Professional Documents
Culture Documents
Chapter 5-7
Chapter 5-7
CHAPTER 5
1. C 6. A 1. C 1. B 6. A
2. B 7. C 2. C 2. A 7. B
3. B 8. B 3. A 3. A 8. B
4. C 9. D 4. B 4. D 9. B
5. D 10. D 5. A 5. A 10. C
Cost 3,000,000
Accumulated depreciation (3,000,000 / 6 x 3) 1,500,000
Book value – January 1, 2008 1,500,000
Cost 2,640,000
Accumulated depreciation (2,640,000 / 8 x 3) 990,000
Book value – January 1, 2008 1,650,000
Inventory 600,000
Retained earnings 600,000
Only the unrecorded warranty cost of P100,000 on December 31, 2007 should be
accounted for as a prior period error. The change from straight line to accelerated
depreciation is a change in estimate and therefore should be treated currently and
prospectively.
Comprehensive income as an American term and this is the same as the concept of
recognized gains and losses. The dividend paid is a deduction from retained
earnings.
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Problem 5-18
Building 15,000,000
Accumulated depreciation (15,000,000 / 15 x 3) 3,000,000
Book value – December 31, 2007 12,000,000
Machinery 10,000,000
Accumulated depreciation (10,000,000 / 10 x 3) 3,000,000
Book value – December 31, 2007 7,000,000
Problem 5-19
Problem 5-20
Reliable Company
Statement of Retained Earnings
Year Ended December 31, 2008
Problem 5-22
Gondola Company
Statement of Retained Earnings
Year ended December 31, 2008
Angola Company
Comparative Income Statement
Years ended December 31, 2008 and 2007
2008 2007
Sales 6,000,000 4,500,000
Cost of goods sold (2,900,000) (2,300,000)
Gross income 3,100,000 2,200,000
Expenses (1,490,000) (1,800,000)
Net income 1,610,000 400,000
Angola Company
Comparative Statement of Retained Earnings
Years ended December 31, 2008 and 2007
2008 2007
Retained earnings – January 1 1,250,000 1,000,000
Net income 1,610,000 400,000
Dividends paid ( 500,000) ( 150,000)
Retained earnings – December 31 2,360,000 1,250,000
Problem 5-24
Martha Company
Statement of Changes in Equity
Year ended December 31, 2008
Share
Ordinary Preference premium RE TS
Balances – January 1 10,000,000 7,500,000 3,250,000
Issuance of preference 5,000,000 400,000
Purchase of treasury -
ordinary 320,000
Issuance of ordinary 2,500,000 3,500,000
Dividend to ordinary (2,480,000)
Reissuance of TS 50,000 (160,000)
Dividend to preference ( 450,000)
Overstatement of 2007
ending inventory ( 130,000)
Net income _____ ____ __ _____ __ ______ 2,250,000 __ ____
Balances – December 31 12,500,000 5,000,000 11,450,000 2,440,000 160,000
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Problem 5-25
Carr Company
Statement of Changes in Equity
Year ended December 31, 2008
Share
Ordinary Preference premium RE TS
Balances – January 1 5,150,000 1,800,000 3,590,000 4,000,000 270,000
Retirement of TS ( 150,000) ( 120,000) (270,000)
Property dividend ( 750,000)
Dividend to preference ( 180,000)
Error ( 325,000)
Net income ________ _ _______ _ _______ 2,600,000 _______
Balances – December 31 5,000,000 1,800,000 3,470,000 5,345,000 -___
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CHAPTER 6
1. A 1. D 1. B
2. A 2. B 2. A
3. A 3. B 3. B
4. C 4. C 4. A
5. D 5. B 5. C
6. B 6. B
7. C 7. C
8. D 8. A
9. A 9. B
10. C 10. A
Depreciation 250,000
Bonuses 600,000
Total 850,000
The casualty loss is reported in the period in which it is incurred. In this case, the loss is
incurred in the third quarter.
Advertising and bonuses are reported in the interim period when incurred.
PAS 34, paragraph 39, provides that cost incurred unevenly during a financial year
shall be anticipated or deferred for interim purposes only if it is also appropriate to
anticipate or defer such cost at the end of the financial year.
Fourth quarter 0
First quarter:
Property taxes (600,000 / 4) 150,000
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Problem 6-14
Question 1 - Answer B
Using just the annual sales data, it appears that the annual sales are increasing by
P10,000. Accordingly, the 2008 sales would be P60,000. A reasonable forecast of the
fourth quarter sales would be P60,000 divided by 4 or P15,000.
Question 2 – Answer A
Using the quarterly sales data, it appears that the fourth quarter sales are increasing
by P4,000. The best guess of the fourth quarter sales for 2008 would be P20,000 plus
P4,000 or P24,000.
Question 3 – Answer C
Using the quarterly sales data, the first quarter sales appear to increase by P2,000.
However, the actual increase in 2008 is twice as much from P10,000 to P14,000. If this
trend continues, sales for the fourth quarter of 2008 would also be twice as much.
Under this assumption, the best guess of the fourth quarter sales for 2008 would be
P20,000 plus P8,000 or P28,000.
The gain on sale of equipment is reported in the second quarter, not in the third
quarter, because the equipment is sold on June 1, 2008.
63
Problem 6-16
Chairmaine Company
Income Statement
Three-month ended March 31, 2008
Sales 25,000,000
Cost of sales (60%) 15,000,000
Gross income 10,000,000
Interest income (5,000,000 x 12% x 3/12) 150,000
Total income 10,150,000
Selling expenses ( 3,350,000)
Administrative expenses ( 3,050,000)
Income before tax 3,750,000
Income tax (35%) ( 1,312,500)
Net income 2,437,500
Chairmaine Company
Balance Sheet
March 31, 2008
ASSETS
Current assets:
Cash 1,000,000
Trade and other receivables 1,900,000
Inventory 3,500,000
Prepaid insurance 300,000 6,700,000
Noncurrent assets:
Note receivable 5,000,000
Property, plant and equipment 19,050,000 24,050,000
Total assets 30,750,000
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LIABILITIES AND EQUITY
Current liabilities:
Accounts payable 8,500,000
Income tax payable 1,312,500 9,812,500
Shareholders’ equity:
Share capital 5,000,000
Share premium 4,000,000
Retained earnings 11,937,500 20,937,500
Total liabilities and equity 30,750,000
Land 1,500,000
Buildings and equipment 18,000,000
Accumulated depreciation ( 450,000)
Net book value 19,050,000
Dunhill Company
Income Statement
Six-month ended June 30, 2008
Sales 20,000,000
Cost of sales (11,500,000)
Gross income 8,500,000
Interest revenue 250,000
Dividend revenue 500,000
Total income 9,250,000
Selling expenses ( 2,500,000)
General expenses ( 1,100,000)
Depreciation ( 700,000)
Interest expense ( 300,000)
Income before tax 4,650,000
Income tax expense ( 1,300,000)
Net income 3,350,000
Dunhill Company
Income Statement
Three-month ended June 30, 2008
Sales 12,500,000
Cost of sales ( 7,000,000)
Gross income 5,500,000
Interest revenue 250,000
Dividend revenue 200,000
Total income 5,950,000
Selling expenses ( 1,600,000)
General expenses ( 600,000)
Depreciation ( 300,000)
Interest expense ( 200,000)
Income before tax 3,250,000
Income tax expense ( 900,000)
Net income 2,350,000
Problem 6-18
CHAPTER 7
1. A 6. D 1. D 1. C 6. D
2. A 7. B 2. B 2. B 7. B
3. D 8. C 3. D 3. B 8. D
4. D 9. B 4. C 4. B 9. C
5. A 10. A 5. B 5. B 10. C
6. C
Only Bix and Dil have a revenue of 10% or more of the combined revenue. It is to be
noted that the revenue includes both sales to unaffiliated customers and
intersegment sales.
The total profit figure is the basis for identifying the reportable segments because it is
higher than the total loss figure. Accordingly, those segments with profit or loss of at
least 10% of P4,800,000 or P480,000 are reportable. Thus, V, W and X are reportable.
Segment expense does not include administrative expenses, head office expenses
and other expenses that arise at the enterprise level and relate to the enterprise as
a whole.
Segment expense does not include interest expense, unless the segment’s
operations are primarily of a financial nature.
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Problem 7-11
Question 1 - Answer A
AICPA FASB Statement No. 30, paragraph 6, provides that a major customer
disclosure is required if an enterprise derives 10% or more of its revenue from a single
customer or group of enterprises under common control.
Question 2 – Answer A
Problem 7-13
(Amounts in millions)
(Amounts in millions)
Problem 7-15
Furniture Stationery Computer Others Total
External sales 800,000 500,000 400,000 100,000 1,800,000
Intersegment sales 200,000 150,000 80,000 - 430,000
Total revenue 2,230,000
Elimination of intersegment
sales ( 430,000)
Enterprise revenue 1,800,000
Cost of sales (1,200,000)
Distribution cost ( 200,000)
Administrative expenses ( 100,000)
Segment result 150,000 75,000 60,000 15,000 300,000
Other income 60,000
Other expenses ( 50,000)
Finance cost ( 60,000)
Share of profit of associate 10,000
Income before tax 260,000
Income tax ( 90,000)
Net income 170,000
Problem 7-16
1. The information above shows that any operating segment with revenue equal to
or greater than P200,000 is a reportable segment (segments 1 and 3). Any
segment with identifiable assets greater than P150,000 is a reportable segment
(segments 1, 3, and 5). The total operating profit for all segments with operating
profit totals P300,000. As a result, any segment with an operating profit or loss
equal to or greater than an absolute amount of P30,000 is a reportable segment
(segments 1, 3, and 4). Thus, Segments 1, 3, 4 and 5 are reportable segments.
Segment 1 620,000
3 340,000
4 190,000
5 180,000
Total revenue 1,330,000
a. Nature of product
b. Nature of production process
c. Class of customer
d. Method of distributing product
e. Regulated environment
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Since Segments 6 and 7 are similar in four of the five criteria, they can be
aggregated as one reportable segment.
Problem 7-17