BUKIDNON STATE UNIVERSITY

College of Business
INTERMEDIATE ACCOUNTING II
Midterm Exam

NAME: ____________________
Section Code: ________

Instructions: Read carefully. In the answer sheet, shade the letter of the correct answer.

1. On January 1, 2022, Ward Company issued 9% bonds in face amount of P4,000,000 which
matured on January 1, 2032. The bonds were issued for P3,756,000 to yield 10% resulting in a
bond discount of P244,000. The entity used the interest method of amortizing bond discount.
Interest is payable annually on December 31. On December 31, 2022, what amount should be
reported as discount on bonds payable?
a. 228,400 c. 206,440
b. 208,000 d. 204,000

2. On September 1, 2025, Pine Company issued a note payable to National Bank in the amount
of P 1,800,000, bearing interest at 12%, and payable in three equal annual principal payments
of P600,000. On this date, the bank's prime rate was 11%. The first interest and principal
payment was made on September 1, 2026. On December 31, 2026, what should be reported as
accrued interest payable?
a. 44,000 d. 72,000
b. 48,000
c. 66,000

3. Mann Company's liability account balances at June 30, 2025, included a 10% note payable in
the amount of P3,600,000. The note is dated October 1, 2024, and is payable in three equal
annual payments of P1,200,000 plus interest. The first interest and principal payment was made
on October 1, 2025.
On June 30, 2026, what amount should be reported as accrued interest payable?
a.270,000
b.180,000
c. 90,000
d.60,000

4. On December 31, 2025, Roth Company issued a P1,000,000 face value note payable to
Wake Company in exchange for services rendered to Roth. The note, made at usual trade
terms, is due in nine months and bears interest, payable at maturity, at the annual rate of 3%.
The market interest rate is 8%. The compound interest factor of 1 due in nine months at 8% is
.944. At what amount should the note payable be reported on December 31, 2025?
a.1,030,000
b.1,000,000
c. 965,200
d. 944,000

5. Loob Company had the following loans at 12% interest payable at maturity. Loob repaid each
loan on its scheduled maturity date.

Date Amount Maturity date Term

11/1/2024 500,000 10/31/2025 1 year
2/1/2025 1,500,000 7/31/2025 6 months
5/1/2025 800,000 1/31/2026 9 months

Loob records interest expenses when the loans are repaid. As a result, interest expense of P
150,000 was recorded in 2025. If no correction is made, by what amount would 2025 interest
expense be understated?
a.​ 54,000
b.​ 62,000
c.​ 64,000
d.​ 72,000

6. Joshua Company bought a new machine on January 1, 2025 and agreed to pay an equal
annual installment of P600,000 at the end of each of the next five years. The prevailing interest
rate is 12%. The present value of an ordinary annuity of 1 at 12% for five periods is
3.60. The present value of l at 12% for five periods is 0.567. What is the interest expense on the
note payable for 2025?
a. 259,200
b. 187,200
c. 360,000
d. 457,200

7. Versatile Company, after having experienced financial difficulties in 2025, negotiated with a
major creditor and arrived at an agreement to restructure its note payable on December 31,
2025. The creditor was owed principal of P3,600,000 and interest of P400,000 but agreed to
accept equipment worth P700,000 and note receivable from a Versatile Company's customer
with a carrying amount of P2,700,000. The equipment had an original cost of P900,000 and
accumulated depreciation of P300,000.

What amount should be recognized as gain from debt extinguishment on December 31, 2025?
a. 700,000
b.600,000
c. 400,000
d. 0

8-9. Seal Company is experiencing financial difficulty and is negotiating debt restructuring with
its creditor to relieve its financial stress. Seal has a P2,500,000 note payable to United Bank.
The bank accepted an equity interest in Seal Company in the form of 200,000 ordinary shares
quoted at P12 per share. The par value is P10 per share.

The fair value of the note payable on the date of restructuring is P2,200,000.

8. What amount should be recognized as gain from debt extinguishment as a result of the
"equity swap"?
a. 400,000
b. 100,000
c. 500,000
d. 200,000

9. What amount should be recognized as a share premium from the issuance of the shares?
a. 500,000
b. 100,000
c. 400,000
d. 200,000

10. Silay Company has established a defined benefit pension plan for its employees. Annual
payments under the pension plan are equal to 3% of an employee's highest lifetime salary
multiplied by the number of years with the entity. An employee's salary in 2025 was P500,000.
The employee is expected to retire in 10 years, and the salary increases are expected to
average 4% per year during that period. As of December 31,2025, the employee has worked for
15 years. The future value of 1 at 4% for 10 periods is 1.48.

What is the annual pension payment that should be used in computing the projected benefit
obligation on December 31, 2025?
a. 555,000
b. 375,000
c. 333,000
d.225,000

11. During 2025, Pluto Company started selling new computers that carried a 2-year warranty
against defects. The entity estimated warranty cost as a percentage of sales – 3% in the first year
of warranty and 9% in the second year of warranty. Sales totaled P5,000,000 in 2025 and
P7,000,000 in 2026. Actual warranty repairs amounted to P100,000 in 2025 and P250,000 in
2026. Sales and repairs occurred evenly throughout the year. What amount should Pluto
Company report as warranty liability on December 31, 2026 before adjustment?
a. 1,090,000 b. 1,440,000
c. 795,000 d. 840,000

12. Lucius Company included one coupon in each package sold. A premium is offered to
customers who send in 10 coupons.
2025 2026
Number of packages sold 500,000 800,000
Number of premiums purchased at P40 each 30,000 60,000
Number of premiums distributed 20,000 50,000
Number of premiums to be distributed next period 5,000 3,000
What amount should Lucius Company report as premium expense in 2026?
a. 2,400,000 c. 2,120,000
b. 2,000,000 d. 1,920,000

13. Isabel Company is a manufacturer and sells its product to local retailers. The sale price of the
product to the retailers is P80. Retailers sell the products to its customers and for each product
purchased by the customer, a coupon of P20 discount is given and may be used on future
purchase of the product. Retailers are reimbursed for the discount by Isabel Company when
customers redeem their coupons. During the current year, Isabel Company sold 15,000 products
to the local retailers. It is expected that 80% of the coupons issued will be redeemed. At
year-end, Isabel Company paid the retailers P50,000 as reimbursement. What amount should
Isabel Company record as rebate liability at year-end?
a. 300,000 c. 240,000
b. 200,000 d. 150,000

14. Anton Company sells doughnuts for P500 per box. There is a promotion wherein if a
customer buys 3 boxes in a single transaction, the customer receives a coupon for one additional
box for free. It is expected that 60% of customers will redeem the coupons. During the current
year, the entity sold 15,000 boxes at P500 per box. What amount should Anton Company record
as deferred revenue from coupons for the current year?
a. 1,500,000
b. 1,250,000
c. 2,500,000
d. 0

15. On January 1, 2025, Essex Company reported 9% bonds payable of P8,000,000 less
unamortized discount of P640,000. Further examination revealed that these bonds were issued at
a 10% yield. The discount amortization was recorded using the effective interest method. Interest
is paid semiannually on June 30 and December 31. On July 1, 2025, the entity retired bonds with
a face amount of P2,000,000 at 103 before maturity. What amount should Essex Company
recognize as loss on retirement of bonds payable in 2025?
a. 218,000 c. 216,000
b. 220,000 d. 240,000

16. On December 31, 2025, Dreamer Company had outstanding P3,000,000 8% convertible
bonds that matured on December 31, 2027. Interest is payable annually every December 31 and
each P1,000 bond is convertible into 30 ordinary shares with a P20 par value per share. The
unamortized discount was P200,000 and the equity component when the bonds were sold was
P700,000. On the same date, 1,200 bonds were converted when the fair value of Dreamer
Company’s share was P40. What amount of share premium should Dreamer Company recognize
as a result of the conversion?
a. 400,000 c. 700,000
b. 680,000 d. 760,000

17. Oro Company provided the following information for the current year:

Fair value of plan assets – January 1 3,500,000

Projected benefit obligation – January 1 6,000,000
Current service cost 500,000
Past service cost during the year 300,000
Settlement payment of benefit obligation before normal retirement date 1,200,000
Present value of benefit obligation settled before normal retirement date 950,000
Actual return on plan assets 850,000
Actuarial loss due to remeasurement of PBO due to change in
actuarial assumptions 200,000
Contribution to the plan 1,500,000
Benefits paid retirees 1,000,000
Discount rate 10%
What amount should Oro Company report as employee benefit expense for the current
year?
a. 1,300,000 c. 2,000,000
b. 1,050,000 d. 1,100,000

18. Gold Company granted 30,000 share appreciation rights which entitled key employees to
receive cash equal to the difference between P200 and the market price of the share on the date
each right is exercised. The service period is 2022 through 2024 and the rights are exercisable in
2025. The market price of the share was P250 and P280 on December 31, 2022 and 2023,
respectively. What amount should the Gold Company report as liability under the share
appreciation rights on December 31, 2023?
a. 2,400,000 c. 1,600,000
b. 1,300,000 d. 0
19. On January 1, 2025, Amber Company granted the president compensatory share options to
buy 10,000 ordinary shares of P10 par value. The options call for a price of P20 per share and are
exercisable in 3 years following the grant date. The president exercised the options on
December 31, 2025. The market price of the share was P60 on January 1, 2025 and P70 on
December 31, 2025. The fair value of the share option is P30 on the date of grant. What amount
should Amber Company report as compensation expense for 2025?
a. 300,000 c. 200,000
b. 150,000 d. 100,000

20. Mann Company reported on June 30, 2022 a 10% note payable in the amount of P7,200,000.
The note is dated October 1, 2020 and payable in three equal annual payments of P2,400,000
plus interest. The first interest and principal payment was made on October 1, 2021. On June 30,
2022, what amount should Manna Company report as accrued interest payable?
a. 540,000 c. 180,000
b. 360,000 d. 120,000