ACC 211 (Intermediate Accounting II)

Review Assignment – Liabilities

September 20, 2019

Instructions: Write the letter of the correct answer in one whole quiz sheet. For questions that
requires solution, please provide solution. No point will be credit if without
solution.

1. Defined by PFRS 9 as the amount at which the financial liability is measured at initial
recognition minus the principal repayments, minus the cumulative amortization using the
effective interest method of any difference between that initial amount and the maturity
amount.
A. Present value of a financial liability C. Carrying amount of a financial liability
B. Fair value of a financial liability D. Amortized cost of a financial liability
2. Defined by PFRS 9 as the removal of a previously recognized financial asset or financial liability
from an entity’s statement of financial position.
A. Disposal C. Derecognition
B. Removal D. Devaluation
3. Defined by PFRS 9 as the method that is used in the calculation of the amortized cost of a
financial asset or a financial liability and in the allocation and recognition of the interest revenue
or interest expense in profit or loss over the relevant period.
A. Effective interest method C. Straight line method
B. Nominal interest method D. Bond outstanding method
4. Defined by PAS 32 as a contractual obligation to deliver cash or another financial asset to
another entity or to exchange financial assets or financial liabilities with another entity under
conditions that are potentially unfavorable to the entity.
A. Liability C. Current liability
B. Financial liability D. Monetary obligation
5. Defined by PAS 37 as an obligation that derives from an entity’s actions where: (a) by an
established pattern of past practice, published policies or a sufficiently specific current
statement, the entity has indicated to other parties that it will accept certain responsibilities;
and (b) as a result, the entity has created a valid expectation on the part of those other parties
that it will discharge those responsibilities.
A. Constructive obligation C. Obligating event
B. Legal obligation D. Onerous contract
6. Defined by PAS 37 as a possible obligation that arises from past events and whose existence will
be confirmed only by the occurrence or non-occurrence of one or more uncertain future events
not wholly within the control of the entity or a present obligation that arises from past events
but is not recognized because it is not probable that an outflow of resources embodying
economic benefits will be required to settle the obligation; or the amount of the obligation
cannot be measured with sufficient reliability.
A. Constructive obligation C. Contingent liability
B. Provision D. Estimated liability
7. Defined by PAS 37 as a program that is planned and controlled by management, and materially
changes either: the scope of a business undertaken by an entity or the manner in which that
business is conducted.
A. Reorganization C. Reengineering
B. Restructuring D. Redesign
8. Which of the following is not a liability per financial statement classification?
A. Advances from customers C. Provision
B. Accrued payroll D. Stock dividends payable
9. Based on the Conceptual Framework for financial reporting, essential characteristics of a
liability does not include
A. Present obligation
B. Arising from future event
C. Settlement expected to result in outflow of resources
D. None of the foregoing
10. According to PFRS 9, initial measurement of financial liability shall be at fair value minus
transaction costs directly attributable to the issue of the financial liability, in the case of financial
liability measured at
A. Amortized cost using effective interest method
B. Fair value through profit and loss
C. Both A and B
 D. Neither A nor B
11. The following liabilities are classified as current liabilities, except
A. Accounts payable C. Deferred tax liability
B. Accrued interest expense D. Estimated warranty liability
12. A liability which is due to be settled within 12 months after the reporting period is classified as
current even if: the original term was for a period longer than 12 months, and
A. An agreement to refinance the liability on a long-term basis is completed after the reporting
period and before the financial statements are authorized for issue.
B. An agreement to refinance the liability on a long-term basis is completed before the reporting
period and before the financial statements are authorized for issue.
C. Both A and B
D. Neither A nor B
13. If an entity has an unconditional right to defer settlement of a liability for at least 12 months
after the reporting period, the obligation is considered
A. Current liability C. Extinguished, no liability shall be recognized
B. Noncurrent liability D. Void, transfer to equity account is required
14. In respect of loans classified as current liabilities, if the following events occur between the end
of the reporting period and the date the financial statements are authorized for issue, those
events are disclosed as non-adjusting events (choose the exception)
A. Refinancing on a long-term basis
B. Rectification of a breach of a long-term loan arrangement
C. The granting by the lender of a period of grace to rectify a breach of a long-term loan
arrangement ending at least twelve months after the reporting period.
D. None of the above
15. Which of the following statements about financial liabilities is false?
A. Offsetting of a financial asset and a financial liability is prohibited by PFRS 9.
B. Under PFRS 9, an entity shall not reclassify any financial liability.
C. A financial liability shall be recognized in the statement of financial position when, and only
when, the entity becomes party to the contractual provisions of the instrument.
D. An entity shall remove a financial liability (or a part of a financial liability) from its
statement of financial position when, and only when, it is extinguished.
16. Which statement is correct regarding financial liabilities designated as at fair value through
profit or loss?
A. An entity shall present a gain or loss on a financial liability in profit or loss for change in the
fair value of the financial liability that is attributable to changes in the credit risk.
B. If presenting the change in fair value attributable to credit risk would create or enlarge an
accounting mismatch in profit or loss, an entity shall present all gains or losses on that
liability (including the effects of changes in the credit risk of that liability) in profit or loss.
C. Initial designation of a financial liability as measured at fair value through profit or loss is
revocable.
D. All of the foregoing.
17. A provision qualifies for recognition when the
A. Occurrence is probable and the amount can be reasonably estimated
B. Occurrence is possible and the amount can be reasonably estimated.
C. Both A and B
D. Neither A nor B
18. A contingent asset qualifies for recognition when the
A. Occurrence is probable and the amount can be reasonably estimated
B. Occurrence is possible and the amount can be reasonably estimated.
C. Both A and B
D. Neither A nor B
19. Measurement used in provision where there is a continuous range of possible outcomes, and
each point in that range is as likely as any other.
A. Best estimate C. Expected value
B. Midpoint D. Highest value
20. Measurement used in provision where the provision being measured involves a large population
of items, the obligation is estimated by weighting all possible outcomes by their associated
probabilities.
A. Best estimate C. Expected value
B. Midpoint D. Highest value
21. Which of the following statement regarding the requirements in PAS 37 is incorrect?
A. Gains on the expected disposal of assets are not taken into account in measuring a provision,
even if the expected disposal is closely linked to the event giving rise to the provision.
B. Provisions shall not be recognized for future operating losses.
 C. An entity shall not recognize a contingent liability.
D. Present value of the amount of a provision is ignored even if the effect of the time value of
money is material because provision is typically considered a current asset.
22. The following are examples of events that may fall under the definition of restructuring, except
A. Changes in management structure, for example, eliminating a layer of management
B. Fundamental reorganizations that have a material effect on the nature and focus of the
entity’s operations
C. The closure of business locations in a country or region or the relocation of business
activities from one country or region to another
D. None of the above
23. Under IFRIC 1, changes in the measurement of an existing decommissioning liability shall be
accounted as (the related asset is measured using the revaluation model)
A. A decrease in the liability shall be recognized in profit or loss and increase the revaluation
surplus within equity.
B. The extent that a decrease in liability reverses a revaluation deficit the change in the liability
shall be recognized in profit or loss.
C. An increase in the liability shall be recognized in profit or loss, except that it shall be
recognized in other comprehensive income and reduce the revaluation surplus within
equity to the extent of any credit balance existing in the revaluation surplus in respect of
that asset.
D. An increase in the liability shall be recognized in other comprehensive income, and reduce
the revaluation surplus within equity to the extent of any credit balance existing in the
revaluation surplus in respect of that asset.
24. Kamote Inc. has the following accounts on December 31, Year 1:
Accounts payable 425,000
Notes payable due on July 1, Year 2 200,000
Premium on notes payable 12,000
Bonds payable due on March Year 3 850,000
Discount on bonds payable 27,000
Advances from customers 36,000
Advances to employees 64,000
Bank loans payable (semiannual installment of 50,000) 450,000
Accrued interest expense 75,000
Deferred rent income 117,000
Bank overdraft PBI (no other account on PBI) 28,000
Share dividends payable 150,000
Deferred tax liability 73,000
How much is the current liabilities as of December 31, Year 1?
A. 993,000 C. 1,038,000
B. 876,000 D. 1,066,000
25. Refer to no. 24. How much is the non-current liabilities as of December 31, Year 1?
A. 1,363,000 C. 1,201,000
B. 1,246,000 D. 1,173,000
26. Palakol Company included a coupon in each box of soap it sold. A shampoo is offered as premium
to customers who send in 5 coupons plus remittance of P25. Management expects that 40% of the
coupons will be redeemed each year. Details of the transactions in 2015 and 2016 are as follows:
Year 1 Year 2

Boxes of soap sold 380,000 510,000

Bottles of shampoo purchased (P100/bottle) 30,000 42,000

Coupons redeemed 140,000 200,000

What amount of premium expense would be recognized for Year 1?

A. 2,100,000 C. 2,280,000
B. 3,900,000 D. 2,400,000
27. Refer to no. 26. What amount of estimated premium liability would be reported on December
31, Year 2?
A. 210,000 C. 230,000
B. 220,000 D. 240,000
28. Pasang-Awa Manufacturing started selling products with two-year warranty against defects.
Based on industry experience of similar products, the estimated warranty costs related to peso
sales would be 3% in the first year of warranty and 6% in the second year of warranty.
Year 1 Year 2

Sales P 5,000,000 P 6,000,000

Actual warranty costs 187,000 598,000

What amount of warranty expense would be recognized for Year 1?

A. 150,000 C. 540,000
B. 187,000 D. 450,000
29. Refer to no. 28. What amount of estimated warranty liability would be reported on December
31, Year 2?
A. 205,000 C. 540,000
B. 263,000 D. 360,000
30. Tres Inc. has prepared the payroll for the month of December Year 1. The employer is obliged to
share the same amount of statutory deductions plus EC premiums contribution of P18,000.
Remittances of payroll taxes are made the following month. The following are the employee’s
share on payroll taxes for the month of December Year 1:
Witholding taxes 236,000
SSS premiums 87,000
Philheallth premiums 21,000
Pag-ibig premiums 16,000
What amount of payroll tax expense would be recognized for the December Year 1 payroll?
A. 378,000 C. 360,000
B. 142,000 D. 124,000
31. Refer to no. 30. What amount of payroll tax liability would be reported as of December 31, Year
1?
A. 756,000 C. 520,000
B. 284,000 D. 502,000
32. Ewan Co. earned P12 million net income before bonus and tax for the year. The company decided
to give 20% bonus to its officers.
What would be the bonus payable to officers if the bonus is based on net income after bonus but
before tax?
A. 2,400,000 C. 2,000,000
B. 1,473,685 D. 1,565,840
33. Refer to no. 32. What would be the bonus payable to officers if the bonus is based on net income
after bonus and after tax?
A. 2,400,000 C. 2,000,000
B. 1,473,685 D. 1,565,840
34. Malay Co. sells magazine subscription to its customers. The balance of advance subscription
revenue account on December 31, Year 1 is P650,000. Cash received from subscribers for Year 2
totaled P1,750,000. Outstanding subscriptions as of December 31, Year 2 expires as follows:
During 2016 P 550,000

During 2017 870,000

During 2018 450,000

What amount would be reported as advance subscription revenue as of December 31, Year 2?
A. 1,870,000 C. 2,400,000
B. 1,850,000 D. 2,100,000
35. Refer to no. 34. What amount of subscription revenue would be recognized for Year 2?
A. 550,000 C. 530,000
B. 520,000 D. 540,000
36. During Year 1, Hula Inc. is a defendant in two lawsuits that will be ruled by the court late in 2016.
There is no indication that the claimants will settle out of court. Details of the cases are as follows:
o Company legal counsel believes that there is 25% chance of losing the infringement case and
that the damages to be paid by Hula Inc. range from P400,000 to P750,000. The best estimate
however is P600,000.
o Company legal counsel believes that there is a 20% chance of winning the labor case filed by
former employees. Lawyers also believe that there is a 30% chance the company will be
required to pay P150,000 and 70% chance the company will be required to pay P350,000. A
10% risk adjustment factor to the probability-weighted expected cash flows is considered
 appropriate to reflect the uncertainties in the cash flow estimates. Present value of 1 at 6%
for one period is 0.943. Time value of money discounted at 6% is considered material.
What amount of provision for the infringement case would be recognized on December 31, Year
1?
A. -0- C. 600,000
B. 575,000 D. 750,000
37. What amount of provision for the labor case would be recognized on December 31, 2015?
A. 255,200 C. 300,817
B. 290,000 D. 240,654
38. Paasa Department Store sells gift certificates, redeemable for store merchandise. Data about the
gift certificates are as follows:
Year 1 sales 1,800,000

Year 2 sales 2,000,000

Year 1 redemptions 1,000,000

Year 2 redemption of current year sales 1,400,000

Year 2 redemptions of prior year’s 420,000

sales
Experience indicates that 10% of the gift certificates will not be redeemed at all.
What amount of unearned revenue would be reported as of December 31, Year 1?
A. 620,000 C. 380,000
B. 800,000 D. 200,000
What amount of unearned revenue would be reported as of December 31, Year 2?
A. 400,000 C. 980,000
B. 600,000 D. 890,000
39. On January 01, Year 1, the Lagpak Company constructed a nuclear facility for P25 million and is
required by law to remove and dismantle the platform at the end of its useful life of 10 years.
Estimated decommissioning cost at the end of ten years is P6 million. Based on 10% discount
rate, the PV of 1 for 10 periods is 0.3855. How much is the interest expense for Year 1?
A. 600,000 C. 254,430
B. 231,300 D. 200,000
40. Refer to no. 39. The decommissioning liability as of December 31, Year 2 should be
A. 6,000,000 C. 2,313,000
B. 2,544,300 D. 2,798,730