UNIVERSITY OF THE EAST – Caloocan

College of Business Administration

Department of Accountancy, Business Law and Taxation
Updates in Financial Reporting (BSA EL02)
Module 4 – Problem Exercises

PAS 1 – Presentation of Financial Statements (Statement of Financial Position)

Problem Exercises

I. Problem Solving

A. The December 31, 2022 statement of financial position accounts of G Company are shown below in
alphabetical order:

Accounts Payable P 236,000

Accounts Receivable 115,000
Accumulated Amortization - Patents 22,000
Accumulated Amortization - Trademarks 17,000
Accumulated Depreciation – Buildings 530,000
Accumulated Depreciation – Equipment 351,000
Allowance for Bad Debts 8,000
Appropriated Retained Earnings 45,000
Bonds Payable (due in 2024) 800,000
Buildings 1,440,000
Cash and Cash Equivalents 86,250
Deferred Tax Liability 50,000
Discount on Bonds Payable 69,000
Equipment 624,000
Income Tax Payable 150,000
Inventory 322,000
Investment in Associates 250,000
Land (including land with an undetermined future use acquired in
1,250,000
December 2022 for P1,000,000)
Ordinary Share Capital, P10 par 1,300,000
Share Premium - Preference 81,000
Share Premium - Ordinary 240,000
Patents 120,000
Preference Share Capital, P100 par 210,000
Accumulated Profits 262,000
Salaries Payable 20,000
Share Dividends Distributable 24,000
Trademarks 60,000
Financial Assets at Fair Value 61,000
Withholding Taxes Payable 30,000
SSS Premiums Payable 21,250

Required:
Prepare a properly classified statement of financial position for G Company as of December
31, 2022 with appropriate notes to support line items presented on the face of the statement.

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B. Listed below, in random order, are the statement of financial position accounts and related ending
balances of R Corporation as of December 31, 2022:

Income Taxes Payable P 247,000

Prepaid Expenses 31,000
Cash surrender value of life insurance 89,000
Preference Share Capital 400,000
Premium on Bonds Payable 48,000
Cash and Cash Equivalents 116,000
Property, Plant and Equipment 3,293,000
Accounts Payable 580,000
Ordinary Share Capital 1,628,000
Retained Earnings 1,234,000
Land held for future use 195,000
Financial Assets held for trading 160,000
Bonds Payable 800,000
Share Premium - Ordinary 303,000
Inventories 985,000
Accounts Receivable 323,000
Patents 182,000
Debt Investments at Amortized Cost – XYZ bonds 250,000
Share Premium - Preference 234,000
Unearned Revenues 62,000
Provision for product warranty 73,000
Allowance for Bad Debts 15,000

Additional Information:

a. The company uses control accounts for inventories and property, plant and equipment and
lists the latter at its carrying value, based on the cost model.

b. The straight-line method is used to depreciate buildings, machinery, and equipment based
upon their cost and estimated residual values and lives. A breakdown of property, plant and
equipment shows the following:
i. Land at a cost of P1,320,000;
ii. Buildings at a cost of P1,824,000 and a carrying value of P1,202,000;
iii. Machinery at a cost of P639,000 and related accumulated depreciation of P186,000;
iv. Equipment (40% depreciated) at a cost of P530,000.

Included in machinery is a unit costing P320,000 and with accumulated depreciation of

P80,000 included in the balance of accumulated depreciation, that qualifies as “Held for Sale”.
This unit of asset has an estimated sales price of P250,000; cost of P40,000 is expected to be
incurred on its sale. The sale is highly probable and is expected to be consummated in May
2023.

c. Patents are amortized on a straight-line basis directly to the patents account. The cost of the
patent is P200,000 while its accumulated amortization is P18,000.

d. Inventories are listed at the lower of cost and net realizable value using the average cost. The
inventories include raw materials of P222,000, goods in process of P347,000, and finished
goods of P416,000.

e. The ordinary share capital has a P10 par value per share, 200,000 are authorized, 162,800
have been issued.

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 f. Preference share capital has a P100 par value per share, 10,000 shares are authorized, 4,000
shares have been issued.

g. Financial assets held for trading are listed at their market values; their aggregate cost is
P150,000.

h. The bonds payable mature on December 31, 2025.

i. The company attaches a one-year warranty on all products it sells.

Required:
Prepare the December 31, 2022 statement of financial position for R Corporation
(including appropriate notes and parenthetical notations).

C. The E Company presents the following December 31, 2022 statement of financial position in
condensed format.

E Company
Statement of Financial Position
For the period ended December 31, 2022

Current Assets P 4,430,000

Long-Term Investments 1,360,000
Property, Plant and Equipment 12,350,000
Intangible Assets 770,000
Other Assets 1,360,000
Total Assets P 20,270,000

Current Liabilities P 6,660,000

Long-Term Liabilities 2,410,000
Contributed Capital 1,700,000
Unrealized Capital 2,250,000
Retained Earnings 7,250,000
Total Assets P 20,270,000

The following information is also available:

a. Current assets include cash, P380,000; accounts receivable, P1,850,000; notes receivable
(maturity date is July 1, 2023), P1,000,000; and land, P1,200,000. This land is available for
immediate sale and its carrying amount will be recovered through a sale transaction. The sale
of this land is highly probable as the plan for its sale has already been completed at December
31, 2022. Its fair value is P1,500,000. The entity anticipates selling cost of P100,000 on this
land.

b. Long-term investments include a P460,000 trading securities and a P900,000 investment in D

Corporation bonds that are expected to be held until their December 31, 2023 maturity date. E
Company demonstrates an ability to hold the bonds until their maturity. Both the trading
securities and the investment in D Corporation bonds are listed at cost. On December 31,
2022, the market value of trading securities was P485,000. The D Corporation bonds were
purchased at face value, although market value on December 31, 2022 was P906,000.

c. Property, plant and equipment include buildings costing P6,340,000, of which P2,000,000 is
held for rental to commercial enterprises, inventory costing P450,000, equipment costing
P2,960,000 and land of P2,600,000 on which the buildings were located. The land on which the
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 building for lease is located costs P1,200,000. As of December 31, 2022, this land had a fair
value of P1,600,000 while the building for lease had a fair value of P2,200,000. The company
measures its investment property using the cost model.

d. Intangible assets include patents that cost P820,000 and on which P230,000 amortization has
accumulated and treasury shares that cost P180,000.

e. Other assets include prepaid insurance (which expires on November 30, 2023), P290,000;
sinking fund for bond retirement, P700,000; and trademarks that cost P520,000 on which
P150,000 amortization has accumulated.

f. Current liabilities include accounts payable, P940,000; bonds payable (maturity date is
December 31, 2028), P4,000,000; income taxes payable, P720,000; and P1,000,000 notes
payable issued on June 30, 2021 and maturing on June 30, 2023. The company, as of
December 31, 2022 negotiated with the lender to extend the maturity date of this note to June
30, 2024.

g. Long-term liabilities include accrued wages of P410,000; and mortage payable (which is due in
five equal annual payments starting December 31, 2023), P2,000,000.

h. Contributed capital includes ordinary share capital (P50 par), P1,100,000 and preference
share capital, P600,000.

i. Unrealized capital includes premium on bonds payable of P430,000 and share premium of
P1,820,000.

j. Retained earnings includes unrestricted retained earnings of P3,580,000; allowance for

uncollectible accounts of P70,000; accumulated depreciation on buildings of P2,100,000
(P300,000 of which relates to building for lease); accumulated depreciation on equipment of
P1,300,000; and provision for warranties of P200,000.

Required:
Based on the preceding information, prepare a correct December 31, 2022 statement of
financial position for E Company with accounts properly classified.

D. The accounts below were taken from the unadjusted trial balance of S Company as at December
31, 2022:

Cash and cash equivalents – P1,240,000; Investment in securities held for trading, at cost –
P870,000; Investment in equity securities (through other comprehensive income), P2,500,000;
Notes receivable – P920,000; Trade accounts receivable – P1,220,000; Allowance for bad debts –
P60,000; Merchandise inventory – P1,360,000; Notes payable – P1,500,000; Trade accounts
payable – P750,000; Employees income tax withheld – P40,000; Bonds payable – P2,500,000;
Share dividends distributable – P150,000; Income tax payable – P280,000; Deferred tax liability –
P78,000.

An analysis of the above accounts disclosed the following:

a. Included in cash and cash equivalents is a 120-day, P500,000, certificate of time deposit dated
September 17, 2022 and maturing on January 15, 2023. The certificate of deposit bears an
interest rate of 4.8%. S Company has not accrued any interest on this deposit.

b. Trade accounts receivable was net of customers’ deposit of P50,000.

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 c. Merchandise worth P150,000 received December 30, 2022 was included in the inventory but
was not recorded as a purchase.

d. Accounts payable was net of accounts with debit balance of P100,000.

e. A bank loan of P300,000 due December 31, 2024 was included in the notes payable balance.

f. Bonds payable, which bear interest at 10% were issued in June 30, 2022, will mature in five
annual installments beginning June 30, 2023. The company has not recorded the accrued
interest on these bonds at December 31, 2022.

g. The securities held for trading have a market value of P900,000 while investment in equity
securities measured through other comprehensive income have market value of P2,420,000.

h. P28,000 of deferred tax liability is expected to reverse in 2023.

Required:
Determine the total current assets and total current liabilities of S Company at
December 31, 2022.

E. Following selected account balances and supplemental information were taken from the
accounting records of T Company as of December 31, 2022:

Sales P 9,675,000
Mortgage Note Payable 1,300,000
Bank Notes Payable 300,000
Accounts Payable 270,000
Share Dividends Distributable 200,000
Withholding Tax Payable 120,000

Supplemental Information:
a. Mortgage note was refinanced on its due date, February 15, 2023 with a new 5-year mortgage
note after paying P300,000 cash on the principal balance. The refinancing scheme was
planned long before its due date. There was no unpaid interest as of December 31, 2022.

b. The bank notes are payable in semi-annual installments of P50,000 on February 1 and August
1 of each year. Unpaid interest for 2022 of P7,500 has not been taken up. This was paid on
January 5, 2023.

c. On August 1, 2022, a suit was filed by a dismissed employee against the company asking for
P1,000,000 damages. The company’s lawyer believes it is probable that the suit will result in a
loss to the company, and the best estimate of the obligation as of December 31, 2022 was
P650,000.

d. The sales account included the 12% VAT corresponding to the sales for the month of December
of P2,688,000 (inclusive of VAT). This was remitted to the BIR on January 20, 2023.

e. Total income tax due for 2022 amounted to P186,500. Quarterly remittances to BIR during the
year for income tax totaled to P105,000, including payment of P35,000 on income tax relating
to the year 2021. The balance due as of December 31, 2022 has not been taken up in the books.

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Required:
Determine the total current liabilities at December 31, 2022.

F. Presented below are account balances and related information on December 31, 2022 for O
Company”

Cash on hand and in bank P 2,480,000

Accounts receivable 800,000
Allowance for uncollectible accounts (150,000)
Inventories 1,200,000
Prepaid insurance 250,000
Total Current Assets P 4,580,000

Related information is as follows:

The cash balance consists of the following:

Cash in bank, net of bank overdraft of P20,000 maintained in a
separate bank account and includes a P30,000 check received from a P 400,000
customer that is dated January 8, 2023.
Cash set aside by the board of directors for the purchase of a plant site 1,500,000
Petty cash (unreplenished expenses are P15,000) 40,000
Cash in bank, for payroll 540,000

The merchandise inventory includes goods held on consignment amounting to P40,000 and goods of
P80,000 received on December 31, 2022. Neither of these items has been recorded as a purchase. The
prepaid insurance includes cash surrender value of life insurance in the amount of P50,000.

Required:
Determine the total current assets at December 31, 2022.

G. The following totals are taken from the December 31, 2022 statement of financial position of A
Company:

Current assets – P3,500,000; Non – current assets – P8,000,000; Current liabilities – P2,400,000;
Non – current liabilities – P2,700,000.

Additional information:
a. Cash of P380,000 has been placed in a fund for the retirement of long-term debt. The cash and
long-term debt have been offset and are not reflected in the financial statements.

b. Non-current assets include P500,000 cost of treasury shares and land costing P3,000,000. This
land had been retired from active use and reclassified as “Held for Sale”. The sale is highly
probable and is expected to be consummated in July 2023. Based on negotiation with the
potential buyer, estimated sales price is P3,500,000; transfer costs of P250,000 is expected to
be incurred.

c. Cash of P140,000 has been set aside to pay taxes due. The cash and taxes payable have been
offset and do not appear in the financial statements.

d. Advances on salespersons’ commissions in the amount of P210,000 have been made. Also,
sales commissions payable total P240,000. The net liability of P30,000 is included in current
liabilities.

e. The company, as of December 31, 2022, was a defendant in a lawsuit for violation of a contract
with a supplier. As of December 31, the company believed it was probable that estimated

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 damages of P180,000 would result, although in March 2023, the court decided the case and
made an order to the company to pay the plaintiff the amount of P168,000.

Required:
Make the necessary adjustments and determine the following (the financial statements were
authorized for issue on April 10, 2023):
1. Total current assets
2. Total non-current assets
3. Total current liabilities
4. Total non-current liabilities

“That in all things, GOD maybe glorified”

“Hear; for I will speak of excellent things; and the opening of my lips shall be right things” Proverbs 8:16

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