2ND QUIZ

On September 1, 2023, when the carrying amount of the net assets of a business segment was P35,000,000, Max Company signed a legally binding contract to sell the business segment. The sale is expected to be completed by January 15, 2024 at a sale price of P30,000,000. In addition, prior to January 15, 2024, the sale contract obliged Max Company to terminate employment of certain employees of the business segment incurring an expected termination cost of P2,500,000 to be paid on June 15, 2024. The segment revenue and expenses were P20,000,000 and P22,500,000 respectively. The income tax rate is 25%. What amount should be reported as loss from discontinued operation for 2023?

• 5,250,000

• 5,000,000

• 10,000,000

• 7,500,000

Hero Company revealed that the total external revenue of its reportable segments should be at least P6,000,000. Also, the entity reported that its intersegment sales amounted to P3,500,000.

Statement 1: The segment revenue is P9,500,000.

Statement 2: To be a major customer, the revenue of such customer should be at least P600,000.

Statement 3: To be a reportable segment, the segment revenue should be at least P1,150,000.

Statement 4: The identity of a major customer is required to be disclosed.

Which of the following is / are true?

• All statements are true.

• Statement 3 is true.

• Statements 1 and 2 are true.

• Statements 3 and 4 are true.

Mado Company owned 30,000 ordinary shares of Antique Company acquired on June 30 at a total cost of P1,100,000. On November 1, Mado received 30,000 share rights from Antique. Each right entitled the holder to acquire one share at P45. The market price of Antique’s share was P50 and the market price of the share right was P10, both on November 1. On December 31, Mado exercised all of the rights. Which of the following statements is / are true?

Statement 1: If the share rights are accounted for separately, the cost of the new investment is P1,650,000.

Statement 2: If the share rights are not accounted for separately, the cost of the new investment is P1,350,000.

Statement 3: If the share rights are accounted for separately, the share rights are classified as a financial asset.

• Statements 1 and 3 are true.

• Statements 2 and 3 are true.

• Statements 1 and 2 are true.

• All statements are true.

The sum of the reportable segment’s external revenue must be a least equal to what percent of total operating segment’s external revenue?

• 100%

• 75%

• 50%

• 65%

How should an entity calculate the net proceeds to be received from the bond issuance?

• Discount the bonds at the market rate of interest

• Discount the bonds at the market rate of interest and deduct bond issue cost

• Discount the bonds at the stated rate of interest

• Discount the bonds at the stated rate of interest and deduct bond issue cost

Debt issue cost

• Is included in the measurement of debt measured at fair value through profit or loss

• Will effectively decrease the market rate of interest

• Will effectively increase the market rate of interest

• Is amortized using the straight line method over the life of the bonds

On January 1, 2023, an entity issued 9% bonds in face amount of P8,000,000 which mature on January 1, 2033. The bonds were issued for P7,512,000. The entity used the interest method of amortization and interest is payable every December 31. On December 31, 2023, the carrying amount of the bonds was recorded at P7,543,200. Which of the following statements is / are true? Statement 1: Financial liabilities shall be measured at amortized cost, unless the fair value option is elected. Statement 2: The effective interest rate is 12%. Statement 3: Interest expense for 2023 is P688,800.

• Statement 1 is true.

• Statements 1 and 3 are true.

• Statement 3 is true.

• Statements 2 is true.

An entity is indebted to a bank under a P2,500,000, 12% three-year note dated December 31, 2022. Because of the entity’s financial difficulties developing in 2024, the entity owed accrued interest of P300,000 on the note on December 31, 2024. Under a debt restructuring on December 31, 2024, the entity agreed to settle the note and accrued interest for a tract of land having a fair value of P2,250,000. The carrying amount of the land is P1,800,000. What amount should be recognized as gain on extinguishment of debt?

• 1,000,000

• 700,000

• 550,000

• 450,000

An entity operates a customer loyalty program. The entity grants program members loyalty points when they spend a specified amount of purchase. Program members can redeem points for further purchases and the points have no expiry date. During 2023, the customer earned 80,000 points and management expects that 75% of these points will be redeemed. The stand-alone price per point is P31.25. Sales during 2023 amounted to P10,000,000 based on stand-alone selling price. On December 31, 2023, 24,000 points have been redeemed. In 2024, management revised expectations and now expected 85% of the points to be redeemed. In 2024, 13,400 have been redeemed. What amount of revenue from the points should be recognized in 2024?

• 1,100,000

• 418,750

• 300,000

• 2,000,000

In 2023, an entity began selling new products that carry a three-year warranty against defects. Based upon past experience with other products, the entity estimated that warranty costs as a percentage of peso sales are as follows: first year of warranty – 2%; second year of warranty – 5%; third year of warranty – 8%. Sales for 2023 and 2024 were P6,000,000 and P8,000,000 respectively. Actual warranty costs for 2023 and 2024 were P200,000 and P400,000 respectively. Sales and repairs occurred evenly throughout the period. What amount should be reported as adjusted warranty liability on December 31, 2024?

• 1,500,000

• 1,710,000

• 1,675,000

• 1,635,000