QUIZ #5

Solve each problem and show your corresponding solution.

1.Hill Company provided the following comparative statement of financial position.

Assets 2020 2019

Cash and cash equivalents 750,000 950,000
Accounts Receivable 1,750,000 1,100,000
Inventory 2,550,000 1,800,000
Prepaid Expenses 100,000 150,000
Property, Plant and Equipment 5,300,000 4,300,000
Accumulated Depreciation (1,150,000) (800,000)
9,300,000 7,500,000

Liabilities and equity

Accounts Payable 1,250,000 1,000,000
Accrued Expenses 50,000 200,000
Share Capital 4,750,000 4,250,000
Retained Earnings 3,250,000 2,050,000
9,300,000 7,500,000

Additional Information
1. The statement of retained earnings for 2020 showed net income of P1,500,000 and cash dividend
paid of P300,000.
2. During the current year, the entity purchased equipment for cash and issued capital for cash.

Required: Prepare a statement of cash flow for the current year using the indirect method.

Answer:
Assets 2020 2019
Cash and cash equivalents 750,000 950,000 (200,000)
Accounts Receivable 1,750,000 1,100,000 650,000
Inventory 2,550,000 1,800,000 750,000
Prepaid Expenses 100,000 150,000 (50,000)
Property, Plant and Equipment 5,300,000 4,300,000 1,000,000
Accumulated Depreciation (1,150,000) (800,000) (350,000)
9,300,000 7,500,000
Liabilities and equity
Accounts Payable 1,250,000 1,000,000 250,000
Accrued Expenses 50,000 200,000 (150,000)
Share Capital 4,750,000 4,250,000 500,000
Retained Earnings 3,250,000 2,050,000 1,200,000
9,300,000 7,500,000
 Hill Company
Statement of Cash Flows
As of Year Ended 2020

CASH FLOWS FROM OPERATING ACTIVITIES:

Net Income P 1,500,000
Increase in Accounts Receivable (650,000)
Increase in Inventory (750,000)
Decrease in Prepaid Expenses 50,000
Increase in Accounts Payable 250,000
Decrease in Accrued Expenses (150,000)
Depreciation 350,000
Net Cash provided P 600,000

2. Endless Company provided the following shareholders’ equity on December 31, 2020:
Preference share capital, 12% P100 par 1,000,000
Ordinary share capital, P100 4,000,000
Share Premium 2,000,000
Retained Earnings 1,000,000
Dividends have been paid on the preference share up to December 31, 2018.

Required:
Compute the book value per ordinary share and per preference share under each of the following
conditions with respect to preference share:

a. Cumulative and fully participating

Answer:
Excess Preference Ordinary
Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000
Preference dividend (12% x 1,000,000 x 2 years) (240,000) 240,000
Ordinary dividend (12% x 4,000,000) ( 480.000) 480,000
Balance for participation P2,280,000

Preference (1/5 x 2,280,000) 456,000

Ordinary (415 x 2,280,000) 1.824.000
Total shareholders' equity 1,696,000 6,304.000
Divided by shares outstanding 10,000 40,000
Book value per share 169.6 157.6
 b. Cumulative and fully participating after ordinary share receives 15%
Answer:
Excess Preference Ordinary
Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000
Preference dividend (12%x1,000,000x2 years) ( 240,000) 240,000
Ordinary dividend (15% x 4,000,000) (600.000) 600,000
Balance for participation P2,760,000

Preference (1/5 x 2160,000) 432,000

Ordinary (4/5 x 2,160,000) 1.728.000
Total shareholders' equity 1,672,000 6,328.000
Divided by shares outstanding 10,000 40,000
Book value per share 167.2 158.2

c. Cumulative and nonparticipating

Answer:
Excess Preference Ordinary
Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000
Preference dividend (12% X 1,000,000 x 2 years) ( 240,000) 240,000 0
Balance to Common P2,760,000 P2,760,000

Total shareholders' equity 1,240,000 6,760.000

Divided by shares outstanding 10,000 40,000
Book value per share 124 169

d. Noncumulative and nonparticipating

Answer:
Excess Preference Ordinary
Balance (2,000,000 + 1,000,000) 3,000,000 1,000,000 4,000,000
Preference dividend(12% X 1,000,000 x 2 years) ( 120,000) 120,000 0
Balance to Common P2,880,000 P 2,880,000

Total shareholders' equity 1,120,000 6,880.000

Divided by shares outstanding 10,000 40,000
Book value per share 112 172