CHAPTER 1 STATEMENT OF FINANCIAL POSITION Basic problems Problem 1-1 (IFRS) Darwin Company provided the following information at year-end: Cash 1,500,000 Accounts receivable 1,200,000 Inventory, including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P700,000 1,000,000 Financial asset held for trading 300,000 Equity investment at fair value through other comprehensive income 800,000 Equipment held for sale 2,000,000 Deferred tax asset 150,000 What amount should be reported as total current assets at year-end? a. 6,000,000 b. 4,000,000 c. 6,800,000 d. 4,800,000 Solution 1-1 Answer a Cash i . 1,500,000 Accounts receivable 1,200,000 Inventory . 1,000,000 Financial asset held for trading 300,000 Equipment held for sale 2,000,000 Total current assets 6,000,000 In the absence of statement to the: contrary, equity investment at fair value through other comprehensive income shall be classified as noncurrent asset. Under IFRS, deferred tax asset is a noncurrent asset. Under IFRS, noncurrent asset held for sale is a current asset. Scanned with CamScannerProblem 1-2 (AICPA Adapted) Petite Company reported the following current assets at year-end: Cash 5,000,000 Accounts receivable . 2,000,000 Inventory, including goods received on consignment P200,000 800,000 Bond investment at fair value through other comprehensive income . 1,000,000 Prepaid expenses, including a deposit of P50,000 made on inventory to be delivered in 18 months 150,000 Total current assets 8,950,000 Cash in general checking account 3,500,000 Cash fund to retire 5-year bonds payable 1,000,000 Cash held to pay value added taxes 500,000 Total cash 5,000,000 What total amount of current assets should be reported at year-end? a. 6,750,000 b. 6,700,000 ¢. 7,700,000 d. 7,750,000 Solution 1-2 Answer b Cash =~ (3,500,000 + 500,000) 4,000,000. Accounts receivable a 7 2,000,000 - Inventory ( 800,000 — 200,000) 600,000 Prepaid expenses ( 150,000 - 50,000) 100,000 * Total current assets 6,700,000 The goods received on consignment should be excluded from inventory. The cash fund to be used to retire bonds payable in 2021 should be classified as noncurrent because the bonds mature in more than one year. The bond investment at fair value through other comprehensive income is a noncurrent asset. Scanned with CamScannerProblem 1-3 (AICPA Adapted) Rice Company was incorporated on January 1, 2019 with P5,000,000 from the issuance of share capital and borrowed funds of P1,500,000. During the first year, net income was P2,500,000. On December 15, the entity paid a P500,000 cash dividend. On December 31,2019, the liabilities had increased to P1,800,000. On December 31, 2019, what amount should be reported as total assets? a, 6,500,000 b. 9,300,000 c. 8,800,000 d. 6,800,000 Solution 1-3 Answer c Liabilities 1,800,000 Share capital 5,000,000 Retained earnings (P2,500,000 less dividend P500,000) 2,000,000 Total liabilities and shareholders’ equity 8,800,000 Problein 1-4 (AICPA Adapted) Mirr Company was incorporated on January 1, 2019 with proceeds from the issuance of P7,500,000 in share capital and borrowed funds of P1,100,000. During the first year, revenue from sales and consulting amounted to 8,200,000, and operating costs and expenses totaled P6,400,000. On December 15, 2019, the entity declared a P300,000 dividend, payable to shareholders on Jam 15, 2020. The liabilities increased to P2,000,000 by December 31, 2019. . . On December 31, 2019, what amount should be reported as total assets? a. 11,000,000 b. 11,300,000 c. 10,100,000 d. 12,100,000 Solution 1-4 Answer a Liabilities 2,000,000 Share capital 7,500,000 Retained earnings (8,200,000 — 6,400,000-300,000) _ 1,500,000 Total liabilities and shareholders? equity 11,000,000 3 Scanned with CamScannerProblem 1-5 (AICPA Adapted) Arabian Company reported the following current assets at year-end: a sas Accounts receivable 900, Notes receivable, net of discounted note P500,000 2,000,000 Inventor 4,000,000 Deferred charges 1,000,000 . . 19,400,000 Accounts receivable comprised the following: Trade accounts receivable 5,000,000 Allowance for doubtful accounts ( 500,000) Claim against shipper for goods lost in transit 400,000 Selling price of Arabian Company’s unsold goods sent to Tar Company on consignment at 150% of cost and excluded from Arabian’s ending inventory 3,000,000 7,900,000 What amount should be reported as total current assets at year-end? a. 17,400,000 b. 17,000,000 ¢. 18,400,000 d. 15,400,000 Solution 1-5 Answer a Cash : 4,500,000 Accounts receivable 000,000 Allowance for doubtful accounts ( ~500;000) Notes receivable . 2,000,000 Claim receivable’ ‘400,000 Inventory (4,000,000 + 2,000,000) 6,000,000 Total current assets 17,400,000 The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost of the goods should be included ininventory. The cost of goods out i i ivi or P3000, Bone out on consignment is P3,000,000 divided by 150% The discounted not notes receivable. ‘The deferred charges are noncurrent because technically they expire in more than one year after the reporting period. ae '¢ receivable is properly netted against the total 4 Scanned with CamScannerProblem 1-6 (AICPA. Adapted) © East Company reported the following current assets at year end: Cash | 3,500,000 Accounts receivable 3,000,000 Inventory 2,800,000 Prepaid insurance 200,000 Total current assets : 9,500,000 The accounts receivable consisted of the following: Customers’ accounts 1,400,000 Employees’ account collectible currently 200,000 Advances to subsidiary 500,000 Allowance for doubtful accounts (100,000) Subscription receivable, not collectible currently 1,000,000 Total accounts receivable 3, What total amount should be reported as current assets at year-end? a. 8,000,000 b. 9,500,000 c. 8,500,000 d. 9,000,000 Solution 1-6 Answer a . Cash . 3,500,000 Accounts receivable 1,400,000 Allowance for doubtful accounts ( 100,000) ’ Receivable from employees 200,000 Inventory — 2,800,000 Prepaid insurance 200,000 Total current assets 8,000,000 The advances to subsidiary should be classified as noncurrent.. The subscription receivable should be reported as a deduction from subscribed share capital because it is not collectible currently. Scanned with CamScannerProblem 1-7 (AICPA Adapted) Ivan Company showed the following current assets at year-end: Cash ” 3,200,000 Accounts receivable . 2,500,000 Inventory 2,000,000 Total current assets 7, 10 Cash on hand, including customer postdated check P100,000 and employee IOU P50,000 500,000 Cash in bank per bank statement (outstanding = check at year-end P200,000) 2,700,000 Total cash 3,200,000 What total amount should be reported as current assets? a. 7,700,000 b. 7,450,000 c. 7,400,000 d. 7,500,000 Solution 1-7 Answer d Cash on hand ( 500,000 - 100,000 -50,000) 350,000 Cash in bank 2,500,000 Accounts receivable 2,600,000 Advances to employee. = 50,000 Inventory 2,000,000 Total current assets 7,500,000 Cash in bank per bank statement 2,700,000 Outstanding check 200,000) Adjusted cash in bank 2,500,000 Accounts receivable 2,500,000 Customer postdated check 100,000 Adjusted balance 2,600,000 The customer check should be reverted to accounts receivable. 6 Scanned with CamScannerProblem 1-8 (AICPA Adapted) Gar Company reported the following liability account balances on December 31,2019: Accounts payable 1,900,000 Bonds payable, due December 31, 2020 3,400,000 Discount on bonds payable 200,000 Deferred tax liability . 400,000 Dividends payable ‘ 4 500,000 Income tax payable 900,000 Note payable, due January 31, 2021 600,000 On December 31, 2019, what total amount should be reported as current liabilities? a. 7,100,000 b. 6,700,000 c. 6,500,000 d. 6,900,000 Solution 1-8 Answer c Accounts payable, 1,900,000 Dividends payable 500,000 Income tax payable 900,000 Bonds payable Z 3,400,000 Discount on bonds payable (200,000) Total current liabilities . 6,500,000 Under IFRS, a deferred tax liability is classified as noncurrent. The bonds payable minus the discount on bonds payable should be classified as current because the bonds are due within one year. The dividends payable and income tax payable are normally classified as current. The note payable is classified as noncurrent because it matures in more than one year from the end of reporting period. Scanned with CamScannerProblem 1-9 (AICPA Adapted) Brite Company provided the following information on December 31, 2019: Accounts payable 550,009 Note payable, 8% unsecured, due July 1, 2020 4,000,000 Accrued expenses 350,000 Contingent liability 450,000 Deferred tax liability 250,000 Bonds payable, 7%, due March 31, 2020 5,000,000 Premium on bonds payable 500,000 The contingent liability is an accrual for possible loss ona P 1,000,000 lawsuit filed against the entity. The legal counsel expects the suit to be settled in 2020 and has estimated that the entity will be liable for damages in the range of P450,000 to P750,000. The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2020. What total amount should be reported as current liabilities on December 31, 2019? a. 10,350,000 b. 10,150,000 c. 10,400,000 d. 10,950,000 Solution 1-9 Answer ¢ Accounts payable . 550,000 Note payable 4,000,000 Accrued expenses 350,000 Bonds payable . 5,000,000 Premium on bonds payable 500,000 Total current liabilities 10,400,000 abe contingent liability is only disclosed because it is a possible OSS. Under IFRS, the deferred tax liability is classified as noncurrent tegardless of the reversal period. The bonds payable plus the premium on bonds payable should be classified as current because the bonds are due within one year from the end of Teporting period. 8 Scanned with CamScannerProblem 1-10 (PHILCPA Adapted), Burma Company disclosed the following information: Accounts payable, after deducting debit balances in suppliers’ accounts amounting to P100,000 Accrued expenses 3 Credit balances of customers’ accounts Share dividend payable Claims for increase in wages and allowance by employees of the entity, covered in a pending lawsuit Estimated expenses in redeeming prize coupons 4,000,000 1,500,000 500,000 1,000,000 400,000 600,000 “What amount should be reported as total current liabilities? a. 6,700,000 b. 6,600,000 c. 7,100,000 4. 7,700,000 Solution 1-10 Answer a Accounts payable (4,000,000 + 100,000) Accrued expenses Credit balances in customers’ accounts Estimated liability for coupons Total current liabilities Accounts payable Debit balances in suppliers’ accounts Adjusted accounts payable 4,100,000 1,500,000 500,000 600,000 6,700,000 4,000,000 100,000 4,100,000 The debit balances in suppliers’ accounts are not “netted” against accounts payable but should be reported as current asset. The share dividend payable is not an accounting liability but presented as part of shareholders’ equity as an addition to share capital. ‘Fhe claims for increase in wages and allowance should be disclosed as contingent liability. Scanned with CamScannerProblem 1-11 (AICPA Adapted) Mazda Company reported the following liability balances on December 31,2019: 10% note payable issued on October 1, 2018, maturing October 1, 2020 2,000,000 12% note payable issued on March 1, 2018, maturing on March 1, 2020 4,000,000 The 2019 financial statements were issued on March 31, 2020. Under the loan agreement, the entity has the discretion to refinance the 10% note payable for at least twelve months after December 31, 2019. On March 1, 2020, the entire P4,000,000 balance of the 12% note payable was refinanced through issuance of a long-term obligation payable lump sum. 3 ‘What amount of the notes payable should be classified as current on December 31, 2019? a. 6,000,000 b. 4,000,000 ¢. 2,000,000 d. 0 Solution I-11 Answer b The 10% note payable is classified as noncurrent. PAS 1, paragraph 73, provides that if an entity has the discretion to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility, the obligation shall be classified as noncurrent, even if it would otherwise be due within a shorter period. , The 12% note payable is classified as current. PAS 1, paragraph 72, provides that an obligation that matures within one year from the end of reporting period is classified as current even if it is refinanced on a long-term basis after the reporting period and before issuance of the financial statements. The 12% note payable is refinanced on March 1, 2020 after the end of reporting period on. December 31, 2019 and therefore classified as current. . . 10 Scanned with CamScannerProblem 1-12 (AICPA Adapted) Willem Company reported the following liabilities on December 31, 2019: * Accounts payable 2,000,000 Short-term borrowings 1,500,000 Bonds payable due December 31, 2021 : 3,000,000 Premium on bonds payable 500,000 Mortgage payable, current portion P500,000 3,500,000 Bank loan, due June 30, 2020 1,000,000 ‘The P1,000,000 bank loan was refinanced witha 5-year loanon December 31,2019. The financial statements were issued March 1, 2020. ‘What total amount should be reported as current liabilities on December 31, 2019? 7,500,000 b. 5,000,000 c. 8,500,000 i d. 4,000,000 : a “p Solution 1-12 Answer d Accounts payable és 2,000,000 ‘Short-term borrowings 1,500,000 Mortgage payable — current portion 500,000 Total current liabilities 4,000,000 ‘The bank loan is classified as noncurrent because itis refinanced on December 31, 2019, the end of reporting period. The bonds payable plus the premium on ‘bonds ayabie shouldbe classified as noncurrent because the bonds are due in more than one year from the end of reporting period. ‘i Scanned with CamScannerProblem 1-13 (AICPA Adapted) Ronna Company provided the following information on December 31, 2019: Accounts payable, net of creditors’ debit balances P200,000 2,000,000 Accrued expenses 800,000 Bonds payable due December 31, 2021 4,500,000 Premium on bonds payable “ - 500,000 Deferred tax liability 500,000 Income tax payable 1,100,000 Cash dividend payable 3 600,000 Share dividend payable 400,000 Note payable - 6%, due March 1, 2020 1,500,000 Note payable - 8%, due October 1, 2020 1,000,000 ‘The financial statements for 2019 were issued on March 31, 2020. On December 31, 2019, the 6% note payable was refinanced ona long-term basis. Under the loan agreement, the entity has the discretion to refinance the 8% note payable for at least twelve months after December 31 : 2019, 1. What amount should be reported as total current liabilities?- a. 7,200,000 b. 4,700,000 c. 6,200,000 d. 5,100,000 2. What amount should be reported as total noncurrent liabilities? 8,400,000 5,500,000 8,000,000 . 7,500,000 Boop 2 Scanned with CamScannerSolution 1-13 Question 1 Answer b Accounts payable Accrued expenses Income tax payable Cash dividend payable Total current liabilities Accounts payable Debit balances of creditors Adjusted accounts payable The creditors’ debit balances are not netted against accounts payable but should be reported as current asset. The share dividend payable is part of shareholders’ equity as an addition to share capital. . “Question 2 Answer c Bonds payable 4,500,000 Premium on bonds payable . . 500,000 Deferred tax liability i. 500,000 Note payable — 6% 1,500,000 Note payable — 8% 1,000,000 Total noncurrent liabilities 3,000,000 The 6% note payable is classified as noncurrent because it is refinanced at the end of reporting period on December 31, 2019: The 8% note payable is also classified as noncurrent because the ‘entity has discretion to refinance. The bonds payable plus the premium on bonds payable should be classified as noncurrent because the bonds mature in more than one year from the end of reporting period. 13 Scanned with CamScannerProblem 1-14 (IAA) Manchester Company provided the following information on December 31,2019: Employee income taxes withheld 900,000 Cash balance at First State Bank 2,500,000 Cash overdraft-at Harbor Bank 1,300,000 Accounts receivable with credit balance 750,000 Estimated expenses of meeting warranties : 500,000 Estimated damages as a result of unsatisfactory performance on a contract 1,500,000 Accounts payable 3,000,000 Deferred serial bonas, issued at par and bearing interest at 12%, payable in semiannual installments of P500,000 due April 1 and October 1 of each year, the last bond to be paid on October 1, 2025. Interest is also paid 5,000,000 semiannually. What amount should be reported as total current liabilities on December 31, 2019? a. 8,100,000 b. 7,950,000 c. 9,100,000 d. 7,350,000 Solution 2-14 Answer a - Employee income taxes withheld 900,000 Cash overdraft _ 1,300,000 Accounts receivable with credit balance 750,000 " Estimated warranty liability . 500,000 Estimated damages payable 1,500,000 Accounts payable 3,000,000 Accrued interest on bonds payable from October 1 to : December 31, 2019 (5,000,000 x 12% x 3/12) 150,000 Total current liabilities 8,100,000 The bonds will be paid over 5 years because the semiannual paymentis ' P500,000. Since the last bond will be paid on October 1, 2025, the first bond will be paid on April 1,2021. : Accordingly, there is no currently maturing bond in 2019. Scanned with CamScannerProblem 1-15 (AICPA Adapted) Charice Company provided the following information on December 31,2019: * Accounts payable amounted to P500,000 and accrued expenses totaled P300,000 on December 31, 2019. On December 15,2019, the entity declared a cash dividend of P7 per share dn 100,000 outstanding shares, payable on January 15,2020. On July 1, 2019, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%. The bonds mature on June 30, 2024, and pay interest annually every June 30. The pretax financial income was P8,500,000 and taxable income ‘was P6,000,000. The difference is due to P1,000,000 permanent difference and P1,500,000 of taxable temporary difference to, reverse in 2020. The income tax rate is 30%. The entity made estimated income tax payments during the year of P1,000,000. What amount should be reported as total current liabilities on December 31, 2019? a. 3,500,000 b. 2,700,000 ¢, 2,300,000 d. 2,500,000 Solution 1-15 Answer d : i Accounts payable . 500,000 Accrued expenses 300,000 Dividends payable (100,000 shares x 7) 700,000 Accrued interest payable (5,000,000 x 8% x 6/12) 200,000 Income tax payable ate 800,000 Total current liabilities © . 2,500,000 Current tax expense (6,000,000 x 30%) “4,800,000 Estimated tax payment : (1,000,000) Income tax payable ~ > 800,000 The interest on the bonds payable is payable annually on June 30. _ Thus, there is an accrued interest payable from July 1 to December 31, 2019 or six months. % . 3 15 Scanned with CamScannerProblem 1-16 (AICPA Adapted) United Company provided the following current assets and shareholders’ equity at year-end: . Cash 600,000 Financial assets at fair value through profit or loss, includit it of P300,000 of United Company Accounts receivable 3,500,000 Inventory 1,500,000 Total current assets 6,600,000 Share capital 5,000,000 Share premium 2,000,000 Retained earnings 500,000 Total shareholders’ equity , 7,500,000 What amount should be reported as total shareholders” equity? a. 7,200,000 b. 7,500,000. c. 7,800,000 d. 5,200,000 Solution Ll 6 Answer a Share capital . 5,000,000 Share premium 2,000,000 Retained earnings . 500,000 Treasury shares, at cost (_ 300,000) Total shareholders’ equity 7,200,000 The treasury shares are excluded from financial assets at fair value through profit or loss but should be reported as a deduction from shareholders’ equity, Cash ash 600,000 Financial at assets at fair value (1,000,000 - 300,000) 700,000 Accounts receivable 3,500,000 Inventory 1,500,000 Total current assets 6,300,000 16 Scanned with CamScannerProblem 1-17 (AICPA Adapted) Kalinga Company provided the following information at year-end: Share capital : 15,000,000 Share premium 5,000,000 Treasury shares, at cost 2,000,000 Actuarial loss on defined benefit plan 1,000,000 Retained earnings unappropriated 6,000,000 Retained earnings appropriated 3,000,000 Revaluation surplus 4,000,000 Cumulative translation adjustment — credit 1,500,000 What amount should be reported as total shareholders’ equity? 31,500,000 32,500,000 28,500,000 25,500,000 Bese Solution 1-17 Answer a Share capital 15,000,000 Share premium 5,000,000 Retained earnings unappropriated 6,000,000 Retained earnings appropriated 3,000,000 Revaluation surplus 4,000,000 Cumulative translation adjustment — credit 1,500,000 Actuarial loss on defined benefit plan* * (1,000,000) Treasury shares, at cost (2,000,000) Total shareholders’ equity 31,500,000 The actuarial loss on defined benefit plan is Teported as component of other comprehensive income. The credit in the cumulative translation adjustment account is a _ translationgain reported. aSvomponent of other comprehensive income. Ifthe cumulative translation adjustment account has debit balance, itis atranslation loss. 7 Scanned with CamScannerProblem 1-18 (IAA) Silver Company provided the following information at year-end: Share premium . 1,000,000 Accounts payable 1,100,000 Preference share capjtal, at par 2,000,000 Ordinary share capital, at par 3 3,000,000 Sales 10,000,000 Total expenses 7,300,000 Treasury shares at cost — ordinary 500;000 Dividends 700,000 Retained earnings — beginning 1,000,000 What amount should be'reported asotal shareholders’ equity at year-end? a. 8,000,000 b. 8,500,000 c. 5,800,000 d. 8,700,000 Solution 1-18 Answer a Sales . 10,000,000 Total expenses (7,800,000) Net income ‘ 2,200,000 Retained earnings — beginning . 1,000,000 Dividends (__ 700,000) Retained earnings — ending 2,500,000 Preference share capital 2,000,000 Ordinary share capital 3,000,000 | Share premium 1,000,000 Retained earnings 2,500,000 Treasury shares at cost ( _ 500,000) _ Total shareholders’ equity 8,000,000 18 Scanned with CamScannerProblem 1-19 (AICPA Adapted) Mont Company reported net assets totaling P8,750,000 at year-end which included the following: Treasury shares of Mont Company at cost 250,000 Idle machinery 100,000 Trademark + 150,000 Allowance for inventory writedown 200,000 What amount should be reported as net assets at year-end? 8,500,000 8,400,000 8,300,000 8,200,000 po oP Solution 1-19 Answer a Reported net assets 8,750,000 Treasury shares (250,000) Adjusted net assets + 8,500,000 The treasury shares are not assets but should be deducted from tota! shareholders’ equity. The idle machinery, trademark and allowance for inventory writedown are properly included in the computation of net assets. 19 Scanned with CamScannerProblem 1-20 (AICPA Adapted) Puzzle Company provided the following information at year-end: Cash and cash equivalents 500,000 Accounts receivable, net of allowance P 100,000 2,000,000 Inventory 6,000,000 Property, plant, and equipment at carrying amount —_ 12,000,000 Accounts payable 4,400,000 Wages payable 1,500,000 Share capital 6,000,000 Share premium 4,000,000 The only asset not listed is short-term investment. The only liabilities not listed are a P3,000,000 note payable due in two years and related accrued interest of P100,000 due in four months. The current ratio at year-end is 1.5 to 1.00. 1. Whatis the amount of current liabilities? a. 5,900,000 b. 6,000,000 c. 9,000,000 d.. 8,900,000 2. What is the amount of short-term investment? a. 700,000 b. 400,000 c. 500,000 d °° 3.. Whatis the balance of retained earnings at year-end? 2,000,000 6,000,000 5,000,000 1,500,000 “pegp 20 Scanned with CamScannerSolution 1-20 Question 1 Answer b Accounts payable Wages payable Accrued interest payable Total current liabilities Question 2 Answer c Current liabilities Multiply by current ratio Total current assets Cash and cash equivalents Accounts receivable Inventory =~ Short-term investment Question 3 Answer a Current assets Property, plant and equipment Total assets 7 Current liabilities Note, payable — noncurrent Share capital Share premium Retained earnings 21 Scanned with CamScanner 4,400,000 1,500,000 100,000 6,000,000 6,000,000 ___ 150 9,000,000 ~ ( 500,000), * (2,000,000) (6,000,000) » 500,060 9,000,000 12,000,000 21,000,000 ( 6,000,000) ( 3,000,000) ( 6,000,000) (4,000,000) 2,000,000