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BATAAN HEROES COLLEGE BUSINESS AND TECHNOLOGY DEPARTMENT INTERMEDIATE ACCOUNTING II Name: Stephanie Pascua Section: Instructor : Marie Ross S. Rodriguez, CPA QUIZ PLEASE ANSWER WITH INTEGRITY. Instruction: Write your solution on a piece of paper. On this document, bold the letter of your answer. Pro...

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BATAAN HEROES COLLEGE BUSINESS AND TECHNOLOGY DEPARTMENT INTERMEDIATE ACCOUNTING II

Name: Stephanie Pascua Section: BSA-2B Instructor : Marie Ross S. Rodriguez, CPA QUIZ PLEASE ANSWER WITH INTEGRITY. Instruction: Write your solution on a piece of paper. On this document, bold the letter of your answer.

Problem 1 On December 31, 2013, BHC Company reported a 9% bonds payable due December 31, 2019 with a carrying amount of P15,405,000. The bonds were issued on December 31, 2009 and had a face amount of P 15,000,000 with interest payable semiannually on June 30 and December 31 of each year. On January 1, 2014, the entity retired P5,000,000 of these bonds at 98. What amount should be reported as gain or loss on the retirement of the bonds for 2014? A. 235,000 gain B. 235,000 loss C. 100,000 gain D. 100,000 loss Problem 2 BHC Company is authorized to issue P 5,000,000 of 6%, 10-year bonds dated July 1, 2013 with interest payments on June 30 and December 31. When the bonds are issued on November 1, 2013, the entity received cash of P 5, Page 1 of 11

150,000 including accrued interest. What is the discount or premium from the issuance of the bonds payable? A. 150,000 bond premium B. 50,000 bond premium C. 150,000 bond discount D. No bond premium and discount Problem 3 During the current year, BHC Company incurred the following costs in connection with the issuance of bonds: Promotion cost

200,000

Printing and engraving

150,000

Legal fees

800,000

Fees paid to independent accountants for registration100,000 Commissions paid to underwriter

1,500,000

What amount should be recorded as bond issue costs to be amortized over the term of the bonds? A. 2,550,000 B. 2,750,000 C. 1,500,000 D. 1,050,000 Problem 4 On November 1, 2013, Mason Company issued P8,000,000 ( 10-year, 8% term bonds dated October 1, 2013. The bonds we sold to yield 10% with total proceeds of P7,000,000 plus accrued interest. Interest is paid every April 1 and October1. What amount should be reported for accrued interest payable on December 31, 2013? Page 2 of 11

A. 175,000 B. 160.000 C. 116,667 D. 106,667 Problem 5 On April 1, 2013, BHC Company issued at 99 plus accrued interest, 2,000 of 8% P1,000 face value bonds. The bonds are dated January 1, 2013, mature on January 1, 2023, and pay interest on January 1 and July 1. The entity paid bond issue cost of P70,000. How much is the issue price? A. 2,000,000 B. 1,980,000 C. 1,950,000 D. 1,910,000 From the bond issuance, what is the net cash received? A. 2,020,000 B. 1,980,000 C. 1,950,000 D. 1,910,000 Problem 6 On March 1, 2013 BHC Company issued at 103 plus accrued interest 4,000 of 9%, P1,000 face value bonds dated January 1, 2013 and mature on January 1, 2023. Interest payable semiannually 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. 4,320,000 B. 4,180,000

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C. 4,120,000 D. 3,980,000 Problem 7 BHC Company had the following long-term debt: Bonds maturing in installments, secured by machinery Bonds maturing on a single date, secured by realty Collateral trust bonds

1,000,000

1,800,000

2,000,000

What is the total amount of debenture bonds? A. 2,000,000 B. 1,000,000 C. 1,800,000 D. 0 Problem 8 BHC Company had the following long-term debt: Sinking fund bonds, maturing in installments

2,200,000

Industrial revenue bonds, maturing in installments

1,800,000

Subordinated bonds, maturing on a single date

3,000,000

What is the total amount of serial bonds? A. 3,000,000 B. 4,000,000 C. 4,800,000 D. 7,000,000 Problem 9 During 2013, BHC Company is the defendant in a patent infringement lawsuit. The entity's lawyers believe there is a 30% chance that the court will Page 4 of 11

dismiss the case and the entity will incur no outflow of economic benefits. However, if the court rules in favor of the claimant, the lawyers believe that there is a 20% chance that the entity will be required to pay damages ofP200,000 and an 80% chance that the entity will be required to pay damages of P 100,000. Other outcomes are unlikely. The court is expected to rule in late December 2014. There is no indication that the claimant will settle out of court. A 7% risk adjustment factor to the probability-weighted expected cash flows is considered appropriate to reflect the uncertainties in the cash flow estimates. An appropriate discount rate is 5% per year. The present value of 1 at 5% for one period is 0.95. What is the measurement of the provision for lawsuit? A. 100,000 B. 84,000 C. 89,880 D. 85,386 Problem 10 During 2013, BHC Company filed suit against BHMC Company seeking damages for patent infringement. On December 31, 2013, BHC's legal counsel believed that it was probable that BHC would be successful against BHMC for an estimated amount of P1,500,000. In March 2014, BHC was awarded P1,000,000 and received full payment thereof. In BHC's 2013 financial statements issued February 2014, how should this award be reported? A. As a receivable and revenue of P 1,000,000. B. As a receivable and deferred revenue of P 1,000,000. C. As a disclosure of a contingent asset of P1,000,000. D. As a disclosure of a contingent asset of P1,500,000, Problem 11 Page 5 of 11

BHC Company has long owned a manufacturing site that has now been discovered to be contaminated with toxic waste. The entity has acknowledged its responsibility for the contamination. An initial clean up feasibility study has shown that it will cost at least P500,000 to clean up the toxic waste. During the current year, the entity ha been sued for patent infringement and lost the case. A preliminary judgment of P300,000 was issued and is under appeal. The entity's attorneys agree that it is probable that the entity will lose this appeal. What amount of provision should be accrued as liability? A. 500,000 B. 800,000 C. 300,000 D. 0 Problem 12 BHC Company sells motorcycle helmets. In 2013, the entity sold 4,000,000 helmets before discovering a significant defect in their construction. By December 31, 2013, two lawsuits had been filed against the entity. The first lawsuit, which the entity has little chance of winning, is expected to be settled out of court for P1,500,000 in January2014. The legal counsel believed that the entity has a 50-50 chance of winning the second lawsuit, which is for P1,000,000. What is the accrued liability on December 31, 2013 as a result of the lawsuits? A. 1,500,000 B. 1,000,000 C. 2,500,000 D. 0 Problem 13 On February 5, 2014, an employee filed a P2,000,000 lawsuit against Steel Company for damages suffered when one of steel plant exploded on Page 6 of 11

December 29, 2013. The legal counsel believed the entity would probably lose the lawsuit and estimated the loss the lawsuit and estimated the loss to be P500,000. The employee offered to settle the lawsuit out of the court for P900,000 but the entity did not agree to the settlement. On December 31, 2013, what amount should be reported as liability from lawsuit? A. 2,000,000 B. 1,000,000 C. 900,000 D. 500,000 Problem 14 During 2013, BHC Company became involved in a tax dispute with the BIR. On December 3 1, 2013 the tax advisor believed that an unfavorable outcome was probable and a reasonable estimate of additional taxes was P500,000. After the 2013 financial statements were issued, the entity received and accepted a BIR settlement offer of P550,000. What amount of accrued liability should have been reported on December 31, 2013? A. 650,000 B. 550,000 C. 500,000 D. 0 Problem 15 BHC Company sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenue. This account had a balance of P 720,000 on December 31, 2013 before yearend adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of P 180,000 on December 3 1, 2013 outstanding service contracts on December 31, 2013 expire as follows: Page 7 of 11

During 2014

150,000

During 2015

225,000

During 2016

100,000

What amount should be reported as unearned service contract revenue on December 31, 2013? A. 540,000 B. 475,000 C. 295,000 D. 245,000 Problem 16 BHC Company sells office equipment service contracts agreeing to service equipment for a two-year period. Cash receipts from contracts are credited to unearned service contract revenue and service contract costs are charged to service contract expense as incurred. Revenue from service contracts is recognized over the lives of the contracts. Additional information ended December 3 1; 2013 is as follows: Unearned service contract revenue at January 1 Cash receipts from service contracts sold

600,000 980,000

Service contract revenue recognized

860,000

Service contract expense

520,000

What amount should be reported as unearned service contract revenue on December 31, 2013? A. 460,000 B. 480,000 C. 490,000 Page 8 of 11

D. 720,000 Problem 17 BHC Company estimated the annual warranty expense at 2% of annual net sales. The net sales for 2013 amounted to 4,000,000. On January 1, 2013, the warranty liability was P60,000 and the warranty payments during 2013 totaled P 50,000. What is the warranty liability on December 31, 2013? A. 10,000 B. 70,000 C. 80,000 D. 90,000 Problem 18 During 2013, BHC Company introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to peso sales are 2% within 12 months following sale and 4% in the second 12 months following sale. Sales are P6,000,000 for 2013 and P 10,000,000 for 2014. Actual warranty expenditures are P90,000 for 2013 and P300,000 for 2014. On December 31, 2014, what is the estimated warranty liability? A. 570,000 B. 100,000 C. 450,000 D. 0 Problem 19 BHC Company, a retailer of electrical goods, participates in a customer loyalty program operated by an airline. The entity grants program members one air travel point for every P1,000 spent on electrical goods. Program members can redeem the points for travel with the airline subject to availability. The entity pays the airline P90 for each point. During 2013, the entity sold electrical goods for consideration totaling P5,000,000 and granted Page 9 of 11

5,000 points, The fair value of a point is P100. If the entity has collected the consideration allocated to the points on its own account, what is the revenue to be recognized in 2013 in relation to the points? A. 500,000 B. 450,000 C. 50,000 D. 0 Problem 20 BHC Company offered a cash rebate of P10 on each P40 package of batteries sold during 2013. Historically, 10% of customers mail in the rebate form. During 2013, 6,000,000 packages of batteries are sold, and 2,100,000 P10 rebates are mailed to customers. What amount of rebate expense and liability for rebates should be reported respectively, on December 31, 2013? A. 6,000,000 and 6,000,000 B. 6,000,000 and 3,900,000 C. 3,900,000 and 3,900,000 D. 2,100,000 and 3,900,000 Problem 21 Bare Company included one coupon in each box of laundry soap sold. A towel is offered as a premium to customers who send in 10 coupons and a remittance of P20. 2013

Boxes of soap sold

2014

500,000

800,000 Number of towels purchased (P 100 per towel) 20,000 25,000 Page 10 of 11

Coupons redeemed

140,000

200,000 The entity estimated that only 30% of the coupons would be redeemed. What is the premium liability on December 31, 2014? A. 500,000 B. 400,000 C. 320,000 D. 80,000

SUBMISSION ON OR BEFORE 3:30PM Take a picture of your solution and send it in our google classroom together with this document. File Name: Surname_Section_Quiz_IA2

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