BRIDGING INSTRUCTION PROGRAM

COLLEGE OF ACCOUNTING EDUCATION

1st Semester SY2021-2022

AP Deff November 11, 2021

,

MEASUREMENT: FINANCIAL LIABILITIES

Dasfrnetuigg , Operating base

not designated at fair value Irrevocably designated at fair value

through P&L r through P&L
Initial Measurement

←
(PFRS 9, paragraph 5.1.1) (PFRS 9, paragraph 4.2.2)

Fair value – Transaction Cost = Issue Fair Value

Price or Net Proceeds
*Transaction cost (expense
immediately)
Conceptually: Present Value

Interest is based on effective rate/real Interest is based on stated

rate rate/nominal rate

Subsequent Measurement (PFRS 9, paragraph 5.3.1)

Amortized Cost ①Gfsective Method Fair Value through Profit or Loss

② line meprd
straight method
Balance
③ Gets tag
¥2 yr
•

NOTES PAYABLE by *- 1m •

1. When a note payable is issued for property, goods, or services, the present value
of the note is measured by
a. the fair value of the property, goods, or services.
b. the market value of the note.
c. using an imputed interest rate to discount all future payments on the note.
o d. any of these. -

2. When a note payable is exchanged for property, goods, or services, the stated
interest rate is presumed to be fair unless
a. no interest rate is stated.
b. the stated interest rate is unreasonable.
c. the stated face amount of the note is materially different from the current
cash sales price for similar items or from current market value of the note.
o d. any of these.
 3. Discount on Notes Payable is charged to interest expense /

a. equally over the life of the note.

b. only in the year the note is issued. Np → CASH : CASH Proceeds
0c. using the effective-interest method. =

NP
d. only in the year the note matures. Properly: purchase price Clntrstbeorig)
→

CASH Price
① (non intent bear:D
-

1PV②]
4. On January 1, 2021, Garner Company sold property to Agler Company which
originally cost Garner P760,000. There was no established exchange price for this
property. Agler gave Garner a P1,200,000 zero-interest-bearing note payable in
three equal annual installments of P400,000 with the first payment due December
31, 2021. The note has no ready market. The prevailing rate of interest for a note
of this type is 10%. What is the amount of interest expense that should be
recognized by Agler in 2021, using the effective-interest method?
a. P0. Property ④ 994.750
b. P40,000. 1/1/21
- 12/31/21 -4.00T ✗ 9091=363.640 •

* Discautmnp 20521.820m
0c. P99,480.
=
12/31/22 ¢00T ✗ 826-4 330,560
•
' np

d. P120,000. 1431/23 -400T ✗ -7513 =

¥000 is
12131/21 NP 3%4,5%-20
400T
CASH
7

[Link]?-.--y-g--y
=
#
205,280 hoped > 99,472
Interest
Discant on NT

PI Discatmnl
Date Payment II.
10
Principal
¥994,720

DmnP
-
-

ja ✓
,

qq 694
.fm?%Ed-&#&*
1431121
300,528 →
400,000
330,581 363,611
1h13 ¥2 ,
4W ,
ooo 69,419
0
36,389 363,611
1431123 400,00

5. On January 1, 2021, Glenn Company sold property to Henry Company. There was
no established exchange price for the property, and Henry gave Glenn a
P2,000,000 zero-interest-bearing note payable in 5 equal annual installments of
-

P400,000, with the first payment due December 31, 2021. The prevailing rate of
,

o
interest for a note of this type is 9%. What should be the balance of the Discount
-

on Notes Payable account on the books of Henry at December 31, 2021 after -

adjusting entries are made, assuming that the effective-interest method is used?
a. P0
b. P304,091 41/21 12131/21 4001--1.9174--366,960
-

22 408T X 8417--336,680
c. P446,400 -

d. P558,000
23 400T ✗ 7722=308,880
24
40T 7084=283,360

yyÉ¥Ézµk
✗

_-?ffj?÷o× -09=140,026
"
,
400T ✗ 6499
-2m ✓
discant
444,160
=
12h
IE *
"
IE
Discoid
=
?⃝
 ④

¥±¥%¥
③ modification qtrms Asset swap : Lea> Principal
y interest ✗✗
tank ?

××]↳oinN①
*

Jaga
""
old Lccrt >
-

Tnt
I old #
" "
→
,
6koYo£*
'

or
xx Rmt
new Lcpv ? " Gain / Conor
ext 4
A
] discount ca
.
-

=
-

:P deaf
or 47
[Link]/.tmouu-)x:x
.

Neo -

L us GAAP
DEBT RESTRUCTURING PIRI
6. In a troubled debt restructuring in which the debt is continued with modified terms
substantial : and the carrying amount of the debt is less than the total future cash flows,
a. a loss should be recognized by the debtor.
oÉ÷= or more
.io
b. a gain should be recognized by the debtor.
sbttnt⑦
less than 10 c. a new effective-interest rate must be computed.
•

(non d. no interest expense or revenue should be recognized in the future.

- -

7. A troubled debt restructuring will generally result in a

a. loss by the debtor and a gain by the creditor.
b. loss by both the debtor and the creditor.
c. gain by both the debtor and the creditor.
d. gain by the debtor and a loss by the creditor.

÷
8. In a troubled debt restructuring in which the debt is settled by a transfer of assets
with a fair market value less than the carrying amount of the debt, the debtor
would recognize
a. no gain or loss on the settlement.
b. a gain on the settlement.
c. a loss on the settlement.
d. none of these.

9. In a troubled debt restructuring in which the debt is continued with modified

terms, a gain should be recognized at the date of restructure, but no interest
expense should be recognized over the remaining life of the debt, whenever the
a. carrying amount of the pre-restructure debt is less than the total future
cash flows.
b. carrying amount of the pre-restructure debt is greater than the total future
cash flows.
c. present value of the pre-restructure debt is less than the present value of
the future cash flows.
d. present value of the pre-restructure debt is greater than the present value
of the future cash flows.

[Link] a troubled debt restructuring in which the debt is continued with modified terms
and the carrying amount of the debt is less than the total future cash flows, the
creditor should
a. compute a new effective-interest rate.
b. not recognize a loss.
c. calculate its loss using the historical effective rate of the loan.
d. calculate its loss using the current effective rate of the loan.
Use the following information for questions *88 through *90:
② Equity swap Lcaa )fnP
IP XX
-

[Link]
£AqLoxIinguId③ 61L on
extinguished
debt =
xx

q
 ASttp• 1ubutcxremezceo@luter tParoblo.I
On December 31, 2021, Reese Co. is in financial difficulty and cannot pay a note
due that day. It is a P600,000 note with P60,000 accrued interest payable to
Trear, Inc. Trear agrees to accept from Reese equipment that has a fair value of
P290,000, an original cost of P480,000, and accumulated depreciation of

-
o
P230,000. Use USA GAAP. -

.am?410--.G;#IZgir-hi-
[Link] should recognize a gain or loss on the transfer/exchange of the equipment
of
a. P0. PFRG LF 660,000 ooo

0
b. P40,000 gain. I 250
c. P60,000 gain. Got
A-
d. P190,000 loss.

[Link] should recognize a gain on the settlement/ debt restructuring of the debt
of
[t¥
600T
debt
a. P0.
b. P15,000. 601--660,00060%1 .

]]
c. P55,000.
d. P370,000.
° 290,000
} got
←

0 a. P60,000
21 of
[Link] should record interest expense for 2005
Atv Garima

b. P15,000.
c. P30,000.
4cal?¥;-) 250,000
d. P45,000.

• The following information pertains to the transfer of real estate pursuant to a

troubled debt restructuring by Knot Company to Ton Company in full liquidation
of Knot’s liability to Ton:
Carrying amount of liability liquidated P150,000

Afraid
Carrying amount of real estate transferred 100,000 ✓
Fair value of real estate transferred 90,000

I
[Link] amount should Knot report as gain (loss) on transfer of real estate?
0
(a) (P10,000) 0
(b) P 0 (c) P50,000 (d) P60,000

[Link] amount should Knot report as pretax gain (loss) on restructuring of

]doiaqn→
☒
payables?
(a) (P10,000) (b) P 0 (c) P50,000 (d) P60,000
deftest
entitled
.

Goin
on

L 150,000 or

90.000
] 60,000 [Link] =
debt
tooooo
A. Fu
ooo loom
CA too ,
excti PERS
 Equity SNAP

[Link] Company is experiencing financial difficulty and is negotiating debt

restructuring with its creditors to relieve its financial stress. Style has a
③rdP2,500,000 note payable to United Bank. The bank is considering acceptance of
an equity interest in Style Company in the form of 200,000 shares of common
0
stock valued at P12 per share. The par value of common is P10 per share. How
much is the gain from extinguishment of debt?
(a) P500,000 It
(b) P100,000 (c) P400,000 (d)P0

/ 2.5m
L -
2.5M NP
2m
25--4007 05
2001-12-4
m -

400T
f- ( (2001--110) SP Sp

Garionext.qdebt10oT@GainonIO0TPARext.r_rnF.E
-

✗ 12

.g ?,.y .,
Interest Payable
deb .

*
Gain on
modification a terms
[Link] December 31, 2021, Fire Company was experiencing financial difficulties and
-

entered into a debt restructuring agreement with r the creditor. The creditor
restructured the obligation as follows: r

a. Reduced the principal note payable from P5,000,000 to P4,500,000.

in-ear b. Forgave P600,000
- of accrued interest. - -

c. Extended the maturity date from December 31, 2021 to December 31, 2024. =3 yrs
12%010 d. Reduced the interest from 12% to 10%. Interest was payable annually on
- -

December 31, 2022, 2023 and 2024.

- -

.%;!;TÉ÷a
Fire should report loss on debt restructuring of:
new
(a) P250,000 (b) P850,000 (c) P500,000 (d)P 0

Old L
5,000 ,ooo sooo
-

g- =

L -45m ✗
7118 •
=
3,203,100
New -

[Link] , ,. . .
,.,, ,

[Link]#ut;nao-i--i-ne.. . : : . .
1. 12 :÷===

•①
'°
4.5Mt
Goo no
.

¥-283,498 Payable
,

Daft 1Pm_mt EEP Interest

21609°
12131121 Discount or np
4,500,000
514,069 64,069 413-47979 np
12/11/22 450,000
4316,090
Gain on ext .

or debt
OPERATING LEASE
1. If the lessor records the unearned rent at the inception of a lease, then the lease
must: -

o(a) be an
-
operating lease
(b) be a direct financing lease
(c) contains a bargain purchase option
(d) be an annuity due

2. When a nonrefundable down payment on a leased asset is made in advance under

an operating lease, at the payment date, the lessor credits:
(a) lease
- liability → Finance Gene
O
(b) unearned rent
(c) cash
(d) rent revenue

3. The basic accounting issue for lessors is:

(a) computing depreciation on the leased asset

Oo
(b) revenue recognition during the lease term
(c) determination of the cost of the leased asset
(d) expense recognition during the lease term

4. Which of the following is the complete list of classifications of leases from the
standpoint of the lessor?
(a) direct financing, sales type, and operating
(b) direct financing, sales type, and leveraged
(c) direct financing, and sales type
(d) direct financing, operating
 the lessee
giorno title
Logar
to
passes
lessee
option
② bargain pinches Reward?= D
③ Eblis 10847 rent % Risk t

④
cmajor)
Pup
9090
7¥ yur
mLP• lessor
N COLD *→DeP
• On January 1,2021, Candor Company purchased an equipment for P3,000,000 -

cash for the purpose of leasing

-
it. The equipment is expected to have a 10-year lessee
life and no residual value. On April 1,2021, it leased the equipment to Brave →
-0
Corporation for 3 years at a monthly rental of P50,000 payable at the beginning
0
of every month. On the same date, it also received a security deposit of P600,000

÷÷:m*
to be refunded upon the lease expiration.
-
-

In addition to the rental, Candor received from Brave a lease bonus of P120,000
on January 1,2021. On April 1,2021, Candor paid initial direct
- cost of P300,000.
Such costs are directly attributable to negotiating and arranging the operating
lease. During the year, Candor paid repair and maintenance of P20,000. The lease
bonus is amortized over 3 years or P40,000 annually. The equipment is
Cosset)CA + *
depreciated over 10 years. Deferred IDC > 30-0,000
41/21 Equipment > 3,000 ,
ooo CASI
carat #
✓

Hawtin
411121 " ' f- CASH > [Link]/RepairstMoinkne0y2o,ooo CASA
port Income
-

✓
# 12131121 DE ( 3m40) 7 300.000
> Goo
ooo
can ,
AD
lioailibfo Securitydeposit # (1201-13×9112)>30,08
Gross rental 1450173017 qzµ A- ur

(3001-13×91,2)>75,06
Rent Income
-

Son !
exp
-

(20-1) Unearned port income 120 '

Amor#giving MC
csootbmrs Deferred IDC
Elixir Company acquired a second-hand heavy equipment on January 1, 2021 for P4,600,000
-

cast? cash for the purpose of leasing it. In addition, Elixir incurred P200,000
-

for a major overhaul

✓ T
making the equipment in good operating condition. The heavy equipment is estimated to

n÷:I
have a useful life of 10 years with salvage value of P600,000 from the date of purchase.
Depreciation is computed using the straight-line basis. we
-
-

On May 1, 2021, Elixir leased the heavy equipment to Excel Company for a four-year
period ending April 30, 2025, at a monthly rental of P75,000. Excel paid P900,000 lease fee
÷75T=RM
- =
for one year and P288,000 lease bonus to obtain the lease. There is no provision or purchase -

-
of the machine by the lessee upon the expiration of the lease. → IDC
During 2021, Elixir spent the amount of P50,000 for yearly insurance, and P60,000 for
commission associated with lease negotiation in May 1, 2021. :
[Link] 288-1-4×81,2=48,000
5. How much was the net income of the lessor for the calendar year 2021?
(a) P740,000 (b) P320,000 (c) P396,667 (d) P134,667- 900T ✓
①D Ms ✗757=600,000
511 → 12131=8
.

6. Who had the right to record the depreciation of the leased heavy equipment? • unearned 300in
0(a) Elixir Company (c) Both Elixir and Excel
(b) Excel Company (d) None of them lease
bone ✓

cast 46m -1200T -_

4.8m -600T Guess rental (6001-1-48,000) 648,000
reoteand
fonteyp .
✓

(33,3-53)
420T
=
Grotta DE 8112
-

↳ sumo
50T ✗
480,0oz
1601000£
117460T¢, lot "
"t
het Dattuoome TIE
 1) 12 o =3 moos

¥µl4Yr*2=¥wy -110--51=0,000/5 -_l02i@

-

one

Collection

0
7. As an inducement to enter a lease, Arts, Inc. a lessor, grants Hompson
Corporation, a lessee, nine months of free rent under a five year operating lease.
The lease is effective on July 1, 2020 and provides for monthly rental of P10,000
to begin April 1, 2021. ←

In Hompson’s income statement for the year ended June 30, 2021, rent
expense should be reported as:
-

0(a) P102,000 (b) P90,000 (c) P30,000 (d) P25,500

711120 →
16120121 Rent Expense 102.00030 ooo 6130123 theotexpono 102M
CAsHC10t✗3mÉ ,

721000 Root Pavao ¥o,Ñ

CASH
Rent Payable
# She
" 102,000 6130124
6130122 Rene qxpene .

181000
Dont Payable 120 ooo,
6130175 ?M0
.
.

CASHCLOTXTD -

8. Kay Company, a lessor of office machines, purchased a new machine for P600,000
on January 1, 2021, which was leased the same day to Lee. The machine will be
depreciated at P55,000 per year. The lease is for a four-year period expiring
-
-

January 1, 2025, and provides for annual rental payments of P100,000 beginning
-
-

January 1, 2021. Additionally, Lee paid P64,000 to Kay as a lease bonus. In its
2021 income statement, what amount of revenue and expense should Kay report
-

on this leased asset?

Revenue Expense Revenue Expense
(a) P100,000 P0 o (c) P116,000 P55,000
- -

(b) P116,000 P0 (d) P164,000 P55,000

100 no

manful income ,

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