Philippine School of Business Administration

FINANCIAL ACCOUNTING AND REPORTING PROBLEMS

FINAL EXAMINATION SET A

Instructions: Write the letter of your answer on a separate answer sheet. Provide solutions
for each number in the answer sheet. Answers without solutions WILL NOT BE
CONSIDERED.

For numbers 1 and 2, answer the following problem

Libis Company reported the following in its statement of financial position on December 31,
2020:

Equipment 840,000 Equity 1,555,000

Patent 210,000 Noncurrent liabilities 750,000
Inventory 600,000 Accounts payable 440,000
Accounts receivable (net) 405,000
Cash 690,000
Total 2,745,000 Total 2,745,000

The following additional information is provided:

a. Cash includes P12,000 in petty cash fund and P120,000 in bond sinking fund.
b. The net accounts receivable is comprised of the following items: debit balance - P520,000
credit balance – P80,000, allowance for doubtful accounts – P35,000.
c. Inventory costing P53,000 was shipped out on consignment on December 31, 2020. The
inventory balance does not include the consigned goods, but receivables in the amount of
P53,000 were recognized on these consigned goods.
d. Income taxes payable of P90,000 were accrued on December 31, 2020. The entity had set up a
cash fund to meet this obligation. This cash fund was not included in the cash balance but was
offset against the income tax payable account.

1. What amount of current assets should be reported on December 31, 2020?

a. 1,695,000
b. 1,745,000
c. 1,655,000
d. 1,798,000

2. What amount of current liabilities should be reported on December 31, 2020?

a. 530,000
b. 520,000
c. 663,000
d. 610,000

3. Release Company issued its December 31, 2020 financial statements on March 20, 2021. The
following events took place before the financial statements were authorized:
a. A flood loss of P800,000 occurred on March 1, 2021.
b. 10,000 ordinary shares were issued at P150 par value on March 15, 2021.
c. On March 1, 2021, Release determined after negotiations with the BIR that income tax
payable for 2020 should be P13,200,000. On December 31, 2020, income tax payable
were recorded at P11,000,000.
What total amount of adjusting events should be reported on December 31, 2020?
a. 13,200,000
b. 4,500,000
c. 2,200,000
d. 2,300,000
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For numbers 4 and 5, answer the following problem
On November 1, 2019, Constantine Company received P24,000 representing royalty revenue for
three months. On February 1, 2020, the entity received P108,000 representing royalty revenue
for one year. The entity uses the income method and does not prepare reversing entries.
4. The adjusting entry on December 31, 2019 will include a
a. Credit to royalty revenue of P24,000.
b. Debit to royalty revenue of P8,000.
c. Credit to deferred royalty revenue of P16,000.
d. Debit to royalty revenue of P16,000.
5. The adjusting entry on December 31, 2020 will include a
a. Credit to deferred royalty revenue of P9,000.
b. Debit to deferred royalty revenue of P1,000.
c. Credit to deferred royalty revenue of P1,000.
d. Debit to royalty revenue of P8,000.
6. Mental Company’s trial balance before adjustments included the following:
Debit Credit
Sales 4,250,000
Sales returns and allowance 140,000
Accounts receivable 430,000
Allowance for doubtful accounts 7,600
Mental estimates that 10% of the accounts receivable balance will be uncollectible. What is
the doubtful accounts expense to be recognized at year-end?
a. 43,000
b. 35,400
c. 42,240
d. 34,640
7. Kaniper Company has the following items at year-end:
Cash in bank, per bank statement 200,000
Petty cash 3,000
Commercial paper with maturity of 2 months 55,000
Customer’s postdated checks 14,000
Plant expansion fund 150,000
Bond sinking fund (bonds payable are due in 5 months) 120,000
Cash fund for payment of salaries 200,000
Deposit in transit and outstanding checks were P80,000 and P55,000 respectively at year-
end. What amount of cash and cash equivalent should be reported at year-end?
a. 578,000
b. 403,000
c. 483,000
d. 603,000
8. On its December 31, 2019, Calm Company appropriately reported a P80,000 unrealized loss
in OCI. There was no change during 2029 in the composition of Calm’s portfolio of equity
securities measured irrevocably at FVOCI. The following information pertains to that
portfolio:
Security Cost Fair value on December 31, 2020
X 1,250,000 1,600,000
Y 1,000,000 950,000
Z 1,750,000 1,250,000
4,000,000 3,800,000
What amount of cumulative unrealized loss in recognized in its 2020 statement of changes
in equity?
a. 200,000
b. 120,000
c. 280,000
 d. 0

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For numbers 9 and 10, answer the following problem
During 2020, Bare Company constructed a building at a total cost of P8,400,000. The weighted
average accumulated expenditures on assets qualifying for capitalization of interest during 2020
were P5,600,000. The company had the following debt outstanding at December 31, 2020:
a. 10%, 5-year note to finance construction of building,
dated January 1, 2018, with interest payable annually on January 1 3,600,000
b. 12%, ten-year bonds issued at par on December 31, 2014, with interest
payable annually on December 31 4,000,000
c. 9%, 3-year note payable, dated January 1, 2019, with interest payable
annually on January 1 2,000,000
9. What is the capitalized borrowing cost for the year ended December 31, 2020?
a. 1,020,000
b. 580,000
c. 440,000
d. 360,000
10. What is interest expense for the year ended December 31, 2020?
a. 1,020,000
b. 660,000
c. 580,000
d. 440,000

For numbers 11 and 12, answer the following problem

On January 1, 2018, Kohl Company purchased equipment for P1,200,000. It has a useful life of 8
years with no residual value. On December 31, 2019, new technology was introduced that would
accelerate the obsolescence of the equipment. The entity estimates that the present value of the
expected future net cash flows on the equipment will be P580,000 and that the fair value less cost
of disposal will be P600,000. Kohl determined that the recoverable amount on December 31,
2020 is P570,000.
11. What amount of impairment loss should be recognized for the year 2019?
a. 150,000
b. 330,000
c. 300,000
d. 0
12. What amount of gain on reversal of impairment loss should be recognized for the year 2020?
a. 300,000
b. 250,000
c. 70,000
d. 0
13. Yoon Company provided the following information pertaining to its intangible assets:
A patent was purchased from Graf Company for P2,500,000 on January 1, 2019. Yoon
estimated the remaining life to be 10 years. The patent was carried at Graf’s records at a
carrying amount of P2,000,000 when sold to Yoon. On January 1, 2020, Yoon estimated that
the remaining life of the patent is only 5 years.
During 2020, a franchise was purchased from Reymont Company for P580,000. In addition,
5% of revenue from the franchise must be paid to Reymont. Revenue from the franchise for
2020 was P3,500,000. The useful life of the franchise is 10 years and a full year’s
amortization is taken on the year of purchase.
Yoon incurred research and development costs of P433,000 in 2020.Yoon estimates that
these costs will be recouped by December 31, 2023.
What is the carrying amount of the intangible assets to be reported on December 31, 2020?
a. 2,479,500
b. 2,209,500
c. 1,872,000
d. 2,322,000
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14. On January 1, 2020, an entity purchased bonds for P923,200. The bonds had a face amount
of P1,000,000, and a stated interest rate of 8%. The bonds were purchased to yield 10% and
mature on January 1, 2025. Interest is payable annually every December 31. The entity’s
business model for this investment is collecting contractual cash flows and the cash flows are
composed of interest and principal. What is the carrying amount of the bonds on December
31, 2021?
a. 923,200
b. 935,520
c. 949,072
d. 910,420
15. On January 1, 2020, an entity purchased land at a cost of P3,500,000. The entity elected to
use the revaluation model is measuring the asset. The fair values of the land were P4,500,000
and P6,000,000 on December 31, 2020 and 2021 respectively. The income tax rate is 30%.
What amount of revaluation surplus is recognized on December 31, 2020?
a. 1,000,000
b. 700,000
c. 1,050,000
d. 1,750,000
For numbers 16 and 17, answer the following problem
Family Bank loaned another entity P10,000,000 on January 1, 2019. The terms of the loan were
payment in full on January 1, 2026 plus annual interest payment at 10%. Interest is payable every
January 1 and the first interest payment was made as scheduled on January 1, 2020. However,
due to financial setbacks, the entity was unable to make its 2021 interest payment. Family Bank
considers the loan impaired and projects the cash flows from the loan as of December 31, 2021.
The bank accrued the interest at December 31, 2020, but did not continue to accrue interest due
to the impairment of the loan. The projected cash flows are:
Date of cash flow Amount projected as of Dec. 31 2021
December 31, 2022 1,000,000
December 31, 2023 1,500,000
December 31, 2024 2,500,000
December 31, 2025 4,000,000
The present value of 1 at 10% is .91 for one period, .83 for two periods, .75 for three periods and
.68 for four periods.
16. What amount of impairment loss is recognized for the year ended December 31, 2021?
a. 2,250,000
b. 4,250,000
c. 3,250,000
d. 2,000,000
17. What amount of interest income is recognized for the year ended December 31, 2022?
a. 1,000,000
b. 900,000
c. 675,000
d. 0
18. An entity and its divisions are engaged solely in manufacturing. The following data pertain to
the segment operations during the current year:
Operating Segment Internal Revenue External Revenue
A 1,000,000 5,000,000
B 1,500,000 3,000,000
C 4,000,000 8,000,000
D 500,000 1,300,000
E 2,000,000 2,800,000
F 200,000 900,000
Totals 9,200,000 21,000,000
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How many are the reportable segments?
a. 6
b. 5
c. 4
d. 3
19. On January 1, 2020, an entity issued 9% bonds with 5,000 nondetachable warrants. The face
amount is P5,000,000 and the bonds mature on January 1, 2030. The bonds were issued for
P5,300,000. The bonds were selling ex-warrant at P4,693,000 to yield 10%. Interest is
payable annually on December 31. Each warrant can purchase 10 ordinary shares of the
entity at a price of P145. The par value of the share is P100. On December 31, 2021, all
warrants were exercised. What amount of share premium is recorded because of the exercise?
a. 2,250,000
b. 2,550,000
c. 2,557,000
d. 2,857,000
20. On January 1, 2020, an entity purchased equipment at a cost of P5,000,000 with a useful life
of 10 years. On the same date, the entity leased the equipment to another entity under an
operating lease. The lease term is for 5 years with the following rental payments in advance:
January 1, 2020 1,000,000
January 1, 2021 1,000,000
January 1, 2022 1,400,000
January 1, 2023 1,700,000
January 1, 2024 1,900,000
The entity also incurred maintenance cost of the P150,000 for the year 2020. What is the
net rental income for the year ended December 31, 2020?
a. 1,400,000
b. 1,150,000
c. 350,000
d. 750,000
For numbers 21 and 22, answer the following problem
On January 1, 2020, an entity borrowed P6,000,000 from a bank at a variable rate of interest for
4 years. Interest is payable annually to the bank every December 31 and the principal is due on
December 31, 2023. The market rate of interest every January 1 resets the variable rate for that
period and the amount of interest to be paid on December 31. The entity entered into a “receive
variable, pay fixed” interest rate swap agreement with a speculator. The underlying fixed interest
rate is 10%, the agreement was treated as a cash flow hedge and the market interest rates are as
follows: January 1, 2020 – 10%, January 1, 2021 – 14%, January 1, 2022 – 12%, January 1, 2023
– 11%. (Round PV factors to two decimals.)

21. What is the derivative asset or liability on December 31, 2020?

a. 556,800 asset
b. 556,800 liability
c. 760,800 asset
d. 760,800 liability
22. What will happen when the contract is settled partially on December 31, 2021?
a. Receive cash of P240,000.
b. Pay cash of P240,000.
c. Receive cash of P556,800.
d. Receive cash of P760,800
23. Monster Company had the following transactions during the 2nd quarter of 2020:
Loss from typhoon 200,000
Repairs and maintenance cost incurred during April 48,000
Loss on temporary inventory decline 40,000
Unrealized loss from trading securities 100,000
Annual bonuses paid in June 500,000
 Page 6

What total amount of expenses should be included in the statement of comprehensive income
for the quarter ended June 30, 2020?
a. 888,000
b. 513,000
c. 388,000
d. 638,000
24. On January 1, 2020, the merchandise inventory of Sin Company was P400,000. During 2020
Sin purchased P3,000,000 of merchandise and recorded sales of P2,800,000. The gross profit
rate on sales was 25%. What is the merchandise inventory of Sin at December 31, 2020?
a. 600,000
b. 80,000
c. 1,300,000
d. 1,160,000
25. The trial balance of Cucumber Company includes the following on December 31, 2020:
Sales revenue 950,000
Interest revenue 25,000
Gain on sale of fixed assets 10,000
Remeasurement gain on plan assets 20,000
Share in profit of associate 35,000
Cost of goods sold 600,000
Finance expenses 15,000
Selling and distribution costs 50,000
Administrative expenses 30,000
Exchange differences on translations of foreign operations – credit 15,000
Income tax expense 75,000
What is the profit for the year?
a. 350,000
b. 250,000
c. 265,000
d. 270,000
26. On January 1, 2020, Leaf Company sold goods to Green Company in which Green issued a
noninterest-bearing note requiring annual payment of P400,000 for 5 years. The first
payment was made on January 1, 2020, and succeeding payments were made every January 1
of each year. The prevailing interest rate for this similar note is 12%. The present value factor
of an ordinary annuity for 5 periods at 12% is 3.60 while the factor for an annuity due for 5
periods at 12% is 4.04. What amount of interest income is recognized for the year 2020?
a. 193,920
b. 145,920
c. 172,800
d. 240,000
27. During January of the current year, Cherry Company which maintains a perpetual inventory
system, recorded the following information pertaining to its inventory:
Units Unit cost Total cost Units on hand
Balance on 1/1 10,000 100 1,000,000 10,000
Purchased on 1/7 6,000 300 1,800,000 16,000
Sold on 1/20 9,000 7,000
Purchased 1/25 4,000 500 2,000,000 11,000
Under the moving average, what amount should be reported as inventory on January 31?
a. 2,640,000
b. 3,225,000
c. 3,300,000
d. 3,900,000
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For numbers 28 and 29, answer the following problem
Sloth Company has an overdue 8% note payable to Rich Bank at P4,000,000 and accrued interest
of P320,000. As a result of a restructuring agreement on January 1, 2020, Rich Bank agreed to
the following provisions: Principal obligation is reduced to P3,500,000, the accrued interest is
forgiven, the maturity date is extended to December 31, 2023, and the new interest rate increased
to 12% to be paid every December 31. (Round present value factors to two decimals.)
28. What is the gain on modification to be recognized on January 1, 2020 under PFRS 9?
a. 339,800
b. 500,000
c. 820,000
d. 0
29. What amount of interest expense should be recognized for the year 2020?
a. 320,000
b. 318,416
c. 420,000
d. 477,624
30. Hum Company was organized on January 1, 2020 and had pretax accounting income of
P5,000,000 and taxable income of P8,000,000 for the year ended December 31, 2020. The
only temporary difference is accrued product warranty costs that are expected to be paid as
follows: 2021 – 1,000,000, 2022 – 500,000, 2023 – 500,000, 2024 – 1,000,000. The entity
has never had any net operating losses and does not expect any in the future. The enacted tax
rates are 35% for 2020, 30% for 2021 to 2023, and 25% for 2024. On December 31, 2020,
what should be reported as deferred tax asset?
a. 1,050,000
b. 700,000
c. 850,000
d. 600,000
For numbers 31 and 32, answer the following problem
The following information pertains to Shaw Company’s defined benefit pension plan for 2020:
Prepaid pension cost, January 1 200,000
Service cost 1,900,000
Interest cost 3,800,000
Interest income on plan asset 2,000,000
Actual return on plan asset 1,500,000
31. What amount of employee benefit expense should be recognized for 2020?
a. 5,700,000
b. 3,500,000
c. 4,200,000
d. 3,700,000
32. What amount must Shaw contribute to its plan asset to report a prepaid benefit cost of
P2,500,000 on December 31, 2020?
a. 2,300,000
b. 3,700,000
c. 4,200,000
d. 6,500,000
33. On December 31, 2020, Marian Company has an outstanding accounts receivable balance of
P130,000,000 broken down into: 0-60 days outstanding, P50,000,000; 61-120 days
outstanding, P40,000,000; 121 - 365 days outstanding, P30,000,000; over one year
outstanding, P10,000,000. Estimated uncollectible accounts are 2%, 5%, 10% and 25%
respectively. Marian wrote off P2,500,000 of its accounts receivable and recovered
P500,000 from accounts previously written off in prior years. As at December 31, 2019,
Marian has an allowance for doubtful accounts of P5,000,000. What amount should be
reported as doubtful accounts expense for the year ended December 31, 2020?
a. 5,500,000
b. 8,500,000
c. 4,500,000
d. 3,000,000
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34. On January 1, 2020, the city government provided Plum Company a zero interest,
P8,000,000 loan with a 4-year term. The prevailing market rate of interest for this type of
loan is 8%. What amount of deferred income from government grant should be recognized
on January 1, 2020? (Round present value factors to 2 decimals.)
a. 8,000,000
b. 5,920,000
c. 2,080,000
d. 0
35. On January 1, 2020, Roxy Company acquired all the assets and liabilities of another entity.
The acquiree has a number of operating divisions, including one whose major industry is the
manufacture of toy train. The toy train division is regarded as a cash generating unit. On
December 31, 2020, the carrying amounts of the assets of the toy train division were:
Building 2,000,000
Inventory 1,500,000
Trademark 1,000,000
Goodwill 500,000
There is a declining interest in toy train because of the aggressive marketing of computer-
based toys. Management of Roxy Company measured the value in use of the toy train
division on December 31, 2020 at P3,600,000. What is the impairment loss to be allocated to
the building?
a. 400,000
b. 500,000
c. 900,000
d. 300,000
36. On January 1, 2020, Mary Company purchased 25% of Ann Company ordinary shares. The
purchase resulted in a goodwill of P600,000. Mary appropriately carries this investment at
equity and the balance in Mary’s investment account was P5,600,000 on December 31, 2020.
Ann reported net income of P2,000,000 for the year ended December 31, 2020, and paid cash
dividends to its ordinary shareholders totaling P1,200,000 during 2020. How much did Mary
pay for its 25% interest in Ann?
a. 4,800,000
b. 5,400,000
c. 5,000,000
d. 5,600,000
37. Horace Company leased machinery from another entity on December 31, 2020. The contract
is a five-year noncancelable lease with an implicit interest rate of 10 percent, which is known
to Horace. The lease requires annual payments of P1,000,000 beginning December 31, 2020.
Horace's incremental borrowing rate is 12 percent. The present value of an annuity due of 1
for 5 years at 10 percent is 4.7908 and the present value of an annuity due of 1 for 5 years at
12 percent is 4.6048. What is the lease liability after the first payment that Horace should
report on the statement of financial position at December 31, 2020?
a. 4,604,800
b. 3,790,800
c. 3,604,800
d. 4,790,800
38. The inventory on hand at December 31, 2020 for Jazz Company is valued at cost of
P8,000,000. The following items were not included in this inventory amount:
* Goods sold to another company, FOB destination, invoiced at P480,000 including P30,000
freight charge to deliver the goods. Goods are in transit. The company’s selling price is
150% of cost.
* Goods purchased in transit, FOB shipping point, invoiced at P200,000. Freight cost is
P10,000.
* Goods purchased in transit, FOB destination, invoiced at P400,000 including freight cost
of P20,000.
* Goods out on consignment to another company with sales price of P900,000. Freight cost
of P60,000 is paid by consignor.
 Page 9
What is the adjusted cost of the inventory on December 31, 2020?
a. 9,170,000
b. 9,200,000
c. 9,110,000
d. 9,590,000
39. Lilo Company exchanged 20,000 shares of its P25 par value ordinary shares held in treasury
for a parcel of land to construct a new building. The treasury shares were acquired by Lilo at
a cost of P40 per share, and on the exchange date the ordinary shares of Lilo had a fair value
of P50 per share. Lilo received P60,000 for selling scrap when an existing building on the
property was removed from the site at a cost of P100,000. What is the initial cost of the land?
a. 1,000,000
b. 1,040,000
c. 800,000
d. 840,000
40. Ace Company is involved in litigation regarding a faulty product sold. The entity has
consulted with its attorney and determined that it has a 70% chance of losing the case. The
attorney also determined that Ace has a 60% chance of paying P300,000 and a 40% chance
of paying P500,000. The court is expected to rule early next year. What amount of provision
is recognized at the end of the year?
a. 560,000
b. 380,000
c. 266,000
d. 0
41. Below are account balances and related information on December 31, 2020 for Nora
Company.
Cash and cash equivalents 3,900,000
Accounts receivable 1,500,000
Allowance for doubtful accounts ( 200,000)
Inventory 2,000,000
Prepaid insurance 300,000
7,500,000

Cash in bank, net of bank overdraft of P300,000 in another bank 1,000,000

Cash set aside by the Board of Directors for the purchase of a plant site 2,000,000
Petty cash 10,000
Cash withheld from wages for income tax of employees 190,000
General cash 700,000
Total cash and cash equivalents 3,900,000
The accounts receivable balance includes past due accounts in the amount of P100,000. The
account is deemed uncollectible and should be written off. The inventory includes goods held
on consignment amounting to P150,000 and goods of P200,000 purchased and received on
December 31, 2020. The prepaid insurance includes cash surrender value of life insurance of
P50,000. What amount of total current assets should be reported on December 31, 2020?
a. 5,800,000
b. 5,700,000
c. 5,410,000
d. 5,600,000
42. Flow Company declared and distributed a 15% share dividend with fair value of P2,500,000
and par value of P2,000,000 and a 30% share dividend with a fair value of P5,000,000 and
par value of P3,500,000. What amount should be recognized as share premium?
a. 2,000,000
b. 1,500,000
c. 500,000
d. 0
 Page 10
43. During 2020, Orca Company decided to change from FIFO to weighted average method of
inventory valuation. The FIFO inventory is P71,000 on January 1, 2020 and P79,000 on
December 31, 2020. The weighted average inventory is P77,000 on January 1, 2020 and
P83,000 on December 31, 2020. The income tax rate is 30%. What is the adjustment to
retained earnings due to this change?
a. 2,800
b. 4,000
c. 4,200
d. 0
44. Stags Company reported the following items in its statement of comprehensive income for
the year ended December 31, 2020:
Unrealized gain on trading securities 1,750,000
Unrealized loss on futures contract (cash flow hedge) ( 560,000)
Revaluation surplus during 2020 2,500,000
Actuarial gain fully recognized in other comprehensive income 1,680,000
Exchange differences in translating foreign operations – credit 750,000
What total amount of OCI may be recycled to profit or loss?
a. 1,940,000
b. 3,620,000
c. 1,870,000
d. 190,000

For numbers 45 and 46, answer the following problem

On January 1, 2019 Cement Company acquired 10% of the ordinary shares of another entity. On
January 1, 2020, Cement acquired an additional 20% of the same investee’s ordinary shares. The
two purchases were made at prices proportionate to the value assigned to the investee’s net assets
which equaled their carrying amounts. For the years ended December 31, 2019 and 2020, the
investee reported the following:
2019 2020 __
Dividend paid 2,000,000 6,000,000
Net income 5,000,000 8,000,000
45. What amount of investment income should be recognized in 2019?
a. 500,000
b. 300,000
c. 200,000
d. 0

46. What amount of investment income should be recognized in 2020?

a. 2,400,000
b. 2,200,000
c. 1,600,000
d. 0

For numbers 47 and 48, answer the following problem

On January 1, 2017, Clara Company acquired machinery worth P6,000,000 with a 10 year useful
life and no residual value. On January 1 2019, Clara decided to sell the asset and classified it as
held for sale. The fair value less cost of disposal on January 1, 2019 and December 31, 2019
were P4,900,000 and P4,000,000 respectively. On January 1, 2020, Clara decided to classify the
asset back into property, plant and equipment because some criteria were violated. On this date,
the fair value less cost of disposal was P3,700,000, the value in use was P3,500,000 and that the
revised remaining life of the asset is expected to be 5 years.
47. What amount of impairment loss should be recognized for the year 2019?
a. 900,000
b. 800,000
c. 100,000
 d. 0

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48. What amount of gain or loss on reclassification should be recognized for the year 2020?
a. 300,000 loss
b. 500,000 loss
c. 200,000 gain
d. 500,000 gain

49. Suns Company purchased land for a manufacturing facility for P1,100,000. The company
paid P70,000 to tear down a building on the land. Salvage was sold for P10,500. Legal fees
of P6,500 were paid for title investigation and making the purchase. Architect's fees were
P40,500. Title insurance cost P4,500, and liability insurance during construction cost
P13,500. Excavation cost P12,000. The contractor was paid P1,357,000. A one -time
assessment made by the city for sidewalks was P7,500. Suns installed lighting and signage at
a cost of P11,000. What is the total cost of the land?
a. 1,195,000
b. 1,178,000
c. 1,118,500
d. 1,006,500

50. In 2017, Lamar Company purchased P10,000,000 life insurance policy on its president and
chief executive officer, of which Lamar is the beneficiary. Information regarding the policy
for 2020 is as follows:
Cash surrender value- January 1 400,000
Annual premium paid on January 1, 2020 500,000
Dividends received 30,000
If the life insurance expense reported by Lamar in 2020 was P425,000, what is the cash
surrender value on December 31, 2020?
a. 445,000
b. 475,000
c. 470,000
d. 505,000

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