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WorksheetsIA2 Review pre-MT
Total questions: 60
Worksheet time: 30mins
Which of the following is a current liability?
Preferred dividends in arrears
A dividend payable in the form of additional shares of stock
A cash dividend payable to preferred stockholders
All of these
Which of the following is not true about the discount on short-term notes payable?
The Discount on Notes Payable account has a debit balance.
The Discount on Notes Payable account should be reported as an asset on the balance sheet
When there is a discount on a note payable, the effective interest rate is higher than the stated discount rate.
Which of the following may be a current liability?
Withheld Income Taxes
Deposits Received from Customers
Deferred Revenue
All of these
Which of the following are not factors that are considered when evaluating whether or not to record a liability for pending litigation?
Time period in which the underlying cause of action occurred
The type of litigation involved.
The probability of an unfavorable outcome.
The ability to make a reasonable estimate of the amount of the loss.
An account which would be classified as a current liability is
dividends payable in the company's stock.
accounts payable—debit balances.
losses expected to be incurred within the next twelve months in excess of the company's insurance coverage.
none of these.
Legally enforceable as a consequence of binding contract or statutory requirement. (write answers in lower case)
(a)
Give rise to liability by reason of normal business practice, custom and a desire to maintain good business relations or act in equitable manner. (write answers in lower case)
(a)
The ____ _____that leads to a legal or constructive obligation is known as the obligating events. (write answers in lower case)
(a)
? – consist of cash or property received from customers but which are refundable after compliance with certain conditions. (write answers in lower case)
(a)
Large entities often compensate key officers and employees by way of ----- for superior income realized during the year. (write answers in lower case)
(a)
Reporting is required for
Loss contingencies that are probable and can be reliably measured
Gain contingencies that are probable and can be reliably measured
Loss contingencies that are possible and can be reliably measured
All gain and loss contingencies
Disclosure usually is not required for
Contingent gains that are probable and can be reasonably estimated
Contingent losses that are reasonably possible and cannot be reasonably estimated
Contingent losses that are probable and cannot be reasonably estimated
Contingent losses that are remote and can be reasonably estimated
How should a contingent liability be reported in the financial statements when it is reasonably possible that the entity will have to pay the liability at a future date?
As a deferred liability
As an accrued liability
As a disclosure only
As an account payable with an additional disclosure explaining the nature of the transaction
Which is not a characteristic of a liability?
It represents a probable future sacrifice of economic benefit
It must be payable in cash
It arises from present obligation to other entity
It results from past transaction or event
Which is the best definition of a current liability?
An obligation payable within one year
An obligation payable within one year after the end of reporting period
An obligation payable within the normal operating cycle
An obligation expected to be satisfied with current assets or by the creation of other current liabilities
The accounting concept that requires recognition of a liability for customer premium offer is
Periodicity
Conservatism
Historical cost
Matching principle
When cash is received from customers in the form of a refundable deposit, the cash account is increased with a corresponding increase in
A current liability
Revenue
Shareholders' equity
Contributed capital
An entity did not record an accrual for a present obligation but disclose the nature of the obligation and the range of the loss. How likely is the loss?
Remote
Reasonably possible
Probable
Certain
In calculating present value in a situation with a range of possible outcomes all discounted using the same interest rate, the expected present value would be
The most likely outcome
The maximum outcome
The minimum outcome
The sum of probability-weighted present values
Which of the following items is a long-term liability?
Accrued expenses payable.
Unearned revenue.
Mortgages payable.
Accounts payable.
Suppose a hotel has P40,000 of long-term debt at year end. Of this amount, P10,000 must be repaid within the next year. Which of the following statements is true?
The classified balance sheet would show P40,000 of long-term debt under the heading "Current liabilities."
The classified balance sheet would show P40,000 of long-term debt under the heading "Long-term liabilities".
The classified balance sheet would show P50,000 of long-term debt under the heading "Long-term liabilities."
The classified balance sheet would show P30,000 of long-term debt under the heading "Long-term liabilities."
On December 1, 2020 ABC Co. hired Juanita Perez to begin working on January 2, 2021 at a monthly salary of P4,000. ABC's balance sheet of December 31, 2020 will show a liability of
P4,000
P48,000
No Liability
The expected balance in the account Bonds Payable.
Debit
Credit
The interest charged on a P100,000 note payable, at the rate of 10%, on a 60-day note would be
P1,667
P10,000
P6,000
P16,667
True
True
Credit: Discount on Notes Payable
Credit: Interest Income
Credit: Interest Payable
Credit: Interest Income
Credit: Discount on Notes Payable
Credit: Interest Income
Credit: Interest Payable
Credit: Interest Income
It is a formal unconditional promise, made under seal, to pay specific sum of money at a determinable future date, and to m ake periodic interest payments at a stated rate until the principal sum is paid.
Derivatives
Hedge
Bond
Note
A type of bond with single date of maturity. (answer in singular form)
(a)
A bond with a series of maturity dates or bonds that mature by installments. (answer in singular form)
(a)
If the sales price of the bonds is more than the face value of the bonds, it will result to
(answer in singular form)
(a)
TRUE OR FALSE:
The discount on bonds payable is not treated as outright loss but amortized over the bonds by debiting interest expense and crediting discount on bonds payable. As a result, it increases the net book value of the bonds.
(a)
TRUE OR FALSE:
The valur of the bonds payable is equal to the present value of the future cash outflows to settle the bond liability.
(a)
Bond issue cost incurred to a bond who is designated at fair value through profit or loss shall be recognized as expense immediately. Hence, it shall not form part of the initial measurement of the bond payable.
(a)
Bond issue cost are transaction cost directly attributed to the issuance of the bond. Generally, this cost shall be added in the value of the bonds.
(a)
The fair value of the bonds is the same as the issue price or net proceeds from the issue of bonds, excluding accrued interest interest.
(a)
After initial recognition, the bonds are measured at amortized cost using the effective interest method, as required by accounting standard.
(a)
Under the effective interest method of amortization, the bond liability is measured measured initially minus principal repayment, plus or minus the cumulative amortization. Plus if what is being amortized is a discount, otherwise deducted if premium.
(a)
Orange Company reported the following long-term debt December 31, 2021:
9% registered debentures, callable in 2022 , due in 2023 - 3,500,000
11% collateral trust bonds, convertible into ordinary shares beginning in 2022, due in 2023 - 3,000,000
10% subordinated debentures (P500,000 maturing anaully beginning 2021) - 1,500,000
What is the total amount of term bonds?
(a)
On April 1, 2023, Greg Company issued at 99 plus accrued interest, 2,000 of 8% P1,000 face value bonds. The bonds are dates January 1, 2023, and pay interest January 1 and July 1. The entity paid bond issue cost of P70,000.
From the bond issuance, what is the net cash received?
(a)
On March 1, 2023, Main Company issued at 103 plus accrued interest 4,000 of 9%, P1,000 face value bonds. The bonds are dated January 1, 2023 and mature on January 1, 2033. Interest is payable seminannually on January 1 and July 1. The entity paid bond issue cost of P200,000.
What is the net cash received from the bond issuance?
(a)
During 2017, an entity introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to peso sales are 4% within 12 months following sale and 6% in the second 12 months following sale. The entity reported sales of P5,000,000 for 2017 and P6,000,000 for 2018. The actual expenditures incurred and paid amounted to P150,000 for 2017 and P350,000 for 2018.
What is the estimated warranty liability on December 31, 2018?
(a)
An entity, a grocery retailer, operates a customer loyalty program. The entity grants program members loyalty points when they spend a specified amount on groceries. Program members can redeem the points for further groceries. The points have no expiry date. During 2017, the sales amounted to P7,000,000 based on stand-alone selling price. During the year, the entity granted 10,000 points. But management expected that only 80% or 8,000 points will be redeemed. The stand-alone selling price of each loyalty point is estimated at P100.
On December 31, 2017, 4,800 points have been redeemed. In 2018, management revised its expectations and now expected that 90% or 9,000 points will be redeemed altogether. During 2018, the entity redeemed 2,400 points.
What amount should be reported as sales revenue including the revenue earned from points for 2017?
(a)
During 2017, an entity introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to peso sales are 4% within 12 months following sale and 6% in the second 12 months following sale. The entity reported sales of P5,000,000 for 2017 and P6,000,000 for 2018. The actual expenditures incurred and paid amounted to P150,000 for 2017 and P350,000 for 2018.
What is the warranty expense for 2018?
(a)
1. A short-term note payable may include all of the following, except
a. currently maturing long-term liability
b. nontrade notes payable
c. trade notes payable
d. unearned revenue
1. Cash price equivalent
a. is the face value of a non-interest bearing note payable
a. is the present value of cash flows using the stated rate of interest
a. is the amount that would have been paid in cash for a credit transaction
a. is the amount that would have been paid if the transaction was settled outright on cash basis
1. BVF Inc. issued 500,000, 10% bonds to yield 8%. Bond issuance costs were 10,000. How would the company calculate the net proceeds to be received from the issuance?
a. Discount the bonds at the stated rate of interest
a. Discount the bonds at the market rate of interest and deduct bond issuance costs.
a. Discount the bonds at the market rate of interest
a. Discount the bonds at the stated rate of interest and deduct bond issuance costs.
1. Unamortized debt premium should be reported on the balance sheet of the issuer as a
a. deferred credit.
a. direct addition to the face amount of the debt.
a. direct addition to the present value of the debt.
a. deduction from the issue costs.
1. The board of directors of ABC Inc. decided on December 15, 2020, to wind up international operations in the Americas and move them to the Pacific. The decision was based on a detailed formal plan of restructuring as required by PAS 37. This decision was conveyed to all workers and management personnel at the headquarters in US. The cost of restructuring the operations in the Americas as per this detailed plan was ₱2 million. How should ABC Inc. treat this restructuring in its financial statements for the year-end December 31, 2020?
a. Because ABC Inc. has not announced the restructuring to those affected by the decision and thus has not raised an expectation that ABC Inc. will actually carry out the restructuring (and as no constructive obligation has arisen), only disclose the restructuring decision and the cost of restructuring of ₱2 million in footnotes to the financial statements.
a. Recognize a provision for restructuring since the board of directors has approved it and it has been announced in the headquarters of ABC Inc. in Europe.
a. Mention the decision to restructure and the cost involved in the chairman’s statement in the annual report since it a decision of the board of directors.
a. Because the restructuring has not commenced before year-end, based on prudence, wait until next year and do nothing in this year’s financial statements.
1. Which of the following is not one of the essential characteristics for an item to be reported as a liability on the balance sheet?
a. it is a present obligation of a particular entity
a. it is payable to specifically identifiable payees
a. it involves a future sacrifice of economic benefits
a. it is reasonably measurable in terms of money
Which of the following instruments would not be classified as a financial liability?
a. A contract for the delivery of as many of the entity’s ordinary shares as are equal in value to ₱100,000 on a future date (i.e., the entity will issue a variable number of own shares in return for cash at a future date).
a. An issued perpetual debt instrument (i.e., a debt instrument for which interest will be paid for all eternity, but the principal will not be repaid).
a. A written call option that gives the holder the right to purchase a fixed number of the entity’s ordinary shares in return for a fixed price (i.e., the entity would issue a fixed number of own shares in return for cash, if the option is exercised by the holder, at a future date).
a. A preference share that will be redeemed by the issuer for cash on a future date (i.e., the entity has an outstanding share that it will repurchase at a future date).
1. Which of the following is the least relevant consideration when evaluating whether to derecognize a financial liability?
a. Whether the obligation has a potential to cause inflows of economic benefits to the issuer.
a. Whether the obligation has expired.
a. Whether the obligation has been canceled.
a. Whether the obligation has been discharged.
1. When bonds are redeemed by the issuer prior to their maturity date, any material gain or loss on the redemption, is
a. reported in the income statement as an extraordinary item in the period of redemption.
reported in the income statement as part of income from continuing operations in the period of redemption.
a. amortized over the period remaining to maturity and reported as part of income from continuing operations in the income statement.
a. amortized over the period remaining to maturity and reported as an extraordinary item in the income statement.
