FINAL ASSESSMENT IN INTERMEDIATE ACCOUNTING 3

Instructions:
 There are four (4) problems in this assessment, comprised of Statement of Financial
Position, Statement of Comprehensive Income, Statement of Cash Flows, and
Correction of Errors. For the first three problems, you need to prepare the required
financial statement in good form, with accompanying notes. For the last problem,
you simply need to complete the table, analyzing the effects of the errors.
 The system for grading can be seen in the Rubrics (separate file). What we are trying
to assess here is the integration of your knowledge and skills in general; rating will not
be on a per item basis, unlike our previous exams.
 You may work with a partner.
 Final output may be in an EXCEL DOCUMENT/GOOGLE SHEETS format, NOT PDF
OR WORD. Please provide a label for the tabs, and allow Edit Access for Google
Sheets.
 You may also submit a handwritten output, but please write legibly and observe the
proper format. No deduction of points if you submitted a handwritten output.
 File name and subject line format (for those who will submit via email):
Final Assessment_IA3_surname
 Incorrect subject line will be given a deduction.
 Submission is until May 9, 2020, Saturday, 11:59 pm.
 Please see the rubrics on the following page to know how you will be rated.

PROBLEM 1. STATEMENT OF FINANCIAL POSITION

The following shows the financial statements of Cruel Summer Corporation for the year
2019.

Cruel Summer Corporation

Statement of Financial Position
As of December 31, 2019

Assets Liabilities and Capital

Current assets P 1,881,100 Current liabilities P 962,400

Other assets 5,171,400 Long-term liabilities 1,439,500
Capital 4,650,600
P7,052,500 P7,052,500

 An analysis of current assets discloses the following:

Cash (restricted in the amount of P400,000 for plant

expansion) ₱ 571,000
Investment in land 185,000
Accounts receivable less allowance of P30,000 480,000
Inventories 645,100
1,881,100
 Other assets include:

Prepaid expenses ₱ 47,400

Plant and equipment less accumulated
depreciation of P1,430,000 4,130,000
Cash surrender value of life insurance policy 84,000
Unamortized bond discount 49,500
Notes receivable (short term) 162,300
Goodwill 252,000
Land 446,200
₱ 5,171,400

Page 1 of 5
  Current liabilities include:

Accounts payable ₱ 510,000

Notes payable (due 2012) 157,400
Income tax payable 145,000
Share premium reserve 150,000
₱ 962,400
 Long-term liabilities include:

Unearned revenue ₱ 489,500

Dividends payable 200,000
8% bonds payable (due May 1, 2023) 750,000
₱ 1,439,500
 Capital includes:
Retained earnings ₱ 2,810,600
Share capital, par value P10; authorized
200,000 shares, 184,000 shares issued 1,840,000
₱ 4,650,600

The supplementary information below is also provided:

a. On May 1, 2019, the company issued 93.4, P750,000 of bonds to finance plant expansion.
The long-term bond agreement provided for the annual payment of interest every May 1.
The existing plant was pledged as security for the loan. Use straight-line method for
discount amortization. (Hint: To get the total discount, simply multiply the face value by
93.4% and subtract this from the face value. The difference is the discount to be amortized
over 5 years on a straight-line basis).

b. The bookkeeper made the following mistakes:

1. In 2017, the ending inventory was overstated by P183,000. The correct ending
inventories for 2018 and 2019 were correctly computed.
2. In 2019, accrued wages in the amount of P275,000 were omitted from the
statement of financial position and these expenses were not recognized in profit or
loss.
3. In 2019, a gain of P175,000 (net of tax) on the sale of certain plant assets was
credited directly to retained earnings.

c. You learned on January 28, 2020, prior to the issuance of financial statements that a heavy
damage was sustained because of a recent fire in one of Cruel Summer’s two plants; the
loss will not be reimbursed by insurance. The plant has a carrying amount of P1,200,000
on the date of fire. Hint: review the lesson on Adjusting and Non-Adjusting Events.

Requirement: Prepare a properly classified Statement of Financial Position with the

accompanying notes to financial statement.

Page 2 of 5
 PROBLEM 2. STATEMENT OF COMPREHENSIVE INCOME

The alphabetical list of items that may be relevant in the preparation of a statement of
comprehensive income of Paper Rings Company is provided below:

Actuarial gains on defined benefit pension plans recognized outside ₱ 1,333

profit and loss
Decrease in the inventories of finished goods and work in progress 107,900
Depreciation and amortization expense 17,000
Employee benefits expense 43,000
Exchange differences - gain on translating foreign operations financial 10,667
statements
Finance costs 18,000
Gains on property revaluation 3,367
Income tax expense 32,000
Income tax relating to components of other comprehensive income 9,334
Loss for the year from discounted operations 30,500
Other expenses 5,500
Other income 11,300
Raw materials and consumables used 92,000
Revenue 355,000
Share of other comprehensive income of associates (unrealized loss 700
on available-for-sale financial assets)
Share of profit of associates (Hint: this must be included in the income 30,100
from operations)
Unrealized gain on available-for-sale financial assets 26,667
Unrealized loss on derivatives in an effective cash flow hedge 4,000
Work performed by the entity and capitalized 15,000

Requirement: Prepare a Statement of Comprehensive Income in good form with the

accompanying notes to financial statement.

Page 3 of 5
 PROBLEM 3. STATEMENT OF CASH FLOWS

Cornelia Street Corporation has recently decided to go public and has hired you as an
independent CPA. One statement that the entity is anxious to have prepared is a statement of
cash flows. Financial statements of Cornelia Street Corporation for 2018 and 2019 are provided
below.

12/31/2019 12/31/2018
Cash P 153,000 P 72,000
Accounts receivable 135,000 81,000
Merchandise inventory 144,000 180,000
Property, plant, and equipment (net of accumulated 108,000 246,000
depreciation of P120,000 and P114,000 respectively as of
12/31/2019 and 12/31/2018 respectively)
P 540,000 P 579,000

Accounts payable P 66,000 P 36,000

Income taxes payable 132,000 147,000
Bonds payable 135,000 225,000
Share capital 81,000 81,000
Retained earnings 126,000 90,000
P 540,000 P 579,000

Income Statement
For the Year Ended December 31, 2019
Sales P 3,150,000
Cost of sales 2,682,000
Gross profit P 468,000
Selling expenses P 225,000
Administrative expenses 72,000 297,000
Income from operations P 171,000
Interest expense 27,000
Profit before taxes 144,000
Income taxes 36,000
Profit P 108,000

The following additional data were provided:

1. Dividends for the year were P72,000.
2. During the year, equipment was sold for P90,000. This equipment costs P132,000
originally and had a book value of P108,000 at the time of sale. The loss on sale
was incorrectly charged to cost of sales.
3. All depreciation expense is in the selling expense category.

Requirement: Prepare a Statement of Cash Flows in good form with the accompanying notes to
financial statement.

Page 4 of 5
 PROBLEM 4. CORRECTION OF ERRORS

Daylight Company’s December 31, year-end financial statement contained the following errors:
December 31, 2018 December 31, 2019
Ending inventory P 100,00 understated P 90,000 overstated
Depreciation expense 20,000 understated

An insurance premium P75,000 was prepaid in 2018 covering the years 2018, 2019, and 2020. The same
was charged to expense in full in 2018. In addition, on December 31, 2019, a fully depreciated machinery
was sold for P160,000 cash, but the sale was not recorded until 2020. There were no other errors during
2018, 2019, and 2020 and no corrections have been made for any of the errors. Ignore income tax
considerations.
Requirement:
Complete the following table which shows the effects of the errors on the Profit (2018), Profit (2019),
Working Capital (2019), Retained Earnings (2019), and Working Capital (2020). Write the amount or NE if
there is no effect.

Profit Profit WC RE WC
2018 2019 12/31/19 12/31/19 12/31/20
12/31/18
(100,000) ? NE ? NE
inventory understated
12/31/19
? ? 90,000 ? NE
inventory overstated
2018
depreciation ? ? NE 20,000 ?
understated
Insurance paid in 2018 for
(50,000) ? ? (25,000) NE
3 years
Sale of a fully depreciated
machinery in 2019 NE ? (160,000) ? NE
recorded in 2020
Net over statement (under
(130,000) ? ? (75,000) ?
statement)

END
_____________________________

“Walang imposible, kahit saan ka man nag-aaral o sa tingin mo ‘di ka magaling. Isipin mo lang na
lahat nagsisimula sa pangarap, pero hindi dapat magtatapos doon. Laban lang.”
–Mae Diane Azores, CPA (2019 Bar Exam topnotcher)

“…it is when things become tough when it becomes more worth it in the end. It is when tears have
already dried that it feels good. It is when the rain has stopped that the heat of the sun becomes
more nourishing. Difficulty is not tantamount to impossibility, nor does it cause struggles to last
until infinity. The struggle ends. The goal is possible. The way up may not be the gentle slope that
we have imagined it to be; it is a steep uphill climb along rugged terrain. But when we reach the
peak, the view is breathtaking.”
–Kenneth Glenn L. Manuel, CPA (2019 Bar Exam Top 6)

Keep going, future CPA! ♥

Page 5 of 5