Intermediate Accounting 3

Quiz 1
Block 2

Provide the correct answer.

1. Cara Company provided the following information for the current year
January 1 December 31
Current Assets 500,000 ?
Property, Plant, and Equipment 3,000,000 4,000,000
Current Liabilities ? 300,000
Long-term Liabilities 1,000,000 ?

All assets and liabilities are reported at year-end

Working capital of P600,000 remained unchanged
Net income for the current year was P400,000

a. What is the amount of stockholder’s equity on December 31?

b. What is the amount of long-term liabilities on December 31?

2. Embassy Corp. purchased a milling machine on June 30, Year 1, for P6,600,000. The machine
was being depreciated using the straight-line method over five years until January 1, Year 4,
when the total useful life was revised downward to four years. Given the additional information
below, compute the Total Assets for December 31, Year 4.

Cash P 100,000
Accounts Receivable 250,000
Inventory 300,000
Investment in Stocks 500,000
Intangible Assets 100,000
Solution

1.
Working Capital (Jan 1) 600,000
Current Assets (Jan1) 500,000
Current Liabilities (Jan 1) 100,000

Current Assets (Jan 1) 500,000

Property, Plant, and Eqpt (Jan
1) 3,000,000
Current Liabilities (Jan 1) 100,000
Long-Term Liabilities (Jan 1) 1,000,000
Net Income 400,000
Stockholder's Equity (Dec 31) 3,000,000

2.
Current Assets (Dec 31) 900,000
Property, Plant, and Eqpt (Dec 4,000,00
31) 0
Current Liabilities (Dec 31) 300,000
3,000,00
Stockholder's Equity (Dec 31) 0
1,600,00
Long-Term Liabilities (Dec 31) 0

3. For 5 years life – P6,600,000/5 = P1,320,000

Depreciation from June 30, Year1 to Year 3 = 2 ½ years = P1,320,000 x 1 ½ = P3,300,000
Book Value after 2 ½ years = P6,600,000 – P3,300,000 = P3,300,000
Remaining life for new estimated life of 4 years = 4 – 2 ½ = 1 ½ years
New depreciation = P3,300,000/1 ½ years = P2,200,000
Book Value for Year 4 = P3,300,000 – P2,200,000 = P1,100,000

Cash P 100,000
Accounts Receivable 250,000
Inventory 300,000
Investment in Stocks 500,000
Machine 1,100,000
Intangible Assets 100,000
Total Assets P2,350,000