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NAME: Date:
Professor: Section: Score:
INTERMEDIATE ACCOUNTING 2
FINAL GRADING EXAMINATION
Chapter 23 – Current Liabilities
1. Alhambra Company offers three payment plans on its 12-month contracts.
Information on the three plans and the number of children enrolled in each plan for
September 1, 2005 through August 31, 2006 contract year follows:
Initial payment Monthly fees
Number of
Plan per child per child children
#1 P500 P0 15
#2 200 30 12
#3 50 9
36
Alhambra received all initial payments on September 1, 2005, and P3,240 of monthly
fees during the period September 1 through December 31, 2005. In its December 31,
2005 balance sheet, what amount should Alhambra report as deferred revenue?
a. 9,900
b. 3,300
c. 6,600
d. 4,380
C = initial payments (500 x 15) + 200 x 12)= 9,900 x 8/12 = 6,600
2. The following are taken from the records of ABC Co. as of year-end.
Accounts payable 2,000 SSS contributions payable 6,000
Utilities payable 7,000 Cash dividends payable 4,000
Accrued interest expense 6,000 Property dividends payable 7,000
Advances from customers 1,000 Share dividends payable 3,000
Unearned rent 9,000 Lease liability 35,000
Warranty obligations 5,000 Bonds payable 120,000
Income taxes payable 2,000 Discount on bonds payable (15,000)
Preference shares issued 10,000 Security deposit 2,000
Constructive obligation 11,000 Redeemable preferences
shares issued 14,000
Obligation to deliver a variable Unearned interest on
number of own shares worth a receivables 3,000
fixed amount of cash 10,000
How much is the total financial liabilities to be disclosed in the notes?
a. 172,000
b. 185,000
c. 192,000
d. 225,000
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Solution:
Accounts payable 2,000
Utilities payable 7,000
Accrued interest expense 6,000
Obligation to deliver a variable number of own shares
worth a fixed amount of cash 10,000
Cash dividends payable 4,000
Finance lease liability 35,000
Bonds payable 120,000
Discount on bonds payable (15,000)
Security deposit 2,000
Redeemable preference shares 14,000
Total financial liabilities 185,000
Chapter 24 – Notes Payable
3. Entity A purchases a TV set on a 6-month installment basis. The installment price is
₱120,000. However, if the TV set is purchased outright in cash, the cash price
would have been ₱100,000. The payable will be initially recognized at
a. 100,000
b. 120,000
c. Present value of 120,000 discounted at the current market rate using 6 periods
d. None of these
4. Entity A purchases goods for ₱250,000 under a special credit period of 1 year. The
seller normally sells the goods for ₱220,000 with a credit period of one month or
with a ₱5,000 discount for cash basis (i.e., outright payment in cash). The initial
measurement of the payable is
a. 250,000
b. 220,000
c. 215,000
d. 200,000
Normal purchase price with credit period of one month 220,000
Discount for cash on delivery (5,000)
Cash price equivalent of the goods purchased 215,000
5. On January 1, 20x1, ABC Co. acquired transportation equipment in exchange for
₱100,000 cash and ₱1,000,000, noninterest-bearing note payable due in 4 equal
annual installments. The first installment is due on January 1, 20x1. The succeeding
installment payments are due every December 31. The prevailing rate of interest
for this type of note is 12%. How much is the interest income in 20x1?
a. 120,000
b. 102,055
c. 72,055
d. 50,702
Future cash flows – annual installments (₱1M ÷ 4) 250,000
Multiply by: PV of an annuity due of ₱1 @12%, n=4 3.401830
Present value of note payable - Jan. 1, 20x1 850,458
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Amortization table: (Installment)
Interest
Date Payments expense Amortization Present value
Jan. 1, 20x1 850,458
Jan. 1, 20x1 250,000 - 250,000 600,458
Dec. 31, 20x1 250,000 72,055 177,945 422,513
Dec. 31, 20x2 250,000 50,702 199,298 223,214
Dec. 31, 20x3 250,000 26,786 223,214 0
6. On January 1, 20x1, ABC Co. acquired machinery by issuing a 3-year, ₱1,200,000
noninterest-bearing note payable due as follows:
Date Amount of installment
December 31, 20x1 600,000
December 31, 20x2 400,000
December 31, 20x3 200,000
Total 1,200,000
The prevailing rate of interest for this type of note is 10%.
How much is the carrying amount of the note on December 31, 20x1?
a. 1,026,296
b. 867,312
c. 528,926
d. 489,762
Date Collections PV of ₱1 @ 10%, n= 1 to 3* Present value
Dec. 31, 20x1 600,000 0.90909 545,455
Dec. 31, 20x2 400,000 0.82645 330,579
Dec. 31, 20x3 200,000 0.75131 150,263
Totals 1,200,000 1,026,296
* PV of ₱1 @10%: n=1 is 0.90909; n=2 is 0.82645; and n=3 is 0.75131
Amortization table: (Installment)
Interest
Date Payments expense Amortization Present value
Jan. 1, 20x1 1,026,296
Dec. 31, 20x1 600,000 102,630 497,370 528,926
Dec. 31, 20x2 400,000 52,893 347,107 181,818
Dec. 31, 20x3 200,000 18,182 181,818 0
7. On January 1, 20x1, ABC Co. issued a ₱1,200,000 noninterest-bearing note due on
December 31, 20x1 in exchange for inventory with a list price of ₱1,100,000 and a
cash price of ₱1,000,000. How much is the carrying amount of the note on
December 31, 20x1?
a. 987,234
b. 1,000,000
c. 1,062,695
d. 1,129,321
First trial: (at 10%)
Future cash flows x PV factor at x% = PV of note
1,200,000 X PV of ₱1 @ 10%, n=3 = 1,000,000
(1,200,000 x 0.751315) = 901,578 is not equal to 1,000,000
, Page |4
We need a substantially higher amount of present value. Therefore, we need to
decrease substantially the interest rate. Let’s try 6%.
Second trial: (at 6%)
Future cash flows x PV factor at x% = PV of note
1,200,000 X PV factor at 6%, n=3 = 1,000,000
(1,200,000 x 0.839619) = 1,007,543 is not equal to 1,000,000
We need a slightly lower amount of present value. Therefore, we need to
increase slightly the interest rate. Let’s try 7%.
Third trial: (at 7%)
Future cash flows x PV factor at x% = PV of note
1,200,000 X PV factor at 7%, n=3 = 1,000,000
(1,200,000 x 0.816298) = 979,558 is not equal to 1,000,000
In here, we need to perform interpolation. Looking at the values derived
above, we can reasonably expect that the effective interest rate is a rate between 6%
and 7%.
To perform the interpolation, we will use the following formula:
x% - 6%
7% - 6%
Where: x% again is the effective interest rate.
1,000,00 1,007,54
0 - 3 (7,543) 0.26
= =
1,007,54 (27,98 95
979,558 - 3 5)
The amount computed is added to 6% to derive the effective interest rate. The
effective interest rate is 6.2695% (6% + .2695%).
Date Interest income Unearned interest Present value
Jan. 1, 20x1 200,000 1,000,000
Dec. 31, 20x1 62,695 137,305 1,062,695
Dec. 31, 20x2 66,626 70,679 1,129,321
Dec. 31, 20x3 70,803 (124) 1,200,124
8. On January 1, 20x1, ABC Co. issued a 3-year, ₱1,000,000 noninterest-bearing note
payable to XYZ, Inc., a related party. The prevailing interest for similar type of
obligation is 12%.The proceeds received from the note is ₱1,000,000, equal to the
face amount. How much is the “Day 1” difference? Gain (Loss)
a. 288,220
b. (288,220)
c. 222,880
d. (222,880)
Future cash flow 1,000,000
Multiply by: PV of ₱1, @12%, n=3 0.71178
NAME: Date:
Professor: Section: Score:
INTERMEDIATE ACCOUNTING 2
FINAL GRADING EXAMINATION
Chapter 23 – Current Liabilities
1. Alhambra Company offers three payment plans on its 12-month contracts.
Information on the three plans and the number of children enrolled in each plan for
September 1, 2005 through August 31, 2006 contract year follows:
Initial payment Monthly fees
Number of
Plan per child per child children
#1 P500 P0 15
#2 200 30 12
#3 50 9
36
Alhambra received all initial payments on September 1, 2005, and P3,240 of monthly
fees during the period September 1 through December 31, 2005. In its December 31,
2005 balance sheet, what amount should Alhambra report as deferred revenue?
a. 9,900
b. 3,300
c. 6,600
d. 4,380
C = initial payments (500 x 15) + 200 x 12)= 9,900 x 8/12 = 6,600
2. The following are taken from the records of ABC Co. as of year-end.
Accounts payable 2,000 SSS contributions payable 6,000
Utilities payable 7,000 Cash dividends payable 4,000
Accrued interest expense 6,000 Property dividends payable 7,000
Advances from customers 1,000 Share dividends payable 3,000
Unearned rent 9,000 Lease liability 35,000
Warranty obligations 5,000 Bonds payable 120,000
Income taxes payable 2,000 Discount on bonds payable (15,000)
Preference shares issued 10,000 Security deposit 2,000
Constructive obligation 11,000 Redeemable preferences
shares issued 14,000
Obligation to deliver a variable Unearned interest on
number of own shares worth a receivables 3,000
fixed amount of cash 10,000
How much is the total financial liabilities to be disclosed in the notes?
a. 172,000
b. 185,000
c. 192,000
d. 225,000
, Page |2
Solution:
Accounts payable 2,000
Utilities payable 7,000
Accrued interest expense 6,000
Obligation to deliver a variable number of own shares
worth a fixed amount of cash 10,000
Cash dividends payable 4,000
Finance lease liability 35,000
Bonds payable 120,000
Discount on bonds payable (15,000)
Security deposit 2,000
Redeemable preference shares 14,000
Total financial liabilities 185,000
Chapter 24 – Notes Payable
3. Entity A purchases a TV set on a 6-month installment basis. The installment price is
₱120,000. However, if the TV set is purchased outright in cash, the cash price
would have been ₱100,000. The payable will be initially recognized at
a. 100,000
b. 120,000
c. Present value of 120,000 discounted at the current market rate using 6 periods
d. None of these
4. Entity A purchases goods for ₱250,000 under a special credit period of 1 year. The
seller normally sells the goods for ₱220,000 with a credit period of one month or
with a ₱5,000 discount for cash basis (i.e., outright payment in cash). The initial
measurement of the payable is
a. 250,000
b. 220,000
c. 215,000
d. 200,000
Normal purchase price with credit period of one month 220,000
Discount for cash on delivery (5,000)
Cash price equivalent of the goods purchased 215,000
5. On January 1, 20x1, ABC Co. acquired transportation equipment in exchange for
₱100,000 cash and ₱1,000,000, noninterest-bearing note payable due in 4 equal
annual installments. The first installment is due on January 1, 20x1. The succeeding
installment payments are due every December 31. The prevailing rate of interest
for this type of note is 12%. How much is the interest income in 20x1?
a. 120,000
b. 102,055
c. 72,055
d. 50,702
Future cash flows – annual installments (₱1M ÷ 4) 250,000
Multiply by: PV of an annuity due of ₱1 @12%, n=4 3.401830
Present value of note payable - Jan. 1, 20x1 850,458
, Page |3
Amortization table: (Installment)
Interest
Date Payments expense Amortization Present value
Jan. 1, 20x1 850,458
Jan. 1, 20x1 250,000 - 250,000 600,458
Dec. 31, 20x1 250,000 72,055 177,945 422,513
Dec. 31, 20x2 250,000 50,702 199,298 223,214
Dec. 31, 20x3 250,000 26,786 223,214 0
6. On January 1, 20x1, ABC Co. acquired machinery by issuing a 3-year, ₱1,200,000
noninterest-bearing note payable due as follows:
Date Amount of installment
December 31, 20x1 600,000
December 31, 20x2 400,000
December 31, 20x3 200,000
Total 1,200,000
The prevailing rate of interest for this type of note is 10%.
How much is the carrying amount of the note on December 31, 20x1?
a. 1,026,296
b. 867,312
c. 528,926
d. 489,762
Date Collections PV of ₱1 @ 10%, n= 1 to 3* Present value
Dec. 31, 20x1 600,000 0.90909 545,455
Dec. 31, 20x2 400,000 0.82645 330,579
Dec. 31, 20x3 200,000 0.75131 150,263
Totals 1,200,000 1,026,296
* PV of ₱1 @10%: n=1 is 0.90909; n=2 is 0.82645; and n=3 is 0.75131
Amortization table: (Installment)
Interest
Date Payments expense Amortization Present value
Jan. 1, 20x1 1,026,296
Dec. 31, 20x1 600,000 102,630 497,370 528,926
Dec. 31, 20x2 400,000 52,893 347,107 181,818
Dec. 31, 20x3 200,000 18,182 181,818 0
7. On January 1, 20x1, ABC Co. issued a ₱1,200,000 noninterest-bearing note due on
December 31, 20x1 in exchange for inventory with a list price of ₱1,100,000 and a
cash price of ₱1,000,000. How much is the carrying amount of the note on
December 31, 20x1?
a. 987,234
b. 1,000,000
c. 1,062,695
d. 1,129,321
First trial: (at 10%)
Future cash flows x PV factor at x% = PV of note
1,200,000 X PV of ₱1 @ 10%, n=3 = 1,000,000
(1,200,000 x 0.751315) = 901,578 is not equal to 1,000,000
, Page |4
We need a substantially higher amount of present value. Therefore, we need to
decrease substantially the interest rate. Let’s try 6%.
Second trial: (at 6%)
Future cash flows x PV factor at x% = PV of note
1,200,000 X PV factor at 6%, n=3 = 1,000,000
(1,200,000 x 0.839619) = 1,007,543 is not equal to 1,000,000
We need a slightly lower amount of present value. Therefore, we need to
increase slightly the interest rate. Let’s try 7%.
Third trial: (at 7%)
Future cash flows x PV factor at x% = PV of note
1,200,000 X PV factor at 7%, n=3 = 1,000,000
(1,200,000 x 0.816298) = 979,558 is not equal to 1,000,000
In here, we need to perform interpolation. Looking at the values derived
above, we can reasonably expect that the effective interest rate is a rate between 6%
and 7%.
To perform the interpolation, we will use the following formula:
x% - 6%
7% - 6%
Where: x% again is the effective interest rate.
1,000,00 1,007,54
0 - 3 (7,543) 0.26
= =
1,007,54 (27,98 95
979,558 - 3 5)
The amount computed is added to 6% to derive the effective interest rate. The
effective interest rate is 6.2695% (6% + .2695%).
Date Interest income Unearned interest Present value
Jan. 1, 20x1 200,000 1,000,000
Dec. 31, 20x1 62,695 137,305 1,062,695
Dec. 31, 20x2 66,626 70,679 1,129,321
Dec. 31, 20x3 70,803 (124) 1,200,124
8. On January 1, 20x1, ABC Co. issued a 3-year, ₱1,000,000 noninterest-bearing note
payable to XYZ, Inc., a related party. The prevailing interest for similar type of
obligation is 12%.The proceeds received from the note is ₱1,000,000, equal to the
face amount. How much is the “Day 1” difference? Gain (Loss)
a. 288,220
b. (288,220)
c. 222,880
d. (222,880)
Future cash flow 1,000,000
Multiply by: PV of ₱1, @12%, n=3 0.71178
