-exam-intermediate-accounting-2

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INTERMEDIATE ACCOUNTING PART 2 1ST SEMESTER 2020-2021 MIDTERM EXAMINATION NAME: _______________________________ PERMIT / O.R __________________________ SCHEDULE:

TTH 12:00 – 3:00

TEACHER: _____________________________

MULTIPLE CHOICE 1. D When the effective interest method is used, the periodic amortization would a. Increase the bonds were issued at a discount. b. Decrease if the bonds were issued at a premium c. Increase if the bonds were issued at a premium d. Increase if the bonds were issued at either a discount or a premium 2. D Under the effective interest method of amortization, the interest expense is equal to a. The stated rate of interest multiplied by the face amount of the bonds. b. The market rate of interest multiplied by the face amount of the bonds. c. The stated rate of interest multiplied by the beginning carrying amount of the bonds. d. The market rate of interest multiplied by the beginning carrying amount of the bonds. 3. A When interest expense for the current year is more than interest paid, the bonds were issued at a. Discount b. A premium c. Face amount d. No discount or premium 4. B When bonds are sold at discount and the effective interest method is used, at each subsequent interest payment date, the cash paid is a. More than the effective interest b. Less than the effective interest c. Equal to the effective interest d. More than the bonds had been sold at a premium. 5. D When bonds are sold at a premium and the effective interest method is used, at each interest payment date, the interest expense a. Remain constant b. Is equal to the change in carrying amount c. Increases d. Decreases

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Intermediate Accounting Part 2

Midterm Exam

6. C An entity shall initially measure equity instruments issued to extinguish a financial liability at a. Carrying amount of the liability extinguished. b. Fair value of the liability extinguished. c. Fair value of the equity instruments issued. d. Par value of the equity instruments issued. 7. B For a debt restructuring involving substantial modifications of terms, it is appropriate for a debtor to recognize gain when the carrying amount of the debt a. Is less than the present value of the future cash payments specified by new terms. b. Exceeds the present value of the future cash payments specified by new terms. c. Exceed the total future cash payments specified by new terms. d. Is less than the total future cash payments specified by new terms. 8. In a debt restructuring that is considered an asset swap, the gain on extinguishment is equal to a. Excess of the carrying amount of debt over the carrying amount of the asset. b. Excess of the fair value of the asset over its carrying amount. c. Excess of the carrying amount of the debt over the fair value of the asset. d. Excess of the fair value of the asset over the carrying amount of the debt. 9. If both the fair value of the equity instruments issued and the fair value of the financial liability extinguished cannot be measured reliably, the equity instruments issued shall be measured at a. Value assigned by the Board of Directors b. Carrying amount of the equity instruments issued c. Fair value of the equity instruments issued. d. Carrying amount of the liability extinguished. 10. The gain or loss from extinguishment of a financial liability by issuing equity instruments is presented as a. Component of other comprehensive income b. Other income or other expense c. Separate line item in the income statement d. Component of finance cost 11. How should an entity calculate the net proceeds to be received from bond issuance a. Discount the bonds at the stated rate of interest b. Discount the bonds at the market rate c. Discount the bonds at the market rate of interest and deduct bond issuance cost. d. Discount the bonds at the stated rate of interest and deduct bond issuance cost.

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Intermediate Accounting Part 2

Midterm Exam

12. An entity neglected to amortize the premium on bonds payable. What is the effect of the failure to record premium amortization on interest expense and bond carrying amount, respectively? a. Understated and understated b. Understated and overstated c. Overstated and overstated d. Overstated and understated 13. When bonds are retired prior to maturity with proceeds from a new bond issue, any gain or loss from the early extinguishment should be a. Recognized in income from continuing operations. b. Recognized in retained earnings c. Amortized over the remaining original life of the retired bond issue. d. Amortized over the life of the new bond issue. 14. If bonds are issued between interest dates, the entry of the issuer could include a a. Debit to interest payable b. Credit to interest receivable c. Credit to interest expense or interest payable d. Credit to unearned interest 15. Included in Be Grateful Company liability account balances at December 31, 2018 were the following: 20% note payable issued in October 1, 2017 maturing September 30, 2020 2, 500, 000 18% Notes payable April 1, 2018 maturing April 1, 2019 4, 000, 000 Be Grateful Company’s December 31, 2018 financial statements were issued on March 1, 2019. On January 15, 2019, the entire P4, 000, 000 balance of 18% note was refinanced by issuance of a long-term obligation payable in a lump-sum. In addition, on March 10, 2019. Be Grateful Company consummated a non-cancellable agreement with the lender refinance the 20%, P2, 500, 000 note on a long-term basis, on readily determinable terms that have not yet been implemented. Both parties are financially capable of honoring the agreement’s provisions. On December 31, 2018, balance sheet, the amount of the notes payable that Be Grateful should classify as current liability? a. P-0b. P6, 500, 000 c. P2, 500, 000 d. P4, 000, 000

Question no. 16 to 17 On January 1, 2018, Gymnastic Company issued 9% bonds in the face amount of P5, 000, 000 which mature on January 1, 2028. The bonds were issued for P4, 695, 000 to yield 10%. Interest is payable annually on December 31. The entity used the interest method of amortizing bond discount? 16. What is the interest expense for 2018? a. P450, 000 b. P469, 500 c. P422, 550 d. P500, 000 17. On December 31, 2018, what is the carrying amount of the bonds payable? a. P5, 000, 000 b. P4, 704, 750 c. P4, 714, 500 d. P4, 695, 000

Intermediate Accounting Part 2

Midterm Exam

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Question no. 18 to 20 RESILIENCE Company had outstanding 7%, 10-year bond payable with face amount of P5, 000, 000. The bond was originally sold to yield 6% annual interest. The entity used the effective interest method to amortize bond premium. On January 1, 2020, the carrying amount of the bond payable was P5, 250, 000. 18. What amount of unamortized premium on bond payable should be reported on December 31, 2020? a. P52, 500 b. P172, 500 c. P215, 000 d. P225, 000 19. What is the carrying amount of the bond payable on December 31, 2020? a. P5, 000, 000 b. P5, 215, 000 c. P5, 250, 000 d. P4, 785, 000

20. At the beginning of the current year, HEART Company issued 10-year bonds with a face amount of P5, 000, 000 and stated interest of 8% payable annually at every year-end. The bonds were priced to yield 10%. PV of 1 for ten periods at 10% 0.3855 PV of an ordinary annuity of 1 for 10 periods at 10% 6.145 What is the issue price of the bonds? a. P4, 385, 500 b. P1, 927, 500 c. P5, 000, 000 d. P5, 614, 500 21. VIRTUAL Company provided the following information in relation to the issuance of bonds at the beginning of the current year: Face amount P5, 000, 000 Term Ten years Stated interest rate 6% Interest payment date Annually December 31 Yield 9%

Present value of 1 for 10 periods Future value of 1 for 10 periods Present value of an ordinary annuity of 1 for 10 periods What is the issue price of the bonds payable? a. P4, 035, 400 b. P4, 318, 000

At 6% 0.558 1.791

At 9% 0.422 2.367

7.360

6.418

c. P5, 000, 000

d. P2,110, 000

22. On January 1, 2020, BSA Company issued 10% bonds in the face amount of P1, 000, 000 that mature on December 31, 2027. The bonds were issued for P886, 000 to yield 12% resulting in bond discount of P114, 000. The entity used the effective interest method of amortizing bond discount. Interest is payable on June 30 and December 31. For the year ended December 31, 2020, what amount should be reported as bond interest expense? a. P50, 000 b. P53, 160 c. P100, 000 d. P106, 510 23. On July 1, 2020, PFIZER VACCINE Company issued 4, 000 bonds of 8%, P1, 000 face amount for P3, 504, 000. The bonds were issued to yield 10%. The bonds are dated July 1, 2020 and mature on July 1, 2030. Interest is payable semi-annually on January 1 and July 1. Using the effective interest method, what amount of the bond discount should be amortized for the six-months ended December 31, 2020? a. P19, 840 b. P15, 200 c. P30, 400 d. P24, 800

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24. HOPE Company entered into a troubled debt restructuring agreement with PNB. The bank agreed to accept land with a carrying amount of P800, 000 and a fair value of P1, 000, 000 in exchange for a note payable with a carrying amount of P1, 500, 000. Under IFRS, what amount should be reported as a gain on extinguishment of debt? a. P-0b. P300, 000 c. P500, 000 d. P700, 000 25. During 2020, BSA Company experienced financial difficulties and is likely to default on a P5, 000, 000, 15% three-year note dated January 1, 2018 payable to Union Bank. On December 31, 2020, the bank agreed to settle the note and unpaid interest of P750, 000 for 2020 for P4, 100, 000 cash payable on January 31, 2021. What amount should be reported as gain from extinguishment of debt in 2020? a. P1, 650, 000 b. P900, 000 c. P750, 000 d. P-0Question no. 26 to 28 Pacquiao Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial stress. Pacquiao has a P2, 500, 000 note payable to Money Bank. The bank accepted an equity interest in Pacquiao Company in the form of P200, 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. 26. What amount should be recognized as a gain from debt extinguishment as a result of the equity swap? a. P100, 000 b. P200, 000 c. P400, 000 d. P500, 000 27. What amount should be recognized as share premium from the issuance of the shares? a. P100, 000 b. P200, 000 c. P400, 000 d. P500, 000 28. If the shares have no fair value, what amount should be recognized as gain on extinguishment? a. P500, 000 b. P400, 000 c. P300, 000 d. P200, 000 Question 29 to 30 ABC Company had an overdue 8% note payable to Security Bank at P8, 000, 000 and accrued interest of P640, 000. As a result of a restructuring agreement on January 1, 2020, Security Bank agreed to the following provisions:  The principal obligation is reduced to P7, 000, 000.  The accrued interest of P640, 000 is forgiven.  The date of maturity is extended to December 31, 2023.  Annual interest of 10% is to be paid for 4 years every December 31. The present value of 1 at 8% for 4 periods is 0.735 and the present value of an ordinary annuity of 1 at 8% for 4 periods is 3.31 29. What amount should be reported as gain on extinguishment debt for 2020? a. P538, 000 b. P1, 000, 000 c. P1, 178, 000 d. P1, 640, 000 30. What amount should be reported as interest expense for 2020? a. P640, 000 b. P700, 000 c. P596, 960 d. P746, 200

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Question no. 31 to 33 Facemask Company transferred real estate to Face Shield Company pursuant to a debt restructuring in full liquidation of Facemask Company’s liability to Face Shield Company: Carrying amount of liability liquidated P 1, 500, 000 Carrying amount of real estate transferred 1, 000, 000 Fair value of real estate transferred 900, 000 31. Under IFRS, what amount should be reported as gain on extinguishment of liability? a. P100, 000 b. P600, 000 c. P900, 000 d. P500, 000 32. Under USA GAAP, what amount should be reported as gain or loss on restructuring? a. P500, 000 gain c. P100, 000 loss b. P600, 000 d. -033. Under USA GAAP, what amount should be reported as gain or loss on transfer of real estate? a. P100, 000 gain c. P500, 000 gain b. P600, 000 gain d. P100, 000 loss 34. During the current year, GLOBE Company incurred the following costs in connection with the issuance of bonds: Promotion cost 400, 000 Printing and engraving 300, 000 Legal fees 1, 600, 000 Fees paid to independent accountants for registration 200, 000 Commissions paid to underwriter 3, 000, 000 What amount should be recorded as bond issue costs to be amortized over the term of the bonds? a. P5, 100, 000 b. P5, 500, 000 c. P3, 000, 000 d. P2, 100, 000 35. On December 31, 2020, NOVO Hotel Company reported bonds payable of P7, 360, 000 and accrued interest payable of P200, 000. The bonds are retired on December 31, 2020 for P8, 160, 000 excluding accrued interest. What amount should be reported as gain or loss on extinguishment of bonds payable? a. P800, 000 gain c. P800, 000 loss b. P600, 000 loss d. P600, 000 gain

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INTERMEDIATE ACCOUNTING PART 2 1st Semester 2020-2021 MIDTERM EXAM NAME: ______________________________

DATE: ____________

CLASS SCHEDULE: ___________________

PERMIT # _________

OFFICIAL ANSWER SHEET

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