Question 1

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If bonds are issued at a premium, this indicates that

a.
the yield rate exceeds the nominal rate

b.
the yield and nominal rate coincides

c.
the nominal rate exceeds the yield rate

d.
there is no relationship exists between the two rates.
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The correct answer is:
the nominal rate exceeds the yield rate

Question 2
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When interest expense for the current year is less than interest paid, the bonds were issued at

a.
face amount

b.
cannot be determined

c.
a premium

d.
a discount
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The correct answer is:
a premium

Question 3
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For a bond issue which sells for less than face value, the market rate of interest is

a.
less than rate stated on the bond

b.
higher than rate stated on the bond

c.
equal to rate stated on the bond

d.
dependent on the rate stated on the bond
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The correct answer is:
higher than rate stated on the bond

Question 4
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If bonds are issued between interest dates, the entry of the issuer could include a 

a.
credit interest expense

b.
credit unearned interest

c.
credit to interest receivable

d.
debit to interest payable
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The correct answer is:
credit interest expense

Question 5
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What is the contract between the issuer of the bonds and the bondholders?

a.
registered bond

b.
bond indenture

c.
bond debenture

d.
bond coupon
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The correct answer is:
bond indenture

Question 6
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The amortization of discount on bonds payable

a.
increases the carrying amount of bonds payable

b.
decreases the carrying amount of bonds payable

c.
decreases the face amount of bonds payable

d.
decreases the amount of interest expense
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The correct answer is:
increases the carrying amount of bonds payable

Question 7
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Bonds payable not designated at fair value through profit or loss shall be measured initially at

a.
fair value minus bond issue cost

b.
face amount

c.
fair value plus bond issue cost

d.
fair value
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The correct answer is:
fair value minus bond issue cost

Question 8
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Bonds that mature on a single date are called

a.
term bonds

b.
callable bonds
 c.
serial bonds

d.
debenture bonds
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The correct answer is:
term bonds

Question 9
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When an entity failed to recognize amortization of discount on bonds payable for the current year, what is the effect
of the error on liabilities and equity, respectively?

a.
overstated; understated

b.
overstated; overstated

c.
understated; overstated

d.
understated; understated
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The correct answer is:
understated; overstated

Question 10
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The interest rate actually incurred.

a.
stated rate

b.
nominal rate

c.
yield rate
d.
coupon rate
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The correct answer is: yield rate

Question 11
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In a debt restructuring that is considered asset swap, the gain on extinguishment is equal to the 

a.
excess of the fair value of the asset over the carrying amount of the debt

b.
excess of the fair value of the asset over its carrying amount

c.
excess of the carrying amount  of the debt over the carrying amount of the asset

d.
excess of the carrying amount  of the debt over the fair value of the asset
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The correct answer is:
excess of the carrying amount  of the debt over the carrying amount of the asset

Question 12
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An entity shall measure initially a note payable not designated at fair value through profit or loss at 

a.
fair value plus transaction cost

b.
fair value

c.
fair value minus transaction cost

d.
face amount
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The correct answer is:
fair value minus transaction cost

Question 13
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There is a substantial modification of terms of an old financial liability if the gain or loss on extinguishment is 

a.
less than 10% of the carrying amount of the old liability

b.
at least 10% of the new liability
 c.
less than 10% of the new liability

d.
at least 10% of the carrying amount of the old liability
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The correct answer is:
at least 10% of the carrying amount of the old liability

Question 14
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The gain or loss from extinguishment of a financial liability by issuing equity instruments shall be presented in the
statement of comprehensive income as

a.
separate line item in profit or loss

b.
component of other comprehensive income

c.
component of finance cost

d.
other income or other expense
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The correct answer is:
separate line item in profit or loss

Question 15
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If both the fair value of the equity instruments issued and the fair value of the financial liability extinguished cannot
be measured reliably, the equity instruments issued shall be measured at

a.
book value of equity instruments issued

b.
value assigned by the Board of Directors

c.
carrying amount of the financial liability extinguished

d.
par value of equity instruments issued
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The correct answer is:
carrying amount of the financial liability extinguished

Question 16
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On September 1, 2016 Mishane Company issued a note payable in the amount of P1.8M, bearing interest at 12% and
payable in three equal annual principal payments of P600,000. On this date the prime rate was 11%. The first interest
and principal payment was made on September 1, 2017. On December 31, 2017, what amount should be reported as
accrued interest payable?

a.
44,000

b.
72,000

c.
48,000

d.
66,000
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The correct answer is:
48,000

Question 17
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On July 1, 2020, Mishane Company issued at 104, five thousand 10% bonds with face amount of P1,000 per bond.
The bonds were issued through an underwriter to whom the entity paid bond issue cost of P100,000. On July 1,
2020, what is the carrying amount of the bonds payable?

a.
5,100,000

b.
5,300,000

c.
5,000,000

d.
5,200,000
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The correct answer is:
5,100,000

Question 18
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Mishane Company purchased 8,000, P1,000 face amount, 9% bonds to yield 10%. The carrying amount of the bonds
on January 1, 2019 was 7,800,000. The bonds mature on June 30, 2022 and pay interest semi-annually on June 30
and December 31.
The entity sold 4,000 bonds on March  1, 2019 for P3,920,000 after the interest has been received. What amount
should be recognized as loss on sale of bonds?

a.
25,000

b.
20,000
c.
15,000

d.
0
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The correct answer is:
0

Question 19
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During 2020, Mishane Company experienced financial difficulties and is likely to default on a P5M, 15% 3-year
note dated January 1, 2018 payable to Summit Bank.
On Dec 31, 2020, the bank agreed to settle the note and unpaid interest of P750,000 for P4,250,000 cash payable on
Jan 31, 2021. What amount should be reported as gain from extinguishment of debt in the 2020 income statement?

a.
1,500,000

b.
1,650,000

c.
900,000

d.
750,000
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The correct answer is:
1,500,000

Question 20
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Mishane Company is authorized to issue P5,000,000 of 6%, 10-year bonds dated July, 1, 2020 with interest
payments on June 30 and December 31. When the bonds are issued on November 30, 2020, the entity received cash
of P5,180,000 including accrued interest. What is the discount or premium from the issuance of the bonds?

a.
55,000 discount

b.
80,000 premium

c.
80,000 discount

d.
55,000 premium
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The correct answer is:
55,000 premium

Question 21
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On January 1, 2019, Mishane Company purchased 12% bonds with face amount of P5,000,000 for P5,500,000
including transaction cost of P100,000. The bonds provide an effective yield of 10%. The bonds are dated January 1,
2019 and pay interest annually on December 31 of each year. 
The bonds are quoted at 110 on December 31, 2019. The entity has irrevocably elected to use the fair value option.
What amount of gain from change in fair value should be reported for 2019?

a.
100,000

b.
350,000

c.
200,000

d.
0
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The correct answer is:
100,000

Question 22
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Due to the COVID pandemic, Mishane Company negotiated the following to the bank:
OLD LOAN: P6M, 9% and due on Jan 1, 2020. No accrued interest on the note on Jan 1, 2020
NEW LOAN: P5M and extended maturity to 3 years on Dec 31, 2022. New interest is 13% payable annually every
Dec 31.
Present value of 1 at 9% for three periods is 0.77 and the present value of an ordinary annuity of 1 at 9% for three
periods is 2.53.
What is the present value of the new note payable on Jan 1, 2020?

a.
5,000,000

b.
3,850,000

c.
6,000,000

d.
5,494,500
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The correct answer is:
5,494,500

Question 23
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At year-end, Mishane Company issued a P1M face amount note payable in exchange for services rendered. The note,
made at usual trade terms, is due in 9 months and bears interests, payable at maturity, at annual rate of 3%. The
market rate of interest is 8%. The compound interest factor of 1 due in 9 months at 8% is 0.944. At what amount
should the note payable be reported at year-end?

a.
1,030,000

b.
965,200

c.
1,000,000

d.
944,000
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The correct answer is:
1,000,000

Question 24
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Mishane Company had the following long-term debt:
Sinking fund bonds, maturing in installments                  2,200,000
Industrial revenue bonds, maturing in installments           900,000
Subordinated bonds, maturing on a single date         2,000,000
What is the total amount of term bonds?

a.
3,100,000

b.
5,100,000

c.
2,900,000
 d.
2,000,000
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The correct answer is:
2,000,000

Question 25
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On July 1, 2020 Mishane Company borrowed P1,000,000 on a 10% 5-year interest-bearing note. On Dec 31, 2020,
the fair value of the note is determined to be P925,000. The entity irrevocably elected the fair value option in
measuring the note payable. What amount should be reported from the change in fair value of the note payable?

a.
0

b.
75,000 gain

c.
75,000 loss

d.
25,000 loss
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The correct answer is:
75,000 gain

Question 26
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On January 1, 2020, Mishane Company issued 6% bonds with face amount of P4,000,000 for net proceeds of
P3,677,600, a price that yields 8%. Interest is payable annually every December 31.
The entity elected the fair value option. On December 31, 2020, the bonds are quoted at 96. What amount should be
reported as gain or loss from change in fair value for 2020?

a.
122,400 loss

b.
162,400 loss

c.
122,400 gain

d.
162,400 gain
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The correct answer is:
162,400 loss

Question 27
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Mishane Company acquired a financial asset at its market value of P3,200,000. Broker fees of P200,000 were
incurred in relation to the purchase.
At what amount should the financial asset initially be recognized respectively if it is classified as at fair value
through profit or loss, or as at fair value through other comprehensive income?

a.
P3,200,000 and P3,400,000

b.
P3,400,000 and P3,400,000

c.
P3,200,000 and P3,200,000

d.
P3,400,000 and P3,200,000

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The correct answer is:
P3,200,000 and P3,400,000

Question 28
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On September 1, 2020, Mishane Co. borrowed on a P1,350,000 note payable from Federal Bank. The note bears
interest at 12% and is payable in three equal annual principal payments of P450,000. On this date, the bank’s prime
rate was 11%. The first annual payment for interest and principal was made on September 1, 2021. At December 31,
2021, what amount should Mishane report as accrued interest payable?

a.
36,000

b.
49,500

c.
33,000

d.
54,000
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The correct answer is:
36,000
Question 29
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On January 1, 2020, Mishane Company received P1,070,000 for 12% bonds with face amount of P1,000,000. The
bonds were sold to yield 10%. Interest is payable semiannually every January 1 and July 1. The entity elected the fair
value option for measuring financial liabilities. On December 31, 2020, the fair value of the bonds is P1,065,000.
The change in fair value of the bonds is attributable to market factors.

a.
65,000 gain

b.
5,000 loss

c.
5,000 gain

d.
65,000 loss
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The correct answer is:
5,000 gain

Question 30
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On Jan 1, 2020 Mishane Company showed the following:
Note payable - due Jan 1, 2020 -14%         5,000,000
Accrued interest payable                            1,000,000
Mishane was granted by the creditor the following conditions:
1. Accrued interest of P1M is forgiven.
2. Principal obligation is reduced to P4M
3. The new interest rate is 10% payable every Dec 31
4. The new date of maturity is Dec 31, 2023.
PV of 1 at 14% for 4 periods is 0.5921 and PV of an ordinary annuity of 1 at 14% for 4 periods is 2.9137
How much is the gain on extinguishment of loan?

a.
2,466,120

b.
3,466,120

c.
3,533,880

d.
2,000,000
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The correct answer is:
2,466,120