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APPLIED APPLIED AUDITING AUDITING With C PDF
APPLIED APPLIED AUDITING AUDITING With C PDF
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
TEACHERS MANUAL
2017
Edition
By
Sincerely,
Suggested answer: A
Suggested answer: C
Suggested answer: A
4
Chapter 5: Cash to Accrual
Merchandise Inventory
Beginning balance 400,000 210,000 Ending balance
Net purchases 860,000 1,050,000 Cost of sales
Total 1,260,000 1,260,000
Suggested answer: B
Suggested answer: B
5
Chapter 5: Cash to Accrual
Suggested answer: C
Question No. 1
Carrying amount of equipment sold 25,000
Add: Accumulated depreciation 15,000
Cost 40,000
Question No. 2
Equipment
Beg. Balance 100,000 120,000 Balance end
Cost of PPE acquired 60,000 40,000 Cost of PPE disposed
(squeeze)
Total 160,000 160,000
Accumulated depreciation
Balancee nd 18,000 15,000 Beg. Balance
Accumulated depreciation 18,000 Depreciation expense
ofP PE disposed 15,000
Total 33,000 33,000
SUMMARY OF ANSWERS:
1. D 2. A
PROBLEM 5-8
Question No. 1
Prepaid Insurance
Beg.Balance 7,500 6,000 Balancee nd
Payments 41,500 43,000 Expenses (squeeze)
Total 49,000 49,000
Question No. 2
Interest Receivable
Beg.Balance 14,500 3,700 Balancee nd
Income (squeeze) 112, 700 123,500 Collections
Total 127,200 127,200
6
Chapter 5: Cash to Accrual
Question No. 3
Salaries payable
Balancee nd 61,500 53,000 Beg. Balance
Payments 481,000 489,500 Expenses
Total 542,500 542,500
Question No. 4
Accounts receivable trade
Beg. Balance 415,000 550,000 Balance end
Sales 1,980,000 1,845,000 Collections (squeeze)
Total 2,395,000 2,395,000
Question No. 5
Accounts receivable trade
Beg. Balance 415,000 550,000 Balance end
Sales 1,980,000 1,820,000 Collections (squeeze)
25,000 Write-off
Total 2,395,000 2,395,000
Question No. 6
Accounts receivable trade
Beg. Balance 415,000 550,000 Balance end
Sales 1,980,000 1,840,000 Collections (squeeze)
Recoveries 20,000 25,000 Write-off
Total 2,415,000 2,415,000
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. A 5. A 6. B
PROBLEM 5-9
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R 100,000 100,000 I ncrease in N/R
Sales on account 4,260,000 10,000 Write-off
(squeeze) 4,200,000 Collections
7
Chapter 5: Cash to Accrual
Question No. 2
Accounts payable
Cash paid to creditors 2,800,000 200,000 Decrease in Accounts
payable
Purchase discounts 40,000 2,650,000Gross purchases
(squeeze)
Purchase returns 10,000
Total 2,850,000 2,850,000
Question No. 4
Rental receivable/Unearned Rent Income
Rental revenue 454,000 14,000 I ncrease in Rental
(squeeze) receivable
40,000 Decrease in Unearned
rental
400,000 Collections from tenants
Question No 5
Prepaid interest/Interest Payable
Decrease in Prepaid 5,500 114,000Interest expense
interest (squeeze)
Increase in Interest 8,500
payable
Interestpaid 100,000
Total 114,000 114,000
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. D
8
Chapter 5: Cash to Accrual
PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R 200,000 250,000 Bal. end – A/R
Beg. Balance – N/R 300,000 100,000 Bal. end – N/R
Sales on account 1,000,000 20,000 Sales ret. and allow.
(squeeze) 10,000 Sales discount
1,120,000 Collections
Total 1,500,000 1,500,000
Question No. 2
Accounts payable/Notes payable
Balance end – A/P 25,000 50,000 Beg. Balance – A/P
Balance end – N/P 75,000 100,000 Beg. Balance – N/P
Purchase returns and 40,000 650,000 Gross purchases
allow (squeeze)
Purchase discount 10,000
Payments 650,000
Total 800,000 800,000
Question No. 3
Sales 1,000,000
Less:Salesret and allow 20,000
Salesdiscounts 10,000 30,000
Net
Sales 970,000
Less: Cost of Sales
Merchandiseinventorybeg. 200,000
Add: Net Purchases
Purchases 600,000
Add:Freight-in -
GrossPurchases 650,000
Less: Purch.R et and allow 40,000
Purchase discounts 10,000 6 00,000
Totalg oodsavailablefors ale 800,000
Less: Merchandisei nventory,e nd 100,000 700,000
Gross Income / Gross Profit 270,000
9
Chapter 5: Cash to Accrual
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid 100,000 125,000 Balance end - Pr epaid
Salaries Salaries
Balance end - Accrued 50,000 75,000 Beg. Balance - Accrued
Salaries Salaries
Payments 350,000 300,000Salaries expense
(squeeze)
Total 500,000 500,000
Question No. 5
Accrued rent/Unearned rent
Beg. Balance - Accrued 70,000 40,000
Balance end - Accrued
rent rent
Balance end - Unearned 40,000 80,000 Beg. Balance - Unearned
rent rent
Rent income (squeeze) 490,000 300,000 Collection of rent
Total 600,000 600,000
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. B 5. B
PROBLEM 5-11
Question No. 1
Accounts receivable trade
Beg. Balance 200,000 300,000 Balance end
Recoveries 8,000 20,000 Sales discounts
Sales (squeeze) 1,570,000 1,408,000 Collections including
recoveries (1,498,000-
80,000+20,00-30,000)
50,000 Accounts written-off
Total 1,778,000 1,778,000
Sales 1,570,000
Less: Sales discount 20,000
Net Sales 1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,000- 150,000 Beg. Balance
20,000+30,000) 1,210,000 1 ,170,000 Purchases (squeeze)
Purchase ret. and allow. 10,000
Balance end 100,000
10
Chapter 5: Cash to Accrual
Purchases 1,170,000
Less: Purchases discount 10,000
Net Purchases 1,160,000
Question No. 3
Merchandise inventory
Beg. Balance 380,000 330,000 Balancee nd
Question No. 4
Rent Receivable
Beg. Balance 70,000 80,000 Balancee nd
Rent income (squeeze) 130, 000 120,000 Collections
Total 200,000 200,000
Question No. 5
Allowance for Doubtful accounts
Accounts written off 50,000 20,000 Beg. Balance
Balancee nd 30,000 52,000Doubtful account
expense (squeeze)
8,000 Recoveries
Total 80,000 80,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. A
11
Chapter 5: Cash to Accrual
Question No. 2
ProfessionalFees(SeeN o.1) 5,250,000
Less: Rent expense (1.2M +100,000) 1,300,000
Supplies expense
(800,000+300,000-250,000) 850,000
Othero peratingexpense 750,000
Interest expense (1M x 12% x 9/12) 90,000
Depreciation expense (2,500,000/10) 250,000 3,240,000
Net income 2,010,000
Question No. 3
Cash 1,500,000
AccountsReceivable 750,000
Supplies 250,000
Total Current Assets 2,500,000
Question No. 4
Furniture and fixtures 2,500,000
Less: Accumulated Depreciation
(125,000+ 250,000) 375,000
Total Noncurrent Assets 2,125,000
Question No. 5
Total current assets (See No. 3) 2,500,000
Total noncurrent assets (See No. 4) 2,125,000
Total Assets 4,625,000
Question No. 6
NotesPayable 1,000,000
Accruedrent 100,000
Accrued interest on notes payable
(1,000,000 x1 2% x9/12) 90,000
Total Current Liabilities 1,190,000
Question No. 7
Total assets (See No.5 ) 4,625,000
Less: Total liabilities (See No. 6) – all are
current 1,190,000
Total Owner’s Equity 3,435,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. A 5. A 6. C 7. B
12
Chapter 5: Cash to Accrual
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance 124,000 146,000 Balancee nd
Salesonaccount 13,000 Salesdiscount
(squeeze) 1,535,000 1,500,000 Collections
Total 1,659,000 1,659,000
Salesonaccount 1,535,000
Add:
TotalCashsales
sales 160,000
1,695,000
Question No. 2
Grosss ales(seeNo.1) 1,695,000
Less:Sales discount 13,000
Net sales 1,682,000
Question No. 3
Accounts Payable
Payments 1,206,000 382,000 Beg. Balance
Balancee nd 410,000 1,234,000 Purchases (squeeze)
Total 1,616,000 1,616,000
Question No. 4
Merchandise Inventory
Beg. Balance 186,000 190,000 Balance end
Net purchases 1,354,000 1,350,000 Cost of sales (squeeze)
Total 1,540,000 1,540,000
Question No. 5
Prepaid G&A/Accrued G&A
Beg. Balance - Prepaid 9,600 8,400Balance end - Prepaid
Interest Interest
Balance end – Accrued 9,000 7,000 Beg. Balance – Accrued
Interest Interest
Payments 204,000 207,200 Expenses
Total 222,600 222,600
13
Chapter 5: Cash to Accrual
Question No. 6
General and administrative expense (see No. 5) 207,200
Depreciationexpense 84,000
Warrantyexpense 6,400
Total operating expense 297,600
Question No. 7
Sellingprice of land 20,000
Less:Bookvalue of land 16,000
Gain on sale of land 4,000
Question No. 8
SellingPrice 12,000
Less Book value
Cost 25,000
Less: Accumulated depreciation 16,000 9,000
Gain on sale of warehouse equipment 3,000
Question No. 9
SellingPrice 42,000
Less: Book value
Cost 48,000
Less: Accumulated depreciation 20,000 28,000
Gain on sale of boiler 14,000
Question No. 10
NetSales 1,682,000
Less:Cost ofSales 1,350,000
Gross Profit 332,000
Less:Operatingexpenses 297,600
Gain on sale (14,000+3,000+4,000) 21,000
Net income 55,400
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
6. A 7. A 8. C 9. B 10. A
14
Chapter 5: Cash to Accrual
Question No. 2
Salesonaccount 800,000
Add:Cash sales 100,000
Total
sales 900,000
Less: Salesr eturns anda llowances 10,000
Net
sales 890,000
Less:Costo fsales( squeeze) 390,000
Grossprofit(200,000/40%) 500,000
Merchandise inventory
Beg. Balance 190,000 220,000 Balancee nd
Net Purchase s (squeeze) 420,000 390,000 Cost of Sales
Total 610,000 610,000
Question No. 3
Accounts Payable trade
Payments (squeeze) 470, 000 230,000 Beg. Ba lance - Accounts
payable
Purchase returns and 8,000 428,000 Gross purchases
allowances (420,000+8,000)
Balance end – Accounts 180,000
payable
Total 658,000 658,000
Question No. 4
Total payment of Accounts payable and admin expenses 518,000
Less: Payment ofA ccounts payable 470,000
Payment of admin expe nses 48,000
Question No. 5
Paymentof adminexpenses 48,000
Divided by: Percentage of cash expenses to total admin
expense 80%
Totaladminexpenses 60,000
Add:Sellingexpenses 200,000
Total selling and administrative expense 260,000
Question No. 6
Totaladministrativeexpenses 60,000
Less: Payment of administrative expense 48,000
Non-cash administrative expenses 12,000
Less: Depreciation for building
(440,000 x60%x 5% x9/12) 9,000
15
Chapter 5: Cash to Accrual
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. C 6. A
PROBLEM 5-15
Question No. 1
Cash Receipts:
Fromcustomers 360,000
From issue of ordinary shares 100,000
Frombankloan 100,000 560,000
Cash disbursements:
Purchaseo fi nventory 300,000
Rent 15,000
Salaries 30,000
Utilities 5,000
Insurance 3,000
Purchase of equipment and furniture 40,000 393,000
Cash 167,000
Question No. 4
Accountspayable 20,000
Utilitiespayable 1,000
Loanspayable 100,000
Interest on loans payable (100,000 x 12% x 9/12) 9,000
Total current liabilities 130,000
16
Chapter 5: Cash to Accrual
Question No. 5
Ordinary shares 100,000
Retained earnings (net income) 176,000
Shareholders’ equity 176,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. D 5. A
PROBLEM 5-16
Question No. 1
Notesreceivable–December3 1 210,000
Accountsreceivable– December31 950,000
Collectiono fnotesandaccounts 2,950,000
Notereceivablediscounted 200,000
Total 4,310,000
Less: Notes receivable – January 1 200,000
Accounts receivable– January1 740,000 940,000
Sales on account 3,370,000
Question No. 2
Notespayable –December31 580,000
Less:Notepayable–bank 300,000
Notespayable –trade 280,000
Accountspayable–December31 750,000
Paymentofn otesanda ccounts 2,100,000
Total 3,130,000
Less: Notes payable – January 1 750,000
Accounts payable – January 1 600,000 1,350,000
Purchases on account 1,780,000
Question No. 3
Equipment –January1 1,000,000
Add:Acquisition 280,000
Total 1,280,000
Less:Equipment–December3 1 1,200,000
Depreciation 80,000
Question No. 4
Interest accrued on note issued to bank (300,000 x 12% x 10/12) 30,000
Interest expense 30,000
Question No. 5
Volks Company
Income Statement
Year ende d Decembe r 31, 2016
17
Chapter 5: Cash to Accrual
Sales 3,370,000
Cost of sales:
Inventory – January1 1,600,000
Purchases 1,780,000
Goods available for sale 3,380,000
Less: Inventory – December 31 1,500,000 1,880,000
Gross income 1,490,000
Expenses:
*Expenses 820,000
Depreciation
**Losso ns ale ofi nvestment 80,000
50,000
***Loss on note receivable discounted 10,000
Interestexpense 30,000 990,000
Net
income 500,000
*Expensespaid 790,000
Add:Prepaidexpenses–January1 120,000
Accruedexpenses–December31 50,000
Total 960,000
Less: Prepaid expenses – December 31 100,000
Accrued expenses – January 1 40,000 140,000
Expenses 820,000
**Salesprice 250,000
Less:Cost ofinvestmentsold 300,000
Loss on saleof investment ( 50,000)
OR
Retained earnings – December 31 600,000
Add:Dividends 400,000
Total 1,000,000
Less: Retained earnings – January1 500,000
Net income 500,000
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. D
18
Chapter 6: Correction of Errors
1 - - - - - -
2 - - - - - -
Adjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
Questions No. 7
Assuming errors were discover ed in 2016
ADJUSTING ENTRIES Debit Credit
1)
Miscellaneousi ncome 25,000
Rent income 25,000
2)
Notespayable 28,000
Accountspayable 28,000
1) ADJUSTING ENTRIES
Noentry Debit Credit
2) Noentry
2) Noentry
SUMMARY OF ANSWER S:
1. A 2. B 3. A 4. C 5. C 6. C
19
Chapter 6: Correction of Errors
Question No. 7
A. Errors were dis covered in 2016
ADJUSTING ENTRIES Debit Credit
1) Interestexpense 15,000
Interestpayable 15,000
2) Interestreceivable 20,000
Interestincome 20,000
3) Prepaidi nsurance 6,000
Insuranceexpense 6,000
4) Rentrevenue 7,500
Unearnedrentrevenue 7,500
Adjusted
balances 200,000 180,000 200,000 160,000 260,000 360,000
Question No. 7
A. Errors were dis covered in 2016
ADJUSTING ENTRIES Debit Credit
1) Purchases 60,000
Accountspayable 60,000
2) Accountsreceivable 80,000
Sales 80,000
3) Cost of sales 20,000
Inventory 20,000
SUMMARY OF ANSWER S:
1. C 2. B 3. C 4. B 5. C 6. B
21
Chapter 6: Correction of Errors
Adjusted
balances 325,000 170,000 325,000 119,000 254,000 444,000
Question No. 7
A. Errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) Insuranceexpense 30,000
Prepaidinsurance 30,000
2) Unearned rent income 20,000
Rent income 20,000
3) Accumulated depreciation 12,000
Depreciationexpense 12,000
4) Building improvements 200,000
Repairsexpense 200,000
Depreciation expense 50,000
Accumulatedd epreciation 50,000
5) Other income 20,000
Accumulated depreciation 48,000
Gain on sale 8,000
Building 60,000
6) Repairsexpense 20,000
Building 20,000
Accumulated depreciation 5,000
Depreciationexpense 5,000
Retained earnings
Accumulatedd epreciation 50,000 100,000
5) Retainedearnings 12,000
Accumulated depreciation 48,000
Building 60,000
6) Retainedearnings 20,000
Building 20,000
Accumulated depreciation 10,000
Retainedearnings 5,000
Depreciationexpense 5,000
C. Errors were discovered in 2018
ADJUSTING ENTRIES Debit Credit
1) Retainedearnings 36,000
Prepaidinsurance 36,000
2) Unearned rent income 30,000
Retainedearni gs 30,000
3) Accumulated depreciation 12,000
Retainedearnings 12,000
4) Building improvements 200,000
Retainedearnings 200,000
Depreciation expense 50,000
Retained earnings 100,000
Accumulatedd epreciation 150,000
5) Retainedearnings 12,000
Accumulated depreciation 48,000
Building 60,000
6) Retained earnings
Building 20,000 20,000
Accumulated depreciation 10,000
Retainedearnings 10,000
23
Chapter 6: Correction of Errors
SUMMARY OF ANSWER S:
1. D 2. A 3. D 4. A 5. A 6. D
Question No. 4
Effect of errors to Retained Earnings in 2016
Understatement to2 015 net income 45,000
Overstatementto2 016net income 32,000
Net understatement to 2016 retained earnings 13,000
Questions No. 5
ADJUSTING ENTRIES Debit Credit
1) Retainedearnings,beg 10,000
Merchandiseinventory,beg 10,000
Merchandisei nventory, end 8,000
CostofSales 8,000
2) Purchases 20,000
Retainedearnings 20,000
Advances supplier 40,000
Purchases 40,000
3) Retainedearnings,beg 20,000
Sales 20,000
24
Chapter 6: Correction of Errors
Sales 70,000
Advances customers 70,000
4) Depreciationexpense 20,000
Improvements 100,000
Accumulatedd epreciation 40,000
Retainedearnings 80,000
5) Accumulatedd epreciation 15,000
Retained earnings, beg 25,000
Equipment 40,000
SUMMARY OF ANSWER S:
1. A 2. A 3. A 4. A 5. C
understated
Depreciation exp. 2016
over tated, NI (7,000) - ( 7,000)
understated
Accrued expense
understated, NI 4,500 4,500 (4,500) - -
overstated 2015
Accrued expense
understated, NI 7,500 7,500 7,500
overstated 2016
Prepaid expense
understated, NI (5,000) (5,000) 5,000 - -
understated 2015
Prepaid expense
understated, NI (12,000) (12,000) (12,000)
understated 2016
Accrued revenues
understated, NI (3,000) (3,000) (3,000)
understated 2016
Deferred revenues
understated, NI 1,200 1,200 (1,200) - -
overstated 2015
Total (16,300) 5,300 800 2,500 (15,500)
25
Chapter 6: Correction of Errors
SUMMARY OF ANSWER S:
1. D 2. D 3. A 4. A 5. C
PROBLEM 6-7
Question No. 5
Item
a 21,000
Item
b (25,000)
Item
c (15,500)
dItem -
Item
e 80,000
Net adjustment to retained e arnings (E) 60,500
SUMMARY OF ANSWER S:
1. B 2. B 3. A 4. B 5. (E)
26
Chapter 6: Correction of Errors
PROBLEM 6-8
Net
Income CA NCA CL RE
Unadjusted
balances 200,000 1 ,570,400 1 ,365,600 636,000 300,000
1. Advtg exp
over, NI under 50,000
2. Advances rec.
as sales
2016 60,000
2017
3. Advances rec. (100,000) 100,000 (100,000)
as purchases
2016 (50,000)
2017 80,000 80,000 80,000
4. Gain
understated 64,000 64,000
Cost under (336,000)
Accumulated
depreciation 400,000
Depr. Over, NI
under 13,600 13,600 13,600
5. Rent revenue
under 20,000 (60,000) 60,000
6. Bad debts
exp under
(5% x 480K)-
16,000) (8,000) (8,000) (8,000)
7. Purchases
under 20,000
EI under 20,000
8. Ins. Exp.
Under, NIover 15,000 15,000
Adjusted
balances 344,600 1 ,662,400 1 ,443,200 696,000 424,600
SUMMARY OF ANSWER S:
1. C 2. C 3. D 4. A 5. D
27
Chapter 8: Cash and Cash Equivalents
PRO BLEcoins
Billsand M 8-3 Cash and Cash Equivalents
onhand 105,560
Checking Account Balance in Bank of Philippine Island 44,000
Money order 1,600
Pettycash ( - 1,650) 2,350
Traveler’scheck 44,800
Total 198,310
Suggested answer: (E)
Question No. 2
Annual interest payment (3,500,000 x 12%) 420,000
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%] 5,000
Netinterest 415,000
Divide by loan proceeds (3,500,000-175,000) 3,375,000
Effective interest rate
12.30%
Suggested answers:
1.C 2C.
29
Chapter 8: Cash and Cash Equivalents
Requirement No. 1: Wor king Paper for the Petty Cash Fund
Petty Cash Count Sheet
January 3, 2017; 9:00 AM
Denomination Quantity Total
Bills 200 10 2,000
100 20 2,000
20 40 800
Coins 10 10 100
59 45
1 804 804
.25 1,410 352.50
.10 1,520 152
.05 810 40.5
TotalBillsandCoins 6,258
Checks for Deposits:
Maker Date Payee Amount
W. Ally, Cashier 12/28/17 ABC Company 500
I.O.U's D at e Amount
A. Braham, janitor 12/19/17 250
R. Tica, clerk 12/20/17 150
P. Du, Bookkeeper 12/22/17 200
Total 600
Vouchers:
Payee Date Accountcharged Amount
J. Cruz, messenger 12/14/17 Advances to employees 125.00
CidBookstore 12/15/17 Supplies 150.00
DalinLiner 12/19/17 Freight-out 192.00
Bureau of Posts (stamps) 12/20/17 Supplies 300.00
A. Bala, carpenter 12/21/17 Repairs 450.00
Total 1,217.00
Billsandcoins 6,258
Checksfordeposit 500
I.O.U’s 600
Voucherspaid 1,217
Unusedstamps 50
TotalPettyCashAccounted 8, 625
Less: Petty cash Accountabilities 12,600
PettyCashShortage (3,975)
30
Chapter 8: Cash and Cash Equivalents
Requirement No. 2
ADJUSTING ENTRIES Debit Credit
1)
Employeea dvances 600
Petty cashfund 600
2)
Expenses 1,217
Officesupplies 50
Petty cashfund 1,267
3) Cashs hortorover 3,975
Petty cashfund 3,975
4) Cashs hortorover 3,975
32
Chapter 8: Cash and Cash Equivalents
Question No. 2
Deposits intransit, beg 300,000
Add:Depositsmade 1,800,000
Total 2,100,000
Less: Deposits acknowledged by the bank 1,600,000
Deposits intransit, end 500,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
33
Chapter 8: Cash and Cash Equivalents
SUMMARY OF ANSWERS:
1. C 2. D 3. C 4. D 5. A 6. D
Questions No 3 to 5
BANK 31-Jul Receipts Disb. Aug.3 1
Unadjusted balances 180,250 1,830,752 *1,702,918 308,084
Outstanding checks
July31 ( 50,944) ( 50,944)
August31 67,122 (67,122)
Deposit in transit
July31 32,844 ( 32,844)
35
Chapter 8: Cash and Cash Equivalents
Question No 2
Unadjustedrec.perbank P171,500
Deposit in transit:
November30 (11,000)
December 31 20,000
36
Chapter 8: Cash and Cash Equivalents
PROOF OF CASH
Nov.3 0 Receipts Disb. Dec. 31
Unadjusted bank balance 69,000 171,500 113,000 *127,500
Deposit in transit
November30 11,000 (11,000)
December 31 *20,000 20,000
Outstanding checks
November30 (7,000) (7,000)
December 31 21,500 (21,500)
Error correction (500) (500)
NSF check, no entry on the
books on the return and
redeposit (40,000) (40,000)
Adjusted bal. 73,000 140,000 87,000 126,000
* (69,000+171,500-113,000)
** (18,000+2,000)
Nov.3 0 Receipts Disb. Dec. 31
Unadjusted book balance 66,000 113,800 85,000 94,800
Credit memo for note
collected
37
Chapter 8: Cash and Cash Equivalents
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. A
Question No. 2
Depositin transit,beg P 12,500
Add: Deposits made by the company 152,500
Total 165,000
Less: Deposits acknowledged by the bank 145,000
Deposit in transit, end P 20,000
Question No. 3
Unadjusted cash in bank balance per ledger P 37,500
Add: Under-footing ofc ash receipts 2,500
Total 40,000
Less: Unrecorded bank service charges
(3,250 +1,500-2,500) 2,250
Adjusted cash in bank balance, 12/31 P 37,750
Question No. 4
Bank service charges per
bankstatementi nD ecember P 3,250
Less: Bank service charge in December
recorded
Total in December
BSC recorded in the books Dec P 2, 500
Less: BSC in Nov. recordedi nD ec. 1,500 1,000
Unrecorded BSC charge in December P 2,250
38
Chapter 8: Cash and Cash Equivalents
Question No. 5
Unadjusted cash in bank, November (squeeze) P 16,250
Add: BookR eceipts (152,500 - 2,500) 150,000
Total 166,250
Less:Bookdisbursements 128,750
Unadjusted cash in bank, December P 37,500
SUMMARY OF ANSWERS:
1. C 2. D 3. C 4. D 5. B
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. A 5. A
Question No. 2
Total Outstanding checks:
AccountNo.143 P 60,000
*Account No.144 1,860,000
Total outstanding check 1,92
P 0,000
Question Nos. 3 to 4
December
40
Chapter 8: Cash and Cash Equivalents
0
Outstanding check:
November30 (250,000) (250,000)
December 31 1,860,000 (1,860,000)
Erroneous bank charge -
November 20,000 (20,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
Unadjusted book
balance 1,980,000 1,420,000 3,500,000 (100,000)
Bank service charge:
November30 (10,000) (10,000)
December 31 20,000 (20,000)
Unrecorded collections -
November3 0 90,000 (90,000)
Uncollected customer's
note already recorded
ascashreceipt (200,000) (200,000)
NSF-December31 100,000 (100,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
Customer’s
cash receiptsnote recorded as 200,000 1,130,000
Total P1,22000
Less: Deposits acknowledged by the bank
BankC redits P1,000,000
Less: Erroneous bank charge 20,000 980,000
Outstandingchecks,end P 240,000
Question No. 5
Adjusted balances:
AccountNo.1 43 P1,020,000
AccountNo.1 44 ( 420,000)
Total adjusted balances P 600,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C
Question No. 2
Unadjustedbookbal. P242,310.50
Creditmemof ornotescollection 30,000
Creditmemo
Balance( for
cash int.
accountability) 900
P273,210.50
43
Chapter 8: Cash and Cash Equivalents
Question No. 3
Adjusted bank bal. (Cash accounted) P221,052.50
Less: Cash in bank bal. (cash accountability) 273,210.50
Shortage (P52,158.00)
SUMMARY OF ANSWERS:
1. B 2. D 3. B
Question No. 2
Unadjustedbookbal. P 46,500
Creditmemop roceedscleandraft 900
Debit memo for bank servicec harge ( 100)
Balance (cash accountability) P 47,300
Question No. 3
Adjusted bank bal.( Cash accounted) P3 5,900
Cash inb ank bal.( cash accountability) 47,300
Shortage asofJune30 ( P11,400)
Question No. 4
Additional cas shortage from July 1-15
JulycollectionperduplicateO.R. P 18,800
Less: collections in July that were deposited in
July
Collection per duplicates lips P1 1,000
Less :Undeposited collection, June 30 5,000 6,000
Casht hatshouldb eo nh andonJuly1 5 P 12,800
Less:Actualc ashonh andonJuly1 5 4,800
Cash shortage from July 1-15 P 8, 000
Question No. 5
Understatement of cash in bank per books (46,500-45,600) P 900
Overstatement of cash in bank per bank (44,000-42,400) 1,600
Understatement of outstanding checks (11,500-3600) 7,900
Overstatement of undeposited collections (5,100-5,000) 100
Non-recording of credit memo-proceeds of clean draft 900
Cash shortage as of Jun e 30 P11,400
SUMMARY OF ANSWERS:
44
Chapter 8: Cash and Cash Equivalents
1. C 2. D 3. B 4. D 5. D
Question No. 2
Outstanding checks, unadjusted balance P 246,760
Less:Unreleased check ( 14,750)
Company's post-dated check ( 37,210)
Adjusted Outstanding checks 194,790 P
Question No. 3
Unadjustedbal.perbank P350,000
Add:Deposit intransit( No. 1) 125,250
Less: Outstanding checks (No.2 ) (194,790)
Erroneousbankcredit ( 30,000)
Adjusted cash in bank bal. 250,460 P
Question No. 4
Unadjustedbal.perbooks P 293,500
Add:Creditmemofornotecoll. 15,000
Unreleasedcheck 14,750
Company'spost-datedcheck 37,210
Total 360
P 460
Less: Customer s post-dated check (50,000)
Cashi nb ankperbooksbal. P310,360
Less: Adjusted cash in bank balance 250,460
Cash shortage (P60,000)
Question No. 5
Unadjustedbal.perbooks P293,500
Less: Adjusted cash in bank balance 250,460
Net adjustments P 43,040
SUMMARY OF ANSWERS:
1. B 2. D 3. B 4. C 5. A
45
Chapter 10: Loans and Receivables
Question No. 2
FOB Destination, freight collect
Invoicepriceofmerchandisesold 300,000
Less:Invoicep riceof merchandisereturned -
Netinvoiceprice 300,000
Less:Salesdiscount( 300,000x 2%) 6,000
NetPayment
Less: Freightbefore freight
payment - FOB Destination, freight collect 294,000
5,000
Add: Freight payment - FOB shipping point, freight prepaid -
Total Net Cash Collection(A) 289,000
46
Chapter 10: Loans and Receivables
Question No. 3
FOB Shipping point, freight prepaid
Invoicepriceofmerchandisesold 300,000
Less:Invoicep riceofm erchandisereturned -
Netinvoiceprice 300,000
Less:Salesdiscount( 300,000x 2%) 6,000
NetReceiptbefore freight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid 5,000
Total Net Cash Collection(C) 299,000
Question No. 4
FOB Shipping point, freight prepaid
Invoicepriceofmerchandisesold 300,000
Less:Invoicep riceofm erchandisereturned -
Netinvoiceprice 300,000
Less:Salesdiscount( 300,000x 2%) 6,000
Collectionbeforefreight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid -
Total Net Cash Collection(B) 294,000
SUMMARY OF ANSWER S:
1. B 2. A 3. C 4. B
SUMMARY OF ANSWER S:
1. C 2. D
Question No. 1
Accounts written off minus Recoveries
Percentage =
Total credit sales
Total years fr om 2013 to 2017:
480,000 - 120,000
Percentage = 12,000,000
Percentage = 3.00 %
Question No. 2
Bad debts expense = 3% x 3,000,000
= 90,000
Question No. 3
Allowance for Bad debts
Writeoff 85,000 400,000 Beg.Balance
Balance end (squeeze) 445,000 90,000 Bad debts exp
40,000 Recovery
520,000 520,000
Question No. 5
Bad debts expense = 4% x P3,000,000
= 0,000
Question No. 6
Credit Sales BD exp Recoveries Write-off Net AB
2016 2,000,000 80,000 65,000 30,000 1 15,000
2017 3,000,000 1 20,000 85,000 40,000 165,000
Allowance for BD (D) 280,000
48
Chapter 10: Loans and Receivables
CASE 3
Question No. 7
Percentage of bad Accounts written off minus Recoveries
=
debts to AR Total credit sales
Percentage
debts to of
ARbad = Accounts written
Total off minus
credit sales Recoveries
Total years fr om 2013 to 2017:
Percentage of bad 480,000 -
=
debts to AR 12,000,000
Percentage = 3 %
SUMMARY OF ANSWER S:
Case 1 Case 2 Case 3
1. B 4. D 7. C
2. B 5. D 8. D
3. B 6. D 9. C
49
Chapter 10: Loans and Receivables
Question No. 2
Accounts receivable, end (see above table) 2,150,000
Less: Allowance for doubtful accounts, end 95,500
Net Realizable Value 2,054,500
SUMMARY OF ANSWER S:
1. A 2. A
Question No. 2
Allowance for Bad debts
Balance end 49,200 20,000 Beg. balance
29,200 Bad debts exp (squeeze)
158 000 158,000
SUMMARY OF ANSWER S:
1. A 2. A
50
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income = (100,000 x 10%) = P10,000
Requirement No. 3
Zero. The principal amount is collectible beyond one year from the reporting
date and thus, reported as non-cu rrent.
Requirement No. 4
P100,000. The entire principal amount of notes receivable is treated as
noncurrent asset since it i s collect ible beyond one year from the reporting date.
Question Nos. 2 to 5
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2016 1,903,960
12/31/2016 200,000 228,475 28,475 1,932,435
12/31/2017 200,000 231,892 31,892 1,964,327
12/31/2018 200,000 235,704 35,672 2,000,000
The total
due to be amount
coll ectedofbeyond
1,932,435 is reported
twelve m onthsas noncurrent
from the end of the reportingsince
receivable it is
period.
SUMMARY OF ANSWER S:
1. B 2. B 3. A 4. A 5. C
51
Chapter 10: Loans and Receivables
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2016 1,901,730
07/31/2016 100,000 114,104 4,104
1 1,915,834
12/31/2016 100,000 114,950 14,950 1,930,784
07/31/2017 100,000 115,847 15,815 1,946,599
12/31/2017 100,000 116,796 16,796 1,963,395
07/31/2018 100,000 117,804 17,804 1,981,198
12/31/2018 100,000 118,602 18,802 2,000,000
Question No. 2
Interest income up to 07/31/2016 114,104
Interest income up to 12/31/2016 114,950
Total interest income 229,054
Question No. 3
1,930,784. See amortization table above.
SUMMARY OF ANSWER S:
1. B 2. B 3. B 4. A 5. D
PROBLEM 10-10 Interest -bearing Note with Unrea listic Interest Rate,
Uniform Coll ection of Principal
Question No. 1
52
Chapter 10: Loans and Receivables
Question No. 2
208,828. See amortization table above.
Question No. 3
Question No. 4
Carrying value – 12/31/2016 1,169,062
Less: Current portion – 12/31/2016 579,713
Non-current portion – 12/31/2016 589,350
SUMMARY OF ANSWER S:
1. B 2. B 3. A 4. B 5. A
Total
PV facto r collections TotalP V
0.8929 1,000,000 892,900
0.7972 600,000 478,320
0.7118 200,000 142,360
Total present value of the notes 1,513,580
Question Nos. 2 to 5
Amortization table
Interest Amortizatio Principal Carrying
Date
income n Collections amount
01/01/16 1,513,580
12/31/16 181,630 181,630 1,000,000 695,210
12/31/17 83,425 83,425 600,000 178,635
12/31/18 21,382 21,365 200,000 -
Question No. 2
181,630. See amortization table above.
Question No. 3
695,210. See amortization table above.
Question No. 4
Principal collections – 2017 600,000
Less: Amortization – 2017 83,425
Current portion – 12/31/2016 516,575
Question No. 5
Carrying value – 12/31/2016 695,210
Less: Current portion – 12/31/2016 516,575
Non-current portion – 12/31/2016 178,635
SUMMARY OF ANSWER S:
1. B 2. B 3. A 4. B 5. D
Amortization table
Date Inter est Income Amortization Carrying amount
01/01/16 1,281,240
12/31/16 153,749 153,749 1,434,989
12/31/17 172,199 172,199 1,607,187
12/31/18 192,812 192,812 1,800,000
Question No. 2
153,749. See amortization table above.
Question No. 3
1,434,989. See amortization table above.
Que stion No . 4 and 5
The total amount of 1,434,989 is reported as noncurrent receivabl e since it is
due to be coll ected beyond twelve m onths from the end of the reporting period.
SUMMARY OF ANSWER S:
1. B 2. B 3. A 4. B 5. A
CASE 2
Requirement No. 1
Present value of the notes
Annual collection =
Present value of annuity due for 3 periods
1,500,000
Annual collection =
2. 6901
Annual collection = P557,600
55
Chapter 10: Loans and Receivables
Requirement No. 2
Interest income (1,500,000 – 557,600) x 12% = P113,088
PROBLEM 10-14
Accountsreceivable 250,000
Sales 250,000
Sales discount 250,000 x 3% x4 0%) 3,000
Allowanceforsalesdiscount 3,000
Cash( 250,000x 50%x97%) 121,250
Allowancef ors alesdiscount 3,000
Sales discount [ 250,000 x (50% - 40%) x 3%] 750
Accounts receivable ( 250,000x 50%) 125,000
On December 31, 2016, the receivable then is included in the statement of
financial position as follows:
Accountsreceivable,end 250,000
Less: Allowancef ors ales discount 3,000
Netrealizablevalue 247,000
PROBLEM 10-15
SOLUTION:
Requirement No. 1 PAS 18
2017:
Dec.3 1 Accountsreceivable 550,000
Sales 550,000
Cost of sales 300,000
Merchandiseinventory 300,000
Sales returns ( 550,000 x 30%) 165,000
56
Chapter 10: Loans and Receivables
CAS E NO. 2
Question No. 4
Carrying value – 12/31/2015 (see table below) 15,458,634
Less: *Present value of expected cash flows 7,705,280
Loan impairment (B) 9,894,720
Amortization table
Interest
Received Interest Carrying
Date Or Accrued Income Amortization amount
01/01/2013 14,846,080
12/31/2013 1 ,600,000 1,781,530 181,530 15,027,610
12/31/2014 1 ,600,000 1,803,313 203,313 15,230,923
12/31/2015 1,600,000* 1,827,711 227,710 15,458,634
*Interest accrued .
58
Chapter 10: Loans and Receivables
CAS E NO. 3
Question No. 5
Carrying value – 12/31/2015 (see table below) 17,058,634
Less: *Present value of expected cash flows 7,705,280
CAS E NO. 4
Question No. 6
Carrying value – 12/31/2015 (see table below) 15,458,634
Less: *Present value of expected cash flows 7,705,280
Loan impairment C) 9,894,720
Amortization table
Interest
Received Interest Carrying
Date Or Accrued Income Amortization amount
01/01/2013 14,846,080
12/31/2013 1 ,600,000 1,781,530 181,530 15,027,610
12/31/2014 1 ,600,000 1,803,313 203,313 15,230,923
12/31/2015 1 ,600,000 1,827,711 227,710 15,458,634
12/31/2015 Cash 1,600,000
Interestincome 1,600,000
SUMMARY OF ANSWER S:
59
Chapter 10: Loans and Receivables
1. A 2. B 3. B 4. B 5. C 6. C
Question No. 3
Interest inc ome (600, 000 x 10%) ( B) P 60,000
Question No. 4
Interest inc ome (654, 552 x 10%) (A) P 65,4 55
SUMMARY OF ANSWER S:
1. A 2. D 3. B 4. A
60
Chapter 10: Loans and Receivables
Question No. 2
Netproceeds fromdiscounting P 600,207.50
Less: Carrying amount on date of discounting
Principal 600,000.00
Add:
Loss on Interest
notes (600,000
receivable x 9% x 25/360)
discounting ( A) 3,750.00(P 3,5603,750.00
4 2.50)
CASE NO. 2
Question No. 3
61
Chapter 10: Loans and Receivables
in a similar
sale. (A)way as to that of discounted note without recourse or conditional
Question No. 6
Maturityv alue oft he note P 613,500
Add: Protest fee and other bank charges 5,000
Cash received on December 1 (C) P618,500
SUMMARY OF ANSWER S:
1. C 2. A 3. A 4. C 5. A 6. C
COMPREHENSIVE PROBLEMS
PROBLEM 10-23
Question No. 1
Credit Sa les Accounts written off Recoveries
2013 2,220,000 52,000 4,300
2014 2,450,000 59,000 7,500
2015 2,930,000 60,000 7,200
62
Chapter 10: Loans and Receivables
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3
Reported doubtful account expense (bad debts written off) P 62,000
Less: Correct doubtful account expense (see No. 2 ) ( 60,000)
Overstatement in doubtful account expenses P 2,000
Question No. 4
Accounts receivable trade
Beg. Balance 418,000 645,600 Balance end
Sales on account 3,000,000 62,000 Write-off
2,710,400 Collections excluding
advance from customers
Total 3,418,000 3,418,000
Question No. 5
All wa nce for Doubtful accounts
Accounts written off 62,000 15,200 Beg. Balance
Balance end 21,600 60,000 Doubtful accounts expense
8,400 Recoveries
Total 83,600 83,600
SUMMARY OF ANSWER S:
1. A 2. A 3. B 4. B 5. A
PROBLEM 10-24
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze) 21,800
P
Add:Adjustednet sales 255,000
Total 276,800
Less: Collections, net of discounts 156,800
63
Chapter 10: Loans and Receivables
Question No. 2
Collection, net of discount P1 56,800
Divideby:(100%-2%) 98%
Total credit to AR for collection (A) P160,000
Question No. 3
Customer credit balance, Dec. 1 P 31,200
Less: sale to customer with credit balance 10,000
Customer Credit balance, Dec. 31(A) P 21,200
Question No. 4
Unadjusted Sales, balance P2 60,000
b) Sales, FOB shipping pt., not yet recorded 10,000
c)S ales,F OB destination ( 15,000)
Adjusted Sales balance ( A) P 255,000
Question No. 5
Subsidiary ledger, balance, 12/1 P 59,000
Add: Adjusted Sales in December 255,000
Freight prepaid by the company 1,000
Total P315,000
Less: total credit to AR for coll. 160,000
Adjusted accounts receivable in Dec. (B) P1 55,000
SUMMARY OF ANSWER S:
1. D 2. A 3. A 4. A 5. B
64
Chapter 10: Loans and Receivables
PROBLEM 10-25
Question No. 1
Balance Accounts
De c. 31 Not due 1 - 6 0 da y s 61-120 d ays Over 120
1 12,000 3,000 8,000 1,000
2 22,000 22,000
4 20,000 10,000 10,000
5 55,000 2,220 52,780
6 7,500 7,500
116,500 27,220 68,280 11,000 10,000
Multiply by: 0.50% 2% 5% 50%
136.10 1,365.60 550 5,000.00
SUMM
1. DARY OF
2. ANSWER
C 3.S: B 4. D 5. A
PROBLEM 10-26
Question No. 1
Principal 4,000,000
Originationf ees received (342,100)
Direct origination cost incurred 150,020
Initial Carrying amount of the loan 3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118) 2,847,200
Present value of Int. (4M x 10% x 2.4018) 960,720
Present value of Loan Receivable 3,807,920
65
Chapter 10: Loans and Receivables
Question No. 5
Zero, As of December 31, 2016, the entire loan proceeds will be collectible on
December 31, 2018, that is two years from the repor ting date.
SUMMARY OF ANSWER S:
1. A 2. C 3. B 4. A 5. A
PROBLEM 10-27
Question No. 1
Annual Cash PV
Date flows factor Amount
Dec. 31, 2015 P1,750,000 0.9091 P 1,590,925
Dec. 31, 2016 2,000,000 0.8264 1,652,800
Dec. 31, 2017 1,750,000 0.7513 1,314,775
Total 4,55P8,500
Question No. 2
Carrying amount oft he loan P 5,500,000
Less: Present value of the loan 4,558,500
Impairment loss P 941,500
Question Nos. 3 to 5
Interest Reduc tion to Carrying
Date P a y me n t Income Principal amount
12/31/2014 P4,558,500
12/31/2015 P1,750,000 P455,850 P1
,294,150 3,264,350
12/31/2016 2,000,000 326,435 1,673,565 1,590,785
12/31/2017 1,750,000 159,079 1,590,785 -
SUMMARY OF ANSWER S:
1. C 2. A 3. B 4. A 5. C
66
Chapter 10: Loans and Receivables
PROBLEM 10-28
Question Nos. 1 to 4
Accounts Allow Mdse. Net Cost of
Receivable for DA Inventory Sales Sales
Unadjusted balances 300,000 3,000 400,000 1, 000,000 800,000
2)Salereturn (30,000) (30,000)
Cost of return
Merchandise
(30,000 x80%) 24,000 (24,000)
3)Sales FOB shipping
point
not
Salerecorded as 40,000 40,000
Cost of mdse sold
(40,000 x80%) (32,000) 32,000
4) Goods shipped
FOB
Destination recorded
assale (50,000) (50,000)
Cost of goods
(50,000 x 80%) 40,000 (40,000)
6)D oubtful accts exp (12,000)
Adjusted bal. 260,000 15,000 432,000 960,000 768,000
Question No. 5
Accounts receivable P 260,000
Less: Allowance for doubtful accounts ( 15,000)
Net realizable value P245,000
SUMMARY OF ANSWER S:
1 B 2 B 3. B 4. B 5. C
PROBLEM 10-29
Question No. 1
Estimated
Classification Balance
Percentage Amount
1-60 days P1 ,000,000 1% P 10,000
61-120days 400,000 5% 20,000
121-180days 300,000 10% 30,000
181-360days 200,000 25% 50,000
More than oney ear 60,000 80% 48,000
Totals P1 ,960,000 P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1) P 1,960,000
Less: Allowance for doubtful accounts, end (see no. 1) 158,000
Net realizable value P1,802,000
67
Chapter 10: Loans and Receivables
Question No. 3
Doubtful accounts per books (9,000,000 x 2%) P 180,000
Less: *Adjusted doubtful accounts expense 188,000
Understatement of doubtful accounts (P 8,000)
Question No. 4
Totalcarryingv alue P3,000,000
Less: **Present value of the loan 2,790,000
Impairment loss 210,000 P
*Computation of present value
Annual Cash flow PV factor Total
P1,000,000 1.00 P 1,000,000
1,000,000 0.93 930,000
1,000,000 0.86 860,000
Total Present value of the loan P 2,790,000
Question No. 5
Interest Amortizatio Carrying
Date Collections Income n amount
01/01/2016 2,790,000
12/31/2016 1,000,000 1,000,000 1,790,000
12/31/2017 1,000,000 143,200 856,800 933,200
SUMMARY OF ANSWER S:
1. A 2. B 3. D 4. B 5. B
PROBLEM 10-30
Question No. 1
Accounts receivable, unadjusted balance
Per subsidiary ledger P1,660,000
Note receivablei
Factored Accountsncluded in theA R
receivable (200,000)
(160,000)
SalesFOBshipping point 100,000
Adjusted AR balance P1,400,000
68
Chapter 10: Loans and Receivables
Question No. 2
Allowancef ord oubtfula ccts,b eg. P 100,000
Add: Doubtful accounts (P15,000,000 + P100,000) x 1% 151,000
Total 251,000
P
Less:Accountswrittenoff 28,000
Allowance for doubtful accts, end 223,000 P
Question No. 3
UnadjustedNetSales P15,000,000
Add:Sales,FOBshippingpoint 100,000
TotalSales P 15,100,000
Multiply by:
rate 1%
Doubtful accounts P 15 1,000
Question No. 4
No effect . The audit adjustmen ts did not result to any changes to inventory
account.
Question No. 5
Sales, FOB shipping point 100,000 P
SUMMARY OF ANSWER S:
1. D 2. A 3. D 4. D 5. A
PROBLEM 10-31
Question No. 1
Accountsreceivablef actored P 400,000
Less: Service charge (400,000x 5%) 20,000
Receivable from factor (400,000 x 20%) 80,000 100,000
Customers’ credit balance P300,000
Question No. 2
Principal P 300,000
Add: Interest over full credit period (300,000 x 12% x 6/12) 18,000
Maturity value 318,000
Less:D iscount(318,000x1 2%x3 /12) 11,925
Net proceeds from discounting 306,075 P
Question No. 3
Maturity value of the notes (see item in No. 2) 318,000
Add:Protest fee 12,000
Total cash paid/Amount to be debited to AR 330,000 P
Question No. 4
Notep ayable( 80% xP600,000) 480,000
Less: Service fee (5% x P600,00) 30,000
Cash received 450,000 P
69
Chapter 10: Loans and Receivables
Question No. 5
TotalCash paid(see No.3) 330,000
Add: Interest income (P330,000x 12% x2 /12) 6,600
Cash received 336,600 P
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000) P 700,000
Add:Accountsreceivableassigned 600,000
Total 1,300,000
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%) 65,000
Net realizable value P1,235,000
SUMMARY OF ANSWER S:
1. B 2. C 3. A 4. B 5. D 6. D
PROBLEM 10-32
Question Nos. 1 to 3
60 days and 61 to 90 Over 90
Total below days days
Unadjusted Balance,
12/31/2016 1,900,000 1,000,000 5 00,000 4 00,000
Adjustments:
WriteOff (40,000) (40,000)
Unrecordedsale 50,000 50,000
NSFCheck shipment –
In transit 20,000 20,000
FOB Destination (45,000) (45,000)
Consignment (45,000) (45,000)
Erroneous unit price (7,500) (7,500)
Adjusted balance,
12/31/2016 1,832,500 930,000 49
2,500 410,000
PercentageofU ncollectibility 4% 5% 10%
Required allowance,
12/31/2016 108,825 37,200 24,625 41,000
Question No. 4
Allowance for Dou btful accounts
Write off 40,000 100,000 Beg. Balance
Balance end (required) 102,825 - Recoveries
42,825 Doubtful account expense
(squeeze)
Total 142,825 142,825
70
Chapter 10: Loans and Receivables
PROBLEM 10-33
Question Nos. 1 and 3
Adjusting entries for Accounts receivable
Item Accounts Debit Credit
1 Accountsreceivable 20,000
Allowance for doubtful accounts 20,000
2 Salesdiscount 16 00
Accountsreceivable 16,000
3 Accountsreceivable 120,000
Allowance for doubtful accounts 120,000
4 Accountsreceivable 30,000
Allowance for doubtful accounts 30,000
Miscellaneous income 30,000
Accountsreceivable 30,000
Accounts receivable
Beg. Balance 220,000 2,720,000 Balance end
(20,000+200,000)
Sales
Recoveries 4,000,000
30,000 30,00 Recoveries
*1,500,000 Collections, gross of
discount
71
Chapter 10: Loans and Receivables
12/31/2018
12/31/2019 400,000
400,000 463,759
471,410 63,759
71,583 3,928,417
4,000,000
SUMMARY OF ANSWER S:
1. B 2. C 3. D 4. D 5. A
72
Chapter 10: Loans and Receivables
PROBLEM 10-34
Question No. 1
Unrecorded gain on sale of machinery – 2015 (see below) 90,183
Unrecorded interest income – receivable from sale of machinery
(240,183 x12%) 28,822
Unrecorded accrued interest – receivable from sale of plant
(1,500,000x 12%x9/12) 135,000
Net adjustment to R/E – 01/01/16 (B) 254,005
Question No. 2
Interest income from note receivable:
Saleofmachinery( 169,005x1 2%) 20,281
Sale of plant [(1,500,000 x 12% 3/12) + (1M x 12% x 9/12) 135,000
Sale of equipment (170,750 x 10% x 9/12) 12,806
Total interest income (C) 168,087
Question No. 3
Current portion of note receivable fr om:
Sale of machinery (see amortization table above) 89,286
Sale
of
plant 500,000
Total current portion (B) 589,286
Question No. 4
Non-current portion of note receivable from:
Sale
of
plant 500,000
Sale of equipment( 170,750 + 12,806) 183,556
Total non-current portion
( D) 683,556
73
Chapter 10: Loans and Receivables
Question No. 5
Interestincomefroms aleofmachine 20,281
Interest income from sale of plant (180,000 – 135,000) (45,000)
Interest income froms ale of equipment 12,806
Net overs tatement of income
( D) (11,912)
SUMMARY OF ANSWER S:
1. B 2. C 3. B 4. D 5. D
74
Chapter 12: Inventories
Note that the trade discount was already deducted in arriving at the vendor’s
invoice.
Question No. 2
Inventoriable cost (C)
Qu esof
Cost tion No. 2 Co
inventory st, Insuraxnce and Freight
($100,000
ForEx loss ( - (D) 125,000
75
Chapter 12: Inventories
Question No. 2
Variable cost:
Directlabor( 120,000units) 1,080,000
Direct materials ( 2 excluding VAT x 120,000 units) 200,000
Fixed Cost ( 100,000
Total cost (C) 420,000
Question No. 3
Variable cost:
Direct labor (
Directmaterials( 160,000
Fixed Cost( 80,000
Total cost (D) 960,000
4 Items purchased
December 31 FOB shipping point that are in transit at 500,000
5 Freight charges on goods purchased above 13,000
Items sold to another company, for which our company
has signed an agreement to repurchase at a set price that
covers all costs related to the invent ory. Total cost of
7 merchandiseis 200,000
Items sold FOB destination that are in transit at December
10 31, at
cost 75,000
14 Items currently being used for window display 100,000
15 Itemsoncounterfor sale 400,000
17 Items included in the count, damaged and unsalable (150,000)
Items in receiving dept., returned by customer, in good
18 condition( not includedi nt hec ount) 50,000
19 Merchandise inventories out on approval, at cost 100,000
Finished special article goods, made to order (included in
20 thecount) (78,000)
Total (A) P2,370,000
76
Chapter 12: Inventories
21 Office
sectionsupplies in thesheet
ofthebalance current asset 40,000
77
Chapter 12: Inventories
SUMMARY OF ANSWERS:
CASE NO. 1 CASE NO. 2
1. B 5. C
2. C 6. C
3. D 7. A
4. A 8. D
79
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4. A 5. B 6. B 7. B 8. B
11/15 No entry
12/31 Loss on purchase commitment (20,000 x [25-20]) 100,000
Estimated liability for purchase commitment 100,000
03/15 Purchases(25,000x2 5) 500,000
Estimated liability for purchase commitment 100,000
Accountspayable/Cash 500,000
Gainonp urchasecommitment 100,000
CASE NO. 2
Date Accounts Debit Credit
11/15 No entry
12/31 No entry
03/15 Purchases(25,000x2 5) 500,000
Accountspayable/Cash 500,000
Inventory,January 1 650,000
Add: Net Purchases
Purchases
Add:Freight-in 2,300,000
60,000
Less: Purchaser eturns (80,000) 2,280,000
TotalGoodsavailableforsale 2,930,000
Less: Cost ofgoodssold (2,359,000)
81
Chapter 12: Inventories
82
Chapter 12: Inventories
PROBLEM 12-16
PROBLEM 12-17
Question No. 1
A EI over (P129-P119)x 4,000 40,000
B EI under (70,000)
C EI over 100,000
Overstatement of ending inventory 70,000 (C)
Question No. 2
D. Ending inventory understated (140,000) (B)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. C 5. D
PROBLEM 12-18
Question No s. 1 and 2
Ledger Physical
Balance Count
Balances priort o adjustment P3 14,800 P 293,600
Add: Goods in transit sold, FOB destination 3,200 3,200
Less:unrecorded sale ( 8,400) -
Less:unrecordedp urchasereturns ( 6,000) -
Less:goodsheldonc
Add:unrecorded onsignment
purchase 3,640-- ( 8,800)-
Add: Goods in transit purchased, FOB shipping point 1,600
Add:Goodsoutonconsignment - 14,800
Adjusted balances P 307,240 P 304,400
83
Chapter 12: Inventories
(A) (C)
Question No. 3
Adjusted balances, perl edger P 307,240
Adjusted balances, physical count 304,400
Inventory shortage P 2 , 84 0 (B)
SUMMARY OF ANSWERS:
1. A 2. C 3. B
PROBLEM 12-19
Note to the professor: Use the following guide questions in answering this
question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts
Was there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
SOLUTION:
Ending Net
Inventory Sales Purchases AP Income
84
Chapter 12: Inventories
317 No,No , No
318
Net adjustment (24,045) (40,780) (45,680) (45,680) (19,145)
Adjusted balances 525,955 959,220 554,320 404,320 100,855
(A) (A) (A) (A) (D)
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. D
PROBLEM 12-20
SUMMARY OF ANSWERS:
1. A 2. C 3. D 4. D 5. A
PROBLEM 12-21
Accounts Accounts Net
Inventory payable Re ce iv ab le Ne t Sa le s Pu r chase s N etin c o me
Unad usted
balances 250,000 400,000 1,000,000 4,000,000 2,500,000 600,000
A - - - - - -
B 35,000 - - - - 35,000
C 4,000 4,000 - - 4,000 -
D (25,000) - 40,000 40,000 - 15,000
E 10,000 - - - - 10,000
F - - (30,000) (30,000) - (30,000)
G 34,000 - ( 68,000) (68,000) - (34,000)
H - - (10,000) (10,000) - (10,000)
I - - - (90,000) - (90,000)
J 60,000 60,000 - - 60,000 -
Adjusted
b alan ce s 3 68 , 00 0 4 64 , 00 0 932 ,000 3 , 8 42 ,0 0 0 2 , 5 64 ,0 0 0 4 96 , 00 0
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4. A 5. D 6. D
PROBLEM 12-22
Questions No. 1 to 5
85
Chapter 12: Inventories
R /E Sales EI A /P CGS
2016 Purchases under, CGS 36,000
under, NI over, RE over
2017 Purchases over, CGS 36,000
over
2016 EI under, NI under, RE (32,000)
under
2017 BI under, CGS under (32,000)
Salesunder (20,000)
Purchasesu nder,C GSu nder (24,000) (24,000)
EIunder, CGSover (8,000) 8,000
Purchases under,C GS under (4,000) (4,000)
EIunder, CGSover (4,000) 4,000
Total 4,000 (20,000) (12,000) (28,000) (12,000)
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings – 12/31/2016 or 01/01/2017
4,000 – overstated
(4,000) – understated
Note: The effect of errors on December 2016 and January 2017 has no effect on
the ending balance of the accounts payable on December 31, 2017 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. C
PROBLEM 12-23
Question No. 1
Sales (475,000/80%) P593,750 100%
Less:Cost ofsales 475,000 80%
Grossprofit 118,750 20%
Inventory (in units)
Beg. Balance (60,000/P3) 20,000 25,000 Balance end (squeeze) or
(125,000/5)
Purchases 100,000 95,000 Cost of sales (475,000/5)
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Chapter 12: Inventories
PROBLEM 12-24
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2016 or
December 31, 2015 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2015. (B)
Question No. 2
Netincome– weightedaverage P3,250,000
Beginning inventory under, CGS under, Net income over (150,000)
Ending inventory under, CGS over, Net income under 100,000
Adjusted net income – FIFO (B) P3,200,000
Question No. 3
Computation of units sold:
Beginninginventory–units 10,000
Add:Total purchases–units 100,000
Totalgoodsavailablef ors ale–units 110,000
Less: Units sold (P6,400,000 / P80/unit) 80,000
Ending inventory inunits 30,000
The 30,000 ending inventory comes from the last two purchases as follows:
Units Unit cost Total cost
From 4th quarterpurchases 10,000 68 680,000
From 3rd quarter purchases 20,000 66 1,320,000
Total 30,000 (B) 2,000,000
Question No. 4
Cost (refer tono.3) 2,000,000
Net realizable value [(P70 – P5) x 30,000] 1,950,000
Loss on inventory write-down (B) 50,000
Question No. 5
Beginninginventory–FIFO 500,000
Add: Net Purchases (P6,480,000 – 980,000) 5,500,000
Totalgoodsavailablef ors ale 6,100,000
Less: Ending inventory at cost (see no. 3) 2,000,000
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Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. A
PROBLEM 12-25
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units Unit cost Total
3,000 14 P 42,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
12,000 P 176,000 (A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units Unit cost Total
1,800 19 P 34,200
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
5,800 P 117,400 (A)
Question No. 3
T-shirts:
Net realizable value NRV Cost Lower
(12,000 x (P16-(10% x P16)) P172,800 P176,000 P 172,800
Jackets:
(5,800 x (P22-(10%xP22) 114,840 117,400 114,840
Lower of cost or NRV P287,640 P 293,400 P287,640
Question No. 4
Totalcost (seeno. 3) P 293,400
Less: Lower ofc ost or NRV( see no. 3) 287,640
Loss on inventory write-down (B) P 5, 760
Question No. 5
Beginning inventories:
T-shirts(9,000xP11) P 99,000
Jackets(5,000xP15) 75,000 P 174,000
Add:*Total purchases (299,500 + 183,900) 483,400
Totalgoodsavailablef ors ale P 657,400
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Chapter 12: Inventories
Jackets
900 P16 P 14,400
1,100 18 19,800
1,500 19 28,500
2,000 19 38,000
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
9,500 P1 83,900
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B
PROBLEM 12-26
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance 600,000 1,200,000 B alance end
Net Purchases 2,200,000 1,600,000 Direct materials used
Total 2,800,000 2,800,000
CASE NO. 1
Question No. 1
GP Rate: 2013 2014 2015 2016
Gross Profit 2,000,000 3,500,000 4,000,000
Divide by: Sales 1,700,000 2,800,000 3,000,000
GrossProfit Rate 0. 15 0.20 0.25 0.30
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Chapter 12: Inventories
The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2016 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales 6,000,000
Multiplyb y:C ostRatio 0.70
Cost of goods sold 4,200,000 (B)
Question No. 2
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,200,000 Cost of goods sold
manufactured 3,400,000
Total 6,200,000 6,200,000
Work in Process
Beginning balance 2,000,000 2,600,000 Balance end (A)
Direct materials used 1,600,000 Cost of goods
Direct labor 1,600,000 3,400,000 manufactured
Factory overhead 800,000
Total 6,000,000 6,000,000
CASE NO. 2:
Question No. 3
GP Rate: 2013 2014 2015 2016
GrossProfit 340,000 630,000 1,000,000
Divide by: Sales 2,000,000 3,500,000 4,000,000
GrossProfit Rate 0.17 0 . 18 0.25 0.20
The GP rate in 2016 is computed as follows:
16% + 18% + 25%
Gross Profit Rate =
3
= 20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods
sold is computed as follows:
Sales 6,000,000
Multiplyb y:C ostRatio 0.80
Cost of goods sold 4,800,000 (B)
90
Chapter 12: Inventories
Question No. 4
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,800,000 Cost of goods sold
manufactured 4,000,000
Total 6,800,000 6,800,000
Work in Process
Beginning balance 2,000,000 2,000,000 Balance end (A)
Direct materials used 1,600,000 Cost of goods
Direct labor 1,600,000 4,000,000 manufactured
Factory overhead 800,000
Total 6,000,000 6,000,000
CASE NO. 3:
Question No. 5
The gross profit for 2016 is computed based on the overall gross profit for 2014
and 2015:
800,000 + 1,000,000
Gross Profit Rate =
3,500,000 + 4,000,000
1,800,000
=
7,500,000
Gross Profit Rate = 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods
sold is computed as follows:
Sales 6,000,000
Multiplyb y:C ostRatio 0.76
Cost of goods sold 4,560,000 (A)
Question No. 6
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,560,000 Cost of goods sold
manufactured 3,760,000
Total 6,560,000 6,560,000
Work in Process
Beginning
Direct balance
materials used 2,000,000
1,600,000 Balanofcegoods
2,240,000 Cost end (A)
Direct labor 1,600,000 3,760,000 manufactured
Factory overhead 800,000
Total 6,000,000 6,000,000
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Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. A 6. A
PROBLEM 12-27
Question No. 1
Accounts payable
Balancee nd 250,000 555,000 Beg. Balance
Purchase ret.
Purchase and allow.
discounts 70,000
80,000 3,000,000
100,000 Purchases
Freight-in
Payments to supplier 3,255,000
(squeeze)
Total 3,655,000 3,655,000
Question No. 2
Direct materials inventor y
Beg. Balance 200,000 320,000 Balancee nd
Net purchases 2,950,000 2,830,000 Direct materials used
Total 3,150,000 3,150,000
Purchases 3,000,000
Add:Freight-in 100,000
GrossPurchase
Less: Purchasesreturns and allow 3,100,000
70,000
Purchasediscounts 80,000
NetPurchases 2,950,000
Question No. 3
Work in process
Beg. Balance 250,000 280,000 Balancee nd
Direct materials used 2,950,000 4,375,000 Cost of goods
Directlabor 900,000 manufactured
Factoryo verhead 675,000
Total 4,655,000 4,655,000
Question No. 4
Sales P5,100,000 120%
Less: Cost of sales (5,000,000/120%)
Grossprofit
4,250,000 100%
850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
92
Chapter 12: Inventories
Question No. 5
Finished goods
Beg. Balance 400,000 525,000 Balancee nd
Cost of goods 4,375,000 4,250,000 Cost of goods sold
manufactured
Total 4,775,000 4,775,000
Salvage
Inventory firevalue
loss 10,000
495,000
Question No. 6
Cost of goods sold (80% x P5,100,000) =
P4,080,000
Question No. 7
Sales (5,100,000-100,000) P5,000,000 100%
Less: Cost of sales (80% x P5,100,000) 4,080,000 80%
Grossprofit 1,000,000 20%
Finished goods
Beg. Balance 400,000 695,000 Balancee nd
Cost of goods 4,375,000 4,080,000 Cost of goods sold
manufactured
Total 4,775,000 4,775,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B 6. A 7. A
PROBLEM 12-28
Question No. 1
Accountspayable,March3 1 2,370,000
Less:
TotalPaymentinApril 300,000
2,070,000
Accounts payable for April Purchases
Totalpurchases 600,000
Less:PaymentinA pril 200,000 400,000
93
Chapter 12: Inventories
Question No. 2
Purchases,a s of March3 1 4,200,000
Add:PurchasesinApril 600,000
Grosspurchases 4,800,000
Less:Purchasereturns 12,000
Net purchases (B) 4,788,000
Question No. 3
Accounts receivable
Beg. Balance 2,700,000 3,000,000 Bal. end
Collections including
Sales on account 1,488,000 938,000 recoveries
Recoveries 0 250,000 Writeoff
0 Sales returns
4,188,000 4,188,000
Net Sales
SalesasofMarch3 1 9,040,000
AprilSales 1,488,000
Less: Sales return 100,000 1,388,000
Net Sales (C) 10,428,000
Question No. 4
NetSales 10,428,000
Multiply by:Costratio 60%
Cost of Sales (C) 6,256,800
Question No. 5
Estimatedinventory 3,031,200
Less:Shipment int ransit 40,000
Undamaged goods at cost 120,000
Salvagevalue 25,000
Inventory fire loss (C) 2,846,200
SUMMARY OF ANSWERS:
1 . B 2 . B 3. C 4. C 5. C
94
Chapter 12: Inventories
PROBLEM 12-29
Questions No. 1 and 2
Purchases ending
11m os 12m os
Unadjustedbalance 2,700,000 3,200,000
Shipment in Nov. included in December purchases 30,000 -
Unsalables hipmentsreceived (4,000) (6,000)
Deposits in October shipped February (8,000) (8,000)
Depositsmadev endorinNovember (22,000) -
Adjustedbalance 2,696,000 2,186,000
1.( D) 2.( D)
Question No. 3
Beginning inventory – January 1, 2015 350,000
Add: Purchases for 11 months (see No. 1) 2,696,000
Less: Ending inventory – Nov. 30, 2015 (360,000- 358,000
22,000 + 20,000)
Cost of sales 2,688,000 (A)
Question No. 4
Sales endingD ecember 31, 2015 3,840,000
Less: Sales ending Nov. 30, 2015 (3.4M-40,000) 3,360,000
SalesSales
Less:–December
at cost 2015 480,000
40,000
Sales in December 2015 made at a profit 440,000
Multiply: Cost ratio (2,688,000 / 3,360,000) 80%
Cost ofs alesmadeat profit 352,000
Add:Costo fs alesmadea tc ost 40,000
Total Cost of Sales -December 392,000 (A)
Question No. 5
Beginning inventory – Nov. 30, 2015 358,000
Add: Purchases for December (3,186,000 – 2,696,000) 490,000
Less:Costo fSales–December 392,000
Ending inventory – December 31, 2015 456,000 (A)
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. A
PROBLEM 12-30
Cost Retail
Inventory,Jan1 300,000 1,200,000
95
Chapter 12: Inventories
Cost ratios:
Conservative
5,760,000
Cost ratio =
9,216,000
Cost ratio = 62,50%
Average
FIFO
5,760,000 – 300,000
Cost ratio =
9,000,000 – 1,200,000
Cost ratio = 70%
Question Nos. 1 to 6
Ending inventory at cost Cost of goods sold
Cost method (EI @ retail x cost ratio) (TGAS @cost – EI @cost)
Conservative (62.5%) P1 ,375,000 4,385,000
96
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1 . A 2 . B 3. B 4. C 5. C 6. D
PROBLEM 12-31
Question No. 1
Subsidiary General
Ledger Ledger
Unadjustedbal. P 760,000 P 1,020,000
Undeliveredsales ( 100,000)
Valid Sales 60,000
SalesFOBdestination ( 100,000)
NSFcheck 50,000 50,000
Collectionbyt hebank ( 60,000) ( 60,000)
Sales in 2015 recorded in 2016 DR No. 38740 3,360 3,360
Receivable ins. Co DR No. 38741 ( 10,080) ( 10,080)
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200) ( 19,200)
Adjusted balance (D) P 784,080 P 784,080
Question No. 2
Current:
UnadjustedbeginningBalance 97,500
Add: ValidS ales in 2015 (60,000+ 3,360) 63,360
Total 160,860
Less:Receivablei ns Co(DR#3 8741) 10,080
Sales in 2016 recorded in 2015 (DR # 38743) 19,200
Current Accounts Receivable balance 131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1) 784,080
Less: Current Accounts Receivable balance 131,580
Past due Accounts Receivable *652,500
*or (662,500+50,000-60,000)
Age classification Amount Percentage Total
Question No. 3
Allowance for doubtful accounts, beginning 7,000.00
Less:Accountswrittenoff -
Less: Allowance for doubtful accounts, ending 73,144.80
97
Chapter 12: Inventories
Question No. 4
Unadjusted Merchandise Inventory, ending 316,000
Add: Cost of merchandise sold of DR # 38743(19,200/120%) 16,000
Doubtful accounts expense (B) 332, 000
Question No. 5
UnadjustedNetSalesbalance P3,000,000
Undeliveredsales ( 100,000)
SalesFOBdestination ( 100,000)
Sales in 2015 recorded in 2016D R No. 38740 3,360
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200)
Adjusted balance (B) P2 ,784,160
SUMMARY OF ANSWERS:
1 . D 2 . A 3. A 4. B 5. B
PROBLEM 12-33
105,000
12,500 12,500- -- -- - 105,000 -
1 2,500
1,000 1,000 - 1,000 -
(2,650) (2,650) - - (2,650) -
Adj. 652,350 433,350 520,000 4,520,000 1,540,850 1,200,000
SUMMARY OF ANSWERS:
1 . D 2 . B 3. B 4. B 5. C
PROBLEM 12-34
SUMMARY OF ANSWERS:
1 . C 2 . A 3. A 4. A 5.
PROBLEM 12-35
SUMMARY OF ANSWERS:
1 . C 2 . D 3. D 4. D 5. B
PROBLEM 12-36
98
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1 . A 2 . A 3. C 4. C 5. B
99
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Advances
Allowancefrom customers
for bad debts (30,000) 48,000
Biologicalassets 360,000
Bonds payable 360,000
Cash and cash equivalents 210,000
Cash dividendspayable 81,000
Cash surrender value 180,000
Claimsf ort axrefund 135,000
Deferredtaxassets 180,000
Deferredtaxliabilities 57,000
Discountonbondspayable (45,000)
Finance leaseliability 135,000
Income taxes payable 27,000
Intangibleassets 90,000
Interest receivable 63,000
Investment in associate 135,000
Investment in bonds 510,000
Investment in equity
instruments 375,000
Investment in subsidiary 210,000
Issued redeemable
preference shares (with
mandatoryredemption) 300,000
Merchandisei nventories 399,000
Notes receivable 450,000
PHILHEALTH contributions
payable 18,000
Prepaid interest (not a
valuation account to financial
liability) 60,000
Prepaidrent 60,000
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Unearned interest on
receivables 15,000
Unearnedrentincome 24,000
Utilitiespayable 750,000
Warrantyobligations 39,000
2,673 1,074 2,445 243
(E) (C) (E) (D)
Dividendincome 20,000
2/14/2017 Cash 20,000
Dividendreceivable 20,000
2) FVTOCI
1/5/2017 Financial Asset at FVTOCI 1,025,000
Cash 1,025,000
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Consideration received ( x 15,000 x 1/2) 750,000
Less: Brokerage andc ommission 20,000
NetSellingPrice 730,000
Less: Carrying value( 1,600,000x ½) 800,000
Realized loss on sale – P&L (B) (70,000)
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 4
Considerationreceived 750,000
Less: Brokerage andc ommission 20,000
NetSellingPrice 730,000
Less: Carrying value (1,600,000 x ½) 800,000
Realized loss on sale – P&L (B) (70,000)
Question No. 5
Journal entries for the sale are :
1) FVTPL
12/31/2016 FVTPL 100,000
Unrealizedgain-P&L 100,000
1/2/2017 Cash 730,000
Loss on sale 70,000
FVPTL 800,000
To record the sale
2) FVTOCI
12/31/2016 FVTOCI 100,000
Unrealizedgain-OCI 100,000
1/2/2017 Cash 730,000
Loss on sale 70,000
FVTOCI 800,000
To record the sale
Unrealized Gain (100,000 x ½) 50,000
Retainedearnings 50,000
To record transfer of unrealized gain to Retained earnin gs
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
December 1 Dividend Receivable (15,000 x P2) 30,000
Dividendincome 30,000
December 15 No formal accounting entry
December31 Cash 30,000
DividendReceivable 30,000
Question No. 2
November 1 Dividend Receivable (250,000 x 15%) 37,500
Dividendincome 37,500
December 31 No journal entry
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 3
October 1 Memo entry
October31 Cash 81,000
Gain on sale 36,000
FAatFVTOCI 45,000
SUMMARY OF ANSWERS:
1. A 2. D 3. B 4. C
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Fair value( P30 x 25,000) P750,000
Less:Carryingv alue 500,000
Unrealized gain-OCI P250,000 (D)
Questions No. 3 an d 4
Journal entries are:
1/1 Financial Asset atF VTOCI P420,000 (B)
Cash P420,000
3/1 Received `5,000 shares as a result of 5
for 2 share split.
11/1 FinancialAssetatF VTOCI 80,000
Cash (P3.20 x25,000) 80,000
12/31 Finan ialAssetatF VTOCI 2500 00
Unrealized gain – OCI (C) 250,000
[(P30 x 25,000) – P500,000]
SUMMARY OF ANSWERS:
1. D 2. D 3. B 4. C
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 3
The cost of the investment will only include the subscription price of P400,000
(5,000 x P80). (B)
Question No. 4
The cost of the investme nt will include the subscription price of P400,000 and
cost of stock rights exercised of P200,000 = P600,000. (C)
The journal entries under the two classifications are as follows:
Fair Value through profit and loss securities
June 15 Memo entry (Received 10,000 stock
rights)
July15 FVTPL(P80 x1 0,000/2) 400,000
Cash 400,000
Fair Value Through Other Comp rehensive Income
June 15 Stock rights( P20 x 10,000) 200,000
Unrealizedgain-P/L 200,000
July 15 FVTOCI (P80 x 10,000/2)+ 200,000 600,000
Cash 400,000
Stockrights 200,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C
SUMMARY OF ANSWERS:
1. B 2. C
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as
FVTOCI. Since reclassification is not allowed, there is no reclassification gain or
loss. (A)
SUMMARY OF ANSWERS:
1. B 2. D
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P30) 240,000
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
SUMMARY OF ANSWERS:
1. C 2. B
Question No. 2
Journal entries are:
March3 1 Financial asset at FVTOCI 820,000
Land 600,000
Gain on exchange (820,000-600,000) 220,000
SUMMARY OF ANSWERS:
1. B 2. D
Question No. 2
Journal entries are:
March 31 Land (at fair value of the asset given up) 650,000
FVTOCI 600,000
Gain on exchange (650,000-600,000) 50,000
Retainedearnings 25,000
Unrealized loss (625,000-600,000) 25,000
SUMMARY OF ANSWERS:
1. B 2. B
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 3
Sellingprice P50,000
Less:Commission andtaxes 5,000
Netsellingprice 45,000
Less: Carrying value [2,500x(P90,000/6,000)] 37,500
Gain on sale (C) P7,5 00
Question No. 4
EDA Corp. shares [P50 – (P30,000/1,000)] x 1 ,000 = P20,000
DJOA,Inc. [P15– (P90,000/6,000)] x 3,500 = -
RVFE, Co. [P45– (P80,000/2,000)] x 2,000 = 10,000
ARP, Co. [P100 – (P880,000/8,000)] x 8,000 = ( 80,000)
Loss chargeable to income statement (B) (P50,000)
Question No. 5
EDAC orporationshares P50 x 1,000 = P50,000
DJOA,Inc. P15 x 3,500 = 52,500
RVFE,Co. P45 x 2,000 = 90,000
ARP, Co. P100 x 8,000 = 800,000
Total balance of financial asset at profit or loss (A) P992,500
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. A
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds(P35x 500) P 17,500
Carrying value (P500 x (P88,000/(2,000 x 110%)) ( 20,000)
Loss on sale P (2,500)
Question No. 4
March3 1 (65,000-50,000) 15,000
June15 (50,000-20,000) 30,000
Gain/(Loss) on Exchange (A) 45,000
Question No. 5
EDA Corporation preference shares (500 x P50) P 25,000
DJOA,Inc.(3,500xP15) 52,500
RVFE Co. ((2,000 x 110% - 500) x P45) 76,500
ARPCo.(8,000xP100) 800,000
LCC(1,000x 60) 60,000
Adjustedbalance P 1 014,000 (D)
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. A 5. D
PROBLEM 14-24
Question No. 1
Stockrights( 11,000xP6) P 66,000 (D)
Question No. 2
Cashp aid (P90 x( 10,000/5)) P 180,000
Cost of stock rights used (P4 x 10,000) 40,000
Totalinvestmentc ost P 220,000 (B)
Question No. 3
Proceeds(P5.5x1 ,000) P 5,500
Costo fs tockrights( P4x 1,000) 4,000
Gaino nsaleofstockrights P 1,500 (C)
112
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 4
Proceeds P 440,000
Cost of shares sold (P76 ** x 4,000) 304,000
Gain onsaleofstocks P 136,000 (D)
Question No. 5
Original investment cost P 880,000
Costa llocated to stock rights* ( 44,000)
Additionali nvestment** 220,000
Saleofinvestment
Adjusted cost of investment ( P 304,000)
752,000 (D)
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. D 5. D
PROBLEM 14-25
Question No. 1
Cashp aid(400K+20K) 420,000
Less:dividends 10,000
Correctcost 410,000 (D)
Question No. 2
Feb.
10 30,000
Nov. 2
(10,000+(11,000/5) x 1 13,200
Totaldividendi ncome 43,200 (C)
Question No. 3
Fair value of new FA (10,000 x 40) 400,000
Less: Carrying value (975,000/15K x
5K) 325,000
Gain onconversion 75,000 (C)
Question No. 4
Consideration received (2,000 x 70) 140,000
Less: Dividends (2,000 xP 1) 2,000
NetSellingPrice 138,000
Less:Carryingv alue 99,000
Gain onsale 39,000 (C)
Carrying
Shares value
10000 451,000
10-Feb 1,000 -
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 5
Fairv alues Cost Difference
Gerrit-PS (70 x 10,000) 700,000 600,000 (900,000/15K x 10K)
-OS (45 x 10,000) 450,000 400,000
Loesch (72 x 11,200) 806,400 638,400
Barr( 20 x2 0,000) 400,000 410,000
2,356,400 2,048,400 308,000 (A)
Note: Use bid price on asse t held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. B 5. A
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio – 12/31/2015
ColomaCompany 3,070,000
Soliman 2,737,500
VillanuevaCompany 1,871,000 7,678,500
Less: FVTOCI Portfolio – 01/01/2015
ColomaCompany 3,050,000
Soliman 2,725,000
VillanuevaCompany 1,875,000 7,650,000
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Fairvalue ofshares 2,797,500
Less: Carrying amount of Soliman portfolio 2,737,500
Gain onexchange 60,000 (B)
Note that the carrying amount is equal to the fair value previous
remeasurement date (12/31/2015).
Question No. 3
Proceeds from sale of Aquino shares 2,590,000
Less: Carrying amount of Aquino portfolio 2,600,000
Loss on sale (10,000) (B)
Question No. 4
FVTOCI Portfolio – 12/31/2016
ColomaCompany 3,080,000
VillanuevaCompany 1,867,500 4,947,500
Less: FVTOCI Portfolio – 01/01/2015
ColomaCompany 3,050,000
VillanuevaCompany 1,875,000 4,925,000
Unrealized gain – SFP (cumulative) (C) 22,500
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 – 4,000) x P50 = P200,000 (A)
Question No. 2
Type of Fair Total fair Allocated
stocks # shares value value cost
Ordinary 10,000 P30 P300,000 P234,375
Preference 2,000 10 20,000 15, 625 (B )
Totalcost P320,000 P250,000
Question No. 3
Allocate part of the investment cost to the prefe rence shares.
Question No. 4
Proceeds(1,000xP17) P 17,000
Carrying amount [(P15,625/(10,000/5)) x 1,000)( 7,812.50)
Gain onsale P 9,187.50 (C)
115
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 5
Proceeds, exclusive of interest P 2 80,000
Carrying amount (250 x 1,000 x 110%) ( 275,000)
Gain onsale P 5,000 (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. A
PROBLEM 14-28
Question No. 1
NetSellingprice 250,000
Less: Carrying value (740,000/40,000 x 5,000) 92,500
Gain on sale (D) 157,500
Question No. 2
Considerationreceived 270,000
Less:
Dividend income of the investment sold (6,000 x *P20 x 20%) 24,000
NetSellingprice 248,000
Less: Carrying value (740,000/40,000 x 6,000) 111,000
Gain on sale (D) 137,000
*The par value after 2 for 1 share split is equal to P40 x ½= P20
Question No. 3
6/1/2016(35,000x4) 140,000
12/1/2016(35,000x 20%xP20) 140,000
Total dividend income (A) 280,000
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. D 5. D
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Chapter 15: Investment in Debt Securities
Question No. 2
Amortization table:
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 1,127,076
12/31/2015 120,000 )(B135,249 5,249
1 1,142,325
Question No. 2
Amortization table:
Interest Interest Discount Present
Date Collection Income Amortization value
01/01/2015 1,878,460
12/31/2015 200,000 225,415 25,415 1,903,875
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Chapter 15: Investment in Debt Securities
Since there is transaction cost incurred, effective rate must be computed. The
effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the
textbook for example of interpolation).
Interest income (11.5% x P1,144,752)
=1 31,646 (B)
Principal
450,000 Collection
180,000 Collection
630,000 Val ue Factor
0.8929 Value
562,527
450,000 135,000 585,000 0.7972 466,362
450,000 90,000 540,000 0.7118 384,372
450,000 45,000 495,000 0.6355 314,573
Total Pre sent Value of the serial bond s (C) 1,727,834
Question No. 2
Interest income (1,727,834 x 12%) = 207,340 (B)
Note to Teacher: The requi rement shoul d be “ Under each item described
above, prepare the necessary entries on January 1, 2016 and December 31,
2018.”
Interestincome 14,624
InvestmentinBonds –FVTOCI 14,624
To record premium amortizati on using 11% revised effectiv e rate.
Unrealizedgain-OCI 47,199
Reclassificationgain 47,199
Cash
Dec. 31, 0,000
2018Interestincome 0,000
To record the receipt of interest.
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Chapter 15: Investment in Debt Securities
120
Chapter 15: Investment in Debt Securities
Question No. 2
Fair value of the bonds (5M X 104) 5,200,000
Less:Carryingv alue 5,379,079
Unrealized gain (or loss)-P&L (B) (179,079)
Question No. 3
Ne Selling Price (5M x ½ x 05) 2,625,000
Less: Carrying value (5M x ½ x 104) 2,600,000
Gain (or loss) on sale (B) 25,000
Question No. 4
Facev alue( 5M x½) 2,500,000
Multiplyb y:N ominalr ate 12%
Multiply by: Months outstanding 12/12
Interest Income (B) 300,000
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next repor ting period (January 1, 2017). The investment
therefore would be continued to be reported as held for trading on December
31, 2016.
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Chapter 15: Investment in Debt Securities
Question No. 5
Fair value of the bond s on the 2,600,000
reclassification date, 1/1/ 17 (2.5M X 104)
Less: Carrying value (2.5M X 1.02) 2,550,000
Unrealized gain (or loss)-P&L (C) 50,000
Question No. 6
Fair value of the bond s on the 2,600,000
reclassification date, 1/1/17 (2.5M X 104)
Less: Carrying value (2.5M X 1.02) 2,550,000
Unrealized gain (or loss)-OCI (A) 50,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. B 5. C 6. A
CASE NO. 1
Question No. 1
Face value 5,379,079
Multiplyb y:N ominalr ate 10%
Multiply by: Months outstanding 12/12
Interest Income (B) 537,908
Question No. 2
Nil. No unrealized gain or loss is recognized if the financial asset is classified as
financial asset at amortized cost. (A)
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Chapter 15: Investment in Debt Securities
Question No. 3
Net Selling Price (5M x ½ x 105) 2,625,000
Less: Car rying value (see amort ization 2,658,494
table) (5,316,987 x ½)
Gain (or loss) on sale (C) (33,494)
Question No. 4
Carrying value, 12/31/16 (5,316,987 x ½) 2,658,494
Multiplyb y:N ominalr ate 10%
Multiply by: Months outstanding 12/12
Interest Income (A) 265,849
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2016 since reclassification date will be
on the first day of the next reporting period (January 1, 2017). The investment
therefore would be continued to be reported as Financial Assets at Amortized
Cost on Dec ember 31, 201 6.
Question No. 5
Fair value of the bond s on the 2,600,000
reclassification date, 1/1/ 17 (2.5M X 104)
Less: Carrying value (2,658,494 X 1. 10) - 2,624,343
300,000)
Reclassificati on loss- P&L (B) (24,343)
SUMMARY OF ANSWERS:
1. B 2. A 3. C 4. A 5. B
CASE NO. 2
Note to teacher: You may ignore this since there is incomplete information to
answer some of the questions under this case.
PROBLEM 15-8
Requirement No. 1
Annual expected loss
Multiply by: Present value of ordinary annuity for 5 years using
12% 3.6048
Lifetime expected credit losses
Requirement No. 2
Annual expected loss
Multiply by: Present value of 1 for 5 years using 12% .5674
12-month expected credit losses
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Chapter 15: Investment in Debt Securities
Requirement No. 3
On initial recognition, Bank Company records the foll owing journal entries:
January1 , LoanR eceivable 1,500,000
2017 Cash 1,500,000
To recognize loan asset at gross amount.
Impairment loss – P&L 11,348
Loss allowance in SFP 11,348
To recognize 12-month expected credit losses.
Requirement No. 4
If, at the end of 2017, there is no significant deterioration of the credit quality,
there would be no change to the recognition of the 12-month expected credit
losses.
Requirement No. 5
If, at the end of 2017, there is a significant deterioration of the credit quality, the
company should record lifetime expected credit loss. The amount to be
recognized is computed as follows:
Annual expected loss
Multiply by: Present value of ordinary annuity for 4 years using
12% 3.0373
Lifetime expected credit losses
Less: 12-m onth expect ed credit loss recognized January 1 11,348
Impairment loss – P&L
The journal entry therefore to record the increase in allowance is as follows:
Dec.3 1, Impairmentloss–P&L 49,398
2017 Loss allowance inSFP 49,398
To recognize lifetime expected credit losses
PROBLEM 15-9
Requirement No. 1
Since the expected probability of default is only 2%, this is not considered
significant. Therefore the Company will only recognize 12-month expected loss.
Requirement No. 2
12-month expected credi t loss is computed as follows :
= 2%
x ,000
PROBLEM 15-10
Requirement No. 1
70%probability(4.8M–4.8M) 0
20%probability(4.8M–3.6M) 1,200,000
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Chapter 15: Investment in Debt Securities
10%probability(4.8M–3M) 1,800,000
Totalexpectedcashshortf all 2,000,000
Requirement No. 2
70%probability(4.8M–4.8M)x 70% 0
20%probability(4.8M –3.6M)x2 0% 340,000
10%probability(4.8M–3M)x 10% 180,000
Probability weightedcashshortfall 420,000
Requirement No. 3
Annual cashshortfall 420,000
Multiply by: Present value of annuity using 6.4% for 5 years 4.1669
Present value – lifetime expected credit loss 1,750,098
Requirement No. 4
Annual cashshortfall 420,000
Multiply by: Present value of 1 using 6.4% for 1 year .9398
Present value – 12 month expected credit loss 394,716
Requirement No. 5
Jan.1, Loan receivable 20M
2017 Cash 20M
To recognize the loan at gross amount
Impairmentloss- P&L 394,716
Loss allowance–SFP 394,716
To recognize 12-month expected credit loss.
PROBLEM 15-11
Requirement No. 1
Customer: Gross Lifetime
Group A carrying Expected Expected
amount credit loss Credit Loss
Not pastdue ,700,000 0.3% 17,100
1-30d ayspastdue 3,000,000 1.2% 36,000
31-60d ayspastdue 1,000,000 3.3% 33,000
61-90d ays past due 2,200,000 8.0% 176,000
>90daysp astdue 800,000 11.5% 92,000
Total 12,700,000 354,100
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Chapter 15: Investment in Debt Securities
Requirement No. 2
Gross carrying amount( + ) 20,800,000
Less:Lifetimeexpectedcreditl oss 574,000
Amortizedcost 20,226,000
PROBLEM 15-12
Amortization Table @ 6.1932%
Interest Interest Present
Date Collection Income Amortization value
January 1, 2017 0,000
December 31, 2017 100,000 117,670 17,670 1,917,670
December 31, 2018 100,000 118,766 18,766 1,936,436
December 31, 2019 100,000 119,928 19,928 1,956,364
December 31, 2020 100,000 121,162 21,162 1,977,524
December 31, 2021 100,000 122,472 22,472 2,000,000
Requirement No. 1
Investment in Bonds – FVTOCI 1,900,000
Cash 1,900,000
Impairmentloss–P&L 10,000
Loss allowance -OCI 10,000
Requirement No. 2
Cash ( 2,000,000x 5%) 100,000
InvestmentinBonds–FVTOCI 17,670
Interest income( 1,900,000 x6 .1932%) 117,670
To record interest collection and amortization.
Requirement No. 3
If both prime rate
If interest has not If only prime rate and credit risk
changed changed by 25% changed
Requirement No. 4
Unrealized loss – OCI ( 16,684 + ,000) 26,684
Impairment loss – P&L ( 32,800 - 10,000) 22,800
Loss allowance ( - ,000) 22,800
InvestmentinBonds–FVTOCI 26,684
To record impairment loss in profit or loss and decrease in fair value of asset.
Fairvalue –12/31/2017 1,868,190
Less: Amortized cost (see amortization table) 1,917,670
Decreaseinfairvalue (49,480)
Less: Decrease in fair value due to credit risk = impairment 22,800
Decreaseinfairvalue–OCI 26,680)
Requirement No. 5
Investment in Bonds – FVTOCI – 01/01/2017 1,900,000
Add:DiscountAmortization 17,670
Less:Decreaseinfair value 26,684
Less:Impairmentloss 22,800
Carrying amount = Fair value 12/31/2017 1,868,186
PROBLEM 15-13
Requirement No. 1
Cash
Lossa llowance– SFP 433,000
Investmentin Bonds –FAAC ,000,000
Requirement No. 2
Cash 5,000,000
Investment in Bonds – FAAC 5,000,000
Lossa llowance– SFP 433,000
Gaino n reversalo f impairment 433,000
Requirement No. 3
Cash ,500,000
Lossa llowance– SFP 433,000
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Chapter 15: Investment in Debt Securities
Question No. 2
Interest income (3,188,800 x 12%) = 382,656 (D)
COMPREHENSIVE PROBLEMS
PROBLEM 15-15
Question No. 1
Cost of investment – Jan. 21(P2,000,000 x 102%) =P2,040,000 (A)
Question No. 2
Proceeds P 1,060,000
Less: Accrued interest (P1,000,000 x 9% x 3/12) 22,500
NetProceeds 1,037,500
Less: Carrying amount (P2,000,000 x 102%) 1,020,000
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Chapter 15: Investment in Debt Securities
Question No. 3
Proceeds P 419,000
Less: Accrued interest (P400,000 x 9% x 5/12) 15,000
Net
proceeds 404,000
Carrying amount(P400,000 x102%) 408,000
Loss on sale (A) ( 4,000)
Question No. 4
Question No. 5
Carrying value – 12/31/20 16 (P600, 000 x 102%) = P612,000 (A)
The market value is equal to its cos t.
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A
Question No. 2
Amortization table (srcinal):
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 5,379,079
12/31/2015 600,000 537,908 62,092 5,316,987
12/31/2016 600,000 531,699 68,301 5,248,685
12/31/2017 600,000 524,869 75,131 5,173,554
12/31/2018 600,000 517,355 82,645 5,090,909
12/31/2019 600,000 509,091 90,909 5,000,000
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Chapter 15: Investment in Debt Securities
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above) 5,248,685
Less: Present value of expected cash flows 3.756,574
Impairmentloss 1,492,111
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Present value expected cash flows, date of reversal 5,619,835
Would have been present value had there been no impairment 5,173,554
(see srcinal amortization table)
Lowerofthe two above 5,173,554
Less: Actual amortized cost (P3,756,574 x 1.10) 4,132,231
Gaino nreversalofi mpairment 1,041,322
Question No. 2
Amortization table (srcinal):
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 5,379,079
12/31/2015 600,000 537,908 62,092 5,316,987
12/31/2016 600,000 531,699 68,301 5,248,685
12/31/2017 600,000 524,869 75,131 5,173,554
12/31/2018 600,000 517,355 82,645 5,090,909
12/31/2019 600,000 509,091 90,909 5,000,000
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Chapter 15: Investment in Debt Securities
Question No. 3
Carrying amount of the investment 12/31/2016 (see table above) 5,248,685
Less: Present value of expected cash flows 3.756,574
Impairmentloss 1,492,111
Question No. 4
Interest income (P3,756,574 x 10%) = 375,657
The interest income was computed using the srcinal effective rate and the
impaired value as of 12/31/2016.
Question No. 5
Present value expected cash flows, date of reversal 5,619,835
Less: Actual amortized cost (P3,756,574 x 1.10) 4,132,231
Gaino nreversalofi mpairment 1,487,604
PROBLEM 15-17
Question No. 1
Proceeds P204,000
Less: Carrying amount [(P432,000/24,000) x 12,000) 216,000
Loss on sale (B) (12,000)
Question No. 2
Cost,1/1/2015 P 5,311,400
Less:Amortizedcost,1 2/31/2015 5,242,540
Premiumamortization 68,860
Less: Nominal interest( 5,000,000x 12%) 600,000
InterestIncome 531,140
Effective interest (P531,400/5,311,140) = 10%
Interest income (P5,242,540 x 10%) = P524,254 (B)
Questi
2015 on No. 3amortization (P1,903,150 – P1,881,000)
discount P 22,500
Nominalinterest(P2,000,000x 13%) 260,000
Effective interest P 282,500
Divide by: 1/1/2015 amortizedc ost P 1,881,000
131
Chapter 15: Investment in Debt Securities
Question No. 4
Fair value, 1/1/2017 (2,000,000x 101) P 2,020,000
Less: Amortized cost – 01/01/2017
Book value, 12/31/2015 P 1,903,150
Add: Discount amortization
Nominalinterest 260,000
Less: Effective interest 282,473 22,473 1,928,623
Gain on reclassification (C) P 91,377
Question No. 5
Trading securities:
Panaghoy, Inc. (14,400 x P22) P 316,800
Lamentation, Inc. [(24,000 – 12,000) x P15] 180,000
Total P 496,800
FVTOCI:
Zephaniah, Inc. ( x 360,000) P10,080,000
Genesis bonds (1.04 x 5,000,000) 5,200,000
Total P15,280,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. C 5. A
132
Chapter 16: Investment in Associate
Question No. 2
Dividendsdeclared andpaid 5,000,000
Multiplyb y:Percentageofownership 20%
Dividends Revenue (C) 1,000,000
Question No. 3
Shareinnetincome(P8Mx20%) 1,600,000
Less: Amortization of Undervalued valued asset (see below) 200,000
Adjusted net investment income (A) 1,400,000
Question No. 4
Cost of Investment 30,000,000
Add: Net investment income (see no. 3) 1,400,000
Less: Dividends received (P1 x 1M shares) 1,000,000
Carrying value – 12/31/2015 (B) 30,400,000
Question No. 5
Investment using Fair Value ( 32 x 1,000,000) = 32,000,000 (D)
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. D
PROBLEM 16-2
Question No. 1
Cost of Investment 5,000,000
Less: Book value of net asset acquired (P10M x 30%) 3,000,000
Excesso fc ostoverbookvalue 2,000,000
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Chapter 16: Investment in Associate
Question No. 2
Shareinnetincome(P2Mx30%) 600,000
Less: Amortization of undervalued valued asset (see below) 30,000
Add: amortization ofovervalued asset 18,000
Adjusted net investment income (A) 588,000
2016 2017
Net incomeo ft hea ssociate 2,000,000 4,500,000
Multiplyb y: Percentage of ownership 30% 30%
Shareinthenetincome 600,000 1,350,000
Dividends declareda nd paid 800,000 1,600,000
Multiplyb y: Percentage of ownership 30% 30%
Dividendsreceived 240,000 480,000
Question No. 3
Cost of Investment 5,000,000
Add: Net investmenti ncome (see no. 2) 588,000
Less: Dividends received (P800,000x 30%) 240,000
Carrying value – 12/31/2016 (A) 5,348,000
Question No. 4
Sharein netincome(P4.5M x3 0%) 1,350,000
Add: Amortization of Overvalued valued asset (see no. 2) 18,000
Adjusted net investment income (C) 1,368,000
Question No. 5
Carryingvalue– 01/01/2017 5,348,000
Add: Net investment income (see no. 4) 1,368,000
Less: Dividends received( P1.6M x3 0%) 480,000
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Chapter 16: Investment in Associate
Land - 60,000
2016 2017
Net incomeo ft hea ssociate 8,000,000 10,000,000
Multiplyb y: Percentage of ownership 20% 20%
Sharein thenetincome 1,600,000 2 ,000,000
Dividends declareda nd paid 2,000,000 3,000,000
Multiplyb y: Percentage of ownership 20% 20%
Dividendsreceived 400,000 600,000
Question No. 2
Shareinnetincome(P8Mx20%) 1,600,000
Less: Amortization of Undervalued valued asset (see table 20,000
above)
Adjusted net investment income (A) 1,580,000
Question No. 3
Cost of Investment 6,000,000
Add: Net investment income (see no. 2) 1,580,000
Less:Dividends received( P2M x20%) 400,000
Carrying value – 12/31/2016 (A) 6,180,000
Question No. 4
Sharein netincome(P10Mx20%) 2,000,000
Less: Amortization of Undervalued valued asset (see table 10,000
above)
Add: amortization ofovervalued asset 60,000
135
Chapter 16: Investment in Associate
Question No. 5
Carryingvalue– 01/01/2017 6,180,000
Add: Net investment income (see no. 4) 2,050,000
Less:Dividends received (P3Mx2 0%) 600,000
Carrying value – 12/31/2017 (A) 7,630,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. C 5. A
Question No. 2
Cost of Investment 6,000,000
Add: Net investment income (see no. 1) 535,000
Less:Dividendsreceived -
Carrying value – 12/31/2016 (B) 6,535,000
CASE NO. 2
Question No. 1
Netincome P2,500,000
Less: Total actual preference dividends declared 450,000
Netincomet oordinaryshares P2,050,000
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Chapter 16: Investment in Associate
Question No. 2
Cost of Investment 6,000,000
Add: Net investment income (see no. 1) 490,000
Less:Dividendsreceived -
Carrying value – 12/31/2016 (A) 6,490,000
CASE NO. 3
Question No. 1
Netincome P2,500,000
Multiplyb y:Percentageofownership 30%
Sharein thenetincomeofa ssociate 750,000
Less: Amortization of undervalued asset ( 1,000,000/8) 125,000
Net investment income (C) 625,000
Although the answe r shoul d be 400,000, the next best poss ible answer is
500,000.
Question No. 2
Cost of Investment 6,000,000
Add: Net investment income (see no. 1) 625,000
Less:Dividendsreceived -
Carrying value – 12/31/2016 (C) 6,625,000
SUMMARY OF ANSWERS:
CASEN O.1 CASEN O.2 CASEN O.3
1. B 2. B 1. A 2. A 1. C 2. C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity
Method - Step Acquisition
Question No. 1
Fairvalue –12/31/2017 3,600,000
Less: Carrying value (Fair value – 12/31/2016) (3,900,000)
Unrealized loss – P&L (B) (300,000)
Question No. 2
Investment income ( 550,000 x 15%) (C) 82,500
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Chapter 16: Investment in Associate
Question No. 3
Nil. No catch-up adjustment on retained earn ings. (A)
Fair valueo f previously held interest 3,600,000
Acquisitioncost 3,600,000
Totalcost ofinvestment 7,200,000
Less: Book value of net asset acquired (12.5m x 30%) 3,750,000
Excesso fa ttributablet o machinery 3,450,000
Divideby:Remaininglife 10
AmortizationofU ndervaluedasset 345,000
Question No. 4
Shareinnetincome 480,000
Less: Amortization of Undervalued asset (see table above) 345,000
Adjusted net investment income (A) 135,000
Question No. 5
Cost of Investment 7,200,000
Add: Net investment income (see no. 4) 135,000
Less:Dividendsreceived 210,000
Carrying value – 12/31/2018 (A) 7,125,000
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4. A 5. B
Question No. 2
Considerationreceived P5,200,000
Less:Dividendincome(5x 40,000) 200,000
Netsellingprice 5,000,000
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Chapter 16: Investment in Associate
Question No. 3
Fair value (P140 x 60,00 0) (A) P8,400,000
Question No. 4
Costo fI nvestment–01/01/2015 2,400,000
Add: Net investment income - 2015 (5,000,000 x 30%) 1,500,000
Less: Dividends received -2015 (30% x 2,000,000) 600,000
Carrying
Add: Netvalue– 12/31/2015
investment income - 2016 (6,000,000 x 30%) 3,300,000
1,800,000
Less: Dividends received -2016 (30% x 3,200,000) 960,000
Carryingvalue– 12/31/2016 4,140,000
Netsellingprice 2,400,000
LessC arrying amount (P4,140,000 x ½) 2,070,000
Gain on sale (B) P330,000
Question No. 5
Investment in Kababain – FVTOCI:
Fairvalue( P150x1 5,000) 2,250,000
Less:Carryinga mount 2,070,000 180,000
Investment in Passing Rate – FVTOCI:
Fairvalue( P140x60,000) 8,400,000
Less Cost (12M-(10 x 100,000))/100,000 x 60,000) 6,600,000 1,800,000
Total Unrealized Gain –OCI to SFP (C) 1,980,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. C
Note:
The dividend received on August 1, 2015 need not be prorated even though
the investment was acquired on July 1, 2015 since dividends is considered
when the investor has the righ t to recei ve paymen t (i.e. date of declara tion).
The P1.8M net income wa s for a peri od of 12 months en ding Dece mber 31.
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Chapter 16: Investment in Associate
Question No. 2
Salesprice (P25x50,000) 1,250,000
Carrying value of shares (P3,992,000 x 50,000/200,000) 998,000
Gain on sale of inve stment (B) 252,000
Question No. 3
Fair value of retained investment (P25 x 150, 000) 3,750,000
Less: Carrying amount of retained investment (P3,992,000 x
150,000/200,000) 2,994,000
Gain on reclassification to P&L (C) 756,000
Question No. 4
Fair value, Dec.3 1, 2016 (P30 x 150,000) 4,500,000
Fair value, Jan. 1, 2016 (P25 x1 50,000) 3,750,000
Unrealized gain, Dec. 31, 2016 (B) 750,000
Question No. 5
Fair value, Dec. 31, 2016 (P30 x 150,000) (A) 4,500,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. B 5. A
Question No. 2
Netproceeds(160,000x120) 19,200,000
Less: Carrying amount (30,450,000x(160,000/300,000)) (16,240,000)
Gain on Sale (C) 2,960,000
Question No. 3
FVTOCI (140000x120) 17,080,000
Less: Carrying amount (30,450,000x(140,000/300,000) 14,210,000
Gain on Reclassification (B) 2,870,000
Question No. 4
Dividend Income (2,000,000x .14) (A) 280,000
140
Chapter 16: Investment in Associate
Question No. 5
Investment in FVTOCI (140,000x125) (B) 17,500,000
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. B
PAS 28, paragraph 29, provides that if under equity method an investor’s share
of losses of an associate equals or exceeds the carrying amount of an
investment, the investor discontinues recognizing its share of further losses.
The investment is reported at NIL or zero value.
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Chapter 16: Investment in Associate
COMPREHENSIVE PROBLEMS
PROBLEM 16-15
Question Nos. 1 and 2
2015 2016
Net incomeo ft hea ssociate 2,500,000 4,000,000
Multiplyb
ShareinNI y: Percentage of ownership 30% 1,200,000
750,000 30%
Less: Gaino sale of equipment (100,000)
Add:Depreciationo fExcess 20,000 20,000
Gain on sale of inventory (upstream) (50,000x .3) (15,000) 15,000
Less: Gain on sale of inventory (Downstream) (150,000)
NetshareinNI 655,000 1,085,000
1.( B) 2.( B)
Question No. 3
Cost 5,000,000
Add:Investment Income2015 655,000
Less:Dividends(900,000x.3) 270,000
Carrying amount 2015 (A) 5,385,000
Question No. 4
Carryingamount01/01/2016 5,385,000
Add:Income 1,085,000
Less:Dividends(2,000,000x.3) 600,000
Carrying Amount - 2015 (B) 5,870,000
142
Chapter 16: Investment in Associate
Question No. 5
Carryingamount01/01/2016 5,385,000
Add:Income 1,085,000
Less:Dividends(2,000,000x.3) 600,000
Less: Amortization of goodwill (400,000 x 2/10) 80,000
Carrying Amount - 2015 (A) 5,790,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity canno t determine reliably the useful life, it is
assumed to be 10 yea rs.
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
PROBLEM 16-16
Question No. 1
Cost P1,700,000
Less:Equityinnetassets 1,400,000
Implied goodwill (D) 300,000
Question No. 2
Proceeds(2,500xP13) P 32,500
Less: Carrying amount [(P60,000/6,000) x 2,500] 25,000
Gain on sale (C) 7,500
Question No. 3
Proceeds(500 xP21) P 10,500
Less: Carrying amount [(P66,000/(2,000 x 110%)) x 500] 15,000
Loss on sale (D) 4,500
Question No. 4
FV off inancial asset received (1,500 xP 21) P 31,500
Less: Carrying amount [(P45,000/1,000) x 500] 22,500
Gain on conversion (A) 9,000
Question No. 5
Investment in Roque Corporation:
3/9 1,000x
P1.2 1,200
9/9 1,000 x
P1.2 1,200
Investment in Ocampo Corporation:
6/30 (6,000 –2,500)xP1 3,500
Total dividen d income (D) 5,900
143
Chapter 16: Investment in Associate
Question No. 6
1/2/2016 AcquisitionCost 1,700,000
Add: Share in net income of associate (P1,200,000 x 30%) 360,000
Less:Dividends(P.50x4x100,000) 200,000
12/31/2016 carrying amount (D) P1,860,000
Question No. 7
Roquepref.(1,000–500)xP56 28,000
Roqueordinary(1,500xP20) 30,000
Ocampo(6,000-2,500)xP11 38,500
Dagumboy Co.( 2,000 x 110% -500) x P22 37,400
12/31/2016 FVTOCI Balance (C) 133,900
SUMMARY OF ANSWERS:
1. D 2. C 3. D 4. A 5. D 6. D 7. C
PROBLEM 16-17
Question No. 1
Solano (264,500-250,000) 14,500
Castaneda (280,000-320,000) (40,000)
(70,000-195,000) (125,000)
Unrealized G/(L) (C) (150,500)
Question No. 2
Zero, gain or loss on reclassifi cation is NOT allowed (A)
Question No. 3
Fair value previously held interest (50,000 x 30) 1,500,000
Less:Carrying value 1,350,000
Gain on reclassificati on-P&L (C) 150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D) 270,000
Question No. 5
Fair value previously held interest (50,000 x 30) 1,500,000
Add:Acquisitioncost 3,000,000
Initial carrying amount – investment in associate 4,500,000
Add:
Less:Net investment
Dividends income
declared (see
(P2x No.4 )
150,000) 270,000
300,000
Investment balance end (C) 4,470,000
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. D 5. C
144
Chapter 16: Investment in Associate
PROBLEM 16-18
Question No. 1
Consideration received (P230 x4 ,000) 920,000
Less: Dividend of the investment sold (P8 x 4,000) 32,000
NetSellingPrice 888,000
Less: Carrying value of the investment sold (*1,970,000/10,000
x 4,000) 788,000
Gain on sale (B) 100,000
Question No. 2
Net Selling Price( P450 x 50,000x 1/2) 11,250,000
Less: Carrying value of the investment sold (P20,800,000 x 1/2) 10,400,000
Gain on sale (C) 850,000
Beg. Balance of Investment in Associate 18,000,000
Add: Share in the net income of associate (25% x P20M) 5,000,000
Total 23,000,000
Less: Amortization (P2,000,000/10) 200,000
Dividends received( P40x 50,000) 2,000,000
Ending balance of investment in associate – 12/31/2016 20,800,000
Question N . 3
Nil. (A)
The dividend that was paid and sold in Boy-ot shares is not classified as
dividend income since the company did not own the shares when the
dividend was declared.
The dividend received in Cleo Shares is not regarded as income, but as a
deduction of the initial carryin g amount of the investment in associate.
145
Chapter 16: Investment in Associate
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4. C 5. C
Question No. 2
The carrying amount refl ecting fair values made by Mark Co. after imp airment:
CGU A
CGUB 100,000
CGUC 160,000
Netassets 380,000
Goodwill 40,000
Investment in associate (A)
146
Chapter 16: Investment in Associate
CASE NO. 2
Question No. 3 Fair value mode l
Fair value – Decemb er 31
Less:Acquisition cost 300,000
Gain on change in fair value – P&L to SCI
Add:Dividendincome( 45,000
Total to P&L (A)
CASE NO. 3
Question No. 5 Equity method
Entity Z’s reported profit
Multiply by:Percentage 30%
Share in net income (C)
147
Chapter 18: Property, Plant and Equipment
Question No. 2
Costo fbuildingconstruction 3,100,000
Interestonconstruction loan 60,000
Costo frazingoldbuildingonlot 42,500
Proceeds from sale of salvageable materials (6,000)
Total cost of the building (A) 3,196,500
Question No. 3
Cost of constructingdriveway 400,000
Cost ofparkinglot and fencing 60,000
Total cost of the land improvements (B) 460,000
148
Chapter 18: Property, Plant and Equipment
Question No. 2
Principal 1,000,000
Multiply by:Presentvalueof1 0.7972
Cost of the equipment (B) 797,200
Question No. 3
Carryingamountoft heassetgiven 800,000
Add:Cash payment 200,000
Cost of equipment (B) 1,000,000
Question No 4
Zero, the transaction lacks c ommercial substance. (A)
Question No. 2
Cash pricewithout tradein 340,000
Less:Cash pricewithtradein 270,000
Tradein
value 70,000
Less:Carrying amount 230,000
Loss on trade in (B) (160,000)
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Chapter 18: Property, Plant and Equipment
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
share premium in the equit y. (A)
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
premium on bonds payable. (A)
Question No. 2
Fair value (C) 4,000,000
Question No. 2
Beginningbalance –Jan 1 1,900,000
Add: Rearrangement and installation – March 2 45,000
Improvement that extend the life – December 60,000
Total cost of machine (B) 2,005,000
150
Chapter 18: Property, Plant and Equipment
Question No. 3
Beginningbalance –Jan 1 600,000
Add:Unloadingand set upcost 48,000
Total cost of precision machine (C) 648,000
Question No. 4
Beginningbalance –Jan 1 4,100,000
Add: Installation of sprinkler system – part of blue print 130,000
Add:Cost of attic 500,000
Total cost of building (B) 4,730,000
Question No. 3
Routine repairs and maintenance (D) 26,000
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. B 5. D
PROBLEM 18-10
Question No. 1
Interest paid(2,000,000 x1 4% x1 2/12) 280,000
Less: Investment income
1,400,000x 10%x 6/12 70,000
200,000 x10%x 2/12 3,333
Capitalizable borrowingcost 206,667
Note that capitalization of borrowing costs does not cease during a temporary
de ay in construct on
Question No. 2
Interest paid (2,000,000 x 14% x 12/12) 280,000
Less:Capitalizedborrowingcost 206,667
Interestexpense 73,333
Note that the interest paid and investment income is used to compute for the
capitalizable borrowing cost. However, the amount recognized as an interest
expense is the difference between the total interest paid and capitalizable
borrowing cost. Also, the amount recognized as interest income is 73,333.
Question No. 3
Totalprogresspayments 20,000,000
Add:Capitalizedborrowingcost 206,667
Totalcost ofthe stadium 20,206,667
151
Chapter 18: Property, Plant and Equipment
PROBLEM 18-11
Question No. 1
Interest expense under effective interest method (5,000,000 x 808,129
.176319 x 11/12)
Less: Investment income (250,000 x 11/12) 229,167
Capitalizable borrowingcost 578,962
Question No. 2
Interest expense under effective interest method (5,000,000 x 881,595
.176319 x 12/12)
Less:Capitalizedborrowingcost 578,962
Interestexpense 302,633
Question No. 3
Totalexpenditures 2,700,000
Add:Capitalizedborrowingcost 578,962
Totalcost ofthebuilding 3,278,962
Question No. 3
Totalcost ofthe building 3,278,962
Less:Residualvalue 1,000,000
Depreciable amount 2,278,962
Divideby:Useful life 10
Multiply by: Months 1/12
Depreciation -2016 18,991
Note depreciation will start when the asset is available for use.
PROBLEM 18-12
Question No. 1
Rate Principal Interest
15% 4,000,000 600,000
20% 2,000,000 400,000
Total 6,000,000 1,000,000
December
Averagea 1ccumulatedexpenditure 240,000 x 1/12 20,000
3,320,000
Multiply by: Rate 16.67%
Capitalizable borrowingcost 553,334
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Chapter 18: Property, Plant and Equipment
Note that investment income is not considered since the two loans are
considered general borrowings.
Question No. 2
Totalinterestexpense 1,000,000
Less:Capitalizedborrowingcost 553,334
Interestexpense 446,667
Question No. 3
Expenditures capitalized – previous period 600,000
Add: Expenditures during the current year 3,540,000
Add:Capitalizedborrowingcost 553,334
Totalcosto fthef actorybuilding 4,693,334
Since the average accumulated expenditure did not exceed the principal of the
specific borrowing, the specific rate was used in determining the capitalizable
borrowing cost.
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Chapter 18: Property, Plant and Equipment
154
Chapter 18: Property, Plant and Equipment
155
Chapter 18: Property, Plant and Equipment
Requirement No. 2
Carryingvalue– 12/31/2015 1,800,000
Less: Depreciation –2016 750,000
Carryingvalue– 12/31/2016 1,050,000
CASE NO. 2
Requirement No. 1
Carryingvalue– 12/31/2015 1,800,000
Less:Residualvalue 150,000
Depreciable amount 1,650,000
Dividedby:R emainingusefullife(8 –4) 4
CASE NO. 3
Requirement No. 1
Carryingvalue– 12/31/2015 1,800,000
Less:Residualvalue 300,000
Depreciable amount 1,500,000
Multiply by: Fraction (SYD=10) 4/10
Depreciation –2016 600,000
Requirement No. 2
Carryingvalue– 12/31/2015 1,800,000
Less: Depreciation–2016 600,000
Carryingvalue– 12/31/2016 1,200,000
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Chapter 18: Property, Plant and Equipment
COMPREHENSIVE PROBLEMS
PROBLEM 18-21
Question No. 1
Beg.Balanceofthe Land P 700,000
Cash paid 2,500,000
Mortgage assumed 4,000,000
Realtor's
Legal commission
fees, realty taxes and documentation expenses 300,000
50,000
Amount paid to rel cate persons squatting on the property 100,000
Total Cost of t he Land (B) P7,650,000
Question No. 2
Beginning balanceo f theL and Improvement P 10,000
Cost offencingproperty 110,000
Total cost of Land Improve ment (A) P 120,000
Question No. 3
Beg.Balanceofthe Building P 900,000
Amount recovered from salvage of building (150,000)
Costo ft earingdownanoldbuilding 120,000
Amountpaidto contractor 2,000,000
Buildingpermit 20,000
Excavationexpenses 50,000
Architects'fees 50,000
Total cost of building (A) P2,990,000
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Chapter 18: Property, Plant and Equipment
Question No. 4
Beg.BalanceoftheM achinery P 980,000
Invoicecostofmachinery 2,000,000
Freight,unloading 60,000
Customs duties 140,000
Allowancesduringinstallations 400,000
Total cost of machin ery (B) P3,580,000
Question No. 5
Totalcosto fLandImprovement P 120,000
Totalcost ofbuilding 2,990,000
Totalcost ofmachinery 3,580,000
Total depreciable property (A) P6,690,000
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. B 5. A
General borrowings:
Rate Principal Interest
14% 2,000,000 280,000
12% 18,000,000 2,160,000
158
Chapter 18: Property, Plant and Equipment
Question No. 3
Actualborrowingcost-2015 2,640,000
Less: Capitalizable borrowingc ost - 2015 858,000
Interest expense (C) 1,782,000
Question No. 4
Actualborrowingcost-2016 2,640,000
Less: Capitalizable borrowing cost - 2016 1,382,451
Interest expense (C) 1,257,550
159
Chapter 18: Property, Plant and Equipment
Question No. 5
Totalcost,2015 16,858,000
Expendituresin2016 3,000,000
Add: Capitalizable borrowing cost - 2016 1,382,451
Total cost of the building (B) 21,240,451
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. C 5. B
PROBLEM 18-23
Question No. 1
The computation of the income from government grant is as follows:
Totalcashreceived 20,000,000
Divideby:Usefullifeof thebuilding 20
Incomef romgovernmentgrant 1,000,000
Question No. 2
Cost ofbuilding 24,000,000
Divideby:Usefullifeof thebuilding 20
Depreciation 1,200,000
Question No. 3
Cost ofbuilding 24,000,000
Less:Governmentgrant 20,000,000
Total 4,000,000
Divideby Usefu lifeof thebuilding 20
Depreciation 200,000
Question No. 4
Cost ofbuilding 24,000,000
Less:Depreciation–2016 1,200,000
Carryingamount–12/31/2016 22,800,000
Question No. 5
Netcostofbuilding 4,000,000
Less:Depreciation–2016 200,000
Carryingamount–12/31/2016 3,800,000
Dividebyusefullifeof thebuilding 10
Incomef romgovernmentgrant 1,000,000
Question No. 2
Cost offactorybuilding 15,000,000
Divideby:Usefullifeof thebuilding 10
Depreciation 1,500,000
Question No. 3
Cost offactorybuilding 15,000,000
Less:Governmentgrant 10,000,000
Total 5,000,000
Divideby:Usefullifeof thebuilding 10
Depreciation 500,000
Question No. 4
Cost offactorybuilding 15,000,000
Less:Depreciation–2016 1,500,000
Carryingamount–12/31/2016 13,500,000
Question No. 5
Netcostoff actorybuilding 5,000,000
Less:Depreciation–2016 500,000
Carryingamount–12/31/2016 4,500,000
PROBLEM 18-25
Question No. 1
Cost( 800,000+45,000-5,000) 840,000
Less ResidualValue 40,000
Depreciable cost 800,000
Divide
by 5
Depreciation (B) 160,000
Question No. 2
Cost( 800,000+45,000-5,000) 840,000
Less Accumulated Depreciation (160,000 x 3) 320,000
Carryingamount 520,000
Less newresidualvalue 70,000
Depreciable cost 450,000
Dividebyremainingusefull ife (5-2) 3
Depreciation (A) 150,000
161
Chapter 18: Property, Plant and Equipment
Question No. 3
Cost 270,000
Less Accumulated depreciation (270,000/4 x 8/12) 45,000
Total 225,000
Carrying amount of old tires (12,000-(12,000/4 x 8/12) (10,000)
Cost ofnewtires 24,000
Total 239,000
Depreciation
Motor vehicle:
Sept.1 -May 30, 2019( 270,000/4 x8 /12) 45,000
June 1-Sept. 30 (215,000/4 x 12 mos-8 mos x 4 mos) 21,500
Tyres from June 1- Sept 30 (24,000/24 mos x 4 mos) 4,000
Depreciation expense (D) 70,500
Question No. 4
Depreciable Divide Depreciation
cost by exp
Residual Useful
Cost Value life
Airframe 800,000 10 80.000
800,000 0 years
Interior 100,000 10 10,000
100,000 0 years
Engines and 370,000 74,000
Question No. 5
Cost 280,000
Less ResidualValue 40,000
Depreciable cost 240,000
Divide
by 3
Multiply by 8/12
Depreciation (B) 53,333
SUMMARY OF ANSWERS:
1. B 2. A 3. D 4. D 5. B
PROBLEM 18-26
Question No. 1
SellingPrice P52,000
Less Book value
162
Chapter 18: Property, Plant and Equipment
Cost P140,000
Less: Accumulated Depreciation
Upto 1/1 P92,800
From Jan. 1-May 1
[(140,000 -12,400) x 5/55]* 11,600 (104,400) 35,600
Gain on sale of mac hinery D (A) P 16,400
Note: No depreciation is recorded in the year an asset is purchased, and full
year depreciation is provided in the year an asset is disposed of
Question No. 2
Accumulatedd epreciation,RJan1 P1 40,800
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100] 26,880
Accumulated depreciation, R Dec. 31 (B) 167,680
P
Question No. 3
Accumulatedd epreciation,IJan1 P60,000
Add: Depreciation expense [(320,000-60,000-20,000)/10] 24,000
Accumulated depreciation, I Dec. 31 (C) 84,000
P
Question No. 4
Accumulatedd epreciation,AJan1 P 64,000
Add: Depreciation expense (320,000-64,000) x 20% 51,200
Accumulated depreciation, A Dec. 31 (A) 115,200
P
Question No. 5
Depreciation expense
D (seecomputation on
1)Machinery:
inno. P 11,600
R(seecomputationinno.2) 26,880
I(seecomputationinno.3) 24,000
A(seecomputationinno.4) 51,200
N(88,000/20%) 17,600
Total depreciation expense (D) P 131,280
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. A 5. D
163
Chapter 18: Property, Plant and Equipment
Question No. 2
Purchase of bottling plant P2,000,000
Delivery and installation (750,000x 1/3) 250,000
Testing (33,000/3) 11,000
Total cost of conveyor belt and fittings (C) P2,261,000
Question No. 3
Purchase of bottling plant P 800,000
Delivery and installation (750,000x 1/3) 250,000
Testing (33,000/3) 11,000
Question No. 5
Depreciation of component
Engine = (1,500,000 of plant:
+ 250,000 + 11,000 – 500,000) / 5 years 252,200
Conveyor bel t etc = (2,0 00 000 + 250,000 + 11 000 – 0) / 8
years 282,625
Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3
years 337,000
Total depreciation of plant (A) P 871,825
SUMMARY OF ANSWERS:
1. C 2. C 3. C 4. A 5. B
PROBLEM 18-28
Question No. 1
Fair
value 1,400,000
164
Chapter 18: Property, Plant and Equipment
Question No. 2
Fairvalueo ftheassetreceived 1,200,000
Less:Cash paid 400,000
Fairvalue oftheassetgiven 800,000
Less: Book value of the asset giv en
Cost 1,000,000
Less: Accumulated depreciation (1M/10 x 3.5) 350,000 650000
Gain on exchange (A) 150,000
Question No. 3
OfficebuildingNo.1 (940,000/7) 135,000
Office building No.2 (1,000,000/10 x 6/12) 50,000
Office building No.3 (1,200,000/4 x 6/12) 150,000
Factoryb uilding(1,550,000/10) 155,000
Total Depreciation expense (C) 490,000
Question No. 4
Income from government grant (1,400,000/10) (A) 140,000
Questi
Total on No. 5 cost
depreciable 945,000
Less:Subsequentd epreciation 135,000
Book value (A) 810,000
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. A 5. A
PROBLEM 18-29
Question No. 1
Months
Date Exp enditures outstanding Average
January1 ,2 015 2,000,000 12 24,000,000
July1, 2015 4,000,000 6 24,000,000
November1 ,2015 3,000,000 2 6,000,000
Total 9,000,000 54,000,000
Divide
by 8
Weightedaveragec arryinga mount 4,500,000
165
Chapter 18: Property, Plant and Equipment
Question No. 2
Totalexpenditures–2015 9,000,000
Totalexpenditures-2016 1,000,000
Capitalizedborrowingcost-2015 500,000
Capitalized borrowing cost – 2016 (see computation below) 1,160,000
Total cost of building (C) 11,660,000
Months
Date Exp enditures outstanding Average
January1 ,2 016 *9,500,000 12 114,000,000
July1, 2016 1,000,000 6 6,000,000
166
Chapter 18: Property, Plant and Equipment
Question No. 3
Totalexpenditures–2015 9,000,000
Totalexpenditures-2016 1,000,000
Total cost of building (A) 10,000,000
Borrowing cos t under PFRS for SME is expens ed outrig ht.
Question No. 4
Costo fM achineryandEquipment 3,000,000
Multiply by: Fraction 3/15
Depreciation (A) 600,000
Question No. 5
Depreciation – remaining delivery truck (see below) 114,000
Depreciation – overhauled delivery truck (see below) 30,000
Depreciation – new delivery truck (see below) 24,000
Total depreciation on delivery truck (B) 168,000
Delivery truck:
Cost 1,152,000
Less:Accumulateddepreciation 432,000
Carryingvalue –12/31/2015 720,000
Less: Carryingv alue ofo verhauled truck 150,000
Balance 570,000
Divideby:Remaining
Depreciation usefullife
on remaining (8-3) ruck
deliveryt 5
114,000
Installation andtesting
Totalcosto fnew deliverytruck 40,000
460,800
Divideby:Useful life 8
Annual depreciation 57,600
Multiply by: Number of months used (July 26 to December 31) 5/12
167
Chapter 18: Property, Plant and Equipment
Question No. 6
Beginningbalance 1,152,000
Add:Overhaulingcost 60,000
Add:Cost ofnewdelivery truck 460,800
Adjustedcostofdeliverytruck 1,672,800
Less: Accumulated depreciation (432,000 + 168,000) 600,000
Carrying value – 12/31/2016 (C) 1,072,800
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. A 5. B 6. C
PROBLEM 18-29
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C 5. B
PROBLEM 18-31
Question No. 1
Question No. 2
Accumulated depreciation, beg. 800,000
Add depreciation expense 320,000
168
Chapter 18: Property, Plant and Equipment
Question No. 3
Beg.Balofland 550,000
Add: Acquisition on Nov 4 700,000
Total cost of the land 1,250,000
Question No. 4
Directcost 2,220,000
Fixedc ost (15,000 X 25) 375,000
Variable cost (15,000 X 27) 405,000
Total Cost of bldg. 3,000,000
Question No. 5
Depreciation on the beginning
balance (6M-4,427,136-1,300,000) 272,864
Add: Depre ciation on new bldg.
(3,000,000X 20%) 600,000
Totaldepreciation 872,864
Question No. 6
Cost of the machinery-beg bal. 3,000,000
Addmajoroverhaul 600,000
Add: Cost of the new machinery
Invoicec ost 356,000
Concrete embedding 18,000
Walldemolition 7,000
Rebuilding ofw all 19,000 4000 00
Total costo fm achinery P4 ,000,000
Question No. 7
Depreciation of machinery
Depreciation of the beg bal of machinery
OriginalCost P 3,000,000
Add:Major overhaul 600,000
Total 3,600,000
Accum. depreciation
(3,000,000/20*10) P1,500,000
Adjustedbookvalue P 2,100,000
Dividedby:r evisedremaininglife 15
Depreciation of the beg bal of machinery P 140,000
Depreciation on the new machinery
(400,000/20*6/12) 10,000
Depreciationofm achinery P 150,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A 5. D 6. C 7. B
169
Chapter 18: Property, Plant and Equipment
PROBLEM 18-32
Question No. 1
Property-cost 3,400,000
Less: Accumulated depreciation (1,360,000)
Depreciation (3,400,000 x 4%) (136,000)
Carrying value of property (C) 1,904,000
Question No. 2
Cost at 30June2016 360,000
Less:Disposal1July2 016 32,000 3 28,000
Question No. 3
Constructioncosts 1,200,000
Professionalfees 7,800
Sitepreparation
Total costs
cost of retai l outlet (B) 90,000
1,297,800
Question No. 4
Intangible–brand( cost) 290,000
Less: Accumulated amortization – 30 June 2016 101,500
Less: Amortization – 2017 (290,000 / 10) 29,000 159,500
Capitalized development cost (96,000 / 6 x 4) 64,000
Less: Amortization (64,000 /4 x3 /12) 4,000 60,000
Carrying value – 30 June 2017 (C) 219,500
Land 1,500,000
Property-cost 3,400,000
Less: Accumulated depreciation (1,360,000)
Depreciation (3,400,000 x 4%) (136,000) 1,904,000
Constructions costs 1,297,800
Fixtures&fittings 257,655
Carryingvalue of PPE 4,959,455
170
Chapter 18: Property, Plant and Equipment
Question No. 5
Depreciation:
Property 136,000
Fixtures and fittings (32,220 + 2,925) 35,145 171,145
Amortization(29,000+4,000) 33,000
Total depreciation and amortization (D) 204,145
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. C 5. D
171
Chapter 19: Wasting Assets
Question No. 2
Acquisitioncost P164,000
Less: Accumulated depletion – 12/31/2015 32,800
Carryingvalue –01/01/2016 131,200
Divide by: Tons estimatedt o be extracted 20,000
Depletion perunit P6.56
Multiplyb y:Tonsextracted–2016 8,000
Depletion – 2016 (C) P52,480
Question No. 1
Cost ofnatural resource 39,000,000
Accumulated depletion 9,500,000
Carryingamount,12/31/2017 29,500,000
Residualvalue 600,000
Depletablecost 28,900,000
Divideby revisedr emainingunits 400,000
Depletion rateper unit 72.25
Multiply by: Unitsextracted 200,000
Depletion (D) 14,450,000
172
Chapter 19: Wasting Assets
Question No. 2
Cost ofnaturalresource 39,000,000
Accumulated depletion 23,950,000
Carrying amount, 12/31/2018 (D) 15,050,000
Question No. 2
Costoft hemovableequipment 4,000,000
Divideby:Usefullife 10
Depreciation (A) 400,000
Question No. 3
Costo ft hemovableequipment 2,000,000
Divideby:Usefullife(shorter) 4
Depreciation (B) 500,000
173
Chapter 19: Wasting Assets
Question No. 2
costo ft hemovableequipment 4,000,000
dividebyunitsest. tobeextracted 20
Depreciation (A) 200,000
Question No. 3
Costo ft hemovableequipment P2,000,000
Divide by: Units estimated to be extracted (shorter)* 2,000,000
Depreciationrateperunit P1
Multiplyb y:A ctualunitse xtracted 500,000
Depreciation - 2016 (B) 500,000
Question No. 1
Costo fi mmovableequipment 4,000,000
Less:Accumulatedd epreciation 1,000,000
Bookvalue,Dec. 31,2017 3,000,000
Divideby Unitsest.t beextracted 12
Depreciation in 2018 (B) 250,000
Question No. 2
Costo fi mmovableequipment 4,000,000
Less:Accumulateddepreciation 1,250,000
Bookvalue,Dec. 31,2018 2,750,000
Divide by: Remaining units to be extracted 1,500,000
Depreciationper unit 1.83
Multiply by: Unitsextracted 100,000
Depletion (A) 183,333
PROBLEM 19-7
Question No. 1
Acquisitioncost P9,075,000
Divide by: Tons estimated to be extracted 1,100,000
Depletion perton P8.25
Multiplyb y:A ctual tons extracted – 2016 100,000
Depletion - 2016 (D) 825,000
Question No. 2
Cost of Installation 1,925,000
Divide by: Tons estimated to be extracted 1,100,000
Depreciationper ton 1.75
Multiplyb y:A ctual tons extracted – 2016 100,000
Depreciation - 2016 (B) 175,000
Question No. 3
Cost ofminingequipment 4,400,000
Divideby:Useful life 8
Depreciation – 2016 (A) 550,000
Question No. 4
Acquisitioncost P9,075,000
Less:Accumulated Depletion 825,000
Carryingvalue– 12/31/2016 P8,250,000
Add: Additionald evelopment cost - 2017 750,000
Remainingdepletable cost P9,000,000
Divide by: Estimatedt ons to be extracted 1,000,000
Depletion perton P 9
Multiplyb y:Tonsextracted–2017 150,000
Depletion - 2017 (C) P1,350,000
Question No. 5
Installation ((P1,925,000/1.1M) x 150,000 tons) P 262,500
Miningequipment(P4,400,000/8) 550,000
Total depreciation expense (C) P 812,500
SUMMARY OF ANSWERS:
1. D 2. B 3. A 4. C 5. C
175
Chapter 19: Wasting Assets
Question No. 1
Acquisition costo ft he wastinga ssets 150,000,000
Explorationa nd intangible devt.C ost 8,000,000
Estimated decommissioning and restoration costs-at PV 8,196,161
Initial cost (A) 166,196,162
Estimatedrestorationcost P12,000,000
Multiply by: Present value of 1 for four periods 0.6830
Present value oft he restorationc ost P 8,196,161
Question No. 2
Totalcosto fthew astingassets 166,196,162
Divide by: Total units estimated to be extracted 12,000,000
Depletion perunit 13.85
Multiply by:U nitsextracted 1,600,000
Depletion expense (B) 22,159,488
Question No. 3
Costoft hemovableequipment 6,000,000
Divideby:Usefullife 20
Depreciation (A) 300,000
Question No. 4
Costo ft hemovableequipment 9,000,000
Divide by: Total units estimated to be extracted 12,000,000
Depreciationperunit .75
Multiply by:U nitsextracted 1,600,000
Depletion expense (B) 1,200,000
Note: Units of output method was used since the useful life in years using the
estimated units to be extracted each year (8 years) is shorter than the useful life
of the immovab le equipmen t.
*Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years
Question No. 5
Date Interest expense Present value
01/01/2015 8,196,161
12/31/2015 819,612 (A) 9,015,777
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. A
176
Chapter 19: Wasting Assets
PROBLEM 19-9 Cost of Wasting Asse t with Est imated Restor ation Cost,
Deple tion, Depre ciation of Movable and Immov able Equip ment
Question No. 1
Acquisition costo ft he wastinga ssets 120,000,000
Explorationa nd intangible devt.C ost 6,000,000
Estimated decommissioning and restoration costs-at PV 6,355,181
Initial cost (A) 132,355,181
Estimatedrestorationcost P10,000,000
Multiply by: Present value of 1 for four periods 0..6355
Present value oft he restorationc ost P 6,355,181
Question No. 2
Totalcosto fthew astingassets 132,355,181
Divide by: Total units estimated to be extracted 12,000,000
Depletion perunit 11.03
Multiply by:U nitsextracted 1,600,000
Depletion expense (B) 17,647,357
Question No. 3
Costoft hemovableequipment 6,000,000
Divideby:Usefullife 6
Depreciation (A) 1,000,000
Question No. 4
Costoft hemovableequipment 9,000,000
Divideby:Usefullife(shorter) 5
Depreciation (A) 1,800,000
*Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years
Question No. 5
Date Interest expense Present value
01/01/2016 6,355,181
12/31/2016 2,6
7622 (A) 7,117,803
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
177
Chapter 20: Investment Property
Question No. 3
A property that is in the process of construction for sale 950,000
A property intended for sale in the ordinary course of business 450,000
Total inventories (C) 1,400,000
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. C 5. C
178
Chapter 20: Investment Property
Question No. 1 Separate if portions can be sold or leased out separately. (C)
Question No. 2 (A )
Question No. 3 (B )
Question No. 4 (C )
Question No . 3 an d 4
Fair value date of trans fer
Less: Carryingv alue– 12/31/2016( 80,000,000
Revaluationsurplus–OCI 6,000,000
Less: Transfer of revaluation surplus to R/E as a result of
reclassification 6,000,000
179
Chapter 20: Investment Property
SUMMARY OF ANSWERS:
1. D 2. D 3. D 4. D
Question No. 2
Gross selling price
Less:Disposalcost 120,000
Netsellingprice 2,870,000
Less: Carrying value – 12/31/2015 (fair value) 2,450,000
Gain on sale (C) 420,000
180
Chapter 20: Investment Property
PROBLEM 20-10
Question No. 1
Cost
Less:Residualvalue 1,000,000
Depreciable cost 13,000,000
Dividedby: Usefullife 10 years
Annual depreciation 1,300,000
Multiply by: Monthsoutstanding 8/12
Depreciation – 2010 (D)
Question No. 2
Depreciation [( –
Impairmentloss 480,000
Total amount to SCI (A)
Question No. 3
Cost
Accumulated depreciation 3,466,667
Carrying value, beforei mpairment 10,533,333
Impairmentloss 480,000
Carrying value, after impairment - 12/31/2012 10,053,333
Less:Residualvalue 1,000,000
Depreciable amount 9,053,333
Divide by: Remaining useful life (120 – 32) 88 months
Multiply by: Numberof months 12
Depreciation – 2013 (to SCI) (B) 1,234,545
Question No. 4
Cost
Accumulated depreciation 3,466,667
Carrying value, beforei mpairment 10,533,333
Impairmentloss 480,000
Carrying value, after impairment - 12/31/2012 10,053,333
Depreciation -2013[( - 1,234,545
Depreciation –2014 [( - 1,028,788
Carrying value, 10/31/2014
181
Chapter 20: Investment Property
Question No. 5
Fair value - 12/31/2015
Fairvalue -12/31/2014 11,000,000
Gain on change in fair valu e (B) 450,000
Question No. 6
Reclassification loss:
Fairvalue- 05/01/2016 9,500,000
Carrying value, 05/01/2016 11,450,000
Depreciation -2016 [( - 2,322,222
Total (A)
Question No. 1
Fair
value ( 375,000
Less:Carrying value 250,000
Unrealized gain-OCI (D) 125,000
Question No. 2
Broker’s expense over, net income under ( 10,000)
Operating expense over, NI under ( 1. 60 x 25,000 shares) (40,000)
Net income understated (B) ( 50,000)
Question No. 3
Netincome ofassociate 3,000,000
Multiplyb y:Percentageofownership 30%
Share in the net income before adjustment 900,000
Less: Unrealized gain on downstream sale of PPE 320,000
[( -
Less: Unrealized profit on upstream sale of inventory
( 30,000
Share in the ne t income after adjustment (C) 550,000
182
Chapter 20: Investment Property
Question No. 4
Costo fI nvestment–01/01/2016 4,000,000
Add: Net investment income - 2016 (see No. 3) 550,000
Less: Dividends received -2016 (30% x 800,000) 240,000
Add: Share in the translation gain (30% x 1,000,000) 300,000
Carrying value – 12/31/2016 (B) 4,610,000
Question No. 5
Costo fI nvestment–01/01/2016 4,000,000
Add: Net investment income - 2016 (see No. 3) 550,000
Less: Dividends received -2016 (30% x 800,000) 240,000
Add: Share in the translation gain (30% x 1,000,000) 300,000
Less: Amortization of goodwill ( 200,000/10) 20,000
Carrying value – 12/31/2016 (C) 4,590,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity canno t determine reliably the useful life, it is
assumed to be 10 yea rs.
Question No. 6
Fairvalue ofbuildingA 1,500,000
Less:Carrying value 1,000,000
Unrealized gain - P&L (B) 500,000
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. B 5. C 6. B
183
Chapter 22: Intangible Assets
anddevelopment
Design, projects
construction, and testing of preproduction 41,200 -
prototypesandmodels 96,000 -
Adjusted balances 1,306,200 1,223,500
(A)
184
Chapter 22: Intangible Assets
Question No. 2
Acquisition cost of research and develop ment
Development expen ditures qualifyi ng for recognition
( 280,000
Intangible Asset under Development (A)
Question No. 2
Obtainingadomainname 32,000
Installing developed applications on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information 60,000
Updating graphics and revisingc ontent 32,000
Adding new functions, features and content 12,000
Reviewing securityaccess 36,000
Total intangible asset (B) 424,000
185
Chapter 22: Intangible Assets
Question No. 2
As the cost
initial costsofassociated with
the license, thethe renewal
asset areamortized
must be significant, andthe
over almost equaling
5 year the
useful life.
Although the entity intends to renew the license, the renewed license, when it is
acquired, must be treated a separate asset and amortiz ed over a useful life of 5
years.
Amortization ( (C)
COMPREHENSIVE PROBLEMS
PROBLEM 22-6 Goodwill Computation
Current Assets ( 6,000,000 + 800,000) 6,800,000
Investments 2,000,000
PPE( 13,000,000+ 1,850,000) 14,850,000
Currentliabilities (3,500,000)
Noncurrent liabilities (2,500,000)
Fairvalueo fnetassetacquired 17,650,000
Fairvalueo fnetassetacquired 176 50,000
Multiply by: Normal rateofreturn 10%
Normalearnings 1,765,000
Totalearnings 9,000,000
Losso n sale(or Gain)onsale (100,000)
Bonus ( 150,000 x4years) 600,000
Operating income 9,500,000
Divideby:No. ofyears 4
Averageearnings 2,375,000
Question No. 1
Averageearnings 2,375,000
Less:Normal earning 1,765,000
Averageexcessearnings 610,000
Multiply by: Capitalization period 4
Goodwill (A) 2,440,000
Add: Fair value ofn eta sseta cquired 17,650,000
Purchase price (A) 20,090,000
186
Chapter 22: Intangible Assets
Question No. 2
Averageearnings 2,375,000
Less:Normal earning 1,765,000
Averageexcessearnings 610,000
Divideby:Capitalizationrate 10%
Goodwill (B) 6,100,000
Add: Fair value of net asseta cquired 17,650,000
Purchase price (B) 23,750,000
Question No. 3
Averageearnings 2,375,000
Divideby:Capitalizationrate 8%
Purchase price (B) 29,687,500
Less:Fairvalueo f netasset 17,650,000
Goodwill (B) 12,037,500
Question No. 4
Averageearnings 2,375,000
Less:Normal earning 1,765,000
Averageexcessearnings 610,000
Multiply by: Present value of ordinary annuity 3.0373
Goodwill (C) 1,852,753
Add: Fair value of net asset acquired 17,650,000
Purchase price (C) 19,502,753
SUMMARY OF ANSWERS:
1 A 2. B 3. B 4. C
PROBLEM 22-7
Question No. 1
NetPatent,January1 336,000
Divideby: Remaininglife(8years-2y ears) 6
Amortization (A) 56,000
Question No. 2
None, the tradem ark has an indefinite life. (B)
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4) 400,000
Divideby:Useful life 5
Amortization expense (A) 80,000
187
Chapter 22: Intangible Assets
Question No. 4
Purchase price 2,400,000
Less: Fair valueo fn et assets acquired 1,600,000
Goodwill (carrying amount) (A) 800,000
The goodwill shall not be amortized because its useful life is indefinite.
However, goodwill shall be tested for impairment at least annually, or more
frequently if events or changes in circumstances indicate a possible impairment.
Question No. 5
Cost-Patent 384,000
Less: Accumulated Amortization (48,000 + 56,000) 104,000 280,000
Cost - Trademark (no amortization) (1.6M x 3/4) 1,200,000
Cost- Noncompetition agreement 400,000
Less: Accumulated Amortization (see no. 3) 80,000 320,000
Total carrying amount of the Intangible assets (B) 1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not
identifiable.
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. B
PROBLEM 22-8
Question No. 1
Legal cost 7,000
Payment of licenses to author excluding refund able purchase
taxes (100,000-10,000) 90,000
Total cost of intangible assets (D) 97,000
Question No ’s 2, 3 and 5
Cost 97,000
Less: Amortization in 2016 (97,000/5 x 6/12) 9,700 No. 2 (C)
Carryingvalue,12/31/2 016 87,300 No. 3 (C)
Less: Amortization in 2017 (97,000/5 ) 19,400
Carryingvalue,12/31/2 017 67,900 No. 5 (D)
Question No. 4
Generalstart-upcost 1,500
Amortization 9,700
Cost of
printing 100
Advertisingexpense(20,000x6 /12) 10,000
Total Expense (B) 21,300
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. B 5. D
188
Chapter 22: Intangible Assets
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. A 5. A
189
Chapter 22: Intangible Assets
Question No. 3
Amortization-Trademark -
Amortization-Customerlist 60,000
Total a mortization (B) 60,000
Question No. 4
Amortization-Trademark -
Amortization-Customerlist 60,000
Amortization-Franchise 165,416
Total a mortization (A) 225,416
Downpayment 400,000
Add: Present Value of notes payable (600,000 x .7118) 427,080
Cost offranchise 827,080
Question No. 5
Cost of trademark 673,000
Cost of customer list 300,000
Less: AccumulatedA mortization 120,000 180,000
Cost offranchise 827,080
Less: Accumulated Amortization 165,416 661,664
Total carryin g value (A) 1,514,664
SUMMARY OF ANSWERS:
1. C 2. A 3. B 4. A 5. A
PROBLEM 22-11
Question No. 1
Zero, organiz ation cost is treated as outrig ht expense .(A)
Question No. 2
Designcosts 3,000,000
Add:Legalfees 300,000
Registration fee with Patent office 100,000
Total cost of tradem ark (B) 3,400,000
Question No. 3
Cash 400,000
Question No. 4
Cost (seeno. 3) 982,000
Less:Amortization(982,000/20) 49,100
190
Chapter 22: Intangible Assets
Question No. 5
Amortization of the franchise P49,100 (D)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. D
PROBLEM 22-12
Question No. 1
Cost-Patent 136,000
Less: Amortization for the year (136,000/20) 6,800
Carrying value of the Patent (C) 129,200
Question No. 2
Licensing agreement No. 1
Unadjustedbalance 100,000
Less: Amortization for 2 years (100,000/20 x 2) 10,000
Total 90,000
Less: Reduction inv alue (90,000x 60%) 54,000
Carrying value (B) 36,000
Question No 3
Unadjustedbalance 118,000
Add: Amount creditedf ora dvancec ollection 2,000
Total
cost 120,000
Less:Amortization(120,000/10) 12,000
Carrying value - Licensing agreement No. 2 (C) 108,000
Question No. 4
Carrying values:
Patent(seeno.1) 129,200
LicensingAgreementNo.1(No.2) 36,000
LicensingAgreementNo.2(No.3) 108,000
Total carryin g value (C) 273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for
incorporation should be charged to expense when it were incurred.
Question No. 5
Nonamortization of Licensing Agreement No 1 (100,000/20 x 1) 5,000
Expenses capitalized:
191
Chapter 22: Intangible Assets
Goodwill(16,000+32,000) 48,000
Organization cost 58,000
Overstatement of Retained earnings (A) 111,000
All the expenses above were understated thereby overstating the net income
and retained ea rnings.
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. C 5. A
PROBLEM 22-13
Question No. 1
Unadjustedbalance 550,000
Less: Unamortized portion of improvements debited
Cost P75,000
Less: Amortization (P75,000 / 10 x 3) 22,500 52,500
Adjustedbalance–01/01/2016 497,500
Less: Amortization 2016 (P52,500 + P56,071) – see below 108,571
Carrying value – 12/31/2016 (A) 388,929
Computation of amortization:
Adjustedbalance–01/01/2016 497,500
Less: CV of Patent with remaining UL of 2 years – 01/ 01/2016
Cost 210,000
Less: Accumulated amortization 01/01/2016
(P210,000/14x7 ) 105,000 105,000
CV of Patent with remaining UL of 7 years – 01/01/2016 392,500
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2) 52,500
Patent with remaining UL of 7 years (392,500 / 7) 56,071
TotalAmortization 108,571
Question No. 2
Franchise cost 50,000
Less:Amortization(50,000/ 5) 10,000
Carrying value 12/31/2016 (A) 40,000
Question No. 3
The amount to be rep orted as goodwill is the excess of cost over the fair va lue of
net asset acquired. Goodwill is not amortized but only subject to impairment
testing. Therefore, the amount to be repor ted is P200,000. (A)
Question No. 4
Other coding costs after establishment of technological
feasibility 240,000
192
Chapter 22: Intangible Assets
Question No. 5
Completion of detailedp rogram design 130,000
Costs incurred for coding and testing to establish technological
feasibility 100,000
Total Cost charged to Expense (A) 230,000
Question No. 6
Amortization:
Patent(seeNo. 1) 108,571
Franchise(see No.2) 10,000
Software cost–noneyet -
Total Cost charged to Expense (C) 118,571
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A 6. C
Question No. 2
Totalacquisitioncost 4,000,000
Add:Mortgageassumed 800,000
Totalcosto flandandb uilding 4,800,000
Multiplyb y: Percentage allocated to building 80%
Total Purchase Price allocated to Building 3,840,000
Add: Remodeling Cost( 300,000 – 20,000) 280,000
Total Cost of Building (A) 4,120,000
Question No. 3
Cost of improvement 500,000
Less: Accumulated depreciation (500,000/8 x 9/12) 46,875
Carrying value (B) 453,125
Question No. 4
Carryingvalue –01/01/2016 432,000
Less: Amortization 2016 (432,000 / 3 years remaining UL) 144,000
193
Chapter 22: Intangible Assets
Question No. 5
Building( 4,120,000-120,000)/50 80,000
Leasehold Improvements (500,000/8 x 9/12) 46,875
Furnitureand Fixtures 150,000
Franchise (500,000/10) 50,000
Licensingagreement 144,000
Total depreciation and amortization expense (A) P470,875
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. C 5. A
194
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
DepreciatedReplacementcost 11,250,000
Divideby:Remainingusefullife(20–5) 15
Depreciation Expense – 2017 (C) 750,000
Question No. 3
Revaluationsurplus,b eginning 5,250,000
Less: Piecemeal realization – 2017 (5,250,000 / 15) 350,000
Remaining revaluation surplus end of 2017 (B) 4,900,000
Que
Net stionPrice
Selling No. 4 10,000,000
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation 11,250,000
Less: Subsequent depreciation (P750,000 x 2 1,500,000 9,750,000
years)
Gain on sale (A) 250,000
Question No. 5
Revaluationsurplus,b eginning 5,250,000
Less: Piecemeal realization for two years (5,250,000/ 15 x 2) 700,000
Remaining revaluation surplus to R/E (B) 4,550,000
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. B
195
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
DepreciatedR eplacementcost 11,200,000
Divideby:Remainingusefullife 25
Depreciation Expense – 2016 (B) 448,000
Question No. 3
Revaluationsurplus,01/01/2016 1,600,000
Less: Piecemeal realization – 2016 (1,600,000/ 25) 64,000
Remaining revaluation surplus end of 2016 (C) 1,536,000
Question No. 4
NetSellingPrice 10,000,000
Less: Carrying amount – 01/02/2017
Depreciated Replacement Cost, date of revaluation 11,200,000
Less: Subsequent depreciation (P11.2M / 25 x 2) 896,000 10,304,000
Gain on sale (A) (304,000)
Question No. 5
Revaluationsurplus,b eginning 1,600,000
Less: Piecemeal realization for two years (1,600,000 / 25 x 2) 128,000
Remaining revaluation surplus to R/E (B) 1,472,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. A 5. B
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Replacement
Machinery Cost
4,550,000 Cost
9,100,000 Increase
4,550,000
Less: Accumulated depreciation *1,125,000 **2,250,000 1,125,000
CA/DRC/RS 3,425,000 6,850,000 3,425,000
(C)
196
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
DepreciatedR eplacementcost 6,850,000
Less:Revisedamount
Depreciable residualvalue 100,000
6,7500,000
Divideby:Remainingusefullife 25
Depreciation Expense – 2016 (B) 270,000
Question No. 3
Revaluationsurplus,0 1/01/2016 3,425,000
Less: Piecemeal realization – 2016 (3,425,000 / 25) 137,000
Remaining revaluation surplus end of 2016 (B) 3,288,000
Question No. 4
NetSellingPrice 7,000,000
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation 6,850,000
Less: Subsequent depreciation (P540,000 x 2) 540,000 6,310,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C 5. B
197
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Zero. The company is usin g the cost model . (A)
Question No. 3
Cost 2,200,000
Less:Accumulatedd epreciation 200,000
Carryingamount 2,000,000
Less:Revised residualvalue 290,000
Depreciable amount 1,710,000
Divideby:Remainingusefullife 9
Depreciation - 2017 (D) 190,000
Question No. 4
Cost 2,200,000
Less: Accumulated Depreciation (200,000 + 190,000 + 190,000) 1,620,000
Carryingamount–12/31/2019 1,620,000
Less: Recoverable amount, date of impairment 939,500
Impairment loss (C) 680,500
Question No. 5
Recoverable amount 939,500
Less:Revised residualvalue 40,000
Depreciable amount 899,500
Divideby:Remainingusefullife 7
Question No. 2
Recoverablea mount/fairv alue 2,990,000
198
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Recoverablea mount/fairv alue 2,990,000
Less:Revised residualvalue 290,000
Depreciable amount 2,700,000
Divideby:Remainingusefullife 9
Depreciation (C) 300,000
Question No. 4
Recoverablea mount, date of revaluation 2,990,000
Less: Subsequentd epreciationf or 2y ears 600,000
Carryingamount 2,390,000
Less: Recoverable amount, date of impairment 939,500
Decreaseinvalue 1,450,500
Less: Remaining r evaluation
Revaluation surplus, date of revaluation 990,000
Less: Piecemeal realization for two years 220,000 770,000
Impairment loss (C) 680,500
Question No. 5
Recoverable amount 939,500
Less:Revised residualvalue 40,000
Depreciable amount 899,500
Divideby:Remainingusefullife 7
Depreciation-2019 (B) 128,500
Question No. 2
Cost 2,300,000
Less:AccumulatedD epreciation 210,000
Carryingamount–12/31/2017 2,090,000
Less: Recoverable amount, date of impairment 1,850,000
Impairment loss (C) 240,000
199
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Recoverable amount 1,850,000
Less:Revised residualvalue 50,000
Depreciable amount 1,800,000
Divideby:Remainingusefullife 9
Depreciation (B) 200,000
Question No. 4
Recoverablea mount –01/01/2017 1,850,000
Less: Accumulated Depreciation – 12/31/2018 400,000
Carryingamount–12/31/2018 1,450,000
Lower of:
Would have been carrying amount no impairment 2,300,000
Less: Recoverable amount – 01/01/2019 630,000 1,670,000
Gaino nimpairmentrecovery–P&L 49,400
Question No. 5
Lower between Recoverable amount and would have been book 1,499,400
value – 01/01/2019
Less:Newresidual value 0
Depreciable amount 1,499,400
Divideby:Remainingusefullife( 10–3) 7
Depreciation (D) 214,200
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. D
200
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Cost 2,300,000
Less:AccumulatedD epreciation 210,000
Carryingamount–12/31/2017 2,090,000
Less: Recoverable amount, date of impairment 1,850,000
Impairment loss (C) 240,000
Question No. 3
Recoverable amount 1,850,000
Less:Revised residualvalue 50,000
Depreciable amount 1,800,000
Divideby:Remainingusefullife 9
Depreciation (B) 200,000
Question No. 4
Recoverablea mount –01/01/2017 1,850,000
Less: Accumulated Depreciation – 12/31/2018 400,000
Carryingamount–12/31/2018 1,450,000
Lower of:
Would have been carrying amount no impairment 2,300,000
Less: Recoverable amount – 01/01/2019 630,000 1,670,000
Gaino nimpairmentrecovery–P&L 49,400
Zero, since recoverable amount is lower than the would have been book
value if there is no impairment loss.
Question No. 5
Recoverablea mount –01/01/2019 1,499,400
Less:Revised residualvalue -
Depreciable amount 1,499,400
Divideby:Remainingusefullife( 10–3) 7
Depreciation (D) 214,200
SUMMARY OF ANSWERS:
1. C 2. C 3. B 4. A 5. D
201
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carryingvalue 400,000
Less: Recoverable amount (80,000 / .05) 160,000 240,000
Tradename:
Carryingvalue 350,000
Less: Recoverable amount (15,000 / .05) 300,000 50,000
Goodwill:
Carrying value of reporting unit 3,000,000
Less: Recoverable amount (200,000 x 14.0939) 2,818,780 181,220
Total impairment loss (C) 471,220
Question No. 3
Carrying valueo fg oodwill – 12/31/2015 900,000
Less: Allocated impairment loss of reporting unit 181,220
Carrying value of goodwill – 12/31 /2016 (B) 718,780
Question No 4
Patent(P200,000–P20,000) 180,000
Copyright(recoverableamount) 160,000
Tradename(recoverableamount) 300,000
Computer software (100,000 – 50,000) 50,000
Carrying value of intangible assets – 12/31/2016 (A) 690,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A
202
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Questions 1 and 2
Trademark-Unadjustedbalance 1,430,000
Less: Unamortized cost of improvement
that should have been expensed
Cost 150,000
Less: Accum. amortization (150,000/10 x 2) 30,000 120,000
Total 1,310,000
Add: Competitive patent debited to expense
Cost
Less: Accum. amortization (135,000/9 x 1) 135,000
15,000 120,000
Adjustedbalance,January1.2016 1,430,000
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4) 40,000 1() A
Remaining patent (1,430,000-160,000)/15-7) 158,750 198,750
Carrying value of the Patent, 12/31/2016 2) A ( 1,231,250
Questions 3
Carrying value of the trademark (no amortization) 800,000
Less: Recoverable amount (P75,000/10%) 750,000
Impairment loss (B) 50,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3) (B)
Questions 5
Downpayment 500,000
Add:Presentvalue ofthenote 874,000
Totalcost ofthe franchise 1,374,000
Divideby:Useful life 10
Amortization expense (D) 137,400
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. D
203
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. D 5. D
204
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance Balance
before Impairment after
Impairment Fraction Loss Impairment
Plant and equipment 13,600,000 13.6/17 (2,240,000) 11,360,000
Trademark 2,550,000 2.55/17 (420,000) 2,130,000
Patent 850,000 .85/17 (140,000) 710,000
Total 17,000,000 2,800,000 14,200,000
Balance Balance
after after
Impairment Reallocation Reallocation
Plant and equipment 11,360,000 (40,000) 11,320,000 1.
(B)
Trademark 2,130,000 (7,500) 2,122,500 2.
(B)
Patent 710,000 47,500 757,500 3.
(B)
Total 14,200,000 - 3,520,000
Trademark:
Would have been BV, no impairment
Cost 2,550,000
Less: Subsequent amortization 120,000 2,430,000
Patent:
Would have been BV, no impairment
Cost 850,000
Less: Subsequenta mortization 80,000 770,000
Actual Book
Impaired value
value 757,500
Less: Subsequent depreciation 60,000 697,500
Maximumg aino n reversal ofi mpairment 72,500
205
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance
before Allocated
Reversal Fraction Gain Max gain
Plant and equipment 10,320,000 10320/13028 1,901,136 1,901,136
Trademark 2,010,500 2010.5/13028 370,372 370,372
Patent 697,500 697.5/13028 1 28,492 72,500
Total 13,028,000 2,400,000 2,344,008
Balance
Balance after
Max gain bef. Reall Reallocatio n reallocation
Plant and equipment 1,901,136 12,221,136 46,863 12,267,999
Trademark 370,372 2 ,380,872 9,130 2,390,001
Patent 72,500 825,992 (55,992) 770,000
Total 2,344,008 15,428,000 - 15,428,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. C 5. C 6. A
Question No. 2
Zero. Non-current asset hel d for sale should not be depreciated. (A)
Question No. 3
Lower of:
Carryingamount 720,000
FVLCTS 790,000 720,000
Less: Carrying amount at initial recognition 600,000
Gain on reversal – P &L (C) 120,000
Question No. 4
Net Selling Price( 1,800,000 – 50,000) 750,000
Less:Carrying amount 720,000
Gain on sale (B) 30,000
206
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Cost 1,200,000
Accumulated depreciation 480,000
Carryingamount 720,000
Less: Initial amount recognized– lower of:
Carryingamount 720,000
Fairvalue lesscosttosell 800,000 720,000
Impairment loss (A) -
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. B 5. A
Question No. 2
(C) P6,000,000.
Question No. 3
Total carrying amount before impairment 59,600,000
Less:Fairv aluel esscoststosell 52,000,000
Impairmentloss 7,600,000
Less: Impairment loss allocated to Goodwill (B) 6,000,000
Impairment loss allocated to othera ssets 1,600,000
Revaluation Carrying
surplus amount
Impairment after
loss impairment
PPE(atc ostmodel) - 940,206 21,859,794
PPE
Total(at revaluation model) 400,000
400,000 259,794
1,200,000 15,340,206
37,200,000
207
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. C 2. E 3. D 4. B 5. A
Question No. 1
Sharein netincome(900,000x 30%) 270,000
Less: Amortization of undervalued asset 10,000
Net investment income (B) 260,000
Question No. 2
Beginningbalance– 01/01/2016 5,000,000
Add: Net investmentincome (see No.1 ) 260,000
Less: Dividends received( 150,000 x 30%) 45,000
Carrying amount – 12/31/2016 (A) 5,215,000
Question No. 3
Carryingamount–12/31/2016 5,215,000
Less: Initial amount recognized– lower of:
Carryingamount 5,215,000
Fair value less cost to sell 4,900,000 4,900,000
Impairment loss (B) 315,000
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when
the investment in associate is classified as noncurrent held for sale. The cash
dividend shall be recognized as income. (A)
Question No. 5
Net Selling Price (P4,900,000 – P100,000) 4,800,000
Less:Carrying amount 4,900,000
Loss on sale (D) (100,000)
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. D
208
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-13
Question No. 1
Irrigation Equipment P 740,000
Freight
in 10,000
Installation cost 192,000
Total Machinery and Equipment, end (A) P 942,000
Question No. 2
Tradeinallowance 400,000
Book Value:
Cost 1,300,000
Less: Accum. Depreciation (P660,000+ P165,000) 825,000 475,000
Loss on trade in (B) 75,000
Question No. 3
Before addition [(P3,100,000 – P100,000)/20 x 3/12) 37,500
After addition: [(P3,100,000 – (P562,500 + P37,500) + 980,000
P200,000)/20)x9/12) 123,000
Depreciation expense (B) 160,500
Question No. 4
Turf cutter [{(P1,300,000 – P200,00 0)/5} x 9/12] +
{(P800,000 – P50,000)/6 x3 /12)}] P 196,250
Water desalinator [(P3,780,000 – P270,000)/10] 351,000
Irrigation equipment [(942,000/4) x 6/12] 117,750
Officebuilding 160,500
Total Depreciation expense (B) P 825,500
Question No. 5
Fairvalueo ninitialr evaluation P 3,780,000
Book value on initial revaluation:
Cost P4,000,000
Accumulated d epreciation
[(P4,000,000 – P200,000)/10 x 2) ( 760,000) 3,240,000
12/31/2016RevaluationS urplus P 540,000
Less: Piecemeal realization in 2017 (P540,000/10) 54,000
12/31/2017Revaluations urplus P 486,000
12/31/2017Fairvalue P 3,400,000
12/31/2017 Book value:
Adjustedcost P 3,780,000
Accumulated Depreciation
[(P3,780,000 – P270,000)/10] ( 351,000) 3,429,000
Revaluation decrease – charged to Revaluation Surplus (A) P 29,000
209
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B 5. A
PROBLEM 23-14
Question N os. 1 and 2
Cost-beginningbalance 126,000
Less Accumulated depreciation, beginning 144.375
Heldfor sale-carryingamount 8,200
Total 232,425
Depreciation charge for the year
Held fors ale(8,200x20%x6/12) 820 (A
1.)
Remaining balance (232,425 x 20%) 46,845 47,305
Classified as held for sale:
Depreciationfor theyear 820
Carrying amount 185,940
(A)
Question No. 3
Carryingamountat1Oct2015 372,000
Lessvaluationa t1 October2015 449,500
Revaluationsurplus 77,500
Question No. 4
Carryingamountat1Oct2015 1,080,000
Lessvaluationa t1 October2015 600,000
Decreaseinvalue 480,000
Question No. 5 C
Carryingamountat1Oct2015 1,080,000
Lessvaluationa t1 October2015 600,000
Decreaseinvaluerevaluations urplus
Lessremaining 480,000
456,000
Impairmentloss-PropertyB 24,000
Impairment loss-held for sale
(8,200-820)-6,500 880
210
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 6
Depreciation expense based on revalued amount 14,500
Less depreciation expense based on historical cost (400,000/40) 10,000
Piecemeal realization (D) 4,500
Or
Revaluation surplus,b eginning( Prop. A) 62,000
Addrevaluations urplus,Oct.1 ,2 015 77,500
Totalrevaluation surplus 139,500
Dividebyremaininglife 31
Piecemeal realization (D) 4,500
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C 6. D
211
Chapter 25: Introduction to Liabilities
Dividendspayable
Totalcurrentliabilities 100,000
P 2,650,000
Non-current
Bonds payable P 5,000,000
Discountonbondspayable ( 500,000)
Loanp ayable– non-current portion 1,500,000
Deferredtax liability 15,000
Totalnon-currentliabilities P 6,015,000
Add/(Deduct): Adjustments
Debit balances in suppliers’ accounts 100,000
Postdated checksof 50,000
Accountspayable–adjusted P 4,150,000
Credit balances in customers’a ccounts 500,000
212
Chapter 25: Introduction to Liabilities
Premiumspayable 600,000
Accruedexpenses 150,000
Total current liabilities (A) P5 ,400,000
213
Chapter 25: Introduction to Liabilities
214
Chapter 25: Introduction to Liabilities
92,000 200,000
Balance, End (C) 108, 000
200,000 200,000
Note that 60% (administering the closure and transfer of employees of Factory
A) is only included in computing the restructuring provision since it is directly
related to the restructuring.
216
Chapter 25: Introduction to Liabilities
80,000 80,000
*(20,000 x 80%)/5 x (P30 + P5 - P1 0)
**(10,000/5) x (P30 + P5 - P10)
Warranties liability
- Balance, Beg.
Actual expenditures 140,000 480,000 Warranties expense
140,000 480,000
Balance, End (C) 340,000
480,000 480,000
Notes:
218
Chapter 25: Introduction to Liabilities
The 30% and 12% repr esent the unrealized revenues in 2016 fro m 2015
Sales.
The 20% rep resents the realized revenue in 2016 from 2016 Sales. So
100% minus 20% realized is equal to 80% unrealized revenue in 2016 from
2016 Sales.
SUMMARY OF ANSWERS:
1 . A 2. B 3 . A
219
Chapter 25: Introduction to Liabilities
T = 30% X (3,090,000 – B)
= 927,000-.3B
OR
BR x [NY x (1-TR)]
B =
1 + [BR x (1-TR)]
220
Chapter 25: Introduction to Liabilities
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T =T ax
TR = Tax Rate
SUMMARY OF ANSWERS:
1 . D 2. B 3 . C
PROBLEM 25-30
Question N os. 1 and 2
Estimated liability from Warranties
Disbursement for 44,800 Beginning balance
warranties 164,000
Balance end 212,000 240,000 Warranty expense.
Total 376,000
Warrantyexpense 240,000
Divideby% ageofwarranty 4%
Sales from musical instruments and sound
reproduction equipment ( Question No. 1) 6,000,000
Question No. 3
Premium
expense
= P2,000,000 X 1c oupon x 9 0% P34-P20
P2
200 coupons
= P63,000
221
Chapter 25: Introduction to Liabilities
Question No. 4
Inventory of Premium
Beg.Balance 39,950 56,950 Balance end
Net Purchases (6,500 x 221,000 Cost of issued premium
P34)
204,000 (1.2M coupons.200 coupons
x P34
Total 260,950
Question No. 5
Estimated liability for Premiums
Disbursement for premiums 44,800 Beginning balance
(1.2M coupons/200 coupons
x P(34-P20) 84,000
Balance end 23,800 63,000 Premium expense.
Total 107,800
SUMMARY OF ANSWERS:
1 . A 2. A 3 . C 4 . D 5. D
Amortization table:
Payment Interest Discount Present
Date Expense Amortization value
01/01/2015 1,518,650
12/31/2015 500,000 182,238 317,762 1,200,888
12/31/2016 500,000 144,107 355,893 844,995
Equipment
Total 4,244,995 1,055,893
Question No. 4
Accrued interest payable-12% Note payable
=P2,100,000 x 12% x 8/12
=P168,000
Question No. 5
Interest expense:
12% Note payable
1/1-5/1 (2.8M x 12% x 4/12) 112,000
5/1-12/31 (2.1M x 12% x 8/12) 168,000
10% Note payable (2M x 10%) 200,000
Note payable - Delivery. Equipment
(seea mortization table) 182,238
Total 662,238
SUMMARY OF ANSWERS:
1 . A 2. B 3 . B 4 . B 5. C
Question No. 3
Unadjustednetincome 1,935,000
Warranty expense under, Net income over (P180,000-P85,000) (95,000)
Premium expense over, Net income under (P270,000-P45,000) 225,000
Adjusted Net income (C) 2,065,000
Question No. 4
Net income after bonus but be fore tax
NY
B = BR x
100% + BR
= 20% x 2,065,000
100% + 20%
223
Chapter 25: Introduction to Liabilities
= 344,167 (B)
Question No. 5
Net income after bonus and tax
B = BR x (NY – B – T)
T = TR x (NY – B)
OR
BR x [NY x (1-TR)]
B =
1 + [BR x (1-TR)]
Net income after bonus and tax
B = BR X (NY – B – T)
B = 20% x (2,065,000-B-(9619,500-3.B)
B = 20% x (2,065,000-B-619,500+.3B)
B = 413,000-.2B-123,900+.06B
1B+.2B-.06B = 413,000-123,900
1.14B = 289,100
1.14 1.14
B = 253,596 (C)
T = 30% X (2,065,000 – B)
= 619,500-.3B
OR
BR x [NY x (1-TR)]
B = 1 + [BR x (1-TR)]
= 20% x (2,065,000 x (1-30%)
1+[20% x (1-30%)]
= 20% x (2,065,000 x 70%)
1+(20% x 70%)
= 20% x (1,445,500)
1.14
= 253,596
Where:
NY = Net income before bonus and tax
B = Bonus
BR = Bonus Rate
T =T ax
TR = Tax Rate
SUMMARY OF ANSWERS:
1 . A 2. C 3 . C 4 . B 5. C
224
Chapter 25: Introduction to Liabilities
Question No. 2
Deferred
Notes taxliability
payable 40,000
Arsingfrom 4-year bankloan 400,000
Arising from advances by officers, dune in 3 years 300,000
Serial bonds payable (800,000 minus (40,000 x 2) 720,000
Security deposit received froml essee 89,000
Loanspayable-10% 150,000
Total noncurrent liabilities (A) 1,699,000
Question No. 3
Total liabilities
Currentliabilities 2,727,500
Totalnoncurrentl iabilities 1,699,000
Total liabilities (B) 4,426,500
SUMMAR
1. B 2. Y OF
A 3AN
. SWERS
B :
225
Chapter 26: Financial Liabilities and Debt Restructuring
BONDS PAYABLE
PROBLEM 26-1 Financial Liabil ities at FVTPL (Interest Expense and
Unrealized gains or losses)
Question No. 1
Face value 3,000,000
Multiply by:nominal rate 8%
Multiplyb y: months outstanding/12 12/12
Interest expense (A) P240,000
Question No. 2
Fairvalue ofthebonds 3,090,000
Less:Carryingvalue 2,850,756
Unrealized loss (or gain)-P&L (B) 239,244
Question No. 3
RetirementP rice(3M x 104) 3,120,000
Less: Carryingv alue( 3M x1 03) 3,090,000
Realized loss on derecognition- P&L (D) 30,000
SUMMARY OF ANSWERS:
1. A 2. B 3 . D
226
Chapter 26: Financial Liabilities and Debt Restructuring
227
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1. C 2. B
Question No. 2
Interest Interest Discount Princi- Present
Date Payment Expense Amortization pal value
01/01/2016 1,158,925
12/31/2016 96,000 115,892 19,892 400,000 778,817
12/31/2017 64,000 77,882 13,882 400,000 392,699
12/31/2018 3 2,000 39,301 7,301 400,000 -
SUMMARY OF ANSWERS:
1. A 2. A
228
Chapter 26: Financial Liabilities and Debt Restructuring
Using 7.48%
Present value of Principal (1,000,000 x 0.7 ) 700,000
Add: Present value of interest payments (50,000 x 4 ) 200,000
Totalpresentvalue 900,000
230
Chapter 26: Financial Liabilities and Debt Restructuring
Sharepremium 1,252,049
231
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
Interest expense (3,796,800 x 10%) (B) 379,680
SUMMARY OF ANSWERS:
1 . B 2. B
COMPREHENSIVE PROBLEMS
PROBLEM 26-20 Interest-Bearing Note – Lump Sum
Question No. 1
Present value of Principal (4,000,000 x 0.6830 ) 2,732,054
Add: Present value of interest payments (600,000 x 3.1699) 1,901,919
Present value of the notes payable (D) 4,633,973
Amortization Table:
Interest Interest Discount Present
Date Payment Expense Amortization value
01/01/2017 4,633,973
12/31/2017 600,000 463,397 136,603 4,497,370
12/31/2018 600,000 449,737 150,263 4,347,107
12/31/2019 600,000 434,711 165,289 4,181,818
Question No. 2
Interest Expense (4,633,973x .10) =463,397 (C)
Question No. 3
P4,497,370. See amortiz ation table above. (C)
232
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 4
Nil. (A) The entire note payab le is noncurr ent liability.
Question No. 5
P4,497,370. (D) The entir e note payable is current liabil ity.
SUMMARY OF ANSWERS:
1 . D 2. C 3 . C 4 . A 5. D
Amortization Table
Date Interest Discount Principal Present
Date Expense on N/P Payment Value
01/01/2016 1,756,328
12/31/2016 60,000 210,759 150,759 1,200,000 707,088
12/31/2017 24,000 84,851 60,851 400,000 367,938
12/31/2018 12,000 44,079 32,062 400,000 -
Question No. 2
Interest expense (1,756,328 x .12) P210,759 (D)
Question No. 3
Carrying amount – December 31, 2016 P707,088 (C)
Question No. 4
Principal payable Dec. 31,2 017 P400,000
Less: Discount on notes payable 60,851
Carrying amount-current liability (C) P339,149
Question No. 5
Principal payable Dec.3 1,2 018 P400,000
Less: Discount on notes payable 32,062
Carrying amount-noncurrent liability (C) P367,938
SUMMARY OF ANSWERS:
233
Chapter 26: Financial Liabilities and Debt Restructuring
1. D 2. D 3. C 4. C 5. C
Amortization Table
Interest Interest Premium Principal Present
Date Payment Expense Amortization Payment Value
01/01/2017 4,415,066
12/31/2017 600,000 441,507 158,493 1,000,000 3,256,573
12/31/2018 450,000 325,657 124,343 1,000,000 2,132,230
12/31/2019 30 0,000 213,223 86,777 1,000,000 1,045,453
12/31/2020 150,000 104,545 45,455 1,000,000 0
Question No. 2
Interest expense (4,415,066 x .10) P441,507 (B)
Question No. 3
Carrying amount – December 31, 2017 3,256,573 (B)
Question No. 4
Principal (payable Dec. 31, 2018) P1,000,000
Add: Premium on notes payable 124,343
Carrying amount-current liability (C) P1,124,343
Question No. 5
Carrying amount – December 31, 2017 P3,256,573
Add: Premium on notes payable 1,124,343
Carrying amount-noncurrent liability (D) P2,132,230
SUMMARY OF ANSWERS:
1. C 2. B 3 . B 4 . C 5. D
234
Chapter 26: Financial Liabilities and Debt Restructuring
The carrying amount of the note on initial recognition is equal to its cash price
equivalent of P994,760 . (C)
Coincidentally, the effective rate using the cash price equivalent is 12% and the
amortization table is as follows:
Question No. 2
Interest expense (994,760x .12) P99,476 (A)
Question No. 3
Carrying amount – December 31, 2016 P694,236 (A)
Question No. 4
Principal (payableD ec.3 1,2 017 P400,000
Less: Discount on notes payable 69,424
Carrying amount-current liability (B) P330,576
Question No. 5
Principal (payableD ec.3 1,2 018 P400,000
Less: Discount on notes payable 36,340
Carrying amount noncurrent liabi lity (C) P363,660
SUMMARY OF ANSWERS:
1. C 2. A 3 . A 4 . B 5. C
Amortization Table
Date Intereste xpense Presentv alue
01/01/2016 854,160
12/31/2016 102, 499 956, 659
12/31/2017 114,799 1,071,458
12/31/2018 128,542 1,200,000
235
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
Interest expense (854,160 x .12) P102,499 (B)
Question No. 3
Carrying amount – December 31, 2016 P956,659 (A)
Question No. 4
Nil. The entire note payable is noncurrent liability since it is due beyond 12
months from the reporting date. (B)
Que
The sti onentire
total No. 5 carrying amount of note payable is presented as noncurrent
liability. See Question No. 4. (A)
SUMMARY OF ANSWERS:
1 . B 2. B 3 . A 4 . B 5. A
Amortization Table
Date Inte rest Interest Present
Payment expense Amortization value
01/01/2016 960,720
12/31/2016 400,000 115,286 284,714 676,006
12/31/2017 400,000 81,121 318,879 357,127
12/31/2018 400,000 42,873 357,127 -
Question No. 2
P115,286. See amortization table above. (A)
Question No. 3
P676,006. See amortization table above. (A)
Question No. 4
Principal (payableD ec.3 1,2 017 P400,000
Less: Discount on notes payable 81,121
Carrying amount-current liability (B) P318,879
Question No. 5
Principal (payableD ec.3 1,2 018 P400,000
Less: Discount on notes payable 42,873
Carrying amount-noncurrent liability (C) P357,127
236
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1 . D 2. A 3 . A 4 . B 5. C
Amortization Table
Date Inte rest Interest Discount Present
payment expense Amortization value
01/01/2014 3,350,068
12/31/2014 360,000 301,506 58,494 3,291,574
12/31/2015 360,000 296,242 63,758 3,227,816
Question No. 2
RetirementPrice 1,900,000
Less: Carrying amount (3,227,816 x 1/2) 1,613,908
Loss on retirement (B) 286,092
QuestionNo. 3 (B )
Amortization table:
Interest Interest Present
Date payment expense Amortization value
12/31/2015 1,613,908
12/31/2016 180,000 145,252 4,748
3 1,579,160
Question No. 4
Fair value of the ordinary shares issued (460 x 5,000) P2,300,000
Less: Carryinga mount oft he liability 1,579,160
Loss on conversion (D) P720,840*
Or P720,839*
Question No. 5
Fair
Less:value
Totalof thevalue
par ordinary shares
of the issued
shares (460
issued (40 x 5,000)
x 5,000) P2,300,000
200,000
Share Premium (D) P2,100,000
SUMMARY OF ANSWERS:
1 . B 2. B 3 . B 4 . D 5. D
237
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2
Fair value of liability using current rate 1,537,969
Less: Carryinga mount (2,817,759 x ½) 1,427,945
Loss on settlement of liability (B) 110,024
Question No. 3
Retirement Price 1,600,000
Less: Fair value of liability using current rate 1,537,969
Decrease in equity (C) 62,031
Question No. 4
Interest expense is P338,131 based on the amor tization table above. (D)
Question No. 5
Shares to be issued based on amended terms (1.5M/400) 3,750
Less: Shares to be issued based on original terms (1.5M/500) 3,000
Incrementalshares 750
Multiply by: Fairvalue 420
Debt settlement expense (C) 315,000
SUMMARY OF ANSWERS:
1 . B 2. B 3 . C 4 . D 5. C
238
Chapter 26: Financial Liabilities and Debt Restructuring
Amortization table:
Date Inte rest Interest Present
Payment Expense Amortization value
01/01/2016 15,000
12/31/2016 1,500 1,723 223 15,223
12/31/2017 1,500 1,749 249 15,472
12/31/2018 1,500 1,778 246 15,718
Question No. 1
P1,723. See amortization table above. (B)
Question No. 2
P1,749. See amortization table above. (C)
Question No. 3
P1,778. See amortization table above. (D)
Amortization Table
Date Inte rest Interest Present
Payment Expense Amortization value
12/31/2018 19,400
12/31/2019 2,400 2,554 (154) 19,554
Question No. 4
P2,554. See amortization table above. (B)
Question No. 5
P19,554. See amortization table above. (B)
SUMMARY OF ANSWERS:
1 . B 2. C 3 . D 4. B 5. B
239
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-29
Question No. 1
Accounts payable, unadjusted P1,350,000
Good in transitF OB shippingp oint 75,000
Undeliveredcheck 60,000
Accounts payable, adjusted (D) P1,485,000
Question No. 2
14% Note payable (1,250,000 x 14%) P175,000
16% Note payable (3,000,000 x 16%) 480,000
10% Note payable (2,000,000 x 10% x 6/12) 100,000
Interest expense (D) P755,000
Question No. 3
14% Note payable (1,250,000 x 14% x 3/12) P43,750
16% Note payable (3,000,000 x 16% x 9/12) 360,000
10% Note payable (2,000,000 x 10% x 6/12) 100,000
Interest expense (C) P503,750
Question No. 2
April
1,1,2016
July 2016 P400,000
600,000
October1,2016 300,000
January 1, 2017 300,000
Notes payable-current liability (B) P1,600,000
240
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 5
(a) (b) ( c) d =b x c E =d - a
Accrued
Fixed Comm. Comm. Salaries
salary Net Sales Rate Expense Payable
A 10,000 200,000 4% 8,000 0
B 14,000 4 00,000 6% 24,000 10,000
C 18,000 600,000 6% 36,000 18,000
Total (C) P28,000
Question No s. 6 and 7
Current Noncurrent
Int. payable - Bonds (10M x 10% x 3/12) 250,000
Int.payable-Notepayable 600,000
Notespayable 1,600,000 5,400,000*
Estimated warranties payable 342,000
Tradepayable 740,000
Salescommissionspayable 28,000
Cash dividends payable (6M x P.2) 1,200,000
Bonds payable 8,970,751
Total P4,760,000 P14,370,751**
(B) (C)
*(P7M-1.6M)
** or P14,370,783 which is the same as P8,952,185 x 100% +(Effective rate x
months outstanding/12) minus payment
Amortization Table
Interest Interest Present
Date Payment Expense Amortization value
07/01/2014 8,852,960
01/01/2015 500,000 531,178 31,178 8,884,138
07/01/2015 500,000 533,048 33,048 8,917,186
01/01/2016 500,000 535,031 34,999 8,952,185
03/31/2016 250,000 268,566 18,566 8,970,751
241
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1 . A 2. B 3 . A 4 . C 5. C 6 B 7 C
Question No. 2
Present value of convertibl e debt without conversion option at 11.81%
Present value of Principal (200M x .7154) 143,080,000
Add: Present value of interest payments (200M x .08 x 2.4097) 38,555,200
Present value of the convertible debt (B) 181,635,200
Question No. 3
Interest expense (181,635,200 x .1181) (D) 21,451,117
Question No. 4
Netassetof GL 380,000,000
Less:Recoverableamount 370,000,000
ImpairmentlossofGL 10,000,000
Multiply by:Percentageshare 20%
Impairment loss (C) 2,000,000
Question No. 5
1. Researcho n sizeo fp otential market 800,000
6. Stafftraining costs 600,000
7. Advertisementcosts 3,400,000
Total amount expensed (B) 4,800,000
Question No. 6
2. Productsdesigning 1,500,000
3.
4. Laborc osts in refinement
Development of productsto finalize the
work undertaken 950,000
productdesign 11,000,000
Total Development cost capitalized (C) 13,450,000
242
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS:
1 . C 2. B 3 . D 4. C 5. B 6 C
CASE NO. 1
Question No. 1
Initial carrying amount is fair value or issuance price of 1,898,205.
Transaction cost is expensed outright. (D)
Question No. 2
Interest expense ( 2,000,000 x 8%)= 160,000 (A)
Question No. 3
Fair value 12/31/2015 (1.02 x 2,000,000) 2,040,000
Less:Initialcarryingamount 1,898,205
Unrealized loss (C) 141,795
Question No. 4
Carrying value ( 2,000,000 x .98)= 1,960,000 (C)
Question No. 5
Fair value1 2/31/2017 (.99 x 2,000,000) 1,980,000
Less:Carrying value (.98x 1,960,000
Unrealized loss (D) 20,000
Question No. 6
Retirementp rice (1.05 x 2,000,000) 2,100,000
Add:Transactioncost 20,000
Totalretirementprice 2,120,000
Less:Carrying value (.98x 1,980,000
Loss on derecognition (A) 140,000
SUMMARY OF ANSWERS:
1 . D 2. A 3 . C 4 . C 5. D 6. A
CASE NO. 2
Question No. 7
Issue price 1,898,205
Less:Transactioncost 25,000
Initial carrying amount (C) 1,873,205
243
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 8
Effective interest rate = 10% (B)
Please refer to discussion on interp olation.
Question No. 9
Interest expense ( x 10%)= 187,321 (B)
Question No. 10
No gain or loss due to change in fair value is not recognized . (D)
Question No. 11
Carrying value 12/31/2016 (A) 1,930,579
Question No. 12
Retirementp rice (1.05 x 2,000,000) 2,100,000
Add:Transactioncost 20,000
Totalretirementprice 2,120,000
Less:Carryingv alue– 01/01/2018 1,963,636
Loss on derecognition (B) 156,364
SUMMARY OF ANSWERS:
7. C 8. B 9. B 10. D 11. A 12. B
244
Chapter 27 – Lease
PROBLEM 27-2 Ope rating Lea se - Une qual rental payme nts
07/01/2014 to 06/30/2015 60,000
07/01/2015 to 06/30/2016 90,000
07/01/2016 to 06/30/2017 210,000
Total 360,000
Divideby:Leaseterm 3
Rentincomepery ear 120,000
Rent income to date (120,000 x 2) 240,000
Less: Collection to date (60,000 +
90,000) 150,000
Rent receivable (A) 90,000
Divideby:Leaseterm
Rent expense per year (D) 3
250,000
245
Chapter 27 – Lease
Question No. 4
Total payments to date, 2016 (6 x 25,000 ) 150,000
Less: Total expenset o date, 2016 250,000
Accrued rent payable (D) 100,000
CAS E NO. 4
Question No. 5
Total lease payments
(25,000x 2x 12) 600,000
(30,000x1x12) 360,000 960,000
Divideby:Leaseterm 3
Rent expense per year (A) 320,000
Question No. 6
Totalpayments todate, 2016 300,000
Less: Total expenset o date, 2016 320,000
Accrued rent payable (D) (20,000)
CAS E NO. 5
Question No. 7
Rent Revenue 300,000
Less: Amortization of Direct Cost (120,000 / 3) 40,000
Insurance and property tax expense on 40,000
leased asset
Depreciationo ft he leased asset 30,000
Net income (A) 190,000
CAS E NO. 6
Question No. 8
Periodrentforoneyear 300,000
Add: Contingent rent
1st [(2,500,000 – 1,500,000) x 10%] 100,000
2nd [(6,000,000 – 2,500,000) x 8%] 280,000 380,000
Total rent expense (A) 680,000
SUMMARY OF ANSWER S:
1. B 2. C 3. D 4. (D) 5 . A
6 . D 7. A 8. A
executory
annuity of cost
1 for(real
nineestate taxes)
years at 9%. times the present
The calculation valuebe:
would factor for an- ordinary
(P26,000 1,000) ×
6.0 = P150,000. The real estate taxes are a period cost and should be charged to
expense.
246
Chapter 27 – Lease
QuestionNo. 2 ( B)
P36,111. See amortization table above.
QuestionNo. 3 (C)
P83,889. See amortization table above.
QuestionNo. 4 ( B)
P217,037. See amortization table above.
SUMMARY OF ANSWER S:
1. A 2. B 3. C 4. B
PROBLEM 27-6 With Gua ranteed Residual Value And Initial Direct Cost
CAS E NO. 1
Question No. 1
Present value of periodic payment (130,000 x 3.4869) 453,297
Add: Present value of guaranteed residual value (50,000 x 0.683) 34,150
Present value ofm inimuml ease payments 487,447
Add:Initialdirect cost 40,000
Cost of the Machinery (C) 527,447
Amortization Table
Annual Interest Present
Date payment expen se Amortization value
12/31/2016 487,447
12/31/2016 130,000 - 130,000 357,447
12/31/2017 130,000 35,745 94,255 2 63,192
12/31/2018 130,000 26,319 103,681 159,511
12/31/2019 130,000 15,951 114,049 45,462
12/31/2020 50,000 4,538 45,462 0
247
Chapter 27 – Lease
QuestionNo. 2 ( B)
P35,745. See amortization table above.
QuestionNo. 3 ( C)
P94,255. See amortization table above.
QuestionNo. 4 ( B)
P263,192. See amortization table above.
QuestionNo 6 (D)
P39,938. See amortization table above.
QuestionNo. 7 ( A)
P90,062. See amortization table above.
QuestionNo. 8 (D)
P257,226. See amortization table above.
SUMMARY OF ANSWER S:
1. C 2. B 3. C 4. B 5. D 6. D 7. A 8. D
248
Chapter 27 – Lease
Question No. 2
Cost of the lease asset 487,447
Less: Gross amount of guaranteed residual value 50,000
Depreciable amount 437,447
Divideby:Leaseterm 4
Depreciation (B) 109,362
12/31/2018
12/31/2019 261,692
261,692 61,361
39,325 200,331
222,368 357,498
135,130
12/31/2020 150,000 14,864 135,136 (6)
249
Chapter 27 – Lease
QuestionNo. 2 (C)
P81,214. See amortization table above.
QuestionNo. 3 ( A)
P180,479. See amortization table above.
SUMMARY OF ANSWER S:
1. C 2. C 3. A
Amortization Table
Annual Interest Present
Date Collection Income Amortization value
12/31/2016 900,000
12/31/2016 251,600 - 251,600 648,400
12/31/2017 251,600 51,872 199,728 448,671
12/31/2018 251,600 35,894 215,707 232,964
12/31/2019 251,600 18,637 232,963 1
QuestionNo. 2 ( A)
P51,872. See amortization table above.
QuestionNo. 3 ( B)
P199,728. See amortization table above.
SUMMARY OF ANSWER S:
1 . A 2 . A 3. B
250
Chapter 27 – Lease
Question No. 2
P82,430. See amortization table above.
Question No. 4
Nil. (A)
The journal ent ry is:
Inventory 44,000
Cash 6,000
Leasereceivable 50,000
SUMMARY OF ANSWER S:
1. A 2 . B 3. B 4. A
251
Chapter 27 – Lease
CAS E NO. 2
Question No. 1
Gross Investment:
Total periodic lease payments (300,000 x 4) 1,200,000
Add:ResidualValue 50,000 1,250,000
Present value of the leased asset
Present value of minimum lease payments
(300,000 x3.3121) 993,630
Add: Present value of residual value (50,000 x
.735) 36,750 1,030,380
QuestionNo. 4 ( B)
P6,000.
The journal ent ry is:
Inventory 44,000
Lossons alestype 6,000
Leasereceivable 50,000
SUMMARY OF ANSWER S:
1. A 2 . B 3. B 4. B
Question No. 2
SalesPrice 993,630
Less:Carrying amount 900,000
Deferred gain on sale and leaseback 93,630
Divideby:Leaseterm 4
Gain on sale an d leaseb ack (D) 23,408
QuestionNo. 2 ( B)
Salesprice 800,000
Less:Carryinga mount 1,000,000
Fairvalue 600,000
Less:Carrying amount 450,000
Outright gain (D) 150,000
QuestionNo. 4 ( B)
SalesPrice =Fair value 800,000
Less:Carrying amount 400,000
Gain on sale - recognize immediately 400,000
QuestionNo. 5 ( B)
SalesPrice =Fair value 800,000
Less:Carrying amount 880,000
Lossons aleandleaseback (80,000)
253
Chapter 27 – Lease
Question No. 6
Nil. The loss is compensate d by future lease rental below the market r ate.
SUMMARY OF ANSWER S:
1. B 2. D 3. D 4. B 5. B 6. A
COMPREHENSIVE PROBLEMS
PROBLEM 27-16
QuestionNo. 1 (ACAS
) E NO. 1
“Substantially all” test
Present value of Periodic Payment (200,000 x 6.75902) 1,351,805
% age 1,351,805 =68%
2,000,000
Not substantially all.
Major part test
%age 10 =50%
20
The lease term does not amount to major part of the economic life of the asset.
Answer: Nil. The lease do not classify as finance lease.
QuestionNo. 2 ( B)
Rente xpense P200,000
QuestionNo. 3 ( A)
Nil.
QuestionNo. 4 ( A)
Nil.
QuestionNo. 5 (D)
Depreciation expense overstated, net income understated (115,181)
Interest expense overstated, net income understated (135,181)
Rent expense understated, net income overstated 200,000
Netincome understated (50,362)
CAS E NO. 2
QuestionNo. 1 ( B)
“Substantially all” test
254
Chapter 27 – Lease
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
01/01/2015 1,351,805
12/31/2015 200,000 - 200,000 1,151,805
12/31/2016 200,000 115,181 84,819 1,066,986
12/31/2017 200,000 106,699 93,301 973,684
12/31/2018 200,000 97,368 102,632 871,052
QuestionNo. 2 (D)
Depreciation expense (1,351,805/10) 135,181
Interestexpense 115,181
Total lease- related expenses 250,362
QuestionNo. 3 (C)
P93,301. See amortization table above.
QuestionNo. 4 ( B)
P1,066,986. See amortization table above.
QuestionNo. 5 ( A)
Nil. The company did not commit any error.
SUMMARY OF AN SWERS – CAS E NO. 2:
1. B 2. D 3. C 4. B 5. A
PROBLEM 27-17
QuestionNo. 1 ( B)
Lease is a finance lease thus any gain should be deferred and amortize over the
lease term.
SellingPrice 379,695
Less:Carrying amount 350,000
Deferred gain on sale and leaseback 29,695
Less: Amortization in 2014 (29,695/10) 2,970
Deferred gain on sale and leaseback, end 26,725
QuestionNo. 2 (D)
Interestexpense 38,363
Depreciation expense (379,695/10) 37,970
Rentexpense(5,000x1 2) 60,000
255
Chapter 27 – Lease
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
01/02/2016 379,695
01/02/2016 60,000 - 60,000 319,695
01/02/2017 60,000 38,363 21,637 298,058
QuestionNo. 3 ( C)
Sale and leaseback as finance lea se
Leaseliability, 01/02/2016 319,695
Add:Accruedinterest 38,363
Totallease-relatedl iability 358,058
QuestionNo. 4 ( B)
Amortization of deferred gain on sale and leaseback (see No. 1) 2,970
Add: Gain on sale and leaseback as operating lease (P400,000- 50,000
P350,000)
Totalgainonsale andleaseback 52,970
QuestionNo. 5 ( B)
The deferred gain on sale and leaseback should be recognized immediately.
SUMMARY OF ANSWER S:
1. B 2. D 3. C 4. B 5. B
PROBLEM 27-18
QuestionNo. 1 ( C)
Present value of Periodic Payment (50,000 x 4.0373) - LOWER 201,865
FairValue ofthe leasedasset P213,213
PAR. 20 OF PAS 17 States that: At the commen cement of the lease term, lessees
shall recognise finance leases as assets and liabilities in their balance sheets at
amounts equal to the fair value of the leased property or, if lower, the present
value of the minimum lease payments, each determined at the inception of the
lease. The discount rate to be used in calculating the present value of the
minimum lease payments is the interest rate implicit in the lease, if this is
practicable to determine; if not, the lessee’s incremental borrowing rate shall be
used. Any initial direct costs of the lessee are added to the amount recognized as
an asset.
Question Nos. 2-4
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
256
Chapter 27 – Lease
12/31/2015 201,865
12/31/2015 5 0,000 50,000 1 51,865
12/31/2016 50,000 18,224 31,776 120,089
12/31/2017 50,000 14,411 35,589 84,499
12/31/2018 50,000 10,140 39,860 44,639
12/31/2019 50,000 5,361 44,639 0
QuestionNo. 2 (D)
P120,089. See amortization table above.
QuestionNo. 3 ( C)
P35,589. See amortization table above.
QuestionNo. 4 ( C)
P18,224. See amortization table above.
QuestionNo. 5 ( A)
Depreciation expense (201,865/5) P40,373
SUMMARY OF ANSWER S:
1. C 2. D 3. C 4. C 5. A
PROBLEM 27-19
QuestionNo. 1 ( A)
QuestionNo. 2 ( C)
Total minimum lease payments(60,000 x 6) 360,000
Add: Unguaranteedr esidual value 20,000
Totalleasereceivable 380,000
Less: Fair market value of thele ased asset 286,420
TotalFinancialrevenue 93,580
257
Chapter 27 – Lease
QuestionNo. 3 ( A)
Amortization Table
Annual Interest Present
Date Collection Income Amortization value
01/01/2016 286,420
01/01/2016 6 0,000 60,000 2 26,420
12/31/2016 60,000 27,170 32,830 193,590
QuestionNo. 4 (C)
Present value of periodic lease payments (60,000 x 4.6048) P 276,288
Amortization Table
Annual Interest Present
Date Collection Income Amortization value
01/01/2015 276,288
01/01/2015 6 0,000 60,000 2 16,288
12/31/2015 60,000 25,955 34,045 182,243
Depreciation expense (276,288/6) 46,048
Add:Interestexpense 25,955
Totalexpenses 72,003
QuestionNo. 5 ( C)
P182,243. See amortization table in No. 4.
SUMMARY OF ANSWER S:
1. A 2. C 3. A 4. C 5. C
PROBLEM 27-20
QuestionNo. 1 ( B)
Periodic rent(12,000x12) 144,000
Amortization of lease bonus (300,000/6) 50,000
Rentexpense 194,000
QuestionNo. 2 ( C)
Periodicrent 480,000
Contingent rent:
1st(4Mx4%) 160,000
2nd( 6M-4M)x5%) 100,000 260,000
Amortization of lease bonus (500,000/5) 100,000
Totalrentexpense 840,000
258
Chapter 27 – Lease
QuestionNo. 3 ( B)
[(3 x 12)-6] x 10,000
Rent expense =
3
Rent expense = 100,000
QuestionNo. 4 ( B)
Lease No. 1 (Rent expense overstated, asset understated)
(P444,000-P194,000) (250,000)
Lease No. 2 (Rent expense overstated, asset understated) (400,000)
Assetunderstated (650,000)
Rentexpenseperyear-Lease3 100,000
Less:Payment(10,000x6 months) 60,000
Accrued rent payable under, Liability understated (40,000)
QuestionNo. 5 ( C)
Lease no. 1 (Rent expense overstated, net income understated) (250,000)
Lease No. 2 (Rent expense overstated, net income understated) (400,000)
Lease No. 3 (Rent expense understated, net income overstated) 40,000
(100,000-60,000)
Netincome understated (610,000)
SUMMARY OF ANSWER S:
1. B 2. C 3. B 4. B 5. C
PROBLEM 27-21
QuestionNo. 1 ( B)
The present value of annuity due of 12% for 10 periods can be computed as:
[1 – (1+12%) -9] + 1 = 6.33
12%
Annual rentals P1,440,000
Executory costs (49,410)
Minimumleasepayment P1,390,590
Multiply by: Present value of annuity due 6.33
Present value of minimum lease payments P8,802,438
Fairvalueo ftheproperty P8,800,000
(The difference is immaterial, implicit rate is 12% at P8.8M)
QuestionNo. 2 (D)
[12/31/2015
balance balance x (1+Effective rate)] – annual payments = 12/31/15
QuestionNo. 3 ( B)
12/31/2016 balance – current portion(no.2) = Non-current portion
= P6,907,9 49 - P561,636 = P6,346,313
QuestionNo. 4 ( A)
P8,800,000/10 = P880,000
QuestionNo. 5 ( A)
Depreciationexpense P 880,000
Interest
Executoryexpense
costs (P8,800,000 – P1,390,590) x 12 889,129
49,410
Total lease-related expenses P1,818,539
SUMMARY OF ANSWER S:
1. B 2. D 3. B 4. B 5. A
PROBLEM 27-22
QuestionNo. 1 ( B)
07/01/2015 to 06/30/2016 60,000
07/01/2016 to 06/30/2017 90,000
07/01/2017 to 06/30/2018 210,000
Total 360,000
Divideby:Numberofyears 3
Rent expense per year 120,000
Rent expense to date (120,000 x 1) 120,000
Less:Payment odate 60,000
Accrued rent payable 60,000
QuestionNo. 2 ( B)
Present value of Periodic Payment (400,000 x 5.9500) 2,380,000
Fairvalue ofleasedasset P2,380,000
Cost is equal to P2,380,000 (Fair value which is the same as the Present value of
minimum lease payments .)
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
06/30/2016 2,380,000
06/30/2016 400,000 - 400,000 1,980,000
06/30/2017 400,000 277,200 122,800 1,857,200
260
Chapter 27 – Lease
QuestionNo. 3 ( A)
Firstl ease( SeeN o.1) 60,000
Second lease (see amortization table) 122,800
Current liabilities 182,800
QuestionNo. 4 ( A)
Rent expense (First lease) 120,000
Interestexpense 277,200
Depreciation expense (2,380,000/10) 238,000
Total lease-related expenses 635,200
SUMMARY OF ANSWER S:
1. B 2 . B 3. A 4. A
QuestionNo. 2 ( B)
Interestexpense 34,431
Executory cost
Depreciation 20,000
105,751
Total lease related expenses 160,182
Question Nos. 3 to 4
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
12/31/2016 433,005
12/31/2016 120,000 - 120,000 313,005
12/31/2017 120,000 34,431 85,569 227,436
12/31/2018 120,000 25,018 94,982 132,453
12/31/2019 120,000 14,570 105,430 27,023
12/31/2020 30,000 2,977 27,023 (0)
QuestionNo. 3 (C)
P85,569. See amortization table above.
QuestionNo. 4 ( B)
P227,436. See amortization table above.
261
Chapter 27 – Lease
QuestionNo. 5 ( B)
Gross amount of guaranteed residual value 30,000
Less:Fairvalue 25,000
Losson finance lease 5,000
QuestionNo. 6 ( A)
Zero
QuestionNo. 7 ( C)
Cost of leased asset 453,005
Less: Accumulatedd epreciation 211,503
Carryingamount 241,503
Add:Cashpayment 200,000
Totalconsideration 441,503
Less:Leaseliability 227,436
Costo fequipmentpurchased 214,067
SUMMARY OF ANSWER S:
1. C 2. B 3. C 4. B 5. B 6. A 7. C
QuestionNo. 3 ( A)
The PV annuity due of 12% ov er 8 years can be com puted as:
[1 – (1+12%) -7 ] + 1= 5.5638
12%
The present value of 12% f or 8 years can also be computed as:
(1+12%) -8 = 0.4039
The total interest revenue is the difference the lease receivable and the present
value of the minimum lease payments.
Lease receivable (P959,500 x 8 + P400,000) P 8,076,000
Present value of the lease
Unguaranteed residual value
(P400,000 x 0.4039) P 161,560
Present value of lease payments
(P959,500 x5 .5638) 5,338,466 5,499,966
Total interest over the lease term P2,576,034*
262
Chapter 27 – Lease
Since the lease is a direct financing lease (meaning, present value of the
minimum lease payments approximates the value of the property upon the
commencement of the lease), this can b e solved alternatively as:
[(P959,500 x 8 + P400,000) – P5,500,000)] = P2,576,000
QuestionNo. 4 ( B)
(P5,500,000 – P959,500) x 12% = P544,860
SUMMARY OF ANSWER S:
1. C 2. B 3. A 4. B
QuestionNo. 2 ( B)
Present value of minimum lease payments 11,370,000
Cost of goods sold (P8,000,000 + P300,000) (8,300,000)
P3,070,000
QuestionNo. 4 ( B)
Selling price P 7,040,000
Book value ( 5,600,000)
Gaino n sale P1 ,440,000
QuestionNo. 5 ( B)
P7,040,000 x 10% x 6/12 = P352,000
SUMMARY OF ANSWER S:
1. A 2. B 3. A 4. B 5. B
263
Chapter 27 – Lease
QuestionNo. 1 ( B)
Interestcostpaid(50Mx1 2%) 6,000,000
Less: Interest expense for the year (47,078,000 x 14%) 6,590,920
Understatedfinancecost (590,920)
QuestionNo. 2 ( C)
Profit accounted for on disposal of plant 10,000,000
Profittobebooked(10M/5X. 5) 1,000,000
Overstated profit on sale and leaseback 9,000,000
QuestionNo. 3 (C )
Depreciationperbook(30M/15) 2,000,000
Depreciation to be booked Apr. 1, 2015 to Sept. 30,
2015 (30M/15X.5) 1,000,000
Depreciation to be boo ked Oct . 1, 2015 to Mar ch 31, 201 6
(16M/5 X.5) 1,600,000 2,600,000
Understateddepreciation (600,000)
QuestionNo. 4 ( C)
Carrying value as of October 1, 2015 (30M/15 X 10.5) 21,000,000
Recoverable amount 16,000,000
Impairmentloss 5,000,000
QuestionNo. 5 ( C)
Acquisitioncost 6,000,000
Dividend income( P20x 50,000) (1,000,000)
Share in the net income( P10M x2 5%) 2,500,000
Share in the comprehensive income (P2M x 25%) 500,000
Investmentinassociate 8,000,000
SUMMARY OF ANSWER S:
1. B 2. C 3. C 4. C 5. C
264
Chapter 27 – Lease
QuestionNo. 2 ( C)
P317,400. See amortization table above.
QuestionNo. 3 ( C)
P204,512. See amortization table above.
QuestionNo. 4 ( C)
P2,257,888. See amortization table above.
SUMMARY OF ANSWER S:
1. A 2. C 3. C 4. C 5. A 6. B
265
Chapter 27 – Lease
PROBLEM 27-28
QuestionNo. 1 (D)
(900,000+50,000+25,000) P 975,000
QuestionNo. 2 (D)
Total warranty expense (1.4M x 12%) P 168,000
Less: Total actuale xpenditures 63,000
Warranty liability end of 2015 P 1 05,000
QuestionNo. 3 ( C)
Legal services P 4,600
Add:Medicalservices 5,500
Payroll(14,400/12 x8) 9,600
Royalties 3,900
Totalaccrual P 23,600
QuestionNo. 4 (D)
Fair value (equal to present value MLP) P 490,000
Less:First payment 70,000
Total 420,000
Add: Interest accrued( 420,000x 9%) 37,800
Totallease liability P 457,800
QuestionNo. 5 ( A)
(3,875,902 x1 11%)-400,000 P 3,902,251
SUMMARY OF ANSWER S:
1. D 2. D 3. C 4. D 5. A
PROBLEM 27-29
QuestionNo. 1 ( C)
Unadjusted balance – Accounts Payable 450,000
2 60,000
3 45,000
Adjustedbalance 555,000
QuestionNo. 2 ( A)
Units sold:
October 32,000
November 28,000
December 40,000
Total 100,000
Multiply by 2%
Totalfailuresexpected 2,000
266
Chapter 27 – Lease
QuestionNo. 3 (C)
Notes payable is (200,000 x 3.6048 ) = 720,960
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
01/01/2016 720,960
12/31/2016 200,000 86,515 113,485 607,475
12/31/2017 200,000 72,897 127,103 480,372
QuestionNo. 4 ( A)
Present value ofp rincipal (4M x .6830) 2,732,000
Present value of interest payments (480,000 x 3.1699) 1,521,552
TotalPresentvalue 4,253,552
Amortization Table
QuestionNo. 5 (D)
Present value of minimum lease payments (200,000 x 6.759) P1,351,800
Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
01/01/2016 1,351,800
01/01/2016 200,000 - 200,000 1,151,800
12/31/2016 115,180 1,266,980
SUMMARY OF ANSWER S:
1. C 2. A 3. C 4. A 5. D
267
Chapter 27 – Lease
PROBLEM 27-30
QuestionNo. 1 (D)
Zero, the two notes payable should be presented as noncurrent liabi lities.
QuestionNo. 2 (D)
FINANCE LEASE: Amortization Table
Annual Interest Present
Date Payment Expense Amortization value
12/31/2015 379,692
12/31/2015 60,000 - 60,000 319,692
12/31/2016 60,000 38,363 21,637 298,055
12/31/2017 60,000 35,767 24,233 273,822
Answer: P273,822. Refer to amortization table above.
QuestionNo. 3 (B)
Answer: P38,363. Refer to amortization table above.
QuestionNo. 4 ( D)
Annual rent expe nse = P720,000/3=P240,000
Operating lease
Date Expense Expense Payment Accrued rent
To date to date (Prepaid)
1/1-12/31/16 240,000 240,000 120,000 120,000
1/1-12/31/17 240,000 480,000 300,000 180,000
1/1-12/31/18 2 40,000 720,000 720,000 -
QuestionNo 5 ( C)
CONTINGENCIES
Answer: P400,000 (P200,000+P200,000)
1. Only a disclo sure is necessary because it is not p robable that the com pany
will be liable, alth ough the a mount can be measured reliably.
2. Retainedearnings 200,000
Estimated liability for income tax 200,000
3. Accounts receivable – Innova 120,000
Lossonguaranty 80,000
Notepayable –bank 200,000
SUMMARY OF ANSWER S:
1. D 2. D 3. B 4. (D) 5 . C
268
Chapter 27 – Lease
PROBLEM 27-31
Question No. 1
Date Finance cost Present Value
04/01/2011 19,000,000
03/31/2012 1,900,000 20,900,000
03/31/2013 2,090,000 22,990,000
03/31/2014 2,299,000 25,289,000
03/31/2015 2,528,900 27,817,900
03/31/2016 2,781,790 30,599,690
Revised
Date Finance cost Present Value
04/01/2016 25,000,000
09/30/2016 1,250,000
10/1/2016 to 3/31/2016 (2,781,790 x 6/12) 1,390,895
04/01/2016 to 9/30/2016 (25,000,000 x 10% x 6/12 1,250,000
Finance cost (C) 2,640,895
Question No. 3
Cost of theplant 130,000,000
Add: Present value of decommissioning cost 19,000,000
Total 149,000,000
Less: Accumulated depreciation (149M/20 x 5) 37,250,000
Carryingvalue,3/31/2016 111,750,000
Less: Decrease due to revision of decom liability
Present value of decommissioning liability 30,599,690
Less Revisedestima e 25,000,000 5,599,690
Total 106,150,310
Less: Depreciation April to Sept 2016 3,538,344
(106,160,310/15 x 6/12)
Carrying value, 9/30/2016 (B) 102,611,966
Question No. 2
DepreciationOctober1 to March31 3,725,000
Depreciation April to Sept 2016 (106,160,310/15 x 6/12) 3,538,344
Total depreciation (B) 7,263,344
Question No. 4
2016 6,000,000
2017 6,300,000
2018 6,615,000
Total 18,915,000
Divideby:Totalsemi-annualpayments 6
Semi-annual income (B) 3,152,500
269
Chapter 27 – Lease
Question No. 5
Totalincometodate 3,152,500
Less:Totalcollectiontodate 3,000,000
Rent receivable (B) 152,500
SUMMARY OF ANSWER S:
1. C 2. B 3. B 4. B 5. B
270
Chapter 29 – Shareholders’ Equity
Question No.2 ( B)
Authorized preference
Less: Unissued shares
preference at P50 par value
shares 800,000
150,000
PreferenceSharesi ssued 650,000
Question No.5 ( C)
PreferenceSharesi ssued 650,000
SubscribedP reference shares 60,000
OrdinarySharesissued 550,000
SubscribedO rdinaryshares 200,000
Share Premium on ordinary shares 300,000
TotalLegal Capital 1,760,000
271
Chapter 29 – Shareholders’ Equity
SUMMARY OF ANSWER S:
1. A 2. B 3. D 4. D 5. C 6. D
PROBLEM 29-2
1. Cash (2,000x P50) 100,000
Share capital 100,000
To record share issuance at a premium
2. Cash (5,000x P60) 300,000
Share capital (5,000 x P50) 250,000
Share premium 50,000
To record share issuance at a premium
Share premium 50,000
Retained earnings 20,000
Cash 70,000
To record payment of share issue cost
3. Cash (4,000x P40) 160,000
Discount onshare capital 40,000
Share capital (4,000 x P50) 200,000
To record share issuance at a discount
PROBLEM 29-3
1. Machinery 180,000
Share capital (2,500 x P50) 125,000
Share premium 55,000
To record share issuance for machinery
2. Patent(1,000x P65) 65,000
Share capital (1,000 x 50) 50,000
Share premium 15,000
To record share issuance for patent
3. Organization expense 40,000
Share capital (400 xP50) 20,000
ToShare premium
record share issuance for organization services. 20,000
272
Chapter 29 – Shareholders’ Equity
PROBLEM 29-4
Loanspayable-bank 150,000
Share capital 100,000
Share premium** 40,000
Gain on settlement on liability 10,000
To record issuance of shares for liability
*Computation of loss on extinguishment of liability
Fair value of equity instruments issued (or if not reliably determinable, use 140,000
the fair value of liability) (2,000 x P70)
Less:Carryinga mountofliability 150,000
Gainonsettlementof liability 10,000
**Computation of increase in share premium
Fair value of equity instruments issued (or if not reliably determinable, use 140,000
the fair value of liability) (2,000 x P70)
Less: Total par or stated value of equity issued (2,000 x P50) 100,000
Share premium(or Discount) 40,000
PROBLEM 29-5
1. Cash (2,500x P216) 540,000
Preferenceshares( 2,500x P200) 500,000
Share premium-pref.share 40,000
To record issuance of preference shares
2. Cash (500x P120) 60,000
Ordinary shares (500x P100) 50,000
Share premium -ordinary shares 10,000
To record issuance of ordinary shares
PROBLEM 29-6
Allocated
Allocation of the lump-sum price: Total Fair value Fraction proceeds
Preferences hares( 2,500x P216) 540,000 54/60 810,000
Ordinarys hares( 500x1 20) 60,000 6/60 90,000
Total 600,000 900,000
The transaction will then be recorded as follows:
Cash 900,000
Preferenceshares (2,500 x P200) 500,000
Share premium-preference share (810,000-500,000) 310,000
Ordinary shares (500x 100) 50,000
Sharepr emium - ordinary share (90,000-50,000) 40,000
PROBLEM 29-7
273
Chapter 29 – Shareholders’ Equity
PROBLEM 29-8
1. Subscription receivable (4,000 xP 60) 240,000
Subscribedsharec apital( 4,000xP 50) 200,000
Share premium 40,000
To record subscriptions of share capital
2. Cash (240,000x 40%) 96,000
Subscriptionreceivable 96,000
To record cash collection
3. Cash (240,000x 60%) 144,000
Subscriptionreceivable 144,000
To record cash collection
Subscribedsharecapital 200,000
ShareCapital(4,000x 50) 200,000
To record issuance of share certificate
PROBLEM 29-9
1. Subscriptions receivable (5,000 xP 60) 300,000
Subscr bedo rdinarys hares( 5,000xP 50) 250,000
Sharepremium-ordinary share 50,000
To record subscriptions of 10,000 shares at P110
2. Cash (300,000x 40%) 120,000
Subscriptionsreceivable 120,000
To record receipt of cash for subscriptions
3. Subscribedordinaryshares 250,000
Sharep remium-ordinarys hare 50,000
Subscriptions receivable (300,000x 60%) 180,000
Sharep remiumf orfeited down-payment 120,000
PROBLEM 29-10
Journal entries to record the transactions would be:
PROBLEM 29-11
PROBLEM 29-12
1) Treasuryshares( 15,000x 24) 360,000
Cash 360,000
2) Cash (5,000x P26) 130,000
Treasuryshares (5,000x P24) 120,000
Share premium-Treasuryshares 10,000
PROBLEM 29-13
a. Preferences hares(
Share Premium on 3,000xP 100)
Preference shares [(300,000/30,000) x 300,000
3,000] 30,000
Accumulated profits (balancing figure) 90,000
Cash (3,000x P140) 420,000
b. Preference shares 300,000
275
Chapter 29 – Shareholders’ Equity
PROBLEM 29-14
1) Preferences hares( 4,000xP 100) 400,000
Share Premium on Preference shares [(300,000/30,000) x
4,000] 40,000
Ordinary shares (4,000x P50) 200,000
Sharep remium-ordinaryshares 240,000
2) Preference shares( 4,000xP 100) 400,000
Share Premium on Preference shares [(300,000/30,000) x
4,000] 40,000
Accumulatedprofits 560,000
Ordinarys hares( 4,000x5 /1xP 50) 1,000,000
PROBLEM 29-15
1a. Ordinarys hares( 50,000xP 50) 2,500,000
Share Premium on Ordinary shares 100,000
Ordinarys hares( 50,000x P40) 2,000,000
Sharep remium-recapitalization 600,000
1b. Ordinary shares 2,500,000
Share Premium on Ordinary shares 100,000
Accumulatedprofits 4,400,000
Ordinarys hares( 50,000x P140) 7,000,000
2. Ordinary shares ((P50-P40) x5 0,000) 500,000
Sharep remium-recapitalization 500,000
3. Share split
Before Multiplyb y After
OrdinaryS harec apital issued 100,000 5/1 500,000
Subscribedsharecapital - 5/1 -
Total 100,000 5/1 500,000
Less:Treasuryshares - 5/1 -
Outstandingshares 100,000 5/1 500,000
Before multiply by After
Par valueper share P50 1/5 P10
Memo entry:
Changes: increase number of shares
Same SHE
Decrease number in Par value
276
Chapter 29 – Shareholders’ Equity
PROBLEM 29-16
CASE NO. 1
Total Fair Fraction Allocated cost
value
Preferences hares( 2,000x P80) 160,000 80% 320,000
Warrants (2,000 x P20) 40,000 20% 80,000
Total 200,000 400,000*
*(150 x 4,000)
Cash 400,000
PreferenceSharecapital( 2,000xP 50) 100,000
ShareP remium(320,000-100,000) 220,000
Ordinarys harewarrantsoutstanding 80,000
When the warrants are exercised:
Cash(1,000x 80% x P40) 32,000
Ordinary share warrants outstanding (80,000 x 80%) 64,000
OrdinaryS hare capital( 1,000x 80% xP 20) 16,000
Share Premium–ordinaryshare 80,000
CASE NO. 2
Total
proceeds 400,000
Less: Total fair value of the preference shares (2,000 x P80) 160,000
Valueofthewarrants 240,000
Cash 400,000
PreferenceSharecapital( 2,000xP 50) 100,000
Share Premium(160,000-100,000) 60,000
Ordinarys harewarrantsoutstanding 240,000
CASE NO. 3
Marketvalueofordinary shares P 50
Less:Option price/exercise price 40
Intrinsic valueof warrant 10
Multiply: # of ordinary shares claimable under warrants 1,000
Marketvalueofshare warrants P 1 0,000
Total
proceeds 400,000
Less:ValueofSharewarrants 10,000
Valueassignedt oPreferenceS hare 390,000
Cash 400,000
PreferenceSharecapital( 2,000xP 50) 100,000
Share Premium(390,000-100,000) 290,000
Ordinarys harewarrantsoutstanding 10,000
PROBLEM 29-17
Ordinarys haresi ssued 40,000
Less:Treasury shares 2,000
Outstandingshares 38,000
a. Retainede arnings( 38,000x P5) 190,000
277
Chapter 29 – Shareholders’ Equity
PROBLEM 29-19
Feb.15, Retained earnings 450,000
2017 Dividends payable 450,000
Dec. 31, Retained earnings 150,000
2016 Dividends payable 150,000
Fair value,Dec.31 600,000
Less:PreviousF airv alue 450,000
Increase ind ividendsp ayable 150,000
Feb.15, Dividends payable 60,000
2017 Retained earnings 60,000
Fair value,Feb. 15 540,000
Less:PreviousF airv alue 600,000
Decrease ind ividendsp ayable (60,000)
Dividends payable 540,000
Inventory 500,000
Gain on distribution - prop.d ividends 40,000
Carrying amount of dividend payable = Fair value 540,000
Less: Carrying amount of noncash assets 500,000
Gain on distribution of prop. Dividends 40,000
PROBLEM 29-20
Nov. 1, Retained earnings 450,000
2017 Dividends payable 450,000
Equipment-noncurrent asset for distribution* 450,000
278
Chapter 29 – Shareholders’ Equity
279
Chapter 29 – Shareholders’ Equity
Date of payment:
If the shareholders opted to receive cash, the journal entry is:
a. Dividends payable 84,000
Cash (10 X 8,000) 80,000
Retainede arnings(balancingf igure) 4,000
If the shareholders opted to receive noncash, the journal entry is:
b. Dividends payable 84,000
Loss on distribution of dividends (balancing figure) 6,000
Noncash(10x 9,000) 90,000
PROBLEM 29-22 Share Divid ends: Small, Large and Tre asury Shares
Computation of outstanding shares:
Ordinarys haresi ssued 53,000
Less:Treasuryshares 3,000
Outstandingshares 50,000
1) Accumulated Profits 400,000
[(50,000) x 10% x P80]
Share dividends payable [(50,000) x 10% x P50] 250,000
Sharep remiumo nOrdinaryshares 150,000
2) Accumulated Profits 500,000
[(50,000) x 20% x P50]
Share dividends payable [(50,000) x 20% x P50] 500,000
3) Capital Liquidated (P2 x 50,000 shares) 100,000
Cash 100,000
4) AccumulatedProfits 120,000
Treasuryshares 120,000
280
Chapter 29 – Shareholders’ Equity
Questions 1 to 3
Date Ordinary Preference
shares shares
A. Jan.2,2012 20,000 10,000
B. Jan.3,2013 (10,000/50x2) 400
C. May1, 2014 10,000
BAL Dec. 31, 2014 (D ) 1. 30,400 10,000
D. Jan. 1, 2015 [(30,400/2 x 3) - 30,400] 15,200
Question No. 4
June 30 ( 1.50 x 45,600) 68,400
Dec.3 1 ( 2.50 x 45,600) 114,000
Total Dividends (A) 182,400
Question No. 5
June 30 ( 1.25 x9 1,200) 114,000
Dec.3 1 ( 1.00 x 95,200) 95,200
Total Dividends (D) 209,200
SUMMARY OF ANSWER S:
1. D 2. B 3. A 4. A 5. D
PROBLEM 29-25
Questions 1 to 3
Total Subs.
Pref. Ord. Share Retained Treasury Ord. Subs.
*in ‘000s shares shares Premium earnings shares share Receivable
Beginning 1,400 3,500 1,925 4,500
Jan.5 600 60 (20)
(60)
Jan.
28 1,000
Feb. 2 Memo
Feb.
14 50 (500)
880
Question No.4 ( C)
Retainedearnings,total P 5,480,000
Outstanding balance of treasury stocks ( 50 0,000)
Retained earnings – unappropriated P 4,980,000
Question No.5 (B )
Preferenceshares P 2,200,000
Ordinary shares 5,200,000
Subscribedo rdinarys
Subscriptionsr hares
eceivable 500,000
(750,000)
Sharepremium 5,305,000
Retained Earnings 5,480,000
Treasurystocks ( 500,000)
Total P17,435,000
SUMMARY OF ANSWER S:
1. B 2. C 3. C 4. C 5. B
PROBLEM 29-26
Pref. Ord. Share Retained Treasury
shares shares Prem earnings shares
Beg. 400,000 200,000 250,000 900,000
Balances
2.) 200,000
3) 20,000 (80,000)
4.) 400,000 80,000
5.) 6,000 30,000
6.) 38,200 (38,200)
8.) 2,400,000
9.) (80,000)
(91,680)
Total 800,000 244,200 380,000 3,090,120 120,000
1 . ( C) 2. ( D) 4. (D)
Number of Shares
Ordinary Preference
Beginningbalance 40,000 4,000
2.T reasuryshares
3. Reissuance of treasury shares (5,000)
2,000
4. Issuance of P/S 4,000
5.E xercise of warrants 1,200
6.S hared ividends 7,640
282
Chapter 29 – Shareholders’ Equity
Question No.5 (A )
Preferenceshares P 800,000
Ordinary shares 244,200
Sharepremium 380,000
Retainedearnings-total 3,090,120
Treasuryshares (120,000)
Totalshareholder’sequity P 4,394,320
SUMMARY OF ANSWER S:
1. C 2. D 3. D 4. D 5. A
PROBLEM 29-27
Subscri Subscri Total Retaine
bed ption Share d Treasu
Pref. Ord. share Receiva Premiu Earnin ry
Shares Shares Capital ble m gs Shares
Beg. 4,000 840 100 52 968 15,000 44
1.) 80 (100) (52) 9.6
2.) (200) 40 160
3.) 1,350 675
4.) 27 (33)
5.) 280
6.) 2,500
7.) (1,217)
Total 3,800 2,310 0 0 1,839.6 16,563 11
1 . ( D) 2 . ( C) 3 . ( C)
Ordinary
Shares
Beginningbalance -issued 84,000
Beginningbalance -treasury (4,000)
1.) February 1,2 016 Issuance ofshares 8,000
2.) March 1, 2016 Conversion of preference shares 4,000
3.) April 1, 2016 Exercise of stock rights (67,500 x 2) 135,000
Balance –April30 227,000
4. ) September 30, 2016 Reissuance of treasury shares 3,000
283
Chapter 29 – Shareholders’ Equity
Preference
Shares
Beginning balance– issued ando utstanding 40,000
2.) March 1, 2016 Conversion into ordinary shares (2,000)
Balance –April30&October 31 38,000
QuestionNo. 4 (B)
Retained earnings (see table above) P16,563,000
Less:Treasury shares 11,000
Retained earnings - unappropriated P16,552,000
QuestionNo. 5 (B)
Preferenceshares 3,800,000
OrdinaryShares 2,310,000
SharePremium 1,839,600
Retained Earnings - Unappropriated 16,552,000
Retained Earnings - Appropriated 11,000
Less: Treasury Shares 11,000
Shareholder’s Equity 24,501,600
SUMMARY OF ANSWER S:
1 . D 2 . C 3 . C 4 . ( B) 5 . ( B)
PROBLEM 29-28
Total
Preference Ordinary Share Retained Treasury
Shares Shares Premium Earnings Shares
Beginning 840,000 4 20,000 15,000,000 44,000
A.) 13,500 (16,500)
B.)
C.) SPLIT2 for1 (650,000)
D.) 200,000 340,000
60,000
E.) 8,000 16,000
284
Chapter 29 – Shareholders’ Equity
QuestionNo. 4 ( A)
Retained earnings (see table above) P16,074,600
Less:Treasury shares 27,500
Retained earnings - unappropriated P16,047,100
QuestionNo. 5 (A)
Preferenceshares 200,000
OrdinaryShares 838,000
SharePremium 844,500
Retained earnings unappropriated 16,047,100
Retained earnings - appropriated 27,500
Less:Treasury Shares 27,500
Shareholders’E quity 17,929,600
SUMMARY OF ANSWER S:
1. C 2. D 3. C 4. A 5. A
PROBLEM 29-29
Total
Preferenc Ordinary Share Retained Treasury
e Shares Shares Premium Earnings OCI Shares
Beg. 1,200,000 1,800,000 4,116,000 2,300,000 61,740 420,000
Jan.4 300,000 750,000
Mar. 2 400,000 500,000
May7 18,000 (126,000)
2-for-1
Jun. 15 split
Jul.2 98,000 274,400 (274,400)
285
Chapter 29 – Shareholders’ Equity
Ordinary
Shares
Beginningbalance -issued 180,000
Beginningbalance -treasury (20,000)
Jan.4Issuanceof shares 30,000
Balance –January30 190,000
May7R eissuanceoftreasuryshares 6,000
Balance beforesharesplit 196,000
Add:Sharesplit–2 for1 196,000
Balance 392,000
July2 5%sharedividends 19,600
Oct. 15Issuance of shares 1,000
Balance –December 31 412,600
Preference
Shares
Totalsharepremium 6,458,400
Retained earnings - unappropriated 2,582,540
Retained earnings – appropriated 294,000
Less:TreasuryShares 294,000
Total Shareholders’ equity 13,243,940
SUMMARY OF ANSWER S:
1 . D 2. C 3. B 4. (E) 5. (E)
PROBLEM 29-30
Jan.1 Land 340,000
Organizationexpense 140,000
Ordinarys hares( 1,000x P100 10,000
SharePremium-O/S 470,000
Feb. 23 Cash (20,000 x 150)-150,000 2,850,000
Preference shares (20,000 x P100) 2,000,000
Sharepremium-PS 850,000
Mar. 10 Cash (6,000 x 390)-50,000 2,290,000
Ordinarys hares( 6,000x P10) 60,000
Sharepremium-OS 2,230,000
Apr. 10 Subscriptions receivable (8,000 x P450) 3,600,000
Subs.O rdinary shares( 8,000x P10) 80,000
Sharepremium-OS 3,520,000
July14 Building 1,080,000
Preferences hares( 2,800 x P100) 280,000
Share Premium-PS (460,000-280,000) 180,000
Ordinarys hares( 1,400x P10) 14,000
Share premium-OS (560,000-14,000) 546,000
Fair valueo f the building 1,020,000
Less: Fair value of the ordinary shares 560,000
(480,000/1,200 x 1,400)
Valueo f the pref. shares 460,000
July14 Cash 480,000
Ordinarys hares( 1,200x P10) 12,000
SharePremium-OS 468,000
Aug.3 Cash 2,800,000
Subscriptionsreceivable 2,800,000
Subs. Ordinary shares (8,000 x ½ x P10) 40,000
Ordinary shares 40,000
Dec.1 Retainedearnings 580,000
287
Chapter 29 – Shareholders’ Equity
Dividendspayable 580,000
Pref.d ividends (2,280,000 x 10%) 228,000
OSI ssued (136,000/10) 13,600
Add:SubscribedOS 4,000
Outstandingshares 17,600
Multiplyb y:D ividend pers hare 20 352,000
Totaldividends 580,000
Dec.3 1 Dividendspayable 228,000
Cash 228,000
Subs.
Ordinar Subscrib Receiv
P/S SP– P/S y Shares SP – O/S ed O/S able R/E
1/1 P - P - P10 P 470 P - P -
2/23 2,000 850 - - - -
3/10 60 2,230
4/10 3,520 80 3,600
7/14 280 180 14 546
7/14 12 468
8/3 40 (40) (2,800)
12/1 (228)
(352)
50 1,280
Total P2,280 P1,030 P136 P7,234 P 40 P800 P700
1 . ( B) 2. (C) 3. (C) 4. (C) 5. (B)
Note:
Sec. 43 of the Corporation Code of the Philippines states that “ The board of
directors of a stock corporation may declare dividends out of the unrestricted retained
earnings which shall be payable in cash, in property, or in stoc k to all stockholders on the
basis of outstanding stock held by them: Provided, That any cash dividends due on
delinquent stock shall first be applied to the unpaid balance on the subscription plus
costs and expenses, while stock dividends shall be withheld from the delinquent
stockholder until his unpaid subscription is fully paid”
288
Chapter 29 – Shareholders’ Equity
Thus, the dividend on the subscribed share capital is paid to that shareholder because he
was not yet declared delinquent by corporation.
SUMMARY OF ANSWER S:
1. B 2. C 3. C 4. C 5. B 6. C
PROBLEM 29-31
Question No.1 ( C)
Preferenceshares,beg. P 800,000
Additionali ssue (20,000x P10) 200,000
Total P1,000,000
Question No.2 ( A)
Ordinary shares,beg. P 200,000
Stockdividend(3,480sharesx P5)* 17,400
Total P 217,400
Outstandingshares,beginning 40,000
Treasurysharesacquisition (8,000)
Treasurysharesre-issue 2,800
Totaloutstandingshares 34,800
Multiplied
by: 10%
Dividendshares 3,480
Question No.3 ( A)
Sharepremium,beg. P 384,000
Premium on treasury share re-issue (100,000 – (2,800 x P20) 44,000
Premium on preference share ssue (P15 – P10) x 20,000 shares 100,000
Premium on stock dividends (P12 – P5) x 3,480 shares 24,360
Totalsharepremium,end P 552,360
289
Chapter 29 – Shareholders’ Equity
Question No.5 ( B)
Treasury shares acquired (8,000x P20) P 160,000
Treasury shares reissued (2,800x P20) ( 56,000)
Treasuryshares,end P 104,000
SUMMARY OF ANSWER S:
1. C 2. A 3. A 4. D 5. B
290
Chapter 29 – Shareholders’ Equity
operatingexpenses 100,000
Adjustedneti ncome P 1,880,000
292
Chapter 30 – Book Value and Earnings Per Share
Sharesissued 200,000
Add: Subscribed shares (P1,000,000 / P50 par) 20,000
Less:Treasury shares 20,000
Ordinary sharesoutstanding 200,000
PROBLEM 30-2 Two Classes of Shares - Pre ference and Ordinary Shares
Total
Preference shares: Shares par value
Preference share capital issued 12,500 P5,000,000
Add:Subscribedpreferenceshares - -
Total 12,500 P5,000,000
Less:Treasurysharesatpar - -
Shares outstanding and total par value 12,500 P5,000,000
Total
Ordinaryshares: Shares par value
Ordinarys harec apitali ssued 75,000 P3,000,000
Add:Subscribedordinaryshares - -
Total 75,000 P3,000,000
Less:Treasury sharesatpar - -
Shares outstanding and total par value 75,000 P3,000,000
Totalshareholders'equity 15,000,000
Less: Par value of outstanding preference shares 5,000,000
Par value of outstanding ordinary shares 3,000,000
Excessoverpar 7,000,000
CASE NO. 1
Question No. 1 & 2
Excess Preference Ordinary
over par shares shares
Balances P7,000,000 P5,000,000 P3,000,000
Preference dividend
(5,000,000 x 8% x 4) (1,600,000) 1,600,000
Balancet o ordinarys hares 5,400,000 5,400,000
293
Chapter 30 – Book Value and Earnings Per Share
Total shareholders’
Divide equity
by: Outstanding shares 5,400,000
12,500 9,600,000
75,000
Book value per share P432. 00 P128.00
CASE NO. 4
Question No. 7 & 8
Excess Preference Ordinary
over par shares shares
Balances P7,000,000 P5,000,000 P3,000,000
Preference dividend
(5,000,000 x 8% x 4) (1,600,000) 1,600,000
Ordinary dividend
(3,000,000 x8%x 1) (240,000) 240,000
Balance for participation 5,160,000
Preference (5/8 x 5,160,000) (3,225,000) 3,225,000
Balancet o ordinarys hares 1,935,000 1,935,000
Total
Ordinaryshares: Shares par value
Ordinarys harec apitali ssued 26,000 P1,040,000
Add:Subscribedordinaryshares - -
Total 26,000 P1,040,000
Less:Treasurys haresatpar 1,000 40,000
Shares outstanding and total par value 25,000 P1,000,000
Totalshareholders'equity 11,970,000
Less: Par value of outstanding preference shares 4,000,000
Par value of outstanding ordinary shares 1,000,000
Excessoverpar 6,970,000
CASE NO. 1
Question No. 1 & 2
Excess Preference Ordinary
over par shares shares
Balances dividend
Preference P6,970,000 P4,000,000 P1,000,000
(40 00,000x 8% x4 ) (1,280,000) 12 80,000
Balancet o ordinarys hares 5,690,000 5,690,000
Total shareholders’ equity 5,280,000 6,690,000
Divide by: Outstanding shares 40,000 25,000
Book value per share P132. 00 P2 67. 6 0
CASE NO. 2
Question No. 3 & 4
Excess Preference Ordinary
over par shares shares
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000 x 8% x 4) (1,280,000) 1,280,000
Liquidation premium
[(P105-P100) x 40,000] (200,000) 200,000
Balancet o ordinarys hares 5,490,000 5,490,000
Total shareholders’ equity 5,480,000 6,490,000
Divide by: Outstanding shares 40,000 25,000
Book value per share P137. 00 P259.60
295
Chapter 30 – Book Value and Earnings Per Share
CASE NO. 3
Question No. 5 & 6
Excess Preference Ordinary
over par shares shares
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
Balancet o ordinarys hares 6,650,000 6,650,000
Total shareholders’ equity 4,320,000 7,650,000
Divide by: Outstanding shares 40,000 25,000
Book value per share P108. 00 P306.00
CASE NO. 4
Question No. 7 & 8
Excess Preference Ordinary
over par shares shares
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
Balancet o ordinarys hares 6,650,000 6,650,000
Total shareholders’ equity 4,320,000 7,650,000
Divide by: Outstanding shares 40,000 25,000
Book value per share P108. 00 P306.00
Excess Preference Ordinary
over par shares shares
Balances P6,970,000 P4,000,000 P1,000,000
Preference dividend
(4,000,000x 8% x 1) (320,000) 320,000
Ordinary dividend
(1,000,000 x8%x 1) (80,000) 80,000
Balance for participation 6,570,000
Preference (4/5 x 6,570,000) (5,256,000) 5,256,000
Balancet o ordinarys hares 1,314,000 1,314,000
Total shareholders’ equity 9,576,000 2,394,000
Divide by: Outstanding shares 40,000 25,000
Book value per share P239. 40 P95. 76
SUMMARY OF ANSWERS:
1. B 2. C 3. B 4. B 5. C 6. A 7. D 8. D
296
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-8 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P3,000,000 / 120,000 = P25 p er share
297
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
Diluted P3,000,000 + [(P1,800,000 x 10%) x (1 – 30%)]
=
EPS 129,000 shares *
Diluted EPS = P2 4.23 per share
Weighted average of actual ordinary shares 120,000
Add: Weighted average of potentia l ordinary
shares from assumed conversion (1,800 x 5 x 12/12) 9,000
Total weighted averageo f ordinary shares 129,000
Question No. 3
Diluted = P3,000,000 + [(P1,800,000 x 10% 8/12) x (1 – 30%)]
EPS 126,000 shares *
Diluted EPS = P2 4.48 per share
Weighted average of actual ordinary shares 120,000
Add: Weighted average of potentia l ordinary
shares from assumed conversion (1,800 x 5 x 8/12) 6,000
Total weighted averageo f ordinary shares 126,000
Question No. 4
P3,000,000
Basic EPS =
123,750*
= P24.24
Weighted averageo f actual ordinary shares 120,000
Add: Issuance of shares related to conversion
(1,800 x5x5/12) 3,750
Total weighted average of actual ordinary shares issued 123,750
Add: Assumed converted ordinary shares x months
outstanding(1,800x5x7/12) 5,250
Total weighted average outstanding ordinary shares 129,000
Question No. 5
P3,000,000 + [(P1,800,000 x 10% x 7/12) x (1 – 30%)]
Diluted EPS =
129,000 shares *
Diluted EPS = P2 3.83 per share
SUMMARY OF ANSWERS:
1. A 2. D 3. B 4. D 5. B
PROBLEM 30-9 Basic and Diluted EPS with Convertible Bonds Payable
Question No. 1
Basic EPS = P4,000,000 / 200,000 = P20 p er share
298
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
P4,000,000 + [(P1,123,910 x 10% x 8/12) x (1 – 30%)]
Diluted EPS =
210,000 shares*
Diluted EPS = P1 9.30 per share
Weighted averageo f actual ordinary shares 200,000
Add: Weighted average of potential ordinary shares from
assumedc onversion(15,000 x8 /12) 10,000
Total weighted averageo f ordinary shares 210,000
PROBLEM 30-10 Basic and Diluted EPS with Convertible Preference Shares
Question No. 1
P4,000,000 - [5,000 x P100 x 10%]
Basic EPS =
200,000 shares
Basic EPS = P19.75 per share
Question No. 2
P4,000,000
Diluted EPS =
225,000 shares*
Diluted EPS = P17.78 per share
*[200,000 + (5 x 5,000 x 12/12)]
Question No. 3
P4,000,000
Diluted EPS =
Diluted EPS = P18.2218,750
9 per shshares
are
*[200,000 + (5 x 5 000 x 9/12)]
Question No. 4
P4,000,000 – (5,000 x P100 x 10% x 9/12)]
Basic EPS =
206,250 shares
Basic EPS = P19.21 per share
Question No. 5
P4,000,000
Diluted EPS =
225,000 shares
Diluted EPS = P17.78 per share
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. C 5. D
299
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-11 Basic and Diluted EPS with Warrants and Options
Question No. 1
Basic EPS = P4,000,000 / 100,000 = P40 p er share
Question No. 2
P4,000,000
Diluted EPS =
101,200 shares *
Diluted EPS = P39.53 per share
Weighted averageo f actual ordinary shares 100,000
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 12/12) 1,200
Total weighted averageo f ordinary shares 101,200
Note: Months outstanding for assumed exercise of options is 12 months, which
is from date of issu ance up to the reporting date.
Option shares 9,000
Multiplyb y: Totale xercise price( 120+10) 130
Proceeds from assumed exercise of options 1,170,000
Divided by: Average market price during the year 150
Assumed treasuryshares 7,800
Option shares 9,000
Less:Assumedtreasuryshares 7,800
Incrementalshares 1,200
Question No. 3
P4,000,000
Diluted EPS =
100 900 shares *
Diluted EPS = P39.64 per share
Weighted averageo f actual ordinary shares 100,000
Add: Weighted average of incremental shares
from assumed exercise of options (1,200 x 9/12) 900
Total weighted averageo f ordinary shares 100,900
Question No. 4
P4,000,000
Diluted EPS =
104,667 shares *
Diluted EPS = P38.22 per share
Weighted average of actual beginning ordinary shares 100,000
Add: Weighted average number of shares from issuance of
Totalshare options
weighted (9,000of
average x4/12)
actual ordinary shares issued 3,000
103,000
Add: Weighted average of incremental shares
from assumed exercise of options (2,500 x 8/12) 1,667
Total weighted average outstanding ordinary shares 104,667
300
Chapter 30 – Book Value and Earnings Per Share
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. D
Question No. 2
1) Check for initial test of dilution
a. Options
Dilutive. The exercise price (P50) is less than the average market price
(P100).
b. Convertible preference
Probably dilutive . Theshares
incremental EPS (P1.2) is less than the basic
EPS (P10).
(P6,000,000 x 6%)
Incremental EPS =
(60,000 x 5)
Incremental EPS = P1.2 per share
c. Convertible bonds
Probably dilutive. The incremental EPS (P.84 ) is less than the basi c
EPS (P10).
(P2,000,000 x 12%) x (1-30%)
Incremental EPS =
(P2,000,000/P1,000) x 100
Incremental EPS = P.84 per share
`
2) Rank the dilutive potential diluters from the most dilutive to the leas t
dilutive.
1st Options
2nd Convertible bonds (incremental EPS of P.84 per share)
3rd Convertible preference share (incremental EPS of P1.2 per share)
3) Include potentially dilutive convertible securities one by one. Every time an
item is included, calculate new earnings per share or new loss per share
amount as follows:
301
Chapter 30 – Book Value and Earnings Per Share
Ordinary
Profit shares EPS
Basic EPS from continuing *2,000,000 200,000 10
operations
Options 0 10,000
Total 2,000,000 210,000 9.52
Convertible Bonds payable 168,000 200,000
Total 2,168,000 410,000 5.29
Convertible Preference share 360,000 300,000
Total 2,528,000 710,000 3.56
*Net Income less preference dividends [(P2,360,000 –(60,000 x P100 x
12%)]
Answer: The final diluted EPS would be P3.56 per share. (D)
QuestionNo. 3 (B)
P500,000
BasicE PS =
200,000
BasicE PS = P2.5 per share
Q u e st i o n N o . 4 ( C)
P500,000
Diluted EPS =
710,000
Diluted EPS = P. 70 per share
SUMMARY OF ANSWERS:
1 . A 2 . D 3. B 4. C
Question No. 1
2014:
Weighted average outstanding shares (40,000 x 1.17 x 12/12) 46,800
Basic EPS (P562,500 /46,800) (D) P12.02 / sh are
302
Chapter 30 – Book Value and Earnings Per Share
Question No. 2
2015:
Weighted average outstanding shares
(40,000x1.17x3 /12) 11,700
[(40,000+ 10,000)x9/12] 37,500 49,200
Basic EPS (P800,000/49,200) (B) P16.26 / sh are
Question No. 3
2016:
Weighted average outstanding shares[(40,000 + 10,000) x 12/12] 50,000
Basic EPS (P1,000,000 /50,000) (A) P20p ers hare
303
Chapter 30 – Book Value and Earnings Per Share
304
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2
Financial assets at fair value through other comprehensive income 600,000
Financialassetsatamortizedc ost 1,000,000
Deferredtaxasset 150,000
Machinery 800,000
Accumulated depreciation (200,000)
Landusedasaplant site 920,000
Total Noncurrent Assets (C) 3,270,000
Question No. 2
Cash in sinking fund 280,000
Long-term investments 500,000
Deposit to supplier for inventories to be delivered in 16 months 23,000
Cash surrender value 20,000
Property,plantandequipment 5,000,000
Total noncurrent Assets (A) 5,823,000
305
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2
Bondspayable 3,400,000
Premiumonbondspayable 200,000
Deferredtaxliability 400,000
Mortgage payable 1,000,000
Loanspayable-noncurrent 400,000
Total noncurrent liabilities (C) 5,400,000
306
Chapter 32 – Statement of Financial Position and Comprehensive Income
Requirement No. 2
Regardless of whether there have been transactions between a parent and a
subsidiary, an entity must disclose the name of its parent and, if different, the
ultimate controlling party. Therefore, Frozen Throne Company should disclose
Jakiro Co., its ultima te parent or controlling party.
307
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2
AuditingandAccounting fees 300,000
Officers’salaries 625,000
Rentforo ffices pace(500,000X1 /2) 250,000
Insurance 200,000
Depreciationonofficeequipment 15,000
Total general and administrative expenses (D) 1,390,000
308
Chapter 32 – Statement of Financial Position and Comprehensive Income
COMPREHENSIVE PROBLEMS
PROBLEM 32-9
Non-
Current current
Asset asset Total Asset
Unadjusted balance 44,300 158,400 202,700
1. Notes receivable – maturity (10,000) 10,000 -
date July 1, 2018
Land (12,000) 12,000 -
2. FVTOCI 4,600 (4,600) -
3. Inventory 30,500 (30,500) -
4. Treasuryshares (1,800) (1,800)
5. Prepaid insurance 2,900 (2,900) -
10. Accumulated depreciation (21,000) (21,000)
– Building
Accumulated depreciation (13,000) (13,000)
– Equipment
Allowance for baddebts (700) (700)
Adjustedbalance 59,600 106,600 166,200
1. (B) 2. (A)
Non-
Current current
Liabilities liabilities Equity
Unadjusted balance 66,600 24,100 112,000
4. Treasuryshares (1,800)
6 Bondspayable (40,000) 40 000
7. Accruedwages 4,100 (4,100)
8. Mortgage – current portion 4,000 (4,000)
9. P remiumonbondspayable 4,300 (4,300)
10. Allowance for baddebts (700)
Accumulated depreciation (21,000) (21,000)
– Building
Accumulated depreciation (13,000) (13,000)
– Equipment
Adjustedbalance 34,700 60,300 71,200
3. (A) 4. (B) 5. (A)
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. B 5. A
309
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-10
Cash in Accts. Accum. Depre-
bank Inventory Receivable PPE Depr ciation
Unadjusted 100 1,800 2,500 1,000 400 -
balances
1 - 4- - - -
2 - (15) - - - -
3 (14) - - - - -
4 20 - - - - -
5 (5) - 5 - - -
6 - -- - - -
7 - - - 500 112.5 112.5
8 - -- - - -
9 - 60 - - - -
10 - - - (20) (4) (4)
11 - - - - - -
Adjusted 101 1,849 2,505 1,480 508.5 108.5
balances 1. (B)
Continuation…
Advances
from Accounts Interest Bonds Amorti-
customers payable payable payable Discount zation
Unadjusted - 320 1,924,144 - -
balances
1 - 4 - - - -
2 - - - - - -
3 - 14 - - - -
4 - 20 - - - -
5 - - - - - -
6 - - - - - -
7 - - - - - -
8 5 (5) - - - -
9 - 60 - - - -
10 - - - - - -
11 - - 180 75,856 63.442 12.414
Adjusted 5 413 180 1, 936,558 63.442 12,414
balances 2. (B)
*000
Current Assets:
Cash inbank 101,000
Inventory 1,849,000
Accounts Receivable 2,505,000 4,455,000 3.(A)
Noncurrent assets:
PPE 1,480,000
Less: Accumulated Depreciation 508,500 971,500 4.(B)
Totalassets 5,426,500
310
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current liabilities:
Advances from customers 5,000
Accountspayable 413,000
Interestpayable 180,000 598,000 5.(B)
Noncurrent liabilities:
Bondspayable 2,000,000
Discount on bonds payable 63,442 1,936,558 6.(C)
Totalliabilities 2,534,558
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. B 6. C
PROBLEM 32-11
2015
Sales COS EI OPEX
1. EI over, COS under 385,000 157,600 98,500 69,300
2015 6,200 (6,200)
2016
2. Salaries expense under
2015 14,600
2016
3. Sales ov erstated
2015 (1,700)
2016
4 Expe nse ov rstated
2015 (180)
2016
5. Purch. Over, COS over
2015 (3,200)
2016
6. Sales und er
2015 2,500
2016
7. Bad debt under
2015(32.4+2.5) x2% 698
2016 (66.1+4) x 2%-698
8. Dep. Expense under
2015 14,500
2016
Adjusted bal. 385,800 160,600 92,300 98,918
311
Chapter 32 – Statement of Financial Position and Comprehensive Income
2016
Sales COS EI OPEX
1. EI over, COS under 420,000 203,800 164,900 76,700
2015 (6,200)
2016 8,500 (8,500)
2. Salaries expense under
2015 (14,600)
2016 17,300
3. Sales ov erstated
2015 1,700
2016 (800)
4. Expense overstated
2015 180
2016 (200)
5. Purch. Over, CO S over
2015 3,200
2016 (4,600)
6. Sales und er
2015 (2,500)
2016 4,000
7. Bad debt under
2015 (32.4+2.5) x 2%
2016(66.1+4) x2%-698 704
8. Dep. Expense under
2015
2016 14,500
Adjusted bal. 422,400 2 04,700 1 56,400 94,584
312
Chapter 32 – Statement of Financial Position and Comprehensive Income
SUMMARY OF ANSWERS:
1. C 2. C 3. D 4. A 5. C
6 . A 7. C 8. B 9. B 1 0. B
PROBLEM 32-12
Question No. 1
Unadjustedsales 4,323,600
Less:Advances 132,000
Adjusted Sales (A) 4,191,600
Question No. 2
Carryingvalue( 100,000x70%^4*) 24,010
Less:Recoverableamount(higher) 23,000
Impairment loss (B) 1,010
*future value after 4 periods = carry ing value after 4 periods.
Question No. 3
Sales 4,191,600
Add: Increase in raw materials (75,800 – 56,800) 19,000
Increase in finished goods (130,700 – 105,800) 24,900
Less: Purchaseo fr awm aterials (2,056,500)
Othere xpenses(seebelow) (522,100)
Wages and salaries (890,400 + 33,000) (923,400)
Amortization of development cost (648,000 / 3 x 4/12) (72,000)
Impairmentloss (1,010)
Depreciation [(567,000 – 402,000) x 30%] (49,500)
Tax expense (52,000 + 35,000 – 30,000) (57,000)
Net income (A) 553,990
313
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current liabilities:
Tradeandotherpayables 156,700
Incometaxfromc
Advances payable
ustomers 52,000
132,000
A cruedpurchases 26,700 367,400
6. (C)
Non-current liabilities:
None - -
Totalliabilities 367,400
Equity:
Ordinary shares 300,000
Retained earnings (553,990 – 1,750 deficit – 7. (A)
20,000) 532,240 832,240
Total liabilities and shareholders’ equity 1,199,640
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. C 6. C 7. A
314
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-13
Question N os. 1 and 2
2015 2016
Unadjustednetincome 195,000 220,000
1) BD expense under, NI over (392,000 x 10% )-
37,000 (2,200)
2) Unreal. Gain (Loss) (81,000-78,000) and
(62,000-81,000) 3,000 (19,000)
3) EI overstated, NI over (4,000) 4,000
EI overstated, NIover (6,100)
4) *Expenseo ver,NIunder 10,900
Depreciation expense under, NI over (1,100)
5) **Gainon saleunder, NIunder 2,500
6) Exp.Over 1,800 (900)
Adjustednet income 206,700 197,200
1.( B) 2.( B)
*(Expenses recorded P12,000 should be (12,000-1,000)/10= 12,000-1,000)
**NetSellingPrice 2,500
Less carrying amount
Cost 17,500
Less Accumulated depreciation 17,500 0
Gain onsale 2,500
Question No. 3
Cash 82,000
Accounts receivable (296,000-18,000) 278,000
Tradings ecurities at Fairv alue 81,000
Merchandise inventory (202,000-4,000) 198,000
Prepaidi nsurance( 2,700-900) 1,800
Total current assets (D) 640,800
Question No. 4
Cash 163,000
Accounts receivable (392,000 x 90%) 352,800
Tradings ecurities at Fairv alue 62,000
Merchandise inventory (207,000-6,100) 200,900
Prepaid insurance 900
Totalcurrentassets 779,600
Property, plant and equipment
(169,500+12,000-17,500) 164,000
Less: Accumulated. Depreciation
(121,600+1,100+1,100-17,500) 106,300
NetBook value 57,700
Total Assets (B) 837,300
315
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 5
Sharec apital(20,000xP10) 200,000
Sharepremium 60,000
Retained earnings (206,700+197,200+*52,000) 455,900
Adjusted Shareholders' equity (A) 715,900
*(247,000-195,000)
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. B 5. A
PROBLEM 32-14
Question No. 1
Unadjustedsales 550,000
Less: Sale with a repurchase agreement (selling price) (10,000)
Adjusted Sales (B) 540,000
Question No. 2
Unadjustedcost ofsales 411,500
Less: Sale with a repurchase agreement (cost) (7,000)
Add: Depreciation on Plant (see below) 13,600
Depreciation onB uilding (35,000/ 14) 2,500
Adjusted cost of sales (D) 420,600
Question No. 3
Sales 540,000
Less:Cost ofsales 420,600
Grossprofit 119,400
Less: Distribution cost (21,500)
Administrativeexpenses (30,900)
Interest [(700 + (10,000 x 10% x6 /12*)] (1,200)
316
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 4
Net
income 31,200
Add: Revaluation surplus (see computation below) 7,000
Total comprehensive income (B) 38,200
Land:
Appraisedvalue 12,000
Carryingamount 10,000 2,000
Building:
Appraisedvalue 35,000
Less: Carrying amount (50,000 – 20,000) 30,000 5,000
Totalrevaluation surplus 7,000
Non-cur
Land rent assets: 12,000
Building( 35,000–2,500) 32,500 (6.
C )
Plant (66,000–13,200) 52,800 97,300
Total
assets 193,800
Current liabilities:
Tradepayables 35,100
Bank overdraft 6,800
Currenttaxliability 27,200
Provision –bonus 5,400 74,500
7. (C)
Non-current liabilities:
Deferredtax liability 9,400 -
Bank loan 10,000 (D
8.)
Interestpayable 500 19,900
Totalliabilities 94,400
Equity:
Equityshares 50,000
Sharepremium 20,000
Revaluationsurplus 7,000
317
Chapter 32 – Statement of Financial Position and Comprehensive Income
9. (B)
Retained earnings (11,200 + 31,200 – 20,000) 22,400 99,400
Total liabilities and shareholders’ equity 1,199,640
Question No. 10
Net
income 31,200
Divided by: Weighted average shares (see below) 96,739
Earnings per share (A) 3225
*The number of shares before the exercise of the rights may be computed
by dividing the ( ¼rights).
**Adjustment factor.
Fair value per share – right on minus exercise price
Value of one right =
Number of rights to purchase one share plus 1
-
Value of one right =
4+ 1
=
SUMMARY OF ANSWERS:
1. B 2. D 3. A 4. B 5. D
6 . C 7. C 8. D 9. B 1 0. A
PROBLEM 32-15
Question No. 1
Inventoriesat30September2015 31,800
Add:Purchases 344,000
Less: Inventories at 30 September 2016 27,300
Add: Depreciation – plant and machinery (see below) 46,485
Add: Depreciation – ma chine classi fied as held for sale (8,2 00 x
20%
6/12)
x 820
Add: Impairment loss – noncurrent asset held for sale [(8,200 –
820)
6,500]
– 880
Adjusted Cost of Sales (B) 396,685
Plant and Machinery
Cost –balanceforward 385,000
Less: Accumulated depreciation – balance forward 144,375
318
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2
Trial balance 216,200
Add: Depreciation – Property (14,500 + 30,000) - see below 34,500
Add: Downward Valuation (480,000 – 456,000) 24,000
Adjusted Admin Expense (C) 274,700
Property Valuations
Property A Property B
Carrying amount – October 1, 2015 372,000 1,080,000
Valuation– October 1,2 015 (449,500) (600,000)
Revaluation(gain)/loss (77,500) 480,000
Question No. 3
Trial balance 86,900
Add:Provisioncharge( seebelow) 33,600
Add:LeaseOther
Adjusted expense (seebelow)
Operating Costs (C) 27,600
148,100
Operating Lease
Total Payments [(18,000 x 7 years) + (36,000 x 8 years)] 414,000
Dividedby: 15 years
Operatingl easeexpensep eryear 27,600
Question No. 4
Revenue 1,057,000
Less:Cost ofsales 396,685
Gross
profit 660,315
Less: Administrative expenses ( see No. 2) 274,700
Other operating costs (see No. 3) 148,100
Profitbefore tax 237,515
Less:
Tax 56,000
319
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current liabilities:
Tradeandotherpayables 199,800
Incometax payable 56,000
Provisions 8,400 264,200
7. (A)
Non-current liabilities:
Leaseliability( 27,600–18,000) 9,600 -
Provision 25,200 34,800
Totalliabilities 299,000
Equity:
Ordinary share capital 672,600
Revaluationsurplus 135,000 (B
8.)
Retainedearnings 594,740 1,402,340
Total liabilities and shareho ders’ equity 1,701,340
Retained Revaluation
Earnings Surplus
Beginningbalance 576,875 518,000
Total comprehensive income for the year 181,515 (378,500)
(77,500 – 456,000)
Dividend on ordinary shares (168,150)
Piecemeal realization of revaluation surplus 4,500 (4,500)
Ending balance 594,740 135,000
SUMMARY OF ANSWERS:
1. A 2. C 3. D 4. A 5. D 6. D 7. A 8. B
320
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-16
SUPPORTING COMPUTATIONS:
Cost of Sales:
Unadjustedbalance 298,700
Add: Amortization of leased property [36,000 / (12 – 4)] 4,500
Add: Amortization of leased plant (25,000 / 5) 5,000
Add: Depreciation of other plant and equipment [(47,500 –
33,500) 20%]
x 2,800
AdjustedCostof Sales 311,000
Leased Property:
Carrying amount – April 1, 2015 (48,000 – 16,000) 32,000
Add: Revaluation surplus (36,000 – 32,000) 4,000
Revaluedamount–April1,2015 36,000
Less: Amortization (36,000 / remaining life 8 years) (4,500)
Carryingamount–March3 1,2016 311,000
Leased Liability:
Amortization Table:
Principal Interest Present
Date Payment Expense Amortization value
April
1,
2015 25,000
April1,2015 2,000 - 2,000 23,000
March3 1,2 016 6,000 2,300 3,700 19,300
March3 1,2 017 6,000 1,930 4,070 15,230
Leased Plant:
Fairvalue –April1, 2015 25,000
Less:Amort zation(25,000 /5years) 5,000
Carryingamount–March3 1,2016 20,000
Deferred Tax:
Deferred tax liability – March 31, 2016 (12,000 x 25%) 3,000
Deferredtaxliability–April1,2 015 3,200
Decreaseindeferredtaxliability 200
Question No. 1
Revenue 350,000
Less:Cost ofsales 311,000
Grossprofit 39,000
Less: Distribution costs 16,100
Administrative expense (26,900 + 3,000 fraud) 29,900
Finance cost (300 + 2,300 interest in the lease) 2,600
Lossbeforetax (9,600)
Incomet ax benefit [(9,600 x 25%) + 200 – 800] 1,800
Loss after tax (D) (7,800)
321
Chapter 32 – Statement of Financial Position and Comprehensive Income
Questions No. 2 to 5
Current assets:
Inventory 25,200
Trade receivables (28,500 – 4,000) 24,500
Current tax refund (9,600x 25%) 2,400 52,100
Non-current assets:
Leasedproperty 31,500
Leased plant (25,000 –5,000) 20,000
Owned plant (47,500 – 33,500 – 2,800) 11,200 62,700
Total
assets 114,800
Current liabilities:
Tradepayables 27,300
Bank overdraft 1,400
Financel ease liability – current 4,070 32,770
Non-current liabilities:
Finance lease liability – noncurrent 15,230
Deferredtax liability 3,000 18,230
Totalliabilities 51,000
Equity:
Share
capital 54,000
Reserves:
Sharepremium 9,500
Revaluationsurplus 3,500
TotalRetainedearnings
shareholders’ equity (3,200) 9,800
63,800
322
Chapter 32 – Statement of Financial Position and Comprehensive Income
The discovery of the fraud represents an error part of which is a prior period
adjustment ( 1 million) in accor dance with PAS 8 Accounti ng policies, chan ges
in accounting estimates and errors.
Question No. 6
Loss
after tax 7,800
Divided by: Weighted average shares (see below) 99,000
Loss per share (B)
*Adjustment factor.
Fair value per share – right on minus exercise price
Value of one right =
Number of rights to purchase one share plus 1
-.
Value of one right =
5+ 1
=
323
Chapter 33 – Statement of Cash Flows
7)
8) Repayment of note
Receipts from payable
sale of half of investment in associate FI
9) Employee salaries O
10) Sale of equipment at a gain I
11) Issuance of bonds F
12) Acquisition of bond of another corporation I
13) Acquisition of a 60-day treasury bills Not
reported**
14) Purc hase of building I
15) Acquisition of a land und er a finance lease NC
16) Collection of nontrade note receivable (principal amount) I
17) Loan to another firm I
18) Declaration of cash dividend NC
19) Retirement of common stock F
20) Income taxes paid O
324
Chapter 33 – Statement of Cash Flows
PROBLEM 33-6
Question No. 1
Cash receipts from receivable (216 + 800 – 324) 692
Cash payment for purchases [(321 + 300 – 425) + 117 – 210] (103)
Cashd isbursement –
Cash disbursement –insurance (66
salaries (93 +4 0––102)
+ 120 88) (18)
(111)
Cashd isbursement–interest( 50–10) (40)
Cashd isbursement–tax(78+5 2– 60) (70)
Net cash provided by operating activities (D) 350
325
Chapter 33 – Statement of Cash Flows
Question No. 2
Net
Income 88
Depreciation 123
Gain onsaleofbuilding (11)
Losson saleof machinery 12
Increase
in
A/R (108)
DecreaseinInventory 104
Decreaseinprepaidinsurance 22
IncreaseinAccountsPayable 93
Increase
Increase
ininsalariespayable
DTL 8 9
Bonddiscountamortization 10
Net cash provided by operating activities (D) 350
Note that cash flows for operating activities using direct or indirect method
is the same.
COMPREHENSIVE PROBLEMS
PROBLEM 33-7
Question No. 1 (B)
Accounts receivable
Beg. balance – AR 125,0000 135,000 Balance end - AR
Sales on account 1,000,000 - Sales returns and
allowance*
Recoveries - - Sales
990,000 discounts
Collections (squeeze)
- W ite-off
Total 1,125,000 1,125,000
Merchandise Inventory
Beg. Balance 175,000 160,000 Balance end
Net Purchases (squeeze) 485,000 500,000 Cost of Sales
Total 660,000
326
Chapter 33 – Statement of Cash Flows
Depreciation expense=245,000-150,000
=95,000
Question No. 5
Receipt of cash from note payable-bank (200,000-160,000) 40,000
Issuance for cash of ordinary shares(225,000-200,000) 25,000
Dividendspaid (75,000)
Net cash provided used in Financing activities (A) (10,000)
Question No. 6
*ProceedsfromSaleofi nvestment 20,000
Cash acquisition of PPE (540,000-460,000) (80,000)
Net cash provided used in investing activ ities (B) (60,000)
Costo fi nvestment sold (190,000-180,000) 10,000
Add:Gainon sale 10,000
327
Chapter 33 – Statement of Cash Flows
PROBLEM 33-8
Merchandise inventory
Beg. Balance 2,000,000 2,200,000 Bal. end
Net purchases 2,200,000 2,000,000 Cost of goods sold
4,200,000 4,200,000
328
Chapter 33 – Statement of Cash Flows
Amortization table:
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 4,253,552
12/31/2015 480,000 425,355 54,645 4,198,907
12/31/2016 480,000 419,891 60,109 4,138,798
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. D
PROBLEM 33-9
Question No. 1 (D)
Accounts payable
Bal. end 3,400,000 3,500,000 Beg. Balance
Payment 1,900,000 1,800,000 Net purchases
5,300,000 5,300,000
Merchandise inventory
Beg. Balance 2,000,000 1,800,000 Bal. end
Net purchases 1,800,000 2,000,000 Cost of goods sold
3,800,000 3,800,000
Depreciation 200,000
Losson saleofequipment 100,000
Amortizationof franchise 100,000
Decrease (or increase) in Tradin g securities
Decrease(ori ncrease)inNetAR (90,000)
Decrease(ori ncrease)in Inventories 200,000
Increase(ordecrease)inAP (100,000)
Increase(ordecrease)inITP (50,000)
Increase(ordecrease)inDTL 200,000
Net cash provided by (or used in) Operating activities 516,000
Year of Acquisition
Percentageof ownership 20%
Cost of Investment 4,000,000
Less: Book value of net asset acquired 2,400,000
Excess ofc ost over book value 1,600,000
Over or (under) valued asset
Inventory (40,000)
Machinery 240,000
Land -
Goodwill 1,800,000
Amortization of Over (Under) valued asset 2015 2016
Inventory 40,000
Machinery (240,000)
Divideby:Remaining life 10
Amortization of Under (over) valued asset (24,000) (24,000)
No of monthsdivideby12(1st year) 1 1
Amortization of Under (over) valued asset (24,000) (24,000)
2015 2016
Net incomeo ft hea ssociate 4,000,000 5,000,000
Dividends declareda nd paid 1,000,000 1,400,000
2015 2016
Net incomeo ft hea ssociate 4,000,000 5,000,000
Multiplyb y: Percentage of ownership 20% 20%
Shareinthenetincome 800,000 1,000,000
Dividends declareda nd paid 1,000,000 1,400,000
Multiplyb y: Percentage of ownership 20% 20%
Dividendsreceived 200,000 280,000
2016 Investment Income
ShareintheNetIncome 1,000,000
Add: Amortization ofo vervalued machinery 24,000
Netinvestmentincome-2016 1,024,000
Investment in Associate
330
Chapter 33 – Statement of Cash Flows
Beg.Balance 4,584,000
Add:Netinvestmentincome 1,024,000
Less:Dividendsreceived 280,000
Balance end 5,328,000
PROBLEM 33-10
Question No. 1 (D)
Accounts payable
Bal. end 4,000,000 3,500,000 Beg. Balance
Merchandise inventory
Beg. Balance 1,500,000 1,700,000 Bal. end
Net purchases 2,200,000 2,000,000 Cost of goods sold
3,700,000 3,700,000
331
Chapter 33 – Statement of Cash Flows
ShareintheNetIncome 500,000
Add: Amortization ofo vervalued machinery 30,000
Less:Undervaluationofinventory 50,000
Netinvestmentincome-2015 480,000
Investment in Associate
Cost of investment 3,500,000
Add:Netinvestmentincome 480,000
Less:Dividendsreceived 200,000
Balance end, 12/31/2015 3,780,000
Accumulated depreciation
Bal.e nd 3,000,000 3,200,000 Beg. Balance
Accumulated depreciation
of asset sold 400,000 200,000 Depreciation expense
3,400,000 3,400,000
NetSellingPrice 350,000
Less: Carry ing amount
Cost 900,000
Less: Accumulated Depreciation 400,000 500,000
Losson sale (150,000)
AcquisitionofPPE (600,000)
Sale
of
PPE 350,000
Net cash provided by (or used in) investing activities (1,189,230)
Present Value of Periodic Payment (100,000 x 3.4869) 348,690
Add: Present Value of Bargain Purchase option(30,000 x 0.683) 20,490
333
Chapter 33 – Statement of Cash Flows
Amortization table:
Interest Interest Present
Date Payment Expense Amortization value
12/31/2016 369,180
12/31/2016 100,000 - 100,000 269,180
12/31/2017 100,000 26,918 73,082 196,098
PROBLEM 33-11
Question No. 1
Collection from customers (202M + 410M – 200M – 6M) 406M
Proceeds from investment income (4M + 5M – 6M) 3M
Proceedsfroms aleofc ash equivalent 2M
Payment of purchases [(205M + 180M -200M) + 65M – 50M] (200M)
Paymentofi nsurance(4M+7M-8M) (3M)
Paymentofs alaries(11M+65M–6M) (70M)
Paymentofi nterest( 4M+25M–8M) (21M)
Payment oft ax( 14M + 8M + 36M – 12M – 11M) (35M)
334
Chapter 33 – Statement of Cash Flows
Question No. 2
Purchase of land(196M–150M) (46M)
Proceeds from sale of major components of machine 17M
Purchase of long-term investment (25M)
Proceeds froms ale ofl ong-term investment 23M
Net cash used from investing activities (C) (31M)
Long-term Investment
Beg.Balance 125M 156M Bal.e nd
Investment income
(associate) 6M 23M Disposal
Acquisition (Tory) 48M
Total 179M 179M
Question No. 3
Retirement ofbonds (60M)
Proceeds fromi ssuanceofp referreds tock 75M
Acquisitionoftreasuryshares (9M)
Dividendspaid (22M)
Net cash used from financing activities (A) (16M)
Retained Earnings
Balancee nd 242M 227M Beg.Balance
Dividends 52M 67M Netincome
Total 294M 294M
Total
dividends 52M
Less: Stock dividends – small (4M shares x 7.50 fair value) 30M
Cash dividendspaid 22M
SUMMARY OF ANSWERS:
1. C 2. C 3. A
PROBLEM 33-11
Question No. 1
Overdraft
end
– 110
Add:Bank,beginning 120
Netc asho utflow (A) (230)
Question No. 2
Profitfor the year 135
335
Chapter 33 – Statement of Cash Flows
Depreciation 115
Amortization 25
Increaseininventory( 200–110) (90)
Increase in trade receivable (195 – 75) (120)
Increaseintradepayable(210–160) 50
Decrease in current tax payable( 80 – 110) (30)
Net cash from operating activities (D) 85
Question No. 3
Acquisition of PPE (see computation below) (305)
Acquisition of intangible assets (see computation below) (125)
Acquisitionofinvestment (230)
Net cash used in investing activities (A) (660)
PPE, net
Balanceb eginning 410 680 Endingb alance
Acquisition 305 - Disposal
Revaluation 80 115 Depreciation
Total 795 795
Question No. 4
10%securedloannotes 300
Issuanceofshares 100
Dividends paid (seec omputation below) (55)
Net cash from financing activities (C) 345
Retained Earnings
Balancee nd 375 295 Beg.Balance
Dividends 55 135 Net income
Total 430 430
SUMMARY OF ANSWERS:
1 . A 2 . D 3. A 4. C
336
Chapter 33 – Statement of Cash Flows
PROBLEM 33-13
Question No. 1
Cash 5,639,900
Accountsreceivable 1,000,000
Allowancef ord oubtfula ccounts (180,000)
Inventories 2,200,000
Total current assets (A) 8,659,900
Question No. 2
Investment in bonds - FA at amortized cost 3,861,105
Propertyp lant and equipment 9,520,000
Accumulatedd epreciation (3,900,000)
Franchise -net 500,000
Total noncurrent assets (A) 9,981,105
Totalassets 18,641,005
Question No. 3
Liabilities and equity
Accountspayable 4,800,000
Dividendspayable 400,000
Total current liabilities (A) 5,200,000
Question No. 4
Deferredtaxliability 700,000
Total noncurrent liabilities (C) 700,000
Totalliabilities 5,900,000
Question No. 5
Ordinary shares, P100 parv alue 11,000,000
SharePremium 1,200,000
Treasurysharesatc ost (500,000)
Retainedearnings 1,041,005
Total shareholders' equity (C) 12,741,005
Total liabilities and equity 18,641,005
Accounts receivable
Beg. Balance 600,000 1,000,000 Bal. end
Sales on account 5,000,000 4,600,000 Collections
- Write-off
5,600,000 5,600,000
Allowance for doubtful accounts
Bal.e nd 180,000 40,000 Beg. Balance
Write-off - 140,000 Baddebts
180,000 180,000
337
Chapter 33 – Statement of Cash Flows
Merchandise inventory
Beg. Balance 2,000,000 2,200,000 Bal. end
Net purchases 2,200,000 2,000,000 Cost of goods sold
4,200,000 4,200,000
Accounts payable
Bal. end 4,800,000 4,500,000 Beg. Balance
Payment 1,900,000 2,200,000 Net purchases
6,700,000 6,700,000
Amortization table:
Interest Interest Discount Present
Date Collection Income Amortization value
01/01/2015 3,746,368
12/31/2015 320,000 374,637 54,637 3,801,005
12/31/2016 320,000 380,100 60,100 3,861,105
12/31/2017 320,000 386,111 66,079 3,927,184
12/31/2018 320,000 392,816 72,816 4,000,000
Accumulated depreciation
Bal.e nd 3,900,000 3,200,000 Beg. Balance
Accumulated depreciation
of asset sold 200,000 900,000 Depreciation expense
4,100,000 4,100,000
NetSellingPrice 500,000
Less: Carry ing amount
Cost 480,000
Less: Accumulated Depreciation 200,000 280,000
Gain onsale 220,000
Ordinary shares
Beginningbalance 10,000,000
Issuancefor cash 1,000,000
Balance end 11,000,000
Share Premium
Beginningbalance 1,000,000
Issuancefor cash 200,000
338
Chapter 33 – Statement of Cash Flows
PROBLEM 33-14
QuestionNo. 1 (C)
Income tax payable
Ending balance 143,700 65,000 Beg. Balance
Payment 76,000 154,700 Income tax expense
Total 219,700 219,700
QuestionNo. 2 (C )
PPE, net
Balance beginning 791,500 805,300 Ending balance
Acquired–cash 50,000 - Disposal
Acquired – lease 12,130 153,330 Depreciation
Acquired – business
combination
Total 105,000
958,630 958,630
QuestionNo. 3 (A)
Profitfor the year 471,440
Depreciation 153,330
Amortization 8,200
Shareinprofitofassociate (24,700)
Increase in inventory (57,300 – 46,900) (10,400)
Increase in trade and other receivables (excluding receivable (17,520)
from business combination) – (75,900 – 51,930 – 6,450)
Decrease in trade and other payab les (excluding re ceivable from (43,758)
business combination) – (82,600 + 9,950 – 48,792)
Increaseinincome taxpayable 87,800
Net cash provided by operatinga ctivities 615,292
QuestionNo. 4 (C)
Proceeds from sale of license (see computation below) 21,600
AcquisitionofPPE (50,000)
AcquisitionofHey Jude (10,000)
339
Chapter 33 – Statement of Cash Flows
AcquisitionofYesterday (58,800)
Cash and cash equivalents acquired in business combination 8,700
Net cash used by investing activities (88,500)
QuestionNo. 5 ()
PROBLEM 33-15
QuestionNo. 1 (A)
Interest receivable – investing
Beg. Balance 10,500 1 2,500 Endingb alance
Interestincome 52,000 50,000 Collection
Total 62,500 62,500
QuestionNo. 2 (A)
Income tax payable
Ending balance 170,000 130,000 Beg. Balance
Payment 140,000 180,000 Income tax expense
Total 310,000 310,000
QuestionNo. 3 (B)
Increase in cash and cash equivalents (12,500 – 400) 12,100
Add:Decrease inbankoverdraft 3,500
Netcashinflows 15,600
Net
income 834,900
Depreciation 560,000
Gaino nsale(450,000–324,500) (125,500)
Interest income – investing activities (52,000)
Decreaseininventory 56,400
Decrease in trade and other r eceivables (exclud ing interest 79,500
related to investing) – (495,100 – 415,600)
Decrease in trade and other payables (122,600)
Decreaseinwarranty (30,000)
340
Chapter 33 – Statement of Cash Flows
QuestionNo. 4 (A)
Interest collected – investing activity 50,000
Proceedsfroms aleofm achinery 450,000
Proceeds froms ale off actory building 340,000
Loans to unrelated parties (1,000,000 – 850,000) (150,000)
Acquisition of PPE (see computation below) (2,022,500)
Net cash used by investing activities (1,332,5000
PPE, net
Balance beginning 1,594,400 2,567,400 Ending balance
Acquisition 2,022,500 324,500 Disposal - Machinery
Revaluation 220,000 340,000 Disused factory
560,000 Depreciation
Total 3,791,900 3,791,900
Revaluation surplus
Ending balance 350,000 250,000 Balance beginning
Transfer to R/E 120,000 220,000 R/S – current period
Total 470,000 470,000
QuestionNo. 5 (C)
Dividends paid (seec omputation below) (42,600)
Proceeds from issuance of shares (100,000 x 1.50) 150,000
Net cash provided from financing activities 107,400
Retained Earnings
Balance end 1,478,300 876,000 Beg. Balance
Bonus issue* 310,000 834,900 Net income
Transfer to R/E 120,000
Dividends 42,600
Total 1,830,900 1,830,900
341