Chapter 2
Statement of Financial Position
Problem 2-1
Dilemma Company provided the following information on December 31, 2019:
Cash
Accounts receivable
Allowance for doubtful accounts
Prepaid expenses
Inventory
Financial asset at fair value
Land
Building in process
Patent
Machinery and equipment
Accumulated depreciation
Discount on bonds payable
Accounts payable
Accrued expenses
Note payable due July 1, 2021
Bonds payable
Share capital
Retained earnings
Retained earnings appropriated for contingencies




800,000
750,000
50,000
160,000
1,000,000
690,000
500,000
5,000,000
200,000
1,500,000
300,000
200,000
900,000
150,000
250,000
2,000,000
3,000,000
4,000,000
150,000
The financial assets at fair value include Dilemma Company shares acquired at
cost of P250,000.
The bonds pay 10% interest semiannually on April 1 and October 1 and mature
on April 1, 2022. No interest has been accrued on the bonds
Forty thousand shares, P100 par, are authorized, of which 30,000 shares are
issued including 2,000 shares in the treasury
The retained earnings appropriated balance of P150,000 was created in
anticipation for the result of a pending lawsuit
Shortly after the end of reporting period, the suit was amicably settled and the
entity paid P100,000
Required:
Prepare statement of financial position
Answer:
Dilemma Company
Statement of Financial Position
December 31, 2019
ASSETS
Current assets:
Cash
Financial asset at fair value
Trade and other receivables
Inventory
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Intangible asset
Total noncurrent assets
Total assets
Note
(1)
800,000
440,000
700,000
1,000,000
160,000
3,100,000
(2)
(3)
6,700,000
200,000
6,900,000
10,000,000
EQUITY AND LIABILITIES
Current liabilities:
Trade and other payables
Noncurrent liabilities:
Bonds payable
Note payable to bank, due July 1, 2021
Total noncurrent liabilities
(4)
(5)
1,200,000
1,800,000
250,000
Shareholders’ equity:
Share capital, P100 par, 40,000 shares authorized
30,000 shares issued
3,000,000
Reserves
(6)
250,000
Retained earnings
(7)
3,750,000
Treasury shares, at cost, 2,000 shares
( 250,000)
Total shareholders’ equity
Total liabilities and shareholders’ equity
Note 1 - Trade and other receivables
2,050,000
6,750,000
10,000,000
Accounts receivable
Allowance for doubtful accounts
Total
750,000
( 50,000)
700,000
Note 2 - Property, plant and equipment
Cost
Land
Building in process
Machinery and equipment
Total
Accum. depr.
500,000
5,000,000
1,500,000
7,000,000
300,000
300,000
Book value
500,000
5,000,000
1,200,000
6,700,000
Note 3 - Intangible asset
Patent
200,000
Note 4 - Trade and other payables
Accounts payable
Accrued expenses
Accrued interest on bonds payable (2,000,000 x 10% x 3/12)
Liability for loss on lawsuit
Total
900,000
150,000
50,000
100,000
1,200,000
Note 5 - Bonds payable
Bonds payable
Discount on bonds payable
2,000,000
( 200,000)
1,800,000
Note 6 - Reserves
Retained earnings appropriated for treasury shares
Note 7 - Retained earnings
250,000
Unadjusted balance
Add: Cancelation of appropriation for contingencies
Total
Less: Interest accrued on bonds payable
Appropriated for treasury stock
Actual loss on lawsuit
Unappropriated retained earnings
4,000,000
150,000
4,150,000
50,000
250,000
100,000
400,000
3,750,000
Problem 2-2
Socorro Company provided the following information on December 31, 2019:
Current assets
Other assets
3,100,000
5,900,000
Current liabilities
1,000,000
long term liabilities 1,000,000
Capital
7,000,000
Cash (including P200,000 invested in money market and
Restricted foreign deposit of P300,000)
Land held for undetermined use
Accounts receivable less allowance of P50,000
Inventories
Socorro Corporation share capital, at cost
1,000,000
500,000
700,000
600,000
300,000
Total current assets
3,100,000
Store supplies
Building less allowance of P500,000
Equipment less allowance of P250,000
Financial asset at amortized cost
Trademark
Advances to officers-indefinite repayment
Patent
Land
50,000
3,000,000
750,000
1,000,000
300,000
150,000
250,000
400,000
Total other assets
5,900,000
Accounts payable
Note payable, due December 31, 2020
Income tax payable
Share premium
Total current liabilities
Unearned leased hold income (five years starting 2020)
500,000
100,000
150,000
250,000
1,000,000
350,000
Stock dividend payable
Serial bonds payable (P100,000 maturing annually)
150,000
500,000
Total long-term liabilities
1,000,000
Retained earnings
Share capital,P100 par
Retained earnings appropriated for plant expansion
1,500,000
5,000,000
500,000
Total capital
7,000,000
Required:
Prepare statement of financial position with supporting notes and computations.
Answer:
Socorro Corporation
Statement of Financial Position
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
Trade and other receivable
Inventories
Prepaid expenses
Total current assets
Note
(1)
(2)
700,000
700,000
600,000
50,000
2,050,000
(3)
Noncurrent assets:
Property, plant and equipment
Long-term investment
Investment property
Intangible assets
Other noncurrent assets
Total noncurrent assets
Total assets
(4)
(5)
(6)
(7)
(8)
4,150,000
1,000,000
500,000
550,000
450,000
EQUITY AND LIABILITIES
6,650,000
8,700,000
Current liabilities:
Trade and other payables
Serial bonds payable-current portion
Total current liabilities
(9)
920,000
Noncurrent liabilities:
Serial bonds payable-remaining portion
Unearned leasehold income-remaining portion
Total noncurrent liabilities
Equity:
Share capital
Reserves
Retained earnings
Treasury shares, at cost
Total equity
Total liabilities and equity
820,000
100,000
400,000
280,000
680,000
(10) 5,150,000
(11) 1,050,000
(12) 1,200,000
( 300,000)
7,100,000
8,700,000
Note 1 - Cash and cash equivalents
Cash
Money market placement
Total
500,000
200,000
700,000
Note 2 - Trade and other receivable
Accounts receivable
Allowance for doubtful accounts
Total trade and other receivable
750,000
( 50,000)
700,000
Note 3 - Prepaid expenses
Store supplies
50,000
Note 4 - Property, plant and equipment
Land
Building
Equipment
Total
Note 5 – Long-term investment
Cost
400,000
3,500,000
1,000,000
4,900,000
Accum. depr. Book value
400,000
500,000
3,000,000
250,000
750,000
750,000
4,150,000
Investment in bonds
1,000,000
Note 6 – Investment property
Land for undetermined use
500,000
Note 7 - Intangible assets
Trademark
Patent
Total
300,000
250,000
550,000
Note 8 - Other noncurrent assets
Advances to officers
Restricted foreign deposit
Total
150,000
300,000
450,000
Note 9 - Trade and other payables
Accounts payable
Note payable
Income tax payable
Unearned leasehold income-current portion
Total
500,000
100,000
150,000
70,000
820,000
Note 10 - Common stock
Share capital issued
Stock dividend payable
Total
Note 11 - Reserves
5,000,000
150,000
5,150,000
Share premium
Retained earnings appropriated for plant expansion
Retained earnings appropriated for treasury share
Total reserves
250,000
500,000
300,000
1,050,000
Note 12 - Retained earnings
Retained earnings unappropriated
Appropriation for treasury share
Adjusted balance
Problem 2-3
1,500,000
( 300,000)
1,200,000
Magna Company reported the following statement of financial position on December
31,2019.
Current assets
Investments
Tangible assets
Intangible assets
2,000,000
400,000
7,150,000
400,000
9,950,000
Current liabilities
Long term liabilities
Equity
1,500,000
2,000,000
6,450,000
9,950,000

Equity has preference share capital, no par value, P5 stated value, authorized
300,000 shares, issued 150,000 shares for P1,000,000, and ordinary share
capital, P20 par value, authorized 400,000 shares issued 100,000 shares of P30
per share.
 Tangible assets include building P5,000,000 less accumulated depreciation
P1,600,000, equipment P1,400,000 less accumulated depreciation P400,000,
land P1,250,000, and land held for future plant site P1,500,000.
 The current assets include : Cash P4,000,000, accounts receivable P750,000
less P50,000 for allowance for doubtful accounts, inventories P800,000, and
prepaid expenses P100,000
 The investments include the cash surrender value of a life insurance contract
P50,000, investment in securities, short-term, P100,000, and long-term,
P250,000
 Intangible assets include a franchise P100,000, goodwill P200,000 and discount
on bonds payable P100,000.
 Current liabilities include accounts payable P400,000, notes payable-short-term
debt P450,000, and long-term P300,000, taxes payable P150,000, and
appropriation for contingencies P200,000.
 Long-term liabilities comprised solely of 12% bonds payable due on December
31, 2022.
Required:
Prepare in good form a properly classified statement of financial position with
appropriate notes.
Answer:
Magna Company
Statement of Financial Position
December 31, 2019
ASSETS
Current assets:
Cash
Financial assets at fair value
Trade accounts receivable
Inventories
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Long-term investments
Intangible assets
Total noncurrent assets
Total assets
EQUITY AND LIABILITIES
Current liabilities
Trade and other payables
Note payable-short-term
Total current liabilities
note
(1)
2,100,000
(2)
(3)
(4)
7,150,000
300,000
300,000
7,750,000
9,850,000
(5)
550,000
450,000
1,000,000
Noncurrent liabilities:
Bonds payable
(6)
Notes payable-long-term debt
Total noncurrent liabilities
Equity:
Share capital
Reserves
Retained earnings
Total equity
Total liabilities and equity
400,000
100,000
700,000
800,000
100,000
(7)
(8)
1,900,000
300,000
2,200,000
2,750,000
1,450,000
2,450,000
6,650,000
9,850,000
Note 1 – trade accounts receivable
Accounts receivable
Allowance for doubtful accounts
Net realizable value
Note 2 – Property, plant and equipment
750,000
(50,000)
700,000
Land
Land for future plant site
Building
Equipment
Total
Cost
1,250,000
1,500,000
5,000,000
1,400,000
9,150,000
Accum. depr.
1,600,000
400,000
2,000,000
Carrying amount
1,250,000
1,500,000
3,400,000
1,000,000
7,150,000
Note 3 – long-term investments
Investment in equity securities
Cash surrender value
Total
250,000
50,000
300,000
Note 4 – intangible assets
Franchise
Goodwill
Total
100,000
200,000
300,000
Note 5 – trade and other payables
Account payable
Taxes payable
Total
400,000
150,000
550,000
Note 6 – bonds payable
Bonds payable, due December 31, 2015
Discount on bonds payable
2,000,000
(100,000)
1,900,000
Note 7 – share capital
Preference share capital, P5 stated value,
300,000 shares authorized, 150,000 shares issued
Ordinary share capital, P20 par value,
400,000 shares authorized, 100,000 shares issued
Total
Note 8 – reserves
Share premium-preference
Share premium-ordinary
Retained earnings appropriated for contingencies
Total
Problem 2-4
750,000
2,000,000
2,750,000
250,000
1,000,000
200,000
1,450,000
Boracay Company prepared the following condensed statement of financial position of
December 31, 2019.
Current asset
Current liabilities
4,000,000
1,500,000
Working capital
Add other assets
2,500,000
1,800,000
Working capital plus other assets
Deduct other liabilities
4,300,000
100,000
Net assets
4,200,000
Money market placement – three months
Cash in bank
Accounts receivable
Notes receivable
Financial assets at fair value
Inventory
Goodwill
500,000
700,000
800,000
200,000
400,000
1,300,000
100,000
Total current assets
4,000,000
The inventory account was found to include the cost of office supplies of P50,000 and
office equipment acquired at the end of 2019 at a cost of P250,000.
Other assets included land and building acquired on January 1, 2018 for P4,000,000,
less mortgage of P200,000. At the time of purchase, the land was worth P1,000,000.
The building on December 31, 2019 has a remaining life of 18 years.
Current liabilities represented balances that were payable to trade creditors. Other
liabilities consisted of withholding tax payable. However, no recognition was given to
accrued salaries of P250,000.
The entity was originally organized in 2018 when 30,000 ordinary shares with par value
of P100 were issued in exchange for assets with fair value of P3,200,000.
Required:
Prepare a statement of financial position
Answer:
Boracay Company
Statement of Financial Position
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
Financial assets at fair value
Trade receivables
Inventory (1,300,000 -50,000
-250,000)
Prepaid expenses
Total current assets
Noncurrent assets:
Property, plant and equipment
Goodwill
Total noncurrent assets
Total assets
Note
(1)
1,200,000
400,000
(2)
1,000,000
(3)
1,000,000
50,000
3,650,000
(4)
3,950,000
100,000
4,050,000
7,700,000
EQUITY AND LIABILITIES
Current liabilities:
Trade and other payables
(5)
2,050,000
Noncurrent liability:
Mortgage payable
Equity:
Ordinary share capital, P100 par
Share premium
Retained earnings
Total equity
Total liabilities and equity
2,000,000
(6)
3,000,000
200,000
450,000
3,650,000
7,700,000
Note 1 – cash and cash equivalent
Cash in bank
Money market placement
Total
Note 2 – trade receivables
700,000
500,000
1,200,000
Accounts receivable
Notes receivable
Total
800,000
200,000
1,000,000
Note 3 – prepaid expenses
Office supplies
50,000
Note 4 – property, plant and equipment
Land
Building
Office equipment
Total
Cost
1,000,000
3,000,000
250,000
4,250,000
Accum. depr.
300,000
300,000
Carrying amount
1,000,000
2,700,000
250,000
3,950,000
Note 5 – trade accounts and other payables
Accounts payable
Withholding tax payable
Accrued salaries payable
Accrued interest payable
Total
1,500,000
100,000
250,000
200,000
2,050,000
Note 6 – retained earnings
Net assets per book
Contributed capital
Unadjusted retained earnings
Unrecorded expenses:
Salaries
Depreciation on building (3,000,000/20x2)
4,200,000
3,200,000
1,000,000
250,000
300,000
550,000
450,000
Problem 2- 5
Dakak Company provided the following statement of financial position on December 31,
2019:
Current assets
2,700,000
Current liabilities
2,500,000
Other assets
6,000,000
Other liabilities
2,000,000
Equity
4,800,000
9,300,000
9,300,000

Analysis of current assets disclose the following:
Cash and cash equivalents
Financial assets held for trading
Accounts receivable
Inventories

Other assets include:
Property, plant and equipment, cost P6,000,000
Advances to subsidiary
Goodwill recorded on the books to cancel losses
Incurred by the entity in prior years

350,000
6,600,000
100,000
400,000
200,000
1,000,000
800,000
2,500,000
Other liabilities include:
Bonds payable in annual installment of P500,000

4,000,000
2,250,000
Current liabilities include:
Accrued expenses
Customers deposit
Advances from officer, not payable currently
Accounts payable
Note payable-bank due December 31,2021

500,000
600,000
750,000
850,000
2,700,000
2,000,000
Share capital, 50,000 shares, P100 par, was originally issued and credited for a
total consideration of P5,500,000 but losses of the entity for past years were
charged against the share capital balance.
Required:
Prepare a properly classified statement of financial position.
Answer:
Dakak Company
Statement of Financial Position
December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents
Financial assets held for trading
Accounts receivable
Inventories
Total current assets
Noncurrent assets:
Property, plant and equipment
Long-term investment
Total noncurrent assets
Total assets
Note
500,000
600,000
750,000
850,000
2,700,000
(1)
(2)
4,000,000
2,250,000
6,250,000
8,950,000
LIABILITIES AND EQUITY
Current liabilities:
Trade and other payables
Bonds payable-current portion
Total current liabilities
(3)
Noncurrent liabilities:
Bonds payable-remaining portion
Note payable, due December 31, 2019
Other noncurrent liability
(4)
Total noncurrent liabilities
Equity:
Share capital, P100 par, 50,000 shares
Share premium
Retained earnings (deficit)
(5)
Total equity
Total liabilities and equity
Note 1 – property, plant and equipment
Property, plant and equipment
Accumulated depreciation
Carrying amount
Note 2 – long term investment
1,500,000
500,000
2,000,000
150,000
800,000
200,000
2,500,000
5,000,000
500,000
(1,050,000)
4,450,000
8,950,000
6,000,000
(2,000,000)
4,000,000
Advances to subsidiary
2,250,000
Note 3 – trade and other payables
Account payables
Accrued expenses
Customers’ deposit
Total
1,000,000
100,000
400,000
1,500,000
Note 4 – other noncurrent liability
Advances from officer, not repayable currently
200,000
Note 5 – retained earnings
Equity per book
Contributed capital
Unadjusted retained earnings
Writeoff of goodwill
Deficit
4,800,000
5,500,000
(700,000)
(350,000)
(1,050,000)
Problem 2-6
Darwin Company provided the following information at year-end:
Cash
Accounts receivable
Inventory, including inventory expected in the ordinary
course of preparations to be sold beyond
12 months amounting to P700,000
Financial asset held for trading
Equity investment at fair value through other
Comprehensive income
Equipment held for sale
Deferred tax asset
1,500,000
1,200,000
1,000,000
300,000
800,000
2,000,000
150,000
What amount should be reported as total current assets at year-end?
a. 6,000,000
b. 4,000,000
c. 6,800,000
d. 4,800,000
Cash
1,500,000
Accounts receivable
Inventory, including inventory expected in the ordinary
course of preparations to be sold beyond
12 months amounting to P700,000
Financial asset held for trading
Equity investment at fair value through other
Comprehensive income
Total current asset
1,200,000
1,000,000
300,000
800,000
4,800,000
Problem 2-7
At year-end, the current assets of Hazel Company revealed cash and cash equivalent of
P700,000, accounts receivable of P1,200,000 and inventories of P600,000. The
examination of accounts receivable disclosed the following:
Trade accounts
Allowance for doubtful accounts
Claim against shipper for goods lost in transit
Selling price of unsold goods sent by hazel
On consignment at 130% of cost and not
Included in ending inventory
930,000
(20,000)
30,000
260,000
1,200,000
What total amount should be reported as current assets at year-end?
a. 2,412,000
b. 2,440,000
c. 2,240,000
d. 2,500,000
Cash and cash equivalent
Accounts receivable (1,200,000-260,000)
Inventories (600,000+200,000)
Problem 2-8
700,000
940,000
800,000
2,440,000
Petite Company reported the following current assets on December 31, 2019:
Cash
Accounts receivable
Inventory, including goods received on
Consignment P200,000
Prepaid expenses, including a deposit of P50,000
Made on inventory to be delivered in 18months
5,000,000
2,000,000
Total current assets
Cash in general checking account
Cash fund to be used to retire bonds payable in 2021
Cash held to pay value added taxes
7,950,000
3,500,000
1,000,000
500,000
Total cash
5,000,000
800,000
150,000
What total amount of current assets should be reported on December 31, 2019?
a.
b.
c.
d.
6,750,000
6,700,000
7,700,000
7,750,000
Cash in general checking account
Cash fund to be used to retire bonds payable in 2021
Cash held to pay value added taxes
3,500,000
(1,000,000)
500,000
Total cash
4,000,000
Cash
Accounts receivable
Inventory, 800,000 less including goods received on
Consignment (P200,000)
Prepaid expenses,150,000 less including a deposit of
P50,000 Made on inventory to be delivered in 18months
4,000,000
2,000,000
Total current assets
6,700,000
Problem 2-9
600,000
100,000
Rice Company was incorporated on January 1, 2019 with P5,000,000 from issuance of
share capital and borrowed funds of P1,500,000. During the year, net income was
P2,500,000.
On December 15, the entity paid a P500,000 cash dividend.
On December 31, 2019, the liabilities had increased to P1,800,000
On December 31, 2019, what amount should be reported as total assets?
a.
b.
c.
d.
6,500,000
9,300,000
8,800,000
6,800,000
Issuance of share capital (5,000,000 – paid cash
dividend 500,000)
Net income
Liabilities increased
Total assets
4,500,000
2,500,000
1,800,000
8,800,000
Problem 2-10
Arabian Company reported the following at year-end:
Cash
Accounts receivable
Notes receivable, net of discounted note P500,000
Inventory
4,500,000
7,500,000
2,000,000
4,000,000
18,000,000
An analysis disclosed that accounts receivable comprised the following:
Trade accounts receivable
Allowance for doubtful accounts
Selling price of Arabian Company’s unsold good sent
To Tar company on consignment at 150% of
Cost and excluded from Arabian’s ending inventory
5,000,000
(500,000)
3,000,000
7,500,000
What amount should be reported as total current assets at year-end?
a. 17,000,000
b. 17,500,000
c. 15,000,000
d. 16,500,000
Cash
4,500,000
Accounts receivable
7,500,000
Selling price of Arabian Company’s unsold good sent
To Tar company on consignment at 150% of
Cost and excluded from Arabian’s ending inventory 3,000,000
Total assets
15,000,000
Problem 2-11
Mirr Company was incorporated on January 1, 2019 with proceeds from the issuance of
P7,500,000 in share capital and borrowed funds of P1,100,000
During the first year, revenue from sales and consulting amounted to P8,200,000, and
operating costs and expenses totaled P6,400,000.
On December 15, 2019, the entity declared a P300,000 dividend, payable to
shareholders on January 15, 2020. The liabilities increased to P2,000,000 by December
31, 2019.
On December 31, 2019, what should be reported as total assets?
a.
b.
c.
d.
11,000,000
11,300,000
10,100,000
12,100,000
Issuance of share capital
Revenue from sales and consulting
Cost and expenses
Dividend payable
Liabilities increased
Total assets
Problem 2-12
7,500,000
8,200,000
(6,400,000)
(300,000)
2,000,000
11,000,000
Gar Company reported the following account balances on December 31, 2019:
Accounts payable
Bonds payable
Premium on bonds payable
Deferred tax liability
Dividend payable
Income tax payable
Note payable, due January 31, 2020
1,900,000
3,400,000
200,000
400,000
500,000
900,000
600,000
On December 31, 2019, what total amount should be reported as current liabilities?
a.
b.
c.
d.
7,100,000
4,300,000
3,900,000
4,100,000
Accounts payable
Premium on bonds payable
Deferred tax liability
Dividend payable
Income tax payable
Total current liabilities
1,900,000
200,000
400,000
500,000
900,000
3,900,000
Problem 2-13
Burma Company disclosed the following liabilities:
Accounts payable, after deducting debit balances
In suppliers’ accounts amounting to P100,000
Accrued expenses
Credit balances of customers’ accounts
Share dividend payable
Claims for increase in wages and allowance by
Employees, covered in a pending lawsuit
Estimated expenses in redeeming prize coupons
What total amount should be reported as current liabilities?
4,000,000
1,500,000
500,000
1,000,000
400,000
600,000
a.
b.
c.
d.
6,700,000
6,600,000
7,100,000
7,700,000
Accounts payable
Accrued expenses
Share dividend payable
Claims for increase in wages and allowance by
Employees, covered in a pending lawsuit
Estimated expenses in redeeming prize coupons
Total current liabilities
4,000,000
1,500,000
1,000,000
(400,000)
600,000
6,700,000
Problem 2-14
Ronna Company provided the following information on December 31, 2019:
Accounts payable, net of creditors’ debit
Balances P200,000
Accrued expenses
Bonds payable due December 31, 2021
Premium on bonds payable
Deferred tax liability
Income tax payable
Cash dividends payable
Share dividend payable
Note payable – 6%, due March 1, 2020
Note payable – 8%, due October 1, 2020
2,000,000
800,000
4,500,000
500,000
500,000
1,100,000
600,000
400,000
1,500,000
1,000,000
The financial statements for 2019 were issued on March 31, 2020.
On December 31, 2019, the 6% note payable was refinanced on a long-term basis.
Under the loan agreement for the 8% note payable, the entity has the discretion to
refinance the obligation for at least twelve months after December 31, 2019.
1. What amount should be reported as total current liabilities?
a.
b.
c.
d.
7,200,000
4,700,000
6,200,000
5,100,000
Accounts payable
Accrued expenses
Income tax payable
Cash dividends payable
Share dividend payable
Net of creditors’ debit balances
Total current liabilities
2,000,000
800,000
1,100,000
600,000
400,000
(200,000)
4,700,000
2. What amount should be reported as total noncurrent liabilities?
a.
b.
c.
d.
8,400,000
5,500,000
8,000,000
7,500,000
Bonds payable due December 31, 2021
Premium on bonds payable
Deferred tax liability
Note payable – 6%, due March 1, 2020
Note payable – 8%, due October 1, 2020
Total noncurrent liabilities
4,500,000
500,000
500,000
1,500,000
1,000,000
8,000,000
Problem 2-15
Gold Company provided the following trial balance on June 30, 2019:
Cash overdraft
Accounts receivable
Inventory
Prepaid expenses
Land held for sale
Property, plant and equipment, net
Accounts payable
Accrued expenses
Share premium
Share capital
Retained earnings
100,000
350,000
580,000
120,000
1,000,000
950,000
3,000,000
200,000
150,000
250,000
1,500,000
800,000
3,000,000
Checks amounting to P300,000 were written to vendors and recorded on June 29, 2019
resulting in a cash overdraft of P100,000. The checks were mailed on July 9, 2019
Land held for sale was sold for cash on July 15, 2019.
The entity issued the financial statements on July 31, 2019.
1. What total amount should be reported as current assets?
a.
b.
c.
d.
2,250,000
2,050,000
1,950,000
1,250,000
Cash
Accounts receivable
Inventory
Prepaid expenses
Land classified as held for sale
Total current assets
200,000
350,000
580,000
120,000
1,000,000
2,250,000
2. What total amount should be reported as current liabilities?
a.
b.
c.
d.
450,000
350,000
650,000
300,000
Cash overdraft
Accounts payable
Accrued expenses
Total current liabilities
100,000
200,000
150,000
450,000
3. What amount should be reported as shareholders’ equity?
a.
b.
c.
d.
2,550,000
1,750,000
1,500,000
2,300,000
Share premium
Share capital
Retained earnings
Shareholders’ equity
250,000
1,500,000
800,000
2,550,000
Problem 2-16
Trey Company provided the following trial balance on December 31, 2019 which had
been adjusted except for income tax expense:
Cash
5,000,000
Accounts receivable, net
8,000,000
Prepaid taxes
1,500,000
Inventory
6,000,000
Property, plant and equipment
17,000,000
Accounts payable
Share capital
Retained earnings
Foreign currency translation adjustment 2,500,000
Revenue
Expenses
10,000,000
50,000,000
10,000,000
20,000,000
5,000,000
15,000,000
50,000,000
During 2019, estimated tax payments of P1,500,000 were charged to prepaid taxes.
The entity has not yet recorded income tax expense. The tax rate is 30%.
The accounts receivable included P3,000,000 due from a customer. Special terms
granted to this customer require payment in equal semiannual installments of P500,000
every April 1 and October 1.
1. On December 31, 2019, what total amount should be reported as current assets?
a.
b.
c.
d.
21,000,000
18,500,000
17,000,000
19,500,000
Cash
5,000,000
Accounts receivable, net (8,000,000- 2,000,000)
6,000,000
Inventory
6,000,000
Total current assets
17,000,000
2. On December 31, 2019 what amount should be reported as total retained
earnings?
a. 10,000,000
b. 8,500,000
c. 5,750,000
d. 6,000,000
Income before tax
Income tax (30% x 5,000,000)
Net income
Retained earnings
Total
5,000,000
(1,500,000)
3,500,000
5,000,000
8,500,000
Problem 2-17
Mint Company provided the following account balances on December 31, 2019 which
had been adjusted except for income tax expense:
Cash
Accounts receivable, net
Cost in excess of billings on long-term contracts
Billing in excess of cost on long-term contracts
Prepaid taxes
Property, plant and equipment, net
Note payable – noncurrent
Share capital
Share premium
Retained earnings unappropriated
Retained earnings restricted for note payable
Earnings from long-term contracts
Costs and expenses
600,0000
3,500,000
1,600,000
700,000
450,000
1,510,000
1,620,000
750,000
2,030,000
900,000
160,000
6,680,000
5,180,000
All receivables on long-term contracts are considered to be collectible within 12 months.
During the year, estimated tax payments of P450,000 were charged to prepaid taxes.
The entity has not recorded income tax expenses. The tax rate is 30%.
On December 31, 2019, what amount should be reported as
1. Total retained earnings?
a.
b.
c.
d.
1,950,000
2,110,000
2,400,000
2,560,000
Earnings from long-term contracts
Costs and expenses
6,680,000
5,180,000
Income before income tax
Less: income tax (30% x 1,500,000)
Net income
Retained earnings unappropriated
Retained earnings restricted
Total retained earnings
1,500,000
450,000
1,050,000
900,000
160,000
2,110,000
2. Total noncurrent liabilities?
a.
b.
c.
d.
1,620,000
1,780,000
2,320,000
2,480,000
Note payable- noncurrent
1,620,000
3. Total current assets?
a.
b.
c.
d.
5,000,000
4,100,000
5,700,000
6,150,000
Cash
Accounts receivable
Cost in excess of billings
Total current assets
600,000
3,500,000
1,600,000
5,700,000
4. Total shareholders’ equity?
a.
b.
c.
d.
2,940,000
2,780,000
4,890,000
4,730,000
Total retained earnings
Share capital
Share premium
Shareholders’ equity
Problem 2-18
2,110,000
750,000
2,030,000
4,890,000
Shaw Company provided the following trial balance on December 31, 2019 which had
been adjusted except for income tax expense:
Cash
Accounts receivable
Inventory
Property, plant and equipment (net)
Accounts payable and accrued liabilities
Income tax payable
Deferred tax liability
Share capital
Share premium
Retained earnings, January 1
Net sales and other revenue
Costs and expenses
Income tax expense
600,000
2,800,000
2,000,000
10,500,000
1,800,000
1,500,000
700,000
2,500,000
3,000,000
3,500,000
15,000,000
10,000,000
2,100,000
28,000,000
28,000,000
The accounts receivable included P1,000,000 due from a customer and payable in
quarterly installments of P125,000. The last payment is due December 30, 2021.
During the year, estimated tax payment of P600,000 was charged to income tax
expense. The income tax rate is 30%.
On December 31, 2019, what amount should be reported as
1. Total current assets?
a.
b.
c.
d.
3,400,000
4,400,000
5,400,000
4,900,000
Cash
Accounts receivable
Inventory
Account receivable- installments (125,000 x 4)
Total current assets
2. Total current liabilities?
600,000
2,800,000
2,000,000
(500,000)
4,900,000
a.
b.
c.
d.
2,700,000
3,300,000
4,050,000
3,450,000
Accounts payable and accrued liabilities
Income tax payable (1,500,000- 600,000)
Total current liabilities
1,800,000
900,000
2,700,000
3. Retained earnings?
a.
b.
c.
d.
8,500,000
6,400,000
7,000,000
3,500,000
Net sales and other revenue
Costs and expenses
Income before income tax
Income tax (30% x 5,000,000)
Net income
Retained earnings – January 1
Retained earnings – December 31
15,000,000
(10,000,000)
5,000,000
(1,500,000)
3,500,000
3,500,000
7,000,000
Problem 2-19
Charice Company provided the following information on December 31, 2019


Accounts payable for goods and services purchased on open account amounted
to P500,000 and accrued expenses totaled P300,000 on December 31, 2019.
On December 15, 2019, the entity declared a cash dividend of P7 per share,
payable on January 15, 2020, to shareholders of record on December 31, 2019.
The entity had 100,000 shares issued and outstanding throughout 2019.

On July 1, 2019, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield
10 %. The bonds mature on June 30 ,2024, and pay interest annually every June
30.
On December 31, 2019, the bonds were trading in the open market at 86 to yield
12%. The entity used the effective interest method to amortize bond discount.

The pretax financial income was P8,500,000 and taxable income was
P6,000,000.
The difference is due to P1,000,000 permanent difference and P1,500,000 of
taxable temporary difference which is expected to reverse in 2020.

The entity is subject to income tax rate of 30% and made estimated income tax
payments during the year of P1,000,000.
What total amount should be reported as current liabilities on December 31, 2019?
a.
b.
c.
d.
3,500,000
2,700,000
2,300,000
2,500,000
Accounts payable
Accrued expenses
Dividend payable (100,000 x 7)
Accrued interest payable (5,000,000 x 8% x 6/12)
Income tax payable
(30% x 6,000,000=1,800,000-1,000,000)
Total current liabilities
500,000
300,000
700,000
200,000
800,000
2,500,000
Problem 2-20
Kaye Company reported the following liabilities on December 31, 2019:
Accounts payable
Bank note payable – 10%
Bank note payable – 11%
Mortgage note payable – 10%
Bonds payable

6,500,000
3,000,000
5,000,000
2,000,000
4,000,000

The P3,000,000. 10% note was issued March 1, 2019 payable on demand.
Interest is payable every six months.
The one-year P5,000,000. 11% note was issued January 15, 2019.

On December 31, 2019 the entity negotiated a written agreement with the bank
to replace the note with a 2-year, P5,000,000. 10% note to be issued January 15,
2020.
The 10% mortgage note was issued October 1, 2017, with a term of 10 years.


Terms of the note give the holder the right to demand immediate payment if the
entity fails to make a monthly interest payment within 10 days from the date the
payment is due.
On December 31, 2019, the entity is three-months behind in paying the required
interest payment.
The bonds payable are ten-year, 8% bonds issued June 30, 2010. Interest is
payable semi-annually on June 30 and December 31.
The entity has not prepared the adjustment for any accrued interest on the
liabilities.
What total amount should be reported as current liabilities on December 31, 2019?
a.
b.
c.
d.
15,650,000
11,650,000
20,650,000
13,650,000
Accounts payable
Bank note payable-10%
Mortgage note payable
Bonds payable
Interest payable (3,000,000 x 10% x 6/12)
Total current liabilities
6,500,000
3,000,000
2,000,000
4,000,000
150,000
15,650,000
Problem 2-21
1. Which of the following is not a noncurrent investment?
a.
b.
c.
d.
Cash surrender value of life insurance
Franchise
Land held for speculation
A sinking fund
2. The term deficit refers to
a.
b.
c.
d.
An excess of current assets over current liabilities.
An excess of current liabilities over current assets.
A debit balance in retained earnings.
A loss reported as a prior period error.
3. Which should be classified as a noncurrent asset?
a. Plant expansion fund
b. Prepaid rent
c. Supplies
d. Goods in process
4. Which of the following items would normally be excluded from the computation of
working capital?
a. Advances from customers
b. The portion of long-term debt that matures within one year after reporting
period
c. Prepaid insurance
d. Goodwill
5. Accrued revenue would normally appear in the statement of financial position
under
a.
b.
c.
d.
Noncurrent assets
Current liabilities
Noncurrent liabilities
Current assets
6. For a liability to exist
a.
b.
c.
d.
There must be a past events
The exact amount must be known
The identity of the party to whom the liability is owed must be known
There must be an obligation to pay cash in the future.
7. Which statement best describes the term liability?
a. An excess of equity over current assets
b. Resources to meet financial commitments when due
c. The residual interest in the assets of the entity after deduction all of the
liabilities
d. A present obligation arising from past event
8. Which item is not a current liability?
a.
b.
c.
d.
Unearned revenue
Share dividend payable
The currently maturing portion of long-term debt
Trade accounts payable
9. Noncurrent liabilities include
a. Bonds payable
b. Short-term obligation refinanced on a long-term basis at the end of reporting
period
c. Deferred tax liability
d. All of these are noncurrent liabilities
10. Which is not within the definition of a liability?
a.
b.
c.
d.
The signing of a three-year employment contract at a fixed annual salary
An obligation to provide goods or services in the future
A note payable with no specified maturity date
A present obligation that is estimated in amount