CHAPTER 2 STATEMENT OF FINANCIAL POSITION Comprehensive problems Problem 2-1 (AICPA Adapted) Kenya Company provided the following information on December 31, 2019: Cash in bank, net of bank overdraft P500,000 5,000,000 Petty cash, unreplenished petty cash expenses P10,000 50,000 Notes receivable 4,000,000 Accounts receivable, net of customers’ accounts with = credit balances P1,500,000 6,000,000 Inventory 3,000,000 Bond sinking fund 3,000,000 Total current assets 21,050,000 Accounts payable, net of suppliers’ accounts with debit balances of P1,000,000 7.000,006 Notes payable 4,400,000 Bond payable due June 30, 2020 3,000,000 Accrued expenses 2,000,000 Total current liabilities * 16,000,000 1. What amount should be reported as total current assets on December 31,2019? . a. 19,040,000 P b. 20,040,000 : ce. - 20,050,000 d. 24,040,000 2. What amount should be reported as total current liabilities on December 31, 2019? - a 19,000,000 b. 16,000,000 ce. 15,500,000 d. 15,000,000 22 Scanned with CamScannerSolution 2-1 Question ] Answer d Cash in bank (5,000,000 + 500,000) 5,500,000 Petty cash (50,000 — 10,000) 40,000 Notes receivable : * 4,000,000 Accounts receivable (6,000,000 + 1,500,000) 7,500,000 Inventory ° 3,000,000 Bond sinking fund - 3,000,000 Debit balances in accounts payable ? 1,000,000 Total current assets . 24,040,000 The bank overdraft is not netted against the cash in bank but should be classified as current liability. ” The customers’ credit balances are nof netted’against accounts receivable but should be classified as current liability. The bond sinking fund is Classified as current asset because the bond payable is already classified as current liability. The classification of the bond sinking fund should parallel the classification of the related liability. Question 2 Answer a . Bank overdraft 500,000 Credit balances in accounts receivable 1,500,000 Accounts payable (7,000,000 + 1,000,000). 8,000,000 Notes payable Fi 4,000,000 Bond payable . 3,000,000 Accrued expenses : 2,000,000 « Total current liabilities . 19,000,000 The debit balances in suppliers’ accounts are not netted against accounts payable but should be classified as current asset. 23 Scanned with CamScannerProblem 2-2 (AICPA Adapted) Gold Company provided the following trial balance on December 31, 2019: Cash overdraft 100,000 Accounts receivable 350,000 Inventory 600,000 Prepaid expenses 100,000 Land held for sale 1,000,000 Property, plant and equipment 7 950,000 Accounts payable 200,000 Accrued expenses 150,000 Ordinary share capital 1,500,000 Share premium 250,000 Retained earnings 800,000 3,000,000 3,000,000 Checks amounting to P300,000 were written to vendors and recorded on December 29, 2019 resulting ina cash overdraft of P100,000. The checks were mailed on January 15, 2020. Land held for sale was sold for cash on January 31, 2020. The entity issued the financial statements on March 31,2020. 1. What total amount should be reported as current assets? a. 2,250,000 b. 2,050,000 ¢. 1,950,000 \ . d. 1,250,000 2. What total amount should be reported as current liabilities? a. 650,000 b. 500,000 c. 350,000 d. 300,000 3.’ Whatis the total shareholders’ equity? 2,550,000 1,750,000 1,500,000 2,300,000 BOOP 24 Scanned with CamScannerSolution 2-2 Question 1 Answer a Cash Accounts receivable Inventory Prepaid expenses Land held for sale Total current assets The undelivered checks should be adjusted as follows: Cash 300,000 Accounts payable Cash. (overdraft) Debit adjustment Adjusted cash balance asset. Question 2 Answer a Accounts payable Accrued expenses ; 5 Total current liabilities Accounts payable Undelivered checks Adjusted accounts payable Question 3’ Answer a Ordinary share capital Share premium Retained earnings Total shareholders’ equity 25 Scanned with CamScanner 200,000 350,000 600,000 100,000 1,000,000 300,000 (100,000) * 300,000 20 100 Under PFRS 5, the land held for sale should be reported as current 1,500,000 250,000 800,000 2,550,000Problem 2-3 (AICPA Adapted) , Trey Company provided the following trial balance at year-end which had been adjusted except for income tax expense: Cash 1,250,000 Accounts receivable 1,650,000 Prepaid taxes 500,000 Accounts payable 200,000 Share capital 1,000,000 Share premium 500,000 Retained earnings — beginning 1,500,000 Foreign currency translation adjustment 800,000 Revenue 4,000,000 Expenses ~ 3,000,000 7,200,000 7,200,000 During the current year, estimated tax payments of P500,000 were charged to prepaid taxes. The entity has not yet recorded income tax expense. There were no differences between financial and taxable income. The tax rate is 30%. p Included in accounts receivable is P500,000 due from a customer, Special terms granted to this customer require payment in equal semiannual installments of P125,000 every April 1 and October 1. 1. What amount should be reported as tofal current assets at year-end? a. 2,850,000 . b. 2,650,000 c. 2,900,000 . d. 3,100,000 2. What amount should be reported as retained earnings at year-end? a. 3,500,000 b. 2,000,000 c. 2,200,000 d. 1,400,000 26, Scanned with CamScannerSolution 2-3 Question: Answer a Cash Accounts receivable Prepaid taxes Total current assets Accounts receivable Noncurrent portion (125,000 + 125,000) Current portion Entry made Prepaid taxes 500,000 Cash Adjusting entry Income tax expense 300,000 Prepaid taxes Prepayment of income taxes Income tax expense Prepaid taxes — year-end Question 2 Answer c . Revenue Expenses Income before income tax Income tax expense (30% x 1,000,000) Net income Retained earnings — beginning Retained earnings — ending 4 1,250,000 1,400,000 200,000 2,850,000 1,650,000 (_ 250,000) 1,400,000 500,000 300,000 500,000 300,000 200,000 4,000,000 (3,000,000) 1,000,000 300,000: 700,000 1,500,000 2,200, The debit balance in the foreign currency translation adjustment isa component of other comprehensive income and a deduction. from total shareholders’ equity because it isa translation loss, 27 Scanned with CamScannerProblem 2-4 (AICPA Adapted) Mint Company provided the following account balances at year-end which had been adjusted except for income tax expense: Cash 600,000 Accounts receivable 3,500,000 Cost in excess of billings on long-term contracts 1,600,000 Billings in excess of cost on long-term contracts 700,000 peed tis 4 1 oan roperty, plant, and equipment, at carrying amount 7510, Note payable ~ noncurrent 1/620,000 Share capital 750,000 Share premium 2,030,000 Retained earnings unappropriated 900,000 Retained earnings restricted for note payable 160,000 Eamings from long-term contracts 6,680,000 Costs and expenses 5,180,000 All receivables on long-term contracts are considered to be collectible within 12 months. During the year, estimated tax payments of P450,000 ‘were charged to prepaid taxes. The entity has not recorded income tax expense. The tax rate is 30%. At year-end, what amount should be reported as 1. Total retained earnings? * a, 1,950,000 b. 2,110,000 c. 2,400,000 d. 2,560,000 2. Total noncurrent liabilities? a. 1,620,000 b. 1,780,000 c.. 2,320,000 d. 2,480,000 3. Total current assets? a. 5,000,000 b. 4,100,000 ce. 5,700,000 d. 6,150,000 4. Total shareholders’ equity? a. 2,940,000 b. 2,780,000 c. 4,890,000 d. 4,730,000 28 Scanned with CamScannerSolution 2-4 Question 1 Answer b . Earnings from long term contracts 6,680,000 Costs and expenses 3,180,000) Income before income tax 1,500,000 Income tax expense (30% x 1,500,000) (450,000) Net income 1,050,000 Retained earnings unappropriated 900,000 Retained carnings restricted 160,000 Total retained earnings 2,110,000 Question 2 Answer a Note payable-noncurrent 1,620,000 The billings in excess of cost on long term contracts account is a current liability. Question 3 Answer c _ Cash : 600,000 Accounts receivable 3,500,000 Cost in excess of billings on long term contracts 1,600,000 Total current assets 7 5,700,000 ‘The prepaid taxes of P450,000 represent the actual income tax expense for the current year. Thus, there is no prepayment. : Question 4 Answer c Share capital 750,000 Share premium. 2,030,000 Retained earnings 2,110,000 Total shareholders’ equity * 4,890,000 29 Scanned with CamScannerProblem 2-5 (AICPA Adapted) Shaw Company provided the following trial balance on December 31, 2019 which had been adjusted except for income tax expense: Cash 600,000 Accounts receivable 2,800,000 Inventory 2,000,000 Property, plant and equipment (net) 10,500,000 Accounts payable and accrued liabilities Income tax payable Deferred tax liability Share capital Share premium Retained earnings, January 1 Net sales and other revenue Costs and expenses 10,000,000 Income tax expense 2,100,000 i 28,000,000 1,800,000 1,500,000 700,000 2,500,000 3,000,000 3,500,000 15,000,000 28,000,000 The accounts receivable included P1,000,000 due from a customer and payable in quarterly installments of P125,000. The last payment is due December 30, 2021. During the year, estimated tax payment of P600,000 was charged to income tax expense. The income tax rate is 30%. On December 31, 2019, what amount should be reported as 1, . Total current assets? a. 3,400,000 . b. 4,400,000 c. 5,400,000 d. 4,900,000 2. Total currentliabilities? a. 2,700,000 b. 3,300,000 c. 4,050,000 d. 3,450,000 3. Retained earnings? a. 8,500,000 ! b. 6,400,000 .&. 7,000,000 d. 3,500,000 30 Scanned with CamScannerSolution 2-5 Question 1 Answer d Cash - Accounts receivable Inventory Total current assets Accounts receivable Noncurrent portion (125,000 x 4) \Adjusted current portion Question 2 Answer a Accounts payable and accrued liabilities Income tax payable (1,500,000 — 600,000) Total current liabilities Entries made Income tax expense 600,000 Cash Income. tax expense 1,500,000 Income tax payable Adjusting entry : : Income tax payable : 600,000 Income tax expense Question 3 Answer c Net sales and other revenue Costs and expenses Income before income tax Income tax expense (30% x 5,000,000) Net income Retained earnings — January 1 Retained earnings — December 31 31 Scanned with CamScanner 600,000 2,300,000 2,000,000 4,900,000 * 2,800,000 500,000 2,300,000 1,800,000 * 900,000 2,700,000 600,000 1,500,000 600,000 15,000,000 (10,000,000) 5,000,000 (1,500,000) _ 3,500,000 3,500,000 7,000,000Problem 2-6 (AICPA Adapted) Cara Company provided the following, information for the current year: January1 December 31 Current assets 700,000 ? Property, plant, and equipment 3,000,000 4,000,000 - Current liabilities 2 300,000 Noncurrent liabilities 1,000,000 ? Working capital of P600,000 remained unchanged. Net income for the current year was P400,000. No dividends were declared during the year and there were no other changes in shareholders’ equity. 1. What is the amount of current assets on December 31? 900,000 300,000 600,000 450,000 ee sp 2. What is the shareholders’ equity on December 31? 3,000,000 2,600,000 2,700,000 3,700,000 pegs 3. inet is the amount of noncurrent liabilities on December a. 2,200,000 b. 1,100,000 ©. d. 1,600,000 1,900,000 32 Scanned with CamScannerSolution 2-6 Question 1 Answer a Current assets — December 31 (SQUEEZE) Current liabilities December 31 Working capital - December 31 Question 2 Answer a Current assets — January 1 Property, plant and equipment - January 1 Total assets - January | Current liabilities Noncurrent liabilities Shareholders’ equity — January 1 Net income for current year Shareholders’ equity — December 31 Current assets — January 1 Current liabilities - January 1 (SQUEEZE) Working capital - January 1 Question 3 Answer c Current assets - December 31 Property, plant and equipment — December 31 Total assets - December 31 Current liabilities - December 31 Noncurrent liabilities - December 31 (SQUEEZE) Shareholders’ equity - December 31 Scanned with CamScanner 900,000 300,000 600,000 700,000 3,000,000 3,700,000 ( 100,000) (1,000,000) 2,600,000 400,000 3,000,000 700,000 100,000 600,000 900,000 4,000,000 4,900,000 ( 300,000) (1,600,000). 3,000,000Problem 2-7 (IAA) . Goodrich Company provided the following information on December 31,2019: Accounts payable 6,500,000 Bank note payable — 10% 3,000,000 Bank note payable — 11% 5,000,000 Mortgage note payable — 10% 2,000,000 Bonds payable 4,000,000 Be gp The P3,000,000, 10% note was issued March 1, 2019, payable on demand. Interest is payable every six months. The one-year P5,000,000, 11% note was issued January 15, 2019. On December 31,2019, the entity negotiated a written agreement with the bank to replace the note with a 2-year, P5,000,000, 10% note to be issued January 15, 2020. The 10% mortgage note was issued October 1, 2016, with aterm of 10 years. Terms of the note give the holder the right to demand immediate payment if the entity fails to make a monthly interest payment within 10 days from the date the paymentis due. On December 31,2019, the entity is three months behind i making the required interest payment, - The bonds payable are ten-year, 8% bonds, issued June 30,2010. Interest is payable semiannually on June 30 and December 31. . What amount should be reported as total current liabilities? 15,650,000 ‘ 11,650,000 ok 20,650,000 13,650,000 ‘What amount should reported as total noncurrent liabilities? 8,000,000 7,000,000 5,000,000 0 aese 34 Scanned with CamScannerSolution 2-7 Question I Answer a Accounts payable 6,500,000 . Bank note payable — 10% 3,000,000 Accrued interest payable 150,000 Mortgage note payable 2,000,000 Bonds payable — due June 30, 2020 4,000,000 Total current liabilities 15,650,000 The mortgage note payable becomes payable on demand because of failure to make the required interest payment for three months. The bonds mature on June 30, 2020 which is within one year from the end of reporting period. Since the 10% bank note payable was issued on March 1,2019 with interest payable semiannually, the interest payment dates are March. 1 and September 1. Interest accrued on the 10% bank note payable fromi September 1 to December 31, 2019 (3,000,000 x 10% x 4/12) 100,000 Interest accrued on the mortgage note payable (2,000,000 x 10% x 3/12) 50,000 ‘Accrued interest payable — December 31, 2019 150,000 There is no accrued interest on the bonds payable Leones the interest is payable June 30 anal December 3} , Question 2 Answer c Bank note payable — 11% 5,000,000 The 11% bank note payable is classified as noncurrent because it was refinanced on a long-term basis on December 31, 2019, 35 Scanned with CamScannerProblem 2-8 (IAA) Aroma Company provided the following information on December 31, 2019: Cash 300,000 Accounts receivable 800,000 Inventory 1,650,000 Prepaid expenses 250,000 Property, plant and equipment 8,800,000 Accumulated depreciation 800,000 Accounts payable 1,250,000 Accrued expenses 250,000 Bonds payable 4,000,000 Share capital . 5,000,000 Retained earnings 500,000 A P500,000 note payable to bank, due on June 30, 2020, was deducted from the balance on deposit in the same bank. The entity recorded checks of P200,000 in payment of accounts payable on December 31, 2019. These checks were still on hand on. January 20, 2020. An advance payment of P100,000 from a customer for goods to be delivered in 2020 was deducted from accounts receivable. 1. What total amount should be reported as current assets on December 31,2019? 2 a. 3,800,000 b. 3,600,000 c. 3,700,000 d. 3,900,000 "2. What total amount should be reported as current liabilities on December 31,2019? a. 2,100,000 b. 2,300,000 c. 1,900,000 d. 2,200,000 36 Scanned with CamScannerSolution 2-8 Question 1 Answer a Cash 1,000,000 Accounts receivable - 900,000 Inventory . 1,650,000 Prepaid expenses 250,000 Total current assets 3,800,000 Cash 300,000 Note payable deducted from cash in bank 500,000, Undelivered checks 200,000 Adjusted cash balance . 1,000,000 The note payable due June 30, 2020 should be shown as current liability. The undelivered checks should be adjusted by debiting cash and crediting accounts payable. Accounts receivable 800,000 Advance payment from customer erroneously deducted from accounts receivable 100,000 Adjusted carrying amount 900,000 Accounts receivable 100,000 Advances from customer * 100,000 . The cash advance from the customer is shown as current liability. Question 2. Answer b Accounts payable 1,450,000 Accrued expenses 250,000 Note payable-bank . 500,000 Advances from customer 100,000 Total t liabiliti ‘otal current liabilities 2,300,000 Accounts payable Undelivered checks "700,000 Adjusted balance ¢ 1,450,000 37 Scanned with CamScannerProblem 2-9 (AICPA Adapted) Daet Company provided the following account balances and related information at year-end: Cash 3,700,000 Accounts receivable 1,500,000 Allowance for doubtful accounts 200,000 Inventory _ 2,000,000 Prepaid insurance 300,000 Total current assets 7,700,000 Analysis of cash Cash in bank 1,300,000 Bank overdraft in another bank - (300,000) Cash set aside for plant addition 2,000,000. Petty cash fund 10,000 Cash withheld from wages 3 a 190,000 General cash o 500,000 Total cash a 3,700,000 * The accounts receivable included past due account in the amount of P100,000. The account is deemed uncollectible and should be written off. The inventory included goods held on consignment amounting to P150,000 and goods of P200,000 purchased and received at year-end. , Neither of these items have been recorded as a purchase. The prepaid insurance included cash surrender value of life insurance of P50,000. i ; 38 Scanned with CamScanner. What is the adjusted cash balance? 2,000,000 1,700,000 4,000,000 2,300,000 BoP . What is the adjusted balance of accounts receivable? a. 1,200,000 b. 1,400,000 c. 1,300,000 d. 1,500,000 . What is the adjusted inventory? a. 2,200,000 b. 2,000,000 c. 1,850,000 d. 1,600,000 . What total amount should be reported as current assets at year-end? a. 5,400,000 b. 5,100,000 . c. 5,300,000 ‘ . d. 5,200,000 39 Scanned with CamScannerSolution 2-9 Question | Answer a Cash in bank 1,300,000 Petty cash fund 10,000 Cash withheld from wages 190,000 General cash 500,000 Total cash 2,000,000 The bank overdraft is not “netted” but reported as current liability. The cash set aside for plant addition is shown as noncurrent asset, Question 2 Answer b Accounts receivable ‘ 1,500,000 Account to be written off 100,000) Adjusted balance 1,400,000 Allowance for doubtful accounts 200,000 . Account to be written off (100,000) Adjusted balance 100,000 Question 3 Answer c . Inventory ° 2,000,000 Goods held on consignment (150,000) Adjusted balance 4 The goods of P200,000 purchased and received are properly included in inventory. Question 4 Answer a _ Cash 2,000,000 Accounts receivable 1,400,000 Allowance for doubtful accounts , ( 100,000) Inventory ‘ 1,850,000 Prepaid insurance (300,000 — 50,000) 250,000 Total current assets 5,400:000 The cash surrender value is shown as noncurrent asset. 40 Scanned with CamScannerProblem 2-10 (PHILCPA Adapted) Icarus Company provided the following data at, year-end: Cash, - mo, 2,000,000 Accounts receivable 3,000,000 Inventory 1,900,000 Prepaid expenses . 100,000 Accounts payable 2,500,000 Interest payable 150,000 Income tax payable 300,000 Money claim of the union pending final decision 500,000 Mortgage payable, due in four annual installments 2,000,000 Analysis of cash Cash in bank 1,650,000 Customer check marked NSF 100,000 Employee IOU " 50,000 Deposit with court for case under litigation 200,000 Total cash ' ~ Analysis of accounts receivable Customers' debit balances 1,600,000 Advances to subsidiary 400,000 Advances to suppliers 200,000 Advances to officers due currently 300,000 Allowance for doubtful accounts ( 100,000) Selling price of merchandise invoiced at 120% rc of cost undelivered and excluded from inventory Total accounts receivable 1. What amount should be reported as total current assets? a. 6,600,000 b. 6,300,000 c. 6,800,000 d. 6,400,000 2. What amount should be reported as total current Pragint a. 3,450,000 b. 3,400,000 c. 3,950,000 d. 3,700,000 41 Scanned with CamScannerSolution 2-10 Question Answer b Cash in bank x . 1,650,000 Accounts receivable . 1,700,000 Allowance for doubtful accounts ( 100,000) Advances to employee — IOU 50,000 Advances to officers:due currently 300,000 Advances to suppliers uo 200,000 Inventory 2,400,000 Prepaid expenses / 100,000 Total current assets ; 6,300,000 Accounts receivable _ 1,600,000 Customer check marked NSF 100,000 Adjusted balance ~ 1,700,000. The customer check marked NSF should be reverted to accounts receivable. . The cash deposit with court is classified as noncurrent. Inventory 1,900,000 Cost of undelivered inventory (600,000 / 120%) 500,000 Adjusted balance 2,400,000 The selling price of undelivered inventory isexcluded from accounts receivable but the cost should be included in inventory. Question 2 Answer a Accounts payable 2,500,000 Interest payable "150,000 Income tax payable . 300,000 Mortgage payable — current portion (2,000,000/ 4) 50°00 Total current liabilities ‘ * 3,450,000 _ The money claim of the union pending final decision should be disclosed as contingent liability. aR Scanned with CamScanner