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FAR Problems

1. The employee's projected benefit obligation on December 31, 2021 is P1,584,000. The current service cost for 2020 is P144,000. 2. The actual return on plan assets is P57,500. The actuarial loss arising from the increase in projected benefit obligation is P150,000. 3. The post-employment benefit expense for 2019 is P750,000. The net defined benefit asset on January 1, 2019 is P1,250,000. The over/under funding of defined benefit cost is P250,000.

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Claire Garcia
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0% found this document useful (0 votes)
65 views7 pages

FAR Problems

1. The employee's projected benefit obligation on December 31, 2021 is P1,584,000. The current service cost for 2020 is P144,000. 2. The actual return on plan assets is P57,500. The actuarial loss arising from the increase in projected benefit obligation is P150,000. 3. The post-employment benefit expense for 2019 is P750,000. The net defined benefit asset on January 1, 2019 is P1,250,000. The over/under funding of defined benefit cost is P250,000.

Uploaded by

Claire Garcia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PROBLEM 1: A Company provides a retirement Accumulated benefit obligation, 5,600,000

benefit of 10% of the final salary per annum for January 1


a contractual period of three years. One of its Accumulated benefit obligation, 6,200,000
employees will be retiring in 2021. The December 31
employee’s anticipated salary in 2019 to 2021 Discount rate 10%
were P1,000,000; P1,200,000 and P1,440,000 Benefits payment for the 500,000
respectively. Using the applicable discount rate retired employees
of 5% (using five decimal places) determine the 5. How much was the current service
following: cost?
1. Current service cost for 2020.
2. Projected benefit obligation on PROBLEM 4: D Company provided the
December 31, 2021. following:
Current service cost 1,600,000
PROBLEM 2: B Company provided the following Actual return on plan assets 400,000
information related to its defined benefit Interest on the beginning fair 350,000
obligation plan in 2019: value of plan assets
Current service cost 15,000 Past service cost 50,000
Past service cost 57,500 Interest on the beginning 500,000
Benefits paid 15,500 defined benefit obligation
Contribution to the plan 10,500 6. How much was the total defined
Fair value of plan assets, 1/1 1,050,000 benefit cost?
Fair value of plan assets, 12/31 1,200,000
Projected benefit obligation, 1,250,000 PROBLEM 5: At December 31, 2019, E Company
12/31 had a defined benefit obligation of P620,000,
Projected benefit obligation, 1,100,000 plan assets of P347,000 and past service cost of
1/1 P122,000.
B Company’s discount rate was 5% while its 7. What is the net defined benefit asset or
expected rate of return was 7% liability that should report on December
3. What is the actual return on plan 31, 2019?
assets?
4. What is the actuarial loss arising from PROBLEM 6: F Company provided the following
the increase in projected benefit information related to employee benefits:
obligation? Settlement rate 10%
Benefits paid to retirees 1,250,000
PROBLEM 3: C Company presented the Contribution to the plan 1,875,000
following information in 2019: Actuarial loss on DBO 250,000
Projected benefit obligation, 7,000,000 Actual return on plan assets 1,062,500
January 1 Past service cost 375,000
Projected benefit obligation, 8,400,000 Present value of DBO settled 1,187,500
December 31 Loss on plan settlement before 312,500
the normal retirement date
Interest income on plan assets 437,500 Contribution during the year 890,000
Interest expense on DBP 750,000 Current Service cost 667,000
Current service cost 625,000 Benefits paid during the year, 550,000
8. How much is the post-employment prior scheduled retirement
benefit expense in 2019? Settlement price to retirees 620,000
9. How much is the net defined benefit prior scheduled retirement
asset or liability on January 1, 2019? Settlement to retirees at 899,000
10. How much is the over or under funding scheduled retirement
of defined benefit cost? Present value of benefits 6,166,000
obligation, December 31
PROBLEM 7: G Company provided the following Fair value of plan asset, 5,784,000
information during the current year: December 31
Decemb January Discount rate 6%
er 31 1
Defined 5,900,00 5,000,00 13. What is the total employee benefit cost
benefit 0 0 to be reported in the profit or loss
obligatio portion of Statement of Comprehensive
n Income?
Fair 7,900,00 6,000,00 14. What is the total employee benefit cost
value of 0 0 to be reported in the other
plan comprehensive income/loss portion of
assets Statement of Comprehensive Income?
The present value of the future reductions in
the contribution are: PROBLEM 9: I Company sells its products on
December 31 January 1 installment basis. In 2019, I Company reported
800,000 300,000 gross profit of P6,000,000 for financial reporting
G Company’s discount rate was 10%. purposes and P1,500,000 for taxation purposes.
11. What is the amount of remeasurement The difference of P4,500,000 was expected to
on asset ceiling that will be recognized be recognized for tax purposesin 2020 and 2021
in other comprehensive income? for P2,500,000 and P2,000,000, respectively.
12. How much is the net interest expense I Company provides 2-year warranty for its
for the current year? products. In 2019, I Company accrued
P2,500,000 warranty expense. Warranty
PROBLEM 8: The following information relates payments in 2019, 2020 and 2021 are P500,000,
to the defined benefit pension plan of H P1,000,000 and P1,000,000, respectively.
Company in relation to the company’s post- In addition to the above, I Company had the
retirement benefit related accounts: following transactions:
Present value of benefit 6,250,000 • Received and earned P500,000 interest,
obligation, January 1 net of 20% final tax
Fair value of plan assets, 5,955,000 • Paid P100,000 premium on life
January 1 insurance of its President, the company
is the beneficiary
I Company reported P2,000,000 pretax Net 2,625,00
accounting income in 2019. Any operating loss Income 0
for 2019 will be carried to 2020. Tax rate for all K Company uses straight line method of
years is 30%. depreciation for financial reporting purposes
15. How much was I Company’s future and accelerated depreciation for tax purposes.
taxable amount on December 31, 2019? The amount charged to depreciation expense
16. How much was I Company’s future on its books this year was P1,500,000. No other
deductible amount on December 31, differences existed between book income and
2019? taxable income except for the amount of
depreciation.
PROBLEM 10: The following facts relate to J 18. Assuming a 30% tax rate, what amount
Company for the year 2019: was deducted for depreciation on the
Deferred tax liability, January 1, 345,000 corporation’s tax return for the current
2019 year?
Deferred tax asset, January 1, 135,000
2019 PROBLEM 12: L Company reported a pretax
Pretax financial income, 2019 2,250,000 financial income of P5,000,000 for the year
Fines and penalties for late 120,000 ended December 31,2019. The following items
payment of taxes are included in the determination of financial
Cumulative temporary 700,000 income:
difference at year-end giving
rise to future taxable amount Estimated litigation loss 500,000
Cumulative temporary 500,000 Prepaid expenses 300,000
difference at year-end giving Other unearned revenue 150,000
rise to future deductible Income from life insurance policy 100,000
amount settlement
Current tax rate 30% Impairment loss on goodwill 200,000
17. What is the amount of taxable income? Income tax rate 30%
19. What amount should L Company report
PROBLEM 11: K Company’s partial income as total tax expense and current tax
statement after its first year of operations: expense respectively?
Income 3,750,00 20. What amount should L Company report
before 0 as total tax expense and current tax
income expense respectively, assuming that
taxes income tax rate is expected to increase
Income to 35% after 2019?
tax
expense
1,035,00 PROBLEM 13: M Company computed a pretax
Current 0 financial income of P6,000,000 for the year
90,000 1,125,00 ended December 31,2019. In preparing the tax
Deferre 0 return, the following differences are noted
d between financial income and taxable income:
Surcharges for late payment of 200,000 Excess tax depreciation over 200,000
taxes financial depreciation
Estimated warranty payable 300,000 Insurance premium on life of 240,000
Dividends received from 400,000 officer with the entity as
domestic corporation beneficiary
Prepaid operating expenses 120,000
Excess financial depreciation 250,000
Tax rate 30%
over tax depreciation 24. What amount should O Company report
Excess of financial revenue over 200,000 as deferred tax asset on December
tax revenue 31,2019?
21. What is the current tax expense for 25. What amount should O Company report
2019 if the tax rate is 30%? as deferred tax liability on December
31, 2019?
PROBLEM 14: N Company reported P3,000,000
pretax accounting profit in 2019, its first year of PROBLEM 16: P Company made the following
operation. At year-end, N Company’s journal entry in late 2019 for rent on one of its
accountant noticed the following differences: leases to A Corporation.
Accounti Tax Cash 60,000
ng return
Unearned Rent 60,000
records
Doubtful 150,000 100,0 The receipt represents rent for years 2020 and
accounts 00 2021, the period covered by the lease. P
expense Company is a cash basis taxpayer. P Company
Depreciati 250,000 400,0 has income tax payable of P92,000 at the end of
on 00 2019, and tax rate is 35%.
expense
26. What amount of income tax expense
Interest 25,000
subjected should P Company report at the end of
to final tax 2019?
Tax rate in 2019 is 30%. Enacted future tax rate 27. Assuming the income tax payable at the
is 25%. end of 2020 is P102,000, what amount
22. What is the current tax expense? of income tax expense would P
23. What is the net deferred tax expense? Company record for 2020?

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

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