POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

College of Accountancy and Finance

Intermediate Accounting 3
Accounts Payable and Notes Payable

Name : _______________________Course, Year & Section: ______Date:_________Score: ________

General Instructions: Faith is the confidence that what we hope for will happen; it gives us assurance about things we cannot
see. Have faith and always bear in your mind that you can answer everything to the best that you can. Put your answers in the
MS form link provided to you. Show your solutions in a scratch paper. Always observe HONESTY during the examination.
GODBLESS!

THEORIES

1. Which of the following is not an essential characteristic of a liability?

A. A liability embodies a present obligation to be settled by a probable future transfer or use of assets.
B. The obligated company has little or no discretion to avoid the future sacrifice.
C. The obligation is legally enforceable.
D. The transaction or event obligating the company has already happened.

2. Liabilities are present obligation which represent

A. either legal or constructive obligations. C. legal only
B. neither legal or constructive D. expected value

3. Which of the following shall not be classified as current liability?

A. An obligation expected to be settled in the entity’s normal operating cycle.
B. An obligation held primarily for the purposes of being traded.
C. An obligation to be settled within twelve months after the reporting period.
D. An obligation for which the entity has an unconditional right to defer the payment for at least fifteen
months from the end of the reporting period.

4. Which of the following obligations are classified as current liabilities even they are due to be settled for more
than twelve months after the end of the reporting period?
A. Payables arising from purchase of goods. C. Bank overdrafts.
B. Long-term financial liabilities. D. Bonds payable

5. Which of the following is false about the discount on short-term notes payable?
A. The Discount on Notes Payable account has a debit balance.
B. The Discount on Notes Payable account should be reported as an asset on the balance sheet.
C. If there is a discount on notes payable, the effective interest rate is higher than the stated discount rate.
D. All of these are true

6. Which of the following is included from long-term debts maturing currently as current liabilities?
A. Retired by assets accumulated for this purpose that properly have not been shown as current assets
B. Refinanced, or retired from the proceeds of a new debt issue
C. Converted into ordinary shares.
D. Liabilities that becomes callable by the creditor when there is a violation of the debt agreement.

7. Trade accounts payable:

A. Should, theoretically, be recorded net of any cash discount.
B. Are examples of liabilities that must be estimated and accrued.
C. Do not include purchases on an open- charge basis.
D. Are normally long-term liabilities.

8. When the effective-interest method is used to amortize notes premium or discount, the periodic amortization will
A. increase if the notes were issued at a discount.
B. decrease if the notes were issued at a premium.
C. increase if the notes were issued at a premium.
D. increase if the notes were issued at either a discount or a premium.

9. Under the effective interest method of note discount or premium amortization, the periodic interest expense is
equal to
A. the stated (nominal) rate of interest multiplied by the face of the note.
B. the effective (yield) rate of interest multiplied by the face of the note.
C. the stated rate multiplied by the beginning of the period carrying amount of the note.
D. the effective rate multiplied by the beginning of the period carrying amount of the note.

Intermediate Accounting 3 1- NAB

PROBLEMS
1. Genesis Company signed a P5,000, 3-mos, 6% note payable, on Dec. 1, 2024, with principal plus interest due on
Mar. 1, 2025. If the accounting period ends on Dec. 31, which of the following is true?
A. On December 31, 2024, Genesis will debit Interest Expense for P 50
B. On December 31, 2024, Genesis will credit Interest Payable for P 75
C. On March 1, 2025, Genesis will debit Interest Expense for P 75
D. On March 1, 2025, Genesis will debit Interest Payable for P 25

2. Leviticus Corp.'s accounts payable on December 31, 2024, totaled P650,000 before any necessary year-end
adjustments relating to the following transactions:
➢ On December 27, 2024, Leviticus wrote and recorded checks to creditors totaling P350,000 causing an
overdraft of P100,000 in Leviticus's bank account on December 31, 2023. The checks were mailed out on
January 10, 2025.
➢ On December 28, 2024, Leviticus purchased and received goods for P150,000, terms 2/10, n/30. Leviticus
records purchases at net. The invoice was recorded and paid January 3, 2025.
➢ Goods shipped F.O.B. destination on December 20, 2023 from a vendor to Leviticus were received January
2, 2024. The invoice cost was P65,000.
On December 31, 2024, what amount should Leviticus report as total accounts payable?

3. The accounts payable balance of Jek Company at December 31, 2024 was P590,000 before the year-end
adjustments relating to the following information:
a. Upon receipt of the invoice on December 28, 2024 for goods costing P30,000, the accounting staff of Jek
Company recorded the purchase in the accounts. It was determined that the goods were shipped FOB
destination on December 27, 2024 and were received by Jek Company on January 2, 2025.
b. Goods with an invoice cost of P25,000 which were shipped FOB shipping point on December 23, 2024 from a
vendor to Jek Company were lost in transit. On January 4, 2025, Jek Company filed a P25,000 claim against
the transportation company.
c. Goods costing P9,000 were shipped FOB shipping point from a vendor to Jek Company. Because the vendor’s
invoice and the goods were received on January 3, 2025, the accounting staff did not include the goods in its
December 31, 2024 inventory nor was the purchase recorded in the accounts in 2024.
What amount should Jek Company report as accounts payable in its December 31, 2024 statement of financial
position?

4. On September 1, 2023, Joshua Co. issued a note payable to BDO in the amount of P1,200,000, with the stated
rate of 12% and payable in three equal annual installments. On this date, the bank’s prime rate is 11%. The first
interest and principal payment was made on September 1, 2024. How much should Joshua record as interest
payable on December 31, 2024?

5. At December 31, 2024, Judges Corporation owed notes payable of P1,000,000 with a maturity date of April 30,
2025. These notes did not arise from the normal course of business. On February 1, 2025, Judges issued P3,000,00
10-year bonds with the intention of using the part of the bond proceeds to liquidate the P1,000,000 notes payable.
Judges’ 2024 financial statement were issued on March 29, 2025. How much of the P1,000,00 notes payable will
be classified as current liabilities on Judges’ 2024 financial statement?

6. On January 1, 2024, Solemn Company sold to Glory Company. There was no established market price for the
land. Glory gave Solemn a P2,400,000 noninterest bearing note payable in three equal annual installments of
P800,000 with the first payment on December 31, 2024. The note has no ready market. The prevailing interest rate
of this type is 10%. The present value of the note of a P2,400,000 note payable in three annual installments of
P800,000 at a 10% rate is P1,989,600. What is the carrying amount of the note payable on December 31, 2024?

7. Heart Company had P2,000,000 note payable due on June 30, 2024. Under the existing loan facility on Dec 31,
2023, the entity had the discretion to refinance the note payable for at least twelve months after the end of the
reporting period. On December 31, 2023, what amount of the note payable should be reported as noncurrent
liability?

8. On July 31, 2024, Joe Company issued a five-year note payable with a face amount of P2,400,000 and an interest
rate of 10%. The terms of the note require Joe Company to make five equal annual payments of plus accrued interest,
with the first payment due on July 31, 2025. With respect to the note, the current liabilities section of Joe
Company’s December 31, 2024 statement of financial position should include

9. A note payable to the Bank of the Giniling Islands for P2,400,000 is outstanding on December 31, 2024. The note
is dated October 1, 2024, bears interest at 18%, and is payable in three equal annual installment of P800,000. The
first interest and principal payment was made on October 1, 2025. How much is the current portion related to the
note on December 31, 2024?

10. On January 1, 2027, Israel Inc. issued 10-year notes with a face amount of P1,000,000, for a machine purchased,
at a stated interest rate of 8% payable annually on January 1, starting January 1, 2028. The current market rate at the
date of issuance 10%. How much is the carrying value (present value) of the note on January 1, 2027?
Intermediate Accounting 3 2- NAB
11. On June 1, 2026, Lugaw Corp. issued a three-year interest bearing note payable in installment in exchange of a
brand new machinery. Interest of 13% annually is payable every December 31 of each year. The principal amount
of note is to be paid as follows: June 1, 2027- P350,000; June 1, 2028- P420,000; June 1, 2029- P530,000. How
much is the total current liabilities to be presented in the statement of financial position on December 31, 2027?

/nabergonia

Intermediate Accounting 3 3- NAB