BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

LIABILITIES
PROBLEM 1-1 Current and Non-Current Liabilities

Karasuno Company provided the following information on December 31,2023

Accounts payable P 3,000,000

Notes payable including the notes payable of P500,000 due on September 2,000,000
1, 2025.
Bank overdraft 350,000
Share dividends payable 700,000
Dividends payable 400,000
Mortgage payable 1,500,000
Bonds payable 2,000,000
Debit balances in customer account 250,000

Required:
Compute the total current liabilities and total non-current liabilities.

PROBLEM 1-2 Current and Non-Current Liabilities

The unadjusted trial balance of Nekoma Company at December 31, 2023 included the following:

Accounts payable P 2,600,000

Bank note payable 900,000
Mortgage note payable 1,500,000

The bank note, issued August 1, 2023, is due on July 31, 2024 with interest at a rate of 12%
payable at maturity.

The mortgage note is due on March 1, 2024. Interest at 9% has been paid up to December 31,
2022. The entity intended on December 31, 2023 to refinance the mortgage note on the due date
with a new 10-year mortgage note.

On March 1,2024, the entity paid P500,000 in cash on the principal balance of the mortgage note
and refinanced the remaining P1,000,000.
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On November 1, 2023, the entity rented a portion of its factory to a tenant for P360,000 per year,
payable in advance. The payment for the 12 months ended October 31, 2024 was received as
required and was credited to rent revenue.

What amount should be reported as total current liabilities and total non-current liabilities on
December 31, 2023?

PROBLEM 1-3 Current and Non-Current Liabilities

Inarizaki Company reported the following liabilities on December 31, 2023:

Accounts payable P 1,250,000

Short-term borrowings 700,000
Advances to employees 100,000
Withholding tax payable 120,000
Income tax payable 960,000
Mortgage payable, current portion P750,000 3,000,000
Bank loan payable, due June 30, 2024 2,000,000

The P2,000,000 bank loan was refinanced with a 5-year loan on January 15, 2024, with the first
principal payment due January 15, 2025.

The financial statements were issued February 28, 2024.

What amount should be reported as total current liabilities and total non-current liabilities on
December 31, 2023?

PROBLEM 1-4 Current and Non-Current Liabilities

Shiratorizawa Company reported the following liabilities on December 31, 2023:

Accounts Payable P 3,000,000

Dividends payable 500,000
Credit balance in customer accounts 250,000
9% note payable issued November 1, 2022 maturity July 1, 2024 4,000,000
8% note payable issued October 1, 2022 maturing October 1, 2024 2,600,000
12% debentures payable, next annual principal installment of P750,000 9,000,000
due february 1, 2024.
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On December 31, 2023, the entity consummated a noncancellable agreement with the lender to
refinance the 9% note payable on a long term basis.

On December 31, 2023, the entity has the right to roll over the 8% note payable for at least
twelve months after the end of reporting period.

What amount should be reported as total current liabilities and total non-current liabilities on
December 31, 2023?

PROBLEM 1-5 Current and Non-Current Liabilities

Haikyuu Company disclosed the following information about liabilities at year end:

Accounts payable after deducting credit balances in suppliers’ accounts P 3,250,000

amounting to P150,000.
Accrued expenses 150,000
Debit balances of customers’ accounts 75,000
Dividend payable 300,000
Estimated warranty liability 560,000
Estimated premium liability 700,000
Deferred serial bonds, issued at par and bearing interest of 10%, payable in 3,600,000
semiannually installment of P600,000 due May 1 and November 1 of each
year, the last bond to be paid on November 1, 2026. Interest is also paid
semiannually.

What amount should be reported as total current liabilities and total non-current liabilities on
December 31, 2023?

PROBLEM 1-6 Premium Liability

Zoro Company sells a new instant coffee called Mochachino. A mug is offered as a premium to a
customer for every box of Mochachino by presenting the box with an intact code written at the
bottom of the box together with a remittance of P10. Distribution cost is P15 per mug.

Data for the premium offer are:

2023 2024
Mochachino sales P 7,000,000 P 8,400,000
Mug purchases, P50 per mug P 3,000,000 P 4,000,000
Number of mugs distributed as premium 30,000 45,000
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Number of mugs expected to be distributed in 15,000 10,000

subsequent periods.

1. ​ What amount should be reported as premium expense for 2023?

2. ​ What amount should be reported as estimated premium liability for 2023?
3. ​ What amount should be reported as premium expense for 2024?
4. ​ What amount should be reported as estimated premium liability for 2024?

PROBLEM 1-7 Premium Liability (Free Product Coupon)

Luffy Company sells a straw hat for P300 each. There is a promotion wherein if a customer buys
4 pieces in a single transaction, a customer receives a coupon for one additional piece for free.

During 2023, Luffy sold 4,600 straw hats. The selling price of the products sold is P 1,380,000.

It is expected that 80% of the coupon will be redeemed. During 2024 the entity delivered 420
free additional straw hats to the customer.

1. ​ What amount should be reported as stand-alone selling price of the free product coupons?
2. ​ What amount of the transaction price should be allocated to the free product?
3. ​ What amount should be reported as sales revenue in 2023?
4. ​ What amount should be reported as sales revenue from the delivery of free products in
2024?
5. ​ What amount should be reported as deferred revenue for December 31, 2024?

PROBLEM 1-8 Premium Liability (Discount Coupon)

Nami Company is a retailer that sells swimsuits. Nami has launched a promotional campaign
wherein customers who buy swimsuits with a single purchase of at least P5,000 shall be granted
“30% discount coupons” on future purchases. The coupon may be used for 6 months
immediately following the campaign.

During the campaign, Nami sold swimsuits worth P5,000,000 and simultaneously issued 300
“30% discount coupons” to the customers.

It is expected that 75% of the coupons will be redeemed and the customers using the discount
coupons will spend an average price of P6,200.

1. What amount should be reported as the stand-alone selling price of the discount coupon?
2. What amount of transaction price should be allocated to the discount coupons?
3. What amount should be recorded initially as sales revenue?
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4. What amount should be recorded as sales revenue from the redemption of coupons?

PROBLEM 1-9 Premium Liability (Gift Certificate)

During the current year, Sanji Company sold gift certificates worth P9,000,000 to customers in
exchange for future delivery of its product.

The gift certificates are nonrefundable and the entity expects that 15% of the certificates will not
be redeemed.

The entity redeemed gift certificates worth P4,500,000 during the current years.

Expected value of breakage (P9,000,000 x 15%) P 1,350,000

Expected value of certificates to be redeemed (P9,000,000 x 85%) 7,650,000
Value of certificates redeemed 4,500,000

1. What amount should be recognized as breakage revenue from gift certificates for the current
year?
2. What amount should be reported as deferred revenue from gift certificates at years-end?

PROBLEM 1-10 Premium Liability (Customer Loyalty Program)

Oscar Piastri Company operates a customer loyalty program. The entity grants loyalty points to
those who buy paddock passes for Formula 1 Grand Prix. Paddock passes purchasers can redeem
points if they wish to avail another ticket for the upcoming races. Those points do not expire.

During the Monaco Grand Prix, customers earned 20,000 points. Formula One Group, the
management, expects that 79% of these points will be redeemed. The stand-alone price of each
paddock point is ₱60. The management sold paddock passes with a total ₱8,800,000 based on the
standalone selling price.

The paddock points redeemed and the total paddock points expected to be redeemed for each
grand prix are:

Redeemed Expected to be redeemed

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Monaco Grand Prix 6,970 79%

Austrian Grand Prix 5,430 85%

Italian Grand Prix 2,950 92%

Las Vegas Grand Prix 3,650 99%

1. What amount of the transaction price should be allocated to the paddock points?
a.​ ₱1,056,000
b.​ ₱1,200,000
c.​ ₱1,356,000
d.​ ₱1,500,000
2. What amount should be reported as revenue from points at the Monaco Grand Prix?
a.​ ₱304,416
b.​ ₱436,792
c.​ ₱465,843
d.​ ₱576,541
3. What amount should be reported as revenue from points at the Austrian Grand Prix?
a.​ ₱304,416
b.​ ₱436,792
c.​ ₱465,843
d.​ ₱576,541
4. What amount should be reported as revenue from points at the Italian Grand Prix?
a.​ ₱304,416
b.​ ₱436,792
c.​ ₱465,843
d.​ ₱576,541
5. What amount should be reported as revenue from points at the Las Vegas Grand Prix?
a.​ ₱304,416
b.​ ₱436,792
c.​ ₱465,843
d.​ ₱576,541

PROBLEM 1-11 Warranty Liability

Edvin Jae Company sells refrigerators that carry a five-year warranty against manufacturer's
defects.
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Based on the entity's experience. warranty costs are estimated at P500 per machine.

During the current year, the entity sold 5,100 washing machines and paid warranty costs of
P420,000.

1. What amount should be reported as warranty expense for the current year?
2. What amount should be reported as warranty liability at year-end?

PROBLEM 1-12 Warranty Liability

AI Incorporation manufactures high-end home robot systems. The incorooration provides a

three-year warranty for all products sold and estimated that the warranty cost is P270 per unit
sold and reported a liability for estimated warranty cost of P770,000 at the beginning of the year.

During the current year, the incorporation sold 10,000 units for a total of P18,000,000 and paid
warranty claims of P3,000,000 on current and prior year sales.

What amount should be reported as warranty liability at year-end?

PROBLEM 1-13 Warranty Liability

In 2035, Kitty Company carry a two-year warranty against defects when it began selling a new
line of products.
​
Based upon past experience with other products, the entity estimated warranty costs as a
percentage of peso sales.

First year of warranty 4%

Second year of warranty 7%

2035 2036

Sales 6,600,000 9,000,000

Actual warranty 270,000 400,000

1. What amount should be reported as warranty expense for 2035?

2. What amount should be reported as warranty liability on December 31, 2035?
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3. What amount should be reported as warranty expense for 2036?

4. What amount should be reported as warranty liability on December 31, 2036?

PROBLEM 1-14 Warranty Liability

Pussie Company owned a boat dealership used for servicing warranty. The entity sold 700 boats
during the year.

The entity's experience with warranty claims is that 45% of all boats sold in a year have zero
defect, 35% of all cars sold in a year have minor defects, and 20% of all boats sold in a year have
major defects.

The cost of rectifying a "minor defect" in a car is P18,000. The cost of rectifying a "major
defect" in a boat is P36,000.

What amount should be reported as warranty liability at year-end?

PROBLEM 1-15 Warranty Liability

Jesusa Company grants warranties at the time of sale to purchasers of its product. The entity
undertakes to make good, by repair or within one replacement, manufacturing defects that
become apparent year from the date of sale.

Sales of P14,000,000 were made evenly throughout 2029. The expenditures for warranty repairs
and replacements for the products sold in 2029 are expected to be made 66​% in 2029 and 44% in
2030.

The 2030 outflows of economic benefits related to the warranty will take place on December 31,
2030.

The entity estimated that 55% of products sold require no warranty repairs, 30% of products sold
require normal repairs costing P230,000 and 15% of products sold require significant repairs
costing P480,000.

An appropriate risk adjustment factor to reflect the uncertainties in the cash flow estimates is an
increment of 9% to the probability weighted expected cash flows.

The appropriate discount factor for cash flows expected to occur on December 31, 2030 is 0.89.
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1. What amount should be reported as warranty expense for 2029?

2. What amount should be reported as warranty liability on December 31, 2029?

PROBLEM 1-16 Bonus Computation

Scuderia Ferrari had a bonus agreement which provided that their drivers Charles Leclerc and
Carlos Sainz would receive an annual bonus of 25% and 10% of their net income after bonus and
after tax respectively. The income tax rate is 25%. Both drivers received ₱700,000 for the current
year as bonus.

1.​ What amount should be reported as income before bonus and before tax?
a.​ Leclerc - ₱3,500,000; Sainz - ₱7,000,000
b.​ Leclerc - ₱8,166,667; Sainz - ₱16,333,333
c.​ Leclerc - ₱7,000,000; Sainz - ₱3,500,000
d.​ Leclerc - ₱16,333,333; Sainz - ₱8,166,677

Assuming that the income for the year before income and tax for both drivers was ₱33,000,000
with a bonus of 10%. The income tax rate is 30%.
Determine the bonus under the following assumptions:

2. Bonus is a certain percent of income after bonus but before tax.

a.​ ₱3,000,000
b.​ ₱30,000,000
c.​ ₱33,000,000
d.​ ₱3,300,000
3. Bonus is a certain percent of income after bonus and after tax.
a.​ ₱2,310,000
b.​ ₱2,158,879
c.​ ₱9,310,000
d.​ ₱9,252,336

PROBLEM 1-17 Bonus Computation

McLaren F1 Team, a British motor racing team, had an agreement to pay its driver Lando Norris
a bonus of 10% of the income. The income for the current year before bonus and tax is
₱27,500,000. The income tax rate is 25%.

1. What amount should Lando Norris report as based on income after bonus but before tax?
a.​ ₱2,000,000
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b.​ ₱2,250,000
c.​ ₱2,500,000
d.​ ₱2,750,000
2. What amount should Lando Norris report as bonus based on income after tax?
a.​ ₱1,918,605
b.​ ₱6,395,349
c.​ ₱19,186,046
d.​ ₱25,581,395

PROBLEM 1-18 Bonus Computation

For questions 1-3:

Mercedes AMG Petronas F1 Team agreed to pay their drivers Lewis Hamilton and
George Russel bonuses of the team’s income after securing points and a double podium on the
Spanish Grand Prix last year.
In addition, as a 7th time Formula 1 world champion, Lewis Hamilton pays twice the
income tax rate of George Russel.
The following information are provided:

Lewis Hamilton George Russel

Income before bonus and tax ₱55,250,000 ₱16,000,000

Bonus 10% 10%

Income Tax Rate - 12%

Determine their bonuses under the following assumptions:

1. Bonus is a certain percent of income after bonus but before tax.
a.​ Hamilton- ₱5,525,000; Russel- ₱1,600,000
b.​ Hamilton- ₱1,600,000; Russel-₱5,525,000
c.​ Hamilton- ₱5,022,727; Russel- ₱1,454,545
d.​ Hamilton-₱1,454,545; Russel-₱ 5,022,727
2. Bonus is a certain percent of income after bonus and after tax.
a.​ Hamilton- ₱1,764,706; Russel- ₱12,323,420
b.​ Hamilton- ₱12,323,420; Russel-₱ 1,764,706
c.​ Hamilton- ₱3,902,416; Russel-₱ 1,294,118
d.​ Hamilton-₱1,294,118; Russel- ₱3,902,416
3. Bonus is a certain percent of income after tax but before bonus.
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a.​ Hamilton- ₱12,227,459; Russel- ₱1,748,988

b.​ Hamilton- ₱1,748,988; Russel- ₱12,227,459
c.​ Hamilton- ₱1,425,101; Russel- ₱4,302,254
d.​ Hamilton-₱4,302,254; Russel- ₱1,425,101

PROBLEM 1-19 Bonus Computation

Red Bull Racing had a bonus agreement which provided that their driver, Max Verstappen, shall
receive an annual bonus of 15% of the income after bonus and tax. The income tax rate is 20%.
Verstappen received P600,000 for the current year as a bonus.

What amount should be reported as income before bonus and tax?

a.​ 4,000,000
b.​ 4,600,000
c.​ 5,000,000
d.​ 5,600,000

PROBLEM 1-20 Bonus Computation

After five profitable years, Mercedes F1 Team decided to offer a bonus to their team principal,
Toto Wolff of 25% of income over P10,000,000 earned by the branch during the current year.

The income for the branch was P12,000,000 before tax and before bonus for the current year.
The bonus was computed on income in excess of P10,000,000 after deducting the bonus but
before deducting tax.

What amount should be reported as bonus for the current year?

a.​ 420,000
b.​ 480,000
c.​ 540,000
d.​ 600,000

PROBLEM 1-21 Deferred Revenue

Casino Partnership, sells subscriptions to a specialized directory that is published semiannually

and shipped to subscribers on February 14 and August 14.

Subscriptions received after the January 31 and July 31 cut-off dates are held for the next
publication.
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Cash from subscribers is received evenly during the current year and is credited to deferred
subscription revenue.

Deferred subscription revenue- January 1​ ​ ​ ​ ​ ​ 2,800,000

Cash receipts from subscribers during the current year ​ ​ ​ ​ 11,400,000

1. What amount should be reported as deferred subscription revenue on December 31?

2. What amount should be reported as subscription revenue for the current year?

PROBLEM 1-22 Deferred Revenue

Edvin Panot Company sells 1- and 2-year subscriptions for the music-of-the-month business.
Subscriptions are collected in advance and credited to sales.

2027 2028
Sales ​ ​ ​ ​ ​ ​ ​ ​ 700,000​ 1,000,000
Less cancellations​ ​ ​ ​ ​ ​ 75,000​ 90,000​
Net sales​ ​ ​ ​ ​ ​ ​ 625,0000 910,000

Subscription expirations:

2027​ ​ ​ ​ ​ ​ ​ ​ ​ 175,000​
2028​ ​ ​ ​ ​ ​ ​ ​ ​ 190,000 160,000
2029​ ​ ​ ​ ​ ​ ​ ​ ​ 165,000 240,000
2030​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 200,000
​ ​ ​ ​ ​ ​ ​ ​ ​ 530,000 600,000

1. On December 31, 2028, what amount should be reported as unearned subscription revenue?
2. What amount should be reported as subscription revenue for 2028?

PROBLEM 1-23 Deferred Revenue

An entity sells dog food that is shipped in reusable plastic boxes. Plastic boxes held by customers
at the beginning of the year totaled P600,000, in the present year, an amount of P890,000 was
refunded and deposits. Customers pay a deposit for each plastic box. The deposit is equal to its
cost. Customers receive a refund when it is returned. During the current year, deposits collected
on containers shipped amounted to P1,100,000. Deposits are forfeited if not returned in 6 months
of P60,000 were forfeited.
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What amount should be reported as liability for refundable deposit at year-end?

PROBLEM 1-24 Deferred Revenue

Sheldon Company sells its products in reusable containers. The customer is charged a deposit for
each container delivered and receives a refund for each container returned within two years after
the year of delivery.

The entity accounts for the containers not returned within the time limit as being retired by sale
at the deposit amount. The entity provided the following information for 2029:

Container deposits on January 1, 2029 from deliveries in:

2027 ​ ​ ​ ​ ​ ​ ​ ​ 300,000
2028​ ​ ​ ​ ​ ​ ​ ​ 900,000​ 1,100,000

Deposits for containers delivered in 2029​ ​ ​ ​ 600,000

Deposits for containers returned in 2029 from deliveries in:

2027​ ​ ​ ​ ​ ​ ​ ​ ​ 176,000
2028​ ​ ​ ​ ​ ​ ​ ​ ​ 342,000
2029​ ​ ​ ​ ​ ​ ​ ​ ​ 266,000​ 784,000

On December 31, 2029, what amount should be reported as liability for deposits?

PROBLEM 1-25 Deferred Revenue

Mimi Company sells equipment service contracts that cover a two-year period. The sale price of
each contract is P1,000.

The past experience is that of the total pesos spent for repairs on service contracts. 25% is
incurred evenly during the first contract year and 75% evenly during the second contract year.

The entity sold 3,000 contracts evenly throughout the first year.

1. What amount should be reported as contract revenue for the first year?
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2. What amount should be reported as deferred contract revenue on December 31 of the first
year?
3. What amount should be reported as contract revenue for the second year?
4. What amount should be reported as contract revenue for the third year?

PROBLEM 2-1 PROVISION & CONTINGENT LIABILITY

During the current year, Aheehee Company is the defendant in a patent infringement lawsuit.
The entity's lawyers believe there is a 30% chance that the court will dismiss the case and the
entity will incur no outflow of economic benefits.

However, if the court rules in favor of the claimant, the lawyers believe that there is a 20%
chance that the entity will be required to pay damages of P300,000 and an 80% chance that the
entity will be required to pay damages of P150,000. Other outcomes are unlikely.

The court is expected to rule in late December of next year. There is no indication that the
claimant will settle out of court.

A 10% risk adjustment factor to the probability-weighted expected cash flows is considered
appropriate to reflect the uncertainties in the cash flow estimates.

An appropriate discount rate is 8% per year. The present value of 1 at 8% for one period is 0.93.

What amount should be reported as provision at current year-end?

PROBLEM 2-2 PROVISION & CONTINGENT LIABILITY

During the current year, Philippines Company is the defendant in a breach of patent lawsuit. The
lawyers believe there is an 80% chance that the court will not dismiss the case and the entity will
incur outflow of benefits.

If the court rules in favor of the claimant, the lawyers believe that there is a 70% chance that the
entity will be required to pay damages of P4,000,000 and a 20% chance that the entity will be
required to pay damages of P2,000,000. Other amounts of damages are unlikely.

The court is expected to rule in late December next year. There is no indication that the claimant
will settle out of court.

A 9% risk adjustment factor to the cash flows is considered appropriate to reflect the
uncertainties in the cash flow estimates.
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An appropriate discount rate is 12% per year. The present value of 1 at 12% for one period is
0.89.

What amount should be reported as provision at current year-end?

PROBLEM 2-3 PROVISION & CONTINGENT LIABILITY

Asta Company is the defendant in a lawsuit filed by Yuno Company in 2024 disputing the
validity of copyright held by Asta Company.

On December 31, 2024, Asta Company determined that Yuno Company would probably be
successful against Asta Company for an estimated amount of P5,000,000.

Appropriately, a P5,000,000 loss was accrued by a charge to income for the year ended
December 31, 2024.

On December 31, 2025, Asta Company and Yuno Company agreed to a settlement providing for
cash payment of P3,550,000 by Asta Company to Yuno Company and transfer of Asta
Company's copyright to Yuno Company.

The carrying amount of the copyright on Asta Company's accounting records was P1,250,000 on
December 31, 2025.

What would be the effect of the settlement on Asta Company's income before tax in 2025?

PROBLEM 2-4 PROVISION & CONTINGENT LIABILITY

During the current year, Manfroto company guaranteed a supplier’s P500,000 loan from a bank.
In October, the entity was notified that the supplier had defaulted on the loan and filed for
bankruptcy protection. Counsel believed that the entity would probably have to pay P300,000
under guarantee.

As a result of the supplier’s bankruptcy, the entity entered into a contract in December to retool
its machines so that the entity could accept parts from other suppliers. Retooling costs are
estimated to be P400,000

What amount should be reported as liability at current year-end?

PROBLEM 2-5 PROVISION & CONTINGENT LIABILITY

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On November 5, 2023, a Coaster Company truck was in an accident with an auto driven by
Coco. Coaster Company received notice on January 15, 2024 of a lawsuit for ₱850,000 damages
for personal injuries suffered by Bell.

The entity's counsel believed it is probable that Coco will be awarded an estimated amount in the
range between ₱300,000 and ₱400,000, and no amount is a better estimate of potential liability
than any other amount because each point in the range is as likely as any other.

The 2023 financial statements were issued on March 1, 2024.

What amount of loss should be accrued on December 31, 2023?

PROBLEM 2-6 PROVISION & CONTINGENT LIABILITY

On November 25, 2023, an explosion occurred at a Shock Company Power Plant causing
extensive property damage to area buildings. By March 10, 2024, claims had been asserted
against the entity.

The management and counsel concluded that it is probable that the entity would be responsible
for damages and that ₱9,500,000 is a reasonable estimate of the liability.

Shock Company's ₱15,000,000 comprehensive public liability policy has a ₱1,250,000

deductible clause. The financial statements were issued on March 31, 2024.

What amount of liability from lawsuit should be reported on December 31, 2023?

PROBLEM 2-7 PROVISION & CONTINGENT LIABILITY

Mygod Company provided the following facts regarding pending litigation at year end:

The entity is defending against a first lawsuit and believed there is a 51% chance it will lose in
court. The entity estimated that damages will be P3,000,000.

The entity is defending against a second lawsuit for which management it is virtually certain to
lose in court. If it loses the lawsuit, management estimated that damages will fall somewhere in
the range of P1,000,000 or P3,000,000 with each amount in that range equally likely to occur

The entity is defending against a third lawsuit but the probable and relevant loss will only occur
far into the future. The present values of the endpoints of the range are P3,500,000 and
P1,200,000

The management believed the effects of time value of money on these amounts are material.
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The entity is defending against a fourth lawsuit and believed there is only a 25% chance it will
lose in court. If the entity loses, management believed the damages will fall somewhere in the
range of P1,000,000 to P2,000,000 with each amount in the range equally likely to occur.

What amount should be reported as accrued liability at year-end?

PROBLEM 2-8 PROVISION & CONTINGENT LIABILITY

Bianchi Company provided the following selected transactions related to contingencies. The
fiscal year ends on December 31, 2023 and financial statements are issued on March 31, 2024.

- Bianchi Company is involved in a lawsuit resulting from a dispute with a customer over a
2023 transaction. On December 31, 2023, the legal counsel advised that it was probable that
Bianchi Company would lose P3,000,000 in an unfavorable outcome. On February 15, 2024,
judgment was rendered against Bianchi Company in the amount of P3,000,000 plus interest
P500,000. Bianchi Company does not plan to appeal the judgment.

- Bianchi Company is the defendant in a lawsuit filed in January 2024 in which Vettel
Company seeks P5,000,000 as an adjustment to the purchase price related to the sale of
Bianchi Company's hardwood division in 2023. The lawsuit alleged that Bianchi Company
misrepresented the division's assets and liabilities. Legal counsel advised that it is reasonably
possible that Bianchi Company could lose P2,000,000 but that it is extremely unlikely it
could lose the P5,000,000 asked for.

- On March 1, 2024, the provincial government is in the process of investigating the possibility
of environmental violation at one of Bianchi Company's sites but has not proposed a penalty
assessment. Management believed an assessment is reasonably possible up to P4,000,000.

What total amount should be reported as accrued liability on December 31,2023?

PROBLEM 2-9 PROVISION & CONTINGENT LIABILITY

Quadrant Company provided the following selected transactions related to contingencies. The
fiscal year ends on December 31.2023. Financial statements are issued on April 1, 2024.

- In December 2023. Quadrant Company became aware of an engineering flaw in a product

that poses a potential risk of injury. As a result, a product recall appears inevitable. This
move would likely cost the entity P1,950,000.
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

- In November, 2023, the City of Manila filed suit against Quadrant Company asking civil
penalties and injuctive relief for violations of clean water laws. Quadrant Company reached a
settlement with the city government to pay P3,700,000 in penalties on February 15, 2024

- Quadrant Company is the plaintiff in a P4,000,000 lawsuit filed against a customer for costs
and lost profit from a contract rejected in 2023. The lawsuit is in final appeal and the attorney
advised that it is virtually probable that Quadrant Company will be awarded P3,000,000.

1. What amount should be reported as accrued liability on December 31,2023?

2. What amount should be reported as gain from lawsuit in 2023?

PROBLEM 2-10 PROVISION & CONTINGENT LIABILITY

In May 2024, Caso Company filed suit against Wayne Company seeking P1,900,000 damages
for patent infringement. A court verdict in November 2024 awarded Caso P1,500,000 in
damages, but Wayne Company's appeal is not expected to be decided before 2025.

Caso Company's counsel believed it is probable that Caso Company will be successful against
Wayne Company for an estimated amount in the range between P800,000 and P1,100,000, with
P1,000,000 considered the most likely amount.

What amount should Caso Company record as income from the lawsuit for the year ended
December 31, 2024?
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

PROBLEM 3-1 ISSUANCE OF BONDS

​ On April 1, 2024, Ritsard Company issued at 99 plus accrued interest, 3,000 of 8%

₱1,000 face value bonds. The bonds are dated January 1,2024, mature on January 1,
2034, and pay interest on January 1 and July1. The entity paid bond issue costs of ₱100,000.
From the bond issuance, what is the net cash received?

PROBLEM 3-2 ISSUANCE OF BONDS

​ On January 31, 2024, Labran Jones Company issued ₱4,500,000 maturity value,12%
bonds for P4,500,000 cash. The bonds are dated December 31, 2021 and mature on
December 31, 2031. Interest is payable semiannually on June 30 and December 31. What
amount of accrued interest payable should be reported on October 31, 2022?

PROBLEM 3-3 ISSUANCE OF BONDS

On June 30, 2024, Yamashita Company issued 99, 6,000 of 8%, ₱1,000 face value
bonds. The bonds were issued through an underwriter to whom the entity paid a bond
issue cost of ₱475,000. On June 30,2024, what amount should be reported as a bond
liability?

PROBLEM 3-4 ISSUANCE OF BONDS

On January 14, 2024, June Mar Company issued 1,000, ₱1,000, 12%, 3-year bonds for
₱1,050, 000. Principal is due at maturity but interest is due annually every year-end. The
effective interest rate is 10%.

Prepare journal entries to issuance of bonds

Compute for the carrying value of Bonds Payable on January 1, 2024.

PROBLEM 3-5 ISSUANCE OF BONDS

On January 1, 2025, Ildefonso Company issued 1,000, ₱1,000, 10%, 3-year bonds for
₱900,000. Principal is due at maturity but interest is due annually every year-end. The effective
interest rate is 12%.

Prepare journal entries for issuance of bonds.

Compute for the carrying value of Bonds Payable on January 1, 2024

BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

PROBLEM 3-6 EFFECTIVE INTEREST METHOD

On January 1, 2020, Calvo Company issued 10% bonds payable in the face amount of
P7,000,000. The bonds mature on January 1, 2030. The bonds were issued for P6,969,000 to
yield 12%, resulting in a bond discount of P31,000. The entity used the effective interest method
of amortizing bond discount. Interest is payable semiannually on January 1 and July 1.

For the six months ended June 30, 2020, what amount should be reported as bond interest
expense?

PROBLEM 3-7 EFFECTIVE INTEREST METHOD

On July 1, 2020, Dulling Company issued 4,500 bonds of 8%, ₱1,000 face amount for
₱4,001,000. The bonds were issued to yield 10%. The bonds are dated July 1, 2020 and mature
on July 1, 2029. Interest is payable semiannually on January 1 and July 1.

What amount of the bond discount should be amortized for the six months ended December 31,
2020?

PROBLEM 3-8 EFFECTIVE INTEREST METHOD

On January 1, 2023, Macah Tools Company issued 9% bonds with a face amount of
₱5,000,000 which matured on January 1, 2033.

The bonds were issued for ₱4,756,000 to yield 10%, resulting in the bond discount of ₱344,000.

The entity used the interest method of amortizing bond discount. Interest is payable annually on
December 31.

On December 31, 2023, what amount should be reported as discount on bonds payable?

PROBLEM 3-9 EFFECTIVE INTEREST METHOD

On January 1, 2024, GSWD Company issued 10% bonds in the face amount of
₱4,000,000, which will mature on January 1, 2034.

The bonds were issued for ₱4,675,000 to yield 8% resulting in a bond premium of ₱575,000.

The entity used the interest method of amortizing bonds premium. Interest is payable annually on
December 31.

What is the carrying amount of bonds payable on December 31, 2024?

BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

PROBLEM 3-10 EFFECTIVE INTEREST METHOD

On January 1, 2024, Giannis Company issued 9% bonds in the face amount ₱6,000,000
which will mature on January 1, 2034. The bonds were issued for ₱5,685,000 to yield
10%.Interest payable annually on December 31. The entity used the interest method of
amortizing the bond discount.

What amount should be reported as interest expense for 2024?

On December 31,2024, what is the carrying amount of the bonds payable?

BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

PROBLEM 4-1 Compound Financial Instrument

At year-end, Grrr Company issued P6,000 9%, 10-year bonds, P1,000 face amount with
detachable share warrants at 110.

Each bond carried a detachable warrant for ten ordinary shares of Grrr Company at a specified
option price of P27 per share. The par value of the ordinary share is P22.

Immediately after issuance, the market of the bonds without the warrants was P6,500,000 and the
market value of the warrants was P800,000.

What is the carrying amount of bonds payable at year-end?

PROBLEM 4-2 Compound Financial Instrument

Dino Company had P700,000 convertible 8% bonds payable outstanding on June 30. Each
P1 000 bond was convertible into 11 ordinary shares of P55 par value. On July 1, the interest was
paid to bondholders, and the bonds were converted into ordinary share which had a fair value of
P80 per share.

The premium on bonds payable was P15,000 at the date of conversion. No equity component
was recognized when the bonds were originally issued.

What amount should be recorded as increase in share premium as a result of the bond
conversion?

PROBLEM 4-3 Compound Financial Instrument

On January 1, 2024, Ow Ey Company issued P15,000,000 of 8% non-convertible bonds at 102

which are due on January 31, 2028.

In addition, each P1,000 bond was issued with 20 detachable share warrants, each of which
entitled the bondholder to purchase, for P50, one ordinary share of Ow Ey Company, par value
P25.

On January 1, 2024, the quoted market value of each warrant was P5. The market value of the
bonds ex-warrants at the time of issuance is 90.
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

a. What is the carrying amount of the bonds payable?

b. What amount of the proceeds from the bond issue should be recognized as an increase in
shareholders’ equity?

PROBLEM 4-4 Compound Financial Instrument

On January 1, 2024, OA Company issued 15% P5,000,000 nonconvertible bonds at 102 which
are due in 5 years.

In addition, each P1,000 bond was issued 20 share warrants each of which entitled the
bondholder to purchase for P50 one share of OA Company, par value P25. Interest is payable
annually every end of the year.

On the date of issuance, the market value of the share was P45 and the market value of the
warrant was P5.

The market rate of interest for similar bonds ex-warrants is 17%. The present value of 1 at 17%
for 5 periods is 0.46 and the present value of an ordinary annuity of 1 at 17% for 5 periods is
3.20.

a. What amount should be recognized as discount or premium on the original issuance of the
bonds?

b. What is the equity component arising from the issuance of bonds payable?

c. What amount is credited to share premium if all of the share warrants are exercised?

PROBLEM 4-5 Compound Financial Instrument

On January 1, 2024, Rawr Company issued convertible bonds with a face amount of P 6,250,000
for P 7,200,000.

The bonds are convertible into 125,000 shares with P 50 par value. The bonds have a 5-year life
with 15% interest rate payable annually every December 31.

The fair value of the convertible bonds without conversion option is computed at P 6,749,125 on
January 1, 2024.

On December 31, 2026, the convertible bonds were not converted but fully paid for P 6,660,000.
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

On such date, the fair value of the bonds without conversion privilege is P 6,480,000 and the
carrying amount is P 6,213,960.

a. What is the carrying amount of the bonds payable on January 1, 2024?

b. What amount should be recorded as premium on bonds payable on January 1, 2024?

c. What amount should be recorded as equity component arising from issuance of bonds payable
on January 1, 2024?

Candolita, Bea Bianca Margarette D and Serna, Lee Marie M.

PROBLEM 6-1-4 LESSEE ACCOUNTING

At the beginning of current year, CPA Company leased a machinery with the following
information:

Annual rental payable at the end of each year ​ ​ ​ ​ ​ 2,500,000

Residual Value guarantee ​ ​ ​ ​ ​ ​ ​ ​ 1,000,000

Payment to lessor to obtain a long-term lease ​ ​ ​ ​ 500,000

Cost of dismantling and restoring the asset as required by contract at

present value ​ ​ ​ ​ 550,000

Annual executory cost paid by lessee ​ 120,000

Lease term ​ ​ 5 years

Useful life of machinery ​ 8 years

Implicit interest rate ​ 12%

Present value of an ordinary annuity of 1 at 12% for 5 periods ​ 3. 6048

Present value of 1 at 12% of 5 periods ​ 0.5674

BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

1. What is the initial lease liability?

2. What is the cost of the right of use asset?

3. What is the depreciation for the current year?

4. What is the lease liability at year-end?

Silva, Ghemmalaine Joy M.

PROBLEM 6-5 Operating Lease-Lessor

At the beginning of the current year, Oddatelier Co. leased office premises to LLOUD
Entertainment for a five year term.

Under the terms of the operating lease, rent for the first and second year is P1,000,000 and rent
for years 3 through 5 is P1,500,000 annually.

However, as an inducement to enter the lease, Oddatelier Co. granted LLOUD Entertainment the
first six months of the lease rent-free.

What amount should be reported as rental income for the current year?
A. 6,000,000
B. 1,200,000
C. 1,080,000
D. 1,500,000

PROBLEM 6-6 Operating Lease-Lessor

On March 1, 2024, Brewer Company leased equipment to Big Company for a one-year period
expiring February 28, 2025 for P50,000 a month.

On March 1, 2025, Brewer Company leased the same equipment to Small Company for a
three-year period for P70,000 a month.
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

The original cost of the equipment was P3,250,000 with a useful life of 10 years and no residual
value.

What amount of net rental income should be reported by Brewer Company for the year ended
December 31, 2025?
A. 475,000
B. 210,000
C. 875,000
D. 410,000

PROBLEM 6-7&8 Operating Lease-Lessor

On July 1, 2023, Silver Company leased a delivery truck to Gold Company under a 5-year
operating lease.

Total rent for the term of the lease will be P7,500,000 payable at the end of each lease year.

12 months at P50,000= P600,000

12 months at P100,000= P1,200,000
12 months at P125,000= P1,500,000
12 months at P150,000= P1,800,000
12 months at P200,000= P2,400,000

All payments were made when due.

What amount should be reported as rent revenue for the year ended June 30, 2024?
A. 1,500,000
B. 2,400,000
C. 3,000,000
D. 1,200,000

On June 30, 2025, what amount should be reported as accrued rent receivable?
A. 1,500,000
B. 2,400,000
C. 3,000,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

D. 1,200,000

PROBLEM 6-9 Operating Lease-Lessor

On July 1, 2024, Okiss Company leased equipment to OA Company which expires on July 1,
2025. Okiss Company's accounting records showed a carrying amount for the equipment on July
1, 2024 of P3,500,000. Okiss Company's depreciation on the equipment for 2024 was P350,000.

During 2024, OA Company paid P750,000 in rentals to Okiss Company for the 6-month period.
Okiss Company incurred maintenance and other related costs of P90,000 in 2024.

What amount should be reported as net rental income for 2024?

A. 300,000
B. 310,000
C. 320,000
D. 330,000

Necesito, Rhush B.
PROBLEM 6-10 DIRECT FINANCING LEASE – LESSOR
Tagumpay Company is in the business of leasing new sophisticated equipment.
At the beginning of current year, the an equipment was delivered to a lessee under a direct
financing lease with the following provisions:
Cost of equipment 3,083,550
Useful life and lease term 6 years
Implicit interest rate 12%
The entity incurred and paid initial direct costs of P182,925 in negotiating and arranging the
lease.
The equipment will revert to Emerio Company at the end of the lease.
Required:
1.​ Compute the total interest revenue to be recognized over the lease term.
2.​ Determine the new implicit interest rate that will be used in computing interest income.
3.​ Compute the annual rental of the lease.

PROBLEM 6-11 DIRECT FINANCING LEASE – LESSOR

BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

Balderas Company is in the business of leasing new sophisticated equipment. As lessor, Balderas
Company expects a 12% return on the net investment.
All leases are classified as direct financing.
At the end of the lease term, the equipment will revert to Jolo Company.
On January 1, 2024, an equipment is leased to a lessee with the following information.
Cost of equipment 4,848,440
Residual value–unguaranteed 500,000
Useful life and lease term 8 years
Implicit interest rate 11%
Required:
1.​ Compute the total gross investment.
2.​ Compute the annual rental.
3.​ Compute the total unearned interest income.

PROBLEM 6-12 DIRECT FINANCING LEASE – LESSOR

On January 01, 2024, Serna, Inc. leased a construction equipment to Company BSA 2-A with
the following information:
Cost of equipment 3,760,100
Residual value–guarantee 400,000
Useful life and lease term 4 years
Implicit interest rate 10%
The annual rental is payable in advance on January 01 of each year starting January 01,2024.

What is the annual rental in the lease?

What is the total unearned interest income?

PROBLEM 6-13 DIRECT FINANCING LEASE – LESSOR

On December 31, 2024, Candolita Corporation leased a machine to BSA 2-A Co. For a 5-year
period requiring payments of P100,000 every December 31.
The first periodic payment is due December 31, 2024.
The machine costs P466,600, which is the fair value at the commencement date.
The machine has a useful life of 6 years with P80,000 residual value guaranteed by the lessee at
the end of the lease term.
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

Candolita Corporation’s implicit interest rate is 10%. Candolita Corporation appropriately

recorded the lease as a direct financing lease.

What is the total unearned interest income?

What is the interest income for the current year?

PROBLEM 6-14 DIRECT FINANCING LEASE – LESSOR

Silva Company is in the business of leasing new sophisticated equipment. The lessor expects
a 12% return on net investment. All leases are classified as direct financing lease. At the end of
the lease term, the equipment will revert to the lessor. At the beginning of current year, an
equipment is lease to a lessee with the following information:
Cost of equipment to the lessor 5,000,000
Residual value – unguaranteed 600,000
Annual rental payable at the beginning of each year 900,000
Initial direct cost incurred by the lessor 250,000
Useful life and lease term 8 years
Implicit interest rate; 12%
What is the gross investment in the leases?
What is the net investment in the leases?
What is the total unearned interest income?
What is the interest income for the current year?

Tagumpay, Emerio S., Jr.

Problem 6-15 Sales Type Lease

At the beginning of the current year, Emerio Company leased to Kew Company for an eight-year
period. Equal payments under the lease are P500,000 and are due at the beginning of each year.
The first payment was made at the beginning of the current [Link] selling price of the
equipment is P2,900,000 and the carrying amount is P2,000,000. The lease is appropriately
accounted for as a sales type lease. The present value of the lease payments at an implicit interest
rate of 12% is P2,780,000.

1. What amount of gross investment should be reported for the current year?

a. 2,780,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

b. 3,000,000

c. 4,000,000

d. 3,333,600

Problem 6-16

Rhush Company leased equipment from Wee Company on July 1, 2019 for an eight period
expiring June 30, 2027. Equal payments under the lease are P600,000 and are due on July 1 of
each year. The first payment was made on July 1, 2019. The rate of interest contemplated by
Meg and Wee is 10%. The cash selling price of the equipment is P3,520,000 and the carrying
amount is P2,800,000. The lease is appropriately recorded as a sales type lease.

A. What amount of gross income on sale should be recorded for the year ended December 31,

2019?
a. 600,000
b. 720,000
c. 360,000
d. 300,000
Problem 6-17

On January 1, 2021, Serna Company leased equipment to Bea company. The lease is for an
eight-year period expiring December 31, 2028. The first of eight equal annual payments of
900,000 was made on January 1, 2021

Serna company had purchased the equipment for 4,800,000. The lease is appropriately accounted
for as a sales type lease.

The present value on January 1, 2021 of all rent payment over the lease term discounted at a 10%
interest rate was 5,280,000

1. What amount should be reported as gross income on sale?

a. 1,920,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

b. 2,400,000
c. 480,000
d. 240,000

Problem 6-18

4. Kiennah Company, dealer in machinery and equipment, leased equipment with a carrying
amount of P1,337,500 to Quality Company on July 1, 2021.

The lease is approximately accounted for as a sale by Kiennah and as a purchase by Quality. The
lease is for a ten year period equal to the useful life of the asset expiring June 30, 2031. The first
of ten equal annual payment of 250,000 was made on July 1, 2021. The rent payment over the
the lease term is discounted at 12%.

(Use only two decimal places)

1. What amount of net investment should be reported for the year ended December 31,2021

a. 1,250,000

b. 1,500,000

c. 1,582,500

d. 1,258,500

2. What amount of gross income on sale should be reported for the year ended December 31,
2021

a. 250,000

b.245,000

c. 340,000

d. 175,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

Balderas,Kiennah Christine A.

PROBLEM 6-19
At year-end, Taffy Company sold a machine wit 12-year useful life to another entity and
simultaneously leased it back for one year.
Sale price​ ​ ​ ​ ​ ​ ​ ​ ​ 530,000
Carrying Amount​ ​ ​ ​ ​ ​ ​ ​ 480,000
Present value of reasonable lease rentals
(3,000 for 12 months @ 12%)​ ​ ​ ​ ​ ​ ​ 34,100

Required:
Compute for the amount of gain on right transferred should be reported in the current year.

PROBLEM 6-20
At the beginning of the current year, Pagod Company sold a building with remaining life of 20
years and immediately leased it back for 5 years.

Sale price​ ​ ​ ​ ​ ​ ​ ​ ​ 25,000,000

Fair value of building​​ ​ ​ ​ ​ ​ ​ 22,000,000
Carrying amount of building​ ​ ​ ​ ​ ​ ​ 16,500,000
Annual rental payable at the end of each year​ ​ ​ ​ ​ 2,500,000
Implicit interest rate​ ​ ​ ​ ​ ​ ​ ​ 12%
Present value of an ordinary annuity of 1 at 12%​ for five periods​ ​ ​
3.60

What amount should be reported as initial lease liability?

90,000,000
79,200,000
9,000,000
8,500,000
What amount should be recognized as cost of right of use asset?
4,500,000
5,400,000
4,800,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

5,500,000
What amount should be reported as gain on right transferred?
4,700,000
5,000,000
6,000,000
4,000,000

PROBLEM 6-21
At the beginning of the current year, Sushi Company sold an equipment with remaining life of 6
years and immediately leased it back for 4 years.
Sale price at Fair value​ ​ ​ ​ ​ ​ ​ 3, 000, 000
Carrying amount of equipment​ ​ ​ ​ ​ ​ 3,500,000
Annual rental payable at the end of each year 600,000
Implicit interest rate 10%
Present value of an ordinary annuity of 1 at 10%​ for four periods​ ​ 3.17

Required:
Compute for the amount of net annual rental income of the buyer-lessor.

PROBLEM 6-22
At the beginning of the current year, Czeslaw Company sold a machine and immediately leased
it back. The following data pertain to the sale and leaseback transaction.
Sale price at Fair value​ ​ ​ ​ ​ ​ ​ 10,000,000
Carrying amount of equipment​ ​ ​ ​ ​ ​ 8,000,000
Annual rental payable at the end of each year 600,000
Lease Term​ ​ ​ ​ ​ ​ ​ ​ ​ 5 years
Remaining life of machine ​ ​ ​ ​ ​ ​ ​ 25 years
Implicit interest rate 6%
Present value of an ordinary annuity of 1 at 6% for five periods​ ​ 4.21

Required:
Prepare Journal Entries to record transactions of buyer-lessor.
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

PROBLEM 6-23
At the beginning of the current year, Bjorn Company sold equipment to an unaffiliated entity in
the fair value of ₱8,000,000.
The equipment had a carrying amount of ₱6,500,000 and a remaining life of 7 years.
That same day, Bjorn Company leased back the equipment at ₱20,000 per month for 3 years with
no option to renew the lease or repurchase the equipment.
The present value of the lease payments using the appropriate interest rate was ₱440,000 on the
date of sale.

What amount should be recognized as a cost of right of use asset?

a. 488,000
b. 357,500
c. 290,500
d. 300,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

NOTES PAYABLE
Ashley Alaan.

Problem 1-1 Interest and Non-Interest Bearing

On January 1, 2024, BSA Company borrowed ₱50,000 from AED Bank by issuing a 6-month
note payable with a 10% annual interest rate. Create the journal entries to record the initial
borrowing and the interest expense at the end of the first month.

Problem 1-2 Interest and Non-Interest Bearing

On March 1, 2024, BSMA Company paid off a ₱30,000 note payable to AED BANK. The note
carried a 12% annual interest rate and was issued 6 months ago. Make the journal entries to
record the repayment of the note along with the accrued interest.

Problem 1-3 Interest and Non-Interest Bearing

On July 1, 2024, BPA Company issued a ₱100,000, 2-year note payable to purchase new
equipment. The note carries an annual interest rate of 8%, compounded semi-annually. Provide
the journal entries to record the issuance of the note and the first semi-annual interest payment.

Problem 1-4 Interest and Non-Interest Bearing

A ₱60,000 note payable with an annual interest rate of 6% was issued by BSBA Company on
September 1, 2023. On February 28, 2024, BSBA Company paid off the note in full. Create the
journal entries to record the repayment of the note along with the accrued interest.

Problem 1-5 Interest and Non-Interest Bearing

On December 1, 2024, BSAIS Company borrowed ₱150,000 from AED Bank by issuing a
2-year note payable with a 12% annual interest rate. The note was issued at face value. Create
the journal entries to record the borrowing and the interest expense at the end of the second
month.

Carl John Villahermosa

Problem 1-6 Interest Bearing and Non-Interest Bearing Note

On January 1 2024 NgalSu borrows ₱50,000 through a non-interest bearing note payable with a
maturity period of 2 years. Prepare the journal entry to record the borrowing and repayment of
the loan.
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

Problem 1-7 Interest Bearing and Non-Interest Bearing Note

Fuutocc Company issues a non-interest bearing note payable on March 1, 2023, for $40,000
with a maturity date of February 28, 2025. Calculate the total interest expense for this note
payable if the implicit interest rate is 8%.

Problem 1-8 Interest Bearing and Non-Interest Bearing Note

Merria Company issues a non-interest bearing note payable on October 1, 2023, for ₱75,000
with a maturity date of September 30, 2025. Calculate the total interest expense for this note
payable if the implicit interest rate is 6%.

Problem 1-9 Interest Bearing and Non-Interest Bearing Note

Tombits Company borrows ₱50,000 from a non-interest bearing note due on April 1, 2023, with
a three-year maturity period. Calculate the first-year discount amortization assuming an implicit
interest rate of 7%.

Problem 1-10 Interest Bearing and Non-Interest Bearing Note

On July 1, 2024, TARUB Company issues a non-interest bearing note payable for ₱4100,000
with a maturity period of 5 years. If the implicit interest rate is 5%, calculate the discount on the
issuance of the note payable. simple answer with solution and journal entry

John Paulo Guerrero

Problem 1-11 Debt Restructuring

During 2019, Shyrill company experienced financial difficulties and is likely to default on a
9,000,000, 15% three year note dated Jan. 1, 2017, Payable to Canque Bank. On Dec. 31, 2019,
the bank agreed to settle the note and unpaid interest of 1,350,000 for 2019 for 7,380,000 cash
payable on Jan. 31, 2020. The amount that Shyrill company report as gain from extinguishment
of debt in its 2019 income statement is __________and the entry in connection with the
settlement is ___________

Outstanding liability​ ​ 10,350,000

Payment ​ ​ ​ 7.380.000

Gain ​ ​ ​ ​ 2,970,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

Problem 1-12 Debt Restructuring

Sunset Company showed the following data with respect to a matured obligation: Mortgage
payable 6,400,000 Accrued interest payable 480,000 The entity is threatened with a court suit if
it could not pay its maturing debt. Accordingly, the entity entered into an agreement with the
creditor for the issuance of share capital in full settlement of the mortgage.

The agreement provided for the issue of 35,000 shares with par value of 80. The share is
currently quoted at 104. The fair value of the liability is 3,600,000

Required: Prepare the journal entry to record the equity swap on the books of Sunset Company.

Outstanding Liability​ ​ 6,880,000

FV of shares (104x35,000)​ ​ 3,640,000

Gain​ ​ ​ ​ ​ 3,240,000

Problem 1-13 Debt Restructuring

An entity provided the following balances at year-end:

Note Payable​ ​ ​ ​ 2,000,000

Accrued Interest Payable​ ​ 400,000

At year-end, the entity transferred to the creditor land with carrying amount of 1,500,000 and fair
value of 2,200,000. Write the computation and Journal Entry.

Problem 1-14 Debt Restructuring

Seal Company is experiencing financial difficulties and is negotiating debt restructuring with its
creditor to relieve its financial stress. Seal has a 2,000,000 note payable to United Bank. The
bank is considering acceptance of an equity interest in Seal company in the form of 200,000
ordinary shares fairly valued at 9.6 per share. The par value is 8 per share. How much share
premium should be recognized form the debt restructuring?

Outstanding Liability​ ​ 2,000,000

FV of shares 9.6 x 200,000​ ​ 1,920,000

Gain​ ​ ​ ​ ​ 80,000
BSA 2-A INTERMEDIATE ACCOUNTING PROJECT

Problem 1-15 Debt Restructuring

Land costing 480,000 and building costing 3,520,000 with accumulated depreciation of 960,000,
were mortgaged to secure a bank loan of 2,400,000. Data regarding the loan are:

Face of the loan​ ​ ​ ​ 2,400,000

Accrued Interest​ ​ ​ ​ 240,000

Legal fee and bank service charges​ ​ 40,000

Total ​ ​ ​ ​ ​ ​ 2,680,000

Subsequently, the land and buildings were give in full settlement of the liability.

Required: Prepare the entry of this Dacion en Pago transaction.

Outstanding liability​ ​ ​ ​ 2,680,000

Carrying amount (480,000+2,560,000)​ 3,040,000

Loss​ ​ ​ ​ ​ ​ 360,000

Problem 1-16 Debt Restructuring

Dannamei Company is in financial trouble and could not meet maturing installments and interest
on its bank loan of P5,000,000. The accrued interest on the load to date is P1,000,000.

The entity and the bank agreed on a “dacion en pago” arrangement. Thus, the mortgaged land
and buildings were given by the entity as full payment for the loan including accrued interest.

The cost of the land is P1,500,000 and the building, P6,000,000 with accumulated depreciation
of P1,800,000. The fair value of the land and buildings is about P5,900,000

Required:

1. Compute the gain or loss on extinguishment of debt.

2. Prepare journal entry to record the “dacion en pago”

BSA 2-A INTERMEDIATE ACCOUNTING PROJECT