PROBLEM 1 – Conceptual Framework

A. (Assumptions, Principles, and Constraint)

Presented below are the assumptions, principles, and constraint.
1. Economic entity assumption 7. Fair value principle
2. Going concern assumption 8. Expense recognition principle
3. Monetary unit assumption 9. Full disclosure principle
4. Periodicity assumption 10. Revenue recognition
5. Accrual-basis assumption 11. Cost constraint
6. Historical cost principle

Identify by number the accounting assumption, principle, or constraint that describes each
situation below. Do not use a number more than once.
(a) Allocates expenses to revenues in the proper period.
(b) Indicates that fair value changes subsequent to purchase are not recorded in the
accounts. (Do not use revenue recognition principle.)
(c) Ensures that all relevant financial information is reported.
(d) Rationale why plant assets are not reported at liquidation value. (Do not use historical
cost principle.)
(e) Generally, records revenue at the point of sale.
(f) Indicates that personal and business record keeping should be separately maintained.
(g) Separates financial information into time periods for reporting purposes.
(h) Permits the use of fair value valuation in certain situations.
(i) Assumes that the yen is the “measuring stick” used to report on financial performance
of a Japanese company.

B. Conceptual Framework (Study Case)

PT Delvin asks you to review the accounting records before closing for the income and
expense accounts on December 31st. The following information is provided by the
management of PT Delvin:

1. When preparing financial reports, PT Kerin's accountants omitted detailed cash deposit
information from each bank and only presented cash in banks in the financial statements.
 2. Over the years, PT Kerin used the FIFO method to measure inventory value. In the
current year, PT Kerin management saw that all other companies in the same industry
had used the average-cost method. PT Kerin management decided not to change the
measurement method because net income would be reduced by $760,000.
Instructions:
Give your opinion whether you agree/disagree with the management of PT Kerin? Please
provide references (if possible) to the conceptual framework you have studied (principles,
assumptions, cost constraints, etc.)

PROBLEM 2 - Statement of Comprehensive Income (Income Statement, Retained

Earnings)
The following account balances were included in the trial balance of Hailey Corporation at
June 30, 2019

Sales Revenue $1.850.000 Office Utilities Expense $2.820

Sales Discounts 32.500 Depreciation expense (office 7.250

furniture and equipment)

Cost of Goods Sold 748.200 Property tax expense 7.320

Salaries and wages expense 56.260 Bad Debt Expense 4.850

(salespersons) (administration)

Sales Commissions expense 97.600 Maintenance and repairs 9.130

expense for office equipment

Travel Expense (salespersons) 28.890 Salaries and wages expense 6.000

(office worker)

Delivery Expense 21.400 Sales returns and allowances 45.300

Entertainment Expense 14.820 Dividend revenue 45.000

Plant utilities expense (sales) 9.030 Interest expense 97.000

Depreciation expense (plant 4.980 Depreciation understatement 17.700

equipment) due to error - 2013

Maintenance and repairs 6.200 Dividends declared on 14.200

expense (sales) preference shares

Miscellaneous selling expense 4.715 Dividends declared on 37.000

ordinary shares

Office supplies expense 3.450 Loss from discontinued -58.000

 operation

The Retained Earnings account had a balance of $432.000 on July 1, 2020. There are 105.000
ordinary shares outstanding. The interest rate for 2020 is 20%.
Required:
Prepare an income statement and a retained earnings statement for the year ended June 30,
2020.

PROBLEM 3 - Statement of Financial Position Preparation

Presented below is the adjusted trial balance of Aye Corporation on December 31, 2019.

Debit Credit

Cash £?

Equipment 48.000

Prepaid Insurance 1.000

Supplies 1.200

Accumulated Depreciation - Equipment £ 9.000

Trademarks 950

Unearned Service Revenue 2.000

Salaries and Wages Payable 500

Accounts Payable 10.000

Bonds Payable (due 2022) 9.000

Share Capital - Ordinary 10.000

Retained Earnings 20.000

Service Revenue 10.000

Salaries and Wages Expense 9.000

Interest Expense 900

Rent Expense 1.200

Insurance Expense 1.400

Total £? £?
Additional information:
1. No dividends were declared during 2019.
Required:
Prepare a classified statement of financial position as of December 31, 2019.

PROBLEM 4 - Statement of Cash Flow

Dream Company
Comparative Statements of Financial Position
As of December 31, 2018 and 2017 (in $)
2018 2017
Cash 55,000 63,500
Accounts Receivable 51,000 59,000
Short-Term Equity Investment - 63,000
Inventory 149,000 135,000
Equipment 493,000 378,000
Accumulated Depreciation – (115,000) (128,000)
Eqipment
Total Assets 633,000 570,500

Accounts Payable 61,500 46,000

Bonds Payable - 100,000

Share Capital – Ordinary 265,000 205,000

Share Premium – Ordinary 85,000 55,000
Retained Earnings 221,500 164,500
633,000 570,500
 Dream Company
Income Statement
For the year ended December 31, 2018 (in $)
Sales Revenue 623,000
Cost of Goods Sold (348,500)
Gross Margin 274,500
Operating Expenses :
Depreciation Expense 24,700
Other Operating Expense 75,300 (100,000)
Income from Operations 174,500

Other Income and Expenses

Gain on Sale of Investment 5,000
Interest Expenses 12,000 (7000)
Income Before Taxes 167,500
Income Tax Expenses (64,100)
Net Income 103,400

Additional information:
a. Changes in the amount of equipment was caused due to the disposal of a fully depreciated
equipment costing $29,000 and purchase of a new equipment. The purchase was done using
cash.
b. Bonds payable worth $100,000 was paid on its nominal value in 2018.
c. 5,000 ordinary shares were issued on its market price of $18 in 2018.
d. Cash dividends were declared and paid in 2018.
e. Earnings before interest and tax in 2017 was $150,000.
f. Interest expense in 2017 was $32,000.
g. The market prices of ordinary shares in 2017 and 2018 were $13 and $18.
h. Cash dividends paid in 2017 were $35,000.

Instruction:
Prepare a statement of cash flows for Dream Company using direct and indirect method.
PROBLEM 5 - Revenue Recognition
A. (Sales with Repurchase)
Habko Corp. sold idle machinery to Enzy Company on July 1, 2018, for $40,000. Habko agrees
to repurchase this equipment from Enzy on June 30, 2019, for a price of $42,400
(an imputed interest rate of 6%).
Instructions:
(a) Prepare the journal entry for Habko for the transfer of the asset to Enzy on July 1, 2018.
(b) Prepare any other necessary journal entries for Habko in 2018.
(c) Prepare the journal entry for Habko when the machinery is repurchased on June 30, 2019.

B. (Multiple-Element Arrangement)
BTS sells phones that are equipped with a permitting internet service package phone to surf
the internet and set-up Wi-Fi hotspots on the go. The breech provides two the bundling package
as follows
- Package A: Sell phones with internet packages 2 years, prices for phones and packages 2-
year internet is $540. The price of BTS's telephone and internet services if sold individually
are $420 (COGS from phone is $220) and $150, respectively.
- Package B: Same as the Package A, but is added with a service plan for $300 for phones
(for any phone repair and software upgrades and internet services) for 3 years. The price of
this package is $750.
It is known that on January 15, the Package A were sold 200 sales contracts, while for Package
B on September 1, 100 sales contracts were sold.
Instructions:
a) Prepare a journal for recording revenue on January 15 and December 31, 2020 for Bundling
Package A!
b) Prepare a journal to record revenue on June 30 and December 31, 2020 for Bundling
Package B!
PROBLEM 6 – Inventory
Part A
Some of the information found on a detail inventory card for Cheng Inc. for the first month of
operations is as follows (amounts in thousands).
Received Issued, No. Of Balance No.of
Date No. Of Units Unit Cost Units Units

January 2 1,200 ¥ 3.00 1,200

January 7 700 (@¥5.20) 500
January 10 600 3.20 1,100
January 13 500 (@¥5.30) 600
January 18 1,000 3.30 (200) (@¥5.30) 1,800
January 20 1,100 700
(@¥5.10)
January 23 1,300 3.40 2,000
January 26 800 (@¥5.30) 1,200
January 28 1,600 3.50 2,800
January 31 1,300 1,500
(@¥5.40)
Instructions:
(a) From these data compute the ending inventory, cost of goods sold, and gross profit on each
of the following bases. Assume that perpetual inventory records are kept in units only.
(Carry unit costs to two decimal places and ending inventory to the nearest 1,000 yen)
i. First-in, first-out (FIFO)
ii. Average-cost
(b) If the perpetual inventory record is kept in yen, and costs are computed at the time of each
withdrawal, would the amounts shown as ending inventory in (i) and (ii) above be the
same? Explain and compute.
Part B
Due to a downturn in the economy, Power Ranger Corp. expects their products prices from
July 31 onward to be considerably different (and lower) than at the beginning of and during
July. Power Ranger has developed the following additional information:
Product Quantity Cost Estimated Cost to Sell Cost to
Selling Price Complete
P 70 30,500 36,000 3,600 1,800
Q 100 42,000 47,000 4,700 2,300
R 50 22,700 27,000 2,700 2,000
Instructions:
a. Calculate ending inventory as of July 31, 2018 using LCNRV method.
b. Prepare the journal entry required at July 31, 2018 to recognize any impairment loss of
inventory using the allowance method.