CHAPTER 4

THE STATEMENT OF COMPREHENSIVE INCOME

AND THE STATEMENT OF CHANGES IN EQUITY

PROBLEMS

4-1. (LAS VEGAS COMPANY)

Capital, December 31, 2012
Total assets P1,218,000
Less total liabilities 276,000 P942,000
Capital, December 31, 2011
Total assets P 970,000
Less total liabilities 202,000 768,000
Increase in capital P174,000
Withdrawals by the owner 250,000
Additional investments by the owner (100,000)
Profit P324,000

4-2. (BELLAGIO TRADING COMPANY)

Debit changes
Increase in assets P600,000
Decrease in liabilities 250,000 P850,000
Credit changes
Increase in share capital P400,000
Increase in share premium 125,000 525,000
Increase (decrease) in retained earnings P325,000
Dividends 120,000
Profit for the year P445,000

4-3. (VENETIAN COMPANY)

Raw material purchases P430,000
Increase in raw materials inventory (15,000)
Raw materials used P415,000
Direct labor 200,000
Factory overhead 300,000
Total manufacturing costs P915,000
Increase in work in process inventory (20,000)
Cost of goods manufactured P895,000
Decrease in finished goods 35,000
Cost of goods sold for 2008 P930,000

4-4. (MGM COMPANY)

Cost of goods manufactured P2,720,000
Finished goods, beginning 380,000
Finished goods, end (418,000)
Cost of goods sold P2,682,000
Gross profit 962,000
Sales P3,644,000

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

4-5. (MANDALAY COMPANY)

Let x = cost of sales
.30x = .18 sales
x = .18/.30 sales
x = .60 sales
Therefore, 100% - 60% - 18% - 12% = 10%
Sales = 280,000/10%; Sales = 2,800,000
Cost of sales = 60% x 2,800,000 = 1,680,000
Income tax is ignored.

4-6. (EXCALIBUR PRODUCTS)

Excalibur Products
Income Statement
For the Year Ended December 31, 2012

Sales P895,000
Cost of sales
Beginning inventory P126,000
Purchases 466,250
Ending inventory (189,500) (402,750)
Gross profit P492,250
Selling expenses (161,100)
General and administrative expenses (128,880)
Profit before income tax P202,270
Income tax (60,681)
Profit P141,589

4-7. (LUXOR COMPANY)

Requirement a (nature of expense method)
Luxor Company
Statement of Comprehensive Income
For Year Ended December 31, 2012

Note Total
PROFIT OR LOSS
Net sales revenue (11) P3,359,000
Rent revenue 105,000
Total revenues P3.464.000
Operating Expenses
Net purchases (12) 1,762,000
Increase in inventory (13) (105,000)
Delivery expense 77,000
Advertising expense 170,000
Salaries and commissions (14) 502,000
Depreciation expense (15) 241,000
Supplies expense (16) 75,000
Bad debts expense 27,000
Insurance and taxes 85,000
Other operating expenses (17) 170,000
Total Operating Expenses 3,004,000

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

Profit from Operations P460,000

Interest expense ( 37,000)
Profit before income tax from continuing operations P423,000
Income tax expense 126,900
Profit from continuing operations P296,100
Discontinued operations, net of tax (18) (245,000)
Profit P 51,100
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through other
comprehensive income, net of P24,000 income tax P 56,000
Actuarial Gains Taken to Equity, net of P12,000 income
tax 28,000
Total Other Comprehensive Income P 84,000
TOTAL COMPREHENSIVE INCOME P135,100

Notes to Financial Statements (after presenting notes for basis of presentation and
summary of significant accounting policies)

Note11 – Net sales revenue

Sales P3,529,000
Less sales discounts P 49,000
Sales returns and allowances 121,000 170,000
Net sales revenue P3,359,000

Note 12 – Net purchases

Purchases P1,730,000
Add freight-in 135,000
Total P1,865,000
Less purchase discounts P41,000
Purchase returns and allowances 62,000 103,000
Net purchases P1,762,000

Note 13 – Increase in inventory

Inventory, December 31 P446,000
Inventory, January 1 341,000
Increase in inventory P105,000

Note 14 – Salaries and commissions

Sales commissions and salaries P182,000
Office salaries 320,000
Total salaries and commissions P502,000

Note 15 – Depreciation expense

Depreciation – Buildings and office equipment P145,000
Depreciation – Store equipment 96,000
Total depreciation expense P241,000

Note 16 – Supplies expense

Store supplies expense P56,000
Office supplies expense 19,000
Total supplies expense P75,000

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

Note 17 – Other operating expenses

Loss on sale of equipment P 50,000
Loss from typhoon 120,000
Total other operating expenses P170,000

Note 18 – Discontinued Operations

Revenues P 900,000
Expenses (1,050,000)
Profit (loss) before income tax P (150,000)
Income tax benefit 45,000
Profit (loss) from operations of discontinued operations P (105,000)
Loss on sale of assets, net of tax benefit of P60,000 (140,000)
Discontinued Operations P (245,000)

(function of expense method)

Luxor Company
Statement of Comprehensive Income
For Year Ended December 31, 2012
Note Total
Net sales revenue (11) P3,359,000
Cost of goods sold (12) 1,657,000
Gross profit P1,702,000
Other Operating Income
Rent Revenue 105,000
Total Income P 1,807,000
Operating Expenses
Selling Expenses (12) P581,000
General and Administrative Expenses (13) 596,000
Other Operating Expenses (14) 170,000
Total Operating Expenses P1,347,000
Profit from Operations P460,000
Interest expense ( 37,000)
Profit before income tax from continuing operations P423,000
Income tax expense 126,900
Profit from continuing operations P296,100
Discontinued operations, net of tax (18) (245,000)
Profit P 51,100
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through
other comprehensive income, net of P24,000 income
tax P 56,000
Actuarial Gains Taken to Equity, net of P12,000 income
tax 28,000
Total Other Comprehensive Income P 84,000
TOTAL COMPREHENSIVE INCOME P135,100

Notes to Financial Statements (after presenting notes for basis of presentation and summary
of significant accounting policies)

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

Note 11– Net sales revenue

Sales P3,529,000
Less sales discounts P 49,000
Sales returns and allowances 121,000 170,000
Net sales revenue P3,359,000

Note 12 – Cost of goods sold

Inventory, January 1 P341,000
Purchases P1,730,000
Add freight-in 135,000
Total P1,865,000
Less purchase discounts (41,000)
Purchase returns and allowances (62,000) 1,762,000
Cost of goods available for sale P2,103,000
Less Inventory, December 31 446,000
Cost of goods sold P1,657,000

Note 13 – Selling expenses

Sales commissions and salaries P182,000
Store supplies expense 135,000
Delivery expense 77,000
Advertising expense 170,000
Depreciation expense – store equipment 96,000
Total selling expenses P581,000
Note 14 – General and Administrative expenses
Bad debts expense P27,000
Office supplies expense 19,000
Insurance and taxes 85,000
Office salaries 320,000
Depreciation – buildings and office equipment 145,000
Total administrative expenses P596,000

Note 15 – Other operating expenses (continuing operations)

Loss on sale of equipment P 50,000
Loss from typhoon 120,000
Total other operating expenses P170,000

Note 16 – Discontinued Operations

Revenues P 900,000
Expenses (1,050,000)
Profit (loss) before income tax P (150,000)
Income tax benefit 45,000
Profit (loss) from operations of discontinued operations P (105,000)
Loss on sale of assets, net of tax benefit of P60,000 (140,000)
Discontinued Operations P (245,000)

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

Requirement b
Luxor Company
Statement of Changes in Equity
For the Year Ended December 31, 2012
Ordinary Retained
Share Reserves Earnings Total
Balances, January 1 P700,000 P660,000 P1,785,000 P3,145,000
Correction of prior year’s income due to
understated depreciation, net of
P54,000 income tax (126,000) (126,000)
Restated balances, January P700,000 P660,000 P1,659,000 P3,019,000
Issuance of ordinary shares 100,000 40,000 140,000
Comprehensive Income 84,000 51,100 135,100
Dividends declared (60,000) (60,000)
Balances, December 31 P800,000 P784,000 P1,650,100 P3,234,100

Reserves at January 1 included the share premium (P610,000) and unrealized gain on investments
carried at fair value through OCI (P50,000). The amounts may be reported in separate columns.

4-8. (TRUMP COMPANY)

a.
Revenues P5,000,000
Selling and Administrative Expenses 5,080,000
Disposal costs (75,000)
Operating Profit (Loss) before income tax P(155,000)
Income tax benefit 46,500
Operating Profit (loss) P(108,500)

Fair value less cost to sell is P830,000 (980,000 – 150,000) which is greater than the
carrying amount of P800,000.

b.
Revenues P5,000,000
Selling and Administrative Expenses 5,080,000
Disposal costs (75,000)
Operating Profit (Loss) before income tax P(155,000)
Income tax benefit 46,500
Operating Profit (loss) P(108,500)
Loss from measurement to NRV, net of income tax
benefit of P54,000 (126,000)
Discontinued Operations P(234,500)

Fair value less cost to sell is P620,000 which is P180,000 lower than the carrying amount
of P800,000, which is reported as loss from measurement to NRV.

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

4-9. (CAESARS PALACE COMPANY)

Caesars Palace Company
Statement of Changes in Equity
For the Years Ended December 31, 2012 and 2011

Share Retained
Capital Earnings Total
January 1, 2011, balances as previously reported P2,000,000 P1,500,000 P3,500,000
Prior period adjustment
2010 expense charged erroneously to Equipment,
net of income tax of P24,000 (56,000) (56,000)
January 1, 2011 balances, as restated P2,000,000 P1,444,000 P3,444,000
2011 Changes
Profit 514,000* 514,000
Dividends (200,000) (200,000)
Balances, December 31, 2011 P2,000,000 P1,758,000 P3,758,000
2012 Changes
Profit 750,000 750,000
Dividends (500,000) (500,000)
Balances, December 31, 2012 P2,000,000 P2,008,000 P4,008,000

Note: The solution above disregards the effect of income tax.

2011 Restated profit = P500,000 + depreciation erroneously recognized (20,000 x 70%).

4-10. (TUSCANY COMPANY)

Tuscany Company
Comparative Income Statements
For the Years Ended December 31, 2012 and 2011

2012 2011
Sales P3,000,000 P2,540,000
Cost of goods sold (1,420,000) (1,143,000)
Gross profit 1,580,000 1,397,000
Selling expenses (350,000) (210,000)
General and administrative expenses (260,000) (220,000)
Profit before income tax P970,000 P967,000
Income tax (291,000) (290,100)
Profit P 679,000 P 676,900

Ending inventory, 2011, as reported P 355,000

Cost of goods sold, as reported in 2011 1,140,000
Goods available for sale P1,495,000
Beginning inventory, as reported in 2011 250,000
Purchases in 2011 P1,245,000

Purchases P1,245,000
Inventory, beg (weighted average) 210,000
Inventory, end (weighted average) (312,000)
Restated Cost of sales in 2011, weighted average P1,143,000

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

Tuscany Company
Statement of Changes in Equity
For the Years Ended December 31, 2012 and 2011

Share Retained
Capital Earnings Total
January 1, 2011, balances as previously reported P1,000,000 P 600,000 P1,600,000
Cumulative effect of changing from FIFO to weighted
average method of inventory costing, net of income
tax of P12,000* (28,000) (28,000)
January 1, 2011 balances, as restated P1,000,000 P572,000 P1,572,000
2011 Changes
Profit 676,900 676,900
Dividends (400,000) (400,000)
December 31, 2011 balances P1,000,000 P848,900 P1,848,900
2012 Transactions
Profit 679,000 679,000
Balances, December 31, 2012 P1,000,000 P1,527,900 P2,527,900
* based on 30% income tax rate
Cumulative effect shown on the statement of changes in equity
Difference in beginning inventory of 2011 (250,000-210,000) P40,000
Applicable tax (30% x 40,000) 12,000
Net adjustment (deduction) from retained earnings, January 1, 2011 P28,000
The cumulative effect, however, is taken up in the books during 2012, when the change was
decided upon by the management. The following 2012 entry: is made:
Retained earnings 30,100
Income tax payable 12,900
Inventory, beginning (or cost of sales) 43,000
Thus, the retained earnings at December 31, 2012 is P879,000 - 30,100 + 679,000 = P1,527,900.

4-11. (RIVIERA COMPANY)

Riviera Company
Comparative Statement of Comprehensive Income
For Year Ended December 31, 2012 and 2011
(In million pesos)

2012 2011
Revenue P2,000 P1,800
Raw materials and consumables used (850) (745)
Employee benefit expense (100) (95)
Depreciation and amortization (40) (40)
Other expenses (2) (3)
Income from operations P1,008 P917
Finance costs (4) (5)
Profit before income tax P1,004 P912
Income tax expense (301.2) (273.6)
Profit for the year P702.8 P638.4
Other comprehensive income
Unrealized gains (losses) on investments measured at fair
value through other comprehensive income, net of
applicable tax .56 (.84)
Total comprehensive income P703.36 P637.56

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Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity

MULTIPLE CHOICE
Theory
MC1 D MC7 A MC13 B MC19 B
MC2 C MC8 A MC14 B MC20 B
MC3 D MC9 A MC15 A MC21 B
MC4 A MC10 D MC16 D MC22 D
MC5 A MC11 D MC17 B MC23 C
MC6 B MC12 B MC18 D MC24 C

Problems
MC25 D 210,000 – 50,000 = 160,000; 260,000 – 60,000 = 200,000
200,000 – 160,000 = 40,000 + 12,000 – 50,000 = 78,000 LOSS
MC26 C 225,000 + 100,000 + 10,000 + 15,000 = 350,000;
150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000
350,000 – 335,000 = 15,000 + 25,000 – 125,000 = 85,000 LOSS
MC27 A 21,000+25,000–10,000+70,000+5,000–(5,000 x 8)+15,000–50,000–1,000–
20,000=15,000
MC28 A 150,000 + 80,000 + (220,000 x ½) + 140,000 = 480,000
MC29 A 170,000 + (240,000 x ½) = 290,000
MC30 D 150,000 x 8 = 1,200,000 + 80,000 = 1,280,000
MC31 B 272,000 + 36,000 – 41,600 = 266,400 + 76,800 = 343,200
MC32 B .125/.25 = .50; 100% - 50% - 12.5% - 17.5% - 5% = 15%
750,000/15% = 5,000,000 x 50% = 2,500,000
MC33 C 5,800,000–(4,800,000+650,000–550,000)=900,000–(7.5%,x900,000)=532,500
MC34 C .15/.25=60%; 100%-60%-10% - 15% - 3% = 12%; 480,000/12% = 4.0M
MC35 B 1,080000/80% = 1,350,000/90% = 1,500,000 x 30% = 450,000
MC36 C 3,500,000/70% = 5,000,000
MC37 C 5M-3.5M=1.5M – (60% x 1.5M) = 600,000
MC38 B 3,500,000 – 500,000 = 3,000,000
MC39 D 600,000+900,000 – 1,000,000 = 500,000
MC40 B P1,550,000 – P1,100,000 = 450,000
MC41 D 450,000 + 600,000 – 250,000 = 800,000;
ending inventory before write off is P100,000 + 150,000 = 250,000
MC42 C 5,000,000 + 28,000 + 520,000 – 280,000 – 500,000 – 720,000 – 110,000 + 16,000
+ 100,000–400,000+55,000–70,000–50,000–80,000– 120,000 – 450,000 = 419,000
MC43 D 500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000
MC44 C 450,000 + 2,800,000 + 80,000 – 520,000 = 2,810,000
MC45 B Cost of sales = 20/50 = 40%
100%-40% = 60% - 20%-5% = 35% Profit before tax
2,450,000/70% = 3.5M; 3.5M/35% = 10M;10M x 40% = 4M CGS x 130%=5.2M
MC46 D 2,000,000 + 100,000 – 2,100,000 = 0
MC47 D 0 + gain of P1,000,000 on disposal – income tax of P300,000 = 700,000
MC48 C (3,500,000 – 500,000) x 70% = 2,100,000
MC49 B
MC50 A (360,000 – 320,000) x 70% = P28,000
MC51 B 400,000 – 84,000 + 40,000 – 4,000 – 280,000 = 72,000; 72,000 x 70% = 50,400
Total profit = P50,400 + (40,000 x 70%) =78,400
1,600,000 + (16,000 x 70%) – (24,000 x 70% )+ 78,400 ) – 12,000 = P1,660,800
MC52 400,000 – 84,000 + 40,000 – 4,000 – 280,000 + 40,000 = 112,000
112,000 x 70% = 78,400

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