UNIVERSITY OF SANTO TOMAS

AMV COLLEGE OF ACCOUNTANCY

INTERMEDIATE ACCCOUNTING 2
NAME_____________________

On December 31, 2016, Hestia Company experienced a decline in the value of inventory from
P5,000,000 cost to NRV of P4,650,000. Hestia’s inventory on January 1, 2016 was P3,000,000 and
purchases of P2,600,000 were made during the year 2016. During the year 2017, Hestia made
purchases of P2,500,000 and market conditions had improved. At the end of the year 2017, the
inventory had a cost of P 5,400,000 while the fair value less cost to sell is 5,200,000.

1. How much is the cost of goods sold in 2016 assuming the company is using the
allowance method and treat the loss as part of other expense in the income
statement?
a. 600,000 c.5,6000,000
b. 950,000 d.4,650,000

2. How much should be reported as cost of goods sold in 2017 assuming the company is
using allowance method and includes reversal in the cost of goods sold?
a. 2,300,000 c. 1,950,000
b. 2,100,000 d. 1,750,000

Apple Company owed P 2,000,000 plus P 180,000 of accrued interest to Mac Bank which is due to be paid
on December 31, 2017. During 2017, Apple’s business deteriorated because of faltering regional economy.
On December 31, 2017, Mac Bank agrees to accept an old machine and cancel the entire debt. The
machine has a cost of P 3,900,000, accumulated depreciation of P 2,210,000, and a fair value of
P1,900,000.

3. How much is the total amount to be reported in its profit or loss as a result of the
financial liability’s derecognition?
a. 0 c. 210,000
b. 280,000 d. 490,000

Cherry Company is experiencing financial difficulty and is negotiating a trouble debt restructuring with its
creditors to relieve its financial stress. Cherry has a P 6,000,000 note payable to Mobile Bank. The bank
accepted an equity interest from Cherry Company in a form of 200,000 ordinary shares. The fair value of
ordinary shares is P 24 per share while the par value of the ordinary shares is P 20 per share.

4. What is the amount of gain on debt restructuring to be reported by Cherry in its profit
or loss as a result of the restructuring?
a. 0 c. 1,200,000
b. 800,000 d. 2,000,000

Samsung Company has an overdue 10% note payable to Galaxy Bank of P 8,000,000 and recorded
accrued interest of P 800,000. On December 31, 2017, Galaxy Bank agreed to the following restructuring
agreement:

 Reduced the principal obligation to P 6,000,000

 Waived the P 800,000 accrued interest
 Extended the maturity date to December 31, 2019.
 Annual interest of 8% is to be paid on December 31, 2018 and 2019
 Present value of P1 at 10% for 2 periods is 0.8264. Present value of an ordinary annuity of P1 at
10% for 2 periods is 1.7355.
 The prevailing market interest rate for similar debt instrument is 12%

5. What is Samsung Company’s gain on debt restructuring?

a. 3,008,560 b. 2,208,560 c. 3,205,552 d. 0

6. What is Samsung Company’s interest expense for the year 2018?

a. 579,144 b. 694,973 c. 559,445 d. 671,334

waa

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