ACC106 REVIEWERS

INTERMEDIATE ACCOUNTING
1.   Which of the following is not one of the components of an accounting information system?
a. Personnel b. Accounting policies
c. Equipment and devices used to d. T-account
expedite accounting work 
2. This concept views each transaction as having a two-fold effect on values – a value received and a
value parted with, and each transaction is recorded using at least two accounts.
a. Equilibrium b. Duality
c. Twins concept   d. No I., No entry concept

3. It is a formal record where transactions are initially recorded.

a. Journal entries b. Ledger 
c. Master file d. Journal

4. A company paid its property taxes on October 1 for the period October 1, year 1 to September 30,
year 2. When the payment was made, the company debited property taxes expense and credited
cash for ₱8,000. The adjusting entry at December 31, year 1 would include which of the following:
a. debit prepaid property taxes,  ₱ 6,000. 
b. credit prepaid property taxes, ₱6,000.
c. credit property tax expense, ₱2,000.
d. debit property tax expense, ₱6,000.

5. The adjusting entry to recognize an expense that has been incurred but not yet paid involves a debit
and a credit to
a. an asset account and a liability account, respectively.
b. an asset or contra asset account and an expense account, respectively. 
c. an expense account and a liability account, respectively. 
d. a receivable account and a revenue account, respectively.

6. The total credits in the statement of financial position columns of a worksheet are ₱2,161,200,
while the total debits in the income statement columns are ₱740,400. The total debits in the
adjusted trial balance are ₱2,970,000. How much is the profit (loss) for the period? 
a. 68,400  b. 80,800 c. (68,400) d. (80,800)
Solution:
Total debits in adjusted TB (which is equal to total credits)
composed of  real and nominal accounts 2,970,000
Total credits in statement of financial position columns
composed of  real accounts only (2,161,200)
Total credits representing  nominal accounts only  808, 800
Total  debits  of  nominal accounts (740,400)
Profit –  excess of nominal credits over nominal debits  68, 400

7. ABC Co. records all disbursements using nominal accounts_. _ On December 31, 20x1, ABC Co.
has total expenses of ₱4,000,000 before considering the following:
(a) Advertisement costs paid during December 20x1 totaled ₱40,000. The advertisement was aired
on TV on January 5, 20x2.
(b) A two-year insurance on assets was obtained on July 1, 20x1 for ₱96,000.
(c) On July 15, 20x1, ABC Co. entered into an operating lease requiring monthly payments of ₱
240, starting on the date of the lease contract and every 15th of the month thereafter.
(d) Office supplies expense has a balance of ₱80,000. The physical count of office supplies
revealed a balance of ₱64,000.

How much is the adjusted total expenses?

a. 2,894,000 b. 3,704,000 c. 3,896, 000 d. 4,022, 000
 Solution:
Unadjusted total expenses 4,000,000
a. Prepaid advertisement cost (40,000)
b. Unexpired portion of prepaid insurance (72,000)
c. Unexpired portion of prepaid rent (120,000)
d. Unused office supplies (64,000)
Adjusted total expenses 3,704,000

Adjusting entries
Item (a): 
Dec. 31, 20x1  Prepaid advertisement 40,000
Advertising expense 40,000
Item (b): 
Dec. 31, 20x1  Prepaid insurance (96K x  18 /24) 72,000
Insurance expense 72,000
Item (c): 
Dec. 31, 20x1  Prepaid rent (240K x 2 weeks/4) 120,000
Rent expense 120,000

8. On March 1 an entity received 3,000 from a client as an advance for 12 months worth of delivery
services. The entity initially recorded the receipt as a debit to cash and a credit to delivery service
revenue. The adjusting entry on December 31 would include a
a. Debit to delivery service revenue for 2,500
b. Credit to unearned delivery service revenue for 500
c. Credit to delivery service revenue for 500
d. No adjusting entry is required because the delivery service exactly covers a one year period

9. ABC Co. prepared its unadjusted trial balance and determined that the totals of debits and credits
do not equal. Further investigation revealed the following:
(a) The debit posting for cash sale was omitted 2,000
(b) The balance of inventory was listed as a credit instead of debit 12,000
(c) The balance of insurance expense was listed as rent expense 3,000
(d) The balance of interest income was listed as a debit instead of credit 5,000
How much is the difference between the total debits and total credits in the trial balance?
a. 16,000 excess debits
b. 16,000 excess credits
c. 22,000 excess debits
d. 22,000 excess credits
10. The credit total of a trial balance exceeds the debit total by 350. In investing the cause of the
difference, the following errors were determined:
(a) A credit to accounts receivable of 550 was not posted
(b) A 5,000 debit to be made to the purchase account was debited to accounts payable
instead
(c) A 3,000 credit to be made to the sales account was credited to the accounts
receivable account instead
(d) The interest payable account balance of 4,500 was included in the trial balance as
5,400
How much is the reconciled balance using the information given above?
a. 4,750 b. 5,640 c. 6,240  d. 7,450

11. Alaking Co. received cash to be held in trust for Ambit Co. under an escrow agreement. How should
Alaking Co. report the amount received in its financial statements?
a. as part of cash
b. as a liability 
c. as an asset and a liability 
d. as an off-balance sheet item that is disclosed in the notes

12. Under the imprest system of handling petty cash funds, the petty cash fund account is credited
when a. disbursement is made out of the fund.
b. the fund is replenished. 
c. the fund is not replenished and the fund is adjusted for the disbursements during
the period. 
d. the imprest balance of the fund is increased.

13. When a bank receives cash from a depositor, the bank credits which of the following accounts?
a. Cash on hand
b. an appropriate income account
c. Cash in bank 
d. Deposit liability

14. The policies and procedures used to safeguard assets, ensure accurate business information, and
ensure compliance with laws and regulations are called
a. voucher system.
b. bank reconciliation. 
c. internal controls. 
d. proof of cash.

15. Which of the following is not considered an internal control over cash?
a. rotating duties among employees with cashier responsibilities
b. separating the responsibilities for cash custody and cash recording 
c. management’s operating style
d. voucher system
 16. It is a fund that is used to pay relatively small amounts.
a. pretty cash fund
b. small fund
c. cute little cash fund 
d. petty cash fund

17. If the Cash Short and Over account has a credit balance at the end of the period and the
investigation for the discrepancy was without merit, the balance would be reported in the financial
statements as a. receivable from an employee.
b. loss.
c. other liabilities. 
d. other income or gain.

18. Trask Corporation's checkbook balance on December 31, 2001 was ₱8,000. In addition, Trask held
the following items in its safe on December 31:
● Check payable to Trask Corporation, dated January 2, 2002,
not included in December 31 checkbook balance 2,000
● Check payable to Trask Corporation, deposited
on December 20 and included in the December 31
checkbook balance but returned by the bank on
December 30, stamped "NSF." The check was redeposited
on Jan. 2, 2002 and cleared on Jan. 7 400
● Post-dated checks not reflected in the checkbook balance 150
● Check drawn on Trask Corporation's account,
payable to a vendor, dated and recorded December 31,
but not mailed until January 15, 2002, deducted from checkbook balance 1,000

The proper amount to be shown as cash on Trask's balance sheet at December 31, 2001, is
a. ₱7,600. b. ₱8,000. c. ₱ 8,600.  d. ₱9,750.

Solution: (8,000 – 400 + 1,000) =  8,600

19. On December 31, 20x1, West Company had the following cash balances:
Cash in banks ₱1,800,
Petty cash funds (all funds were reimbursed on 12/31/x1) 50,000
Cash in banks includes ₱600,000 of compensating balances against short-term borrowing arrangements
at December 31, 20x1. The compensating balances are not legally restricted as to withdrawal by West. In
the current assets section of West's December 31, 20x1, balance sheet (statement of financial position),
what total amount should be reported as cash?
a. 1,200,000 b. 1,250,000 c. 1,800,000 d. 1,850,000
Solution:
(1,800,000 +50,000)= 1,850,000

20. At December 31, 20x3, Beth Co. had the following balances in the accounts it maintains at XYZ
Bank:
Checking account #101 175,000
Checking account #201 (10,000)
Money Market Account 25,000
90-day certificate of deposit, due 2/28/x4 50,000
180-day certificate of deposit, due 3/15/x4 80,000
Beth Co. classifies debt securities acquired three months or less before maturity date as cash
equivalents. In its December 31, 20x3 statement of financial position, what amount should Beth Co. report
as cash and cash equivalents?
a. 330,000
b. 250,000
c. 240,000
d. 225,000
 21. Sneeze Co. established a petty cash fund of 1,400. The following were the fund disbursements
during the period:
Freight out 740
Transportation exp. 240
Office supplies exp. 230
Misc. exp. 170

In addition to the receipts (source documents) for the above items, the petty cash box contained 8 in
coins and an IOU of 8 from the secretary handling the fund. The IOU is to be treated as salary advance.
The company uses a cash over and short account, as needed. The company decided to decrease the petty
cash fund to 1,000 after replenishing the fund. How much is the cash(shortage) or overage during the
period?
a. (4)
b. 4
c. (12)
d. 12
Solution:
(740 + 240 + 230 + 170 + 8 + 8 = 1,396 per count – 1,400 accountability) =  4 shortage

22. Which of the following is added to the cash balance per bank statement when preparing a bank
reconciliation statement?
a. Credit memo
b. Debit memo
c. Outstanding check 
d. Deposit in transit

23. Journal entries based on the bank reconciliation are required on the depositor’s books for:
a. additions to the balance according to the depositor’s records
b. deductions from the balance according to the depositor’s records
c. both a and b 
d. both additions to and deductions from the balance according to the bank’s records

24. The amount of the outstanding checks is included on the bank reconciliation as:
a. an addition to the balance per bank statement 
b. a deduction from the balance per bank statement
c. an addition to the balance per depositor’s records
d. a deduction from the balance per depositor’s records

25. Jane Co. is preparing its September 30, 20x1 bank reconciliation. Relevant information is shown
below:
Balance per books 1,480
Balance per bank statement 2,800
Collection on note by bank  (including ₱ 250 interest)  2,500
NSF check returned by bank 500
Bank service charges for December 70
Deposits in transit 2,200
Outstanding checks  (including certified checks of ₱ 100)  1,000

● A ₱600 loan amortization of Jane Co. was erroneously debited by the bank to Tarzan
Co.’s account. Jane made the correct entry.
● A ₱650 collection of accounts receivable was erroneously recorded in the books as ₱560.
The actual amount deposited to the bank is ₱650.
The compound entry to reconcile the accounts includes a
a. net debit to cash for  ₱ 2,020. 
b. net credit to cash for ₱700.
c. credit to notes receivable for ₱2,500.
d. net debit to accounts receivable for ₱590.
 Solutions: 
Balance per books, Sept. 30 1,480 Bal. per bank statement, Sept. 30 2,800
Credit memo :  Deposits in transit 2,200
Collection on note by bank 2,50
Debit memos:  Outstanding checks (1,000 - 100) (900)
NSF check (500)
Bank service charge (70)
Book error: Bank error: 
Understatement of collection 90 Unrecorded debit (600) 
Adjusted balance  3,500 Adjusted balance  3,500

฀ 1,480 unadjusted balance vs. 3,500 adjusted balance =  2,020 net debit to cash

date  Cash in bank  2,020

Accounts receivable (500 - 90) 410
Bank service charge 70
Note receivable (2,500 – 250) 2,250
Interest income 250

26. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was
determined: ● The cash balance per books is ₱280,000, while the cash balance per bank statement
is ₱320,000. ● Credit memo – ₱20,000
● Debit memo – ₱15,000
● Deposits in transit – ₱75,000
● Outstanding checks – ₱25,
● The disbursements per books are overstated by ₱45,000.
● The bank debits are understated by ₱40,000.

How much is the adjusted balance of cash?

a. 370,000
b. 330,000 
c. 285,000
d. 380,000

Solution
Bal. per books, end. 280,000 Bal. per bank, end. 320,000
Add: CM 20,000  Add: DIT 75,
Less:  DM (15,000)  Less: OC (25,000)
Add/Less: Book errors: Add/Less: Bank errors:
Understatement 45,000 Overstatement (40,000)
Adjusted balance 330,000  Adjusted balance 330,000

27. Ching Co. has the following information:

Balance per books 380
Credit memos 670
Debit memos 400
Deposits in Transit 560
Outstanding Checks 280

How much is the cash balance per bank statement?

a. 650
b. 560
c. 930
d. 370
Solution:
Balance per books 380 balance per bank 370
CM 670 DIT 560
DM (400) OC (280)
 Adj.Bal. 650 Adj. Bal. 650

28. Ramos Company had the following bank reconciliation at March 31:
Bal.per bank statement, 3/31 93,000
Add:DIT 20,600
113,600
Less: OC (25,200)
Balance per books, 3/31 88,400

Data per bank statement for the month of April follow:

Deposits 116,800
Disbursements 99,400
All reconciliation items at March 31 cleared through the bank in April. Outstanding checks at April 30 totaled
15,000. What is the amount of cash disbursement per books in April?
a. 78,900
b. 89,200
c. 91,900
d. 92,200
Solution:
Disbursement per bank-April 99,400
Less: OC last month (25,200)
Add: OC this month 15,000
Disbursement per books-April 89,200

29. Washing Co. had the following bank reconciliation at March 31, 20x1:
Balance per bank statement, 3/31/x1 46,500
Add deposit in transit 10,300
56,800
Less outstanding checks 12,600
Balance per books, 3/31/x1 44,200
Data per bank for the month of April 20x1:
Deposits...................................................58,400
Disbursements ........................................49,700
All reconciling items at March 31, 20x1 cleared the bank in April. Outstanding checks at April 30, 20x1
totaled ₱7,000. There were no deposits in transit at April 30, 20x1. What is the cash balance per books at
April 30, 20x1?
a. 42,000
b. 56,000
c. 52,000 
d. 48,000

Solution:
Bal. per bank statement – Apr. 30 (46.5K + 58.4K – 49.7K) 55,200
Less: Outstanding check as of Apr. 30 (7,000)
Bal. per books – Apr. 30 48,200
Alternative solution:
Deposits per bank - April 20x1 58,400
Less: DIT in March that cleared in April (10,300)
Add: DIT as of April 30 ------
Cash receipts per books – April

Disbursements per bank - April 20x1 48,100

Less: OC in March that cleared in April (12,600)
Add: OC as of April 30 7,000
Disbursements per books – April 44,100

Cash per books - Mar. 31  (given)  44,200

Add: Cash receipts per books - April 48,100
Less: Disbursements per books - April (44,100)
Cash per books - April 30 48,200

30. The Eric Manufacturing Company received its bank statement for the month ending May 31. The
bank statement indicates a balance of ₱32,400. The cash account as of the close of business on
May 31 has a balance of ₱8,350. In reconciling the balances, the following items were discovered:
(a) Collection by bank of note for ₱1,500 less collection fees of ₱250.
(b) Deposits in transit, ₱51,000.
(c) The bank charged the depositor ₱800 for overdrafts.
(d) Checks outstanding on May 31, ₱79,100.
(e) A check issued to Scott Corp. for ₱4,500 was not recorded in Eric Company's books. The check
cleared the bank in May.
How much is the adjusted balance of cash?
a. 4,300 b. 5,200 c. 6, 600 d. 9,800
Solution: 
Balance per bank statement ₱32,400
Add deposits in transit 51,000
₱83,400
Deduct outstanding checks 79,100
Corrected balance ₱ 4,300
Balance per depositor's records ₱ 8,350
Add note receivable collected by bank 1,250
₱ 9,600
Deduct:
Overdrafts ₱ 800
Book error--unrecorded check 4,500 5,300
Corrected balance ₱ 4,300

31. The overdraft per bank statement of ABC Co. was ₱36,088 as of March 31, 20x1. The following
information was gathered.
● Interest on overdraft for the quarter ended March 20x1 – ₱1,248 (not yet entered in cash book)
● Check deposited with the bank but did not yet clear – ₱4,680
● Check issued but not yet presented for payment- 6,110
●A check for 2,600 discounted with the bank earlier, was dishonored, ABC Co. is not yet aware of
the dishonor.

How much is the overdraft per ABC’s cashbook on March 31, 20x1?
a. 37,518
b. 43,201
c. 33,670
 d. 46,370

32. Under the allowance method of recognizing bad debts on trade accounts receivable, the effect of
writing off an account to an entity’s working capital is
a. Increase
b. Decrease
c. Either a or b depending on the current level of the entity’s working capital
d. No effect
33. At 30 September 2000, Z Ldt.had a provision for doubtful debts of 37,000. During the year ended 30
September 2001 the company wrote off debts totaling 18,000, and at the end of the year, t is
decided that the provision for doubtful debts should be 20,000. What should be included in the
income statement for bad and doubtful debts?
a. 35,000 debit
b. 1,000 debit
c. 38,000 debit
d. 1,000 credit
Solution: (20,000 + 18,000-37,000)= 1,000 bad debts expense
34. At the close of its first year of operations, December 31,2004, Linn company had accounts
receivable of 490,000, after deducting the related allowance for doubtful accounts. During 2004, the
company had charges to bad debt expense of 90,000 and wrote off, as uncollectible, accounts
receivable of 40,000. What should the company report on its balance sheet at December 31,2004
as accounts receivable before the allowance for doubtful accounts?
a. 620,000
b. 540,000
c. 440,000
d. 360,000

35. During the year, Jantz Company made an entry to write off a ₱4,000 uncollectible account. Before
this entry was made, the balance in accounts receivable was ₱80,000 and the balance in the
allowance account was ₱4,500. The net realizable value of accounts receivable after the write-off
entry was
a. ₱80,000. b. ₱79,500. 
c. ₱71,500. d.  ₱ 75,500.
Solution:  [(80,000 – 4,000) - (4,500 – 4,000)] = (76,000 – 500) =  75,500

36. The following information is available for Reagan Company:

 Allowance for doubtful accounts at Dec. 31, 2003 ₱ 8,000
Credit sales during 2004 400,000
Accounts receivable deemed worthless and written
off during 2004 9,000
It has been determined that an allowance for doubtful accounts of ₱9,500 is needed at December 31,
What amount should Reagan record as "bad debt expense" for the year ended December 31, 2004?
a. ₱8,500  b. ₱9,500
c.  ₱ 10,500 d. ₱17,500

Solution: 9,500 + 9,000 – 8,000) =  10,500

Use the following information for the next two questions:

A trial balance before adjustments included the following:
  Debit   Credit 
Sales ₱425,000
Sales returns and allowance ₱14,000
Accounts receivable 53,000
Allowance for doubtful accounts 760

37. If the estimate of uncollectibles is made by taking 1% of net sales, the amount of the adjustment is
a. ₱3,350. c. ₱4,250.
b. ₱ 4,110.  d. ₱4,870.
Solution:  (425,000 – 14,000) =  4,110

38. If the estimate of uncollectibles is made by taking 10% of gross account receivables, the amount of
the adjustment is
a. ₱ 4,540.  c. ₱5,224.
b. ₱5,300. d. ₱6,060.
Solution:  (53,000 x 10%) – 760 =  4,540

39. For the month of December, the records of Balin Corporation show the following information:

Cash received on accounts receivable ₱70,000

Cash sales 60,000
Accounts Receivable, December 1 160,000
Accounts Receivable, December 31 148,000
Accounts Receivable written-off as
Uncollectible 2,000
How much are the gross sales in December?
a. ₱118,000 c. ₱130, 
b.  ₱ 120,000  d. ₱144,
Solution:  (148,000 + 70,000 + 60,000 + 2,000 – 160,000) =  120,000

40. An analysis and aging of accounts receivable of the Lucille Company at December 31, 2002
showed the following:
Accounts Receivable ₱840,000
Allowance for Doubtful Accounts
(before adjustment) 36,000 (cr)
Accounts estimated to be uncollectible 76,800
Compute for the net realizable value of the accounts receivable of Lucille Company at December 31, 2022.
a. ₱804,000 c. ₱763,200
 b. ₱799,200 d. ₱727,200

Solution:  [840,000 – (36,000 + 76,800)] =  727,200

41. ABC Co. has been recognizing bad debt expenses based on the direct write-off method. In 20x4,
ABC Co. decided to change to the allowance method and that doubtful accounts shall be estimated
using the  percentage of receivables  method. The percentage is to be computed based on all
available historical data up to a maximum of four years. Information for five years is shown below:

42. According to the PFRSs, receivables (with allowed practical expedient for trade receivables) are
initially recognized at
a. fair value. b. present value.
c. cost.  d. fair value plus transaction costs.
43. Which of the following statements is incorrect regarding the initial recognition of receivables?
a. On initial recognition, the fair value of a short-term receivable may be equal to its face
amount.
b. On initial recognition, the fair value of a long-term receivable bearing a reasonable interest
rate is deemed equal to its face amount.
c. On initial recognition, the fair value of a long-term noninterest bearing receivable is
deemed equal to the present value of future cash flows from the instrument discounted at the
effective interest rate on initial recognition. 
d. On initial recognition, the fair value of all interest-bearing receivables is deemed
equal to their face amount.

44. Scott Company received a one-year non-interest-bearing note receivable. When the note receivable
was recorded, which of the following were debited or credited? 
Interest Receivable Discount on Note Receivable 
a. Yes Yes
b. Yes No
c.   No Yes 
d. No No

45. What factor should you use for a ₱2,000 note receivable that is collectible in full after five years? 
a. Present value of 1 
b. Present value of an ordinary annuity of 1
c. Present value of an annuity due of 1
d. Any of these

46. On Jan. 2, 20x1, an entity sold a machine in which the receipt of the consideration is deferred to
May 1, 20x2. The total collection on May 1, 20x2 will include both principal and interest. Assuming
interest at a 10% rate, the initial measurement of the receivable would be computed as the total
collection multiplied by what time value of money factor?
a. Future value of annuity of 1
b. Future value of 1
c. Present value of annuity of 1
 d. Present value of 1

47. Which of the following is true regarding non-interest bearing note receivables?
a. they are always discounted to their present value on initial recognition
b. they include a specified principal amount but an unspecified interest amount
c. they include a specified principal and specified interest
d. they cause no interest income to be recognized over their term
e. they include an unspecified principal and an unspecified interest

48. On July 1, 2010, a company obtained a two-year 8% note receivable for services rendered. At that
time, the market rate of interest was 10%. The face amount of the note and the entire amount of the
interest are due on June 30, 2012. Interest receivable at December 31, 2010, was
a. 5% of the face value of the note.
b. 4% of the face value of the note.
c. 5% of the July 1, 2010 present value of the amount due on June 30, 2012.
d. 4% of the July 1, 2010 present value of the amount due on June 30, 2012.

49. Which of the following best describes the concept of time value of money? 
a. interest is earned or incurred on debt instruments due to passage of time 
b. interest is earned only on interest-bearing receivables
c. the amount debited to interest receivable is always equal to the interest income
recognized during the period
d. if no interest receivable is recognized, no interest income is also recognized
Fact pattern for the next three independent questions: 
Information on a note receivable:
Face amount ₱800,000
Effective interest 14%

50. The note is due in lump sum in  five years’ time. What is the carrying amount of the note at initial
recognition? 
a. 415,495  b. 432, 158
c. 567,823 d. 591,834
Solution:  (800K x PV of 1 @14%, n=5) =  415,495

51. The note is due in  four equal annual installments. The first installment is due one period from initial
recognition. What is the carrying amount of the note at initial recognition? 
a. 582,742 b. 567,823
c. 591,834 d. 602,158
Solution:  [(800K ÷ 4) x PV ordinary ann. of 1 @14%, n=4] =  582,742

52. The note is due in  five equal annual installments. The first installment is due at initial recognition.
What is the carrying amount of the note at initial recognition before any collection?
a. 582,742 b. 567, 823
c. 602,158  d. 626,194
Solution:  [(800K ÷ 5) x PV annuity due of 1 @14%, n=5] =  626,194
Use the following information for the next two questions: 
On January 1, 20x1, Kakadwa Co. sold transportation equipment with a historical cost of ₱12,000, and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a noninterest-bearing note
receivable of ₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and every
January1 thereafter. The prevailing rate of interest for this type of note is 12%.

55. How much is the interest income in 20x1?

a. 408,230 c. 328,964
b. 278,334  d. 288,220
Solutions:
Initial measurement:  (4M ÷ 4) x PV annuity due of 1 @12%, n=4 =  3,401,831

Subsequent measurement:

56. How much is the carrying amount of the receivable on December 31, 20x1?
a. 1,690,510  c. 2,690,051 
b. 892,857 d. 1,594,388
Solution: Carrying amount of notes receivable - Jan. 1, 20x2 1,690,051
Add back: Collection on Jan. 1, 20x2 1,000,000
Carrying amount of notes receivable - Dec. 31, 20x1 2,690,051

Use the following information for the next three questions:

Bilag Co. received the following note:
Face amount ₱1,200,
Effective interest 11%
57. The note is due in lump sum in five years’ time. What is the carrying amount of the note at the end
of the second year?
a. 793,360 c. 897,430
b. 877,430  d. 977,430
Solution:  (1 x PV of 1 @11%, n=5) = 712,142 x 111% x 111% =  877,430

58. The note is due in four equal annual installments. The first installment is due one period from initial
recognition. What is the carrying amount of the note at the end of the second year?
a. 930,734 c. 733,114
b. 877,430  d. 513,758
Solution: Initial measurement:  [(1.2 M ÷ 4) x PV ordinary ann. of 1 @11%, n=4] = 930,734
Subsequent measurement: 

59. The note is due in four equal annual installments. The first installment is due one period from initial
recognition. How much is the balance of the unearned interest income (discount on note receivable)
at the end of the second year?
a. 86,242  c. 87,289
b. 76,632 d. 88,643
Solution:
Outstanding balance of face amount (300K x 2) 600,000
Carrying amt. on 12/31/x2 (513,758) 
Unearned interest on 12/31/x2 86,242
OR
Interest income in 20x3 and 20x4 (56,513 + 29,729) =  86,242

60. On July 1, 2002, Cornell Corp. received a one-year note with a face value of ₱900,000 and a stated
interest rate of 15 percent in exchange for a machine with a fair value of ₱1,000,000. What is the
effective interest rate on the note?
a. 16.67 percent  c. 3.5 percent 
b. 15.0 percent d. 11.11 percent