BAIACC2X– INTERMEDIATE ACCOUNTING 2

MIDTERM EXAMINATION
1st term, A.Y. 2024-2025

Name: ________________________________________ Section: _______________ SET A

INSTRUCTIONS
Choose the best answer from the choices. Shade the letter of your answers and test set on the answer sheet provided.
Cheating, in any form possible, will result to a nil score

1. Short-term obligations are reported as noncurrent if

a. The entity has a long-term line of credit.
b. The entity has tentative plan to issue long-term bonds payable.
c. The entity has the right at the end of reporting period to defer settlement of liability for at
least twelve months after the end of reporting period.
d. The entity has the ability to refinance on a long-term basis.

2. Among the short-term obligations at year-end are 90-day notes, renewable for another 90-day period. What is the
classification of the notes payable?
a. Current Liabilities c. Noncurrent Liabilities
b. Deferred credits d. Intermediate debt

3. The cost of customer premium offer should be charged to expense

a. When the related product is sold. c. Over the life cycle of the product.
b. When the premium offer expires. d. When the premium is claimed.

4. Which of the following best describes the accrual approach of accounting for warranty cost?
a. Expensed when paid c. Expensed based on estimate in year of sale
b. Expensed when warranty claims are certain d. Expensed when incurred

5. Disclosure usually is not required for

a. Contingent asset that is probable and measurable
b. Contingent liability that is possible and measurable
c. Contingent liability that is probable and cannot be reliable measured
d. Contingent liability that is loss and measurable

6. Bonds payable not designated at fair value through profit or loss shall be measures initially at
a. Fair value c. Fair value minus bond issue cost
b. Fair value plus bond issue cost d. Face amount

7. When bonds are sold at a premium, at each interest payment date, the interest expense
a. Remains constant c. Increases
b. Is equal to change in carrying amount d. Decreases

8. When the cash proceeds from bonds issued with share warrants exceed the fair value of the bonds without the warrants,
the excess should be credited to
a. Share premium – ordinary c. Liability account
b. Retained earnings d. Share premium – share warrants

9. What is the accounting for issued convertible bond?

a. The instrument is recorded solely as bond.
b. The instrument is recorded as either bond or equity.
c. The instrument is recorded solely as equity.
d. The instrument is recorded as part bond and part equity.

10. The difference between the carrying amount of liability extinguished and the fair value of the equity instruments issued shall
be recognized in
a. Profit or loss c. Retained earnings
b. Othe comprehensive income d. Share premium

11. In an asset, the gain on extinguishment is

a. Excess of fair value of asset over carrying amount
b. Excess of carrying amount of the debt over the fair value of the asset
c. Excess of fair value of asset over the carrying amount of the debt
d. Excess of carrying amount of the debt over the carrying amount of the asset

12. What is the meaning of net assets of a corporation?

a. Contributed capital c. Shareholders’ equity
b. Retained earnings d. Legal capital

13. The share capital account is measured as

a. The shares outstanding multiplied by par value c. The shares issued multiplied by par value
b. The shares outstanding multiplied by market value d. The shares issued multiplied by book value
14. Contributed capital does not include
a. Share premium on ordinary and preference shares c. Share premium from reissuance of treasury shares
b. Preference share capital d. Retained earnings

15. The total cost of treasury shares shall be reported as

a. Deduction from shareholders’ equity c. Deduction from retained earnings
b. Financial asset d. Deduction from share premium

16. Share Split is issued primarily to

a. Increase the number of outstanding shares c. Increase legal capital
b. Increase the number of authorized shares d. Induce a decline in market value per share

17. Total shareholders’ equity represents

a. A claim against specific assets. c. A claim against the total assets of an entity.
b. The maximum amount that can be borrowed. d. Only the amount of retained earnings.

18. When a property dividend is declared, the dividend payable is measure based on fair value of property on
a. Record date
b. Distribution date
c. Declaration date, reporting date and distribution date
d. Reporting date

19. Cash dividends are paid based on the number of shares

a. Authorized c. Outstanding
b. Issued d. Outstanding less the number of treasury shares

20. Total shareholders’ equity is not affected by the

a. Issuance of a share dividend c. Sale of treasury shares at more than cost
b. Conversion of bonds payable into share capital d. Declaration of cash dividend

21. On January 1, 2023, BROOKLYN Company issued a ten-year, 2% interest-bearing note with face amount of P8,000,000.
Market rates as of that date averaged 10%. The interest is payable every December 31 of each year. Round off PV factor
using 6 decimal places. How much is the total interest payable for the year 2024?
a. P800,000 c. P406,748
b. P160,000 d. P431,422

22. For Nos. 22 and 23: As of the end of 2023, SANTORINI Company reported an inventory balance of P2,000,000 based on
physical count and an unadjusted balance in accounts payable amounting to P1,800,000. The Company’s cut-off
procedures generated the following information on some of the purchase invoices:
• Goods shipped FOB shipping point on December 29, 2023 were actually received on January 5, 2024. The related
invoice amounting to P190,000 was received and recorded only on January 7, 2024.
• Goods shipped FOB destination on December 28, 2023 were actually received on January 4, 2024. The related invoice
amounting to P120,000 was received and recorded on December 30, 2023.
• Goods shipped FOB shipping point on December 26, 2023 were actually received on January 2, 2024. The related
invoice amounting to P240,000 was received and recorded on December 29, 2023.

The adjusted accounts payable balance as of December 31, 2023 shall be

a. P1,870,000 c. P2,060,000
b. P1,930,000 d. P2,320,000

23. The adjusted inventory balance as of December 31, 2023 shall be

a. P2,190,000 c. P2,440,000
b. P2,430,000 d. P2,550,000

24. On July 1, 2023, HILO Company issued a noninterest-bearing promissory note with face amount of P7,000,000. Maturity
date of the note is set on June 30, 2027. In addition, the principal amounts are payable in equal annual installments every
June 30 of each year, starting on June 30, 2024. Market rates on July 1, 2023 averaged 10%. Round off PV factor using 6
decimal places. How much is the carrying amount of the note payable as of December 31, 2023?
a. P5,547,264 c. P4,351,990
b. P5,824,627 d. P4,569,590

25. In November 2023, VEGETABLE Company became involved in a litigation in which it was reasonably assessed that there
is 30% chance that it will lose the case. In case the Company has lost the case, there is a 60% chance that it will be required
to pay P4,000,000 damages and 40% chance that it will be required to pay P5,500,000 damages. It was also estimated that
the courts will have their final decision in few months. From the given information, the amount of provision that the
Company shall recognize as of December 31, 2023 shall be
a. P1,380,000 c. P4,600,000
b. P4,000,000 d. P0
26. For Nos. 26 and 27: On January 1, 2023, CENTAURUS Company reported a beginning estimated warranty liability balance
of P900,000. As to estimated warranty costs, the Company estimates that 3.50% of the warranty costs will be incurred within
one year from the date of sale, while 2.50% of the warranty costs will be incurred beyond one year from the date of sale.
Actual warranty costs for 2023 and 2024 amounted to P1,950,000 and P1,520,000, respectively. Total sales revenue for
2023 and 2024 amounted to P30,000,000 and P28,000,000, respectively. Estimated warranty liability as of December
31, 2023 shall be
a. P610,000 c. P720,000
b. P750,000 d. P840,000

27. Estimated warranty liability as of December 31, 2024 shall be

a. P690,000 c. P860,000
b. P780,000 d. P910,000

28. Estrella Company offered 500,000 boxes of pancake mix in 2020 as part of a new sales promotion program. Each box
provides one voucher that, when accompanied by P16, entitles the customer to a banking plan. Estrella is charged P20
each pan, plus P2 for handling and shipping. Estrella expects that 80 percent of the coupons will be redeemed, even though
only 300,000 coupons were processed in 2020. What amount should Estrella report as a liability for unredeemed
coupons on December 31, 2020?
a. P3000,000 c. P600,000
b. P400,000 d. P1,000,000

29. NIGHTINGALE Company issued 2,000 of its P3,000 face amount bonds when market rates averaged 10% on January 1,
2023. The bonds bear interest of 8%, payable every December 31 of each year until December 31, 2029, its maturity date.
Round off PV factor using 6 decimal places. How much is the interest expense for the year 2025?
a. P480,000 c. P547,737
b. P541,579 d. P554,511

30. At the beginning of the year 2023, VULTURE Company issued bonds with total face amount of P9,000,000 when market
rates averaged 8%. The bonds are payable in six equal annual installments starting on December 31, 2023. In addition,
interest of 6% is payable on the same dates as the principal installment payments. Round off PV factor using 6 decimal
places. How much is the carrying amount of the bonds as of December 31, 2026?
a. P5,742,047 c. P1,472,222
b. P4,341,411 d. P2,918,724

31. On January 1, 2023, FROGMOUTH Company issued a six-year, 9% interest-bearing bond payable with total face amount
of P8,000,000 when market rates averaged 7%. Interest is payable every December 31 of each year. How much is the
interest expense for the year 2023?
a. P720,000 c. P605,922
b. P613,385 d. P602,397

32. On January 1, 2023, SPARROW Company issued 4,000 of its P1,000 face amount bonds at an issue price of P3,900,000.
Interest of 9% is payable every December 31 of each year until December 31, 2029, the bonds’ maturity date. In addition,
each bond gives share warrants to the holder to acquire 100 of the Company’s P40 par value shares at P50 exercise price.
In the absence of the attached share warrants, the bonds will be issued at market yield of 11%. Round off PV factor using
6 decimal places. Initial measurement of the share premium - warrants on January 1, 2023 shall be
a. P243,839 c. P268,932
b. P254,892 d. P276,976

33. For Nos. 33 and 34: At the beginning of the year 2023, ROBIN Company issued 3,000 of its P3,000 par value convertible
bonds with maturity date of December 31, 2027 at an issue price of P9,730,000. Interest of 10% is payable every December
31 of each year. Each bond is convertible to 160 of the Company's P15 par value shares. Without the conversion option,
the bond could have been issued at 9% market yield. The initial measurement of the share premium – bond conversion
privilege on January 1, 2023 shall be
a. P386,821 c. P379,931
b. P393,804 d. P339,843 .

34. Assuming that on December 31, 2024, all of the bonds were converted, the amount of share premium - issuance shall be
a. P2,421,616 c. P2,407,743
b. P2,414,633 d. P2,027,812

35. For Nos. 35 and 37: On December 31, 2023, SAMMY Company reported the following account balances;
Investment in ordinary shares of other entity, fair value P1,500,000
Investment in the Company’s ordinary shares, cost 900,000
Ordinary share capital, no par value but with stated value of P20 3,000,000
Share premium - ordinary 500,000
Preference share capital, P100 par value 2,000,000
Share premium - preference 600,000
Redeemable preference shares 1,000,000
Premium on bonds payable 700,000
Retained earnings 5,000,000
Cumulative remeasurement losses from pension plans 850,000
Cumulative unrealized gains from FVTOCI investment 450,000
Revaluation surplus 1,600,000

From the given information, the total amount of shareholders’ equity shall be
 a. P10,300,000 c. P11,400,000
b. P10,900,000 d. P13,900,000

36. The net amount of contributed capital shall be

a. P4,700,000 c. P5,900,000
b. P5,200,000 d. P6,800,000

37. The net amount of legal capital shall be

a. P3,500,000 c. P5,500,000
b. P5,000,000 d. P6,100,000

38. For Nos. 38 and 39: On December 31, 2023, HINKLE Company declared a total cash dividend of P4,000,000 to its ordinary
and preference shareholders. As of the same date, the Company had the following shareholders’ equity:

Ordinary share capital. P20 par value P14,600,000

9% Preference shares, P100 par value 6,000,000
Share premium 4,200,000
Retained earnings 9,000,000
Treasury shares - ordinary (P28 cost per share) 840,000

The last time that the Company has ever paid dividends was in 2020.

Assumption 1: The preference shares are noncumulative and nonparticipating. The cash dividends to be received by
preference shareholders shall be
a. P270,000 c. P540,000
b. P480,000 d. P1,620,000

39. Assumption 2: The preference shares are cumulative and participating. The cash dividends to be received by ordinary
shareholders shall be
a. P2,044,000 c. P2,380,000
b. P2,120,000 d. P2,580,000

40. Ray Company declared a 5% share dividend on 100,000 issued and outstanding shares of P20 par value which had a fair
value of P50 per share before the share dividend was declared. This share dividend was distributed 60days after the
declaration date. What amount should be reported as increase in current liabilities as a result of the share dividend
declaration?
a. P250,000 c. P150,000
b. P100,000 d. P0

41. Elvin received 6,000 shares of Ponce Company’s P100 par ordinary share in exchange for 1,000 hours of legal services.
Elvin charges P500 per hour for legal services. On the day of issuance, the share was selling for P150 per share in public
market. At what amount should the share premium account of Ponce Company increase as a result of the issuance
of those shares?
a. P300,000 c. P950,000
b. P600,000 d. P3,000,000

42. Seokjin traded 20,000 shares of its P200 par value equity shares for land on July 1, 2020. An independent appraiser valued
the land at P5,000,000 a few months ago. Seokjin shares are now trading at P300 on the stock exchange. The earnings
per share are P40. How much should be debited to the land account?
a. P4,000,000 c. P6,000,000
b. P5,000,000 d. P7,000,000

43. For Nos. 43 and 44:

The Warren Corporation showed the following balances related to an issuance of ordinary share capital:
Ordinary share capital, P50 par, 200,000 shares P10,000,000
Ordinary share premium 4,000,000
The company retired 2,000 shares of ordinary share capital.

If the retirement price is P80, how much shall be debited to retained earnings?
a. P0 c. P60,000
b. P20,000 d. P120,000

44. If the retirement price is P65, how much is the share premium arising from retirement of share capital?
a. P0 c. P20,000
b. P10,000 d. P60,000

45. Ace Company entered into a troubled debt restructuring agreement with National Bank. The bank agreed to accept land
with carrying amount of P800,000 and a fair value of P1,000,000 in exchange for a note payable with a carrying amount of
P1,500,000. Under IFRS, what amount should be reported as a gain on extinguishment of debt?
a. P700,000 c. P500,000
b. P300,000 d. P0
46. Seal Company is experiencing financial difficulty and is negotiating debt restructuring with its creditor to relieve its financial
stress. Seal Company had a P2,500,000 note payable to United Bank. The bank accepted an equity interest in Seal
Company in the form of 200,000 ordinary shares quoted at P12 per share. The par value is P10 per share. The fair value
of the note payable on the date of restructuring is P2,300,000. If the shares have no fair value, what amount should be
recognized as gain on extinguishment?
a. P200,000 c. P400,000
b. P300,000 d. P500,000

47. Due to extreme financial difficulties, Amada Company had negotiated a restructuring of a 10% P5,000,000 note payable
due on December 31, 2023. The unpaid interest on the note on such date is P500,000. The creditor had agreed to reduce
the face value to P4,500,000, forgive the unpaid interest, reduce the interest rate to 8% and extend the due date three years
from December 31, 2023. The PV of 1 at 10% for three periods is 0.75 and the PV of an ordinary annuity of 1 at 10% for
periods is 2.49. The market rate of interest is 12%. The PV of 1 at 12% for three periods is 0.71 and the PV of an ordinary
annuity of 1 for three periods is 2.40. Using the Traditional approach, what amount should be reported as gain on
extinguishment of debt in 2023?
a. P1,228,600 c. P1,441,000
b. P1,028,600 d. P1,241,000

48. Teluk Company has an agreement to pay its sales manager a bonus of 5% of the income after bonus and after tax. The
income for the current year before bonus and tax is P5,250,000. The income tax rate is 30% of income after bonus. What
amount should be reported as bonus of the sales manager for the current year?
a. P265,500 c. P177,536
b. P280,000 d. P186,548

49. BMI Corporation’s liability account balances on June 30, 2020, included a 10% note payable in the amount of 1,800,000.
The note is dated October 1, 2019 and is payable in 3 equal annual payments of 600,000 plus interest. In BMI’s June 30,
2020 statement of financial position, what amount should be reported as accrued interest payable for this note?
a. P30,000 c. P90,000
b. P45,000 d. P135,000

50. At the beginning of current year, Moses Company issued P5,000,000 face amount, 5-year bonds at 109. Each P1,000
bond was issued with 10 detachable share warrants, each of which entitled the bondholder to purchase one ordinary share
of P100 par value at P120. Immediately after issuance, the market value of each warrant was P5. The stated interest rate
on the bonds is 11% payable annually every December 31. However, the prevailing market rate of interest for similar bonds
without warrants is 12%. The present value of 1 at 12% for 5 periods is 0.57 and the present value of an ordinary annuity
of 1 at 12% for 5 periods is 3.60. What amount should be reported as equity component arising from the issuance of
bonds payable?
a. P450,000
b. P500,000
c. P620,000
d. P0
 6

ANSWER KEY:

1. C 26. B
2. A 27. D
3. A 28. C
4. A 29. D
5. C 30. D
6. D 31. B
7. C 32. D
8. D 33. C
9. D 34. D
10. A 35. C
11. D 36. B
12. C 37. C
13. C 38. C
14. D 39. A
15. A 40. D
16. D 41. A
17. C 42. C
18. C 43. B
19. C 44. B
20. A 45. A
21. B 46. A
22. A 47. A
23. A 48. C
24. B 49. D
25. D 50. C

Prepared by: Reviewed by: Approved by:

Name Michael D. Gatchalian, CPA, MBA Araceli J. Angeles, CPA, MBA Lester P. Acoba, CTT, CPA, MSA
Faculty Member General Assessment Coordinator Program Chair – BSMA & BSAIS Program Chair - BSA
Department of Accountancy Department of Accountancy Department of Accountancy Department of Accountancy