Long Quiz 2 - Attempt Review

6/16/22, 10:12 AM Long Quiz 2: Attempt review
Dashboard / My courses / AC_IntAcctg3 (2122C BSA 19-2-A) / 2nd Quarter Assessments / Long Quiz 2
Started on Sunday, 3 April 2022, 8:00 AM

State Finished
Completed on Sunday, 3 April 2022, 9:59 AM
Time taken 1 hour 59 mins
Grade 7.00 out of 25.00 (28%)
Information
Use the following information to answer the next two (2) questions:
Bee Corp. prepared the following reconciliation between book income and taxable income for the year ended December 31,
20x0:
Pretax accounting income 500,000
Taxable income 300,000
Difference 200,000
Interest on municipal bonds 50,000
Lower depreciation per financial statements 150,000
Total differences 200,000
Bee's effective income tax rate for 20x0 is 30%. The depreciation difference will reverse equally over the next three years at
enacted tax rates as follows:
Years Tax rates
20x1 30%
20x2 25%
20x3 25%
lms.dwcc.edu.ph/College/mod/quiz/review.php?attempt=338534&cmid=91034 1/18
Question 1
Not answered
Marked out of 1.00
In Bee's 20x0 income statement, the current portion of its provision for income taxes should be
Answer: 
(300,000 taxable income x 30%) = 90,000
The correct answer is: 90000
Question 2
Not answered
Marked out of 1.00
In Bee's 20x0 financial statements, the deferred portion of its provision for income taxes should be
Answer: 
Solution:
Year Reversals* Tax rate Deferred tax
20x1 50,000 30% 15,000
20x2 50,000 25% 12,500
20x3 50,000 25% 12,500
40,000
*Lower depreciation per financial statements 150,000
Divide by: 3
Equal amounts of reversals 50,000
Question 3
Incorrect
Mark 0.00 out of 1.00
In its December 31, 20x0 balance sheet, Wood Corp. reported a deferred tax asset of ₱9,000 and no deferred tax liability. For
20x1, Wood reported pretax financial statement income of ₱300,000. Temporary differences of ₱100,000 resulted in taxable
income of ₱200,000 for 20x1. At December 31, 20x1, Wood had cumulative taxable differences of ₱70,000. Wood's effective
income tax rate is 30%. In its December 31, 20x1, income statement, what should Wood report as net deferred income tax
expense?
Answer: 21000 
Decrease in DTA (the beginning balance) 9,000
Increase in DTL (70K TTD x 30%) 21,000
Deferred tax expense 30,000
Question 4
Correct
Quinn Co., a debtor undergoing financial difficulties granted an equity interest to a creditor in full settlement of a ₱28,000 debt
owed to the creditor. At the date of this transaction, the equity interest had a fair value of ₱25,000 and par value of ₱20,000.
What amount should Quinn recognize as gain on restructuring of debt?
Answer: 3000 
(CA of liability 28,000 – FV of shares 25,000) = 3,000
Question 5
Incorrect
In 20X2, May Corp. acquired land by paying ₱75,000 down and signing a note with a maturity value of ₱1,000,000. On the note’s
due date, December 31, 20X7, May owed ₱40,000 of accrued interest and ₱1,000,000 principal on the note. May was in financial
difficulty and was unable to make any payments. May and the bank agreed to amend the note as follows:
The ₱40,000 of interest due on December 31, 20X7, was forgiven.

The principal of the note was reduced from ₱1,000,000 to ₱950,000 and the maturity date extended 1 year to December 31,
20X8.
May would be required to make one interest payment totaling ₱30,000 on December 31, 20X8.
The original effective interest rate is 10% while the current market rate on December 31, 20X7 is 12%.
As a result of the troubled debt restructuring, May should report a gain, before taxes, in its 20X7 income statement of
(Note: Round-off your PV factor to five (5) decimal places)
Answer: 146355 
The modification is analyzed as follows:
Old terms New terms
Principal 1,000,000 950,000
Accrued interest 40,000 30,000
Remaining term ('n') 1 year
The present value of the modified liability is computed as follows:
Future cash flows PV of 1 @10%, n=1 Present value
Principal 950,000 0.90909 863,635.50
Interest 30,000 0.90909 27,272.70
Present value of the modified liability 890,908.20
The difference between the old liability and the new liability is tested for substantiality.
Carrying amount of old liability

1,040,000.00
(1M principal + 40,000 accrued interest)
Present value of modified liability 890,908.20
Difference 149,091.80
Difference 149,091.80
Divide by: Carrying amount of old liability 1,040,000.00
14.34%
The modification is considered substantial because the modification resulted to a present value of the new obligation different
by at least 10% of the present value (carrying amount) of old obligation. Therefore, the old liability is extinguished and the
difference of ₱149,091.80 is recognized as gain on extinguishment.
The correct answer is: 149091.8
Question 6
Incorrect
On August 2, 2019, Nori Mining Co. (lessee) entered into a 5-year lease for drilling equipment. Nori recognized a lease liability of
₱240,000 at the commencement date. This amount includes the ₱10,000 exercise price of a purchase option. At the end of the
lease, Nori expects to exercise the purchase option. Nori estimates that the equipment's fair value will be ₱20,000 at the end of its
8-year life. Nori regularly uses straight-line depreciation on similar equipment.
For the year ended December 31, 2019, what amount should Nori recognize as depreciation expense on the leased asset?
Answer: 10937.5 
Right of Use Asset 240,000.00

Residual Value 20,000.00
Depreciable Amount 220,000.00
Useful Life 8
Annual Depreciation 27,500.00
5/12
Depreciation for 2019 11,458.33
Information
Use the following information to answer the next four (4) questions:
On January 1, 2020, Marian Company sold a machinery to Marjorie Company for P1,900,000. Because of the entity’s
commitments to its customers to provide their needs for the next four years, Marian Company simultaneously leased back the
machinery. The transfer of the asset to the buyer qualifies to be accounted for as a sale under IFRS 15. Information relating to this
transaction follows:
Fair value of machinery 2,200,000
Carrying amount of machinery 1,700,000
Remaining useful life of machinery 8 years
Lease term 5 years
Annual rent payable at the end of 500,000

each year
Market rate of interest 10%
*Note: Round-off PV factors to 4 decimal places
Question 7
Incorrect
How much is the gain on sale and leaseback?
Answer: 500000 
Question 8
Incorrect
What are the amounts recorded by Marian Company for the right-of-use at January 1, 2020?
Answer: 1895395 
Question 9
Incorrect
What are the amounts recorded by Marian Company for the lease liability at January 1, 2020?
Answer: 1895395 
Question 10
Incorrect
How much is the interest expense recognized by Marian Company for the year ended December 31, 2020?
Answer: 189539.5 
Question 11
Correct
On December 31, 2020, ABC Co. leased a new machine from Junction Company with the following pertinent information:
Lease term 6 years
Useful life of machine 6 years
Annual rental payable every December 31 P500,000
ABC’s incremental borrowing rate 15%
Implicit interest rate in lease (known by ABC) 12%
Present value of annuity of 1 in advance for 6 periods at 4.61

12%
Present value of annuity of 1 in advance for 6 periods at 4.35

15%
The machine reverts to Junction at the termination of the lease. The cost of the machine on Junction’s accounting records is
P3,755,000.
At what amount should ABC record the right of use asset at December 31, 2020?
Answer: 2305000 
Question 12
Incorrect
On January 1, 2021, Simon Company. enters into a 4-year lease of office equipment. The rent in 2021 is ₱10,000 and shall
increase by 10% annually starting on January 1, 2022. Rentals are payable at the end of each year. Simon pays the lessor a lease
bonus of ₱5,000 on January 1, 2021. Simon opts to use the practical expedient allowed under PFRS 16 for leases of low value
assets.
How much is the lease expense in 2021?
Answer: 15000 
Question 13
Correct
During 2024 Peterson Company experienced financial difficulties and is likely to default on a ₱500,000, 15%, three-year note
dated January 1, 2022, payable to Forest National Bank. On December 31, 2024, the bank agreed to settle the note and unpaid
interest of ₱75,000 for 2024 for ₱50,000 cash and marketable securities having a carrying amount of ₱375,000. Peterson's
acquisition cost of the securities is ₱385,000.
What amount should Peterson report as a gain from the debt restructuring in its 2024 income statement?
Answer: 150000 
Question 14
Incorrect
Oak Co. leased equipment for its entire nine-year useful life, agreeing to pay ₱50,000 at the start of the lease term on December
31, 2028, and ₱50,000 annually on each December 31 for the next eight years. The present value on December 31, 2028, of the
nine lease payments over the lease term, using the rate implicit in the lease which Oak knows to be 10%, was ₱316,500. The
December 31, 2028, present value of the lease payments using Oak's incremental borrowing rate of 12% was ₱298,500. Oak
made a timely second lease payment.
What amount should Oak report as lease liability in its December 31, 2029, balance sheet?
Answer: 298150 
Question 15
Correct
The equal monthly rental payments made by the lessee in a short-term lease for which the lessee applies the recognition and
measurement exemptions in IFRS 16 Leases shall be
a. Recorded partly as interest income and partly reduction of lease receivable
b. Recorded as reduction of lease liability
c. Recorded partly as interest expense and partly a reduction of lease liability
d. Recorded as rent expense 
Your answer is correct.
The correct answer is:

Recorded as rent expense
Question 16
Incorrect
Which of the following is not one of the criteria when determining whether a contract is or contains a lease?
a. Right to obtain substantially all of the economic benefits from use of an identified asset throughout the period of use 
b. Right to direct the use of the identified asset throughout the period of use
c. Identified liability
d. Identified asset
Your answer is incorrect.

Identified liability
Question 17
Incorrect
It is the deferred tax consequence attributable to a taxable temporary difference.
a. Deferred tax asset
b. Current tax liability 
c. Current tax asset
d. Deferred tax liability

Deferred tax liability
Question 18
Incorrect
If the residual value of a underlying asset is greater than the amount guaranteed by the lessee
a. The lessor pays the lessee for the difference
b. The lessor has no obligation to pay the lessee for the difference
c. The lessee recognizes a gain at the end of the lease term
d. The lessee pays the lessor the difference 

The lessor has no obligation to pay the lessee for the difference
Question 19
Correct
A six year finance lease specified equal annual lease payments. The lease payment in the fifthh year applicable to the
reduction of the lease liability should be
a. The same as in the sixth year
b. Less than in the fourth year
c. More than in the sixth year
d. More than in the fourth year 

More than in the fourth year
Question 20
Correct
The carrying amount of the right of use asset from the capitalization of a lease would be periodically reduced by
a. Portion of the lease payment allocable to the reduction of the lease liability
b. Total lease payment
c. Portion of the lease payment allocable to the interest
d. Depreciation of the asset 

Depreciation of the asset
Information
Denver Company leased a heavy equipment to Colorado Company on January 1, 2019. The lease contract term is for a period
of 8 years. The amount of annual rental payable at the beginning of lease year is P800,000. The fair value of the equipment is
P4,450,000 but the carrying value is P3,200,000. Che implicit interest rate is 12% and it is appropriately accounted for as sales type
lease.
Question 21
Incorrect
If the selling price of leased asset is P4,200,000, what amount of gross profit should be reported by the lessor related to the leased
asset?
Answer: 1251005.23 
Question 22
Incorrect
If the selling price of the leased asset is P4,450,000, what amount of gross profit should be reported the lessor related to the
leased asset?
Answer: 1251005.23 
Question 23
Correct
If the selling price of the leased asset is P4,600,000, what amount of gross profit should be reported by the lessor related to the
leased asset?
Answer: 1251005.23 
Information
Silver Company manufactures specialized moulding machinery for both sale and lease. On July 1, 2019, Silver Company leased
a machine to Winter Company for P100,000 per annum for 5 years, incurring P3,000 in costs to negotiate, prepare and execute
the lease document. The machine cost Silver Company P390,000 to manufacture, and its fair value at the inception of the lease
was P425,026. The interest rate implicit in the lease is 10%, which is in line with the current market rates. Under the term of the
lease, Winter Company has guaranteed P50,000 of the asset's expected residual value of P74,000 starting on June 30, 2020. Silver
Company does not provide additional services as part of the lease agreement.
Question 24
Incorrect
What is the amount of cost of sales in relation to the leased asset?
Answer: 390000 
GetQuestion 25 app
the mobile
Incorrect
What is the amount of sales revenue to be recognized by the lessor?
Answer: 379078.68 
◄ AC_IntAcctg3_Lease_Key-Terms-and-Chapter-Summary
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6/16/22, 10:12 AM Long Quiz 2: Attempt review

Started on Sunday, 3 April 2022, 8:00 AM

Pretax accounting income 500,000

Taxable income 300,000

Interest on municipal bonds 50,000

Lower depreciation per financial statements 150,000

Total differences 200,000

Years Tax rates

Marked out of 1.00

(300,000 taxable income x 30%) = 90,000

The correct answer is: 90000

Marked out of 1.00

Year Reversals* Tax rate Deferred tax

20x1 50,000 30% 15,000

20x2 50,000 25% 12,500

20x3 50,000 25% 12,500

*Lower depreciation per financial statements 150,000

Equal amounts of reversals 50,000

The correct answer is: 40000

Mark 0.00 out of 1.00

Decrease in DTA (the beginning balance) 9,000

Increase in DTL (70K TTD x 30%) 21,000

Deferred tax expense 30,000

The correct answer is: 30000

Mark 1.00 out of 1.00

(CA of liability 28,000 – FV of shares 25,000) = 3,000

The correct answer is: 3000

Mark 0.00 out of 1.00

The ₱40,000 of interest due on December 31, 20X7, was forgiven.

The modification is analyzed as follows:

Old terms New terms

Principal 1,000,000 950,000

Accrued interest 40,000 30,000

Remaining term ('n') 1 year

The present value of the modified liability is computed as follows:

Future cash flows PV of 1 @10%, n=1 Present value

Principal 950,000 0.90909 863,635.50

Interest 30,000 0.90909 27,272.70

Present value of the modified liability 890,908.20

Carrying amount of old liability

Present value of modified liability 890,908.20

Divide by: Carrying amount of old liability 1,040,000.00

The correct answer is: 149091.8

Mark 0.00 out of 1.00

Right of Use Asset 240,000.00

The correct answer is: 11458.33

Fair value of machinery 2,200,000

Carrying amount of machinery 1,700,000

Remaining useful life of machinery 8 years

Lease term 5 years

Annual rent payable at the end of 500,000

Market rate of interest 10%

*Note: Round-off PV factors to 4 decimal places

Mark 0.00 out of 1.00

How much is the gain on sale and leaseback?

The correct answer is: 1045.45

Mark 0.00 out of 1.00

The correct answer is: 1696445.45

Mark 0.00 out of 1.00