Sol Man-Sor Espenilla

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AUDITING
2016 EDITION
SOLUTION GUIDE
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CHRISTOPHER T. ESPENILLA, CPA MBA
FACULTY – SAINT LOUIS UNIVERSITY, BAGUIO CITY
REVIEWER – REVIEW SCHOOL OF ACCOUNTANCY,
MANILA
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AUDITING (2016 EDITION) SOLUTIONS GUIDE
CTESPENILLA 1 of 155
CHAPTER 1: THE AUDIT PROCESS
PROBLEM 1: CLIENT ACCEPTANCE AND CONITINUANCE
1D 11B 2D 12C
3D
4A
5D
6B
7B 8A
9D
10D
PROBLEM 2: UNDERSTANDING THE BUSINESS AND THE INDUSTRY

1D 11C
2D 12B
3C 13B
4D 14D
5D 15D
6D 16B
7A
8D
9C
10E
PROBLEM 3: INTERNAL CONTROL
1C 11E 21B
2D 12B 22A
3C 13D 23C
4C 14C 24B
5A 15C 25C
6D 16C 26A
7C 17C
8D 18D
9D 19D
10A 20A
PROBLEM 4: RISK BASED AUDIT PLANNING
1D 11C 2C 12B
3D
4B
5B
6B 7C
8A
9D
10C

PROBLEM 5: SUBSTANTIVE TESTING

1B 21B 2A 22D 3C 23B 4C
24D
5C 25C
6D 26C 7C 27B
8D 28B
9C 29B
10C 30B 11A 31D
12B 32A
13B 33A
14A
15A 16B
17A
18A
19D
20A
PROBLEM 6: AUDIT REPORTING

1C 2B
3B
4B
5B 6C
7A 8B
9C
10C 11A
12C

CHAPTER 2: AUDIT OF CASH
DISCUSSION PROBLEMS
CHAPTER 2-PROBLEM 1
1 B
2 D
3 A
4 B
5D
6D
7D
8D
9D
10 D
11 D
12 B
13 C
14 B
15 B
16
C
17 B
18 D
19 D
20
B
21
C
22 D
23 C
24 D
25 B
AP02-PROBLEM 2: MAPERA CORPORATION

8. Ans. P7,946,500
Adjusted current account at Metrobank 3,445,000

Adjusted savings account at Rural Bank 2,250,000
Adjusted undeposited collections 738,000
Adjusted cash fund - Cash and cash equivalent 613,500
Debt and equity securities - Cash and cash equivalent 900,000
Cash and cash equivalents, adjusted balance 7,946,500
1. Ans. P3,445,000
Current account at Metrobank 3,250,00
0
Post-dated disbursement check - adjusted to AP 75,00
0
Undelivered disbursement check - adjusted to AP 120,00
0
Adjusted current account at Metrobank 3,445,000
2. Ans. P2,250,000
Savings account at Rural Bank 2,750,000
Compensating balance - legally restricted (500,000) Adjusted
savings account at Rural Bank 2,250,000
3. Ans. Zero
The bank overdraft balance with BDO shall be presented as a current liability since there is no right of offset, that is the
company has no bank account with BDO.
4. Ans. P738,000.
Undeposited collections, unadjusted balance 1,278,000
Customer stale check - adjusted to AR (180,000
)
Customer post-dated check - adjusted to AR (125,000
)
Customer DAUD check - Adjusted to AR (155,000
)
Officer's NSF check - Adjusted to AR-nontrade (80,000
)
Adjusted undeposited collections 738,000
5. Ans. P18,500
Bills and coins 7,000
Replenishment check 11,500
Adjusted petty cash fund as of 12/31/14 18,500
CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS

6. Ans. P613,500
Travel fund 50,00

0
Interest and dividend fund 120,00
0
Payroll fund 400,00
0
Change fund 25,00
0
Petty cash fund 18,50
0
Adjusted cash fund - Cash and cash equivale 613,500
7. Ans. P900,000
Debt security investment due 3/31/15 purchased 12/31/14 600,000
Preference shares redeemable on 2/28/15 purchased 12/1/14 300,000
Debt and equity securities - Cash and cash equivalent 900,000
9. Ans. P1,874,500
Customer stale check - adjusted to AR 180,000
Customer post-dated check - adjusted to AR 125,000
Customer DAUD check - Adjusted to AR 155,000
Officer's NSF check - Adjusted to AR-nontrade 80,000
Petty cash fund shortage - Adjusted to AR-custodian 1,500 *alternatively, this can be charged to other
Postage stamps - Office supplies 3,000 IOU from a key officer - AR- expense
nontrade 30,000
Investment in debt security due 1/31/15 purchased 1/1/14 900,000*classified as short-term investment
Ordinary shares - Trading securities/FA at FMV through P&L 400,000
Current assets (other than cash and cash equivalents) 1,874,500 500,000
250,000
10. Ans. P1,700,000 500,000
Rural bank - compensating balance - Adjusted to Other assets 150,000
Pension fund - Adjusted to Long-term Investment 300,000
Bond sinking fund - Adjusted to Long-term Investment 1,700,000
Cash in closed bank at recoverable value - Adjusted to Other assets
Ordinary shares - Available-for-sale security/FA at FMV through OCI/L Non-
current assets
11. Ans. P495,000

Current account at BDO - Bank overdraft 240,000 Post-dated
disbursement check - adjusted to AP 75,000 Undelivered disbursement
check - adjusted to AP 120,000
Credit memo for a purchase return - adjusted to AP 60,000
Current liabilities 495,000
CHAPTER 2-PROBLEM 3: MANNY CO.

Accountability:
Petty Cash Fund, Imprest balance 40,000 Return of an expense
advance (a) 900
Total Accountability 40,900 1. Ans.
Valid supporting items:
Unreplenished paid vouchers 3,700
Accomodated checks
Dated 12/30 2,000
Dated 11/30 - marked NSF 1,000
Replenishment check 10,000 30,100
Petty cash fund shortage 10,800 2. Ans.

(a) Should be subsequently deposited to the
bank.
Cash items as of December 31, 2014

Return of excess travel expense advance (a) (900)
Unreplenished paid voucher dated 1/2 1,000
Accomodated check 12/30 2,000
Replenishment check 10,000 Adjusted petty cash fund 3. Ans.
25,500
(a) Should be subsequently deposited to the bank.
4. Adjusting entries:
1 Transportation expense 500
Repairs and maintenance expense 300
Entertainment, amusement and representation ex 900
Due to employees 1,000
2,700
Petty cash fund
To record unreplenished paid vouchers.
2 Receivable from employee 1,000


To record NSF accomodated check. 10,800
3 Receivable from employee 10,800

Petty cash fund
To record petty cash fund shortage.
Petty cash fund, imprest balance 40,000

AJE 1. (2,700)
AJE 2. (1,000)
AJE 3. (10,800)
Adjusted petty cash fund 25,500
CHAPTER 2-PROBLEM 4: MAKWARTA COMPANY
Ans. P1,630
Accountability:
Total collections, 10/1-10/11 (per OR) 28,840
Total bank credits, 10/1-10/11 (per bank statement) 16,550
September deposit in transit (4,500)
September bank charge error (corrected in October) (1,400) 10,650

Undeposited collections as of October 11 18,190
Valid supporting items:

Currency and coins 12,310
Customer collection checks
9/30/14 - Baguio Corp. 2,350
10/3/14 - L. Reyes 1,960
10/4/14 - La. Union Corp. 1,590 5,900
Unused postage (adjusted to supplies) 110
Vouchers paid out of receipt (adjusted to expense) 1,500 19,820

Overage 1,630
CHAPTER 2-PROBLEM 5: BETTY CO.

Accountability
Petty cash fund, imprest balance
Undeposited collections 10,000
Cash collections (per cash sales invoices) 1,670
Customer collection checks (depositable only)
2,500 Total Accountability 4,170 1. Ans.
14,170
Valid supporting items
Currencies and coins 5,980
Customer collection checks (depositable only)
12/30 Errol Corp., Customer 1,300
1/2 R. Rarr, Customer 1,200
Accomodated checks (whether depositable or not)
12/30 D. Dong, Vice President 1,220 1/2
Junior, Employee 312
Unreplenished Vouchers 850
Employee IOU's 700
Petty Cash Shortage 11,562 2. Ans.
2,608
AJEs to the Petty Cash Fund:
(a) Expenses 730
Petty Cash Fund
730
To record unreplenished expense vouchers as of Dec. 31 only.
(b) Receivable from employee 700

Petty Cash fund 700
To record employee .
(c) Receivable from employee 2,608

Petty Cash fund 2,608
To record the petty cash fund shortage.
Imprest balance 10,000

AJE (a) (730)
AJE (b) (700)
AJE (c) (2,608) (4,038) 3. Ans.
Adjusted Petty Cash Fund as of Dec. 31 5,962 4. Ans.
CHAPTER 2-PROBLEM 6: DATUNG MANUFACTURING CO.

Bank Reconciliation Statement 10/31/2014
BANK BOOK
Unadjusted Balance, per Bank Statement 144,975 125,245 Undeposited Unadjusted Balance per Books
collections, excluding missapprop. 10,770 8,000 Unrecorded Bank Credits

Oustanding checks (50,550) (2,300) Unrecorded Bank Debits: NSF Check

Bank error (unrecorded bank charge) (1,250) (1,250) Unrecorded Bank Debits: Bank
Correct cash in bank balance (2. Ans. ) 103,945 129,695 Service Charge
(25,750) Adjusted balance per books
103,945 Cash shortage (1. Ans.
) Correct cash balance
3 Adjusting Entries: Proof of Cash
(a) Cash in bank 8,000
Accounts receivables Unadjusted balances, per bank
Undeposited collections - Aug Undeposited
(b) Accounts receivables 2,300
Cash in bank collections - Sept
Outstanding checks - Aug
(c) Bank service charge/Other expenses 1,250 Outstanding checks - Sept Bank error - Aug
Cash in bank
CHAPTER 2-PROBLEM 7: JADE CORPORATION Unadjusted balances, per book

Bank Reconciliation 12/31/2014 Unrecorded credit - Aug
BANK Unrecorded credit - Sept
Unrecorded debit - Aug
Unadjusted balance 792,285 Unrecorded debit - Sept Book Error - Aug
Deposit in transit 10,500 Book Error - Sept /Correction - Sept
Outstanding check (75,975
)
Shortage/Overage -
Bank error 2,250
8,000
Correct cash balance (1. Ans. ) 729,060
2,300
Unadjusted balance per books 726,600
Correct cash balance 729,060
1,250
Net adjustement to cash (12/31) (2,460
)
Accountability as of January 15
Unrecorded credit as of 12/31 BOOK
Book errors in Janaury (audit note b and c)
Adjusted accountability 726,600 Unadjusted balance
20,000 Unrecorded credit
January deposits from January collections (5,000) Unrecorded debit
31,500 Book errors (audit note
Januray bank credits 143,895
773,100 a.)
Correction of Dec. bank charge error (2,250
(44,040) Shortage (3. Ans. )
)
Dec. deposit in transit (10,500 729,060 Adjusted balance
Cash on hand )
Expense vouchers
Cash shortage from Jan. 2 - Jan. 15
Add: Cash shortage as of Dec. 31 2. Ans.
Total cash shortage as of Jan. 15, 2015
180,500
CHAPTER 2-PROBLEM 8: PIRA CO. (20,000)
Proof of Cash, 6/30/2014 19,500
1,536,000 3,093,600 2,375,760
180,000 2,253,840
2. Ans. 6. Ans.
May 31,
Unadjusted balances per bank statement 1,836,000
May 31, Receipt Disbursement June 30,
Deposit in transit, May 480,000
Deposit in transit, June (SQUEEZE) 4. Ans. 538,200 4,818,600 2,443,200 2,913,600
600,000 131,14
(600,000)
Outstanding checks, May (1,020,000
5
)
(7,200) 10,125
Outstanding checks, June (SQUEEZE) 5.
1,125
Ans.
37,605
(7,200)
Bank error, May Overstated disbursement
44,040 9,600 (9,600)
240,000 Adjusted balances
81,645 144,000
4. Ans. (144,000)
Receipt
405,000 (405,000) Disbursement
(720,000) (720,000) June 30,
Unadjusted balances per book (1. Ans. )
(213,840) 213,840 2,496,000
Unrecorded bank credit: May
1,224,000
Unrecorded bank debits: BSC, May
1,536,000 3,093,600 2,375,760 2,253,840 3,108,000
Unrecorded bank debits: BSC, June
(480,000)
Unrecorded bank debits: NSF Check June
1,317,600
Bank error, May Overstated disbursement
1,317,600
Book error, June Overstated collection
Book error, June Overstated disbursement
Adjusted balances Augsut 31: Receipt Disbursement September 30:
485,000 1,955,000 1,655,000 785,000
3. Ans. No shortage. 450,000 (450,000)
240,000 240,000
CHAPTER 2-PROBLEM 9: KRAME INC. (180,000)
220,000 (220,000)
(180,000)
(80,000)
(80,000)
675,000 1,745,000 1,615,000 805,000
1. Ans. 4. Ans.
June 30: Receipt Disbursement July 31:

640,000 1,795,000 1,800,000 635,000
200,000 (200,000)
250,000 250,000
(120,000)
80,000
CHAPTER
(120,000) 2: AUDIT OF CASH AND (80,000) CASH EQUIVALENTS
(45,000)
(45,000)
(100,000) (100,000)
675,000 1,745,000 1,615,000 805,000

(1,020,000) 2. An
2,171,760 (2,171,760) s.
(240,000)
3. An
s.
Proof of Cash, 4/30/2014
March 31, Receipt Disbursement April 30,

Unadjusted balances per bank statement 21,560 220,450 218,970 23,040
Undeposited receipts, March 9,060 (9,060)
Undeposited receipts, April 10,120 10,120
Outstanding checks, March (2,675) (2,675)
Outstanding checks, April (excluding certified check) 1,430 (1,430

)
Bank error, April Overstated disbursement (950) 950
Adjusted balances 27,945 221,510 216,775 32,680

Unadjusted balances per book 16,545 222,190 216,055 22,680

Book receipts used to pay creditors in cash (1,210) (1,210)
Unrecorded bank credit: March 12,150 (12,150)
Unrecorded bank credit: April 11,640 11,640

Unrecorded bank debits:
NSF check, returned in April recorded in April 1,040 1,040
NSF check, returned in April not yet recorded 860 (860

)
Unrecorded bank debits: BSC, March (750) (750)
Unrecorded bank debits: BSC, April 420 (420

)
Bank error, April Understated disbursement 360 (360
)
1. Ans. 2. Ans. 3. Ans. 4. Ans.
CHAPTER 2-PROBLEM 10: MANGO COMPANY 105,600

(15,000)
9,300
(7,800)
MULTIPLE CHOICE EXERCISES (1,500)
CHAPTER 2-EXERCISE 1: ILANG-ILANG COMPANY (40,000) *classifed as LT Fund Investment
50,600 Ans. B.
Unadjusted cash balance

Equivalent Asset
1. January 5 collection recorded in December
2. Undelivered check disbursements 6,000,000 6,000,000
3. Post-dated customer collection check (300,000) *no right of off-set, classified as current
1,500,000 1,500,000 liabi
4. NSF customer collection check
60,000 3,000,000 *Other Asset at current exchang price
5. Cash fund for non-current purpose
3,000 *prepaid expense
Adjusted cash balance - current asset
12,000 *other receivables
30,000 *other receivables

CHAPTER 2-EXERCISE 2: BIG BROTHER CORP.
60,000 *debited to accounts payable
Current account at Bank of the Philippine Islands 150,000 150,000
Current account at Equitable PCI Bank 45,000 *accounts receivable
Payroll account 90,000 90,000
Foreign bank account – restricted (in USD) ** 12,000 12,000
Postage stamps 600,000 600,000
Employee’s post dated check 900,000 *current investment
IOU from a key officer 10,000 10,000
Credit memo from a vendor for a purchase return 1,000,000 1,000,000 *LT fund investment
Traveler’s check 8,362,000
Customer’s not-sufficient-funds check 1. Ans .C. 4,000,000
Money orders 2. Ans. B.
Petty cash fund, currencies only
Treasury bills, due 3/31/15 (purchased 12/31/14)
Treasury bills, due 1/31/15 (purchased 1/1/14)
15,000
Change fund
Bond sinking fund
100,50
0 145,74
39,537 4
5,707 260
9,500
170,504
105,174
11,920
12,505
CHAPTER
5,707 2: AUDIT OF CASH AND CASH EQUIVALENTS
13,350
310
260 156,001
6,775 14,503 1. Ans. B.
CHAPTER 2-EXERCISE 3: UHAWSAIYO COMPANY

Accountability:
Petty cash fund, imprest balance
Undeposited collections
Cash sales invoices (17903-18112)
Official receipts
Customer collection check, not yet included
Other collections: Return of expense advance
Other collections: Contribution for Christmas Party
Total Accountability
Valid supporting items: Bills and coins

Customer collection checks
12/30 T. Otis
12/26 R. Eyes
1/2 O. Liever
12/21 F. Rancisco
Accomodated check
12/29 O. Camp (return of expense advance)
Expense vouchers and IOUs
Petty cash shortage
Cash on hand as of January 5, 2015

Customer collection checks 43,482 Accomodated check
310
Return of expense advance check 260 149,226
Cash that does not belong to the petty cash fund
Undeposited collections:
Collection checks 43,482
Cash collections (100,500+560+1,202) 102,262 (145,744)
Return of expense advance (260)
Excess collection from Christmas Party (9,500-6,290) (3,210)
Cash on hand as of January 5, belonging to the Petty Cash 12
Vouchers paid after December 31: 1/2/15, PNR 35
Petty cash fund as of December 31, 2015 47 3. Ans.

B.
AJEs:
(a) Office supplies expense (150-80) 70
Unused office supplies 80 Receivable from employee
300
Petty cash fund 450
To record unreplensihed expense vouchers as of December 31.
(b) Receivable from employee 14,503

To record petty cash shortage
Reconciliation:
Petty cash fund, imprest balance 15,000
AJE (a) (450)
AJE (b) (14,503) (14,953)
Petty cash fund, adjusted balance 47 2. ans. B.
3. Ans.
B.
Notes:
1. The unused portion of the collection from the Christmas Party does not belong to the company and should not
be reflected in the books of the company. Should it be recorded as part of the cash of the company, the same shall
be regarded as a payable to whoever owes the excess collectoins (e.g. the employees who made the contribution).
2. The unreplenished voucher dated 1/2/15 shall still be considered as valid cash as of December 31, 2014 since
the disbursement was made only on 1/2, thus the same was not included among the adjustments to petty cash as of
December 31.
3. The return of expense advance amounting to P260 shall be included as part of accountability, and since it is still
in check the same was also part of the valid supporting items. As an additional audit procedure, return of expense
advance shall be traced to eventual deposit to the bank after the count date since the amount no longer belongs to
the fund and should be returned back to the general cash of the company.
CHAPTER 2-EXERCISE 4: SILVER COMPANY

Bank Reonciliation Statement 12/31/2014
BANK BOOK
Unadjusted balance per Bank Statement 12,300 15,000 Unadjusted balance per
books
Undeposited collections (as being 3,000 150 Unrecorded bank credit
reported)

Outstanding checks (as per complete list) (850)
Correct cash balance per audit (4. Ans. 14,450 15,150 Unadjusted balance per
B.) books
Shortage 1. Ans. D.
(700)
14,450 Adjusted balance per
books
2. Ans. D.
Undeposited collections (as being 3,000
reported)
Shortage 700
Accountability for cash on hand 3,700
3. Ans. B.
Correct cash balance per audit 14,450
Cash on hand/Undeposited collection (3,000)
Cash in Bank (excluding Cash on Hand) 11,450
CHAPTER 2-EXERCISE 5: HOME CORP.

Bank Reconciliation 12/31/2014
BANK BOOK
Unadjusted balance 1,548,570 1,239,200 Unadjusted balance

Deposit in transit 21,000 200,000 Unrecorded credit
Outstanding check (151,950) (10,000) Unrecorded debit
Bank error 4,500 63,000 Book errors (audit note)
Correct cash balance (16. Ans. D) 1,422,120 1,492,200
(70,080) Shortage (17. Ans.

C)
1,422,120 Adjusted balance
Accountability as of January 10 521,000
Unrecorded credit as of 12/31 (200,000)
Book errors in Janaury (audit note a and b) 39,000
Adjusted accountability 360,000 (18. Ans. B.)
January deposits from January collections

Januray bank credits 322,790
Correction of Dec. bank charge error (4,500)
Dec. deposit in transit (21,000) 297,290
Cash and Checks on hand (Depositable) 23,475
Expense vouchers 22,250
Cash shortage from Jan. 2 - Jan. 10 16,985 (19. Ans. B)
CHAPTER 2-EXERCISE 6: CARRERA INC.

Proof of Cash, July 31, 2014
June 30, Receipt Disbursement July 31,
Unadjusted balances per bank 172,590 903,390 20,880

statement
751,680
Deposit in transit, June 18,000 (18,00
0)
Deposit in transit, July (SQUEEZE) 30,000 30,000 2.
Ans. B.
Outstanding checks, June (52,260)
(52,260)
Outstanding checks, July 41,820 (41,820)
(SQUEEZE) Ans. C.
Bank error, July Overstated (11,880) 11,880
disbursement
Adjusted balances 138,330 881,070 20,940 3.

Ans. A.
763,680
Unadjusted balances per book 140,330 654,330 249,680
763,680

Unrecorded bank debits, July Payment 31,800 (31,800)

of AP
Unrecorded bank debits, July BSC 2,610 (2,610)
Unrecorded bank debits, July Payment 183,000 (183,000)

of NP
Unrecorded bank debits, July NSF 9,330 (9,330)
Adjusted balances 140,330 763,680 881,070 22,940 Cash in bank, shortage June
30 2,000 4. Ans. C.
CHAPTER 2-EXERCISE 7: EDILBERTO INC.

Proof of Cash, December 31, 2014
November 30, Receipt Disbursement December 31,
Unadjusted balances per bank statement 535,410 1,245,540 1,091,865 689,085

Undeposited collections, Nov. 41,005 (41,005
)
Undeposited collections, Dec. 64,400 64,400
Outstanding checks, Nov. (138,590) (138,590)
Outstanding checks, Dec. 150,560 (150,560

)
Adjusted balances 437,825 1,268,935 1,103,835 602,925
4. Ans. A. 5. Ans. B. 6. Ans. B.
November 30, Receipt Disbursement December 31,

Unadjusted balances per book1. Ans. B.
82,350 1,182,260 1,063,185 201,425
2. Ans. B.
359,075 (359,075)
Unrecorded bank credit: Note Col., Nov.
404,500 404,500
Unrecorded bank credit: Note Col., Dec.
(3,600) (3,600) (3,000
Unrecorded bank debits: BSC, Nov. 3,000 )
Unrecorded bank debits: BSC, Dec.
41,250 41,250
NSF Check, return and redeposit, same month*
Adjusted balances
437,825 1,268,935 1,103,835 602,925
3. Ans. B.
CHAPTER 2-EXERCISE 8: HALALAN CORP.

Proof of Cash, June 30, 2014
May 31, Receipt Disbursement June 30,
Unadjusted balances per bank statement3. Ans. A.
652,000 88,000 63,200 676,800
Deposit in transit, May 10,000 (10,000)
Deposit in transit, June 70,000 70,000
Outstanding checks, May (20,000) (20,000) (17,600
Outstanding checks, June 17,600 )
Bank error, June corrected also in June (a) (1,000) (1,000)
Adjusted balances
642,000 148,000 60,800 729,200
1. Ans. B. 2. Ans. D.
Unadjusted balances per book6. Ans. C. May 31, Receipt Disbursement June 30,
Unrecorded bank credit: May
570,800 219,000 57,400 732,400
Unrecorded bank debits: BSC, May
72,000 (72,000)
Unrecorded bank debits: BSC, June
Unrecorded bank debits: NSF, June 13 (b)
(800) (800) (200
Unrecorded bank debits: NSF, June 30
200 )
1,000 1,000 (3,000
0
3,000 )
4. Ans. D. 5. Ans. B.
Notes:
(a) the error committed by the bank in June was also corrected in June, thus both receipts and disbursements per bank shall be in excess
by P1,000 if compared to receipts and disbursements per books. To reconcile, the same had been deducted from both receipt and
disbursements. (b) the NSF check on June 13 had been redeposited immediately. No entry had been made by the company to reflect the
receipt and redeposit while on the bank side, the NSF check had been recorded both as disbursement (upon learning that it is NSF) and as
receipt (upon redeposit).
Thus, to reconcile, the same has been added to both receipts and disbursements per books.
CHAPTER 2-EXERCISE 9: SALUYOT CORP.

Proof of Cash, September 30, 2014
August 31, Receipt Disbursement September 30,
Unadjusted balances per bank statement 156,000 76,020 29,220 202,800 1.

Ans. D.
Deposit in transit, August 2,700 (2,700
)
Deposit in transit, September 28,200 28,200

Outstanding checks, August (12,000)
(12,000)
Outstanding checks, September 10,800 (10,800)
Bank error, Sept. corrected also in Sept. (300)
(300)
Bank error, Sept., Overstated receipt (600)
(600)
Adjusted balances 146,700 100,620 27,720 219,600 5.
Ans. B.
August 31, Receipt Disbursement Proof of Cash, December 31, 2014
Unadjusted balances per book 120,000 127,200 25,380 November 30. Receipt Disburse
Unrecorded bank credit: August 27,000 (27,000)
Unadjusted balances per bank statement 18,500 145,000 137,
Unrecorded bank debits: BSC, August (300) Deposit in transit, November 12,500 (12,500)
(300) Deposit in transit, December 20,000

Unrecorded bank debits: BSC, September 1,320
Outstanding checks, November (16,250) (16
Unrecorded bank debits: NSF, Sept. 12 420 420 )
Outstanding checks, September 12
Unrecorded bank debits: NSF, Sept. 30 900
Bank error, Dec. Overstated Disbursement (3
Adjusted balances 146,700 100,620 27,720 )
2. Ans. C. 3. Ans. B. Adjusted balances 14,750 152,500 129
7. Ans. B. 8. Ans. C. 9. Ans
CHAPTER 2-EXERCISE 10: WISE COMPANY November 30. Receipt Disburse

1. Ans. B.
December actual collections from customers 152,500 Unadjusted balances per book 16,250 150,000 128
S
Deposit credited by bank in Decemeber 145,000 e
p
Less: DIT, November (12,500) t
e
December collections credited in December (132,500) m
b
DIT, December 20,000 e
r
2. Ans. B.
November Bank Service Charge
Decemeber Bank Service Charge 1,500 3
Bank Service Charge recorded per books in Dec. 3,250
0
(2,500)
,
Unrecorded Bank Service Charge, Dec. 2,250
3. Ans. A.
2
Actual company collections in December 152,500
2
Book error, underfooting cash receipts (2,500) 1
Book receipts, December 150,000 ,
4. Ans. C. 8
2
Outstanding checks, December 31 12,500 0
Add: Checks paid by bank in December 130,000
Total 142,500
Less: Outstanding checks, November 30 (16,250) 4
Checks issued in December 126,25 .
5. Ans. D.
0
Checks issued in December (4) 126,250 A

Add: Bank service charges recorded in 2,500 n
December Book disbursements in December s
128,750 .
6. Ans. A.
Book balance, December 31 37,500 A
Add: Book disbursements in December (5) 128,750 .
Total 166,250
Less: Book receipts in December (from number
(1,320)
(900)
219,600
(150,000) 3)
Book balance, November 30 16,250

December 31,
26,500 (SQUEEZE)
20,000
(12,500)
3,750
37,750
10. Ans. B.
December 31,
37,500
Unrecorded bank debits: BSC, November (1,500) (1,500)
Unrecorded bank debits: BSC, December 2,250 (2,250

)
Book error, Dec. Understated Receipt 2,500 2,500
CHAPTER 2-EXERCISE 11: I-BOT INC.

1. Ans. A
Total checks issued and recorded in December 377,632
November BSC recorded in Decemeber 36
Total book disbursements, December 377,668
2. Ans. D. 15,698
Balance per books, November 30 371,766
Total book receipts, December (377,668)
Total book disbursements, December 9,796
Balance per books, December 31,

3. Ans. C. 38,000 1. Ans. A.

Check number 3408 36,080
Check number 3418 74,080 (SQUEEZE)
Check number 3419 Outstanding December
checks, December 31, 31,
17,516
Proof of Cash, December 31, 2014 5,912
Unadjusted balances per bank statement (9,042)

5
Deposit in transit, November 480
7
Deposit in transit, December (42)
Outstanding checks, November 16,732 375,766 377,674 14,824
Outstanding checks, September 4. Ans. B.
Bank error, Dec. Overstated Disbursement
Bank error, Dec. Understated Disbursement November 30. Receipt Disbursement December 31,
4,000 4,000
(36) (36) (42

Unadjusted balances per book 42 )
Unrecorded bank credits: Note Coll, 270 270
Dec. Unrecorded bank debits: BSC,
November 800 800
Unrecorded bank debits: BSC, December
16,732 375,766 377,674 14,824
Book error, Nov. Over. check 3413 (not yet
5. Ans. D. 6. Ans. C. 7. Ans. A.
corr.)
Book error, Nov. Over. Check 3417 (not yet
corr.) Adjusted balances
November 30. Receipt Disbursement December 31,

685,180 308,120 356,080 637,220
CHAPTER 2-EXERCISE 12: HALAL CORP.
15,260 (15,260)
Proof of Cash, December 31, 2014
16,140 16,140
(64,140) (64,140) (74,080
Unadjusted balances per bank statement
74,080 )
Deposit in transit, November
1,500 (1,500)
Deposit in transit, December
(180) 180
Outstanding checks, November
637,800 307,500 365,840 579,460
Outstanding checks, September
4. Ans. C. 6. Ans. B.
Bank error, Nov. Overstated Disbursement
Bank error, Dec. Overstated Disbursement November 30. Receipt Disbursement December 31,
Adjusted balances
637,860 306,220 367,660 576,420
2,060 2,060
Unadjusted balances per book (60) (60)

Unrecorded bank credits: Note Coll, (980) 980
Dec. (780) (780)
Unrecorded bank debits: BSC, November
Book error, December, Overstated
Disbursement
Reversal of check (stop-payment)**
Adjusted balances
9
3. Ans. D. ,
Checks issued prior to Dec.(P64,140- P26,140) 4
Checks issued in Dec. not yet clearing the 6
bank 0
Total outstanding checks, December 31
440 2,814
5,788 7
9,042 .
A
November 30. Receipt Disbursement n
2.
24,298 373,502 380,284 s
3,648 (3,648) .
5,912 Ans
(11,214)
.B D
(11,214) .
9,042 (SQ
(480) UEE
42
637,800 307,500 365,840 ZE)
5. Ans. A.

**Note that the entry to record the reversal of the dibursement check in which the company released a stop-payment order to the
bank will result both as a credit and debit in the company's books and will never be reflected as debit and credit on the bank
records.
Thus, to reconcile, the same has been deducted both in the receipt and disbursement columns per books.

CHAPTER 3: AUDIT OF RECEIVABLES AND SALES
DISCUSSION PROBLEMS
CHAPTER 3-PROBLEM 1
1 A
2 B.
3
A.
4 A. 5
D. 6
B. 7
D.
8 D.
9 D. 10 D. 11 A. 12 C. 13 B.
14 A.
15 A.
16 D.
17 C.
18
B.
19 B.
20 A.
21 A.
22 D.
CHAPTER 3-PROBLEM 2: PRESARIO CORPORATION

1. Ans. P124,500
January 1, balance (credit balance to be adjusted to Advances) 115,000
Charge sales 1,250,000
Recovery of previous write-offs 5,000
Collections from customers (overpayment credited to Advances) (1,230,000)
Write-off of receivables (7,000)
Sales returnds and allowances (P5,500+P3,000) (8,500) Gross Accounts
Receivable balance 124,500
2. Ans. P107,537
Gross Accounts Receivable 124,500
Allowance for Sales Discount (P124,500*50%*25%)*5% (778) Alowance for
Bad Debts:
60 Days past due (P124,500*30%)*10% (3,735)
>120 Days past due (P124,500*20%)*50% (12,450) (16,185)
Amortized cost, 12/31/14 107,537
3. Adjusting Journal Entries:

(a) Accounts receivable-trade 9,000
Advances from customers 9,000
(b) Sales 25,000

Accounts receivable-trade 25,000
(c) Subscriptions receivable (AR-nontrade) 60,000

(d) Advances from customers 5,000

(e) Claims receivable (AR-nontrade) 5,000

(f) Advances to employees (AR-nontrade) 1,000

(g) Advances to affiliates (Investment) 50,000

(h) Advances to suppliers 10,000


(i) Accounts receivable-trade 10,000

(j) Accounts receivable-trade 2,000

Claims receivable (AR-nontrade) 2,000
(k) Accounts receivable-trade 45,000
Subscriptions receivable (AR-nontrade) 45,000
CHAPTER 3-PROBLEM 3: DELL COMPANY

1. Ans. P366,000
Per GL Per SL Under 30 d 30-60 d 61-120 d 121-180 d Over 180 d
Balances 360,000 360,000 240,000 48,000 36,000 24,000 12,000
Accounts definitely uncollectible (6,000) (6,000) (6,00
0)
Advances from customers 12,000 12,000 12,000
Adjusted balances 366,000 366,000 252,000 48,000 36,000 24,000 6,000

% Uncollectible - 3% 15% 30% 60%
Allowance for Doubtful Accounts - 1,440 5,400 7,200 3
,600
2. Ans. P22,320; 3. Ans. P17,640
Allowance for Doubtful Accounts, End
17,640
Less: Allowance for Doubtful Accounts, Beginning
(1,320)
Add: Write-of off Accounts
Bad debt expense for the year Jul-Oct Jan-Jun Prior to Jan
600,000 400,000 130,000
4. Ans. P330,720 366,000
Gross Accounts Receivable 600,000 400,000
Allowance for Doubtful Accounts 8% 35% (30,000)
(17,640)
Allowance for Sales Discounts (P252,000*20%)*10% 48,000 140,000 100,000
(5,040) 70%
Allowance for Sales Returns (P252,000*5%)
(12,600) 70,000
Amortized Cost, 12/31/14
5. Ans. P25,320 330,720

Allowance for Doubtful Accounts, End
Add: Allowance for Doubtful Accounts, Unadjusted
Debit Balance
Write-of off Accounts 17,640
Bad debt expense for the year
1,680
CHAPTER 3-PROBLEM 4: TWINHEAD
CORPORATION Per SL
Balances Per GL 2,270,000 6,000
Accounts definitely 2,270,000
uncollectible (30,000) 25,320
(30,000)
Adjusted balances 2,240,000
2,240,000
% Uncollectible
Allowance for
275,100
Doubtful Accounts
2. Ans. Nov-Dec
Per books:
65,000
Allowance for DA,
90,000 1,140,000
Jan. 1
7,500
Add: Interim
provisions
(P4.5M*2%) (45,000) 1,140,000
Recoveries of 1.5%
previous write-off
Less: Write-off of (30,000)
receivables 187,600 87,500 17,100
Additional 275,100
write-off 187,600
Allowance for DA,
Dec. 31 per books
Allowance for DA, per 187,600
audit
Additional DA
Expense for the year 2,240,000
1. Ans. Entry: (275,10
Doubtful Accounts 0)
Expense (4,200)
Allowance for

DA 1,960,700
3. Ans. P1,960,700
Gross Accounts
Receivable
Allowance for DA
Allowance for Sales Discount
(P700,000*30%)*2% Amortized
Cost, 12/31/14
Customer Invoice Date Amount Current
1-60 d past 61-120 d past >120 d past Credit
bal
NoSept-Oct Jul-Aug June and prior
v-
De
c
Zulu Inc. 41,993 550,000
550,000
41,974 1,200,000
1,200,000
41,923 950,000 950,000
41,855 420,000 420,000
Whiskey Co. 41,963 2,000,000

2,000,000
41,886 900,000 900,000
41,853 500,000 500,000
Uniform Inc. 41,983 1,750,000

1,750,000
41,916 600,000 600,000
41,825 500,000 500,000
Tango Corp. 41,891 2,600,000 2,600,000
41,830 1,250,000 1,250,000
41,703 900,000 900,000
Romeo Co. 41,974 (500,0

(500,000) 00)
5,050,000 2,670,000 (500,0
900,000 00)
13,620,00 5,500,00
Reconciliation of GL and SL 0 0
Per GL Per SL Current 1-60 d past 61-120 d past >120 d Credit
past bal
Balances 13,650,000 5,050,000 (500,0
00)
13,620,00 5,500,00 2,670,000 900,000
0 0
Advances from Reomeo Co. 500,0
00
500,000 500,000
Posting error - (600,000)
- 600,000
Adjsuted balances 14,150,000 4,450,000 -
14,120,00 6,100,00 2,670,000 900,000

0 0
Unreconciled difference (1.
Ans.)
(30,000)
Adjusted balance (2. Ans.) 14,120,000
Required allowance for Bad Debt 2% 5% 20 50

as % % %
Required allowance for Bad Debt 222,500
3. Ans. P378,500 1,328,500 122,000 534,000 450,000

Allowance for BD, ending 1,328,500
Less: Allowance for BD, beg
(950,000)
Bad Debt Expense 378,500
4. Ans. P12,791,500 14,120,000

Gross Accounts Receivable
Allowance for BD
7,500

Amortized Cost, 12/31/14 (1,328,500)

12,791,500
CHAPTER 3-PROBLEM 6: BONIFACIO INC.

ADJUSTING ENTRIES:
(a) Credit balance:
Accounts receivable 7,500
Allowance for bad debts
(b) Customer Aye:

No AJE necessary since the remmittance is still in transit as of
December 31, 2014.
(c) Customer Bee:

Sales Returns 13,800
Accounts payable 13,800
Accounts receivable (1-60 days) 13,800
Purchases 13,800
(d) Customer See and Dee: (1. Ans.)

Payment of customer See for a 61-120 days receivable has been deducted from customer Dee's 1-60 days receivable.
Posting error only. No AJE necessary.
(e) Customer Eee:

Sales 11,600
Inventory 8,000
Income summary/Cost of sales 8,000
(f)Customer Eff:
Sales 18,000
CHAPTER 3-PROBLEM 5: MAHOGANNY CORP.

(g) Customer Jeeh:

Sales 6,000
(h) Customer Eych:

Sales returns and allowance 1,200
Per GL Per SL 1-60 days 61-120 days > 120 days Credit bal.
Unadusted balances 221,250 221,250 110,625 66,375 51,750 (7,500)
(a) Credit balance 7,500 7,500 7,500
(c) Customer Bee (13,800) (13,800) (13,800)
(d) Customer See and Dee - 16,600 (16,600)
(e) Customer Eee (11,600) (11,600) (11,600)
(f) Customer Eff (14,000) (14,000) (14,000) (g) Customer Jeeh (6,000) (6,000) (6,000)
(h) Customer Eych (1,200) (1,200) (1,200)
Adjusted balances (2. Ans.) 182,150 182,150 81,825 48,575 51,750 -
Required allowance for BD in % 2% 10% 20%
Required allowance for BD (3. Ans.) 16,844 1,636.50 4,857.50 10,350.00
4. Ans. P1,844
Allowance for BD, ending 16,844
Less: Allowance for BD, beg. (7,500)
AJE a) Recovery of write-off (7,500)
CHAPTER 3-PROBLEM 7: ABC COMPANY

1. Ans. P1,034,711
Principal Amount 1,000,000 Origination cost 57,851
Origination fee (23,140)
FMV of Loan/Initial measurement 1,034,711
2. Ans. P1,018,182
Amortization table: Loans Receivable/Notes Receivable
Correct Int. Nominal Int. Amortization Balance
January 1, 2014: 1,034,711
December 31, 2014: 103,471 120,000 (16,529) 1,018,182
December 31, 2015: 101,818 120,000 (18,182) 1,000,000
3. Ans. P373,944
Carrying value/Amortized cost 12/31/15 1,000,000 1
Accured interest, 12/31/15 120,000 2.48685
Total 1,120,000
Present value of new future cash flows at 10% for
3 periods with annuity P300,000*2.48685 746,056
Impairment loss 12/31/15 373,944
4. Entries 12/31/16 to 12/31/18 Amortization table after impairment loss:

Correct Int. Nominal Int. Amortization Principal Coll. Balance
December 31, 2015: 746,056
December 31, 2016: 74,606 - 74,606 (300,000) 520,661
December 31, 2017: 52,066 - 52,066 (300,000) 272,727
December 31, 2018: 27,273 - 27,273 (300,000) 0
12/31/16: Cash 300,000

Interest income 74,606
Notes receivable/Loans receivable 225,394
12/31/17: Cash 300,000

Notes receivable/Loans receivable 247,934
12/31/18: Cash 300,000

Notes receivable/Loans receivable 272,727 CHAPTER 3-
PROBLEM 8: ABC CORP.
1. Ans. P4,754,134 and P4,908,330
(a) DEF Corp, 10% - Trade receivable, Term, Interest-bearing
CORRECT ENTRIES:
Jan. 1, 2013:

Cash 4,754,134
Loans receivable 4,754,134
Fair market value = Loan proceeds (Present value of future cash flows at 6% semi-annual effective rate for 6 semi-annual periods)
Principal: (5,000,000*0.704961) 3,524,803 0.704961
Interest: (250,000*4.917324) 1,229,331 4.917324
Total 4,754,134
Amortization table: Loans receivable, DEF Corp.
January 1, 2013: 4,754,134
June 30, 2013: 285,248 250,000 35,248 4,789,382
December 31, 2013: 287,363 250,000 37,363 4,826,745
June 30, 2014: 289,605 250,000 39,605 4,866,349
December 31, 2014: 291,981 250,000 41,981 4,908,330
June 30, 2015: 294,500 250,000 44,500 4,952,830
December 31, 2015: 297,170 250,000 47,170 5,000,000
June 30, 2013: June 30, 2014:
Cash 250,000 Cash 250,000
Interest income 250,000 Intrest Income 250,00

0
Loans receivable 35,248 Loans receivable 39,605
Interest income 35,248 Interest income 39,60

5
December 31, 2013: December 31, 2014:
Cash 250,000 Cash 250,000
Interest income 250,000 Intrest Income 250,00

0
Loans receivable 37,363 Loans receivable 41,981
Interest income 37,363 Interest income 41,98

1
2. Ans. Retroactive adjustement:
Retained earnings, beg 173,255
Loans receiavable 173,255
Face value 5,000,000
Less: Proceeds (4,754,134)
Add: Nominal interest 500,000
Interest income in 2013, per books 745,866
Interest income in 2013, per audit (see amo.) 572,611
Overstatement in interest income in 2013 173,255
3. Ans. P2,000,000 and P2,000,000

(b) GHI, 12% - Non-trade receivable (Advances to associate), Term and Interest-
bearing CORRECT ENTRIES January 1, 2014:
Cash 2,000,000
Loans receivable-Nontrade 2,000,000
*note that the nominal interest and effective interest are the same thus, the face value is also the proceeds (fmv)
December 31, 2014:

Cash 240,000
Interest income (2M*12%) 240,000
*note that since nominal interest and effective interests are the same and since there are no principal collections
yet, the carrying value/amortized cost at 12/31/14 remains the face value.
4. Ans. P2,483,684 and P3,305,785

(c) KLM - Trade receivable, Term and Non-interest-
bearing CORRECT ENTRIES Janaury 1, 2012:
Cash 2,483,685
Loans receivable 2,483,685
Fair market value = Loan proceeds (Present value of future cash flows at 10%effective rate for 5 periods)
Principal: P4,000,000*0.6209213) 2,483,685 0.6209213
Amortization table: Loans receivable, KLM

January 1, 2012: 2,483,68

5
December 31, 2012: 248,369 - 248,369 2,732,05
4
December 31, 2013: 273,205 - 273,205 3,005,25
9
December 31, 2014: 300,526 - 300,526 3,305,78
5
December 31, 2015: 330,579 - 330,579 3,636,36
4
December 31, 2016: 363,636 - 363,636 4,000,00
0
December 31, 2012:
Loans receivable 248,369
Interest income
December 31, 2013: 248,369

Interest income
December 31, 2014: 273,205

Interest income
5. Ans. Retroactive adjustement: 300,526

Retained earnings, beg 994,741
Loans receivable
994,741
Principal amount
4,000,000
Less: Proceeds (2,483,68
5)
Interest income rececognized in 2012
1,516,315
Correct interest income in 2012 (see amo.) (248,36
9)
Correct interest income in 2013 (see amo.) (273,20
5)
Overstatement in interest income in '12
and '13
994,741
6. Ans. P4,780,007 and P4,350,818
(d) NOP, 10% - Trade, Serial and Interest-
bearing CORRECT ENTRIES January 1,
2014:
Cash 4,780,007
Loans receivable
4,780,007
Fair market value = Loan proceeds (Present value of future cash flows at 6% semi-annual effective rate for 10 semi-annual periods)
Cash to be collected on:
Principal Interest Total PV factor Present
Value
July 1, 2014: 500,000 750,000 0.943396
250,000 707,547
January 1, 2014: 500,000 725,000 0.889996
225,000 645,247
July 1, 2015: 500,000 700,000 0.839619
200,000 587,733
January 1, 2015: 500,000 675,000 0.792094
175,000 534,663
July 1, 2016: 500,000 650,000 0.747258
150,000 485,718
January 1, 2016: 500,000 625,000 0.704961
125,000 440,600
July 1, 2017: 500,000 600,000 0.665057
100,000 399,034
January 1, 2017: 500,000 575,000 0.627412

75,000 360,762
July 1, 2018: 500,000 550,000 0.591898
50,000 325,544
January 1, 2018: 500,000 525,000 0.558395
25,000 293,157
TOTAL
Amortization table: Loans receivable, NOP 4,780,007

Correct Int. Nominal Int. Amortization Princ. Coll. Balance
January 1, 2014:
4,780,007
July 1, 2014: 286,800 36,800
250,000 (500,000) 4,316,808

January 1, 2015: 259,008 34,008
225,000 (500,000) 3,850,816

July 1, 2015: 231,049 31,049
200,000 (500,000) 3,381,865

January 1, 2016: 202,912 27,912
175,000 (500,000) 2,909,777

July 1, 2016: 174,587 24,587
150,000 (500,000) 2,434,364

January 1, 2017: 146,062 21,062
125,000 (500,000) 1,955,425

July 1, 2017: 117,326 17,326
100,000 (500,000) 1,472,751

January 1, 2018: 88,365 13,365
75,000 (500,000) 986,116

July 1, 2018: 59,167 9,167
50,000 (500,000) 495,283

January 1, 2019: 29,717 4,717 (
0)
July 1, 2014: 25,000 (500,000)
Interest income
36,800
Cash 750,000
Interest income
250,000
Loans receivable
December 31, 2014: 500,000

Interest income
34,008
Interest receivable 225,000
Interest income
225,000
Proceeds from issue 1/1/14 4,780,007
July 1, 2014 amortization 36,800
July 1, 2014 principal collection
(500,000)
Dec 31, 2014 amortization 34,008
December 31, amortized cost 4,350,816 *note that the next P500,000 principal collection shall be made
on Jan. 1, 2015
SUMMARY Interest
Income Interest Current Non-current Recevable
581,586 Loans Rec. Loans Rec.
(a) DEF Corp, 10% - trade 240,000 - 4,908,330
(b) GHI, 12% - nontrade 300,526 - 2,000,000
(c) KLM - trade 545,809 - 3,305,785
(d) NOP - trade
225,000 4,350,816

Total 1,667,920 225,000 12,564,932 2,000,000

6. Ans. 7. Ans. 8. Ans. 9. Ans.
Note that as per PAS 1, a receivable that is expected to be realized as part of the normal operating cycle is always current, thus
trade receivables are always current.
CHAPTER 3-PROBLEM 9: DWARF CORP.

Noncurrent Current Int. Receivabl Int.
(a) Note receivable from sale of plant - nontrade Income
Dec. 31, 2013 balance 4,500,000
Apr. 1, 2014, principal collection (1,500,000)
Dec. 31, 2104 balance 3,000,000 1,500,000 1,500,000
Int. Receivable: P3,000,000*12%*9/12 270,000
Int. Income: (P4.5M*12%*3/12) + (P3M*12%*9/12) 405,00

0
(b) Note receivable from officer - nontrade 1,200,000 - -
Int. Income (P1,200,000*10%) 120,00

0
(c) Note receivable from sale of equipment - nontrade
Apr. 1, 2014 @FMV=PV of future cash flows at 12% for 2 periods
(P600,000*0.797) 478,200
Dec. 31, 2014: Amo. (478,200*12%*9/12) 43,038 43,03
8
Dec. 31, 2014 amortized cost 521,238 521,238 - -
(d) Note receivable from sale of land - nontrade

Jul. 1, 2014 @ FMV=Face (Nominal%=Effective%)
Dec. 31, 2014 balance = Face 2,100,000
Current portion:
Periodic payment (on Jul. 1, 2015) 676,875
Interest expense (upto Jul. 1, 2015) 231,000 445,875 445,875
Long-term portion: 1,654,125 1,654,125
Interest receivable (P2.1M*11%*6/12) 115,500
Interst income (P2.1M*11%*6/12) 115,50

0
Total 4,875,363 1,945,875 385,500 683,538
1. Ans. 2. Ans. 3. Ans. 4. Ans.
Note that per PAS 1, a nontrade receivable is current if it is realizable within 12 months after the reporting period or balance sheet date.
CHAPTER 3-PROBLEM 10: WHISKEY INC.

1. JORNAL ENTRIES
(a) Pledging of AR
June 30, 2014: SUMMARY:
Cash (P4M*80%)-(P4M*5%) 3,000,000 2. Ans. P1,450,000

Interest expense (P4M*5%) 200,000 ACCOUNTS RECEIVABLE
Loans payable (P4M*80%) 3,200,000 Jun. 30, bal 4,000,000
1,320,000 Jul. Coll
July 31, 2014: 80,000 Jul Returns
Cash 1,200,000
950,000 Aug. Coll
Sales discount 120,000
Accounts receivable 1,320,000 200,000 Aug. Write-
Interest expense (P3.2M*12%*1/12) 32,000 o
Aug. 31, 1,450,000
Loans payable (balance) 1,168,000 3.
balAns. P1,152,320
Cash 1,200,000 LOANS PAYABLE
3,200,000 Jun. Loan
Sales returns 80,000 Jul. Payment 1,168,000
Accounts receivable 80,000 2,032,000 Jul 31. bal
August 31, 2014: Aug. Payment 879,680
Cash 900,000 1,152,320 Aug. 31,
Sales discount 50,000 ba
Interest expense (P2,032K*12%*1/12) 20,320 2,032,000
Loans payable (balance) 879,680
Cash 900,000
Allowance for BD 200,000

(b) Discounting of NR
Cash (Proceeds) 2,082,667
Notes receivable 2,000,000
Interest income (P2M*10%*4/12) 66,667
Gain on discounting 16,000

Maturity Value:
Principal Amount 2,000,000
Interest (P2M*10%) 200,000 2,200,000
Proceeds: (Maturity value - Discount)

Maturity Value 2,200,00
0
Less: Discount: (Maturity value*Discount rate*Remaining term)
(P2,200,000*8%*8/12) (117,333) Proceeds from discounting
2,082,667
4. Ans. 0
Since discounting was recognized as a sale, where there is transfer of significant risk and rewards (e.g. without recourse
basis), the notes receivable has been derecognized/transferred.
5. Ans. P16,000.
Proceeds from discounting/Sales proceeds 2,082,667
Less: Carrying value of Notes Receivabl 2,000,000
Interest from Jan. 1 to May 1 (4 mo.)
(P2,000,000*10%*4/12) 66,667 2,066,667
Gain on discounting 16,000
CHAPTER 3-PROBLEM 11:VICTORY INC.

1. JORNAL ENTRIES
(a) Assignement of AR
November 1, 2014: SUMMARY:
Cash (P1.5M*95%) 1,425,000 2. Ans. P470,000.
Interest expense (P1.5M*5%) 75,000 ACCOUNTS RECEIVABLE-ASSIGNED
Loans payable 1,500,000 Jun. 30, bal 2,000,000
650,000 Jul. Coll
Accounts receivable-Assigned 2,000,000 60,000 Jul Returns
Accounts receivable 2,000,000
740,000 Aug. Coll
November 30, 2014: 80,000 Aug. Write-

Cash 600,000 o
Aug. 31, 470,000
Sales discount 50,000 bal
Accounts receivable-Assigned 650,000 3. Ans. P224,150
LOANS PAYABLE
Interest expense (P1.5M*12%*1/12) 15,000 Loans payable (balance) 1,500,000 Jun. Loan
585,000 Jul. Payment 585,000
Cash 600,000 915,000 Jul 31. bal
Aug. Payment 690,850
Sales returns 60,000 224,150 Aug. 31,
Accounts receivable-Assigned 60,00 ba
0
August 31, 2014:
Cash 700,000
Sales discount 40,000
Accounts receivable-Assigned 740,00

0
Interest expense (P915K*12%*1/12) 9,150 915,00
0
Loans payable (balance) 690,850
Cash 700,00
0
Accounts receivable-Assigned 80,00

0
(b) Factoring of AR

Cash, net (350,000-10,000) 340,000

Receivable from factor 50,000
Loss on Factoring 90,000
Since factoring was recognized as a sale, where there is transfer of significant risk and rewards (e.g. without recourse
basis), the accounts receivable factored has been derecognized/transferred. 4. Ans. (P90,000)
Net proceeds from factoring (350,000-10,000) 340,000
Add: Factor's holdback 50,000
Total/Net Sales proceeds from AR 390,000

Carrying value of AR
Gross Accounts receivable factored 500,000
Allowance for BD (20,000) 480,000

Loss of Factoring
(90,000)
MULTIPLE CHOICE EXERCISES

CHAPTER 3-EXERCISE 1: DKNY COMPANY
Trade Other - current Total trade & other
Trade accounts receivable 1,550,000
Trade accounts receivable, assigned
750,000
(proceeds from assignment
12% Trade notes receivable 200,000
Installments receivable, normally due 1 year to two year 600,000
Advance payments for purchase of
merchandise 300,000
Claim from insurance company 30,000
Subscription receivable due in 60 days, 600,000
Accrued interest receivable 20,000
950,000
4,050,00
3,100,00 0 2. Ans.
0 1. Ans. D.
B.
(50,
000)
3. Ans. C.
Proceeds from AR factored 250,000
Carrying value of AR factored
330,000
(300,000) Loss from factoring
(6
Proceeds from NR discounted:
6,000)
Maturity value: (Principal + Interest)
Principal 300,000
Interest (P300,000*20%*6/12) 30,000
264,000
Less: Discount (MV*disc%*remaining
term) (P330,000*40%*6/12)
Proceeds from NR discounted: 300,000
Carrying value of NR (no interest) (36,
Loss from discounting 000)
(86,
Total loss from receivable financing 000)
Note:
(a) The credit balances from customer accounts at P60,000 and P40,000 shall be presented as advances from customers (current liab.)
unless there is right of offset.
(b) The cash advances to subsidiary amounting to P800,000 shall be presented as an addition to the investment in subsidiary account
in the parent-company financial statements, thus is presented as LT Investment.
(c) The deposit on contract bids amounting to P500,000 shall be presented as Other Assets in the noncurrent asset portion of SFP.
(d) The advances to stockholders amounting to P2,000,000 is a non-trade, noncurrent receivable, thus is presented as Other Asset.
CHAPTER 3-EXERCISE 2: MORGAN INC.

1. Ans. A.
Allowance for DA, Dec. 31, 2014 (per aging) 700,000 3,225,300
Less: Allowance for DA, Jan. 1, 2014 (600,000) (169,00
0)

Recovery of previously written-off accounts (100,000) 3,056,300

Add: Write-off of accounts during the year 375,000
Correct Bad Debt Expense 375,000
2. Ans. B.
2,375,000
(700,000)
Less: Allowance for DA, Dec. 31, 2014 (per aging)
1,675,000
Amortized cost/Carrying value, Dec. 31, 2014
CHAPTER 3-EXERCISE 3: INUYASHA INC.
1. Ans. C. 31 – 60 days 1 – 90 days More than 90
Year Current PD PD
days PD
2013 1% 9% 23%
1 – 30 days PD 55
6% %
2012 2% 8% 10% 18% 60
%
2011 1% 4% 11% 16% 45
%
2010 3% 5% 12% 22% 45
%
2009 3% 2% 8% 21% 45
%
Average uncollectible accounts in % 2% 5% 10% 20% 50%
2. Ans. C.
Age of accounts Amount Allow in %
Current 1,686,400 2% Required Allow. In Amount
1 to 30 days past due 922,000 5
31 to 60 days past due 384,800 % 33,728
61 to 90 days past due 153,300 Over 90 10
days past due 78,800 %
20% 46,100
50%
Total 3,225,300
38,480
3. Ans. A.
30,660
Allowance for uncollectible accounts 3,225,300
Amortized cost/Net realizable value (188,36
8) 39,400
3,036,932
CHAPTER 3-EXERCISE 4: MEXICAN CORP. 188,36

Reconciliation of GL and SL with Aging of AR 8 91-120
Per GL days
1,230,000
Per SL
Write off of AR (40,000)
1,223,000 50,000
Balance 1,190,000 Aug.
Unlocated difference* (7,000) and
Adjusted Gross AR 1,183,000
(40,000) prio
Required Allowance for BD in % 1,183,000 >120
50,000
Required Allowance for BD in days
Amounts
0-60 30%
1. Ans. C. > 120 days
days
88,700 15,000
128,000
825,000
61-90 days (40,00
220,000 0)
88,000
825,000 220,000 40,00
0
40
2% 10% %
71,36
16,500 22,000 35,200 0
*Note that the unlocated difference between GL and SL shall be adjusted to GL since SL should prevail. The adjusting entry shall be:
Sales 7,000
2. Ans. B.
Required allowance for BD, Dec. 31 88,700
Less: Allowance for BD, unadjusted balance (106,000)
Add: Additional write-off per audit 40,000
Additional bad debt expense per audit 22,700
Bad debt expense per books (P12.8M*2%) 256,000

Total bad debt expense per audit 278,700
3. Ans. C.
Gross Accounts Receivable 1,183,000
Less: Allowance for BD (88,700)
Amortized cost/Net realizable value 1,094,300
CHAPTER 3-EXERCISE 5: ROVERS INC. Dec. Nov. Oct. Sept.

Customer Invoice date Amount 0-30 days 31-60 days 61-90 days 91-120 days
Gudang 9/12/14 139,200 139,200
Tisoy 12/12/14 153,600 153,600
12/2/14 99,200 99,200
Gusoy 11/17/14 185,120 185,120
10/8/14 176,000 176,000
Naning 12/8/14 160,000 160,000
10/25/14 44,800 44,800
8/20/14 40,000
Nanong 9/27/14 96,000 96,000
Balong 8/20/14 71,360
Peejong 12/6/14 112,000 112,000
11/29/14 169,440 169,440
Total 1,446,720 524,800 354,560 220,800 235,200 111,360

Reconciliation between GL and SL with Aging of AR analysis
Per GL Per SL 0-30 days 31-60 days 61-90 days 91-120 days >120 days
Unadjusted balances 1,466,720 1,446,720 524,800 354,560 220,800 235,200 111,360

(a) Write-off of AR-Balong (71,360) (71,360) (71,360
)
(b) Posting error - - (99,200) 99,200
Adjusted balances 1,395,360 1,375,360 425,600 453,760 220,800 235,200 40,000

Unreconciled difference (20,000)
Adjusted balance 1,375,360
Required allowance for BD in % 2% 5% 10% 20% 50%
Required allowanc for BD in amount 120,320 8,512 22,688 22,080 47,040 20,000
1. Ans. D.
Less: Allowance for BD, unadjusted (46,720)
Add: Write off of AR-Balong 71,360
2. Ans. C.
3. Ans. C.
(71,360)
Write-off of AR-Balong (20,000)
Unlocated difference (debited to Sales) (91,360)
Total adjustments to AR-GL
4. Ans. A. 1,375,360
Gross Accounts Receivable (120,320)
Allowance for Bad Debts 1,255,040
Amortized cost/Carrying value
5. Ans. B. 20,000
AJE to record unreconciled difference:
Sales
CHAPTER 3-EXERCISE 6: NATASHA INC.

Reconciliation between GL and SL with Aging of AR
analysis Per GL Per SL 0-1 Month 1-3 Months
Unadjusted balances 788,000 792,960 372,960 307,280 > 6 Months
(b) Additional write-off (GL only) (800) 24,000
(c) Additional write-off per aging sched. (4,000) (4,000) 3-6 Months
(d) AR with credit balances 10,000 10,000 8,000 2,000 88,720 (4,000)
793,200 798,960 380,960 309,280 88,720 20,000
Unreconciled difference 5,760 8,000 12,000

Adjusted balances (3. Ans. C.) 798,960

Allowance for BD in % 1% 2% 3% 50% 20%
Allowance for BD in Amount (4. Ans. A.) 19,057 3,810 6,186 2,662 4,000.00 2,400.00
Adjusting entries:
(a) Bad debt expense 1,296
Allowance for bad debt 1,296
To adjust the entry made upon recovery of previously written-off account, credited by the client to Bad Debt Expense account.
(b) Allowance for bad debt 800

Accounts receivable 800
To record additional accounts written-off per SL.
(c) Allowance for bad debt 4,000

To record additional accounts written-off per the aging schedule.
(d) Accounts receivable 8,000

To reclassify the credit balances in customer accounts at (0-1 mo.) P8,000 and (1-3 mo.) P2,000.
(e) Allowance for bad debts 10,297

Bad debt expense 10,297
Less: Allowance for BD, beginning (15,250)
Recovery of previous write-off (1,296)
Add: Write off of accounts receivable 6,832
Additional write-off per audit 4,000
Bad Debt Expense per audit 13,343 1. Ans. C.
Bad Debt Expense per books 23,640
Overstatement in Bad Debt Expense (10,297)
(f) Accounts receivable 5,760 2. Ans. B.
Sales 5,760
To adjust the unlocated difference (SL should prevail over GL).
5. Ans. D.
Allowance for BD (19,057)
Amortized cost/Carrying value 779,903
CHAPTER 3-EXERCISE 7: SAYOTE INC.

Reconciliation between GL and SL with Aging of AR
analysis Per GL Per SL Over 6 mo. Credit bal.
Unadjusted balances 1,270,000 1,260,000 228,000 (60,00
Credit balance - Kamote (Advances) 12,000 12,000 1-6 mo. 0)
Credit balance - Kutchay (Posting error) - 552,000 12,000
Credit balance - Kalachuchi (Advances) 27,000 27,000 Under 1 mo. 21,000
Write-off of accounts (72,000) (72,000) 540,000 (21,000) (72,000) 27,000
1,237,000 1,227,000 540,000 531,000 156,000 -
Unlocated difference (10,000) 36,000 120,000
Adjusted balance (2. Ans. B) 1,227,000
Allowance for BD % 1% 2% 50% 10% Allowance for BD in Amount (3. Ans A) 46,020 5,400 10,620 18,000
12,000
1. Ans. A.
Sales 10,000
To record the unlocated difference (SL should prevail over GL)
4. Ans. D.
Less: Allowance for BD, beg. (30,000)
Add: Write off of AR 24,000
Additional write-off per audit 72,000
Bad debt expense per audit 112,020
Bad debt expense per books 72,000
Additional bad debt expense per audit 40,020

AJE:

Allowance for bad debt 40,02

5. Ans. C. 0
Accounts receivable, Gross 1,227,000
Allowance for bad debts (46,020)
Amortized cost/Carrying vallue 1,180,980
CHAPTER 3-EXERCISE 8: LUCRATIVE COMPANY

1. Ans. C.
P30,000*20% = P6,000 - Income is overstated by the gross profit on the sales.
2. Ans. A.
The credit memo should be recorded as of December 31, 2014. 3. Ans. B.
Actual number of units sold to Mr Lazo was 320 (P48,000/P150)
4. Ans. D.
(320*P100) – P48,000 = P16,000.
5. Ans. A.
Receivable from Mr. Sia is correctly stated because the goods are considered sold in 2014
16. Ans. D.
CHAPTER 3-EXERCISE 9: MILK CORP. Dec. Nov. Oct. Sept. Aug. and
Customer Invoice date Invoice Amount 1-30 days prio
Zulu Inc. 12/6/14 42,000 42,000 31-60 days 61-90 days 91-120 days more than 1
11/29/14 63,540
63,540
Yankee Co. 9/27/14 36,000
36,000
8/20/14 26,760
26,760
Xylon Inc. 12/30/14 20,000 20,000
12/8/14 40,000 40,000
10/25/14 31,800 31,800
Whiskey Co. 11/17/14 69,420 69,420
10/9/14 66,000 66,000
Victory Corp. 12/12/14 57,600 57,600
8/20/14 37,200 37,200
Uniform Inc. 9/12/14 52,200 52,200
542,520 159,600 132,960 97,800 88,200 63,960
Reconciliation of GL and SL with Aging of AR analysis Cash - METREBANK 67,500
Per GL Per SL
b. Accounts receivable (current) 189,000
Unadjusted balances 550,000 542,520
Yankee & Victory: Posting error Cash - METREBANK 189,000
Xylon: FOB Destination (20,000)
c. Cash - METREBANK 107,550
(20,000)
Uniform: Write-off (52,200)
d. Cash - METREBANK 115,650
(52,200)
Adjusted balances 477,800 470,320 Accounts payable 115,650
Unreconciled difference (7,480)
e. Cash - METREBANK 258,000
Adjusted balance 470,320
Allowance for BD in % Expense 42,000
Allowance for BD in Amounts (1. Ans. A.) 31,413
Loans payable 300,000
2. Ans. D. f. Accounts receivable (current) 57,900
Cash – BADO 57,900
Allowance for BD (31,413)
g. Cash – BADO 3,207,900
Amortized cost/Carrying value 438,907
Overdraft (Liability) 3,207,900
3. Ans. A. h. Advances to supplier 60,000

31,413
Allowance for BD, end 52,200 Purchases 60,000
Add: Write off 16,500
Debit unadjusted balance 100,113 i. Sales 4,500,000
Bad debt expense
Accounts receivable 4,500,000
4. Ans. B.Sales (no adjustment to subsidiary- aging)
7,480 7,48
Accounts receiavable j. Sales return 225,000
0
To adjust the unreconciled difference. (SL should prevail over GL) Accounts receivable 225,000
(no adjustment to subsidiary – aging)
CHAPTER 3-EXERCISE 10: BROCOLI CORP. k. Bad debt expense 880,763

Adjusting entries
Allowance for bad debts 880,76
a. Accounts payable 67,500 3 Gen Ledger
63,219,000

Customer post-dated check (AJE b) 189,000
Customer post-dated check (AJE f) 57,900
Collections Received on Dec. 31, 2014 (adj to SL only)

Consigned goods to NITZ (adj to SL only)
1-30 days 31-60 days 61-90 days 91-120 days more than
1
159,600 132,960 97,800 88,200 63,960
26,760 (26,760
(20,000) )
(52,200)
166,360 132,960 97,800 36,000 37,200
1% 2% 5% 10% 50%
1,664 2,659 4,890 3,600 18,600
Subs. Ledger Current Past due

65,045,790 35,550,000 29,495,790
189,000 189,000
57,900 57,900
(2,626,290) (1,000,000) (1,626,290)
(3,925,500) (3,925,500)
Undelivered sales (adj to GL only/ AJE i) (4,500,000)
Unrecorded sales returns (adj to GL only/AJE j) (225,000)
Adjusted Balances 58,740,900 58,740,900 30,871,400 27,869,50

CHAPTER 3: AUDIT OF RECEIVABLES
3. Ans. D. AND SALES
0
Current 30,871,400 2% 617,428

Past Due 27,869,500 7% 1,950,865
Required Allowance, end 2,568,293
Add: Write-offs 521,565
Less: Allowance, beg (1,773,195)
Interim provision/Bad debt per books (435,900)
Additional bad debt expense 880,763
l. Inventory 6,920,400
Cost of sales 6,920,400

(3,925,500+4,500,000+225,000)*80%
1. Ans. D.
Cash, Unadjusted balance (90,000)
(a) (67,500)
(b) (189,000)
(c) 107,550
(d) 115,650
(e) 258,000
(f) (57,900)
(g) 3,207,900
Cash, adjusted balance 3,284,700

2. Ans. C.
Cash in bank, BADO (3,150,000)
(f) (57,900)
Cash in bank, BADO (total overdraf (3,207,900)
4. Ans. C. 435,900
Bad debt expense per books 880,763
Additional bad debt expense per audit' 1,316,663
Bad debt expense per audit
58,740,900
5. Ans. C. (2,568,293)
Gross Accounts Receivable 56,172,607
Allowance for bad debt
Amortized cost/Carrying value
55,558,140
6. Ans. D. 6,920,400
Inventory, unadjusted balance 62,478,540
(l)
Inventory, adjusted balance
Recievable-Curr Interest IncomInterest
Rec.
CHAPTER 3-EXERCISE 11: MYBAGS INC. - - -
900,000
(a) NR discounted as a sale 500,000
(b) NR - 30 days 13,333.33 - 13,33
NR - total
(c) NR - 90 days (Subscription Receivable) - 16,000 3
Int. Inc. (P500,000*16%*2/12) 900,000 160,000 -
(d) NR-dishonored (collection w/in 12 months is doubtfu - 120,000
(e) NR - 90 days (Advances to Officer) 5,760
(f) NR - 120 days 120,000 1,680,000 35,093
Int. Inc. (P120,000*16%*108/360) 2. Ans. C. 3. Ans. D.
5,760
Total 1,020,000
19,093
1. Ans. C.
4. Ans. A.
CHAPTER 3-EXERCISE 12: YZA INC.

1. Ans. A.
Proceeds from the loan (FMV = Present Value of future cash flows at 8% effective rate for 3 periods)
Principal (1,000,000*0.793832) 793,832 0.793832
Interest (60,000*2.577097) 154,626 2.577097
948,458
Principal amount 1,000,000

Add: Origination cost (Squeeze) 28,458
Less: Origination fee (80,000)
Net proceeds/Fair value 948,458
Amortization table: Loans receivable CHAPTER 3: AUDIT OF RECEIVABLES AND SALES

Janaury 1, 2014: 948,458
December 31, 2014: 75,877 60,000 15,877 964,335
December 31, 2015: 77,147 60,000 17,147 981,481
December 31, 2015: 78,519 60,000 18,519 1,000,000
2. Ans. C.
Carrying value/Amortized cost (12/31/15) 981,481
Accrued interest (as of 12/31/15) 60,000
Total receivables as of 12/31/15 1,041,481

Present value of new cash flows at original eff. %
(8%)
Due 12/2016: P300,000*0.925926 277,778 0.925926
Due 12/2018: P300,000*0.793832 238,150 515,927 0.793832
Impairment loss 525,554
3. Ans. C.
CHAPTER 3-EXERCISE 13: ISIAH COMPANY

Principal amount 4,000,000
Add: Origination cost 248,000
Less: Origination fees (374,000)
Initial amount/Fair value/Proceeds 3,874,000
1. Ans. B.
Amortization table: Loans receivable
Correct Int. Nominal Int. Balance
December 31, 2013: 3,874,000
December 31, 2014: 358,345 320,000 3,912,345
December 31, 2015: 361,892 320,000 3,954,237
December 31, 2016: 365,763 320,000 4,000,000
2. Ans. D.
Amortized cost/Carrying value (12/31/15) 3,954,23
Accrued interest (12/31/15): 7
Total receivables as of 12/31/15 320,000
Less: Present value of new future cash flows at 9.25% 4,274,237
Due 12/31/2017: (1.4M*0.837832) 1,172,965
Due 12/31/2018: (P1M*0.766895) 766,895
Due 12/31/2019 (P600K*0.701963) 421,178
Due 12/31/2020: (P400K*0.642529) 257,012 Impairment
2,618,049
loss
1,656,188
3. Ans. B.; 4. Ans. C.
Amortization table: Loans receivable after impairment
loss Correct Int.
December 31, 2015: Principal Coll. Balance
Nominal Int. - 2,618,049
December 31, 2016: 242,170
December 31, 2017: 264,570 1,400,000 2,860,219
- 1,000,00 1,724,789
December 31, 2018: 159,543
- 0 884,332
December 31, 2019: 81,801 -
December 31, 2020: 33,867 600,000 366,133
- (0
400,000
- )
CHAPTER 3-EXERCISE 14: VISAGE CORP. Amortization
1. Ans. A.
Net cash proceeds from factoring (P350,000-P10,000) 38,345
Factors holdback 340,000 41,892
Total/Net sales price of AR factored 45,763
50,000
Less: Carrying value of AR (P500,000-P20,000) Loss
390,000
from factoring (480,000)
(90,000)
2. Ans. D.
0.915332
0.837832
0.766895
0.701963
0.642529
Amortization
242,170 Balance
264,570
159,543 500,000
81,801 310,000
33,867 166,200

Assignment is only a loan transaction, thus there is no transfer of receivable.
3. Ans. A.
Accounts receivable-assigned 800,000
May collection with sales discount (P200,000+P5,000) (205,000)
June collection with sales discount (P150,000+P4,000) (154,000)
Sales returns (30,000)
Accounts written-off as worthless (20,000)
Accounts receivable-assigned - June 30 391,000
4. Ans. B.
Payment Interest Principal
(Bal*24%*1/12) (Payment-Int)
Loans payable balance, May 1
May 31 remittance 200,000 10,000 190,000
June 31 remittance 150,000 6,200 143,800
5. Ans. B.
Proceeds from discounting ** 625,400
Less: Carrying value of Notes (600,000) Interest receivable up to Oct. 31
(P600K*12%*4/12 (24,000)
Gain on Discounting
** Proceeds from discounting
Maturity value 1,400
Principal amount 600,000
Interest (P600,000*12%*6/12) 36,000 636,000

Discount (P636,000*10%*2/12) (10,60
0)
Proceeds from discounting 625,400

CHAPTER 4: AUDIT OF INVENTORIES AND COST OF SALES
DISCUSSION PROBLEMS
CHAPTER 4-PROBLEM 1
1 B.
2 D.
3 D. 4 C. 5 B. 6
7
1A
2D
3C
4B
5 A
6 B
8
D
9 B
10 B
7 D
11 D
12 A
13 C
CHAPTER 4-PROBLEM 2: NOKIA CORP.

Inventory Acc. Payable Net Sales Net Purch. Net Income
Unadjusted balances 1,200,000 790,000 6,050,000 3,300,000 610,000 (c) Purch in transit - FOB,
Dest. (120,000) (120,000) 120,000
(d) Unrecorded purch. returns/allowance (70,000) (70,000) (70,000) -
(e) "Bill and Hold" Sales (224,000) (224,000)
(f) Goods out on consignment 70,000 (100,000) (30,000) (g) Sales in transit - FOB, SP (105,000)
(105,000)
(h) Goods segregated but not yet sold 98,000 98,000
(i) Purch in transit - FOB, SP 170,000 170,000 (170,000)
(j) Purch in transit - FOB, SP 200,000 200,000
1,169,000 770,000 5,950,000 3,280,000 499,000

1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans.
CHAPTER 4-PROBLEM 3: INGGO CORP.

Inventory Acc. Payable Sales Net Income
Unadusted balances 3,750,000 3,075,000 27,000,000
(a) Goods held on consignment, recorded as purchases (465,000) (465,000) (b) Credit balance -
Fox Inc. (Advances to supplier) 25,000
Sale on approval - not yet valid sale 66,000 (84,000) (18,000)
(c) Sales in transit - FOB Seller (FOB, SP) - no adjustment
(d) Goods out on consignment, recorded as sales 630,000 (750,000) (120,000) (e) Purchase in transit,
FOB Seller (FOB, SP) 75,000 75,000 (f) Unrecorded freight cost 3,000 6,000 (3,000)
(g) Purchase discount - Beta Corp. (P795,000*2%) (15,900) (15,900) -
(h) Inventory financing - Loan to Hote Inc. (not purch) (100,000) (100,000) -
(i)
3,943,1 2,600,1 26,166,0 (141,00
00 00 00 0)
CHAP 1. 2. 3. 4.
TER Ans. Ans. Ans. Ans.
4-
PROB
LEM
4:
TOUR
COMP
ANY

Purch Inventor
ases ies
Unadjusted balances 2,543,900 354,500
RR #11204 (7,800)
RR #11210 4,000 4,000
RR #11211 9,700
RR #11212 12,840
RR #11214 25,640 25,640
RR #11215 28,400 28,400
Total/Net Adjustment 72,780 58,040
Adjusted balances 2,616,680 412,540
2. Ans.
1. Adjusting journal entries:
Purchases 72,780
0
Inventory 58,040
Income summary 58,04
0
3. Ans. P2,439,140
Inventory, Nov. 1, 2013 235,000
Net Purchases, as adjusted 2,616,680
Cost of goods avaialble for sale 2,851,680
Inventory, Oct. 31, 2014, as adjusted (412,540)
Cost of Sales 2,439,140
CHAPTER 4-PROBLEM 5: ABC CORP.

1. Ans. P156,000.
Merchandise Inventory, Jan. 1 120,000
Purchaes (Jan. 1 to Oct. 31) 830,000
Transportation-in 20,000
Purchase returns and allowances (10,000) 840,000
Actual cost of goods available for sale 960,000
Less: Estimated cost of sale* (756,000
)
Estimated inventory, October 31 204,000
Inventory not damaged by fire 48,000
Inventory loss due to fire 156,000
*Estimated loss
Inventory cost of
duesale
to fire 48,000
Gross Sales 1,096,000
*Estimated cost of sale
Employee discount 24,000 1,080,000
Sales returns
Multiply by cost % (100%-30%) (40,000) 70%
Employee
Estimated discount
cost of sale 24,000 1,080,000
756,000
Divide
2. Ans. by Selling Price % (100%+25%)
P48,000. 125%
Estimated cost of sale 864,000
Merchandise Inventory, Jan. 1 120,000
Purchaes (Jan. 1 to Oct. 31) 830,000
Transportation-in 20,000
Purchase returns and allowances (10,000) 840,000
Actual cost of goods available for sale 960,000
Less: Estimated cost of sale* (864,000
)
Estimated inventory, October 31 96,000
Inventory not damaged by fire 48,000

CHAPTER 4-PROBLEM 6: KAGOME COMPANY

1. Ans. P2,225,000.
Collection on AR 1,825,000 Add: AR, December
31, 270,000 Sales returns 25,000
Sales discounts 30,000
Accounts written-off 20,000
Less: AR, January 1 (295,000)
Gross Sales on account 1,875,000
Gross Cash Sales 350,000
Gross Sales
2,225,000
2. Ans. P1,850,000.
Less: Sales returns (25,000)
Sales for inventory estimation
2,200,000
3. Ans. P400,000.
Inventory, December 31, 2013 320,000
Purchases 1,410,000
Unrcorded purchases 10,000
Advances to suppliers recorded as purch. (20,000) 1,400,000
Cost of goods available for sale 1,720,000
Less: Estimated cost of sales (P2.2M*60%) (1,320,000
)
Estimated Inventory, December 31, 2014
4. Ans. P80,000.
400,000
Estimated Inventory per audit 400,00
0
Inventory per books 320,00
0
Inventory shortage 80,000
CHAPTER 4-PROBLEM 7: JIM CORPORATION

11 Mo. Purch 12 Mo. Purch
a) May purchases recorded only in June 7,500
b) Unrecorded purch. returns/allow. (1,000) (1,500)
c) Advances to suppliers (2,000) (2,000)
d) May purch in transit, FOB Dest. (5,500) Adjusted balances
674,000 796,500
Inventory, July 1, 2013
Purchases, 11 months as adjusted 87,500
Cost of goods available for sale, 11 674,000
months 761,500
Inventory, May 31, 2014 95,000
d) May purch in transit, FOB Dest. 89,500
Cost of sales, 11 months 672,000
(5,500)
1. Ans. 20%.
Sales, 11 months 840,000 100%
Cost of sales, 11 months Gross profit, 11 672,000 80%
months 168,000 20%
2. Ans. P98,000.
Sales, 12 months 960,000
Sales, 11 months (840,000)
Sales for the month of June 120,000
e) Sales in June at 0% GP (10,000) Sales for
June at 20% GP 110,000
Multiply by Cost% 80%
Cost of sales (Sales at 20%GP) 88,000
Add: Cost of sales (Sales at 0%GP) 10,000 Total Cost
of Sales for June 98,000
3. Ans. P114,000.
Inventory, July 1, 2013 87,500 Purchases, 12 months
796,500

Cost of goods available for sale, 12 months 884,000

Less: Cost of sales, 12 months (P672,000+P98,000) (770,000)
Estimated Inventory, June 30, 2014
114,000
CHAPTER 4-PROBLEM 8: DOWN WHOLESALE CORPORATION
1. Ans. P50,750.
2. Purchases, Jan. 1 - March 31 42,00
Ans. Payments to suppliers, Apr. 1 - 15 0
Cash purchases 2,000
Purchases on account (P8,500-P1,300) 7,200
Purchase returns (450) 8,75
0
Purchases, Jan. 1 to Aprl 15 50,750
P105,000.
Sales, Jan 1 - March 31 90,40
0
Collections from customers, Apr. 1 - 15 10,200
Add: AR, April 15 26,400
Write-off of receivables 5,000
Less: AR, March 31 (27,000) 14,60
0
Sales, Jan. 1 - Apr. 15 105,000
3. Ans. 45%
Total Sales 2012 and 2013 700,000 100%
Cost of sales 2012 and 2013 385,000 55%
Gross profit 2012 and 2013 315,000 45%
4. Ans. P43,000.
Inventory, Dec. 31, 2013 50,00
0
Purchases, Jan. 1 - Apr. 15 50,75
0
Cost of goods available for sale 100,75
0
Estimated cost of sales (105K*55%) 57,75
0
Estimated Inventory, Apr. 15 43,000
5. Ans. P39,650.
Estimated Inventory, Apr. 15 43,000
NRV of remaining inventory
(3,350)
Inventory Loss 39,650
CHAPTER 4-PROBLEM 9: DIOSAH INC.

Cost Retail
Inventory, October 1, 2013 372,000 620,000
Purchases 2,910,000 4,452,000
Transportation in 55,000
Purchase return (27,000) (45,000)
Purchase allowance (18,500)
Purchase discounts (15,960)
Departmental transfer out (135,500) (175,000)
Departmental transfer in 125,500 165,000
Net Mark up (P290,000-40,000) 250,000
3,265,540 5,267,000 62% Conservative
Net Mark down (P283,000-P40,000) (243,000)
Cost of goods available for sale 3,265,540 5,024,000 65% Average
Less: Inventory, October 1, 2013 (372,000) (620,000)
COGAS - Inventory, Beg 2,893,540 4,404,000 66% FIFO
Retail
Cost of goods available for sale at retail 5,024,000

Less: COGAS at retail/Sales
Gross sales 4,872,000


Normal breakages 50,500
Discounts to employees 75,500 (4,643,000)
Inventory, End at retail price 381,000
1. Ans. P236,220.

Conservative Cost % 62%
Inventory, End at cost 236,220
2. Ans. P247,645.
Average Cost % 65%
2. Ans. P251,460.
FIFO Retail Cost % 66%
CHAPTER 4-PROBLEM 10: GLORIA CORPORATION
1. Ans. P540,000; P527,000; P430,000.
Finished goods Item M Item P Item Q
Cost 550,000 540,000 430,000 1,520,000
NRV: Est. Selling Price - Cost to Sell 540,000 527,000 697,000
Required allowance for write-down 10,000 13,000 - (23,000)
Lower of Cost or NRV 1,497,000
2. Ans. P240,000; P148,000; P320,000.

Work-in-process Item M Item P Item Q
Cost 240,000 188,000 320,000 748,000
NRV: Est. Selling Price - Cost to Sell - Cost to Compl. 240,000 148,000 550,750
Required allowance for write-down - 40,000 - (40,000
)
Lower of Cost or NRV 708,000
3. Ans. P1,105,000.
Since finished goods M has been written down to NRV, RM of item M shall be tested for possible write-down.
A B C
Cost 250,000 500,000 400,000 1,150,000
Current purchase price 250,000 480,000 375,000
Required allowance for write-down -
20,000 25,000
(45,000)
1,105,000
4. Ans. P855,000.
Since finished goods P has been written down to NRV, RM of item P shall be tested for possible write-down.
X Y Z
Cost 400,000 300,000 200,000 900,000
Current purchase price 450,000 275,000 180,000
Required allowance for write-down - 25,000 20,000 (45,000)
855,000
5. Ans. P825,000.
Since finished goods Q has not been written-down, the RM for item Q shall not be tested for possible write down.
D E
Cost 375,000 450,000 825,000
6. Ans. P103,000.
Allowance for WD-FG, ending 23,000
Less: Allowance for WD-FG, beg. (10,000)
Loss on write-down - FG 13,000

Allowance for WD-WIP, ending 40,000

Less: Allowance for WD-WIP, beg. -
Loss on write-down - WIP 40,000

Allowance for WD-RM, ending 90,000
Less: Allowance for WD-RM, beg. (40,000)
Loss on write-down - RM 50,000
Total loss on inventory write-down 103,000
MULTIPLE CHOICE EXERCISES:

CHAPTER 4-EXERCISE 1:
1. Ans. A.
Cost of goods out on consignment at another company’s store 2,400,000
Goods in transit purchased FOB shipping point 360,000
Cost of goods sold with repurchase agreement/Inventory financing 900,000
Freight charges on goods purchased 240,000
Factory labor costs incurred on goods still unsold 150,000
Materials on hand not yet placed into production 1,050,000
Raw materials on which the company has started production 840,000
Factory supplies 60,000
Costs identified with units completed but not yet sold 780,000
Cost of goods in transit sold FOB destination 120,000
Total inventories 6,900,000
CHAPTER 4-EXERCISE 2: SILANG CORP.
Cash Acc. Rec. Merch. Invty Acc. Payable Accrued Exp. Cost of
Sales
Unadjusted balances 963,200 2,254,000 6,050,000 4,201,000 60,400
(a) (654,600) 310,000
(b) 360,000 372,400
(c-1) 275,000 (275,000)
(c-2) 217,500 217,500 -
(c-3) (637,500) 637,500
(c-4) 130,000 (130,000)
(c-5) (175,000) (175,000)
Adusted balances 668,600 2,564,000 6,035,000 4,615,900 60,400 57,500
1. Ans. D. 2. Ans. C. 3. Ans. C. 5. Ans. C. 4. Ans. A.
6. Ans. B.
Current Assets
Cash 668,600
Accounts receivables 2,564,000
Merchandise inventory 6,035,000 9,267,600
Current Liabilities
Accounts payable 4,615,900
Accrued expense 60,400 4,676,300
Working Capital Ratio 1.98 AP Purchases Net
Income
CHAPTER 4-EXERCISE 3: IVY INC. 33,000 33,000 (40,000)
Sales
AR -
Inventory (140,000)
a. Goods out on consignment (140,000) (40,000)
100,00 16,000
b. Purch in transit (FOB SP) (22,000) (22,000)
0 22,000
c. Sales in transit (FOB SP)
d. Sales in transit (FOB Dest) 33,000 (50,000
Purch in transit (FOB Dest) (40,000) )
e. 11,000 11,000
f. Goods held on consignemnt 16,000 3. Ans. C. (112,000)
(112,000) (204,000)
g. Sales in transit (FOB Dest)Net (112,000
(50,000) (252,000) 4. Ans. D.
adjustments: )
(252,000) Accts Rec. Acc. Payable
59,000 250,000 200,000
2. Ans. B.
1. Ans. A. (23,000)
CHAPTER 4-EXERCISE 4: LONE STAR CORP. Inventory (34,000)
300,000

Purchases 32,000 (8,000) 9,000

Sales 1,500,000 40,000
2,815,000 60,000
SI 1024 (23,000) 400,000 (50,000)
SI 1025 (34,000) SI 1026 (75,000) 401,000
(8,000) 9,000
RR 1115
RR 1118
SI 1023 (50,000)
SI 1021 (75,000)
400,000
RR 1119
Adjsuted balance
1. Ans. A. 2. Ans. B. 3. Ans. A. 4. Ans. D. 5. Ans.
2,625,000 1,909,000 832,000 60,000 610,000
A.
CHAPTER 4-EXERCISE 5: SOFIA INC.

Invty, end Purchases Cost of Sales Net Income
Unadjusted balance 200,000 3,200,000 3,160,000
Beginning of the year:
a. Dec. purchases recorded in Jan. (50,000) (50,000) 50,000
b. Dec. purchases not included in Invty 26,400 (26,400)
End of the year:
a. Unrecorded Dec. sale 86,000
b. Dec. purchases recorded in Jan. 30,000 30,000 (30,000)
c. Dec. purchases not included in Invty 36,000 (36,000) 36,000
d. Dec. purchases 24,000 24,000 - -
Adjusted balances
1. Ans. C. 2. Ans. D.
260,000 3,204,000 3,130,400 115,600
3. Ans. B. 4. Ans. D.
CHAPTER 4-EXERCISE 6: BIRD COMPANY
Inventory Accts Payable Net Sales
Unadjusted balances 1,870,000 1,415,000 9,693,400
Adjustments: A (78,500)
B 93,000 93,000
C 27,000
D 49,000
(67,800)
E 17,000
F 31,200
G 36,000
H 8,000 16,000
Adjusted balances
1. Ans. A. 2. Ans. B. 3. Ans. D.
2,095,200 1,560,000 9,547,100
Accts Receiva Inventories Sales Cost of Sales Gross profit
276,500 425,000 1,320,000 842,000 478,000
December recorded sales:
In-tansit FOB, Dest. (8,680) 7,240 (8,680) (7,240) (1,440
)
Sipment to consignee (14,200) 12,500 (14,200) (12,500) (1,700
)
In-tansit FOB, Dest. (10,000) (10,000) (10,000
)
In-transit FOB, SP (6,100) 6,100 (6,100
)
Sipment to consignee (14,000) (14,000) (14,000
January recorded sales: )
In-transit FOB, SP 21,000 (18,200) 21,000 18,200 2,800
Adjusted balance
1. Ans B.
250,620 420,440 1,294,120 846,560 447,560
2. Ans. B. 3. Ans. A.
4. Ans. C. 5. Ans. D.
CHAPTER 4-EXERCISE 8: KAMPT COMPANY

Sales Inventories
December 2014 recorded sales
1) (2,000)
3) (2,00
0)
4) (6,90
0)
5) (600)
7) (4,000)
8) (10,000)
January 2015 recorded sales
9) 6,000 (4,000)
12) 8,000 (5,500)
Net Adjustment
(8,900) (12,100)
1. Ans. A. 2. Ans. A.
CHAPTER 4-EXERCISE 9: MALAGUKU CO.
Unadjusted balances
Purchases Inventories
RR No. 631
1,750,000 175,000
RR No. 632
2,000
RR No. 633
9,000
RR No. 634 8,000
RR No. 635 (4,000)
RR No. 636
RR No. 638
RR No. 641
Adjusted balances
1. Ans. A.
(6,000) 2. Ans. C
CHAPTER 4-EXERCISE 10: KULA INC. 7,200
Inventories
4,100 Purchases
1,751,300
27,000 194,000
650,000
December 2014 entries
Invoice No. 9176 310
Invoice No. 0481 (750
)
Invoice No. 6098 (350
January 2015, entries )
Invoice No. 7711 460 460
Invoice No. 4678 315 315
Invoice No. 9981 595 595
Invoice No. 7263 610 610
Goods held on consignment (750)
Deliveries made to customers after count date (1,900)
Adjsuted balances
1. Ans. B. 2. Ans. D.
28,220 651,650
CHAPTER 4-EXERCISE 11: FLORES COMPANY

1. Ans. D.
Per Count Per GL Per "Tab Run"
Unadjusted balances 342,400 384,900 403,300
1 (500)
2 (23,900)
3 (600)
4 (800) (800)
5 4,400
6 (7,500) (7,500)
7 (900)

8 2,100
9 (1,200) (1,200)
10 700
11 30,000
Adjsuted balances
374,300 374,300 374,300

2. Ans. D.
CHAPTER 4-EXERCISE 12: ALDER PAINTS

RM Inventory, beg 15,000
Purchases 50,000
Freight-in 5,000 55,000
RM available for use 70,000
Less: RM Inventory, end (30,000)
RM used 40,000 2. Ans C.
Direct labor 40,000
Factory overhead (45% of Direct labor) 18,000
Total manufacturing cost 98,000
Add: WIP, beg 50,000
Total goods placed into process 148,000 3. Ans.
D.
less: WIP, end (Squeeze) 110,000
56,750 4. Ans. A.
Cost of goods manufactured (Squeeze) 91,250 1.
(40,000) Ans.
D.
Add: Finished goods, beg. 70,000
70,000
less: Finished goods, end (60,000)
Cost of sales (estimated)** 2012
101,250
5,640,00
** Sales 150,000 0
Multiply by Cost rate (100%-32.5%) 68%
1,502,400 1,466,40
0
Estimated cost of sales 30%
101,250 26%
CHAPTER 4-EXERCISE 13: NATURAL
CORPORATION
Inventory, Jan. 1 80,00
0
Purchases 400,000 6,030,400
1,031,120
Less: Purchase discounts (40,000) (1,044,720
Purchase returns and allowance (30,000) ) 330,00
0
6,016,800
Estimated cost of sale 0 3,900,00
Sales 380,000 0
Less: Sales returns (20,000) 982,800
(705,120
Sales for GP method purposes 360,000 )
Divide by: Selling price % 120% 4,177,680
300,00
0
Estimated ending inventory1. Ans. C.
Less: Inventory not damaged by fire (in-
transit) 1,150,800
Inventory loss2. Ans. C. 4,177,680
5,328,480
6,016,800
70% (4,211,760
CHAPTER 4-EXERCISE 14: BAGUIO CORP. )
1. Ans. C. 1,116,720
1,116,720 30%
390,000
139,000 529,000
587,720

4,590,000 100%
(2,295,000) 50%
2,295,000 50%
2013 Total
Sales5,440,000
Gross Profit1,849,600
Gross profit % based on sales34% 90%
Divide by: 3 years 3
Average gross profit rate
2. Ans. A.
Collections from customers Jan. 1 to Sept. 1
Add: AR, Sept. 1
Less: AR, Jan. 1
Gross sales (accrual basis)
3. Ans.
Payments to suppliers Jan. 1 to Sept. 1
Add: AP, Sept. 1
Less: AP, Jan. 1
Gross purchases (accrual basis)
4. Ans.
Inventory, Jan. 1
Purchases
Cost of goods available for sale
Less: Estimated cost of sales
Sales
Multiply by: Cost % (100%-30%) Estimated Inventory, Sept. 1
5. Ans. A.
Estimated Inventory, Sept. 1
Goods out on consignment
Goods in transit as of Sept. 1 Inventory loss
CHAPTER 4-EXERCISE 15: AB CORP.

1. Ans. B.
Sales for 10 months (Jan to Oct) (a)
Cost of Sales 10 months (Jan to Oct) (b)
Gross profit
(a) Sales 10 months, unadjusted 4,765,000
Less: Delivery in transit (FOB Dest.) (75,000)
Adjusted Sales 10 months 4,690,000
Less: Sales returns and allowance (300,000)
Add: Employee discounts 150,000
Normal breakages 50,000
Sales 10 months, adjusted (for GP comp only) 4,590,000
(b) Beg Inventory 450,000
Net purchases (as adjusted:)(c) 2,485,000
Cost of Goods Available for sale (10 months) 2,935,000
Less: Inventory, end (550,00+90,000) (640,000)
Cost of Sales (10 months) 2,295,000
(c) Purchases, unadjusted 2,450,000
Add: Purchase in transit FOB shipping point 90,000
Freight in 60,000
Less: Purchase discount (45,000)
Purchase returns and allowance (70,000)
Net purchases (as 2,485,000
adjusted) 2. Ans. A.
Sales (12 months), as adjusted (for GP Method)(d) 6,575,000

Sales (10 months), as adjusted (for GP Method) (4,590,000)
Gross Sales for 2 months (for GP Method) 1,985,000
Less: Sales in Dec. at 10% mark-up on cost (110,000)
Sales in Dec. at normal 50% mark-up 1,875,000
Multiply by normal Cost %, under normal GP% 50%

Cost of sales at normal GP rate 937,500

Add: Cost of sales 10% markup on cost 100,000
Total cost of sales for 2 months 1,037,50
0
(d) Sales 12 months, unadjusted 6,750,000
Less: Sales returns and allowance (12 months) (375,000)
Add: Employee discounts (12 months) 150,000
Add: Normal breakages (12 months) 50,000
Sales 12 months, 6,575,000
adjusted 3. Ans. D.
Cost of Sales (10 months, see number 1

2,295,000
Cost of Sales (2 months, see number 2 solution)
1,037,500
solution)
Total Cost of Sales 3,332,500
4. Ans. B.
Inventory, beginning 450,000
Add: Net Purchases (12 months)
Gross Purchases 3,410,000 Freight in
90,000
Purchase discount (70,000)
Purchase returns and allowance (100,000) 3,330,000
Cost of Goods Available for Sale (12 months) 3,780,000
Cost of Sales 12 months (see number 3 solution) (3,332,500)
Estimated ending inventory 447,500
CHAPTER 4-EXERCISE 16: SURETY CORP.

Cost Retail Cost %
Beginning inventory 598,400 1,500,000
Purchases 3,048,400 5,500,000
Freight in 80,000
Purchase returns (140,000) (180,000)
Mark-ups 600,000
Mark-up cancellations (100,000)
Cost of goods available for sale - Conserv. 3,586,800 7,320,000 49%
Mark-downs (1,300,000)
Mark-down cancellations 385,000
Cost of goods available for sale - Average 3,586,800 6,405,000 56%
Less: Beginning inventory (598,400) (1,500,000)
Purchases - FIFO Retail 2,988,400 4,905,000 61%
Cost of goods available for sale at Retail 6,405,000
Less: Cost of sales at Retail/Sales
Sales 4,470,000
Employee discount 400,000 (4,720,000)
Estimated Inventory at Retail 1,685,000
1. Ans. B.
Multiply by Cost % - Conservative 49%
Estimated Inventory at Cost 825,650

Less: Inventory per count (649,600)
2. Ans. C.



3. Ans. C.
Estimated Inventory at Cost 1,027,850

CHAPTER 4-EXERCISE 17: TITANIUM CORP.

Cost Retail Cost %
Beginning inventory 1,020,000 1,920,000 Purchases 13,072,500
22,155,000
Freight in 300,000
Purchase returns (450,000) (750,000)
Purchase allowance (270,000)
Departmental transfer debit 300,000 425,000
Departmental transfer credit (600,000) (1,200,000) Abnormal
spoilages and breakages (120,000) (200,000)
Net markup 450,000
Cost of goods available for sale - Conserv. 13,252,500 22,800,000 58%
Net markdown (1,425,000)
Cost of goods available for sale - Average 13,252,500 21,375,000 62%
Less: Beginning inventory (1,020,000) (1,920,000)
Purchases - FIFO Retail 12,232,500 19,455,000 63%
Cost of goods available for sale at Retail 21,375,000
Less: Cost of sales at Retail/Sales
Sales 19,800,000
Employee discount 300,000
Normal Spoilage 600,000 (20,250,000)
1. Ans. B.


2. Ans. A.

3. Ans. C.
Item Quantity Unit Cost NRV Lower of Cost or NRV
Z-01 10,000 20 25 20 200,00

0
Z-02 15,000 25 22 22 330,00
Invntory shortage 308,750 0
CHAPTER 4-EXERCISE 18: NANCY Z-03 20,000 30 26 26 520,00
INC. 0
1. Ans.A. Z-04 25,000 32 35 32 800,00
0
Z-05 30,000 35 30 30 900,00
0
Y-01 20,000 22 23 22 440,00
0
Y-02 22,000 28 25 25 550,00
0
2. Ans. CHAPTERY-03
4: AUDIT OF INVENTORIES
28,000 25 AND30COST OF SALES
25 700,00
0
Total Cost Y-04 25,000
5,981,00 30 25 25 625,00
0 0
Lower of Cost or NRV Y-05 30,000
5,515,00 15 25 15 450,00
0 0
5,515,000
Loss on inventory write-down
3. Ans. B. Z-01 10,000 20 25 200,000 250,000

Class Z: Quantity
Z-02 15,000 Unit Cost 25 NRV 22 Total Cost
375,000 Total 330,000
NRV
Z-03 20,000 30 26 600,000 520,000
Z-04 25,000 32 35 800,000 875,000
Z-05 30,000 35 30 1,050,000 900,000

3,025,000 2,875,000 2,875,00
Class Y: 0
Y-01 20,000 22 23 440,000 460,000
Y-02 22,000 28 25 616,000 550,000

Y-03 28,000 25 30 700,000 840,000
Y-04 25,000 30 25 750,000 625,000

Y-05 30,000 15 25 450,000 750,000
2,956,000 3,225,000 2,956,00
0
LCorNRV
5,831,000
2. Ans.
Total Cost 5,981,000
Lower of Cost or NRV 5,831,000
Loss on inventory write-down
150,000
CHAPTER 4-EXERCISE 19: SAVIOR CORPORATION
Markers Pens Pencils

Historical cost 24,000 18,880 30,000
Selling price 36,000 21,800 38,000

Estimated cost to complete (3,000) (2,620) (6,200)
Estimated cost to sell (1,800) (2,180) (3,800)
Net realizable value 31,200 17,000 28,000
Lower of cost or NRV 24,000 17,000 28,000 69,000
1. Ans. B.
Total Cost 72,880

Lower of cost or NRV 69,000
Loss on write-down 3,880
2. Ans. B.
Total Cost 72,88
0
0
Allowance for write-down, end
3,880
Allowance for write-down, beg.
2,000
Loss on write-down 1,880
3. Ans. B.
Total Cost 72,88
0
0
Allowance for write-down, end
3,880

Allowance for write-down, beg.

5,000
Gain on recovery (1,120)
4. Ans. C.
CHAPTER 4-EXERCISE 20:OCTOBER INC.
1. Ans. B.
Finished goods Item A Item B Item C
Cost 500,000 1,200,000 800,000
NRV (Selling price - Cost to sell) 800,000 1,050,000 1,080,000 Lower
of Cost or NRV 500,000 1,050,000 800,000 2,350,000
2. Ans. B.
Work-in-process Item A Item B Item C
Direct Materials 30,000 45,000 75,000
Direct Labor
50,000 65,000 35,000
Overhead
Total Cost 25,000 40,000 80,000
Selling price upon completion
105,000 150,000 190,000
Cost to complete
Cost to sell (% of Sellin price) 200,000 250,000 240,000
NRV
(50,000) (60,000) (40,000
Lower of cost or NRV )
(40,000) (75,000) (24,000
3. Ans. B. )
RM - Item A (FG not written-down, thus 110,000 115,000 176,000
RM - Item A shall not be tested anymore.
105,000 115,000 176,000 396,000
Total Lower of Cost or NRV
708,000
4. Ans. D.
Cost
FG WIP RM
Lower of Cost or NRV Loss on write-
2,500,000 445,000
down
725,000
5. Ans. B. 2,350,000 396,000
Cost 708,000
Lower of Cost or NRV 150,000 49,000
Allowance for WD, ending
Allowance for WD, beginning 17,000 216,000
Loss on WD(Recovery gain)
2,500,000 445,000 725,000

CHAPTER 4-EXERCISE 21:SOLSONS 2,350,000 396,000 COMPANY
Quantity Cost NRV
708,000 Amount at Lower of Cost or NRV
A 360 units
150,000 3.60/dozen
49,000 3.64/dozen 108.00 - 360/12per dozen*P3.60
B 24 units 4.70 each 4.80 each 112.80
C 28 units 16.50 each 17,000each
16.50 462.00
D 60,000
43 units 70,000
5.15 each 5.20 each- 221.45
E 400 units
90,000 9.10 each
(21,000) 8.10 each 3,240.00
F 70 dozens 2.00 each 2.00 each 1,680.00 - 70*12 per dozen*P2
G 95 grosses 17,000
132.00/gros 86,000
12,540.00
s
144.00/gross
Ans. A.
18,364.25

CHAPTER 5: AUDIT OF INVESTMENTS
DISCUSSION PROBLEMS
CHAPTER 5-PROBLEM 1
1D2
A
3 C
4 C
5 C
6 D
7 A
8 A
CHAPTER 5-PROBLEM 2: KILALA CORP.

CASE 1: FA at Amortized Cost 1.
Ans.P1,038,896.
January 1, 2014:
Financial asset at amortized cost 1,038,896
Cash 1,038,896
Quoted price (P1M*95%) 950,000
Transaction cost 88,896
Initial cost 1,038,896
Amortization table: FA at Amortized Cost

(Bal*eff%) (Princ*nom%)
January 1, 2014: 1,038,89

6
December 31, 2014: 93,501 100,000 (6,499) 1,032,39
7
December 31, 2015: December 92,916 100,000 (7,084) 1,025,312
31, 2014:
Cash 100,000
FA at amortized cost 6,499

2. Ans. P93,501.
December 31, 2015:

Cash 100,000

3. Ans. P92,916.
4. Ans. P1,025,312.
5. Ans. P24,688 gain

Sales proceeds (1/1/16) 1,050,000
Less: Carrying Value/Amortized cost 1,025,312
Realized gain on sale 24,688 1,038,896
CASE 2: FA at FMV through Profit or Loss 100,000

1. Ans. P950,000. January 1, 2014:
FA at FMV (P1M*95%) 950,000
Expense 88,896 250,000
Cash
December 31, 2014:

Cash 100,000
Interest Income (P1M*10%)
FA at FMV
250,000
Unrealized holding gain
Fair Value (12/14): P1M*120%
Carrying value 1,200,000
Unrealized holding gain - P/L 950,000
250,000
2. Ans. P261,104.
Transaction cost (Expense) Interest

income (88,896)
Unrealized holding gain 100,000
250,000
Net investment income
261,104
December 31, 2015:
Cash 100,000
Interest Income (P1M*10%) 100,000
Unrealized holding loss 150,000
FA at FMV 150,000
Fair Value (12/15): P1M*105% 1,050,000
Unrealized holding loss - P/L (150,000)
3. Ans. (P50,000)
Unrealized holding loss (150,000)
Net investment loss (50,000) Balance
1,038,89
4. Ans. P1,050,000. 6
1,032,39
5. Ans.0 1,050,000 7
Sales proceeds (1/1/16) 1,050,000 1,025,312
Less: Carrying Value/FMV, 12/31/15 -
Realized gain on sale
CASE 3: AVAILABLE FOR SALE SECURITY

1. Ans.P1,038,896. January 1, 2014:
Available for sale security 1,038,896
Cash
Quoted price (P1M*95%) 950,000
Transaction cost 88,896
Amortization table: Available for sale security

Correct Int. 1,038,896
(Bal*eff%) Nominal Int. Amortization
(Princ*nom%)
93,501
92,916 100,000 (6,499)
100,000 (7,084)
100,000
January 1, 2014:
December 31, 2014: 100,000
December 31, 2015: 6,499
December 31, 2014: Cash 6,499

Interest income 1,200,000 167,603

167,603
Available for sale security
Unrealized holding gain-OCI
Fair Value (12/14): P1M*120% 93,501
Amortized cost (12/14)
Unrealized holding gain - OCI of SCI
100,000
2. Ans. P93,501
Interest income - P/L (2014)
100,000
December 31, 2015: Cash 7,084
Interest income
7,084
Available for sale security
1,050,000
142,916
Unrealized holding loss - OCL of SCI 1,025,312
Available for sale security 24,688
Fair Value (12/15): P1M*105% 167,603
Amortized cost (12/15) (142,916)
Unrealized holding gain - SHE, end
Unrealized hoding gain - SHE, beg
Unrealized holding loss - OCL of SCI
3. Ans. (P142,916)
Unrealized holding loss - OCL of SCI (2015 (142,916)

4. Ans. P24,688.
Unrealized holding gain - SHE, end 24,688
5. Ans. P1,050,000.
6. Ans. P24,688 gain
Sales proceeds (1/1/16) 1,050,000
Less: Carrying Value/Amortized cost -
Realized gain on sale 1,050,000
CHAPTER 5-PROBLEM 3: SOTA CORPORATION

CASE 1: FA at Amortized Cost 1. Ans.
P10,758,157.
January 1, 2014:
Financial asset at amortized cost 10,758,157
Cash 10,758,157
FMV = Present value of future cash flows at 10% effective rate for 5 periods.
Principal (P10,000,000*0.620921) 6,209,213 0.620921
Interest (P1,200,000*3.790787) 4,548,944 3.790787
Amortization table: FA at Amortized Cost

January 1, 2014: 10,758,157
December 31, 2014: 1,075,816 1,200,000 (124,184) 10,633,973

December 31, 2015: 1,063,397 1,200,000 (136,603) 10,497,370
June 30, 2016: December 524,869 600,000 (75,131) 10,422,239
31, 2014:
Cash 1,200,000
Interest income 1,200,000

2. Ans. P1,075,816.
December 31, 2015:

Cash 1,200,000

3. Ans. P1,063,397.
4. Ans. P10,497,370.
5. Ans. P622,239 loss

Sales proceeds (6/30/16) 10,400,000
Less: Carrying Value/Amortized cost (10,422,239)
Accrued interest (600,000)
Realized loss on sale (622,239)
CASE 2: FA at FMV through Profit or Loss

1. Ans. P10,758,157. January 1, 2014:
FA at FMV 10,758,157
Cash
10,758,157
Principal (P10,000,000*0.620921) 6,209,213 0.620921
Interest (P1,200,000*3.790787) 4,548,944 3.790787
December 31, 2014:

Cash 1,200,000
Interest Income (P10M*12%) 1,200,000
FA at FMV 213,759
Fair Value (12/14)** 10,971,916
Carrying value 10,758,157 Unrealized holding gain - P/L
213,759
**FMV = Present value of remaining cash flows at 9% for 4 periods.
Principal: (P10,000,000*0.708425) 7,084,252 0.708425
Interest: (P1,200,000*3.239720) 3,887,664 3.239720

FMV (12/14) 10,971,916
2. Ans. P1,413,759.
Net investment income 1,413,759
December 31, 2015:

Cash 1,200,000
Interest Income (P10M*12%) 1,200,000
FA at FMV 58,923
Fair Value (12/15)** 11,030,839
Carrying value 10,971,916 Unrealized holding gain - P/L
58,923
Principal: (P10,000,000*0.793832) 7,938,322 0.793832
Interest: (P1,200,000*2.577097) 3,092,516 2.577097

FMV (12/15) 11,030,839
3. Ans. P1,258,923.
Net investment income 1,258,923 Balance
4. Ans. P11,030,839. 10,758,15

7
5. Ans. P1,230,839 loss 10,633,97
Sales proceeds (6/30/16) 10,400,000 3
Less: Carrying Value/Amortized cost (11,030,839) 10,497,37
Accrued interest (600,000) Realized loss on 0
sale (1,230,839)
CASE 3: AVAILABLE FOR SALE SECURITY 1.

Ans. P10,758,157.
January 1, 2014:
Cash 10,758,157
Principal (P10,000,000*0.620921) 6,209,213 0.620921
Interest (P1,200,000*3.790787) 4,548,944 3.790787
Amortization table: Available for sale security

Correct Int. Nominal Int. Amortization
January 1, 2014:
1,200,000
December 31, 2014: 1,075,816
1,200,000
December 31, 2015: 1,063,397
December 31, 2014:

Cash 1,200,000

(124,184)
(136,603)
Unrealized holding gain-OCI 337,943
Fair Value (12/14)** 10,971,916
Amortized cost (12/14) 10,633,973
Unrealized holding gain - OCI of SCI 337,943

Principal: (P10,000,000*0.708425) 7,084,252
Interest: (P1,200,000*3.239720) 3,887,664
FMV (12/14) 10,971,916
2. Ans. P1,075,816.
Interest income - P/L (2014) 1,075,816
December 31, 2015:

Cash 1,200,000 0.708425
Interest income 1,200,000 3.239720


Unrealized holding gain-OCI of SCI 195,526
Fair Value (12/15): P1M*105% 11,030,839
Amortized cost (12/15) 10,497,370

Unrealized holding gain - SHE, end 533,468 0.793832

Unrealized hoding gain - SHE, beg 337,943 Unrealized holding 2.577097
gain - OCI of SCI 195,526
Principal: (P10,000,000*0.793832) 7,938,322
Interest: (P1,200,000*2.577097) 3,092,516
FMV (12/15) 11,030,839
3. Ans. P195,526.
Unrealized holding gain - OCI of SCI (2015 195,526
4. Ans. P533,468
Unrealized holding gain - SHE, end 533,468
5. Ans. P11,030,839.
6. Ans. P622,239 loss

Sales proceeds (6/30/16) 10,400,000
Less: Carrying Value/Amortized cost -
Realized loss on sale 10,263,397
CHAPTER 5-PROBLEM 4: ABC COMPANY

1. Ans. P35,479. FMV (12/31/14) 6,229,862
2. Ans. P6,229,862.
3. Ans. 0.
The transfer from FA at Amortized cost to FA at FMV shall be made effective at the beginning of the following reporting period. Thus,
there shall be no gain or loss resulting from transfer on December 31, 2015. Instead what shall be recognized is the unrealized
holding gain or loss from the FA's remeasurement since it will still be treated as FA at FMV at the end of 2015.
December 31, 2015: Entry upon remeasurement as FA at FMV

Unrelized holding loss - P/L 15,870
FA at FMV 15,870
January 1, 2016: Entry upon transfer to FA at Amortized Cost

FA at amortized cost (FMV 12/15) 6,213,992
FA at FMV (CV) 6,213,992
4. Ans. P6,213,992. (As FA at FMV) 5.

Ans. P6,111,111.
Amortization table: FA at Amortized cost at 8% effective rate:
(Bal*eff%) (Princ.*nom%) 1 5,144,032.92
December 31, 2015: 6,213,992 2 1,069,958.85
December 31, 2016: 497,119 600,000 (102,881) 6,111,111 6,213,992
December 31, 2017: 488,889 600,000 (111,111) 6,000,000
CHAPTER 5-PROBLEM 5: ABC COMPANY 1.

Ans. P6,151,877.
Amortization table: FA at amortized cost at 9%
(Bal*eff%) (Princ.*nom%)
January 1, 2014: 6,194,383
December 31, 2014: 557,494 600,000 (42,506) 6,151,877
December 31, 2015: 553,669 600,000 (46,331) 6,105,546
2. Ans. (P138,865)
Proceeds from sale (P5,897,249*4/6) 3,931,499
Carrying value (P6,105,546*4/6) 4,070,364
Realized loss on partial sale (138,865)
3. Ans. 0.
The transfer from FA at FMV to FA at Amortized cost shall be made effective at the beginning of the following reporting period.
Thus, there shall be no gain or loss resulting from transfer on December 31, 2015.
4. Ans. P7,345.
Unrealized gain/loss on transfer on Janaury 1, 2016:
FMV of remaining investment (P5,897,249*2/6) 1,965,750
Carrying value of remaining inv. (P6,105,546*2/6) 2,035,182 (69,432)
Unrealized gain/loss on remeasurement on December 31, 2016:
FMV (12/31/16) 1,973,094

CV (FMV at 12/31/15) 1,965,750 7,345
Net unrealized holding gain or loss in the 2016 profit or loss (62,088)
5. Ans. P1,973,094.
Balance
CHAPTER 5-PROBLEM 6: BET CO.
Amortization table: FA at amortized cost at 10%.
Amortization 9,241,84
Correct Int. Nominal Int.
3
(Bal.*Eff%) (Princ*Nom%)
9,366,02
January 1, 2014:
7
December 31, 2014: 924,184 800,000 124,184
9,502,63
December 31, 2015: 936,603 800,000 136,603
0
1. Ans. P4,667,769.
Amortized cost, December 31, 2015: 9,502,630
Accrued interest, December 31, 2015: 800,000 10,302,630
Present value of new future cash flows at 10%
Principal: (P10M*75%)*0.751315 5,634,861 0.7513148
Impairment loss 4,667,769
2. Ans. P6,198,347.
Amortization table: FA at amortized cost after impairment:
Correct Int. Nominal Int. Amortization (Bal.*Eff%) Balance

(Princ*Nom%)
December 31, 2015: After Impairment 5,634,86
1
December 31, 2016: 563,486 - 563,486 6,198,347
3. Ans. P1,239,669.
Amortized cost, December 31, 2016 6,198,347
Present value of revised cash flows at 10%
Principal (P10M*90%)*0.826446 7,438,017 0.826446
Impairment recovery gain 1,239,669 Balance
4. Ans. P8,181,818. 7,438,01

Amortization table: FA at amortized cost after impairment recovery: 7
8,181,818
Correct Int. Nominal Int. Amortization
(Bal.*Eff%) (Princ*Nom%)
December 31, 2016: After Impairment recovery
December 31, 2017: 743,802 - 743,802
CHAPTER 5-PROBLEM 7: ABC CORPORATION

1. Ans.
FA at FMV 25,000
Unrealized holding gain
25,000
FMV (12/14)
CV (excluding transaction cost)
Alpha 300,000
250,000
Beta 475,000
500,000
Total 775,000
750,000
Unrealized holding gain - P&L 25,000
2. Ans.
Unrealized holding loss - OCL of SCI 30,000
FA at FMV through OCI/L
30,000
Charlie, FMV (12/14) 850,000
Carrying value, including transaction cost 880,000
Unrealized holding loss - OCL of SCI (30,000)
3. Ans.
No entry to remeasure investment in associate to FMV since Investment in Assoc. is accounted for under equity method.
4. Ans.
FA at FMV 100,000
FMV (12/15) CV (FMV 12/14)
Alpha 350,000 300,000 *reclassification is not allowed, thus Alpha is still

Beta 525,000 475,000 regarded as FA at FMV through OCI/L.
Total 875,000 775,000
Unrealized holding gain - P&L 5. 100,000

Ans.
Unrealized holding loss - OCL of SCI 100,000
FA at FMV through OCI/L 100,000
Charlie, FMV (12/15) 750,000
Carrying valuu (FMV 12/14) 850,000
Unrealized holding loss - OCL of SCI (100,000)

6. Ans. P875,000.
7. Ans. P750,000.
8. Ans. P3,260,000.
Delta Securities - Investment in Associate
Acquisition cost, including transaction cost 1,650,000
Share from net income (P2.5M*25%) 625,000
Share from forex loss (P500K*25%) (125,000)
Share from dividends (P200K*25%) (50,000)
Carrying value, 12/31/14 2,100,000
Additional Investment 500,000
Share from net income (P1.9M*30%) 570,000
Share from forex gain (P600K*30%) 180,000
Share from dividends (P300K*30%) (90,000)
Carrying value, 12/31/15 3,260,000
CHAPTER 5-PROBLEM 8: ETC INC.

Case 1: PAS 39 1.
Ans. P51,000.
FMV (12/13) Cost
Aye Co. 50,000 45,000

Bee Inc. 250,000 300,00
0
Si Corp. 30,000 36,000
330,000 381,00
0
Unrealized holding loss - SHE (51,000)
2. Ans. (P30,000)
Proceeds from sale (15,000*P8) 120,000
Original cost (P300,000/30,000)*15,000 150,000
3. Ans. (P72,000)
FMV (12/14) Cost
Bee Inc. 90,000 150,000

Si Corp. 24,000 36,000
114,000 186,000
Impairment loss - P&L (72,000)
4. Ans. P15,000. FMV (12/14)

60,000
Aye Co. 90,000
Bee Inc. 24,000
Si Corp. 174,000 Cost/Impaired value
45,000
15,000
90,000
Unrealized holding gain - SHE 24,000
159,000
5. Ans. P174,000.
Case 2: PFRS 9 FMV (12/13)

1. Ans. P51,000. 50,000
250,000
Aye Co.
30,000
Bee Inc. CV
330,000
Si Corp. 45,000
(51,000)
300,000
36,000
Unrealized holding loss - SHE
381,000
2. Ans. None.
There shall be no realized gain/loss from disposal to be recognized in the profit or loss under PFRS 9. The investment shall be
remeasured at FMV on the disposal date, recognizing any increase/decrease in the OCI/L. Proceeds from disposal shall be equal to the
carrying value, thus no gain or loss shall be recognized in the profit or loss from its disposal. Any OCI/L related to the sold
investment shall be transferred directly to RE.
3. Ans. None
No impairment loss shall be recognized in the profit or loss under PFRS 9. The decline in the value of the investment, whether
permanent or temporary shall be recognized in the OCI/L.
4. Ans. P15,000.
FMV (12/14) Cost
Aye Co. 60,000 45,000

Bee Inc. 90,000 150,000

Si Corp. 24,000 36,000

174,000 231,000
5. Ans. P174,000.
CHAPTER 5-PROBLEM 9: ETC INC.

Case 1: PAS 39 1. Ans. None.
Once equity security investment categorized as financial asset through OCI/L has been impaired due to permanent decline, any
recovery from the previous impairment shall not be recognized in the profit or loss, but shall be recognized as unrealized holding
gain in the OCI/L.
2. Ans. P300,000 and P141,000.

FMV (12/15) Cost/Impaired value
Aye Co. 75,000 45,000

Bee Inc. 175,000 90,000
Si Corp. 50,000 24,000
300,000 159,000
Case 2: PFRS 9 1.
Ans.
No gain on impairment recovery shall be recognized since the permanent decline was regarded simply as unrealized holding loss in
the OCI/L.
2. Ans. P300,000 and P69,000. Share from Net income, Jan to

FMV (12/15) Cost Gain on Jun, 2015 (P300,000*10%)
Aye Co. 75,000 45,000 cessation Share from Net Income, Aug to
Bee Inc. 175,000 150,000 before Dec, 2015 (P200,000*40%)
Si Corp. 50,000 36,000 recycling of Share from Net Income in
300,000 231,000 OCI/L 2015
Unrealized holding gain - SHE 69,000 212,000 Unrealized Total
Recycling of 6,750,000
OCI to P&L
10,200,000 10,200,000
CHAPTER 5-PROBLEM 10: SHIPO CO.
1. Ans. P2,000,000.
(6,538,000)
Acquisition price 14,000,000 Sold
Book value of net assets acquired (P48M*25%) (12,000,000) (9,807,000) (9,807,000)
Total excess 2,000,000 393,000 605,000
Identifiable asset:
Depreciable asset: (P1.2M*25%) 300,000
Land (P6M*25%) 1,200,000 1,500,000
Unidentifiable asset/Goodwill 500,000 8
0
Divide by: 25%
,
Total Goodwill based on 25% interest of Shipo 2,000,000
0
0
2. Ans. P2,670,000
0
Share from net income (P10.8M*25%) 2,700,000
Less: Understated Depr (P300,000/10y) (30,000)
Share from net income 2,670,000 1
2
3. Ans. P16,345,000. 0
Initial cost 14,000,000 ,
Share from net income 2,670,000
0
Share from UHGain-OCI (P800K*25%) 200,000
0
Share from dividends (P2.1M*25%)
0
(525,000) Carrying value, 12/31/14 16,345,000
4. Ans. P805,000. 1
2
Proceeds from portion sold (25,000*40%)*(P680-P5) Fair Realized 0
value of remaining portion to be reclassified: 6,750,000
,
(25,000*60%)*P680
0
Carrying value of Investment in Associate:
0
Sold (P16,345,000*40%)
Reclassified (P16,345,000*60%) 0
(6,538,000
)
(P200,000*40%) 80,000
Reclassified (P200,000*60%)
Total
5. Ans.
7. Ans. P171,000. CHAPTER 5-

#shares #shares outs. PROBLEM 11:
Proportionate interest before dilution 25,000 100,000 ANALEN INC.
Proportionate interest after dilution 25,000 125,000 Case 1: “Cost-
Decrease in interest Based
Approach,
Share from increase in capital due to share issuance: with Catch-up
(25,000sh*P680)*20% 3,400,000 Adjustment”:
Prorated CV of portion deemed sold: 1. Ans.
P16,345,000*(5%/25%) (3,269,000P110,000.
)
Gain on dilution before recycling of OCI/OCL 131,000
Recycling of OCI to P&L: P200,000*(5%/25%) 40,000
Gain on dilution 171,000

513,000
805,000 6. Ans.
% interest
25%
20% 5%
30,000
80,000 110,000

2. Ans. P3,176,000.
January 1, 2014 Cost (10%) 700,000
Share from Net Income, 2014 (P400,000*10%) 40,000
Share from Dividends, Oct. 1, 2014 (10,000*P0.90) (9,000)
Carrying value, 12/31/14 had equity method been used 731,000
Share from Net income, Jan to Jun, 2015 (P300,000*10%) 30,000
Share from Dividends, Apr. 1, 2015 (10,000*P1.10) (11,000)
Additional investment, July 1, 2015 (30%) 2,400,000
Share from Dividends, Oct. 1, 2015 (40,000*P1.35) (54,000)
Share from Net Income, Aug to Dec, 2015 (P200,000*40%) 80,000
Carrying value, 12/31/2015 3,176,000
Case 2: “Cost-Based Approach, without Catch-up Adjustment”:

1. Ans. P91,000.
Dividends Income, April 1, 2015 (10,000*P1.10) 11,000
Share from Net Income in 2015 91,000
2. Ans. P3,126,000. 700,000

January 1, 2014 Original Cost (10%) 2,400,000
Additional investment, July 1, 2015 (30%) (54,000)
Share from Dividends, Oct. 1, 2015 (40,000*P1.35) 80,000
Share from Net Income, Aug to Dec, 2015 (P200,000*40%) Carrying 3,126,000
value, 12/31/2015
Case 3: ““Fair Market Value Approach, without Catch-up Adjustment”
1. Ans. P91,000.
Dividends Income, April 1, 2015 (10,000*P1.10) 11,000
Share from Net Income in 2015 91,000 - the prevailing FMV is based on the current
selling price of the additional shares.
2. Ans. P3,226,000.
Original Investment at prevailing FMV on July 1, 2015 (10%) 800,000
10,000sh*(P2.4M/30K) 2,400,000
Additional investment, July 1, 2015 (30%)
(54,000)
Share from Dividends, Oct. 1, 2015 (40,000*P1.35)
80,000
Share from Net Income, Aug to Dec, 2015 (P200,000*40%) Carrying
3,226,000
value, 12/31/2015
CHAPTER 5-PROBLEM 12: KIKIO CORPORATION

Case 1: Fair Value Method 1. Ans. P12,500,000.
Fair Market Value 12/31/2014 12,500,000
2. Ans. P2,000,000.
Carrying value (Acquisition cost 1/1/2014) 10,500,000
Unrealized holding loss - P&L 2,000,000
3. Ans. P11,000,000.
4. Ans. (P1,500,000)
Carrying value (FMV, 12/31/2014) 12,500,000 Unrealized holding
loss - P&L (1,500,000)
5. Ans. P10,000,000.
June 30, 2016 FMV P10,000,000
6. Ans. (P1,000,000)
June 30, 2016 FMV upon reclassification 10,000,000
Carrying value (FMV 12/31/15) 11,000,000
Unrealized holding loss - P&L (1,000,000)
7. Ans. (P1,000,000)
Proceeds from sale 10,000,000
Carrying value (FMV 12/31/15) (11,000,000) Realized
loss from sale (1,000,000)
Case 2: Cost Method 1.
Ans. P9,450,000.
Cost 10,500,000
Accum Depr: (P10.5M/10)*1yr (1,050,000)
Carrying value 9,450,000 *lower than FMV, P12.5M, thus not impaired.
2. Ans. P8,400,000.
Cost 10,500,000
Accum Depr: (P10.5M/10)*2yrs (2,100,000)
Carrying value 8,400,000 *lower than FMV, P10.5M, thus not impaired.

3. Ans. P7,875,000 and None.

Cost 10,500,000
Accum Depr: (P10.5M/10)*2.5yrs (2,625,000)
Carrying value, July 1, 2016 7,875,000 *lower than FMV, P10M, thus not impaired.
4. Ans. P2,125,000.
Proceeds from sale 10,000,000
Carrying value, July 1, 2016 (7,875,000)
Realized gain from sale 2,125,000
CHAPTER 5-PROBLEM 13: PULITZER

INC. January 1, 2010:
Life insurance expense 180,000
Cash 180,000
January 1,
2011:
Cash 180,000
January 1,
2012:
Cash 180,000
December 31, 2012:

Cash surrender value 180,000
Retained earnings (180,000*2/3) 120,000
January 1, 2013:
Cash 180,000
July, 2013:
Cash 5,000
December 31, 2013:

CSV, Dec. 31, 2013 240,000
CSV, Dec. 31, 2012 180,000
Increase in CSV for 2013 60,000
January 1, 2014:
Cash 180,000
August, 2014:
Cash 7,000
September 30, 2014:

CSV, 12/31/2014 290,000
CSV, 12/31/2013 240,000
Increase for the year 50,000
Multiply by: 9months/12months 75%
Increase up to 9/30/14 37,500
December 1, 2014:
Cash 5,000,000
Cash surrender value (9/30/14) 277,500
Life insurance expense (180,000*3/12) 45,000 *unexpired portion as of

date of death

Gain on life insurance policy 4,677,500

settlement 1. Ans. P180,000; P120,000;
P115,000.
2011 2012 2013
Annual insurance premium 180,000 180,000 180,000

Increase in cash surrender value - (60,000) (60,000)
Dividends from CSV (5,000)
Life insurance expense 180,000 120,000 115,000
2. Ans. P0; P180,000; P240,000
3. Ans. P90,500.
Annual insurance premium 180,000
Unexpired insurance premium as of date of death (45,000)
Dividend from CSV (7,000)
Increasein CSV up to date of death (37,500)
Life insurance expense, 2014 90,500
4a) Ans. P4,677,500 4b)

Ans. None.

1. Ans. C.
Equity securities of another company where no control nor significant
influence exist. The company elected to report gains or losses in the
profits/losses
Debt security of another company quoted in an active market. Business
model of the company has an objective to hold debt securities for short- 100,000
term profits. 100,000
Total financial asset at FMV through P&L 200,000
2. Ans. A.
Equity securities of another company where no control nor significant influence
exist. The company elected to report gains or losses in the other
comprehensive income/losses 150,000
3. Ans. B.
Debt security of another company quoted in an active market. Business model
of the company has an objective of collecting contractual cash flows from the
bonds which are primarily in the form of interests and principal. 500,000
4. Ans. B.
20% Equity securities of another company quoted in an active market
500,000
5. Ans. D.
51% Equity securities of another company quoted in an active market
6. Ans. B. 1,400,000
Real property held for speculation purposes 700,000

Real property of a manufacturing business being leased out to another party
under operating lease 900,000
Land held for undetermined future use 800,000
Real property being developed as an investment property 300,000
Total Investment Property 2,700,000
CHAPTER 5-EXERCISE 2: PINAY CORP.

1. Ans. A.
Proceeds (50,000*58) 2,900,000
Carrying Value (50,000*55) 2,750,000
Realized gain 150,000
2. Ans. C.
Proceeds (15,000*59) 885,000
Original Cost (15,000*60) 900,000
Realized loss (15,000)
3. Ans. D.
Proceeds 1,100,000
Carrying Value (P2,035,182/2) (1,017,591)
Realized gain 32,409 *half of the carrying value which is the fair value on 12.31.13
FMV=Present value of future cash flows at 9% yield rate

Principal (P2,000,000*0.84168) 1,683,360 Interest
(P200,000*1.759111) 351,822
2,000,000 0.8416800
CV/FMV 12/31/2013 2,035,182
200,000 1.7591112
4. Ans. A.

Proceeds 1,100,000 **half of the carrying value which is the amortized cost on 6/30/14
Carrying Value (P1,973,866/2) (986,933)
Realized gain 63,067 Nominal Inters Amortization Balance
1,951,126
Amortization table: Correct interst 200,000 14,624 1,965,750
1/1/13: 100,000 8,116 1,973,866
12/31/13: 214,624
6/30/14: 108,116
3,100,000
5. Ans A.
Alpha shares (FMV through P/L) - (50,000sh*62)
6. Ans. B.
Alpha sahres (FMV through P/L) 3,100,000
Delta bonds (FMV through P/L) 982,143 Total Current Investment ***
4,082,143
FMV=Present value of remaining future cash flows at yield rate 12%

Principal (P1,000,000*0.892857) 892,857 1,000,000 0.892857
Interest (P100,000*0.892857) 89,286 100,000 0.8928571
982,143
CHAPTER 5-EXERCISE 3: BENSHOPPE INC.

1. Ans. C.
2. Ans. C.
FMV 12/14 CV/Cost
Aye Corp. Shares 700,000 540,000 (29.50-2-0.50)*20,000sh

Bee Inc. Shares 1,000,000 1,080,000 (27.50-.50)*40,000sh
See Co. 10%, 2M Bonds* 1,964,948 1,923,000 (1,973,000-50,000)
3,664,948 3,543,000
Unrealized holding gain - IS 121,948
Financial assets at FMV through P&L 3,664,948
See Co. 10%, 2M Bonds (FMV/PV of Cash flows using 5.5% semi-annual prevailing effective rate)
Principal (2M*0.8072) 1,614,433 1
Interest (100,000*3.5052) 350,515
* 1,964,948
3. Ans. C.
Investment in Dee Shares (Associate)
Intial cost (6/30/14) 2,400,000
Share from dividends (250,000)
Share from net income 280,000 (2,240,000*6/12)*25%
Investment in Assoc Balance 2,430,000
4. Ans. B.
Transactions costs - Expense
Aye Corp. Shares (10,000)
Bee Inc. Shares (20,000)
Dividend income - Bee Inc. 120,000
Interest income - See Co. 50,000
Unrealized holding gain - FA 121,948
Share from net income - Dee Corp. 280,000
Total/Net Investment income 5. 541,948

Ans. D.
See Co Bonds at amortized cost 1,930,690
Dee Corp. Shares - Assoc. 2,430,000
Total noncurrent investmetns 4,360,690
Amortization table: Financial asset at amortized cost, See Co at effective rate 10%
October 1, 2014: 1,923,000 *excluding accrued interest

December 31, 2014: 57,690 50,000 7,690 1,930,690
Alternative Solution: Financial asset at amortized cost: See Co 10%, 2M Bonds

Amortized cost shall be PV of cash flows using original effetive rate (6% semi-annually)
Principal (2,000,000*0.7921) 1,584,187 0.7921

Interest (100,000*3.4651) 346,511 3.4651 Amortized

cost, 12/31/14 1,930,698
6. Ans. D.
Transactions costs - Expense
Aye Corp. Shares (10,000)
Bee Inc. Shares (20,000)
Dividend income - Bee Inc. 120,000
Interest income - See Co. 57,690 *(1,923,000*12%*3/12)
Unrealized holding gain - FA 80,000 UHG from Aye and Bee only
Share from net income - Dee Corp. 280,000
Total/Net Investment income 507,690
CHAPTER 5-EXERCISE 4: SITAW CORP.

1. Ans. A.
Proceeds from sale of half of SIBUY bonds 51,250,000
Amortized cost October 16, (face value) 50,000,000
Realized gain on sale 1,250,000
2. Ans. B.
FMV Cost
PATATAS (1M*P64) 64,000,000 62,000,000 *reclassification to FA through P&L not allowed.
BAWA (250,000*P74) 18,500,000 20,000,000
82,500,000 82,000,000
3. Ans. C.
Interest from SIBUY bonds (Apr. 15 to Oct. 15): P100M*10%*6/12 5,000,000
Interest from remaining SIBUY bonds (Oct. 15 - Dec. 31): P50M*10%*2.5/12 1,041,667
Cash dividends from PATATAS 1,500,000
Total interest and dividends income, 2013 7,541,667
4. Ans. A.
Proceeds from sale of half of PATATAS (500,000sh*P65) 32,500,000
Original cost (P62,000,000/2) 31,000,000 Realized gain on sale,
under PAS 39 1,500,000
5. Ans. D.
Proceeds from sale of all BAWA shares (250,000sh*P78) 19,500,000
Original cost 20,000,000 Realized loss on sale, under PAS 39
(500,000)
CHAPTER 5-EXERCISE 5: MARIAH CORP.

1. Ans. A.
Proceeds from sale (9,000*65) 585,000
Original cost 441,000
Realized gain on sale (PAS 39) 144,000
2. Ans. C.
FMV (12/14) Cost
DEF Corp. Shares 1,140,000 1,080,000
GHI Corp.Shares 348,000 360,000
JKL Shares 323,400 325,400
1,811,400 1,765,400 Unrealized
holding gain - SHE 46,000
3. Ans. A.
IF SHARES ARE FIN. ASSET AT FMV THROUGH PROFIT/LOSSES
FMV (12/14) CV (FMV 12/13)
DEF Corp. Shares 1,140,000 1,050,000
GHI Corp.Shares 348,000 369,600
JKL Shares 323,400 315,000
1,811,400 1,734,600
4. Ans. B.
IF JKL SHARES IS INVESTMENT IN ASSOCIATE:
Initial cost (including transaction cost) 325,400
Share from dividends (0.75*4200) (3,150)
Sahre from net income (450,000*20%*8/12) 60,000
Carrying Value, 12.31.14 382,250
CHAPTER 5-EXERCISE 6: ANGEL CORP.

1. Ans. D. Fair Value
Dec. 31, 2014 Dec. 31, 2014 Total FMV
Uno shares 10,000 160 1,600,000

Dos shares 11,000 105 1,155,000
Tres shares 18,000 140 2,520,000
Quatro bonds 2,000,000 8% yield 2,071,331 *
7,346,331 0.8573
2,000,00 4
**FMV=Present value of cash flows at 8% 0 1.783265
Principal (P2,000,000*0.85734) 1,714,678 Interest 200,000
(P200,000*1.783265) 356,653
Total Fair Value 2,071,331
Carrying values before year-end remeasurement

# of shares
1,450,000
Uno shares 10,000 CV Dec. 31,
800,000
Dos shares 11,000 145
1,800,000
Tres shares 18,000 Quatro bonds 72.73
1,903,927
2,000,000 100 **
5,953,927
Total Carrying Value 12% yield
**Acquisition cost=Present value of cash flows at 12% 2,000,000 0.8573
4
Principal (P2,000,000*0.711780) 1,423,560 2,000,000 0.711780 200,000 1.783265
Interest (P200,000*2.401831) 480,366 200,000 2.401831
Total Fair Value 1,903,927
Unrealized holding gain - P&L
2. Ans. B.
Fair market value, Dec. 31, 2014 7,346,331
Unrealized holding gain - P&L 1,392,404 3,520,000
3. Ans. B.
Proceeds from sale: 2,600,000
Dos shares (10,000*P100) 1,000,000 Tres shares 920,000
(18,000*140) 2,520,000
Carrying value of shares sold:
Dos shares (10,000*80) 800,000 Tres shares
(18,000*100) 1,800,000
Realized gain on sale - P&L Cost including
Trans. Cost
150
4. Ans. A. 74.55
Aggregate Fair Value (12/31/14) Equity Securities only 108
Original Cost of Equity Securities:
# of shares
Dec. 31, 2014
Uno shares 10,000
Dos shares 11,000
Tres shares 18,000
Total Cost
Unrealized holding gain - OCI
Total cost
5. Ans. B. 1,500,000
Amortized cost of Quatro bonds (12/31/12) 820,000
1,950,000
Correct Interes Nominal Intere Amortization 5,275,000
1/1/12: Orig Cost (12% yield rate)
12/31/12: 228,471 200,000 28,471
CHAPTER 5-EXERCISE 7: DUMBO INC.

1. Ans. B.
Proceeds from sale plus accrued interest 4,270,000
(P500,000*98%)+(P500,000*12%*11/12) 545,000 1,005,000
Carrying value (Initial cost, excluding accrued interest and transaction cost)
Total cash consideration paid 1,044,258
Accrued interest (P1M*12%*6/12) (60,000)
Transaction cost (rec. as expense) (10,000) 974,258 Balance
Prorata: portion sold 50% (487,129) 1,903,927
1,932,398
Accrued interest: (P500,000*12%*11/12) (55,000)
Realized gain on sale 2,871
2. Ans. C.
Proceeds from sale: ABC (15,000*P15) 225,000
XYZ (5,000*P13) 65,000 290,000
Carrying value:
ABC: 15,000*(P21.50-P1.50) 300,000
XYZ: 5,000*(20,000*(P13-P1.50))/23,000 50,000 350,000
Realized loss on sale (60,000) CV (a)

416,667 (c)
180,000
3. Ans. D. FMV 12/31/14 0.9009009
450,000
ABC (25,000sh*P18) 270,000 487,129
XYZ (18,000sh*P15) 1,083,796
DEF at 11% yield rate

Principal (P500,000*0.9009009) 450,450 504,50

Interest (P60,000*0.9009009) 54,054 Unrealized 5
1,224,505
140,709
holding gain - P&L
(a) Initial cost ABC (40,000*P20) 800,000

CV of 15,000 shares sold (300,000)
(b)
Effect of cash div. in lieu of stock div. (83,333)
CV ABC, 12/31/14 416,667
(b) CV of ABC before cash div. in lieu of stock div. 500,00

Divide by: # of shares (25,000+5,000) 0
CV of ABC after cash div. in lieu of stock div. 30,000
Multiply by: Remaining shares 16.67
Carrying value, 12/31/14 25,000
416,667
(c) Initial cost DEF (20,000*P11.50) 230,000
CV of shares sold on 8/5 (50,000)
CV DEF 12/31/14 180,000
4. Ans. B.
Interest income (6/30 to 12/1): P1,000,000*12%*5/12) 50,000
Interest income (12/1 - 12/31): P500,000*12%*1/12 5,000
Interest income from bond investment 55,000
5. Ans. A.
Stock dividend does not result to dividend income and accounted only through memo entry.
Cash in lieu of share dividends is accounted through the "as if" approach, that is, as if shares were received and were as if
sold for the cash dividend received.
6. Ans. D.
FMV
12/31/14
ABC (25,000sh*P18)
450,000
XYZ
(18,000sh*P15
) DEF at 11% 270,000
yield rate
Principal (P500,000*0.9009009) 450,450
Interest (P60,000*0.9009009) 54,054
504,505
Total
1,224,50
CHAPTER 5-EXERCISE 8: NYU 5
CORP. 352,000
1. Ans. D.
Proceeds from sale on 11/5
SMC:
(400sh*P230)
ABI:
(800sh*P325) 92,000 260,000
Original cost:
SMC: (400sh*P260) 104,000
ABI: (800sh*P330) 264,000 368,000
Realized loss on sale, under PAS 39 (16,000)
2. Ans. A.
Proceeds from sale on 12/31 285,000
(P300,000*95%) 330,620 *
Amortized cost (P551,033*3/5) (45,620)
Realized loss on sale of bonds
*Amortized cost: 12/31/14 Correct Int. Nominal Int. Amortization Balance
(Bal*9%) (Princ*12%)
March 31, 2014: 558,345
December 31, 2014: (9months) 3. 37,688 45,000 (7,312) 551,033

Ans. B.
FMV 12/31/14 Cost/Amortized cost
SMC (600sh*P275) 165,000 156,000 (600sh*P260)

ABI (1,200sh*P340) 408,000 396,000 (1,200sh*P330)
TDI (P200,000*95%) 190,000 220,413 (P551,033*2/5)
763,000 772,413
Unrealized holding loss-OCI (9,413)
4. Ans. C.
CHAPTER 5-EXERCISE 9: VEGAS CORP. 552,000

1. Ans. C. 528,250 132

Proceeds from sale of DEF (4,000sh*P138)

CV (FMV 12/31/13): 4,000sh*(P1,056,500/8,000sh)
2. Ans. D.
Proceeds from sale of JKL (4,000sh*P124) 496,000
Cost: 4,000sh*(P1,180,000/10,000) 472,000
3. Ans. D.
remeasured at FMV on the disposal date, recognizing any increase/decrease in the OCI/L. Proceeds from disposal shall be equal to
the carrying value, thus no gain or loss shall be recognized in the profit or loss from its disposal. Any OCI/L related to the sold
4. Ans. D.
FA at FMV through P&L FMV (12/31/14 CV
ABC (13,000*P153.20) 1,991,600 1,984,000 (P1,525,000+P459,000)

DEF (4,000*P137) 548,000 528,250 (4,000sh*(P1,056,500/8,000sh))
GHI (P500,000*82.22%) 411,100 373,500
PQR (P400,000*98%) 392,000 372,000 (P400,000*93%)

3,342,700 3,257,750
5. Ans. D.
FA at FMV through OCI/L FMV (12/31/14 Cost
JKL (6,000sh*P110.50) 663,000 708,000 6,000sh*(P1,180,000/10,000sh)

MNO (20,000sh*P44) 880,000 980,000
1,543,000 1,688,000
CHAPTER 5-EXERCISE 10: JACK CORP.

1. Ans. C.
Proceeds from sale of Wan shares (5,000sh*P60)
CV: (P1,145,000/20,000sh)*5,000sh 300,000
286,250
Realized gain on sale - P&L 13,750
2. Ans. C.
Proceeds from sale of Tri shares (25,000sh*P30) 750,000
Cost: (25,000sh*P35) 875,000
3. Ans. D.
4. Ans. C.
FMV of Poor shares 800,000
Cost 1,400,000
Impairment loss - P&L (600,000)
5. Ans. D.
No impairment loss shall be recognized in the profit or loss under PFRS 9. The decline in the value of the investment, whether
permanent or temporary shall be recognized in the OCI/L.
6. Ans. C.
Proceeds from sale of Seeks shares (10,000*P45) 450,000
Cost (P1,000,000/20,000sh)*10,000sh 500,000
7. Ans. A.
8. Ans. C.
FA at FMV through P&L FMV 12/31/14 CV (FMV 12/31/13)
Wan ordinary shares 825,000 858,750 (P1,145,000/20,000sh)*5,000sh
Too preference shares 650,000 700,000
1,475,000 1,558,750
Unrealized holding loss - P&L (83,750)
9. Ans. C.
FA at FMV through OCI/L, under PAS 39 FMV 12/31/14 COST
Poor preference shares*Impaired value 800,000 800,000 under PAS 39
Five ordinary shares 1,500,000 1,250,000
900,000 1,000,000
3,200,000 3,050,000
150,000
FMV 12/31/14 COST

800,000 CHAPTER
1,400,000
5: AUDIT OF INVESTMENTS
1,500,000 1,250,000
900,000 1,000,000
3,200,000 3,650,000
(450,000)
Seeks ordinary shares Unrealized holding gain - SHE
10. Ans. A.
FA at FMV through OCI/L, under PFRS 9
Poor preference shares*No impairment loss under PFRS 9
Five ordinary shares
Seeks ordinary shares
Unrealized holding loss - SHE

11. Ans. C.
12. Ans. C.
CHAPTER 5-EXERCISE 11: EBC CO.

1. Ans. C.
Fair Market Value, 12/31/2013 P160,300
Fair Market Value last remeasurement date, 12/31/2012 (see 1. below) P57,200
10% BS Treasury bond at cost (purchased in the current year) 103,250
Unrealized Holding Loss P150
*Cost (P25,250 + 32,450) P57,700
FMV adjustment credit balance (500) 57,200
2. Ans. B.
Fair Market Value, 12/31/2014 P161,100
Fair Market Value, last remeasurement date 12/31/2013 160,300
Unrealized Holding Loss (800)
3. Ans. A. 2009 2010
Face Value, 10% BS Treasury Bonds 10%
P100,000 10% P100,000
Multiply by: Interest rate 10,000 10,000
Annual interest 2/12 12/12
Mulitiply by: Months outstanding P1,667 P10,000
Interest income
4. Ans. C. P161,100
Fair Market Value of the Inv. portfolio,
12/31/2014
CHAPTER 5-EXERCISE 12: HART CORP.

1. Ans. C.
July 5 sale
Proceeds from sale (450*1,000) P450,000
CV of shares sold (570,000/2,000)*1,000 (285,000) Oct. 165,000
11 sale
Proceeds from sale (150*1,000) P150,000
CV of shares sold (285,000/3,000)*1,000 (95,000) 55,000
TOTAL GAIN FROM SALE OF BLACK
220
,000 SHARES
2. Ans. C.
June 1 sale
Proceeds from sale (195*20,000) P3,900,000
Cost of shares sold (P3,000,000-P90,000) 2,910,000 990,000

Nov. 20
Proceeds from sale (3,700,000 – 300,000) P3,400,000
Cost of shares sold (7,500,000/50,000)*20,000 3,000,000 400,000
TOTAL GAIN FROM SALE OF WHITE SHARES 1,390,000
3. Ans. D.
BLACK INC.
FMV (12/31/2014) 2,000*150 300,000
Carrying value (285,000/3,000)*2,000 190,000 110,000

WHITE INC.
FMV (12/31/2014) 30,000*190 5,700,000
Carrying value (7,500,000/50,000)*30,000 4,500,000 1,200,000
UNREALIZED HOLDING GAIN – P&L 1,310,000
4. Ans. D.
BLACK INC.: FMV (12/31/2014) 2,000*150 300,000
WHITE INC.: FMV (12/31/2014) 30,000*190 5,700,000 6,000,000
CHAPTER 5-EXERCISE 13: CSI INC.

1. Ans. B.
Acquisition cost, excluding transaction cost 200,000
Less: Dividends recievable (shares acquired "Div.-on") (20,000)
Initial cost - ABC Shares 180,000
2. Ans. B.
Acquisition cost (1,500sh*P150) 225,000
Add: Transaction cost 30,000 Initial cost - DEF Shares
255,000
3. Ans. D.

No dividend income shall be recognized from the share dividends received from DEF.
4. Ans. B.
# of GHI shares after share split 5,000
Multiply by: cash div. per share 5
Dividend income from cash dividends 25,000
5. Ans. B.
Shares in lieu of cash dividends (4,000sh/4) 1,000
Fair value of shares 55 Dividend income (shares in lieu
of cash) 55,000
6. Ans. C.
Financial asset at FMV through P&L FMV, 12/31 CV
ABC (2,000sh*P105) 210,000 180,000
GHI (5,000sh*P75) 375,000 410,000 (P285,000+(5,000sh*P25))

585,000 590,000
7. Ans. C.
Financial asset at FMV through OCI/L FMV, 12/31 Cost
DEF (1,500sh+300sh)*P160 288,000 255,000
JKL (4,000sh+1,000sh)*P60 300,000 255,000 (P200,000+(1,000sh*P55)

588,000 510,000
8. Ans. B.
Investment in Associate - MNO shares
Initial cost, January 1, 2014 850,000
Share from net income (P600,000*20%) 120,000
Share from forex loss (P100,000*20%) (20,000)
Share from dividends (10,000sh*P12) (120,000)
CHAPTER 5-EXERCISE 14: PRINCE INC.

1. Ans. A.
Dividend income from Queen Corp. in 2014 (300,000*10%) P30,000
*note: Queen shares is only 10% (100,000/1,000,000), thus shall be accounted for as AFS.
Investment income for investment in AFS shall be through dividends declared by Queen.
2. Ans. C.
Share from net income of King Inc. 2013 (650,000*25%) 162,500
Understatement in Depr expense (500,000/5)*25% (25,000
)
Share from net income of King Inc. 2013 137,500
*note: King shares is only 25% (250,000/1,000,000), thus shall be accounted for as Associate Investment under equity method.
3. Ans. C.
Fair Value of Queen Corp shares 12/31/2014 (100,000*6.50) P650,000
4. Ans. C.
Acquisition cost (January 1, 2013) (250,000*10) 2,500,000
Share from net income: 2013 137,500
CV of Investment (12/31/13) 2,637,500 vs Rec. Value (FV:250,000*12) P3,000,000 – no imp.

Share from net income: 2014 37,500
Share from dividends: 2014 (100,000*25%) (25,000)
CV of Investment (12/31/14) 2,650,000

vs Rec. Value (FV:250,000*15) P3,750,000 – no imp.
5. Ans. C. P650,000
Fair value of Queen Shares (AFS), 12/31/14 700,000
(100,000*6.50) P50,000
Fair value of Queen Sahres (AFS), 12/31/13
(100,000*7.00) Unrealized Holding Loss – SCI
650,000
6. Ans. C. 500,000
Fair value of Queen Shares (AFS), 12/31/14 150,000
Original cost of Queen Shares, 1/1/13 (100,000*5)
Unrealized Holding Gain (Cumulative)- SHE/BS
CHAPTER 5-EXERCISE 15: ISUZU CORP.

1. Ans. A.
Acquisition cost 2,592,000

BV of Net Assets acquired (P6.4M*30%) 1,920,000

Total excess of acqusition cost over book value 672,000
Excess attributable to Depreciable asset (P640K*30%) 192,000
Excess attributable to Goodwill 480,000
2. Ans. C.
Share from the net income of associate (P1,280K*30%) 384,000
Understatement in depr: (P192,000/8yrs) (24,000)
Investment Income 360,000
3. Ans. A.
Acquistion cost 2,592,000

Share from dividends (P6*40,000sh) (240,000)
Share from net income 360,000
Carrying value, 12/31/14 2,712,000
Recoverable amount/Fair value less cost to sell:
(40,000shares*P64) 2,560,000
Impairment loss 4. 152,000
Ans. B.
Share from net income 360,000

Impairment loss (152,000)
Net amount to be reported in the income statement 208,000
5. Ans. B.
Dividend income (P6*40,000sh) 240,000
Unrealized holding loss - P&L (32,000) Net amount to be
reported in the income statement 208,000
FMV, 12/31/14 (40,000*P64) 2,560,000
Carrying value (Cost) 2,592,000
Unrealized holding loss-P&L (32,000)
6. Ans. C.
CHAPTER 5-EXERCISE 16: PACQUIAO CORP.

1. Ans. D.
Net income 2,500,000
Less: PS share in net income (10%*P50*100,000) 500,000
OS share in net income 2,000,000
Multiply by: Proportionate interest (50,000sh/200,000sh) 25%
Share from net income before adjustments 500,000
Understatement in Depr: (P4M*25%)/5yrs (200,000) Adjusted share
from Net Income 300,000
2. Ans. D.
Acquisition cost, January, 2014 (50,000sh*P325) 16,250,000
Share from net income in 2014 300,000 Carrying value,
Decmeber 31, 2014 16,550,000
3. Ans. C.
Multiply by: Proportionate interest (50,000sh/200,000sh) 25%
Share from net income before adjustments 625,000
Understatement in Depr: (P4M*25%)/5yrs (200,000) Adjusted share
from Net Income 425,000
4. Ans. C.
Acquisition cost, January, 2014 (50,000sh*P325) 16,250,000
Share from net income in 2014 425,000
Carrying value, Decmeber 31, 2014 16,675,000
CHAPTER 5-EXERCISE 17: IFFY CORP.

1. Ans.
Share from net income (P4.8M*30%) 1,440,000
Understatement depr. (P1.6M/5)*30% (96,000)
Investment Income - P&L 1,344,000
2. Ans. D.
Share from other comp. loss (240,000)
(800,000*30%)
3. Ans. C.
Acquisition price 5,000,000

Share from net income (4.8M*30%) 1,440,000
Understatement depr. (1.6M/5)*30% (96,000) 1,344,000
Share from other comp. loss (800,000*30%) (240,000)
Share from dividends (1,500,000*30%) (450,000)
Carrying Value, 12/31/14 5,654,000 3,780,000
4. Ans. B.
CESSATION:

Proceeds from sale (18,000*210)

FMV of remaining share relassified to FA at FMV (12,000*210) 2,520,000
Total 6,300,000 Less: Carrying Value of Investment in Assoc. before cessation
5,654,000
Gain before recycling of OCLoss 646,000 2. Ans. A.
Recycling of OCloss (240,000) Share from net income
Total cessation loss - IS 406,000 (P2.5M*30%) 750,000
Understatement in Depr:
5. Ans. D. (360,000/5yrs) (72,000)
Investment income - P&L
6. Ans. D. 678,000
DILUTION:
Before Dilution After Dilution 3. Ans. D.
# shares held 30,000 30,000 Investment income - P&L
# shares outstanding 100,000 125,000 678,000
% of interest 30% 24% Share from Unrealized holding loss
- OCL (P500K*30%)
Share from increase in Assoc.'s net assets (25,000*210)*24% 1,260,000 (150,000)
Net amount to be reported in
Carrying value of Investment as if given up (5,654,000*6/30) (1,130,800) the SCI 528,000
Gain on dilution before recycling of OCLoss 129,200 4.Ans. B.

Acquisition cost
Recycling of Ocloss (240,000*6/30) (48,000)
6,000,000
Share from dividends
Total cessation loss - IS 81,200
(P800,000*30%) (240,000)
Share from net income
678,000
CHAPTER 5-EXERCISE 18: BLACK CORP.
1. Ans. A.
Acquistion cost (300,000sh*P20) 6,000,000
BV of Net Asset (P16M*30%) 4,800,000
Excess of acq. cost over book value 1,200,000
Excess attrib. to identifiable assets
Land (P800,000*30%) 240,000
Building (P1,200,000*30%) 360,000 Excess attrib to
Goodwill 600,000
Share from OCL (P500,000*30%) (150,000) Carrying

value, 12/31/14 6,288,000
5. Ans. B.
Before Dil. After Dil. Decrease
Number of shares owned 300,000 300,000
Total outstanding shares 1,000,000 1,200,000
30% 25% 5%
Share from the increase in White's capital as a result of share issue:

(200,000sh*P30)*25% 1,500,000
CV of investment deemed sold:
(P6,228,000*(5%/30%)) (1,048,000)
Dilution gain before recycling of OCL 452,000
Recycling of OCL (P150,000*(5%/30%)) (25,000) Adjusted
dilution gain (True Sale) 427,000
6. Ans. B.
Share from the increase in White's capital as a result of share issue:
(200,000sh*P30)*25%
CV of investment, excluding goodwill deemed sold:
1,500,000
(P6,228,000-P600,000)*(5%/30%)
(948,000)
Dilution gain before recycling of OCL
552,000
Recycling of OCL (P150,000*(5%/30%))
(25,000)
Adjusted dilution gain Total
3,600,0
527,000 00
7. Ans. C. 5,400,0
Before Cess. 00
Number of shares owned 300,000 After Cess. (2,515,20
Total outstanding shares 1,000,000 0)
30% Unrealized (3,772,80
180,000 0)
1,000,000 5,400,000
Proceeds from poriton sold (120,000shares*P30) 18%
FMV of remaining portion to be reclassified to FA at FMV
Less: CV of portion sold (P6,228,000*120/300) Realized
CV of portion reclassified (P6,228,000*180/300) (3,772,800
)

3,600,000
(2,515,200
)
Cessation gain/loss before recycling of OCI/L 1,084,800 1,627,200 2,712,000
Recycling of OCL:
Portion sold (P150,000*120/300) (60,000) (60,000)
Portion reclassified (P150,000*180/300) (90,000) (90,000)
Adjsuted cessation gain 1,024,800 1,537,200 2,562,000
8. Ans. A.
CHAPTER 5-EXERCISE 19: GREENDAY INC.

Case 1: “Cost-Based Approach, with Catch-up Adjustment”:
1. Ans. C.
Share from net income under Equity Method in 2014 (P1,250,000*15%) 187,500
Dividend income recognized under FMV Method in 2014 (P3.50*7,500sh) 26,250
Rertroactive adjustment to RE, beg 2015 161,250
2. Ans. A.
Share from net income (Jan. 1 - June 30, 2015): P700,000*15% 105,000
Share from net incoem (Jul. 1 - Dec. 31, 2015): P800,000*25% 200,000
Total investment income in 2015 305,000
3. Ans. A.
Acquistion cost, January 1, 2014 1,400,000

Share from dividends, Aug. 1, 2014 (P3.50*7,500sh) (26,250)
Share from net income in 2014 (P1,250,000*15%) 187,500
Carrying value, Dec. 31, 2014 (Equity Method) 1,561,250
Share from dividends, Apr. 5, 2015 (P4.50*7,500sh) (33,750)
Share from net income (Jan. 1 - Jun. 30, 2015) 105,000
Acquisition cost, July 1, 2015 1,000,000
Share from dividends, Oct. 1, 2015 (P5.50*12,500sh) (68,750)
Share from net incoem (Jul. 1 - Dec. 31, 2015) 200,000
Carrying value, Dec. 31, 2015 2,763,750
Case 2: “Cost-Based Approach, without Catch-up Adjustment”:

4. Ans. A.
No retroactive adjustment to RE, beg under the Cost-based approach without catch-up adjustement. Instead, whatever is
the original cost of the original investment before gaining significant influence shall be its deemed cost.
5. Ans. D.
Dividend income, Apr. 5, 2015 (P4.50*7,500) 33,750
Share from net incoem (Jul. 1 - Dec. 31, 2015) 200,000 Total investment income in
2015 (Cost-based w/o catch-up adj.) 233,750
6. Ans. D.
Acquistion cost, January 1, 2014 (deemed cost) 1,400,000
Case 3: “Fair Market Value Approach, without Catch-up Adjustment”:
7. Ans. A.
No retroactive adjustment to RE, beg under the FMV-based approach without catch-up adjustement. Instead, the original
investment shall be remeasured at prevailing fair value at the date significant influence is gained.
8. Ans. D.
Dividend income, Apr. 5, 2015 (P4.50*7,500) 33,750
Share from net incoem (Jul. 1 - Dec. 31, 2015) 200,000 Total investment income in
2015 FMV-based w/o catch-up adj.) 233,750
9. Ans. C.
FMV of original investment, July 1, 2015 (7,500sh*P200) 1,500,000 *
*FMV/Acq. Price of new investment (10%) 1,000,000

Divide by: # of shares 5,000
Assumed FMV, July 1, 2015 200
CHAPTER 5-EXERCISE 20: ORION CORP.

1. Ans. C.
Investments in Bonds:
Proceeds (PV of future cash flows, effective rate: 10%)
Principal: (4,000,000*0.6830) 2,732,054 0.6830
Interest: (480,000*3.1699) 1,521,535 3.1699
Intial fair value (1/1/13) 4,253,589 4,253,589
4,198,948
4,138,843
Correct Interes Nominal Intere Amortization
4,072,727
4,000,000 7. C.

January 1, 2013: 480,000 (54,641)

December 31, 2013: 425,359 480,000 (60,105)
December 31, 2014: 419,895 480,000 (66,116)
December 31, 2015: 413,884 480,000 (72,727)
December 31, 2016: 407,273
2. Ans. A. 4,000,000
Face Value of bonds 4,253,589
Consideration given up (FMV) (253,589)
Debit to/Reduction in interest income per books Nominal 480,000
interest collected/Credited to interest income Interest 226,411
income in 2013 per books: 425,359
Correct interst income (see amortization table) 198,948
Understatement in interest income in 2013
3. Ans. A. 4,211,093
FMV of bonds, Dec. 31, 2014 at 9% effective rate: (a) 4,097,749
FMV of bonds, Dec. 31, 2013 at 11% effective rate: (b) 113,345
Unrealized holding gain - P&L
(a) FMV of bonds, Dec. 31, 2014 = PV of remaining cash flows at 9% effective rate for 2 periods.
Principal: P4,000,000*0.841680 3,366,720 0.841680
Interest: P480,000*1.759111 844,373 1.759111
4,211,093
(b) FMV of bonds, Dec. 31, 2013 = PV of remaining cash flows at 11% effective rate for 23periods.
Principal: P4,000,000*0.731191 2,924,766 0.731191
Interest: P480,000*2.443715 1,172,983 2.443715
4,097,749
4. Ans. C.
Investment in Associate (20%)
Acquisition cost
5,800,000
BV of net assets acquired (P25M*20%)
5,000,000
Excess of Acquisition cost (Attrib. to Depr. Asset) *
800,000
September 30, 2013 Acquisition Cost
5,800,000
Share from Dividends, 2013
(80,000)
Share from NI, 2013 (3.8M*20%)*3/12
190,000
*Understatement in Depr (800K/10)*3/12
(20,000) 170,000
December 31, 2013 Carrying Value
5,890,000
Share from Dividends, 2014
(160,000)
Share from NI, 2014 (5.2M*20%)
1,040,000
*Understatemetn in Depr (800K/10)
(80,000) 960,000
Share from OCL (400,000*20%)
(80,000)
Share from OCI (300,000*20%)
60,000
December 31, 2013 Carrying Value 5. Ans. A.
6,670,000
Dividend income (2*40,000)
80,000
Unrealized holding gain (155-145)*40,000
400,000
Investment income per books in 2013
480,000
Investment income per audit in 2013 (see analysis)
170,000
Retroactive adjustement to RE, beg 6. Ans. B.
310,000
CESSATION: Before Cess. After Cess.

Number of shares owned 40,000
30,000
Number of outstanding shares 200,000
200,000
20% 15%
Realized Unrealized Total
Proceeds from sale (169*10,000) 1,690,0

00
1,690,000
Fair value of remaining Investment (169*30,000) CV of 5,070,0
investment 00
5,070,000
Portion sold: (6,670,000*10/40) (1,667,50
0)
(1,667,500
)
Portion reclassified: (6,670,000*30/40) (5,002,50
0)
(5,002,500
)
Cessation gain, before recycling of OCI/L 22,500 67,500 90,000
Recycling of OCI 15,000 45,000 60,000
Recycling of OCL (20,000) (60,000) (80,000) Total cessation gain/loss 17,500
52,500 70,000
7. Ans. B.
Fair Value on Reclass date (6/30/14) 3,600,000
Carrying Value/Depreciation Cost (6/30/14) 3,250,000
Revaluation Surplus (OCI) on Reclass 350,000
8. Ans. D.
FMV, Investment property, 12/31/14 3,200,000
CV, (FMV upon reclass on 6/30/2014) 3,600,000
CHAPTER 5-EXERCISE 21: JUDE CORPORATION

1. Ans. C.
Present value of the installment payments at 12% effective rate:
Downpayament 1 1,000,000
Balance (P4,000,000/4yrs)*3.037349) 3.0373493 3,037,349
Option money related to property acquired 314,779
Property taxes in arrears as of January 1, 2012 Initial cost 147,872
of the property 4,500,000
2. Ans. D.; 3. Ans. B.

Cost (Jan. 1, 2012) 4,500,000
Accum depr, Dec. 31, 2013 (4.5M/25yrs)*2yrs. Depreciated 360,000
cost 4,140,000
Recoverable amount/Fair market value 4,100,000
4. Ans. A.; 5. Ans. C.

Recoverable amount 12/31/13 4,100,000
Depr 2014: P4.1M/23years (178,261)
Carrying value, before impairment recovery Carrying 3,921,739
value had there been no impairment:
(P4.5M*22/25) 3,960,000
Impairment recovery - P&L 38,261
6. Ans. A.
PPE to IP
If a property is transferred from PPE to IP, and the FMV method is used to value IP, any decrease on the reclassification date shall be
recognized as impairment loss in the profit or loss. Any increase in the value, however, on the reclassification date shall be recognized
in the OCI as Revaluation Surplus, following PAS 16, PPE.'
FMV, 12/31/14 upon reclass to IP 4,300,000
Carrying value (Depr. Cost: P4.5M*22/25) 3,960,000
Revaluation surplus - OCI 340,000
7. Ans. D.
IP to PPE
If a property is transferred from IP to PPE, and the FMV mehtod is used to value IP, any decrease or increase in the value of the
property on the transfer date shall be recognized in the profit or loss.
FMV, 12/31/14 upon reclass to PPE 4,300,000
Carrying value (FMV 12/31/13) 4,100,000
Gain on the transfer - P&L 200,000 80,000
CHAPTER 5-EXERCISE 22: DADO COMPANY

1. Ans. B. 96,000
Annual premium, 2014: (P8,000*12mo) (8,400)
Less: Increase in CSV for 2014: (P25,200*1/3) Life 87,600
insurance expense, 2014

2. Ans. D. 96,000
Less: Increase in CSV for 2015 (P30,000-P25,200) (8,000)
Dividend from CSV 83,200
Life insurance expense, 2015
96,000
3. Ans. C. (9,600)
Less: Increase in CSV for 2016 (P39,600-P30,000) 76,800
Dividend from CSV
Life insurance expense, 2016
4. Ans. D.
Insurance premium up to date of death (P8,000*10mo)
Less: Increase in CSV up to date of death (P50,400-P39,600)*10/12 (9,000)
Dividend from CSV in 2017 (11,200) Life insurance expense, 2017
59,800
5. Ans. A.
Life insurance policy 4,000,000
CV of CSV as of October 31, 2017:
CSV, Dec. 31, 2016 39,600
Increase up to Oct. 31, 2017: 9,000 48,600
Gain on life insurance policy settlement 3,951,400
Observe that since the insurance premium are payable monthly, it is assumed that after death on October 31, 2017, no additional
insurance premium had been paid.

CHAPTER 6: AUDIT OF PROPERTY, PLANT AND EQUIPMENT
DISCUSSION PROBLEMS
CHAPTER 6-PROBLEM 1 1
C.
2 C.
3 D.
4
A.
5
D.
6
C.
7 D.
8 B. 9
A. 10
C. 11
B. 12
A. 13
C.
14 D.
15 C.
16 D.
17 C.
18 C.
CHAPTER 6-PROBLEM 2: BACOLOD INC.

Land Land Impr. Buidling Mach. & Eq.
Purchase of land 15,600,000

Land survey 208,000
Fees for search of title for land 24,000
Building construction permit fee 140,000
Temporary quarters for construction workers 430,000
Payments to tenants of the old building 184,000
Cost of to raze the old building 940,000
Excavation of the land 400,000
Special assessment of the gov. for road projects 80,000
Cost of construction 78,000,000
Cost of paving parking lot, driveway and sidewalks 1,600,000
List price of Machinery and equipment purchased 4,567,000
Trade discount taken on the machinery (127,000)
Cost of freight and handling 50,000
Cost of testing the equipment 125,000
Income from the testing of machinery (65,000)
15,912,000 1,600,000 80,094,000 4,550,000
1. Ans. 2. Ans. 3. Ans. 4. Ans.
Note: (a) The demolition of the old building is preferably capitalized as cost of the new building as per PIC Q&A 2012-012.
(b) The income from the car park during construction is from an unrelated activity unnecessary for the construction of the building.
The income shall be recognzied as outright income in the P&L and shall not affect the cost of the constructed building.
CHAPTER 6-PROBLEM 3: MIRAM COMPANY

Land Building Adj. to NI
Organization fees - outright expense (120,000

)
Land and Building (Prorata)* 1,512,000 378,000
Option payments (P250K-50K)* 160,000 40,000 (50,000)

Broker's fees* 88,320 22,080
Remodelling cost of the building 60,000
Salaries of executives (360,000

)
Stock bonus - Organization expense (300,000
)
Property taxes - in arrears (P240K*6/12)* 96,000 24,000
Property taxes - 2014 expense (P240K*6/12) (120,000

)
1,856,320 524,080 (950,000)
1. Ans. 2. Ans. 3. Ans.
*FMV of Land 1,800,000 1
FMV of Building 450,000 0

Total 2,250,000 1

a. Land
Initial cost, Jan., 2014
Present value of installment payments at 10% effective rate:
Downpayment 2,000,000
Balance: (P8M/5yrs)*3.790787 3.790787 6,065,259
8,065,259 2.a. Ans.

b. Building
FMV of shares issued (100,000sh*P70) 7,000,000
Accum. Depr, Dec. 31, 2014: (P7M*10%) (700,000) 1.a. Ans.

Carrying value, Dec. 31, 2014 6,300,000 2.b. Ans.
c.1. Equipment A
1,800,000
Cash price equivalent (P2M*90%)
(540,000) 1.b. Ans.
Accum. Depr., Dec. 31, 2014: (P1.8M-P180K)*5/15 Carrying
1,260,000 2.c. Ans.
value, Dec. 31, 2014
c.2. Equipment B
Initial cost, July 1, 2014 4,000,000
Purchase price 250,000
Import duties and nonrefundable taxes 50,000
Installation cost
PV of future retirement cost at 10% effective % for 5 yrs
100,00
(P161,051*0.6209213) 0.6209213
0
Intial cost, July 1, 2014
4,400,000
Accum. Depr., Dec. 31, 2014: (P4.4M-440K)*5/15*6/12 1.c. Ans.
(660,000) 2.d. Ans.
c.3. Equipment C
Initial cost, September 1
Fair value of asset accepted as donation
1,200,000
Accum. Depr., Dec. 31, 2014 (P1.2M-120K)*5/15*4/12 1.d. Ans.
(120,000)
Carrying value, Dec. 31, 2014 2.e. Ans.
1,080,000
*note: Where the donation is from a related party and is considered as a capital transactions where APIC-Donated Capital is
credited, any donation related expenses shall be regarded as a reduction from the donated capital rather than capitalized cost.
d. Furniture and fixture
Cash price upon acquistion
Accum Depr., Dec. 31, 2014 (P3.2M-P320K)/10yrs Carrying value, Dec. 31, 2014
CHAPTER 6-PROBLEM 5:
Case 1: ABC CORP.
1. Ans. P39,792.
Actual borrowing cost (Jul. 1 - Nov. 31): P1M*12%*5/12
Income from temporary investments (Jul. 1 - Nov. 31)
July: (P1,000,000-P100,000)*5%*1/12
August: (P1,000,000-P250,000)*5%*1/12
September (P1,000,000-P550,000)*5%*1/12
October (P1,000,000-P750,000)*5%*1/12
November (P1,000,000-P900,000)*5%*1/12 Net capitalizable borrowing cost
2. Ans. P70,000.
Interest expense (Jan. 2 - Jun. 30): P1M*12%*6/12
Interest expene (Dec. 1 - Dec. 31): P1M*12%*1/12 Interest expense for 2014
Case 2: PAN CORP.

1. Ans. P4,856,223.
Actual borrowing cost from Specific Borrowing:
1st Quarter: P34M*12%*3/12 1,020,000
2nd Quarter: (P35.020M*12%*3/12) 1,050,600
3rd Quarter: (P36,070,600*12%*3/12) 1,082,118
4th Quarter: (P37,152,718*12%*3/12) 1,114,582
Borrowing cost from General Borrowing

Weighted average actual expenditure* 39,316,667
Less: Proceeds from specific borrowing (34,000,000)
WAAE financed by general borrowing 5,316,667

3,200,000
(288,000) 1.e. Ans.

2,912,000 2.f. Ans.
50,000
Multiply by: Weighted Ave. Gen Borr. %** 11.08%

Capitalizable borrowing cost
3,750
Cost incurred 3,125
1,875
*January 1 8,000,000 1,042
April 1 19,000,000
July 31 24,400,000 417 (10,208)
October 1 27,600,000 39,792
December 31 14,000,000
Total
60,0009 171,000,000
10,000
5 122,000,000 3 82,800,000 - -
70,000
4,267,300
588,923
4,856,223
#mo. to 12/31 Peso*Mos.

12 96,000,000
471,800,000
Divide by: 12 months 12 Weighted average actual expenditure 39,316,667
**Actual General Borrowing Cost

P24,000,000*10% 2,400,000
P28,000,000*12% 3,360,000 5,760,000
Divide by: Proceeds from Gen. Borr. (P24M+P28M) 52,000,000
Weighted average genearl borrowing % 0
2. Ans. P5,171,077.
Actual General Borrowing Cost 5,760,000
Less: Capitalizable Gen. Borr. Cost (588,923) Gen. Borr. Cost. - Interest Expense
5,171,077
*note that the entire actual borrowing cost from specific borrowing had been entirely capitalized.
3. Ans. P97,856,223.
*January 1 8,000,000 April 1 19,000,000
July 31 24,400,000
October 1 27,600,000
December 31 14,000,000
Capitalizable borrowing cost 4,856,223 Carrying value, 12/31/14 97,856,223
CHAPTER 6-PROBLEM 6: KELSON CORP.

1. Ans. P254,628
Depreciation of Old Buildings (3,600,000-796,200)*6% 168,228
Depreciation of New Building (1,800,000-360,000)*6% 86,400
Depreciation expense – BUILDINGS 254,628
2. Ans. P36,000.
Depreciation on LAND IMPROVEMENT (P576,000/12yrs)*9/12 36,000
3. Ans. P276,000.
Depreciation of Old Machinery (2,325,000/10) 232,500

Depreciation of New Machinery (870,000/10)*6/12 43,500
Depreciation expense – MACHINERY AND EQUIPMENT 276,000
4. Ans. P66,300. 331,500

Leasehold improvement carrying value (12/31/2013)
Divide by: Remaining useful life: 8yrs-3yrs=5yrs
5
(shorter than the remaining extended lease term: 3yrs+5yrs=8yrs)
66,300

Depreciation expense – LEASEHOLD IMPROVEMENT 137,400

(31,356) *P24,300+P7,056
106,044
5. Ans. P43,369.
30%
Delivery Equipment: Book value, Jan. 1, 2014
Book value of delivery equipment sold on Sept 30 as of Jan. 1, 2014
Balance subject to depreciation
Multiply by 150% declining rate (1/5)*150%
Depreciation on the Remaining Delivery Equipment 31,813 Depn on equipment purchased on Aug. 30 (45,000*30%)*4/12
4,500
Depn on truck sold on Sept. 30, 7,056
Total Depreciation expense – DELIVERY EQUIPMENT 43,369
CHAPTER 6-PROBLEM 7: GANADO CORPORATION 1.a. P56,214.

Buidling, CV Jan. 1, 2014 936,900
Multiply by: 150%Dbrate over 25 years 6%
Depreciation expense - Building 56,214

1.b. Ans. P103,775.

Depr. on Disposed Mach.: P23,000/10yrs*3/12 575 Depr. on New
Mach.: P310,000/10yrs*6/12 15,500
Depr. on Remaining Mach.: P877,000/10yrs 87,700 Depreciation expense
- Mach&Eqpt 103,775
1.c. Ans. P21,000.

Depr. on New Auto: P12,000*4/10 Depr. 4,80
on Remaining Auto:** 0
Depr on Auto had there been no change 18,000
Supposed depr. on Auto disp. on 1/1/14: (9,000*2/10) (1,800) 16,20

0
Depr Expense - Automotive Equipment 21,000
2.a. Ans. P319,314.
Accum. Depr - Building, Jan. 1, 2014 263,100

Depr for the year 56,214
Accum. Depr - Building, Dec. 31, 2014 319,314
2.b. Ans. P342,275. 250,000

Accum. Depr - Mach&Eqpt, Jan. 1, 2014 (11,500)
Accum. Depr of M&E disposed on Apr 1, 103,775
Accum. Depr - M&E Dec. 31, 2014
2.c. Ans. P99,300. 84,600

Accum. Depr - Auto. Eqpt. Jan. 1, 2014 (6,300)
Accum. Depr of Auto. Eqpt. Disp. on Jan. 1, 21,000
Accum. Depr - M&E Dec. 31, 2014

11,500
3. Ans. P11,500.
CV on the date of fire (P23,000*5/10)
Recoverable value 11,500
Impairment loss due to fire
Note: The reimbursement received from insurance company is recognized as a separate transaction, thus income from insurance
settlement shall be recognized separately.
4. Ans. (P700)
Fair value of asset received 12,000
Cash paid to equalize exchange (10,000)
Assumed fair value of asset given-up 2,000
CV of asset given up 2,700
Loss on trade-in (700)
CHAPTER 6-PROBLEM 8: MALIK CORP.

1.a. Ans. P732,000.
Replacement of wooden roof to brick roof 300,000
Major improvement on electrical wiring system 70,000 Storm windows and screens
installation 162,000
Automatic door-opening system installation 200,000
Total amount capitalizable to Building or Building Improvements 732,000
1.b. Ans. P690,000.

Replacement of retired factory equipment 500,000
Rearrangement cost to ensue a more efficient production 120,000
Overhead crane in the assembly department 70,000 Total amount capitalizable to
Equipment 690,000
1.c. Ans.
Acquistion of furniture 50,000
2. Ans. P1195,000. Repainting 60,000

of building 50,000
Routinary repairs to building 20,000
Replacements of minor gears 40,000
Service contract of office equipment 25,000
Sealing of roof leaks in the factory
Total repairs and maintenance expense 195,000
CHAPTER 6-PROBLEM 9: BONBON COMPANY 1.
Ans. P3,640,000.
Cost, Jan. 2005 5,200,000
Accum. Depr, Dec. 31, 2014: (P5.2M-P520K)*10/30 (1,560,000)


2. Ans. P1,645,700.
Present value of future net cash flows at 10% effective rate for 15 years remaining life:
From continued use: P200,000*7.60608) 7.606080
1,521,216
From eventual disposal: P520,000*0.239392) 124,484
Value in Use 0.239392 1,645,700
3. Ans. P1,645,700.
Value in Use 1,645,700 FMV less Cost to sell
1,560,000
Recoverable value shall be the Value in Use, since it is higher.
4. Ans. P1,994,300.
Recoverable amount 1,645,700 Impairment loss 1,994,300
5. Ans. P75,047.
Carrying value, Dec. 31, 2014 after impairment 1,645,700
Less: Salvage value 520,000
Depreciable cost 1,125,700
Divide by: remaining useful life 15
Depreciation expense 75,047
CHAPTER 6-PROBLEM 10: LEGASPI CORP.
1. Ans. P5,518,855.
Present value of future net cash flows at 5% effective rate for 4 years remaining life:
From continued use: 7.606080
2015: (P4,500,000-P1,680,000)*0.952381 2,685,714 0.952381
2016: (P4,800,000-P2,520,000)*0.907029 2,068,027 0.907029
2017: (P3,900,000-P3,300,000)*0.863838 518,303 0.863838
2018: (P1,200,000-P900,000)*0.822702 246,811 0.822702
From eventual disposal: 0 -
Value in Use 0.239392 5,518,855
2. Ans. P5,518,855.
Value in Use 5,518,855
FMV less Cost to sell 5,070,000
Recoverable value shall be the Value in Use, since it is higher.
3. Ans. P1,861,145. 7,380,000

Recoverable amount Impairment loss 1,861,145
CHAPTER 6-PROBLEM 11: NAIA COMPANY

1. Ans. P150,000. Replacement cost
Mulitply by condition % (7yrs/10yrs) 1,500,000
Fair value/Sound value/Depr. Repl. Cost 70%
Fair value, 12/31/14

1,050,000
Divide by: remaining life Depreciation
expense, 2015 1,050,000
7
2. Ans. P180,000. Fair 150,000
value, 12/31/14
Carrying value, 12/31/14 (P1.2M*7/10)
Revaluation surplus, 12/31/14 1,050,000
Transferred to RE in 2015 (210K/7yrs) 840,000
Revaluation surplus, 12/31/15 210,000
(30,000)
180,000
3. Ans. P900,000. Fair
value, 12/31/14
Depr in 2014
1,050,000
Carrying value, 12/31/15 (150,000)
900,000
4. Ans. P50,000 and P150,000.

Proceeds from sale 800,000
Carrying value, 12/31/16 (P1,050,000*5/7) (750,000)
Gain on sale - P&L 50,000
Revaluation surplus balance, 12/31/16 (210,000*5/7) 150,000

5. Ans. P565,714.
Fair market value, 12/31/14 1,500,000

Divide by: remaining life 7
Annual transfer to RE 94,286
CHAPTER 6-PROBLEM 12: PEPSI CORP.

1. Ans. P2,000,000.
16,000,000
Carrying value, 12/31.2012 (P24M-P8M) -provide additional depr. for 2012 (P18M/9yrs)
14,000,000
Recoverable amount (higher)* Impairment
2,000,000
loss
14,000,000
Value is use 13,500,000 higher
FMV less cost to sell
2. Ans. P1,750,000. 14,000,000

Carrying value, 1/1/13 after impairment 8
Divide by: remaining useful life 1,750,000
Annual depreciation after impairment
3. Ans. P1,500,000.
Recoverable amount/FMV 15,000,000
Carrying value had there been no impairment: (P16M*6yrs/8yrs) 12,000,000
Increase over CV had there been no impariment is ignored under cost method. 3,000,000
Recoverable value/FMV, 1/1/17 1,800,000
Impairment loss - P&L 700,000
4. Ans. P360,000.
Carrying value after impairment loss, 1/1/17 Divide
by remaining useful life: 1,800,000
5
Revised annual depr. after impairment loss
360,000
Increase over CV had there been no impariment is recognized as REVALUATION SURPLUS-OCI under FMV method.
Carrying value had there been no impairment: (P16M*6yrs/8yrs) 12,000,000

Carrying value based on the impaired value: (P14M*6yrs/8yrs) 10,500,000 Gain on
impairment recovery - P&L 1,500,000
- whether under cost or FMV method, the gain on impairment recovery is recognized in the P&L.
4. Ans. P2,000,000.
Carrying value had there been no impairment (cost method) 12,000,000
Divide by: remaining useful life 6 Annual depreciation after
recovery, cost method 2,000,000
5. Ans. None.
The property had been transferred from PPE to Investment property, where the property is measured under FMV model. Under the FMV
model of valuing investment properties, no depreciation is provided, instead the propety is remeasured at each balance sheet date at
their prevailing FMV. Any increase or decrease is recognized as unrealized holding gain/loss in the profit or loss.
CHAPTER 6-PROBLEM 13: RAM CORP.

1. Ans. P500,000.
Fair Value/Soud Value, 1/1/2014 4,500,000 Carrying
Value, 1/1/2014 (P5M*8yrs/10yrs) 4,000,000
Revaluation Surplus, 1/1/2014 500,000 2,812,500
2,500,000
2. Ans. P562,500. 312,500
Carrying value after revaluation, 1/1/14 4,500,000
Divide by: remaining useful life 8
Annual depr. after revaluation 562,500
3. Ans. P700,000.
Carrying value based on revalued amount, 1/1/17 (P4.5M*5yrs/8yrs)
Carrying value had there been no revaluation, 1/1/17 (P4M*5yrs/8yrs) Reversal
of revaluation surplus in the OCI
Incidentally, this is also the carrying value of RS as of 1/1/17 under the piecemeal method of transferring revaluation surplus to
retained earnings. (P500,000*5yrs/8yrs)
Carrying value had there been no revaluation, 1/1/17 (P4M*5yrs/8yrs) 2,500,000


CHAPTER 6-EXERCISE 1: QUEZON MANUFACTURING COMPANY
1. Ans. C.; 2. Ans. C.
Land and building acquisition price

Property taxes in arrears, Jan. 1, 2014:
(P20,000*1yr/2yrs)
Option payment on property acquired
only
Cost of removal of old buidling
Partial payment on constructed building
Legal fees
Insurance during construction only:
(P24,000*4/12)
Second payment on constructed building
General expense - related
to construction Final
payment on constructed
building
2. Ans. D.
Correct cost of Building, July 1, 2014 1,543,500
Divide by: useful life 25
Annual depreciation 61,740
Multiply by: 6months/12 months in 2014 6/12
Depreciation for 2014 30,870
CHAPTER 6-EXERCISE 2: MILDEN

COMPANY
1. Ans. C.; 2. Ans. C.
Acquisition price
Cost of razing old building
Proceeds from sale of salvaged materials
Title insurance and legal fees to purchase
land
Architect’s fees
New building construction cost
CHAPTER 6-EXERCISE 3: BOND COMPANY

1. Ans. B.
Actual borrowing cost from Specific
Borrowing: P10M*12%
Borrowing cost from General Borrowing
Weighted average actual expenditure*
Less: Proceeds from specific borrowing
WAAE financed by general borrowing
Multiply by: Weighted Ave. Gen Borr. %**
Capitalizable borrowing cost
Actual borrowing cost
(P1.2M+P500K+P800K)
*January 1
March 1
September 1
December 31
Total
Divide by: 12 months
Weighted average actual expenditure
**Actual General Borrowing Cost

P5,000,000*10%
P10,000,000*8%
Divide by: Proceeds from Gen. Borr.
(P10M+P5M) Weighted average
genearl borrowing %
2 .Ans. A.

Land Building
1,308,000
10,000
15,000
22,000
AUDITING (2016 EDITION)
700,000 SOLUTIONS GUIDE
CTESPENILLA
4,000 1,500 81 of 155
8,000
600,000
12,000
200,000
1,337,000 1,543,500 0
0
1
2
2
5
,
Building 3
9
Land 300,000 5
2,500,000 (30,000) ,
150,000 1
600,000 6
15,000,000 7
2,650,000 15,870,000
1,200,000
1
,
1,334,248 3
2,534,248 0
2,500,000 lower 0
,
#mo. to 12/31 Peso*Mos. 0
12 218,742,000 0
10 70,000,000 0
4 16,000,000
- -
1
5
,
3 0
0 0
4 0
, ,
7 0
4 0
2 0
,
0
0
Since actual borrowing cost was fully capitalizable, no borrowing
cost shall be recognized as outright expense for 2014.
3. Ans. B.
January 1
18,228,500
March 1
7,000,000
September 1 4,000,000
December 31 5,000,000
Capitalizabl
e
borrowing
cost
2,500,000
Carrying
value,
12/31/14
36,728,50
0

CHAPTE
R
6-
EXE
RCI
SE
4:
MA
JES
TIC
CO
RP
OR
ATI
ON
Mac
hine
A:
Carrying
Value,
1/1/14
(P30,000*
80%*80%)
19,200
Salvage value (5,000)
Depreciable carrying value 14,200
Divide by: 8 years
8 Depreciation
expense
1,775
Ans. B.
Machine B:
Carrying
value,
1/1/4/14
(P50,000-
P25,000)
25,000
Salvage value (5,000)
Depreciable carrying value 20,000
Divide by: remaining useful life (4yrs+2yrs)
Depreciation expense 3,333 Ans. B.
Machine C:
Depreciation expense, 2014 4,800
(P20,000*60%*40%) Ans. B.
CHAPTE
R 6-
EXERCIS
E 5:
DELITE
CORP.
1. Ans. A.
Machinery AB001
Carrying Value 1/1/14 (6M*10/20) 3,000,000

Less: Salvage value (600,000)
Depreciable carrying value 2,400,000
Divide by: Extended remaining life 15
Depreciation expense in 2014 160,000
2. Ans. C.
Machinery DE020
Cost 1/1/12 6,790,000
Less: Salvage value (500,000)
Divide by: Useful life 20
Annual Depreciation 314,500
Capitalizable cost on 1/1/14 486,000
Divide by: Remaining life 18

Additional Depreciation 27,000
Total Depreciation in 2014 341,500

3. Ans. C.
Machinery GH033
Cost 7/1/14
Down payment: 1,000,000

Balance: (3M*2.577097) 7,731,291
Initial Cost (Cash Price/Present Value) 8,731,291
Multply by: Double Decl. Bal rate 25%
Multiply by (6months/12months) 1/2
Depreciation in 2014 (6 mo.) 1,091,411
4. Ans. A.
Wasting Asset
Cost 18,000,000
Restoration cost 2,000,000
Salvage value (1,000,000)
Depletable cost 19,000,000
Divide by: Useful life (output) 7,600,000
Depletion rate: 2.50
Mulitply by: Actual production 1,200,000
Total Depletion 3,000,000
5. Ans. B.
Depletion rate: 2.50

Mulitply by: Actual sales 900,000
Depletion expense 2,250,000
CHAPTER 6-EXERCISE 6: JERSEY CORP.
1. Ans. D.
Cost Salvage Depr. Cost Life in years Depr. Exp.
Building 6,100,000 100,000 6,000,000 20 300,000

Machinery 2,550,000 50,000 2,500,000 5 500,000
Equipment 1,030,000 30,000 1,000,000 10 100,000
Total 9,500,000 900,000
Depreciation expense 9,680,000

Divide by: Total cost
900,000
Composite depreciation rate
9,680,000
9.30%
2. Ans. A.
Depreciable cost
Divide by: Depreciation expense 9,500,000
Composite life 900,000
10.56
3. Ans. B.Total
cost
9,680,000
Multiply by: Composite depr. rate
9.30%
4. Ans. C.Building
Equipment 6,100,000
1,030,000
Total 7,130,000
Multiply by: Composite depr. rate 9.30%
CHAPTER 6-EXERCISE 7: GRANNY

INC.
1. Ans. B.
Tools disposed, 2014 300
Cost of earlier purchase (From beg. 40

Invty)
Total 12,000
Less: Proceeds from sale (300*10) (3,000)
Depreciation 9,000
Tools disposed, 2015: 700 20,000

Cost of earlier purchases (500*40) 12,000
Cost of next earlier purchase (9,800)
(200*60) 22,200
Less: Proceeds from sale (700*14)
Depreciation
300 60
2015

2. Ans. D. 18,000
Tools disposed, 2014 (3,000)
Cost of later purchase (2006 15,000
purchase)
Total 700 80
Less: Proceeds from sale (300*10) 56,000
Depreciation (9,800) 46,200
Tools disposed, 2015: 700

Cost of latest purchases (2015 2014
purchase) 32,000
Total 24,000
Less: Proceeds from sale (700*14) 56,000
(40,000) 16,000
Depreciation
(3,000)
13,000
3. Ans. C. 40,000
72,
Beginning inventory 000
Purchases 112,000
Cost of tools available for use (35,0
Ending inventory 00)
Balance 77,000
Less: Proceeds from sale 700,000 (9,8
(522,000) 00)
Depreciation expense
CHAPTER 6-EXERCISE 8: COCO 67,200

COMPANY
1. Ans. A.
Proceeds from sale of Mach. Aye
Carrying Value as of date of
disposal
Original Cost
**Accum. Depr.: 260,000
638,000*(45/55) Gain on
sale
178,000
82,000
2. Ans. A.
Machinery Bee (Cost) 1,020,000
Accum Depr (1/1/14)
(960,000/15,000hrs)*11,000hrs (704,000)
Carrying Value, 1/1/14 316,000
Mach. Bee (Depr Carrying Value): (316,000-36,000) 280,000
Div. by: Revised remaining useful life (18,000-11,000) 7,000

Depreciation rate per hour 40.00
Multiply by: Actual hours used in 2014 2,100
Depreciation Expense in 2014 84,000
3. Ans. B.
Mach. See (Cost) 1,600,000
Accum Depr (1/1/14)
**(1.5M/15)*3yrs (300,000)
Carrying Value (1/1/14) 1,300,000
**as per policy, no
depreciation on year of
acquisition; full on year of
disposal
Mach See (Depr Carrying Value): 1.3M-100,000 1,200,000
Divide by: Revised remaining useful life 10
Depreciation Expense in 2014 120,000
4. Ans. C.
Carrying Value of remaining machineries:
Cost:
Machinery Bee 1,020,000
Machinery See 1,600,000
Machinery Dee 1,600,000 Machinery Eff
440,000 4,660,000
Accum. Depr:
Bee: (704,000+84,000) (788,000)
See: (300,000+120,000) (420,000)
Dee: (1.6M*20%)+(1,280K*20%) (576,000)
Eff: (440K*20%) (88,000) (1,872,000)
2,788,000

Carrying value as of December 31, 2014 2.577097
CHAPTER 6-EXERCISE 9: PQR CORP.

1. Ans. A.
Building, CV 1/1/14 5,904,900
Multiply by: Double decl. bal. rate (20yrs) 10%
Depreciation expense - Building 590,490
2. Ans. A.
Depreciation - Machinery
Disposed Mach: P2.4M/10yrs*6/12 120,000 New
Mach: P1.45M/10yrs*6/12 72,500
Remaining Mach: P12.6M/10yrs 1,260,000
Depreciation expense - Machinery 1,452,500
3. Ans. B.
Depreciation - Furniture and Fixture
Disposed F&F: P1.8M*6/55*2/12 32,727
New F&F: P2.2M*10/55*6/12 200,000
Remaining F&F: P4.2M*6/55 458,182 Depreciation
expense - F&F 690,909
Present value of installment price at 8% effective rate:

P2.4M/3yrs*2.577097 2,061,678 Freight and handling cost
138,322
Total initial cost of new F&F 2,200,000
4. Ans. D.
Fair market value of asset given-up 1,250,000
Carrying value of asset given-up, 6/30/14
(P2.4M*5.5yrs/10yrs) (1,320,000)
Loss on trade-in (70,000)
5. Ans. D.
Proceeds from sale 400,000
Carrying value of F&F sold, 3/1/14 (654,545)
Loss on sale of F&F (254,545)
Cost 1,800,000
Accum Depr, 12/31/13 (P1.8M*34/55) (1,112,727)
Depr. up to 3/1/14 (P1.8M*6/55*2/12) (32,727)
CHAPTER 6-EXERCISE 10: CAULIFLOWER CORP.

Debit Credit Balance
January 1, 2010 (A, B, C) 409,200 409,200
September 30, (D) (18,000+6,000) 24,000 433,200
October 31, (D) 18,000 451,200
November 30, (D) 18,000 469,200
December 31, (D) 18,000 487,200
December 31, Depreciation (20% of bal) (97,440) 389,760
January 31, 2011 (D) 18,000 407,760
February 28, (D) 18,000 425,760
March 31, (D) 18,000 443,760
April 30, (D) 18,000 461,760
May 31, (D) 18,000 479,760
June 30, (D) 18,000 497,760
June 30, (E) 240,000 737,760
July 31 (D) 18,000 755,760
August 30, (D) 18,000 773,760
June 30, 2012 (F) (P279,000-P129,000) 150,000 769,008
January 1, 2013: (P75,000-P3,750) (71,250) 543,956

October 1, 2014: (24,000) 411,165
December 31, Depreciation (20% of bal) 2. (82,233) 328,932

Ans. A.; 6. Ans. C.
Correct cost Date of Acq Date of Disp Cond. % as of CV as of Depr. Exp.
12/31/14: 12/31/14: 2014
Equipment A 157,200 1/1/10: 6/30/12: - - -

Equipment B 120,000 1/1/10: 10/1/14: - - 18,00
0
Equipment C 132,000 1/1/10: 1/1/13: - - -
Equipment D: Cash price equiv.+Trans. Cost 186,000 9/30/14: - 0.75yrs/5yrs 27,900 37,20
0
Equipment E: Cash price equiv. (net of disc.) 235,200 6/30/11: - 1.5yrs/5yrs 70,560 47,04
0
Equipment F: at FMV 279,000 6/30/12: - 2.5yrs/5yrs 139,500 55,80
0
Correct CV, 12/31/14 237,960 158,040
3. Ans. B.
Proceeds from sale of C, net 71,250
CV of C, 1/1/2013: P132,000*2yrs/5yrs 52,800
Gain on sale of C 18,450
4. Ans. D.
Proceeds from sale of B 24,000
CV of B, 10/1/14: P120,000*0.25yrs/5yrs
(6,000)
Gain on sale of B 18,000
5. Ans. C.
FMV of A, (Asset given-up): 129,000
CV of A, 6/30/12: P157,200*2.5yrs/5yrs (78,600)
Gain on trade-in 50,400
CHAPTER 6-EXERCISE 11: ROLLING CORP.

1. Ans. B.Proceeds
Carrying Value (1.5M*80%*80%*80%)-64,000** 250,000
Loss on disposal of old Factory equipment 704,000 **depreciation for 5 months in 2014
(454,000)
2. Ans. A.
Downpayment P1,000,000
PV of Balance, at 10% for four periods:
P250,000*3.169865
792,466
Incidental costs (freight and installation) 120,000
PV of future retirement cost, at 10% for 10 period: 87,534
P227,041*0.385543
Initial cost of new Factory equipment P2,000,000
3. Ans. C
Fair value of asset given up (1,200,000-500,000) 700,000 Cost 1,000,000
355,000 Accum Depr (3 yrs + 7 mo.) 645,000
*Book value of asset given up Gain on trade-in
345,000 Carrying Value 355,000
4. Ans. D.
1. Ans. C.
Building (10,000,000*90%)*12/120 900,000 - building being
deprecated on its 4th year.
Building Improvement (780,000*12/78) 120,000 - over the
remaining life of building which is 12 years.
Total Depr. – Building & Improv. 1,020,000
5. Ans. C.
Disposed: (1,500,000*80%*80%*80%*20%)*5/12) 64,000
New: (2,000,000*20%*7/12) 233,333
Balance: (6,500,000**80%*80%*80%*20%) 665,600
Total Depreciation – Factory Equipment 962,933
6. Ans. C.
Disposed: (1,000,000*90%)/5*7/12
New: (1,200,000*90%)/5*5/12 105,000
Balance (4,000,000*90%)/5 90,000
720,000
Total Depreciation – Automotive 915,000

7. Ans. D.
Cost Accum Depr. CV
Land 5,000,000 5,000,000
Building and Improvements 10,780,000 4,170,000 6,610,000

Factory Equipment 8,500,000 4,070,933 4,429,067
Automotive Equipment 5,200,000 2,970,000 2,230,000
Total 18,269,067
CHAPTER 6-EXERCISE 12: SABRINA MANUFACTURING COMPANY

1. Ans. C.
Equipment per audit: (P100,000*0.92593) 92,593 0.92593
Equipment per books, Feb. 1, 2014 100,000
Adjustment to Equipment account (7,407) Fixtures Total

49,107 125,000
55,000 140,000
2. Ans. D. 650,000 (5,893) (15,000)
Building per audit: at FMV 500,000
Buidling per books, June 1, 2014 Adjustment 150,000
to Building account
3. Ans A. Inventory
75,893
Per audit: Prorata based on relative FMV 85,000
Per books, Apr. 1, 2015 (9,107)
Adjustement to Inventory and Fixtures
4. Ans. A. 48,500
Per audit, Land at FMV
Per books, September, 2015
48,500
Adjustment to Land
5. Ans. B. 40,000
Per audit, Machinery at FMV 45,000
Per books, October 12, 2015 (5,000)
Adjustment to Machinery
6. Ans. A. 92,59
Equipment, Correct cost (see #1) 3
9,259
Depreciation expense, 2015
7. Ans. A. 650,000
Building, Correct cost (see #2) 25
Divide by: Useful life 26,000
8. Ans.A. 49,10
Fixtures, Correct cost (see #3) 7
4,911
9. Ans. A. 40,00
Machinery, Correct cost (see #5) 0
CHAPTER 6-EXERCISE 13: BAGPIPE MANUFACTURING COMPANY

1. Ans. D.; 2. Ans. C.
Allocation of lump sum price in proportion to fair values:
Land A (135/1,350 x P12,300,000) P1,230,000
Building A
(1,215/1,350 x
P12,300,000)
11,070,000
Total P12,300,000
3. Ans. B.
Cost of Building A
P11,070,000 Less:

Salvage value
(600,000)
Divide by: Annual depreciation 261,750
Estimated life 40 years
4. Ans. A.
Depreciation expense on Building A
for the year Ended September 261,750
30, 2016
Same as prior year because straight-line method is used in
depreciating Building A.
P1,125,000
5. Ans. D.
Fair value of Land on acquisition
date = FMV of shares
*Demolition cost shall be charged to the cost of the new
constructed Building.
6. Ans. D.
Since Builidng B is not yet available for use as of September 30,
2016, no depreciation shall be provided yet.
7. Ans. A.
Donated equipment, at fair value P450,000
8. Ans. D.
Depreciation expense—Donated equipment, for the year ended
September 30, 2015:
Cost P450,000
150% declining balance rate (1/10 x 150%) X 15%
Depreciation expense P67,500
9. Ans. C.
Depreciation expense—Donated equipment, for the year ended
September 30, 2016:
Book value, Oct. 1, 2015 (P450,000-P67,500) P382,500
150% declining balance rate (1/10 x 150%) Depreciation X 15%
expense P57,375
10. Ans. B.
Total cost as recorded P2,473,500
Less: Normal repairs and maintenance 223,500
Correct cost of Machinery A P2,250,000
11. Ans. C.
Depreciation expense—Machinery A for the year ended September
30, 2015:
(P2,250,000-P90,000=P2,160,000 x 8/36) P480,000
12. Ans. A.
Depreciation expense—Machinery A, for the year ended
September 30, 2016:
(P2,160,000 x 7/36 x 4/12) P140,000
13. Ans. C.
Down payment P86,000

First installment payment on October 1, 2015 90,000
Present value of succeeding 10 nstallment payments
(P90,000 x 6.710) 603,900
Total cost of Machinery B P780,000
14. Ans. B.
Depreciation expense-Machinery B, for the year ended Septmeber
30, 2016:
(P780,000/20years) 39,000
CHAPTER 6-EXERCISE 14: KARUMA TECHNOLOGY INC.

1. Ans. D.
Book value of plant and equipment,
End of 2016 (P120 million x 5/8) P75 million
2. Ans. A.
Book value of purchased
technology (Patent)
(P60 million x 3/6) P30 million

3. Ans. D.
Plant and equipment:
Book value P75 million
Recoverable value (FMV) 50 million *cash flow is undiscounted, thus not useful
Impairment loss P25 million
4. Ans. C.
Purchased technology:
P30 million
Book value
10 million *cash flow is undiscounted thus not useful
Recoverable value (FMV) Impairment loss
P20 million
CHAPTER 6-EXERCISE 15: BRENDAN CORPORATION

1. Ans. A.
Factory: (P1,800,000*24/30) 1,440,000
Building: (P10,000,000*14/20) 7,000,000
2. Ans. B.
Present value of future net cash flows from the CGU's:
Continued use: P1,050,000*4.9676 5,215,980
3. Ans. A.
Carrying value of CGU:
1,440,000
Factory: (P1,800,000*24/30)
7,000,000
Building: (P10,000,000*14/20)
8,440,000
Total
5,215,980
Recoverable value/Value in use
3,224,020 *FMV not determinable
Impairment loss
4. Ans. B.
Factory Machinery
Carrying value before impairment loss: 1,440,000 7,000,000
Impairment allocated, prorata (relative book value before
impairment)
Factory (1,440,000/8,440,000)*P3,224,020 (550,070)
Building (7,000,000/8,440,000)*P3,224,020 (2,673,950)
Carrying value after impairment loss 889,930 4,326,050
5. Ans. B. Factory Machinery

1,440,000 7,000,000
Carrying value before impairment loss:
Impairment allocated, prorata (relative book value before
impairment)
Factory (1,440,000/8,440,000)*P3,224,020 (550,070)
Building (7,000,000/8,440,000)*P3,224,020 (2,673,950)
Carrying value after impairment loss 889,930
4,326,050*lower than FMV P4.5M
Additional impairment to Factory (173,950)
173,950
Carrying value after reallocation of impairment loss
715,980 4,500,000
Observe that the carrying value of the individual assets
comprising the CGU should not result to an amount that is
lower than the higher between the individual assets' Recoverable
Value or Zero.
CHAPTER 6-EXERCISE 16: MARGOT CORPORATION

1. Ans. A.
Cost of machineries 609,000
Accum. Depr. (609,000-49,000)*3yrs/8yrs (210,000)
Carrying values, 12/31/14 399,000
2. Ans. B.
Present value of future net cash flows from:
Use: 2015: P141,000*0.909091 128,182 0.909091
2016: P114,000*0.826446 94,215 0.826446
2017: P30,000*0.751315 22,539 0.751315
2018: P15,000*0.683013 10,245 0.683013
2019: P10,000*0.620921 6,209 261,391 0.620921

Disposal: 2019: P49,000*0.620921 30,425
Value in use 291,816

3. Ans. C.Value in use 291,816 higher

FMV less cost to sell 300,000
4. Ans. D.
Carrying value 399,000
Recoverable amount (300,000)
99,000
Impairment loss
5. Ans. B. higher
291,816
Value in use FMV 275,000
less cost to sell
6. Ans. D. 399,000
Carrying value (291,816)
Recoverable amount Impairment loss 107,184
CHAPTER 6-EXERCISE 17: REVO Land A Land B

CORP. 8,000,000 16,000,000
1. Ans. C. (10,000,000) (12,000,000
)
Fair Market Value (2,000,000) 4,000,000
Cost P&L OCI
(Impairment loss)/Revaluation
Surplus
Land A Land B
12,000,000 11,000,000
2. Ans. C. (10,000,000) (12,000,000
)
Fair Market Value 2,000,000 (1,000,000)
Cost OCI P&L
(Impairment loss)/Revaluation 12,000,000 11,000,000
Surplus (8,000,000) (16,000,000
)
4,000,000 (5,000,000
Fair Market Value
)
CV 2,000,000 (4,000,000
Total increase/decrease in value )
Recovery gain
Reversal of RS
Impairment loss from Land B (1,000,000)

Recovery gain from 2,000,000
Land A Net gain 1,000,000
from Lands
Land A Land B
3. Ans. B. 11,000,000 15,000,000
(10,000,000) (12,000,000
Fair Market Value )
Cost - 3,000,000
(Impairment loss)/Revaluation OCI OCI
Surplus 11,000,000 15,000,000
(12,000,000) (11,000,000
Fair Market Value )
CV (1,000,000) 4,000,000
Total increase/decrease in value (1,000,000) 1,000,000
Reversal of RS Recovery gain
3,000,000
Revaluation surplus from Land B

(
Reversal of revaluaiton surplus
1
for Land A Net OCI for the year
,
0
0
0
LABANOS CORP.
,
1. Ans. C.
0
Carrying value (P500,000-
0
P90,000)
0
Recoverable value
)
Impairment loss
2. Ans. B.
2
CV after impairment loss
,
2014 Depr: (338,000-
0
50,000)/8yrs CV, 12/31/14
0
0
3. Ans. C.
,

0
0
0
410,000
(
3
3
8
,
0
0
0
)
7
2
,
0
0
0
338,000
(36,000)
302,000

Replacement depreciable cost (P555,000-50,000) 505,000

Multiply by: Condition percent (6yrs/10yrs) 6/10
Depreciable FMV, Depreciable Sound Value 303,000
Salvage value 50,000
Fair value/Sound value 353,000
4. Ans. A.
Fair value/Sound Value 353,000

CV had there been no impairment (P500,000-P180,000) 320,000
Revaluation surplus 33,000
CV had there been no impairment (P500,000-P180,000) 320,000
CV based on impaired value (P338,000-P72,000) 266,000

Recovery gain - P&L 54,000
5. Ans. C. 28,875
RS, 12/31/16: (P33,000*7years/8years)
*note that the remaining life of the asset after revaluation is (12years-
4years) 8 years.

CHAPTER 7: AUDIT OF INTANGIBLES AND OTHER ASSETS
DISCUSSION PROBLEMS
CHAPTER 7-PROBLEM
1 1 A. 2 B. 3 C.
Purchase of a franchise 1,200,000

Goodwill acquired in the purchase of a business 640,000
Legal costs incurred in securing a patent 70,000
Cost of purchasing a patent from an inventor 500,000
Cost of purchasing a copyright 900,000
Cost of purchasing a trademark 290,000
Stand-alone application computer 100,000
Ans. P3,700,000.
software
CHAPTER 7-PROBLEM 3: CLOUDE NINE CORP.

1. Ans.
2008:
Research and development expense 418,000
2009:
2010:
Patent ABC amo. (P100,000/20yrs)*9/12 3,750
Research and development expense 125,000 128,750

2011:
Patent ABC amo. (P100,000/20yrs) 5,000

2012:
Patent DEF amo. (P375,000/12.5yrs) 30,000
Legal fees - successful defense 42,600 577,600

2013:
Patent GHI amo. (P350,000/16yrs)*6/12 10,938 45,938

2014:
Patent GHI amo. (P350,000/16yrs) 21,875

2. Ans. P680,938.
Condition % CV
Cost Acq. Date 12/31/14: 12/31/14:
Patent ABC 100,000 4/1/2010: 15.75y/20y 78,75

0
Patent DEF 375,000 12/31/2011: 9.5y/12.5y 285,00
0
Patent GHI 350,000 7/1/2013: 14.5y/16y 317,18
8
Total 680,93
8
CHAPTER 7-PROBLEM 4: GARY INC.

1. Ans.

Total Intangible Assets 3,700,000
64,000
64,000
2011: Amortization (P640,000/10yrs)
2012: Amortization (P640,000/10yrs)
2013: Amortization:
Original Patent (P640,000-P128,000)/12 years 42,66

7
Related Patent (P120,000/12 years) 10,00
0
Total Amortization 52,667
2014: Amortization:
Original Patent (P640,000-P128,000)/12 years 42,667
Related Patent (P120,000/12 years) 10,000
Total Amortization 52,667
2. Ans. P386,565.; 3. Ans. (P140,102).

Value in use/Present value of future net cash flows at 8% for 3 years.
P150,000*2.577097 386,565 2.577097
Carrying value, 12/31/14
Original and Related patent cost 760,000
Amortization, 12/31/14 (233,333) 526,667 Impairment loss
(140,102)
4. Ans. P128,855.
CV, 1/1/15 after impairment 386,565
Divide by: Remaining life 3
Amortization, 2015 128,855 2,348,227 2.9137
(234,823) 12
2,113,405
CHAPTER 7-PROBLEM 5: COLGATE COMPANY Case
1: 1,439,756
1. Ans. P1,439,756. Franchise, 673,649
Jan. 1, 2014
Downpayment 600,000
PV of Balance a 14% for 4 periods.
P2.4M/4yrs*2.913712 1,748,227
Less: Amo, 2014 (2,348,227/10yrs)
Value in use/PV of net cash flows at 10% for 9yrs:
P250,000*5.759024 5.759024 1,000,000
Impairment loss (100,000)
900,000
2. Ans. P476,000.
Patent, Jan., 2014 544,000 1,199,049
Amortization, 2014 (544,000/8yrs) (68,000) -
3. Ans. P389,474. Trademark, 900,000

(100,000)
Jan., 2012
800,000
Amortization, 2012 (P1M/10yrs)
Value in use/PV of net cash flows at 9% for 9yrs: 1,086,687
P200,000*5.995247 5.995247 -
Impairment loss
800,000
Trademark, Jan., 2013
(100,000)
700,000
Value in use/PV of net cash flows at 9.5% for 8yrs:
389,474
P200,000*5.433436 5.433436
310,526
Impairment loss
Trademark, Jan., 2014

Value in use/PV of net cash flows at 10% for 7yrs:
2,053,22
P80,000*4.868419 4.868419
Impairment loss 3
4. Ans.
68,000

P2,858,150. 234,823 736,926

Fanchise: 673,649 2,858,150
Amortization 244,752
Interest expense
(P1,748,227*14%)
Continuing franchise fee
(P18M*5%) Patent: 100,000
Amortization 310,526 2,348,227
Trademark: 326,400 2,348,227
Amortization
Impairment loss
Legal fees - successful
defense Total expenses
Case 2:
600,000
1. Ans.
P2,348,227.
1,748,227
Franchise, Jan.
1, 2014
Downpayment
PV of Balance a 14% for 4
periods.
P2.4M/4yrs*2.913712
Value in use/PV of net cash flows at 10% for an indefinite period:
P250,000/10% 5.759024 2,500,000
Impairment loss -
2. Ans. P476,000.
Patent, Jan., 2014 544,000
Amortization, 2014 (544,000/8yrs) (68,000)
3. Ans. P800,000.
Trademark, Jan., 2012 1,000,000 Carrying value, 12/3/12
1,000,000
P200,000/9% 5.995247 2,222,222
Impairment loss -
Trademark, Jan., 2013 1,000,000 Carrying value, 12/3/13

1,000,000
Value in use/PV of net cash flows at 9.5% for an indefinte period:
P200,000/9.5% 5.433436 2,105,263
Impairment loss -
Trademark, Jan., 2014 1,000,000

Carrying value, 12/3/14 1,000,000
P80,000/10% 4.868419 800,000
4. Ans. P1,739,152.
Fanchise:
Interest expense (P1,748,227*14%) 244,752
Continuing franchise fee (P18M*5%) 900,000 1,144,752

Patent:
Amortization 68,000
Trademark:
Legal fees - successful defense 326,400 526,400

Total expenses 1,739,152
CHAPTER 7-PROBLEM 6: PJ CORP.

1. Ans. P1,500,000.
Acquisition Cost 8,000,000
FMV of Net Assets 6,500,000

Goodwill 1,500,000
2. Ans. P1,950,000; Ans. P8,450,000. 6,500,000

FMV of Net Assets 3%
Excess earnings in % (12%-9%)
Excess earings
195,000
Goodwill (P195,000*10yrs)
FMV of Net Assets Acquisition cost 1,950,000
6,500,000
8,450,000
3. Ans. P1,625,000; Ans. P8,125,000.
Goodwill (P195,000/12%)
FMV of Net Assets Acquisition cost 1,625,000
6,500,000
8,125,000
4. Ans. P1,200,000; Ans. P7,800,000.
Average/Normal Earnings of DA Inc. (P6.5M*12%) 780,000
Divide by: Capitalization rate 10%
Goodwill 1,300,000
5. Ans. P1,198,191; Ans. P7,698,191.

Present value of excess earnings at 10% for 10 years:
Goodwill: P195,000*6.144567 1,198,191 6.144567
CHAPTER 7-PROBLEM 7: KAREN CORPORATION

Accumulated profits 2010-2014 1,800,0
00
Less: Gain on sale of equipment in 2012 (200,0
00)
Accum. Operating Profits 2010-2014 1,600,0
00
Divide by:
5
Annual average operating profits
320,000
Add: Annual presidents bonus
50,000
Less: Inrease in depr. exp. (P350,000/5yrs) (70,0
00)
Projected average operating profits
300,000
Less: Average/Normal earnings of industry (260,0
(P2.6M*10%) 00)
Projected excess earnings
40,000
FMV BV Difference
Current Asset 700,000 150,0
Noncurrent Asset (excluding GW) 00
550,000
Land 950,000 -
950,000
Depr. Asset 1,850,000 350,0
00
1,500,000
Liabilities (900,000) -
(900,000)
Net Assets 2,600,000
1. Ans. P200,000; P160,000; P400,000;
P151,631. 2,100,000
a) Purchase of excess
earnings
Goodwill (P40,000*5yrs) 200,000
b) Capitalization of excess
earnings
Goodwill (P40,000/25%) 160,000
c) Capitalzation of average

earnings
Projected annual average oper. 300,000
Profits
Divide by: Capitalization 10%
rate
Acquisition cost/price 3,000,000
Less: FMV of Net Asset (2,600,000)
Goodwill 400,000
d) Present value method
Goodwill: 151,631
(P40,000*0.3.79079)
3.79079
2. Ans.
a) Purchase of excess
earnings
Goodwill 200,000
Acquisition cost/price 2,800,000

b) Capitalization of excess earnings
Goodwill (P40,000/25%) 160,000 Acquisition cost/price
2,760,000
c) Capitalzation of average earnings
Projected annual average oper. Profits 300,000
Divide by: Capitalization rate 10% Acquisition cost/price
3,000,000
d) Present value method
Goodwill: (P40,000*0.3.79079) 151,631 Acquisition
cost/price 2,751,631
3. Ans. Option d)
For the acquiring company, the best option is that which will yield the least acquistion price and least goodwill.

1. Ans. P1,000,000.
ABC DEF GHI JKL
FMV of net assets (4 CGUs) 800,000 1,500,000 700,000 1,000,000 4,000,000 Goodwill (prorated)**
200,000 375,000 175,000 250,000 1,000,000
Before impairment, 12/31/14

Cash* shall be excluded in determining the CV of the CGU (not included in the "other assets" within the scope of PAS 36)
Factory equipment 240,000 200,000
100,000 100,000
Office Equipment 490,000 200,000
250,000 120,000
Building 900,000 700,000
500,000 400,000
Goodwill** 375,000 250,000
200,000 175,000
Carrying value of 2,005,000 1,350,000
CGU Value in
use: 1,050,000 795,000
ABC: P149,726*6.144567 6.1445
67
920,000
DEF: P289,242*7.606080 2,200,000 7.6060
80
GHI: P76,490*6.144567 6.8136
92
470,000
JKL: P161,440*6.813692 950,000
Impairment loss - 400,000
CGU-ABC 130,000 325,000

Impairment loss
130,000

Chargeable to Goodwill-ABC
CGU-DEF (130,000)
Impairment loss -
CGU-GHI ABC 400,000

Impairment loss
Chargeable to Goodwill-GHI (250,000) -
Balance to allocated to other assets 50,000
Factory equipment (100,000/620,000) 100,000 150,000
Office equipment (120,000/620,000)
Building (400,000/620,000) (27,273) 172,727
250,000
CGU-JKL (27,273) 172,727
Chargeable to Goodwill-GHI (95,455) 604,545
70,000
Balance to allocated to other assets 970,000
Factory Equipment DEF GHI JKL TOTAL
(200,000/1,100,000)
Office equipment (200,000/1,100,000) 100,000 - - 150,000
1,000,00
Building (700,000/1,100,000)
0
445,000 240,000 75,806 172,727 588,534
2. Ans. P395,000.
555,000
After impairment, 12/31/14
490,000 90,968 172,727 1,003,695
Cash
Factory equipment
900,000 303,226 604,545 2,307,771
Office Equipment
Building
375,000 - - 445,000
Goodwill**
Carrying value of
2,105,000 470,000 950,000 4,495,000
CGU
510,000
3. Ans. P605,000.
Goodwill, before impairment
Goodwill, after impairment
Impairment loss charged to 480,000 *remaining lease term, 9.5yrs is shorter than improvement's life, 15
goodwill
yrs.
30,000
4. Ans. P258,064.
5. Ans. P604,546.
1,200,000
CHAPTER 7-PROBLEM 9: EDD CORP. 9.50
*remaining life (15-4.5yrs), 10.5yrs, is now shorter than the

1. Ans. P510,000.
126,316 extended remaining lease term (10-5yrs+10yrs), 15yrs.
2014 Rental expense
6/12
2014 Amortization of leaserights
63,158
(P300,000/10yrs)
2. Ans. P63,158.
Cost of leasehold improvement
Divide by: Remaining lease term:
9.5yrs Annual depreciation Multiply 631,579
by: Depreciation expense, 2014 10.50
60,150
3. Ans. P60,150. CV, after
Carrying value, 1/1/2019 impairment
(P1,200,000*5yrs/9.5yrs)
Divide by: Remaining useful life 325,000
(175,000)
-
CHAPTER 7-PROBLEM 10: MUSAR
CORP. 150,000
1. Ans. P139,375.
100,000 (24,194)
120,000 75,806
400,000
(29,032)
90,968
(96,774)
303,226
200,000
200,000 CV, after
700,000 impairment

Salaries of staff working on research project 78,00

0
Computer program services 17,50
0
Allocated general expenses (P175,500*25%) 43,87
5
Total research and development expense 139,37
5
2. Ans. P2,480.
Patent, initial cost 24,800 Divide by: useful life
10
Amortization expense 2,480
3. Ans. P22,320.
CHAPTER 7-PROBLEM 11: BITS AND BYTES INC.
1. Ans. P1,253,600.
Salaries and wages of programmers doing research 940,00
0
Expenses prior to establishment of tech. feasibility 313,60
0
Total research and development expense 1,253,600
Patent (24,800-2480) 22,320
2. Ans. P330,000.
Expenses after technical feasibility is established 330,000
3. Ans. P100,500.
Amortization of computer software (330,000/3yrs) 110,000
Cost to produce and prepare software for sale 225,000
Cost of goods produced 335,000
Portion of goods remaining on hand 30%
Cost of ending inventory 100,500
4. Ans. P117,000.
Amortization of computer software: 165,000
P330,000*(P2,000,000/P4,000,000) 225,000
Cost to produce and prepare software for sale 390,000
Cost of goods produced 30%
Portion of goods remaining on hand 117,000
Cost of ending inventory
CHAPTER 7-PROBLEM 12: HARRY CORP. Prepayment

Exp.-2014
Miscellaneous
Rent 50,000 - Receivable
Security Deposit 220,000
20,000
1-year rent 55,000
5,000
Lease bonus
Inurance 12,500
37,500
Fire insurance 56,250
18,750
Property insurance 25,000
50,000
Advertising 25,000
90,000
Office supplier
Advances to officers 135,00 - Receivable/Other asset
Idle office equipment 0 - Other asset
Bond redemption fund 25,000 - LT Investment
393,750
221,250 545,000
2. Ans.
1. Ans.

CHAPTER 7-EXERCISE 1: 150,000
Purchased recipes and secret formulas 300,000
Licensing, royalty, and stand still agreement 112,000
Operating and broadcast rights 500,000
Goodwill purchased in a business combination 150,000
175,000
A license to manufacture a steroid by means of a government grant
137,000
Initial franchise fees paid
70,000
Cost of purchasing a patent from an inventor
250,000
Legal cost in securing a patent
Cost of purchasing a trademark
100,000
Amount paid to a lessor for the exclusive right to rent a facility under an
1,944,000
operating lease agreement for a period of 10 years Total intangibles
including goodwill

CHAPTER 7-EXERCISE 2: DOHA CORPORATION

1. Ans. A.
CV, Patent, 12/31/14: P444,000*9yrs/10yrs 399,600
2. Ans. C.
CV, Franchise, 12/31/14: P252,000*6.5yrs/8yrs 204,750
3. Ans. B.
Prepaid rent, 12/31/14: P168,000*0.75yrs/2yrs 63,000

4. Ans. D.
Amortization of franchise, 2013 (P252,000/8yrs)*6/12 15,750

Rent expense, 2013 (P168,000/2yrs)*3/12 21,000
Net loss including organization expense in 2013 96,000
Retroactive adjustment to RE,beg. 2013 132,750
5. Ans. B. 31,500
Amortization of franchise, 2014 (P252,000/8yrs) 84,000
Rent expense, 2014 (P168,000/2yrs) 44,40
Amortization of patent, 2014 (P444,000/10yrs) 0
Cost to develop a secret formula
450,000
Legal fees - successful defense
75,900
Research and development expense, 2014 Total expense
960,000
in 2014 1,645,800
Carrying Value/Cost (no definite life) 1,260,000
Recoverable value/Value in use: CHAPTER 7-EXERCISE 3: ALYSSA CORP.
(150,000/12%) 1,250,000 1. Ans. B.
Franchise:
Impairment loss in 2014 10,000
Carrying Value/Cost (no definite life) 1,260,000
Recoverable
2. Ans. B. value/Value in use:
(180,000/12%)
Patent: 1,500,000
Cost (1/1/14) 2,220,000
Impairment loss in 2014 - no impairment in
Amortization: (2,220K/10yrs) (222,000) 2013
Carrying Value (12/14) 1,998,000

Recoverable value/Value in use
(337,822*5.32825) 1,800,000
3. Ans. A.
2013 expenses:
Rent expense (840,000/2)*3/12 105,000
Net loss for the year 480,000
Retroactive adjustment to RE, Beg 585,000
4. Ans. A.
2014 expenses:
Impairment loss on Franchise 10,000
Rent expense for 2014 420,000
Amortization on Patent 222,000
Impairment loss on Patent 198,000
Cost of developing recepe 2,250,000
Legal fees on patent defense 379,500
Total expense 3,479,500
CHAPTER 7-EXERCISE 4: STU CORPORATION 3,740,000

1. Ans. B. (374,000
Patent, Correct Cost, 1/2013 )
Amortization (2013-2014): P3,740,000*2yrs/20yrs 3,366,000
2. Ans. D. 2,160,000
License, Correct Cost, 1/2012 (648,000
Amortization (2012-2014): P2,160,000*3yrs/10yrs )
Carrying value, 12/31/14 1,512,000

Recoverable value/Value in use:

PV of Future net cash flows at 9% for an indefinite
P90,000/9% 1,000,000
0
5. Ans. C.
Depreciation on the Leasehold Improvement
P900,000/5yrs * 10/12 150,00
0
Amortization of Leaserights; P400,000/10yrs 40,00
0
Total expense 190,00
0
period:
CHAPTER 7-EXERCISE 5: NICOLE CORP.

1. Ans. D.
Legal and other professional fees to process the patent
0 5.328250
-Training cost is recognized as outright expense.
240,000
432,000
672,000
480,000
192,000
- Trademark is with indefinite life, thus no amortization.

- Successful defense cost is recognized as outright expense.
- Depr. is over useful life since it is shorter than remaining lease

term.

application (useful life is 15 years), Jan., 2007 660,000

CV, Dec. 31, 2007: P660,000*14/15 616,000
3. Ans. C.
Amortization expense 2012:
Original Patent: P660,000/15yrs 44,000
Competing Patent: P220,000/11yrs 20,000
Total amortization, 2012 64,000
4. Ans. A.
Original Patent, CV, Dec. 31, 2011:
P660,000*10/15 440,000
Competing Patent, CV, Dec. 31, 2011:
640,000
P220,000*10/11 200,000
5. Ans. D.
Original Patent, CV, 1/1/2012
Competing Patent, CV, 1/1/2012 440,000
Related Patent, 1/1/2012 200,000
Total Patent, 1/1/2012 335,000
Divide by: Extended remaining life (10yrs+3yrs) Revised 975,00
0
amortization expense, 2012
13
75,000
6. Ans. B.
CV, 12/31/13 (P975,000*11/13) 825,000
7. Ans. B.
CV, 12/31/14 (P975,000*10/13) 750,000
Recoverable value -
CHAPTER 7-EXERCISE 6: DEF CORP.

1. Ans. D.
Patent, 12/31/14 (before amortization), per books
CV of Repairs cost capitalized in 1/1/2011
P75,000*6yrs/9yrs
Patent, 12/31/14 (before amortization), per audit 550,000
CV of Patent with revised useful life:
P210,000*6yrs/14yrs (50,000)
CV of remaining Patent with the same useful life 500,000
Amortization of patent with revised life: (P90,000/2yrs) 90,000

Amortization of patent w/o change in life: (P410,000/6yrs) 410,000
Total amortization expense, 2014
2. Ans. A.
Patent, 12/31/14 (before amortization), per audit
Correct amortization for 2014
Patent, 12/31/14 after amortization
500,000
(113,333)
3. Ans. B. 386,667 45,000
68,333
113,333
The carrying value of the capitalized repairs cost as of 1/1/14 should have been expensed as early as 2011.
CHAPTER 7-EXERCISE 7: AMFURST CORP.

1. Ans. C.
FRANCHISE: TERM 10 YEARS 2. Ans. C.
Initial franchise fee (PV) FRANCHISE: INDEFINITE
Down payment Initial franchise fee (PV)
Balance (800,000*2.321632) 600,000 Down payment
1,857,306 1 Balance (800,000*2.321632)
Less: Amortization: 2,457,306 2.321632
CV 12/31/14 245,731 Recoverable amount/Value in use 2,211,575
Recoverable Value/Value in Use (400,000/12%)
(400,000*5.32825) Impairment loss 600,00
Impairment loss 2,131,300 0 0
80,275 5.3282498 Amortization 1,857,306
Amortization (2,457,306/10) Impairment loss 2,457,30
Impairment loss 245,731 Interest expense (1,857,306*14%) 6
Interest expense (1,857,306*14%) 80,275 Continuing franchise fee (12M*5%)
Continuing franchise fee (12M*5%) 260,023 Total expense 3,333,33
Total expense 600,000 3
1,186,028 -
3. Ans. B.
PATENT: 8 YEARS: -
Cost 1/1/2014 -
Amortization (545,000/8) 545,000 517,750 260,02
Carrying Value 12/31/2014 68,125 3
Recoverable value 476,875 600,00
(120,000*4,563757) 0
Impairment loss 547,651 860,02
0 - 3

2. Ans. B.

4. Ans. C.
LEASE AGREEMENT:
Rent expense for 2014 200,000
Amortizatin of lease rights (150,000/5yrs) 30,000
Depr of improvement (450,000/4.5yrs)*6/ 50,000
Total expense 280,000
CHAPTER 7-EXERCISE 8: SAHARA CORP.

1. Ans. D.
*No capitalizable internally developed intangible yet since one of criteria for capitalization (i.e. how future economic benefits
shall be derived) has not been met. Under PAS 38, Intangibles, the following criteria should be strictly complied with if to
capitalize development cost of an internally generated intangible:
1. Establishment of technical feasibility
2. Intention to complete the project and to either sell/use the result of the project.
3. Ability to complete the project and to either sell/use the result of the project.
4. Availability of resources to complete the project.
5. How probable future economic benefits can be derived from the intangible.
6. Ability to reliably estimate future cost to be incurred to complete the intangible.
2. Ans D.
Salaries and other employee benefits 7,800,000
Other expenses 3,080,000
Depreciation on Building (11.2M/20yrs) 560,000
Total R&D Expense 11,440,000
3. Ans. B.
Patent cost 3,200,000
Useful life 10 Amortization for
2014 320,000
4. Ans. A
Building cost 11,200,000
Accum Depr (11.2M/20) (560,000)
CV 12/31/14 10,640,000
5. Ans. B.
Patent cost 3,200,000
Amortization in 2013: (3.2M/10yrs)*9/12 (240,000)
Amortization in 2014 (320,000)
CV 12/31/14 2,640,000
CHAPTER 7-EXERCISE 9: BALAGTAS ENTERPRISES

1. Ans. B.
Franchise, CV, 12/31/14 550,000 *No definite life, thus no amortization
Recoverable value/ Value in use *Continuing franchise fee is recgonized as outright expense.
(P67,500/15%) 450,000 *PV of future net cash flows from continued use at 15% for an indefinite
period.
2. Ans. 0.
Organization cost is recognized as outright expense.
3. Ans. C.
Excess of cost over net assets of entrprise acquired in 2012 200,000
*No indication of impairment of CGU with which the Goodwill is allocated to, thus the CV remains to be the initial cost.
CHAPTER 7-EXERCISE 10: CAN CORP.

Projected profits for the next four years:
2014: (6M*1.2) 7,200,000
2015: (7.2M*1.2) 8,640,000 2016:
(8.64M*1.2) 10,368,000
2017: (10.368M*1.2) 12,441,600
Total 38,649,600 Divide by:
4
Projected average earnings 9,662,400 9,662,40

Average/Normal earnings at industry rate: 0
Fair market Value of Net Assets
Current Asset (9M+4.8M) 13,800,000
Investments at FMV 9,000,000
PPE, net 24,000,000

Current liabilities (4,800,000)

Noncurrent liabilities (6,000,000) FMV of net
assets 36,000,000
Multiply by: industry rate of return 18%
Average/Normal earnings at industry rate: 6,480,000 6,480,00

0
Projected average excess earnings 3,182,40
0
1. Ans. D.
Goodwill: 17,680,000
Add: Fair value of net assets 36,000,000
2. Ans. A.

0
Multiply by: # of years
4
Goodwill 12,729,600
3. Ans. A.
Projected average earnings 9,662,400

4. Ans. C. 3,182,400
Projected average excess earnings 3
Multiply by: PV factor at 15%, 4 periods
Goodwill 9,085,683
CHAPTER 7-EXERCISE 11: T CORPORATION

1. Ans. B.
Total Country A Country B Country C
Acquisition Price, January 1, 2013 10,000,000
FMV of Identifiable Net Asset 8,000,000 2,000,000 1,500,000 4,500,00
0
Goodwill (Allocated, Prorata: FMV of NA) 2,000,000 500,000 375,000 1,125,00
2. Ans. A. 0
Value in use=Present value of future net cash flows from CGU Country C:
Estim. Future net cash flows before impairment event 1,500,000
Effect of new legislation (cutting by 40% imports to Country C) 60%
Estim. Future net cash flows after impairment event 900,000

Multiply by: PV factor of 1 at 15% for 9-year remaining life of CGU C 4.771584
Value in use 4,294,426
*observe that there is no salvage value of net asset of Country C, thus no cash flows from eventual disposal.
3. Ans. A.
Carrying Value of Country C's, Assets
Factory equipment 2,500,000
Store Equipment 1,500,000
Building 2,700,000
Goodwill 1,125,000 **observe that payables is deducted since, estimate of cashflows
Payables (700,000) 7,125,000 also included cash flows related to payable.

Value in use/Recoverable value 4,294,426
4. Ans. C.; 5. Ans. C.

Allocation of loss:
1,863,592 CV after impairment
Goodwill of Country C (1,125,000) 1,118,155 CV after impairment
Balance to other asset, prorata: 1,705,574 2,012,679 CV after impairment
Factory equipment (636,408) (700,000) *liabilities are not impaired.

Store equipment 2,500,000 (381,845)

Building 1,500,000 (687,321)
Payables 2,700,000
(700,000)
6. Ans. D.
Allocation of loss:
Goodwill of Country C (1,125,000)
Balance to other asset, prorata: 1,705,574
Factory equipment (458,214)
Store Equipment 1,800,000 (381,845) 1,341,786 Should not be lower than its Rec. Value,
Building 1,500,000 (687,321) 1,118,155 P1.4M
Payables 2,700,000 2,012,679
(700,000) (700,000) *liabilities are not impaired.
Reallocation of impairment loss:

Allocation of loss:
Goodwill of Country C (1,125,000)
Balance to other asset, prorata: 1,705,574
Cash 700,000 - 700,000 *no impairment allocated to cash
Factory equipment 1,800,000 (642,230) 1,157,770 CV after impairment
Store Equipment 1,500,000 (100,000) 1,400,000 Should not be lower than its Rec. Value,
P1.4M
Building 2,700,000 (963,345) 1,736,655 CV after impairment
Payables (700,000) (700,000) *liabilities are not impaired.
Observe that the CV of the asset after the impairment should not be lower than the higher between the assets' own
recoverable amount or zero. Thus the impairment that should have been allocated to the inventory was reallocated
to receivable and the property and equipment, prorata.
6. Ans.Payables
C. (700,000) (700,000) *liabilities are not impaired.
CHAPTER 7-EXERCISE 12: ABC CORPORATION

1. Ans. B.
Fair value less cost to sell 5,250,000 higher
Value in use/PV of future net cash flows at 8% for 5 periods:
Use: P1,252,282*3.992710 3.992710 5,000,000
2. Ans. A.
Carrying value of CGU
Factory equipment 1,750,000 included in the determination of the fair value less cost to
Office equipment 1,475,000 sell.
Building 2,725,000
Goodwill 500,000 6,450,000
Recoverable value/FMV less cost to sell 5,250,000

3. Ans. C.

Allocated to:
Goodwill (500,000)
Balance to other assets, prorata 700,000
Factory equipment 1,750,000 (205,882) 1,544,118
Office equipment 1,475,000 (173,529) 1,301,471
Building 2,725,000 (320,588) 2,404,412

4. Ans. C.

Allocated to:

Goodwill (500,000)
Factory equipment 1,750,000 (205,882) 1,544,118 *Should not be lower than 1.6M
Office equipment 1,475,000 (173,529) 1,301,471 *Office Equipment CV should not be lower than
P1.4M
Building 2,725,000 (320,588) 2,404,412
Reallocation of Impairment loss

Allocated to:
Goodwill (500,000)
Factory equipment 1,750,000 (150,000) 1,600,000
Office equipment 1,475,000 (75,000) 1,400,000
Building 2,725,000 (475,000) 2,250,000
CHAPTER 7-EXERCISE 13: MEGAMALL COMPANY

1. Ans. B.
Cost incurred prior to establishment of capitalization criteria on Nov. 1, 2014 540,000
2. Ans. C.
Capitalizable cost, after Nov. 1, 2014 60,000
Recoverable amount, Dec. 31, 2014
500,000 Impairment loss -
3. Ans. D.; 4. Ans. C.
Capitalizable cost, after Nov. 1, 2014 60,000
Additional capitalizable cost, 2015 1,200,000
Total cost as of Dec. 31, 2015 1,260,000
Recoverable amount, Dec. 31, 2015 1,140,000
CHAPTER 7-EXERCISE 14: LAS VEGAS INC.

1. Ans. C.
Amortization of Patent (600,000/10) P60,000
Amortization of Copyright (1,200,000*1.5M/5M) 360,000
Total amortization (Patent and Copyright) P420,000
2. Ans. A. P125,000
Amortization of Software (300,000/240)*100 48,000
Amortization of Franchise (480,000/10) 125,000
Continuing franchise fee (2,500,000*.05)
Total expenses related to computer software and franchise P298,000
3. Ans. A.
Total research and development costs (all costs in item P433,000
f)
4. Ans. C.
Patent (600,000*9/10) P540,000

Copyright (1,200,000-360,000) 840,000
Tradename 1,050,000
Computer software (300,000-125,000) 175,000
Franchise (480,000*9/10) 432,000
Goodwill 2,700,000
Total carrying value of intangible, 12/31/15 P5,737,000
CHAPTER 7-EXERCISE 15: BOHOL CORPORATION
1. a) Ans. A.; b) Ans. D.; c) Ans. B.; d) Ans. B.
Project 123 is entirely research and development, thus no capitalizable intangible, unless qualified under PAS 38
capitalization criteria.
The first Patent is useful solely for 1 project only, thus is fully recognized to that project only, since the project
has not qualified yet for capitalization under PAS 38, the entire cost of the first Patent is recognized as R&D
Expense.
The second Patent is useful for many projects, thus only the amortization is recognized as R&D Expense. The balance
shall be reflected as Intangible asset.
Patent, CV, June 30, 2014: (P16,200*9/10) 14,580 Condition % CV
6/30/2014: 6/30/2014:
Copyright: Cost Acq. Date 20.5yrs/25yrs 24,600
12yrs/15yrs
1/2/2010: 26,400 51,000

Copyright ABC 30,000 7/15/2011:

Copyright XYC 33,000
Goodwill
FMV, Net Assets acquired 1,560,000
Goodwill, initial recognition 22,000
Note that since there are no indication of GW impairment from acquisition date to 6/30/14, GW is assumed not to be
impaired.
2. Ans. D.
Salaries of staff doing research 18,500
Patent solely for Project AM123 12,000
Depr. on Equipment for various projects (10,000/5yrs) 2,000
Amo. on Patent for various projects (16,200/10yrs) 1,620
Cost of pilot models 8,950
Total R&D Expense 43,070
3. Ans. A. 1,200
Amortization Expense: ABC (30,000/25yrs) 2,200
Amortization Expense: XYC (33,000/15yrs) 3,400
Total amortization expense on copyrights
4. Ans. A.
CHAPTER 7-EXERCISE 16: TAILOR CORP.
Searching for applications of new research findings 57,000
Radical modification of the formulation of a glassware production 78,000
Laboratory research aimed at discovery of new knowledge 204,000
Testing for evaluation of new products 72,000
Materials consumed in research and development projects 177,000
Consulting fees paid to outsiders for research and projects 300,000
Personnel costs of persons involved in research and devt projects 384,000
Indirect costs reasonably allocable to research and devt projects 150,000
Design, construction, and testing of preproduction prototypes and
models 870,000
Total research and developmnet 2,292,000
expense

CHAPTER 8: AUDIT OF LIABILITIES AND PURCHASES
DISCUSSION PROBLEMS
CHAPTER 8-PROBLEM
1 1 B. 2 C. 3 B. 4 C.
5 D.
6 C/B.
7 B.
8 D. 9 A.
10 A.
11 B.
12 C.
13 D.
14 D. 15 B.
16 B.
17 B.
18 B. 19 C.
CHAPTER 8-PROBLEM 2: MERMAID COMPANY
Current Noncurrent
Accounts payable, adjusted for the debit balance (Advances to suppliers) 660,000
Note payable - trade only 500,000
Salaries payable 800,000
SSS payable 30,000
Pag-ibig payable 5,000
Medicare payable 15,000
Wittholding taxes payable 60,000
VAT payable 120,000
Advance from customers (AR with credit balances) 50,000
Serial bonds payable, payable P1M, semi-annyally 2,000,000 8,000,00

0
Accrued interest on bonds payable 300,000
Estimated warranties payable 420,000
Estimated liability for environmenta damages 50,000
Unearned rental income, for 3 years starting Jan. 1, 2015 50,000 100,00
0
Cash advances from shareholders 200,00
0
Total 5,060,000 8,300,000
1. Ans. 2. Ans.
CHAPTER 8-PROBLEM 3: JOJO INC.

Current Noncurrent
a) P1M short-term notes payable, due Feb. 7, 2015 1,000,000
b) P500,000 short term debt, due June 1, 2015 500,000
c) P500,000 notes payable, due June 15, 2015 20,000 480,000
d) P1M bonds payable, due Dec. 31, 2018 1,000,000
Interest on the bonds payable P1M*10% 100,000
480,000
2,620,000 2. Ans.
1. Ans.
Notes: For item a, there was no indication that the right to refinance already existed as of the balance sheet date. Thus, while there
was a LT-refinancing agreement completed after the balance sheet date, the liability is still current as of Dec. 31, 2014.
For item b, the agreement to refinance the liability on a LT-basis was only completed after the balance sheet date.
For item c, the right existed already as of the balance sheet date, however, since the amount of the loan to be used to
refinance the currently maturing obligation is expected only at 80% of P600,000, that is P480,000 only P480,000 of the
currently maturing obligation is expected to be refinanced on a long-term basis.

For item d, while the grace period was agreed upon as of the balance sheet date (Dec. 31), the grace period is short-term
only.
CHAPTER 8-PROBLEM 4: TARBUCK INC.

Ans. P4,120,000.
Per GL Per SL
Unadjusted balances 4,450,000 4,020,000 Goods received on Dec. 30 (valid purch.)
400,000
Goods in-transit, FOB Dest (not valid purch.) (300,000)
Payments to suppliers, checks released Dec. 30 (valid payment) (520,000) Payments to
suppliers, checks not yet released as of Dec. 31 (not valid) 200,000
Purchase returns (valid Dec. transaction) (50,000)
Credit balance (Advances to suppliers) 40,000
Adjusted balances 4,120,000 4,120,000
CHAPTER 8-PROBLEM 5: RONNIE COMPANY
Required Estimated Expense (500u*80%*P8,000) 3,200,000
Less: Actual cost incurred (1,250,000)
Estimated warranties payable 1,950,000
1. Ans.:
Warranties expense 1,950,000 1,950,000
Estimated warranties payable
2. Ans. P3,200,000.
3. Ans. P1,950,000.
CHAPTER 8-PROBLEM 6: JDI VIDEO AND SOUND

Analysis 2014 2015
425,000
Estimated warranties payable, beg.
Required estimated expense: 750,000
2014: 5,000units*30%*P500
900,000
2015: 6,000units*30%*P500 (325,000) (650,000)
Actual cost incurred for the year Estimated 425,000
675,000
warranties payable, end
1. Ans.
Audit adjusting entry in 2015: 425,000
Retained earnings (add'l exp. in 2014) 250,000
Warranties expense
675,000
Estimated warranties payable
2. Ans. P750,000.
3. Ans. P900,000.
4. Ans. P425,000.
5. Ans. P675,000.
CHAPTER 8-PROBLEM 7: SIERRA APPLIANCE CORP.

Analysis: Total
Required estimated expense: SF
Vacuum Cleaners: (P45M*30%)/P15,000*(P2,250- VC 3,303,000
P500) Stand Fan: (P45M*40%)/P12,500*(P1,500- 1,575,000 1,728,000
P300) Actual cost incurred/Actual redemption:
Vacuum Cleaners: (1,000u-175u)*(P2,250-P500) (3,093,750
Stand Fan: (1,500u-125u)*(P1,500-P300) (1,443,750) (1,650,000) )
131,250 78,000 209,250
2014 2015 2016 2017

50,000 50,000
60,000
60,000
90,000 90,000
50,000 150,000 90,000
110,000
350,000 240,000 90,000 -
Estimated premiums payable, end
1. Ans. P3,303,000.
2. Ans. P209,250.
CHAPTER 8-PROBLEM 8: NOKIA CORP.
Collection for unearned service contract 400,000

25% earned in the first contract year: 100,000
6 months in 2014
6 months in 2015
30% earned in the second contract year: 120,000
6 months in 2015
6 months in 2016
45% earned in the third contract year: 180,000
6 months in 2016
6 months in 2017
Service contract earned for each year
Balance unearned at the end of each year:
1. Ans. 2. Ans. 3. Ans.
CHAPTER 8-PROBLEM 9: SAN MIG CORP.

1. Ans. P337,500.
2013 leaves:
55employees*4weeks*5days 1,100 days

25employees*2weeks*5days 250 days
Total 2013 unused leaves: 1,350 days
Multiply by: Salary rate in 2013 250
Liability for compensated absences/Salaries payable 337,500 unaccrued, thus expense in 2013 was
understated.
2. Ans. P453,750.
2013 leaves: 1,10
55employees*4weeks*5days 0 days
25employees*2weeks*5days days
250
Total 2013 unused leaves: days
1,350
Less: Exercised in 2014 days
925
Unexercised in 2014, thus forfeited by year-end 2014
425 days
2014 leaves:
30employees*6weeks*5days
900 days
625 days
450 days
10 days
Total cummulative unused leaves by 12/31/2014
0 days
Less: Expired unused leaves from 2013:
2,075
Unused leaves still exerciseable
Mulitply by: Current salary rate, 2014 (425)
1,65
Liability for compensated absences/Salaries payable 0
275
453,750
2. Ans.
CHAPTER 8-PROBLEM 10: BARO CORP.

1. Ans. B.
Damages occurred in 2014, thus is a present obligation. The outflow of benefits is probable and the most reliable estimate is
P400,000. Since the lawyers estimate that the reasonably possible outflow may be upto P700,000, additional contingent
liabiltiy should be disclosed at P300,000.

2. Ans. C.
The purchase commitment is non-cancellable. Since as of the balance sheet date the unavoidable cost to fulfill the contract
(10,000*P100=P1,000,000), already exceed the expected benefit (10,000*P60=P600,000), the contract is rendered onerous
as of the balance sheet date. PAS 37, requires the recongition of the loss and provision when the contract is rendered
onerous.
Entry:
Loss on purchase commitment (P100-P60)*10,000 400,000
Estimated liability on purchase commitment 400,000
3. Ans. D.
The virtually certain reimbursement from probable loss shall be presented as an offset against the loss and provision (PAS 37) while
virtually certain reimbursement from the impaired asset shall be recongized as a separate asset and income (PAS 16)
4. Ans. C.
The contingent asset that is probable is disclosed.
CHAPTER 8-PROBLEM 11: MOATS COMPANY

Proceeds from issue of bonds=PV of future cash flows at 4% semi-annual effective rate for 10 periods:
Principal: P1,000,000*0.675564 675,564 0.675564
Interest: P50,000*8.110896 405,545 8.110896

1,081,109
Amortization tabe: Bonds payable:
(CV*4%) (P1M*5%)
March 1, 2014: 1,081,10

9
September 1, 2014: 43,244 50,000 (6,756) 1,074,35
3
March 1, 2015: 42,974 50,000 (7,026) 1,067,32
7
September 1, 2015: 42,693 50,000 (7,307) 1,060,02
1
March 1, 2016: 42,401 50,000 (7,599) 1,052,42
1
Correct entries:
March 1, 2014:
Cash 1,081,109
Bonds payable 1,000,000
Premium on bonds payable 81,109
September 1, 2014:
Interest expense 50,000
Cash 50,000
December 31, 2014:
Interest payable 33,333
(P1,000,000*10%*4/12)
Correct interest (P1,074,353*8%*4/12) 28,649
Nominal interest accrued (P1,000,000*10%*4/12) 33,333
Amortization (4,684
)
1. Ans: Adjusting Entries:
Bonds payable 81,109

2. Ans. P71,894.
Interest expense (Mar. 1 - Sept. 1)
P1,081,109*8%*6/12 43,244
Interst expense (Sept. 1 - Dec. 31)
P1,074,353*8%*4/12 28,649
Interest expense, 2014 71,894 1,074,353
(4,684

3. Ans. P1,069,669. )
Amortized cost, Sept. 1, 2014 (see table) 1,069,669
Amortization up to Dec. 31, 2014 (see entries)
Amortized cost, Dec. 31, 2014
4. Ans. P10,021.
Retirement price
Amortized cost, Sept. 30, 2015: 1,050,000
Accrued interst (P1M*10%*1/12) (1,058,754
Gain on retirement of bonds ) 1,060,021
(1,267)
(10,021)
Amortized cost, Sept. 1, 2015 (see table)
(1,267
Amortization up to Sept. 30: )
Correct interest (P1,060,021*8%*1/12) 1,058,754
Nominal interest (P1,000,000*10%*1/12) 7,067
Amortized cost, Sept. 1, 2015 (8,333)
Entry:
Bonds payable
Premium on bonds payable 1,000,00 1,050,000
Interest expense
0 10,021
Cash
58,754
Gain on retirement of bonds
1,267
CHAPTER 8-PROBLEM 12: MNO INC.

1. Ans. P1,245,000.
Accounts payable, unadjusted balance
RR 2903 - on consignment
RR 2904 - in transit, FOB SP
1,240,000
Accounts payable, adjusted
(30,000)
35,000
1,245,000
2. Ans. P720,000.
Required warranty expense, 2013: (2,500u*40%*P900) 900,000
Actual cost (560,000
)
Warranties liability, Dec. 31, 2013 340,000
Required warranty expense, 2014: (3,000u*40%*P900) 1,080,000
Actual cost (700,000
)
Warranties liability, Dec. 31, 2014 720,000
3. Ans. P2,099,474.
Proceeds from bond issue/FMV 1/1/13 = PV of future cash flows at 10% for 5 years.
Principal: P2,000,000*0.620921 1,241,843 0.620921
Interest: P240,000*3.790787 909,789 2,151,631
3.790787 Amortization table: Bonds payable
(Bal*10%) (Face*12%)
January 1, 2013: 2,151,631
December 31, 2013: 215,163 240,000 (24,837) 2,126,795
December 31, 2014: 212,679 240,000 (27,321) 2,099,474
4. Ans. P78,505.
Net income before any adjustments: 1,557,679
Understated accounts payable/purchases (5,000)
Understated warranties payable/warranties expense (380,000)
Overstatement in interest expense in 2014 27,321
Adjusted net income 2014, before bonus 1,200,000
B = 10% (NI - Tx - B); Tx = 30%(NI - B)

B = 10% (1.2M - (30%(1.2M - B) - B)
B = P78,505.
5. Ans. P785,046.
Adjusted net income 2014, before bonus 1,200,000
Less: Bonus (78,505)

Net income before 30% tax 1,121,495
Income tax expense (336,448)
Net Income after tax 785,046
CHAPTER 8-PROBLEM 13: MAMALOLA CORP.

1. Ans. P443,000. 17,00
460,000 0
Accounts payable, unadjusted balance (42,000) AJE 1: Accounts Payable
Shipments from consignor (recorded) (30,000)
Shipments-in-transit, FOB Destination (recorded) Purchases 17,000
55,000
Shipment-in-transit, FOB SP (not yet recorded) 443,000
Accounts payable, adjusted
2. Ans. P248,700. 306,250

Warranty expense in 2013 (1,250*70%)*P350 95,45
(153,000)
Less: Actual warranty cost incurred in 2011 AJE 2: Warranties Expense 0
153,250
Warranties payable, 2013 Warranties payable 95,450
345,450
Warranty expense in 2014 (1,410*70%)*P350 (250,000)
Less: Actual warranty cost incurred in 2014 248,700
Warranties payable, 2012
3. Ans. P222,750. 125

2013 unused leaves forwarded to 2015 (625-(700-200))* 550
2014 unused leaves forwarded to 2015 675 AJE 3: Salaries payable 45,75
Total unused leaves that may be forwarded to 2053 Salaries expense 45,750 0
Multiply by current salary rate in 2014: (268,500/895days)*1. 330 (268,500-222,750)
Salaries payable (Liab for compensated absences) 222,750

*any unused prior to 2013 leaves are forfieted by the end of 2014
4. Ans. P1,600,000.
*There is a right/option to refinance the obligation on a long-term basis as of December 31, 2014. However, based on the probable
proceeds from the issuance of long-term debt security P1.6M (P2M*80%), only P1.6M may probably be refinanced on a long-term
basis.
5. Ans. P130,841.
Unajdusted net income 2,032,700 AJE 1:
Overstated purchases 17,000
AJE 2: Understated warranty expense (95,450)
AJE 3: Overstated salaries expense 45,750
Adjusted net income 2,000,000
B = 10% (NI - B - TX)
TX = 30% (NI - B)
B = 10% (2,000,000 - B - 30%(2,000,000 - B))

B = 140,000 - .07B
1.07B = 140,000
Bonus = P130,841
CHAPTER 8-PROBLEM 14: SANTOS CORP.

1. Ans. P402,104.
Proceeds from convertible bond issue (P8M*110%) 8,800,000
Less: FMV of bonds without conversion option = PV of future cash flows
from the bonds at 10% for 3 years:
Principal: P8,000,000*0.751315 6,010,518 0.75131
5
Interest: P960,000*2.486852 2,387,378 8,397,896 2.486852
0
Residual amount/APIC from bond coversion privilege 402,104
2. Ans. P8,277,686.
Amortization table: Bonds payable Correct Int. Nominal Int. Amortization Balance
(Bal.*10%) (Face*12%)
January 1, 2014: 8,397,89

6
December 31, 2014: 839,790 960,000 (120,210) 8,277,68
6
December 31, 2015: 827,769 960,000 (132,231) 8,145,45
5
December 31, 2016: 814,545 960,000 (145,455) 8,000,00
0
3. Ans.
Entry upon conversion:
Alt1 Bonds payable 8,000,000

Ordinary shares (8,000*50*P10) 4,000,000
Share premium 4,277,686
Alt2 Bonds payable 8,000,000
APIC-Bond conversion privilege 402,104
Ordinary shares (8,000*50*P10) 4,000,000
Share premium 4,679,790
Note: Both alternatives are acceptable under PAS 39.
4. Ans. P65,455.
Total Bonds Payable APIC-BCP
(at FMV, 102) (Residual)
Retirement price 8,320,000 8,080,000 240,000
CV, Bonds payable, 1/1/16 8,145,455
CV, APIC - Bond coversion privilege 402,104
Gain on retirement of convertible bonds 65,455

162,104 to profit/loss to
APIC
Entry:
Bonds payable 8,000,000
APIC - Bond conversion privilege 402,104
Cash 8,320,00
0
Gain on retirement of bonds (profit/loss) 65,45
5
APIC/Share premium 162,10
4
CHAPTER 8-PROBLEM 15: DIRT CORP.
1. Ans. P379,264.
2,250,000 Proceeds
Less: FMV of bonds without conversion option = PV of future cash flows from
from the bonds at 5% for 8 semi-annual periods: bond with
warrants
Principal: P2,000,000*0.676839 1,353,679 0.67683issue
9
Interest: P80,000*6.4632128 517,057 1,870,736 6.463212
Annual rental expense 306,000
8
Mulitply by: 11mo/12mo 11/12
Residual amount/Ordinary Share Warrants Outstanding 379,264 Balance
Rent
expense
2. Ans. P1,898,486. Correct Int. 1,870,736
Amortization 1,884,273 for 2014
Amortization table: Bonds payable (Bal.*10%)
Nominal Int. 1,898,486
(Face*12%) 280,500
January 1, 2014: 93,537
July 1, 2014: 94,214 13,537 Less:
January 1, 2015: 80,000 14,214 Amount
80,000 paid for
3. Ans. P257,559. the year
Entry upon exericise of warrants: 330,000 (Nov. and
Cash (2,000*5w)*60%*P55 227,559 Dec.)
Ordinary share warrants outstanding(60%)
Ordinary shares (6,000shares*P50) (60,000)
Share premium 300,000
257,559
4. Ans.
Entry upon expiration of remaining warrants: 151,706
Ordinary share warrants outstanding(40%)
Share premium/APIC - Expired warrants
151,706

CASE 1:
Periodic rentals (March to December); (40,000*10mo)
Amortization of lease bonus (120,000/5yrs)*10/12 Rent 400,000
20,000
Expense
420,000
CASE 2:
Annual rental
300,000
Amortization of lease bonus (100,000/8yrs)
12,500
Contingent rental (P2.5M-P2M)*5%
25,000
Rent Expense 337,500
CASE 3:
Total lease payments: P30,000*(60mo - 9mo) 1,530,000
Accrued rent expense, 12/31 220,500

CASE 4:
Total lease payments: P40,000*(120mo-3mo) 4,680,000
Annual rental expense 468,000
Multiply by: 4mo/12mo 4/12
Rent expense for 2014
156,000
Leasehold improvement cost 300,000
Annual depreciation expense 60,000
Mulitply by: 3mo/12mo 3/12
15,000
Total expense for 2014
CASE 5: 171,000
Total lease collection:
First two years:
(P2,000*100*2yrs)
Last two years:
(P3,000*100*2yrs)
Divide by: 4 years
Annual rental income 1,000,000
Multiply by: 9mo/12mo
400,000 250,000
600,000 9/12
Rent income for the period ended 9/30/14 187,500
Amount collected in 2014 200,000
Unearned rental income (12,500)
CASE 6:
Gross rental income 500,000
Amortization of direct lease expense (150,000/5years) (30,000)
Depreciation expense (120,000)
Property taxes (90,000)
Net rental income 260,000 2,380,000
54,00
0
CHAPTER 8-PROBLEM 17: 2,434,000
CASE 1: 200,000 (202,833)
Minimum lease payments in arrears 2,231,167
6.1450
Multiply by: PV factor of 1 at 10% for 10 periods in arrears
1,229,000
Initial cost of the asset
CASE 2: 96,000
Minimum lease payment in advance 5.8680
Multiply by: PV factor of 1 at 10% for 8 period in advance 563,328
Initial cost of the asset 12
Divide by: 12 yrs (life since title passes to the lessee) 46,944
CASE 3:
Minimum lease payment 400,000
Periodic payments in advance 5.9500
Multiply by: PV factor of 1 at 14% for 10 period in advance 200,000
Bargain purchase option
Multiply by: PV factor of 1 at 14% for 10 period without annu 0.2700
Initial cost of the asset
Less: Depreciation (2,434,000/12 years) Carrying value as of 12/31/14
*
*note that the depreciation is based on the useful life since ownership will be transferred to the lessee
CASE 4:

Amortization table:
Periodic Paymen Interest Principal Balance Amortization table
(per books):
Dec. 31, 2014: (P3,165,000 - P500,000) 3,165,00 Finance Lease
0
Periodic Paymen Correct Int. Principal Balance
Dec. 31, 2015: 500,000 316,500 183,500 2,981,50
December 31, 2013: 0 2,879,51
Dec. 31, 2016: 500,000 298,150 201,850 2 2,779,65
December 31, 2014: 500,000 287,951 212,049 0 2,667,46
December 31, 2014: 3
CHAPTER 8-PROBLEM 18: ANGLO INC.
Entries made,expense
Interest under finance lease: 287,951
December 31, 2013:
Building*
Lease liability 212,049
3,379,512
Cash 500,00
Lease
Cash liability 500,000
0
2,879,512
5.759024
Accumulated Depreciation 337,951 6.759023
(P3,379,512/10years) 8
*PV of MLP 10% for 10 years in advance: (lower than FMV of asset) AUDIT ANALYSIS:
(P500,000*6.7590238) 0
1. There is no transfer of ownership.
2. There is no bargain purchase option.
3. The term (10 years) is not a major part (at least 75%) of the life (15 years) of the asset.
4. The PV of MLP (P3,379,512) is not substantially all (at least 90%) of the FMV of the leased asset
(P4,000,000) The lease agreement does not qualify as finance, thus should have been accounted for only
under operating lease.
Correct entries, under operating lease.
December 31, 2013:
Prepaid rent 500,000
Cash 500,00
January 1, 2014: 0
Rent expense 500,000
Prepaid rent 500,00

0
December 31, 2014:
Prepaid rent 500,000
Cash 500,00
0
1. Ans. P125,902.
Expenses per books
Interest on finance lease liability 287,951
Depreciation expense 337,951 625,90

2
Expense per audit 500,00
0
Overstatement in expense/Understatement in NI 125,902
2. Ans. None.
CHAPTER 8-PROBLEM 19: LACTUM INC.

Entries made per books, operating lease:
January 1, 2014:
Cash 150,00
April 1, 2014: 0
Cash 150,00
July 1, 2014: 0
Cash 150,00
October 1, 2014: 0
Cash 150,00
0
AUDIT ANALYSIS:

1. There is no transfer of ownership.

2. There is no bargain purchase option.
3. The term (10 years) is not a major part (at least 75%) of the life (15 years) of the asset.
4. The PV of MLP (P4,185,388) is substantially all (at least 90%) of the FMV of the leased asset
(P4,185,388) The lease agreement does qualify as finance, thus should have been accounted for only under
finance lease.
Correct entries per audit, finance lease
January 1, 2014:
Building* 4,185,388
Cash 150,000
Lease liability 4,035,388
*PV of MLP at 2% for 40 quarters in advance. (P150,000*27.9025888) 26.9025888 27.902588
Amortization table: Finance lease liabilty: 0.4619482 8
Periodic Paymen Correct Int. Principal Balance

January 1, 2014: 4,035,38
8
April 1, 2014: 150,000 80,708 69,292 3,966,09
6
July 1, 2014: 150,000 79,322 70,678 3,895,41
8
October 1, 2014: 150,000 77,908 72,092 3,823,32
6
Janaury 1, 2015: 150,000 76,467 73,533 3,749,79
3
April 1, 2015: 150,000 74,996 75,004 3,674,78
9
July 1, 2015: 150,000 73,496 76,504 3,598,28
5
October 1, 2015: 150,000 71,966 78,034 3,520,25
0
April 1, 2014:
Cash 150,000
July 1, 2014:
Cash 150,000
October 1, 2014:
Cash 150,000
December 31, 2014:

Accumulated depreciation 418,539
(P4,185,388/10years) * no transfer of ownership, thus depr shall be over term.
1. Ans. P132,943. Expense per books

Rent expense (P150,000*4qtrs) 600,000
Expense per audit:
Depreciation expense 418,539 732,943 Understatement in
Expense/Overstatement Net Income (132,943)
2. Ans. P3,823,326.
Lease liability, 12.31.14 3,823,326 Interest payable, 12.31.14
76,467
3. Ans. P303,076.
Principal due from January 1, 2015 to December 31, 2015 (see amortization table)
Janaury 1, 2015: 73,533
April 1, 2015: 75,004
July 1, 2015: 76,504

October 1, 2015: 78,034

Current portion of lease liability 303,076

CASE 1:
1. Ans. P60,000.
Sales price 420,000
Fair market value (420,000)
Deferred gain on sale -
Fair market vaue 420,000

2. Ans. 40,000.
Sales price
420,000
Fair market value (380,000
)
Deferred gain on sale 40,000

3. Ans. 100,000.
Sales price
420,000
)
Deferred gain on sale 100,000

Carrying value (360,000) Realized loss on sale
(40,000)
4. Ans. 60,000.
Sales price 420,000

)
Ignored (30,000
)
Sales price 420,000

Carrying value (360,000
)
Realized loss on sale 60,000
CASE 2:
1. Ans. P80,000. 400,000
Sales price (480,000
Fair market value )
Deferred loss on sale (80,000) * since the future rentals is below rent,
there is an expected future benefit from the asset being sold at a
loss.
2. Ans. P40,000.
Sales price
400,000
)
Realized loss on sale (80,000) * since the future rentals is at market rate of rent,
there is no expected future benefit from the asset sold at a loss.
Total realized loss (140,000)

CASE 3:
1. Ans. 626,667.
Interest expense on finance lease liab (600,000*10%) 60,000
Depreciation on the leased-back asset (600,000/3yrs) 600,000
Amortization of deferred gain on sale (100,000/3yrs) (33,333) - gain on a sale and leaseback (finance) is fully deferred
and
Net amount recognized in the profit or loss 626,667 amortized over lease term.
*note that the lease back agreement is acconted for as finance lease since the term, 3yrs is 100% of the remaining life.
2. Ans. 141,269
Realized gain on sale (P600,000 - P500,000) (100,000) *Selling
price is at FMV Net amount recognized in the profit/loss 141,269
*note that the lease back agreement is acconted for as operating lease since the term, 3yrs is less than 75% of the remaining life,
8 yrs.
CASE 4:
1. Ans. 115,000.
Interest expense on finance lease liab (150,000*10%) 15,000
Depreciation on the leased-back asset (150,000/3yrs) 50,000
Realized loss on sale 50,000 *loss on sale is fully realized since it is an indication
of
Net amount recognized in the profit or loss 115,000 asset impairement.
*note that the lease back agreement is acconted for as finance lease since the term, 3yrs is 100% of the remaining life.
2. Ans. P158,205.
Rent expense 58,205
Realized loss on sale (P200,000 - P150,000) 100,000 *Selling price is at FMV (no
expected future benefit) Net amount recognized in the profit/loss 158,205
*note that the lease back agreement is acconted for as operating lease since the term, 3yrs is less than 75% of the remaining life,
8 yrs.

CASE 1:
Minimum lease collections 200,000
Multiply by: PV factor of 1 at 12% for 5 years with annuity 3.604776
1
Present value of minimum lease collection 720,955
Cost of the asset/FMV of asset (Under Direct Finance) 700,000

Add: Direct finance lease cost 20,955
Initial investment on the lease agreeement 720,955
Amortization table:
Periodic Coll. Interest Inc. Principal Balance
January 1, 2015: (CV * 12%) 720,955
December 31, 2015: 200,000 86,515 113,485 607,470

December 31, 2016: 200,000 72,896 127,104 480,366
December 31, 2017: 200,000 57,644 142,356 338,010
December 31, 2018: 200,000 40,561 159,439 178,571
December 31, 2019: 200,000 21,429 178,571 (0
)
1. Ans. 0.
Under a Direct Finance Lease, the only source of income shall be interest. No profit shall be recognized from the sale of the
asset since under Direct Finance Lease, the cost of the asset on the company's books shall be equal to its selling price to the
customer.
*Direct lease costs incurred under direct finance lease is added to the initial investment on lease, thus increasing the amount
receivable.
Entry upon inception/Sale of asset:
Finance lease receivable 720,955

Asset 700,000
Cash 20,955
2. Ans. 72,896.
Entry upon periodic collections:
Dec. 31, 2015:

Cash 200,000

Dec. 31, 2016:
Cash 200,000
3. Ans. 480,366.
See amortization table above.
CASE 2:
Multiply by: PVF of 1 at 10% for 5yrs w/ annuity in advance 4.169865 1
Present value of minimum lease collection = Sales Price 833,973
Cost of the asset 600,000
Gross profit on sale 233,973 Balance

633,97
3
Amortization table: Interest Inc. 497,37
Periodic Coll. (CV * 10%) 0
January 1, 2015: 347,10
63,397
January 1, 2016: 200,000 Principal 7
49,737
January 1, 2017: 200,000 34,711 181,81
January 1, 2018: 200,000 136,603 8
18,182
January 1, 2019: 200,000 150,263
165,289
181,818 0
1. Ans. 233,973.
Under a Sales Type Lease, the manufacturer/dealer shall recognize gross profit from the sale of the asset which shall be the
difference between the Sales Price of the asset and its Cost on the company's books. *Direct lease costs incurred under sales
type lease is recognized as outright expense
Sales 833,973
Entry to recognize cost of sales, if perpetual inventory is

used:
Cost of sales 600,000
Inventory 600,000
Entry to recognize the direct lease expense:

Expense 20,000
Cash 20,000
2. Ans. 49,737.
Entry upon accrual of interest and periodic collections:
Dec. 31, 2015:

Jan. 1, 2016:
Cash 200,000

Dec. 31, 2016:

Jan. 1, 2017:
Cash 200,000

3. Ans. 497,370.
See amortization table
CASE 3:
Present value of minimum lease collection 1,516,315
Guaranteed residual value 100,000
Multiply by: PV factor of 1 at 10% years w/o annuity 0.620921
Present value of the guaranteed residual value 62,092
Total Sales Price of the asset = Total Lease Receivable 1,578,407

Balance
Amortization table: 1,578,40
Periodic Coll. Principal 7
January 1, 2015: Interest Inc. 1,336,24
December 31, 2015: 400,000 (CV * 10%) 242,159 8
December 31, 2016: 400,000 157,841 266,375 1,069,87
133,625 2
December 31, 2017: 400,000 106,987 293,013 776,86
0
December 31, 2018: 400,000 77,686 322,314 454,54
5
December 31, 2019: 400,000 45,455 354,545 100,00
0
December 31, 2019: Guaranteed RV 100,000 100,000
0
1. Ans. P1,578,407.
Under Sales Type Lease, where residual value is guaranteed, that portion of the asset is deemed sold, thus the PV of the
guaranteed residual value is added to the total sales price of the asset.
*Direct lease expense under sales type lease is recognized as outright operating expense.
Finance lease receivable 1,578,407
Sales 1,578,40
7
2. Ans. P1,000,000.
Entry to recognize cost of sales, if perpetual inventory is used:
Inventory 1,000,000
Entry to recognize the direct lease expense:

Expense 50,000 Cash 50,000
3. Ans. 578,407.
Total Sales Price of the Asset 1,578,407
Less: Cost of the asset/FMV of asset (1,000,000)
Gross Profit on Sale 578,407
4. Ans. P133,625.
Entry upon periodic collections:
Dec. 31, 2015:
Cash 400,000
Dec. 31, 2016:

Cash 400,000
CASE 4:
Present value of minimum lease collection = Sales Price of the asset 1,516,315
*Since the residual value is unguaranteed, that portion of the asset is not deemed sold. Thus was not included in the sales
price.

Present value of minimum lease collection 1,516,315
Guaranteed residual value 100,000
Multiply by: PV factor of 1 at 10% years w/o annuity 0.620921
Present value of the guaranteed residual value 62,092
Total Lease receivable. 1,578,407
*Since the residual value will still accrue to the benefit of the lessor (no trasfer of ownership), the unguaranteed residual value
which will be received at the expiration of the lease term is still added to the receivable.
Total cost of the asset 1,000,000

Less: Present value of the unguaranteed residual value (62,092)
Net cost of the asset sold 937,908
*Since the residual value is unguaranteed, that portion of the aset is not deemed sold. The PV of the unguaranteed residual
value is therefore deducted from the cost of the inventory sold.
Amortization table:
Periodic Coll. Interest Inc. Principal Balance
January 1, 2015: (CV * 10%) 1,578,40

7
December 31, 2015: 400,000 157,841 242,159 1,336,24
8
December 31, 2016: 400,000 133,625 266,375 1,069,87
2
December 31, 2017: 400,000 106,987 293,013 776,86
0
December 31, 2018: 400,000 77,686 322,314 454,54
5
December 31, 2019: 400,000 45,455 354,545 100,00
0
December 31, 2019: Guaranteed RV 100,000 100,000
1. Ans. P1,516,315. 0
Finance lease receivable 1,516,315
Sales 1,516,315
2. Ans. P937,908.
Entry to recognize cost of sales, if perpetual inventory is used:
Finance lease recievable 62,092
Cost of sales 937,908 Inventory 1,000,000
Entry to recognize the direct lease expense: Net income after ,3

Expense permanent 40
Cash differences ,0
Temporary 00
3. Ans. 578,407. Differences: .
Total Sales Price of the Asset Future Deductible Ta
Less: Cost of the asset/FMV of asset Gross Profit on Sale amounts xa
Accrued ble
4. Ans. P133,625. warranties inc
Entry upon periodic collections: Advances from om
Dec. 31, 2015: Cash customers e
Interest income Provision for Mulitply by:
Finance lease receivable probable losses Current tax rate
Future Taxable Current tax
Dec. 31, 2016: Amounts expense
Cash Prepaid rent 50,000
Interest income Taxable income
Finance lease receivable
1.
A
CHAPTER 8-PROBLEM 22: ABC CO. n
Reconciliation: Net income before any differences Permanent s
Differences: .
Nondeductible expenses P
Nontaxable income 4

400,000
400,000
250,000
500,000
900,000
400,000
10,850,000
40%
4,340,000 50,000
1,516,315
(937,908)
578,407
157,841
242,159
133,625
266,375
10,000,000
100,000
(500,000)
9,600,000
1,650,000
(400,000) 10,850,000

2. Ans. P3,840,000.
Net income after permanent differences 9,600,000
Multiply by: Constant tax rate 40%
Total tax expense 3,840,000 4,340,000
140,000
3. Ans. P660,000. (577,500)
Future deductible amounts 1,650,000 3,902,500
Mulitply by: Constant tax rate 40% Deferred tax asset
660,000
4. Ans. P160,000.
Future taxable amounts 400,000
Mulitply by: Constant tax rate 40% Deferred tax liability
160,000
To reconcile:
Current tax expense 4,340,000
Add: Deferred tax expense (FTA) 160,000
Less: Deferred tax benefit (FDA) (660,000)
Total tax expense 3,840,000
5. Ans. P3,902,500. 5,000,000

If tax rate in the future is expected to change (at 35%):
Current tax expense (P10.85M*40%) 150,000
Add: Deferred tax expense (FTA:P400,000*35%) (50,000)
Less: Deferred tax benefit (FDA:P1,650,000*35%) 5,100,000
Total tax expense
6. Ans. P140,000.
Future taxable amounts 400,000
Mulitply by: Futre tax rate 400,000
35%
Deferred tax liability
140,000 300,000
5,800,000
7. Ans. P577,500.
Future deductible amounts 1,650,000
Mulitply by: Constant tax rate 35%
Deferred tax asset 577,500
CHAPTER 8-PROBLEM 23:XYZ CO.

Reconciliation:
Net income before any differences
Permanent Differences:
Nondeductible expenses
Nontaxable income
Net income after permanent differences
Temporary Differences:
Increase in Future Deductible for the year:
1,600,000
Cummulative FDA, ending
1,200,000
Cummulative FDA, beginning
Decrease in Future Taxable Amount for the year:
Cummulative FTA, ending 500,000
Cummulative FTA, beginning 800,000
Taxable income
1. Ans. P2,320,000 Taxable income

Mulitply by: Current tax rate 5,800,000 (decrease in deferred tax
Current tax expense 40% liability)
2,320,000
2. Ans. P2,040,000.
Net income after permanent differences 5,100,000
Multiply by: Constant tax rate 40%
3. Ans. P660,000.
1,600,000
Cummulative Future Deductible Amt, end
40%
Mulitply by: Constant tax rate
640,000
Deferred tax asset
4. Ans. P200,000. 500,000

Cummulative Future Taxable Amt, end 40%
Mulitply by: Constant tax rate 200,000
2,320,000
To reconcile: (120,000)
Current tax expense (160,000)
Less: Deferred tax benefit ( dec in FTA) 2,040,000
Less: Deferred tax benefit (inc in FDA)
Total tax expense
CHAPTER 8-PROBLEM 24: JAPS CORP. Service costs
1. Ans. P1,270,000.

Current service cost 855,000

Effect of ceiling**
Past service cost recognized for the year 120,000
Loss on settlment: Total pension expense
Payments to early retirees 800,000
CV of accrued benefits of early ret. 650,000 150,000

Net interest (income)expense 1
Interest on ABO (P10,080,000*12%) 1,209,600 ,
1
Interset on PA (P9,450,000*12%) (1,134,000
) 2
Pension expense (Profit or loss) 5
,
Net remeasurement gain/loss (Other comprehensive Income/loss) 0
Actuarial gain on PA (a) (216,00 0
0) 0
Actuarial loss on ABO (b) 285,400
Total pension expense 7

5
(a) Actuarial gain/loss on Plan asset ,
Plan asset, beginning balance 9,450,000 6
0
Add: Contribution for the year 1,200,000 0
Interest on PA (P9,450,000*12%) 1,134,000
Less: Settlements at scheduled retirement (1,400,000) 1,200,600 2.

Ans.
Settlements to early retirees (800,000)
3.
Balance 9,584,000 69,400 Ans.
1,270,000
Plan asset, at FMV at the year-end 9,800,000
Actuarial gain on plan asset 216,000
(b) Actuarial gain/loss on Accumulated Benefit Obligation

ABO, beginning balance 10,080,000
Add: Current service cost 855,000
Past service cost for the year 120,000
Interest on ABO (P10,080,000*12%) 1,209,600
Less: Benefits settled, at scheduled ret. (1,400,000)
Benefits settled, early retirees (650,000)
Balance 10,214,600
ABO, present value, ending balance 10,500,000
Actuarial loss on AB0 285,400
4. Ans. P700,000.
To reconcile:
Accrued pension, beg 630,000
Pension expense (total) 1,270,000
Total 1,900,000
Contribution to the plan for the year (1,200,000)
Accrued pension, end 700,000
ABO, end 10,500,000
Plan asset, end (9,800,000)
Accrued pension end 700,000
CHAPTER 8-PROBLEM 25: IRELAND CORP.

1. Ans. P620,000. 480,000
Service costs
Current service cost
Net interest (income)expense (17,600)
Interest on ABO (P2,980,000*8%) 238,400 462,400 2. Ans.
Interset on PA (P3,200,000*8%) (256,00

0)
Pension expense (Profit or loss)
157,600 3. Ans.
Net remeasurement gain/loss (Other comprehensive Income/loss)
Actuarial loss on PA 80,00 620,000
0
Actuarial loss on ABO 30,00

Plan asset, beginning balance 3,200,000
Add: Contribution for the year 750,000
Interest on PA (P3,200,000*8%) 256,000

AUDITING
Less: (2016
Settlements EDITION)
at scheduled retirement (560,000) SOLUTIONS GUIDE
Balance 3,646,000
Less: Actuarial loss on PA (80,000)
Plan asset, FMV, end 3,566,000
Interest on ABO (P2,980,000*8%) 238,400
Less: Benefits settled, at scheduled ret. (560,000)
Balance 3,138,400
Add: Actuarial loss on ABO 30,000
ABO, present value, end 3,168,400
Plan asset at fair value, end 3,566,000
ABO at present value, end 3,168,400
Prepaid pension, end 397,600
Asset Ceiling (lower) 350,000
Remeasurement loss/Effect of ceiling 47,600 **
4. Ans. P350,000.
To reconcile:
Prepaid pension, beg (ceiling was higher) (220,000)
Pension expense (total) 620,000
Total 400,000
Contribution to the plan for the year (750,000)
Prepaid pension, end (ceiling is lower) (350,000)

CHAPTER 8-EXERCISE 1: PROBE INC. Current Noncurrent
ITEM Liabilities Liabilities
a. Accounts payable – trade, P170,000 + 30,000 P200,000
b. Notes payable – trade, P70,000 70,000
Interest on Notes: 50,000*15%*4/12 2,500
20,000*15%*2/12 500
c. Advance receipts from customers, 100,000
d. Containers deposit 50,000
e. Notes payable – BPI , P200,000/5 40,000 160,000
i. Convertible bonds 1,000,000
j. Notes payable – officers 40,000
k. Salaries and wages (68,000*15/30) 34,000
m. Output VAT, net of Input (246,000 – 164,000) 82,000
n. Accounts receivable, credit balance 12,300
0. Cash in banks (overdraft) 115,000 – (125,000+55,000) 65,000
r. Estimated warranty costs on goods sold 46,000
s. Installment notes payable, P75,000 *1/3 25,000 50,000
t. Provision for losses (25,000 + 75,000) / 2 50,000
u. Deferred tax liability 150,000
TOTAL P817,300 P1,360,000 P2,177,300

1. Ans. C. 2. Ans. B. 3. Ans. A.
CHAPTER 8-EXERCISE 2: CUT INC.

Bonds payable: Noncurrent Current
7/1/2008: (P4,000,000*98%) 3,920,000
Cummulative discount amortization:
P80,000/10yrs*5.75yrs 46,000 3,966,000
Accrued interest on bonds (P4M*7%*3/12) 70,000
Accrued interest on notes payable 90,000
Current portion of notes payable 600,000
Noncurrent portion of notes payabe 2,400,000
Warranties liability (P55,000+P145,000-P130,000) 70,000
Trade payables CHAPTER 8: AUDIT OF 325,000

LIABILITIES AND PURCHASES
Payroll related items 193,000
Taxes payable 535,000

CHAPTER 8-EXERCISE 4: MOUNTAIN PROVINCE HOME DEPOT

1. Ans. C.; 2. Ans. B.
Total sales – home furniture 28,800,000
Divide by: 2,000
Total premium distributable 14,400
Multiply by: estimated redemption 60%
Estimated redemption 8,640
Multiply by, net cost of premiums (340-50) 290
Estimated premium expense 2,505,600
Premiums liability, beg 716,000
Total 3,221,600
Actual redemption (9,600,000/2,000)*290 (1,392,000)
Estimated premiums liability, end 1,829,600
3. Ans. B.
Estimated warranty liability, beginning 2,176,000

Total sales – kitchen applicances 86,400,000
Multiply by: 5%
Estimated warranties expense 4,320,000

Actual warranty costs during the year` (2,624,000)
Estimated warranty liability, end 3,872,000
CHAPTER 8-EXERCISE 5: ABRA COMPANY

1. Ans. C.
2013 unused leaves by the end of 2014 (850days-550days) 300
2014 unused leaves by the end of 2014 500
Total unused leaves by the end of 2014 800
Multiply by probable exercise rate 80%
Leaves that will probably materialize 640
Multiply by: 2014 current salary rate 400
Accrued compensated absences per audit 256,000
2. Ans. D.
Unadjusted net income 1,277,500
Understatement in accrued comp. abs./salaries expense (18,000)
Adjusted net income 1,259,500 1,147,608 745,945 111,89
2
B = 15% (NI - B - Tx); Tx = 35% (NI - B)
B = 15% (NI - B - 35%(NI - B) 818,675 122,801
B = P111,892. 65% 0.09750 1.0975 111,892
CHAPTER 8-EXERCISE 6: ASCOT INC.

Audit notes:
a. Since there is no right of offset, the advances to sppliers should be reclassifed as an asset:
AJE 1:
Advances to suppliers 55,000
1. Ans. C.
b. Required premiums expense: (40,000*75%)/5*(P95-P25) 420,000
Actual cost/Actual redemption (5,000-1,250)*(P95-P25) (262,500)
Estimated premiums liability, per audit 157,500
Estimated premiums liabilty, per books 118,750
Net adjustment 38,750

AJE 2:
Premiums expense 38,750
Estimated premiums liability 38,750
2. Ans. A.
c. Cummulative unused leaves 12/31/14 750
Less: 2012 leaves (forfeited (50)
Leaves that can be carried forward to 2015 700
Exercise rate (per past experience) 80%
Cummulative leaves that will probably be exercised 560
Multiply by: 2014 current salary rate 400
Accrued salaries - compensated absences, per audit 224,000
Accrued salaries - compensated absences, per books 300,000
Net adjustment (76,000)

AJE 3:
Accrued salaries 76,000

Salaries expense 76,000

3. Ans. A.
Unadjusted net income before bonus and tax 1,015,131
AJE 2: Understated premiums expense (38,750
)
AJE3: Overstated salaries expense 76,000
Adjusted net income before bonus and tax 1,052,381
B = 15% (NI - Tx - B)
Tx = 30% (NI - B)
B = 15%(NI - 30%(NI - B) - B)
B = 15%(1,052,381 - 30%(1,052,381 - B) - B)
B = 110,500/1.105
B = 100,000
AJE 4:
Accrued salaries 5,540
Salaries expense 5,540
(100,000-96,460)
4. Ans. A.
Net Income before tax (1,052,381 - 100,000) 952,381
Less: Income tax (952,381*30%) (285,714)
Net Income after tax 666,667
AJE 5:
Income tax expense (current) 285,714
Income tax payable 285,714
d. The deferred tax liabiltiy resulting from the future taxable amount shall be presented as noncurrent liablity.
ENTRY:
Income tax expense (deferred) 250,000
Deferred tax liability 250,000
5. Ans. B.
e. The refinancing agreement was completed as of December 31, 2014, thus there is a right to refinance the liablity on a long-
term basis as of December 31, 2014. However, since the amount of the long-term loan to refinance the note is up to 75%
of the fair value of the asset offered as collateral, only P450,000 (P600,000*75%) shall be refinanced on a long term basis.
The balance of the note, P50,000 (P500,000 - P450,000) is not expected to be refinanced on a long-term basis, thus will still
be presented as current as of December 31, 2014.
CHAPTER 8-EXERCISE 7: PUERTO FURNITURE INC.

1. Ans. A.
Accounts Payable, unadjusted 250,000
Receiving report number 2634 (Unrecorded purchase) 12,500
Receiving report number 2636 (Purchase in transit) 10,000
Accounts Payable, adjusted 272,50
2. Ans. D.
0
Warranties liability, unadjusted 10,000

Warranty expense, 2014 (10,550,000*6%) 633,000
Total 643,000
Less: Actual warranties paid (310,000)
Warranties liability, adjusted (12/2014) 333,00
0
3. Ans. A.
Legal services 4,600
Medical services 5,500
Payroll (12/21/ - 12/31) : 14,400 *8/12 9,600
Royalties 3,900
Accrued interest on Bond Liability
24,000
(800,000*12%*3/12)
Total accruals 47,600
4. Ans. A.
Amortization Table: Lease Liability
Interest
13.59032634 Payment Principal Balance
(Bal.*2%)
Present value of MLP, at 4%, for 20 semi-annual periods (P250,000*13.590326) 3,397,582
June 30, 2014: 250,000 135,903 114,097 3,283,485
December 31, 2014: 250,000 131,339 118,661 3,164,824
June 30, 2015: 250,000 126,593 123,407 3,041,417
December 31, 2015: 250,000 121,657 128,343 2,913,074
Current portion Long-term Portion
5. Ans. A.
Amortization Table: Bonds Payable
Nominal Effective Amortization Balance
Balance 851,706
September 30, 2014: 42,585 48,000 (5,415) 846,291
March 31, 2015: 42,315 48,000 (5,685) 840,606

Carrying value as of Dec. 31, 2014:

Balance, September 30, 2014 846,291
Amortization up to 12/31/14: P5,685*3/12: (2,843)
Amortized cost as of December 31, 2014: 843,449
CHAPTER 8-EXERCISE 8: DETOX INC.
1. Ans. D.
Accounts Payable, unadjusted 534,000
RR# 1015 (purchase in transit – FOB Destination) (35,000)
RR# 1013 (goods received on December 30, 2014) 65,000
RR# 1016 (purchase in transit – FOB Shipping point) 40,000
Accounts payable, adjusted 604,000 440,000
(198,000)
2. Ans. C. 242,000
Required estimated expense 2013: (50,000/5)*40%*(P160-P50) 528,000
Actual cost of redeemed premiums 2013: (3,000-1,200)*(P160-P50) (561,000)
Estimated premiums payable, 12/31/2013 209,000
Required estimated expense 2014: (60,000/5)*40%*(P160-P50)
Actual cost of redeemed premiums 2014: (1,200+6,000-2,100)*(P160-P50) Estimated
premiums payable, 12/31/2014
3. Ans. D.
Proceeds from issuance of bonds on 1/1/2013 P2,050,000 Fair value of
bonds at 12% effective rate* 1,903,927
APIC – Bond Conversion Privilege P146,073
*PV of future cash flows at 12% for 3 periods:
Principal: 2,000,000 * 0.711780 P1,423,560 Interest: 200,000 *
2.40183 480,366
Total present value = Fair value P1,903,927
Amortization table: Bonds payable

Jan. 1, 2013: 1,903,927
Dec. 31, 2103: 228,471 200,000 28,471 1,932,398
Dec. 31, 2014: 231,888 200,000 31,888 1,964,286
4. Ans. A.
Entry upon conversion of half of the bonds (P1,964,286*50% = P982,143) on 12/31/14:
DR: Bonds payable 1,000,000
DR: APIC – Bond conv. priv. 73,036
CR: Discount on bonds payable
CR: Ordinary shares (10,000*50) 17,857
CR: Share premium 500,000
555,179
5. Ans. B.
Present value of the minimum lease payment at
implicit lease rate, 8% for 5 periods: (600,000*3.9927)
Fair market value of the leased asset at inception of P2,395,626 *100%, thus Finance lease
lease 2,400,000
Amortization table: Lease liability Principal Balance

Date Periodic Paymts Interest 2,395,626
Jan. 1, 2014: 408,350 1,987,276
Dec. 31, 2014: 600,000 191,650 441,018 1,546,258
Dec. 31, 2015: 600,000 158,982
6. Ans. C.
Present value of MLP on 1/1/14 P2,395,626
Divide by: Term (no transfer of ownership) 5 years
Depreciation expense in 2014 P479,125
CHAPTER 8-EXERCISE 8: PIPINO CORP.

1. Ans. C.
Amortization table: Notes Payable
Nominal
Date Correct Interest Amortization Balance
Interest
April 1, 2012: P7,195,000
March 31, 2013: 1,079,250 960,000 119,250 7,314,250

March 31, 2014: 1,097,138 960,000 137,138 7,451,388
December 31, 2014: 838,281* 720,000* 118,281* P7,569,669
*9 months only up to December 31, 2014
2. Ans. D.
Lease liability balance per books,
P2,240,000
Debits to the account for the periodic 12/31/2014
4,800,000
paymenAmounts initially capitalized on s starting 12/31/2011

P7,040,000
12/31/2011 = Fair market value of the
Amortization table: Finance Lease Liability

Effective
Date Payment Principal Balance
Interest
December 31, 2011: P7,040,000
December 31, 2011: 1,200,000 5,840,000
December 31, 2012: 1,200,000 584,000 616,000 5,224,000

December 31, 2013: 1,200,000 522,400 677,600 4,546,400
December 31, 2014: 1,200,000 545,640 745,360 3,801,040 Liab.
balance
December 31, 2015: 1,200,000 380,104 819,896 2,981,144
Current Noncurrent
Notes payable P7,569,669

Liability under capital lease – Long term** 2,981,144
Total long term liabilities P10,800,81
4. Ans. B.
3
Accounts payable, unadjusted balance P1,840,500

RR# 65218, purchase in transit, FOB Destination (19,000
)
RR# 65219, purchase in transit, FOB Buyer (Destination) (30,500
)
RR# 65220, goods received only after the December 31 (41,000
)
Accounts payable, adjusted balance P1,750,00
0
5. Ans. D.
2014 Sales P31,650,00
Multiply by estimated warranty cost as % of 0
8%
3. Ans. C. sales
Warranties expense in 2014 P2,532,000

6. Ans. B.
Accounts payable 1,750,000

Warranties payable (2,532,000 – 1,950,000) 582,000
Interest payable on notes (8,000,000*12%*9/12) 720,000
Current portion of Long term liability under capital lease 819,896
Total current liabilities P3,871,896
CHAPTER 8-EXERCISE 9: ADELAIDA INC.

1. Ans. D. 19,000
Tote bags actually distributed in 2014 (7,000
Estimated premiums liability at the end of 2013, in tote bags )
Estimated premiums liability at the end of 2014, in tote bags 5,000
Estimated premiums expense in 2014, in tote bags 17,000
Multiply by: Net expense per tote bag (P25 – P5) Estimated P20
premiums expense in 2014 P340,000
2. Ans. C.
The temporary difference from premiums payable is future deductible amount creating Deferred Tax Asset:
Estimated premiums payable, 2014 (5,000 * P20) P100,000
Multiply by tax rate: 30%
Deferred tax asset (Noncurrent Asset) P30,000
The temporary difference from excess tax depreciation over financial depreciation is future taxable
amount creating Deferred Tax Liability:
Deferred tax liability (Noncurrent Liability): P150,000*30% P45,000
3. Ans. D.

Accounts payable, as adjusted (P540,000 + P50,000) P590,000 Estimated

premiums payable, 2014 (5,000 * P20) 100,000
Current liabilities P690,000
4. Ans. A.
Proceeds from bond issuance (the amount credited per entry made) P5,500,000
Fair value of bonds without the conversion option (at 8% effective rate)* 5,399,271
Equity component/ APIC from Bond Conversion Privilege P100,729
Present value of Principal: P8,000,000*0.680583 P3,402,916 Present
value of Interest: 500,000*3,99271 1,996,355 Fair value of the
bonds without the conv. Option P5,399,271
Amortization Table: Bonds Payable
January 1, 2014: 5,399,27

1
December 31, 2014: 431,942 500,000 (68,058) 5,331,21
3
December 31, 2015: 426,497 500,000 (73,503) 5,257,71
0
Upon assumed conversion: 1/2016: 5,257,71 5,257,710
0
5. Ans. D. 100,729
Carrying value of bonds up to 12/31/2015 (2,500,000) 4,759,817
APIC- Bond Conversion Priv. 2,858,439 497,893
Total Par Value of Shares (5,000*10*50)
Share Premium from conversion
6. Ans. B.
Upon assumed retirement: 1/2016:
Carrying value of bonds up to 12/31/2015
Fair value of bonds without the conversion option at 12% effective rate:
Present value of principal: P5,000,000*0.711780 3,558,901
Present value of interest: 500,000*2.401831 1,200,916
Gain on retirement of bonds (profit or loss)
Ans. C.
Case
1:
a. The obligating event is the damages occurring in 2014, thus is present obligation.
b. The outflow of economic benefits is probable.
c. The amount of liability is reliably measurable given a range of amounts without best estimate.
Thus, accrue obligation at the mid-range (P500,000+P1,500,000)/2 = P1,000,000.
Case 2:
a. The obligating event is the guarantee agreement completed in 2014, thus is present obligation.
b. The outflow of economic benefits became probable when the principal debtor experienced financial difficulty after the
balance sheet date, but before the issuance of the FS. This is considered a Type 1 (Adjusting) subsequent event. c.
The amount of liability is reliably measurable at the principal amount owed by the principal debtor.
Thus, accrue obligation at best estimate P2,000,000.
Case 3:
a. The obligating event is the damages incurred when the plant exploded in 2014, thus is present obligation, even if there
are no claims yet.
b. The outflow of economic benefit is probable.
c. The best estimate of the probable amount of liability is P2.5M, with a reasonably possible additional liabilty of P2.5M.
However, since there is a virtually certain reimbursement from the insurance company, the virtually certain
reimbursement shall be a reduction from the recognized probable loss (as per PAS 37), given that the company is no
longer principally liable over the portion to be reimbursed by the insurance company.
Thus, acccrue obligation at P1,000,000 since the deductible clause is P1,000,000, meaning the insurance company
will be reimbursing the company for anything in excess of the deductible clause.
Case 4:
a. The obligating event which is the damages incurred happened only after the balance sheet date, thus there is no present
obligation yet.
Thus, the obligation is merely disclosed as a type 2 (Non-adjusting) subsequent event.
CHAPTER 8-EXERCISE 12: LABANDERA INC.

1. Ans. B.
Class A Laundry appliance sales (280,000,000*60%) P168,000,000
Divide by P50
Number of coupons distributed3,360,000 Multiply by: probable redemption 60%
Coupons that will probably be redeemed 2,016,000 Divide by: number of
coupons to acquire 1 premium 400 Estimated number of premiums to be
redeemed 5,040
Number of premiums actually redeemed (1,680,000/400) (4,200)
Liability for premiums in units 840
Liability for premium in peso (840*4,100) 3,444,000
2. Ans. D.

Class B Laundry appliance sales (280,000,000*40%) P112,000,000

Multiply by: Estimated warranty cost as % of sales 3%
Estimated warranty expense for 2014 P3,360,000
3. Ans. C.; 4. Ans. A.; 5. Ans. A.

Unadjusted net income 80,164,000
Adjustment for additional premium expense (3,444,000)
Adjustment for additional warranties expense
(1,720,000)
Adjusted net income 75,000,000
Less: Bonus (2,480,916)
Income tax (35%) Net (25,381,679)
income 47,137,405
Bonus = 5% (75,000,000 – 35%(75,000,000 – B)) Tax = 35% (75,000,000
-2,480,916)
B = 5% (48,750,000 + .35B) T = 25,381,679
B = 2,437,500 + .0175B
0.9825B = 2,437,500
B = 2,480,916
CHAPTER 8-EXERCISE 13: LUZON COMPANY

1. Ans. B.
Estimated warranty expense (30,000u*60%*P1,500) 27,000,000
Actual cost incurred (19,500,000)
Estimated warranties payable 7,500,000
2. Ans. D.
a. The obligating event is the environmental damages occuring in 2014, thus is present obligation.
b. The outflow of future economic benefits is probable.
c. The amount of obligation is reliably measurable and that the best etsimate is the final amount of liability as per
the final decision of the court given after the balance sheet date but before the issue of FS (Type 1, Adjusting Subsequent
Event)
3. Ans. B.
PV of MLP at 12% for 6 periods in advance: (P800,000*4.604776) 3,683,821 Fair 4.604776
market value of leased asset at inception: 4,000,000
92% More than 90%, thus
Finance
Amortization table: Periodic paymt Interest Exp. Principal Balance
Present value of MLP 3,683,821
January 1, 2012: 800,000 800,000 2,883,821
January 1, 2013: 800,000 346,059 453,941 2,429,879
January 1, 2014: 800,000 291,586 508,414 1,921,465 Liab balance

Janaury 1, 2015: 800,000 230,576 569,424 1,352,041
Accrued interest
4. Ans. B.
PV of MLP, Jan. 1, 2012 (Asset capitalized) 3,683,821
Multiply by condition percent (over term), Dec. 31, 2014: 3/6
Carrying value of leased asset, Dec. 31, 2014 1,841,910 4,250,000 0.7049605
4.9173243
5. Ans. A.
Allocation of issue price on January 1, 2014: 3,803,30
Total issue price 7
FMV of bonds=PV of future cash flows at 6% for 6 semi-annual periods: 446,693 Balance
Principal: P4,000,000*0.7049605 2,819,842 Interest: 3,803,307
P200,000*4.9173243 983,465 3,831,505
Residual amount allocated to APIC-Bond conversion privilege Amortization 3,861,396
Amortization table: Bonds payable 28,198

Correct Int. Nominal Int. 29,890
January 1, 2014:
June 30, 2014: 228,198 200,000 2,896,04
December 31, 2014: 229,890 200,000 7
335,020
Carrying value of converted bonds, Dec. 31, 2014 (P3,861,396*3/4)
Carrying value of APIC-Bond conversion privilege (P446,693*3/4)
Less: Par value of issuable shares: (50,000sh*3/4)*P50 Share (1,875,000)
premium/APIC 1,356,067
CHAPTER 8-EXERCISE 14: MNO INC.

1. Ans. B.
Proceeds from issuance of convertible bonds 5,500,000
FMV of bonds w/out conv. option at 5% for 10 semi-annual periods:
PV of Principal: P5,000,000*0.613913 3,069,566
PV of Interest: 300,000*7.721734 2,316,520 5,386,086
Equity portion (APIC -Bond Conv. Priv.) 113,914
2. Ans. C.
Total Bonds @ FV* APIC@Residual
Retirement Price 2,500,000 2,365,267 134,733

Carrying Value** (5,289,319*50%); (113,914*50%) 2,644,659 56,957

P&L Loss/ Cap. Gain (279,392) 77,776
profit/loss APIC/Share premium
*FMV of half of the bonds w/out the conv. priv. at 7% for 7 semi-annual remaining periods.
PV of Principal 2,500,000*0.62275 1,556,874
PV of Interest: 150,000*5.389289 808,393
Fair value of bonds w/out conv. priv 2,365,267

Correct Nominal
269,304 300,000
267,770 300,000
266,158 300,000
267,770
266,158 533,928
166,66
7
66,66
7 233,333
767,261
Amortization Table: Bonds PayableAmortization Balance

June 30, 2013:5,386,087
December 31, 2013: (30,696) 5,355,391
June 30, 2014: (32,230) 5,323,161 December 31, 2014: (33,842) 5,289,319 **
3. Ans .C.
Interest from Bonds Payable from 1/1 - 6/30 (see amortiz.) from 7/1
- 12/31 (see amortiz.) Interest from Notes Payable from 1/1 - 8/31
(2.5M*10%*8/12) from 9/1 - 12/31 (2M*10%*4/12)
Total interest expense
4. Ans. B.
Fin. Inc. after permanent diff 1,000,000

FDAAB for the period 100,000
FTALE for the period (500,000
)
Taxable income 600,000
Mulitply by tax rate 40%
Current Tax Expense 240,000
5. Ans. D.
Cum. Temp Diff (FTALE) 1,550,000
Multiply tax rate 40%
Deferred Tax Liability 620,000
6. Ans. D. 2,644,659
Bonds Payable (half - see amor.) 1,500,000
Notes payable - long term 620,000
Deferred tax liabilty 4,764,659
Total noncurrent liability
CHAPTER 8-EXERCISE 15: KURT CORP.

4,000,000
1. Ans. C.
Proceeds from issuance (at face value)
Fair value of bonds at effective rate 9% for 3 periods
3,696,245
PV of Principal: P4,000,000*0.772183 3,088,734
303,755
PV of Interest: 240,000*2.531295 607,511
Equity component/APIC-Bond Conversion
Nominal Int.
2. Ans. D. (CV*9%)
Amortization table: Bonds Payable Correct Int. 240,000
240,000
January 1, 2014:
240,000
(Princ.*6%)
December 31, 2014: 332,662
December 31, 2015: 341,002 Balance
3,889,908
December 31, 2016: 350,092 Amo. 3,696,245
303,755
3,788,907
3. Ans. B. 92,662 3,889,908
Bonds Payable, CV at 1/1/2016 (see amortization table) 101,002 4,000,000 53. Ans.
APIC-Bonds Conversion Privilege 110,092 D.
Total 4,193,663
Multiply by exercise rate: (3,000/4,000) 3/4

Prorated CV of BP and APIC-Bond Conv. Priv. 3,145,247

Less:Par value of issuable shares (3,000*40) *P10 (1,200,000) Share
premium from assumed conversion 1,945,247
4. Ans. A.
Proceeds from issuance (at face value, net of transaction cost) P3,848,531
Fair value of bonds at effective rate 9% for 3 periods
PV of Principal: P4,000,000*0.741162 2,964,648
PV of Interest: P240,000*2.465123 591,630 3,556,278
Equity component/APIC-Bond Conversion P292,253 Bonds @ FV* APIC (Res. Val.)

3,889,908 110,092
3,837,104 292,253
5. Ans. B. Total 52,804 (182,161)
P4,000,000
Retirement Price
Carrying Value
P&L Loss/ Cap. Gain
retirement loss capital gain
*FMV of half of the bonds w/out the conv. priv. at 9% for 1 remaining period.
PV of Principal 4,000,000*0.917431 P3,669,725
PV of Interest: 240,000*0.917431 220,183
Fair value of bonds w/out conv. priv P3,889,908 Amo. Balance

3,556,278
Amortization table: Bonds Payable Correct Int. Nominal Int. 133,409 3,689,687
January 1, 2014: 147,417 3,837,104
December 31, 2014: 373,409 240,000 162,896 4,000,000
December 31, 2015: 387,417 240,000
December 31, 2016: 402,896 240,000
CHAPTER 8-EXERCISE 16: TRY CORP.

Reconciliation:
Net income before any differences 10,000,000
Nondeductible expenses: Life insurance expense 300,000
Nontaxable income: Dividend income 600,000 (500,000)
Net income after permanent differences 300,000 9,800,000
Temporary Differences:
Future Deductible amounts 1,200,000
Estimated litigation loss
Unearned retnal income 900,000
Future Taxable Amounts
Installment receivable 9,800,000 (1,200,000)
Taxable income 33% 9,500,000
3,234,000
1. Ans. A.
Multiply by: Constant tax rate 9,500,000
33%
Total tax expense
2. Ans. C.
Taxable income
Mulitply by: Current tax rate


Actuarial gain on PA (a) (106,000)
Actuarial loss on ABO (b) 442,000
Total pension expense
336,000
508,000
3. Ans. A.
Future deductible amounts 900,000
Mulitply by: Constant tax rate 33% Deferred tax asset
297,000
4. Ans. B.
Future taxable amounts 1,200,000
Mulitply by: Constant tax rate 33% Deferred tax liability
396,000
To reconcile:
Add: Deferred tax expense (FTA) 396,000
Less: Deferred tax benefit (FDA) (297,000)
5. Ans. B.
Current tax expense; P9,500,000*33%
Add: Deferred tax expense (FTA): P1,200,000*35%
Less: Deferred tax benefit (FDA): P900,000*35% Total tax 3,135,00
expense 0
420,000
(315,000)
CHAPTER 8-EXERCISE 17: COSINE CORP. 3,240,000
Reconciliation:
Net income before any differences
Nondeductible expenses: Life insurance expense
Nontaxable income: Dividend income 600,000 12,000,000
Temporary Differences: 500,000 400,000
Future Deductible amounts 400,000 (1,200,000)
Warranty provision 11,200,000
Future Taxable Amounts
Prepaid advertising
Excess tax depr. over finanicial depr. 10,900,000 600,000
Taxable income 32%
3,488,000
1. Ans. B. (900,000)
Taxable income 10,900,000
Mulitply by: Current tax rate 600,000
33%
Current tax expense
198,000
2. Ans. A.
Future deductible amounts 900,000
Mulitply by: Constant tax rate 33%
Deferred tax asset 297,000
3. Ans. D.
Future taxable amounts 3,488,00
Mulitply by: Constant tax rate
0
(198,000)
4. Ans. D. 3,587,000
To reconcile:
Current tax expense
Add: Deferred tax expense (FTA)
Less: Deferred tax benefit (FDA)
Total tax expense
160,00
CHAPTER 8-EXERCISE 18: BONCHON CORP. 0
Service costs
Current service cost
Net interest (income)expense 12,00
Interest on ABO (P3,000,000*6%) 0
Interset on PA (P2,800,000*6%) 180,000 172,00
Pension expense (Profit or loss) (168,000) 0
2. Ans.
B.
(a) Actuarial gain/loss on Plan asset

Plan asset, beginning balance 2,800,000 Add:
Contribution for the year 210,000
Interest on PA (P2,800,000*6%) 168,000
Less: Settlements at scheduled retirement (300,000)
Balance 2,878,000
Plan asset, at FMV at the year-end 2,984,000 Actuarial gain
on plan asset 106,000
(b) Actuarial gain/loss on Accumulated Benefit Obligation


Interest on ABO (P3,000,000*6%) 180,000
Less: Benefits settled, at scheduled ret. (300,000)
Balance 3,040,000
ABO, present value, ending balance 3,482,000
Actuarial loss on AB0 442,000
4. Ans. B.
To reconcile:
Accrued pension, beg 200,000
Pension expense (total) 508,000
Total 708,000
Contribution to the plan for the year (210,000)

ABO, end 3,482,000
Plan asset, end (2,984,000)
Accrued pension end 498,000
CHAPTER 8-EXERCISE 19: DEE CORP.

Service costs
Current service cost 1,400,000
Settlement gain:
Settlement price other ben. settled 400,000
PV of other benefits settled (500,000) (100,000) 1,300,

Net interest (income)expense
Interest on ABO (P7,500,000*10%) 750,000
Interset on PA (P7,000,000*10%) (700,000) 50,0
Pension expense (Profit or loss) 1,350,0

Actuarial gain on PA
Actual return on plan asset 840,000
Estimated return (Interest on PA) (700,000) (140,000)
Actuarial gain on ABO (200,000) (340,0
Total pension expense 1,010,0
4. Ans. B.
Plan asset, beginning balance
Add: Contribution for the year 7,000,000
Interset on PA (P7,000,000*10%) 1,200,000
Less: Settlements at scheduled retirement 700,000

Settlement price of addl ben. Settled (1,500,000)
Balance (400,000)
Less: Actuarial gain on PA 7,000,000
Plan asset, FMV, end 140,000
7,140,000
5. Ans. A.
ABO, beginning balance
Add: Current service cost 7,500,000
Interest on ABO (P7,500,000*10%) 1,400,000
Less: Benefits settled, at scheduled ret. 750,000
PV of additional benefits settled (1,500,000)
Balance (500,000)
Add: Actuarial gain on ABO ABO, present 7,650,000
(200,000)
value, end
7,450,000
4. Ans. B.
Plan asset at fair value, end 7,140,000

ABO at present value, end 7,450,000
Accrued pension expense, end (310,000)
To reconcile:
Prepaid pension, beg 500,000
Pension expense (total) 1,010,000
Total 1,510,000
Contribution to the plan for the year (1,200,000)
CHAPT
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p (a) Ordinary share issuance in 2013 5,000,000
r (b) Preference share issuance in 2013
o (c) Net income in 2013
(a) Treasury shares reacquired in 2014
p
ri (b) Ordinary and Preference shares issue 1,000,000
a (c) Preference shares issuance in 2014
t (d) Ordinary shares issued with Bonds 1,500,000
e (e) Treasury shares reissuance in 2014
d (f) Treasury shares retirement in 2014 (700,000)
f (g) Net income in 2014
o (h) Appropriation for treasury
r Adjusted 12/31/14 balances 6,800,000
T 1. Ans.
Share capital:
ed
Ca
Ordinary Shares
pit
Preference Shares
al paid-in capital:
Additional
Re
Share premium-OS
tai
Share premium-PS
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Share premium-TST
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960,000 Ordinary 1,750,000 70% 1,960,000
500,000 Preference 750,000 30% 840,000
340,000 Total 2,500,000 2,800,000
250,000
150,000
2,000,000 *Allocation: Amount Allocated

200,000 Bonds pay. @ Fair value 2,200,000
1,500,000 Ordinary @ Residual 2,800,000
1,300,000 5,000,000
1,280,000
200,000
*share premium from original issuance (P150-P100)
1,120,000
4,530,000
800,000
Preference Sh. Sh. Prem-OS Sh. Prem-PS Sh. Prem-TST RE-unapp RE-app TS
2,500,000
1,000,000 200,000
5,540,000 (3,200,000
)
500,000 960,000 340,000
250,000 150,000
1,300,000
200,000 1,280,000
(350,000) (70,000) 1,120,000

4,530,000
(800,000) 800,000
1,750,000 4,410,000 690,000 130,000 9,270,000 800,000 (800,000)

2. Ans. 3. Ans. 4. Ans. 7. Ans.
8,550,000
5,230,000 5. Ans.
13,780,000 6. Ans.
800,000
9,270,000
(800,000)
23,050,000 8. Ans.
CHAPTER 9-PROBLEM 3: GLORIETTA INC. ,000

Correct entries to record transactions in 2013: 400,0
(a) Land 1,400,000 00
Ordinary shares (100,000*P10)
Share premium-OS
1,000,000
(b) Cash (50,000*P50) 2,500,000 1,500,000
Preference shares (50,000*P20)
Share premium-PS
540,000
(c) Income summary 540,000
Retained earnings
Correct entries to record transaction in 2014: *Share premium from the original issuance of preference shares in 2013
(a) Preference shares (20,000*P20) 400,000 800,000
Share premium-PS (20,000*P30) 600,000 200,000
Share premium-OS *Allocation:
250,000 Ordinary @Fair value (25,000*P25) 625,000
(b) Building (@fair value) 1,200,000 375,000 Preference @Residual amount 575,000
400,000 Fair value of Building 1,200,000
175,000 Note that the Building's fair value was more clearly determinable that the fair
Share premium-OS (P625,000-P250,000)
value of the securities issued, since while the fair value of ordinary shares were
determinable at P25, the fair value of preference shares is not clearly
Share premium-PS (P575,000-P400,000)
100,000 determinable since it is highly speculative or volatile.
148,000
(c) Cash, net (5,000*52)-P12,000 248,000
Share premium-PS 220,000
(d) Treasury shares (10,000*P22) 220,000

Cash
44,000
(e) Cash (2,000*P20) 40,000 Retained earnings 4,000
Treasury shares (2,000*P22)
*Share premium from original issuance computed as:
(f) Ordinary shares (5,000*P10) 50,000
(P400,000/100,000)*5,000
Share premium-OS 20,000 110,000
Retained earnings 40,000
Treasury shares (5,000*P22)
830,000
(g) Income summary 830,000
Retained earnings
66,000
(h) Retained earinings 66,000
Retained earinings appropriated for Treasury
Preference Sh. Sh. Prem-PS RE-unapp RE-app TS

Sh. Prem-OS
Summary 400,000
Ordinary Sh, 1,000,000 1,500,000
540,000
(a) Ordinary share issuance in 2013 1,000,000 (400,000) 200,000 (600,000)
(b) Preference share issuance in 2013
(c) Net income in 2013 400,000 375,000 175,000
(a) Conversion of PS to OS in 2014 800,000
(b) Ordinary and Preference 250,000 100,000 148,000
shares issue (220,000)
(c) Preference shares issuance in (4,000) 44,000
2014 (d) Reacquisition of Treasury
(e) Treasury shares reissuance in 2014 (20,000) (40,000) 110,000
(f) Treasury shares retirement in 2014 (50,000) 830,000
(g) Net income in 2014
(66,000) 66,000
(h) Appropriation for treasury
Adjusted 12/31/14 balances 2,000,000
1,100,000 955,000 1,223,000 1,260,000 66,000 (66,000)
1. Ans.
2. Ans. 3. Ans. 4. Ans. 7. Ans.
3,100,000
Share capital:
Ordinary Shares 2,000,000
Preference Shares 1,100,000
Additional paid-in capital:
Share premium-OS 955,000
Share premium-PS 1,223,000
2,178,000 5. Ans.
Total Contributed Capital
5,278,000 6. Ans.
Retained earnings - appropriated
66,00
Retained earnings - unappropriated
Treasury shares at cost 0
Total Stockholders' Equity 1,260,000
(66,000)
6,538,000 8. Ans.
CHAPTER 9-PROBLEM 4: BULACAN CO.
Correct entries:
1. Ans. P450,000.
(a) Cash 5,700,000

Bonds payable
Premium on bonds payabe
Ordinary share warrants outstanding
(b) Cash (4,000sh*P70) 280,000

5,000,
Accumulated profits 20,000
Treasury shares (4,000sh*P75) 000
250,0
00
450,000
1
,
0
0
300,000
0
CHAPTER 9: AUDIT OF STOCKHOLDERS' EQUITY

O Preference shares (6,000sh*50) 300,000

r
d Share premium-PS 350,000
i Correct entry:
n
a Cash 650,000 Allocation: Prorata
r
y Preference shares 300,000 Pref. Sh. (6Ksh*P80) 480,000 80%
Share premium-PS (P650K*80%)-PAR 220,000 Warrants (12Kw*P10) 120,000 20%
Ordinary share warrants outstanding (P650K*20%) 130,000 600,000
s
h 2. Ans. Adjusting entry:
a Share premium-PS 130,000
r Ordinary share warrants outstanding 130,000
e
s (c) Entry made:
Cash (700sh*P440)*40% 123,200
Subscription receivable 184,800
( Orinary shares subscribed 308,000
1
, Correct entry:
0 Cash (700sh*P440)*40% 123,200
0 Subscription receivable 184,800
0 Ordinary shares subscribed (700sh*P20) 14,000
*
P Share premium-OS 294,000
5
0 3. Ans. Adjsuting entry:
) Ordinary shares subscribed 294,000
50,000 Share premium-OS (P250K/50Ksh)*1K Share premium-OS 294,000
5,000
Accumul (d) Entry made:
ated Cash 158,400
profits 20,000 Treasury shares (1,000sh*P75) Subscriptions receivable 158,400
75,000
Correct entry:
(c) Memo: 49,000share rights were issued to 49,000 shares outstanding. Cash 158,400
Subscriptions receivable 158,400
(d) Cash (5,000*60%)/5w*P60 36,000
Ordinary shares subscribed (600sh*P20) 12,000
Ordinary share warrants (P450K*60%) 270,000 Ordinary shares 12,000
Ordinary shares (600sh*P50) 30,000 4. Ans. Adjusting entry:

Ordinary shares subscribed 12,000
Share premium-OS 276,000 Ordinary shares 12,000
3. Ans. P45,000.
2. Ans. P276,000.
(e) Cash (40,000/10)*P55 220,000
(e) Entry made:
Ordinary shares (4,000*P50) 200,000 Cash (4,000*2sh*P400) 3,200,000
Share premium-OS 20,000 Ordinary shares 3,200,000
(f) Income summary 1,250,000 Correct entry:

Cash 3,200,000
Accumulated profits 1,250,000 Ordinary share warrants (P130K*4/12) 43,333
Ordinary shares (4,000*2sh*P20) 160,000
Summary: Share premium-OS 3,083,333

Prefence Sh Ordinary Sh
5. Ans. Adjusting entry:
Balances, January 1, 1,000,000 2,500,000 Ordinary shares 3,040,000
(a) Warrants issuance Ordinary share warrants outstanding 43,333
Share premium-OS 3,083,333
(b) Treasury reissue
6. Ans.
Tresaury retirement (50,000) (f) Correct entry/Adjusting entry
Cash (P184,800-P158,400)+P5,000 31,400
(c) Share rights issue (memo entry) Miscellaneous expense 5,000
(d) Warrants exercise 30,000 Subscription receivable 26,400
(e) Rights exercise 200,000 Ordinary shares subscribed 2,000

Ordinary shares (100*P20) 2,000
(f) net Income
Balances, December 31, 1,000,000 2,680,000 CHAPTER 9-PROBLEM 6: PUNK INC.

4. Ans. 1. Ans. P83,333.
FMV of options (100emp*100opt)*P25 250,000 Entry:
CHAPTER 9-PROBLEM 5: HARVEY MERCHANDISES.
(a) Entry made: Divide by: Vesting period 3 Salaries expense 83,333
Cash 130,000
Treasury shares 130,000 Salaries expense, 2014 83,333 Ordinary share options outstanding
83,333
Correct entry:
Cash 130,000
2. Ans. P58,333.
Share premium-TST 65,000
Revised FMV of options (85emp*100opt)*P25 212,500
Treasury shares (P363,000/605)*325 195,000 Multiply by: 2years/3 years 2/3
Cummulative salaries expense as of Dec. 31, 2015 141,667 Entry:
1. Ans. Adjusting entry:
Share premium-TST 65,000 Less: Prior year's salaries expense (83,333) Salaries expense 58,333
Treasury shares 65,000 Salaries expense, 2015 58,333 Ordinary share options
outstanding 58,333
(b) Entry made: 3. Ans. P33,333.
Cash 650,000

Final FMV of options (70emp*100opt)*P25 175,000 Multiply by: 2years/3 years 2/3
Less: Prior years' cummulative salaries expense (141,667) Less: Prior year's salaries expense (62,500) Salaries expense 137,500 Salaries
expense, 2015 137,500 Ordinary share options outstanding 137,500
Salaries expense, 2016 33,333 3. Ans. P220,000.
Dec. 31, 2016: Has the non-market based condition been achieved?
Actual sales, 2016 150,000,000
4. Ans. P210,000. Minimum required sales 100,000,000 Thus, achieved, therefore options are exercisable.
Entry upon exercise of all options: Note that the actual sales in 2016 is P150M, thus the final number of options per employee shall be 200.
Cash (7,000sh*P25) 175,000
Ordinary share options oustanding 175,000 140,000 Final FMV of options (100-16emp)*200opt*P25 420,000 Entry:
Ordinary shares (7,000sh*P20) 210,000 Less: Prior years' cummulative salaries expense (200,000) Salaries expense 220,000
Share premium
Salaries expense, 2016 220,000 Ordinary share options outstanding 220,00
0
4. Ans. P504,000.
CHAPTER 9-PROBLEM 7: PUNK INC.
Entry upon exercise of all options:
1. Ans. P66,667. 200,000 Cash (16,800sh*P25) 420,000
Estimated FMV of options (100-20emp)*100opt*P25 3 Ordinary share options outstanding 420,000
Divide by: Vesting period
Ordinary shares (16,800sh*P20) 336,000
Salaries expense, 2014 66,667
Ordinary share options outstanding 66,667
2. Ans. P58,333.
CHAPTER 9-PROBLEM 9 : PUNK INC.
Revised FMV of options (100-25emp)*100opt*P25 187,500 1. Ans. P100,000.
Multiply by: 2years/3 years 2/3 Dec. 31, 2014: Has the non-market based condition been achieved at the end of 2014?
Cummulative salaries expense as of Dec. 31, 2015 125,000 Actual increase in sales, 2014 (P81M-75M)/75M 8%
Entry: Minimum required increase in sales, 2014 10% Thus, not achieved.
Less: Prior year's salaries expense (66,667) Salaries
expense 58,333 Salaries expense, 2015 58,333 Is the non-market based condition achievable by the end of 2015?
Ordinary share options outstanding 58,333 Estimated average increase in sales in 2014 and 2015: (8%+16%)/2 12%
3. Ans. P50,000. Minimum required average increase in sales (2014 -2015) 12% Thus, achievable, VP is 2 years.
Final FMV of options (70emp*100opt)*P25 175,000
Entry: Est. FMV of options vested (10-2emp)*1,000opt.*P25 200,000 Entry:
Divide by: Vesting period 2 Salaries expense 100,000
Less: Prior years' cummulative salaries expense (125,000)
Salaries expense, 2014 100,000 Ordinary share options outstanding 100,000
Salaries expense 50,000 Salaries expense, 2016
50,000 Ordinary share options outstanding 50,000 2. Ans. P33,333.
Dec. 31, 2015: Has the non-market based condition been achieved at the end of 2015?
4. Ans. P50,000. Actual increase in sales, 2014 (P81M-75M)/75M 8%
Note that the market-based condition has no bearing in the recognition
of the salaries expense. That is, wether the market based condition Actual inrease in sales, 2015 (P92.23M-81M)/81M 14%
is achieved or not, as long as the employees stayed with the company
until the vesting period ends, in principle the services were received,
thus, salaries expense shall be recognized. Actual average increase in sales (2014 and 2015) 11%
Entry:
Salaries expense 50,000 Minimum required average increase in sales (2014 - 201 12% Thus, not
Ordinary share options outstanding 50,000 achieved.
Is the non-market based condition achievable by the end of 2015?
Since the condition was not achieved however, the options are not
Estimated average increase in sales in 2014 and 2015: (8%+14%+20%)/3 14%
exerciseable and are therefore reverted back to equity.
Minimum required average increase in sales (2014 - 2016) 14% Thus, achievable, VP is 3 years
Entry:
Ordinary share options outstanding 175,000
Revised FMV of options (10-2emp)*1,000opt*P25 200,000
Retained earnings/APIC-Unexercised options 175,000 Multiply by: 2years/3 years 2/3
5. Ans. P120,833.
Less: Prior year's salaries expense (100,000) Salaries expense 33,333 Salaries
Note that since the market-based condition (FMV of shares) was
expense, 2015 33,333 Ordinary share options outstanding 33,333
achieved by the end of 2015, the vesting of the options are
accelerated. The options are exerciseable by the end of 2015, thus
3. Ans. P41,667.
the vesting period has been revised from 3 years to 2 years. Final FMV
Dec. 31, 2016: Has the non-market based condition been achieved?
of options, Dec. 2015 (75emp*100opt)*P25 187,500
Actual increase in sales, 2016 (P110.8M-92.34M)/92.34M 20%
Less: Prior years' cummulative salaries expense (66,667)
Actual average increase in sales (2014-2016) (8%+14%+20%)/3 14%
Salaries expense, 2015 120,833
Minimum required average increase in sales (2014 - 2016) 14% Thus, the condition has bee achieved.
Options are exercisable.
Final FMV of options (10-3emp)*1,000opt*P25 175,000 Entry:
CHAPTER 9-PROBLEM 8 : PUNK INC. Less: Prior years' cummulative salaries expense (133,333) Salaries expense 41,667
1. Ans. P62,500. Salaries expense, 2016 41,667 Ordinary share options outstanding 41,667
Dec. 31, 2014: Is the non-market based condition achievable?
4. Ans. P210,000.
Actual sales, 2014 75,000,000
Entry upon exercise of all options:
Multiply by: 120% estimated increase 120%
Projected sales, 2015 90,000,000 Cash (7,000sh*P25) 175,000
Multiply by: 120% estimated increase 120% Ordinary share options outstanding 175,000
Projected sales, 2016 108,000,000 Ordinary shares (7,000sh*P20) 140,000
Minimum required sales 100,000,000 Thus, Share premium 210,000
achievable.
Note that the estimated sales in 2016 is P108M, thus the estimated
number of options per employee shall be 100. CHAPTER 9-PROBLEM 10 : MYX CO.
1. Ans. P603,333.
Est. FMV of options vested (100-25emp)*100opt.*P25 187,500 End of 2014: Is the non-market based condition achievable?
Entry: Projected 2016 sales: (P210M*120%*120%)
Divide by: Vesting period 3 Minimum required 2016 salesAchievable, number of SARs is 10,000.
Salaries expense 62,500 Salaries expense, 2014 Estimated FMV of SARS, 2014 (10,000sars*P74) 740,000 Entry:
62,500 Ordinary share options outstanding 62,500
Divide by: Vesting period 3 Salaries expense 246,667
2. Ans. P137,500.
Dec. 31, 2015: Is the non-market based condition achievable? Salaries expense, 2014 246,667 SAR payable 246,66
Actual sales, 2015 110,000,000 7
Multiply by: 120% estimated increase 120% End of 2015: Is the non-market based condition achievable?
Projected 2016 sales: (P410M*120%)
Minimum required 2016 salesAchievable, number of SARs is 15,000.
Estimated FMV of SARS, 2015 (15,000sars*P85) 1,275,000
Projected sales, 2016 132,000,000
Multiply by: 2years/3 years 2/3
Minimum required sales 100,000,000 Thus,
achievable.
Less: Prior year's salaries expense (246,667) Salaries expense 603,333
Note that the estimated sales in 2016 is P132M, thus the estimated
number of options per employee shall be 150. Salaries expense, 2015 603,333 SAR payable 603,333
Revised FMV of options (100-20emp)*150opt*P25 300,000 2. Ans. P1,050,000.

End of 2016: Has the non-market based condition been achieved? 0 0

Actual 2016 sales 1,960,000 0
Minimum required 2016 sales
Final FMV of SARS 1,800,000 4

(20,000sars*P95) 0
Less: Prior years' cummulative ,
salaries expense Salaries 100,000 0
expense, 2016 4 0
6 0
3. Ans. 0
Entry upon exercise in 2017 at ,
prevailing FMV P98. 0
SAR payable 36,000
Salaries expense 90,000 4. Ans.
Cash (20,000sars*P98) 36,000 Fractional warrants outstanding 4,000
Share premium - Expired fractional warrants 4,00
4. Ans. P1,800,000. 0
SAR payable at prevaiing FMV 90,000 5. Ans. P1,099,200.
(20,000sars*P90) Entry to
remeasure the SAR at the end of Oustanding shares, beginning 500,000
2017:
SAR payable Ordinary share dividends distributed 46,000
247,500
Salaries expense/Income from
SAR reversal Shares issued from fractional warrants 3,600
(P95 - P90)*20,000SARS
247,500 Total outstanding shares 549,600
CHAPTER 9-PROBLEM 11 : Multiply by: Cash dividends 2

DARK COMPANY
1. Ans. Dividends from earnings 1,099,200
1
Retained earnings
,
(10%*90,000sh)*P14
0 Entry: 1,099,20
126,000
0 Retained earnings 0
Share dividends
0 Capital liquidated (549,600*P1) 549,600
payable (9,000sh*P10)
, Dividends payable 1,648,800
Share premium
0 Note that the Capital liquidated accounts is a contra-capital account, that is, deducted from total SHE.
0
Share dividends payable
0
90,000
CHAPTER 9-PROBLEM 13 : ABC INC.
Ordinary shares
1. Ans. P900,000.
Declaration:
9
2. Ans. 0
Retained earnings ,
(25%*99,000sh)*P10 0
Property dividends payable 900,000
247,500 Share dividends 0
payable (24,750sh*P10) 0
Noncurrent asset held for disposal 720,000

Accum. depr (P800,000*1/10) 80,000
247,500 2
Ordinary shares 4
Building (PPE) 800,000
7
3. Ans. P1,337,500. , 2. Ans. P700,000.
Ordinary shares, beginning balance 5 Balance sheet date: December 31, 2014
10% share dividends 0
Property dividends payable 200,000
(90,000sh*10%)*P10 0
25% share dividends
(99,000sh*25%)*P10
Ordinary shares, ending 1,337,500 FMV at 12/31/14 700,000
balance
Dividends payable, CV 900,000
CHAPTER 9-PROBLEM 12 :
Adjustment to RE (200,000)
CHRIS COMPANY 1. Ans.
Retained earnings
Loss 20,000
(10%*500,000)*P25 2,500,000
Stock dividends payable 5 Noncurrent asset held for disposal 20,000
(50,000sh*P10) Share 0
premium 0 FMV less cost to sell, NCAHFD 700,000
,
2. Ans.
0 CV, upon reclass 720,000
Stock dividends payable 0
500,000 0 Loss on remeasurement - P&L (20,000)
Ordinary shares
(46,000sh*P10)
3. Ans. None.
Fractional warrants
2 Note that the increase or decrease in the property dividends payable is charged to RE.
outstanding (4,000*P10)
,
0 4. Ans. P100,000.
3. Ans.
0 Distribution:
Fractional warrants outstanding
0 Retained earnings 100,000
36,000
, Property dividends payable 100,000
Ordinary shares (3,600sh*P10)
0 Final FMV, 1/31/2015 800,000
Achieved, number of SARs is
0 Dividends payable, CV (FMV 12/2014 700,000
20,000.
1,900,000 Entry: Adjustment to RE 100,000
(850,000) Salaries expense 1,050,000 Property dividends payable 800,000

Noncurrent asset held for disposal 700,000
1,050,000 SAR payable 1,050,00 Gain on settlement of property dividends - P&L 100,000
0
CHAPTER 9-PROBLEM 14: JKL CORP.

Correct entries:
(a) Accumulated profits, beg 50,000

Cash 50,000 Accumulated profits 17,400

Preference shares (40,000*P1) 40,000 Share dividends payable 17,400
Ordinary shares (20,000*P0.50) 10,000 Computed as: (34,800*20%*P2.50)
Total cash dividends 50,000
(b) Treasury shares (80,000/4,000= P20) 80,000 C

Cash 80,000 H
A
P
(c) Memo: Share split up 1 is to 2: 1. Ans. NO EFFECT.
T
From 20,000 shares issued to 40,000 shares issued; From P5 par to E
P2.50 par R
From 4,000 treasury shares to 8,000 treasury shares; From P20 cost 9
per treasury to P10 per treasury -
P
(d) Equipment 50,000 R
Treasury shares (2,800*P10) 28,000 O
Share premium-TST 22,000 B
L
(e) Cash (10,000*P15) 150,000 E
Preference shares (10,000*P10) 100,000 M
Share premium-PS 50,000 1
5
:
(f) Accumulated profits (34,800*10%)*P6 20,880 2.
T
Ans.
R
Share dividends payable (3,480*P2.50) 8,700
U
Share premium-OS 12,180 S
T
Share dividends payable 8,700 C
Ordinary shares 8,700 O
(g) Accumulated profits 59,570 3. Ans. R
Cash dividends payable 59,570 P
O
P
R
r
A
e
T
f
I
e
O
r
N
e
C
n
A
c
S
e
E
1
:
s Entries:
h a) Retained earnings 100,000
a Accum Depr 100,000
r
e b) Retained earnings 50,000
s Inventories 50,000
c) Retained earnings 150,000

( Accounts payable/Liabilities 150,000
5
0 d) Ordinary shares (P5*100,000sh) 500,000
, Share premium 500,000
0
0
e) Share premium 550,000
0
*
P
Assets Liabilities SHE Ordinary Sh.
1
Share Prem. Ret. Earnings
)
Balances, before quasi-reorganization 1,150,000 300,000
50,000 Ordinary shares (38,280*P0.25)
850,000 1,000,000 100,000 (250,000) a) Write-
9,570
down of PPE (100,000) (100,000)
Total cash dividends 59,570
(100,000)
b) Write-down of Inventory (50,000) (50,000) (50,000)
(h) Income summary 940,000
c) Accrual of additional Liability 150,000 (150,000) (150,000)
d) Recapitalization - (500,000) 500,000
e) Write-off of deficit - (550,000) 550,000
-- Accumulated profits 52,000
Balances, after quasi-reorganization 1,000,000 450,000 550,000 500,000
Accumulated profits appropriated for treasury 52,000
50,000 -
1. Ans. 2. Ans. 3. Ans.
Summary: Preference Sh Ordinary Sh Sh. Prem-PS Sh. Prem-OS Sh. 4. Ans.
Prem-TS Accum. P.-App Accum. Prof Treasury January 1, 2014
balances 400,000 100,000 192,000 C
1,200,000 A
(a) Retroactive adjustment, 2013 dividends (50,000) S
(b) Treasury shares reacquisition (80,000) E
(c) Share split - No Effect 2
(d) Treasury shares reissue 22,000 28,000 :
(e) Preference shares issue 100,000 50,000 Entries:
(f) 10% stock dividends 8,700 12,180 (20,880) a) PPE - Appraisal Increase 1,000,000 Repl. Cost 2,500,000 1,500,000 Cost
(g) 2014 cash dividends (59,570) Accum Depr - Appraisal Increase 400,000 Repl AD (1,000,000)
(h) 2014 net income 940,000 (600,000) AD
-- Appropriation for treasury Revaluation surplus 600,000 Sound Value 1,500,000
52,000 (52,000) 900,000Carrying Value
b) Retained earnings 75,000

500,000 108,700 50,000 Inventories 75,000
204,180 22,000 52,000 1,957,550 (52,000) 4.
Ans. c) Retained earnings 175,000
Accounts payable/Liabilities 175,000
5. Ans.

d) Revaluation surplus 500,000 5. Ans. P1,100,000.

Retained earnings 500,000 Excess over par on share dividends (P1,650,000-P1,500,000)
Loss on retirement of treasury
Excess over par on share issuance
Assets Liabilities
Proceeds from sale of donated shares
SHE Ordinary Sh.
Share Prem. Rev. Surplus Ret. Earnings Net/Total adjustment to Additional Paid-in Capital 1,100,000
Balances, before quasi-reorganization 1,150,000 300,000
850,000 1,000,000 100,000 (250,000) MULTIPLE CHOICE EXERCISES:
a) Write-down of PPE 600,000 600,000 600,000 CHAPTER 9-EXERCISE 1: MICKEY MOUSE INC.
b) Write-down of Inventory (75,000) 1. Ans. A.
(75,000) (75,000) Ordinary shares issued (40,000sh*P20) 800,000
c) Accrual of additional Liability 175,000 Ordinary shares subscribed (5,000sh*P20) 100,000
(175,000) (175,000) Preference shares issued (6,000sh*P100) 600,000
d) Write-off of deficit - (500,000) Preference shares subscribed (900sh*P100) 90,000
500,000 Share premium from ordinar shares
Balances, after quasi-reorganization 1,675,000 475,000 Issued 920,000
1,200,000 1,000,000 100,000 Subscribed (P56-P20)*5,000sh 180,000 1,100,000
100,000 - Share premium from preference shares
1. Ans. Issued 224,000
3. Ans. Subscribed (P140-P100)*900 36,000 260,000
5. Ans. Share premium from treasury shares 8,000
Ordinary share warrants outstanding 40,000
C 2,998,000
Total contributed capital
H
A
P 2. Ans. A. 240,000
T Revaluation surplus 6,000
E Unrealized holding gain - AFS 100,000
R Translation reserves (credit) 346,000
Unrealized capital/Other comprehensive income
9
- 3. Ans. B.
P Contributed capital 2,998,000
R Accum. other comprehensive income 346,000
O Accumulated profits 820,000 Stockholders' equity
B 4,164,000
L
E
M CHAPTER 9-EXERCISE 2: ALPHA CORPORATION
900,000
1. Ans. D.
(500,000)
Authorized ordinary shares at P10 par value
Unissued ordinary shares
1 Ordinary shares issued P400,000
6
:
2. Ans. D.
Authorized preference shares at P50 par value 400,000
Unissued preference
S shares 100,000
P Preference shares
U issued P300,000
R 3. Ans. C.
S
Additional paid-in capital on ordinary shares 460,000
Additional paid-in capital on preference shares 112,00
I Additional paid in capital on sale of treasury shares 0
N Ordinary share warrants outstanding 4,000
C Donated capital 20,000
. Total Additional Paid-in Capital 25,000
1. Ans. Dr. P150,000. P621,000
Debit to RE, per books 1,500,000
Debit to RE, per audit (15%*100,000sh)*P110 1,650,000 4. Ans. D.
Ordinary shares issued Preference P400,000
Adjustment to RE (additional debit) (150,000)
shares issued 300,000
2. Ans. P9,100,000. Ordinary shares subscribed, net of subs. receivable, 30,000
Unadjusted Net Income, per books 9,000,000 Preference shares subscribed, net of subs. receivable, 30,000
20,000 621,000
Inventory fire loss (150,000) 15,000 P1,381,000
Total Additional Paid-in Capital
Impairment loss on PPE (750,000) Total Contributed Capital
Loss on sale of Equipment (200,000) 5. Ans. C.

Ordinary shares issued P400,000
Gain on retirement of bonds 300,000 Preference shares issued 300,00
0
Unrealized holding gain on FA 700,000 Ordinary shares subscribed 50,00
0
Preference shares subscribed 45,00
Increase in beg. Inventory under FIFO (100,000)
0
Total Legal Capital (Par value of issued and subs.) P795,000
Increase in end. Inventory under FIFO 300,000
6. Ans. C.
Adjusted Net Income, per audit 9,100,000 6,400,000
Total Contributed Capital 1,381,000
(1,650,000)
(200,000) A
7,800,000 (3,000,000) c
3. Ans. P6,400,000.
Retained earnings, beginning (1,500,000) 9,100,000 c
Correction of prior period error 100,000 10,650,000 u
Change in policy (Ave to FIFO) 6,400,000 m
u
Retained earnings, beg. as restated
l
4. Ans. P10,650,000. a
Retained earnings, beg. as restated t
15% stock dividend declaration e
Loss on retirement of Treasury (P1,050,000-P850,000) d
Reserve for plant expansion other
Adjusted Net Income comprehensive income:
Retained earnings, ending balance Unrealized holding
gain-AFS

3 CHAPTER 9-EXERCISE 4: NEVADA SQUARE

, 1. Ans. D.
0 Retained earnings, Jan. 1, 2014 P30,000,000
0 Cash dividends (2,800,000)
0 Stock dividends (100,000*P68) (a) (6,800,000)
Property dividends (800,000/2)*P25 (b) (10,000,000)
Net income for the year 60,000,000
R Retained earnings, Dec. 31, 2014 P16,400,000
e (a) The stock dividends is small dividends (100,000/700,000 = 14%), thus
v valued at fair market value.
a (b) The property dividends’ valuation (debit to RE) shall be final at the
l settlement date.
u
a 2. Ans. B.
t Ordinary shares, January 1, 2014 P14,000,000
i Stock dividends issuance (100,000*20) 2,000,000
o Ordinary shares, December 31, 2014 P16,000,000
n *share split is accounted through memo entry only, aggregate par value remains the same.
3. Ans. C.
i Share premium, January 1, 2014 P8,000,000
n Share premium from share dividends
c (6,800,000 – 2,000,000) 4,800,000
r
e Share Premium, December 31, 2014 P12,800,000
m 4. Ans. B.
e
n Preference shares P10,000,000
t
Ordinary shares 16,000,000
i Share premium 12,800,000

n
Retained earnings 16,400,000
p Retained earnings, Dec. 31, 2014 P55,200,000

r
o
p CHAPTER 9-EXERCISE 5: MISAMIS INC.
e 1. Ans. B.
r Number of options estimated to vest (200opt*100emp) 20,000
t Multiply by Market value of Options 30
i Total Options Outstanding 600,000
e Multiply by (2012 & 2013) 2/3
s Total Accum. Comp. Exp. as of 12.31.2013 400,000
100,000
A
2. Ans. D.
c
Proceeds from exercise of rights (60,000–5,000)/5*130 P1,430,000
c
Par value of Ordinary
u
shares issued
m
(11,000*100)
u
1,100,000
l
Share premium
a
P330,000
t
3. Ans. B.
e
d Share premium from ordinary shares P1,000,000
Share premium from exercise of warrants 575,000
Share premium from exercise of rights 330,000 P1,905,000
Ordinary share 600,000
p 375,000
options outstanding
r P2,880,000
(20,000*30)
o
Ordinary share
f
warrants
i
outstanding
t
(750,000*50%)
s
Total APIC
:
Accumulated profits – unappropriated 410,000 4. Ans. D.
Reserve for bond sinking fund 220,000
Accumulated profits, beginning P3,000,000
Total Stockholder’s equity P2,114,000
Retroactive adjustment to retained earnings (400,000)
Appropriation for dividends (71,000 * 5) (355,000)
Net income, 2014 (2,500,000 – 200,000) 2,300,000
CHAPTER 9-EXERCISE 3: TABUK CORPORATION P4,545,000
Accumulated profits, end
Entry Made Correct Entry
Cash 900,000 Cash 900,000 CHAPTER 9-EXERCISE 6: SANTIAGO INC.
O.S. 300,000 O.S. 300,000
1. Ans. B.
P.S. 450,000 P.S. 450,000
The share options are under a variable option plan with a non-
Retained earnings 150,000 Share Prem – PS 117,000
market based condition, thus:
Share Prem – OS 33,000
2014:
VP 1 year achieved if 2014 Rev>=15M; Actual 2014 Rev, P14.5M – not achieved.
Cash 225,000 Cash 225,000 VP 2 years achievable if 2015 Rev>=18M; Estimated 2014 Rev, (P14.5M*125%) = 18.125M – achievable.
Other expense 37,500 Share Prem – TS 37,500 Number of options: (68-8)*500 30,000
Treasury Stock 262,500 Treasury Stock 262,500 Fair value of options on grant date P18
Estimated value of services over 2 years P540,000
Divide by: Vesting period 2 years
O.S. 600,000 O.S. 600,000 Salaries expense, 2014 P270,000
Treasury Stock 350,000 Share Prem – OS 90,000
Retained Earnings 250,000 Treasury Stock 350,000
Share Prem – TS 340,000 2. Ans. D.
2015:
VP 2 years achieved if 2015 Rev>=18M; Actual 2015 Rev, P17.5M – not achieved.
Cash 425,000
VP 3 years achievable if 2016 Rev>=20M; Estimated 2016 Rev, (P17.5M*125%) = 21.875M – achievable.
Subs Rec. 350,000
Number of options: (65-5)*500 30,000
Opex 50,000
No entry Interest income 25,000 Fair value of options on grant date P18
Estimated value of services over 3 years P540,000
Multiply by: 2/3 2/3

A v>=20M; Actual
c 2016 Rev, P20.5M –
c achieved.
u Final number of options: 63*500 31,500
m Fair value of options on grant date P18
u Final value of services over 3 years P567,000
l
Multiply by: 3/3 3/3
a
Accumulated
t
salaries expense as
e
of 2016 P567,000
d
Less: Prior years’
salaries expense
s
a
(360,000)
l
Salaries expense, 2016 P207,000
a
r
4. Ans. A.
i
e Final number of options: 63*500 31,500
s Options exercised in
2017: 45*500
e
x (22,500) Options
p forfeited in 2017
e 3*500
n (1,500)
s Remaining options as of 12/31/17 7,500
e Multiply by fair value on grant date P18
Carrying value of options outstanding 12/31/17 P135,000
a 5. Ans. C.
s Entry upon exercise of 45*500 = 22,500 options:
Cash (22,500*P35) 787,500
Ordinary share
o options outstanding
f (22,500*18) 405,000
Ordinary shares (22,500*P20) 450,000
P
3
6 CHAPTER 9-EXERCISE 7: PANDORA CORP.
0 1. Ans. B.
, The share options are under a variable option plan with a
0 market based condition, thus the achievability of the condition
0 is not a matter to consider in determining annual salaries
0 expense: 2014:
Number of options: (600-5-45)*100 55,000
Fair value of options on grant date P5
2 Estimated value of services over 3 years P275,000
0 Divide by: Vesting period 3 years
1 Salaries expense, 2014 91,667
5 2. Ans. A.; 3. ans. C.
Less: Prior years’ salaries expense (270,000) 2015:
Salaries expense, 2015 P90,000 Number of options: (600-5-20-35)*100 54,000
3. Ans. C. Estimated value of services over 3 years P270,000
2016: Multiply by: 2/3 2/3
V Accumulated salaries expense as of 2015 P180,000
P Less: Prior years’
salaries expense
3
(91,667) Salaries
expense, 2015
y P88,333
e 4. Ans. A.
a 2016:
r
s Final number of options: (600-5-20-30)*100 54,500
Final value of services over 3 years P272,500
a Multiply by: 3/3 3/3
c Accumulated salaries expense as of 2016 P272,500
h Less: Prior years’ salaries expense (180,000)
i Salaries expense, 2016 P92,500
e
v
e CHAPTER 9-EXERCISE 8: JUBEE CORP.
d 1. Ans. B.
The share options are under a variable option plan with a non-market based condition, thus:
2014:
i Condition achievable if Sales Vol. Inc.>=5%; Estimated Sales Vol. Inc. 12% – achievable.
f Number of options: (100*80%)*200 16,000
Estimated value of services over 3 years 640,000
2 Divide by: Vesting period 3 years
0 Salaries expense, 2014 P213,333
1
6 2. Ans. C.
2015:
Condition achievable if Sales Vol. Inc.>=5%; Estimated Sales Vol. Inc. (12+20+20)/3=17.3% – achievable.
R Number of options: (100*85%)*300 25,500
e

Fair value of options on grant date P40 laries expense

Estimated value of services over 3 years 1,020,000 (720,000) Salaries
Multiply by: 2/3 2/3 expense, 2016
Accumulated salaries expense as of 2015 P680,000 P1,380,000
Less: Prior years’ salaries expense (213,333) CHAPTER 9-EXERCISE
10: SANS CORP.
CORRECT ENTRIES:
Land (1.8M*30%) 540,000
3. Ans. D.
Building (1.8M*70%) 1,260,000
2016:
Condition achieved if if Sales Vol. Inc.>=5%; Estimated Sales Vol. Inc. Ordinary Shares
(12+20+16)/3=16% – achived. 500,000
Final number of options: (100-14)*300 25,800 Share premium
Fair value of options on grant date P40 1,300,000
Final value of services over 3 years P1,032,000
Multiply by: 3/3 3/3 Subsription receivable 420,000
Accumulated salaries expense as of 2016 P1,032,000 Ordinary shares subscribed 200,000
Less: Prior years’ salaries expense (680,000.0) Share premium 220,000
Treasury shares (5,000 sh) 125,000
4. Ans. A. Cash 125,000
Entry upon exercise of 60% of the options (25,800*60% = 15,480
options): Cash 252,000
Cash (15,480*P120) 1,857,600 Subscription receivable 252,000
Ordinary share options outstanding
(15,480*40) 619,200 Ordinary share subscribed 120,000
Ordinary shares (15,480*P100) 1,548,000 Ordinary shares 120,000
MEMO: SPLIT: 62,000 shares into 248,000 shares; P10 par value to P2.50 par
5. Ans. B. 8,000 shares subs into 32,000 shares subs; P21 subs price to P5.25 subs price
Entry upon expiration of 40% of the options (25,800*40% = 10,320 5,000 TS into 20,000 TS; P25 cost per unit to P6.25 cost per unit
options):
Ordinary share options outstanding
(10,320*40) 412,800 Cash 40,000
Share premium – Expired options 412,800 RE 22,500
Treasury shares (10,000*6.25) 62,500
CHAPTER 9-EXERCISE 9: KALINGA CO.

2. Ans. C.
1. Ans. A.
Compensation expense 84,000
The share appreciation rights are under a variable plan with a non-market
based condition, thus: SAR Payable 84,000
2014: (7*4,000*P15)/5years
Condition is achievable if Ave Rev Growth >=10%; Estimated Ave Rev
Growth, 12.5% – achievable. 3. Ans. C.
Estimated number of SAR: (20-4)*10,000 160,000 RE 270,000
Estimated FMV of SAR at year-end P6 Cash Dividends Payable 270,000
Estimated value of services over 3 years P960,000 Share
Divide by: Vesting period 3 years s
Salaries expense, 2014 P320,000 Outst
andin
2. Ans. D. g 238,000 Shares Subscribed
2015: 32,000
Condition is achievable if Ave Rev Growth >=10%; Estimated Ave Rev Total 270,000
Growth, 12.5% – achievable Multiply by cash div rate 1
Estimated number of SAR: (20-4)*10,000 160,000 Total Cash dividends 270,000
Estimated FMV of SAR at year-end P6.75
Estimated value of services over 3 years P1,080,000 Income Summary 1,500,000
Multiply by: 2/3 2/3 RE 1,500,000
Accumulated salaries expense as of 2015 P720,000
Less: Prior years’ salaries expense (320,000) Summary OS OS-Subs Share Prem. RE TS
Salaries expense, 2015 400,000 TOTAL
January 15, 500,000 1,300,000
3. Ans. B; 4 Ans. D. March 1, 200,000 220,000
2016: June 1, (125,000)
Condition is achieved if Ave Rev Growth >=10%; Actual Ave Rev
July 15, 120,000 (120,000)
Growth (10+15+25)/3=16.7% – achieved.
September 2, Cash Dividends
Final number of SAR 15*20,000 300,000
Fair value of options on grant date P7 December 30, to PS (Dec.
Est. value of services over 3 years P2,100,000 December 31, 2013)
Multiply by: 3/3 3/3 Appropriation for TS
Adj. Balances 620,000
Accumulated salaries expense as of 2016 P2,100,000
1. Ans. B. (200,000*P1)
L
Voluntary
e
approp. for
s
CHAPTER 9-EXERCISE 11: ROXXY CORP. sinking fund
s
1. Ans. D. Legal approp.
:
Ordinary Sh. for treasury
Prior to 2013: shares (equal to
A. Share issue for cash 3,800,000 B. Share issue for land 200,000 C. cost)
P
r Share subsription/issue 400,000
i D. Cash dividend declaration (Dec. 15, 2012)
o
r 2013 transactions:
A. Cash dividend declaration (June 15, 2013)
B. Share issue for cash 80,000
C. Reacquisition of Treasury Shares 3. Ans C.
y
D. Stock Dividend Declaration 220,00 Retained earnings,
e
0 June 30, 2013
a
2014 transaction: Net Income for 2014
r
A. Reissue of TS fiscal year
s
’ Balances: June 30, 2014 4,700,000 Stock Dividends to OS
2. Ans. C. (Dec. 2013)
Share premium - OS 11,152,00

s
0 (440,00sh*5%*P52)
a Share premium - Treasury-OS 6,000
Total Share premium 11,158,00
0

f) Available for sale

(22,500)
securities 62,500 110,000 180,000
UHGain -(270,000)
OCI (SCI/SHE)
RE-unapp TS TOTAL
UHLoss1,500,000
- AFS 12/31/13 11,700,000
(62,500)
UHLoss - AFS 12/31/14 160,000 110,000
80,000 1,520,000 Decrease in UHL or UHGain
1,145,000 for the year
(62,500) (164,000)
3,365,000 245,000
4. Ans. C. 5. Ans. C (1,000,000) 6. (1,000,000)
Ans. D. (135,000)
480,000 110,000
-
g) RE, beg -
275,000
Income tax expense 500,000 225,000
700,000
Rent income 500,000
-
Sh Prem - OS Sh Prem- TS Treasury Shares Shares Outstanding (238,740)
7,980,000 h) Income summary 380,000 2,150,000
2,600,000
RE 2,600,000
680,000 500,000 20,000 -
1,280,000 40,000 PS OS
SUMMARY
500,000 (500,000)
440,000 13,787,260 5,150,000
January 1 balances 1,800,000
4. Ans. C. (150,000) 3,590,000 (245,000) 4,000,000 (270,000
a) Treasury shares retirement
(120,000) )
b) Property dividends
1,050,000 (750,000) 270,000
c) Stock rights exerise
1,260,00
d) 440,000
Options (prior period error)
288,000 400,000 0 (200,000)
Options exercise e) Cash dividends8,000
200,000
f) UHGain - 312,000
AFS for the year (8,000)
240,000 (180,000)
924,000 g)Prior period error 22,000
462,000
h) Net Income for the year December 110,000
(275,000)
31, balances
6,000 2,600,000
1,180,000
(78,000) 1. Ans.2,000
B. 6,450,000
1,800,000 (135,000) 5,195,000
11,152,000 5. Ans.6,000
A; 7. Ans. C.
234,000 464,000 3. Ans. B.
5,170,000 6. Ans. D. -
Retained Preference share
4. Ans. B.
earnings, Ordinary shares
APIC 1,670,000 1,800,000
unappropri
Contributed Capital 6,450,000
ated June 2,850,000 5. Ans. A.
Unrealized holding loss – SHE 5,170,000
30, 2014 13,420,000
Accumulated profits - Total 2. Ans. B
2,760,000 (135,000)
Total Stockholders’
653,000Equity
160,000 5,195,000
P18,480,000
4. Ans. A.
(1,144,000) P21,300,000 2,040,000 3. Ans.
P5,545,000 A.
P197,500
2. Ans. A. 3. Ans. C.
4. Ans. D. OS Sh. Prem. RE-app

(200,000) 2,197,000
Beginning balance 4,000,000 1,700,000 Jan. 5 100,000 6,000,000
60,000 2,850,000
Jan. 16 (164,000)
Feb. 20
(200,000) Ordinary Sh. Retained
Feb. 25 200,000 280,000
Issued APIC Earnings
Mar. 1 P3,000,000 P300,000 1,140,000
P125,000 (1,140,000)
Apr. 1 Split (no entry)
(234,000)
May. 30 200,000
5,000,000 1,250,000
Jul. 1 778,500 2,335,500 (3,114,000)
400,000 40,000 (440,000)
Aug. 1 350,000 (238,740)
1,142,000
Dec. 31 2,150,000
Ordinary Shares 4,700,000
Appropriation for TS 45,000 (500,000)
Preference Shares 5,000,000 Share Premium - OS
Ending balance5.000,000 1,500,000 6,218,500 4,575,500 2,993,260
11,152,000
8,000,000 2,400,000 1. Ans. A. 2. Ans. A. 3. Ans. C.
Share Premium - PS 3,800,000
Share Premium - Treasury (OS) 6,000 (637,500) 1. Ans. C.
RE, appropriated 434,000 CHAPTER 9-EXERCISE 14: APAYAO
(100,000) CORPORATION ASSETS
10,000
RE, unappropriated 1,142,000 800,000
Treasury Shares at cost (234,000) Cash and cash equivalents (325,000 + 75,000) 400,000
Accounts receivable (275,000 + 100,000) 375,000
Total SHE, June 30, 2014 26,000,000
Marketable securities, at FMV as of 12/31/06 (955,000 – 600,000) 355,000
Prepayments 50,000
CHAPTER 9-EXERCISE 12: GLORIA CORPORATION ENTRIES: Land 900,000
a) OS (30,000*5) 150,000
Share premium - OS 150,000 Building (600,000 – 50,000) 550,000
Treasury shares Machinery and equipment (330,000 – 110,000) 220,000
Share premium - TST TOTAL
LIABILITIES AND CAPITAL
1. Ans. C. Current liab. (325,000+75,000+100,000+3,000–50,000–100,000) 353,000
b) RE (10,000*70) 700,000 Non-current liabilities (250,000 + 50,000) 300,000
Property dividends payable
270,000 Ordinary shares, (50,000 – 5,000 + 4,000) * 25 1,225,000
RE (10,000*5) 50,000 30,000 Share premium (750,000 – 75,000 + 140,000) 815,000
Property dividends payable Contributed capital
Reserve for self insurance 75,000
2. Ans. A. Reserve for treasury shares (50*5,000) 250,000
Property dividends payable 750,000 700,000 Accum.profits (625,000–3,000–100,000–140,000–50,000–250,000) 82,000
Trading securities @CV
Treasury shares (50,000*5,000) (250,000)
Gain/Income
TOTAL
50,000
b) Memo: 1M share rights were received; 1 OS: 4 SR plus P11
CHAPTER 9-EXERCISE 15: WHISPER INC.

#of Shares
Cash (840K/4)*11 2,310,000 680,000 Outstanding
OS (210K*5) 70,000 May, 2012 balances 300,000
Share premium - OS 1,050,000 Net income, 2012
1,260,000 July 23, 2013 share issue 500,000
d) RE (100,000*2) 200,000 October 2 stock dividends (800,000*5%) 40,000
OSWO Net income, 2013
200,000 February, 2014 treasury stock (30,000)
Cash (80,000*8) 640,000 June, reissuance of treasury 15,000
OSWO (200,000*80%) 160,000 October, issuance of stocks thru rights exercise (250,000*2) 500,000
OS (80,000*5) November, issuance of stacks thru rights exercise (400,000*2) 800,000
Share premium - OS 400,000 December 15, cash dividends: (2,125,000*.30)
400,000 December 31, retirement of TS
e) RE (1.8M*10%) 180,000 Net income, 2014
Dividends payable

CHAPTER 9-EXERCISE 13: RAJA CORPORATION Share premium

Balances
4. Ans. A. b. Retained earnings 150,000
Ordinary shares issued P21,300,000
c. Allowance for bad debt 30,000
Additional paid-in capital 5,545,000 Bad debt expense
Retained earnings 197,500 d. Marketable securities9,000

Retained earnings
Treasury shares (5,000*9) (45,000)
e. Unrealized loss (IS) 57,000
Total stockholders’ equity P26,997,500 Marketable securities
CHAPTER 9-EXERCISE 16: GREY CO. f. Retained earnings 12,000

1. Ans. A. Income summary
Contributed capital in excess of par value P18,000 Donated
capital (from stockholder) 15,000 g. Income summary 18,300
Recapitalization (reduction in par value) 1,500,000 Inventory, end
Additional paid in capital P1,533,000
SUMMARY:
2. Ans. D.; 3. Ans. A. 1. Ans. A.
2010 – 2013 Net income P2,400,000 Total assets, 2014 unadjusted
(c) Decrease in allowance for bad debt
2010 – 2013 Cash dividends (1,560,000)
(d) Increase in value of marketable sec. in 2013
Correction of error (note 2) 6,000 Refund of prior
(e) Decrease in value of marketable sec. in 2014
year’s income tax 27,000
(g) Decreasein inventory, end 2014
Net income, 2014 510,000
(h) Understatement in PPE in 2013
50% share dividend, 2014 (750,000)
(i) Depreciation of PPE in item h, in 2013
Retained earnings, total P633,000
(j) Depreciation of PPE in tem h, in 2014
Retained earnings, appropriated (60,000*4) 240,000 (k) Correction error: PPE disposal in 2014
Retained earnings, unappropriated P393,000
CHAPTER 9-EXERCISE 17: SCURBS CORPORATION (l) Correcrion of error: prepaymentTotal assets, 2014 adjusted
ADJUSTING JOURNAL ENTRIES
h. PPE 36,000 2. Ans. B.; 3. Ans. D.
180,000 Retained earnings 36,000 Unadjusted net income,

(c) Decrease in bad debts in 2014
i. Retained earnings 3,300 (d) Increase in value of marketable sec. in 2013
(e) Decrease in value of marketable sec. in 2014
150,000 Accumulated Depr. 3,300 (f) Overstatement in inventory, end 2013
(g) Understatement in inventory, end 2014
j. Depreciation expense 3,300 (h) Overstatement of repairs expense in 2013
(i) Understatement in depreciation in 2013 (j) Understatement in depreciation in 2014
30,000 Accumulated Depr 3,300 (k) Understatement in gain on sale of equipment, 2014
(l) Overstatement of insurance expense, 2013
k. Accumulated depr 52,500 Understatement of insruance expense, 2014 Adjusted Net Income
9,000 PPE 45,000 4. Ans. D.

Unadjusted Retained Earnings, end 2014
Gain on sale of PPE 7,500 Prior period errors: (P585,000-P620,100)
57,000 l. Prepayment 2,700
Insurance expense 2,700

Overstatemetn in 2014 Net Income (P660,000-P628,200) (31,800)
Unrecorded dividend declaration (b) (150,000)
Adjusted Retained Earnings, end 2014 1,254,300
12,000
CHAPTER 9-EXERCISE 18: GBC INC.
1. Ans. D.
18,300 Note that the property dividends shall be measured on the declaration at FMV which is equal to the FMV of
asset declared as dividends.
2. Ans. B.
Shares issued 100,000
Less: treasury (1,000,000/50) (20,000
2,545,200 )
30,000 Outstanding shares 80,000
9,000 Multiply by 10%
(57,000) Dividends distributable, small 8,000
(18,300) Multiply by fair value 42
36,000 Appropriation for share dividends 336,000
(3,300) 3. Ans. B.
(3,300)
7,500 a. Total net income since incorporation P3,200,000
2,700
b. Total cash dividends paid (150,000)
2,548,500
c. Impairment on property declared as dividend (600,000 – 450,000) (150,000)
Appropriation for property dividend at impaired value (450,000)
2013 2014
e. Correct valuation of share dividends (336,000)
585,000 660,000
30,000 h. Appropriated for plant expansion (700,000)
9,000 i. Loss on treasury share reissue, net of gain from TST (375,000 – 515,000) (140,000)
(57,000) l. Appropriated for remaining treasury shares at cost P50/share (1,000,000)
Correct Unappropriated Accumulated Profits balance P274,000
(12,000) 12,000
(18,300)
36,000 4. Ans. A.
(3,300)
(3,300) 5. Ans. D.
7,500 d. Proceeds from sale of donated stocks 150,500
5,400 e. Share premium from share dividends 136,000
(2,700) f. Gain on treasury share transaction 375,000
620,100 628,200 i. Loss on treasury share reissue (debite (375,000)
j. Share premium in excess of par from 215,000
k. Share issuance expense (45,000)
1,401,000 APIC 456,500
35,100 CHAPTER 9-EXERCISE 19: MAMA CORP.
a. Ordinary shares 180,000 ENTRIES: PROPERTY DIVIDENDS

Dividends payable 900,000 1. Ans. A.
Noncurrent Asset Held 900,000

Loss 300,000
Equipment 1,200,000
Payment: Retained earnings 100,000

Dividends payable 100,000
Dividends payable 1,000,000

Noncurrent Asset Held for Disposal 900,000
Gain 100,000 2. Ans. D.
ENTRIES STOCK DIVIDENDS

Declaration: Retained earnings
(200,000*10%)*42 840,000 3. Ans. A.
Dividends payable (20,000*25) 500,000
Payment: Dividends payable 500,000

Ordinary shares 4. 500,000
Ans. D.
a. Total net income since 2013 6,400,000
b. Cash dividends since 2013 (300,000)
c. Property Dividends (see entries above) (1,000,000

)
Adjustments to Net income in relation to the property dividends
Loss on reclassification of Equipment to held for disposal (300,000)
Gain on settlement of the property dividends 100,000
d. Capital loss from treasury shares reissue (300,000-400,000) (100,000)
e. Stock dividends (see entries above) (840,000)
g. Appropriation for plant expansion (700,000)
*Appropriation for treasury stock (30,000*P40) (1,200,000
)
Accumulated profits - unappropriated balance 2,060,000
CHAPTER 9-EXERCISE 20: TAR CO.

1. Ans. A.
Net income, unadjusted 300,000
Profit sharing of employees (30,000)
Proceeds from life insurance 150,000
Gain on sale of property 23,000
NET INCOME 443,000
2. Ans. A. 200,000
Accumulated profits, beginning (15,000)
Correction of prior period error (50,000)
Dividends to ordinary (40,000)
Dividends to preference (20,000)
Appropriation for bond redemption 443,000
Correct net income ACCUM PROFITS, 518,000
UNAPP.
3. Ans. A. 100,000
APIC, unadjusted 3,000
Gain on sale of treasury, net 52,000
Donation from stockholder 12,000
Gain on sale of own shares 167,000
APIC

CHAPTER 10: FINANCIAL STATEMENTS PRESENTATION
DISCUSSION PROBLEMS
Current Noncurrent Current Noncurrent SHE
Asset Asset Liabilities Liabilities
Cash 800,000 800,000
Accounts receivable 750,000 750,000
Allowance for doubtful accounts 50,000 (50,000)
Dividend receivable (a) 40,000
Prepaid expenses 160,000 160,000
Inventory 1,000,000 1,000,000
Financial assets at fair value (a) 690,000 400,000
Land (b) 525,000
Building in process (b) 5,500,000 4,950,000
Patent 200,000 200,000
Machinery and equipment 1,500,000 1,500,000
Accumulated depreciation 300,000 (300,000)
Discount on bonds payable 200,000 (200,000)
Accounts payable 900,000 900,000
Accrued expenses 150,000 150,000
Note payable, 10% (c) 250,000 250,000
Accrued interest on notes payable (c) 52,500
Bonds payable 2,000,000 2,000,000
Accrued interest on bonds payable (d) 60,000
Share capital 3,000,000 3,000,000
Accumulated profits (b), (c), (d) 4,150,000 4,012,500
Treasury shares (a) (250,000

)
Adjusted balances 3,100,000 6,875,000 1,412,500 1,800,000 6,762,500
1. Ans. 2. Ans. 3. Ans. 5. Ans.

Audit notes:
(a) Financial asset at fair value, unadjusted 690,000
Treasury shares (250,000)
Dividend receivable (40,000)
Financial asset at fair value, adjusted 400,000
(b) Building in progress, unadjusted 5,500,000
Land including property taxes in arrears (525,000)
Property tax expense (25,000) *charged to RE
Building in progress, adjusted 4,950,000
(c) Notes payable, principal 250,000
Interest in 2013 (P250,000*10%) 25,000
Interest in 2014 (P275,000*10%) 27,500 *charged to RE
Total interest payable on notes 52,500 *charged to RE
(d) Accrued interest on bonds payable (P2,000,000*12%*3/12) 60,000

4. Ans. P3,762,500.
Accumulated profits, unadjusted 4,150,000
(b) Property taxes for the current year (25,000)
(c) Interest on notes in 2013 (25,000)
Interest on notes in 2014 (27,500)
(d) Unaccrued interest on bonds in 2014 (60,000)

Appropriation for Treasury shares (250,000)
Accum. Profits, unappropriated, adjusted 3,762,500

CHAPTER 10-PROBLEM Current Noncurrent Current Noncurrent SHE

2: RCW CORP.
Cash 400,000 400,000
Allowance for doubtful 50,000 (50,000)

accounts
Inventories at cost 1,000,000 900,000 (100,
(NRV is P900,000) 000)
Land, plant site 500,000 500,000
Land, for speculation at 1,200,000 1,200,000

FMV (Note a)
Building 3,800,000 3,800,000
Accumulated 2,000,000 (2,000,000)

depreciation – building
Equipment 3,400,000 3,400,000
Accumulated 1,300,000 (1,300,000)

depreciation –
equipment
Investment in associate 1,300,000 1,300,000
Prepaid expenses 100,000 100,000
Notes payable 750,000
750,000
350,000
50,000
Accrued expenses 60,000
60,000
Mortgage payable, 2,000,000 1,600,000
P100,000 quarterly
400,000
Estimated liability for 140,000
damages
140,000
Retained earnings app. for 1,000,000 1,000,
plant expansion 000
Retained earnings app. 100,000 100,
for contingencies 000
Share capital 3,000,000 3,000,
000
Share premium 300,000 300,
000
Retained earnings, 1,350,000 1,350,
unappropriated 000
Trademark 150,000 150,000
Secret processes and 200,000 200,000

formulas
Bank loan payable – June 500,000 500,000
30, 2015 (Note b)
Def. tax asset, net def. tax 100,000 150,000 50,000
liability, P50,000
Adjusted balances 2,150,000 7,400,000 2,150,000
1,750,000 5,650,00
0
1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans.
CHAPTER 10-PROBLEM
3: SCR COMPANY
Current Noncurrent Current Noncurren SHE
t
Unadjusted balances 6,200,000 11,800,000 2,000,000 14,000,000
2,000,000
Restricted foreign (600,000) 600,000
deposit
Investment property at (1,000,000) 1,000,000
cost
Loss on inventory write- (200,000) (200,000)
down
Treasury shares (600,000) (600,000)
Store supplies 100,000 (100,000)

Financial asset at fair 800,000 (800,000)

value through
profit/loss
Share premium (500,000) 500,000
Unearned leasehold income 140,000

-current portion
(140,000)
Stock dividends payable 300,000
(300,000)
Serial bonds payable - 100,000
current portion
(100,000)
Adjusted balances
4,700,000 12,500,00 1,460,000 14,000,00
1. Ans. 0 2. Ans. 4. Ans. 0 5. Ans.
CHAPTER 10-PROBLEM
4: ABC COMPANY
Statement of Comprehensive Income (Expenses according
to function)
Note #
Net Sales Note 1
Less: Cost of Sales Note 2
Gross profit
Share from net income of associate Note 3
Other income Note 4
Total income
Less: Operating expenses 1,740,000
Selling expenses Note 5 3. Ans.
1,820,000
General and administrative expenses Note 6
850,000
Interest expense
Unrealized holding loss from financial asset 4. Ans.
400,000 Net income before tax 12,230,000
Incom (6,560,000)
e tax 5,670,000 170,000
expens 210,000 6,050,000
e
(30%)
Net 5. Ans.
income
after (3,470,000)
tax 2,580,000
(774,000)
Other comprehensive income/loss: 1,806,000
Unrealized holding gain on financial asset, net of tax
140,000
Revaluation surplus, net of tax
Foreign translation gain, net of tax
560,000
Total comprehensive income
2,366,000
Statement of Comprehensive Income (Expenses according

to nature)
Note #
Net Sales Note 1 12,230,000
Share from net income of associate Note 3 170,000
Other income Note 4 210,000

Total income before expenses 12,610,000 3. Ans

Less: Operating expenses
(Increase)Decrease in inventories Note 7 390,000
Net purchases Note 2 5,140,000
Depreciation 1,200,000
Salaries 900,000
Supplies 600,000
Utilities 400,000
Rent 200,000
Advertising 150,000
Freight-out 250,000
Unrealized holding loss on financial asset 400,000 (10,030,000)
Net income before tax 2,580,000
Income tax expense (30%) (774,000)
Net income after tax 1,806,000 4.

Ans.
Other comprehensive income/loss:
Unrealized holding gain on financial asset, net of tax 140,000
Revaluation surplus, net of tax 350,000
Foreign translation gain, net of tax 70,000 560,000
Total comprehensive income 2,366,000 5.

Ans.
SUPPLEMENTARY NOTES:
Note 1: Net Sales
Gross sales 13,000,000
Less: Sales returns and allowances (520,000)
Sales discounts (250,000)
Net Sales 12,230,000
Note 2: Cost of Sales

Raw materials inventory, January 1, 1,150,000
Add: Net purchases
Gross purchases 5,400,000
Add: Freight-in 200,000
Less: Purchase returns and allowances (310,000)
Purchase discounts (150,000) 5,140,000
Raw materials available for use 6,290,000
Less: Raw materials, December 31, (800,000)
Raw materials used 5,490,000
Direct labor (P900,000*30%) 270,000

Factory overhead:
Depreciation (P1,200,000*40%) 480,000
Supplies (P600,000*20%) 120,000
Utilities (P400,000*40%) 160,000 760,000
Total manufacturing cost 6,520,000
Add: Work-in process inventory, January 1,. 920,000
Cost of goods placed into process 7,440,000
Less: Work-in process inventory, December (1,100,000)

31
Cost of goods manufactured 6,340,000
Add: Finished goods inventory, January 1, 1,200,000
Less: Finished goods inventory, December 31, (980,000)
Cost of goods sold 6,560,000 1. Ans.

Note 3: Share from Net Income of Associate

XYZ Inc. Net Income for 2014 850,000
Proportionate share 20%
Share from net income of associate 170,000
Note 4: Other income

Rent income 120,000 Royalty income
90,000 Total other income 210,000
Note 5: Selling Expenses
Depreciation (P1,200,000*35%) 420,000
Salaries (P900,000*40%) 360,000
Supplies (P600,000*50%) 300,000
Utilities (P400,000*35%) 140,000
Advertising expense 150,000
Freight out 250,000
Total selling expenses 1,820,000 2. Ans.
Note 6: General and Administrative Expenses

Depreciation (P1,200,000*25%) 300,000
Salaries (P900,000*30%) 270,000
Supplies (P600,000*30%) 180,000
Utilities (P400,000*25%) 100,000
Total general and administrative expenses 850,000
Note 7: Increase/Decrease in Inventories

Inventories, January 1:
Raw materials 1,150,000
Work-in process 920,000
Finished goods 1,200,000 3,270,000

Inventories, December 31:
Raw materials 800,000
Work-in process 1,100,000
Finished goods 980,000 2,880,000
Decrase in inventories 390,000
CHAPTER 10-PROBLEM 5: UTV CORP.

Noncurrent Current Noncurrent
Current Asset Assets Liabilities Liabilities
Cash and cash equivalents 400,000 400,000
Bank overdraft 100,000 100,000
Allowance for doubtful accounts 40,000 (40,000)
Raw materials 560,000 560,000
Goods in process 600,000 600,000
Finished goods 1,400,000 1,400,000
Financial assets at fair value through OCI 2,500,000 2,500,000
Land, at fair market value 12/31/14 1,000,000 1,000,000
Building 6,000,000 6,000,000
Accumulated depreciation – building 1,600,000 (1,600,000)
Plant and equipment 2,400,000 2,400,000
Accumulated depreciation – Plant and Eqpt. 400,000 (400,000)
Patent 800,000 800,000
Goodwill, recognized in Jan. 2013 1,400,000 1,400,000

Note payable, bank – due June 30, 2015 1,300,000 1,300,000
Note payable, bank – due June 30, 2016 2,100,000 2,100,00

0
Accounts payable 1,000,000 1,000,000
Employee benefit provisions 180,000 180,000
Warranty liabilities 80,000 80,000
Income tax payable 120,000 120,000
Deferred tax liability 280,000 280,00

0
Accumulated profits, January 1, 2014 3,600,000
Revaluation surplus on Land, January 1, 2014 360,000
Unrealized gain on financial assets, 1/1/14 280,000
Share capital 5,000,000
Share premium, 1,000,000
Sales 10,000,000
Revaluation surplus on Land during the year 140,000
Unrealized gain on financial asset for the year 100,000
Selling expenses 1,960,000
Administrative expenses 500,000
Finance cost 100,000
Income tax expense 160,000

Dividend declared and paid
Balances 3,820,000 12,100,000 2,780,000 2,380,000
Net Income 1. Ans. 2. Ans. 3. Ans. 4. Ans.
Continued… Total Compre.
Net Income Income Accum. Profits SHE
Cash and cash equivalents

Bank overdraft
Accounts receivable
Allowance for doubtful accounts
Raw materials
Goods in process
Finished goods
Financial assets at fair value through OCI
Land, at fair market value 12/31/14
Building
Accumulated depreciation – building
Plant and equipment
Accumulated depreciation – Plant and Eqpt.
Patent
Goodwill, recognized in Jan. 2013
Note payable, bank – due June 30, 2015
Note payable, bank – due June 30, 2016
Accounts payable
Employee benefit provisions
Warranty liabilities
Income tax payable
Accumulated profits, January 1, 2014 3,600,000
Revaluation surplus on Land, January 1, 2014 360,000
Unrealized gain on financial assets, 1/1/14 280,000
Share capital 5,000,000
Share premium, 1,000,000
Sales 10,000,000
Revaluation surplus on Land during the year 140,000 140,000
Unrealized gain on financial asset for the year 100,000 100,000
Cost of sales (6,000,000)
Selling expenses (1,960,000)
Administrative expenses (500,000)
Finance cost (100,000)

Income tax expense (160,000)
Dividend declared and paid (1,000,000)

Balances
Net Income 1,280,000 1,280,000 1,280,000
Total Comprehensive Income 1,520,000
Accumulated Profits 3,880,000 3,880,000
Stockholders' Equity 10,760,000
5. Ans. 6. Ans. 7. Ans.
CHAPTER 10-PROBLEM 6: THEODORE COMPANY

1. Ans. P7,485,000.
Sales revenue P7,935,000
Increase in accounts receivable (P1,800,000-P1,350,000) (450,000)
Collections from customers P7,485,000
2. Ans. P2,025,000. Cost of goods sold P1,800,000

Increase in inventory (P2,700,00-P1,575,000) 1,125,000
Purchases 2,925,000
Increase in accounts payable (P2,250,000-P1,350,000) Cash (900,000)
disbursed for purchases P2,025,000
Operating expenses P1,500,000

Increase in accrued expenses payable
(225,000) (900,000-675,000)
Cash paid for operating expenses P1,275,000
3. Ans. P4,185,000.
Collections from customers P7,485,000
Cash disbursed for purchases (2,025,000)
Cash paid for operating expenses (1,275,000) Cash provided
by operating activities P4,185,000
4. Ans. P2,160,000.
Purchase of equipment (P2,700,000) 1
Sale of land 495,000
Sale of equipment 45,000
Cash used in investing activities (P2,160,000)
Increase in equipment (P8,550,000-

P1,800,000
P6,750,000)
Add: Cost of equipment sold 900,000 Purchase of equipment
P2,700,000
Increase in lease-liability—Land P450,000
Less: Increase in land 225,000
(P2,025,0001,800,000)
Carrying value of land sold 225,000
Add: Gain on sale of land 270,000 Proceeds from sale of land
P495,000
Carrying value of equipment sold
P90,000
(P900,000x10%)
Less: Loss on sale of equipment 45,000
Proceeds from sale of equipment 45,000
5. Ans. P1,350,000.
Cash used in financing activities-cash

(P1,350,000)
dividends paid
CHAPTER 10-PROBLEM 7: SARI-SARI COMPANY

1. Ans. P920,000.
Net income 790,000
Adj: Non-operating (gain)/loss
Gain on sale of LT investment (P135,000-P100,000) (35,000)
Adj: Non-cash (income)/expenses
Adj: Decrease/(Increase) in Working Capital
Inventory, increase (80,000)
Accounts payable and accrued liabilities, decrease (5,000)
Cash provided by operating activities 920,000
2. Ans. P1,005,000. 350,000

Proceeds from sale of Building 135,000
Proceeds from sale of LT Investment (1,190,00
Purchase of Plant assets (P700,000+600,000-110,000) 0)
Purchase of Available for sale securities
(300,000)
Cash used in investing activities
(1,005,000)
3. Ans. P205,000.
Proceeds from share issuance 220,000
Proceeds from short-term bank debt 325,000
Payment of dividends (P500,000-160,000) (340,000)
Cash provided by financing activities 205,000
Summary:
Cash provided by operating activities 920,000
Cash used in investing activities (1,005,000)
Cash provided by financing activities 205,000
Increase in cash for the year 120,000
Total SHE
CHAPTER 10-PROBLEM 8: ABC CORP. 9,540,000

STATEMENT OF CHANGES IN EQUITY Reserves 1,000,000
Share Capital Accumulated (300,00
Treasury
January 1, balances Profits-Unapp 0)
2,540,000 Shares
Share issuance 3,000,000 4,000,000 -
Treasury shares reaquisition 1,000,000
Treasury shares retirement (20,000) -
(100,000) (300,000)
Dividends declaration: (294,00
120,000 0)
Share dividends (20%*65,000sh)*P50
650,000 (650,000)
Cash dividends (P12*5,000)+(P3*78,000)
(294,000) -
Appropriations:
-
Plant expansion 400,000
(400,000)
Treasury shares 180,000
(180,000) 1,200,000
Comprehensive income
Net income
Other comprehensive income 1,200,000
(200,000) (200,000)
December 31, balances 2,900,000
4,550,000 3,676,000 10,946,000
1. Ans. 2. Ans. 3. Ans. (180,000) 4. Ans.

STATEMENT OF CHANGES IN Share Capital Reserves Accumulated Treasury Total SHE

EQUITY
Profits-Unapp Shares
January 1, balances 6,950,000 3,730,000

Prior period adjustment:
3,615,000 (270,000) 14,025,000
Unrecorded 2011-2013 (200,000) -
options
200,000
Overstatement in rent (275,000)
income in 2013
(275,000)
Share issuance from exercise 1,050,000
of rights
1,260,000 2,310,000
Share issuance from exercise 400,000
of options
240,000 640,000
Treasury shares -
retirement
Dividends (150,000) (120,000) 270,000
declaration:
Property dividends (750,000)
(10,000sh*P75)
(750,000)
Cash dividends (180,000)
(P10%*P100*18,000sh)
Reversal of appropriation (180,000)
Treasury shares 270,000 -
Comprehensive income
(270,000)
2,600,000
Other comprehensive
income
110,000 110,000
December 31, balances 5,035,000 5,195,000 - Accum.
8,250,000 2. Ans. 3. Ans. Profits
1. Ans. 18,480,000
2,000,000
MULTIPLE CHOICE (260,
EXERCISES: 000)
KALAMANSI INC. P83,000
1. Ans. A. 80,355 150,000
Cash (184,920 – 101,920) 72,000 (100,
Accounts receivable (84,480 12,000 000)
– 4,125) P247,355
Inventory at NRV (500,
(90,000*80%) 000)
Prepaid Insurance Total P167,000
current assets 330,000
80,000 (600,
2. Ans. A. P577,000 000)
Land
Building, net (375,000 –
45,000) P23,595
Furniture and fixtures, net 8,405 690,000
(114,600 – 34,600) Total 12,000 6. Ans. C.
PPE 50,000
P94,000
3. Ans. C.
Accounts payable
Interest payable
Advances P295,000
Short term (3,125)
portion of serial 50,000
bonds Total P341,875
Current
liabilities 9. c.
P40,000
430,00
4. Ans. C.
341,875
Unappropriated retained
P811,875
earnings
Adjustment (inventory
LCNRV)
(75,125–72,000) Assets
Current Asset Liabilities Liabilities
Appropriated for bond
8,000,000 3,000,000 200,000
treatment Total retained
200,000
earnings 3,600,000 200,000 SHE
5. Ans. B. (260,000)
Share capital (4,000*10) 150,000 8,400,000
500,000
Paid-in capital in excess of

par 400,000
Total retained earnings
(100,000) 200,000 200,000 4,300,000 4,000,000 (260,000)
Total SHE
3. Ans. D.
4,000,
(200,000) 000 150,000
CHAPTER 10-EXERCISE 2:ETT
INC. 400,000
(200,000)
4,000,000 (100,000)
Unadjusted balances
(600,000) 4. Ans. B.
Bank overdraft
Allowance for bad debts/bad
7,790,000
debt expense (500,000)
1. Ans. D.
Increase in FMV of financial 7,600,000
asset at fair value 2. Ans. B.
Inventory write-down (to
NRV which is lower) Goodwill
Salaries payable/Salaries (600,000)
expense
Mortgage payable
Interest payable
Accumulated depreciation on 7,090,000
the building 5. Ans. C.
Current tax payable
Adjusted balances
CHAPTER 10-PROBLEM 9: GLORIA CORPORATION

CHAPTER 10-EXERCISE 3: JACOB CORPORATION

ASSETS
Cash and cash equivalents (325,000+75,000) 400,000
Accounts receivable (275,000+100,000) 375,000
Marketable securities (955,000-600,000) 355,000
Prepayments 50,000
TOTAL CURRENT ASSETS P1,180,000 1. Ans. B.

Land 900,000
Building 600,000
Reserve for depreciation – Building (50,000)
Machinery and equipment 330,000
Reserve for depreciation – Machinery and equipment (110,000)
TOTAL NONCURRENT ASSETS 1,670,000
TOTAL ASSETS 2,850,000 2. Ans. A.
LIABILITIES AND CAPITAL
Current liabilities (325,000+75,000+100,000+3,000-50,000-100,000)
353,000 3. Ans. B.
Non-current liabilities (250,000+50,000)
300,000 4. Ans. C.
TOTAL LIABILITIES
P653,000
Ordinary shares, P25 par, 45,000 shares issued (1,250,000-125,000)
Share dividends payable (4,000sh*25)
Share premium (750,000+(4,000sh*(60-25))-((750,000/50,000)*5,000sh)
1,125,000
TOTAL CONTRIBUTED CAPITAL
100,000
Reserve for self insurance
815,000
Reserve for treasury shares
2,040,000
Accumulated profits (625,000-3,000-100,000-140,000-50,000-
75,000
250,000) Treasury shares (500,000-250,000) TOTAL SHE TOTAL 250,000
82,000
(250,000)
CHAPTER 10-EXERCISE 4: REESE CORP. 2,197,000 5. Ans. A.
1. Ans. B. 2,850,000
Cash 775,000
Accounts receivable (net) 2,695,000
Inventory 2,085,000
Total current assets 5,555,000
Note that the installment receivable from customer is classified as current since it is a trade payable.
2. Ans. A. 1,701,000
Accounts payable and accrued liabilities 129,000
Income taxes payable (654,000-525,000) 1,830,000
Total current liabilities
3. Ans. C. 3,450,000
Retained earnings, 1/1/14 13,360,000
Net sales and other revenues 11,180,000
Costs and expenses 2,180,000
Net income before tax (654,000)
Income tax expense (30%) 1,526,000
Net Income for the year 4,976,000
Retained earnings, 12/31/14
CHAPTER 10-EXERCISE 5: TORRES Current

COMPANY
Cash 1,765,000
Compensating balance (300,000)
Bond retirement (600,000)
Contingency fund (500,000) 365,000 1. Ans. D. Non-current
Account receivable Other Assets

Credit balance LT
Advances to officers (past due) 930,007 300,000 Investment
Current portion of past due: 45,000 600,000 LT
2015: (P100,000 x .917431)) (600,000) 500,000 Investment
Non-current portion:
2016:(P200,000 × . 91,743
84168) 2017: (P300,000
× .77218) Mdse. sent on
consignment: (P100,000
× 125%) Due from
consignee: (125,000)
(P75,000 ×125% × 92% - P3,000) 168,336 Other Assets
83,250 425,000 2. Ans. A. 231,654 Other Assets
Inventory 750,000
On consignment (P100,000 × 25%) 25,000 775,000
Investment 763,000

Financial Asset at Fair value through P&L 170,000 3. Ans B. (150,000)
Prepaid expense 30,000 (30,000)
Increase in value of AFS 50,000 633,000 LT

Investment
Total 1,765,000 2,432,990
4. Ans. B. 5. Ans. D.
CHAPTER 10-EXERCISE 6: KATZ CORP. Other Comp. Total Com. Accumulate
d
Cost of Sales Net Income Income Income Profits
Sales 53,000,000
53,000,000
Purchases 32,000,000
32,000,000
Sales discount 2,000,000
(2,000,000)
Purchase discount 1,200,000
(1,200,000)
Sales returns and allowance 1,000,000
(1,000,000)
Purchase returns and allowance 800,000
(800,000)
Correction of merchandise inventory, 400,000
beginning error, net of income tax – 3,400,000
credit Merchandise Inventory, January 3,400,000
1 (adjusted) 3,500,000
Merchandise Inventory, December 31 (3,500,000) (5,000,000)
Distribution costs 5,000,000
400,0
General and administrative expenses 4,000,000
(4,000,000) 00
Interest expense 2,000,000
Gain on early extinguishment of long- 500,000
term Foreign translation adjustment, 1,250,000
(2,000,000)
net of income debt tax – 700,000
creditRevaluation surplus for the period,
net of income tax Unrealized loss on 500,000
financial assets at fair
value through other comprehensive income or
550,000 losses, net of income tax

Investment income – equity method 3,000,000
Gain on expropriation of asset 2,000,000
Income tax expense 5,000,000 3,000,000
Proceeds from sale of land with a carrying
2,000,000 1,250,000 (1,300,0
4,800,000 value of P5,300,000 (5,000, 700,000 00)
Dividends declared 1,300,000 000) 4,200,0
Accumulated profits, January 1, 2014 4,200,000 (500,000) (550,000) 00
Cost of Sales 29,900,000 (29,900,000)
Net Income 1. Ans. B. 9,100,000 9,100,000 9,100,000
Other Comprehensive Income 2. Ans. B. 1,400,000 1,400,000
Total Comprehensive Income 3. Ans. B. 10,500,000
Accumulated Profits, Dec. 31, 2014 4. Ans. C. 12,400,000
CHAPTER 10-EXERCISE 7: NAM COMPANY

1. Ans. B.
Net income P925,000
Depreciation (see note below) 375,000
Gain on sale of equipment (P100,000-P87,500) (12,500)
Share from net income of associate (P300,000*25%) (75,000)
Decrease in accounts receivable 100,000
Increase in inventories (337,500)
Increase in accounts payable 150,000
Decrease in income taxes payable (50,000) Net cash provided
by operating activities P1,075,000
Increase in accumulated depreciation (2,912,500-2,600,000) 312,500

Accumulated depreciation of equipment sold (150,000-87,500) 62,500
Depreciation for 2014 P375,000
2. Ans. D.
Proceeds from sale of equipment P100,000
Loan to Ari Co. (750,000)
Principal collection of loan receivable 93,750 Net cash used in
investing activities P556,250
3. Ans. A.

Net cash used in financing activities (Dividends paid) (P250,000)
CHAPTER 10-EXERCISE 8:RAVEN CORPORATION

1. Ans. D.
Sales 10,776,000
Cost of goods sold (6,468,000)
Gross profit 4,308,000
Gain on sale of trading securities 144,000
Total 4,452,000
Selling and administrative expenses (3,444,000)
Unrealized holding loss on trading securities (48,000
)
Loss on sale of equipment (12,000
)
Net income before tax 948,000
Income taxes (420,000)
Net income after tax 528,000
2. Ans. A. 1,344,000
Accumulated profits, unapp., Jan 1, 2014 (180,000
Less: Increase in appropriations for expansion )
Stock dividends declaration (237,600*30%)*P10 (712,800
Accumulated profits, unapp. Dec. 31 )
Less: Net income for the year (943,200
Reversal of approp for Treasury Cash dividend )
declaration 528,000
60,000
96,000
3. Ans. C.
Share capital, Dec. 31, 2014 4,312,800
Share premium, Dec. 31, 2014 1,392,000 Total 5,704,800
Less:
Share capital, Dec. 31, 2013 2,400,000
Share premium, Dec. 31, 2013 60,000
2,460,000
Increase in Share capital and share premium 3,244,800
Share dividends (237,600*30%)*10 (712,800)
Share premium from treasury shares reissue (12,000)
Proceeds from issuance of shares 2,520,000
4. Ans. B.
Decrease in Trading securities 360,000
Add:Gain on sale of Trading securities 144,000
Unrealized loss on trading securities (48,000) Proceeds from
sale of Trading securities 456,000
5. Ans. C.
Proceeds from sale of equipment 84,000
Add: Loss on sale of equipment 12,000 Carrying Value of eqiupment
sold 96,000
6. Ans. D.
Equipment, end 3,732,000
Equipment, beg 2,040,000
Increase in equipment 1,692,000
Add: Cost of disposed equipment 180,000 Total equipment acquired
during the year 1,872,000
Equipment acquired through note issuance (600,000)
Overhaul on equipment (72,000)
Total cash payment made for equipment acquisition] 1,200,000
7. Ans. A.
Decrase in treasury shares (120,000 - 60,000) 60,000
Share premium on treasury shares reissue 12,000 Proceeds from
treasury shares reissue 72,000
8. Ans. C.
Net Income 528,000
Non cash expenses/income
Depreciation expense - Bldg 45,000 Depreciaiton expense -
Equipment 303,000
Amortization of bond discount 6,000
Income tax benefit (Decrease in Def. tax liab) (75,600)
Non operating income/expense
Loss on sale of equipment 12,000
Changes in working capital
Trading security 360,000
Accounts receivable (576,000)

Inventories 108,000
Prepaid Insurance (6,000) Accounts payable (60,000)
Accrued expenses 111,600
Unearned Income (96,000)
Net cash provided by operating activities 996,000
9. Ans. B.
Purchase of equipment (1,200,000) Overhaul of equipment
(72,000)
Sale of equipment 84,000
(1,188,000)
10. Ans. A.
Payment of serial notes payable (240,000)
Share issuance 2,520,000
Treasury shares reissuance 72,000
Payment of dividends (96,000)
2,256,000

CHAPTER 11: ERROR CORRECTION AND CASH;ACCRUAL
DISCUSSION PROBLEMS
CHAPTER 11-PROBLEM 1: SAFARI COMPANY
2012 NI 2013 NI 2014 NI 2014 RE, BEG 2014 RE, END 2014 WC
A. Accrued expense, under 2012 (15,000) 15,000
Accrued expense, under 2013 (7,000) 7,000 (7,000)
Accrued expense, under 2014 (22,000) (22,000) (22,000

)
B. Accrued income, under 2012 8,000 (8,000)
Accrued income, under 2013 9,000 (9,000) 9,000
Accrued income, under 2014 5,000 5,000 5,000
C. Prepaid expense, under 2012 16,000 (16,000)
Prepaid expense, under 2013 12,000 (12,000) 12,000
Prepaid expense, under 2014 6,000 6,000 6,000
D. Unearned income, under 2012 (11,000) 11,000
Unearned income, under 2013 (13,000) 13,000 (13,000)
Unearned income, under 2014 (10,000) (10,000) (10,000

)
EFFECT OF ERRORS 3,000 1,000
1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans. 6. Ans.
(2,000) (22,000) (21,000) (21,000)
CHAPTER 11-PROBLEM 2: MASIGLA COMPANY

2012 NI 2013 NI 2014 NI 2014 RE, BEG 2014 RE, END 2014 WC
A. Ending Inventory, over 2012 (50,000) 50,000
Ending Inventory, over 2013 (30,000) 30,000 (30,000)
Ending Inventory, over 2014 (40,000) (40,000) (40,000

)
B. Ending Invenotry, under 2012 12,000 (12,000)
Ending Invenotry, under 2013 14,000 (14,000) 14,000
Ending Invenotry, under 2014 8,000 8,000 8,000
C. AR/Sales, under 2012 25,000 (25,000)
AR/Sales, under 2013 22,000 (22,000) 22,000
AR/Sales, under 2014 16,000 16,000 16,000
D. AP/Purchases, under 2012 (15,000) 15,000
AP/Purchases, under 2013 (12,000) 12,000 (12,000)
AP/Purchases, under 2014 (10,000) (10,000) (10,000

)
E. Equipment, under/Expense, over per year 200,000 240,000 220,000 440,000 660,000
Depr Expense, under (2012 Equipment) (20,000) (20,000) (20,000) (40,000) (60,000)
Depr Expense, under (2013 Equipment) (24,000) (24,000) (24,000) (48,000)
Depr Expense, under (2014 Equipment) (22,000) (22,000)
EFFECT OF ERRORS 152,000 218,000 134,000 370,000 504,000

1. Ans. 2. Ans. 3. Ans. 4. Ans. 5. Ans. 6. Ans.
(26,000)
CHAPTER 11-PROBLEM 3: AMICI COMPANY

2013 NI 2014 NI 2014 RE, BEG 2014 WC
A. Salaries payable, under 2013 (12,000) 12,000 (12,000)
Salaries payable, under 2014 (5,000) (5,000)
Accrued interest income, under 2013 4,000 (4,000) 4,000
Accrued interest income, under 2014 3,000 3,000
Unearned rental income, under 2013 (14,000) 14,000 (14,000)
CHAPTER 11: ERROR CORRECTION; CASH/ACCRUAL AND SINGLE ENTRY

Unearned rental income, under 2014 (15,000) (15,000)
Prepaid insurance, under 2013 3,000 (3,000) 3,000
Prepaid insurance, under 2014 5,000 5,000
B. Advances from customers, under 2013 (31,000) 31,000 (31,000)
Advances from customers, under 2014 (25,000) (25,000)
C. Advances to suppliers, under 2013 10,000 (10,000) 10,000
Advances to suppliers, under 2014 7,000 7,000
D. Equipment, over/Expense under (each year (60,000) (80,000) (60,000)
Depr Expense, over (on 2013 Equipment) 12,000 12,000 12,000
Depr Expense, over (on 2014 Equipment) 16,000
ADJUSTED BALANCES/EFFECT OF 157,000 268,000

ERRORS
1. Ans. (88,000) (30,000) 2. Ans. 3. Ans. 5. Ans.
Retained earnings, beg 2013 -
Adjusted NI, 2013 157,000
Dividends declared and paid in 2013 (75,000
)
Retained earnings, end 2013 82,000
Adjusted NI, 2014 268,000
Dividends declared and paid in 2014 (75,000
)
Retained earnings, end 2014 275,000 6. Ans.
CHAPTER 11-PROBLEM 4: SOLID COMPANY

1. Ans. P2,255,000.
Cash basis sales 1,980,000

Add: AR, ending balance 550,000
Sales returns, no refund 60,000
Total 2,670,000
Less: AR, beginning balances (415,000
)
Accrual basis gross sales 2,255,000
2. Ans. P2,260,000.
Cash basis sales 1,980,000

Add: AR, ending balance 550,000
Sales returns, no refund 60,000
Write-off of AR 25,000
Total 2,695,000
Less: AR, beginning balances (415,000
)
Recovery of previous write-off (20,000
)
CHAPTER 11-PROBLEM 5: DEISEL CORP.

1. Ans. P2,800,000.
Cash basis purchases 2,500,000
Add: AP, ending balance 800,000
Purchase discounts 45,000
Purchase returns, no refund 55,000
Total 3,400,000
Less: AP, beginning balance (600,000
)
Accrual basis gross purchases 2,800,000
2. Ans. P2,600,000.
Gross purchases 2,800,000

Less: Purchase discount (45,000
)
Purchase returns (80,000
)
Net purchases 2,675,000
Add: Inventory, beginning 250,000
Less: Inventory, end (325,000
)

CHAPTER 11-PROBLEM 6: BECKER COMPANY

Ans. P215,000
Cash basis royalty income 200,000
Add: Royalty receivables, ending 85,000
Unearned royalties, beginning 60,000
Total 345,000
Less: Royalty receivables, beginning (90,000
)
Unearned royalties, ending (40,000
)
Accrual basis royalty income 215,000
CHAPTER 11-PROBLEM 7: XYZ COMPANY

Ans. P305,000
Cash basis royalty expense 300,000
Add: Royalty payables, ending 75,000
Prepaid royalties, beginning 55,000
Total 430,000
Less: Royalty payables, beginning (80,000
)
Prepaid royalties, ending (45,000
)
Accrual basis royalty income 305,000
CHAPTER 11-PROBLEM 8: BACOLOD CORP.
1. P10,550,000.
Total collections from charge customers 2,550,000 Allowance for BD, beg 125,000 *Note that
Add: AR, ending balance 1,200,000 Add: Bad debt expense 100,000 since there
AR written-off 75,000 Recovery of write-off 25,000 are no sales
Total 3,825,000 Total 250,000 discounts or
Less: AR, beginning balance (750,000) Less: AR write-off (SQZ) (75,000 sales returns
) and
Accrual basis gross sales 3,050,000 Allowance for BD, end 175,000
Add: gross cash sales 7,500,000
Total gross sales/Net sales 10,550,000
allowances, gross sales is also net sales.
2. Ans. P5,670,000.
Cash purchases 5,100,000
Credit purchases 1,200,000
Total gross purchases 6,300,000
Less: Purchase discounts (210,000
)
Purchase returns (120,000
)
Net purchases 5,970,000
Add: Inventory, beginning 1,500,000
COGAS 7,470,000
Less: Inventory, ending (1,800,000
)
Cost of Sales 5,670,000
3. Ans. P345,600.
CV, 1/1/14: (P3M*90%*80%*80%) 1,728,000

Multiply by: Ddbal rate 20%
4. Ans. P2,304,400.
Net Sales 10,550,000

Cost of sales (5,670,000
)
Interest income (a) 90,000
Total income 4,970,000
Operating expenses (b) (2,220,000
)
Depreciation expense (345,600
)
Bad debt expense (100,000
)
(a) Interest collected 120,000

Less: Accrued interest income, Beg (30,000) Interest
income, accrual basis 90,000

(b) Operating expenses, cash basis 2,250,000 Add:

Accrued expense, ending 60,000
Less: Prepaid expense, ending (90,000)
Operating expense, accrual basis 2,220,000
CHAPTER 11-PROBLEM 9: CUTTING EDGE.

Cash collections from customer on account 6,000,000
Add: AR, increase 1,480,000 Sales discount
80,000
Sales returns, without refund 120,000
AR written-off 240,000
Less: NR-trade, decrease (800,000)
Gross Sales on Account1. Ans.
Gross cash sales 1,200,000
7,048,000
Gross Sales2. Ans.
Less: Sales discounts (80,000
8,248,000
)
Sales returns (Total) (320,000
)
Net Sales3. Ans.
Cash paid to suppliers on account 4,800,000
Add: Notes payable-trade increase 7,848,000800,000
Purchase discount 140,000
Purchase returns, without refund 200,000
Less: Accounts payable, decrease (600,000
)
Gross Purchases on Account 5,340,000 4. Ans.
Gross cash purchases 1,000,00
0
Gross Purchases 6,340,000 5. Ans.
Less; Purchase discount (140,000
)
Purchase returns (total) (320,000
)
Net Purchases 5,880,000 6. Ans.
CHAPTER 11-PROBLEM 10: GLASS CO.

1. Ans. P251,636.
Cost of sales (P340,000 total sales * 60%) P204,000
Add: Merchandise Inventory, November 15 93,920
Purchases P297,920
Less: Accounts payable – trade, November 15 46,284
Payments for purchases P251,636
2. Ans. P254,620
Sales P340,000
Less: Accounts receivable – trade, November 15 85,380
Collections from sales P254,620
3. Ans. P121,612.
Total P31,468
CASH ACCOUNTABILITY:
Less: Outstanding checks 29,616 1,852
RECEIPTS P121,612
Issuance of ordinary shares (P300,000 + P20,000) P320,000
Mortgage payable 80,000
Note payable – bank 32,000
Collections from sale (from number 2) 254,620
Total 686,620
DISBURSEMENTS
Real property P200,000
Furniture and Fixtures (P29,000 – P6,000) 23,000
Expenses 60,756
Purchases (from number 1) 251,636
Total P535,392
CASH BALANCE P151,228

CASH AS ACCOUNTED:
Bank balance, November 15 P26,328
Add: Undeposited collections 5,140

CASH SHORTAGE as of November 15, 2014
CHAPTER 11-PROBLEM 11: EDU COMPANY

1. Ans. P11,430,000.
Total deposits per bank statement 12,600,000
Cash receipts from share issuance (1,800,000
)
Proceeds of bank loan, directly credited to account (1,800,000
)
Deposits from cash collections from customers 9,000,000
Collections from customers which were used to
pay directly disbursements
Utilities 360,000
Salaries 360,000
Supplies 720,000
Dividends 540,000 1,980,000
Undeposited collections on hand 450,000
Total collections from customers 11,430,000
2. Ans. P14,535,000.
Cash collections from customers 11,430,000

Add: AR, ending 3,240,000
Less: Advances from customers, ending (135,000
)
3. Ans. P9,738,000.
Total deposits per bank statement 12,600,000
Cash in bank, end per bank statement (900,000
)
Total disbursements per bank statement 11,700,000
Add: Outstanding checks 180,000
Less: Payments of bank loan and interest (540,000
)
Payments of installment due on equipment (1,602,000
)
Total cash payments made to suppliers
4. Ans. P10,998,999. 9,738,000

Cash payments to suppliers 9,738,00
0
Add: Accounts payable, ending 1,260,00
0
Accrual basis gross purchases 10,998,000
5. Ans. P8,280,000
Gross purchases/Net purchases 10,998,000

Inventory, end (2,718,000
)
6. Ans. P3,070,000.
Gross sales/Net sales 14,535,000
Cost of sales (8,280,000

)
Operating expenses
Utilities (P360,000+40,000) 400,000
Salaries (P360,000+25,000) 385,000
Supplies (P720,000-150,000) 570,000
Depreciation - Bldg (P16.2M/15yrs) 1,080,000
Depreciation - Eqpt (P1.44M/5yrs) 288,000
Interest expense - loan (P90,000+30,000) 120,000
Interst expense, instal. (P1.602M-P1.44M) 162,000 (3,185,000

)
Net Income 3,070,000

CHAPTER 11-EXERCISE 1: BEE CO.
1. Ans. C.
Depreciation per books: P250,000/8yrs (a) 31,250
Additional depreciation on capitalizable

major repairs (220,000/11yrs) (b) 20,000

Depreciation expense per audit P51,250
(a) The expired life of the asset as of 1/1/12 (3 years ago from 12/31/14) was 5 years, thus on 12/31/14
the expired life is (5+3), 8 years. Depreciation per books is computed as: Accum Depr/Expired Life (b) The major repairs cost
should have been capitalized on 1/1/12 and depreciated over the remaining useful life of the related asset. Total life of asset
is 16 years computed as (Total Cost/Annual Depreciation per books), P500,000/31,250 = 16 years.
Remaining useful life as of 1/1/12 is 16 years – 5 years = 11 years.
NI 2012 NI 2013 NI 2014 RE, beg 2014 WC, 2014
Unadjusted balances P100,000 P145,000 P185,000

a. Unearned rent income, under 2014 (6,500) (6,500)
b. Salaries payable, under 2011 2,500 -
Salaries payable, under 2012 (5,500) 5,500 -
Salaries payable, under 2013 (7,500) 7,500 (7,500)
Salaries payable, under 2014 (4,700) (4,700)
c. Unused supplies, under 2011 (3,500)
Unused supplies, under 2012 6,500 (6,500)
Unused supplies, under 2013 3,700 (3,700) 3,700
Unused supplies, under 2014 7,100 7,100
d. Repairs expense, over 2012 220,000 220,000
Depreciation expense, under 2012-2014 (20,000) (20,000) (20,000) (40,000) Adjusted
balances P300,000 P120,200 P164,700 P176,200 (P4,100)
2. Ans D. 3. Ans B.
4. Ans D. 5. Ans A. 6. Ans B.
CHAPTER 11-EXERCISE 2: LOG CORP.
2013 2014
Unadjusted pretax income P4,545,000 P3,483,000
a. 2013 sales overstatement (1,719,000) 1,719,000
b. 2013 inventory understatement 388,800 (388,800)
2014 inventory overstatement (255,000)
c. Understatement in interest expense due to amortization of bond discount: (a)
2013: 10,640,250*7% = 744,818
Less: 11,250,000*6% = 675,000 (69,818)
2014: 10,710,068*7% = 749,705
Less: 11,250,000*6% = 675,000 (74,705)
d. Ordinary repairs (382,500) (423,000)
Overstatement in depreciation:
Amount capitalized in 2013: 382,500*20% 76,500
Balance of amt. cap. in 2013: 306,000*20% 61,200
Amount capitalized in 2015: 423,000*20% 84,600
ADJUSTED PRETAX INCOME P2,838,98 P4,206,29
2 1. Ans. C. 5 2. Ans. A.
(a) The loan was originated on 1/1/12 at P10,575,000 (11,250,000-675,000). Discount amo. by 12/31/12
therefore shall be:
Correct interest (10,575,000*7%) 740,250
Less: Nominal interest (11,250,000*6%) 675,000
2012 Amortization: 65,250
Carrying value of Bonds, 12/31/12 (10,575,000+65,250), P10,640,250
CHAPTER 11-EXERCISE 3: LOT INC.

1. Ans. B.
Accumulated depreciation per books (Machine XYZ): 400,000*3/10 120,000
Less: Accumulated depreciation per audit : 450,000*3/10 (135,000)
Adjustment related to the under depn for 3 years (2011 to 2014) 15,000 credit
Add: Debit to accum depn attributed to old equipment traded in (2011) 150,000 debit
NET ADJUSTMENT TO ACCUM DEPN ACCOUNT 135,000 debit
Depreciation expense for the period: Cost 450,000
Accum depn, adjusted 135,000
Carrying value 315,000
Divide by: Revised remaining useful life 5 years
DEPRECIATION FOR THE YEAR (Mach XYZ) 63,000
2. Ans. A.
Carrying value, 1/1/2014: 393,750*10/12 328,125

Multiply by: 150% declining balance rate: (1/6)*150% 25%
DEPRECIATION EXPENSE (Mach UVW) 82,031
3. Ans. D.
Carrying value, 1/1/2014: 4,500,000*17/20 3,825,000

Less: Salvage value 50,000
Multiply by: SYD rate 12/78
DEPRECIATION EXPENSE 580,769

Carrying value, 1/1/2014 3,825,000

Depreciation for 2014 580,769
BUILDING CARRYING VALUE 12/2014 3,244,231
CHAPTER 11-EXERCISE 4: INSULAR CORP.

Retained earningNet income
(2014)
a. IGNORED (COUNTERBALANCED)
b. AR/Sales, under 2013 (over in 2014) 120,000 (120,000)
c. Insurance expense, under 2013 & 2014 (57,600) (86,400)
d. Accrued interest expense, under 2013 7,200 (7,200)
e. Depreciation, under 2013 & 2014 (117,600) (117,600)
Net adjustments (48,000) (331,200)
Unadjusted Net Income 1,750,000
Adjusted 2014 net income 1,418,800
1. Ans. D. 2. Ans.
D.
CHAPTER 11-EXERCISE 5: KUTING CORP.
2013 2014 2014 2014
WORKING RETAINED
(NET INCOME) (NET INCOME)
CAPITAL EARNINGS
Omitted prepayments, 2013 256,000 (256,000)
Omitted prepayments, 2014 205,200 205,200 205,200
Salaries and wages, 2013 (582,400) 582,400
Salaries and wages, 2014 (520,000) (520,000) (520,000)
Accrued interest income, 2013 172,800 (172,800)
Accrued interest income, 2014 142,000 142,000 142,000
Advances from customers, 2013 (313,600) 313,600
Advances from customers, 2014 (374,000) (374,000) (374,00)
Capital expenditure, 2013 376,000 376,000
Depn on cap. ex. in 2013 (18,800) (37,600) (56,400)
Capital expenditure, 2014 348,000 348,000
Depn on cap ex in. 2014 (17,400) (17,400)
Total under (overstatement) (110,000 (546,800
) 1. Ans C.) 2. Ans D. 3. Ans A.
213,400 103,400
CHAPTER 11-EXERCISE 6: GHI INC.

2013 NI 2014 NI 2015 RE, Beg
Unadjusted balances 1,750,000 2,000,000
a. Salaries payable, under 2013 (100,000) 100,000
Salaires payable, under 2014 (140,000) (140,000)
b. Inventory, over 2013 (190,000) 190,000
c. Prepaid insurance, under 2014 120,000 120,000
d. Interest receivable, under 2014 20,000 20,000
e. Overstatement in gain on eqpt sale, 2014 (160,000) (160,000)
f. Overstatement in expense in 2013 100,000 100,000
Depr, under 2013 (1.3M/10yrs) (130,000) (130,000)
Depr, under 2014 (1.3M/10yrs) (130,000) (130,000)
Inc. from grant, under 2013 (1.2M/10) 120,000 120,000
Inc. from grant, under 2013 (1.2M/10) 120,000 120,000
Adjusted balances 1,550,000 2,120,000

1. Ans. A. 2. Ans. A. 3. Ans.
(80,000)
A.
4. Ans. D.
Correct cost of Building (P1.2M+100K+200K) 1,500,000
Accum depr: (P1.5M*2/10) (300,000)
Correct carrying value of Building 12/31/14 1,200,000
CHAPTER 11-EXERCISE 7: BABY INC.
2012 2013 2014 2014 2014 2014
Net Income Net Income Net Income RE, Beg RE, End WC
Balance 600,000 750,000 300,000 2,000,000
a. 2012 Accured expense understated (90,000) 90,000

2013 Accrued expense understated (110,000) 110,000 (110,000)
2014 Accrued expense understated (98,000) (98,000) (98,000

)
2012 Accrued rental income understated 40,000 (40,000)
2013 Accrued rental income understated 45,000 (45,000) 45,000
2014 Accrued rental income understated 50,000 50,000 50,000
2012 Prepaid expense understated 20,000 (20,000)
2013 Prepaid expense understated 30,000 (30,000) 30,000
2014 Prepaid expense understated 35,000 35,000 35,000
b. 2012 Equipment charged to expense 400,000 400,000 400,000
2012/2013/2014 Depreciation understat (80,000) (80,000) (80,000) (160,000) (240,000)
2014 Equipment charged to expense 550,000 550,000
2014 Depreciation understated (110,000) (110,000)
c. Cash dividends charged to other expense 100,000 150,000 200,000
*Land accepted as a donation from a stockholder (APIC) (400,000) (400,000)
* Loss on inventory due to flood (50,000)
990,000 815,000 832,000 (195,000) 2,187,000 (13,000)
1. Ans. C. 2. Ans. B. 3. Ans. D. 4. Ans. A. 5. Ans. A.

CHAPTER 11-EXERCISE 8: ROXAS INC.
1. Ans. C.
Depreciable cost, Old bulding P3,000,000
Divide by: Total Useful Life 20 * P150,000
Depreciation Expense, Old building P750,000
Depreciable cost, Extension (Addition) 15 50,000
Divide by: Remaining life (20 – 5) Total P200,000
P1,125,000
Accumulated Depreciation, 12/31/200 7.5
Divide by, Expired life as of 12/31/2010 P150,000
(5 +2.5) Annual Depreciation
P3,000,000
Depreciable cost, Building 150,000
Divide by: Annual Depreciation 20 years *
Total useful life
2012 2013 2014

Unadjusted net income P1,500,000 1,750,000 2,000,000 a. Salary Accruals: 2011
95,000 Salary accruals, 2012 (110,000) 110,000
Salary accruals, 2013 (100,000) 100,000
Salary accruals, 2014 (140,000)
b. Inventory, 12/13 overstatement (190,000) 190,000
c. Inventory, 12/14 understatement (150,000) Purchases, 12/14 understatement 150,000
d. Prepaid insurance: 2011 (75,000) Prepaid insurance, 2012 100,000
(100,000)
Prepaid insurance, 2013 115,000 (115,000)
Prepaid insurance, 2014 120,000
e. Interest receivable: 2012 20,000 (20,000)
Interest receivable, 2013 25,000 (25,000)
Interest receivable, 2014 30,000
f. Gain on sale of equipment in 2014, overstatement (160,000)
g. Capitalizable cost in 2012 750,000
Understatement in depreciation 2012-2014 (25,000) (50,000) (50,000) Adjusted Net
Income P2,255,000 P1,540,000 P1,950,000
2. Ans. C. 3. Ans. A. 4. Ans. D.
CHAPTER 11-EXERCISE 9: GKNB CORP

2012 NET 2013 NET 2014 NET
INCOME INCOME INCOME
Unadjusted balances 381,000 450,000 385,500
a. Understatement of ending inventory, 12/31/2013 42,000 -42,000
Overstatement of ending inventory, 12/31/2014 b. -69,000
Overstatement in 2014 purchases 45,000
12,000 -12,000
15,000 -15,000
10,500
-30,000 30,000
-42,000 42,000
CHAPTER 11: ERROR CORRECTION; CASH/ACCRUAL
30,000 AND SINGLE ENTRY
15,000
-6,000
37,800
P363,000 528,000 388,800
c. Understatement of sales, 2012 Understatement of sales, 2013 Understatement of sales, 2014

d. Understatement of salaries expense, 2012 Understatement of salaries expense, 2013 e. 2013
stock dividend charge to expense
f. Overstatement in rent expense, 2013 Understatement in rent expense, 2014
g. Understatement in gain on retirement of bonds (a)
Adjusted balances
1. Ans. B. 2. Ans. C. 3. Ans. B.
(a) Gain on the retirement of bonds should be an outright income or loss. Total gain on retirement is (P360,000-
P318,000), P42,000. The client recognized only 1/10 of the amount as an amortization over 10 years deducted from
interest. Thus effectively, only 9/10 of the amount needs to be added to current net income.
4. Ans. A.
Net income, 2012 per books 381,000
Net income, 2013 per books 450,000
Total accumulated profits, 1/1/2014, per books 831,000

Net income, 2012 per audit 363,000
Net income, 2013 per audit 528,000
Total accumulated profits, 1/1/2014 per audit 891,000
Understatement of accumulated profits, 1/1/2014 60,000

Correct appropriation of accum profits for share div in item e (39,000) Net adjustment
(increase/credit) 21,000
5. Ans. C.
Entry made for item e:
Other expense 30,000 Ordinary shares 30,000
Correct entry:
Ordinary shares 30,000
Share premium 9,000
Adjusting entry:
Share premium 9,000
CHAPTER 11-EXERCISE 10: WWEE COMPANY

2014 net RE,beg 2014 RE, end 2014
2013 net income income
Unadjusted bal. 300,000 1,700,000 1,150,000 2,350,000
a. Policy change: Inventory 2013 100,000 -100,000 100,000
Inventory 2014 90,000 90,000
b. Overstatement in depn in 2014 (a) 10,000 10,000
c. Error correction – Borrowing Cost 25,000 75,000 25,000 100,000

Adjusted balances P425,000 P1,775,000 P1,275,00 P2,550,00
1. Ans. A. 0 0 2. Ans. C. 3. Ans.
D. 4 . Ans. C.
(a)Depreciation per books (2014), Double Decl. P350,000

Depreciation per audit, Straight line
CV, 1/1/14: (P350,000/20%) P1,750,000
Less: Salvage (50,000)
Depreciable cost P1,700,000
Divide By: remaining life 5 yrs 340,000

Overstatement in P10,000
Depreciation
5. Ans. C.

KRIS COMPANY
1. Ans. A.
Sales, accrual basis
Add: Decrease in accounts
receivable 10,350,000 540,000
Cash received from customers 10,890,000

2. Ans. C.

Less: Decrease in inventory 450,000
Purchases, accrual basis 6,600,00

Add: Decrease in accounts payable 412,500
Cash paid to suppliers 7,012,500
3. Ans. D.
Total operating expense, accrual basis 1,725,000

Add: Increase in prepaid expense 255,000
Decrease in accrued expense 150,000
Total 2,130,000
Less: Depreciation expense (non-cash expense) 90,000
Cash payments for operating expenses 2,040,000
4. Ans. B.
Cash received from customers 10,890,000 Cash paid to
suppliers (7,012,500)
Cash paid for operating expenses (2,040,000)
Cash provided by Operating activities 1,837,500
CHAPTER 11-EXERCISE 12: PROTER COMPANY
1. Ans. B.
Excess of cash receipts over cash disbursements 136,500
Adjustments: a) Depreciation -31,500 b) Prepaid
insurance (5,400*2/3) 3,600
c) Unearned rent income -21,000
d) Salaries payable -8,400
e) Interest receivable 9,510
f) Accrued accounting fees -1,500 ACCRUAL NET INCOME
87,210,
2. Ans. D.
c) Unearned rent income 21,000
d) Salaries payable 8,400
f) Accrued accounting fees 1,500
TOTAL LIABILITIES 30,900
CHAPTER 11-EXERCISE 13: UKG INC.

1. Ans. A. COST OF SALES
Beginning invty 186,000
Purchases (sqz) 348,000 174,000 Ending invty

Cost of sales 360,000
ACCOUNTS PAYABLE
116,000 AP, beginning
Payments 344,000 348,000 Purchases
120,000 AP, ending
2
. Ans. C. ACCOUNTS RECEIVABLE
AR, beginning 96,000
Sales on account 600,000 586,000 Collections
AR, ending balance 110,000
3.
Ans. A.
Present value of principal (200,000*0.456387) P91,277
Present value of interest, semiannual (10,000*13.59032) 135,903 P227,180
Amortization, June 30, 2014 (227,180*4%) – 10,000 (913)

Amortization, December 31, 2014 (226,267*4%) – 10,000 (949) Carrying value,
December 31, 2014 P225,318
4. Ans. D.

Effective interest as of 6/30/14

9,087
(227,180*4%)
Effective interest 12/31/14 (226,267*4%) 9,051 Total interest
expense P18,138
5. Ans. B.
Unadjusted net income 25,000
Overstatement in other expenses ** 2,000
Overstatement in interest expense (20,000 – 18,138) 1,862
Correct net income P28,862
**Other Expenses
Accrual basis 164,00
0 Increase in
Increase in prepayments 4,000 2,000 accrued
Cash basis 166,00 utilities
0
CHAPTER 11-EXERCISE 14: WOWIE

1. Ans. C.
Cash collected from customers 10,000,000
Add: AR, ending 4,000,000
Deduct: AR, beginning 6,400,000
Sales Accrual basis 7,600,000
2. Ans. A.
Total payments to suppliers 13,618,000
Deduct: payments to suppliers for 2013 invoices 4,632,000
Balance: payments to suppliers for 2014 invoices 8,986,000

Add: Accounts payable, ending balance 2,621,000
Purchases, accrual basis 11,607,000
3. Ans. B.
Wages paid 3,050,000

Add: Wages payable, ending balance 125,000
Deduct: Wages payable, beginning bal. 85,000
Wages expense, accrual basis 3,090,000
4. Ans. B.
Advertising expenses paid 300,000

Add: Advertising supplies, beg bal. 35,000
Accrued advertising, ending bal. 40,000
Deduct: Advertising supplies, end. bal. 75,000
Accrued advertising, beg. Bal. 14,250
Advertising expense, accrual basis 285,750
5. Ans. B.
Insurance premium paid 125,000

Add: Prepaid insurance, beg bal. 25,000
Less: Unexpired insurance, ending bal. 41,000
Insurance expense, accrual basis 109,000
CHAPTER 11-EXERCISE 15: JOURNEY CORPORATION

1. Ans. A.
Cash sales 3,000,000
Collections from accounts receivable 30,000,000
Collections from trade notes receivable 2,400,000 35,400,000
Add: Sales returns and allowances (no refund) 800,000
Increase in Accounts receivable 1,400,000
Total 37,600,000
Less: Decrease in Notes receivable (600,000)
Gross Sales P37,000,000
Less: Sales returns (total) (1,200,000)
Net sales, per audit 35,800,000
2. Ans. C.; 3. Ans. B.

Payments of accounts payable 16,500,000 17,500,000
Add: Purchase returns and allowances (no refund) 300,000
Increase in Accounts payable 400,000
Gross Purchases 18,200,000

Less: Purchase returns and allowances (total) (800,000)

Net purchases, per audit 17,400,000
Add: Decrease in inventory 1,000,000
Cost of Sales, per audit 18,400,000

4. Ans. C.; 5. Ans. A.
Net sales, per audit P35,800,000
Less: Cost of Sales, per audit (18,400,000)
Gross Profit P17,400,000
Total P17,600,000
Less: Expense
Insurance (700,000-200,000) 500,000
Salaries(10,000,000-300,000) 9,700,000
Depreciation (100,000+800,000) 900,000
Other expenses 1,500,000 (12,600,000)

Net income P5,000,000
CHAPTER 11-EXERCISE 16: ALASKA INC.

1. Ans. D.
Sales, accrual basis 2014 4,849,200
Add: Accounts receivable, beg. 270,000
Less: Accounts receivable, end (297,000)
AR written-off during the year (43,200)
Cash collections from customers
4,779,000
2. Ans. B.
Cost of sales, accrual basis 2014 2,250,000
Add: Inventory, end 279,000
Less: Inventory, beg (423,000)
Purchases, accrual basis 2014 2,106,000 Add:
Accounts payable, beg. 139,500
Less: Accounts payable, end (225,000) Cash payments to
suppliers 2,020,500
3. Ans. A.
Interest expense, accrual basis 2014 38,700
Less: Amortization of bond discount (4,500) Cash
payments for ineterest 34,200
4. Ans. D.
Selling expense, accrual basis 2014 1,273,500
Less: 1/3 of depreciation expense
(13,500*1/3) (4,500) Bad debt
expense (45,000) Cash payments for selling
expense 1,224,000
CHAPTER 11-EXERCISE 17: ALAMAT COMPANY

1. Ans. B.
Cash sales 4,400,000
Add: Accounts receivable, end 100,000
Total 4,500,000
Less: Advances from customers, end (25,000)
Gross/Net Sales 4,475,000
2. Ans. B.; 3. Ans. B.

Add: Accounts payable, end 80,000
Total 4,280,000
Less: Purchase for president (adj to advances) (10,000)
Gross/Net Purchases 4,270,000
Less: Inventory, end (500,000) Cost of Sales, per audit
3,770,000
4. Ans. A.
Net sales, per audit 4,475,000
Less: Cost of Sales, per audit (3,770,000)

Gross Profit 705,000

Less: Expense 560,000
Add: Accrued expense, end 20,000
Deduct, supplies, end (5,000)
Prepaid insurance, end (15,000)
Equipment (100,000) (460,000) Depreciation
(100,000/10)*6/12 (5,000)
Interest expense (100,000*12%*4/12) (4,000) Net income
P236,000
CHAPTER 11-EXERCISE 18: TITANIUM COMPANY
Cash, Jan. 1 balance
Collections from customers:'
Sales on Account 17,628,510
Less: AR, April 16 (1,327,650)
Sales allowances (54,990)
Add: AR, Jan. 1 678,690 16,924,560 2. Ans. A.

Payments of merchandise to suppliers:
Merchandise purchases 10,845,780
Less: AP, April 16 (621,900)
Add: AP, Jan. 1 344,160
(10,568,040) 1. Ans. C.
Purchase of furniture (9,000)
Expenses paid (5,597,490)
Cash dividends paid (120,000)
Total disbursements (16,294,530) 3. Ans. C.

Total accountability 728,040 4. Ans. A.
Less: Cash in bank, net of outstanding check (296,490)
Cash shortage 431,550
Less: Chargeable against the bank (for encashing the obvious (300,000)
Cash shortage chargeable against the cashier 131,550 5. Ans. B.

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PROBLEM 2: UNDERSTANDING THE BUSINESS AND THE INDUSTRY

CHAPTER 1: THE AUDIT PROCESS

AUDITING (2016 EDITION) SOLUTIONS GUIDE

PROBLEM 5: SUBSTANTIVE TESTING

PROBLEM 6: AUDIT REPORTING

CHAPTER 1: THE AUDIT PROCESS

CHAPTER 2: AUDIT OF CASH

AP02-PROBLEM 2: MAPERA CORPORATION

Adjusted current account at Metrobank 3,445,000

CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS

Travel fund 50,00

11. Ans. P495,000

CHAPTER 2-PROBLEM 3: MANNY CO.

Petty cash fund shortage 10,800 2. Ans.

Cash items as of December 31, 2014

2 Receivable from employee 1,000

CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS

To record NSF accomodated check. 10,800

3 Receivable from employee 10,800

Petty cash fund, imprest balance 40,000

Total collections, 10/1-10/11 (per OR) 28,840

Total bank credits, 10/1-10/11 (per bank statement) 16,550

September deposit in transit (4,500)

September bank charge error (corrected in October) (1,400) 10,650

Valid supporting items:

Unused postage (adjusted to supplies) 110

Vouchers paid out of receipt (adjusted to expense) 1,500 19,820

CHAPTER 2-PROBLEM 5: BETTY CO.

(b) Receivable from employee 700

(c) Receivable from employee 2,608

Imprest balance 10,000

CHAPTER 2-PROBLEM 6: DATUNG MANUFACTURING CO.

CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS

Oustanding checks (50,550) (2,300) Unrecorded Bank Debits: NSF Check

CHAPTER 2-PROBLEM 7: JADE CORPORATION Unadjusted balances, per book

June 30: Receipt Disbursement July 31:

675,000 1,745,000 1,615,000 805,000

Proof of Cash, 4/30/2014

March 31, Receipt Disbursement April 30,

Undeposited receipts, April 10,120 10,120

Outstanding checks, March (2,675) (2,675)

Outstanding checks, April (excluding certified check) 1,430 (1,430

Adjusted balances 27,945 221,510 216,775 32,680

Unadjusted balances per book 16,545 222,190 216,055 22,680

Unrecorded bank credit: March 12,150 (12,150)

Unrecorded bank credit: April 11,640 11,640

NSF check, returned in April not yet recorded 860 (860

Unrecorded bank debits: BSC, April 420 (420

CHAPTER 2-PROBLEM 10: MANGO COMPANY 105,600

Unadjusted cash balance

30,000 *other receivables

CHAPTER 2-EXERCISE 3: UHAWSAIYO COMPANY

Valid supporting items: Bills and coins

Cash on hand as of January 5, 2015

Return of expense advance (260)

Excess collection from Christmas Party (9,500-6,290) (3,210)

Cash on hand as of January 5, belonging to the Petty Cash 12

Vouchers paid after December 31: 1/2/15, PNR 35

Petty cash fund as of December 31, 2015 47 3. Ans.

(b) Receivable from employee 14,503

CHAPTER 2-EXERCISE 4: SILVER COMPANY

CHAPTER 2: AUDIT OF CASH AND CASH EQUIVALENTS