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Chapter-12 Intermediate Accounting

This document contains sample problems and solutions related to accounting for other long-term investments. Problem 1 contains true/false questions, Problem 2 has multiple choice questions testing accounting theory, Problem 3 provides exercises with journal entries to record life insurance transactions, Problem 4 contains multiple choice computational questions, and Problem 5 is a longer exercise for classroom discussion. The document provides answers and solutions to the various problems.

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Danica Mae Genavia
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429 views

Chapter-12 Intermediate Accounting

This document contains sample problems and solutions related to accounting for other long-term investments. Problem 1 contains true/false questions, Problem 2 has multiple choice questions testing accounting theory, Problem 3 provides exercises with journal entries to record life insurance transactions, Problem 4 contains multiple choice computational questions, and Problem 5 is a longer exercise for classroom discussion. The document provides answers and solutions to the various problems.

Uploaded by

Danica Mae Genavia
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 12
Other Long-term Investments
PROBLEM 1: TRUE OR FALSE
1. TRUE
2. FALSE
3. FALSE
4. FALSE
5. FALSE

PROBLEM 2: MULTIPLE CHOICE – THEORY


1. C
2. C
3. D
4. C
5. D

PROBLEM 3: EXERCISE
1. Solution:
(a) 1/1/x1
Prepaid Insurance 50,000
Cash 50,000

Insurance expense 50,000


Prepaid Insurance 50,000

(b) 12/31/x3
Cash surrender value 18,000
Insurance expense 6,000
Retained earnings 12,000

(c) 4/1/x4
Cash 4,000
Insurance expense 4,000
Page |2

(d) 12/31/x4
Cash surrender value 3,000
Insurance expense 3,000

(e) 1/1/x5
Prepaid Insurance 50,000
Cash 50,000

(f) 4/15/x5
Cash 1,000,000
Cash surrender value 23,750*
Prepaid Insurance (50K x 9/12) 37,500
Gain on settlement of life insurance 938,750

*21,000 + [(32,000 – 21,000) x 3/12] = 23,750

PROBLEM 4: MULTIPLE CHOICE – COMPUTATIONAL


1. B (450,000 + 90,000 + 15,000 + 30,000 – 5,000) = 580,000

2. C (1,000,000 ÷ 5.11) = 195,700

3. C [40,000 – (108,000 – 87,000) increase in cash surrender value


taking into account the dividends received] = 19,000

4. B
Solution:
Total annual premiums paid (4,000 x 4 yrs.) 16,000
Total life insurance expense (12,800)
Investment in cash surrender value 3,200

5. A
Page |3

PROBLEM 5: FOR CLASSROOM DISCUSSION


1. Solution:

Jan. 1, 20x1
Prepaid insurance 50,000
Cash 50,000

Dec. 31, 20x1


Insurance expense 50,000
Prepaid insurance 50,000

December 31, 20x3


Cash surrender value 90,000
Insurance expense 30,000
Retained earnings 60,000

September 1, 20x4
Cash 3,000
Insurance expense 3,000

December 31, 20x4


Cash surrender value 20,000
Insurance expense 20,000

Jan. 1, 20x5
Prepaid insurance 50,000
Cash 50,000

Aug. 1, 20x5
Cash 5,000,000
Prepaid insurance (50K x 6/12) 25,000
Cash surrender value 120,000
{110K + [(130K – 110K) x 6/12]}
Gain on life insurance 4,855,000
Page |4

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