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Assignment 2

This document provides 7 problems (A-G) involving the accounting for financial liabilities measured at amortized cost. Each problem involves calculating the carrying amount of a liability over multiple periods as well as the amount of interest expense to recognize based on details provided such as principal amounts, interest rates, payment terms. The problems require calculating amounts using concepts such as present value, imputed interest rates, and effective interest rates.

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33 views1 page

Assignment 2

This document provides 7 problems (A-G) involving the accounting for financial liabilities measured at amortized cost. Each problem involves calculating the carrying amount of a liability over multiple periods as well as the amount of interest expense to recognize based on details provided such as principal amounts, interest rates, payment terms. The problems require calculating amounts using concepts such as present value, imputed interest rates, and effective interest rates.

Uploaded by

mallarijhoana21
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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Audit of Liabilities

Assignment 2 – Financial Liabilities at Amortized Cost

Instruction: Write your answers and solutions on a yellow paper. Show your solutions in good form.
Make sure that final answers are clearly indicated.

A. On January 1, 2019, the company acquired an equipment for P250,000. The company paid a 20% down payment
and issued a 10% note for the balance. The note is payable on January 1, 2021. Interest is payable every
December 31.
1. At how much should the equipment be recorded on January 1, 2019?
2. How much is the carrying amount of the liability at December 31, 2019 and 2020?
3. How much interest expense should be recognized in 2019 and 2020?

B. On January 1, 2019, the company acquired an equipment for P250,000. The company paid a 20% down payment
and issued a non-interest bearing note for that balance that is payable on January 1, 2021. Imputed interest rate on
the note is 10%.
1. At how much should the equipment be recorded on January 1, 2019?
2. How much is the carrying amount of the liability at December 31, 2019 and 2020?
3. How much interest expense should be recognized in 2019 and 2020?

C. On January 1, 2019, the company acquired an equipment for P250,000. The company paid a 20% down payment
and issued a 10% note for the balance. The note is payable on January 1, 2021. Interest is payable every
December 31. The prevailing interest rate for this type of note is 8%.
1. At how much should the equipment be recorded on January 1, 2019?
2. How much is the carrying amount of the liability at December 31, 2019 and 2020?
3. How much interest expense should be recognized in 2019 and 2020?

D. On January 1, 2019, the company borrowed P250,000 and issued a 10% note evidencing the borrowing. The note is
payable in three equal principal installments every December 31 plus interest on the outstanding balance.
1. How much is the carrying amount of the loan at December 31, 2019, 2020 and 2021?
2. How much interest expense should be recognized in 2019, 2020 and 2021?

E. On January 1, 2019, an entity entered into a contract with a seller to purchase machinery. The price stated in the
contract is P400,000. Terms of the contract provides that 10% down payment while the balance will be subject to
6% interest and shall be payable in three equal annual installments of P218,175. The first installment payment shall
be made on December 31, 2019. Control of the machinery transfers to the buyer on January 1, 2019.

1. How much is the carrying amount of the liability at January 1, 2019, December 31, 2019 and 2020?
2. How much interest expense shall be recognized in 2019 and 2020?

F. On January 1, 2019, an entity entered into a contract with a seller to purchase an equipment for P575,000. The
contract provides that P172,500 shall be paid on the date of sale (January 1, 2019). The company issued a note for
6% note for the balance which calls for payment of P116,158 annually for four years beginning December 31, 2019.

However, the prevailing interest for notes of this type is 12%.

1. How much is the carrying amount of the liability at January 1, 2019, December 31, 2019, 2020, 2021, 2022?
2. How much interest expense shall be recognized in 2019, 2020, 2021 and 2022?

G. On January 1, 2019, an entity borrowed P500,000 cash. The entity issued a 12% note for P500,000. The note is
payable in three equal annual installments every starting December 31, 2019. The stated interest on the note
reflects current market rates for loans of this type.
1. How much is the annual installment?
2. How much is the carrying amount of the liability at January 1, 2019, December 31, 2019, December 31, 2020,
2021?
3. How much interest expense shall be recognized in 2019, 2020, and 2021?

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