FAR Problems
FAR Problems
PROBLEM 15: O Company reported a pretax PROBLEM 17: Q Company issues P10,000,000
financial income of ___________ for the year od 10-year, 9% bonds on March 1,2015 at 97
2019. Among the items reported in the 2019 plus accrued interest. The bonds are dated
income statement are: January 1,2015 and pay interest on June 30 and
Interest on time deposit 240,000 December 31.
Proceeds received from life 1,200,000 28. What is the total cash received on the
insurance on death of officer issue date?
Accrued rental income 300,000 29. The entity to record the issuance of the
Payment of tax penalty, fine 120,000 P10,000,000 bonds will include:
and surcharge a. Credit to discount of 300,000
b. Credit to bonds payable of c. The carrying value of the bonds
9,700,000 payable on December 31, 2020 is
c. Credit to interest expense of 891,630
150,000 d. The balance of the unamortized
d. Credit to cash of 9,850,000 discount on December 31, 2021
is 93,072
PROBLEM 18: On June 30, 2019, R Company
and B Corporation received P3,504,000 when it PROBLEM 20: The 10% bonds payable of T
issued an 8%, 10-year, P4,000,000 bonds to Company had a net carrying amount of 570,000
yield 10%. Per contract, interests are payable on December 31, 2019. The Bonds, which had
every June 30 and December 31 commencing face value of P600, 000, were issued discount to
December 31,2019. yield 12%. The amortization of the bond
30. What amount of additional interest discount was recorded under the effective-
expense should R Company record in interest method. Interest was paid on January 1
2019 as a result of discount and July 1 of each year. On July 2, 2020, several
amortization? years before their maturity the company retired
the bonds at 102. The interest payment on July
Problem 19: On June 30, 2019, S Company 1, 2020 was made as scheduled.
prepared the following entry to record the first
semi-annual interest payment of its bonds 33. What is the loss that T Company should
payable: record on the early retirement of the
bonds on July 2, 2020?
Interest expense 53,113
Discount 3,113 PROBLEM 21: On January 1, 2019, A Inc. issued
Cash 50,000 a 12% P10,000,000 five-year note payable and
On December 31, 2019, S Company reported elected to use the fair value option for financial
P1,000,000 face value bonds and P108,370 repairing purposes. On December 31, 2019,
unamortized discount in its Statement of based on interest and market factors, the fair
Financial Position. The bond was issued on value of the note was determined to be
January 1, 2019 to yield 12% and will mature on P9,500,000.
December 31, 2028.
31. What amount of discount amortization 34. What amount shall be reported in the
should the company report for the year profit or loss section of the 2019
ended December 31,2020? statement of comprehensive income?
32. Which of the following statements is
correct? PROBLEM 22: on January 1, 2019, B
a. Discount amortization in 2020 Corporation issued a P3,000,000, 6%
amounts to 3,708 convertible bonds at par. The bonds mature in
b. S Company will record 50,000 five years and interests are payable every
interest expense on June December 31. The bonds may be converted into
30,2020 ordinary shares on the basis of 50 shares for
each P1,000 bond. The par value of each share
is P15. The interest rate for an equivalent bond each December 31. V Company uses the
without the conversion rights would have been effective interest method of amortization. On
10%. December 31, 2020, the 2,000 bonds were
extinguished early through acquisition in the
35. How much is the carrying value of the open market by V Company for P1,980,000 plus
compound financial instrument as of accrued interest.
December 31, 2020? On July 1, 2019, V Company issued 5,000 of its
36. How much is the total credit to equity 6-year, P1,000 face value, 10% convertible
account upon conversion assuming the bonds at par. Interest is payable every June 30
bonds were converted on December 31, and December 31. On the date of issue, the
2022? prevailing market interest rate for similar debt
without the conversion option is 12%. On July 1,
2020, an investor in V Company’s convertible
PROBLEM 23: On January 1, 2019, C Inc. issued bonds tendered 1,500 bonds for conversion into
P2 million of 16% bonds of 102. Each P1,000 15,000 shares of V Company’s ordinary shares,
bonds has one detachable warrant that allows which had a fair value of P105 and a par value
the holder to purchase ten shares of P 50 par of P1 at the date of conversion.
value stack at P70 per share. The bonds would
39. ---
have sold at 99 without the warrants. 40. The gain on early retirement of bonds
on December 31, 2020?
37. Assuming that all the warrants were 41. The carrying value of the 5,000, 6-year,
exercised at a time when the market P1,000 face value bonds on December
value of the stock is P100, how much is
31,2019?
the total net effect on the equity upon 42. The conversion of the 1,500 6-year,
exercise of the warrants? P1,000 face value bonds on July 1, 2020
will increase share premium by?
PROBLEM 24: On December 31, 2019, U
Company issued 20-year, nonconvertible bonds
PROBLEM 26: On April 1, 2019, W Company
of P5,000,000 for P5,851,160 to yield 10%. issued a 3-year non-interest bearing note of
Interest is payable annually on December 31 at 3,000,000 in exchange of an equipment
12%. On June 1, 2022, U Company retires 3,000 purchased. W Company shall pay P1,000,000
of its own P1,000 bonds. Total cash paid by U every March 31 with the first payment due on
Company is P3,120,000. The accounting period
March 31, 2020. The prevailing rate of notes of
of U Company is the calendar year. this type of note is 12%.
38. What is the amount of gain or loss on 43. What is the carrying value of the note
early retirement of bond that will be on December 31, 2019?
reported in 2022 income statement?
44. Use info from #43, what portion of the
note payable shall be presented as
PROBLEM 25: On January 2, 2019, V Company noncurrent on December 31, 2019?
issued 2,000 of its 5-year, P1,000 face value,
11% bonds dated January 1 at an effective PROBLEM 27: X Company borrowed P1,000,000
annual interest rate of 9%. Interest is payable
on July 1, 2019 and issued a 9% one-year note
payable every after three months starting • The prevailing market rate of
September 30, 2019. The quarterly payments interest on December 31, 2018 is
were P264,200 inclusive of interest. X Company at 11%
paid the required quarterly payments when 47. What is the carrying value of the
due. liability after the debt restructuring
45. What is the carrying value of the note agreement?
payable on December 31, 2019? 48. How much should be recognized in the
profit or loss as a result of the debt
PROBLEM 28: On January 1, 2019, Y Company restructuring arrangement?
purchased a land by issuing a 3-year noninterest
bearing note of P7,200,000, payable annually of PROBLEM 29: ABC Company has an overdue
P2,400,000 with the first payment due on note payable to Union Bank with face value of
December 31,2019. The prevailing rate of the P2,000,000. One-year interest amounting to
notes of this type is 10%. P300,000 was still unpaid as of December 31,
46. What is the carrying value of the note 2019. The said note was issued to yield 15%.
on December 31,2019? In 2019, ABC was experiencing financial
PROBLEM 28: On December 31, 2018, Z difficulties and a downward trend in its financial
Company had an outstanding loan payable to performance. Hence, its management has
Rural Bank of Manila amounting to P5,000,000 negotiated with Union Bank on how it can pay
plus a 12% accrued interest, all due on the said its overdue note. The following were the
date. The loan was entered into on January 1, options presented by ABC to Union Bank on
2017, when the prevailing market rate of December 31, 2019.
interest was 10%. At the end of 2018, because
of the financial difficulties experienced by the Option 1: ABC Company will exchange one of its
company, it failed to settle the total obligation. equipment costing P12,000,000 but with an
Rural Bank of Manila agreed to the following accumulated depreciation of P10,400,000. The
debt restructuring terms: equipment’s fair value is P400,000 higher than
• The principal amount of the loan its carrying value.
had been reduced by P1,000,000 Option 2: ABC Company will issue 20,000, P100
• The interest due had been waived. par value ordinary shares, which currently sell
• The maturity of the load had been at P115 per share.
extended to December 31,2020 49. What is the gain or loss on disposal of
but the company is required to pay asset using Option 1?
an annual interest of 12% on the 50. What is the gain or loss on debt
revised principal amount of the restructuring using Option 2?
loan.
• Z Company paid P20,000 in
expenses directly related to the
negotiation of the restructuring