CHAPTER 10

PROBLEM 10-1
Vim Company

Answer: ₱850,000 is the total amount of these expenses that should be reported in the interim
income statement for the six months ended June 30, 2020.

Solution:
Depreciation (500,000 ÷ 2) ₱250,000
Year-end Bonuses (1,200,000 ÷ 2) 600,000
Expenses ₱850,000

Problem 10-2
Pauline Company

Answer: The amount that should be recognized as bonus expense for the first half of the current
year is ₱2,000,000.

Solution:
Profit before any accrual of bonus
(first half of the current year) ₱40,000,000
Percentage charged for bonus 5%
Bonus expense ₱2,000,000

Problem 10-3
Rex Company

Answer: ₱1,050,000 is the total amount of these expenses that should be included in the quarterly
income statement ending June 30, 2020.

Solution:
Property tax (600,000 ÷ 4) ₱150,000
Repairs to equipment 900,000
Expenses ₱1,050,000

Problem 10-4
Bell Company

Answer: For the quarter ended September 30, 2020, ₱900,000 is the amount that should be reported
as net income.

Solution:
Net Income ₱ 950,000
Incorrect allocation of Gain (200,000) { gains should be reported at the period realized ]
Incorrect recognition of
change in inventory 150,000 { change in accounting policy, adjusted to RE }
Net Income ₱ 900,000
Problem 10-5
Apucao Company

Answer:

Solution:
Advertising Costs ₱2,000,000
Staff Bonuses 3.000,000
Total Expenses ₱5,000,000

Problem 10-6
Davao Company

Answer: ₱2,000,000 is the provision charged in the interim income statement for the second quarter.

Solution:
Provision for first quarter
(5% x P 10,000,000) ₱ 500,000
Provision for second quarter
(10% x P 25,000,000) 2,500,000
Charge for the period ₱2,000,000

Problem 10-7
Verna Company

Answer: ₱1,750,000 is the amount that should be reported as income tax expense in the interim
financial statements for the half year ended June 30, 2020.

Solution:
Profit before tax
First six months ended June 30, 2020 ₱5,000,000
Income tax rate 35%
Income tax expense ₱1,750,000

Problem 10-8
Bailan Company

Answer: 1,350,000 is the amount that should be reported as income tax expense in the interim
financial statements for the half year ended June 30, 2020.

Solution:
First quarter (6,000,000 x 30%) 1,800,000
Second quarter (7,000,000 x 30% ) 2,100,000
Total income tax for the first two quarters 3,900,000

Cumulative income tax for the

three quarters (21,000,000 x 25%) 5,250,000
Income tax for the first two quarters (3,900,000)
Third quarter – income tax expense 1,350,000
Problem 10-9
Sigma Company

Answer: The total income tax expense for the year ended June 30, 2021 is amounted to 2,375,000.

Solution:
First quarter 1,000,000 x 30% 300,000
Second quarter 1,500,000 x 30% 450,000
Third quarter 2,500,000 x 25% 625,000
Fourth quarter 4,000,000 x 25% 1,000,000
Income tax 2,375,000

Problem 10-10
Everest Company

Answer: 150,000 is the amount that should be recognized as bad debt expense for the fourth
quarter.

Solution:
First quarter 2,000,000 x 5% 100,000
Second quarter 1,500,000 x 5% 75,000
Third quarter 2,500,000 x 5% 125,000
Bad Debt expense for the first three quarters 300,000

Total Bad Debts Expense 450,000

Bad Debts for the first three quarters 300,000
Bad Debt Expense - Fourth quarter 150,000

Problem 10-11
Snider Company

Answer: In the first quarter ended March 31, 2020, ₱2,335,000 is the amount that should be reported
as total expenses.

Solution:
Variable costs (4M x 25%) ₱1,000,000
Advertising (1.5M / 4) 375,000
Depreciation (600,000 / 10mos.) 60,000
Fixed costs (4M – 1M – 1.5M – 600k) 900,000
Total expenses ₱2,335,000

Problem 10-12
Cambridge Company

Answer:
1. 500,000 is the amount of income should be reported in the first quarter.
2. The amount of income that should be reported in the second quarter is 0.
3. 300,000 is the amount of loss that should be reported in the third quarter.
4. The amount of income that should be reported in the fourth quarter is 0.

Solution:
First quarter (20,000,000 – 15,000,000) x 10% 500,000

Second quarter (20,000,000 – 15,000,000) x 10% 500,000

Less: First quarter balance 500,000 0
 Third quarter (20,000,000 – 19,200,000) x 25% 200,000
Less: First quarter balance 500,000
Third quarter loss 300,000

Fourth quarter (20,000,000 – 19,200,000) x 25% 200,000

Less: Third quarter balance 200,000 0

Problem 10-13
Charmaine Company

Charmaine Company
Income Statement
Three month ended March 31, 2020

Net Sales 25,000,000

Cost of Sales (1) 15,000,000
Gross Profit 10,000,000
Interest Income 150,000
Gross Income 10,150,000

Expenses:
Selling Costs (2) 3,350,000
Administrative Costs (3) 3,050,000 6,400,000
Income before Tax 3,750,000
Income Tax 1,125,000
Net Income 2,625,000

Note 1 – Cost of Sales

Net sales 25,000,000

Gross Profit is 40% of net sales (25,000,000 x 40%) 10,000,000
Cost of Sales 15,000,000
Or
60% of net sales (25,000,000 x 60%) 15,000,000

Note 2 – Selling Costs

Depreciation – selling
[(18M x 1/3) / 10yrs] / 4 quarters 150,000
Distribution costs 3,200,000
Total selling costs 3,350,000

Note 3 – Administrative Costs

Depreciation – administrative
[(18M x 2/3) / 10yrs] / 4 quarters 300,000
Insurance expense
(400,000 / 4 quarters) 100,000
Doubtful Accounts
(1% of 25,000,000) 250,000
Administrative expenses 2,400,000
Administrative costs 3,050,000
 Charmaine Company
Statement of Financial
March 31, 2020

ASSETS
Current Assets Notes
Cash 1,000,000
Receivables (1) 1,900,000
Inventory (2) 3,500,000
Prepaid Insurance (3) 300,000
Total Current Assets 6,700,000

Noncurrent Assets
Notes Receivable 5,000,000
Property, Plant and Equipment (4) 19,050,000
Total Noncurrent Assets 24,050,000

TOTAL ASSETS 30,750,000

LIABILITIES AND SHAREHOLDER’S EQUITY

Liabilities
Accounts Payable 8,500,000
Interest Payable 1,125,000
Total Liabilities 9,625,000

Shareholder’s Equity
Share Capital 5,000,000
Share Premium 4,000,000
Retained Earnings (5) 12,125,000
Total Shareholder’s Equity 21,125,000

TOTAL LIABILITIES AND SHAREHOLDER’S EQUITY 30,750,000

Note 1 – Receivables

Accounts Receivables 2,000,000

Doubtful Accounts (250,000)
Interest Receivable 150,000
Total Receivables 1,900,000

Note 2 – Inventory

Inventory, beg 1,500,000

Purchases 17,000,000
COGAS 18,500,000
Inventory, end (squeeze) 3,500,000
COGS (see income statement) 15,000,000

Note 3 – Prepaid Insurance

Prepaid Insurance 400,000

Expired (100,000)
Total 300,000
Note 4 – Property, Plant and Equipment

Land 1,500,000
Building and equipment 18,000,000
Depreciation (450,000)
Total PPE 19,050,000

Note 5 – Retained Earnings

Retained Earnings, beg. 9,500,000

Net Income 2,625,000
Retained Earnings, end. 12,125,000

Problem 10-14
Dunhill Company

Dunhill Company
Income Statement
Six month ended June 30, 2020

Sales 20,000,000
Cost of sales 11,500,000
Gross profit 8,500,000
Interest income 250,000
Dividend revenue 500,000
Gross Income 9,250,000

Expenses
Distribution Costs 2,500,000
General Expense 1,100,000
Depreciation 700,000
Interest Expense 300,000 4,600,000
Income before Tax 4,650,000
Income Tax 1,300,000
Net Income 3,350,000

Dunhill Company
Income Statement
Six month ended June 30, 2020

Sales 12,500,000
Cost of sales 7,000,000
Gross profit 5,500,000
Interest income 250,000
Dividend revenue 200,000
Gross Income 5,950,000

Expenses
Distribution Costs 1,600,000
General Expense 600,000
Depreciation 300,000
Interest Expense 3200,000 2,700,000
Income before Tax 3,250,000
Income Tax 900,000
Net Income 2,350,000
Problem 10-15
Dakak Company

1. Cost of Goods Sold for each quarter

First Quarter Second Quarter Third Quarter Fourth Quarter

Cost of Goods Sold, beg. (7,000,000) (4,700,000) (4,900,000) (13,400,000)
Inventory Loss (100,000) (150,000)
Gain on reversal 100,000 150,000
Cost of Goods Sold, end. (7,100,000) (4,600,000) (5,050,000) (13,250,000)

2. Gross Income for each quarter.

First Quarter Second Quarter Third Quarter Fourth Quarter
Sales 10,000,000 8,000,000 7,000,000 15,000,000
Cost of Goods Sold (7,100,000) (4,600,000) (5,050,000) (13,250,000)
Gross Profit 2,900,000 3,400,000 1,950,000 1,750,000