Chapter 1
Basic Concepts of Financial Statement Audit
Multiple Choice
1. B
5. A
9. B
13. C
2. D
6. C
10. C
14. D
3. D
7. C
11. A
15. B
4. B
8. D
12. D
16. C
Problem 1
Cielo Corporation
Audit Adjusting Entries:
Accounts receivable
Cash in bank
15,000
Doubtful accounts expense
Allowance for doubtful accounts
15,650
15,000
15,650
Purchases
Accounts payable
50,000
Cost of goods sold
Inventory, end (601,200 + 50,000 – 30,000)
Purchase returns and allowances
Purchases (2,159,300 + 50,000)
Inventory, beginning
2,120,500
621,200
36,500
50,000
2,209,300
568,900
Accumulated depreciation – equipment
*11,000
Gain on sale of equipment
Furniture and equipment (40,000 – 35,000)
 40,000 x 10% x 2.75 years) = 11,000
32,000/ 80% remaining life at 10/1/13 = 40,000
Depreciation expense – furniture and equipment
64,300
Accumulated depreciation – furniture and equipment
Furniture and equipment, per client
P618,000
Adjustment above
( 5,000)
Furniture and equipment, per audit
P613,000
6,000
5,000
64,300
Depreciation expense:
On remaining equipment 613,000 x 10% =P61,300
On equipment sold: 40,000 x 10% x 9/12
3,000
Depreciation for the year
P64,300
Prepaid insurance (8,400 x 6/12)
Insurance expense
4,200
4,200
Prepaid rent 130,000 x 1/13
Rent expense
10,000
Discount on notes payable
11,000
10,000
1
Chapter 1
Basic Concepts of Financial Statement Audit
Interest expense
100,000 x 12% x 11/12
11,000
Retained earnings
Goodwill
300,000
300,000
CIELO CORPORATION
WORKING TRIAL BALANCE
FOR THE YEAR ENDED SEPTEMBER 30, 2016
Trial Balance
Debit
Credit
Cash
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Merchandise inventory
Furniture and equipment
Accumulated depreciation
Goodwill
Accounts payable
Notes payable
Common stock
Retained earnings
Sales
Sales returns and allowances
Purchases
Purchase returns and allowances
Advertising expense
Sales salaries
Commission expense
Miscellaneous selling expense
Rent expense
Office salaries
Light and water
Insurance expense
Taxes and licenses
General expenses
Interest expense
Interest income
Adjustments
Debit
225,000
936,000
Profit or Loss
Debit
Credit
15,000
31,900
Financial Position
Debit
Credit
210,000
951,000
15,000
15,650
155,000
568,900
618,000
47,550
155,000
187,500
11,000
300,000
536,000
100,000
1,000,000
552,500
3,728,200
568,900
5,000
64,300
300,000
50,000
613,000
240,800
586,000
100,000
1,000,000
252,500
300,000
3,728,200
47,600
2,159,300
47,600
50,000
36,500
36,500
96,100
288,500
152,000
29,900
130,000
197,200
15,000
10,800
47,800
163,400
41,200
6,181,700
Credit
2,209,300
10,000
4,200
11,000
96,100
288,500
152,000
29,900
120,000
197,200
15,000
6,600
47,800
163,400
30,200
9,100
6,181,700
9,100
Doubtful accounts expense
Cost of goods sold
Merchandise inventory
Gain on sale of equipment
Depreciation expense
Prepaid insurance
Prepaid rent
Discount on notes payable
15,650
2,120,500
621,200
15,650
2,120,500
621,200
6,000
64,300
4,200
10,000
11,000
3,259,350
6,000
64,300
4,200
10,000
11,000
3,259,350
3,394,750
348,550
3,743,300
Income before income tax
Income before income tax
Income tax expense
Income tax payable
Profit
3,743,300
3,743,300
348,550
104,565
243,985
348,550
2
348,550
2,575,400
104,565
243,985
2,575,400
Chapter 1
Basic Concepts of Financial Statement Audit
Problem 2
Audit adjusting entries:
Inventory, December 31, 2016 (addition)
Income summary
67,200
Doubtful accounts expense
Allowance for doubtful accounts
3% x 522,000 = 15,660
15,660 – 740 = 14,920
14,920
67,200
14,920
Sales salaries and commission
Accrued expenses
3% x 27,200 = 816
816
816
Freight in
Accounts payable
1,500
Advertising expense
Prepaid advertising
4,200
Freight out
Sales
18,400
Depreciation expense – Office Equipment
Accumulated depreciation – office equipment
15,600/10 x 10/12
1,300
Other operating expenses – Loss from flood
Extraordinary loss
145,200
Income Tax Expense
Income Tax Payable
50,374
1,500
4,200
18,400
1,300
145,200
50,374
3
Chapter 1
Basic Concepts of Financial Statement Audit
(Function of expense method)
Flawless, Inc.
Statement of Comprehensive Income
For the Year Ended December 31, 2016
Net Sales
Cost of goods sold
Gross profit
Other operating income
Total income
Operating expenses
Selling expenses
General and administrative expenses
Other operating expenses
Total operating expenses
Profit before interest and income tax
Interest expense
Profit before income tax
Income tax expense ( 30% x 167,914)
Profit
Schedules:
P984,640
429,650
P554,990
52,700
P607,690
P130,916
154,620
145,200
P430,736
P176,954
9,040
P167,914
50,374
P117,540
Net Sales
Sales 990,400 + 18,400
Sales returns and allowances
Sales discounts
Net sales
P1,008,800
(22,400)
(1,760)
P984,640
Cost of Goods Sold
Inventory, January 1, 2014
Net cost of purchases:
Purchases
Freight in
Total goods available for sale
Less: inventory, December 31, 2014
Cost of goods sold
P179,400
P346,000
12,550
Other operating income
Interest revenue
Dividend revenue
Gain on sale of equipment
Total other operating income
358,550
P537,950
108,300
P 429,650
P
1,400
14,300
37,000
P 52,700
4
Chapter 1
Basic Concepts of Financial Statement Audit
Selling Exp.
Sales salaries and commissions P 70,816
Advertising expense
36,380
Legal services
Insurance and licenses
Salesmen’s traveling expenses
7,120
Depreciation expense – delivery
Equipment
12,200
Depreciation expense – office
Equipment
Utilities expense
Telephone and postage
Officers’ salaries
Doubtful accounts expense
Freight out
Miscellaneous selling
4,400
Loss from flood
Total
P130,916
Gen. and Adm. Other Operating Exp.
P
4,450
17,000
10,900
12,800
2.950
73,200
14,920
18,400
P154,620
P145,200
P145,200
Flawless, Inc.
Statement of Comprehensive Income
For the Year Ended December 31, 2016
Net Sales
Other operating income
Total income
Operating expenses
Net cost of purchases
Decrease in inventory
Sales salaries and commissions
Advertising expense
Legal services
Insurance and licenses
Salesmen’s traveling expenses
Depreciation expense – delivery equipment
Depreciation expense – office equipment
Utilities expense
Telephone and postage
Officers’ salaries
Doubtful accounts expense
Freight out
Miscellaneous selling
Other expenses - Loss from flood
Total operating expenses
Profit before interest and income tax
Interest expense
Profit before income tax
Income tax expense ( 30% x 167,914)
Profit
5
P984,640
52,700
P1,037,340
P 358,550
71,100
70,816
36,380
4,450
17,000
7,120
12,200
10,900
12,800
2.950
73,200
14,920
18,400
4,400
P145,200
P430,736
P176,954
9,040
P167,914
50,374
P117,540
Chapter 1
Basic Concepts of Financial Statement Audit
MULTIPLE CHOICE – Karkits Corporation
Audit adjusting Entries:
1. Advances to officers & employees
Marketing and administrative expense
Petty Cash
3,000
4,500
7,500
2. A. Accounts Receivable
Cash in Bank
35,000
35,000
B. Cash in Bank
Accounts Receivable
40,000
E. Cash in bank
Accounts Payable
48,300
40,000
48,300
3. Trading Securities
Unrealized gain on Trading Securities
20,000
4. A. Advances to Officers and Employees
Accounts Receivable
120,000
20,000
120,000
B. Sales
Inventories
Accounts Receivable
Cost of good sold
625,000
500,000
625,000
500,000
5. A Inventories
Cost of good sold
26,000
26,000
B. Accounts Payable
Cost of good sold
35,000
C. Inventories
Accounts Payable
27,000
D. Cost of good sold
Accounts Payable
22,350
E. Sales
Inventories
Accounts Receivable
Cost of good sold
36,000
25,000
35,000
27,000
22,350
36,000
25,000
* Marketing and Administrative Expense
Allowance for uncollectible accounts
6. Marketing and Administrative Expense
Prepaid Insurance
17,900
17,900
6,250
6,250
6
Chapter 1
Basic Concepts of Financial Statement Audit
A. Land
Building
Other income
Land and Building
Marketing and Administrative Expense
1,720,000
7,750,000
30,000
8,600,000
900,000
B. Marketing and Administrative Expense
166,800
Accumulated Depreciation-Building
150,000
Accumulated Depreciation-Leasehold Improvements
16,800
8. Marketing and Administrative Expense
Accumulated Amortization - Franchise
50,000
50,000
9. Marketing and Administrative Expense
72,000
Licensing Agreement
144,000
Accumulated Amortization - Licensing Agreement
216,000
10. A. Accounts Payable – De la Cruz
Accounts payable – De Leon
126,000
B. Marketing and Administrative Expense
Accrued expense
50,800
126,000
50,800
11. Other Income
Unearned Revenue
130,000
12. Interest Expense
Interest Payable
200,000
130,000
200,000
Mortgage Payable
Current portion of long term debt
500,000
500,000
13. Interest Expense
Interest Payable
Discount on Bonds Payable
187,800
14. Income Tax Payable
Income Tax Expense
1,458,579-1,585,705
127,126
180,000
7,800
7
127,126
Chapter 1
Basic Concepts of Financial Statement Audit
Karkits Corporation
Statement of Comprehensive Income
For the year ended December 31, 2016
Sales
Cost of Good Sold
Gross profit
Other Income
Total income
Marketing and Administrative Expense
Income before Interest and taxes
Interest expense
Profit before Tax
Income Tax (4,861,930 * 32%)
Profit
P 31,589,000
(17,606,300)
13,982,700
40,000
14,022,700
(8,368,650)
5,654,050
(792,120)
4,861,930
(1,555,817)
P 3,306,113
Karkits Corporation
Statement of Financial Position
As of December 31, 2016
Assets
CURRENT ASSETS
Cash and Cash Equivalents
Trading Securities, market value
Accounts receivable, net
Inventories
Prepaid Insurance
CURRENT ASSETS
NON CURRENT ASSETS
Property, Plant and Equipment
Intangibles, Net
NON CURRENT ASSETS
Total assets
Notes
3
4
5
6
Liabilities and Shareholders’ Equity
CURRENT LIABILITIES
Trade And Other Payables
7
Unearned Revenues
Income Tax Payable
CURRENT LIABILITIES
NON CURRENT LIABILITIES
Mortgage Payable
Bonds Payable
NON CURRENT LIABILTIES
Total liabilities
SHAREHOLDERS’ EQUITY
Ordinary Share Capital
Additional Paid-in Capital
8
P 304,400
350,000
2,743,100
4,976,900
23,150
P 8,397,550
P 11,124,700
594,000
11,538,700
P 19,936,250
P 4,983,020
130,000
66,239
P 5,179,259
P 1,500,000
1,885,800
3,385,800
P 8,565,059
P 5,000,000
1,350,000
8
Chapter 1
Basic Concepts of Financial Statement Audit
Retained Earnings
SHAREHOLDERS’ EQUITY
Total Liabilities and Shareholders’ Equity
5,021,191
11,371,191
19,936,250
NOTES
3. Cash
Petty Cash
Cash in bank
Cash and Cash Equivalents
P
7,500
296,900
P 304,400
4. Trade and other receivables
Accounts receivable, net
Advance to Officers and Employees
Allowance for uncollectible account
Trade and Other Receivables
5. Property, plant and equipment
Land
Building
P 7,750,000
Accumulated Depreciation - Building
(150,000
Furniture and Fixtures
P2,177,000
Accumulated depreciation – Furniture and Fixtures (703,500
Leasehold Improvements
P 168,00
Accumulated depreciation – Leasehold
Improvements
(16,800)
Total Property, Plant and Equipment, Net
6.
Intangible Assets
Franchise
P500,000
Accumulated Amortization – Franchise
(50,000)
Licensing Agreements
P 360,000
Accumulated Amortization – Licensing Agreements (216,000
Total Intangible Assets
2,758,000
123,000
(137,900)
P 2,743,100
P 1,720,000
7,600,000
1,473,500
151,200
P 11,124,700
P
450,000
144,000
P 594,000
7. Trade and Other Payables
Accounts Payable
Accrued Expense
Interest Payable
Dividends Payable
Current portion of Long Term Debt
Trade and Other Payables
P 2,204,200
648,820
380,000
1,250,000
500,000
P 4,983,020
8. Amortized cost of bonds payable
Bonds Payable
Discount on Bonds payable
Bonds Payable, Net of Discount
P 2,000,000
(114,200)
P 1,885,80
9
Chapter 1
Basic Concepts of Financial Statement Audit
Answers:
1. Petty Cash
2. Cash in bank
3. Trading Securities
4. Accounts Receivable
5. Allowance for doubtful accounts
6. Advances to Officers & Employees
7. Inventories
8. Prepaid Insurance
9. Land
10. Building
11. Accumulated Depreciation – Building
12. Net book Value of Leasehold Improvement
13. Franchise
14. Licensing agreement, net
15. Accounts Payable
16. Accrued Expenses
17. Unearned Revenues
18. Interest Payable
19. Income Taxes Payable
20. Dividends Payable
21. Current portion of long term debt
22. Discount on Bonds Payable
23. Ordinary share capital
24. Retained Earnings
25. Sales
26. Cost of Good Sold
27. Marketing & administrative expense
28. Other income
29. Interest expense
30. Profit
10
7,500
296,900
350,000
2,758,900
137,900
123,000
4,976,900
23,150
1,720,000
7,750,000
150,000
151,200
500,000
144,000
2,204,200
648,820
130,000
380,000
163,477
1,250,000
500,000
114,200
5,000,000
5,021,191
31,589,000
17,606,300
8,368,650
40,000
792,120
3,306,113
c
a
b
d
d
d
d
c
b
b
b
c
a
b
c
c
d
c
a
d
b
c
a
c
d
c
c
a
b
a
Chapter 2
Misstatements in the Financial Statements
Problem 1
Under(Over) statement in Profit of
Retained
Earnings
Nature of error
2017 Accounts Affected
01/01/15
Omission of prepaid
expenses
12/31/15
12/31/16
12/31/17
Omission of unearned
revenue:
12/31/15
12/31/16
12/31/17
Omission of accrued
expenses:
12/31/15
12/31/16
12/31/17
Omission of accrued
revenues
12/31/15
12/31/16
12/31/17
Net
under(over)statement
Reported profit(loss)
Corrected profit(loss)
2015
2016
29,000
(29,000)
30,000
(20,000)
(27,500)
42,500
24,000
240,000
264,000
20,000
(28,000)
27,500
(25,000)
(42,500)
45,000
( 2,000)
(120,000)
(122,000)
2017
(30,000)
34,000
28,000
(15,000)
25,000
(27,000)
(45,000)
41,000
11,000
200,000
211,000
Account
30,000
(28,000)
(25,000)
45,000
Dr.
Expenses
Prepaid expenses
Expenses
12/31/16 Assets
U
O
U
U
U
Problem 3
1.
2.
3.
2016 Profit
U
O
U
U
O
Expenses
Expenses
Accrued expenses
27,000
22,000
12/31/17 Assets
U
O
U
U
U
Retained Earnings
Wages Expense
160,000
Interest Income
Retained Earnings
48,000
Insurance Expense
Prepaid Insurance
Retained Earnings
20,000
20,000
2017 Profit
O
U
O
NE
O
160,000
48,000
40,000
11
34,000
15,000
Problem 2
1.
2.
3.
4.
5.
30,000
34,000
Revenue
Revenue
Unearned revenue
Revenues
Accrued revenues
Revenues
Cr.
28,000
15,000
25,000
27,000
45,000
41,000
41,000
Chapter 2
Correction of Errors
4.
5.
6.
7.
8.
Supplies Expense
Retained Earnings
25,000
Unused Supplies
Supplies Expense
28,000
Retained Earnings
Accumulated Amortization – Development Cost
Capitalized Development Cost
Amortization Expense – Development Cost
80,000
80,000
Retained Earnings
Service Revenue
Unearned Service Revenue
80,000
Retained Earnings
Rent Revenue
36,000
25,000
28,000
120,000
40,000
40,000
40,000
36,000
Office Equipment
Depreciation Expense - Equipment
Accumulated Depreciation
Retained Earnings
1,500,000
300,000
900,000
900,000
Problem 4
(Function of Expense Method)
1.
Cost of Goods Sold
Retained Earnings
2.
Cost of Goods Sold
Inventory
3.
Retained Earnings
Cost of Goods Sold
4.
No entry ( no effect on cost of sales and profit of both 2016 and 2017; as both beginning inventory and purchases
in 2017 had been transferred to cost of sales)
5.
Cost of Goods Sold
Retained Earnings
6.
Sales
Retained Earnings
12
Chapter 2
Correction of Errors
Problem 5 (Dragon Ball Company)
(1) Schedule to compute correct profit:
Under(over)statement in Profit
2015
2016
Omission of accrued wages
12/31/15
12/31/16
12/31/17
Omission of unused supplies
12/31/15
12/31/16
12/31/17
Omission of accrued interest income
12/31/15
Sale of equipment - Proceeds
Gain on sale
Recorded depreciation
Omission of unearned rent
Net under(over)statement
Reported Profit
Corrected Profit
(80,000)
32,000
80,000
(60,000)
(32,000)
25,000
18,000
(25,000)
7,000
4,200
(18,000)
(43,800)
450,000
406,200
(800)
290,000
289,200
4,200
(2) Audit adjusting entries:
Retained Earnings
Wages Expense
60,000
Wages Expense
Wages Payable
78,000
Supplies Expense
Retained Earnings
25,000
Unused Supplies
Supplies Expense
22,400
Retained Earnings
Accumulated Depreciation
Equipment
Depreciation Expense
9,600
36,600
60,000
78,000
25,000
22,400
42,000
4,200
(3) Correcting entries in 2018
Retained Earnings
Wages Expense
78,000
Supplies Expense
Retained Earnings
22,400
Retained Earnings
Accumulated Depreciation
Equipment
5,400
36,600
78,000
22,400
42,000
13
2017
RE, 1/1/15
60,000
(78,000)
(60,000)
(25,000)
22,400
25,000
4,200
(40,000)
(56,400)
440,000
383,600
(9,600)
(44,600)
Chapter 2
Correction of Errors
Problem 6 (Erasure Company)
1.
2.
3.
4.
Accumulated Depreciation
Depreciation Expense
Retained Earnings
27,500
Retained Earnings
Salaries Expense
65,000
9,167
18,333
65,000
Loss on Damages
Retained Earnings
Goodwill
585,000
585,000
24,000
Accumulated Amortization – GW
24,000
Retained Earnings
12,000
Amortization of Goodwill
12,000
Accumulated Amortization – Goodwill
(Note: SMEs amortize Goodwill over ten years)
5.
Sales
340,000
Advances from Customers
6.
7.
8.
24,000
340,000
Retained Earnings
Accumulated Depreciation
Equipment
54,000
6,000
Repairs and Maintenance
Equipment
50,000
60.000
50,000
Accumulated Depreciation (10% x (60,000+ 50,000)
Depreciation Expense
11,000
Cost of Sales
Retained Earnings
51,000
Cost of Sales
Inventory
30,000
11,000
51,000
30,000
No entry ( no effect on cost of sales of 2016 and 2017; Cost of sales had been set up; both purchases and
beginning inventory for 2017 had been transferred to cost of sales)
Problem 7 (Gloria Company)
Audit adjustments to correct 2016 financial statements
Other operating income
Unearned commission income
Audit adjustments to correct 2017 financial statements
8,000
8,000
Retained earnings
Other operating income
8,000
8,000
Other operating income
6,400
Unearned commission income
Prepaid rent
16,000
Selling and administrative expenses
14
16,000
6,400
Chapter 2
Correction of Errors
Selling and administrative expenses
Interest receivable
Other operating income
16,000
8,000
8,000
Retained earnings
16,000
Prepaid rent
21,000
Selling and administrative expenses
Other operating income
8,000
Retained earnings
8,000
Interest receivable
Interest income
12,000
12,000
Sales
90,000
Advances from customers
Cost of sales
Accounts payable
15,000
Equipment
Selling and administrative expenses
20,000
Selling and administrative expenses
Accumulated depreciation
15,000
20,000
2,000
2,000
21,000
90,000
Retained earnings
Cost of sales
15,000
Equipment
Retained earnings
Accumulated depreciation
20,000
Selling and administrative expenses
Accumulated depreciation
4,000
15,000
18,000
2,000
4,000
(a)
Gloria Company
Comparative Statements of Comprehensive Income
For the Years Ended December 31, 2017 and 2016
Sales
Cost of Sales
Gross Profit
Other Operating Income
Total Income
Less: Selling and Administrative Expenses
Net Income from Operations
Interest Expense
Net Income
P
P
P
P
P
(b) Effect on total assets, December 31, 2016 (see audit adjusting entries for 2016)
= 16,000 + 8,000 + 20,000 – 2,000 = P42,000 understated
(c) Effect on total assets, December 31, 2017 (see audit adjusting entries for 2017)
= 21,000 + 12,000 + 20,000 – 2,000 – 4,000 = P47,000 understated.
(d) Effect on total liabilities, December 31, 2017 (see audit adjusting entries for 2017)
= 6,400 + 90,000 = 96,400 understated
15
2017
910,000
585,000
325,000
73,600
398,600
279,000
119,600
80,000
39,600
P
P
P
P
P
2016
720,000
465,000
255,000
30,000
285,000
156,000
129,000
20,000
109,000
Chapter 2
Correction of Errors
Problem 8 Golden Crest
Particulars
Omission of unused supplies
12/31/16
12/31/17
Repairs charged to equipment on 1/1/15
AFS securities were measured at cost
Correct cost of equipment, P746,070
Recorded cost
900,000
Difference
153,930
Difference in depreciation
2016 153,930 x 10% x 3/12 = 3,848
2017 153,930 / 10
= 15,393
Interest expense
2016 P74,607 x 3/12 =
Net under (overstatement)
2016 Profit
Retained earnings,
Dec. 31, 2016
15,000
15,000
(8,500)
(68,000)
Non- current
Assets, 12/31/17
Retained earnings
January 1, 2016
(59,500)
50,000
(76,500)
(153,930)
3,848
3,848
(18,652)
(6,504)
(18,652)
(67,804)
Present value of the note on October 1, 2016 = 300,000 x 2.4869 = 746,070
Amortization table for the note payable
Date
Periodic Payment
Applied to Interest
October 1, 2016
September 30, 2017
300,000
74,607
September 30, 2018
300,000
52,068
Problem 9 (Golden Harvest Corporation)
(a) Computation of correct profit (loss)
Particulars
Omissions of
Accrued expenses, 12/31/16
12/31/17
12/31/18
Accrued income
12/31/16
12/31/17
12/31/18
Prepaid expenses 12/31/16
12/31/17
12/31/18
Unearned income 12/31/16
12/31/17
12/31/18
Omission in the ending inventory
2017
2018
Machine charged to expense on August 31, 2016
Depreciation on the machine
Net understatement (overstatement)
Reported profit (loss)
Correct profit (loss)
(144,189)
Applied to Principal
225,393
247,932
2016
2017
(20,000)
20,000
(25,000)
32,000
12,000
(15,000)
80,000
(3,333)
85,667
(250,000)
164,333
16
3,848
15,393
(32,000)
30,000
(12,000)
18,000
15,000
(10,000)
(76,500)
Bal. of Principal
746,070
520,677
272,745
2018
25,000
(30,000)
(30,000)
26,000
(18,000)
24,000
10,000
(8,000)
28,000
(28,000)
64,000
(10,000)
22,000
320,000
342,000
(10,000)
25,000
380,000
405,000
Chapter 2
Correction of Errors
Computation of retained earnings
Balance, January 1
Profit (loss)
Dividends declared
Balance, December 31
P
2016
0
(164,333)
P(164,333)
2017
P(164,333)
342,000
(60,000)
P117,667
2018
P117,667
405,000
(100,000)
422,667
(b) 2018 Audit Adjusting Entries
Retained Earnings
Operating Expenses
25,000
Operating Expenses
Accrued Expenses
30,000
Income
Retained Earnings
30,000
Accrued Income
Income
26,000
Expenses
Retained Earnings
18,000
Prepaid Expenses
Expenses
24,000
Retained Earnings
Income
10,000
25,000
30,000
30,000
26,000
18,000
24,000
10,000
Income
Unearned Income
8,000
8,000
Inventory, beginning/Cost of Sales
Retained Earnings
28,000
Inventory, end
Income Summary/ Cost of Sales
64,000
Machinery
Operating Expenses
Retained Earnings
Accumulated Depreciation
80,000
10,000
28,000
64,000
66,667
23,333
Problem 10 (Sukiyaki Corporation)
Audit Adjustments to restate 2016 FS
Other Operating Expenses – Unrealized
Loss on Trading Sec.
Held for Trading Equity Securities
Audit Adjustments to Restate 2017 FS
Allowance for Doubtful Accounts
Operating Expenses
32,000 – 37,000 = 5,000
3,000
3,000
17
5,000
Held for Trading Equity Securities
7,000
Retained Earnings
3,000
Other Operating Income –
Unrealized Gain on Trading Sec.
5,000
10,000
Chapter 2
Correction of Errors
Cost of Sales
Merchandise Inventory
8,900
8,900
Equipment
Operating Expenses
36,000
Operating Expenses
Accumulated Depreciation
(36,000 -6,000)/13
3,000
36,000
3,000
Retained Earnings
Cost of Sales
8,900
Cost of Sales
Merchandise Inventory
13,600
Equipment
Retained Earnings
36,000
Retained Earnings
Operating Expenses
Accumulated Depreciation
3,000
3,000
8,900
13,600
36,000
6,000
Accumulated Depreciation
20,000
Equipment
Other Operating Income –
Gain on Sale of Equipment
Prepaid Insurance
Operating Expenses
Retained Earnings
6,000
3,000
9,000
Prepaid Insurance
Operating Expenses
Retained Earnings
2017
P1,000,000
434,700
P 565,300
3,000
10,000
578,300
(351,000)
P227,300
6,000
2016
P900,000
403,900
P 496,100
________
496,100
(280,000)
(3,000)
P 213,100
Sukiyaki Corporation
Statement of Financial Position
December 31, 2017 and 2016
2017
Current Assets
Cash
Held for Trading Equity Securities
Accounts Receivable, net
Merchandise Inventory
Prepaid Expenses
Total Current Assets
Non-Current Assets
Property, Plant and Equipment, net of Acc. Deprn
Total Assets
18
3,000
3,000
3,000
Sukiyaki Corporation
Statement of Comprehensive Income
For the Years Ended December 31, 2017 and 2016
Sales
Cost of Sales
Gross Profit
Gain on Sale of Equipment
Unrealized Gain on Trading Securities
Total Income
Operating Expenses
Unrealized Loss on Trading Securities
Profit
17,000
2016
P183,000
85,000
360,000
193,400
3,000
P 824,400
P 2,000
75,000
278,000
193,100
6,000
P554,100
P 78,400
P902,800
P 96,100
P650,200
Chapter 2
Correction of Errors
Current Liabilities
Accounts Payable
P121,400
P196,100
Shareholders’ Equity
Ordinary Share
Share Premium
Retained Earnings
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
P260,000
20,000
501,400
P781,400
P902,800
P180,000
0
274,100
P 454,100
P650,200
Cash Flow Statement
For the Year Ended December 31, 2017
Cash Flow From Operating Activities
Collection from customers
Payment to Suppliers
Payment for expenses
Net cash flow from operations
Cash Flow From Investing Activities
Sale of equipment
Purchase of equipment
Net cash flow from investing activities
Cash Flow From Financing Activities
Issue of ordinary share (80,000 + 20,000)
Increase in cash
Cash Balance, January 1, 2017
Cash Balance, December 31, 2017
P904,000
(509,700)
(315,800)
P78,500
P 3,000
( 500)
2,500
100,000
P181,000
2,000
P183,000
Computations:
Accounts Receivable
Allowance for Uncollectible Accounts
AR, Net
2017
P392,000
32,000
P360,000
2016
P296,000
18,000
P278,000
Property, Plant and Equipment
Cost
Accumulated Depreciation
Carrying value
P186,000
107,600
P 78,400
P205,500
109,400
P 96,100
Accounts Receivable, beg.
Sales
Accounts Receivable, end
Collections from customers
P296,000
1,000,000
(392,000)
P904,000
Inventory, end
Cost of sales
Inventory, beg.
Purchases
Accounts Payable, beginning
Accounts Payable, end
Payment to suppliers
P193,400
434,700
(193,400)
P434,700
196,100
(121,400)
P509,700
Accumulated depreciation, end
Accumulated depreciation of equipment sold
P107,600
20,000
19
Chapter 2
Correction of Errors
Accumulated depreciation, beg.
Depreciation expense
(109,400)
P18,200
Operating expenses
Depreciation
Doubtful accounts expense 32,000 – 18,000
Decrease in prepaid expenses
Operating expenses paid
P351,000
( 18,200)
( 14,000)
( 3,000)
P315,800
Property, Plant and Equipment, cost, end
Cost of equipment sold
Property, plant and equipment, cost, beg.
Equipment purchased
P186,000
20,000
(205,500)
P 500
Problem 11 (Tahoma Corporation)
Adjusting Entries – December 31, 2017
Sales
180,000
Retained Earnings
180,000
Accounts Receivable
Sales
240,000
Retained Earnings
Purchases
175,000
Purchases
Accounts Payable
140,000
240,000
175,000
140,000
Sales
20,000
Unearned Revenue
20,000
Retained Earnings
Sales
36,000
Retained Earnings
Expenses
35,000
36,000
35,000
Expenses
Accrued Expenses
50,000
Inventory, beginning
Retained Earnings
75,000
Inventory, end
Income Summary
110,000
50,000
75,000
110,000
Advances to Suppliers
Purchases
50,000
50,000
20
Chapter 2
Correction of Errors
Retained Earnings
Expenses
Accumulated Depreciation – Printing Equipment
3,333
10,000
Expenses
Retained Earnings
Accumulated Depreciation – Building
37,500
12,500
Expenses
Allowance for Uncollectible Accounts
24,000
13,333
50,000
24,000
Interest Expense (500,000 x 12% x 8/15)
40,000
Retained Earnings (500,000 x 12% x 4/15)
20,000
Operating Expenses
60,000
(Note: 2 semi-annual payments were made in 2017; both were charged to operating expenses, balance of Mortgage
payable before the annual payment in August 2017 is 450,000 + 50,000)
Interest Expense
Interest Payable
450,000 x 12% x 4/15
18,000
18,000
Tahoma Company
Statement of Comprehensive Income
For the Year Ended December 31, 2017
Sales
Cost of Sales
Inventory, January 1
Purchases
Inventory, Dec. 31
Cost of Sales
Gross Profit
Selling and Administrative Expenses
Profit before interest expense
Interest expense
Profit
P 2,076,000
75,000
915,000
(110,000)
880,000
1,196,000
776,500
419,500
58,000
361,500
Tahoma Company
Statement of Financial Position
December 31, 2017
Assets
Current Assets
Cash
Accounts receivable, net of allowance for uncollectible accounts of P24,000
Advances to suppliers
Inventory
Total current assets
Non-current assets
Land
Building, net of P50,000 accumulated depreciation
Printing equipment, net of P13,333 accumulated depreciation
Total property, plant and equipment
21
P 750,000
216,000
50,000
110,000
P1,126,000
P 400,000
700,000
86,667
P1,186,667
Chapter 2
Correction of Errors
Total assets
P2,312,667
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable
Accrued expenses
Current portion of mortgage payable
Interest payable
Unearned revenue
Total current liabilities
P 140,000
50,000
50,000
18,000
20,000
P278,000
Non-current liabilities
Mortgage payable, net of current portion
Total liabilities
P 400,000
P 678,000
Shareholders’ Equity
Ordinary share capital
Retained earnings
Total shareholders’ equity
Total liabilities and shareholders’ equity
P 1,000,000
*634,667
P 1,634,667
P2,312,667
*Retained earnings, January 1, 2017 before adjustment
Correction of prior period errors
Profit for 2017
Retained earnings, December 31, 2017
P 300,000
(26,833)
361,500
P 634,667
Multiple Choice
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13..
14.
15.
A
C
A
A
B
A
A
B
B
D
B
B
C
B
A
16.
17.
18.
19
20.
D
C
C
A
A
700,000 + 29,000 – 33,000 – 15,000 – 22,000+ 18,000
-33,000 – 15,000 – 15,000 + 18,000 = ( 45,000 )
- 29,000 – 15,000 + 22,000 = (22,000)
5,000,000 + 200,000 – 250,000 – 300,000 + 100,000 = 4,750,000
(300,000) + (50,000) + 100,000 = (250,000)
- 16,000 – 15,000 – 10,000 + 10,800 = (30,200)
- 15,000 + 10,800 = (4,200)
5,000,000 – 200,000 – 150,000 = 4,650,000
2,500,000 – 1,000,000 + 1,500,000 – 500,000 – 200,000 + 600,000 = 2,900,000
1,500,000 + 600,000 = 2,100,000
1,000,000 + 500,000 + 200,000 = 1,700,000
200,000 / 5
1,550,000 + 10,000 – 80,000 + 120,000 – 55,000 – 100,000 = 1,445,000
3,000,000 – 400,000 = 2,600,000
Profit is understated by 70,000 + 30,000; RE is understated by P30,000; P7,000 has been
counterbalanced.
50,400 / 9 = 5,600
54,000 – 11,200 = 42,800
400,000 + 300,000 + 500,000 – 350,000 = 850,000 net overstatement
-300,000 – 500,000 + 200,000 = 600,000 overstated
22
Chapter 3
Cash
MULTIPLE CHOICE
1.
6.
11.
16.
C
B
B
B
2. B
7. C
12. C
3. D
8. C
13. C
4. A
9. C
14. D
5. B
10. D
15. D
Problem 1
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
C
A, B, D
C. D
C, D
B, E
A, D
A, C
C
A, C, E
D, E
Problem 2. Meteor Company
a.
b.
c.
d.
e.
f.
g.
Accounts receivable (the check has staled)
Accounts receivable
Financial assets at fair value through profit or loss
Cash (P3,200 only)
Cash ( if good check, otherwise, Receivable from Employees)
still included in Cash and Accounts Payable until mailed.
Notes receivable
Problem 3 Leila Corporation
(a)
Audit adjustments
Cash Equivalents
Cash
3,000,000
Other Non-current Financial Assets
Cash
3,200,000
Cash
3,000,000
3,200,000
35,000
Accrued Salaries Expense
Other Non-current Financial Assets
Cash
35,000
900,000
900,000
Miscellaneous Expenses
Advances to Employees
Cash (Petty Cash Fund)
6,800
1,200
Cash
5,300
8,000
Accrued Utilities Expense
Accounts Receivable
Cash
5,300
25,000
25,000
Chapter 3
Cash
(b)
Cash and Cash Equivalents
Savings account with Metrobank
Checking account with Metrobank 800,000 + 5,300
Certificates of deposit
Payroll fund
1,200,000 + 35,000
Tax fund
Petty cash fund
Undeposited collections 85,000 – 25,000
Correct cash and cash equivalents
P1,500,000
805,300
3,000,000
1,235,000
500,000
12,000
60,000
P7,112,300
Problem 4 (Sta. Monica, Inc.)
Expenses
10,500
Petty Cash Fund
10,500
Correct balance of petty cash fund = P20,000 – P10,500 = P9,500
Problem 5 (Victor Company)
(a) Correct amount of petty cash fund
Currencies and coins
P6,400
(b) Per count
Currencies and coins
Paid petty cash vouchers
Employee’s NSF check
Wedding gift contribution (with bills)
Total per count
Cashier’s accountability:
Petty cash fund, per ledger
Wedding gift contribution
Cash shortage
P 6,400
2,250
1,200
1,500
P11,350
P10,000
1,500
11,500
P 150
(b) Audit Adjusting Entries
Delivery Expense
250
Office Supplies Expense
160
Employees Medicine
240
Transportation Expense
400
Repairs and Maintenance
400
Receivables from Employees
2,000
Cash Shortage (or Misc. Expenses or Receivables fr Employees)
150
Petty Cash Fund
26
3,600
Chapter 3
Cash
Problem 6 (Rainbow Corporation)
(a)
(b).
(c)
Total per count
Cashier’s Accountability
Petty Cash Fund, per ledger
Unused postage stamps
Unused office supplies
Wedding gift contribution
Cash shortage
P 35,000
P35,000
1,800
1,200
1,000
Telephone Expense
Water Expense
Office Supplies Expense (3,700 – 1,200)
Postage Expense (2,800 – 1,800)
Prepaid Expenses (1,200 + 1,800)
Receivables from Employees (3,900 + 4,000)
Petty Cash Fund
39,000
P 4,000
1,500
1,600
2,500
1,000
3,000
7,900
17,500
Correct amount of petty cash fund = P35,000 – P17,500 =
Cash items in the petty cash fund:
Bills and Coins
Replenishment check
Total
P17,500
P 2,500
15,000
P17,500
Problem 7 San Rafael Company
Bills and Coins (show details of denomination and pieces per denomination)
Checks:
Date
Maker
Amount
12-28-17
Urquiola, employee P
3,000.00
12-29-17
Sta. Maria, employee
1,500.00
12-31-17
L. Chua, customer
2,500.00
01-02-18
A. Bobadilla, customer
3,200.00
01-12-18
C. German, employee
(check received 12-28-17)
1,500.00
Vouchers
Date
Voucher No.
Particulars
Amount
12-15-17
151
Freight out
P 500.00
12-28-17
183
Supplies
300.00
12-29-17
184
Freight In
394.20
12-31-17
189
Freight on cabinet
741.10
01-02-18
001
Freight in
244.70
IOUs
12-21-17
S. Dechavez
Unused office supplies
Total per count
Cashier’s accountability:
Petty cash fund, per ledger
P15,000.00
Unremitted cash sales
Inv. # 118
December 30
P1,000.40
Inv. # 129
December 31
2,500.00
Inv. # 133
January 2
3,200.00
6,700.40
Unused office supplies
40.00
27
P6,717.50
11,700.00
2,180.00
300.00
40.00
P20,937.50
21,740.40
Chapter 3
Cash
Cash shortage
P 802.90
Audit Adjusting Entries:
Receivables from Employees (1,500.00 + 300.00)
Freight out
Supplies Expense (100 – 40)
Prepaid Expenses
Furniture and Equipment
Freight in
Cash Shortage (Receivable from Employees)
Petty Cash Fund
1,800
500
260
40
741.10
394.20
802.90
4,538.20
Cash in Bank (1,000.40 + 2,500.00)
Sales
3,500.40
3,500.40
Correct balance of petty cash fund (P15,000 – 4,538.20)
P10,461.80
Composed of the following cash items at December 31, 2015
Bills and coins
Checks dated December
Petty cash vouchers dated January (undisbursed as
of December 31)
Total cash items as of December 31
Unremitted cash sales as of December 31
( 1,000.40 + 2,500)
Petty cash fund, per audit, December 31
P6,717.50
7,000.00
244.70
P13,962.20
(3,500.40)
P10,461.80
Problem 8 (Da King Company)
Bills and coins
500 x 1
100 x 8
50 x 3
10 x 4
5x2
1x3
Checks:
12/29/17
M. Roxas, employee
12/30/17
J. Madrigal Company
01/02/18
J. Estrada Junk Shop
01/15/18
F. Chavez, employee (received 12/27/15)
Paid petty cash vouchers:
12/16/17
Vo. No. 145 Freight on goods bought
12/26/17
164 Postage
12/29/17
165 Transportation of messenger
01/02/18
166 Repairs, completed Dec. 29, 2012
IOU
Ed Gil, employee
Postage stamps 10 pcs x P12
Total per count
Cashier’s accountability
Petty cash fund
Unremitted collections
12/30/17 Refund for merchandise returned
P 1,500
01/02/18 Sale of junk and scrap materials
2,450
Unused postage stamps
28
P
500
800
150
40
10
3
P 1,503
P2,000
1.500
2,450
1,800
7,750
P500
200
50
1,500
2,250
1,200
120
P 12,823
P10,000
3,950
120
14,070
Chapter 3
Cash
Cash shortage
P1,247
Adjusting entries
Receivable from Employees (1,800 + 1,200 + shortage of 1,247)
Freight in/Cost of Goods Sold
Transportation Expense
Postage Expense (200 – 120)
Prepaid Expenses
Petty Cash Fund
4,247
500
50
80
120
4,997
Repairs and Maintenance
Accrued Expenses
1,500
Cash in Bank
Purchase Returns and Allowances /Cost of Goods Sold
1,500
1,500
1,500
Correct Petty Cash Fund = P10,000 – P4,997 =
Cash items as of December 31:
Bills and coins
Checks dated December
Petty cash voucher dated January 2016
Cash refund for purchase returns
Correct petty cash fund balance
P5,003
P1,503
3,500
1,500
(1,500)
P5,003
Problem 9 General Company
Per count
Currency ........................................................................................................................... P 3,020.00
Checks:
12/29/17
Judith Cruz, Employee...................................................... 1,200.00
12/29/17
Viva Company, Customer ................................................. 2,500.00
12/30/17
Alvin Taipan, Employee ....................................................
1,100.00
1/15/18
Judith Cruz, Employee
Cashed, December 30, 2017 .......................................................... 1,380.00
12/31/17 Manila Company, Customer .................................................... 3,500.00
Vouchers: ( All dated on or before 12/31/17)
Office Supplies ……………….
......................................................
390.00
Transportation expense
..............................................................
206.00
Freight on purchases
……………………………………………
220.00
Estimated unused office supplies)
..............................................................
150.00
Total per count
.............................................................. P13,666.00
Cashier’s accountability
Petty cash fund
P 5,000.00
Undeposited collections (2,500 + 3,500)
6,000.00
Unrelieaed payroll
2,600.00
Unused office supplies
150.00 .... 13,750.00
Cash shortage
.............................................................. P
84.00
Cash items
Currency
Checks dated December
Collections from customers
Unreleased payroll
Correct petty cash fund, December 31
.............................................................. P3,020.00
.............................................................. 8,300.00
.............................................................. ( 6,000.00)
.............................................................. ( 2,600.00)
.............................................................. P 2,720.00
29
Chapter 3
Cash
Adjusting Entries:
Receivable from Employees (1,380 + 84)
Office Suplies Expense 390 – 150
Prepaid Expenses
Transportation Expense
Freight in
Petty Cash Fund
.............................................. 1,464
............................................ 240
........................................... 150
........................................... 206
............................................ 220
..............................................................
2,280
Cash
Accounts Receivable
.............................................................. 6,000
..............................................................
6,000
Salaries Payable
.............................................................. 2,600
..............................................................
2,600
Cash
Problem 10 (Cisco Systems, Inc.)
(1)
Bank reconciliation:
Per bank
P 1,463,212
(140,000)
59,500
Unadjusted balances
Outstanding checks
Undeposited receipts
Error in recording check issued for rental payment
Bank charge for payment of loan and interest
Bank service charges
Deposit of another company
Customer’s DAIF check
Adjusted balances
(2)
1,800
(45,000)
(1,400)
(87,500)
P1,295,212
(12,500)
P1,295,212
Adjusting entry:
Notes Payable – Bank
Interest Expense
Bank Service Charges
Accounts Receivable
Rent Expense
Cash in Bank
(3)
Per books
P1,352,312*
40,000
5,000
1,400
12,500
1,800
57,100
Cash and cash equivalents:
Petty cash fund
Cash in bank
Treasury bills maturing in 2 months
Total cash and cash equivalents
P
20,000
1,295,212
500,000
P1,815,212
Problem 11 (Sunshine Corporation)
1.
Per Bank
P 424,000
(113,000)
48,000
Unadjusted Balances
Outstanding checks
Undeposited collections
Customer’s note collected by bank
Bank service charge
Per Books
P465,000
19,000
(1,500)
30
Chapter 3
Cash
Adjusted balances
Cash shortage
Cash balance, December 31, per audit
P359,000
P359,000
P482,500
(123,500)
P359,000
Understated book balance 456,000 – 465,000
Overstated bank balance 424,000 – 454,400
Omitted outstanding checks
183
198
Understated outstanding checks
52,000 – 25000
9,000 – 900
25,000 – 15,000
Overstated undeposited collections
Omission of bank credit memo
Total cash shortage
27,000
8,100
10,000
3,000
19,000
P123,500
3.
Undeposited collections, December 31
Collections, January 1 – 15
Total amount available for deposit
Amount deposited, per deposit slips
Undeposited collections, January 15
Cash on hand, January 15
Additional cash shortage in January
P 48,000
199,000
P247,000
(110,000)
P137,000
(52,000)
P 85,000
.4.
Adjusting Entries
Bank Charges
Receivable from Employees (or Loss)
Cash
Notes Receivable
2.
P 9,000
30,400
4,500
12,500
1,500
123,500
106,000
19,000
Problem 12 (Pamela Manufacturing Company)
Unadjusted bank balance
Outstanding checks
November 30
December 31
Deposits in transit
November 30
December 31
Check of Pamplona Company
Adjusted Balances
Balance per books
Error in recording check no. 359
Bank service charge
November
December
NSF check returned in November
Interest charged by the bank
Adjusted Balances
Nov. 30
876,750
Receipts
9,153,760
(254,720)
164,220
Disbursements.
8,526,550
Dec. 31
1,503,960
(254,720)
335,610
(335,610)
209,180
5,830
1,383,360
(164,220)
209,180
786,250
9,198,720
(5,830)
8,601,610
Nov. 30
821,950
2,700
Receipts
9,198,720
Disbursements
8,613,010
9,198,720
(3,500)
2,250
(34,900)
24,750
8,601,610
(3,500)
(34,900)
786,250
31
Dec. 31
1,407,660
2,700
(2,250)
(24,750)
1,383,360
Chapter 3
Cash
Audit adjusting entries:
Cash in Bank
Office Furniture
2,700
Bank Service Charge
Cash in Bank
2,250
Interest Expense
Cash in Bank
24,750
2,700
2,250
24,750
Problem 13 (Golden Bells Company)
Unadjusted bank balance
Deposits in transit
November 30
December 31
Outstanding checks
November 30
December 31
Erroneous bank charges
November 30
December 31
Erroneous bank credit
November 30
December 31
Adjusted balances
Unadjusted book balances (squeezed)
NSF checks returned by bank
November 30
December 31
Bank service charges
November
December
Note collected by bank
November
December
Adjusted balances
Nov. 30
2,500,000
Receipts
2,300,000
58,000
(58,000)
47,000
Disbursements
1,700,000
47,000
(97,000)
25,000
Dec. 31
3,100,000
(97,000)
46,000
(46,000)
(37,000)
37,000
(25,000)
(45,000)
(45,000)
2,441,000
(50,000)
2,214,000
1,567,000
(50,000)
3,088,000
Nov. 30
2,390,000
Receipts
2,206,000
Disbursements
1,549,000
Dec. 31
3,047,000
(15,000)
25,000
(25,000)
(10,000)
18,000
(18,000)
1,567,000
84,000
3,088,000
(15,000)
(10,000)
76,000
2,441,000
(76,000)
84,000
2,214,000
Accounts Receivable
Cash in Bank
25,000
Bank Service Charges / Miscellaneous Expenses
Cash in Bank
18,000
Cash in Bank
Notes Receivable
84,000
25,000
18,000
84,000
32
Chapter 3
Cash
Problem 14 (Starr Company)
Unadjusted bank balance
Deposits in transit
April 30
May 31 (squeezed)
Outstanding checks
April 30
May 31
Adjusted balances
Unadjusted book balances (squeezed)
DAIF checks returned by bank
April 30
May 31
Bank service charges
April
May
Check issued by the treasurer to himself
Proceeds of loan granted by bank
May
Adjusted balances
Apr. 30
570,360
29,360
May 1-31
Receipts
Disb.
883,200
1,320,600
(29,360)
40,560
40,560
(144,800)
454,920
894,400
Apr. 30
463,040
May 1-31
Receipts
654,400
(144,800)
133,600
1,309,400
(133,600)
39,920
Disb.
621,240*
May 31
496,200
(8,000)
(8,000)
(120)
(120)
280
696,000
(280)
(696,000)
1,309,400
240,000
39,920
454,920
240,000
894,400
*621,240 = 613,120 + 8,000 + 120
(a)
1.
2.
3.
4.
(b)
Adjusting entries:
May 31
132,960
P463,040
P40,560
P696,000
P39,920
Bank Service Charges
Cash in Bank
280
280
Loss from Theft/Receivable from Officers
Cash in Bank
696,000
696,000
Cash in Bank
Notes Payable – Bank
240,000
240,000
33
Chapter 3
Cash
Problem 15 Barry Company
(1)
(2)
Deposits in transit
Deposits in transit, beginning
Deposits made
Deposits recorded by bank
Deposits in transit, June 30
P
60,000
2,520,000
(2,500,000)
P 80,000
Outstanding checks
Outstanding checks, beginning
Checks recorded by Barry
Unrecorded check issued
Checks cleared (2,354,600 – 39,600)
Outstanding checks, June 30
P 175,000
2,380,000
100,000
(2,315,000)
P 340,000
Bank
P 270,900
80,000
(340,000)
39,600
Unadjusted balances, June 30
Deposits in transit
Outstanding checks
Check of another company
NSF check
Bank service charge
Unrecorded check issued
Direct payment of bank loan
Adjusted balances
P 50,500
Books
P 805,000
(36,000)
(8,500)
(100,000)
(610,000)
P 50,500
Audit adjustments:
Accounts receivable
Cash
36,000
36,000
Miscellaneous Expenses
Cash
8,500
8,500
Purchases
Cash
100,000
Notes Payable – Bank
Interest Expense
Cash
595,000
15,000
100,000
610,000
Problem 16 (Rocky Mountain High)
Unadjusted bank balance
Deposits in transit
November 30
December 6 (102,000 – 12,000)
Payment from collections
Outstanding checks
November 30
December 6 = 62,000 + 105,000 + 30,000 +
40,000
Adjusted balances
Nov. 30
P888,800
Receipts
P555,500
Disbursements
P666,600
148,900
(148,900)
90,000
12,000
12,000
(116,200)
921,500
34
Dec. 6
777,700
90,000
(116,200)
508,600
237,000
799,400
(237,000)
630,700
Chapter 3
Cash
Unadjusted book balances (squeezed)
Payment from receipts
Bank charges in December (200,000 + 28,000)
Adjusted balances
Answers:
(a)
(b)
(c)
(d)
Nov. 30
921,500
Receipts
508,600
921,500
508,600
Disbursements
559,400
12,000
228,000
799,400
Dec. 6
870,700
(12,000)
(228,000)
630,700
P148,900
P116,200
P921,500
P630,700
Problem 17
1.
2.
3.
4.
5.
A,D
C, G.
B, F
E, H
J, N
6. M, P
7. I, L
8. K, O
9. D, H
10. B, F
11.
12.
13.
14.
15.
D, F
A, D
F, G
D, F
J, N
16. I, L
17. Not a reconciling item
18. J, N
19. L, N
20. N, O
Problem 18 (Contronics Company)
Balances, per ledger
Disbursed in 2015
Bank credit memo
Balances per audit
Petty Cash
Fund
P 15,000
(6,000)
Purchasing
Fund
P 35,000
(20,000)
P9,000
P15,000
Adjusting entries
Gasoline Expense
Miscellaneous Expenses
Transportation Expense
Petty Cash Fund
Cash in Bank
P134,500
58,000
192,500
Total
P184,500
(26,000)
58,000
P216,500
4,500
500
1,000
6,000
Purchases or Inventory
Purchasing Fund
20,000
Cash in Bank
Notes Receivable
58,000
20,000
58,000
Problem 19 (Fortune Company)
(a) Audit Adjustments
Sales
Cash
285,200
285,200
Cash
19,300
Utilities Payable
19,300
Accounts Receivable
Cash
57,800
57,800
35
Chapter 3
Cash
Accounts Receivable
Cash
32,500
32,500
No entry, dividend fund is part of cash.
Accounts Receivable
Cash
3,500
3,500
Cash Shortage/ Receivable from Employees
Cash
550
550
No entry, payroll fund is part of cash.
Cash Shortage / Receivable from Employees
Miscellaneous Expenses
Cash
300
5,500
5,800
Cash
13,500
Miscellaneous Income
13,500
(b) Correct amount of cash
Cash balance, per ledger
Cash sales of 2018
Unreleased check for utilities
Postdated checks received
Customers’ NSF checks
Stale check
Shortage in the change fund
2017 vouchers in petty cash fund
Cash shortage in the petty cash fund
Unrecorded deposits (sale of scrap)
Cash balance, per audit
P1,640,000
(285,200)
19,300
(57,800)
(32,500)
(3,500)
(550)
(5,500)
(300)
13,500
1,287,450
Summary of Answers:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
308.40
4,606.60
no shortage
35,000
800
5,700
400
5,300
53,800
838,600
157,950
780,650 or 761,650 (NSF checks may be treated as deduction from receipts)
625,700 or 606,700 (NSF checks may be treated as deduction from receipts)
3,000
92,000
145,600
71,950
1,828,212
imprest system – deposit of collections intact to the bank
segregation of duties of custodial function and bookkeeping function
125,250
36
Chapter 3
Cash
22.
23.
24.
194,550
255,700
55,000
SUPPORTING COMPUTATIONS
A.
B.
1.
2.
Correct petty cash fund = 1,156.60 + 3,450
3.
Total per count
Cashier’s accountability
Petty cash fund
Check payable to Meralco
Birthday gift contribution
Unused postage
Cash shortage
4.
C.
5.
6.
D.
Total per count
Cashier’s accountability
Petty cash fund
Postage stamps
Other collections
Cash shortage
7.
8.
P 10,761.60
P 10,500
220
350
11,070
P308.40
P4,606.60
P 53,500
P 45,000
3,500
4,500
500
P
Correct petty cash fund = P17,000 + P18,000
53,500
0
P35,000
Total per count
Cashier’s accountability
Petty cash fund
Undeposited collections
Cash shortage
P19,700
P 15,000.00
5,500.00
Bills and coins
Customers’ checks
Undeposited collections
Petty cash fund, per audit
20,500
P 800
P6,400
4,800
(5,500)
P5,700
Total per count (exclude the unsigned pay envelope with no contents)
Cashier’s accountability
Petty cash fund
P15,000
Unreleased payroll
5,000
Cash shortage
P 19,600
Bills and coins
Vouchers with January 2018 dates
Employee’s check dated December 2017
Total cash items as of December 31
Unreleased payroll
Correct petty cash balance on December 31
P7,300
200
2,800
P10,300
(5,000)
P5,300
37
20,000
P 400
Chapter 3
Cash
E.
9.
10.
Bank
P850,000
Unadjusted balances
Bank credit memo
Bank debit memo
Outstanding checks
Check of Kin
Error in recording check
Cash on hand
Balances before cash shortage
Cash shortage
Cash balance, per audit
F.
Unadjusted balances per bank
Outstanding checks
January 31
February 28
Deposits in transit
January 31
February 28
Adjusted balances
Unadjusted balances, per books
Bank credit memo
January
February
Bank service charges
January
February
NSF checks returned by bank
January
February
Adjusted balances
Books
P750,500
150,000
(4,500)
(120,400)
21,000
(3,600)
88,000
P838,600
P838,600
January 31
13,500
Receipts
790,450
(65,000)
54,500
3,000
January 31
(92,250)
123,500
(54,500)
44,700
780,650
Receipts
805,350
(25,000)
3,000
G.
15. Unadjusted disbursements
Outstanding checks, November 30
Customers’ NSF checks
November
December
Bank service charges
November
December
Balances before outstanding checks, December 31
Outstanding checks, December 31
38
Disbursements
647,700
Feb. 28
156,250
(65,000)
43,000
(43,000)
625,700
Disbursements
630,300
44,700
157,950
Feb. 28
82,800
(123,500)
98,800
(3,250)
780,650
P892,400
( 53,800)
P838,600
98,800
(3,250)
4,650
(4,650)
(25,000)
19,000
625,700
(19,000)
157,950
December Disbursements
Per bank
Per books
P195,000
P190,400
(90,000)
(6,000)
12,000
P105,000
(2,400)
3,000
P197,000
105,000
P92,000
Chapter 3
Cash
H.
16.
June Receipts
Per bank
Per books
P310,000
420,000
(30,300)
(15,000)
50,000
900
P295,000
P440,600
295,000
P145,600
Unadjusted receipts in June
Collections made directly by bank in May
Deposits in transit, May 31
Loans granted by bank in June
Error in recording deposit
Balances before deposits in transit, June 30
Deposits in transit, June 30
I.
17.
18.
Per bank
1,555,000
Unadjusted balances
Credit memo for collections by bank
Outstanding checks
Undeposited receipts
Balances before shortage
Amount stolen
Actual cash existing
19. and 20.
(106,229)
379,441
P1,828,212
P1,828,212
21.
24.
23.
P1,900,162
(71,950)
P1,828,212
Features of internal control missing: Imprest system and segregation of duties
J.
22.
Per books
1,890,162
10,000
Unadjusted balances
Erroneous bank credit
Outstanding checks (246,750 – 15,000 – 37,200)
Unreleased checks
Postdated checks issued and recorded as disbursements
Customer’s postdated check
Deposits in transit (175,250 – 50,000)
Note collected by bank
Balances before cash shortage
Cash shortage
Actual cash existing
39
Per bank
P350,000
(25,000)
(194,550)
Per books
P293,500
15,000
37,200
(50,000)
125,250
P255,700
P255,700
15,000
P310,700
(55,000)
P255,700
Chapter 4
Receivables and Related Revenues
MULTIPLE CHOICE – THEORY
1. D
6. D
11. D
2. C
7. D
12. B
3. C
8. B
4. C
9. B
Problem 1
1. A
2. E
3. B, E
4. A,C,D
5. A,C,D
6. A,C
7. D
8. C,D
9. D
10. D
11. D
12. A,B,C
13. D
14. E
15. E
Problem 2 (Fontana Blue)
a.
Cost of Sales
Inventory
20,000
b.
Cost of Sales
Inventory
18,000
18,000
c.
No adjustment
d.
Sales
20,000
40,000
Accounts Receivable
e.
40,000
Sales
60,000
Accounts Receivable
60,000
Inventory
33,600
Cost of Sales
f.
33,600
Sales
120,000
Accounts Receivable
g.
120,000
Accounts Receivable
Sales
60,000
60,000
h.
No adjustment
i.
Accounts Receivable
Sales
80,000
Cost of Sales
Inventory
55,000
80,000
55,000
38
5. B
10. A
Chapter 4
Receivables and Related Revenues
j.
Accounts Receivable
Sales
90,000
90,000
Problem 3 (Magnolia Company)
1.
2.
Accounts Payable – B
Accounts Receivable - B
74,000
Accounts Receivable – L
Accounts Receivable – C
16,200
3.
No disposition yet (Customer D)
4.
Sales
5.
74,000
16,200
24,000
Accounts Receivable – E
24,000
Inventory
16,500
Cost of Sales
6.
16,500
Sales
60,000
Accounts Receivable - F
Advances from Customers
7.
Sales
15,000
45,000
85,000
Accounts Receivable – G
85,000
Inventory
59,000
Cost of Sales
8.
9.
10.
Sales
Sales
59,000
2,500
Accounts Receivable – H
10,000 / 200 x (200 – 150) = 2,500
2,500
180,000
Accounts Receivable – I
180,000
Inventory
120,000
Cost of Sales
11.
120,000
Sales Returns and Allowances
Sales
5,000
5,000
39
Chapter 4
Receivables and Related Revenues
Problem 4 (Blooms Company)
Account
1
2
3
4
5
6
Total
Per client
Adjustment
14,000
25,000
98,000
44,000
68,000
15,000
264,000
Per audit
14,000
25,000
0
44,000
68,000
15,000
166,000
(98,000)
(98,000)
Age Classification
Not due
1-60 days past due
61-120 days past due
Over 120 days past due
Total
Notes Receivable
Interest Income
Accounts Receivable
Not due
1-60 days
Past due
3,000
25,000
8,000
8,000
60,000
15,000
83,000
36,000
Balance per audit
36,000
83,000
27,000
20,000
61-120 days
past due
Over 120
days past
due
3,000
% Uncollectible
1%
2%
5%
50%
24,000
20,000
27,000
20,000
Required Allowance
360
1,660
1,350
10,000
P13,370
100,000
2,000
98,000
(customer 3)
Interest Receivable
Interest Income
750
750
Uncollectible Accounts Expense
Allowance for Doubtful Accounts
13,370 – 8,000 = 5,370
5,370
5,375
Problem 5 (Balimbing, Inc.)
Age
Under 60 days
61- 90 days
91 – 120 days
Over 120 days
Total
Per Client
175,000
80,000
42,000
24,000
P321,000
Adjustment
Per Audit
% Uncollectible
175,000
84,800
39,260
19,800
318,860
4,800
(2,740)
(4,200)
(2,100)
1%
3%
6%
25%
Required Allowance
Balance of allowance before final adjustment
22,060 – 4,200
Adjustment
(a)
Adjusting entries:
1.
Uncollectible Accounts Expense
Accounts Receivable – 91 – 120 days
Required
Allowance
1,750.00
2,544.00
2,355.60
4,950.00
11,599.00
P11,599
17,860
P 6,261
2,740
2,740
40
Chapter 4
Receivables and Related Revenues
2.
3.
4.
Allowance for Doubtful Accounts
Accounts Receivable – Over 120 days
4,200
Accounts Receivable – 61-90 days
Advances from Customers
4,800
Allowance for Uncollectible Accounts
Uncollectible Accounts Expense
6,261
4,200
4,800
6,261
(b)
Correct balance of Accounts Receivable
P318,860
(c)
Correct balance of Uncollectible Accounts Expense
Per Client ( P16,050 – 2,740)
Adjustment No. 1
No. 4
Per audit
P13,310
2,740
(6,261)
P 9,789
Problem 6 (Esau Industries, Inc.)
(a) Correct balance of Trade Accounts Receivable
General Ledger
P 10,536,500
(2,732,900)
(3,260,700)
Balances per client
Undelivered sales
Goods consigned to Automatic, Trinoma, etc.
Collections received from Cebu and Davao branches
Write off
Per audit
(168,000)
P4,374,900
(b) Correct balance of Allowance for Uncollectible Accounts
Age
Before
Adjustment
Adjustments
Current
P 4,067,320
(1,092,800)
31-60 days
402,440
61-90 days
267,320
898,620
(168,000)
 90 days
Per Audit
% Uncollectible
2,974,520
402,440
267,320
730,620
2%
5%
10%
30%
Allowance for Uncollectible Accounts, Per Client
Additional write off
Additional provision
Balance per audit
P281,255
( 168,000)
212,275*
P325,530
(c) Correct balance of Uncollectible Accounts Expense:
Per client
Additional provisions as a result of audit
Per Audit
P3,425,625
212,275
P3,637,900
Audit Adjustments:
Sales
2,732,900
Accounts Receivable
2,732,900
Sales
3,260,700
Accounts Receivable
3,260,700
41
Subsidiary Ledger
P 5,635,700
(1,092,800)
(168,000)
P4,374,900
Required
Allowance
P 59,490
20,122
26,732
219,186
P 325,530
Chapter 4
Receivables and Related Revenues
Allowance for Uncollectible Accounts
Accounts Receivable
168,000
Uncollectible Accounts Expense
Allowance for Uncollectible Accounts
212,275
168,000
212,275
Problem 7
(a)
Retained Earnings
Allowance for Uncollectible Accounts
20,000
20,000
Percentage of uncollectible accounts = Net wiriteoffs up to 2016 Net credit sales up to 2016
= 160,000 / 10,000,000 = 1.6%
Required allowance, beginning of 2017 = 1.6% x 1,250,000 = 20,000
(b)
Allowance for uncollectible accounts, beginning
Write off
Recoveries
Balance before yearend adjustment
Required allowance:
Rate = 238,000/ 14,000,000 = 1.7%
1.7% x 1,460,000
Uncollectible Accounts Expense, 2017
P 20,000
(83,000)
5,000
P58,000 debit balance
24,820
P82,820
Problem 8 (Smith, Inc.)
Maker
Due Date
Avon Co.
Sara Lee
Triumph
President
Mondragon
Elizabeth
Total
3/30/18
1/30/18
7/2//17
01/31/18
1/12/18
8/31/19
(b)
(a) Schedule of Trade Notes Receivable
Adjustment
Per Audit
# of Days
Accrued
P100,000
(100,000)
-250,000
(250,000)
-60
60,000
(60,000)
-60
800,000
(800,000)
-60,000
-60,000
108
200,000
(200,000)
--P770,000
(710,000)
P60,000
Per Client
Adjusting Entries:
Liability on Discounted Notes
Trade Notes Receivable
Gain on Sale of Notes Receivable
Principal
Interest for the entire term
Discount (103,333 x 8% x 4/12)
Proceeds from discounting
Carrying value, date of discounting
Gain on sale of notes
Interest Rate
100,000
577
P100,000
3,333
( 2,756)
P 100,577
100,000
P
577
250,000
250,000
42
8%
6%
P 3,333.
600
9%
1,620
P5,553
100,577
Subscription Receivable – Preference Share
Trade Notes Receivable
Accrued
Interest
Chapter 4
Receivables and Related Revenues
Accounts Receivable
Trade Notes Receivable
Interest Income
60,600
60,000
600
Receivable from Officers
Compensation Expense
Trade Notes Receivable
Discount on Notes Receivable from Officers
800,000
66,055
800,000
66,055
Discount on Notes Receivable from Officers (66,055 x 11/12)
Interest Income
60,550
Depreciation Expense – Equipment
Accumulated Depreciation – Equipment
10% x P400,000 x 8/12
26,667
Accumulated Depreciation – Equipment
Notes Receivable – Non-current
Loss on Sale of Equipment
Discount on Notes Receivable
Equipment (400,000 – 250,000)
Trade Notes Receivable
186,667
200,000
53,893
Face
PV = 200,000 x .7972
Discount
60,550
26,667
40,560
200,000
200,000
P200,000
159,440
P 40,560
Discount on Notes Receivable
Interest Income (159,440 x 12% x 4/12)
6,378
6,378
Interest Receivable
4,953
Interest Income
(5,553 – 600 interest income recorded in audit adj. no. 3)
4,953
Problem 9 (Glowing Candles)
(a)
(b)
Non-current Portion of Long-Term Receivables
Notes Receivable from Sale of Division
Notes Receivable from Sale of Patents
Face
Less: Discount on Notes Receivable
(285,400 – 34.292)
Notes Receivable from Sale of Land
Total
Current Portion of Long-term Receivables:
Notes Receivable from Sale of Division, including interest
Receivable of P135,000
Notes Receivable from Sale of Land, including interest
Receivable of P746,667 (2763,252 + 746,667)
Total
43
P1,000,000
P2,000,000
251.108
1,748,892
11,236,748
P16,557,854
P1,135,000
3,509,919
P4,069,919
Chapter 4
Receivables and Related Revenues
(c)
Interest Income from Long-term Receivables
On NR from Sale of Division
January 1, 2017 – March 31, 2017 P3,000,000 x 9% x 3/12
April 1, 2017 – December 31, 2017 P2,000,000 x 9% x 9/12
Total
P67,500
135,000
P202,500
On NR from Officer
P6,000,000 x 9%
On NR from Sale of Patents
P1,714,600 x 8% x 3/12
On NR from Sale of Land
P2,240,000 x 4/12
Total interest income
(c)
P540,000
P 34,292
P746,667
P1,523,459
Gain on Sale of land (P20,000,000 – P15,000,000)
P 5,000,000
Gain on Sale of Patents
Selling Price
P2,000,000 x .8573
Carrying value of the patents on 10/01/14
Carrying value 1/01/14
Amortization up to 10/01/14
450,000 x 9/12
Gain on sale of patents
Date
Periodic Payment
09/01/17
09/01/18
09/01/19
P1,714,600
P1,800,000
(337,500)
Note Receivable from Sale of Land
Payment Applied to
Interest
Principal
P5,003,252
5,003,252
P 2,240,000
1,797,880
1,462,500
P 252,100
Balance of Principal, end
P 14,000,000
11,236,748
8,031,376
P 2,763,252
3,205,372
Problem 10 (Goliath Company)
Notes Receivable from Company B
Initial amortized cost = 3,000,000 x .7513 =
Face
Less: Discount on Notes Receivable
Initial discount P3,000,000 – P2,253,900 =
Interest earned P2,253,900 x 10% x 8/12
Carrying value, 12/31/14
P2,253,900
P3,000,000
P746,100
= 150,260
Notes Receivable from Company C
Face
Interest Receivable 1,000,000 x 10% x 3/12
Carrying value of the note
(a)
595,840
P2,404,160
P1,000,000
25,000
P1,025,000
Audit Adjustments:
Interest Receivable
Interest Income
200,000
200,000
Impairment Loss ( Bad Debts)
Restructured Notes Receivable
Interest Receivable
Notes Receivable – Company A
456,555
1,743,445
200,000
2,000,000
44
Chapter 4
Receivables and Related Revenues
Gain on Sale of Land (400,000 -346,100)
Loss on Sale of Land
Discount on Notes Receivable
400,000
346,100
746,100
Discount on Notes Receivable
Interest Income
2,253,900 x 10% x 8/12
150,260
150,260
Interest Receivable
Interest Income
(b)
25,000
25,000
Carrying value of notes:
Current Assets:
Note Receivable from Company A
P550,000 – (P1,743,445 x 10%)
Note Receivable from Company C, including
Accrued interest of P25,000
Total
Non-current Assets:
Note Receivable from Company A (P1,743,445 – P119,345)
Note Receivable from Company B
Total Non-current Receivables
(d) Impairment Loss
Notes Receivable from Company A
Face
Interest Receivable (still unrecorded) P2,000,000 x 10%
Carrying value of note
PV of future cash flows
P550,000 x 3.1699
Impairment loss
Interest Income:
From Company A
From Company B
From Company C
Total
P119,345
325,000
P444,345
P1,624,100
2,404,160
P4,028,260
P2,000,000
200,000
P2,200,000
1,743,445
P 456,555
P200,000
150,260
25,000
P375,260
Problem 11 (MARINA CORPORATION )
Corrections:
Info # 7: On December 1, the corporation received payment from Germany Company for one of the
P15,000 notes (instead of P8,000).
(1)
Audit Adjustments:
a.
b.
Interest Expense
Trade Notes Receivable - Balanga
Balanga Company’s note
Accounts Receivable
Impairment Loss – Notes Receivable (or Uncollectible Accounts Expense)
45
625
625
48,000
32,000
Chapter 4
Receivables and Related Revenues
Trade Notes Receivable – Caloocan
c.
80,000
Notes Receivable – Officers
Trade Notes Receivable – Tomas Dee
75,000
75,000
Interest Receivable
Interest Revenue
75,000 x 8% x 138/360 = 2,300
2,300 – 2,000 = 300
d.
e.
f.
300
300
Accounts Receivable
Interest Expense
Trade Notes Receivable – Eager Corp.
Interest Revenue
Interest Receivable
51,000
340
Trade Notes Receivable – Felicity
Notes Payable
38,000
50,000
1,000
340
38,000
Interest Receivable
Interest Revenue
48,000 x 8% x 60/360 = 640
640 – 133 = 507
507
Interest Expense
Interest Payable 38,000 x 10% x 30/360
317
507
317
Accounts Receivable
Trade Notes Receivable – Germany Company
Interest Revenue
15,150
15,000
150
Interest Revenue
Interest Receivable
45,000 x 12% x 60/360 = 900
1,200 – 900 =300
Per Client
Adjustments:
(a)
(b)
(c)
(d)
(e)
(f)
Per Audit
300
300
Trade Notes Receivable
P 275,625
Interest Receivable
P3,673
(625)
( 80,000)
(75,000)
(50,000)
38,000
(15,000)
93,000
300
(340)
507
(300)
P3,840
P
Trade Notes Receivable:
Felicity Ltd.
Germany Co.
Total
P48,000
45,000
P93,000
Interest Receivable:
Tomas Dee = 75,000 x 8% x 133/360 =
Felicity Ltd. = 48,000 x 8% x 60/360=
P 2,300
640
46
Chapter 4
Receivables and Related Revenues
Germany Company = 45,000 x 12% x 60/360
Total
900
P 3,840
MULTIPLE CHOICE - PROBLEMS
1.
2.
3.
4.
C
B
B
A
5.
6.
7.
8.
C
A
C
A
9. D
10. B
11. A
12. A
13. D
14. B
15. B
16. B
17.
18.
19.
20.
C
A
A
D
21.
22.
23.
24.
A
A
B
D
Computations
1.
2-5
P523,000 + P224,000 + P75,000 + P27,000 = P849,000
2. Accounts Receivable
3. Inventories
Per Client
P276,500
P425,000
Adjustments :
( 8,680)
7,240
(14,200)
12,500
(10,000)
(6,100)
(14,000)
21,000
(18,200)
Per Audit
P250,620
P420,440
4. Sales
P1,320,000
(8,680)
(14,200)
(10,000)
5. Cost of Sales
P842,000
(7,240)
(12,500)
6,100
(14,000)
21,000
P1,294,120
18,200
P846,560
6.
Classification
Balance per audit
Nov-Dec 2014
P1,080,000
July – October 2014
650,000
January – June 2014
420,000
Prior to 1/01/14
90,000*
Total
P2,240,000
Existing allowance = 154,000 – 95,000 + 15,000 + 180,000 – 60,000
Additional uncollectible accounts expense
% Uncollectible
2%
10%
25%
70%
Required Allowance
P21,600
65,000
105,000
63,000
P254,600
194,000
P 60,600
7.
Total uncollectible accounts expense = P 180,000 + 60,600 =
P240,600
8.
Accounts receivable, net = P2,240,000 – 254,600 =
9.
Carrying value of the receivable
Present value of future cash inflow = 1,120,000 x 3.0373 =
Impairment loss
10.
No impairment loss shall be recognized, the loss évent is a non-adjusting évent, which présents condition different
from that as of the end of the reporting period.
11.
No impairment loss shall be recognized on Company Y’s note. The interest to be collected during the extended term
equals the original interest rate of the loan ; the présent value of future cash inflow shall be equal to the loan’s carrying
value.
12.
Carrying value of the receivable
PV of future cash inflow = 120,000 + (1,100,000 X .8929)
Impairment loss
13.
The non-adjusting évent requires disclosure, because even when taken alone, the loss would have a material effect on
the financial condition of 5-6.
P1,985,400
47
P4,480,000
3,401,776
P1,078,224
P1,120,000
1,102,190
P 17,810
Chapter 4
Receivables and Related Revenues
14.
Sales = (1,900,000 – 350,000) x 150% =
Collections from customers
Write off (15,000 – 8,000)
Gross accounts receivable
P2,325,000
(1,830,000)
(
7,000)
P 488,000
15.
Past due after write off
400,000 – 80,000
Allowance after write off 250,000 – 80,000
Additional uncollectible accounts expense
P 320,000
170,000
P 150,000
16.
Current assets = P506,370 – 30,000 selling price of unsold goods
+ 20,000 cost of unsold goods =
P496,370
17.
Additional allowance required : 120,000 – (65,000 +120,000 – 80,000) = 15,000
Total uncollectible accounts expense = 120,000 + 15,000 =
P135,000
18.
Accounts receivable = P1,300,000 + 50,000 + 15,000 =
19.
Required allowance = 1,365,000 x .015 =
P 20,475
20.
Uncollectible accounts expense = 20,475 + 8,000 =
P 28,475
21.
Accounts receivable = 735,000 + 4,500,000 – 4,200,000 + 16,000 – 20,200
- 250,000 =
P780,800
22.
(780,800 – 100,800) x 2% =
P13, 600
23.
16,200 + 16,000 – 20,200 =
P12,000
24.
(100,800 x 10%) + (680,000 x 2%) =
P 23,680
P1,365,000
MEEMEE, Inc.
Adjusting Entries:
1.
2.
3.
4.
5.
Miscellaneous Expenses
Receivables from Officers and Employees
Cash – Petty Cash Fund
1,260
500
1,760
Other Non-Current Financial Assets
Cash in Bank
Interest Income
Reclassified Security Bank SA
400,625
400,000
625
Cash in Bank – BPI SA
Interest Income
394
394
Accounts Receivable – 31 – 60 days overdue
Cash in Bank – BPI SA
12,800
Accounts Receivable – Dishonored Notes
Cash in Bank – BPI SA
5,500
Notes Receivable Discounted
Notes Receivable
5,000
12,800
5,500
5,000
48
Chapter 4
Receivables and Related Revenues
Cash in Bank – BPI CA Payroll
Accrued Payroll
5,200 + 10,400
6.
7.
Miscellaneous Expenses
Cash in Bank – BPI CA
15,600
15,600
150
Payroll
150
Cash in Bank – BPI CA
General
Accounts Payable
8.
9.
45,200
45,200
Accounts Payable
Miscellaneous Expenses
Cash in Bank _ BPI CA General
10.
11.
12.
13.
14.
15.
16.
900
150
1,050
Accounts Receivable – Current
Accounts Receivable – 31- 60 days overdue
Customers’ Credit Balances
9,000
4,800
Receivables from Officers and Employees
Accounts Receivable – Current
2,000
Allowance for Bad Debts
Accounts Receivable – over 90 days
5,000
Accounts Receivable – Overdue Notes
Notes Receivable
Interest Income
15,250
Receivable from Officers and Employees
Notes Receivable
6,800
Interest Receivable
Interest Income
Creative: P10,000 x 24% x 64/360 = 427
President: P 6,800 x 25% x 19/360 = 90
Total
517
517
Allowance for Bad Debts
Bad Debts Expense
4,543
Age Class
Per Client
Current
P362,412
1-30 days past
due
31 – 60 days
past due
61 – 90 days
past due
Over 90 days
past due
Dishonored
notes
202,895
13,800
2,000
5,000
15,000
250
6,800
517
4,543
ANALYSIS OF ACCOUNTS RECEIVABLE
Adjustment
Per Audit % Uncollectible
9,000
(2,000)
4,550
369,412
½%
Required
Allowance
1,847
207.445
1%
2,074
148,080
3%
4,442
17,500
12,800
4,800
--
17,500
10%
1,750
11,387
(5,000)
6,387
50%
3,194
--
5,500
15,250
20,750
20%
4,150
130,480
49
Chapter 4
Receivables and Related Revenues
Total required allowance
Balance of allowance
Adjustment
Answers:
(a)
Petty Cash
(b)
BPI SA depository
(c)
BPI CA Payroll
(d)
BPI CA Gen Disb.
(e)
Security Bank SA
(f)
Cash
(g)
Accounts Receivable (Gross)
(h)
Allowance for Bad Debts
(i)
Bad Debts Expense
(j)
Notes Receivable
(k)
Liability on Discounted Notes
(l)
Interest Receivable
(m)
Interest Income
(n)
Receivables from Officers and Employees
(o)
Customer Credit Balances
P17,457
22,000
(4,543)
P8,240
257,794
76,250
214,150
400,625
556,434
769,574
17,457
19,457
18,000
8,000
517
4,586
9,700
13,800
50
Chapter 5
Inventories and Related Expenses
7MULTIPLE CHOICE – THEORY
1. C
6. D
11. B
Problem 1
1. A,C,D
6. A, B
11. C
16. D
2. D
7. A
3. A
8. A
4. C
9. D
5. A
10. D
2. A,C
7. D
12. D
3. E
8. C
13. C
4. B, E
9. B,C,E
14. C
5. D
10. C
15. D
Problem 2 (Goodwill Company)
Inventories
Cost of Sales
16,000 + 13,200 + 26,100 + 19,200 + 14,300 = 88,800
88,800
Accounts Payable
Cost of Sales
15,920
Inventories
Cost of Sales
13,500
Cost of Sales
Accounts Payable
13,500
Cost of Sales
Accounts Payable
4,200
Inventories
Accounts Payable
16,000 + 6,200 = 22,200
or two separate entries for purchases and inclusion in
ending inventory
Cost of Sales
Inventories
22,200
Sales
80,000
88,800
15,920
13,500
13,500
4,200
22,200
85,000
85,000
Accounts Receivable
80,000
Inventories
Cost of Sales
60,000
Cost of Sales
Inventories
60,000
60,000
60,000
Problem 3 (Victory Enterprises)
Inventory, per client
Goods shipped to customer on Dec 31, 2017 (presumed in transit), FOB
destination
Goods in transit, shipped by a supplier FOB shipping point
Correct inventory amount, December 31
P 441,800
38,000
51,000
P 530,800
Chapter 5
Inventories and Related Expenses
Inventories
Cost of Sales
89,000
89,000
Problem 4 (Raindrops Company)
(a) Correct inventory, November 30
Purchases in November 12,000 + 14,000
Units sold (50,000 – 4,000)
Correct inventory level, December 31
55,000
26,000
(46,000)
35,000
(b) Adjusting entries:
Cost of Sales (unrecorded purchases)
Accounts Payable
14,000 x 90 = P1,120,000
1,260,000
1,260,000
Sales (4,000 x 125)
Accounts Receivable
500,000
Inventories (18,000 x 90)
Cost of Sales
1,620,000
500,000
1,620,000
Inventories, November 30
Received in December
Shipped out
Goods reported
Correct inventory level
Understatement in units
55,000
12,000
(50,000)
17,000
35,000
18,000
Problem 5 (Bulls Company)
(a)
Net adjustment to Inventory = 21,096 net debit (See audit adjustments)
Inventory, per count
Net adjustment to inventory
Inventory, per audit
(b)
P98,000
21,096
P119,096
Adjusting entries
Sales
15,773
Accounts Receivable
5,841 + 7,922 + 2,010
15,773
Cost of Sales / Purchases
Accounts Payable
2,183
Inventory
8,120
2,183
Cost of Sales / Income Summary
8,120
Inventory (12,700 /125%)
Cost of Sales / Income Summary
10,160
10,160
50
Chapter 5
Inventories and Related Expenses
Sales
19,270
Accounts Receivable
19,270
Inventory (19,270/125%)
Cost of Sales
15,416
Miscellaneous Receivables (from Carrier)
Inventory 11,250 + 1,350
12,600
15,416
12,600
Problem 6 George Michael Company
Initial amounts
Adjustments:
a.
b.
c.
d.
e.
f.
g.
h.
Net adjustment
Corrected balances
a.
Inventory
2,400,000
Accts Payable
800,000
65,000
50,000
32,000
61,000
27,000
65,000
(60,000)
Sales
60,000
Inventory
65,000
65,000
Inventory
50,000
Cost of Sales
d.
50,000
Sales Returns and Allowances
Accounts Receivable
45,000
Inventory
32,000
45,000
Cost of Sales
e.
32,000
Inventory
61,000
Cost of Sales
f.
61,000
Inventory
27,000
Cost of Sales
g.
h.
56,000
8,000
129,000
P929,000
60,000
Accounts Payable
c.
(45,000)
4,000
239,000
P2,639,000
Accounts Receivable
b.
Net Sales
10,150,000
27,000
Cost of Sales
Accounts Payable
56,000
Cost of Sales
Inventory
Accounts Payable
4,000
4,000
56,000
8,000
51
(105,000)
P10,045,000
Chapter 5
Inventories and Related Expenses
Problem 7 (Firenze Fashions)
General Ledger
P 221,020
Unadjusted balances
Goods held on consignment
Goods purchased FOB shipping point, in transit
Goods shipped out FOB destination, in transit
Goods purchased and received, but not yet recorded
Goods sold, still unrecorded
Unsalable goods
Balance per audit
24,000
27,300
(63,000)
(26,500)
P 182,820
Audit Adjustments
Sales
39,000
Accounts Receivable
39,000
Inventory
24,000
Cost of Sales
24,000
Inventory
27,300
Accounts Payable
27,300
Accounts Receivable
Sales
96,000
Cost of Sales
Inventory
63,000
Loss from Inventory Obsolescence
Inventory
26,500
96,000
63,000
26,500
Problem 8
No entry on the P100,000 shipment
Inventory (75% x 80,000)
Cost of Sales
60,000
Accounts Receivable
Sales
60,000
Sales
40,000
60,000
60,000
Accounts Receivable
40,000
Inventory
30,000
Cost of Sales
30,000
52
Physical Count
P 212,820
( 66,000)
12,000
24,000
P 182,820
Chapter 5
Inventories and Related Expenses
Problem 9 (Maligaya Corporation)
Overall Gross Profit Ratio
Inventory, January 1, 2016
Net Purchases 2016 and 2017 (2,800,000 + 2,350,000)
Goods available for sale
Less: inventory, December 31, 2017
Cost of goods sold, 2016 and 2017
P 660,000
5,150,000
P5,810,000
750,000
P5,060,000
Sales – 2016 and 2017 (5,300,000 + 3,900,000)
Less: Cost of goods sold
Gross Profit
P9,200,000
5,060,000
P4,140,000
Gross Profit Ratio = 4,140,000/ 9,200,000
45%
Inventory Fire Loss
Inventory, January 1, 2018
Add: Purchases January 1 to April 15, 2018
January 1 to March 31
April 1 to 15
Paid
Unpaid
Purchase returns
Total goods available for sale
Less; Cost of goods sold, January 1 to April 15
Accounts Receivable, April 15
Write off
Collections (129,500 – 9,500)
Accounts Receivable, March 31
Sales, April 1 to 15
Sales, January 1 to March 31
Sales, January 1 to April 15
Cost ratio (100% - 45% )
Inventory, April 15, before the fire
Less: undamaged goods (in transit)
Proceeds from sale of damaged goods (lower than cost)
Inventory fire loss
P 750,000
P 520,000
34,000
106,000
( 9,500)
P 360,000
80,000
120,000
( 400,000)
P 160,000
1,350,000
P1,510,000
55%
P 23,000
30,000
650,500
P1,400,500
830,500
P 570,000
53,000
P 517,000
Problem 10 (Billy Corporation)
11 months ended May
31
P 6,750,000
75,000
(10,000)
(20,000)
(55,000)
P6,740,000
Purchases per client
Shipments received in May but recorded in June
Credit memoranda not recorded
Deposit for July purchases recorded as April purchases
Deposit in May, recorded as purchases
Purchases, per audit
(a)
Inventory, July 1, 2016
Purchases, July 1, 2016 to May 31, 2017
Total goods available for sale
Less: Inventory, May 31, 2017
(950,000 – 55,000)
Cost of goods sold July 1, 2016 to May 31, 2017
53
P 875,000
6,740,000
P7,615,000
895,000
P6,720,000
Year ended June 30
P 8,000,000
(15,000)
(20,000)
55,000
P8,020,000
Chapter 5
Inventories and Related Expenses
(b)
(c)
Gross profit
8,400,000 – 6,720,000 =
Gross profit ratio = 1,680,000/ 8,400,000
1,680,000
20%
Sales in June at normal selling price
(P9,600,000 – 8,400,000) – 100,000
Cost ratio
Cost of goods sold in June at normal selling price
Cost of merchandise sold at cost
Cost of goods sold in June
P1,100,000
80%
P 880,000
100,000
P980,000
Inventory, May 31. 2017
Purchases in June (8,020,000 – 6,740,000)
Goods available for sale
Cost of goods sold in June
Inventory, June 30, 2017
P895,000
1,280,000
2,175,000
980,000
1,195,000
Inventory, July 1, 2016
Purchases July 1, 2016– June 30, 2017
Total goods available for sale
Cost of goods sold (9,600,000 – 100,000) x 80% =7,600,000
100,000
Inventory, June 30, 2017
875,000
8,020,000
8,895,000
7,700,000
1,195,000
Problem 11 (Verde Manufacturing Company)
(a) Inventory, November 30, 2017
Stock Cards
Materials
Work in Process
P100,000
P497,000
8,000
(4,000)
P104,000
P497,000
242,000
120,000
(200,000)
200,000
300,000
(786,000)
P 146,000
P331,000
Inventory, November 30, 2015
November purchases recorded in December
Obsolete materials
Adjusted November 30, 2017 inventories
Correct December purchases (250,000 – 8,000)
Direct labor incurred
Materials issued to production
Factory overhead applied to production
Cost of goods sold
Inventories, December 31, 2017
Physical Count
P601,000
P601,000
242,000
120,000
300,000
(786,000)
477,000
Problem 12 (Magalang Corporation)
Per client
July 1, 2016 adjustments
(a)
(b)
June 30, 2017 adjustments
(a)
(b)
(c)
Per audit
Inventory, beginning
P300,000
Purchases
P3,000,000
Inventory, end
P420,000
50,000
(24,000)
63,000
P350,000
54
23,000
P3,062,000
63,000
20,000
P503,000
Chapter 5
Inventories and Related Expenses
Inventory, July 1, 2016
Purchases
Total goods available for sale
Inventory, June 30, 2017
Cost of goods sold
P350,000
3,062,000
3,412,000
503,000
P2,909,000
Audit Adjustments:
Inventory, beg.
Retained Earnings
50,000
Retained Earnings
Purchases
24,000
Purchases
Accounts Payable
63,000
Inventory, end
Income Summary
63,000
Inventory, end
Income Summary
20,000
Purchases
Accounts Payable
23,000
Accounts Receivable
Sales
30,000
50,000
24,000
63,000
63,000
20,000
23,000
30,000
Problem 13 (Chi Fi Fai)
Audit Adjusting Entries:
Accounts Receivable
Sales
50,000
Cost of Sales (50,000 x 80/120)
Inventory
33,333
50,000
33,333
Other Operating Expenses – Loss from Inventory Contamination
Cost of Sales
800,000
800,000
Cost of Sales
36,000
Accounts Payable
36,000
(The company credited Cost of Sales on December 29 to adjust the stock cards inventory to
inventory list, per physical count.)
Decline in Net Realizable Value of Inventory
Allowance to Reduce Inventory to Net Realizable Value
Cost of Sales (400,000 – 80,000)
Accounts Payable
90,000
90,000
320,000
320,000
55
Chapter 5
Inventories and Related Expenses
(1.)
(2.)
(3.)
(4.)
(5.)
(6.)
(7.)
Inventory is overstated by P33,333 as a result of goods out on consignment.
The Accounts Receivable is understated by P50,000, as a result of goods out on consignment.
The net income is understated by P16,667, as a result of goods out on consignment.
The accounts payable shall be increased by P320,000.
The gross profit is increased by P80,000, which in effect is the commission income.
Inventory at cost, per audit = P890,000 – P33,333 = P856,667.
The inventory shall be presented at P766,667, which is the cost of P856,667 reduced by the allowance for decline in
net realizable value of P90,000.
Problem 14 (Global Company)
Audit Adjustments
Selling and Administrative Expenses
Receivables from Employees
Petty Cash Fund
16,000
1,500
Cash in Banks – BDO
Value Added Tax Payable
32,000
Notes Payable – Bank
Interest Expense
Cash in Banks – Asian Bank
50,000
18,000
Cash in Bank – Asian Bank
Accounts Payable
62,000
17,500
32,000
68,000
62,000
Selling and Administrative Expenses
Cash in Banks – BPI
250
250
Equipment Acquisition Fund
Cash in Banks – PNB
1,100,000
1,100,000
Allowance for Doubtful Accounts
Accounts Receivable (70% x 240,000)
168,000
Finished Goods Inventory
Cost of Sales
200,000 x 60% x 50% = 60,000
60,000
Sales
75,000
168,000
60,000
Accounts Receivable 60,000 / 80%
75,000
Inventory of Spoiled Goods and Scrap Materials
Cost of Sales
Work in Process Inventory
42,000
38,000
Inventory of Spoiled Goods and Scrap Materials
Cost of Sales
55,000
Selling and Administrative Expenses
Allowance for Doubtful Accounts
Accounts receivable, per client
Adjustments
80,000
55,000
152,250
152,250
P3,400,000
( 168,000)
56
Chapter 5
Inventories and Related Expenses
Balance per audit
Account of Blue Ridge
240,000 – 168,000
Remaining accounts
Provision rate on remaining
Required Allowance for D. A.
Balance of allowance
170,000 – 168,000
Additional doubtful accounts expense
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
( 75,000)
P3,157,000
( 72,000)
P3,085,000
5%
P 154,250
( 2,000)
P 152,250
Petty Cash Fund =
Cash on deposits with Asian Bank = 400,000 – 68,000 + 62,000
Cash on deposits with Security Bank = 350,000 – 50,000
Cash on deposits with Banco de Oro = (12,000) + 32,000
Cash on deposits with BPI = 200,000 – 250
Cash on deposits with PNB
Total Cash in Bank – Current Assets = 394,000 + 300,000 + 20,000 + 199,750 =
Accounts Receivable
Allowance for Uncollectible Accounts
Uncollectible Accounts Expense = 80,000 + 152,250
Finished Goods Inventory = 600,000 + 60,000
Work in Process Inventory = 1,000,000 – 80,000
Raw Materials Inventory =
Inventory of Spoiled Goods and Scrap Materials = 80,000 + 42,000 + 55,000
Sales = 6.000,000 – 75,000
Cost of Sales = 4,200,000 – 60,000 + 38,000 – 55,000
Selling and Administrative Expenses = 500,000 + 16,000 + 250 + 152,250
Other Operating Income
Interest Expense and Finance Costs = 200,000 + 18,000
P2,500
P394,000
P300,000
P 20,000
P199,750
P1,100,000
P913,750
P3,157,000
P154,250
P232,250
P660,000
P920,000
P400,000
P177,000
P5,925,000
P4,123,000
P668,500
P120,000
P218,000
MULTIPLE CHOICE - PROBLEMS
1.
2.
3.
4.
5.
6.
A
C
C
C
A
C
7. B
8. B
9. C
10. C
11. D
12. A
13.
14.
15.
16.
17.
18.
C
B
A
C
B
A
19.
20.
21.
22.
23.
Solutions:
1.
Cash = 240,800 – 163,650 + 90,000
P167,150
2.
Accounts Receivable = 563,500 + 77,500
P641,000
3.
Inventory = 1,512,500 + 68,750 + 54,375 – 159,375 + 32,500
P1,508,750
4.
Accounts Payable = 1,050,250 + 93,100 + 54,375 – 43,750
P1,153,975
5.
Inventory, January 1
P 450,000
57
C
C
D
A
B
Chapter 5
Inventories and Related Expenses
Purchases
Goods available for sale
Cost of goods sold (4,000,000 x 70%)
Inventory, based on gross profit test
Inventory, per count
Missing inventory
3,150,000
P3,600,000
2,800,000
P 800,000
750,000
P 50,000
6.
Cost
P142,000
313,000
Inventory, January 1
Purchases
Additional markup
Markdown
Goods available for sale
Cost ratio = 455,000 / 700,000 = 65%
Sales
Ending inventory at retail
Cost ratio
Inventory, December 31
7.
P455,00
Retail
P204,000
520,000
20,000
(44,000)
P700,000
620,000
P 80,000
65%
P52,000
Inventory, December 31, 2016
Purchases
1,410,000 + 10,000 – 20,000
Goods available for sale
Cost of goods sold
Accounts receivable, December 31, 2017
Collections
Accounts receivable, January 1
Sales on account
Cash sales
Total sales
Cost ratio
Ending inventory before shortage
Inventory, per count
Inventory shortage
P 320,000
1,400,000
P1,720,000
P 300,000
1,800,000
( 250,000)
P1,850,000
350,000
P2,200,000
60%
1,320,000
P400,000
360,000
P 40,000
Items 8 and 9
Per audit:
P225,000
300,000
375,000
P900,000
Overhead = 25% x P900,000 =
Direct labor cost = P225,000/75%
Direct materials
900,000 – 225,000 – 300,000
Total manufacturing cost
Let x be the ending work in process inventory
.6 x is the beginning inventory
.6x + 900,000 – x = 800,000
100,000 = .4x
x = 250,000
10.
Sales per client
Returned goods
Goods shipped in December
Goods shipped in January
Correct sales
Per client
P225,000
275,000
400,000
P2,300,000
( 50,000)
80,000
( 100,000)
P2,230,000
58
Adjustment
P
0
25,000
(25,000)
Chapter 5
Inventories and Related Expenses
Items 11 through 14
Per client
Parts held on consignment, recorded as
purchases and included in inventory
Parts sold still included in inventory
Parts sold FOB shipping point
Goods out on consignment
Goods purchased in transit, FOB
shipping point
Freight bill, unrecorded, relating to
unsold goods
Cash discounts available
Per audit
Inventory
Accounts Payable
Sales
1,250,000
(155,000)
1,000,000
(155,000)
9,000,000
Effect on Cost of
Sales
---
(22,000)
22,000
40,000
210,000
25,000
25,000
(210,000)
2,000
2,000
(5,300)
1,304,700
(5,300)
866,700
Inventory
Purchases
P 17,940
9,040,000
(188,000)
Sales
Net income
P(17,940)
(31,380)
(12,150)
18,200
P(7,390)
Items 15 through 18
March purchases recorded in Apr
Shipments in April
Goods shipped on March 31
Goods not counted
Understate (overstatement)
(31,380)
(12,150)
18,200
P6,050
19.
Cash balance, December 31, 2017
Payment on accounts payable
Payment for operating expenses
Total cash available
Cash balance, December 31, 2016
Collection on notes receivable
Sales
Unit sales price
Units sold
20.
Average cost of purchases 32.60 + 32.60 x 0.10 (11 months)
2
Accounts payable, Beginning
Purchases 1,500 x 12 months x P33.15
Payments on accounts payable
Accounts payable, ending
21.
22.
Units in the beginning inventory
Units purchased
1,500 x 12
Units sold
Units in the ending inventory
P17,940
P(31,380)
P353,300
474,700
220,000
P1,048,000
(100,000)
( 25,000)
P923,000
P 50
18,460
199,875 / 32.50
Ending inventory valued as follows
1,500 x 33.70
1,500 x 33.60
1,500 x 33.50
1,190 x 33.40
Inventory, December 31, 2015
P 33.15
P 75,000
596,700
(474,700)
P197,000
6,150
18,000
(18,460)
5,690
P50,550
50,400
50,250
39,746
P190,946
59
Chapter 5
Inventories and Related Expenses
23.
Selling price of damaged goods (80%) (210,000/70%)
Cost to sell 25% x P240,000
Net realizable value
Cost
Decline in NRV
Total cost of inventory
Inventory value, September 30
P240,000
(60,000)
P180,000
210,000
P 30,000
1,000,000
P 970,000
TIGER CORPORATION
Per count of petty cash fund
Coins and currencies
Checks
Petty cash vouchers
December 2017
January 2018
Advances to Officers and Employees
December 2017
January 2018
Total per count
Cashier’s accountability
Petty cash fund
Collections
December collection P1,500
January 2018 collection 2,700
Cash shortage
Unadjusted Balances
Deposits in transit
Unrecorded and undeposited collections (see above)
Unreleased checks
Stale checks
Outstanding checks (22,630 – 5,750 – 4,280)
Uncollected note from Sergio Garcia
Principal
P3,600
Interest
108
DAIF Check from customer
Service charges
Adjusted balances
P4,700
4,200
P1,900
500
2,400
P 900
300
1,200
P12,500
P10,000
4,200
14,200
P1,700
Cash in Bank
Per Bank
Per Books
P252,742
P247,820
10,700
1,500
1,500
5,750
4,280
(12,600)
P252,342
(3,708)
(2,850)
( 450)
P252,342
Adjusting entries
Selling and Administrative Expenses
Receivable from Officers and Employees (900 + 1,700)
Petty Cash Fund
60
1,900
2,600
4,500
Chapter 5
Inventories and Related Expenses
Cash in Bank
Accounts Receivable
Accounts Payable (5,750 + 4,280)
11,530
1,500
10,030
Accounts Receivable (3,708 + 2,850)
Selling and Administrative Expenses
Cash in Bank
6,558
450
Sales
8,000
7,008
Accounts Receivable
8,000
Inventories
Cost of Sales
7,500
Sales
10,000
7,500
Accounts Receivable
10,000
Accounts Receivable
Sales
12,000
Cost of Sales
Inventories
10,200
12,000
10,200
Allowance for Doubtful Accounts
Selling and Administrative Expenses
47
47
Accounts Receivable
Per client
Adjustments
P328,300
( 1,500)
6,558
(8,000)
(10,000)
12,000
P327,358
5%
P 16,368
16,415
P ( 47)
Per Audit
Provision rate for uncollectibles
Required allowance
Existing allowance
Deductions from uncollectible accounts expense
Notes Receivable
Notes Payable
10,000
10,000
Interest Expense
Interest Payable
10,000 x 22% x 30/360 = 183
183
183
Interest Receivable
Interest Income
20,000 x 18% x 77/360 = P770
15,000 x 20% x 59/360 = 492
8,000 x 15% x 46/360 = 153
1,415
1,415
61
Chapter 5
Inventories and Related Expenses
Total
P1,415
Income Tax Payable
Income Tax Expense
35,065 – 32,135 = 3,127
2,930
2,930
Answers:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
Petty Cash
Cash in bank
Accounts receivable
Allowance for doubtful accounts
Notes receivable
Interest receivable
Merchandise inventory
Receivables from officers and Employees
Accounts payable
Notes payable
Interest Payable
Income tax payable
Sales
Cost of sales
Selling and administrative expenses
Bad debts expense
Interest income
Interest expense and bank charges
Profit
Total assets
P5,500
252.342
327,358
16,368
43,000
1,415
221,300
12,840
397,030
73,070
11,363
10,162
1,869,000
1,184,700
530,300
12,553
9,820
56,703
72,838
2,224,430
62
CHAPTER 6 – INVESTMENTS IN FINANCIAL INSTRUMENTS
Multiple Choice – Theories
1. B
6. A
2. A
7. B
Problem 1
1. A
6. A, C, D
2. C
7. D
3. B
8. C
4. D
9. B
3. B, E
8. D, E
4. C, D
9. D
5. C
10. D
5. C, D
10. A, B, C, D
Problem 2 ESAU CORPORATION
A Corporation
B Corporation
C Corporation
D Corporation
E Corporation
Shares
Amount Shares
Amount Shares
Amount Shares
Amount Shares
Amount
Jan 3
1,000
54,000
8
1,000
60,000
Apr 5
(500) (27,000)
8
1,000
30,000
1,000
36,000
July 15
500
20,000
Dec 8
50
Bal.
before
adj to
FV
500
27,000
1,000
60,000
1.000
30,000
1,000
36,000
550
20,000
Adj
500
(6,000)
2,000
3,000
900
Per
audit
500
27,500
1,000
54,000
1,000
32,000
1,000
39,000
550
20,900
(a)
Audit Adjusting Entries:
Financial Assets at FV through P&L
Dividend Income
1,000
Financial Assets at FV through P&L
Gain on Sale of FVPL
1,000
Treasury Shares
Financial Assets at FV through P&L
Financial Assets at FV through P&L
Treasury Shares
Paid in Capital from Treasury Shares
Dividend Income
Financial Assets at FV through P&L
1,000
1,000
33,000
33,000
20,000
16,500
3,500
2,000
2,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Financial Assets at FV through P&L
Dividend Income
1,200
Dividend Receivable
Dividend Income
5,000
1,200
5,000
Financial Assets at FV through P&L
Unrealized Gain on FVPL
(b)
(1)
(2)
(3)
(4)
400
400
Carrying amount of FVPL (see worksheet above)
Gain on sale of FVPL
= 28,000 – 27,000 =
Dividend Income = 1,000 + 1,200 + 5,000 =
Unrealized gain or loss on FVPL
P173,400
P 1,000
P 7,200
P
400
Problem 3 HONEY COMPANY
1.
Selling price on July 3
Dividends included in the selling price 1,000 x 5
Carrying value of shares sold 600,000 x 1000/5,500 shares
Gain on Shares sold
P130,000
(5,000)
(109,091)
P15,909
2.
Proceeds from sale
Carrying value of shares sold = 490,909 x 1,000/4,500
Gain on December 4 sale
P140,000
(109,091)
P 30,909
3.
Dividend revenue for the year 2017:
November dividends 500 shares x P 5
On July 10 sale 1,000 x 5
Dividends accrued on December 31 ( 3,500 x P5)
Total dividend income
P22,500
5,000
35,000
P62,500
4.
Adjusted balance of the investment account
shares
5,000
500
(1,000)
(1,000)
3,500
Market value, January 1
May 31 bonus issue
July 10 sale
Dec 4 sale
Balances before adjustment to fair value
Adjustment to market
Balance, December 31, at fair value
3,500
Peso balance
P600,000
(109,091)
(109,091)
381,818
(84,318)
P297,500
Adjusting Entries
Dividend Income
Trading Securities
12,000
12,000
63
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Trading Securities
Gain on Sale of Trading Securities
20,909
Trading Securities
Gain on Sale of Trading Securities
30,909
Dividends Receivable
Dividend Income
35,000
Unrealized Loss on Trading Securities
Unrealized Gain on Trading Securities
84,318
20,909
30,909
35,000
12,466
Problem 4 MYRA COMPANY
Jan. 1 balances adjusted to Fair value
3,000 @ 80
8,000 @ 100
May 31 4,000 x (120-5)
Oct. 31 Sold 5,000 shares
31 Realized gain transferred to RE
Dec. 22 Sold 2,000 shares
22 Realized gain transferred to RE
31 Adjustment to FV
Dec. 31 Per Audit
Shares
At cost
Unrealized
gains
(losses)
3,000
8,000
4,000
(3,000)
(2,000)
P240,000
800,000
460,000
(240,000)
(200,000)
60,000
---
(2,000)
(200,000)
8,000
P 860,000
Investment in Ivan Company
Unrealized Gain /Loss on Equity Investments–
Other Comprehensive Income
11,000 x (105 – 5)* = 1,100,000
1,100,000 – 1,040,000 = 60,000
*105 is FV dividends-on
60,000
Dividend Income
Retained Earnings
Dividends accrued last year.
55,000
Dividend Income
Investment in Ivan
Dividends included in the purchase price
of March 5 acquisition, acquired
dividends-on. 4,000 x 5 = 20,000
20,000
50,000
(110,000)
80,000
(80,000)
276,000
P 276,000
60,000
55,000
64
20,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Investment in Adams
Dividend Income
Property dividends should be recorded
at fair value
9,000
Investments in Ivan
Unrealized Gain/Loss on Equity Investments
- OCI
50,000
Selling price
Previous carrying value =
fair value on January 1
5,000 x 100
Unrealized gain – OCI
9,000
50,000
P550,000
500,000
P 50,000
*Unrealized Gain/Loss on Equity Investments – OCI
Retained Earnings
3,000 (110 – 80) + 2,000 (110-100) =110,000
Investment in Ivan
Unrealized Gain/Loss on Equity Investments
- OCI
Selling price = FV 2,000 x 140 = 280,000
Previous CV = FV, Jan. 1
= 200,000
Unrealized Gain
80,000
Miscellaneous Receivables
Investment in Ivan (2,000 x 140)
110,000
110,000
80,000
80,000
280,000
280,000
*Unrealized Gain/Loss on Equity Investments - OCI
Retained Earnings
2,000 ( 140 – 100) = 30,000
Investments in Ivan
Unrealized Gain/Loss on Equity Investments
- OCI
FV, 12/31/15 = 8,000 x 142 = 1,136,000
Previous CV :
Old = FV, Jan. 1
= 4,000 x 100 = 400,000
New=4,000 x 115 = 460,000 860,000
Unrealized Gain – OCI
276,000
Investments in Adams
Unrealized Gain/Loss on Equity
Investments – OCI (17 – 16) x 1,500
80,000
80,000
276,000
276,000
1,500
500
65
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Note to the Teacher: At the date of sale, the investments at fair value through other comprehensive income are
adjusted to fair value (presumed to be equal to the selling price on the date of sale). Thus, no gain or loss on sale is
recognized in profit or loss. The entry transferring the cumulative unrealized gain or loss (equity account) to the
retained earnings account is optional.
Problem 5 White Corporation
Financial Assets at FV through Profit or Loss
Red Corp Preference
Red Corp. Ordinary
Shares
Peso amt
Shares
Peso amt
1/1/15
1,000
450,000
1/17
2/15
6/01
10/01
(500)
(225,000)
1,500
240,000
Before adj.
500
225,000
1,500
240,000
Adj to FV
5,500
MV 12/31
500
230,000
1,500
240,000
Non-Current Investments
Investment in Associate – Green Company
Acquisition cost
Dividends received 100,000 x P0.50 x 4
Income from associate 25% x P10,000,000
Investment in Associate , 12/31/2012
Blue Ordinary
Shares
Peso amt
6,000
650,000
(2,500)
(270,833)
200
(500)
379,167
5,583
1,700
425,000
(34,000)
3,500
385,000
1,700
391,000
Gains and losses
On sale of Blue on January 17
Selling price
Carrying value (P65,000 x 2,500/6,000
Gain on sale
P325,000
270,833
P 54,167
On sale of Yellow
Selling price 500 x P210
Carrying value (P550,000 x 500/2200)
Loss on sale
P105,000
125,000
P 20,000
On conversion of Red Preference to Red Ordinary
Market value 1,500 x P160
Carrying value P450,000 x 500/1000
Gain on exchange
P240,000
225,000
P 7,500
66
(125,000)
3,500
P16,000,000
(1,000,000)
2,500,000
P17,500,000
Dividend Income
On Red preference
Yellow Ordinary
Shares
Peso amt
2,000
550,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
April 6 1,000 x 10% x P200 x 1/2
Oct, 6 1,000 x 10% x P200 x 1/2
On Blue ordinary
June 30 3,500 x P5
P10,000
10,000
17,500
P37,500
Unrealized gains on FVPL (see above working papaer)
P5,500 + 583 – 5,100 =
P 983
Income from Associate (Green Company)
25% x P10,000,000
P 2,500,000
Problem 6 Epson Company
(a) Interest Revenue for 2014
P400,000 x 9% x 8/12 =
Interest Revenue for 2015
P400,000 x 9% x 9/12
P300,000 x 9% x 2/12
P180,000 x 9% x 1/12
Total for 2014
(b) Unrealized Gains and Losses:
2016: Fair value 12/31/15 107% x 400,000
Purchase price
440,000 – (400,000 x 9% x 4/12)
Unrealized gain
P24,000
P27,000
4,500
1,350
P 32,850
P428,000
P
428,000
0
2017: Debt Investments
Fair value 12/31/17 P180,000 x 108% P194,400
Fair value 12/31/16
180,000 x 107% 192,600
Unrealized Gain
P 1,800
Equity Investments:
Fair value, 12/31/17
1,000 x 143
Initial cost 1,000 x 140
Unrealized Gain
P143,000
140,000
P 3,000
(c) Gains and Losses on Disposal
2015: Oct 1 Proceeds
Accrued interest
100,000 x 9% x 3/12
Selling price
Carrying value P100,000 x 107%
Loss on sale
P109,000
( 2,250)
P106,750
107,000
P
250
67
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Nov. 30 Fair value of the ordinary sharesP140,000
Carrying value of bond investment
120,000 x 107%
128,400
Gain on exchange
P 11,600
Net gain on sale for the year
P11,350
(d) Carrying value of the investment
December 31, 2016= P400,000 x 107%
P428,000
December 31, 2017 : P180,000 x 108%
P194,400
+ 1,000 x 143
143,000
Total carrying value of debt and equity inv.
P 337,400
Problem 7
Total amount paid
Accrued interest 500,000 x 10% x 2/12
Initial measurement
P547,778
8,333
P539,445
Amortization Table
Date
08/1/16
11/30/16
05/31/17
11/30/17
05/31/18
(a)
(b)
(c)
Nominal Interest(5%)
Effective Interest (4%)
P16,667
25,000
25,000
25,000
Interest Revenue:
2016: P14,385 + 1/6(P21,487)
2017: 5/6(21,487) + 21,346 + 1/6(21,200)
Premium
Amortization
P14,385
21,487
21,346
21,200
=
P2,282
3,513
3,654
3,800
P17,966
=
P42,785
Interest Receivable, December 31, 2015
P500,000 x 8% x 1/12
=
P4,167
Carrying value
Dec. 31, 2016: P537,163 – 1/6(3,513)
Dec. 31, 2017: P529,996 – 1/6(3,800)
=
=
P536,577
P529,363
68
Carrying Value, end
P539,445
537,163
533,650
529,996
526,196
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Problem 8
Entries that should have been made:
Jan. 21
Investment in Pearl
Interest Income
Cash
510,000
6,250
Mar. 1
106,000
516,250
Cash
Investment in Pearl (510,000 x 100/500)
Interest Income (100,000 x 9% x 3/12)
Gain (Loss) on Sale of Trading Securities
June 1
102,000
2,250
1,750
Cash
18,000
Interest Income
Nov. 1
Dec. 1
31
31
18,000
Cash
Gain (Loss) on Sale of Trading Securities
Investment in Pearl (510,000 x 100/500)
Interest Income (100,000 x 9% x 5/12)
104,750
1,000
102,000
3,750
Cash
Interest Income
300,000 x 9% x 6/12
13,500
Interest Receivable
Interest Income
300,000 x 9% x 1/12
6,750
Investment in Pearl
Unrealized Gains on Trading Securities
(300,000 x 1.03) – 306,000
3,000
13,500
6,750
3,000
Audit Adjustments
Interest Income
Investment in Pearl
6,250
6,250
Investment in Pearl
Interest Income
Gain on Sale of TS
4,000
2,250
1,750
Investment in Pearl
Interest Income
18,000
Investment in Pearl
Loss on Sale of TS
Interest Income
2,750
1,000
Investment in Pearl
13,500
18,000
3,750
69
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Interest Income
13,500
Dividend Receivable
Interest Income
6,750
Investment in Pearl
Unrealized Gains on TS
3,000
6,750
3,000
Problem 9
Amortization Table
Date
Nominal Interest(3%)
January 2, 2017
June 30, 2017
December 31, 2017
(a)
Effective Interest (4%)
P60,000
60,000
P72,600
73,104
Discount
Amortization
P12,600
13,104
Carrying Value, end
P1,815,000
1,827,600
1,840,704
Entries that should have been made:
Jan. 2 Debt Investments – Fulfilled Dreams 6% Bonds
Cash
1,815,000
June 30 Debt Investments – Fulfilled Dreams 6% Bonds
Cash
Interest Revenue
12,600
60,000
Dec. 31 Debt Investments – Fulfilled Dreams 6% Bonds
Cash
Interest Revenue
13,104
60,000
31 Debt Investments – Fulfilled Dreams 9% Bonds
Unrealized Gains/Losses on Debt Investments
*97.5% x 2,000,000 = 1,950,000
Amortized Cost
1,840,704
Unrealized gain
P 109,296
1,815,000
72,600
73,104
109,296
109,296
*FV = 195,000/200,000 = 97.5%
Dec. 31 Cash
195,000
Unrealized Gains/Losses on Debt Investments
10,930
Debt Investments – Fulfilled Dreams 6% Bonds
Gain on Sale of Debt Investments
(b)
Audit Adjustments
70
195,000
10,930
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Debt Investments- Fulfilled Dreams 6% Bonds
Interest Revenue
145,704
Debt Investments- Fulfilled Dreams 6% Bonds
Unrealized Gains/Losses on Debt Investments
109,296
Unrealized Gains/Losses on Debt Investments
Gain on Sale of Debt Investments
10,930
SUPPLY THE REQUIRED INFORMATION
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
P12 per share
2,500
P0
6,500
350
15,800
55,200
1,600
376,400
3,776,400
0
48,279
2,097,928
365,668
360,000
160,000
35,000 loss
1,970,000
50,000 gain
0
30,000
0
0
15,000 credit
116,000
0
1,816,000
3,333
1,000 gain
500 gain
200 gain
10,600
77,100
71
145,704
109,296
10,930
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
55,000
4,125
111,000
2,293,500
316,500
31,500
4,125
136,300
0
52,900
7,500
758,600
3,133
Computations
1.
2.
Final Answers
P36,000 or P12 per share
P0
3.
P0
Selling price 1,000 x 8.50
Cost of shares sold
Unrealized Gain taken to OCI
Net selling price: (1,000 x 8) - 500 =
P7,500
Cost of shares sold P 30,000 x 1,000/6,000
5,000
Gain on sale
P 2,500
This gain is not taken to P and L (no recycling).
P8,500
5.000
P3,500
None of the gain or loss shall be transferred to P and L.
4.
P6,500
Property dividends 5,000/5 x P2.50
Cash dividends 5,000 x 0.80
Total dividend income
P2,500
4,000
P6,500
5.
P350
500 (3.20 – 2.50)
P 350
6.
P15,800
01-01
03-17
11-30
12-31
Balance
1,000/6,000 x P6,000
1,000/6,000 x 6,000
Fair value
6,000 x P 9.20 =
OCI- Unrealized Gain or Loss on Equity Investments
P6,000
(1,000)
(1,000)
P55,200
72
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Cost (See WP below)
Cumulative Unrealized Gain
Balance before adjustment to FV
6,000 – 1,000 – 1,000
Unrealized gain this year in OCI
Cumulative balance in equity, Dec. 31
7.
8.
P55,200
P1,600
35,400
19,800
4,000
15,800 (ITEM #6)
P19,800
6,000 x 9.20
500 X 3.20
P55,200
P 1,600
Equity Investments at FV through OCI– Y Company Ordinary
Date
Shares
Total Cost
Gain(loss) Dividend Income
01-01-17
3,000
P30,000
01-12-17
3,000
03-17-17
(1,000)
(5,000)
P2,500
06-30-17
1,000 x P2.50 = P2,500
10-01-17
2,000
15,400*
10-20-17
5,000 x 0.80=
4,000
11-30-17
(1,000)
(5,000)
3,500
12-31-17 Balances
6,000
P35,400
P6,000
P6,500

2,000 (8.50 - .80 dividends on) = 15,400
FVPL – B Co. Ordinary
Date
06-30-14
9-10-14
12-31-14 UGL
500 x (3.20 – 2.50)
12-31-14 balances
Shares
1,000
(500)
Total CV
P2,500
(1,250)
500 shares
350
P1,600
Gain(loss)
Dividend Income
150
Unrealized Gain or Loss on Equity Investments at Fair Value through Other Comprehensive Income
01/01/17 Balance
P6,000
03-17
1,000/6,000 x P6,000
(1,000)
11-30
1,000/6,000 x 6,000
(1,000)
12-31
Fair value
6,000 x P 9.20 =
P55,200
Cost
35,400
Cumulative Unrealized Gain
19,800
Balance before adjustment to FV
6,000 – 1,000 – 1,000
4,000
Unrealized gain this year in OCI
15,800
Cumulative balance in equity, Dec. 31
P19,800
73
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Items 9 through 14:
Kristine Company
Interest Date
Jan. 2, 2016
June 30, 2016
Dec. 31, 2016
June 30, 2017
Dec. 31, 2017
June 30, 2018
Dec. 31, 2018
9.
10.
11.
12.
9%Interest Paid
P180,000
P180,000
P180,000
P180,000
P180,000
P180,000
Final Answers
P376,400
P3,776,400
P0
P48,279
10%Effective
Interest
188,000
188,400
188,820
189,261
189,724
190,210
Discount
Amortization
P8,000
8,400
8,820
9,261
9,724
10,210
Amortized Cost,
End
P3,760,000
3,768,000
3,776,400
3,785,220
3,794,481
3,804,205
3,814,415
Computations
P188,000 + 188,400 = P376,400
Selling price on November 30, 2014
Carrying amount
June 30, 2014 3,804,205 x 1.8/4 =
Amortization June 30 – Nov 30
10,210 x 1.8/4 x 5/6
=
Gain on sale on November 30
(1.8M x 98%)
P1,764,000
P1,711,892
3,829
P
13.
P2,097,928
P2,200,000/4,000,000 x 3,814,415 = P2,097,928
The reclassification shall be treated in the first reporting period
subsequent to the change in the business model.
14.
P365,668
Interest income for 2018
January 1 to June 30
July 1 to November 30 190,210 x 5/6 =
December 1 to 31 P190,210 x 2.2/4 x 1/6
Total interest income
Items 15 through 19
15.
P360,000
P4,000,000 x 9% = P360,000
16.
17.
P160,000
P35,000 loss
(98% x P4,000,000) – 3,760,000 = P160,000
Total proceeds
Accrued interest 2,000,000 x 9% x 5/12
Selling price
CV 96% x 2,000,000
Loss on sale of FVPL
74
P1,960,000
( 75,000)
P1,885,000
1,920,000
P 35,000
1,715,721
48,279
P189,724
158,508
17,436
P 365,668
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
18.
19.
P1,970,000
P50,000
2M x .985 = P1,970,000
Fair value, 12/31/18
Fair value, 12/31/17 2,000,000 x .96
Unrealized gain for 2018
P1,970,000
1,920,000
P 50,000
Items 20 through 22
Power Cast Company
Cost of investment
Underlying equity 20% x P6,000,000
Excess of cost
Undervaluation in land 20% x 750,000
Undervaluation in equipment 20% x 200,000
Undervaluation in inventory 20% x 30,000
Goodwill
P1,800,000
1,200,000
P 600,000
(150,000)
(40,000)
( 6,000)
P 404,000_
25.
P116,000
Income from Associate
Initial share (800,000 – 160,000) x 20% P128,000
Amortization
Depreciation on Equipment 40,000/5 x 9/12
( 6,000)
Inventory
( 6,000)
Income from Associate
P116,000
26.
P0
Dividends received from associate should be credited to the Investment account.
27.
P1,816,000
Cost of investment
Dividends received
Income from Associate
Carrying value of investment
P1,800,000
( 100,000)
116,000
P1,816,000
Items 23 through 28
1/1/12 bal.
1/31
6/30
7/8
8/1
12/31
bal.
before
Fair
Value adj.
Adj to FV
Boracay Co. ordinary
# of shares
Amount
1,000
P 25,000
(200)
( 5,000)
Bohol Company ordinary
# of shares
Amount
3,000
P18,000
600
(300)
800
P20,000
4,000
3,300
75
8% treasury bonds
Face
Amount
P50,000
P50,000
(1,500)
P16,500
6,600
(20,000)
(20,000)
30,000
P30,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
12/31
audit
23.
24.
per
800 shares
P3,333
P1,000 gain
P24,000
3,300
P23,100
P30,000
Interest Income
January 1 to July 31 P50,000 x 8% x 7/12 =
August 1 to Dec. 31 P30,000 x 8% x 5?12 =
Total interest income for 2017
P2,333
1,000
P3,333
Net selling price
Carrying value P25,000 x 200/1,000
Gain on sale
(5,000)
P 1,000
P6,000
25.
P18,300 gain
Selling price
Carrying value P18,000 x 300/3,600
Gain on sale
P 2,000
( 1,500)
P 500
26.
P200 gain
Cash received
Interest for 6 months (20,000 x 8% x 6/12)
Selling price
Carrying value
Gain on sale
P21,000
( 800)
P20,200
20,000
P 200
27.
P10,600
See above worksheet: P4,000 + P6,600
28.
P77,100
See above worksheet: P24,000 PP23,100 + P30,000 = P77,100
P10,600
Items 29 through 34
29.
P55,000
P1,040,000 – P985,000 = P55,000
30.
P4,125
From Alaska: 5,500 x P0.75 = P4,125
31.
P111,000
P370,000 x 30% = P111,000
32.
P2,293,500
Fair value of old 25,000 shares: P1,520,000 x 25,000/50.000 = P760,000
Purchase price of new 50,000 shares
1,520,000
Initial cost of 75,000 shares
P2,280,000
Income from associate
111,000
Dividends received (75,000 x 1.30)
( 97,500)
Carrying value, December 31, 2013
P2.293,500
38.
P316,500
Alaska 5,500 x 23
Bahamas 10,000 x 19
Total fair value
P126,500
190,000
P316,500
33.
P31,500
Fair value
Cost : 125,000 + 160,000
P316,500
285,000
76
P30,000
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Cumulative balance of UGL
34.
P115,125
P 31,500
P111,000 + P4,125 = P115,125
Items 35 through 40
Financial Assets at Fair Value through Profit or Loss
Seattle Ordinary
Shares
Amount
1/1/17
2,000
P28,400
20% bonus
400
Sale
(400)
(4,733)
Purchase
12/31
bal.
before adj to
FV
2,000
P23,667
Unrealized
Gains (Losses)
4,333
Per audit
2,000
P28,000
Grunge Preference
Shares
Amount
1,200
P78,000
Cobain Ordinary
Shares
Amount
1,500
P31,500
1,200
P78,000
1,500
P31,500
1,200
(1,200)
P76,800
1,500
P31,500
41.
P136,300
28,000 + 76,800 + 31,500 = 136,300
42.
P0
Cash dividend from Grunge should have been recorded as income in 2011.
43.
P52,900
Cost (800 x P50) + P5,400 =
Share in profit 50,000 x 20% x 9/12
Investment in Associate, Dec. 31
P45,400
7,500
P52,900
44.
P7,500
50,000 x 20% x 9/12 =
P 7,500
45.
758,600
764,000 – 5,400 =
P758,600
46.
3,133
See above worksheet : 4,333 – 1,200
P
A-MAGS CORPORATION
77
3,133
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Selling and Administrative Expenses
Advances to Officers and Employees
Cash – Petty cash fund
2,000
1,500
3,500
Other Assets
Cash in Bank
130,000
130,000
Cash in Bank – PCI Bank – Current
Accounts Payable
5,000
Cash in Bank
Other Current Liabilities (Bank Overdraft)
45,000
Accounts Receivable – Past Due
Cash in Bank – PCI Bank
20,000
Accounts Receivable
Customer Credit Balances
15,000
Allowance for Doubtful Accounts
Accounts Receivable – Past due
10,250
5,000
45,000
20,000
15,000
10,250
Advances to Officers and Employees
Accounts Receivable
3,500
Sales
30,000
3,500
Discount on Notes Receivable
30,000
Notes Receivable – Non-Current
Interest Income
Notes Receivable
Discount on Notes Receivable – Non- current
120,000
24,337
120,000
24,337
Discount on Notes Receivable (30,000 x 5/12)
Discount on Notes Receivable – Non-current (95,663 x 12% x 10/12)
Interest Income
12,500
9,566
22,066
Interest Receivable
Interest Income
40,000 x 16% x 36/360 = 640
75,000 x 20% x 82/360 = 3,417
Total
4,057
4,057
Inventories
Accounts Payable
22,500
Sales
80,000
4,057
22,500
78
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Advances from Customers
Accounts Receivable – Not yet due
24,000
56,000
Accounts Receivable – not yet due (182,000 x 60% x 125%)
Sales
136,500
Inventories ( 182,000 x 40%)
Cost of Sales
72,800
136,500
72,800
Selling and Administrative Expenses
Accrued Expenses 182,000 x 60% x 5%)
5,460
5,460
Other Current Assets (80% x 28,000)
Loss due to Flood
Inventories
22,400
5,600
Equipment
Cost of sales
15,000
28,000
15,000
Selling and Administrative Expenses
Accumulated Depreciation (15,000/5 x 6/12)
1,500
1,500
AR – Total
P424,000
20,000
15,000
(10,250)
(3,500)
(56,000)
136,500
P525,750
Per client
Adjustments
Operating Expenses
Allowance for Doubtful Accounts
Total Accounts Receivable
Accounts Receivable not yet due
Accounts Receivable past due
Provision rate for past due accounts
Required allowance
Existing allowance ( 22,800 – 10,250)
Additional doubtful accounts expense
AR – Not due
P187,000
(56,000)
136,500
P267,500
363
363
P525,750
(267,500)
P258,250
5%
P 12,913
12,550
P
363
Investments in Associate – Johnny Walker
Equity Investments – FVPL
Investment in Equity Securities
280,000
89,000
Investment in Associate – Johnny Walker
Income from Associate
150,000
369,000
150,000
79
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
Dividend Income
Investments in Equity Securities
12,000
12,000
Investment in Equity Securities
Equity Investments – FV (43,200 x 400/1,200)
Gain on Sale of Equity Investments
16,800
Treasury Stock
Investments in Equity Securities
45,000
Dividend Income
Investment in Associate
30,000
Equity Investments – FVPL
Unrealized Gain on FVPL
18,000
December 31 Fair values:
San Miguel
500 x 50
Asia Brewery 800 x 38
La Tondena 1,200 x 31
Previous carrying value
San Miguel
Asia Brewery 43,200 – 14,400
La Tondena
Unrealized gain
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
14,400
2,400
45,000
30,000
18,000
P 25,000
30,400
37,200 P92,600
P28,000
28,800
17,800
74,600
P 18,000
P491,500
P92,600
P525,750
P12,913
P6,500
P295,000
P12,500
P4,057
P5,000
P1,347,300
P5,500
P0
P400,000
P213,500
P257,629
P399,500
P275,000
P15,000
P24,000
P153,450
80
SOLUTIONS TO INVESTMENTS IN FINANCIAL INSTRUMENTS
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
P122,960
P52,500
P490,873
P55,000
P0
P4,677,163
P3,682,361
P643,126
P9,000
P35,923
P18,000
P14,400
P0
P5,600
P150,000
157,980
P368,619
363
9,566
5612,724
81
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
1. B
6. A
2. B
7. A
MULTIPLE CHOICE - THEORIES
3. A
4. B
8. C
9. D
5. D
10. A
Problem 1 (Pretzy/ Pine Company)
Land
25.8M x 8.4/28
Building
25.8M x 14/28
Equipment 25.8M x 5.6/28
Correct cost
P7,740,000
12,900,000
5,160,000
Adjusting Entries:
1.
Land
Building
Equipment
Other Operating Expenses
Salaries and Commission Expense
2.
Recorded Cost
Difference
P7,000,000
P 740,000
9,000,000
3,900,000
4,000,000
1,160,000
740,000
3,900,000
1,160,000
5,000,000
800,000
Depreciation Expense – Building
130,000
Depreciation Expense – Equipment
77,333
Accumulated Depreciation – Building
Accumulated Depreciation – Equipment
5% x 3,900,000 x 8/1 2 = P130,000
10% x 1,160,000 x 8/12 =
77,333
116,667
77,333
Problem 2 (Gay Company)
Discount on Notes Payable (5% x 850,000)
Equipment
42,500
42,500
Problem 3 Dionella Company
a.
Machinery
Raw materials used in construction P176,000 – 4,000 P172,000
Labor
50,000
Cost of installation
10,000
Materials spoiled in trial runs
5,000
Incremental overhead due to machine construction
25,000
Decommissioning cost 40,000 x .56447
22,579
Purchase of machine tools
Correct Cost
P284,579
b. Adjusting entries:
Machinery
Loss on Disposal of Old Machine
Purchase Discounts
Profit on Construction
Machinery Tools
Accumulated Depreciation – Machinery (old)
Factory Overhead Control
Provision for Machine Dismantling
Machinery (old)
Depreciation Expense – Machinery
Accumulated Depreciation – Machinery
(284,579 x 10%) – 28,300 = 158
81
Machinery Tools
P15,000
P15,000
1,579
3,000
4,000
24,000
15,000
120,000
25,000
22,579
120,000
158
158
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Problem 6 Flames Company
Accumulated Depreciation – Machine
Loss on Replacement of Machine Parts
Machinery
(40,000/10 x 6)
24,000
16,000
40,000
Machinery
Repairs Expense
50,000
50,000
Accumulated Depreciation
Depreciation Expense
5,750
5,750
Cost
Removed part
Replacement
Revised gross cost
Accumulated depreciation, 12/31/11
200,000/10 x 6
Removed accumulated depreciation
Carrying value after overhaul
P200,000
( 40,000)
50,000
P210,000
120,000
( 24,000)
2017 depreciation
114000/(10-6+4)
Recorded depreciaition
Adjustment
(96,000)
P114,000
P 14,240
20,000
P 5,750
Problem 5 Ethan Corporation
Land
Organization Fees
Land site and old building
P8,150,000
Corporate organization costs
Title clearance fees
25,000
Cost of razing old building
Sale of scrap
Salaries
Stock bonus to corporate promoters
Real estate tax
Cost of construction
Total correct cost
Building
Others
P50,000 Org’n Exp.
30,000 Org’n Exp
220,000
( 25,000)
300,000 Salaries Exp
100,000 Org’n Exp. (or –
APIC)
25,000 Taxes Expense
P18,000,000
P8,175,000 P18,195,000
Adjusting Entries
Land
Building
Organization Expenses
Taxes Expense
Miscellaneous Revenues
Administrative Salaries
Land, Buildings and Equipment
8,175,000
18,195,000
180,000
25,000
25,000
300,000
26,900,000
(NOTE TO THE TEACHER: The Philippine Interpretations Committee’s Interpretation on the
demolition cost of the building is applied. The net demolition cost is capitalized and charged
to the building account, since demolition is preparatory to construction of the building.
82
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Problem 6 Electro Corporation
Correct cost:
Down payment
PV of future payments P100,000 x 3.6048
Total cost
P50,000
360,480
P410,480
Correct Depreciation 410,480 / 15 x ½
P13,683
Adjusting Entries:
Discount on Notes Payable (500,000 – 360,480)
Machine
139,520
139,520
Interest Expense
Discount on Notes Payable
360,480 x 12% x 10/12
36,048
36,048
Accumulated Depreciation
Depreciation Expense
13,683 – 18,333
4,650
4,650
Problem 7 Silver Company
Equipment
Balance, 1/01/17
6/01/17 Purchase of Asset 16 P200,000 + 7,000
10/01/17 Sold Asset 10
150,000 x 10% x 5
Depreciation for 2015
807,000 x 10%
Balances, December 31, 2017
Accumulated
Depreciation
P 750,000
207,000
( 150,000)
( 75,000)
___
P807,000
Adjusting Entries:
Accumulated Depreciation
Loss on Sale of Equipment
Equipment 8,000 – (1,000 - 400)
75,000
57,000
132,000
Net proceeds P20,000 – 2,000
Carrying value P150,000 – 75,000
Loss on sale
P 18,000
75,000
P 57,000
Equipment
Repairs and Maintenance
Freight In
7,000
4,000
3,000
Accumulated Depreciation – Equipment
Depreciation Expense – Equipment
80,700 – 93,200
12,500
12,500
83
P300,000
__ 80,700
P 305,700
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Problem 8 Conquer Company
Equipment Accumulated
Depreciation
P 500,000
P 225,000
161,800
(100,000)
( 40,000)
January 1 Balances
May 1 Acquisition (P160,000 x .98)+5,000
Oct. 1 Sale
100,000 x 10% x 4
Dec. 31 Depreciation
(500,000 – 100,000) x 10%
100,000 x 10% x ½
161,800 x 10% x ½
December 31, 2017 Balances
P40,000
5,000
8,090
___
P561,800
53,090
P 238,090
Adjusting Entries
Equipment
Discounts Lost
Repairs and Maintenance
1,800
3,200
Loss on Sale of Equipment
Accumulated Depreciation
Equipment
30,000
40,000
5,000
70,000
Accumulated Depreciation
Depreciation Expense
63,000 – 53,090
9,910
9,910
Problem 9 Berol Giant Corporation
Note that IAS 17 is still applied in the solution, as IFRS 16 Leasing shall apply
effective 2019.
Audit Adjusting Entries
Rent Expense (50,000 x 9/12)
Prepaid Rent
Finance Lease Liability
Machinery and Equipment
375,000
125,000
3,540,000
4,040,000
Profit on Construction
Building
150,000
Land Improvement
Land
500,000
150,000
500,000
Accumulated Depreciation – Machinery and Equipment
2,880,000
Gain on Sale of Machinery
Machinery and Equipment 4,800,000 – 2,600,000
Cost
P4,800,000
Accumulated depreciation
480,000/10 x 6
2,880,000
Carrying value
P1,920,000
Proceeds
2,600,000
Gain on Sale of M and E
P 680,000
Land
Building
Unearned Income from Government Grant
Depreciation Expense – Building
Accumulated Depreciation – Building
680,000
2,200,000
6,000,000
24,000,000
30,000,000
511,667
511,667
84
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Correct depreciation
Old P12,000,000/ 25
Improvement 1,600,000/12 x ½
Donated 24,000,000/25 x ½
Correct depreciation
Per client
Adjustment
Unearned Income from Government Grant
Income from Government Grant
30,000,000/25 x ½
P480,000
66,667
480,000
P1,026,667
515,000
P 511,667
600,000
600,000
Accumulated Depreciation – Machinery and Equipment
312,000
Depreciation Expense – Machinery and Equipment
Correct depreciation – Machinery and Equipment
(38,500,000 – 4,800,000)/10 = P3,370,000
4,800,000 / 10 x ½
240,000
Total
P3,610,000
Per client
3,922,000
Adjustment
P 312,000
Depreciation Expense – Land Improvements
Accumulated Depreciation – Land Improvements
500,000 / 10 x ½
= 25,000
312,000
25,000
25,000
b. Adjusted balances:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Land
Land Improvements
Accumulated Depreciation – Land Improvements
Buildings
Accumulated Depreciation – Buildings
Machinery and Equipment
Accumulated Depreciation – Machinery and Equipment
Unearned Income from Government Grant
Depreciation Expense – Land Improvements
Depreciation Expense – Buildings
Depreciation Expense – Machinery and Equipment
Amortized Income from Government Grant
P48,250,000
500,000
25,000
37,600,000
7,026,667
33,700,000
18,055,000
29,400,000
25,000
1,026,667
3,610,000
600,000
Problem 10 Malabon Company
Schedule of Depreciation Expense
A. Building
Method – 150% declining balance
Depreciation rate = 1.5/25 = 6%
Old
(P12,000,000 – P2,654,000) x 6%
New P12,800,000 x 6%
2017 Depreciation – Building
B. Machinery and Equipment
Method – straight-line
Useful life – 10 years
Old including scrapped in December
P7,750,000/10
New P290,000/10 x 6/12
2017 Depreciation – Machinery
85
P560,760
768,000
P1,328,760
P775,000
14,500
P789,500
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
C. Automobiles and Trucks
Method
- 150% declining balance
Depreciation rate = 1.5/5 = 30%
Old (not sold)
(P13,200,000 – P8,620,000) =
P4,580,000 – (P810,000 + 235,200) x 30%
Sold
New P650,000 x 30% x 4/12
2017 Depreciation – Automobiles and Trucks
P4,580,000
P1,060,440
235,200
65,000
P1,360,640
D. Leasehold Improvements
Method – straight line
Useful life – 8 years
Lease term : original 6 years upon completion of the improvement
Remaining useful life = 8 – 3 = 5 years
Remaining lease term = 6 – 3 + 4 = 7 years
2017 Depreciation: (P2,210,000 – 1,105,000) / 5 =
P 221,000
E. Land Improvements
Method – straight-line
Useful life – 12 years
2017 Depreciation: P1,920,000 / 12 x 9/12
P 120,000
b. Adjusted Balances:
1. Land
2. Land Improvements
3. Accumulated Depreciation – Land Improvements
4. Building
5. Accumulated Depreciation – Buildings
6. Machinery and Equipment
7. Accumulated Depreciation – Machinery and Equipment
8. Automobiles and Trucks
9. Accumulated Depreciation – Automobiles and Trucks
10. Leasehold Improvements
11. Accumulated Depreciation – Leasehold Improvements
P16,200,000
1,920,000
120,000
24,800,000
3,892,760
7,870,000
2,611,250
5,258,750
3,059,360
2,210,000
1,326,000
Problem 11
Adjusting Entries
a. Depreciation Expense – Machine A
Accumulated Depreciation
Cost
Acc. Depreciation 1/1/12
105,000 / 12 x 3
Carrying amount 1/1/12
78,750 / 5 =
15,750
15,750
P105,000
( 26,250)
P 78,750
P 15,750
b. Depreciation Expense – Machine B
Accumulated Depreciation – Machine B
P240,000 / 6 = P 40,000
Impairment Loss
Accumulated Depreciation – Machine B
Carrying value 12/31/17
P240,000 x 3.5/6
Recoverable amount
Impairment loss
86
40,000
40,000
15,000
15,000
P140,000
125,000
P 15,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
c. Depreciation Expense – Building A
Accumulated Depreciation – Building A
Carrying value 1/1/17
P6,300,000 x 15/20 = P4,725,000
2017 Depreciation =
P4,725,000 x 15/120 =
P 590,625
590,625
d. Retained Earnings
Accumulated Depreciation – Building B
Carrying value 12/31/16
P5,250,000 x
7/10 = P3,675,000
Recoverable amount
3,500,000
Impairment loss in 2016
P 175,000
175,000
590,625
175,000
Depreciation Expense – Building B
Accumulated Depreciation – Building B
3,500,000 / 7 = P 500,000
500,000
Accumulated Depreciation – Building B
Gain - Recovery of Previous Impairment
Carrying value, 12/31/17
3,500,000 – 500,000 =
Recoverable amount
Increase in value
Limit on recovery
175,000 x 6/7
100,000
500,000
100,000
P3,000,000
3,100,000
P 100,000
P
150,000
e. Depreciation Expense – Building
Accumulated Depreciation – Building
12,000,000 / 20 x 6/12
300,000
300,000
Investment Property – Land
8,000,000
Investment Property – Building
12,000,000
Accumulated Depreciation – Building (PPE) (12M/20 x 4.5)2,700,000
Land
Building
Revaluation Surplus
Investment Property – Land
Investment Property – Building
Fair Value Gain on Investment Property
6,500,000
12,000,000
4,200,000
500,000
400,000
900,000
Problem 12 Gotham Company
Land
Building, net of accumulated
depreciation
As of December 31, 2016
Based on Cost
Based on
Balance of
Revalued Amt.
Revaluation
Surplus
P15,000,000
P20,000,000
P5,000,000
14,000,000
20,000,000
6,000,000
(a) Depreciation expense on the building for the year 2017:
P20,000,000 / 20 years =
P1,000,000
(b) Revaluation surplus transferred to Retained Earnings = P6,000,000 / 20 = P300,000
(c) Balance of revaluation surplus at December 31, 2017 statement of financial position =
Land
Building, net of accumulated
Based on
Previous
Revaluation
P20,000,000
87
Based on New
Revalued Amt.
Difference
P22,000,000
P2,000,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
depreciation
19,000,000
21,850,000
2,850,000
Balance of Revaluation Surplus at December 31, 2017 statement of financial position:
12/31/16 Balance Realized in 2017 New Revaluation
Pertaining to land
P5,000,000
Pertaining to building 6,000,000
Total
P11,000,000
---------(300,000)
P(300,000)
P2,000,000
2,850,000
P4,850,000
12/31/17 Final
P7,000,000
8,550,000
P15,550,000
Problem 13 (Ecstacy Company)
Adjusting Entries
Franchise
Prepaid Rent
Retained Earnings
(54,000 + 150,000)
Patents
Research and Development Expense (1,000,000 – 90,000)
Formula (or Patent)
Legal Fees
Intangible Assets
420,000
280,000
204,000
750,000
910,000
90,000
80,000
Retained Earnings (3/24 x 280,000)
Rent Expense (1/2 x 280,000)
Prepaid Rent
35,000
140,000
Retained Earnings (6/60 x 420,000)
Amortization Expense – Franchise
Accumulated Amortization – Franchise
42,000
84,000
Amortization Expense – Patents
Accumulated Amortization – Patents
750,000 /10 x 10/12
62,500
2,734,000
175,000
126,000
62,500
Problem 14 (Cheryl Corporation)
Adjusting Entries
Research and Development Expense
Patents
Rent Expense (91,000 x 5/7)
Prepaid Rent (91,000 – 65,000)
General and Administrative Expense
Discount on Bonds Payable
Advertising and Promotions Expenses
Other Operating Expenses
Share Premium – Ordinary Share
Intangible Assets
Amortization of Patents
Accumulated Amortization – Patents
88
940,000
75,000
110,000
130,000
36,000
84,000
90,000
240,000
250,000
1,455,000
7,500
7,500
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Problem 15 (Kookabar Enterprises)
Retained Earnings
Patents
750,000 x 7/10 = 525,000
525,000
525,000
Patents
4,975,000
Accumulated Amortization – Patents
To reinstate the gross cost of the patents and related
Accumulated Amortization
(5,500,000 – 525,000) ÷ 7/14
Total cost is therefore P9,950,000
Accumulated amortization =
9,950,000 x 7/14 = P4,975,000
Cost of Goods Sold
910,714
Accumulated Amortization – Patents
(P2,100,000 – 1,050,000) / 3 years =P 350,000
(P9,95,000 – 2,100,000) / 14 years = 560,714
2017 Amortization
P 910,714
Selling and Administrative Expenses
Franchise Agreement
450,000
Selling and Administrative Expenses
Accumulated Amortization – Franchise Agreement
50,000 /5 = 10,000
100,000
4,975,000
910,714
450,000
100,000
Retained Earnings
Organization Costs
440,000
Retained Earnings (45,000 + 100,000)
Goodwill
145,000
440,000
145,000
Problem 16 (Yuka Sato Corporation)
Equipment
Patents
34,700
34,700
Cost of Goods Sold
Accumulated Amortization – Patents
93,500 / 17 = 5,500
5,500
5,500
Impairment Loss – Licensing Agreement No. 1
Accumulated Impairment – Licensing Agreement 1
70% x 60,000 = 42,000
42,000
42,000
Licensing Agreement No. 2
Unearned Revenue
4,000
Selling and Administrative Expenses
Accumulated Amortization – Licensing Agreement No. 2
60,000 / 10 = 6,000
6,000
Retained Earnings
Goodwill
30,000
Equipment
Miscellaneous Receivables
Leasehold Improvements
15,000
6,100
4,000
6,000
30,000
21,100
89
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Retained Earnings
Cost of Goods Sold
Accumulated Depreciation – Leasehold Improvements
15,000/ 10 = 1,500
1,500
1,500
Retained Earnings
Organization Costs
32,000
3,000
32,000
Problem 17 Genuine Company
(1)
Audit Adjusting Entries
Patents
Accumulated Amortization – Patents
200,000
Professional Fees and Other Legal Expenses
Patents
120,000
Amortization of Patents
Accumulated Amortization – Patents
100,000
Impairment Loss – Patents
Accumulated Amortization – Patents
Carrying value before impairment P700,000
Value in use = 140,000 x 3.7908 =
530,712
Impairment loss
P169,288
169,288
200,000
120,000
100,000
169,288
Professional Fees and Other Legal Expenses
Trademarks
70,000
Amortization of Trademarks (150,000/2)
Accumulated Amortization – Trademarks
75,000
Discount on Notes Payable
Franchise
Face value of the note
Present value when issued
200,000 x 3.1699
Initial discount
166,020
70,000
75,000
166,020
P800,000
633,980
P166,020
Retained Earnings
63,398
Interest Expense
49,738
113,136
Discount on Notes Payable
Date
Periodic Payment Interest Principal
Bal. of Principal
1/1/16
P633,980
12/31/16
P200,000
P63,398 P136,602
497,378
12/31/17
200,000
49,738
150,262
347,116
Franchise
Retained Earnings
16,602
Franchise
Accumulated Amortization
83,398
16,602
83,398
90
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Amortization of Franchise
83,398
Accumulated Amortization – Franchise
Correct cost of franchise = 200,000 + 633,980 = 833,980
Recorded amortization ( 10 year life)
Correct amortization 833,980/10
Adjustment
83,398
100,000
83,398
16,602
Retained Earnings
Organization Costs
40,000
Goodwill (285,000/ 19 )
Retained Earnings
15,000
Advertising Expense
Goodwill
165,000
(2.)
40,000
15,000
165,000
Adjusted Balances
Gross cost of patents ……………………………………………………………………….P1,000,000
Carrying value of patents, December 31, 2016…………………………………….. 800,000
Amortization of patents for 2017………………………………………………………. 100,000
Impairment loss on patents – 2017…………………………………………………… 169,288
Amortization of patents for the year 2018 = 530,712/5 ……………………….. 106,142
Total expenses relating to the Trademark =
70,000 + (1/2 x 150,000) ………………………………………….……………… 145,000
(g) Correct cost of the franchise……………………………………………………………… 833,980
(h) Interest expense for 2017 relating to the Notes Payable……………………….
49,738
(i) Discount on notes payable, 12/31/17 = 166,020 – 113,136……………………
52,884
(j) Carrying value of the Franchise, 12/31/17 (833,980 – 166,796)……………… 667,184
(k) Initial cost of goodwill 285,000 ÷ 19/20 ………………………………………… 300,000
(l) Goodwill on December 31, 2017………………………………………………………… 300,000
(m)Net adjustment to Retained Earnings, 1/1/17………………………………………
71,796 dr.
(a)
(b)
(c)
(d)
(e)
(f)
Problem 18
Amortization of Patents (1,200,000/12)
Accumulated Amortization – Patents
100,000
100,000
Amortization of Copyrights (1,400,000/10)
Accumulated Amortization – Copyrights
140,000
140,000
Amortization of Computer Software (400,000/10 x 6/12)
Accumulated Amortization – Software
Share Premium
Intellectual Capital
90,000
90,000
180,000
Multiple Choice
B
A
C
A
C
B
B
P16,830,000
40,000
2,000,000
2,000,000
Retained Earnings
Amortization of Goodwill
Accumulated Amortization – Goodwill
1.
2.
3.
4.
5.
6.
7.
8.
40,000
23.
24.
25.
26.
27.
28.
29.
30.
91
B
C
D
D
A
B
A
D
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21
22
P14,499,000
P144,990
D
B
D
D
C
C
B
C
B
C
C
B
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
44.
45.
46.
B
C
C
C
B
A
B
C
C
B
B
D
A
C
D
C
Supporting computations:
1. B
2. A
3. C
4. A
5. C
P300,000/10 x 7/12 =
(300,000 x 6/10) + 36,000
x 5/12
8
Depreciation expense for 2016
P17,500
11,250
P 28,750
Carrying value as of August 1, 2017
Overhaul costs
Depreciation – Aug. 1 – Dec. 31, 2017
- January 1 – June 30, 2018
216,000 / 8 x 6/12
Carrying value, June 30, 2018
Proceeds from sale
Loss from sale
Correct depletion for 2017
P4,860,000 / 1,620,000 x (15,000 tons x 6 months) =
Recorded depletion
Overstatement in depletion
P180,000
36,000
( 11,250)
( 13,500)
P191,250
185,000
P 6,250
P270,000
405,000
P135,000
Estimated useful life in years = 15 years
Estimated mining period = 1,620,000 / 15,000 = 108 months or 9 years
Use unit of output method, since mining period is shorter than life in years
Correct depreciation = (P600,000 x 90%) / 1,620,000 x 90,000 tons
Recorded depreciation
Overstatement in depreciation
P 30,000
40,000
P 10,000
Remaining machines at December 31, 2017 = Machines 2 and 4 only
Cost allocated to Machine 2 P1,200,000 x 500,000/1,500,000
P 400,000
Accumulated Depreciation of Machines 2 and 4
Machine 2 400,000 x 5/10 =
Machine 4 500,000 / 10 x 6/12
Total
6. B
P200,000
25,000
P225,000
=
Depreciation Expense for 2017:
Machine 2 P400,000/10
Machine 3 P480,000/10 x 6/12
Machine 4 P500,000/10 x 6/12
2014 Depreciation
P40,000
24,000
25,000
P 89,000
92
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
7. B
8.
9.
10.
Fair value of Machine 3 P500,000 – 200,000
Carrying value of machine 3
Cost
Accumulated depreciation 48,000 x 4.5
Gain on sale
P300,000
P480,000
216,000
264,000
P 36,000
Land
Cash paid
P12,000,000
FV of shares issued 40,000 x 107
4,280,000
Cost of removal of old buildings
Legal cost to obtain title
150,000
Legal work for construction contract
Insurance premium during period of construction
240,000 x 2/24
Special tax assessment
400,000
Construction costs (6,000,000 + 4,o00,000 + 4,000,000) ________
Correct cost
P16,830,000
Correct cost of building
Depreciation for 2015 = P14,499,000 / 50 x 6/12
Building
P 320,000
159,000
20,000
14.000,000
P 14,499,000
P14,499,000
P 144,990
11 through 14
Audit Adjusting Entries:
Buildings and Equipment
Accumulated Depreciation – Buildings and Equipment
Gain on Exchange of Buildings and Equipment
Buildings and Equipment
10,000
30,000
10,000
Buildings and Equipment
Accumulated Depreciation – Buildings and Equipment
Buildings and Equipment
10,000
60,000
Buildings and Equipment
Loss on Exchange of Buildings and Equipment
Buildings and Equipment
240,000
80,000
50,000
70,000
320,000
11. D Net decrease in cost of buildings and equipment
P180,000
12. B
Net decrease in accumulated depreciation
P 90,000
13. D Cost assigned to equipment received
P20,000 carrying value + cash paid of P10,000 =
P 30,000
14. D Net gain on exchange (see audit adjustments)
P830,000
15. C Land as Property, Plant and Equipment
P8,000,000 + 4,000,000 + 7,000,000
P19,000,000
=
16. C Building as Property, Plant and Equipment
P12,000,000 + P16,000,000 =
P28,000,000
17. B Depreciation Expense – Investment Property
(P8,000,000 / 20) x ½ =
P
18. C Equipment
P24,000,000 – 800,000 =
P23,200,000
19. B Accumulated Depreciation – Equipment
P8,000,000 – 320,000 =
P 7,680,000
93
200,000
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
20. C Investment Property
Land of P6,000,000 + Building, P7,800,000 =
P13,800,000
21. C 7,500,000 + 8,500,000 =
P16,000,000
22.
B
Carrying value
Cost
Accumulated depreciation
(P320,000 – P20,000)
Carrying value
Fair value less cost to sell (520,000 – 50,000)
P800,000
300,000
P500,000
P 470,000
Hence, the assets held for sale shall be measured at the lower amt. P470,000
23.
24.
25.
B
C
D
Impairment loss 500,000 – 470,000 =
1,500,000 + 1,800,000
860,000 + 5,000,000 =
P 30,000
P3,300,000
P5,860,000
26.
D
3,000,000 + 2,000,000 + 2,500,000 + 540,000 =
P8,040,000
27.
A
Eggs
P 100,000
28.
B
Machinery, December 31, 2015
12/31/14
01/03/2015
08/28/2015
Balance 12/31/15
P9,100,000
5,920,000
( 4,300,000)
P10,720,000
A
Accumulated Depreciation – Machinery 12/31/2015
12/31/14
08/28/15
12/31/15 Depreciation for 2015
12/31/15 Balance
P4,820,000
(3,172,500)
2,394,000
P 4,041,500
D
Vehicles 12/31/2015
12/31/2014
06/22/15
12/31/2015
P 4,680,000
1,620,000
P 6,300,000
29.
30.
P100,000
31. C Accumulated Depreciation – Vehicles
12/31/2014
12/31/2014 Depreciation for 2015
On beg. Bal. not sold
(4,680,000 – 1965,600) x 40% =
New = 1,620,000 x 40% x 6/12
P 1,965,600
P 1,085,760
324,000
32. C Depreciation Expense – Machinery (2015)
Machine 1 ( P4,300,000 – 250,000) / 5 x 8/12 =
Machine 2 (4,800,000 – 300,000) / 6 =
Machine 3 (5,920,000 – 400,000 ) / 5 =
Total depreciation expense, machinery for 2015
33. C Gain or loss on vehicle sold on May 25, 2016
Cost of vehicle sold
Accumulated depreciation
12/31/2014
2015 depreciation 1,085,800 / 2 =
2016 depreciation 814,300 x 40% x 5/12
Carrying value
Selling price
Loss on sale
94
1,409,760
P3,375,360
P 540,000
750,000
1,104,000
P2,394,000
P2,340,000
P982,800
542,900
135,700
1,661,400
P 678,600
660,000
P 18,600
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
34. C Accum. Depreciation – Building, Dec. 31, 2015
12/31/2014
2015 and 2016 depreciation 903,600 x 2 years
Accumulated depreciation, building 12/31/2016
35. B Depreciation Expense – Machine 2 (2017)
Cost of Machine 2
Accumulated depreciation – 12/31/2016
(4,800,000 – 300,000) / x 59 months/ 72 months =
Carrying value 12/31/16
Overhaul cost
Carrying value after overhaul
Depreciation expense – 2017
(P2,312,500 – 500,000) / 4 =
P2,861,400
1,807,200
P4,668,600
P4,800,000
3,687,500
P1,112,500
1,200,000
P2,312,500
P453,125
36. A Carrying value of land, December 31, 2017
P8,100,000
37. B Accumulated Depreciation – Land Improvements, Dec. 31, 2017
(550,000/10) x 1.5 =
P 82,500
38. C (100,000 X 98%) + 5,000 =
P103,000
39. C Carrying value = 180,000 – 180,000 x 10% x 7.5
Selling price
Gain on sale
P 45,000
54,000
P 9,000
40. B 2015 Depreciation
(500,000 – 180,000) x 10% =
180,000 x 10% x 9/12 =
103,000 x 10% x 9/12 =
Total
P 32,000
13,500
7,725
P 53,225
41. B 500,000 – 180,000 + 103,000
P423,000
42. D 2,000,000 x 9/10 x 1/5 =
P 360,000
43. A 42,000 + 100,000 + 102,000 =
P 244,000
44. C Cost = 180,000 + (336,000/112%) =
(P480,000 /10 )
Carrying value of franchise, 12/31/2017
P480,000
( 48,000)
P432,000
45. D 125,000 + 48,000 + 27,000 =
P200,000
46. C 300,000 + (36,000 x 9/12 ) =
P 327,000
95
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Summative Exercise
Elegant Builders
Audit Adjustments:
Other Receivables
Representation and Advertising
Supplies Expense
Repairs and Maintenance
Petty Cash Fund
5,600
5,200
3,054
6,500
Accounts Receivable – Current
Bank Charges
Cash
Trade Payables
84,200
2,100
600
Accounts Receivable
Allowance for Doubtful Accounts
36,000
Sales
35,000
Sales
20,354
86,900
36,000
Accounts Receivable – current
35,000
20,000
Accounts Receivable – current
20,000
Accounts Receivable
Advances from Customers
14,000
Other Non-current Financial Assets
Accounts Receivable
120,000
120,000
Sales
145,000
145,000
14,000
Accounts Receivable – current
Purchases
Trade Payables
60,000
60,000
Doubtful Accounts Expense
Allowance for Doubtful Accounts
162,364
162,364
Inventory, end
Cost of goods sold
Net Purchases
Inventory, beginning
2,693,200\
5,887,200
6,555,000
2,025,400
Other Operating Income
Trading Securities – PS Bank
86,400
86,400
Trading Securities – SM
Gain on Sale of Trading Securities
8,000
Trading Securities – PS Bank
Trading Securities – SM
93,600
50,000
8,000
96
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
Unrealized Gains on Trading Securities
143,600
Equipment
Transportation Expense
Repairs and Maintenance
14,600
3,600
11,000
Depreciation and Amortization
Accumulated Depreciation – Equipment
14,600 / 8 = 1,825
1,825
1,825
Accumulated Depreciation – Leasehold Improvements 19,333
Depreciation and Amortization
19,333
Utilities Expense
Salaries Expense
Repairs and Maintenance
Trade Payables and Accrued Expenses
44,400
26,350
3,820
Interest Expense
Interest Payable
12,205
74,570
12,205
Other Operating Income
Additional Paid in Capital
Land
1,040,000
1,000,000
40,000
Retained Earnings
Dividends Payable
1,650,000
1,650,000
Income Tax Expense
Income Tax Payable
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27
28
D
A
A
D
B
142,354
142,354
375,250 – 84,200 = 291,050
546,750 – 226,000 – 900 = 319,850
6 years which is 12 – 6; shorter than 10 – 6 + 6
see audit adjustments
Answer
4,646
3,471,200
650,000
793,600
143,600 gain
4,614,200
352,284
30,600
2,693,200
60,920
5,960,000
934,600
691,825
193,333
120,000
1,681.475
912,205
1,650,000
142,354
1,950,000
482,161
9,000,000
5,887,200
Petty cash fund
Cash in bank
Trading securities, at cost
Trading securities, at market
Unrealized gain or loss on trading securities
Accounts receivable
Allowance for doubtful accounts
Other Receivables – current
Merchandise inventory
Prepaid expenses
Land
Equipment
Accumulated Depreciation – Equipment
Net book value of leasehold improvements
Other Non-current Financial Assets
Trade Payables and Accrued Expenses
Notes Payable and Accrued Interest
Dividends Payable
Income Tax Payable
Additional Paid in Capital
Retained Earnings
Net Sales
Net Purchases
97
Solutions – Chapter 7 NON-CURRENT OPERATING ASSETS
29.
30.
31.
32.
33.
34
35
36
37
38.
39.
40.
Salaries and Commissions
Repairs and Maintenance
Supplies Expense
Bank Charges
Interest Expense
Other Operating Income
Transportation Expense
Depreciation and Amortization
Doubtful Accounts Expense
Representation & Advertising
Ordinary Share Capital
Profit
1,226,350
59,320
73,054
14,100
76,205
151,600
1,400
135,492
162,364
325,200
11,000,000
332,161
98
Solutions – Chapter 8 Liabilities
MULTIPLE CHOICE – THEORY
1. D
6. C
2. D
7. B
3. B
8. A
4. C
9. C
5. A
10. A
2. D
7. B, C,E
12. D, E
3. A
8. C,E
4. A,B,C,D
9. C,D
5. B,C
10. B,C,E
Problem 1
1. A
6. C, D
11. D,E
Problem 2 Jade Corporation
A.
Transaction Entries
April 1 Truck
Cash
Notes Payable
May 1
6,000,000
1,000,000
5,000,000
Cash
18,760,000
Notes Payable
Aug. 1
Sept. 10
Dec. 15
18,760,000
Retained Earnings
Dividends Payable
300,000
Dividends Payable
Cash
300,000
Purchases
Accounts Payable
1,470,000
300,000
Dec. 1 – 31 Cash/Accounts Receivable
Sales
Output VAT (VAT Payable)
B.
300,000
1,470,000
6,832,000
6,100,000
732,000
Adjusting Entries
Dec. 31
31
31
Interest Expense
450,000
Interest Payable
5,000,000 x 12% x 9/12 = 270,000
Interest Expense
Interest Payable
18,760,000 x 10% x 8/12
Discounts Lost
Accounts Payable
102
450,000
1,250,667
1,250,667
30,000
30,000
Solutions – Chapter 8 Liabilities
Current Liab.
P 1,500,000
5,000,000
124,000
Accounts Payable
12% Notes Payable
10% Notes Payable 2,000,000 – 1,876,000
18,760,000 – 124,000
Interest Payable 450,000 + 1,250,667
VAT Payable
Total
Non-Current Liab
18,636,000
1,700,667
732,000
P9,056,667
P18,636,000
Problem 3 Hannah Corporation
(a)
Interest Payable
2,000,000 x 8% x 4/12
6,000,000 x 10% x 3/12
6,150,000 x 10% x 2/12
4,500,000 x 12% x 8/12
10,000,000 x 8% x 6/12
Total Interest Payable
P
53,333
150,000
102,500
360,000
400,000
P 1,065,833
(b)
Current Liabilities
Accounts Payable
Notes Payable – trade
Notes Payable – Bank
10% Mortgage Note Payable (with notes to FS)
Bonds Payable
Interest Payable
Wages and Salaries Payable
Total Current Liabilities
Non-Current Liabilities
Refinanced Note Payable, due in 2015 (with note to FS)
12% Mortgage Notes Payable, due in 2023
Total Non-Current Liabilities
Total Non-Current Liabilities
P
1.650,000
1,200,000
2,000,000
6,000,000
10,000,000
1,065,833
350,000
P 22,265,833
P6,000,000
4,500,000
P10,500,000
P32,765,833
Notes to FS

The 10% Mortgage Note Payable was issued November 1, 2009, with a term of 10years.
Terms of the note give the holder the right to demand immediate payment if the
company fails to make a quarterly interest payment within 10 days of the date the
payment is due. As of December 31, 2014, the entity is already two months behind in
paying its required interest payment. Hence, the note is reclassified as a current liability.

The P6,000,000 Note Payable, was originally due on January 2, 2015. On December 30,
2014, The entity negotiated a written agreement with the First Bank to replace this note
with a 2-year P6,000,000 10% note, which was issued on January 2, 2015.
103
Solutions – Chapter 8 Liabilities
Problem 4 (Charity, Inc.)
Premium Expense
(2,000,000 x 30%)/10 x P5 =
P300,000
Inventory of Premiums
( 36,000 – 28,000) x P5 =
P 40,000
Estimated Premium Claims Outstanding
Expected distribution
(2,000,0000 x 30%)/10
Actual distribution
Still to be distributed
Cost of each premium
Premium Claims Outstanding
60,000
(28,000)
32,000
x P5
P160,000
Audit Adjustment:
Inventory of Premiums
Premium Expense ( 300,000 – 180,000)
Estimated Premium Claims Outstanding
40,000
120,000
160,000
Problem 5 (Evergreen)
Audit Adjustments:
Loss on Damages
Provision for Construction Damages
1,200,000
1,200,000
Loss on Pending Lawsuit
Provision for Damage on Pending Lawsuit
1,800,000
Loss on Product Defects
Provision for Cost of Product Withdrawal
(1,800,000 + 1,200,000) / 2
1,500,000
Warranty Expense
Provision for Warranties
P1,000,000 x 30% = P300,000
5,000,000 x 10% = 500,000
0 x 60%
0
Total
P800,000
104
1,800,000
1,500,000
800,000
800,000
Solutions – Chapter 8 Liabilities
Problem 6 SM Department Store
Correct balance of Unearned Revenue for Gift Certificates Outstanding
P300,000 – P15,000 – P200,000 = P85,000
Adjusting entry
Unearned Revenue for Gift Certificates Outstanding
Sales
Miscellaneous Income – Expired Gift Certificates
215,000
200,000
15,000
Problem 7 Glorietta Company
Date
Jan. 2, 2014
July 1, 2014
Jan. 1, 2015
July 1, 2015
Jan. 1, 2016
July 1, 2016
Jan. 1, 2017
July 1, 2017
Jan. 1, 2018
1.
Effective Interest
(7%)
Nominal Interest
(6%)
Discount
Amortization
P 312,921
313,826
314,794
315,829
316,937
318,123
319,391
320,749
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
12,921
13,826
14,794
15,829
16,937
18,123
19,391
20,749
Bonds Payable per client
Bonds Payable redeemed
Bonds Payable, per audit
P5,000,000
1,000,000*
P4,000,000
*Cash payments = Redemption price + Accrued interest
1,110,000 = 1.08Face + ( Face x 12% x 3/12)
1,110,000 = 1.08Face + (.03Face)
Face = 1,110,000/1.10
Face of bonds redeemed = P1,000,000
2.
Carrying value of P4M bonds on December 31, 2017
P4,602,873 x 4M/5M =
P3,682,298
Face value of bonds still outstanding
4,000,000
Bond Discount, per audit
P 317,702
3.
Bond Interest Expense for the year 2017
January 1 to June 30
July 1 to October 1 P 320,749 x 3/6
October 1 to December 31
P320,749 x 4M/5M x 3/6
Interest Expense for 2014
105
P319,391
160,375
128,300
P608,066
Amortized cost,
end
P4,470,303
4,483,224
4,497,050
4,511,844
4,527,673
4,544,610
4,562,733
4,582,124
4,602,873
Solutions – Chapter 8 Liabilities
4.
5.
Carrying value of P1M bonds on July 1, 2017
P4,582,124 x 1M/5M
Discount amortized, July 1 to October 1
P20,749 x 1M/5M x 3/6
Carrying value of bonds redeemed
Retirement price P1,000,000 x 108%
Loss on bond retirement
P 916,425
2,075
P918,500
1,080,000
P161,500
Balance of Interest Payable on December 31, 2017
P4,000,000 x 12% x 6/12
P240,000
Audit Adjusting Entry
Bonds Payable
Interest Expense
Loss on Bond Redemption
Retained Earnings
Bonds Payable Redeemed
Bond Discount
Interest Payable
1,000,000
8,065
161,500
392,430
1,110,000
211,995
240,000
Charge to Retained Earnings
Interest Paid before 2017
Correct interest expense in periods prior to 2017
Effect of prior period errors
P1,500,000
1,892,430
P 392,430
Problem 8 (Lucky Corporation)
(a) Audit Adjusting entries
Land
Discount on Notes Payable
Accrued Liabilities – Land Purchase
Notes Payable (3,000,000 x 4)
8,009,700
2,490,300
1,500,000
12,000,000
Interest Expense
Discount on Notes Payable
9,509,700 x 10% x 3/12
237,743
237,743
(b) Correct Cost of Land
Down payment
PV of 4 future payments = P2,633,875 x 3.037351
Cost of land
P2,000,000
8,000,000
P10,000,000
(c)
Current Liab.
P3,000,000
(713,227)
P2,286,773
Notes Payable
Discount on Notes Payable
Amortized Cost
106
Non-Current Liab
P9,000,000
(1,539,330)
P7,460,670
Solutions – Chapter 8 Liabilities
(d) Correct Interest Expense for 2017 P9,509,700 x 10% x 3/12
P 237,743
Problem 9
(Refresh Mint Company)
Cost of the leased asset:
300,000 x 7.2469 =
P2,174,070
Amortization Table
Date
Periodic
Payment
May 1, 2016
May 1, 2016
May 1, 2017
May 1, 2018
P300,000
300,000
300,000
Applied
to Applied
Interest (8%)
Principal
149,926
137,920
P300,000
150,074
162,080
to Balance
Principal
P2,174,070
1,874,070
1,723,996
1,561,916
2016
Interest Expense
149,926 x 8/12
149,926 – 99,951
137,920 x 8/12
Depreciation Expense
(2,174,070 – 20,000)/ 12 = 179,506 Annual
Taxes and Insurance
Total Correct Expense
Recorded Expense
Adjustment to Retained Earnings
(a)
2017
P99,951
P49,975
91,947
119,671
13,333
P232,955
320,000
P87,045
179,506
20,000
Audit Adjustments
Leased Equipment
Prepaid Taxes and Insurance
Finance Lease Liability
Accumulated Depreciation
Interest Payable
Retained Earnings
To establish correct beginning balances
2,174,070
6,667
Finance Lease Liability
Interest Payable
Interest Expense
Taxes and Insurance Expense (20,000 x 9/12)
Rent Expense
150,074
99,951
49,975
20,000
1,874,070
119,671
99,951
87,045
320,000
107
of
Solutions – Chapter 8 Liabilities
Depreciation Expense – Leased Equipment
Accumulated Depreciation – Leased Equipment
179,506
Interest Expense
Interest Payable
179,506
91,947
91,947
(b) Current Liabilities and Non-current Liabilities
Principal
Interest Payable
Total
Current
P162,080
91,947
P254,027
Non-cuurent
P1,561,916
0
P1,561,916
Problem 10 Timex Company
(a)
1.
Interest payable = P5,000,000 x 8% x 6/12
2.
Income Tax Expense:
Current
P6,000,000 x 30%
Deferred:
Increase in deferred tax liability
P1,500,000 x 30%
Total income tax expense
450,000
P2,250,000
Deferred Tax Liability = P4,500,000 x 30%
P1,350,000
3.
(b)
(c)
P1,800,000
Current Liabilities:
Accounts Payable
Dividends Payable
Current Portion of Finance Lease Liability
Interest Payable on Bonds
Income Tax Payable 6,000,000 x 30%
Total Current Liabilities
P 350,000
500,000
620,920
200,000
1,800,000
P3,470,920
Non-current Liabilities:
Non-current Portion of Finance Lease Liability
Bonds Payable, net of discount of P348,002
Deferred Tax Liability
Total Non-current Liabilities
P3,169,880
4,651,998
1,350,000
P9,171,878
MULTIPLE CHOICE
1.
2.
3.
4.
5.
6.
P 200,000
D
D
A
C
A
D
108
Solutions – Chapter 8 Liabilities
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
B
D
C
B
B
C
C
B
B
D
D
B
B
B
1. D
550,000 + 4,700,000 + 5,000,000 + 4,000,000 = 14,250,000
Total issue price
Issue price attributable to the debt
P5,000,000 x 0.6209 =
P3,104,500
400,000 x 3.7908=
1,516,320
Issue price attributable to the conversion privilege
2. D
P5,500,000
Issue price attributable to the debt
Date
Jan. 2, 2015
Dec. 31, 2015
Dec. 31, 2016
Dec. 31, 2017
4,620,820
P 879,180
P4,620,820
Effective Interest
(10%)
Nominal Interest
(8%)
Discount
Amortization
P462,082
468,290
475,119
P400,000
400,000
400,000
P 62,082
68,290
75,119
Amortized cost,
end
P4,620,820
4,682,902
4,751,192
4,826,311
3. A
Carrying value of the bonds on December 31, 2015
P4,682,902
4. C
Interest expense for 2016 =
P 468,290
5. A
Conversion of P2,000,000 on January 1, 2017
Bonds Payable
Paid in Capital from Bond Conversion Privilege (879,180 x 2/5)
Discount on Bonds Payable (248,808 x 2/5)
Ordinary Share Capital (P2,000,000/P1,000 x 8 x 100)
Share Premium
6. D
Retirement price P2,000,000 x 105%
Carrying value of P2,000,000 bonds 4,751,192 x 2/5
Loss in profit or loss
7 B
Interest expense for 2012 if P2,000,000 bonds were retired
P475,119 x 3/5 =
109
2,000,000
351,672
99,523
1,600,000
652,149
P2,100,000
1,900,477
P 199,523
P 285,072
Solutions – Chapter 8 Liabilities
Items 8 through 11
8. D
Annual rate = 70,000/500,000 = 14%
9. C
Carrying value on January 1, 2017 = 555,738 + 1,562 = 557,300
Effective interest, January 1 to June 30 = 35,000 – 1,562 = 33,438
Effective semiannual rate = 33,438 / 557,300 =
6%
Effective annual rate = 6% x 2 = 12%
10. B
Premium amortization – July 1 to Dec. 31, 2017
Nominal
Effective = 6% x 555,738
Amortization
Premium amortization – January 1 to Dec. 31
Total amortization for 2017
P35,000
33,344
P 1,656
1,562
P 3,218
11. B Interest expense for 2017 = 33,438 + 33,344 =
P66,782
12. C 1,500,000 x 12%
2,500,000 x 12% x 6/12
Total Interest Expense recorded
P180,000
150,000
P330,000
13. C
=
=
1,500,000 x 12% x 10/12 =
2,500,000 x 12% x 6/12 =
1,000,000 x 12% x 8/12 =
Total
P150,000
150,000
80,000
P380,000
14. B Face
Interest payable 1,000,000 x 12% x 8/12 =
Total
P1,000,000
80,000
P1,080,000
Items 15 through 20
15. B Accounts payable, per client
Debit balance in suppliers’ account
Shipments from cruise
Goods held on consignment
Accounts payable, per audit
P5,000,000
200,000
300,000
( 90,000)
P5,410,000
16. D 70,642 x 1/2 =
P
110
35,321
Solutions – Chapter 8 Liabilities
17. D Total proceeds
Accrued interest 1,000,000 x 11% x 6/12
Retirement price
Carrying value
As of 12/31/092,101,506 x ½
Amortization
30,864 x 1M/2M x 6/12
Loss
18. B
P4,000,000 x .75131 =
Date
9/30/15
9/30/16
9/30/17
9/30/18
P1,100,000
( 55,000)
P1,045,000
P1,050,753
(
7,716)
1,043,037
P
1,963
P3,005,240
Interest Expense
Carrying Value
P 3,005,240
3,305,764
3,636,340
4,000,000
300,524
330,576
363,660
Carrying value as of 9/30/17
Amortization 363,660 x 3/12
Carrying value 12/31/2017
P3,636,340
90,915
P3,727,255
19. B P240,000
20. B 5,000,000 (10%) + 2,000,000 (25%) =
P1,000,000
21 – 25
Interest Date
March 31, 2015
Sept. 30, 2015
March 31, 2016
Sept. 30, 2016
March 31, 2017
Sept. 30, 2017
March 31, 2018
Interest Paid
Effective Interest
Premium
Amortization
600,000
600,000
600,000
600,000
600,000
600,000
538,607
535,538
532,314
528,930
525,377
521,646
61,393
64,462
67,686
71,070
74,623
78,354
Amortized Cost, End
P10,772,144
10,710,751
10,646,289
10,578,603
10,507,533
10,432,910
10,354,556
21. D
P10,000,000 – P3,000,000 = P7,000,000
22. D
Carrying value of remaining bonds, 9/30/2017
P10,432,910 x 7/10
Amortization of premium 9/30 to 12/31/2017
P78,354 x 7M/10M x 3/6
Carrying value of remaining bonds 12/31/2017
Face value or remaining bonds
Premium on bonds payable, 12/31/17
( 27,424)
P7,275,613
7,000,000
P 275,613
P7,000,000 x 12% x 3/14
P 210,000
23. C
111
P7,303,037
Solutions – Chapter 8 Liabilities
24. B
January 1 to March 31
P528,930 x 3/6
April 1 to September 30
October 1 to Dec. 31
521,646 x 7/10 x 3/6
Total interest expense for 2017
P264,465
525,377
182,576
P972,418
25. A
Carrying value of bonds retired:
As of Sept. 30, 2014
P10,432,910 x 3/10
Retirement price
P3,000,000 x 102%
Gain on retirement of bonds
P3,129,873
3,060,000
P 69,873
112
CHAPTER 9 - SHAREHOLDERS’ EQUITY
MULTIPLE CHOICE – THEORY
1. B
7. C
2. D
8. B
3. D
4. B
5. B
6. A
PROBLEMS
Problem 1 Imation Company
Audit Adjusting Entries:
Treasury Shares
Share Premium
2,400 (140-135) = 12,000
Retained Earnings (687,280 – 497,600
Ordinary Shares
Ordinary Share Dividend Distributable
Share Premium _ Excess over Stated Value
4,840 x 142 = 687,280
4,840 x 100 = 484,000
Retained Earnings (Income Tax Expense)
Income Tax Payable
12,000
12,000
207,680
479,600
484,000
203,280
300,000
300,000
Problem 2 Cebu Trading Company
Total income since incorporation
Cash dividends paid
Total value of bonus issue distributed
Correct balance of retained earnings
P630,000
( 195,000)
( 45,000)
P 390,000
Problem 3 Emem Corporation
Balance, January 1
Profit for the year
Dividends
Retained Earnings, December 31
P1,590,000
860,000
( 750,000)
P1,700,000
Appropriated for Plant Expansion
Unappropriated
Total Retained Earnings
P 150,000
1,550,000
P 1,700,000
Chapter 9 – Shareholders’ Equity
Problem 4 Pathways Corporation
Contributed Capital
Preference Share, P100 par, 10,000 shares authorized,
4,000 shares issued
Ordinary Share, P50 par, 15,000 shares authorized,
8,000 shares issued, 7,700 shares outstanding
Share Premium
Total Contributed Capital
Retained Earnings
Appropriated
For Treasury Shares
P19,800
For General Contingencies
75,000
Unappropriated
160,400
Total
Less: Treasury Shares, at cost (300 shares)
Cumulative Other Comprehensive Income
Unrealized Gain on Available for Sale Securities
Total Shareholders’ Equity
P400,000
400,000
118,000
P918,000
235,400
P1,153,400
( 19,800)
50,000
P 1,183,600
Share premium :
7,000 x P7
1,000 x 12
4,000 x 13
Reissue of treasury shares – preference
Total additional paid in capital
P49,000
12,000
52,000
5,000
P118,000
Retained earnings:
Accumulated profit
Cash dividends paid
Bonus issue ( 1,000 x 62)
Total Retained Earnings
P610,000
( 312,600)
( 62,000)
P235,400
113
Chapter 9 – Shareholders’ Equity
Problem 5 Moreno Corporation
Date
1/1/17
1/15/17
2/1/17
3/15/17
4/15/17
4/30/17
5/1/17
5/31/17
9/15/17
12/31/17
Preference Share
Shares Amount
12/31/17
balances
800
800
Ordinary Share
Retained Treasury Shares
Earnings Shares Amount
Shares Amount APIC
15,000 300,000 4,160,000 1,100,000
4,000 150,000
40,000
4,000
1,500
30,000
33,000
(18,750)
200
8,600
10,000 200,000
200,000
2,230
44,600
78,050 (122,650)
41,100
(43,220) (2,150) (81,450)
( 39,995)
500,000
40,000
28,730
574,600
4,516,150
1,415,380
2,050
77,150
Supporting Computations and Entries
March 15 dividends (16,500 – 4,000) x 1.50 = P18,750
Apr. 30 entry
Share Options Outstanding (APIC 10,000 x 6)
60,000
Cash (10,000 x 40)
400,000
Ordinary Share (10,000 x 20)
200,000
Share Premium – Ordinary
260,000
Net increase in APIC = 260,000 – 60,000 = 200,000
May 1 bonus issue:
Ordinary shares issued
Treasury
Outstanding shares
26,500
( 4,200)
22,300
Charge to Retained Earnings 2,230 x P55=
Par value of bonus issue 2,230 x 20 =
Credit to additional paid in capital
May 31 Sale of Treasury Shares
Selling price 2,150 shares x P57
Cost of treasury shares sold:
150 @ P43
2,000 shares
Additional paid in capital from this sale
P122,650
( 44,600)
P 78,050
P122,550
P6,450
75,000
September 15 dividends:
On ordinary share : (28,730 - 2,050) x P1.50 =
On preference share: 8% x 40,000 =
Total
114
81,450
P 41,100
P40,020
3,200
P43,220
Chapter 9 – Shareholders’ Equity
Problem 6 Ghette Company
Entries for the quasi-reorganization:
Retained Earnings
180,000
Inventory (215,000 – 190,000)
25,000
Property, Plant and Equipment (875,000 – 720,000)
Cash
155,000
600,000
Share Premium
600,000
Ordinary Share Capital, P25 par
Ordinary Share Capital, P15 par
Share Premium
2,500,000
1,500,000
1,000,000
Share Premium
Retained Earnings (750,000 + 180,000)
930,000
930,000
Shareholders’ Equity
Ordinary Share Capital, P15 par, 100,000 shares
Share Premium (1,750,000 + 600,000 + 1,000,000
- 930,000)
Total Shareholders’ Equity
P1,500,000
2,420,000
P3,920,000
Problem 7 LTC Company
LTC Company
Statement of Comprehensive Income
For the Years Ended December 31, 2017 and 2016
2017
P3,000,000
1,420,000
P1,580,000
(350,000)
(260,000)
P 970,000
291,000
P 679,000
Sales
Cost of goods sold
Gross profit
Selling expenses
General and administrative expenses
Profit before income tax
Income tax expense
Profit
115
2016
P2,540,000
1,150,000
P1,390,000
(210,000)
(220,000)
960,000
336,500
P 623,500
Chapter 9 – Shareholders’ Equity
2016 Cost of Goods Sold – weighted average
Cost of goods sold under FIFO
Difference in beginning inventory
Difference in ending inventory
Cost of goods sold as restated
P1,140,000
30,000
( 20,000)
P 1,150,000
2016 income tax expense
Before restatement
Adjustment due to change in inventory costing procedure
(1,150,000 – 1,140,000) x 30%
2013 income tax expense as restated
P 339,500
( 3,000)
P 336,500
LTC Company
Statement of Changes in Equity
For the Years Ended December 31, 2017 and 2016
Ordinary Share
Balances, January 1, 2016
Cumulative effect of changing from FIFO
costing to weighted average, net of
applicable income tax of P9,000
(30,000 x 70%)
Dividends
Profit for the year
Balance, December 31, 2016
P 1,000,000
Retained
Earnings
P600,000
P1,000,000
21,000
(400,000)
623,500
P 844,500
Profit for the year 2017
Balances, December 31, 2017
P1,000,000
679,000
P1,523,500
Problem 8 Northwest Corporation
Reported profit
Loss from fire
Write off of goodwill
Loss on sale of equipment
Gain on early retirement of bonds
Gain on insurance policy settlement
Corrected profit
P120,000
( 2,625)
( 26,250)
( 24,150)
7,525
5,250
P 79,750
Retained Earnings, January 1
Stock dividends
Loss on retirement of preference shares
Officers’ compensation in prior period
Other correction of errors
Corrected profit (see above)
Corrected retained earnings, Dec. 31
P263,200
( 70,000)
( 35,000)
( 162,750)
25,025
79,750
P100,225
116
Total
P1,600,000
21,000
(400,000)
623,500
P
1,844,500
679,000
P2,523,500
Chapter 9 – Shareholders’ Equity
MULTIPLE CHOICE - PROBLEMS
Items 1 through 5
1. B
Balance, December 31, 2017
Mar. 31 4,500 x 3
June 30 ( 250,000 + 4,500 – 6,000) / 10 = 24,850 shares
24,850 shares x P3
Sept. 30 P2,000,000/P1,000 x 2 shares = 4,000 shares
4,000 shares x P3
Balance, Dec. 31
P 750,000
13,500
2. C
RE, January 1, 2017
Profit
Understatement in depreciation 40,000 x 65%
Balance, December 31, 2017
P 480,000
600,000
( 26,000)
P 1,054,000
3. B
Issue price
Attributable to the debt
PV of face = P2,000,000 x 0.32197 = P 643,940
PV of interest = P200,000 x 5.65022
1,130,044
Amount credited to equity
P2,000,000
4. B
Interest expense for 2017 = 1,773,984 x 12% x 9/12 =
P 159,659
5. C
Effective interest for 2017
Nominal interest 200,000 x 9/12
Amortization
Carrying value, April 1
Carrying value, Dec. 31
6. A
Correct balance of Retained Earnings
485,000 – 200,000 + 324,000 – 300,000 + 451,000 =
P760,000
Total share premium
150,000 + 100,000 =
P 250,000
7. C
74,550
12,000
P 850,050
1,773,984
P 226,016
P159,659
150,000
P 9,659
1,773,984
P1,783,645
8. D
Ordinary share
Additional paid in capital
Retained earnings
Revaluation surplus (appraisal increase)
Total shareholders’ equity
P2,000,000
250,000
760,000
300,000
P3,310,000
9. A
Preference share = P6,000,000 – (4,000 x P200) =
P5,200,000
10. C Ordinary share = 200,000 shares x P25 par =
117
P5,000,000
Chapter 9 – Shareholders’ Equity
11. B APIC, January 1, 2017
Cancelled upon retirement of preference
P1,800,000 / 30,000 x 4,000
From sale of treasury shares 6,000 x (45 – 37.50)
Sale of donated shares 2,000 x 48
APIC, December 31, 2015
P3,300,000
( 240,000)
45,000
96,000
P3,201,000
12. C Ordinary shares outstanding
Issued = 100,000 x 2
Treasury (8,000 x 2) – 6,000 + 4,000 – 2,000 =
Outstanding
200,000
12,000
188,000
13. C Retained Earnings
January 1, 2017
Excess of retirement price over issue price
280 – (200 + 60 share premium per share) x 4,000
Profit
Balance, December 31, 2017
P2,200,000
( 80,000)
1,850,000
P3,970,000
There is no number 14
15. D Ordinary shares issued:
January 1, 2017
Mar. 6 – 20
Nov. 3 55 x 10 shares
Total shares issued
Par value per share
December 31, 2015 balance
90,000
1,400
550
91,950
P 2
P183,900
16. D Share premium
January 1, 2017 balance
Mar. 6 1,400 x 42
Nov. 3 (see entry below)
Dec. 31 balance
P1,820,00
58,800
24,200
P1,903,000
Issue price of bonds 90,000 x 103%
Issue price of debt 90,000 x 97% =
Value assigned to 90 share warrants
P 92,700
87,300
P 5,400
Entry upon exercise of 55 warrants
Share warrants issued (5,400 x 55/90)
Cash 550 x 40
Ordinary share (550 x 2)
Share premium
3,300
22,000
1,100
24,200
118
Chapter 9 – Shareholders’ Equity
17. D Paid in capital from treasury shares
Sales price
650 x P40
Cost = P72,600/1,210 x 650
Deduction from previous APIC from treasury shares
Previous balance of APIC
APIC from Treasury shares
P 26,000
39,000
P 13,000
22,500
P 9,500
18. C Ordinary Share Warrants Outstanding
Issue Price of bonds and warrants P90,000 x 103%
Fair value of bonds ex-warrants
Value initially assigned to warrants
Value of warrants exercised (5,400 x 55/90)
Value of remaining warrants
P92,700
87,300
P 5,400
( 3,300)
P 2,100
19. A Cost of remaining treasury shares
Cost of 1,210 treasury shares originally held
Cost of treasury shares sold ( 72,600 x 650 / 1,210)
Cost of remaining treasury shares
20 – 28 See worksheet
20.
21.
22.
23.
24.
25.
26.
27.
28.
D
D
B
C
A
B
C
A
D
119
P 72,600
( 39,000)
P 33,600
Chapter 9 – Shareholders’ Equity
Date
1/1/17
1/6/17
1/31
2/22
2/28
4/30 –
5/31
8/31
9/14
11/30
12/15
12/31
12/31
12/31
bal.
Preference Share
Shares Amount
9,000
P900,000
Ordinary Share
Shares
Amount
Retained
Earnings
APIC
600,000
22,500
P600,000
22,500
P1,200,000
348,750
40,500
21,000
21,000
525,000
Treasury Shares
Shares Amount
P3,198,000
7,500
P180,000
(12,000)
(3,000)
(72,000)
(1,278,900)
( 54,000)
(42,000)
1,800,000
P2,691,100
4,500
P108,000
(920,000)
450
9,000
P900,000
643,950
450
P643,950
(1,350)
5,400
P2,118,300
January 31:
Value assigned to warrants 1,350,000 x (98% - 95%) = P40,500 (classified as APIC)
Entry on Sept. 15
Cash (450 x 10)
Share Warrants Outstanding (APIC)
Ordinary Share
Share Premium – Ordinary Share
4,500
1,350
450
5,400
SUMMATIVE EXERCISE – CONQUEST MOTORS CORPORATION
Correction: Fair values given for Amity, Bold and Courteous should have been on
December 31, 2017 instead of 12/31/15.
Operating Expenses
Petty Cash Fund
2,200
Materials Inventory
Cash - Materials Acquisition Fund
9,000
2,200
9,000
Other Financial Assets
Cash (in Bank)
350,000
Cash (in Bank)
Salaries Payable
12,000
350,000
12,000
Goods in Process Inventory
Cash
900
Operating Expenses
1,000
900
120
Chapter 9 – Shareholders’ Equity
Cash
1,000
Notes Payable
Interest Expense
Cash
300,000
18,000
318,000
Other Income (Dividend Revenue)
Trading Securities
6,600
Dividend Receivable
Other Income
2,000
Trading Securities
Unrealized Gain on Trading Securities
12,800
6,600
2,000
12,800
Repossessed Inventory (Finished Goods Inventory)
Impairment Loss – Installment Receivable
Materials Inventory
Accounts Payable
69,000
69,000
18,000
18,000
Goods in Process Inventory
Applied Factory Overhead
69,600
69,600
Factory Overhead Control
Operating Expenses
Accumulated Depreciation – Building
30,000
20,000
50,000
(Discount on) Notes Payable
Equipment
Operating Expenses
12,000
Interest Expense
Operating Expenses
67,500
Interest Expense
Interest Payable
22,500
Share Capital
Retained Earnings
80,000
80,000
10,800
1,200
67,500
22,500
Share Capital
Share Premium
250,000
250,000
Retained Earnings
Dividends Payable
348,000
348,000
121
Chapter 9 – Shareholders’ Equity
Operating Expenses
Accrued Operating Expenses
115,000
115,000
Applied Factory Overhead
Overapplied Factory Overhead
Factory Overhead Control
747,600
11,600
736,000
Overapplied Factory Overhead
Cost of Goods Sold
11,600
11,600
Income Statement Correct Balances:
Sales
Cost of goods sold
Gross profit
Operating Expenses
Impairment Loss – Receivable
Other Income
Unrealized Gains on Trading Securities
Other Expenses and Losses
Income before interest and taxes
Interest expense
Income before income tax
Income tax expense
Profit
P3,476,000
2,344,900
P 1,131,100
( 609,500)
( 61,000)
55,400
12,800
( 36,500)
P 492,300
108,000
P 384,300
115,290
P 269,010
Balance sheet accounts
Current Assets
Cash
Trading Securities
Installment Accounts Receivable
Dividend receivable
Receivable from officers
Inventories
Prepaid expenses
Total current assets
Non-current Assets
Property, Plant and Equipment, at cost
Accumulated Depreciation
Net carrying value
Other Non-Current Financial Assets
Total Non-current assets
Total Assets
P1,015,900
214,800
340,000
2,000
54,000
485,500
40,000
P2,152,200
P5,409,200
186,000
P5,223,200
512,000
5,735,200
P7,887,400
Current Liabilities
Accounts payable
P 508,000
122
Chapter 9 – Shareholders’ Equity
Salaries payable
Notes payable
Accrued expenses
Dividends payable
Interest payable
Income tax payable
Total current liabilities
Non-current liabilities
Notes payable
Total liabilities
12,000
538,000
115,000
348,000
22,500
115,290
P1,658,790
1,000,000
P2,658,790
Shareholders’ Equity
Share Capital
Share Premium
Retained Earnings
Total Liabilities and Shareholders’ Equity
P2,900,000
1,450,000
878,610
123
5,228,610
P7,887,400
MULTIPLE CHOICE – THEORY
1. B
7. D
2. D
8. B
3. B
4. B
5. A
6. D
PROBLEM 1
1. Accounts Receivable
2. Allowance for Uncollectible Accounts
3. Prepaid Insurance
4. Prepaid Rent
5. Interest Receivable
6. Trading Securities
7. Plant and Equipment at cost
8. Accumulated Depreciation
9. Total current liabilities
10. Cost of sales
11.
Selling and Administrative
Expenses
A
531,000
53,100
14,850
180,000
63,000
693,000
860,000
386,000
1,145,700
1,576,200
1,065,350
B
590,000
59,000
17,250
120,000
31,500
700,000
1,560,000
459,000
245,700
1,730,250
1,060,250
C
690,000
69,000
19,950
60,000
26,250
707,000
2,300,000
533,400
215,700
1,620,200
1,085,750
D
790,000
79,000
24,450
40,000
21,000
726,250
3,860,000
607,400
155,700
1,483,000
1,138,750