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Financial Accounting part 2 Self-assessment Answerable within 1 hr Sad Company accepted a 200,000. 90-day, 12% interest bearing note dated November 15, 2021 from a customer. On December 16, 2021, Sad discounted the note at Finance Company at 15% discount rate. Sad Company informed the maker of the n...

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F i n a n c i a l Ac c ou n t i n gpa r t2 Se l f a s s e s s me n t An s we r a b l ewi t h i n1h r

1 .Sa dCo mp a n ya c c e p t e da2 0 0 , 0 0 0 . 9 0 d a y , 1 2 %i n t e r e s t b e a r i n gn o t ed a t e dNo v e mb e r1 5 , 2 0 2 1f r o mac u s t o me r . OnDe c e mb e r1 6 , 2 0 2 1 , Sa dd i s c o u n t e dt h en o t ea t F i n a n c eCo mp a n ya t 1 5 %d i s c o u n t r a t e . Sa dCo mp a n yi n f o r me d t h ema k e ro f t h en o t er e g a r d i n gt h ed i s c o u n t i n ga r r a n g e me n t . Onma t u r i t yd a t e , t h ema k e ro f t h en o t ed i dn o t p a yt h e n o t ea n da sar e s u l t , F i n a n c eCo mp a n yc h a r g e dSa dCo mp a n yf o rt h et o t a l a mo u n t d u ep l u s2 , 0 0 0p r o t e s t f e e . Ho wmu c hs h o u l dSa dCo mp a n yp a yt oF i n a n c eCo mp a n y , wh e nt h ema k e r f a i l st op a yt h en o t eu p o nt h ema t u r i t y ? a . No n e b . 2 0 2 , 0 0 0 c . 2 0 6 , 0 0 0 d . 2 0 8 , 0 0 0 2 .Ev e r wo o dCo . i s s u e s1 0 , 0 0 0s h a r e so f 1 0p a rv a l u ec o n v e r t i b l ep r e f e r e n c es h a r e sf o r1 2c a s hp e rs h a r e . Ea c hs h a r e i sc o n v e r t i b l ei n t o4o r d i n a r ys h a r e s . Ont h i sd a t et h e1p a rv a l u eo r d i n a r ys h a r e sa r es e l l i n gf o r 3p e rs h a r e . Ap p r o x i ma t e l y2y e a r sl a t e r , Ev e r wo o d ’ ss h a r e h o l d e r sc o n v e r t t h e i r p r e f e r e n c es h a r e si n t oo r d i n a r ys h a r e s . Ont h e d a t eo f c o n v e r s i o nt h ep r e f e r e n c es h a r e sa r es e l l i n gf o r1 6a n dt h eo r d i n a r ys h a r e sa r es e l l i n gf o r5p e rs h a r e . T h e j o u r n a l e n t r yo nt h ed a t eo f c o n v e r s i o nwi l l i n c l u d ewh i c ho f t h ef o l l o wi n g ? a . Cr e d i t Sh a r eCa p i t a l —Pr e f e r e n c e2 0 , 0 0 0 . b . Cr e d i tSh a r ePr e mi u m—Or di n a r y8 0 , 0 0 0 . c . Cr e d i t Sh a r eCa p i t a l —Or d i n a r y1 0 0 , 0 0 0 . d . Cr e d i t Sh a r ePr e mi u m—Or d i n a r y1 6 0 , 0 0 0 . 3 . Pa l me rF r o s t e dF l a k e sCo mp a n yo ff e r si t sc u s t o me r sap o t t e r yc e r e a lb o wli ft h e ys e n di n3b o x t o p sf r o mPa l me r F r o s t e dF l a k e sb o x e sa n d1 . 0 0 .T h ec o mp a n ye s t i ma t e st h a t6 0 %o ft h eb o x t o p swi l lb er e d e e me d .I n2 0 2 1 ,t h e c o mp a n ys o l d6 7 5 , 0 0 0b o x e so f F r o s t e dF l a k e sa n dc u s t o me r sr e d e e me d3 3 0 , 0 0 0b o x t o p sr e c e i v i n g1 1 0 , 0 0 0b o wl s . I f t h eb o wl sc o s t Pa l me rCo mp a n y2 . 5 0e a c h , h o wmu c hl i a b i l i t yf o ro u t s t a n d i n gp r e mi u mss h o u l db er e c o r d e da t t h e e n do f 2 0 2 1 ? a . 2 5 , 0 0 0 b . 3 7 , 5 0 0 c . 6 2 , 5 0 0 d . 8 7 , 5 0 0 2 0p e rs h a r e . 4 .T e mp o r a l Co mp a n yo wn e d5 0 , 0 0 0o r d i n a r ys h a r e sh e l df o rt r a d i n g . Th e s e5 0 , 0 0 0we r ep u r c h a s e d1 Du r i n gt h ey e a r , t h ei n v e s t e ed i s t r i b u t e d5 0 , 0 0 0s t o c kr i g h t st ot h ei n v e s t o r . T h ei n v e s t o rwa se n t i t l e dt ob u yo n en e w s h a r ef o rP9 0c a s ha n dt woo f t h e s er i g h t s . Ea c hs h a r eh a dama r k e t v a l u eo f P1 3 0a n de a c hr i g h t h a dama r k e t v a l u eo f P2 0o nt h ed a t eo f i s s u e . Wh a t t o t a l c o s t s h o u l db er e c o r d e df o rt h en e ws h a r e st h a t a r ea c q u i r e db ye x e r c i s i n gt h er i g h t s ? a . 2 , 2 5 0 , 0 0 0 b . 3 , 2 5 0 , 0 0 0 c . 3 , 0 5 0 , 0 0 0 d . 5 , 5 0 0 , 0 0 0

5 .T h en e ti n c o mef o rAk i r aI n d u s t r i e sf o r2 0 2 1wa s3 0 2 , 0 0 0 .Du r i n g2 0 2 1 ,d e p r e c i a t i o no np l a n ta s s e t swa s1 1 4 , 0 0 0 , a mo r t i z a t i o no f p a t e n t wa s5 0 , 0 0 0 , a n dt h ec o mp a n yi n c u r r e dal o s so ns a l eo f p l a n t a s s e t so f 2 7 , 0 0 0 . Wh a t i st h en e t c a s hfl o wf r o mo p e r a t i n ga c t i v i t i e s ?( Ad da l l t on e t i n c o met h e nl e s st h el o s so ns a l eo f p l a n t a s s e t ) a . 1 1 1 , 0 0 0 b . 4 3 9 , 0 0 0 c . 3 3 9 , 0 0 0 d . 4 9 3 , 0 0 0 6 .At t h eb e g i n n i n go f c u r r e n t y e a r , I l l u s i o nCo mp a n ya c q u i r e da ne n t i t yi n s t r u me n t f o rP4 , 0 0 0 , 0 0 0t ob eme a s u r e da t f a i r v a l u et h r o u g ho t h e rc o mp r e h e n s i v ei n c o me . Th ee n t i t yi n c u r r e dd i r e c t a c q u i s i t i o nc o s t o f P7 0 0 , 0 0 0 . At y e a r e n d , f a i r v a l u eo f t h ei n s t r u me n t wa sP5 , 5 0 0 , 0 0 0a n dt h et r a n s a c t i o nc o s t t h a t wo u l db ei n c u r r e do nt h es a l e o f t h ei n v e s t me n t we r ee s t i ma t e da t P6 0 0 , 0 0 0 .

Wh a t a mo u n t o f u n r e a l i z e dg a i ns h o u l db er e c o g n i z e di no t h e rc o mp r e h e n s i v ei n c o mef o rt h ec u r r e n t y e a r ? a . 2 0 0 , 0 0 0 b . 9 0 0 , 0 0 0 c . 8 0 0 , 0 0 0 d . 0 7 .F u l l e rF o o dCo mp a n yd i s t r i b u t e st oc o n s u me r sc o u p o n swh i c hma yb ep r e s e n t e d( o no rb e f o r eas t a t e de x p i r a t i o n d a t e )t og r o c e r sf o rd i s c o u n t so nc e r t a i np r o d u c t so f F u l l e r .T h eg r o c e r sa r er e i mb u r s e dwh e nt h e ys e n dt h ec o u p o n s t oF u l l e r . I nF u l l e r ' se x p e r i e n c e ,5 0 %o f s u c hc o u p o n sa r er e d e e me d , a n dg e n e r a l l yo n emo n t he l a p s e sb e t we e nt h e d a t eag r o c e rr e c e i v e sac o u p o nf r o mac o n s u me ra n dt h ed a t eF u l l e rr e c e i v e si t .Du r i n g2 0 2 1F u l l e ri s s u e dt wo s e p a r a t es e r i e so f c o u p o n sa sf o l l o ws :

I s s u e dOn 1 / 1 / 2 0 2 1 7 / 1 / 2 0 2 1

Co n s u me r Ex p i r a t i o nDa t e 6 / 3 0 / 2 0 2 1 1 2 / 3 1 / 2 0 2 1

T o t a l V a l u e 3 7 5 , 0 0 0 5 4 0 , 0 0 0

Amo u n t Di s b u r s e d a so f 1 2 / 3 1 / 2 0 2 1 1 7 7 , 0 0 0 2 2 5 , 0 0 0

T h eo n l yj o u r n a l e n t r i e st od a t er e c o r d e dd e b i t st oc o u p o ne x p e n s ea n dc r e d i t st oc a s ho f5 3 6 , 0 0 0 .Th eDe c e mb e r 3 1 , 2 0 2 1s t a t e me n t o f fi n a n c i a l p o s i t i o ns h o u l di n c l u d eal i a b i l i t yf o ru n r e d e e me dc o u p o n so f a . 0 . b . 4 5 , 0 0 0 . c . 9 3 , 0 0 0 . d . 2 7 0 , 0 0 0 . 8 .Du r i n g2 0 2 0 ,Ha g g a r dCo mp a n yp u r c h a s e dma r k e t a b l ee q u i t ys e c u r i t i e sf o rP1 , 8 5 0 , 0 0 0t ob eh e l da st r a d i n g i n v e s t me n t s . I n2 0 2 0 , t oe n t i t ya p p r o p r i a t e l yr e p o r t e da nu n r e a l i z e dl o s so f P2 0 0 , 0 0 0i nt h ei n c o mes t a t e me n t . T h e r ewa sn oc h a n g ed u r i n g2 0 2 0i nt h ec o mp o s i t i o no ft h ep o r t f o l i oo ft r a d i n gs e c u r i t i e s .Pe r t i n e n td a t ao n De c e mb e r3 1 , 2 0 2 1a r ea sf o l l o ws : Se c u r i t y A B C

Co s t 6 0 0 , 0 0 0 4 5 0 , 0 0 0 8 0 0 , 0 0 0

Ma r k e t V a l u e 7 0 0 , 0 0 0 4 0 0 , 0 0 0 9 0 0 , 0 0 0

Wh a t a mo u n t o f u n r e a l i z e dg a i no nt h e s es e c u r i t i e ss h o u l db ei n c l u d e di n2 0 2 1i n c o mes t a t e me n t ? a . 3 5 0 , 0 0 0 b . 1 5 0 , 0 0 0 c . 5 5 0 , 0 0 0 d . 0 9 .OnJ a n u a r y1 , 2 0 2 1 , El a i n eCo mp a n yr e p o r t e df a i rv a l u eo np l a na s s e t sa t 6 , 5 0 0 , 0 0 0a n dp r o j e c t e db e n e fi t o b l i g a t i o n a t 7 , 5 0 0 , 0 0 0 . Du r i n gt h ec u r r e n t y e a r , t h ee n t i t yd e t e r mi n e dt h a t t h ec u r r e n t s e r v i c ec o s t wa s1 , 2 0 0 , 0 0 0a n dt h ed i s c o u n t r a t ei s 1 0 %. T h ea c t u a l r e t u r no np l a na s s e t swa s8 0 0 , 0 0 0d u r i n gt h ey e a r . T h ee n t i t yp r o v i d e dt h ef o l l o wi n gi n f o r ma t i o nd u r i n gt h ey e a rr e l a t e dt ot h ed e fi n e db e n e fi t p l a n . Co n t r i b u t i o nt ot h ep l a n Be n e fi t sp a i dt or e t i r e e s De c r e a s ei np r o j e c t e db e n e fi t o b l i g a t i o nd u et oc h a n g e i na c t u a r i a l a s s u mp t i o n s

1 , 2 0 0 , 0 0 0 1 , 5 0 0 , 0 0 0

2 0 0 , 0 0 0

Wh a t i st h et o t a l r e me a s u r e me n t g a i n ? a . 3 5 0 , 0 0 0 b . 1 5 0 , 0 0 0

c . 2 0 0 , 0 0 0

d . 8 0 0 , 0 0 0

1 0 . OnJ a n u a r y1 ,2 0 2 1L i g aCo mp a n yp u r c h a s e d1 5 %b o n d swi t hf a c ev a l u eo fP4 ,5 5 0 ,0 0 0f o rP5 ,2 5 0 ,0 0 0 .T h e b o n d sp r o v i d ea ne ff e c t i v ey i e l do f1 0 %.Th eb o n d sa r ed a t e dJ a n u a r y1 , 2 0 2 1 ,ma t u r eo nJ a n u a r y1 ,2 0 2 7a n dp a y i n t e r e s ta n n u a l l yo nDe c e mb e r3 1 ,2 0 2 1 .Th eb o n d sa r eq u o t e da t1 2 0o nDe c e mb e r3 1 ,2 0 2 1 .Th ee n t i t yh a s s e l e c t e dt h ef a i rv a l u eo p t i o nf o rt h eb o n di n v e s t me n t . Wh a t t o t a l i n c o mes h o u l db er e p o r t e df o r2 0 2 1 ? a . 4 6 0 , 0 0 0 b . 8 9 2 , 5 0 0 c . 7 8 7 , 5 0 0 d . 2 1 0 , 0 0 0 1 1 .T h ef o l l o wi n gi n f o r ma t i o nr e l a t et ot h eL i l yCo . p o s t r e t i r e me n t b e n e fi t sp l a nf o r2 0 2 1 : Se r v i c ec o s t Di s c o u n t r a t e PBO, J a n u a r y1 , 2 0 2 1 Be n e fi t p a y me n t st oe mp l o y e e s T h ea mo u n t o f p o s t r e t i r e me n t e x p e n s ef o r2 0 2 1i s a . 3 8 5 , 0 0 0 b . 3 0 5 , 0 0 0 .

P2 5 0 , 0 0 0 9 % P1 , 5 0 0 , 0 0 0 P1 1 5 , 0 0 0

c . 3 5 0 , 0 0 0 .

d . 4 2 0 , 0 0 0 .

1 2 .At t h eb e g i n n i n go f t h ec u r r e n t y e a r , Ra mi r e zCo mp a n yl e a s e dama c h i n e r ywi t ht h ef o l l o wi n gi n f o r ma t i o n : An n u a l r e n t a l p a y a b l ea t t h ee n do f e a c hy e a r Re s i d u a l v a l u eg u a r a n t e e Pa y me n t t ol e s s o rt oo b t a i nal o n g t e r ml e a s e Co s t o f d i s ma n t l i n ga n dr e s t o r i n gt h ea s s e t a sr e q u i r e d b yc o n t r a c t a t p r e s e n t v a l u e An n u a l e x e c u t o r yc o s t p a i db yl e s s e e L e a s et e r m Us e f u l l i f eo f ma c h i n e r y I mp l i c i t i n t e r e s t r a t e Pr e s e n t v a l u eo f a no r d i n a r ya n n u i t yo f 1a t 1 0 %f o r4p e r i o d s Pr e s e n t v a l u eo f 1a t 1 0 %f o r 4p e r i o d s Wh a t i st h ec o s t o f r i g h t o f u s ea s s e t ? a . 4 , 2 0 0 , 0 0 0 b . 4 , 2 5 0 , 0 0 0

1 , 0 0 0 , 0 0 0 5 0 0 , 0 0 0 3 0 0 , 0 0 0 3 9 0 , 0 0 0 5 0 , 0 0 0 4y e a r s 8y e a r s 1 0 % 3 . 1 7 0 . 6 8

c . 3 , 8 1 0 , 0 0 0

d . 3 , 9 0 0 , 0 0 0

1 3 .Co r a l Co mp a n ya c c o u n t sf o r n o n c u r r e n t a s s e t su s i n gt h ec o s t mo d e l . OnJ u l y3 1 , 2 0 2 0 , t h ee n t i t yc l a s s i fi e da At t h a t d a t e , t h ea s s e t ’ sc a r r y i n ga mo u n t wa sP1 , 4 5 0 , 0 0 0 , t h ef a i rv a l u ewa s n o n c u r r e n t a s s e t a sh e l df o rs a l e . e s t i ma t e da t P2 , 1 5 0 , 0 0 0a n dt h ec o s t so f d i s p o s a l a t P1 5 0 , 0 0 0 . T h ea s s e t wa ss o l do nJ a n u a r y3 1 , 2 0 2 1f o r P2 , 1 2 0 , 0 0 0 . At wh a t a mo u n t s h o u l dt h ea s s e t b eme a s u r e do nDe c e mb e r3 1 , 2 0 2 0 ? a . 2 , 0 0 0 , 0 0 0 b . 2 , 1 5 0 , 0 0 0 c . 2 , 1 2 0 , 0 0 0

d . 1 , 4 5 0 , 0 0 0

1 4 .Ec k e r t Co r p o r a t i o n ' sp a r t i a l i n c o mes t a t e me n t a f t e ri t sfi r s t y e a ro f o p e r a t i o n si sa sf o l l o ws :

I n c o meb e f o r ei n c o met a x e s I n c o met a xe x p e n s e Cu r r e n t De f e r r e d Ne t i n c o me

3 , 7 5 0 , 0 0 0 1 , 0 3 5 , 0 0 0 9 0 , 0 0 0

1 , 1 2 5 , 0 0 0 2 , 6 2 5 , 0 0 0

Ec k e r t u s e st h es t r a i g h t l i n eme t h o do fd e p r e c i a t i o nf o rfi n a n c i a l r e p o r t i n gp u r p o s e sa n da c c e l e r a t e dd e p r e c i a t i o nf o r t a xp u r p o s e s .T h ea mo u n tc h a r g e dt od e p r e c i a t i o ne x p e n s eo ni t sb o o k st h i sy e a rwa s1 , 5 0 0 , 0 0 0 .Noo t h e r d i ff e r e n c e se x i s t e db e t we e nb o o ki n c o mea n dt a x a b l ei n c o mee x c e p tf o rt h ea mo u n to fd e p r e c i a t i o n .As s u mi n ga 3 0 %t a xr a t e , wh a t a mo u n t wa sd e d u c t e df o rd e p r e c i a t i o no nt h ec o r p o r a t i o n ' st a xr e t u r nf o rt h ec u r r e n t y e a r ? a . 1 , 2 0 0 , 0 0 0 b . 1 , 4 2 5 , 0 0 0 c . 1 , 5 0 0 , 0 0 0 d .1 , 8 0 0 , 0 0 0{ t e mp o r a r y d i ff e r e n c e = ( 9 0 k / 3 0 %) = 3 0 0 k ; 1 , 5 0 0 , 0 0 0 + 3 0 0 k = 1 , 8 0 0 , 0 0 0 } 1 5 .Wa t s o nCo r p o r a t i o np r e p a r e dt h ef o l l o wi n gr e c o n c i l i a t i o nf o ri t sfi r s t y e a ro f o p e r a t i o n s : Pr e t a xfi n a n c i a l i n c o mef o r2 0 2 1 1 , 2 0 0 , 0 0 0 T a xe x e mp t i n t e r e s t ( 1 0 0 , 0 0 0 ) Or i g i n a t i n gt e mp o r a r yd i ff e r e n c e ( 3 0 0 , 0 0 0 ) 8 0 0 , 0 0 0 T a x a b l ei n c o me T h et e mp o r a r yd i ff e r e n c ewi l l r e v e r s ee v e n l yo v e r t h en e x t t woy e a r sa t a ne n a c t e dt a xr a t eo f 4 0 %. Th ee n a c t e dt a x r a t ef o r2 0 2 1i s2 8 %. Wh a t a mo u n t s h o u l db er e p o r t e di ni t s2 0 2 1i n c o mes t a t e me n t a st h ec u r r e n t p o r t i o no f i t s p r o v i s i o nf o ri n c o met a x e s ? a . 2 2 4 , 0 0 0 b . 3 2 0 , 0 0 0 c . 3 3 6 , 0 0 0 d . 4 8 0 , 0 0 0 1 6 .Pu l l ma nCo r p o r a t i o nh a dr e t a i n e de a r n i n g so f 7 0 0 , 0 0 0a t J a n u a r y1 , 2 0 2 0 . Du r i n gt h ey e a rt h ec o mp a n ye x p e r i e n c e d an e t l o s so f 3 0 0 , 0 0 0a n dd e c l a r e dc a s hd i v i d e n d so f 8 0 , 0 0 0 . I t wa sd i s c o v e r e di n2 0 2 0t h a t 5 0 , 0 0 0o f r e p a i r e x p e n s e wa sd e b i t e dt ot h el a n da c c o u n ti n2 0 1 9 .T h ei n c o met a xr a t ei s2 0 %.De t e r mi n et h er e t a i n e de a r n i n g sb a l a n c ea t De c e mb e r3 1 , 2 0 2 0 . a . 2 7 0 , 0 0 0

b . 3 6 0 , 0 0 0

c . 3 5 0 , 0 0 0

d . 2 8 0 , 0 0 0

1 7 .Co n c o r dCo mp a n ys e l l smo t o r c y c l eh e l me t s .I n2 0 2 1 ,t h ee n t i t ys o l d4 , 0 0 0 , 0 0 0h e l me t sb e f o r ed i s c o v e r i n ga s i g n i fi c a n t d e f e c t i nt h e i rc o n s t r u c t i o n . ByDe c e mb e r3 1 , 2 0 2 1 , t wol a ws u i t sh a db e e nfi l e da g a i n s t t h ee n t i t y . Th efi r s t l a ws u i t ,wh i c ht h ee n t i t yh a sl i t t l ec h a n c eo fwi n n i n g ,i se x p e c t e dt ob es e t t l e do u to fc o u r tf o r1 , 5 0 0 , 0 0 0i nJ a n u a r y 2 0 2 2 .T h el e g a lc o u n s e lb e l i e v e dt h a tt h ee n t i t yh a sa5 0 5 0c h a n c eo fwi n n i n gt h es e c o n dl a ws u i t ,wh i c hi sf o r 1 , 0 0 0 , 0 0 0 . Wh a t i st h ea c c r u e dl i a b i l i t yo nDe c e mb e r3 1 , 2 0 2 1a sar e s u l t o f l a ws u i t s ? a . 1 , 5 0 0 , 0 0 0 b . 1 , 0 0 0 , 0 0 0 c .2 , 5 0 0 , 0 0 0

d . 0

1 8 .Gi v e nt h ef o l l o wi n g : Ne t i n c o me EPS Di v i d e n d / o r d i n a r ys h a r e s We i g h t e da v e r a g eo r d i n a r ys h a r e so u t s t a n d i n g De t e r mi n et h ea mo u n t o f t h ep r e f e r e n c es h a r ed i v i d e n d . a . 3 6 0 , 0 0 0 b . 2 4 0 . 0 0 0 c . 1 2 0 , 0 0 0

6 0 0 , 0 0 0 4 . 2 5 2 . 0 0 1 2 0 , 0 0 0 d . 9 0 , 0 0 0

19. In year 1, a tornado completely destroyed a building belonging to Holland Corp. The building cost P100,000 and had accumulated depreciation of P48,000 at the time of the loss. Holland received a cash settlement from the insurance company and reported an extraordinary loss of P21,000. In Holland’s year 1 cash flow statement, the net change reported in the cash flows from investing activities section should be a a. P10,000 increase. b. P21,000 decrease. c. P31,000 increase. (Proceeds-bookvalue=loss) Proceeds-52k=(21k); Proceeds=(21k)+52k; proceeds=31k d. P52,000 decrease. 20. A six-year finance lease expiring on December 31 specifies equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. The portion of the minimum lease payment in the fifth year applicable to the reduction of the net lease liability should be a. Less than in the fourth year.

b. More than in the fourth year. (would be greater than the fourth year and smaller than the reduction in the sixth year.) c. The same as in the sixth year. d. More than in the sixth year. 21. On January 1, year 1, Nobb Corp. signed a twelve-year lease for warehouse space. Nobb has an option to renew the lease for an additional eight-year period on or before January 1, year 5. During January year 3, Nobb made substantial improvements to the warehouse. The cost of these improvements was P540,000, with an estimated useful life of fifteen years. At December 31, year 3, Nobb intended to exercise the renewal option. Nobb has taken a full year’s amortization on this leasehold. In Nobb’s December 31, year 3 balance sheet, the carrying amount of this leasehold improvement should be a. P486,000 b. P504,000 ( 12+8-2=18; 540k/18=30k; 540k/15=36k; 30k-36k=6k; 540k less 6k) c. P510,000 d. P513,000 22. On December 31, year 1, Lane, Inc. sold equipment to Noll, and simultaneously leased it back for twelve years. Pertinent information at this date is as follows: Sales price P480,000 Carrying amount 360,000 Estimated remaining economic life 15 years At December 31, year 1, how much should Lane report as deferred gain from the sale of the equipment? a. P0 b. P110,000 c. P112,000 d. P120,000 23. A lessee had a ten-year finance lease requiring equal annual payments. The reduction of the lease liability in year two should equal a. The current liability shown for the lease at the end of year one. b. The current liability shown for the lease at the end of year two. c. The reduction of the lease obligation in year one. d. One-tenth of the original lease liability. 24. The following costs were incurred by Griff Co., a manufacturer, during year 1: Accounting and legal fees P 25,000 Freight-in 175,000 Freight-out 160,000 Officers salaries 150,000 Insurance 85,000 Sales representatives salaries 215,000 What amount of these costs should be reported as general and administrative expenses for year 1? a. P260,000

The only costs included in general and administrative costs are: Accounting and legal $ 25,000 Officers' salaries 150,000 Insurance 85,000 Total G&A cost $ 260,000 b. P550,000 c. P635,000 d. P810,000 25. In year 2, a contract dispute between Dollis Co. and Brooks Co. was submitted to binding arbitration. In year 2, each party’s attorney indicated privately that the probable award in Dollis’ favor could be reasonably estimated. In year 3, the arbitrator decided in favor of Dollis. When should Dollis and Brooks recognize their respective gain and loss? Dollis’ gain Brooks’ loss a. Year 2 Year 2 b. Year 2 Year 3 c. Year 3 Year 2 The amount of the loss can be reasonably estimated. However, gain contingencies are

only recognized when a specific event actually occurs, not prior to the event, because to do so would recognize the gain prior to its realization. Therefore, Brooks should recognize the loss in year 2 due to the fact that the event is probable and can be reasonably estimated. Dollis, on the other hand, cannot recognize the gain until year 3, d. Year 3 Year 3 26. LeMay Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 4 boxtops from LeMay Frosted Flakes boxes and P1.00. The company estimates that 60% of the boxtops will be redeemed. In 2018, the company sold 500,000 boxes of Frosted Flakes and customers redeemed 220,000 boxtops receiving 55,000 bowls. If the bowls cost LeMay Company P2.50 each, how much liability for outstanding premiums should be recorded at the end of 2018? a. P20,000 b. P30,000 c. P50,000 d. P70,000 27. Ermler Corporation has P1,800,000 of short-term debt it expects to retire with proceeds from the sale of 60,000 ordinary shares. If the shares are sold for P20 per share subsequent to the statement of financial position date, but before the statement of financial position is issued, what amount of short-term debt could be ex...