Father Saturnino Urios University

Accountancy Program
Butuan City

Accounting 520
SFQ 003
Anbert Angelo C.Cayna, CPA

ACCOUNTING FOR EMPLOYEE BENEFITS, LEASES, AND OTHER LIABILITIES

1. On December 1, 2013, Lancaster Company issued at 103, five thousand of 9%, P1,000 face value bonds.
Attached to each bond was one share warrant entitling the holder to purchase 10 ordinary shares of the entity. On
December 1, 2013, the fair value of the bonds without the share warrants was 95, and the fair value of each share
warrant was 50. What amount of the proceeds from the bond issuance should be accounted for as the initial
carrying amount of the bonds payable?
a. 4,892,500
b. 4,750,000
c. 5,000,000
d. 5,150,000
6-20 p282 B dili sure
2. Young Company issued 5,000 convertible bonds at the beginning of the current year. The bonds have a four-year
term with a stated rate of interest of 6%, and are issued at par with a face value of P1,000 per bond. Interest is
payable annually on December 31. Each bond is convertible into 50 ordinary shares with a par value of P10. The
market rate of interest on similar nonconvertible bond is 9%. At the issuance date, the amount of P485,000 was
credited to share premium from conversion privilege. The bonds were not converted and instead the entity paid off
the convertible bondholders at maturity. What amount should be recorded as gain or loss on the full payment of
the convertible bonds at maturity?
a. 2,500,000 gain
b. 485,000 loss
c. 485,000 gain
d. 0
6-21 p 282 c dili sure
3. On July 1, 2013, Kemp Company leased office space for five years at P150,000 a month. On that date, Kemp
Company paid the lessor the following amounts:
Rent security deposit
350,000
First month's rent
150,000
Last month's rent
150,000
Nonrefundable reimbursement to lessor for
modifications to the leased premises
900,000
1,550,000
Kemp Company made timely rental payments from August 1 through December 1, 2013.
What portion of the payments to the lessor should deferred on December 31, 2013?
a. 1,400,000
b. 1,310,000
c. 1,250,000
d. 500,000
8-19 p353 B
4. Conn Company owns an office building and normally charges tenants P3,000 per square meter per year for office
space. Because the occupancy rate is low, Conn Company agreed to lease 1,000 square meters to Hanson
Company at P1,200 per square meters for the first year of the three-year operating lease. Rent for the remaining
lease will be at the P3,000 rate. Hanson Company moved into the building on January 1, 2013, and paid the first
years rent in advance.
What amount of rental revenue should be reported in the income statement for the year ended September 30,
2013?
a. 2,400,000
b. 1,200,000
c. 1,800,000
d. 900,000
8-24 p355 C
5. On January 1, 2013, Clay Company leased a new machine from Saxe Company. The following data relate to the
transaction at the inception of the lease:
Lease term
10 years
Annual rental payable at the beginning of each year lease year
500,000
Useful life of the machine
15 years
Implicit interest rate
10%
Present value of an annuity of 1 in advance for 10 periods at 10%
6.76
Present value of annuity of 1 in arrears for 10 periods at 10%
6.15
Fair value of the machine
4,000,000
The lease has no renewal option, and the possession of the machine reverts to Saxe Company when the lease
terminates.
At the commencement of the lease, what amount should be recognized as finance lease liability?
a. 4,000,000
b. 3,380,000
c. 3,075,000
d. 0
9-18 p406 D
6. East Company leased a new machine from North Company on January 1, 2013 under a lease with the following
information:
Annual rental payable at the beginning of each lease year
400,000
Lease term
10 years
Useful life of the machine
12 years
Implicit interest rate
14%
Present value of annuity of 1 in advance for 10 periods at 14%
5.95
Present value of 1 for 10 periods at 14%
0.27
East Company has the option to purchase the machine on January 1, 2023 by paying P500,000 which
approximates the expected fair value of the machine on the option exercised date.
What is the cost of leased assets on January 1, 2013 to be recognized by East Company?
a. 2,515,000
b. 2,380,000
c. 2,245,000
d. 1,980,000
9-21 p408 B

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Nun Company leased a machinery from Chin Company on January 1, 2013, for 10-year period(useful life of the
asset is 20 years). Equal annual payments under the lease are P200,000 and are due on January 1 of each year
starting January 1, 2013. The present value on January 1, 2013 of the lease payments over the lease term
discounted at 10% was P1,352,000. The incremental borrowing rate was 12%. The lease is appropriately
accounted for as a finance lease because there is a very nominal bargain purchase option.
What is the finance lease liability to be reported as noncurrent on December 31, 2013?
a. 1,215,920
b. 1,090,240
c. 1,067,200
d. 973,920
What is the interest expense for 2013?
a. 200,000
b. 115,200
c.106,720
d. 0
What is the depreciation for 2013?
a. 135,200
b. 115,200
c. 67,600
d. 20,000
9-32 p412 CBC
Oceanic Company is engaged in leasing equipment. Such an equipment was delivered to a lessee on January 1,
2013 under a direct financing lease with the following provisions:
Cost of equipment
4,361,200
Unguaranteed residual value
200,000
Useful life and lease term
8 years
Implicit interest rate
10%
Present value of an ordinary annuity of 1 for 8 years at 10%
5.335
Present value of 1 for 8 years at 10%
0.466
The annual rental is payable at the end of each year. The equipment will revert to the lessor upon the lease
expiration.
What is the annual rental over the lease term?
a. 800,000
b. 817,470
c. 779,980
d. 834,940
10-10 p439 A
Magnum Company owns an asset costing P5,239,000. The asset is leased on January 1, 2013 to another entity.
Five annual lease payments are due each January 1, beginning January 1, 2013. The lessee guarantees the
P2,000,000 residual value of the asset at the end of the lease term on December 31, 2017.
The lessors implicit interest rate is 8%. The PV of 1 at 8% for 5 periods is 0.68 and the PV of an annuity of 1 in
advance at 8% for 5 periods is 4.31.
What is the annual lease payment?
a. 1,215,545
b. 1,531,090
c. 900,000
d. 751,500
10-12 p440 C
On January 1, 2013, Gallant Company entered into a lease agreement with Blacksheep Company for a machine
which was carried on the accounting records of Gallant Company at P2,000,000. Total payments under the lease
which expires on December 31, 2022 aggregate P3,550,000 of which P2,400,000 represents cost of the machine
to Blacksheep Company. Payments of P355,080 are due each January 1 of each year. The interest rate of 10%
which was stipulated in the lease is considered fair and adequate compensation to Gallant Company for the use
of its funds. Blacksheep Company expects the machine to have a 10-year life, no residual value and be
depreciated on a straight line basis. The lease qualifies as a sales type lease. What total income before tax
should be recognized by Gallant Company from the lease for the year ended December 31, 2013?
a. 204,492
b. 604,492
c. 355,080
d. 755,080
11-14 p 466 B
Rizza Company uses leases as a method of selling its products. In 2013, Rizza Company completed construction
of machinery. On January 1, 2013, the machinery was leased on a contract specifying the ownership of the
machinery will transfer to the lessee at the end of the lease period. Annual lease payments do not include
executory cost. Other terms of the agreement are as follows:
Original cost of the machinery
9,000,000
Lease payments payable in advance
2,000,000
Estimated residual value
1,000,000
Implicit interest rate
12%
Date of first lease payment
January 1, 2013
Lease term
10 years
Present value of an annuity due of 1 at 12% for 10 periods
6.33
Present value of 1 at 12% for 10 periods
0.32
What is the total financial revenue over the lease term?
a. 8,340,000
b. 7,340,000
c. 8,020,000
d. 6,340,000
11-17 #1 p469 B
On January 1, 2013, Accord Company sold a building with a carrying amount of P4,200,000 to another entity for
P4,050,000. Accord Company immediately entered into a leasing agreement wherein Accord Company would
lease the building back for an annual payment of P640,000. The term of the lease is 10 years, the expected
remaining useful life of the building. The first annual lease payment is to be made immediately, and the future
payments will be made on January 1 of each succeeding year. The lessors implicit interest rate is 12%. What
amount of loss on sale and leaseback should be recognized by Accord Company for 2013?
a. 150,000
b. 135,000
c. 15,000
d. 0
12-14 p488 A
In attempt to alleviate its liquidity problems, Banco Company entered into an agreement on January 1, 2013 to
sell its processing plant to another entity for P3,500,000 which is the fair value of the plant. At the date of sale, the
plant had the carrying amount of P2,750,000. Banco Company immediately leased the processing plant back
from the buyer. The terms of the lease agreement were:
Annual payments in arrears, commencing December 31, 2013
700,000
Reimbursement to the lessor for maintenance cost(included in the annual payment)
35,000

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Lease term
6 years
Economic life of the plant
8 years
Implicit interest rate
10%
What amount should be reported as deferred gain on sale and leaseback on December 31, 2013?
a. 750,000
b. 625,000
c. 656,250
d. 0
12-13 p487 B
The following information is related to a defined benefit plan of Danica Company for the year ended December 31,
2013:
Current service cost
30,000
Benefits paid
31,000
Contribution to the fund
21,000
Fair value of plan assets:
January 1
2,100,000
December 31
2,400,000
Projected benefit obligation:
January 1
2,200,000
December 31
2,500,000
Past service cost for the current year
115,000
On January 1, 2013, the discount rate and expected rate of the return are 5% and 7% respectively.
On January 1, 2014, the discount rate and expected rate of the return are 6% and 8% respectively.
What amount should be recognized as employee benefit expense in income statement for the current year?
a. 150,000
b. 145,000
c. 115,000
d. 140,000
What is the actual return on plan assets?
a. 310,000
b. 147,000
c. 163,000
d. 341,000
What is the actuarial loss arising from the increase in projected benefit obligation?
a. 191,000
b. 300,000
c. 185,000
d. 76,000
What is the net remeasurement gain or loss on December 31, 2013?
a. 281,000 gain
b. 281,000 loss
c. 129,000 gain
d. 129,000 loss
What amount should be reported as prepaid or accrued benefit cost on December 31, 2013?
a. 150,000 accrued
b. 150,000 prepaid
c. 100,000 accrued
d. 100,000 prepaid
14-52 p657 AADCC
Ultimate Company provided the following information in relation to its defined benefit plan for 2013:
January 1
December 31
Fair value of plan assets
2,600,000
3,000,000
Projected benefit obligation
2,000,000
2,100,000
Prepaid/accrued benefit cost-surplus
600,000
900,000
Asset ceiling
200,000
300,000
Effect of asset ceiling
400,000
600,000
The following data are provided for the current year:
Current service cost
100,000
Contribution to the plan
350,000
Benefits paid
150,000
Discount rate
10%
What is the actual return on plan assets for the current year?
a. 200,000
b. 350,000
c. 150,000
d. 260,000
What is the actuarial gain due to decrease in PBO for the current year?
a. 50,000
b. 40,000
c. 30,000
d.0
What amount should be reported as employee benefit expense for the current year?
a. 200,000
b. 100,000
c. 80,000
d. 40,000
What is the remeasurement loss related to the change in the effect of asset ceiling?
a. 600,000
b. 100,000
c. 200,000
d. 160,000
What is the net remeasurement loss to be recognized as component of other comprehensive income for 2013?
a. 110,000
b. 220,000
c. 270,000
d. 170,000
14-53 p659 AACDD