the beginning of current year with 100,000 authorized
shares of P100 par value. The following transactions occurred during the year:
January 15 Sold 30,000 shares at P150 per share
February 14 Issued 2,000 shares for legal services with a fair value of
P250,000. The shares on this date are quoted at P140 per share
March 27 Purchased 5,000 treasury shares at a cost of P120 per share
October 31 Issued P5,000,000 convertible bonds at 120. The bonds are
quoted at 98 without the conversion feature.
November 5 Declared a 2-for-1 share split when the market value of the share
share was P160.
December 15 sold 20,000 shares at P75 per share.
December 31 Net income for the year was P2,000,000.
All of the outstanding and treasury shares were originally issued for P11 per share.
During 2018, the following events or transactions occurred relating to shareholders’
equity:
February 15 –issued 400,000 shares for P12.50 per share.
June 15-Declared a cash dividend of P0.20 per share to shareholders of record on
April 1 and payable on April 15. This was the first dividend ever declared.
September 15-The president retired. The entity purchased from the retiring
president 100,000 shares for P13.00 per share which was equal to market value on
this date. These shares were canceled.
December 15 –declared a cash dividend of P0.20 per share to shareholders of
record on January 2,2019 and payable on January 15, 2019.
On December 31,2018, the entity is being sued by two separate parties for patent
infringement.
The management and outside legal counsel share the following opinion regarding these suits:
1. What is the increase in share premium arising from the issuance of 400,000 shares on
February 15?
2. What is the decrease in share premium arising from the retirement of 100,000 shares on
September 15?
3. What amount of loss contingencies should be appropriated by a charge to unappropriated
retained earnings?
4. What amount of cash dividend should be charged against unappropriated retained
earnings in 2018?
5. What amount should be reported in the notes to financial statements as restriction on
retained earnings because of acquisition of treasury shares?
SHARE-BASED COMPENSATION
25. SHARE OPTION
The fair value and intrinsic value of the share appreciation right are:
The intrinsic value of the share appreciation right on the date of exercise is the amount
paid out to the employees.
After taking into account the effects of post-vesting restrictions, the entity has
estimated that the fair value of the share or equity alternative is P 48 per share.
2. Bonanza Company provided the following shareholders’ equity on December 31, 2018:
Dividends on the preferences shares are in arrears for two years including the current year.
On December 31, 2018, the entity intends to pay cash dividend of P10 per share to the ordinary
shareholders.
What is the total amount of dividends to be declared for the preference and ordinary
shareholders?
The market value of the ordinary share immediately prior to the rights issue is P35. The
rights were exercised on October 1, 2018.
The net income for the year is P8, 550,000.
What is the weighted average number of shares for 2018 to be used in the
earnings per share computation for comparative financial statements of
2019?
What is the weighted number of shares for 2019 to be used in the earnings
per share computation for comparative financial statements of 2019?
2. Precise Company had a net income of P15, 000,000 for the current year. The
following appropriations have not been considered in this amount:
2. At the beginning of current year, Atlantic Company had the following capital:
Ordinary share capital, P10 par value, 800,000 shares 8,000,000
12% convertible bonds, each P1,000 bond
is convertible into 80 ordinary shares
5,000,000