Your company has been engaged to examine the financial statements of Alkaline Co. for the years ended December 31, 2020 and December 31, 2019. You have learned that on January 1, 2018, Alkaline Co. issued a 5-year 8% bond P5,000,000 for P5,500,000. Each P1,000 bond isconvertible into 8 shares of P100 par ordinary share of Alkaline Co. at the option of thebondholder. Interest on the bonds is payable annually on December 31. Without theconversion feature , the bonds would have sold to yield 10% to the holders. (round presentvalue factors to 4 decimals).

1.The issue price that was attributable to the debt is

a. 5,420,000 b. 5,399,350 c. 5,000,000 d. 4,620,820

2. What was the carrying value of the bonds on December 31, 2018?

a. 4,682,902b. 4,744,984c. 5,000,000d. 5,467,402

3. What is the interest expense on these bonds for the year ending December 31, 2019?

a. 400,000b. 437,392c. 468,290d. 500,000

4. On January 1, 2020, P2,000,000 of the bonds were converted into ordinary shares. What

amount should have been credited to share premium upon conversion?

a. 652,149b. 520,000c. 400,000d. 300,477

5. Assume that on January 1, 2020, P2,000,000 of the bonds were retired at 109. The bonds

without conversion feature would have sold at 105 on this date. What amount of gain or (loss)

should be recognized on the retirement of the bonds?

a. 40,000b. 160,000c. (59,523)d. (199,523)

6. Based on the assumptions on #5 above, what should be the interest expense for the year

ended December 31, 2020?

a. 252,374b. 285,072c. 300,000d. 475,119

7. Rosa Inc. leases equipment to its customers under non-cancelable leases. On January 1, 2020, Rosa Inc. leased equipment costing P4,000,000 to Carmen Inc. for 9 years at a rental cost ofP440,000 payable in advance semiannually (January 1 and July 1) plus P20,000 semiannuallyfor executory costs. The equipment has an estimated useful life of 15 years and sold forP5,330,250 with an estimated unguaranteed residual value of P800,000. The implied interest is 12%. Round off present value factors to 4 decimals. What is the total interest income from lease that will be earned by Rosa Inc.?

a. 2,869,988b. 3,389,748c. 3,675,616d. 0

8. What should Rosa Inc. report as its profit on the sale?

a. 1,330,252b. 1,044,384c. 1,050,012d. 1,338,492

9. What should be reported as finance lease liability as of December 31, 2020 by Carmen Inc.?

a. 4,143,593b. 4,446,613c. 4,273,410d. 0

10. How much should be reported by Carmen Inc. under current liabilities as liability under

finance lease as of December 31, 2020?

a. 356,798b. 378,207c. 394,252d. 0

11. What is the interest expense to be reported by Carmen Inc. in relation to the lease for the year

ended December 31, 2020?

a. 508,064b. 501,793c. 543,398d. 0