Intermediate Accounting 2 - SemiFinal

What is the definition of a promissory note/note payable?

• An unconditional promise in writing made by one person, signed by the creator, engaging to pay on demand, or at a fixed or determinable future time, a sum certain in money to order or to bearer.

• A situation whereby the creditor for economic or legal reasons related to the debtor's financial difficulties grants a concession to the debtor that it would not otherwise consider.

• The issuance or granting of an equity interest to the creditor by the debtor to satisfy fully or partially a debt unless the equity interest is granted pursuant to existing terms for converting the debt into an equity interest.

• None of the above.

How should a note payable designated at fair value through profit or loss be measured?

• Face amount

• Fair value plus transaction cost

• Fair value

• Fair value minus transaction cost

What is the measurement of the equity instrument issued to extinguish a financial liability in an equity swap debt restructure?

• Par value of the equity instrument issued

• Fair value of the financial liability extinguished

• Fair value of the equity instrument issued

• Carrying amount of the financial liability extinguished

When is there a substantial modification of terms of an existing financial liability?

• More than 10% of the present value of the new liability

• At least 10% of the present value of the new liability

• More than 10% of the carrying amount of the old liability

• At least 10% of the carrying amount of the old liability

On March 1 (Year 1), ABC Company issued a P90,000, 8% interest-bearing note payable from a financial institution. Interest and principal are payable after 1 year. How much is the interest expense for Year 1?

• 7,200

• 5,400

• 6,000

• 7,000

Layla Company issued a 3-year, P 150,000 face value non interest-bearing note payable in exchange for a new machinery on January 1 (Year 1). The note is payable in 3 equal annual installments every January 1, starting year 1. No cash price of the machinery is available. The prevailing rate for similar note is 12%. PV of 1 at 12% for 3 periods is 0.7118. PV of an ordinary annuity of 1 at 12% periods us 2.4018. PV of an annuity due at 12% for 3 period us 2.6900. How much is the interest expense for Year 1?

• 8,410

• 10,140

• 16,140

• 14410

Miya Company issued a 3-year, P 150,000 face value non interest-bearing note payable in exchange for a new machinery on January 1 (Year 1). The note is payable in 3 equal annual installments every January 1, starting year 1. No cash price of the machinery is available. The prevailing rate for similar note is 12%. PV of 1 at 12% for 3 periods is 0.7118. PV of an ordinary annuity of 1 at 12% periods us 2.4018. PV of an annuity due at 12% for 3 period us 2.6900. How much is PV of the note payable at the end of Year 2

• 44,640

• 28,500

• 84,500

• 41,590

What specific standard that provides the election for low value lease is made on a lease by lease basis?

On December 31, Year 1, Zilong Company had an overdue 10% note payable to Aldous Bank worth 8 million and an accrued interest of P 800,000. On that date, Aldous Bank offered modification of terms of the liability as follows:

1. > Principal is reduced by P 2 million and accrued interest is condoned

2. > Maturity is extended to December 31, Year 5

3. > The new interest rate of 12% is payable every December 31

4. > PV of 1 at 10% for 4 periods is 0.683 and PV of 1 at 12% for 4 periods is 0.636

5. > PV of an ordinary annuity of 1 at 10% for 4 period is 3.17 and PV of an ordinary annuity of 1 at 12% for 4 period is 3.037

6. What amount of gain(loss) on extinguishment of debt shall be recognized for Year 1.

• 2,797,360 loss

• 2,797,360 gain

• 2,419,600 loss

• 2,419,600 gain

On December 31, Year 1, Zilong Company had an overdue 10% note payable to Aldous Bank worth 8 million and an accrued interest of P 800,000. On that date, Aldous Bank offered modification of terms of the liability as follows:

1. > Principal is reduced by P 2 million and accrued interest is condoned

2. > Maturity is extended to December 31, Year 5

3. > The new interest rate of 12% is payable every December 31

4. > PV of 1 at 10% for 4 periods is 0.683 and PV of 1 at 12% for 4 periods is 0.636

5. > PV of an ordinary annuity of 1 at 10% for 4 period is 3.17 and PV of an ordinary annuity of 1 at 12% for 4 period is 3.037

6. How much is the PV of the new note payable at Year 1?

• 6,380,400

• 6,002,640

• 4,098,000

• 3,816,000