Intermediate Accounting

By: VALIX
SOLUTION MANUAL 2020 Edition

CHAPTER 1

Problem 1-1 Problem 1-2 Problem 1-3 Problem 1-4 Problem 1-5 Problem 1-6 1-7

1. D 1.D 1. D 6. A 1. C 1. A 6.C 1. C 1. B
2. A 2.C 2. D 7. D 2. C 2. D 7.C 2. A 2. B
3. A 3.B 3. D 8. A 3. C 3. B 8.C 3. B 3. C
4. D 4.D 4. D 9. A 4. C 4. A 4. D 4. B
5. B 5.B 5. A 10.B 5. D 5. A 5. C

CHAPTER 2

Problem 2-1 Dilemma Company

ASSETS

Current Assets: Note

Cash 800,000
Financial asset at fair value 440,000
Trade and other receivables 1 700,000
Inventory 1,000,000
Prepaid Expenses 160,000
Total Current Assets 3,100,000

Non-Current Assets:
PPE 2 6,700,000
Intangible asset 3 200,000
Total noncurrent assets 6,900,000
Total Assets 10,000,000

EQUITY AND LIABILITIES

Current Liabilities:
Trade and other payable 4 1,200,000

Noncurrent Liabilities:
Bonds payable 5 1,800,000
Note payable to bank, due July 1, 2021 250,000
Total noncurrent liabilities 2,050,000

Shareholder's equity:
Share capital P100 par, 40,000 shares authorized
30,000 shares issued 3,000,000
Reserves 6 250,000
Retained Earnings 7 3,750,000
 Treasury shares, at cost, 2000 shares -250,000
Total shareholder's equity 6,750,000
Total liabilities and shareholder's equity 10,000,000

Note 1 - Trade and other receivables

Accounts Receivable 750,000
Allowance for doubtful accounts -50,000
Total 700,000

Note 2 - PPE
Cost Accum. Depr. Book Value
Land 500,000 - 500,000
Building in process 5,000,000 - 5,000,000
Machinery and equipment 1,500,000 300,000 1,200,000
Total 7,000,000 300,000 6,700,000

Note 3 - Intangible asset

Patent 200,000

Note 4 - trade and other payables

Accounts payable 900,000
Accrued expenses 150,000
Accrued Interest on bonds payable (2Mx10%x3/12) 50,000
Liability for loss on lawsuit 100,000
Total 1,200,000

Note 5 - Bonds Payable

Bonds payable 2,000,000
Discount on bonds payable -200,000
Total 1,800,000

Note 6 - Reserves
Retained earnings appropriated for treasury shares 250,000

Note 7 - retained earnings

Unadjusted balance 4,000,000
Add: Cancelation of appropriation for contingencies 150,000
Total 4,150,000
Less: Interest accrued on bonds payable 50,000
Appropriated for treasury stock 250,000
Actual loss on lawsuit 100,000 400,000
Unappropriated retained earnings 3,750,000

Problem 2-6 A

Cash 1,500,000
Accounts Receivables 1,200,000
Inventory 1,000,000
Financial asset held for trading 300,000
Equipment held for sale 2,000,000
Total Current assets 6,000,000
Problem 2-7 B

Cash and cash equivalents 700,000

Accounts Receivable (1,200,000 - 260,000) 940,000
Inventory (600,000 - 200,000) 800,000
Total Current assets 2,440,000

Problem 2-8 B

Cash (3,500,000- 500,000) 3,000,000

Accounts Receivable 2,000,000
Inventory (800,000- 200,000) 600,000
Prepaid expense ( 150,000 - 50,000) 100,000
Total current assets 6,700,000

Problem 2-9 C

Liabilities 1,800,000
Share Capital 5,000,000
Retained earnings (2,500,000 - 500,000) 2,000,000
Total liabilities and shareholder's equity 8,800,000

Problem 2-10 C

Cash 4,500,000
Accounts receivable 5,000,000
Allowance for doubtful accounts -500,000
Notes receivable 2,000,000
Inventory (4,000,000 + 2,000,000) 6,000,000
Total current assets 17,000,000

Problem 2-11 A

Liabilities 2,000,000
Share Capital 7,500,000
Retained Earnings (8,200,000-6,400,000-300,000) 1,500,000
Total liabilities and shareholders’ equity 11,000,000

Problem 2-12 A
Cash 3,500,000
Accounts receivable 1,400,000
Allowance for uncollectible accounts -100,000
Receivable from employees 200,000
Inventory 2,800,000
Prepaid insurance 200,000
Total current assets 8,000,000
Problem 2-13 C

Accounts payable 1,900,000

Dividends payable 500,000
Income tax payable 900,000
Notes payable 600,000
Total current liabilities 3,900,000

Problem 2-14 A

Accounts payable (4,000,000 + 100,000) 4,100,000

Accrued expenses 1,500,000
Credit balances in customers’ accounts 500,000
Estimated liability for coupons 600,000
Total current liabilities 6,700,000

Problem 2-15 C

Accounts payable 550,000

Unsecured note payable 4,000,000
Accrued expenses 350,000
Senior bonds payable 5,000,000
Premium on Bond payable 500,000
Total current liabilities 10,400,000

Problem 2-16 B
The 10% note payable is classified as noncurrent.

PAS 1, paragraph 73, provides that if an entity has the discretion to refinance or roll over an obligation
for at least twelve months after the reporting period under an existing loan facility, the obligation shall
be classified as noncurrent, even if it would otherwise be due within a shorter period.

The 12% note payable is classified as current.

PAS 1, paragraph 72, provides that an obligation that matures within one year from the end of the
reporting period is classified as current even if it is refinanced on a long-term basis after the reporting
period and before issuance of the financial statements.

The 12% note payable is refinanced on March 1, 2017 and therefore classifies as current.

Problem 2-17 A

Accounts payable 2,000,000

Short-term borrowings 1,500,000
Bonds payable 3,000,000
Premium on bonds payable 500,000
Mortgage payable - current portion 500,000
Bank loan 1,000,000
Total current liabilities 7,500,000
Problem 2-18

1. B

Accounts payable 2,200,000

Accrued expenses 800,000
Income tax payable 1,100,000
Cash dividend payable 600,000
Total current liabilities 4,700,000

Accounts payable 2,000,000

Debit balances of creditors 200,000
Adjusted accounts payables 2,200,000

2. C

Bonds payable 4,500,000

Premium on bonds payable 500,000
Deferred tax laibility 500,000
Note payable 6% 1,500,000
Note payable 8% 1,000,000
Total noncurrent liabilities 8,000,000

Problem 2-19

1. A

Cash 200,000
Accounts receivable 350,000
Inventory 600,000
Prepaid expenses 100,000
Land held for sale 1,000,000
Total current assets 2,250,000

The undelivered checks should be adjusted as follows:

Cash 300,000
Accounts payable 300,000

Cash (overdraft) -100,000

Debit adjustment 300,000
Adjusted cash balance 200,000

2. C
Accounts payable 500,000
Accrued expenses 150,000
Total current liabilities 650,000

Accounts payable 200,000

Undelivered checks 300,000
 Adjusted accounts payable 500,000
3. A
Ordinary share capital 1,500,000
Share premium 250,000
Retained earnings 800,000
Total shareholder's equity 2,550,000

Problem 2-20

1. A

Cash 5,000,000
Accounts receivable 7,000,000
Total current assets 12,000,000

Accounts receivable 8,000,000

Noncurrent portion (500,000 + 500,000) -1,000,000
Current portion 7,000,000

2. B

Revenue 15,000,000
Expenses -10,000,000
Income before income tax 5,000,000
Income tax (30% x 5,000,000) -1,500,000
Net income 3,500,000
Retained earnings Jan. 1 5,000,000
Total retained earnings 8,500,000

Problem 2-21

1. B

Earnings from long term contracts 6,680,000

Costs and expenses -5,180,000
Income before income tax 1,500,000
Income tax (30% x 1,500,000) -450,000
Net income 1,050,000
Retained earnings unappropriated 900,000
Retained earnings restricted 160,000
Total retained earnings 2,110,000

2. A

Note payable non-current 1,620,000

3. C
Cash 600,000
Accounts receivable 3,500,000
Cost in excess of billings on long term contracts 1,600,000
Total non-current assets 5,700,000
4. C

Share capital 750,000

Share premium 2,030,000
Retained earnings 2,110,000
Total shareholder's equity 4,890,000

Problem 2-22

1. D

Cash 600,000
Accounts receivable 2,300,000
Inventory 2,000,000
Total Noncurrent assets 4,900,000

Accounts Receivable 2,800,000

noncurrent portion (125,000 x 4 ) -500,000
Adjusted current portion 2,300,000

2. A

Accounts payable and accrued liabilities 1,800,000

Income tax payable (1,500,000 - 300,000 ) 900,000
Total current liabilities 2,700,000

Entries made:
Income tax expense 600,000
Cash 600,000

Income tax expense 1,500,000

Income tax payable 1,500,000

Adjusting entry:
Income tax payable 600,000
Income tax expense 600,000

3. C
Net sales and other revenue 15,000,000
Cost and expenses -10,000,000
Income before income tax 5,000,000
Income tax (30% x 5,000,000) 1,500,000
Net income 3,500,000
Retained earnings jan.1 3,500,000
Retained earnings dec. 31 7,000,000
Problem 2-25 Problem 2-26 Problem 2-27 Problem 2-28 Problem 2-29
1. C 1. D 1. A 1. A 1.
2. A 2. A 2. D 2. D 2.
3. D 3. C 3. B 3. C 3.
4. D 4. D 4. D 4. D 4.
5. A 5. A 5. D 5. B 5.
6. A 6. C 6. B
7. A 7. A 7. D
8. A 8. D 8. D
9. D 9. D 9. D
10. C 10. D 10.C

CHAPTER 3

Problem 3-1 Problem 3-2 Problem 3-3 Problem 3-4

1. D 1. C 1. C 6. C 1. A 6. B
2. A 2. B 2. C 7. B 2. C 7. C
3. C 3. B 3. D 8. D 3. B 8. A
4. C 4. B 4. B 9. C 4. D
5. B 5. A 5. D 10. D 5. C

Problem 3-5 D

Loans officer:
Dean 1,250,000
Morey 500,000
Key officer's:
Dean 750,000
Morey 500,000
Total 3,000,000

Problem 3-6 A

Annual salary 2,000,000

Share options and other share based payments 1,000,000
Contributions to retirement benefit plan 500,000
Total 3,500,000

Problem 3-7 Problem 3-8 Problem 3-9

1. D 1.D 6.B
2. B 2.B 7.C
3. D 3.C 8.D
4. D 4.B 9.B
5. D 5.D 10.C
Problem 3-10

Problem 3-11 B 3,500,000

Problem 3-12

Problem 3-13

Problem 3-14

Problem 3-15

Problem 3-16 Problem 3-7

1. B 1.D
2. D 2.C
3. D 3.D
4. C 4.D
5. B 5.D
 CHAPTER 4

Problem 4-8 C

Advertising 1,500,000
Freight out 750,000
Rent for office space (1,800,000 x 1/2) 900,000
Sales salaries and commissions 1,400,000
Total distribution expenses 4,550,000

Problem 4-9 B

Property Tax 250,000

Doubtful Accounts 1,600,000
Officer's salaries 1,500,000
Total Administrative expenses 3,350,000

Problem 4-10
1. B

Income before income tax (2,100,000/70%) 3,000,000

12,000,00
Sales (3,000,000/25%) 0
15,000,00
Total 0

Sales 100%
Cost of goods sold (20%/40%) -50%
Operating expenses -20%
Interest expense -5%
Income before income tax 25%

2. B

Cost of goods sold (50% x 12,000,000) 6,000,000

Multiply by 120%
Purchases 7,200,000

Problem 4-11 A

Total manufacturing cost 100% 6,000,000

Goods in process 12/31 10% -600,000
Cost of goods manufactured 90% 5,400,000
Finished goods 12/31 (20% x 90%) 18% -1,080,000
Cost of goods sold 72% 4,320,000

Total manufacturing cost (4,320,000/72%) 6,000,000

Direct labor cost (30% x 6,000,000) 1,800,000

Problem 4-12

Problem 4-13

Problem 4-14

Problem 4-15 D

Net income per book 7,410,000

Add: Unrealized loss as component of OCI 540,000
Adjustment of profit of prior year 750,000 1,290,000
Adjusted net income 8,700,000

Problem 4-16 D

Problem 4-17
1. B

Income from continuing operations 4,000,000

Income from discontinued operation 500,000
Net income 4,500,000

2. C
Unrealized loss on equity investment at FVOCI -1,000,000
Unrealized gain on debt of investment at FVOCI 1,200,000
Unrealized gain on futures contract designated as cash flow
hedge 400,000
Translation loss on foreign operation -200,000
Net remeasurement gain on defined benefit plan 600,000
Loss on credit risk of a financial liability at FVPL -300,000
Revaluation surplus during the year 2,500,000
Net amount of OCI gain 3,200,000

3. B
Net income 4,500,000
Other comprehensive income 3,200,000
Comprehensive income 7,700,000

Problem 4-18 Problem 4-19 Problem 4-20 Problem 4-21 Problem 4-22
1. B 6. B 1. 1. C 1.D 1. C
2. C 7. B 2. D 2. C 2.B 2. C
3. D 8. 3. D 3. D 3.D 3. D
4. B 9. A 4. C 4.B 4.C 4. C
5. D 10. C 5. D 5.C 5. A
 Chapter 5

Problem 5-6 A

Share capital 5,000,000

Share premium 2,000,000
Retained earnings 500,000
Treasury shares at cost -300,000
Total shareholder's equity 7,200,000

Problem 5-7

Problem 5-8 A
10,000,00
Sales 0
Total expenses -7,800,000
Net income 2,200,000
Retained earnings Jan 1 1,000,000
Dividends -700,000
Retained earnings Dec. 31 2,500,000

Preference share capital 2,000,000

Ordinary Share capital 3,000,000
Share premium 1,000,000
Retained earnings 2,500,000
Treasury shares at cost -500,000
Total shareholder's equity 8,000,000

Problem 5-9A
15,000,00
Share capital 0
Share premium 5,000,000
Retained earnings unappropriated 6,000,000
Retained earnings appropriated 3,000,000
Revaluation surplus 4,000,000
Cumulative translation adjustment credit 1,500,000
Actuarial loss on defined benefit plan -1,000,000
Treasury shares, at cost -2,000,000
31,500,00
Total shareholder's equity 0

Problem 5-10
1. A 2.A 3. D 4.B 5.A

CHAPTER 6

Problem 6-1 B

Carrying amount 3,200,000

 FV less cost of disposal (2,200,000 -200,000) 2,000,000
Impairment loss 1,200,000

Problem 6-2
1. A

Carrying amount 1,500,000

FV less cost of disposal (1,100,000 -150,000) 950,000
Impairment loss 550,000

2. C
Sale price 800,000
Carrying amount on Dec. 31 2020 950,000
Loss on disposal -150,000

Problem 6-3
1. A

3,300,000 
Fair value- June 30, 2020  given
Cost of disposal -200,000
Adjusted carrying amount- June 30,  2020 3,100,000

2. C

FV- 12-31  3,250,000

Cost of disposal    -250,000
FV less cost of disposal 3,000,000
3. B

On 12-31, 2020, the asset held for sale should be measured at the FV less cost of disposal of 
P 3M because this amount is lower than the CV of P 3,100,000

Impairment loss on June 30 ( 3.3 M- 3.1M) 200,000

Impairment loss on 12-31 (3.1M  - 3 M ) 100,000
Total impairment loss for 2020 300,000

4. A

FV -June 30, 2020 3,300,000

 
CV
2,900,000 
Revaluation surplus on classification date 400,000
Revaluation surplus on June 30, 2020 200,000
Total RV, 12-31, 20 600,000

Problem 6-4
1. C
 FV Less cost of disposal (5,500,000 - 100,000) 5,400,000

2. A

Carrying amount 5,500,000

FV less cost of disposal (5,500,000 -100,000) 5,400,000
Impairment loss 100,000

3. B

Revaluation surplus Oct.1 2020 1,500,000

Increase in FV (5,500,000 - 5,000,000) 500,000
Revaluation surplus reclassified to retained earnings 2,000,000

4. D

Sale price 6,000,000

Carrying Amount 5,400,000
Gain on sale of land 600,000

Problem 6-5
1. B

FV Dec. 31, 2021 8,500,000

FV Dec. 31, 2020 7,000,000
Revaluation surplus in 2021 OCI 1,500,000

2. C

Sale price 8,000,000

Carrying amount equal to FV on July, 1, 2022 7,600,000
Gain on sale of land 400,000

3. B

2020
Jan. 1 Land 6,000,000
Cash 6,000,000

Dec. 31 Land 1,000,000

Revaluation surplus 1,000,000

2021
Dec.31 Land 1,500,000
Revaluation surplus 1,500,000

2022
July 1 Revaluation surplus 900,000
Land (8,500,000 - 7,600,000) 900,000
 1 Land held for sale 7,600,000
Land 7,600,000

Dec. 31 Cash 8,000,000

Land held for sale 7,600,000
Gain on sale of land 400,000

31 Revaluation surplus 1,600,000

Retained earnings 1,600,000
(2,500,000 - 900,000)

Problem 6-6

Problem 6-7
1. A

Cost Jan. 1 2020 5,000,000

Accumulated depreciation Dec. 31, 2020
(5,000,000/10 x 1 year) -500,000
Carrying amount Dec. 31, 2020 4,500,000
FV less cost of disposal Dec. 31, 2020
(4,200,000 - 50,000 cost of disposal) 4,150,000
Impairment loss for 2020 350,000

2. C

Carrying amount Dec. 31, 2020 4,500,000

Depreciation that would have been recognized
in 2021 (5,000,000/10) -500,000
Carrying amount Dec. 31, 2021 4,000,000

FV Dec. 31, 2021 3,500,000

Cost of disposal -100,000
Recoverable amount Dec. 31, 2021 3,400,000

3. D

Measurement of equipment 4,000,000

Carrying amount per book Dec. 31, 4,150,000
Loss on reclassification -150,000

Problem 6-8
1. B

Cost 5,000,000
Accumulated depreciation -3,750,000
Carrying amount April 1, 2020 1,250,000
FV less cost of disposal April 1, 2020
(500,000 - 50,000) 450,000
Impairment loss for April 2020 800,000

Impairment loss 800,000

Machine held for sale 800,000
2. D

FV less cost of disposal Dec. 31, 2020

(750,000 - 100,000) 650,000
FV less cost of disposal April 1, 2020 450,000
Gain on reversal of impairment 200,000

Machine held for sale 200,000

Gain on reversal of impairment 200,000

Problem 6-9
1. B

2. C

Cost Jan. 1 , 2020 5,000,000

Accumulated depreciation (5,000,000/5) -1,000,000
Carrying amount before classification Dec. 31 2020 4,000,000
FV less cost of disposal April 1, 2020 -3,500,000
Impairment loss for 2020 500,000

3. B

Cost Jan. 1, 2020 5,000,000

Accumulated depreciation (5,000,000/5x2 years) -2,000,000
Carrying amount no classification as held for sale 3,000,000

FV less cost of disposal 2,700,000

Measurement of equipment as PPE 2,700,000

Carrying maount per book 3,500,000

Measurement of equipment 2,700,000
Loss on reclassification 800,000

4. B

Measurement of equipment Dec. 31 20201 2,700,000

Depreciation for 2022 (2,700,000/3years remaining) -900,000
Carrying amount Dec. 31, 2022 1,800,000
Problem 6-10
1. A
2. D
3. B
4. D
5. C
6. B
7. C
8. A
9. C
10. D

CHAPTER 7

Problem 7-1 A

Total Revenues 1,500,000 + 700,000 2,200,000

Expenses -2,900,000
Impairment loss (2M-1.8M) -200,000
Employee termination  -100,000
Pretax loss from discontinued segment 1,000,000

Problem 7-2 C

Income 3,000,000
Impairment loss -500,000
Income before tax 2,500,000
Income tax rate 30% -750,000
Net income 1,750,000

Problem 7-3 D

Sales- South 3,500,000

Expenses 3,900,000
Operating loss -400,000
Loss on disposal -2,000,000
Total loss 2,400,000
Tax saving  30% -720,000
Loss 1,680,000

Problem 7-4 D

Revenue 40,000,000
Expenses -45,000,000
Impairment loss -10,000,000
Termination cost -5,000,000
Loss from discontinued operation -20,000,000
Tax effect 30% -6,000,000
Net loss from discontinued operation -14,000,000

Selling price 60,000,000

 Carrying amount -70,000,000
Impairment loss 10,000,000

Problem 7-5 D

Sales -Dakak  2020 23,000

COS- Dakak -14,000
Other expenses -17,000
Gain on disposal 15,000
Income 7,000
Tax 30%  2,100
Income from discontinued operation 2020  4,900

Problem 7-6 A
Total amount of th disposal group’s losses should be included in profit or loss
   =   2,000,000   +  1,500,000   =   3,5000,000      A

Problem 7-7B

Operating loss for the current year 8,000,000

Loss on disposal in 2020 500,000
Pretax loss from discontinued operation 8,500,000

Problem 7-8D

Fair value  9,000,000

Less cost of disposal -500,000
Fair value less cost of disposal 8,500,000

Then compare it to carrying value

Carrying value  given 15,000,000

Which is lower between the two, therefore answer is  8,500,000

Problem 7-9A
Pretax loss from discontinued operation  (  700,000 + 200,000)  =  (900,000)

Problem 7-10A

Operating loss in 2020 2,000,000

Impairment loss in 2020 1,000,000
Loss from discontinued operation 3,000,000

Problem 7-11 B

Income from continuing operations 700,000

Loss from discontinued operation -200,000
Net income 500,000
Problem 7-12 D

Income from continuing operations 8,000,000

Loss from discontinued operation -1,750,000
Net income 6,250,000

FV assets of division 4,000,000

Carrying amount of assets 5,000,000
Impairment loss -1,000,000
Operating loss of division -1,500,000
Total loss -2,500,000
Tax effect 30% 750,000
Loss from discontinued operation -1,750,000

Problem 7-13 Problem 7-14

1. D 1.A 6.A
2. A 2.B 7.B
3. D 3.A 8.C
4. A 4.C
5. D 5.C