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Solman 2017

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APPLIED
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
A guide in applying auditing procedures to specific
accounts of the financial statements.
TEACHERS MANUAL
2017
Edition
By
DARRELL JOE O. ASUNCION, MBA, CPA
MARK ALYSON B. NGINA, CMA, CPA
RAYMUND FRANCIS A. ESCALA, MBA, CPA
Dear fellow teacher,
This “Teacher’s Manual” should be used solely by the
teacher and for classroom purposes only. This manual
should NOT be reproduced either manually (e.g.,
printing or photocopy) or electronically (e.g., copying or
uploading in the net) without our written consent (or the
publisher’s written authorization).
If you have comments, queries or suggestions, please do
not hesitate to contact us at:
Telephone: 074-2441894
Mobile No.: Darrell Joe O. Asuncion – 0923-424-8286
Mark Alyson B. Ngina – 0915-510-7281
Raymund Francis A. Escala – 0917-715-1226
Email ad: appliedauditingnea@gmail.com.
Thanks and God bless.
Sincerely,
Darrell Joe O. Asuncion, MBA, CPA
Mark Alyson B. Ngina, CMA, CPA
Raymund Francis A. Escala, MBA, CPA
Table of Contents
CHAPTER 5: CASH TO ACCRUAL.................................... ............................................ 4
CHAPTER 6: CORRECTION OF ERRORS ..................................... ...........................19
CHAPTER 8: CASH AND CASH EQUIVALENTS ..................................... ..............28
CHAPTER 10: LOANS AND RECEIVABLES ...................................... .....................46
CHAPTER 12: INVENTORIES ....................................... ..............................................75
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT
IN EQUITY SECURITIES ..................................... ....................................................... 100
CHAPTER 15: INVESTMENT IN DEBT SECURITIES ..................................... . 117
CHAPTER 16 INVESTMENT IN ASSOCIATE...................................................... 133
CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT....................................148
CHAPTER 19 WASTING ASSETS............... ..................................................... ........ 172
CHAPTER 20 INVESTMENT PROPERTY ..................................... ....................... 178
CHAPTER 22 INTANGIBLE ASSETS ...................................... ............................... 184
CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET
HELD FOR SALE ...................................... ................................................................ ..... 195
CHAPTER 25 INTRODUCTION TO LIABILITIES....... . .. .. . . ..... .................. 212
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING.. 226
CHAPTER 27 LEASE ..................................... ..............................................................245
CHAPTER 29 SHAREHOLDERS’ EQUITY................. .......................................... .271
CHAPTER 30 BOOK VALUE AND EARNINGS PER SHARE ......................... .293
CHAPTER 32 STATEMENT OF FINANCIAL POSITION AND
COMPREHENSIVE INCOME .................................................................................... .305
CHAPTER 33 STATEMENT OF CASH FLOWS..................................... ............. .324
Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL
PROBLEM 5-1 (Computation of Sales under cash basis)
Accounts receivable/Notes receivable trade/Advances from customers
Beg. balance – AR
200,000
180,000 Balance end - AR
Beg. balance – NR
240,000
170,000 Balance end - NR
Balance end - Advances
40,000
55,000 Beg. balance - Advances
Sales on account
600,000
4,000 Sales ret. and allowance
Recoveries
2,000 Salesdiscounts
Total
666,000
3,000
1,080,000 1,080,000
Collections
recoveries
Write-off
including
Suggested answer: A
PROBLEM 5-2 Computatio n of Bad Debts
Allowance for bad debts
Ending balance
Write-off
40,000
8,000
25,000
21,000
2,000
Total
48,000
48,000
Beginning balance
Bad debts expense
Recoveries
Suggested answer: C
PROBLEM 5-3 (Computation of Purchases)
Accounts Payable / Notes Payable / Advances to Suppliers
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
400,000 Beg. balance - NP
Purchase discount
3,000
68,000 Balance end - Advances
Beg. balance - Advances
50,000 651,000 Purchases (gross)
Balance end – AP
250,000
Balance end – NP
210,000
Total
1,319,000 1,319,000
Suggested answer: A
4
Chapter 5: Cash to Accrual
PROBLEM 5-4 Computatio n of Cost of Sales
Accounts Payable (AP) / Notes Payable (NP)
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
- Beg. balance - NP
Purchase discount
3,000 859,000 Purchases (gross)
Balance end - AP
250,000
Balance end-NP
Total
1,059,000 1,059,000
Beginning balance
Net purchases
Total
Merchandise Inventory
400,000
210,000 Ending balance
860,000
1,050,000 Cost of sales
1,260,000 1,260,000
Computation of the net purchases:
Grossp urchases onaccount
Addcash purchases
Total
Less: Purchase returns and allowances
Purchase discount
Netpurchases
859,000
10,000
869,000
6,000
3,000
860,000
Suggested answer: B
PROBLEM 5-5 (Computation of Income Other Than Sales)
Rent Receivable/Unearned rent income
Beg. Balance - Rent
Receivable
Balance end - Unearned
rent income
Rent Income (squeeze)
Total
200,000
250,000
Balance end - Rent
Receivable
90,000 Beg. Balance – Unearned
rent income
660,000 Collections
30,000
770,000
1,000,000
1,000,000
Suggested answer: B
PROBLEM 5-6 (Computation of Expenses in General)
Prepaid Rent/Rent payable
Beg. Balance - Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
Total
200,000
250,000
Balance end - Prepaid
Rent
80,000 Beg. Ba lance – Re nt
payable
785,000 Rent Expense
65,000
850,000
1,115,000
1,115,000
5
Chapter 5: Cash to Accrual
Suggested answer: C
PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold)
Question No. 1
Carrying amount of equipment sold
Add: Accumulated depreciation
Cost
25,000
15,000
40,000
Question No. 2
Equipment
Beg. Balance
Cost of PPE
(squeeze)
acquired
Total
100,000
60,000
120,000
40,000
160,000
160,000
Balance end
Cost of PPE disposed
Accumulated depreciation
Balancee nd
Accumulated depreciation
ofP PE disposed
18,000
15,000
Total
33,000
15,000 Beg. Balance
18,000 Depreciation expense
33,000
SUMMARY OF ANSWERS:
1.
2.
D
A
PROBLEM 5-8
Question No. 1
Prepaid Insurance
Beg.Balance
Payments
7,500
41,500
Total
49,000
6,000 Balancee nd
43,000 Expenses (squeeze)
49,000
Question No. 2
Interest Receivable
Beg.Balance
Income (squeeze)
14,500
112, 700
3,700 Balancee nd
123,500 Collections
Total
127,200
127,200
6
Chapter 5: Cash to Accrual
Question No. 3
Salaries payable
Balancee nd
Payments
61,500
481,000
Total
542,500
53,000 Beg. Balance
489,500 Expenses
542,500
Question No. 4
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000 Balance end
1,845,000 Collections (squeeze)
Total
2,395,000
2,395,000
Question No. 5
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000 Balance end
1,820,000 Collections (squeeze)
25,000 Write-off
Total
2,395,000
2,395,000
Question No. 6
Accounts receivable trade
Beg. Balance
Sales
Recoveries
415,000
1,980,000
20,000
550,000 Balance end
1,840,000 Collections (squeeze)
25,000 Write-off
Total
2,415,000
2,415,000
SUMMARY OF ANSWERS:
1.
2.
3.
C
B
C
4.
A
5.
6.
A
B
PROBLEM 5-9
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R
Sales on account
(squeeze)
100,000
100,000 I ncrease in N/R
10,000 Write-off
4,260,000
4,200,000 Collections
30,000
20,000
Total
4,360,000
4,360,000
7
Sales discounts
Sales ret. and allow.
Chapter 5: Cash to Accrual
Question No. 2
Accounts payable
Cash paid to creditors
2,800,000
Purchase discounts
200,000
Decrease in Accounts
payable
purchases
2,650,000Gross
(squeeze)
40,000
Purchase returns
10,000
Total
2,850,000
2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory
Gross purchases
25,000
2,650,000
40,000 P urchase discounts
10,000 Purchase returns
2,625,000 Cost of sales (squeeze)
Total
2,675,000
2,675,000
Question No. 4
Rental receivable/Unearned Rent Income
Rental
(squeeze)
revenue
Total
14,000 I ncrease
in
Rental
receivable
40,000 Decrease in Unearned
rental
400,000 Collections from tenants
454,000
454,000
454,000
Question No 5
Prepaid interest/Interest Payable
Decrease in
interest
Increase
in
payable
Interestpaid
Total
Prepaid
5,500
Interest
8,500
114,000Interest
(squeeze)
100,000
114,000
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4. A
114,000
5.
8
D
expense
Chapter 5: Cash to Accrual
PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R
Beg. Balance – N/R
Sales on account
(squeeze)
200,000
300,000
1,000,000
Total
1,500,000
250,000 Bal. end – A/R
100,000 Bal. end – N/R
20,000 Sales ret. and allow.
10,000 Sales discount
1,120,000 Collections
1,500,000
Question No. 2
Accounts payable/Notes payable
Balance end – A/P
Balance end – N/P
Purchase returns
allow
Purchase discount
Payments
and
Total
25,000
75,000
40,000
50,000 Beg. Balance – A/P
100,000 Beg. Balance – N/P
650,000 Gross
purchases
(squeeze)
10,000
650,000
800,000
800,000
Gross purchases
Less: Purchase ret and allow
Purchased iscounts
650,000
40,000
10,000
Net Purchases
50,000
600,000
Question No. 3
Sales
Less:Salesret and allow
Salesdiscounts
Net
Sales
Less: Cost of Sales
Merchandiseinventorybeg.
Add: Net Purchases
Purchases
Add:Freight-in
GrossPurchases
Less: Purch.R et and allow
Purchase discounts
1,000,000
20,000
10,000
30,000
970,000
200,000
600,000
650,000
40,000
10,000
Totalg oodsavailablefors ale
Less: Merchandisei nventory,e nd
Gross Income / Gross Profit
6 00,000
800,000
100,000
9
700,000
270,000
Chapter 5: Cash to Accrual
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
100,000
350,000
Total
500,000
125,000
Balance end - Pr epaid
Salaries
75,000 Beg. Balance - Accrued
Salaries
expense
300,000Salaries
(squeeze)
50,000
500,000
Question No. 5
Accrued rent/Unearned rent
Beg. Balance - Accrued
rent
Balance end - Unearned
rent
Rent income (squeeze)
70,000
40,000
490,000
Balance end - Accrued
rent
80,000 Beg. Balance - Unearned
rent
300,000 Collection of rent
Total
600,000
600,000
40,000
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4. B
5.
B
PROBLEM 5-11
Question No. 1
Beg. Balance
Recoveries
Sales (squeeze)
Total
Sales
Less: Sales discount
Net Sales
Accounts receivable trade
200,000
300,000 Balance end
8,000
20,000 Sales discounts
1,570,000
1,408,000 Collections
including
recoveries (1,498,00080,000+20,00-30,000)
50,000 Accounts written-off
1,778,000
1,778,000
1,570,000
20,000
1,550,000
Question No. 2
Payment (1,210,00020,000+30,000)
Purchase ret. and allow.
Balance end
Accounts payable trade
150,000 Beg. Balance
1,210,000
1 ,170,000 Purchases (squeeze)
10,000
100,000
10
Chapter 5: Cash to Accrual
Total
1,320,000
Purchases
Less: Purchases discount
Net Purchases
1,320,000
1,170,000
10,000
1,160,000
Question No. 3
Merchandise inventory
Beg. Balance
380,000
Net
Purchases
(1,170,000-10,000)
Total
330,000 Balancee nd
1,160,000
1,210,000 Cost of Sales (squeeze)
1,540,000
1,540,000
Question No. 4
Rent Receivable
Beg. Balance
Rent income (squeeze)
70,000
130, 000
80,000 Balancee nd
120,000 Collections
Total
200,000
200,000
Question No. 5
Allowance for Doubtful accounts
Accounts written off
50,000
20,000
Beg. Balance
Balancee nd
30,000
account
52,000Doubtful
expense (squeeze)
8,000 Recoveries
Total
80,000
SUMMARY OF ANSWERS:
1.
2.
3.
B
B
B
80,000
4.
A
5.
A
PROBLEM 5-12 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
Professional
fees
500,000
5,250,000
750,000
5,000,000
5,750,000
5,750,000
(squeeze)
Total
11
Balance end
Collections
Chapter 5: Cash to Accrual
Question No. 2
ProfessionalFees(SeeN o.1)
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000)
Othero peratingexpense
Interest expense (1M x 12% x 9/12)
Depreciation expense (2,500,000/10)
Net income
Question No. 3
Cash
AccountsReceivable
Supplies
Total Current Assets
850,000
750,000
90,000
250,000
3,240,000
2,010,000
1,500,000
750,000
250,000
2,500,000
Question No. 4
Furniture and fixtures
Less: Accumulated Depreciation
(125,000+ 250,000)
Total Noncurrent Assets
2,500,000
375,000
2,125,000
Question No. 5
Total current assets (See No. 3)
Total noncurrent assets (See No. 4)
2,500,000
2,125,000
Total Assets
4,625,000
Question No. 6
NotesPayable
Accruedrent
Accrued interest on notes payable
(1,000,000 x1 2% x9/12)
Total Current Liabilities
1,000,000
100,000
90,000
1,190,000
Question No. 7
Total assets (See No.5 )
Less: Total liabilities (See No. 6) – all are
current
Total Owner’s Equity
SUMMARY OF ANSWERS:
1.
2.
3.
B
B
A
5,250,000
1,300,000
4.
A
12
4,625,000
1,190,000
3,435,000
5.
A
6.
C
7.
B
Chapter 5: Cash to Accrual
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance
Salesonaccount
(squeeze)
124,000
1,535,000
Total
146,000 Balancee nd
13,000 Salesdiscount
1,500,000 Collections
1,659,000
1,659,000
Salesonaccount
1,535,000
Add:
sales
TotalCash
sales
160,000
1,695,000
Question No. 2
Grosss ales(seeNo.1)
Less:Sales discount
Net sales
1,695,000
13,000
1,682,000
Question No. 3
Accounts Payable
Payments
Balancee nd
1,206,000
410,000
382,000
1,234,000
Total
1,616,000
1,616,000
Beg. Balance
Purchases (squeeze)
Purchasesona ccount
1,234,000
Add:C ashp urchases
Total Purchases
120,000
1,354,000
Question No. 4
Merchandise Inventory
Beg. Balance
Net purchases
186,000
1,354,000
190,000 Balance end
1,350,000 Cost of sales (squeeze)
Total
1,540,000
1,540,000
Question No. 5
Prepaid G&A/Accrued G&A
Beg. Balance - Prepaid
Interest
Balance end – Accrued
Interest
Payments
9,600
204,000
Total
222,600
8,400
Balance end - Prepaid
Interest
7,000 Beg. Balance – Accrued
Interest
207,200 Expenses
9,000
222,600
13
Chapter 5: Cash to Accrual
Question No. 6
General and administrative expense (see No. 5)
Depreciationexpense
Warrantyexpense
Total operating expense
207,200
84,000
6,400
297,600
Question No. 7
Sellingprice of land
Less:Bookvalue of land
Gain on sale of land
20,000
16,000
4,000
Question No. 8
SellingPrice
Less Book value
Cost
Less: Accumulated depreciation
Gain on sale of warehouse equipment
12,000
25,000
16,000
Question No. 9
SellingPrice
Less: Book value
Cost
Less: Accumulated depreciation
Gain on sale of boiler
9,000
3,000
42,000
48,000
20,000
28,000
14,000
Question No. 10
NetSales
1,682,000
Less:Cost ofSales
Gross Profit
Less:Operatingexpenses
Gain on sale (14,000+3,000+4,000)
Net income
1,350,000
332,000
297,600
21,000
55,400
SUMMARY OF ANSWERS:
1.
2.
3.
B
C
6.
7.
8.
A
A
D
C
4.
9.
A
B
5.
10.
B
A
PROBLEM 5-14 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
150,000
Sales (squeeze)
800, 000
Total
950,000
200,000
Balancee nd
10,000 Sales returns
740,000 Collections
950,000
14
Chapter 5: Cash to Accrual
Question No. 2
Salesonaccount
Add:Cash sales
Total
sales
Less: Salesr eturns anda llowances
Net
sales
Less:Costo fsales( squeeze)
Grossprofit(200,000/40%)
800,000
100,000
900,000
10,000
890,000
390,000
500,000
Merchandise inventory
Beg. Balance
Net Purchase s (squeeze)
190,000
420,000
220,000
390,000
Total
610,000
610,000
Balancee nd
Cost of Sales
Question No. 3
Accounts Payable trade
Payments (squeeze)
Purchase returns and
allowances
Balance end – Accounts
payable
Total
230,000
Beg. Ba lance - Accounts
payable
428,000 Gross
purchases
(420,000+8,000)
470, 000
8,000
180,000
658,000
658,000
Question No. 4
Total payment of Accounts payable and admin expenses
Less: Payment ofA ccounts payable
Payment of admin expe nses
Question No. 5
Paymentof adminexpenses
Divided by: Percentage of cash expenses to total admin
expense
Totaladminexpenses
Add:Sellingexpenses
Total selling and administrative expense
Question No. 6
Totaladministrativeexpenses
Less: Payment of administrative expense
Non-cash administrative expenses
Less: Depreciation for building
(440,000 x60%x 5% x9/12)
15
518,000
470,000
48,000
48,000
80%
60,000
200,000
260,000
60,000
48,000
12,000
9,000
Chapter 5: Cash to Accrual
Depreciation for furniture andf ixtures
Divided by: Number of months used over 12 months
Annual depreciation
Dividedby: Depreciationrate
Cost of Furniture and Fix tures (no res idual value )
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4. A
5. C
PROBLEM 5-15
Question No. 1
Cash Receipts:
Fromcustomers
From issue of ordinary shares
Frombankloan
Cash disbursements:
Purchaseo fi nventory
Rent
Salaries
Utilities
Insurance
Purchase of equipment and furniture
Cash
3,000
6/12
6,000
10%
60,000
6.
360,000
100,000
100,000
300,000
15,000
30,000
5,000
3,000
40,000
Question N os. 2 and 3
Current assets
Cash
Inventories
Prepaidrent(1,000x3)
Total current assets (No. 2)
Noncurrent assets
Property, plant and equipment
Less accumulated depreciation
Total assets (No. 3)
A
560,000
393,000
167,000
167,000
100,000
3,000
270, 000
40,000
4,000
Question No. 4
Accountspayable
Utilitiespayable
Loanspayable
36,000
306, 000
20,000
1,000
100,000
Interest on loans payable (100,000 x 12% x 9/12)
Total current liabilities
16
9,000
130,000
Chapter 5: Cash to Accrual
Question No. 5
Ordinary shares
Retained earnings (net income)
Shareholders’ equity
SUMMARY OF ANSWERS:
1.
2.
3.
B
B
100,000
176,000
176,000
A
4.
D
5.
A
PROBLEM 5-16
Question No. 1
Notesreceivable–December3 1
Accountsreceivable– December31
Collectiono fnotesandaccounts
Notereceivablediscounted
Total
Less: Notes receivable – January 1
Accounts receivable– January1
Sales on account
210,000
950,000
2,950,000
200,000
4,310,000
200,000
740,000
Question No. 2
Notespayable –December31
Less:Notepayable–bank
Notespayable –trade
Accountspayable–December31
Paymentofn otesanda ccounts
Total
Less: Notes payable – January 1
Accounts payable – January 1
Purchases on account
940,000
3,370,000
580,000
300,000
280,000
750,000
2,100,000
3,130,000
750,000
600,000
Question No. 3
Equipment –January1
Add:Acquisition
Total
Less:Equipment–December3 1
Depreciation
1,350,000
1,780,000
1,000,000
280,000
1,280,000
1,200,000
80,000
Question No. 4
Interest accrued on note issued to bank (300,000 x 12% x 10/12)
Interest expense
Question No. 5
Volks Company
Income Statement
Year ende d Decembe r 31, 2016
17
30,000
30,000
Chapter 5: Cash to Accrual
Sales
Cost of sales:
Inventory – January1
Purchases
Goods available for sale
Less: Inventory – December 31
Gross income
Expenses:
*Expenses
3,370,000
1,600,000
1,780,000
3,380,000
1,500,000
820,000
Depreciation
**Losso ns ale ofi nvestment
***Loss on note receivable discounted
Interestexpense
Net
income
80,000
50,000
10,000
30,000
*Expensespaid
Add:Prepaidexpenses–January1
Accruedexpenses–December31
Total
Less: Prepaid expenses – December 31
Accrued expenses – January 1
Expenses
990,000
500,000
790,000
120,000
50,000
960,000
100,000
40,000 140,000
820,000
**Salesprice
Less:Cost ofinvestmentsold
Loss on saleof investment
250,000
300,000
( 50,000)
***Loss on note receivable discounted (200,000 – 190,000)
OR
Retained earnings – December 31
Add:Dividends
Total
Less: Retained earnings – January1
Net income
SUMMARY OF ANSWERS:
1.
2.
3.
A
A
1,880,000
1,490,000
C
10,000
600,000
400,000
1,000,000
500,000
500,000
4.
18
C
5.
D
Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS
PROBLEM 6-1 Income Statement and SFP Errors
Que stions Nos. 1-6
2016
Unadjusted
balances
1
2
Adjusted
balances
2017
RE, end
of the
year
Net
income
160,000
260,000
360,000
160,000
260,000
360,000
Net
income
Workin
g capital
200,000
180,000
200,000
-
-
-
-
200,000
-
180,000
Workin
g capital
-
200,000
Questions No. 7
Assuming errors were discover ed in 2016
ADJUSTING ENTRIES
Debit
1)
Miscellaneousi
ncome
25,000
Rent income
25,000
2)
Notespayable
Accountspayable
28,000
Credit
28,000
Assuming errors were discover ed in 2017
1)
ADJUSTING ENTRIES
Noentry
2)
Noentry
Assuming errors were discover ed in 2018
ADJUSTING ENTRIES
1) Noentry
2)
Debit
Credit
Debit
Credit
Noentry
SUMMARY OF ANSWER S:
1.
A
2.
B
3.
A
4.
RE, end
of the
year
C
19
5.
C
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-2 Counterb alancing Erro rs
Que stions Nos. 1-6
2016
Workin
g capital
Net
income
Net
income
R/E
2017
Workin
g capital
R/E
Unadjusted
balances
1
2
3
4
200,000
(15,000)
20,000
6,000
(7,500)
180,000
200,000
160,000
(15,000) (15,000)
15,000
2 0,000
2 0,000 (20,000)
6,000
6,000
(6,000)
(7,500)
(7,500)
7,500
260,000
-
360,000
Adjusted
balances
203,500
183,500
260,000
360,000
203,500
Question No. 7
A. Errors were dis covered in 2016
ADJUSTING ENTRIES
1) Interestexpense
Interestpayable
2)
156,500
Debit
15,000
Credit
15,000
Interestreceivable
Interestincome
20,000
20,000
3) Prepaidi nsurance
Insuranceexpense
6,000
6,000
4) Rentrevenue
Unearnedrentrevenue
7,500
7,500
B. Errors were dis covered in 2017
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
ADJUSTING ENTRIES
Debit
Credit
1) Retainedearnings
15,000
Interestexpense
15,000
2) Interestincome
Retainedearnings
20,000
3) Insuranceexpense
Retainedearnings
6,000
4) Retainedearnings
Rentrevenue
7,500
20,000
6,000
7,500
When books are already closed, no necessary adjusting entries to be
made.
C. Errors were dis covered in 2018
No necessary adjusting entries to be made.
SUMMARY OF ANSWER S:
1.
C
2.
B
3.
C
4.
C
20
5.
B
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-3 Counterb alancing Erro rs
Que stions Nos. 1-6
Net
income
Unadjusted
balances
1
2
3
200,000
(60,000)
80,000
(20,000)
Adjusted
balances
200,000
2015
Workin
g capital
R/E, end
180,000
200,000
160,000
(60,000) (60,000)
6 0,000
80,000
80,000 (80,000)
(20,000) (20,000)
2 0,000
180,000
200,000
Question No. 7
A. Errors were dis covered in 2016
ADJUSTING ENTRIES
1) Purchases
Accountspayable
2)
Net
income
160,000
2016
Workin
g capital
R/E, end
260,000
-
360,000
-
260,000
360,000
Debit
60,000
Credit
60,000
Accountsreceivable
Sales
80,000
80,000
3) Cost of sales
Inventory
20,000
20,000
B. Errors were dis covered in 2017
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
ADJUSTING ENTRIES
Debit
Credit
1) Retainedearnings
60,000
Purchases
60,000
2) Sales
Retainedearnings
3)
80,000
80,000
Retainedearnings
Inventory,beginning
20,000
20,000
If books are already closed, no necessary adjusting entries to be made.
C. Errors were dis covered in 2018
No ne cessa ry adjusting entries to be made .
SUMMARY OF ANSWER S:
1.
2.
3.
C
B
C
4.
B
21
5.
C
6.
B
Chapter 6: Correction of Errors
PROBLEM 6-4 Noncount erba lancing Errors
Que stions Nos. 1-6
2016
2017
Net
income
Workin
g capital
RE, end
of the
year
Net
income
Unadjusted
balances
1.
2.
3.
200,000
(30,000)
20,000
12,000
180,000
200,000
( 30,000) ( 30,000)
20,000
20,000
12,000
160,000
(6,000)
10,000
-
4.
5.
6.
150,000
(12,000)
(15,000)
Adjusted
balances
325,000
- 150,000
- (12,000)
- (15,000)
170,000
325,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES
1) Insuranceexpense
Prepaidinsurance
2)
Accumulated depreciation
4)
Depreciationexpense
Building improvements
Repairsexpense
260,000
360,000
( 36,000) ( 36,000)
30,000
30,000
12,000
-
-
100,000
(12,000)
- (10,000)
254,000
444,000
Credit
30,000
20,000
20,000
12,000
12,000
200,000
200,000
Depreciation expense
Accumulatedd epreciation
50,000
50,000
5) Other income
Accumulated depreciation
Gain on sale
Building
20,000
48,000
6) Repairsexpense
Building
20,000
8,000
60,000
20,000
Accumulated depreciation
Depreciationexpense
B.
119,000
Debit
30,000
Unearned rent income
Rent income
3)
(50,000)
5,000
RE, end
of the
year
Workin
g capital
5,000
5,000
Errors were discovered in 2017
ADJUSTING ENTRIES
1) Retainedearnings
Insuranceexpense
Prepaidinsurance
Debit
30,000
6,000
Credit
36,000
22
Chapter 6: Correction of Errors
2)
3)
4)
Unearned rent income
Retainedearnings
Rent income
30,000
20,000
10,000
Accumulated depreciation
Retainedearnings
12,000
12,000
Building improvements
Retainedearnings
200,000
200,000
Depreciation expense
50,000
Retained
earnings
Accumulatedd
epreciation
5)
6)
50,000
Retainedearnings
Accumulated depreciation
Building
12,000
48,000
Retainedearnings
Building
20,000
60,000
20,000
Accumulated depreciation
Retainedearnings
Depreciationexpense
C.
10,000
5,000
5,000
Errors were discovered in 2018
ADJUSTING ENTRIES
1) Retainedearnings
Prepaidinsurance
Debit
36,000
2)
30,000
3)
4)
5)
6)
100,000
Credit
36,000
Unearned rent income
Retainedearni gs
30,000
Accumulated depreciation
Retainedearnings
12,000
12,000
Building improvements
Retainedearnings
200,000
Depreciation expense
Retained earnings
Accumulatedd epreciation
50,000
100,000
200,000
150,000
Retainedearnings
Accumulated depreciation
Building
12,000
48,000
Retained
earnings
Building
20,000
60,000
Accumulated depreciation
Retainedearnings
20,000
10,000
10,000
23
Chapter 6: Correction of Errors
SUMMARY OF ANSWER S:
1.
2.
3.
D
A
D
4.
A
5.
6.
A
D
PROBLEM 6-5 Comprehen sive
Que stions Nos. 1-3
Effects of error in
Net income
Working
2015
2016
Capital
10,000
(10,000)
(8,000)
( 8,000)
1)M Iover,N Iover
MIunder, NIunder
2) Purchases over, NI under
(20,000)
3)S aleso ver,NIover
20,000
4) Expenses over, NI under
Depreciation exp under, NI over
5)O therincomeover
*Lossu nder,N Iover
Adjustment
20,000
(40,000)
(20,000)
70,000
(40,000)
70,000
(80,000)
20,000
20,000
5,000
(45,000)
Computation of loss:
SellingPrice
Less: Book value
Cost
Less: Accumulated depreciation
Loss on sale
32,000
22,000
20,000
40,000
15,000
Question No. 4
Effect of errors to Retained Earnings in 2016
Understatement to2 015 net income
Overstatementto2 016net income
Net understatement to 2016 retained earnings
Questions No. 5
ADJUSTING ENTRIES
1) Retainedearnings,beg
Merchandiseinventory,beg
Merchandisei nventory, end
CostofSales
25,000
(5,000)
45,000
32,000
13,000
Debit
10,000
Credit
10,000
8,000
8,000
2) Purchases
Retainedearnings
20,000
20,000
Advances supplier
Purchases
40,000
3) Retainedearnings,beg
Sales
40,000
20,000
20,000
24
Chapter 6: Correction of Errors
Sales
Advances customers
70,000
4) Depreciationexpense
Improvements
Accumulatedd epreciation
Retainedearnings
20,000
100,000
5)
70,000
40,000
80,000
Accumulatedd epreciation
Retained earnings, beg
Equipment
SUMMARY OF ANSWER S:
1.
2.
3.
A
A
A
15,000
25,000
40,000
4.
5.
A
C
PROBLEM 6-6 Comprehen sive
Que stions Nos. 1-5
2015
Net
Workin
Income
g capital
Ending Inventory 2015
understated, NI
understated
Ending Inventory 2016
overstated, NI overstated
Depreciation exp. 2015
overstated, NI
understated
Depreciation exp. 2016
over tated, NI
understated
Accrued expense
understated, NI
overstated 2015
Accrued expense
understated, NI
overstated 2016
Prepaid expense
understated, NI
understated 2015
Prepaid expense
understated, NI
understated 2016
Accrued revenues
understated, NI
understated 2016
Deferred revenues
understated, NI
overstated 2015
Total
(6,000)
(6,000)
Net
Income
-
Workin
g capital
6,000
10,000
(11,000)
12/31/2
016
2016
10,000
-
4,500
(4,500)
7,500
(5,000)
1,200
(16,300)
(5,000)
5,000
10,000
-
(7,000)
4,500
R/E
(11,000)
-
( 7,000)
-
-
7,500
7,500
-
-
(12,000)
(12,000)
(12,000)
(3,000)
(3,000)
(3,000)
1,200
(1,200)
-
-
5,300
800
2,500
(15,500)
25
Chapter 6: Correction of Errors
SUMMARY OF ANSWER S:
1.
D
2.
D
3.
A
A
4.
5.
C
PROBLEM 6-7
Note to pro fessor:
Item letter b - On December 31, “f” should be December 31, 2016.
Item letter e - Additional industrial robots were acquired at the beginning of
20X0 (should be 2015).
Adjusting entries:
a) PrepaidI nsurance(
InsuranceExpense(
RetainedEarnings(
b)
c)
d)
14,000
7,000
21,000
Retained earnings, beginning
MerchandiseI nventory, beginning
25,000
25,000
Retained earnings,beg
Commissionexpense
15,500
15,500
This is not an error, rather it is a
change in accounting estimate.
e) Equipment
Accumulated depreciation
(
Retainedearnings
100,000
20,000
80,000
Depreciation expense (
Accumulatedd epreciation
10)
10,000
Question No. 5
Item
a
Item
b
Item
c
dItem
Item
e
Net adjustment to retained e arnings
SUMMARY OF ANSWER S:
1.
2.
3.
B
B
A
10,000
4.
21,000
(25,000)
(15,500)
80,000
60,500
(E)
B
26
5.
(E)
Chapter 6: Correction of Errors
PROBLEM 6-8
Net
Income
Unadjusted
balances
1. Advtg exp
over, NI under
2. Advances rec.
as sales
2016
2017
3. Advances rec.
as purchases
2016
2017
4. Gain
understated
Cost under
Accumulated
depreciation
Depr. Over, NI
under
5. Rent revenue
under
6. Bad debts
exp under
(5% x 480K)16,000)
7. Purchases
under
EI under
8. Ins. Exp.
Under, NIover
Adjusted
balances
CA
200,000
NCA
1 ,570,400
CL
1 ,365,600
636,000
RE
300,000
50,000
60,000
(100,000)
100,000 (100,000)
(50,000)
80,000
80,000
80,000
64,000
64,000
(336,000)
400,000
13,600
13,600
13,600
20,000
(60,000)
(8,000)
(8,000)
60,000
(8,000)
20,000
20,000
15,000
15,000
344,600
SUMMARY OF ANSWER S:
1.
C
2.
C
3.
1 ,662,400
D
4.
A
27
1 ,443,200
5.
D
696,000
424,600
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS
PROBLEM 8-1 Cash and Cash Equivalents
CurrentaccountatM etrobank
Payrollaccount
Pettycashfund(
Postalmoneyorder
Traveler’scheck
Treasury bills, due 3/31/2018 (purchased 12/31/2017)
Treasurywarrants
Undeliveredcheck
Company’spostdatedcheck
Stale checkissued
Total cash and cash equivalents
(E)
1,000,000
250,000
2,000
15,000
25,000
100,000
150,000
100,000
50,000
25,000
1,717,000
PROBLEM 8-2 Cash and Cash Equivalents
Reportedc ashandc ash equivalents
Certificate of deposits with maturity of 120 days
Postdated check
Adjusted cash and cash equiva lents
6,325,000
(500,000)
(125,000)
P5,700,000
Suggested answer: A
Cash and Cash Equivalents
PRO
BLEcoins
M 8-3
Billsand
onhand
Checking Account Balance in Bank of Philippine Island
Money
order
Pettycash (
- 1,650)
Traveler’scheck
Total
105,560
44,000
1,600
2,350
44,800
198,310
Suggested answer: (E)
PROBLEM 8-4 Cash and Cash Equival ents
Cash on hand
CheckingaccountNo.1 43-BPI
CheckingaccountNo.1 55-BPI
*Securities classified as cash equivalents
Checking account No. 155 - BPI
80,000
200,000
(30,000)
3,600,000
3,850,000
*Breakdown of securities classified as cash equivalents
Date
Maturity
Securities:
Acquired
Date
120-day Certificate of Deposit
12/10/2016
01/31/2017
BSP-Treasury Bills (No.2)
10/31/2016
01/20/2017
28
Amount
P 600,000
1,000,000
Chapter 8: Cash and Cash Equivalents
Money Market Funds
11/21/2016
02/10/2017
2,000,000
Suggested answer: A
PROBLEM 8-5 Cash and Cash Equival ents
Bank cheque account
Bank savings account (collectible immediately)
Cash
Treasury bonds – maturing in 2 months
Cash and cash equi valents
P
P
58,400
23,440
10,000
8,500
100,340
Suggested answer: B
PROBLEM 8-6 Cash and Cash Equival ents
Petty cash fund (70,000-15,000-5,000)
Current account – Metro Bank (4,000,000+100,000)
Cash and cash equi valents
50,000
4,100,000
P4,150,000
Suggested answer: C
PROBLEM 8-7 Effective Interest Rate
Question No. 1
Let X = Principal amount of the loan
Principal
Less: Compensating balance
Add:Currentbalance
Amountneeded
X-.05X+50,000
.95X
.95X/.95
X
=
=
=
=
X
5%X
50,000
P3,375,000
3,375,000
3,375,000-50,000
3,325,000/.95
3,500,000
Question No. 2
Annual interest payment (3,500,000 x 12%)
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%]
Netinterest
Divide by loan proceeds (3,500,000-175,000)
Effective interest rate
420,000
5,000
415,000
3,375,000
12.30%
Suggested answers:
1.C
2C.
29
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-8 Petty Cash Fund
Requirement No. 1: Wor king Paper for the Petty Cash Fund
Petty Cash Count Sheet
January 3, 2017; 9:00 AM
Bills
Denomination Quantity
200 10
100 20
20 40
Coins
10 10
59
1 804
.25 1,410
.10 1,520
.05 810
100
45
804
352.50
152
40.5
6,258
TotalBillsandCoins
Checks for Deposits:
Maker
Date
W. Ally, Cashier
12/28/17
Total
2,000
2,000
800
Payee
Amount
ABC Company
500
I.O.U's
D at e
Amount
A. Braham, janitor 12/19/17
250
R. Tica, clerk
12/20/17
150
P. Du, Bookkeeper 12/22/17
200
Total
Vouchers:
Payee
J. Cruz, messenger
CidBookstore
DalinLiner
Bureau of Posts (stamps)
A. Bala, carpenter
Total
600
Date
12/14/17
12/15/17
12/19/17
12/20/17
12/21/17
Accountcharged
Advances to employees
Supplies
Freight-out
Supplies
Repairs
Billsandcoins
Checksfordeposit
I.O.U’s
Voucherspaid
Unusedstamps
6,258
500
600
1,217
50
TotalPettyCashAccounted
Less: Petty cash Accountabilities
PettyCashShortage
8, 625
12,600
(3,975)
30
Amount
125.00
150.00
192.00
300.00
450.00
1,217.00
Chapter 8: Cash and Cash Equivalents
Petty cash accountabilities
Pettycashimprestbalance
Unclaimedpayroll
Pettycashaccountabilities
12,000
600
12,600
Acknowledgment
I hereby acknowledge that the above petty cash fund items were counted in my
presence and the same were returned to me intact. I further acknowledge a petty cash
short of three thousand nine hundred seventy-five ( 3,975). I have no other fund
accountabilities.
W. Ally
Petty Cash Custodian
Requirement No. 2
ADJUSTING ENTRIES
1)
Employeea
dvances
Petty cashfund
2)
Expenses
Officesupplies
Petty cashfund
Debit
600
Credit
600
1,217
50
1,267
3) Cashs hortorover
Petty cashfund
3,975
4) Cashs hortorover
3,975
3,975
Petty cashfund
3,975
Requirement No 3
Billsand coins
Checksfordeposit
TotalPetty CashFund
6,258
500
6,758
PROBLEM 8-11 Bank Reconciliation
Oct.3 1
Receipts
Unadjusted bank bal
18,005
17,709
Erroneousbank credit
(500)
DIT:October
1,790
(1,790)
November
3,600
OC: October
(6,681)
Nov.(760+1,868)
13,114
Unadjusted book bal
Creditmemo Oct.
Nov.
11,534
1,600
19,019
18,269
750
31
Disb
25,620
Nov.3 0
10,094
(500)
3,600
(6,681)
2,628
21,567
21,575
(2,628)
10,566
8,228
1,600
750
Chapter 8: Cash and Cash Equivalents
NSF-Nov
BSC: Oct
Nov
Check
No.
overstated
disbursement
Check
No.
understated
disbursement
665
(665)
(20)
22
(22)
35
(35)
(20)
148
(1,000)
1,000
150
270
13,114
SUMMARY OF ANSWERS:
1.
2.
3.
B
A
B
4.
19,019
D
PROBLEM 8-12 Deposit in Transit
Depositin transit,beg
Add: Book debits for the month
Less: CM recorded this month
Error – check received (Jan)
Error – check issued (Jan)
Add: Error – check received (Feb)
Total
Less: Bank debits for this month
Less:CMforthismonth
5.
21,567
(270)
10,566
A
P 50,000
P 400,000
5,000
36,000
27,000
16,000
348,000
398,000
P 360,000
6,000
Erroneous bank credit - Feb
Erroneous bank charge - Jan
Deposit in tran it, end
2,500
1,000
350,500
P 47,500
Suggested answer: A
PROBLEM 8-13 Outstanding Checks
Outstanding checks, beg (squeeze)
Add: Book credits for the month
Less: Errorin recording
Servicec hargerecorded
Total
Less: Bank debits for this month
Less: NSF check returned
DMforthismonth
Outstanding checks, end
P 12,880
P8 5,800
1,800
30
83,970
96,850
P 97,650
2,300
3,000
92,350
P 4,500
Suggested answer: A
32
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-14 Proof of Cash
Question No. 1
Outstanding checks, beg.
Add:Checksissued
Total
Less: Checks paid by the bank
Outstanding checks, end
100,000
2,500,000
2,600,000
2,200,000
400,000
Question No. 2
Deposits intransit, beg
Add:Depositsmade
Total
Less: Deposits acknowledged by the bank
Deposits intransit, end
300,000
1,800,000
2,100,000
1,600,000
500,000
31-May
Receipts
Unadjusted bal-bank
2,600,000 *2,190,000
Deposit in transit-May
31
300,000 (300,000)
-June30
500,000
Outstanding
checksMay31
(100,000)
-June30
Erroneous bank credit
(60,000)
Erroneous bank charge
40,000
(40,000)
Disb.
30-Jun
**2,410,000 2,380,000
500,000
(100,000)
400,000 (400,000)
(60,000)
Adjusted balances
2,780,000
2,350,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
Unadjusted bal-book
Bank service chargeMay31
-June30
CM for collection-May
31
-June30
NSFchecksforJune30
Adjusted balances
31-May
2,190,000
2,650,000
Receipts
***2,400,000
50,000
(600,000)
550,000
2,780,000
A
4.
(10,000)
(50,000)
550,000
100,000 (100,000)
2,350,000 2, 650,000 2,480,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1.
2.
3.
A
B
Disb.
30-Jun
2,500,000 2,090,000
(10,000)
600,000
2,480,000
A
33
5.
A
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-15 Proof of Cash
Question No. 2
Outstandingchecks, beg.
Add Checks issued
Bookdisb.
LessDMlastmo
Error last mo. C T M
Under ofCD
OverofCR
Total
Less checks issued
Bank disb.
lessDMthismo
Error last mo. C T M
Under ofCD
Erroneous B Cr-LM
Erroneous BC H-TM
Outstandingchecks, end
150,000
1,500,000
110,000
-
1,390,000
1,540,000
1,300,000
75,000
45,000
30,000
Deposits intransit, beg
Add deposits made
Book receipts
1,300,000
Less: CM last month
125,000
Error last mo. C T M
Under of CR (21K-12K)
9,000
OverofCD
Total
Less: Deposits acknowledged by the bank
Bankr eceipts
1400000
Less: CM this month
150,000
Error last mo. C T M
Under of CR
Erroneous B CH-LM
20,000
Erroneous B Cr-TM
17,000
Deposits intransit, end
1,150,000
390,000
200,000
1,166,000
1,366,000
1,213,000
153,000
31-May
Receipts
Disb.
30-Jun
BANK
Unadjusted bal-bank
1,250,000 1,400,000 1,300,000 1,350,000
Deposit in transit-May 31
200,000 (200,000)
-June30
153,000
153,000
Outstanding checks-May 31 (150,000)
(150,000)
-June30
390,000 (390,000)
Erroneous bank credit-May
31
(45,000)
(45,000)
-June30
(17,000)
(17,000)
34
Chapter 8: Cash and Cash Equivalents
Erroneous bank chargeMay31
-June30
Adjusted balances
20,000
(20,000)
(30,000)
30,000
1,465,000 1, 126,000
1,275,000 1, 316,000
31-May
Receipts
Disb.
30-Jun
BOOK
Unadjusted bal-book
1,251,000 1, 300,000 1,500,000 1,051,000
NSF-May31
(110,000)
(110,000)
-June30
75,000 (75,000)
CM for collection-May 31
125,000 (125,000)
-June30
150,000
150,000
Undero fC R-May
Adjusted balances
9,000
(9,000)
1,275,000 1, 316,000
SUMMARY OF ANSWERS:
1.
2.
3.
C
D
C
4.
D
5.
PROBLEM 8-16 Proof of Cash
Question No. 1
Beg.Bal.,7/1
Add:CashreceiptsforJuly
Cash receiptsfor Aug.
Total
Less: Cashd isbursementf or July
Cashd isbursementforAug.
Bankreconciliationitem
Unadjusted balance
Unadjusted balances
Outstanding checks
July31
August31
Deposit in transit
July31
31-Jul
180,250
D
P 67,122
P1,702,830
1,166
4,950
P
Receipts
1,830,752
( 50,944)
32,844
6.
A
P 128,384
1,364,858
1,839,744
P3,332,986
1,330,882
1,712,892
750
P 288,462
Question No 2
Outstandingcheck,Aug.31
Add: Checks paid by the bank
Bank debits except serv. charge
Less: Erroneous bankc harge
DM on Interest on note
Total
Less: Checks issued by the company
thisAugust
Outstanding check, July 31
Questions No 3 to 5
BANK
1,465,000 1, 126,000
1,696,714
P1,763,836
1,712,892
50,944
Disb.
*1,702,918
( 50,944)
67,122
( 32,844)
35
Aug.3 1
308,084
(67,122)
Chapter 8: Cash and Cash Equivalents
August31
Erroneousbank charge
Adjusted Balances
(*1,702,830 + 88)
BOOK
Unadjusted balances
Error in recording check
no. 216 taken up as
P1,930 but should be
P1,390 (1,930-1,390)
DM forint.onnote
Bank service charge
July
31
(
August 31
NSF forJuly 31
(
Adjusted balances
**(1,712,892+750)
SUMMARY OF ANSWERS:
1.
2.
3.
A
C
162,150
31-Jul
P162,360
41,836
- ( 1,166)
1,839,744
1,717,930
Receipts
P1,839,744
Disb.
Aug. 31
**P1,713,642
P288,462
540
540
4,950 ( 4,950)
52)
(
698)
P162,150
A
4.
41,836
1,166
283,964
52)
88 ( 88)
(
698)
P1,839,744
P1,717,930 P283,964
B
5.
A
PROBLEM 8-17 Proof of Cash
Question No 1
Outstanding check
Check Nos.
144
P 1,500
149
8,000
150
12,000
Total
P 21,500
Alternatively, it may also be computed as f ollows:
Outstandingcheck,beg
P 7,000
Add:Checksissued
75,000
Total
P82,000
Less: Checks paid by the bank
Bank Debits
P 113,000
Less: DM for this month
NSF checks (10,000+40,000)
50,000
Banks ervicecharge
2,000
ErrorCorrection
500
60,500
Outstanding checks, end
P 21,500
Question No 2
Unadjustedrec.perbank
Deposit in transit:
November30
December 31
P171,500
(11,000)
20,000
36
Chapter 8: Cash and Cash Equivalents
Error correction
NSF check, no entry on the books when ret urned
andredeposited
Adjusted balance
140,000
Question No 3
Unadjusted disbursement, per bank
Outstanding checks
November30
December 31
Error correction
NSF check, no entry on the
books on the returned and redeposit
Adjusted balance
(500)
( 40,000)
P
P1 13,000
(7,000)
21,500
(500)
( 40,000)
P 87,000
Question No 4
Unadjustedbank bal.
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
Adjusted bal.
P 127,500
20,000
( 21,500)
P126,000
Question No 5
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Unadjusted bank balance
Deposit in transit
November30
December 31
Outstanding checks
November30
December 31
Error correction
NSF check, no entry on the
books on the return and
redeposit
Adjusted bal.
Nov.3 0
69,000
Receipts
171,500
11,000
(11,000)
*20,000
(7,000)
Disb.
113,000
Dec. 31
*127,500
20,000
(500)
(7,000)
21,500
(500)
73,000
(40,000)
140,000
(40,000)
87,000
Nov.3 0
66,000
Receipts
113,800
Disb.
85,000
(21,500)
126,000
* (69,000+171,500-113,000)
** (18,000+2,000)
Unadjusted book balance
Credit memo for note
collected
37
Dec. 31
94,800
Chapter 8: Cash and Cash Equivalents
November30
December 31
Bank service charge
November30
December 31
Adjusted bal.
SUMMARY OF ANSWERS:
1.
2.
3.
A
A
8,800
(8,800)
35,000
35,000
(1,800)
73,000
B
4.
2,000
87,000
140,000
B
PROBLEM 8-18 Proof of Cash
Question No. 1
Outstandingchecks,beg
Add: Check s issued this mont h
Book disbursements (squeeze)
Less: DM recorded this month
Total
Less: Checks paid by the bank
Erroneousbank charge
Outstandingchecks,end
5.
(1,800)
(2,000)
126,000
A
P 16,250
P128,750
2,500
P 133,750
3,750
Question No. 2
Depositin transit,beg
Add: Deposits made by the company
Total
126,250
142,500
130,000
P 12,500
P 12,500
152,500
165,000
Less: Deposits acknowledged by the bank
Deposit in transit, end
Question No. 3
Unadjusted cash in bank balance per ledger
Add: Under-footing ofc ash receipts
Total
Less: Unrecorded bank service charges
(3,250 +1,500-2,500)
Adjusted cash in bank balance, 12/31
Question No. 4
Bank service charges per
bankstatementi nD ecember
Less: Bank service charge in December
145,000
P 20,000
P 37,500
2,500
40,000
2,250
P 37,750
P 3,250
recorded
in December
Total
BSC recorded
in the books Dec
Less: BSC in Nov. recordedi nD ec.
Unrecorded BSC charge in December
P 2, 500
1,500
1,000
P 2,250
38
Chapter 8: Cash and Cash Equivalents
Question No. 5
Unadjusted cash in bank, November (squeeze)
Add: BookR eceipts (152,500 - 2,500)
Total
Less:Bookdisbursements
Unadjusted cash in bank, December
P 16,250
150,000
166,250
128,750
P 37,500
Unadjusted cash in bank, November (squeeze)
Less:BSCinNovember
Adjusted cash in bank, December
P 16,250
1,500
P 14,750
SUMMARY OF ANSWERS:
1.
2.
3.
C
D
4.
C
D
PROBLEM 8-19 Proof of Cash
Question No. 1
Outstanding checks, beg (squeeze)
Add: Check s issued this mont h
Book disbursements
Less: DM recorded this month
Total
Less:B ankd isbursements
Add: Paid out in currency
Less:NSF redeposited
DMforthismonth
Outstandingchecks, end
Question Nos 2 to 5
BANK
Unadj. balance - bank
Undeposited collections:
September3 0
October 31
Outstanding checks:
September 30
October 31
Paidoutincurrency
Adjusted balances
BOOK
Unadj. balance - book
Customer’s notes
collected:
September3 0
October 31
Bank service charge:
5.
B
P 8,000
P 148,000
2,500
145,500
153,500
P1 50,000
2,000
3,000
1,500
Sept.3 0
100,000
R eceipts
200,000
5,000
(5,000)
7,000
(8,000)
2,000
201,000
97, 000
Sept.3 0
91,500
R eceipts
196,000
8,000
39
(8,000)
13,000
147,500
P 6,000
Disb.
150,000
Oct.3 1
150,000
7,000
(8,000)
6,000
(6,000)
2,000
147, 000
151, 000
Disb.
148,000
Oct.3 1
139,500
13,000
Chapter 8: Cash and Cash Equivalents
September 30
October 31
Adjusted balances
SUMMARY OF ANSWERS:
1.
2.
3.
B
A
(2,500)
97,000
4.
A
(2,500)
1,500
147,000
201,000
A
5.
1,500
151,000
A
PROBLEM 8-20 Proof of Cash
Question No. 1
Account No. 143:
Bank
Book
Unadjusted balances
P1,000,000
P1,099,400
Depositin transit
*80,000
Misplaced check
( 20,000)
Outstandingcheck
(**60,000)
Undeliveredcheck
15,000
Note chargedbythebank
( 74 400)
Adjusted balance
P1,020,000
P1,020,000
*(100,000 - 20 ,000, Misplaced check)
**(75,000 - 15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
AccountNo.143
*Account No.144
Total outstanding check
P
60,000
1,860,000
1,92
P 0,000
*Outstanding check for Account No. 144 is computed as follows:
Outstandingchecks, beg
P 250,000
Add: Check s issued this mont h
Book Credits
P3,500,000
Less: BSC November
10,000
3,490,000
Total
P 3,740,000
Less: Checks paid by the bank
BankD ebits
P2,000,000
Less: BSC December
20,000
NSF check
100,000
1,880,000
Outstanding checks, end
P1,860,000
Question Nos. 3 to 4
December
Unadjusted bank balance
Deposit in transit:
November 30
December 31
Nov.3 0
2,200,000
90,000
R eceipts
1,000,000
( 90,000)
**240,00
40
Disb.
2,000,000
Dec.3 1
1,200,000
240,000
Chapter 8: Cash and Cash Equivalents
0
Outstanding check:
November30
December 31
Erroneous bank charge November
Adjusted balances
Unadjusted
balance
(250,000)
(250,000)
1,860,000
(1,860,000)
20,000
2,060,000
(20,000)
1,130,000
3,610,000
(420,000)
1,980,000
1,420,000
3,500,000
(100,000)
(10,000)
20,000
(20,000)
book
Bank service charge:
November30
(10,000)
December 31
Unrecorded collections November3 0
90,000
Uncollected customer's
note already recorded
ascashreceipt
(200,000)
NSF-December31
Adjusted balances
2,060,000
(90,000)
(200,000)
100,000
(100,000)
1,130,000 3,610,000
(420,000)
**Depositi ntransit,beg
P
Add: Deposit made by the co. this month
BookDebits
P1,420,000
Less: Unrecorded collection
90,000
90,000
Customer’s
cash receiptsnote recorded as
200,000
1,130,000
Total
P1,22000
Less: Deposits acknowledged by the bank
BankC redits
P1,000,000
Less: Erroneous bank charge
20,000
980,000
Outstandingchecks,end
P 240,000
Question No. 5
Adjusted balances:
AccountNo.1 43
AccountNo.1 44
Total adjusted balances
SUMMARY OF ANSWERS:
1.
2.
3.
A
A
P1,020,000
( 420,000)
P 600,000
B
4.
B
PROBLEM 8-21 Proof of Cash
Question No. 1
RCBC Account
Unadjustedbalance
5.
C
Book
P 165,000
41
Bank
P 125,000
Chapter 8: Cash and Cash Equivalents
Creditmemof ornotec ollected
Bank service charge
Depositin transit
Outstanding checks (25,000+20,000)
Unrecordeddisbursement
Adjusted balance
6,000
(1,000)
60,000
(45,000)
( 30,000)
P 140,000
P 140,000
Question Nos. 2-3
Book
Bank
Equitable PCI Bank
Unadjusted bal. (squeeze)
P 93,000
P 62,000
Creditmemof ornotec oll.
10,000
Bank service charge
( 2,000)
Deposit int ransit (15,000+20,000+50,000*)
85,000
Outstandingchecks
(28,000)
Unrecorded transfer (30,000+50,000*)
80,000
Adjusted balance
P 150,000
P150, 00 0
*fund transfer No. 4 (Included both as unrecorded transfer and deposit in
transit)
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000)
EquitablePCI Bank
Total outstanding checks
P 45,000
28,000
P 73,000
Question No. 5
Fund transfer No. 1 is recorded in the disbursing book during December while it
only cleared in the disbursin g bank in January.
SUMMARY OF ANSWERS:
1.
2.
3.
4.
5.
A
A
B
B
PROBLEM 8-22 Proof of Cash
BOOK
Unadjusted balances-books
CreditMemo-January
CreditMemo-February
BSCcheck-January
BSCcheck-February
Check of the company issued in
January was muti lated and
returned by the payee. A
replacement check was issued.
Both checks were entered in the
Check register but no entry was
made to cancel the mutilated
check, P700.
B
Jan. 31 R eceipts
200,000
150,000
9,000
(9,000)
13,000
(100)
700
-
42
Disb
Feb. 28
80,000
270,000
13,000
(100)
150
( 150)
700
Chapter 8: Cash and Cash Equivalents
The company issued a sto p
payment order to the bank in
February for check issued in
February which was not
received by the payee. A new
check was written and recorded
in the Check register in
February. The old check was
written off by a journal entry
also in February, P1,200.
Adjusted balances
-
209,600
(1,200)
(1,200)
-
1 52,800
78,850
2 83,550
BANK
Jan.3 1 Receipts
Disb
Feb.2 8
Unadjusted balances-bank
206,600
159,000
276,950
88,650
Deposit int ransit-January
10,000 (10,000)
Depositint ransit-February
11,000
11,000
Outstanding checks-January
(4,200)
( 4,200)
Outstanding checks-February
1,800
( 1,800)
Erroneous bankc redit-January
(6,000)
(6,000)
Erroneous bankc redit-February
(4,000)
(4,000)
Erroneous bankc harge-January
3,200
(3,200)
Erroneous bank charge(1,400)
1,400
February
Adjusted balances
209,600 152,800
78,850 283,550
SUMMARY OF ANSWERS:
1.
2.
3.
D
C
C
4.
A
5.
C
PROBLEM 8-23 Computation of Cash Shortage
Question No. 1
Unadjustedbank bal.
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961)
Add:Undepositedreceipts
Adjustedbankbalance
(39,347.50)
35,000
P221,052.50
Question No. 2
Unadjustedbookbal.
Creditmemof ornotescollection
P242,310.50
30,000
Creditmemo
for
int.
Balance(
cash
accountability)
P
225,400
900
P273,210.50
43
Chapter 8: Cash and Cash Equivalents
Question No. 3
Adjusted bank bal. (Cash accounted)
Less: Cash in bank bal. (cash accountability)
Shortage
SUMMARY OF ANSWERS:
1.
2.
3.
B
D
P221,052.50
273,210.50
(P52,158.00)
B
PROBLEM 8-24 Computation of Cash Shortage
Question No. 1
Unadjustedbank bal.
P 42,400
Outstandingchecks
( 11,500)
Undeposited collections
5,000
Adjusted bank balance
P 35,900
Question No. 2
Unadjustedbookbal.
Creditmemop roceedscleandraft
Debit memo for bank servicec harge
Balance (cash accountability)
P 46,500
900
(
100)
P 47,300
Question No. 3
Adjusted bank bal.( Cash accounted)
Cash inb ank bal.( cash accountability)
Shortage asofJune30
(
Question No. 4
Additional cas shortage from July 1-15
JulycollectionperduplicateO.R.
Less: collections in July that were deposited in
July
Collection per duplicates lips
Less :Undeposited collection, June 30
Casht hatshouldb eo nh andonJuly1 5
Less:Actualc ashonh andonJuly1 5
Cash shortage from July 1-15
P3 5,900
47,300
P11,400)
P 18,800
P1 1,000
5,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600)
Overstatement of cash in bank per bank (44,000-42,400)
Understatement of outstanding checks (11,500-3600)
Overstatement of undeposited collections (5,100-5,000)
Non-recording of credit memo-proceeds of clean draft
Cash shortage as of Jun e 30
SUMMARY OF ANSWERS:
44
6,000
P 12,800
4,800
P 8, 000
P
900
1,600
7,900
100
900
P11,400
Chapter 8: Cash and Cash Equivalents
1.
C
2.
D
3.
B
4.
D
5.
D
PROBLEM 8-25 Computation of Cash Shortage
Question No. 1
Deposit int ransit,u nadjustedb al.
Less:C ustomer's Post-dated check
Adjusted Deposit in transit
125,250
P 175,250
50,000
P
Question No. 2
Outstanding checks, unadjusted balance
Less:Unreleased check
Company's post-dated check
Adjusted Outstanding checks
194,790
Question No. 3
Unadjustedbal.perbank
Add:Deposit intransit( No. 1)
Less: Outstanding checks (No.2 )
Erroneousbankcredit
Adjusted cash in bank bal.
250,460
Question No. 4
Unadjustedbal.perbooks
Add:Creditmemofornotecoll.
Unreleasedcheck
Company'spost-datedcheck
Total
Less: Customer s post-dated check
Cashi nb ankperbooksbal.
Less: Adjusted cash in bank balance
Cash shortage
B
P350,000
125,250
(194,790)
( 30,000)
P
P 293,500
15,000
14,750
37,210
360
P 460
(50,000)
P310,360
250,460
(P60,000)
Question No. 5
Unadjustedbal.perbooks
Less: Adjusted cash in bank balance
Net adjustments
SUMMARY OF ANSWERS:
1.
2.
3.
B
D
P 246,760
( 14,750)
( 37,210)
P
P293,500
250,460
P 43,040
4.
C
45
5.
A
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES
Note to pro fessor: Page 257.
ILLUSTRATION : Sales Disco unt (PAS 18 vs. PFRS 15)
SOLUT ION: (PAS 18 )
Accountsreceivable
100,000
Sales (inst ead of allowance for sales discount )
100,000
PROBLEM 10-1 Trade and oth er receiva bles
Trade
Trade and other
Noncurrent
Receivables
receivables
Asset
1
277,000
277,000
2
150,000
150,000
3
10,000
4
30,000
5
110,000
6
15,000
7
70,000
70,000
8
80,000
220,000
9
100,000
100,000
Adjusted bal. 597,000 1. C
732,000 2. C
330,000
PROBLEM 10-2 Different Fre ight terms
Question No. 1
FOB Destination, freight prepaid
Invoicepriceofmerchandisesold
300,000
Less:Invoicep riceof merchandisereturned
Netinvoiceprice
300,000
Less:Salesdiscount( 300,000x 2%)
6,000
Collectionbeforefreight
294,000
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
( B)
294,000
Question No. 2
FOB Destination, freight collect
Invoicepriceofmerchandisesold
Less:Invoicep riceof merchandisereturned
Netinvoiceprice
Less:Salesdiscount( 300,000x 2%)
300,000
300,000
6,000
NetPayment
freight
294,000
Less:
Freightbefore
payment
- FOB Destination, freight collect
5,000
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection(A)
289,000
46
Chapter 10: Loans and Receivables
Question No. 3
FOB Shipping point, freight prepaid
Invoicepriceofmerchandisesold
300,000
Less:Invoicep riceofm erchandisereturned
Netinvoiceprice
300,000
Less:Salesdiscount( 300,000x 2%)
6,000
NetReceiptbefore freight
294,000
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
5,000
Total Net Cash Collection(C)
299,000
Question No. 4
FOB Shipping point, freight prepaid
Invoicepriceofmerchandisesold
300,000
Less:Invoicep riceofm erchandisereturned
Netinvoiceprice
300,000
Less:Salesdiscount( 300,000x 2%)
6,000
Collectionbeforefreight
294,000
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection(B)
294,000
SUMMARY OF ANSWER S:
1.
B
2.
A
3.
C
4.
B
PROBLEM 10-3 Gross method and Net method
List
price
P100 000
Less: Trade discounts
15%: (100,000 x1 5%)
15,000
20%: (100,000 – 15,000) x 20%
17,000
32,000
Invoice price, gross of discount (C)
68,000
Less: Sales discount (68,000 x3 %)
2,040
Invoice price, net of discount
P 65,960
(D)
SUMMARY OF ANSWER S:
1.
C
2.
D
PROBLEM 10-4 Compu tatio n of Percentage of Bad Debts Expens e
Credit Sales
2013
2014
2015
2,000,000
3,500,000
7,000,000
CASE 1
Accounts written off
40,000
270,000
330,000
47
Recoveries
20,000
15,000
50,000
Chapter 10: Loans and Receivables
2016
2017
2,000,000
9,000,000
3,000,000
12,000,000
65,000
395,000
85,000
480,000
30,000
80,000
40,000
120,000
Question No. 1
Percentage
Accounts written off minus Recoveries
Total credit sales
=
Total years fr om 2013 to 2017:
Percentage
480,000 - 120,000
12,000,000
=
Percentage = 3.00 %
Question No. 2
Bad debts expense
= 3% x 3,000,000
= 90,000
Question No. 3
Allowance for Bad debts
85,000
400,000 Beg.Balance
90,000 Bad debts exp
445,000
40,000 Recovery
520,000
520,000
Writeoff
Balance end (squeeze)
CASE 2
Question No.4
Percentage
Accounts written off minus Recoveries
Total credit sales
=
Total years from 2013 to 2015 (years should exclude the last two years ):
330,000 - 50,000
Percentage
=
7,000,000
Percentage = 4 %
Question No. 5
Bad debts expense
= 4% x P3,000,000
=
0,000
Question No. 6
Credit Sales
BD exp
2016
2017
80,000
1 20,000
2,000,000
3,000,000
Recoveries
Write-off
65,000
30,000
85,000
40,000
Allowance for BD (D)
48
Net AB
1 15,000
165,000
280,000
Chapter 10: Loans and Receivables
CASE 3
Question No. 7
Percentage of bad
debts to AR
=
Accounts written off minus Recoveries
Total credit sales
Total years fr om 2013 to 2016:
Percentage of bad
=
debts to AR
395,000 - 80,000
9,000,000
Percentage = 3.5%
Percentage
debts to of
ARbad
=
Accounts written
minus
Total off
credit
sales Recoveries
Total years fr om 2013 to 2017:
Percentage of bad
=
debts to AR
480,000 12,000,000
Percentage = 3 %
Question Nos. 8 and 9
Allowance for Bad deb ts
Balance end
(3,400,000 x 3%)
102,000
105,000
Writeoff
85,000
(D)42,000
40,000
187,000
187,000
SUMMARY OF ANSWER S:
Case 1
1. B
2. B
3. B
Beg. Balance
(3,000,000 x 3.5%)
Bad debts exp (squeeze)
Recovery
Case 2
4. D
5. D
6. D
PROBLEM 10-5 Aging Based on Out standin g Receivab les
Question No. 1
Categories
Balance
(No. of Days)
0-30d ays
500,000
31-60d ays
600,000
61-90d ays
750,000
over 91 days
300,000
Totals
2,150,000
Balancee nd
Uncollectible
Percent Amount
2%
10,000
3%
18,000
5%
37,500
10%
30,000
95,500
Allowance for Bad debts
95,500
40,000 Beg. balance
49
Case 3
7. C
8. D
9. C
Chapter 10: Loans and Receivables
(see above table)
Writeoff
(23,000+100,000)
123,000
218,500
12,000 Recoveries
166,500 Bad debts exp (squeeze)
218,500
Question No. 2
Accounts receivable, end (see above table)
Less: Allowance for doubtful accounts, end
Net Realizable Value
2,150,000
95,500
2,054,500
SUMMARY OF ANSWER S:
1.
A
2.
A
PROBLEM 10-6 Aging Base d On Days Past Due
Question No. 1
Overdue accounts
% uncollectible
Balance
Forl ess than 31 days
5.00%
300,000
From31-60days
6.00%
220,000
From61-90days
8.00%
150,000
From91-120d ays
15.00%
60,000
For over121days
20.00%
Required allowance for doubtful accounts
Al lowance
15,000
13,200
12,000
9,000
49,200
Question No. 2
Balance end
Allowance for Bad debts
49,200
20,000 Beg. balance
29,200 Bad debts exp (squeeze)
158 000
158,000
SUMMARY OF ANSWER S:
1.
A
2.
A
PROBLEM 10-7 Interest -bearing Not e with Realistic Intere st Rate
Requirement No. 1
*Selling price
P100,000
Less: Carrying amount of machinery
Cost
500,000
Less: Accumulated depreciation
350,000
150,000
Loss on sale
50,000)
(P
The selling price is equal to the face amount, which is likewise equal to
*Note:
the
present value of the note since the note bears an annual interest rate that is
similar with the market rate.
50
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income = (100,000 x 10%) = P10,000
Requirement No. 3
Zero. The principal amount is collectible beyond one year from the reporting
date and thus, reported as non-cu rrent.
Requirement No. 4
P100,000. The entire principal amount of notes receivable is treated as
noncurrent asset since it i s collect ible beyond one year from the reporting date.
Journ al entries are as follows:
01/01/2016 Notes receivable
Accumulated depreciation
Losson sale
Machinery
100,000
350,000
50,000
500,000
\
12/31/2016 Cash
Interestincome
10,000
10,000
PROBLEM 10-8 Interest-bearing Note with Unrealistic Interest Rate,
Interes t Is Payable Ann ually, One-Ti me Col lection of Principa l
Question No. 1
Present value of principal (2,000,000 x 0.7118)
Add: Present value of interest payments
(2,000,000x 10%x2.4018)
Total present value/ Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Question Nos. 2 to 5
Amortization table
Date
Interest
Collections
01/01/2016
12/31/2016
200,000
12/31/2017
200,000
12/31/2018
200,000
P 1,423,600
480,366
1,903,966
1,000,000
150,000
Interest
Income
Discount
Amortization
228,475
231,892
235,704
28,475
31,892
35,672
850,000
P1,053,966
Carrying
amount
1,903,960
1,932,435
1,964,327
2,000,000
The
total
1,932,435
is reported
it is
noncurrent
receivable
due to
be amount
coll ectedofbeyond
twelve
m onthsas
from
the end of the
reportingsince
period.
SUMMARY OF ANSWER S:
1.
B
2.
B
3.
A
4.
A
51
5.
C
Chapter 10: Loans and Receivables
PROBLEM 10-9 Interest-bearing Note with Unrealistic Interest Rate,
Interes t Is Payable Semi-A nnu ally, One-Time Collecti on of Principa l
Question No. 1
Present value of principal (2,000,000 x 0.7050)
Add: Present value of interest payments
(2,000,000x 5%x4.9173)
Total present value/ Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Date
Interest
Collections
01/01/2016
07/31/2016
100,000
12/31/2016
100,000
07/31/2017
100,000
12/31/2017
100,000
07/31/2018
100,000
12/31/2018
100,000
Interest
Income
114,104
114,950
115,847
116,796
117,804
118,602
Question No. 2
Interest income up to 07/31/2016
Interest income up to 12/31/2016
Total interest income
P 1,410,000
491,730
1,901,730
1,000,000
150,000
Discount
Amortization
4,104
1
14,950
15,815
16,796
17,804
18,802
850,000
P1,051,730
Carrying
amount
1,901,730
1,915,834
1,930,784
1,946,599
1,963,395
1,981,198
2,000,000
114,104
114,950
229,054
Question No. 3
1,930,784. See amortization table above.
Que stion No .s 4 and 5
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collecte d beyond twe lve month s from the end of the reporting period.
SUMMARY OF ANSWER S:
1.
B
2.
B
3.
B
4.
A
5.
D
PROBLEM 10-10 Interest -bearing Note with Unrea listic Interest Rate,
Uniform Coll ection of Principal
Question No. 1
52
Chapter 10: Loans and Receivables
Computation of present value of all payments:
Present
Interest
Principal
value fact or
collections
0.8929
600,000
180,000
0.7972
600,000
120,000
0.7118
600,000
60,000
Totalpresentvalue
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Interest
Date
Collections
01/01/16
12/31/16
180,000
12/31/17
120,000
12/31/18
60,000
Total
collections
780,000
720,000
660,000
To
tal PV
696,462
573,984
469,788
1,740,234
1,740,234
1,000,000
150,000
Interest
Income
850,000
P890,234
Amortizatio
n
208,828
140,287
70,651
Principal
collections
28,828
20,287
10,651
600,000
600,000
600,000
Carrying
amount
1,740,234
1,169,062
589,350
-
Question No. 2
208,828. See amortization table above.
Question No. 3
1,169,062. See amortization table above.
Question N . 4
Principal collections – 2017
Less: Amortization – 2017
Current portion – 12/31/2016
600,000
20,287
579,713
Question No. 4
Carrying value – 12/31/2016
Less: Current portion – 12/31/2016
Non-current portion – 12/31/2016
SUMMARY OF ANSWER S:
1.
2.
3.
B
B
A
4.
1,169,062
579,713
589,350
B
5.
A
PROBLEM 10-11 Non-interest-bearing Note with Unrealistic Interest Rate,
Non-Uniform Collection of Principal
Question No. 1
Computation of present value of all payments:
53
Chapter 10: Loans and Receivables
Total
PV facto r
collections
0.8929
1,000,000
0.7972
600,000
0.7118
200,000
Total present value of the notes
TotalP V
892,900
478,320
142,360
1,513,580
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Question Nos. 2 to 5
Amortization table
Interest
Date
income
01/01/16
12/31/16
181,630
12/31/17
83,425
12/31/18
21,382
1,513,580
1,000,000
150,000
850,000
P663,580
Amortizatio
n
Principal
Collections
181,630
83,425
21,365
1,000,000
600,000
200,000
Carrying
amount
1,513,580
695,210
178,635
-
Question No. 2
181,630. See amortization table above.
Question No. 3
695,210. See amortization table above.
Question No. 4
Principal collections – 2017
Less: Amortization – 2017
Current portion – 12/31/2016
600,000
83,425
516,575
Question No. 5
Carrying value – 12/31/2016
Less: Current portion – 12/31/2016
Non-current portion – 12/31/2016
695,210
516,575
178,635
SUMMARY OF ANSWER S:
1.
2.
3.
B
B
A
4.
B
5.
D
PROBLEM 10-12 Noninterest-bearing Note, One-T ime Collection of
Principal
Question No. 1
Total present value (1,800,000 x 0.7118)
54
1,281,240
Chapter 10: Loans and Receivables
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Date
Inter est Income
01/01/16
12/31/16
153,749
12/31/17
172,199
1,000,000
150,000
Amortization
153,749
172,199
850,000
P431,240
Carrying amount
1,281,240
1,434,989
1,607,187
12/31/18
192,812
192,812
Question No. 2
153,749. See amortization table above.
1,800,000
Question No. 3
1,434,989. See amortization table above.
Que stion No . 4 and 5
The total amount of 1,434,989 is reported as noncurrent receivabl e since it is
due to be coll ected beyond twelve m onths from the end of the reporting period.
SUMMARY OF ANSWER S:
1.
B
2.
B
3.
A
4.
B
5.
A
PROBLEM 10-13 Com putation of Annual Payment or Collection
Requirement No. 1
CASE 1: Based on the original data
Annual collection
=
Present value of the notes
Present value of ordinary annuity for 3 periods
Annual collection
=
1,500,000
2.4018
Annual collection
= P624,532
Requirement No. 2
Interest income (1,500,000 x 12%)
= P180,000
CASE 2
Requirement No. 1
Annual collection
=
Present value of the notes
Present value of annuity due for 3 periods
Annual collection
=
1,500,000
2. 6901
Annual collection
= P557,600
55
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income (1,500,000 – 557,600) x 12%
= P113,088
PROBLEM 10-14
Accountsreceivable
Sales
250,000
250,000
Sales discount 250,000 x 3% x4 0%)
3,000
Allowanceforsalesdiscount
Cash( 250,000x 50%x97%)
Allowancef ors alesdiscount
Sales discount [ 250,000 x (50% - 40%) x 3%]
Accounts receivable ( 250,000x 50%)
121,250
3,000
750
3,000
125,000
On December 31, 2016, the receivable then is included in the statement of
financial position as follows:
Accountsreceivable,end
250,000
Less: Allowancef ors ales discount
3,000
Netrealizablevalue
247,000
SOL UTION: (PFRS 15)
Accountsreceivable
Refund liability
Sales [ 100,000 – ( 100,000x2 %x 50%)
Cash( 100,000x 60%x9 8%)
Sales discount [ 100,000 x (60% - 50%) x 2%]
Refundliability
Accountsreceivable( 100,000x 60%)
100,000
1,000
99,000
58,800
200
1,000
60,000
On December 31, 2016, the receivable then is included in the statement of
financial position as follows:
Accounts receivable = Net realizable value
100,000
PROBLEM 10-15
SOLUTION:
Requirement No. 1 PAS 18
2017:
Dec.3 1
Accountsreceivable
Sales
550,000
550,000
Cost of sales
Merchandiseinventory
300,000
Sales returns ( 550,000 x 30%)
165,000
300,000
56
Chapter 10: Loans and Receivables
Allowancefors alesreturn
2018:
Jan. 5
165,000
Cash [ 550,000 - (45% x 550,000)]
Sales returns [(45%-30%) x 550,000]
Allowance for sales returns
Accountsreceivable
302,500
82,500
165,000
550,000
Requirement No. 2 PAS 18
2017:
Dec. 31
No journal entry. No revenue is recognized because the company
cannot estimate reliably any future returns.
2018:
Feb.1
Accountsreceivable
Sales
550,000
550,000
Cost of sales
300,000
Merchandiseinventory
300,000
Note: Revenue is recognized since the time period for rejecting/accepting has
elapsed.
Requirem ent No. 1 PFRS 15
2017:
Dec.3 1
Accountsreceivable
Sales[ 550,000x (100%-30%)]
Cost of sales ( 300,000 x 70%)
Asset for right to recover product to be
returned
Merchandise inventory
2018:
Jan. 5
Cash [ 550,000 - (45% x 550,000)]
Sales returns [(45%-30%) x 550,000]
Accountsreceivable
Merchandisei nventory
Costof sales
Asset for right to recover product to
be returned
Requirem ent No. 2 PFRS 15
2017:
Dec. 31
Asset for right to recover product to be
returned
5,000
5,000
210,000
90,000
300,000
302,500
82,500
5,000
135,000
45,000
90,000
300,000
Merchandiseinventory
2018:
Feb.1
300,000
Accountsreceivable
Sales
550,000
550,000
57
Chapter 10: Loans and Receivables
Cost of sales
Asset for right to recover product to
be returned
300,000
300,000
PROBLEM 10-16 Impairment of Receivable, One-time Collection of
Principal
CAS E NO. 1
Question No. 1
Principal
16,000,000
Add: Accrued interest receivable
1,600,000
17,600,000
Less: *Present value of expected cash flows
7,705,280
Loan impairment
( A)
9,894,720
*Computation of prese nt value of all payments:
PV factor
Total collections
Total PV
0.9091
1,600,000
1,454,560
0.8264
3,200,000
2,644,480
0.7513
4,800,000
3,606,240
Total present value of the notes
7,705,280
Question Nos. 2 to 3
Amortization table
Date
12/31/2015
12/31/2016
12/31/2017
12/31/2018
Collections
Interest
Income
Amortization
1,600,000
3, 200,000
4,800,000
770,528
687,581
436,339
829,472
2,512,419
4,363,389
CAS E NO. 2
Question No. 4
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
(B)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013 1 ,600,000
12/31/2014 1 ,600,000
12/31/2015 1,600,000*
*Interest accrued .
Interest
Income
1,781,530
1,803,313
1,827,711
58
Carrying
amount
7,705,280
6,875,808
4,363,389
-
15,458,634
7,705,280
9,894,720
Amortization
181,530
203,313
227,710
Carrying
amount
14,846,080
15,027,610
15,230,923
15,458,634
Chapter 10: Loans and Receivables
12/31/2015
Accrued interest receivable
Interestincome
1,600,000
1,600,000
Unearned interest income
Interestincome
227,710
227,710
CAS E NO. 3
Question No. 5
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
( C)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013 1 ,600,000
12/31/2014 1 ,600,000
12/31/2015
12/31/2015
17,058,634
7,705,280
9,353,354
Interest
Income
Amortization
1,781,530
1,803,313
1,827,711
181,530
203,313
1 ,827,711
Unearned interest income
Interestincome
Carrying
amount
14,846,080
15,027,610
15,230,923
17,058,634
1,827,711
1,827,711
CAS E NO. 4
Question No. 6
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
C)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013 1 ,600,000
12/31/2014 1 ,600,000
12/31/2015 1 ,600,000
Interest
Income
1,781,530
1,803,313
1,827,711
12/31/2015 Cash
Interestincome
15,458,634
7,705,280
9,894,720
Amortization
181,530
203,313
227,710
Carrying
amount
14,846,080
15,027,610
15,230,923
15,458,634
1,600,000
1,600,000
Unearned
interest income
Interestincome
SUMMARY OF ANSWER S:
59
227,710
227,710
Chapter 10: Loans and Receivables
1.
A
2.
B
3.
B
4.
B
5.
C
6.
PROBLEM 10-17 Rev ersal of Impairment Loss
Question No. 1
Present value of expected cash flows
vs. Would have been present value if there was no
impairment
Lower
Less:Actualamortizedcost
Gain on reversal of impairment loss (A)
Question No. 2
Present value of expected cash flows
Less:Actuala mortizedc ost
Gain on reversal of impairment loss (D)
P6 54,552
600,000
600,000
396,681
P 2 03 ,319
P6 54,552
396,681
P 2 57 ,871
Question No. 3
Interest inc ome (600, 000 x 10%)
( B)
P 60,000
Question No. 4
Interest inc ome (654, 552 x 10%)
(A)
P 65,4 55
SUMMARY OF ANSWER S:
1.
A
2.
D
3.
B
4.
C
A
PROBLEM 10-18 Pledge of Receiv able
Principalamountborrowed
P900,000
Less: One year interest deducted in advance (900,000 x 10%) ( 90,000)
Cash received on December 1
( B)
P810,000
PROBLEM 10-19 Assignment of Accounts Receivable
Question No. 1
Principalamountborrowed
P150,000
Less: Finance fee (150,000 x 5%)
( 7 ,500)
Cash received on December (1D)
P 142,50 0
Question No. 2
Notespayable
Less: Princip al payment
Remittance
Less: Interest (150,000 x 12% x 3/12)
Notes payable – Decemb er 31 (C)
Question No. 3
60
P150,000
95,000
( 1,500)
93,500
P56,500
Chapter 10: Loans and Receivables
Accounts receivable – assigned (200,000 – 100,000)
P 100,000
Less:Notespayable
( 56,500)
Equity in assigned account (C)
P 43,500
SUMMARY OF ANSWER S:
1.
D
2.
C
3.
C
PROBLEM 10-20 Factorin g of Rec eivables
Entries to reco rd transactions
Option
Accounts
Debit
Credit
One Cash( 400,000x90%)
360,000
Receivable from factor
(25,000 – [5% x 400,000])
5,000
Loss on sale of receivables (squeeze)
35,000
Notespayable
400,000
Two Cash( 400,000x90%)
360,000
Receivable from factor
(25,000 – [4% x 400,000])
9,000
Loss on sale of receivables (squeeze)
34,000
Notespayable
400,000
Estimatedr ecoursel iability
3,000
SUMMARY OF ANSWER S:
1.
B
2.
C
PROBLEM 10-21 Notes Receivab le Discounting and Notes Receiv able
Dishonored
CASE NO. 1
Question No. 1
Principal
P 600,000.00
Add: Interest over full credit period (600,000 x 9% x 90/360)
13,500.00
Maturity value
613,500.00
Less: Discount (613,500 x 12% x6 5/360)
13,292.50
Net proceeds from discounting
( C)
P 600,207.50
Question No. 2
Netproceeds fromdiscounting
Less: Carrying amount on date of discounting
Principal
Add:
Interest
(600,000
x 9% x 25/360)
Loss on
notes
receivable
discounting
( A)
CASE NO. 2
Question No. 3
61
P 600,207.50
600,000.00
3,750.00(P 3,5603,750.00
4 2.50)
Chapter 10: Loans and Receivables
Loss of P3,524.50. The amount of loss to be recognized is computed in a
similar way as to th at of discounted note without recourse.
(A)
Question No. 4
Maturityv alue oft he note
Add: Protest fee and other bank charges
Cash received on December 1 (C)
P 613,500
5,000
P618,500
CASE NO. 3
Question No. 5
Interest expense of P3,524.50 . The amoun t of interest ex pense is compute d
in
a similar
sale.
(A)way as to that of discounted note without recourse or conditional
Question No. 6
Maturityv alue oft he note
Add: Protest fee and other bank charges
Cash received on December 1 (C)
SUMMARY OF ANSWER S:
1.
C
2.
A
3.
A
4.
P 613,500
5,000
P618,500
C
5.
A
PROBLEM 10-22 Discount ing “Own” Note
Question No. 1
Notepayable
Less: Discount on note payable (250,000 x 12%)
Carrying amount – Date ofi ssuance
Effective interest rate
6.
P250,000
( 30,000)
P2 20,000
= Discount/Net proceeds
= 3 ,000/220,000
= 1 3.60%
(D)
Question No. 2
Entry to record trans action
Cash
220,000
Discount on notes payable
30,000
Notespayable
250,000
SUMMARY OF ANSWER S:
1.
2.
D
B
COMPREHENSIVE PROBLEMS
PROBLEM 10-23
Question No. 1
2013
2014
2015
Credit Sa les
2,220,000
2,450,000
2,930,000
Accounts written off
52,000
59,000
60,000
62
C
Recoveries
4,300
7,500
7,200
Chapter 10: Loans and Receivables
7,600,000
171,000
19,000
Accounts written off minus Recoveries
Total credit sales
Total years fr om 2013 to 2015:
171,000 - 19,000
Percentage
=
7,600,000
Percentage
=
Percentage = 0.02 or 2%
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3
Reported doubtful account expense (bad debts written off)
P 62,000
Less: Correct doubtful account expense (see No. 2 )
( 60,000)
Overstatement in doubtful account expenses
P 2,000
Question No. 4
Accounts receivable trade
Beg. Balance
Sales on account
418,000
3,000,000
Total
3,418,000
645,600 Balance end
62,000 Write-off
2,710,400 Collections excluding
advance from customers
3,418,000
Question No. 5
All wa nce for Doubtful accounts
Accounts written off
Balance end
62,000 15,200 Beg. Balance
21,600 60,000 Doubtful accounts expense
8,400 Recoveries
Total
83,600 83,600
SUMMARY OF ANSWER S:
1.
A
2.
A
3.
B
4.
B
5.
A
PROBLEM 10-24
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze)
Add:Adjustednet sales
Total
Less: Collections, net of discounts
63
21,800
P
255,000
276,800
156,800
Chapter 10: Loans and Receivables
Estimated uncollectible accounts charged to AR in Dec.
30,000
Unadjusted accounts receivable, Dec. 31
P 90,000
Subsidiary ledgerb alance, Dec. 1
Less: AR controlling account, Dec. 1 (see above)
Add: Estimated uncollectible account
chargedtoARin Dec.
Customers’ credit balance (D)
Question No. 2
Collection, net of discount
Divideby:(100%-2%)
Total credit to AR for collection (A)
P 59,000
21,800
6,000
27,800
P31,200
P1 56,800
98%
P160,000
Question No. 3
Customer credit balance, Dec. 1
Less: sale to customer with credit balance
Customer Credit balance, Dec. 31(A)
P 31,200
10,000
P 21,200
Question No. 4
Unadjusted Sales, balance
P2 60,000
b) Sales, FOB shipping pt., not yet recorded
10,000
c)S ales,F OB destination
( 15,000)
Adjusted Sales balance
( A)
P 255,000
Question No. 5
Subsidiary ledger, balance, 12/1
Add: Adjusted Sales in December
Freight prepaid by the company
Total
Less: total credit to AR for coll.
Adjusted accounts receivable in Dec. (B)
SUMMARY OF ANSWER S:
1.
D
2.
A
3.
A
4.
P 59,000
255,000
1,000
P315,000
160,000
P1 55,000
A
64
5.
B
Chapter 10: Loans and Receivables
PROBLEM 10-25
Question No. 1
Balance
De c. 31
1
12,000
2
22,000
4
20,000
5
55,000
6
7,500
116,500
Accounts
Not due
3,000
22,000
1 - 6 0 da y s
8,000
61-120 d ays
1,000
Over 120
10,000
2,220
52,780
7,500
68,280
27,220
Multiply by:
0.50%
136.10
11,000
2%
1,365.60
10,000
10,000
5%
550
Question Nos. 2 and 3
Required balance (P136.10+P1,365.60+P550+P5,000)
Less: Allowance for doubtful accounts, beginning
Doubtful accounts expense
2,051.70
50%
5,000.00
P 7,051.70
5,000.00
P
Question Nos. 4 and 5
Interest income
(120,000X6 %X2 /12)
(100,000X 6%X 1/12)
Interest income
SUMM
1.
DARY OF
2. ANSWER
C
3.S:
Interest
income
P 1,200
500
P 1,700
B
4.
Accrued interest
income
P
500
P 500
D
PROBLEM 10-26
Question No. 1
Principal
Originationf ees received
Direct origination cost incurred
Initial Carrying amount of the loan
5.
A
4,000,000
(342,100)
150,020
3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118)
2,847,200
Present value of Int. (4M x 10% x 2.4018)
960,720
Present value of Loan Receivable
3,807,920
65
Chapter 10: Loans and Receivables
Question N os. 3 and 4
Date
01/01/2016
31/12/2016
31/12/2017
31/12/2018
Collections
Interest
Income
Amortization
400,000
400,000
400,000
456,950
463,784
471,439
56,950
63,784
71,346
Carrying
amount
3,807,920
3,864,870
3,928,655
4,000,000
Question No. 5
Zero, As of December 31, 2016, the entire loan proceeds will be collectible on
December 31, 2018, that is two years from the repor ting date.
SUMMARY OF ANSWER S:
1.
2.
3.
A
C
4.
B
PROBLEM 10-27
Question No. 1
Annual Cash
Date
flows
Dec. 31, 2015
P1,750,000
Dec. 31, 2016
2,000,000
Dec. 31, 2017
1,750,000
Total
5.
A
A
PV
factor
Amount
0.9091
P 1,590,925
0.8264
1,652,800
0.7513
1,314,775
4,55P8,500
Question No. 2
Carrying amount oft he loan
Less: Present value of the loan
Impairment loss
P
P 5,500,000
4,558,500
941,500
Question Nos. 3 to 5
Date
12/31/2014
12/31/2015
12/31/2016
12/31/2017
P a y me n t
Interest
Income
P1,750,000
2,000,000
1,750,000
P455,850
326,435
159,079
SUMMARY OF ANSWER S:
1.
C
2.
A
3.
B
4.
66
Reduc tion to
Principal
P1
,294,150
1,673,565
1,590,785
A
5.
C
Carrying
amount
P4,558,500
3,264,350
1,590,785
-
Chapter 10: Loans and Receivables
PROBLEM 10-28
Question Nos. 1 to 4
Unadjusted balances
2)Salereturn
Cost of return
Merchandise
(30,000 x80%)
3)Sales FOB shipping
point
not
Salerecorded as
Cost of mdse sold
(40,000 x80%)
4) Goods shipped
FOB
Destination recorded
assale
Cost of goods
(50,000 x 80%)
6)D oubtful accts exp
Adjusted bal.
Accounts
Receivable
300,000
(30,000)
Allow
for DA
3,000
Mdse.
Net
Inventory
Sales
400,000 1, 000,000
(30,000)
24,000
40,000
(24,000)
40,000
(32,000)
(50,000)
32,000
(50,000)
40,000
260,000
Cost of
Sales
800,000
(12,000)
15,000
432,000
(40,000)
960,000
768,000
Question No. 5
Accounts receivable
P 260,000
Less: Allowance for doubtful accounts ( 15,000)
Net realizable value
P245,000
SUMMARY OF ANSWER S:
1
B
2
B
3.
B
4.
B
5.
C
PROBLEM 10-29
Question No. 1
Classification
1-60 days
61-120days
121-180days
181-360days
More than oney ear
Totals
Balance
P1 ,000,000
400,000
300,000
200,000
60,000
P1 ,960,000
Estimated
Percentage
Amount
1%
P 10,000
5%
20,000
10%
30,000
25%
50,000
80%
48,000
P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1)
Less: Allowance for doubtful accounts, end (see no. 1)
Net realizable value
67
P 1,960,000
158,000
P1,802,000
Chapter 10: Loans and Receivables
Question No. 3
Doubtful accounts per books (9,000,000 x 2%)
Less: *Adjusted doubtful accounts expense
Understatement of doubtful accounts
P 180,000
188,000
(P 8,000)
*Adjusted doubtful account expense
Allowance for Dou btful accounts
Write off (100,000+40,000)
Balance end (required)
140,000
158,000
90,000
20,00
188,000
Total
Beg. Balance
Recoveries
Doubtful account expense
298,000 298,000
Question No. 4
Totalcarryingv alue
Less: **Present value of the loan
Impairment loss
210,000
P3,000,000
2,790,000
P
*Computation of present value
Annual Cash flow PV factor
Total
P1,000,000
1.00
P 1,000,000
1,000,000
0.93
930,000
1,000,000
0.86
860,000
Total Present value of the loan P 2,790,000
Question No. 5
Date
01/01/2016
12/31/2016
12/31/2017
Collections
Interest
Income
1,000,000
1,000,000
143,200
SUMMARY OF ANSWER S:
1.
A
2.
B
3.
D
B
4.
Amortizatio
n
1,000,000
856,800
5.
Carrying
amount
2,790,000
1,790,000
933,200
B
PROBLEM 10-30
Question No. 1
Accounts receivable, unadjusted balance
Per subsidiary ledger
Note
receivablei
ncluded
in theA R
Factored
Accounts
receivable
SalesFOBshipping point
Adjusted AR balance
P1,660,000
(200,000)
(160,000)
100,000
P1,400,000
68
Chapter 10: Loans and Receivables
Question No. 2
Allowancef ord oubtfula ccts,b eg.
Add: Doubtful accounts (P15,000,000 + P100,000) x 1%
Total
Less:Accountswrittenoff
Allowance for doubtful accts, end
223,000
Question No. 3
UnadjustedNetSales
Add:Sales,FOBshippingpoint
TotalSales
Multiply by:
rate
Doubtful accounts
P 100,000
151,000
251,000
P
28,000
P
P15,000,000
100,000
P 15,100,000
1%
15 1,000
P
Question No. 4
No effect . The audit adjustmen ts did not result to any changes to inventory
account.
Question No. 5
Sales, FOB shipping point
SUMMARY OF ANSWER S:
1.
D
2.
A
3.
100,000
D
4.
D
PROBLEM 10-31
Question No. 1
Accountsreceivablef actored
Less: Service charge (400,000x 5%)
Receivable from factor (400,000 x 20%)
Customers’ credit balance
5.
P
A
P 400,000
20,000
80,000
Question No. 2
Principal
Add: Interest over full credit period (300,000 x 12% x 6/12)
Maturity value
Less:D iscount(318,000x1 2%x3 /12)
Net proceeds from discounting
306,075
Question No. 3
Maturity value of the notes (see item in No. 2)
Add:Protest fee
Total cash paid/Amount to be debited to AR
Question No. 4
Notep ayable( 80% xP600,000)
Less: Service fee (5% x P600,00)
Cash received
450,000
69
100,000
P300,000
P 300,000
18,000
318,000
11,925
P
318,000
12,000
330,000 P
480,000
30,000
P
Chapter 10: Loans and Receivables
Question No. 5
TotalCash paid(see No.3)
Add: Interest income (P330,000x 12% x2 /12)
Cash received
336,600
330,000
6,600
P
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000)
Add:Accountsreceivableassigned
Total
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%)
Net realizable value
P 700,000
600,000
1,300,000
65,000
P1,235,000
SUMMARY OF ANSWER S:
1.
B
2.
C
3.
A
4.
B
D
5.
6.
D
PROBLEM 10-32
Question Nos. 1 to 3
Total
Unadjusted
Balance,
12/31/2016
Adjustments:
WriteOff
Unrecordedsale
60 days and
below
61 to 90
days
1,000,000
5 00,000
1,900,000
(40,000)
50,000
NSF
Check shipment –
20,000
In transit
FOB Destination
(45,000)
Consignment
(45,000)
Erroneous unit price
(7,500)
Adjusted
balance,
12/31/2016
1,832,500
PercentageofU ncollectibility
Required
allowance,
12/31/2016
108,825
Over 90
days
4 00,000
(40,000)
50,000
20,000
(45,000)
(45,000)
(7,500)
49
2,500
5%
930,000
4%
37,200
24,625
410,000
10%
41,000
Question No. 4
Allowance for Dou btful accounts
Write off
Balance end (required)
40,000 100,000 Beg. Balance
102,825
- Recoveries
42,825
Total
142,825 142,825
70
Doubtful account expense
(squeeze)
Chapter 10: Loans and Receivables
Item
1
Accounts
Allowancef orb ad debts
Accountsreceivable
Debit
40,000
Accountsreceivable
Sales
50,000
3
Accountsreceivable
Cash inbank
20,000
4
Sales
Accountsreceivable
45,000
Sales
Accountsreceivable
45,000
Sales
Accountsreceivable
7,500
2
5
6
SUMMARY OF ANSWER S:
1.
C
2.
D
3.
Credit
40,000
50,000
20,000
45,000
45,000
7,500
D
D
4.
C
5.
PROBLEM 10-33
Question Nos. 1 and 3
Adjusting entries for Accounts receivable
Item
Accounts
1
Accountsreceivable
Allowance for doubtful accounts
Debit
20,000
20,000
2
Salesdiscount
Accountsreceivable
16 00
3
Accountsreceivable
Allowance for doubtful accounts
120,000
Accountsreceivable
Allowance for doubtful accounts
30,000
4
Credit
16,000
Miscellaneous income
Accountsreceivable
120,000
30,000
30,000
30,000
Accounts receivable
Beg. Balance
(20,000+200,000)
Sales
Recoveries
220,000
4,000,000
30,000
71
2,720,000
Balance end
30,00 Recoveries
*1,500,000
Collections, gross of
discount
Chapter 10: Loans and Receivables
Total
4,250,000
4,250,000
*Collections from customers excludin g recoveries
Collections withoutdiscount
Add:Collections withd iscount
Cash discount availed (784,000/98% x 2%)
Total collections excluding recoveries
700,000
784,000
16,000
P 1,500,000
Allowance for Doubtful accoun ts
20,000 Beg. Balance
30,000 Recoveries
120,000 Doubtful account expense
Balancee nd
170,000
Total
170,000 170,000
Accounts receivable
2,720,000
Less: Allowance for bad debts
170,000
Net realizable value
2,55P0,000
Question N os. 2, 4 and 5
Adjusting entries for Loans receivable
Item
Accounts
Debit
1
LoanR eceivable
400,000
Interestincome
2
Unearned interest income
Interestincome
45,382
4,000,000
11,520
(300,000)
3,711,520
Amortization table at 12% Effective Rate
Interest
Date
Collections
Income
01/01/2015
12/31/2015
400,000
445,382
12/31/2016
400,000
450,828
12/31/2017
400,000
456,928
400,000
400,000
SUMMARY OF ANSWER S:
1.
B
2.
C
3.
D
400,000
45,382
Principal
Direct origination cost incurred
Direct origination fees received
Initial carrying amount
12/31/2018
12/31/2019
Credit
463,759
471,410
4.
D
72
45,382
50,828
56,928
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
63,759
71,583
3,928,417
4,000,000
Amortization
5.
A
Chapter 10: Loans and Receivables
PROBLEM 10-34
Question No. 1
Unrecorded gain on sale of machinery – 2015 (see below)
90,183
Unrecorded interest income – receivable from sale of machinery
(240,183 x12%)
28,822
Unrecorded accrued interest – receivable from sale of plant
(1,500,000x 12%x9/12)
135,000
Net adjustment to R/E – 01/01/16 (B)
254,005
Cash consideration
Add: Present value of future cash flows (2.4018 x 100,000)
Totalsellingprice
Less: Carrying value of machine (800,000 – 450,000)
Gain on sale of machine
200,000
240,183
440,183
350,000
90,183
Amortization table (receivable from s ale of machinery):
Interest
Carrying
Date
Collections
Income
Amortization
amount
01/01/2015
240,183
12/31/2015
100,000
28,822
71,178
169,005
12/31/2016
100,000
20,281
79,719
89,286
12/31/2017
100,000
10,714
89,286
Question No. 2
Interest income from note receivable:
Saleofmachinery( 169,005x1 2%)
Sale of plant [(1,500,000 x 12% 3/12) + (1M x 12% x 9/12)
Sale of equipment (170,750 x 10% x 9/12)
Total interest income (C)
168,087
Question No. 3
Current portion of note receivable fr om:
Sale of machinery (see amortization table above)
Sale
of
plant
Total current portion (B)
20,281
135,000
12,806
89,286
500,000
589,286
Question No. 4
Non-current portion of note receivable from:
Sale
of
plant
Sale of equipment( 170,750 + 12,806)
Total non-current portion
( D)
500,000
183,556
683,556
73
Chapter 10: Loans and Receivables
Question No. 5
Interestincomefroms aleofmachine
Interest income from sale of plant (180,000 – 135,000)
Interest income froms ale of equipment
Net overs tatement of income
( D)
SUMMARY OF ANSWER S:
1.
B
2.
C
3.
B
4.
D
74
5.
D
20,281
(45,000)
12,806
(11,912)
Chapter 12: Inventories
CHAPTER 12: INVENTORIES
PROBLEM 12-1 Cost of Purchase
Purchasep rice basedo n vendors’ invoices
1,250,000
Brokerage commission paid to agents for arranging imports
50,000
Import duties
100,000
Freightandinsuranceonpurchases
250,000
Otherh andling costs relatingt oimports
25,000
Total cost of purchase
(B)
P1,675,000
Note that the trade discount was already deducted in arriving at the vendor’s
invoice.
PROBLEM 12-2 Inventoriable Cost
Materials
Irrecoverablepurchasetaxes
Labor
Variableproduction overhead
Fixedproduction costs
Cartage in
Total
350,000
30,000
120,000
50,000
40,000
8,000
(C )
PROBLEM 12-3 Rebates
Question No. 1
Invoice price ( o VAT is charged on these goods)
Less: Rebate offered to the entity by the supplier
Inventoriable cost
(B)
Question No. 2
Inventoriable cost
10,000
(C)
PROBLEM 12-4 FREIGHT TERMS & FOREIGN EXCHANGE
Question No . 1 Free o n Board
Cost of inventory ($100,000 x
ForEx loss (
-
(A)
187,500
Qu
esof
tion
No. 2 Co
st, Insuraxnce and Freight
Cost
inventory
($100,000
ForEx loss (
(D)
125,000
75
Chapter 12: Inventories
PROBLEM 12-5 MANUFACTURING COST
Question No. 1
Variable cost:
Direct labor (
Directmaterials(
Fixed Cost (
Total cost
/ 100,000 normal capacity) x 100,000 actual
(C)
200,000
100,000
Question No. 2
Variable cost:
Directlabor(
120,000units)
Direct materials ( 2 excluding VAT x 120,000 units)
Fixed Cost (
Total cost
(C)
Question No. 3
Variable cost:
Direct labor (
Directmaterials(
Fixed Cost
(
Total cost
(D)
PROBLEM 12-6 Items to b e Included in th e Inventory
1
Items in the warehouse during the count
2
Items out on consignment at another company's store
4
5
7
10
14
15
17
18
19
20
1,080,000
200,000
100,000
420,000
160,000
80,000
960,000
P1,090,000
70,000
Items
purchased
FOB shipping point that are in transit at
December
31
500,000
Freight charges on goods purchased above
13,000
Items sold to another company, for which our company
has signed an agreement to repurchase at a set price that
covers all costs related to the invent ory. Total cost of
merchandiseis
200,000
Items sold FOB destination that are in transit at December
31, at
cost
75,000
Items currently being used for window display
100,000
Itemsoncounterfor sale
400,000
Items included in the count, damaged and unsalable
(150,000)
Items in receiving dept., returned by customer, in good
condition( not includedi nt hec ount)
50,000
Merchandise inventories out on approval, at cost
100,000
Finished special article goods, made to order (included in
the
count)
(78,000)
Total
(A)
P2,370,000
76
Chapter 12: Inventories
The following items would not be reported as inventory:
3
Cost of goods sold in the income statement
6
Not reported int he financial statements
8
Cost of goods sold in the income statement
9
Cost of goods sold in the income statement
11 A dvertising exp. In the income statement
12 Not reported in the financial statements
13 Temporary investments in the current
assets section oft he balance sheet
16 N ot reported in the financial statements
21
40,000
300,000
30,000
50,000
10,000
100,000
125,000
360,000
Office
supplies
in thesheet
current asset
section
ofthebalance
40,000
PROBLEM 12-7 Accounts Payable
Unadjustedbalance
Goods acquired in transit, FOB shipping point
Goodslost intransit
Adjusted Accounts Payable
(A)
1,800,000
100,000
50,000
P 1, 95 0, 000
The journal entry on item 2 would include the following:
Purchases/Inventory
50,000
AccountsPayable
50,000
To record the purchase on December 20.
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventor y?
Answer: No, since the inventories were lost in transit and it is improper to
report inventories that is not existing (i.e. it violates the existence assertion).
Thus the journal entry at December 31 if no claim was filed and the common
carrier has yet to acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as
50,000
other expense and not as cost of goods sold)
Inventory /Purchases
50,000
And on the next year (January 5), when the claim was filed and acknowledged
by the common carrier, the journal entry will be:
Claimsfromc ommonc arrier
50,000
Gaino n reimbursement of lost inventory
50,000
To record the claim against common carrier on January 5.
77
Chapter 12: Inventories
PROBLEM 12-8 Consigned Goods
Inventory shipped on consignment to Lomasoc
FreightbyDesireetoLomasoc
Total Inventoriable cost
(D)
360,000
18,000
P 378,000
PROBLEM 12-9 Gross method vs. Net method
CASE NO 1: Gross method
Accounts
Date
Debit
01/02
Purchases (100,000 x [1-20%])
Accountspayable
01/12
Accountspayable
Cash (80,000x[1-98%])
Purchase discount
80,000
Accountspayable
Cash
80,000
01/14
Date
01/02
80,000
Credit
80,000
78,400
1,600
80,000
CASE NO 2: Net method
Accounts
Debit
Credit
Purchases (100,000 x [1-20%]
x[1-2%])
78,400
Accountspayable
78,400
01/12Accountspayable
78,400
Cash (80,000x[1-98%])
01/14Accountspayable
Purchased iscountlost
Cash
78,400
78,400
1,600
80,000
SUMMARY OF ANSWERS:
CASE NO. 1
1. B
2. C
3. D
4. A
CASE NO. 2
5. C
6. C
7. A
8. D
PROBLEM 12-10 Cost Formulas - Diffe rent Methods
Question No s. 1 and 2
Weighted average
Weighted average
=
unit cost
Weightedaverage
Total goods available for sale (in peso value)
Total goods available for sale (in units)
=
1,105,000
78
Chapter 12: Inventories
unit cost
85,000
Weighted average unit cost = P13/unit
Inventoryend(40,000x13)
=
P520,000
Cost of goods sold (20,000+5,000+21,000–1,000) x 13
= P585,000
(C)
(C)
Question N os. 3 and 4
Moving average
Units
April1 balance
Apr. 2
Balance
Apr. 4
Balance
Apr. 10
Balance
Apr. 15
Balance
Apr. 17
Apr. 28
Apr.2 8
Purchase
Sale
Purchase
Sales
Salesreturn
Balance
Purchase
Balance
Unit cost
20,000
30,000
50,000
(25,000)
25,000
15,000
40,000
(21,000)
19,000
1,000
20,000
20,000
40,000
10
12
11
11
11
14
12
12
12
12
200,000
360,000
560,000
(280,000)
280,000
210,000
490,000
(257,250)
232,750
12,250
245,000
335,000
16.75
15
Inventory
end
Cost of goods sold (280,000 + 257,250 – 12,250)
Total cost
580,000
=
P580,000
= P525,000
(A)
(A)
Question N os. 5 and 6
FIFO
April 1balance
Apr.2
Apr. 4 (25,000 units sold)
Balance from Apr. 2
Apr.10
Apr. 15 (21,000 units sold)
Balance from April 2
Balance from April 10
Apr.17
Balance
Balance from April 2
Balance from April 10
Apr.28
Total
Units
Purchase
From Apr. 1
FromApr.2
Purchase
From Apr. 2
Salesreturn
Purchase
Balance
Unit cost
Total cost
20,000
30,000
(20,000)
(5,000)
25,000
15,000
(21,000)
4,000
15,000
1,000
10
1 2
10
12
12
14
12
12
14
12
200,000
360,000
(200,000)
(60,000)
300,000
210,000
(252,000)
48,000
210,000
12,000
5,000
15,000
20,000
40,000
12
14
17
60,000
210,000
335,000
605,000
Inventory
end
=
P605,000
Cost of goods sold (200,000 + 60,000 + 252,000 – 12,000) = P500,000
(B)
(B)
Question N os. 7 and 8
Note that inventory and cost of goods sold under FIFO periodic and perpetual is
the same.
79
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. C
2. C
3. A
4.
5.
A
6.
B
B
7. B
8. B
PROBLEM 12-11 Lower of Cost or Net Realizable Value
Question No. 1 Raw Mater ials
Supply of steel (used for motorbikes)
Cost
Moreprofitable( asis)
Write-down
40,000
25,000
Supply of aluminum (used for bicycles)
Cost
More profitable (completed product)
Total write-down
60,000
50,000
(C)
Question No. 2 Work-in- process
Incompletemotorbikes
Cost
More profitable (completed product)
15,000
10,000
5,000
Write-down
30,000
25,000
Incomplete bicycles
Cost
Moreprofitable (asis)
Total write-down
50,000
60,000
(D)
5,000
5,000
Question No. 3 Finished goods
Motorbikes
Cost
More profi able (completed product)
0,000
60 000
Bicycles
Cost
More profitable (completed product)
Total write-down
80,000
110,000
(C)
Question No. 4 Adju sted COGS
Cost of goods sold before write-down
Add: Write-down
Raw materials
Work-in-process
Finished goods
Adjusted cost of goods sold
Write-down
20,000
,000
25,000
5,000
20,000
(C)
PROBLEM 12-12 Purchase Commitment
CASE NO. 1
Date
Accounts
80
Debit
Credit
Chapter 12: Inventories
11/15
No entry
12/31
Loss on purchase commitment (20,000 x [25-20])
Estimated liability for purchase commitment
03/15
Purchases(25,000x2 5)
Estimated liability for purchase commitment
Accountspayable/Cash
Gainonp urchasecommitment
100,000
100,000
500,000
100,000
500,000
100,000
CASE NO. 2
Date
Accounts
11/15
12/31
No entry
No entry
03/15
Purchases(25,000x2 5)
Accountspayable/Cash
Debit
Credit
500,000
500,000
PROBLEM 12-15 Purchase Commitment
Date
Accounts
Debit
3/31
No entry
12/31
Loss on purchase commitment (1,200,000-1,000,000)
Estimated liability for purchase commitment
04/30 Purchases
Estimated liability for purchase commitment
Accountspayable/Cash
Credit
200,000
200,000
1,200,000
200,000
1,200,000
Gainonpurchasec ommitment
200,000
SUMMARY OF ANSWERS:
1. B
2. A
PROBLEM 12-13 Inventory Estimation - Gross Profit Rate Method
Sales
Less: Salesreturns
Net Sales excluding Sales discount
Multiplyb y:C ost ratio (1-30%)
Cost of Goodssold
3,400,000
(30,000)
3,370,000
70%
2,359,000
Inventory,January 1
Add: Net Purchases
650,000
Purchases
Add:Freight-in
Less: Purchaser eturns
TotalGoodsavailableforsale
Less: Cost ofgoodssold
2,300,000
60,000
(80,000)
81
2,280,000
2,930,000
(2,359,000)
Chapter 12: Inventories
Merchandise inventory that should be on hand
Less: Actual merchandise inventory on hand
Cost of Missing inventory
(A)
571,000
(420,000)
151,000
PROBLEM 12-14 Inve ntory Estimation: Average Method - Retail Method
Computation of cost ratio:
Cost
Retail
250,000
375,000
1,325,000 1,750,000
200,000
(75,000)
1,575,000 2,250,000
Inventorya t January 1
Purchases
Netmarkups
Netmarkdowns
Totals
Cost ratio (1,575,000 / 2,250,000) = 70%
Computation of Inventory end at retail
Balance up to markdowns (see above computation)
2,250,000
Less:Sales
1,500,000
Estimated normal shrinkage (1,500,000 x 5%)
75,000
Estimated normal shoplifting losses
50,000
Inventoryendat retail
P 625,000
Computation of Cost of goods sold
Total goods available for sale at cost
Less: Inventory end at cost (625,000 x 70%)
Cost of Sales
(B)
1,575,000
437,500
1,137,500
PROBLEM 12-15 Inventory Estimation: FIFO Method - Retail Method
Computation of cost ratio:
Cost
292,500
292,500
Purchases
Net markups
Netmarkdowns
Totals
Retail
400,000
75,000
(25,000)
450,000
Cost ratio (292,500 / 450,000) = 65%
Computation of Inventory end at retail
Balance up to markdowns (see above computation)
450,000
Add:Inventorybeginning
100,000
Less:Sales
375,000
Inventoryendat retail
P 175,000
Multiply: Costratio
65%
Inventory end at cost
(A)
P113,750
82
Chapter 12: Inventories
PROBLEM 12-16
PROBLEM 12-17
Question No. 1
A EI over (P129-P119)x 4,000
B EI under
C EI over
Overstatement of ending inventory
40,000
(70,000)
100,000
70,000
Question No. 2
D. Ending inventory understated
(140,000)
(C)
(B)
Question N os. 3 and 4
A.
B.
C.
D.
2015
2016
1,000,000 1,200,000
(40,000)
40,000
70,000
(70,000)
(100,000)
100,000
140,000
930,000 1,410,000
(A)
(C)
Unadjustedbalance
EI over, NI over (P129-P119) x 4,000
EI under,NIunder
EI over, NI over
EI under,NIunder
Adjusted balances
Question No. 5
Unadjusted net income (1,000,000+1,200,000)
2,200,000
Less:
Adjusted net
income (930,000+1,410,000)
Net adjustment
to income-understated
SUMMARY OF ANSWERS:
1. C
2. B
3.
A
4.
C
5.
2,340,000 (D)
(140,000)
D
PROBLEM 12-18
Question No s. 1 and 2
Balances priort o adjustment
Add: Goods in transit sold, FOB destination
Less:unrecorded sale
Less:unrecordedp urchasereturns
Ledger
Balance
P3 14,800
3,200
( 8,400)
( 6,000)
Physical
Count
P 293,600
3,200
-
Less:
goodsheldonc
onsignment
Add:unrecorded
purchase
3,640-- ( 8,800)Add: Goods in transit purchased, FOB shipping point
1,600
Add:Goodsoutonconsignment
14,800
Adjusted balances
P 307,240 P 304,400
83
Chapter 12: Inventories
(A)
Question No. 3
Adjusted balances, perl edger
Adjusted balances, physical count
Inventory shortage
SUMMARY OF ANSWERS:
1. A
2. C
3.
P
(C)
P 307,240
304,400
2 , 84 0
(B)
B
PROBLEM 12-19
Note to the professor: Use the following guide questions in answering this
question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts
Was there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
SOLUTION:
Ending
Inventory
679
680
681
682
683
684
685
686
310
311
312
313
314
315
316
Unadjusted balances
Purch over, COS over, NI
under
EI over, COS under, NI
over
EI ov er, COS un der, NI
over
Purchunder, NI over
No, No, No
No, No, No
Yes, Yes, Yes
Sales over, NI over
EI under, NI under (560 x
70%)
Sales over, NI over
EI under, NI under (31,940
x 70%)
Sales over, NI over
EI under, NI under (6,350
x 70%)
Sales over, NI over
No, No, No
No, No, No
550,000
Sales
1 ,000,000
Purchases
600,000
AP
Net
Income
450,000
120,000
(46,740) (46,740)
(46,740)
(46,740)
46,740
(4,500)
1,060
(560)
392
1,060
(4,500)
(1,060)
(560)
(31,940)
392
(31,940)
(6,350)
22,358
(6,350)
(1,930)
4,445
(1,930)
22,358
4,445
84
Chapter 12: Inventories
317
318
No,No , No
Net adjustment
Adjusted balances
(24,045)
(40,780)
525,955
959,220
(A)
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3.
A
4.
(45,680) (45,680)
554,320 404,320
(A)
(A)
5.
A
(19,145)
100,855
(D)
D
PROBLEM 12-20
Ending
inventory
Unadjusted
balance
P220,000
A
B
(10,000)
C
50,000
D
14,000
E
( 24,000)
Adjusted
P 250,000
Accounts
receivable
Accounts
payable
P104,000
P138,000
(20,000)
(10,000)
Sales
Neti ncome
P 1,010,000
P180,400
20,000
(64,000)
(16,000)
P24,000
(C)
(A)
SUMMARY OF ANSWERS:
1. A
2. C
3.
D
4.
(64,000)
(16,000)
P108,000
(D)
D
5.
(14,000)
(2,000)
( 24,000)
P930,000
(D)
P160,400
(A)
A
PROBLEM 12-21
Inventory
Unad usted
balances
A
B
C
D
E
F
G
H
I
J
Adjusted
b alan ce s
250,000
35,000
4,000
(25,000)
10,000
34,000
60,000
3 68 , 00 0
Accounts
payable
400,000
4,000
60,000
Accounts
Re ce iv ab le
1,000,000
4,000,000
40,000
40,000
(30,000)
(30,000)
( 68,000)
(68,000)
(10,000)
(10,000)
(90,000)
-
4 64 , 00 0
SUMMARY OF ANSWERS:
1. C
2. C
3.
A
932 ,000
4.
A
PROBLEM 12-22
Questions No. 1 to 5
85
Net
Pu r chase s
Ne t Sa le s
2,500,000
4,000
D
600,000
35,000
15,000
10,000
(30,000)
(34,000)
(10,000)
(90,000)
60,000
-
3 , 8 42 ,0 0 0
5.
N etin c o me
2 , 5 64 ,0 0 0
6.
D
4 96 , 00 0
Chapter 12: Inventories
R /E
2016 Purchases under, CGS
under, NI over, RE over
2017 Purchases over, CGS
over
2016 EI under, NI under, RE
under
2017 BI under, CGS under
Salesunder
Purchasesu nder,C GSu nder
EIunder, CGSover
Purchases under,C GS under
EIunder, CGSover
Sales
EI
A /P
CGS
36,000
36,000
(32,000)
(32,000)
(20,000)
(24,000)
(8,000)
(4,000)
(4,000)
Total
4,000
(20,000)
(12,000)
(28,000)
(24,000)
8,000
(4,000)
4,000
(12,000)
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings – 12/31/2016 or 01/01/2017
4,000 – overstated
(4,000) – understated
Note: The effect of errors on December 2016 and January 2017 has no effect on
the ending balance of the accounts payable on December 31, 2017 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C
2. B
3.
B
4.
D
5.
C
PROBLEM 12-23
Question No. 1
Sales (475,000/80%)
Less:Cost ofsales
Grossprofit
P593,750
475,000
118,750
100%
80%
20%
Inventory (in units)
Beg. Balance (60,000/P3)
Purchases
Total
20,000
100,000
25,000
Balance end (squeeze) or
(125,000/5)
95,000 Cost of sales (475,000/5)
120,000 120,000
Inventory (in peso amount)
Beg. Balance (squeeze)
Purchases
60,000
540,000
86
125,000 Balance end (squeeze)
475,000 Costo fs ales
Chapter 12: Inventories
Total
600,000
600,000
Weighted average unit cost = TGAS (peso) / TGAS (units)
Weighted average unit cost (P600,000/120,000) = P5/unit
SUMMARY OF ANSWERS:
1. A
2. A
3.
B
4.
A
5.
B
PROBLEM 12-24
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2016 or
December 31, 2015 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2015.
(B)
Question No. 2
Netincome– weightedaverage
Beginning inventory under, CGS under, Net income over
Ending inventory under, CGS over, Net income under
Adjusted net income – FIFO
Question No. 3
Computation of units sold:
Beginninginventory–units
Add:Total purchases–units
Totalgoodsavailablef ors ale–units
Less: Units sold (P6,400,000 / P80/unit)
Ending inventory inunits
(B)
P3,250,000
(150,000)
100,000
P3,200,000
10,000
100,000
110,000
80,000
30,000
The 30,000 ending inventory comes from the last two purchases as follows:
Units
Unit cost Total cost
From 4th quarterpurchases
10,000
68
680,000
From 3rd quarter purchases
20,000
66 1,320,000
Total
30,000
(B)
2,000,000
Question No. 4
Cost (refer tono.3)
Net realizable value [(P70 – P5) x 30,000]
Loss on inventory write-down
Question No. 5
Beginninginventory–FIFO
Add: Net Purchases (P6,480,000 – 980,000)
Totalgoodsavailablef ors ale
Less: Ending inventory at cost (see no. 3)
87
(B)
2,000,000
1,950,000
50,000
500,000
5,500,000
6,100,000
2,000,000
Chapter 12: Inventories
Cost of goodssoldat cost
Add: Loss on inventory write-down (see no. 4)
Cost of goods sold afte r inventory write-down
SUMMARY OF ANSWERS:
1. B
2. B
3.
B
4.
B
(A)
5.
4,100,000
50,000
4, 150,000
A
PROBLEM 12-25
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units
3,000
2,000
4,000
3,000
12,000
Unit cost
Total
14
P 42,000
13
26,000
15
60,000
16
48,000
P 176,000
(A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units
1,800
1,800
1,200
Unit cost
19
20
21
1,000
5,800
22
Total
P 34,200
36,000
25,200
22,000
P 117,400
(A)
Question No. 3
T-shirts:
Net realizable value
(12,000 x (P16-(10% x P16))
Jackets:
(5,800 x (P22-(10%xP22)
Lower of cost or NRV
NRV
Cost
Lower
P172,800 P176,000 P 172,800
114,840
117,400
P287,640 P 293,400
Question No. 4
Totalcost (seeno. 3)
Less: Lower ofc ost or NRV( see no. 3)
Loss on inventory write-down
(B)
114,840
P287,640
P 293,400
287,640
P 5, 760
Question No. 5
Beginning inventories:
T-shirts(9,000xP11)
Jackets(5,000xP15)
Add:*Total purchases (299,500 + 183,900)
Totalgoodsavailablef ors ale
88
P 99,000
75,000
P 174,000
483,400
P 657,400
Chapter 12: Inventories
Less: Merchandise inventory atc ost
Cost of sales before inventory write-down
Add: Lossoninventory write-down
Cost of sales after inventory write-down
(B)
*T-shirts
4,000
3,000
2,500
3,500
2,000
4,000
3,000
22,000
Jackets
900
1,100
1,500
2,000
1,800
1,200
1,000
9,500
P12
12
13
14
13
15
16
P 48,000
36,000
32,500
49,000
26,000
60,000
48,000
P 299,500
P16
18
19
19
20
21
22
P 14,400
19,800
28,500
38,000
36,000
25,200
22,000
P1 83,900
293,400
P 364,000
5,760
P369,760
SUMMARY OF ANSWERS:
1.
A
2.
A
3.
A
4.
5.
B
B
PROBLEM 12-26
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance
Net Purchases
600,000
2,200,000
1,200,000 B alance end
1,600,000 Direct materials used
Total
2,800,000
2,800,000
CASE NO. 1
Question No. 1
GP Rate:
Gross Profit
Divide by: Sales
GrossProfit Rate
2013
2,000,000
1,700,000
0. 15
89
2014
3,500,000
2,800,000
0.20
2015 2016
4,000,000
3,000,000
0.25 0.30
Chapter 12: Inventories
The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2016 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales
Multiplyb y:C ostRatio
Cost of goods sold
6,000,000
0.70
4,200,000 (B)
Question No. 2
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
2,000,000 Balance end
4,200,000 Cost of goods sold
Total
6,200,000
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
Balance end
Cost of goods
3,400,000 manufactured
Total
6,000,000
6,000,000
3,400,000
6,200,000
Work in Process
2,600,000
Computation of factory overhead:
Directlaborcost
Multiply by: Predetermined rate
Factory overhead
(A)
1,600,000
50%
800,000
CASE NO. 2:
Question No. 3
GP Rate:
GrossProfit
Divide by: Sales
GrossProfit Rate
2013
340,000
2,000,000
0.17
2014
630,000
3,500,000
0 . 18
2015 2016
1,000,000
4,000,000
0.25 0.20
The GP rate in 2016 is computed as follows:
16% + 18% + 25%
Gross Profit Rate
=
3
=
20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods
sold is computed as follows:
Sales
6,000,000
Multiplyb y:C ostRatio
0.80
Cost of goods sold
4,800,000 (B)
90
Chapter 12: Inventories
Question No. 4
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,800,000
2,000,000 Balance end
4,800,000 Cost of goods sold
4,000,000
6,800,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
Balance end
Cost of goods
4,000,000 manufactured
Total
6,000,000
6,000,000
2,000,000
(A)
CASE NO. 3:
Question No. 5
The gross profit for 2016 is computed based on the overall gross profit for 2014
and 2015:
800,000 + 1,000,000
Gross Profit Rate
=
3,500,000 + 4,000,000
1,800,000
=
7,500,000
Gross Profit Rate
= 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods
sold is computed as follows:
Sales
Multiplyb y:C ostRatio
Cost of goods sold
6,000,000
0.76
4,560,000 (A)
Question No. 6
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,560,000
2,000,000 Balance end
4,560,000 Cost of goods sold
3,760,000
6,560,000
Work in Process
Beginning
balance
Direct
materials
used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,240,000 Cost
Balanofcegoods
end
3,760,000 manufactured
Total
6,000,000
6,000,000
91
(A)
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. B
2. A
3.
4.
B
A
5.
A
6.
A
PROBLEM 12-27
Question No. 1
Accounts payable
Balancee nd
250,000
555,000 Beg. Balance
Purchase ret.
and allow.
Purchase
discounts
Payments to supplier
(squeeze)
70,000
80,000 3,000,000
100,000
3,255,000
Total
3,655,000 3,655,000
Purchases
Freight-in
Question No. 2
Direct materials inventor y
Beg. Balance
Net purchases
200,000
2,950,000
320,000 Balancee nd
2,830,000 Direct materials used
Total
3,150,000
3,150,000
Purchases
Add:Freight-in
3,000,000
100,000
GrossPurchase
Purchasesreturns and allow
Less:
Purchasediscounts
NetPurchases
3,100,000
70,000
80,000
2,950,000
Question No. 3
Work in process
Beg. Balance
Direct materials used
Directlabor
Factoryo verhead
250,000
2,950,000
900,000
675,000
280,000 Balancee nd
4,375,000 Cost of goods
manufactured
Total
4,655,000
4,655,000
Question No. 4
Sales
P5,100,000 120%
Less:
Cost of sales (5,000,000/120%)
Grossprofit
4,250,000 100%
850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
92
Chapter 12: Inventories
Question No. 5
Finished goods
Beg. Balance
Cost of goods
manufactured
400,000
4,375,000
525,000 Balancee nd
4,250,000 Cost of goods sold
Total
4,775,000 4,775,000
Estimated finished goods
Less: Cost of goods out on consignment
525,000
20,000
Salvage
Inventory
firevalue
loss
10,000
495,000
Question No. 6
Cost of goods sold (80% x P5,100,000)
=
P4,080,000
Question No. 7
Sales (5,100,000-100,000)
Less: Cost of sales (80% x P5,100,000)
Grossprofit
P5,000,000 100%
4,080,000 80%
1,000,000 20%
Finished goods
Beg. Balance
Cost of goods
manufactured
400,000
4,375,000
695,000 Balancee nd
4,080,000 Cost of goods sold
Total
4,775,000 4,775,000
Estimated finished goods
Less: Cost of goods out on consignment
Salvagevalue
Inventory fire loss
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
B
695,000
20,000
10,000
665,000
5.
B
6.
A
7.
A
PROBLEM 12-28
Question No. 1
Accountspayable,March3 1
2,370,000
Less:
TotalPaymentinApril
Accounts payable for April Purchases
Totalpurchases
Less:PaymentinA pril
300,000
2,070,000
600,000
200,000
93
400,000
Chapter 12: Inventories
Total
2,470,000
(B)
Question No. 2
Purchases,a s of March3 1
Add:PurchasesinApril
Grosspurchases
Less:Purchasereturns
Net purchases
4,200,000
600,000
4,800,000
12,000
4,788,000
(B)
Question No. 3
Beg. Balance
Sales on account
Recoveries
Accounts receivable
2,700,000 3,000,000 Bal. end
Collections
including
1,488,000
938,000
recoveries
0
250,000 Writeoff
0 Sales returns
4,188,000 4,188,000
Net Sales
SalesasofMarch3 1
AprilSales
Less: Sales return
Net Sales
9,040,000
1,488,000
100,000
(C)
1,388,000
10,428,000
Question No. 4
NetSales
Multiply by:Costratio
Cost of Sales
10,428,000
60%
6,256,800
(C)
Costo f Sales
Divide by: Gross Profit
9,000,000 10,500,000
9,000,000
4,500,000
50.000%
30.000%
Average gross profit = (50%+30%)/2 = 40%
Cost ratio = 100% - 40% = 60%
Question No. 5
Estimatedinventory
Less:Shipment int ransit
Undamaged goods at cost
Salvagevalue
Inventory fire loss
SUMMARY OF ANSWERS:
1 . B 2 . B 3. C 4.
3,031,200
40,000
120,000
25,000
2,846,200
(C)
C
5.
C
94
Chapter 12: Inventories
PROBLEM 12-29
Questions No. 1 and 2
Purchases ending
11m os
12m os
2,700,000 3,200,000
30,000
(4,000)
(6,000)
(8,000)
(8,000)
(22,000)
-
Unadjustedbalance
Shipment in Nov. included in December purchases
Unsalables hipmentsreceived
Deposits in October shipped February
Depositsmadev endorinNovember
Adjustedbalance
2,696,000
1.( D)
2,186,000
2.( D)
Question No. 3
Beginning inventory – January 1, 2015
350,000
Add: Purchases for 11 months (see No. 1)
2,696,000
Less: Ending inventory – Nov. 30, 2015 (360,000358,000
22,000 + 20,000)
Cost of sales
2,688,000
(A)
Cost ratio (5,736,000 / 6,720,000) = 80%
Question No. 4
Sales endingD ecember 31, 2015
Less: Sales ending Nov. 30, 2015 (3.4M-40,000)
SalesSales
–December
Less:
at cost 2015
Sales in December 2015 made at a profit
Multiply: Cost ratio (2,688,000 / 3,360,000)
Cost ofs alesmadeat profit
Add:Costo fs alesmadea tc ost
Total Cost of Sales -December
3,840,000
3,360,000
480,000
40,000
440,000
80%
352,000
40,000
392,000
(A)
Question No. 5
Beginning inventory – Nov. 30, 2015
358,000
Add: Purchases for December (3,186,000 – 2,696,000)
490,000
Less:Costo fSales–December
392,000
Ending inventory – December 31, 2015
456,000
(A)
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4. A
5.
A
PROBLEM 12-30
Cost
300,000
Inventory,Jan1
95
Retail
1,200,000
Chapter 12: Inventories
Purchases
Purchasereturns
Purchase discounts
Purchase allowance
Freight-in
Departmental Transfer-In
Departmental Transfer-Out
Totals
6,000,000
(400,000)
(150,000)
(50,000)
20,000
600,000
(560,000)
5,760,000
8,500,000
(800,000)
1,100,000
(1,334,000)
8,666,000
5,760,000
8,666,000
600,000
(50,000)
9,216,000
(316,000)
100,000
9,000,000
Basis of computation of cost ratios
Totals
Markups
Markupcancellations
Basis of computation (conservative)
Markdown
Markdowncancellations
Basis of computation (average)
5,760,000
5,760,000
Cost ratios:
Conservative
Cost ratio
Cost ratio
5,760,000
9,216,000
= 62,50%
=
Average
Cost ratio
Cost ratio
=
5,760,000
9,000,000
= 64%
FIFO
Cost ratio
Cost ratio
5,760,000 – 300,000
9,000,000 – 1,200,000
= 70%
=
Estimated ending inventory @ ret ail – for all methods
TGAS @ retail under average method
9,000,000
Sales
(7,000,000)
Salereturns
700,000
NormalShrinkage
(500,000)
Estimated ending inventory @ retail
2,200,000
Question Nos. 1 to 6
Cost method
Conservative (62.5%)
Ending inventory at cost
(EI @ retail x cost ratio)
P1 ,375,000
96
Cost of goods sold
(TGAS @cost – EI @cost)
4,385,000
Chapter 12: Inventories
FIFO (70%)
Average (64%)
1,540,000
1,408,000
SUMMARY OF ANSWERS:
1 . A 2 . B 3. B 4.
C
5.
4,220,000
4,352,000
C
6.
D
PROBLEM 12-31
Question No. 1
Subsidiary
General
Ledger
Ledger
Unadjustedbal.
P 760,000 P 1,020,000
Undeliveredsales
( 100,000)
Valid Sales
60,000
SalesFOBdestination
( 100,000)
NSFcheck
50,000
50,000
Collectionbyt hebank
( 60,000) (
60,000)
Sales in 2015 recorded in 2016 DR No. 38740
3,360
3,360
Receivable ins. Co DR No. 38741
( 10,080) (
10,080)
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200) (
19,200)
Adjusted balance
(D)
P 784,080
P 784,080
Question No. 2
Current:
UnadjustedbeginningBalance
Add: ValidS ales in 2015 (60,000+ 3,360)
Total
Less:Receivablei ns Co(DR#3 8741)
Sales in 2016 recorded in 2015 (DR # 38743)
Current Accounts Receivable balance
97,500
63,360
160,860
10,080
19,200
131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1)
Less: Current Accounts Receivable balance
Past due Accounts Receivable
*or (662,500+50,000-60,000)
784,080
131,580
*652,500
Age classification
Total
Amount
Percentage
Current
131,580
Past due
652,500
Allowance for doubtful accounts
6
10
(A)
Question No. 3
Allowance for doubtful accounts, beginning
Less:Accountswrittenoff
Less: Allowance for doubtful accounts, ending
97
7,894.80
65,250.00
73, 144. 80
7,000.00
73,144.80
Chapter 12: Inventories
Doubtful accounts expense
(A)
66,144.80
Question No. 4
Unadjusted Merchandise Inventory, ending
316,000
Add: Cost of merchandise sold of DR # 38743(19,200/120%)
16,000
Doubtful accounts expense
(B)
332, 000
Question No. 5
UnadjustedNetSalesbalance
Undeliveredsales
SalesFOBdestination
P3,000,000
( 100,000)
( 100,000)
Sales in 2015 recorded in 2016D R No. 38740
Sales in 2016 recorded in 2015 DR No. 38743
Adjusted balance
(B)
SUMMARY OF ANSWERS:
1 . D 2 . A 3. A 4.
B
5.
3,360
(
19,200)
P2 ,784,160
B
PROBLEM 12-33
Unadj.
Adj.
Inventory
625,000
(77,500)
(11,000)
-
Accounts
payable
500,000
(77,500)
-
105,000
12,500
1,000
(2,650)
652,350
12,5001,000
(2,650)
433,350
SUMMARY OF ANSWERS:
1 . D 2 . B 3. B 4.
Accts.
Net
Net
Receivable Net Sales Purchases
income
500,000 4,500,000 1,607,500 1,086,000
- (77,500)
- (11,000)
20,000
20,000
20,000
-520,000
B
5.
A
5.
D
5.
C
PROBLEM 12-34
SUMMARY OF ANSWERS:
1 . C 2 . A 3. A 4.
PROBLEM 12-35
SUMMARY OF ANSWERS:
1 . C 2 . D 3. D 4.
B
PROBLEM 12-36
98
--
- 105,000 1 2,500
1,000
(2,650)
4,520,000 1,540,850 1,200,000
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1 . A 2 . A 3. C 4.
C
5.
B
99
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET
AND INVESTMENT IN EQUITY SECURITIES
PROBLEM 14-1 Financial Assets and Financial Liabilities
FA
NFA
FL
Accountspayable
450,000
Accounts receivable
300,000
Accruedinterestexpense
54,000
Accumulated depreciation
(150,000)
Advances
customers
Allowancefrom
for bad
debts
Biologicalassets
Bonds payable
Cash and cash equivalents
Cash dividendspayable
Cash surrender value
Claimsf ort axrefund
Deferredtaxassets
Deferredtaxliabilities
Discountonbondspayable
Finance leaseliability
Income taxes payable
Intangibleassets
Interest receivable
Investment in associate
Investment in bonds
Investment in equity
instruments
Investment in subsidiary
Issued redeemable
preference shares (with
mandatoryredemption)
Merchandisei nventories
Notes receivable
PHILHEALTH contributions
payable
Prepaid interest (not a
valuation account to financial
liability)
Prepaidrent
(30,000)
Security deposit
Sinkingfund
SSScontributionspayable
Stock appreciation rights
payable (SARs Payable)
90,000
120,000
NFL
48,000
360,000
360,000
210,000
81,000
180,000
135,000
180,000
57,000
(45,000)
135,000
27,000
90,000
63,000
135,000
510,000
375,000
210,000
300,000
399,000
450,000
18,000
60,000
60,000
15,000
360,000
101
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Unearned interest on
receivables
Unearnedrentincome
Utilitiespayable
Warrantyobligations
15,000
24,000
750,000
2,673
(E)
1,074
(C)
2,445
(E)
39,000
243
(D)
Legend: FA – Financial Asset
NFA – Non-Financial Asset
FL – Financial Liabilities NFL – Non-Financial Liabilities
SHE: Shareholders equity
SUMMARY OF ANSWERS:
1. E
2. C
3.
E
4.
D
PROBLEM 14-2 Acquisition of Investment
Journal entries are:
1) FVTPL
1/5/2017
Financial Asset at FVTPL
Brokeragefee
CommissionExpense
Cash
1/10/2017
2/14/2017
2) FVTOCI
1/5/2017
1/10/2017
2/14/2017
Dividend receivable
1,000,000
20,000
5,000
1,025,000
20,000
Dividendincome
Cash
Dividendreceivable
20,000
20,000
20,000
Financial Asset at FVTOCI
Cash
Dividend receivable
Dividendincome
1,025,000
1,025,000
20,000
20,000
Cash
Dividendreceivable
20,000
20,000
The difference between FVTPL and FVTOCI is the treatment of transaction cost.
102
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-3 Basic Journal Entries- Acquisitions in Between Dates of
Declaration and Record
1) Trading securities
1/5/2017
Financial Asset at FVTPL
(Squeeze)
Dividends receivable
Brokerageexpense
CommissionExpense
Cash
2/14/2017
Cash
980,000
20,000
20,000
5,000
1,025,000
20,000
Dividendreceivable
12/31/2017
12/31/2018
20,000
Unrealized Loss – P&L
FinancialAssetat FVTPL
30,000
Financial Asset at FVTPL
Unrealizedgain–P&L
250,000
30,000
250,000
2) Fair Val ue through Other Comprehensive Income securities
1/5/2017
FVTOCIs ecurities
1,005,000
Dividendreceivable
20,000
Cash
1,025,000
2/14/2017
12/31/2017
Cash
Dividendreceivable
20,000
Unrealized loss - OCI
FVTOCI securities
30,000
20,000
30,000
12/31/2018 FVTOC secur ties
Unrealizedloss–OCI
Unrealizedgain–OCI
250,000
30,000
220,000
PROBLEM 14-4 Derecognition of Financial Assets - Sale of Investment
CASE NO. 1: FVTPL
Question No. 1
Nil, since the above securities are FVTPL unrealized gain or loss is recognized in
the profit or loss.
(A)
Question No. 2
Consideration received (
x 15,000 x 1/2)
Less: Brokerage andc ommission
NetSellingPrice
Less: Carrying value( 1,600,000x ½)
Realized loss on sale – P&L
(B)
103
750,000
20,000
730,000
800,000
(70,000)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CASE NO. 2: FVTOCI
Question No. 3
Fairvalue,12/31/2016
Less:Cost
Unrealized gain - P&L
1,600,000
1,500,000
100,000
(B)
Question No. 4
Considerationreceived
Less: Brokerage andc ommission
NetSellingPrice
750,000
20,000
730,000
Less: Carrying value (1,600,000 x ½)
Realized loss on sale – P&L
(B)
Question No. 5
Journal entries for the sale are :
1) FVTPL
12/31/2016 FVTPL
Unrealizedgain-P&L
1/2/2017
100,000
100,000
Cash
Loss on sale
FVPTL
To record the sale
730,000
70,000
800,000
2) FVTOCI
12/31/2016 FVTOCI
1/2/2017
800,000
(70,000)
100,000
Unrealizedgain-OCI
Cash
Loss on sale
FVTOCI
To record the sale
730,000
70,000
100,000
800,000
Unrealized Gain (100,000 x ½)
50,000
Retainedearnings
50,000
To record transfer of unrealized gain to Retained earnin gs
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4. B
PROBLEM 14-5 Share Dividends
1.
Memo
entry: Received
from Pulsate
Company.1,500 ordinary shares
2.
Investment in Preference shares - FVTOCI
Investment in Ordinary shares - FVTOCI
104
250,000
250,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Allocation:
Total
Fair value
300,000
1,500,000
1,800,000
Pref. shares (1,500 x P200)
Ordinary shares (15,000 x P100)
Total
Fraction
3/18
15/18
Allocated
cost
250,000
1,250,000
1,500,000
Share dividends is not regarded as an income., however different type of
shares received from the shares held is allocated using the relative fair
value.
Comments on share dividends:
Accounting treatment for share dividends is actually a gray area, no clear
cut rules is provided under PFRS or other accounting standard setting
body. However, the authors believe that share dividends will onl y be
accounted as an increase in number of shares held and a decrease on the
price per unit.
PROBLEM 14-6 Cash Dividends
Question No. 1
The dividend income to be recognized in 2016 is P30,000 (15,000 x P2).
Question No. 2
December 1
Dividend Receivable (15,000 x P2)
Dividendincome
December 15
(B)
30,000
30,000
No formal accounting entry
December31 Cash
DividendReceivable
30,000
30,000
PROBLEM 14-7 Property Dividends
Question No. 1
Property dividends are as income at fair value at date of declaration (250,000 x
15%) = P37,500.
(B)
Question No. 2
November 1
Dividend Receivable (250,000 x 15%)
Dividendincome
December 31
No journal entry
February 15
NoncashAsset
DividendReceivable
105
37,500
37,500
37,500
37,500
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-8 Cash Received in Lieu of Share dividends
Question No. 1
Nil. The share divide nd is not considered an income.
Question No. 2
NetSelling Price( 15,000x 15%xP36)
Less: Carrying amount of the investment sold
[(345,000/(15,000+(15% x 15,000)] x 2,250
Gain (or loss) on sale
(A)
81,000
45,000
36,000
(D)
Question No. 3
October 1
Memo entry
October31
Cash
Gain on sale
FAatFVTOCI
81,000
36,000
45,000
PROBLEM 14-9 Shares Received in Lieu of Cash Div idends
Question No. 1
Shares received in lieu of cash dividends are in effect recorded at the fair value
of shares received on date of payment. Since the date of declaration and date of
payment is within the same period, the dividend income is computed as follows:
(15,000/5 x P44) = P132,000
(C)
Question No. 2
Journal entries are:
October 1
Dividend Receivable (15,000 x P8)
Dividendincome
October 31
FA at FVTOCI (15,000/5 x P44)
Dividendreceivable
Dividendincome
120,000
120,000
132,000
120,000
12,000
PROBLEM 14-10 Dividends Out Of Capital
Questions No. 1 and 2
Cash (P100 x 15% x 20,000)
Investment
Questions No. 3 and 4
Cash
Losso nl iquidation
Investment
300,000
300,000
300,000
110,000
SUMMARY OF ANSWERS:
1. A
2. D
3. B
4. C
106
440,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-11 Stock Split and Special Assessment
Question No. 1
Date
No. of
shares
10,000
15,000
25,000
1/1
3/1stock split
Total(10,000 x5/2)
11/1 Special assessment (P3.2 x
25,000)
Total
25,000
(D)
Question No. 2
Fair value( P30 x 25,000)
Less:Carryingv alue
Unrealized gain-OCI
P750,000
500,000
P250,000
Questions No. 3 an d 4
Journal entries are:
1/1
Financial Asset atF VTOCI
Cash
3/1
Received `5,000 shares as a result of 5
for 2 share split.
11/1
FinancialAssetatF VTOCI
12/31
Finan ialAssetatF VTOCI
Unrealized gain – OCI
[(P30 x 25,000) – P500,000]
Cost per
Total
share
Cost
P42
P420,000
P16.80
P420,000
80,000
500,000
P20
(D)
P420,000
(B)
P420,000
80,000
Cash (P3.20 x25,000)
80,000
2500 00
(C)
250,000
SUMMARY OF ANSWERS:
1. D
2. D
3. B
4. C
PROBLEM 14-12 Stock Rig ht
Question No. 1
Nil. The company will only make a memo entry to record the receipt of stock
right on a financial asset at FVTPL.
(A)
Question No. 2
The stock right should be initially recorded at fair values as follows:
(P20 x 10,000) = P200,000.
(B)
107
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 3
The cost of the investment will only include the subscription price of P400,000
(5,000 x P80).
(B)
Question No. 4
The cost of the investme nt will include the subscription price of P400,000 and
cost of stock rights exercised of P200,000 = P600,000.
(C)
The journal entries under the two classifications are as follows:
Fair Value through profit and loss securities
June 15
Memo entry (Received 10,000 stock
July15
rights)
FVTPL(P80 x1 0,000/2)
Cash
400,000
400,000
Fair Value Through Other Comp rehensive Income
June 15
Stock rights( P20 x 10,000)
Unrealizedgain-P/L
July 15
FVTOCI (P80 x 10,000/2)+ 200,000
Cash
Stockrights
200,000
200,000
600,000
400,000
200,000
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4. C
PROBLEM 14-13 Theoretical Value of Rights
Question No. 1
When the stock is selling right on
Value of one right
=
=
P320 – P200
5+1
P20
Question No. 2
When the stock is selling ex-right
Value of one right
=
=
P320 – P100
5
P24
SUMMARY OF ANSWERS:
1. B
2. C
PROBLEM 14-13 Dividend Income
Cash dividend
Shares in lieu of cash dividends (5,000 x P150)
108
1,500,000
750,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Total dividend income
(C)
2,250,000
PROBLEM 14-15 Dividend Income
The dividend income to be recorded is equal to P2,400,000 (300,000 /
1,000,000 x P8,000,000). The base is on actual dividends declar ed. A share
dividend is not regarded as an income.
(A)
PROBLEM 14-16 Reclassifications of Investments in Equity Securities
Question No. 1
Not allowed. The only allowed reclassification is from Financial Asset at
Amortized Cost (FAAC) to held for trading Financial Asset at Fair Value Through
Profit or Loss debt securities (FVTPL), or vice versa. Therefore the securities
remain as FVTPL. Since reclassification is not allowed, there is no
reclassification gain or loss.
(A)
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as
FVTOCI. Since reclassification is not allowed, there is no reclassification gain or
loss.
(A)
PROBLEM 14-17 Purchase: Trade Date vs. Settlement Date Accounting
SUMMARY OF ANSWERS:
1. B
2. D
PROBLEM 14-18 Sale: Trade Date vs. Settlement Date Accounting
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 14-19 Exchange of One Financial Asset into Another Financial
Asset
Question No. 1
Fair value- Ordinary Shares (6,000 x P40)
Less: Carrying value- Pref. Shares (P425,000/8,000 x 4,000)
Gain on exchange
(C)
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P30)
109
240,000
212,500
27,500
240,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Gain onexchange
Investment in Trading- Pref. Shares (P425,000/8,000 x 4,000)
27,500
212,500
SUMMARY OF ANSWERS:
1. C
2. B
PROBLEM 14-20 Exch ange of a PPE for Financial Asse t
Question No. 1
Fair valueo f the financiala sset
Less: Carryingv alue oft hel and
Gain onexchange
820,000
600,000
220,000
Question No. 2
Journal entries are:
March3 1
Financial asset at FVTOCI
Land
Gain on exchange (820,000-600,000)
(B)
820,000
600,000
220,000
SUMMARY OF ANSWERS:
1. B
2. D
PROBLEM 14-21 Exch ange of a Financial Asset for PPE
Question No. 1
Fair valueo f the financiala sset
Less: Carrying value of the financial asset
Gain onexchange
Question No. 2
Journal entries are:
March 31
Land (at fair value of the asset given up)
FVTOCI
Gain on exchange (650,000-600,000)
Retainedearnings
Unrealized loss (625,000-600,000)
SUMMARY OF ANSWERS:
1. B
2. B
110
650,000
600 000
50,000
(B)
650,000
600,000
50,000
25,000
25,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-22 Trading Securities
Question No. 1
(A) The cost of investment is P880,000. The brokerage fee and commission of
P10,000 and P10,000 respectively is charged to expense since the investment
acquired is a trading security. The investments are also acquired prior to the
declaration of dividends on January 10, 2016 so they are not purchased
dividend on.
Question No. 2
Dividend income (P2 x 6,000 + P16,000) =P28,000
Question No. 3
Sellingprice
Less:Commission andtaxes
Netsellingprice
Less: Carrying value [2,500x(P90,000/6,000)]
Gain on sale
(C)
(A)
P50,000
5,000
45,000
37,500
P7,5 00
Question No. 4
EDA Corp. shares [P50 – (P30,000/1,000)]
DJOA,Inc.
[P15– (P90,000/6,000)]
RVFE, Co.
[P45– (P80,000/2,000)]
ARP, Co.
[P100 – (P880,000/8,000)]
Loss chargeable to income statement
x 1 ,000
x 3,500
x 2,000
x 8,000
(B)
Question No. 5
EDAC orporationshares
1,000
P50
x
DJOA,Inc.
P15
x 3,500
RVFE,Co.
P45
x 2,000
ARP, Co.
P100
x 8,000
Total balance of financial asset at profit or loss
(A)
=
=
=
=
=
=
=
=
P20,000
10,000
( 80,000)
(P50,000)
P50,000
52,500
90,000
800,000
P992,500
(Note: Reclassification of equity securities are not allowed.)
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4. B
5.
A
PROBLEM 14-23 Fair Value through Other Comprehensive Income
Question No. 1
1/1/2016BookValue
Brokeragefee
Commission
Dividendsreceivable
Cost ofFVTOCI
P
880,000
10,000
10,000
(
16,000)
P 884,000
111
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds(P35x 500)
P
17,500
Carrying value (P500 x (P88,000/(2,000 x 110%)) (
20,000)
Loss on sale
P (2,500)
Net Proceeds (P40,000 – P5,000)
Carrying value (2,500 x (P90,000/6,000))
P
(
35,000
37,500)
Dividends
on stocks sold (P2 x 2,500)
Loss on sale
(P
5,000)*
(7,500)
Total loss on sale (P2,500 + P7,500)
P
(10,000) (D)
*This was sold dividend-on.
Question No. 4
March3 1
June15
Gain/(Loss) on Exchange
(65,000-50,000)
(50,000-20,000)
(A)
15,000
30,000
45,000
Question No. 5
EDA Corporation preference shares (500 x P50) P
25,000
DJOA,Inc.(3,500xP15)
52,500
RVFE Co. ((2,000 x 110% - 500) x P45)
76,500
ARPCo.(8,000xP100)
800,000
LCC(1,000x 60)
60,000
Adjustedbalance
P 1 014,000
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4. A
5.
(D)
D
PROBLEM 14-24
Question No. 1
Stockrights( 11,000xP6)
P
Question No. 2
Cashp aid (P90 x( 10,000/5))
Cost of stock rights used (P4 x 10,000)
Totalinvestmentc ost
P
P
Question No. 3
Proceeds(P5.5x1 ,000)
Costo fs tockrights( P4x 1,000)
Gaino nsaleofstockrights
P
P
112
66,000
(D)
180,000
40,000
220,000
(B)
5,500
4,000
1,500
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 4
Proceeds
Cost of shares sold (P76 ** x 4,000)
Gain onsaleofstocks
P 440,000
304,000
P 136,000
Question No. 5
Original investment cost
Costa llocated to stock rights*
Additionali nvestment**
(
Sale
ofinvestment
Adjusted
cost of investment
P 880,000
44,000)
220,000
( P 304,000)
752,000
SUMMARY OF ANSWERS:
1. D
2. B
3. C
4. D
5.
D
PROBLEM 14-25
Question No. 1
Cashp aid(400K+20K)
Less:dividends
Correctcost
420,000
10,000
410,000
Question No. 2
Feb.
10
Nov. 2
(10,000+(11,000/5) x 1
Totaldividendi ncome
(D)
30,000
13,200
43,200
(C)
Question No. 3
Fair value of new FA (10,000 x 40)
Less: Carrying value (975,000/15K x
5K)
Gain onconversion
325,000
75,000
(C)
Question No. 4
Consideration received (2,000 x 70)
Less: Dividends (2,000 xP 1)
NetSellingPrice
Less:Carryingv alue
Gain onsale
140,000
2,000
138,000
99,000
39,000
(C)
10-Feb
Shares
10000
1,000
Carrying
value
451,000
113
(D)
400,000
(D)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Total
1-May
(11,000/5)
Total
15-Nov
Total
11,000
451,000
2,200
13,200
(2,000)
11,200
202,400
653,400
(99,000)
554,400
Cost of stocks on May 1
Subs. Price( 11,000/5x P62)
Add cost of stock rights (6 x 11,000)
136,400
66,000
Costo fs tocksonM ay1
10-Feb
Total
1-May
(11,000/5)
Total
15-Nov
Total
202,400
Shares
10000
1,000
11,000
Cost
550,000
550,000
2,200
13,200
(2,000)
11,200
202,400
752,400
(114,000)
638,400
Question No. 5
Gerrit-PS (70 x 10,000)
-OS (45 x 10,000)
Loesch (72 x 11,200)
Barr( 20 x2 0,000)
Fairv alues
700,000
450,000
806,400
400,000
2,356,400
Cost
Difference
600,000 (900,000/15K x 10K)
400,000
638,400
410,000
2,048,400
308,000 (A)
Note: Use bid price on asse t held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1. D
2. C
3. A
4. B
5.
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio – 12/31/2015
ColomaCompany
Soliman
A
3,070,000
2,737,500
VillanuevaCompany
Less: FVTOCI Portfolio – 01/01/2015
ColomaCompany
Soliman
VillanuevaCompany
114
1,871,000
7,678,500
3,050,000
2,725,000
1,875,000
7,650,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Unrealized gain – SFP
28,500
(C)
Question No. 2
Fairvalue ofshares
Less: Carrying amount of Soliman portfolio
Gain onexchange
2,797,500
2,737,500
60,000
(B)
Note that the carrying amount is equal to the fair value previous
remeasurement date (12/31/2015).
Question No. 3
Proceeds from sale of Aquino shares
Less: Carrying amount of Aquino portfolio
Loss on sale
Question No. 4
FVTOCI Portfolio – 12/31/2016
ColomaCompany
VillanuevaCompany
Less: FVTOCI Portfolio – 01/01/2015
ColomaCompany
VillanuevaCompany
Unrealized gain – SFP (cumulative)
2,590,000
2,600,000
(10,000)
(B)
3,080,000
1,867,500
4,947,500
3,050,000
1,875,000
(C)
4,925,000
22,500
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4. C
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 – 4,000) x P50 = P200,000
Question No. 2
Type of
stocks
# shares
Ordinary
10,000
Preference
2,000
Totalcost
Fair
value
P30
10
Total fair
value
P300,000
20,000
P320,000
(A)
Allocated
cost
P234,375
15, 625
P250,000
(B )
Question No. 3
Allocate part of the investment cost to the prefe rence shares.
Question No. 4
Proceeds(1,000xP17)
P
17,000
Carrying amount [(P15,625/(10,000/5)) x 1,000)(
7,812.50)
Gain onsale
P 9,187.50
115
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 5
Proceeds, exclusive of interest
Carrying amount (250 x 1,000 x 110%)
Gain onsale
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4. C
P
(
P
5.
2 80,000
275,000)
5,000
(A)
A
PROBLEM 14-28
Question No. 1
NetSellingprice
Less: Carrying value (740,000/40,000 x 5,000)
Gain on sale
(D)
Question No. 2
Considerationreceived
Less:
Dividend income of the investment sold (6,000 x *P20 x 20%)
NetSellingprice
Less: Carrying value (740,000/40,000 x 6,000)
Gain on sale
(D)
250,000
92,500
157,500
270,000
24,000
248,000
111,000
137,000
*The par value after 2 for 1 share split is equal to P40 x ½= P20
Question No. 3
6/1/2016(35,000x4)
12/1/2016(35,000x 20%xP20)
Total dividend income
(A)
Question N os. 4 and 5
Fairvalue( 29,000xP43)
Less: Cost (700,000/40,000 x 29,000)
Unrealizedgain
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4. D
1,247,000
507,500
739,500
5.
116
D
140,000
140,000
280,000
4.(D)
5.(D)
Chapter 15: Investment in Debt Securities
CHAPTER 15: INVESTMENT IN DEBT SECURITIES
PROBLEM 15-1 Acquisition of FAAC Term Bonds on Interest Date
Question No. 1
Present value of Principal (1,200,000 x 0.6355 )
762,600
Add: Present Value of interest payments (120,000 x 3.0373 )
364,476
Present value of the investment bonds
(C)
1,127,076
Question No. 2
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
120,000
Interest
Income
)(B135,249
Premium
Amortization
5,249
1
Present
value
1,127,076
1,142,325
PROBLEM 15-2 Acquisition of FAAC Term Bonds in Between Interest Dates
Question No. 1
Present value oft hei nvestment bonds
Add: Discount amortization
Effectiveinterest
Nominalinterest
Present value of the investment bonds, April 1
AddAccruedinterest
Total Present value of the bonds
Question No. 2
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
200,000
Interest
Income
225,415
1,878,460
56,354
50,000
(D)
Discount
Amortization
25,415
Total interest income (P225,425 x 9/12) = P169,061
6,354
1,884,814
50,000
1,934,814
Present
value
1,878,460
1,903,875
(B)
PROBLEM 15-3 Interpolation of Effective Interest Rate of FAAC - Term
Bonds and Computation of Interest Income
Purchase price
Add:Transactioncost
Initialcarryingamount
P1,100,000
44,752
P1,144,752
117
Chapter 15: Investment in Debt Securities
Since there is transaction cost incurred, effective rate must be computed. The
effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the
textbook for example of interpolation).
Interest income (11.5% x P1,144,752)
=1 31,646
(B)
PROBLEM 15-4 Acquisition of FAAC - Serial Bonds
Question No. 1
Interest
Total
Principal
Collection
Collection
450,000
180,000
630,000
450,000
135,000
585,000
450,000
90,000
540,000
450,000
45,000
495,000
Total Pre sent Value of the serial bond s
Question No. 2
Interest income (1,727,834 x 12%) = 207,340
Present
Total Present
Val
ue Factor
0.8929
0.7972
0.7118
0.6355
(C)
Value
562,527
466,362
384,372
314,573
1,727,834
(B)
PROBLEM 15-5 Reclassification
Note to Teacher: The requi rement shoul d be “ Under each item described
above, prepare the necessary entries on January 1,
2016 and December 31,
2018.”
SCENARIO 1: Securities are properly classified as FVTPL under PFRS 9
208,985
Dec. 31, Investment in bonds - FVTPL
nrealized
U
gain (
208,985
2016
1,855,809)
Unrealizedloss
Dec. 31,
Investment in bonds -FVTPL
2017
(
-
113,668
113,668
Cash
Interestincome
To record the receipt of interest.
0,000
0,000
SCENARIO 1: CASE NO. 1: Financial asse t at FVT OCI
Investment in Bonds - FVTOCI
1,951,126
Jan. 1,
2018
Investment
in Bonds
– FVTPL
1,951,126
To record the
transfer
of financial asset at FVTPL to FVTOCI.
Cash
De
c. 31,
Interestincome
2018
To record the receipt of interest.
118
0,000
0,000
Chapter 15: Investment in Debt Securities
Interestincome
14,624
InvestmentinBonds –FVTOCI
14,624
To record premium amortizati on using 11% revised effectiv e rate.
Amortization table-based on the 11% effective rate on the date of
reclassification is:
Interest
Interest
Present
Date
Collection
Income
Amortization
Value
December31,2017
1,951,126
December 31, 2018
200,000
214,624
14,624
1,965,750
December 31, 2019
December 31, 2020
200,000
200,000
216,233
218,018
16,233
18,018
1,981,983
2,000,000
SCENARIO 1: CASE NO. 2: Financial Ass et at amor tized cost (FAAC)
Investment in Bonds - FAAC
1,951,126
Jan. 1,
Investment in Bonds – FVTPL
1,951,126
2018
To record the transfer of financial asset at FVTPL to amortized cost.
Cash
De
c. 31,
Interestincome
2018
To record the receipt of interest.
0,000
0,000
Interestincome
14,624
InvestmentinBonds–FAAC
14,624
To record premium amortizati on using 11% revised effectiv e rate.
SCENARIO 2: Securities are properly classified as FVTOCI
Dec. 31,
2016
nvestment
I
in bonds - FVTOCI
nrealized
U
gain (
)
186,288
-
Dec. 31, Unrealizedgain-OCI
Investment in bonds - FVTOCI
2017
(
)–186,288
186,288
139,089
139,089
Cash
Interestincome
To record the receipt of interest.
0,000
0,000
SCENARIO 2: CASE NO. 1: Financial asset at FVTPL
Investment in Bonds - FVTPL
1,951,126
Jan. 1,
Investment in Bonds – FVTOCI
1,951,126
2018
To record the transfer of financial asset at FVTOCI to FVTPL.
Unrealizedgain-OCI
Reclassificationgain
47,199
Cash
De
c. 31,
Interestincome
2018
To record the receipt of interest.
119
0,000
0,000
47,199
Chapter 15: Investment in Debt Securities
SCENARIO 2: CASE NO. 2: Financial Ass et at amortized cost (FA AC)
Investment in Bonds - FAAC
1,903,927
Jan. 1,
47,199
2018 Unrealizedgain–OCI
Investment in Bonds – FVTOCI
1,951,126
To record the transfer of financial asset at FVTOCI to FAAC.
Cash
De
c. 31,
Interestincome
2018
To record the receipt of interest.
0,000
0,000
Interestincome
28,471
InvestmentinBonds–FAAC
28,471
To record premium amortizati on using 11% revised effectiv e rate.
Amortization table-based on the 12% ORIGINAL effective rate on the date of
reclassification is:
Interest
Interest
Present
Date
Collection
Income
Amortization
value
January 1, 2016
December 31, 2016
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
200,000
200,000
200,000
200,000
200,000
222,697
225,421
228,471
231,888
235,714
1,855,809
1,878,506
1,903,927
1,932,398
1,964,286
2,000,000
22,697
25,421
28,471
31,888
35,714
SCENARIO 3: Securities are properly classified as FAAC
Cash
0,000
De
c. 31,
Interestincome
0,000
2016
To record the receipt of interest.
Investment in Bonds – FAAC
Interestincome
Cash
De
c. 31,
Interestincome
2017
To record the receipt of interest.
22,697
22,697
0,000
0,000
Investment in Bonds – FAAC
Interestincome
25,421
25,421
SCENARIO 3: CASE NO. 1: Financial asset at FVTPL
Investment in Bonds - FVTPL
Jan. 1,
Reclassificationgain–P&L
47,199
2018
Investmentin Bonds –FAAC
1,903,927
To record the transfer of financial asset at FAAC to FVTPL.
Cash
De
c. 31,
Interestincome
2018
0,000
0,000
120
Chapter 15: Investment in Debt Securities
To record the receipt of interest.
SCENARIO 3: CASE NO. 2: Financial ass et at FVT OCI
Investment in Bonds – FVTOCI
Jan. 1,
Reclassificationgain–OCI
47,199
2018
Investmentin Bonds –FAAC
1,903,927
To record the transfer of financial asset at FAAC to FVTOCI.
Cash
De
c. 31,
Interestincome
2018
To record the receipt of interest.
0,000
0,000
PROBLEM 15-6 (Initial and Subsequent measurement, Derecognition and
Reclassification of Trading Debt Secu rities)
Question No. 1
Face value
Multiplyb y:N ominalr ate
Multiply by: Months outstanding
Interest Income
(C)
5,000,000
12%
12/12
600,000
Question No. 2
Fair value of the bonds (5M X 104)
Less:Carryingv alue
Unrealized gain (or loss)-P&L
(B)
5,200,000
5,379,079
(179,079)
Question No. 3
Ne Selling Price (5M x ½ x 05)
Less: Carrying value (5M x ½ x 104)
Gain (or loss) on sale
(B)
2,625,000
2,600,000
25,000
Question No. 4
Facev alue( 5M x½)
Multiplyb y:N ominalr ate
Multiply by: Months outstanding
Interest Income
(B)
2,500,000
12%
12/12
300,000
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next repor ting period (January 1, 2017). The investment
therefore would be continued to be reported as held for trading on December
31, 2016.
121
Chapter 15: Investment in Debt Securities
Question No. 5
Fair value of the bond s on the
reclassification date, 1/1/ 17 (2.5M X 104)
Less: Carrying value (2.5M X 1.02)
Unrealized gain (or loss)-P&L
(C)
2,600,000
2,550,000
50,000
Question No. 6
Fair value of the bond s on the
reclassification date, 1/1/17 (2.5M X 104)
Less: Carrying value (2.5M X 1.02)
Unrealized gain (or loss)-OCI
2,600,000
2,550,000
50,000
(A)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4. B
5.
C
6.
A
PROBLEM 15-7 (Initial and Subsequent measurement, Derecognition and
Reclassification of FAAC Securities)
CASE NO. 1
Question No. 1
Face value
5,379,079
Multiplyb y:N ominalr ate
10%
Multiply by: Months outstanding
12/12
Interest Income
537,908
(B)
The present value of the bonds is computed as follows:
Present value of Pr ncipal (5,000,000 x 0.6209 )
Add: Present Value of interest payments (600,000 X 3.7908)
Present value oft hei nvestment bonds
3,104,607
2,274,472
5,379,079
(Please carry all the decimal places in the comp utation)
Amortization table (srcinal):
Interest
Date
Collection
01/01/2015
12/31/2015
600,000
12/31/2016
600,000
12/31/2017
600,000
12/31/2018
600,000
12/31/2019
600,000
Interest
Income
Premium
Amortization
53
7,908 (C)
531,699
524,869
517,355
2,092
6
68,301
75,131
82,645
Present
value
5,379,079
5,316,987
5,248,685
5,173,554
5,090,909
509,091
90,909
5,000,000
Question No. 2
Nil. No unrealized gain or loss is recognized if the financial asset is classified as
financial asset at amortized cost. (A)
122
Chapter 15: Investment in Debt Securities
Question No. 3
Net Selling Price (5M x ½ x 105)
Less: Car rying value (see amort ization
table) (5,316,987 x ½)
Gain (or loss) on sale
(C)
2,625,000
2,658,494
(33,494)
Question No. 4
Carrying value, 12/31/16 (5,316,987 x ½)
Multiplyb y:N ominalr ate
2,658,494
10%
Multiply by: Months outstanding
Interest Income
(A)
12/12
265,849
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next reporting period (January 1, 2017). The investment
therefore would be continued to be reported as Financial Assets at Amortized
Cost on Dec ember 31, 201 6.
Question No. 5
Fair value of the bond s on the
reclassification date, 1/1/ 17 (2.5M X 104)
Less: Carrying value (2,658,494 X 1. 10) 300,000)
Reclassificati on loss- P&L
(B)
SUMMARY OF ANSWERS:
1. B
2. A
3. C
4. A
5.
2,600,000
2,624,343
(24,343)
B
CASE NO. 2
Note to teacher: You may ignore this since there is incomplete information to
answer some of the questions under this case.
PROBLEM 15-8
Requirement No. 1
Annual expected loss
Multiply by: Present value of ordinary annuity for 5 years using
12%
Lifetime expected credit losses
Requirement No. 2
Annual expected loss
Multiply by: Present value of 1 for 5 years using 12%
12-month expected credit losses
123
3.6048
.5674
Chapter 15: Investment in Debt Securities
Requirement No. 3
On initial recognition, Bank Company records the foll owing journal entries:
January1 , LoanR eceivable
1,500,000
2017
Cash
1,500,000
To recognize loan asset at gross amount.
Impairment loss – P&L
Loss allowance in SFP
To recognize 12-month expected credit losses.
11,348
11,348
Requirement No. 4
If, at the end of 2017, there is no significant deterioration of the credit quality,
there would be no change to the recognition of the 12-month expected credit
losses.
Requirement No. 5
If, at the end of 2017, there is a significant deterioration of the credit quality, the
company should record lifetime expected credit loss. The amount to be
recognized is computed as follows:
Annual expected loss
Multiply by: Present value of ordinary annuity for 4 years using
12%
3.0373
Lifetime expected credit losses
Less: 12-m onth expect ed credit loss recognized January 1
11,348
Impairment loss – P&L
The journal entry therefore to record the increase in allowance is as follows:
Dec.3 1,
Impairmentloss–P&L
49,398
2017
Loss allowance inSFP
49,398
To recognize lifetime expected credit losses
PROBLEM 15-9
Requirement No. 1
Since the expected probability of default is only 2%, this is not considered
significant. Therefore the Company will only recognize 12-month expected loss.
Requirement No. 2
12-month expected credi t loss is computed as follows :
= 2%
x
,000
PROBLEM 15-10
Requirement No. 1
70%probability(4.8M–4.8M)
20%probability(4.8M–3.6M)
0
1,200,000
124
Chapter 15: Investment in Debt Securities
10%probability(4.8M–3M)
Totalexpectedcashshortf all
1,800,000
2,000,000
Requirement No. 2
70%probability(4.8M–4.8M)x 70%
20%probability(4.8M –3.6M)x2 0%
10%probability(4.8M–3M)x 10%
Probability weightedcashshortfall
0
340,000
180,000
420,000
Requirement No. 3
Annual cashshortfall
Multiply by: Present value of annuity using 6.4% for 5 years
Present value – lifetime expected credit loss
420,000
4.1669
1,750,098
Requirement No. 4
Annual cashshortfall
Multiply by: Present value of 1 using 6.4% for 1 year
Present value – 12 month expected credit loss
Requirement No. 5
Jan.1,
Loan receivable
2017
Cash
To recognize the loan at gross amount
420,000
.9398
394,716
20M
20M
Impairmentloss- P&L
394,716
Loss allowance–SFP
To recognize 12-month expected credit loss.
394,716
PROBLEM 15-11
Requirement No. 1
Customer:
Group A
Not pastdue
1-30d ayspastdue
31-60d ayspastdue
61-90d ays past due
>90daysp astdue
Total
Customer:
Group B
Notpastdue
Gross
carrying
amount
,700,000
3,000,000
1,000,000
2,200,000
800,000
12,700,000
Gross
carrying
amount
3,700,000
125
Expected
credit loss
0.3%
1.2%
3.3%
8.0%
11.5%
Expected
credit loss
0.3%
Lifetime
Expected
Credit Loss
17,100
36,000
33,000
176,000
92,000
354,100
Lifetime
Expected
Credit Loss
11,100
Chapter 15: Investment in Debt Securities
1-30d ayspastdue
31-60d ayspastdue
61-90d ayspastdue
>90daysp astdue
Total
1,200,000
1,500,000
800,000
900,000
1.5%
3.9%
7.2%
8.3%
18,000
58,500
57,600
74,700
219,900
The total lifetime expected credit loss is 574,000 ( 354,100+ 219,900).
Requirement No. 2
Gross carrying amount(
Less:Lifetimeexpectedcreditl oss
+
)
20,800,000
574,000
Amortizedcost
20,226,000
PROBLEM 15-12
Amortization Table @ 6.1932%
Interest
Date
Collection
January 1, 2017
December 31, 2017
100,000
December 31, 2018
100,000
December 31, 2019
100,000
December 31, 2020
100,000
December 31, 2021
100,000
Interest
Income
Amortization
117,670
118,766
119,928
121,162
122,472
17,670
18,766
19,928
21,162
22,472
Present
value
0,000
1,917,670
1,936,436
1,956,364
1,977,524
2,000,000
Requirement No. 1
Investment in Bonds – FVTOCI
Cash
1,900,000
Impairmentloss–P&L
Loss allowance -OCI
1,900,000
10,000
10,000
Requirement No. 2
Cash ( 2,000,000x 5%)
InvestmentinBonds–FVTOCI
Interest income( 1,900,000 x6 .1932%)
To record interest collection and amortization.
100,000
17,670
117,670
Requirement No. 3
If interest has not
changed
Discountrate
Present value:
Principal
Interest
TotalPV
If only prime rate
changed by 25%
If both prime rate
and credit risk
changed
6.1932%
6.4432%
6.9432%
1,572,690
344,980
*1 ,917,670
1,557,968
343,022
1,900,990
1,529,034
339,156
1,868,190
126
Chapter 15: Investment in Debt Securities
*Based on the amortization table.
The change in fa ir value may be analyzed as follows:
Accretion due to time factor as interest income (Discount
amortization)
Decrease due to prime rate ( 1,917,674 - 1,900,990)
Decrease due to credit risk ( 1,900,990 - 1,868,190)
Total change in fair value ( 1,900,000 - 1 ,868,190)
17,670
(16,684)
(32,800)
31,810
Requirement No. 4
Unrealized loss – OCI ( 16,684 +
,000)
26,684
Impairment loss – P&L ( 32,800 - 10,000)
22,800
Loss allowance (
,000)
22,800
InvestmentinBonds–FVTOCI
26,684
To record impairment loss in profit or loss and decrease in fair value of asset.
Fairvalue –12/31/2017
Less: Amortized cost (see amortization table)
Decreaseinfairvalue
Less: Decrease in fair value due to credit risk = impairment
Decreaseinfairvalue–OCI
1,868,190
1,917,670
(49,480)
22,800
26,680)
Requirement No. 5
Investment in Bonds – FVTOCI – 01/01/2017
Add:DiscountAmortization
Less:Decreaseinfair value
1,900,000
17,670
26,684
Less:Impairmentloss
Carrying amount = Fair value 12/31/2017
22,800
1,868,186
PROBLEM 15-13
Requirement No. 1
Cash
Lossa llowance– SFP
Investmentin Bonds –FAAC
433,000
,000,000
Requirement No. 2
Cash
Investment in Bonds – FAAC
Lossa llowance– SFP
5,000,000
5,000,000
433,000
Gaino n reversalo f impairment
Requirement No. 3
Cash
Lossa llowance– SFP
433,000
,500,000
433,000
127
Chapter 15: Investment in Debt Securities
Impairmentloss – P&L
Investment in Bonds – FAAC
67,000
5,000,000
PROBLEM 15-13 Impairment of Financial Asset at Amortized Cost
SOLUTION:
Question No. 1
Carrying amount of the investment – 12/31/2015
Less: Present value of expected cash flows (get the present value
computed using srcinal effective rate )
Impairment loss
(B)
Question No. 2
Interest income (3,188,800 x 12%) = 382,656
3,864,680
3,188,800
675,880
(D)
PROBLEM 15-14 Reversal of Impairment on Financial Asset at Amortized
Cost
Present Value of Principal (5,000,000 x 0.8929)
Add: Present Value of interest payments (500,000 x 2 x 0.8929)
Present value oft hei nvestment bonds
4,464,500
892,900
5,357,400
CASE NO. 1 PAS 39
Present value expected cash flows, date of reversal
Would have been present value had there been no impairment
5,357,400
4,910,521
Lowerofthe two above
Less: Actual amortized cost (P3,986,000 x 1.12)
Gain onreversalof impairment
CASE NO. 2 PFRS 9
Present value expected cash flows, date of reversal
Less: Actual amortized cost (P3,986,000 x 1.12)
Gain onreversalof impairment
4,910,521
4,464,320
446,201
5,357,400
4,464,320
893,080
COMPREHENSIVE PROBLEMS
PROBLEM 15-15
Question No. 1
Cost of investment – Jan. 21(P2,000,000 x 102%) =P2,040,000
Question No. 2
Proceeds
Less: Accrued interest (P1,000,000 x 9% x 3/12)
NetProceeds
Less: Carrying amount (P2,000,000 x 102%)
128
(A)
P 1,060,000
22,500
1,037,500
1,020,000
Chapter 15: Investment in Debt Securities
Gain on sale
(A)
P
17,500
Question No. 3
Proceeds
Less: Accrued interest (P400,000 x 9% x 5/12)
Net
proceeds
Carrying amount(P400,000 x102%)
Loss on sale
P 419,000
15,000
404,000
408,000
4,000)
(A) (
Question No. 4
Sold
bonds: x9%x 38/360
P1,000,000
P400,000x 9%x280/360
Outstanding bonds:
P600,000x 9%x340/360
Total interest income
P
(A)
9,500
28,000
51,000
P 88,500
Question No. 5
Carrying value – 12/31/20 16 (P600, 000 x 102%) = P612,000
The market value is equal to its cos t.
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4. A
5.
(A)
A
PROBLEM 15-16 Impairment and Reversal of Impairment Loss
CASE NO. 1 PAS 39
Question No. 1
Present value of Principal (5,000,000 x 0.6209 )
Add: Present Value of interest payments (600,000 X 3.7908)
Present value oft hei nvestment bonds
3,104,607
2,274,472
5,379,079
(Please carry all the decimal places in the comp utation)
Question No. 2
Amortization table (srcinal):
Interest
Date
Collection
01/01/2015
12/31/2015
600,000
12/31/2016
600,000
537,908
531,699
12/31/2017
12/31/2018
12/31/2019
524,869
517,355
509,091
600,000
600,000
600,000
Interest
Income
129
Premium
Amortization
62,092
68,301
75,131
82,645
90,909
Present
value
5,379,079
5,316,987
5,248,685
5,173,554
5,090,909
5,000,000
Chapter 15: Investment in Debt Securities
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above)
Less: Present value of expected cash flows
Impairmentloss
5,248,685
3.756,574
1,492,111
Present value of Principal (5,000,000 x 0.7513 )
Add: PV of interest payments (No interest will be recovered)
Present value of the investment bonds
3,756,574
3,756,574
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Present value expected cash flows, date of reversal
Would have been present value had there been no impairment
(see srcinal amortization table)
Lowerofthe two above
Less: Actual amortized cost (P3,756,574 x 1.10)
Gaino nreversalofi mpairment
5,619,835
5,173,554
5,173,554
4,132,231
1,041,322
Present value of Principal (5,000,000 x 0.8264 )
Add: Present value of interest payments (600,000 x 3 x 0.8264)
Present value oft hei nvestment bonds
4,132,231
1,487,603
5,619,835
CASE NO. 2 PFRS 9
Question No 1
Present value of Principal (5,000,000 x 0.6209 )
Add: Present Value of interest payments (600,000 X 3.7908)
Present value oft hei nvestment bonds
3,104,607
2,274,472
5,379,079
(Please carry all the decimal places in the comp utation)
Question No. 2
Amortization table (srcinal):
Interest
Date
Collection
01/01/2015
12/31/2015
600,000
12/31/2016
600,000
12/31/2017
600,000
12/31/2018
600,000
12/31/2019
600,000
Interest
Income
537,908
531,699
524,869
517,355
509,091
130
Premium
Amortization
62,092
68,301
75,131
82,645
90,909
Present
value
5,379,079
5,316,987
5,248,685
5,173,554
5,090,909
5,000,000
Chapter 15: Investment in Debt Securities
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above)
Less: Present value of expected cash flows
Impairmentloss
5,248,685
3.756,574
1,492,111
Present value of Principal (5,000,000 x 0.7513 )
Add: PV of interest payments (No interest will be recovered)
Present value oft hei nvestment bonds
3,756,574
3,756,574
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Present value expected cash flows, date of reversal
Less: Actual amortized cost (P3,756,574 x 1.10)
Gaino nreversalofi mpairment
5,619,835
4,132,231
1,487,604
Present value of Principal (5,000,000 x 0.8264 )
Add: Present value of interest payments (600,000 x 3 x 0.8264)
Present value oft hei nvestment bonds
4,132,231
1,487,603
5,619,835
PROBLEM 15-17
Question No. 1
Proceeds
Less: Carrying amount [(P432,000/24,000) x 12,000)
Loss on sale
(B)
Question No. 2
Cost,1/1/2015
Less:Amortizedcost,1 2/31/2015
Premiumamortization
Less: Nominal interest( 5,000,000x 12%)
InterestIncome
P204,000
216,000
(12,000)
P 5,311,400
5,242,540
68,860
600,000
531,140
Effective interest (P531,400/5,311,140) = 10%
Interest income (P5,242,540 x 10%) = P524,254 (B)
Questi
on No. 3amortization (P1,903,150 – P1,881,000)
2015
discount
Nominalinterest(P2,000,000x 13%)
Effective interest
Divide by: 1/1/2015 amortizedc ost
131
P
22,500
260,000
P 282,500
P 1,881,000
Chapter 15: Investment in Debt Securities
Effective interest rate
15%
2016 Interest Inc ome = 12/31/2015 amortized cost x Effective inte rest rate
= P1,903,150 x 15% = P285,472.50 (C)
Question No. 4
Fair value, 1/1/2017 (2,000,000x 101)
P 2,020,000
Less: Amortized cost – 01/01/2017
Book value, 12/31/2015
P 1,903,150
Add: Discount amortization
Nominalinterest
260,000
Less: Effective interest
282,473
22,473
1,928,623
Gain on reclassification
(C) P 91,377
Question No. 5
Trading securities:
Panaghoy, Inc. (14,400 x P22)
P 316,800
Lamentation, Inc. [(24,000 – 12,000) x P15]
180,000
Total
P 496,800
FVTOCI:
Zephaniah, Inc. (
x 360,000)
Genesis bonds (1.04 x 5,000,000)
Total
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4. C
P10,080,000
5,200,000
P15,280,000
5.
132
A
Chapter 16: Investment in Associate
CHAPTER 16: INVESTMENT IN ASSOCIATE
PROBLEM 16-1 Investment securities and equity method investments
compared
Question No. 1
Cost of Investment
Less: Book value of net asset acquired (P120M x 20%)
Excesso fc ostoverbookvalue
Less: Overvalued depreciable asset (P6M x 20%)
Goodwill
Question No. 2
Dividendsdeclared andpaid
Multiplyb y:Percentageofownership
Dividends Revenue
30,000,000
24,000,000
6,000,000
1,200,000
(A)
4,800,000
(C)
5,000,000
20%
1,000,000
Question No. 3
Shareinnetincome(P8Mx20%)
Less: Amortization of Undervalued valued asset (see below)
Adjusted net investment income
(A)
1,600,000
200,000
1,400,000
Amortization of Undervalued asset
Depreciable Asset
Divideby:Averageremainingusefullife
Amortization ofU ndervalued valued asset
1,200,000
6
200,000
Question No. 4
Cost of Investment
Add: Net investment income (see no. 3)
Less: Dividends received (P1 x 1M shares)
Carrying value – 12/31/2015
30,000,000
1,400,000
1,000,000
30,400,000
(B)
Question No. 5
Investment using Fair Value ( 32 x 1,000,000) = 32,000,000
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4. B
5.
(D)
D
PROBLEM 16-2
Question No. 1
Cost of Investment
Less: Book value of net asset acquired (P10M x 30%)
Excesso fc ostoverbookvalue
133
5,000,000
3,000,000
2,000,000
Chapter 16: Investment in Associate
Over or (under )valued asset:
Inventory[ (P900,000 – P800,000) x 30%]
Machinery [(P2,200,000 – P2,500,000) x 30%]
Goodwill
(30,000)
90,000
2,060,000
(C)
Question No. 2
Shareinnetincome(P2Mx30%)
Less: Amortization of undervalued valued asset (see below)
Add: amortization ofovervalued asset
Adjusted net investment income
(A)
Amortization of asset:
Inventory
2016
600,000
30,000
18,000
588,000
2017
(30,000)
Machinery
Divideby:Remaininglife
Amortization of overvalued machinery
90,000
5
18,000
90,000
5
18,000
2016
2017
2,000,000 4,500,000
30%
30%
600,000 1,350,000
Net incomeo ft hea ssociate
Multiplyb y: Percentage of ownership
Shareinthenetincome
Dividends declareda nd paid
Multiplyb y: Percentage of ownership
Dividendsreceived
800,000
30%
240,000
Question No. 3
Cost of Investment
Add: Net investmenti ncome (see no. 2)
Less: Dividends received (P800,000x 30%)
Carrying value – 12/31/2016
(A)
1,600,000
30%
480,000
5,000,000
588,000
240,000
5,348,000
Question No. 4
Sharein netincome(P4.5M x3 0%)
Add: Amortization of Overvalued valued asset (see no. 2)
Adjusted net investment income
(C)
1,350,000
18,000
1,368,000
Question No. 5
Carryingvalue– 01/01/2017
Add: Net investment income (see no. 4)
Less: Dividends received( P1.6M x3 0%)
5,348,000
1,368,000
480,000
Carrying value – 12/31/2017
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4. C
(A)
5.
134
A
6,236,000
Chapter 16: Investment in Associate
PROBLEM 16-3 Investment in Associate with Inventories, Machinery and
Land - Land Was Subsequently Sold
Question No. 1
Cost of Investment
Less: Book value of net asset acquired (P12M x 20%)
Excesso fc ostoverbookvalue
Over or (under) valued asset
Inventory((P50,000)x20%)
Machinery((P500,000)x2 0%)
Land(P300,000 x20%)
Goodwill
(A)
5,000,000
2,400,000
2,600,000
(10,000)
(100,000)
60,000
2,550,000
Amortization of Over (Under) valued asse t
Inventory
2016
(10,000)
2017
Machinery
Divideby:Remaininglife
Amortization of Under (over) valued asset
(100,000)
10
(10,000)
(100,000)
10
(10,000)
Land
-
60,000
2016
2017
8,000,000 10,000,000
20%
20%
1,600,000 2 ,000,000
Net incomeo ft hea ssociate
Multiplyb y: Percentage of ownership
Sharein thenetincome
Dividends declareda nd paid
2,000,000
3,000,000
20%
400,000
20%
600,000
Multiplyb y: Percentage of ownership
Dividendsreceived
Question No. 2
Shareinnetincome(P8Mx20%)
1,600,000
Less: Amortization of Undervalued valued asset (see table
20,000
above)
Adjusted net investment income
1,580,000
(A)
Question No. 3
Cost of Investment
Add: Net investment income (see no. 2)
Less:Dividends received( P2M x20%)
Carrying value – 12/31/2016
(A)
6,000,000
1,580,000
400,000
6,180,000
Question No. 4
Sharein netincome(P10Mx20%)
2,000,000
Less: Amortization of Undervalued valued asset (see table
10,000
above)
Add: amortization ofovervalued asset
60,000
135
Chapter 16: Investment in Associate
Adjusted net investment income
Question No. 5
Carryingvalue– 01/01/2017
Add: Net investment income (see no. 4)
Less:Dividends received (P3Mx2 0%)
Carrying value – 12/31/2017
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4. C
5.
(C)
2,050,000
(A)
6,180,000
2,050,000
600,000
7,630,000
A
PROBLEM 16-4 Associate with Outstanding Cumulative Preference Shares
When an investee has outstanding cumulative preference share capital, an
investor should compute its share of earnings after deducting the investee’s
preference dividends, whether or not such dividends are declared.
Net
income
Less: Preference dividend (10% x 1,000,000)
Net income toordinaryshares
600,000
( 100,000)
500,000
Share in net income – ordinary shares (80% x 500,000)
(A)
400,000
PROBLEM 16-5 Associate with Outstanding Preference Shares
CASE NO. 1
Question No. 1
Netincome
P2,500,000
Less: Total preference dividends ( 3,000,000 x 10%)
300,000
Netincomet oordinaryshares
P2,200,000
Multiplyb y:Percentageofownership
30%
Sharein thenetincomeofa ssociate
660,000
Less: Amortization of undervalued asset ( 1,000,000/8)
125,000
Net investment income
535,000
(B)
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
Less:Dividendsreceived
Carrying value – 12/31/2016
(B)
CASE NO. 2
Question No. 1
Netincome
Less: Total actual preference dividends declared
Netincomet oordinaryshares
136
6,000,000
535,000
6,535,000
P2,500,000
450,000
P2,050,000
Chapter 16: Investment in Associate
Multiplyb y:Percentageofownership
Sharein thenetincomeofa ssociate
Less: Amortization of undervalued asset (1,000,000/8)
Net investment income
(A)
30%
615,000
125,000
490,000
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
Less:Dividendsreceived
Carrying value – 12/31/2016
6,000,000
490,000
6,490,000
(A)
CASE NO. 3
Question No. 1
Netincome
Multiplyb y:Percentageofownership
Sharein thenetincomeofa ssociate
Less: Amortization of undervalued asset ( 1,000,000/8)
Net investment income
(C)
Although the answe r shoul d be
500,000.
P2,500,000
30%
750,000
125,000
625,000
400,000, the next best poss ible answer is
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
6,000,000
625,000
Less:Dividendsreceived
Carrying value – 12/31/2016
(C)
SUMMARY OF ANSWERS:
CASEN O.1
CASEN O.2
1. B
2. B
1. A
2. A
1.
C
2.
6,625,000
CASEN O.3
C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity
Method - Step Acquisition
Question No. 1
Fairvalue –12/31/2017
Less: Carrying value (Fair value – 12/31/2016)
Unrealized loss – P&L
(B)
Question No. 2
Investment income ( 550,000 x 15%)
(C)
137
3,600,000
(3,900,000)
(300,000)
82,500
Chapter 16: Investment in Associate
Question No. 3
Nil. No catch-up adjustment on retained earn ings. (A)
Fair valueo f previously held interest
Acquisitioncost
Totalcost ofinvestment
Less: Book value of net asset acquired (12.5m x 30%)
Excesso fa ttributablet o machinery
Divideby:Remaininglife
AmortizationofU ndervaluedasset
3,600,000
3,600,000
7,200,000
3,750,000
3,450,000
10
345,000
Netincomeo ft hea ssociate-2018
Multiply by: Percentage of ownership (15% + 15%)
Shareinthenetincome
1,600,000
30%
480,000
Dividendsdeclared andpaid
Multiplyb y:Percentageofownership
Dividendsreceived
700,000
30%
210,000
Question No. 4
Shareinnetincome
Less: Amortization of Undervalued asset (see table above)
Adjusted net investment income
(A)
Question No. 5
Cost of Investment
Add: Net investment income (see no. 4)
7,200,000
135,000
Less:Dividendsreceived
Carrying value – 12/31/2018
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4. A
480,000
345,000
135,000
5.
(A)
210,000
7,125,000
(A)
P5,200,000
400,000
4,800,000
5,000,000
(P200,000)
B
PROBLEM 16-7 Cost To Equity Method
Question No. 1
Consideration received (40,000 x 130)
Less:Dividendincome(10x 40,000)
Netsellingprice
Less:Carryingv alue( 5,000,000)
Loss on sale
(Assuming FIFO Method)
Question No. 2
Considerationreceived
Less:Dividendincome(5x 40,000)
Netsellingprice
P5,200,000
200,000
5,000,000
138
Chapter 16: Investment in Associate
Less: Carrying value [12M-(P5 x 100,000)/100,000] x 40,000)
Gain on sale
(B)
Question No. 3
Fair value (P140 x 60,00 0)
4,600,000
P400,000
P8,400,000
(A)
Question No. 4
Costo fI nvestment–01/01/2015
Add: Net investment income - 2015 (5,000,000 x 30%)
Less: Dividends received -2015 (30% x 2,000,000)
2,400,000
1,500,000
600,000
Carrying
12/31/2015
Add: Netvalue–
investment
income - 2016 (6,000,000 x 30%)
Less: Dividends received -2016 (30% x 3,200,000)
Carryingvalue– 12/31/2016
3,300,000
1,800,000
960,000
4,140,000
Netsellingprice
LessC arrying amount (P4,140,000 x ½)
Gain on sale
(B)
Question No. 5
Investment in Kababain – FVTOCI:
Fairvalue( P150x1 5,000)
Less:Carryinga mount
Investment in Passing Rate – FVTOCI:
Fairvalue( P140x60,000)
Less Cost (12M-(10 x 100,000))/100,000 x 60,000)
Total Unrealized Gain –OCI to SFP
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4. B
2,400,000
2,070,000
P330,000
2,250,000
2,070,000
180,000
8,400,000
6,600,000
1,800,000
(C)
5.
1,980,000
C
PROBLEM 16-8 Change From Equity to Cost Method
Question No. 1
Cost of Investment
Add: Net investment income [(1.8M-840,000) x 20%]
Less: Dividends received (P100,000 + P100,000)
Carrying value – 12/31/2015
(B)
4,000,000
192,000
200,000
3,992,000
Note:
The dividend received on August 1, 2015 need not be prorated even though
the investment was acquired on July 1, 2015 since dividends is considered
when the investor has the righ t to recei ve paymen t (i.e. date of declara tion).
The P1.8M net income wa s for a peri od of 12 months en ding Dece mber 31.
139
Chapter 16: Investment in Associate
Question No. 2
Salesprice (P25x50,000)
Carrying value of shares (P3,992,000 x 50,000/200,000)
Gain on sale of inve stment
(B)
1,250,000
998,000
252,000
Question No. 3
Fair value of retained investment (P25 x 150, 000)
Less: Carrying amount of retained investment (P3,992,000 x
150,000/200,000)
Gain on reclassification to P&L
(C)
3,750,000
2,994,000
756,000
Question No. 4
Fair value, Dec.3 1, 2016 (P30 x 150,000)
Fair value, Jan. 1, 2016 (P25 x1 50,000)
Unrealized gain, Dec. 31, 2016
(B)
4,500,000
3,750,000
750,000
Question No. 5
Fair value, Dec. 31, 2016 (P30 x 150,000)
(A)
4,500,000
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4. B
5.
A
PROBLEM 16-9: Discontinuance of Equity Method
Question No. 1
Cost (300,000x100)
Add:Income(4,000,000x. 3)
Less:Dividends (2,500,000x 3)
Carrying Amount - 2015
(C)
30,000,000
1,200,000
(750,000)
30,450,000
Question No. 2
Netproceeds(160,000x120)
Less: Carrying amount (30,450,000x(160,000/300,000))
Gain on Sale
(C)
19,200,000
(16,240,000)
2,960,000
Question No. 3
FVTOCI (140000x120)
Less: Carrying amount (30,450,000x(140,000/300,000)
Gain on Reclassification
(B)
17,080,000
14,210,000
2,870,000
Question No. 4
Dividend Income (2,000,000x .14)
(A)
140
280,000
Chapter 16: Investment in Associate
Question No. 5
Investment in FVTOCI (140,000x125)
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4. A
17,500,000
(B)
5.
B
PROBLEM 16-10 Associate Having Heavy Losses
Originalcost
Cash advances
Totalinterest
Net loss from 2015 to 2017 (40% x 4,000,000)
Carrying amount of investment – 12/31/2017
Share in net loss of 2018 (40% x 800,000)
Loss to be reported in 2018 should be equal to the investment
balance only
(C)
1,400,000
400,000
1,800,000
(1,600,000)
200,000
320,000
200,000
PAS 28, paragraph 29, provides that if under equity method an investor’s share
of losses of an associate equals or exceeds the carrying amount of an
investment, the investor discontinues recognizing its share of further losses.
The investment is reported at NIL or zero value.
PROBLEM 16-11 Downstream Sale of Inventory
2015
Netincomey: Percentage of ownership
Multiplyb
Share in the net income before adjustment
Less: Unrealized profit on downstream sale of
inventory
Share in the net income after adjustment
2016
1,000,000
25%
250,000
1,500,000
25%
375,000
(30,000)
220,000
(B)
30,000
405,000
(D)
2015
1,000,000
25%
250,000
2016
1,500,000
25%
375,000
(9,000)
241,000
(B)
9,000
384,000
(D)
PROBLEM 16-12 Upstream Sale of Inventory
Netincome
Multiplyb y: Percentage of ownership
Share in the net income before adjustment
Less: Unrealized profit on upstream sale of
inventory
Share in the net income after adjustment
141
Chapter 16: Investment in Associate
PROBLEM 16-13 Downstream Sale of Depreciable Asset
2015
2016
Netincome
1,000,000 1,500,000
Multiplyb y: Percentage of ownership
25%
25%
Share in the net income before adjustment
250,000
375,000
Less: Unrealized gain on downstream sale of PPE
(160,000)
40,000
Share in the net income after adjustment
90,000
415,000
(B)
(D)
PROBLEM 16-14 Upstream Sale of Depreciable Asset
Netincome
Multiplyb y: Percentage of ownership
Share in the net income before adjustment
Less: Unrealized gain on upstream sale of PPE
Share in the net income after adjustment
2015
2016
1,000,000 1,500,000
25%
25%
250,000
375,000
(40,000)
10,000
210,000
385,000
(B)
(D)
COMPREHENSIVE PROBLEMS
PROBLEM 16-15
Question Nos. 1 and 2
2015
2,500,000
Net incomeo ft hea ssociate
Multiplyb
ShareinNI y: Percentage of ownership
Less: Gaino sale of equipment
Add:Depreciationo fExcess
Gain on sale of inventory (upstream) (50,000x .3)
Less: Gain on sale of inventory (Downstream)
NetshareinNI
Question No. 3
Cost
Add:Investment Income2015
Less:Dividends(900,000x.3)
Carrying amount 2015
Question No. 4
Carryingamount01/01/2016
Add:Income
Less:Dividends(2,000,000x.3)
Carrying Amount - 2015
142
2016
4,000,000
30% 1,200,000
30%
750,000
(100,000)
20,000
20,000
(15,000)
15,000
(150,000)
655,000 1,085,000
1.( B)
2.( B)
(A)
5,000,000
655,000
270,000
5,385,000
(B)
5,385,000
1,085,000
600,000
5,870,000
Chapter 16: Investment in Associate
Question No. 5
Carryingamount01/01/2016
Add:Income
Less:Dividends(2,000,000x.3)
Less: Amortization of goodwill (400,000 x 2/10)
Carrying Amount - 2015
(A)
5,385,000
1,085,000
600,000
80,000
5,790,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity canno t determine reliably the useful life, it is
assumed to be 10 yea rs.
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4. B
5.
A
PROBLEM 16-16
Question No. 1
Cost
Less:Equityinnetassets
Implied goodwill
(D)
Question No. 2
Proceeds(2,500xP13)
Less: Carrying amount [(P60,000/6,000) x 2,500]
Gain on sale
P1,700,000
1,400,000
300,000
P 32,500
25,000
7,500
(C)
Question No. 3
Proceeds(500 xP21)
Less: Carrying amount [(P66,000/(2,000 x 110%)) x 500]
Loss on sale
(D)
Question No. 4
FV off inancial asset received (1,500 xP 21)
Less: Carrying amount [(P45,000/1,000) x 500]
Gain on conversion
(A)
Question No. 5
Investment in Roque Corporation:
3/9 1,000
x
P1.2
P 10,500
15,000
4,500
P 31,500
22,500
9,000
1,200
9/9 1,000
x
P1.2
Investment in Ocampo Corporation:
6/30 (6,000 –2,500)xP1
Total dividen d income
1,200
(D)
143
3,500
5,900
Chapter 16: Investment in Associate
Question No. 6
1/2/2016 AcquisitionCost
Add: Share in net income of associate (P1,200,000 x 30%)
Less:Dividends(P.50x4x100,000)
12/31/2016 carrying amount
(D)
1,700,000
360,000
200,000
P1,860,000
Question No. 7
Roquepref.(1,000–500)xP56
Roqueordinary(1,500xP20)
Ocampo(6,000-2,500)xP11
28,000
30,000
38,500
Dagumboy Co.( 2,000 x 110% -500) x P22
12/31/2016 FVTOCI Balance
SUMMARY OF ANSWERS:
1. D
2. C
3. D
4. A
5.
37,400
133,900
(C)
D
6.
D
7.
C
PROBLEM 16-17
Question No. 1
Solano
(264,500-250,000)
Castaneda (280,000-320,000)
(70,000-195,000)
Unrealized G/(L)
(C)
Question No. 2
Zero, gain or loss on reclassifi cation is NOT allowed
Question No. 3
Fair value previously held interest (50,000 x 30)
Less:Carrying value
Gain on reclassificati on-P&L
Question No. 5
Fair value previously held interest (50,000 x 30)
Add:Acquisitioncost
Initial carrying amount – investment in associate
Add:
investment
income
(see
No.4 )
Less:Net
Dividends
declared
(P2x
150,000)
Investment balance end
4. D
5.
C
1,500,000
1,350,000
150,000
(D)
270,000
1,500,000
3,000,000
4,500,000
(C)
144
(A)
(C)
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000)
SUMMARY OF ANSWERS:
1. C
2. A
3. C
14,500
(40,000)
(125,000)
(150,500)
270,000
300,000
4,470,000
Chapter 16: Investment in Associate
PROBLEM 16-18
Question No. 1
Consideration received (P230 x4 ,000)
Less: Dividend of the investment sold (P8 x 4,000)
NetSellingPrice
Less: Carrying value of the investment sold (*1,970,000/10,000
x 4,000)
Gain on sale
(B)
920,000
32,000
888,000
788,000
100,000
*(10,000 x P200) -(P8 x 10,00 0) + P50,000
The dividend that was paid and sold is not classified as dividend income since
the company did not ow n the shar es when the dividend was declared.
Question No. 2
Net Selling Price( P450 x 50,000x 1/2)
11,250,000
Less: Carrying value of the investment sold (P20,800,000 x 1/2)
10,400,000
Gain on sale
850,000
(C)
Beg. Balance of Investment in Associate
Add: Share in the net income of associate (25% x P20M)
Total
Less: Amortization (P2,000,000/10)
Dividends received( P40x 50,000)
Ending balance of investment in associate – 12/31/2016
18,000,000
5,000,000
23,000,000
200,000
2,000,000
20,800,000
Question N . 3
Nil. (A)
The dividend that was paid and sold in Boy-ot shares is not classified as
dividend income since the company did not own the shares when the
dividend was declared.
The dividend received in Cleo Shares is not regarded as income, but as a
deduction of the initial carryin g amount of the investment in associate.
Question Nos. 4 and 5
Rodolfo (P46 x 20,000)
Boy-ot (P192 x 6,000)
Gene (P28 x 40,000)
Cleo( P450 x2 5,000)
Total
Fair value
Cost
(UL)/ UG
920,000
1 ,000,000
(80,000)
1,152,000 *1,182,000
(30,000)
1,120,000
1,280,000 (160,000)
11,250,000 11,250,000
14,442,000 14,712,000
(C)
* (1,970,000/10,000 x 6,000)
145
(270,000)
(C)
Chapter 16: Investment in Associate
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4. C
5.
C
PROBLEM 16-19 Impairment losses recognized by an associate or joint
venture
Question No. 1
In accounting for its associate, Mark Co. should recognize impairment loss.
However, it is generally not acceptable to simply multiply the amount of
impairment recognized in the investee’s own books by the investor’s percentage
of ownership, because the investor should initially measure its interest in an
associate’s identifiable net ownership at fair value at the date of acquisition of
an associate. Accordingly, appropriate adjustments based on those fair values
are made for impair ment losses recognized by the associa te.
Carrying amount
reflecting fair
values made by
Mark Co.
CGU A
CGUB
CGUC
Netassets
100,000
320,000
560,000
Recoverable
amount (40%)
180,000
160,000
460,000
Impairment
loss
n/a
160,000
180,000
(A)
Question No. 2
The carrying amount refl ecting fair values made by Mark Co. after imp airment:
CGU A
CGUB
100,000
CGUC
160,000
Netassets
380,000
Goodwill
40,000
Investment in associate
(A)
PROBLEM 16-20: PFRS for SME: Jointly Controlled Entity
CASE NO. 1
Question No. 1 Cost model
Total dividend paid by Entity Z’s
Multiply by:Percentage
Dividend income – P&L to SCI
(B)
Question No. 2 Cost model
Carrying amount
(D)
30%
146
Chapter 16: Investment in Associate
CASE NO. 2
Question No. 3 Fair value mode l
Fair value – Decemb er 31
Less:Acquisition cost
Gain on change in fair value – P&L to SCI
Add:Dividendincome(
Total to P&L
(A)
Question No. 4 Fair value mode l
Carrying amount = Fair value Dec. 31
300,000
45,000
(A)
CASE NO. 3
Question No. 5 Equity method
Entity Z’s reported profit
Multiply by:Percentage
Share in net income
30%
(C)
Question No. 6 Equity method
Acquisition cost
Add:Shareinnetincome
Less:Dividendsreceived ((
Carrying value – December 31
120,000
45,000
(B)
147
Chapter 18: Property, Plant and Equipment
CHAPTER 18: PROPERTY, PLANT AND EQUIPMENT
PROBLEM 18-1 Capitalizable Cost of Machinery
Machinery
Others
Purchase price including VAT (1,568,000/1.12)
1,400,000
Costo f waterd evice to keep machine cool.
8,000
Cost of safety rail and platform surrounding machine
12,000
Installation cost, including site preparation and
assembling.
20,000
Fees paid to consultan ts for advice on acquisition of
themachinery.
13,000
PV of estimated dismantling cost of the new machine
10,000
Repair cost of the ma chine damaged while i n the
processof installation
5,000
Losso np remature retirement-old machine
18,000
Other nonrefundable salestax
13,000
Cost of training for personnel who will use the
machine
25,000
Adjusted balances
1,476,000
48,000
(A)
PROBLEM 18-2
Improvements
Capitalizable
Cost
of
Question No. 1
Purchase Price
Title Insurance
Legal feestopurchaseland
Property taxes, January 1, 2016 -June 30, 2016
Costo fg rading and filling building site
Total Cost of t he land
Question No. 2
Costo fbuildingconstruction
Interestonconstruction loan
Costo frazingoldbuildingonlot
Proceeds from sale of salvageable materials
Total cost of the building
Question No. 3
Cost of constructingdriveway
Cost ofparkinglot and fencing
Total cost of the land improvements
148
Land,
Building
and
Land
(A)
925,000
7,500
5,000
15,000
45,000
997,500
(A)
3,100,000
60,000
42,500
(6,000)
3,196,500
(B)
400,000
60,000
460,000
Chapter 18: Property, Plant and Equipment
PROBLEM 18-3 Deferred Settlement Terms (With or Without Cash Price
Equivalent)
Question No. 1
Cash price equivale nt
Question No. 2
Principal
Multiply by:Presentvalueof1
Cost of the equipment
(A)
800,000
(B)
1,000,000
0.7972
797,200
PROBLEM 18-4 Exchange (With or Without Commercial Substance)
Question No. 1
Fairvalue oftheassetgiven
Add:Cash payment
Cost of equipment
Question No. 2
Fairvalue oftheassetgiven
Less:Carrying amount
Gain on exchange
(D)
1,200,000
200,000
1,400,000
(B)
1,200,000
800,000
400,000
Question No. 3
Carryingamountoft heassetgiven
Add:Cash payment
800,000
200,000
Cost of equipment
(B)
1,000,000
Question No 4
Zero, the transaction lacks c ommercial substance. (A)
PROBLEM 18-5 Trade–in
Question No. 1
Cash price witho ut trade in
Question No. 2
Cash pricewithout tradein
Less:Cash pricewithtradein
Trade
in
value
Less:Carrying amount
Loss on trade in
149
(A)
340,000
(B)
340,000
270,000
70,000
230,000
(160,000)
Chapter 18: Property, Plant and Equipment
PROBLEM 18-6 Acquisition through Issuance of Equity Instrument
Question No. 1
Fair value of the equipment received
4,000,000
(D)
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
share premium in the equit y.
(A)
PROBLEM 18-7 Acquisition through Issuance of Bonds Payable
Question No. 1
Fair value of the bonds (10,200 x 500)
(C)
5,100,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
premium on bonds payable.
(A)
PROBLEM 18-8 Acquisition by Donation
Question No. 1
Fair
value
Add:Directcost
Total cost
(B)
4,000,000
40,000
4,040,000
Question No. 2
Fair value
(C)
4,000,000
The registration and transfer of title is charged to Donated Capital / Share
Premium.
PROBLEM 18-9 Subsequent Expenditure on PPE
Question No. 1
Beginningbalance –Jan 1
Add:Overhaul–June30
Total cost of motor veh icle
(C)
Question No. 2
Beginningbalance –Jan 1
790,000
60,000
850,000
1,900,000
Add: Rearrangement and installation – March 2
Improvement that extend the life – December
Total cost of machine
(B)
150
45,000
60,000
2,005,000
Chapter 18: Property, Plant and Equipment
Question No. 3
Beginningbalance –Jan 1
Add:Unloadingand set upcost
Total cost of precision machine
(C)
Question No. 4
Beginningbalance –Jan 1
Add: Installation of sprinkler system – part of blue print
Add:Cost of attic
Total cost of building
(B)
Question No. 3
Routine repairs and maintenance
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4. B
(D)
5.
600,000
48,000
648,000
4,100,000
130,000
500,000
4,730,000
26,000
D
PROBLEM 18-10
Question No. 1
Interest paid(2,000,000 x1 4% x1 2/12)
Less: Investment income
1,400,000x 10%x 6/12
200,000 x10%x 2/12
Capitalizable borrowingcost
280,000
70,000
3,333
206,667
Note that capitalization of borrowing costs does not cease during a temporary
de ay in construct on
Question No. 2
Interest paid (2,000,000 x 14% x 12/12)
Less:Capitalizedborrowingcost
Interestexpense
280,000
206,667
73,333
Note that the interest paid and investment income is used to compute for the
capitalizable borrowing cost. However, the amount recognized as an interest
expense is the difference between the total interest paid and capitalizable
borrowing cost. Also, the amount recognized as interest income is 73,333.
Question No. 3
Totalprogresspayments
20,000,000
Add:Capitalizedborrowingcost
Totalcost ofthe stadium
206,667
20,206,667
151
Chapter 18: Property, Plant and Equipment
PROBLEM 18-11
Question No. 1
Interest expense under effective interest method (5,000,000 x
.176319 x 11/12)
Less: Investment income (250,000 x 11/12)
Capitalizable borrowingcost
Question No. 2
Interest expense under effective interest method (5,000,000 x
.176319 x 12/12)
Less:Capitalizedborrowingcost
Interestexpense
808,129
229,167
578,962
881,595
578,962
302,633
Question No. 3
Totalexpenditures
Add:Capitalizedborrowingcost
Totalcost ofthebuilding
2,700,000
578,962
3,278,962
Question No. 3
Totalcost ofthe building
Less:Residualvalue
Depreciable amount
Divideby:Useful life
Multiply by: Months
Depreciation -2016
3,278,962
1,000,000
2,278,962
10
1/12
18,991
Note depreciation will start when the asset is available for use.
PROBLEM 18-12
Question No. 1
Rate
15%
20%
Total
Principal
Interest
4,000,000
600,000
2,000,000
400,000
6,000,000 1,000,000
Capitalization Rate (P1,000,000 / P6,000,000) = 16.67%
January 1 (600,000 + 2,100,000)
July1
December
Averagea 1
ccumulatedexpenditure
Multiply by: Rate
Capitalizable borrowingcost
2,700,000
1,200,000
240,000
152
x 12/12
2,700,000
x6/12
600,000
x 1/12
20,000
3,320,000
16.67%
553,334
Chapter 18: Property, Plant and Equipment
Note that investment income is not considered since the two loans are
considered general borrowings.
Question No. 2
Totalinterestexpense
Less:Capitalizedborrowingcost
Interestexpense
1,000,000
553,334
446,667
Question No. 3
Expenditures capitalized – previous period
600,000
Add: Expenditures during the current year
Add:Capitalizedborrowingcost
Totalcosto fthef actorybuilding
3,540,000
553,334
4,693,334
PROBLEM 18-13 Specific and General Borrowings
Questions No. 1 & 2
January 1,2 015
September1,2 015
December31,2015
Average accumulated expenditure
Multiply by: Rate
Capitalizable borrowing cost
200,000
300,000
300,000
(A)
(D)
x 12/12
x4 /12
x0/12
1.
2.
200,000
100,000
0
300,000
12%
P36,000
Since the average accumulated expenditure did not exceed the principal of the
specific borrowing, the specific rate was used in determining the capitalizable
borrowing cost.
Question No. 3 & 4
Accumulated
expenditures
–
836,000
12/31/2015 (P800,000 + 36,000)
March 31, 2016
300,000
September30,2016
200,000
Average accumulated expenditure
(D)
Less:Specificborrowing
Excessa ttributablet og eneralb orrowing
Multiply by: Rate
Multiply by: Monthsoutstanding
Capitalizable borrowing cost – general borrowings
Add: Specific borrowings (750,000 x 12% x 9/12)
Total capitalizable borrowing cost
(B)
153
x 9/9
x 6/9
x 0/12
3.
4.
836,000
200,000
0
1,036,000
750,000
286,000
9%
9/12
19,305
67,500
86,805
Chapter 18: Property, Plant and Equipment
PROBLEM 18-14 Specific Borrowing Used For General Purposes
Totalexpenditures
Divide
by
Total
Less: Investment income (50,000x 3/12)
Weightedaverageexpenditures
Multiply by: Rate
Capitalizable borrowing cost
(A)
6,000,000
2
3,000,000
12,500
2,987,500
10%
298,750
PROBLEM 18-15 Different Depreciation Methods
Cost
Less:Residualvalue
Depreciable amount
P3,300,000
300,000
P3,000,000
Requirement No. 1 Straight Line
2016(P3,000,000/ 5x 12/12)
600,000
2017(P3,000,000/ 5x 12/12)
600,000
Requirement No. 2 Service Hours
Depreciation rate per hour (P3,000,000 / 60,000 hours) = P50/hour
2016(P50/hourx 3,000hours)
150,000
2017(P50/hourx 3,500hours)
175,000
Requirement No. 3 Units of Output Method
Depreciation rate per unit (P3,000, 000 / 50,000 units) = P60/unit
2016(P60/unitx 5,000units)
300,000
2017(P60/unitx 4,500units)
270,000
Requirement No. 4 Sum-of the Years’ Digits
Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016(P3,000,000x 5/15)
1,000,000
2017(P3,000,000x 4/15)
800,000
Requirement No. 5 Sum-of the Years’ Digits
Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016(P3,000,000x5 /15x 3/12)
250,000
154
Chapter 18: Property, Plant and Equipment
2017 (P3,000,000 x 5/15 x 9/12) + (P3,000,000 x 4/15 x 9/12)
950,000
Requirement No. 6 Double-declining balance
Double declining rate (2/5) = 40%
2016(P3,300,000x 40%)
1,820,000
2017 [(P3,300,000 – 1,820,000) x4 0%]
792,000
Requirement No. 7 Double-declining balance
Double declining rate (2/5) = 40%
2016(P3,300,000x4 0%x3/12)
990,000
2017 [(P3,300,000 – 990,000) x 40% x 12/12)]
924,000
Requirement No. 8 150% declining balance
150% declining rate (1.5/5) = 30%
2016(P3,300,000x 30%)
990,000
2017 [(P3,300,000 – 990,000) x 30% x 12/12)]
693,000
PROBLEM 18-16 Composite Method
Salvage
MachineA
MachineB
Machine C
Total
Cost
275,000
100,000
20,000
395,000
Depreciable
Value
25,000
10,000
35,000
Amount
250,000
90,000
20,000
360,000
Estd.
Life
20
15
5
Annual
Depreciation
12,500
6,000
4,000
22,500
Composite Life = (Depreciable amount / Total annual depreciation)
= P360,000 / P22,500
= 16 years
(B)
PROBLEM 18-17 Retirement Method
Original
cost
Less:Salvage proceeds
Depreciation
(B)
155
5,000
600
4,400
Chapter 18: Property, Plant and Equipment
PROBLEM 18-18 Change in Estimate
Cost
Less: Accumulated depreciation – 12/31/2016
[(P3,300,000 – P300,000) / 8 x4 ]
Carryingvalue– 12/31/2016
3,300,000
1,500,000
1,800,000
CASE NO. 1
Requirement No. 1
Carryingvalue– 12/31/2015
Less:Residualvalue
1,800,000
300,000
Depreciable amount
Dividedby:R evisedremainingusefull ife
Depreciation –2016
1,500,000
2
750,000
Requirement No. 2
Carryingvalue– 12/31/2015
Less: Depreciation –2016
Carryingvalue– 12/31/2016
1,800,000
750,000
1,050,000
CASE NO. 2
Requirement No. 1
Carryingvalue– 12/31/2015
Less:Residualvalue
Depreciable amount
Dividedby:R emainingusefullife(8 –4)
1,800,000
150,000
1,650,000
4
Depreciation –2016
412,500
Requirement No 2
Carryingvalue– 12/31/2015
Less: Depreciation –2016
Carryingvalue– 12/31/2016
1,800,000
412,500
1,387,500
CASE NO. 3
Requirement No. 1
Carryingvalue– 12/31/2015
Less:Residualvalue
Depreciable amount
Multiply by: Fraction (SYD=10)
Depreciation –2016
1,800,000
300,000
1,500,000
4/10
600,000
Requirement No. 2
Carryingvalue– 12/31/2015
Less: Depreciation–2016
Carryingvalue– 12/31/2016
1,800,000
600,000
1,200,000
156
Chapter 18: Property, Plant and Equipment
PROBLEM 18-19 Replacement Method
Replacementcost
Less:Salvage proceeds
Depreciation
(C)
6,000
600
5,400
PROBLEM 18-20 Fixed Asset Turnover
Let X = Net Fixed Asset at the end of 2016
Sales
Fixed asset tur nover =
Average Fixed Asset
P1,480,000
4=
.5 (P320,000 + X)
P1,480,000
4=
P160,000 + .5x
P1,480,000 =
P640,000 + 2x
X=
P420,000
(C)
COMPREHENSIVE PROBLEMS
PROBLEM 18-21
Question No. 1
Beg.Balanceofthe Land
Cash paid
Mortgage assumed
P 700,000
2,500,000
4,000,000
Realtor's
commission
Legal
fees,
realty taxes and documentation expenses
Amount paid to rel cate persons squatting on the property
Total Cost of t he Land
(B)
Question No. 2
Beginning balanceo f theL and Improvement
Cost offencingproperty
Total cost of Land Improve ment
Question No. 3
Beg.Balanceofthe Building
Amount recovered from salvage of building
Costo ft earingdownanoldbuilding
Amountpaidto contractor
Buildingpermit
Excavationexpenses
Architects'fees
Total cost of building
157
(A)
(A)
300,000
50,000
100,000
P7,650,000
P 10,000
110,000
P 120,000
P 900,000
(150,000)
120,000
2,000,000
20,000
50,000
50,000
P2,990,000
Chapter 18: Property, Plant and Equipment
Question No. 4
Beg.BalanceoftheM achinery
Invoicecostofmachinery
Freight,unloading
Customs duties
Allowancesduringinstallations
Total cost of machin ery
(B)
P 980,000
2,000,000
60,000
140,000
400,000
P3,580,000
Question No. 5
Totalcosto fLandImprovement
P 120,000
Totalcost ofbuilding
Totalcost ofmachinery
Total depreciable property
2,990,000
3,580,000
P6,690,000
(A)
Royalty payment on machines purchased in the amount of P120,000 should be
included as part of manufacturing overhead in the company’s income statement,
if the same is based on units produced. However, if royalty payment is based on
units produced and sold, it sho uld be treated as a selling ex pense.
SUMMARY OF ANSWERS:
1. B
2. A
3. A
4. B
5.
A
PROBLEM 18-22 Specific and General Borrowings
Question No . 1 an d 2
WEIGHTED AVERAGE INMonths
2014
Date
Expenditures
01/01/2015
3,000,000
07/01/2015
7,000,000
11/01/2015
6,000,000
Total
16,000,000
Divide
by
Weighted averagec arryinga mount
Specific borrowings (2,000,000 x 10%)
General borrowings:
Rate
14%
12%
Principal
2,000,000
18,000,000
outstanding
Average
12
36,000,000
6
42,000,000
2
12,000,000
90,000,000
12
7,500,000
200,000
Interest
280,000
2,160,000
Total
20,000,000 2,440,000
Capitalization Rate (P2,440,000 / P20,000,000) = 12.20%
Weighted average borrowing cost:
Specific borrowings
158
Chapter 18: Property, Plant and Equipment
Actualborrowing cost
Less:Investmentincome
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiplyb y: Capitalization rate
Multiply by: Months/12
Weightedaverageb orrowingcost:
vs.Actual borrowingcost
200,000
13,000
7,500,000
2,000,000
5,500,000
12.20%
1
187,000
671,000
858,000
2,640,000
Capitalizable borrowing cost
858,000
(lower)
(A)
WEIGHTED AVERAGE IN 2015
Months
Date
Expenditures outstanding
Average
01/01/2016
*16,858,000
8
134,864,000
07/01/2016
1,000,000
2
2,000,000
08/01/2016
2,000,000
1
2,000,000
Total
19,858,000
138,864,000
Divide
by
8
Weighted averagec arryinga mount
17,358,000
*Total expenditures in 2015 plus capitalized borrowing cost in 2015.
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (P2,000,000 x 10% x 8/12)
Less:Investmentincome
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiplyb y: Capitalization rate
Multiply by:M onths/12
Weightedaverageb orrowingcost:
vs. Actual borrowing cost (2,640,000 x 8/12)
Capitalizable borrowing cost (lower)
Question No. 3
Actualborrowingcost-2015
Less: Capitalizable borrowingc ost - 2015
Interest expense
Question No. 4
Actualborrowingcost-2016
Less: Capitalizable borrowing cost - 2016
Interest expense
159
133,333
17,358,000
2,000,000
15,358,000
12.20%
8/12
(B)
133,333
1,249,117
1,382,451
1,760,000
1,382,451
(C)
2,640,000
858,000
1,782,000
(C)
2,640,000
1,382,451
1,257,550
Chapter 18: Property, Plant and Equipment
Question No. 5
Totalcost,2015
Expendituresin2016
Add: Capitalizable borrowing cost - 2016
Total cost of the building
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4. C
5.
(B)
16,858,000
3,000,000
1,382,451
21,240,451
B
PROBLEM 18-23
Question No. 1
The computation of the income from government grant is as follows:
Totalcashreceived
20,000,000
Divideby:Usefullifeof thebuilding
20
Incomef romgovernmentgrant
1,000,000
Question No. 2
Cost ofbuilding
Divideby:Usefullifeof thebuilding
Depreciation
24,000,000
20
1,200,000
Question No. 3
Cost ofbuilding
24,000,000
Less:Governmentgrant
Total
Divideby Usefu lifeof thebuilding
Depreciation
20,000,000
4,000,000
20
200,000
Question No. 4
Cost ofbuilding
Less:Depreciation–2016
Carryingamount–12/31/2016
24,000,000
1,200,000
22,800,000
Question No. 5
Netcostofbuilding
Less:Depreciation–2016
Carryingamount–12/31/2016
4,000,000
200,000
3,800,000
PROBLEM 18-24 Grants Related to Nondepreciable Assets
Question No. 1
The computation of the income from government grant is as follows:
Totalfair valueoftheland
10,000,000
160
Chapter 18: Property, Plant and Equipment
Dividebyusefullifeof thebuilding
Incomef romgovernmentgrant
10
1,000,000
Question No. 2
Cost offactorybuilding
Divideby:Usefullifeof thebuilding
Depreciation
15,000,000
10
1,500,000
Question No. 3
Cost offactorybuilding
15,000,000
Less:Governmentgrant
Total
Divideby:Usefullifeof thebuilding
Depreciation
10,000,000
5,000,000
10
500,000
Question No. 4
Cost offactorybuilding
Less:Depreciation–2016
Carryingamount–12/31/2016
15,000,000
1,500,000
13,500,000
Question No. 5
Netcostoff actorybuilding
Less:Depreciation–2016
Carryingamount–12/31/2016
5,000,000
500,000
4,500,000
PROBLEM 18-25
Question No. 1
Cost( 800,000+45,000-5,000)
Less ResidualValue
Depreciable cost
Divide
by
Depreciation
(B)
840,000
40,000
800,000
5
160,000
Question No. 2
Cost( 800,000+45,000-5,000)
Less Accumulated Depreciation (160,000 x 3)
Carryingamount
Less newresidualvalue
Depreciable cost
Dividebyremainingusefull ife (5-2)
Depreciation
(A)
840,000
320,000
520,000
70,000
450,000
3
150,000
161
Chapter 18: Property, Plant and Equipment
Question No. 3
Cost
Less Accumulated depreciation (270,000/4 x 8/12)
Total
Carrying amount of old tires (12,000-(12,000/4 x 8/12)
Cost ofnewtires
Total
270,000
45,000
225,000
(10,000)
24,000
239,000
Depreciation
Motor vehicle:
Sept.1 -May 30, 2019( 270,000/4 x8 /12)
June 1-Sept. 30 (215,000/4 x 12 mos-8 mos x 4 mos)
Tyres from June 1- Sept 30 (24,000/24 mos x 4 mos)
Depreciation expense
(D)
45,000
21,500
4,000
70,500
Question No. 4
Depreciable
cost
Cost
Residual
Value
800,000
0
100,000
0
Airframe
800,000
Interior
Engines
100,000
and
rotary blades
Inspection
Total
Divide
by
Useful
life
10
years
10
years
370,000
400,000
240,000
30,000
0
240,000
Question No. 5
Cost
Less ResidualValue
Depreciable cost
Divide
by
Multiply by
Depreciation
SUMMARY OF ANSWERS:
1. B
2. A
3. D
4. D
(B)
5.
Depreciation
exp
80.000
10,000
74,000
5 years
3y ears 80,000
244 000
280,000
40,000
240,000
3
8/12
53,333
B
PROBLEM 18-26
Question No. 1
SellingPrice
Less Book value
P52,000
162
Chapter 18: Property, Plant and Equipment
Cost
Less: Accumulated Depreciation
Upto 1/1
From Jan. 1-May 1
[(140,000 -12,400) x 5/55]*
Gain on sale of mac hinery D
P140,000
P92,800
11,600
(A)
(104,400)
35,600
P 16,400
Note: No depreciation is recorded in the year an asset is purchased, and full
year depreciation is provided in the year an asset is disposed of
Question No. 2
Accumulatedd epreciation,RJan1
P1 40,800
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100]
26,880
Accumulated depreciation, R Dec. 31
167,680
P
(B)
Question No. 3
Accumulatedd epreciation,IJan1
Add: Depreciation expense [(320,000-60,000-20,000)/10]
Accumulated depreciation, I Dec. 31
(C)
Question No. 4
Accumulatedd epreciation,AJan1
Add: Depreciation expense (320,000-64,000) x 20%
Accumulated depreciation, A Dec. 31
(A)
P60,000
24,000
84,000
P
P 64,000
51,200
115,200
P
Question No. 5
Depreciation
expense
on
D (seecomputation
inno.
1)Machinery:
R(seecomputationinno.2)
I(seecomputationinno.3)
A(seecomputationinno.4)
N(88,000/20%)
Total depreciation expense
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4. A
(D)
5.
P 11,600
26,880
24,000
51,200
17,600
P 131,280
D
PROBLEM 18-27 Component Depreciation
Question No. 1
Purchase of bottling plant
Delivery and installation (750,000x 1/3)
Testing (33,000/3)
Total cost of engine
163
(C)
P1,500,000
250,000
11,000
P1,761,000
Chapter 18: Property, Plant and Equipment
Question No. 2
Purchase of bottling plant
Delivery and installation (750,000x 1/3)
Testing (33,000/3)
Total cost of conveyor belt and fittings
P2,000,000
250,000
11,000
P2,261,000
(C)
Question No. 3
Purchase of bottling plant
Delivery and installation (750,000x 1/3)
Testing (33,000/3)
Total cost of outer struc ture
P 800,000
250,000
11,000
P1,061,000
(C)
Question No. 4
Depreciation of component of plant:
Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years x
11/12
231,183
Conveyor belt etc = (2,000,000 + 250,000 + 11,000 – 0) / 8
years 11/12
x
259,073
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years 11/12
x
308,917
Total depreciation of plant
P 799,173
(A)
Depreciation starts from the date that the asset was available for use: February
1, 2016.
Question No. 5
Depreciation
of component
of plant:
Engine = (1,500,000
+ 250,000
+ 11,000 – 500,000) / 5 years
252,200
Conveyor bel t etc = (2,0 00 000 + 250,000 + 11 000 – 0) / 8
years
282,625
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years
337,000
Total depreciation of plant
P 871,825
(A)
SUMMARY OF ANSWERS:
1. C
2. C
3. C
4. A
5.
B
PROBLEM 18-28
Question No. 1
Fair
value
1,400,000
Legal
fees cost
Remodeling
Total cost of building
(C)
164
50,000
100,000
1,550,000
Chapter 18: Property, Plant and Equipment
Question No. 2
Fairvalueo ftheassetreceived
Less:Cash paid
Fairvalue oftheassetgiven
Less: Book value of the asset giv en
Cost
Less: Accumulated depreciation (1M/10 x 3.5)
Gain on exchange
1,200,000
400,000
800,000
1,000,000
350,000
(A)
650000
150,000
Question No. 3
OfficebuildingNo.1 (940,000/7)
Office building No.2 (1,000,000/10 x 6/12)
Office building No.3 (1,200,000/4 x 6/12)
Factoryb uilding(1,550,000/10)
Total Depreciation expense
Costo foffice building No. 1
Less: Accumulated Depreciation
Bookvalue
Add:Majorimprovements
Total
135,000
50,000
150,000
155,000
490,000
(C)
1,000,000
300,000
700,000
245,000
945,000
Question No. 4
Income from government grant (1,400,000/10)
Questi
on No. 5 cost
Total
depreciable
Less:Subsequentd epreciation
Book value
SUMMARY OF ANSWERS:
1. C
2. A
3. C
4. A
5.
(A)
140,000
(A)
945,000
135,000
810,000
A
PROBLEM 18-29
Question No. 1
Date
January1 ,2 015
July1, 2015
Exp enditures
2,000,000
4,000,000
November1 ,2015
Total
Divide
by
Weightedaveragec arryinga mount
3,000,000
9,000,000
165
Months
outstanding
Average
12
24,000,000
6
24,000,000
2
6,000,000
54,000,000
8
4,500,000
Chapter 18: Property, Plant and Equipment
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12)
Less:Investmentincome
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiplyb y:Capitalizationrate
Multiply by: Months/12
Weightedaverageb orrowingcost:
vs.Actual borrowingcost
Capitalizable borrowing cost (lower)
200,000
-
200,000
4,500,000
2,000,000
2,500,000
12%
12/12
300,000
500,000
2,000,000
500,000
(D)
Question No. 2
Totalexpenditures–2015
Totalexpenditures-2016
Capitalizedborrowingcost-2015
Capitalized borrowing cost – 2016 (see computation below)
Total cost of building
(C)
9,000,000
1,000,000
500,000
1,160,000
11,660,000
Exp enditures
*9,500,000
1,000,000
Months
outstanding
Average
12
114,000,000
6
6,000,000
Total
10,500,000
Divide
by
Weig tedaveragec arryinga mount
120,000,000
12
10,000,000
Date
January1 ,2 016
July1, 2016
Total of expenditure in 2015 of P9M and capitalized borrowing cost of
P500,000.
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12)
Less:Investmentincome
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiplyb y:Capitalizationrate
Multiply by: Months/12
Weightedaverageborrowingc ost:
vs.Actual borrowingcost
Capitalizable borrowing cost (lower)
166
200,000
10,000,000
2,000,000
8,000,000
12%
12/12
200,000
960,000
1,160,000
2,000,000
1,160,000
Chapter 18: Property, Plant and Equipment
Question No. 3
Totalexpenditures–2015
Totalexpenditures-2016
Total cost of building
(A)
9,000,000
1,000,000
10,000,000
Borrowing cos t under PFRS for SME is expens ed outrig ht.
Question No. 4
Costo fM achineryandEquipment
Multiply by: Fraction
Depreciation
(A)
3,000,000
3/15
600,000
Question No. 5
Depreciation – remaining delivery truck (see below)
Depreciation – overhauled delivery truck (see below)
Depreciation – new delivery truck (see below)
Total depreciation on delivery truck
(B)
114,000
30,000
24,000
168,000
SYD is 15 yea rs and useful life is 5 year s.
Delivery truck:
Cost
Less:Accumulateddepreciation
Carryingvalue –12/31/2015
Less: Carryingv alue ofo verhauled truck
Balance
Divide
by:Remaining
usefullife
(8-3) ruck
Depreciation
on remaining
deliveryt
Overhauled delivery truck:
Cost
Less: Accumulated depreciation (P240,000 / 8 x 3)
Carryingvalue –12/31/2015
Add:Overhaulingcost
Adjusted carrying value – 01/01/2016
Divide by: Revised remaining usefull ife( 5 +2 )
Depreciation on overhauled delivery truck
1,152,000
432,000
720,000
150,000
570,000
5
114,000
P240,000
90,000
150,000
60,000
210,000
7
30,000
New Delivery truck:
Invoice
cost
Freight
400,000
20,800
Installation
andtesting
Totalcosto fnew
deliverytruck
Divideby:Useful life
Annual depreciation
Multiply by: Number of months used (July 26 to December 31)
40,000
460,800
8
57,600
5/12
167
Chapter 18: Property, Plant and Equipment
Depreciation on remaining deliveryt ruck
24,000
Question No. 6
Beginningbalance
Add:Overhaulingcost
Add:Cost ofnewdelivery truck
Adjustedcostofdeliverytruck
Less: Accumulated depreciation (432,000 + 168,000)
Carrying value – 12/31/2016
(C)
SUMMARY OF ANSWERS:
1. D
2. C
3. A
4. A
5.
B
5.
B
6.
C
PROBLEM 18-29
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4. C
PROBLEM 18-31
Question No. 1
SYD
=(5 (5+1)/2 = 15
Date
4/1/06-4/1/07
4/1/07-4/1/08
Fraction tob e used
(5/15)
(4/15)
Depreciation exp:
Jan 1-4/1/08
(4/15*1,500,000*3/12)
Add: depreciation from 4/1-12/31
Of the 1.2M
(3/15*1,200,000*9/12)
Of the 300,000 (see computation below)
Total depreciation expense
180,000
30,000
P3 10,000
Depreciation exp. from (4/1/-12/31):
Cost
300,000
Less: Accumulated Depreciation
5/15*300,000
100,000
4/15*300,000)
80,000
Book Value, 4/1/08
120,000
Divide by remaining Life (5-2)
3
Total
40,000
Multiply by:
9/12
Depreciation
30,000
Question No. 2
Accumulated depreciation, beg.
Add depreciation expense
800,000
320,000
168
1,152,000
60,000
460,800
1,672,800
600,000
1,072,800
Chapter 18: Property, Plant and Equipment
Accumulated depreciation, End
P 1,120,000
Question No. 3
Beg.Balofland
Add: Acquisition on Nov 4
Total cost of the land
Question No. 4
Directcost
Fixedc ost
Variable cost
Total Cost of bldg.
550,000
700,000
1,250,000
2,220,000
375,000
(15,000 X 25)
(15,000 X 27)
405,000
3,000,000
Question No. 5
Depreciation on the beginning
balance (6M-4,427,136-1,300,000)
Add: Depre ciation on new bldg.
(3,000,000X 20%)
Totaldepreciation
Question No. 6
Cost of the machinery-beg bal.
Addmajoroverhaul
Add: Cost of the new machinery
Invoicec ost
Concrete embedding
Walldemolition
Rebuilding ofw all
Total costo fm achinery
272,864
600,000
872,864
3,000,000
600,000
356,000
18,000
7,000
19,000
4000 00
P4 ,000,000
Question No. 7
Depreciation of machinery
Depreciation of the beg bal of machinery
OriginalCost
Add:Major overhaul
Total
Accum. depreciation
(3,000,000/20*10)
Adjustedbookvalue
Dividedby:r evisedremaininglife
Depreciation of the beg bal of machinery
Depreciation
on
the
(400,000/20*6/12)
Depreciationofm achinery
new
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4. A
5.
P 3,000,000
600,000
3,600,000
P1,500,000
P 2,100,000
15
P 140,000
machinery
D
169
6.
10,000
P 150,000
C
7.
B
Chapter 18: Property, Plant and Equipment
PROBLEM 18-32
Question No. 1
Property-cost
Less: Accumulated depreciation
Depreciation (3,400,000 x 4%)
Carrying value of property
(C)
3,400,000
(1,360,000)
(136,000)
1,904,000
Question No. 2
Cost at 30June2016
Less:Disposal1July2 016
360,000
32,000
Accumulatedd epreciation
Disposal 1 July 2016 (32,000 x 20% x 2yrs)
Carrying value1 July 2016a fter disposal
Less:Depreciation(214,800 x1 5%)
Additions1 April2017
Less: Depreciation (78,000 x 15% x 3/12)
Carrying value – 30 June 2017
(C)
(126,000)
12,800 (113,200)
214,800
(32,220)
78,000
(2,925)
75,075
257,655
Question No. 3
Constructioncosts
Professionalfees
Sitepreparation
costs
Total
cost of retai
l outlet
3 28,000
1,200,000
7,800
90,000
1,297,800
(B)
Question No. 4
Intangible–brand( cost)
Less: Accumulated amortization – 30 June 2016
Less: Amortization – 2017 (290,000 / 10)
Capitalized development cost (96,000 / 6 x 4)
Less: Amortization (64,000 /4 x3 /12)
Carrying value – 30 June 2017
(C)
Land
Property-cost
Less: Accumulated depreciation
Depreciation (3,400,000 x 4%)
290,000
101,500
29,000
64,000
4,000
159,500
60,000
219,500
1,500,000
3,400,000
(1,360,000)
(136,000)
Constructions costs
Fixtures&fittings
Carryingvalue of PPE
1,904,000
1,297,800
257,655
4,959,455
170
Chapter 18: Property, Plant and Equipment
Question No. 5
Depreciation:
Property
Fixtures and fittings (32,220 + 2,925)
Amortization(29,000+4,000)
Total depreciation and amortization
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4. C
5.
136,000
35,145
(D)
D
171
171,145
33,000
204,145
Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS
PROBLEM 19-1 Depletion with Change in Estimate
Question No. 1
Acquisitioncost
Less:Estimatedresidualvalue
Depletable costo f then aturalr esource
Divide by: Tons estimatedt o be extracted
Depletion perton
Multiplyb y:Tonsextracted-2015
Depletion – 2015
Question No. 2
Acquisitioncost
Less: Accumulated depletion – 12/31/2015
Carryingvalue –01/01/2016
Divide by: Tons estimatedt o be extracted
Depletion perunit
Multiplyb y:Tonsextracted–2016
Depletion – 2016
(B)
P164,000
P164,000
20,000
P8.20
4,000
P32,800
(C)
P164,000
32,800
131,200
20,000
P6.56
8,000
P52,480
PROBLEM 19-2 Depletion with Change in Estimate
Acquisitioncost
20,000,000
Exploration cost.
Intangibledevelopmentcost
To al cos oft henaturalresources
lesse stimatedresidualvalue
Total depletable cost of the natural resources
divideby unitsest.t o be extracted
Depletion perunit
x unitsextracted
Depletion from2015to 2017
15,000,000
4,000,000
390 00,000
1,000,000
38,000,000
2,000,000
19.00
500,000
9,500,000
Question No. 1
Cost ofnatural resource
Accumulated depletion
Carryingamount,12/31/2017
Residualvalue
39,000,000
9,500,000
29,500,000
600,000
Depletablecost
Divideby revisedr emainingunits
Depletion rateper unit
Multiply by: Unitsextracted
Depletion
28,900,000
400,000
72.25
200,000
14,450,000
(D)
172
Chapter 19: Wasting Assets
Question No. 2
Cost ofnaturalresource
Accumulated depletion
Carrying amount, 12/31/2018
(D)
39,000,000
23,950,000
15,050,000
PROBLEM 19-3 Depreciation of Movable and Immovable Equipment –
Useful Life of the Immovabl e Equipment is Shorter
Question No. 1
Acquisitioncost
Exploration cost.
Intangibledevelopmentcost
Total costo ft he natural resources
less estimatedresidualvalue
Total depletable cost of the natural resources
divide by units est.t o be extracted
Depletion perunit
Multiply by: Unitsextracted
Depletion
(D)
8,000,000
12,000,000
5,000,000
25,000,000
25,000,000
2,000,000
12.50
500,000
6,250,000
Question No. 2
Costoft hemovableequipment
Divideby:Usefullife
Depreciation
(A)
4,000,000
10
400,000
(B)
2,000,000
4
500,000
Question No. 3
Costo ft hemovableequipment
Divideby:Usefullife(shorter)
Depreciation
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life
of the Wasting Asset is Shorter
Question No. 1
Acquisitioncost
Exploration cost.
Intangibledevelopmentcost
Total costo ft he natural resources
less estimatedresidualvalue
8,000,000
12,000,000
5,000,000
25,000,000
-
Total depletable cost of the natural resources
divide by units est.t o be extracted
Depletion perunit
x unitsextracted
Depletion
(D)
25,000,000
2,000,000
12.50
500,000
6,250,000
173
Chapter 19: Wasting Assets
Question No. 2
costo ft hemovableequipment
dividebyunitsest. tobeextracted
Depreciation
(A)
Question No. 3
Costo ft hemovableequipment
Divide by: Units estimated to be extracted (shorter)*
Depreciationrateperunit
Multiplyb y:A ctualunitse xtracted
Depreciation - 2016
(B)
4,000,000
20
200,000
P2,000,000
2,000,000
P1
500,000
500,000
*Estimated useful li fe using output method (2,000, 000 / 500,000) = 4 years
PROBLEM 19-5 Depreciation –No Production
Costo fi mmovableequipment
Divide by: Units est. to be extracted
Depreciationper unit
x unitsextracted
Accum. Depreciation
4,000,000
2,000,000
2.00
500,000
1,000,000
Question No. 1
Costo fi mmovableequipment
4,000,000
Less:Accumulatedd epreciation
Bookvalue,Dec. 31,2017
Divideby Unitsest.t beextracted
Depreciation in 2018
(B)
1,000,000
3,000,000
12
250,000
Question No. 2
Costo fi mmovableequipment
Less:Accumulateddepreciation
Bookvalue,Dec. 31,2018
Divide by: Remaining units to be extracted
Depreciationper unit
Multiply by: Unitsextracted
Depletion
(A)
4,000,000
1,250,000
2,750,000
1,500,000
1.83
100,000
183,333
PROBLEM 19-6 Liquidating Dividends
Accumulated profits -unappropriated
9,000,000
Accumulated depletion
4,000,000
Total
13,000,000
less: Capital liquidated
850,000
174
Chapter 19: Wasting Assets
Depletion in the ending inventory
(150,000 units X4 )
600,000
1,450,000
Maximum Dividend
(C ) 11,550,000
PROBLEM 19-7
Question No. 1
Acquisitioncost
Divide by: Tons estimated to be extracted
Depletion perton
Multiplyb y:A ctual tons extracted – 2016
Depletion - 2016
Question No. 2
Cost of Installation
Divide by: Tons estimated to be extracted
Depreciationper ton
Multiplyb y:A ctual tons extracted – 2016
Depreciation - 2016
Question No. 3
Cost ofminingequipment
Divideby:Useful life
Depreciation – 2016
Question No. 4
Acquisitioncost
Less:Accumulated Depletion
Carryingvalue– 12/31/2016
Add: Additionald evelopment cost - 2017
Remainingdepletable cost
Divide by: Estimatedt ons to be extracted
Depletion per
ton
Multiplyb y:Tonsextracted–2017
Depletion - 2017
Question No. 5
Installation ((P1,925,000/1.1M) x 150,000 tons)
Miningequipment(P4,400,000/8)
Total depreciation expense
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4. C
5.
175
C
(D)
P9,075,000
1,100,000
P8.25
100,000
825,000
(B)
1,925,000
1,100,000
1.75
100,000
175,000
(A)
4,400,000
8
550,000
(C)
P9,075,000
825,000
P8,250,000
750,000
P9,000,000
1,000,000
P
9
150,000
P1,350,000
(C)
P 262,500
550,000
P 812,500
Chapter 19: Wasting Assets
PROBLEM 19-8 Cost of Wasting Asset with Estimated Restoration Cost,
Depletion, Depreciation of Movable and Immovable Equ ipment
Question No. 1
Acquisition costo ft he wastinga ssets
Explorationa nd intangible devt.C ost
Estimated decommissioning and restoration costs-at PV
Initial cost
(A)
150,000,000
8,000,000
8,196,161
166,196,162
Estimatedrestorationcost
P12,000,000
Multiply by: Present value of 1 for four periods
Present value oft he restorationc ost
0.6830
P 8,196,161
Question No. 2
Totalcosto fthew astingassets
Divide by: Total units estimated to be extracted
Depletion perunit
Multiply by:U nitsextracted
Depletion expense
(B)
Question No. 3
Costoft hemovableequipment
Divideby:Usefullife
Depreciation
(A)
166,196,162
12,000,000
13.85
1,600,000
22,159,488
6,000,000
20
300,000
Question No. 4
Costo ft hemovableequipment
9,000,000
Divide by: Total units estimated to be extracted
12,000,000
Depreciationperunit
.75
Multiply by:U nitsextracted
1,600,000
Depletion expense
1,200,000
(B)
Note: Units of output method was used since the useful life in years using the
estimated units to be extracted each year (8 years) is shorter than the useful life
of the immovab le equipmen t.
*Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years
Question No. 5
Date
Interest expense
01/01/2015
12/31/2015
819,612 (A)
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4. B
Present value
8,196,161
9,015,777
5.
176
A
Chapter 19: Wasting Assets
PROBLEM 19-9 Cost of Wasting Asse t with Est imated Restor ation Cost,
Deple tion, Depre ciation of Movable and Immov able Equip ment
Question No. 1
Acquisition costo ft he wastinga ssets
Explorationa nd intangible devt.C ost
Estimated decommissioning and restoration costs-at PV
Initial cost
(A)
120,000,000
6,000,000
6,355,181
132,355,181
Estimatedrestorationcost
P10,000,000
Multiply by: Present value of 1 for four periods
Present value oft he restorationc ost
0..6355
P 6,355,181
Question No. 2
Totalcosto fthew astingassets
Divide by: Total units estimated to be extracted
Depletion perunit
Multiply by:U nitsextracted
Depletion expense
(B)
132,355,181
12,000,000
11.03
1,600,000
17,647,357
Question No. 3
Costoft hemovableequipment
Divideby:Usefullife
Depreciation
Question No. 4
Costoft hemovableequipment
Divideby:Usefullife(shorter)
Depreciation
(A)
6,000,000
6
1,000,000
(A)
9,000,000
5
1,800,000
*Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years
Question No. 5
Date
Interest expense
01/01/2016
12/31/2016
2,6
7622 (A)
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4. A
Present value
6,355,181
7,117,803
5.
177
A
Chapter 20: Investment Property
CHAPTER 20: INVESTMENT PROPERTY
PROBLEM 20-1: Classificat ion Issu e
Question No. 1
Farming land was purchased for its investment potential.
Planning permission has not been obtained for building
constructions of any kind.
A building that is held under mixed use; half is to earn rentals
A building leased to an associate under an operating lease
Total investment property
(D)
Question No. 2
A new office building used by one of its subsidiaries as its head
office which was purchased specifically in the center of Makati
City in orde r to exploi t its capital gains potential.
Owner-occupiedproperties
Buildings occupied by employees, including Ms. Munda – the
accountant. The employees pays rent on the building they
occupied
A building occupied by employees, the employees do not pay
market rent on the building they occupied.
A building that is held under mixed use;
half of it is owneroccupied
A property wherein significant ancillary services are provided
to occupants
Land and building leased to a subsidiary
A new machine leased to another associate under an operating
lease
A building that is being constructed for future use as
administration building.
Total PPE
(B)
Question No. 3
A property that is in the process of construction for sale
A property intended for sale in the ordinary course of business
Total inventories
(C)
Question No.4
(C)
Question No.5
SUMMARY OF ANSWERS:
1. D
2. B
3. C
4. C
5.
178
C
(C)
800,000
860,000
1,620,000
3,280,000
1,200,000
1,600,000
760,000
240,000
860,000
960,000
2,100,000
530,000
870,000
9,120,000
950,000
450,000
1,400,000
Chapter 20: Investment Property
PROBLEM 20-2: Classificati on Issue
Question No. 1 Separate if portions can be sold or leased out separately. (C)
Question No. 2
(A )
Question No. 3
(B )
Question No. 4
(C )
PROBLEM 20-3: Ancillary services
Question No.1
(C )
Question No.2
(D)
PROBLEM 20-4: Intracompany rentals
Question No.1
(B)
Question No.2
(D)
PROBLEM 20-5: Initial measurement - Investment property leased under
finance lease
Lower of fair val ue or present value of minim um lease pay ments.
Suggested answer: (B)
PROBLEM 20-6: Subsequent measurement: Cost model vs Fair value model
SUMMARY OF ANSWERS:
1. D
2. B
3. D
4. B
5.
D
6.
A
PROBLEM 20-7: Transfer from PPE to Investment Property – Fair value vs
Cost model
Question No. 1
(D)
No gain or loss is recognized if the transfer is made at cost model.
Question No. 2
(D)
No gain or loss is re cognized if the transfer is m ade at cost mo del.
Question No . 3 an d 4
Fair value date of trans fer
Less: Carryingv alue– 12/31/2016(
Revaluationsurplus–OCI
Less: Transfer of revaluation surplus to R/E as a result of
reclassification
179
80,000,000
6,000,000
6,000,000
Chapter 20: Investment Property
Gain (loss) on transfe r
(D)
SUMMARY OF ANSWERS:
1. D
2. D
3. D
4. D
PROBLEM 20-8: Transfer from inventory to investment property – Fair
value vs Cos t model
Question No. 1
Cost
Netrealizablevalue(
(B)
-
2,700,000
Lower of cos t and net re alizable value
Question No. 2
(B)
The initial carrying amount under the new classification is the previous carryin g
amount of
Question No. 3
(D)
No gain or loss is recognized if the transfer is made at cost model.
Question No. 4
(A)
2,880,000. Fair value at the date of transfe r. Don’t deduc t cost to sell.
Question No. 5
(A)
Fair value at the date of transfer
Less:Carrying value
Gain on transfer
2,600,000
PROBLEM 20-9: Derecognition of investment property – Fair value vs Cost
Model
Question No. 1
Gross selling price
Less:Disposalcost
Netsellingprice
Less:Carryingv alue– 12/31/2015(
Gain on sale
(D)
120,000
2,870,000
2,700,000
Question No. 2
Gross selling price
Less:Disposalcost
Netsellingprice
Less: Carrying value – 12/31/2015 (fair value)
Gain on sale
(C)
180
120,000
2,870,000
2,450,000
420,000
Chapter 20: Investment Property
PROBLEM 20-10
Question No. 1
Cost
Less:Residualvalue
Depreciable cost
Dividedby: Usefullife
Annual depreciation
Multiply by: Monthsoutstanding
Depreciation – 2010
(D)
Question No. 2
Depreciation [(
–
Impairmentloss
Total amount to SCI
1,000,000
13,000,000
10 years
1,300,000
8/12
480,000
(A)
Question No. 3
Cost
Accumulated depreciation
Carrying value, beforei mpairment
Impairmentloss
Carrying value, after impairment - 12/31/2012
Less:Residualvalue
Depreciable amount
Divide by: Remaining useful life (120 – 32)
Multiply by: Numberof months
Depreciation – 2013 (to SCI)
(B)
3,466,667
10,533,333
480,000
10,053,333
1,000,000
9,053,333
88 months
12
1,234,545
Question No. 4
Cost
Accumulated depreciation
Carrying value, beforei mpairment
Impairmentloss
Carrying value, after impairment - 12/31/2012
Depreciation -2013[(
Depreciation –2014 [(
Carrying value, 10/31/2014
Depreciation –2014 [(
Gaino ntransfer( 10,050,000Unrealized gain - change in fair value(
Total amount to SCI
(A)
181
3,466,667
10,533,333
480,000
10,053,333
1,234,545
1,028,788
-
1,028,788
2,260,000
950,000
Chapter 20: Investment Property
Question No. 5
Fair value - 12/31/2015
Fairvalue -12/31/2014
Gain on change in fair valu e
Question No. 6
Reclassification loss:
Fairvalue- 05/01/2016
Carrying value, 05/01/2016
Depreciation -2016 [(
Total
11,000,000
450,000
(B)
9,500,000
11,450,000
-
2,322,222
(A)
PROBLEM 20-11 Various investments
No. of
shares
10,000
15,000
25,000
Date
1/1
3/1stock split
Total(10,000x5/2)
11/1 Special assessment
25,000)
Total
( 1.60
Cost per
Total
share
Cost
21
210,000
8.4
210,000
x
25,000
Question No. 1
Fair
value (
Less:Carrying value
Unrealized gain-OCI
(D)
Question No. 2
Broker’s expense over, net income under
Operating expense over, NI under ( 1. 60 x 25,000 shares)
Net income understated
(B)
10
40,000
250,000
375,000
250,000
125,000
( 10,000)
(40,000)
( 50,000)
Question No. 3
Netincome ofassociate
3,000,000
Multiplyb y:Percentageofownership
30%
Share in the net income before adjustment
900,000
Less: Unrealized gain on downstream sale of PPE
320,000
[(
Less: Unrealized profit on upstream sale of inventory
(
30,000
Share in the ne t income after adjustment (C)
550,000
182
Chapter 20: Investment Property
Question No. 4
Costo fI nvestment–01/01/2016
Add: Net investment income - 2016 (see No. 3)
Less: Dividends received -2016 (30% x 800,000)
Add: Share in the translation gain (30% x 1,000,000)
Carrying value – 12/31/2016
(B)
4,000,000
550,000
240,000
300,000
4,610,000
Question No. 5
Costo fI nvestment–01/01/2016
Add: Net investment income - 2016 (see No. 3)
4,000,000
550,000
Less: Dividends received -2016 (30% x 800,000)
Add: Share in the translation gain (30% x 1,000,000)
Less: Amortization of goodwill ( 200,000/10)
Carrying value – 12/31/2016
(C)
240,000
300,000
20,000
4,590,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity canno t determine reliably the useful life, it is
assumed to be 10 yea rs.
Question No. 6
Fairvalue ofbuildingA
Less:Carrying value
Unrealized gain - P&L
SUMMARY OF ANSWERS:
1. D
2. B
3. C
4. B
1,500,000
1,000,000
500,000
(B)
5.
183
C
6.
B
Chapter 22: Intangible Assets
CHAPTER 22: INTANGIBLE ASSETS
PROBLEM 22-1 Research and Development Cost
R&D
Cost of activities aimed at obtaining new
knowledge
Marketingr esearch to study consumert astes
Cost of developing and producing a prototype
model
Cost of testing the prototype model for safety and
environmentalfriendliness
Cost revising designs for flaws in the prototype
model
Salaries of employees, consultants, and technicians
involvedinR&D
Amount paid for conference for the introduction of
the newly developed product including fee of a
model hiredasendorser
Advertising to establish recognition of the newly
developed product
Cost incurred on search for alternatives for
materials, devices, products, processes, systems or
services
Cost of final selection of possible alternatives for a
new
process
Periodic or routine design changes to existing
products
Modification of design for a specific customer
Cost of design, constru ction and operation of a pilot
plant that is not of a scale economically feasible for
commercialproduction
Cost of routine, seasonal, and periodic design of
tools,jigs,moldsanddies
Cost of quality control during commercial
production
Cost of purchased building to be used in various
R&D projects
Depreciation on the building described above
Personnel costs of persons involved in research
and
development
projects
Design,
construction,
and testing of preproduction
prototypesandmodels
Adjusted balances
184
Others
700,000
23,000
16,000
-
80,000
15,000
-
120,000
-
-
102,000
-
43,000
30,000
96,000
-
-
2,500
10,000
5,000
-
18,000
100,000
41,200
96,000
1,306,200
(A)
32,000
1,000,000
-
1,223,500
Chapter 22: Intangible Assets
PROBLEM 22-2 Research and Development
Question No. 1
Subsequent expenditure on research
Development expenditures not qualifying for recognition
(
5/12)
Research and development expense
(A)
Question No. 2
Acquisition cost of research and develop ment
Development expen ditures qualifyi ng for recognition
(
Intangible Asset under Development
(A)
200,000
280,000
In-process research and development acquired is recorded as intangible asset at
cost. Subsequent expenditure on an in-process research and development
project recognized as usually done: research is expensed and development costs
capitalized only if all criteria for capit alization of development costs are met.
PROBLEM 22-3 Purchased computer software
Purchase price excluding refundable purchase tax
Add:Customizationc ost( 120,000+
Testing cost
(
Amortization
(D)
550,000
135,000
37,000
722,000
PROBLEM 22-4 Website Cost
Question No. 1
Zero. All cost s are charged to expense.
(A)
Question No. 2
Obtainingadomainname
Installing developed applications on the web server
Stress testing
Designing the appearance (e.g. layout and color) of web pages
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information
Updating graphics and revisingc ontent
Adding new functions, features and content
Reviewing securityaccess
Total intangible asset
(B)
185
32,000
80,000
12,000
160,000
60,000
32,000
12,000
36,000
424,000
Chapter 22: Intangible Assets
PROBLEM 22-5 Renewable Rights
Question No. 1
As the costs associated with the renewal are insignificant, the asset must be
amortized over the 10 year useful life. The entity intends to renew the license
and the government intends to re-issue the license to Bangus Co., and therefore
it must be treated as an asset with a 10 year useful life.
Amortization (
(D)
Question No. 2
As
the cost
costsofassociated
with
renewal
areamortized
significant,
andthe
almost
equaling
the
initial
the license,
thethe
asset
must be
over
5 year
useful life.
Although the entity intends to renew the license, the renewed license, when it is
acquired, must be treated a separate asset and amortiz ed over a useful life of 5
years.
Amortization (
(C)
COMPREHENSIVE PROBLEMS
PROBLEM 22-6 Goodwill Computation
Current Assets ( 6,000,000 + 800,000)
Investments
PPE( 13,000,000+ 1,850,000)
Currentliabilities
Noncurrent liabilities
Fairvalueo fnetassetacquired
6,800,000
2,000,000
14,850,000
(3,500,000)
(2,500,000)
17,650,000
Fairvalueo fnetassetacquired
Multiply by: Normal rateofreturn
Normalearnings
176 50,000
10%
1,765,000
Totalearnings
Losso n sale(or Gain)onsale
Bonus ( 150,000 x4years)
Operating income
Divideby:No. ofyears
Averageearnings
9,000,000
(100,000)
600,000
9,500,000
4
2,375,000
Question No. 1
Averageearnings
Less:Normal earning
Averageexcessearnings
Multiply by: Capitalization period
Goodwill
Add: Fair value ofn eta sseta cquired
Purchase price
(A)
(A)
186
2,375,000
1,765,000
610,000
4
2,440,000
17,650,000
20,090,000
Chapter 22: Intangible Assets
Question No. 2
Averageearnings
Less:Normal earning
Averageexcessearnings
Divideby:Capitalizationrate
Goodwill
Add: Fair value of net asseta cquired
Purchase price
(B)
(B)
Question No. 3
Averageearnings
Divideby:Capitalizationrate
Purchase price
Less:Fairvalueo f netasset
Goodwill
(B)
(B)
Question No. 4
Averageearnings
Less:Normal earning
Averageexcessearnings
Multiply by: Present value of ordinary annuity
Goodwill
Add: Fair value of net asset acquired
Purchase price
2,375,000
1,765,000
610,000
10%
6,100,000
17,650,000
23,750,000
2,375,000
8%
29,687,500
17,650,000
12,037,500
(C)
2,375,000
1,765,000
610,000
3.0373
1,852,753
17,650,000
19,502,753
Question No. 1
NetPatent,January1
Divideby: Remaininglife(8years-2y ears)
Amortization
(A)
336,000
6
56,000
Question No. 2
None, the tradem ark has an indefinite life.
(B)
(C)
SUMMARY OF ANSWERS:
1 A
2. B
3. B
4. C
PROBLEM 22-7
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4)
Divideby:Useful life
Amortization expense
(A)
187
400,000
5
80,000
Chapter 22: Intangible Assets
Question No. 4
Purchase price
Less: Fair valueo fn et assets acquired
Goodwill (carrying amount)
2,400,000
1,600,000
800,000
(A)
The goodwill shall not be amortized because its useful life is indefinite.
However, goodwill shall be tested for impairment at least annually, or more
frequently if events or changes in circumstances indicate a possible impairment.
Question No. 5
Cost-Patent
Less: Accumulated Amortization (48,000 + 56,000)
Cost - Trademark (no amortization) (1.6M x 3/4)
Cost- Noncompetition agreement
Less: Accumulated Amortization (see no. 3)
Total carrying amount of the Intangible assets
384,000
104,000
400,000
80,000
(B)
280,000
1,200,000
320,000
1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not
identifiable.
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4. A
5.
B
PROBLEM 22-8
Question No. 1
Legal cost
Payment of licenses to author excluding refund able purchase
taxes (100,000-10,000)
Total cost of intangible assets
(D)
Question No ’s 2, 3 and 5
Cost
Less: Amortization in 2016 (97,000/5 x 6/12)
Carryingvalue,12/31/2 016
Less: Amortization in 2017 (97,000/5 )
Carryingvalue,12/31/2 017
Question No. 4
Generalstart-upcost
Amortization
Cost of
printing
Advertisingexpense(20,000x6 /12)
Total Expense
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4. B
97,000
9,700
87,300
19,400
67,900
(B)
5.
188
D
7,000
90,000
97,000
No. 2 (C)
No. 3 (C)
No. 5 (D)
1,500
9,700
100
10,000
21,300
Chapter 22: Intangible Assets
PROBLEM 22-9 Patent, Competitive, Related Pate nt
Question No. 1
Cost
Divideby:Remaining usefullife
Amortization
(C)
500,000
10
50,000
Question No. 2
Cost of theoldPatent
Less: Accumulated Amortization (500,000 / 10 x 2)
Carryingvalue,1/1/2014
Competitive Patent
Total
Divideby:Remaininglife
Amortization
(D)
500,000
100,000
400,000
240,000
640,000
8
80,000
Question No. 3
Carryingvalue,1/1/2014
Less:Amortization2014
Carrying value, 12/31/2014
Question No. 4
Carryingvalue,12/31/2014
Add:Related patent
TotalCarryingvalue,1/1/2015
Divideby:Extendedlife
Amortization
(D)
640,000
80,000
560,000
(A)
560,000
200,000
760,000
20
38,000
(A)
760,000
38,000
722,000
Question No. 5
TotalCarryingvalue,1/1/2015
Less:Amortization,2015
Carrying value, 1/1/2016 = Loss
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4. A
5.
A
PROBLEM 22-10 Comprehensive
Question No. 1
Acquisitioncost
Costs of employee benefit s arising directl y from bringing the
assettoi tsi ntendedcondition
Professional fees arising directly from bringing the asset to its
intended condition
Total cost of the trademark
(C)
600,000
60,000
13,000
673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
189
Chapter 22: Intangible Assets
Question No. 3
Amortization-Trademark
Amortization-Customerlist
Total a mortization
(B)
Question No. 4
Amortization-Trademark
Amortization-Customerlist
Amortization-Franchise
60,000
165,416
Total a mortization
(A)
Downpayment
Add: Present Value of notes payable (600,000 x .7118)
Cost offranchise
Question No. 5
Cost of trademark
Cost of customer list
Less: AccumulatedA mortization
Cost offranchise
Less: Accumulated Amortization
Total carryin g value
SUMMARY OF ANSWERS:
1. C
2. A
3. B
4. A
60,000
60,000
225,416
400,000
427,080
827,080
673,000
300,000
120,000
827,080
165,416
(A)
5.
180,000
661,664
1,514,664
A
PROBLEM 22-11
Question No. 1
Zero, organiz ation cost is treated as outrig ht expense .(A)
Question No. 2
Designcosts
Add:Legalfees
Registration fee with Patent office
Total cost of tradem ark
(B)
Question No. 3
Cash
3,000,000
300,000
100,000
3,400,000
400,000
Add Present value of the note (200,000 x 2.91)
Cost of Franchise
Question No. 4
Cost (seeno. 3)
Less:Amortization(982,000/20)
(B)
582,000
982,000
982,000
49,100
190
Chapter 22: Intangible Assets
Carrying value, 12/31/2016
(A)
Question No. 5
Amortization of the franchise P49,100
932,900
(D)
The trademark has no amortization because it has an indefinite life. It is only
tested for possible impairment .
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4. A
5.
D
PROBLEM 22-12
Question No. 1
Cost-Patent
Less: Amortization for the year (136,000/20)
Carrying value of the Patent
Question No. 2
Licensing agreement No. 1
Unadjustedbalance
Less: Amortization for 2 years (100,000/20 x 2)
Total
Less: Reduction inv alue (90,000x 60%)
Carrying value
Question No 3
Unadjustedbalance
Add: Amount creditedf ora dvancec ollection
Total
cost
Less:Amortization(120,000/10)
Carrying value - Licensing agreement No. 2
Question No. 4
Carrying values:
Patent(seeno.1)
LicensingAgreementNo.1(No.2)
LicensingAgreementNo.2(No.3)
Total carryin g value
(C)
136,000
6,800
129,200
(B)
100,000
10,000
90,000
54,000
36,000
(C)
118,000
2,000
120,000
12,000
108,000
(C)
129,200
36,000
108,000
273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for
incorporation should be charged to expense when it were incurred.
Question No. 5
Nonamortization of Licensing Agreement No 1 (100,000/20 x 1)
Expenses capitalized:
191
5,000
Chapter 22: Intangible Assets
Goodwill(16,000+32,000)
Organization cost
Overstatement of Retained earnings
(A)
48,000
58,000
111,000
All the expenses above were understated thereby overstating the net income
and retained ea rnings.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4. C
5.
A
PROBLEM 22-13
Question No. 1
Unadjustedbalance
Less: Unamortized portion of improvements debited
Cost
P75,000
Less: Amortization (P75,000 / 10 x 3)
22,500
Adjustedbalance–01/01/2016
Less: Amortization 2016 (P52,500 + P56,071) – see below
Carrying value – 12/31/2016
(A)
Computation of amortization:
Adjustedbalance–01/01/2016
Less: CV of Patent with remaining UL of 2 years – 01/ 01/2016
Cost
210,000
Less: Accumulated amortization 01/01/2016
(P210,000/14x7 )
105,000
CV of Patent with remaining UL of 7 years – 01/01/2016
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2)
Patent with remaining UL of 7 years (392,500 / 7)
TotalAmortization
Question No. 2
Franchise cost
Less:Amortization(50,000/ 5)
Carrying value 12/31/2016
550,000
52,500
497,500
108,571
388,929
497,500
105,000
392,500
52,500
56,071
108,571
(A)
50,000
10,000
40,000
Question No. 3
The amount to be rep orted as goodwill is the excess of cost over the fair va lue of
net asset acquired. Goodwill is not amortized but only subject to impairment
testing. Therefore, the amount to be repor ted is P200,000.
(A)
Question No. 4
Other coding costs after establishment of
feasibility
192
technological
240,000
Chapter 22: Intangible Assets
Other testing costs after establishment of technological
feasibility
Costs of producing master for training materials
Total Software Cost
(A)
Question No. 5
Completion of detailedp rogram design
Costs incurred for coding and testing to establish technological
feasibility
Total Cost charged to Expense
(A)
Question No. 6
Amortization:
Patent(seeNo. 1)
Franchise(see No.2)
Software cost–noneyet
Total Cost charged to Expense
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4. A
(C)
5.
A
6.
200,000
150,000
590,000
130,000
100,000
230,000
108,571
10,000
118,571
C
PROBLEM 22-14 Inventories, PPE and Intangible Asse ts
Question No. 1
Unadjustedbalance
4,300,000
Add: Goods purchased FOB Shipping Point
Adjusted balance
Question No. 2
Totalacquisitioncost
Add:Mortgageassumed
Totalcosto flandandb uilding
Multiplyb y: Percentage allocated to building
Total Purchase Price allocated to Building
Add: Remodeling Cost( 300,000 – 20,000)
Total Cost of Building
(B)
40,000
4,340,000
(A)
4,000,000
800,000
4,800,000
80%
3,840,000
280,000
4,120,000
Question No. 3
Cost of improvement
Less: Accumulated depreciation (500,000/8 x 9/12)
Carrying value
(B)
Question No. 4
Carryingvalue –01/01/2016
Less: Amortization 2016 (432,000 / 3 years remaining UL)
193
500,000
46,875
453,125
432,000
144,000
Chapter 22: Intangible Assets
Carrying value
Question No. 5
Building( 4,120,000-120,000)/50
Leasehold Improvements (500,000/8 x 9/12)
Furnitureand Fixtures
Franchise (500,000/10)
Licensingagreement
Total depreciation and amortization expense
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4. C
5.
194
A
(C)
288,000
(A)
80,000
46,875
150,000
50,000
144,000
P470,875
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
CHAPTER 23: REVALUATION, IMPAIRMENT AND
NONCURRENT ASSET HELD FOR SALE
PROBLEM 23-1 Revaluation, No Change in Estimate
Question No. 1
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
Historical
Cost
8,000,000
2,000,000
6,000,000
Replacement
Cost
15,000,000
3,750,000
12,250,000
Increase
7,000,000
1,750,000
5,250,000
(C)
Carrying amount/Depreciated R eplacement Cost/Revaluation Surplus
Question No. 2
DepreciatedReplacementcost
Divideby:Remainingusefullife(20–5)
Depreciation Expense – 2017
(C)
11,250,000
15
750,000
Question No. 3
Revaluationsurplus,b eginning
Less: Piecemeal realization – 2017 (5,250,000 / 15)
Remaining revaluation surplus end of 2017
(B)
5,250,000
350,000
4,900,000
Que
stionPrice
No. 4
Net
Selling
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P750,000 x 2
years)
Gain on sale
10,000,000
11,250,000
1,500,000
(A)
Question No. 5
Revaluationsurplus,b eginning
Less: Piecemeal realization for two years (5,250,000/ 15 x 2)
Remaining revaluation surplus to R/E
(B)
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4. A
5.
195
B
9,750,000
250,000
5,250,000
700,000
4,550,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-2 Revaluation, With Change in Useful Life
Question No. 1
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
Replacement
Cost
14,000,000
2,800,000
11,200,000
Cost
12,000,000
2,400,000
9,600,000
Increase
2,000,000
400,000
1,600,000
(B)
Carrying amount/Depreciated R eplacement Cost/Revaluation Surplus
Question No. 2
DepreciatedR eplacementcost
Divideby:Remainingusefullife
Depreciation Expense – 2016
(B)
11,200,000
25
448,000
Question No. 3
Revaluationsurplus,01/01/2016
Less: Piecemeal realization – 2016 (1,600,000/ 25)
Remaining revaluation surplus end of 2016
(C)
1,600,000
64,000
1,536,000
Question No. 4
NetSellingPrice
Less: Carrying amount – 01/02/2017
Depreciated Replacement Cost, date of revaluation
11,200,000
Less: Subsequent depreciation (P11.2M / 25 x 2)
Gain on sale
896,000
(A)
10,000,000
Question No. 5
Revaluationsurplus,b eginning
Less: Piecemeal realization for two years (1,600,000 / 25 x 2)
Remaining revaluation surplus to R/E
(B)
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4. A
5.
10,304,000
(304,000)
1,600,000
128,000
1,472,000
B
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Replacement
Machinery
Less: Accumulated depreciation
CA/DRC/RS
Cost
4,550,000
*1,125,000
3,425,000
196
Cost
9,100,000
**2,250,000
6,850,000
Increase
4,550,000
1,125,000
3,425,000
(C)
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Carrying amount/Depreciated R eplacement Cost/Revaluation Surplus
*This amount should be the actual amount of accumulated depreciation (i.e.
using the original residual value)
** (9,100,000 – 100,000) / 20 x 5. This is computed using the revised residual
value.
Question No. 2
DepreciatedR eplacementcost
6,850,000
Less:
Revisedamount
residualvalue
Depreciable
Divideby:Remainingusefullife
Depreciation Expense – 2016
(B)
100,000
6,7500,000
25
270,000
Question No. 3
Revaluationsurplus,0 1/01/2016
Less: Piecemeal realization – 2016 (3,425,000 / 25)
Remaining revaluation surplus end of 2016
(B)
3,425,000
137,000
3,288,000
Question No. 4
NetSellingPrice
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P540,000 x 2)
Gain on sale
7,000,000
6,850,000
540,000
(C)
Question No.
Revaluationsurplus,b eginning
Less: Piecemeal realization for two years (P274,000 x 2)
Remaining revaluation surplus to R/E
(B)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4. C
5.
6,310,000
690,000
3,425,000
274,000
3,151,000
B
PROBLEM 23-4 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL
Question No. 1
Cost
Less:Residualvalue
Depreciable amount
Divideby:Estimated usefullife
Depreciation - 2016
(B)
197
2,200,000
200,000
2,000,000
10
200,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Zero. The company is usin g the cost model . (A)
Question No. 3
Cost
Less:Accumulatedd epreciation
Carryingamount
Less:Revised residualvalue
Depreciable amount
2,200,000
200,000
2,000,000
290,000
1,710,000
Divideby:Remainingusefullife
Depreciation - 2017
9
190,000
(D)
Question No. 4
Cost
Less: Accumulated Depreciation (200,000 + 190,000 + 190,000)
Carryingamount–12/31/2019
Less: Recoverable amount, date of impairment
Impairment loss
(C)
Question No. 5
Recoverable amount
Less:Revised residualvalue
Depreciable amount
Divideby:Remainingusefullife
939,500
40,000
899,500
7
Depreciation
SUMMARY OF ANSWERS:
1. B
2. A
3. D
4. C
2,200,000
1,620,000
1,620,000
939,500
680,500
128,500
(B)
5.
B
CASE NO. 2 REVALUATION MODE L
Question No. 1
Cost
Less:Residualvalue
Depreciable amount
Divideby:Estimated usefullife
Depreciation - 2016
(B)
Question No. 2
Recoverablea mount/fairv alue
2,200,000
200,000
2,000,000
10
200,000
2,990,000
Less:
Carr ying
amount
Machinery
at cost
Less: Accumulated depreciation
Revaluation surplus
2,200,000
200,000
(D)
198
2,000,000
990,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Recoverablea mount/fairv alue
Less:Revised residualvalue
Depreciable amount
Divideby:Remainingusefullife
Depreciation
2,990,000
290,000
2,700,000
9
300,000
(C)
Question No. 4
Recoverablea mount, date of revaluation
Less: Subsequentd epreciationf or 2y ears
2,990,000
600,000
Carryingamount
Less: Recoverable amount, date of impairment
Decreaseinvalue
Less: Remaining r evaluation
Revaluation surplus, date of revaluation
Less: Piecemeal realization for two years
Impairment loss
(C)
Question No. 5
Recoverable amount
Less:Revised residualvalue
Depreciable amount
Divideby:Remainingusefullife
Depreciation-2019
2,390,000
939,500
1,450,500
990,000
220,000
770,000
680,500
939,500
40,000
899,500
7
128,500
(B)
PROBLEM 23-5 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL
Question No. 1
Cost
Less:Residualvalue
Depreciable amount
Divideby:Estimated usefullife
Depreciation - 2016
(C)
2,300,000
200,000
2,100,000
10
210,000
Question No. 2
Cost
Less:AccumulatedD epreciation
Carryingamount–12/31/2017
2,300,000
210,000
2,090,000
Less: Recoverable amount, date of impairment
Impairment loss
199
(C)
1,850,000
240,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Recoverable amount
Less:Revised residualvalue
Depreciable amount
Divideby:Remainingusefullife
Depreciation
1,850,000
50,000
1,800,000
9
200,000
(B)
Question No. 4
Recoverablea mount –01/01/2017
Less: Accumulated Depreciation – 12/31/2018
1,850,000
400,000
Carryingamount–12/31/2018
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount – 01/01/2019
Gaino nimpairmentrecovery–P&L
The increase in fai r value is recogniz ed in P&L.
1,450,000
2,300,000
630,000
1,670,000
49,400
(A)
Would have been carrying amoun t had been there no impairmen t:
Cost
2,300,000
Less: Depreciation
2016
210,000
2017
210,000
2018
210,000
Would have been carrying value – 12/31/2018
1,670,000
Question No. 5
Lower between Recoverable amount and would have been book
value – 01/01/2019
Less:Newresidual value
Depreciable amount
Divideby:Remainingusefullife( 10–3)
Depreciation
(D)
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4. A
5.
1,499,400
0
1,499,400
7
214,200
D
CASE NO. 2 REVALUATION MODE L
Question No. 1
Cost
Less:Residualvalue
2,300,000
200,000
Depreciable amount
Divideby:Estimated usefullife
Depreciation - 2016
(C)
200
2,100,000
10
210,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Cost
Less:AccumulatedD epreciation
Carryingamount–12/31/2017
Less: Recoverable amount, date of impairment
Impairment loss
2,300,000
210,000
2,090,000
1,850,000
240,000
(C)
Question No. 3
Recoverable amount
Less:Revised residualvalue
1,850,000
50,000
Depreciable amount
Divideby:Remainingusefullife
Depreciation
1,800,000
9
200,000
(B)
Question No. 4
Recoverablea mount –01/01/2017
Less: Accumulated Depreciation – 12/31/2018
Carryingamount–12/31/2018
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount – 01/01/2019
Gaino nimpairmentrecovery–P&L
The increase in fai r value is recogni zed in P&L.
1,850,000
400,000
1,450,000
2,300,000
630,000
1,670,000
49,400
(A)
Would have been carrying amoun t had been there no impairmen t:
Cost
Less: Depreciation
2016
2017
2018
Would have been carrying value – 12/31/2018
2,300,000
210,000
210,000
210,000
1,670,000
Zero, since recoverable amount is lower than the would have been book
value if there is no impairment loss.
Question No. 5
Recoverablea mount –01/01/2019
Less:Revised residualvalue
Depreciable amount
Divideby:Remainingusefullife( 10–3)
Depreciation
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4. A
(D)
5.
201
D
1,499,400
1,499,400
7
214,200
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-6 Impairment of Intangible Assets
Question No. 1
Patent(200,000/10)
Computer software(100,000x6 0/120)
Total a mortization
20,000
50,000
70,000
(A)
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carryingvalue
Less: Recoverable amount (80,000 / .05)
Tradename:
Carryingvalue
Less: Recoverable amount (15,000 / .05)
Goodwill:
Carrying value of reporting unit
Less: Recoverable amount (200,000 x 14.0939)
Total impairment loss
Question No. 3
Carrying valueo fg oodwill – 12/31/2015
Less: Allocated impairment loss of reporting unit
Carrying value of goodwill – 12/31 /2016
400,000
160,000
240,000
350,000
300,000
50,000
3,000,000
2,818,780
(C)
181,220
471,220
(B)
900,000
181,220
718,780
Question No 4
Patent(P200,000–P20,000)
Copyright(recoverableamount)
Tradename(recoverableamount)
Computer software (100,000 – 50,000)
Carrying value of intangible assets – 12/31/2016 (A)
180,000
160,000
300,000
50,000
690,000
Note that goodwill is not rep orted as an intan gible asset.
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4. A
202
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-7 Amortization and Impair ment of Intangible Assets
Questions 1 and 2
Trademark-Unadjustedbalance
Less: Unamortized cost of improvement
that should have been expensed
Cost
Less: Accum. amortization (150,000/10 x 2)
Total
Add: Competitive patent debited to expense
1,430,000
150,000
30,000
120,000
1,310,000
Cost
135,000
Less: Accum. amortization (135,000/9 x 1)
15,000
120,000
Adjustedbalance,January1.2016
1,430,000
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4)
40,000
1() A
Remaining patent (1,430,000-160,000)/15-7)
158,750
198,750
Carrying value of the Patent, 12/31/2016
1,231,250
2) A
(
Computation of the P160,000:
Original
cost
Less: Accumulated amortization (300,000/15) x 7 years))
Remainingc arryingv alue,1/1/2016
300,000
140,000
160,000
The 7 years age is from January 1, 2009 to January 1, 2016.
Questions 3
Carrying value of the trademark (no amortization)
Less: Recoverable amount (P75,000/10%)
Impairment loss
(B)
800,000
750,000
50,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3)
(B)
Questions 5
Downpayment
Add:Presentvalue ofthenote
Totalcost ofthe franchise
Divideby:Useful life
Amortization expense
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4. B
(D)
5.
203
D
500,000
874,000
1,374,000
10
137,400
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-8 Impairment of Cash Generating Unit
Question No. 1
Total carrying amount before impairment
Less:Fairv aluel esscosts to sell
Impairmentloss
Less: Impairment loss allocated to Goodwill
Impairment loss allocated to other assets
(D)
72,000,000
60,000,000
12,000,000
2,000,000
10,000,000
Questions No. 2 and 3
(A)
Other assets in this case would include only PPE and Patent. Impairment of
inventories (i.e. write-down to NRV) is covered by PAS 2 while impairment of
FA at FVTOCI will be covered by PAS 39 / PFRS 9.
Questions No. 4 and 5
PPE (atc ost model)
Patent
Total
Carryinga mount
before impairment
30,000,000
10,000,000
40,000,000
SUMMARY OF ANSWERS:
1. D
2. A
3. A
4. D
5.
Ratio
0.75
0.25
Allocated
Impairment loss
7,500,000 (D)
2,500,000 (D)
10,000,000(D)
D
PROBLEM 23-9 Impairment and Reversal of Impairment of Cash
Generating Unit
Cash
Inventory
Accountsreceivable
Plant andequipment
Less:Accumulateddepreciation
Trademark
Patent
Goodwill
TotalCarryingamountof CGU
Less:Value inuse
Impairmentloss
Less: Impairment allocated to goodwill
Impairment loss allocatedt o othera sset
204
100,000
800,000
1,200,000
24,000,000
10,400,000
2,550,000
850,000
400,000
19,500,000
16,300,000
3,200,000
400,000
2,800,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Plant and equipment
Trademark
Patent
Total
Plant and equipment
Trademark
Patent
Total
Balance
before
Impairment
13,600,000
2,550,000
850,000
17,000,000
Fraction
13.6/17
2.55/17
.85/17
Balance
after
Impairment
Reallocation
11,360,000
2,130,000
710,000
14,200,000
(40,000)
(7,500)
47,500
-
Plant and Equipment:
Would have been BV, no impairment
Cost
Less: Accumulated depreciation (2.6M +300,000)
Actual Book value
Impairedvalue
Less: Subsequent depreciation
Maximumg aino n reversal ofi mpairment
Trademark:
Would have been BV, no impairment
Cost
Less: Subsequent amortization
Balance
after
Reallocation
11,320,000
2,122,500
757,500
3,520,000
24,000,000
11,600,000
11,320,000
1,000,000
2,550,000
120,000
Actual Book value
Impairedvalue
Less: Subsequent depreciation
Maximumg aino n reversal ofi mpairment
Patent:
Would have been BV, no impairment
Cost
Less: Subsequenta mortization
2,122,500
112,000
850,000
80,000
Actual
Book
value
Impaired
value
Less: Subsequent depreciation
Maximumg aino n reversal ofi mpairment
205
Balance
after
Impairment
11,360,000
2,130,000
710,000
14,200,000
Impairment
Loss
(2,240,000)
(420,000)
(140,000)
2,800,000
757,500
60,000
1.
(B)
2.
(B)
3.
(B)
12,400,000
10,320,000
2,080,000
2,430,000
2,010,500
419,500
770,000
697,500
72,500
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Plant and equipment
Trademark
Patent
Total
Balance
before
Reversal
10,320,000
2,010,500
697,500
13,028,000
Allocated
Gain
Max gain
1,901,136 1,901,136
370,372
370,372
1 28,492
72,500
2,400,000 2,344,008
Fraction
10320/13028
2010.5/13028
697.5/13028
Balance
after
Balance
Plant and equipment
Trademark
Patent
Total
Max gain
1,901,136
370,372
72,500
2,344,008
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4. C
bef. Reall
12,221,136
2 ,380,872
825,992
15,428,000
5.
C
6.
Reallocatio n reallocation
46,863
12,267,999
9,130
2,390,001
(55,992)
770,000
15,428,000
A
PROBLEM 23-10 Noncurrent Assets Held for Sale -Sing le Asset
Question No. 1
Cost
Less:Accumulatedd epreciation
Carryingamount
1,200,000
480,000
720,000
Less: Initial amount recognized– lower of:
Carryingamount
Fairvalue lesscosttosell
Impairment loss
720,000
600,000
(C)
600,000
120,000
Question No. 2
Zero. Non-current asset hel d for sale should not be depreciated.
(A)
Question No. 3
Lower of:
Carryingamount
FVLCTS
Less: Carrying amount at initial recognition
Gain on reversal – P &L
720,000
600,000
120,000
Question No. 4
Net Selling Price( 1,800,000 – 50,000)
Less:Carrying amount
Gain on sale
720,000
790,000
(C)
(B)
206
750,000
720,000
30,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Cost
Accumulated depreciation
Carryingamount
Less: Initial amount recognized– lower of:
Carryingamount
Fairvalue lesscosttosell
Impairment loss
1,200,000
480,000
720,000
720,000
800,000
(A)
720,000
-
SUMMARY OF ANSWERS:
1. C
2. A
3. C
4. B
5.
A
PROBLEM 23-11 Noncurrent Assets held for Sale- Disposal Group
Question No. 1
C P8,800,000.
Question No. 2
(C) P6,000,000.
Question No. 3
Total carrying amount before impairment
Less:Fairv aluel esscoststosell
Impairmentloss
Less: Impairment loss allocated to Goodwill
59,600,000
52,000,000
7,600,000
6,000,000
(B)
Impairment loss allocated to othera ssets
1,600,000
Questions No. 4 & 5
PPE(atc ostmodel)
PPE (at revaluation model)
Total
Carrying
amount as
remeasured
22,800,000 0.59
16,000,000
0.41
38,800,000
Revaluation
surplus
PPE(atc ostmodel)
PPE
Total(at revaluation model)
400,000
400,000
Remaining revaluation surplus is
(P3,000,000 minus (P32M-P30M)
Allocated
Decrease
940,206
659,794
1,600,000
Carrying
amount
Impairment
after
loss
impairment
940,206
21,859,794
259,794
1,200,000
P1,000,000
207
Revaluation
surplus
400,000
1,000,000
15,340,206
37,200,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Decrease in value of the PPE (at revalu ation model) is allocat ed to
1. First, remaining revaluation surplus
2. Balance to impairment loss.
SUMMARY OF ANSWERS:
1. C
2. E
3. D
4. B
5.
A
PROBLEM 23-12 Noncurrent Assets held for Sale – Investment in Associate
Question No. 1
Sharein netincome(900,000x 30%)
Less: Amortization of undervalued asset
Net investment income
Question No. 2
Beginningbalance– 01/01/2016
Add: Net investmentincome (see No.1 )
Less: Dividends received( 150,000 x 30%)
Carrying amount – 12/31/2016
Question No. 3
Carryingamount–12/31/2016
Less: Initial amount recognized– lower of:
Carryingamount
(B)
270,000
10,000
260,000
(A)
5,000,000
260,000
45,000
5,215,000
5,215,000
5,215,000
Fair value less cost to sell
Impairment loss
4,900,000
(B)
4,900,000
315,000
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when
the investment in associate is classified as noncurrent held for sale. The cash
dividend shall be recognized as income.
(A)
Question No. 5
Net Selling Price (P4,900,000 – P100,000)
Less:Carrying amount
Loss on sale
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4. A
5.
208
(D)
D
4,800,000
4,900,000
(100,000)
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-13
Question No. 1
Irrigation Equipment
Freight
in
Installation cost
Total Machinery and Equipment, end
(A)
Question No. 2
Tradeinallowance
Book Value:
Cost
Less: Accum. Depreciation (P660,000+ P165,000)
Loss on trade in
P 740,000
10,000
192,000
P 942,000
400,000
1,300,000
825,000
(B)
Question No. 3
Before addition [(P3,100,000 – P100,000)/20 x 3/12)
After addition: [(P3,100,000 – (P562,500 + P37,500) + 980,000
P200,000)/20)x9/12)
Depreciation expense
(B)
475,000
75,000
37,500
123,000
160,500
Remaining life (20 – 4 + 4) = 20 ye ars
Question No. 4
Turf cutter [{(P1,300,000 – P200,00 0)/5} x 9/12] +
{(P800,000 – P50,000)/6 x3 /12)}]
Water desalinator [(P3,780,000 – P270,000)/10]
Irrigation equipment [(942,000/4) x 6/12]
Officebuilding
Total Depreciation expense
P
(B)
P
196,250
351,000
117,750
160,500
825,500
Question No. 5
Fairvalueo ninitialr evaluation
P 3,780,000
Book value on initial revaluation:
Cost
P4,000,000
Accumulated d epreciation
[(P4,000,000 – P200,000)/10 x 2)
( 760,000)
3,240,000
12/31/2016RevaluationS urplus
P 540,000
Less: Piecemeal realization in 2017 (P540,000/10)
54,000
12/31/2017Revaluations urplus
P 486,000
12/31/2017Fairvalue
P 3,400,000
12/31/2017 Book value:
Adjustedcost
P 3,780,000
Accumulated Depreciation
[(P3,780,000 – P270,000)/10]
( 351,000)
Revaluation decrease – charged to Revaluation Surplus (A)
P
209
3,429,000
29,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4. B
5.
A
PROBLEM 23-14
Question N os. 1 and 2
Cost-beginningbalance
Less Accumulated depreciation, beginning
Heldfor sale-carryingamount
Total
Depreciation charge for the year
Held fors ale(8,200x20%x6/12)
Remaining balance (232,425 x 20%)
Classified as held for sale:
Depreciationfor theyear
Carrying amount
Question No. 3
Carryingamountat1Oct2015
Lessvaluationa t1 October2015
Revaluationsurplus
126,000
144.375
8,200
232,425
820
46,845
(A
1.)
47,305
820
185,940
(A)
372,000
449,500
77,500
Valuation at1October2015
449,500
Less Depreciation expense (449,500/(40-9)
Revaluation surplus
(B)
Question No. 4
Carryingamountat1Oct2015
Lessvaluationa t1 October2015
Decreaseinvalue
14,500
435,000
1,080,000
600,000
480,000
Valuation at1October2015
Less Depreciation expense (600,000/(50-20)
Revaluation surplus
(B)
Question No. 5 C
Carryingamountat1Oct2015
Lessvaluationa t1 October2015
600,000
20,000
580,000
1,080,000
600,000
Decrease
invaluerevaluations urplus
Lessremaining
Impairmentloss-PropertyB
Impairment loss-held for sale
(8,200-820)-6,500
480,000
456,000
24,000
880
210
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Total impairment loss
24,880
(C)
Question No. 6
Depreciation expense based on revalued amount
Less depreciation expense based on historical cost (400,000/40)
Piecemeal realization
(D)
14,500
10,000
4,500
Or
Revaluation surplus,b eginning( Prop. A)
Addrevaluations urplus,Oct.1 ,2 015
62,000
77,500
Totalrevaluation surplus
Dividebyremaininglife
Piecemeal realization
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4. B
139,500
31
4,500
(D)
5.
211
C
6.
D
Chapter 25: Introduction to Liabilities
CHAPTER 25: INTRODUCTION TO LIABILITIES
PROBLEM 25-1 Total Liabilities
Total liabilities
Current
Accountspayable
Loanp ayable– currentportion
Unearnedrent income
Income taxpayable
P 1,000,000
1,000,000
300,000
250,000
Dividends
payable
Totalcurrent
liabilities
100,000
P 2,650,000
Non-current
Bonds payable
Discountonbondspayable
Loanp ayable– non-current portion
Deferredtax liability
Totalnon-currentliabilities
Total liabilities
(
(B)
P 5,000,000
500,000)
1,500,000
15,000
P 6,015,000
P8 ,665,000
Below items shall be presented as part of entity’s assets:
Current asset
Advances toemployees
P
45,000
Non-current asset
Cash surrender value of officers’ life insurance
Patent
75,000
50,000
Below ite m shall be pre sented in the shareholder’s equity:
Sharedividendspayable
P
150,000
Below item shall be disclosed in the not es to financial stateme nts:
Contingent liability – guarantee to James
P 500,000
The bank overdraft, which is part of cash management, is offset to an y bank
balance with posi tive bala nce as provided under PAS 7.
PROBLEM 25-2 Current Liabilities
Current liabilities
Accounts payable –unadjusted
P 4,000,000
Add/(Deduct):
Adjustments
Debit balances
in suppliers’ accounts
Postdated checksof
Accountspayable–adjusted
Credit balances in customers’a ccounts
212
100,000
50,000
P 4,150,000
500,000
Chapter 25: Introduction to Liabilities
Premiumspayable
Accruedexpenses
Total current liabilities
(A)
600,000
150,000
P5 ,400,000
Below items shall be presented as part of entity’s non-cur rent liabilities:
Bonds payable
1,000,000
Premiumonbondspayable
100,000
Mortgage payable
850,000
Deferredtaxliability
200,000
Deferredrevenue
175,000
Below item shall be presented as part of shareholders’ equity:
Stockdividendspayable
750,000
PROBLEM 25-3 Refinancing
Current liabilities
10% note payable, maturing 03/3 1/2015
Annuals inkingfund requirement
Total current liabilities
(C)
P10,000,000
500,000
10,500,000
Below items shall be presented as part of entity’s non-cur rent liabilities:
12% note payable, maturing 06/30/2015
6,000,000
7% guaranteed debentures, due2 018
2,000,000
PROBLEM 25-4 Refinancing
(A) The amount to be reported as current liabilities in 2014 is P2,000,000 since
the refinancing agreement was completed af ter the reporting date.
PROBLEM 25-5 Refinancing
(A) The amount to be reported as current liabilities in 2014 is P2,000,000 since
the grace period was gran ted after the reporting date.
PROBLEM 25-6 Accounts payable
Accounts payable
Accounts payable –unadjusted
Cost of goodslostintransit
Cost ofreturnedgoods
P 8,000,000
500,000
(
200,000)
Accounts payable – adjusted
(B)
213
P8 ,300,000
Chapter 25: Introduction to Liabilities
PROBLEM 25-7 Accounts payable
Amount of cash to eliminate accou nts payable
Accounts payable from:
*Purchases through March 15 (gross)(P4,900,000 / 98%)
P 5,000,000
Merchandise inventory at cost(P1,500,000 / 150%)
1,000,000
Accounts payable
(B)
P6 ,000,000
*The amount was gros sed-up since the entity is no longer enti tled to cash
discount. The liability as of March 15, 2015 has been outstanding for more than
10 days.
PROBLEM 25-8 Bonus payable
Amount of bonus
Net income before bonus and income tax
Less: Required income to earn bonus
Basis of bonus
Multiply by: Bonusrate
Total current liabilities
(C )
PROBLEM 25-9 Bonus payable
Amount of bonus
Net income before bonus and income tax
Less: Required income to earn bonus
Amount of income subject to bonus (125%)
Less: Bonus (25%)
(squeeze)
(D)
Basis of bonus (100%) (P600,000/125%)
PROBLEM 25-10 Unearned Revenue
Unearned revenue – gift certificates
Unearned revenue
1,500,000
Gift certificate
redeemed
4,000,000
5,000,000
Expired gift
certificate
300,000
4,300,000
6,500,000
Balance, End (B)
2,200,000
6,500,000
6,500,000
214
P 2,200,000
880,000
P 1,320,000
10%
P 132,000
P 1,600,000
1,000,000
P 600,000
120,000
P 480,000
Balance, Beg.
Cash receipts from
gift certificate sold
Chapter 25: Introduction to Liabilities
PROBLEM 25-11 Advances from Customers
Unearned rev enue – Advance s from customers
Unearned revenue
1,100,000
Advances applied to
shipments
1,600,000
1,800,000
Ordersc ancelled
100,000
1,700,000
2,900,000
Balance, End (C)
1,200,000
2,900,000
2,900,000
PROBLEM 25-12 Escrow Liability
Deposits received – Escrow account
Escrow liability
600,000
Cash payments nine
months
4,200,000
4,500,000
4,200,000
5,100,000
Balance, End (C)
900,000
5,100,000
5,100,000
PROBLEM 25-13 Container’s Deposits
Deposits received – Escrow account
Liability for Deposits
100,000
Cash refunds for
container returned in
2014
92,000
100,000
Balance, End (C)
92,000
108, 000
200,000
Balance, Beg.
Advances
received
Balance, Beg.
Cash receipts for
nine months
Balance, Beg.
Cash deposits
from d eliveries
200,000
200,000
PROBLEM 25-14 VAT payable
Provision - VAT payable
VAT Payable
Payment made
Balance, End (A)
120,000
120,000
84,000
96,000
300,000
120,000
180, 000
300,000
300,000
215
Balance, Beg.
For October
For November
For December
Chapter 25: Introduction to Liabilities
PROBLEM 25-15 Provision: Continuous range of outcome
means that the contingency
(D) A range between 10,000 and
cannot be reliab ly estimated, hence no pro vision is recognized.
PROBLEM 25-16 Provision: Expected value with adjustment factor
70% chance that outcome will occur × 20% × 200,000
70% chance that outcome will occur × 80% × 100,000
Expectedvalue
Multiply by: Riskadjustment
Risk adjustedexpected value
Multiplyb y:Presentvaluefactor
Provision
(D)
28,000
56,000
84,000
1.07
89,880
89,000
81,709
PROBLEM 25-17 Restructuring Provisions
Wagesofretrenchedemployees
Salary ( 50,000x 60%)
Retrenchmentpackage
Restructuring provision
1,000,000
30,000
150,000
1,180,000
(D)
Note that 60% (administering the closure and transfer of employees of Factory
A) is only included in computing the restructuring provision since it is directly
related to the restructuring.
PROBLEM 25 18 Continge ncies
(C) Since the outcome of the lawsuit remains uncertain, disclosure of the
contingency in the notes to financial statements would be the necessary.
PROBLEM 25-19 Continge ncies
(B) Since it is probable that De rick will be liab le to pay the 3,000,000 as
supported by Rose’s filing of a petition for bankruptcy, Derick should accrue and
disclose the provision for guarantee on a loan of 3,000,000.
PROBLEM 25-20 Premiums Payable
Provision – Premiums liability
Premiums liability
**Coupons redeemed
Balance, End (D)
50,000
50,000
30,000
216
Balance, Beg.
80,000 *Premiums expense
80,000
Chapter 25: Introduction to Liabilities
80,000
80,000
*(20,000 x 80%)/5 x (P30 + P5 - P1 0)
**(10,000/5) x (P30 + P5 - P10)
PROBLEM 25-21 Premiums
Premiums liability (2015)
**Balance,E nd
200,000
*Coupons
redeemed
**Balance, End
*Coupons
redeemed
800,000
1,000,000
1,000,000
1,000,000
Premiums liability (2016)
120,000
200,000
2,000,000
2,120,000
1,920,000
2,120,000
Balance,Beg.
Premiums
expense
(squeeze)
Balance, Beg.
Premiums
expense
(squeeze) (D)
*Number of towels distributed x net cost of P40
**Number of towels yet to be distributed x net cost of P40
The beginning balance of the 5,000 towels is included as part of the 50,000
towels distributed in 2016. If the actual towels distributed from 2016 is
different from that was recorded as of the end of 2015, this is considered as a
change in accounting estimate which should be taken into account during 2016
and fo r the succeeding accounting period.
PROBLEM 25-22 Warranty Liability
Warranties liability (2015)
Balance, Beg.
Actual expenditures
150,000
500,000 * Warranties expense
150,000
500,000
Balance,End
350,000
500,000
500,000
Warranties liabil ity (2016)
350,000 Balance, Beg.
Actual expenditures
550,000
600,000 *Warranties expense
550,000
950,000
Balance, End (A)
400,000
950,000
950,000
*Sales x Total estimated warranty cost of 10%
PROBLEM 25-23 Warranty Liability
217
Chapter 25: Introduction to Liabilities
Warranties liability
Actual expenditures
Balance, End (C)
Balance, Beg.
480,000 Warranties expense
480,000
140,000
140,000
340,000
480,000
480,000
PROBLEM 25-24 Warranty - Sales are Made Evenly
Pattern of Realized Revenues:
2015 SALES
Fromsalesi n:
2015
1st (40%x½)
0.20
2nd (36%x½)
3rd (24%x½)
Total
0.20
2016 SALES
Fromsalesi n:
1st (40%x½)
2nd (36% x½
3rd (24%x½)
Total
2016
0.20
0.20
2016
0.20
0.18
2017
2017
0.20
0.18
2018
0.18
0.12
.30
0
0.38
0.38
0.18
0.12
0.30
2018
Total
0.40
0.36
0.12
0.24
0.12
1
2019
0.12
0.12
Requirement No. 1
(A)
Warranty Sales in 2015 earned in 2016 (38% x 1,000 x P1,500)
Warranty Sales in 2016 earned in 2016 (20% x 1,200 x P1,500)
Total warranty sales revenue earned in 2016
Total
0.40
0.36
0.24
1
570,000
360,000
930,000
Notes:
The 38% repre sents the reali zed reven ue in 2016 from 2015 Sales.
The 20% repre sents the reali zed reven ue in 2016 from 2016 Sales.
Requirement No. 2
(B)
Total warranty sales revenue earned in 2016 (see No. 1)
Expenses relating to computer warranties
Profitfromsales warranty
Requirement No. 3
(A)
Unearned sales warranty from 2015 [(30% + 12% x 1,000 x
P1,500)]
Unearned sales warranty from 2016 [(100%-20%) x 1,200 x
P1,500)]
Totalunearnedsalesw arranty
Notes:
218
930,000
60,000
870,000
630,000
1,440,000
2,070,000
Chapter 25: Introduction to Liabilities
The 30% and 12% repr esent the unrealized revenues in 2016 fro m 2015
Sales.
The 20% rep resents the realized revenue in 2016 from 2016 Sales. So
100% minus 20% realized is equal to 80% unrealized revenue in 2016 from
2016 Sales.
SUMMARY OF ANSWERS:
1 . A 2. B 3 . A
PROBLEM 25-25 Refinancing
1. P2,000,000 (Letter B). The entire amount is payable within one year from
the report ing date thus presen ted as current liabi lity.
2. Nil (Letter A). Since both parties are financially capable of honoring the
agreement’s provisions and the debtor has the discretion to refinance or
roll over the loan for at least twelve months from December 31, 2014 the
entire amount is treated as Noncurrent liabili ty.
3. Nil (Letter A). Since the company entered into a refinancing agreement
with a bank to refinance the loan on a long-term basis before the reporting
date, the entire amount of liabilit y is treated as noncurren t.
4. P2,000,000 (Lett er B). Since the company entered into a refinancing
agreement with a bank to refinance the loan on a long-term basis after the
reporting date, the entire amount of liability is treated as current.
PROBLEM 25-26 Obligations Payable on Demand, Breach of Loan
Agreement
1. P2,000,000 (Letter C). Only if an enforceable promise is received by the
end of the reporting period from the creditor not to demand payment for at
least 12 months from the end of the reporting period that the note may be
classified as noncurrent.
2. Nil (Letter A). The entire amount of loan is noncurrent liability since there
was an agreement on the reporting date not to demand payment in order
for the debtor to rectify the breach with 12 months from the reporting date.
3. P2,000,000 (Letter B). The entire amount of loan is current liability since
the agreement not to demand payment happened after the reporting
period.
PROBLEM 25-27 Continge ncies
1.
2.
3.
4.
A
D
B
B
219
Chapter 25: Introduction to Liabilities
5.
6.
A (Amount of accrual is P2,040,000 using expected value method which is
calculated as (P1.6M x 20 + (2M x 50%) + (2.4M x 30%)
A (Amount of accrual is P2,250,000 using midpoint of the range which is
calculated as (P1.5M+3M)/2)
PROBLEM 25-28 Continge ncies
1. A
2. B (Disclose an amount of P1,500,000)
3. B (Disclose an amount of P1,500,000)
4.
5.
6.
B (Disclose an amount of P1,000,000)
D
A (It is virtually certain that the company will be receiving the
P1,5000,000.)
PROBLEM 25-29 Bonus Computation
1.
Net income before bonus but before tax
B
=
=
=
NY
3,090,000
618,000
x
x
BR
20%
2.
Net income after bonus but before tax
NY
B = BR
x
100% + BR
= 20%
x
3,090,000
100% + 20%
= 515,000
3.
Net income after bonus and tax
B
BR
(NY – B – T)
=
X
B
= 20% x (3,090,000-B-(927,000-3.B)
B
= 20% x (3,090,000-B-927,000+.3B)
B
= 618,000-.2B-185,400+.06B
1B+.2B-.06B = 618,000-185,400
1.14B
432,600
=
1.14
1.14
B
= 379,474
T
B
=
=
=
30%
X (3,090,000 – B)
927,000-.3B
OR
BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
220
Chapter 25: Introduction to Liabilities
=
20% x (3,090,000 x (1-30%)
1+[20% x (1-30%)]
20% x (3,090,000 x 70%)
1+(20% x 70%)
20% x (2,163,000)
1.14
379,474
=
=
=
Where:
NY
B
BR
T
TR
= Net income before bonus and tax
= Bonus
= Bonus Rate
=T ax
= Tax Rate
SUMMARY OF ANSWERS:
1 . D 2. B 3 . C
PROBLEM 25-30
Question N os. 1 and 2
Estimated liability from Warranties
Disbursement
warranties
for
Balance end
Total
44,800
Beginning balance
164,000
212,000 240,000 Warranty expense.
376,000
Warrantyexpense
Divideby% ageofwarranty
Sales from musical instruments and sound
reproduction equipment ( Question No. 1)
Question No. 3
Premium
expense
=
P2,000,000
X
1c oupon
P2
200 coupons
=
P63,000
221
240,000
4%
6,000,000
x
9 0%
P34-P20
Chapter 25: Introduction to Liabilities
Question No. 4
Inventory of Premium
Beg.Balance
Net Purchases (6,500 x
P34)
39,950
221,000
56,950
204,000
Total
Balance end
Cost of issued premium
(1.2M coupons.200 coupons
x P34
260,950
Question No. 5
Estimated liability for Premiums
Disbursement for premiums
(1.2M coupons/200 coupons
x P(34-P20)
Balance end
Total
44,800
84,000
23,800 63,000
Beginning balance
Premium expense.
107,800
SUMMARY OF ANSWERS:
1 . A 2. A 3 . C 4 . D
5.
D
PROBLEM 25-31 Refinancing of Loan, Notes Payable Interest and NonInterest Bearing
Note to the Professor: This problem should be discussed after the discussion
in Chapter 26.
Question No. 1
(A)
Periodic payment-NP Deli very equipment
(P2M/4)
Multiplyb y PV of ordinarya nnuity
Present value of NP-delivery equipment
Amortization table:
Payment
Date
01/01/2015
12/31/2015
500,000
12/31/2016
500,000
500,000
3.0373
1,518,650
Interest
Expense
182,238
144,107
Discount
Amortization
317,762
355,893
Question N os. 2 and 3
12% Note payable
10% note payable
Note payable-del.
Noncurrent
1,400,000
2,000,000
844,995
222
Current
700,000
355,893
Present
value
1,518,650
1,200,888
844,995
Chapter 25: Introduction to Liabilities
Equipment
Total
4,244,995
1,055,893
Question No. 4
Accrued interest payable-12% Note payable
=P2,100,000 x 12% x 8/12
=P168,000
Question No. 5
Interest expense:
12% Note payable
1/1-5/1 (2.8M x 12% x 4/12)
5/1-12/31 (2.1M x 12% x 8/12)
10% Note payable (2M x 10%)
Note payable - Delivery. Equipment
(seea mortization table)
Total
SUMMARY OF ANSWERS:
1 . A 2. B 3 . B 4 . B
5.
112,000
168,000
200,000
182,238
662,238
C
PROBLEM 25-32 Warranty, Premiums and Bonus
Question No. 1
Warrantyexpense(P150x1,200)
Less:Warrantypaid
180,000
85,000
Estimated Premiums payable
(A)
Question No 2
Premium expense
(P1,200,000 x 1 coupon/P1)/400 x 60% x (P45-P20)
Less: Net cost of redeemed coup ons
(500,000/400)x(P45-P20)
Estimated Premiums payable
(C)
95,000
45,000
31,250
13,750
Question No. 3
Unadjustednetincome
1,935,000
Warranty expense under, Net income over (P180,000-P85,000)
(95,000)
Premium expense over, Net income under (P270,000-P45,000)
225,000
Adjusted Net income
2,065,000
(C)
Question No. 4
Net income after bonus but be fore tax
NY
B = BR
x
100% + BR
= 20%
x
2,065,000
100% + 20%
223
Chapter 25: Introduction to Liabilities
=
344,167
(B)
Question No. 5
Net income after bonus and tax
B = BR
(NY – B – T)
x
T
=
B
=
TR
(NY – B)
x
OR
BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
Net income after bonus and tax
B
BR
(NY – B – T)
=
X
B
= 20% x (2,065,000-B-(9619,500-3.B)
B
= 20% x (2,065,000-B-619,500+.3B)
B
= 413,000-.2B-123,900+.06B
1B+.2B-.06B = 413,000-123,900
1.14B
289,100
=
1.14
1.14
B
= 253,596
(C)
T
=
=
30%
X (2,065,000 – B)
619,500-.3B
OR
BR x [NY x (1-TR)]
B
=
=
=
=
=
1 + [BR x (1-TR)]
20% x (2,065,000 x (1-30%)
1+[20% x (1-30%)]
20% x (2,065,000 x 70%)
1+(20% x 70%)
20% x (1,445,500)
1.14
253,596
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T =T ax
TR = Tax Rate
SUMMARY OF ANSWERS:
1 . A 2. C 3 . C 4 . B
5.
C
224
Chapter 25: Introduction to Liabilities
PROBLEM 25-33 Comprehensive
Question No. 1
SSS
Payable
Philhealth payable
Estimated liabilities under guarantee agreement
Estimatedwarrantieso ng oodss old
Utilities payable
Trade payables (170,000+30,000+20,000+12,000-8,000)
Notesp ayablea risingf rom purchaseo fg oods
Convertibleb ondsp ayable due July1 ,2 014
Serial bonds payable(40,000 x 2)
Accrued interestexpense
Advances from customers
Unearned rent income
Unearned interestonreceivables
Incometaxes payables
Cashdividends payable
Property dividends payable
Creditbalanceof notes payable
Overdraft with PNB
Container's deposit
Loans payable-12%
Financiall iabilityd esignateda s FVTPL
Current liabilities
(B)
10,000
9,000
110,000
120,000
6,000
224,000
200,000
1,000,000
80,000
4,000
25,000
36,000
3,500
45,000
100,000
120,000
40,000
80,000
45,000
270,000
200,000
2,727,500
Question No. 2
Deferred
taxliability
Notes
payable
Arsingfrom 4-year bankloan
Arising from advances by officers, dune in 3 years
Serial bonds payable (800,000 minus (40,000 x 2)
Security deposit received froml essee
Loanspayable-10%
Total noncurrent liabilities
(A)
Question No. 3
Total liabilities
Currentliabilities
Totalnoncurrentl iabilities
Total liabilities
40,000
400,000
300,000
720,000
89,000
150,000
1,699,000
2,727,500
1,699,000
4,426,500
(B)
SUMMAR
AN
:
1. B 2. Y OF
A 3
. SWERS
B
225
Chapter 26: Financial Liabilities and Debt Restructuring
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT
RESTRUCTURING
BONDS PAYABLE
PROBLEM 26-1 Financial Liabil ities at FVTPL (Interest Expense and
Unrealized gains or losses)
Question No. 1
Face value
Multiply by:nominal rate
Multiplyb y: months outstanding/12
Interest expense
Question No. 2
Fairvalue ofthebonds
Less:Carryingvalue
Unrealized loss (or gain)-P&L
Question No. 3
RetirementP rice(3M x 104)
Less: Carryingv alue( 3M x1 03)
Realized loss on derecognition- P&L
(A)
3,000,000
8%
12/12
P240,000
(B)
3,090,000
2,850,756
239,244
(D)
3,120,000
3,090,000
30,000
SUMMARY OF ANSWERS:
1. A
2. B 3 . D
PROBLEM 26-2 Unrealized Gain or Loss of FVTPL with Change Due To
Credit Risk
Question No. 1
Market price of the liability, end of the period
4,000,000
Less: Fair value of liability using the sum observed interest rate
andinstruments pecificIRR
4,155,480
Unrealized gain - OCI
( C)
155,480
Internal rate of return at the start of the period - yield or
effective rate
Less: Observed (benchmark) interest rate, date of inception
InstrumentspecificIRR
Observed (benchmark) interest rate, end of period
Add:Instrumentspecific-IRR
Discount
rate
226
10%
9%
1%
8%
1%
9%
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-3 Financial Liabilities at Amortized Cost-Term Bonds
Question No. 1
Present value of Principal (1,200,000 X 0.7513 )
Add: PV of interest payments (96,000 X 2.4869 )
Present value of the investment bonds
(C)
Que
stion No. 2Table
Amortization
Interest
Date
payment
01/01/2016
Interest
expense
227
901,560
238,742
1,140,302
Premium
Amortization
Present
value
1,140,302
Chapter 26: Financial Liabilities and Debt Restructuring
12/31/2016
12/31/2017
12/31/2018
96,000
96,000
96,000
114,030
115,833
117,867
18
,030
19,833
21,835
(B)
1,158,333
1,178,166
1,200,000
SUMMARY OF ANSWERS:
1. C
2. B
PROBLEM 26-4 Financial Liabilities at Amortized Cost- Serial Bonds
Question No. 1
Interest
Principal
payment
400,000
96,000
400,000
64,000
400,000
32,000
Total PV of the bonds
Total
payment
496,000
464,000
432,000
(A)
Preset value
factor
TotalP V
0.9091
450,914
0.8264
383,450
0.7513
324,562
P1,1 58,925
Question No. 2
Date
01/01/2016
12/31/2016
12/31/2017
12/31/2018
Interest
Payment
Interest
Expense
96,000
64,000
3 2,000
115,892
77,882
39,301
Discount
Amortization
19,892
13,882
7,301
Principal
400,000
400,000
400,000
Present
value
1,158,925
778,817
392,699
-
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 26-5 Financial Liabilities at Amortized Cost - Term Bonds with
Transaction Costs
IssueP rice (5,000,000x98%)
Less:Bondissue cost
PresentvalueonJanuary1,2015
Add: Discount amortization
Nominalinterest(5Mx1 0%)
Effective interest (4,760,000 x 12%)
Carrying value – 12/31/2015
4,900,000
140,000
4,760,000
500,000
571,200
(D)
71,200
4,831,200
PROBLEM 26-6 Financial Liabilities at Amortized Cost - Term Bonds with
Transaction Costs
IssueP rice( 5,000,000x110%)
Less:Bondissue cost
PresentvalueonJanuary1,2015
5.500,000
80,000
5,420,000
228
Chapter 26: Financial Liabilities and Debt Restructuring
Less: Premium amortization
Nominalinterest(5Mx8 %)
Effective interest (5,420,000 x 6%)
Carrying value – 12/31/2016
400,000
325,200
(B)
74,800
5,345,200
PROBLEM 26-7 Bonds payable wi th warr ants
Market value of the bonds without the warr ants
(B)
4,800,000
PROBLEM 26-8 Issuance of Convertible Bonds
Question No. 1
TotalProceeds( P1,000x1,000)
Less: Fair value of the bonds without conversion privilege
Total Share Premium
(A)
1,000,000
900,000
100,000
Using 7.48%
Present value of Principal (1,000,000 x 0.7 )
Add: Present value of interest payments (50,000 x 4 )
Totalpresentvalue
700,000
200,000
900,000
Question No. 2 See amortization table below.
Amortization Table
Interest
Date
01/01/2016
12/31/2016
Payment
500 00
Interest
Discount
Expense
Amortization
67,320
173 20
Present
value
900,000
917,320
SUMMARY OF ANSWERS:
1 . A 2. B
PROBLEM 26-9 Retirement of Bonds Pay able
Retirementp rice( 5,000,000 x. 98)
Less: Carrying value ( 5,000,000 - 50 0,000 - 30 0,000)
Loss on retirement
(A)
4,900,000
4,200,000
700,000
PROBLEM 26-10 Conversion of Convertible Bonds
Question No. 1 – Case No. 1
Nil. (A) No gain or loss on conversion of convertible bonds unless the
conversion is induced by the company. The journal entry to record the
transaction would then be:
Bonds payable
1,500,000
229
Chapter 26: Financial Liabilities and Debt Restructuring
Share premium-conversion option
Premiumonbondspayable
Ordinarys hares(20000X50)
SharePremium
60,000
52,049
1,000,000
612,049
Question No. 2 - Case No. 2
Fairvalue ofliability
Less: Carrying amount of the bonds payable
Loss on settlement (convers ion) of liabi lity (B)
1,600,000
1,552,049
47,951
Fairvalue ofliability
1,600,000
Less: Totalp arv alueo ft he shares issued
SharePremium
1,000,000
600,000
The journal entry to record the transaction would then be :
Bonds payable
1,500,000
Losso ns ettlementofliability
47,951
Premiumonbondspayable
52,049
Ordinarys hares(20,000X50)
SharePremium
1,000,000
600,000
SUMMARY OF ANSWERS:
1 . A 2. B
PROBLEM 26-11 Induced Conversion
Facea mount of debts ecurities converted
1,500,000
Divideby:New conversionprice
Number ofs haresi ssued upon conversion
Multiply by: Fair value of shares on the conversion date
Fairvalueo fsharesconverted
20
75,000
30
2,250,000
Facea mount of debts ecurities converted
Divideby:Old conversion price
Number of shares issued under original conversion
Multiply by: Fair value of shares on the conversion date
Fair value of shares under original conversion
1,500,000
25
60,000
30
1,800,000
Fairvalueo fsharesconverted
Less: Fair value of shares under original conversion
Debt conv ersion expense or loss on induced conversion
2,250,000
1,800,000
450,000
(B)
Journal entry is:
Bonds payable
Debt conv ersion expense or loss on
inducedconversion
Premiumonbondspayable
Ordinaryshares(75,000x10 )
1,500,000
450,000
52,049
750,000
230
Chapter 26: Financial Liabilities and Debt Restructuring
Sharepremium
1,252,049
PROBLEM 26-12 Interest-Bearing Note
Accrued interest 2015 (
0,000 x 12% x 9/12)
Accrued interest 2016 ( 5,450,000 x 12% x 12/12)
Total accrued interest
(C)
450,000
654,000
1,104,000
PROBLEM 26-13 Non-Interest Bearing Note
Principal
Less: Discount on notes payable
(2M x 10.8% x 12/12)
Amortization (216,000/12x 5)
Carrying amount of the note payable
2,000,000
216,000
(90,000)
(B)
126,000
1,874,000
PROBLEM 26-14 Interest-Bearing Note
Accrued interest [( 1,350,000 - 450,000) x 12% x 4/12] (B)
36,000
PROBLEM 26-15 Loans Payable
Principal
Less: Directo riginationf ees paid (1.5M x4 %)
Initial carryin g amount of the loans payable
(D)
1,500,000
60,000
1,440,000
PROBLEM 26-16 Debt Restructuring
Carrying value of liability ( 6,000,000 +
Less: Cost orcarryingvalueofl and
Gain on extingui shment
00,000)
(D)
6,600,000
3,500,000
3,100,000
Fair value of equity securities ( 70 x 50,000)
Less:Par value(
Share premium
(D)
3,500,000
2,500,000
1,000,000
PROBLEM 26-17 Debt Restructuring
PROBLEM 26-18 Debt Restructuring
Question No. 1
Present value of Principal ( 4,000,000 x 0.75)
231
3,000,000
Chapter 26: Financial Liabilities and Debt Restructuring
Add: Present value of interest payments (320,000 x 2.49)
Presentvalueoft he notespayable
Less: Carrying value of the notes ( 5,000,000 + 00,000)
Gain on extingui shment
(B)
796,800
3,796,800
5,500,000
1,203,200
The gain is recognized since the restructuring results in a substantial
modification (i.e., 21.88% = 1,203,200 / 5,500,000)
Question No. 2
Interest expense (3,796,800 x 10%)
(B)
379,680
Principal
Add: Accrued interest – January 1,2 015
Accruedinterest–2015
Carryingamountofo ldl iability
Less: Present value of new liability
Present value of principal (P5M x .6209)
Present value of interest (P5M x .08 x 3.7908)
Gain on extinguishment of liability
(A)
P6,000,000
600,000
600,000
7,200,000
SUMMARY OF ANSWERS:
1 . B 2. B
PROBLEM 26-19 Debt Restructuring
3,104,500
1,516,320
4,620,820
2,579,180
COMPREHENSIVE PROBLEMS
PROBLEM 26-20 Interest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (4,000,000 x 0.6830 )
Add: Present value of interest payments (600,000 x 3.1699)
Present value of the notes payable
(D)
Amortization Table:
Interest
Date
Payment
01/01/2017
12/31/2017
600,000
12/31/2018
600,000
12/31/2019
600,000
Interest
Expense
463,397
449,737
434,711
Question No. 2
Interest Expense (4,633,973x .10) =463,397
Question No. 3
P4,497,370. See amortiz ation table above.
232
Discount
Amortization
136,603
150,263
165,289
(C)
(C)
2,732,054
1,901,919
4,633,973
Present
value
4,633,973
4,497,370
4,347,107
4,181,818
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 4
Nil. (A) The entire note payab le is noncurr ent liability.
Question No. 5
P4,497,370. (D) The entir e note payable is current liabil ity.
SUMMARY OF ANSWERS:
1 . D 2. C 3 . C 4 . A
5.
D
PROBLEM 26-21 interest-be aring note – non-uniform installments
Question No. 1
Interest
Principal
payment
1,200,000
60,000
400,000
24,000
400,000
12,000
Total PV of notes payable
Amortization Table
Date
Date
01/01/2016
12/31/2016
60,000
12/31/2017
24,000
12/31/2018
12,000
Total
payment
1,260,000
424,000
412,000
(D)
Preset value
Present
factor
Value
0.8929
1,125,054
0.7972
338,013
0.7118
293,262
1,756,328
Interest
Expense
Discount
on N/P
210,759
84,851
44,079
150,759 1,200,000
60,851
400,000
32,062
400,000
Question No. 2
Interest expense (1,756,328 x .12)
Principal
Payment
Present
Value
1,756,328
707,088
367,938
-
P210,759
Question No. 3
Carrying amount – December 31, 2016
P707,088
Question No. 4
Principal payable Dec. 31,2 017
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal payable Dec.3 1,2 018
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
233
(C)
P400,000
60,851
P339,149
(C)
P400,000
32,062
P367,938
(D)
(C)
Chapter 26: Financial Liabilities and Debt Restructuring
1. D
2. D 3. C 4. C
5.
C
PROBLEM 26-22 Interest-Bearing Note –Uniform Installments
Question No. 1
Interest
Principal
payment
1,000,000
600,000
1,000,000
450,000
1,000,000
300,000
1,000,000
150,000
Total PV of notes payable
Amortization Table
Interest
Date
Payment
01/01/2017
12/31/2017 600,000
12/31/2018 450,000
12/31/2019 30 0,000
12/31/2020 150,000
Total
payment
1,600,000
1,450,000
1,300,000
1,150,000
(C)
Interest
Expense
Premium
Amortization
441,507
325,657
213,223
104,545
P441,507
Question No. 3
Carrying amount – December 31, 2017
3,256,573
Question No. 4
Principal (payable Dec. 31, 2018)
Add: Premium on notes payable
Carrying amount-current liability
Question No. 5
Carrying amount – December 31, 2017
Add: Premium on notes payable
Carrying amount-noncurrent liability
5.
Principal
Payment
158,493 1,000,000
124,343 1,000,000
86,777 1,000,000
45,455 1,000,000
Question No. 2
Interest expense (4,415,066 x .10)
SUMMARY OF ANSWERS:
1. C
2. B 3 . B 4 . C
Preset value
Present
factor
Value
0.9091
1,454,545
0.8264
1,198,347
0.7513
976,709
0.6830
785,465
4,415,066
(C)
P1,000,000
124,343
P1,124,343
(D)
P3,256,573
1,124,343
P2,132,230
Present
Value
4,415,066
3,256,573
2,132,230
1,045,453
0
(B)
(B)
D
PROBLEM 26-23 Noninterest-Bearing Note – With Cash Price Equivalent
Question No. 1
234
Chapter 26: Financial Liabilities and Debt Restructuring
The carrying amount of the note on initial recognition is equal to its cash price
equivalent of P994,760 .
(C)
Coincidentally, the effective rate using the cash price equivalent is 12% and the
amortization table is as follows:
Amortization Table at 12%
Principal
Date
payment
01/01/2016
12/31/2016
400,000
12/31/2017
400,000
12/31/2018
400,000
Interest
expense
Amortization
99,476
69,424
36,340
300,524
330,576
363,660
Question No. 2
Interest expense (994,760x .12)
Present
value
994,760
694,236
363,660
-
P99,476
Question No. 3
Carrying amount – December 31, 2016
(A)
P694,236
Question No. 4
Principal (payableD ec.3 1,2 017
Less: Discount on notes payable
Carrying amount-current liability
(A)
(B)
P400,000
69,424
P330,576
(C)
P400,000
36,340
P363,660
Question No. 5
Principal (payableD ec.3 1,2 018
Less: Discount on notes payable
Carrying amount noncurrent liabi lity
SUMMARY OF ANSWERS:
1. C
2. A 3 . A 4 . B
5.
C
PROBLEM 26-24 Noninterest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (1,200,000 x 0.7118 )
Amortization Table
Date
Intereste xpense
01/01/2016
12/31/2016
102, 499
12/31/2017
114,799
12/31/2018
128,542
(B)
Presentv alue
854,160
956, 659
1,071,458
1,200,000
235
854,160
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
Interest expense (854,160 x .12)
P102,499
Question No. 3
Carrying amount – December 31, 2016
(B)
P956,659
(A)
Question No. 4
Nil. The entire note payable is noncurrent liability since it is due beyond 12
months from the reporting date.
(B)
Que
onentire
No. 5 carrying amount of note payable is presented as noncurrent
The sti
total
liability. See Question No. 4.
(A)
SUMMARY OF ANSWERS:
1 . B 2. B 3 . A 4 . B
5.
A
PROBLEM 26-25 Noninterest-Bearing Note – Installments
Question No. 1
Present valu e of Princi pal (400,000 X 2.4018 )
Amortization Table
Date
Inte rest
Payment
Interest
expense
01/01/2016
12/31/2016
12/31/2017
12/31/2018
115,286
81,121
42,873
400,000
400,000
400,000
(D)
Amortization
284,714
318,879
357,127
960,720
Present
value
960,720
676,006
357,127
-
Question No. 2
P115,286. See amortization table above. (A)
Question No. 3
P676,006. See amortization table above. (A)
Question No. 4
Principal (payableD ec.3 1,2 017
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal (payableD ec.3 1,2 018
Less: Discount on notes payable
Carrying amount-noncurrent liability
236
(B)
P400,000
81,121
P318,879
(C)
P400,000
42,873
P357,127
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1 . D 2. A 3 . A 4 . B
5.
C
PROBLEM 2 6-26 Issuance, Retirement and Conversion of Non-Convertible
Bonds
Question No. 1
Present value of Principal (3,000,000 X 0.6499 )
Add: Present value of interest payments
(3,000,000 x12%x3.8897)
Present value of the bonds payable
(B)
Amortization Table
Date
Inte rest
payment
01/01/2014
12/31/2014
360,000
12/31/2015
360,000
Interest
expense
1,949,794
1,400,274
3,350,068
Discount
Amortization
301,506
296,242
Question No. 2
RetirementPrice
Less: Carrying amount (3,227,816 x 1/2)
Loss on retirement
QuestionNo. 3
Amortization table:
Interest
Date
payment
12/31/2015
12/31/2016
180,000
58,494
63,758
Present
value
3,350,068
3,291,574
3,227,816
1,900,000
1,613,908
286,092
(B)
(B )
Interest
expense
145,252
Amortization
4,748
3
Question No. 4
Fair value of the ordinary shares issued (460 x 5,000)
Less: Carryinga mount oft he liability
Loss on conversion
(D)
Present
value
1,613,908
1,579,160
P2,300,000
1,579,160
P720,840*
Or P720,839*
Question No. 5
Fair
thevalue
ordinary
shares
issued
(460
5,000)
Less:value
Totalof
par
of the
shares
issued
(40 x
x 5,000)
Share Premium
(D)
SUMMARY OF ANSWERS:
1 . B 2. B 3 . B 4 . D
5.
D
237
P2,300,000
200,000
P2,100,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-27 Issuance, Retirement and Conversion of Convertible
Bonds
Question No. 1
TotalProceeds
Less: Present value of the bonds without the
conversion option
Present value of Principal (3,000,000 x 0.5674 )
Present value of interest payments (300,000 x
3.6048 )
Residual amount to equity
(B)
Amortization Table
Date
Inte rest
payment
01/01/2015
12/31/2015
300,000
12/31/2016
300,000
Interest
expense
334,046
338,131
Question No. 2
Fair value of liability using current rate
Less: Carryinga mount (2,817,759 x ½)
Loss on settlement of liability
P3,000,000
1,702,281
1,081,433
Discount
Amortization
(34,046)
(38,131)
(B)
2,783,713
216,287
Present
value
2,783,713
2,817,759
2,855,890
1,537,969
1,427,945
110,024
Present value using 9% for 3 per iods
Present value of Principal (1,500,000 X 0.7722)
Add: Present value of interest payments (150,000 X 2.5313)
1,158,275
379,694
Presentvalueoft he bondsp ayable
1,537,969
Question No. 3
Retirement Price
Less: Fair value of liability using current rate
Decrease in equity
(C)
1,600,000
1,537,969
62,031
Question No. 4
Interest expense is P338,131 based on the amor tization table above.
Question No. 5
Shares to be issued based on amended terms (1.5M/400)
Less: Shares to be issued based on original terms (1.5M/500)
Incrementalshares
Multiply by: Fairvalue
Debt settlement expense
SUMMARY OF ANSWERS:
1 . B 2. B 3 . C 4 . D
(C)
5.
C
238
(D)
3,750
3,000
750
420
315,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-28 Redeemable Preference Shares and De bentures
Present value of the redeemable preference shares
Present value of Principal (15,000 x 1.05 x 0.72161 )
Add: Present value of interest payments (1,500 x 2.42308 )
Present valueoft he preferences hares
Amortization table:
Date
Inte rest
Payment
01/01/2016
12/31/2016
1,500
12/31/2017
1,500
12/31/2018
1,500
Interest
Expense
1,723
1,749
1,778
Amortization
223
249
246
Question No. 1
P1,723. See amortization table above.
(B)
Question No. 2
P1,749. See amortization table above.
(C)
Question No. 3
P1,778. See amortization table above.
(D)
Present value of the debentures
Present value of Principal (20,000 x 1.02 x 0.53884 )
Add: Present value of interest payments (2400 x 3.5032 )
Presentvalueofbonds payable
Amortization Table
Date
Inte rest
Payment
12/31/2018
12/31/2019
2,400
Interest
Expense
2,554
(154)
Question No. 4
P2,554. See amortization table above.
(B)
Question No. 5
P19,554. See amortization table above.
(B)
SUMMARY OF ANSWERS:
1 . B 2. C 3 . D 4. B
5.
B
239
Amortization
11,365
3,635
15,000
Present
value
15,000
15,223
15,472
15,718
10,992
8,408
19,400
Present
value
19,400
19,554
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-29
Question No. 1
Accounts payable, unadjusted
Good in transitF OB shippingp oint
Undeliveredcheck
Accounts payable, adjusted
(D)
P1,350,000
75,000
60,000
P1,485,000
Question No. 2
14% Note payable (1,250,000 x 14%)
16% Note payable (3,000,000 x 16%)
10% Note payable (2,000,000 x 10% x 6/12)
Interest expense
(D)
P175,000
480,000
100,000
P755,000
Question No. 3
14% Note payable (1,250,000 x 14% x 3/12)
16% Note payable (3,000,000 x 16% x 9/12)
10% Note payable (2,000,000 x 10% x 6/12)
Interest expense
(C)
P43,750
360,000
100,000
P503,750
Question N os. 4 and 5
Current
1,485,000
1,250,000
Accountspayable
14%Notepayable
16%Notepayable
10%Notepayable
Accruedinterestpayable
Total
SUMMARY OF ANSWERS:
1 . D 2. D 3. C 4. C
Noncurrent
3,000,000
2,000,000
503,750
P3 238,750
(C)
5.
P5,000,000
(C)
C
PROBLEM 26-30 (Comprehensive)
Question No. 1
Present value of Principal (10,000,000 X 0.3118 )
Add: Present value of interest payments (500,000 X 11.46992 )
Present value of the bonds payable
(A)
3,118,000
5,734,960
8,852,960
Question No. 2
April
2016
July
1,1,2016
October1,2016
January 1, 2017
Notes payable-current liability
P400,000
600,000
(B)
240
300,000
300,000
P1,600,000
Chapter 26: Financial Liabilities and Debt Restructuring
Question N os. 3 and 4
Estimated liability from Warranties
Disbursement fo r
warranties
Balance end
(A)
180,000
358,000
342,000 520,000
Total
Beginning balance
Warranty expense (C)
700,000
Question No. 5
(a)
A
B
C
Total
Fixed
salary
10,000
14,000
18,000
(b)
( c)
d =b x c
Comm.
Rate
4%
6%
6%
(C)
Net Sales
200,000
4 00,000
600,000
E =d - a
Comm.
Expense
8,000
24,000
36,000
P28,000
Accrued
Salaries
Payable
0
10,000
18,000
Question No s. 6 and 7
Int. payable - Bonds (10M x 10% x 3/12)
Int.payable-Notepayable
Notespayable
Estimated warranties payable
Tradepayable
Salescommissionspayable
Cash dividends payable (6M x P.2)
Bonds payable
Total
Current
250,000
600,000
1,600,000
342,000
740,000
Noncurrent
5,400,000*
28,000
1,200,000
8,970,751
P4,760,000 P14,370,751**
(B)
(C)
*(P7M-1.6M)
** or P14,370,783 which is the same as P8,952,185 x 100% +(Effective rate x
months outstanding/12) minus payment
Or [(P8,952,185 x 103%) - P250,000]
Amortization Table
Interest
Date
Payment
Interest
Expense
07/01/2014
01/01/2015
07/01/2015
01/01/2016
03/31/2016
531,178
533,048
535,031
268,566
500,000
500,000
500,000
250,000
241
Amortization
31,178
33,048
34,999
18,566
Present
value
8,852,960
8,884,138
8,917,186
8,952,185
8,970,751
Chapter 26: Financial Liabilities and Debt Restructuring
(8,952,185 x 12% x 3/12)
SUMMARY OF ANSWERS:
1 . A 2. B 3 . A 4 . C 5.
C
6
B
7
C
PROBLEM 26-31 Financial liabilities , Investment in associate and research
and development cost
Question No. 1
Totalproceeds(P100x2M)
Less: Present value of the convertible debt (see No. 2)
Share premium – conversionp rivilege
Less:Shareissuancecost
Net amount allocated to equity
(C)
200,000,000
181,635,200
18,364,800
4,000,000
14,364,800
Question No. 2
Present value of convertibl e debt without conversion option at 11.81%
Present value of Principal (200M x .7154)
143,080,000
Add: Present value of interest payments (200M x .08 x 2.4097)
38,555,200
Present value of the convertible debt
181,635,200
(B)
Question No. 3
Interest expense (181,635,200 x .1181)
(D)
21,451,117
(C)
380,000,000
370,000,000
10,000,000
20%
2,000,000
Question No. 4
Netassetof GL
Less:Recoverableamount
ImpairmentlossofGL
Multiply by:Percentageshare
Impairment loss
Question No. 5
1. Researcho n sizeo fp otential market
6. Stafftraining costs
7. Advertisementcosts
Total amount expensed
(B)
800,000
600,000
3,400,000
4,800,000
Question No. 6
2. Productsdesigning
3.
4.
1,500,000
Laborc
osts in refinement
of productsto finalize the
Development
work undertaken
productdesign
Total Development cost capitalized
(C)
242
950,000
11,000,000
13,450,000
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1 . C 2. B 3 . D 4. C
5.
B
6
C
PROBLEM 26-32 Financial Liability at FVTPL vs. FLAC
CASE NO. 1
Question No. 1
Initial carrying amount is fair value or issuance price of
1,898,205.
Transaction cost is expensed outright. (D)
Question No. 2
Interest expense ( 2,000,000 x 8%)=
160,000 (A)
Question No. 3
Fair value 12/31/2015 (1.02 x 2,000,000)
Less:Initialcarryingamount
Unrealized loss
(C)
Question No. 4
Carrying value ( 2,000,000 x .98)=
2,040,000
1,898,205
141,795
1,960,000 (C)
Question No. 5
Fair value1 2/31/2017 (.99 x 2,000,000)
Less:Carrying value (.98x
Unrealized loss
(D)
1,980,000
1,960,000
20,000
Question No. 6
Retirementp rice (1.05 x 2,000,000)
Add:Transactioncost
Totalretirementprice
Less:Carrying value (.98x
Loss on derecognition
SUMMARY OF ANSWERS:
1 . D 2. A 3 . C 4 . C
5.
D
(A)
6.
2,100,000
20,000
2,120,000
1,980,000
140,000
A
CASE NO. 2
Question No. 7
Issue price
Less:Transactioncost
Initial carrying amount
(C)
243
1,898,205
25,000
1,873,205
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 8
Effective interest rate = 10% (B)
Please refer to discussion on interp olation.
Question No. 9
Interest expense (
x 10%)=
187,321 (B)
Question No. 10
No gain or loss due to change in fair value is not recognized . (D)
Question No. 11
Carrying value 12/31/2016
(A)
1,930,579
Retirementp rice (1.05 x 2,000,000)
Add:Transactioncost
Totalretirementprice
Less:Carryingv alue– 01/01/2018
Loss on derecognition
(B)
2,100,000
20,000
2,120,000
1,963,636
156,364
SUMMARY OF ANSWERS:
7. C 8. B 9. B 10. D
12. B
Question No. 12
11. A
244
Chapter 27 – Lease
CHAPTER 27: LEASE
PROBLEM 27-1 Uneq ual rental paym ents
2014
2015
2016
2017
Totalrent
Divideby:Numberofyears
Rent expense per year
20,000
18,000
16,000
14,000
68,000
4
17,000
(C)
PROBLEM 27-2 Ope rating Lea se - Une qual rental payme nts
07/01/2014 to 06/30/2015
07/01/2015 to 06/30/2016
07/01/2016 to 06/30/2017
Total
Divideby:Leaseterm
Rentincomepery ear
60,000
90,000
210,000
360,000
3
120,000
Rent income to date (120,000 x 2)
Less: Collection to date (60,000 +
90,000)
Rent receivable
(A)
240,000
150,000
90,000
PROBLEM 27-3 Ope rating Lease - Comprehensive
CAS E NO. 1
Question No. 1
Periodic rent-one year (
(B)
300,000
CAS E NO. 2
Question No. 2
Periodicrent-oneyear
Amortization of lease bonus (180,000 / 3 )
Rent expense
(C)
300,000
60,000
360,000
CAS E NO. 3
Question No. 3
Total lease payments [(3 x 12) – 6) x 25,000]
750,000
Divide
by:Leaseterm
Rent expense
per year
3
250,000
(D)
245
Chapter 27 – Lease
Question No. 4
Total payments to date, 2016 (6 x 25,000 )
Less: Total expenset o date, 2016
Accrued rent payable
(D)
150,000
250,000
100,000
CAS E NO. 4
Question No. 5
Total lease payments
(25,000x 2x 12)
(30,000x1x12)
Divideby:Leaseterm
Rent expense per year
Question No. 6
Totalpayments todate, 2016
Less: Total expenset o date, 2016
Accrued rent payable
600,000
360,000
(A)
960,000
3
320,000
(D)
300,000
320,000
(20,000)
CAS E NO. 5
Question No. 7
Rent Revenue
Less: Amortization of Direct Cost (120,000 / 3)
Insurance and property tax expense on
leased asset
Depreciationo ft he leased asset
Net income
(A)
CAS E NO. 6
Question No. 8
Periodrentforoneyear
Add: Contingent rent
1st [(2,500,000 – 1,500,000) x 10%]
100,000
2nd [(6,000,000 – 2,500,000) x 8%]
280,000
Total rent expense
(A)
SUMMARY OF ANSWER S:
1. B 2. C 3. D 4. (D) 5 .
6 . D 7. A 8. A
300,000
40,000
40,000
30,000
190,000
300,000
380,000
680,000
A
PROBLEM 27-4 Finance Lea se - Lea se Liabil ity
(A) The capitalized lease liability should be the annual lease payments less the
executory
taxes)
the present
valuebe:
factor
for an- ordinary
annuity of cost
1 for(real
nineestate
years at
9%. times
The calculation
would
(P26,000
1,000) ×
6.0 = P150,000. The real estate taxes are a period cost and should be charged to
expense.
246
Chapter 27 – Lease
PROBLEM 27-5 Finance Lea se with Bargain Purchas e Option
QuestionNo. 1
( A)
Present value of periodic payment (120,000 x 3.4018)
Add: Present value of bargain purchase option (20,000 x 0.6355)
Present value ofm inimuml ease payments
Amortization Table
Annual
Date
payment
12/31/2016
12/31/2016
12/31/2017
12/31/2018
12/31/2019
12/31/2020
120,000
120,000
120,000
120,000
20,000
Interest
expen se
36,111
26,044
14,770
2,142
Amortization
408,220
12,710
420,926
Present
value
420,926
120,000
300,926
83,889
2 17,037
93,956
123,082
105,230
17,851
17,858
(6)
QuestionNo. 2
( B)
P36,111. See amortization table above.
QuestionNo. 3
(C)
P83,889. See amortization table above.
QuestionNo. 4
( B)
P217,037. See amortization table above.
SUMMARY OF ANSWER S:
1. A
2. B
3. C
4. B
PROBLEM 27-6 With Gua ranteed Residual Value And Initial Direct Cost
CAS E NO. 1
Question No. 1
Present value of periodic payment (130,000 x 3.4869)
Add: Present value of guaranteed residual value (50,000 x 0.683)
Present value ofm inimuml ease payments
Add:Initialdirect cost
Cost of the Machinery
(C)
Amortization Table
Annual
Date
payment
12/31/2016
12/31/2016
130,000
12/31/2017
130,000
12/31/2018
130,000
12/31/2019
130,000
12/31/2020
50,000
Interest
expen se
35,745
26,319
15,951
4,538
247
Present
value
487,447
357,447
2 63,192
159,511
45,462
0
Amortization
130,000
94,255
103,681
114,049
45,462
453,297
34,150
487,447
40,000
527,447
Chapter 27 – Lease
QuestionNo. 2
( B)
P35,745. See amortization table above.
QuestionNo. 3
( C)
P94,255. See amortization table above.
QuestionNo. 4
( B)
P263,192. See amortization table above.
CAS E NO. 2
Question No. 5
Present value of periodic payment (130,000 x 3.4226)
Add: Present value of guaranteed residual value (50,000 x 0.647)
Present value of minimum lease payments = Fair value
Add:Initialdirect cost
Cost of the Machinery
(D)
444,938
32,350
477,288
40,000
517,288
Amortization Table: Effective rate = 11.50%
Annual
Interest
Present
Date
payment
expen se
Amortization
value
12/31/2016
477,288
12/31/2016
130,000
130,000
347,288
12/31/2017
130,000
39,938
90,062
2 57,226
12/31/2018
130,000
29,581
100,419
156,807
12/31/2019
130,000
18,033
111,967
44,840
12/31/2020
50,000
5,160
44,840
(0)
QuestionNo 6
(D)
P39,938. See amortization table above.
QuestionNo. 7
( A)
P90,062. See amortization table above.
QuestionNo. 8
(D)
P257,226. See amortization table above.
SUMMARY OF ANSWER S:
1. C
2. B
3. C
4. B
5.
D
6.
248
D
7.
A
8. D
Chapter 27 – Lease
PROBLEM 27-7 Finance Lea se - Deprecia tion
Question No. 1
Cost of the lease asset
Less: Estimated residual value end of the useful life of the asset
Depreciable cost
Divideby:Useful life
Depreciation
(A)
487,447
60,000
427,447
8
53,431
Question No. 2
Cost of the lease asset
Less: Gross amount of guaranteed residual value
Depreciable amount
Divideby:Leaseterm
Depreciation
(B)
487,447
50,000
437,447
4
109,362
PROBLEM 27-8 Compu tatio n of Periodic Lease Payments
Fair
value
Less: Present Value of Guaranteed Residual Value
Total
Divide by: Present valueo f Annuity Due
Periodic lease payments
(B)
PROBLEM 27-9 Direct Financing Lease - Lessor
Question No. 1
Gross Investment:
Total Periodic Lease Payment (261,692 x 4)
Add: Unguaranteed Residual value (URV)
Less:Cost oftheequipment
Unearned interest income
(C)
800,000
59,630
740,370
4.8897
151,414
*1,046,775
150,000
1,196,775
1,000,000
196,775
*1,046,770 OR 1,046,775
Amortization Table
Annual
Date
Collection
12/31/2016
12/31/2016
261,692
12/31/2017
261,692
12/31/2018
12/31/2019
12/31/2020
261,692
261,692
150,000
Interest
Income
Amortization
-
261,692
180,479
61,361
39,325
14,864
200,331
222,368
135,136
81,214
249
Present
value
1,000,000
738,308
557,829
357,498
135,130
(6)
Chapter 27 – Lease
QuestionNo. 2
(C)
P81,214. See amortization table above.
QuestionNo. 3
( A)
P180,479. See amortization table above.
SUMMARY OF ANSWER S:
1. C
2. C
3. A
PROBLEM 27-10 Direct Financing Lea se - With Initial Direct Cost
Question No. 1
Gross Investment:
Total Periodic Lease Payment (251,600 X 4)
*1,006,402
Add Unguaranteed Residual value (URV)
- 1,006,402
Less:Cost oftheequipment
924,128
Unearned interest income
82,273
(A)
*4,796,278 OR *4,796,28 0
Costo ft heequipment
Add: Initialdirectc ost
Net cost ofi nvestment
Amortization Table
Annual
Date
Collection
12/31/2016
12/31/2016
251,600
12/31/2017
251,600
12/31/2018
251,600
12/31/2019
251,600
900,000
24,128
924,128
Interest
Income
Amortization
51,872
35,894
18,637
251,600
199,728
215,707
232,963
QuestionNo. 2
( A)
P51,872. See amortization table above.
QuestionNo. 3
( B)
P199,728. See amortization table above.
SUMMARY OF ANSWER S:
1 . A 2 . A 3. B
250
Present
value
900,000
648,400
448,671
232,964
1
Chapter 27 – Lease
PROBLEM 27-11 Direct Financing Lea se - Sale Of Lea sed Asset
CAS E NO. 1
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4)
Add:ResidualValue
Present value of the leased asset
Present value of minimum lease payments
(300,000 x3.3121)
Add: Present value of residual value (50,000 x
.735)
Unearned interest income
( A)
Amortization Table
Annual
Date
Collection
01/01/2016
12/31/2016
300,000
12/31/2017
300,000
12/31/2018
300,000
12/31/2019
350,000
993,630
36,750 1,030,380
219,620
Interest
Income
Amortization
82,430
65,025
46,227
25,906
217,570
234,975
253,773
324,094
Question No. 2
P82,430. See amortization table above.
Question No. 3: Guarant eed
Sales
Less: Costo f goods sold
Initialdirectcost
Dealer's profit
(B)
Question No. 4
Nil.
(A)
The journal ent ry is:
Inventory
Cash
Leasereceivable
1,200,000
50,000 1,250,000
1,030,380
900,000
10,000
120,380
44,000
6,000
50,000
SUMMARY OF ANSWER S:
1. A
2 . B 3. B 4. A
251
Present
value
1,030,380
812,810
577,835
324,062
(32)
Chapter 27 – Lease
CAS E NO. 2
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4)
Add:ResidualValue
Present value of the leased asset
Present value of minimum lease payments
(300,000 x3.3121)
Add: Present value of residual value (50,000 x
.735)
Unearned interest income
( A)
QuestionNo. 2
Amortization Table
Annual
Date
Collection
01/01/2016
12/31/2016
300,000
12/31/2017
300,000
12/31/2018
300,000
12/31/2019
350,000
The journal ent ry is:
Inventory
Lossons alestype
Leasereceivable
993,630
36,750 1,030,380
219,620
(B)
Interest
Income
Amortization
82,430
65,025
46,227
25,906
Question No. 3: Ungua ranteed
Sales
Less: Net cost
Costo fgoodssold
Less: Present value of URV
Initialdirectcost
Dealer's profit
(B)
QuestionNo. 4
P6,000.
1,200,000
50,000 1,250,000
217,570
234,975
253,773
324,094
Present
value
1,030,380
812,810
577,835
324,062
(32)
993,630
900,000
36,750
863,250
10,000
120,380
( B)
44,000
6,000
50,000
SUMMARY OF ANSWER S:
1. A
2 . B 3. B 4. B
PROBLEM 27-12 Sales-Typ e Lease
NetSellingPrice
Less: Present value of lease receivable
Gain on sale
(D)
400,000
150,000
250,000
252
Chapter 27 – Lease
PROBLEM 27-13 Sale and Leaseback as Finance Lease
Question No. 1
SalesPrice
Less:Carryinga mount
Loss on sale and le aseback
(B)
993,630
1,100,000
(106,370)
Question No. 2
SalesPrice
Less:Carrying amount
Deferred gain on sale and leaseback
Divideby:Leaseterm
Gain on sale an d leaseb ack
(D)
993,630
900,000
93,630
4
23,408
PROBLEM 27-14 Sale and Leaseback as Operating Lease - Treatment of
Gain
QuestionNo. 1
( B)
SalesPrice =Fair value
Less:Carrying amount
Gain on sale - recognize immediately
QuestionNo. 2
Salesprice
Less:Carryinga mount
800,000
500,000
300,000
( B)
800,000
1,000,000
Loss on sale - recognize immediately
(200,000)
Question No.
Salesprice
Less:Fair value
DeferredGain
800,000
600,000
200,000
Fairvalue
Less:Carrying amount
Outright gain
600,000
450,000
150,000
(D)
QuestionNo. 4
( B)
SalesPrice =Fair value
Less:Carrying amount
Gain on sale - recognize immediately
800,000
400,000
400,000
QuestionNo. 5
SalesPrice =Fair value
Less:Carrying amount
Lossons aleandleaseback
800,000
880,000
(80,000)
( B)
253
Chapter 27 – Lease
Question No. 6
Nil. The loss is compensate d by future lease rental below the market r ate.
SUMMARY OF ANSWER S:
1. B
2. D
3. D
4. B
5.
B
6.
A
COMPREHENSIVE PROBLEMS
PROBLEM 27-16
QuestionNo. 1
(ACAS
) E NO. 1
“Substantially all” test
Present value of Periodic Payment (200,000 x 6.75902)
% age
1,351,805
1,351,805 =68%
2,000,000
Not substantially all.
Major part test
%age
10
20
=50%
The lease term does not amount to major part of the economic life of the asset.
Answer: Nil. The lease do not classify as finance lease.
QuestionNo. 2
Rente xpense
( B)
P200,000
QuestionNo. 3
Nil.
( A)
QuestionNo. 4
Nil.
( A)
QuestionNo. 5
(D)
Depreciation expense overstated, net income understated
Interest expense overstated, net income understated
Rent expense understated, net income overstated
Netincome understated
SUMMARY OF AN SWERS – CAS E NO. 1:
1. A
2. B
3. A
4. A
5. D
QuestionNo. 1
“Substantially all” test
CAS E NO. 2
( B)
254
(115,181)
(135,181)
200,000
(50,362)
Chapter 27 – Lease
% age
1,351,805 =90%
1,500,000
The lease is a finance lease. The cost of the leased asset is lower between the
fair value and the present value of minimum lease payment which is
P1,351,805.
Amortization Table
Annual
Date
Payment
01/01/2015
12/31/2015
200,000
12/31/2016
200,000
12/31/2017
200,000
12/31/2018
200,000
Interest
Expense
115,181
106,699
97,368
QuestionNo. 2
(D)
Depreciation expense (1,351,805/10)
Interestexpense
Total lease- related expenses
Amortization
200,000
84,819
93,301
102,632
Present
value
1,351,805
1,151,805
1,066,986
973,684
871,052
135,181
115,181
250,362
QuestionNo. 3
(C)
P93,301. See amortization table above.
QuestionNo. 4
( B)
P1,066,986. See amortization table above.
QuestionNo. 5
( A)
Nil. The company did not commit any error.
SUMMARY OF AN SWERS – CAS E NO. 2:
1. B
2. D
3. C
4. B
5. A
PROBLEM 27-17
QuestionNo. 1
( B)
Lease is a finance lease thus any gain should be deferred and amortize over the
lease term.
SellingPrice
Less:Carrying amount
Deferred gain on sale and leaseback
Less: Amortization in 2014 (29,695/10)
Deferred gain on sale and leaseback, end
QuestionNo. 2
(D)
Interestexpense
Depreciation expense (379,695/10)
Rentexpense(5,000x1 2)
379,695
350,000
29,695
2,970
26,725
38,363
37,970
60,000
255
Chapter 27 – Lease
Totalleaserelated expenses
Amortization Table
Annual
Date
Payment
01/02/2016
01/02/2016
60,000
01/02/2017
60,000
QuestionNo. 3
136,333
Interest
Expense
38,363
Amortization
60,000
21,637
Present
value
379,695
319,695
298,058
( C)
Sale and leaseback as finance lea se
Leaseliability, 01/02/2016
Add:Accruedinterest
Totallease-relatedl iability
319,695
38,363
358,058
QuestionNo. 4
( B)
Amortization of deferred gain on sale and leaseback (see No. 1)
Add: Gain on sale and leaseback as operating lease (P400,000P350,000)
Totalgainonsale andleaseback
2,970
50,000
52,970
QuestionNo. 5
( B)
The deferred gain on sale and leaseback should be recognized immediately.
SUMMARY OF ANSWER S:
1. B
2. D
3. C
4. B
5.
B
PROBLEM 27-18
QuestionNo. 1
( C)
Present value of Periodic Payment (50,000 x 4.0373) - LOWER
FairValue ofthe leasedasset
201,865
P213,213
PAR. 20 OF PAS 17 States that: At the commen cement of the lease term, lessees
shall recognise finance leases as assets and liabilities in their balance sheets at
amounts equal to the fair value of the leased property or, if lower, the present
value of the minimum lease payments, each determined at the inception of the
lease. The discount rate to be used in calculating the present value of the
minimum lease payments is the interest rate implicit in the lease, if this is
practicable to determine; if not, the lessee’s incremental borrowing rate shall be
used. Any initial direct costs of the lessee are added to the amount recognized as
an asset.
Question Nos. 2-4
Amortization Table
Annual
Interest
Present
Date
Payment
Expense
Amortization
value
256
Chapter 27 – Lease
12/31/2015
12/31/2015
12/31/2016
12/31/2017
12/31/2018
12/31/2019
5 0,000
50,000
50,000
50,000
50,000
50,000
31,776
35,589
39,860
44,639
18,224
14,411
10,140
5,361
201,865
1 51,865
120,089
84,499
44,639
0
QuestionNo. 2
(D)
P120,089. See amortization table above.
QuestionNo. 3
( C)
P35,589. See amortization table above.
QuestionNo. 4
( C)
P18,224. See amortization table above.
QuestionNo. 5
( A)
Depreciation expense (201,865/5)
SUMMARY OF ANSWER S:
1. C
2. D
3. C
4. C
5.
P40,373
A
PROBLEM 27-19
QuestionNo. 1
( A)
Annual lease payments
=
Annual lease payments
=
=
Fair market value – Present value of
Unguaranteed R esidual Value
Annuity due
286,420 - (.5066 X 20,000)
4.6048
60,000
QuestionNo. 2
( C)
Total minimum lease payments(60,000 x 6)
Add: Unguaranteedr esidual value
Totalleasereceivable
Less: Fair market value of thele ased asset
TotalFinancialrevenue
257
360,000
20,000
380,000
286,420
93,580
Chapter 27 – Lease
QuestionNo. 3
Amortization Table
Annual
Date
Collection
01/01/2016
01/01/2016
6 0,000
12/31/2016
60,000
( A)
Interest
Income
Amortization
Present
value
286,420
2 26,420
193,590
27,170
60,000
32,830
QuestionNo. 4
(C)
Present value of periodic lease payments (60,000 x 4.6048)
Amortization Table
Annual
Date
Collection
01/01/2015
01/01/2015
6 0,000
12/31/2015
60,000
Interest
Income
25,955
Amortization
60,000
34,045
Depreciation expense (276,288/6)
Add:Interestexpense
Totalexpenses
P 276,288
Present
value
276,288
2 16,288
182,243
46,048
25,955
72,003
QuestionNo. 5
( C)
P182,243. See amortization table in No. 4.
SUMMARY OF ANSWER S:
1. A
2. C
3. A
4. C
5.
C
PROBLEM 27-20
QuestionNo. 1
( B)
Periodic rent(12,000x12)
Amortization of lease bonus (300,000/6)
Rentexpense
QuestionNo. 2
( C)
Periodicrent
Contingent rent:
1st(4Mx4%)
160,000
2nd( 6M-4M)x5%)
100,000
Amortization of lease bonus (500,000/5)
Totalrentexpense
144,000
50,000
194,000
480,000
260,000
100,000
840,000
258
Chapter 27 – Lease
QuestionNo. 3
Rent expense
=
Rent expense
=
( B)
[(3 x 12)-6] x 10,000
3
100,000
QuestionNo. 4
( B)
Lease No. 1 (Rent expense overstated, asset understated)
(P444,000-P194,000)
Lease No. 2 (Rent expense overstated, asset understated)
Assetunderstated
Rentexpenseperyear-Lease3
Less:Payment(10,000x6 months)
Accrued rent payable under, Liability understated
100,000
60,000
(40,000)
QuestionNo. 5
( C)
Lease no. 1 (Rent expense overstated, net income understated)
Lease No. 2 (Rent expense overstated, net income understated)
Lease No. 3 (Rent expense understated, net income overstated)
(100,000-60,000)
Netincome understated
SUMMARY OF ANSWER S:
1. B
2. C
3. B
4. B
5.
(250,000)
(400,000)
(650,000)
(250,000)
(400,000)
40,000
(610,000)
C
PROBLEM 27-21
QuestionNo. 1
( B)
The present value of annuity due of 12% for 10 periods can be computed as:
[1 – (1+12%) -9] + 1 = 6.33
12%
Annual rentals
Executory costs
Minimumleasepayment
Multiply by: Present value of annuity due
Present value of minimum lease payments
P1,440,000
(49,410)
P1,390,590
6.33
P8,802,438
Fairvalueo ftheproperty
P8,800,000
(The difference is immaterial, implicit rate is 12% at P8.8M)
QuestionNo. 2
(D)
[12/31/2015
balance x (1+Effective rate)] – annual payments = 12/31/15
balance
[(P8,800,000 – P1,390,590) x 1.12%] - P1,390,590 = P 6,907,949
The current portion as of 12/31/2016 can be compu ted as:
(P6,907,949 - P1,390,590) x 12% = P561,636
259
Chapter 27 – Lease
QuestionNo. 3
( B)
12/31/2016 balance – current portion(no.2) = Non-current portion
= P6,907,9 49 - P561,636 = P6,346,313
QuestionNo. 4
P8,800,000/10 = P880,000
( A)
QuestionNo. 5
Depreciationexpense
( A)
P 880,000
Interest
expense
Executory
costs (P8,800,000 – P1,390,590) x 12
Total lease-related expenses
SUMMARY OF ANSWER S:
1. B
2. D
3. B
4. B
5.
889,129
49,410
P1,818,539
A
PROBLEM 27-22
QuestionNo. 1
07/01/2015 to 06/30/2016
07/01/2016 to 06/30/2017
07/01/2017 to 06/30/2018
Total
Divideby:Numberofyears
Rent expense per year
( B)
60,000
90,000
210,000
360,000
3
120,000
Rent expense to date (120,000 x 1)
Less:Payment odate
Accrued rent payable
120,000
60,000
60,000
QuestionNo. 2
( B)
Present value of Periodic Payment (400,000 x 5.9500)
Fairvalue ofleasedasset
2,380,000
P2,380,000
Cost is equal to P2,380,000 (Fair value which is the same as the Present value of
minimum lease payments .)
Amortization Table
Annual
Date
Payment
06/30/2016
06/30/2016
400,000
06/30/2017
400,000
Interest
Expense
277,200
260
Amortization
400,000
122,800
Present
value
2,380,000
1,980,000
1,857,200
Chapter 27 – Lease
QuestionNo. 3
( A)
Firstl ease( SeeN o.1)
Second lease (see amortization table)
Current liabilities
60,000
122,800
182,800
QuestionNo. 4
( A)
Rent expense (First lease)
Interestexpense
Depreciation expense (2,380,000/10)
Total lease-related expenses
120,000
277,200
238,000
635,200
SUMMARY OF ANSWER S:
1. B
2 . B 3. A 4. A
PROBLEM 27-23 Exercise of Gua ranteed Residual Value
QuestionNo. 1
( C)
Present value of periodic payment (120,000 x 3.4437)
Add: Present value of bargain purchase option (30,000 x 0.6587)
Present value ofm inimuml ease payments
Add:Initialdirect cost
Cost of the Machinery
QuestionNo. 2
Interestexpense
( B)
34,431
Executory cost
Depreciation
Total lease related expenses
Question Nos. 3 to 4
Amortization Table
Annual
Date
Payment
12/31/2016
12/31/2016
120,000
12/31/2017
120,000
12/31/2018
120,000
12/31/2019
120,000
12/31/2020
30,000
413,244
19,761
433,005
20,000
453,005
20,000
105,751
160,182
Interest
Expense
Amortization
34,431
25,018
14,570
2,977
120,000
85,569
94,982
105,430
27,023
QuestionNo. 3
(C)
P85,569. See amortization table above.
QuestionNo. 4
( B)
P227,436. See amortization table above.
261
Present
value
433,005
313,005
227,436
132,453
27,023
(0)
Chapter 27 – Lease
QuestionNo. 5
( B)
Gross amount of guaranteed residual value
Less:Fairvalue
Losson finance lease
QuestionNo. 6
Zero
( A)
QuestionNo. 7
Cost of leased asset
( C)
30,000
25,000
5,000
453,005
Less: Accumulatedd epreciation
Carryingamount
Add:Cashpayment
Totalconsideration
Less:Leaseliability
Costo fequipmentpurchased
SUMMARY OF ANSWER S:
1. C
2. B
3. C
4. B
211,503
241,503
200,000
441,503
227,436
214,067
5.
B
6.
A
7.
C
PROBLEM 27-24 Direct Financing Lea se
QuestionNo. 1
( C)
Annual payment = P3,224,000 = P750,000
4.312
Total interest to be earned = [(P750,000 x 5) – P3,234,000] = P516,000
QuestionNo 2
( B)
(P3,234,000 – P750,000) x 8% = P198,720
QuestionNo. 3
( A)
The PV annuity due of 12% ov er 8 years can be com puted as:
[1 – (1+12%) -7 ] + 1= 5.5638
12%
The present value of 12% f or 8 years can also be computed as:
(1+12%) -8 = 0.4039
The total interest revenue is the difference the lease receivable and the present
value of the minimum lease payments.
Lease receivable (P959,500 x 8 + P400,000)
Present value of the lease
Unguaranteed residual value
(P400,000 x 0.4039)
Present value of lease payments
(P959,500 x5 .5638)
Total interest over the lease term
P 8,076,000
P 161,560
5,338,466
262
5,499,966
P2,576,034*
Chapter 27 – Lease
Since the lease is a direct financing lease (meaning, present value of the
minimum lease payments approximates the value of the property upon the
commencement of the lease), this can b e solved alternatively as:
[(P959,500 x 8 + P400,000) – P5,500,000)] = P2,576,000
QuestionNo. 4
( B)
(P5,500,000 – P959,500) x 12% = P544,860
SUMMARY OF ANSWER S:
1. C
2. B
3. A 4. B
PROBLEM 27-25 Sales-Typ e Lease
QuestionNo. 1
( A)
Lease receivable (P3,000,000 x 5 + P1,000,000)
Present value of minimum lease payments:
Rental (3.60 x P3,000,000)
P10,800,000
Unguaranteed residual value
(0.57 x P1,000,000)
570,000
Total unearned interest income
QuestionNo. 2
( B)
Present value of minimum lease payments
Cost of goods sold (P8,000,000 + P300,000)
QuestionNo. x312% = P1,364,400(A)
P11,370,000
QuestionNo. 4
Selling price
Book value
Gaino n sale
( B)
P 7,040,000
( 5,600,000)
P1 ,440,000
QuestionNo. 5
( B)
P7,040,000 x 10% x 6/12 = P352,000
SUMMARY OF ANSWER S:
1. A
2. B
3. A
4. B
5.
B
263
P16,000,000
(11,370,000)
P 4,630,000
11,370,000
(8,300,000)
P3,070,000
Chapter 27 – Lease
PROBLEM 27-26 Financial Liability, Sale and Leaseback, Impairment loss
on PPE and Inv estment in Associate
QuestionNo. 1
( B)
Interestcostpaid(50Mx1 2%)
Less: Interest expense for the year (47,078,000 x 14%)
Understatedfinancecost
6,000,000
6,590,920
(590,920)
Rounded off to P59 1,000
QuestionNo. 2
( C)
Profit accounted for on disposal of plant
Profittobebooked(10M/5X. 5)
Overstated profit on sale and leaseback
10,000,000
1,000,000
9,000,000
QuestionNo. 3
(C )
Depreciationperbook(30M/15)
Depreciation to be booked Apr. 1, 2015 to Sept. 30,
2015 (30M/15X.5)
1,000,000
Depreciation to be boo ked Oct . 1, 2015 to Mar ch 31, 201 6
(16M/5 X.5)
1,600,000
Understateddepreciation
2,000,000
2,600,000
(600,000)
QuestionNo. 4
( C)
Carrying value as of October 1, 2015 (30M/15 X 10.5)
21,000,000
Recoverable amount
Impairmentloss
16,000,000
5,000,000
QuestionNo. 5
( C)
Acquisitioncost
Dividend income( P20x 50,000)
Share in the net income( P10M x2 5%)
Share in the comprehensive income (P2M x 25%)
Investmentinassociate
SUMMARY OF ANSWER S:
1. B
2. C
3. C
4. C
5.
C
264
6,000,000
(1,000,000)
2,500,000
500,000
8,000,000
Chapter 27 – Lease
PROBLEM 27-27 Inves tment Property
QuestionNo. 1
( A)
Nil, since the property should be investment property and not property, plant
and equipment.
Present value of periodic payment (500,000 x 4.97)
Add: Present value of bargain purchase option (400,000 x 0.40)
Present value of Minimum lease payments
2,485,000
160,000
2,645,000
Present value of minimum lease payments
Less: Fair value of the land at the inception of the lease
2,645,000
200,000
Cost of the building as investment property
2,445,000
Amortization Table
Annual
Date
Payment
01/01/2016
12/31/2016
500,000
12/31/2017
500,000
Interest
Expense
Amortization
Present
value
2,645,000
2,462,400
2,257,888
317,400
295,488
182,600
204,512
QuestionNo. 2
( C)
P317,400. See amortization table above.
QuestionNo. 3
( C)
P204,512. See amortization table above.
QuestionNo. 4
( C)
P2,257,888. See amortization table above.
Que stion No . 5 and 6
Total rent income (40,000 x 24) + (50,000 x 24) x 20
Divideby:Numberofyears
Rentincomeper year
Periodicrent
Add: Amortization of lease bonus (30,000 x 20)/4
Gross Ren tal income (No. 5)
(A)
Less: Expenses
Amortization of initial direct cost (5,000 x 20)/4
Annualmaintenancecost
Interestexpense
Depreciation *(2,645,000-200,000/10)
Net rental income
(B)
SUMMARY OF ANSWER S:
1. A
2. C
3. C
4. C
5.
A
6.
265
B
43,200,000
4
10,800,000
10,800,000
150,000
10,950,000
25,000
40,000
317,400
244,500
10,323,100
Chapter 27 – Lease
PROBLEM 27-28
QuestionNo. 1
(900,000+50,000+25,000)
(D)
P
QuestionNo. 2
(D)
Total warranty expense (1.4M x 12%)
Less: Total actuale xpenditures
Warranty liability end of 2015
QuestionNo. 3
P
P
P
P
QuestionNo. 4
(D)
Fair value (equal to present value MLP)
Less:First payment
Total
Add: Interest accrued( 420,000x 9%)
Totallease liability
SUMMARY OF ANSWER S:
1. D
2. D
3. C
4. D
168,000
63,000
1 05,000
( C)
Legal services
Add:Medicalservices
Payroll(14,400/12 x8)
Royalties
Totalaccrual
QuestionNo. 5
(3,875,902 x1 11%)-400,000
975,000
P
P
4,600
5,500
9,600
3,900
23,600
490,000
70,000
420,000
37,800
457,800
( A)
P 3,902,251
5.
A
PROBLEM 27-29
QuestionNo. 1
( C)
Unadjusted balance – Accounts Payable
2
3
Adjustedbalance
QuestionNo. 2
Units sold:
October
450,000
60,000
45,000
555,000
( A)
32,000
November
December
Total
Multiply by
Totalfailuresexpected
28,000
40,000
100,000
2%
2,000
266
Chapter 27 – Lease
Less: Failures already recorded:
October sales
Novembersales
December sales
Expectedfuturefailures
Multiply by
Estimatedcost
640
360
180
Warrantyexpense
Estimated warranty liability
1,180
820
150
123,000
123,000
123,000
QuestionNo. 3
(C)
Notes payable is (200,000 x 3.6048 ) = 720,960
Amortization Table
Annual
Date
Payment
01/01/2016
12/31/2016
200,000
12/31/2017
200,000
Interest
Expense
86,515
72,897
Amortization
113,485
127,103
QuestionNo. 4
( A)
Present value ofp rincipal (4M x .6830)
Present value of interest payments (480,000 x 3.1699)
TotalPresentvalue
Present
value
720,960
607,475
480,372
2,732,000
1,521,552
4,253,552
Amortization Table
Date
01/01/2016
12/31/2016
Interest
Payment
Interest
Expense
480,000
425,355
QuestionNo. 5
Premium
Amortization
54,645
(D)
Present value of minimum lease payments (200,000 x 6.759)
Amortization Table
Annual
Date
Payment
01/01/2016
01/01/2016
200,000
12/31/2016
Interest
Expense
115,180
SUMMARY OF ANSWER S:
1. C
2. A
Present
value
4,253,552
4,198,907
3. C
4. A
5.
D
267
Amortization
200,000
P1,351,800
Present
value
1,351,800
1,151,800
1,266,980
Chapter 27 – Lease
PROBLEM 27-30
QuestionNo. 1
(D)
Zero, the two notes payable should be presented as noncurrent liabi lities.
QuestionNo. 2
(D)
FINANCE LEASE: Amortization Table
Annual
Interest
Date
Payment
Expense
12/31/2015
12/31/2015
60,000
12/31/2016
60,000
38,363
12/31/2017
60,000
35,767
Present
value
379,692
319,692
298,055
273,822
Amortization
60,000
21,637
24,233
Answer: P273,822. Refer to amortization table above.
QuestionNo. 3
(B)
Answer: P38,363. Refer to amortization table above.
QuestionNo. 4
( D)
Annual rent expe nse = P720,000/3=P240,000
Operating lease
Date
Expense
1/1-12/31/16
1/1-12/31/17
240,000
240,000
Expense
To date
240,000
480,000
1/1-12/31/18
2 40,000
720,000
Payment
to date
120,000
300,000
Accrued rent
(Prepaid)
120,000
180,000
720,000
-
QuestionNo 5
( C)
CONTINGENCIES
Answer: P400,000 (P200,000+P200,000)
1.
Only a disclo sure is necessary because it is not p robable that the com pany
will be liable, alth ough the a mount can be measured reliably.
2. Retainedearnings
Estimated liability for income tax
200,000
3. Accounts receivable – Innova
Lossonguaranty
Notepayable –bank
120,000
80,000
SUMMARY OF ANSWER S:
1. D 2. D 3. B 4. (D) 5 .
200,000
200,000
C
268
Chapter 27 – Lease
PROBLEM 27-31
Question No. 1
Date
04/01/2011
03/31/2012
03/31/2013
03/31/2014
03/31/2015
03/31/2016
Revised
Date
04/01/2016
09/30/2016
Finance cost
1,900,000
2,090,000
2,299,000
2,528,900
2,781,790
Finance cost
Present Value
19,000,000
20,900,000
22,990,000
25,289,000
27,817,900
30,599,690
Present Value
25,000,000
1,250,000
10/1/2016 to 3/31/2016 (2,781,790 x 6/12)
04/01/2016 to 9/30/2016 (25,000,000 x 10% x 6/12
Finance cost
(C)
1,390,895
1,250,000
2,640,895
Question No. 3
Cost of theplant
Add: Present value of decommissioning cost
Total
Less: Accumulated depreciation (149M/20 x 5)
Carryingvalue,3/31/2016
130,000,000
19,000,000
149,000,000
37,250,000
111,750,000
Less: Decrease due to revision of decom liability
Present value of decommissioning liability
Less Revisedestima e
Total
Less: Depreciation April to Sept 2016
(106,160,310/15 x 6/12)
Carrying value, 9/30/2016
(B)
30,599,690
25,000,000
Question No. 2
DepreciationOctober1 to March31
Depreciation April to Sept 2016 (106,160,310/15 x 6/12)
Total depreciation
(B)
Question No. 4
2016
5,599,690
106,150,310
3,538,344
102,611,966
3,725,000
3,538,344
7,263,344
6,000,000
2017
2018
Total
Divideby:Totalsemi-annualpayments
Semi-annual income
(B)
6,300,000
6,615,000
18,915,000
6
3,152,500
269
Chapter 27 – Lease
Question No. 5
Totalincometodate
Less:Totalcollectiontodate
Rent receivable
SUMMARY OF ANSWER S:
1. C
2. B
3. B
4. B
3,152,500
3,000,000
152,500
(B)
5.
B
270
Chapter 29 – Shareholders’ Equity
CHAPTER 29: SHAREHOLDERS’ EQUITY
PROBLEM 29-1
Question No.1
( A)
Authorized ordinary shares at P10 stated value
Less: Unissued ordinarys hares
OrdinarySharesissued
Question No.2
1,200,000
650,000
550,000
( B)
Authorized
preference
shares
at P50 par value
Less: Unissued
preference
shares
PreferenceSharesi ssued
800,000
150,000
650,000
Question No.3
(D)
Share Premium on ordinary shares
Share Premium conversion option-bonds payable
Share premium on preference shares
Gaino nsale oftreasuryshares
Ordinary share warrants outstanding
Donatedcapital
Ordinary shares options outstanding
TotalShare Premium
300,000
40,000
150,000
60,000
35,000
40,000
25,000
650,000
Question No.4
(D)
OrdinarySharesissued
PreferenceSharesi ssued
SubscribedO rdinarys hares
Subscription receivable – ordinary shares
SubscribedP reference shares
Subscription receivable – preference
TotalShare Premium
ContributedCapital
550,000
650,000
200,000
(20,000)
50,000
(15,000)
650,000
2,075,000
Question No.5
( C)
PreferenceSharesi ssued
SubscribedP reference shares
OrdinarySharesissued
SubscribedO rdinaryshares
Share Premium on ordinary shares
TotalLegal Capital
650,000
60,000
550,000
200,000
300,000
1,760,000
271
Chapter 29 – Shareholders’ Equity
Question No.6
(D)
ContributedCapital
Accumulated profits – unappropriated
Unrealized increase in value of FVTOCI securities
Reserve for bond sinking fund
Revaluationsurplus
Total Shareholders' Equity
SUMMARY OF ANSWER S:
1. A
2. B
3. D
4. D
5.
C
6.
2,075,000
500,000
10,000
320,000
130,000
3,035,000
D
PROBLEM 29-2
1.
2.
3.
Cash (2,000x P50)
Share capital
To record share issuance at a premium
100,000
Cash (5,000x P60)
Share capital (5,000 x P50)
Share premium
To record share issuance at a premium
300,000
100,000
250,000
50,000
Share premium
Retained earnings
Cash
To record payment of share issue cost
50,000
20,000
Cash (4,000x P40)
Discount onshare capital
Share capital (4,000 x P50)
To record share issuance at a discount
160,000
40,000
70,000
200,000
PROBLEM 29-3
1. Machinery
Share capital (2,500 x P50)
Share premium
To record share issuance for machinery
180,000
2. Patent(1,000x P65)
Share capital (1,000 x 50)
Share premium
To record share issuance for patent
65,000
3.
125,000
55,000
50,000
15,000
Organization expense
Share capital (400 xP50)
40,000
20,000
premium
ToShare
record
share issuance for organization services.
272
20,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-4
Loanspayable-bank
Share capital
Share premium**
Gain on settlement on liability
To record issuance of shares for liability
150,000
100,000
40,000
10,000
*Computation of loss on extinguishment of liability
Fair value of equity instruments issued (or if not reliably determinable, use
the fair value of liability) (2,000 x P70)
Less:Carryinga mountofliability
Gainonsettlementof liability
**Computation of increase in share premium
Fair value of equity instruments issued (or if not reliably determinable, use
the fair value of liability) (2,000 x P70)
Less: Total par or stated value of equity issued (2,000 x P50)
Share premium(or Discount)
140,000
150,000
10,000
140,000
100,000
40,000
PROBLEM 29-5
1.
2.
Cash (2,500x P216)
Preferenceshares( 2,500x P200)
Share premium-pref.share
To record issuance of preference shares
Cash (500x P120)
Ordinary shares (500x P100)
Share premium -ordinary shares
To record issuance of ordinary shares
540,000
500,000
40,000
60,000
50,000
10,000
PROBLEM 29-6
Allocation of the lump-sum price:
Preferences hares( 2,500x P216)
Ordinarys hares( 500x1 20)
Total
Total Fair value
540,000
60,000
600,000
The transaction will then be recorded as follows:
Cash
Preferenceshares (2,500 x P200)
Share premium-preference share (810,000-500,000)
Ordinary shares (500x 100)
Sharepr emium - ordinary share (90,000-50,000)
Fraction
54/60
6/60
Allocated
proceeds
810,000
90,000
900,000
900,000
500,000
310,000
50,000
40,000
PROBLEM 29-7
Allocation of the lump-sum price:
Total
proceeds
Less: Total fair value of preference shares (2,500 x P216)
273
900,000
540,000
Chapter 29 – Shareholders’ Equity
Amounta llocatedtotheordinaryshares
360,000
The transaction will then be recorded as follows:
Cash
Preferenceshares (2,500 xP200)
Share premium-preference share (540,000-500,000)
Ordinary shares (500x P100)
Share premium-ordinary share (360,000-50,000)
To record issuance of preference and ordinary shares
900,000
500,000
40,000
50,000
310,000
PROBLEM 29-8
1.
Subscription receivable (4,000 xP 60)
Subscribedsharec apital( 4,000xP 50)
Share premium
To record subscriptions of share capital
240,000
200,000
40,000
2. Cash (240,000x 40%)
Subscriptionreceivable
To record cash collection
3.
96,000
96,000
Cash (240,000x 60%)
Subscriptionreceivable
To record cash collection
144,000
144,000
Subscribedsharecapital
ShareCapital(4,000x 50)
To record issuance of share certificate
200,000
200,000
PROBLEM 29-9
1.
2.
3.
Subscriptions receivable (5,000 xP 60)
Subscr bedo rdinarys hares( 5,000xP 50)
Sharepremium-ordinary share
To record subscriptions of 10,000 shares at P110
300,000
250,000
50,000
Cash (300,000x 40%)
Subscriptionsreceivable
To record receipt of cash for subscriptions
120,000
Subscribedordinaryshares
Sharep remium-ordinarys hare
Subscriptions receivable (300,000x 60%)
Sharep remiumf orfeited down-payment
250,000
50,000
120,000
180,000
120,000
PROBLEM 29-10
Journal entries to record the transactions would be:
To record
the expenses
incurred
related to the auction
Receivable
from highest
bidder
P 10,000
Cash
To record the collection from highest bidder
Cash
Subscriptionreceivable
274
P 10,000
300,000
290,000
Chapter 29 – Shareholders’ Equity
Receivablefromh ighestbidder
To record the issuance of share capital
Subscribed share capital (7,500 x P50)
Share capital
10,000
375,000
375,000
PROBLEM 29-11
To record the expenses incurred related to the auction
Receivable from highest bidder
P
10,000
Cash
P
10,000
To record the acquisition of entity’s own shares
Treasuryshares
300,000
Subscriptionreceivable
Receivablefromh ighestbidder
290,000
10,000
To record the issuance of share capital
Subscribed share capital (7,500 x P50) 375,000
Share capital
375,000
PROBLEM 29-12
1)
Treasuryshares( 15,000x 24)
Cash
360,000
360,000
2) Cash (5,000x P26)
Treasuryshares (5,000x P24)
Share premium-Treasuryshares
130,000
120,000
10,000
3) Cash (4,000x 20)
Sharep remium-Treasuryshares
Retained earnings
Treasuryshares (4,000x 24)
80,000
10,000
6,000
4) Ordinarys hares( 6,000x2 0)
Share premium (600,000/100,000) x 6,000
Share premium-Treasuryshares
Treasuryshares (6,000x P24)
120,000
36,000
5)
96,000
Memo entry: Received 5,000 shares from a stockholder as
a donation.
Cash (2,000x 28)
Donated capital
12,000
144,000
56,000
56,000
PROBLEM 29-13
a.
Preferences
hares(
100)
Share Premium
on 3,000xP
Preference
shares [(300,000/30,000) x
3,000]
Accumulated profits (balancing figure)
Cash (3,000x P140)
b. Preference shares
300,000
30,000
90,000
420,000
300,000
275
Chapter 29 – Shareholders’ Equity
Share Premiumo n Preferences hares
Cash (95 x 3,000)
Share premium retirement of shares (balancing figure)
30,000
285,000
45,000
PROBLEM 29-14
1)
Preferences hares( 4,000xP 100)
Share Premium on Preference shares [(300,000/30,000) x
4,000]
Ordinary shares (4,000x P50)
Sharep remium-ordinaryshares
2)
Preference shares( 4,000xP 100)
Share Premium on Preference shares [(300,000/30,000) x
4,000]
Accumulatedprofits
Ordinarys hares( 4,000x5 /1xP 50)
400,000
40,000
200,000
240,000
400,000
40,000
560,000
1,000,000
PROBLEM 29-15
1a.
Ordinarys hares( 50,000xP 50)
Share Premium on Ordinary shares
Ordinarys hares( 50,000x P40)
Sharep remium-recapitalization
2,500,000
100,000
1b.
Ordinary shares
Share Premium on Ordinary shares
Accumulatedprofits
Ordinarys hares( 50,000x P140)
2,500,000
100,000
4,400,000
2.
Ordinary shares ((P50-P40) x5 0,000)
Sharep remium-recapitalization
2,000,000
600,000
7,000,000
500,000
500,000
3. Share split
OrdinaryS harec apital issued
Subscribedsharecapital
Total
Less:Treasuryshares
Outstandingshares
Before
100,000
100,000
100,000
Multiplyb y
5/1
5/1
5/1
5/1
5/1
After
500,000
500,000
500,000
Before
P50
multiply by
1/5
After
P10
Par valueper share
Memo entry:
Changes:
increase number of shares
Same SHE
Decrease number in Par value
276
Chapter 29 – Shareholders’ Equity
PROBLEM 29-16
Preferences hares( 2,000x P80)
Warrants (2,000 x P20)
Total
*(150 x 4,000)
CASE NO. 1
Total Fair
value
160,000
40,000
200,000
Cash
PreferenceSharecapital( 2,000xP 50)
Fraction
80%
20%
Allocated cost
320,000
80,000
400,000*
400,000
100,000
ShareP remium(320,000-100,000)
Ordinarys harewarrantsoutstanding
220,000
80,000
When the warrants are exercised:
Cash(1,000x 80% x P40)
Ordinary share warrants outstanding (80,000 x 80%)
OrdinaryS hare capital( 1,000x 80% xP 20)
Share Premium–ordinaryshare
32,000
64,000
16,000
80,000
CASE NO. 2
Total
proceeds
Less: Total fair value of the preference shares (2,000 x P80)
Valueofthewarrants
Cash
PreferenceSharecapital( 2,000xP 50)
Share Premium(160,000-100,000)
Ordinarys harewarrantsoutstanding
400,000
160,000
240,000
400,000
100,000
60,000
240,000
CASE NO. 3
Marketvalueofordinary shares
Less:Option price/exercise price
Intrinsic valueof warrant
Multiply: # of ordinary shares claimable under warrants
Marketvalueofshare warrants
P
50
P
40
10
1,000
1 0,000
Total
proceeds
Less:ValueofSharewarrants
Valueassignedt oPreferenceS hare
400,000
10,000
390,000
Cash
PreferenceSharecapital( 2,000xP 50)
Share Premium(390,000-100,000)
Ordinarys harewarrantsoutstanding
400,000
100,000
290,000
10,000
PROBLEM 29-17
Ordinarys haresi ssued
Less:Treasury shares
Outstandingshares
a.
40,000
2,000
38,000
Retainede arnings( 38,000x P5)
190,000
277
Chapter 29 – Shareholders’ Equity
Dividends payable
b.
c.
190,000
No formal accounting entry
Dividends payable
Cash
190,000
190,000
PROBLEM 29-18 Cash dividends for Preference Shares-Semi-annual Payment
July1: RetainedEarnings
Dividends Payable (9,000 x P100 x 10% x6 /12)
Dec. 31: Retained Earnings
Dividends Payable (9,600 x P100 x 10% x 6/12)
45,000
45,000
48,000
48,000
Computation of outstanding shares:
July1
December 31
Preference shares issued
10,000 Preference shares issued
Less: Treasury shares
1,000 Less: Treasury shares (1,000-600)
Outstanding shares
9,000 Outstanding shares
10,000
400
9,600
PROBLEM 29-19
Feb.15,
2017
Retained earnings
Dividends payable
Dec. 31,
2016
Retained earnings
Dividends payable
450,000
450,000
150,000
150,000
Fair value,Dec.31
Less:PreviousF airv alue
Increase ind ividendsp ayable
Feb.15,
2017
Dividends payable
Retained earnings
600,000
450,000
150,000
60,000
60,000
Fair value,Feb. 15
Less:PreviousF airv alue
Decrease ind ividendsp ayable
540,000
600,000
(60,000)
Dividends payable
Inventory
Gain on distribution - prop.d ividends
540,000
Carrying amount of dividend payable = Fair value
Less: Carrying amount of noncash assets
Gain on distribution of prop. Dividends
540,000
500,000
40,000
500,000
40,000
PROBLEM 29-20
Nov. 1,
2017
Retained earnings
Dividends payable
450,000
450,000
Equipment-noncurrent asset for distribution*
278
450,000
Chapter 29 – Shareholders’ Equity
Impairment loss (P500,000 – P450,000)
Equipment
Dec. 31,
2017
50,000
500,000
Retained earnings
Dividends payable
150,000
150,000
Fair value,Dec.31
Less:PreviousF airv alue
Increase ind ividendsp ayable
600,000
450,000
150,000
Equipment-noncurrent asset for distribution**
Gain onrecoveryo fi mpairmentl oss
Feb.15,
2018
50,000
50,000
Dividends payable
Retainedearnings
60,000
60,000
Fair value,Feb. `5
Less:PreviousF airv alue
Decrease ind ividendsp ayable
540,000
600,000
(60,000)
Dividends payable
Equipment-noncurrent asset for distribution
Gain on distribution of prop.D ividends
540,000
500,000
40,000
Carrying amount of dividend payable = Fair value
540,000
Less: Carrying amount of noncash assets
500,000
Gain on distribution of prop. Dividends
40,000
*(Lower between P500,000 and P450,000)
**(P800,000 minus P600,000) but the gain shall not exceed the amount of impairment
loss of P100,000.
Alternative Computation:
*Computation of the impairment loss is as follows:
Original carryingamount
Less: Lower between these two amounts
FV LessC ost To Distribute (FVLCTD)
Originalc arryinga mount
Impairment loss
500,000
450,000
500,000
450,000
50,000
**Computation of the gain on reversal of the impairment loss is as follows:
Lower between subsequent FVLTCD and srcinal carrying amount
Original carrying amount
500,000
FVLCTD, Dec. 31
600,000
500,000
Carryingamounta ti nitialrecognition
450,000
Gain
on
reversal
50,000
PROBLEM 29-21 Cash and Noncash Altern ative
Retainede arnings
P
Dividends payable
Supporting computation:
Casha lternative(10x6 0%x P8,000)
Non-casha lternative( 10x 40%x P9,000)
Totaldividends
84,000
P
84,000
P
P
279
48,000
36,000
84,000
Chapter 29 – Shareholders’ Equity
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
a.
Dividends payable
Cash (10 X 8,000)
Retainede arnings(balancingf igure)
84,000
80,000
4,000
If the shareholders opted to receive noncash, the journal entry is:
b.
Dividends payable
84,000
Loss on distribution of dividends (balancing figure)
6,000
Noncash(10x 9,000)
90,000
PROBLEM 29-22 Share Divid ends: Small, Large and Tre asury Shares
Computation of outstanding shares:
Ordinarys haresi ssued
53,000
Less:Treasuryshares
3,000
Outstandingshares
50,000
1)
Accumulated Profits
[(50,000) x 10% x P80]
Share dividends payable [(50,000) x 10% x P50]
Sharep remiumo nOrdinaryshares
400,000
2)
Accumulated Profits
[(50,000) x 20% x P50]
Share dividends payable [(50,000) x 20% x P50]
500,000
3)
Capital Liquidated (P2 x 50,000 shares)
Cash
4)
AccumulatedProfits
Treasuryshares
250,000
150,000
500,000
100,000
100,000
120,000
120,000
PROBLEM 29-23 Fra ctional Share right s
1.
Date of declaration of share dividends
Retained earnings (100,000 x 30% x 50)
Sharedividendspayable
1,500,000
1,500,000
2.
Issuance of full share dividends and the fractional share warrants or rights
Share dividends payable
1,500,000
Sharec apital (27,000x 50)
1,350,000
Fractional warrants outstanding
150,000
3.
Issuance of full shar es as a result of the exe rcise of the frac tional share
warrants
Fractional warrants outstanding
150,000
Sharec apital(2,800x 50)
Share premium-unexercised warrants
280
140,000
10,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-24 Comprehens ive Problem
Questions 1 to 3
Date
A.
Jan.2,2012
B.
Jan.3,2013
(10,000/50x2)
C.
May1, 2014
BAL Dec. 31, 2014
(D )
1.
D.
Jan. 1, 2015
[(30,400/2 x 3) - 30,400]
BAL
E.
BAL
Dec. 31, 2015
Jan. 1, 2016
July 1,2 016
Dec. 31, 2016
(B)
2.
[(45,600/1 x 2) - 45,600]
(10,000x 2 x 20%)
(A)
3.
Question No. 4
June 30 ( 1.50 x 45,600)
Dec.3 1 ( 2.50 x 45,600)
Total Dividends
Question No. 5
June 30 ( 1.25 x9 1,200)
Dec.3 1 ( 1.00 x 95,200)
Total Dividends
SUMMARY OF ANSWER S:
1. D
2. B
3. A
4. A
Ordinary
shares
20,000
400
10,000
30,400
15,200
45,600
45,600
4,000
95,200
(A)
68,400
114,000
182,400
(D)
114,000
95,200
209,200
5.
Preference
shares
10,000
10,000
10,000
(10,000)
-
D
PROBLEM 29-25
Questions 1 to 3
*in ‘000s
Beginning
Jan.5
Jan.
28
Feb. 2
Feb.
14
Pref.
shares
1,400
Ord.
shares
3,500
600
Total
Share
Retained
Premium earnings
1,925
4,500
60
(20)
(60)
Treasury
shares
Subs.
Ord.
share
Subs.
Receivable
1,000
Memo
50
(500)
880
Jul. 15
Oct.15
Nov. 15
Nov. 27
Dec. 31
Total
800
100
200
2,250
1,500
1,000
2,200
5,200
(1,000)
5,305
1,000
5,480
281
500
500
3,750
(1,500)
(1,500)
750
Chapter 29 – Shareholders’ Equity
1.( B)
2.( C)
3.( C)
Question No.4
( C)
Retainedearnings,total
Outstanding balance of treasury stocks
Retained earnings – unappropriated
P 5,480,000
( 50 0,000)
P 4,980,000
Question No.5
Preferenceshares
Ordinary shares
P 2,200,000
5,200,000
(B )
Subscribedo
rdinarys
hares
Subscriptionsr
eceivable
Sharepremium
Retained Earnings
Treasurystocks
Total
SUMMARY OF ANSWER S:
1. B
2. C
3. C
4. C
500,000
(750,000)
5,305,000
5,480,000
( 500,000)
P17,435,000
5.
B
PROBLEM 29-26
Beg.
Balances
2.)
3)
4.)
5.)
6.)
8.)
9.)
Total
Pref.
shares
400,000
Ord.
shares
200,000
400,000
6,000
38,200
800,000 244,200
1 . ( C)
2. ( D)
Beginningbalance
2.T
reasuryshares
3. Reissuance
of treasury shares
4. Issuance of P/S
5.E xercise of warrants
6.S hared ividends
Share
Prem
250,000
20,000
80,000
30,000
Retained
earnings
900,000
Treasury
shares
200,000
(80,000)
(38,200)
2,400,000
(80,000)
(91,680)
380,000 3,090,120
120,000
4. (D)
Number of Shares
Ordinary
Preference
40,000
4,000
(5,000)
2,000
4,000
1,200
7,640
282
Chapter 29 – Shareholders’ Equity
Balance
Dividendpershare
Dividends
45,840
x2
91,680
8,000
x 10
80,000
Question No.3
(D)
Retained earnings (see table above)
Less:Treasury shares
Retained earnings - unappropriated
Question No.5
P 3,090,120
120,000
P 2,970,120
(A )
Preferenceshares
Ordinary shares
Sharepremium
Retainedearnings-total
Treasuryshares
Totalshareholder’sequity
P 800,000
244,200
380,000
3,090,120
(120,000)
P 4,394,320
SUMMARY OF ANSWER S:
1. C
2. D
3. D
4. D
5.
A
PROBLEM 29-27
Pref.
Shares
Beg.
1.)
2.)
3.)
4.)
5.)
6.)
7.)
Total
4,000
(200)
3,800
1 . ( D)
Ord.
Shares
840
80
40
1,350
2,310
2 . ( C)
Subscri
bed
share
Capital
Subscri
ption
Receiva
ble
100
(100)
52
(52)
0
Total
Share
Premiu
m
968
9.6
160
675
27
0 1,839.6
3 . ( C)
Beginningbalance -issued
Beginningbalance -treasury
1.) February 1,2 016 Issuance ofshares
2.) March 1, 2016 Conversion of preference shares
3.) April 1, 2016 Exercise of stock rights (67,500 x 2)
Balance –April30
4. ) September 30, 2016 Reissuance of treasury shares
283
Retaine
d
Earnin
gs
15,000
Treasu
ry
Shares
44
(33)
280
2,500
(1,217)
16,563
11
Ordinary
Shares
84,000
(4,000)
8,000
4,000
135,000
227,000
3,000
Chapter 29 – Shareholders’ Equity
Balance –October 31
230,000
Preference
Shares
40,000
(2,000)
38,000
Beginning balance– issued ando utstanding
2.) March 1, 2016 Conversion into ordinary shares
Balance –April30&October 31
Compu tation of dividends:
Ordinary shares:
April30 (227,000x P1)
October31(230,000 xP1)
Preference shares:
April30 (38,000xP100x10%)
October31(38,000xP100x10%)
Totaldividends
227,000
230,000
380,000
380,000
1,217,000
QuestionNo. 4
(B)
Retained earnings (see table above)
Less:Treasury shares
Retained earnings - unappropriated
P16,563,000
11,000
P16,552,000
QuestionNo. 5
(B)
Preferenceshares
OrdinaryShares
SharePremium
Retained Earnings - Unappropriated
Retained Earnings - Appropriated
Less: Treasury Shares
Shareholder’s Equity
3,800,000
2,310,000
1,839,600
16,552,000
11,000
11,000
24,501,600
SUMMARY OF ANSWER S:
1 . D 2 . C 3 . C 4 . ( B) 5 .
( B)
PROBLEM 29-28
Preference
Shares
Beginning
A.)
B.)
C.)
D.)
E.)
Ordinary
Shares
840,000
Total
Share
Premium
4 20,000
13,500
SPLIT2 for1
Retained
Earnings
15,000,000
(650,000)
200,000
340,000
60,000
16,000
8,000
284
Treasury
Shares
44,000
(16,500)
Chapter 29 – Shareholders’ Equity
F.)
G.)
H.)
Total
(10,000)
(5,000)
838,000
2 . ( D)
844,500
3.( C)
200,000
1.( C)
(25,000)
(650,400)
2,400,000
16,074,600
Computationo fc ashdivid ends:
Ordinary
Shares
84,000
(4,000)
1,500
81,500
81,500
1,600
(2,000)
162,600
P4
650,400
Beginningbalance -issued
Beginningbalance -treasury
a.J an1 5R eissuanceo ft reasuryshares
Balance
b. March 12for1sharesplit
e. October 1 Exercise of warrants (80% x 2,000)
f.N ovember2Retirementofshares
Balance –December 31
Multiply: Dividendpershare
Totaldividends
QuestionNo. 4
( A)
Retained earnings (see table above)
Less:Treasury shares
Retained earnings - unappropriated
QuestionNo. 5
Preferenceshares
27,500
P16,074,600
27,500
P16,047,100
(A)
200,000
OrdinaryShares
SharePremium
Retained earnings unappropriated
Retained earnings - appropriated
Less:Treasury Shares
Shareholders’E quity
SUMMARY OF ANSWER S:
1. C
2. D
3. C
4. A
5.
838,000
844,500
16,047,100
27,500
27,500
17,929,600
A
PROBLEM 29-29
Beg.
Jan.4
Mar. 2
May
7
Jun. 15
Jul.2
Preferenc
e Shares
1,200,000
400,000
Ordinary
Shares
1,800,000
300,000
Total
Share
Retained
Premium Earnings
4,116,000 2,300,000
750,000
500,000
18,000
274,400
285
Treasury
Shares
420,000
(126,000)
2-for-1
split
98,000
OCI
61,740
(274,400)
Chapter 29 – Shareholders’ Equity
Oct.1
Oct.
1
Oct. 15
Nov. 1
Dec. 31
Total
61,740 (61,740)
(329,280)
400,000
5,000
800,000
2,000,000 2,203,000 6,458,400
1.( D)
2.( C)
3.( B)
(82,320)
(825,200)
(224,000)
2,250,000
2,876,540
0
294,000
Ordinary
Shares
180,000
(20,000)
30,000
190,000
6,000
196,000
196,000
392,000
19,600
1,000
412,600
Beginningbalance -issued
Beginningbalance -treasury
Jan.4Issuanceof shares
Balance –January30
May7R eissuanceoftreasuryshares
Balance beforesharesplit
Add:Sharesplit–2 for1
Balance
July2 5%sharedividends
Oct. 15Issuance of shares
Balance –December 31
Preference
Shares
Beginning balance– issued ando utstanding
Mar.2 Issuanceof shares
October15 Iss ance ofshares
Balance –December 31
12,000
4,000
4,000
20,000
Compu tation of cash dividen ds:
Ordinary shares:
Dec31(P2x412,600)
Preference shares:
Dec31 (8%xP2,800,000)
Totaldividends
825,200
224,000
1,049,200
Question No. 4
(E)
Retainedearnings-total
Less: Appropriated for Treasury shares
2,876,540
294,000
Retained earnings-unappropriated
2,582,540
Question No. 5
Preferenceshare
Ordinary share
(E)
2,000,000
2,203,000
286
Chapter 29 – Shareholders’ Equity
Totalsharepremium
Retained earnings - unappropriated
Retained earnings – appropriated
Less:TreasuryShares
Total Shareholders’ equity
SUMMARY OF ANSWER S:
1 . D 2. C 3. B 4.
(E)
6,458,400
2,582,540
294,000
294,000
13,243,940
5.
(E)
PROBLEM 29-30
Jan.1
Land
Organizationexpense
Ordinarys hares( 1,000x P100
SharePremium-O/S
Feb. 23
Mar. 10
Apr. 10
July14
Aug.3
2,850,000
Cash (6,000 x 390)-50,000
Ordinarys hares( 6,000x P10)
Sharepremium-OS
2,290,000
Subscriptions receivable (8,000 x P450)
Subs.O rdinary shares( 8,000x P10)
Sharepremium-OS
Building
Preferences hares( 2,800 x P100)
Share Premium-PS (460,000-280,000)
Ordinarys hares( 1,400x P10)
Share premium-OS (560,000-14,000)
Cash
Ordinarys hares( 1,200x P10)
SharePremium-OS
Cash
2,000,000
850,000
60,000
2,230,000
3,600,000
80,000
3,520,000
1,080,000
280,000
180,000
14,000
546,000
1,020,000
560,000
460,000
480,000
12,000
468,000
2,800,000
Subscriptionsreceivable
Subs. Ordinary shares (8,000 x ½ x P10)
Ordinary shares
Dec.1
10,000
470,000
Cash (20,000 x 150)-150,000
Preference shares (20,000 x P100)
Sharepremium-PS
Fair valueo f the building
Less: Fair value of the ordinary shares
(480,000/1,200 x 1,400)
Valueo f the pref. shares
July14
340,000
140,000
Retainedearnings
2,800,000
40,000
40,000
580,000
287
Chapter 29 – Shareholders’ Equity
Dividendspayable
580,000
Pref.d ividends (2,280,000 x 10%)
228,000
OSI ssued (136,000/10)
Add:SubscribedOS
Outstandingshares
Multiplyb y:D ividend pers hare
Totaldividends
Dec.3 1
1/1
2/23
3/10
4/10
7/14
7/14
8/3
12/1
13,600
4,000
17,600
20
Dividendspayable
Cash
228,000
228,000
Ordinar
P/S
SP– P/S
y Shares
P - P P10 P 470
2,000
850
60
280
180
14
12
40
Subs.
Subscrib
Receiv
SP – O/S
ed O/S
able
P P
2,230
3,520
80 3,600
546
468
(40) (2,800)
50
Total
P2,280
1 . ( B)
P1,030
2. (C)
352,000
580,000
P136
3. (C)
P7,234
P 40
P800
4. (C)
QuestionN o.6
(C)
Preference shares
Ordinary shares
Subscribed ordinary shares
Less: Subscriptions receivable
Paidi nc apital-Pref.s hares
Paidi nc apital-Ordinarys hares
Retained earnings
Totalshareholders’equity
R/E
(228)
(352)
1,280
P700
5. (B)
2,280,000
136,000
40,000
800,000
(760,000)
1,030,000
7,234,000
700,000
10,620,000
Note:
Sec. 43 of the Corporation Code of the Philippines states that “ The board of
directors of a stock corporation may declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or in stoc k to all stockholders on the
basis of outstanding stock held by them: Provided, That any cash dividends due on
delinquent stock shall first be applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid”
288
Chapter 29 – Shareholders’ Equity
Thus, the dividend on the subscribed share capital is paid to that shareholder because he
was not yet declared delinquent by corporation.
SUMMARY OF ANSWER S:
1. B
2. C
3. C
4. C
5.
B
6.
C
PROBLEM 29-31
Question No.1
Preferenceshares,beg.
( C)
P
800,000
Additionali ssue (20,000x P10)
Total
200,000
P1,000,000
Question No.2
( A)
Ordinary shares,beg.
Stockdividend(3,480sharesx P5)*
Total
P 200,000
17,400
P 217,400
Outstandingshares,beginning
Treasurysharesacquisition
Treasurysharesre-issue
Totaloutstandingshares
Multiplied
by:
Dividendshares
Question No.3
40,000
(8,000)
2,800
34,800
10%
3,480
( A)
Sharepremium,beg.
P 384,000
Premium on treasury share re-issue (100,000 – (2,800 x P20)
44,000
Premium on preference share ssue (P15 – P10) x 20,000 shares
100,000
Premium on stock dividends (P12 – P5) x 3,480 shares
24,360
Totalsharepremium,end
P 552,360
Question No.4
(D)
Retainedearnings,beg.
P 2,400,000
Add: Net Income
UnadjustedN etIncome
P 1,780,000
Overstatement in operating expenses
100,000
1,880,000
Less: Dividends
Stock dividends (3,480 x P12)
P
41,760
Cash dividends*
119,140
(160,900)
Retainedearnings,adjusted
P 4,119,100
Retained earnings, appropriated for treasury shares
(104,000)
Retained earnings, appropriated for plant expansion
(1,200,000)
Retained earnings, unappropriated
P 2,815,100
* Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
289
P
100,000
Chapter 29 – Shareholders’ Equity
Ordinarys hares (34,800+ 3,480) x P.50
Totalcashdividends
19,140
P 119,140
Question No.5
( B)
Treasury shares acquired (8,000x P20)
Treasury shares reissued (2,800x P20)
Treasuryshares,end
P 160,000
(
56,000)
P 104,000
* Computation of the Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
P
Ordinarys
hares (34,800+ 3,480) x P.50
Totalcashdividends
19,140
P 119,140
Computation of the net income:
Net Income
Unadjusted NetIncome
Overstatement in operatinge xpenses
Adjustednet income
SUMMARY OF ANSWER S:
1. C
2. A
3. A
4. D
5.
100,000
P 1,780,000
100,000
P 1,880,000
B
ADJUSTING JOURNAL ENTRIES:
a
.
EntriesM ade
Other
100
operating
expense
Cash
b
.
c
.
Ordinary
shares
Cash
160
Equipment
100
Ordinary
shares
(2,800 x P5)
Share
Premium
d
.
Cash
Preference
shares
Shouldb ee ntries
Dividends
100
payable
100
Cash
160
Treasury
shares
Cash
100
Equipment
14
86
300
Treasury
shares
(2,800 x 20)
Share
Premium-TS
Cash
300
Adjustinge ntries
Dividends
100
payable
Other
operation
exp
160
Treasury
shares
160
Ordinary
shares
1 00
Ordinary
shares
56
Share
Premium
44
300
Preference
shares
(20,000
x
P10)
Share
Premium-PS
290
200
100
Treasury
shares
(2,800 x 20)
Share
Premium-TS
Preference
shares
Share
Premium-PS
100
160
160
14
86
56
44
100
100
Chapter 29 – Shareholders’ Equity
e
.
f.
g
.
h
.
i.
Memoe ntry
Share
Premium
Ordinary
shares
No journal
entry
Retained
earningsunappropria
ted
Retained
earnings
appropriate
d for plant
expansion
No journal
entry
No journal
entry
17.4
17.4
1,20
0
Retained
earnings
(40K-5,200)
x 10% x
P12)
Share div.
payable
(34,800
x
10% x P5)
Share
premium
Share div.
payable
Ordinary
shares
Retained*
earnings
Dividends
payable
Same
41,7
60
Retained
earningsunappropria
ted
Retained
earnings
appropriate
d
for
Treasury
shares
Income
summary
Retained
earningsunappropria
ted
104
17.4
24.3
6
17.4
17.4
119.
14
119.
14
AJE
Retained
earnings
(40K-5,200)
x 10% x
P12)
Share div.
payable
(34,800
x
10% x P5)
Share
premium
Share div.
payable
Share
Premium
Retained
earnings
Dividends
payable
NO
41,7
60
Retained
earningsunappropria
ted
Retained
earnings
appropriate
d
for
Treasury
shares
Income
summary
Retained
earningsunappropria
ted
104
17.4
24.3
6
17.4
17.4
119.
14
119.
14
1,20
0
* Computation of the Cash dividends
Preferred stock dividends
(80,000 + 20,000) x P1
Ordinary shares
(34,800+ 3,480) xP .50
Total cash dividends
Computation of the net income:
Net Income
UnadjustedN et Income
Overstatement in
104
1,88
0
1,88
0
P
100,000
P
19,140
119,140
P
1,780,000
291
104
1,88
0
1,88
0
Chapter 29 – Shareholders’ Equity
operatingexpenses
Adjustedneti ncome
P
292
100,000
1,880,000
Chapter 30 – Book Value and Earnings Per Share
CHAPTER 30: BOOK VALUE AND EARNINGS PER
SHARE
PROBLEM 30-1 One Class of Shares
Totalshareholders'equity
Add:Subscriptionreceivable
Total SHE excluding subscription receivable
Divided by:O rdinarys hares outstanding*
Book value per share
16,220,000
1,200,000
17,420,000
200,000
87.10
(A)
Sharesissued
Add: Subscribed shares (P1,000,000 / P50 par)
Less:Treasury shares
Ordinary sharesoutstanding
200,000
20,000
20,000
200,000
PROBLEM 30-2 Two Classes of Shares - Pre ference and Ordinary Shares
Total
Preference shares:
Shares
par value
Preference share capital issued
12,500 P5,000,000
Add:Subscribedpreferenceshares
Total
12,500 P5,000,000
Less:Treasurysharesatpar
Shares outstanding and total par value
12,500 P5,000,000
Total
Shares
par value
75,000 P3,000,000
75,000 P3,000,000
75,000 P3,000,000
Ordinaryshares:
Ordinarys harec apitali ssued
Add:Subscribedordinaryshares
Total
Less:Treasury sharesatpar
Shares outstanding and total par value
Totalshareholders'equity
Less: Par value of outstanding preference shares
Par value of outstanding ordinary shares
Excessoverpar
15,000,000
5,000,000
3,000,000
7,000,000
CASE NO. 1
Question No. 1 & 2
Balances
Preference dividend
(5,000,000 x 8% x 4)
Balancet o ordinarys hares
Excess
Preference
over par
P7,000,000
shares
P5,000,000
(1,600,000)
5,400,000
1,600,000
293
Ordinary
shares
P3,000,000
5,400,000
Chapter 30 – Book Value and Earnings Per Share
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
6,600,000
8,400,000
12,500
75,000
P528. 00
P112.00
CASE NO. 2
Question No. 3 & 4
Excess
over par
P7,000,000
Balances
Preference dividend
(5,000,000 x 8% x 4)
Liquidation premium [(P420P400)x 12,500]
Balancet o ordinarys hares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Preference
Ordinary
shares
shares
P5,000,000 P3,000,000
(1,600,000)
1,600,000
(250,000)
5,150,000
250,000
5,150,000
6,850,000
8,150,000
12,500
75,000
P548. 00
P108.67
CASE NO. 3
Question No. 4 & 5
Excess
over par
P7,000,000
Balances
Preference dividend
(5,000,000 x 8% x 1)
Balancet o ordinarys hares
Preference
Ordinary
shares
shares
P5,000,000 P3,000,000
(400,000)
6,600,000
Total shareholders’
equity
Divide
by: Outstanding
shares
Book value per share
4 00,000
6,600,000
5,400,000
9,600,000
12,500
75,000
P128.00
P432. 00
CASE NO. 4
Question No. 7 & 8
Excess
over par
P7,000,000
Balances
Preference dividend
(5,000,000 x 8% x 4)
Ordinary dividend
(3,000,000 x8%x 1)
Balance for participation
Preference (5/8 x 5,160,000)
Balancet o ordinarys hares
(1,600,000)
1,600,000
(240,000)
5,160,000
(3,225,000)
1,935,000
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4. D
Preference
Ordinary
shares
shares
P5,000,000 P3,000,000
240,000
3,225,000
1,935,000
9,825,000
5,175,000
12,500
75,000
P786. 00
P69.00
5.
C
6.
294
B
7.
D
8. C
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-3 Book Valu e per Share
Preference shares:
Preference share capital issued
Add:Subscribedpreferenceshares
Total
Less:Treasury sharesatpar
Shares outstanding and total par value
Total
Shares
par value
40,000 P4,000,000
40,000 P4,000,000
40,000 P4,000,000
Ordinaryshares:
Ordinarys harec apitali ssued
Add:Subscribedordinaryshares
Total
Less:Treasurys haresatpar
Shares outstanding and total par value
Shares
par value
26,000 P1,040,000
26,000 P1,040,000
1,000
40,000
25,000 P1,000,000
Total
Totalshareholders'equity
Less: Par value of outstanding preference shares
Par value of outstanding ordinary shares
Excessoverpar
11,970,000
4,000,000
1,000,000
6,970,000
CASE NO. 1
Question No. 1 & 2
Balances dividend
Preference
(40 00,000x 8% x4 )
Balancet o ordinarys hares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Excess
over par
Preference
shares
P6,970,000
P4,000,000
(1,280,000)
5,690,000
12 80,000
Ordinary
shares
P1,000,000
5,690,000
5,280,000
6,690,000
40,000
25,000
P132. 00
P2 67. 6 0
CASE NO. 2
Question No. 3 & 4
Balances
Preference dividend
(4,000,000 x 8% x 4)
Liquidation premium
[(P105-P100) x 40,000]
Balancet o ordinarys hares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Excess
over par
P6,970,000
Preference
Ordinary
shares
shares
P4,000,000 P1,000,000
(1,280,000)
1,280,000
(200,000)
5,490,000
200,000
5,490,000
5,480,000
6,490,000
40,000
25,000
P137. 00
P259.60
295
Chapter 30 – Book Value and Earnings Per Share
CASE NO. 3
Question No. 5 & 6
Excess
over par
P6,970,000
Balances
Preference dividend
(4,000,000x 8% x 1)
Balancet o ordinarys hares
Total shareholders’ equity
Divide by: Outstanding shares
Preference
Ordinary
shares
shares
P4,000,000 P1,000,000
(320,000)
6,650,000
320,000
4,320,000
40,000
Book value per share
P108. 00
CASE NO. 4
6,650,000
7,650,000
25,000
P306.00
Question No. 7 & 8
Excess
over par
P6,970,000
Balances
Preference dividend
(4,000,000x 8% x 1)
Balancet o ordinarys hares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
(320,000)
6,650,000
320,000
6,650,000
4,320,000
7,650,000
40,000
25,000
P108. 00
P306.00
Excess
over par
P6,970,000
Balances
Preference dividend
(4,000,000x 8% x 1)
Ordinary dividend
(1,000,000 x8%x 1)
Balance for participation
Preference (4/5 x 6,570,000)
Balancet o ordinarys hares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
SUMMARY OF ANSWERS:
1. B
2. C
3. B
4. B
Preference
Ordinary
shares
shares
P4,000,000 P1,000,000
Preference
Ordinary
shares
shares
P4,000,000 P1,000,000
(320,000)
320,000
(80,000)
6,570,000
(5,256,000)
1,314,000
80,000
5,256,000
1,314,000
9,576,000
2,394,000
40,000
25,000
P239. 40
P95. 76
5.
C
6.
296
A
7.
D
8. D
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-4 Weighted Average with Bonus Issue
Outstanding
Date
Shares
01/01/2015
200,000 x 120%
240,000
03/01/2015
15,000x 120%
18,000
07/01/2015
(10,000)
(10,000)
10/01/2015
4,000
4,000
Weighted average outstanding shares
(A)
Fraction
Average
12/12
240,000
10/12
15,000
6/12
(5,000)
3/12
1,000
251, 000
PROBLEM 30-5 Weighted Average with Share Split
Outstanding
Date
Shares
01/01/2015
220,000 x 4/1
880,000
03/01/2015
12,000 x 4/1
48,000
04/01/2015
9,000
9,000
10/01/2015
6,000
6,000
Weighted average outstanding shares
(A)
Fraction
Average
12/12
880,000
10/12
40,000
9/12
6,750
3/12
1,500
928, 250
PROBLEM 30-6 Basic Earnings per Share
QuestionNo. 1
(B)
Basic EPS = [P3,000,000 / 40,000] = P75 per share
QuestionNo. 2
(C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
QuestionN . 3
(C)
Basic EPS = [P3,000,000 - (1 0,000 x 10% x P50)]/40,000= P73.75 per share
PROBLEM 30-7 Basic Loss per Share
QuestionNo. 1
(B)
Basic LPS = [P2,000,000 / 30,000] = P66.67 per share
QuestionNo. 2
(C)
Basic LPS = [P2,000,000 + (5,000 x 10% x P100)]/30,000= 68.33 per share
QuestionNo. 3
(D)
Basic LPS = [P2,000,000 + (60,000)]/30,000= P68.67 per share
PROBLEM 30-8 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P3,000,000 / 120,000 = P25 p er share
297
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
P3,000,000 + [(P1,800,000 x 10%) x (1 – 30%)]
Diluted
=
EPS
129,000 shares *
Diluted EPS = P2 4.23 per share
Weighted average of actual ordinary shares
Add: Weighted average of potentia l ordinary
shares from assumed conversion (1,800 x 5 x 12/12)
Total weighted averageo f ordinary shares
120,000
9,000
129,000
Question No. 3
Diluted = P3,000,000 + [(P1,800,000 x 10% 8/12) x (1 – 30%)]
EPS
126,000 shares *
Diluted EPS = P2 4.48 per share
Weighted average of actual ordinary shares
Add: Weighted average of potentia l ordinary
shares from assumed conversion (1,800 x 5 x 8/12)
Total weighted averageo f ordinary shares
120,000
6,000
126,000
Question No. 4
Basic EPS
P3,000,000
123,750*
P24.24
=
=
Weighted averageo f actual ordinary shares
Add: Issuance of shares related to conversion
(1,800 x5x5/12)
Total weighted average of actual ordinary shares issued
Add: Assumed converted ordinary shares x months
outstanding(1,800x5x7/12)
Total weighted average outstanding ordinary shares
120,000
3,750
123,750
5,250
129,000
Question No. 5
P3,000,000 + [(P1,800,000 x 10% x 7/12) x (1 – 30%)]
129,000 shares *
Diluted EPS = P2 3.83 per share
Diluted EPS
=
SUMMARY OF ANSWERS:
1. A
2. D
3. B
4. D
5.
B
PROBLEM 30-9 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P4,000,000 / 200,000 = P20 p er share
298
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
P4,000,000 + [(P1,123,910 x 10% x 8/12) x (1 – 30%)]
210,000 shares*
Diluted EPS = P1 9.30 per share
Diluted EPS
=
Weighted averageo f actual ordinary shares
Add: Weighted average of potential ordinary shares from
assumedc onversion(15,000 x8 /12)
Total weighted averageo f ordinary shares
200,000
10,000
210,000
PROBLEM 30-10 Basic and Diluted EPS with Convertible Preference Shares
Question No. 1
Basic EPS
Basic EPS
P4,000,000 - [5,000 x P100 x 10%]
200,000 shares
= P19.75 per share
=
Question No. 2
Diluted EPS
Diluted EPS
P4,000,000
225,000 shares*
= P17.78 per share
=
*[200,000 + (5 x 5,000 x 12/12)]
Question No. 3
P4,000,000
Diluted EPS
=
Diluted EPS
= P18.2218,750
9 per shshares
are
*[200,000 + (5 x 5 000 x 9/12)]
Question No. 4
Basic EPS
Basic EPS
P4,000,000 – (5,000 x P100 x 10% x 9/12)]
206,250 shares
= P19.21 per share
=
*[200,000 + (5 x 5,000 x 3/12)]
Question No. 5
Diluted EPS
Diluted EPS
P4,000,000
225,000 shares
= P17.78 per share
=
*[200,000 + (5 x 5,000 x 3/12) + (5 x 5,000 x 9/12)]
SUMMARY OF ANSWERS:
1. A
2. D
3. C
4. C
5.
D
299
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-11 Basic and Diluted EPS with Warrants and Options
Question No. 1
Basic EPS = P4,000,000 / 100,000 = P40 p er share
Question No. 2
Diluted EPS
Diluted EPS
P4,000,000
101,200 shares *
= P39.53 per share
=
Weighted averageo f actual ordinary shares
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 12/12)
Total weighted averageo f ordinary shares
100,000
1,200
101,200
Note: Months outstanding for assumed exercise of options is 12 months, which
is from date of issu ance up to the reporting date.
Option shares
Multiplyb y: Totale xercise price( 120+10)
Proceeds from assumed exercise of options
Divided by: Average market price during the year
Assumed treasuryshares
Option shares
Less:Assumedtreasuryshares
Incrementalshares
9,000
130
1,170,000
150
7,800
9,000
7,800
1,200
Question No. 3
Diluted EPS
Diluted EPS
P4,000,000
100 900 shares *
= P39.64 per share
=
Weighted averageo f actual ordinary shares
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 9/12)
Total weighted averageo f ordinary shares
100,000
900
100,900
Question No. 4
Diluted EPS
Diluted EPS
P4,000,000
104,667 shares *
= P38.22 per share
=
Weighted average of actual beginning ordinary shares
Add: Weighted average number of shares from issuance of
100,000
options
(9,000of
x4/12)
Totalshare
weighted
average
actual ordinary shares issued
Add: Weighted average of incremental shares
from assumed exercise of options (2,500 x 8/12)
Total weighted average outstanding ordinary shares
3,000
103,000
300
1,667
104,667
Chapter 30 – Book Value and Earnings Per Share
Option shares
Multiplyb y: Totale xercise price( 120+10)
Proceeds from assumed exercise of options
Divided by:M arketp riceatexercise date
Assumedtreasuryshares
Option shares
Less:Assumedtreasury shares
Incrementalshares
9,000
130
1,170,000
180
6,500
9,000
6,500
2,500
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4. D
PROBLEM 30-12 Multiple Potential Dilutive Securities
QuestionNo. 1
Basic EPS
Basic EPS
(A)
P2,360,000 – (60,000 x P100 x 6%)
=
200,000
= P10 per share
Question No. 2
1) Check for initial test of dilution
a. Options
Dilutive. The exercise price (P50) is less than the average market price
(P100).
b.
Convertible
preference
. Theshares
incremental EPS (P1.2) is less than the basic
Probably dilutive
EPS (P10).
(P6,000,000 x 6%)
Incremental EPS
=
(60,000 x 5)
Incremental EPS = P1.2 per share
c.
Convertible bonds
Probably dilutive. The incremental EPS (P.84 ) is less than the basi c
EPS (P10).
(P2,000,000 x 12%) x (1-30%)
Incremental EPS
=
(P2,000,000/P1,000) x 100
Incremental EPS = P.84 per share
`
2) Rank the dilutive potential diluters from the most dilutive to the leas t
dilutive.
1st Options
2nd Convertible bonds (incremental EPS of P.84 per share)
3rd Convertible preference share (incremental EPS of P1.2 per share)
3) Include potentially dilutive convertible securities one by one. Every time an
item is included, calculate new earnings per share or new loss per share
amount as follows:
301
Chapter 30 – Book Value and Earnings Per Share
Basic
EPS
from
continuing
operations
Options
Total
Convertible Bonds payable
Total
Convertible Preference share
Total
Profit
*2,000,000
Ordinary
shares
200,000
0
2,000,000
168,000
2,168,000
360,000
2,528,000
10,000
210,000 9.52
200,000
410,000 5.29
300,000
710,000 3.56
EPS
10
*Net Income less preference dividends [(P2,360,000 –(60,000 x P100 x
12%)]
Answer: The final diluted EPS would be P3.56 per share.
QuestionNo. 3
BasicE PS
BasicE PS
Q u e st i o n N o . 4
Diluted EPS
Diluted EPS
(D)
(B)
P500,000
=
200,000
= P2.5 per share
( C)
P500,000
=
710,000
= P. 70 per share
SUMMARY OF ANSWERS:
1 . A 2 . D 3. B 4. C
PROBLEM 30-13 Rights Is sue
Fairvalue pershare–righton
Less:Theoreticalvalueofoneright*
Theoretical ex-rights fair valuep er share
*Value of one right
=
150 –40
4* + 1
P
P
=
150
22
128
22
Adjustmentfactor (150/128)
1.17
Question No. 1
2014:
Weighted average outstanding shares (40,000 x 1.17 x 12/12)
Basic EPS (P562,500 /46,800)
(D)
302
46,800
P12.02 / sh are
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
2015:
Weighted average outstanding shares
(40,000x1.17x3 /12)
[(40,000+ 10,000)x9/12]
11,700
37,500
Basic EPS (P800,000/49,200)
(B)
Question No. 3
2016:
Weighted average outstanding shares[(40,000 + 10,000) x 12/12]
Basic EPS (P1,000,000 /50,000)
(A)
PROBLEM 30-14 Written Put Options
Incremental shares
=
(P350 – P280) x 10,000
P280
(C)
=
2,500 shares
Retained
NetI ncome
Earnings
2015
2016
12/31/16
Unadjusted **1,300,000
*500,000
1,800,000
1)
(50,000)
50,000
(30,000)
(30,000)
2)
3)
45,000
(45 000)
4)
***28,000
(28,000)
5)
5,000
(5,000)
6)
(20,000)
(20,000)
7)
8)
9)
1,328,000
422,000
1,750,000
Adjusted
Item
* (P5 EPS x P1 ,000,000 / P10 par)
** (1,800,000 – 500,000 2015 net income)
*** (P48,000 / 12 x 7 months)
Question No. 1
(D)
Refer to table above. Adjusted Net Income in 2016 is P422,000.
(C)
303
50,000
P20p ers hare
PROBLEM 30-15 Comprehensive Problem
Question No. 2
Refer to table above.
49,200
P16.26 / sh are
Chapter 30 – Book Value and Earnings Per Share
Question No. 3
(C)
EPS 2016 (P42 2,000 / 100,000 shares) = P4.22
Question No. 4
(B)
Ordinarys harec apital,P10par
Sharepremium
Retained earnings, 12/31/2016 (as adjusted)
Totalshareholders'equity
Question No. 5
(B)
BVPS (P3,250,000 / 100,000) = P32.50
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4. B
5.
B
304
1,000,000
500,000
1,750,000
3,250,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
CHAPTER 32: STATEMENT OF FINANCIAL POSITION
AND COMPREHENSIVE INCOME
PROBLEM 32-1 Current and Noncurrent Assets
Question No. 1
Cash
Tradereceivables
Inventory, including inventory expected in the ordinary course of
operations to be sold beyond 12 months amounting to P800,000
Prepaid insurance
Financial assets at fair value through profit or loss
NoncurrentA ssets held fors ale building
Total Current Assets
(D)
400,000
1,500,000
1,200,000
240,000
300,000
650,000
4,290,000
Question No. 2
Financial assets at fair value through other comprehensive income
600,000
Financialassetsatamortizedc ost
1,000,000
Deferredtaxasset
150,000
Machinery
800,000
Accumulated depreciation
(200,000)
Landusedasaplant site
920,000
Total Noncurrent Assets
3,270,000
(C)
PROBLEM 32-2 Current and Noncurrent Assets
Question No 1
Cash (1M+300,000+100,000-50,000-280,000)
Accounts receivable (3M-200,000+50,000)
Investments securities held for trading (1.8M-500,000)
Inventories (800,000-200,000+(450,000/125%)
Prepaid Expenses (only the prepaid insurance)
Total Current Assets
(A)
Question No. 2
Cash in sinking fund
Long-term investments
Deposit to supplier for inventories to be delivered in 16 months
Cash surrender value
Property,plantandequipment
Total noncurrent Assets
(A)
305
1,070,000
2,850,000
1,300,000
960,000
48,000
6,228,000
280,000
500,000
23,000
20,000
5,000,000
5,823,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-3 Current and Noncurrent Liabilities
Question No. 1
Bank overdraft
Accounts payable (1M+25,000+100,000)
Property dividendspayable
Income taxpayable
Notepayable,d ueJanuary31,2 016
Cash dividendspayable
Financial liabilities at fair value through profit or loss
Estimated expenses of meeting warranties
Estimated damages as a result of unsatisfactory performance on
a contract
Loanspayable-current
Total current liabilities
(A)
Question No. 2
Bondspayable
Premiumonbondspayable
Deferredtaxliability
Mortgage payable
Loanspayable-noncurrent
Total noncurrent liabilities
(C)
300,000
1,125,000
400,000
300,000
500,000
80,000
130,000
335,000
268,000
100,000
3,538,000
3,400,000
200,000
400,000
1,000,000
400,000
5,400,000
PROBLEM 32-4 Shareholders’ Equity
Ordinary share capital
Sharepremium
Subscribed ordinary share
Subscriptionsreceivable
Retained earnings unappropriated (6M-2M cost of treasury)
Reserves:
Retained earnings appropriated for treasury shares
Reserveforcontingencies
Unrealizedgain onFVTOCI
Revaluationsurplus
Cumulative translation adjustment – debit
Total
Less:Treasuryshares
Total Shareholders' Equity
(C)
306
10,000,000
1,000,000
100,000
(120,000)
4,000,000
2,000,000
3,000,000
1,000,000
4,000,000
(1,500,000)
23,480,000
2,000,000
21,480,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-5 Adjusting and Nonadjusting events
Lossonexpropriation
Impairment loss on Accounts Receivable
Litigationloss
Total adjusting events
(A)
100,000
600,000
1,000,000
1,700,000
All other data are nonadjusting events.
PROBLEM 32-6: Related Party Relationship
Requirement No. 1
The following companies are considered to be related parties of Frozen Throne
Company in accordance with PAS 24 Related Party Disclosures:
Name
Description
1)
Sand King Co.
Post-employment benefit plan established by
Frozen Throne
2)
Shadow Fiend Co.
Associate
4)
Harbringer Co.
Subsidiary
5)
Night Crawler Co.
Subsidiary of Harbringer
6)
Disruptor Co.
Associate of Harbringer
7)
Geomancer Co.
Parent
8)
Jakiro Co.
Parent ofG eomancer
9)
Rylai Co.
Sister company of Frozen Throne Company
10) Medusa Co.
Key Management personnel of Frozen Throne
Company.
11) BarathrumC o.
Bank
16) Pudge Co.
Joint venturer of Frozen Throne Company
17) Invoker Co.
Joint venture of Frozen Throne Company
Requirement No. 2
Regardless of whether there have been transactions between a parent and a
subsidiary, an entity must disclose the name of its parent and, if different, the
ultimate controlling party. Therefore, Frozen Throne Company should disclose
Jakiro Co., its ultima te parent or controlling party.
PROBLEM 32-7 (Distribution costs and gener al and administrative
expenses)
Question No. 1
Advertising
500,000
Deliveryexpense
Rentforo ffices pace(500,000X1 /2)
Salescommissions
Depreciationondeliverytruck
Total distribution costs
(B)
307
300,000
250,000
1,075,000
14,000
2,139,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2
AuditingandAccounting fees
Officers’salaries
Rentforo ffices pace(500,000X1 /2)
Insurance
Depreciationonofficeequipment
Total general and administrative expenses (D)
300,000
625,000
250,000
200,000
15,000
1,390,000
PROBLEM 32-8 Comprehensive Income
Net
Sales
Cost of goodssold
Grossincome
Other income
Shareofprofitof associate
Totalincome
Expenses:
Distribution costs
Administrativeexpenses
Financecost
Otherexpense
Income beforeincome tax
Income taxexpense
Incomef romc ontinuingo perations
Incomef rom discontinued operations
4,000,000
2,500,000
1,500,000
30,000
125,000
1,655,000
60,000
120,000
35,000
50,000
Net
Income
Other comprehensive income:
Revaluationsurpus
Translationgain
Unrealized gain on FVTOCI securities
Comprehensive income
(C)
Other income:
Interestincome
Other expense:
Lossonsaleofequipment
1,082,000
300,000
50,000
200,000
30,000
50,000
308
265,000
1,390,000
408,000
982,000
100,000
550,000
1,632,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
COMPREHENSIVE PROBLEMS
PROBLEM 32-9
Unadjusted balance
1.
Notes receivable – maturity
date July 1, 2018
Land
2. FVTOCI
3. Inventory
4. Treasuryshares
5. Prepaid insurance
10. Accumulated depreciation
– Building
Accumulated depreciation
– Equipment
Allowance for baddebts
Adjustedbalance
Unadjusted balance
4. Treasuryshares
6
Bondspayable
7. Accruedwages
8.
Mortgage – current portion
9. P remiumonbondspayable
10. Allowance for baddebts
Accumulated depreciation
– Building
Accumulated depreciation
– Equipment
Adjustedbalance
SUMMARY OF ANSWERS:
1. B
2. A
3. A
4. B
5.
Current
Asset
44,300
(10,000)
(12,000)
4,600
30,500
2,900
(700)
59,600
1. (B)
Current
Liabilities
66,600
(40,000)
4,100
4,000
34,700
3. (A)
A
309
Noncurrent
asset
158,400
10,000
Total Asset
202,700
-
12,000
(4,600)
(30,500)
(1,800)
(2,900)
(21,000)
(1,800)
(21,000)
(13,000)
(13,000)
106,600
Noncurrent
liabilities
24,100
40 000
(4,100)
(4,000)
4,300
-
(700)
166,200
2. (A)
Equity
112,000
(1,800)
(21,000)
(4,300)
(700)
(21,000)
(13,000)
(13,000)
60,300
4. (B)
71,200
5. (A)
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-10
Unadjusted
balances
1
2
3
4
5
6
7
8
9
10
11
Adjusted
balances
Cash in
bank
100
-
4(15)
--
(14)
20
(5)
-
-
-
-
-
-
-
- 101
1. (B)
-
-
1,849
-
-
500
112.5
112.5
-
-
-
Depreciation
-
-
-
-
-
-
5
-
Accum.
Depr
400
PPE
1,000
-
-60
-
-
-
Accts.
Receivable
2,500
Inventory
1,800
(20)
(4)
2,505
1,480
(4)
508.5
108.5
Continuation…
Unadjusted
balances
1
2
3
4
5
6
7
8
9
10
11
Adjusted
balances
Advances
from
customers
-
4
-
5
-
Accounts
payable
320
-
-
Interest
Bonds
payable
payable
1,924,144
-
Discount
-
Amortization
-
-
14
20
(5)
- - 60
180
75,856
63.442
12.414
5
413
180 1, 936,558
63.442
12,414
2. (B)
*000
Current Assets:
Cash inbank
Inventory
Accounts Receivable
Noncurrent assets:
PPE
Less: Accumulated Depreciation
Totalassets
101,000
1,849,000
2,505,000
1,480,000
508,500
310
4,455,000
3.(A)
971,500
5,426,500
4.(B)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current liabilities:
Advances from customers
Accountspayable
Interestpayable
5,000
413,000
180,000
Noncurrent liabilities:
Bondspayable
Discount on bonds payable
Totalliabilities
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4. B
2,000,000
63,442
5.
B
6.
598,000
5.(B)
1,936,558
2,534,558
6.(C)
C
PROBLEM 32-11
1. EI over, COS under
2015
2016
2. Salaries expense under
2015
2016
3. Sales ov erstated
2015
2016
4 Expe nse ov rstated
2015
2016
5. Purch. Over, COS over
2015
2016
6. Sales und er
2015
2016
7. Bad debt under
2015(32.4+2.5) x2%
2016 (66.1+4) x 2%-698
8. Dep. Expense under
2015
2016
Adjusted bal.
Sales
385,000
2015
COS
EI
157,600
98,500
6,200 (6,200)
OPEX
69,300
14,600
(1,700)
(180)
(3,200)
2,500
698
14,500
385,800
311
160,600
92,300
98,918
Chapter 32 – Statement of Financial Position and Comprehensive Income
1. EI over, COS under
2015
2016
2. Salaries expense under
2015
2016
3. Sales ov erstated
2015
2016
4. Expense overstated
2015
2016
5. Purch. Over, CO S over
2015
2016
6. Sales und er
2015
2016
7. Bad debt under
2015 (32.4+2.5) x 2%
2016(66.1+4) x2%-698
8. Dep. Expense under
2015
2016
Adjusted bal.
Sales
420,000
2016
COS
EI
203,800
164,900
(6,200)
8,500 (8,500)
OPEX
76,700
(14,600)
17,300
1,700
(800)
180
(200)
3,200
(4,600)
(2,500)
4,000
704
422,400
2 04,700
1 56,400
Question No. 6
(A)
Sales
LessCost ofsales
GrossProfit
LessOperatingexpenses
AddOther income
Netprofit
Add: Retained earnings, beginning
Retained earnings, December 31, 2015 )
385,800
160,600
225,200
98,918
2,100
128,382
23,400
151,782
Question No. 7
(C)
Cost
Less Accumulated depreciation (14,500 x 2)
Book value of machinery, December 31, 2016
145,000
29,000
116,000
312
14,500
94,584
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 9
(B)
Accounts receivable, 2015 (32,400+2,500)
Less: Allowance for bad debts (32,400+2,500) * 2%
Netrealizablevalue
34,900
698
34,202
Question No. 10
(B)
Sales2016
Less:Cost ofsales
GrossProfit
Less:Operatingexpenses
Add:Otherincome
Netincome
422,400
204,700
217,700
94,584
1100
124,216
SUMMARY OF ANSWERS:
1. C
2. C
3. D
4. A
5. C
6 . A 7. C 8. B 9. B 1 0. B
PROBLEM 32-12
Question No. 1
Unadjustedsales
Less:Advances
Adjusted Sales
4,323,600
132,000
4,191,600
(A)
Question No. 2
Carryingvalue( 100,000x70%^4*)
Less:Recoverableamount(higher)
Impairment loss
(B)
*future value after 4 periods = carry ing value after 4 periods.
Question No. 3
Sales
Add: Increase in raw materials (75,800 – 56,800)
Increase in finished goods (130,700 – 105,800)
Less: Purchaseo fr awm aterials
Othere xpenses(seebelow)
Wages and salaries (890,400 + 33,000)
Amortization of development cost (648,000 / 3 x 4/12)
Impairmentloss
Depreciation [(567,000 – 402,000) x 30%]
Tax expense (52,000 + 35,000 – 30,000)
Net income
(A)
313
24,010
23,000
1,010
4,191,600
19,000
24,900
(2,056,500)
(522,100)
(923,400)
(72,000)
(1,010)
(49,500)
(57,000)
553,990
Chapter 32 – Statement of Financial Position and Comprehensive Income
UnadjustedOther Expense
Add: Rent expense [10,000+ (4,000/4)**]
Increase in accrued expense (26,700 - 17,000)
Less: Taxsettlement
Increase in prepaid expense (45,000 – 11,500)
AdjustedOtherExpense
569,900
11,000
9,700
(35,000)
(33,500)
522,100
**Since the deposit is non-refundable, this is recognized as additional expense
over the lease term.
Questions No. 4 to No. 7
Current assets:
Cashi nbank(41,850–33,000)
Trade receivables and other receivables
Raw materials
Finished goods
Prepaidexpense
8,850
245,800
75,800
130,700
45,000
Non-current assets:
Intangible asset (648,000 – 72,000)
Plant (567,000 – 402,000 – 49,500 – 1,010)
Leasedeposit(4,000 –1,000)
Total assets
. (C
576,000
114,490
3,000
)
5
Current liabilities:
Tradeandotherpayables
693,490
1,199,640
156,700
Incometaxfromc
payable
Advances
ustomers
A cruedpurchases
52,000
132,000
26,700
Non-current liabilities:
None
Totalliabilities
-
367,400
6. (C)
367,400
Equity:
Ordinary shares
Retained earnings (553,990 – 1,750 deficit –
20,000)
Total liabilities and shareholders’ equity
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4. B
506,150
4. (B)
5.
C
6.
314
300,000
532,240
C
7.
A
7. (A)
832,240
1,199,640
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-13
Question N os. 1 and 2
Unadjustednetincome
1) BD expense under, NI over (392,000 x 10% )37,000
2) Unreal. Gain (Loss) (81,000-78,000) and
(62,000-81,000)
3) EI overstated, NI over
EI overstated, NIover
4) *Expenseo ver,NIunder
Depreciation expense under, NI over
5) **Gainon saleunder, NIunder
6) Exp.Over
Adjustednet income
2015
195,000
2016
220,000
(2,200)
3,000
(4,000)
10,900
1,800
206,700
1.( B)
(19,000)
4,000
(6,100)
(1,100)
2,500
(900)
197,200
2.( B)
*(Expenses recorded P12,000 should be (12,000-1,000)/10= 12,000-1,000)
**NetSellingPrice
2,500
Less carrying amount
Cost
17,500
Less Accumulated depreciation
17,500
0
Gain on
sale
2,500
Question No. 3
Cash
Accounts receivable (296,000-18,000)
Tradings ecurities at Fairv alue
Merchandise inventory (202,000-4,000)
Prepaidi nsurance( 2,700-900)
Total current assets
(D)
Question No. 4
Cash
Accounts receivable (392,000 x 90%)
Tradings ecurities at Fairv alue
Merchandise inventory (207,000-6,100)
Prepaid insurance
Totalcurrentassets
Property, plant and equipment
(169,500+12,000-17,500)
Less: Accumulated. Depreciation
(121,600+1,100+1,100-17,500)
NetBook value
Total Assets
163,000
352,800
62,000
200,900
900
779,600
164,000
(B)
315
82,000
278,000
81,000
198,000
1,800
640,800
106,300
57,700
837,300
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 5
Sharec apital(20,000xP10)
Sharepremium
Retained earnings (206,700+197,200+*52,000)
Adjusted Shareholders' equity
(A)
200,000
60,000
455,900
715,900
*(247,000-195,000)
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4. B
5.
A
PROBLEM 32-14
Question No. 1
Unadjustedsales
Less: Sale with a repurchase agreement (selling price)
Adjusted Sales
(B)
550,000
(10,000)
540,000
Note: The transaction should be reported as a financing arrangement, rather
than sale. Hence, the company will instead report a liability and interest. Also,
the cost sho uld be included as part of inventory.
Question No. 2
Unadjustedcost ofsales
Less: Sale with a repurchase agreement (cost)
Add: Depreciation on Plant (see below)
Depreciation onB uilding (35,000/ 14)
Adjusted cost of sales
(D)
Depreciation of plant asset is com puted as follows:
Plant asset classified as held for sale [(9,000 – 5,000) x 20% x
6/12]
Remaining plant asset [(70,000 – 4,000) x 20%]
Totalplant assetdepreciation
Non-current asset held for sale:
Fairvalue lesscosttosell
Carrying value date of classification (4,000 – 400)
Initial carryin g amount - LOWER
Question No. 3
Sales
Less:Cost ofsales
Gross
profit
Less: Distribution cost
Administrativeexpenses
Interest [(700 + (10,000 x 10% x6 /12*)]
316
411,500
(7,000)
13,600
2,500
420,600
400
13,200
13,600
4,200
3,600
3,600
540,000
420,600
119,400
(21,500)
(30,900)
(1,200)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Provision for bonus (540,000 x1 %)
Tax expense (increase in DTL an d CTL) – (27, 200 + 9,400
–1,200–6,200)
Net income
(A)
Question No. 4
Net
income
Add: Revaluation surplus (see computation below)
Total comprehensive income
(B)
Land:
Appraisedvalue
Carryingamount
Questions No. 4 to No. 9
Current assets:
Tradereceivables
Inventory(43,700+7,000)
Non-currentasset held for sale
35,000
30,000
42,200
50,700
3,600
Non-cur
Land rent assets:
Building( 35,000–2,500)
Plant (66,000–13,200)
Total
assets
12,000
32,500
52,800
Current liabilities:
Tradepayables
Bank overdraft
Currenttaxliability
Provision –bonus
35,100
6,800
27,200
5,400
Non-current liabilities:
Deferredtax liability
Bank loan
Interestpayable
9,400
10,000
500
Totalliabilities
Equity:
Equityshares
Sharepremium
Revaluationsurplus
(29,200)
31,200
31,200
7,000
38,200
12,000
10,000
Building:
Appraisedvalue
Less: Carrying amount (50,000 – 20,000)
Totalrevaluation surplus
(5,400)
2,000
5,000
7,000
96,500
5. (D)
)
(6.
C
97,300
193,800
74,500
7. (C)
(D
8.)
19,900
94,400
50,000
20,000
7,000
317
Chapter 32 – Statement of Financial Position and Comprehensive Income
Retained earnings (11,200 + 31,200 – 20,000)
Total liabilities and shareholders’ equity
22,400
9. (B)
99,400
1,199,640
Question No. 10
Net
income
Divided by: Weighted average shares (see below)
Earnings per share
(A)
31,200
96,739
3225
April 1 to July 1 (80,000* x 2 / 1.84** x3/12)
July1t oMarch31(100,000x9/12)
Weightedaveragen umberofs hares
21,739
75,000
96,739
*The number of shares before the exercise of the rights may be computed
by dividing the (
¼rights).
**Adjustment factor.
Value of one right
=
Value of one right
=
Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
-
4+ 1
=
Fair value per share – rig ht on
Less:T heoreticalvalueof oneright
Theoretical ex-rights fair value per share
.16
SUMMARY OF ANSWERS:
1. B
2. D
3. A
4. B
5. D
6 . C 7. C 8. D 9. B 1 0. A
PROBLEM 32-15
Question No. 1
Inventoriesat30September2015
Add:Purchases
Less: Inventories at 30 September 2016
Add: Depreciation – plant and machinery (see below)
Add: Depreciation – ma chine classi fied as held for sale (8,2 00 x
20%
6/12)
x
Add: Impairment loss – noncurrent asset held for sale [(8,200 –
820)
6,500]
–
Adjusted Cost of Sales
31,800
344,000
27,300
46,485
820
880
396,685
(B)
Plant and Machinery
Cost –balanceforward
Less: Accumulated depreciation – balance forward
318
385,000
144,375
Chapter 32 – Statement of Financial Position and Comprehensive Income
Less: Held fors ale asset – carrying amount
Balance
Less: Depreciation during the year (232,425 x 20%)
Carryingamount–year end
8,200
232,425
46,485
185,940
Question No. 2
Trial balance
Add: Depreciation – Property (14,500 + 30,000) - see below
Add: Downward Valuation (480,000 – 456,000)
Adjusted Admin Expense
(C)
216,200
34,500
24,000
274,700
Property Valuations
Property A Property B
372,000
1,080,000
(449,500) (600,000)
(77,500)
480,000
Carrying amount – October 1, 2015
Valuation– October 1,2 015
Revaluation(gain)/loss
Valuation– October1,2 015
Less: Depreciation (Property A: 31 years;
PropertyB :3 0y ears)
Carrying amount – October 1, 2016
449,500
600,000
(14,500)
435,000
(20,000)
580,000
Question No. 3
Trial balance
Add:Provisioncharge( seebelow)
Add:LeaseOther
expense
(seebelow)
Adjusted
Operating
Costs
86,900
33,600
27,600
148,100
(C)
Provision – Onerous Lease
Current liabilities [(3,000 – 2,300)x 12]
Non-current liabilities (8,4000 x3 years)
Total
8,400
25,200
33,600
Operating Lease
Total Payments [(18,000 x 7 years) + (36,000 x 8 years)]
Divided
by:
Operatingl easeexpensep eryear
414,000
15 years
27,600
Question No. 4
Revenue
Less:Cost ofsales
1,057,000
396,685
Gross
profit
Less: Administrative expenses ( see No. 2)
Other operating costs (see No. 3)
Profitbefore tax
Less:
Tax
660,315
274,700
148,100
237,515
56,000
319
Chapter 32 – Statement of Financial Position and Comprehensive Income
Profit after tax
181,815
(A)
Questions No. 4 to No. 8
Current assets:
Inventories
Tradeandotherreceivables
Cash in
bank
27,300
61,500
5,100
93,900
6,500
Non-currentassetheldf ors ale
Non-current assets:
PPE (185,940 + 400,000 + 435,000 + 580,000)
Total assets
(D)
1,600,940
6.
Current liabilities:
Tradeandotherpayables
Incometax payable
Provisions
199,800
56,000
8,400
Non-current liabilities:
Leaseliability( 27,600–18,000)
Provision
Totalliabilities
9,600
25,200
Equity:
Ordinary share capital
1,600,940
1,701,340
264,200
7. (A)
34,800
299,000
672,600
Revaluationsurplus
Retainedearnings
Total liabilities and shareho ders’ equity
135,000
594,740
Retained
Earnings
576,875
181,515
Beginningbalance
Total comprehensive income for the year
(77,500 – 456,000)
Dividend on ordinary shares
Piecemeal realization of revaluation surplus
Ending balance
SUMMARY OF ANSWERS:
1. A
2. C
3. D
4. A
100,400
5. (D)
5.
D
6.
320
(168,150)
4,500
594,740
D
7.
A
8. B
(B
8.)
1,402,340
1,701,340
Revaluation
Surplus
518,000
(378,500)
(4,500)
135,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-16
SUPPORTING COMPUTATIONS:
Cost of Sales:
Unadjustedbalance
Add: Amortization of leased property [36,000 / (12 – 4)]
Add: Amortization of leased plant (25,000 / 5)
Add: Depreciation of other plant and equipment [(47,500 –
33,500) 20%]
x
AdjustedCostof Sales
2,800
311,000
Leased Property:
Carrying amount – April 1, 2015 (48,000 – 16,000)
Add: Revaluation surplus (36,000 – 32,000)
Revaluedamount–April1,2015
Less: Amortization (36,000 / remaining life 8 years)
Carryingamount–March3 1,2016
32,000
4,000
36,000
(4,500)
311,000
Leased Liability:
Amortization Table:
Principal
Date
Payment
April
1,
2015
April1,2015
2,000
March3 1,2 016
6,000
March3 1,2 017
6,000
Interest
Expense
2,300
1,930
Amortization
2,000
3,700
4,070
Leased Plant:
Fairvalue –April1, 2015
Less:Amort zation(25,000 /5years)
Carryingamount–March3 1,2016
298,700
4,500
5,000
Present
value
25,000
23,000
19,300
15,230
25,000
5,000
20,000
Deferred Tax:
Deferred tax liability – March 31, 2016 (12,000 x 25%)
Deferredtaxliability–April1,2 015
Decreaseindeferredtaxliability
Question No. 1
Revenue
Less:Cost ofsales
Gross
profit
Less: Distribution costs
Administrative expense (26,900 + 3,000 fraud)
Finance cost (300 + 2,300 interest in the lease)
Lossbeforetax
Incomet ax benefit [(9,600 x 25%) + 200 – 800]
Loss after tax
(D)
321
3,000
3,200
200
350,000
311,000
39,000
16,100
29,900
2,600
(9,600)
1,800
(7,800)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Questions No. 2 to 5
Current assets:
Inventory
Trade receivables (28,500 – 4,000)
Current tax refund (9,600x 25%)
25,200
24,500
2,400
Non-current assets:
Leasedproperty
Leased plant (25,000 –5,000)
Owned plant (47,500 – 33,500 – 2,800)
Total
assets
31,500
20,000
11,200
Current liabilities:
Tradepayables
Bank overdraft
Financel ease liability – current
62,700
114,800
27,300
1,400
4,070
Non-current liabilities:
Finance lease liability – noncurrent
Deferredtax liability
Totalliabilities
32,770
15,230
3,000
Equity:
Share
capital
Reserves:
Sharepremium
Revaluationsurplus
18,230
51,000
54,000
9,500
3,500
earnings
TotalRetained
shareholders’
equity
Statement of Changes in Equity:
Share
Capital
Begbal
45,000
Prior period adjustment
fraud
–
Restatedbalance
Rights issue (see below)
9,000
Net
loss
Revaluationsurplus
Piecemeal realization of
R/S
.
Ending bal.
54,000
52,100
(3,200)
Share
Premium
5,000
9,800
63,800
Revaluation Retained
Surplus
Earnings
5,100
(1,000)
4,100
4,500
(7,800)
4,000
.
9,500
(500)
500
3,500
(3,200)
The rights issue was 18 million shares (45,000/50 cents each x 1/5) at 75 cents
= 13·5 million. Thi s equates to the balance on the susp ense account. Thi s
should be recorded as 9 million equity shares (18,000 x 50 cen ts) and 4.5
million share pr emium (18,000 x (75 cents – 50 cents)).
322
Chapter 32 – Statement of Financial Position and Comprehensive Income
The discovery of the fraud represents an error part of which is a prior period
adjustment ( 1 million) in accor dance with PAS 8 Accounti ng policies, chan ges
in accounting estimates and errors.
Question No. 6
Loss
after tax
Divided by: Weighted average shares (see below)
Loss per share
(B)
7,800
99,000
April 1 to December 31 (90,000 x 1.20 / 1.125* x 9/12)
January1 toMarch31( 108,000x3/12)
Weightedaveragen umberofs hares
72,000
27,000
99,000
*Adjustment factor.
Value of one right
=
Value of one right
=
Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
-.
5+ 1
=
Fair value per share–right on
Less:T heoretical valueof one right
Theoretical ex-rights fair value per share
SUMMARY OF ANSWERS:
1. D
2. D
3. B
4. A
5.
B
6.
323
1.20
.075
B
Chapter 33 – Statement of Cash Flows
CHAPTER 33: STATEMENT OF CASH FLOWS
PROBLEM 33-1 Cash flows and non-cash activities
1) Sale of common stock
2) Sale of land
3) Purchase of treasury stock
4) Merchandise sales
5) Issuance of long-term note payable
6) Purchase of merchandise
7)
8)
9)
10)
11)
12)
13)
Repayment
of note
payable
Receipts from
sale of
half of investment in associate
Employee salaries
Sale of equipment at a gain
Issuance of bonds
Acquisition of bond of another corporation
Acquisition of a 60-day treasury bills
14)
15)
16)
17)
18)
19)
20)
Purc hase of building
Acquisition of a land und er a finance lease
Collection of nontrade note receivable (principal amount)
Loan to another firm
Declaration of cash dividend
Retirement of common stock
Income taxes paid
F
I
F
O
F
O
FI
O
I
F
I
Not
reported**
I
NC
I
I
NC
F
O
21)
22)
23)
24)
25)
26)
Issuance of short-term note p ayable to a supplier
NC
Sale of a copyright
I
Purchase of a treasury share of another corporat on
I
Payment of cash dividends
F
Receipt of dividends
O
Payment for the acquisition of additio nal 10% interest in a
F**
subsidiary
27) Payment of semiannual interest on bon ds payable
F
28) Receipt of interest
O
29) Increase in shareholders’ equity from a dividend
NC
reinvestment plan
30) Declaration of share dividend
NC
31) Interest paid capitalized under PAS 23
I
*Acquisition of 60-day treasury bills is transaction reclassifying cash to cash
equivalent.
**PFRS 10.23 Changes in a parent’s ownership interest in a subsidiary that do
not result in the parent losing control of the subsidiary are equity transactions
(ie transactions with owners in their capacity as owners). PAS 7 par 42A Cash
flows arising from changes in ownership interests in a subsidiary that do not
324
Chapter 33 – Statement of Cash Flows
result in a loss of control shall be classified as cash flows from financing
activities.
PROBLEM 33-2 Indirect Method - Operating Activities
Net
income
Decreaseinaccountsreceivable
Increaseinaccountspayable
Depreciationexpense
Net cash provided by operating activities
(A)
668,000
96,000
44,000
20,000
828,000
PROBLEM 33-3 Indirect Method - Operating Activities
Net
income
Increaseinaccountsreceivable
Decreaseinprepaidexpenses
Increase in accumulated depreciation-depreciation expense
Decreaseinaccountspayable
Net cash provided by operating activities
(A)
292,000
(40,000)
12,000
64,000
(16,000)
312,000
PROBLEM 33-4 Investing Activities
Cash acquisition of fair value through other comprehensive
securities
Proceeds from sale of the company’s used equipment
Purchase of equipment
Net cash provided by investing activities
(B)
(100,000)
1,000,000
(560,000)
340,000
PROBLEM 33-5 Financing Activities
Issuance of shares of the company’s own ordinary shares
Dividends paid to the company’s own shareholders
Repayment of principal on the company’s own bonds
Net cash provided by financing activities
(A)
680,000
(28,000)
(160,000)
492,000
PROBLEM 33-6
Question No. 1
Cash receipts from receivable (216 + 800 – 324)
Cash payment for purchases [(321 + 300 – 425) + 117 – 210]
Cashd
isbursement –
(66
+4 0––102)
88)
Cash disbursement
–insurance
salaries (93
+ 120
Cashd isbursement–interest( 50–10)
Cashd isbursement–tax(78+5 2– 60)
Net cash provided by operating activities
325
(D)
692
(103)
(18)
(111)
(40)
(70)
350
Chapter 33 – Statement of Cash Flows
Question No. 2
Net
Income
Depreciation
Gain onsaleofbuilding
Losson saleof machinery
Increase
in
A/R
DecreaseinInventory
Decreaseinprepaidinsurance
IncreaseinAccountsPayable
88
123
(11)
12
(108)
104
22
93
Increase
insalariespayable
Increase
in
DTL
Bonddiscountamortization
Net cash provided by operating activities
(D)
8 9
10
350
Note that cash flows for operating activities using direct or indirect method
is the same.
COMPREHENSIVE PROBLEMS
PROBLEM 33-7
Question No. 1
(B)
Accounts receivable
Beg. balance – AR
Sales on account
125,0000
1,000,000
Recoveries
-
Total
Question No. 2
1,125,000
0
150,000
Total
675,000
Beg. Balance
Net Purchases (squeeze)
525,000
0
and
- Sales
discounts
Collections
(squeeze)
990,000
- W ite-off
1,125,000
(C)
Accounts Payable Trade
Payments (squeezed)
Purchase returns and
allow.
Purchased iscounts
Balance end – AP
Total
135,000 Balance end - AR
- Sales
returns
allowance*
190,000
485,000
Beg. balance – AP
Purchases
Merchandise Inventory
175,000 160,000 Balance end
485,000 500,000 Cost of Sales
660,000
326
Chapter 33 – Statement of Cash Flows
Question No. 3
(D)
Deferred income taxes
Payments (squeezed)
190,000
Balance end
85,000
Total
Question No. 4
175,000 Beg. balance
100,000 Income tax expense
275,000
(D)
Collectiono fa ccountsreceivable
Paymentof accountspayable
Paymentof income taxes*
Paymentofo peratingexpenses
Net cash prov ided by (or used in) Operating activit ies
990,000
(525,000)
(190,000)
(180,000)
95,000
*Computation of Payment of income taxes
Prepaid insurance
Beg. Balance
Payment (squeezed)
Total
25,000
40,000
Balance end
180,000 165,000 Operating
expenses
excluding
depreciation
(260,000-95,000)
205,000
Depreciation expense=245,000-150,000
=95,000
Question No. 5
Receipt of cash from note payable-bank (200,000-160,000)
Issuance for cash of ordinary shares(225,000-200,000)
Dividendspaid
Net cash provided used in Financing activities (A)
40,000
25,000
(75,000)
(10,000)
Question No. 6
*ProceedsfromSaleofi nvestment
Cash acquisition of PPE (540,000-460,000)
Net cash provided used in investing activ ities (B)
20,000
(80,000)
(60,000)
Costo fi nvestment sold (190,000-180,000)
Add:Gainon sale
Proceedsfroms aleofi nvestment
SUMMARY OF ANSWERS:
1. B
2. C
3. D
4. D
5.
10,000
10,000
20,000
A
6.
327
B
Chapter 33 – Statement of Cash Flows
PROBLEM 33-8
Question No. 1
Beg. Balance
Sales on account
Question No. 2
(A)
Accounts receivable
600,000 1,250,000 Bal. end
5,000,000 4,330,000 Collections
20,000 Write-off
5,600,000
5,600,000
(B)
Bal. end
Payment
Accounts payable
4,800,000 4,500,000 Beg. Balance
1,900,000 2,200,000 Net purchases
6,700,000 6,700,000
Beg. Balance
Net purchases
Merchandise inventory
2,000,000
2,200,000 Bal. end
2,200,000
2,000,000 Cost of goods sold
4,200,000
4,200,000
Question No. 3
(A)
Net
income
Amortization of premium of Investment in Bonds
Depreciation
Gain onsaleofequipment
700,000
60,109
900,000
(220,000)
Amortizationof franchise
Decrease (or increase) in Trading securities
De rease(ori ncrease)inNetAR
Decrease (ori ncrease) in Inventories
Increase(ordecrease)inAP
Increase(ordecrease) in DTL
Net cash prov ided by (or used in) Operating activit ies
100,000
(450,000)
(530,000)
(200,000)
300,000
200,000
860,109
Computation of accumulated depreciation:
Beg.Balance
Add:Depreciationexpense
Less: Accumulated depreciation of asset sold
Balance end
Gain or (loss) on sale
NetSellingPrice
Less: Carry ing amount
Cost
Less: Accumulated Depreciation
Gain on
sale
3,200,000
900,000
200,000
3,900,000
500,000
480,000
200,000
328
280,000
220,000
Chapter 33 – Statement of Cash Flows
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
480,000
12/31/2016
480,000
Question No. 4
AcquisitionofPPE
Sale
of
PPE
Interest
Income
Premium
Amortization
425,355
419,891
54,645
60,109
Present
value
4,253,552
4,198,907
4,138,798
(B)
(1,000,000)
500,000
Net cash provided by (or used in) investing activities
Question No. 5
(D)
Dividendspaid
Cash receipts-issuance of OS (10,000 x 120)
Cashp aidforT reasuryshares
Net cash provided by (or used in) Financing activities
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4. B
5.
(500,000)
(300,000)
1,200,000
(500,000)
400,000
D
PROBLEM 33-9
Question No. 1
Bal. end
Payment
Beg. Balance
Net purchases
(D)
Accounts payable
3,400,000 3,500,000 Beg. Balance
1,900,000 1,800,000 Net purchases
5,300,000 5,300,000
Merchandise inventory
2,000,000
1,800,000 Bal. end
1,800,000
2,000,000 Cost of goods sold
3,800,000
3,800,000
Question No. 2
(B)
Income tax payable/Deferred tax liability
Bal. end-ITP
150,000
200,000 Beg. Balance-ITP
Bal. end-DTL
700,000
500,000 Beg. Balance-DTL
Payment
150,000 300,000 Income tax expense
1,000,000 1,000,000
Question No. 3
(A)
Net
income
Share in the net income ofa ssociate
Cash dividendsfromassociate
700,000
(1,024,000)
280,000
329
Chapter 33 – Statement of Cash Flows
Depreciation
Losson saleofequipment
Amortizationof franchise
Decrease (or increase) in Tradin g securities
Decrease(ori ncrease)inNetAR
Decrease(ori ncrease)in Inventories
Increase(ordecrease)inAP
Increase(ordecrease)inITP
Increase(ordecrease)inDTL
Net cash provided by (or used in) Operating activities
Year of Acquisition
Percentageof ownership
Cost of Investment
Less: Book value of net asset acquired
Excess ofc ost over book value
Over or (under) valued asset
Inventory
Machinery
Land
Goodwill
200,000
100,000
100,000
(90,000)
200,000
(100,000)
(50,000)
200,000
516,000
20%
4,000,000
2,400,000
1,600,000
(40,000)
240,000
1,800,000
Amortization of Over (Under) valued asset
Inventory
2015
40,000
Machinery
Divideby:Remaining life
(240,000)
10
Amortization of Under (over) valued asset
No of monthsdivideby12(1st year)
Amortization of Under (over) valued asset
(24,000)
1
(24,000)
2016
(24,000)
1
(24,000)
Net incomeo ft hea ssociate
Multiplyb y: Percentage of ownership
Shareinthenetincome
2015
2016
4,000,000 5,000,000
1,000,000 1,400,000
2015
2016
4,000,000 5,000,000
20%
20%
800,000 1,000,000
Dividends declareda nd paid
Multiplyb y: Percentage of ownership
Dividendsreceived
1,000,000
20%
200,000
Net incomeo ft hea ssociate
Dividends declareda nd paid
2016 Investment Income
ShareintheNetIncome
Add: Amortization ofo vervalued machinery
Netinvestmentincome-2016
Investment in Associate
330
1,400,000
20%
280,000
1,000,000
24,000
1,024,000
Chapter 33 – Statement of Cash Flows
Beg.Balance
Add:Netinvestmentincome
Less:Dividendsreceived
Balance end
4,584,000
1,024,000
280,000
5,328,000
Question No. 4
(B)
Cashr eceiptfromloanreceivable
AcquisitionofPPE
Sale
of
PPE
Net cash provided by (or used in) investing activities
120,000
(2,000,000)
500,000
(1,380,000)
Question No. 5
(D)
Dividendspaid
Cash receipts-issuance ofO rdinary shares
Cash receipts-reissuance of Treasury shares
Net cash provided by (or used in) Financing activities
(350,000)
1,120,000
105,000
875,000
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4. B
5.
D
PROBLEM 33-10
Question No. 1
Bal. end
(D)
Accounts payable
4,000,000 3,500,000
Payment
15,700,000
,700,000 2,200,000
5,700,000 Net purchases
Beg. Balance
Net purchases
Merchandise inventory
1,500,000
1,700,000 Bal. end
2,200,000
2,000,000 Cost of goods sold
3,700,000
3,700,000
Beg. Balance
Question No. 2
(B)
Income tax payable/Deferred tax liability
Bal. end-ITP
150,000
200,000 Beg. Balance-ITP
Bal. end-DTL
700,000
500,000 Beg. Balance-DTL
Payment
270,000 420,000 Income tax expense
1,120,000 1,120,000
Question No. 3
(A)
Net
income
Share in thenet income ofa ssociate
Cashd ividendsfromassociate
Depreciation
980,000
(630,000)
225,000
200,000
331
Chapter 33 – Statement of Cash Flows
Losson saleofequipment
Amortizationof franchise
Amortization of disc on investment in bonds
Decrease (or increase) in Net Accounts Receivable
Decrease (ori ncrease) in Inventories
Increase (or decrease) in Accounts Payable
Increase (or decrease) in Income Tax Payable
Increase (or decrease) in Deferred Tax Liability
Net cash provided by (or used in) Operating activities
Amortization table:
Interest
Date
Collection
01/01/2016
12/31/2016
100,000
12/31/2017
100,000
Interest
Income
112,708
114,233
Year of Acquisition
Percentageof ownership
Cost ofInvestment
Less: Book value of net asset acquired
Excess ofc ost over book value
Over or (under) valued asset
Inventory
Machinery
Land
Goodwill
150,000
100,000
(12,708)
(90,000)
(200,000)
500,000
(50,000)
200,000
1,372,292
Premium
Amortization
12,708
14,233
Present
value
939,230
951,938
966,170
25%
3,500,000
2,500,000
1,000,000
(50,000)
300,000
1,250,000
Amortization of Over (Under) valued asset
Inventory
2015
50,000
Machinery
Divideby:Remaining life
Amortization of Under (over) valued asset
No of monthsdivideby12(1st year)
Amortization of Under (over) valued asset
(300,000)
10
(30,000)
1
(30,000)
2016
(30,000)
1
(30,000)
2015
2016
2,000,000 2,400,000
800,000
900,000
2015
2016
2,000,000 2,400,000
25%
25%
500,000
600,000
Net incomeo ft hea ssociate
Dividends declareda nd paid
Net incomeo ft hea ssociate
Multiplyb y: Percentage of ownership
Shareinthenetincome
Dividends declareda nd paid
Multiplyb y: Percentage of ownership
Dividendsreceived
800,000
25%
200,000
2015 Investment Income
332
900,000
25%
225,000
Chapter 33 – Statement of Cash Flows
ShareintheNetIncome
Add: Amortization ofo vervalued machinery
Less:Undervaluationofinventory
Netinvestmentincome-2015
500,000
30,000
50,000
480,000
Investment in Associate
Cost of investment
Add:Netinvestmentincome
Less:Dividendsreceived
Balance end, 12/31/2015
3,500,000
480,000
200,000
3,780,000
2016 Investment Income
ShareintheNetIncome
Add: Amortization ofo vervalued machinery
Netinvestmentincome-2016
600,000
30,000
630,000
Investment in Associate
Beginningbalance,01/01/2016
Add:Netinvestmentincome
Less:Dividendsreceived
Balance end, 12/31/2016
Beg. Balance
Acquisition cost
Present value of MLP
3,780,000
630,000
225,000
4,185,000
Property, Plant and Equipment
9,000,000
900,000 C ost of equipment sold
600,000 9 ,069,180 bal. end
369,180
9,969,180 9,969,180
Accumulated depreciation
Bal.e nd
3,000,000 3,200,000 Beg. Balance
Accumulated depreciation
of asset sold
400,000
200,000 Depreciation expense
3,400,000 3,400,000
NetSellingPrice
Less: Carry ing amount
Cost
Less: Accumulated Depreciation
Loss
on sale
350,000
900,000
400,000
Question No. 4
(B)
Casha cquisition ofI nvestment inB onds
AcquisitionofPPE
Sale
of
PPE
Net cash provided by (or used in) investing activities
Present Value of Periodic Payment (100,000 x 3.4869)
Add: Present Value of Bargain Purchase option(30,000 x 0.683)
333
500,000
(150,000)
(939,230)
(600,000)
350,000
(1,189,230)
348,690
20,490
Chapter 33 – Statement of Cash Flows
Present Value ofM inimuml ease payments
Amortization table:
Interest
Date
Payment
12/31/2016
12/31/2016
100,000
12/31/2017
100,000
Question No. 5
Interest
Expense
26,918
369,180
Amortization
100,000
73,082
Present
value
369,180
269,180
196,098
(D)
Payment of principal finance lease liability
Dividendspaid
Cash receipts-issuance ofO rdinary Shares
Net cash provided by (or used in) Financing activities
(100,000)
(350,000)
720,000
270,000
Share Capital
Beginningbalance
Issuancefor cash
IssuancethruSDP
Balance end
10,000,000
600,000
1,910,000
12,510,000
Share Premium
Beginningbalance
Issuancefor cash
Balance end
1,000,000
120,000
1,120,000
Retained Earnings
Beginningbalance
Add:Netincome
Less:Dividendsdeclared-cash
Less:Sharedividend
Balance end
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4. B
3,740,000
980,000
350,000
1,910,000
2,460,000
5.
D
PROBLEM 33-11
Question No. 1
Collection from customers (202M + 410M – 200M – 6M)
Proceeds from investment income (4M + 5M – 6M)
Proceedsfroms aleofc ash equivalent
Payment of purchases [(205M + 180M -200M) + 65M – 50M]
Paymentofi nsurance(4M+7M-8M)
Paymentofs alaries(11M+65M–6M)
Paymentofi nterest( 4M+25M–8M)
Payment oft ax( 14M + 8M + 36M – 12M – 11M)
334
406M
3M
2M
(200M)
(3M)
(70M)
(21M)
(35M)
Chapter 33 – Statement of Cash Flows
(C)
82M
Question No. 2
Purchase of land(196M–150M)
Proceeds from sale of major components of machine
Purchase of long-term investment
Proceeds froms ale ofl ong-term investment
Net cash used from investing activities
(C)
(46M)
17M
(25M)
23M
(31M)
Net cash provided from operating activities
Long-term Investment
Beg.Balance
Investment income
(associate)
Acquisition (Tory)
Total
125M
6M
48M
179M
156M Bal.e nd
23M Disposal
179M
Question No. 3
Retirement ofbonds
Proceeds fromi ssuanceofp referreds tock
Acquisitionoftreasuryshares
Dividends
paid
Net cash used from financing activities
Balancee nd
(60M)
75M
(9M)
(22M)
(16M)
(A)
Retained Earnings
242M
227M Beg.Balance
Dividends
Total
52M
294M
67M Netincome
294M
Total
dividends
Less: Stock dividends – small (4M shares x 7.50 fair value)
Cash dividendspaid
52M
30M
22M
SUMMARY OF ANSWERS:
1. C
2. C
3. A
PROBLEM 33-11
Question No. 1
Overdraft
end
–
Add:Bank,beginning
Netc asho utflow
110
120
(230)
(A)
Question No. 2
Profitfor the year
135
335
Chapter 33 – Statement of Cash Flows
Depreciation
Amortization
Increaseininventory( 200–110)
Increase in trade receivable (195 – 75)
Increaseintradepayable(210–160)
Decrease in current tax payable( 80 – 110)
Net cash from operating activities
(D)
Question No. 3
Acquisition of PPE (see computation below)
Acquisition of intangible assets (see computation below)
Acquisitionofinvestment
Net cash used in investing activities
(A)
115
25
(90)
(120)
50
(30)
85
(305)
(125)
(230)
(660)
Balanceb eginning
Acquisition
Revaluation
Total
PPE, net
410
680 Endingb alance
- Disposal
305
80
115 Depreciation
795
795
Balanceb eginning
Acquisition
Revaluation
Total
Intangible asse t, net
200
300 Endingb alance
- Disposal
125
25 Amortization
325
325
Question No. 4
10%securedloannotes
Issuanceofshares
Dividends paid (seec omputation below)
Net cash from financing activities
Balancee nd
Dividends
Total
(C)
Retained Earnings
375
295 Beg.Balance
55
135 Net income
430
430
SUMMARY OF ANSWERS:
1 . A 2 . D 3. A 4. C
336
300
100
(55)
345
Chapter 33 – Statement of Cash Flows
PROBLEM 33-13
Question No. 1
Cash
Accountsreceivable
Allowancef ord oubtfula ccounts
Inventories
Total current assets
(A)
5,639,900
1,000,000
(180,000)
2,200,000
8,659,900
Question No. 2
Investment in bonds - FA at amortized cost
Propertyp lant and equipment
Accumulatedd epreciation
Franchise -net
Total noncurrent assets
(A)
3,861,105
9,520,000
(3,900,000)
500,000
9,981,105
Totalassets
18,641,005
Question No. 3
Liabilities and equity
Accountspayable
Dividendspayable
Total current liabilities
(A)
4,800,000
400,000
5,200,000
Question No. 4
Deferredtaxliability
Total noncurrent liabilities
(C)
700,000
700,000
Totalliabilities
5,900,000
Question No. 5
Ordinary shares, P100 parv alue
SharePremium
Treasurysharesatc ost
Retainedearnings
Total shareholders' equity
11,000,000
1,200,000
(500,000)
1,041,005
12,741,005
(C)
Total liabilities and equity
Beg. Balance
Sales on account
Bal.e nd
Write-off
18,641,005
Accounts receivable
600,000 1,000,000 Bal. end
5,000,000 4,600,000 Collections
- Write-off
5,600,000
5,600,000
Allowance for doubtful accounts
180,000
40,000 Beg. Balance
140,000 Baddebts
180,000
180,000
337
Chapter 33 – Statement of Cash Flows
Beg. Balance
Net purchases
Merchandise inventory
2,000,000
2,200,000 Bal. end
2,200,000
2,000,000 Cost of goods sold
4,200,000
4,200,000
Bal. end
Payment
Accounts payable
4,800,000 4,500,000 Beg. Balance
1,900,000 2,200,000 Net purchases
6,700,000 6,700,000
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
320,000
12/31/2016
320,000
12/31/2017
320,000
12/31/2018
320,000
Beg. Balance
Acquisition cost
PresentvalueofM LP
Interest
Income
374,637
380,100
386,111
392,816
Discount
Amortization
54,637
60,100
66,079
72,816
Present
value
3,746,368
3,801,005
3,861,105
3,927,184
4,000,000
Property, Plant and Equipment
9,000,000
480,000 Cost of equipment sold
1,000,000
9,520,000 bal. end
10,000,000 10,000,000
Accumulated depreciation
Bal.e nd
3,900,000 3,200,000 Beg. Balance
Accumulated depreciation
of asset sold
200,000
900,000 Depreciation expense
4,100,000 4,100,000
NetSellingPrice
Less: Carry ing amount
Cost
Less: Accumulated Depreciation
Gain on
sale
500,000
480,000
200,000
280,000
220,000
Ordinary shares
Beginningbalance
Issuancefor cash
Balance end
10,000,000
1,000,000
11,000,000
Share Premium
Beginningbalance
Issuancefor cash
1,000,000
200,000
338
Chapter 33 – Statement of Cash Flows
Balance end
1,20,000
Retained Earnings
Beginningbalance
Add:Netincome
Less:Dividendsdeclared-cash
Balance end
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4. C
461,005
980,000
400,000
1,041,005
5.
C
PROBLEM 33-14
QuestionNo. 1
Ending balance
Payment
Total
QuestionNo. 2
Balance beginning
Acquired–cash
Acquired – lease
Acquired – business
combination
Total
(C)
Income tax payable
143,700
65,000
76,000 154,700
219,700 219,700
Beg. Balance
Income tax expense
(C )
PPE, net
791,500
805,300 Ending balance
50,000
- Disposal
12,130
153,330 Depreciation
105,000
958,630
958,630
QuestionNo. 3
(A)
Profitfor the year
471,440
Depreciation
153,330
Amortization
8,200
Shareinprofitofassociate
(24,700)
Increase in inventory (57,300 – 46,900)
(10,400)
Increase in trade and other receivables (excluding receivable
(17,520)
from business combination) – (75,900 – 51,930 – 6,450)
Decrease in trade and other payab les (excluding re ceivable from
(43,758)
business combination) – (82,600 + 9,950 – 48,792)
Increaseinincome taxpayable
87,800
Net cash provided by operatinga ctivities
615,292
QuestionNo. 4
(C)
Proceeds from sale of license (see computation below)
AcquisitionofPPE
AcquisitionofHey Jude
339
21,600
(50,000)
(10,000)
Chapter 33 – Statement of Cash Flows
AcquisitionofYesterday
Cash and cash equivalents acquired in business combination
Net cash used by investing activities
Balance beginning
Acquisition
Goodwill*
Total
(58,800)
8,700
(88,500)
Intangible asse t, net
33,450
28,800 Ending balance
8,200 Amortization
25,150
21,600 Disposal
58,600
58,600
Consideration transferred [(58,500 + (35,000 x 1.4)]
Less:FVNAA(110,200x 75)
Goodwill
QuestionNo. 5
107,800
82,650
25,150
()
PROBLEM 33-15
QuestionNo. 1
Beg. Balance
Interestincome
Total
QuestionNo. 2
Ending balance
Payment
Total
(A)
Interest receivable – investing
10,500 1 2,500 Endingb alance
52,000
50,000 Collection
62,500 62,500
(A)
Income tax payable
170,000 130,000
140,000 180,000
310,000 310,000
Beg. Balance
Income tax expense
QuestionNo. 3
(B)
Increase in cash and cash equivalents (12,500 – 400)
Add:Decrease inbankoverdraft
Netcashinflows
Net
income
Depreciation
Gaino nsale(450,000–324,500)
Interest income – investing activities
12,100
3,500
15,600
834,900
560,000
(125,500)
(52,000)
Decreaseininventory
Decrease in trade and other r eceivables (exclud ing interest
related to investing) – (495,100 – 415,600)
Decrease in trade and other payables
Decreaseinwarranty
340
56,400
79,500
(122,600)
(30,000)
Chapter 33 – Statement of Cash Flows
Increaseinincome taxpayable
Net cash provided by operating activities
QuestionNo. 4
(A)
Interest collected – investing activity
Proceedsfroms aleofm achinery
Proceeds froms ale off actory building
Loans to unrelated parties (1,000,000 – 850,000)
Acquisition of PPE (see computation below)
Net cash used by investing activities
Balance beginning
Acquisition
Revaluation
Total
Ending balance
Transfer to R/E
Total
40,000
1,240,700
50,000
450,000
340,000
(150,000)
(2,022,500)
(1,332,5000
PPE, net
1,594,400 2,567,400 Ending balance
324,500 Disposal - Machinery
2,022,500
220,000
340,000 Disused factory
560,000 Depreciation
3,791,900 3,791,900
Revaluation surplus
350,000
250,000 Balance beginning
120,000
220,000 R/S – current period
470,000
470,000
QuestionNo. 5
(C)
Dividends paid (seec omputation below)
(42,600)
Proceeds from issuance of shares (100,000 x 1.50)
Net cash provided from financing activities
150,000
107,400
Balance end
Bonus issue*
Transfer to R/E
Dividends
Total
Retained Earnings
1,478,300
876,000 Beg. Balance
310,000
834,900 Net income
120,000
42,600
1,830,900 1,830,900
*Total increase in share capital and share premium
Less:Issuanceofshareforc ash
Bonus
issue
341
460,000
150,000
310,000
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