On January 1, 2016, Thailand Company sold a building for P 5,000,000 to Bangkok

Company. Bangkok Company paid 500,000 down and signed a noninterest bearing note
payable for the balance which is payable in 3 equal annual instalments every December 31 of
each year. The carrying value of the building is P 4,200,000. Assume prevailing interest rate for
a note of this type is 12%. The PV of an ordinary annuity of 1 for 3 periods is 2.4108.

1. How much is the interest income for the year 2016?

A. 600,000
B. 492,324
C. 432,324
D. 540,000
2. How much is the carrying value of the notes on December 31, 2016?
A. 3,000,000
B. 3,602,700
C. 2,535,024
D. 4,035,024
3. Upon retirement of the bonds, any resulting gain on retirement of the bonds should be
reported in income statement when:
A. Retirement price is less than the carrying value of the bonds
B. Retirement price is greater than the carrying value of the bonds
C. Retirement price is equal to the carrying value of the bonds
D. None of the above
4. If a bond investment is purchased between interest payment dates, the buyer should
pay, in addition to the purchase price of the bonds, the amount accrued interest
computed
A. From the date of acquisition to the nearest interest payment date
B. From the last interest payment date to the date of acquisition
C. From the last interest payment date to the next interest payment date
D. None of the above
5. Which of the following is incorrect about bonds sold at a discount?
A. The carrying amount of the bonds increases each year.
B. The discount on bonds payable account decreases each year.
C. At maturity, the face value and carrying amount would be equal.
D. The balance of the bonds payable account increases each year.
6. How would the carrying value of the bonds be affected by the amortization of the
following?
DISCOUNT PREMIUM
A. No effect No effect
B. Increase Increase
C. Increase Decrease
D. Decrease Increase
7. Bonds with a par value of 5 million carrying a stated interest rate of 12% payable semi-
annually on March 1 and September 1 were issued on July 1. The total proceeds from
the issuance amounted to 5,200,000. The best explanation for the excess amount
received over the par is
A. The bonds were sold at a premium
B. The bonds were sold at a higher effective interest rate.
C. The bonds were issued at par value plus accrued interest.
D. No explanation is possible without knowing the maturity date of the bond
issue.

Noven Inc. places a coupon in each box of its product. Customers may send in ten
coupons and 3.00, and the company will send them a CD. Sufficient CDs were purchased at
5.40 apiece. During 2017, 1,260,000 boxes were sold. It was estimated that 5% of the coupons
will be redeemed. In 2017, 18,000 coupons were redeemed.
8. How much is the premium expense for the year 2017?
A. 63,000
B. 34,020
C. 15,120
D. 10,800
9. How much is the liability for outstanding premiums as of December 31, 2017?
A. 15,120
B. 10,800
C. 24,300
D. 43,200

10. On January 1, 2017, Sydney Inc. issued 5,000,000 face value, 5-year bonds at 109.
Each 1000 bond was issued with one detachable share warrant, each of which entitled
the bondholder to purchase 15 shares of P10 par ordinary shares at P20. At issuance
date, the market value of the bond ex-warrant sells at 99. The stated rate on the bonds
is 11% payable annually every January 1, starting January 1, 2018.
How much should be credited to share premium upon exercise at the warrants assuming
60% of the warrants were exercised?
A. 450,000
B. 750,000
C. 900,000
D. 1,200,000
11. Suppose you buy lunch for $8.39 that includes a 5% sales tax. How much did the
restaurant charge you for the lunch (excluding any tax) and how much do they owe for
sales tax?
A. $8.39 for lunch and $0.42 for sales tax.
B. $8.39 for lunch and no sales tax.
C. $8.81 for lunch and $0.42 for sales tax.
D. $7.99 for lunch and $0.40 for sales tax.
12. Unified Airlines is being sued by Northeast Airlines for $5,000,000. At the end of the
year, Unified feels it is probable that it will pay $5,000,000 at some point in the following
year. What should Unified and Northeast record at the end of the year concerning the
lawsuit?
A. Unified does not record any contingent loss; Northeast records $5,000,000
contingent gain.
B. Unified records $5,000,000 contingent loss; Northeast does not record any
contingent gain.
C. Unified records $5,000,000 contingent loss; Northeast records $5,000,000
contingent gain.
D. Neither company records a contingent loss or gain.

13. Edson Corp. signed a three-month, zero-interest-bearing note on November 1, 2007 for
the purchase of $150,000 of inventory. The face value of the note was $152,205.
Assuming Edson used a “Discount on Note Payable” account to initially record the note
and that the discount will be amortized equally over the 3-month period, the adjusting
entry made at December 31, 2007 will include a
A. debit to Discount on Note Payable for $735.
B. debit to Interest Expense for $1,470.
C. credit to Discount on Note Payable for $735.
D. credit to Interest Expense for $1,470.

14. On February 10, 2007, after issuance of its financial statements for 2006, Flynn
Company entered into a financing agreement with Lebo Bank, allowing Flynn Company
to borrow up to $4,000,000 at any time through 2009. Amounts borrowed under the
 agreement bear interest at 2% above the bank's prime interest rate and mature two
years from the date of loan. Flynn Company presently has $1,500,000 of notes payable
with First National Bank maturing March 15, 2007. The company intends to borrow
$2,500,000 under the agreement with Lebo and liquidate the notes payable to First
National. The agreement with Lebo also requires Flynn to maintain a working capital
level of $6,000,000 and prohibits the payment of dividends on common stock without
prior approval by Lebo Bank. From the above information only, the total short-term debt
of Flynn Company as of the December 31, 2007 balance sheet date is
A. $0.
B. $1,500,000.
C. $2,000,000.
D. $4,000,000.

15. Trent, Inc., is a retail store operating in a state with a 5% retail sales tax. The state law
provides that the retail sales tax collected during the month must be remitted to the state
during the following month. If the amount collected is remitted to the state on or before
the twentieth of the following month, the retailer may keep 3% of the sales tax collected.
On April 10, 2007, Trent remitted $81,480 tax to the state tax division for March 2007
retail sales. What was Trent 's March 2007 retail sales subject to sales tax?
A. $1,629,600.
B. $1,596,000.
C. $1,680,000.
D. $1,645,000.

16. Grogan Corporation has $1,800,000 of short-term debt it expects to retire with proceeds
from the sale of 60,000 shares of common stock. If the stock is sold for $20 per share
subsequent to the balance sheet date, but before the balance sheet is issued, what
amount of short-term debt could be excluded from current liabilities?
A. $1,200,000
B. $1,800,000
C. $600,000
D. $0

17. A company gives each of its 50 employees (assume they were all employed
continuously through 2007 and 2008) 12 days of vacation a year if they are employed at
the end of the year. The vacation accumulates and may be taken starting January 1 of
the next year. The employees work 8 hours per day. In 2007, they made $17.50 per
hour and in 2008 they made $20 per hour. During 2008, they took an average of 9 days
of vacation each. The company’s policy is to record the liability existing at the end of
each year at the wage rate for that year. What amount of vacation liability would be
reflected on the 2007 and 2008 balance sheets, respectively?
A. $84,000; $117,000
B. $96,000; $120,000
C. $84,000; $120,000
D. $96,000; $117,000

18. During 2006, Venable Co. introduced a new line of machines that carry a three-year
warranty against manufacturer’s defects. Based on industry experience, warranty costs
are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the
second year after sale. Sales and actual warranty expenditures for the first three-year
period were as follows:

Sales Actual Warranty Expenditures

2006 $ 400,000 $ 6,000
 2007 1,000,000 30,000
2008 1,400,000 90,000
$2,800,000 $126,000
What amount should Venable report as a liability at December 31, 2008?
A. $0
B. $10,000
C. $136,000
D. $210,000

19. Vernon Co. is being sued for illness caused to local residents as a result of negligence
on the company's part in permitting the local residents to be exposed to highly toxic
chemicals from its plant. Vernon's lawyer states that it is probable that Vernon will lose
the suit and be found liable for a judgment costing Vernon anywhere from $1,200,000 to
$6,000,000. However, the lawyer states that the most probable cost is $3,600,000. As a
result of the above facts, Vernon should accrue

A. A loss contingency of $1,200,000 and disclose an additional contingency of

up to $4,800,000.
B. A loss contingency of $3,600,000 and disclose an additional contingency of
up to $2,400,000.
C. A loss contingency of $3,600,000 but not disclose any additional contingency.
D. No loss contingency but disclose a contingency of $1,200,000 to $6,000,000
20. On September 1, 2006, Looper Co. issued a note payable to National Bank in the
amount of $1,200,000, bearing interest at 12%, and payable in three equal annual
principal payments of $400,000. On this date, the bank's prime rate was 11%. The first
payment for interest and principal was made on September 1, 2007. At December 31,
2007, Looper should record accrued interest payable of

A. $48,000.
B. $44,000.
C. $32,000.
D. $29,334.

21. Included in Sauder Corp.'s liability account balances at December 31, 2006, were the
following:

7% note payable issued October 1, 2006, maturing September 30, 2007 $250,000
8% note payable issued April 1, 2006, payable in six equal annual
installments of $150,000 beginning April 1, 2007 600,000
Sauder 's December 31, 2006 financial statements were issued on March 31, 2007. On
January 15, 2007, the entire $600,000 balance of the 8% note was refinanced by
issuance of a long-term obligation payable in a lump sum. In addition, on March 10,
2007, Sauder consummated a noncancelable agreement with the lender to refinance the
7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet
been implemented. On the December 31, 2006 balance sheet, the amount of the notes
payable that Sauder should classify as short-term obligations is
A. $175,000.
B. $125,000.
C. $50,000.
D. $0.

22. Farmer Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2012 at 97 plus
accrued interest. The bonds are dated January 1, 2012, and pay interest on June 30 and
December 31. What is the total cash received on the issue date?
A. $19,400,000
B. $20,450,000
 C. $19,700,000
D. $19,100,000
23. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
$14,703,109. Using effective-interest amortization, what will the carrying value of the
bonds be on the December 31, 2012 balance sheet?

A. $14,709,482
B. $15,000,000
C. $14,718,844
D. $14,706,232

24. A company issues $15,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
$14,703,109. Using straight-line amortization, what is the carrying value of the bonds on
December 31, 2013?

A. $14,752,673
B. $14,955,466
C. $14,725,375
D. $14,747,642

25. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2012.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
$9,802,072. Using effective-interest amortization, how much interest expense will be
recognized in 2012?

A. $390,000
B. $780,000
C. $784,248
D. $784,166

26. A company issues $10,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2011.
Interest is paid on June 30 and December 31. The proceeds from the bonds are
$9,802,072. Using straight-line amortization, what is the carrying value of the bonds on
December 31, 2013?

A. $9,835,116
B. $9,970,312
C. $9,816,916
D. $9,831,762

27. On January 1, 2012, Huber Co. sold 12% bonds with a face value of $800,000. The
bonds mature in five years, and interest is paid semiannually on June 30 and December
31. The bonds were sold for $861,600 to yield 10%. Using the effective-interest method
of amortization, interest expense for 2012 is
A. $80,000.
B. $85,914.
C. $86,160.
D. $96,000.

The following information applies to both questions 28 and 29.

On October 1, 2012 Macklin Corporation issued 5%, 10-year bonds with a face value of
$2,000,000 at 104. Interest is paid on October 1 and April 1, with any premiums or discounts
amortized on a straight-line basis.

28. The entry to record the issuance of the bonds would include a credit of
A. $50,000 to Interest Payable.
B. $80,000 to Discount on Bonds Payable.
C. $1,920,000 to Bonds Payable.
 D. $80,000 to Premium on Bonds Payable.

29. Bond interest expense reported on the December 31, 2012 income statement of Macklin
Corporation would be
A. $23,000
B. $25,000
C. $27,000
D. $46,000

30. Kant Corporation retires its $500,000 face value bonds at 102 on January 1, following
the payment of interest. The carrying value of the bonds at the redemption date is
$481,250. The entry to record the redemption will include a
A. credit of $18,750 to Loss on Bond Redemption.
B. credit of $18,750 to Discount on Bonds Payable.
C. debit of $28,750 to Gain on Bond Redemption.
D. debit of $10,000 to Premium on Bonds Payable.

31. At December 31, 2012 the following balances existed on the books of Foxworth
Corporation:
Bonds Payable $3,000,000
Discount on Bonds Payable 240,000
Interest Payable 75,000
Unamortized Bond Issue Costs 180,000

If the bonds are retired on January 1, 2013, at 102, what will Foxworth report as
a loss on redemption?

A. $555,000
B. $480,000
C. $405,000
D. $300,000

32. The December 31, 2012, balance sheet of Hess Corporation includes the following
items:
9% bonds payable due December 31, 2021 $2,000,000
Unamortized premium on bonds payable 54,000

The bonds were issued on December 31, 2011, at 103, with interest payable on
July 1 and December 31 of each year. Hess uses straight-line amortization. On March 1,
2013, Hess retired $800,000 of these bonds at 98 plus accrued interest. What should
Hess record as a gain on retirement of these bonds? Ignore taxes.
A. $37,600.
B. $21,600.
C. $37,200.
D. $40,000

33. On July 1, 2012, Spear Co. issued 3,000 of its 10%, $1,000 bonds at 99 plus accrued
interest. The bonds are dated April 1, 2012 and mature on April 1, 2022. Interest is
payable semiannually on April 1 and October 1. What amount did Spear receive from the
bond issuance?

A. $3,045,000
B. $3,000,000
C. $2,970,000
D. $2,895,000

34. On January 1, 2012, Solis Co. issued its 10% bonds in the face amount of $4,000,000,
which mature on January 1, 2022. The bonds were issued for $4,540,000 to yield 8%,
resulting in bond premium of $540,000. Solis uses the effective-interest method of
amortizing bond premium. Interest is payable annually on December 31. At December
31, 2012, Solis's adjusted unamortized bond premium should be
 A. $540,000.
B. $503,200.
C. $486,000.
D. $406,000.

35. On January 1, 2008, Goll Corp. issued 4,000 of its 10%, $1,000 bonds for $4,160,000.
These bonds were to mature on January 1, 2016 but were callable at 101 any time after
December 31, 2011. Interest was payable semiannually on July 1 and January 1. On
July 1, 2013, Goll called all of the bonds and retired them. Bond premium was amortized
on a straight-line basis. Before income taxes, Goll's gain or loss in 2013 on this early
extinguishment of debt was
A. $120,000 gain.
B. $48,000 gain.
C. $40,000 loss.
D. $32,000 gain.

36. Which ONE of the following statements best describes the term 'liability'?
A. An excess of equity over current assets
B. Resources to meet financial commitments as they fall due
C. The residual interest in the assets of the entity after deducting all its liabilities
D. A present obligation of the entity arising from past events

37. The Oakes Company has a loan due for repayment in six months' time, but Oakes has
the option to refinance for repayment two years later. Oakes plans to refinance this loan.
In which section of its statement of financial position should this loan be presented,
according to IAS1 Presentation of financial statements? (Select one answer.)
A. Current liabilities
B. Current assets
C. Non-current liabilities
D. Non-current assets

38. The Dipper Company operates chemical plants. Its published policies include a
commitment to making good any damage caused to the environment by its operations. It
has always honored this commitment. Which ONE of the following scenarios relating to
Dipper would give rise to an environmental provision as defined by IAS37 Provisions,
contingent liabilities and contingent assets?

A. On past experience it is likely that a chemical spill which would result in

Dipper having to pay fines and penalties will occur in the next year
B. Recent research suggests there is a possibility that the company's actions
may damage surrounding wildlife
C. The government has outlined plans for a new law requiring all environmental
damage to be rectified
D. A chemical spill from one of the company's plants has caused harm to the
surrounding area and wildlife

39. The Rattigan Company purchases PHP20,000 of bonds. The asset has been designated
as one at fair value through profit and loss. One year later, 10% of the bonds are sold for
PHP4,000. Total cumulative gains previously recognized in Rattigan's financial
statements in respect of the asset are PHP1,000. In accordance with IAS39 Financial
instruments: recognition and measurement, what is the amount of the gain on disposal
to be recognized in profit or loss?
A. PHP1,900
B. PHP900
C. PHP2,000
D. PHP1,000