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Chapter 2
Statement of Comprehensive Income

1. The Statement of comprehensive income shows information on an entity’s financial position

during the period.

2. Revenue includes both income and gains.

3. The revenue earned by a merchandising business from its sales of goods is commonly referred to
as sales.

4. If income is greater than expenses, the difference is loss.

5. A statement of comprehensive income that shows expenses by their function is said to have been
prepared using the multi-step approach.

6. The revenue earned by a service business from rendering services is commonly referred to as
service fees.

7. Expenses decrease equity.

8. If total income is ₱100 while total expenses is ₱80, loss is ₱20.

9. The Statement of profit or loss and other comprehensive income is the same with the Income
statement.

10. A statement of comprehensive income that presents separately an entity’s cost of sales is said to
have been prepared using the single-step method.
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ANSWERS:
1. FALSE – financial performance
2. FALSE – income includes both revenue and gains
3. TRUE
4. FALSE
5. TRUE
6. TRUE
7. TRUE
8. FALSE – profit of ₱20
9. FALSE - different
10. FALSE – multi-step
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NAME: Date:
Professor: Section: Score:

: TRUE OR FALSE
1. The Statement of profit or loss and other comprehensive income is different from the income
statement.

2. The Statement of comprehensive income shows profit or loss only.

3. An entity can present an income statement alone in lieu of the statement of comprehensive
income.

4. The elements of the statement of comprehensive income are income and expenses.

5. Income increases equity.

6. The residual category of expenses under the function of expense method is “Distribution costs.”

7. Losses incurred on sales of noncurrent assets are presented under “Administrative expenses.”

8. Distribution costs (or Selling expenses) are costs attributable to selling activities.

9. The categories of expenses under the function of expense method include “Cost of sales,”
“Distribution costs,” and “Administrative expenses” only.

10. If profit is ₱100 while other comprehensive income is ₱80, total comprehensive income is ₱20.

“A man who asks is a fool for five minutes. A man who never asks is a fool for
life.”
- Chinese Proverb

- END –
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ANSWERS
1. TRUE
2. FALSE – profit or loss and other comprehensive income
3. FALSE – a statement showing other comprehensive income must also be presented
4. TRUE
5. TRUE
6. FALSE – Administrative expenses
7. FALSE – losses are included in the “Other expenses” category. If material, losses are presented
separately.
8. TRUE
9. FALSE – finance costs, income tax expense, and if applicable, other expenses are also categories
of expenses under the function of expense method
10. FALSE - ₱180 (100 + 80)
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Use the following information for the next two questions:

The following items were presented for the purpose of determining comprehensive income.

Profit for the year 2,000

Increase in revaluation surplus 1,000
Remeasurements of the net defined benefit liability (asset) - loss (200)
Net change in translation of foreign operation (400)
Dividends declared (100)
Stock rights 300

1. How much is the other comprehensive income?

a. 400
b. 600
c. 800
d. 2,000

2. How much is the total comprehensive income?

a. 1,800
b. 2,200
c. 2,400
d. 2,800

Use the following information for the next two questions:

The records of Afternoon Sun Co. show the following information:

Interest expense ₱24,000

Cost of inventories sold 600,000
Insurance expense 100,000
Advertising expense 20,000
Freight-out 10,000
Freight-in 4,000
Loss on sale of equipment 2,000
Legal and other professional fees 12,000
Rent expense (one-half occupied by sales department) 8,000
Sales commission expense 14,000
Doubtful accounts expense 16,000

3. How much is the total distribution (selling) costs?

a. 48,000
b. 56,000
c. 64,000
d. 108,000
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4. How much is the total administrative expenses?

a. 24,000
b. 132,000
c. 226,000
d. 668,000

5. The records of SOIREE EVENING PARTY Co. showed the following information:

Increase in accounts receivable 100,000

Collections on accounts 800,000
Cash sales 120,000
Increase in inventory 40,000
Freight-in 14,000
Freight-out 13,000
Decrease in accounts payable 60,000
Disbursements for purchases 480,000
Purchase discounts 4,000

How much is the gross profit for the year?

a. 662,000
b. 656,000
c. 648,000
d. 626,000

6. The records of BRACKISH SALTY Co. showed the following information:

Accounts receivable, net, Jan. 1, 20x1 40,000
Accounts receivable, net, Dec. 31, 20x1 160,000
Accounts receivable turnover 4:1
Inventory, Jan. 1, 20x1 120,000
Inventory, Dec. 31, 20x1 60,000
Inventory turnover 3:1

How much is the gross profit for the year?

a. 120,000
b. 130,000
c. 132,000
d. 146,000

7. The records of SURLY BAD TEMPERED Co. showed the following information:
Decrease in accounts payable 60,000
Disbursements for purchases 440,000
Increase in raw materials 100,000
Direct labor is 50% of raw materials used in production
Manufacturing overhead is 20% of prime costs
Increase in work-in-process inventory 40,000
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Decrease in finished goods inventory 50,000

How much is the cost of goods sold?

a. 380,000
b. 464,000
c. 514,000
d. 546,000

8. PRENTICE A LEARNER Co. reported profit after tax of ₱210,000. PRENTICE’s income tax rate is
30%. Operating expenses for the year is 15% of sales and 25% of cost of sales. Other expenses
were 10% of sales. How much is the total sales?
a. 1,800,000
b. 2,000,000
c. 2,200,000
d. 2,240,000

9. The records of HACK TO CHOP Co. on December 31, 20x1 showed the following information:
Sales 2,000,000
Sales discounts 20,000
Cost of sales 800,000
Distribution costs 96,000
Administrative costs 240,000
Casualty loss on typhoon 40,000
Dividends received from investments in FVPL 24,000
Dividends received from investment in associate 48,000
Share in the profit of an associate 72,000
Dividends declared and paid 28,000
Interest expense 44,000
Unrealized gain on investments in FVPL 30,000
Unrealized gain on investments in FVOCI 38,000
Income tax expense 300,000
Loss on revaluation 26,000
Remeasurements of the net defined benefit liability (asset) - gain 22,000
Correction of understatement in depreciation in prior year 32,000
Translation adjustment of foreign operation - loss 8,000

How much is the profit for the year?

a. 886,000
b. 586,000
c. 612,000
d. 626,000

10. WASHY PALE Co. has the following information on December 31, 20x1:
- Cost of sales is ₱260,000.
- Operating expenses are 13% of sales and 20% of cost of sales.
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- Interest expense is 5% of sales.

- Income tax rate is 30%. There were no temporary differences during the year.

How much is the profit for the year?

a. 65,000
b. 140,000
c. 38,600
d. 47,600

“Do not be wise in your own eyes; fear the LORD and shun evil. “
(Proverbs 3:7)

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SOLUTIONS
1. A

2,00
Profit for the year 0

Other comprehensive income:

1,0
Revaluation gain 00
Remeasurements of the net defined
benefit
liability (asset) (200)
Translation loss on foreign operation (400)
  Total other comprehensive income (a) 400

2,40
Total comprehensive income (b) 0

2. C (see solution above)

3. A

Selling expenses Administrative expenses

Advertising expense P20K Insurance expense P100K
Freight-out 10 Legal and other professional fees 12
Rent expense (one half) 4 Rent expense (one half) 4
Sales commission expense 14 Doubtful accounts expense 16
Total selling expenses P48K Total administrative expenses P132K

4. B (see solution above)

5. D

Sales on account are computed as follows:

Accounts receivable
A/R, beg. -  
Sales on account (squeeze) 900,000 800,000 Collections on accounts
100,000 A/R, end

Cost of sales is computed as follows:

Accounts payable
Purchase discounts 4,000 60,000 A/P, beg
Gross purchases
Disbursements for purchases 480,000 424,000 (squeeze)
A/P, end -  

Inventory
Inventory, beg. -  
Gross purchases 424,000 4,000 Purchase discounts
Freight in 14,000 394,000 Cost of sales (squeeze)
40,000 Inventory, end
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Gross profit is computed as follows:

Cash sales 120,000
Credit sales 900,000
Total sales 1,020,000
Cost of sales (394,000)
Gross profit 626,000

6. B Solution:

Net credit sales

Accounts receivable turnover =
Average accounts receivable

Where:
A/R, beg. + A/R, end.
Average accounts receivable =
2

40,000 + 160,000
Average accounts receivable =
2
Average accounts receivable = 100,000

Net credit sales

Accounts receivable turnover =
Average accounts receivable

Net credit sales

4 =
100,000
Net credit sales = 400,000

Cost of sales
Inventory turnover =
Average inventory
Where:
Inventory, beg. + Inventory, end.
Average inventory =
2
Using the formulas given above, cost of sales is computed as follows:
120,000 + 60,000
Average inventory =
2
Average inventory = 90,000

Cost of sales
Inventory turnover =
Average inventory

Cost of sales
3 =
90,000
Cost of sales = 270,000

Gross profit is computed as follows:

Net credit sales 400,000
Cost of sales (270,000)
Gross profit 130,000
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7. C Solution:

Accounts payable
  60,000 A/P, beg.
Disbursements for purchases 440,000 380,000 Purchases (squeeze)
A/P, end -  

Raw materials
inventory
RM Invty, beg. -   Raw materials used in
Purchases 380,000 280,000 production (squeeze)
  100,000 RM Invty, end.

Work-in-process inventory
WIP, beg. -
Cost of goods
RM used in production 280,000 manufactured
Direct labor (50% of RM) 140,000 464,000 (squeeze)
Production overhead* 84,000
40,000 WIP, end.

Total goods put into process 504,000 504,000

*Prime cost = Direct materials + Direct labor

Prime cost = 280,000 + 140,000 = 420,000
Production overhead = 20% x 420,000 = 84,000

Finished goods inventory

FG, beg. 50,000  
Cost of goods sold
Cost of goods manufactured 464,000 514,000 (squeeze)
  - FG, end

Total goods avail. for sale 514,000 514,000

8. B Solution:

Sales 100%
Cost of sales (15% / 25%) (60%)
Gross profit 40%
Operating expenses (15% of 100%) or (25% of 60%) (15%)
Other expenses (10% of 100%) (10%)
Profit before tax 15%

The profit after tax given in the problem is translated to profit before tax as shown below:
Profit after tax (given) 210,000
Divide by: (100% less 30% tax rate) 70%
Profit before tax 300,000

Sales (300,000 Profit before tax ÷ 15%) 2,000,000

9. B Solution:
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HACK TO CHOP Co.

Statement of profit or loss and other comprehensive income
For the year ended December 31, 20x1
2,000,000
Sales
(20,000)
Sales discounts
1,980,000
Net sales
(800,000)
Cost of sales
1,180,000
Gross profit
(96,000)
Distribution costs
(240,000)
Administrative costs
24,000
Dividends received from investments in FVPL
72,000
Share in the profit of an associate
30,000
Unrealized gain on investments in FVPL
(40,000)
Casualty loss on typhoon
(44,000)
Interest expense
886,000
Profit before tax
(300,000)
Income tax expense
586,000
Profit for the year
 
Other comprehensive income:
 
Items that will not be reclassified subsequently to profit or loss:
(26,000)
Loss on revaluation
38,000
Unrealized gain on investments in FVOCI
22,000
Remeasurements of defined benefit pension plans
34,000

 
Items that may be reclassified subsequently to profit or loss:
(8,000)
Loss on translation of foreign operation
26,000
Other comprehensive income for the year
612,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR

10. D Solution:

Cost ratio is derived from the percentages of operating expenses over sales and cost of sales as follows:
Cost ratio = 13% / 20% = 65%
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Amount
Sales 400,000 (260,000 COS ÷ 65%)
Cost of sales (260,000) (start)
Gross profit 140,000
Operating expenses (52,000) (400,000 x 13%) or (260,000 x 20%)
Interest expense (20,000) (400,000 x 5%)
Profit before tax 68,000
Income tax expense (20,400) (40,000 x 30%)
Profit after tax 47,600