Chapter 26: Introduction to Liabilities
CHAPTER 26: INTRODUCTION TO LIABILITIES
PROBLEM 26-1 Total Liabilities
Current
Accounts payable
Loan payable – current portion
Unearned rent income
Income tax payable
Dividends payable
Total current liabilities
1,000,000
1,000,000
300,000
250,000
100,000
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
5,000,000
500,000 )
1,500,000
15,000
P 6,015,000
(B)
P 8,665,000
Below items shall be presented as part of entity’s assets:
Current asset
Advances to employees
45,000
Non-current asset
Cash surrender value of officers’ life insurance
Patent
75,000
50,000
Below item shall be presented in the shareholder’s equity:
Share dividends payable
150,000
Below item shall be disclosed in the notes to financial statements:
Contingent liability – guarantee to James
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 26-2 Current Liabilities
Current liabilities
Accounts payable – unadjusted
Add/(Deduct): Adjustments
Debit balances in suppliers’ accounts
Postdated checks of
253
4,000,000
100,000
50,000
Chapter 26: Introduction to Liabilities
Accounts payable – adjusted
Credit balances in customers’ accounts
Premiums payable
Deferred revenue
Accrued expenses
Total current liabilities
4,150,000
500,000
600,000
175,000
150,000
5,575,000
(B)
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
Below item shall be presented as part of shareholders’ equity:
Stock dividends payable
PROBLEM 26-3 Financial Liabilities
FA
Accounts payable
Accounts receivable
300,000
Accrued interest expense
Accumulated depreciation
Advances from customers
Allowance for bad debts
Biological assets
Bonds payable
Cash and cash equivalents
Cash dividends payable
Cash surrender value
Claims for tax refund
Deferred tax assets
Deferred tax liabilities
Discount on bonds payable
Finance lease liability
Income taxes payable
Intangible assets
Interest receivable
Investment in associate
Investment in bonds
Investment in equity
instruments
Investment in subsidiary
NFA
FL
450,000
750,000
NFL
54,000
(150,00
0)
48,000
(30,000)
360,000
360,000
210,000
81,000
180,000
135,000
180,000
57,000
(45,000)
135,000
90,000
63,000
135,000
510,000
375,000
210,000
254
27,000
Chapter 26: Introduction to Liabilities
Issued redeemable
preference shares (with
mandatory redemption)
Merchandise inventories
Notes receivable
PHILHEALTH contributions
payable
Prepaid interest (not a
valuation account to financial
liability)
Prepaid rent
Security deposit
Sinking fund
SSS contributions payable
Stock appreciation rights
payable (SARs Payable)
Unearned interest on
receivables
Unearned rent income
Utilities payable
Warranty obligations
399,000
300,000
450,000
18,000
60,000
60,000
90,000
120,000
15,000
360,000
(15,000)
750,000
2,568
1,074
2,535,000
(C)
24,000
39,000
228,000
(B)
Security Deposit-Lessor- Financial Liability
_-Lessee-Financial Asset
Legend: FA – Financial Asset
NFA – Non-Financial Asset
FL – Financial Liabilities NFL – Non-Financial Liabilities
SHE: Shareholders equity
Note: Unearned interest income should be presented as a valuation account on
receivables (Face – Unearned Interest Income = Fair Value = Present Value).
SUMMARY OF ANSWERS:
1. C
2. B
PROBLEM 26-4 Refinancing
10% note payable, maturing 03/31/2022
Annual sinking fund requirement
Total current liabilities
(C)
10,000,000
500,000
10,500,000
Below items shall be presented as part of entity’s non-current liabilities:
12% note payable, maturing 06/30/2022
6,000,000
7% guaranteed debentures, due 2025
2,000,000
255
Chapter 26: Introduction to Liabilities
PROBLEM 26-5 Refinancing
(A) The amount to be reported as current liabilities in 2021 is 2,000,000 since
the refinancing agreement was completed after the reporting date.
PROBLEM 26-6 Refinancing
(A) The amount to be reported as current liabilities in 2021 is 2,000,000 since
the grace period was granted after the reporting date.
PROBLEM 26-7 Accounts payable
Accounts payable
Accounts payable – unadjusted
Cost of goods lost in transit
Cost of returned goods
Accounts payable – adjusted
(B)
PROBLEM 26-8 Accounts payable
Amount of cash to eliminate accounts payable
Accounts payable from:
*Purchases through March 15 (gross) ( 4,900,000 / 98%)
Merchandise inventory at cost ( 1,500,000 / 150%)
Accounts payable
(B)
8,000,000
500,000
(
200,000)
8,300,000
5,000,000
1,000,000
6,000,000
*The amount was grossed-up since the entity is no longer entitled to cash
discount. The liability as of March 15, 2022 has been outstanding for more than
10 days.
PROBLEM 26-9 Bonus payable
Net income before bonus and income tax
Less: Required income to earn bonus
Basis of bonus
Multiply by: Bonus rate
Total current liabilities
PROBLEM 26-10 Bonus payable
Net income before bonus and income tax
Less: Required income to earn bonus
Amount of income subject to bonus (125%)
Less: Bonus (25%) (squeeze)
256
(C)
2,200,000
880,000
1,320,000
10%
132,000
(D)
1,600,000
1,000,000
600,000
120,000
Chapter 26: Introduction to Liabilities
Basis of bonus (100%) ( 600,000/125%)
257
480,000
Chapter 26: Introduction to Liabilities
PROBLEM 26-11 Unearned Revenue
Unearned revenue – gift certificates
Unearned revenue
1,500,000
Gift certificate
redeemed
4,000,000
5,000,000
Expired gift
certificate
300,000
4,300,000
6,500,000
Balance, End (B)
2,200,000
6,500,000
6,500,000
Balance, Beg.
Cash receipts from
gift certificate sold
PROBLEM 26-12 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
Balance, Beg.
Advances
received
PROBLEM 26-13 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
Balance, Beg.
Cash receipts
for nine months
PROBLEM 26-14 Container’s Deposits
Deposits received – Escrow account
Liability for Deposits
100,000
Cash refunds for
container returned in
2021
92,000
100,000
Balance, Beg.
258
Cash deposits
from deliveries
Chapter 26: Introduction to Liabilities
92,000
108,000
200,000
Balance, End (C)
200,000
200,000
PROBLEM 26-15 VAT payable
VAT Payable
Payment made
120,000
Balance, End (A)
120,000
180,000
300,000
120,000
84,000
96,000
300,000
Balance, Beg.
For October
For November
For December
300,000
PROBLEM 26-16 Provision: Continuous range of outcome
(D) A range between
be reliably estimated, hence no provision is recognized.
PROBLEM 26-17 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 26-18 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.
259
Chapter 26: Introduction to Liabilities
PROBLEM 26-19 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 26-20 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 26-21 Premiums Payable
Premiums liability
**Coupons
redeemed
50,000
50,000
Balance, End (D)
30,000
80,000
*(20,000 x 80%)/5 x (P30 + P5 - P10)
**(10,000/5) x (P30 + P5 - P10)
80,000
80,000
80,000
PROBLEM 26-22 Premiums
Premiums liability (2020)
**Balance, End
200,000
*Coupons
redeemed
**Balance, End
800,000
1,000,000
1,000,000
1,000,000
Premiums liability (2021)
120,000
200,000
*Coupons
redeemed
Balance, Beg.
*Premiums
expense
2,000,000
1,920,000
2,120,000
2,120,000
*Number of towels distributed x net cost of 40
**Number of towels yet to be distributed x net cost of 40
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 2021. If the actual towels distributed from 2021 is different from
that was recorded as of the end of 2020, this is considered as a change in
accounting estimate which should be taken into account during 2021 and for the
succeeding accounting period.
260
Chapter 26: Introduction to Liabilities
PROBLEM 26-23 Warranty Liability
Warranties liability (2020)
Actual
expenditures
150,000
500,000
150,000
500,000
Balance, End
350,000
500,000
500,000
Warranties liability (2021)
350,000
Actual
expenditures
550,000
600,000
550,000
950,000
Balance, End (A)
400,000
950,000
950,000
*Sales x Total estimated warranty cost of 10%
Balance, Beg.
*Warranties
expense
Balance, Beg.
*Warranties
expense
PROBLEM 26-24 Warranty Liability
Warranties liability
Actual
expenditures
Balance, End (C)
140,000
140,000
340,000
480,000
480,000
480,000
Balance, Beg.
Warranties
expense
480,000
PROBLEM 26-25 Warranty - Sales are Made Evenly
Pattern of Realized Revenues:
2020 SALES
From sales in:
2020
1st (40% x ½)
0.20
2nd (36% x ½)
3rd (24% x ½)
Total
0.20
2021 SALES
From sales in:
2021
1st (40% x ½)
0.20
2nd (36% x ½
3rd (24% x ½)
2021
0.20
0.18
0.38
2022
0.20
0.18
261
2022
2023
0.18
0.12
0.30
0.12
0.12
2023
2024
0.18
0.12
0.12
Total
0.40
0.36
0.24
1
Total
0.40
0.36
0.24
Chapter 26: Introduction to Liabilities
Total
0.20
0.38
0.30
0.12
Requirement No. 1
(A)
Warranty Sales in 2020 earned in 2021 (38% x 1,000 x 1,500)
Warranty Sales in 2021 earned in 2021 (20% x 1,200 x 1,500)
Total warranty sales revenue earned in 2021
1
570,000
360,000
930,000
Notes:
The 38% represents the realized revenue in 2021 from 2020 Sales.
The 20% represents the realized revenue in 2021 from 2021 Sales.
Requirement No. 2
(B)
Total warranty sales revenue earned in 2021 (see No. 1)
Expenses relating to computer warranties
Profit from sales warranty
Requirement No. 3
(A)
Unearned sales warranty from 2020 [(30% + 12% x 1,000 x
1,500)]
Unearned sales warranty from 2021 [(100%-20%) x 1,200 x
1,500)]
Total unearned sales warranty
930,000
60,000
870,000
630,000
1,440,000
2,070,000
Notes:
The 30% and 12% represent the unrealized revenues in 2021 from 2020
Sales.
The 20% represents the realized revenue in 2021 from 2021 Sales. So,
100% minus 20% realized is equal to 80% unrealized revenue in 2021 from
2021 Sales.
SUMMARY OF ANSWERS:
1. A 2. B 3. A
PROBLEM 26-26 Refinancing
1.
2,000,000 (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, 2021 the entire
amount is treated as Noncurrent liability.
3.
2,000,000 (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.
262
Chapter 26: Introduction to Liabilities
4.
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.
PROBLEM 26-27 Breach of Loan Agreement
1.
2,000,000 (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.
2,000,000 (Letter B). The entire amount of loan is current liability since
the agreement not to demand payment happened after the reporting period.
3. 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.
PROBLEM 26-28 Contingencies
1. D
2. A
3. B
4. B
5. A (Amount of accrual is 2,040,000 using expected value method which is
calculated as ( 1.6M x 20 + ( 2M x 50%) + ( 2.4M x 30%)
6. A (Amount of accrual is 2,250,000 using midpoint of the range which is
calculated as ( 1.5M + 3M)/2)
PROBLEM 26-29 Contingencies
1. A
2. B (Disclose an amount of 1,500,000)
3. B (Disclose an amount of 1,500,000)
4. B (Disclose an amount of 1,000,000)
5. A (It is virtually certain that the company will be receiving the 1,5000,000.)
6. D
PROBLEM 26-30 Bonus Computation
1.
Net income before bonus but before tax
B =
NY
x
BR
= 3,090,000 x 20%
= 618,000
2.
Net income after bonus but before tax
B = BR
x
NY
263
Chapter 26: Introduction to Liabilities
3.
=
20%
x
=
515,000
100% + BR
3,090,000
100% + 20%
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)]
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
264
Chapter 26: Introduction to Liabilities
PROBLEM 26-31 Warranty and Premiums
Question Nos. 1 and 2
Estimated liability from Warranties
Disbursement for
warranties
Balance end
164,000
212,000
Total
376,000
44,800
Beginning balance
240,000
Warranty expense.
Warranty expense
Divide by % age of warranty
Sales from musical instruments and sound
reproduction equipment (Question No. 1)
Question No. 3
Premium
expense
=
2,000,000
=
X
1 coupon
2
240,000
4%
6,000,000
x
90%
34- 20
200 coupons
63,000
Question No. 4
Inventory of Premium
Beg. Balance
Net Purchases (6,500 x
34)
Total
Question No. 5
39,950
221,000
56,950
Balance end
Cost of issued premium
204,000
(1.2M
coupons.200
coupons x 34
260,950
Estimated liability for Premiums
Disbursement
for
premiums
(1.2M
coupons/200 coupons x
( 34- 20)
Balance end
84,000
23,800
Total
107,800
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4.
D
44,800
Beginning balance
63,000
Premium expense.
5.
265
D
Chapter 26: Introduction to Liabilities
PROBLEM 26-32 Warranty, Premiums and Bonus
Question No. 1
(A)
Warranty expense ( 150 x 1,200)
Less: Warranty paid
Estimated Premiums payable
Question No. 2
180,000
85,000
95,000
(C)
Premium expense
( 1,200,000 x 1 coupon/ 1)/400 x 60% x ( 45- 20)
Less: Net cost of redeemed coupons
(500,000/400) x ( 45 - 20)
Estimated Premiums payable
Question No. 3
(C)
Unadjusted net income
Warranty expense under, Net income over ( 180,000 - 85,000)
Premium expense over, Net income under ( 270,000- 45,000)
Adjusted Net income
Question No. 4
(B)
Net income after bonus but before tax
NY
B = BR
x
100% + BR
= 20%
x
2,065,000
100% + 20%
= 344,167
Question No. 5
(C)
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
266
45,000
31,250
13,750
1,935,000
(95,000)
225,000
2,065,000
Chapter 26: Introduction to Liabilities
1.14B
1.14
B
T
B
=
=
=
=
=
=
=
=
=
30%
289,100
1.14
253,596
(C)
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
PROBLEM 26-33 Comprehensive
Question No. 1
(B)
SSS Payable
Philhealth payable
Estimated liabilities under guarantee agreement
Estimated warranties on goods sold
Utilities payable
Trade payables (170,000+30,000+20,000+12,000-8,000)
Notes payable arising from purchase of goods
Convertible bonds payable due July 1, 2022
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
267
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
Chapter 26: Introduction to Liabilities
Property dividends payable
Credit balance of notes payable
Overdraft with PNB
Container's deposit
Loans payable-12%
Financial liability designated as FVTPL
Current liabilities
120,000
40,000
80,000
45,000
270,000
200,000
2,727,500
Question No. 2
(A)
Deferred tax liability
Notes payable
Arising from 4-year bank loan
Arising from advances by officers, dune in 3 years
Serial bonds payable (800,000 minus (40,000 x 2)
Security deposit received from lessee
Loans payable-10%
Total noncurrent liabilities
400,000
300,000
720,000
89,000
150,000
1,699,000
Question No. 3
(B)
Total liabilities
Current liabilities
Total noncurrent liabilities
Total liabilities
2,727,500
1,699,000
4,426,500
40,000
SUMMARY OF ANSWERS:
1. B 2. A 3. B
PROBLEM 26-34 Comprehensive
Question No. 1
(D)
Trade creditors, credit balances
Unrecorded purchase in December
Unreleased checks
Goods in transit
Adjusted balance, Dec. 31, 2021 (D)
45,000
63,000
6,000
1,477,000
Question No. 2
(C)
Goods received on consignment
Unrecorded purchase in December
Goods in transit
Net debit to Purchase (
45,000
6,000
10,000
268
Chapter 26: Introduction to Liabilities
Question No. 3
(A)
Miscellaneous debit balances
Tarlac Co.
Batangas Corp.
Total
Question No. 4
Advances to suppliers
Accounts payable
8,000
7,000
18,000
(B)
4,000
24,000
269
Chapter 27: Financial Liabilities and Debt Restructuring
CHAPTER 27 FINANCIAL LIABILITIES AND DEBT
RESTRUCTURING
PROBLEM 27-1 Financial Liabilities at FVTPL
Question No. 1
(B)
Fair value of the bonds
Less: Carrying value
Unrealized loss - P&L
3,090,000
2,850,756
239,244
Question No. 2
(A)
Face value
Multiply by: Nominal rate
Multiply by: Months outstanding/12
Interest expense
3,000,000
8%
12/12
240,000
Question No. 3
(D)
Retirement Price ( 3M x 104)
Less: Carrying value ( 3M x 103)
Realized loss on derecognition - P&L
3,120,000
3,090,000
30,000
SUMMARY OF ANSWERS:
1. B 2. A 3. D
PROBLEM 27-2 Financial Liabilities at FVTPL
Question No. 1
(C)
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 gain - OCI
*NEAREST ANSWER is 155,152
4,000,000
4,155,480
155,480
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
10.00%
9.00%
1.00%
Observed (benchmark) interest rate, end of period
Add: Instrument specific-IRR
Discount rate
8.00%
1.00%
9.00%
271
Chapter 27: Financial Liabilities and Debt Restructuring
Question No. 2
(C)
Market price of the liability, end of the period
Less: Carrying amount of FVTPL
Increase (or decrease) in FVTPL
Less: Unrealized gain in the OCI
Unrealized loss in the P&L
*NEAREST ANSWER is 155,480
4,000,000
4,000,000
155,480
( 155,480)
Present value market rate of 10%
PV of principal ( 4,000,000 x 0.6209)
Add: PV of interest ( 4,000,000 x 10% x 3.7908)
Market price of the liability, end of the period
2,483,600
1,516,320
4,000,000
Note: If the nominal rate and market rate is the same, the present value is equal to
the face value. This is the reason why interest bearing debt securities with
reasonable interest rate’s fair value is equal to the face value.
Present value using 9%
PV of Principal ( 4,000,000 x 0.6499)
Add: PV of interest (4,000,000 x 10% x 3.8897)
Fair value of liability using the sum observed interest rate and
instrument specific IRR
Journal entry end of the period is:
Unrealized loss – P&L
Unrealized gain - OCI
2,599,600
1,555,880
4,155,480
155,480
155,480
Question No. 3
(D)
Retirement price (1.04 x 4,000,000)
Less: Carrying value
Realized loss – R/E
4,160,000
4,000,000
160,000
SUMMARY OF ANSWERS:
1. C 2. C 3. D
PROBLEM 27-3 Financial Liabilities at Amortized Cost
Question No. 1
(C)
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
272
901,560
238,742
1,140,302
Chapter 27: Financial Liabilities and Debt Restructuring
Question No. 2
(B)
Amortization Table
Interest
Date
payment
01/01/2021
12/31/2021
96,000
12/31/2022
96,000
12/31/2023
96,000
Question No. 3
(A)
Interest
Principal
payment
400,000
96,000
400,000
64,000
400,000
32,000
Total PV of the bonds
Question No. 4
Date
01/01/2021
12/31/2021
12/31/2022
12/31/2023
Interest
expense
Premium
Amortization
114,030
115,833
117,867
18,030
19,833
21,835
Total
payment
496,000
464,000
432,000
(D)
Interest
Interest
Payment Expense
96,000
64,000
32,000
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4.
Preset value
factor
0.9091
0.8264
0.7513
Present
value
1,140,302
1,158,333
1,178,166
1,200,000
Total PV
450,914
383,450
324,562
1,158,926
Discount
Amortization
Principal
19,892
13,882
7,301
400,000
400,000
400,000
115,892
77,882
39,301
Present
value
1,158,925
778,817
392,699
-
D
PROBLEM 27-4 Financial Liabilities at Amortized Cost – Transaction Cost,
`Convertible Bonds and With Detachable Warrants
Question No. 1 (A)
Total Proceeds ( 1,000 x 1,000)
Less: Fair value of the bonds without conversion privilege
Total Share Premium
1,000,000
900,000
100,000
Using 7.48%
Present value of Principal ( 1,000,000 x 0.7)
Add: Present value of interest payments ( 50,000 x 4)
Total present value
700,000
200,000
900,000
273
Chapter 27: Financial Liabilities and Debt Restructuring
Question No. 2
(B)
Amortization Table
Interest
Date
Payment
01/01/2021
12/31/2021
50,000
Question No. 3
Interest
Expense
Discount
Amortization
67,320
17,320
Present
value
900,000
917,320
(B)
Issue Price ( 5,000,000 x 110%)
Less: Bond issue cost
Present value on January 1, 2021
Less: Premium amortization
Nominal interest ( 5M x 8%)
Effective interest ( 5,420,000 x 6%)
Carrying value – 12/31/2021
5.500,000
80,000
5,420,000
400,000
325,200
Question No. 4
(D)
Issue Price ( 5,000,000 x 98%)
Less: Bond issue cost
Present value on January 1, 2021
Add: Discount amortization
Nominal interest ( 5M x 10%)
Effective interest ( 4,760,000 x 12%)
Carrying value – 12/31/2021
4,900,000
140,000
4,760,000
500,000
571,200
Question No. 5
(B)
Market value of the bonds without the warrants
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4.
D
5.
74,800
5,345,200
71,200
4,831,200
4,800,000
B
PROBLEM 27-5 Retirement of Bonds Payable
Loss on retirement
-
(A)
274
4,900,000
4,200,000
700,000
Chapter 27: Financial Liabilities and Debt Restructuring
PROBLEM 27-6 Conversion of Convertible Bonds
Question No. 1
(A)
Nil. 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 (20,000 x 50)
1,000,000
Share Premium
612,049
Question No. 2
(B)
Fair value of liability
Less: Carrying amount of the bonds payable
Loss on settlement (conversion) of liability
Fair value of liability
Less: Total par value of the shares issued
Share Premium
1,600,000
1,552,049
47,951
1,600,000
1,000,000
600,000
The journal entry to record the transaction would then be:
Bonds payable
Loss on settlement of liability
Premium on bonds payable
Ordinary shares (20,000 x 50)
Share Premium
1,500,000
47,951
52,049
1,000,000
600,000
SUMMARY OF ANSWERS:
1. A 2. B
PROBLEM 27-7 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
1,500,000
25
60,000
30
275
Chapter 27: Financial Liabilities and Debt Restructuring
Fair value of shares under original conversion
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
750,000
1,252,049
1,500,000
450,000
52,049
PROBLEM 27-8 Interest-Bearing Note
Question No. 1
(C)
Accrued interest 2020
9/12)
Accrued interest 2021 5,450,000 x 12% x 12/12)
Total accrued interest
Question No. 2
(B)
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
Question No. 3
Accrued
450,000
654,000
1,104,000
2,000,000
216,000
(90,000)
126,000
1,874,000
(B)
-
36,000
Question No. 4
(D)
Principal
Less: Direct origination fees paid ( 1.5M x 4%)
Initial carrying amount of the loans payable
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4.
1,500,000
60,000
1,440,000
D
PROBLEM 27-9 Debt Restructuring
6,600,000
3,500,000
3,100,000
Less: Cost or carrying value of land
Gain on extinguishment
(D)
276
Chapter 27: Financial Liabilities and Debt Restructuring
PROBLEM 27-10 Debt Restructuring
Question No. 1
(B)
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 (
Gain on extinguishment
Question No. 2
(B)
Interest expense ( 3,796,800 x 10%)
3,000,000
796,800
3,796,800
5,500,000
1,203,200
379,680
SUMMARY OF ANSWERS:
1. B 2. B
PROBLEM 27-11 Debt Restructuring
Share premium
3,500,000
2,500,000
1,000,000
50,000)
(D)
PROBLEM 27-12 Debt Restructuring
Carrying amount of old liability
Less: Present value of new liability
Present value of principal ( 6M x .6209)
Present value of interest ( 6M x .08 x 3.7908)
Gain on extinguishment of liability
(C)
6,000,000
3,725,400
1,819,584
5,544,984
455,016
COMPREHENSIVE PROBLEMS
PROBLEM 27-13 Interest-Bearing Note – Lump Sum
Question No. 1
(D)
Present value of Principal ( 4,000,000 x 0.6830)
Add: Present value of interest payments ( 600,000 x 3.1699)
Present value of the notes payable
Amortization Table:
Interest
Date
Payment
Interest
Expense
277
Discount
Amortization
2,732,054
1,901,919
4,633,973
Present
value
Chapter 27: Financial Liabilities and Debt Restructuring
01/01/2021
12/31/2021
12/31/2022
12/31/2023
600,000
600,000
600,000
463,397
449,737
434,711
4,633,973
4,497,370
4,347,107
4,181,818
136,603
150,263
165,289
Question No. 2
(C)
Interest Expense ( 4,633,973x .10) = 463,397
Question No. 3
(C)
4,497,370. See amortization table above.
Question No. 4
(A)
Nil. The entire note payable is noncurrent liability.
Question No. 5
(D)
4,497,370. The entire note payable is current liability.
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4.
A
5.
D
PROBLEM 27-14 Interest-Bearing Note – Non-Uniform Installments
Question No. 1
(D)
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
01/01/2021
12/31/2021
60,000
12/31/2022
24,000
12/31/2023
12,000
Total
payment
1,260,000
424,000
412,000
Preset value
factor
0.8929
0.7972
0.7118
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
(D)
Interest expense ( 1,756,328 x .12)
210,759
Question No. 3
(C)
Carrying amount – December 31, 2021
707,088
Question No. 4
(C)
278
Chapter 27: Financial Liabilities and Debt Restructuring
Principal payable Dec. 31, 2022
Less: Discount on notes payable
Carrying amount-current liability
400,000
60,851
339,149
Question No. 5
(C)
Principal payable Dec. 31, 2021
Less: Discount on notes payable
Carrying amount-noncurrent liability
400,000
32,062
367,938
SUMMARY OF ANSWERS:
1. D 2. D 3. C 4.
C
5.
C
PROBLEM 27-15 Interest-Bearing Note –Uniform Installments
Question No. 1
(C)
Interest
Principal
payment
1,000,000
600,000
1,000,000
450,000
1,000,000
300,000
1,000,000
150,000
Total PV of notes payable
Amortization Table
Interest
Date
Payment
01/01/2021
12/31/2021 600,000
12/31/2022 450,000
12/31/2023 300,000
12/31/2024 150,000
Total
payment
1,600,000
1,450,000
1,300,000
1,150,000
Preset value
factor
0.9091
0.8264
0.7513
0.6830
Present
Value
1,454,545
1,198,347
976,709
785,465
4,415,067
Interest
Expense
Premium
Amortization
Principal
Payment
441,507
325,657
213,223
104,545
158,493
124,343
86,777
45,455
1,000,000
1,000,000
1,000,000
1,000,000
Question No. 2
(B)
Interest expense ( 4,415,066 x .10)
441,507
Question No. 3
(B)
Carrying amount – December 31, 2021
3,256,573
Question No. 4
(C)
Principal (payable Dec. 31, 2022)
Add: Premium on notes payable
Carrying amount-current liability
1,000,000
124,343
1,124,343
279
Present
Value
4,415,066
3,256,573
2,132,230
1,045,453
0
Chapter 27: Financial Liabilities and Debt Restructuring
Question No. 5
(D)
Carrying amount – December 31, 2022
Add: Premium on notes payable
Carrying amount-noncurrent liability
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4.
C
5.
3,256,573
1,124,343
2,132,230
D
PROBLEM 27-16 Noninterest-Bearing Note – With Cash Price Equivalent
Question No. 1
(C)
The carrying amount of the note on initial recognition is equal to its cash price
equivalent of 994,760.
Coincidentally, the effective rate using the cash price equivalent is 12% and the
amortization table is as follows:
Amortization Table at 12%
Principal
Date
payment
01/01/2021
12/31/2021
400,000
12/31/2022
400,000
12/31/2023
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
(A)
Interest expense ( 994,760x .12)
99,476
Question No. 3
(A)
Carrying amount – December 31, 2021
694,236
Question No. 4
(B)
Principal (payable Dec. 31, 2022)
Less: Discount on notes payable
Carrying amount-current liability
400,000
69,424
330,576
Question No. 5
(C)
Principal (payable Dec. 31, 2023)
Less: Discount on notes payable
Carrying amount-noncurrent liability
400,000
36,340
363,660
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4.
B
5.
C
280
Chapter 27: Financial Liabilities and Debt Restructuring
PROBLEM 27-17 Noninterest-Bearing Note – Lump Sum
Question No. 1
(B)
Present value of Principal ( 1,200,000 x 0.7118)
Amortization Table
Date
Interest expense
01/01/2021
12/31/2021
102,499
12/31/2022
114,799
12/31/2023
128,542
854,160
Present value
854,160
956,659
1,071,458
1,200,000
Question No. 2
(B)
Interest expense ( 854,160 x .12)
102,499
Question No. 3
(A)
Carrying amount – December 31, 2021
956,659
Question No. 4
(B)
Nil. The entire note payable is noncurrent liability since it is due beyond 12
months from the reporting date.
Question No. 5
(A)
The total entire carrying amount of note payable is presented as noncurrent
liability. See Question No. 4.
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4.
B
5.
A
PROBLEM 27-18 Noninterest-Bearing Note – Installments
Question No. 1
(D)
Present value of Principal ( 400,000 X 2.4018)
Amortization Table
Date
Interest
Payment
01/01/2021
12/31/2021
400,000
12/31/2022
400,000
12/31/2023
400,000
Question No. 2
960,720
Interest
expense
Amortization
115,286
81,121
42,873
284,714
318,879
357,127
(A)
281
Present
value
960,720
676,006
357,127
-
Chapter 27: Financial Liabilities and Debt Restructuring
115,286. See amortization table above.
Question No. 3
(A)
676,006. See amortization table above.
Question No. 4
(B)
Principal (payable Dec. 31, 2022)
Less: Discount on notes payable
Carrying amount-current liability
400,000
81,121
318,879
Question No. 5
(C)
Principal (payable Dec. 31, 2023)
Less: Discount on notes payable
Carrying amount-noncurrent liability
400,000
42,873
357,127
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4.
B
5.
C
PROBLEM 27-19 Issuance, Retirement and Conversion of Non-Convertible
Bonds
Question No. 1
(B)
PV of principal ( 3,000,000 x 0.6499)
Add: PV of interest ( 3,000,000 x 12% x 3.8897)
Present value of the bonds payable
Amortization Table
Date
Interest
payment
01/01/2019
12/31/2019
360,000
12/31/2020
360,000
Question No. 2
Interest
expense
301,506
296,242
1,949,794
1,400,274
3,350,068
Discount
Amortization
58,494
63,758
Present
value
3,350,068
3,291,574
3,227,816
(B)
Retirement Price
Less: Carrying amount ( 3,227,816 x 1/2)
Loss on retirement
Question No. 3
(B)
Amortization table:
Interest
Date
payment
12/31/2020
Interest
expense
282
1,900,000
1,613,908
286,092
Amortization
Present
value
1,613,908
Chapter 27: Financial Liabilities and Debt Restructuring
12/31/2021
180,000
145,252
34,748
1,579,160
Question No. 4
(D)
Fair value of the ordinary shares issued ( 460 x 5,000)
Less: Carrying amount of the liability
Loss on conversion
2,300,000
1,579,160
720,840*
Question No. 5
(D)
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
2,300,000
200,000
2,100,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4.
D
5.
D
PROBLEM 27-20 Issuance, Retirement and Conversion of Convertible Bonds
Question No. 1
(B)
Total Proceeds
Less: PV of the bonds without the conversion
option
PV of principal ( 3,000,000 x 0.5674)
PV of interest ( 300,000 x 3.6048)
Residual amount to equity
Amortization Table
Date
Interest
payment
01/01/2021
12/31/2021
300,000
12/31/2022
300,000
Interest
expense
3,000,000
1,702,281
1,081,433
Discount
Amortization
334,046
338,131
(34,046)
(38,131)
2,783,713
216,287
Present
value
2,783,713
2,817,759
2,855,890
Question No. 2
(B)
Fair value of liability using current rate
Less: Carrying amount (2,817,759 x ½)
Loss on settlement of liability
1,537,969
1,427,945
110,024
Present value using 9% for 3 periods
Present value of principal ( 1,500,000 x 0.7722)
Add: Present value of interest ( 150,000 x 2.5313)
Present value of the bonds payable
1,158,275
379,694
1,537,969
Question No. 3
Retirement Price
1,600,000
(C)
283
Chapter 27: Financial Liabilities and Debt Restructuring
Less: Fair value of liability using current rate
Decrease in equity
1,537,969
62,031
Question No. 4
(D)
Interest expense is 338,131 based on the amortization table above.
Question No. 5
(C)
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
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4.
D
5.
3,750
3,000
750
420
315,000
C
PROBLEM 27-21 Redeemable Preference Shares and Debentures
Present value of the redeemable preference shares
PV of principal (15,000 x 1.05 x 0.72161)
Add: PV of interest (1,500 x 2.42308)
Present value of the preference shares
Amortization table:
Date
Interest
Payment
01/01/2019
12/31/2019
1,500
12/31/2020
1,500
12/31/2021
1,500
11,365
3,635
15,000
Interest
Expense
Amortization
1,723
1,749
1,778
223
249
246
Present
value
15,000
15,223
15,472
15,718
Question No. 1
(B)
1,723. See amortization table above.
Question No. 2
(C)
1,749. See amortization table above.
Question No. 3
(D)
1,778. See amortization table above.
Present value of the debentures
Present value of principal ( 20,000 x 1.02 x 0.53884)
Add: Present value of interest ( 2,400 x 3.5032)
284
10,992
8,408
Chapter 27: Financial Liabilities and Debt Restructuring
Present value of bonds payable
19,400
Amortization Table
Date
Interest
Payment
12/31/2021
12/31/2022
2,400
Interest
Expense
Amortization
2,554
(154)
Present
value
19,400
19,554
Question No. 4
(B)
2,554. See amortization table above.
Question No. 5
(B)
19,554. See amortization table above.
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4.
B
5.
B
PROBLEM 27-22
Question No. 1
(D)
Accounts payable, unadjusted
Good in transit FOB shipping point
Undelivered check
Accounts payable, adjusted
1,350,000
75,000
60,000
1,485,000
Question No. 2
(D)
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
175,000
480,000
100,000
755,000
Question No. 3
(C)
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
43,750
360,000
100,000
503,750
Question Nos. 4 and 5
Current
1,485,000
1,250,000
Accounts payable
14% Note payable
16% Note payable
10% Note payable
285
Noncurrent
3,000,000
2,000,000
Chapter 27: Financial Liabilities and Debt Restructuring
Accrued interest payable
Total
503,750
3,238,750
(C)
SUMMARY OF ANSWERS:
1. D 2. D 3. C 4.
C
5.
5,000,000
(C)
C
PROBLEM 27-23 Comprehensive
Question No. 1
(A)
Present value of Principal ( 10,000,000 x 0.3118)
Add: Present value of interest ( 500,000 x 11.46992)
Present value of the bonds payable
3,118,000
5,734,960
8,852,960
Question No. 2
(B)
April 1, 2019
July 1, 2019
October 1, 2019
January 1, 2020
Notes payable-current liability
400,000
600,000
300,000
300,000
1,600,000
Question Nos. 3 and 4
Estimated liability from Warranties
Disbursement for
warranties
Balance end (A)
358,000
342,000
Total
Beginning balance
520,000
Warranty expense (C)
700,000
Question No. 5
A
B
C
Total
180,000
(c)
(a)
(b)
( c)
d=b x c
Fixed
salary
10,000
14,000
18,000
Net Sales
200,000
400,000
600,000
Comm.
Rate
4%
6%
6%
Comm.
Expense
8,000
24,000
36,000
Question Nos. 6 and 7
Int. payable - Bonds ( 10M x 10% x 3/12)
Int. payable - Note payable
Notes payable
286
Current
250,000
600,000
1,600,000
E=d-a
Accrued
Salaries
Payable
0
10,000
18,000
28,000
Noncurrent
5,400,000*
Chapter 27: Financial Liabilities and Debt Restructuring
Estimated warranties payable
Trade payable
Sales commissions payable
Cash dividends payable (6M x .2)
Bonds payable
Total
342,000
740,000
28,000
1,200,000
4,760,000
(B)
8,970,751
14,370,751**
(C)
*(P7M-1.6M)
** or 14,370,783 which is the same as
months outstanding/12) minus payment
Or [( 8,952,185 x 103%) - 250,000]
Amortization Table
Interest
Date
Payment
07/01/2017
01/01/2018
500,000
07/01/2018
500,000
01/01/2019
500,000
03/31/2019
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 27-24 Financial Liabilities, Investment in Associate and Research
and Development Cost
Question No. 1
(C)
Total proceeds ( 100 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
200,000,000
181,635,200
18,364,800
4,000,000
14,364,800
Question No. 2
(B)
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 ( 200M x .08 x 2.4097)
38,555,200
Present value of the convertible debt
181,635,200
Question No. 3
(D)
287
Chapter 27: Financial Liabilities and Debt Restructuring
Interest expense ( 181,635,200 x .1181)
21,451,117
Question No. 4
(C)
Net asset of GL
Less: Recoverable amount
Impairment loss of GL
Multiply by: Percentage share
Impairment loss
380,000,000
370,000,000
10,000,000
20%
2,000,000
Question No. 5
(B)
1. Research on size of potential market
6. Staff training costs
7. Advertisement costs
Total amount expensed
800,000
600,000
3,400,000
4,800,000
Question No. 6
(C)
2. Products designing
3. Labor costs in refinement of products
4. Development work undertaken to finalize the product
design
Total Development cost capitalized
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 27-25 Financial Liability at FVTPL vs. FLAC
CASE NO. 1
Question No. 1
(D)
cost is expensed outright.
Question No. 2
(A)
Interest expense ( 2,000,000 x 8%) =
160,000
Question No. 3
(C)
Fair value 12/31/2020
Less: Initial carrying amount
Unrealized loss
Question No. 4
(C)
Carrying value ( 2,000,000 x .98) =
Question No. 5
2,040,000
1,898,205
141,795
1,960,000
(D)
288
Chapter 27: Financial Liabilities and Debt Restructuring
Fair value 12/31/2022
1,980,000
1,960,000
20,000
Unrealized loss
Question No. 6
(A)
2,100,000
20,000
2,120,000
1,980,000
140,000
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.
D
6.
A
CASE NO. 2
Question No. 7
(C)
Issue price
Less: Transaction cost
Initial carrying amount
1,898,205
25,000
1,873,205
Question No. 8
(B)
Effective interest rate = 10%
Please refer to discussion on interpolation.
Question No. 9
(B)
=
187,321
Question No. 10
(D)
No gain or loss due to change in fair value is not recognized.
Question No. 11
(A)
Carrying value 12/31/2021
Question No. 12
1,930,579
(B)
2,100,000
20,000
2,120,000
1,963,636
156,364
Add: Transaction cost
Total retirement price
Less: Carrying value – 01/01/2023
Loss on derecognition
SUMMARY OF ANSWERS:
7. C 8. B 9. B 10.
D
11.
289
A
12.
B
Chapter 27: Financial Liabilities and Debt Restructuring
PROBLEM 27-26 Refinancing of Loan, Notes Payable Interest and NonInterest Bearing
Question No. 1
(A)
Periodic payment - NP Delivery equipment ( 2M/4)
Multiply by: PV of ordinary annuity
Present value of NP-delivery equipment
500,000
3.0373
1,518,650
Amortization table:
Date
01/01/2021
12/31/2021
12/31/2022
Payment
Interest
Expense
Discount
Amortization
500,000
500,000
182,238
144,107
317,762
355,893
Present
value
1,518,650
1,200,888
844,995
Question Nos. 2 and 3
Noncurrent
1,400,000
2,000,000
844,995
4,244,995
12% Note payable
10% note payable
Note payable-del. Equipment
Total
Current
700,000
355,893
1,055,893
Question No. 4
(B)
= 2,100,000 x 12% x 8/12
= 168,000
Question No. 5
(C)
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
5.
112,000
168,000
200,000
182,238
662,238
C
PROBLEM 27-27 Current vs. Noncurrent Liabilities
Question No. 1
(C)
8% Note payable ( 300,000 x 8% x 4/12)
10% mortgage note ( 600,000 x 10% x 3/12)
Total interest payable
290
8,000
15,000
120,000
143,000
Chapter 27: Financial Liabilities and Debt Restructuring
Question No. 2
(B)
300,000 note payable on demand. The 11 ½% note is classified as noncurrent
since a refinancing agreement was consummated at the reporting date.
Question No. 3
(B)
Accounts payable
Notes payable - trade
Notes payable - bank (payable on demand)
Wages and salaries payable
Interest payable (refer to Question No. 1)
Mortgage notes payable - 10% (payable on demand)
Mortgage notes payable - 12%
–
Bonds payable
Total Current Liabilities
650,000
190,000
300,000
15,000
143,000
600,000
40,000
2,000,000
3,938,000
Question No. 4
(D)
Mortgage notes payable 11 ½% Notes payable – bank
Total Noncurrent Liabilities
1,460,000
500,000
1,960,000
–
291
Chapter 28 – Lease
CHAPTER 28: LEASE
PROBLEM 28-1 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.
PROBLEM 28-2 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
12/31/2021
12/31/2021
120,000
12/31/2022
120,000
12/31/2023
120,000
12/31/2024
120,000
12/31/2025
20,000
Interest
expense
36,111
26,044
14,770
2,142
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
249
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)
Chapter 28 – Lease
PROBLEM 28-3 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
12/31/2021
12/31/2021
130,000
12/31/2022
130,000
12/31/2023
130,000
12/31/2024
130,000
12/31/2025
50,000
Interest
expense
Amortization
35,745
26,319
15,951
4,538
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
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.
SUMMARY OF ANSWERS:
1. C
2. B 3. C
4.
B
PROBLEM 28-4 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
250
Chapter 28 – Lease
PROBLEM 28-5 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 28-6 Lease Modification
Question No. 1
(A)
The modification adds the right to use one or more assets and the additional
consideration is commensurate with the stand-alone price. Hence, the lease
modification is accounted as a separate lease.
Original
180,000 / 6,000)
0,000 / 14,000)
Difference
Question No. 2
(B)
Annual lease payment
Multiplied by: PVOA @5% n=8
PV of lease payments
6.463
1,163,378
Question No. 3
(B)
Refer to the amortization table below.
Annual
Interest
Date
payment
expense
01/01/2017
12/31/2017
180,000
58,169
12/31/2018
180,000
52,077
12/31/2019
180,000
45,681
12/31/2020
180,000
38,965
12/31/2021
180,000
31,914
12/31/2022
180,000
24,509
12/31/2023
180,000
16,735
12/31/2024
180,000
8,571
Question No. 4
(A)
Amort.
121,831
127,923
134,319
141,035
148,086
155,491
163,265
171,429
Present
value
1,163,378
1,041,547
913,625
779,306
638,271
490,185
334,694
171,429
0
-
Multiplied by: PVOA @6% n=4
PV of lease payments
3.465
727,672
251
Chapter 28 – Lease
Annual
Interest
Date
payment
expense
Amort.
01/01/2021
12/31/2021
210,000
43,660
166,340
12/31/2022
210,000
33,680
176,320
12/31/2023
210,000
23,101
186,899
12/31/2024
210,000
11,887
198,113
Interest expense – original (see amortization table)
Interest expense – modified (see amortization table)
Total interest expense
Present
value
727,672
561,333
385,012
198,113
0
31,914
43,660
75,714
Question No. 5
(A)
Depreciation expense –
Depreciation expense –
Total depreciation expense
181,918
327,340
SUMMARY OF ANSWERS:
1. A
2. B
3. B
1,163,378 / 8)
727,672 / 4)
4.
A
5.
A
PROBLEM 28-7 Lease Modification
Question No. 1
(B)
The modification does not add the right to use one or more assets, hence, the
lease modification is not accounted as a separate lease.
Question No. 2
(C)
Annual lease payment
Multiplied by: PVOA @5% n=8
PV of lease payments
6.463
1,938,964
Question No. 3
(D)
Refer to the amortization table below.
Date
01/01/2017
12/31/2017
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
12/31/2024
Annual
payment
Interest
expense
300,000
300,000
300,000
300,000
300,000
300,000
300,000
300,000
96,948
86,796
76,135
64,942
53,189
40,849
27,891
14,286
252
Amort.
203,052
213,204
223,865
235,058
246,811
259,151
272,109
285,714
Present
value
1,938,964
1,735,912
1,522,708
1,298,843
1,063,785
816,974
557,823
285,714
0
Chapter 28 – Lease
Question No. 4
(A)
Annual lease payment
Multiplied by: PVOA @6% n=4
PV of modified lease payments
3.465
675,696
Original office space
Modified office space
Proportionate decrease in the lease liability and ROU
60%
Cost of ROU
Less: Accumulated depreciation (1,938,964 / 8 x 4)
Carrying amount before modification
Reduced to 60%
Decrease in ROU
1,938,964
969,482
969,482
581,689
387,793
Lease liability – 01/01/2021
Reduced to 60%
Decrease in Lease Liability
1,063,785
638,271
425,514
Reduced pre-modification lease liability
Less: Modified lease liability
Modification adjustment
638,271
675,696
37,425
Journal entries are:
Lease liability
Right-of-Use Asset
Gain on Lease Modification – P&L
425,514
Right-of-Use Asset
Lease Liability
Question No. 5
37,425
(A)
675,696 x 6%)
Total depreciation and interest expense
SUMMARY OF ANSWERS:
1. B
2. C
3. D
4.
A
5.
/ 4]
A
PROBLEM 28-8 Unequal rental payments
2019
2020
2021
2022
Total rent
Divide by: Number of years
Rent income per year
(C)
253
20,000
18,000
16,000
14,000
68,000
4
17,000
40,542
195,320
387,793
37,721
37,425
Chapter 28 – Lease
PROBLEM 28-9 Operating Lease - Unequal rental payments
07/01/2019 to 06/30/2020
07/01/2020 to 06/30/2021
07/01/2021 to 06/30/2022
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)
240,000
90,000)
Rent receivable
150,000
90,000
(A)
PROBLEM 28-10 Operating Lease - Comprehensive
CASE NO. 1
Question No. 1
Periodic rent-one year (
(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
Question No. 4
Total payments to date, 2021 (6 x 25,000 )
Less: Total expense to date, 2021
Accrued rent payable
(D)
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, 2021
Less: Total expense to date, 2021
Accrued rent payable
(D)
300,000
320,000
(20,000)
254
Chapter 28 – Lease
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.
D
5.
300,000
40,000
40,000
30,000
190,000
300,000
380,000
680,000
A
PROBLEM 28-11 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
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
12/31/2021
12/31/2021
261,692
12/31/2022
261,692
12/31/2023
261,692
12/31/2024
261,692
12/31/2025
150,000
Interest
Income
81,214
61,361
39,325
14,864
255
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 28 – 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 28-12 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)
Unearned interest income
*1,006,402
-
(A)
1,006,402
924,128
82,273
*4,796,278 OR *4,796,280
900,000
24,128
924,128
Add: Initial direct cost
Net cost of investment
Amortization Table
Annual
Date
Collection
12/31/2021
12/31/2021
251,600
12/31/2022
251,600
12/31/2023
251,600
12/31/2024
251,600
Interest
Income
40,352
27,677
14,243
Question No. 2
(D)
P40,352. See amortization table above.
Question No. 3
(D)
P211,428. See amortization table above.
SUMMARY OF ANSWERS:
1. A
2. D 3. D
256
Amortization
251,600
211,428
223,923
237,357
Present
value
924,128
672,528
461,280
237,357
1
Chapter 28 – Lease
PROBLEM 28-13 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
01/01/2021
12/31/2021
300,000
12/31/2022
300,000
12/31/2023
300,000
12/31/2024
350,000
Interest
Income
217,570
234,975
253,773
324,094
Question No. 2
P82,430. See amortization table above. (B)
(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
257
993,630
36,750
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
1,250,000
1,030,380
219,620
Present
value
1,030,380
812,810
577,835
324,062
(32)
Chapter 28 – 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
01/01/2021
12/31/2021
300,000
12/31/2022
300,000
12/31/2023
300,000
12/31/2024
350,000
993,630
36,750
1,250,000
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
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
(B)
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 28-14 Sales-Type Lease
Net Selling Price
Less: Present value of lease receivable
Gain on sale
(D)
258
400,000
150,000
250,000
Chapter 28 – Lease
PROBLEM 28-15 Finance Lease – Lessor
Question No. 1
(C)
Fair value of machine
Add: Initial direct cost
Net investment in the lease
600,000
3,600
603,600
The interest implicit rate in the lease using trial and error is 5.84%.
Question No. 2
(C)
Net investment in the lease
Less: Carrying value of machine
Direct costs
Gain on sale of machine – P&L
603,600
564,000
3,600
36,000
Question No. 3
(C)
Net investment in the lease
Multiplied by: Implicit interest rate
Interest income
506,863
5.84%
29,611
Question No. 4
(C)
See amortization table below.
Annual
Interest
Date
collection
income
01/01/2021
12/31/2021
132,000
35,263
12/31/2022
132,000
29,611
12/31/2023
132,000
23,630
12/31/2024
132,000
17,299
12/31/2025
132,000
10,598
Present
value
603,600
506,863
404,474
296,104
181,402
60,000
Amort.
96,737
102,389
108,370
114,701
121,402
Question No. 5
(C)
Annual lease payments
Add: Guaranteed residual value
Due later than 3 years but not later than 4 years
SUMMARY OF ANSWERS:
1. C
2. C
3. C
4.
C
5.
132,000
24,000
156,000
C
PROBLEM 28-16 Sale and Leaseback as Finance Lease
Question No. 1
Sales Price
Less: Carrying amount
Loss on sale and leaseback
(B)
259
993,630
1,100,000
(106,370)
Chapter 28 – Lease
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 28-17 Sale and Leaseback
Question No. 1
Selling price
Less: Fair value
Prepayment
(A)
600,000
500,000
100,000
Question No. 2
(B)
Annual lease payments
Multiplied by: PVOA @4% n = 15 years
PV of annual lease payments
Rights of use
asset
=
=
=
Question No. 3
Rights retained
Rights transferred
Total
50,000
11.1184
555,919
Carrying amount
Fair value
480,000
500,000
437,683
X
Present value of annual
payments
less
additional
financing add prepayments
X
( 555,919 -
(D)
Fair value
44,081
500,000
%
0.9118
0.0882
Carrying
amount
42,317
Question No. 4
(D)
Cost of ROU
Divided by: Lease term
Depreciation
15 years
29,179
Question No. 5
(B)
Lease or rent income ( 50,000 x 455,919 / 555,919)
Interest income ( 100,000 x 4%0
Total amount to P&L
SUMMARY OF ANSWERS:
1. A
2. B
3. D
Gain
18,236
1,764
20,000
4.
D
5.
260
B
41,006
4,000
45,006
Chapter 28 – Lease
PROBLEM 28-18
COMPREHENSIVE PROBLEMS
PROBLEM 28-19
PROBLEM 28-20
PROBLEM 28-21
SCENARIO 1
Gain on sale and leaseback
Selling Price is equal to Fair
value
2,000,000
2,000,000
Selling Price=Fair value
less Fair value
Additional financing
(Prepayments)
Fair value
less Carrying amount
Total Gain
Rights retained
Rights
transferred
Total
2,000,000
2,150,000
(150,000)
Fair value
926,640
Percentage
0.46332
1,073,360
2,000,000
0.53668
Right of use asset
2,150,000
2,000,000
996,138
x
SCENARIO 2
Selling Price=Fair value
less Fair value
Additional financing
(Prepayments)
Fair value
less Carrying amount
Total Gain
Rights retained
Fair value
726,640
Carrying
amount
996,138
Gain
(69,498)
1,153,862
2,150,000
(80,502)
(150,000)
926,640
Gain on sale and leaseback
Selling Price is greater
than to Fair value
2,000,000
1,800,000
200,000
1,800,000
2,150,000
(350,000)
Percentage
0.403688889
261
Carrying
amount
867,931
Gain
(141,291)
Chapter 28 – Lease
Rights
transferred
Total
1,073,360
1,800,000
Right of use asset
2,150,000
1,800,000
867,931
x
0.596311111
(208,709)
(350,000)
726,640
SCENARIO 3
Gain on sale and leaseback
Selling Price is less than Fair
value
2,000,000
2,100,000
Selling Price=Fair value
less Fair value
Additional financing
(Prepayments)
(100,000)
Fair value
less Carrying amount
Total Gain
Rights retained
Rights
transferred
Total
1,282,069
2,150,000
2,100,000
2,150,000
(50,000)
Fair value
1,026,640
Percentage
0.48887619
1,073,360
2,100,000
0.51112381
Right of use asset
2,150,000
2,100,000
1,051,084
x
SUMMARY OF ANSWERS:
1. B 2. B
3. B
PROBLEM 28-22
SCENARIO 1
Selling Price=Fair value
less Fair value
Additional financing
(Prepayments)
Fair value
Carrying
amount
1,051,084
Gain
(24,444)
1,098,916
2,150,000
(25,556)
(50,000)
1,026,640
4.
A
5.
B
6.
B
Gain on sale and leaseback
Selling Price is equal to Fair
value
2,600,000
2,600,000
2,600,000
262
Chapter 28 – Lease
less Carrying amount
Total Gain
Rights retained
Rights
transferred
Total
2,400,000
200,000
Fair value
1,331,400
Percentage
0.512076923
1,268,600
2,600,000
0.487923077
Right of use asset
2,400,000
2,600,000
1,228,985
x
1,171,015
2,400,000
97,585
200,000
Gain on sale and leaseback
Selling Price is greater than to Fair
value
2,600,000
2,500,000
Selling Price=Fair value
less Fair value
Additional financing
(Prepayments)
100,000
Fair value
less Carrying amount
Total Gain
Right of use asset
2,400,000
2,500,000
1,182,144
SCENARIO 3
Gain
102,415
1,331,400
SCENARIO 2
Rights retained
Rights
transferred
Total
Carrying
amount
1,228,985
2,500,000
2,400,000
100,000
Fair value
1,231,400
Percentage
0.49256
1,268,600
2,500,000
0.50744
x
Carrying
amount
1,182,144
Gain
49,256
1,217,856
2,400,000
50,744
100,000
1,231,400
Selling Price=Fair value
less Fair value
Additional
financing
(Prepayments)
Gain on sale and leaseback
Selling Price is less than Fair
value
2,600,000
3,000,000
(400,000)
263
Chapter 28 – Lease
Fair value
less Carrying amount
Total Gain
Rights retained
Rights
transferred
Total
Right of use asset
2,400,000
3,000,000
1,385,120
3,000,000
2,400,000
600,000
Fair value
1,731,400
Percentage
0.577133333
1,268,600
3,000,000
0.422866667
x
SUMMARY OF ANSWERS:
1. B
2. A
3. D
Carrying
amount
1,385,120
Gain
346,280
1,014,880
2,400,000
253,720
600,000
1,731,400
4.
A
5.
D
6.
A
PROBLEM 28-23
Question No. 1
(B)
“Substantially all” test
% age
1,351,805 =90%
1,500,000
The lease is a finance lease. The cost of the leased asset is lower between the fair
value and the present value of minimum lease payment which is P1,351,805.
Amortization Table
Annual
Date
Payment
01/01/2020
12/31/2020
200,000
12/31/2021
200,000
12/31/2022
200,000
12/31/2023
200,000
Interest
Expense
Amortization
115,181
106,699
97,368
200,000
84,819
93,301
102,632
264
Present
value
1,351,805
1,151,805
1,066,986
973,684
871,052
Chapter 28 – Lease
Question No. 2
(D)
Depreciation expense (1,351,805/10)
Interest expense
Total lease- related expenses
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 28-24
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 recognize finance leases as assets and liabilities in their balance sheets at
value of the minimum lease payments, each determined at the inception of the
lease. The discount rate to be used in calculating the present value of the
minimum lease payments is the interest rate implicit in the lease, if this is
practicable to determine; if not, the lessee’s incremental borrowing rate shall be
used. Any initial direct costs of the lessee are added to the amount recognized as
an asset.
Question Nos. 2-4
Amortization Table
Annual
Interest
Present
Date
Payment
Expense
Amortization
value
12/31/2020
201,865
12/31/2020
50,000
50,000
151,865
12/31/2021
50,000
18,224
31,776
120,089
12/31/2022
50,000
14,411
35,589
84,499
12/31/2023
50,000
10,140
39,860
44,639
12/31/2024
50,000
5,361
44,639
0
Question No. 2
(D)
P120,089. See amortization table above.
Question No. 3
(C)
P35,589. See amortization table above.
265
Chapter 28 – Lease
Question No. 4
(C)
P18,224. See amortization table above.
Question No. 5
(A)
Depreciation expense (201,865/5)
P40,373
SUMMARY OF ANSWERS:
1. C
2. D 3. C
5.
4.
C
A
PROBLEM 28-25
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
Question No. 3
Amortization Table
Annual
Date
Collection
01/01/2021
01/01/2021
60,000
12/31/2021
60,000
360,000
20,000
380,000
286,420
93,580
(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
01/01/2021
01/01/2021
60,000
12/31/2021
60,000
P 276,288
Interest
Income
Amortization
25,955
60,000
34,045
Depreciation expense (276,288/6)
Add: Interest expense
Total expenses
Present
value
276,288
216,288
182,243
46,048
25,955
72,003
266
Chapter 28 – Lease
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 28-26
Question No. 1
(B)
Periodic rent (12,000 x 12)
Amortization of lease bonus (300,000/6)
Rent expense
144,000
50,000
194,000
Question No. 2
(C)
Periodic rent
Contingent rent:
1st (4M x 4%)
160,000
2nd (6M-4M) x 5%)
100,000
Amortization of lease bonus (500,000/5)
Total rent expense
Question No. 3
Rent expense
=
Rent expense
=
480,000
260,000
100,000
840,000
(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
(250,000)
(400,000)
(650,000)
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.
267
C
(250,000)
(400,000)
40,000
(610,000)
Chapter 28 – Lease
PROBLEM 28-27
Question No. 1
(B)
The present value of annuity due of 12% for 10 periods can be computed as:
-9
[1 –
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
[12/31/2020
balance
(D)
] – annual payments = 12/31/2020
[(P8,800,000 – P1,390,590) x 1.12%] - P1,390,590 = P6,907,949
The current portion as of 12/31/2021 can be computed as:
(P6,907,949 - P1,390,590) x 12% = P561,636
Question No. 3
(B)
12/31/2021 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.
A
5.
A
PROBLEM 28-28
Question No. 1
07/01/2020 to 06/30/2021
07/01/2021 to 06/30/2022
07/01/2022 to 06/30/2023
Total
Divide by: Number of years
Rent expense per year
(B)
60,000
90,000
210,000
360,000
3
120,000
268
P 880,000
889,129
49,410
P1,818,539
Chapter 28 – Lease
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
which is the same as the Present value of
minimum lease payments.)
Amortization Table
Annual
Date
Payment
06/30/2021
06/30/2021
400,000
06/30/2022
400,000
Interest
Expense
Amortization
277,200
400,000
122,800
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
2,380,000
P2,380,000
4.
Present
value
2,380,000
1,980,000
1,857,200
A
PROBLEM 28-29 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
(B)
34,431
20,000
105,751
160,182
269
413,244
19,761
433,005
20,000
453,005
Chapter 28 – Lease
Question Nos. 3 to 4
Amortization Table
Annual
Date
Payment
12/31/2021
12/31/2021
120,000
12/31/2022
120,000
12/31/2023
120,000
12/31/2024
120,000
12/31/2025
30,000
Interest
Expense
Amortization
34,431
25,018
14,570
2,977
120,000
85,569
94,982
105,430
27,023
Present
value
433,005
313,005
227,436
132,453
27,023
(0)
Question No. 3
(C)
P85,569. See amortization table above.
Question No. 4
(B)
P227,436. See amortization table above.
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
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 28-30 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:
-7
[1 –
270
Chapter 28 – Lease
12%
The present value of 12% for 8 years can also be computed as:
-8 = 0.4039
The total interest revenue is the difference the lease receivable and the present
value of the minimum lease payments.
Lease receivab
Present value of the lease
Unguaranteed residual value
(P400,000 x 0.4039)
Present value of lease payments
(P959,500 x 5.5638)
Total interest over the lease term
P 8,076,000
P 161,560
5,338,466
5,499,966
P2,576,034*
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:
[(P959,50
– 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 28-31 Sales-Type Lease
Question No. 1
(A)
Lease receivable
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
Question No. 3
(A)
P11,370,000 x 12% = P1,364,400
Question No. 4
Selling price
Book value
Gain on sale
(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
271
P16,000,000
(11,370,000)
P 4,630,000
11,370,000
(8,300,000)
P3,070,000
Chapter 28 – Lease
SUMMARY OF ANSWERS:
1. A 2. B
3. A
4.
B
5.
B
PROBLEM 28-32 Financial Liability, Sale and Leaseback, Impairment loss
on PPE and Investment in Associate
Question No. 1
(B)
Interest cost paid (50M x 12%)
Less: Interest expense for the year (47,078,000 x 14%)
Understated finance cost
Rounded off to P591,000
6,000,000
6,590,920
(590,920)
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, 2020 to Sept. 30,
2020 (30M/15 X .5)
Depreciation to be booked Oct. 1, 2020 to March 31,
2021 (16M/5 X .5)
Understated depreciation
2,000,000
1,000,000
1,600,000
Question No. 4
(C)
Carrying value as of October 1, 2020 (30M/15 X 10.5)
Recoverable amount
Impairment loss
Question No. 5
21,000,000
16,000,000
5,000,000
(C)
6,000,000
(1,000,000)
2,500,000
500,000
8,000,000
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.
2,600,000
(600,000)
C
PROBLEM 28-33
Question No. 1
(D)
P
272
975,000
Chapter 28 – Lease
Question No. 2
(D)
Total warranty expense (1.4M x 12%)
Less: Total actual expenditures
Warranty liability, end
Question No. 3
Legal services
Add: Medical services
Payroll (14,400/12 x 8)
Royalties
Total accrual
P
P
(C)
P
P
Question No. 4
(D)
Fair value
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
168,000
63,000
105,000
P
P
4,600
5,500
9,600
3,900
23,600
490,000
70,000
420,000
37,800
457,800
(A)
P 3,902,251
4.
D
5.
A
PROBLEM 28-34
Question No. 1
(C)
Unadjusted balance – Accounts Payable
2
3
Adjusted balance
Question No. 2
(A)
Units sold:
October
November
December
Total
Multiply by
Total failures expected
Less: Failures already recorded:
October sales
November sales
December sales
Expected future failures
450,000
60,000
45,000
555,000
32,000
28,000
40,000
100,000
2%
2,000
640
360
180
273
1,180
820
Chapter 28 – Lease
Multiply by
Estimated cost
150
123,000
Warranty expense
Estimated warranty liability
123,000
123,000
Question No. 3
(C)
Notes payable is (200,000 x 3.6048) = 720,960
Amortization Table
Annual
Date
Payment
01/01/2021
12/31/2021
200,000
12/31/2022
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
01/01/2021
12/31/2021
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
01/01/2021
01/01/2021
200,000
12/31/2021
SUMMARY OF ANSWERS:
1. C
2. A
3. C
Present
value
720,960
607,475
480,372
Interest
Expense
Amortization
115,180
4.
A
5.
200,000
P1,351,800
Present
value
1,351,800
1,151,800
1,266,980
D
PROBLEM 28-35
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
274
Amortization
Present
value
Chapter 28 – Lease
12/31/2020
12/31/2020
12/31/2021
12/31/2022
60,000
60,000
60,000
38,363
35,767
60,000
21,637
24,233
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
(D)
Annual rent expense = P720,000/3=P240,000
Operating lease
Date
Expense
1/1-12/31/2021
1/1-12/31/2022
1/1-12/31/2023
240,000
240,000
240,000
Expense
To date
240,000
480,000
720,000
Question No. 5
CONTINGENCIES
Answer:
1.
Payment
to date
120,000
300,000
720,000
Accrued rent
(Prepaid)
120,000
180,000
-
(C)
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
120,000
80,000
SUMMARY OF ANSWERS:
1. D 2. D 3. B
4.
D
5.
200,000
C
PROBLEM 28-36
Question No. 1
Date
04/01/2016
03/31/2017
03/31/2018
03/31/2019
03/31/2020
03/31/2021
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
Revised
275
200,000
Chapter 28 – Lease
Date
04/01/2021
09/30/2021
Finance cost
Present Value
25,000,000
1,250,000
10/1/2021 to 3/31/2021 (2,781,790 x 6/12)
04/01/2021 to 9/30/2021 (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, 3/31/2021
Less: Decrease due to revision of decom liability
Present value of decommissioning liability
Less: Revised estimate
Total
Less: Depreciation April to Sept 2021
(106,160,310/15 x 6/12)
Carrying value, 9/30/2021
(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
2021
2022
2023
Total
Divide by: Total semi-annual payments
Semi-annual income
(B)
Question No. 5
Total income to date
Less: Total collection to date
Rent receivable
SUMMARY OF ANSWERS:
1. C
2. B
3. B
B
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
3,152,500
3,000,000
152,500
(B)
4.
5,599,690
106,150,310
3,538,344
5.
PROBLEM 28-37
Question No. 1
(C)
Held for sale asset (12,800 – 9,800)
Depreciation charge (W2)
B
3,000
75,780
276
Chapter 28 – Lease
78,780
Depreciation for year-buildings (600,000/20)
-plant (220,900 x 20%)
-leased machine (8,000/ 5 years)
Question No. 2
(A)
Plant & machinery-cost
Accumulated depreciation
less: carrying amount of held for sale
30,000
44,180
1,600
75,780
278,200
-44,500
-12,800
Leased machine
Depreciation for year:
-plant (220,900 x 20%)
-leased machine (8,000/ 5 years)
220,900
8,000
44,180
1,600
45,780
183,120
Question No. 3
(C)
Total depreciation of the building
(600,000/20)
less depreciation based on cost
(1.1M-700,000)/25
Piecemeal realization
Question No. 4
Date
07/01/2020
07/01/2020
30,000
16,000
14,000
(D)
Payment
2,000
06/30/2021
1,500
06/30/2012
1,500
(6,000 x
8%)
(4,980 x
8%)
277
Interest
expense
Amortization
-
2,000
Present
value
8,000
6,000
480
1,020
4,980
398
1,102
3,878
Chapter 29 – Accounting for Income Tax
CHAPTER 29: ACCOUNTING FOR INCOME TAX
PROBLEM 29-1 Tax base
1.
80,000 ( 130,000 - 50,000)
2.
135,000
3.
0
4.
12,000
5.
200,000
6.
60,000
7.
0
8.
0
9.
160,000
10. 180,000
11. 300,000
12. 0
PROBLEM 29-2 Income Statement Liability Method
Requirement No. 1
Financial income subject to tax
6,000,000
Add/(Deduct): Temporary differences
Less: Increase in Future Taxable Amount*
(
290,000 )
Add: Increase in Future Deductible Amount**
100,000
Taxable income
5,810,000
Note: Financial income subject to tax is equal to the pretax financial income
since there are no permanent differences.
* Future Taxable Amount (FTA)
The following caused the financial income to be higher than taxable income,
thus, creating future taxable amount.
Depreciation ( 150,000 - 50,000)
100,000
Rent income ( 220,000 - 200,000)
20,000
Warranty expense
100,000
Annual leave expense ( 400,000 - 350,000)
50,000
Rent revenue ( 130,000 - 110,000)
20,000
Total
290,000
**Future Deductible Amount (FDA)
The following caused the taxable income to be higher than financial income,
thus, creating future deductible amount.
Gross income on installment sales ( 200,000 - 130,000)
70,000
Provision for doubtful accounts
30,000
Total
100,000
Requirement No. 2
CTE = Taxable income x Current tax rate
5,810,000 x 30%) = 1,743,000
323
Chapter 29 – Accounting for Income Tax
Requirement No. 3
DTL = FTA x Future tax rate
87,000
Requirement No. 4
DTA = FDA x Future tax rate
00,000 x 30%) = 30,000
Requirement No. 5
Financial income
Less: Income tax expense ( 6,000,000x30%)
Net income
6,000,000
1,800,000
4,200,000
Alternatively, it may be computed as follows:
T
,743,000
–
) = 1,800,000
PROBLEM 29-3
Requirement No. 1
DTA, unadjusted ( 2,000,000x30%)
Less: Allowance for portion not to be realized
( 600,000x50%)
DTA, adjusted
600,000
300,000
300,000
Requirement No. 2
Financial income subject to tax
3,000,000
Add/(Deduct): Temporary differences
Add: Deductible temporary differences (FDA)
2,000,000
Taxable income
5,000,000
Note: Financial income subject to tax is equal to the pretax financial income
since there are no permanent differences.
CTE = Taxable income x Current tax rate
1,500,000
Current tax expense
Less: Increase in DTA (see requirement 1)
Income tax expense
Requirement No. 3
Adjusted deferred tax benefit
Increase in DTA (see requirement 1)
Requirement No. 4
Current tax expense
Current tax expense (see requirement 2)
324
1,500,000
300,000
1,200,000
150,000
1,500,000
Chapter 29 – Accounting for Income Tax
PROBLEM 29-4
Financial income
Add/(Deduct): Permanent differences
Financial income subject to tax
Add/(Deduct): Temporary differences
Financial income subject to tax
(
(
5,000,000
200,000 )
4,800,000
-)
4,800,000
Note: It is implied in the problem that the tax received during the current year
was subjected to final tax, hence, it is a permanent difference.
Question No. 1
(B)
CTE = Taxable income x Current tax rate
1,440,000
Question No. 2
(B)
TITE = Financial income subject to tax x Tax rate
T
4,800,000 x 30%) = 1,440,000
Question No. 3
Income tax payable
(C)
440,000-
940,000
SUMMARY OF ANSWERS:
1. B 2. B 3. D
PROBLEM 29-5
Financial income subject to tax
6,000,000
Add/(Deduct): Temporary differences
Less: Increase in FDA (squeeze)
1,000,000
Taxable income
7,000,000
Note: Financial income subject to tax is equal to the pretax financial income
since there are no permanent differences.
Question No. 1
(A)
CTE = Taxable income x Current tax rate
2,100,000
Question No. 2
TITE = FIST x Tax rate
T
(B)
1,800,000
Question No. 3
(A)
Income tax payable = 2,100,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A
325
Chapter 29 – Accounting for Income Tax
PROBLEM 29-6
Financial income subject to tax
2,500,000
Add/(Deduct): Temporary differences
Less: Increase in FTA (squeeze)
(
100,000 )
Taxable income
2,400,000
Note: Financial income subject to tax is equal to the pretax financial income
since there are no permanent differences.
Question No. 1
(A)
CTE = Taxable income x Current tax rate
720,000
Question No. 3
TITE = FIST x Tax rate
T
(A)
Question No. 3
Income tax payable
(D)
750,000
-
470,000
SUMMARY OF ANSWERS:
1. A 2. A 3. D
PROBLEM 29-7
Question No. 1
(D)
Financial income subject to tax
Add/(Deduct): Temporary differences
Less: FTA
Add: FDA
Taxable income
20,000,000
(
3,000,000)
1,500,000
18,500,000
CTE = Taxable income x Current tax rate
5,550,000
Question No. 2
(C)
Increase in DTL/Increase in expense
( 875,000 - 700,000)
Decrease in DTA/Increase in expense
Deferred tax expense
SUMMARY OF ANSWERS:
1. D 2. C
326
175,000
200,000
375,000
Chapter 29 – Accounting for Income Tax
PROBLEM 29-8
Financial income
Add/(Deduct): Permanent differences
Less: Nontaxable revenues
Financial income subject to tax
Add/(Deduct): Temporary differences
Add: Increase in FDA – Warranty
( 1,000,000 - 300,000)
Less: Increase in FTA - Depreciation
Taxable income
9,000,000
(
(
1,500,000)
7,500,000
700,000
500,000 )
7,700,000
Question No. 1
(B)
CTE = Taxable income x Current tax rate
2,310,000
Question No. 2
(C)
TITE = Financial income subject to tax x Tax rate
T
2,250,000
Question No. 3
Income tax payable
(C)
- 500,000) = 1,810,000
SUMMARY OF ANSWERS:
1. B 2. C 3. C
PROBLEM 29-9 Timing differences
Financial income
Add/(Deduct): Permanent differences
Less: Nontaxable revenues
Interest income received on government
securities subject to final tax
Add: Nondeductible expenses
Fines, surcharges and penalties during the period
Non-deductible premium on life insurance of key
Employees
Financial income subject to tax
Add/(Deduct): Temporary differences
Less: Increase in Future Taxable Amount*
Add: Increase in Future Deductible Amount**
Taxable income
200,000
(
10,000 )
70,000
12,000
272,000
(
20,000 )
46,000
298,000
*The following caused the financial income to be higher than taxable income,
thus, creating future taxable amount.
Excess of depreciation for tax purposes
20,000
**The following caused the taxable income to be higher than financial income,
thus, creating future deductible amount.
327
Chapter 29 – Accounting for Income Tax
Warranty expense accrued
Rent received in advance
Total
30,000
16,000
46,000
Question No. 1
(C)
TITE = Financial income subject to tax x Tax rate
T
81,600
Question No. 2
(A)
CTE = Taxable income x Current tax rate
89,400
Question No. 3
(C)
Income tax payable ( 89,400 – 40,000) = 49,400
Question No. 4
(D)
Increase in DTL during the period
DTL = FTA x Future tax rate
6,000
Increase in DTA during the period
DTA = FDA x Future tax rate
13,800
Deferred tax asset = ( 13,800 – 6,000) =
Question No. 5
(A)
DTA, beginning ( 24,000 x 30%)
Add: Increase in DTA during the period
DTA, ending
5,400
13,800
19,200
Question No. 6
(B)
DTL, beginning ( 18,000 x 30%)
Add: Increase in DTA during the period
DTL, ending
7,200
6,000
13,200
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4.
D
5.
A
6.
B
PROBLEM 29-11 Revaluation
Question No. 1
(B)
Carrying amount and sound value, prior to revaluation
Cost
Revaluation
Equipment
6,000,000
8,000,000
Accumulated depreciation
1,800,000
2,400,000
CA /Sound value/RS
4,200,000
5,600,000
Revaluation surplus
980,000
328
Appreciation
2,000,000
600,000
1,400,000
Chapter 29 – Accounting for Income Tax
Question No. 2
Deferred tax liability
(C)
420,000
Question No. 3
(A)
Financial income before depreciation
4,000,000
Less: Depreciation ( 5,600,000/7)
800,000
Financial income subject to tax
3,200,000
Add: Excess of tax depreciation over accounting
( 5,600,000/7) – ( 4,200,000/7)-FDA
200,000
Taxable income
3,400,000
Note: Financial income subject to tax is equal to the pretax financial income
since there are no permanent differences.
CTE = Taxable income x Current tax rate
1,020,000
Question No. 4
(A)
Carrying amount and sound value, December 31, 2021
Cost
Equipment
6,000,000
Accumulated depreciation
2,400,000
CA /Sound value/RS
3,600,000
Revaluation surplus
Deferred tax liability
Revaluation
8,000,000
3,200,000
4,800,000
840,000
360,000
Alternatively, DTL may be computed as follows:
DTL, beginning (1,400,000 x 30%)
Less: Reduction in DTL due to usage of the asset
( 420,000/7)
DTL, ending
420,000
60,000
360,000
Question No. 5
(C)
TITE = Financial income subject to tax x Tax rate
T
960,000
Alternatively, DTL may be computed as follows:
Current tax expense (see requirement 3)
Less: Reduction in DTL due to usage of the asset/
Decrease in DTL ( 420,000/7)
Income tax expense
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4.
A
5.
C
329
1,020,000
60,000
960,000
Chapter 29 – Accounting for Income Tax
PROBLEM 29-12 Comprehensive
Question No. 1
(D)
Financial income
Add/(Deduct): Permanent differences
Entertainment expense (non-deductible)
Financial income subject to tax
Add/(Deduct): Temporary differences
Less: Increase in Future Taxable Amount
Add: Increase in Future Deductible Amount
Less: Operating loss carry over
Taxable income
175,900
3,900
179,800
(
(
1,400 )
15,800
15,000)
179,200
CTE = Taxable income x Current tax rate
53,760
Below is the calculation of the different temporary differences considered on
the above calculation of taxable income.
Per PFRS
Per Tax
Difference
Interest income (FTA)
11,000
10,000
1,000
Long-service leave (FDA)
7,000
4,000
3,000
Doubtful debt expense (FDA)
4,200
2,400
1,800
Depreciation (FDA)
33,000
22,000
11,000
Rent expense (FTA)
22,800
23,200
400
Items per tax are determined as follows:
Interest income – amount collected ( 11,000 – 1 ,000)
Long-service leave expense – amount paid
( 61,000 + 7,000 - 64,000)
Doubtful debts expense – amount written off
( 3,200 + 4,200 - 5,000)
Depreciation ( 220,000x10%)
10,000
4,000
2,400
22,000
Questions 2 to 5
Below is the summary of differences between carrying amount per PFRS and
their respective bases which will represent the cumulative balances of taxable
or deductible temporary differences.
Per PFRS
Per Tax
Difference
Accounts receivable (FDA)
78,000
83,000
5,000
Interest receivable (FTA)
1,000
0
1,000
Prepaid rent (FTA)
2,800
0
2,800
Plant (FDA)
121,000
154,000*
33,000
Provision for leave (FDA)
64,000
0
64,000
* 220,000-( 220,000x10%x3)
Question No. 2
(A)
DTL = FTA x Future tax rate
1,140
330
Chapter 29 – Accounting for Income Tax
Question No. 3
(B)
DTA = FDA x Future tax rate
30,600
Question No. 4
(A)
Deferred tax expense
Increase in DTL during the period
DTL, beginning
DTL, ending (see requirement 2)
Increase in DTL (additional expense)
720
1,140
420
Increase in DTA during the period
DTA, beginning
DTA, ending (see requirement 3)
Increase in DTA (benefit or reduction in expense)
30,360
30,600
240
Deferred tax expense (420-240)
180
Question No. 5
(A)
Income tax expense
Current tax expense (see requirement 1)
Add: Deferred tax expense (see requirement 4)
Income tax expense
53,760
180
53,940
Alternatively, income tax expense may be computed as follows:
TITE = Financial income x Tax rate
T
59,340
SUMMARY OF ANSWERS:
1. D 2. A 3. B 4.
A
5.
A
PROBLEM 29-13 Comprehensive
Question No. 1
(C)
Financial Income
Add back:
Amortization of product development costs ( 75,000 / 10)
Revaluation of trading investments
Bad debt provisions - 2021
Inventory obsolescence provision
Product warranty costs provision - 2021
Provision for health care benefit costs
Representation & promotion expenses
Fuel over limit
Deduct:
Excess tax depreciation ( 154,500 - 127,500)
Tax allowance for bad debt provisions (30% x
(20% x 37,500)
331
18,000) +
191,250
7,500
16,500
37,500
8,100
3,750
52,500
1,350
3,450
-27,000
-25,500
Chapter 29 – Accounting for Income Tax
Product warranty costs provision - claims paid
Taxable income
Question No. 2
Taxable income
Multiplied by: Tax rate
Current income tax
(A)
Question No. 3
(B)
-4,650
264,750
264,750
30%
79,425
Since tax depreciation of 154,500 is greater than accounting depreciation of
127,500, this is a taxable temporary difference will result in an increase in
DTL.
Question No. 4
TB =
Question No. 5
TB =
(C)
– 0 = 156,000
(D)
2,000 – 12,000 = 0
332
Chapter 30 – Employee Benefits
CHAPTER 30
EMPLOYEE BENEFITS
PROBLEM 30-1 Short-term paid absences
Question No. 1
30 emp
(30 x 4 weeks x 5 x 550)
330,000
25 emp
(25 x 4 weeks x 5 x 550)
275,000
30 emp
(30 x 3 weeks x 5 x 550)
247,500
10 emp
(10 x 2 weeks x 5 x 550)
55,000
Total liability for compensated abs
907,500
Question No. 2
Estimated liability for CA, beg
675,000
Add: Net adjustment to expense (squeeze)
741,250
Total
1,416,250
less: Payment
508,750
Estimated liability for CA, end
907,500
Estimated liability for CA, beg
55 emp
(55 x 4 weeks x 5 x 500)
550,000
25 emp
(25 x 2 weeks x 5 x 500)
125,000
Total liability for compensated abs
675,000
Payment
508,750
(925 days x 550)
SUMMARY OF ANSWERS:
1. A 2. B
PROBLEM 30-2 Projected Unit Credit Method
SOLUTION:
1. Compute for the future salary
(1.06^5 x P2,400,000)
3,211,741
2. Attributing benefits to the periods of
service
2021
333
2022
2023
2024
2025
Chapter 30 – Employee Benefits
Previous years (total from
previous period)
160,5
87
160,5
87
Current year (P1,402,552 x 4%)
Total
160,5
87
160,5
87
321,1
74
321,1
74
160,5
87
481,7
61
481,7
61
160,5
87
642,3
48
642,3
48
160,5
87
802,9
35
3. Measurement
2021
Opening obligation
(closing obligation from
period period)
Interest at 10% (10%
applied on opening
obligation
Discount factor at 10%
(1+10%)^-n of years
from actual year to
20X5 (4,3,2,1,0)
Current service cost
(present value of
benefit attributed to the
current year-P200,000
x discount factor
less Benefits paid
Closing obligation
(total)
2022
2023
2024
2025
0
109,68
3
241,30
3
398,15
0
583,95
3
-
10,968
24,130
39,815
58,395
0.6830
0.7513
0.8264
0.9091
1.0000
109,68
3
109,68
3
120,65
1
241,30
3
132,71
7
398,15
0
145,98
8
583,95
3
160,58
7
802,93
5
2024
185,8
03
185,8
03
2025
218,9
82
218,9
82
4. Journal entries
Dr Employee benefit expense
Cr Liability for employee
benefits
2021
109,6
83
109,6
83
Amortization Table
Date
Current service cost
1/1/2021
12/31/2021 109,683
12/31/2022
120,651
12/31/2023
132,717
12/31/2024
145,988
12/31/2025
160,587
2022
131,6
20
131,6
20
Int. cost
10,968
24,130
39,815
58,395
SUMMARY OF ANSWERS:
334
2023
156,8
47
156,8
47
PV, DBO
109,683
241,303
398,150
583,953
802,935
Chapter 30 – Employee Benefits
1.
D
PROBLEM 30-3 Fair Value of Plan Assets (FVPA)
SOLUTION: (D)
Fair value of plan assets
Beg. Balance
800,000
300,000
Actual return on plan assets
80,000 1,140,000
Contributions to the retirement
600,000
40,000
Total
1,480,000 1,480,000
Benefits paid
Balance end
Settlement price
of DBO
Total
PROBLEM 30-4 Defined Benefit Obligation (DBO)
SOLUTION: (A)
Defined benefit obligation
Benefits paid
240,000
550,000
Beg. Balance
Decrease in PV
200,000
Current Service Cost
due to changes in act.
55,000
Interest cost
80,000
Increase in PV
assumptions
-
PV of DBO settled
280,000
due to changes in act.
Balance end
765,000
400,000
Past service cost
1,285,000
1,285,000
Total
Jan. 1
Dec. 31
1,000,000
1,340,000
1,700,000
2,679,000
(700,000)
(1,339,000)
assumptions
PROBLEM 30-5 Deficit
SOLUTION:
Fair value of plan
assets
Defined benefit
obligation
Surplus (or
Deficit)
Fair value of plan assets
Beg. Balance
1,000,000
600,000
Actual return on plan assets
500,000 1,340,000
Contributions to the retirement
200,000
60,000
Total
1,700,000 1,700,000
Benefits paid
Defined benefit obligation
300,000 1,700,000 Beg. Balance
335
Benefits paid
Balance end
Settlement price
of DBO
Total
Chapter 30 – Employee Benefits
Decrease in PV
due to changes in act.
assumptions
PV of DBO settled
25,000
Balance end
2,679,000
3,004,000
SUMMARY OF ANSWERS:
1. C 2. C
1,100,000
204,000
3,004,000
Current Service Cost
Interest cost
Increase in PV
due to changes in act.
assumptions
Total
PROBLEM 30-6 Surplus
SOLUTION:
Fair value of plan assets
Beg. Balance
2,500,000
300,000
Actual return on plan assets
600,000
3,540,000
Contributions to the retirement
Total
Benefits paid
Decrease in PV
due to changes in act.
assumptions
PV of DBO settled
Balance end
Fair value of plan assets
Defined benefit obligation
Surplus (or Deficit)
SUMMARY OF ANSWERS:
1. C 2. C
800,000
3,900,000
60,000
3,900,000
Defined benefit obligation
300,000
2,000,000
1,000,000
200,000
25,000
2,875,000
3,200,000
3,200,000
Jan. 1
2,500,000
2,000,000
500,000
Beg. Balance
Current Service Cost
Interest cost
Increase in PV
due to changes in act.
assumptions
Total
Dec. 31
3,540,000
2,875,000
665,000
PROBLEM 30-7-Net benefit liability or Asset ceiling
SOLUTION:
Question No. 1
Fair value of plan assets
Beg. Balance
2,000,000
Actual return on plan assets
160,000
336
Benefits paid
Balance end
Settlement
price
of DBO
Total
720,000
2,240,000
Benefits paid
Balance end
Chapter 30 – Employee Benefits
Contributions to the retirement
800,000
Total
2,960,000
2,960,000
Total
Question No. 2
Defined benefit obligation
Benefits paid
720,000 3,600,000
Decrease in PV
1,400,000
due to changes in act.
360,000
Assumptions
200,000
Present value of defined benefit
obligation settled
Balance end
5,440,000
600,000
6,160,000 6,160,000
Question No. 3
Interest income on FVPA
Interest expense on DBO
Interest expense on effect of asset ceiling
Net interest on net defined benefit asset
or Net defined benefit liability (or asset)
x discount rate
Net interest on net defined benefit liability (or asset)
Beg. Balance
Current Service Cost
Interest cost
Increase in PV
due to changes in act.
assumptions
Past service cost
Total
200,000
(360,000)
(160,000)
(1,600,000)
10%
(160,000)
Question No. 4
Current Service cost
Interest expense
Past service cost
Int. exp. on asset ceiling
Total
Employee Benefit Expense
1,400,000
200,000
360,000
600,000
2,160,000
2,360,000
2,360,000
Question No. 5
Interest income on FVPA
Actual return on plan assets
Remeasurement loss (or gain) on plan assets
Actuarial gain due to decrease in PBO
Actuarial loss due to increase in PBO
Remeasurement loss (gain) recognized in-OCI
Net Remeasurement loss (or gain)
200,000
160,000
40,000
200,000
240,000
Net benefit expense
Net measurement loss (or gain)
Total defined benefit cost
2,160,000
240,000
2,400,000
337
Interest income
Benefit expense
Total
Chapter 30 – Employee Benefits
Fair value of plan assets, Jan. 1
Present value of defined benefit obligation, Jan. 1
Surplus (or deficit)
Asset ceiling-Jan. 1
Net defined asset-lower figure
2,000,000
3,600,000
(1,600,000)
(1,600,000)
Fair value of plan assets, Dec. 31
Present value of defined benefit obligation, Dec. 31
Surplus
Asset ceiling-Dec. 31
Net defined asset-lower figure
Employee benefit expense-P&L 2,160,000
Remeasurement loss-OCI
240,000
Cash
Net defined benefit liability (or asset)
800,000
1,600,000
Fair value of plan assets
Defined benefit obligation
Surplus (or Deficit or net defined benefit liability)
SUMMARY OF ANSWERS:
1. B 2. C 3. C 4.
B
5.
2,240,000
5,440,000
(3,200,000)
(3,200,000)
Jan. 1
2,000,000
3,600,000
(1,600,000)
B
PROBLEM 30-8 Net benefit Asset-No Asset Ceiling
SOLUTION:
Question No. 1
Fair value of plan assets
Beg. Balance
4,400,000
460,000
Actual return on plan assets
600,000
5,740,000
Contributions to the retirement
1,200,000
Total
Dec. 31
2,240,000
5,440,000
(3,200,000)
6,200,000
6,200,000
Benefits paid
Balance end
Total
Question No. 2
Defined benefit obligation
Benefits paid
460,000 3,000,000
Decrease in PV
1,200,000
due to changes in act.
360,000
assumptions
160,000
Present value of defined benefit
obligation settled
-
338
Beg. Balance
Current Service Cost
Interest cost
Increase in PV
due to changes in act.
assumptions
Chapter 30 – Employee Benefits
Balance end
5,060,000
5,520,000
800,000
5,520,000
Question No. 3
Interest income on FVPA
Interest expense on DBO
Interest expense on effect of asset ceiling
Net interest income on net defined benefit asset
or Net defined benefit liability (or asset)
x discount rate
Net interest income on net defined benefit liability
(or asset)
Question No. 4
Current Service cost
Interest expense
Past service cost
Int. exp. on asset ceiling
Total
528,000
(360,000)
168,000
1,400,000
12%
168,000
Employee Benefit Expense
1,200,000
528,000
360,000
800,000
1,832,000
2,360,000
2,360,000
Question No. 5
Fair value of plan assets, Jan. 1
Present value of defined benefit obligation, Jan. 1
Surplus
Asset ceiling-Jan. 1
Net defined asset-lower figure
Interest income
Benefit expense
Total
4,400,000
3,000,000
1,400,000
1,400,000
Fair value of plan assets, Dec. 31
Present value of defined benefit obligation, Dec. 31
Surplus
Asset ceiling-Dec. 31
Net defined asset-lower figure
5,740,000
5,060,000
680,000
680,000
Interest income on FVPA
Actual return on plan assets
Remeasurement loss (or gain) on plan assets
Actuarial gain due to decrease in PBO
Actuarial loss due to increase in PBO
Remeasurement loss (gain) recognized inOCI
Net Remeasurement loss (or gain)
528,000
600,000
(72,000)
160,000
Net benefit expense
Net measurement loss (or gain)
1,832,000
88,000
339
Past service cost
Total
88,000
Chapter 30 – Employee Benefits
Total defined benefit cost
1,920,000
Employee benefit expense-P&L
1,832,000
Remeasurement loss-OCI
88,000
Cash
Net defined benefit liability (or asset)
Fair value of plan assets
Defined benefit obligation
Surplus (or Deficit or net defined benefit
liability)
SUMMARY OF ANSWERS:
1. A 2. B 3. D 4. B 5. C
1,200,000
720,000
Jan. 1
4,400,000
3,000,000
Dec. 31
5,740,000
5,060,000
1,400,000
680,000
PROBLEM 30-9 Net benefit Asset-With Asset Ceiling
SOLUTION:
Question No. 1
Fair value of plan assets
Beg. Balance
6,000,000
Actual return on plan assets
680,000
Contributions to the retirement
1,200,000
Total
7,880,000
300,000
7,580,000
Benefits paid
Balance end
7,880,000
Total
Question No. 2
Defined benefit obligation
Benefits paid
300,000 5,000,000
Decrease in PV
500,000
due to changes in act.
500,000
assumptions
160,000
Present value of defined benefit
obligation settled
Balance end
6,260,000
400,000
6,560,000 6,560,000
Question No. 3
Interest income on FVPA
Interest expense on DBO
Interest expense on effect of asset ceiling
Net interest income on net defined benefit asset
or Net defined benefit liability (or asset)
x discount rate
340
Beg. Balance
Current Service Cost
Interest cost
Increase in PV
due to changes in act.
assumptions
Past service cost
Total
600,000
(500,000)
(20,000)
80,000
800,000
10%
Chapter 30 – Employee Benefits
Net interest income on net defined benefit liability
(or asset)
80,000
Question No. 4
Current Service cost
Interest expense
Past service cost
Int. exp. on asset ceiling
Total
Employee Benefit Expense
500,000
600,000
500,000
400,000
820,000
20,000
1,420,000
1,420,000
Question No. 5
Fair value of plan assets, Jan. 1
Present value of defined benefit obligation, Jan. 1
Surplus
Asset ceiling-Jan. 1
Net defined asset-lower figure
Surplus
Asset ceiling-Jan. 1
Effect of the asset ceiling-Jan. 1
Interest income
Benefit expense
Total
6,000,000
5,000,000
1,000,000
800,000
800,000
1,000,000
800,000
200,000
Effect of the asset ceiling-Jan. 1
Discount rate
Interest on the effect of the asset ceiling-P&L
200,000
10%
20,000
Fair value of plan assets, Dec. 31
Present value of defined benefit obligation, Dec. 31
Surplus
Asset ceiling-Dec. 31
Net defined asset-lower figure
Surplus
Asset ceiling-Dec. 31
Effect of the asset ceiling-Dec. 31
7,580,000
6,260,000
1,320,000
900,000
900,000
1,320,000
900,000
420,000
Effect of the asset ceiling-Dec. 31
420,000
Effect of the asset ceiling-Jan. 1
200,000
Increase (or Decrease) in the effect of the asset ceiling
220,000
(Increase is loss decrease is gain)
Total increase (or decrease) of the asset ceiling
220,000
less: Interest on the effect of the asset ceiling during the year
(Effect of the asset ceiling-Jan. 1 x disc. Rate)
20,000
341
Chapter 30 – Employee Benefits
Remeasurement gain recognized in-OCI
200,000
Interest income on FVPA
Actual return on plan assets
Remeasurement loss (or gain) on plan assets
Actuarial gain due to decrease in PBO
Actuarial loss due to increase in PBO
Remeasurement loss (gain) recognized inOCI
Net Remeasurement loss (or gain)
600,000
680,000
(80,000)
160,000
Net benefit expense
Net measurement loss (or gain)
Total defined benefit cost
820,000
280,000
1,100,000
Employee benefit expense-P&L
Remeasurement loss-OCI
Net defined benefit liability (or
asset)
Remeasurement gain-OCI
Cash
200,000
280,000
820,000
280,000
100,000
Fair value of plan assets
Defined benefit obligation
Surplus (or Deficit or net defined benefit
liability)
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. C
1,200,000
Jan. 1
6,000,000
5,000,000
Dec. 31
7,580,000
6,260,000
1,000,000
1,320,000
PROBLEM 30-10 Comprehensive
Question 1
Gross Investment/Lease receivable
(1.5M x 5)
7,500,000
Add: Unguaranteed residual value
500,000
8,000,000
less: Net investment
PV of PLP (1.5M X 3.60)
5,400,000
PV of URV (500,000 x. 57)
285,000
5,685,000
2,315,000
342
Chapter 30 – Employee Benefits
PV of PLP (1.5M X 3.60488
5,400,000
less: Net cost
Cost of sales
4,000,000
Initial direct costs
200,000
Dealer's Profit
1,200,000
Question 2
Int income
(5685000 x 12%)
682,200
Question 3
Date
01/01/202
1
12/31/202
1
12/31/202
2
Collection
Int. in come
Amort
PV
5,685,000
1,500,000
682,200
817,800
4,867,200
1,500,000
584,064
915,936
3,951,264
Question 4
Sales (32.25M-7.5M+5.4M)
30150000
less CGS
(13,084,885-4M+4.485M)
13,569,885
16,580,115
EMPLOYEE BENEFIT
PROBLEM 30-10 Comprehensive
EMPLOYEE BENEFIT
Fair value of plan assets
Beg. Balance
1,000,000
Actual return
340,000
Contribution
600,000
1,940,000
250,000
1,690,000
1,940,000
343
Benefits paid
End
Chapter 30 – Employee Benefits
Defined benefit obligation
Benefits paid
250,000
End
1,996,000
Dec. in DBO
-
1,200,000
600,000
96,000
50,000
300,000
2,246,000
2,246,000
Beg. Balance
Current serv cost
Interest cost
Inc. in DBO
Past service cost
Benefit Cost-P&L
Current service cost
Past service cost
Interest exp-DBO
Loss on settlement
Interest expenseEAC
600,000
300,000
96,000
-
80,000
916,000
996,000
996,000
Interest
income
FVPA
Gain on settlement
Benefit expense
Fair value of plan assets
Defined benefit obligation
Surplus (or if negative, NBL or deficit)
Net benefit liability, Jan. 1
x discount rate
Net interest expense-P&L
1,000,000
1,200,000
(200,000)
200,000
8%
16,000
Fair value of plan assets, Dec. 31
Defined benefit obligation, Dec. 31
Surplus (or if negative, NBL or deficit)
1,690,000
1,996,000
(306,000)
Interest income on FVPA
Actual return on plan assets
Remeasurement loss (or gain) on plan assets
Increase in DBO-actuarial loss-change in actuarial assumption
Decrease in DBO-actuarial gain change in actuarial assumption
Remeasurement loss (or gain) on the change in EAC-OCI
Net remeasurement loss (or gain)-OCI
Employee benefit expense
Net remeasurement loss-OCI
Net benefit asset
Cash
Net remeasurement gain-OCI
Net benefit liability
80,000
340,000
(260,000)
50,000
(210,000)
916,000
600,000
210,000
106,000
344
Chapter 30 – Employee Benefits
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4.
A
5.
345
A
6.
D
CHAPTER 32 – Shareholders’ Equity
CHAPTER 32: SHAREHOLDERS’ EQUITY
PROBLEM 32-1
Question No. 1
(A)
Authorized ordinary shares at P10 stated value
Less: Unissued ordinary shares
Ordinary Shares issued
2,400,000
1,300,000
1,100,000
Question No. 2
(B)
Authorized preference shares at P50 par value
Less: Unissued preference shares
Preference Shares issued
1,600,000
300,000
1,300,000
Question No. 3
(D)
Share Premium on ordinary shares
Share Premium conversion option-bonds payable
Share premium on preference shares
Gain on sale of treasury shares
Ordinary share warrants outstanding
Donated capital
Ordinary shares options outstanding
Total Share Premium
600,000
80,000
300,000
120,000
70,000
80,000
50,000
1,300,000
Question No. 4
(E)
Ordinary Shares issued
Preference Shares issued
Subscribed Ordinary shares
Subscription receivable – ordinary shares
Subscribed Preference shares
Subscription receivable – preference
Total Share Premium
Contributed Capital
1,100,000
1,300,000
400,000
(40,000)
120,000
(30,000)
1,300,000
4,150,000
Question No. 5
(C)
Preference Shares issued
Subscribed Preference shares
Ordinary Shares issued
Subscribed Ordinary shares
Share Premium on ordinary shares
Total Legal Capital
1,300,000
120,000
1,100,000
400,000
600,000
3,520,000
275
CHAPTER 32 – Shareholders’ Equity
Question No. 6
(D)
Contributed Capital
Accumulated profits – unappropriated (1M-150K)
Accumulated profits- appropriated for TS
Accumulated profits – appro. for bond sinking fund
Unrealized increase in value of FVTOCI securities
Revaluation surplus
Total
Less: Treasury shares at cost
Total Shareholders' Equity
4,150,000
850,000
150,000
640,000
20,000
260,000
6,070,000
150,000
5,920,000
SUMMARY OF ANSWERS:
1. A
2. B
3. D
C
4.
D
5.
C
6.
PROBLEM 32-2
1.
2.
3.
Cash (2,000 x P50)
Share capital
To record share issuance at a premium
100,000
Cash (5,000 x P60)
Share capital (5,000 x P50)
Share premium
To record share issuance at a premium
300,000
Share premium
Retained earnings
Cash
To record payment of share issue cost
50,000
20,000
Cash (4,000 x P40)
Discount on share capital
Share capital (4,000 x P50)
To record share issuance at a discount
160,000
40,000
100,000
250,000
50,000
70,000
200,000
PROBLEM 32-3
1.
2.
3.
Machinery
Share capital (2,500 x P50)
Share premium
To record share issuance for machinery
180,000
Patent (1,000 x P65)
Share capital (1,000 x 50)
Share premium
To record share issuance for patent
65,000
Organization expense
40,000
125,000
55,000
50,000
15,000
276
CHAPTER 32 – Shareholders’ Equity
Share capital (400 x P50)
Share premium
To record share issuance for organization services.
20,000
20,000
PROBLEM 32-4
Loans payable - bank
Share capital
Share premium**
Gain on settlement on liability
To record issuance of shares for liability
150,000
100,000
40,000
10,000
*Computation of loss on extinguishment of liability
Fair value of equity instruments issued (or if not reliably determinable, use
the fair value of liability) (2,000 x P70)
Less: Carrying amount of liability
Gain on settlement of liability
**Computation of increase in share premium
Fair value of equity instruments issued (or if not reliably determinable, use
the fair value of liability) (2,000 x P70)
Less: Total par or stated value of equity issued (2,000 x P50)
Share premium (or Discount)
140,000
150,000
10,000
140,000
100,000
40,000
PROBLEM 32-5
1.
2.
Cash (2,500 x P216)
Preference shares (2,500 x P200)
Share premium-pref. share
To record issuance of preference shares
540,000
Cash (500 x P120)
Ordinary shares (500 x P100)
Share premium - ordinary shares
To record issuance of ordinary shares
60,000
500,000
40,000
50,000
10,000
PROBLEM 32-6
Allocation of the lump-sum price:
Preference shares (2,500 x P216)
Ordinary shares (500 x 120)
Total
Total Fair value
540,000
60,000
600,000
The transaction will then be recorded as follows:
Cash
Preference shares (2,500 x P200)
Share premium-preference share (810,000-500,000)
Ordinary shares (500 x 100)
Share premium - ordinary share (90,000-50,000)
277
Fraction
54/60
6/60
Allocated
proceeds
810,000
90,000
900,000
900,000
500,000
310,000
50,000
40,000
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-7
Allocation of the lump-sum price:
Total proceeds
Less: Total fair value of preference shares (2,500 x P216)
Amount allocated to the ordinary shares
The transaction will then be recorded as follows:
Cash
Preference shares (2,500 x P200)
Share premium-preference share (540,000-500,000)
Ordinary shares (500 x P100)
Share premium-ordinary share (360,000-50,000)
To record issuance of preference and ordinary shares
900,000
540,000
360,000
900,000
500,000
40,000
50,000
310,000
PROBLEM 32-8
1.
2.
3.
Subscription receivable (7,500 x P70)
Subscribed share capital (7,500 x P50)
Share premium
To record subscriptions of share capital
525,000
Cash (525,000 x 30%)
Subscription receivable
To record cash collection
157,500
Cash (525,000 x 70%)
Subscription receivable
To record cash collection
367,500
Subscribed share capital
Share Capital (7,500 x P50)
To record issuance of share certificate
375,000
375,000
150,000
157,500
367,500
375,000
PROBLEM 32-9
1.
Subscription receivable (7,500 x P70)
Subscribed share capital (7,500 x P50)
Share premium
To record subscriptions of share capital
525,000
2.
Cash (525,000 x 30%)
Subscription receivable
To record cash collection
157,500
3.
Subscribed ordinary shares
Share premium-ordinary share
Subscriptions receivable (525,000 x 70%)
Share premium forfeited down-payment
375,000
150,000
278
375,000
150,000
157,500
367,500
157,500
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-10
Journal entries to record the transactions would be:
1. Subscription receivable (7,500 x P70)
Subscribed share capital (7,500 x P50)
Share premium
To record subscriptions of share capital
2.
Cash (525,000 x 30%)
Subscription receivable
To record cash collection
525,000
375,000
150,000
157,500
To record the expenses incurred related to the auction
Receivable from highest bidder
P 15,000
Cash
To record the collection from highest bidder
Cash
Subscription receivable
Receivable from highest bidder
To record the issuance of share capital
Subscribed share capital (7,500 x P50)
Share capital
PROBLEM 32-11
1. Subscription receivable (7,500 x P70)
Subscribed share capital (7,500 x P50)
Share premium
To record subscriptions of share capital
2.
Cash (525,000 x 30%)
Subscription receivable
To record cash collection
P
157,500
15,000
382,500
367,500
15,000
375,000
375,000
525,000
375,000
150,000
157,500
157,500
To record the expenses incurred related to the auction
Receivable from highest bidder
P
15,000
Cash
P
15,000
To record the acquisition of entity’s own shares
Treasury shares
Subscription receivable
Receivable from highest bidder
367,500
15,000
382,500
To record the issuance of share capital
Subscribed share capital (7,500 x P50) 375,000
Share capital
375,000
PROBLEM 32-12
1)
Treasury shares (15,000 x 24)
Cash
360,000
360,000
279
CHAPTER 32 – Shareholders’ Equity
2)
3)
4)
5)
6)
7)
Cash (5,000 x P26)
Treasury shares (5,000 x P24)
Share premium-Treasury shares
130,000
Cash (4,000 x 20)
Share premium-Treasury shares
Retained earnings
Treasury shares (4,000 x 24)
80,000
10,000
6,000
Equipment
Treasury shares (1,000 x 24)
Share premium- treasury shares
25,000
Ordinary shares (5,000 x 20)
Share premium (600,000/100,000) x 5,000
Share premium-Treasury shares
Treasury shares (5,000 x P24)
100,000
30,000
120,000
10,000
96,000
24.000
1,000
Memo entry: Received 5,000 shares from a stockholder
as a donation.
Cash (2,000 x 28)
Donated capital
10,000
120,000
56,000
56,000
Land
Donated capital
250,000
Donated capital
Cash
20,000
250,000
20,000
PROBLEM 32-13
a.
b.
Preference shares (3,000 x P100)
Share Premium on Preference shares [(300,000/30,000) x
3,000]
Accumulated profits (balancing figure)
Cash (3,000 x P140)
300,000
Preference shares
Share Premium on Preference shares
Cash (95 x 3,000)
Share premium retirement of shares (balancing figure)
300,000
30,000
30,000
90,000
420,000
285,000
45,000
PROBLEM 32-14
1)
Preference shares (4,000 x P100)
Share Premium on Preference shares [(300,000/30,000)
x 4,000]
280
400,000
40,000
CHAPTER 32 – Shareholders’ Equity
Ordinary shares (4,000 x P50)
Share premium-ordinary shares
2)
200,000
240,000
Preference shares (4,000 x P100)
Share Premium on Preference shares [(300,000/30,000)
x 4,000]
Accumulated profits
Ordinary shares (4,000 x 5/1 x P50)
400,000
40,000
560,000
1,000,000
PROBLEM 32-15
1a.
1b.
2.
Ordinary shares (30,000 x P40)
Share Premium on Ordinary shares
Ordinary shares (30,000 x P30)
Share premium-recapitalization
1,200,000
240,000
Ordinary shares (30,000 x P40)
Share Premium on Ordinary shares
Accumulated profits
Ordinary shares (30,000 x P60)
1,200,000
240,000
360,000
Ordinary shares ((P40-P35) x 30,000)
Share premium-recapitalization
150,000
900,000
540,000
1,800,000
150,000
3. Share split
Before
30,000
Ordinary Share capital issued
Subscribed share capital
Total
Less: Treasury shares
Outstanding shares
After
120,000
120,000
120,000
Before
P40
multiply by
¼
After
P10
30,000
-
Par value per share
Memo entry:
Changes:
30,000
Multiply by
4/1
4/1
4/1
4/1
4/1
increase number of shares
Same SHE
Decrease number in Par value
PROBLEM 32-16
1.
Memo entry: Issued 30,000 stock right to
existing shareholder
2.
3.
Cash (15,000 x 2 x P42)
Ordinary shares (15,000 x 2 x P02)
Share Premium
Memo entry: 15,000 of the stock rights were
not exercised
281
1,260,000
1,200,000
60,000
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-17
Preference shares (2,000 x P80)
Warrants (2,000 x P20)
Total
*(150 x 4,000)
CASE NO. 1
Total Fair
value
160,000
40,000
200,000
Fraction
Allocated cost
80%
20%
320,000
80,000
400,000*
Cash
Preference Share capital (2,000 x P50)
Share Premium (320,000 -100,000)
Ordinary share warrants outstanding
400,000
100,000
220,000
80,000
When the warrants are exercised:
Cash (1,000 x 80% x P40)
Ordinary share warrants outstanding (80,000 x 80%)
Ordinary Share capital (1,000 x 80% x P20)
Share Premium –ordinary share
32,000
64,000
16,000
80,000
CASE NO. 2
Total proceeds
Less: Total fair value of the preference shares (2,000 x P80)
Value of the warrants
Cash
Preference Share capital (2,000 x P50)
Share Premium (160,000-100,000)
Ordinary share warrants outstanding
400,000
160,000
240,000
400,000
100,000
60,000
240,000
CASE NO. 3
Market value of ordinary shares
Less: Option price/exercise price
Intrinsic value of warrant
Multiply: # of ordinary shares claimable under warrants
Market value of share warrants
P
P
Total proceeds
Less: Value of Share warrants
Value assigned to Preference Share
50
40
10
1,000
10,000
400,000
10,000
390,000
Cash
Preference Share capital (2,000 x P50)
Share Premium (390,000-100,000)
Ordinary share warrants outstanding
400,000
100,000
290,000
10,000
282
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-18
Ordinary shares issued
Less: Treasury shares
Outstanding shares
a.
Retained earnings (18,000 x P5)
Dividends payable
b.
No formal accounting entry
c.
Dividends payable
Cash
20,000
2,000
18,000
90,000
90,000
90,000
90,000
PROBLEM 32-19 Cash dividends for Preference Shares-Semi-annual Payment
July 1:
Retained Earnings
Dividends Payable (28,000 x P20 x 10% x 6/12)
Dec. 31: Retained Earnings
Dividends Payable (28,500 x P20 x 10% x 6/12)
28,000
28,000
28,500
28,500
Computation of outstanding shares:
July 1
Preference shares issued
30,000
Less: Treasury shares
2,000
Outstanding shares
28,000
December 31
Preference shares issued
Less: Treasury shares (2,000-500)
Outstanding shares
30,000
1,500
28,500
PROBLEM 32-20
Nov. 1,
2021
Retained earnings
Dividends payable
500,000
Dec. 31,
2021
Retained earnings
Dividends payable
110,000
Fair value, Dec. 31
Less: Previous Fair value
Increase in dividends payable
610,000
500,000
110,000
Dividends payable
Retained earnings
30,000
Feb. 15,
2022
500,000
110,000
30,000
Fair value, Feb. 15
Less: Previous Fair value
Decrease in dividends payable
580,000
610,000
(30,000)
Dividends payable
Inventory
Gain on distribution - prop. dividends
580,000
Carrying amount of dividend payable = Fair value
Less: Carrying amount of noncash assets
Gain on distribution of prop. Dividends
580,000
550,000
30,000
283
550,000
30,000
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-21
Nov. 1,
2021
Dec. 31,
2021
Feb. 15,
2022
Retained earnings
Dividends payable
500,000
Equipment-noncurrent asset for distribution*
Impairment loss (P550,000 – P500,000)
Equipment
500,000
50,000
Retained earnings
Dividends payable
110,000
Fair value, Dec. 31
Less: Previous Fair value
Increase in dividends payable
610,000
500,000
110,000
Equipment-noncurrent asset for distribution**
Gain on recovery of impairment loss
50,000
Dividends payable
Retained earnings
30,000
500,000
550,000
110,000
50,000
30,000
Fair value, Feb. 15
Less: Previous Fair value
Decrease in dividends payable
580,000
610,000
(30,000)
Dividends payable
Equipment-noncurrent asset for distribution
Gain on distribution of prop. Dividends
580,000
550,000
30,000
Carrying amount of dividend payable = Fair
value
580,000
Less: Carrying amount of noncash assets
550,000
Gain on distribution of prop. Dividends
30,000
*(Lower between P550,000 and P500,000)
**(P610,000 minus P500,000) but the gain shall not exceed the amount of impairment loss
of P50,000.
Alternative Computation:
*Computation of the impairment loss is as follows:
Original carrying amount
Less: Lower between these two amounts
FV Less Cost To Distribute (FVLCTD)
Original carrying amount
Impairment loss
550,000
500,000
550,000
500,000
50,000
**Computation of the gain on reversal of the impairment loss is as follows:
Lower between subsequent FVLTCD and original carrying amount
Original carrying amount
550,000
FVLCTD, Dec. 31
610,000
550,000
Carrying amount at initial recognition
500,000
Gain on reversal
50,000
284
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-22 Cash and Noncash Alternative
Retained earnings
Dividends payable
181,800
181,800
Supporting computation:
Cash alternative (20 x 55% x P9,000)
Non-cash alternative (20 x 45% x P9,200)
Total dividends
99,000
82,800
181,800
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
a.
Dividends payable
181,800
Cash (20 X 9,000)
Retained earnings (balancing figure)
180,000
1,800
If the shareholders opted to receive noncash, the journal entry is:
b.
Retained earnings ( 10K x 20- 181,800)
18,200
Dividends payable
18,200
Dividends payable
Gain on distribution of dividends (balancing
figure)
Noncash (20 x 8,000)
200,000
40,000
160,000
PROBLEM 32-23 Share Dividends: Small, Large and Treasury Shares
Computation of outstanding shares:
Ordinary shares issued
Less: Treasury shares
Outstanding shares
1)
2)
3)
4)
5)
210,000
10,000
200,000
Accumulated Profits
[(200,000) x 10% x P90]
Share dividends payable [(200,000) x 10% x P40]
Share premium on Ordinary shares
1,800,000
Accumulated Profits
[(200,000) x 20% x P40]
Share dividends payable [(200,000) x 20% x P40]
1,600,000
Accumulated Profits
[(200,000) x 1/100 x P50]
Share dividends payable-PS [(200,000) x 1/100 x
P40]
Share Premium-PS
100,000
Capital Liquidated (P10 x 200,000 shares)
Cash
Accumulated Profits
Treasury shares
800,000
1,000,000
1,600,000
80,000
20,000
2,000,000
2,000,000
600,000
600,000
285
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-24 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 32-25 Comprehensive Problem
Questions 1 to 3
Date
A.
B.
C.
BAL
D.
BAL
E.
BAL
Jan. 2, 2013
Jan. 3, 2014
May 1, 2015
Dec. 31, 2015
Jan. 1, 2016
Dec. 31, 2016
Jan. 1, 2017
July 1, 2017
Dec. 31, 2017
(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.
286
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 32 – Shareholders’ Equity
PROBLEM 32-26
Questions 1 to 3
*in ‘000s
Beginnin
g
Jan. 5
Jan. 28
Feb. 2
Feb. 14
Jul. 15
Oct. 15
Nov. 15
Nov. 27
Dec. 31
Total
Pref.
share
s
Ord.
share
s
1,400
3,500
600
Total
Share
Premiu
m
Retaine
d
earning
s
1,925
60
(60)
4,500
(20)
Treasur
y shares
Subs.
Ord.
share
Subs.
Receivabl
e
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
)
(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.
287
B
3,750
(1,500)
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-27
Beg.
Balances
2.)
3.)
4.)
5.)
6.)
8.)
9.)
Total
Pref.
shares
400,000
Ord.
shares
200,000
Share
Prem
250,000
6,000
38,200
244,200
2. (D)
(38,200)
2,400,000
(80,000)
(91,680)
3,090,120
380,000
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
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
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
400,000
800,000
1. (C)
Retained
earnings
900,000
P
800,000
244,200
380,000
3,090,120
(120,000)
P 4,394,320
4.
D
5.
288
A
CHAPTER 32 – Shareholders’ Equity
PROBLEM 32-28
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)
280
2,500
(1,217)
16,563
(33)
11
Beginning balance - issued
Beginning balance - treasury
1.) February 1, 2017 Issuance of shares
2.) March 1, 2017 Conversion of preference shares
3.) April 1, 2017 Exercise of stock rights (67,500 x 2)
Balance – April 30
4. ) September 30, 2017 Reissuance of treasury shares
Balance – October 31
Ordinary
Shares
84,000
(4,000)
8,000
4,000
135,000
227,000
3,000
230,000
Beginning balance – issued and outstanding
2.) March 1, 2017 Conversion into ordinary shares
Balance – April 30 & October 31
Preference
Shares
40,000
(2,000)
38,000
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
227,000
230,000
380,000
380,000
1,217,000
Question No. 4
(B)
Retained earnings (see table above)
Less: Treasury shares
Retained earnings - unappropriated
P16,563,000
11,000
P16,552,000
289
CHAPTER 32 – Shareholders’ Equity
Question No. 5
(B)
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.
(B)
PROBLEM 32-29
Beginning
A.)
B.)
C.)
D.)
E.)
F.)
G.)
H.)
Total
Preference
Shares
Ordinary
Shares
840,000
(B)
Total
Share
Premium
420,000
13,500
Retained
Earnings
15,000,000
Treasury
Shares
44,000
(16,500)
SPLIT 2 for 1
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
(650,000)
(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
290
CHAPTER 32 – 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.
A
A
PROBLEM 32-30
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
2-for-1
split
98,000
400,000
5,000
Share
Premium
1,116,000
450,000
100,000
18,000
Retained
Earnings
2,300,000
176,400
(274,400)
61,740
(329,280)
OCI
61,740
Treasury
Shares
420,000
(126,000)
(61,740)
395,000
(82,320)
(985,200)
2,250,000
2,000,000
1. (D)
2,203,000
2. (C)
2,255,400
3. (B)
2,940,540
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
291
CHAPTER 32 – 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 P2,000,000)
Total dividends
Question No. 3
Preference shares
Ordinary shares
Total Share premium
Contributed capital
825,200
160,000
985,200
(B)
2,000,000
2,203,000
2,255,400
6,458,400
Question No. 4
(D)
Retained earnings-total
Less: Appropriated for Treasury shares
Retained earnings-unappropriated
2,940,540
294,000
2,646,540
Question No. 5
(D)
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
2,255,400
2,646,540
294,000
294,000
9,104,940
SUMMARY OF ANSWERS:
1. D 2. C
3. B
4.
D
5.
D
PROBLEM 32-31
Jan. 1
Land
Organization expense
Ordinary shares (1,000 x P100
Share Premium-O/S
292
340,000
140,000
10,000
470,000
CHAPTER 32 – Shareholders’ Equity
Feb. 23
Cash (20,000 x 150)-150,000
Preference shares (20,000 x P100)
Share premium-PS
2,850,000
Mar. 10
Cash (6,000 x 390)-50,000
Ordinary shares (6,000 x P10)
Share premium-OS
2,290,000
Apr. 10
Subscriptions receivable (8,000 x P450)
Subs. Ordinary shares (8,000 x P10)
Share premium-OS
3,600,000
July 14
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
Aug. 3
Dec. 1
Cash
Ordinary shares (1,200 x P10)
Share Premium-OS
2,800,000
2,800,000
40,000
Retained earnings
Dividends payable
580,000
228,000
13,600
4,000
17,600
20
Dividends payable
Cash
228,000
2/23
2,000
850
40,000
580,000
OS Issued (136,000/10)
Add: Subscribed OS
Outstanding shares
Multiply by: Dividend per share
Total dividends
P/S
P
-
280,000
180,000
14,000
546,000
12,000
468,000
Subs. Ordinary shares (8,000 x ½ x P10)
Ordinary shares
1/1
80,000
3,520,000
480,000
Cash
Subscriptions receivable
SP –
P/S
P
-
60,000
2,230,000
460,000
Pref. dividends (2,280,000 x 10%)
Dec. 31
2,000,000
850,000
352,000
580,000
228,000
Ordinar
y Shares
P10
SP –
O/S
P 470
Subscrib
ed O/S
P
-
-
-
-
293
Subs.
Receiv
able
R/E
P
-
CHAPTER 32 – Shareholders’ Equity
3/10
4/10
7/14
7/14
8/3
12/1
Total
60
280
180
2,230
3,520
546
468
14
12
40
P2,28
0
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
80
3,600
(40)
(2,800)
P 40
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.
B
6.
C
PROBLEM 32-32
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
(D)
Ordinary shares, beg.
Additional issue (80,000 x 5)
P
294
200,000
400,000
CHAPTER 32 – Shareholders’ Equity
Stock dividend (11,480 shares x P5)*
Total
P
57,400
657,400
Outstanding shares, beginning
Treasury shares acquisition
Treasury shares re-issue
Additional issue
Total outstanding shares
Multiplied by:
Dividend shares
40,000
(8,000)
2,800
80,000
114,800
10%
11,480
Question No. 3
(C)
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 additional issue (80,000 x P1)
Premium on stock dividends (P12 – P5) x 11,480 shares
Total share premium, end
P
384,000
44,000
100,000
80,000
80,360
688,360
Question No. 4
(A)
Retained earnings, beg.
P 2,400,000
Add: Net Income
Unadjusted Net Income
P 1,400,000
Overstatement in operating expenses
480,000
1,880,000
Less: Dividends
Dividends- thru issuance of OS (80K x 6)
480,000
Stock dividends (11,480 x P12)
P 137,760
Cash dividends*
163,140
(780,900)
Retained earnings, adjusted
P 3,499,100
Retained earnings, appropriated for treasury shares
(104,000)
Retained earnings, appropriated for plant expansion
(1,200,000)
Retained earnings, unappropriated
P 2,195,100
* Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
Ordinary shares (34,800 +80,000 + 11,480) x P.50
Total cash dividends
P
100,000
63,140
163,140
Question No. 5
(B)
Treasury shares acquired (8,000 x P20)
Treasury shares reissued (2,800 x P20)
Treasury shares, end
P
(
P
160,000
56,000)
104,000
P
100,000
63,140
163,140
* Computation of the Cash dividends
Preferred stock dividends (80,000 + 20,000) x P1
Ordinary shares (34,800 + 80,000 + 11,480) x P.50
Total cash dividends
295
P
P
CHAPTER 32 – Shareholders’ Equity
Computation of the net income:
Net Income
Unadjusted Net Income
Overstatement in operating expenses
Adjusted net income
SUMMARY OF ANSWERS:
1. C
2. D 3. C
4.
A
P 1,400,000
480,000
P 1,880,000
5.
B
ADJUSTING JOURNAL ENTRIES:
a
.
b
.
Entries Made
Ordinary
160
shares
Cash
Equipment
100
Ordinary
shares
(2,800 x P5)
Share
Premium
c
.
Other OPEX
Cash
86
480
480
300
Preference
shares
e
.
f.
300
Memo entry
Share
Premium
Equipment
14
Ordinary
shares
d
.
160
17.
4
Should be entries
Treasury
160
shares
Cash
160
100
Treasury
shares
(2,800 x 20)
Share
PremiumTS
RE (80K x
6)
Ordinary
shares (80K
x 5)
Share
premium
Cash
Preference
shares
(20,000 x
P10)
Share
PremiumPS
Retained
earnings
(40K+80K5,200)
x
10% x P12)
Share div.
payable
(114,800 x
10% x P5)
Share
premium
Share div.
payable
56
44
480
400
Adjusting entries
Treasury
160
shares
Ordinary
shares
Ordinary
14
shares
Share
86
Premium
Treasury
shares
(2,800 x 20)
Share
PremiumTS
RE (80K x
6)
Other OPEX
160
56
44
480
480
80
300
200
Preference
shares
Share
PremiumPS
100
Retained
earnings
(40K5,200)
x
10% x P12)
Share div.
payable
(34,800 x
10% x P5)
Share
premium
Share div.
payable
41,7
60
100
100
137,7
60
57.4
80.3
6
17.4
296
17.4
24.3
6
17.4
CHAPTER 32 – Shareholders’ Equity
g
.
h
.
i.
Ordinary
shares
No journal
entry
Retained
earningsunappropri
ated
Retained
earnings
appropriate
d for plant
expansion
No journal
entry
No journal
entry
17.
4
1,2
00
Ordinary
shares
Retained*
earnings
Dividends
payable
Same
17.4
163.1
4
163.
14
Share
Premium
Retained
earnings
Dividends
payable
NO AJE
17.4
163.
14
163.
14
1,2
00
Retained
earningsunappropri
ated
Retained
earnings
appropriate
d
for
Treasury
shares
Income
summary
Retained
earningsunappropri
ated
104
104
1,880
1,88
0
* Computation of the Cash dividends
Preferred stock dividends
(80,000 + 20,000) x P1
P
Ordinary shares
(34,800 +80K + 11,480) x P.50
Total cash dividends
P
Computation of the net income:
Net Income
Unadjusted Net Income
Overstatement in
operating expenses
Adjusted net income
297
Retained
earningsunappropri
ated
Retained
earnings
appropriate
d
for
Treasury
shares
Income
summary
Retained
earningsunappropri
ated
100,000
63,140
163,140
P
1,400,000
P
480,000
1,880,000
104
104
1,88
0
1,88
0
Chapter 33 – Share-based Payment
CHAPTER 33: SHARE-BASED PAYMENT
TRANSACTION
PROBLEM 33-1 Service Condition
2021
2022
2023
32,000
32,000
32,000
21
21
21
672,000
672,000
672,000
1/3
2/3
1
-
448,000
224,000
672,000
448,000
224,000
224,000
224,000
2021
2022
2023
No. of employees
500
500
500
Employees who left
30
37
52
Employees who'll leave
20
10
Employees entitled
400
400
400
2021
2022
2023
No. of stock options
80
80
80
x employees entitled
450
440
443
36,000
35,200
35,440
21
21
21
756,000
739,200
744,240
1/3
2/3
1
252,000
492,800
744,240
-
252,000
492,800
252,000
240,800
251,440
Total No. of stock options
x fair value
Total FV
Ratio
Cumulative Sal.
224,000
Less cum. Sal prev years
Salaries expense
Scenario 2
Total No. of stock options
x fair value
Total FV
Ratio
Cumulative Sal.
Less cum. Sal prev years
Salaries expense
373
Chapter 33 – Share-based Payment
2021
2022
2023
No. of employees
500
500
500
Employees who left
20
42
57
Employees who'll leave
30
18
Employees entitled
450
440
443
SUMMARY OF ANSWERS:
Scenario 1
1. A
2. A
3. A
Scenario 2
1. A
2.
B
3.
C
PROBLEM 33-2 Grant with a performance condition, in which the length of the
vesting period varies
2021
2022
2023
No. of stock options
80
80
80
x employees entitled
450
427
429
36,000
34,160
34,320
24
24
24
864,000
819,840
823,680
1/2
2/3
1
432,000
546,560
823,680
-
432,000
546,560
432,000
114,560
277,120
2021
2022
2023
No. of employees
500
500
500
Employees who left
20
48
71
Employees who'll leave
30
25
Employees entitled
450
427
Total No. of stock options
x fair value
Total FV
Ratio
Cumulative Sal.
Less cum. Sal prev years
Salaries expense
Cash
Share options outstanding
2,059,200
823,680
Share capital
1,716,000
374
429
Chapter 33 – Share-based Payment
Share Premium
SUMMARY OF ANSWERS:
1. A
2. B
3. B
1,166,880
4.
C
5.
A
PROBLEM 33-3 Performance Condition, Nonmarket condition, # of equity
instruments varies
2021
2022
2023
No. of stock options
80
120
180
x employees entitled
150
150
150
12,000
18,000
27,000
30
30
30
360,000
540,000
810,000
1/3
2/3
1
120,000
360,000
810,000
-
120,000
360,000
120,000
240,000
450,000
Total No. of stock options
x fair value
Total FV
Ratio
Cumulative Sal.
Less cum. Sal prev years
Salaries expense
2021
2022
2023
No. of employees
150
150
150
Employees who left
0
0
0
Employees who'll leave
0
0
Employees entitled
SUMMARY OF ANSWERS:
1. A
2. D 3. C
150
150
150
PROBLEM 33-4 Grant with a performance condition, in which the exercise price
varies
2021
2022
2023
No. of stock options
20,000
x employees entitled
Total No. of stock options
x fair value
Total FV
375
20,000
20,000
1
1
1
20,000
20,000
20,000
15
15
12
300,000
300,000
240,000
Chapter 33 – Share-based Payment
Ratio
Cumulative Sal.
1/3
2/3
1
100,000
200,000
240,000
-
100,000
200,000
100,000
100,000
40,000
2021
2022
2023
Less cum. Sal prev years
Salaries expense
SUMMARY OF ANSWERS:
1. A
2. C
3. B
PROBLEM 33-5 Grant with a market condition
No. of stock options
4,000
x employees entitled
4,000
4,000
1
1
1
4,000
4,000
4,000
21
21
21
Total FV
84,000
84,000
84,000
Ratio
1/3
2/3
1
28,000
56,000
84,000
-
28,000
56,000
28,000
28,000
28,000
Total No. of stock options
x fair value
Cumulative Sal.
Less cum. Sal prev years
Salaries expense
SUMMARY OF ANSWERS:
1. B
2. B
3. B
PROBLEM 33-6 Grant with a market condition, in which the length of the vesting
period varies
2021
2022
2023
2024
2025
No. of stock
options
x employees
entitled
Total No. of stock
options
x fair value
Total FV
Ratio
9,000
9,000
9,000
9,000
9,000
8
8
8
8
7
72,000
72,000
72,000
72,000
63,000
24
24
24
24
24
1,728,0
00
1/5
1,728,00
0
2/5
1,728,0
00
3/5
376
1,728,000
4/5
1,512,00
0
1
Chapter 33 – Share-based Payment
Cumulative Sal.
345,600
Less cum. Sal
prev years
-
Salaries expense
345,600
691,200
1,036,8
00
1,382,400
345,600
691,200
1,036,800
345,600
345,600
345,600
1,512,00
0
1,382,40
0
129,600
2021
2022
2023
No. of employees
10
10
10
Employees who left
0
0
1
Employees who'll leave
2
2
1
Employees entitled
SUMMARY OF ANSWERS:
1. B
2. A
3. A
8
8
8
2022
2023
4.
A
5.
C
PROBLEM 33-7 Grant of share options that are subsequently repriced
2021
No. of stock options
100
x employees entitled
Total
x fair value
Total FV
Ratio
Cumulative Sal.
100
100
290
295
297
29,000
29,500
29,700
18
18
21
522,000
531,000
623,700
1/3
2/3
1
174,000
354,000
623,700
Add Incremental exp
No. of stock options
100
x employees entitled
295
Total
29,500
x Incremental value
3
Total
88,500
377
Chapter 33 – Share-based Payment
Ratio
1/2
Total incremental expense
-
44,250
-
174,000
398,250
623,700
-
174,000
398,250
174,000
224,250
225,450
2021
2022
2022
No. of employees
400
400
400
employees who left
40
75
103
employees who'll leave
70
30
employees entitled
290
295
Total Cumulative Sal.
less cum. Sal prev years
Salaries expense
297
SUMMARY OF ANSWERS:
1. B
2. B
3. A
PROBLEM 33-8 Decrease in fair value of the equity instruments granted
(e.g., by increasing the exercise price)
2021
2022
2023
30
30
30
Multiply by: Number of stock options per
employee
1,000
1,000
1,000
Total stock options
30,000
30,000
30,000
20
20
600,00
0
2/3
400,00
0
200,00
0
200,00
0
20
600,00
0
1
600,00
0
400,00
0
200,00
0
Employees entitled for the benefit
Multiply by: Fair value
Total value of the compensation
600,000
Multiply by: Ratio
1/3
Cumulative compensation
200,000
Less: Cumulative compensation in previous
year
Compensation expense
200,000
SUMMARY OF ANSWERS:
378
Chapter 33 – Share-based Payment
1.
B
2.
A
3.
A
PROBLEM 33-9 Increase in the number of equity instruments granted
2021
2022
2023
Employees entitled for the benefit
Number of stock options per
employee
40
40
40
1,200
1,200
1,200
Total stock options
48,000
48,000
48,000
x Fair value
20
20
20
Total value of the compensation
960,000
960,000
960,000
x ratio
Cumulative compensation
1/3
320,000
2/3
1
640,000
960,000
Add incremental expense
Employees entitled for the benefit
Number of stock options per
employee
40
40
800
800
Total stock options
32,000
32,000
x Incremental value
21
21
Total incremental value
672,000
672,000
x ratio
1/2
2/2
Total incremental expense
336,000
672,000
976,000
1,632,000
320,000
976,000
656,000
656,000
Total cumulative expense
320,000
Less cumulative comp. prev. year
Compensation expense
320,000
SUMMARY OF ANSWERS:
1. A
2. C
3. C
379
Chapter 33 – Share-based Payment
PROBLEM 33-10 By reducing the vesting period or by modifying or
eliminating a performance condition (other than a market condition)
2021
2022
2023
20
20
20
Multiply by: Number of stock options per
employee
2,000
2,000
2,000
Total stock options
40,000
40,000
40,000
18
18
720,00
0
2/3
480,00
0
240,00
0
240,00
0
18
720,00
0
1
720,00
0
480,00
0
240,00
0
2021
2022
23
24
Multiply by: Number of stock options per employee
2,000
2,000
Total stock options
46,000
48,000
33
1,518,00
0
33
1,584,00
0
Employees entitled for the benefit
Multiply by: Fair value
Total value of the compensation
720,000
Multiply by: Ratio
1/3
Cumulative compensation
240,000
Less: Cumulative compensation in previous
year
Compensation expense
240,000
CASE NO. 1
SUMMARY OF ANSWERS:
1. B
2. B
3. B
CASE NO. 2
SUMMARY OF ANSWERS:
1. B
2. B
3. B
PROBLEM 33-11 Cancellations and settlements
Employees entitled for the benefit
Multiply by: Fair value
Total value of the compensation
380
Chapter 33 – Share-based Payment
Multiply by: Ratio
1/3
Cumulative compensation
506,000
Less: Cumulative compensation in previous year
Compensation expense
1
1,584,00
0
0
506,000
506,000
1,078,00
0
Case No. 1
Share options outstanding
1,440,000
Cash
1,440,000
Share options outstanding
144,000
(506,000+1,078,000-1,440,000)
Share Premium-unexercised options
144,000
2022
Salaries expense
1,078,000
Add: Additional salaries expense
-
Total salaries expense
1,078,000
Case No. 2
Share options outstanding
1,440,000
Salaries expense
(35-30) x 24 x 2,000
240,000
Cash (35 x 24 x 2,000)
1,680,000
Share options outstanding
144,000
(506,000+1,078,000-1,440,000)
Share Premium-unexercised options
144,000
2022
Salaries expense
1,078,000
Add: Additional salaries expense
240,000
Total salaries expense
1,318,000
381
Chapter 33 – Share-based Payment
Case No. 3
Share options outstanding
1,584,000
Salaries expense
(63-60) x 24 x 2,000
144,000
Retained earnings
1,296,000
Cash (63 x 24 x 2,000)
3,024,000
2022
Salaries expense
1,078,000
Add: Additional salaries expense
144,000
Total salaries expense
1,222,000
CASE NO. 1
SUMMARY OF ANSWERS:
1. C
2. D
3. A
CASE NO. 2
SUMMARY OF ANSWERS:
1. C
2. C
3. A
CASE NO. 1
SUMMARY OF ANSWERS:
1. C
2. B
3. D
PROBLEM 33-12 Intrinsic Value
2021
2022
2023
33
32
32
Number of stock options per employee
1,000
1,000
1,000
Total stock options
33,000
32,000
32,000
10
15
20
330,000
480,000
640,000
1/3
2/3
1
110,000
320,000
640,000
-
110,000
320,000
110,000
210,000
320,000
Employees entitled for the benefit
x Fair value
Total value of the Salaries
x ratio
Cumulative Salaries
Less cumulative Sal. prev. year
Salaries expense
382
Chapter 33 – Share-based Payment
2021
2022
2023
Fair value of options
55
60
65
Exercise Price
45
45
45
Intrinsic value
10
15
20
2
4
2021
2022
2023
No. of employees
40
40
40
employees who left
3
5
8
employees who'll leave
4
3
0
employees entitled
33
32
32
2024
2025
Current year intrinsic value
23
35
Previous year intrinsic value
20
23
Change in intrinsic value
x No. of share options exercised during the
year
3
12
18,000
14,000
54,000
168,000
3
12
x No. of share options not yet exercise
14,000
0
Total
42,000
0
Salaries expense
96,000
168,000
Change in intrinsic value:
Total
Add unexercised share options
Change in intrinsic value
SUMMARY OF ANSWERS:
1. A
2. C
3. C
4.
C
5.
B
PROBLEM 33-13 Cash alternative
SARs unexercised
2021
2022
2023
2024
2025
100
100
100
100
100
383
Chapter 33 – Share-based Payment
x employees entitled
204
195
141
71
-
Total SARs
20,400
19,500
14,100
7,100
-
x fair value
27
33
36
38
-
Total fair value
550,80
0
643,50
0
507,60
0
269,800
-
1/3
2/3
1
1
Cum. Salaries
183,60
0
429,00
0
507,60
0
269,800
-
less. Cum. Sal. prev.
years
-
183,60
0
429,00
0
507,600
269,800
x ratio
1
Sal. expense
Add: total SARs
exercised during the
year
183,60
0
245,40
0
78,600
(237,80
0)
(269,80
0)
-
-
168,00
0
252,000
298,200
Total Sal. exp
183,60
0
245,40
0
246,60
0
14,200
28,400
SARS EXERCISED
Number of employees
60
70
71
x SARs per employee
100
100
100
Total SARs exercised
6,000
7,000
7,100
x Intrinsic value
Total Value of SARs
exercised
SUMMARY OF ANSWERS:
1. A 2. B
3. C
28
36
42
168,000
252,000
298,200
4.
A
5.
A
PROBLEM 33-14 Changes of classification from cash-settled to equity-settled
SOLUTION:
2021
2022
2023
2024
SARs per employee
100
100
100
100
384
Chapter 33 – Share-based Payment
x employees entitled
100
Total SARs
10,000
x fair value
10
Total fair value
100,000
x ratio
1/4
Cum. Compensation
25,000
less. Cum. Comp. prev. years
Comp. expense
25,000
SUMMARY OF ANSWERS:
1. A
2. C
3. D
4. D
100
10,000
13.20
132,000
1/2
66,000
25,000
41,000
100
10,000
13.20
132,000
3/4
99,000
66,000
33,000
100
10,000
13.20
132,000
1
132,000
99,000
33,000
PROBLEM 33-15 Share Options – With Cash Alternative
SOLUTION:
2021
2022
2023
LIAB
No. of shares
30,000
30,000
30,000
30,000
x Fair value
33
33
33
23
Total Fair value
990,000 990,000
990,000 690,000
x Ratio
1/3
2/3
3/3
3/3
Cumulative salaries exp.
330,000 660,000
990,000 690,000
less cum. Comp prev. year
- 330,000
660,000
Salaries expense
330,000 330,000
330,000
less adjust liability to fair value
(decrease in fair value)
(25-23 x 30,000)
60,000
Salaries expense
270,000
The Salaries expense of P330,000 in 2023 is allocated between liabilities and
equity, to bring in the final third of the liability based on the fair value of the
shares as at the date of the modification.
Cumulative salaries exp.
Reclassify equity to liabilities
(30,000 x 25 x 2/3)
Rem. Equity, 12/31/2022
Adjustment
Equity, 12/31/2023 ((33-25) x 30,000 x 3/3)
2022
660,000
500,000
160,000
80,000
240,000
End of 2021:
Salaries expense 330,000
Share options outstanding
330,000
Reclassify:
Share options outstanding
500,000
Salaries payable-SARs
500,000
385
Chapter 33 – Share-based Payment
End of 2018
Salaries expense 330,000
Share options outstanding
(33-25/33 x 330,000) 80,000
Salaries payable-SARs (25/33 x 330,000)
250,000
Salaries payable-SARs
60,000
Salaries expense
60,000
SUMMARY OF ANSWERS:
1. A 2. A
3. B
4.
B
5.
386
B
6.
C
Chapter 34 – Book Value and Earnings Per Share
CHAPTER 34: BOOK VALUE AND EARNINGS PER
SHARE
PROBLEM 34-1 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 ( 1,000,000 / 50 par)
Less: Treasury shares
Ordinary shares outstanding
200,000
20,000
20,000
200,000
PROBLEM 34-2 Two Classes of Shares - Preference and Ordinary Shares
Total
Preference shares:
Shares par value
Preference share capital issued
12,500
5,000,000
Add: Subscribed preference shares
Total
12,500
5,000,000
Less: Treasury shares at par
Shares outstanding and total par value
12,500
5,000,000
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
3,000,000
3,000,000
3,000,000
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
7,000,000
Preference
shares
5,000,000
(1,600,000)
5,400,000
1,600,000
387
Ordinary
shares
3,000,000
5,400,000
Chapter 34 – Book Value and Earnings Per Share
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
6,600,000
12,500
528.00
8,400,000
75,000
112.00
Excess
over par
7,000,000
Preference
shares
Ordinary
shares
(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 [( 420400) x 12,500]
Balance to ordinary shares
Total shareholders’ equity
Divide by: Outstanding shares
Book value per share
6,850,000
12,500
548.00
5,150,000
8,150,000
75,000
108.67
Excess
over par
7,000,000
Preference
shares
5,000,000
Ordinary
shares
3,000,000
(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
6,600,000
9,600,000
75,000
128.00
Excess
over par
7,000,000
Preference
shares
5,000,000
Ordinary
shares
3,000,000
(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
5,400,000
12,500
432.00
(240,000)
5,160,000
(3,225,000)
1,935,000
240,000
3,225,000
9,825,000
12,500
786.00
4.
D
5.
388
C
6.
B
7.
1,935,000
5,175,000
75,000
69.00
D
8.
C
Chapter 34 – Book Value and Earnings Per Share
PROBLEM 34-3 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
4,000,000
4,000,000
4,000,000
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
1,040,000
1,040,000
40,000
1,000,000
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
6,970,000
Preference
shares
4,000,000
(1,280,000)
5,690,000
1,280,000
Ordinary
shares
1,000,000
5,280,000
40,000
132.00
5,690,000
6,690,000
25,000
267.60
Excess
over par
6,970,000
Preference
shares
4,000,000
Ordinary
shares
1,000,000
(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
137.00
389
5,490,000
6,490,000
25,000
259.60
Chapter 34 – 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
Excess
over par
6,970,000
Preference
shares
4,000,000
(320,000)
6,650,000
320,000
Ordinary
shares
1,000,000
4,320,000
40,000
108.00
6,650,000
7,650,000
25,000
306.00
Excess
over par
6,970,000
Preference
shares
4,000,000
Ordinary
shares
1,000,000
(320,000)
320,000
CASE NO. 4
Question No. 7 & 8
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
(80,000)
6,570,000
(5,256,000)
1,314,000
80,000
5,256,000
9,576,000
40,000
239.40
4.
B
5.
C
6.
A
7.
1,314,000
2,394,000
25,000
95.76
D
8.
D
PROBLEM 34-4 Weighted Average with Bonus Issue
Outstanding
Date
Shares
Fraction
01/01
200,000 x 120%
240,000
12/12
03/01
15,000 x 120%
18,000
10/12
07/01
(10,000)
(10,000)
6/12
10/01
4,000
4,000
3/12
Weighted average outstanding shares
(A)
390
Average
240,000
15,000
(5,000)
1,000
251,000
Chapter 34 – Book Value and Earnings Per Share
PROBLEM 34-5 Weighted Average with Share Split
Outstanding
Date
Shares
Fraction
01/01
220,000 x 4/1
880,000
12/12
03/01
12,000 x 4/1
48,000
10/12
04/01
9,000
9,000
9/12
10/01
6,000
6,000
3/12
Weighted average outstanding shares
(A)
Average
880,000
40,000
6,750
1,500
928,250
PROBLEM 34-6 Basic Earnings per Share
Question No. 1
(B)
Basic EPS = [ 3,000,000 / 40,000] = 75 per share
Question No. 2
(C)
Basic EPS = [ 3,000,000 - (10,000 x 10% x 50)]/40,000= 73.75 per share
Question No. 3
(C)
Basic EPS = [ 3,000,000 - (10,000 x 10% x 50)]/40,000= 73.75 per share
PROBLEM 34-7 Basic Loss per Share
Question No. 1
(B)
Basic LPS = [ 2,000,000 / 30,000] = 66.67 per share
Question No. 2
(C)
Basic LPS = [ 2,000,000 + (5,000 x 10% x 100)]/30,000= 68.33 per share
Question No. 3
(D)
Basic LPS = [ 2,000,000 + (60,000)]/30,000= 68.67 per share
PROBLEM 34-8 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1 (A.)
Basic EPS = 3,000,000 / 120,000 = 25 per share
Question No. 2 (D)
3,000,000 + [( 1,800,000 x 10%) x (1 – 30%)]
Diluted
=
EPS
129,000 shares *
Diluted EPS = 24.23 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
391
120,000
9,000
129,000
Chapter 34 – Book Value and Earnings Per Share
Question No. 3 (B.)
3,000,000 + [( 1,800,000 x 10% 8/12) x (1 – 30%)]
Diluted
=
EPS
126,000 shares *
Diluted EPS = 24.48 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 (D.)
Basic EPS
=
=
3,000,000
123,750*
24.24
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 (B.)
3,000,000 + [( 1,800,000 x 10% x 7/12) x (1 – 30%)]
Diluted EPS =
129,000 shares *
Diluted EPS = P23.83 per share
SUMMARY OF ANSWERS:
1. A
2. D
3. B
4.
D
5.
B
PROBLEM 34-9 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1 (A.)
Basic EPS = 4,000,000 / 200,000 = 20 per share
Question No. 2 (C.)
4,000,000 + [( 1,123,910 x 10% x 8/12) x (1 – 30%)]
Diluted EPS =
210,000 shares*
Diluted EPS = 19.30 per share
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
392
200,000
10,000
210,000
Chapter 34 – Book Value and Earnings Per Share
PROBLEM 34-10 Basic and Diluted EPS with Convertible Preference Shares
Question No. 1 (A.)
Basic EPS
Basic EPS
4,000,000 - [5,000 x 100 x 10%]
200,000 shares
= 19.75 per share
=
Question No. 2 (D.)
Diluted EPS
Diluted EPS
4,000,000
225,000 shares*
= 17.78 per share
=
*[200,000 + (5 x 5,000 x 12/12)]
Question No. 3 (C.)
Diluted EPS
Diluted EPS
4,000,000
218,750 shares
= 18.29 per share
=
*[200,000 + (5 x 5,000 x 9/12)]
Question No. 4 (C.)
Basic EPS
Basic EPS
4,000,000 – (5,000 x 100 x 10% x 9/12)]
206,250 shares
= 19.21 per share
=
*[200,000 + (5 x 5,000 x 3/12)]
Question No. 5 (D.)
Diluted EPS
Diluted EPS
4,000,000
225,000 shares
= 17.78 per share
=
*[200,000 + (5 x 5,000 x 3/12) + (5 x 5,000 x 9/12)]
SUMMARY OF ANSWERS:
1. A
2. D
3. C
4.
C
5.
D
PROBLEM 34-11 Basic and Diluted EPS with Warrants and Options
Question No. 1 (A.)
Basic EPS = 4,000,000 / 100,000 = 40 per share
Question No. 2 (C.)
Diluted EPS
Diluted EPS
4,000,000
101,200 shares *
= 39.53 per share
=
393
Chapter 34 – Book Value and Earnings 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 (B.)
Diluted EPS
Diluted EPS
4,000,000
100,900 shares *
= 39.64 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 (D.)
Diluted EPS
Diluted EPS
4,000,000
104,667 shares *
= 38.22 per share
=
Weighted average of actual beginning ordinary shares
Add: Weighted average number of shares from issuance of
share options (9,000 x 4/12)
Total weighted average of actual ordinary shares issued
Add: Weighted average of incremental shares
from assumed exercise of options (2,500 x 8/12)
Total weighted average outstanding ordinary shares
Option shares
Multiply by: Total exercise price (120+10)
Proceeds from assumed exercise of options
Divided by: Market price at exercise date
Assumed treasury shares
Option shares
Less: Assumed treasury shares
Incremental shares
100,000
3,000
103,000
1,667
104,667
9,000
130
1,170,000
180
6,500
9,000
6,500
2,500
394
Chapter 34 – Book Value and Earnings Per Share
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
D
PROBLEM 34-12 Multiple Potential Dilutive Securities
Question No. 1
Basic EPS
Basic EPS
(A)
2,360,000 – (60,000 x 100 x 6%)
=
200,000
= 10 per share
Question No. 2
1) Check for initial test of dilution
a. Options
Dilutive. The exercise price ( 50) is less than the average market price
( 100).
b.
Convertible preference shares
Probably dilutive. The incremental EPS ( 1.2) is less than the basic
EPS ( 10).
( 6,000,000 x 6%)
Incremental EPS
=
(60,000 x 5)
Incremental EPS = 1.2 per share
c.
Convertible bonds
Probably dilutive. The incremental EPS ( .84) is less than the basic
EPS ( 10).
( 2,000,000 x 12%) x (1-30%)
Incremental EPS
=
( 2,000,000/P1,000) x 100
Incremental EPS = .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 .84 per share)
3rd Convertible preference share (incremental EPS of 1.2 per share)
3) Include potentially dilutive convertible securities one by one. Every time an
item is included, calculate new earnings per share or new loss per share
amount as follows:
Ordinary
Profit
shares
EPS
Basic
EPS
from
continuing *2,000,000
200,000
10
operations
Options
0
10,000
Total
2,000,000
210,000 9.52
Convertible Bonds payable
168,000
200,000
Total
2,168,000
410,000 5.29
Convertible Preference share
360,000
300,000
395
Chapter 34 – Book Value and Earnings Per Share
Total
2,528,000
710,000
3.56
*Net Income less preference dividends [( 2,360,000 – (60,000 x P100 x
12%)]
Answer: The final diluted EPS would be 3.56 per share.
Question No. 3
Basic EPS
Basic EPS
Question No. 4
Diluted EPS
Diluted EPS
(D)
(B)
500,000
=
200,000
= 2.5 per share
(C)
P500,000
=
710,000
= .70 per share
SUMMARY OF ANSWERS:
1. A
2. D
3. B
4.
C
PROBLEM 34-13 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
150
22
128
=
22
Adjustment factor (150/128)
1.17
Question No. 1
(D)
2020:
Weighted average outstanding shares (40,000 x 1.17 x 12/12)
Basic EPS ( 562,500 /46,800)
46,800
12.02 / share
Question No. 2
(B)
2021:
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 ( 800,000/49,200)
49,200
16.26 / share
Question No. 3
(A)
2022:
Weighted average outstanding shares [(40,000 + 10,000) x 12/12]
Basic EPS ( 1,000,000 /50,000)
50,000
20 per share
396
Chapter 34 – Book Value and Earnings Per Share
PROBLEM 34-14 Written Put Options
Incremental shares
=
(C)
( 350 – 280) x 10,000
280
=
2,500 shares
PROBLEM 34-15 Comprehensive Problem
Item
Unadjusted
1)
2)
3)
4)
5)
6)
7)
8)
9)
Adjusted
Net Income
2020
2021
**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
12/31/2021
1,800,000
(30,000)
(20,000)
1,750,000
* (P5 EPS x 1,000,000 / 10 par)
** (1,800,000 – 500,000 2020 net income)
*** ( 48,000 / 12 x 7 months)
Question No. 1
(D)
Refer to table above. Adjusted Net Income in 2021 is 422,000.
Question No. 2
Refer to table above.
(C)
Question No. 3
(C)
EPS 2021 ( 422,000 / 100,000 shares) = 4.22
Question No. 4
(B)
Ordinary share capital, 10 par
Share premium
Retained earnings, 12/31/2021 (as adjusted)
Total shareholders' equity
1,000,000
500,000
1,750,000
3,250,000
Question No. 5
(B)
BVPS ( 3,250,000 / 100,000) = 32.50
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4.
B
5.
397
B
Chapter 34 – Book Value and Earnings Per Share
PROBLEM 34-16 Comprehensive Problem
A
B
C
D
E
F
G
2021
Unadjusted net income
6,500,000
Div pable under, WC over
Purch under, NI over
(1,000,000)
EI under, NI under
1,500,000
Ins exp over, NI under
(240K/12 x 3)
60,000
Gain on sale under, NI under
Cash under, WC under
Exp under, NI over
(1,000,000)
Adjusted Net Income
6,060,000
1. D
No. of stock options
Multiply by: Employee Entitled
Total Stock Options
Multiply by: Fair value
Total value of compensation
Multiply by: Ratio
Cum. Compensation
Less: Cumulative Comp. prev. years
Compensation expense
2022
7,000,000
Effect WC
12/31/2022
(60,000)
100,000
(1,700,000)
4,840,000
2. A
2021
200
500
100,000
30
3,000,000
1/3
1,000,000
1,000,000
(100,000)
2022
300
450
135,000
30
4,050,000
2/3
2,700,000
1,000,000
1,700,000
Question No. 3
(A)
Net income – 2021
Net income – 2022
Retained earnings – 12/31/2022
Question No. 5
150,000
1,000,000
(1,500,000)
50,000
4. D
(500-50)
6,060,000
4,840,000
10,900,000
(B)
2022
Jan. 1
Apr. 1
Weighted average
Basic EPS (4,840,000 / 115,000)
SUMMARY OF ANSWERS:
1. D
2. A
3. A
4.
Incr (dec)
100,000
20,000
42.09
D
5.
398
B
Mos
out/12
1
3/4
Average
100,000
15,000
115,000
Chapter 35 – Statement of Financial Position and Comprehensive Income
CHAPTER 36: STATEMENT OF FINANCIAL POSITION
AND COMPREHENSIVE INCOME
PROBLEM 36-1 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 P1,600,000
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)
800,000
3,000,000
2,400,000
480,000
600,000
1,30,000
8,580,000
1,200,000
2,000,000
30,000
1,600,000
(400,000)
1,840,000
6,540,000
PROBLEM 36-2 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
399
Chapter 35 – Statement of Financial Position and Comprehensive Income
PROBLEM 36-3 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 36-4 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)
400
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 35 – Statement of Financial Position and Comprehensive Income
PROBLEM 36-5 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 36-6: 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 36-7 (Distribution costs and general and administrative
expenses)
Question No. 1
Advertising
Delivery expense
Rent for office space (500,000 X 1/2)
Sales commissions
401
500,000
300,000
250,000
1,075,000
Chapter 35 – Statement of Financial Position and Comprehensive Income
Depreciation on delivery truck
Total distribution costs
(B)
14,000
2,139,000
Question No. 2
Auditing and Accounting fees
Officers’ salaries
Rent for office space (500,000 X 1/2)
Insurance
Depreciation on office equipment
Total general and administrative expenses (D)
300,000
625,000
250,000
200,000
15,000
1,390,000
PROBLEM 36-8 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
402
265,000
1,390,000
408,000
982,000
100,000
1,082,000
550,000
1,632,000
Chapter 35 – Statement of Financial Position and Comprehensive Income
PROBLEM 36-9
1.
2.
3.
4.
5.
10.
4.
6.
7.
8.
9.
10.
COMPREHENSIVE PROBLEMS
Current
Asset
44,300
(10,000)
Unadjusted balance
Notes receivable – maturity
date July 1, 2021
Land
FVTOCI
Inventory
Treasury shares
Prepaid insurance
Accumulated depreciation –
Building
Accumulated depreciation –
Equipment
Allowance for bad debts
Adjusted balance
(12,000)
4,600
30,500
2,900
(700)
59,600
1. (B)
Current
Liabilities
66,600
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. B
2. A
3. A
4.
(40,000)
4,100
4,000
34,700
3. (A)
B
5.
403
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. (A)
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 35 – Statement of Financial Position and Comprehensive Income
PROBLEM 36-10
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)
Continuation…
Advance
s from
custome
rs
Unadjuste
d
balances
1
2
3
4
5
6
7
8
5
9
10
11
Adjusted
5
balances
*000
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
Account
s
payable
320
Interes
t
payabl
e
4
14
20
(5)
60
413
2. (B)
180
180
Current Assets:
Cash in bank
Bonds
payable
1,924,14
4
Discou
nt
-
Amort
ization
-
75,856
1,936,55
8
63.442
63.442
12.414
12,414
101,000
404
Chapter 35 – Statement of Financial Position and Comprehensive Income
Inventory
Accounts Receivable
1,849,000
2,505,000
Noncurrent assets:
PPE
Less: Accumulated Depreciation
Total assets
1,480,000
508,500
Current liabilities:
Advances from customers
Accounts payable
Interest payable
5,000
413,000
180,000
Noncurrent liabilities:
Bonds payable
Discount on bonds payable
Total liabilities
SUMMARY OF ANSWERS:
1. B 2. B
3. A
2,000,000
63,442
4.
B
5.
B
6.
4,455,000
3. (A)
971,500
5,426,500
4. (B)
598,000
5. (B)
1,936,558
2,534,558
6. (C)
C
PROBLEM 36-11
1. EI over, COS under
2020
2021
2. Salaries expense under
2020
2021
3. Sales overstated
2020
2021
4. Expense overstated
2020
2021
5. Purch. Over, COS over
2020
2021
6. Sales under
2020
2021
7. Bad debt under
Sales
385,000
2020
COS
EI
157,600
98,500
6,200
(6,200)
OPEX
69,300
14,600
(1,700)
(180)
(3,200)
2,500
405
Chapter 35 – Statement of Financial Position and Comprehensive Income
2020 (32.4+2.5) x 2%
2021 (66.1+4) x 2%-698
8. Dep. Expense under
2020
2021
Adjusted bal.
1. EI over, COS under
2020
2021
2. Salaries expense under
2020
2021
3. Sales overstated
2020
2021
4. Expense overstated
2020
2021
5. Purch. Over, COS over
2020
2021
6. Sales under
2020
2021
7. Bad debt under
2020 (32.4+2.5) x 2%
2021 (66.1+4) x 2%-698
8. Dep. Expense under
2020
2021
Adjusted bal.
698
14,500
385,800
Sales
420,000
160,600
92,300
2021
COS
EI
203,800
164,900
(6,200)
8,500
(8,500)
98,918
OPEX
76,700
(14,600)
17,300
1,700
(800)
180
(200)
3,200
(4,600)
(2,500)
4,000
704
422,400
Question No. 6
(A)
Sales
Less Cost of sales
Gross Profit
Less Operating expenses
Add Other income
Net profit
Add: Retained earnings, beginning
204,700
156,400
385,800
160,600
225,200
98,918
2,100
128,382
23,400
406
14,500
94,584
Chapter 35 – Statement of Financial Position and Comprehensive Income
Retained earnings, December 31, 2020)
151,782
Question No. 7
(C)
Cost
Less Accumulated depreciation (14,500 x 2)
Book value of machinery, December 31, 2021
145,000
29,000
116,000
Question No. 9
(B)
Accounts receivable, 2020 (32,400+2,500)
Less: Allowance for bad debts (32,400+2,500) * 2%
Net realizable value
Question No. 10
(B)
Sales 2021
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 36-12
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)
407
24,010
23,000
1,010
4,191,600
19,000
24,900
Chapter 35 – Statement of Financial Position and Comprehensive Income
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)
(2,056,500)
(522,100)
(923,400)
(72,000)
(1,010)
(49,500)
(57,000)
553,990
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
-
Equity:
Ordinary shares
300,000
408
506,150
4. (B)
693,490
1,199,640
367,400
6. (C)
367,400
Chapter 35 – Statement of Financial Position and Comprehensive Income
Retained earnings (553,990 – 1,750 deficit –
20,000)
Total liabilities and shareholders’ equity
SUMMARY OF ANSWERS:
1. A 2. B
3. A
4.
B
5.
C
6.
C
7.
PROBLEM 36-13
Question No. 1
(B)
Cash (225K-10K-5K-100K+25K)
135,000
Accounts receivable (345,700+5K-20K+100K)
430,700
Inventories
560,000
Total current asset
Question No. 2
1,125,700
(B)
Total current asset
1,125,700
Cash restricted for building
100,000
Notes receivable-noncurent
20,000
Financial asset at FVTOCI
47,000
Land
450,000
Building
1,750,000
Machinery and Equipment
1,964,000
Accumulated Depreciation
(420,000)
Goodwill
37,000
Deferred Tax Asset
20,000
Total noncurrent asset
3,968,000
Total Assets
5,093,700
Question No. 3
(D)
Accounts payable (133,800-10K-3K-40K)
80,800
Bank overdraft
25,000
Notes payable-12%
100,000
Interest payable (100K x 12% x 3/12)
Notes payable (500K-400K)
3,000
100,000
409
7. (A)
832,240
1,199,640
532,240
A
Chapter 35 – Statement of Financial Position and Comprehensive Income
Notes payable-10% due annually (400K/4)
100,000
Lawsuit liability
80,000
Income tax payable (61,200-40,000)
21,200
Current liability
510,000
Question No. 4
(A)
Mortgage payable
900,000
Notes payable (400,000-100,000)
300,000
Deferred tax liability
48,000
Noncurrent liability
1,248,000
Question No. 5
(B)
Share capital (50 x 40,000)
2,000,000
Share Premium (2,231,000-2M)
231,000
Retained earnings (1,075,400 +40,000)
1,115,400
Unrealized loss (51,300-47,000)
(4,300)
Treasury shares (200 x 32)
(6,400)
Total shareholders' equity
3,335,700
SUMMARY OF ANSWERS:
1. B 2. B
3. D
4.
A
5.
B
PROBLEM 36-14
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)
410
411,500
(7,000)
13,600
2,500
420,600
Chapter 35 – Statement of Financial Position and Comprehensive Income
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
400
13,200
13,600
Non-current asset held for sale:
Fair value less cost to sell
Carrying value date of classification (4,000 – 400)
Initial carrying amount - LOWER
4,200
3,600
3,600
Question No. 3
Sales
Less: Cost of sales
Gross profit
Less: Distribution cost
Administrative expenses
Interest [(700 + (10,000 x 10% x 6/12*)]
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
(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
540,000
420,600
119,400
(21,500)
(30,900)
(1,200)
(5,400)
35,000
30,000
42,200
50,700
3,600
2,000
5,000
7,000
96,500
5. (D)
411
Chapter 35 – Statement of Financial Position and Comprehensive Income
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
6. (C)
97,300
193,800
74,500
7. (C)
8. (D)
19,900
94,400
50,000
20,000
7,000
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
**Adjustment factor.
Value of one right
=
Value of one right
=
Fair value per share – right on minus exercise price
Number of rights to purchase one share plus 1
4+1
=
412
Chapter 35 – Statement of Financial Position and Comprehensive Income
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.
.16
D
A
PROBLEM 36-15
Question No. 1
Inventories at 30 September 2020
Add: Purchases
Less: Inventories at 30 September 2021
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
(B)
31,800
344,000
27,300
46,485
820
880
396,685
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, 2020
Valuation – October 1, 2020
Revaluation (gain)/loss
Valuation – October 1, 2020
413
Property A
372,000
(449,500)
(77,500)
Property B
1,080,000
(600,000)
480,000
449,500
600,000
Chapter 35 – Statement of Financial Position and Comprehensive Income
Less: Depreciation (Property A: 31 years;
Property B: 30 years)
Carrying amount – October 1, 2021
(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 (D)
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
8,400
25,200
33,600
Operating Lease
Total Payments [(18,000 x 7 years) + (36,000 x 8 years)]
Divided by:
Operating lease expense per year
414,000
15 years
27,600
Question No. 4
Revenue
Less: Cost of sales
Gross profit
Less: Administrative expenses (see No. 2)
Other operating costs (see No. 3)
Profit before tax
Less: Tax
Profit after tax
(A)
1,057,000
396,685
660,315
274,700
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
Current liabilities:
Trade and other payables
1,600,940
6. (D)
199,800
414
100,400
5. (D)
1,600,940
1,701,340
Chapter 35 – Statement of Financial Position and Comprehensive Income
Income tax payable
Provisions
56,000
8,400
Non-current liabilities:
Lease liability (27,600 – 18,000)
Provision
Total liabilities
9,600
25,200
Equity:
Ordinary share capital
Revaluation surplus
Retained earnings
Total liabilities and shareholders’ equity
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
SUMMARY OF ANSWERS:
1. B 2. C
3. D
4.
A
5.
D
264,200
7. (A)
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
PROBLEM 36-16
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, 2020 (48,000 – 16,000)
Add: Revaluation surplus (36,000 – 32,000)
Revalued amount – April 1, 2020
Less: Amortization (36,000 / remaining life 8 years)
Carrying amount – March 31, 2021
415
298,700
4,500
5,000
2,800
311,000
32,000
4,000
36,000
(4,500)
311,000
Chapter 35 – Statement of Financial Position and Comprehensive Income
Leased Liability:
Amortization Table:
Principal
Date
Payment
April 1, 2019
April 1, 2019
2,000
March 31, 2020
6,000
March 31, 2021
6,000
Interest
Expense
Amortization
2,300
1,930
2,000
3,700
4,070
Present
value
25,000
23,000
19,300
15,230
Leased Plant:
Fair value – April 1, 2019
Less: Amortization (25,000 / 5 years)
Carrying amount – March 31, 2021
25,000
5,000
20,000
Deferred Tax:
Deferred tax liability – March 31, 2021 (12,000 x 25%)
Deferred tax liability – April 1, 2020
Decrease in deferred tax liability
3,000
3,200
200
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)
350,000
311,000
39,000
16,100
29,900
2,600
(9,600)
1,800
(7,800)
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
416
31,500
20,000
11,200
52,100
62,700
114,800
Chapter 35 – Statement of Financial Position and Comprehensive Income
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
32,770
18,230
51,000
54,000
9,500
3,500
(3,200)
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
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)).
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)
417
7,800
99,000
Chapter 35 – Statement of Financial Position and Comprehensive Income
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
5+1
=
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.
1.20
.075
B
6.
B
PROBLEM 36-17 Ratios
Debt
Equity
Debt to Equity
(140%) or 1.40
(100%) or 1.00
(240%) or 1.40
200,000
Total Assets
Question No. 1
Total Asset
Less: Property, plant, & equipment
Current Asset
Divided by: Current ratio
Current Liabilities
Less; Income tax payable – current
Accounts payable
(B)
Question No. 2
Total SHE
Less: Ordinary Shares
Retained Earnings
480,000
252,000
228,000
1.9
120,000
40,000
80,000
140,000
(A)
418
Chapter 35 – Statement of Financial Position and Comprehensive Income
Question No. 3
Inventory turnover based on sales
Less: Inventory turnover based on cost of goods
Inventory turnover based on gross margin
15x
10x
5x
Gross margin
Divided by: Inventory turnover based on gross
margin
Inventory
(B)
500,000
5x
100,000
Question No. 4
Equity Multiplier = Total Assets ÷ Total SHE or 1 ÷ Equity Ratio
= 2.4x
(A)
Question No. 5
(B)
Question No. 6
(C)
SUMMARY OF ANSWERS:
1. B 2. A
3. B
4.
A
5.
419
B
6.
C
Chapter 37 – Statement of Cash Flows
CHAPTER 37: STATEMENT OF CASH FLOWS
PROBLEM 37-1 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
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**
14) Purchase of building
15) Acquisition of a land under a finance lease
16) Collection of nontrade note receivable (principal amount)
17) Loan to another firm
18) Declaration of cash dividend
19) Retirement of common stock
20) Income taxes paid
21) Issuance of short-term note payable to a supplier
22) Sale of a copyright
23) Purchase of a treasury share of another corporation
24) Payment of cash dividends
25) Receipt of dividends
26) 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 result in
a loss of control shall be classified as cash flows from financing activities.
339
Chapter 37 – Statement of Cash Flows
PROBLEM 37-2 Indirect Method - Operating Activities
Net income
Decrease in accounts receivable
Increase in accounts payable
Depreciation expense
Amortization expense
Net cash provided by operating activities
(D)
334,000
48,000
22,000
10,000
34,000
448,000
PROBLEM 37-3 Indirect Method - Operating Activities
Net income
Decrease in accounts receivable
Decrease in prepaid expenses
Increase in accumulated depreciation-depreciation expense
Decrease in accounts payable
Net cash provided by operating activities
(D)
292,000
40,000
12,000
64,000
(16,000)
392,000
PROBLEM 37-4 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 37-5 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 37-6
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 37 – 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.
COMPREHENSIVE PROBLEMS
PROBLEM 37-7
Question No. 1
(B)
Accounts receivable
Beg. balance – AR
Sales on account
125,0000
1,000,000
135,000
-
-
990,000
-
Recoveries
Balance end - AR
Sales
returns
and
allowance*
Sales discounts
Collections (squeeze)
Write-off
Total
1,125,000
1,125,000
Question No. 2
(C)
Accounts Payable Trade
Payments (squeezed)
Purchase returns and
allow.
Purchase discounts
Balance end – AP
525,000
0
190,000
485,000
Total
675,000
Beg. balance – AP
Purchases
0
150,000
Merchandise Inventory
Beg. Balance
Net Purchases (squeeze)
175,000
485,000
160,000
500,000
Total
660,000
341
Balance end
Cost of Sales
Chapter 37 – Statement of Cash Flows
Question No. 3
(D)
Deferred income taxes
Payments (squeezed)
190,000
Balance end
85,000
Total
275,000
175,000
100,000
Beg. balance
Income tax expense
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 37 – Statement of Cash Flows
PROBLEM 37-8
Question No. 1
Net Income
Increase in trading sec
Increase in AR (4M-3M)
Decrease in invty (7.5M-5.2M)
Amortization of patent (1.7M-1M)
Depreciation expense
Loss on sale
Increase in AP (4.8M-4.5M)
Increase in DTL (700K-500K)
Net share in the profit of associate
(3M x 20%)
Cash dividends from associate
(1M x 20%)
Net cash used in operating activities
Bal. end
AD-sold
(1M-600K)
6,000,000
(2,500,000)
(1,000,000)
1,800,000
700,000
900,000
100,000
300,000
200,000
(600,000)
200,000
6,100,000
Accumulated Depreciation
3,700,000
3,200,000 Beg.
900,000 Depreciation expense
400,000
4,100,000
4,100,000
Net SP
less: Carrying amount
Loss on sale
500,000
600,000
(100,000)
Question No. 2
Proceeds from sale of equipment
Cash paid for the purchase of equipment
Net cash used in investing activities
500,000
(2,000,000)
(1,500,000)
Question No. 3
Cash paid-NP-bank
(3.5M-2m)
Cash received issuance of C/S
Inc. in CS (13M-10M)
3,000,000
Inc. in APIC (1.5M-1M)
500,000
Cash paid acquisition of treasury shares
Cash dividends paid
Net cash used in Financing activities
SUMMARY OF ANSWERS:
1. B
2. B
3. C
343
(1,500,000)
3,500,000
(500,000)
(5,000,000)
(3,500,000)
Chapter 37 – Statement of Cash Flows
PROBLEM 37-9
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
344
280,000
220,000
Chapter 37 – Statement of Cash Flows
Amortization table:
Interest
Date
Collection
01/01/2020
12/31/2020
480,000
12/31/2021
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 37-10
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
345
Chapter 37 – 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
2021 Investment Income
Share in the Net Income
Add: Amortization of overvalued machinery
Net investment income - 2021
Investment in Associate
346
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
2020
40,000
2021
(240,000)
10
(24,000)
1
(24,000)
(24,000)
1
(24,000)
2020
4,000,000
1,000,000
2020
4,000,000
20%
800,000
1,000,000
20%
200,000
2021
5,000,000
1,400,000
2021
5,000,000
20%
1,000,000
1,400,000
20%
280,000
1,000,000
24,000
1,024,000
Chapter 37 – 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 37-11
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
347
Chapter 37 – 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
150,000
100,000
(12,708)
(90,000)
(200,000)
500,000
(50,000)
200,000
1,372,292
Amortization table:
Interest
Date
Collection
01/01/2021
12/31/2021
100,000
12/31/2022
100,000
Present
value
939,230
951,938
966,170
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
2020 Investment Income
348
25%
3,500,000
2,500,000
1,000,000
(50,000)
300,000
1,250,000
2020
50,000
2021
(300,000)
10
(30,000)
1
(30,000)
(30,000)
1
(30,000)
2020
2,000,000
800,000
2020
2,000,000
25%
500,000
800,000
25%
200,000
2021
2,400,000
900,000
2021
2,400,000
25%
600,000
900,000
25%
225,000
Chapter 37 – Statement of Cash Flows
Share in the Net Income
Add: Amortization of overvalued machinery
Less: Undervaluation of inventory
Net investment income - 2020
500,000
30,000
50,000
480,000
Investment in Associate
Cost of investment
Add: Net investment income
Less: Dividends received
Balance end, 12/31/2020
3,500,000
480,000
200,000
3,780,000
2021 Investment Income
Share in the Net Income
Add: Amortization of overvalued machinery
Net investment income - 2021
600,000
30,000
630,000
Investment in Associate
Beginning balance, 01/01/2021
Add: Net investment income
Less: Dividends received
Balance end, 12/31/2021
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
3,000,00
3,200,00
0
0 Beg. Balance
Bal. end
Accumulated
depreciation of asset sold
400,000
3,400,00
0
200,000
3,400,00
0
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Loss on sale
Depreciation expense
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
349
500,000
(150,000)
(939,230)
(600,000)
350,000
(1,189,230)
Chapter 37 – Statement of Cash Flows
Present Value of Periodic Payment (100,000 x 3.4869)
Add: Present Value of Bargain Purchase option(30,000 x 0.683)
Present Value of Minimum lease payments
Amortization table:
Interest
Date
Payment
12/31/2021
12/31/2021
100,000
12/31/2022
100,000
Interest
Expense
Amortization
26,918
100,000
73,082
348,690
20,490
369,180
Present
value
369,180
269,180
196,098
Question No. 5
(D)
Payment of principal finance lease liability
Dividends paid
Cash receipts-issuance of Ordinary Shares
Net cash provided by (or used in) Financing activities
(100,000)
(350,000)
720,000
270,000
Share Capital
Beginning balance
Issuance for cash
Issuance thru SDP
Balance end
10,000,000
600,000
1,910,000
12,510,000
Share Premium
Beginning balance
Issuance for cash
Balance end
1,000,000
120,000
1,120,000
Retained Earnings
Beginning balance
Add: Net income
Less: Dividends declared-cash
Less: Share dividend
Balance end
3,740,000
980,000
350,000
1,910,000
2,460,000
SUMMARY OF ANSWERS:
1. D 2. B
3. A
4.
B
5.
D
PROBLEM 37-12
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)
350
406M
3M
2M
(200M)
(3M)
(70M)
Chapter 37 – Statement of Cash Flows
Payment of interest (4M + 25M – 8M)
Payment of tax (14M + 8M + 36M – 12M – 11M)
Net cash provided from operating activities
(C)
(21M)
(35M)
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
(A)
(60M)
75M
(9M)
(22M)
(16M)
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 37-13
Question No. 1
Overdraft – end
Add: Bank, beginning
Net cash outflow
(A)
351
110
120
(230)
Chapter 37 – Statement of Cash Flows
Question No. 2
Profit for the year
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)
135
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)
Balance beginning
Acquisition
Revaluation
Total
PPE, net
410
305
80
795
Balance beginning
Acquisition
Revaluation
Total
Intangible asset, net
200
300
125
25
325
325
680
115
795
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
352
300
100
(55)
345
Beg. Balance
Net income
Chapter 37 – Statement of Cash Flows
PROBLEM 37-14
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
353
Chapter 37 – Statement of Cash Flows
Beg. Balance
Net purchases
Merchandise inventory
2,000,000
2,200,000
2,200,000
2,000,000
4,200,000
4,200,000
Bal. end
Cost of goods sold
Bal. end
Payment
Accounts payable
4,800,000 4,500,000
1,900,000 2,200,000
6,700,000 6,700,000
Beg. Balance
Net purchases
Amortization table:
Interest
Date
Collection
01/01/2020
12/31/2020
320,000
12/31/2021
320,000
12/31/2022
320,000
12/31/2020
320,000
Beg. Balance
Acquisition cost
Present value of MLP
Interest
Income
Discount
Amortization
374,637
380,100
386,111
392,816
54,637
60,100
66,079
72,816
Present
value
3,746,368
3,801,005
3,861,105
3,927,184
4,000,000
Property, Plant and Equipment
9,000,000
480,000 Cost of equipment sold
1,000,000
9,520,000 bal. end
10,000,000 10,000,000
Accumulated depreciation
Bal. end
3,900,000 3,200,000 Beg. Balance
Accumulated
depreciation of asset sold
200,000
900,000 Depreciation expense
4,100,000 4,100,000
Net Selling Price
Less: Carrying amount
Cost
Less: Accumulated Depreciation
Gain on sale
500,000
480,000
200,000
280,000
220,000
Ordinary shares
Beginning balance
Issuance for cash
Balance end
10,000,000
1,000,000
11,000,000
Share Premium
Beginning balance
Issuance for cash
1,000,000
200,000
354
Chapter 37 – Statement of Cash Flows
Balance end
1,20,000
Retained Earnings
Beginning balance
Add: Net income
Less: Dividends declared-cash
Balance end
461,005
980,000
400,000
1,041,005
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
C
5.
D
PROBLEM 37-15
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
355
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 37 – 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
Ending balance
Amortization
Disposal
Consideration transferred [(58,500 + (35,000 x 1.4)]
Less: FVNAA (110,200 x 75)
Goodwill
Question No. 5
(58,800)
8,700
(88,500)
107,800
82,650
25,150
(B)
PROBLEM 37-16
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
356
12,100
3,500
15,600
834,900
560,000
(125,500)
(52,000)
56,400
79,500
(122,600)
(30,000)
Chapter 37 – 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
50,000
450,000
340,000
(150,000)
(2,022,500)
(1,332,5000
Ending balance
Disposal - Machinery
Disused factory
Depreciation
Total
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
Transfer to R/E
Total
Revaluation surplus
350,000
250,000
120,000
220,000
470,000
470,000
Balance beginning
R/S – current period
Balance beginning
Acquisition
Revaluation
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
PROBLEM 37-17
Workings
(1) Disposals
B/d
6,700
357
(42,600)
150,000
107,400
Beg. Balance
Net income
460,000
150,000
310,000
Chapter 37 – Statement of Cash Flows
PPE (carrying amount) (W4)
IS (profit on sale)
20,300
35,700
62,700
C/d
57,100
5,600
62,700
(2) Interest paid
Cash
10,950
10,950
Preference
dividend paid
(500,000 x 3% x
6/12)
IS
7,500
3,450
10,950
(3) Tax paid
C/d
218,000
145,000
363,000
B/d
IS
203,000
160,000
363,000
(4) PPE
B/d
Additions
819,800
814,000
Depreciation
Asset held for sale
C/d
1,633,800
20,300
163,500
24,500
1,425,500
1,633,800
(5) Ordinary share capital and premium
B/d (300,000 +
150,000)
Bonus issue
(300,000 ÷ 6)
C/d (400,000 + 250,000)
650,000
650,000
450,000
50,000
150,000
650,000
(6) Retained earnings
Bonus issue (W5)
Preference dividend paid
(W2)
C/d
50,000
B/d
541,500
7,500
260,580
641,720
959,800
IS
418,300
Yca Co
(a) Statement of cash flows for the year ended 30
September 2010
358
959,800
Chapter 37 – Statement of Cash Flows
Cash flows from operating activities
Cash generated from operations (Note)
Interest paid (W2)
Income tax paid (W3)
Net cash from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and
equipment (W1)
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issue of ordinary share capital (W5)
Proceeds from issue of redeemable preference
share capital
Ordinary dividends paid (W6)
Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (37,400
– 120)
Note: Reconciliation of profit before tax to cash
generated from operations
Profit before tax (578,300 – 7,500)
Finance costs (3,450 + 7,500)
Depreciation charge
Profit on disposal of property, plant and equipment
Decrease in inventories (345,500 – 334,500)
Increase in trade and other receivables ((545,700 –
5,600) – (406,400 – 6,700))
Decrease in trade and other payables (389,800 –
356,200)
Cash generated from operations
359
546,550
(10,950)
(218,000)
317,600
(814,000)
57,100
(756,900)
150,000
500,000
(260,580)
389,420
(49,880)
12,600
(37,280)
570,800
10,950
163,500
(35,700)
11,000
(140,400)
(33,600)
546,550