Province of San Antonio de Padua – Philippines

ORDER OF FRIARS MINOR (OFM) – FRANCISCANS

Christ the King College of Calbayog City, Inc.
THE PIONEER CATHOLIC FRANCISCAN INSTITUTION OF EASTERN VISAYAS
Founded 1905
INSTITUTE OF ACCOUNTANCY, MANAGEMENT AND COMPUTING AND INFROMATION STUDIES
Studiositas Fraternitas Minoritas Oratio et Devotio

FINAL EXAMINATION in
INTERMEDIATE ACCOUNTING 2 [ACC115]
General instructions:
 Use the Google Form link in sending your responses.

1. HOME;RUN Company issued 20,000 shares of its P200 par value equity shares to purchase land on July 1, 2023. An
independent appraiser valued the land at P5,000,000 a year ago. HOME;RUN’s shares are now trading at P300 on the
stock exchange. The earnings per share are P40.
I. Land will be debited for P5,000,000.
II. Share capital will be credited for P4,000,000.
III. If shares are issued for non-cash consideration, the first priority in valuation is the par value of shares.
IV. Share premium will be debited for P2,000,000.

a. Only one of the statements is TRUE. c. Three of the statements are TRUE.
b. Two of the statements are TRUE. d. All of the statements are TRUE.

2. ASAHI Company had P4,000,000 note payable due on March 15, 2023. On January 15, 2023, before the issuance of its
2022 financial statements, ASAHI Company issued long-term bonds in the amount of P4,500,000. Proceeds from the
bonds were used to repay the note when it came due. How should ASAHI classify the P4,000,000 note in its December 31,
2022 financial statements?
a. As a current liability with separate disclosure of the note refinancing.
b. As a non-current liability with separate disclosure of the note-refinancing.
c. As a current liability with no separate disclosure required.
d. As a non-current liability with no separate disclosure required.

3. Which of the following is not one of important criteria that are to be present in a contract for it to be considered as
contract of lease?
a. Identified asset c. Right to obtain the economic benefits
b. Right to direct the use d. Right of use asset

4. The classification of a lease is normally determined

a. when the entity deems it necessary. c. at the inception of the lease.
b. at the commencement of the lease. d. at the end of the lease term.

5. What effect does the issuance of a 2-for-1 stock split have on each of the following to par value per share and retained
earnings, respectively?
a. No effect; No effect c. Decrease; No effect
b. Increase; No effect d. Decrease; Decrease

6. Lessee Company leased a machine with an estimated useful life of 10 years from Lessor Company. The 5-year non-
cancelable lease provides that the title to the machine transfers to Lessee Company at the end of the lease term. Lesssee
Company recorded the right-of-use asset and lease liability in its accounting books. The right-of-use asset should be
depreciated by Lessee Company over
a. 50 years. c. 10 years.
b. 20 years. d. 5 years.

7. Authorized share capital refers to the total number of shares _________

a. outstanding. c. that can be issued.
b. issued. d. issued and outstanding.

8. A journal entry is not made on the

a. date of declaration. c. date of payment.
b. date of record. d. an entry is made on all of these dates.

9. Loss on retirement of treasury shares shall be charged to which of the following?

a. Share premium from original issuance, share premium from treasury shares and then retained earnings.
b. Share premium from treasury shares and then retained earnings.

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c. Share premium from treasury shares, share premium from original issuance and then retained earnings.
d. Retained earnings.

10. Which of the following statements about property dividends is not true?
a. A property dividend is usually in the form of securities of other companies.
b. A property dividend is also called a dividend in kind.
c. The accounting for property dividend always be based on the carrying value (book value of the non-monetary assets
transferred.
d. All of these statements are true.

11. The approach used in accounting for the equity component in a compound financial instrument is
a. Residual value approach b. Fair value approach
c. Residual approach d. Based on stand-alone prices

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”
Situation 1: Consider the following data regarding different entities.

On December 31, 2023, TO1 Company’s accounts payable balance on December 31, 2022 totaled P2,000,000 before any
adjustments relating to the following:
(a) Goods shipped on December 28, 2022 from a vendor to the company under FOB Shipping Point were received on
January 4, 2023. The invoice cost was P240,000. The purchase was recorded on January 4, 2023 since the invoice
was also received on that date.
(b) Goods shipped FOB Destination from a vendor was lost in transit. The invoice cost of P150,000 was not yet
recorded.
(c) Goods with invoice cost of P220,500 was recorded. It was found out that the goods were shipped from a vendor
under FOB Destination. These goods were actually received by APOLINARIO on January 3, 2023.

DAY6 Inc. required advance payments with special orders for machinery constructed to customer specifications. These
advances are non-refundable. The entity provided the following information for the current year:
Advances from customers – January 1 1,180,000
Advances received with orders 1,840,000
Advances applied to orders shipped 1,640,000
Advances applicable to orders cancelled 500,000

At the beginning of current year, RIIZE Company offers the customers a customized mug if they send in three bottle caps
from the products and P10. The entity estimated that 60% of the bottle caps would be redeemed. During the year, the
entity sold 675,000 boxes and customers redeemed 330,000 bottle caps receiving 110,000 mugs. The cost of each mug is
P25.

On January 1, 2024.LUCY Corporation purchased equipment by issuing a four-year, non-interest bearing note with face
amount of P1,600,000. The note is payable in annual installments of P400,000. The first installment is due on December
31, 2022. There was no equivalent cash price for the equipment and the note had no ready market. The prevailing interest
rate for a note of this type is 9%. (Round off present value to four decimal places)

At the beginning of 2023, ENHYPEN Inc. had retained earnings of P3,000,000. Throughout the year, the company had
20,000 shares of P100 par value ordinary shares that are issued and outstanding. During the year, the entity reported
income of P5,000,000, purchased treasury shares for P580,000, declared cash dividends of P1,500,000, reissued all
treasury shares at a gain of P180,000, and declared and issued 5,000 ordinary shares as bonus issue when the market value
was P150 per share.

12. What amount should APOLINARIO Company report as trade accounts payable on December 31, 2023?
a. 2,019,500 c. 2,000,000
b. 2,240,000 d. 1,869,500

13. What amount should DAY6 Inc. report the current liability for advances from customers at year-end?
a. 1,480,000 c. 880,000
b. 1,380,000 d. 0

14. RIIZE Company should report premium liability on December 31, 2023 at
a. 250,000 c. 625,000
b. 375,000 d. 875,000

15. What is the carrying value of the note issued by LUCY Corporation on December 31, 2025?
a. Zero c. 703,635
b. 366,692 d. 1,012,509

16. What is the retained earnings balance of ENHYPEN Inc. at December 31, 2023?
a. 6,180,000 c. 5,930,000
b. 6,000,000 d. 5,750,000

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”
Situation 2: Consider the following data regarding different entities:

On January 1, 2021, BLUE Company issued its 9% bonds in the face amount of P2,000,000 which mature resulting on
January 1, 2031. The bonds were issued for P1,878,000 to yield 10% resulting in a bond discount of P122,000. BLUE
Company uses the interest method of amortizing bond discount. Interest is payable annually on December 31.

On July 1, 2021, RED Corporation issued P5,000,000 of its 10%, 7-year bonds with one detachable warrant attached to
each P1,000 bond. Each warrant provides for the right to purchase 2- shares of P15 par value ordinary for 20 each. The
market value of the ordinary share was P15 each at July 1, 2021. At that time, the bonds without the warrants are selling
at 97. The compound financial instrument was sold at 104.

On August 1, 2021, GREEN Company leased two cars from Avis Cars for an initial period of 12 months with a provision
for a continuation of a month-to-month basis to be agreed by both parties two months prior to the expiration of the 12
months lease contract. GREEN uses the “lease as expense” option to account for the transaction. Lease payments are to be
made as follows:
1st two months - P15,000 per month
Next three months - P12,000 per month
Next three months - P10,000 per month
Last four months - P7,500 per month
After the first year, the rent continues at P6,000 per month.

On December 31, 2021, BLACK Inc. signed a five-year, non-cancelable lease for a machine with WHITE Company. The
terms of the lease called for BLACK to make annual payments of P80,000 in advance starting on December 31, 2021 and
every December 31 thereafter. The machine has an estimate useful life of six years and a P40,000 unguaranteed residual
value at the end of the five-year lease term. The machine reverts back to the lessor at the end of the five-year lease term.
Chrysler Company uses the straight-line method of depreciation for all of its depreciable assets.

The rate implicit in the contract of BLACK Inc. and WHITE Company, which is known to the lessee, is 12%. The market
value of the machine is P340,000. The present value of an annuity due of 1 at 12% for 5 periods is 4.037. The present
value of 1 for a single payment at 12% for 5 periods is 0.567.

17. What is the carrying value of BLUE Company’s bonds as of December 31, 2021?
a. 1,885,000 c. 1,896,780
b. 1,894,380 d. 1,898,000

18. Assuming that all warrants are exercised and recorded in the accounts, how much is the amount credited by
RED Corporation to share premium?
a. 850,000 c. 500,000
b. 530,000 d. 350,000

19. How much is GREEN Company’s rent expense for the year ended December 31, 2021?
a. 10,500 c. 66,000
b. 52,500 d. 126,000

20. What is the carrying amount of the right-of-use machine held by BLACK Inc. at December 31, 2022?
a. 258,368 c. 269,133
b. 266,368 d. 284,512

21. What are the balances of the lease liability of BLACK Inc. at December 31, 2021
a. 242,960 and 192,115 c. 265,640 and 217,517
b. 242,960 and 162,960 d. 265,640 and 185,640

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”
Situation 3: Consider the following data regarding different entities:

BUCKET Company purchased a packing machine intended for leasing at a cost of P330,000. The machine was leased to
PAIL Company on January 1, 2021 at an annual rental of P58,860 payable in advance over a period of 10 years. The
lease qualifies as a direct financing lease. There is no expected residual value for the asset. Implicit interest rate is 16%.

SALT Company uses lease as a means of selling its equipment. On July 1, 2021, the company leased an equipment to
PEPPER Company. The cost of the equipment to SALT Company was P684,000. The fair market value (which was the
sales price and the net investment of SALT Company) was P792,200 at the time of the inception of the lease.

Annual lease payment by PEPPER Company are P135,000 and are payable in advance for 8 years. The equipment has an
economic life of 10 years. At the end of the lease term, the title to the equipment will pass to PEPPER Company.

On January 1, 2021, PENCIL Company sold machinery with a carrying amount of P350,000 for P1,000,000 which is also
its fair value. The sale meets the requirements of PFRS 15. The remaining life of the machine is five years. PENCIL
Company immediately leased the machine back for P200,000 yearly, payable in advance for five years. The implicit
interest rate is 12%. (Round off the present value factor to two decimal places)

PAPER Company had 8,000 ordinary shares outstanding in January 1, 2021. The company distributed a 15% bonus issue
in March, and another 10% bonus issue in June. On July 31, 2021, the company reacquired 2,000 shares to be held in
treasure. On October 15, it splits its shares on a 3-for-1 basis.

22. How much is the total financial revenue that BUCKET Company will earn over the term of the lease?
a. 588,600 c. 258,600
b. 330,000 d. 52,800

23. What is the manufacturer’s profit recognized by SALT Company in 2021?

a. 102,800 c. 287,800
b. 108,200 d. 396,000

24. What is SALT Company’s unearned interest income pertaining to the lease?
a. 102,800 c. 287,800
b. 108,200 d. 396,000

25. How much is the gain on sale and leaseback recorded by PENCIL Company on January 1, 2021?
a. 808,000 c. 457,460
b. 650,000 d. 124,800

26. Assuming that the fair value of the asset sold by PENCIL Company at the date of sale is P900,000, how much is
the gain on sale and leaseback recorded on January 1, 2021?
a. 808,000 c. 117,333
b. 650,000 d. Some other amount

27. How many ordinary shares are outstanding in the books of PAPER Company as of December 31, 2021?
a. 30,360 c. 10,120
b. 24,360 d. 8,120

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”
Situation 4: Consider the following data regarding different entities:

At the beginning of the current year, JGY Company was authorized to issue share capital of 100,000 shares with P50 par
value. The entity had the following share capital transaction during the year.
 Jan. 1: Sold 80,000 shares at P60 per share.
 May 1: Reacquired 4,000 treasury shares at P65 per share.
 Jul. 1: Approved a share split of 5 for 1.
 Oct. 31: Issued a 10% share dividend when the market value of share is P25.
 Dec 31: Reissued all of the treasury shares at P30.
 Net income for the year was P3,000,000.

On November 1, 2023, MNA Inc. declared a property dividend of equipment payable on March 1, 2024. The carrying
amount of the equipment is P3,000,000 and the fair value is P2,500,000 on November 1, 2023. However, the fair value
less cost to distribute the equipment is P2,200,000 on December 31, 2023 and P2,000,000 on March 1, 2024.

CYG Corporation has incurred heavy losses since its inception. At the recommendation of its president, the board of
directors voted to implement quasi-reorganization, through reduction of par value subject to shareholders’ approval.
Immediately prior to the restatement on December 31, 2020, the shareholders’ equity was as follows:

Ordinary Share Capital, ₱100 par (500,000 shares) ₱50,000,000

Share Premium 25,000,000
Accumulated Losses (30,000,000)

The shareholders approved the quasi-reorganization on January 1, 2021 to be accompanied by a reduction in inventory of
₱4,000,000, a reduction in property, plant and equipment of ₱5,500,000 and write off of goodwill at ₱3,000,000. The
company also recognized unrecorded liabilities of ₱2,500,000.

28. On the records of JGY Company, what is the number of shares outstanding at year end?
a. 418,000 c. 440,000
b. 438,000 d. 422,000

29. What is the total shareholders’ equity of JGY Company at year-end?

a. 8,140,000 c. 7,560,000
b. 7,800,000 d. 8,400,000

30. What is the dividend payable on December 31, 2023?

a. 2,500,000 c. 3,000,000
b. 2,200,000 d. 0

31. What is the measurement of the equipment on December 31, 2023?

a. 2,500,000 c. 3,000,000
b. 2,200,000 d. 2,000,000

32. What amount of gain or loss on distribution of property dividend is recognized on March 1, 2024?
a. 600,000 c. 500,000
b. 200,000 d. 300,000

“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”
“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time.”