Problem 6 (Determination of Earnings and Earnings Per Share)

Angelique Corporation has P450,000 of retained earnings on December 31, 20XS The company
paid common dividends of P25,000 in 20X5 and had retained earnings of P400,000 on December 31,
20X4.

Required:

a. How much did Angelique Corporation earn during 20X5?

Angelique Corporation
Retained earnings, Dec. 31, 20X5 ₱ 450,000
Less: Retained earnings, Dec.31, 20X4 400,000
Change in Retained earnings ₱ 50,000
Add: Common dividends 25,000
Total Earnings ₱ 75,000
b. What would its earnings per
share be if 20,000 shares of common stock were outstanding?

Earnings per share = Total Earnings

Outstanding shares
= 75,000
20,000 shares
Earnings per share = ₱ 3.75

Problem 7 (Construction of Income Statement and Statement of Financial Position )

For December 31, 20X4, the statement of financial position of Shadow Corporation is as follows:

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 Sales for 20X5 were P220,000, and the cost of goods sold was 60 percent of sales. Selling and
administrative expense was P22,000. Depreciation expense was 8 percent of plant and equipment
(gross) at the beginning of the year. Interest expense for the notes payable was 10 percent, and interest
expense on the bonds payable was 12 percent. These interest expenses are based on December 31,
2014 balances. The tax rate averaged 20 percent. Two thousand pesos in preferred stock dividends were
paid and P8,400 in dividends were paid to common stockholders. There were 10,000 shares of common
stock outstanding. During 2015, the cash balance and prepaid expenses balance were unchanged.
Accounts receivable and inventory increased by 10 percent. A new machine was purchased on
December 31, 2015 at a cost of P35.000. Accounts payable increased by 25 percent. Notes payable
increased by P6,000 and bonds payable decreased by P10,000, both at the end of the year. The common
stock and paid-in capital in excess of par accounts did not change.

Required:

a. Prepare an income statement for 20X5.

Shadow Corporation
Income Statement
For the Year Ended December 31, 20X5
Sales ₱ 220,000
Less: Cost of Goods Sold (60% of sales) 132,000
Gross Profit ₱ 88,000
Expenses
Selling and Administrative Expense ₱ 22,000
Depreciation Expense (8%) 20,000¹
Interest Expense 8,000² 50,000
Earnings before income tax ₱38,000
Income Tax Expense (20%) 7,600
Net Income ₱ 30,400

Note 1 8% x ₱ 250,000 = ₱ 20,000

Note 2 (10% x ₱ 20,000) + (12% x ₱ 50,000) = ₱ 8,000
Outstanding shares = ₱ 10,000
Earnings per share = ₱ 2.84

b. Prepare a statement of retained earnings for 20X5.

Shadow Corporation
Statement of Retained Earnings
For the Year Ended December 31, 20X5

Retained earnings balance, Dec. 31, 20X4 ₱ 80,000

Add: Earnings available to common stockholders, 20X4 28,400
Less: Cash dividend declared in 20X4 8,400
Retained earnings balance, Dec. 31, 20X5 ₱ 100,000

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 c. Prepare a statement of financial position as of December 31, 20X5.

Shadow Corporation
Statement of Financial Position
As of December 31, 20X5
ASSETS
Current Assets
Cash ₱ 10,000
Accounts Receivable 16,500
Inventory 27,500
Prepaid expenses 12,000
Total Current Assets ₱ 66,000
Non-Current Assets
Gross plant ₱ 285,000
Less: Accumulated depreciation 70,000 ³
Total Non-Current Assets 215,000
Total Assets ₱ 281,000
LIABILITIES AND OWNER'S EQUITY
Liabilities
Accounts payable ₱ 15,000
Notes payable 26,000
Bonds payable 40,000
Total Liabilities ₱81,000

Owner's Equity
Common stock ₱75,000
Paid in capital in excess of par 25,000
Retained earnings 100,000
Total equity 200,000
Total Liabilities and Equity ₱281,000

*Note 3 ₱ 50,000 + ₱ 20,000 = ₱70,000

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 Problem 8 (Statement of Cash Flow)

Prepare a statement of Cash Flow for Maris Corporation.

Additional questions:

Maris Corporation
Statement of Cash Flows
For the Year Ended December 31, 20X1
Cash flows from operating activities:
Net income (earnings after taxes) ₱250,000
Add back depreciation 230,000
Increase in accounts receivable (10,000)
Increase in inventory (30,000)
Decrease in prepaid expenses 30,000
Increase in accounts payable 250,000
Decrease in accrued expenses (20,000)
Total adjustments 450,000
Net cash flows from operating activities ₱700,000
Cash flows from investing activities:
Decrease in investments 10,000
Increase in plant and equipment (600,000)
Net cash flows from investing activities (590,000)
Cash flows from financing activities:
Increase in bonds payable 60,000
Preferred stock dividends paid (10,000)
Common stock dividends paid (140,000)
Net cash flows from financing activities (90,000)
Net increase (decrease) in cash flows ₱20,000

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 a. Describe the general relationship between net income and net cash flows from operating
activities for the firm.

The net income (after tax) of Marris Corporation is P250, 000 while the net cash flow from
Operating activities is P700, 000. Contrasting the two amounts, the net cash flow from operating
activities is greater than the net income which indicates healthy cash flow. In contrary, if the net income
have bigger sum than the net cash flow from operation means that we are losing money as we push
ahead with the activity.

b. Has the buildup in plant and equipment been financed in a satisfactory manner? Briefly discuss

Plant and equipment is financed in agreeable way. It is completely acceptable thus the
Money is being invested back to the company through the plant and equipment. We can also see that
Net Cash flow from operating activities has the sufficient reserve to withstand it.

c. Compute the book value per common share for both 20X0 and 20X1.

d. If the market value of a share of common stock is 2.8 times book value for 20X1, what is the
firm's P/E ratio for 20XI? (Round of to the nearest whole.)

Problem 9 (Preparing a Statement of Financial Position)

Shown below in random order is a list of statement of financial position items for SM Farms at
September 30, 20NS.

Land P550,000 Fences and Gates 33,570

Barns and Sheds 78,300 Immigration System 20,125
Notes Payable 530,000 Cash 16,710
Accounts Receivable 22,365 Livestock 120,780
Citrus Trees 76,650 Farm Machinery 42.970
Accounts Payable 77,095 Retained Earnings ?
Property Taxes Payable 9,135 Wages Payable 1,820
Share Capital 250,000
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 a. Prepare a statement of financial position by using these items and computing the amount for
retained earnings (After "Barns and Sheds" you may fist the remaining assets in any order)
Include a proper heading for your statement of financial position.

SM Farms
Statement of Financial Position
As of September 30, 20x5

ASSETS
Current Assets
Cash ₱ 16,710
Accounts receivable 22,365
Total Current Assets ₱ 39,075

Non-current Assets
Land 550,000
Barns and sheds 78,300
Citrus trees 76,650
Livestock 120,780
Irrigation system 20,125
Farm machinery 42,970
Fences and gates 33,570
Total Non-current assets 922,395
Total Assets ₱ 961,470

LIABILITIES AND SHAREHOLDER'S EQUITY

Liabilities
Accounts payable ₱ 77,095
Property taxes payable 9,135
Wages payable 1,820
Notes payable 530,000
Total Liabilities ₱ 618,050

Equity
Share capital 250,000
Retained earnings 93,420 *
Total Equity 343,420
Total Liabilities and Equity ₱ 961,470

b. Assume that on September 30, immediately after this statement of financial position was
prepared, a typhoon completely destroyed one of the barns. This barn had a cost of P23,800,
and was not insured against this type of disaster. Explain what changes would be required in
your September 30 statement financial position to reflect the loss of this barn.

The harm done by the storm to the barn had a cost of P23, 800. The SM farm is required to lessen
the retained earnings by P23,800.
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 Problem 10 (Preparing a Statement of Financial Position and Cash Flow Statement: Effects of
Business Transactions)

The statement of financial position items for The Tasty Bakery (arranged in alphabetical order) were as
follows at August 1, 20X5. (You are to compute the missing figure for retained earnings.)

Accounts Payable P16,200 Share Capital P80,000

Accounts Receivable 11,260 Land 67,000
Building. 84,000 Notes Payable. 74,900
Cash 6,940 Salaries Payable. 8,900
Equipment and Fixtures. 44,500 Supplies 7,000
During the next two days, the following transactions occurred:

Aug. 2 Additional share capital was sold for P25, 000. The accounts payable were paid in full. (No
payment was made on the notes payable or income taxes payable.)

Aug.3 Equipment was purchased at a cost of P7, 200 to be paid within 10 days. Supplies were
purchased for P1, 250 cash from a restaurant supply center that was going out of business.
These supplies would have cost P1, 890 if purchased through normal channels,

Required:

a. Prepare a statement of financial position at August 1, 20X5.

The Tasty Bakery >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>

Statement of Financial Position LIABILITIES AND EQUITY
August 1, 20X5 Current Liabilities
ASSETS Accounts payable 16,200
Current Assets Salaries payable 8,900
Cash ₱ 6 940 Total Current Liabilities 25,100
Accounts receivable 11,260
Supplies 7,000
Non-current Liabilities
Total ₱ 25,200
Notes payable 74,900
Total Liabilities 100,000
Non-current Assets
Land 67,000
Equity
Building 84,000
Equipment and Fixtures 44,500 Share capital 80,000
Total 195,500 Retained earnings 40,700
Total Assets ₱ 220,700 Total Equity 120,700
<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<< Total Liabilities and
Equity ₱ 220,700

b. Prepare a statement of financial position at August 3, 20X5, and a cash flow statement for
August 1-3. Classify the payment of accounts payable and the purchase of supplies as operating
activities.

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 The Tasty Bakery >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
Statement of Financial Position LIABILITIES AND EQUITY
As of August 3, 20X5 Current Liabilities
Accounts payable 23,400
ASSETS Salaries payable 8,900
Current Assets Total Current Liabilities 32,300
Cash ₱ 30,690
Accounts receivable 11,260 Non-current Liabilities
Supplies 8,250 Notes payable 74,900
Total ₱ 50,200 Total Liabilities ₱ 107,200

Non-current Assets Shareholder’s Equity

Land 67,000 Share capital 105,000
Building 84,000
Retained earnings 40,700
Equipment and Fixtures 51,700
Total Equity 145,700
Total 202,700
Total Liabilities and Equity ₱ 252,900
Total Assets ₱ 252, 900
<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<

The Tasty Bakery

Statement of Cash Flows
For the period August 1-3 20X5

Cash flows from operating activities:

Increase in accounts payable ₱ (16,200)
Increase in supplies (7,200)
Total ₱ (5,950)
Cash flows from investing activities:
Increase in Equipment (7,200) (7,200)
Cash flows from financing activities:
Increase in share capital 25,000 25,000
Net Increase (decrease) in cash ₱ 23,750
Cash balance, August 1, 2005 ₱6,940
Cash balance, August 3, 2005 ₱ 30,690
c. Assume the note payable does not come due for several years Is The Tasty Bakery in a stronger
financial position on August 1 or on August 3? Explain briefly.

The tasty bakery is in more grounded financial position on August 3 than August 1. On August 1, the
obligation due in the future of Tasty Bakery presently had P25,100 however the highly liquid assets
sums up to P18,200. On the other hand, on August 3, because of the sale of share capital highly liquid
asset of Bakery aggregates to P41, 950. The organization has enough assets to support its obligation due
on near future present at P32, 300.

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