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Asuncion-2018-SolMan

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APPLIED
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
A guide in applying auditing procedures to specific
accounts of the financial statements.
TEACHERS MANUAL
2016
Edition
By
DARRELL JOE O. ASUNCION, MBA, CPA
MARK ALYSON B. NGINA, CMA, CPA
RAYMUND FRANCIS A. ESCALA, MBA, CPA
Dear fellow teacher,
This “Teacher’s Manual” should be used solely by the
teacher and for classroom purposes only. This manual
should NOT be reproduced either manually (e.g.,
printing or photocopy) or electronically (e.g., copying or
uploading in the net) without our written consent (or the
publisher’s written authorization).
If you have comments, queries or suggestions, please do
not hesitate to contact us at:
Telephone: 074-2441894
Mobile No.: Darrell Joe O. Asuncion – 0923-424-8286
Mark Alyson B. Ngina – 0915-510-7281
Raymund Francis A. Escala – 0917-715-1226
Email ad: appliedauditingnea@gmail.com.
Thanks and God bless.
Sincerely,
Darrell Joe O. Asuncion, MBA, CPA
Mark Alyson B. Ngina, CMA, CPA
Raymund Francis A. Escala, MBA, CPA
Table of Contents
CHAPTER 5: CASH TO ACCRUAL................................................................................ 4
CHAPTER 6: CORRECTION OF ERRORS................................................................19
CHAPTER 8: CASH AND CASH EQUIVALENTS ...................................................29
CHAPTER 10: LOANS AND RECEIVABLES ...........................................................52
CHAPTER 12: INVENTORIES .....................................................................................86
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT
IN EQUITY SECURITIES ............................................................................................ 117
CHAPTER 15: INVESTMENT IN DEBT SECURITIES ...................................... 133
CHAPTER 16 INVESTMENT IN ASSOCIATE...................................................... 142
CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT.................................... 157
CHAPTER 19 WASTING ASSETS............................................................................ 183
CHAPTER 20 INVESTMENT PROPERTY ............................................................ 189
CHAPTER 22 INTANGIBLE ASSETS ..................................................................... 195
CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET
HELD FOR SALE ........................................................................................................... 208
CHAPTER 25 INTRODUCTION TO LIABILITIES.............................................. 225
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING..239
CHAPTER 27 LEASE ................................................................................................... 259
CHAPTER 29 SHAREHOLDERS’ EQUITY............................................................ 285
CHAPTER 30 BOOK VALUE AND EARNINGS PER SHARE .......................... 308
CHAPTER 32 STATEMENT OF FINANCIAL POSITION AND
COMPREHENSIVE INCOME ..................................................................................... 320
CHAPTER 33 STATEMENT OF CASH FLOWS................................................... 339
Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL
PROBLEM 5-1 (Computation of Sales under cash basis)
Accounts receivable/Notes receivable trade/Advances from customers
Beg. balance – AR
200,000
180,000 Balance end - AR
Beg. balance – NR
240,000
170,000 Balance end - NR
Balance end - Advances
40,000
55,000 Beg. balance - Advances
Sales on account
600,000
4,000 Sales ret. and allowance
Recoveries
2,000 Sales discounts
Collections including
666,000 recoveries
3,000 Write-off
Total
1,080,000 1,080,000
Suggested answer: A
PROBLEM 5-2 Computation of Bad Debts
Allowance for bad debts
Ending balance
Write-off
40,000
8,000
25,000
21,000
2,000
Total
48,000
48,000
Beginning balance
Bad debts expense
Recoveries
Suggested answer: C
PROBLEM 5-3 (Computation of Purchases)
Accounts Payable / Notes Payable / Advances to Suppliers
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
400,000 Beg. balance - NP
Purchase discount
3,000
68,000 Balance end - Advances
Beg. balance - Advances
50,000
651,000 Purchases (gross)
Balance end – AP
250,000
Balance end – NP
210,000
Total
1,319,000 1,319,000
Suggested answer: A
4
Chapter 5: Cash to Accrual
PROBLEM 5-4 Computation of Cost of Sales
Accounts Payable (AP) / Notes Payable (NP)
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
- Beg. balance - NP
Purchase discount
3,000
859,000 Purchases (gross)
Balance end - AP
250,000
Balance end - NP
Total
1,059,000 1,059,000
Beginning balance
Net purchases
Total
Merchandise Inventory
400,000
210,000 Ending balance
860,000 1,050,000 Cost of sales
1,260,000 1,260,000
Computation of the net purchases:
Gross purchases on account
Add cash purchases
Total
Less: Purchase returns and allowances
Purchase discount
Net purchases
859,000
10,000
869,000
6,000
3,000
860,000
Suggested answer: B
PROBLEM 5-5 (Computation of Income Other Than Sales)
Rent Receivable/Unearned rent income
Beg. Balance - Rent
Receivable
Balance end - Unearned
rent income
Rent Income (squeeze)
Total
200,000
250,000
30,000
90,000
770,000
660,000
1,000,000
Balance end - Rent
Receivable
Beg. Balance – Unearned
rent income
Collections
1,000,000
Suggested answer: B
PROBLEM 5-6 (Computation of Expenses in General)
Prepaid Rent/Rent payable
Beg. Balance - Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
Total
200,000
250,000
65,000
80,000
850,000
785,000
1,115,000
1,115,000
5
Balance end - Prepaid
Rent
Beg. Balance – Rent
payable
Rent Expense
Chapter 5: Cash to Accrual
Suggested answer: C
PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold)
Question No. 1
Carrying amount of equipment sold
Add: Accumulated depreciation
Cost
Question No. 2
25,000
15,000
40,000
Equipment
Beg. Balance
Cost of PPE acquired
(squeeze)
100,000
60,000
120,000
40,000
Total
160,000
160,000
Balance end
Cost of PPE disposed
Accumulated depreciation
Balance end
Accumulated depreciation
of PPE disposed
18,000
Total
33,000
15,000
18,000
Beg. Balance
Depreciation expense
15,000
33,000
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 5-8
Question No. 1
Prepaid Insurance
Beg. Balance
Payments
7,500
41,500
6,000
43,000
Total
49,000
49,000
Balance end
Expenses (squeeze)
Question No. 2
Interest Receivable
Beg. Balance
Income (squeeze)
14,500
112,700
3,700
123,500
Total
127,200
127,200
6
Balance end
Collections
Chapter 5: Cash to Accrual
Question No. 3
Salaries payable
Balance end
Payments
61,500
481,000
53,000
489,500
Total
542,500
542,500
Question No. 4
Beg. Balance
Expenses
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000
1,845,000
Total
2,395,000
2,395,000
Balance end
Collections (squeeze)
Question No. 5
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000
1,820,000
25,000
Total
2,395,000
2,395,000
Balance end
Collections (squeeze)
Write-off
Question No. 6
Accounts receivable trade
Beg. Balance
Sales
Recoveries
415,000
1,980,000
20,000
550,000
1,840,000
25,000
Total
2,415,000
2,415,000
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
A
5.
Balance end
Collections (squeeze)
Write-off
A
6.
B
PROBLEM 5-9
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R
Sales on account
(squeeze)
Total
100,000
4,260,000
100,000
10,000
4,200,000
30,000
20,000
4,360,000
4,360,000
7
Increase in N/R
Write-off
Collections
Sales discounts
Sales ret. and allow.
Chapter 5: Cash to Accrual
Question No. 2
Accounts payable
Cash paid to creditors
2,800,000
200,000
Purchase discounts
40,000
2,650,000
Purchase returns
10,000
Total
2,850,000
Decrease in Accounts
payable
Gross
purchases
(squeeze)
2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory
Gross purchases
25,000
2,650,000
40,000
10,000
2,625,000
Total
2,675,000
2,675,000
Purchase discounts
Purchase returns
Cost of sales (squeeze)
Question No. 4
Rental receivable/Unearned Rent Income
Rental
(squeeze)
revenue
454,000
14,000
40,000
400,000
Total
454,000
Increase
in
Rental
receivable
Decrease in Unearned
rental
Collections from tenants
454,000
Question No. 5
Prepaid interest/Interest Payable
Decrease in
interest
Increase in
payable
Interest paid
Total
Prepaid
5,500
Interest
8,500
114,000
Interest
(squeeze)
100,000
114,000
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
114,000
A
8
5.
D
expense
Chapter 5: Cash to Accrual
PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R
Beg. Balance – N/R
Sales on account
(squeeze)
200,000
300,000
1,000,000
250,000
100,000
20,000
10,000
1,120,000
1,500,000
1,500,000
Total
Bal. end – A/R
Bal. end – N/R
Sales ret. and allow.
Sales discount
Collections
Question No. 2
Accounts payable/Notes payable
Balance end – A/P
Balance end – N/P
Purchase returns
allow
Purchase discount
Payments
and
Total
25,000
75,000
40,000
50,000
100,000
650,000
Beg. Balance – A/P
Beg. Balance – N/P
Gross
purchases
(squeeze)
10,000
650,000
800,000
800,000
Gross purchases
Less: Purchase ret and allow
Purchase discounts
Net Purchases
650,000
40,000
10,000
Question No. 3
Sales
Less: Sales ret and allow
Sales discounts
Net Sales
Less: Cost of Sales
Merchandise inventory beg.
Add: Net Purchases
Purchases
Add: Freight-in
Gross Purchases
Less: Purch. Ret and allow
Purchase discounts
Total goods available for sale
Less: Merchandise inventory, end
Gross Income / Gross Profit
50,000
600,000
20,000
10,000
1,000,000
30,000
970,000
200,000
600,000
650,000
40,000
10,000
9
600,000
800,000
100,000
700,000
270,000
Chapter 5: Cash to Accrual
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
100,000
125,000
50,000
75,000
350,000
300,000
Total
500,000
500,000
Question No. 5
Balance end - Prepaid
Salaries
Beg. Balance - Accrued
Salaries
Salaries
expense
(squeeze)
Accrued rent/Unearned rent
Beg. Balance - Accrued
rent
Balance end - Unearned
rent
Rent income (squeeze)
Total
SUMMARY OF ANSWERS:
1. A
2. B
3. C
70,000
40,000
40,000
80,000
490,000
300,000
600,000
600,000
4.
B
5.
Balance end - Accrued
rent
Beg. Balance - Unearned
rent
Collection of rent
B
PROBLEM 5-11
Question No. 1
Accounts receivable trade
Beg. Balance
Recoveries
Sales (squeeze)
200,000
8,000
1,570,000
300,000
20,000
1,408,000
50,000
Total
Sales
Less: Sales discount
Net Sales
1,778,000
Balance end
Sales discounts
Collections
including
recoveries (1,498,00080,000+20,00-30,000)
Accounts written-off
1,778,000
1,570,000
20,000
1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,00020,000+30,000)
Purchase ret. and allow.
Balance end
1,210,000
10,000
100,000
10
150,000
1,170,000
Beg. Balance
Purchases (squeeze)
Chapter 5: Cash to Accrual
Total
1,320,000
Purchases
Less: Purchases discount
Net Purchases
1,320,000
1,170,000
10,000
1,160,000
Question No. 3
Merchandise inventory
Beg. Balance
Net
Purchases
(1,170,000-10,000)
380,000
1,160,000
330,000
1,210,000
Total
1,540,000
1,540,000
Balance end
Cost of Sales (squeeze)
Question No. 4
Rent Receivable
Beg. Balance
Rent income (squeeze)
70,000
130,000
80,000
120,000
Total
200,000
200,000
Balance end
Collections
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
50,000
30,000
20,000
52,000
8,000
Total
80,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
Beg. Balance
Doubtful
account
expense(squeeze)
Recoveries
80,000
4.
A
5.
A
PROBLEM 5-12 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
Professional
(squeeze)
Total
fees
500,000
5,250,000
750,000
5,000,000
5,750,000
5,750,000
11
Balance end
Collections
Chapter 5: Cash to Accrual
Question No. 2
Professional Fees (See No. 1)
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000)
Other operating expense
Interest expense (1M x 12% x 9/12)
Depreciation expense (2,500,000/10)
Net income
Question No. 3
Cash
Accounts Receivable
Supplies
Total Current Assets
1,300,000
850,000
750,000
90,000
250,000
3,240,000
2,010,000
1,500,000
750,000
250,000
2,500,000
Question No. 4
Furniture and fixtures
Less: Accumulated Depreciation
(125,000 + 250,000)
Total Noncurrent Assets
375,000
2,125,000
Question No. 5
Total current assets (See No. 3)
Total noncurrent assets (See No. 4)
Total Assets
2,500,000
2,125,000
4,625,000
2,500,000
Question No. 6
Notes Payable
Accrued rent
Accrued interest on notes payable
(1,000,000 x 12% x 9/12)
Total Current Liabilities
1,000,000
100,000
90,000
1,190,000
Question No. 7
Total assets (See No. 5)
Less: Total liabilities (See No. 6) – all are
current
Total Owner’s Equity
SUMMARY OF ANSWERS:
1. B
2. B
3. A
5,250,000
4.
A
12
4,625,000
1,190,000
3,435,000
5.
A
6.
C
7.
B
Chapter 5: Cash to Accrual
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance
Sales on account
(squeeze)
124,000
1,535,000
146,000
13,000
1,500,000
Total
1,659,000
1,659,000
Balance end
Sales discount
Collections
Sales on account
Add: Cash sales
Total sales
1,535,000
160,000
1,695,000
Question No. 2
Gross sales (see No. 1)
Less: Sales discount
Net sales
1,695,000
13,000
1,682,000
Question No. 3
Accounts Payable
Payments
Balance end
1,206,000
410,000
382,000
1,234,000
Total
1,616,000
1,616,000
Purchases on account
Add: Cash purchases
Total Purchases
Beg. Balance
Purchases (squeeze)
1,234,000
120,000
1,354,000
Question No. 4
Merchandise Inventory
Beg. Balance
Net purchases
186,000
1,354,000
190,000
1,350,000
Total
1,540,000
1,540,000
Question No. 5
Balance end
Cost of sales (squeeze)
Prepaid G&A/Accrued G&A
Beg. Balance - Prepaid
Interest
Balance end – Accrued
Interest
Payments
Total
9,600
8,400
9,000
7,000
204,000
207,200
222,600
222,600
13
Balance end - Prepaid
Interest
Beg. Balance – Accrued
Interest
Expenses
Chapter 5: Cash to Accrual
Question No. 6
General and administrative expense (see No. 5)
Depreciation expense
Warranty expense
Total operating expense
207,200
84,000
6,400
297,600
Question No. 7
Selling price of land
Less: Book value of land
Gain on sale of land
20,000
16,000
4,000
Question No. 8
Selling Price
Less Book value
Cost
Less: Accumulated depreciation
Gain on sale of warehouse equipment
12,000
25,000
16,000
Question No. 9
Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Gain on sale of boiler
42,000
48,000
20,000
Question No. 10
Net Sales
Less: Cost of Sales
Gross Profit
Less: Operating expenses
Gain on sale (14,000+3,000+4,000)
Net income
SUMMARY OF ANSWERS:
1. B
2. C
3. D
6. A
7. A
8. C
9,000
3,000
4.
9.
A
B
28,000
14,000
1,682,000
1,350,000
332,000
297,600
21,000
55,400
5.
10.
B
A
PROBLEM 5-14 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
Sales (squeeze)
150,000
800,000
200,000
10,000
740,000
Total
950,000
950,000
14
Balance end
Sales returns
Collections
Chapter 5: Cash to Accrual
Question No. 2
Sales on account
Add: Cash sales
Total sales
Less: Sales returns and allowances
Net sales
Less: Cost of sales (squeeze)
Gross profit (200,000/40%)
800,000
100,000
900,000
10,000
890,000
390,000
500,000
Merchandise inventory
Beg. Balance
Net Purchases (squeeze)
190,000
420,000
220,000
390,000
Total
610,000
610,000
Balance end
Cost of Sales
Question No. 3
Accounts Payable trade
Payments (squeeze)
Purchase returns and
allowances
Balance end – Accounts
payable
Total
470,000
230,000
8,000
428,000
Beg. Balance - Accounts
payable
Gross
purchases
(420,000+8,000)
180,000
658,000
658,000
Question No. 4
Total payment of Accounts payable and admin expenses
Less: Payment of Accounts payable
Payment of admin expenses
Question No. 5
Payment of admin expenses
Divided by: Percentage of cash expenses to total admin
expense
Total admin expenses
Add: Selling expenses
Total selling and administrative expense
Question No. 6
Total administrative expenses
Less: Payment of administrative expense
Non-cash administrative expenses
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12)
15
518,000
470,000
48,000
48,000
80%
60,000
200,000
260,000
60,000
48,000
12,000
9,000
Chapter 5: Cash to Accrual
Depreciation for furniture and fixtures
Divided by: Number of months used over 12 months
Annual depreciation
Divided by: Depreciation rate
Cost of Furniture and Fixtures (no residual value)
SUMMARY OF ANSWERS:
1. A
2. A
3.
B
4.
A
3,000
6/12
6,000
10%
60,000
5.
C
6.
PROBLEM 5-15
Question No. 1
Cash Receipts:
From customers
From issue of ordinary shares
From bank loan
Cash disbursements:
Purchase of inventory
Rent
Salaries
Utilities
Insurance
Purchase of equipment and furniture
Cash
360,000
100,000
100,000
300,000
15,000
30,000
5,000
3,000
40,000
Question Nos. 2 and 3
Current assets
Cash
Inventories
Prepaid rent (1,000 x 3)
Total current assets (No. 2)
Noncurrent assets
Property, plant and equipment
Less accumulated depreciation
Total assets (No. 3)
560,000
393,000
167,000
167,000
100,000
3,000
270,000
40,000
4,000
Question No. 4
Accounts payable
Utilities payable
Loans payable
Interest on loans payable (100,000 x 12% x 9/12)
Total current liabilities
16
36,000
306,000
20,000
1,000
100,000
9,000
130,000
A
Chapter 5: Cash to Accrual
Question No. 5
Ordinary shares
Retained earnings (net income)
Shareholders’ equity
SUMMARY OF ANSWERS:
1. B
2. B
3.
100,000
176,000
176,000
A
4.
D
5.
A
PROBLEM 5-16
Question No. 1
Notes receivable – December 31
Accounts receivable – December 31
Collection of notes and accounts
Note receivable discounted
Total
Less: Notes receivable – January 1
Accounts receivable – January 1
Sales on account
210,000
950,000
2,950,000
200,000
4,310,000
200,000
740,000
Question No. 2
Notes payable – December 31
Less: Note payable – bank
Notes payable – trade
Accounts payable – December 31
Payment of notes and accounts
Total
Less: Notes payable – January 1
Accounts payable – January 1
Purchases on account
750,000
600,000
Question No. 3
Equipment – January 1
Add: Acquisition
Total
Less: Equipment – December 31
Depreciation
940,000
3,370,000
580,000
300,000
280,000
750,000
2,100,000
3,130,000
1,350,000
1,780,000
1,000,000
280,000
1,280,000
1,200,000
80,000
Question No. 4
Interest accrued on note issued to bank (300,000 x 12% x 10/12)
Interest expense
Question No. 5
Volks Company
Income Statement
Year ended December 31, 2016
17
30,000
30,000
Chapter 5: Cash to Accrual
Sales
Cost of sales:
Inventory – January 1
Purchases
Goods available for sale
Less: Inventory – December 31
Gross income
Expenses:
*Expenses
Depreciation
**Loss on sale of investment
***Loss on note receivable discounted
Interest expense
Net income
3,370,000
1,600,000
1,780,000
3,380,000
1,500,000
1,880,000
1,490,000
820,000
80,000
50,000
10,000
30,000
*Expenses paid
Add: Prepaid expenses – January 1
Accrued expenses – December 31
Total
Less: Prepaid expenses – December 31
Accrued expenses – January 1
Expenses
990,000
500,000
790,000
120,000
50,000
960,000
100,000
40,000 140,000
820,000
**Sales price
Less: Cost of investment sold
Loss on sale of investment
250,000
300,000
( 50,000)
***Loss on note receivable discounted (200,000 – 190,000)
10,000
OR
Retained earnings – December 31
Add: Dividends
Total
Less: Retained earnings – January 1
Net income
SUMMARY OF ANSWERS:
1. A
2. A
3.
C
600,000
400,000
1,000,000
500,000
500,000
4.
18
C
5.
D
Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS
PROBLEM 6-1 Income Statement and SFP Errors
Questions Nos. 1-6
2016
Unadjusted
balances
1
2
Adjusted
balances
2017
Net
income
Workin
g capital
RE, end
of the
year
Net
income
Workin
g capital
RE, end
of the
year
200,000
-
180,000
-
200,000
-
160,000
-
260,000
-
360,000
-
200,000
180,000
200,000
160,000
260,000
360,000
Questions No. 7
Assuming errors were discovered in 2016
ADJUSTING ENTRIES
Debit
1) Miscellaneous income
25,000
Rent income
2)
Notes payable
Accounts payable
28,000
Credit
No entry
Assuming errors were discovered in 2018
ADJUSTING ENTRIES
Debit
1) No entry
2)
25,000
28,000
Assuming errors were discovered in 2017
ADJUSTING ENTRIES
Debit
1) No entry
2)
Credit
Credit
No entry
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
C
19
5.
C
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-2 Counterbalancing Errors
Questions Nos. 1-6
Unadjusted
balances
1
2
3
4
Adjusted
balances
Net
income
2016
Workin
g capital
R/E
Net
income
2017
Workin
g capital
200,000
(15,000)
20,000
6,000
(7,500)
180,000
(15,000)
20,000
6,000
(7,500)
200,000
(15,000)
20,000
6,000
(7,500)
160,000
15,000
(20,000)
(6,000)
7,500
260,000
-
360,000
203,500
183,500
203,500
156,500
260,000
360,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES
1) Interest expense
Interest payable
2)
Debit
15,000
R/E
Credit
15,000
Interest receivable
Interest income
20,000
3)
Prepaid insurance
Insurance expense
6,000
4)
Rent revenue
Unearned rent revenue
7,500
20,000
6,000
7,500
B. Errors were discovered in 2017
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
ADJUSTING ENTRIES
Debit
Credit
1) Retained earnings
15,000
Interest expense
15,000
2)
3)
4)
Interest income
Retained earnings
20,000
Insurance expense
Retained earnings
6,000
Retained earnings
Rent revenue
7,500
20,000
6,000
7,500
When books are already closed, no necessary adjusting entries to be
made.
C.
Errors were discovered in 2018
No necessary adjusting entries to be made.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
C
20
5.
B
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-3 Counterbalancing Errors
Questions Nos. 1-6
Unadjusted
balances
1
2
3
Adjusted
balances
Net
income
2015
Workin
g capital
R/E, end
Net
income
2016
Workin
g capital
R/E, end
200,000
(60,000)
80,000
(20,000)
180,000
(60,000)
80,000
(20,000)
200,000
(60,000)
80,000
(20,000)
160,000
60,000
(80,000)
20,000
260,000
-
360,000
-
200,000
180,000
200,000
160,000
260,000
360,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES
1) Purchases
Accounts payable
2)
3)
Debit
60,000
Accounts receivable
Sales
80,000
Cost of sales
Inventory
20,000
Credit
60,000
80,000
20,000
B. Errors were discovered in 2017
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
ADJUSTING ENTRIES
Debit
Credit
1) Retained earnings
60,000
Purchases
60,000
2)
3)
Sales
Retained earnings
80,000
Retained earnings
Inventory, beginning
20,000
80,000
20,000
If books are already closed, no necessary adjusting entries to be made.
C.
Errors were discovered in 2018
No necessary adjusting entries to be made.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
B
21
5.
C
6.
B
Chapter 6: Correction of Errors
PROBLEM 6-4 Noncounterbalancing Errors
Questions Nos. 1-6
2016
2017
Net
income
Workin
g capital
RE, end
of the
year
Unadjusted
balances
1.
2.
3.
4.
5.
6.
200,000
(30,000)
20,000
12,000
150,000
(12,000)
(15,000)
180,000
(30,000)
20,000
-
200,000
(30,000)
20,000
12,000
150,000
(12,000)
(15,000)
160,000
(6,000)
10,000
(50,000)
5,000
260,000
(36,000)
30,000
-
360,000
(36,000)
30,000
12,000
100,000
(12,000)
(10,000)
Adjusted
balances
325,000
170,000
325,000
119,000
254,000
444,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES
1) Insurance expense
Prepaid insurance
2)
Net
income
Workin
g capital
RE, end
of the
year
Debit
30,000
30,000
Unearned rent income
Rent income
20,000
3)
Accumulated depreciation
Depreciation expense
12,000
4)
Building improvements
Repairs expense
5)
6)
Credit
20,000
12,000
200,000
200,000
Depreciation expense
Accumulated depreciation
50,000
Other income
Accumulated depreciation
Gain on sale
Building
20,000
48,000
Repairs expense
Building
20,000
50,000
8,000
60,000
20,000
Accumulated depreciation
Depreciation expense
5,000
5,000
B. Errors were discovered in 2017
ADJUSTING ENTRIES
1) Retained earnings
Insurance expense
Prepaid insurance
Debit
30,000
6,000
22
Credit
36,000
Chapter 6: Correction of Errors
2)
Unearned rent income
Retained earnings
Rent income
30,000
3)
Accumulated depreciation
Retained earnings
12,000
4)
Building improvements
Retained earnings
5)
6)
C.
20,000
10,000
200,000
200,000
Depreciation expense
Retained earnings
Accumulated depreciation
50,000
50,000
Retained earnings
Accumulated depreciation
Building
12,000
48,000
Retained earnings
Building
20,000
Accumulated depreciation
Retained earnings
Depreciation expense
10,000
100,000
60,000
20,000
5,000
5,000
Errors were discovered in 2018
ADJUSTING ENTRIES
1) Retained earnings
Prepaid insurance
Debit
36,000
2)
Unearned rent income
Retained earnings
30,000
Accumulated depreciation
Retained earnings
12,000
3)
4)
5)
6)
12,000
Credit
36,000
30,000
12,000
Building improvements
Retained earnings
200,000
Depreciation expense
Retained earnings
Accumulated depreciation
50,000
100,000
200,000
150,000
Retained earnings
Accumulated depreciation
Building
12,000
48,000
Retained earnings
Building
20,000
Accumulated depreciation
Retained earnings
10,000
60,000
20,000
10,000
23
Chapter 6: Correction of Errors
SUMMARY OF ANSWERS:
1. E
2. E
3. E
4.
E
5.
A
6.
D
PROBLEM 6-5 Comprehensive
Questions Nos. 1-3
Effects of error in
Net income
Working
2015
2016
Capital
10,000
(10,000)
(8,000)
(8,000)
(20,000)
20,000
(40,000)
(40,000)
20,000
(20,000)
70,000
70,000
(80,000)
20,000
20,000
5,000
(45,000)
32,000
22,000
1) MI over, NI over
MI under, NI under
2) Purchases over, NI under
3) Sales over, NI over
4) Expenses over, NI under
Depreciation exp under, NI over
5) Other income over
*Loss under, NI over
Adjustment
Computation of loss:
Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Loss on sale
20,000
40,000
15,000
Questions No. 4
Effect of errors to Retained Earnings in 2016
Understatement to 2015 net income
Overstatement to 2016 net income
Net understatement to 2016 retained earnings
Questions No. 5
ADJUSTING ENTRIES
1) Retained earnings, beg
Merchandise inventory, beg
Merchandise inventory, end
Cost of Sales
2)
3)
25,000
(5,000)
45,000
32,000
13,000
Debit
10,000
Credit
10,000
8,000
Purchases
Retained earnings
Advances supplier
Purchases
20,000
Retained earnings, beg
Sales
20,000
40,000
8,000
20,000
40,000
20,000
24
Chapter 6: Correction of Errors
Sales
Advances customers
4)
5)
70,000
70,000
Depreciation expense
Improvements
Accumulated depreciation
Retained earnings
20,000
100,000
40,000
80,000
Accumulated depreciation
Retained earnings, beg
Equipment
SUMMARY OF ANSWERS:
1. A
2. A
3. A
15,000
25,000
4.
A
5.
40,000
C
PROBLEM 6-6 Comprehensive
Questions Nos. 1-5
2015
Net
Workin
Income
g capital
Ending Inventory 2015
understated, NI
understated
Ending Inventory 2016
overstated, NI overstated
Depreciation exp. 2015
overstated, NI
understated
Depreciation exp. 2016
overstated, NI
understated
Accrued expense
understated, NI
overstated 2015
Accrued expense
understated, NI
overstated 2016
Prepaid expense
understated, NI
understated 2015
Prepaid expense
understated, NI
understated 2016
Accrued revenues
understated, NI
understated 2016
Deferred revenues
understated, NI
overstated 2015
Total
(6,000)
(6,000)
(11,000)
4,500
(5,000)
-
4,500
(5,000)
2016
Net
Workin
Income
g capital
12/31/2
016
R/E
6,000
-
-
10,000
10,000
10,000
-
-
(11,000)
(7,000)
-
(7,000)
(4,500)
-
-
7,500
7,500
7,500
5,000
-
-
(12,000)
(12,000)
(12,000)
(3,000)
(3,000)
(3,000)
1,200
1,200
(1,200)
-
-
(16,300)
5,300
800
2,500
(15,500)
25
Chapter 6: Correction of Errors
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
A
5.
C
PROBLEM 6-7
Questions Nos. 1, 2 and 4
1
2
3
4
5
6
7
8
Unadjusted balances
Overstatement of ending inventory - 2014
Understatement of ending inventory 2016
Understatement of accrued expense - 2014
Overstatement of accrued exp.
Understatement of Depreciation Expense
Overstatement of Depreciation Expense
Overstatement of Purchases
2014
2015
Overstatement of other income
Correct gain
20,000
Less: Per record
5,000
Adjusted balances
2014
3,000,000
(120,000)
2015
(1,000,000)
120,000
(40,000)
40,000
210,000
90,000
(180,000)
30,000
30,000
2,870,000
Computation of correct gain:
Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Loss on sale
SUMMARY OF ANSWERS:
1. B
2. B
3. B
(30,000)
40,000
(40,000)
(15,000)
(1,025,000)
3,790,000
20,000
40,000
25,000
Questions Nos. 3 and 5
Adjusted net income (loss):
2014
2015
Total RE, 12/31/2015
Adjusted net income 2016
Total RE, 12/31/2016
2,870,000
(1,025,000)
1,845,000
3,790,000
5,635,000
4.
C
26
2016
3,500,000
5.
D
15,000
5,000
No. 3
No. 5
Chapter 6: Correction of Errors
PROBLEM 6-8
Question No. 1
Unadjusted beginning balance (Cr)
Add: Share premium credited to RE
Unadjusted RE (Dr)
Unadjusted Net loss
(C)
70,000
40,000
143,200
253,200
Question No. 2
Unadjusted net loss
Sales over, NI over (20,000 x 140%)
EI under, NI over
Gain under, NI under
Repairs expense over, NI under
Depreciation Expense building under, NI over
(5% x 500,000)
Depreciation Expense eqpmt under, NI over
Bad debts exp under, NI over
Adjusted net loss
(C)
Computation of gain
Net Selling Price
Less: Carrying amount (10,000-(10,000 x 10% x 2)
Gain on sale
Computation of depreciation expense equipment:
Beg. Balance of the eqpmt. Net of asset disposed
(201,000-10,000)
191,000
Asset disposed
10,000
Asset acquired
20,000
Depreciation expense
(253,200)
(28,000)
20,000
1,000
20,000
(25,000)
(20,100)
(2,600)
(287,900)
9,000
8,000
1,000
x 10%
x 10% x 6/12
x 10% x 3/12
19,100
500
500
20,100
The unadjusted beg. Balance of the equipment is computed as follows:
Unadjusted balance end
192,000
Add: Amount credited for asset disposed
9,000
Unadjusted balance beg
201,000
The adjusted balance end of the equipment is
Unadjusted balance beg
Add: Asset acquired
Total
Less: cost of asset disposed
Adjusted balance end
Computation of bad debts
Required allowance (240,000-28,000) x 5%
Less: Allowance for BD unadjusted
Additional bad debts exp.
27
201,000
20,000
221,000
10,000
211,000
10,600
8,000
2,600
Chapter 6: Correction of Errors
Question No. 3
ASSETS
Cash
Accounts Receivable (240,000-28,000)
Less: Allowance for Bad Debts
Advances to employees
Interest Receivable
Prepaid expenses
Merchandise inventory (180,000 +20,000)
Land
Building
Less: Accumulated Depreciation
(150,000+25,000)
Equipment
Less: Accumulated Depreciation
(59,200+20,100-2,000)
Utility deposits
Other Assets
Total assets
(D)
Question No. 4 and 5
LIABILITIES AND CAPITAL
Accounts payable
Advances from customer
Interest payable
Accrued expense
Mortgage Payable, current portion
Total current
(A)
MP, noncurrent portion
Total liabilities
Ordinary shares
Share Premium
Retained earnings (deficit)
Beg. Balance
Less: Adjusted net loss
Total liabilities and SHE
SUMMARY OF ANSWERS:
1. C
2. C
3. D
4.
35,000
212,000
10,600
201,400
4,800
3,000
16,200
200,000
200,000
500,000
175,000
211,000
325,000
77,300
133,700
15,000
6,000
1,140,100
260,000
10,000
18,000
30,000
100,000
418,000
500,000
918,000
400,000
40,000
70,000
(287,900)
A
28
5.
(217,900)
A
222,100
1,140,100
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS
PROBLEM 8-1 Cash and Cash Equivalents
Traveler’s check
50,000
Postal money order
30,000
Petty cash fund
4,000
Treasury bills, due 3/31/2017 (purchased 12/31/2016) 200,000
Current account at Metrobank
2,000,000
Payroll account
500,000
Treasury warrants
300,000
Total cash and cash equivalents
3,084,000
Suggested answer: A
PROBLEM 8-2 Cash and Cash Equivalents
Reported cash and cash equivalents
Certificate of deposits with maturity of 120 days
Postdated check
Compensating balance – legally restricted
Adjusted cash and cash equivalents
6,325,000
(500,000)
(125,000)
(500,000)
P5,200,000
Suggested answer: C
PROBLEM 8-3 Cash and Cash Equivalents
Bills and coins on hand
Traveler’s check
Petty cash excluding paid cash vouchers of P1,650
Money order
Checking Account Balance in Bank of Philippine Island
Total
P 52,780
22,400
350
800
22,000
P 98,330
Suggested answer: D
PROBLEM 8-4 Cash and Cash Equivalents
Cash on hand
Checking account No. 143 - BPI
Checking account No. 155 - BPI
*Securities classified as cash equivalents
Checking account No. 155 - BPI
29
P
80,000
200,000
(30,000)
3,600,000
P 3,850,000
Chapter 8: Cash and Cash Equivalents
*Breakdown of securities classified as cash equivalents
Date
Maturity
Securities:
Acquired
Date
120-day Certificate of Deposit
12/10/2016 01/31/2017
BSP-Treasury Bills (No.2)
10/31/2016 01/20/2017
Money Market Funds
11/21/2016 02/10/2017
Amount
P 600,000
1,000,000
2,000,000
Suggested answer: A
PROBLEM 8-5 Cash and Cash Equivalents
Bank cheque account
Bank savings account (collectible immediately)
Cash
Treasury bonds – maturing in 2 months
Cash and cash equivalents
P
P
58,400
23,440
10,000
8,500
100,340
Suggested answer: B
PROBLEM 8-6 Cash and Cash Equivalents
Petty cash fund (70,000-15,000-5,000)
Current account – Metro Bank (4,000,000+100,000)
Cash and cash equivalents
50,000
4,100,000
P4,150,000
Suggested answer: C
PROBLEM 8-7 Effective Interest Rate
Question No. 1
Let X = Principal amount of the loan
Principal
X
Less: Compensating balance
5%X
Add: Current balance
50,000
Amount needed
P3,375,000
X-.05X+50,000
.95X
.95X/.95
X
=
=
=
=
3,375,000
3,375,000-50,000
3,325,000/.95
3,500,000
Question No. 2
Annual interest payment (3,500,000 x 12%)
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%]
Net interest
30
420,000
5,000
415,000
Chapter 8: Cash and Cash Equivalents
Divide by loan proceeds (3,500,000-175,000)
Effective interest rate
Suggested answers:
1. C
3,375,000
12.30%
2. C
PROBLEM 8-8 Petty Cash Fund
Requirement No. 1
Currencies
Coins
A check drawn by the company payable to the order
of the petty cash custodian, representing her salary
Adjusted Petty Cash Fund
Requirement No. 2
Petty cash Accounted:
Currencies
Coins
Petty cash vouchers:
Transportation
Office supplies
Repair of computer
Loans to employees
Miscellaneous expenses
Postage
A check drawn by the company payable to the
order of the petty cash custodian, representing her
salary
An employee’s check returned by the bank because
of insufficient funds
A piece of paper with names of several employees
together with a contribution for a wedding gift for
an employee. Attached to the sheet of paper is a
currency of
Less: Petty Cash Accountabilities
PCF imprest balance
A piece of paper with names of several employees
together with a contribution for a wedding gift
for an employee. Attached to the sheet of paper
is a currency of
Petty cash overage
31
3,000
450
3,800
7,250
3,000
450
650
160
400
600
240
200
3,800
1,200
500
11,200
10,000
500
10,500
700
Chapter 8: Cash and Cash Equivalents
Requirement No. 3: Adjusting Entries
1) Transportation expense
Office supplies expense
Repairs expense
Advances to employees
Miscellaneous expense
Postage
Petty Cash fund
Debit
650
160
400
600
240
200
2)
Unused stamps
Postage
50
3)
Petty cash fund
Miscellaneous Income
700
4)
Advances to employees
Petty cash fund
1,200
PROBLEM 8-9 Petty Cash Fund
Cash Accounted For
Currency
Checks
Unreplenished Vouchers
IOUs
Cash Accountability
Petty Cash Fund
Collections from customer -check
Cash collections
Cash Overage (Shortage)
Quantity Denomination
50
1
60
0.25
3
500
5
100
20
20
12
10
Total currencies and coins
Checks:
Al
Rex
Zev, customer
Total
2,585.00
17,600.00
425.00
150.00
5,000.00
6,500.00
12,150.00
Total
50.00
15.00
1,500.00
500.00
400.00
120.00
2,585.00
5,000
6,100
6,500
17,600
32
20,760.00
23,650.00
(2,890.00)
Credit
2,250
50
700
1,200
Chapter 8: Cash and Cash Equivalents
Unreplenished vouchers:
Transporation
Office supplies
Xerox fees
Postage
Newspaper
Freight charges
Total
65
70
80
150
10
50
425
IOUs
Rhad
Andrix
TOtal
50
100
150
Cash collections
143
144
145
Total
4,000.00
5,100.00
3,050.00
12,150.00
PROBLEM 8-10 Bank Reconciliation
Unadjusted balances
Outstanding check, net of certified checks
Deposit in transit (Undeposited collections)
Book error – disbursement for utilities
Note charged by the bank, including interest
Bank service charge
Erroneous bank credit
NSF check
Adjusted balance
Bank
P126,300
(12,300)
7,850
(5,670)
P116,180
Book
P123,310
360
(6,500)
(240)
(
750)
P116,180
The following are the adjusting entries to be recorded in the company’s
books. Note that only book reconciling items are recorded.
ADJUSTING ENTRIES
Debit
Credit
1) Cash
360
Utilities expense
360
2)
3)
Notes payable
Interest expense
Cash
6,000
500
6,500
Bank service charge
Cash
240
240
33
Chapter 8: Cash and Cash Equivalents
4)
Accounts receivable
Cash
750
750
PROBLEM 8-11 Bank Reconciliation
Unadjusted bank bal
Erroneous bank credit
DIT: October
November
OC: October
Nov. (760+1,868)
Unadjusted book bal
Credit memo Oct.
Nov.
NSF-Nov
BSC: Oct
Nov
Check
No.
overstated
disbursement
Check
No.
understated
disbursement
Oct. 31
18,005
1,790
Receipts
17,709
(500)
(1,790)
3,600
Disb
25,620
Nov. 30
10,094
(500)
3,600
(6,681)
13,114
19,019
(6,681)
2,628
21,567
11,534
1,600
18,269
21,575
(2,628)
10,566
22
35
8,228
1,600
750
(665)
(20)
(22)
(35)
(1,000)
1,000
270
21,567
(270)
10,566
750
665
(20)
148
150
13,114
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
19,019
D
PROBLEM 8-12 Deposit in Transit
Deposit in transit, beg
Add: Book debits for the month
Less: CM recorded this month
Error – check received (Jan)
Error – check issued (Jan)
Add: Error – check received (Feb)
Total
Less: Bank debits for this month
Less: CM for this month
Erroneous bank credit - Feb
Erroneous bank charge - Jan
Deposit in transit, end
34
5.
A
P 400,000
5,000
36,000
27,000
16,000
P 360,000
6,000
2,500
1,000
P 50,000
348,000
398,000
350,500
P 47,500
Chapter 8: Cash and Cash Equivalents
Suggested answer: A
PROBLEM 8-13 Outstanding Checks
Outstanding checks, beg (squeeze)
Add: Book credits for the month
Less: Error in recording
Service charge recorded
Total
Less: Bank debits for this month
Less: NSF check returned
DM for this month
Outstanding checks, end
P 85,800
1,800
30
P 97,650
2,300
3,000
P 12,880
83,970
96,850
92,350
P 4,500
Suggested answer: A
PROBLEM 8-14 Proof of Cash
Question No. 1
Deposit in transit, Jan. 31
Add Deposit made by the company
Book receipts
150,000
Credit Memo-Jan 31
(10,000)
Book errors last month corrected this month:
Understatement of CR
Overstatement of CD
Book errors this month:
Overstatement of CR
Add: Understatement of CR
Total
Less: Deposit acknowledged by the bank
Bank receipts
157,700
Credit Memo-Feb. 28
(15,000)
Bank errors last month corrected this month:
Understatement of CR
Erroneous bank charge-Jan. 31
(3,200)
Bank errors this month:
Add: Overstatement of CR
Erroneous bank credit-Feb. 28
(4,000)
Deposit in transit, Feb. 28
Question No. 2
Outstanding checks, Jan. 31
Add: Checks issued by the company this month
Book disbursements
Debit Memo last month
35
9,000
140,000
149,000
135,500
13,500
3,000
80,000
Chapter 8: Cash and Cash Equivalents
NSF check
Book errors last month corrected this month:
Understatement of CD last month
Overstatement of CR
Book errors this month:
Overstatement of CD
Understatement of CD this month
Total
Less: Checks paid by the bank this month
Bank disbursements
Debit Memo this month
NSF check
Error last month corrected this month
Erroneous bank credit-last month
Understatement of CD
Bank errors this month:
Add: Understatement of CD
Erroneous bank charge-this month
Outstanding checks, Feb. 28
(2,000)
(1,500)
600
77,100
80,100
87,800
(3,000)
(6,000)
(1,400)
77,400
2,700
Question Nos 4 to 6
Note to professor: The question in number 5 and 6
instead of January.
Jan. 31
Receipts
Unadjusted balances-books
200,000 150,000
Credit Memo-January
10,000 (10,000)
Credit Memo-February
15,000
NSF check-January
(2,000)
NSF check-February
Understatement of cash
disbursements-January
(1,500)
Understatement of cash
disbursements-February
-
should be in February,
Disb
80,000
(2,000)
3,000
Feb. 28
270,000
15,000
(3,000)
(1,500)
-
600
(600)
Adjusted balances
206,500
155,000
80,100
281,400
Unadjusted balances-bank
Deposit in transit-January
Deposit in transit-February
Outstanding checks-January
Outstanding checks-February
Erroneous bank credit-January
Erroneous bank credit-February
Erroneous bank charge-January
Erroneous bank charge-February
Jan. 31
203,300
9,000
(3,000)
(6,000)
3,200
-
Receipts
157,700
(9,000)
13,500
(4,000)
(3,200)
-
Disb
87,800
(3,000)
2,700
(6,000)
(1,400)
Feb. 28
273,200
13,500
(2,700)
(4,000)
1,400
36
Chapter 8: Cash and Cash Equivalents
Adjusted balances
206,500
155,000
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
A
80,100
A
6.
281,400
B
7.
PROBLEM 8-15 Proof of Cash
Question No. 1
Outstanding checks, beg.
Add: Checks issued
Total
Less: Checks paid by the bank
Outstanding checks, end
50,000
1,250,000
1,300,000
1,100,000
200,000
Question No. 2
Deposits in transit, beg
Add: Deposits made
Total
Less: Deposits acknowledged by the
bank
Deposits in transit, end
Unadjusted bal-bank
Deposit in transit-May
31
-June 30
Outstanding
checksMay 31
-June 30
Erroneous bank credit
Erroneous bank charge
Adjusted balances
150,000
900,000
1,050,000
800,000
250,000
31-May
1,300,000
Receipts
*1,095,000
150,000
(150,000)
250,000
(50,000)
(30,000)
20,000
1,390,000
(20,000)
1,175,000
*(800,000+20,000+275,000)
**(1,100,000+30,000+25,000+50,000)
37
Disb.
**1,205,000
30-Jun
1,190,000
250,000
(50,000)
200,000
(30,000)
(200,000)
1,325,000
1,240,000
B
Chapter 8: Cash and Cash Equivalents
Unadjusted bal-book
Bank service chargeMay 31
-June 30
CM for collection-May
31
-June 30
NSF checks for June 30
Adjusted balances
31-May
1,095,000
Receipts
***1,200,000
Disb.
1,250,000
30-Jun
1,045,000
25,000
(5,000)
(25,000)
50,000
1,325,000
275,000
(50,000)
1,240,000
(5,000)
300,000
(300,000)
275,000
1,390,000
1,175,000
***(900,000+300,000)
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
A
5.
A
PROBLEM 8-16 Proof of Cash
Question No. 2
Outstanding checks, beg.
Add Checks issued
Book disb.
Less DM last mo
Error last mo. C T M
Under of CD
Over of CR
Total
Less checks issued
Bank disb.
less DM this mo
Error last mo. C T M
Under of CD
Erroneous B Cr-LM
Erroneous B CH-TM
Outstanding checks, end
Deposits in transit, beg
Add deposits made
Book receipts
Less: CM last month
Error last mo. C T M
Under of CR (21K-12K)
Over of CD
Total
150,000
1,500,000
110,000
-
1,390,000
1,540,000
1,300,000
75,000
45,000
30,000
1,150,000
390,000
200,000
1,300,000
125,000
9,000
38
1,166,000
1,366,000
Chapter 8: Cash and Cash Equivalents
Less: Deposits acknowledged by the bank
Bank receipts
1400000
Less: CM this month
150,000
Error last mo. C T M
Under of CR
Erroneous B CH-LM
20,000
Erroneous B Cr-TM
17,000
Deposits in transit, end
BANK
Unadjusted bal-bank
Deposit in transit-May 31
-June 30
Outstanding checks-May 31
-June 30
Erroneous bank credit-May
31
-June 30
Erroneous bank chargeMay 31
-June 30
Adjusted balances
BOOK
Unadjusted bal-book
NSF-May 31
-June 30
CM for collection-May 31
-June 30
Under of CR-May
Adjusted balances
31-May
1,250,000
200,000
1,213,000
153,000
Receipts
1,400,000
(200,000)
153,000
Disb.
1,300,000
30-Jun
1,350,000
153,000
(150,000)
(150,000)
390,000
(45,000)
(390,000)
(45,000)
(17,000)
(17,000)
20,000
(20,000)
1,275,000
31-May
1,251,000
(110,000)
1,316,000
Receipts
1,300,000
125,000
(125,000)
150,000
(9,000)
1,316,000
1,465,000
5.
6.
9,000
1,275,000
SUMMARY OF ANSWERS:
1. C
2. D
3. C
4.
D
PROBLEM 8-17 Proof of Cash
Question No. 1
Beg. Bal., 7/1
Add: Cash receipts for July
Cash receipts for Aug.
Total
Less: Cash disbursement for July
Cash disbursement for Aug.
Bank reconciliation item
Unadjusted balance
(30,000)
1,465,000
Disb.
1,500,000
(110,000)
75,000
A
30,000
1,126,000
30-Jun
1,051,000
(75,000)
150,000
1,126,000
D
P 128,384
1,364,858
1,839,744
P3,332,986
1,330,882
1,712,892
750
P 288,462
39
Chapter 8: Cash and Cash Equivalents
Question No. 2
Outstanding check, Aug. 31
Add: Checks paid by the bank
Bank debits except serv. charge
Less: Erroneous bank charge
DM on Interest on note
Total
Less: Checks issued by the company
this August
Outstanding check, July 31
P
P1,702,830
1,166
4,950
67,122
1,696,714
P1,763,836
1,712,892
P 50,944
Questions No 3 to 5
BANK
Unadjusted balances
Outstanding checks
July 31
August 31
Deposit in transit
July 31
August 31
Erroneous bank charge
Adjusted Balances
(*1,702,830 + 88)
BOOK
Unadjusted balances
Error in recording check
no. 216 taken up as
P1,930 but should be
P1,390 (1,930-1,390)
DM for int. on note
Bank service charge
July 31
August 31
NSF for July 31
Adjusted balances
**(1,712,892+750)
31-Jul
180,250
Receipts
1,830,752
Disb.
*1,702,918
Aug. 31
308,084
( 50,944)
67,122
( 67,122)
( 1,166)
1,717,930
41,836
1,166
283,964
Disb.
**P1,713,642
Aug. 31
P288,462
( 50,944)
32,844
162,150
31-Jul
P162,360
( 32,844)
41,836
1,839,744
Receipts
P1,839,744
540
4,950
(
52)
(
698)
P162,150
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
(
52)
88
(
698)
P1,717,930
P1,839,744
B
40
5.
A
(
(
540
4,950)
88)
P283,964
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-18 Proof of Cash
Question No 1
Outstanding check
Check Nos.
144
P 1,500
149
8,000
150
12,000
Total
P 21,500
Alternatively, it may also be computed as follows:
Outstanding check, beg
Add: Checks issued
Total
Less: Checks paid by the bank
Bank Debits
P 113,000
Less: DM for this month
NSF checks (10,000+40,000)
50,000
Bank service charge
2,000
Error Correction
500
Outstanding checks, end
Question No 2
Unadjusted rec. per bank
Deposit in transit:
November 30
December 31
Error correction
NSF check, no entry on the books when returned
and redeposited
Adjusted balance
Question No 3
Unadjusted disbursement, per bank
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the returned and redeposit
Adjusted balance
Question No 4
Unadjusted bank bal.
Deposit in transit
November 30
December 31
Outstanding checks
P
7,000
75,000
P 82,000
60,500
P 21,500
P 171,500
(11,000)
20,000
(500)
( 40,000)
P 140,000
P 113,000
(7,000)
21,500
(500)
( 40,000)
P 87,000
P 127,500
20,000
41
Chapter 8: Cash and Cash Equivalents
November 30
December 31
Adjusted bal.
( 21,500)
P126,000
Question No 5
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Unadjusted bank balance
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the return and
redeposit
Adjusted bal.
* (69,000+171,500-113,000)
** (18,000+2,000)
Unadjusted book balance
Credit memo for note
collected
November 30
December 31
Bank service charge
November 30
December 31
Adjusted bal.
SUMMARY OF ANSWERS:
1. A
2. A
3. B
Nov. 30
69,000
Receipts
171,500
11,000
(11,000)
*20,000
(7,000)
Disb.
113,000
Dec. 31
*127,500
20,000
(500)
(7,000)
21,500
(500)
73,000
(40,000)
140,000
(40,000)
87,000
126,000
Nov. 30
66,000
Receipts
113,800
Disb.
85,000
Dec. 31
94,800
8,800
(8,800)
35,000
35,000
(1,800)
73,000
4.
B
42
140,000
5.
A
(21,500)
2,000
87,000
(1,800)
(2,000)
126,000
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-19 Proof of Cash
Question No. 1
Beg. Balance, Nov. 30
Add: Total Collections from customers on Dec.
November bank coll. for customer note
Total
Less: Checks drawn for December
Bank service charges – November
Unadjusted cash balance, Dec. 31
Question Nos. 2-5
BANK
Unadjusted bank balance
NSF check, no entry on the books
for return and redeposit
Erroneous bank charge in
December
Undeposited collection
November 30
December 31
Bank service charge charged to
another client
Outstanding check
Nov. 30
Dec. 31
Adjusted balances
BOOK
Unadjusted balance
NSF check recorded as reduction
of cash receipts returned in
December but also recorded in
December
Error in recording check No. 7159
entered as P30,000 but should be
3,000
Cancellation of check No. 7767
Bank service charge
Nov. 30
Dec. 31
Bank collection for customer's
note:
Nov. 30
Dec. 31
Adjusted balances
SUMMARY OF ANSWERS:
1. B
2. D
3. D
Nov. 30
90,800
P 50,900
165,000
8,000
223,900
98,000
100
P 125,800
December
Receipts
Disb.
171,272
99,072
(
472)
Dec. 31
163,000
( 472)
( 1,500)
5,000
1,500
( 5,000)
8,000
( 5,000)
8,000
150
( 150)
( 7,700)
164,650
125,800
90,800
173,800
( 5,000)
7,700
99,950
50,900
173,000
98,100
1,800
1,800
27,000
5,000
27,000
5,000
( 100)
8,000
90,800
4.
B
43
( 100)
150
(8,000)
7,000
173,800
5.
B
99,950
(
150)
7,000
164,650
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-20 Proof of Cash
Question No. 1
Outstanding checks, beg (squeeze)
Add: Checks issued this month
Book disbursements
Less: DM recorded this month
Total
Less: Bank disbursements
Add: Paid out in currency
Less: NSF redeposited
DM for this month
Outstanding checks, end
P 8,000
P 148,000
2,500
P 150,000
2,000
3,000
1,500
145,500
153,500
147,500
P 6,000
Question Nos. 2 to 5
BANK
Unadj. balance - bank
Undeposited collections:
September 30
October 31
Outstanding checks:
September 30
October 31
Paid out in currency
Adjusted balances
Sept. 30
100,000
Receipts
200,000
5,000
(5,000)
7,000
BOOK
Unadj. balance - book
Customer’s notes
collected:
September 30
October 31
Bank service charge:
September 30
October 31
Adjusted balances
(8,000)
Disb.
150,000
Oct. 31
150,000
7,000
97,000
2,000
201,000
(8,000)
6,000
2,000
147,000
151,000
Sept. 30
91,500
Receipts
196,000
Disb.
148,000
Oct. 31
139,500
8,000
(8,000)
13,000
SUMMARY OF ANSWERS:
1. B
2. A
3. A
(2,500)
97,000
4.
201,000
A
44
5.
A
(6,000)
13,000
(2,500)
1,500
147,000
1,500
151,000
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-21 Proof of Cash
Question No. 1
Account No. 143:
Unadjusted balances
Deposit in transit
Misplaced check
Outstanding check
Undelivered check
Note charged by the bank
Adjusted balance
*(100,000 - 20,000, Misplaced check)
**(75,000 - 15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
Account No.143
*Account No.144
Total outstanding check
Bank
P1,000,000
*80,000
Book
P1,099,400
( 20,000)
(**60,000)
P1,020,000
15,000
(
74,400)
P1,020,000
P
60,000
1,860,000
P 1,920,000
*Outstanding check for Account No. 144 is computed as follows:
Outstanding checks, beg
P 250,000
Add: Checks issued this month
Book Credits
P3,500,000
Less: BSC November
10,000
3,490,000
Total
P 3,740,000
Less: Checks paid by the bank
Bank Debits
P2,000,000
Less: BSC December
20,000
NSF check
100,000
1,880,000
Outstanding checks, end
P1,860,000
Question Nos. 3 to 4
Unadjusted bank balance
Deposit in transit:
November 30
December 31
Outstanding check:
November 30
December 31
Erroneous bank charge November
Adjusted balances
Nov. 30
2,200,000
December
Receipts
Disb.
1,000,000 2,000,000
90,000
(90,000)
**240,00
0
(250,000)
20,000
2,060,000
(20,000)
1,130,000
45
Dec. 31
1,200,000
240,000
(250,000)
1,860,000
(1,860,000)
3,610,000
(420,000)
Chapter 8: Cash and Cash Equivalents
Unadjusted
book
balance
Bank service charge:
November 30
December 31
Unrecorded collections November 30
Uncollected customer's
note already recorded
as cash receipt
NSF - December 31
Adjusted balances
1,980,000
1,420,000
3,500,000
(100,000)
(10,000)
20,000
(20,000)
(200,000)
100,000
3,610,000
(100,000)
(420,000)
(10,000)
90,000
(90,000)
(200,000)
2,060,000
1,130,000
**Deposit in transit, beg
Add: Deposit made by the co. this month
Book Debits
P1,420,000
Less: Unrecorded collection 90,000
Customer’s note recorded as
cash receipts
200,000
Total
Less: Deposits acknowledged by the bank
Bank Credits
P1,000,000
Less: Erroneous bank charge
20,000
Outstanding checks, end
Question No. 5
Adjusted balances:
Account No. 143
Account No. 144
Total adjusted balances
SUMMARY OF ANSWERS:
1. A
2. A
3. B
P
90,000
1,130,000
P1,220,000
980,000
P 240,000
P1,020,000
( 420,000)
P 600,000
4.
B
PROBLEM 8-22 Proof of Cash
Question No. 1
RCBC Account
Unadjusted balance
Credit memo for note collected
Bank service charge
Deposit in transit
Outstanding checks (25,000+20,000)
Unrecorded disbursement
Adjusted balance
46
5.
C
Book
P 165,000
6,000
(1,000)
( 30,000)
P 140,000
Bank
P 125,000
60,000
(45,000)
P 140,000
Chapter 8: Cash and Cash Equivalents
Question Nos. 2-3
Equitable PCI Bank
Book
Bank
Unadjusted bal. (squeeze)
P 62,000
P 93,000
Credit memo for note coll.
10,000
Bank service charge
( 2,000)
Deposit in transit (15,000+20,000+50,000*)
85,000
Outstanding checks
( 28,000)
Unrecorded transfer (30,000+50,000*)
80,000
Adjusted balance
P 150,000
P150,000
*fund transfer No. 4 (Included both as unrecorded transfer and deposit in
transit)
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000)
Equitable PCI Bank
Total outstanding checks
P 45,000
28,000
P 73,000
Question No. 5
Fund transfer No. 2 is recorded in the disbursing bank during December
while it was only recorded in the disbursing book in January. This is an
unrecorded disbursement for fund transfer.
SUMMARY OF ANSWERS:
1. A
2. A
3. B
PROBLEM 8-23 Proof of Cash
BOOK
Unadjusted balances-books
Credit Memo-January
Credit Memo-February
BSC check-January
BSC check-February
Check of the company issued in
January was mutilated and
returned by the payee. A
replacement check was issued.
Both checks were entered in the
Check register but no entry was
made to cancel the mutilated
check, P700.
The company issued a stop
payment order to the bank in
February for check issued in
February which was not
4.
B
5.
B
Jan. 31
200,000
9,000
(100)
700
Receipts
150,000
(9,000)
13,000
-
Disb
80,000
(100)
150
-
Feb. 28
270,000
13,000
(150)
700
-
(1,200)
(1,200)
-
47
Chapter 8: Cash and Cash Equivalents
received by the payee. A new
check was written and recorded
in the Check register in
February. The old check was
written off by a journal entry
also in February, P1,200.
Adjusted balances
BANK
Unadjusted balances-bank
Deposit in transit-January
Deposit in transit-February
Outstanding checks-January
Outstanding checks-February
Erroneous bank credit-January
Erroneous bank credit-February
Erroneous bank charge-January
Erroneous bank chargeFebruary
Adjusted balances
209,600
152,800
78,850
283,550
Jan. 31
206,600
10,000
(4,200)
(6,000)
3,200
-
Receipts
159,000
(10,000)
11,000
(4,000)
(3,200)
-
Disb
88,650
(4,200)
1,800
(6,000)
(1,400)
Feb. 28
276,950
11,000
(1,800)
(4,000)
1,400
209,600
152,800
78,850
283,550
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4. A
5.
E
Note to the professor: The question in #5 should be adjusted cash in
balance on February 28. The answer would have been letter C.
PROBLEM 8-24 Computation of Cash Shortage
Question No. 1
Unadjusted bank bal.
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961)
Add: Undeposited receipts
Adjusted bank balance
P
225,400
(39,347.50)
35,000
P221,052.50
Question No. 2
Unadjusted book bal.
Credit memo for notes collection
Credit memo for int.
Balance (cash accountability)
P242,310.50
30,000
900
P273,210.50
Question No. 3
Adjusted bank bal. (Cash accounted)
Less: Cash in bank bal. (cash accountability)
P221,052.50
273,210.50
48
Chapter 8: Cash and Cash Equivalents
Shortage
(P52,158.00)
SUMMARY OF ANSWERS:
1. B
2. D
3. B
PROBLEM 8-25 Computation of Cash Shortage
Question No. 1
Unadjusted bank bal.
Outstanding checks
Undeposited collections
Adjusted bank balance
P 42,400
( 11,500)
5,000
P 35,900
Question No. 2
Unadjusted book bal.
Credit memo proceeds clean draft
Debit memo for bank service charge
Balance (cash accountability)
P 46,500
900
(
100)
P 47,300
Question No. 3
Adjusted bank bal. (Cash accounted)
Cash in bank bal. (cash accountability)
Shortage as of June 30
P 35,900
47,300
(P11,400)
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R.
Less: collections in July that were deposited
in July
Collection per duplicate slips
Less :Undeposited collection, June 30
Cash that should be on hand on July 15
Less: Actual cash on hand on July 15
Cash shortage from July 1-15
P 18,800
P 11,000
5,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600)
Overstatement of cash in bank per bank (44,000-42,400)
Understatement of outstanding checks (11,500-3600)
Overstatement of undeposited collections (5,100-5,000)
Non-recording of credit memo-proceeds of clean draft
Cash shortage as of June 30
SUMMARY OF ANSWERS:
1. C
2. D
3. B
4.
D
49
5.
D
6,000
P 12,800
4,800
P 8,000
P
900
1,600
7,900
100
900
P11,400
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-26 Computation of Cash Shortage
Question No. 1
Deposit in transit, unadjusted bal.
Less: customer's Post-dated check
Adjusted Deposit in transit
P 350,500
100,000
P 250,500
Question No. 2
Outstanding checks, unadjusted balance
Less: Unreleased check
Company's post-dated check
Adjusted Outstanding checks
P 493,500
( 29,500)
( 74,420)
P 389,580
Question No. 3
Unadjusted bal. per bank
Add: Deposit in transit (No. 1)
Less: Outstanding checks (No. 2)
Erroneous bank credit
Adjusted cash in bank bal.
P 700,000
250,500
(389,580)
( 60,000)
P 500,920
Question No. 4
Unadjusted bal. per books
Add: Credit memo for note coll.
Unreleased check
Company's post-dated check
Total
Less: Customer's post-dated check
Cash in bank per books bal.
Less: Adjusted cash in bank balance
Cash shortage
P 587,000
30,000
29,500
74,420
P 720,920
(100,000)
P 620,920
500,920
(P120,000)
Question No. 5
Unadjusted bal. per books
Less: Adjusted cash in bank balance
Net adjustments
P587,000
500,920
P 86,080
SUMMARY OF ANSWERS:
1. B
2. D
3. B
4.
C
5.
A
PROBLEM 8-27 Computation of Cash Shortage
Question No. 1
Purchases (squeeze)
P 81,160
Less: Merchandise inventory, end
23,480
Cost of Sales (80,752/140%)
P 57,680
50
Chapter 8: Cash and Cash Equivalents
Purchases
Less: Accounts payable, end
Total payment of Accounts payable
P 81,160
11,571
P 69,589
Question No. 2
Sales on account
Less: Accounts receivable, end
Collection to customers
P 80,752
21,345
P 59,407
Question No. 3
Receipts:
Proceeds of issuance of stocks
Collection from customers
Loan proceeds
Disbursements:
Payment of real property
Payment of furniture and equipment
(7,250-1,500)
Payment of AP
Payment of operating expenses
Cash accountability
P 80,000
59,407
28,000
P 50,000
5,750
69,589
15,189
Question No. 4
Unadjusted bank bal.
Outstanding checks
Undeposited collections
Adjusted cash in bank bal.
140,528
P 26,879
P
(
P
Question No. 5
Adjusted cash in bank bal.
Less Cash accountability
Cash shortage
SUMMARY OF ANSWERS:
1. C
2. B
3. A
P 167,407
P
6,582
463)
1,285
7,404
7,404
26,879
(P19,475)
4.
B
51
5.
A
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES
PROBLEM 10-1 Trade and other receivables
Trade
Trade and other
Receivables
receivables
1
277,000
277,000
2
150,000
150,000
3
10,000
4
30,000
5
6
15,000
7
70,000
70,000
8
80,000
9
100,000
100,000
Adjusted bal.
597,000 1. C
732,000 2. C
PROBLEM 10-2 Different Freight terms
Question No. 1
FOB Destination, freight prepaid
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
Collection before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(B)
Noncurrent
Asset
110,000
220,000
330,000
300,000
300,000
6,000
294,000
294,000
Question No. 2
FOB Destination, freight collect
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
Net Payment before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(A)
300,000
300,000
6,000
294,000
5,000
289,000
Question No. 3
FOB Shipping point, freight prepaid
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
300,000
300,000
6,000
52
Chapter 10: Loans and Receivables
Net Receipt before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(C)
294,000
5,000
299,000
Question No. 4
FOB Shipping point, freight prepaid
Invoice price of merchandise sold
Less: Invoice price of merchandise returned
Net invoice price
Less: Sales discount (300,000 x 2%)
Collection before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash Collection
(B)
300,000
300,000
6,000
294,000
294,000
SUMMARY OF ANSWERS:
1. B
2. A
3. C
4.
B
PROBLEM 10-3 Gross method and Net method
List price
Less: Trade discounts
15%: (100,000 x 15%)
15,000
20%: (100,000 – 15,000) x 20%
17,000
Invoice price, gross of discount (C)
Less: Sales discount (68,000 x 3%)
Invoice price, net of discount
(D)
P 100,000
32,000
68,000
2,040
P 65,960
SUMMARY OF ANSWERS:
1. C
2. D
PROBLEM 10-4 Computation of Percentage of Bad Debts Expense
Note to professor: All the year in the questions should be 2017 instead of
2016.
2013
2014
2015
2016
2017
Credit Sales
₱ 1,500,000
2,000,000
3,500,000
7,000,000
2,000,000
9,000,000
3,000,000
CASE 1
Accounts written off
₱ 20,000
40,000
270,000
330,000
65,000
395,000
85,000
53
Recoveries
₱ 15,000
20,000
15,000
50,000
30,000
80,000
40,000
Chapter 10: Loans and Receivables
12,000,000
480,000
120,000
Question No. 1
Percentage
Accounts written off minus Recoveries
Total credit sales
=
Total years from 2013 to 2017:
Percentage
₱480,000 - ₱120,000
₱12,000,000
=
Percentage = 3.00 %
Question No. 2
Bad debts expense
= 3% x ₱3,000,000
= ₱90,000
Question No. 3
Allowance for Bad debts
85,000
400,000
445,000
90,000
40,000
520,000
520,000
Write off
Balance end (squeeze)
Beg. Balance
Bad debts exp
Recovery
CASE 2
Question No.4
Percentage
Accounts written off minus Recoveries
Total credit sales
=
Total years from 2013 to 2015 (years should exclude the last two years):
₱330,000 - ₱50,000
Percentage
=
₱7,000,000
Percentage = 4 %
Question No. 5
Bad debts expense
= 4% x P3,000,000
= ₱120,000
Question No. 6
Credit Sales
2016
2,000,000
2017
3,000,000
BD exp
80,000
120,000
Recoveries
Write-off
65,000
30,000
85,000
40,000
Allowance for BD (E)
54
Net AB
115,000
165,000
280,000
Chapter 10: Loans and Receivables
CASE 3
Question No. 7
Percentage of bad
debts to AR
Accounts written off minus Recoveries
Total credit sales
=
Total years from 2013 to 2016:
Percentage of bad
=
debts to AR
₱395,000 - ₱80,000
9,000,000
Percentage = 3.5%
Percentage of bad
debts to AR
Accounts written off minus Recoveries
Total credit sales
=
Total years from 2013 to 2017:
Percentage of bad
=
debts to AR
₱480,000 - ₱120,000
₱12,000,000
Percentage = 3 %
Question Nos. 8 and 9
Allowance for Bad debts
Balance end
(3,400,000 x 3%)
102,000
105,000
Write off
85,000
(E) 42,000
40,000
187,000
187,000
SUMMARY OF ANSWERS:
Case 1
1. B
2. B
3. B
Beg. Balance
(3,000,000 x 3.5%)
Bad debts exp (squeeze)
Recovery
Case 2
4. D
5. D
6. E
PROBLEM 10-5 Aging Based on Outstanding Receivables
Question No. 1
Categories
Balance
(No. of Days)
0-30 days
500,000
31-60 days
600,000
61-90 days
750,000
over 91 days
300,000
Totals
2,150,000
Uncollectible
Percent Amount
2%
10,000
3%
18,000
5%
37,500
10%
30,000
95,500
55
Case 3
7. C
8. E
9. C
Chapter 10: Loans and Receivables
Allowance for Bad debts
Balance end
(see above table)
Write off
(23,000+100,000)
95,500
123,000
218,500
40,000
12,000
166,500
218,500
Question No. 2
Accounts receivable, end (see above table)
Less: Allowance for doubtful accounts, end
Net Realizable Value
Beg. balance
Recoveries
Bad debts exp (squeeze)
2,150,000
95,500
2,054,500
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 10-6 Aging Based On Days Past Due
Question No. 1
Overdue accounts % uncollectible
Balance
For less than 31 days
5.00%
300,000
From 31-60 days
6.00%
220,000
From 61-90 days
8.00%
150,000
From 91-120 days
15.00%
60,000
For over 121 days
20.00%
Required allowance for doubtful accounts
Allowance
15,000
13,200
12,000
9,000
49,200
Question No. 2
Balance end
Allowance for Bad debts
49,200
20,000
29,200
158,000
158,000
Beg. balance
Bad debts exp (squeeze)
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 10-7 Interest-bearing Note with Realistic Interest Rate
Requirement No. 1
*Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Loss on sale
P 100,000
500,000
350,000
56
150,000
(P 50,000)
Chapter 10: Loans and Receivables
*Note: The selling price is equal to the face amount, which is likewise equal to
the present value of the note since the note bears an annual interest rate that is
similar with the market rate.
Requirement No. 2
Interest income = (100,000 x 10%) = P10,000
Requirement No. 3
Zero. The principal amount is collectible beyond one year from the reporting
date and thus, reported as non-current.
Requirement No. 4
P100,000. The entire principal amount of notes receivable is treated as
noncurrent asset since it is collectible beyond one year from the reporting date.
Journal entries are as follows:
01/01/2016 Notes receivable
Accumulated depreciation
Loss on sale
Machinery
\
12/31/2016
100,000
350,000
50,000
500,000
Cash
Interest income
10,000
10,000
PROBLEM 10-8 Interest-bearing Note with Unrealistic Interest Rate,
Interest Is Payable Annually, One-Time Collection of Principal
Question No. 1
Present value of principal (2,000,000 x 0.7118)
Add: Present value of interest payments
(2,000,000 x 10% x 2.4018)
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Question Nos. 2 to 5
Amortization table
Date
Interest
Collections
01/01/2016
12/31/2016
200,000
12/31/2017
200,000
12/31/2018
200,000
P 1,423,600
480,366
1,903,966
1,000,000
150,000
Interest
Income
Discount
Amortization
228,475
231,892
235,704
28,475
31,892
35,672
57
850,000
P1,053,966
Carrying
amount
1,903,960
1,932,435
1,964,327
2,000,000
Chapter 10: Loans and Receivables
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
A
5.
C
PROBLEM 10-9 Interest-bearing Note with Unrealistic Interest Rate,
Interest Is Payable Semi-Annually, One-Time Collection of Principal
Question No. 1
Present value of principal (2,000,000 x 0.7050)
Add: Present value of interest payments
(2,000,000 x 5% x 4.9173)
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Date
Interest
Collections
01/01/2016
07/31/2016
100,000
12/31/2016
100,000
07/31/2017
100,000
12/31/2017
100,000
07/31/2018
100,000
12/31/2018
100,000
P 1,410,000
491,730
1,901,730
1,000,000
150,000
Interest
Income
Discount
Amortization
114,104
114,950
115,847
116,796
117,804
118,602
14,104
14,950
15,815
16,796
17,804
18,802
Question No. 2
Interest income up to 07/31/2016
Interest income up to 12/31/2016
Total interest income
850,000
P1,051,730
Carrying
amount
1,901,730
1,915,834
1,930,784
1,946,599
1,963,395
1,981,198
2,000,000
114,104
114,950
229,054
Question No. 3
1,930,784. See amortization table above.
Question No.s 4 and 5
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
A
58
5.
D
Chapter 10: Loans and Receivables
PROBLEM 10-10 Interest-bearing Note with Unrealistic Interest Rate,
Uniform Collection of Principal
Question No. 1
Computation of present value of all payments:
Present
Interest
Principal
value factor
collections
0.8929
600,000
180,000
0.7972
600,000
120,000
0.7118
600,000
60,000
Total present value
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Interest
Date
Collections
01/01/16
12/31/16
180,000
12/31/17
120,000
12/31/18
60,000
Total
collections
780,000
720,000
660,000
1,000,000
150,000
850,000
P890,234
Amortizatio
n
Principal
collections
208,828
140,287
70,651
28,828
20,287
10,651
600,000
600,000
600,000
Question No. 2
208,828. See amortization table above.
Question No. 3
1,169,062. See amortization table above.
Question No. 4
Principal collections – 2017
Less: Amortization – 2017
Current portion – 12/31/2016
600,000
20,287
579,713
Question No. 4
Carrying value – 12/31/2016
Less: Current portion – 12/31/2016
Non-current portion – 12/31/2016
4.
696,462
573,984
469,788
1,740,234
1,740,234
Interest
Income
SUMMARY OF ANSWERS:
1. B
2. B
3. A
Total PV
1,169,062
579,713
589,350
B
59
5.
A
Carrying
amount
1,740,234
1,169,062
589,350
-
Chapter 10: Loans and Receivables
PROBLEM 10-11 Non-interest-bearing Note with Unrealistic Interest Rate,
Non-Uniform Collection of Principal
Question No. 1
Computation of present value of all payments:
Total
PV factor
collections
0.8929
1,000,000
0.7972
600,000
0.7118
200,000
Total present value of the notes
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Question Nos. 2 to 5
Amortization table
Interest
Date
income
01/01/16
12/31/16
181,630
12/31/17
83,425
12/31/18
21,382
Total PV
892,900
478,320
142,360
1,513,580
1,513,580
1,000,000
150,000
Amortizatio
n
850,000
P663,580
Principal
Collections
181,630
83,425
21,365
1,000,000
600,000
200,000
Question No. 2
181,630. See amortization table above.
Question No. 3
695,210. See amortization table above.
Question No. 4
Principal collections – 2017
Less: Amortization – 2017
Current portion – 12/31/2016
600,000
83,425
516,575
Question No. 5
Carrying value – 12/31/2016
Less: Current portion – 12/31/2016
Non-current portion – 12/31/2016
695,210
516,575
178,635
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
B
60
5.
D
Carrying
amount
1,513,580
695,210
178,635
-
Chapter 10: Loans and Receivables
PROBLEM 10-12 Noninterest-bearing Note, One-Time Collection of
Principal
Question No. 1
Total present value (1,800,000 x 0.7118)
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Date
Interest Income
01/01/16
12/31/16
153,749
12/31/17
172,199
12/31/18
192,812
1,281,240
1,000,000
150,000
Amortization
850,000
P431,240
Carrying amount
1,281,240
1,434,989
1,607,187
1,800,000
153,749
172,199
192,812
Question No. 2
153,749. See amortization table above.
Question No. 3
1,434,989. See amortization table above.
Question No. 4 and 5
The total amount of 1,434,989 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
B
5.
A
PROBLEM 10-13 Computation of Annual Payment or Collection
Requirement No. 1
CASE 1: Based on the original data
Annual collection
=
Present value of the notes
Present value of ordinary annuity for 3 periods
Annual collection
=
1,500,000
2.4018
Annual collection
= P624,532
Requirement No. 2
Interest income (1,500,000 x 12%)
= P180,000
61
Chapter 10: Loans and Receivables
CASE 2
Requirement No. 1
Annual collection
=
Present value of the notes
Present value of annuity due for 3 periods
Annual collection
=
1,500,000
2. 6901
Annual collection
= P557,600
Requirement No. 2
Interest income (1,500,000 – 557,600) x 12%
= P113,088
PROBLEM 10-14 Impairment of Receivable, Principal is Collectible Every
Year
Question No. 1
Principal (unpaid)
960,000
Add: Accrued interest receivable
96,000
Less: *Present value of expected cash flows
Loan impairment
(B)
1,056,000
770,528
285,472
*Computation of present value of all payments:
PV factor
Total collections
Total PV
0.9091
160,000
145,456
0.8264
320,000
264,448
0.7513
480,000
360,624
Total present value of the notes
770,528
Question Nos. 2 to 3
Amortization table
Date
12/31/2016
12/31/2017
12/31/2018
12/31/2019
Collections
Interest
Income
Amortization
160,000
320,000
480,000
77,053
68,758
43,634
82,947
251,242
436,339
SUMMARY OF ANSWERS:
1. B
2. B
3. B
62
Carrying
amount
770,528
687,581
436,339
-
Chapter 10: Loans and Receivables
PROBLEM 10-15 Impairment of Receivable, One-time Collection of
Principal
CASE NO. 1
Question No. 1
Principal
16,000,000
Add: Accrued interest receivable
1,600,000
Less: *Present value of expected cash flows
Loan impairment
(A)
17,600,000
7,705,280
9,894,720
*Computation of present value of all payments:
PV factor
Total collections
Total PV
0.9091
1,600,000
1,454,560
0.8264
3,200,000
2,644,480
0.7513
4,800,000
3,606,240
Total present value of the notes
7,705,280
Question Nos. 2 to 3
Amortization table
Date
12/31/2015
12/31/2016
12/31/2017
12/31/2018
Collections
Interest
Income
Amortization
1,600,000
3,200,000
4,800,000
770,528
687,581
436,339
829,472
2,512,419
4,363,389
CASE NO. 2
Question No. 4
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
(E)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013
1,600,000
12/31/2014
1,600,000
12/31/2015 1,600,000*
*Interest accrued.
12/31/2015
15,458,634
7,705,280
9,894,720
Interest
Income
Amortization
1,781,530
1,803,313
1,827,711
181,530
203,313
227,710
Accrued interest receivable
Interest income
Unearned interest income
Interest income
63
Carrying
amount
7,705,280
6,875,808
4,363,389
-
Carrying
amount
₱14,846,080
15,027,610
15,230,923
15,458,634
1,600,000
1,600,000
227,710
227,710
Chapter 10: Loans and Receivables
CASE NO. 3
Question No. 5
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
(E)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013
1,600,000
12/31/2014
1,600,000
12/31/2015
12/31/2015
17,058,634
7,705,280
9,353,354
Interest
Income
Amortization
1,781,530
1,803,313
1,827,711
181,530
203,313
1,827,711
Unearned interest income
Interest income
1,827,711
1,827,711
CASE NO. 4
Question No. 6
Carrying value – 12/31/2015 (see table below)
Less: *Present value of expected cash flows
Loan impairment
(E)
Amortization table
Interest
Received
Date
Or Accrued
01/01/2013
12/31/2013
1,600,000
12/31/2014
1,600,000
12/31/2015
1,600,000
12/31/2015
15,458,634
7,705,280
9,894,720
Interest
Income
Amortization
1,781,530
1,803,313
1,827,711
181,530
203,313
227,710
Cash
Interest income
Carrying
amount
₱14,846,080
15,027,610
15,230,923
15,458,634
1,600,000
1,600,000
Unearned interest income
Interest income
SUMMARY OF ANSWERS:
1. A
2. B
3. B
Carrying
amount
₱14,846,080
15,027,610
15,230,923
17,058,634
4.
E
64
227,710
5.
E
6.
227,710
E
Chapter 10: Loans and Receivables
PROBLEM 10-16 Reversal of Impairment Loss
Question No. 1
Present value of expected cash flows
vs. Would have been present value if there was no
impairment
Lower
Less: Actual amortized cost
Gain on reversal of impairment loss
600,000
600,000
396,681
P 203,319
Question No. 2
Interest income (600,000 x 10%)
P
P 654,552
60,000
SUMMARY OF ANSWERS:
1. A
2. B
PROBLEM 10-17 Pledge of Receivable
Principal amount borrowed
Less: One year interest deducted in advance (900,000 x 10%)
Cash received on December 1
(B)
PROBLEM 10-18 Assignment of Receivable
Entries to record transactions
Date
Accounts
10/1/2016
Cash
Finance charge expense
Notes payable
12/31/2016
P 900,000
( 90,000)
P810,000
Debit
395,000
5,000
400,000
Cash
Accounts receivable
300,000
Interest expense (400,000 x 12% x 3/12)
Notes payable
Cash
12,000
300,000
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 10-19 Assignment of Accounts Receivable
Question No. 1
Principal amount borrowed
Less: Finance fee (150,000 x 5%)
Cash received on December 1
(D)
65
Credit
P 150,000
( 7,500)
P142,500
300,000
312,000
Chapter 10: Loans and Receivables
Question No. 2
Notes payable
Less: Principal payment
Remittance
Less: Interest (150,000 x 12% x 3/12)
Notes payable – December 31
(C)
P150,000
95,000
( 1,500)
Question No. 3
Accounts receivable – assigned (200,000 – 100,000)
Less: Notes payable
Equity in assigned account
(C)
93,500
P 56,500
P 100,000
( 56,500)
P 43,500
SUMMARY OF ANSWERS:
1. D
2. C
3. C
PROBLEM 10-20 Factoring of Receivables
Entries to record transactions
Option
Accounts
One
Cash (400,000 x 90%)
Receivable from factor
(25,000 – [5% x 400,000])
Loss on sale of receivables (squeeze)
Notes payable
Two
Cash (400,000 x 90%)
Receivable from factor
(25,000 – [4% x 400,000])
Loss on sale of receivables (squeeze)
Notes payable
Estimated recourse liability
Debit
360,000
Credit
5,000
35,000
400,000
360,000
9,000
34,000
400,000
3,000
SUMMARY OF ANSWERS:
1. B
2. C
PROBLEM 10-21 Factoring
Sales price
Less: Carrying amount of accounts receivable (300,000 – 12,500)
Loss on factoring
(B)
66
P 265,000
( 287,500)
P 22,500
Chapter 10: Loans and Receivables
PROBLEM 10-22 Notes Receivable Discounting and Notes Receivable
Dishonored
CASE NO. 1
Question No. 1
Principal
P 600,000.00
Add: Interest over full credit period (600,000 x 9% x 90/360)
13,500.00
Maturity value
613,500.00
Less: Discount (613,500 x 12% x 65/360)
13,292.50
Net proceeds from discounting (C)
P 600,207.50
Question No. 2
Net proceeds from discounting
Less: Carrying amount on date of discounting
Principal
Add: Interest (600,000 x 9% x 25/360)
Loss on notes receivable discounting
(A)
P 600,207.50
600,000.00
3,750.00
603,750.00
(P 3,542.50)
CASE NO. 2
Question No. 3
Loss of P3,524.50. The amount of loss to be recognized is computed in a
similar way as to that of discounted note without recourse.
(A)
Question No. 4
Maturity value of the note
Add: Protest fee and other bank charges
Cash received on December 1
(C)
P 613,500
5,000
P618,500
CASE NO. 3
Question No. 5
Interest expense of P3,524.50. The amount of interest expense is computed
in a similar way as to that of discounted note without recourse or conditional
sale.
(A)
Question No. 6
Maturity value of the note
Add: Protest fee and other bank charges
Cash received on December 1
(C)
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
P 613,500
5,000
P618,500
C
5.
PROBLEM 10-23 Discounting “Own” Note
Question No. 1
Note payable
Less: Discount on note payable (250,000 x 12%)
Carrying amount – Date of issuance
67
A
6.
C
P 250,000
( 30,000)
P 220,000
Chapter 10: Loans and Receivables
Effective interest rate
= Discount/Net proceeds
= 30,000/220,000
= 13.60%
(D)
Question No. 2
Entry to record transaction
Cash
220,000
Discount on notes payable
30,000
Notes payable
250,000
SUMMARY OF ANSWERS:
1. D
2. B
COMPREHENSIVE PROBLEMS
PROBLEM 10-24
Question No. 1
Allowance for Doubtful accounts
Accounts written off
Balance end (squeeze)
164,000
200,000
212,000
152,000
Total
364,000
364,000
Question No. 2
Age Group
Amount
0 - 60 days
P 1,650,000
61 - 90 days
440,000
91 - 120 days
100,000
Over 120 days
256,000
Total
P 2,446,000
Beg. Balance
DA expense (7.6M x 2%)
Percent Uncollectible
2%
10%
30%
40%
Allowance
33,000
44,000
30,000
102,400
209,400
Question No. 3
Allowance for Doubtful accounts
Accounts written off
Balance end
164,000
209,400
212,000
161,400
Total
373,400
373,400
Beg. Balance
DA expense (squeeze)
Question No. 4
Accounts receivable, December 31, 2016
Less Allowance for doubtful accounts, December 31, 2016
Net realizable value
68
2,446,000
209,400
2,236,600
Chapter 10: Loans and Receivables
Question No. 5
Accounts receivable trade
Beg. Balance
Sales
Total
2,500,000
7,600,000
2,446,000
164,000
7,490,000
10,100,000
10,100,000
SUMMARY OF ANSWERS:
1. A
2. C
3. D
PROBLEM 10-25
Question No. 1
Credit Sales
2013
2,220,000
2014
2,450,000
2015
2,930,000
7,600,000
Percentage
4.
B
Accounts written off
52,000
59,000
60,000
171,000
D
Recoveries
4,300
7,500
7,200
19,000
Accounts written off minus Recoveries
Total credit sales
=
Total years from 2013 to 2015:
Percentage
5.
Balance end
Write-off
Collections (squeeze)
171,000 - 19,000
7,600,000
=
Percentage = 0.02 or 2%
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3
Reported doubtful account expense (bad debts written off)
Less: Correct doubtful account expense (see No. 2)
Overstatement in doubtful account expenses
Question No. 4
P 62,000
( 60,000)
P 2,000
Accounts receivable trade
Beg. Balance
Sales on account
418,000
3,000,000
645,600
62,000
2,710,400
Total
3,418,000
3,418,000
69
Balance end
Write-off
Collections excluding
advance from customers
Chapter 10: Loans and Receivables
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
62,000
21,600
15,200
60,000
8,400
Total
83,600
83,600
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
Beg. Balance
Doubtful accounts expense
Recoveries
B
5.
A
PROBLEM 10-26
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze)
Add: Adjusted net sales
Total
Less: Collections, net of discounts
Estimated uncollectible accounts charged to AR in Dec.
Unadjusted accounts receivable, Dec. 31
Subsidiary ledger balance, Dec. 1
Less: AR controlling account, Dec. 1 (see above)
Add: Estimated uncollectible account
charged to AR in Dec.
Customers’ credit balance
(D)
Question No. 2
Collection, net of discount
Divide by: (100%-2%)
Total credit to AR for collection
P 59,000
21,800
6,000
P 156,800
98%
P160,000
(A)
Question No. 3
Customer credit balance, Dec. 1
Less: sale to customer with credit balance
Customer Credit balance, Dec. 31 (A)
P 31,200
10,000
P 21,200
Question No. 4
Unadjusted Sales, balance
b) Sales, FOB shipping pt., not yet recorded
c) Sales, FOB destination
Adjusted Sales balance
(A)
P 260,000
10,000
( 15,000)
P 255,000
70
P 21,800
255,000
276,800
156,800
30,000
P 90,000
27,800
P31,200
Chapter 10: Loans and Receivables
Question No. 5
Subsidiary ledger, balance, 12/1
Add: Adjusted Sales in December
Freight prepaid by the company
Total
Less: total credit to AR for coll.
Adjusted accounts receivable in Dec. (B)
SUMMARY OF ANSWERS:
1. D
2. A
3. A
4.
P 59,000
255,000
1,000
P 315,000
160,000
P 155,000
A
5.
B
PROBLEM 10-27
Question Nos. 1 to 3
Total
0-31 days 31-60
61-90
91-120
Rose
P 87,950
35,000
52,950
Gerry
52,300
30,000
Ram
50,000
50,000
Ria
84,350
57,850
26,500
Mar
79,000
31,000
48,000
Sun
43,500
43,500
West
P 397,100
116,000 110,800 74,500 73,500
0.01
0.015
0.04
0.10
1,160
1,662
2,980
7,350
Question No. 4
Allowance for doubtful accounts, end:
(P1,160 + P1,662 + P2,980 + P7,350 + P13,380)
P 26,532
Question No. 5
Over 120
22,300
22,300
0.60
13,380
Allowance for Doubtful accounts
Accounts written off
Balance end
15,000
26,532
22,450
19,082
Total
41,532
41,532
SUMMARY OF ANSWERS:
1. A
2. C
3. C
4.
C
71
5.
Beg. Balance
Doubtful accounts expense
C
Chapter 10: Loans and Receivables
PROBLEM 10-28
Question No. 1
Balance
Accounts
Dec. 31
Not due
1-60 days
61-120 days
Over 120
1
12,000
3,000
8,000
1,000
2
22,000
22,000
4
20,000
10,000
10,000
5
55,000
2,220
52,780
6
7,500
7,500
116,500
27,220
68,280
11,000
10,000
Multiply by:
0.50%
2%
5%
50%
136.10
1,365.60
550
5,000.00
Question Nos. 2 and 3
Required balance (P136.10+P1,365.60+P550+P5,000)
Less: Allowance for doubtful accounts, beginning
Doubtful accounts expense
P 7,051.70
5,000.00
P 2,051.70
Question Nos. 4 and 5
Interest income
(120,000 X 6% X 2/12)
(100,000 X 6% X 1/12)
Interest income
Interest
income
P 1,200
500
P 1,700
SUMMARY OF ANSWERS:
1. D
2. C
3. B
4.
D
PROBLEM 10-29
Question No. 1
Principal
Origination fees received
Direct origination cost incurred
Initial Carrying amount of the loan
Accrued interest
income
P
500
P 500
5.
A
4,000,000
(342,100)
150,020
3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118)
2,847,200
Present value of Int. (4M x 10% x 2.4018)
960,720
Present value of Loan Receivable
3,807,920
72
Chapter 10: Loans and Receivables
Question Nos. 3 and 4
Date
01/01/2016
31/12/2016
31/12/2017
31/12/2018
Collections
Interest
Income
Amortization
400,000
400,000
400,000
456,950
463,784
471,439
56,950
63,784
71,346
Carrying
amount
3,807,920
3,864,870
3,928,655
4,000,000
Question No. 5
Zero, As of December 31, 2016, the entire loan proceeds will be collectible on
December 31, 2018, that is two years from the reporting date.
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
A
5.
A
PROBLEM 10-30
Question Nos. 1 and 3
Carrying amount of the loan, December 31, 2016
Less Carrying amount of the loan, December 31, 2017
Amortization in 2017
Less Interest collection in 2017
Interest income in 2016 (3)
Divide by Carrying amount of the loan, 12/31/2016
Effective interest rate (1)
8,277,606
8,145,367
132,239
960,000
827,761
8,277,606
10%
Question No. 2
Carrying amount of the loan, January 1, 2016
Multiply by: Effective interest rate
Interest income in 2016
8,397,824
10%
839,782
Question No. 3
Carrying amount of the loan, 12/31/2016
Multiply by: Effective interest rate
Interest income in 2016
8,277,606
10%
827,761
Question No. 4
Carrying amount of the loan, December 31, 2016
Add: Interest collection (8M x 12%)
Total
Divide by: 100% plus effective rate
Carrying amount of the loan, January 1, 2016
73
8,277,606
960,000
9,237,606
1.10
8,397,824
Chapter 10: Loans and Receivables
Question No. 5
Carrying amount of the loan, January 1, 2016
Direct origination fees received
Principal
Direct origination cost incurred
Date
01/01/2016
12/31/2016
12/31/2017
12/31/2018
8,397,824
100,000
8,000,000
497,824
Collections
Interest
Income
Amortization
960,000
960,000
960,000
839,782
827,761
814,537
120,218
132,239
145,367
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
D
PROBLEM 10-31
Question No. 1
Principal
Origination fees received
Direct origination cost incurred
Initial Carrying amount of the loan
5.
Carrying
amount
8,397,824
8,277,606
8,145,367
8,000,000
D
4,000,000
(282,100)
39,020
3,756,920
Question Nos. 2 and 3
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .6355)
2,542,000
Present value of Int. (4M x 10% x 3.0373)
1,214,920
Present value of Loan Receivable
3,756,920
Amortization table
Date
01/01/2015
31/12/2015
31/12/2016
31/12/2017
Collections
Interest
Income
Amortization
400,000
400,000
400,000
450,830
456,930
463,762
50,830
56,930
63,762
Question No. 4
Carrying Amount (see above amortization table)
Less: *Present value of expected cash flows
Loan Impairment
74
3,864,680
3,201,620
663,060
Carrying
amount
3,756,920
3,807,750
3,864,680
3,928,442
Chapter 10: Loans and Receivables
*Computation of present value of expected cash flows
Date
Cash flow
PV factor at 12%
Present value
12/31/2017
1,800,000
0.8929
1,607,220
12/31/2018
2,000,000
0.7972
1,594,400
3,201,620
Question No. 5
Date
12/31/2016
12/31/2017
12/31/2018
Collections
Interest
Income
Amortization
1,800,000
2,000,000
384,194
214,298
1,415,806
1,785,814
SUMMARY OF ANSWERS:
1. B
2. C
3. B
PROBLEM 10-32
Question No. 1
Annual Cash
Date
flows
Dec. 31, 2015
P1,750,000
Dec. 31, 2016
2,000,000
Dec. 31, 2017
1,750,000
Total
4.
B
PV
factor
0.9091
0.8264
0.7513
5.
Carrying
value
3.201,620
1,785,814
-
B
Amount
P 1,590,925
1,652,800
1,314,775
P 4,558,500
Question No. 2
Carrying amount of the loan
Less: Present value of the loan
Impairment loss
P 5,500,000
4,558,500
P 941,500
Question Nos. 3 to 5
Date
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Payment
Interest
Income
P1,750,000
2,000,000
1,750,000
P455,850
326,435
159,079
SUMMARY OF ANSWERS:
1. C
2. A
3.
B
4.
75
Reduction to
Principal
A
P1,294,150
1,673,565
1,590,785
5.
C
Carrying
amount
P4,558,500
3,264,350
1,590,785
-
Chapter 10: Loans and Receivables
PROBLEM 10-33
Question Nos. 1 to 4
Unadjusted balances
2) Sale return
Cost of return
Merchandise
(30,000 x 80%)
3)Sales FOB shipping
point
not recorded as
Sale
Cost of mdse sold
(40,000 x 80%)
4) Goods shipped
FOB
Destination recorded
as sale
Cost of goods
(50,000 x 80%)
6) Doubtful accts exp
Adjusted bal.
Accounts
Receivable
300,000
(30,000)
Allow
for DA
3,000
Mdse.
Inventory
400,000
Net
Sales
1,000,000
(30,000)
24,000
40,000
Cost of
Sales
800,000
(24,000)
40,000
(32,000)
(50,000)
32,000
(50,000)
40,000
260,000
(12,000)
15,000
432,000
Question No. 5
Accounts receivable
Less: Allowance for doubtful accounts
Net realizable value
P 260,000
( 15,000)
P245,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
B
4.
5.
(40,000)
960,000
768,000
C
PROBLEM 10-34
Question No. 1
Classification
Balance
1-60 days
61-120 days
121-180 days
181-360 days
More than one year
Totals
P 1,000,000
400,000
300,000
200,000
60,000
P 1,960,000
Estimated
Percentage
Amount
1%
P 10,000
5%
20,000
10%
30,000
25%
50,000
80%
48,000
P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1)
Less: Allowance for doubtful accounts, end (see no. 1)
Net realizable value
76
P 1,960,000
158,000
P1,802,000
Chapter 10: Loans and Receivables
Question No. 3
Doubtful accounts per books (9,000,000 x 2%)
Less: *Adjusted doubtful accounts expense
Understatement of doubtful accounts
P 180,000
188,000
(P 8,000)
*Adjusted doubtful account expense
Allowance for Doubtful accounts
Write off (100,000+40,000)
Balance end (required)
140,000
158,000
90,000
20,00
188,000
Total
298,000
298,000
Question No. 4
Total carrying value
Less: **Present value of the loan
Impairment loss
*Computation of present value
Annual Cash flow PV factor
P1,000,000
1.00
1,000,000
0.93
1,000,000
0.86
Total Present value of the loan
Beg. Balance
Recoveries
Doubtful account expense
P3,000,000
2,790,000
P 210,000
Total
P 1,000,000
930,000
860,000
P 2,790,000
Question No. 5
Date
01/01/2016
12/31/2016
12/31/2017
Collections
Interest
Income
Amortizatio
n
1,000,000
1,000,000
143,200
1,000,000
856,800
SUMMARY OF ANSWERS:
1. A
2. B
3. D
4.
B
5.
Carrying
amount
2,790,000
1,790,000
933,200
B
PROBLEM 10-35
Question Nos. 1 to 4
Accounts
receivable
Unadjusted bal.
200,000
1
(14,800)
3
(47,400)
4
(30,000)
Merchandise
Inventory
300,000
32,600
77
Net Sales
1,000,000
(47,400)
(90,000)
Cost of
Sales
600,000
(32,600)
Chapter 10: Loans and Receivables
5
6
7
(8,000)
(36,000)
(1,200)
62,600
Question No. 5
Original bill (P200 x 100)
Divided by: Selling price per unit
Number of units sold
(8,000)
(36,000)
(1,200)
817,400
24,000
356,600
Debit
14,800
Accounts receivable – D
Accounts receivable – C
32,400
E
Sales
Accounts receivable
47,400
Merchandise inventory
Cost of sales
32,600
Sales
Accounts receivable
Customers’ deposit on orders
90,000
Sales
Accounts receivable
*8,000
Sales
Accounts receivable
36,000
Merchandise inventory
Cost of sales
24,000
I
Credit
14,800
C
H
543,400
P 20,000
200
100
Question No. 6
Item
Accounts
B
Accounts payable
Accounts receivable
F
(24,000)
32,400
47,400
32,600
30,000
60,000
8,000
36,000
Sales returns and allowances
1,200
Accounts receivable
*Computation of overstatement of sales for item H
Original bill (P200 x 100) P 20,000
Per audit: (P120 x 100)
12,000
Overstatement
P 8,000
24,000
J
SUMMARY OF ANSWERS:
1. A
2. A
3. D
4.
B
78
5.
B
1,200
Chapter 10: Loans and Receivables
PROBLEM 10-36
Question No. 1
Accounts receivable, unadjusted balance
Per subsidiary ledger
Note receivable included in the AR
Factored Accounts receivable
Sales FOB shipping point
Adjusted AR balance
P1,660,000
(200,000)
(160,000)
100,000
P1,400,000
Question No. 2
Allowance for doubtful accts, beg.
Add: Doubtful accounts (P15,000,000 + P100,000) x 1%
Total
Less: Accounts written off
Allowance for doubtful accts, end
P 100,000
151,000
P 251,000
28,000
P 223,000
Question No. 3
Unadjusted Net Sales
Add: Sales, FOB shipping point
Total Sales
Multiply by: rate
Doubtful accounts
P15,000,000
100,000
P 15,100,000
1%
P
151,000
Question No. 4
No effect. The audit adjustments did not result to any changes to inventory
account.
Question No. 5
Sales, FOB shipping point
SUMMARY OF ANSWERS:
1. D
2. A
3. D
P 100,000
4.
D
PROBLEM 10-37
Question No. 1
Accounts receivable factored
Less: Service charge (400,000 x 5%)
Receivable from factor (400,000 x 20%)
Customers’ credit balance
5.
A
P 400,000
20,000
80,000
Question No. 2
Principal
Add: Interest over full credit period (300,000 x 12% x 6/12)
Maturity value
Less: Discount (318,000 x 12% x 3/12)
Net proceeds from discounting
79
100,000
P300,000
P 300,000
18,000
318,000
11,925
P 306,075
Chapter 10: Loans and Receivables
Question No. 3
Maturity value of the notes (see item in No. 2)
Add: Protest fee
Total cash paid/Amount to be debited to AR
318,000
12,000
P 330,000
Question No. 4
Note payable (80% x P600,000)
Less: Service fee (5% x P600,00)
Cash received
480,000
30,000
P 450,000
Question No. 5
Total Cash paid (see No. 3)
Add: Interest income (P330,000 x 12% x 2/12)
Cash received
330,000
6,600
P 336,600
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000)
Add: Accounts receivable assigned
Total
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%)
Net realizable value
P 700,000
600,000
1,300,000
65,000
P1,235,000
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4.
B
5.
D
6.
D
PROBLEM 10-38
Question No. 1 Noncurrent portion
Note receivable from sale of plant (due beyond 12 months)
Note receivable from officer
Note receivable from Never Quit Co. (826,000 + 61,950)
Note receivable from Persistent Co. (2,800,000 – 603,320)
Total noncurrent receivables
(C)
Amortization table – Persistent Company
Interest
Date
Collections
Income
06/01/2016
06/01/2016
1,200,000
06/01/2017
883,320
280,000
80
Amortizatio
n
1,200,000
603,320
2,500,000
2,000,000
887,950
2,196,680
7,584,630
Carrying
amount
4,000,000
2,800,000
2,196,680
Chapter 10: Loans and Receivables
Question No. 2 Current receivables
Note receivable from sale of plant (due within 12 months)
Note receivable from Persistent Co. (883,320 – 280,000)
Total current receivables
(C)
2,500,000
603,320
3,103,320
Question No. 3 Accrued interest receivable
Accrued interest receivable – note receivable from sale of plant
(5,000,000 x 9% x 8/12)
Accrued interest from sale of land (2,800,000 x 10% x 6/12)
Total accrued interest
(C)
Question No. 4 Interest income
Interest income from sale of plant [(7,500,000 x 9% x 4/12) +
(5,000,000 x 9% x 8/12)]
Interest income from officer (2,000,000 x 8%)
Interest income from Never Quit Co. (826,000 x 10% x 9/12)
Interest income from Persistent Co. [(4,000,000 – 1,200,000) x
10% x 6/12)]
Total interest income
(C)
Question No. 5
Present value of future cash flows (1M x .826)
Less: Carrying amount of equipment
Gain on sale of equipment
SP (Cash price equivalent)
Less: Carrying amount of land
Gain on sale of land
Total gain
(D)
SUMMARY OF ANSWERS:
1. C
2. C
3. C
4.
300,000
140,000
440,000
525,000
160,000
61,950
140,000
886,950
826,000
380,000
446,000
4,000,000
3,000,000
1,000,000
1,446,000
C
5.
D
PROBLEM 10-39
Question Nos. 1 to 3
Total
Unadjusted
Balance,
12/31/2016
Adjustments:
Write Off
Unrecorded sale
NSF Check
In transit shipment –
60 days and
below
61 to 90
days
1,000,000
500,000
1,900,000
(40,000)
50,000
20,000
(45,000)
Over 90
days
400,000
(40,000)
50,000
20,000
(45,000)
81
Chapter 10: Loans and Receivables
FOB Destination
Consignment
(45,000)
Erroneous unit price
(7,500)
Adjusted
balance,
12/31/2016
1,832,500
Percentage of Uncollectibility
Required
allowance,
12/31/2016
108,825
(45,000)
(7,500)
930,000
4%
492,500
5%
410,000
10%
37,200
24,625
41,000
Question No. 4
Allowance for Doubtful accounts
Write off
Balance end (required)
40,000
102,825
100,000
42,825
Total
142,825
142,825
Item
1
Beg. Balance
Recoveries
Doubtful account expense
(squeeze)
Accounts
Allowance for bad debts
Accounts receivable
Debit
40,000
Accounts receivable
Sales
50,000
3
Accounts receivable
Cash in bank
20,000
4
Sales
Accounts receivable
45,000
Sales
Accounts receivable
45,000
Sales
Accounts receivable
7,500
2
5
6
SUMMARY OF ANSWERS:
1. C
2. D
3. D
Credit
40,000
50,000
20,000
45,000
45,000
7,500
4.
D
PROBLEM 10-40
Question Nos. 1 and 3
Adjusting entries for Accounts receivable
Item
Accounts
1
Accounts receivable
Allowance for doubtful accounts
82
5.
C
Debit
20,000
Credit
20,000
Chapter 10: Loans and Receivables
2
3
4
Sales discount
Accounts receivable
16,000
16,000
Accounts receivable
Allowance for doubtful accounts
120,000
Accounts receivable
Allowance for doubtful accounts
30,000
Miscellaneous income
Accounts receivable
30,000
120,000
30,000
30,000
Accounts receivable
Beg. Balance
(20,000+200,000)
Sales
Recoveries
220,000
2,720,000
4,000,000
30,000
30,00
*1,500,000
Total
4,250,000
4,250,000
*Collections from customers excluding recoveries
Collections without discount
Add: Collections with discount
Cash discount availed (784,000/98% x 2%)
Total collections excluding recoveries
Balance end
Recoveries
Collections, gross of
discount
700,000
784,000
16,000
P 1,500,000
Allowance for Doubtful accounts
Balance end
170,000
20,000
30,000
120,000
Total
170,000
170,000
Accounts receivable
Less: Allowance for bad debts
Net realizable value
2,720,000
170,000
P 2,550,000
Question Nos. 2, 4 and 5
Adjusting entries for Loans receivable
Item
Accounts
Debit
1
Loan Receivable
400,000
Interest income
2
Beg. Balance
Recoveries
Doubtful account expense
Unearned interest income
Interest income
Credit
400,000
45,382
45,382
83
Chapter 10: Loans and Receivables
Principal
Direct origination cost incurred
Direct origination fees received
Initial carrying amount
4,000,000
11,520
(300,000)
3,711,520
Amortization table at 12% Effective Rate
Interest
Date
Collections
Income
01/01/2015
12/31/2015
400,000
445,382
12/31/2016
400,000
450,828
12/31/2017
400,000
456,928
12/31/2018
400,000
463,759
12/31/2019
400,000
471,410
SUMMARY OF ANSWERS:
1. B
2. C
3. D
4.
D
Amortization
45,382
50,828
56,928
63,759
71,583
5.
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
A
PROBLEM 10-41
Note to professor: The due date of receivable from sale of equipment is 2020,
instead of April 1, 2019.
Question No. 1
Unrecorded gain on sale of machinery – 2015 (see below)
Unrecorded interest income – receivable from sale of machinery
(240,183 x 12%)
Unrecorded accrued interest – receivable from sale of plant
(1,500,000 x 12% x 9/12)
Net adjustment to R/E – 01/01/16
(B)
135,000
254,005
Cash consideration
Add: Present value of future cash flows (2.4018 x 100,000)
Total selling price
Less: Carrying value of machine (800,000 – 450,000)
Gain on sale of machine
200,000
240,183
440,183
350,000
90,183
Amortization table (receivable from sale of machinery):
Interest
Date
Collections
Income
Amortization
01/01/2015
12/31/2015
100,000
28,822
71,178
12/31/2016
100,000
20,281
79,719
12/31/2017
100,000
10,714
89,286
84
90,183
28,822
Carrying
amount
240,183
169,005
89,286
-
Chapter 10: Loans and Receivables
Question No. 2
Interest income from note receivable:
Sale of machinery (169,005 x 12%)
Sale of plant [(1,500,000 x 12% 3/12) + (1M x 12% x 9/12)
Sale of equipment (170,750 x 10% x 9/12)
Total interest income
(C)
20,281
135,000
12,806
168,087
Question No. 3
Current portion of note receivable from:
Sale of machinery (see amortization table above)
Sale of plant
Total current portion
(B)
89,286
500,000
589,286
Question No. 4
Non-current portion of note receivable from:
Sale of plant
Sale of equipment (170,750 + 12,806)
Total non-current portion
(D)
500,000
183,556
683,556
Question No. 5
Interest income from sale of machine
Interest income from sale of plant (180,000 – 135,000)
Interest income from sale of equipment
Net overstatement of income
(E)
20,281
(45,000)
12,806
(11,912)
SUMMARY OF ANSWERS:
1. B
2. C
3. B
4.
D
85
5.
E
Chapter 12: Inventories
CHAPTER 12: INVENTORIES
PROBLEM 12-1 Cost of Purchase
Purchase price based on vendors’ invoices
Brokerage commission paid to agents for arranging imports
Import duties
Freight and insurance on purchases
Other handling costs relating to imports
Total cost of purchase
(B)
1,250,000
50,000
100,000
250,000
25,000
P1,675,000
Note that the trade discount was already deducted in arriving at the vendor’s
invoice.
PROBLEM 12-2 Inventoriable Cost
Materials
Irrecoverable purchase taxes
Labor
Variable production overhead
Fixed production costs
Cartage in
Total
(C)
₱ 350,000
30,000
120,000
50,000
40,000
8,000
₱598,000
PROBLEM 12-3 Rebates
Question No. 1
Invoice price (no VAT is charged on these goods)
Less: Rebate offered to the entity by the supplier
Inventoriable cost
(B)
₱ 850,000
10,000
₱ 840,000
Question No. 2
Inventoriable cost
₱ 850,000
(C)
PROBLEM 12-4 FREIGHT TERMS & FOREIGN EXCHANGE
Question No. 1 Free on Board
Cost of inventory ($100,000 x ₱45)
ForEx loss (₱46.875 - ₱45) x 100,000
(A)
₱4,500,000
187,500
Question No. 2 Cost, Insurance and Freight
Cost of inventory ($100,000 x ₱45.625)
ForEx loss (₱46.875 - ₱45.625) x 100,000 (D)
₱4,562,500
125,000
86
Chapter 12: Inventories
PROBLEM 12-5 MANUFACTURING COST
Question No. 1
Variable cost:
Direct labor (₱3 x 3 DLH x 100,000 units)
Direct materials (₱2 excluding VAT x 100,000 units)
Fixed Cost (₱100,000 / 100,000 normal capacity) x 100,000 actual
Total cost
(C)
₱ 900,000
200,000
100,000
₱1,200,000
Question No. 2
Variable cost:
Direct labor (₱3 x 3 DLH x 120,000 units)
Direct materials (₱2 excluding VAT x 120,000 units)
Fixed Cost (₱100,000 / 120,000 actual capacity) x 100,000 actual
Total cost
(E)
₱1,080,000
200,000
100,000
₱1,420,000
Question No. 3
Variable cost:
Direct labor (₱3 x 3 DLH x 80,000 units)
Direct materials (₱2 excluding VAT x 80,000 units)
Fixed Cost (₱100,000 / 100,000 normal capacity) x 80,000 actual
Total cost
(E)
₱ 720,000
160,000
80,000
₱ 960,000
PROBLEM 12-6 Items to be Included in the Inventory
1
Items in the warehouse during the count
2
Items out on consignment at another company's store
Items purchased FOB shipping point that are in transit at
4
December 31
5
Freight charges on goods purchased above
Items sold to another company, for which our company
has signed an agreement to repurchase at a set price that
covers all costs related to the inventory. Total cost of
7
merchandise is
Items sold FOB destination that are in transit at December
10 31, at cost
14 Items currently being used for window display
15 Items on counter for sale
17 Items included in the count, damaged and unsalable
Items in receiving dept., returned by customer, in good
18 condition (not included in the count)
19 Merchandise inventories out on approval, at cost
Finished special article goods, made to order (included in
20 the count)
Total
(A)
87
P1,090,000
70,000
500,000
13,000
200,000
75,000
100,000
400,000
(150,000)
50,000
100,000
(78,000)
P2,370,000
Chapter 12: Inventories
The following items would not be reported as inventory:
3
Cost of goods sold in the income statement
6
Not reported in the financial statements
8
Cost of goods sold in the income statement
9
Cost of goods sold in the income statement
11 Advertising exp. In the income statement
12 Not reported in the financial statements
13 Temporary investments in the current
assets section of the balance sheet
16 Not reported in the financial statements
21 Office supplies in the current asset
section of the balance sheet
40,000
300,000
30,000
50,000
10,000
100,000
125,000
360,000
40,000
PROBLEM 12-7 Accounts Payable
Unadjusted balance
Goods acquired in transit, FOB shipping point
Goods lost in transit
Adjusted Accounts Payable
(A)
The journal entry on item 2 would include the following:
Purchases / Inventory
Accounts Payable
To record the purchase on December 20.
1,800,000
100,000
50,000
P1,950,000
50,000
50,000
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventory?
Answer: No, since the inventories were lost in transit and it is improper to
report inventories that is not existing (i.e. it violates the existence assertion).
Thus the journal entry at December 31 if no claim was filed and the common
carrier has yet to acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as
other expense and not as cost of goods sold)
Inventory / Purchases
50,000
50,000
And on the next year (January 5), when the claim was filed and acknowledged
by the common carrier, the journal entry will be:
Claims from common carrier
50,000
Gain on reimbursement of lost inventory
50,000
To record the claim against common carrier on January 5.
88
Chapter 12: Inventories
PROBLEM 12-8 Consigned Goods
Inventory shipped on consignment to Lomasoc
Freight by Desiree to Lomasoc
Total Inventoriable cost
(D)
360,000
18,000
P 378,000
PROBLEM 12-9 Items to Be Included In the Inventory
Note to the professor: Use the following guide questions in answering this
question:
1. Was there a valid sale?
2. Was the sale recorded?
3. Were the inventories EXCLUDED in the count?
Unadjusted balances
100
101
102
103
104
105
106
107
108
109
Adjusted balances
Guide
Questions
Yes, Yes, Yes
No, No, Yes
No, Yes, Yes
Yes, Yes, Yes
Yes, No, Yes
No, Yes, No
No, No, No
Yes, No, Yes
No, Yes, No
No, No, No
Sales
700,000
(1,800)
9,200
(6,500)
3,900
(8,600)
696,200
(A)
Inventories
150,000
2,000
1,200
153,200
(A)
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 12-10 Gross method vs. Net method
Date
01/02
CASE NO 1: Gross method
Accounts
Purchases (100,000 x [1-20%])
Accounts payable
Debit
80,000
80,000
01/12
Accounts payable
Cash (80,000 x [1-98%])
Purchase discount
80,000
01/14
Accounts payable
Cash
80,000
89
Credit
78,400
1,600
80,000
Chapter 12: Inventories
Date
01/02
01/12
01/14
CASE NO 2: Net method
Accounts
Purchases (100,000 x [1-20%]
x [1-2%])
Accounts payable
Debit
Credit
78,400
78,400
Accounts payable
Cash (80,000 x [1-98%])
78,400
Accounts payable
Purchase discount lost
Cash
78,400
1,600
78,400
80,000
SUMMARY OF ANSWERS:
CASE NO. 1
1. B
2. C
3. D
4. A
CASE NO. 2
5. C
6. C
7. A
8. D
PROBLEM 12-11 Cost Formulas - Different Methods
Note to professor: The unit cost on April 28 should be P16.75 and not P17.
Question Nos. 1 and 2
Weighted average
Weighted average
=
unit cost
Weighted average
unit cost
Total goods available for sale (in peso value)
Total goods available for sale (in units)
1,105,000
85,000
=
Weighted average unit cost = P13/unit
Inventory end (40,000 x 13)
Cost of goods sold (20,000+5,000+21,000–1,000) x 13
Question Nos. 3 and 4
Moving average
April 1 balance
Apr. 2
Balance
Apr. 4
Balance
Apr. 10
Balance
Apr. 15
Balance
Purchase
Sale
Purchase
Sales
Units
20,000
30,000
50,000
(25,000)
25,000
15,000
40,000
(21,000)
19,000
90
Unit cost
10
12
11
11
11
14
12
12
12
= P520,000
= P585,000
Total cost
200,000
360,000
560,000
(280,000)
280,000
210,000
490,000
(257,250)
232,750
(C)
(C)
Chapter 12: Inventories
Apr. 17
Apr. 28
Apr. 28
Sales return
Balance
Purchase
Balance
1,000
20,000
20,000
40,000
12
12,250
245,000
335,000
580,000
16.75
15
Inventory end
Cost of goods sold (280,000 + 257,250 – 12,250)
= P580,000
= P525,000
(A)
(A)
Question Nos. 5 and 6
FIFO
April 1 balance
Apr. 2
Apr. 4 (25,000 units sold)
Balance from Apr. 2
Apr. 10
Apr. 15 (21,000 units sold)
Balance from April 2
Balance from April 10
Apr. 17
Balance
Balance from April 2
Balance from April 10
Apr. 28
Total
Units
20,000
30,000
(20,000)
(5,000)
25,000
15,000
(21,000)
4,000
15,000
1,000
Purchase
From Apr. 1
From Apr. 2
Purchase
From Apr. 2
Sales return
Unit cost
10
12
10
12
12
14
12
12
14
12
5,000
15,000
20,000
40,000
Purchase
Balance
Total cost
200,000
360,000
(200,000)
(60,000)
300,000
210,000
(252,000)
48,000
210,000
12,000
12
14
17
60,000
210,000
335,000
605,000
Inventory end
= P605,000
Cost of goods sold (200,000 + 60,000 + 252,000 – 12,000) = P500,000
(B)
(B)
Question Nos. 7 and 8
Note that inventory and cost of goods sold under FIFO periodic and perpetual is
the same.
SUMMARY OF ANSWERS:
1. C
2. C
3. A
4.
A
5.
B
6.
B
7.
B
8.
B
PROBLEM 12-12 Lower of Cost or Net Realizable Value
Question Nos. 1 to 3
Markers
120,000
Pens
94,400
Highlighters
150,000
Selling price
Less: Estimated cost to complete
Net realizable value
180,000
24,000
156,000
180,000
24,000
156,000
180,000
34,000
146,000
Lower of cost-or-NRV
120,000
94,400
146,000
Historical cost
SUMMARY OF ANSWERS:
1. C
2. D
3. B
91
Chapter 12: Inventories
PROBLEM 12-13 Lower of Cost or Net Realizable Value
Question No. 1 Raw Materials
Supply of steel (used for motorbikes)
Cost
More profitable (as is)
Write-down
Supply of aluminum (used for bicycles)
Cost
More profitable (completed product)
Total write-down
₱ 40,000
25,000
₱ 15,000
₱ 60,000
50,000
(C)
10,000
₱ 25,000
Question No. 2 Work-in-process
Incomplete motorbikes
Cost
More profitable (completed product)
Write-down
₱ 30,000
25,000
Incomplete bicycles
Cost
More profitable (as is)
Total write-down
₱ 50,000
60,000
(D)
Question No. 3 Finished goods
Motorbikes
Cost
More profitable (completed product)
₱ 80,000
60,000
Bicycles
Cost
More profitable (completed product)
Total write-down
₱ 80,000
110,000
(C)
Question No. 4 Adjusted COGS
Cost of goods sold before write-down
Add: Write-down
Raw materials
Work-in-process
Finished goods
Adjusted cost of goods sold
₱ 5,000
₱
5,000
Write-down
₱ 20,000
₱ 20,000
₱450,000
(C)
25,000
5,000
20,000
₱500,000
PROBLEM 12-14 Purchase Commitment
Date
11/15
12/31
CASE NO. 1
Accounts
Debit
Credit
No entry
Loss on purchase commitment (20,000 x [25-20])
Estimated liability for purchase commitment
92
100,000
100,000
Chapter 12: Inventories
03/15
Purchases (25,000 x 25)
Estimated liability for purchase commitment
Accounts payable/Cash
Gain on purchase commitment
500,000
100,000
500,000
100,000
CASE NO. 2
Date
11/15
Accounts
No entry
12/31
No entry
03/15
Purchases (25,000 x 25)
Accounts payable/Cash
Debit
Credit
500,000
500,000
PROBLEM 12-15 Purchase Commitment
Date
3/31
12/31
04/30
Accounts
Debit
Credit
No entry
Loss on purchase commitment (1,200,000-1,000,000)
Estimated liability for purchase commitment
Purchases
Estimated liability for purchase commitment
Accounts payable/Cash
Gain on purchase commitment
200,000
200,000
1,200,000
200,000
1,200,000
200,000
SUMMARY OF ANSWERS:
1. B
2. A
PROBLEM 12-16 Purchase Commitment
Gain on purchase commitment [50,000 x (55 - 40)]
To record the actual purchase on March 31, 2016:
Purchases (50,000 x 55)
Estimated liability for purchase commitment
Accounts payable/Cash
Gain on purchase commitment
= P750,000
2,750,000
750,000
(A)
2,750,000
750,000
The gain to be recognized is limited to the loss on purchase commitment
previously recorded.
PROBLEM 12-17 Purchase Commitment
Question No. 1
Remaining contract – minimum of 500 units each year
2016 (500 x 100)
2017 (500 x 100)
Total
93
P 50,000
50,000
P 100,000
Chapter 12: Inventories
Less: Estimated realizable value (1,000 x 20)
Probable loss from purchase commitment
20,000
P 80,000
(C)
Question No. 2
A loss in inventory writedown should also be recognized on December 31, 2011
in the amount of P100,000 (1,250 units x [P100-P20]).
(B)
SUMMARY OF ANSWERS:
1. C
2. B
PROBLEM 12-18 Inventory Estimation - Gross Profit Rate Method
Sales
Less: Sales returns
Net Sales excluding Sales discount
Multiply by: Cost ratio (1-30%)
Cost of Goods sold
3,400,000
(30,000)
3,370,000
70%
2,359,000
Inventory, January 1
Add: Net Purchases
Purchases
Add: Freight-in
Less: Purchase returns
Total Goods available for sale
Less: Cost of goods sold
Merchandise inventory that should be on hand
Less: Actual merchandise inventory on hand
Cost of Missing inventory
650,000
2,300,000
60,000
(80,000)
(A)
2,280,000
2,930,000
(2,359,000)
571,000
(420,000)
151,000
PROBLEM 12-19 Inventory Estimation - Gross Profit Rate Method
Sales
Divide by: Sales ratio
Cost of Sales
CASE NO. 1
1,552,000
125.00%
1,241,600
Inventory, January 1
Purchases, January 1 through April 19
Total goods available for sale
Less: Cost of sales
Cost of Missing inventory
Sales
Multiply by: Cost ratio
Cost of Sales
160,000
1,120,000
1,280,000
1,241,600
P 38,400
CASE NO. 2
1,552,000
75%
1,164,000
94
(A)
Chapter 12: Inventories
Inventory, January 1
Purchases, January 1 through April 19
Total goods available for sale
Less: Cost of sales
Cost of Missing inventory
160,000
1,120,000
1,280,000
1,164,000
P 116,000
(D)
SUMMARY OF ANSWERS:
1. A
2. D
PROBLEM 12-20 Inventory Estimation: LCM - Retail Method
Computation of cost ratio:
Cost
640,000
1,100,000
152,000
1,892,000
Inventory at January 1
Purchases
Freight-in
Net markups
Totals
Retail
1,600,000
2,000,000
800,000
4,400,000
Cost ratio (1,892,000 / 4,400,000) = 43%
Computation of Inventory end at retail
Balance up to markups (see above computation)
Less: Markdowns
Sales
Inventory end at retail
Multiply: Cost ratio
Inventory end at cost
(C)
4,400,000
400,000
1,600,000
P2,400,000
43%
P1,032,000
PROBLEM 12-21 Inventory Estimation: Average Method - Retail Method
Computation of cost ratio:
Cost
250,000
1,325,000
1,575,000
Inventory at January 1
Purchases
Net markups
Net markdowns
Totals
Retail
375,000
1,750,000
200,000
(75,000)
2,250,000
Cost ratio (1,575,000 / 2,250,000) = 70%
Computation of Inventory end at retail
Balance up to markdowns (see above computation)
Less: Sales
Estimated normal shrinkage (1,500,000 x 5%)
Estimated normal shoplifting losses
95
2,250,000
1,500,000
75,000
50,000
Chapter 12: Inventories
Inventory end at retail
P 625,000
Computation of Cost of goods sold
Total goods available for sale at cost
Less: Inventory end at cost (625,000 x 70%)
Cost of Sales
(B)
1,575,000
437,500
1,137,500
PROBLEM 12-22 Inventory Estimation: FIFO Method - Retail Method
Computation of cost ratio:
Cost
292,500
292,500
Purchases
Net markups
Net markdowns
Totals
Retail
400,000
75,000
(25,000)
450,000
Cost ratio (292,500 / 450,000) = 65%
Computation of Inventory end at retail
Balance up to markdowns (see above computation)
Add: Inventory beginning
Less: Sales
Inventory end at retail
Multiply: Cost ratio
Inventory end at cost
(A)
450,000
100,000
375,000
P 175,000
65%
P113,750
PROBLEM 12-23
Question No. 1
Direct materials inventory
Beg. Balance
DM purchased (squeeze)
9,000
70,000
(B)
7,000
72,000
Total
79,000
79,000
Balance end
Direct materials used
Question No. 2
Total cost added to work in process (72,000+80,000+24,000) = P176,000 (C)
Question No. 3
Applied overhead to job 3 (24,000/10,000 x 120 hours) = P288
96
(D)
Chapter 12: Inventories
Question No. 4
Work in process inventory
Beg. Balance
DM used
Direct labor
Factory overhead
17,000
72,000
80,000
24,000
31,000
162,000
(B)
Total
193,000
193,000
SUMMARY OF ANSWERS:
1. B
2. C
3. D
4.
Balance end
Cost of goods
manufacture
(squeeze)
B
PROBLEM 12-24
Question No. 1
A EI over (P129-P119) x 4,000
B EI under
C EI over
Overstatement of ending inventory
Question No. 2
D. Ending inventory understated
40,000
(70,000)
100,000
70,000
(C)
(140,000)
(B)
Question Nos. 3 and 4
A.
B.
C.
D.
2015
1,000,000
(40,000)
70,000
(100,000)
Unadjusted balance
EI over, NI over (P129-P119) x 4,000
EI under, NI under
EI over, NI over
EI under, NI under
Adjusted balances
Question No. 5
Unadjusted net income (1,000,000+1,200,000)
Less: Adjusted net income (930,000+1,410,000)
Net adjustment to income-understated
SUMMARY OF ANSWERS:
1. C
2. B
3. A
4.
C
97
5.
D
930,000
(A)
2016
1,200,000
40,000
(70,000)
100,000
140,000
1,410,000
(C)
2,200,000
2,340,000
(140,000)
(D)
Chapter 12: Inventories
PROBLEM 12-25
Question Nos. 1 and 2
Balances prior to adjustment
Add: Goods in transit sold, FOB destination
Less: unrecorded sale
Less: unrecorded purchase returns
Less: goods held on consignment
Add: unrecorded purchase
Add: Goods in transit purchased, FOB shipping point
Add: Goods out on consignment
Adjusted balances
Question No. 3
Adjusted balances, per ledger
Adjusted balances, physical count
Inventory shortage
Ledger
Balance
P 314,800
3,200
( 8,400)
( 6,000)
3,640P 307,240
(A)
Physical
Count
P 293,600
3,200
( 8,800)
1,600
14,800
P 304,400
(C)
P 307,240
304,400
P 2,840
(B)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
PROBLEM 12-26
1
2
3
4
5
6
7
8
Unadjusted balances
Parts held on consignment
Parts sold included in the count
Parts in transit to customers,
FOB shipping pt.
Parts on conditional sale
Goods out on consignment
Parts in transit purchased,
FOB shipping pt.
Mdse. Hold for shipping inst.
excluded in the count
Finished special article, incl.
in the count and sale not rec.
Adjusted balances
Accounts
Payable
P335,000
( 18,000)
Sales
P5,000,000
22,000
100,000
-
-
16,000
16,000
Inventory
P 800,000
( 18,000)
( 30,000)
160,000
( 30,000)
P1,020,000
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. B
98
P333,000
(A)
50,000
P5,050,000
(B)
Chapter 12: Inventories
PROBLEM 12-27
Note to the professor: Use the following guide questions in answering this
question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts
Was there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
SOLUTION:
679
680
681
682
683
684
685
686
310
311
312
313
314
315
316
317
318
Unadjusted balances
Ending
Inventory
550,000
Purch over, COS over, NI
under
EI over, COS under, NI
over
EI over, COS under, NI
over
Purch under, NI over
No, No, No
No, No, No
Yes, Yes, Yes
Sales over, NI over
EI under, NI under (560 x
70%)
Sales over, NI over
EI under, NI under (31,940
x 70%)
Sales over, NI over
EI under, NI under (6,350
x 70%)
Sales over, NI over
No, No, No
No, No, No
No, No, No
Net adjustment
Adjusted balances
SUMMARY OF ANSWERS:
1. A
2. A
3. A
Sales
1,000,000
Purchases
600,000
AP
450,000
Net
Income
120,000
(46,740)
(46,740)
(46,740)
(46,740)
46,740
(4,500)
1,060
392
22,358
4,445
(24,045)
525,955
(A)
4.
99
(4,500)
(1,060)
(560)
(560)
(31,940)
392
(31,940)
(6,350)
22,358
(6,350)
(1,930)
4,445
(1,930)
(40,780)
959,220
(A)
A
1,060
5.
(45,680)
554,320
(A)
D
(45,680)
404,320
(A)
(19,145)
100,855
(D)
Chapter 12: Inventories
PROBLEM 12-28
Ending
inventory
Unadjusted
balance
A
B
C
D
E
Adjusted
Accounts
receivable
P220,000
Accounts
payable
P104,000
(10,000)
50,000
14,000
( 24,000)
P 250,000
(A)
Sales
P138,000
(20,000)
(10,000)
(64,000)
(16,000)
P24,000
(C)
SUMMARY OF ANSWERS:
1. A
2. C
3. D
4.
P108,000
(D)
D
5.
Net income
P1,010,000
P180,400
20,000
(64,000)
(16,000)
(14,000)
(2,000)
( 24,000)
P160,400
(A)
P930,000
(D)
A
PROBLEM 12-29
Unadjusted
balances
A
B
C
D
E
F
G
H
I
J
Adjusted
balances
Inventory
Accounts
payable
Accounts
Receivable
250,000
35,000
4,000
(25,000)
10,000
34,000
60,000
400,000
4,000
60,000
1,000,000
40,000
(30,000)
(68,000)
(10,000)
-
4,000,000
40,000
(30,000)
(68,000)
(10,000)
(90,000)
-
2,500,000
4,000
60,000
600,000
35,000
15,000
10,000
(30,000)
(34,000)
(10,000)
(90,000)
-
368,000
464,000
932,000
3,842,000
2,564,000
496,000
SUMMARY OF ANSWERS:
1. C
2. C
3. A
4.
A
Net Sales
5.
D
Net
Purchases
6.
Net income
D
PROBLEM 12-30
Unadj.
bal
A
B
C
D
E
Inventory
Accounts
payable
Accounts
Receivable
Net Sales
Net
Purchases
Net
income
500,000
800,000
2,000,000
8,000,000
5,000,000
1,200,000
25,000
25,000
80,000
10,000
60,000
80,000
90,000
10,000
60,000
5,000
(5,000)
100
Chapter 12: Inventories
F
G
H
Total
400,000
400,000
(50,000)
400,000
(100,000)
1,075,000
1. A
1,225,000
2. (E)
1,900,000
3. A
SUMMARY OF ANSWERS:
1. A
2. E
3. A
4.
B
(100,000)
(60,000)
7,840,000
4. B
5.
5,490,000
5. A
A
6.
50,000
(100,000)
(60,000)
1,190,000
6. (E)
E
PROBLEM 12-31
Unadj.
bal
a
b
c
d
e
f
g
h
Add'l 2
Inventory
560,000
(10,000)
880
Accounts
Receivable
300,000
(27,500)
Sales
2,500,000
(2,000)
*(1,200)
(5,000)
(20,000)
(50,000)
30,000
(5,000)
(20,000)
(50,000)
30,000
40,000
40,000
(2,000)
523,380
291,800 2,493,000
1. A
2. D
3. D
*Commission [(₱200 x 40) - ₱6,800 remittance]
SUMMARY OF ANSWERS:
1. A
2. D
3. D
Purchases
1,100,000
4.
A
Cost of
goods sold
840,000
10,000
(880)
27,500
(75,000)
801,620
5. C
(75,000)
1,025,000
4. A
5.
C
PROBLEM 12-32
Questions No. 1 to 5
2016 Purchases under, CGS
under, NI over, RE over
2017 Purchases over, CGS
over
2016 EI under, NI under, RE
under
2017 BI under, CGS under
Sales under
Purchases under, CGS under
EI under, CGS over
R/E
36,000
Sales
EI
A/P
CGS
36,000
(32,000)
(32,000)
(20,000)
(24,000)
(8,000)
101
(24,000)
8,000
Chapter 12: Inventories
Purchases under, CGS under
EI under, CGS over
Total
(4,000)
4,000
(20,000)
(4,000)
(12,000)
(28,000)
(4,000)
4,000
(12,000)
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings – 12/31/2016 or 01/01/2017
4,000 – overstated
(4,000) – understated
Note: The effect of errors on December 2016 and January 2017 has no effect on
the ending balance of the accounts payable on December 31, 2017 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
D
5.
C
PROBLEM 12-33
Question No. 1
Sales (475,000/80%)
Less: Cost of sales
Gross profit
P593,750
475,000
118,750
100%
80%
20%
Inventory (in units)
Beg. Balance (60,000/P3)
20,000
25,000
Purchases
100,000
95,000
Total
120,000
120,000
Balance end (squeeze) or
(125,000/5)
Cost of sales (475,000/5)
Inventory (in peso amount)
Beg. Balance (squeeze)
Purchases
60,000
540,000
125,000
475,000
Total
600,000
600,000
Balance end (squeeze)
Cost of sales
Weighted average unit cost = TGAS (peso) / TGAS (units)
Weighted average unit cost (P600,000/120,000) = P5/unit
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
A
102
5.
B
Chapter 12: Inventories
PROBLEM 12-34
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2016 or
December 31, 2015 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2015.
(B)
Question No. 2
Net income – weighted average
Beginning inventory under, CGS under, Net income over
Ending inventory under, CGS over, Net income under
Adjusted net income – FIFO
(B)
Question No. 3
Computation of units sold:
Beginning inventory – units
Add: Total purchases – units
Total goods available for sale – units
Less: Units sold (P6,400,000 / P80/unit)
Ending inventory in units
P3,250,000
(150,000)
100,000
P3,200,000
10,000
100,000
110,000
80,000
30,000
The 30,000 ending inventory comes from the last two purchases as follows:
Units
Unit cost Total cost
From 4th quarter purchases
10,000
68
680,000
From 3rd quarter purchases
20,000
66 1,320,000
Total
30,000
(B)
2,000,000
Question No. 4
Cost (refer to no. 3)
Net realizable value [(P70 – P5) x 30,000]
Loss on inventory write-down
Question No. 5
Beginning inventory – FIFO
Add: Net Purchases (P6,480,000 – 980,000)
Total goods available for sale
Less: Ending inventory at cost (see no. 3)
Cost of goods sold at cost
Add: Loss on inventory write-down (see no. 4)
Cost of goods sold after inventory write-down
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
B
103
5.
A
(B)
2,000,000
1,950,000
50,000
(A)
500,000
5,500,000
6,100,000
2,000,000
4,100,000
50,000
4,150,000
Chapter 12: Inventories
PROBLEM 12-35
Question No. 1
Marked price including VAT
Less: VAT (605,000/1.14 x 14%)
Marked price excluding VAT
Less: Trade discount (8% x 530,702)
Less: Settlement discounts
Total cost of Raw Materials
Multiply by: Unused portion
Raw materials, end
(A)
605,000
74,298
530,702
42,456
4,200
484,086
20%
96,809
Question No. 2
Work in process beginning
Raw materials used (484,086 x 80%)
Salaries and wages (500,000 x 55%)
Variable overheads (100,000 x 70%)
Fixed manufacturing overhead (1,100 x P151.278)*
Packing materials (685,000/7 x 9 x 75%)
Less: Work in process ending
Cost of goods manufactured
(B)
0
387,269
275,000
70,000
166,406
660,536
0
1,559,179
Fixed manufacturing overhead
Rent and insurance – factory (140,000 / 12)
Rent – warehouse
Other fixed manufacturing overhead (285,000 x 65%)
Total actual FMO for January
Divide by; Normal units per month (18,000 / 12)
Fixed manufacturing overhead per unit
Question No. 3 and 4
Beginning finished goods
Add: Cost of goods manufactured
Less: Finished goods ending (1,559,179 x 20%)
Cost of goods sold
(A)
(B)
Question No. 5
Cost
Net realizable value (400,000 – 90,000 – 15,000)
Loss on inventory write-down
(B)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
A
104
5.
11,667
30,000
185,250
226,917
1,500
151.278
0
1,559,179
311,836
1,247,343
311,836
295,000
16,436
B
Chapter 12: Inventories
PROBLEM 12-36
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units
3,000
2,000
4,000
3,000
12,000
Unit cost
14
13
15
16
Total
P 42,000
26,000
60,000
48,000
P 176,000
(A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units
1,800
1,800
1,200
1,000
5,800
Unit cost
19
20
21
22
Total
P 34,200
36,000
25,200
22,000
P 117,400
Question No. 3
T-shirts:
Net realizable value
(12,000 x (P16-(10% x P16))
Jackets:
(5,800 x (P22-(10%xP22)
Lower of cost or NRV
(A)
NRV
P172,800
Cost
P176,000
Lower
P 172,800
114,840
P287,640
117,400
P 293,400
114,840
P 287,640
Question No. 4
Total cost (see no. 3)
Less: Lower of cost or NRV (see no. 3)
Loss on inventory write-down
(B)
Question No. 5
Beginning inventories:
T-shirts (9,000 x P11)
P 99,000
Jackets (5,000 x P15)
75,000
Add:*Total purchases (299,500 + 183,900)
Total goods available for sale
Less: Merchandise inventory at cost
Cost of sales before inventory write-down
Add: Loss on inventory write-down
Cost of sales after inventory write-down (B)
*T-shirts
4,000
3,000
2,500
P12
12
13
P 48,000
36,000
32,500
105
P 293,400
287,640
P 5,760
P 174,000
483,400
P 657,400
293,400
P 364,000
5,760
P369,760
Chapter 12: Inventories
3,500
2,000
4,000
3,000
22,000
Jackets
900
1,100
1,500
2,000
1,800
1,200
1,000
9,500
14
13
15
16
49,000
26,000
60,000
48,000
P 299,500
P16
18
19
19
20
21
22
P 14,400
19,800
28,500
38,000
36,000
25,200
22,000
P 183,900
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
B
5.
B
PROBLEM 12-37
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance
Net Purchases
600,000
2,200,000
1,200,000
1,600,000
Total
2,800,000
2,800,000
Question No. 1
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
Balance end
Direct materials used
CASE NO. 1
2013
2,000,000
1,700,000
0.15
2014
3,500,000
2,800,000
0.20
2015
4,000,000
3,000,000
0.25
2016
0.30
The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2016 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales
Multiply by: Cost Ratio
Cost of goods sold
6,000,000
0.70
4,200,000
106
(B)
Chapter 12: Inventories
Question No. 2
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,200,000
3,400,000
2,000,000
4,200,000
Balance end
Cost of goods sold
6,200,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,600,000
Total
6,000,000
6,000,000
Computation of factory overhead:
Direct labor cost
Multiply by: Predetermined rate
Factory overhead
3,400,000
Balance end
Cost of goods
manufactured
(A)
2015
1,000,000
4,000,000
0.25
2016
1,600,000
50%
800,000
CASE NO. 2:
Question No. 3
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
2013
340,000
2,000,000
0.17
2014
630,000
3,500,000
0.18
0.20
The GP rate in 2016 is computed as follows:
16% + 18% + 25%
Gross Profit Rate
=
3
=
20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods
sold is computed as follows:
Sales
Multiply by: Cost Ratio
Cost of goods sold
6,000,000
0.80
4,800,000
(B)
Question No. 4
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,800,000
2,000,000
4,800,000
4,000,000
107
6,800,000
Balance end
Cost of goods sold
Chapter 12: Inventories
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,000,000
Total
6,000,000
6,000,000
4,000,000
Balance end
Cost of goods
manufactured
(A)
CASE NO. 3:
Question No. 5
The gross profit for 2016 is computed based on the overall gross profit for 2014
and 2015:
800,000 + 1,000,000
Gross Profit Rate
=
3,500,000 + 4,000,000
1,800,000
=
7,500,000
Gross Profit Rate
= 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods
sold is computed as follows:
Sales
Multiply by: Cost Ratio
Cost of goods sold
6,000,000
0.76
4,560,000
(A)
Question No. 6
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,560,000
2,000,000
4,560,000
3,760,000
Balance end
Cost of goods sold
6,560,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,240,000
Total
6,000,000
6,000,000
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
3,760,000
A
108
5.
A
Balance end
Cost of goods
manufactured
6.
A
(A)
Chapter 12: Inventories
PROBLEM 12-38
Question No. 1
Balance end
Purchase ret. and allow.
Purchase discounts
Payments to supplier
(squeeze)
Total
Accounts payable
250,000
70,000
80,000
3,255,000
555,000
3,000,000
100,000
3,655,000
3,655,000
Beg. Balance
Purchases
Freight-in
Question No. 2
Direct materials inventory
Beg. Balance
Net purchases
200,000
2,950,000
320,000
2,830,000
Total
3,150,000
3,150,000
Purchases
Add: Freight-in
Gross Purchases
Less: Purchase returns and allow
Purchase discounts
Net Purchases
Balance end
Direct materials used
3,000,000
100,000
3,100,000
70,000
80,000
2,950,000
Question No. 3
Work in process
Beg. Balance
Direct materials used
Direct labor
Factory overhead
250,000
2,950,000
900,000
675,000
280,000
4,375,000
Total
4,655,000
4,655,000
Question No. 4
Sales
Less: Cost of sales (5,000,000/120%)
Gross profit
P5,100,000
4,250,000
850,000
Balance end
Cost of goods
manufactured
120%
100%
20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
Question No. 5
Finished goods
Beg. Balance
Cost of goods
400,000
4,375,000
109
525,000
4,250,000
Balance end
Cost of goods sold
Chapter 12: Inventories
manufactured
Total
4,775,000
4,775,000
Estimated finished goods
Less: Cost of goods out on consignment
Salvage value
Inventory fire loss
525,000
20,000
10,000
495,000
Question No. 6
Cost of goods sold (80% x P5,100,000)
= P4,080,000
Question No. 7
Sales (5,100,000-100,000)
Less: Cost of sales (80% x P5,100,000)
Gross profit
P5,000,000
4,080,000
1,000,000
100%
80%
20%
Finished goods
Beg. Balance
Cost of goods
manufactured
400,000
4,375,000
695,000
4,080,000
Total
4,775,000
4,775,000
Estimated finished goods
Less: Cost of goods out on consignment
Salvage value
Inventory fire loss
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
B
Balance end
Cost of goods sold
695,000
20,000
10,000
665,000
5.
B
6.
A
7.
A
PROBLEM 12-39
Question No. 1
Accounts payable, March 31
Less: Payment in April
Total
Accounts payable for April Purchases
Total purchases
Less: Payment in April
Total
(B)
2,370,000
300,000
2,070,000
600,000
200,000
Question No. 2
Purchases, as of March 31
Add: Purchases in April
4,200,000
600,000
110
400,000
2,470,000
Chapter 12: Inventories
Gross purchases
Less: Purchase returns
Net purchases
Question No. 3
4,800,000
12,000
4,788,000
(B)
Beg. Balance
Accounts receivable
2,700,000 3,000,000
Sales on account
Recoveries
1,488,000
0
938,000
250,000
0
4,188,000
4,188,000
Net Sales
Sales as of March 31
April Sales
Less: Sales return
Net Sales
Bal. end
Collections
including
recoveries
Writeoff
Sales returns
9,040,000
1,488,000
100,000
(C)
Question No. 4
Net Sales
Multiply by: Cost ratio
Cost of Sales
10,428,000
60%
6,256,800
(C)
Cost of Sales
Divide by: Gross Profit
1,388,000
10,428,000
9,000,000
9,000,000
50.000%
10,500,000
4,500,000
30.000%
Average gross profit = (50%+30%)/2 = 40%
Cost ratio = 100% - 40% = 60%
Question No. 5
Estimated inventory
Less: Shipment in transit
Undamaged goods at cost
Salvage value
Inventory fire loss
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
3,031,200
40,000
120,000
25,000
2,846,200
(C)
C
5.
111
C
Chapter 12: Inventories
PROBLEM 12-40
Questions No. 1 and 2
Purchases ending
11 mos
12 mos
1,350,000 1,600,000
15,000
(2,000)
(3,000)
(4,000)
(4,000)
(11,000)
1,348,000 1,593,000
1. (D)
2. (D)
Unadjusted balance
Shipment in Nov. included in December purchases
Unsalable shipments received
Deposits in October shipped February
Deposits made vendor in November
Adjusted balance
Question No. 3
Beginning inventory – January 1, 2015
Add: Purchases for 11 months (see No. 1)
Less: Ending inventory – Nov. 30, 2015 (180,00011,000 + 10,000)
Cost of sales
175,000
1,348,000
179,000
1,344,000
(A)
1,920,000
1,680,000
240,000
20,000
220,000
80%
176,000
20,000
196,000
(A)
179,000
245,000
196,000
228,000
(A)
Cost ratio (2,688,000 / 3,360,000) = 80%
Question No. 4
Sales ending December 31, 2015
Less: Sales ending Nov. 30, 2015 (1.7M-20,000)
Sales – December 2015
Less: Sales at cost
Sales in December 2015 made at a profit
Multiply: Cost ratio (2,688,000 / 3,360,000)
Cost of sales made at profit
Add: Cost of sales made at cost
Total Cost of Sales -December
Question No. 5
Beginning inventory – Nov. 30, 2015
Add: Purchases for December (1,593,000 – 1,348,000)
Less: Cost of Sales – December
Ending inventory – December 31, 2015
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
A
112
5.
A
Chapter 12: Inventories
PROBLEM 12-41
Inventory, Jan 1
Purchases
Purchase returns
Purchase discounts
Purchase allowance
Freight-in
Departmental Transfer-In
Departmental Transfer-Out
Totals
Basis of computation of cost ratios
Totals
Markups
Markup cancellations
Basis of computation (conservative)
Markdown
Markdown cancellations
Basis of computation (average)
Cost
300,000
6,000,000
(400,000)
(150,000)
(50,000)
20,000
600,000
(560,000)
5,760,000
Retail
1,200,000
8,500,000
(800,000)
1,100,000
(1,334,000)
8,666,000
5,760,000
8,666,000
600,000
(50,000)
9,216,000
(316,000)
100,000
9,000,000
5,760,000
5,760,000
Cost ratios:
Conservative
Cost ratio
Cost ratio
5,760,000
9,216,000
= 62,50%
=
Average
Cost ratio
Cost ratio
5,760,000
9,000,000
= 64%
=
FIFO
Cost ratio
Cost ratio
5,760,000 – 300,000
9,000,000 – 1,200,000
= 70%
=
Estimated ending inventory @ retail – for all methods
TGAS @ retail under average method
9,000,000
Sales
(7,000,000)
Sale returns
700,000
Normal Shrinkage
(500,000)
Estimated ending inventory @ retail
2,200,000
113
Chapter 12: Inventories
Question Nos. 1 to 6
Cost method
Conservative (62.5%)
FIFO (70%)
Average (64%)
Ending inventory at cost
(EI @ retail x cost ratio)
P 1,375,000
1,540,000
1,408,000
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
C
5.
C
Cost of goods sold
(TGAS @cost – EI @cost)
4,385,000
4,220,000
4,352,000
6.
D
PROBLEM 12-42
Question No. 1
Unadjusted bal.
Undelivered sales
Valid Sales
Sales FOB destination
NSF check
Collection by the bank
Sales in 2015 recorded in 2016 DR No. 38740
Receivable ins. Co DR No. 38741
Sales in 2016 recorded in 2015 DR No. 38743
Adjusted balance
(D)
Subsidiary
Ledger
P 760,000
60,000
(
(
(
P
50,000
60,000)
3,360
10,080)
19,200)
784,080
Question No. 2
Current:
Unadjusted beginning Balance
Add: Valid Sales in 2015 (60,000 + 3,360)
Total
Less: Receivable ins. Co (DR # 38741)
Sales in 2016 recorded in 2015 (DR # 38743)
Current Accounts Receivable balance
Amount
(
100,000)
50,000
(
60,000)
3,360
(
10,080)
(
19,200)
P 784,080
97,500
63,360
160,860
10,080
19,200
131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1)
Less: Current Accounts Receivable balance
Past due Accounts Receivable
*or (662,500+50,000-60,000)
Age classification
General
Ledger
P 1,020,000
( 100,000)
784,080
131,580
*652,500
Percentage
Total
6
10
7,894.80
65,250.00
73,144.80
Current
131,580
Past due
652,500
Allowance for doubtful accounts
(A)
114
Chapter 12: Inventories
Question No. 3
Allowance for doubtful accounts, beginning
Less: Accounts written off
Less: Allowance for doubtful accounts, ending
Doubtful accounts expense
7,000.00
73,144.80
66,144.80
(A)
Question No. 4
Unadjusted Merchandise Inventory, ending
Add: Cost of merchandise sold of DR # 38743(19,200/120%)
Doubtful accounts expense
(B)
Question No. 5
Unadjusted Net Sales balance
Undelivered sales
Sales FOB destination
Sales in 2015 recorded in 2016 DR No. 38740
Sales in 2016 recorded in 2015 DR No. 38743
Adjusted balance
SUMMARY OF ANSWERS:
1. D 2. A
3. A
PROBLEM 12-43
Unadj.
Bal.
1
2
3
4
5
6
7
8
9
10
Adj.
Bal.
Cash
AR, net
150,000
(40,000)
50,000
65,000
-
228,000
28,000
(68,000)
40,000
(50,000)
(26,000)
(40,000)
225,000
1. D
112,000
2. A
4.
B
5.
Mdse.
invty
316,000
16,000
332,000
P 3,000,000
100,000)
100,000)
3,360
(
19,200)
P 2,784,160
(
(
(B)
B
Prepayments
Accounts
payable
Notes
payable
380,000
60,000
4,000
34,000
20,000
-
42,000
(8,500)
-
220,000
60,000
4,000
65,000
-
250,000
-
498,000
3. D
33,500
349,000
4. D
250,000
115
Chapter 12: Inventories
Question No. 5
Cash
Accounts receivable, net
Merchandise inventory
Prepayments
Total current assets
Accounts payable
Notes payable
Working capital
SUMMARY OF ANSWERS:
1. D
2. A
3. D
225,000
112,000
498,000
33,500
868,500
349,000
250,000
269,500
(E)
4.
D
116
5.
E
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET
AND INVESTMENT IN EQUITY SECURITIES
PROBLEM 14-1 Financial Assets and Financial Liabilities
FA
NFA
FL
Share dividends payable
Property dividends payable
Cash and cash equivalents
Accounts receivable
70,000
Allowance for bad debts
100,000
Investment in associate
(10,000)
Stock appreciation rights
payable (SARs Payable)
45,000
Investment in equity
instruments
- 120,000
Investment in subsidiary
125,000
Investment in bonds
70,000
Cash surrender value
170,000
Sinking fund
60,000
Share Premium
40,000
Unearned interest on
receivables
Income taxes payable
SSS contributions payable
Intangible assets
Prepaid rent
30,000
Treasury shares
20,000
Claims for tax refund
Deferred tax assets
45,000
Accounts payable
60,000
Utilities payable
- 150,000
Accrued interest expense
- 250,000
Cash dividends payable
18,000
Finance lease liability
27,000
Bonds payable
45,000
Discount on bonds payable
- 120,000
Security deposit
- (15,000)
Advances from customers
30,000
Unearned rent income
Merchandise inventories
Biological assets
- 133,000
Accumulated depreciation
- 120,000
Warranty obligations
- (50,000)
PHILHEALTH contributions
payable
-
117
NFL
18,500
5,000
9,000
5,000
16,000
8,000
13,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Deferred tax liabilities
Accumulated Profitsappropriated for plant
expansion
Accumulated Profitsunappropriated
Issued redeemable preference
shares (with mandatory
redemption)
Issued Preference shares capital
-
-
-
6,000
-
-
-
19,000
-
-
-
-
670,000
358,000
100,000
845,000
99,500
Legend: FA – Financial Asset
NFA – Non-Financial Asset
FL – Financial Liabilities NFL – Non-Financial Liabilities
SHE: Shareholders equity
SUMMARY OF ANSWERS:
1. D
2. C
3. D
4.
D
PROBLEM 14-2 Acquisition of Investment
Journal entries are:
1) FVTPL
1/5/2016
Financial Asset at FVTPL
Brokerage fee
Commission Expense
Cash
1/10/2016
2/14/2016
2) FVTOCI
1/5/2016
1/10/2016
2/14/2016
1,600,000
10,000
5,000
1,615,000
Dividend receivable
Dividend income
32,000
Cash
Dividend receivable
32,000
32,000
32,000
Financial Asset at FVTOCI
Cash
1,615,000
1,615,000
Dividend receivable
Dividend income
32,000
Cash
Dividend receivable
32,000
32,000
32,000
The difference between FVTPL and FVTOCI is the treatment of transaction cost.
118
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-3 Basic Journal Entries- Acquisitions in Between Dates of
Declaration and Record
1) Trading securities
1/5/2016
Financial Asset at FVTPL (Squeeze)
Dividends receivable
Brokerage expense
Commission Expense
Cash
2/14/2016
12/31/2016
12/31/2017
1,584,000
16,000
10,000
5,000
1,615,000
Cash
Dividend receivable
16,000
Unrealized Loss – PL
Financial Asset at FVTPL
64,000
Financial Asset at FVTPL
Unrealized gain – PL
400,000
16,000
64,000
400,000
2) Fair Value through Other Comprehensive Income securities
1/5/2016
FVTOCI securities
1,599,000
Dividend receivable
16,000
Cash
2/14/2016
12/31/2016
12/31/2017
Cash
Dividend receivable
16,000
Unrealized loss - equity
FVTOCI securities
79,000
1,615,000
16,000
79,000
FVTOCI securities
Unrealized loss – equity
Unrealized gain – equity
400,000
79,000
321,000
PROBLEM 14-4 Derecognition of Financial Assets - Sale of Investment
CASE NO. 1: FVTPL
Question No. 1
Nil, since the above securities are FVTPL unrealized gain or loss is recognized in
the profit or loss.
(A)
Question No. 2
Consideration received
Less: Brokerage and commission
Net Selling Price
Less: Carrying value (800,000 x ½)
Realized loss on sale – P&L
(B)
119
375,000
10,000
365,000
400,000
(35,000)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CASE NO. 2: FVTOCI
Question No. 3
Fair value, 12/31/2015
Less: Cost
Unrealized gain - P&L
Question No. 4
Consideration received
Less: Brokerage and commission
Net Selling Price
Less: Carrying value (800,000 x ½)
Realized loss on sale – P&L
Question No. 5
Journal entries for the sale are:
1) FVTPL
12/31/2015 FVTPL
Unrealized gain-P&L
1/2/2016
2) FVTOCI
12/31/2015
1/2/2016
(B)
800,000
750,000
50,000
(B)
375,000
10,000
365,000
400,000
(35,000)
50,000
Cash
Loss on sale
FVPTL
To record the sale
365,000
35,000
FVTOCI
Unrealized gain-OCI
50,000
400,000
50,000
50,000
Cash
Loss on sale (if any)
FVTOCI
To record the sale
365,000
35,000
400,000
Unrealized Gain (50,000 X ½)
25,000
Retained earnings
25,000
To record transfer of unrealized gain to Retained earnings
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
B
PROBLEM 14-5 Purchase: Trade Date vs. Settlement Date Accounting
SUMMARY OF ANSWERS:
1. B
2. D
120
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-6 Sale: Trade Date vs. Settlement Date Accounting
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 14-7 Share Dividends
1.
Memo entry: Received 1,500 ordinary shares
from Pulsate Company.
2.
Investment in Preference shares - FVTOCI
Investment in Ordinary shares - FVTOCI
Allocation:
Total
Fair value
100,000
750,000
850,000
Pref. shares (1,000 x P100)
Ordinary shares (15,000 x P50)
Total
88,235
88,235
Fraction
10/85
75/85
Allocated
cost
88,235
661,765
750,000
Share dividends is not regarded as an income., however different type of
shares received from the shares held is allocated using the relative fair
value.
Comments on share dividends:
Accounting treatment for share dividends is actually a gray area, no clear
cut rules is provided under PFRS or other accounting standard setting
body. However, the authors believe that share dividends will only be
accounted as an increase in number of shares held and a decrease on the
price per unit.
PROBLEM 14-8 Cash Dividends
Question No. 1
The dividend income to be recognized in 2016 is P60,000 (15,000 x P4).
Question No. 2
December 1
Dividend Receivable (15,000 x P4)
Dividend income
December 15
No formal accounting entry
December 31
Cash
Dividend Receivable
121
(B)
60,000
60,000
60,000
60,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-9 Property Dividends
Question No. 1
Property dividends are as income at fair value at date of declaration (500,000 x
15%) = P75,000.
(B)
Question No. 2
November 1
Dividend Receivable (500,000 x 15%)
Dividend income
December 31
No journal entry
February 15
Noncash Asset
Dividend Receivable
75,000
75,000
75,000
75,000
PROBLEM 14-10 Cash Received in Lieu of Share dividends
Question No. 1
Nil. The share dividend is not considered an income.
Question No. 2
Net Selling Price (2,250 x P18)
Less: Carrying amount of the investment sold
(P172,500/(15,000+(15% x 15,000) x 2,250
Gain (or loss) on sale
(A)
40,500
22,500
18,000
(D)
Question No. 3
October 1
Memo entry
October 31
Cash
Gain on sale
FA at FVTOCI
45,000
18,000
22,500
PROBLEM 14-11 Shares Received in Lieu of Cash Dividends
Question No. 1
Shares received in lieu of cash dividends are in effect recorded at the fair value
of shares received on date of payment. Since the date of declaration and date of
payment is within the same period, the dividend income is computed as follows:
(15,000/5 X P22) = P66,000
(C)
Question No. 2
Journal entries are:
October 1
Dividend Receivable (15,000 x P4)
Dividend income
October 31
FA at FVTOCI (15,000/5 x P22)
Dividend receivable
Dividend income
122
60,000
60,000
66,000
60,000
6,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-12 Dividends Out Of Capital
Questions No. 1 and 2
Cash (P100 x 15% x 10,000)
Investment
150,000
Questions No. 3 and 4
Cash
Loss on liquidation
Investment
150,000
70,000
SUMMARY OF ANSWERS:
1. A
2. D
3. B
150,000
4.
220,000
C
PROBLEM 14-13 Stock Split and Special Assessment
Question No. 1
Date
1/1
3/1 stock split
Total (10,000 x 5/2)
11/1 Special assessment (P1.60 x
25,000)
Total
Question No. 2
Fair value (P15 x 25,000)
Less: Carrying value
Unrealized gain-OCI
No. of
shares
10,000
15,000
25,000
Cost per
share
P21
Total
Cost
P210,000
P8.40
P210,000
25,000
(D)
P10
40,000
250,000
P375,000
250,000
P125,000
Questions No. 3 and 4
Journal entries are:
1/1
Financial Asset at FVTOCI
Cash
3/1
Received `5,000 shares as a result of 5
for 2 share split.
10/1
Financial Asset at FVTOCI
Cash (P1.60 x 25,000)
12/31
Financial Asset at FVTOCI
Unrealized gain – OCI
[(P25 x 25,000) – P250,000]
123
(D)
210,000
60,000
125,000
(C)
(B)
210,000
60,000
125,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
SUMMARY OF ANSWERS:
1. D
2. D
3. B
4.
C
PROBLEM 14-14 Stock Right
Question No. 1
Nil. The company will only make a memo entry to record the receipt of stock
right on a financial asset at FVTPL.
(A)
Question No. 2
The stock right should be initially recorded at fair values as follows:
(P20 x 10,000) = P200,000.
(B)
Question No. 3
The cost of the investment will only include the subscription price of P400,000
(5,000 x P80).
(B)
Question No. 4
The cost of the investment will include the subscription price of P400,000 and
cost of stock rights exercised of P200,000 = P600,000.
(C)
The journal entries under the two classifications are as follows:
Fair Value through profit and loss securities
June 15
Memo entry (Received 10,000 stock
rights)
July 15
FVTPL (P80 x 10,000/2)
Cash
400,000
Fair Value Through Other Comprehensive Income
June 15
Stock rights (P20 x 10,000)
Unrealized gain - P/L
200,000
July 15
600,000
FVTOCI (P80 x 10,000/2)+ 200,000
Cash
Stock rights
PROBLEM 14-15 Theoretical Value of Rights
Question No. 1
When the stock is selling right-on
Value of one right
=
=
P160 – P100
5+1
P10
Question No. 2
When the stock is selling ex-right
Value of one right
=
P160 – P100
5
124
400,000
200,000
400,000
200,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
=
P12
SUMMARY OF ANSWERS:
1. B
2. C
PROBLEM 14-16 Dividend Income
Cash dividend
Shares in lieu of cash dividends (5,000 x P150)
Total dividend income
1,500,000
750,000
2,250,000
(C)
PROBLEM 14-17 Dividend Income
The dividend income to be recorded is equal to P2,400,000 (300,000 /
1,000,000 x P8,000,000). The base is on actual dividends declared. A share
dividend is not regarded as an income.
(A)
PROBLEM 14-18 Exchange of One Financial Asset into Another Financial
Asset
Question No. 1
Fair value- Ordinary Shares (6,000 x P80)
Less: Carrying value- Pref. Shares (P850,000/8,000 x 4,000)
Gain on exchange
(C)
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P80)
480,000
Gain on exchange
Investment in Trading- Pref. Shares (P800,000/8,000 x 4,000)
480,000
425,000
55,000
55,000
425,000
SUMMARY OF ANSWERS:
1. C
2. B
PROBLEM 14-19 Exchange of a PPE for Financial Asset
Question No. 1
Fair value of the financial asset
Less: Carrying value of the land
Gain on exchange
820,000
600,000
220,000
125
(B)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Journal entries are:
March 31
Financial asset at FVTOCI
Land
Gain on exchange (820,000-600,000)
820,000
600,000
220,000
SUMMARY OF ANSWERS:
1. B
2. B
PROBLEM 14-20 Exchange of a Financial Asset for PPE
Question No. 1
Fair value of the financial asset
Less: Carrying value of the financial asset
Gain on exchange
Question No. 2
Journal entries are:
March 31
Land (at fair value of the asset given up)
FVTOCI
Gain on exchange (650,000-600,000)
Retained earnings
Unrealized loss (625,000-600,000)
650,000
600,000
50,000
(B)
650,000
600,000
50,000
25,000
25,000
SUMMARY OF ANSWERS:
1. B
2. B
PROBLEM 14-21 Reclassifications of Investments in Equity Securities
Question No. 1
Not allowed. The only allowed reclassification is from Financial Asset at
Amortized Cost (FAAC) to held for trading Financial Asset at Fair Value Through
Profit or Loss debt securities (FVTPL), or vice versa. Therefore the securities
remain as FVTPL. Since reclassification is not allowed, there is no
reclassification gain or loss.
(A)
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as
FVTOCI. Since reclassification is not allowed, there is no reclassification gain or
loss.
(A)
126
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-22 Trading Securities
Question No. 1
(A) The cost of investment is P880,000. The brokerage fee and commission of
P10,000 and P10,000 respectively is charged to expense since the investment
acquired is a trading security. The investments are also acquired prior to the
declaration of dividends on January 10, 2016 so they are not purchased
dividend on.
Question No. 2
Dividend income (P2 x 6,000 + P16,000) = P28,000
(A)
Question No. 3
Selling price
Less: Commission and taxes
Net selling price
Less: Carrying value [2,500x(P90,000/6,000)]
Gain on sale
(C)
Question No. 4
EDA Corp. shares [P50 – (P30,000/1,000)]
DJOA, Inc.
[P15 – (P90,000/6,000)]
RVFE, Co.
[P45 – (P80,000/2,000)]
ARP, Co.
[P100 – (P880,000/8,000)]
Loss chargeable to income statement
x 1,000
x 3,500
x 2,000
x 8,000
(B)
Question No. 5
EDA Corporation shares
P50
x
DJOA, Inc.
P15
x
RVFE, Co.
P45
x
ARP, Co.
P100
x
Total balance of financial asset at profit or loss
1,000
3,500
2,000
8,000
(A)
P50,000
5,000
45,000
37,500
P7,500
=
=
=
=
=
=
=
=
P20,000
10,000
( 80,000)
(P50,000)
P50,000
52,500
90,000
800,000
P992,500
(Note: Reclassification of equity securities are not allowed.)
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
B
5.
A
PROBLEM 14-23 Fair Value through Other Comprehensive Income
Question No. 1
1/1/2016 Book Value
Brokerage fee
Commission
Dividends receivable
Cost of FVTOCI
P
(
127
P
880,000
10,000
10,000
16,000)
884,000
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds (P35 x 500)
P
Carrying value (P500 x (P88,000/(2,000 x 110%)) (
Loss on sale
P
17,500
20,000)
(2,500)
Net Proceeds (P40,000 – P5,000)
Carrying value (2,500 x (P90,000/6,000))
Dividends on stocks sold (P2 x 2,500)
Loss on sale
P
35,000
37,500)
5,000)*
(7,500)
P
(10,000) (D)
(
(
Total loss on sale (P2,500 + P7,500)
P
*This was sold dividend-on.
Question No. 4
March 31
June 15
Gain/(Loss) on Exchange
(65,000-50,000)
(50,000-20,000)
(A)
15,000
30,000
45,000
Question No. 5
EDA Corporation preference shares (500 x P50) P
25,000
DJOA, Inc. (3,500 x P15)
52,500
RVFE Co. ((2,000 x 110% - 500) x P45)
76,500
ARP Co. (8,000 x P100)
800,000
LCC (1,000 x 60)
60,000
Adjusted balance
P 1,014,000
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4.
A
5.
(D)
D
PROBLEM 14-24
Question No. 1
Stock rights (11,000 x P6)
Question No. 2
Cash paid (P90 x (10,000/5))
Cost of stock rights used (P4 x 10,000)
Total investment cost
Question No. 3
Proceeds (P5.5 x 1,000)
Cost of stock rights (P4 x 1,000)
Gain on sale of stock rights
P
66,000
(D)
P
180,000
40,000
220,000
(B)
5,500
4,000
1,500
(C)
P
P
P
128
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 4
Proceeds
Cost of shares sold (P76 ** x 4,000)
Gain on sale of stocks
P
P
Question No. 5
Original investment cost
Cost allocated to stock rights*
Additional investment **
Sale of investment
Adjusted cost of investment
SUMMARY OF ANSWERS:
1. D
2. B
3. C
440,000
304,000
136,000
P 880,000
44,000)
220,000
(
304,000)
P 752,000
(
4.
D
5.
D
PROBLEM 14-25
Question No. 1
Cash paid (400K+20K)
Less: dividends
Correct cost
420,000
10,000
410,000
Question No. 2
Feb. 10
Nov. 2
(10,000+(11,000/5) x 1
Total dividend income
13,200
43,200
Question No. 4
Consideration received (2,000 x 70)
Less: Dividends (2,000 x P1)
Net Selling Price
Less: Carrying value
Gain on sale
10-Feb
(D)
30,000
Question No. 3
Fair value of new FA (10,000 x 40)
Less: Carrying value (975,000/15K x
5K)
Gain on conversion
Shares
10000
1,000
(D)
Carrying
value
451,000
-
129
(C)
400,000
325,000
75,000
(C)
140,000
2,000
138,000
99,000
39,000
(C)
(D)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Total
1-May
(11,000/5)
Total
15-Nov
Total
11,000
451,000
2,200
13,200
(2,000)
11,200
202,400
653,400
(99,000)
554,400
Cost of stocks on May 1
Subs. Price (11,000/5 x P62)
Add cost of stock rights (6 x 11,000)
Cost of stocks on May 1
10-Feb
Total
1-May
(11,000/5)
Total
15-Nov
Total
136,400
66,000
202,400
Shares
10000
1,000
11,000
Cost
550,000
550,000
2,200
13,200
(2,000)
11,200
202,400
752,400
(114,000)
638,400
Question No. 5
Gerrit-PS (70 x 10,000)
-OS (45 x 10,000)
Loesch (72 x 11,200)
Barr (20 x 20,000)
Fair values
700,000
450,000
806,400
400,000
2,356,400
Cost
600,000
400,000
638,400
410,000
2,048,400
Difference
(900,000/15K x 10K)
308,000 (A)
Note: Use bid price on asset held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1. D
2. C
3. A
4.
B
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio – 12/31/2015
Coloma Company
Soliman
Villanueva Company
Less: FVTOCI Portfolio – 01/01/2015
Coloma Company
Soliman
Villanueva Company
130
5.
A
3,070,000
2,737,500
1,871,000
7,678,500
3,050,000
2,725,000
1,875,000
7,650,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Unrealized gain – SFP
(C)
Question No. 2
Fair value of shares
Less: Carrying amount of Soliman portfolio
Gain on exchange
28,500
2,797,500
2,737,500
60,000
(B)
Note that the carrying amount is equal to the fair value previous
remeasurement date (12/31/2015).
Question No. 3
Proceeds from sale of Aquino shares
Less: Carrying amount of Aquino portfolio
Loss on sale
Question No. 4
FVTOCI Portfolio – 12/31/2016
Coloma Company
Villanueva Company
Less: FVTOCI Portfolio – 01/01/2015
Coloma Company
Villanueva Company
Unrealized gain – SFP (cumulative)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
2,590,000
2,600,000
(10,000)
(B)
3,080,000
1,867,500
4,947,500
3,050,000
1,875,000
(C)
4,925,000
22,500
C
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 – 4,000) x P50 = P200,000
Question No. 2
Type of
stocks
# shares
Ordinary
10,000
Preference
2,000
Total cost
Fair
value
P30
10
Total fair
value
P300,000
20,000
P320,000
(A)
Allocated
cost
P234,375
15,625
P250,000
(B)
Question No. 3
Allocate part of the investment cost to the preference shares.
Question No. 4
Proceeds (1,000 x P17)
P
Carrying amount [(P15,625/(10,000/5)) x 1,000)(
Gain on sale
P
131
17,000
7,812.50)
9,187.50
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 5
Proceeds, exclusive of interest
Carrying amount (250 x 1,000 x 110%)
Gain on sale
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
(
P
P
C
5.
280,000
275,000)
5,000
(A)
A
PROBLEM 14-28
Question No. 1
Net Selling price
Less: Carrying value (740,000/40,000 x 5,000)
Gain on sale
(D)
Question No. 2
Consideration received
Less:
Dividend income of the investment sold (6,000 x *P20 x 20%)
Net Selling price
Less: Carrying value (740,000/40,000 x 6,000)
Gain on sale
(D)
250,000
92,500
157,500
270,000
24,000
248,000
111,000
137,000
*The par value after 2 for 1 share split is equal to P40 x ½= P20
Question No. 3
6/1/2016 (35,000 x 4)
12/1/2016 (35,000 x 20% x P20)
Total dividend income
(A)
Question Nos. 4 and 5
Fair value (29,000 x P43)
Less: Cost (700,000/40,000 x 29,000)
Unrealized gain
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
1,247,000
507,500
739,500
D
132
5.
D
140,000
140,000
280,000
4. (D)
5. (D)
Chapter 15: Investment in Debt Securities
CHAPTER 15: INVESTMENT IN DEBT SECURITIES
PROBLEM 15-1 (Initial and Subsequent measurement, Derecognition and
Reclassification of Trading Debt Securities)
Question No. 1
Face value
Multiply by: Nominal rate
Multiply by: Months outstanding
Interest Income
(C)
5,000,000
12%
12/12
600,000
Question No. 2
Fair value of the bonds (5M X 104)
Less: Carrying value
Unrealized gain (or loss)-P&L
(B)
5,200,000
5,379,079
(179,079)
Question No. 3
Net Selling Price (5M x ½ x 105)
Less: Carrying value (5M x ½ x 104)
Gain (or loss) on sale
(B)
2,625,000
2,600,000
25,000
Question No. 4
Face value (5M x ½)
Multiply by: Nominal rate
Multiply by: Months outstanding
Interest Income
(B)
2,500,000
12%
12/12
300,000
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next reporting period (January 1, 2017). The investment
therefore would be continued to be reported as held for trading on December
31, 2016.
Question No. 5
Fair value of the bonds on the
reclassification date, 1/1/17 (2.5M X 104)
Less: Carrying value (2.5M X 102)
Unrealized gain (or loss)-P&L
(C)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
B
133
2,600,000
2,550,000
50,000
5.
C
Chapter 15: Investment in Debt Securities
PROBLEM 15-2 (Initial and Subsequent measurement, Derecognition and
Reclassification of FAAC Securities)
Question No. 1
Face value
5,379,079
Multiply by: Nominal rate
10%
Multiply by: Months outstanding
12/12
Interest Income
(B)
537,908
The present value of the bonds is computed as follows:
Present value of Principal (5,000,000 x 0.6209 )
Add: Present Value of interest payments (600,000 X 3.7908)
Present value of the investment bonds
3,104,607
2,274,472
5,379,079
(Please carry all the decimal places in the computation)
Amortization table (original):
Interest
Interest
Date
Collection
Income
01/01/2015
12/31/2015
600,000
537,908 (C)
12/31/2016
600,000
531,699
12/31/2017
600,000
524,869
12/31/2018
600,000
517,355
12/31/2019
600,000
509,091
Premium
Amortization
62,092
68,301
75,131
82,645
90,909
Present
value
5,379,079
5,316,987
5,248,685
5,173,554
5,090,909
5,000,000
Question No. 2
Nil. No unrealized gain or loss is recognized if the financial asset is classified as
financial asset at amortized cost. (A)
Question No. 3
Net Selling Price (5M x ½ x 105)
Less: Carrying value (see amortization
table) (5,316,987 x ½)
Gain (or loss) on sale
(C)
Question No. 4
Carrying value, 12/31/16 (5,316,987 x ½)
Multiply by: Nominal rate
Multiply by: Months outstanding
Interest Income
(A)
2,625,000
2,658,494
(33,494)
2,658,494
10%
12/12
265,849
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next reporting period (January 1, 2017). The investment
therefore would be continued to be reported as Financial Assets at Amortized
Cost on December 31, 2016.
134
Chapter 15: Investment in Debt Securities
Question No. 5
Fair value of the bonds on the
reclassification date, 1/1/17 (2.5M X 104)
Less: Carrying value (2,658,494 X 1.10300,000)
Unrealized gain (or loss)-P&L
(B)
SUMMARY OF ANSWERS:
1. B
2. A
3. C
4.
A
2,600,000
2,624,343
(24,343)
5.
B
PROBLEM 15-3 Acquisition of FAAC Term Bonds on Interest Date
Question No. 1
Present value of Principal (1200000 x 0.6355 )
Add: Present Value of interest payments (120000 x 3.0373 )
Present value of the investment bonds
(C)
Question No. 2
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
120,000
Interest
Income
Premium
Amortization
(B) 135,249
15,249
762,600
364,476
1,127,076
Present
value
1,127,076
1,142,325
PROBLEM 15-4 Acquisition of FAAC Term Bonds in Between Interest Dates
Question No. 1
Present value of the investment bonds
Add: Discount amortization
Effective interest
Nominal interest
Present value of the investment bonds, April 1
Add Accrued interest
Total Present value of the bonds
Question No. 2
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
200,000
1,878,460
56,354
50,000
(D)
Interest
Income
Discount
Amortization
225,415
25,415
Total interest income (P225,425 x 9/12) = P169,061
135
(B)
6,354
1,884,814
50,000
1,934,814
Present
value
1,878,460
1,903,875
Chapter 15: Investment in Debt Securities
PROBLEM 15-5 Interpolation of Effective Interest Rate of FAAC - Term
Bonds and Computation of Interest Income
Purchase price
Add: Transaction cost
Initial carrying amount
P1,100,000
44,752
P1,144,752
Since there is transaction cost incurred, effective rate must be computed. The
effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the
textbook for example of interpolation).
Interest income (11.5% x P1,144,752) = 131,646
(B)
PROBLEM 15-6 Acquisition of FAAC - Serial Bonds
Question No. 1
Interest
Total
Principal
Collection
Collection
450,000
180,000
630,000
450,000
135,000
585,000
450,000
90,000
540,000
450,000
45,000
495,000
Total Present Value of the serial bonds
Question No. 2
Interest income (1,727,834 x 12%) = 207,340
Present
Value Factor
0.8929
0.7972
0.7118
0.6355
(C)
Total Present
Value
562,527
466,362
384,372
314,573
1,727,834
(B)
PROBLEM 15-7 Impairment of Financial Asset at Amortized Cost
SOLUTION:
Question No. 1
Carrying amount of the investment – 12/31/2015
Less: Present value of expected cash flows (get the present value
computed using original effective rate)
Impairment loss
(B)
Question No. 2
Interest income (3,188,800 x 12%) = 382,560
3,864,680
3,188,800
675,880
(D)
PROBLEM 15-8 Reversal of Impairment on Financial Asset at Amortized
Cost
Present Value of Principal (5,000,000 x 0.8929)
Add: Present Value of interest payments (500,000 x 2 x 0.8929)
Present value of the investment bonds
136
4,464,500
892,900
5,357,400
Chapter 15: Investment in Debt Securities
Present value expected cash flows, date of reversal
Would have been present value had there been no impairment
5,357,400
4,910,521
Lower of the two above
Less: Actual amortized cost (P3,986,000 x 1.12)
Gain on reversal of impairment
4,910,521
4,464,320
446,201
(D)
COMPREHENSIVE PROBLEMS
PROBLEM 15-9
Question No. 1
Cost of investment – Jan. 21(P2,000,000 x 102%) = P2,040,000
Question No. 2
Proceeds
Less: Accrued interest (P1,000,000 x 9% x 3/12)
Net Proceeds
Less: Carrying amount (P2,000,000 x 102%)
Gain on sale
Question No. 3
Proceeds
Less: Accrued interest (P400,000 x 9% x 5/12)
Net proceeds
Carrying amount (P400,000 x 102%)
Loss on sale
Question No. 4
Sold bonds:
P1,000,000 x 9% x 38/360
P400,000 x 9% x 280/360
Outstanding bonds:
P600,000 x 9% x 340/360
Total interest income
(A)
P1,060,000
22,500
1,037,500
1,020,000
P 17,500
(A)
P 419,000
15,000
404,000
408,000
(
4,000)
P
(A)
Question No. 5
Carrying value – 12/31/2016 (P600,000 x 102%) = P612,000
The market value is equal to its cost.
SUMMARY OF ANSWERS:
1. A
2. A
3. A
(A)
4.
A
5.
P
9,500
28,000
51,000
88,500
(A)
A
PROBLEM 15-10 Impairment and Reversal of Impairment Loss
Note to the Professor:
 The present value of the future cash flows based on existing current rate of
11% is ₱3,655,957 not ₱3,055,957.
137
Chapter 15: Investment in Debt Securities

The present value of expected cash flows for the remaining period using
10% is ₱5,619,835 not ₱5,19,835.
Question No. 1
Present value of Principal (5,000,000 x 0.6209 )
Add: Present Value of interest payments (600,000 X 3.7908)
Present value of the investment bonds
(D)
3,104,607
2,274,472
5,379,079
(Please carry all the decimal places in the computation)
Question No. 2
Amortization table (original):
Interest
Interest
Date
Collection
Income
01/01/2015
12/31/2015
600,000
537,908 (C)
12/31/2016
600,000
531,699
12/31/2017
600,000
524,869
12/31/2018
600,000
517,355
12/31/2019
600,000
509,091
Premium
Amortization
62,092
68,301
75,131
82,645
90,909
Present
value
5,379,079
5,316,987
5,248,685
5,173,554
5,090,909
5,000,000
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above)
Less: Present value of expected cash flows
Impairment loss
(B)
5,248,685
3.756,574
1,492,111
Present value of Principal (5,000,000 x 0.7513 )
Add: PV of interest payments (No interest will be recovered)
Present value of the investment bonds
3,756,574
3,756,574
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
(A)
The interest income was computed using the original effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Present value expected cash flows, date of reversal
Would have been present value had there been no impairment
(see original amortization table)
5,619,835
5,173,554
Lower of the two above
Less: Actual amortized cost (P3,756,574 x 1.10)
Gain on reversal of impairment
(D)
5,173,554
4,132,231
1,041,322
Present value of Principal (5,000,000 x 0.8264 )
Add: Present value of interest payments (600,000 x 3 x 0.8264)
Present value of the investment bonds
4,132,231
1,487,603
5,619,835
138
Chapter 15: Investment in Debt Securities
SUMMARY OF ANSWERS:
1. D
2. C
3. B
4.
A
5.
D
PROBLEM 15-11
Question No. 1
Proceeds
Less: Carrying amount [(P432,000/24,000) x 12,000)
Loss on sale
(B)
Question No. 2
Cost, 1/1/2015
Less: Amortized cost, 12/31/2015
Premium amortization
Less: Nominal interest (5,000,000 x 12%)
Interest Income
P 204,000
216,000
(12,000)
P5,311,400
5,242,540
68,860
600,000
531,140
Effective interest (P531,400/5,311,140) = 10%
Interest income (P5,242,540 x 10%) = P524,254 (B)
Question No. 3
2015 discount amortization (P1,903,150 – P1,881,000)
Nominal interest (P2,000,000 x 13%)
Effective interest
Divide by: 1/1/2015 amortized cost
Effective interest rate
P
22,500
260,000
P 282,500
P1,881,000
15%
2016 Interest Income = 12/31/2015 amortized cost x Effective interest rate
= P1,903,150 x 15% = P285,472.50 (C)
Question No. 4
Fair value, 1/1/2017 (2,000,000 x 101)
Less: Amortized cost – 01/01/2017
Book value, 12/31/2015
P 1,903,150
Add: Discount amortization
Nominal interest
260,000
Less: Effective interest
282,473
22,473
Gain on reclassification
(C)
Question No. 5
Trading securities:
Panaghoy, Inc. (14,400 x P22)
Lamentation, Inc. [(24,000 – 12,000) x P15]
Total
139
P 316,800
180,000
P 496,800
P2,020,000
P
1,928,623
91,377
Chapter 15: Investment in Debt Securities
FVTOCI:
Genesis bonds
Exodus bonds
Total
P 5,166,794
1,928,263
P 7,095,417
Genesis Bonds
Date
01/01/2015
12/31/2015
12/31/2016
Interest
Collection
Interest
Income
Premium
Amortization
600,000
600,000
531,140
524,254
68,860
75,746
Interest
Collection
Interest
Income
Discount
Amortization
260,000
260,000
282,150
285,473
22,150
25,473
Present
value
5,311,400
5,242,540
5,166,794
Exodus Bonds
Date
01/01/2015
12/31/2015
12/31/2016
Present
value
1,881,000
1,903,150
1,928,623
PROBLEM 15-12 Reclassification from FAAC to FVTPL
Question No. 1
Present value of Principal (P5,000,000 x .621)
Add: PV of interest payments (P5,000,000 x 12% x 3.791)
Present value of the investment bonds – 01/01/2016
Amortization up to 7/1/2016
P5,379,600 x 10% 6/12
P 268,980
P5,000,000 x 12% 6/12
( 300,000)
Accrued interest up to 7/1/2016 (P5,000,000 x 12% 6/12 )
Purchase price – 7/1/2016
(C)
Question No. 2
Interest income – 2016 (P5,379,600 x 10% x 6/12) = P268,980
Question No. 3
Fair value date of reclassification
Less: Carrying amount 12/31/2017 or 01/01/2017
Loss on reclassification
(B)
Question No. 4
Dividend income (cash dividend) = P40,000
(A)
Question No. 5
Investment in Sta. Ana (20,000 x 110% x P40) = P880,000 (C)
140
3,105,000
2,274,600
5,379,600
(31,020)
300,000
5,648,580
(B)
5,121,400
5,249,316
(127,916)
Chapter 15: Investment in Debt Securities
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
A
5.
C
PROBLEM 15-13 Investment in Associate - Change from Equity Method to
Fair Value Method and Impairment of Financial Assets at Amortized Cost
Question No. 1
Acquisition cost
Share in the Net income in 2015 (1.7M x 25%)
Share in the dividend (25% x 320,000)
Understatement of depreciation (160,000/4 years)
Balance end, 12/31/2015
(A)
Understatement of Plant and equipment
x Percent of interest
Understatement of Net asset acquired
640,000
25%
160,000
Question No. 2
Fair value of investment, date of date of transfer (25,000 x P120)
Less: Carrying value of investment - 12/31/2015
Unrealized gain – P&L
(C)
Question No. 3 and 4
(See Amortization table below):
Interest
Interest
Date
Collection
Income
01/01/2015
12/31/2015
400,000
462,101 (B)
12/31/2016
400,000
468,311 (C)
12/31/2017
400,000
475,142
Discount
Amortization
62,101
68,311
75,142
Question No. 5
Present value of the principal (5M x .751)
Add: Present value of interest payments (only principal will be
recovered)
Total Present value of future cash inflows
Less: Amortized cost - 12/31/2016(see amortization table)
Impairment loss
(C)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
2,140,000
425,000
(80,000)
(40,000)
2,445,000
C
141
5.
C
3,000,000
2,445,000
555,000
Present
value
4,621,006
4,683,107
4,751,418
4,826,560
3,755,000
3,755,000
4,751,418
(996,418)
Chapter 16: Investment in Associate
CHAPTER 16: INVESTMENT IN ASSOCIATE
PROBLEM 16-1 Investment securities and equity method investments
compared
Question No. 1
Cost of Investment
Less: Book value of net asset acquired (P120M x 20%)
Excess of cost over book value
Less: Overvalued depreciable asset (P6M x 20%)
Goodwill
(A)
Question No. 2
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends Revenue
30,000,000
24,000,000
6,000,000
1,200,000
4,800,000
5,000,000
20%
1,000,000
(C)
Question No. 3
Share in net income (P8M x 20%)
Less: Amortization of Undervalued valued asset (see below)
Adjusted net investment income
(A)
1,600,000
200,000
1,400,000
Amortization of Undervalued asset
Depreciable Asset
Divide by: Average remaining useful life
Amortization of Undervalued valued asset
1,200,000
6
200,000
Question No. 4
Cost of Investment
Add: Net investment income (see no. 3)
Less: Dividends received (P1 x 1M shares)
Carrying value – 12/31/2015
30,000,000
1,400,000
1,000,000
30,400,000
(B)
Question No. 5
Investment using Fair Value (₱32 x 1,000,000) = ₱32,000,000
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
B
5.
(D)
D
PROBLEM 16-2
Question No. 1
Cost of Investment
Less: Book value of net asset acquired (P10M x 30%)
Excess of cost over book value
142
5,000,000
3,000,000
2,000,000
Chapter 16: Investment in Associate
Over or (under)valued asset:
Inventory [(P900,000 – P800,000) x 30%]
Machinery [(P2,200,000 – P2,500,000) x 30%]
Goodwill
(30,000)
90,000
2,060,000
(C)
Question No. 2
Share in net income (P2M x 30%)
Less: Amortization of undervalued valued asset (see below)
Add: amortization of overvalued asset
Adjusted net investment income
(A)
Amortization of asset:
Inventory
2016
(30,000)
2017
90,000
5
18,000
90,000
5
18,000
2016
2,000,000
30%
600,000
800,000
30%
240,000
2017
4,500,000
30%
1,350,000
1,600,000
30%
480,000
Machinery
Divide by: Remaining life
Amortization of overvalued machinery
Net income of the associate
Multiply by: Percentage of ownership
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
Question No. 3
Cost of Investment
Add: Net investment income (see no. 2)
Less: Dividends received (P800,000 x 30%)
Carrying value – 12/31/2016
600,000
30,000
18,000
588,000
(A)
5,000,000
588,000
240,000
5,348,000
Question No. 4
Share in net income (P4.5M x 30%)
Add: Amortization of Overvalued valued asset (see no. 2)
Adjusted net investment income
(C)
1,350,000
18,000
1,368,000
Question No. 5
Carrying value – 01/01/2017
Add: Net investment income (see no. 4)
Less: Dividends received (P1.6M x 30%)
Carrying value – 12/31/2017
5,348,000
1,368,000
480,000
6,236,000
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
(A)
C
143
5.
A
Chapter 16: Investment in Associate
PROBLEM 16-3 Investment in Associate with Inventories, Machinery and
Land - Land Was Subsequently Sold
Question No. 1
Cost of Investment
Less: Book value of net asset acquired (P12M x 20%)
Excess of cost over book value
Over or (under)valued asset
Inventory ((P50,000) x 20%)
Machinery ((P500,000) x 20%)
Land (P300,000 x 20%)
Goodwill
(A)
5,000,000
2,400,000
2,600,000
(10,000)
(100,000)
60,000
2,550,000
Amortization of Over (Under) valued asset
Inventory
2016
(10,000)
2017
Machinery
Divide by: Remaining life
Amortization of Under (over) valued asset
(100,000)
10
(10,000)
(100,000)
10
(10,000)
-
60,000
2016
8,000,000
20%
1,600,000
2,000,000
20%
400,000
2017
10,000,000
20%
2,000,000
3,000,000
20%
600,000
Land
Net income of the associate
Multiply by: Percentage of ownership
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
Question No. 2
Share in net income (P8M x 20%)
Less: Amortization of Undervalued valued asset (see table
above)
Adjusted net investment income
(A)
Question No. 3
Cost of Investment
Add: Net investment income (see no. 2)
Less: Dividends received (P2M x 20%)
Carrying value – 12/31/2016
(A)
Question No. 4
Share in net income (P10M x 20%)
Less: Amortization of Undervalued valued asset (see table
above)
Add: amortization of overvalued asset
144
1,600,000
20,000
1,580,000
6,000,000
1,580,000
400,000
6,180,000
2,000,000
10,000
60,000
Chapter 16: Investment in Associate
Adjusted net investment income
Question No. 5
Carrying value – 01/01/2017
Add: Net investment income (see no. 4)
Less: Dividends received (P3M x 20%)
Carrying value – 12/31/2017
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
C
5.
(C)
2,050,000
(A)
6,180,000
2,050,000
600,000
7,630,000
A
PROBLEM 16-4 Associate with Outstanding Cumulative Preference Shares
When an investee has outstanding cumulative preference share capital, an
investor should compute its share of earnings after deducting the investee’s
preference dividends, whether or not such dividends are declared.
Net income
Less: Preference dividend (10% x ₱1,000,000)
Net income to ordinary shares
600,000
( 100,000)
500,000
Share in net income – ordinary shares (80% x ₱500,000)
(A)
400,000
PROBLEM 16-5 Associate with Outstanding Preference Shares
CASE NO. 1
Question No. 1
Net income
P2,500,000
Less: Total preference dividends (₱3,000,000 x 10%)
300,000
Net income to ordinary shares
P2,200,000
Multiply by: Percentage of ownership
30%
Share in the net income of associate
660,000
Less: Amortization of undervalued asset (₱1,000,000/8)
125,000
Net investment income
(B)
535,000
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
Less: Dividends received
Carrying value – 12/31/2016
CASE NO. 2
Question No. 1
Net income
Less: Total actual preference dividends declared
Net income to ordinary shares
145
(B)
6,000,000
535,000
6,535,000
P2,500,000
450,000
P2,050,000
Chapter 16: Investment in Associate
Multiply by: Percentage of ownership
Share in the net income of associate
Less: Amortization of undervalued asset (1,000,000/8)
Net investment income
(A)
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
Less: Dividends received
Carrying value – 12/31/2016
(A)
CASE NO. 3
Question No. 1
Net income
Multiply by: Percentage of ownership
Share in the net income of associate
Less: Amortization of undervalued asset (₱1,000,000/8)
Net investment income
(C)
30%
615,000
125,000
490,000
6,000,000
490,000
6,490,000
P2,500,000
30%
750,000
125,000
625,000
Although the answer should be ₱400,000, the next best possible answer is
₱500,000.
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
Less: Dividends received
Carrying value – 12/31/2016
SUMMARY OF ANSWERS:
CASE NO. 1
CASE NO. 2
1. B
2. B
1. A
2. A
(C)
1.
6,000,000
625,000
6,625,000
CASE NO. 3
C
2.
C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity
Method - Step Acquisition
Question No. 1
Fair value – 12/31/2017
Less: Carrying value (Fair value – 12/31/2016)
Unrealized loss – P&L
(B)
Question No. 2
Investment income (₱550,000 x 15%)
(C)
146
3,600,000
(3,900,000)
(300,000)
82,500
Chapter 16: Investment in Associate
Question No. 3
Nil. No catch-up adjustment on retained earnings. (A)
Fair value of previously held interest
Acquisition cost
Total cost of investment
Less: Book value of net asset acquired (12.5m x 30%)
Excess of attributable to machinery
Divide by: Remaining life
Amortization of Undervalued asset
3,600,000
3,600,000
7,200,000
3,750,000
3,450,000
10
345,000
Net income of the associate - 2018
Multiply by: Percentage of ownership (15% + 15%)
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
1,600,000
30%
480,000
700,000
30%
210,000
Question No. 4
Share in net income
Less: Amortization of Undervalued asset (see table above)
Adjusted net investment income
(A)
Question No. 5
Cost of Investment
Add: Net investment income (see no. 4)
Less: Dividends received
Carrying value – 12/31/2018
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4.
(A)
A
5.
480,000
345,000
135,000
7,200,000
135,000
210,000
7,125,000
B
PROBLEM 16-7 Cost To Equity Method
Question No. 1
Consideration received (40,000 x 65)
Less: Dividend income (5 x 40,000)
Net selling price
Less: Carrying value (5,000,000)
Loss on sale
(Assuming FIFO Method)
(E)
Question No. 2
Consideration received
Less: Dividend income (5 x 40,000)
Net selling price
P2,600,000
200,000
2,400,000
5,000,000
(P2,600,000)
P5,200,000
200,000
5,000,000
147
Chapter 16: Investment in Associate
Less: Carrying value [12M-(P5 x 100,000)/100,000] x 40,000)
Gain on sale
(B)
Question No. 3
Fair value (P70 x 60,000)
(E)
4,600,000
P400,000
P4,200,000
Question No. 4
Cost of Investment – 01/01/2015
Add: Net investment income - 2015 (5,000,000 x 30%)
Less: Dividends received -2015 (30% x 2,000,000)
Carrying value – 12/31/2015
Add: Net investment income - 2016 (6,000,000 x 30%)
Less: Dividends received -2016 (30% x 3,200,000)
Carrying value – 12/31/2016
2,400,000
1,500,000
600,000
3,300,000
1,800,000
960,000
4,140,000
Net selling price
Less Carrying amount (P4,140,000 x ½)
Gain on sale
2,400,000
2,070,000
P330,000
(B)
Question No. 5
Investment in Kababain – FVTOCI:
Fair value (P75 x 15,000)
Less: Carrying amount
Investment in Passing Rate – FVTOCI:
Fair value (P70 x 60,000)
Less Cost (12M-(5 x 100,000))/100,000 x 60,000)
Total Unrealized Gain –OCI to SFP
(E)
SUMMARY OF ANSWERS:
1. E
2. B
3. E
4.
B
5.
1,125,000
2,070,000
(945,000)
4,200,000
6,900,000
(2,700,000)
P3,645,000
E
PROBLEM 16-8 Change From Equity to Cost Method
Question No. 1
Cost of Investment
Add: Net investment income [(1.8M-840,000) x 20%]
Less: Dividends received (P100,000 + P100,000)
Carrying value – 12/31/2015
(B)
4,000,000
192,000
200,000
3,992,000
Note:
 The dividend received on August 1, 2015 need not be prorated even though
the investment was acquired on July 1, 2015 since dividends is considered
when the investor has the right to receive payment (i.e. date of declaration).
 The P1.8M net income was for a period of 12 months ending December 31.
Question No. 2
148
Chapter 16: Investment in Associate
Sales price (P25 x 50,000)
Carrying value of shares (P3,992,000 x 50,000/200,000)
Gain on sale of investment
(B)
1,250,000
998,000
252,000
Question No. 3
Fair value of retained investment (P25 x 150, 000)
Less: Carrying amount of retained investment (P3,992,000 x
150,000/200,000)
Gain on reclassification to P&L
(C)
3,750,000
2,994,000
756,000
Question No. 4
Fair value, Dec. 31, 2016 (P30 x 150,000)
Fair value, Jan. 1, 2016 (P25 x 150,000)
Unrealized gain, Dec. 31, 2016
(B)
4,500,000
3,750,000
750,000
Question No. 5
Fair value, Dec. 31, 2016 (P30 x 150,000)
(A)
4,500,000
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
B
5.
A
PROBLEM 16-9: Discontinuance of Equity Method
Question No. 1
Cost (300,000x100)
Add: Income (4,000,000x .3)
Less: Dividends (2,500,000x .3)
Carrying Amount - 2015
(C)
30,000,000
1,200,000
(750,000)
30,450,000
Question No. 2
Net proceeds (160,000x120)
Less: Carrying amount (30,450,000x(160,000/300,000))
Gain on Sale
(C)
19,200,000
(16,240,000)
2,960,000
Question No. 3
FVTOCI (140000x120)
Less: Carrying amount (30,450,000x(140,000/300,000)
Gain on Reclassification
(B)
17,080,000
14,210,000
2,870,000
Question No. 4
Dividend Income (2,000,000x .14)
(A)
280,000
Question No. 5
Investment in FVTOCI (140,000x125)
(B)
17,500,000
149
Chapter 16: Investment in Associate
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4.
A
5.
B
PROBLEM 16-10 Associate Having Heavy Losses
Original cost
Cash advances
Total interest
Net loss from 2015 to 2017 (40% x 4,000,000)
Carrying amount of investment – 12/31/2017
Share in net loss of 2018 (40% x 800,000)
Loss to be reported in 2018 should be equal to the investment
balance only
(C)
1,400,000
400,000
1,800,000
(1,600,000)
200,000
320,000
200,000
PAS 28, paragraph 29, provides that if under equity method an investor’s share
of losses of an associate equals or exceeds the carrying amount of an
investment, the investor discontinues recognizing its share of further losses.
The investment is reported at NIL or zero value.
PROBLEM 16-11 Downstream Sale of Inventory
Net income
Multiply by: Percentage of ownership
Share in the net income before adjustment
Less: Unrealized profit on downstream sale of
inventory
Share in the net income after adjustment
2015
1,000,000
25%
250,000
2016
1,500,000
25%
375,000
(30,000)
220,000
(B)
30,000
405,000
(D)
2015
1,000,000
25%
250,000
2016
1,500,000
25%
375,000
(9,000)
241,000
(B)
9,000
384,000
(D)
PROBLEM 16-12 Upstream Sale of Inventory
Net income
Multiply by: Percentage of ownership
Share in the net income before adjustment
Less: Unrealized profit on upstream sale of
inventory
Share in the net income after adjustment
150
Chapter 16: Investment in Associate
PROBLEM 16-13 Downstream Sale of Depreciable Asset
2015
Net income
1,000,000
Multiply by: Percentage of ownership
25%
Share in the net income before adjustment
250,000
Less: Unrealized gain on downstream sale of PPE
(160,000)
Share in the net income after adjustment
90,000
(B)
PROBLEM 16-14 Upstream Sale of Depreciable Asset
Net income
Multiply by: Percentage of ownership
Share in the net income before adjustment
Less: Unrealized gain on upstream sale of PPE
Share in the net income after adjustment
PROBLEM 16-15
Question Nos. 1 and 2
2015
1,000,000
25%
250,000
(40,000)
210,000
(B)
2016
1,500,000
25%
375,000
40,000
415,000
(D)
2016
1,500,000
25%
375,000
10,000
385,000
(D)
COMPREHENSIVE PROBLEMS
Net income of the associate
Multiply by: Percentage of ownership
Share in NI
Less: Gain on sale of equipment
Add: Depreciation of Excess
Gain on sale of inventory (upstream) (50,000x .3)
Less: Gain on sale of inventory (Downstream)
Net share in NI
Question No. 3
Cost
Add: Investment Income 2015
Less: Dividends (900,000x .3)
Carrying amount 2015
Question No. 4
Carrying amount 01/01/2016
Add: Income
Less: Dividends (2,000,000x .3)
Carrying Amount - 2015
151
2015
2,500,000
30%
750,000
(100,000)
20,000
(15,000)
655,000
1. (B)
2016
4,000,000
30%
1,200,000
20,000
15,000
(150,000)
1,085,000
2. (B)
(A)
5,000,000
655,000
270,000
5,385,000
(B)
5,385,000
1,085,000
600,000
5,870,000
Chapter 16: Investment in Associate
Question No. 5
Carrying amount 01/01/2016
Add: Income
Less: Dividends (2,000,000x .3)
Less: Amortization of goodwill (400,000 x 2/10)
Carrying Amount - 2015
(A)
5,385,000
1,085,000
600,000
80,000
5,790,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity cannot determine reliably the useful life, it is
assumed to be 10 years.
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
B
5.
A
PROBLEM 16-16
Question No. 1
Cost
Less: Equity in net assets
Implied goodwill
(D)
P1,700,000
1,400,000
300,000
Question No. 2
Proceeds (2,500 x P13)
Less: Carrying amount [(P60,000/6,000) x 2,500]
Gain on sale
(C)
P 32,500
25,000
7,500
Question No. 3
Proceeds (500 x P21)
Less: Carrying amount [(P66,000/(2,000 x 110%)) x 500]
Loss on sale
(D)
P 10,500
15,000
4,500
Question No. 4
FV of financial asset received (1,500 x P21)
Less: Carrying amount [(P45,000/1,000) x 500]
Gain on conversion
P 31,500
22,500
9,000
Question No. 5
Investment in Roque Corporation:
3/9
1,000 x P1.2
9/9
1,000 x P1.2
Investment in Ocampo Corporation:
6/30 (6,000 – 2,500) x P1
Total dividend income
(A)
1,200
1,200
(D)
152
3,500
5,900
Chapter 16: Investment in Associate
Question No. 6
1/2/2016 Acquisition Cost
Add: Share in net income of associate (P1,200,000 x 30%)
Less: Dividends (P.50 x 4 x 100,000)
12/31/2016 carrying amount
(D)
Question No. 7
Roque pref. (1,000 – 500) x P56
Roque ordinary (1,500 x P20)
Ocampo (6,000 -2,500) x P11
Dagumboy Co. (2,000 x 110% -500) x P22
12/31/2016 FVTOCI Balance
SUMMARY OF ANSWERS:
1. D
2. C
3. D
4.
A
1,700,000
360,000
200,000
P1,860,000
28,000
30,000
38,500
37,400
133,900
(C)
5.
D
6.
D
7.
C
PROBLEM 16-17
Question No. 1
Solano
(264,500-250,000)
Castaneda (280,000-320,000)
(70,000-195,000)
Unrealized G/(L)
14,500
(40,000)
(125,000)
(150,500)
(C)
Question No. 2
Zero, gain or loss on reclassification is NOT allowed
Question No. 3
Fair value previously held interest (50,000 x 30)
Less: Carrying value
Gain on reclassification-P&L
(A)
(C)
1,500,000
1,350,000
150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D)
270,000
Question No. 5
Fair value previously held interest (50,000 x 30)
Add: Acquisition cost
Initial carrying amount – investment in associate
Add: Net investment income (see No. 4)
Less: Dividends declared (P2 x 150,000)
Investment balance end
(C)
1,500,000
3,000,000
4,500,000
270,000
300,000
4,470,000
153
Chapter 16: Investment in Associate
SUMMARY OF ANSWERS:
1. C
2. A
3.
C
4.
D
5.
C
PROBLEM 16-18
Question No. 1
Consideration received (P230 x 4,000)
Less: Dividend of the investment sold (P8 x 4,000)
Net Selling Price
Less: Carrying value of the investment sold (*1,970,000/10,000
x 4,000)
Gain on sale
(B)
920,000
32,000
888,000
788,000
100,000
*(10,000 x P200)-(P8 x 10,000) + P50,000
The dividend that was paid and sold is not classified as dividend income since
the company did not own the shares when the dividend was declared.
Question No. 2
Net Selling Price (P450 x 50,000 x 1/2)
Less: Carrying value of the investment sold (P20,800,000 x 1/2)
Gain on sale
(C)
11,250,000
10,400,000
850,000
Beg. Balance of Investment in Associate
Add: Share in the net income of associate (25% x P20M)
Total
Less: Amortization (P2,000,000/10)
Dividends received (P40 x 50,000)
Ending balance of investment in associate – 12/31/2016
18,000,000
5,000,000
23,000,000
200,000
2,000,000
20,800,000
Question No. 3
Nil. (A)
 The dividend that was paid and sold in Boy-ot shares is not classified as
dividend income since the company did not own the shares when the
dividend was declared.
 The dividend received in Cleo Shares is not regarded as income, but as a
deduction of the initial carrying amount of the investment in associate.
Question Nos. 4 and 5
Rodolfo (P46 x 20,000)
Boy-ot (P192 x 6,000)
Gene (P28 x 40,000)
Cleo (P450 x 25,000)
Total
Fair value
920,000
1,152,000
1,120,000
11,250,000
14,442,000
(C)
154
Cost
1,000,000
*1,182,000
1,280,000
11,250,000
14,712,000
(UL) / UG
(80,000)
(30,000)
(160,000)
(270,000)
(C)
Chapter 16: Investment in Associate
* (1,970,000/10,000 x 6,000)
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4.
C
5.
C
PROBLEM 16-19 Impairment losses recognized by an associate or joint
venture
Question No. 1
In accounting for its associate, Mark Co. should recognize impairment loss.
However, it is generally not acceptable to simply multiply the amount of
impairment recognized in the investee’s own books by the investor’s percentage
of ownership, because the investor should initially measure its interest in an
associate’s identifiable net ownership at fair value at the date of acquisition of
an associate. Accordingly, appropriate adjustments based on those fair values
are made for impairment losses recognized by the associate.
CGU A
CGU B
CGU C
Net assets
Carrying amount
reflecting fair
values made by
Mark Co.
₱ 140,000
100,000
320,000
560,000
Recoverable
amount (40%)
₱ 120,000
180,000
160,000
460,000
Impairment
loss
₱ 20,000
n/a
160,000
180,000
(A)
Question No. 2
The carrying amount reflecting fair values made by Mark Co. after impairment:
CGU A
₱ 120,000
CGU B
100,000
CGU C
160,000
Net assets
380,000
Goodwill
40,000
Investment in associate
₱ 420,000 (A)
PROBLEM 16-20: PFRS for SME: Jointly Controlled Entity
Question No. 1 Cost model
Total dividend paid by Entity Z’s
Multiply by: Percentage
Dividend income – P&L to SCI
CASE NO. 1
Question No. 2 Cost model
Carrying amount
155
(B)
₱150,000
30%
₱ 45,000
(D)
₱300,000
Chapter 16: Investment in Associate
CASE NO. 2
Question No. 3 Fair value model
Fair value – December 31
Less: Acquisition cost
Gain on change in fair value – P&L to SCI
Add: Dividend income (₱150,000 x 30%)
Total to P&L
(A)
₱425,000
300,000
₱125,000
45,000
₱170,000
Question No. 4 Fair value model
Carrying amount = Fair value Dec. 31
₱425,000
(A)
CASE NO. 3
Question No. 5 Equity method
Entity Z’s reported profit
Multiply by: Percentage
Share in net income
(C)
₱400,000
30%
₱120,000
Question No. 6 Equity method
Acquisition cost
Add: Share in net income
Less: Dividends received ((₱150,000 x 30%)
Carrying value – December 31
(B)
₱300,000
120,000
45,000
₱375,000
156
Chapter 18: Property, Plant and Equipment
CHAPTER 18: PROPERTY, PLANT AND EQUIPMENT
PROBLEM 18-1 Capitalizable Cost of Machinery
Purchase price including VAT (1,568,000/1.12)
Cost of water device to keep machine cool.
Cost of safety rail and platform surrounding machine
Installation cost, including site preparation and
assembling.
Fees paid to consultants for advice on acquisition of
the machinery.
PV of estimated dismantling cost of the new machine
Repair cost of the machine damaged while in the
process of installation
Loss on premature retirement-old machine
Other nonrefundable sales tax
Cost of training for personnel who will use the
machine
Adjusted balances
(A)
PROBLEM 18-2
Improvements
Capitalizable
Cost
of
Question No. 1
Purchase Price
Title Insurance
Legal fees to purchase land
Property taxes, January 1, 2016 -June 30, 2016
Cost of grading and filling building site
Total Cost of the land
Question No. 2
Cost of building construction
Interest on construction loan
Cost of razing old building on lot
Proceeds from sale of salvageable materials
Total cost of the building
Question No. 3
Cost of constructing driveway
Cost of parking lot and fencing
Total cost of the land improvements
157
Land,
Machinery
1,400,000
8,000
12,000
Others
-
20,000
-
13,000
10,000
-
13,000
5,000
18,000
-
1,476,000
25,000
48,000
Building
and
Land
(A)
925,000
7,500
5,000
15,000
45,000
997,500
(A)
3,100,000
60,000
42,500
(6,000)
3,196,500
(B)
400,000
60,000
460,000
Chapter 18: Property, Plant and Equipment
PROBLEM 18-3 Acquisition on Cash Basis
Question No. 1
Cash paid
Commissions paid to brokers
Non-refundable sales taxes
Total cost
Multiply by: Ratio (200,000 / 500,000)
Allocated cost of the land
Question No. 2
Total cost
Multiply by: Ratio (300,000 / 500,000)
Allocated purchase price
Renovation cost
Demolition cost
Proceeds from sale of demolition scrap
Total cost of the building
(B)
800,000
80,000
40,000
920,000
0.40
368,000
(A)
920,000
0.60
552,000
100,000
60,000
(15,000)
697,000
PROBLEM 18-4 Acquisition on Account
Invoice Price
Multiply by: (1 - discount rate)
Net invoice price
Additional cost:
Freight and insurance
Cost of testing and trial runs
Cost of the equipment
500,000
97%
485,000
(B)
15,000
12,000
512,000
PROBLEM 18-5 Acquisition on Account
Invoice Price
Multiply by: (1 - discount rate)
Net invoice price
Additional cost:
Installation cost
Present value of estd. decommissioning and restoration cost
Total cost of the equipment
(B)
500,000
0.97
485,000
Estimated decommissioning and restoration cost
Multiply by: Present value of 1
Present value of estd. decommissioning and restoration cost
100,000
0.6209
62,090
158
50,000
62,090
597,090
Chapter 18: Property, Plant and Equipment
PROBLEM 18-6 Deferred Settlement Terms (With or Without Cash Price
Equivalent)
Question No. 1
Cash price equivalent
Question No. 2
Principal
Multiply by: Present value of 1
Cost of the equipment
(A)
800,000
(B)
1,000,000
0.7972
797,200
PROBLEM 18-7 Exchange (With or Without Commercial Substance)
Question No. 1
Fair value of the asset given
Add: Cash payment
Cost of equipment
Question No. 2
Fair value of the asset given
Less: Carrying amount
Gain on exchange
Question No. 3
Carrying amount of the asset given
Add: Cash payment
Cost of equipment
(D)
1,200,000
200,000
1,400,000
(B)
1,200,000
800,000
400,000
(B)
800,000
200,000
1,000,000
Question No. 4
Zero, the transaction lacks commercial substance. (A)
PROBLEM 18-8 Trade–in
Question No. 1
Cash price without trade in
Question No. 2
Cash price without trade in
Less: Cash price with trade in
Trade in value
Less: Carrying amount
Loss on trade in
159
(A)
340,000
(B)
340,000
270,000
70,000
230,000
(160,000)
Chapter 18: Property, Plant and Equipment
PROBLEM 18-9 Acquisition through Issuance of Equity Instrument
Question No. 1
Fair value of the equipment received
(D)
4,000,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
share premium in the equity.
(A)
PROBLEM 18-10 Acquisition through Issuance of Bonds Payable
Question No. 1
Fair value of the bonds (10,200 x 500)
(C)
5,100,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
premium on bonds payable.
(A)
PROBLEM 18-11 Acquisition by Donation
Question No. 1
Fair value
Add: Direct cost
Total cost
(B)
4,000,000
40,000
4,040,000
Question No. 2
Fair value
(C)
4,000,000
The registration and transfer of title is charged to Donated Capital / Share
Premium.
PROBLEM 18-12 Capitalizable Cost of Land
Question No. 1
Purchase price
Demolition of existing building on site
Legal and other fees to close escrow
Less: Proceeds from sale of demolition scrap
Total cost
Question No. 2
Purchase price
Legal and other fees to close escrow
Total cost
160
(C)
400,000
75,000
12,000
10,000
477,000
(A)
400,000
12,000
412,000
Chapter 18: Property, Plant and Equipment
PROBLEM 18-13 Subsequent Expenditure on PPE
Question No. 1
Beginning balance – Jan 1
Add: Overhaul – June 30
Total cost of motor vehicle
(C)
790,000
60,000
850,000
Question No. 2
Beginning balance – Jan 1
Add: Rearrangement and installation – March 2
Improvement that extend the life – December
Total cost of machine
(B)
1,900,000
45,000
60,000
2,005,000
Question No. 3
Beginning balance – Jan 1
Add: Unloading and set up cost
Total cost of precision machine
(C)
Question No. 4
Beginning balance – Jan 1
Add: Installation of sprinkler system – part of blue print
Add: Cost of attic
Total cost of building
(B)
Question No. 3
Routine repairs and maintenance
SUMMARY OF ANSWERS:
1. C
2. B
3. C
(D)
4.
B
5.
600,000
48,000
648,000
4,100,000
130,000
500,000
4,730,000
26,000
D
PROBLEM 18-14
Question No. 1
Interest paid(2,000,000 x 14% x 12/12)
Less: Investment income
1,400,000 x 10% x 6/12
200,000 x 10% x 2/12
Capitalizable borrowing cost
280,000
70,000
3,333
206,667
Note that capitalization of borrowing costs does not cease during a temporary
delay in construction.
Question No. 2
Interest paid (2,000,000 x 14% x 12/12)
Less: Capitalized borrowing cost
Interest expense
161
280,000
206,667
73,333
Chapter 18: Property, Plant and Equipment
Note that the interest paid and investment income is used to compute for the
capitalizable borrowing cost. However, the amount recognized as an interest
expense is the difference between the total interest paid and capitalizable
borrowing cost. Also, the amount recognized as interest income is 73,333.
Question No. 3
Total progress payments
Add: Capitalized borrowing cost
Total cost of the stadium
20,000,000
206,667
20,206,667
PROBLEM 18-15
Question No. 1
Interest expense under effective interest method (5,000,000 x
.176319 x 11/12)
Less: Investment income (250,000 x 11/12)
Capitalizable borrowing cost
Question No. 2
Interest expense under effective interest method (5,000,000 x
.176319 x 12/12)
Less: Capitalized borrowing cost
Interest expense
808,129
229,167
578,962
881,595
578,962
302,633
Question No. 3
Total expenditures
Add: Capitalized borrowing cost
Total cost of the building
2,700,000
578,962
3,278,962
Question No. 3
Total cost of the building
Less: Residual value
Depreciable amount
Divide by: Useful life
Multiply by: Months
Depreciation - 2016
3,278,962
1,000,000
2,278,962
10
1/12
18,991
Note depreciation will start when the asset is available for use.
162
Chapter 18: Property, Plant and Equipment
PROBLEM 18-16
Question No. 1
Rate
15%
20%
Total
Principal
4,000,000
2,000,000
6,000,000
Interest
600,000
400,000
1,000,000
Capitalization Rate (P1,000,000 / P6,000,000) = 16.67%
January 1 (600,000 + 2,100,000)
July 1
December 1
Average accumulated expenditure
Multiply by: Rate
Capitalizable borrowing cost
2,700,000
1,200,000
240,000
x 12/12
x 6/12
x 1/12
2,700,000
600,000
20,000
3,320,000
16.67%
553,334
Note that investment income is not considered since the two loans are
considered general borrowings.
Question No. 2
Total interest expense
Less: Capitalized borrowing cost
Interest expense
1,000,000
553,334
446,667
Question No. 3
Expenditures capitalized – previous period
Add: Expenditures during the current year
Add: Capitalized borrowing cost
Total cost of the factory building
600,000
3,540,000
553,334
4,693,334
PROBLEM 18-17 Specific and General Borrowings
Questions No. 1 & 2
January 1, 2015
September 1, 2015
December 31, 2015
Average accumulated expenditure
Multiply by: Rate
Capitalizable borrowing cost
200,000
300,000
300,000
x 12/12
x 4/12
x 0/12
1. (A)
2. (D)
200,000
100,000
0
300,000
12%
P36,000
Since the average accumulated expenditure did not exceed the principal of the
specific borrowing, the specific rate was used in determining the capitalizable
borrowing cost.
163
Chapter 18: Property, Plant and Equipment
Question No. 3 & 4
Accumulated
expenditures
–
836,000
12/31/2015 (P800,000 + 36,000)
March 31, 2016
300,000
September 30, 2016
200,000
Average accumulated expenditure
Less: Specific borrowing
Excess attributable to general borrowing
Multiply by: Rate
Multiply by: Months outstanding
Capitalizable borrowing cost – general borrowings
Add: Specific borrowings (750,000 x 12% x 9/12)
Total capitalizable borrowing cost
x 9/9
836,000
x 6/9
x 0/12
3. (D)
200,000
0
1,036,000
750,000
286,000
9%
9/12
19,305
67,500
86,805
4. (B)
PROBLEM 18-18 Specific Borrowing Used For General Purposes
Total expenditures
Divide by
Total
Less: Investment income (50,000 x 3/12)
Weighted average expenditures
Multiply by: Rate
Capitalizable borrowing cost
(A)
6,000,000
2
3,000,000
12,500
2,987,500
10%
298,750
PROBLEM 18-19 Different Depreciation Methods
Cost
Less: Residual value
Depreciable amount
P3,300,000
300,000
P3,000,000
Requirement No. 1 Straight Line
2016 (P3,000,000 / 5 x 12/12)
600,000
2017 (P3,000,000 / 5 x 12/12)
600,000
Requirement No. 2 Service Hours
Depreciation rate per hour (P3,000,000 / 60,000 hours) = P50/hour
2016 (P50/hour x 3,000 hours)
150,000
2017 (P50/hour x 3,500 hours)
175,000
Requirement No. 3 Units of Output Method
Depreciation rate per unit (P3,000,000 / 50,000 units) = P60/unit
164
Chapter 18: Property, Plant and Equipment
2016 (P60/unit x 5,000 units)
300,000
2017 (P60/unit x 4,500 units)
270,000
Requirement No. 4 Sum-of the Years’ Digits
Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016 (P3,000,000 x 5/15)
1,000,000
2017 (P3,000,000 x 4/15)
800,000
Requirement No. 5 Sum-of the Years’ Digits
Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016 (P3,000,000 x 5/15 x 3/12)
250,000
2017 (P3,000,000 x 5/15 x 9/12) + (P3,000,000 x 4/15 x 9/12)
950,000
Requirement No. 6 Double-declining balance
Double declining rate (2/5) = 40%
2016 (P3,300,000 x 40%)
1,820,000
2017 [(P3,300,000 – 1,820,000) x 40%]
792,000
Requirement No. 7 Double-declining balance
Double declining rate (2/5) = 40%
2016 (P3,300,000 x 40% x 3/12)
990,000
2017 [(P3,300,000 – 990,000) x 40% x 12/12)]
924,000
Requirement No. 8 150% declining balance
150% declining rate (1.5/5) = 30%
2016 (P3,300,000 x 30%)
990,000
2017 [(P3,300,000 – 990,000) x 30% x 12/12)]
693,000
PROBLEM 18-20 Straight-Line
Cost – 01/01/2013
Less: Accumulated depreciation – 12/31/2014
[(P102,750 – P6,750) / 6 x 2)
Carrying value – 01/01/2015
Less: Revised residual value
Depreciable amount
165
102,750
32,000
70,750
4,500
66,250
Chapter 18: Property, Plant and Equipment
Divide by: Remaining useful life (7-2)
Depreciation expense
(B)
5
13,250
(A)
P308,000
10,000
298,000
10
29,800
PROBLEM 18-21 Straight-Line
Cost (P300,000 + P8,000)
Less: Residual value
Depreciable amount
Divide by: Useful life
Depreciation expense
PROBLEM 18-22 Composite Method
Machine A
Machine B
Machine C
Total
Cost
275,000
100,000
20,000
395,000
Salvage
Value
25,000
10,000
35,000
Depreciable
Amount
250,000
90,000
20,000
360,000
Estd.
Life
20
15
5
Annual
Depreciation
12,500
6,000
4,000
22,500
Composite Life = (Depreciable amount / Total annual depreciation)
= P360,000 / P22,500
= 16 years
(B)
PROBLEM 18-23
The balancing figure is accumulated depreciation under the group method of
depreciation.
(D)
PROBLEM 18-24 Units of Output Method
Depreciation rate per unit [(P600,000 – P60,000) / 200,000 units) = P2.7/unit
2016 (P2.7/unit x 30,000 units)
(C)
81,000
PROBLEM 18-25 Working Hours Method
Depreciation rate per hour [(P600,000 – P60,000) / 100,000 hours) =
P5.4/hour
2016 (P5.4/hour x 15,000 hours)
(C)
166
81,000
Chapter 18: Property, Plant and Equipment
PROBLEM 18-26 Double Declining Balance
Depreciation rate (2/4) = 50%
Cost
Less: Accumulated depreciation
2015 (P18,000 x 50%)
2016 (P18,000 – 9,000 – P4,700) *
Book value – 12/31/2016
18,000
9,000
4,300
4,700
(B)
*Maximum depreciation. The carrying amount should not be reduced below its
residual value.
PROBLEM 18-27 Double Declining Balance
Double declining rate (2/10) = 20%
2015 [(P480,000 x 20% x 12/12]
96,000
2016 [(P480,000 – P90,000) x 20% x 12/12]
(B)
76,800
(D)
300,000
210,000
510,000
(C)
36,000
PROBLEM 18-28 150% Declining Balance
150% declining rate (1.5/5) = 30%
2015 (P1,000,000 x 30%)
2016 [(P1,000,000 – 300,000) x 30%]
Accumulated depreciation – 12/31/2016
PROBLEM 18-29 Sum of the Years’ Digits
Sum-of-years-digits [5 x ((5+1)/2)] = 15
2016 [(P50,000 + 100,000) x 4/15 x 12/12)
PROBLEM 18-30 Component Depreciation
Component
A
B
C
D
E
Total
Cost
550,000
420,000
360,000
190,000
235,000
1,755,000
Residual
value
50,000
20,000
10,000
30,000
40,000
150,000
167
Depreciable
cost
500,000
400,000
350,000
160,000
195,000
1,605,000
Useful
Life
10
9
8
7
6
(B)
Dep’n
expense
50,000
44,444
43,750
22,857
32,500
193,551
Chapter 18: Property, Plant and Equipment
PROBLEM 18-31 Change in Estimate
Cost
Less: Depreciation – first year (8,000 / 4)
Carrying value – end of first year
Divided by: Revised remaining useful life (5 – 1)
Depreciation – 2nd year
(C)
8,000
2,000
6,000
4
1,500
(B)
5,000
600
4,400
PROBLEM 18-32 Retirement Method
Original cost
Less: Salvage proceeds
Depreciation
PROBLEM 18-33 Change in Estimate
Cost
Less: Accumulated depreciation – 12/31/2016
[(P3,300,000 – P300,000) / 8 x 4]
Carrying value – 12/31/2016
3,300,000
1,500,000
1,800,000
CASE NO. 1
Requirement No. 1
Carrying value – 12/31/2015
Less: Residual value
Depreciable amount
Divided by: Revised remaining useful life
Depreciation – 2016
1,800,000
300,000
1,500,000
2
750,000
Requirement No. 2
Carrying value – 12/31/2015
Less: Depreciation – 2016
Carrying value – 12/31/2016
1,800,000
750,000
1,050,000
CASE NO. 2
Requirement No. 1
Carrying value – 12/31/2015
Less: Residual value
Depreciable amount
Divided by: Remaining useful life ( 8 – 4)
Depreciation – 2016
1,800,000
150,000
1,650,000
4
412,500
Requirement No. 2
Carrying value – 12/31/2015
Less: Depreciation – 2016
1,800,000
412,500
168
Chapter 18: Property, Plant and Equipment
Carrying value – 12/31/2016
1,387,500
CASE NO. 3
Requirement No. 1
Carrying value – 12/31/2015
Less: Residual value
Depreciable amount
Multiply by: Fraction (SYD = 10)
Depreciation – 2016
1,800,000
300,000
1,500,000
4/10
600,000
Requirement No. 2
Carrying value – 12/31/2015
Less: Depreciation – 2016
Carrying value – 12/31/2016
1,800,000
600,000
1,200,000
PROBLEM 18-34 Replacement Method
Replacement cost
Less: Salvage proceeds
Depreciation
(C)
6,000
600
5,400
PROBLEM 18-35 Fixed Asset Turnover
Let X = Net Fixed Asset at the end of 2016
Fixed asset turnover =
4=
4=
P1,480,000 =
X=
Sales
Average Fixed Asset
P1,480,000
.5 (P320,000 + X)
P1,480,000
P160,000 + .5x
P640,000 + 2x
P420,000
(C)
PROBLEM 18-36 Derecognition of PPE
Insurance Proceeds
Less: Carrying value [P160,000 – (P20,000 x 6/12)]
Gain on disposal
(D)
169
200,000
150,000
50,000
Chapter 18: Property, Plant and Equipment
COMPREHENSIVE PROBLEMS
PROBLEM 18-37
Question No. 1
Beg. Balance of the Land
Cash paid
Mortgage assumed
Realtor's commission
Legal fees, realty taxes and documentation expenses
Amount paid to relocate persons squatting on the property
Total Cost of the Land
(B)
P 700,000
2,500,000
4,000,000
300,000
50,000
100,000
P7,650,000
Question No. 2
Beginning balance of the Land Improvement
Cost of fencing property
Total cost of Land Improvement
(A)
P 10,000
110,000
P 120,000
(A)
P 900,000
(150,000)
120,000
2,000,000
20,000
50,000
50,000
P2,990,000
(B)
P 980,000
2,000,000
60,000
140,000
400,000
P3,580,000
(A)
P 120,000
2,990,000
3,580,000
P6,690,000
Question No. 3
Beg. Balance of the Building
Amount recovered from salvage of building
Cost of tearing down an old building
Amount paid to contractor
Building permit
Excavation expenses
Architects' fees
Total cost of building
Question No. 4
Beg. Balance of the Machinery
Invoice cost of machinery
Freight, unloading
Customs duties
Allowances during installations
Total cost of machinery
Question No. 5
Total cost of Land Improvement
Total cost of building
Total cost of machinery
Total depreciable property
Royalty payment on machines purchased in the amount of P120,000 should be
included as part of manufacturing overhead in the company’s income statement,
if the same is based on units produced. However, if royalty payment is based on
units produced and sold, it should be treated as a selling expense.
SUMMARY OF ANSWERS:
1. B
2. A
3. A
4.
B
170
5.
A
Chapter 18: Property, Plant and Equipment
PROBLEM 18-38 Specific and General Borrowings
Question No. 1 and 2
WEIGHTED AVERAGE IN 2014
Months
Expenditures outstanding
3,000,000
12
7,000,000
6
6,000,000
2
16,000,000
Date
01/01/2015
07/01/2015
11/01/2015
Total
Divide by
Weighted average carrying amount
Specific borrowings (2,000,000 x 10%)
General borrowings:
Rate
14%
12%
Total
Principal
2,000,000
18,000,000
20,000,000
Average
36,000,000
42,000,000
12,000,000
90,000,000
12
7,500,000
200,000
Interest
280,000
2,160,000
2,440,000
Capitalization Rate (P2,440,000 / P20,000,000) = 12.20%
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost
Less: Investment income
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
Weighted average borrowing cost:
vs. Actual borrowing cost
Capitalizable borrowing cost (lower)
200,000
13,000
7,500,000
2,000,000
5,500,000
12.20%
1
(A)
WEIGHTED AVERAGE IN 2015
Months
Expenditures outstanding
*16,858,000
8
1,000,000
2
2,000,000
1
19,858,000
Date
01/01/2016
07/01/2016
08/01/2016
Total
Divide by
Weighted average carrying amount
187,000
671,000
858,000
2,640,000
858,000
Average
134,864,000
2,000,000
2,000,000
138,864,000
8
17,358,000
*Total expenditures in 2015 plus capitalized borrowing cost in 2015.
171
Chapter 18: Property, Plant and Equipment
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (P2,000,000 x 10% x 8/12)
Less: Investment income
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
Weighted average borrowing cost:
vs. Actual borrowing cost (2,640,000 x 8/12)
Capitalizable borrowing cost (lower)
Question No. 3
Actual borrowing cost - 2015
Less: Capitalizable borrowing cost - 2015
Interest expense
Question No. 4
Actual borrowing cost - 2016
Less: Capitalizable borrowing cost - 2016
Interest expense
Question No. 5
Total cost, 2015
Expenditures in 2016
Add: Capitalizable borrowing cost - 2016
Total cost of the building
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
C
5.
133,333
17,358,000
2,000,000
15,358,000
12.20%
8/12
(B)
133,333
1,249,117
1,382,451
1,760,000
1,382,451
(C)
2,640,000
858,000
1,782,000
(C)
2,640,000
1,382,451
1,257,550
(B)
16,858,000
3,000,000
1,382,451
21,240,451
B
PROBLEM 18-39
Question No. 1
The computation of the income from government grant is as follows:
Total cash received
20,000,000
Divide by: Useful life of the building
20
Income from government grant
1,000,000
Question No. 2
Cost of building
Divide by: Useful life of the building
Depreciation
24,000,000
20
1,200,000
172
Chapter 18: Property, Plant and Equipment
Question No. 3
Cost of building
Less: Government grant
Total
Divide by: Useful life of the building
Depreciation
24,000,000
20,000,000
4,000,000
20
200,000
Question No. 4
Cost of building
Less: Depreciation – 2016
Carrying amount – 12/31/2016
24,000,000
1,200,000
22,800,000
Question No. 5
Net cost of building
Less: Depreciation – 2016
Carrying amount – 12/31/2016
4,000,000
200,000
3,800,000
PROBLEM 18-40 Grants Related to Nondepreciable Assets
Question No. 1
The computation of the income from government grant is as follows:
Total fair value of the land
10,000,000
Divide by useful life of the building
10
Income from government grant
1,000,000
Question No. 2
Cost of factory building
Divide by: Useful life of the building
Depreciation
15,000,000
10
1,500,000
Question No. 3
Cost of factory building
Less: Government grant
Total
Divide by: Useful life of the building
Depreciation
15,000,000
10,000,000
5,000,000
10
500,000
Question No. 4
Cost of factory building
Less: Depreciation – 2016
Carrying amount – 12/31/2016
15,000,000
1,500,000
13,500,000
Question No. 5
Net cost of factory building
Less: Depreciation – 2016
5,000,000
500,000
173
Chapter 18: Property, Plant and Equipment
Carrying amount – 12/31/2016
4,500,000
PROBLEM 18-41
Question No. 1
Cost of land and old building
Real estate broker's commission
Legal fees
Title insurance
Cost of land
P1,200,000
72,000
12,000
36,000
P1,320,000
(C)
Question No. 2
Date
Expenditures
January 1, 2015
1,000,000
April 1, 2015
500,000
October 1, 2015
800,000
December 31, 2015
900,000
Total
3,200,000
Divide by
Weighted average carrying amount
Months
outstanding
12
9
3
0
Average
12,000,000
4,500,000
2,400,000
18,900,000
12
1,575,000
Capitalization Rate (P840,000 / P8,000,000) = 10.50%
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (P1M x 12% x 12/12)
Less: Investment income
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
Weighted average borrowing cost:
vs. Actual borrowing cost (P120,000 + P840,000)
Capitalizable borrowing cost (lower)
Question No. 3
Date
January 1, 2016
May 1, 2016
September 1, 2016
Total
Divide by
Expenditures
*4,380,375
600,000
1,200,000
3,200,000
174
120,000
1,575,000
1,000,000
575,000
10.50%%
12/12
(A)
Months
outstanding
8
4
-
120,000
60,375
180,375
960,000
180,375
Average
35,043,000
2,400,000
37,443,000
8
Chapter 18: Property, Plant and Equipment
Weighted average carrying amount
4,680,375
*(3,200,000+180,375+1,000,000)
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (P1,000,000 x 12% x 8/12)
Less: Investment income
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
Weighted average borrowing cost:
vs. Actual borrowing cost (P960,000 x 8 / 12)
Capitalizable borrowing cost (lower)
Question No. 4
Fixed construction contract price
Plans, specifications, and blueprints
Architects' fees
Removal of old building
Interest capitalized during 2015
Interest capitalized during 2016
Cost of building
80,000
4,680,375
1,000,000
3,680,375
10.50%%
8/12
257,626
337,626
640,000
337,626
(A)
(C)
Question No. 5
Interest cost in 2016:
Specific borrowing
General borrowing
Total interest
Less: Capitalizable borrowing cost in 2016
Interest expense in 2016
80,000
P6,000,000
42,000
164,000
108,000
180,375
337,626
P6,832,001
P
(C)
120,000
840,000
P 960,000
337,626.25
P622,373.75
Question No. 6
Depreciation rate (150%/40 years) = 3.75%
Total depreciation expense (6,832,001.25 x 3.75% x 4/12) = (B)
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
C
175
5.
C
P
84,500
Chapter 18: Property, Plant and Equipment
PROBLEM 18-42
Question No. 1
Cost (800,000+45,000-5,000)
Less Residual Value
Depreciable cost
Divide by
Depreciation
(B)
840,000
40,000
800,000
5
160,000
Question No. 2
Cost (800,000+45,000-5,000)
Less Accumulated Depreciation (160,000 x 3)
Carrying amount
Less new residual value
Depreciable cost
Divide by remaining useful life (5-2)
Depreciation
(A)
840,000
320,000
520,000
70,000
450,000
3
150,000
Question No. 3
Cost
Less Accumulated depreciation (270,000/4 x 8/12)
Total
Carrying amount of old tires (12,000-(12,000/4 x 8/12)
Cost of new tires
Total
270,000
45,000
225,000
(10,000)
24,000
239,000
Depreciation
Motor vehicle:
Sept. 1-May 30, 2019 (270,000/4 x 8/12)
June 1-Sept. 30 (215,000/4 x 12 mos-8 mos x 4 mos)
Tyres from June 1- Sept 30 (24,000/24 mos x 4 mos)
Depreciation expense
(D)
45,000
21,500
4,000
70,500
Question No. 4
Depreciable
cost
Cost
Residual
Value
800,000
0
100,000
0
400,000
240,000
30,000
0
Airframe
800,000
Interior
Engines and
rotary blades
Inspection
Total
100,000
Divide
by
Useful
life
10
years
10
years
370,000
240,000
176
Depreciation
exp
80.000
10,000
74,000
5 years
3 years
80,000
244,000
Chapter 18: Property, Plant and Equipment
Question No. 5
Cost
Less Residual Value
Depreciable cost
Divide by
Multiply by
Depreciation
SUMMARY OF ANSWERS:
1. B
2. A
3. D
(B)
4.
D
5.
280,000
40,000
240,000
3
8/12
53,333
B
PROBLEM 18-43
Note to the professor: Additional information no. 2. On December 31, it was
determined that Asset R had been used 2,100 hours during 2016 not 2015.
Question No. 1
Selling Price
Less Book value
Cost
Less: Accumulated Depreciation
Up to 1/1
From Jan. 1-May 1
[(140,000 -12,400) x 5/55]*
Gain on sale of machinery D
P 52,000
P140,000
P 92,800
11,600
(A)
(104,400)
35,600
P 16,400
Note: No depreciation is recorded in the year an asset is purchased, and full
year depreciation is provided in the year an asset is disposed of
Question No. 2
Accumulated depreciation, R Jan 1
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100]
Accumulated depreciation, R Dec. 31
(B)
Question No. 3
Accumulated depreciation, I Jan 1
Add: Depreciation expense [(320,000-60,000-20,000)/10]
Accumulated depreciation, I Dec. 31
(C)
Question No. 4
Accumulated depreciation, A Jan 1
Add: Depreciation expense (320,000-64,000) x 20%
Accumulated depreciation, A Dec. 31
(A)
177
P 140,800
26,880
P 167,680
P 60,000
24,000
P 84,000
P 64,000
51,200
P 115,200
Chapter 18: Property, Plant and Equipment
Question No. 5
Depreciation expense on Machinery:
D (see computation in no. 1)
R (see computation in no. 2)
I (see computation in no. 3)
A (see computation in no. 4)
N (88,000/20%)
Total depreciation expense
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
(D)
A
5.
P 11,600
26,880
24,000
51,200
17,600
P 131,280
D
PROBLEM 18-44 Component Depreciation
Question No. 1
Purchase of bottling plant
Delivery and installation (750,000 x 1/3)
Testing (33,000/3)
Total cost of engine
(C)
P1,500,000
250,000
11,000
P1,761,000
Question No. 2
Purchase of bottling plant
Delivery and installation (750,000 x 1/3)
Testing (33,000/3)
Total cost of conveyor belt and fittings
(C)
P2,000,000
250,000
11,000
P2,261,000
Question No. 3
Purchase of bottling plant
Delivery and installation (750,000 x 1/3)
Testing (33,000/3)
Total cost of outer structure
(C)
P 800,000
250,000
11,000
P1,061,000
Question No. 4
Depreciation of component of plant:
Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years x
11/12
Conveyor belt etc = (2,000,000 + 250,000 + 11,000 – 0) / 8
years x 11/12
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years x 11/12
Total depreciation of plant
(A)
231,183
259,073
308,917
P 799,173
Depreciation starts from the date that the asset was available for use: February
1, 2016.
178
Chapter 18: Property, Plant and Equipment
Question No. 5
Depreciation of component of plant:
Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years
Conveyor belt etc = (2,000,000 + 250,000 + 11,000 – 0) / 8
years
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years
Total depreciation of plant
(A)
SUMMARY OF ANSWERS:
1. C
2. C
3. C
4.
A
5.
252,200
282,625
337,000
P 871,825
B
PROBLEM 18-45
Question No. 1
Fair value
Legal fees
Remodeling cost
Total cost of building
1,400,000
50,000
100,000
1,550,000
(C)
Question No. 2
Fair value of the asset received
Less: Cash paid
Fair value of the asset given
Less: Book value of the asset given
Cost
Less: Accumulated depreciation (1M/10 x 3.5)
Gain on exchange
Question No. 3
Office building No. 1 (940,000/7)
Office building No. 2 (1,000,000/10 x 6/12)
Office building No. 3 (1,200,000/4 x 6/12)
Factory building (1,550,000/10)
Total Depreciation expense
1,200,000
400,000
800,000
1,000,000
350,000
(A)
135,000
50,000
150,000
155,000
490,000
(C)
Cost of office building No. 1
Less: Accumulated Depreciation
Book value
Add: Major improvements
Total
650000
150,000
1,000,000
300,000
700,000
245,000
945,000
Question No. 4
Income from government grant (1,400,000/10)
179
(A)
140,000
Chapter 18: Property, Plant and Equipment
Question No. 5
Total depreciable cost
Less: Subsequent depreciation
Book value
SUMMARY OF ANSWERS:
1. C
2. A
3. C
945,000
135,000
810,000
(A)
4.
A
5.
A
PROBLEM 18-46
Question No. 1
Date
Expenditures
January 1, 2015
2,000,000
July 1, 2015
4,000,000
November 1, 2015
3,000,000
Total
9,000,000
Divide by
Weighted average carrying amount
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12)
Less: Investment income
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
Weighted average borrowing cost:
vs. Actual borrowing cost
Capitalizable borrowing cost (lower)
Months
outstanding
12
6
2
200,000
4,500,000
2,000,000
2,500,000
12%
12/12
(D)
Question No. 2
Total expenditures – 2015
Total expenditures - 2016
Capitalized borrowing cost - 2015
Capitalized borrowing cost – 2016 (see computation below)
Total cost of building
(C)
180
Average
24,000,000
24,000,000
6,000,000
54,000,000
8
4,500,000
200,000
300,000
500,000
2,000,000
500,000
9,000,000
1,000,000
500,000
1,160,000
11,660,000
Chapter 18: Property, Plant and Equipment
Date
Expenditures
January 1, 2016
*9,500,000
July 1, 2016
1,000,000
Total
10,500,000
Divide by
Weighted average carrying amount
Months
outstanding
12
6
Average
114,000,000
6,000,000
120,000,000
12
10,000,000
Total of expenditure in 2015 of P9M and capitalized borrowing cost of
P500,000.
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12)
Less: Investment income
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
Weighted average borrowing cost:
vs. Actual borrowing cost
Capitalizable borrowing cost (lower)
Question No. 3
Total expenditures – 2015
Total expenditures - 2016
Total cost of building
200,000
10,000,000
2,000,000
8,000,000
12%
12/12
(A)
200,000
960,000
1,160,000
2,000,000
1,160,000
9,000,000
1,000,000
10,000,000
Borrowing cost under PFRS for SME is expensed outright.
Question No. 4
Cost of Machinery and Equipment
Multiply by: Fraction
Depreciation
(A)
3,000,000
3/15
600,000
Question No. 5
Depreciation – remaining delivery truck (see below)
Depreciation – overhauled delivery truck (see below)
Depreciation – new delivery truck (see below)
Total depreciation on delivery truck
(B)
114,000
30,000
24,000
168,000
SYD is 15 years and useful life is 5 years.
181
Chapter 18: Property, Plant and Equipment
Delivery truck:
Cost
Less: Accumulated depreciation
Carrying value – 12/31/2015
Less: Carrying value of overhauled truck
Balance
Divide by: Remaining useful life (8-3)
Depreciation on remaining delivery truck
1,152,000
432,000
720,000
150,000
570,000
5
114,000
Overhauled delivery truck:
Cost
Less: Accumulated depreciation (P240,000 / 8 x 3)
Carrying value – 12/31/2015
Add: Overhauling cost
Adjusted carrying value – 01/01/2016
Divide by: Revised remaining useful life (5 + 2)
Depreciation on overhauled delivery truck
P240,000
90,000
150,000
60,000
210,000
7
30,000
New Delivery truck:
Invoice cost
Freight
Installation and testing
Total cost of new delivery truck
Divide by: Useful life
Annual depreciation
Multiply by: Number of months used (July 26 to December 31)
Depreciation on remaining delivery truck
400,000
20,800
40,000
460,800
8
57,600
5/12
24,000
Question No. 6
Beginning balance
Add: Overhauling cost
Add: Cost of new delivery truck
Adjusted cost of delivery truck
Less: Accumulated depreciation (432,000 + 168,000)
Carrying value – 12/31/2016
(C)
SUMMARY OF ANSWERS:
1. D
2. C
3. A
4.
A
182
5.
B
1,152,000
60,000
460,800
1,672,800
600,000
1,072,800
6.
C
Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS
PROBLEM 19-1 Depletion with Change in Estimate
Question No. 1
Acquisition cost
Less: Estimated residual value
Depletable cost of the natural resource
Divide by: Tons estimated to be extracted
Depletion per ton
Multiply by: Tons extracted - 2015
Depletion – 2015
Question No. 2
Acquisition cost
Less: Accumulated depletion – 12/31/2015
Carrying value – 01/01/2016
Divide by: Tons estimated to be extracted
Depletion per unit
Multiply by: Tons extracted – 2016
Depletion – 2016
(B)
P164,000
P164,000
20,000
P8.20
4,000
P32,800
(C)
P164,000
32,800
131,200
20,000
P6.56
8,000
P52,480
PROBLEM 19-2 Depletion with Change in Estimate
Acquisition cost
Exploration cost.
Intangible development cost
Total cost of the natural resources
less estimated residual value
Total depletable cost of the natural resources
divide by units est. to be extracted
Depletion per unit
x units extracted
Depletion from 2015 to 2017
Question No. 1
Cost of natural resource
Accumulated depletion
Carrying amount, 12/31/2017
Residual value
Depletable cost
Divide by revised remaining units
Depletion rate per unit
Multiply by: Units extracted
Depletion
(D)
183
20,000,000
15,000,000
4,000,000
39,000,000
1,000,000
38,000,000
2,000,000
19.00
500,000
9,500,000
39,000,000
9,500,000
29,500,000
600,000
28,900,000
400,000
72.25
200,000
14,450,000
Chapter 19: Wasting Assets
Question No. 2
Cost of natural resource
Accumulated depletion
Carrying amount, 12/31/2018
(D)
39,000,000
23,950,000
15,050,000
PROBLEM 19-3 Depreciation of Movable and Immovable Equipment –
Useful Life of the Immovable Equipment is Shorter
Question No. 1
Acquisition cost
Exploration cost.
Intangible development cost
Total cost of the natural resources
less estimated residual value
Total depletable cost of the natural resources
divide by units est. to be extracted
Depletion per unit
Multiply by: Units extracted
Depletion
(D)
Question No. 2
Cost of the movable equipment
Divide by: Useful life
Depreciation
Question No. 3
Cost of the movable equipment
Divide by: Useful life (shorter)
Depreciation
8,000,000
12,000,000
5,000,000
25,000,000
25,000,000
2,000,000
12.50
500,000
6,250,000
(A)
4,000,000
10
400,000
(B)
2,000,000
4
500,000
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life
of the Wasting Asset is Shorter
Question No. 1
Acquisition cost
Exploration cost.
Intangible development cost
Total cost of the natural resources
less estimated residual value
Total depletable cost of the natural resources
divide by units est. to be extracted
Depletion per unit
x units extracted
Depletion
(D)
184
8,000,000
12,000,000
5,000,000
25,000,000
25,000,000
2,000,000
12.50
500,000
6,250,000
Chapter 19: Wasting Assets
Question No. 2
cost of the movable equipment
divide by units est. to be extracted
Depreciation
(A)
Question No. 3
Cost of the movable equipment
Divide by: Units estimated to be extracted (shorter)*
Depreciation rate per unit
Multiply by: Actual units extracted
Depreciation - 2016
(B)
4,000,000
20
200,000
P2,000,000
2,000,000
P1
500,000
500,000
*Estimated useful life using output method (2,000,000 / 500,000) = 4 years
PROBLEM 19-5 Depreciation –No Production
Cost of immovable equipment
Divide by: Units est. to be extracted
Depreciation per unit
x units extracted
Accum. Depreciation
4,000,000
2,000,000
2.00
500,000
1,000,000
Question No. 1
Cost of immovable equipment
Less: Accumulated depreciation
Book value, Dec. 31, 2017
Divide by: Units est. to be extracted
Depreciation in 2018
(B)
4,000,000
1,000,000
3,000,000
12
250,000
Question No. 2
Cost of immovable equipment
Less: Accumulated depreciation
Book value, Dec. 31, 2018
Divide by: Remaining units to be extracted
Depreciation per unit
Multiply by: Units extracted
Depletion
(A)
4,000,000
1,250,000
2,750,000
1,500,000
1.83
100,000
183,333
PROBLEM 19-6 Liquidating Dividends
Accumulated profits -unappropriated
9,000,000
Accumulated depletion
4,000,000
Total
13,000,000
less: Capital liquidated
850,000
185
Chapter 19: Wasting Assets
Depletion in the ending inventory
(150,000 units X4 )
600,000
1,450,000
Maximum Dividend
(C ) 11,550,000
PROBLEM 19-7
Question No. 1
Acquisition cost
Divide by: Tons estimated to be extracted
Depletion per ton
Multiply by: Actual tons extracted – 2016
Depletion - 2016
(D)
P9,075,000
1,100,000
P8.25
100,000
825,000
(B)
1,925,000
1,100,000
1.75
100,000
175,000
(A)
4,400,000
8
550,000
(C)
P9,075,000
825,000
P8,250,000
750,000
P9,000,000
1,000,000
P
9
150,000
P1,350,000
Question No. 5
Installation ((P1,925,000/1.1M) x 150,000 tons)
Mining equipment (P4,400,000/8)
Total depreciation expense
(C)
P 262,500
550,000
P 812,500
Question No. 2
Cost of Installation
Divide by: Tons estimated to be extracted
Depreciation per ton
Multiply by: Actual tons extracted – 2016
Depreciation - 2016
Question No. 3
Cost of mining equipment
Divide by: Useful life
Depreciation – 2016
Question No. 4
Acquisition cost
Less: Accumulated Depletion
Carrying value – 12/31/2016
Add: Additional development cost - 2017
Remaining depletable cost
Divide by: Estimated tons to be extracted
Depletion per ton
Multiply by: Tons extracted – 2017
Depletion - 2017
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4.
C
186
5.
C
Chapter 19: Wasting Assets
PROBLEM 19-8 Cost Of Wasting Asset with Estimated Restoration Cost,
Depletion, Depreciation of Movable and Immovable Equipment
Question No. 1
Acquisition cost of the wasting assets
Exploration and intangible devt. Cost
Estimated decommissioning and restoration costs-at PV
Initial cost
(C )
200,000,000
10,000,000
1,542,173
211,542,173
Estimated restoration cost
Multiply by: Present value of 1 for four periods
Present value of the restoration cost
P 4,000,000
0.385543289
P 1,542,173
Question No. 2
Total cost of the wasting assets
divide by
Depletion per unit
x units extracted
Depletion expense
(C )
211,542,173
10,000,000
21.15
2,000,000
42,308,435
(A)
8,000,000
16
500,000
(E )
9,000,000
8
1,125,000
Question No. 3
Cost of the movable equipment
Divide by: Useful life
Depreciation
Question No. 4
Cost of the movable equipment
Divide by: Useful life (shorter)
Depreciation
*Estimated useful life using output method (10,000,000 / 1,000,000) = 10 years
Question No. 5
Date
Interest expense
01/01/2016
12/31/2016
154,217 (B)
Present value
1,542,173
1,696,390
SUMMARY OF ANSWERS:
1. C
2. C
3. A
E
4.
187
5.
B
Chapter 19: Wasting Assets
PROBLEM 19-8 Cost Of Wasting Asset with Estimated Restoration Cost,
Depletion, Depreciation of Movable and Immovable Equipment
Question No. 1
Acquisition cost of the wasting assets
Exploration and intangible devt. Cost
Estimated decommissioning and restoration costs-at PV
Initial cost
(C )
200,000,000
40,000,000
1,542,173
241,542,173
Estimated restoration cost
Multiply by: Present value of 1 for four periods
Present value of the restoration cost
P 4,000,000
0.385543289
P 1,542,173
Question No. 2
Total cost of the wasting assets
Divide by: Total units estimated to be extracted
Depletion per unit
Multiply by: Units extracted
Depletion expense
(B)
241,542,173
15,000,000
16.10
2,000,000
32,205,623
Question No. 3
Cost of the movable equipment
Divide by: Useful life
Depreciation
8,000,000
6
1,333,333
(C )
Question No. 4
Cost of the movable equipment
Divide by: Useful life
Depreciation – 2016
9,000,000
5
1,800,000
(D)
Question No. 5
Date
Interest expense
01/01/2016
12/31/2016
154,217 (B)
Present value
1,542,173
1,696,390
SUMMARY OF ANSWERS:
1. C
2. B
3. C
D
4.
188
5.
B
Chapter 20: Investment Property
CHAPTER 20: INVESTMENT PROPERTY
PROBLEM 20-1: Classification Issue
Item
1)
2)
3)
4)
5)
6)
Owneroccupied
property
Investment
Property
₱ 800,000
Inventory
Others
Remarks
₱1,260,000
1,000,000
Covered by PAS 11
Covered by PAS 11
1,110,000
Derecognized since
it is leased out
under a finance
lease
₱450,000
₱240,000
7)
8)
9)
430,000
960,000
10)
530,000
1,290,000
2,100,000
11)
420,000
12)
13)
14)
2,160,000
1. (A)
1,100,000
1,300,000
1,150,000
7,740,000
IP in the separate
FS
Cannot qualify as
IP since it is not
land or building
Not reported since
it is leased under
operating lease
450,000
2. (C)
3. (C)
PROBLEM 20-2: Property held for mixed use
Question No. 1
(B)
Question No. 2
(D)
PROBLEM 20-3: Ancillary services
Question No. 1
(C)
Question No. 2
(D)
PROBLEM 20-4: Intracompany rentals
Question No. 1
(B)
Question No. 2
189
(D)
Chapter 20: Investment Property
PROBLEM 20-5: Initial measurement - Investment property leased under
finance lease
Lower of fair value or present value of minimum lease payments.
Suggested answer: (B)
PROBLEM 20-6: Subsequent measurement: Cost model vs Fair value model
SUMMARY OF ANSWERS:
1. D
2. B
3. D
4.
B
5.
D
6.
A
PROBLEM 20-7: Transfer under Cost model – PPE to IP
Question No. 1
(D)
Question No. 2
(C)
PROBLEM 20-8: Transfer from PPE to Investment Property – Fair value vs
Cost model
Question No. 1
(D)
No gain or loss is recognized if the transfer is made at cost model.
Question No. 2
(D)
No gain or loss is recognized if the transfer is made at cost model.
Question No. 3 and 4
Fair value date of transfer
Less: Carrying value – 12/31/2016 (₱100 / 25 x 20)
Revaluation surplus – OCI
Less: Transfer of revaluation surplus to R/E as a result of
reclassification
Gain (loss) on transfer
(D)
SUMMARY OF ANSWERS:
1. D
2. D
3. D
4.
₱86,000,000
80,000,000
6,000,000
₱
6,000,000
0
D
PROBLEM 20-9: Transfer from inventory to investment property – Fair
value vs Cost model
Question No. 1
(B)
Cost
Net realizable value (₱2,800,000 - ₱100,000)
₱2,600,000
2,700,000
Lower of cost and net realizable value
₱2,600,000
190
Chapter 20: Investment Property
Question No. 2
(B)
The initial carrying amount under the new classification is the previous carrying
amount of ₱2,600,000.
Question No. 3
(D)
No gain or loss is recognized if the transfer is made at cost model.
Question No. 4
(A)
₱2,880,000. Fair value at the date of transfer. Don’t deduct cost to sell.
Question No. 5
(A)
Fair value at the date of transfer
Less: Carrying value
Gain on transfer
₱2,880,000
2,600,000
₱ 280,000
PROBLEM 20-10: Derecognition of investment property – Fair value vs
Cost Model
Question No. 1
Gross selling price
Less: Disposal cost
Net selling price
Less: Carrying value – 12/31/2015 (₱3,000,000 / 20 x 18)
Gain on sale
(D)
₱2,990,000
120,000
2,870,000
2,700,000
₱ 170,000
Question No. 2
Gross selling price
Less: Disposal cost
Net selling price
Less: Carrying value – 12/31/2015 (fair value)
Gain on sale
(C)
₱2,990,000
120,000
2,870,000
2,450,000
₱ 420,000
PROBLEM 20-11
Question No. 1
Cost
Less: Residual value
Depreciable cost
Divided by: Useful life
Annual depreciation
Multiply by: Months outstanding
Depreciation – 2010
(D)
₱14,000,000
1,000,000
13,000,000
10 years
1,300,000
8/12
₱ 866,667
191
Chapter 20: Investment Property
Question No. 2
Depreciation [(₱14M – ₱1M) / 10 years]
Impairment loss
Total amount to SCI
(A)
₱1,300,000
480,000
₱1,780,000
Question No. 3
Cost
Accumulated depreciation
Carrying value, before impairment
Impairment loss
Carrying value, after impairment - 12/31/2012
Less: Residual value
Depreciable amount
Divide by: Remaining useful life (120 – 32)
Multiply by: Number of months
Depreciation – 2013 (to SCI)
(B)
₱14,000,000
3,466,667
10,533,333
480,000
10,053,333
1,000,000
9,053,333
88 months
12
1,234,545
Question No. 4
Cost
Accumulated depreciation
Carrying value, before impairment
Impairment loss
Carrying value, after impairment - 12/31/2012
Depreciation - 2013[(₱10,053,333- ₱1,000,000)/88*12]
Depreciation – 2014 [(₱10,053,333- ₱1,000,000)/88*10]
Carrying value, 10/31/2014
₱14,000,000
3,466,667
10,533,333
480,000
10,053,333
1,234,545
1,028,788
₱7,790,000
Depreciation – 2014 [(₱10,053,333- ₱1,000,000)/88*10]
Gain on transfer (₱10,050,000 - ₱7,790,000)
Unrealized gain - change in fair value(₱11,000,000 ₱10,050,000)
Total amount to SCI
(A)
Question No. 5
Fair value - 12/31/2015
Fair value - 12/31/2014
Gain on change in fair value
1,028,788
2,260,000
950,000
₱4,238,788
₱11,450,000
11,000,000
₱ 450,000
(B)
Question No. 6
Reclassification loss:
Fair value - 05/01/2016
₱ 9,500,000
Carrying value, 05/01/2016
11,450,000
Depreciation - 2016 [(₱11,450,000- ₱1,000,000)/54*12]
Total
(A)
192
₱1,950,000
2,322,222
₱4,272,222
Chapter 20: Investment Property
PROBLEM 20-12 Various investments
No. of
shares
10,000
15,000
25,000
Date
1/1
3/1 stock split
Total (10,000 x 5/2)
11/1 Special assessment
25,000)
Total
(₱1.60
Cost per
share
₱21
₱8.4
Total
Cost
₱ 210,000
₱ 210,000
₱10
40,000
₱ 250,000
x
25,000
Question No. 1
Fair value (₱15 x 25,000)
Less: Carrying value
Unrealized gain-OCI
(D)
Question No. 2
Broker’s expense over, net income under
Operating expense over, NI under (₱1.60 x 25,000 shares)
Net income understated
(B)
Question No. 3
Net income of associate
Multiply by: Percentage of ownership
Share in the net income before adjustment
Less: Unrealized gain on downstream sale of PPE
[(₱800,000 - ₱400,000) x 4/5]
Less: Unrealized profit on upstream sale of inventory
(₱100,000 x 30%)
Share in the net income after adjustment (C)
₱375,000
250,000
₱125,000
(₱10,000)
(40,000)
(₱50,000)
₱3,000,000
30%
900,000
320,000
30,000
₱ 550,000
Question No. 4
Cost of Investment – 01/01/2016
Add: Net investment income - 2016 (see No. 3)
Less: Dividends received -2016 (30% x ₱800,000)
Add: Share in the translation gain (30% x ₱1,000,000)
Carrying value – 12/31/2016
(B)
₱4,000,000
550,000
240,000
300,000
₱4,610,000
Question No. 5
Cost of Investment – 01/01/2016
Add: Net investment income - 2016 (see No. 3)
Less: Dividends received -2016 (30% x ₱800,000)
Add: Share in the translation gain (30% x ₱1,000,000)
Less: Amortization of goodwill (₱200,000/10)
Carrying value – 12/31/2016
(C)
₱4,000,000
550,000
240,000
300,000
20,000
₱4,590,000
193
Chapter 20: Investment Property
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity cannot determine reliably the useful life, it is
assumed to be 10 years.
Question No. 6
Fair value of building A
Less: Carrying value
Unrealized gain - P&L
SUMMARY OF ANSWERS:
1. D
2. B
3. C
₱1,500,000
1,000,000
₱ 500,000
(B)
4.
B
194
5.
C
6.
B
Chapter 22: Intangible Assets
CHAPTER 22: INTANGIBLE ASSETS
PROBLEM 22-1 Research and Development Cost
R&D
Cost of activities aimed at obtaining new
knowledge
Marketing research to study consumer tastes
Cost of developing and producing a prototype
model
Cost of testing the prototype model for safety and
environmental friendliness
Cost revising designs for flaws in the prototype
model
Salaries of employees, consultants, and technicians
involved in R&D
Amount paid for conference for the introduction of
the newly developed product including fee of a
model hired as endorser
Advertising to establish recognition of the newly
developed product
Cost incurred on search for alternatives for
materials, devices, products, processes, systems or
services
Cost of final selection of possible alternatives for a
new process
Periodic or routine design changes to existing
products
Modification of design for a specific customer
Cost of design, construction and operation of a pilot
plant that is not of a scale economically feasible for
commercial production
Cost of routine, seasonal, and periodic design of
tools, jigs, molds and dies
Cost of quality control during commercial
production
Cost of purchased building to be used in various
R&D projects
Depreciation on the building described above
Personnel costs of persons involved in research
and development projects
Design, construction, and testing of preproduction
prototypes and models
Adjusted balances
195
Others
₱700,000
-
₱16,000
23,000
-
80,000
-
15,000
-
120,000
-
-
102,000
-
43,000
30,000
-
96,000
-
-
2,500
10,000
5,000
-
-
18,000
-
32,000
100,000
1,000,000
-
41,200
-
96,000
₱1,306,200
(A)
₱1,223,500
Chapter 22: Intangible Assets
PROBLEM 22-2 Research and Development
2014
2015
Cost (cumulative)
₱ 40,000*
₱140,000
Recoverable amount
90,000
110,000
Impairment loss
₱ 30,000
2016
₱240,000
250,000
-
*₱120,000 x 4/12
Under PAS 36, intangible assets that are not yet brought to use should be tested
for impairment annually. Therefore, the carrying value of the intangible asset
after impairment is as follows:
2014
2015
2016
Cost (cumulative)
₱ 40,000
₱110,000
₱240,000 (C)
PROBLEM 22-3 Research and Development
Question No. 1
Subsequent expenditure on research
Development expenditures not qualifying for recognition
(₱480,000 x 5/12)
Research and development expense
(A)
Question No. 2
Acquisition cost of research and development
Development expenditures qualifying for recognition
(₱480,000 x 7/12)
Intangible Asset under Development
(E)
₱200,000
200,000
₱400,000
₱400,000
280,000
₱680,000
In-process research and development acquired is recorded as intangible asset at
cost. Subsequent expenditure on an in-process research and development
project recognized as usually done: research is expensed and development costs
capitalized only if all criteria for capitalization of development costs are met.
PROBLEM 22-4 Issuance of Treasury Shares
Issuance of treasury shares in exchange for non-cash asset is simply recorded
just like an issuance from unissued shares. Hence, the transaction should be
accounted in the following order of priority:
1. Fair value of asset received
2. Fair value of shares (i.e., treasury shares) issued
3. Cost of treasury shares
Cost (₱110 x 2,000) = ₱220,000
(D)
196
Chapter 22: Intangible Assets
PROBLEM 22-5 Change in Estimate
Cost of the Patent
Less: Amortization, 12/31/2015 (₱300,000/15 x 2)
Carrying value, 1/1/2016
Divided by: Remaining useful life (10 – 2)
Amortization – 2015
(A)
₱ 300,000
40,000
₱ 260,000
8
₱ 32,500
PROBLEM 22-6 Trademark
Since the trademark is considered to have an indefinite useful life, it is only
subject to impairment and not amortized. Hence the amount to be reported in
its December 31, 2016 SFP is ₱500,000.
(A)
PROBLEM 22-7 Franchise
Downpayment
Present value of installment receivable (*2.91x ₱1,000,000)
Total cost of franchise
(D)
₱2,000,000
2,910,000
₱4,910,000
*The present value factor is the present value of ordinary annuity using 14% for
4 periods.
PROBLEM 22-8 Leasehold Improvement
Cost of the improvement
Less: Accumulated depreciation (₱2,250,000 / 10*)
Carrying value – 12/31/2016
(B)
₱2,250,000
225,000
₱2,025,000
*Shorter of useful life of 10 years and extended lease term (12 – 3 + 6) = 15.
PROBLEM 22-9 Goodwill
2014
2015
2016
Total
Divide by: Number of periods
Average
Net income
₱1,000,000
1,250,000
1,950,000
₱4,200,000
3
₱1,400,000
Average earnings (see table above)
Less: Normal earnings (₱4,250,000 x 20%)
Average excess earnings
Divide by: Capitalization rate
197
Net assets
₱ 3,900,000
4,350,000
4,500,000
₱12,750,000
3
₱ 4,250,000
₱1,400,000
850,000
550,000
25%
Chapter 22: Intangible Assets
Goodwill
Add: Fair value of net asset acquired
Purchase price
(A)
2,200,000
4,500,000
₱6,700,000
PROBLEM 22-10 Internally Developed Computer Software Cost
Question No. 1
Other coding costs after establishment of technological
feasibility
Other testing costs after establishment of technological
feasibility
Costs of producing product masters
Total Software Cost
(A)
₱1,000,000
750,000
1,250,000
₱3,000,000
Question No. 2
Duplication of computer software and training materials from
product master
Packaging product
Total Inventoriable Cost
(A)
₱1,500,000
250,000
₱1,750,000
Question No. 3
Total Software Cost
Multiply by: (₱10M / ₱40M)
Amortization
(A)
₱3,000,000
25%
₱ 750,000
Purchase price excluding refundable purchase tax
Add: Customization cost (₱120,000 + ₱15,000)
Testing cost (₱21,000 + ₱11,000 + ₱5,000)
Amortization
(D)
₱550,000
135,000
37,000
₱ 722,000
SUMMARY OF ANSWERS:
1. A
2. A
3. A
PROBLEM 22-11 Purchased computer software
PROBLEM 22-12 Website Cost
Question No. 1
Zero. All costs are charged to expense.
(A)
Question No. 2
Obtaining a domain name
Installing developed applications on the web server
Stress testing
198
₱ 32,000
80,000
12,000
Chapter 22: Intangible Assets
Designing the appearance (e.g. layout and color) of web pages
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information
Updating graphics and revising content
Adding new functions, features and content
Reviewing security access
Total intangible asset
(B)
160,000
60,000
32,000
12,000
36,000
₱424,000
PROBLEM 22-13 Renewable Rights
Question No. 1
As the costs associated with the renewal are insignificant, the asset must be
amortized over the 10 year useful life. The entity intends to renew the license
and the government intends to re-issue the license to Bangus Co., and therefore
it must be treated as an asset with a 10 year useful life.
Amortization (₱200,000 / 10) = ₱20,000
(D)
Question No. 2
As the costs associated with the renewal are significant, and almost equaling the
initial cost of the license, the asset must be amortized over the 5 year useful life.
Although the entity intends to renew the license, the renewed license, when it is
acquired, must be treated a separate asset and amortized over a useful life of 5
years.
Amortization (₱200,000 / 5) = ₱40,000
(C)
COMPREHENSIVE PROBLEMS
PROBLEM 22-14 Goodwill Computation
Current Assets (₱6,000,000 + ₱800,000)
Investments
PPE (₱13,000,000 + ₱1,850,000)
Current liabilities
Noncurrent liabilities
Fair value of net asset acquired
₱6,800,000
2,000,000
14,850,000
(3,500,000)
(2,500,000)
₱17,650,000
Fair value of net asset acquired
Multiply by: Normal rate of return
Normal earnings
₱17,650,000
10%
₱1,765,000
Total earnings
Loss on sale (or Gain) on sale
Bonus (₱150,000 x 4years)
Operating income
Divide by: No. of years
Average earnings
₱9,000,000
(100,000)
600,000
₱9,500,000
4
₱2,375,000
199
Chapter 22: Intangible Assets
Question No. 1
Average earnings
Less: Normal earning
Average excess earnings
Multiply by: Capitalization period
Goodwill
Add: Fair value of net asset acquired
Purchase price
(A)
(A)
Question No. 2
Average earnings
Less: Normal earning
Average excess earnings
Divide by: Capitalization rate
Goodwill
Add: Fair value of net asset acquired
Purchase price
(B)
(B)
Question No. 3
Average earnings
Divide by: Capitalization rate
Purchase price
Less: Fair value of net asset
Goodwill
(B)
(B)
Question No. 4
Average earnings
Less: Normal earning
Average excess earnings
Multiply by: Present value of ordinary annuity
Goodwill
Add: Fair value of net asset acquired
Purchase price
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
₱ 2,375,000
1,765,000
610,000
4
2,440,000
17,650,000
₱20,090,000
₱2,375,000
1,765,000
610,000
10%
6,100,000
17,650,000
₱23,750,000
₱2,375,000
8%
29,687,500
17,650,000
₱12,037,500
(C)
₱2,375,000
1,765,000
610,000
3.0373
1,852,753
17,650,000
₱19,502,753
(A)
₱336,000
6
₱ 56,000
(C)
C
PROBLEM 22-15
Question No. 1
Net Patent, January 1
Divide by: Remaining life (8years -2 years)
Amortization
200
Chapter 22: Intangible Assets
Question No. 2
None, the trademark has an indefinite life.
(B)
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4)
Divide by: Useful life
Amortization expense
(A)
Question No. 4
Purchase price
Less: Fair value of net assets acquired
Goodwill (carrying amount)
400,000
5
80,000
2,400,000
1,600,000
800,000
(A)
The goodwill shall not be amortized because its useful life is indefinite.
However, goodwill shall be tested for impairment at least annually, or more
frequently if events or changes in circumstances indicate a possible impairment.
Question No. 5
Cost-Patent
Less: Accumulated Amortization (48,000 + 56,000)
Cost - Trademark (no amortization) (1.6M x 3/4)
Cost - Noncompetition agreement
Less: Accumulated Amortization (see no. 3)
Total carrying amount of the Intangible assets
384,000
104,000
400,000
80,000
(B)
280,000
1,200,000
320,000
1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not
identifiable.
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
A
5.
B
PROBLEM 22-16
Question No. 1
Legal cost
Payment of licenses to author excluding refundable purchase
taxes (100,000-10,000)
Total cost of intangible assets
(D)
Question No’s 2, 3 and 5
Cost
Less: Amortization in 2016 (97,000/5 x 6/12)
Carrying value, 12/31/ 2016
Less: Amortization in 2017 (97,000/5 )
Carrying value, 12/31/ 2017
201
97,000
9,700
87,300
19,400
67,900
7,000
90,000
97,000
No. 2 (C)
No. 3 (C)
No. 5 (D)
Chapter 22: Intangible Assets
Question No. 4
General start-up cost
Amortization
Cost of printing
Advertising expense (20,000 x 6/12)
Total Expense
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4.
(B)
B
5.
1,500
9,700
100
10,000
21,300
D
PROBLEM 22-17 Patent, Competitive, Related Patent
Question No. 1
Cost
Divide by: Remaining useful life
Amortization
(C)
Question No. 2
Cost of the old Patent
Less: Accumulated Amortization (500,000 / 10 x 2)
Carrying value, 1/1/2014
Competitive Patent
Total
Divide by: Remaining life
Amortization
(D)
Question No. 3
Carrying value, 1/1/2014
Less: Amortization 2014
Carrying value, 12/31/2014
(D)
Question No. 4
Carrying value, 12/31/2014
Add: Related patent
Total Carrying value, 1/1/2015
Divide by: Extended life
Amortization
Question No. 5
Total Carrying value, 1/1/2015
Less: Amortization, 2015
Carrying value, 1/1/2016 = Loss
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4.
PROBLEM 22-18 Comprehensive
A
Question No. 1
Acquisition cost
5.
500,000
10
50,000
500,000
100,000
400,000
240,000
640,000
8
80,000
640,000
80,000
560,000
(A)
560,000
200,000
760,000
20
38,000
(A)
760,000
38,000
722,000
A
600,000
202
Chapter 22: Intangible Assets
Costs of employee benefits arising directly from bringing the
asset to its intended condition
Professional fees arising directly from bringing the asset to its
intended condition
Total cost of the trademark
(C)
60,000
13,000
673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
Question No. 3
Amortization - Trademark
Amortization - Customer list
Total amortization
(B)
60,000
60,000
(A)
60,000
165,416
225,416
Downpayment
Add: Present Value of notes payable (600,000 x .7118)
Cost of franchise
400,000
427,080
827,080
Question No. 4
Amortization - Trademark
Amortization - Customer list
Amortization - Franchise
Total amortization
Question No. 5
Cost of trademark
Cost of customer list
Less: Accumulated Amortization
Cost of franchise
Less: Accumulated Amortization
Total carrying value
SUMMARY OF ANSWERS:
1. C
2. A
3. B
673,000
300,000
120,000
827,080
165,416
(A)
4.
A
5.
A
PROBLEM 22-19
Question No. 1
Zero, organization cost is treated as outright expense.(A)
203
180,000
661,664
1,514,664
Chapter 22: Intangible Assets
Question No. 2
Design costs
Add: Legal fees
Registration fee with Patent office
Total cost of trademark
Question No. 3
Cash
Add Present value of the note (200,000 x 2.91)
Cost of Franchise
Question No. 4
Cost (see no. 3)
Less: Amortization (982,000/20)
Carrying value, 12/31/2016
Question No. 5
Amortization of the franchise
P49,100
(B)
3,000,000
300,000
100,000
3,400,000
(B)
400,000
582,000
982,000
(A)
982,000
49,100
932,900
(D)
The trademark has no amortization because it has an indefinite life. It is only
tested for possible impairment.
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
A
5.
D
PROBLEM 22-20
Question No. 1
Cost-Patent
Less: Amortization for the year (136,000/20)
Carrying value of the Patent
Question No. 2
Licensing agreement No. 1
Unadjusted balance
Less: Amortization for 2 years (100,000/20 x 2)
Total
Less: Reduction in value (90,000 x 60%)
Carrying value
Question No. 3
Unadjusted balance
Add: Amount credited for advance collection
Total cost
Less: Amortization (120,000/10)
204
(C)
136,000
6,800
129,200
(B)
100,000
10,000
90,000
54,000
36,000
118,000
2,000
120,000
12,000
Chapter 22: Intangible Assets
Carrying value - Licensing agreement No. 2
Question No. 4
Carrying values:
Patent (see no. 1)
Licensing Agreement No. 1 (No. 2)
Licensing Agreement No. 2 (No. 3)
Total carrying value
(C)
108,000
(C)
129,200
36,000
108,000
273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for
incorporation should be charged to expense when it were incurred.
Question No. 5
Nonamortization of Licensing Agreement No 1 (100,000/20 x 1)
Expenses capitalized:
Goodwill (16,000+32,000)
Organization cost
Overstatement of Retained earnings
(A)
5,000
48,000
58,000
111,000
All the expenses above were understated thereby overstating the net income
and retained earnings.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
C
5.
A
PROBLEM 22-21
Question No. 1
Unadjusted balance
Less: Unamortized portion of improvements debited
Cost
P75,000
Less: Amortization (P75,000 / 10 x 3)
22,500
Adjusted balance – 01/01/2016
Less: Amortization 2016 (P52,500 + P56,071) – see below
Carrying value – 12/31/2016
(A)
Computation of amortization:
Adjusted balance – 01/01/2016
Less: CV of Patent with remaining UL of 2 years – 01/01/2016
Cost
210,000
Less: Accumulated amortization 01/01/2016
(P210,000 / 14 x 7)
105,000
CV of Patent with remaining UL of 7 years – 01/01/2016
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2)
Patent with remaining UL of 7 years (392,500 / 7)
Total Amortization
205
550,000
52,500
497,500
108,571
388,929
497,500
105,000
392,500
52,500
56,071
108,571
Chapter 22: Intangible Assets
Question No. 2
Franchise cost
Less: Amortization (50,000 / 5)
Carrying value 12/31/2016
50,000
10,000
40,000
(A)
Question No. 3
The amount to be reported as goodwill is the excess of cost over the fair value of
net asset acquired. Goodwill is not amortized but only subject to impairment
testing. Therefore, the amount to be reported is P200,000.
(A)
Question No. 4
Other coding costs after establishment of technological
feasibility
Other testing costs after establishment of technological
feasibility
Costs of producing master for training materials
Total Software Cost
(A)
240,000
200,000
150,000
590,000
Question No. 5
Completion of detailed program design
Costs incurred for coding and testing to establish technological
feasibility
Total Cost charged to Expense
(A)
Question No. 6
Amortization:
Patent (see No. 1)
Franchise (see No. 2)
Software cost – none yet
Total Cost charged to Expense
SUMMARY OF ANSWERS:
1. A
2. A
3. A
130,000
100,000
230,000
108,571
10,000
118,571
(C)
4.
A
5.
A
6.
C
PROBLEM 22-22 Inventories, PPE and Intangible Assets
Question No. 1
Unadjusted balance
Add: Goods purchased FOB Shipping Point
Adjusted balance
Question No. 2
Total acquisition cost
Add: Mortgage assumed
(B)
4,300,000
40,000
4,340,000
4,000,000
800,000
206
Chapter 22: Intangible Assets
Total cost of land and building
Multiply by: Percentage allocated to building
Total Purchase Price allocated to Building
Add: Remodeling Cost (300,000 – 20,000)
Total Cost of Building
(A)
4,800,000
80%
3,840,000
280,000
4,120,000
Question No. 3
Cost of improvement
Less: Accumulated depreciation (500,000/8 x 9/12)
Carrying value
(B)
500,000
46,875
453,125
Question No. 4
Carrying value – 01/01/2016
Less: Amortization 2016 (432,000 / 3 years remaining UL)
Carrying value
(C)
432,000
144,000
288,000
Question No. 5
Building (4,120,000-120,000)/50
Leasehold Improvements (500,000/8 x 9/12)
Furniture and Fixtures
Franchise (500,000 / 10)
Licensing agreement
Total depreciation and amortization expense
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
C
207
(A)
5.
A
80,000
46,875
150,000
50,000
144,000
P470,875
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
CHAPTER 23: REVALUATION, IMPAIRMENT AND
NONCURRENT ASSET HELD FOR SALE
PROBLEM 23-1 Revaluation, No Change in Estimate
Question No. 1
Historical
Cost
8,000,000
2,000,000
6,000,000
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
Replacement
Cost
15,000,000
3,750,000
12,250,000
Increase
7,000,000
1,750,000
5,250,000
(C)
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus
Question No. 2
Depreciated Replacement cost
Divide by: Remaining useful life (20 – 5)
Depreciation Expense – 2017
(C)
11,250,000
15
750,000
Question No. 3
Revaluation surplus, beginning
Less: Piecemeal realization – 2017 (5,250,000 / 15)
Remaining revaluation surplus end of 2017
(B)
5,250,000
350,000
4,900,000
Question No. 4
Net Selling Price
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P750,000 x 2
years)
Gain on sale
10,000,000
11,250,000
1,500,000
(A)
Question No. 5
Revaluation surplus, beginning
Less: Piecemeal realization for two years (5,250,000/ 15 x 2)
Remaining revaluation surplus to R/E
(B)
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4.
A
208
5.
B
9,750,000
250,000
5,250,000
700,000
4,550,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-2 Revaluation, With Change in Useful Life
Question No. 1
Replacement
Cost
14,000,000
2,800,000
11,200,000
Cost
12,000,000
2,400,000
9,600,000
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
Increase
2,000,000
400,000
1,600,000
(B)
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus
Question No. 2
Depreciated Replacement cost
Divide by: Remaining useful life
Depreciation Expense – 2016
(B)
11,200,000
25
448,000
Question No. 3
Revaluation surplus, 01/01/2016
Less: Piecemeal realization – 2016 (1,600,000/ 25)
Remaining revaluation surplus end of 2016
(C)
1,600,000
64,000
1,536,000
Question No. 4
Net Selling Price
Less: Carrying amount – 01/02/2017
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P11.2M / 25 x 2)
Gain on sale
10,000,000
11,200,000
896,000
(A)
Question No. 5
Revaluation surplus, beginning
Less: Piecemeal realization for two years (1,600,000 / 25 x 2)
Remaining revaluation surplus to R/E
(B)
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
A
5.
10,304,000
(304,000)
1,600,000
128,000
1,472,000
B
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Machinery
Less: Accumulated depreciation
CA/DRC/RS
Cost
4,550,000
*1,125,000
3,425,000
209
Replacement
Cost
9,100,000
**2,250,000
6,850,000
Increase
4,550,000
1,125,000
3,425,000
(C)
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus
*This amount should be the actual amount of accumulated depreciation (i.e.
using the original residual value)
** (9,100,000 – 100,000) / 20 x 5. This is computed using the revised residual
value.
Question No. 2
Depreciated Replacement cost
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation Expense – 2016
(B)
6,850,000
100,000
6,7500,000
25
270,000
Question No. 3
Revaluation surplus, 01/01/2016
Less: Piecemeal realization – 2016 (3,425,000 / 25)
Remaining revaluation surplus end of 2016
(B)
3,425,000
137,000
3,288,000
Question No. 4
Net Selling Price
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P540,000 x 2)
Gain on sale
7,000,000
6,850,000
540,000
(C)
Question No. 5
Revaluation surplus, beginning
Less: Piecemeal realization for two years (P274,000 x 2)
Remaining revaluation surplus to R/E
(B)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
C
5.
6,310,000
690,000
3,425,000
274,000
3,151,000
B
PROBLEM 23-4 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL
Question No. 1
Cost
Less: Residual value
Depreciable amount
Divide by: Estimated useful life
Depreciation - 2016
(B)
210
2,200,000
200,000
2,000,000
10
200,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Zero. The company is using the cost model.(A)
Question No. 3
Cost
Less: Accumulated depreciation
Carrying amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation - 2017
2,200,000
200,000
2,000,000
290,000
1,710,000
9
190,000
(E)
Question No. 4
Cost
Less: Accumulated Depreciation (200,000 + 190,000 + 190,000)
Carrying amount – 12/31/2019
Less: Recoverable amount, date of impairment
Impairment loss
(C)
Question No. 5
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
SUMMARY OF ANSWERS:
1. B
2. A
3. E
939,500
40,000
899,500
7
128,500
(B)
4.
C
5.
B
CASE NO. 2 REVALUATION MODEL
Question No. 1
Cost
Less: Residual value
Depreciable amount
Divide by: Estimated useful life
Depreciation - 2016
(B)
Question No. 2
Recoverable amount/fair value
Less: Carrying amount
Machinery at cost
Less: Accumulated depreciation
Revaluation surplus
2,200,000
1,620,000
1,620,000
939,500
680,500
2,200,000
200,000
2,000,000
10
200,000
2,990,000
2,200,000
200,000
(D)
211
2,000,000
990,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Recoverable amount/fair value
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
2,990,000
290,000
2,700,000
9
300,000
(C)
Question No. 4
Recoverable amount, date of revaluation
Less: Subsequent depreciation for 2 years
Carrying amount
Less: Recoverable amount, date of impairment
Decrease in value
Less: Remaining revaluation
Revaluation surplus, date of revaluation
Less: Piecemeal realization for two years
Impairment loss
(C)
Question No. 5
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation-2019
2,990,000
600,000
2,390,000
939,500
1,450,500
990,000
220,000
770,000
680,500
939,500
40,000
899,500
7
128,500
(B)
PROBLEM 23-5 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL
Question No. 1
Cost
Less: Residual value
Depreciable amount
Divide by: Estimated useful life
Depreciation - 2016
(C)
2,300,000
200,000
2,100,000
10
210,000
Question No. 2
Cost
Less: Accumulated Depreciation
Carrying amount – 12/31/2017
Less: Recoverable amount, date of impairment
Impairment loss
2,300,000
210,000
2,090,000
1,850,000
240,000
212
(C)
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
1,850,000
50,000
1,800,000
9
200,000
(B)
Question No. 4
Recoverable amount – 01/01/2017
Less: Accumulated Depreciation – 12/31/2018
Carrying amount – 12/31/2018
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount – 01/01/2019
Gain on impairment recovery – P&L
The increase in fair value is recognized in P&L.
1,850,000
400,000
1,450,000
2,300,000
630,000
(A)
Would have been carrying amount had been there no impairment:
Cost
Less: Depreciation
2016
2017
2018
Would have been carrying value – 12/31/2018
Question No. 5
Lower between Recoverable amount and would have been book
value – 01/01/2019
Less: New residual value
Depreciable amount
Divide by: Remaining useful life (10 – 3)
Depreciation
(D)
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4.
A
5.
2,300,000
210,000
210,000
210,000
1,670,000
1,499,400
0
1,499,400
7
214,200
D
CASE NO. 2 REVALUATION MODEL
Question No. 1
Cost
Less: Residual value
Depreciable amount
Divide by: Estimated useful life
Depreciation - 2016
(C)
213
1,670,000
49,400
2,300,000
200,000
2,100,000
10
210,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Cost
Less: Accumulated Depreciation
Carrying amount – 12/31/2017
Less: Recoverable amount, date of impairment
Impairment loss
Question No. 3
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
(C)
2,300,000
210,000
2,090,000
1,850,000
240,000
(B)
1,850,000
50,000
1,800,000
9
200,000
Question No. 4
Recoverable amount – 01/01/2017
Less: Accumulated Depreciation – 12/31/2018
Carrying amount – 12/31/2018
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount – 01/01/2019
Gain on impairment recovery – P&L
The increase in fair value is recognized in P&L.
1,850,000
400,000
1,450,000
2,300,000
630,000
1,670,000
49,400
(A)
Would have been carrying amount had been there no impairment:
Cost
Less: Depreciation
2016
2017
2018
Would have been carrying value – 12/31/2018
2,300,000
210,000
210,000
210,000
1,670,000
Zero, since recoverable amount is lower than the would have been book
value if there is no impairment loss.
Question No. 5
Recoverable amount – 01/01/2019
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life (10 – 3)
Depreciation
SUMMARY OF ANSWERS:
1. C
2. C
3. B
4.
(D)
A
214
5.
D
1,499,400
1,499,400
7
214,200
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-6 Impairment of Intangible Assets
Question No. 1
Patent (200,000 / 10)
Computer software (100,000 x 60/120)
Total amortization
20,000
50,000
70,000
(A)
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carrying value
Less: Recoverable amount (80,000 / .05)
Tradename:
Carrying value
Less: Recoverable amount (15,000 / .05)
Goodwill:
Carrying value of reporting unit
Less: Recoverable amount (200,000 x 14.0939)
Total impairment loss
400,000
160,000
240,000
350,000
300,000
50,000
3,000,000
2,818,780
(C)
181,220
471,220
Question No. 3
Carrying value of goodwill – 12/31/2015
Less: Allocated impairment loss of reporting unit
Carrying value of goodwill – 12/31/2016
(B)
900,000
181,220
718,780
Question No. 4
Patent (P200,000 – P20,000)
Copyright (recoverable amount)
Tradename (recoverable amount)
Computer software (100,000 – 50,000)
Carrying value of intangible assets – 12/31/2016 (A)
180,000
160,000
300,000
50,000
690,000
Note that goodwill is not reported as an intangible asset.
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
A
215
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-7Amortization and Impairment of Intangible Assets
Questions 1 and 2
Trademark - Unadjusted balance
Less: Unamortized cost of improvement
that should have been expensed
Cost
Less: Accum. amortization (150,000/10 x 2)
Total
Add: Competitive patent debited to expense
Cost
Less: Accum. amortization (135,000/9 x 1)
Adjusted balance, January 1. 2016
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4)
Remaining patent (1,430,000-160,000)/15-7)
Carrying value of the Patent, 12/31/2016
1,430,000
150,000
30,000
135,000
15,000
40,000
158,750
(2) A
Computation of the P160,000:
Original cost
Less: Accumulated amortization (300,000/15) x 7 years))
Remaining carrying value, 1/1/2016
120,000
1,310,000
120,000
1,430,000
(1) A
198,750
1,231,250
300,000
140,000
160,000
The 7 years age is from January 1, 2009 to January 1, 2016.
Questions 3
Carrying value of the trademark (no amortization)
Less: Recoverable amount (P75,000/10%)
Impairment loss
(B)
800,000
750,000
50,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3)
(B)
Questions 5
Downpayment
Add: Present value of the note
Total cost of the franchise
Divide by: Useful life
Amortization expense
SUMMARY OF ANSWERS:
1. A
2. A
3. B
(D)
4.
B
216
5.
D
500,000
874,000
1,374,000
10
137,400
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-8 Impairment of Cash Generating Unit
Question No. 1
Total carrying amount before impairment
Less: Fair value less costs to sell
Impairment loss
Less: Impairment loss allocated to Goodwill
Impairment loss allocated to other assets
(D)
72,000,000
60,000,000
12,000,000
2,000,000
10,000,000
Questions No. 2 and 3
(A)
Other assets in this case would include only PPE and Patent. Impairment of
inventories (i.e. write-down to NRV) is covered by PAS 2 while impairment of
FA at FVTOCI will be covered by PAS 39 / PFRS 9.
Questions No. 4 and 5
PPE (at cost model)
Patent
Total
Carrying amount
before impairment
30,000,000
10,000,000
40,000,000
SUMMARY OF ANSWERS:
1. D
2. A
3. A
4.
D
5.
Ratio
0.75
0.25
Allocated
Impairment loss
7,500,000 (D)
2,500,000 (D)
10,000,000 (D)
D
PROBLEM 23-9 Impairment and Reversal of Impairment of Cash
Generating Unit
Cash
Inventory
Accounts receivable
Plant and equipment
Less: Accumulated depreciation
Trademark
Patent
Goodwill
Total Carrying amount of CGU
Less: Value in use
Impairment loss
Less: Impairment allocated to goodwill
Impairment loss allocated to other asset
217
100,000
800,000
1,200,000
24,000,000
10,400,000
2,550,000
850,000
400,000
19,500,000
16,300,000
3,200,000
400,000
2,800,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Plant and equipment
Trademark
Patent
Total
Balance
before
Impairment
13,600,000
2,550,000
850,000
17,000,000
Plant and equipment
Trademark
Patent
Total
Balance
after
Impairment
11,360,000
2,130,000
710,000
14,200,000
Fraction
13.6/17
2.55/17
.85/17
Reallocation
(40,000)
(7,500)
47,500
-
Plant and Equipment:
Would have been BV, no impairment
Cost
Less: Accumulated depreciation (2.6M +300,000)
Actual Book value
Impaired value
Less: Subsequent depreciation
Maximum gain on reversal of impairment
Trademark:
Would have been BV, no impairment
Cost
Less: Subsequent amortization
Balance
after
Reallocation
11,320,000
2,122,500
757,500
3,520,000
24,000,000
11,600,000
11,320,000
1,000,000
2,550,000
120,000
Actual Book value
Impaired value
Less: Subsequent depreciation
Maximum gain on reversal of impairment
Patent:
Would have been BV, no impairment
Cost
Less: Subsequent amortization
2,122,500
112,000
850,000
80,000
Actual Book value
Impaired value
Less: Subsequent depreciation
Maximum gain on reversal of impairment
218
Balance
after
Impairment
11,360,000
2,130,000
710,000
14,200,000
Impairment
Loss
(2,240,000)
(420,000)
(140,000)
2,800,000
757,500
60,000
1. (B)
2. (B)
3. (B)
12,400,000
10,320,000
2,080,000
2,430,000
2,010,500
419,500
770,000
697,500
72,500
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Plant and equipment
Trademark
Patent
Total
Plant and equipment
Trademark
Patent
Total
Balance
before
Reversal
10,320,000
2,010,500
697,500
13,028,000
Balance
bef. Reall
12,221,136
2,380,872
825,992
15,428,000
Max gain
1,901,136
370,372
72,500
2,344,008
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
Allocated
Gain
1,901,136
370,372
128,492
2,400,000
Fraction
10320/13028
2010.5/13028
697.5/13028
C
5.
Reallocation
46,863
9,130
(55,992)
-
C
6.
Max gain
1,901,136
370,372
72,500
2,344,008
Balance
after
reallocation
12,267,999
2,390,001
770,000
15,428,000
A
PROBLEM 23-10 Noncurrent Assets Held for Sale -Single Asset
Question No. 1
Cost
Less: Accumulated depreciation
Carrying amount
Less: Initial amount recognized– lower of:
Carrying amount
Fair value less cost to sell
Impairment loss
1,200,000
480,000
720,000
720,000
600,000
(C)
Question No. 2
Zero. Non-current asset held for sale should not be depreciated.
Question No. 3
Lower of:
Carrying amount
FVLCTS
Less: Carrying amount at initial recognition
Gain on reversal – P&L
Question No. 4
Net Selling Price (1,800,000 – 50,000)
Less: Carrying amount
Gain on sale
720,000
790,000
(C)
(B)
219
600,000
120,000
(A)
720,000
600,000
120,000
750,000
720,000
30,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Cost
Accumulated depreciation
Carrying amount
Less: Initial amount recognized– lower of:
Carrying amount
Fair value less cost to sell
Impairment loss
SUMMARY OF ANSWERS:
1. C
2. A
3. C
4.
B
1,200,000
480,000
720,000
720,000
800,000
(A)
5.
720,000
-
A
PROBLEM 23-11 Noncurrent Assets held for Sale- Disposal Group
Question No. 1
C P8,800,000.
Question No. 2
(E) P6,000,000.
Question No. 3
Total carrying amount before impairment
Less: Fair value less costs to sell
Impairment loss
Less: Impairment loss allocated to Goodwill
Impairment loss allocated to other assets
59,600,000
52,000,000
7,600,000
6,000,000
1,600,000
(B)
Questions No. 4 & 5
PPE (at cost model)
PPE (at revaluation model)
Total
Carrying
amount as
remeasured
22,800,000
16,000,000
38,800,000
Revaluation
surplus
PPE (at cost model)
PPE (at revaluation model)
Total
400,000
400,000
Remaining revaluation surplus is
(P3,000,000 minus (P32M-P30M)
0.59
0.41
Impairment
loss
940,206
259,794
1,200,000
P1,000,000
220
Allocated
Decrease
940,206
659,794
1,600,000
Revaluation
surplus
400,000
1,000,000
Carrying
amount
after
impairment
21,859,794
15,340,206
37,200,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Decrease in value of the PPE (at revaluation model) is allocated to
1. First, remaining revaluation surplus
2. Balance to impairment loss.
SUMMARY OF ANSWERS:
1. C
2. E
3. D
4.
B
5.
A
PROBLEM 23-12 Noncurrent Assets held for Sale – Investment in Associate
Question No. 1
Share in net income (900,000 x 30%)
Less: Amortization of undervalued asset
Net investment income
Question No. 2
Beginning balance – 01/01/2016
Add: Net investment income (see No. 1)
Less: Dividends received (150,000 x 30%)
Carrying amount – 12/31/2016
Question No. 3
Carrying amount – 12/31/2016
Less: Initial amount recognized– lower of:
Carrying amount
Fair value less cost to sell
Impairment loss
(B)
270,000
10,000
260,000
(A)
5,000,000
260,000
45,000
5,215,000
5,215,000
5,215,000
4,900,000
(B)
4,900,000
315,000
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when
the investment in associate is classified as noncurrent held for sale. The cash
dividend shall be recognized as income.
(A)
Question No. 5
Net Selling Price (P4,900,000 – P100,000)
Less: Carrying amount
Loss on sale
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
A
221
(D)
5.
D
4,800,000
4,900,000
(100,000)
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-13
Question No. 1
Irrigation Equipment
Freight in
Installation cost
Total Machinery and Equipment, end
P
(A)
Question No. 2
Trade in allowance
Book Value:
Cost
Less: Accum. Depreciation (P660,000+ P165,000)
Loss on trade in
P
740,000
10,000
192,000
942,000
400,000
1,300,000
825,000
(B)
475,000
75,000
Question No. 3
Before addition [(P3,100,000 – P100,000)/20 x 3/12)
After addition: [(P3,100,000 – (P562,500 + P37,500) + 980,000
P200,000)/20) x 9/12)
Depreciation expense
(B)
37,500
123,000
160,500
Remaining life (20 – 4 + 4) = 20 years
Question No. 4
Turf cutter [{(P1,300,000 – P200,000)/5} x 9/12] +
{(P800,000 – P50,000)/6 x 3/12)}]
Water desalinator [(P3,780,000 – P270,000)/10]
Irrigation equipment [(942,000/4) x 6/12]
Office building
Total Depreciation expense
(B)
P
P
196,250
351,000
117,750
160,500
825,500
Question No. 5
Fair value on initial revaluation
P 3,780,000
Book value on initial revaluation:
Cost
P 4,000,000
Accumulated depreciation
[(P4,000,000 – P200,000)/10 x 2)
( 760,000)
3,240,000
12/31/2016 Revaluation Surplus
P 540,000
Less: Piecemeal realization in 2017 (P540,000/10)
54,000
12/31/2017 Revaluation surplus
P 486,000
12/31/2017 Fair value
P 3,400,000
12/31/2017 Book value:
Adjusted cost
P 3,780,000
Accumulated Depreciation
[(P3,780,000 – P270,000)/10]
( 351,000)
3,429,000
Revaluation decrease – charged to Revaluation Surplus (A)
P
29,000
222
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
B
5.
A
PROBLEM 23-14
Question Nos. 1 and 2
Cost-beginning balance
Less Accumulated depreciation, beginning
Held for sale-carrying amount
Total
Depreciation charge for the year
Held for sale (8,200 x 20% x 6/12)
Remaining balance (232,425 x 20%)
Classified as held for sale:
Depreciation for the year
Carrying amount
126,000
144.375
8,200
232,425
820
46,845
1. (A)
47,305
820
185,940
(A)
Question No. 3
Carrying amount at 1 Oct 2015
Less valuation at 1 October 2015
Revaluation surplus
372,000
449,500
77,500
Valuation at 1 October 2015
Less Depreciation expense (449,500/(40-9)
Revaluation surplus
(B)
449,500
14,500
435,000
Question No. 4
Carrying amount at 1 Oct 2015
Less valuation at 1 October 2015
Decrease in value
1,080,000
600,000
480,000
Valuation at 1 October 2015
Less Depreciation expense (600,000/(50-20)
Revaluation surplus
(B)
Question No. 5 C
Carrying amount at 1 Oct 2015
Less valuation at 1 October 2015
Decrease in value
Less remaining revaluation surplus
Impairment loss-Property B
Impairment loss-held for sale
(8,200-820)-6,500
600,000
20,000
580,000
1,080,000
600,000
480,000
456,000
24,000
880
223
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Total impairment loss
(C)
24,880
Question No. 6
Depreciation expense based on revalued amount
Less depreciation expense based on historical cost (400,000/40)
Piecemeal realization
(D)
14,500
10,000
4,500
Or
Revaluation surplus, beginning (Prop. A)
Add revaluation surplus, Oct. 1, 2015
Total revaluation surplus
Divide by remaining life
Piecemeal realization
(D)
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
B
224
62,000
77,500
139,500
31
4,500
5.
C
6.
D
Chapter 25: Introduction to Liabilities
CHAPTER 25: INTRODUCTION TO LIABILITIES
PROBLEM 25-1 Total Liabilities
Total liabilities
Current
Accounts payable
Loan payable – current portion
Unearned rent income
Income tax payable
Dividends payable
Total current liabilities
P 1,000,000
1,000,000
300,000
250,000
100,000
P 2,650,000
Non-current
Bonds payable
Discount on bonds payable
Loan payable – non-current portion
Deferred tax liability
Total non-current liabilities
Total liabilities
(
(B)
Below items shall be presented as part of entity’s assets:
Current asset
Advances to employees
P 5,000,000
500,000)
1,500,000
15,000
P 6,015,000
P 8,665,000
P
Non-current asset
Cash surrender value of officers’ life insurance
Patent
Below item shall be presented in the shareholder’s equity:
Share dividends payable
45,000
75,000
50,000
P
150,000
Below item shall be disclosed in the notes to financial statements:
Contingent liability – guarantee to James
P 500,000
The bank overdraft, which is part of cash management, is offset to any bank
balance with positive balance as provided under PAS 7.
PROBLEM 25-2 Current Liabilities
Current liabilities
Accounts payable – unadjusted
Add/(Deduct): Adjustments
Debit balances in suppliers’ accounts
Postdated checks of
Accounts payable – adjusted
Credit balances in customers’ accounts
225
P 4,000,000
100,000
50,000
P 4,150,000
500,000
Chapter 25: Introduction to Liabilities
Premiums payable
Accrued expenses
Total current liabilities
(A)
600,000
150,000
P 5,400,000
Below items shall be presented as part of entity’s non-current liabilities:
Bonds payable
1,000,000
Premium on bonds payable
100,000
Mortgage payable
850,000
Deferred tax liability
200,000
Deferred revenue
175,000
Below item shall be presented as part of shareholders’ equity:
Stock dividends payable
PROBLEM 25-3 Refinancing
Current liabilities
10% note payable, maturing 03/3 1/2015
Annual sinking fund requirement
Total current liabilities
(C)
750,000
P10,000,000
500,000
10,500,000
Below items shall be presented as part of entity’s non-current liabilities:
12% note payable, maturing 06/30/2015
6,000,000
7% guaranteed debentures, due 2018
2,000,000
PROBLEM 25-4 Refinancing
(A) The amount to be reported as current liabilities in 2014 is P2,000,000 since
the refinancing agreement was completed after the reporting date.
PROBLEM 25-5 Refinancing
(A) The amount to be reported as current liabilities in 2014 is P2,000,000 since
the grace period was granted after the reporting date.
PROBLEM 25-6 Accounts payable
Accounts payable
Accounts payable – unadjusted
Cost of goods lost in transit
Cost of returned goods
Accounts payable – adjusted
(B)
226
P 8,000,000
500,000
(
200,000)
P 8,300,000
Chapter 25: Introduction to Liabilities
PROBLEM 25-7 Accounts payable
Amount of cash to eliminate accounts payable
Accounts payable from:
*Purchases through March 15 (gross)(P4,900,000 / 98%)
Merchandise inventory at cost(P1,500,000 / 150%)
Accounts payable
(B)
P 5,000,000
1,000,000
P 6,000,000
*The amount was grossed-up since the entity is no longer entitled to cash
discount. The liability as of March 15, 2015 has been outstanding for more than
10 days.
PROBLEM 25-8 Bonus payable
Amount of bonus
Net income before bonus and income tax
Less: Required income to earn bonus
Basis of bonus
Multiply by: Bonus rate
Total current liabilities
PROBLEM 25-9 Bonus payable
Amount of bonus
Net income before bonus and income tax
Less: Required income to earn bonus
Amount of income subject to bonus (125%)
Less: Bonus (25%) (squeeze)
Basis of bonus (100%) (P600,000/125%)
(C)
(D)
PROBLEM 25-10 Unearned Revenue
Unearned revenue – gift certificates
Unearned revenue
1,500,000
Gift certificate
redeemed
4,000,000
5,000,000
Expired gift
certificate
300,000
4,300,000
6,500,000
Balance, End (B)
2,200,000
6,500,000
6,500,000
227
P 2,200,000
880,000
P 1,320,000
10%
P 132,000
P 1,600,000
1,000,000
P 600,000
120,000
P 480,000
Balance, Beg.
Cash receipts from
gift certificate sold
Chapter 25: Introduction to Liabilities
PROBLEM 25-11 Advances from Customers
Unearned revenue – Advances from customers
Unearned revenue
1,100,000
Advances applied to
shipments
1,600,000
1,800,000
Orders cancelled
100,000
1,700,000
2,900,000
Balance, End (C)
1,200,000
2,900,000
2,900,000
PROBLEM 25-12 Escrow Liability
Deposits received – Escrow account
Escrow liability
600,000
Cash payments nine
months
4,200,000
4,500,000
4,200,000
5,100,000
Balance, End (C)
900,000
5,100,000
5,100,000
PROBLEM 25-13 Container’s Deposits
Deposits received – Escrow account
Liability for Deposits
100,000
Cash refunds for
container returned in
2014
92,000
100,000
Balance, End (C)
92,000
108,000
200,000
Balance, Beg.
Advances
received
Balance, Beg.
Cash receipts for
nine months
Balance, Beg.
Cash deposits
from deliveries
200,000
200,000
PROBLEM 25-14 VAT payable
Provision - VAT payable
VAT Payable
Payment made
120,000
Balance, End (A)
120,000
180,000
300,000
120,000
84,000
96,000
300,000
300,000
228
Balance, Beg.
For October
For November
For December
Chapter 25: Introduction to Liabilities
PROBLEM 25-15 Provision: Continuous range of outcome
(D) A range between ₱10,000 and ₱4,000,000 means that the contingency
cannot be reliably estimated, hence no provision is recognized.
PROBLEM 25-16 Provision: Expected value with adjustment factor
70% chance that outcome will occur × 20% × ₱200,000
70% chance that outcome will occur × 80% × ₱100,000
Expected value
Multiply by: Risk adjustment
Risk adjusted expected value
Multiply by: Present value factor
Provision
(D)
₱ 28,000
56,000
84,000
1.07
89,880
89,000
₱ 81,709
PROBLEM 25-17 Restructuring Provisions
Wages of retrenched employees
Salary (₱50,000 x 60%)
Retrenchment package
Restructuring provision
(D)
₱1,000,000
30,000
150,000
₱1,180,000
Note that 60% (administering the closure and transfer of employees of Factory
A) is only included in computing the restructuring provision since it is directly
related to the restructuring.
PROBLEM 25-18 Contingencies
(C) Since the outcome of the lawsuit remains uncertain, disclosure of the
contingency in the notes to financial statements would be the necessary.
PROBLEM 25-19 Contingencies
(B) Since it is probable that Derick will be liable to pay the ₱3,000,000 as
supported by Rose’s filing of a petition for bankruptcy, Derick should accrue and
disclose the provision for guarantee on a loan of ₱3,000,000.
PROBLEM 25-20 Premiums Payable
Provision – Premiums liability
Premiums liability
**Coupons redeemed
Balance, End (D)
50,000
50,000
30,000
80,000
229
80,000
80,000
80,000
Balance, Beg.
*Premiums expense
Chapter 25: Introduction to Liabilities
*(20,000 x 80%)/5 x (P30 + P5 - P10)
**(10,000/5) x (P30 + P5 - P10)
PROBLEM 25-21 Premiums
Premiums liability (2015)
**Balance, End
200,000
*Coupons
redeemed
**Balance, End
800,000
1,000,000
1,000,000
1,000,000
Premiums liability (2016)
120,000
200,000
*Coupons
redeemed
2,000,000
1,920,000
2,120,000
2,120,000
*Number of towels distributed x net cost of P40
**Number of towels yet to be distributed x net cost of P40
Balance, Beg.
Premiums
expense
(squeeze)
Balance, Beg.
Premiums
expense
(squeeze) (D)
The beginning balance of the 5,000 towels is included as part of the 50,000
towels distributed in 2016. If the actual towels distributed from 2016 is
different from that was recorded as of the end of 2015, this is considered as a
change in accounting estimate which should be taken into account during 2016
and for the succeeding accounting period.
PROBLEM 25-22 Warranty Liability
Warranties liability (2015)
Actual expenditures
150,000
500,000
150,000
500,000
Balance, End
350,000
500,000
500,000
Warranties liability (2016)
350,000
Actual expenditures
550,000
600,000
550,000
950,000
Balance, End (A)
400,000
950,000
950,000
*Sales x Total estimated warranty cost of 10%
230
Balance, Beg.
*Warranties expense
Balance, Beg.
*Warranties expense
Chapter 25: Introduction to Liabilities
PROBLEM 25-23 Warranty Liability
Warranties liability
Actual expenditures
Balance, End (C)
480,000
480,000
140,000
140,000
340,000
480,000
Balance, Beg.
Warranties expense
480,000
PROBLEM 25-24 Warranty - Sales are Made Evenly
Pattern of Realized Revenues:
2015 SALES
From sales in:
2015
1st (40% x ½)
0.20
2nd (36% x ½)
3rd (24% x ½)
Total
0.20
2016 SALES
From sales in:
2016
1st (40% x ½)
0.20
2nd (36% x ½
3rd (24% x ½)
Total
0.20
2016
0.20
0.18
0.38
2017
0.20
0.18
0.38
2017
2018
0.18
0.12
0.30
2018
Total
0.40
0.36
0.24
1
0.12
0.12
2019
0.18
0.12
0.30
Total
0.40
0.36
0.24
1
0.12
0.12
Requirement No. 1
(A)
Warranty Sales in 2015 earned in 2016 (38% x 1,000 x P1,500)
Warranty Sales in 2016 earned in 2016 (20% x 1,200 x P1,500)
Total warranty sales revenue earned in 2016
570,000
360,000
930,000
Notes:
 The 38% represents the realized revenue in 2016 from 2015 Sales.
 The 20% represents the realized revenue in 2016 from 2016 Sales.
Requirement No. 2
(B)
Total warranty sales revenue earned in 2016 (see No. 1)
Expenses relating to computer warranties
Profit from sales warranty
Requirement No. 3
(A)
Unearned sales warranty from 2015 [(30% + 12% x 1,000 x
P1,500)]
Unearned sales warranty from 2016 [(100%-20%) x 1,200 x
P1,500)]
Total unearned sales warranty
231
930,000
60,000
870,000
630,000
1,440,000
2,070,000
Chapter 25: Introduction to Liabilities
Notes:
 The 30% and 12% represent the unrealized revenues in 2016 from 2015
Sales.
 The 20% represents the realized revenue in 2016 from 2016 Sales. So
100% minus 20% realized is equal to 80% unrealized revenue in 2016 from
2016 Sales.
SUMMARY OF ANSWERS:
1. A 2. B 3. A
PROBLEM 25-25 Refinancing
1. P2,000,000 (Letter B). The entire amount is payable within one year from
the reporting date thus presented as current liability.
2. Nil (Letter A). Since both parties are financially capable of honoring the
agreement’s provisions and the debtor has the discretion to refinance or
roll over the loan for at least twelve months from December 31, 2014 the
entire amount is treated as Noncurrent liability.
3. Nil (Letter A). Since the company entered into a refinancing agreement
with a bank to refinance the loan on a long-term basis before the reporting
date, the entire amount of liability is treated as noncurrent.
4. P2,000,000 (Letter B). Since the company entered into a refinancing
agreement with a bank to refinance the loan on a long-term basis after the
reporting date, the entire amount of liability is treated as current.
PROBLEM 25-26 Obligations Payable on Demand, Breach of Loan
Agreement
1. P2,000,000 (Letter C). Only if an enforceable promise is received by the
end of the reporting period from the creditor not to demand payment for at
least 12 months from the end of the reporting period that the note may be
classified as noncurrent.
2. Nil (Letter A). The entire amount of loan is noncurrent liability since there
was an agreement on the reporting date not to demand payment in order
for the debtor to rectify the breach with 12 months from the reporting date.
3. P2,000,000 (Letter B). The entire amount of loan is current liability since
the agreement not to demand payment happened after the reporting
period.
PROBLEM 25-27 Contingencies
1. A
2. D
3. B
4. B
232
Chapter 25: Introduction to Liabilities
5.
6.
A (Amount of accrual is P2,040,000 using expected value method which is
calculated as (P1.6M x 20 + (2M x 50%) + (2.4M x 30%)
A (Amount of accrual is P2,250,000 using midpoint of the range which is
calculated as (P1.5M+3M)/2)
PROBLEM 25-28 Contingencies
1. A
2. B (Disclose an amount of P1,500,000)
3. B (Disclose an amount of P1,500,000)
4. B (Disclose an amount of P1,000,000)
5. D
6. A (It is virtually certain that the company will be receiving the
P1,5000,000.)
PROBLEM 25-29 Bonus Computation
1.
Net income before bonus but before tax
B
=
=
=
NY
3,090,000
618,000
x
x
BR
20%
2.
Net income after bonus but before tax
NY
B = BR
x
100% + BR
= 20%
x
3,090,000
100% + 20%
= 515,000
3.
Net income after bonus and tax
B
= BR X
(NY – B – T)
B
= 20% x (3,090,000-B-(927,000-3.B)
B
= 20% x (3,090,000-B-927,000+.3B)
B
= 618,000-.2B-185,400+.06B
1B+.2B-.06B = 618,000-185,400
1.14B
=
432,600
1.14
1.14
B
= 379,474
T
B
=
=
=
30%
X (3,090,000 – B)
927,000-.3B
OR
BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
233
Chapter 25: Introduction to Liabilities
=
=
=
=
20% x (3,090,000 x (1-30%)
1+[20% x (1-30%)]
20% x (3,090,000 x 70%)
1+(20% x 70%)
20% x (2,163,000)
1.14
379,474
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T = Tax
TR = Tax Rate
SUMMARY OF ANSWERS:
1. D 2. B 3. C
PROBLEM 25-30
Question Nos. 1 and 2
Estimated liability from Warranties
Disbursement
warranties
Balance end
for
164,000
212,000
Total
44,800
Beginning balance
240,000
Warranty expense.
376,000
Warranty expense
Divide by % age of warranty
Sales from musical instruments and sound
reproduction equipment (Question No. 1)
Question No. 3
Premium
expense
=
P2,000,000
=
X
1 coupon
P2
200 coupons
P63,000
234
240,000
4%
6,000,000
x
90%
P34-P20
Chapter 25: Introduction to Liabilities
Question No. 4
Inventory of Premium
Beg. Balance
Net Purchases (6,500 x
P34)
39,950
221,000
56,950
204,000
Total
Question No. 5
Balance end
Cost of issued premium
(1.2M coupons.200 coupons
x P34
260,950
Estimated liability for Premiums
Disbursement for premiums
(1.2M coupons/200 coupons
x P(34-P20)
Balance end
Total
84,000
23,800
44,800
Beginning balance
63,000
Premium expense.
107,800
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4.
D
5.
D
PROBLEM 25-31 Refinancing of Loan, Notes Payable Interest and NonInterest Bearing
Note to the Professor: This problem should be discussed after the discussion
in Chapter 26.
Question No. 1
(A)
Periodic payment-NP Delivery equipment
(P2M/4)
Multiply by PV of ordinary annuity
Present value of NP-delivery equipment
Amortization table:
Payment
Date
01/01/2015
12/31/2015
500,000
12/31/2016
500,000
Question Nos. 2 and 3
12% Note payable
10% note payable
Note payable-del.
500,000
3.0373
1,518,650
Interest
Expense
Discount
Amortization
182,238
144,107
317,762
355,893
Noncurrent
1,400,000
2,000,000
844,995
235
Current
700,000
355,893
Present
value
1,518,650
1,200,888
844,995
Chapter 25: Introduction to Liabilities
Equipment
Total
4,244,995
1,055,893
Question No. 4
Accrued interest payable-12% Note payable
=P2,100,000 x 12% x 8/12
=P168,000
Question No. 5
Interest expense:
12% Note payable
1/1-5/1 (2.8M x 12% x 4/12)
5/1-12/31 (2.1M x 12% x 8/12)
10% Note payable (2M x 10%)
Note payable - Delivery. Equipment
(see amortization table)
Total
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4.
B
112,000
168,000
200,000
182,238
662,238
5.
C
PROBLEM 25-32 Warranty, Premiums and Bonus
Question No. 1
Warranty expense (P150 x 1,200)
Less: Warranty paid
Estimated Premiums payable
(A)
180,000
85,000
95,000
Question No. 2
Premium expense
(P1,200,000 x 1 coupon/P1)/400 x 60% x (P45-P20)
Less: Net cost of redeemed coupons
(500,000/400)x( P45-P20)
Estimated Premiums payable
(C)
Question No. 3
Unadjusted net income
Warranty expense under, Net income over (P180,000-P85,000)
Premium expense over, Net income under (P270,000-P45,000)
Adjusted Net income
(C)
Question No. 4
Net income after bonus but before tax
NY
B = BR
x
100% + BR
= 20%
x
2,065,000
100% + 20%
236
45,000
31,250
13,750
1,935,000
(95,000)
225,000
2,065,000
Chapter 25: Introduction to Liabilities
=
344,167
(B)
Question No. 5
Net income after bonus and tax
B = BR
x
(NY – B – T)
T
=
B
=
TR
x
(NY – B)
OR
BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
Net income after bonus and tax
B
= BR X
(NY – B – T)
B
= 20% x (2,065,000-B-(9619,500-3.B)
B
= 20% x (2,065,000-B-619,500+.3B)
B
= 413,000-.2B-123,900+.06B
1B+.2B-.06B = 413,000-123,900
1.14B
=
289,100
1.14
1.14
B
= 253,596
(C)
T
B
=
=
=
=
=
=
=
30%
X (2,065,000 – B)
619,500-.3B
OR
BR x [NY x (1-TR)]
1 + [BR x (1-TR)]
20% x (2,065,000 x (1-30%)
1+[20% x (1-30%)]
20% x (2,065,000 x 70%)
1+(20% x 70%)
20% x (1,445,500)
1.14
253,596
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T = Tax
TR = Tax Rate
SUMMARY OF ANSWERS:
1. A 2. C 3. C 4.
B
5.
C
237
Chapter 25: Introduction to Liabilities
PROBLEM 25-33 Comprehensive
Question No. 1
SSS Payable
Philhealth payable
Estimated liabilities under guarantee agreement
Estimated warranties on goods sold
Utilities payable
Trade payables (170,000+30,000+20,000+12,000-8,000)
Notes payable arising from purchase of goods
Convertible bonds payable due July 1, 2014
Serial bonds payable (40,000 x 2)
Accrued interest expense
Advances from customers
Unearned rent income
Unearned interest on receivables
Income taxes payables
Cash dividends payable
Property dividends payable
Credit balance of notes payable
Overdraft with PNB
Container's deposit
Loans payable-12%
Financial liability designated as FVTPL
Current liabilities
(B)
10,000
9,000
110,000
120,000
6,000
224,000
200,000
1,000,000
80,000
4,000
25,000
36,000
3,500
45,000
100,000
120,000
40,000
80,000
45,000
270,000
200,000
2,727,500
Question No. 2
Deferred tax liability
Notes payable
Arising from 4-year bank loan
Arising from advances by officers, dune in 3 years
Serial bonds payable (800,000 minus (40,000 x 2)
Security deposit received from lessee
Loans payable-10%
Total noncurrent liabilities
(A)
400,000
300,000
720,000
89,000
150,000
1,699,000
Question No. 3
Total liabilities
Current liabilities
Total noncurrent liabilities
Total liabilities
2,727,500
1,699,000
4,426,500
(B)
SUMMARY OF ANSWERS:
1. B 2. A 3. B
238
40,000
Chapter 26: Financial Liabilities and Debt Restructuring
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT
RESTRUCTURING
BONDS PAYABLE
PROBLEM 26-1 Financial Liabilities at FVTPL (Interest Expense and
Unrealized gains or losses)
Question No. 1
Face value
Multiply by: nominal rate
Multiply by: months outstanding/12
Interest expense
Question No. 2
Fair value of the bonds
Less: Carrying value
Unrealized loss (or gain)-P&L
Question No. 3
Retirement Price (3M x 104)
Less: Carrying value (3M x 103)
Realized loss on derecognition-P&L
(A)
3,000,000
8%
12/12
P240,000
(B)
3,090,000
2,850,756
239,244
(D)
3,120,000
3,090,000
30,000
SUMMARY OF ANSWERS:
1. A 2. B 3. D
PROBLEM 26-2 Unrealized Gain or Loss of FVTPL with Change Due To
Credit Risk
Question No. 1
Market price of the liability, end of the period
Less: Fair value of liability using the sum observed interest rate
and instrument specific IRR
Unrealized loss (or gain)-OCI
(B)
Internal rate of return at the start of the period - yield or
effective rate
Less: Observed (benchmark) interest rate, date of inception
Instrument specific IRR
Observed (benchmark) interest rate, end of period
Add: Instrument specific-IRR
Discount rate
239
2,159,740
2,077,740
82,000
10%
7%
3%
6.00%
3%
9.00%
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
Market price of the liability, end of the period
Less: Carrying amount of FVTPL
Increase (or decrease) in FVTPL
Less: Unrealized loss (or gain) in the OCI
Unrealized loss (or gain) in the P&L
(C)
2,159,740
2,000,000
159,740
82,000
77,740
Present value market rate of 8%
Present value of Principal (2,000,000 X 0.6806 )
Add: Present value of interest payments (2,000,000 x 10% x
3.9927)
Market price of the liability, end of the period
1,361,200
798,540
2,159,740
Present value using 9%
Present value of Principal (2,000,000 X 0.6499 )
1,299,800
Add: Present value of interest payments (2,000,000 x 10% x
3.8897 )
777,940
Fair value of liability using the sum observed interest rate and
instrument specific IRR
2,077,740
Journal entry end of the period is:
Unrealized loss-OCI
82,000
Unrealized loss-P&L
77,740
Financial liability at FVTPL
159,740
(Increase in FV of the liability)
SUMMARY OF ANSWERS:
1. B 2. C
PROBLEM 26-3 Financial Liabilities at Amortized Cost-Term Bonds
Question No. 1
Present value of Principal (1,200,000 X 0.7513 )
Add: PV of interest payments (96,000 X 2.4869 )
Present value of the investment bonds
Question No. 2
Amortization Table
Interest
Date
payment
01/01/2016
12/31/2016
96,000
12/31/2017
96,000
12/31/2018
96,000
Interest
expense
114,030
115,833
117,867
SUMMARY OF ANSWERS:
1. C 2. B
240
901,560
238,742
1,140,302
(C)
Premium
Amortization
(B)
18,030
19,833
21,835
Present
value
1,140,302
1,158,333
1,178,166
1,200,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-4 Financial Liabilities at Amortized Cost-Serial Bonds
Question No. 1
Interest
Principal
payment
400,000
96,000
400,000
64,000
400,000
32,000
Total PV of the bonds
Total
payment
496,000
464,000
432,000
Preset value
factor
0.9091
0.8264
0.7513
(A)
Total PV
450,914
383,450
324,562
P1,158,925
Question No. 2
Date
01/01/2016
12/31/2016
12/31/2017
12/31/2018
Interest
Payment
Interest
Expense
Discount
Amortization
Principal
96,000
64,000
32,000
115,892
77,882
39,301
19,892
13,882
7,301
400,000
400,000
400,000
Present
value
1,158,925
778,817
392,699
-
SUMMARY OF ANSWERS:
1. A 2. A
PROBLEM 26-5 Financial Liabilities at Amortized Cost-Term Bonds
Issue Price (110% x 5,000 x P1,000)
Less: Bond issue cost
Net cash received from issuance
5,500,000
300,000
P5,200,000
(D)
PROBLEM 26-6 Financial Liabilities at Amortized Cost - Term Bonds with
Transaction Costs
Issue Price (5,000,000 x 98%)
Less: Bond issue cost
Present value on January 1, 2015
Add: Discount amortization
Nominal interest (5M x 10%)
Effective interest (4,760,000 x 12%)
Carrying value – 12/31/2015
4,900,000
140,000
4,760,000
500,000
571,200
(D)
241
71,200
4,831,200
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-7 Financial Liabilities at Amortized Cost - Term Bonds with
Transaction Costs
Issue Price (5,000,000 x 110%)
Less: Bond issue cost
Present value on January 1, 2015
Less: Premium amortization
Nominal interest (5M x 8%)
Effective interest (5,420,000 x 6%)
Carrying value – 12/31/2016
5.500,000
80,000
5,420,000
400,000
325,200
(B)
74,800
5,345,200
PROBLEM 26-8 Bonds payable with warrants
Market value of the bonds without the warrants
(B)
4,800,000
PROBLEM 26-9 Bonds Payable with Warrants
Present value of principal (8M x .61)
Add: Present value of interest (8M x 6% x 7.72)
Net cash received from issuance – initial carrying amount (B)
4,880,000
3,705,600
P8,585,600
PROBLEM 26-10 Issuance of Convertible Bonds
Total Proceeds (5M X 110%)
Less: Present value of the bonds without conversion option
Present value of Principal (5M x. 77)
3,850,000
Add: Present value of int. payments
(5M x 6% x 2.53)
759,000
Residual amount allocated to Equity component
(B)
5,500,000
4,609,000
891,000
PROBLEM 26-11 Issuance of Convertible Bonds
Carrying amount of the bonds
Less: Par value of issued shares (50,000 x P50)
Share issue cost
Total
Add: Share Premium - conversion option
Total Share Premium
(C)
242
6,000,000
2,500,000
100,000
3,400,000
1,500,000
4,900,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-12 Issuance of Convertible Bonds
Question No. 1
Total Proceeds (P1,000 x 1,000)
Less: Fair value of the bonds without conversion privilege
Total Share Premium
(A)
Using 7.48%
Present value of Principal (1,000,000 x 0.7 )
Add: Present value of interest payments (50,000 x 4 )
Total present value
1,000,000
900,000
100,000
700,000
200,000
900,000
Question No. 2 See amortization table below.
Amortization Table
Interest
Date
Payment
01/01/2065
12/31/2016
50,000
Interest
Expense
Discount
Amortization
67,320
17,320
Present
value
900,000
917,320
SUMMARY OF ANSWERS:
1. A 2. B
PROBLEM 26-13 Retirement of Bonds Payable
Retirement price (₱5,000,000 x .98)
Less: Carrying value (₱5,000,000 - ₱500,000 - ₱300,000)
Loss on retirement
(A)
4,900,000
4,200,000
700,000
PROBLEM 26-14 Conversion of Convertible Bonds
Question No. 1 – Case No. 1
Nil. (A) No gain or loss on conversion of convertible bonds unless the
conversion is induced by the company. The journal entry to record the
transaction would then be:
Bonds payable
1,500,000
Share premium-conversion option
60,000
Premium on bonds payable
52,049
Ordinary shares (20000 X 50 )
1,000,000
Share Premium
612,049
Question No. 2 - Case No. 2
Fair value of liability
Less: Carrying amount of the bonds payable
Loss on settlement (conversion) of liability
(B)
243
1,600,000
1,552,049
47,951
Chapter 26: Financial Liabilities and Debt Restructuring
Fair value of liability
Less: Total par value of the shares issued
Share Premium
1,600,000
1,000,000
600,000
The journal entry to record the transaction would then be:
Bonds payable
1,500,000
Loss on settlement of liability
47,951
Premium on bonds payable
52,049
Ordinary shares (20,000 X 50 )
Share Premium
1,000,000
600,000
SUMMARY OF ANSWERS:
1. A 2. B
PROBLEM 26-15 Induced Conversion
Face amount of debt securities converted
Divide by: New conversion price
Number of shares issued upon conversion
Multiply by: Fair value of shares on the conversion date
Fair value of shares converted
1,500,000
20
75,000
30
2,250,000
Face amount of debt securities converted
Divide by: Old conversion price
Number of shares issued under original conversion
Multiply by: Fair value of shares on the conversion date
Fair value of shares under original conversion
1,500,000
25
60,000
30
1,800,000
Fair value of shares converted
Less: Fair value of shares under original conversion
Debt conversion expense or loss on induced conversion (B)
2,250,000
1,800,000
450,000
Journal entry is:
Bonds payable
Debt conversion expense or loss on
induced conversion
Premium on bonds payable
Ordinary shares (75,000 x 10 )
Share premium
1,500,000
450,000
52,049
750,000
1,252,049
PROBLEM 26-16 Interest-Bearing Note
Accrued interest 2015 (₱5,000,000 x 12% x 9/12)
Accrued interest 2016 (₱5,450,000 x 12% x 12/12)
Total accrued interest
(C)
244
450,000
654,000
1,104,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-17 Non-Interest Bearing Note
Principal
Less: Discount on notes payable
(2M x 10.8% x 12/12)
Amortization (216,000/12 x 5)
Carrying amount of the note payable
216,000
(90,000)
(B)
2,000,000
126,000
1,874,000
PROBLEM 26-18 Interest-Bearing Note
Accrued interest [(₱1,350,000 - ₱450,000) x 12% x 4/12] (B)
₱ 36,000
PROBLEM 26-19 Interest-Bearing Note
Accrued interest 2015 (₱10,000 x 12% x 10/12)
Accrued interest 2016 (₱11,000 x 12% x 12/12)
Total accrued interest
(A)
1,000
1,320
2,320
PROBLEM 26-20 Loans Payable
Principal
Less: Direct origination fees paid (1.5M x 4%)
Initial carrying amount of the loans payable
(D)
1,500,000
60,000
1,440,000
PROBLEM 26-21 Debt Restructuring
Carrying value of liability (₱6,000,000 + ₱600,000)
Less: Cost or carrying value of land
Gain on extinguishment
(D)
6,600,000
3,500,000
3,100,000
PROBLEM 26-22 Debt Restructuring
Fair value of equity securities (₱70 x 50,000)
Less: Par value (₱50 x 50,000)
Share premium
(D)
3,500,000
2,500,000
1,000,000
PROBLEM 26-23 Debt Restructuring
Question No. 1
Present value of Principal (₱4,000,000 x 0.75)
Add: Present value of interest payments (320,000 x 2.49)
Present value of the notes payable
Less: Carrying value of the notes (₱5,000,000 + ₱500,000)
245
3,000,000
796,800
3,796,800
5,500,000
Chapter 26: Financial Liabilities and Debt Restructuring
Gain on extinguishment
(B)
1,203,200
The gain is recognized since the restructuring results in a substantial
modification (i.e., 21.88% = 1,203,200 / 5,500,000)
Question No. 2
Interest expense (3,796,800 x 10%)
(B)
379,680
SUMMARY OF ANSWERS:
1. B 2. B
PROBLEM 26-24 Debt Restructuring
Principal
Add: Accrued interest – January 1, 2015
Accrued interest – 2015
Carrying amount of old liability
Less: Present value of new liability
Present value of principal (P5M x .6209)
Present value of interest (P5M x .08 x 3.7908)
Gain on extinguishment of liability
(A)
P6,000,000
600,000
600,000
7,200,000
3,104,500
1,516,320
4,620,820
2,579,180
COMPREHENSIVE PROBLEMS
PROBLEM 26-25 Interest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (1,200,000 x 0.7118 )
Add: Present value of interest payments (36,000 x 2.4018 )
Present value of the notes payable
(A)
Amortization Table:
Interest
Date
Payment
01/01/2016
12/31/2016
36,000
12/31/2017
36,000
12/31/2018
36,000
Interest
Expense
Discount
Amortization
112,875
122,100
132,432
76,875
86,100
96,400
Question No. 2
Interest Expense (940,625 x .12) = P112,875
(B)
Question No. 3
P1,017,500. See amortization table above.
(A)
Question No. 4
Nil. (A) The entire note payable is noncurrent liability.
246
854,160
86,465
940,625
Present
value
940,625
1,017,500
1,103,600
1,200,000
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 5
Nil. (A) The entire note payable is current liability.
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4.
A
5.
A
PROBLEM 26-26 interest-bearing note – non-uniform installments
Question No. 1
Interest
Principal
payment
1,200,000
60,000
400,000
24,000
400,000
12,000
Total PV of notes payable
Amortization Table
Date
Date
01/01/2016
12/31/2016
60,000
12/31/2017
24,000
12/31/2018
12,000
Total
payment
1,260,000
424,000
412,000
Preset value
factor
0.8929
0.7972
0.7118
(D)
Interest
Expense
Discount
on N/P
Principal
Payment
210,759
84,851
44,079
150,759
60,851
32,062
1,200,000
400,000
400,000
Present
Value
1,125,054
338,013
293,262
1,756,328
Present
Value
1,756,328
707,088
367,938
-
Question No. 2
Interest expense (1,756,328 x .12)
P210,759
(D)
Question No. 3
Carrying amount – December 31, 2016
P707,088
(C)
Question No. 4
Principal payable Dec. 31, 2017
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal payable Dec. 31, 2018
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. D 2. D 3. C 4.
C
5.
(C)
P400,000
60,851
P339,149
(C)
P400,000
32,062
P367,938
C
247
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-27 Interest-Bearing Note –Uniform Installments
Question No. 1
Interest
Principal
payment
400,000
36,000
400,000
24,000
400,000
12,000
Total PV of notes payable
Amortization Table
Interest
Date
Payment
01/01/2016
12/31/2016
36,000
12/31/2017
24,000
12/31/2018
12,000
Total
payment
436,000
424,000
412,000
Preset value
factor
0.8929
0.7972
0.7118
(A)
Present
Value
389,304
338,013
293,262
1,020,579
Interest
Expense
Discount
Principal
Payment
122,469
84,846
44,106
86,469
60,846
32,106
400,000
400,000
400,000
Present
Value
1,020,579
707,048
367,894
-
Question No. 2
Interest expense (1,020,579 x .12)
P122,469
(B)
Question No. 3
Carrying amount – December 31, 2016
707,048
(A)
Question No. 4
Principal (payable Dec. 31, 2017
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal (payable Dec. 31, 2018
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4.
B
5.
(B)
P400,000
60,846
P339,154
(A)
P400,000
32,106
P367,894
A
PROBLEM 26-28 Noninterest-Bearing Note – With Cash Price Equivalent
Question No. 1
The carrying amount of the note on initial recognition is equal to its cash price
equivalent of P994,760.
(C)
Coincidentally, the effective rate using the cash price equivalent is 12% and the
amortization table is as follows:
248
Chapter 26: Financial Liabilities and Debt Restructuring
Amortization Table at 12%
Principal
Date
payment
01/01/2016
12/31/2016
400,000
12/31/2017
400,000
12/31/2018
400,000
Interest
expense
Amortization
99,476
69,424
36,340
300,524
330,576
363,660
Present
value
994,760
694,236
363,660
-
Question No. 2
Interest expense (994,760x .12)
P99,476
(A)
Question No. 3
Carrying amount – December 31, 2016
P694,236
(A)
Question No. 4
Principal (payable Dec. 31, 2017
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal (payable Dec. 31, 2018
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4.
B
5.
(B)
P400,000
69,424
P330,576
(C)
P400,000
36,340
P363,660
C
PROBLEM 26-29 Noninterest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (1,200,000 x 0.7118 )
Amortization Table
Date
Interest expense
01/01/2016
12/31/2016
102,499
12/31/2017
114,799
12/31/2018
128,542
(B)
854,160
Present value
854,160
956,659
1,071,458
1,200,000
Question No. 2
Interest expense (854,160 x .12)
P102,499
(B)
Question No. 3
Carrying amount – December 31, 2016
P956,659
(A)
249
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 4
Nil. The entire note payable is noncurrent liability since it is due beyond 12
months from the reporting date.
(B)
Question No. 5
The total entire carrying amount of note payable is presented as noncurrent
liability. See Question No. 4.
(A)
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4.
B
5.
A
PROBLEM 26-30 Noninterest-Bearing Note – Installments
Question No. 1
Present value of Principal (400,000 X 2.4018 )
Amortization Table
Date
Interest
Payment
01/01/2016
12/31/2016
400,000
12/31/2017
400,000
12/31/2018
400,000
(D)
Interest
expense
Amortization
115,286
81,121
42,873
284,714
318,879
357,127
960,720
Present
value
960,720
676,006
357,127
-
Question No. 2
P115,286. See amortization table above. (A)
Question No. 3
P676,006. See amortization table above. (A)
Question No. 4
Principal (payable Dec. 31, 2017
Less: Discount on notes payable
Carrying amount-current liability
Question No. 5
Principal (payable Dec. 31, 2018
Less: Discount on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4.
B
5.
(B)
P400,000
81,121
P318,879
(C)
P400,000
42,873
P357,127
C
250
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-31 Issuance, Retirement and Conversion of Non-Convertible
Bonds
Question No. 1
Present value of Principal (3,000,000 X 0.6499 )
Add: Present value of interest payments
(3,000,000 x 12% x 3.8897 )
Present value of the bonds payable
(B)
Amortization Table
Date
Interest
payment
01/01/2014
12/31/2014
360,000
12/31/2015
360,000
Interest
expense
1,949,794
1,400,274
3,350,068
Discount
Amortization
301,506
296,242
58,494
63,758
Question No. 2
Retirement Price
Less: Carrying amount (3,227,816 x 1/2)
Loss on retirement
(B)
Question No. 3
Amortization table:
Interest
Date
payment
12/31/2015
12/31/2016
180,000
Present
value
3,350,068
3,291,574
3,227,816
1,900,000
1,613,908
286,092
(B)
Interest
expense
Amortization
145,252
34,748
Question No. 4
Fair value of the ordinary shares issued (460 x 5,000)
Less: Carrying amount of the liability
Loss on conversion
(D)
Present
value
1,613,908
1,579,160
P2,300,000
1,579,160
P720,840*
Or P720,839*
Question No. 5
Fair value of the ordinary shares issued (460 x 5,000)
Less: Total par value of the shares issued (40 x 5,000)
Share Premium
(D)
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4.
D
5.
D
251
P2,300,000
200,000
P2,100,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-32 Issuance, Retirement and Conversion of Convertible
Bonds
Note to the professor: On January 1, 2014, Tagbilaran Co. issued its 10%, 5year, ₱3,000,000 convertible bonds for the face amount of ₱3,000,000 not
₱5,000,000.
Question No. 1
Total Proceeds
Less: Present value of the bonds without the
conversion option
Present value of Principal (3,000,000 x 0.5674 )
Present value of interest payments (300,000 x
3.6048 )
Residual amount to equity
(B)
Amortization Table
Date
Interest
payment
01/01/2015
12/31/2015
300,000
12/31/2016
300,000
Interest
expense
334,046
338,131
Question No. 2
Fair value of liability using current rate
Less: Carrying amount (2,817,759 x ½)
Loss on settlement of liability
P3,000,000
1,702,281
1,081,433
Discount
Amortization
(34,046)
(38,131)
(B)
Present value using 9% for 3 periods
Present value of Principal (1,500,000 X 0.7722)
Add: Present value of interest payments (150,000 X 2.5313)
Present value of the bonds payable
Question No. 3
Retirement Price
Less: Fair value of liability using current rate
Decrease in equity
(E)
2,783,713
216,287
Present
value
2,783,713
2,817,759
2,855,890
1,537,969
1,427,945
110,024
1,158,275
379,694
1,537,969
1,600,000
1,537,969
62,031
Question No. 4
Interest expense is P338,131 based on the amortization table above.
Question No. 5
Shares to be issued based on amended terms (1.5M/400)
Less: Shares to be issued based on original terms (1.5M/500)
Incremental shares
Multiply by: Fair value
Debt settlement expense
(C)
252
(D)
3,750
3,000
750
420
315,000
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1. B 2. B 3. E 4.
D
5.
C
PROBLEM 26-33 Redeemable Preference Shares and Debentures
Present value of the redeemable preference shares
Present value of Principal (15,000 x 1.05 x 0.72161 )
Add: Present value of interest payments (1,500 x 2.42308 )
Present value of the preference shares
Amortization table:
Date
Interest
Payment
01/01/2016
12/31/2016
1,500
12/31/2017
1,500
12/31/2018
1,500
Interest
Expense
Amortization
1,723
1,749
1,778
223
249
246
Question No. 1
P1,723. See amortization table above.
(B)
Question No. 2
P1,749. See amortization table above.
(C)
Question No. 3
P1,778. See amortization table above.
(D)
Present value of the debentures
Present value of Principal (20,000 x 1.02 x 0.53884 )
Add: Present value of interest payments (2400 x 3.5032 )
Present value of bonds payable
Amortization Table
Date
Interest
Payment
12/31/2018
12/31/2019
2,400
Interest
Expense
Amortization
2,554
(154)
Question No. 4
P2,554. See amortization table above.
(B)
Question No. 5
P19,554. See amortization table above.
(B)
253
11,365
3,635
15,000
Present
value
15,000
15,223
15,472
15,718
10,992
8,408
19,400
Present
value
19,400
19,554
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4.
B
5.
B
PROBLEM 26-34
Question No. 1
Accounts payable, unadjusted
Good in transit FOB shipping point
Undelivered check
Accounts payable, adjusted
(D)
P1,350,000
75,000
60,000
P1,485,000
Question No. 2
14% Note payable (1,250,000 x 14%)
16% Note payable (3,000,000 x 16%)
10% Note payable (2,000,000 x 10% x 6/12)
Interest expense
(D)
P175,000
480,000
100,000
P755,000
Question No. 3
14% Note payable (1,250,000 x 14% x 3/12)
16% Note payable (3,000,000 x 16% x 9/12)
10% Note payable (2,000,000 x 10% x 6/12)
Interest expense
(C)
P43,750
360,000
100,000
P503,750
Question Nos. 4 and 5
Current
1,485,000
1,250,000
Accounts payable
14% Note payable
16% Note payable
10% Note payable
Accrued interest payable
Total
SUMMARY OF ANSWERS:
1. D 2. D 3. C 4.
Noncurrent
3,000,000
2,000,000
503,750
P3,238,750
(C)
C
5.
P5,000,000
(C)
C
PROBLEM 26-35 (Comprehensive)
Question No. 1
Present value of Principal (10,000,000 X 0.3118 )
Add: Present value of interest payments (500,000 X 11.46992 )
Present value of the bonds payable
(A)
254
3,118,000
5,734,960
8,852,960
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
April 1, 2016
July 1, 2016
October 1, 2016
January 1, 2017
Notes payable-current liability
P 400,000
600,000
300,000
300,000
P1,600,000
(B)
Question Nos. 3 and 4
Estimated liability from Warranties
Disbursement for
warranties
Balance end (A)
358,000
342,000
Total
180,000
Beginning balance
520,000
Warranty expense (C)
700,000
Question No. 5
(a)
A
B
C
Total
Fixed
salary
10,000
14,000
18,000
(b)
( c)
Net Sales
200,000
400,000
600,000
d=b x c
Comm.
Rate
4%
6%
6%
Comm.
Expense
8,000
24,000
36,000
(C)
E=d-a
Accrued
Salaries
Payable
0
10,000
18,000
P28,000
Question Nos. 6 and 7
Int. payable - Bonds (10M x 10% x 3/12)
Int. payable - Note payable
Notes payable
Estimated warranties payable
Trade payable
Sales commissions payable
Cash dividends payable (6M x P.2)
Bonds payable
Total
Current
250,000
600,000
1,600,000
342,000
740,000
28,000
1,200,000
P4,760,000
(B)
Noncurrent
5,400,000*
8,970,751
P14,370,751**
(C)
*(P7M-1.6M)
** or P14,370,783 which is the same as P8,952,185 x 100% +(Effective rate x
months outstanding/12) minus payment
Or [(P8,952,185 x 103%) - P250,000]
255
Chapter 26: Financial Liabilities and Debt Restructuring
Amortization Table
Interest
Date
Payment
07/01/2014
01/01/2015
500,000
07/01/2015
500,000
01/01/2016
500,000
03/31/2016
250,000
(8,952,185 x 12% x 3/12)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4.
C
Interest
Expense
Amortization
531,178
533,048
535,031
268,566
31,178
33,048
34,999
18,566
5.
C
6
B
7
Present
value
8,852,960
8,884,138
8,917,186
8,952,185
8,970,751
C
PROBLEM 26-36 Financial liabilities, Investment in associate and research
and development cost
Question No. 1
Total proceeds (P100 x 2M)
Less: Present value of the convertible debt (see No. 2)
Share premium – conversion privilege
Less: Share issuance cost
Net amount allocated to equity
(C)
200,000,000
181,635,200
18,364,800
4,000,000
14,364,800
Question No. 2
Present value of convertible debt without conversion option at 11.81%
Present value of Principal (200M x .7154)
143,080,000
Add: Present value of interest payments (200M x .08 x 2.4097)
38,555,200
Present value of the convertible debt
(B)
181,635,200
Question No. 3
Interest expense (181,635,200 x .1181)
(D)
21,451,117
(C)
380,000,000
370,000,000
10,000,000
20%
2,000,000
Question No. 4
Net asset of GL
Less: Recoverable amount
Impairment loss of GL
Multiply by: Percentage share
Impairment loss
Question No. 5
1.
6.
7.
Research on size of potential market
Staff training costs
Advertisement costs
Total amount expensed
(B)
256
₱ 800,000
600,000
3,400,000
₱4,800,000
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 6
2.
3.
4.
Products designing
Labor costs in refinement of products
Development work undertaken to finalize the
product design
Total Development cost capitalized
(C)
SUMMARY OF ANSWERS:
1. C 2. B 3. D 4.
C
5.
B
6
1,500,000
950,000
11,000,000
13,450,000
C
PROBLEM 26-37 Financial Liability at FVTPL vs. FLAC
CASE NO. 1
Question No. 1
Initial carrying amount is fair value or issuance price of ₱1,898,205.
Transaction cost is expensed outright. (D)
Question No. 2
Interest expense (₱2,000,000 x 8%)= ₱ 160,000 (A)
Question No. 3
Fair value 12/31/2015 (1.02 x ₱2,000,000)
Less: Initial carrying amount
Unrealized loss
(C)
₱2,040,000
1,898,205
₱ 141,795
Question No. 4
Carrying value (₱2,000,000 x .98)= ₱ 1,960,000 (C)
Question No. 5
Fair value 12/31/2017 (.99 x ₱2,000,000)
Less: Carrying value (.98 x ₱2,000,000)
Unrealized loss
(D)
₱1,980,000
1,960,000
₱ 20,000
Question No. 6
Retirement price (1.05 x ₱2,000,000)
Add: Transaction cost
Total retirement price
Less: Carrying value (.98 x ₱2,000,000)
Loss on derecognition
SUMMARY OF ANSWERS:
1. D 2. A 3. C 4.
C
5.
₱2,100,000
20,000
2,120,000
1,980,000
₱ 140,000
(A)
D
257
6.
A
Chapter 26: Financial Liabilities and Debt Restructuring
CASE NO. 2
Question No. 7
Issue price
Less: Transaction cost
Initial carrying amount
₱1,898,205
25,000
₱ 1,873,205
(C)
Question No. 8
Effective interest rate = 10% (B)
Please refer to discussion on interpolation.
Question No. 9
Interest expense (₱1,873,205 x 10%)= ₱ 187,321 (B)
Question No. 10
No gain or loss due to change in fair value is not recognized. (D)
Question No. 11
Carrying value 12/31/2016
(A)
₱1,930,579
Retirement price (1.05 x ₱2,000,000)
Add: Transaction cost
Total retirement price
Less: Carrying value – 01/01/2018
Loss on derecognition
(B)
₱2,100,000
20,000
2,120,000
1,963,636
₱ 156,364
SUMMARY OF ANSWERS:
7. C 8. B 9. B 10.
A
Question No. 12
D
11.
258
12.
B
Chapter 27 – Lease
CHAPTER 27: LEASE
PROBLEM 27-1 Unequal rental payments
2014
2015
2016
2017
Total rent
Divide by: Number of years
Rent expense per year
20,000
18,000
16,000
14,000
68,000
4
17,000
(C)
PROBLEM 27-2 Operating Lease - Unequal rental payments
07/01/2014 to 06/30/2015
07/01/2015 to 06/30/2016
07/01/2016 to 06/30/2017
Total
Divide by: Lease term
Rent income per year
60,000
90,000
210,000
360,000
3
120,000
Rent income to date (120,000 x 2)
Less: Collection to date (60,000 +
90,000)
Rent receivable
(A)
240,000
150,000
90,000
PROBLEM 27-3 Operating Lease - Comprehensive
CASE NO. 1
Question No. 1
Periodic rent-one year (₱25,000 x 12)
(B)
300,000
CASE NO. 2
Question No. 2
Periodic rent-one year
Amortization of lease bonus (180,000 / 3 )
Rent expense
(C)
300,000
60,000
360,000
CASE NO. 3
Question No. 3
Total lease payments [(3 x 12) – 6) x 25,000]
Divide by: Lease term
Rent expense per year
(D)
750,000
3
250,000
259
Chapter 27 – Lease
Question No. 4
Total payments to date, 2016 (6 x 25,000 )
Less: Total expense to date, 2016
Accrued rent payable
(E)
150,000
250,000
100,000
CASE NO. 4
Question No. 5
Total lease payments
(25,000 x 2 x 12 )
(30,000 x 1 x 12 )
Divide by: Lease term
Rent expense per year
600,000
360,000
(A)
960,000
3
320,000
Question No. 6
Total payments to date, 2016
Less: Total expense to date, 2016
Accrued rent payable
(D)
300,000
320,000
(20,000)
CASE NO. 5
Question No. 7
Rent Revenue
Less: Amortization of Direct Cost (120,000 / 3)
Insurance and property tax expense on
leased asset
Depreciation of the leased asset
Net income
(A)
CASE NO. 6
Question No. 8
Period rent for one year
Add: Contingent rent
1st [(2,500,000 – 1,500,000) x 10%]
100,000
2nd [(6,000,000 – 2,500,000) x 8%]
280,000
Total rent expense
(A)
SUMMARY OF ANSWERS:
1. B
2. C
3. D
6. D 7. A
8. A
4.
(E)
5.
300,000
40,000
40,000
30,000
190,000
300,000
380,000
680,000
A
PROBLEM 27-4 Finance Lease - Lease Liability
(A) The capitalized lease liability should be the annual lease payments less the
executory cost (real estate taxes) times the present value factor for an ordinary
annuity of 1 for nine years at 9%. The calculation would be: (P26,000 - 1,000) ×
6.0 = P150,000. The real estate taxes are a period cost and should be charged to
expense.
260
Chapter 27 – Lease
PROBLEM 27-5 Finance Lease with Bargain Purchase Option
Question No. 1
(A)
Present value of periodic payment (120,000 x 3.4018)
Add: Present value of bargain purchase option (20,000 x 0.6355)
Present value of minimum lease payments
Amortization Table
Annual
Date
payment
12/31/2016
12/31/2016
120,000
12/31/2017
120,000
12/31/2018
120,000
12/31/2019
120,000
12/31/2020
20,000
Interest
expense
36,111
26,044
14,770
2,142
Amortization
120,000
83,889
93,956
105,230
17,858
408,220
12,710
420,926
Present
value
420,926
300,926
217,037
123,082
17,851
(6)
Question No. 2
(B)
P36,111. See amortization table above.
Question No. 3
(C)
P83,889. See amortization table above.
Question No. 4
(B)
P217,037. See amortization table above.
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
B
PROBLEM 27-6 With Guaranteed Residual Value And Initial Direct Cost
CASE NO. 1
Question No. 1
Present value of periodic payment (130,000 x 3.4869)
Add: Present value of guaranteed residual value (50,000 x 0.683)
Present value of minimum lease payments
Add: Initial direct cost
Cost of the Machinery
(C)
Amortization Table
Annual
Date
payment
12/31/2016
12/31/2016
130,000
12/31/2017
130,000
12/31/2018
130,000
12/31/2019
130,000
12/31/2020
50,000
Interest
expense
35,745
26,319
15,951
4,538
261
Amortization
130,000
94,255
103,681
114,049
45,462
453,297
34,150
487,447
40,000
527,447
Present
value
487,447
357,447
263,192
159,511
45,462
0
Chapter 27 – Lease
Question No. 2
(B)
P35,745. See amortization table above.
Question No. 3
(C)
P94,255. See amortization table above.
Question No. 4
(B)
P263,192. See amortization table above.
CASE NO. 2
Question No. 5
Present value of periodic payment (130,000 x 3.4226)
Add: Present value of guaranteed residual value (50,000 x 0.647)
Present value of minimum lease payments = Fair value
Add: Initial direct cost
Cost of the Machinery
(D)
Amortization Table: Effective rate = 11.50%
Annual
Interest
Date
payment
expense
Amortization
12/31/2016
12/31/2016
130,000
130,000
12/31/2017
130,000
39,938
90,062
12/31/2018
130,000
29,581
100,419
12/31/2019
130,000
18,033
111,967
12/31/2020
50,000
5,160
44,840
444,938
32,350
477,288
40,000
517,288
Present
value
477,288
347,288
257,226
156,807
44,840
(0)
Question No. 6
(D)
P39,938. See amortization table above.
Question No. 7
(A)
P90,062. See amortization table above.
Question No. 8
(D)
P257,226. See amortization table above.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
B
5.
262
D
6.
D
7.
A
8.
D
Chapter 27 – Lease
PROBLEM 27-7 Finance Lease - Depreciation
Question No. 1
Cost of the lease asset
Less: Estimated residual value end of the useful life of the asset
Depreciable cost
Divide by: Useful life
Depreciation
(A)
487,447
60,000
427,447
8
53,431
Question No. 2
Cost of the lease asset
Less: Gross amount of guaranteed residual value
Depreciable amount
Divide by: Lease term
Depreciation
(B)
487,447
50,000
437,447
4
109,362
PROBLEM 27-8 Computation of Periodic Lease Payments
Fair value
Less: Present Value of Guaranteed Residual Value
Total
Divide by: Present value of Annuity Due
Periodic lease payments
(B)
800,000
59,630
740,370
4.8897
151,414
PROBLEM 27-9 Direct Financing Lease - Lessor
Question No. 1
Gross Investment:
Total Periodic Lease Payment (261,692 x 4)
Add: Unguaranteed Residual value (URV)
Less: Cost of the equipment
Unearned interest income
(C)
*1,046,775
150,000
1,196,775
1,000,000
196,775
*1,046,770 OR 1,046,775
Amortization Table
Annual
Date
Collection
12/31/2016
12/31/2016
261,692
12/31/2017
261,692
12/31/2018
261,692
12/31/2019
261,692
12/31/2020
150,000
Interest
Income
81,214
61,361
39,325
14,864
263
Amortization
261,692
180,479
200,331
222,368
135,136
Present
value
1,000,000
738,308
557,829
357,498
135,130
(6)
Chapter 27 – Lease
Question No. 2
(C)
P81,214. See amortization table above.
Question No. 3
(A)
P180,479. See amortization table above.
SUMMARY OF ANSWERS:
1. C
2. C
3. A
PROBLEM 27-10 Direct Financing Lease - With Initial Direct Cost
Question No. 1
Gross Investment:
Total Periodic Lease Payment (251,600 X 4)
Add Unguaranteed Residual value (URV)
Less: Cost of the equipment
Unearned interest income
(A)
*1,006,402
-
1,006,402
924,128
82,273
*4,796,278 OR *4,796,280
Cost of the equipment
Add: Initial direct cost
Net cost of investment
Amortization Table
Annual
Date
Collection
12/31/2016
12/31/2016
251,600
12/31/2017
251,600
12/31/2018
251,600
12/31/2019
251,600
900,000
24,128
924,128
Interest
Income
51,872
35,894
18,637
Question No. 2
(A)
P51,872. See amortization table above.
Question No. 3
(B)
P199,728. See amortization table above.
SUMMARY OF ANSWERS:
1. A
2. A
3. B
264
Amortization
251,600
199,728
215,707
232,963
Present
value
900,000
648,400
448,671
232,964
1
Chapter 27 – Lease
PROBLEM 27-11 Direct Financing Lease - Sale Of Leased Asset
CASE NO. 1
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4)
Add: Residual Value
Present value of the leased asset
Present value of minimum lease payments
(300,000 x 3.3121)
Add: Present value of residual value (50,000 x
.735)
Unearned interest income
(A)
Amortization Table
Annual
Date
Collection
01/01/2016
12/31/2016
300,000
12/31/2017
300,000
12/31/2018
300,000
12/31/2019
350,000
Interest
Income
(B)
Question No. 4
Nil.
(A)
The journal entry is:
Inventory
Cash
Lease receivable
SUMMARY OF ANSWERS:
1. A
2. B
3. B
1,030,380
900,000
10,000
120,380
44,000
6,000
50,000
4.
A
265
36,750
217,570
234,975
253,773
324,094
Question No. 2
P82,430. See amortization table above.
1,250,000
993,630
Amortization
82,430
65,025
46,227
25,906
Question No. 3: Guaranteed
Sales
Less: Cost of goods sold
Initial direct cost
Dealer's profit
1,200,000
50,000
1,030,380
219,620
Present
value
1,030,380
812,810
577,835
324,062
(32)
Chapter 27 – Lease
CASE NO. 2
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4)
Add: Residual Value
Present value of the leased asset
Present value of minimum lease payments
(300,000 x 3.3121)
Add: Present value of residual value (50,000 x
.735)
Unearned interest income
(A)
Question No. 2
Amortization Table
Annual
Date
Collection
01/01/2016
12/31/2016
300,000
12/31/2017
300,000
12/31/2018
300,000
12/31/2019
350,000
1,250,000
993,630
36,750
1,030,380
219,620
(B)
Interest
Income
Amortization
82,430
65,025
46,227
25,906
Question No. 3: Unguaranteed
Sales
Less: Net cost
Cost of goods sold
Less: Present value of URV
Initial direct cost
Dealer's profit
(B)
Question No. 4
P6,000.
217,570
234,975
253,773
324,094
Present
value
1,030,380
812,810
577,835
324,062
(32)
993,630
900,000
36,750
863,250
10,000
120,380
(B)
The journal entry is:
Inventory
Loss on sales type
Lease receivable
SUMMARY OF ANSWERS:
1. A
2. B
3. B
1,200,000
50,000
44,000
6,000
50,000
4.
B
PROBLEM 27-12 Sales-Type Lease
Net Selling Price
Less: Present value of lease receivable
Gain on sale
(D)
400,000
150,000
250,000
266
Chapter 27 – Lease
PROBLEM 27-13 Sale and Leaseback as Finance Lease
Question No. 1
Sales Price
Less: Carrying amount
Loss on sale and leaseback
(B)
993,630
1,100,000
(106,370)
Question No. 2
Sales Price
Less: Carrying amount
Deferred gain on sale and leaseback
Divide by: Lease term
Gain on sale and leaseback
(D)
993,630
900,000
93,630
4
23,408
PROBLEM 27-14 Sale and Leaseback as Operating Lease - Treatment of
Gain
Question No. 1
(B)
Sales Price = Fair value
Less: Carrying amount
Gain on sale - recognize immediately
800,000
500,000
300,000
Question No. 2
(B)
Sales price
Less: Carrying amount
Loss on sale - recognize immediately
800,000
1,000,000
(200,000)
Question No. 3
Sales price
Less: Fair value
Deferred Gain
800,000
600,000
200,000
Fair value
Less: Carrying amount
Outright gain
(D)
600,000
450,000
150,000
Question No. 4
(B)
Sales Price = Fair value
Less: Carrying amount
Gain on sale - recognize immediately
800,000
400,000
400,000
Question No. 5
Sales Price = Fair value
Less: Carrying amount
Loss on sale and leaseback
800,000
880,000
(80,000)
(B)
267
Chapter 27 – Lease
Question No. 6
Note to the Professor: The question should be what amount of loss on sale and
leaseback should Beegees Co. recognized immediately and not GAIN on sale and
leaseback.
Nil. The loss is compensated by future lease rental below the market rate.
SUMMARY OF ANSWERS:
1. B
2. D
3. D
4.
B
5.
B
6.
A
COMPREHENSIVE PROBLEMS
PROBLEM 27-16
CASE NO. 1
Question No. 1
(A)
“Substantially all” test
Present value of Periodic Payment (200,000 x 6.75902)
% age
1,351,805
2,000,000
1,351,805
=68%
Not substantially all.
Major part test
% age
10
20
=50%
The lease term does not amount to major part of the economic life of the asset.
Answer: Nil. The lease do not classify as finance lease.
Question No. 2
Rent expense
(B)
P200,000
Question No. 3
Nil.
(A)
Question No. 4
Nil.
(A)
Question No. 5
(D)
Depreciation expense overstated, net income understated
Interest expense overstated, net income understated
Rent expense understated, net income overstated
Net income understated
SUMMARY OF ANSWERS – CASE NO. 1:
1. A
2. B
3. A
4. A
5.
268
D
(115,181)
(135,181)
200,000
(50,362)
Chapter 27 – Lease
Question No. 1
“Substantially all” test
% age
1,351,805 =90%
1,500,000
CASE NO. 2
(B)
The lease is a finance lease. The cost of the leased asset is lower between the
fair value and the present value of minimum lease payment which is
P1,351,805.
Amortization Table
Annual
Date
Payment
01/01/2015
12/31/2015
200,000
12/31/2016
200,000
12/31/2017
200,000
12/31/2018
200,000
Interest
Expense
Amortization
115,181
106,699
97,368
200,000
84,819
93,301
102,632
Question No. 2
(D)
Depreciation expense (1,351,805/10)
Interest expense
Total lease- related expenses
Present
value
1,351,805
1,151,805
1,066,986
973,684
871,052
135,181
115,181
250,362
Question No. 3
(C)
P93,301. See amortization table above.
Question No. 4
(B)
P1,066,986. See amortization table above.
Question No. 5
(A)
Nil. The company did not commit any error.
SUMMARY OF ANSWERS – CASE NO. 2:
1. B
2. D
3. C
4. B
5.
A
PROBLEM 27-17
Question No. 1
(B)
Lease is a finance lease thus any gain should be deferred and amortize over the
lease term.
Selling Price
Less: Carrying amount
Deferred gain on sale and leaseback
Less: Amortization in 2014 (29,695/10)
Deferred gain on sale and leaseback, end
269
379,695
350,000
29,695
2,970
26,725
Chapter 27 – Lease
Question No. 2
(D)
Interest expense
Depreciation expense (379,695/10)
Rent expense (5,000 x 12)
Total lease related expenses
Amortization Table
Annual
Date
Payment
01/02/2016
01/02/2016
60,000
01/02/2017
60,000
38,363
37,970
60,000
136,333
Interest
Expense
Amortization
38,363
60,000
21,637
Question No. 3
(C)
Sale and leaseback as finance lease
Lease liability, 01/02/2016
Add: Accrued interest
Total lease-related liability
Present
value
379,695
319,695
298,058
319,695
38,363
358,058
Question No. 4
(B)
Amortization of deferred gain on sale and leaseback (see No. 1)
Add: Gain on sale and leaseback as operating lease (P400,000P350,000)
Total gain on sale and leaseback
2,970
50,000
52,970
Question No. 5
(B)
The deferred gain on sale and leaseback should be recognized immediately.
SUMMARY OF ANSWERS:
1. B
2. D
3. C
4.
B
5.
B
PROBLEM 27-18
Question No. 1
(C)
Present value of Periodic Payment (50,000 x 4.0373) - LOWER
Fair Value of the leased asset
201,865
P213,213
PAR. 20 OF PAS 17 States that: At the commencement of the lease term, lessees
shall recognise finance leases as assets and liabilities in their balance sheets at
amounts equal to the fair value of the leased property or, if lower, the present
value of the minimum lease payments, each determined at the inception of the
lease. The discount rate to be used in calculating the present value of the
minimum lease payments is the interest rate implicit in the lease, if this is
practicable to determine; if not, the lessee’s incremental borrowing rate shall be
used. Any initial direct costs of the lessee are added to the amount recognized as
an asset.
270
Chapter 27 – Lease
Question Nos. 2-4
Amortization Table
Annual
Date
Payment
12/31/2015
12/31/2015
50,000
12/31/2016
50,000
12/31/2017
50,000
12/31/2018
50,000
12/31/2019
50,000
Interest
Expense
Amortization
18,224
14,411
10,140
5,361
50,000
31,776
35,589
39,860
44,639
Present
value
201,865
151,865
120,089
84,499
44,639
0
Question No. 2
(D)
P120,089. See amortization table above.
Question No. 3
(C)
P35,589. See amortization table above.
Question No. 4
(C)
P18,224. See amortization table above.
Question No. 5
(A)
Depreciation expense (201,865/5)
SUMMARY OF ANSWERS:
1. C
2. D
3. C
4.
C
P40,373
5.
A
PROBLEM 27-19
Question No. 1
Annual lease payments
(A)
=
=
Annual lease payments
=
Fair market value – Present value of
Unguaranteed Residual Value
Annuity due
286,420 - (.5066 X 20,000)
4.6048
60,000
Question No. 2
(C)
Total minimum lease payments(60,000 x 6)
Add: Unguaranteed residual value
Total lease receivable
Less: Fair market value of the leased asset
Total Financial revenue
271
360,000
20,000
380,000
286,420
93,580
Chapter 27 – Lease
Question No. 3
Amortization Table
Annual
Date
Collection
01/01/2016
01/01/2016
60,000
12/31/2016
60,000
(A)
Interest
Income
Amortization
27,170
60,000
32,830
Present
value
286,420
226,420
193,590
Question No. 4
(C)
Present value of periodic lease payments (60,000 x 4.6048)
Amortization Table
Annual
Date
Collection
01/01/2015
01/01/2015
60,000
12/31/2015
60,000
Interest
Income
Amortization
25,955
60,000
34,045
Depreciation expense (276,288/6)
Add: Interest expense
Total expenses
P 276,288
Present
value
276,288
216,288
182,243
46,048
25,955
72,003
Question No. 5
(C)
P182,243. See amortization table in No. 4.
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
C
5.
C
PROBLEM 27-20
Question No. 1
(B)
Periodic rent (12,000 x 12)
Amortization of lease bonus (300,000/6)
Rent expense
Question No. 2
(C)
Periodic rent
Contingent rent:
1st (4M x 4%)
160,000
2nd (6M-4M) x 5%)
100,000
Amortization of lease bonus (500,000/5)
Total rent expense
272
144,000
50,000
194,000
480,000
260,000
100,000
840,000
Chapter 27 – Lease
Question No. 3
Rent expense
=
Rent expense
=
(B)
[(3 x 12)-6] x 10,000
3
100,000
Question No. 4
(B)
Lease No. 1 (Rent expense overstated, asset understated)
(P444,000-P194,000)
Lease No. 2 (Rent expense overstated, asset understated)
Asset understated
Rent expense per year-Lease 3
Less: Payment (10,000 x 6 months)
Accrued rent payable under, Liability understated
100,000
60,000
(40,000)
Question No. 5
(C)
Lease no. 1 (Rent expense overstated, net income understated)
Lease No. 2 (Rent expense overstated, net income understated)
Lease No. 3 (Rent expense understated, net income overstated)
(100,000-60,000)
Net income understated
SUMMARY OF ANSWERS:
1. B
2. C
3. B
4.
B
5.
(250,000)
(400,000)
(650,000)
(250,000)
(400,000)
40,000
(610,000)
C
PROBLEM 27-21
Question No. 1
(B)
The present value of annuity due of 12% for 10 periods can be computed as:
[1 – (1+12%)-9] + 1 = 6.33
12%
Annual rentals
Executory costs
Minimum lease payment
Multiply by: Present value of annuity due
Present value of minimum lease payments
P1,440,000
(49,410)
P1,390,590
6.33
P8,802,438
Fair value of the property
P8,800,000
(The difference is immaterial, implicit rate is 12% at P8.8M)
Question No. 2
(D)
[12/31/2015 balance x (1+Effective rate)] – annual payments = 12/31/15
balance
[(P8,800,000 – P1,390,590) x 1.12%] - P1,390,590 = P6,907,949
The current portion as of 12/31/2016 can be computed as:
(P6,907,949 - P1,390,590) x 12% = P561,636
273
Chapter 27 – Lease
Question No. 3
(B)
12/31/2016 balance – current portion(no.2) = Non-current portion
= P6,907,949 - P561,636 = P6,346,313
Question No. 4
P8,800,000/10 = P880,000
(A)
Question No. 5
(A)
Depreciation expense
Interest expense (P8,800,000 – P1,390,590) x 12
Executory costs
Total lease-related expenses
SUMMARY OF ANSWERS:
1. B
2. D
3. B
4.
B
5.
P 880,000
889,129
49,410
P1,818,539
A
PROBLEM 27-22
Question No. 1
07/01/2015 to 06/30/2016
07/01/2016 to 06/30/2017
07/01/2017 to 06/30/2018
Total
Divide by: Number of years
Rent expense per year
(B)
60,000
90,000
210,000
360,000
3
120,000
Rent expense to date (120,000 x 1)
Less: Payment to date
Accrued rent payable
120,000
60,000
60,000
Question No. 2
(B)
Present value of Periodic Payment (400,000 x 5.9500)
Fair value of leased asset
2,380,000
P2,380,000
Cost is equal to P2,380,000 (Fair value which is the same as the Present value of
minimum lease payments.)
Amortization Table
Annual
Date
Payment
06/30/2016
06/30/2016
400,000
06/30/2017
400,000
Interest
Expense
Amortization
277,200
400,000
122,800
274
Present
value
2,380,000
1,980,000
1,857,200
Chapter 27 – Lease
Question No. 3
(A)
First lease (See No. 1)
Second lease (see amortization table)
Current liabilities
60,000
122,800
182,800
Question No. 4
(A)
Rent expense (First lease)
Interest expense
Depreciation expense (2,380,000/10)
Total lease-related expenses
120,000
277,200
238,000
635,200
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
A
PROBLEM 27-23 Exercise of Guaranteed Residual Value
Question No. 1
(C)
Present value of periodic payment (120,000 x 3.4437)
Add: Present value of bargain purchase option (30,000 x 0.6587)
Present value of minimum lease payments
Add: Initial direct cost
Cost of the Machinery
Question No. 2
Interest expense
Executory cost
Depreciation
Total lease-related expenses
Question Nos. 3 to 4
Amortization Table
Annual
Date
Payment
12/31/2016
12/31/2016
120,000
12/31/2017
120,000
12/31/2018
120,000
12/31/2019
120,000
12/31/2020
30,000
(B)
413,244
19,761
433,005
20,000
453,005
34,431
20,000
105,751
160,182
Interest
Expense
Amortization
34,431
25,018
14,570
2,977
120,000
85,569
94,982
105,430
27,023
Question No. 3
(C)
P85,569. See amortization table above.
Question No. 4
(B)
P227,436. See amortization table above.
275
Present
value
433,005
313,005
227,436
132,453
27,023
(0)
Chapter 27 – Lease
Question No. 5
(B)
Gross amount of guaranteed residual value
Less: Fair value
Loss on finance lease
Question No. 6
Zero
30,000
25,000
5,000
(A)
Question No. 7
(C)
Cost of leased asset
Less: Accumulated depreciation
Carrying amount
Add: Cash payment
Total consideration
Less: Lease liability
Cost of equipment purchased
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
B
453,005
211,503
241,503
200,000
441,503
227,436
214,067
5.
B
6.
A
7.
C
PROBLEM 27-24 Direct Financing Lease
Question No. 1
(C)
Annual payment = P3,224,000 = P750,000
4.312
Total interest to be earned = [(P750,000 x 5) – P3,234,000] = P516,000
Question No. 2
(B)
(P3,234,000 – P750,000) x 8% = P198,720
Question No. 3
(A)
The PV annuity due of 12% over 8 years can be computed as:
[1 – (1+12%) -7] + 1= 5.5638
12%
The present value of 12% for 8 years can also be computed as:
(1+12%)-8 = 0.4039
The total interest revenue is the difference the lease receivable and the present
value of the minimum lease payments.
Lease receivable (P959,500 x 8 + P400,000)
Present value of the lease
Unguaranteed residual value
(P400,000 x 0.4039)
P 161,560
Present value of lease payments
(P959,500 x 5.5638)
5,338,466
Total interest over the lease term
276
P 8,076,000
5,499,966
P2,576,034*
Chapter 27 – Lease
Since the lease is a direct financing lease (meaning, present value of the
minimum lease payments approximates the value of the property upon the
commencement of the lease), this can be solved alternatively as:
[(P959,500 x 8 + P400,000) – P5,500,000)] = P2,576,000
Question No. 4
(B)
(P5,500,000 – P959,500) x 12% = P544,860
SUMMARY OF ANSWERS:
1. C
2. B
3. A
4.
B
PROBLEM 27-25 Sales-Type Lease
Question No. 1
(A)
Lease receivable (P3,000,000 x 5 + P1,000,000)
Present value of minimum lease payments:
Rental (3.60 x P3,000,000)
P10,800,000
Unguaranteed residual value
(0.57 x P1,000,000)
570,000
Total unearned interest income
Question No. 2
(B)
Present value of minimum lease payments
Cost of goods sold (P8,000,000 + P300,000)
(B)
P 7,040,000
( 5,600,000)
P 1,440,000
Question No. 5
(B)
P7,040,000 x 10% x 6/12 = P352,000
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
B
5.
277
(11,370,000)
P 4,630,000
11,370,000
(8,300,000)
P3,070,000
Question No. 3
(A)
P11,370,000 x 12% = P1,364,400
Question No. 4
Selling price
Book value
Gain on sale
P16,000,000
B
Chapter 27 – Lease
PROBLEM 27-26 Financial Liability, Sale and Leaseback, Impairment loss
on PPE and Investment in Associate
Note to the professor: Question should be - How much is the overstatement or
understatement (please disregard the sign ( ) for understatement.
Question No. 1
(B)
Interest cost paid (50M x 12%)
Less: Interest expense for the year (47,078,000 x 14%)
Understated finance cost
6,000,000
6,590,920
(590,920)
Rounded off to P591,000
Question No. 2
(C)
Profit accounted for on disposal of plant
Profit to be booked (10M/5 X .5)
Overstated profit on sale and leaseback
10,000,000
1,000,000
9,000,000
Question No. 3
(C)
Depreciation per book (30M/15)
Depreciation to be booked Apr. 1, 2015 to Sept. 30,
2015 (30M/15 X .5)
1,000,000
Depreciation to be booked Oct. 1, 2015 to March 31, 2016
(16M/5 X .5)
1,600,000
Understated depreciation
Question No. 4
(C)
Carrying value as of October 1, 2015 (30M/15 X 10.5)
Recoverable amount
Impairment loss
Question No. 5
(C)
Acquisition cost
Dividend income (P20 x 50,000)
Share in the net income (P10M x 25%)
Share in the comprehensive income (P2M x 25%)
Investment in associate
SUMMARY OF ANSWERS:
1. B
2. C
3. C
4.
C
5.
278
C
2,000,000
2,600,000
(600,000)
21,000,000
16,000,000
5,000,000
6,000,000
(1,000,000)
2,500,000
500,000
8,000,000
Chapter 27 – Lease
PROBLEM 27-27 Investment Property
Question No. 1
(A)
Nil, since the property should be investment property and not property, plant
and equipment.
Present value of periodic payment (500,000 x 4.97)
Add: Present value of bargain purchase option (400,000 x 0.40)
Present value of Minimum lease payments
Present value of minimum lease payments
Less: Fair value of the land at the inception of the lease
Cost of the building as investment property
Amortization Table
Annual
Date
Payment
01/01/2016
12/31/2016
500,000
12/31/2017
500,000
2,485,000
160,000
2,645,000
2,645,000
200,000
2,445,000
Interest
Expense
Amortization
317,400
295,488
182,600
204,512
Present
value
2,645,000
2,462,400
2,257,888
Question No. 2
(C)
P317,400. See amortization table above.
Question No. 3
(C)
P204,512. See amortization table above.
Question No. 4
(C)
P2,257,888. See amortization table above.
Question No. 5 and 6
Total rent income (40,000 x 24) + (50,000 x 24) x 20
Divide by: Number of years
Rent income per year
43,200,000
4
10,800,000
Periodic rent
Add: Amortization of lease bonus (30,000 x 20)/4
Gross Rental income (No. 5)
(A)
Less: Expenses
Amortization of initial direct cost (5,000 x 20)/4
Annual maintenance cost
Interest expense
Depreciation *(2,645,000-200,000/10)
Net rental income
(B)
SUMMARY OF ANSWERS:
1. A
2. C
3. C
4.
C
5.
279
A
10,800,000
150,000
10,950,000
25,000
40,000
317,400
244,500
10,323,100
6.
B
Chapter 27 – Lease
PROBLEM 27-28
Question No. 1
(900,000+50,000+25,000)
(D)
Question No. 2
(D)
Total warranty expense (1.4M x 12%)
Less: Total actual expenditures
Warranty liability end of 2015
Question No. 3
Legal services
Add: Medical services
Payroll (14,400/12 x 8)
Royalties
Total accrual
975,000
P
168,000
63,000
105,000
P
(C)
P
P
Question No. 4
(D)
Fair value (equal to present value MLP)
Less: First payment
Total
Add: Interest accrued (420,000 x 9%)
Total lease liability
Question No. 5
(3,875,902 x 111%)-400,000
SUMMARY OF ANSWERS:
1. D
2. D
3. C
P
P
P
4,600
5,500
9,600
3,900
23,600
490,000
70,000
420,000
37,800
457,800
(A)
P 3,902,251
4.
D
5.
A
PROBLEM 27-29
Question No. 1
(C)
Unadjusted balance – Accounts Payable
2
3
Adjusted balance
Question No. 2
Units sold:
October
November
December
Total
Multiply by
Total failures expected
450,000
60,000
45,000
555,000
(A)
32,000
28,000
40,000
100,000
2%
2,000
280
Chapter 27 – Lease
Less: Failures already recorded:
October sales
November sales
December sales
Expected future failures
Multiply by
Estimated cost
640
360
180
Warranty expense
Estimated warranty liability
1,180
820
150
123,000
123,000
123,000
Question No. 3
(C)
Notes payable is (200,000 x 3.6048) = 720,960
Amortization Table
Annual
Date
Payment
01/01/2016
12/31/2016
200,000
12/31/2017
200,000
Interest
Expense
Amortization
86,515
72,897
113,485
127,103
Question No. 4
(A)
Present value of principal (4M x .6830)
Present value of interest payments (480,000 x 3.1699)
Total Present value
Amortization Table
Interest
Date
Payment
01/01/2016
12/31/2016
480,000
Question No. 5
Interest
Expense
Premium
Amortization
425,355
54,645
2,732,000
1,521,552
4,253,552
Present
value
4,253,552
4,198,907
(D)
Present value of minimum lease payments (200,000 x 6.759)
Amortization Table
Annual
Date
Payment
01/01/2016
01/01/2016
200,000
12/31/2016
SUMMARY OF ANSWERS:
1. C
2. A
3. C
Present
value
720,960
607,475
480,372
Interest
Expense
Amortization
115,180
4.
A
5.
281
200,000
D
P1,351,800
Present
value
1,351,800
1,151,800
1,266,980
Chapter 27 – Lease
PROBLEM 27-30
Question No. 1
(D)
Zero, the two notes payable should be presented as noncurrent liabilities.
Question No. 2
(D)
FINANCE LEASE: Amortization Table
Annual
Interest
Date
Payment
Expense
12/31/2015
12/31/2015
60,000
12/31/2016
60,000
38,363
12/31/2017
60,000
35,767
Amortization
60,000
21,637
24,233
Present
value
379,692
319,692
298,055
273,822
Answer: P273,822. Refer to amortization table above.
Question No. 3
(B)
Answer: P38,363. Refer to amortization table above.
Question No. 4
(E)
Annual rent expense=P720,000/3=P240,000
Operating lease
Date
Expense
1/1-12/31/16
1/1-12/31/17
1/1-12/31/18
240,000
240,000
240,000
Expense
To date
240,000
480,000
720,000
Payment
to date
120,000
300,000
720,000
Accrued rent
(Prepaid)
120,000
180,000
-
Question No. 5
(C)
CONTINGENCIES
Answer: P400,000 (P200,000+P200,000)
1.
Only a disclosure is necessary because it is not probable that the company
will be liable, although the amount can be measured reliably.
2. Retained earnings
Estimated liability for income tax
200,000
3. Accounts receivable – Innova
Loss on guaranty
Note payable – bank
SUMMARY OF ANSWERS:
1. D 2. D
3. B
4.
120,000
80,000
(E)
5.
282
C
200,000
200,000
Chapter 27 – Lease
PROBLEM 27-31
Question No. 1
Date
04/01/2011
03/31/2012
03/31/2013
03/31/2014
03/31/2015
03/31/2016
Revised
Date
04/01/2016
09/30/2016
Finance cost
Present Value
19,000,000
20,900,000
22,990,000
25,289,000
27,817,900
30,599,690
1,900,000
2,090,000
2,299,000
2,528,900
2,781,790
Finance cost
Present Value
25,000,000
1,250,000
10/1/2016 to 3/31/2016 (2,781,790 x 6/12)
04/01/2016 to 9/30/2016 (25,000,000 x 10% x 6/12
Finance cost
(C)
Question No. 3
Cost of the plant
Add: Present value of decommissioning cost
Total
Less: Accumulated depreciation (149M/20 x 5)
Carrying value, 3/31/2016
Less: Decrease due to revision of decom liability
Present value of decommissioning liability
Less: Revised estimate
Total
Less: Depreciation April to Sept 2016
(106,160,310/15 x 6/12)
Carrying value, 9/30/2016
(B)
1,390,895
1,250,000
2,640,895
130,000,000
19,000,000
149,000,000
37,250,000
111,750,000
30,599,690
25,000,000
Question No. 2
Depreciation October 1 to March 31
Depreciation April to Sept 2016 (106,160,310/15 x 6/12)
Total depreciation
(B)
Question No. 4
2016
2017
2018
Total
Divide by: Total semi-annual payments
Semi-annual income
(B)
283
5,599,690
106,150,310
3,538,344
102,611,966
3,725,000
3,538,344
7,263,344
6,000,000
6,300,000
6,615,000
18,915,000
6
3,152,500
Chapter 27 – Lease
Question No. 5
Total income to date
Less: Total collection to date
Rent receivable
SUMMARY OF ANSWERS:
1. C
2. B
3. B
3,152,500
3,000,000
152,500
(B)
4.
B
5.
284
B
Chapter 29 – Shareholders’ Equity
CHAPTER 29: SHAREHOLDERS’ EQUITY
PROBLEM 29-1
Question No. 1
(A)
Authorized ordinary shares at P10 stated value
Less: Unissued ordinary shares
Ordinary Shares issued
1,200,000
650,000
550,000
Question No. 2
(B)
Authorized preference shares at P50 par value
Less: Unissued preference shares
Preference Shares issued
800,000
150,000
650,000
Question No. 3
(D)
Share Premium on ordinary shares
Share Premium conversion option-bonds payable
Share premium on preference shares
Gain on sale of treasury shares
Ordinary share warrants outstanding
Donated capital
Ordinary shares options outstanding
Total Share Premium
300,000
40,000
150,000
60,000
35,000
40,000
25,000
650,000
Question No. 4
(D)
Ordinary Shares issued
Preference Shares issued
Subscribed Ordinary shares
Subscription receivable – ordinary shares
Subscribed Preference shares
Subscription receivable – preference
Total Share Premium
Contributed Capital
550,000
650,000
200,000
(20,000)
50,000
(15,000)
650,000
2,075,000
Question No. 5
(C)
Preference Shares issued
Subscribed Preference shares
Ordinary Shares issued
Subscribed Ordinary shares
Share Premium on ordinary shares
Total Legal Capital
650,000
60,000
550,000
200,000
300,000
1,760,000
285
Chapter 29 – Shareholders’ Equity
Question No. 6
(D)
Contributed Capital
Accumulated profits – unappropriated
Unrealized increase in value of FVTOCI securities
Reserve for bond sinking fund
Revaluation surplus
Total Shareholders' Equity
SUMMARY OF ANSWERS:
1. A
2. B
3. D
4.
D
5.
C
2,075,000
500,000
10,000
320,000
130,000
3,035,000
6.
D
PROBLEM 29-2
1.
Cash (3,000 x ₱100)
Share capital
To record share issuance at a premium
300,000
2.
Cash (5,000 x ₱110)
Share capital (5,000 x ₱100)
Share premium
To record share issuance at a premium
550,000
Share premium
Retained earnings
Cash
To record payment of share issue cost
50,000
10,000
Cash (4,000 x ₱90)
Discount on share capital
Share capital (4,000 x ₱100)
To record share issuance at a discount
360,000
40,000
3.
300,000
500,000
50,000
60,000
400,000
PROBLEM 29-3
1.
2.
3.
Machinery
Share capital (2,500 x ₱100)
Share premium
To record share issuance for machinery
280,000
Patent (1,000 x ₱105)
Share capital (1,000 x ₱100)
Share premium
To record share issuance for patent
105,000
Organization expense
Share capital (500 x ₱100)
Share premium
To record share issuance for organization services.
286
250,000
30,000
100,000
5,000
60,000
50,000
10,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-4
Loans payable – bank
Loss on extinguishment of liability*
Share capital (2,000 x ₱100)
Share premium**
To record issuance of shares for liability
250,000
30,000
200,000
80,000
*Computation of loss on extinguishment of liability
Fair value of equity instruments issued (or if not reliably
determinable, use the fair value of liability) (2,000 x ₱140)
Less: Carrying amount of liability
Loss (or Gain) on extinguishment of liability
**Computation of increase in share premium
Fair value of equity instruments issued (or if not reliably
determinable, use the fair value of liability) (2,000 x ₱140)
Less: Total par or stated value of equity issued (2,000 x ₱100)
Share premium (or Discount)
280,000
250,000
30,000
280,000
200,000
80,000
PROBLEM 29-5
1.
2.
Cash (5,000 x ₱220)
Preference shares (5,000 x ₱200)
Share premium-pref. share
To record issuance of preference shares
1,100,000
1,000,000
100,000
Cash (1,000 x ₱120)
Ordinary shares (1,000 x ₱100)
Share premium - ordinary shares
To record issuance of ordinary shares
120,000
100,000
20,000
PROBLEM 29-6
Allocation of the lump-sum price:
Preference shares (1,000 x ₱240)
Ordinary shares (2,000 x ₱180)
Total
Total Fair
value
240,000
360,000
600,000
Fraction
24/60
36/60
The transaction will then be recorded as follows:
Cash
Preference shares (1,000 x ₱200)
Share premium-preference share (400,000-200,000)
Ordinary shares (2,000 x ₱100)
Share premium - ordinary share (600,000-200,000)
287
Allocated
cost
400,000
600,000
1,000,000
1,000,000
200,000
200,000
200,000
400,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-7
Allocation of the lump-sum price:
Total proceeds
Less: Total fair value of pref. shares (1,000 x ₱240)
Amount allocated to the other securities
The transaction will then be recorded as follows:
Cash
Preference shares (1,000 x ₱200)
Share premium-preference share (240,000-200,000)
Ordinary shares (2,000 x ₱100)
Share premium-ordinary share (760,000-200,000)
To record issuance of preference and ordinary shares
1,000,000
240,000
760,000
1,000,000
200,000
40,000
200,000
560,000
PROBLEM 29-8
1.
Subscriptions receivable (5,000 x ₱110)
Subscribed ordinary shares (5,000 x ₱100)
Share premium-ordinary share
To record subscriptions of 5,000 shares at ₱110
550,000
2.
Cash (550,000 x 40%)
Subscriptions receivable
To record receipt of cash for subscriptions
220,000
3.
Cash (550,000 x 60%)
Subscriptions receivable
To record receipt of the remaining balance
330,000
Subscribed ordinary shares
Ordinary shares
To record issuance of certificate of stocks
500,000
500,000
50,000
220,000
330,000
500,000
PROBLEM 29-9
1.
Subscriptions receivable (10,000 x ₱110)
Subscribed ordinary shares (10,000 x ₱100)
Share premium-ordinary share
To record subscriptions of 10,000 shares at ₱110
2.
Cash (1,100,000 x 40%)
Subscriptions receivable
To record receipt of cash for subscriptions
3.
Subscribed ordinary shares (10,000 x ₱100)
Share premium-ordinary share
Subscriptions receivable (1,100,000 x 60%)
Share premium forfeited down-payment
288
1,100,000
1,000,000
100,000
440,000
440,000
1,000,000
100,000
660,000
440,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-10
1.
Subscriptions receivable (6,000 x ₱110)
Subscribed ordinary shares (6,000 x ₱100)
Share premium-ordinary share
To record subscriptions of 6,000 shares at ₱110.
660,000
2.
Cash (660,000 x 40%)
Subscriptions receivable
To record receipt of cash for subscriptions.
264,000
3.
4.
5.
Receivable from highest bidder
Cash
To record cost of ₱20,000.
600,000
60,000
264,000
20,000
20,000
Cash
Receivable from highest bidder
Subscriptions receivable
To record the collection from highest bidder.
416,000
Subscribed ordinary shares (6,000 x ₱100)
Share capital
To record the issuance of share capital.
600,000
20,000
396,000
600,000
PROBLEM 29-11
1.
2.
Subscriptions receivable (6,000 x ₱110)
Subscribed ordinary shares (6,000 x ₱100)
Share premium-ordinary share
To record subscriptions of 6,000 shares at ₱110.
660,000
Cash (660,000 x 40%)
Subscriptions receivable
To record receipt of cash for subscriptions.
264,000
3.
Receivable from highest bidder
Cash
To record cost of ₱20,000.
4.
Treasury shares
Receivable from highest bidder
Subscriptions receivable
To record the collection from highest bidder.
600,000
60,000
264,000
20,000
289
416,000
20,000
20,000
396,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-12
a.
Treasury shares (5,000 x ₱160)
Cash
800,000
b.
Cash (2,000 x ₱180)
Treasury shares (2,000 x ₱160)
Share premium-Treasury shares
360,000
Cash (1,000 x ₱150)
Share premium-Treasury shares
Treasury shares (1,000 x ₱160)
150,000
10,000
Ordinary shares (2,000 x ₱100)
Share premium (200,000/50,000) x 2,000
Share premium-Treasury shares (40,000-10,000)
Retained earnings
Treasury shares (2,000 x ₱160)
200,000
8,000
30,000
82,000
c.
d.
e.
Memo entry: Received 5,000 shares from a
stockholder as a donation.
Cash (2,000 x ₱180)
Donated capital
800,000
320,000
40,000
160,000
320,000
360,000
360,000
PROBLEM 29-13
a.
b.
Preference shares (4,000 x ₱100)
Share Premium on Preference shares
[(400,000/40,000) x 4,000]
Accumulated profits (balancing figure)
Cash (130 x 4,000)
400,000
40,000
80,000
Preference shares (4,000 x ₱100)
400,000
Share Premium on Preference shares
(400,000/40,000) x 4,000
40,000
Cash (90 x 4,000)
Share premium retirement of shares (balancing figure)
520,000
360,000
80,000
PROBLEM 29-14
1)
2)
Preference shares (4,000 x ₱100)
Share Premium on Preference shares
[(400,000/40,000) x 4,000]
Ordinary shares (4,000 x 1/1 x ₱50)
Share premium-ordinary shares
400,000
Preference shares (4,000 x ₱100)
Share Premium on Preference shares
[(400,000/40,000) x 4,000]
400,000
290
40,000
200,000
240,000
40,000
Chapter 29 – Shareholders’ Equity
Accumulated profits
Ordinary shares (4,000 x 4/1 x ₱50)
360,000
800,000
PROBLEM 29-15
1a.
1b.
2.
Ordinary shares (100,000 x ₱50)
Share Premium on Ordinary shares
Ordinary shares (100,000 x ₱50)
Share premium-recapitalization
5,000,000
1,000,000
Ordinary shares (100,000 x ₱50)
Share Premium on Ordinary shares
Accumulated profits
Ordinary shares (100,000 x ₱150)
5,000,000
1,000,000
9,000,000
Ordinary shares (₱50-₱40) x 100,000
Share premium-recapitalization
1,000,000
5,000,000
1,000,000
15,000,000
1,000,000
3. Share split
Ordinary Share capital issued
Subscribed share capital
Total
Less: Treasury shares
Outstanding shares
Before
100,000
100,000
100,000
Multiply by
5/1
5/1
5/1
5/1
5/1
After
500,000
500,000
500,000
Par value per share
Before
₱50
multiply by
1/5
After
₱10
Memo entry: Issued 500,000 ordinary shares as a result of a 5 for 1 share split,
reducing the par value to ₱10.
PROBLEM 29-16
CASE NO. 1
Total Fair
value
Preference shares (4,000 x ₱90)
360,000
Warrants (4,000 x ₱10)
40,000
Total
400,000
*(150 x 4,000)
Cash
Preference Share capital (4,000 x ₱50)
Share Premium (540,000-200,000)
Ordinary share warrants outstanding
291
Fraction
Allocated cost
36/40
4/40
540,000
60,000
600,000*
600,000
200,000
340,000
60,000
Chapter 29 – Shareholders’ Equity
When the warrants are exercised:
Cash (2,000 x 70% x P45)
Ordinary share warrants outstanding (60,000 x 70%)
Ordinary Share capital (2,000 x 70% x ₱20)
Share Premium –ordinary share
63,000
42,000
28,000
77,000
CASE NO. 2
Total proceeds
Less: Total fair value of the preference shares (4,000 x ₱90)
Value of the warrants
Cash
Preference Share capital (4,000 x ₱50)
Share Premium (360,000-200,000)
Ordinary share warrants outstanding
CASE NO. 3
Market value of ordinary shares
Less: Option price/exercise price
Intrinsic value of warrant
Multiply: # of ordinary shares claimable under warrants
Market value of share warrants
600,000
360,000
240,000
600,000
200,000
160,000
240,000
₱
₱
Total proceeds
Less: Value of Share warrants
Value assigned to Preference Share
50
45
5
2,000
10,000
600,000
10,000
590,000
Cash
Preference Share capital (4,000 x ₱50)
Share Premium (590,000-200,000)
Ordinary share warrants outstanding
600,000
200,000
390,000
10,000
PROBLEM 29-17
Computation of outstanding shares:
Ordinary shares issued
Less: Treasury shares
Outstanding shares
a.
Retained earnings (9,000 x ₱2)
Dividends payable
b.
No formal accounting entry
c.
Dividends payable
Cash
10,000
1,000
9,000
18,000
18,000
18,000
18,000
292
Chapter 29 – Shareholders’ Equity
PROBLEM 29-18 Cash dividends for Preference Shares-Semi-annual
Payment
July 1:
Retained Earnings
Dividends Payable (19,000 x P50 x 8% x 6/12)
Dec. 31: Retained Earnings
Dividends Payable (20,000 x P50 x 8% x 6/12)
Computation of outstanding shares:
July 1
Preference shares issued
20,000
Less: Treasury shares
1,000
Outstanding shares
19,000
38,000
38,000
40,000
40,000
December 31
Preference shares issued
Less: Treasury shares
Outstanding shares
20,000
20,000
PROBLEM 29-19
Nov. 1,
2016
Retained earnings
Dividends payable
600,000
Dec. 31,
2016
Retained earnings
Dividends payable
200,000
600,000
200,000
Fair value
Less: Previous Fair value
Increase in dividends payable
Feb. 15,
2017
Dividends payable
Retained earnings
₱800,000
600,000
₱200,000
20,000
20,000
Fair value
Less: Previous Fair value
Decrease in dividends payable
Dividends payable
Inventory
Gain on distribution - prop. dividends
Carrying amount of dividend payable = Fair
value
Less: Carrying amount of noncash assets
Gain on distribution of prop. Dividends
293
₱780,000
800,000
₱(20,000)
780,000
700,000
80,000
₱780,000
700,000
₱ 80,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-20
Nov. 1,
2016
Retained earnings
Dividends payable
600,000
Equipment-noncurrent asset for
distribution*
Impairment loss (₱700,000 - ₱600,000)
Equipment
Dec. 31,
2016
Retained earnings
Dividends payable
700,000
200,000
200,000
Fair value
Less: Previous Fair value
Increase in dividends payable
Equipment-noncurrent asset for
distribution**
Gain on recovery of impairment loss
Feb. 15,
2017
600,000
100,000
600,000
Dividends payable
Retained earnings
₱800,000
600,000
₱200,000
100,000
100,000
20,000
Fair value
Less: Previous Fair value
Decrease in dividends payable
20,000
₱780,000
800,000
₱(20,000)
Dividends payable
780,000
Equipment-noncurrent asset for distribution
Gain on distribution of prop. Dividends
700,000
80,000
Carrying amount of dividend payable = Fair
value
₱780,000
Less: Carrying amount of noncash assets
700,000
Gain on distribution of prop. Dividends
₱ 80,000
*(Lower of ₱700,000 and ₱600,000)
**(₱800,000 minus ₱600,000) but the gain shall not exceed the amount of
impairment loss of ₱100,000.
Computation of the impairment loss is as follows:
Original carrying amount
Less: Lower between these two
amounts
FVLCTD
600,000
Original carrying amount
700,000
Impairment loss
294
₱700,000
600,000
₱100,000
Chapter 29 – Shareholders’ Equity
Computation of the gain on reversal of the impairment loss is as follows:
Lower between subsequent FVLTCD and original carrying amount
Original carrying amount
₱700,000
FVLCTD
800,000
₱700,000
Carrying amount at initial recognition
800,000
Gain on reversal
100,000
Note: FVLCTD – Fair Value less Cost to Distribute.
PROBLEM 29-21
Retained earnings
Dividends payable
P 197,000
P
Supporting computation:
Cash alternative (20 x 70% x P10,000)
Non-cash alternative (20 x 30% x P9,500)
Total dividends
197,000
P
P
140,000
57,000
197,000
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
a.
Dividends payable
197,000
Loss on distribution (balancing figure)
3,000
Cash (20 x 10,000)
200,000
If the shareholders opted to receive noncash, the journal entry is:
b.
Dividends payable
197,000
Noncash (20 x 9,500)
Retained earnings (balancing figure)
190,000
7,000
PROBLEM 29-22
1)
2)
Accumulated Profits
1,300,000
[(105,000-5,000) x 10% x ₱130]
Share dividends payable [(105,000-5,000) x 10% x ₱50]
Share premium on Ordinary shares
500,000
800,000
Accumulated Profits
1,000,000
[(105,000-5,000) x 20% x ₱50]
Share dividends payable [(105,000-5,000) x 20% x ₱50]
1,000,000
3)
Capital Liquidated (₱2 x 100,000 shares)
Cash
200,000
4)
Accumulated Profits
Share dividends payable - Treasury shares
300,000
295
200,000
300,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-23 Fractional Share rights
1.
Date of declaration of share dividends
Retained earnings (100,000 x 30% x ₱50)
Share dividends payable
1,500,000
1,500,000
2.
Issuance of full share dividends and the fractional share warrants or rights
Share dividends payable
1,500,000
Share capital (27,000 x ₱50)
1,350,000
Fractional warrants outstanding
150,000
3.
Issuance of full shares as a result of the exercise of the fractional share
warrants
Fractional warrants outstanding
150,000
Share capital (2,800 x ₱50)
140,000
Share premium-unexercised warrants
10,000
PROBLEM 29-24 Comprehensive Problem
Questions 1 to 3
Date
A.
B.
C.
BAL
D.
BAL
E.
BAL
Jan. 2, 2012
Jan. 3, 2013
May 1, 2014
Dec. 31, 2014
Jan. 1, 2015
Dec. 31, 2015
Jan. 1, 2016
July 1, 2016
Dec. 31, 2016
(10,000/50 x 2)
1. (D)
[(30,400/2 x 3) - 30,400]
2. (B)
[(45,600/1 x 2) - 45,600]
(10,000 x 2 x 20%)
3. (A)
Question No. 4
June 30 (₱1.50 x 45,600)
Dec. 31 (₱2.50 x 45,600)
Total Dividends
Question No. 5
June 30 (₱1.25 x 91,200)
Dec. 31 (₱1.00 x 95,200)
Total Dividends
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4.
(A)
68,400
114,000
182,400
(D)
114,000
95,200
209,200
A
5.
296
D
Ordinary
shares
20,000
400
10,000
30,400
15,200
45,600
45,600
4,000
95,200
Preference
shares
10,000
10,000
10,000
(10,000)
-
Chapter 29 – Shareholders’ Equity
PROBLEM 29-25
Questions 1 to 3
*in ‘000s
Beginning
Jan. 5
Jan. 28
Feb. 2
Feb. 14
Jul. 15
Oct. 15
Nov. 15
Nov. 27
Dec. 31
Total
Pref.
shares
1,400
Ord.
shares
3,500
600
Total
Share
Premium
1,925
60
(60)
Retained
earnings
4,500
(20)
Treasury
shares
Subs.
Ord.
share
Subs.
Receivable
1,000
Memo
800
100
50
880
200
2,250
(500)
1,500
1,000
2,200
1. (B)
5,200
2. (C)
1,000
5,480
5,305
3. (C)
500
(1,000)
3,750
(1,500)
(1,500)
500
750
Question No. 4
(C)
Retained earnings, total
Outstanding balance of treasury stocks
Retained earnings – unappropriated
P 5,480,000
( 500,000)
P 4,980,000
Question No. 5
(B)
Preference shares
Ordinary shares
Subscribed ordinary shares
Subscriptions receivable
Share premium
Retained Earnings
Treasury stocks
Total
P 2,200,000
5,200,000
500,000
(750,000)
5,305,000
5,480,000
( 500,000)
P17,435,000
SUMMARY OF ANSWERS:
1. B
2. C
3. C
4.
C
5.
297
B
Chapter 29 – Shareholders’ Equity
PROBLEM 29-26
Beg.
Balances
2.)
3.)
4.)
5.)
6.)
8.)
9.)
Total
Pref.
shares
400,000
400,000
800,000
1. (C)
Ord.
shares
200,000
Share
Prem
250,000
244,200
2. (D)
380,000
(38,200)
2,400,000
(80,000)
(91,680)
3,090,120
120,000
4. (D)
Number of Shares
Ordinary
Preference
40,000
4,000
(5,000)
2,000
4,000
1,200
7,640
45,840
8,000
x2
x 10
91,680
80,000
Question No. 3
(D)
Retained earnings (see table above)
Less: Treasury shares
Retained earnings - unappropriated
P 3,090,120
120,000
P 2,970,120
Question No. 5
(A)
Preference shares
Ordinary shares
Share premium
Retained earnings-total
Treasury shares
Total shareholder’s equity
SUMMARY OF ANSWERS:
1. C
2. D
3. D
Treasury
shares
200,000
(80,000)
20,000
80,000
30,000
6,000
38,200
Beginning balance
2. Treasury shares
3. Reissuance of treasury shares
4. Issuance of P/S
5. Exercise of warrants
6. Share dividends
Balance
Dividend per share
Dividends
Retained
earnings
900,000
P
800,000
244,200
380,000
3,090,120
(120,000)
P 4,394,320
4.
D
5.
298
A
Chapter 29 – Shareholders’ Equity
PROBLEM 29-27
Beg.
1.)
2.)
3.)
4.)
5.)
6.)
7.)
Total
Pref.
Shares
Ord.
Shares
4,000
840
80
40
1,350
(200)
3,800
1. (D)
2,310
2. (C)
Subscri
bed
share
Capital
Subscri
ption
Receiva
ble
Total
Share
Premiu
m
Retaine
d
Earnin
gs
Treasu
ry
Shares
100
(100)
52
(52)
968
9.6
160
675
27
15,000
44
0
0
1,839.6
3. (C)
Beginning balance - issued
Beginning balance - treasury
1.) February 1, 2016 Issuance of shares
2.) March 1, 2016 Conversion of preference shares
3.) April 1, 2016 Exercise of stock rights (67,500 x 2)
Balance – April 30
4. ) September 30, 2016 Reissuance of treasury shares
Balance – October 31
Beginning balance – issued and outstanding
2.) March 1, 2016 Conversion into ordinary shares
Balance – April 30 & October 31
Computation of dividends:
Ordinary shares:
April 30 (227,000 x P1)
October 31 (230,000 x P1)
Preference shares:
April 30 (38,000 x P100 x 10%)
October 31 (38,000 x P100 x 10%)
Total dividends
(33)
280
2,500
(1,217)
16,563
11
Ordinary
Shares
84,000
(4,000)
8,000
4,000
135,000
227,000
3,000
230,000
Preference
Shares
40,000
(2,000)
38,000
227,000
230,000
380,000
380,000
1,217,000
Question No. 4
(E)
Retained earnings (see table above)
Less: Treasury shares
Retained earnings - unappropriated
P16,563,000
11,000
P16,552,000
299
Chapter 29 – Shareholders’ Equity
Question No. 5
(E)
Preference shares
Ordinary Shares
Share Premium
Retained Earnings - Unappropriated
Retained Earnings - Appropriated
Less: Treasury Shares
Shareholder’s Equity
3,800,000
2,310,000
1,839,600
16,552,000
11,000
11,000
24,501,600
SUMMARY OF ANSWERS:
1. D 2. C
3. C
5.
4.
(E)
(E)
PROBLEM 29-28
Preference
Shares
Beginning
A.)
B.)
C.)
D.)
E.)
F.)
G.)
H.)
Total
Ordinary
Shares
840,000
Total
Share
Premium
420,000
13,500
Retained
Earnings
15,000,000
Treasury
Shares
44,000
(16,500)
SPLIT 2 for 1
(650,000)
200,000
200,000
1. (C)
8,000
(10,000)
340,000
60,000
16,000
(5,000)
838,000
2. (D)
844,500
3. (C)
Computation of cash dividends:
Beginning balance - issued
Beginning balance - treasury
a. Jan 15 Reissuance of treasury shares
Balance
b. March 1 2 for 1 share split
e. October 1 Exercise of warrants (80% x 2,000)
f. November 2 Retirement of shares
Balance – December 31
Multiply: Dividend per share
Total dividends
Question No. 4
(A)
Retained earnings (see table above)
Less: Treasury shares
Retained earnings - unappropriated
(25,000)
(650,400)
2,400,000
16,074,600
27,500
Ordinary
Shares
84,000
(4,000)
1,500
81,500
81,500
1,600
(2,000)
162,600
P4
650,400
P16,074,600
27,500
P16,047,100
300
Chapter 29 – Shareholders’ Equity
Question No. 5
(A)
Preference shares
Ordinary Shares
Share Premium
Retained earnings -unappropriated
Retained earnings - appropriated
Less: Treasury Shares
Shareholders’ Equity
200,000
838,000
844,500
16,047,100
27,500
27,500
17,929,600
SUMMARY OF ANSWERS:
1. C
2. D
3. C
5.
4.
PROBLEM 29-29
Beg.
Jan. 4
Mar. 2
May 7
Jun. 15
Jul. 2
Oct. 1
Oct. 1
Oct. 15
Nov. 1
Dec. 31
Total
Preferenc
e Shares
1,200,000
Ordinary
Shares
1,800,000
300,000
400,000
A
Total
Share
Premium
4,116,000
750,000
500,000
18,000
A
Retained
Earnings
2,300,000
OCI
61,740
Treasury
Shares
420,000
(126,000)
2-for-1
split
98,000
400,000
2,000,000
1. (D)
5,000
2,203,000
2. (C)
274,400
(274,400)
61,740
(329,280)
(61,740)
800,000
6,458,400
3. (B)
(82,320)
(825,200)
(224,000)
2,250,000
2,876,540
0
294,000
Ordinary
Shares
180,000
(20,000)
30,000
190,000
6,000
196,000
196,000
392,000
19,600
1,000
412,600
Beginning balance - issued
Beginning balance - treasury
Jan. 4 Issuance of shares
Balance – January 30
May 7 Reissuance of treasury shares
Balance before share split
Add: Share split – 2 for 1
Balance
July 2 5% share dividends
Oct. 15 Issuance of shares
Balance – December 31
301
Chapter 29 – Shareholders’ Equity
Preference
Shares
12,000
4,000
4,000
20,000
Beginning balance – issued and outstanding
Mar. 2 Issuance of shares
October 15 Issuance of shares
Balance – December 31
Computation of cash dividends:
Ordinary shares:
Dec 31 (P2 x 412,600)
Preference shares:
Dec 31 (8% x P2,800,000)
Total dividends
825,200
224,000
1049,200
Question No. 4
(E)
Retained earnings-total
Less: Appropriated for Treasury shares
Retained earnings-unappropriated
2,876,540
294,000
₱2,582,540
Question No. 5
(E)
Preference share
Ordinary share
Total share premium
Retained earnings - unappropriated
Retained earnings – appropriated
Less: Treasury Shares
Total Shareholders’ equity
2,000,000
2,203,000
6,458,400
2,582,540
294,000
294,000
13,243,940
SUMMARY OF ANSWERS:
1. D 2. C
3. B
4.
(E)
5.
(E)
PROBLEM 29-30
Jan. 1
Feb. 23
Mar. 10
Land
Organization expense
Ordinary shares (1,000 x P100
Share Premium-O/S
340,000
140,000
10,000
470,000
Cash (20,000 x 150)-150,000
Preference shares (20,000 x P100)
Share premium-PS
2,850,000
Cash (6,000 x 390)-50,000
Ordinary shares (6,000 x P10)
Share premium-OS
2,290,000
302
2,000,000
850,000
60,000
2,230,000
Chapter 29 – Shareholders’ Equity
Apr. 10
July 14
Subscriptions receivable (8,000 x P450)
Subs. Ordinary shares (8,000 x P10)
Share premium-OS
3,600,000
Building
Preference shares (2,800 x P100)
Share Premium-PS (460,000-280,000)
Ordinary shares (1,400 x P10)
Share premium-OS (560,000-14,000)
1,080,000
Fair value of the building
Less: Fair value of the ordinary shares
(480,000/1,200 x 1,400)
Value of the pref. shares
1,020,000
560,000
July 14
Cash
Ordinary shares (1,200 x P10)
Share Premium-OS
Aug. 3
Cash
Subscriptions receivable
Retained earnings
Dividends payable
480,000
12,000
468,000
2,800,000
40,000
40,000
580,000
580,000
Pref. dividends (2,280,000 x 10%)
OS Issued (136,000/10)
Add: Subscribed OS
Outstanding shares
Multiply by: Dividend per share
Total dividends
Dec. 31
280,000
180,000
14,000
546,000
460,000
2,800,000
Subs. Ordinary shares (8,000 x ½ x P10)
Ordinary shares
Dec. 1
80,000
3,520,000
Dividends payable
Cash
228,000
13,600
4,000
17,600
20
352,000
580,000
228,000
228,000
303
Chapter 29 – Shareholders’ Equity
1/1
2/23
3/10
4/10
7/14
7/14
8/3
12/1
Total
P/S
P
2,000
SP – P/S
P
850
280
180
Ordinar
y Shares
P10
60
14
12
40
SP – O/S
P 470
2,230
3,520
546
468
P2,280
P 1,030
P 136
50
P 7,234
1. (B)
2. (C)
3. (C)
4. (C)
Question No. 6
(C)
Preference shares
Ordinary shares
Subscribed ordinary shares
Less: Subscriptions receivable
Paid in capital-Pref. shares
Paid in capital-Ordinary shares
Retained earnings
Total shareholders’ equity
Subscrib
ed O/S
P
-
Subs.
Receiv
able
80
3,600
(40)
(2,800)
P 40
R/E
P
P800
-
(228)
(352)
1,280
P700
5. (B)
2,280,000
136,000
40,000
800,000
(760,000)
1,030,000
7,234,000
700,000
10,620,000
Note:
Sec. 43 of the Corporation Code of the Philippines states that “ The board of
directors of a stock corporation may declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or in stock to all stockholders on the
basis of outstanding stock held by them: Provided, That any cash dividends due on
delinquent stock shall first be applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid”
Thus, the dividend on the subscribed share capital is paid to that shareholder because he
was not yet declared delinquent by corporation.
SUMMARY OF ANSWERS:
1. B
2. C
3. C
4.
C
5.
304
B
6.
C
Chapter 29 – Shareholders’ Equity
PROBLEM 29-31
Question No. 1
(C)
Preference shares, beg.
Additional issue (20,000 x P10)
Total
P
800,000
200,000
P 1,000,000
Question No. 2
(A)
Ordinary shares, beg.
Stock dividend (3,480 shares x P5)*
Total
P
P
Outstanding shares, beginning
Treasury shares acquisition
Treasury shares re-issue
Total outstanding shares
Multiplied by:
Dividend shares
200,000
17,400
217,400
40,000
(8,000)
2,800
34,800
10%
3,480
Question No. 3
(A)
Share premium, beg.
P
Premium on treasury share re-issue (100,000 – (2,800 x P20)
Premium on preference share issue (P15 – P10) x 20,000 shares
Premium on stock dividends (P12 – P5) x 3,480 shares
Total share premium, end
P
384,000
44,000
100,000
24,360
552,360
Question No. 4
(D)
Retained earnings, beg.
P 2,400,000
Add: Net Income
Unadjusted Net Income
P 1,780,000
Overstatement in operating expenses
100,000
1,880,000
Less: Dividends
Stock dividends (3,480 x P12)
P
41,760
Cash dividends*
119,140
(160,900)
Retained earnings, adjusted
P 4,119,100
Retained earnings, appropriated for treasury shares
(104,000)
Retained earnings, appropriated for plant expansion
(1,200,000)
Retained earnings, unappropriated
P 2,815,100
* Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
Ordinary shares (34,800 + 3,480) x P.50
Total cash dividends
Question No. 5
(B)
Treasury shares acquired (8,000 x P20)
Treasury shares reissued (2,800 x P20)
Treasury shares, end
305
P
P
100,000
19,140
119,140
P
(
P
160,000
56,000)
104,000
Chapter 29 – Shareholders’ Equity
* Computation of the Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
Ordinary shares (34,800 + 3,480) x P.50
Total cash dividends
P
P
Computation of the net income:
Net Income
Unadjusted Net Income
Overstatement in operating expenses
Adjusted net income
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
D
100,000
19,140
119,140
P 1,780,000
100,000
P 1,880,000
5.
B
ADJUSTING JOURNAL ENTRIES:
a
.
b
.
c
.
Entries Made
Other
100
operating
expense
Cash
Ordinary
shares
Cash
160
Equipment
100
Cash
Preference
shares
e
.
Memo entry
100
160
Ordinary
shares
(2,800 x P5)
Share
Premium
d
.
Should be entries
Dividends
100
payable
14
86
300
Cash
100
Treasury
shares
Cash
160
Equipment
100
160
Treasury
shares
(2,800 x 20)
Share
Premium-TS
Cash
300
Adjusting entries
Dividends
100
payable
56
44
300
Preference
shares
(20,000
x
P10)
Share
Premium-PS
Retained
earnings
(40K-5,200)
x 10% x
P12)
Share div.
payable
(34,800
x
10% x P5)
200
Other
operation
exp
Treasury
shares
Ordinary
shares
Ordinary
shares
Share
Premium
Treasury
shares
(2,800 x 20)
Share
Premium-TS
Preference
shares
Share
Premium-PS
100
160
160
14
86
56
44
100
100
100
41,7
60
306
17.4
Retained
earnings
(40K-5,200)
x 10% x
P12)
Share div.
payable
(34,800
x
10% x P5)
41,7
60
17.4
Chapter 29 – Shareholders’ Equity
f.
g
.
h
.
i.
Share
Premium
Ordinary
shares
No journal
entry
Retained
earningsunappropria
ted
Retained
earnings
appropriate
d for plant
expansion
No journal
entry
No journal
entry
17.4
17.4
1,20
0
Share
premium
Share div.
payable
Ordinary
shares
Retained*
earnings
Dividends
payable
Same
24.3
6
17.4
17.4
119.
14
119.
14
Share
premium
Share div.
payable
Share
Premium
Retained
earnings
Dividends
payable
NO AJE
24.3
6
17.4
17.4
119.
14
119.
14
1,20
0
Retained
earningsunappropria
ted
Retained
earnings
appropriate
d
for
Treasury
shares
Income
summary
Retained
earningsunappropria
ted
104
104
1,88
0
* Computation of the Cash dividends
Preferred stock dividends
(80,000 + 20,000) x P1
Ordinary shares
(34,800 + 3,480) x P.50
Total cash dividends
Computation of the net income:
Net Income
Unadjusted Net Income
Overstatement in
operating expenses
Adjusted net income
307
1,88
0
Retained
earningsunappropria
ted
Retained
earnings
appropriate
d
for
Treasury
shares
Income
summary
Retained
earningsunappropria
ted
P
100,000
P
19,140
119,140
P
1,780,000
P
100,000
1,880,000
104
104
1,88
0
1,88
0
Chapter 30 – Book Value and Earnings Per Share
CHAPTER 30: BOOK VALUE AND EARNINGS PER
SHARE
PROBLEM 30-1 One Class of Shares
Total shareholders' equity
Add: Subscription receivable
Total SHE excluding subscription receivable
Divided by: Ordinary shares outstanding*
Book value per share
16,220,000
1,200,000
17,420,000
200,000
87.10
(A)
Shares issued
Add: Subscribed shares (P1,000,000 / P50 par)
Less: Treasury shares
Ordinary shares outstanding
200,000
20,000
20,000
200,000
PROBLEM 30-2 Two Classes of Shares - Preference and Ordinary Shares
Total
Preference shares:
Shares par value
Preference share capital issued
12,500 P5,000,000
Add: Subscribed preference shares
Total
12,500 P5,000,000
Less: Treasury shares at par
Shares outstanding and total par value
12,500 P5,000,000
Ordinary shares:
Ordinary share capital issued
Add: Subscribed ordinary shares
Total
Less: Treasury shares at par
Shares outstanding and total par value
Shares
75,000
75,000
75,000
Total shareholders' equity
Less: Par value of outstanding preference shares
Par value of outstanding ordinary shares
Excess over par
Total
par value
P3,000,000
P3,000,000
P3,000,000
15,000,000
5,000,000
3,000,000
7,000,000
CASE NO. 1
Question No. 1 & 2
Balances
Preference dividend
(5,000,000 x 8% x 4)
Balance to ordinary shares
Excess
over par
P7,000,000
Preference
shares
P5,000,000
(1,600,000)
5,400,000
1,600,000
308
Ordinary
shares
P3,000,000
5,400,000
Chapter 30 – Book Value and Earnings Per Share
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
6,600,000
12,500
P528.00
8,400,000
75,000
P112.00
Excess
over par
P7,000,000
Preference
shares
P5,000,000
Ordinary
shares
P3,000,000
(1,600,000)
1,600,000
(250,000)
5,150,000
250,000
CASE NO. 2
Question No. 3 & 4
Balances
Preference dividend
(5,000,000 x 8% x 4)
Liquidation premium [(P420P400) x 12,500]
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
6,850,000
12,500
P548.00
5,150,000
8,150,000
75,000
P108.67
Excess
over par
P7,000,000
Preference
shares
P5,000,000
Ordinary
shares
P3,000,000
(400,000)
6,600,000
400,000
CASE NO. 3
Question No. 4 & 5
Balances
Preference dividend
(5,000,000 x 8% x 1)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
5,400,000
12,500
P432.00
6,600,000
9,600,000
75,000
P128.00
Excess
over par
P7,000,000
Preference
shares
P5,000,000
Ordinary
shares
P3,000,000
(1,600,000)
1,600,000
CASE NO. 4
Question No. 7 & 8
Balances
Preference dividend
(5,000,000 x 8% x 4)
Ordinary dividend
(3,000,000 x 8% x 1)
Balance for participation
Preference (5/8 x 5,160,000)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
SUMMARY OF ANSWERS:
1. A
2. A
3. B
(240,000)
5,160,000
(3,225,000)
1,935,000
240,000
3,225,000
9,825,000
12,500
P786.00
4.
D
5.
309
C
6.
B
7.
1,935,000
5,175,000
75,000
P69.00
D
8.
C
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-3 Book Value per Share
Preference shares:
Preference share capital issued
Add: Subscribed preference shares
Total
Less: Treasury shares at par
Shares outstanding and total par value
Shares
40,000
40,000
40,000
Total
par value
P4,000,000
P4,000,000
P4,000,000
Ordinary shares:
Ordinary share capital issued
Add: Subscribed ordinary shares
Total
Less: Treasury shares at par
Shares outstanding and total par value
Shares
26,000
26,000
1,000
25,000
Total
par value
P1,040,000
P1,040,000
40,000
P1,000,000
Total shareholders' equity
Less: Par value of outstanding preference shares
Par value of outstanding ordinary shares
Excess over par
11,970,000
4,000,000
1,000,000
6,970,000
CASE NO. 1
Question No. 1 & 2
Balances
Preference dividend
(4,000,000 x 8% x 4)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Excess
over par
P6,970,000
Preference
shares
P4,000,000
(1,280,000)
5,690,000
1,280,000
Ordinary
shares
P1,000,000
5,280,000
40,000
P132.00
5,690,000
6,690,000
25,000
P267.60
Excess
over par
P6,970,000
Preference
shares
P4,000,000
Ordinary
shares
P1,000,000
(1,280,000)
1,280,000
(200,000)
5,490,000
200,000
CASE NO. 2
Question No. 3 & 4
Balances
Preference dividend
(4,000,000 x 8% x 4)
Liquidation premium
[(P105-P100) x 40,000]
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
5,480,000
40,000
P137.00
310
5,490,000
6,490,000
25,000
P259.60
Chapter 30 – Book Value and Earnings Per Share
CASE NO. 3
Question No. 5 & 6
Balances
Preference dividend
(4,000,000 x 8% x 1)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Preference
shares
P4,000,000
(320,000)
6,650,000
320,000
Ordinary
shares
P1,000,000
4,320,000
40,000
P108.00
6,650,000
7,650,000
25,000
P306.00
Excess
over par
P6,970,000
Preference
shares
P4,000,000
Ordinary
shares
P1,000,000
(320,000)
6,650,000
320,000
CASE NO. 4
Question No. 7 & 8
Balances
Preference dividend
(4,000,000 x 8% x 1)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
Balances
Preference dividend
(4,000,000 x 8% x 1)
Ordinary dividend
(1,000,000 x 8% x 1)
Balance for participation
Preference (4/5 x 6,570,000)
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
SUMMARY OF ANSWERS:
1. B
2. C
3. B
Excess
over par
P6,970,000
4,320,000
40,000
P108.00
6,650,000
7,650,000
25,000
P306.00
Excess
over par
P6,970,000
Preference
shares
P4,000,000
Ordinary
shares
P1,000,000
(320,000)
320,000
(80,000)
6,570,000
(5,256,000)
1,314,000
80,000
5,256,000
9,576,000
40,000
P239.40
4.
B
5.
311
C
6.
A
7.
1,314,000
2,394,000
25,000
P95.76
D
8.
D
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-4 Weighted Average with Bonus Issue
Outstanding
Date
Shares
Fraction
01/01/2015
200,000 x 120%
240,000
12/12
03/01/2015
15,000 x 120%
18,000
10/12
07/01/2015
(10,000)
(10,000)
6/12
10/01/2015
4,000
4,000
3/12
Weighted average outstanding shares
(A)
Average
240,000
15,000
(5,000)
1,000
251,000
PROBLEM 30-5 Weighted Average with Share Split
Outstanding
Date
Shares
Fraction
01/01/2015
220,000 x 4/1
880,000
12/12
03/01/2015
12,000 x 4/1
48,000
10/12
04/01/2015
9,000
9,000
9/12
10/01/2015
6,000
6,000
3/12
Weighted average outstanding shares
(A)
Average
880,000
40,000
6,750
1,500
928,250
PROBLEM 30-6 Basic Earnings per Share
Question No. 1
(B)
Basic EPS = [P3,000,000 / 40,000] = P75 per share
Question No. 2
(C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
Question No. 3
(C)
Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share
PROBLEM 30-7 Basic Loss per Share
Question No. 1
(B)
Basic LPS = [P2,000,000 / 30,000] = P66.67 per share
Question No. 2
(C)
Basic LPS = [P2,000,000 + (5,000 x 10% x P100)]/30,000= 68.33 per share
Question No. 3
(D)
Basic LPS = [P2,000,000 + (60,000)]/30,000= P68.67 per share
PROBLEM 30-8 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P3,000,000 / 120,000 = P25 per share
312
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
P3,000,000 + [(P1,800,000 x 10%) x (1 – 30%)]
Diluted
=
EPS
129,000 shares *
Diluted EPS = P24.23 per share
Weighted average of actual ordinary shares
Add: Weighted average of potential ordinary
shares from assumed conversion (1,800 x 5 x 12/12)
Total weighted average of ordinary shares
120,000
9,000
129,000
Question No. 3
P3,000,000 + [(P1,800,000 x 10% 8/12) x (1 – 30%)]
Diluted
=
EPS
126,000 shares *
Diluted EPS = P24.48 per share
Weighted average of actual ordinary shares
Add: Weighted average of potential ordinary
shares from assumed conversion (1,800 x 5 x 8/12)
Total weighted average of ordinary shares
120,000
6,000
126,000
Question No. 4
Basic EPS
P3,000,000
123,750*
P24.24
=
=
Weighted average of actual ordinary shares
Add: Issuance of shares related to conversion
(1,800 x 5 x 5/12)
Total weighted average of actual ordinary shares issued
Add: Assumed converted ordinary shares x months
outstanding (1,800 x 5 x 7/12)
Total weighted average outstanding ordinary shares
120,000
3,750
123,750
5,250
129,000
Question No. 5
P3,000,000 + [(P1,800,000 x 10% x 7/12) x (1 – 30%)]
129,000 shares *
Diluted EPS = P23.83 per share
Diluted EPS
=
SUMMARY OF ANSWERS:
1. A
2. D
3. B
4.
D
5.
B
PROBLEM 30-9 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P4,000,000 / 200,000 = P20 per share
313
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
P4,000,000 + [(P1,123,910 x 10% x 8/12) x (1 – 30%)]
210,000 shares*
Diluted EPS = P19.30 per share
Diluted EPS
=
Weighted average of actual ordinary shares
Add: Weighted average of potential ordinary shares from
assumed conversion(15,000 x 8/12)
Total weighted average of ordinary shares
200,000
10,000
210,000
PROBLEM 30-10 Basic and Diluted EPS with Convertible Preference Shares
Question No. 1
Basic EPS
Basic EPS
P4,000,000 - [5,000 x P100 x 10%]
200,000 shares
= P19.75 per share
=
Question No. 2
Diluted EPS
Diluted EPS
P4,000,000
225,000 shares*
= P17.78 per share
=
*[200,000 + (5 x 5,000 x 12/12)]
Question No. 3
Diluted EPS
Diluted EPS
P4,000,000
218,750 shares
= P18.29 per share
=
*[200,000 + (5 x 5,000 x 9/12)]
Question No. 4
Basic EPS
Basic EPS
P4,000,000 – (5,000 x P100 x 10% x 9/12)]
206,250 shares
= P19.21 per share
=
*[200,000 + (5 x 5,000 x 3/12)]
Question No. 5
Diluted EPS
Diluted EPS
P4,000,000
225,000 shares
= P17.78 per share
=
*[200,000 + (5 x 5,000 x 3/12) + (5 x 5,000 x 9/12)]
SUMMARY OF ANSWERS:
1. A
2. D
3. C
4.
C
5.
314
D
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-11 Basic and Diluted EPS with Warrants and Options
Question No. 1
Basic EPS = P4,000,000 / 100,000 = P40 per share
Question No. 2
Diluted EPS
Diluted EPS
P4,000,000
101,200 shares *
= P39.53 per share
=
Weighted average of actual ordinary shares
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 12/12)
Total weighted average of ordinary shares
100,000
1,200
101,200
Note: Months outstanding for assumed exercise of options is 12 months, which
is from date of issuance up to the reporting date.
Option shares
Multiply by: Total exercise price (120+10)
Proceeds from assumed exercise of options
Divided by: Average market price during the year
Assumed treasury shares
Option shares
Less: Assumed treasury shares
Incremental shares
9,000
130
1,170,000
150
7,800
9,000
7,800
1,200
Question No. 3
Diluted EPS
Diluted EPS
P4,000,000
100,900 shares *
= P39.64 per share
=
Weighted average of actual ordinary shares
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 9/12)
Total weighted average of ordinary shares
100,000
900
100,900
Question No. 4
Diluted EPS
Diluted EPS
P4,000,000
104,667 shares *
= P38.22 per share
=
Weighted average of actual beginning ordinary shares
Add: Weighted average number of shares from issuance of
share options (9,000 x 4/12)
Total weighted average of actual ordinary shares issued
Add: Weighted average of incremental shares
from assumed exercise of options (2,500 x 8/12)
Total weighted average outstanding ordinary shares
315
100,000
3,000
103,000
1,667
104,667
Chapter 30 – Book Value and Earnings Per Share
Option shares
Multiply by: Total exercise price (120+10)
Proceeds from assumed exercise of options
Divided by: Market price at exercise date
Assumed treasury shares
Option shares
Less: Assumed treasury shares
Incremental shares
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
9,000
130
1,170,000
180
6,500
9,000
6,500
2,500
D
PROBLEM 30-12 Multiple Potential Dilutive Securities
Question No. 1
Basic EPS
Basic EPS
(A)
P2,360,000 – (60,000 x P100 x 6%)
=
200,000
= P10 per share
Question No. 2
1) Check for initial test of dilution
a. Options
Dilutive. The exercise price (P50) is less than the average market price
(P100).
b.
Convertible preference shares
Probably dilutive. The incremental EPS (P1.2) is less than the basic
EPS (P10).
(P6,000,000 x 6%)
Incremental EPS
=
(60,000 x 5)
Incremental EPS = P1.2 per share
c.
Convertible bonds
Probably dilutive. The incremental EPS (P.84) is less than the basic
EPS (P10).
(P2,000,000 x 12%) x (1-30%)
Incremental EPS
=
(P2,000,000/P1,000) x 100
Incremental EPS = P.84 per share
`
2) Rank the dilutive potential diluters from the most dilutive to the least
dilutive.
1st Options
2nd Convertible bonds (incremental EPS of P.84 per share)
3rd Convertible preference share (incremental EPS of P1.2 per share)
3) Include potentially dilutive convertible securities one by one. Every time an
item is included, calculate new earnings per share or new loss per share
amount as follows:
316
Chapter 30 – Book Value and Earnings Per Share
Basic
EPS
from
continuing
operations
Options
Total
Convertible Bonds payable
Total
Convertible Preference share
Total
Profit
*2,000,000
Ordinary
shares
200,000
0
2,000,000
168,000
2,168,000
360,000
2,528,000
10,000
210,000
200,000
410,000
300,000
710,000
EPS
10
9.52
5.29
3.56
*Net Income less preference dividends [(P2,360,000 –(60,000 x P100 x
12%)]
Answer: The final diluted EPS would be P3.56 per share.
Question No. 3
Basic EPS
Basic EPS
Question No. 4
Diluted EPS
Diluted EPS
(D)
(B)
P500,000
=
200,000
= P2.5 per share
(C)
P500,000
=
710,000
= P.70 per share
SUMMARY OF ANSWERS:
1. A
2. D
3. B
4.
C
PROBLEM 30-13 Rights Issue
Fair value per share – right on
Less: Theoretical value of one right*
Theoretical ex-rights fair value per share
*Value of one right
=
150 –40
4* + 1
=
P
P
150
22
128
22
Adjustment factor (150/128)
1.17
Question No. 1
2014:
Weighted average outstanding shares (40,000 x 1.17 x 12/12)
Basic EPS (P562,500 /46,800)
(D)
317
46,800
P12.02 / share
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
2015:
Weighted average outstanding shares
(40,000 x 1.17 x 3/12)
[(40,000 + 10,000) x 9/12]
11,700
37,500
Basic EPS (P800,000/49,200)
(B)
49,200
P16.26 / share
Question No. 3
2016:
Weighted average outstanding shares[(40,000 + 10,000) x 12/12]
Basic EPS (P1,000,000 /50,000)
(A)
PROBLEM 30-14 Written Put Options
(C)
Incremental shares
=
(P350 – P280) x 10,000
P280
=
P20 per share
2,500 shares
PROBLEM 30-15 Comprehensive Problem
Item
Unadjusted
1)
2)
3)
4)
5)
6)
7)
8)
9)
Adjusted
Net Income
2015
2016
**1,300,000
*500,000
(50,000)
50,000
(30,000)
45,000
(45,000)
***28,000
(28,000)
5,000
(5,000)
(20,000)
1,328,000
422,000
Retained
Earnings
12/31/16
1,800,000
(30,000)
(20,000)
1,750,000
* (P5 EPS x P1,000,000 / P10 par)
** (1,800,000 – 500,000 2015 net income)
*** (P48,000 / 12 x 7 months)
Question No. 1
(D)
Refer to table above. Adjusted Net Income in 2015 is P422,000.
Question No. 2
Refer to table above.
(C)
318
50,000
Chapter 30 – Book Value and Earnings Per Share
Question No. 3
(C)
EPS 2015 (P422,000 / 100,000 shares) = P4.22
Question No. 4
(B)
Ordinary share capital, P10 par
Share premium
Retained earnings, 12/31/2015 (as adjusted)
Total shareholders' equity
1,000,000
500,000
1,750,000
3,250,000
Question No. 5
(B)
BVPS (P3,250,000 / 100,000) = P32.50
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4.
B
5.
319
B
Chapter 32 – Statement of Financial Position and Comprehensive Income
CHAPTER 32: STATEMENT OF FINANCIAL POSITION
AND COMPREHENSIVE INCOME
PROBLEM 32-1 Current and Noncurrent Assets
Question No. 1
Cash
Trade receivables
Inventory, including inventory expected in the ordinary course of
operations to be sold beyond 12 months amounting to P800,000
Prepaid insurance
Financial assets at fair value through profit or loss
Noncurrent Assets held for sale building
Total Current Assets
(D)
Question No. 2
Financial assets at fair value through other comprehensive income
Financial assets at amortized cost
Deferred tax asset
Machinery
Accumulated depreciation
Land used as a plant site
Total Noncurrent Assets
(C)
400,000
1,500,000
1,200,000
240,000
300,000
650,000
4,290,000
600,000
1,000,000
150,000
800,000
(200,000)
920,000
3,270,000
PROBLEM 32-2 Current and Noncurrent Assets
Question No. 1
Cash (1M+300,000+100,000-50,000-280,000)
Accounts receivable (3M-200,000+50,000)
Investments securities held for trading (1.8M-500,000)
Inventories (800,000-200,000+(450,000/125%)
Prepaid Expenses (only the prepaid insurance)
Total Current Assets
(A)
1,070,000
2,850,000
1,300,000
960,000
48,000
6,228,000
Question No. 2
Cash in sinking fund
Long-term investments
Deposit to supplier for inventories to be delivered in 16 months
Cash surrender value
Property, plant and equipment
Total noncurrent Assets
(A)
280,000
500,000
23,000
20,000
5,000,000
5,823,000
320
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-3 Current and Noncurrent Liabilities
Question No. 1
Bank overdraft
Accounts payable (1M+25,000+100,000)
Property dividends payable
Income tax payable
Note payable, due January 31, 2016
Cash dividends payable
Financial liabilities at fair value through profit or loss
Estimated expenses of meeting warranties
Estimated damages as a result of unsatisfactory performance on
a contract
Loans payable-current
Total current liabilities
(A)
Question No. 2
Bonds payable
Premium on bonds payable
Deferred tax liability
Mortgage payable
Loans payable-noncurrent
Total noncurrent liabilities
(C)
300,000
1,125,000
400,000
300,000
500,000
80,000
130,000
335,000
268,000
100,000
3,538,000
3,400,000
200,000
400,000
1,000,000
400,000
5,400,000
PROBLEM 32-4 Shareholders’ Equity
Ordinary share capital
Share premium
Subscribed ordinary share
Subscriptions receivable
Retained earnings unappropriated (6M-2M cost of treasury)
Reserves:
Retained earnings appropriated for treasury shares
Reserve for contingencies
Unrealized gain on FVTOCI
Revaluation surplus
Cumulative translation adjustment – debit
Total
Less: Treasury shares
Total Shareholders' Equity
(C)
321
10,000,000
1,000,000
100,000
(120,000)
4,000,000
2,000,000
3,000,000
1,000,000
4,000,000
(1,500,000)
23,480,000
2,000,000
21,480,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-5 Adjusting and Nonadjusting events
Loss on expropriation
Impairment loss on Accounts Receivable
Litigation loss
Total adjusting events
(A)
100,000
600,000
1,000,000
1,700,000
All other data are nonadjusting events.
PROBLEM 32-6: Related Party Relationship
Requirement No. 1
The following companies are considered to be related parties of Frozen Throne
Company in accordance with PAS 24 Related Party Disclosures:
Name
Description
1)
Sand King Co.
Post-employment benefit plan established by
Frozen Throne
2)
Shadow Fiend Co.
Associate
4)
Harbringer Co.
Subsidiary
5)
Night Crawler Co.
Subsidiary of Harbringer
6)
Disruptor Co.
Associate of Harbringer
7)
Geomancer Co.
Parent
8)
Jakiro Co.
Parent of Geomancer
9)
Rylai Co.
Sister company of Frozen Throne Company
10) Medusa Co.
Key Management personnel of Frozen Throne
Company.
11) Barathrum Co.
Bank
16) Pudge Co.
Joint venturer of Frozen Throne Company
17) Invoker Co.
Joint venture of Frozen Throne Company
Requirement No. 2
Regardless of whether there have been transactions between a parent and a
subsidiary, an entity must disclose the name of its parent and, if different, the
ultimate controlling party. Therefore, Frozen Throne Company should disclose
Jakiro Co., its ultimate parent or controlling party.
PROBLEM 32-7 (Distribution costs and general and administrative
expenses)
Question No. 1
Advertising
Delivery expense
Rent for office space (500,000 X 1/2)
Sales commissions
Depreciation on delivery truck
Total distribution costs
(B)
322
500,000
300,000
250,000
1,075,000
14,000
2,139,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2
Auditing and Accounting fees
Officers’ salaries
Rent for office space (500,000 X 1/2)
Insurance
Depreciation on office equipment
Total general and administrative expenses(D)
300,000
625,000
250,000
200,000
15,000
1,390,000
PROBLEM 32-8 Comprehensive Income
Net Sales
Cost of goods sold
Gross income
Other income
Share of profit of associate
Total income
Expenses:
Distribution costs
Administrative expenses
Finance cost
Other expense
Income before income tax
Income tax expense
Income from continuing operations
Income from discontinued operations
Net Income
Other comprehensive income:
Revaluation surplus
Translation gain
Unrealized gain on FVTOCI securities
Comprehensive income
(C)
Other income:
Interest income
Other expense:
Loss on sale of equipment
4,000,000
2,500,000
1,500,000
30,000
125,000
1,655,000
60,000
120,000
35,000
50,000
300,000
50,000
200,000
30,000
50,000
323
265,000
1,390,000
408,000
982,000
100,000
1,082,000
550,000
1,632,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
COMPREHENSIVE PROBLEMS
PROBLEM 32-9
1.
2.
3.
4.
5.
10.
4.
6.
7.
8.
9.
10.
Current
Asset
44,300
(10,000)
Unadjusted balance
Notes receivable – maturity
date July 1, 2018
Land
FVTOCI
Inventory
Treasury shares
Prepaid insurance
Accumulated depreciation
– Building
Accumulated depreciation
– Equipment
Allowance for bad debts
Adjusted balance
Unadjusted balance
Treasury shares
Bonds payable
Accrued wages
Mortgage – current portion
Premium on bonds payable
Allowance for bad debts
Accumulated depreciation
– Building
Accumulated depreciation
– Equipment
Adjusted balance
SUMMARY OF ANSWERS:
1. (E) 2. (E) 3. A
4.
(12,000)
4,600
30,500
2,900
(700)
59,600
1. (E)
Current
Liabilities
66,600
(40,000)
4,100
4,000
34,700
3. (A)
B
5.
324
A
Noncurrent
asset
158,400
10,000
Total Asset
202,700
-
12,000
(4,600)
(30,500)
(1,800)
(2,900)
(21,000)
(1,800)
(21,000)
(13,000)
(13,000)
106,600
(700)
166,200
2. (E)
Noncurrent
liabilities
24,100
40,000
(4,100)
(4,000)
4,300
Equity
112,000
(1,800)
(21,000)
(4,300)
(700)
(21,000)
(13,000)
(13,000)
60,300
4. (B)
71,200
5. (A)
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-10
Unadjusted
balances
1
2
3
4
5
6
7
8
9
10
11
Adjusted
balances
Cash in
bank
100
(14)
20
(5)
101
1. (B)
Inventory
1,800
Accts.
Receivable
2,500
PPE
1,000
Accum.
Depr
400
Depreciation
4
(15)
60
1,849
5
2,505
500
(20)
1,480
112.5
(4)
508.5
112.5
(4)
108.5
-
Continuation…
Unadjusted
balances
1
2
3
4
5
6
7
8
9
10
11
Adjusted
balances
Advances
from
customers
5
5
Accounts
payable
320
Interest
payable
Bonds
payable
1,924,144
Discount
-
Amortization
-
4
14
20
(5)
60
413
2. (B)
180
180
75,856
1,936,558
63.442
63.442
12.414
12,414
*000
Current Assets:
Cash in bank
Inventory
Accounts Receivable
Noncurrent assets:
PPE
Less: Accumulated Depreciation
Total assets
101,000
1,849,000
2,505,000
1,480,000
508,500
325
4,455,000
3. (A)
971,500
5,426,500
4. (B)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current liabilities:
Advances from customers
Accounts payable
Interest payable
5,000
413,000
180,000
Noncurrent liabilities:
Bonds payable
Discount on bonds payable
Total liabilities
SUMMARY OF ANSWERS:
1. B
2. B
3. A
2,000,000
63,442
4.
B
5.
B
6.
598,000
5. (B)
1,936,558
2,534,558
6. (C)
C
PROBLEM 32-11
1. EI over, COS under
2015
2016
2. Salaries expense under
2015
2016
3. Sales overstated
2015
2016
4. Expense overstated
2015
2016
5. Purch. Over, COS over
2015
2016
6. Sales under
2015
2016
7. Bad debt under
2015 (32.4+2.5) x 2%
2016 (66.1+4) x 2%-698
8. Dep. Expense under
2015
2016
Adjusted bal.
Sales
385,000
2015
COS
EI
157,600
98,500
6,200
(6,200)
OPEX
69,300
14,600
(1,700)
(180)
(3,200)
2,500
698
14,500
385,800
326
160,600
92,300
98,918
Chapter 32 – Statement of Financial Position and Comprehensive Income
2016
1. EI over, COS under
2015
2016
2. Salaries expense under
2015
2016
3. Sales overstated
2015
2016
4. Expense overstated
2015
2016
5. Purch. Over, COS over
2015
2016
6. Sales under
2015
2016
7. Bad debt under
2015 (32.4+2.5) x 2%
2016 (66.1+4) x 2%-698
8. Dep. Expense under
2015
2016
Adjusted bal.
Sales
420,000
COS
203,800
(6,200)
8,500
EI
164,900
OPEX
76,700
(8,500)
(14,600)
17,300
1,700
(800)
180
(200)
3,200
(4,600)
(2,500)
4,000
704
422,400
204,700
156,400
Question No. 6
(A)
Sales
Less Cost of sales
Gross Profit
Less Operating expenses
Add Other income
Net profit
Add: Retained earnings, beginning
Retained earnings, December 31, 2015)
385,800
160,600
225,200
98,918
2,100
128,382
23,400
151,782
Question No. 7
(C)
Cost
Less Accumulated depreciation (14,500 x 2)
Book value of machinery, December 31, 2016
145,000
29,000
116,000
327
14,500
94,584
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 9
(B)
Accounts receivable, 2015 (32,400+2,500)
Less: Allowance for bad debts (32,400+2,500) * 2%
Net realizable value
Question No. 10
(B)
Sales 2016
Less: Cost of sales
Gross Profit
Less: Operating expenses
Add: Other income
Net income
SUMMARY OF ANSWERS:
1. C
2. C
3. D
6. A
7. C
8. B
34,900
698
34,202
422,400
204,700
217,700
94,584
1100
124,216
4.
9.
A
B
5.
10.
C
B
PROBLEM 32-12
Question No. 1
Unadjusted sales
Less: Advances
Adjusted Sales
4,323,600
132,000
4,191,600
(A)
Question No. 2
Carrying value (100,000 x 70%^4*)
Less: Recoverable amount (higher)
Impairment loss
(B)
*future value after 4 periods = carrying value after 4 periods.
Question No. 3
Sales
Add: Increase in raw materials (75,800 – 56,800)
Increase in finished goods (130,700 – 105,800)
Less: Purchase of raw materials
Other expenses (see below)
Wages and salaries (890,400 + 33,000)
Amortization of development cost (648,000 / 3 x 4/12)
Impairment loss
Depreciation [(567,000 – 402,000) x 30%]
Tax expense (52,000 + 35,000 – 30,000)
Net income
(A)
328
24,010
23,000
1,010
4,191,600
19,000
24,900
(2,056,500)
(522,100)
(923,400)
(72,000)
(1,010)
(49,500)
(57,000)
553,990
Chapter 32 – Statement of Financial Position and Comprehensive Income
Unadjusted Other Expense
569,900
Add: Rent expense [10,000 + (4,000/4)**]
11,000
Increase in accrued expense (26,700 - 17,000)
9,700
Less: Tax settlement
(35,000)
Increase in prepaid expense (45,000 – 11,500)
(33,500)
Adjusted Other Expense
522,100
**Since the deposit is non-refundable, this is recognized as additional expense
over the lease term.
Questions No. 4 to No. 7
Current assets:
Cash in bank (41,850 – 33,000)
Trade receivables and other receivables
Raw materials
Finished goods
Prepaid expense
8,850
245,800
75,800
130,700
45,000
Non-current assets:
Intangible asset (648,000 – 72,000)
Plant (567,000 – 402,000 – 49,500 – 1,010)
Lease deposit (4,000 – 1,000)
Total assets
576,000
114,490
3,000
5. (C)
Current liabilities:
Trade and other payables
Income tax payable
Advances from customers
Accrued purchases
156,700
52,000
132,000
26,700
Non-current liabilities:
None
Total liabilities
693,490
1,199,640
367,400
6. (C)
-
Equity:
Ordinary shares
Retained earnings (553,990 – 1,750 deficit –
20,000)
Total liabilities and shareholders’ equity
SUMMARY OF ANSWERS:
1. A
2. B
3. A
506,150
4. (B)
4.
B
5.
329
300,000
C
6.
367,400
532,240
7. (A)
832,240
1,199,640
C
A
7.
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-13
Question Nos. 1 and 2
Unadjusted net income
1) BD expense under, NI over (392,000 x 10% )27,000
2) Unreal. Gain (Loss) (81,000-78,000) and
(62,000-81,000)
3) EI overstated, NI over
EI overstated, NI over
4) *Expense over, NI under
Depreciation expense under, NI over
**Gain on sale under, NI under
5) Exp. Over
Adjusted net income
2015
195,000
2016
220,000
(2,200)
3,000
(4,000)
(19,000)
4,000
(6,100)
10,900
1,800
206,700
1. (B)
(1,100)
2,500
(900)
197,200
2. (B)
*(Expenses recorded P12,000 should be (12,000-1,000)/10=12,000-1,000)
**Net Selling Price
2,500
Less carrying amount
Cost
17,500
Less Accumulated depreciation
17,500
0
Gain on sale
2,500
Question No. 3
Cash
Accounts receivable (296,000-18,000)
Trading securities at Fair value
Merchandise inventory (202,000-4,000)
Prepaid insurance (2,700-1,800)
Total current assets
(C)
Question No. 4
Cash
Accounts receivable (392,000 x 90%)
Trading securities at Fair value
Merchandise inventory (207,000-6,100)
Prepaid insurance
Total current assets
Property, plant and equipment
(169,500+12,000-17,500)
Less: Accumulated. Depreciation
(121,600+1,100+1,100-17,500)
Net Book value
Total Assets
(B)
330
82,000
278,000
81,000
198,000
900
639,900
163,000
352,800
62,000
200,900
900
779,600
164,000
106,300
57,700
837,300
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 5
Share capital (20,000 x P10)
Share premium
Retained earnings (206,700+197,200+*52,000)
Adjusted Shareholders' equity
(A)
*(247,000-195,000)
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
B
5.
200,000
60,000
455,900
715,900
A
PROBLEM 32-14
Question No. 1
Unadjusted sales
Less: Sale with a repurchase agreement (selling price)
Adjusted Sales
(B)
550,000
(10,000)
540,000
Note: The transaction should be reported as a financing arrangement, rather
than sale. Hence, the company will instead report a liability and interest. Also,
the cost should be included as part of inventory.
Question No. 2
Unadjusted cost of sales
Less: Sale with a repurchase agreement (cost)
Add: Depreciation on Plant (see below)
Depreciation on Building (35,000 / 14)
Adjusted cost of sales
(D)
Depreciation of plant asset is computed as follows:
Plant asset classified as held for sale [(9,000 – 5,000) x 20% x
6/12]
Remaining plant asset [(70,000 – 4,000) x 20%]
Total plant asset depreciation
Non-current asset held for sale:
Fair value less cost to sell
Carrying value date of classification (4,000 – 400)
Initial carrying amount - LOWER
Question No. 3
Sales
Less: Cost of sales
Gross profit
Less: Distribution cost
Administrative expenses
Interest [(700 + (10,000 x 10% x 6/12*)]
331
411,500
(7,0000
13,600
2,500
420,600
400
13,200
13,600
4,200
3,600
3,600
540,000
420,600
119,400
(21,500)
(30,900)
(1,200)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Provision for bonus (540,000 x 1%)
Tax expense (increase in DTL and CTL) – (27,200 + 9,400
– 1,200 – 6,200)
Net income
(A)
Question No. 4
Net income
Add: Revaluation surplus (see computation below)
Total comprehensive income
(B)
Land:
Appraised value
Carrying amount
Questions No. 4 to No. 9
Current assets:
Trade receivables
Inventory (43,700 + 7,000)
Non-current asset held for sale
35,000
30,000
42,200
50,700
3,600
Non-current assets:
Land
Building (35,000 – 2,500)
Plant (66,000 – 13,200)
Total assets
12,000
32,500
52,800
Current liabilities:
Trade payables
Bank overdraft
Current tax liability
Provision – bonus
35,100
6,800
27,200
5,400
Non-current liabilities:
Deferred tax liability
Bank loan
Interest payable
Total liabilities
9,400
10,000
500
Equity:
Equity shares
Share premium
Revaluation surplus
50,000
20,000
7,000
332
(29,200)
31,200
31,200
7,000
38,200
12,000
10,000
Building:
Appraised value
Less: Carrying amount (50,000 – 20,000)
Total revaluation surplus
(5,400)
2,000
5,000
7,000
96,500
5. (D)
6. (C)
97,300
193,800
74,500
7. (C)
8. (D)
19,900
94,400
Chapter 32 – Statement of Financial Position and Comprehensive Income
Retained earnings (11,200 + 31,200 – 20,000)
Total liabilities and shareholders’ equity
22,400
9. (B)
99,400
1,199,640
Question No. 10
Net income
Divided by: Weighted average shares (see below)
Earnings per share
(A)
31,200
96,739
₱.3225
April 1 to July 1 (80,000* x 2 / 1.84** x 3/12)
July 1 to March 31 (100,000 x 9/12)
Weighted average number of shares
21,739
75,000
96,739
*The number of shares before the exercise of the rights may be computed
by dividing the (₱50,000 / 50 centavos) by 125% (100% + ¼ rights).
**Adjustment factor.
Value of one right
=
Value of one right
=
Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
₱2 - ₱1.20
=
4+1
₱.16
Fair value per share – right on
Less: Theoretical value of one right
Theoretical ex-rights fair value per share
SUMMARY OF ANSWERS:
1. B
2. D
3. A
6. C
7. C
8. D
4.
9.
B
B
5.
10.
₱2.00
.16
₱1.84
D
A
PROBLEM 32-15
Note to professor: Insert this sentence to additional information # 2.
On April 1, 2016 Athena Co. decided to sell one of its machines which had a
carrying amount of ₱8,200 on September 30, 2015.
Question No. 1
Inventories at 30 September 2015
Add: Purchases
Less: Inventories at 30 September 2016
Add: Depreciation – plant and machinery (see below)
Add: Depreciation – machine classified as held for sale (8,200 x
20% x 6/12)
Add: Impairment loss – noncurrent asset held for sale [(8,200 –
820) – 6,500]
Adjusted Cost of Sales
(E)
333
31,800
344,000
27,300
46,485
820
880
396,685
Chapter 32 – Statement of Financial Position and Comprehensive Income
Plant and Machinery
Cost – balance forward
Less: Accumulated depreciation – balance forward
Less: Held for sale asset – carrying amount
Balance
Less: Depreciation during the year (232,425 x 20%)
Carrying amount – year end
385,000
144,375
8,200
232,425
46,485
185,940
Question No. 2
Trial balance
Add: Depreciation – Property (14,500 + 30,000) - see below
Add: Downward Valuation (480,000 – 456,000)
Adjusted Admin Expense
(C)
216,200
34,500
24,000
274,700
Property Valuations
Carrying amount – October 1, 2015
Valuation – October 1, 2015
Revaluation (gain)/loss
Valuation – October 1, 2015
Less: Depreciation (Property A: 31 years;
Property B: 30 years)
Carrying amount – October 1, 2016
Property A
372,000
(449,500)
(77,500)
Property B
1,080,000
(600,000)
480,000
449,500
600,000
(14,500)
435,000
(20,000)
580,000
Question No. 3
Trial balance
Add: Provision charge (see below)
Add: Lease expense (see below)
Adjusted Other Operating Costs (C)
86,900
33,600
27,600
148,100
Provision – Onerous Lease
Current liabilities [(3,000 – 2,300) x 12]
Non-current liabilities (8,4000 x 3 years)
Total
Operating Lease
Total Payments [(18,000 x 7 years) + (36,000 x 8 years)]
Divided by:
Operating lease expense per year
Question No. 4
Revenue
Less: Cost of sales
Gross profit
Less: Administrative expenses ( see No. 2)
334
8,400
25,200
33,600
414,000
15 years
27,600
1,057,000
396,685
660,315
274,700
Chapter 32 – Statement of Financial Position and Comprehensive Income
Other operating costs (see No. 3)
Profit before tax
Less: Tax
Profit after tax
(A)
148,100
237,515
56,000
181,815
Questions No. 4 to No. 8
Current assets:
Inventories
Trade and other receivables
Cash in bank
27,300
61,500
5,100
93,900
6,500
Non-current asset held for sale
Non-current assets:
PPE (185,940 + 400,000 + 435,000 + 580,000)
Total assets
1,600,940
6. (D)
Current liabilities:
Trade and other payables
Income tax payable
Provisions
1,600,940
1,701,340
199,800
56,000
8,400
Non-current liabilities:
Lease liability (27,600 – 18,000)
Provision
Total liabilities
672,600
135,000
594,740
Beginning balance
Total comprehensive income for the year
(77,500 – 456,000)
Dividend on ordinary shares
Piecemeal realization of revaluation surplus
Ending balance
4.
264,200
7. (A)
9,600
25,200
Equity:
Ordinary share capital
Revaluation surplus
Retained earnings
Total liabilities and shareholders’ equity
SUMMARY OF ANSWERS:
1. E
2. C
3. D
100,400
5. (D)
A
5.
335
D
34,800
299,000
8. (B)
1,402,340
1,701,340
Retained
Earnings
576,875
181,515
Revaluation
Surplus
518,000
(378,500)
(168,150)
4,500
594,740
(4,500)
135,000
6.
D
7.
A
8.
B
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-16
SUPPORTING COMPUTATIONS:
Cost of Sales:
Unadjusted balance
Add: Amortization of leased property [36,000 / (12 – 4)]
Add: Amortization of leased plant (25,000 / 5)
Add: Depreciation of other plant and equipment [(47,500 –
33,500) x 20%]
Adjusted Cost of Sales
Leased Property:
Carrying amount – April 1, 2015 (48,000 – 16,000)
Add: Revaluation surplus (36,000 – 32,000)
Revalued amount – April 1, 2015
Less: Amortization (36,000 / remaining life 8 years)
Carrying amount – March 31, 2016
Leased Liability:
Amortization Table:
Principal
Date
Payment
April 1, 2015
April 1, 2015
2,000
March 31, 2016
6,000
March 31, 2017
6,000
Interest
Expense
Leased Plant:
Fair value – April 1, 2015
Less: Amortization (25,000 / 5 years)
Carrying amount – March 31, 2016
2,800
311,000
32,000
4,000
36,000
(4,500)
311,000
Amortization
2,300
1,930
298,700
4,500
5,000
2,000
3,700
4,070
Present
value
25,000
23,000
19,300
15,230
25,000
5,000
20,000
Deferred Tax:
Deferred tax liability – March 31, 2016 (12,000 x 25%)
Deferred tax liability – April 1, 2015
Decrease in deferred tax liability
Question No. 1
Revenue
Less: Cost of sales
Gross profit
Less: Distribution costs
Administrative expense (26,900 + 3,000 fraud)
Finance cost (300 + 2,300 interest in the lease)
Loss before tax
Income tax benefit [(9,600 x 25%) + 200 – 800]
Loss after tax
(D)
336
3,000
3,200
200
350,000
311,000
39,000
16,100
29,900
2,600
(9,600)
1,800
(7,800)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Questions No. 2 to 5
Current assets:
Inventory
Trade receivables (28,500 – 4,000)
Current tax refund (9,600 x 25%)
25,200
24,500
2,400
Non-current assets:
Leased property
Leased plant (25,000 – 5,000)
Owned plant (47,500 – 33,500 – 2,800)
Total assets
31,500
20,000
11,200
Current liabilities:
Trade payables
Bank overdraft
Finance lease liability – current
27,300
1,400
4,070
Non-current liabilities:
Finance lease liability – noncurrent
Deferred tax liability
Total liabilities
15,230
3,000
Equity:
Share capital
Reserves:
Share premium
Revaluation surplus
Retained earnings
Total shareholders’ equity
Statement of Changes in Equity:
Share
Capital
Beg bal
45,000
Prior period adjustment
– fraud
Restated balance
Rights issue (see below)
9,000
Net loss
Revaluation surplus
Piecemeal realization of
R/S
.
Ending bal.
54,000
52,100
62,700
114,800
32,770
18,230
51,000
54,000
9,500
3,500
(3,200)
Share
Premium
5,000
Revaluation
Surplus
-
9,800
63,800
Retained
Earnings
5,100
(1,000)
4,100
4,500
(7,800)
4,000
.
9,500
(500)
3,500
500
(3,200)
The rights issue was 18 million shares (45,000/50 cents each x 1/5) at 75 cents
= ₱13·5 million. This equates to the balance on the suspense account. This
should be recorded as ₱9 million equity shares (18,000 x 50 cents) and ₱4.5
million share premium (18,000 x (75 cents – 50 cents)).
337
Chapter 32 – Statement of Financial Position and Comprehensive Income
The discovery of the fraud represents an error part of which is a prior period
adjustment (₱1 million) in accordance with PAS 8 Accounting policies, changes
in accounting estimates and errors.
Question No. 6
Loss after tax
Divided by: Weighted average shares (see below)
Loss per share
(B)
7,800
99,000
₱.0788
April 1 to December 31 (90,000 x 1.20 / 1.125* x 9/12)
January 1 to March 31 (108,000 x 3/12)
Weighted average number of shares
72,000
27,000
99,000
*Adjustment factor.
Value of one right
=
Value of one right
=
Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
₱1.25 - . ₱75
=
5+1
₱.075
Fair value per share – right on
Less: Theoretical value of one right
Theoretical ex-rights fair value per share
SUMMARY OF ANSWERS:
1. D
2. D
3. B
4.
A
5.
338
₱1.20
.075
₱1.125
B
6.
B
Chapter 33 – Statement of Cash Flows
CHAPTER 33: STATEMENT OF CASH FLOWS
PROBLEM 33-1 Cash flows and non-cash activities
1) Sale of common stock
2) Sale of land
3) Purchase of treasury stock
4) Merchandise sales
5) Issuance of long-term note payable
6) Purchase of merchandise
7) Repayment of note payable
8) Receipts from sale of half of investment in associate
9) Employee salaries
10) Sale of equipment at a gain
11) Issuance of bonds
12) Acquisition of bond of another corporation
13) Acquisition of a 60-day treasury bills
14)
15)
16)
17)
18)
19)
20)
21)
22)
23)
24)
25)
26)
F
I
F
O
F
O
F
I
O
I
F
I
Not
reported**
I
NC
I
I
NC
F
O
NC
I
I
F
O
F**
Purchase of building
Acquisition of a land under a finance lease
Collection of nontrade note receivable (principal amount)
Loan to another firm
Declaration of cash dividend
Retirement of common stock
Income taxes paid
Issuance of short-term note payable to a supplier
Sale of a copyright
Purchase of a treasury share of another corporation
Payment of cash dividends
Receipt of dividends
Payment for the acquisition of additional 10% interest in a
subsidiary
27) Payment of semiannual interest on bonds payable
F
28) Receipt of interest
O
29) Increase in shareholders’ equity from a dividend
NC
reinvestment plan
30) Declaration of share dividend
NC
31) Interest paid capitalized under PAS 23
I
*Acquisition of 60-day treasury bills is transaction reclassifying cash to cash
equivalent.
**PFRS 10.23 Changes in a parent’s ownership interest in a subsidiary that do
not result in the parent losing control of the subsidiary are equity transactions
(ie transactions with owners in their capacity as owners). PAS 7 par 42A Cash
flows arising from changes in ownership interests in a subsidiary that do not
339
Chapter 33 – Statement of Cash Flows
result in a loss of control shall be classified as cash flows from financing
activities.
PROBLEM 33-2 Indirect Method - Operating Activities
Net income
Decrease in accounts receivable
Increase in accounts payable
Depreciation expense
Net cash provided by operating activities
(A)
668,000
96,000
44,000
20,000
828,000
PROBLEM 33-3 Indirect Method - Operating Activities
Net income
Increase in accounts receivable
Decrease in prepaid expenses
Increase in accumulated depreciation-depreciation expense
Decrease in accounts payable
Net cash provided by operating activities
(A)
292,000
(40,000)
12,000
64,000
(16,000)
312,000
PROBLEM 33-4 Investing Activities
Cash acquisition of fair value through other comprehensive
securities
Proceeds from sale of the company’s used equipment
Purchase of equipment
Net cash provided by investing activities
(B)
(100,000)
1,000,000
(560,000)
340,000
PROBLEM 33-5 Financing Activities
Issuance of shares of the company’s own ordinary shares
Dividends paid to the company’s own shareholders
Repayment of principal on the company’s own bonds
Net cash provided by financing activities
(A)
680,000
(28,000)
(160,000)
492,000
PROBLEM 33-6
Question No. 1
Cash receipts from receivable (216 + 800 – 324)
Cash payment for purchases [(321 + 300 – 425) + 117 – 210]
Cash disbursement – insurance (66 + 40 – 88)
Cash disbursement – salaries (93 + 120 – 102)
Cash disbursement – interest (50 – 10)
Cash disbursement –tax (78 + 52 – 60)
Net cash provided by operating activities
(D)
340
692
(103)
(18)
(111)
(40)
(70)
350
Chapter 33 – Statement of Cash Flows
Question No. 2
Net Income
Depreciation
Gain on sale of building
Loss on sale of machinery
Increase in A/R
Decrease in Inventory
Decrease in prepaid insurance
Increase in Accounts Payable
Increase in salaries payable
Increase in DTL
Bond discount amortization
Net cash provided by operating activities
(D)
88
123
(11)
12
(108)
104
22
93
9
8
10
350
Note that cash flows for operating activities using direct or indirect method
is the same.
PROBLEM 33-7
Question No. 1
COMPREHENSIVE PROBLEMS
(B)
Accounts receivable
Beg. balance – AR
Sales on account
125,0000
1,000,000
135,000
-
-
990,000
-
Recoveries
Total
Question No. 2
1,125,000
Balance end - AR
Sales
returns
and
allowance*
Sales discounts
Collections (squeeze)
Write-off
1,125,000
(C)
Accounts Payable Trade
Payments (squeezed)
Purchase returns and
allow.
Purchase discounts
Balance end – AP
Total
525,000
0
190,000
485,000
Beg. balance – AP
Purchases
0
150,000
675,000
Merchandise Inventory
Beg. Balance
Net Purchases (squeeze)
175,000
485,000
Total
660,000
160,000
500,000
341
Balance end
Cost of Sales
Chapter 33 – Statement of Cash Flows
Question No. 3
(D)
Deferred income taxes
Payments (squeezed)
Balance end
Total
190,000
175,000
100,000
85,000
Beg. balance
Income tax expense
275,000
Question No. 4
(D)
Collection of accounts receivable
Payment of accounts payable
Payment of income taxes*
Payment of operating expenses
Net cash provided by (or used in) Operating activities
990,000
(525,000)
(190,000)
(180,000)
95,000
*Computation of Payment of income taxes
Prepaid insurance
Beg. Balance
Payment (squeezed)
25,000
180,000
Total
40,000
165,000
Balance end
Operating
expenses
excluding
depreciation
(260,000-95,000)
205,000
Depreciation expense=245,000-150,000
=95,000
Question No. 5
Receipt of cash from note payable-bank (200,000-160,000)
Issuance for cash of ordinary shares(225,000-200,000)
Dividends paid
Net cash provided used in Financing activities
(A)
40,000
25,000
(75,000)
(10,000)
Question No. 6
*Proceeds from Sale of investment
Cash acquisition of PPE (540,000-460,000)
Net cash provided used in investing activities
20,000
(80,000)
(60,000)
(B)
Cost of investment sold (190,000-180,000)
Add: Gain on sale
Proceeds from sale of investment
SUMMARY OF ANSWERS:
1. B
2. C
3. D
4.
D
5.
342
10,000
10,000
20,000
A
6.
B
Chapter 33 – Statement of Cash Flows
PROBLEM 33-8
Question No. 1
Beg. Balance
Sales on account
Question No. 2
Bal. end
Payment
Beg. Balance
Net purchases
(A)
Accounts receivable
600,000 1,250,000
5,000,000 4,330,000
20,000
5,600,000 5,600,000
(B)
Accounts payable
4,800,000 4,500,000
1,900,000 2,200,000
6,700,000 6,700,000
Merchandise inventory
2,000,000
2,200,000
2,200,000
2,000,000
4,200,000
4,200,000
Bal. end
Collections
Write-off
Beg. Balance
Net purchases
Bal. end
Cost of goods sold
Question No. 3
(A)
Net income
Amortization of premium of Investment in Bonds
Depreciation
Gain on sale of equipment
Amortization of franchise
Decrease (or increase) in Trading securities
Decrease (or increase) in Net AR
Decrease (or increase) in Inventories
Increase (or decrease) in AP
Increase (or decrease) in DTL
Net cash provided by (or used in) Operating activities
Computation of accumulated depreciation:
Beg. Balance
Add: Depreciation expense
Less: Accumulated depreciation of asset sold
Balance end
Gain or (loss) on sale
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Gain on sale
700,000
60,109
900,000
(220,000)
100,000
(450,000)
(530,000)
(200,000)
300,000
200,000
860,109
3,200,000
900,000
200,000
3,900,000
500,000
480,000
200,000
343
280,000
220,000
Chapter 33 – Statement of Cash Flows
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
480,000
12/31/2016
480,000
Interest
Income
Premium
Amortization
425,355
419,891
54,645
60,109
Present
value
4,253,552
4,198,907
4,138,798
Question No. 4
(B)
Acquisition of PPE
Sale of PPE
Net cash provided by (or used in) investing activities
(1,000,000)
500,000
(500,000)
Question No. 5
(D)
Dividends paid
Cash receipts-issuance of OS (10,000 x 120)
Cash paid for Treasury shares
Net cash provided by (or used in) Financing activities
(300,000)
1,200,000
(500,000)
400,000
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
B
5.
D
PROBLEM 33-9
Question No. 1
Bal. end
Payment
Beg. Balance
Net purchases
(D)
Accounts payable
3,400,000 3,500,000
1,900,000 1,800,000
5,300,000 5,300,000
Merchandise inventory
2,000,000
1,800,000
1,800,000
2,000,000
3,800,000
3,800,000
Beg. Balance
Net purchases
Bal. end
Cost of goods sold
Question No. 2
(B)
Income tax payable/Deferred tax liability
Bal. end-ITP
150,000
200,000 Beg. Balance-ITP
Bal. end-DTL
700,000
500,000 Beg. Balance-DTL
Payment
150,000
300,000 Income tax expense
1,000,000 1,000,000
Question No. 3
(A)
Net income
Share in the net income of associate
Cash dividends from associate
700,000
(1,024,000)
280,000
344
Chapter 33 – Statement of Cash Flows
Depreciation
Loss on sale of equipment
Amortization of franchise
Decrease (or increase) in Trading securities
Decrease (or increase) in Net AR
Decrease (or increase) in Inventories
Increase (or decrease) in AP
Increase (or decrease) in ITP
Increase (or decrease) in DTL
Net cash provided by (or used in) Operating activities
Year of Acquisition
Percentage of ownership
Cost of Investment
Less: Book value of net asset acquired
Excess of cost over book value
Over or (under)valued asset
Inventory
Machinery
Land
Goodwill
Amortization of Over (Under) valued asset
Inventory
Machinery
Divide by: Remaining life
Amortization of Under (over) valued asset
No of months divide by 12 (1st year)
Amortization of Under (over) valued asset
Net income of the associate
Dividends declared and paid
Net income of the associate
Multiply by: Percentage of ownership
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
2016 Investment Income
Share in the Net Income
Add: Amortization of overvalued machinery
Net investment income - 2016
Investment in Associate
345
200,000
100,000
100,000
(90,000)
200,000
(100,000)
(50,000)
200,000
516,000
20%
4,000,000
2,400,000
1,600,000
(40,000)
240,000
1,800,000
2015
40,000
2016
(240,000)
10
(24,000)
1
(24,000)
(24,000)
1
(24,000)
2015
4,000,000
1,000,000
2015
4,000,000
20%
800,000
1,000,000
20%
200,000
2016
5,000,000
1,400,000
2016
5,000,000
20%
1,000,000
1,400,000
20%
280,000
1,000,000
24,000
1,024,000
Chapter 33 – Statement of Cash Flows
Beg. Balance
Add: Net investment income
Less: Dividends received
Balance end
4,584,000
1,024,000
280,000
5,328,000
Question No. 4
(B)
Cash receipt from loan receivable
Acquisition of PPE
Sale of PPE
Net cash provided by (or used in) investing activities
120,000
(2,000,000)
500,000
(1,380,000)
Question No. 5
(D)
Dividends paid
Cash receipts-issuance of Ordinary shares
Cash receipts-reissuance of Treasury shares
Net cash provided by (or used in) Financing activities
(350,000)
1,120,000
105,000
875,000
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4.
B
5.
D
PROBLEM 33-10
Question No. 1
Bal. end
Payment
Beg. Balance
Net purchases
(D)
Accounts payable
4,000,000 3,500,000
1,700,000 2,200,000
5,700,000 5,700,000
Merchandise inventory
1,500,000
1,700,000
2,200,000
2,000,000
3,700,000
3,700,000
Beg. Balance
Net purchases
Bal. end
Cost of goods sold
Question No. 2
(B)
Income tax payable/Deferred tax liability
Bal. end-ITP
150,000
200,000 Beg. Balance-ITP
Bal. end-DTL
700,000
500,000 Beg. Balance-DTL
Payment
270,000
420,000 Income tax expense
1,120,000 1,120,000
Question No. 3
(A)
Net income
Share in the net income of associate
Cash dividends from associate
Depreciation
980,000
(630,000)
225,000
200,000
346
Chapter 33 – Statement of Cash Flows
Loss on sale of equipment
Amortization of franchise
Amortization of disc on investment in bonds
Decrease (or increase) in Net Accounts Receivable
Decrease (or increase) in Inventories
Increase (or decrease) in Accounts Payable
Increase (or decrease) in Income Tax Payable
Increase (or decrease) in Deferred Tax Liability
Net cash provided by (or used in) Operating activities
Amortization table:
Interest
Date
Collection
01/01/2016
12/31/2016
100,000
12/31/2017
100,000
150,000
100,000
(12,708)
(90,000)
(200,000)
500,000
(50,000)
200,000
1,372,292
Interest
Income
Premium
Amortization
112,708
114,233
12,708
14,233
Year of Acquisition
Percentage of ownership
Cost of Investment
Less: Book value of net asset acquired
Excess of cost over book value
Over or (under)valued asset
Inventory
Machinery
Land
Goodwill
Amortization of Over (Under) valued asset
Inventory
Machinery
Divide by: Remaining life
Amortization of Under (over) valued asset
No of months divide by 12 (1st year)
Amortization of Under (over) valued asset
Net income of the associate
Dividends declared and paid
Net income of the associate
Multiply by: Percentage of ownership
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
2015 Investment Income
347
Present
value
939,230
951,938
966,170
25%
3,500,000
2,500,000
1,000,000
(50,000)
300,000
1,250,000
2015
50,000
2016
(300,000)
10
(30,000)
1
(30,000)
(30,000)
1
(30,000)
2015
2,000,000
800,000
2015
2,000,000
25%
500,000
800,000
25%
200,000
2016
2,400,000
900,000
2016
2,400,000
25%
600,000
900,000
25%
225,000
Chapter 33 – Statement of Cash Flows
Share in the Net Income
Add: Amortization of overvalued machinery
Less: Undervaluation of inventory
Net investment income - 2015
500,000
30,000
50,000
480,000
Investment in Associate
Cost of investment
Add: Net investment income
Less: Dividends received
Balance end, 12/31/2015
3,500,000
480,000
200,000
3,780,000
2016 Investment Income
Share in the Net Income
Add: Amortization of overvalued machinery
Net investment income - 2016
600,000
30,000
630,000
Investment in Associate
Beginning balance, 01/01/2016
Add: Net investment income
Less: Dividends received
Balance end, 12/31/2016
Beg. Balance
Acquisition cost
Present value of MLP
3,780,000
630,000
225,000
4,185,000
Property, Plant and Equipment
9,000,000
900,000 Cost of equipment sold
600,000 9,069,180 bal. end
369,180
9,969,180 9,969,180
Accumulated depreciation
Bal. end
3,000,000 3,200,000 Beg. Balance
Accumulated depreciation
of asset sold
400,000
200,000 Depreciation expense
3,400,000 3,400,000
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Loss on sale
350,000
900,000
400,000
Question No. 4
(B)
Cash acquisition of Investment in Bonds
Acquisition of PPE
Sale of PPE
Net cash provided by (or used in) investing activities
Present Value of Periodic Payment (100,000 x 3.4869)
Add: Present Value of Bargain Purchase option(30,000 x 0.683)
348
500,000
(150,000)
(939,230)
(600,000)
350,000
(1,189,230)
348,690
20,490
Chapter 33 – Statement of Cash Flows
Present Value of Minimum lease payments
Amortization table:
Interest
Date
Payment
12/31/2016
12/31/2016
100,000
12/31/2017
100,000
369,180
Interest
Expense
Amortization
26,918
100,000
73,082
Question No. 5
(D)
Payment of principal finance lease liability
Dividends paid
Cash receipts-issuance of Ordinary Shares
Net cash provided by (or used in) Financing activities
Present
value
369,180
269,180
196,098
(100,000)
(350,000)
720,000
270,000
Share Capital
Beginning balance
Issuance for cash
Issuance thru SDP
Balance end
10,000,000
600,000
1,910,000
12,510,000
Share Premium
Beginning balance
Issuance for cash
Balance end
1,000,000
120,000
1,120,000
Retained Earnings
Beginning balance
Add: Net income
Less: Dividends declared-cash
Less: Share dividend
Balance end
3,740,000
980,000
350,000
1,910,000
2,460,000
SUMMARY OF ANSWERS:
1. D
2. B
3. A
4.
B
5.
D
PROBLEM 33-11
Question No. 1
Collection from customers (202M + 410M – 200M – 6M)
Proceeds from investment income (4M + 5M – 6M)
Proceeds from sale of cash equivalent
Payment of purchases [(205M + 180M -200M) + 65M – 50M]
Payment of insurance (4M + 7M - 8M)
Payment of salaries (11M + 65M – 6M)
Payment of interest (4M + 25M – 8M)
Payment of tax (14M + 8M + 36M – 12M – 11M)
349
406M
3M
2M
(200M)
(3M)
(70M)
(21M)
(35M)
Chapter 33 – Statement of Cash Flows
Net cash provided from operating activities
(C)
82M
Question No. 2
Purchase of land (196M – 150M)
Proceeds from sale of major components of machine
Purchase of long-term investment
Proceeds from sale of long-term investment
Net cash used from investing activities
(C)
(46M)
17M
(25M)
23M
(31M)
Beg. Balance
Investment income
(associate)
Acquisition (Tory)
Total
Long-term Investment
125M
156M
6M
48M
179M
23M
Disposal
179M
Question No. 3
Retirement of bonds
Proceeds from issuance of preferred stock
Acquisition of treasury shares
Dividends paid
Net cash used from financing activities
Balance end
Dividends
Total
Bal. end
Retained Earnings
242M
227M
52M
67M
294M
294M
(60M)
75M
(9M)
(22M)
(16M)
(A)
Beg. Balance
Net income
Total dividends
Less: Stock dividends – small (4M shares x ₱7.50 fair value)
Cash dividends paid
52M
30M
22M
SUMMARY OF ANSWERS:
1. C
2. C
3. A
PROBLEM 33-11
Question No. 1
Overdraft – end
Add: Bank, beginning
Net cash outflow
110
120
(230)
(A)
Question No. 2
Profit for the year
135
350
Chapter 33 – Statement of Cash Flows
Depreciation
Amortization
Increase in inventory (200 – 110)
Increase in trade receivable (195 – 75)
Increase in trade payable (210 – 160)
Decrease in current tax payable (80 – 110)
Net cash from operating activities
(D)
115
25
(90)
(120)
50
(30)
85
Question No. 3
Acquisition of PPE (see computation below)
Acquisition of intangible assets (see computation below)
Acquisition of investment
Net cash used in investing activities
(A)
(305)
(125)
(230)
(660)
PPE, net
410
305
80
795
Balance beginning
Acquisition
Revaluation
Total
Balance beginning
Acquisition
Revaluation
Total
680
115
795
Intangible asset, net
200
300
125
25
325
325
Ending balance
Disposal
Depreciation
Ending balance
Disposal
Amortization
Question No. 4
10% secured loan notes
Issuance of shares
Dividends paid (see computation below)
Net cash from financing activities
(C)
Balance end
Dividends
Total
Retained Earnings
375
295
55
135
430
430
SUMMARY OF ANSWERS:
1. A
2. D
3. A
4.
C
351
300
100
(55)
345
Beg. Balance
Net income
Chapter 33 – Statement of Cash Flows
PROBLEM 33-13
Question No. 1
Cash
Accounts receivable
Allowance for doubtful accounts
Inventories
Total current assets
(A)
5,639,900
1,000,000
(180,000)
2,200,000
8,659,900
Question No. 2
Investment in bonds - FA at amortized cost
Property plant and equipment
Accumulated depreciation
Franchise - net
Total noncurrent assets
(A)
3,861,105
9,520,000
(3,900,000)
500,000
9,981,105
Total assets
18,641,005
Question No. 3
Liabilities and equity
Accounts payable
Dividends payable
Total current liabilities
(A)
4,800,000
400,000
5,200,000
Question No. 4
Deferred tax liability
Total noncurrent liabilities
(C)
700,000
700,000
Total liabilities
5,900,000
Question No. 5
Ordinary shares, P100 par value
Share Premium
Treasury shares at cost
Retained earnings
Total shareholders' equity
(C)
11,000,000
1,200,000
(500,000)
1,041,005
12,741,005
Total liabilities and equity
18,641,005
Beg. Balance
Sales on account
Bal. end
Write-off
Accounts receivable
600,000 1,000,000
5,000,000 4,600,000
5,600,000 5,600,000
Bal. end
Collections
Write-off
Allowance for doubtful accounts
180,000
40,000 Beg. Balance
140,000 Bad debts
180,000
180,000
352
Chapter 33 – Statement of Cash Flows
Beg. Balance
Net purchases
Merchandise inventory
2,000,000
2,200,000
2,200,000
2,000,000
4,200,000
4,200,000
Bal. end
Payment
Accounts payable
4,800,000 4,500,000
1,900,000 2,200,000
6,700,000 6,700,000
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
320,000
12/31/2016
320,000
12/31/2017
320,000
12/31/2018
320,000
Beg. Balance
Acquisition cost
Present value of MLP
Bal. end
Cost of goods sold
Beg. Balance
Net purchases
Interest
Income
Discount
Amortization
374,637
380,100
386,111
392,816
54,637
60,100
66,079
72,816
Present
value
3,746,368
3,801,005
3,861,105
3,927,184
4,000,000
Property, Plant and Equipment
9,000,000
480,000 Cost of equipment sold
1,000,000
9,520,000 bal. end
10,000,000 10,000,000
Accumulated depreciation
Bal. end
3,900,000 3,200,000 Beg. Balance
Accumulated depreciation
of asset sold
200,000
900,000 Depreciation expense
4,100,000 4,100,000
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Gain on sale
500,000
480,000
200,000
280,000
220,000
Ordinary shares
Beginning balance
Issuance for cash
Balance end
10,000,000
1,000,000
11,000,000
Share Premium
Beginning balance
Issuance for cash
1,000,000
200,000
353
Chapter 33 – Statement of Cash Flows
Balance end
1,20,000
Retained Earnings
Beginning balance
Add: Net income
Less: Dividends declared-cash
Balance end
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
461,005
980,000
400,000
1,041,005
C
5.
C
PROBLEM 33-14
Question No. 1
Ending balance
Payment
Total
Question No. 2
Balance beginning
Acquired – cash
Acquired – lease
Acquired – business
combination
Total
(C)
Income tax payable
143,700
65,000
76,000 154,700
219,700 219,700
(C)
PPE, net
791,500
805,300
50,000
12,130
153,330
105,000
958,630
Beg. Balance
Income tax expense
Ending balance
Disposal
Depreciation
958,630
Question No. 3
(A)
Profit for the year
Depreciation
Amortization
Share in profit of associate
Increase in inventory (57,300 – 46,900)
Increase in trade and other receivables (excluding receivable
from business combination) – (75,900 – 51,930 – 6,450)
Decrease in trade and other payables (excluding receivable from
business combination) – (82,600 + 9,950 – 48,792)
Increase in income tax payable
Net cash provided by operating activities
Question No. 4
(C)
Proceeds from sale of license (see computation below)
Acquisition of PPE
Acquisition of Hey Jude
354
471,440
153,330
8,200
(24,700)
(10,400)
(17,520)
(43,758)
87,800
615,292
21,600
(50,000)
(10,000)
Chapter 33 – Statement of Cash Flows
Acquisition of Yesterday
Cash and cash equivalents acquired in business combination
Net cash used by investing activities
Balance beginning
Acquisition
Goodwill*
Total
Intangible asset, net
33,450
28,800
8,200
25,150
21,600
58,600
58,600
(58,800)
8,700
(88,500)
Ending balance
Amortization
Disposal
Consideration transferred [(58,500 + (35,000 x 1.4)]
Less: FVNAA (110,200 x 75)
Goodwill
Question No. 5
107,800
82,650
25,150
()
PROBLEM 33-15
Question No. 1
Beg. Balance
Interest income
Total
Question No. 2
Ending balance
Payment
Total
(A)
Interest receivable – investing
10,500
12,500 Ending balance
52,000 50,000 Collection
62,500
62,500
(A)
Income tax payable
170,000 130,000
140,000 180,000
310,000 310,000
Beg. Balance
Income tax expense
Question No. 3
(B)
Increase in cash and cash equivalents (12,500 – 400)
Add: Decrease in bank overdraft
Net cash inflows
Net income
Depreciation
Gain on sale (450,000 – 324,500)
Interest income – investing activities
Decrease in inventory
Decrease in trade and other receivables (excluding interest
related to investing) – (495,100 – 415,600)
Decrease in trade and other payables
Decrease in warranty
355
12,100
3,500
15,600
834,900
560,000
(125,500)
(52,000)
56,400
79,500
(122,600)
(30,000)
Chapter 33 – Statement of Cash Flows
Increase in income tax payable
Net cash provided by operating activities
40,000
1,240,700
Question No. 4
(A)
Interest collected – investing activity
Proceeds from sale of machinery
Proceeds from sale of factory building
Loans to unrelated parties (1,000,000 – 850,000)
Acquisition of PPE (see computation below)
Net cash used by investing activities
Balance beginning
Acquisition
Revaluation
Total
Ending balance
Transfer to R/E
Total
50,000
450,000
340,000
(150,000)
(2,022,500)
(1,332,5000
PPE, net
1,594,400 2,567,400
2,022,500
324,500
220,000
340,000
560,000
3,791,900 3,791,900
Ending balance
Disposal - Machinery
Disused factory
Depreciation
Revaluation surplus
350,000
250,000
120,000
220,000
470,000
470,000
Balance beginning
R/S – current period
Question No. 5
(C)
Dividends paid (see computation below)
Proceeds from issuance of shares (100,000 x 1.50)
Net cash provided from financing activities
Balance end
Bonus issue*
Transfer to R/E
Dividends
Total
Retained Earnings
1,478,300
876,000
310,000
834,900
120,000
42,600
1,830,900 1,830,900
*Total increase in share capital and share premium
Less: Issuance of share for cash
Bonus issue
356
(42,600)
150,000
107,400
Beg. Balance
Net income
460,000
150,000
310,000
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