1. On March 1, 20X4, Fine Co. borrowed P10,000 and signed a two-year note bearing interest at 12% per annum compounded annually. Interest is payable in full at maturity on February 28, 20X6. What amount should Fine report as a liability for accrued interest at December 31, 20X5? a. 0 b. 1,000 c. 1,320 d. 2,320 (AICPA) 2. On January 1, 20x1, Sunset Co. issues a P5,000,000 noninterest bearing note due on December 31, 20x4. The effective interest rate is 15%. How much is the unamortized balance of the discount on notes payable account on January 1, 20x3? a. 652,174 b. 1,219,282 c. 1,712,419 d. 2,141,234 The next two items are based on the following information: House Publishers offered a contest in which the winner would receive P1,000,000, payable over 20 years. On December 31, 2000, House announced the winner of the contest and signed a note payable to the winner for P1,000,000, payable in P50,000 installments every January 2. Also on December 31, 2000, House purchased an annuity for P418,250 to provide the P950,000 prize monies remaining after the first P50,000 installment, which was paid on January 2, 2001. 3. In its December 31, 2000, balance sheet, what amount should House report as note payable-contest winner, net of current portion? a. 368,250 b. 418,250 c. 900,000 d. 950,000 (AICPA) Hint: An annuity is a financial product, usually sold by financial institutions like insurance companies, wherein you make a lump sum payment or series of payments and, upon annuitization you will receive a stream of income payments from the financial institution. 4. In its 2000 income statement, what should House report as contest prize expense? a. 0 b. 418,250 c. 468,250 d. 1,000,000 (AICPA) 5. On January 1, 20x1, RELISH TASTE Co. acquired a machine by issuing a 3%, P4,000,000 note due on January 1, 20x4. Interest is payable semiannually. The effective interest rate is 12%. How much is the carrying amount of the note on initial recognition? a. 3,114,879 b. 4,000,000 c. 3,135,340 d. 3,174,309