Project in Fin Acc Chester Gutierrez PDF

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Liabilities, Effective Interest Method & Compound Financial InstrumentLiabilitiesProblem: Ducky CompanyDucky Company reported the following information at the end of reporting period:Accounts Payable 1,000, Advances to employees 45, Unearned rent revenue 300, Estimated liability under warran...

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Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument

Liabilities Problem: Ducky Company Ducky Company reported the following information at the end of reporting period: Accounts Payable Advances to employees Unearned rent revenue Estimated liability under warranties Cash surrender value of officer’s life insurance Bonds payable Discount on bonds payable Trademark

1,000,000 45,000 300,000 250,000 75,000 5,000,000 500,000 50,000

What amount should be reported in the statement of financial position as total liabilities? Answer: 6,050,000 Problem: Burma Company Burma Company disclosed the following information about liabilities at year-end: Accounts payable, after deducting debit balances in suppliers’ accounts amounting to P100,000 Accrued expenses Credit balances of customers’ accounts Share dividend payable Claims for increase in wages and allowance by employees of the entity covered in a pending lawsuit Estimated expenses in redeeming prize coupons presented by customers

4,000,000 1,500,000 500,000 1,000,000 400,000 600,000

What total amount should be presented as current liabilities at year-end? Answer: 6,700,000 Problem: Mill Company Mill Company revealed the following account balances on December 31, 2017: Accounts payable Bonds payable, due 2018 Discount on bonds payable Dividends payable Note payable, due 2019 What total amount should be reported as current liabilities? Answer: 4,500,000

1,500,000 2,500,000 300,000 800,000 2,000,000

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument Problem: Gar Company Gar Company disclosed the following liability account balances on December 31, 2017: Accounts payable Bonds payable Premium on bonds payable Defered tax liability Dividends payable Income tax payable Note payable, due January 31, 2018

1,900,000 3,400,000 200,000 400,000 500,000 900,000 600,000

The deferred tax liability is based on temporary differences that will reverse in 2019. On December 31, 2017, what total amount should be reported as current liabilities? Answer: 3,900,000 Problem: Bake Company Accounts payable Bonds payable, due 2018 Premium on bonds payable Deferred tax liability

800,000 3,000,000 150,000 250,000

The deferred tax liability is not related to an asset for financial accounting purposes and is expected to reverse in 2018. What total amount should be reported as current liabilities on December 31, 2017? Answer: 3,950,000 Problem: Grace Company Grace Company reported the following liability account balances on December 31, 2017: Accounts payable Bonds payable, due 2018 Discount on bonds payable Deferred tax liability Dividend payable due on February 15, 2019 Income tax payable Note payable due in January 15, 2019

2,000,000 4,000,000 400,000 500,000 1,000,000 800,000 1,200,000

What total amount should be reported as current liabilities on December 31, 2017? Answer: 6,400,000

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument Problem: Brite Company Brite Company reported the following liabilities on December 31, 2017: Accounts payable Unsecured note payable, 8%, due July 1, 2018 Accrued expenses Contingent liability Deferred tax liability Senior bonds payable, 7% due March 31, 2018

550,000 4,000,000 350,000 450,000 250,000 5,000,000

What total amount should be reported as current liabilities? Answer: 9,900,000 Problem: Gumamela Company Gumamela Company provided the following data on December 31, 2017: Trade accounts payable, including cost of goods received on consignment of P150,000 Accrued taxes payable Customers’ deposit Gumamela Company as guarantor Bank overdraft Accrued electric and power bills Reserve for contingencies

1,350,000 125,000 100,000 200,000 55,000 60,000 150,000

What total amount should be reported as current liabilities? Answer: 1,540,000 Problem: Able Company Able Company had the following accounts of long-term debt outstanding on December 31, 2017: 14% term note, due 2018 11% term note, due 2020 8% note, due in 11 equal annual principal payments, plus interest beginning December 31, 2018 7% guaranteed debentures, due 2019 Total

30,000 1,070,000 1,100,000 1,000,000 3,200,000

The annual sinking fund requirement on the guaranteed debentures is P40,000 per year. What total amount should be reported as current liabilities on December 31, 2017? Answer: 130,000

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument Problem: Tagkawayan Company Tagkawayan Company reported the following liability balances on December 31, 2017: 12% note payable issued on March 1, 2016, maturing on March 1, 2018 10% note payable issued on October 1, 2016, maturing October 1, 2018

5,000,000 3,000,000

The 2017 financial statements were issued on March 31, 2018. On January 31, 2018, the entire P5,000,000 balance of the 12% note payable was refinanced through issuance of a long-term obligation payable lump sum. Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the obligation for at least twelve months after December 31,2017? Answer: 5,000,000 Problem: Witt Company Witt Company reported the following liability account balances on December 31, 2017: 6% note payable issued October 1, 2016 maturing October 1, 2018 500,000 8% note payable issued April 1, 2016 maturing April 1, 2018 800,000 The 2017 financial statements were issued on March 31, 2018. On March 1, 2018, the entire P800,000 balance of 8% note was refinanced by issuance of a long-term obligation payable lump sum. On December 31, 2017, what amount of the notes payable should be classified as current? Answer: 1,300,000 Problem: Eliot Company Eliot Company reported the following liabilities on December 31, 2017: Accounts payable and accrued interest 12% note payable issued November 1, 2016 maturing July 1, 2018 10% debentures payable, next annual principal installment of P500,000 due on February 1, 2018

1,000,000 2,000,000 7,000,000

On December 31, 2017, the entity consummated a noncancelable agreement with the lender to refinance the 12% note payable on a long-term basis.

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument On December 31, 2017, what total amount should be reported as current liabilities? Answer: 1,500,000 Problem: Largo Company On December 31, 2017, Largo Company had a P750,000 note payable outstanding due July 31, 2018. The entity planned to refinance the note by issuing long-term bonds. Because the entity temporarily had excess cash, it prepaid P250,000 of the note on January 15, 2018. In February 2018, the entity completed a P1,500,000 bond offering. The entity will use the bond offering proceeds to repay the note payable at maturity. On March 31, 2018, the 2017 financial statements were authorized for issue. What amount of the note payable should be included in current liabilities on December 31, 2017? Answer: 750,000 Problem: Dean Company Dean Company has a P2,000,000 note payable due June 30, 2018. On December 31, 2017, the entity signed an agreement to borrow up to P2,000,000 to refinance the note payable on a long-term basis. The financing agreement called for borrowing not to exceed 80% of the value of the collateral the entity was providing. On December 31, 2017, the value of the collateral was P1,500,000. On December 31, 2017, what amount of the note payable should be reported as current liability? Answer: 800,000 Problem: Dana Company Dana Company had P2,000,000 note payable due on June 30, 2018. Under the existing loan facility, the entity had the discretion to refinance or roll over the note payable for at least twelve months after the end of reporting period. On December 31, 2017, what amount of the note payable should be reported as noncurrent liability? Answer: 2,000,000

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument Problem: Willen Company Willen Company reported the following liabilities on December 31, 2017. Accounts payable Short-term borrowings Mortgage payable, current portion P100,00 Bank loan payable, due June 30, 2018

750,000 400,000 3,500,000 1,000,000

The P1,000,000 bank loan was refinanced with a 5-year loan on January 15, 2018, with the first principal payment due January 15, 2019. The financial statements were issued February 28, 2018. What total amount should be reported as current liabilities on December 31, 2017? Answer: 2,250,000

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument

Effective Interest Method Problem: Marsh Company On January 1. 2019, Marsh Company issued 10% bonds payable in the face amount of P6,000,000. The bonds mature on January 1, 2029. The bonds were issued P5,316,000 to yield 12% resulting in bond discount of P684,000. The entity used the effective interest method of amortizing bond discount. Interest is payable semiannually on January 1 and July 1. For the six months ended June 30, 2019, what amount should be reported as bond interest expense? Answer: 318,960 Problem: Tara Company On July 1, 2019, Tara Company issued 4,000 bonds of 8%, P1,000 face amount for P3,504,000. The bonds were issued to yield 10%. The bonds are dated July 1, 2019 and mature on July 1, 2028. Interest is payable semiannually on January 1 and July 1. What amount of the bond discount should be amortized for the six months ended December 31, 2019? Answer: 15,200 Problem: Moon Company On January 1, 2019, Moon company issued 10% bonds payable in the face amount of P4,500,000. The bonds mature on January 1, 2029. The bonds were issued for P3,987,000 to yield 12%, resulting in bond discount of P513,000. The entity used the effective interest method of amortizing bond discount. Interest is payable semiannually on January 1 and July 1. For the six months ended June 30, 2019, what amount should be reported as bond interest expense? Answer: 239,220 Problem: Ward Company On January 1, 2019, Ward Company issued 9% bonds with face amount of P4,000,000, which mature on January 1, 2029. The bonds were issued for P3,756,000 to yield 10%, resulting on bond discount of P244,000. The entity used the interest method of amortizing bond discount. Interest is payable annually on December 31. 1. On December 31, 2019, what is the balance of the discount on bonds payable? Answer: 228,400 2. What is the carrying amount of bonds payable on December 31, 2019?

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument Answer: 3,771,600 Problem: Wolf Company On January 1, 2019, Wolf Company issued 10% bonds in the face amount of P5,000,000, which mature on January 1, 2029. The bonds were issued for P5,675,000 to yield 8%, resulting on bond premium oh P675,000,000. The entity used the interest method pf amortizing bond premium. Interest is payable annually on December 31. 1. On December 31, 2019, what is the balance of the premium on bonds payable? Answer: 629,000 2. What is the carrying amount of bonds payable on December 31, 2019? Answer: 5,629,000 Problem: Webb Company Webb Company has outstanding 7%, 10-year P5,000,000 face amount bond. The bond was originally sold to yield 6%annual interest. The entity used the effective interest method to amortized bond premium. On January 1, 2019, the carrying amount of the outstanding bond was P5,250,000. 1. What amount of premium on bond payable should be reported on December 31, 2019? Answer: 215,000 2. What is the carrying amount of bonds payable on December 31, 2019? Answer: 5,215,000 Problem: West Company On January 1, 2019, West Company issued 9% bonds in the face amount of P5,000,000, which mature on January 1, 2029. The bonds were issued for P4,695,000 to yield 10%. Interest is payable annually on December 31. The entity used the interest method. 1. What is the interest expense for 2019? Answer: 450,000 2. What is the carrying amount of the bonds payable on December 31, 2019? Answer: 4,704,750 Problem: Luyang Company On January 1, 2019, Luyang Company issued 3-year bonds with face amount of P5,000,000 at 98. Additionally, the entity paid bond issue cost of P140,000. The nominal rate is 10% and the effective rate after considering the bond issue cost is 12%. The interest is payable annually on December 31. The entity used the effective interest method.

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument What is the carrying amount of the bonds payable on December 31, 2019? Answer: 4,831,200 Problem: Carol Company On January 1, 2019, Carol Company issued 10% bonds in the face amount of P5,000,000 that mature on January 2025. The bonds were issued for P4,580,000 to yield 12% resulting in bond discount of P420,000. The entity used the interest method. Interest is payable semiannually on January 1 and July 1. 1. What amount should be reported as interest expense for 2019? Answer: 551,088 2. What is the carrying amount of the bonds payable on December 31, 2019? Answer: Problem: Masbate Company On January 1, 2019, Masbate Company issued 5-year bonds with face amount of P5,000,000 at 110. The entity paid bond issue cost of P80,000 on same date. The stated interest rate on the bonds is 8% payable annually every December 31. The bonds are issued to yield 6% per annum after considering the bond issue cost. The entity used the effective interest method of amortization. On December 31, 2019, what is the carrying amount of the bonds payable? Answer: 5,345,200 Problem: Bontoc Company On January 1, 2019, Bontoc Company issued P5,000,000, 8% serial bonds to be repaid in the amount of P1,000,000 each year. Interest is payable annually on December 31. The bonds were issued to yield 10% a year. The bonds proceed were P4,757,000 based on the present value at January 1, 2019 of five annual payments. The entity amortized the bond discount by the interest method. On December 31, 2019, what is the carrying amount of the bonds payable? Answer: 3,832,700 Problem: Moon Company Moon Company reported on January 1, 2019, 9% bonds payable of P4,000,000 less unamortized discount of P320,000.

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument These bonds were issued to yield 10%. The effective interest method is used. Semiannual interest was paid on January 1 and July 1 of each year. On July 1, 2019, the entity retired the bonds at 103 before maturity. What is the loss on retirement of the bonds payable on July 1, 2019? Answer: 436,000 Problem: Nixon Company Nixon Company reported 10% bonds payable with carrying amount of P5,700,000 on January 1, 2019. The bonds had a face amount of P6,000,000 and were issued to yield 12%. The interest method of amortization is used. Interest was paid on January 1 and July 1 of each year. On July 1, 2019, the entity retired the bonds at 102. The interest payment on July 1, 2019 was made as scheduled. 1. What is the carrying amount of the bonds payable on July 1, 2019? Answer: 2. What amount should be recorded as loss on the early extinguishment of the bonds? Answer: 378,000 Problem: Colt Company At the beginning of the current year, Colt Company issued ten-year bonds with a face amount of P5,000,000 and a stated interest rate of 8% payable annually at the end of each year. The bonds were priced to yield 10%. Present value of 1 for 10 periods at 1% Present value of an ordinary annuity of 1 for 10 periods at 10%

0.3855 6.145

What is the issue price of the bonds payable? Answer: 4,385,500 Problem: White Company White Company issued 10-year bonds with face amount of P2,000,000 on January 1. The bonds pay interest on January 1 and July 1 and have a stated interest rate of 10%. The market rate of interest at the time the bonds are sold is 8%. What is the issuance price of the bonds? Round off present value factor to two decimal places. Answer: 2,279,000

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument

Problem: Margaret Company Margaret Company provided the following information pertaining to issuance of bonds payable on January 1 of the current year: Face amount Term Stated interest rate Yield Interest payable annually every year-end

Present value of one for ten periods Future value of one for ten periods Present value of ordinary annuity of one for ten periods

800,000 Ten years 6% 9% December 31

At 6%

At 9%

0.558 1.791

0.422 2.367

7.360

6.418

What is the issue price for each P1,000 bonds? Answer: 807 Problem: Rizal Company At the beginning of current year, Rizal Company issued 4-year bonds with face amount of P4,000,000 at P4,395,800. The 12% stated rate is payable semiannually every June 30 and December 31. In addition, the entity paid P137,430 in connection with the issuance of the bonds. What is the effective rate of interest on the bonds on the date of issue? Answer: 10%

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument

Compound Financial Instrument Problem: Fence Company On March 1, 2019, Fence Company issued 12% P5,000,000 nonconvertible bonds at 103 which are due on February 28, 2024. In addition, each P1,0000 bond was issued 30 share warrants, each of which entitled the bondholder to purchase for P50 one share of Fence Company, par value P25. Interest is payable annually every February 28. On March 1, 2019, the market value of the share was P40 and the market value of the warrants was P4. The market rate of interest for similar bonds ex-warrants is 14%. The present value of 1 at 14% for 5 periods is 0.52 and the present value of an ordinary annuity of 1 at 14% for 5 periods is 3.43. What amount should be recognized as discount or premium on the original issuance of the bonds? Answer: 342,000 discounts Problem: Fort Company On December 31, 2019, Fort Company issued 5,000 of 8%, 10-year bonds, P1,000 face amount per bond, with share warrants at 110. Each bond carried a warrant for one share of Fort Company at a specified option price of P25 per share. Immediately after issuance, the market value of the bonds without the warrants was P5,400,000 and the market value of the warrants was P600,000. On December 31, 2019, what is the carrying amount of bonds payable? Answer: 5,400,000 Problem: Armada Company On December 31, 2019 Armada Company issued P5,000,000 face amount, 5-year bonds at 109. Each P1,000 bond was issued with 10 share warrants, each of which entitled the bondholder to purchase one 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%.

Name: Chester G. Gutierrez

Yr/Course: 2-Bsa

Liabilities, Effective Interest Method & Compound Financial Instrument 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. 1. What is the carrying amount of the bonds payable on December 31, 2019? Answer: 4,830,000 2. On December 31, 2019, what amount should be recorded as discount or premium on bonds payable? ...