A guide in applying auditing procedures to specific
accounts of the financial statements.
TEACHERS MANUAL
2015
Edition
By
DARRELL JOE O. ASUNCION, MBA, CPA
RAYMUND FRANCIS A. ESCALA, MBA, CPA
MARK ALYSON B. NGINA, 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
Raymund Francis A. Escala – 0917-715-1226
Mark Alyson B. Ngina – 0915-510-7281
Email ad: appliedauditingnea@gmail.com.
Thanks and God bless.
Sincerely,
Darrell Joe O. Asuncion, MBA, CPA
Raymund Francis A. Escala, MBA, CPA
Mark Alyson B. Ngina, CMA, CPA
Table of Contents
Chapter 25 INTRODUCTION To LIABILITIES ....................................................... 4
Chapter 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING.........17
Chapter 27 LEASE ..........................................................................................................35
Chapter 29 SHAREHOLDERS' EQUITY...................................................................61
Chapter 30 BOOK VALUE AND EARNINGS PER SHARE .................................85
Chapter 32 STATEMENT OF FINANCIAL POSITION ........................................97
Chapter 33 STATEMENT OF CASH FLOWS....................................................... 112
Chapter 25: Introduction to Liabilities
CHAPTER 25: INTRODUCTION TO LIABILITIES
Note to the professor:
Page
902
910
925
Existing data:
Illustration: Long-term debt falling due within one
year
Additional information no. 3
As of December 31, 2015, Rondo’s current ratio is 1.5:1.
B
=
Change Rondo’s
to Rajon’s
Change 5.5 to
5.5M
10% x [(5.5 x (1-30%]
1 - 10% + [10% x (1-30%)]
Requirement No. 1
Warranty Sales in 2014 earned in 2015 (41% x
800 x P1,000)
Warranty Sales in 2015 earned in 2015 (22% x
800 x P1,000)
Total warranty sales revenue earned in 2015
Change to:
328,000
Change 800 to
900.
198,000
526,000
PROBLEM 25-1 Total Liabilities
Total liabilities
Current
Accounts payable
Loan payable – current portion
Unearned rent income
Income tax payable
Dividends payable
Total current liabilities
P 1,000,000
1,000,000
300,000
250,000
100,000
P 2,650,000
Non-current
Bonds payable
Discount on bonds payable
Loan payable – non-current portion
Deferred tax liability
Total non-current liabilities
Total liabilities
(
(B)
Below items shall be presented as part of entity’s assets:
Current asset
Advances to employees
Non-current asset
Cash surrender value of officers’ life insurance
Patent
P 5,000,000
500,000)
1,500,000
15,000
P 6,015,000
P 8,665,000
P
45,000
75,000
50,000
Below item shall be disclosed in the notes to financial statements:
Contingent liability
P 500,000
4
Chapter 25: Introduction to Liabilities
PROBLEM 25-2 Current Liabilities
Current liabilities
Accounts payable – unadjusted
Add/(Deduct): Adjustments
Debit balances in suppliers’ accounts
Postdated checks of
Accounts payable – adjusted
Credit balances in customers’ accounts
Premiums payable
Accrued expenses
Total current liabilities
P 4,000,000
(A)
100,000
50,000
P 4,150,000
500,000
600,000
150,000
P 5,400,000
Below items shall be presented as part of entity’s non-current liabilities:
Bonds payable
1,000,000
Premium on bonds payable
100,000
Mortgage payable
850,000
Deferred tax liability
200,000
Deferred revenue
175,000
Below item shall be presented as part of shareholders’ equity:
Stock dividends payable
PROBLEM 25-3 Refinancing
Current liabilities
10% note payable, maturing 03/3 1/2015
Annual sinking fund requirement
Total current liabilities
(C)
750,000
P10,000,000
500,000
10,500,000
Below items shall be presented as part of entity’s non-current liabilities:
12% note payable, maturing 06/30/2015
6,000,000
7% guaranteed debentures, due 2018
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 after 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 granted after the reporting date.
PROBLEM 25-6 Accounts payable
Accounts payable
Accounts payable – unadjusted
Cost of goods lost in transit
Cost of returned goods
Accounts payable – adjusted
(B)
5
P 8,000,000
500,000
(
200,000)
P 8,300,000
Chapter 25: Introduction to Liabilities
PROBLEM 25-7 Accounts payable
Amount of cash to eliminate accounts payable
Accounts payable from:
*Purchases through March 15 (gross)(P4,900,000 / 98%)
Merchandise inventory at cost(P1,500,000 / 150%)
Accounts payable
(B)
P 5,000,000
1,000,000
P 6,000,000
*The amount was grossed-up since the entity is no longer entitled to cash
discount. The liability as of March 15, 2014 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: Bonus rate
Total current liabilities
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)
Basis of bonus (100%) (P600,000/125%)
P 2,200,000
880,000
P 1,320,000
10%
P 132,000
(C)
P 1,600,000
1,000,000
P 600,000
120,000
P 480,000
(D)
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
Balance, Beg.
Cash receipts from
gift certificate sold
PROBLEM 25-11 Advances from Customers
Unearned revenue – Advances from customers
Unearned revenue
1,100,000
Advances applied to
shipments
1,600,000
1,800,000
Orders cancelled
100,000
6
Balance, Beg.
Advances
received
Chapter 25: Introduction to Liabilities
Balance, End (C)
1,700,000
1,200,000
2,900,000
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.
Cash receipts for
nine months
Balance, Beg.
Cash deposits
from deliveries
200,000
200,000
PROBLEM 25-14 VAT payable
Provision - VAT payable
VAT Payable
Payment made
120,000
Balance, End (A)
120,000
180,000
300,000
120,000
84,000
96,000
300,000
Balance, Beg.
For October
For November
For December
300,000
PROBLEM 25-15 Contingencies
(C) Since the outcome of the lawsuit remains uncertain, disclosure of the
contingency in the notes to financial statements would be the necessary.
PROBLEM 25-16 Contingencies
(B) Since it is probable that AAA will be liable to pay the P3,000,000 as
supported by BBB’s filing of a petition for bankruptcy, AAA should accrue and
disclose the provision for guarantee on a loan of P3,000,000.
7
Chapter 25: Introduction to Liabilities
PROBLEM 25-17 Premiums Payable
Provision – Premiums liability
Premiums liability
**Coupons redeemed
50,000
50,000
Balance, End (D)
30,000
80,000
*(20,000 x 80%)/5 x (P30 + P5 - P10)
**(10,000/5) x (P30 + P5 - P10)
80,000
80,000
**Balance, End
800,000
1,000,000
*Premiums expense
80,000
PROBLEM 25-18 Premiums
Premiums liability (2014)
**Balance, End
200,000
*Coupons
redeemed
Balance, Beg.
1,000,000
1,000,000
Premiums liability (2015)
120,000
200,000
*Coupons
redeemed
2,000,000
1,920,000
2,120,000
2,120,000
*Number of towels distributed x net cost of P40
**Number of towels yet to be distributed x net cost of P40
Balance, Beg.
Premiums
expense
(squeeze)
Balance, Beg.
Premiums
expense
(squeeze) (D)
The beginning balance of the 5,000 towels is included as part of the 50,000
towels distributed in 2015. If the actual towels distributed from 2015 is
different from that was recorded as of the end of 2014, this is considered as a
change in accounting estimate which should be taken into account during 2015
and for the succeeding accounting period.
PROBLEM 25-19 Warranty Liability
Warranties liability (2014)
Actual expenditures
150,000
500,000
150,000
500,000
Balance, End
350,000
500,000
500,000
8
Balance, Beg.
*Warranties expense
Chapter 25: Introduction to Liabilities
Warranties liability (2015)
350,000
Actual expenditures
550,000
600,000
550,000
950,000
Balance, End (A)
400,000
950,000
950,000
*Sales x Total estimated warranty cost of 10%
Balance, Beg.
*Warranties expense
PROBLEM 25-20 Warranty Liability
Warranties liability
Actual expenditures
Balance, End (C)
480,000
480,000
140,000
140,000
340,000
480,000
Balance, Beg.
Warranties expense
480,000
PROBLEM 25-21 Warranty - Sales are Made Evenly
Pattern of Realized Revenues:
2014 SALES
From sales in:
2014
1st (40% x ½)
0.20
2nd (36% x ½)
3rd (24% x ½)
Total
0.20
2015 SALES
From sales in:
2015
1st (40% x ½)
0.20
2nd (36% x ½
3rd (24% x ½)
Total
0.20
2015
0.20
0.18
0.38
2016
0.20
0.18
0.38
2016
2017
0.18
0.12
0.30
2017
Total
0.40
0.36
0.24
1
0.12
0.12
2018
0.18
0.12
0.30
Requirement No. 1
(A)
Warranty Sales in 2014 earned in 2015 (38% x 1,000 x P1,500)
Warranty Sales in 2015 earned in 2015 (20% x 1,200 x P1,500)
Total warranty sales revenue earned in 2015
Total
0.40
0.36
0.24
1
0.12
0.12
570,000
360,000
930,000
Notes:
 The 38% represents the realized revenue in 2015 from 2014 Sales.
 The 20% represents the realized revenue in 2015 from 2015 Sales.
Requirement No. 2
(B)
Total warranty sales revenue earned in 2015 (see No. 1)
Expenses relating to computer warranties
Profit from sales warranty
9
930,000
60,000
870,000
Chapter 25: Introduction to Liabilities
Requirement No. 3
(A)
Unearned sales warranty from 2014 [(30% + 12% x 1,000 x
P1,500)]
Unearned sales warranty from 2015 [(100%-20%) x 1,200 x
P1,500)]
Total unearned sales warranty
630,000
1,440,000
2,070,000
Notes:
 The 30% and 12% represent the unrealized revenues in 2015 from 2014
Sales.
 The 20% represents the realized revenue in 2015 from 2015 Sales. So
100% minus 20% realized is equal to 80% unrealized revenue in 2015 from
2015 Sales.
SUMMARY OF ANSWERS:
1. A 2. B 3. A
PROBLEM 25-22 Refinancing
1. P2,000,000 (Letter B). The entire amount is payable within one year from
the reporting date thus presented as current liability.
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 liability.
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 liability is treated as noncurrent.
4. P2,000,000 (Letter 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 25-23 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.
10
Chapter 25: Introduction to Liabilities
PROBLEM 25-24 Contingencies
1. A
2. D
3. B
4. B
5. 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%)
6. A (Amount of accrual is P2,250,000 using midpoint of the range which is
calculated as (P1.5M+3M)/2)
PROBLEM 25-25 Contingencies
1. A
2. B (Disclose an amount of P1,500,000)
3. B (Disclose an amount of P1,500,000)
4. B (Disclose an amount of P1,000,000)
5. D
6. A (It is virtually certain that the company will be receiving the
P1,5000,000.)
PROBLEM 25-26 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 X
(NY – B – T)
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
11
Chapter 25: Introduction to Liabilities
T
B
=
=
=
=
=
=
=
30%
X (3,090,000 – B)
927,000-.3B
OR
BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
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 = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T = Tax
TR = Tax Rate
SUMMARY OF ANSWERS:
1. D 2. B 3. C
PROBLEM 25-27
Question Nos. 1 and 2
Estimated liability from Warranties
Disbursement
warranties
Balance end
for
164,000
212,000
Total
44,800
Beginning balance
240,000
Warranty expense.
376,000
Warranty expense
Divide by % age of warranty
Sales from musical instruments and sound
reproduction equipment (Question No. 1)
Question No. 3
Premium
expense
=
P2,000,000
=
X
1 coupon
P2
200 coupons
P63,000
12
240,000
4%
6,000,000
x
90%
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
84,000
23,800
44,800
Beginning balance
63,000
Premium expense.
107,800
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4.
D
5.
D
PROBLEM 25-28 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
Periodic payment-NP Delivery equipment
(P2M/4)
Multiply by PV of ordinary annuity
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
Discount
Amortization
182,238
144,107
317,762
355,893
Question Nos. 2 and 3
12% Note payable
10% note payable
Noncurrent
1,400,000
2,000,000
13
Current
700,000
Present
value
1,518,650
1,200,888
844,995
Chapter 25: Introduction to Liabilities
Note payable-del.
Equipment
Total
844,995
4,244,995
355,893
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
(see amortization table)
Total
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4.
B
112,000
168,000
200,000
182,238
662,238
5.
C
PROBLEM 25-29 Warranty, Premiums and Bonus
Note to the professor: The last sentence should be: Premium expense of
P270,000 (not P120,000).
Question No. 1
Warranty expense (P150 x 1,200)
Less: Warranty paid
Estimated Premiums payable
180,000
85,000
95,000
Question No. 2
Premium expense
(P1,200,000 x 1 coupon/P1)/400 x 60% x (P45-P20)
Less: Net cost of redeemed coupons
(500,000/400)x( P45-P20)
Estimated Premiums payable
Question No. 3
Unadjusted net income
Warranty expense under, Net income over (P180,000-P85,000)
Premium expense over, Net income under (P270,000-P45,000)
Adjusted Net income
4.
Net income after bonus but before tax
NY
B = BR
x
100% + BR
= 20%
x
2,065,000
14
45,000
31,250
13,750
1,935,000
(95,000)
225,000
2,065,000
Chapter 25: Introduction to Liabilities
=
5.
344,167
100% + 20%
Net income after bonus and tax
B = BR
x
(NY – B – T)
T
=
B
=
TR
x
(NY – B)
OR
BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
Net income after bonus and tax
B
= BR X
(NY – B – T)
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
T
B
=
=
=
=
=
=
=
30%
X (2,065,000 – B)
619,500-.3B
OR
BR x [NY x (1-TR)]
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 = Tax
TR = Tax Rate
SUMMARY OF ANSWERS:
1. A 2. C 3. C 4.
B
5.
C
15
Chapter 25: Introduction to Liabilities
PROBLEM 25-30 Comprehensive
Question No. 1
(B)
SSS Payable
Philhealth payable
Estimated liabilities under guarantee agreement
Estimated warranties on goods sold
Utilities payable
Trade payables (170,000+30,000+20,000+12,000-8,000)
Notes payable arising from purchase of goods
Convertible bonds payable due July 1, 2014
Serial bonds payable (40,000 x 2)
Accrued interest expense
Advances from customers
Unearned rent income
Unearned interest on receivables
Income taxes payables
Cash dividends payable
Property dividends payable
Credit balance of notes payable
Overdraft with PNB
Container's deposit
Loans payable-12%
Financial liability designated as FVTPL
Current liabilities
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
(A)
Deferred tax liability
Notes payable
Arising from 4-year bank loan
Arising from advances by officers, dune in 3 years
Serial bonds payable (800,000 minus (40,000 x 2)
Security deposit received from lessee
Loans payable-10%
Total noncurrent liabilities
400,000
300,000
720,000
89,000
150,000
1,699,000
Question No. 3
(B)
Total liabilities
Current liabilities
Total noncurrent liabilities
Total liabilities
2,727,500
1,699,000
4,426,500
SUMMARY OF ANSWERS:
1. B 2. A 3. B
16
40,000
Chapter 26: Financial Liabilities and Debt Restructuring
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT
RESTRUCTURING
Note to professor:
Page
953
Existing data:
Note: In amortizing these bonds, a new effective rate
shall be computed thru interpolation. Refer to the
previous chapter for sample computation of
effective interest rate.
Change to;
(Kindly delete the
second sentence)
957
Note: Alternatively ….
Total present value= P5,588,332
Total present value=
P5,788,332
974
Requirement No. 2
Date on the third journal entry- Dec. 31, 2017
Fifth journal entry:
Preference shares
150,000
Premium on redemption of bonds
30,000
Cash
180,000
975
Statement of Comprehensive Income (2015)
Interest expense
P23,580
986
To record transaction
Note payable
1,600,000
Accrued interest payable
200,000
Land
1,500,000
Gain on extinguishment of debt
500,000
988
ILLUSTRATION: Modification of Terms
Mandaue Company has an overdue notes payable to
National Bank of P8,000,000 and recorded accrued
interest of P640,000
Date on the third
journal entry- Dec. 31,
2016
Fifth journal entry:
Bonds payable
200,000
Premium
on
redemption of bonds
10,000
Cash
210,000
Should be P29,174
Change 500,000
300,000
to
Change P640,000 to
P840,000
BONDS PAYABLE
PROBLEM 26-1 Financial Liabilities at FVTPL (Interest Expense and
Unrealized gains or losses)
Question No. 1
Face value
Multiply by: nominal rate
Multiply by: months outstanding/12
Interest expense
(A)
3,000,000
8%
12/12
P240,000
17
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
Fair value of the bonds
Less: Carrying value
Unrealized loss (or gain)-P&L
3,090,000
2,850,756
239,244
(B)
SUMMARY OF ANSWERS:
1. A 2. B
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
Less: Fair value of liability using the sum observed interest rate
and instrument specific IRR
Unrealized loss (or gain)-OCI
(B)
Internal rate of return at the start of the period - yield or
effective rate
Less: Observed (benchmark) interest rate, date of inception
Instrument specific IRR
Observed (benchmark) interest rate, end of period
Add: Instrument specific-IRR
Discount rate
Question No. 2
Market price of the liability, end of the period
Less: Carrying amount of FVTPL
Increase (or decrease) in FVTPL
Less: Unrealized loss (or gain) in the OCI
Unrealized loss (or gain) in the P&L
Present value market rate of 8%
Present value of Principal (2,000,000 X 0.6806 )
Add: Present value of interest payments (2,000,000 x 10% x
3.9927)
Market price of the liability, end of the period
Present value using 9%
Present value of Principal (2,000,000 X 0.6499 )
Add: Present value of interest payments (2,000,000 x 10% x
3.8897 )
Fair value of liability using the sum observed interest rate and
instrument specific IRR
18
2,159,740
2,077,740
82,000
10%
7%
3%
6.00%
3%
9.00%
2,159,740
2,000,000
159,740
82,000
77,740
1,361,200
798,540
2,159,740
1,299,800
777,940
2,077,740
Chapter 26: Financial Liabilities and Debt Restructuring
Journal entry end of the period is:
Unrealized loss-OCI
Unrealized loss-P&L
Financial liability at FVTPL
(Increase in FV of the liability)
82,000
77,740
159,740
SUMMARY OF ANSWERS:
1. B 2. C
PROBLEM 26-3 Derecognition of Held for Trading Debt Securities
Retirement Price
Less: Carrying value
Loss on sale
(D)
3,120,000
3,090,000
30,000
PROBLEM 26-4 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
Question No. 2
Amortization Table
Interest
Date
payment
01/01/2015
12/31/2015
96,000
12/31/2016
96,000
12/31/2017
96,000
(C)
Interest
expense
114,030
115,833
117,867
901,560
238,742
1,140,302
Premium
Amortization
(B)
18,030
19,833
21,835
Present
value
1,140,302
1,158,333
1,178,166
1,200,000
SUMMARY OF ANSWERS:
1. C 2. B
PROBLEM 26-5 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
19
Preset value
factor
0.9091
0.8264
0.7513
(A)
Total PV
450,914
383,450
324,562
P1,158,925
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
Date
01/01/2015
12/31/2015
12/31/2016
12/31/2017
Interest
Payment
Interest
Expense
Discount
Amortization
Principal
96,000
64,000
32,000
115,892
77,882
39,301
19,892
13,882
7,301
400,000
400,000
400,000
Present
value
1,158,925
778,817
392,699
-
SUMMARY OF ANSWERS:
1. A 2. A
PROBLEM 26-6 Financial Liabilities at Amortized Cost-Term Bonds
Issue Price (110% x 5,000 x P1,000)
Less: Bond issue cost
Net cash received from issuance
5,500,000
300,000
P5,200,000
(D)
PROBLEM 26-7 Financial Liabilities at Amortized Cost - Term Bonds with
Transaction Costs
Issue Price (5,000,000 x 98%)
Less: Bond issue cost
Present value on January 1, 2015
Add: Discount amortization
Nominal interest (5M x 10%)
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 26-8 Financial Liabilities at Amortized Cost - Term Bonds with
Transaction Costs
Issue Price (5,000,000 x 110%)
Less: Bond issue cost
Present value on January 1, 2015
Less: Premium amortization
Nominal interest (5M x 8%)
Effective interest (5,420,000 x 6%)
Carrying value – 12/31/2015
5.500,000
80,000
5,420,000
400,000
325,200
(B)
74,800
5,345,200
PROBLEM 26-9 Bonds payable with warrants
Market value of the bonds without the warrants
20
(B)
4,800,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-10 Bonds Payable with Warrants
Present value of principal (8M x .61)
Add: Present value of interest (8M x 6% x 7.72)
Net cash received from issuance – initial carrying amount (B)
4,880,000
3,705,600
P8,585,600
Suggested Answer: B
PROBLEM 26-11 Issuance of Convertible Bonds
Total Proceeds (5M X 110%)
Less: Present value of the bonds without conversion option
Present value of Principal (5M x. 77)
3,850,000
Add: Present value of int. payments
(5M x 6% x 2.53)
759,000
Residual amount allocated to Equity component
(B)
5,500,000
4,609,000
891,000
PROBLEM 26-12 Issuance of Convertible Bonds
Carrying amount of the bonds
Less: Par value of issued shares (50,000 x P50)
Share issue cost
Total
Add: Share Premium - conversion option
Total Share Premium
(C)
6,000,000
2,500,000
100,000
3,400,000
1,500,000
4,900,000
PROBLEM 26-13 Issuance of Convertible Bonds
Question No. 1
Total Proceeds (P1,000 x 1,000)
Less: Fair value of the bonds without conversion privilege
Total Share Premium
(A)
Using 7.48%
Present value of Principal (1,000,000 x 0.7 )
Add: Present value of interest payments (50,000 x 4 )
Total present value
1,000,000
900,000
100,000
700,000
200,000
900,000
Question No. 2 See amortization table below.
Amortization Table
Interest
Date
Payment
01/01/2015
12/31/2015
50,000
Interest
Expense
Discount
Amortization
67,320
17,320
21
Present
value
900,000
917,320
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1. A 2. B
PROBLEM 26-14 Retirement of Bonds Payable
Suggested Answer: A
PROBLEM 26-15 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
Share premium-conversion option
60,000
Premium on bonds payable
52,049
Ordinary shares (20000 X 50 )
1,000,000
Share Premium
612,049
Question No. 2 - Case No. 2
Fair value of liability
Less: Carrying amount of the bonds payable
Loss on settlement (conversion) of liability
Fair value of liability
Less: Total par value of the shares issued
Share Premium
(B)
The journal entry to record the transaction would then be:
Bonds payable
1,500,000
Loss on settlement of liability
47,951
Premium on bonds payable
52,049
Ordinary shares (20,000 X 50 )
Share Premium
1,600,000
1,552,049
47,951
1,600,000
1,000,000
600,000
1,000,000
600,000
SUMMARY OF ANSWERS:
1. A 2. B
PROBLEM 26-16 INDUCED CONVERSION
Face amount of debt securities converted
Divide by: New conversion price
Number of shares issued upon conversion
Multiply by: Fair value of shares on the conversion date
Fair value of shares converted
1,500,000
20
75,000
30
2,250,000
Face amount of debt securities converted
1,500,000
22
Chapter 26: Financial Liabilities and Debt Restructuring
Divide by: 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
25
60,000
30
1,800,000
Fair value of shares converted
Less: Fair value of shares under original conversion
Debt conversion expense or loss on induced conversion (B)
2,250,000
1,800,000
450,000
Journal entry is:
Bonds payable
Debt conversion expense or loss on
induced conversion
Premium on bonds payable
Ordinary shares (75,000 x 10 )
Share premium
1,500,000
450,000
52,049
750,000
1,252,049
PROBLEM 26-17 Interest-Bearing Note
Suggested Answer: C
PROBLEM 26-18 Non-Interest Bearing Note
Note to the professor: The July 31, 2015 due date should be July 31, 2016
Principal
Less: Discount on notes payable
(2M x 10.8% x 12/12)
Amortization (216,000/12 x 5)
Carrying amount of the note payable
2,000,000
216,000
(90,000)
(B)
126,000
1,874,000
PROBLEM 26-19 Interest-Bearing Note
Suggested Answer: B
PROBLEM 26-20 Interest-Bearing Note
Suggested Answer: A
PROBLEM 26-21 Loans Payable
Principal
Less: Direct origination fees paid (1.5M x 4%)
Initial carrying amount of the loans payable
PROBLEM 26-22 Debt Restructuring
23
(D)
1,500,000
60,000
1,440,000
Chapter 26: Financial Liabilities and Debt Restructuring
Suggested Answer: D
PROBLEM 26-23 Debt Restructuring
Suggested Answer: D
PROBLEM 26-24 Debt Restructuring
SUMMARY OF ANSWERS:
1. C 2. B
PROBLEM 26-25 Debt Restructuring
Principal
Add: Accrued interest – January 1, 2014
Accrued interest – 2014
Carrying amount of old liability
Less: Present value of new liability
Present value of principal (P4M x .6209)
Present value of interest (P4M x .08 x 3.7908)
Gain on extinguishment of liability
(E)
P6,000,000
600,000
600,000
7,200,000
2,483,600
1,213,056
3,696,656
3,503,344
Suggested Answer: 3,503,344 (None of the choices given)
COMPREHENSIVE PROBLEMS
PROBLEM 26-26 Interest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (1,200,000 x 0.7118 )
Add: Present value of interest payments (36,000 x 2.4018 )
Present value of the notes payable
(A)
Amortization Table:
Interest
Date
Payment
01/01/2015
12/31/2015
36,000
12/31/2016
36,000
12/31/2017
36,000
Interest
Expense
Discount
Amortization
112,875
122,100
132,432
76,875
86,100
96,400
Question No. 2
Interest Expense (940,625 x .12) = P112,875
Question No. 3
24
(B)
854,160
86,465
940,625
Present
value
940,625
1,017,500
1,103,600
1,200,000
Chapter 26: Financial Liabilities and Debt Restructuring
P1,017,500. See amortization table above.
(A)
Question No. 4
Nil. (A) The entire note payable is noncurrent liability.
Question No. 5
Note to the professor: The requirement should be noncurrent portion of the
note on December 31, 2016.
The noncurrent portion as of December 31, 2016 is P1,103,600. See
amortization table above.
(D)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4.
A
5.
D
PROBLEM 26-27 interest-bearing note – non-uniform installments
Note to the professor: The principal should be P2,000,000 not P1,200,000.
The interest is payable every December 31 while the principal shall be payable
as follows:
December 31, 2015
December 31, 2016
December 31, 2017
1,200,000
400,000
400,000
SOLUTION:
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
01/01/2015
12/31/2015
60,000
12/31/2016
24,000
12/31/2017
12,000
Total
payment
1,260,000
424,000
412,000
Preset value
factor
0.8929
0.7972
0.7118
(E)
Interest
Payment
Interest
Expense
Principal
Payment
210,759
84,851
44,079
150,759
60,851
32,062
1,200,000
400,000
400,000
Question No. 2
Interest expense (1,756,328 x .12)
Present
Value
1,125,054
338,013
293,262
1,756,328
Present
Value
1,756,328
707,088
367,938
-
P210,759
Question No. 3
25
(E)
Chapter 26: Financial Liabilities and Debt Restructuring
Carrying amount – December 31, 2015
P707,088
Question No. 4
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-noncurrent liability
(E)
P400,000
60,851
P339,149
(E)
P400,000
32,062
P367,938
(E)
SUMMARY OF ANSWERS BASED ON REVISED CHOICES:
1. D 2. D 3. C 4. C 5. C
PROBLEM 26-28 Interest-Bearing Note –Uniform Installments
Question No. 1
Interest
Principal
payment
400,000
36,000
400,000
24,000
400,000
12,000
Total PV of notes payable
Amortization Table
Interest
Date
Payment
01/01/2015
12/31/2015
36,000
12/31/2016
24,000
12/31/2017
12,000
Total
payment
436,000
424,000
412,000
Preset value
factor
0.8929
0.7972
0.7118
(A)
Present
Value
389,304
338,013
293,262
1,020,579
Interest
Expense
Amortization
Principal
Payment
122,469
84,846
44,106
86,469
60,846
32,106
400,000
400,000
400,000
Present
Value
1,020,579
707,048
367,894
-
Question No. 2
Interest expense (1,020,579 x .12)
P122,469
(B)
Question No. 3
Carrying amount – December 31, 2015
707,048
(A)
Question No. 4
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-current liability
(B)
Question No. 5
26
P400,000
60,846
P339,154
Chapter 26: Financial Liabilities and Debt Restructuring
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4.
B
5.
(A)
P400,000
32,106
P367,894
A
PROBLEM 26-29 Noninterest-Bearing Note – With Cash Price Equivalent
Question No. 1
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
01/01/2015
12/31/2015
400,000
12/31/2016
400,000
12/31/2017
400,000
Interest
expense
Amortization
99,476
69,424
36,340
300,524
330,576
363,660
Present
value
994,760
694,236
363,660
-
Question No. 2
Interest expense (994,760x .12)
P99,476
(A)
Question No. 3
Carrying amount – December 31, 2015
P694,236
(A)
Question No. 4
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4.
B
5.
(B)
P400,000
69,424
P330,576
(C)
P400,000
36,340
P363,660
C
27
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-30 Noninterest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (1,200,000 x 0.7118 )
Amortization Table
Date
Interest expense
01/01/2015
12/31/2015
102,499
12/31/2016
114,799
12/31/2017
128,542
(B)
854,160
Present value
854,160
956,659
1,071,458
1,200,000
Question No. 2
Interest expense (854,160 x .12)
P102,499
(B)
Question No. 3
Carrying amount – December 31, 2015
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)
Question No. 5
The total entire carrying amount of note payable is presented as noncurrent
liability. See Question No. 4.
(A)
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4.
B
5.
A
PROBLEM 26-31 Noninterest-Bearing Note – Installments
Question No. 1
Present value of Principal (400,000 X 2.4018 )
Amortization Table
Date
Interest
Payment
01/01/2015
12/31/2015
400,000
12/31/2016
400,000
12/31/2017
400,000
(D)
Interest
expense
Amortization
115,286
81,121
42,873
284,714
318,879
357,127
Question No. 2
P115,286. See amortization table above.
28
960,720
Present
value
960,720
676,006
357,127
(A)
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 3
P676,006. See amortization table above.
(A)
Question No. 4
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal (payable Dec. 31, 2016
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4.
B
5.
(B)
P400,000
81,121
P318,879
(C)
P400,000
42,873
P357,127
C
PROBLEM 26-32 Issuance, Retirement and Conversion of Non-Convertible
Bonds
Question No. 1
Present value of Principal (10,000,000 x 0.5674 )
Add: Present value of interest payments
(10,000,000 x 10% x 3.6048 )
Present value of the bonds payable
(D)
Amortization Table
Date
Interest
payment
01/01/2013
12/31/2013
1,000,000
12/31/2014
1,000,000
Interest
expense
Discount
Amortization
1,113,456
1,127,071
113,456
127,071
Question No. 2
Retirement Price
Less: Carrying amount (9,519,327 x 1/2)
Loss on retirement
Question No. 3
Amortization table:
Interest
Date
payment
12/31/2014
12/31/2015
500,000
(C)
5,674,000
3,604,800
9,278,800
Present
value
9,278,800
9,392,256
9,519,327
P5,200,000
4,759,664
P440,336
(C)
Interest
expense
Amortization
571,160
(71,160)
29
Present
value
4,759,663
4,830,823
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 4
Fair value of the ordinary shares issued (50 x 50,000)
Less: Carrying amount of the liability (4,830,823 x 250/500)
Loss on conversion
(D)
P2,500,000
2,415,412
P84,588
Question No. 5
Fair value of the ordinary shares issued (50 x 50,000)
Less: Total par value of the shares issued (40 x 50,000)
Share Premium
(B)
P2,500,000
2,000,000
P500,000
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4.
D
5.
B
PROBLEM 26-33 Issuance, Retirement and Conversion of Convertible
Bonds
Question No. 1
Total Proceeds
Less: Present value of the bonds without the
conversion option
Present value of Principal (5,000,000 x 0.5674 )
Present value of interest payments (500,000 x
3.6048 )
Residual amount to equity
Amortization Table
Date
Interest
payment
01/01/2014
12/31/2015
500,000
12/31/2016
500,000
P5,000,000
2,837,000
1,802,400
(C)
Interest
expense
Discount
Amortization
556,728
563,535
56,728
63,535
Question No. 2
Fair value of liability using current rate
Less: Carrying amount (4,759,663 x ½)
Loss on settlement of liability
(C)
4,639,400
P360,600
Present
value
4,639,400
4,696,128
4,759,663
2,438,925
2,379,832
59,093
Present value using 11% for 3 periods
Present value of Principal (2500000 x 0.7312 )
Add: Present value of interest payments (250000 x 2.4437 )
Present value of the bonds payable
1,828,000
610,925
2,438,925
Question No. 3
Retirement Price
Less: Fair value of liability using current rate
Decrease in equity
2,600,000
2,438,925
161,075
30
(C)
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 4
Interest expense is P556,728 based on the amortization table above.
Question No. 5
Shares to be issued based on amended terms (2.5M/420)
Less: Shares to be issued based on amended terms (2.5M/450)
Incremental shares
Multiply by: Fair value
Debt settlement expense
(C)
(E)
P5,952
5,556
397
440
P174,680
(P174,680 or P174,240)
SUMMARY OF ANSWERS:
1. C 2. C 3. C 4.
E
5.
C
PROBLEM 26-34 Redeemable Preference Shares and Debentures
Present value of the redeemable preference shares
Present value of Principal (15000 x 1.05 x 0.72161 )
Add: Present value of interest payments (1500 x 2.42308 )
Present value of the preference shares
Amortization table:
Date
Interest
Payment
01/01/2015
12/31/2015
1,500
12/31/2016
1,500
12/31/2017
1,500
Interest
Expense
Amortization
1,723
1,749
1,778
223
249
246
11,365
3,635
15,000
Present
value
15,000
15,223
15,472
15,718
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 )
Present value of bonds payable
31
10,992
8,408
19,400
Chapter 26: Financial Liabilities and Debt Restructuring
Amortization Table
Date
Interest
Payment
12/31/2017
12/31/2018
2,400
Interest
Expense
Amortization
2,554
(154)
Present
value
19,400
19,554
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
PROBLEM 26-35
Question No. 1
Accounts payable, unadjusted
Good in transit FOB shipping point
Undelivered check
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 Nos. 4 and 5
Current
1,485,000
1,250,000
Accounts payable
14% Note payable
16% Note payable
10% Note payable
Accrued interest payable
Total
Noncurrent
3,000,000
2,000,000
503,750
P3,238,750
(C)
32
P5,000,000
(C)
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1. D 2. D 3. C 4.
C
5.
C
PROBLEM 26-36 (Comprehensive)
Note to professor: The bonds will mature on July 1, 2022 instead of 2015.
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)
Question No. 2
April 1, 2014
July 1, 2014
October 1, 2014
January 1, 2015
Notes payable-current liability
3,118,000
5,734,960
8,852,960
P 400,000
600,000
300,000
300,000
P1,600,000
(B)
Question Nos. 3 and 4
Estimated liability from Warranties
Disbursement for
warranties
Balance end (A)
358,000
342,000
Total
180,000
Beginning balance
520,000
Warranty expense (C)
700,000
Question No. 5
(a)
A
B
C
Total
Fixed
salary
10,000
14,000
18,000
(b)
( c)
Net Sales
200,000
400,000
600,000
Comm.
Rate
4%
6%
6%
d=b x c
Comm.
Expense
8,000
24,000
36,000
(C)
E=d-a
Accrued
Salaries
Payable
0
10,000
18,000
P28,000
Question Nos. 6 and 7
Int. payable - Bonds (10M x 10% x 3/12)
Int. payable - Note payable
Notes payable
Estimated warranties payable
Trade payable
Sales commissions payable
33
Current
250,000
600,000
1,600,000
342,000
740,000
28,000
Noncurrent
5,400,000*
Chapter 26: Financial Liabilities and Debt Restructuring
Cash dividends payable (6M x P.2)
Bonds payable
Total
1,200,000
P4,760,000
(B)
8,970,751
P14,370,751**
(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
07/01/2012
01/01/2013
500,000
07/01/2013
500,000
01/01/2014
500,000
03/31/2014
250,000
(8,952,185 x 12% x 3/12)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4.
C
Interest
Expense
Amortization
531,178
533,048
535,031
268,566
31,178
33,048
34,999
18,566
5.
C
34
6
B
7
Present
value
8,852,960
8,884,138
8,917,186
8,952,185
8,970,751
C
Chapter 27 – Lease
CHAPTER 27: LEASE
Note to professor:
Page
1015
SOLUTION: #6
Contingent rent:
First P3,000,000 at 6%
In excess of P3,000,000 at 5%
Total Rental Expense – 2015
P 180,000
100,000
280,000
P 520,000
Change to:
Contingent rent:
First P1,500,000 to P3,000,000 at 6%
P 90,000
In excess of P3,000,000 at 5%
100,000 190,000
Total Rental Expense – 2015
P 430,000
1017
Unguaranteed residual value: Lessee's point of view
Guaranteed by a party other than the lessee or party related to the lessee
Kindly change related to unrelated.
1030
Requirement No. 3
Lease receivable
Less: Unearned interest income
Present value of lease receivable
Current
Asset
467,273
183,927
283,345
Noncurrent
Asset
1,601,819
352,436
1,249,382
Kindly disregard this table.
1037
Journal entry No. 7
Expiration under Unguaranteed Residual Value
Add: Expiration under Unguaranteed Residual Value: Fair value is less
than the residual value
1040
2. To record the leaseback
Equipment
Cash
xx
xx
Change Cash to Lease Liability
1043
Solution: Requirement No. 1
Gain on sale and leaseback= P80,000
Change P80,000 to P100,000
Page 1024
CASE NO. 2
Requirement No. 1
Amount to be capitalized as machinery
Since the present value of minimum lease payments of P529,335 is higher than
leased asset’s fair value of P515,000, the assets will be capitalized at P515,000.
In addition, there is a need to compute for the new implicit rate using
interpolation.
35
Chapter 27 – Lease
Recall the very basic principle in computing for present value that a lower rate
will give higher present value. The previous implicit rate of 12% yielded a
present value of P529,340 which is higher than P515,000. With that, the
P515,000 fair value will mean higher effective rate. Applying trial and error, let
us try 15%. Present value is as follows:
Present value of periodic rent payment (P150,000 x 3.2832)
Add: Present value of GRV (P30,000 x .5718)
Total present value of minimum lease payment
We can analyze the computation as follows:
Gap
Effective rate
Present value
differences
12%
P 529,335
P 14,335
X?
P 515,000
P 5,366
15%
509,634
Total gap difference
P 19,701
492,480
17,154
509,634
Gap
percentage
3%
Computation using the lower rate as a starting point:
X
=
Lower rate + [(HR - LR)
X
=
12% + [(15% - 12%)
X
=
14.183%
x
x
PV of LR - PV of X
PV of LR - PV of HR
14,335
19,701
]
Computation using the higher rate as a starting point:
PV of X - PV of HR
X = Higher rate - [(HR - LR)
x
PV of LR - PV of HR
X
=
15% - [(15% - 12%)
X
=
14.183%
x
5,366
19,701
]
Alternative computation:
Using ratio and proportion, the computation is as follows:
12% - X =
529,340 - 515,000
12% - 15%
529,340 - 509,636
We can simplify the equation by isolating X
12% - X = (12%-15%) x (14,335/19,701)
12% - X = (-3%) x (14,335/19,701)
12% + (3% x (14,335/19,701)) = X
.12 + (.021829) = X
.14183 = X
36
]
]
Chapter 27 – Lease
Page 1031
Gross Investment or lease receivable
= Total amount lessor receives
= MLPs + URV
PV of MLPs + PV of URV
= PV of net investment
Fair market value
= Sales price
= PV of MLPs
= Sales
Net cost
= Cost of goods sold minus
Present value of URV
0
Unearned interest revenue
to be recognized as
revenue using the effective
interest method
Gross (dealer's) profit
- recognize immediately
(move bracket downwards)
PROBLEM 27-1 Unequal rental payments
2013
2014
2015
2016
Total rent
Divide by: Number of years
Rent expense per year
20,000
18,000
16,000
14,000
68,000
4
17,000
(C)
PROBLEM 27-2 Operating Lease - Unequal rental payments
07/01/2013 to 06/30/2014
07/01/2014 to 06/30/2015
07/01/2015 to 06/30/2016
Total
divide by
Rent income per year
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
37
Chapter 27 – Lease
PROBLEM 27-3 Operating Lease - Comprehensive
Question No. 1
Periodic rent-one year
CASE NO. 1
(B)
360,000
CASE NO. 2
Question No. 2
Periodic rent-one year
Amortization of lease bonus (200,000 / 4 )
Rent expense
(C)
360,000
50,000
410,000
CASE NO. 3
Question No. 3
Total lease payments [4 X (12 – 7) X 30,000]
Divide by: Lease term
Rent expense per year
(D)
1,230,000
4
307,500
Question No. 4
Total payments to date, 2015 (2 x (12 – 7) X 30,000 )
Less: Total expense to date, 2015 (307500 X 2 )
Accrued rent payable
(B)
510,000
615,000
(105,000)
CASE NO. 4
Question No. 5
Total lease payments
(25000 X 2 X 12 )
(30000 X 2 X 12 )
Divide by: Lease term
Rent expense per year
600,000
720,000
(A)
Question No. 6
Total payments to date, 2015
Less: Total expense to date, 2015 (330,000 X 2 )
Accrued rent payable
(C)
CASE NO. 5
Question No. 7
Rent Revenue
Less: Amortization of Direct Cost (60,000 / 4 )
Insurance and property tax expense on
leased asset
Depreciation of the leased asset
Net income
(A)
38
1,320,000
4
330,000
600,000
660,000
(60,000)
360,000
15,000
30,000
30,000
285,000
Chapter 27 – Lease
CASE NO. 6
Question No. 8
Period rent for one year
Add: Contingent rent
1st [(3,000,000 – 1,000,000) x 8%]
160,000
2nd [(6,000,000 – 3,000,000) x 5%]
150,000
Total rent expense
(A)
SUMMARY OF ANSWERS:
1. B
2. C
3. D
6. C
7. A
8. A
4.
B
5.
360,000
310,000
670,000
A
PROBLEM 27-4 Finance Lease - Lease Liability
The capitalized lease liability should be the annual lease payments less the
executory cost (real estate taxes) times the present value factor for an ordinary
annuity of 1 for nine years at 9%. The calculation would be: (P26,000 - 1,000) ×
6.0 = P150,000. The real estate taxes are a period cost and should be charged to
expense.
Answer: A
PROBLEM 27-5 (FINANCE LEASE WITH BARGAIN PURCHASE OPTION)
Question No. 1
(A)
Present value of periodic payment (100,000 x 4.1699)
Add: Present value of bargain purchase option (30,000 x 0.6209)
Present value of minimum lease payments
Amortization Table
Annual
Date
payment
12/31/2015
12/31/2015
100,000
12/31/2016
100,000
12/31/2017
100,000
12/31/2018
100,000
12/31/2019
100,000
12/31/2019
30,000
Interest
expense
Amortization
33,562
26,918
19,610
11,571
2,723
100,000
66,438
73,082
80,390
88,429
27,277
Question No. 2
(B)
P33,562. See amortization table above.
Question No. 3
(C)
P66,438. See amortization table above.
39
416,990
18,627
435,617
Present
value
435,617
335,617
269,179
196,097
115,706
27,277
(0)
Chapter 27 – Lease
Question No. 4
(B)
P269,179. See amortization table above.
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
B
PROBLEM 27-6 With Guaranteed Residual Value And Initial Direct Cost
Note to the professor: The date for question Numbers 3 and 4 should be
December 31, 2015 and not December 31, 2016.
CASE NO. 1
Question No. 1
Present value of periodic payment (120,000 x 3.4869)
Add: Present value of guaranteed residual value (30,000 x 0.683)
Present value of minimum lease payments
Add: Initial direct cost
Cost of the Machinery
(C)
Amortization Table
Annual
Date
payment
12/31/2015
12/31/2015
120,000
12/31/2016
120,000
12/31/2017
120,000
12/31/2018
120,000
12/31/2019
30,000
Interest
expense
Amortization
31,892
23,081
13,389
2,720
120,000
88,108
96,919
106,611
27,280
418,428
20,490
438,918
20,000
458,918
Present
value
438,918
318,918
230,810
133,891
27,280
-
Question No. 2
(B)
P31,892. See amortization table above.
Question No. 3
(C)
P88,108. See amortization table above.
Question No. 4
(B)
P230,810. See amortization table above.
CASE NO. 2
Question No. 5
Present value of periodic payment (120,000 x 3.4226)
Add: Present value of guaranteed residual value (30,000 x 0.647)
Present value of minimum lease payments = Fair value
Add: Initial direct cost
Cost of the Machinery
(D)
40
410,712
19,410
430,122
20,000
450,122
Chapter 27 – Lease
Amortization Table: Effective rate = 11.50%
Annual
Interest
Date
payment
expense
Amortization
12/31/2015
12/31/2015
120,000
120,000
12/31/2016
120,000
35,664
84,336
12/31/2017
120,000
25,965
94,035
12/31/2018
120,000
15,151
104,849
12/31/2019
30,000
3,097
26,903
Present
value
430,122
310,122
225,786
131,751
26,903
(0)
Question No. 6
(D)
P35,664. See amortization table above.
Question No. 7
(A)
P84,336. See amortization table above.
Question No. 8
(D)
P225,786. See amortization table above.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
B
5.
D
6.
D
7.
A
8.
D
PROBLEM 27-7 Finance Lease - Depreciation
Question No. 1
Cost of the lease asset
Less: Estimated residual value end of the useful life of the asset
Depreciable cost
Divide by: Useful life
Depreciation
(A)
438,918
50,000
388,918
10
38,892
Question No. 2
Cost of the lease asset
Less: Gross amount of guaranteed residual value
Depreciable amount
Divide by: Lease term
Depreciation
(B)
438,918
30,000
408,918
4
102,230
PROBLEM 27-8 Computation of Periodic Lease Payments
Fair value
Less: Present Value of Guaranteed Residual Value
Total
Divide by: Present value of Annuity Due
Periodic lease payments
(B)
41
4,000,000
1,024,500
2,975,500
3.4869
853,337
Chapter 27 – Lease
PROBLEM 27-9 Direct Financing Lease - Lessor
Question No. 1
Gross Investment:
Total Periodic Lease Payment (914,585 x 5)
Add Unguaranteed Residual value (URV)
Less: Cost of the equipment
Unearned interest income
(A)
*4,572,927
300,000
4,872,927
4,000,000
872,927
*4,573,927 OR 4,573,925
Amortization Table
Annual
Date
Collection
12/31/2015
12/31/2015
914,585
12/31/2016
914,585
12/31/2017
914,585
12/31/2018
914,585
12/31/2019
914,585
12/31/2020
300,000
Interest
Income
Amortization
308,541
247,937
181,272
107,941
27,235
914,585
606,044
666,648
733,313
806,645
272,765
Present
value
4,000,000
3,085,415
2,479,370
1,812,722
1,079,409
272,764
(0)
Question No. 2
(A)
P308,541. See amortization table above.
Question No. 3
(B)
P606,044. See amortization table above.
PROBLEM 27-10 Direct Financing Lease - With Initial Direct Cost
Question No. 1
Gross Investment:
Total Periodic Lease Payment (959,256 X 5)
Add Unguaranteed Residual value (URV)
Less: Cost of the equipment
Unearned interest income
(A)
*4,796,278
-
4,796,278
4,066,956
729,322
*4,796,278 OR *4,796,280
Amortization Table
Annual
Date
Collection
12/31/2015
12/31/2015
959,256
12/31/2016
959,256
12/31/2017
959,256
12/31/2018
959,256
12/31/2019
959,256
Interest
Income
Amortization
304,074
238,556
166,486
87,160
959,256
655,181
720,699
792,769
872,095
42
Present
value
4,000,000
3,040,744
2,385,563
1,664,864
872,095
(0)
Chapter 27 – Lease
Question No. 2
(A)
P304,074. See amortization table above.
Question No. 3
(B)
P655,181 See amortization table above.
PROBLEM 27-11 Direct Financing Lease - Sale Of Leased Asset
CASE NO. 1
Question No. 1
Gross Investment:
Total periodic lease payments (6M X 5)
Add: Residual Value
Present value of the leased asset
Present value of minimum lease payments
(600,000 x 3.6048)
Add: Present value of residual value (100,000 x
.5674)
Unearned interest income
(A)
Amortization Table
Annual
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
700,000
Interest
Income
(B)
Question No. 4
Nil.
(A)
The journal entry is:
Inventory
Cash
Lease receivable
2,219,620
2,000,000
40,000
179,620
90,000
10,000
43
56,740
333,646
373,683
418,525
468,767
624,999
Question No. 2
P226,317. See amortization table above.
100,000
3,100,000
2,162,880
Amortization
266,354
226,317
181,475
131,233
75,001
Question No. 3: Guaranteed
Sales
Less: Cost of goods sold
Initial direct cost
Dealer's profit
3,000,000
100,000
2,219,620
880,380
Present
value
2,219,620
1,885,974
1,512,291
1,093,766
624,999
0
Chapter 27 – Lease
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
A
CASE NO. 2
Question No. 1
Gross Investment:
Total periodic lease payments (6M X 5)
Add: Residual Value
Present value of the leased asset
Present value of minimum lease payments
(600,000 x 3.6048)
Add: Present value of residual value (100,000 x
.5674)
Unearned interest income
(A)
Question No. 2
Amortization Table
Annual
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
700,000
3,100,000
2,162,880
56,740
2,219,620
880,380
(A)
Interest
Income
Amortization
266,354
226,317
181,475
131,233
75,001
Question No. 3: Unguaranteed
Sales
Less: Net cost
Cost of goods sold
Less: Present value of URV
Initial direct cost
Dealer's profit
(B)
Question No. 4
P10,000.
333,646
373,683
418,525
468,767
624,999
2,000,000
56,740
90,000
10,000
4.
Present
value
2,219,620
1,885,974
1,512,291
1,093,766
624,999
0
2,162,880
(B)
The journal entry is:
Inventory
Loss on sales type
Lease receivable
SUMMARY OF ANSWERS:
1. A
2. A
3. B
3,000,000
100,000
B
44
100,000
1,943,260
40,000
179,620
Chapter 27 – Lease
PROBLEM 27-12 Sales-Type Lease
Net Selling Price
Less: Present value of lease receivable
Loss on sale
(D)
200,000
227,436
(27,436)
PROBLEM 27-13 Sale and Leaseback as Finance Lease
Sales Price
Less: Carrying amount
Deferred gain on sale
2,162,880
1,900,000
262,880
Answer A. Answer is zero, the gain on sale is to be deferred and amortize over
the lease term
PROBLEM 27-14 Sale and Leaseback as Operating Lease - Treatment of
Gain
Question No. 1
(B)
Sales Price = Fair value
Less: Carrying amount
Gain on sale - recognize immediately
1,400,000
1,000,000
400,000
Question No. 2
(B)
Sales price
Less: Carrying amount
Gain on sale - recognize immediately
1,400,000
1,000,000
400,000
Question No. 3
Sales price
Less: Fair value
Deferred Gain
1,400,000
1,100,000
300,000
Fair value
Less: Carrying amount
Outright gain
1,100,000
1,000,000
100,000
(D)
PROBLEM 27-15 Sale and Leaseback as Operating Lease - Treatment of
Loss
Question No. 1
(B)
Sales Price = Fair value
Less: Carrying amount
Loss on sale - recognized immediately
900,000
1,000,000
(100,000)
45
Chapter 27 – Lease
Question No. 2
(B)
Sales price
Less: Carrying amount
Loss on sale - recognized immediately
900,000
1,000,000
(100,000)
Question No. 3
(A)
Nil. The entire loss is deferred since it will be compensated by below-market
future rentals.
COMPREHENSIVE PROBLEMS
PROBLEM 27-16
CASE NO. 1
Question No. 1
(A)
“Substantially all” test
Present value of Periodic Payment (200,000 x 6.75902)
% age
1,351,805
2,000,000
1,351,805
=68%
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.
Question No. 2
Rent expense
(B)
Question No. 3
Nil.
(A)
Question No. 4
Nil.
(A)
P200,000
Question No. 5
(D)
Depreciation expense overstated, net income understated
Interest expense overstated, net income understated
Rent expense understated, net income overstated
Net income understated
SUMMARY OF ANSWERS – CASE NO. 1:
1. A
2. B
3. A
4. A
5.
46
D
(115,181)
(135,181)
200,000
(50,362)
Chapter 27 – Lease
Question No. 1
“Substantially all” test
% age
1,351,805 =90%
1,500,000
CASE NO. 2
(B)
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
12/31/2014
12/31/2014
200,000
12/31/2015
200,000
12/31/2016
200,000
12/31/2017
200,000
Interest
Expense
Amortization
115,181
106,699
97,368
200,000
84,819
93,301
102,632
Question No. 2
(D)
Depreciation expense (1,351,805/10)
Interest expense
Total lease- related expenses
Present
value
1,351,805
1,151,805
1,066,986
973,684
871,052
135,181
115,181
250,362
Question No. 3
(C)
P93,301. See amortization table above.
Question No. 4
(B)
P1,066,986. See amortization table above.
Question No. 5
(A)
Nil. The company did not commit any error.
SUMMARY OF ANSWERS – CASE NO. 2:
1. B
2. D
3. C
4. B
5.
A
PROBLEM 27-17
Question No. 1
(B)
Lease is a finance lease thus any gain should be deferred and amortize over the
lease term.
Selling Price
Less: Carrying amount
Deferred gain on sale and leaseback
Less: Amortization in 2014 (29,695/10)
Deferred gain on sale and leaseback, end
47
379,695
350,000
29,695
2,970
26,725
Chapter 27 – Lease
Question No. 2
(D)
Interest expense
Depreciation expense (379,695/10)
Rent expense (5,000 x 12)
Total lease related expenses
Amortization Table
Annual
Date
Payment
01/02/2015
01/02/2015
60,000
01/02/2016
60,000
38,363
37,970
60,000
136,333
Interest
Expense
Amortization
38,363
60,000
21,637
Question No. 3
(C)
Sale and leaseback as finance lease
Lease liability, 01/02/2015
Add: Accrued interest
Total lease-related liability
Present
value
379,695
319,695
298,058
319,695
38,363
358,058
Question No. 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)
Total gain on sale and leaseback
2,970
50,000
52,970
Question No. 5
(B)
The deferred gain on sale and leaseback should be recognized immediately.
SUMMARY OF ANSWERS – CASE NO. 2:
1. B
2. D
3. C
4. B
5.
B
PROBLEM 27-18
Question No. 1
(C)
Present value of Periodic Payment (50,000 x 4.0373) - LOWER
Fair Value of the leased asset
201,865
P213,213
PAR. 20 OF PAS 17 States that: At the commencement 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.
48
Chapter 27 – Lease
QUESTION NOS. 2-4
Amortization Table
Annual
Date
Payment
12/31/2014
12/31/2014
50,000
12/31/2015
50,000
12/31/2016
50,000
12/31/2017
50,000
12/31/2018
50,000
Interest
Expense
Amortization
18,224
14,411
10,140
5,361
50,000
31,776
35,589
39,860
44,639
Present
value
201,865
151,865
120,089
84,499
44,639
0
Question No. 2
(D)
P120,089. See amortization table above.
Question No. 3
(C)
P35,589. See amortization table above.
Question No. 4
(C)
P18,224. See amortization table above.
Question No. 5
(A)
Depreciation expense (201,865/5)
SUMMARY OF ANSWERS:
1. C
2. D
3. C
4.
C
P40,373
5.
A
PROBLEM 27-19
Question No. 1
Annual lease payments
(A)
=
=
Annual lease payments
=
Fair market value – Present value of
Unguaranteed Residual Value
Annuity due
286,420 - (.5066 X 20,000)
4.6048
60,000
Question No. 2
(C)
Total minimum lease payments(60,000 x 6)
Add: Unguaranteed residual value
Total lease receivable
Less: Fair market value of the leased asset
Total Financial revenue
49
360,000
20,000
380,000
286,420
93,580
Chapter 27 – Lease
Question No. 3
Amortization Table
Annual
Date
Collection
01/01/2015
01/01/2015
60,000
12/31/2015
60,000
(A)
Interest
Income
Amortization
27,170
60,000
32,830
Present
value
286,420
226,420
193,590
Question No. 4
(C)
Present value of periodic lease payments (60,000 x 4.6048)
Amortization Table
Annual
Date
Collection
01/01/2015
01/01/2015
60,000
12/31/2015
60,000
Interest
Income
Amortization
25,955
60,000
34,045
Depreciation expense (276,288/6)
Add: Interest expense
Total expenses
P 276,288
Present
value
276,288
216,288
182,243
46,048
25,955
72,003
Question No. 5
(C)
P182,243. See amortization table in No. 4.
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
C
5.
C
PROBLEM 27-20
Question No. 1
(B)
Periodic rent (12,000 x 12)
Amortization of lease bonus (300,000/6)
Rent expense
Question No. 2
(C)
Periodic rent
Contingent rent:
1st (4M x 4%)
160,000
2nd (6M-4M) x 5%)
100,000
Amortization of lease bonus (500,000/5)
Total rent expense
Question No. 3
Rent expense
=
(B)
[(3 x 12)-6] x 10,000
3
50
144,000
50,000
194,000
480,000
260,000
100,000
840,000
Chapter 27 – Lease
Rent expense
=
100,000
Question No. 4
(B)
Lease No. 1 (Rent expense overstated, asset understated)
(P444,000-P194,000)
Lease No. 2 (Rent expense overstated, asset understated)
Asset understated
Rent expense per year-Lease 3
Less: Payment (10,000 x 6 months)
Accrued rent payable under, Liability understated
100,000
60,000
(40,000)
Question No. 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)
Net income understated
SUMMARY OF ANSWERS:
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
Question No. 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
Minimum lease payment
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
Fair value of the property
P8,800,000
(The difference is immaterial, implicit rate is 12% at P8.8M)
Question No. 2
(D)
[12/31/2014 balance x (1+Effective rate)] – annual payments = 12/31/15
balance
[(P8,800,000 – P1,390,590) x 1.12%] - P1,390,590 = P6,907,949
The current portion as of 12/31/2015 can be computed as:
(P6,907,949 - P1,390,590) x 12% = P561,636
51
Chapter 27 – Lease
Question No. 3
(B)
12/31/2015 balance – current portion(no.2) = Non-current portion
= P6,907,949 - P561,636 = P6,346,313
Question No. 4
P8,800,000/10 = P880,000
(A)
Question No. 5
(A)
Depreciation expense
Interest expense (P8,800,000 – P1,390,590) x 12
Executory costs
Total lease-related expenses
SUMMARY OF ANSWERS:
1. B
2. D
3. B
4.
B
5.
P 880,000
889,129
49,410
P1,818,539
A
PROBLEM 27-22
Note to professor:
The fair value of the building on June 30, 2015 is P2,380,000. Mallig has the option to
purchase the machine on June 30, 2025 (instead of 20 16) by paying ….
Question No. 1
07/01/2014 to 06/30/2015
07/01/2015 to 06/30/2016
07/01/2016 to 06/30/2017
Total
Divide by: Number of years
Rent expense per year
(E)
60,000
90,000
210,000
360,000
3
120,000
Rent expense to date (120,000 x 1)
Less: Payment to date
Accrued rent payable
120,000
60,000
60,000
Question No. 2
(B)
Present value of Periodic Payment (400,000 x 5.9500)
Fair value of leased asset
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
06/30/15
06/30/15
400,000
06/30/16
400,000
Interest
Expense
Amortization
277,200
400,000
122,800
52
Present
value
2,380,000
1,980,000
1,857,200
Chapter 27 – Lease
Question No. 3
(E)
First lease (See No. 1)
Second lease (see amortization table)
Current liabilities
60,000
122,800
182,800
Question No. 4
(A)
Rent expense (First lease)
Interest expense
Depreciation expense (2,380,000/10)
Total lease-related expenses
120,000
277,200
238,000
635,200
SUMMARY OF ANSWERS:
1. E
2. B
3. E
4.
A
PROBLEM 27-23 Exercise of Guaranteed Residual Value
Question No. 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 of minimum lease payments
Add: Initial direct cost
Cost of the Machinery
Question No. 2
Interest expense
Executory cost
Depreciation
Total lease-related expenses
Question Nos. 3 to 4
Amortization Table
Annual
Date
Payment
12/31/2015
12/31/2015
120,000
12/31/2016
120,000
12/31/2017
120,000
12/31/2018
120,000
12/31/2019
30,000
(B)
413,244
19,761
433,005
20,000
453,005
34,431
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
Question No. 3
(C)
P85,569. See amortization table above.
Question No. 4
(B)
P227,436. See amortization table above.
53
Present
value
433,005
313,005
227,436
132,453
27,023
(0)
Chapter 27 – Lease
Question No. 5
(B)
Gross amount of guaranteed residual value
Less: Fair value
Loss on finance lease
Question No. 6
Zero
30,000
25,000
5,000
(A)
Question No. 7
(C)
Cost of leased asset
Less: Accumulated depreciation
Carrying amount
Add: Cash payment
Total consideration
Less: Lease liability
Cost of equipment purchased
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
B
453,005
211,503
241,503
200,000
441,503
227,436
214,067
5.
B
6.
A
7.
C
PROBLEM 27-24 Direct Financing Lease
Question No. 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
Question No. 2
(B)
(P3,234,000 – P750,000) x 8% = P198,720
Question No. 3
(A)
The PV annuity due of 12% over 8 years can be computed as:
[1 – (1+12%) -7] + 1= 5.5638
12%
The present value of 12% for 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)
P 161,560
Present value of lease payments
(P959,500 x 5.5638)
5,338,466
Total interest over the lease term
54
P 8,076,000
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 be solved alternatively as:
[(P959,500 x 8 + P400,000) – P5,500,000)] = P2,576,000
Question No. 4
(B)
(P5,500,000 – P959,500) x 12% = P544,860
SUMMARY OF ANSWERS:
1. C
2. B
3. A
4.
B
PROBLEM 27-25 Sales-Type Lease
Note to professor:
Tequila Sunrise Company leased equipment from Wasted Time Co. on July 1, 2015 for an
eight-year period expiring June 30, 2023 (instead of 2014).
Question No. 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
Question No. 2
(B)
Present value of minimum lease payments
Cost of goods sold (P8,000,000 + P300,000)
(B)
P 7,040,000
( 5,600,000)
P 1,440,000
Question No. 5
(B)
P7,040,000 x 10% x 6/12 = P352,000
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
B
5.
55
(11,370,000)
P 4,630,000
11,370,000
(8,300,000)
P3,070,000
Question No. 3
(A)
P11,370,000 x 12% = P1,364,400
Question No. 4
Selling price
Book value
Gain on sale
P16,000,000
B
Chapter 27 – Lease
PROBLEM 27-26 Comprehensive
Question No. 1
(C)
Sales-type lease since Siegfried is a seller of computers and it qualifies as
finance lease.
Question No. 2
(A)
Direct financing lease. The lease qualifies as finance lease on the part of the
lessee.
Amortization Table
Annual
Date
Payment
1/1/2015
1/1/2015
2,466,754
6/30/2015 2,466,754
1/1/2016
2,466,754
Interest
Expense
Amortization
876,662
797,158
2,466,754
1,590,092
1,669,596
Present
value
20,000,000
17,533,246
15,943,154
14,273,558
Question No. 3
(A)
P15,943,154. See amortization table above.
Question No. 4
January 1 to June 30, 2015
June 30 to December 31, 2015
Total Interest income
(B)
876,662
797,158
1,673,820
This is P876,662 interest for the first six months: (P20,000,000 - lease payment
of P2,466,754) x 5%, plus P797,158 for the second six months: (P20,000,000 lease payment of P2,466,754 - [P2,466,754 - 876,662]) x 5%
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
B
PROBLEM 27-27 Investment Property
Note to the professor: Assume that the fair value of the land is material and
not immaterial.
Question No. 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
Present value of minimum lease payments
Less: Fair value of the land at the inception of the lease
Cost of the building as investment property
56
2,485,000
160,000
2,645,000
2,645,000
200,000
2,445,000
Chapter 27 – Lease
Amortization Table
Annual
Date
Payment
01/01/2015
12/31/2015
500,000
12/31/2016
500,000
Interest
Expense
Amortization
317,400
295,488
182,600
204,512
Present
value
2,645,000
2,462,400
2,257,888
Question No. 2
(C)
P317,400. See amortization table above.
Question No. 3
(C)
P204,512. See amortization table above.
Question No. 4
(C)
P2,257,888. See amortization table above.
Question No. 5 and 6
Total rent income (40,000 x 24) + (50,000 x 24) x 20
Divide by: Number of years
Rent income per year
43,200,000
4
10,800,000
Periodic rent
Add: Amortization of lease bonus (30,000 x 20)/4
Gross Rental income (No. 5)
(A)
Less: Expenses
Amortization of initial direct cost (5,000 x 20)/4
Annual maintenance cost
Interest expense
Depreciation *(2,645,000-200,000/10)
Net rental income
(B)
SUMMARY OF ANSWERS:
1. A
2. C
3. C
4.
C
5.
A
10,800,000
150,000
10,950,000
25,000
40,000
317,400
244,500
10,323,100
6.
B
PROBLEM 27-28
Question No. 1
(900,000+50,000+25,000)
(D)
Question No. 2
(D)
Total warranty expense (1.4M x 12%)
Less: Total actual expenditures
Warranty liability end of 2015
P
975,000
P
168,000
63,000
105,000
P
57
Chapter 27 – Lease
Question No. 3
Legal services
Add: Medical services
Payroll (14,400/12 x 8)
Royalties
Total accrual
(C)
P
P
Question No. 4
(D)
Fair value (equal to present value MLP)
Less: First payment
Total
Add: Interest accrued (420,000 x 9%)
Total lease liability
Question No. 5
(3,875,902 x 111%)-400,000
SUMMARY OF ANSWERS:
1. D
2. D
3. C
4,600
5,500
9,600
3,900
23,600
P
P
(A)
4.
490,000
70,000
420,000
37,800
457,800
P 3,902,251
D
5.
A
PROBLEM 27-29
Question No. 1
(C)
Unadjusted balance – Accounts Payable
2
3
Adjusted balance
450,000
60,000
45,000
555,000
Question No. 2
(A)
Units sold:
October
November
December
Total
Multiply by
Total failures expected
Less: Failures already recorded:
October sales
November sales
December sales
Expected future failures
Multiply by
Estimated cost
32,000
28,000
40,000
100,000
2%
2,000
640
360
180
Warranty expense
Estimated warranty liability
123,000
123,000
58
1,180
820
150
123,000
Chapter 27 – Lease
Question No. 3
(C)
Notes payable is (200,000 x 3.6048) = 720,960
Amortization Table
Annual
Date
Payment
01/01/2015
12/31/2015
200,000
12/31/2016
200,000
Interest
Expense
Amortization
86,515
72,897
113,485
127,103
Question No. 4
(A)
Present value of principal (4M x .6830)
Present value of interest payments (480,000 x 3.1699)
Total Present value
Amortization Table
Interest
Date
Payment
01/01/2015
12/31/2015
480,000
Question No. 5
Interest
Expense
Premium
Amortization
425,355
54,645
2,732,000
1,521,552
4,253,552
Present
value
4,253,552
4,198,907
(D)
Present value of minimum lease payments (200,000 x 6.759)
Amortization Table
Annual
Date
Payment
01/01/2015
01/01/2015
200,000
12/31/2015
SUMMARY OF ANSWERS:
1. C
2. A
3. C
Present
value
720,960
607,475
480,372
Interest
Expense
Amortization
115,180
4.
A
5.
200,000
P1,351,800
Present
value
1,351,800
1,151,800
1,266,980
D
PROBLEM 27-30
Note to professor:
By reason of financial difficulties, it is probable that Revo shall pay the P200,000 loan
with only a 60% recovery anticipated from Innova (not Suzette) Company.
Question No. 1
(D)
Zero, the two notes payable should be presented as noncurrent liabilities.
59
Chapter 27 – Lease
Question No. 2
(D)
FINANCE LEASE: Amortization Table
Annual
Interest
Date
Payment
Expense
12/31/2014
12/31/2014
60,000
12/31/2015
60,000
38,363
12/31/2016
60,000
35,767
Amortization
60,000
21,637
24,233
Present
value
379,692
319,692
298,055
273,822
Answer: P273,822. Refer to amortization table above.
Question No. 3
(B)
Answer: P38,363. Refer to amortization table above.
Question No. 4
(B)
Annual rent expense=P720,000/3=P240,000
Operating lease
Date
Expense
1/1-12/31/15
1/1-12/31/16
1/1-12/31/17
240,000
240,000
240,000
Expense
To date
240,000
480,000
720,000
Payment
to date
120,000
300,000
720,000
Accrued rent
(Prepaid)
120,000
180,000
-
Question No. 5
(C)
CONTINGENCIES
Answer: P400,000 (P200,000+P200,000)
1.
Only a disclosure is necessary because it is not probable that the company
will be liable, although the amount can be measured reliably.
2. Retained earnings
Estimated liability for income tax
200,000
3. Accounts receivable – Innova
Loss on guaranty
Note payable – bank
SUMMARY OF ANSWERS:
1. D
2. D
3. B
4.
200,000
120,000
80,000
200,000
B
5.
60
C
Chapter 29 – Shareholders’ Equity
CHAPTER 29: SHAREHOLDERS’ EQUITY
Note to professor:
Page
1099
1123
1125
1127
Existing data:
To record cash collection
Cash (250,000-62,500)
P 62,500
Change to:
Cash
If the shareholders opted to receive noncash, the
journal entry is:
Dividends payable
54,000
Loss on distribution of
dividends (balancing figure)
4,000
Noncash (5 x 12,000)
60,000
Illustration: Treasury Stock as Share Dividend
Ordinary share P50 par, 105,000 shares issued and
Outstanding
5,050,000
e. On December 15, 2015, Roxas declared its first
cash dividend to shareholders of P15 per share,
payable on January 14, 2008
Page 1121
Existing Data:
Journal entry on Feb. 15, 2015
Dividends payable
Inventory
Gain on distribution - prop. dividends
Carrying amount of dividend payable = Fair
value
Less: Carrying amount of noncash assets
Gain on distribution of prop. Dividends
Change to:
Dividends payable
Inventory
Gain on distribution - prop. dividends
Carrying amount of dividend payable = Fair
value
Less: Carrying amount of noncash assets
Gain on distribution of prop. Dividends
61
P 62,500
Change 4,000 to 6,000
Remove
‘and
outstanding’
and
change 5,050,000 to
5,250,000
Change 2008 to 2016.
780,000
600,000
180,000
780,000
600,000
180,000
780,000
700,000
80,000
780,000
700,000
80,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-1
Question No. 1
(A)
Authorized ordinary shares at P10 stated value
Less: Unissued ordinary shares
Ordinary Shares issued
2,400,000
1,300,000
1,100,000
Question No. 2
(B)
Authorized preference shares at P50 par value
Less: Unissued preference shares
Preference Shares issued
1,600,000
300,000
1,300,000
Question No. 3
(D)
Share Premium on ordinary shares
Share Premium conversion option-bonds payable
Share premium on preference shares
Gain on sale of treasury shares
Ordinary share warrants outstanding
Donated capital
Ordinary shares options outstanding
Total Share Premium
600,000
80,000
300,000
120,000
70,000
80,000
50,000
1,300,000
Question No. 4
(A)
Ordinary Shares issued
Preference Shares issued
Subscribed Ordinary shares
Subscription receivable – ordinary shares
Subscribed Preference shares
Subscription receivable – preference
Total Share Premium
Contributed Capital
1,100,000
1,300,000
400,000
(40,000)
120,000
(30,000)
1,300,000
4,150,000
Question No. 5
(C)
Preference Shares issued
Subscribed Preference shares
Ordinary Shares issued
Subscribed Ordinary shares
Share Premium on ordinary shares
Total Legal Capital
1,300,000
120,000
1,100,000
400,000
600,000
3,520,000
Question No. 6
(D)
Contributed Capital
Accumulated profits – unappropriated
Unrealized increase in value of FVTOCI securities
Reserve for bond sinking fund
Revaluation surplus
Total Shareholders' Equity
4,150,000
1,000,000
20,000
640,000
260,000
6,070,000
SUMMARY OF ANSWERS:
1. A
2. B
3. D
4.
A
5.
62
C
6.
D
Chapter 29 – Shareholders’ Equity
PROBLEM 29-2
1.
2.
3.
Cash (2,000 x P50)
Share capital
To record share issuance at a premium
100,000
Cash (5,000 x P60)
Share capital (5,000 x P50)
Share premium
To record share issuance at a premium
300,000
Share premium
Retained earnings
Cash
To record payment of share issue cost
50,000
20,000
Cash (4,000 x P40)
Discount on share capital
Share capital (4,000 x P50)
To record share issuance at a discount
160,000
40,000
100,000
250,000
50,000
70,000
200,000
PROBLEM 29-3
1.
2.
3.
Machinery
Share capital (2,500 x P50)
Share premium
To record share issuance for machinery
180,000
125,000
55,000
Patent (1,000 x P65)
Share capital (1,000 x 50)
Share premium
To record share issuance for patent
65,000
Organization expense
Share capital (400 x P50)
Share premium
To record share issuance for organization services.
40,000
50,000
15,000
20,000
20,000
PROBLEM 29-4
Loans payable - 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: Carrying amount of liability
Gain on settlement of 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)
63
140,000
150,000
10,000
140,000
100,000
40,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-5
1.
2.
Cash (2,500 x P216)
Preference shares (2,500 x P200)
Share premium-pref. share
To record issuance of preference shares
Cash (500 x P120)
Ordinary shares (500 x 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:
Preference shares (2,500 x P216)
Ordinary shares (500 x 120)
Total
Total Fair value
540,000
60,000
600,000
The transaction will then be recorded as follows:
Cash
Preference shares (2,500 x P200)
Share premium-preference share (810,000-500,000)
Ordinary shares (500 x 100)
Share premium - 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)
Amount allocated to the ordinary shares
The transaction will then be recorded as follows:
Cash
Preference shares (2,500 x P200)
Share premium-preference share (540,000-500,000)
Ordinary shares (500 x P100)
Share premium-ordinary share (360,000-50,000)
To record issuance of preference and ordinary shares
900,000
540,000
360,000
900,000
500,000
40,000
50,000
310,000
PROBLEM 29-8
1.
2.
Subscription receivable (4,000 x P60)
Subscribed share capital (4,000 x P50)
Share premium
To record subscriptions of share capital
Cash (240,000 x 40%)
Subscription receivable
To record cash collection
240,000
200,000
40,000
96,000
96,000
64
Chapter 29 – Shareholders’ Equity
3.
Cash (240,000 x 60%)
Subscription receivable
To record cash collection
144,000
144,000
Subscribed share capital
Share Capital (4,000 x 50)
To record issuance of share certificate
200,000
200,000
PROBLEM 29-9
1.
2.
3.
Subscriptions receivable (5,000 x P60)
Subscribed ordinary shares (5,000 x P50)
Share premium-ordinary share
To record subscriptions of 10,000 shares at P110
300,000
Cash (300,000 x 40%)
Subscriptions receivable
To record receipt of cash for subscriptions
120,000
Subscribed ordinary shares
Share premium-ordinary share
Subscriptions receivable (300,000 x 60%)
Share premium forfeited down-payment
250,000
50,000
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
Subscription receivable
Receivable from highest bidder
To record the issuance of share capital
Subscribed share capital (7,500 x P50)
Share capital
P
10,000
300,000
290,000
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
To record the acquisition of entity’s own shares
Treasury shares
Subscription receivable
Receivable from highest bidder
To record the issuance of share capital
Subscribed share capital (7,500 x P50) 375,000
Share capital
65
10,000
300,000
290,000
10,000
375,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-12
1)
Treasury shares (15,000 x 24)
Cash
360,000
2)
Cash (5,000 x P26)
Treasury shares (5,000 x P24)
Share premium-Treasury shares
130,000
3)
4)
5)
360,000
120,000
10,000
Cash (4,000 x 20)
Share premium-Treasury shares
Retained earnings
Treasury shares (4,000 x 24)
80,000
10,000
6,000
96,000
Ordinary shares (6,000 x 20)
Share premium (600,000/100,000) x 6,000
Share premium-Treasury shares
Treasury shares (6,000 x P24)
Memo entry: Received 5,000 shares from a stockholder as
a donation.
Cash (2,000 x 28)
Donated capital
120,000
36,000
12,000
144,000
56,000
56,000
PROBLEM 29-13
Note to professor:
Preference share P100 par, 20,000 shares issued and outstanding
3,000,000
Change ‘20,000’ to 30,000.
a.
b.
Preference shares (3,000 x P100)
Share Premium on Preference shares [(300,000/30,000) x
3,000]
Accumulated profits (balancing figure)
Cash (3,000 x P140)
300,000
Preference shares
Share Premium on Preference shares
Cash (95 x 3,000)
Share premium retirement of shares (balancing figure)
300,000
30,000
30,000
90,000
420,000
285,000
45,000
PROBLEM 29-14
Note to professor:
Preference share P100 par, 20,000 shares issued and outstanding
3,000,000
Change ‘20,000’ to 30,000.
1)
Preference shares (4,000 x P100)
Share Premium on Preference shares [(300,000/30,000) x
4,000]
Ordinary shares (4,000 x P50)
Share premium-ordinary shares
66
400,000
40,000
200,000
240,000
Chapter 29 – Shareholders’ Equity
2)
Preference shares (4,000 x P100)
Share Premium on Preference shares [(300,000/30,000) x
4,000]
Accumulated profits
Ordinary shares (4,000 x 5/1 x P50)
400,000
40,000
560,000
1,000,000
PROBLEM 29-15
1a.
1b.
2.
Ordinary shares (50,000 x P50)
Share Premium on Ordinary shares
Ordinary shares (50,000 x P40)
Share premium-recapitalization
2,500,000
100,000
Ordinary shares
Share Premium on Ordinary shares
Accumulated profits
Ordinary shares (50,000 x P140)
2,500,000
100,000
4,400,000
2,000,000
600,000
7,000,000
Ordinary shares ((P50-P40) x 50,000)
Share premium-recapitalization
500,000
500,000
3. Share split
Ordinary Share capital issued
Subscribed share capital
Total
Less: Treasury shares
Outstanding shares
Before
100,000
100,000
100,000
Multiply by
5/1
5/1
5/1
5/1
5/1
After
500,000
500,000
500,000
Par value per share
Before
P50
multiply by
1/5
After
P10
Memo entry:
Changes:
increase number of shares
Same SHE
Decrease number in Par value
PROBLEM 29-16
Preference shares (2,000 x P80)
Warrants (2,000 x P20)
Total
*(150 x 4,000)
CASE NO. 1
Total Fair
value
160,000
40,000
200,000
Cash
Preference Share capital (2,000 x P50)
Share Premium (320,000 -100,000)
Ordinary share warrants outstanding
Fraction
Allocated cost
80%
20%
320,000
80,000
400,000*
400,000
100,000
220,000
80,000
67
Chapter 29 – Shareholders’ Equity
When the warrants are exercised:
Cash (1,000 x 80% x P40)
Ordinary share warrants outstanding (80,000 x 80%)
Ordinary Share capital (1,000 x 80% x P20)
Share Premium –ordinary share
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)
Value of the warrants
Cash
Preference Share capital (2,000 x P50)
Share Premium (160,000-100,000)
Ordinary share warrants outstanding
400,000
160,000
240,000
400,000
100,000
60,000
240,000
CASE NO. 3
Market value of ordinary shares
Less: Option price/exercise price
Intrinsic value of warrant
Multiply: # of ordinary shares claimable under warrants
Market value of share warrants
P
P
Total proceeds
Less: Value of Share warrants
Value assigned to Preference Share
50
40
10
1,000
10,000
400,000
10,000
390,000
Cash
Preference Share capital (2,000 x P50)
Share Premium (390,000-100,000)
Ordinary share warrants outstanding
400,000
100,000
290,000
10,000
PROBLEM 29-17
Ordinary shares issued
Less: Treasury shares
Outstanding shares
a.
40,000
2,000
38,000
Retained earnings (38,000 x P5)
Dividends payable
b.
No formal accounting entry
c.
Dividends payable
Cash
190,000
190,000
190,000
190,000
PROBLEM 29-18 Cash dividends for Preference Shares-Semi-annual Payment
July 1:
Retained Earnings
Dividends Payable (9,000 x P100 x 10% x 6/12)
Dec. 31: Retained Earnings
Dividends Payable (9,600 x P100 x 10% x 6/12)
45,000
45,000
48,000
48,000
68
Chapter 29 – Shareholders’ Equity
Computation of outstanding shares:
July 1
Preference shares issued
10,000
Less: Treasury shares
1,000
Outstanding shares
9,000
December 31
Preference shares issued
Less: Treasury shares (1,000-600)
Outstanding shares
10,000
400
9,600
PROBLEM 29-19
Feb. 15,
2015
Retained earnings
Dividends payable
450,000
Dec. 31,
2014
Retained earnings
Dividends payable
150,000
Fair value, Dec. 31
Less: Previous Fair value
Increase in dividends payable
600,000
450,000
150,000
Feb. 15,
2015
450,000
150,000
Dividends payable
Retained earnings
60,000
Fair value, Feb. 15
Less: Previous Fair value
Decrease in dividends payable
540,000
600,000
(60,000)
Dividends payable
Inventory
Gain on distribution - prop. dividends
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
60,000
500,000
40,000
PROBLEM 29-20
Nov. 1,
2015
Dec. 31,
2015
Feb. 15,
2016
Retained earnings
Dividends payable
450,000
Equipment-noncurrent asset for distribution*
Impairment loss (P500,000 – P450,000)
Equipment
450,000
50,000
Retained earnings
Dividends payable
150,000
Fair value, Dec. 31
Less: Previous Fair value
Increase in dividends payable
600,000
450,000
150,000
450,000
500,000
150,000
Equipment-noncurrent asset for distribution**
Gain on recovery of impairment loss
50,000
Dividends payable
Retained earnings
60,000
50,000
60,000
69
Chapter 29 – Shareholders’ Equity
Fair value, Feb. `5
Less: Previous Fair value
Decrease in dividends payable
540,000
600,000
(60,000)
Dividends payable
Equipment-noncurrent asset for distribution
Gain on distribution of prop. Dividends
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 carrying amount
Less: Lower between these two amounts
FV Less Cost To Distribute (FVLCTD)
Original carrying amount
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 original carrying amount
Original carrying amount
500,000
FVLCTD, Dec. 31
600,000
500,000
Carrying amount at initial recognition
450,000
Gain on reversal
50,000
PROBLEM 29-21
Retained earnings
Dividends payable
P
84,000
P
Supporting computation:
Cash alternative (10 x 60% x P8,000)
Non-cash alternative (10 x 40% x P9,000)
Total dividends
84,000
P
P
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
a.
Dividends payable
Cash (10 X 8,000)
Retained earnings (balancing figure)
84,000
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 (10 x 9,000)
70
48,000
36,000
84,000
80,000
4,000
90,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-22
Note to professor:
Ordinary share P50 par, 53,000 shares issued and outstanding
Remove ‘and outstanding’
Computation of outstanding shares:
Ordinary shares issued
Less: Treasury shares
Outstanding shares
1)
2)
3)
4)
53,000
3,000
50,000
Accumulated Profits
[(50,000) x 10% x P80]
Share dividends payable [(50,000) x 10% x P50]
Share premium on Ordinary shares
400,000
Accumulated Profits
[(50,000) x 20% x P50]
Share dividends payable [(50,000) x 20% x P50]
500,000
Capital Liquidated (P2 x 50,000 shares)
Cash
100,000
Accumulated Profits
Treasury shares
120,000
250,000
150,000
500,000
100,000
120,000
PROBLEM 29-23
Journal entries:
1/5
Cash (20,000 x P180)
Ordinary shares (20,000 x P100)
Share Premium-Ordinary
1/28
Treasury shares (6,000 x 200)
Cash
3,600,000
1,200,000
1,200,000
2/2
Received 5,000 shares from shareholders as a donation.
2/14
Cash (6,000 x ½ x 220)
Treasury shares (6,000 x ½ x 200)
Share premium – treasury shares
2/14
660,000
600,000
60,000
Cash (5,000 x 220)
Donated capital (Share Premium)
1,100,000
7/15
Equipment
Preference shares (4,000 x P200)
Share Premium-Preference
1,440,000
10/15
Subscriptions receivable (18,000 x P250)
Subscribed ordinary shares (18,000 x P100)
Share Premium-Ordinary
4,500,000
Cash (4,500,000 x 40%)
Subscriptions receivable
1,800,000
11/15
2,000,000
1,600,000
1,100,000
800,000
640,000
1,800,000
2,700,000
1,800,000
71
Chapter 29 – Shareholders’ Equity
11/27
12/31
Cash (10,000 x P250 x 60%)
Subscriptions receivable
1,500,000
Subscribed ordinary shares (10,000 x P100)
Ordinary shares
1,000,000
Income summary
Retained earnings
1,000,000
1,500,000
1,000,000
1,000,000
Retained earnings-unappropriated (1.2M600,000)
Retained earnings appropriated for TS
600,000
600,000
Questions 1 to 3
*
Beg bal
Jan. 5
Jan. 28
Feb. 14
Feb. 14
July 15
Oct. 15
Nov. 15
Nov. 27
Dec. 31
Total
Pref.
shares
1,400
Ord.
shares
3,500
2,000
Share
Premium
1,925
1,600
Retained
earnings
4,500
1,800
1,000
2,200
(1)B
6,500
(2)B
Subs.
Receivable
0
1,000
5,500
8,025
(3)A
(1,000)
4,500
(1,800)
(1,500)
800
1,200
*in ‘000s
Question No. 4
(C)
Retained earnings, total
Outstanding balance of treasury stocks
Retained earnings – unappropriated
P 5,500,000
( 600,000)
P 4,900,000
Question No. 5
(B)
Preference shares
Ordinary shares
Subscribed ordinary shares
Subscriptions receivable
Share premium
Retained Earnings
Treasury stocks
Total
P 2,200,000
6,500,000
800,000
(1,200,000)
8,025,000
5,500,000
( 600,000)
P21,225,000
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
C
Treasury
shares
0
1,200
(600)
60
1,100
640
2,700
800
Subs.
Ord.
share
0
5.
72
B
600
Chapter 29 – Shareholders’ Equity
PROBLEM 29-24
Beg.
Balances
1.
2.
3.
4.
5.
6.
7.
8.
Total
Pref.
shares
400
*in ‘000s.
Ord.
shares
200
Share
Prem
250
4
2.5
152
50
Treasury
shares
Question No. 3
219
2. (C)
408.5
(C)
Retained earnings (see table above)
Less: Treasury shares
Market value of share warrants
Question No. 5
Preference shares
Ordinary shares
Share premium
Retained earnings-total
Treasury shares
Total shareholder’s equity
(171)
80
4. (B)
2,500
(128.6)
3,100.4
P
P
(C)
SDP
136
(56)
19
450
1. (B)
Retained
earnings
900
P
P
19
(19)
0
3,100,400
80,000
3,020,400
450,000
219,000
408,500
3,100,400
(80,000)
4,097,900
Journal entries:
1.
2.
3.
4.
Dividends payable
Cash
120,000
Preference share dividend (4,000 x P10)
Ordinary shares-dividends (40,000 x P2)
Total dividends
40,000
80,000
120,000
Treasury shares (3,400 x 40)
Cash
136,000
120,000
136,000
Land
Treasury shares (1,400 x 40)
Share Premium – Treasure shares
60,000
Cash (500 x 105)
Preference shares (500 x 100)
Share Premium – Preference shares
52,500
73
56,000
4,000
50,000
2,500
Chapter 29 – Shareholders’ Equity
5.
6.
7.
8.
Retained earnings (38,000 x 45 x 10%)
Share dividends payable (38,000 x 5 x 10%)
Share Premium
171,000
19,000
152,000
Ordinary Shares Issued
Less: Treasury shares (3,400-1,400)
Outstanding shares
40,000
2,000
38,000
Share dividends payable
Ordinary shares
19,000
19,000
Income summary
Retained earnings unappropriated
2,500,000
2,500,000
Retained earnings unappropriated
Dividends payable
128,600
128,600
O/S outstanding (38,000 x 110%)
Multiply by: Dividends per share
Pref. dividends (450,000/100 x P10)
Total
SUMMARY OF ANSWERS:
1. B
2. C
3. C
4.
B
5.
74
41,800
P2
C
83,600
45,000
128,600
Adjusted balances
e.
f.
b.
g.
c.
d.
g.
Beg. Balances
a.
3,500
(500)
Pref. shares
4,000
2,520
250
1,350
Ord. Shares
840
80
-
Subs. Os
100
(80)
(20)
-
Subs. Rec
52
(41.6)
(10.4)
1,925.1
22.50
250
(6)
15.6
675
Share Prem
968
(280)
2,500
(16.5)
16,355
(425.5)
(423)
RE-unapp
15,000
16.50
16.50
RE Appr
16.50
(27.5)
Treas. Shares
44
Chapter 29 – Shareholders’ Equity
PROBLEM 29-25
75
Chapter 29 – Shareholders’ Equity
Question No. 5
Total shareholders’ equity
(D)
Preference shares
Ordinary Shares
Subscribed Ordinary shares
Subscription Receivable
Share Premium
Retained Earnings - Unappropriated
Retained Earnings - Appropriated
Total
Treasury Shares
Shareholder’s Equity
3,500
2,520
1,925.1
16,355
16.50
24,316.60
(16.50)
24,300.10
Journal entries:
a.
Cash (8,000 x 13 x 40%)
Subscription Receivable
b.
g.
4/30
c.
d.
g.
41,600
41,600
Subscription Ordinary Share (8,000 x 10)
Ordinary shares
80,000
Subscription Ordinary Share (2,000 x 10)
Share premium (3 x 2,000)
Subs. Receivable (P13 x 2,000 x 40%)
Share Premium - forfeited downpayment
20,000
6,000
80,000
10,400
15,600
Issued 92,000 share rights to existing shareholders
Cash (67,500 x 2 x P15)
2,025,000
Ordinary shares (67,500 x 2 x P10)
Share premium
Retained earnings-unappropriated
Dividends payable
423,000
O/S Issued (84,000 + 8,000+135,000)
Less: Treasury shares
Outstanding shares
Multiply by: Dividend per share
Pref. dividends (P100 x 10%/2 x 40,000)
Total dividends
227,000
4,000
223,000
P1
Cash (2,500 x 20)
Treasury shares (P44,000/4,000 x 2,500)
Share premium – Treasury Shares
423,000
223,000
200,000
423,000
50,000
27,500
22,500
Pref. shares (5,000 x P100)
Ordinary shares (5,000 x 5 x P10)
Share premium – Ordinary Shares
500,000
Retained earnings-unappropriated
Dividends payable
425,500
76
1,350,000
675,000
250,000
250,000
425,500
Chapter 29 – Shareholders’ Equity
e.
f.
O/S Issued (227,000+25,000)
Less: Treasury shares (4,000-2,500)
Outstanding shares
Multiply by: Dividends per share
Preference dividends (P100 x 10%/2 x 35,000)
Total dividends
252,000
1,500
250,500
P1
Retained earnings - unappropriated
Tax
Rent income
280,000
120,000
Income summary
Retained earnings-unappropriated
2,500,000
400,000
2,500,000
Retained earnings-unappropriated
Retained earnings-appropriated
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4.
D
5.
250,500
175,000
425,500
16,500
16,500
D
PROBLEM 29-26
P/S
Beg. Bal.
a.
c.
d.
O/S
840
200
e.
7
S/P
420
4
200
1. (C)
847
2. (B)
RE Appr
T/S
44
(11)
(600)
(100)
340
60
(42)
56
f.
g.
Adjusted bal.
RE-unapp
15,000
838
3. (E)
Question No. 5
(C)
Total Shareholders’ Equity:
Preference shares
Ordinary Shares
Share Premium
Retained earnings -unappropriated
Retained earnings - appropriated
Total
Treasury Shares
Shareholders’ Equity
(326.80)
2,400
(33)
16,340.20
4. (E)
200
847
838
16,340.20
33
18,258.20
33
18,225.20
77
33
33
33
Chapter 29 – Shareholders’ Equity
SUMMARY OF ANSWERS:
1. C
2. B
3. E
4.
E
5.
C
PROBLEM 29-27
Journal entries:
Jan. 4
Jan. 30
Mar. 2
May 7
June 15
July 2
Cash (30,000 x 18)
Ordinary shares (30,000 x 10)
Share Premium – Ordinary Shares
750,000
Dividends payable
Cash
416,000
Preference dividends (8% x 1,200,000)
Ordinary Shares (180,000-20,000) x 2
Total dividends
96,000
320,000
416,000
Cash (4,000 x 125)
Preference shares (4,000 x 100)
Share Premium – Preference Share
500,000
Cash (6,000 x 24)
Treasury shares (6,000 x 21)
Share Premium – Treasury Share
144,000
300,000
450,000
416,000
Memo: Effected a two for one share split.
Ordinary Shares issued (180,000 +30,000) x
2/1
Less: Treasury shares (20,000-6,000) x 2/1
Outstanding shares
400,000
100,000
126,000
18,000
420,000
28,000
392,000
Retained earnings (5% x 392,000 x P14)
Share dividends payable (5% x 392,000 x P5)
Share Premium - Ordinary Shares
274,400
Aug. 3
Share dividends payable (5% x 392,000 x P5)
Ordinary Shares
98,000
Oct. 1
Retained earnings (20,580 x 16)
Dividends payable
Nov. 1
Retained earnings (20,580 x (18-16)
Dividends payable
Dividends payable (18 x 20,580)
FVTOCI - at carrying value (15 x 20,580)
Gain on distribution of property div.
Unrealized gain-FVTOCI
Retained earnings
Dec. 31
98,000
176,400
98,000
329,280
329,280
41,160
41,160
370,440
308,700
61,740
61,740
61,740
Retained earnings
Dividends payable
539,600
539,600
Preference div (8% x 1,200,000 +400,000)
Ordinary Shares issued (420,000 + 19,600)
Less :Treasury shares
Outstanding Ordinary Shares
Multiply: Dividend per share
78
128,000
439,600
28,000
411,600
P1
411,600
Total
Dec. 31
‘000
Beg. Bal.
Jan. 4
Mar. 2
May 7
July 2
Aug. 3
Oct. 1
Nov. 1
1,600
400
PS
1,200
2,198
98
OS
1,800
300
316
100
SP-PS
216
1,526.4
176.4
SP-OS
900
450
18
18
SP-TS
(329.28)
(41.16)
61.74
(539.6)
2,250
3,427.3
(274.4)
RE
2,300
0
(61.74)
UG-AFS
61.74
294
(126)
TS
420
0
98
(98)
SDP
Chapter 29 – Shareholders’ Equity
Total dividends
539,600
Income Summary
Retained earnings
2,250,000
2,250,000
79
Chapter 29 – Shareholders’ Equity
Question No. 4
(E)
Retained earnings-total
Less: Appropriated for Treasury shares
Retained earnings-unappropriated
3,427,300
294,000
3,133,300
Question Nos. 3 and 5
Preference share
Ordinary share
Share Premium – Preference Share
Share Premium – Ordinary Share
Share Premium - Treasury Share
Total Contributed capital or Paid-in capital (No. 3)
Retained earnings
Total
Less: Treasury Shares
Total Shareholders’ equity (No. 5)
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
E
5.
80
D
1,600,000
2,198,000
316,000
1,526,400
18,000
5,658,400
3,427,300
9,085,700
294,000
8,791,700
*in ‘000s
1/1
2/23
3/10
4/10
7/14
7/14
8/3
12/1 - Preferred
Ordinary
12/31 Net income
SP-PS
P
850
180
P1,030
Pref.
shares
P
2,000
280
P 2,280
P
136
14
12
40
Ord.
shares
P10
60
50
P 7,234
SP-OS
P
470
2,230
3,520
546
468
P
40
(40)
80
Sub. OS
P
-
P800
(2,800)
3,600
Subs.
Rec
1,280
P700
(228)
(352)
Ret.
Earnings
P
-
Chapter 29 – Shareholders’ Equity
PROBLEM 29-28
81
Chapter 29 – Shareholders’ Equity
Journal entries:
Jan. 1
Land
Organization expense
Ordinary shares (1,000 x P100
Share Premium – Ordinary Shares
340,000
140,000
10,000
470,000
Feb. 23
Cash (20,000 x 150)-150,000
Preference shares (20,000 x P100)
Share premium – Preference Shares
2,850,000
Mar. 10
Cash (6,000 x 390)-50,000
Ordinary shares (6,000 x P10)
Share premium - Ordinary Shares
2,290,000
Apr. 10
Subscriptions receivable (8,000 x P450)
Subs. Ordinary shares (8,000 x P10)
Share premium - Ordinary Shares
3,600,000
Building
Preference shares (2,800 x P100)
Share Premium-PS (460,000-280,000)
Ordinary shares (1,400 x P10)
Share premium-OS (560,000-14,000)
1,080,000
Fair value of the building
Less: Fair value of the ordinary shares
(480,000/1,200 x 1,400)
Value of the preference shares
1,020,000
560,000
July 14
July 14
Aug. 3
Cash
Ordinary shares (1,200 x P10)
Share Premium - Ordinary Shares
Cash
Subscriptions receivable
80,000
3,520,000
280,000
180,000
14,000
546,000
460,000
480,000
12,000
468,000
2,800,000
Retained earnings
Dividends payable
40,000
40,000
580,000
580,000
Preference dividends (2,280,000 x 10%)
Ordinary shares issued (136,000/10)
Add: Subscribed ordinary shares
Outstanding shares
Multiply by: Dividend per share
Total dividends
Dec. 31
60,000
2,230,000
2,800,000
Subs. Ordinary shares (8,000 x ½ x P10)
Ordinary shares
Dec. 1
2,000,000
850,000
Dividends payable
Cash
13,600
4,000
17,600
20
228,000
352,000
580,000
228,000
228,000
82
Chapter 29 – Shareholders’ Equity
Question No. 1
(B)
Question No. 2
(C)
Question No. 3
(C)
Question No. 4
(C)
Question No. 5
(B)
(1,280,000-228,000-352,000)
Net income (4,080,000-2,000,000-800,000)=1,280,000
Question No. 6
(C)
Preference shares
Ordinary shares
Subscribed ordinary shares
Less: Subscriptions receivable
Paid in capital-Pref. shares
Paid in capital-Ordinary shares
Retained earnings
Total shareholders’ equity
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 stock 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”
Thus, the dividend on the subscribed share capital is paid to that shareholder because he
was not yet declared delinquent by corporation.
SUMMARY OF ANSWERS:
1. B
2. C
3. C
4.
C
5.
B
6.
C
PROBLEM 29-29
Question No. 1
(C)
Preference shares, beg.
Additional issue (20,000 x P10)
Total
P
P
Question No. 2
(A)
Ordinary shares, beg.
Stock dividend (3,480 shares x P5)*
Total
P
P
83
800,000
200,000
1,000,000
200,000
17,400
217,400
Chapter 29 – Shareholders’ Equity
Outstanding shares, beginning
Treasury shares acquisition
Treasury shares re-issue
Total outstanding shares
Multiplied by:
Dividend shares
40,000
(8,000)
2,800
34,800
10%
3,480
Question No. 3
(A)
Share premium, beg.
Premium on treasury share re-issue (100,000 – (2,800 x P20)
Premium on preference share issue (P15 – P10) x 20,000 shares
Premium on stock dividends (P12 – P5) x 3,480 shares
Total share premium, end
Question No. 4
(D)
Retained earnings, beg.
Add: Net Income
Unadjusted Net Income
Overstatement in operating expenses
Less: Dividends
Stock dividends (3,480 x P12)
Cash dividends*
Retained earnings, adjusted
Retained earnings, appropriated for treasury shares
Retained earnings, appropriated for plant expansion
Retained earnings, unappropriated
* Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
Ordinary shares (34,800 + 3,480) x P.50
Total cash dividends
* Computation of the Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
Ordinary shares (34,800 + 3,480) x P.50
Total cash dividends
D
P
2,400,000
1,780,000
100,000
41,760
119,140
1,880,000
(160,900)
4,119,100
(104,000)
(1,200,000)
P 2,815,100
P
P
100,000
19,140
119,140
P
(
P
160,000
56,000)
104,000
P
100,000
19,140
119,140
P
Computation of the net income:
Net Income
Unadjusted Net Income
Overstatement in operating expenses
Adjusted net income
4.
P
P
384,000
44,000
100,000
24,360
552,360
P
Question No. 5
(B)
Treasury shares acquired (8,000 x P20)
Treasury shares reissued (2,800 x P20)
Treasury shares, end
SUMMARY OF ANSWERS:
1. C
2. A
3. A
P
P
P
P
5.
84
B
1,780,000
100,000
1,880,000
Chapter 30 – Book Value and Earnings Per Share
CHAPTER 30: BOOK VALUE AND EARNINGS PER
SHARE
Note to professor:
Page
1164
Existing data:
P5,000,000 + [(4,000,000 x 10% x
Diluted
9/12) x (1-30%)]
=
EPS
105,000 shares*
Illustration: ….The prevailing interest rate of bonds is
12% and the principal amount is due on April 1, 208….
1167
2.b Total weighted average of ordinary shares –
15,000
1169
3. Compute for the incremental shares using the
following formula:
Option shares
xxx
Add: Assumed treasury shares
xxx
Incremental shares
xxx
1171
Option shares
Add: Assumed treasury shares
Incremental shares
20,000
16,000
4,000
Change to:
Change 105,000 to
120,000.
Change 208 to 2019.
Change to 115,000
Change ‘add’ to Less.
Change ‘add’ to Less.
PROBLEM 30-1 One Class of Shares
Total shareholders' equity
Add: Subscription receivable
Total SHE excluding subscription receivable
Divided by: Ordinary shares outstanding*
Book value per share
16,220,000
1,200,000
17,420,000
200,000
87.10
(A)
Shares issued
Add: Subscribed shares (P1,000,000 / P50 par)
Less: Treasury shares
Ordinary shares outstanding
200,000
20,000
20,000
200,000
PROBLEM 30-2 Two Classes of Shares - Preference and Ordinary Shares
Preference shares:
Preference share capital issued
Add: Subscribed preference shares
Total
Less: Treasury shares at par
Shares outstanding and total par value
Shares
12,500
12,500
12,500
85
Total
par value
P5,000,000
P5,000,000
P5,000,000
Chapter 30 – Book Value and Earnings Per Share
Ordinary shares:
Ordinary share capital issued
Add: Subscribed ordinary shares
Total
Less: Treasury shares at par
Shares outstanding and total par value
Shares
75,000
75,000
75,000
Total shareholders' equity
Less: Par value of outstanding preference shares
Par value of outstanding ordinary shares
Excess over par
Total
par value
P3,000,000
P3,000,000
P3,000,000
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)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Excess
over par
P7,000,000
Preference
shares
P5,000,000
(1,600,000)
5,400,000
1,600,000
Ordinary
shares
P3,000,000
6,600,000
12,500
P528.00
5,400,000
8,400,000
75,000
P112.00
Excess
over par
P7,000,000
Preference
shares
P5,000,000
Ordinary
shares
P3,000,000
(1,600,000)
1,600,000
(250,000)
5,150,000
250,000
CASE NO. 2
Question No. 3 & 4
Balances
Preference dividend
(5,000,000 x 8% x 4)
Liquidation premium [(P420P400) x 12,500]
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
6,850,000
12,500
P548.00
5,150,000
8,150,000
75,000
P108.67
Excess
over par
P7,000,000
Preference
shares
P5,000,000
Ordinary
shares
P3,000,000
(400,000)
6,600,000
400,000
CASE NO. 3
Question No. 4 & 5
Balances
Preference dividend
(5,000,000 x 8% x 1)
Balance to ordinary shares
Total shareholders’ equity
5,400,000
86
6,600,000
9,600,000
Chapter 30 – Book Value and Earnings Per Share
Divide by: Outstanding shares
Book value per share
12,500
P432.00
75,000
P128.00
Excess
over par
P7,000,000
Preference
shares
P5,000,000
Ordinary
shares
P3,000,000
(1,600,000)
1,600,000
CASE NO. 4
Question No. 7 & 8
Balances
Preference dividend
(5,000,000 x 8% x 4)
Ordinary dividend
(3,000,000 x 8% x 1)
Balance for participation
Preference (5/8 x 5,160,000)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
SUMMARY OF ANSWERS:
1. A
2. A
3. B
(240,000)
5,160,000
(3,225,000)
1,935,000
240,000
3,225,000
9,825,000
12,500
P786.00
4.
D
5.
C
6.
B
7.
1,935,000
5,175,000
75,000
P69.00
D
8.
PROBLEM 30-3 Book Value per Share
Preference shares:
Preference share capital issued
Add: Subscribed preference shares
Total
Less: Treasury shares at par
Shares outstanding and total par value
Shares
40,000
40,000
40,000
Total
par value
P4,000,000
P4,000,000
P4,000,000
Ordinary shares:
Ordinary share capital issued
Add: Subscribed ordinary shares
Total
Less: Treasury shares at par
Shares outstanding and total par value
Shares
26,000
26,000
1,000
25,000
Total
par value
P1,040,000
P1,040,000
40,000
P1,000,000
Total shareholders' equity
Less: Par value of outstanding preference shares
Par value of outstanding ordinary shares
Excess over par
87
11,970,000
4,000,000
1,000,000
6,970,000
C
Chapter 30 – Book Value and Earnings Per Share
CASE NO. 1
Question No. 1 & 2
Balances
Preference dividend
(4,000,000 x 8% x 4)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Question No. 3 & 4
Balances
Preference dividend
(4,000,000 x 8% x 4)
Liquidation premium
[(P105-P100) x 40,000]
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Excess
over par
P6,970,000
Preference
shares
P4,000,000
(1,280,000)
5,690,000
1,280,000
Ordinary
shares
P1,000,000
5,280,000
40,000
P132.00
5,690,000
6,690,000
25,000
P267.60
Excess
over par
P6,970,000
Preference
shares
P4,000,000
Ordinary
shares
P1,000,000
(1,280,000)
1,280,000
(200,000)
5,490,000
200,000
CASE NO. 2
5,480,000
40,000
P137.00
5,490,000
6,490,000
25,000
P259.60
Excess
over par
P6,970,000
Preference
shares
P4,000,000
Ordinary
shares
P1,000,000
(320,000)
6,650,000
320,000
CASE NO. 3
Question No. 5 & 6
Balances
Preference dividend
(4,000,000 x 8% x 1)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Question No. 7 & 8
Balances
Preference dividend
(4,000,000 x 8% x 1)
Balance to ordinary shares
Total shareholders’ equity
4,320,000
40,000
P108.00
6,650,000
7,650,000
25,000
P306.00
Excess
over par
P6,970,000
Preference
shares
P4,000,000
Ordinary
shares
P1,000,000
(320,000)
6,650,000
320,000
CASE NO. 4
4,320,000
88
6,650,000
7,650,000
Chapter 30 – Book Value and Earnings Per Share
Divide by: Outstanding shares
Book value per share
Balances
Preference dividend
(4,000,000 x 8% x 1)
Ordinary dividend
(1,000,000 x 8% x 1)
Balance for participation
Preference (4/5 x 6,570,000)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
SUMMARY OF ANSWERS:
1. B
2. C
3. B
40,000
P108.00
25,000
P306.00
Excess
over par
P6,970,000
Preference
shares
P4,000,000
Ordinary
shares
P1,000,000
(320,000)
320,000
(80,000)
6,570,000
(5,256,000)
1,314,000
80,000
5,256,000
9,576,000
40,000
P239.40
4.
B
5.
C
6.
A
7.
1,314,000
2,394,000
25,000
P95.76
D
8.
D
PROBLEM 30-4 Weighted Average with Bonus Issue
Outstanding
Date
Shares
Fraction
01/01/2015
200,000 x 120%
240,000
12/12
03/01/2015
15,000 x 120%
18,000
10/12
07/01/2015
(10,000)
(10,000)
6/12
10/01/2015
4,000
4,000
3/12
Weighted average outstanding shares
(A)
Average
240,000
15,000
(5,000)
1,000
251,000
PROBLEM 30-5 Weighted Average with Share Split
Outstanding
Date
Shares
Fraction
01/01/2015
220,000 x 4/1
880,000
12/12
03/01/2015
12,000 x 4/1
48,000
10/12
04/01/2015
9,000
9,000
9/12
10/01/2015
6,000
6,000
3/12
Weighted average outstanding shares
(A)
89
Average
880,000
40,000
6,750
1,500
928,250
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-6 Basic Earnings per Share
Question No. 1
(B)
Basic EPS = [P3,000,000 / 40,000] = P75 per share
Question No. 2
(C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
Question No. 3
(C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
PROBLEM 30-7 Basic Loss per Share
Question No. 1
(B)
Basic LPS = [P2,000,000 / 30,000] = P66.67 per share
Question No. 2
(C)
Basic LPS = [P2,000,000 + (5,000 x 10% x P100)]/30,000= 68.33 per share
Question No. 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 per share
Question No. 2
P3,000,000 + [(P1,800,000 x 10%) x (1 – 30%)]
Diluted
=
EPS
129,000 shares *
Diluted EPS = P24.23 per share
Weighted average of actual ordinary shares
Add: Weighted average of potential ordinary
shares from assumed conversion (1,800 x 5 x 12/12)
Total weighted average of ordinary shares
120,000
9,000
129,000
Question No. 3
P3,000,000 + [(P1,800,000 x 10% 8/12) x (1 – 30%)]
Diluted
=
EPS
126,000 shares *
Diluted EPS = P24.48 per share
Weighted average of actual ordinary shares
Add: Weighted average of potential ordinary
shares from assumed conversion (1,800 x 5 x 8/12)
Total weighted average of ordinary shares
Question No. 4
Basic EPS
=
P3,000,000
123,750*
90
120,000
6,000
126,000
Chapter 30 – Book Value and Earnings Per Share
=
P24.24
Weighted average of actual ordinary shares
Add: Issuance of shares related to conversion
(1,800 x 5 x 5/12)
Total weighted average of actual ordinary shares issued
Add: Assumed converted ordinary shares x months
outstanding (1,800 x 5 x 7/12)
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 = P23.83 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 per share
Question No. 2
P4,000,000 + [(P1,123,910 x 10% x 8/12) x (1 – 30%)]
210,000 shares*
Diluted EPS = P19.30 per share
Diluted EPS
=
Weighted average of actual ordinary shares
Add: Weighted average of potential ordinary shares from
assumed conversion(15,000 x 8/12)
Total weighted average of 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)]
91
Chapter 30 – Book Value and Earnings Per Share
Question No. 3
Diluted EPS
Diluted EPS
P4,000,000
218,750 shares
= P18.29 per share
=
*[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
PROBLEM 30-11 Basic and Diluted EPS with Warrants and Options
Question No. 1
Basic EPS = P4,000,000 / 100,000 = P40 per share
Question No. 2
Diluted EPS
Diluted EPS
P4,000,000
101,200 shares *
= P39.53 per share
=
Weighted average of actual ordinary shares
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 12/12)
Total weighted average of ordinary shares
100,000
1,200
101,200
Note: Months outstanding for assumed exercise of options is 12 months, which
is from date of issuance up to the reporting date.
Option shares
Multiply by: Total exercise price (120+10)
Proceeds from assumed exercise of options
Divided by: Average market price during the year
Assumed treasury shares
92
9,000
130
1,170,000
150
7,800
Chapter 30 – Book Value and Earnings Per Share
Option shares
Less: Assumed treasury shares
Incremental shares
9,000
7,800
1,200
Question No. 3
Diluted EPS
Diluted EPS
P4,000,000
100,900 shares *
= P39.64 per share
=
Weighted average of actual ordinary shares
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 9/12)
Total weighted average of 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
share options (9,000 x 4/12)
Total weighted average of 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
Option shares
Multiply by: Total exercise price (120+10)
Proceeds from assumed exercise of options
Divided by: Market price at exercise date
Assumed treasury shares
Option shares
Less: Assumed treasury shares
Incremental shares
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
Basic EPS
Basic EPS
3,000
103,000
1,667
104,667
9,000
130
1,170,000
180
6,500
9,000
6,500
2,500
D
PROBLEM 30-12 Multiple Potential Dilutive Securities
Question No. 1
100,000
(A)
P2,360,000 – (60,000 x P100 x 6%)
=
200,000
= P10 per share
93
Chapter 30 – Book Value and Earnings 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 shares
Probably dilutive. The incremental EPS (P1.2) is less than the basic
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 basic
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 least
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:
Ordinary
Profit
shares
EPS
Basic
EPS
from
continuing *2,000,000
200,000
10
operations
Options
0
10,000
Total
2,000,000
210,000 9.52
Convertible Bonds payable
168,000
200,000
Total
2,168,000
410,000 5.29
Convertible Preference share
360,000
300,000
Total
2,528,000
710,000 3.56
*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.
Question No. 3
Basic EPS
Basic EPS
(B)
P500,000
=
200,000
= P2.5 per share
94
(E)
Chapter 30 – Book Value and Earnings Per Share
Question No. 4
Diluted EPS
Diluted EPS
(E)
P500,000
=
710,000
= P.70 per share
SUMMARY OF ANSWERS:
1. A
2. E
3. B
4.
E
PROBLEM 30-13 Rights Issue
Fair value per share – right on
Less: Theoretical value of one right*
Theoretical ex-rights fair value per share
*Value of one right
=
150 –40
4* + 1
=
P
P
22
Adjustment factor (150/128)
1.17
Question No. 1
2013:
Weighted average outstanding shares (40,000 x 1.17 x 12/12)
Basic EPS (P562,500 /46,800)
(D)
Question No. 2
2014:
Weighted average outstanding shares
(40,000 x 1.17 x 3/12)
[(40,000 + 10,000) x 9/12]
46,800
P12.02 / share
11,700
37,500
Basic EPS (P800,000/49,200)
(B)
49,200
P16.26 / share
Question No. 3
2015:
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
(C)
Incremental shares
=
150
22
128
(P350 – P280) x 10,000
P280
95
=
50,000
P20 per share
2,500 shares
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-15 Comprehensive Problem
Note to professor:
Question No. 1 – Change 2014 to 2015.
Item
Unadjusted
1)
2)
3)
4)
5)
6)
7)
8)
9)
Adjusted
Net Income
2014
2015
**1,300,000
*500,000
(50,000)
50,000
(30,000)
45,000
(45,000)
***28,000
(28,000)
5,000
(5,000)
(20,000)
1,328,000
422,000
Retained
Earnings
12/31/15
1,800,000
(30,000)
(20,000)
1,750,000
* (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 2015 is P422,000.
Question No. 2
Refer to table above.
(C)
Question No. 3
(C)
EPS 2015 (P422,000 / 100,000 shares) = P4.22
Question No. 4
(B)
Ordinary share capital, P10 par
Share premium
Retained earnings, 12/31/2015 (as adjusted)
Total shareholders' equity
1,000,000
500,000
1,750,000
3,250,000
Question No. 5
(B)
BVPS (P3,250,000 / 100,000) = P32.50
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4.
B
5.
96
B
Chapter 32 – Statement of Financial Position and Comprehensive Income
CHAPTER 32: STATEMENT OF FINANCIAL POSITION
AND COMPREHENSIVE INCOME
Note to professor:
Page
1211
Existing data:
On March 1, 2015, Joshua…
Change to:
On March 1, 2016,
Joshua…
PROBLEM 32-1 Current and Noncurrent Assets
Question No. 1
Cash
Trade receivables
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
Noncurrent Assets held for sale building
Total Current Assets
(D)
Question No. 2
Financial assets at fair value through other comprehensive income
Financial assets at amortized cost
Deferred tax asset
Machinery
Accumulated depreciation
Land used as a plant site
Total Noncurrent Assets
(C)
400,000
1,500,000
1,200,000
240,000
300,000
650,000
4,290,000
600,000
1,000,000
150,000
800,000
(200,000)
920,000
3,270,000
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)
1,070,000
2,850,000
1,300,000
960,000
48,000
6,228,000
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, plant and equipment
Total noncurrent Assets
(A)
280,000
500,000
23,000
20,000
5,000,000
5,823,000
97
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 dividends payable
Income tax payable
Note payable, due January 31, 2016
Cash dividends payable
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
Loans payable-current
Total current liabilities
(A)
Question No. 2
Bonds payable
Premium on bonds payable
Deferred tax liability
Mortgage payable
Loans payable-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
Share premium
Subscribed ordinary share
Subscriptions receivable
Retained earnings unappropriated (6M-2M cost of treasury)
Reserves:
Retained earnings appropriated for treasury shares
Reserve for contingencies
Unrealized gain on FVTOCI
Revaluation surplus
Cumulative translation adjustment – debit
Total
Less: Treasury shares
Total Shareholders' Equity
(C)
98
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
Note to the professor: The fifth bullet should be March 1, 2016 and not March
1, 2015.
Loss on expropriation
Impairment loss on Accounts Receivable
Litigation loss
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 of Geomancer
9)
Rylai Co.
Sister company of Frozen Throne Company
10) Medusa Co.
Key Management personnel of Frozen Throne
Company.
11) Barathrum Co.
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 ultimate parent or controlling party.
99
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-7 (Distribution costs and general and administrative
expenses)
Question No. 1
Advertising
Delivery expense
Rent for office space (500,000 X 1/2)
Sales commissions
Depreciation on delivery truck
Total distribution costs
(E)
500,000
300,000
250,000
1,075,000
14,000
2,139,000
Question No. 2
Auditing and Accounting fees
Officers’ salaries
Rent for office space (500,000 X 1/2)
Insurance
Depreciation on office equipment
Total general and administrative expenses(E)
300,000
625,000
250,000
200,000
15,000
1,390,000
PROBLEM 32-8 Comprehensive Income
Net Sales
Cost of goods sold
Gross income
Other income
Share of profit of associate
Total income
Expenses:
Distribution costs
Administrative expenses
Finance cost
Other expense
Income before income tax
Income tax expense
Income from continuing operations
Income from discontinued operations
Net Income
Other comprehensive income:
Revaluation surplus
Translation gain
Comprehensive income
4,000,000
2,500,000
1,500,000
30,000
125,000
1,655,000
60,000
120,000
35,000
80,000
300,000
50,000
(C)
Other income:
Interest income
Other expense:
Loss on sale of equipment
30,000
80,000
100
295,000
1,360,000
408,000
952,000
200,000
1,152,000
350,000
1,502,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
COMPREHENSIVE PROBLEMS
PROBLEM 32-9
Note to the professor:
 Additional information number 1, the date should be April 1, 2019 and not
April 1, 2016.
 Additional information number 5, the date should be July 31, 2016 and not
July 31, 2015.
Unadjusted balances
No. 1
NR-Noncurrent
Land
No. 2
No. 3
Inventory
No. 4
Treasury shares
No. 5
Prepaid
insurancecurrent
No. 6
Bonds payable
No. 7
Accrued wages
Mortgage-current
No. 8
No. 9
Premium on BP
No. 10
Allow. For DA
Accum. Depr. bldg.
Accum. Depr.-equipment
Adjusted balances
CA
540,000
NCA
1,440,000
(70,000)
(250,000)
0
70,000
250,000
0
70,000
(70,000)
CL
730,000
NCL
380,000
(23,000)
24,000
SHE
870,000
(23,000)
(24,000)
(400,000)
400,000
180,000
40,000
(180,000)
(40,000)
0
40,000
(40,000)
600,000
(B)
(12,000)
(65,000)
(30,000)
700,000
(A)
(12,000)
302,000
(C)
(65,000)
(30,000)
1,548,000
(B)
550,000
(A)
PROBLEM 32-10
Unadjusted
balances
1
2
3
4
5
6
7
Cash in
bank
100
Inventory
1,800
Accts.
Receivable
2,500
PPE
1,000
Accum.
Depr
400
(14)
20
(5)
-
4
(15)
-
5
-
500
112.5
101
Depreciation
112.5
Chapter 32 – Statement of Financial Position and Comprehensive Income
8
9
10
11
Adjusted
balances
101
1. (B)
60
1,849
2,505
(20)
1,480
(4)
508.5
(4)
108.5
Continuation…
Unadjusted
balances
1
2
3
4
5
6
7
8
9
10
11
Adjusted
balances
Advances
from
customers
-
Accounts
payable
320
Interest
payable
Bonds
payable
1,924,144
Discount
-
Amortization
-
4
14
20
(5)
60
413
2. (E)
180
180
75,856
1,936,558
63.442
63.442
12.414
12,414
5
5
*000
Current Assets:
Cash in bank
Inventory
Accounts Receivable
101,000
1,849,000
2,505,000
Noncurrent assets:
PPE
Less: Accumulated Depreciation
Total assets
1,480,000
508,500
Current liabilities:
Advances from customers
Accounts payable
Interest payable
5,000
413,000
180,000
Noncurrent liabilities:
Bonds payable
Discount on bonds payable
Total liabilities
SUMMARY OF ANSWERS:
1. B
2. E
3. A
2,000,000
63,442
4.
B
5.
102
E
6.
4,455,000
3. (A)
971,500
5,426,500
4. (B)
598,000
5. (E)
1,936,558
2,534,558
6. (C)
C
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-11
Question No. 1
Unadjusted beginning balance (Credit)
Add: Share premium credited to retained earnings
Unadjusted retained earnings (Debit)
Unadjusted Net loss
(C)
70,000
40,000
143,200
253,200
Question No. 2
Unadjusted net loss
Sales over, Net income over (20,000 x 140%)
Ending inventory under, Net income over
Gain under, Net income under
Repairs expense over, Net income under
Depreciation Expense building under, NI over (5% x 500,000)
Depreciation Expense equipment under, Net income over
Bad debts expense under, Net income over
Adjusted net loss
(C)
(253,200)
(28,000)
20,000
1,000
20,000
(25,000)
(20,100)
(2,600)
(287,900)
Computation of gain
Net Selling Price
Less: Carrying amount (10,000-(10,000 x 10% x 2)
Gain on sale
Computation of depreciation expense equipment:
Beg. Balance of the eqpmt. net of asset disposed
(201,000-10,000)
191,000
Asset disposed
10,000
Asset acquired
20,000
Depreciation expense
9,000
8,000
1,000
x 10%
x 10% x 6/12
x 10% x 3/12
Equipment
Unadjusted balance end
Add: Amount credited for asset disposed
Unadjusted balance beginning
Add: Asset acquired
Total
Less: Cost of asset disposed
Adjusted balance end
192,000
9,000
201,000
20,000
221,000
10,000
211,000
Computation of bad debts
Required allowance (240,000-28,000) x 5%
Less: Allowance for bad debts unadjusted
Additional bad debts expense
10,600
8,000
2,600
103
19,100
500
500
20,100
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 3
Cash
Accounts Receivable (240,000-28,000)
Less: Allowance for Bad Debts
Advances to employees
Interest Receivable
Prepaid expenses
Merchandise inventory (180,000 +20,000)
Land
Building
Less: Accumulated Depreciation (150,000+25,000)
Equipment
Less: Accumulated Depreciation
(59,200+20,100-2,000)
Utility deposits
Other Assets
Total assets
(D)
Question No. 4 and 5
LIABILITIES AND CAPITAL
Accounts payable
Advances from customer
Interest payable
Accrued expense
Mortgage Payable, current portion
Total current
Mortgage payable, noncurrent portion
Total liabilities
Ordinary shares
Share Premium
Retained earnings (deficit)
Beg. Balance
Less: Adjusted net loss
Total liabilities and SHE
SUMMARY OF ANSWERS:
1. C
2. C
3. D
4.
A
212,000
10,600
500,000
175,000
211,000
77,300
35,000
201,400
4,800
3,000
16,200
200,000
200,000
325,000
133,700
15,000
6,000
1,140,100
260,000
10,000
18,000
30,000
100,000
418,000
500,000
918,000
(A)
400,000
40,000
70,000
(287,900)
5.
(217,900)
222,100
1,140,100
A
PROBLEM 32-12
1. EI over, COS under
2014
2015
Sales
385,000
104
2014
COS
EI
157,600
98,500
6,200
(6,200)
OPEX
69,300
Chapter 32 – Statement of Financial Position and Comprehensive Income
2. Salaries expense under
2014
2015
3. Sales overstated
2014
2015
4. Expense overstated
2014
2015
5. Purch. Over, COS over
2014
2015
6. Sales under
2014
2015
7. Bad debt under
2014 (32.4+2.5) x 2%
2015 (66.1+4) x 2%-698
8. Dep. Expense under
2014
2015
Adjusted bal.
1. EI over, COS under
2014
2015
2. Salaries expense under
2014
2015
3. Sales overstated
2014
2015
4. Expense overstated
2014
2015
5. Purch. Over, COS over
2014
2015
6. Sales under
2014
2015
7. Bad debt under
14,600
(1,700)
(180)
(3,200)
2,500
698
14,500
385,800
Sales
420,000
160,600
92,300
2015
COS
EI
203,800
164,900
(6,200)
8,500
(8,500)
98,918
OPEX
76,700
(14,600)
17,300
1,700
(800)
180
(200)
3,200
(4,600)
(2,500)
4,000
105
Chapter 32 – Statement of Financial Position and Comprehensive Income
2014 (32.4+2.5) x 2%
2015 (66.1+4) x 2%-698
8. Dep. Expense under
2014
2015
Adjusted bal.
704
422,400
204,700
156,400
Question No. 6
(A)
Sales
Less Cost of sales
Gross Profit
Less Operating expenses
Add Other income
Net profit
Add: Retained earnings, beginning
Retained earnings, December 31, 2014)
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, 2015
145,000
29,000
116,000
Question No. 9
(B)
Accounts receivable, 2014 (32,400+2,500)
Less: Allowance for bad debts (32,400+2,500) * 2%
Net realizable value
Question No. 10
(B)
Sales 2015
Less: Cost of sales
Gross Profit
Less: Operating expenses
Add: Other income
Net income
SUMMARY OF ANSWERS:
1. C
2. C
3. D
6. A
7. C
8. B
34,900
698
34,202
422,400
204,700
217,700
94,584
1100
124,216
4.
9.
A
B
5.
10.
106
C
B
14,500
94,584
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-13
Question Nos. 1-3
Net Income
2014
2015
290,000
375,000
100,000 (100,000)
(30,000)
30,000
16,000
5,000
(5,000)
6,000
Unadjusted balances
1. Sales under, NI under. AR under
2. EI 2014 over, NI over
EI 2015 under, NI under
3. Income under 2014
Income under 2015
4. Depreciation exp. 2014 over, NI
under
5. Insurance exp. over, NI under
(48,000 x 6/12)
6. Rent expense over, NI under
(12,000 x 3/12)
Adjusted
25,000
Question No. 4
Current liabilities
Long-term liabilities
Total liabilities
Question No. 5
Capital stock
Retained earnings
Total shareholders’ equity
Total
Assets
2014
750,000
100,000
(30,000)
5,000
25,000
(24,000)
(24,000)
(24,000)
3,000
369,000
(A)
(3,000)
295,000
(B)
3,000
829,000
(C)
(D)
50,000
150,000
200,000
(A)
100,000
649,000
799,000
The balance of the retained earnings on December 31, 2015 is computed as
follows:
Retained earnings, January 1, 2014
35,000
Add Net income
2014
369,000
2015
295,000
Retained earnings, December 31, 2015
699,000
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
D
5.
107
A
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-14
Question Nos. 1 and 2
Unadjusted net income
1) BD expense under, NI over (392,000 x 10% )27,000
2) Unreal. Gain (Loss) (81,000-78,000) and
(62,000-81,000)
3) EI overstated, NI over
EI overstated, NI over
4) *Expense over, NI under
Depreciation expense under, NI over
**Gain on sale under, NI under
5) Exp. Over
Adjusted net income
2014
195,000
2015
220,000
(2,200)
3,000
(4,000)
(19,000)
4,000
(6,100)
10,900
1,800
206,700
(B)
(1,100)
2,500
(900)
197,200
(B)
*(Expenses recorded P12,000 should be (12,000-1,000)/10=12,000-1,000)
**Net Selling Price
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)
Trading securities at Fair value
Merchandise inventory (202,000-4,000)
Prepaid insurance (2,700-1,800)
Total current assets
(C)
Question No. 4
Cash
Accounts receivable (392,000 x 90%)
Trading securities at Fair value
Merchandise inventory (207,000-6,100)
Prepaid insurance
Total current assets
Property, plant and equipment
(169,500+12,000-17,500)
Less: Accumulated. Depreciation
(121,600+1,100+1,100-17,500)
Net Book value
Total Assets
(B)
108
82,000
278,000
81,000
198,000
900
639,900
163,000
352,800
62,000
200,900
900
779,600
164,000
106,300
57,700
837,300
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 5
Share capital (20,000 x P10)
Share premium
Retained earnings (206,700+197,200+*52,000)
Adjusted Shareholders' equity
(A)
*(247,000-195,000)
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
B
5.
200,000
60,000
455,900
715,900
A
PROBLEM 32-15
Questions No. 1 to 3
1
2
3
4
5
6
7
Unadjusted balances
2014 Purchases over NI under
2014 Ins. Expense Over, NI
Under – Prepaid insurance
2014 Sales under, NI under
2014 Bad debts exp. under, NI
over
(60,000 x 4%)
Sales over, NI over
Loss on sale under, NI over
Admin exp over, NI under
Depr. Under, NI over
Equipment
Building
Patent
EI under, NI under
Current
Total
Assets
NCA
SC and
Share
Prem
600,000
(40,000)
915,000
3,100,000
1,420,000
10,000
60,000
(5,000)
(60,000)
5,000
(2,400)
(3,600)
(20,000)
(12,000)
10,000
(6,000)
R/E Jan.
1
Net
Income
1,448,000
40,000
1,555,600
1. (B)
(118,250)
(100,000)
(55,000)
45,000
241,150
2. (D)
Net Proceeds
Cost
Less: Accumulated Depreciation
Loss on sale
(32,000)
10,000
45,000
959,000
3. (A)
(118,250)
(100,000)
(55,000)
2,804,750
20,000
40,000
8,000
Depreciation:
Equipment - old (1.2M-40,000+10,000) x 10%
Equipment disposed (40,000 x 10% x 3/12)
New equipment (10,000 x 10% x 3/12) Jan. 1
Total Depreciation
Question No. 4
Total current assets
Add: Non-current assets
Total Assets
(C)
109
32,000
(12,000)
117,000
1,000
250
118,250
959,000
2,804,750
3,763,750
1,420,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 5
Preference share
Ordinary share
Share Premium
Retained earnings
Jan. 1
Net income
Total Shareholders’ Equity
SUMMARY OF ANSWERS:
1. B
2. D
3. A
100,000
1,100,000
220,000
1,555,600
241,150
3,216,750
(B)
4.
C
5.
B
PROBLEM 32-16
Note to professor:
7) Dividends of P.05 per share were declared on March 25, 2015. – Change 2015 to
2016.
Questions No. 1 to 2
STATEMENT OF COMPREHENSIVE INCOME
Revenue
12,000,000
Less Cost of sales (7,100,00+80,000)
7,180,000
Operating expenses (3,480,000+120,000)
(3,600,000)
Finance costs
240,000
Profit before tax
980,000
Income tax expense
284,200
Profit for the period
(B)
695,800
Other comprehensive income
Revaluation surplus
800,000
Total comprehensive income
(C)
1,495,800
Beg.
Balance,
12/31/2015
Total
compre.
Income
Issue of share
capital
Share
issue
expenses
Balance
STATEMENT OF CHANGES IN EQUITY
Ord.
Share
Retained
Other
share
Prem.
earnings
compre.
income
2,500,000
0
1,424,200
695,800
500,000
1,500,000
3,000,000
(150,000)
1,350,000
110
Total
3,924,200
800,000
1,495,800
2,000,000
2,120,000
800,000
(150,000)
7,270,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 3
Inventories
Trade and other receivables (980,000+15,000)
Cash and Cash equivalents
Total Current Assets
(E)
1,720,000
995,000
2,059,200
4,774,200
Question No. 4
Borrowings
Trade and other payables (400,000+20,000)
Current tax payable (*284,200-**200,000)
Total current liabilities
(D)
2,000,000
420,000
84,200
2,504,200
*Income tax payable of (980,000 x 29%)=P284,200
**Tax refundable
Question No. 5
Ordinary shares
Share premium
Retained earnings
Other comprehensive income
Total shareholders’ equity
SUMMARY OF ANSWERS:
1. B
2. C
3. E
3,000,000
1,350,000
2,120,000
800,000
7,270,000
(B)
4.
D
5.
111
B
Chapter 33 – Statement of Cash Flows
CHAPTER 33: STATEMENT OF CASH FLOWS
PROBLEM 33-1 Indirect Method - Operating Activities
Net income
Decrease in accounts receivable
Increase in accounts payable
Depreciation expense
Net cash provided by operating activities
(A)
668,000
96,000
44,000
20,000
828,000
PROBLEM 33-2 Indirect Method - Operating Activities
Net income
Increase in accounts receivable
Decrease in prepaid expenses
Increase in accumulated depreciation-depreciation expense
Decrease in accounts payable
Net cash provided by operating activities
(A)
292,000
(40,000)
12,000
64,000
(16,000)
312,000
PROBLEM 33-3 Investing Activities
Note to professor: The question should be net cash provided by investing
activities and not financing 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
(E)
(100,000)
1,000,000
(560,000)
340,000
PROBLEM 33-4 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)
112
680,000
(28,000)
(160,000)
492,000
Chapter 33 – Statement of Cash Flows
COMPREHENSIVE PROBLEMS
PROBLEM 33-5
Question No. 1
(B)
Accounts receivable
Beg. balance – AR
Sales on account
125,0000
1,000,000
135,000
-
-
990,000
-
Recoveries
Total
Question No. 2
1,125,000
Balance end - AR
Sales
returns
and
allowance*
Sales discounts
Collections (squeeze)
Write-off
1,125,000
(C)
Accounts Payable Trade
Payments (squeezed)
Purchase returns and
allow.
Purchase discounts
Balance end – AP
Total
525,000
0
190,000
485,000
Beg. balance – AP
Purchases
0
150,000
675,000
Merchandise Inventory
Beg. Balance
Net Purchases (squeeze)
175,000
485,000
Total
660,000
Question No. 3
Payments (squeezed)
Balance end
Total
160,000
500,000
Balance end
Cost of Sales
(D)
Deferred income taxes
190,000
85,000
175,000
100,000
Beg. balance
Income tax expense
275,000
Question No. 4
(D)
Collection of accounts receivable
Payment of accounts payable
Payment of income taxes*
Payment of operating expenses
Net cash provided by (or used in) Operating activities
*Computation of Payment of income taxes
113
990,000
(525,000)
(190,000)
(180,000)
95,000
Chapter 33 – Statement of Cash Flows
Prepaid insurance
Beg. Balance
Payment (squeezed)
25,000
180,000
Total
40,000
165,000
Balance end
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)
Dividends paid
Net cash provided used in Financing activities
(A)
40,000
25,000
(75,000)
(10,000)
Question No. 6
*Proceeds from Sale of investment
Cash acquisition of PPE (540,000-460,000)
Net cash provided used in investing activities
20,000
(80,000)
(60,000)
(B)
Cost of investment sold (190,000-180,000)
Add: Gain on sale
Proceeds from sale of investment
SUMMARY OF ANSWERS:
1. B
2. C
3. D
4.
D
5.
10,000
10,000
20,000
A
6.
B
PROBLEM 33-6
Question No. 1
Beg. Balance
Sales on account
Question No. 2
Bal. end
Payment
(A)
Accounts receivable
600,000 1,250,000
5,000,000 4,330,000
20,000
5,600,000 5,600,000
(B)
Accounts payable
4,800,000 4,500,000
1,900,000 2,200,000
6,700,000 6,700,000
114
Bal. end
Collections
Write-off
Beg. Balance
Net purchases
Chapter 33 – Statement of Cash Flows
Beg. Balance
Net purchases
Merchandise inventory
2,000,000
2,200,000
2,200,000
2,000,000
4,200,000
4,200,000
Bal. end
Cost of goods sold
Question No. 3
(A)
Net income
Amortization of premium of Investment in Bonds
Depreciation
Gain on sale of equipment
Amortization of franchise
Decrease (or increase) in Trading securities
Decrease (or increase) in Net AR
Decrease (or increase) in Inventories
Increase (or decrease) in AP
Increase (or decrease) in DTL
Net cash provided by (or used in) Operating activities
Computation of accumulated depreciation:
Beg. Balance
Add: Depreciation expense
Less: Accumulated depreciation of asset sold
Balance end
3,200,000
900,000
200,000
3,900,000
Gain or (loss) on sale
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Gain on sale
Amortization table:
Interest
Date
Collection
1/1/2014
12/31/2014
480,000
12/31/2015
480,000
700,000
60,109
900,000
(220,000)
100,000
(450,000)
(530,000)
(200,000)
300,000
200,000
860,109
500,000
480,000
200,000
Interest
Income
Premium
Amortization
425,355
419,891
54,645
60,109
Question No. 4
(B)
Acquisition of PPE
Sale of PPE
Net cash provided by (or used in) investing activities
Question No. 5
(D)
Dividends paid
Cash receipts-issuance of OS (10,000 x 120)
115
280,000
220,000
Present
value
4,253,552
4,198,907
4,138,798
(1,000,000)
500,000
(500,000)
(300,000)
1,200,000
Chapter 33 – Statement of Cash Flows
Cash paid for Treasury shares
Net cash provided by (or used in) Financing activities
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
B
5.
(500,000)
400,000
D
PROBLEM 33-7
Note to the professor: Kindly change the name of Josiah Inc. to Jonalyn Inc. in
additional information number 1.
Question No. 1
Bal. end
Payment
Beg. Balance
Net purchases
(D)
Accounts payable
3,400,000 3,500,000
1,900,000 1,800,000
5,300,000 5,300,000
Merchandise inventory
2,000,000
1,800,000
1,800,000
2,000,000
3,800,000
3,800,000
Beg. Balance
Net purchases
Bal. end
Cost of goods sold
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 of associate
Cash dividends from associate
Depreciation
Loss on sale of equipment
Amortization of franchise
Decrease (or increase) in Trading securities
Decrease (or increase) in Net AR
Decrease (or increase) in Inventories
Increase (or decrease) in AP
Increase (or decrease) in ITP
Increase (or decrease) in DTL
Net cash provided by (or used in) Operating activities
116
700,000
(1,024,000)
280,000
200,000
100,000
100,000
(90,000)
200,000
(100,000)
(50,000)
200,000
516,000
Chapter 33 – Statement of Cash Flows
Year of Acquisition
Percentage of ownership
Cost of Investment
Less: Book value of net asset acquired
Excess of cost over book value
Over or (under)valued asset
Inventory
Machinery
Land
Goodwill
Amortization of Over (Under) valued asset
Inventory
Machinery
Divide by: Remaining life
Amortization of Under (over) valued asset
No of months divide by 12 (1st year)
Amortization of Under (over) valued asset
Net income of the associate
Dividends declared and paid
Net income of the associate
Multiply by: Percentage of ownership
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
20%
4,000,000
2,400,000
1,600,000
(40,000)
240,000
1,800,000
2014
40,000
2015
(240,000)
10
(24,000)
1
(24,000)
(24,000)
1
(24,000)
2014
4,000,000
1,000,000
2014
4,000,000
20%
800,000
1,000,000
20%
200,000
2015
5,000,000
1,400,000
2015
5,000,000
20%
1,000,000
1,400,000
20%
280,000
2015 Investment Income
Share in the Net Income
Add: Amortization of overvalued machinery
Net investment income - 2015
1,000,000
24,000
1,024,000
Investment in Associate
Beg. Balance
Add: Net investment income
Less: Dividends received
Balance end
4,584,000
1,024,000
280,000
5,328,000
Question No. 4
(B)
Cash receipt from loan receivable
Acquisition of PPE
Sale of PPE
Net cash provided by (or used in) investing activities
117
120,000
(2,000,000)
500,000
(1,380,000)
Chapter 33 – Statement of Cash Flows
Question No. 5
(D)
Dividends paid
Cash receipts-issuance of Ordinary shares
Cash receipts-reissuance of Treasury shares
Net cash provided by (or used in) Financing activities
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4.
B
5.
(350,000)
1,120,000
105,000
875,000
D
PROBLEM 33-8
Note to the professor: Please change the name of Josiah Inc. to Samuel Inc. in
additional information number 1.
Question No. 1
Bal. end
Payment
Beg. Balance
Net purchases
(D)
Accounts payable
4,000,000 3,500,000
1,700,000 2,200,000
5,700,000 5,700,000
Merchandise inventory
1,500,000
1,700,000
2,200,000
2,000,000
3,700,000
3,700,000
Beg. Balance
Net purchases
Bal. end
Cost of goods sold
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 the net income of associate
Cash dividends from associate
Depreciation
Loss on sale of equipment
Amortization of franchise
Amortization of disc on investment in bonds
Decrease (or increase) in Net Accounts Receivable
Decrease (or increase) 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
118
980,000
(630,000)
225,000
200,000
150,000
100,000
(12,708)
(90,000)
(200,000)
500,000
(50,000)
200,000
1,372,292
Chapter 33 – Statement of Cash Flows
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
100,000
12/31/2016
100,000
Interest
Income
Premium
Amortization
112,708
114,233
12,708
14,233
Year of Acquisition
Percentage of ownership
Cost of Investment
Less: Book value of net asset acquired
Excess of cost over book value
Over or (under)valued asset
Inventory
Machinery
Land
Goodwill
Amortization of Over (Under) valued asset
Inventory
Machinery
Divide by: Remaining life
Amortization of Under (over) valued asset
No of months divide by 12 (1st year)
Amortization of Under (over) valued asset
Net income of the associate
Dividends declared and paid
Net income of the associate
Multiply by: Percentage of ownership
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
2014 Investment Income
Share in the Net Income
Add: Amortization of overvalued machinery
Less: Undervaluation of inventory
Net investment income - 2014
Investment in Associate
Cost of investment
Add: Net investment income
Less: Dividends received
Balance end, 12/31/2014
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
2014
50,000
2015
(300,000)
10
(30,000)
1
(30,000)
(30,000)
1
(30,000)
2014
2,000,000
800,000
2014
2,000,000
25%
500,000
800,000
25%
200,000
2015
2,400,000
900,000
2015
2,400,000
25%
600,000
900,000
25%
225,000
500,000
30,000
50,000
480,000
3,500,000
480,000
200,000
3,780,000
119
Chapter 33 – Statement of Cash Flows
2014 Investment Income
Share in the Net Income
Add: Amortization of overvalued machinery
Net investment income - 2014
600,000
30,000
630,000
Investment in Associate
Beginning balance, 01/01/2015
Add: Net investment income
Less: Dividends received
Balance end, 12/31/2015
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 Cost of equipment sold
600,000 9,069,180 bal. end
369,180
9,969,180 9,969,180
Accumulated depreciation
Bal. end
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
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Loss on sale
350,000
900,000
400,000
Question No. 4
(B)
Cash acquisition of Investment in Bonds
Acquisition of PPE
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)
Present Value of Minimum lease payments
Amortization table:
Interest
Date
Payment
12/31/2015
12/31/2015
100,000
12/31/2016
100,000
Interest
Expense
Amortization
26,918
100,000
73,082
120
500,000
(150,000)
(939,230)
(600,000)
350,000
(1,189,230)
348,690
20,490
369,180
Present
value
369,180
269,180
196,098
Chapter 33 – Statement of Cash Flows
Question No. 5
(D)
Payment of principal finance lease liability
Dividends paid
Cash receipts-issuance of Ordinary Shares
Net cash provided by (or used in) Financing activities
(100,000)
(350,000)
720,000
270,000
Share Capital
Beginning balance
Issuance for cash
Issuance thru SDP
Balance end
10,000,000
600,000
1,910,000
12,510,000
Share Premium
Beginning balance
Issuance for cash
Balance end
1,000,000
120,000
1,120,000
Retained Earnings
Beginning balance
Add: Net income
Less: Dividends declared-cash
Less: Share dividend
Balance end
3,740,000
980,000
350,000
1,910,000
2,460,000
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4.
B
5.
D
PROBLEM 33-9
Question No. 1
Cash
Accounts receivable
Allowance for doubtful accounts
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
Property plant and equipment
Accumulated depreciation
Franchise - net
Total noncurrent assets
(A)
3,861,105
9,520,000
(3,900,000)
500,000
9,981,105
Total assets
18,641,005
121
Chapter 33 – Statement of Cash Flows
Question No. 3
Liabilities and equity
Accounts payable
Dividends payable
Total current liabilities
(A)
4,800,000
400,000
5,200,000
Question No. 4
Deferred tax liability
Total noncurrent liabilities
(C)
700,000
700,000
Total liabilities
5,900,000
Question No. 5
Ordinary shares, P100 par value
Share Premium
Treasury shares at cost
Retained earnings
Total shareholders' equity
(C)
11,000,000
1,200,000
(500,000)
1,041,005
12,741,005
Total liabilities and equity
18,641,005
Beg. Balance
Sales on account
Bal. end
Write-off
Accounts receivable
600,000 1,000,000
5,000,000 4,600,000
5,600,000 5,600,000
Bal. end
Collections
Write-off
Allowance for doubtful accounts
180,000
40,000 Beg. Balance
Doubtful
Account
140,000 expense
0 Recovery
180,000
180,000
Beg. Balance
Net purchases
Merchandise inventory
2,000,000
2,200,000
2,200,000
2,000,000
4,200,000
4,200,000
Bal. end
Payment
Accounts payable
4,800,000 4,500,000
1,900,000 2,200,000
6,700,000 6,700,000
122
Bal. end
Cost of goods sold
Beg. Balance
Net purchases
Chapter 33 – Statement of Cash Flows
Amortization table:
Interest
Date
Collection
01/01/2014
12/31/2014
320,000
12/31/2015
320,000
12/31/2016
320,000
12/31/2017
320,000
Beg. Balance
Acquisition cost
Present value of MLP
Interest
Income
Discount
Amortization
374,637
380,100
386,111
392,816
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. end
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
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Gain on sale
500,000
480,000
200,000
280,000
220,000
Ordinary shares
Beginning balance
Issuance for cash
Balance end
10,000,000
1,000,000
11,000,000
Share Premium
Beginning balance
Issuance for cash
Balance end
1,000,000
200,000
1,20,000
Retained Earnings
Beginning balance
Add: Net income
Less: Dividends declared-cash
Balance end
461,005
980,000
400,000
1,041,005
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
C
5.
123
C