1.

) Mango Company reported the following items in its December 31, 200A trial balance:
Accounts payable 1,089,000
Advances to employees 45,000
Unearned rent revenue 288,000
Estimated liability for warranty 258,000
Cash surrender value of officers life insurance 75,000
Bonds payable 5,500,000
Discount on bonds payable 225,000
Trademark 39,000

What is the amount that should be reported as total liabilities?

a. 6,717,000 c. 7,005,000
b. 6,960,000 d. 7,080,000

2.) For the period ended December 31, 2012, obtained the following statement of financial
position prepared by the company accountant:
Assets
Cash and cash equivalents P325,000
Accounts receivable 275,000
Trading securities- at FMV as of Dec 31,2012 955,000
Prepayments 50,000
Land 900,000
Building 600,000
Machinery and equipment 330,000
Total assets P3,435,000
Liabilities and stockholders equity
Current liabilities P325,000
Non-current liabilities 250,000
Ordinary shares, P25 par, 50,000 shares issued 1.250,000
Share premium 750,000
Reserve for depreciation-bldg. 50,000
Reserve for depreciation-machinery and equipment 110,000
Reserve for self-insurance 75,000
Accumulated profits 625,000
Total liabilities and stockholders equity P3,435,000
a. Accounts receivable is net of a 6-month, 12% P100,000 loans payable due on
March 31, 2013 to which a P150,000 receivable were assigned. Interest is yet to be
accrued on the loan.
b. Current liabilities include a P50,000 deferred tax liabilities on temporary non-taxable
item expected to reverse in 2013.
c. Current liabilities also include a 10% share dividends payable amounting to
P100,000 declared on December 31, 2012 to stockholders as of the same date
distributable on February 1,2013.

Based on the audit information above, determine the correct balance of the following

Current liabilities
a. P350,000 b. P353,000 c. P450,000 d. P453,000
3.) Non-current liabilities
a. P50,000 b. P250,000 c. P300,000 d. P653,000
4.) Rapp Co. leased a new machine to Lake Co. on January 1, 2011. The lease Is an operating
lease and expires on January 1, 2016. The annual rental is P90,000. Additionally, on
January 1, 2011, Lake paid P50,000 to Rapp as a lease bonus and P25,000 as a security
deposit to be refunded upon expiration of the lease. In Rapps 2011 income statement, the
amount of rental revenue should be:
a. P140,000 b. P125,000 c. P100,000 d. P90,000

5.) Wawa Company leased office premises to Yaya, Inc. for a 5-year term beginning January 2,
2012. Under the terms of the operating lease, rent for the first year is P8,000 and rent for
the years 2 through 5 is P12,500 per annum. However, as an inducement to enter the
lease, Wawa granted Yaya the first 6 months of the lease rent free. In its December
31,2012 income statement, what amount should Wawar reports as rental income
a. P8,000 c. P11,600
b. P10,800 d. P12,000

6.) On January 1, 2012, Polly Company leased a building to Brandon Company under an
operating lease for 10 years at P50,000 per year, payable the first day of each lease year.
Polly paid P15,000 to a real estate-broker as a finders fee. The building is depreciated
P12,000 per year. For 2012 Polly incurred insurance and property tax expense totalling
P9,000. Wackys net rental income for 2012 should be
a. P36,500 c. P29,000
b. P35,000 d. P27,500

7.) On July 1,2010, Julian, Inc. leased a delivery truck from Stephan Corp. under a 3-year
operating lease. Total rent for the term of the lease will be P36,000, payable as follows:
12 months at P500= P6,000
12 months at P750= P9,000
12 months at P1,750= P21,000
All payments were made when due. In Stephans June 30, 2012 balance sheet, the accrued
rent receivable should be reported as
a. P21,000 c. P9,000
b. P12,000 d. P 0

8.) On January 1, 2012, Rico Company leased a building to Glen Corp. under an operating
lease for a 10-year term at an annual rental of P50,000. At inception of the lease, Rico
received P200,000 covering the first 2 years rent of P100,000 and a security deposit of
P100,000. This deposit will not be returned to Glen upon expiration of the lease but will be
applied to payment of rent for the last 2 years of the lease. What portion of the P200,000
should be shown as a current and non-current liability, respectively, In Ricos December
31, 2012 balance sheet?
Current liability Non- current liability
a. P0 P 200,000
b. P 50,000 P 100,000
c. P 100,000 P 100,000
d. P 100,000 P 50,000

9.) As an inducement to enter a lease, Ardent Inc., a lessor, grants Hanzel Corporation, a
lessee, 9 months of free rent under a 5-year operating lease. The lease is effective on July
1, 2012 and provides for monthly rental of P1,000 to begin April 1, 2013. In Hanzels
income statement fo year ended June 30, 2013, rent expense should be reported as
 a. P10, 200 b. P9,000 c. P3,000 d. P2,550

10.) On January 1, 2012, Petula Co. signed a 10-year operating lease for office space at
P96,000 per year. The lease included a provision for additional rent of 5% of annual
company sales in excess of P500,000. Petulas sales for the year ended December 31,
2012, were P600,000. Upon execution of the lease, Petula paid P24,000 as bonus for the
lease. Petulas rent expense for the year ended December 31, 2012, is:
a. P125,000 c. P101,000
b. P103,400 d. P98,400

11.) On December 31, 2012, Dandy Co., leased a new machine from Parson with the
following pertinent information:
Lease term 6 years
Annual rental payable at beginning of each year P50,000
Useful life of machine 8 years
Dandys incremental borrowing rate 15%
Implicit interest rate in lease (known by Dandy) 12%
Present value of annuity of 1 in advance for 6 periods at
12% 4.61
15 % 4.35
The
lease is not renewable, and the machine reverts to Parson at the termination of the lease.
The cost of the machine on Parsons accounting records is P375,500. At the beginning of
the lease, Dandy should record a lease liability of:
a. P 0 c. P230,500
b. P217,500 d. P375,500

12.) On January 1, 2012, Dolly Corp. entered into a 10-year lease agreement with Warren
Company for industrial equipment. Annual lease payments of P10,000 are payable at the
end of each year. Dolly knows that the lessor expects a 10% return on the lease. Dolly has
a 12% incremental borrowing rate. The equipment is expected to have an estimated useful
life of 10 years. In addition, a third party has guaranteed to pay Warren a residual value of
P5,000 at the end of the lease.
The present value of an ordinary annuity of 1 at
12% for 10 years is 5.6502
10% for 10 years is 6.1446
the present value of 1 at
12% for 10 years is .3220
10% for 10 years is .3855
In Dollys October 31, 2012, balance sheet, the principal amount of the lease obligation
was:
a. P56,502 c. P61,446
b. P58,112 d. P63,374

13.) Nelson Corporation entered into a 9-year finance lease on a warehouse on December
31, 2012. Lease payments of P52,000, which includes real estate taxes of P2,000, are due
annually, beginning on December 31,2012, and every December 31, thereafter. Nelson
does not know the interest rate implicit in the lease; Nelsons incremental borrowing rate
is 9%. The rounded present value of an ordinary annuity for 9 years at 9% is 5.6. What
amount should Nelson report as capitalized lease liability at December 31, 2012?
 a. P468, 000 c. P291,200
b. P450,000 d.P280,000

14.) Esther Co. leased a new machine from Norton on May 1, 2012, under a lease with the
following information:

Lease term 10 years

Annual rental payable at beginning of each lease year P40,000
Useful life of machine 12 years
Implicit interest rate 14%
Present value of annuity of 1 in advance for 10 periods at 5.95
14%
Present value of 1 for 10 periods at 14% 0.27
Esther has the option to purchase the machine on May 1, 2022 by paying P50,000, which
approximates the expected fair value of machine on the option exercise date. On May 1,
2012, Esther should record a capitalized lease asset of

a. P251,000
b. P238,000
c. P224,500
d. P198,000

15.) On January 1, 2012, Barbie Company leased 2 automobiles for executive use. The
lease requires Barbie to make 5 annual payments of P13,000 beginning January 1, 2012.
At the end of the lease term, December 31, 2016, Barbie guarantees the residual value of
the automobiles will total P10,000. The lease qualifies as a finance lease. The interest rate
implicit in the lease is 9%. Present value factors for the 9% rate implicit in the lease are as
follows:
For annuity due with 5 payments 4.240
For an ordinary annuity with 5 payments 3.890
Present value of 1 for 5 periods 0.650

Barbies recorded finance lease liability immediately after the first required payment
should be
a. P31,070
b. P35,620
c. P44,070
d. P48,620

1. B. 6,960,000
2. B. 353,000
3. C. 300,000
4. C. 100,000
5. B. 10,800
6. D. 27,500
7. C. 9,000
8. B. 50,000/100,000
9. A. 10,200
10. B. 103,400
11. C. 230,500
12. C. 61446
13. D. 280,000
 14. B. 238,000
15. D. 48,620
1. During 20X1, Rex 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 20X1, and P10,000,000 for 20X2. Actual warranty expenditures are
P90,000 for 20X1 and P300,000 for 20X2. On December 31, 20X2, what is the
estimated warranty liability?
A. 100,000 C. 570,000
B. 450,000 D. 0

2. Mill Company sells washing machines that carry a three-year warranty against
manufacturers defects. Based on the entitys experience, warranty costs are
estimated at P300 per machine. During the current year, Mill company sold 2,400
washing machines and paid warranty costs of P170,000. In its income statement
for the current year, what amount should Mill Company report as (a) Warranty
Expense? (b) Warranty Liability?
A. 170,000 C. 550,000
B. 240,000 D. 720,000

3. On March 1, 20X1, Coin company issued at 103 plus accrued interest 4,000 of its
9%, 1,000 face value bonds. The bonds are dated January 1, 20X1 and will mature
on January 1, 20X9. Interest is payable semi-annually on January 1 and July 1. Coin
paid bond issue cost of P200,000. What is the net cash received from bond
issuance?
A. 4,320,000 C. 4,120,000
B. 4,180,000 D. 3,980,000

4. On January 1, 20X1, Masbate Company issued 5-year bonds with face value 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. Masbate Company uses effective interest
method of amortization.

(a)How much is the issue price of the bond?

A. 5,500,000 C. 5,420,000
B. 5,000,000 D. 4,920,000

(b)On January 1, 20X1, what should be reported as carrying amount of the bonds
payable?
A. 5,500,000 C. 5,420,000
B. 5,000,000 D. 4,920,000

(c) On December 31, 20X1, what should be reported as premium on bonds payable?
A. 500,000 C. 425,200
B. 420,000 D. 345,200

(d) On December 31, 20X1, what should be reported as carrying amount of the
bonds payable?
A. 5,000,000 C. 5,345,000
B. 5,420,000 D. 5,430,000

5. Wall Company leased office premises to Fox Company for a five-year term
beginning January 1, 20X1. Under the terms of the operating lease, rent for the
first year is P800,000. And rent for years 2 to 5 is P1,250,000 per annum. However,
 as an inducement to enter the lease, Wall granted fox the first six months of the
lease rent-free.

(a)In its 2011 income statement, what amount should Wall report as rental
income?
A. 1,200,000 C. 1,080,000
B. 1,160,000 D. 800,000

(b)What amount should be recognized as rent receivable on December 31, 20X2?

A. 110,000 C. 910,000
B. 510,000 D. 0

6. On January 1, 20X1, Hooks Oil Company sold equipment with a carrying amount of
P1,000,000 and a remaining useful life of 10 years to Maco Drilling for P1,500,000.
Hooks immediately leased the equipment back under a 10-year finance lease with a
present value of P1,500,000 and will depreciate the equipment using the straight
line method. Hooks made the first annual lease payment of P244,120 on December
21, 20X1. The implicit interest rate in the lease is 10%. In Hooks December 31,
20X1 statement of financial position, what amount should be reported as deferred
gain on sale of equipment?
A. 500,000 C. 50,000
B. 450,000 D. 0

7. On June 30, 20X1, Lee Company sold equipment to an unaffiliated entity for
P5,500,000. The equipment had a carrying amount of P5,000,000 and a remaining
life of 10 years. The same day, Lee leased back the equipment at P15,000 per
month for 2 years with no option to renew the lease or repurchase the equipment.
The present value of the lease payments using appropriate interest rate was
P318,650 on June 30, 20X1.

(a)In December 31, 20X1 statement of financial position, what amount should be
reported as deferred gain on sale of equipment?
A. 500,000 C. 250,000
B. 450,000 D. 0

(b)What is the equipment rent expense for the year ended December 31, 201X1?
A. 110,000 C. 50,000
B. 90,000 D. 40,000

ANSWER KEY:
1. C. 570,000 (16,000,000 x 6%) 300,000
2. a. D. 720,000 (300 x 2,400)
b. C. 550,000 (720,000 - 170,000)
3. D. 3,980,000 (4,000,000x103%)+(4,000,000x9%x2/12)-200,000
4. a. A. 5,500,000
b. C. 5,420,000 (5,000,000+500,000-80,000)
c. D. 345,200 (420,000 74,800)
d. C. 5,345,000 (5,000,000 345,200) Eff. Interest method, bond issue cost must
be netted against premium.
5. a. C. 1,080,000 (400+1,250+1,250+1,250+1,250)/5yrs
b. B. 510,000 (400+1250-1080-1080)
6. B. 450,000 (1,500,000-1,000,000-50,000) SP-CV
7. a. D. ZERO (5,550,000-5,000,000) The leaseback is operating lease, outright
gain.
b. B. 90,000 (15,000x6)
8.