Documente Academic
Documente Profesional
Documente Cultură
TEACHERS MANUAL
2015
Edition
By
Table of Contents
CHAPTER 5: CASH TO ACCRUAL................................................................................ 1
CHAPTER 6: CORRECTION OF ERRORS................................................................15
CHAPTER 8: CASH AND CASH EQUIVALENTS ...................................................25
CHAPTER 10: LOANS AND RECEIVABLES ...........................................................46
CHAPTER 12: INVENTORIES .....................................................................................83
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT
IN EQUITY SECURITIES ............................................................................................ 116
CHAPTER 15: INVESTMENT IN DEBT SECURITIES ...................................... 132
CHAPTER 16 INVESTMENT IN ASSOCIATE...................................................... 140
CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT.................................... 154
CHAPTER 19 WASTING ASSETS............................................................................ 180
CHAPTER 20 INVESTMENT PROPERTY ............................................................ 186
CHAPTER 22 INTANGIBLE ASSETS ..................................................................... 188
CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET
HELD FOR SALE ........................................................................................................... 200
450,000
350,000
300,000
400,000
340,000
350,000
10,000
Total
Sales on Account
Add: Cash Sales
Total Gross Sales
1,100,000
1,100,000
300,000
300,000
600,000
Suggested answer: B
PROBLEM 5-2 (Computation of Purchases)
Accounts Payable/Notes payable trade
Payments
Balance end A/P
Balance end N/P
200,000
200,000
140,000
250,000
150,000
165,000
Total
565,000
565,000
Purchase on Account
Add: Cash Purchases
Total Gross Purchases
165,000
500,000
665,000
Suggested answer: A
PROBLEM 5-3 (Computation of Income Other Than Sales)
Rent Receivable/Rent in advance
Beg. Balance - Rent
Receivable
Balance end - Rent in
advance
Rent Income (squeeze)
Total
15,900
14,500
3,600
2,700
130,000
132,300
149,500
149,500
Suggested answer: A
2,200
2,600
1,600
1,800
249,350
248,750
253,150
253,150
Suggested answer: C
PROBLEM 5-5 (Computation of Cost of Machine Acquired and Sold)
Question No. 1
Carrying amount of equipment sold
25,000
Add: Accumulated depreciation
15,000
Cost
40,000
Question No. 2
Equipment
Beg. Balance
Cost of PPE acquired
(squeeze)
100,000
60,000
120,000
40,000
Total
160,000
160,000
Balance end
Cost of PPE disposed
Accumulated depreciation
Balance end
Accumulated depreciation
of PPE disposed
18,000
Total
33,000
15,000
18,000
15,000
Beg. Balance
Depreciation expense
33,000
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 5-6
Question No. 1
Prepaid Insurance
Beg. Balance
Payments
7,500
41,500
6,000
43,000
Total
49,000
49,000
Balance end
Expenses (squeeze)
Question No. 2
Interest Receivable
Beg. Balance
Income (squeeze)
14,500
112,700
3,700
123,500
Total
127,200
127,200
Balance end
Collections
Question No. 3
Salaries payable
Balance end
Payments
61,500
481,000
53,000
489,500
Total
542,500
542,500
Question No. 4
Beg. Balance
Expenses
Beg. Balance
Sales
415,000
1,980,000
550,000
1,845,000
Total
2,395,000
2,395,000
Balance end
Collections (squeeze)
Question No. 5
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000
1,820,000
25,000
Total
2,395,000
2,395,000
Question No. 6
Balance end
Collections (squeeze)
Write-off
Beg. Balance
Sales
Recoveries
415,000
1,980,000
20,000
550,000
1,840,000
25,000
Total
2,415,000
2,415,000
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
5.
Balance end
Collections (squeeze)
Write-off
6.
PROBLEM 5-7
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R
Sales on account
100,000
4,260,000
100,000
10,000
Increase in N/R
Write-off
(squeeze)
4,200,000
30,000
20,000
Total
4,360,000
Question No. 2
Collections
Sales discounts
Sales ret. and allow.
4,360,000
Accounts payable
2,800,000
200,000
Purchase discounts
40,000
2,650,000
Purchase returns
10,000
Total
2,850,000
Question No. 3
Decrease in Accounts
payable
Gross
purchases
(squeeze)
2,850,000
Merchandise inventory
Decrease in Inventory
Gross purchases
25,000
2,650,000
40,000
10,000
2,625,000
Total
2,675,000
2,675,000
Purchase discounts
Purchase returns
Cost of sales (squeeze)
Question No. 4
Rental receivable/Unearned Rent Income
Rental
(squeeze)
revenue
454,000
14,000
40,000
400,000
Total
454,000
Increase
in
Rental
receivable
Decrease in Unearned
rental
Collections from tenants
454,000
Question No. 5
Prepaid interest/Interest Payable
Decrease in
interest
Increase in
payable
Interest paid
Total
Prepaid
5,500
Interest
8,500
114,000
Interest
(squeeze)
100,000
114,000
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
114,000
A
5.
expense
PROBLEM 5-8
Question No. 1
200,000
300,000
1,000,000
250,000
100,000
20,000
10,000
1,120,000
1,500,000
1,500,000
Total
Question No. 2
Accounts payable/Notes payable
Balance end A/P
Balance end N/P
Purchase returns
allow
Purchase discount
Payments
and
Total
25,000
75,000
40,000
50,000
100,000
650,000
10,000
650,000
800,000
800,000
Gross purchases
Less: Purchase ret and allow
Purchase discounts
Net Purchases
650,000
40,000
10,000
Question No. 3
Sales
Less: Sales ret and allow
Sales discounts
Net Sales
Less: Cost of Sales
Merchandise inventory beg.
Add: Net Purchases
Purchases
Add: Freight-in
Gross Purchases
Less: Purch. Ret and allow
Purchase discounts
Total goods available for sale
Less: Merchandise inventory, end
Gross Income / Gross Profit
50,000
600,000
20,000
10,000
1,000,000
30,000
970,000
200,000
600,000
650,000
40,000
10,000
600,000
800,000
100,000
700,000
270,000
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
100,000
125,000
50,000
75,000
350,000
300,000
Total
500,000
500,000
Question No. 5
70,000
40,000
40,000
80,000
490,000
300,000
600,000
600,000
4.
5.
PROBLEM 5-9
Question No. 1
Accounts receivable trade
Beg. Balance
Recoveries
Sales (squeeze)
200,000
8,000
1,570,000
300,000
20,000
1,408,000
50,000
Total
Sales
Less: Sales discount
Net Sales
Question No. 2
Payment (1,210,00020,000+30,000)
Purchase ret. and allow.
Balance end
1,778,000
Balance end
Sales discounts
Collections
including
recoveries (1,498,00080,000+20,00-30,000)
Accounts written-off
1,778,000
1,570,000
20,000
1,550,000
Accounts payable trade
1,210,000
10,000
100,000
150,000
1,170,000
Beg. Balance
Purchases (squeeze)
Total
1,320,000
Purchases
Less: Purchases discount
Net Purchases
1,320,000
1,170,000
10,000
1,160,000
Question No. 3
Merchandise inventory
Beg. Balance
Net
Purchases
(1,170,000-10,000)
380,000
1,160,000
330,000
1,210,000
Total
1,540,000
1,540,000
Balance end
Cost of Sales (squeeze)
Question No. 4
Rent Receivable
Beg. Balance
Rent income (squeeze)
70,000
130,000
80,000
120,000
Total
200,000
200,000
Balance end
Collections
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
50,000
30,000
20,000
52,000
8,000
Total
80,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
Beg. Balance
Doubtful
account
expense(squeeze)
Recoveries
80,000
5.
fees
500,000
5,250,000
750,000
5,000,000
5,750,000
5,750,000
Balance end
Collections
Question No. 2
Professional Fees (See No. 1)
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000)
Other operating expense
Interest expense (1M x 12% x 9/12)
Depreciation expense (2,500,000/10)
Net income
Question No. 3
Cash
Accounts Receivable
Supplies
Total Current Assets
1,300,000
850,000
750,000
90,000
250,000
3,240,000
2,010,000
1,500,000
750,000
250,000
2,500,000
Question No. 4
Furniture and fixtures
Less: Accumulated Depreciation
(125,000 + 250,000)
Total Noncurrent Assets
375,000
2,125,000
Question No. 5
Total current assets (See No. 3)
Total noncurrent assets (See No. 4)
Total Assets
2,500,000
2,125,000
4,625,000
2,500,000
Question No. 6
Notes Payable
Accrued rent
Accrued interest on notes payable
(1,000,000 x 12% x 9/12)
Total Current Liabilities
1,000,000
100,000
90,000
1,190,000
Question No. 7
Total assets (See No. 5)
Less: Total liabilities (See No. 6) all are
current
Total Owners Equity
SUMMARY OF ANSWERS:
1. B
2. B
3. A
5,250,000
4.
4,625,000
1,190,000
3,435,000
5.
6.
7.
PROBLEM 5-11
Question No. 1
Beg. Balance
Sales on account
(squeeze)
124,000
1,535,000
146,000
13,000
1,500,000
Total
1,659,000
1,659,000
Balance end
Sales discount
Collections
Sales on account
Add: Cash sales
Total sales
1,535,000
160,000
1,695,000
Question No. 2
Gross sales (see No. 1)
Less: Sales discount
Net sales
1,695,000
13,000
1,682,000
Question No. 3
Accounts Payable
Payments
Balance end
1,206,000
410,000
382,000
1,234,000
Total
1,616,000
1,616,000
Purchases on account
Add: Cash purchases
Total Purchases
Beg. Balance
Purchases (squeeze)
1,234,000
120,000
1,354,000
Question No. 4
Merchandise Inventory
Beg. Balance
Net purchases
186,000
1,354,000
190,000
1,350,000
Total
1,540,000
1,540,000
Question No. 5
Balance end
Cost of sales (squeeze)
9,600
8,400
9,000
7,000
204,000
207,200
222,600
222,600
Question No. 6
General and administrative expense (see No. 5)
Depreciation expense
Warranty expense
Total operating expense
207,200
84,000
6,400
297,600
Question No. 7
Selling price of land
Less: Book value of land
Gain on sale of land
20,000
16,000
4,000
Question No. 8
Selling Price
Less Book value
Cost
Less: Accumulated depreciation
Gain on sale of warehouse equipment
12,000
25,000
16,000
Question No. 9
Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Gain on sale of boiler
42,000
48,000
20,000
Question No. 10
Net Sales
Less: Cost of Sales
Gross Profit
Less: Operating expenses
Gain on sale (14,000+3,000+4,000)
Net income
SUMMARY OF ANSWERS:
1. B
2. C
3. D
6. A
7. A
8. C
9,000
3,000
4.
9.
A
B
28,000
14,000
1,682,000
1,350,000
332,000
297,600
21,000
55,400
5.
10.
B
A
150,000
800,000
200,000
10,000
740,000
Total
950,000
950,000
10
Balance end
Sales returns
Collections
Question No. 2
Sales on account
Add: Cash sales
Total sales
Less: Sales returns and allowances
Net sales
Less: Cost of sales (squeeze)
Gross profit (200,000/40%)
800,000
100,000
900,000
10,000
890,000
390,000
500,000
Merchandise inventory
Beg. Balance
Net Purchases (squeeze)
190,000
420,000
220,000
390,000
Total
610,000
610,000
Balance end
Cost of Sales
Question No. 3
Accounts Payable trade
Payments (squeeze)
Purchase returns and
allowances
Balance end Accounts
payable
Total
470,000
230,000
8,000
428,000
180,000
658,000
658,000
Question No. 4
Total payment of Accounts payable and admin expenses
Less: Payment of Accounts payable
Payment of admin expenses
Question No. 5
Payment of admin expenses
Divided by: Percentage of cash expenses to total admin
expense
Total admin expenses
Add: Selling expenses
Total selling and administrative expense
Question No. 6
Total administrative expenses
Less: Payment of administrative expense
Non-cash administrative expenses
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12)
11
518,000
470,000
48,000
48,000
80%
60,000
200,000
260,000
60,000
48,000
12,000
9,000
4.
3,000
6/12
6,000
10%
60,000
5.
6.
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance
Sales
on
(squeeze)
account
800,000
930,000
700,000
30,000
1,000,000
Total
1,730,000
Balance end
Sales
returns
allowances
Collections
and
1,730,000
Sales
Less: Sales returns and allowances
Net sales
900,000
30,000
900,000
Question No. 2
Merchandise inventory
Beg. Balance
Net Purchases (484,000
50,000)
150,000
434,000
144,000
440,000
Total
584,000
584,000
Balance end
Cost of Sales
394,000
50,000
200,000
160,000
484,000
Total
644,000
644,000
12
Beg. Balance
Purchases
400,000
144,000
150,000
394,000
Question No. 3
Prepaid Interest/Accrued Interest
Beg. Balance - Prepaid
Interest
Balance end - Accrued
Interest
Interest payments
10,000
14,000
17,000
15,000
40,000
38,000
Total
67,000
67,000
200,000
2,000
198,000
22,000
19,000
18,000
20,000
49,000
50,000
89,000
89,000
Question No. 5
Net sales (see No. 1)
Less: Cost of sales (see No. 2)
Gross income
Less: Operating expense (including interest expense of P38,000)
Add: Rent Income
Net Income
SUMMARY OF ANSWERS:
1. A
2. D
3.
4.
5.
900,000
440,000
460,000
198,000
49,000
311,000
PROBLEM 5-14
Question No. 1
Accounts receivable/Notes Receivable
Beg. Balance A/R
Beg. Balance N/R
Sales on account
(squeeze)
1,600,000
400,000
5,660,000
2,000,000
1,200,000
3,000,000
1,000,000
100,000
300,000
60,000
Total
7,660,000
7,660,000
13
Sales on account
Add: Cash sales
Total Sales
5,660,000
800,000
6,460,000
Question No. 2
Accounts payable/Notes payable
Balance end N/P
Balance end A/P
Payments of A/P
Payments of N/P
Purchase discount
500,000
1,000,000
1,500,000
1,300,000
80,000
700,000
1,200,000
Total
4,380,000
4,380,000
2,480,000
Purchases on account
Add: Cash purchases
Total purchases
Question No. 3
2,480,000
600,000
3,080,000
Balance end
Interest paid
40,000
100,000
80,000
60,000
Total
140,000
140,000
Beg. Balance
Interest
(squeeze)
expense
Question No. 4
Unearned rent income
Balance end
Rent income (squeeze)
40,000
240,000
120,000
160,000
Total
280,000
280,000
Question No. 5
Beg. Balance
Collections from tenants
Merchandise inventory
Beg. Balance
Purchases (see No. 2)
1,600,000
3,080,000
1,000,000
80,000
3,600,000
Total
4,680,000
4,680,000
SUMMARY OF ANSWERS:
1. A
2. A
3.
4.
14
Balance end
Purchase discount
Cost of sales (squeeze)
5.
Existing data:
Omission of deferred expense
The entire amount was debited to asset
account and no adjustment was made
at the end of 2015.
109
110
Additional information # 4
Accrued interest receivable of P8,000
was
110
111
112
113
Requirement No. 1
Total 2015 Adjusted Income 399,000
114
Requirement No. 1
Total 2015 Adjusted Income 345,000
117
15
Change to:
Unadjusted
balances
1
2
Adjusted
balances
2016
Net
income
Workin
g capital
RE, end
of the
year
Net
income
Workin
g capital
RE, end
of the
year
100,000
-
300,000
-
100,000
-
150,000
-
400,000
-
250,000
-
100,000
300,000
100,000
150,000
400,000
250,000
Question No. 7
Assuming errors were discovered in 2015
ADJUSTING ENTRIES
Debit
1) Interest expense
20,000
Rent expense
2)
Accounts receivable
Notes receivable
30,000
Accounts receivable
Notes receivable
Credit
30,000
30,000
20,000
30,000
Credit
Accounts receivable
Notes receivable
30,000
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
5.
Credit
30,000
6.
Unadjusted
balances
1
2
3
4
Adjusted
balances
Net
income
2015
Workin
g capital
R/E
Net
income
2016
Workin
g capital
100,000
(10,000)
15,000
6,000
(16,000)
300,000
(10,000)
15,000
6,000
(16,000)
100,000
(10,000)
15,000
6,000
(16,000)
150,000
10,000
(15,000)
(6,000)
16,000
400,000
-
250,000
95,000
295,000
95,000
155,000
400,000
250,000
16
R/E
Question No. 7
A. Errors were discovered in 2015
ADJUSTING ENTRIES
1) Rent expense
Rent payable
2)
Debit
10,000
Credit
10,000
Interest receivable
Interest income
15,000
3)
Prepaid insurance
Insurance expense
6,000
4)
Rent revenue
Unearned rent revenue
15,000
6,000
16,000
16,000
Interest income
Retained earnings
15,000
Insurance expense
Retained earnings
6,000
Retained earnings
Rent revenue
16,000
15,000
6,000
16,000
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
5.
6.
Unadjusted
balances
1
2
3
Adjusted
balances
Net
income
2015
Workin
g capital
R/E, end
Net
income
2016
Workin
g capital
R/E, end
100,000
(50,000)
70,000
20,000
300,000
(50,000)
70,000
20,000
100,000
(50,000)
70,000
20,000
150,000
50,000
(70,000)
(20,000)
400,000
-
250,000
-
140,000
340,000
140,000
110,000
400,000
250,000
17
Question No. 7
A. Errors were discovered in 2015
ADJUSTING ENTRIES
1) Purchases
Accounts payable
2)
3)
Debit
50,000
Credit
50,000
Accounts receivable
Sales
70,000
Inventory
Cost of sales
20,000
70,000
20,000
Sales
Retained earnings
70,000
7,000
Inventory, beginning
Retained earnings
6,000
6,000
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
5.
6.
Unadjusted
balances
1.
2.
3.
4.
5.
6.
Adjusted
balances
Net
income
Workin
g capital
100,000
(18,000)
32,000
(12,000)
160,000
(25,000)
4,000
(20,000)
300,000
(18,000)
32,000
-
221,000
314,000
2016
RE, end
of the
year
RE, end
of the
year
Net
income
Workin
g capital
100,000
(18,000)
32,000
(12,000)
160,000
(25,000)
4,000
(20,000)
150,000
(6,000)
16,000
(40,000)
4,000
400,000
(24,000)
48,000
-
250,000
(24,000)
48,000
(12,000)
120,000
(25,000)
8,000
(20,000)
221,000
124,000
424,000
345,000
18
Question No. 7
A. Errors were discovered in 2015
ADJUSTING ENTRIES
1) Insurance expense
Prepaid insurance
2)
Debit
18,000
18,000
32,000
3)
Depreciation expense
Accumulated depreciation
12,000
4)
Building improvements
Repairs expense
5)
6)
32,000
12,000
200,000
200,000
Depreciation expense
Accumulated depreciation
40,000
Other income
Accumulated depreciation
Loss on sale
Building
20,000
15,000
5,000
Repairs expense
Building
20,000
40,000
40,000
20,000
Accumulated depreciation
Depreciation expense
4,000
4,000
Debit
18,000
6,000
2)
48,000
3)
Retained earnings
Accumulated depreciation
12,000
4)
Building improvements
Retained earnings
5)
Credit
Credit
24,000
32,000
16,000
12,000
200,000
200,000
Depreciation expense
Retained earnings
Accumulated depreciation
40,000
40,000
Retained earnings
Accumulated depreciation
Building
25,000
15,000
80,000
40,000
19
6)
Retained earnings
Building
20,000
20,000
Accumulated depreciation
Retained earnings
Depreciation expense
C.
8,000
4,000
4,000
Debit
24,000
2)
48,000
Retained earnings
Accumulated depreciation
12,000
3)
4)
5)
6)
24,000
48,000
12,000
Building improvements
Retained earnings
200,000
200,000
Depreciation expense
Retained earnings
Accumulated depreciation
40,000
80,000
Retained earnings
Accumulated depreciation
Building
25,000
15,000
Retained earnings
Building
20,000
120,000
40,000
20,000
Accumulated depreciation
Retained earnings
SUMMARY OF ANSWERS:
1. A
2. A
3. A
Credit
4.
8,000
5.
8,000
6.
1) MI over, NI over
MI under, NI under
2) Purchases over, NI under
3) Sales over, NI over
4) Expenses over, NI under
Depreciation exp under, NI over
20
20,000
5,000
(45,000)
Computation of loss:
Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Loss on sale
32,000
20,000
40,000
15,000
Questions No. 4
Effect of errors to Retained Earnings in 2015
Understatement to 2014 net income
Overstatement to 2015 net income
Net understatement to 2015 retained earnings
Questions No. 5
ADJUSTING ENTRIES
1) Retained earnings, beg
Merchandise inventory, beg
Merchandise inventory, end
Cost of Sales
2)
3)
4)
5)
25,000
(5,000)
45,000
32,000
13,000
Debit
10,000
Credit
10,000
8,000
Purchases
Retained earnings
Advances supplier
Purchases
20,000
20,000
Sales
Advances customers
70,000
40,000
8,000
20,000
40,000
20,000
Depreciation expense
Improvements
Accumulated depreciation
Retained earnings
20,000
100,000
Accumulated depreciation
Retained earnings, beg
Equipment
SUMMARY OF ANSWERS:
1. A
2. A
3. A
22,000
70,000
40,000
80,000
15,000
25,000
40,000
4.
21
5.
(6,000)
2015
Net
Workin
Income
g capital
(6,000)
(11,000)
4,500
(5,000)
(5,000)
R/E
6,000
10,000
10,000
10,000
(11,000)
(7,000)
(7,000)
(4,500)
7,500
7,500
7,500
5,000
(12,000)
(12,000)
(12,000)
(3,000)
(3,000)
(3,000)
4,500
12/31/2
015
1,200
1,200
(1,200)
(16,300)
5,300
800
2,500
(15,500)
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
22
5.
PROBLEM 6-7
Questions Nos. 1, 2 and 4
1
2
3
4
5
6
7
Unadjusted balances
Overstatement of ending inventory - 2013
Understatement of ending inventory 2015
Understatement of accrued expense - 2013
Overstatement of accrued exp.
Understatement of Depreciation Expense
Overstatement of Depreciation Expense
Overstatement of Purchases
2013
2014
Overstatement of other income
Correct gain
20,000
Less: Per record
5,000
Adjusted balances
2013
3,000,000
(120,000)
2014
(1,000,000)
120,000
(40,000)
40,000
210,000
90,000
(180,000)
30,000
30,000
(30,000)
2,870,000
40,000
(40,000)
(15,000)
(1,025,000)
3,790,000
20,000
40,000
25,000
2015
3,500,000
2,870,000
(1,025,000)
1,845,000
3,790,000
5,635,000
4.
PROBLEM 6-8
Question No. 1
Entry made:
Cash
Equipment
5.
15,000
5,000
No. 3
No. 5
Debit
30,000
Credit
30,000
Depreciation expense
Accumulated depreciation (70,000 x 10%)
23
7,000
7,000
Should be entry:
Cash
Accumulated depreciation
Loss on sale
Equipment
Debit
30,000
60,000
10,000
Debit
67,000
3,000
Credit
70,000
Credit
70,000
Unadjusted
balances
Exp over, NI
under, WC
under
2013
2014
2015
Income over,
WC over:
2013
2015
EI under, NI
under, WC
under:
2013
2014
EI over, NI
over, WC
over
Loss under,
NI over
Depreciation
exp. Over, NI
under
Adjusted bal.
2013
Workin
Net
g
income
capital
Over/
600,000 (under)
1,000
(2,000)
10,000
2014
Net
income
(1,000)
2,000
700,000
Working
capital
Over/
(under)
(1,000)
1,500
(1,500)
2015
Workin
Net
g
income
capital
Over/
800,000 (under)
(1,500)
600
(600)
(3,000)
3,000
2,000
(10,000)
(10,000)
20,000
(20,000)
(20,000)
(25,000)
25,000
751,100
(6)
27,400
(7)
(10,000)
609,000
(2)
7,000
709,500
(4)
(9,000)
(3)
SUMMARY OF ANSWERS:
1. A
2. A
3. D
4.
24
(21,500)
(5)
5.
6.
7.
Existing data:
1. Customers NSF check returned by
bank in January and redeposited in
February (no entry in January and
February), P 3,400
181
Requirement No. 2
Erroneous bank charge October
7,000
Erroneous bank charge November
18,000
182
Beg
(3,400)
Change to:
Rec. Disb.
3,400
End
50,000
320,000
20,000
1,000
P 391,000
Suggested answer: B
PROBLEM 7-2 Cash and Cash Equivalents
Reported cash and cash equivalents
Certificate of deposits with maturity of 120 days
Postdated check
Compensating balance legally restricted
Adjusted cash and cash equivalents
6,325,000
(500,000)
(125,000)
(500,000)
P5,200,000
Suggested answer: C
PROBLEM 7-3 Cash and Cash Equivalents
Bills and coins on hand
Travelers check
Petty cash excluding paid cash vouchers of P1,650
Money order
Checking Account Balance in Bank of Philippine Island
Total
Suggested answer: D
25
P 52,780
22,400
350
800
22,000
P 98,330
80,000
200,000
(30,000)
3,600,000
P 3,850,000
Amount
P 600,000
1,000,000
2,000,000
Suggested answer: A
PROBLEM 7-5 Cash and Cash Equivalents
Cash in bank checking account
Cash in bank payroll account
Cash on hand
Treasury bills, purchased December 15, 2013 and
due March 15, 2014
Unreleased checks
Postdated checks
Cash and cash equivalents
5,000,000
1,000,000
500,000
2,000,000
100,000
( 200,000)
P8,400,000
Suggested answer: B
PROBLEM 7-6 Cash and Cash Equivalents
Petty cash fund (70,000-15,000-5,000)
Current account Metro Bank (4,000,000+100,000)
Cash and cash equivalents
Suggested answer: C
PROBLEM 7-7 Effective Interest Rate
SOLUTION:
Question No. 1
Let X = Principal amount of the loan
Principal
X
Less: Compensating balance
5%X
Add: Current balance
50,000
Amount needed
P3,375,000
26
50,000
4,100,000
P4,150,000
X-.05X+50,000
.95X
.95X/.95
X
=
=
=
=
3,375,000
3,375,000-50,000
3,325,000/.95
3,500,000
Question No. 2
Annual interest payment (3,500,000 x 12%)
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%]
Effective interest
Divide by loan proceeds (3,500,000-175,000)
Effective interest rate
Suggested answers:
1. C
420,000
5,000
415,000
3,375,000
12.30%
2. C
27
3,000
450
3,800
7,250
3,000
450
650
160
400
600
240
200
3,800
1,200
500
11,200
10,000
500
Debit
650
160
400
600
240
200
2)
Unused stamps
Postage
50
3)
700
4)
Advances to employees
Petty cash fund
1,200
10,500
700
Credit
2,250
50
700
1,200
17,000
18,000
P 35,000
Suggested answer: C
PROBLEM 7-10 Bank Reconciliation
Unadjusted balances
Outstanding check, net of certified checks
Deposit in transit (Undeposited collections)
Book error disbursement for utilities
Note charged by the bank, including interest
Bank service charge
Erroneous bank credit
NSF check
Adjusted balance
28
Bank
P126,300
(12,300)
7,850
(5,670)
P116,180
Book
P123,310
360
(6,500)
(240)
(
750)
P116,180
3)
4)
Notes payable
Interest expense
Cash
6,000
500
6,500
240
Accounts receivable
Cash
750
240
750
Oct. 31
18,005
1,790
Receipts
17,709
(500)
(1,790)
3,600
Disb
25,620
Nov. 30
10,094
(500)
3,600
(6,681)
13,114
19,019
(6,681)
2,628
21,567
11,534
1,600
18,269
21,575
22
35
8,228
1,600
750
(665)
(20)
(22)
(35)
(1,000)
1,000
270
21,567
(270)
10,566
750
665
(20)
(2,628)
10,566
148
150
13,114
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
19,019
29
5.
P 400,000
5,000
36,000
27,000
16,000
P 360,000
6,000
2,500
1,000
P 50,000
348,000
398,000
350,500
P 47,500
Suggested answer: A
PROBLEM 7-13 Outstanding Checks
Outstanding checks, beg (squeeze)
Add: Book credits for the month
Less: Error in recording
Service charge recorded
Total
Less: Bank debits for this month
Less: NSF check returned
DM for this month
Outstanding checks, end
P 85,800
1,800
30
P 97,650
2,300
3,000
P 12,880
83,970
96,850
92,350
P 4,500
Suggested answer: A
PROBLEM 7-14 Proof of Cash
Question No. 2
Deposit in transit, beg
Add: Book debits for the month
Less: CM recorded this month
Total
Less: Bank debits for this month
Less: CM for this month
Erroneous bank credit - Oct
Erroneous bank debit - Sep
Deposit in transit, end
30
P 151,230
1,500
P 149,951
4,277
3,000
600
P 5,200
149,730
154,930
142,074
P 12,856
Question No. 3
Outstanding checks, beg (squeeze)
Add: Book credits for the month
Less: DM recorded (526+50)
Total
Less: Bank debits for this month
Less: Erroneous bank debits-Oct
Erroneous bank credits-Sep
DM for this month (700+65)
Outstanding checks, end
P 8,007
P 111,423
576
P 110,098
900
1,000
765
110,847
118,854
107,433
P 11,421
Receipts
149,951
Disb.
110,098
(5,200)
12,856
12,856
(8,007)
11,421
(1,000)
(11,421)
(900)
900
111,612
169,748
(3,000)
(600)
154,007
30-Sep
**126,429
Receipts
151,230
(3,000)
Disb.
111,423
31-Oct
166,236
(50)
(50)
65
(65)
(526)
(526)
700
(600)
111,612
4,277
169,748
1,500
(1,500)
4,277
154,007
127,353
*(166,236+111,423-151,230)
SUMMARY OF ANSWERS:
1. B
2. A
3. B
31-Oct
*170,413
4.
31
5.
100,000
2,500,000
2,600,000
2,200,000
400,000
Question No. 2
Deposits in transit, beg
Add: Deposits made
Total
Less: Deposits acknowledged by the bank
Deposits in transit, end
300,000
1,800,000
2,100,000
1,600,000
500,000
Question No. 3 to 5
BANK
31-May
Receipts
Unadjusted bal - bank
2,600,000 *2,190,000
Deposit in transit:
May 31
300,000
(300,000)
June 30
500,000
Outstanding checks:
May 31
(100,000)
June 30
Erroneous bank credit
(60,000)
Erroneous bank charge
40,000
(40,000)
Adjusted balances
2,780,000 2,350,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
BOOK
Unadjusted bal - book
Bank service charge:
May 31
June 30
CM for collection:
May 31
June 30
NSF checks - June 30
Adjusted balances
31-May
2,190,000
Disb.
**2,410,000
500,000
Receipts
***2,400,000
(100,000)
400,000
(60,000)
(400,000)
2,650,000
2,480,000
Disb.
2,500,000
30-Jun
2,090,000
50,000
(10,000)
(50,000)
100,000
2,650,000
550,000
(100,000)
2,480,000
(10,000)
600,000
(600,000)
550,000
2,780,000
2,350,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
32
5.
30-Jun
2,380,000
P 16,250
P128,750
2,500
P 133,750
3,750
Question No. 2
Deposit in transit, beg
Add: Deposits made by the company
Total
Less: Deposits acknowledged by the bank
Deposit in transit, end
130,000
P 12,500
P 12,500
152,500
165,000
145,000
P 20,000
Question No. 3
Unadjusted cash in bank balance per ledger
Add: Under-footing of cash receipts
Total
Less: Unrecorded bank service charges
(3,250 +1,500-2,500)
Adjusted cash in bank balance, 12/31
Question No. 4
Bank service charges per
bank statement in December
Less: Bank service charge in December
recorded in December
Total BSC recorded in the books Dec
Less: BSC in Nov. recorded in Dec.
Unrecorded BSC charge in December
126,250
142,500
P 37,500
2,500
40,000
2,250
P 37,750
P 3,250
P 2,500
1,500
1,000
P 2,250
Question No. 5
Unadjusted cash in bank, November (squeeze)
Add: Book Receipts (152,500 - 2,500)
Total
Less: Book disbursements
Unadjusted cash in bank, December
P 16,250
150,000
166,250
128,750
P 37,500
P 16,250
1,500
P 14,750
SUMMARY OF ANSWERS:
1. C
2. D
3. C
4.
33
5.
P 128,384
1,364,858
1,839,744
P3,332,986
1,330,882
1,712,892
750
P 288,462
Question No. 2
Outstanding check, Aug. 31
Add: Checks paid by the bank
Bank debits except serv. charge
Less: Erroneous bank charge
DM on Interest on note
Total
Less: Checks issued by the company
this August
Outstanding check, July 31
P
P1,702,830
1,166
4,950
67,122
1,696,714
P1,763,836
1,712,892
P 50,944
Questions No 3 to 5
BANK
Unadjusted balances
Outstanding checks
July 31
August 31
Deposit in transit
July 31
August 31
Erroneous bank charge
Adjusted Balances
(*1,702,830 + 88)
BOOK
Unadjusted balances
Error in recording check
no. 216 taken up as
P1,930 but should be
P1,390 (1,930-1,390)
DM for int. on note
Bank service charge
July 31
August 31
NSF for July 31
Adjusted balances
**(1,712,892+750)
31-Jul
180,250
Receipts
1,830,752
( 50,944)
32,844
162,150
31-Jul
P162,360
( 32,844)
41,836
1,839,744
Receipts
P1,839,744
Disb.
*1,702,918
Aug. 31
308,084
( 50,944)
67,122
( 67,122)
( 1,166)
1,717,930
41,836
1,166
283,964
Disb.
**P1,713,642
Aug. 31
P288,462
540
4,950
(
52)
(
698)
P162,150
540
4,950)
P1,839,744
34
52)
88
(
698)
P1,717,930
(
(
88)
P283,964
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
5.
Nov. 30
90,800
P 50,900
165,000
8,000
223,900
98,000
100
P 125,800
December
Receipts
Disb.
171,272
99,072
(
472)
Dec. 31
163,000
( 472)
( 1,500)
5,000
1,500
( 5,000)
8,000
( 5,000)
8,000
150
( 150)
( 7,700)
164,650
125,800
90,800
173,800
( 5,000)
7,700
99,950
50,900
173,000
98,100
1,800
1,800
27,000
5,000
27,000
5,000
( 100)
8,000
90,800
35
( 100)
150
(8,000)
7,000
173,800
99,950
150)
7,000
164,650
SUMMARY OF ANSWERS:
1. B
2. D
3. D
4.
5.
P 8,000
P 148,000
2,500
P 150,000
2,000
3,000
1,500
145,500
153,500
147,500
P 6,000
Question Nos. 2 to 5
BANK
Unadj. balance - bank
Undeposited collections:
September 30
October 31
Outstanding checks:
September 30
October 31
Paid out in currency
Adjusted balances
Sept. 30
100,000
Receipts
200,000
5,000
(5,000)
7,000
BOOK
Unadj. balance - book
Customers notes
collected:
September 30
October 31
Bank service charge:
September 30
October 31
Adjusted balances
(8,000)
Disb.
150,000
Oct. 31
150,000
7,000
97,000
2,000
201,000
(8,000)
6,000
2,000
147,000
151,000
Sept. 30
91,500
Receipts
196,000
Disb.
148,000
Oct. 31
139,500
8,000
(8,000)
13,000
SUMMARY OF ANSWERS:
1. B
2. A
3. A
(2,500)
97,000
4.
201,000
36
5.
(6,000)
13,000
(2,500)
1,500
147,000
1,500
151,000
Question No. 2
Total Outstanding checks:
Account No.143
*Account No.144
Total outstanding check
Bank
P1,000,000
*80,000
Book
P1,099,400
( 20,000)
(**60,000)
P1,020,000
15,000
( 74,400)
P1,020,000
60,000
1,860,000
P 1,920,000
Nov. 30
2,200,000
90,000
December
Receipts
Disb.
1,000,000 2,000,000
(90,000)
**240,00
0
(250,000)
20,000
2,060,000
37
(20,000)
1,130,000
Dec. 31
1,200,000
240,000
(250,000)
1,860,000
(1,860,000)
3,610,000
(420,000)
Unadjusted
book
balance
Bank service charge:
November 30
December 31
Unrecorded collections November 30
Uncollected customer's
note already recorded
as cash receipt
NSF - December 31
Adjusted balances
1,980,000
1,420,000
3,500,000
(100,000)
(10,000)
20,000
(20,000)
(200,000)
100,000
3,610,000
(100,000)
(420,000)
(10,000)
90,000
(90,000)
(200,000)
2,060,000
1,130,000
90,000
1,130,000
P1,220,000
980,000
P 240,000
P1,020,000
( 420,000)
P 600,000
4.
38
5.
Book
P 165,000
6,000
(1,000)
( 30,000)
P 140,000
Bank
P 125,000
60,000
(45,000)
P 140,000
P 45,000
28,000
P 73,000
Question No. 5
Fund transfer No. 2 is recorded in the disbursing bank during December
while it was only recorded in the disbursing book in January. This is an
unrecorded disbursement for fund transfer.
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
5.
*P5,000,000
1,000,000
600,000
P 5,400,000
200,000
10,000
140,000
P 5,350,000
P 9,000,000
(400,000)
1,000,000
( 200,000)
P9,400,000
39
Question No. 3
Unadjusted bank disbursements
Outstanding checks:
November 30
December 31
Bank service charge-Dec. 31
NSF check-Dec. 31
Unadjusted book disbursements
P7,000,000
(900,000)
600,000
(10,000)
( 140,000)
P6,550,000
Question No. 4
Currencies
Coins
Check drawn payable to petty cash custodian
Total Petty cash fund
Question No. 5
Cash in bank (See No. 1)
Petty cash fund (See No. 4)
Cash on hand (1,725,000-1,600,000)
Total Cash and cash equivalents
SUMMARY OF ANSWERS:
1. B
2. A
3. A
4.
P 40,000
4,000
30,000
P 74,000
P 5,400,000
74,000
125,000
P5,599,000
5.
40
7,000
75,000
P 82,000
60,500
P 21,500
Question No 2
Unadjusted rec. per bank
Deposit in transit:
November 30
December 31
Error correction
NSF check, no entry on the books when returned
and redeposited
Adjusted balance
Question No 3
Unadjusted disbursement, per bank
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the returned and redeposit
Adjusted balance
P 171,500
(11,000)
20,000
(500)
( 40,000)
P 140,000
P 113,000
(7,000)
21,500
(500)
( 40,000)
P 87,000
Question No 4
Unadjusted bank bal.
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
Adjusted bal.
P 127,500
20,000
( 21,500)
P126,000
Question No 5
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Unadjusted bank balance
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the return and
redeposit
Nov. 30
69,000
Receipts
171,500
11,000
(11,000)
*20,000
(7,000)
41
Disb.
113,000
Dec. 31
*127,500
20,000
(500)
(7,000)
21,500
(500)
(40,000)
(40,000)
(21,500)
Adjusted bal.
* (69,000+171,500-113,000)
** (18,000+2,000)
Unadjusted book balance
Credit memo for note
collected
November 30
December 31
Bank service charge
November 30
December 31
Adjusted bal.
73,000
140,000
87,000
126,000
Nov. 30
66,000
Receipts
113,800
Disb.
85,000
Dec. 31
94,800
8,800
(8,800)
35,000
35,000
(1,800)
73,000
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
2,000
87,000
140,000
5.
225,400
(39,347.50)
35,000
P221,052.50
Question No. 2
Unadjusted book bal.
Credit memo for notes collection
Credit memo for int.
Balance (cash accountability)
P242,310.50
30,000
900
P273,210.50
Question No. 3
Adjusted bank bal. (Cash accounted)
Less: Cash in bank bal. (cash accountability)
Shortage
P221,052.50
273,210.50
(P52,158.00)
SUMMARY OF ANSWERS:
1. B
2. D
3. B
42
(1,800)
(2,000)
126,000
P 42,400
( 11,500)
5,000
P 35,900
Question No. 2
Unadjusted book bal.
Credit memo proceeds clean draft
Debit memo for bank service charge
Balance (cash accountability)
P 46,500
900
(
100)
P 47,300
Question No. 3
Adjusted bank bal. (Cash accounted)
Cash in bank bal. (cash accountability)
Shortage as of June 30
P 35,900
47,300
(P11,400)
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R.
Less: collections in July that were deposited
in July
Collection per duplicate slips
Less :Undeposited collection, June 30
Cash that should be on hand on July 15
Less: Actual cash on hand on July 15
Cash shortage from July 1-15
P 18,800
P 11,000
5,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600)
Overstatement of cash in bank per bank (44,000-42,400)
Understatement of outstanding checks (11,500-3600)
Overstatement of undeposited collections (5,100-5,000)
Non-recording of credit memo-proceeds of clean draft
Cash shortage as of June 30
SUMMARY OF ANSWERS:
1. C
2. D
3. B
4.
43
5.
6,000
P 12,800
4,800
P 8,000
P
900
1,600
7,900
100
900
P11,400
P 350,500
100,000
P 250,500
Question No. 2
Outstanding checks, unadjusted balance
Less: Unreleased check
Company's post-dated check
Adjusted Outstanding checks
P 493,500
( 29,500)
( 74,420)
P 389,580
Question No. 3
Unadjusted bal. per bank
Add: Deposit in transit (No. 1)
Less: Outstanding checks (No. 2)
Erroneous bank credit
Adjusted cash in bank bal.
P 700,000
250,500
(389,580)
( 60,000)
P 500,920
Question No. 4
Unadjusted bal. per books
Add: Credit memo for note coll.
Unreleased check
Company's post-dated check
Total
Less: Customer's post-dated check
Cash in bank per books bal.
Less: Adjusted cash in bank balance
Cash shortage
P 587,000
30,000
29,500
74,420
P 720,920
(100,000)
P 620,920
500,920
(P120,000)
Question No. 5
Unadjusted bal. per books
Less: Adjusted cash in bank balance
Net adjustments
P587,000
500,920
P 86,080
SUMMARY OF ANSWERS:
1. B
2. D
3. B
4.
5.
44
Purchases
Less: Accounts payable, end
Total payment of Accounts payable
P 81,160
11,571
P 69,589
Question No. 2
Sales on account
Less: Accounts receivable, end
Collection to customers
P 80,752
21,345
P 59,407
Question No. 3
Receipts:
Proceeds of issuance of stocks
Collection from customers
Loan proceeds
Disbursements:
Payment of real property
Payment of furniture and equipment
(7,250-1,500)
Payment of AP
Payment of operating expenses
Cash accountability
P 80,000
59,407
28,000
P 50,000
5,750
69,589
15,189
Question No. 4
Unadjusted bank bal.
Outstanding checks
Undeposited collections
Adjusted cash in bank bal.
140,528
P 26,879
P
(
P
Question No. 5
Adjusted cash in bank bal.
Less Cash accountability
Cash shortage
SUMMARY OF ANSWERS:
1. C
2. B
3. A
P 167,407
6,582
463)
1,285
7,404
7,404
26,879
(P19,475)
4.
45
5.
259
269
Existing data:
Requirement No. 1
Net Selling price = Present value
of notes receivable (25,000 x 3.5493)
Illustration
The note is a non-interest bearing note
and the prevailing rate of interest for a
note of this type is 16% and the
principal amount
Requirement No. 1
Add: Accrued interest
600,000
Carrying
amount
of
receivable:
5,600,000
Loan impairment 12/31/2014
2,594,800
270
286
Solution
Maturity Value
= Principal + Interest
= P60,000+ (P600,000 x 10% x
90/360)
288
Replace to:
Illustration
On July 1, 2015, Boy Co. discounted its
own P50,000, 1-year note at a bank,
at a discount rate of 12%, when the
prime rate is 10%.
Maturity Value
=
Principal
+
Interest
= P600,000+ (P600,000 x 10% x
90/360)
On July 1, 2015, Boy Co. discounted its
own P500,000, 1-year note at a
bank, at a discount rate of 12
46
Noncurrent
Asset
110,000
220,000
9
Adjusted bal.
100,000
597,000 1. C
100,000
732,000 2. C
330,000
300,000
300,000
6,000
294,000
294,000
Question No. 2
FOB Destination, freight collect
Invoice price of merchandise purchased
Less: Invoice price of merchandise returned
Net invoice price
Less: Purchase discount (300,000 x 2%)
Net Payment before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash payment
300,000
300,000
6,000
294,000
5,000
289,000
Question No. 3
FOB Shipping point, freight prepaid
Invoice price of merchandise purchased
Less: Invoice price of merchandise returned
Net invoice price
Less: Purchase discount (300,000 x 2%)
Net Payment before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash payment
300,000
300,000
6,000
294,000
5,000
299,000
Question No. 4
FOB Shipping point, freight prepaid
Invoice price of merchandise purchased
Less: Invoice price of merchandise returned
Net invoice price
Less: Purchase discount (300,000 x 2%)
Net Payment before freight
Less: Freight payment - FOB Destination, freight collect
300,000
300,000
6,000
294,000
-
47
4.
294,000
P 100,000
32,000
68,000
2,040
P 65,960
SUMMARY OF ANSWERS:
1. C
2. D
PROBLEM 10-4 Computation of Percentage of Bad Debts Expense
Note to Professor:
Existing data:
Change to:
Accounts written off for 2015
Accounts written off for 2015
80,000
113,000
The accounts Receivable as of
December 31, 2015 is as follows:
From 2014
1,000,000
From 2015
1,200,000
2,200,000
2011
2012
2013
2014
2015
Credit Sales
2,100,000
1,850,000
2,050,000
6,000,000
2,000,000
8,000,000
2,000,000
10,000,000
CASE 1
Accounts written off
20,000
40,000
130,000
190,000
22,000
212,000
113,000
325,000
Recoveries
15,000
20,000
5,000
40,000
20,000
60,000
40,000
100,000
Question No. 1
Percentage
48
325,000 - 100,000
10,000,000
= 2.25% x P2,000,000
= P45,000
Question No. 3
Write off
Balance end (squeeze)
Beg. Balance
Bad debts exp
Recovery
CASE 2
Question No.4
Percentage
Total years from 2011 to 2013 (years should exclude the last two years):
190,000 - 40,000
Percentage
=
6,000,000
Percentage = 0.025 or 2.50%
Question No. 5
Bad debts expense
= 2.50% x P2,000,000
= P50,000
Question No. 6
Credit Sales
2014
2,000,000
2015
2,000,000
BD exp
50,000
50,000
Recoveries
Write-off
20,000
22,000
40,000
113,000
Allowance for BD
Net AB
48,000
(23,000)
25,000
CASE 3
Question No. 7
Percentage of bad
debts to AR
49
212,000 - 60,000
8,000,000
325,000 - 100,000
10,000,000
27,000
113,000
140,000
SUMMARY OF ANSWERS:
Case 1
1. D
2. C
3. A
19,000
81,000
40,000
140,000
Case 2
4. A
5. A
6. A
Beg. Balance
(1,000,000 x 1.90%)
Bad debts exp (squeeze)
Recovery
Case 3
7. D
8. C
9. C
Uncollectible
Percent Amount
2%
10,000
3%
18,000
5%
37,500
10%
30,000
95,500
50
Balance end
(see above table)
Write off
(23,000+100,000)
95,500
123,000
218,500
40,000
12,000
166,500
218,500
Question No. 2
Accounts receivable, end (see above table)
Less: Allowance for doubtful accounts, end
Net Realizable Value
Beg. balance
Recoveries
Bad debts exp (squeeze)
2,150,000
95,500
2,054,500
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 10-6 Aging Based On Days Past Due
Question No. 1
Overdue accounts % uncollectible
Balance
For less than 31 days
5.00%
300,000
From 31-60 days
6.00%
220,000
From 61-90 days
8.00%
150,000
From 91-120 days
15.00%
60,000
For over 121 days
20.00%
Required allowance for doubtful accounts
Question No. 2
Balance end
Allowance
15,000
13,200
12,000
9,000
49,200
Beg. balance
Bad debts exp (squeeze)
SUMMARY OF ANSWERS:
1. A
2. A
PROBLEM 10-7 Interest-bearing Note with Realistic Interest Rate
SOLUTION:
Requirement No. 1
*Selling price
P 100,000
Less: Carrying amount of machinery
Cost
500,000
Less: Accumulated depreciation
350,000
150,000
Loss on sale
(P 50,000)
*Note: The selling price is equal to the face amount, which is likewise equal to
the present value of the note since the note bears an annual interest rate that is
similar with the market rate.
Requirement No. 2
51
12/31/2015
100,000
350,000
50,000
500,000
Cash
Interest income
10,000
10,000
Interest
Income
Discount
Amortization
228,475
231,892
235,704
28,475
31,892
35,672
Carrying
amount
1,903,960
1,932,435
1,964,327
2,000,000
4.
52
5.
Change to:
a. 200,000
b. 229,054
Question No. 1
Present value of principal (2,000,000 x 0.7050)
Add: Present value of interest payments
(2,000,000 x 5% x 4.9173)
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Date
Interest
Collections
01/01/2015
07/31/2015
100,000
12/31/2015
100,000
07/31/2016
100,000
12/31/2016
100,000
07/31/2017
100,000
12/31/2017
100,000
c. 215,847
d. 232,643
P 1,410,000
491,730
1,901,730
1,000,000
150,000
Interest
Income
Discount
Amortization
114,104
114,950
115,847
116,796
117,804
118,602
14,104
14,950
15,815
16,796
17,804
18,802
Question No. 2
Interest income up to 07/31/2015
Interest income up to 12/31/2015
Total interest income
850,000
P1,051,730
Carrying
amount
1,901,730
1,915,834
1,930,784
1,946,599
1,963,395
1,981,198
2,000,000
114,104
114,950
229,054
Question No. 3
1,930,784. See amortization table above.
Question No.s 4 and 5
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
53
5.
Change to:
Principal is due in equal annual
payments, starting December 31,
2015.
Question No. 1
Computation of present value of all payments:
Present
Interest
Principal
value factor
collections
0.8929
600,000
180,000
0.7972
600,000
120,000
0.7118
600,000
60,000
Total present value
Total present value / Selling price
Less: Carrying amount of machinery
Cost
Less: Accumulated depreciation
Gain on sale
Amortization table
Interest
Date
Collections
01/01/15
12/31/15
180,000
12/31/16
120,000
12/31/17
60,000
Total
collections
780,000
720,000
660,000
Total PV
696,462
573,984
469,788
1,740,234
1,740,234
1,000,000
150,000
850,000
P890,234
Interest
Income
Amortizatio
n
Principal
collections
208,828
140,287
70,651
28,828
20,287
10,651
600,000
600,000
600,000
Question No. 2
208,828. See amortization table above.
Question No. 3
1,169,062. See amortization table above.
Question No. 4
Principal collections 2016
Less: Amortization 2016
Current portion 12/31/2015
600,000
20,287
579,713
54
Carrying
amount
1,740,234
1,169,062
589,350
-
Question No. 4
Carrying value 12/31/2015
Less: Current portion 12/31/2015
Non-current portion 12/31/2015
SUMMARY OF ANSWERS:
1. B
2. B
3. A
1,169,062
579,713
589,350
4.
5.
1,513,580
1,000,000
150,000
Amortizatio
n
181,630
83,425
21,365
850,000
P663,580
Principal
Collections
1,000,000
600,000
200,000
Question No. 2
181,630. See amortization table above.
Question No. 3
695,210. See amortization table above.
Question No. 4
Principal collections 2016
Less: Amortization 2016
Current portion 12/31/2015
600,000
83,425
516,575
55
Carrying
amount
1,513,580
695,210
178,635
-
Question No. 4
Carrying value 12/31/2015
Less: Current portion 12/31/2015
Non-current portion 12/31/2015
SUMMARY OF ANSWERS:
1. B
2. B
3. A
695,210
516,575
178,635
4.
5.
Amortization
Carrying amount
1,281,240
1,434,989
1,607,187
1,800,000
153,749
172,199
192,812
Question No. 2
153,749. See amortization table above.
Question No. 3
1,434,989. See amortization table above.
Question No. 4 and 5
The total amount of 1,434,989 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
5.
Annual collection
1,500,000
2.4018
56
Annual collection
= P624,532
Requirement No. 2
Interest income (1,500,000 x 12%)
= P180,000
CASE 2
Requirement No. 1
Annual collection
Annual collection
1,500,000
2. 6901
Annual collection
= P557,600
Requirement No. 2
Interest income (1,500,000 557,600) x 12%
PROBLEM 10-14 Loan Receivable
SOLUTION:
Loan receivable (principal amount)
Less: Unearned interest income
Origination fee received
342,100
Less: Direct origination cost
( 150,000)
Carrying amount January 1, 2015
= P113,088
P4,000,000
192,100
P3,807,900
P456,948
400,000
P 56,948
Loan receivable
Unearned interest income December 31, 2015
(192,100 56,948)
Carrying amount December 31, 2015
P 4,000,000
( 135,152)
P3,864,848
Suggested answer: C
PROBLEM 10-15 Impairment of Receivable, One-time Collection of
Principal
Question No. 1
Principal
16,000,000
Add: Accrued interest receivable
1,600,000
17,600,000
Less: *Present value of expected cash flows
7,705,280
Loan impairment
9,894,720
57
Collections
Interest
Income
Amortization
1,600,000
3,200,000
4,800,000
770,528
687,581
436,339
829,472
2,512,419
4,363,389
Carrying
amount
7,705,280
6,875,808
4,363,389
-
SUMMARY OF ANSWERS:
1. A
2. B
3. B
PROBLEM 10-16 Impairment of Receivable, Principal is Collectible Every
Year
Question No. 1
Principal
960,000
Add: Accrued interest receivable
160,000
1,120,000
Less: Present value of expected cash flows
770,528
Loan impairment
349,472
*Computation of present value of all payments:
PV factor
Principal
Total collections
0.9091
160,000
160,000
0.8264
320,000
320,000
0.7513
480,000
480,000
Total present value of the notes
Total PV
145,456
264,448
360,624
770,528
Question Nos. 2 to 3
Amortization table
Date
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Collections
Int. Income
Amortization
160,000
320,000
480,000
77,053
68,758
43,661
82,947
251,242
436,339
SUMMARY OF ANSWERS:
1. A
2. B
3. B
58
Carrying
amount
770,528
687,581
436,339
-
P 654,552
600,000
600,000
396,681
P 203,319
60,000
SUMMARY OF ANSWERS:
1. A
2. B
PROBLEM 10-18 Pledge of Receivable
SOLUTION:
Principal amount borrowed
Less: One year interest deducted in advance (900,000 x 10%)
Cash received on December 1
P 900,000
( 90,000)
P810,000
Suggested answer: B
PROBLEM 10-19 Assignment of Receivable
Entries to record transactions
Date
Accounts
10/1/2015
Cash
Finance charge expense
Notes payable
12/31/2015
Debit
395,000
5,000
400,000
Cash
Accounts receivable
300,000
12,000
300,000
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 10-20 Assignment of Accounts Receivable
Question No. 1
Principal amount borrowed
P 150,000
Less: Finance fee (150,000 x 5%) ( 7,500)
Cash received on December 1
P142,500
59
Credit
300,000
312,000
Question No. 2
Notes payable
Less: Principal payment
Remittance
Less: Interest (150,000 x 12% x 3/12)
Notes payable December 31
P150,000
95,000
( 1,500)
Question No. 3
Accounts receivable assigned (200,000 100,000)
Less: Notes payable
Equity in assigned account
93,500
P 56,500
P 100,000
( 56,500)
P 43,500
SUMMARY OF ANSWERS:
1. D
2. C
3. C
PROBLEM 10-21 Factoring of Receivables
Entries to record transactions
Option
Accounts
One
Cash (400,000 x 90%)
Receivable from factor
(25,000 [5% x 400,000])
Loss on sale of receivables (squeeze)
Notes payable
Two
Debit
360,000
Credit
5,000
35,000
400,000
360,000
9,000
34,000
400,000
3,000
SUMMARY OF ANSWERS:
1. B
2. C
PROBLEM 10-22 Factoring
SOLUTION:
Sales price
Less: Carrying amount of accounts receivable (300,000 12,500)
Loss on factoring
Suggested answer: B
60
P 265,000
( 287,500)
P 22,500
P 600,207.50
600,000.00
3,750.00
603,750.00
(P 3,542.50)
CASE NO. 2
Question No. 1
Loss of P3,524.50. The amount of loss to be recognized is computed in a
similar way as to that of discounted note without recourse.
Question No. 2
Maturity value of the note
Add: Protest fee and other bank charges
Cash received on December 1
P 613,500
5,000
P618,500
CASE NO. 3
Question No. 1
Interest expense of P3,524.50. The amount of interest expense is computed
in a similar way as to that of discounted note without recourse or conditional
sale.
Question No. 2
Maturity value of the note
Add: Protest fee and other bank charges
Cash received on December 1
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
P 613,500
5,000
P618,500
C
5.
= Discount/Net proceeds
= 30,000/220,000
61
6.
P 250,000
( 30,000)
P 220,000
= 13.60%
Question No. 2
Entry to record transaction
Cash
220,000
Discount on notes payable
30,000
Notes payable
250,000
SUMMARY OF ANSWERS:
1. D
2. B
COMPREHENSIVE PROBLEMS
PROBLEM 10-25
Question No. 1
Allowance for Doubtful accounts
Accounts written off
Balance end (squeeze)
164,000
200,000
212,000
152,000
Total
364,000
364,000
Question No. 2
Age Group
Amount
0 - 60 days
P 1,650,000
61 - 90 days
440,000
91 - 120 days
100,000
Over 120 days
256,000
Total
P 2,446,000
Beg. Balance
DA expense (7.6M x 2%)
Percent Uncollectible
2%
10%
30%
40%
Allowance
33,000
44,000
30,000
102,400
209,400
Question No. 3
Allowance for Doubtful accounts
Accounts written off
Balance end
164,000
209,400
212,000
161,400
Total
373,400
373,400
Beg. Balance
DA expense (squeeze)
Question No. 4
Accounts receivable, December 31, 2013
Less Allowance for doubtful accounts, December 31, 2013
Net realizable value
2,446,000
209,400
2,236,600
Question No. 5
Accounts receivable trade
Beg. Balance
Sales
2,500,000
7,600,000
2,446,000
164,000
7,490,000
62
Balance end
Write-off
Collections (squeeze)
Total
10,100,000
SUMMARY OF ANSWERS:
1. A
2. C
3. D
PROBLEM 10-26
Question No. 1
Credit Sales
2012
2,220,000
2013
2,450,000
2014
2,930,000
7,600,000
Percentage
10,100,000
4.
5.
Recoveries
4,300
7,500
7,200
19,000
171,000 - 19,000
7,600,000
Percentage = 0.02 or 2%
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3
Reported doubtful account expense (bad debts written off)
Less: Correct doubtful account expense (see No. 2)
Overstatement in doubtful account expenses
Question No. 4
P 62,000
( 60,000)
P 2,000
Beg. Balance
Sales on account
418,000
3,000,000
645,600
62,000
2,710,400
Total
3,418,000
3,418,000
Balance end
Write-off
Collections excluding
advance from customers
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
62,000
21,600
15,200
60,000
8,400
Total
83,600
83,600
SUMMARY OF ANSWERS:
63
Beg. Balance
Doubtful accounts expense
Recoveries
1.
2.
3.
PROBLEM 10-27
Question No. 1
Year
Credit sales
2011
3,000,000
2012
4,500,000
2013
5,900,000
2014
6,600,000
Total
20,000,000
2015
8,100,000
Total
28,100,000
Percentage
4.
Write-off
30,000
76,000
104,000
130,000
340,000
125,550
465,550
5.
Recoveries
5,400
5,000
9,600
20,000
10,000
30,000
340,000 - 20,000
20,000,000
465,550 - 30,000
28,100,000
125,550
40,000
64,177
139,727
Total
189,727
10,000
64
189,727
Beg. Balance
Doubtful account
expense (squeeze)
Recoveries
Question No. 5
Accounts receivable (4,000,000+100,000+40,450)
Less: Allowance for doubtful accounts
Net realizable value
P 4,140,450
(
64,177)
P4,076,273
SUMMARY OF ANSWERS:
1. A
2. C
3. A
PROBLEM 10-28
Question Nos. 1 to 4
Unadjusted balances
2) Sale return
Cost of return
Merchandise
(30,000 x 80%)
3)Sales FOB shipping
point
not recorded as
Sale
Cost of mdse sold
(40,000 x 80%)
4) Goods shipped
FOB
Destination recorded
as sale
Cost of goods
(50,000 x 80%)
6) Doubtful accts exp
Adjusted bal.
Accounts
Receivable
300,000
(30,000)
4.
Allow
for DA
3,000
5.
Mdse.
Inventory
400,000
Net
Sales
1,000,000
(30,000)
24,000
Cost of
Sales
800,000
(24,000)
40,000
40,000
(32,000)
(50,000)
32,000
(50,000)
40,000
260,000
(12,000)
15,000
432,000
Question No. 5
Accounts receivable
Less: Allowance for doubtful accounts
Net realizable value
P 260,000
( 15,000)
P245,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
5.
(40,000)
960,000
PROBLEM 10-29
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze)
Add: Adjusted net sales
Total
Less: Collections, net of discounts
Estimated uncollectible accounts charged to AR in Dec.
Unadjusted accounts receivable, Dec. 31
65
792,000
P 21,800
255,000
276,800
156,800
30,000
P 90,000
P 59,000
21,800
6,000
Question No. 2
Collection, net of discount
Divide by: (100%-2%)
Total credit to AR for collection
P 156,800
98%
P160,000
Question No. 3
Customer credit balance, Dec. 1
Less: sale to customer with credit balance
Customer Credit balance, Dec. 31
P 31,200
10,000
P 21,200
Question No. 4
Unadjusted Sales, balance
b) Sales, FOB shipping pt., not yet recorded
c) Sales, FOB destination
Adjusted Sales balance
P 260,000
10,000
( 15,000)
P 255,000
Question No. 5
Subsidiary ledger, balance, 12/1
Add: Adjusted Sales in December
Freight prepaid by the company
Total
Less: total credit to AR for coll.
Adjusted accounts receivable in Dec.
P 59,000
255,000
1,000
P 315,000
160,000
P 155,000
SUMMARY OF ANSWERS:
1. D
2. A
3. A
4.
5.
27,800
P31,200
PROBLEM 10-30
Note to professor:
Replace JOSHIA to Joanna in Item I.
Remove P sign in Question No. 5
Question Nos. 1 to 4
Accounts
receivable
Unadjusted bal.
200,000
1
(14,800)
3
(47,400)
4
(30,000)
5
(8,000)
Merchandise
Inventory
300,000
32,600
66
Net Sales
1,000,000
(47,400)
(90,000)
(8,000)
Cost of
Sales
600,000
(32,600)
6
7
(36,000)
(1,200)
62,600
Question No. 5
Original bill (P200 x 100)
Divided by: Selling price per unit
Number of units sold
24,000
356,600
Debit
14,800
32,400
Sales
Accounts receivable
47,400
Merchandise inventory
Cost of sales
32,600
Sales
Accounts receivable
Customers deposit on orders
90,000
Sales
Accounts receivable
*8,000
Sales
Accounts receivable
36,000
Merchandise inventory
Cost of sales
24,000
Credit
32,400
47,400
32,600
30,000
60,000
8,000
36,000
24,000
543,400
14,800
Accounts receivable D
Accounts receivable C
(24,000)
P 20,000
200
100
Question No. 6
Item
Accounts
B
Accounts payable
Accounts receivable
C
(36,000)
(1,200)
817,400
4.
67
5.
1,200
PROBLEM 10-31
Question Nos. 1 to 3
Total
0-31 days 31-60
61-90
91-120
Rose
P 87,950
35,000
52,950
Gerry
52,300
30,000
Ram
50,000
50,000
Ria
84,350
57,850
26,500
Mar
79,000
31,000
48,000
Sun
43,500
43,500
West
P 397,100
116,000 110,800 74,500 73,500
0.01
0.015
0.04
0.10
1,160
1,662
2,980
7,350
Question No. 4
Allowance for doubtful accounts, end:
(P1,160 + P1,662 + P2,980 + P7,350 + P13,380)
P 26,532
Over 120
22,300
22,300
0.60
13,380
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
15,000
26,532
22,450
19,082
Total
41,532
41,532
SUMMARY OF ANSWERS:
1. A
2. C
3. C
4.
5.
Beg. Balance
Doubtful accounts expense
PROBLEM 10-32
Question No. 1
Balance
Accounts
Dec. 31
Not due
1-60 days
61-120 days
Over 120
1
12,000
3,000
8,000
1,000
2
22,000
22,000
4
20,000
10,000
10,000
5
55,000
2,220
52,780
6
7,500
7,500
116,500
27,220
68,280
11,000
10,000
Multiply by:
0.50%
2%
5%
50%
136.10
1,365.60
550
5,000.00
Question Nos. 2 and 3
Required balance (P136.10+P1,365.60+P550+P5,000)
Less: Allowance for doubtful accounts, beginning
Doubtful accounts expense
68
P 7,051.70
5,000.00
P 2,051.70
Interest
income
P 1,200
500
P 1,700
SUMMARY OF ANSWERS:
1. D
2. C
3. B
PROBLEM 10-33
Question No. 1
Days
0 - 60 days
61 - 120 days
Over 120 days
Total
Amount
outstanding
P 960,000
720,000
1,000,000
P 2,680,000
4.
Accrued interest
income
P
500
P 500
5.
Percent
Uncollectible
2%
4%
6%
Allowance
19,200
28,800
60,000
108,000
Question No. 2
Allowance for Doubtful accounts
Accounts written off
Balance end
184,000
108,000
120,000
48,000
124,000
Total
292,000
292,000
Beg. Balance
Recovery
Doubtful accounts expense
(squeeze)
Question No. 3
Allowance for Doubtful accounts
Accounts written off
Unadjusted balance
184,000
144,000
120,000
48,000
160,000
Total
328,000
328,000
Question No. 4
Reported Bad debts expense (see No. 3)
Divided by: Bad debts rate
Net credit sales
Add: Sales return
Unadjusted accounts receivable, Dec. 31
69
Beg. Balance
Recovery
Doubtful accounts expense
(squeeze)
P 160,000
2%
8,000,000
100,000
P 8,100,000
Question No. 5
Accounts receivable
Beg. Balance
Sales
Recoveries
2,000,000
8,100,000
48,000
2,680,000
184,000
100,000
7,184,000
Total
3,418,000
3,418,000
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
PROBLEM 10-34
SOLUTION:
Question No. 1
Principal
Origination fees received
Direct origination cost incurred
Initial Carrying amount of the loan
5.
Balance end
Write-off
Sales return
Collections including
recoveries
4,000,000
(342,100)
150,020
3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118)
2,847,200
Present value of Int. (4M x 10% x 2.4018)
960,720
Present value of Loan Receivable
3,807,920
Question Nos. 3 and 4
Date
01/01/2015
31/12/2015
31/12/2016
31/12/2017
Collections
Interest
Income
Amortization
400,000
400,000
400,000
456,950
463,784
471,439
56,950
63,784
71,346
Carrying
amount
3,807,920
3,864,870
3,928,655
4,000,000
Question No. 5
Zero, As of December 31, 2015, the entire loan proceeds will be collectible on
December 31, 2017, that is two years from the reporting date.
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
PROBLEM 10-35
70
5.
Question No. 1
Principal
Origination fees received
Direct origination cost incurred
Initial Carrying amount of the loan
4,000,000
(282,100)
39,020
3,756,920
Collections
Interest
Income
Amortization
400,000
400,000
400,000
450,830
456,930
463,762
50,830
56,930
63,762
Question No. 4
Carrying Amount (see above amortization table)
Less: *Present value of expected cash flows
Loan Impairment
Carrying
amount
3,756,920
3,807,750
3,864,680
3,928,442
3,864,680
3,201,620
663,060
Collections
Interest
Income
Amortization
1,800,000
2,000,000
384,194
214,298
1,415,806
1,785,814
SUMMARY OF ANSWERS:
1. B
2. C
3. B
4.
71
5.
Carrying
value
3.201,620
1,785,814
-
PROBLEM 10-36
Question Nos. 1 and 3
Carrying amount of the loan, December 31, 2015
Less Carrying amount of the loan, December 31, 2016
Amortization in 2016
Less Interest collection in 2016
Interest income in 2015 (3)
Divide by Carrying amount of the loan, 12/31/2015
Effective interest rate (1)
8,277,606
8,145,367
132,239
960,000
827,761
8,277,606
10%
Question No. 2
Carrying amount of the loan, January 1, 2015
Multiply by: Effective interest rate
Interest income in 2015
8,397,824
10%
839,782
Question No. 3
Carrying amount of the loan, 12/31/2015
Multiply by: Effective interest rate
Interest income in 2015
8,277,606
10%
827,761
Question No. 4
Carrying amount of the loan, December 31, 2015
Add: Interest collection (8M x 12%)
Total
Divide by: 100% plus effective rate
Carrying amount of the loan, January 1, 2015
8,277,606
960,000
9,237,606
1.10
8,397,824
Question No. 5
Carrying amount of the loan, January 1, 2015
Direct origination fees received
Principal
Direct origination cost incurred
Date
01/01/2015
12/31/2015
12/31/2016
12/31/2017
8,397,824
100,000
8,000,000
497,824
Collections
Interest
Income
Amortization
960,000
960,000
960,000
839,782
827,761
814,537
120,218
132,239
145,367
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
72
5.
Carrying
amount
8,397,824
8,277,606
8,145,367
8,000,000
PROBLEM 10-37
Question No. 1
Annual Cash
Date
flows
Dec. 31, 2014
P1,750,000
Dec. 31, 2015
2,000,000
Dec. 31, 2016
1,750,000
Total
PV
factor
0.9091
0.8264
0.7513
Amount
P 1,590,925
1,652,800
1,314,775
P 4,558,500
Question No. 2
Carrying amount of the loan
Less: Present value of the loan
Impairment loss
P 5,500,000
4,558,500
P 941,500
Question Nos. 3 to 5
Date
12/31/2013
12/31/2014
12/31/2015
12/31/2016
Payment
Interest
Income
P1,750,000
2,000,000
1,750,000
P455,850
326,435
159,079
SUMMARY OF ANSWERS:
1. A or C
2. A
3.
PROBLEM 10-38
SOLUTION:
Question No. 1
Age of Accts
1-10 days
11-30 days
Past due 31-60
Past due 61-120
Past due 121-180
Past due over 180 days
4.
Balance
960,000
270,000
120,000
75,000
45,000
30,000
Reduction to
Principal
P1,294,150
1,673,565
1,590,785
5.
Carrying
amount
P4,558,500
3,264,350
1,590,785
-
%uncollectible
1%
2.5%
5%
20%
35%
80%
Allowance for BD
Allowance
9,600
6,750
6,000
15,000
15,750
24,000
77,100
Question No. 2
Allowance for Doubtful accounts
Accounts written off
Unadjusted balance
292,500
54,800
27,300
320,00
Total
347,300
347,300
73
Beg. Balance
DA expense (8M x 4%)
4,000,000
11,520
(300,000)
3,711,520
77,100
54,800
22,300
4.
PROBLEM 10-39
Question No. 1
Principal
Direct origination cost incurred
Direct origination fees received
Initial carrying amount
Amortization
45,382
50,828
56,928
63,759
71,583
5.
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
4,000,000
11,520
(300,000)
3,711,520
74
Amortization
45,382
50,828
56,928
63,759
71,583
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
Question No. 4
Carrying amount of loan
Less: Present value of expected cash flows
12/31/2015 (1,750,000 x .8929)
12/31/2017 (1,750,000 x .7118)
Impairment loss
3,807,731
1,562,575
1,245,650
2,808,225
999,506
Question No. 5
Date
12/31/2014
12/31/2015
Collections
Interest
Income
Amortization
1,750,000
336,987
1413,013
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
PROBLEM 10-40
Question No. 1
Classification
Balance
1-60 days
61-120 days
121-180 days
181-360 days
More than one year
Totals
P 1,000,000
400,000
300,000
200,000
60,000
P 1,960,000
5.
Carrying
amount
2,808,225
1,395,212
Estimated
Percentage
Amount
1%
P 10,000
5%
20,000
10%
30,000
25%
50,000
80%
48,000
P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1)
Less: Allowance for doubtful accounts, end (see no. 1)
Net realizable value
Question No. 3
Doubtful accounts per books (9,000,000 x 2%)
Less: *Adjusted doubtful accounts expense
Understatement of doubtful accounts
P 1,960,000
158,000
P1,802,000
P 180,000
188,000
(P 8,000)
140,000
158,000
90,000
20,00
188,000
Total
298,000
298,000
75
Beg. Balance
Recoveries
Doubtful account expense
Question No. 4
Total carrying value
Less: **Present value of the loan
Impairment loss
*Computation of present value
Annual Cash flow PV factor
P1,000,000
1.00
1,000,000
0.93
1,000,000
0.86
Total Present value of the loan
P3,000,000
2,790,000
P 210,000
Total
P 1,000,000
930,000
860,000
P 2,790,000
Question No. 5
Date
01/01/2015
12/31/2015
12/31/2016
Collections
Interest
Income
Amortizatio
n
1,000,000
1,000,000
143,200
1,000,000
856,800
SUMMARY OF ANSWERS:
1. A
2. B
3. D
4.
PROBLEM 10-41
Question No. 1
Accounts receivable factored
Less: Service charge (400,000 x 5%)
Receivable from factor (400,000 x 20%)
Customers credit balance
5.
Carrying
amount
2,790,000
1,790,000
933,200
P 400,000
20,000
80,000
100,000
P300,000
Question No. 2
Principal
Add: Interest over full credit period (300,000 x 12% x 6/12)
Maturity value
Less: Discount (318,000 x 12% x 3/12)
Net proceeds from discounting
P 300,000
18,000
318,000
11,925
P 306,075
Question No. 3
Maturity value of the notes (see item in No. 2)
Add: Protest fee
Total cash paid/Amount to be debited to AR
318,000
12,000
P 330,000
Question No. 4
Note payable (80% x P600,000)
Less: Service fee (5% x P600,00)
Cash received
480,000
30,000
P 450,000
76
Question No. 5
Total Cash paid (see No. 3)
Add: Interest income (P330,000 x 12% x 2/12)
Cash received
330,000
6,600
P 336,600
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000)
Add: Accounts receivable assigned
Total
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%)
Net realizable value
P 700,000
600,000
1,300,000
65,000
P1,235,000
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4.
PROBLEM 10-42
Note to professor:
Existing data:
T-Account of Allowance for bad debts:
Beg. Bal - 01/01/2014
5.
6.
Change to:
Beg. Bal - 01/01/2015
Question No. 1
Accounts receivable, unadjusted bal
Per subsidiary ledger
Note receivable included in the AR
Factored Accounts receivable
Sales FOB shipping point
Adjusted AR balance
P1,660,000
(200,000)
(160,000)
100,000
P1,400,000
Question No. 2
Allowance for doubtful accts, beg.
Add: Doubtful accounts (P15,000,000 + P100,000) x 1%
Total
Less: Accounts written off
Allowance for doubtful accts, end
P 100,000
151,000
P 251,000
28,000
P 223,000
Question No. 3
Unadjusted Net Sales
Add: Sales, FOB shipping point
Total Sales
Multiply by: rate
Doubtful accounts
P15,000,000
100,000
P 15,100,000
1%
P
151,000
Question No. 4
No effect. The audit adjustments did not result to any changes to inventory
account.
77
Question No. 5
Sales, FOB shipping point
P 100,000
SUMMARY OF ANSWERS:
1. D
2. A
3. D
4.
5.
PROBLEM 10-43
Question Nos. 1 to 3
Total
60 days and
below
61 to 90
days
800,000
400,000
Unadjusted
Balance,
12/31/2015
1,450,000
Adjustments:
Write Off
(50,000)
Failure to record Sales
Return
(40,000)
Failure
to
record
Employee Discount
(4,000)
Consignment
(45,000)
Freight collect
(3,800)
Adjusted
balance,
12/31/2015
1,307,200
Percentage of Uncollectibility
Required
allowance,
12/31/2015
37,258
Over 90
days
250,000
(63,000)
(36,000)
(3,600)
(54,000)
(4,500)
701,900
2%
400,000
3%
187,000
6%
14,038
12,000
11,220
Question No. 4
Allowance for Doubtful accounts
Write off
Balance end (required)
Total
Item
1
63,000
37,258
50,000
45,000
4,134
100,258
100,258
Beg. Balance
Recoveries
Adjustment to Doubtful
account expense (squeeze)
Accounts
Allowance for doubtful accounts
Accounts receivable
Debit
50,000
Sales return
Accounts receivable
40,000
55,000
Sales discount
Accounts receivable
4,000
Credit
50,000
40,000
55,000
4,000
78
5
6
Sales
Accounts receivable
45,000
Delivery expense
Accounts receivable
3,800
45,000
3,800
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
PROBLEM 10-44
Note to professor:
Existing data:
Kaya Co. incurred and paid P11,520 of
direct origination cost was debited to
direct origination income. Kaya Co.
charged P300,000 nonrefundable
origination fees which was credited to
direct origination income.
5.
Change to:
Kaya Co. incurred and paid P11,520
of direct origination cost was
debited to unearned interest
income. Kaya Co. charged P300,000
nonrefundable origination fees
which was credited to unearned
interest income.
Sales discount
Accounts receivable
Debit
20,000
Credit
20,000
16,000
16,000
Accounts receivable
Allowance for doubtful accounts
120,000
Accounts receivable
Allowance for doubtful accounts
30,000
120,000
30,000
Miscellaneous income
30,000
Accounts receivable
30,000
NOTE: The accounts receivable account was incorrectly footed. The unadjusted
balance should have been P2,596,000 instead of P2,636,000.
Accounts receivable
Beg. Balance
(20,000+200,000)
Sales
Recoveries
220,000
2,720,000
4,000,000
30,000
30,00
*1,500,000
Total
4,250,000
4,250,000
79
Balance end
Recoveries
Collections, gross of
discount
700,000
784,000
16,000
P 1,500,000
170,000
20,000
30,000
120,000
Total
170,000
170,000
Accounts receivable
Less: Allowance for bad debts
Net realizable value
2,720,000
170,000
P 2,550,000
Credit
400,000
45,382
45,382
Principal
Direct origination cost incurred
Direct origination fees received
Initial carrying amount
4,000,000
11,520
(300,000)
3,711,520
Beg. Balance
Recoveries
Doubtful account expense
4.
80
Amortization
45,382
50,828
56,928
63,759
71,583
5.
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
PROBLEM 10-45
Question No. 1
Nonrecording of gain on sale
Nonrecording of interest income
NR from sale of Machinery
NR from sale of plant (3,000,000 x 12% x 9/12)
Understatement of Ret. Earnings on 12/31/2015
180,360
57,643
270,000
508,003
NR sale of machinery:
Downpayment
Add: Present value of the note (200,000 x 2.4018*)
Total Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Gain that should have been recognized
*PV of ordinary annuity
400,000
480,360
880,360
1,600,000
900,000
700,000
180,360
Amortization table 1
Date
01/01/2014
12/31/2014
12/31/2015
12/31/2016
Collections
Interest
Income
Reduction to
principal
200,000
200,000
200,000
57,643
40,560
21,437
142,357
159,440
178,563
Question No. 2
Interest Income:
NR from sale of machinery
NR from sale of plant
(3M x 12% x 3/12)
(2M x 12% x 9/12)
NR from sale of equipment
Total Int. Income
Amortization table 2
Interest
Date
Income
04/01/2015
12/31/2015
25,613
40,560
90,000
180,000
25,613
336,173
Unearned Interest
Income
158,500
132,888
Question No. 3
NR from sale of machinery (see amortization table 1)
NR from sale of plant
Total current portion
81
Carrying
amount
341,500
367,113
178,564
1,000,000
1,178,564
Carrying
amount
480,360
338,003
178,564
-
Question No. 4
NR from sale of plant
NR from sale of equipment (see amortization table 2)
Total noncurrent portion
Question No. 5
Nonrecording of loss
Overstatement of Int. income
Per books
360,000
Per audit
336,173
Total overstatement of net income in 2015
158,500
23,827
182,327
NR sale of equipment:
Downpayment
Add: Present value of the note (500,000 x 0.6830*)
Total Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Loss that should have been recognized
*PV of 1
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
82
1,000,000
367,113
1,367,113
5.
700,000
341,500
1,041,500
2,000,000
800,000
1,200,000
(158,500)
SOLUTION:
Items
counted
in
the
warehouse
(bodega)
(P4,000,000
P32,000)
P3,968,000
Total
P4,716,000
373
Notes:
1. The invoice price is computed by
deducting the trade discount of 20 and
10.
List Price
P 150,000
Less: Trade discount
30,000
20%
Net
120,000
Less: Trade discount
1,200
- 10%
Invoice price
P 108,000
Note that the total trade discount of
P31,200 is not recorded in the books.
2. .
3. .
4. The cash to be paid under the net
method is computed as follows:
Purchases
P 83,420
Less:
Purchase
9,700
returns
Net purchases
76,000
Less:
Purchase
2,280
discount
Cash paid
P 73,720
378
379
Items
counted
in
the
warehouse
(bodega)
(P4,000,000 - P32,000
P80,000) P3,888,000
Total
P4,636,000
Notes:
1. The invoice price is computed by
deducting the trade discount of 20
and 10.
List Price
P 150,000
Less:
Trade
30,000
discount 20%
Net
120,000
Less:
Trade
discount - 10%
12,000
Invoice price
P 108,000
Note that the total trade discount of
P42,000 is not recorded in the
books.
2. .
3. .
4. The cash to be paid under the net
method is computed as follows:
Purchases
P 83,420
Less:
Purchase
9,700
returns
Cash paid
P 73,720
Unit
Cost
21.60
Total Cost
Qty
200
Qty
1,900
Unit
Cost
26.92
Total Cost
4,320
4,000
Total inventory
Qty
1,900
390
20.00
Total Cost
Unit Cost
26.58
Total Cost
50,498
83
51,139
price of P3,200.
1,250,000
50,000
100,000
250,000
25,000
P1,675,000
Note that the trade discount was already deducted in arriving at the vendors
invoice.
PROBLEM 12-2 Inventoriable Cost
Materials
Irrecoverable purchases taxes
Total cost of inventory
PROBLEM 12-3 Inventoriable Cost
Direct materials and labor
Variable production overhead
Factory administrative costs
Fixed production costs
Total Inventoriable cost
(B)
350,000
30,000
P 380,000
(D)
180,000
25,000
15,000
20,000
P 240,000
7
10
14
15
17
18
19
20
84
P1,090,000
70,000
500,000
13,000
200,000
75,000
100,000
400,000
(150,000)
50,000
100,000
(78,000)
P2,370,000
40,000
300,000
30,000
50,000
10,000
100,000
125,000
360,000
40,000
325,000
30,000
38,000
12,000
P 405,000
1,800,000
100,000
50,000
P1,950,000
50,000
50,000
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventory?
Answer: No, since the inventories were lost in transit and it is improper to
report inventories that is not existing (i.e. it violates the existence assertion).
Thus the journal entry at December 31 if no claim was filed and the common
carrier has yet to acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as
other expense and not as cost of goods sold)
Inventory / Purchases
85
50,000
50,000
And on the next year (January 5), when the claim was filed and acknowledged
by the common carrier, the journal entry will be:
Claims from common carrier
50,000
Gain on reimbursement of lost inventory
50,000
To record the claim against common carrier on January 5.
PROBLEM 12-7 Consigned Goods
Inventory shipped on consignment to Lomasoc
Freight by Desiree to Lomasoc
Total Inventoriable cost
(D)
360,000
18,000
P 378,000
97,500
60,000
40,000
P197,500
Guide
Questions
SUMMARY OF ANSWERS:
1. A
2. A
86
Sales
700,000
(1,800)
9,200
(6,500)
3,900
(8,600)
696,200
(A)
Inventories
150,000
2,000
1,200
153,200
(A)
01/14
Debit
80,000
80,000
Accounts payable
Cash (80,000 x [1-98%])
Purchase discount
80,000
Accounts payable
Cash
80,000
78,400
1,600
80,000
Credit
Debit
Credit
78,400
78,400
Accounts payable
Cash (80,000 x [1-98%])
78,400
Accounts payable
Purchase discount lost
Cash
78,400
1,600
78,400
80,000
SUMMARY OF ANSWERS:
CASE NO. 1
1. B
2. C
3. D
4. A
CASE NO. 2
5. C
6. C
7. A
8. D
900
270
P 1,170
(A)
87
Date
Qty
Purchases
Unit
Total
Cost
Cost
Feb 3
Feb 11
13
17.00
Cost of
Merchandise Sold
Qty
Unit
Total
Cost
Cost
221.00
Feb 14
Feb 21
12
6
9
20
15.00
17.00
180
102
180.00
Feb 25
7
3
17.00
20.00
119
60
12
12
13
7
Inventory
Unit
Total
Cost
Cost
15.00
180
15.00
180
17.00
221
17.00
119
7
9
6
17.00
20.00
20.00
Qty
(C)
Weighted average
unit cost
Weighted average
unit cost
5,200
80
(A)
Units
20,000
(17,500)
2,500
10,000
12,500
Unit cost
25
25
40
Total cost
500,000
(437,500)
62,500
400,000
462,500
88
(B)
119
180
120
Units
20,000
30,000
50,000
(25,000)
25,000
15,000
40,000
(21,000)
19,000
1,000
20,000
20,000
40,000
Purchase
Sale
Purchase
Sales
Sales return
Balance
Purchase
Balance
Unit cost
10
12
11
11
11
14
12
12
12
12
Total cost
200,000
360,000
560,000
(280,000)
280,000
210,000
490,000
(257,250)
232,750
12,250
245,000
335,000
580,000
17
15
Inventory end
Cost of goods sold (280,000 + 257,250 12,250)
= P580,000
= P525,000
(A)
(A)
Units
20,000
30,000
(20,000)
(5,000)
25,000
15,000
(21,000)
4,000
15,000
1,000
Purchase
From Apr. 1
From Apr. 2
Purchase
From Apr. 2
Sales return
Unit cost
10
12
10
12
12
14
12
12
14
12
5,000
15,000
20,000
40,000
Purchase
Balance
12
14
17
Total cost
200,000
360,000
(200,000)
(60,000)
300,000
210,000
(252,000)
48,000
210,000
12,000
60,000
210,000
335,000
605,000
Inventory end
= P605,000
Cost of goods sold (200,000 + 60,000 + 252,000 12,000) = P500,000
Question Nos. 5 and 6
Weighted average
Weighted average
=
unit cost
Weighted average
unit cost
89
(B)
(B)
4.
5.
= P520,000
= P585,000
6.
(C)
(C)
Pens
94,400
Highlighters
150,000
Selling price
Less: Estimated cost to complete
Net realizable value
180,000
24,000
156,000
180,000
24,000
156,000
180,000
34,000
146,000
Lower of cost-or-NRV
120,000
94,400
146,000
Historical cost
SUMMARY OF ANSWERS:
1. C
2. D
3. B
PROBLEM 12-17 Purchase Commitment
CASE NO. 1
Date
11/15
No entry
Accounts
Debit
12/31
100,000
03/15
500,000
100,000
CASE NO. 2
Date
11/15
No entry
Accounts
12/31
No entry
03/15
Credit
100,000
500,000
100,000
Debit
Credit
500,000
500,000
90
No entry
Accounts
Debit
Credit
200,000
200,000
1,200,000
200,000
1,200,000
200,000
SUMMARY OF ANSWERS:
1. B
2. A
PROBLEM 12-19 Purchase Commitment
Gain on purchase commitment [50,000 x (55 - 40)]
To record the actual purchase on March 31, 2016:
Purchases (50,000 x 55)
Estimated liability for purchase commitment
Accounts payable/Cash
Gain on purchase commitment
= P750,000
2,750,000
750,000
(A)
2,750,000
750,000
P 50,000
50,000
P 100,000
20,000
P 80,000
Question No. 2
A loss in inventory writedown should also be recognized on December 31, 2011
in the amount of P100,000 (1,250 units x [P100-P20]).
(B)
SUMMARY OF ANSWERS:
1. C
2. B
91
3,400,000
(30,000)
3,370,000
70%
2,359,000
Inventory, January 1
Add: Net Purchases
Purchases
Add: Freight-in
Less: Purchase returns
Total Goods available for sale
Less: Cost of goods sold
Merchandise inventory that should be on hand
Less: Actual merchandise inventory on hand
Cost of Missing inventory
650,000
2,300,000
60,000
(80,000)
(A)
2,280,000
2,930,000
(2,359,000)
571,000
(420,000)
151,000
1,552,000
125.00%
1,241,600
Inventory, January 1
Purchases, January 1 through April 19
Total goods available for sale
Less: Cost of sales
Cost of Missing inventory
160,000
1,120,000
1,280,000
1,241,600
P 38,400
CASE NO. 2
Sales
Multiply by: Cost ratio
Cost of Sales
1,552,000
75%
1,164,000
Inventory, January 1
Purchases, January 1 through April 19
Total goods available for sale
Less: Cost of sales
Cost of Missing inventory
160,000
1,120,000
1,280,000
1,164,000
P 116,000
SUMMARY OF ANSWERS:
1. A
2. D
92
(A)
(D)
Cost
640,000
1,100,000
152,000
1,892,000
Inventory at January 1
Purchases
Freight-in
Net markups
Totals
Retail
1,600,000
2,000,000
800,000
4,400,000
4,400,000
400,000
1,600,000
P2,400,000
43%
P1,032,000
Inventory at January 1
Purchases
Net markups
Net markdowns
Totals
Retail
375,000
1,750,000
200,000
(75,000)
2,250,000
2,250,000
1,500,000
75,000
50,000
P 625,000
1,575,000
437,500
1,137,500
93
Cost
292,500
292,500
Purchases
Net markups
Net markdowns
Totals
Retail
400,000
75,000
(25,000)
450,000
450,000
100,000
375,000
P 175,000
65%
P113,750
PROBLEM 12-26
Question No. 1
A EI over (P129-P119) x 4,000
B EI under
C EI over
Overstatement of ending inventory
Question No. 2
D. Ending inventory understated
40,000
(70,000)
100,000
70,000
(C)
(140,000)
(B)
2015
1,000,000
(40,000)
70,000
(100,000)
Unadjusted balance
EI over, NI over (P129-P119) x 4,000
EI under, NI under
EI over, NI over
EI under, NI under
Adjusted balances
Question No. 5
Unadjusted net income (1,000,000+1,200,000)
Less: Adjusted net income (930,000+1,410,000)
Net adjustment to income-understated
SUMMARY OF ANSWERS:
1. C
2. B
3. A
4.
94
5.
930,000
(A)
2016
1,200,000
40,000
(70,000)
100,000
140,000
1,410,000
(C)
2,200,000
2,340,000
(140,000)
(D)
PROBLEM 12-27
Question No. 1
Beg. Balance
DM purchased (squeeze)
9,000
70,000
(B)
7,000
72,000
Total
79,000
79,000
Balance end
Direct materials used
Question No. 2
Total cost added to work in process (72,000+80,000+24,000) = P176,000 (C)
Question No. 3
Applied overhead to job 3 (24,000/10,000 x 120 hours) = P288
Question No. 4
(D)
Beg. Balance
DM used
Direct labor
Factory overhead
Total
SUMMARY OF ANSWERS:
1. B
2. C
3. D
17,000
72,000
80,000
24,000
31,000
162,000
(B)
193,000
193,000
4.
Balance end
Cost of goods
manufacture
(squeeze)
PROBLEM 12-28
Question Nos. 1 and 2
Balances prior to adjustment
Add: Goods in transit sold, FOB destination
Less: unrecorded sale
Less: unrecorded purchase returns
Less: goods held on consignment
Add: unrecorded purchase
Add: Goods in transit purchased, FOB shipping point
Add: Goods out on consignment
Adjusted balances
95
Ledger
Balance
P 314,800
3,200
( 8,400)
( 6,000)
3,640P 307,240
(A)
Physical
Count
P 293,600
3,200
( 8,800)
1,600
14,800
P 304,400
(C)
Question No. 3
Adjusted balances, per ledger
Adjusted balances, physical count
Inventory shortage
P 307,240
304,400
P 2,840
(B)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
PROBLEM 12-29
1
2
3
4
5
6
7
8
Unadjusted balances
Parts held on consignment
Parts sold included in the count
Parts in transit to customers,
FOB shipping pt.
Parts on conditional sale
Goods out on consignment
Parts in transit purchased,
FOB shipping pt.
Mdse. Hold for shipping inst.
excluded in the count
Finished special article, incl.
in the count and sale not rec.
Adjusted balances
Accounts
Payable
P335,000
( 18,000)
Sales
P5,000,000
22,000
100,000
16,000
16,000
Inventory
P 800,000
( 18,000)
( 30,000)
160,000
( 30,000)
P1,020,000
(A)
P333,000
(A)
50,000
P5,050,000
(B)
SUMMARY OF ANSWERS:
1. A
2. A
3. B
PROBLEM 12-30
Note to the professor: Use the following guide questions in answering this
question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts
Was there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
96
SOLUTION:
679
680
681
682
683
684
685
686
310
311
312
313
314
315
316
317
318
Unadjusted balances
Ending
Inventory
550,000
Sales
1,000,000
Purchases
600,000
AP
450,000
Net
Income
120,000
(46,740)
(46,740)
(46,740)
(46,740)
46,740
(4,500)
1,060
392
22,358
1,060
(560)
(560)
(31,940)
392
(31,940)
(6,350)
22,358
(6,350)
(1,930)
4,445
(1,930)
4,445
Net adjustment
Adjusted balances
(24,045)
525,955
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. A
(40,780)
959,220
(A)
4.
(4,500)
(1,060)
5.
(45,680)
554,320
(A)
(45,680)
404,320
(A)
(19,145)
100,855
(E)
PROBLEM 12-31
Ending
inventory
Unadjusted
balance
A
B
C
D
E
Adjusted
P220,000
Accounts
receivable
Accounts
payable
P104,000
(10,000)
50,000
14,000
( 24,000)
P 250,000
(A)
SUMMARY OF ANSWERS:
1. A
2. E
3. D
(64,000)
(16,000)
P24,000
(E)
4.
97
Sales
Net income
P138,000
(20,000)
(10,000)
P1,010,000
P180,400
20,000
(64,000)
(16,000)
P108,000
(D)
P930,000
(D)
(14,000)
(2,000)
( 24,000)
P160,400
(A)
5.
PROBLEM 12-32
Unadjusted
balances
A
B
C
D
E
F
G
H
I
J
Adjusted
balances
Inventory
Accounts
payable
Accounts
Receivable
250,000
35,000
4,000
(25,000)
10,000
34,000
60,000
400,000
4,000
60,000
1,000,000
40,000
(30,000)
(68,000)
(10,000)
-
4,000,000
40,000
(30,000)
(68,000)
(10,000)
(90,000)
-
2,500,000
4,000
60,000
600,000
35,000
15,000
10,000
(30,000)
(34,000)
(10,000)
(90,000)
-
368,000
464,000
932,000
3,842,000
2,564,000
496,000
SUMMARY OF ANSWERS:
1. C
2. C
3. A
4.
PROBLEM 12-33
Ending
inventory
Unadjusted
balance
100
101
102
103
104
105
106
107
108
109
110
A
B
Adjusted
P280,000
(10,000)
Net Sales
5.
Net
Purchases
6.
Net income
Accounts
receivable
Purchases
Accounts
payable
P5,000,000
P3,900,000
P2,800,000
P2,870,000
(12,500)
(12,500)
(11,200)
(11,200)
15,000
15,000
13,500
13,500
(11,750)
8,350
P2,796,600
(11,750)
8,350
P2,866,600
Sales
(15,000)
(12,500)
P 242,500
P5,004,800
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
P3,904,800
98
5.
PROBLEM 12-34
Ending
inventory
Unadjusted
balance
a. Sales under
b EI under
c Purchase over
d Sales under
EI over
Adj.
Net Sales
P500,000
P1,000,000
64,000
Cost of
Sales
Net
Income
Retained
Earnings
P550,000
P200,000
64,000
19,000
23,500
28,500
(25,800)
P309,200
P1,500,000
64,000
19,000
23,500
28,500
( 25,800)
P1,609,200
19,000
(19,000)
(23,500)
28,500
( 25,800)
P 493,200
SUMMARY OF ANSWERS:
1. C
2. D
3. D
P1,092,500
4.
25,800
P533,300
5.
PROBLEM 12-35
Questions No. 1 to 5
2015 Purchases under, CGS
under, NI over, RE over
2016 Purchases over, CGS
over
2015 EI under, NI under, RE
under
2016 BI under, CGS under
Sales under
Purchases under, CGS under
EI under, CGS over
Purchases under, CGS under
EI under, CGS over
Total
R/E
36,000
Sales
EI
A/P
CGS
36,000
(32,000)
(32,000)
(20,000)
(8,000)
(24,000)
(4,000)
4,000
(20,000)
(4,000)
(12,000)
(28,000)
(24,000)
8,000
(4,000)
4,000
(12,000)
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings 12/31/2015 or 01/01/2016
4,000 overstated
(4,000) understated
Note: The effect of errors on December 2015 and January 2016 has no effect on
the ending balance of the accounts payable on December 31, 2016 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
99
5.
PROBLEM 12-36
Question No. 1
Sales (475,000/80%)
Less: Cost of sales
Gross profit
P593,750
475,000
118,750
100%
80%
20%
20,000
25,000
Purchases
100,000
95,000
Total
120,000
120,000
60,000
540,000
125,000
475,000
Total
600,000
600,000
4.
5.
PROBLEM 12-37
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2015 or
December 31, 2014 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2014.
(B)
Question No. 2
Net income weighted average
Beginning inventory under, CGS under, Net income over
Ending inventory under, CGS over, Net income under
Adjusted net income FIFO
Question No. 3
Computation of units sold:
Beginning inventory units
Add: Total purchases units
Total goods available for sale units
Less: Units sold (P6,400,000 / P80/unit)
Ending inventory in units
100
(B)
P3,250,000
(150,000)
100,000
P3,200,000
10,000
100,000
110,000
80,000
30,000
The 30,000 ending inventory comes from the last two purchases as follows:
Units
Unit cost Total cost
From 4th quarter purchases
10,000
68
680,000
From 3rd quarter purchases
20,000
66 1,320,000
Total
30,000
(B)
2,000,000
Question No. 4
Cost (refer to no. 3)
Net realizable value [(P70 P5) x 30,000]
Loss on inventory write-down
(B)
2,000,000
1,950,000
50,000
(A)
500,000
5,500,000
6,100,000
2,000,000
4,100,000
50,000
4,150,000
(A)
100,000
970,000
100,000
1,170,000
819,000
351,000
Question No. 2
Beginning balance
Add: Raw materials used (see no. 1)
Wages (3,000,000 x 60%)
Variable overhead (1,000,000 x 60%)
Wooden boxes (purchased and used)
Fixed manufacturing overhead (see computation below)
Total manufacturing cost put into process
Less: Work-in-process completed [4,969,000 x (100% - 20%)]
Ending balance (4,969,000,000 x 20%)
(A)
250,000
819,000
1,800,000
600,000
300,000
1,200,000
4,969,000
3,975,200
993,800
Question No. 5
Beginning inventory FIFO
Add: Net Purchases (P6,480,000 980,000)
Total goods available for sale
Less: Ending inventory at cost (see no. 3)
Cost of goods sold at cost
Add: Loss on inventory write-down (see no. 4)
Cost of goods sold after inventory write-down
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
5.
PROBLEM 12-38
Question No. 1
Beginning balance
Add: Purchases of raw materials
Transport inwards of raw materials
Total raw materials available for use
Less: Raw materials used [1,170,000 x (100% - 30%)]
Ending balance (1,170,000 x 30%)
101
Fixed manufacturing overheads are allocated to the products at year end using
the normal production (unless actual production is higher than normal):
Fixed manufacturing overheads
Fixed manufacturing
=
overhead per box
Budgeted production
=
1,500,000
250,000
P6 per box
(A)
150,000
3,975,200
4,125,200
819,000
412,520
(C)
1,406,320
250,000
1,656,320
Question No. 5
F/G
Net realizable value:
Expected selling price
Less: Cost to complete
Cost to sell
Net realizable value
Cost:
Ending balance
WIP
FG & WIP
1,300,000
80,000
1,220,000
700,000
100,000
20,000
580,000
2,000,000
100,000
100,000
1,800,000
300,000
50,000
250,000
412,520
993,800
1,406,320
351,000
1,406,320
-
250,000
101,000
(C)
102
RM
4.
5.
PROBLEM 12-39
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units
3,000
2,000
4,000
3,000
12,000
Unit cost
14
13
15
16
Total
P 42,000
26,000
60,000
48,000
P 176,000
(A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units
1,800
1,800
1,200
1,000
5,800
Unit cost
19
20
21
22
Total
P 34,200
36,000
25,200
22,000
P 117,400
Question No. 3
T-shirts:
Net realizable value
(12,000 x (P16-(10% x P16))
Jackets:
(5,800 x (P22-(10%xP22)
Lower of cost or NRV
(A)
NRV
P172,800
Cost
P176,000
Lower
P 172,800
114,840
P287,640
117,400
P 293,400
114,840
P 287,640
Question No. 4
Total cost (see no. 3)
Less: Lower of cost or NRV (see no. 3)
Loss on inventory write-down
P 293,400
287,640
P 5,760
(B)
Question No. 5
Beginning inventories:
T-shirts (9,000 x P11)
Jackets (5,000 x P15)
Add:*Total purchases (299,500 + 183,900)
Total goods available for sale
103
P 99,000
75,000
P 174,000
483,400
P 657,400
P12
12
13
14
13
15
16
P 48,000
36,000
32,500
49,000
26,000
60,000
48,000
P 299,500
Jackets
900
1,100
1,500
2,000
1,800
1,200
1,000
9,500
P16
18
19
19
20
21
22
P 14,400
19,800
28,500
38,000
36,000
25,200
22,000
P 183,900
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
293,400
P 364,000
5,760
P369,760
5.
PROBLEM 12-40
Note to professor: Change Data for 2012 were: to 2015.
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance
Net Purchases
600,000
2,200,000
1,200,000
1,600,000
Total
2,800,000
2,800,000
Question No. 1
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
Balance end
Direct materials used
CASE NO. 1
2012
2,000,000
1,700,000
0.15
104
2013
3,500,000
2,800,000
0.20
2014
4,000,000
3,000,000
0.25
2015
0.30
The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2015 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales
Multiply by: Cost Ratio
Cost of goods sold
Question No. 2
6,000,000
0.70
4,200,000
(B)
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,200,000
2,000,000
4,200,000
Balance end
Cost of goods sold
3,400,000
6,200,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,600,000
Total
6,000,000
6,000,000
3,400,000
Balance end
Cost of goods
manufactured
(A)
2014
1,000,000
4,000,000
0.25
2015
1,600,000
50%
800,000
CASE NO. 2:
Question No. 3
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
2012
340,000
2,000,000
0.17
2013
630,000
3,500,000
0.18
0.20
6,000,000
0.80
4,800,000
105
(B)
Question No. 4
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,800,000
4,000,000
2,000,000
4,800,000
Balance end
Cost of goods sold
6,800,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,000,000
Total
6,000,000
6,000,000
4,000,000
Balance end
Cost of goods
manufactured
(A)
CASE NO. 3:
Question No. 5
The gross profit for 2015 is computed based on the overall gross profit for 2013
and 2014:
800,000 + 1,000,000
Gross Profit Rate
=
3,500,000 + 4,000,000
1,800,000
=
7,500,000
Gross Profit Rate
= 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods
sold is computed as follows:
Sales
Multiply by: Cost Ratio
Cost of goods sold
6,000,000
0.76
4,560,000
(A)
Question No. 6
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,560,000
3,760,000
2,000,000
4,560,000
Balance end
Cost of goods sold
6,560,000
Work in Process
Beginning balance
Direct materials used
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,240,000
Total
6,000,000
6,000,000
106
3,760,000
Balance end
Cost of goods
manufactured
(A)
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
5.
6.
PROBLEM 12-41
Direct materials inventory
Beg. Balance
DM purchased
32,000
340,000
130,000
242,000
Total
372,000
372,000
68,000
242,000
360,000
240,000
50,000
860,000
Total
910,000
910,000
Balance end(squeeze)
Cost of goods manufacture
60,000
860,000
120,000
800,000
Total
920,000
920,000
4.
5.
PROBLEM 12-42
Note to the professor: The following corrections should be made to this
problem:
The ending accounts payable (Dec. 31) should be P250,000, instead of
P200,000.
Add Direct Labor of P900,000 and Factory Overhead of P675,000.
107
Question No. 1
Accounts payable
Balance end
Purchase ret. and allow.
Purchase discounts
Payments to supplier
(squeeze)
Total
250,000
70,000
80,000
3,255,000
555,000
3,000,000
100,000
3,655,000
3,655,000
Beg. Balance
Purchases
Freight-in
Question No. 2
Direct materials inventory
Beg. Balance
Net purchases
200,000
2,950,000
320,000
2,830,000
Total
3,150,000
3,150,000
Purchases
Add: Freight-in
Gross Purchases
Less: Purchase returns and allow
Purchase discounts
Net Purchases
Balance end
Direct materials used
3,000,000
100,000
3,100,000
70,000
80,000
2,950,000
Question No. 3
Work in process
Beg. Balance
Direct materials used
Direct labor
Factory overhead
250,000
2,950,000
900,000
675,000
280,000
4,375,000
Total
4,655,000
4,655,000
Question No. 4
Sales
Less: Cost of sales (5,000,000/120%)
Gross profit
P5,100,000
4,250,000
850,000
Balance end
Cost of goods
manufactured
120%
100%
20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
Question No. 5
Beg. Balance
Cost of goods
manufactured
Finished goods
400,000
4,375,000
108
525,000
4,250,000
Balance end
Cost of goods sold
Total
4,775,000
4,775,000
525,000
20,000
10,000
495,000
Question No. 6
Cost of goods sold (80% x P5,100,000)
= P4,080,000
Question No. 7
Sales (5,100,000-100,000)
Less: Cost of sales (80% x P5,100,000)
Gross profit
P5,000,000
4,080,000
1,000,000
100%
80%
20%
Finished goods
Beg. Balance
Cost of goods
manufactured
400,000
4,375,000
695,000
4,080,000
Total
4,775,000
4,775,000
4.
Balance end
Cost of goods sold
695,000
20,000
10,000
665,000
5.
6.
7.
PROBLEM 12-43
Question No. 1
Accounts payable March 31, 2015
Add: Unrecorded obligation April 25
April Shipments
Less: Payment from April 1 to 25 (285,000 + 100,000)
Adjusted balance April 25
1,185,000
425,000
100,000
385,000
1,325,000
(C)
Note: The P22,500 of purchase return should not be deducted from the
accounts payable since it was refunded.
109
Question No. 2
Purchases March 31, 2015
Add: Unrecorded obligation April 25
April Shipments
Less: Purchase return
Adjusted Net Purchases April 25
2,100,000
425,000
100,000
22,500
2,602,500
(B)
Question No. 3
Sales March 31, 2015
Add: Sales April 1 to 25 (see computation below)
Adjusted Sales April 25
4,520,000
730,000
5,250,000
(D)
Computation of sales:
Accounts Receivable
Beg. Bal. 03/31/2015
Sales (squeeze)
1,250,000
730,000
1,320,000
Write-off (never be
acknowledged)
Collections
(P532,500 22,500)
250,000
510,000
Total
2,080,000
2,080,000
2,500,000
2,602,500
5,102,500
2,887,500
2,215,000
150,000
65,000
2,000,000
Year Ended
2014
2013
2,250,000
1,750,000
11,300,000
8,700,000
2,500,000
2,250,000
8,200,000
11,050,000
P20,000,000
P15,000,000
4.
110
5.
Total
19,250,000
35,000,000
4. (D)
5. (B)
PROBLEM 12-44
Note to professor: The purchases for the element months should be eleven.
Questions No. 1 and 2
Purchases ending
11 mos
12 mos
2,700,000 3,200,000
30,000
(4,000)
(6,000)
(8,000)
(8,000)
2,718,000 3,186,000
1. (C)
2. (D)
Unadjusted balance
Shipment in Nov. included in December purchases
Unsalable shipments received
Deposits in October shipped February
Adjusted balance
Question No. 3
Beginning inventory January 1, 2015
Add: Purchases for 11 months (see No. 1)
Less: Ending inventory Nov. 30, 2015
Cost of sales
350,000
2,718,000
380,000
2,688,000
(A)
3,840,00
3,360,000
480,000
40,000
440,000
80%
352,000
40,000
392,000
(A)
380,000
468,000
392,000
456,000
(A)
4.
111
5.
PROBLEM 12-45
Inventory, Jan 1
Purchases
Purchase returns
Purchase discounts
Purchase allowance
Freight-in
Departmental Transfer-In
Departmental Transfer-Out
Totals
Basis of computation of cost ratios
Totals
Markups
Markup cancellations
Basis of computation (conservative)
Markdown
Markdown cancellations
Basis of computation (average)
Cost
300,000
6,000,000
(400,000)
(150,000)
(50,000)
20,000
600,000
(560,000)
5,760,000
Retail
1,200,000
8,500,000
(800,000)
1,100,000
(1,334,000)
8,666,000
5,760,000
8,666,000
600,000
(50,000)
9,216,000
(316,000)
100,000
9,000,000
5,760,000
5,760,000
Cost ratios:
Conservative
Cost ratio
Cost ratio
5,760,000
9,216,000
= 62,50%
=
Average
Cost ratio
Cost ratio
5,760,000
9,000,000
= 64%
=
FIFO
Cost ratio
Cost ratio
5,760,000 300,000
9,000,000 1,200,000
= 70%
=
112
Question Nos. 1 to 6
Cost method
Conservative (62.5%)
FIFO (70%)
Average (64%)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
6.
PROBLEM 12-46
Question No. 1
Unadjusted bal.
Undelivered sales
Valid Sales
Sales FOB destination
NSF check
Collection by the bank
Sales in 2015 recorded in 2016 DR No. 38740
Receivable ins. Co DR No. 38741
Sales in 2016 recorded in 2015 DR No. 38743
Adjusted balance
(D)
Subsidiary
Ledger
P 760,000
60,000
(
(
(
P
50,000
60,000)
3,360
10,080)
19,200)
784,080
Question No. 2
Current:
Unadjusted beginning Balance
Add: Valid Sales in 2015 (60,000 + 3,360)
Total
Less: Receivable ins. Co (DR # 38741)
Sales in 2016 recorded in 2015 (DR # 38743)
Current Accounts Receivable balance
Amount
100,000)
50,000
(
60,000)
3,360
(
10,080)
(
19,200)
P 784,080
97,500
63,360
160,860
10,080
19,200
131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1)
Less: Current Accounts Receivable balance
Past due Accounts Receivable
*or (662,500+50,000-60,000)
Age classification
General
Ledger
P 1,020,000
( 100,000)
784,080
131,580
*652,500
Percentage
Total
6
10
7,894.80
65,250.00
73,144.80
Current
131,580
Past due
652,500
Allowance for doubtful accounts
(A)
113
Question No. 3
Allowance for doubtful accounts, beginning
Less: Accounts written off
Less: Allowance for doubtful accounts, ending
Doubtful accounts expense
7,000.00
73,144.80
66,144.80
(A)
Question No. 4
Unadjusted Merchandise Inventory, ending
Add: Cost of merchandise sold of DR # 38743(19,200/120%)
Doubtful accounts expense
(B)
Question No. 5
Unadjusted Net Sales balance
Undelivered sales
Sales FOB destination
Sales in 2015 recorded in 2016 DR No. 38740
Sales in 2016 recorded in 2015 DR No. 38743
Adjusted balance
SUMMARY OF ANSWERS:
1. D 2. A
3. A
4.
5.
P 3,000,000
100,000)
100,000)
3,360
(
19,200)
P 2,784,160
(
(
(B)
100,000
(10,000)
(2,000)
88,000
(A)
Question No. 2
Accounts receivable, unadjusted
NSF check
Invalid sales already recorded
Adjusted Accounts receivable
x percent uncollectible
(100%-5% +2%)
Net realizable value
93%
219,480
(A)
Question No. 3
Unadjusted balance, MI
Goods shipped FOB shipping pt.
Cost of goods in transit to customer
Adjusted merchandise inventory
300,000
30,000
10,000
340,000
(C)
250,000
2,000
(16,000)
236,000
114
316,000
16,000
332,000
Question No. 4
Unadjusted balance, AP
Unrecorded disbursement
Unrecorded purchase
Adjusted accounts payable
120,000
(10,000)
30,000
140,000
(C)
Question No. 5
Cash
Net realizable value
Merchandise inventory
Prepayments
Current Assets
Accounts payable
Notes payable
Current liabilities
Working capital
88,000
219,480
340,000
12,000
659,480
140,000
180,000
320,000
339,480
(B)
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
5.
115
116
238,000
37,000
275,000
NFL
SHE
-
(23)
-
27
45
120
(15)
30
-
16
8
13
5
9
5
6
-
35
500
3,200
861
(E)
858
(A)
100
725
(B)
62
(A)
3,712
4.
1,600,000
10,000
5,000
1,615,000
Dividend receivable
Dividend income
32,000
Cash
Dividend receivable
32,000
32,000
32,000
117
2) FVTOCI
1/5/2015
1/10/2015
2/14/2015
1,615,000
1,615,000
Dividend receivable
Dividend income
32,000
Cash
Dividend receivable
32,000
32,000
32,000
The difference between FVTPL and FVTOCI is the treatment of transaction cost.
PROBLEM 14-3 Basic Journal Entries- Acquisitions in Between Dates of
Declaration and Record
Note to professor: Received dividends from Defray Co. declared January 2,
2007 to. 2007 should be replaced with 2015.
1) Trading securities
1/5/2015
Financial Asset at FVTPL (Squeeze)
Dividends receivable
Brokerage expense
Commission Expense
Cash
2/14/2015
12/31/2015
12/31/2016
1,584,000
16,000
10,000
5,000
1,615,000
Cash
Dividend receivable
16,000
Unrealized Loss PL
Financial Asset at FVTPL
64,000
400,000
16,000
64,000
400,000
Cash
Dividend receivable
16,000
79,000
1,615,000
16,000
FVTOCI securities
Unrealized loss equity
Unrealized gain equity
118
79,000
400,000
79,000
321,000
(B)
Question No. 4
Consideration received
Less: Brokerage and commission
Net Selling Price
Less: Carrying value (800,000 x )
Realized loss on sale P&L
Question No. 5
Journal entries for the sale are:
1) FVTPL
12/31/2014 FVTPL
Unrealized gain-P&L
1/2/2015
2) FVTOCI
12/31/2014
1/2/2015
375,000
10,000
365,000
400,000
(35,000)
(B)
800,000
750,000
50,000
(B)
375,000
10,000
365,000
400,000
(35,000)
50,000
Cash
Loss on sale
FVPTL
To record the sale
50,000
365,000
35,000
400,000
FVTOCI
Unrealized gain-OCI
50,000
50,000
Cash
Loss on sale (if any)
FVTOCI
To record the sale
365,000
35,000
400,000
119
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
2.
Total
Fair value
100,000
750,000
850,000
88,235
88,235
Fraction
10/85
75/85
Allocated
cost
88,235
661,765
750,000
120
60,000
(B)
Dividend income
60,000
December 15
December 31
Cash
Dividend Receivable
60,000
60,000
No journal entry
February 15
Noncash Asset
Dividend Receivable
75,000
75,000
75,000
75,000
(A)
40,500
22,500
18,000
(E)
Question No. 3
October 1
Memo entry
October 31
Cash
Gain on sale
FA at FVTOCI
45,000
18,000
22,500
121
Question No. 2
Journal entries are:
October 1
Dividend Receivable (15,000 x P4)
Dividend income
60,000
60,000
October 31
150,000
150,000
70,000
SUMMARY OF ANSWERS:
1. A
2. D
3. B
66,000
60,000
6,000
150,000
220,000
4.
Question No. 2
Fair value (P15 x 25,000)
Less: Carrying value
Unrealized gain-OCI
No. of
shares
10,000
15,000
25,000
Cost per
share
P21
Total
Cost
P210,000
P8.40
P210,000
25,000
(D)
P10
40,000
250,000
P375,000
250,000
P125,000
122
(D)
210,000
210,000
10/1
12/31
SUMMARY OF ANSWERS:
1. D
2. D
3. B
4.
60,000
60,000
125,000
(C)
125,000
400,000
200,000
July 15
600,000
P160 P100
5+1
123
400,000
200,000
400,000
200,000
P10
Question No. 2
When the stock is selling ex-right
=
=
P160 P100
5
P12
SUMMARY OF ANSWERS:
1. B
2. C
1,500,000
750,000
2,250,000
(C)
124
(C)
(A)
P50,000
5,000
45,000
37,500
P7,500
Question No. 4
EDA Corp. shares [P50 (P30,000/1,000)]
DJOA, Inc.
[P15 (P90,000/6,000)]
RVFE, Co.
[P45 (P80,000/2,000)]
ARP, Co.
[P100 (P880,000/8,000)]
Loss chargeable to income statement
x 1,000
x 3,500
x 2,000
x 8,000
(B)
Question No. 5
EDA Corporation shares
P50
x
DJOA, Inc.
P15
x
RVFE, Co.
P45
x
ARP, Co.
P100
x
Total balance of financial asset at profit or loss
1,000
3,500
2,000
8,000
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
5.
=
=
=
=
=
=
=
=
P20,000
10,000
( 80,000)
(P50,000)
P50,000
52,500
90,000
800,000
P992,500
P
(
P
880,000
10,000
10,000
16,000)
884,000
(A)
17,500
20,000)
(2,500)
(B)
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds (P35 x 500)
Cost (P500 x (P88,000/(2,000 x 110%))
Loss on sale
Question No. 4
Net Proceeds (P40,000 P5,000)
Carrying value (2,500 x (P90,000/6,000))
Dividends on stocks sold (P2 x 2,500)
Loss on sale
P
(
P
(
(
P
P
35,000
37,500)
5,000)*
(7,500)
(E)
125
50,000
52,500
76,500
800,000
979,000
P
4.
5.
(A)
480,000
425,000
55,000
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P80)
480,000
Gain on exchange
Investment in Trading- Pref. Shares (P800,000/8,000 x 4,000)
55,000
425,000
SUMMARY OF ANSWERS:
1. C
2. B or C
PROBLEM 14-21 Exchange of a PPE for Financial Asset
Question No. 1
Fair value of the financial asset
Less: Carrying value of the land
Gain on exchange
820,000
600,000
220,000
Question No. 2
Journal entries are:
March 31
Financial asset at FVTOCI
Land
Gain on exchange (820,000-600,000)
820,000
(B)
600,000
220,000
SUMMARY OF ANSWERS:
1. B
2. B
PROBLEM 14-22 Exchange of a Financial Asset for PPE
Question No. 1
Fair value of the financial asset
Less: Carrying value of the financial asset
Gain on exchange
126
650,000
600,000
50,000
(B)
Question No. 2
Journal entries are:
March 31
Land (at fair value of the asset given up)
FVTOCI
Gain on exchange (650,000-600,000)
Retained earnings
Unrealized loss (625,000-600,000)
650,000
600,000
50,000
25,000
25,000
SUMMARY OF ANSWERS:
1. B
2. B
PROBLEM 14-23 Reclassifications of Investments in Equity Securities
Question No. 1
Not allowed. The only allowed reclassification is from Financial Asset at
Amortized Cost (FAAC) to held for trading Financial Asset at Fair Value Through
Profit or Loss debt securities (FVTPL), or vice versa. Therefore the securities
remain as FVTPL. Since reclassification is not allowed, there is no
reclassification gain or loss.
(A)
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as
FVTOCI. Since reclassification is not allowed, there is no reclassification gain or
loss.
(A)
PROBLEM 14-24
Question No. 1
Stock rights (11,000 x P6)
Question No. 2
Cash paid (P90 x (10,000/5))
Cost of stock rights used (P4 x 10,000)
Total investment cost
Question No. 3
Proceeds (P5.5 x 1,000)
Cost of stock rights (P4 x 1,000)
Gain on sale of stock rights
66,000
(D)
180,000
40,000
220,000
(B)
5,500
4,000
1,500
(C)
440,000
304,000
136,000
(D)
P
P
P
Question No. 4
Proceeds
Cost of shares sold (P76 ** x 4,000)
Gain on sale of stocks
P
P
127
Question No. 5
Original investment cost
Cost allocated to stock rights*
Additional investment **
Sale of investment
Adjusted cost of investment
P 880,000
44,000)
220,000
(
304,000)
P 752,000
(
SUMMARY OF ANSWERS:
1. D
2. B
3. C
4.
5.
(D)
PROBLEM 14-25
Note to professor: Question No. 5 should be 2015 instead of 2014.
Question No. 1
Cash paid (400K+20K)
Less: dividends
Correct cost
420,000
10,000
410,000
Question No. 2
Feb. 10
Nov. 2
(10,000+(11,000/5) x 1
Total dividend income
(D)
30,000
13,200
43,200
(C)
Question No. 3
Fair value of new FA (10,000 x 40)
Less: Cost (900,000/15K x 5K)
Gain on conversion
400,000
300,000
100,000
(A)
Question No. 4
Consideration received (2,000 x 70)
Less: Dividends (2,000 x P1)
Net Selling Price
Less: Cost
Gain on sale
140,000
2,000
138,000
114,000
24,000
(B)
10-Feb
Total
1-May
(11,000/5)
Total
15-Nov
Total
Shares
10000
1,000
11,000
Cost
550,000
550,000
2,200
13,200
(2,000)
11,200
202,400
752,400
(114,000)
638,400
128
136,400
66,000
202,400
Question No. 5
Gerrit-PS (70 x 10,000)
-OS (45 x 10,000)
Loesch (72 x 11,200)
Barr (20 x 20,000)
Fair values
700,000
450,000
806,400
400,000
2,356,400
Cost
600,000
400,000
638,400
410,000
2,048,400
Difference
(900,000/15K x 10K)
308,000 (A)
Note: Use bid price on asset held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1. D
2. C
3. A
4.
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio 12/31/2014
Coloma Company
Soliman
Villanueva Company
Less: FVTOCI Portfolio 01/01/2014
Coloma Company
Soliman
Villanueva Company
Unrealized gain SFP
Question No. 2
Fair value of shares
Less: Carrying amount of Soliman portfolio
Gain on exchange
5.
3,070,000
2,737,500
1,871,000
7,678,500
3,050,000
2,725,000
1,875,000
(C)
7,650,000
28,500
2,797,500
2,737,500
60,000
(B)
Note that the carrying amount is equal to the fair value previous
remeasurement date (12/31/2014).
Question No. 3
Proceeds from sale of Aquino shares
Less: Carrying amount of Aquino portfolio
Loss on sale
Question No. 4
FVTOCI Portfolio 12/31/2015
Coloma Company
Villanueva Company
Less: FVTOCI Portfolio 01/01/2014
129
2,590,000
2,600,000
(10,000)
(B)
3,080,000
1,867,500
4,947,500
Coloma Company
Villanueva Company
Unrealized gain SFP (cumulative)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
3,050,000
1,875,000
(C)
4.
4,925,000
22,500
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 4,000) x P50 = P200,000
Question No. 2
Type of
stocks
# shares
Ordinary
10,000
Preference
2,000
Total cost
Fair
value
P30
10
Total fair
value
P300,000
20,000
P320,000
(A)
Allocated
cost
P234,375
15,625
P250,000
(B)
Question No. 3
Allocate part of the investment cost to the preference shares.
Question No. 4
Proceeds (1,000 x P17)
P
Carrying amount [(P15,625/(10,000/5)) x 1,000)(
Gain on sale
P
17,000
7,812.50)
9,187.50
(C)
Question No. 5
Proceeds, exclusive of interest
Carrying amount (250 x 1,000 x 110%)
Gain on sale
280,000
275,000)
5,000
(A)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
P
(
P
C
5.
PROBLEM 14-28
Question No. 1
Net Selling price
Less: Carrying value (740,000/40,000 x 5,000)
Gain on sale
Question No. 2
Consideration received
Less:
(D)
250,000
92,500
157,500
270,000
130
24,000
248,000
111,000
137,000
*The par value after 2 for 1 share split is equal to P40 x = P20
Question No. 3
6/1/2015 (35,000 x 4)
12/1/2015 (35,000 x 20% x P20)
Total dividend income
(A)
4.
1,247,000
507,500
739,500
131
5.
140,000
140,000
280,000
4. (D)
5. (D)
Change
P120,000 to
P80,000
PROBLEM 15-1 Held for Trading Interest Income and Unrealized Gains or
Losses
Question No. 1
Face value
Multiply by: Nominal rate
Multiply by: Months outstanding
Interest Income
(A)
3,000,000
10%
12/12
300,000
Question No. 2
Fair value of the bonds (3M x 104)
Less: Carrying value
Unrealized gain - P&L
(E)
3,120,000
2,855,940
264,060
3,120,000
3,090,000
30,000
(D)
Interest
Income
Premium
Amortization
(B) 135,249
15,249
132
762,600
364,476
1,127,076
Present
value
1,127,076
1,142,325
1,878,460
56,354
50,000
(E)
Interest
Income
Discount
Amortization
225,415
25,415
6,354
1,884,814
50,000
1,934,814
Present
value
1,878,460
1,903,875
(B)
P1,100,000
44,752
P1,144,752
Since there is transaction cost incurred, effective rate must be computed. The
effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the
textbook for example of interpolation).
Interest income (11.5% x P1,144,752) = 131,646
(B)
Interest
Total
Principal
Collection
Collection
450,000
180,000
630,000
450,000
135,000
585,000
450,000
90,000
540,000
450,000
45,000
495,000
Total Present Value of the serial bonds
Question No. 2
Interest income (1,727,834 x 12%) = 207,340
133
Present
Value Factor
0.8929
0.7972
0.7118
0.6355
(C)
(B)
Total Present
Value
562,527
466,362
384,372
314,573
1,727,834
(B)
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2014 since reclassification date will be
on the first day of the next reporting period (January 1, 2015). The investment
therefore would be continued to be reported as Financial Assets at Amortized
Cost on December 31, 2014.
Question No. 2
Fair value of the bonds, reclassification date (104% x P3,000,000)
Less: Carrying value, reclassification date [(P2,855,940 x 1.12)
(10% x P3,000,000)
Gain on reclassification
(B)
3,120,000
2,898,653
221,347
(A)
Note that interest income is computed for the whole year and is based on the
nominal rate since this is a held for trading investment. The investment will be
continued to be measured at fair value and reported as Financial Assets at Fair
Value Through Profit or loss on December 31, 2014.
Question No. 2
Fair value of the bonds, reclassification date (104% x P3,000,000)
Less: Carrying value, reclassification date (103% x P3,000,000)
Gain on reclassification
(D)
3,120,000
3,090,000
30,000
134
(D)
3,864,680
3,188,800
675,880
4,464,500
892,900
5,357,400
5,357,400
4,910,521
4,910,521
4,464,320
446,201
(D)
COMPREHENSIVE PROBLEMS
PROBLEM 15-11
Question No. 1
Cost of investment Jan. 21(P2,000,000 x 102%) = P2,040,000
Question No. 2
Proceeds
Less: Accrued interest (P1,000,000 x 9% x 3/12)
Net Proceeds
Less: Carrying amount (P2,000,000 x 102%)
Gain on sale
Question No. 3
Proceeds
Less: Accrued interest (P400,000 x 9% x 5/12)
Net proceeds
Carrying amount (P400,000 x 102%)
Loss on sale
(A)
(A)
P1,060,000
22,500
1,037,500
1,020,000
P 17,500
(A)
P 419,000
15,000
404,000
408,000
(
4,000)
(A)
Question No. 5
Carrying value 12/31/2014 (P600,000 x 102%) = P612,000
The market value is equal to its cost.
135
P
(A)
9,500
28,000
51,000
88,500
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
5.
Premium
Amortization
54,645
60,109
66,152
72,645
2,732,000
1,521,552
4,253,552
Present
value
4,253,552
4,198,907
4,138,798
4,072,646
4,000,000
Question No. 3
Carrying amount of the investment 12/31/2015 (see table above)
Less: Present value of expected cash flows
Impairment loss
(B)
4,138,798
3,305,600
833,198
3,305,600
3,305,600
Question No. 4
Interest income (P3,305,600 x 10%) = 330,560
(D)
The interest income was computed using the original effective rate and the
impaired value as of 12/31/2015.
Question No. 5
Present value expected cash flows, date of reversal
Would have been present value had there been no impairment
4,509,136
4,072,646
(D)
4,072,646
3,636,160
436,486
3,636,400
872,736
4,509,136
136
PROBLEM 15-13
Question No. 1
Proceeds
Less: Carrying amount [(P432,000/24,000) x 12,000)
Loss on sale
(B)
Question No. 2
Cost, 1/1/2014
Less: Amortized cost, 12/31/2014
Premium amortization
Less: Nominal interest (5,000,000 x 12%)
Interest Income
P 204,000
216,000
(12,000)
P5,311,400
5,242,540
68,860
600,000
531,140
22,500
260,000
P 282,500
P1,881,000
15%
P 316,800
180,000
P 496,800
FVTOCI:
Genesis bonds
Exodus bonds
Total
P 5,166,794
1,928,263
P 7,095,417
137
P2,020,000
1,928,623
91,377
Genesis Bonds
Date
01/01/2014
12/31/2014
12/31/2015
Interest
Collection
Interest
Income
Premium
Amortization
600,000
600,000
531,140
524,254
68,860
75,746
Interest
Collection
Interest
Income
Discount
Amortization
260,000
260,000
282,150
285,473
22,150
25,473
Present
value
5,311,400
5,242,540
5,166,794
Exodus Bonds
Date
01/01/2014
12/31/2014
12/31/2015
Present
value
1,881,000
1,903,150
1,928,623
(A)
Question No. 5
Investment in Sta. Ana (20,000 x 110% x P40) = P880,000 (C)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
138
5.
3,105,000
2,274,600
5,379,600
(31,020)
300,000
5,648,580
(B)
5,121,400
5,249,316
(127,916)
640,000
25%
160,000
Question No. 2
Fair value of investment, date of date of transfer (25,000 x P120)
Less: Carrying value of investment - 12/31/2014
Unrealized gain P&L
(C)
Question No. 3 and 4
(See Amortization table below):
Interest
Interest
Date
Collection
Income
01/01/2014
12/31/2014
400,000
462,101 (B)
12/31/2015
400,000
468,311 (C)
12/31/2016
400,000
475,142
Discount
Amortization
62,101
68,311
75,142
Question No. 5
Present value of the principal (5M x .751)
Add: Present value of interest payments (only principal will be
recovered)
Total Present value of future cash inflows
Less: Amortized cost - 12/31/2015(see amortization table)
Impairment loss
(C)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
2,140,000
425,000
(80,000)
(40,000)
2,445,000
139
5.
3,000,000
2,445,000
555,000
Present
value
4,621,006
4,683,107
4,751,418
4,826,560
3,755,000
3,755,000
4,751,418
(996,418)
30,000,000
24,000,000
6,000,000
1,200,000
4,800,000
5,000,000
20%
1,000,000
(C)
Question No. 3
Share in net income (P8M x 20%)
Less: Amortization of Undervalued valued asset (see below)
Adjusted net investment income
(A)
1,600,000
200,000
1,400,000
1,200,000
6
200,000
Question No. 4
Cost of Investment
Add: Net investment income (see no. 3)
Less: Dividends received (P1 x 1M shares)
Carrying value 12/31/2015
30,000,000
1,400,000
1,000,000
30,400,000
(A)
Question No. 5
Investment using Fair Value (P32 x 1,000,000) = P32,000,000
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
5.
(D)
PROBLEM 16-2
Question No. 1
Cost of Investment (P3.9M + 100,000)
Less: Book value of net asset acquired (P12M x 25%)
Excess of cost over book value
140
4,000,000
3,000,000
1,000,000
(50,000)
(375,000)
1,425,000
(A)
Question No. 2
Share in net income (P4M x 25%)
Add: Amortization of Overvalued valued asset (see below)
Adjusted net investment income
(A)
Amortization of Overvalued asset:
Inventory
1,000,000
87,500
1,087,500
2015
(50,000)
2016
Machinery
Divide by: Remaining life
Amortization of overvalued machinery
(375,000)
10
(37,500)
(375,000)
10
(37,500)
2015
4,000,000
25%
1,000,000
1,000,000
25%
250,000
2016
5,000,000
25%
1,250,000
1,400,000
25%
350,000
Question No. 3
Cost of Investment
Add: Net investment income (see no. 2)
Less: Dividends received (P1M x 25%)
Carrying value 12/31/2015
4,000,000
1,087,500
250,000
4,837,500
(C)
Question No. 4
Share in net income (P5M x 25%)
Add: Amortization of Overvalued valued asset (see no. 2)
Adjusted net investment income
(B)
1,250,000
37,500
1,287,500
Question No. 5
Carrying value 01/01/2016
Add: Net investment income (see no. 4)
Less: Dividends received (P1.4M x 25%)
Carrying value 12/31/2016
4,837,500
1,287,500
350,000
5,775,000
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
(B)
141
5.
4,000,000
3,000,000
1,000,000
(50,000)
(375,000)
150,000
1,275,000
2015
(50,000)
2016
Machinery
Divide by: Remaining life
Amortization of Under (over) valued asset
(375,000)
10
(37,500)
(375,000)
10
(37,500)
150,000
2015
4,000,000
25%
1,000,000
1,000,000
25%
250,000
2016
5,000,000
25%
1,250,000
1,400,000
25%
350,000
Land
Net income of the associate
Multiply by: Percentage of ownership
Share in the net income
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends received
Question No. 2
Share in net income (P4M x 25%)
Add: Amortization of Overvalued valued asset (see table above)
Adjusted net investment income
(C)
1,000,000
87,500
1,087,500
Question No. 3
Cost of Investment
Add: Net investment income (see no. 2)
Less: Dividends received (P1M x 25%)
Carrying value 12/31/2015
4,000,000
1,087,500
250,000
4,837,500
(C)
Question No. 4
Share in net income (P5M x 25%)
Less: Net Amortization of Undervalued valued asset (see no. 1)
Adjusted net investment income
(B)
Question No. 5
142
1,250,000
112,500
1,137,500
4.
4,837,500
1,137,500
350,000
5,625,000
(E)
5.
600,000
( 100,000)
500,000
(A)
400,000
(A)
CASE NO. 2
Question No. 1
Net income
Less: Total actual preference dividends declared
Net income to ordinary shares
Multiply by: Percentage of ownership
Share in the net income of associate
Less: Amortization of undervalued asset (800,000/8)
143
5,000,000
300,000
5,300,000
P2,000,000
450,000
P1,550,000
25%
387,500
100,000
(D)
287,500
(B)
5,000,000
287,500
5,287,500
CASE NO. 3
Question No. 1
Net income
Multiply by: Percentage of ownership
Share in the net income of associate
Less: Amortization of undervalued asset (800,000/8)
Net investment income
(E)
P2,000,000
25%
500,000
100,000
400,000
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
Less: Dividends received
Carrying value 12/31/2015
Although the answer should be P400,000, the next best possible answer is
P500,000.
Question No. 2
Cost of Investment
Add: Net investment income (see no. 1)
Less: Dividends received
Carrying value 12/31/2015
SUMMARY OF ANSWERS:
CASE NO. 1
CASE NO. 2
1. A
2. A
1. D
2. B
(C)
1.
5,000,000
400,000
5,400,000
CASE NO. 3
E
2.
C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity
Method - Step Acquisition
Question No. 1
Fair value 12/31/2016
Less: Carrying value (Fair value 12/31/2015)
Unrealized loss P&L
(B)
2,200,000
2,500,000
(300,000)
Question No. 2
Investment income (P500,000 x 10%)
(E)
50,000
Question No. 3
Nil. No catch-up adjustment on retained earnings. (A)
144
2,200,000
3,075,000
5,275,000
3,500,000
1,775,000
8
221,875
1,500,000
25%
375,000
550,000
25%
137,500
Question No. 4
Share in net income
Less: Amortization of Undervalued asset (see table above)
Adjusted net investment income
(B)
Question No. 5
Cost of Investment
Add: Net investment income (see no. 4)
Less: Dividends received
Carrying value 12/31/2015
SUMMARY OF ANSWERS:
1. B
2. E
3. A
4.
(B)
5.
375,000
221,875
153,125
5,275,000
153,125
137,500
5,290,625
P2,600,000
200,000
2,400,000
2,500,000
(P100,000)
Question No. 2
Consideration received
Less: Dividend income (5 x 40,000)
Net selling price
Less: Carrying value [6M-(P5 x 100,000)/100,000] x 40,000)
Gain on sale
(B)
P2,600,000
200,000
2,400,000
2,200,000
P200,000
145
Question No. 3
Fair value (P70 x 60,000)
(A)
P4,200,000
Question No. 4
Cost of Investment 01/01/2015
Add: Net investment income - 2015 (2,500,000 x 30%)
Less: Dividends received -2015 (30% x 1,000,000)
Carrying value 12/31/2015
Add: Net investment income - 2016 (3,000,000 x 30%)
Less: Dividends received -2016 (30% x 1,600,000)
Carrying value 12/31/2016
1,200,000
750,000
300,000
1,650,000
900,000
480,000
2,070,000
1,200,000
1,035,000
P165,000
(B)
Question No. 5
Investment in Kababain FVTOCI:
Fair value (P75 x 15,000)
Less: Carrying amount
Investment in Passing Rate FVTOCI:
Fair value (P70 x 60,000)
Less Cost (6M-(5 x 100,000))/100,000 x 60,000)
Total Unrealized Gain OCI to SFP
(C)
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
5.
1,125,000
1,035,000
4,200,000
3,300,000
90,000
900,000
P990,000
4,000,000
192,000
200,000
3,992,000
Note:
The dividend received on August 1, 2015 need not be prorated even though
the investment was acquired on July 1, 2015 since dividends is considered
when the investor has the right to receive payment (i.e. date of declaration).
The P1.8M net income was for a period of 12 months ending December 31.
Question No. 2
Sales price (P25 x 50,000)
Carrying value of shares (P3,992,000 x 50,000/200,000)
Gain on sale of investment
(B)
146
1,250,000
998,000
252,000
Question No. 3
Fair value of retained investment (P25 x 150, 000)
Less: Carrying amount of retained investment (P3,992,000 x
150,000/200,000)
Gain on reclassification to P&L
(C)
3,750,000
2,994,000
756,000
Question No. 4
Fair value, Dec. 31, 2016 (P30 x 150,000)
Fair value, Jan. 1, 2016 (P25 x 150,000)
Unrealized gain, Dec. 31, 2016
(B)
4,500,000
3,750,000
750,000
Question No. 5
Fair value, Dec. 31, 2016 (P30 x 150,000)
(A)
4,500,000
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
5.
147
16,500,000
960,000
(840,000)
16,620,000
6,800,000
6,648,000
152,000
10,350,000
9,972,000
378,000
(C)
530,000
(B)
10,500,000
10,350,000
150,000
Question No. 4
Fair value, Dec. 31, 2015 (P70 x 150,000)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
(D)
10,500,000
1,400,000
400,000
1,800,000
(1,600,000)
200,000
320,000
200,000
PAS 28, paragraph 29, provides that if under equity method an investors share
of losses of an associate equals or exceeds the carrying amount of an
investment, the investor discontinues recognizing its share of further losses.
The investment is reported at NIL or zero value.
PROBLEM 16-11 Downstream Sale of Inventory
Net income
Multiply by: Percentage of ownership
Share in the net income before adjustment
Less: Unrealized profit on downstream sale of
inventory
Share in the net income after adjustment
2015
1,000,000
25%
250,000
2016
1,500,000
25%
375,000
(30,000)
220,000
(B)
30,000
405,000
(D)
2015
1,000,000
25%
250,000
2016
1,500,000
25%
375,000
(9,000)
241,000
(B)
9,000
384,000
(D)
148
2015
1,000,000
25%
250,000
(160,000)
90,000
(B)
2016
1,500,000
25%
375,000
40,000
415,000
(D)
2015
1,000,000
25%
250,000
(40,000)
210,000
(B)
2016
1,500,000
25%
375,000
10,000
385,000
(D)
COMPREHENSIVE PROBLEMS
PROBLEM 16-15
Note to professor:
However, it was sold by Myrah Company in 2012 should be 2016.
Josiah Company is the associate.
Questions No. 1 & 2
Net income
Multiply by: Percentage of ownership
Share in the net income before adjustment
Unrealized gain on downstream sale of PPE
Unrealized profit on upstream sale of inventory
Unrealized profit on upstream sale of inventory
Share in the net income after adjustment
149
2015
2,000,000
30%
600,000
(160,000)
(30,000)
410,000
(C)
2016
3,000,000
30%
900,000
40,000
30,000
(45,000)
925,000
(D)
4,000,000
410,000
240,000
(E)
Question No. 5
Cost of Investment 01/01/2015
Add: Net investment income - 2015 (see No. 1)
Less: Amortization of Goodwill (P200,000 / 10)
Less: Dividends received -2015 (30% x P800,000)
Carrying value 12/31/2015
Add: Net investment income - 2016 (see No. 2)
Less: Amortization of Goodwill (P200,000 / 10)
Less: Dividends received -2016 (30% x P1,200,000)
Carrying value 12/31/2016
(E)
4,170,000
925,000
360,000
4,735,000
(C)
4,000,000
410,000
20,000
240,000
4,150,000
925,000
20,000
360,000
4,695,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity cannot determine reliably the useful life, it is
assumed to be 10 years.
SUMMARY OF ANSWERS:
1. C
2. D
3. E
4.
5.
PROBLEM 16-16
Question No. 1
Cost
Less: Equity in net assets
Implied goodwill
(A)
P1,700,000
1,400,000
300,000
(A)
P 32,500
25,000
7,500
Question No. 3
Proceeds (500 x P21)
Less: Carrying amount [(P55,000/(2,000 x 110%)) x 500]
Loss on sale
(A)
P 10,500
12,500
2,000
Question No. 4
Proceeds (1,500 x P21)
Less: Carrying amount [(P40,000/1,000) x 500]
Gain on conversion
P 31,500
20,000
11,500
Question No. 2
Proceeds (2,500 x P13)
Less: Carrying amount [(P60,000/6,000) x 2,500]
Gain on sale
150
(C)
Question No. 5
Investment in Roque Corporation:
3/9
1,000 x P1.2
9/9
1,000 x P1.2
Investment in Ocampo Corporation:
6/30 (6,000 2,500) x P1
Total dividend income
1,200
1,200
(A)
3,500
5,900
Question No. 6
1/2/2016 Acquisition Cost
Add: Share in net income of associate (P1,200,000 x 30%)
Less: Dividends (P.50 x 4 x 100,000)
12/31/2016 carrying amount
(A)
1,700,000
360,000
200,000
P1,860,000
Question No. 6
Roque pref. (1,000 500) x P56
Roque ordinary (1,500 x P20)
Ocampo (6,000 -2,500) x P11
Dagumboy Co. (2,000 x 110% -500) x P22
12/31/2016 FVTOCI Balance
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
28,000
30,000
38,500
37,400
133,900
(A)
5.
6.
7.
PROBLEM 16-17
Question No. 1
Solano:
Fair values (11,000 x 23)
Less: Cost
253,000
250,000
3,000
A. Castaneda
Fair values (20,000 x 14)
Less: Cost
Net unrealized loss
280,000
320,000
(B or D)
(40,000)
(37,000)
Question No. 2
Net Proceeds
Less: Carrying value (P3 x 20,000)
Gain on sale
(A)
Question No. 3
Zero, gain or loss on reclassification is recognized in the profit or loss.
151
75,000
60,000
15,000
(D)
1,500,000
1,350,000
150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D)
Question No. 5
Fair value previously held interest (P3M / 20% x 10%)
Add: Acquisition cost
Initial carrying amount investment in associate
Add: Net investment income (see No. 4)
Less: Dividends declared (P2 x 150,000)
Investment balance end
SUMMARY OF ANSWERS:
1. B or D
2. A
3.
4.
5.
(B)
270,000
1,500,000
3,000,000
4,500,000
270,000
300,000
4,470,000
PROBLEM 16-18
Note to professor: The investment in associate was acquired on January 1,
2016 should be on January 1, 2015.
Question No. 1
Consideration received (P115 x 4,000)
Less: Dividend of the investment sold (P4 x 4,000)
Net Selling Price
Less: Carrying value of the investment sold (*985,000/10,000 x
4,000)
Gain on sale
(B)
460,000
16,000
444,000
394,000
50,000
152
5,625,000
5,200,000
425,000
9,000,000
2,500,000
11,500,000
100,000
1,000,000
10,400,000
Question No. 3
Nil. (A)
The dividend that was paid and sold in Boy-ot shares is not classified as
dividend income since the company did not own the shares when the
dividend was declared.
The dividend received in Cleo Shares is not regarded as income, but as a
deduction of the initial carrying amount of the investment in associate.
Question Nos. 4 and 5
Rodolfo (P23 x 20,000)
Boy-ot (P96 x 6,000)
Gene (P14 x 40,000)
Cleo (P225 x 25,000)
Total
Fair value
460,000
576,000
560,000
5,625,000
7,221,000
(A)
Cost
500,000
*591,000
640,000
5,625,000
7,356,000
* (985,000/10,000 x 6,000)
SUMMARY OF ANSWERS:
1. B
2. D
3. A
4.
153
5.
(UG) / UL
40,000
15,000
80,000
135,000
(B)
Change to:
Credit to Machine A
685
686
PROBLEM 18-2
Improvements
Capitalizable
Cost
of
Question No. 1
Purchase Price
Title Insurance
Legal fees to purchase land
Property taxes, January 1, 2015 -June 30, 2015
154
Machinery
1,400,000
8,000
Land,
Others
12,000
20,000
13,000
10,000
13,000
5,000
18,000
-
1,476,000
25,000
48,000
Building
and
Land
925,000
7,500
5,000
15,000
(A)
45,000
997,500
(A)
3,100,000
60,000
42,500
(6,000)
3,196,500
(B)
400,000
60,000
460,000
(C)
4,400,000
33,000
6,000
6,500
8,000
13,000
13,500
4,480,000
6,600,000
21,000
50,000
66,400
2,000
8,000
6,747,400
53,000
Real Property taxes on the land accrued after acquisition of P5,000 shall be
treated as expense.
155
(B)
800,000
80,000
40,000
920,000
0.40
368,000
(C)
920,000
0.60
552,000
60,000
(15,000)
597,000
500,000
97%
485,000
(B)
15,000
12,000
512,000
500,000
0.97
485,000
100,000
0.6209
62,090
156
50,000
62,090
597,090
(A)
800,000
(B)
1,000,000
0.7972
797,200
(D)
1,200,000
200,000
1,400,000
(B)
1,200,000
800,000
400,000
(B)
800,000
200,000
1,000,000
Question No. 4
Zero, the transaction lacks commercial substance. (A)
PROBLEM 18-9 Tradein
Question No. 1
Cash price without trade in
Question No. 2
Cash price without trade in
Less: Cash price with trade in
Trade in value
Less: Carrying amount
Loss on trade in
157
(A)
340,000
(B)
340,000
270,000
70,000
230,000
(160,000)
(D)
4,000,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
share premium in the equity.
(A)
PROBLEM 18-11 Acquisition through Issuance of Bonds Payable
Question No. 1
Fair value of the bonds (10,200 x 500)
(C)
5,100,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
premium on bonds payable.
(A)
PROBLEM 18-12 Acquisition by Donation
Question No. 1
Fair value
Add: Direct cost
Total cost
(B)
4,000,000
40,000
4,040,000
Question No. 2
Fair value
(C)
4,000,000
158
(C)
400,000
75,000
12,000
10,000
477,000
(A)
400,000
12,000
412,000
(B)
1,000,000
20%
200,000
60,000
140,000
(D)
1,000,000
20%
200,000
20,000
180,000
(C)
1,000,000
1.2155
1,215,500
1,000,000
215,500
60,000
155,500
Question No. 4
Loan received
Add: Expenditures incurred on Jan. 1
Balance at Jan 1
1,000,000
400,000
600,000
37,500
600,000
250,000
350,000
(C)
159
30,625
68,125
200,000
68,125
131,875
1,000,000
200,000
600,000
200,000
90,000
110,000
Question No. 2
Average expenditures (800,000 /2 )
Capitalizable borrowing cost (400,000 x 0.2 )
400,000
80,000
(C)
With a loan, the total proceeds are received on day 1 and any surplus funds are
invested until needed (as shown in the example above).
With a facility (e.g. overdraft facility), cash is withdrawn as needed. As a result
there are no surplus funds to invest and interest is paid only on those amounts
withdrawn.
PROBLEM 18-16 Specific and General Borrowings
Note to professor:
Page
Existing Data:
701
Kendall borrowed P750,000 on a construction
loan at 12% interest on January 1, 2013. This
loan was outstanding throughout the
construction period. The company had
P4,500,000 in 9% bonds payable outstanding
in 2013 and 2014.
Questions No. 1 & 2
January 1, 2015
September 1, 2015
December 31, 2015
Average accumulated expenditure
Multiply by: Rate
Capitalizable borrowing cost
200,000
300,000
300,000
Change To:
Change 2013 to 2015
Change 2014 to 2016
x 12/12
x 4/12
x 0/12
1. (A)
2. (D)
200,000
100,000
0
300,000
12%
P36,000
Since the average accumulated expenditure did not exceed the principal of the
specific borrowing, the specific rate was used in determining the capitalizable
borrowing cost.
160
836,000
12/31/2015 (P800,000 + 36,000)
March 31, 2016
300,000
September 30, 2016
200,000
Average accumulated expenditure
Less: Specific borrowing
Excess attributable to general borrowing
Multiply by: Rate
Multiply by: Months outstanding
Capitalizable borrowing cost general borrowings
Add: Specific borrowings (750,000 x 12% x 9/12)
Total capitalizable borrowing cost
x 9/9
836,000
x 6/9
x 0/12
3. (D)
200,000
0
1,036,000
750,000
286,000
9%
9/12
19,305
67,500
86,805
4. (B)
(A)
6,000,000
2
3,000,000
12,500
2,987,500
10%
298,750
P3,300,000
300,000
P3,000,000
150,000
600,000
305,000
410,000
161
300,000
360,000
250,000
950,000
330,000
1,188,000
247,500
915,750
102,750
(B)
32,000
70,750
4,500
66,250
5
13,250
(A)
P308,000
10,000
298,000
10
29,800
162
Machine A
Machine B
Machine C
Total
Cost
275,000
100,000
20,000
395,000
Salvage
Value
25,000
10,000
35,000
Depreciable
Amount
250,000
90,000
20,000
360,000
Estd.
Life
20
15
5
Annual
Depreciation
12,500
6,000
4,000
22,500
(C)
81,000
(C)
81,000
18,000
(B)
9,000
4,300
4,700
*Maximum depreciation. The carrying amount should not be reduced below its
residual value.
163
96,000
(B)
76,800
(D)
300,000
210,000
510,000
(C)
36,000
Cost
550,000
420,000
360,000
190,000
235,000
1,755,000
Residual
value
50,000
20,000
10,000
30,000
40,000
150,000
Depreciable
cost
500,000
400,000
350,000
160,000
195,000
1,605,000
Useful
Life
10
9
8
7
6
(E)
Depn
expense
50,000
44,444
43,750
22,857
32,500
193,551
(C)
8,000
2,000
6,000
4
1,500
(B)
5,000
600
4,400
164
3,300,000
1,500,000
1,800,000
CASE NO. 1
Requirement No. 1
Carrying value 12/31/2014
Less: Residual value
Depreciable amount
Divided by: Revised remaining useful life
Depreciation 2015
1,800,000
300,000
1,500,000
2
750,000
Requirement No. 2
Carrying value 12/31/2014
Less: Depreciation 2015
Carrying value 12/31/2015
1,800,000
750,000
1,050,000
CASE NO. 2
Requirement No. 1
Carrying value 12/31/2014
Less: Residual value
Depreciable amount
Divided by: Remaining useful life ( 8 4)
Depreciation 2015
1,800,000
150,000
1,650,000
4
412,500
Requirement No. 2
Carrying value 12/31/2014
Less: Depreciation 2015
Carrying value 12/31/2015
1,800,000
412,500
1,387,500
CASE NO. 3
Requirement No. 1
Carrying value 12/31/2014
Less: Residual value
Depreciable amount
Multiply by: Fraction (SYD = 10)
Depreciation 2015
1,800,000
300,000
1,500,000
4/10
600,000
Requirement No. 2
Carrying value 12/31/2014
Less: Depreciation 2015
Carrying value 12/31/2015
1,800,000
600,000
1,200,000
165
(C)
6,000
600
5,400
Sales
Average Fixed Asset
P1,480,000
.5 (P320,000 + X)
P1,480,000
P160,000 + .5x
P640,000 + 2x
P420,000
(C)
200,000
150,000
50,000
COMPREHENSIVE PROBLEMS
PROBLEM 18-36
Question No. 1
Beg. Balance of the Land
Cash paid
Mortgage assumed
Realtor's commission
Legal fees, realty taxes and documentation expenses
Amount paid to relocate persons squatting on the property
Total Cost of the Land
(B)
P 700,000
2,500,000
4,000,000
300,000
50,000
100,000
P7,650,000
Question No. 2
Beginning balance of the Land Improvement
Cost of fencing property
Total cost of Land Improvement
P 10,000
110,000
P 120,000
166
(A)
Question No. 3
Beg. Balance of the Building
Amount recovered from salvage of building
Cost of tearing down an old building
Amount paid to contractor
Building permit
Excavation expenses
Architects' fees
Total cost of building
Question No. 4
Beg. Balance of the Machinery
Invoice cost of machinery
Freight, unloading
Customs duties
Allowances during installations
Total cost of machinery
Question No. 5
Total cost of Land Improvement
Total cost of building
Total cost of machinery
Total depreciable property
(A)
P 900,000
(150,000)
120,000
2,000,000
20,000
50,000
50,000
P2,990,000
(B)
P 980,000
2,000,000
60,000
140,000
400,000
P3,580,000
(A)
P 120,000
2,990,000
3,580,000
P6,690,000
4.
5.
Date
01/01/2014
07/01/2014
11/01/2014
Total
Divide by
Weighted average carrying amount
167
200,000
Average
36,000,000
42,000,000
12,000,000
90,000,000
12
7,500,000
General borrowings:
Rate
14%
12%
Total
Principal
2,000,000
18,000,000
20,000,000
Interest
280,000
2,160,000
2,440,000
200,000
13,000
7,500,000
2,000,000
5,500,000
12.20%
1
(A)
Date
01/01/2015
07/01/2014
08/01/2014
Total
Divide by
Weighted average carrying amount
187,000
671,000
858,000
2,640,000
858,000
Average
134,864,000
2,000,000
2,000,000
138,864,000
8
17,358,000
168
133,333
17,358,000
2,000,000
15,358,000
12.20%
8/12
(A)
133,333
1,249,117
1,382,451
1,760,000
1,382,451
Question No. 3
Actual borrowing cost - 2014
Less: Capitalizable borrowing cost - 2014
Interest expense
Question No. 4
Actual borrowing cost - 2015
Less: Capitalizable borrowing cost - 2015
Interest expense
Question No. 5
Total cost, 2014
Expenditures in 2015
Add: Capitalizable borrowing cost - 2015
Total cost of the building
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
5.
(C)
2,640,000
858,000
1,782,000
(C)
2,640,000
1,382,451
1,257,550
(B)
16,858,000
3,000,000
1,382,451
21,240,451
169
(C)
30,000,000
20
1,500,000
(B)
30,000,000
25,000,000
5,000,000
20
250,000
(D)
30,000,000
1,500,000
28,500,000
Question No. 5
Net cost of building
Less: Depreciation 2015
Carrying amount 12/31/2015
SUMMARY OF ANSWERS:
1. D
2. C
3. B
(C)
4.
5.
5,000,000
250,000
4,750,000
4.
170
5.
(C)
20,000,000
10
2,000,000
(D)
20,000,000
5,000,000
15,000,000
10
1,500,000
(A)
20,000,000
2,000,000
18,000,000
(B)
15,000,000
1,500,000
13,500,000
PROBLEM 18-40
Question No. 1
Cost of land and old building
Real estate broker's commission
Legal fees
Title insurance
Cost of land
P1,200,000
72,000
12,000
36,000
P1,320,000
(C)
Question No. 2
Date
Expenditures
January 1, 2014
1,000,000
April 1, 2014
500,000
October 1, 2014
800,000
December 31, 2014
900,000
Total
3,200,000
Divide by
Weighted average carrying amount
Months
outstanding
12
9
3
0
Average
12,000,000
4,500,000
2,400,000
18,900,000
12
1,575,000
120,000
1,575,000
1,000,000
575,000
10.50%%
12/12
(A)
120,000
60,375
180,375
960,000
180,375
Question No. 3
Date
Expenditures
January 1, 2015
*4,380,375
May 1, 2015
600,000
September 1, 2015
1,200,000
Total
3,200,000
Divide by
Weighted average carrying amount
*(3,200,000+180,375+1,000,000)
171
Months
outstanding
8
4
-
Average
35,043,000
2,400,000
37,443,000
8
4,680,375
80,000
4,680,375
1,000,000
3,680,375
10.50%%
8/12
257,626
337,626
640,000
337,626
(A)
(C)
Question No. 5
Interest cost in 2015:
Specific borrowing
General borrowing
Total interest
Less: Capitalizable borrowing cost in 2015
Interest expense in 2015
80,000
P6,000,000
42,000
164,000
108,000
180,375
337,626
P6,832,001
(C)
120,000
840,000
P 960,000
337,626.25
P622,373.75
Question No. 6
Depreciation rate (150%/40 years) = 3.75%
Total depreciation expense (6,832,001.25 x 3.75% x 4/12) = (B)
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
172
5.
84,500
PROBLEM 18-41
Question No. 1
SYD [5 x (5+1)/2] = 15
Date
4/1/2013 - 4/1/2014
4/1/2014 - 4/1/2015
Fraction to be used
(5/15)
(4/15)
Depreciation expense:
Jan. 1 - 4/1/2015 (4/15 x 1,500,000 x 3/12)
Add: depreciation from 4/1 - 12/31
Of the 1.2M (3/15 x 1,200,000 x 9/12)
Of the 300,000 (see computation below)
Total depreciation expense
P 100,000
(A)
180,000
30,000
P 310,000
P 300,000
100,000
80,000
P 120,000
3
P 40,000
9/12
P 30,000
Question No. 2
Accumulated depreciation, beg.
Add: Depreciation expense - 2015
Accumulated depreciation, 12/31/2015
(A)
P 800,000
310,000
P1,110,000
(B)
P 550,000
700,000
P1,250,000
(A)
P2,220,000
375,000
405,000
P3,000,000
Question No. 5
Depreciation on the beginning balance
(6M - 4,427,136 - 1,300,000)
Add: Depreciation on new building (3,000,000 x 20%)
Total depreciation
(D)
P 272,864
600,000
P 872,864
Question No. 3
Beginning balance of land
Add: Acquisition on Nov 4
Total cost of the land
Question No. 4
Direct cost
Fixed cost (15,000 x 25)
Variable cost (15,000 x 27)
Total Cost of building
173
Question No. 6
Cost of the machinery-beg bal.
Add: Cost of the new machinery
Invoice cost
Concrete embedding
Wall demolition
Rebuilding of wall
Total cost of machinery
P3,000,000
P 356,000
18,000
7,000
19,000
(A)
Question No. 7
Depreciation of machinery
Depreciation of the beginning balance of
machinery
Original Cost
Accumulated depreciation (3,000,000/20*10)
P1,500,000
Less: Major overhaul
600,000
Adjusted book value
Divided by: Revised remaining life (20 10 + 5)
Depreciation of the beginning balance of machinery
Depreciation on the new machinery (400,000/20 x 6/12)
Depreciation of machinery
(E)
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
5.
6.
400,000
P3,400,000
P3,000,000
900,000
P2,100,000
15
P 140,000
10,000
P 150,000
7.
PROBLEM 18-42
Question No. 1
Selling Price
Less Book value
Cost
Less: Accumulated Depreciation
Up to 1/1
From Jan. 1-May 1
[(140,000 -12,400) x 5/55]*
Gain on sale of machinery D
P 52,000
P140,000
P 92,800
11,600
(A)
(104,400)
35,600
P 16,400
174
P 140,800
26,880
P 167,680
Question No. 3
Accumulated depreciation, I Jan 1
Add: Depreciation expense [(320,000-60,000-20,000)/10]
Accumulated depreciation, I Dec. 31
(C)
P 60,000
24,000
P 84,000
Question No. 4
Accumulated depreciation, A Jan 1
Add: Depreciation expense (320,000-64,000) x 20%
Accumulated depreciation, A Dec. 31
(A)
P 64,000
51,200
P 115,200
Question No. 5
Depreciation expense on Machinery:
D (see computation in no. 1)
R (see computation in no. 2)
I (see computation in no. 3)
A (see computation in no. 4)
N (88,000/20%)
Total depreciation expense
P 11,600
26,880
24,000
51,200
17,600
P 131,280
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
(D)
A
5.
PROBLEM 18-43
Question No. 1
SYD
55
175
(C)
330,000
34/55
204,000
12,775
2,000
3,375
18,150
70,000
18,900
51,100
4
12,775
330,000
204,000
(C)
Question No. 4
Net Selling price
Less: Book value of the Machine
Cost
Less: Accumulated depreciation
(80,000-8,000)/9 x 1 9/12
Loss on sale
52,500
80,000
14,000
(A)
Question No. 5
Cost of the office equipment
Less: Accumulated depreciation
Accumulated depreciation, Dec 31, 2015
Depreciation expense in 2016
Book value, December 31, 2016
SUMMARY OF ANSWERS:
1. C
2. C
3. C
4.
126,000
6
21,000
40,000
61,000
5.
66,000
(13,500)
330,000
204,000
21,000
(B)
225,000
105,000
PROBLEM 18-44
Question No. 1
Fair value
Legal fees
Remodeling cost
Total cost of building
1,400,000
50,000
100,000
1,550,000
(C)
Question No. 2
Fair value of the asset received
Less: Cash paid
Fair value of the asset given
Less: Book value of the asset given
Cost
Less: Accumulated depreciation (1M/10 x 3.5)
Gain on exchange
Question No. 3
Office building No. 1 (940,000/7)
Office building No. 2 (1,000,000/10 x 6/12)
Office building No. 3 (1,200,000/4 x 6/12)
176
1,200,000
400,000
800,000
1,000,000
350,000
(A)
650000
150,000
135,000
50,000
150,000
155,000
490,000
(C)
1,000,000
300,000
700,000
245,000
945,000
Question No. 4
Income from government grant (1,400,000/10)
Question No. 5
Total depreciable cost
Less: Subsequent depreciation
Book value
SUMMARY OF ANSWERS:
1. C
2. A
3. C
4.
5.
(A)
140,000
(A)
945,000
135,000
810,000
PROBLEM 18-45
Question No. 1
Date
Expenditures
January 1, 2015
2,000,000
July 1, 2015
4,000,000
November 1, 2015
3,000,000
Total
9,000,000
Divide by
Weighted average carrying amount
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12)
Less: Investment income
General borrowings:
Weighted average carrying amount
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
Weighted average borrowing cost:
vs. Actual borrowing cost
Capitalizable borrowing cost (lower)
177
Months
outstanding
12
6
2
200,000
4,500,000
2,000,000
2,500,000
12%
12/12
(D)
Average
24,000,000
24,000,000
6,000,000
54,000,000
8
4,500,000
200,000
300,000
500,000
2,000,000
500,000
Question No. 2
Total expenditures 2015
Total expenditures - 2016
Capitalized borrowing cost - 2015
Capitalized borrowing cost 2016 (see computation below)
Total cost of building
(C)
Date
Expenditures
January 1, 2016
*9,500,000
July 1, 2016
1,000,000
Total
10,500,000
Divide by
Weighted average carrying amount
Months
outstanding
12
6
9,000,000
1,000,000
500,000
1,160,000
11,660,000
Average
114,000,000
6,000,000
120,000,000
12
10,000,000
200,000
10,000,000
2,000,000
8,000,000
12%
12/12
(A)
200,000
960,000
1,160,000
2,000,000
1,160,000
9,000,000
1,000,000
10,000,000
(A)
178
3,000,000
3/15
600,000
Question No. 5
Depreciation remaining delivery truck (see below)
Depreciation overhauled delivery truck (see below)
Depreciation new delivery truck (see below)
Total depreciation on delivery truck
(B)
114,000
30,000
24,000
168,000
Delivery truck:
Cost
Less: Accumulated depreciation
Carrying value 12/31/2015
Less: Carrying value of overhauled truck
Balance
Divide by: Remaining useful life (8-3)
Depreciation on remaining delivery truck
1,152,000
432,000
720,000
150,000
570,000
5
114,000
P240,000
90,000
150,000
60,000
210,000
7
30,000
400,000
20,800
40,000
460,800
8
57,600
5/12
24,000
Question No. 6
Beginning balance
Add: Overhauling cost
Add: Cost of new delivery truck
Adjusted cost of delivery truck
Less: Accumulated depreciation (432,000 + 168,000)
Carrying value 12/31/2015
(C)
SUMMARY OF ANSWERS:
1. D
2. C
3. A
4.
179
5.
1,152,000
60,000
460,800
1,672,800
600,000
1,072,800
6.
(B)
P164,000
P164,000
20,000
P8.20
4,000
P32,800
(C)
P164,000
32,800
131,200
20,000
P6.56
8,000
P52,480
8,000,000
12,000,000
10,000,000
30,000,000
900,000
29,100,000
4,000,000
7.275
400,000
2,910,000
Question No. 1
Cost of natural resource
Less: Accumulated depletion 12/31/2017
Carrying amount 12/31/2017
Less: Residual value
Depletable cost
Divide by: Revised remaining units
Depletion rate per unit
Multiply by: Units extracted - 2018
Depletion 2018
30,000,000
2,910,000
27,090,000
600,000
26,490,000
500,000
52.98
200,000
10,596,000
180
(A)
Question No. 2
Cost of natural resource
Less: Accumulated depletion (P2,910,000 + P10,596,000)
Carrying amount 12/31/2018
(A)
30,000,000
13,506,000
16,494,000
(A)
4,000,000
6,000,000
5,000,000
15,000,000
15,000,000
4,000,000
3.75
500,000
1,875,000
(A)
2,000,000
10
200,000
(A)
1,000,000
5
200,000
181
(A)
4,000,000
6,000,000
5,000,000
15,000,000
15,000,000
4,000,000
3.75
500,000
1,875,000
Question No. 2
Cost of the movable equipment
Divide by: Useful life in years
Depreciation - 2015
(A)
2,000,000
20
100,000
Question No. 3
Cost of the movable equipment
Divide by: Units estimated to be extracted (shorter)*
Depreciation rate per unit
Multiply by: Actual units extracted
Depreciation - 2015
(C)
P1,000,000
4,000,000
P.25
500,000
125,000
5,000,000
2,000,000
3
620,000
1,550,000
Question No. 1
Cost of immovable equipment
Less: Accumulated depreciation 12/31/2017
Book value 12/31/2017
Divide by: Remaining useful life (15 3)
Depreciation - 2018
(A)
5,000,000
1,550,000
3,450,000
12
287,500
(A)
5,000,000
1,837,500
3,162,500
1,380,000
2.29
150,000
343,750
Question No. 2
Cost of immovable equipment
Less: Accumulated depreciation 12/31/2018
Book value 12/31/2018
Divide by: Remaining units to be extracted
Depreciation per unit
Multiply by: Actual units extracted - 2019
Depreciation 2019
PROBLEM 19-5 Liquidating Dividends
182
9,000,000
7,000,000
16,000,000
800,000
720,000
14,480,000
PROBLEM 19-6
Question No. 1
Acquisition cost
Divide by: Tons estimated to be extracted
Depletion per ton
Multiply by: Actual tons extracted 2016
Depletion - 2016
Question No. 2
Cost of Installation
Divide by: Tons estimated to be extracted
Depreciation per ton
Multiply by: Actual tons extracted 2016
Depreciation - 2018
Question No. 3
Cost of mining equipment
Divide by: Useful life
Depreciation 2016
Question No. 4
Acquisition cost
Less: Accumulated Depletion
Carrying value 12/31/2016
Add: Additional development cost - 2017
Remaining depletable cost
Divide by: Estimated tons to be extracted
Depletion per ton
Multiply by: Tons extracted 2017
Depletion - 2017
(D)
P9,075,000
1,100,000
P8.25
100,000
825,000
(B)
1,925,000
1,100,000
1.75
100,000
175,000
(A or D)
4,400,000
8
550,000
(C)
P9,075,000
825,000
P8,250,000
750,000
P9,000,000
1,000,000
P
9
150,000
P1,350,000
Question No. 5
Installation ((P1,925,000/1.1M) x 150,000 tons)
Mining equipment (P4,400,000/8)
Total depreciation expense
(C)
P 262,500
550,000
P 812,500
SUMMARY OF ANSWERS:
1. D
2. B
3. A or D
4.
183
5.
150,000,000
8,000,000
8,196,161
166,196,161
P 12,000,000
0.683013455
P 8,196,161
Question No. 2
Total cost of the wasting assets
Divide by: Estimated units to be extracted
Depletion per unit
Multiply by: Units extracted
Depletion expense 2015
(B)
166,196,161
12,000,000
13.85
1,600,000
22,159,488
(A)
6,000,000
20
300,000
Question No. 4
Cost of the movable equipment
Divide by: Units estimated to be extracted (shorter)
Depreciation rate per unit
Multiply by: Units extracted
Depletion expense 2015
(B)
9,000,000
12,000,000
0.75
1,600,000
1,200,000
Question No. 3
Cost of the movable equipment
Divide by: Useful life
Depreciation 2015
Present value
8,196,161
9,015,778
9,917,355
10,909,091
12,000,000
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
184
5.
120,000,000
6,000,000
6,355,181
132,355,181
P 10,000,000
0.635518078
P 6,355,181
Question No. 2
Total cost of the wasting assets
Divide by: Estimated units to be extracted
Depletion per unit
Multiply by: Units extracted
Depletion expense 2015
(B)
132,355,181
12,000,000
11.03
1,600,000
17,647,357
(A)
6,000,000
6
1,000,000
(A)
9,000,000
5
1,800,000
Question No. 3
Cost of the movable equipment
Divide by: Useful life
Depreciation 2015
Question No. 4
Cost of the movable equipment
Divide by: Useful life
Depreciation 2015
Question No. 5
Date
Interest expense
01/01/2015
12/31/2015
762,622
12/31/2016
854,136 (E)
12/31/2017
956,633
12/31/2018
1,071,429
Present value
6,355,181
7,117,802
7,971,939
8,928,571
10,000,000
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
185
5.
Change to:
Cost
12/31/14 P3,000,000
12/31/15 P3,000,000
Owneroccupied
property
Investment
Property
Inventory
Others
1,260,000
1,110,000
2)
6)
9)
10)
2,100,000
530,000
11)
420,000
2,160,000
1. (A)
7,740,000
Remarks
Covered by PAS 11
Derecognized since
it is leased out
under a finance
lease
IP in the separate
FS
Cannot qualify as
IP since it is not
land or building
Not reported since
it is leased under
operating lease
450,000
2. (C)
3. (C)
(D)
4.
5.
6.
(D)
4.
186
(C)
187
188
Others
700,000
-
16,000
23,000
80,000
15,000
120,000
102,000
43,000
30,000
96,000
2,500
10,000
5,000
18,000
32,000
100,000
1,000,000
-
41,200
96,000
1,306,200
(A)
1,223,500
(D)
300,000
40,000
260,000
8
32,500
2,000,000
2,910,000
4,910,000
*The present value factor is the present value of ordinary annuity using 14% for
4 periods.
PROBLEM 22-6 Leasehold Improvement
Cost of the improvement
Less: Accumulated depreciation (2,250,000 / 10*)
Carrying value 12/31/2015
(B)
2,250,000
225,000
2,025,000
*Shorter of useful life of 10 years and extended lease term (12 3 + 6) = 15.
189
Net income
1,000,000
1,250,000
1,950,000
4,200,000
3
1,400,000
Net assets
3,900,000
4,350,000
4,500,000
12,750,000
3
4,250,000
(A)
1,400,000
850,000
550,000
25%
2,200,000
4,500,000
6,700,000
1,000,000
750,000
1,250,000
3,000,000
Question No. 2
Duplication of computer software and training materials from
product master
Packaging product
Total Inventoriable Cost
(A)
1,500,000
250,000
1,750,000
Question No. 3
Total Software Cost
Multiply by: (10M / 40M)
Amortization
3,000,000
25%
750,000
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. A
190
(A)
Question No. 2
Obtaining a domain name
Installing developed applications on the web server
Stress testing
Designing the appearance (e.g. layout and color) of web pages
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information
Updating graphics and revising content
Adding new functions, features and content
Reviewing security access
Total intangible asset
(B)
32,000
80,000
12,000
160,000
60,000
32,000
12,000
36,000
424,000
COMPREHENSIVE PROBLEMS
PROBLEM 22-10 Goodwill Computation
Current Assets (6,000,000 + 800,000)
Investments
PPE (13,000,000 + 1,850,000)
Current liabilities
Noncurrent liabilities
Fair value of net asset acquired
6,800,000
2,000,000
14,850,000
(3,500,000)
(2,500,000)
17,650,000
17,650,000
10%
1,765,000
Total earnings
Loss on sale (or Gain) on sale
Bonus (150,000 x 4years)
Operating income
Divide by: No. of years
Average earnings
9,000,000
(100,000)
600,000
9,500,000
4
2,375,000
Question No. 1
Average earnings
Less: Normal earning
Average excess earnings
Multiply by: Capitalization period
Goodwill
Add: Fair value of net asset acquired
Purchase price
(A)
(A)
191
2,375,000
1,765,000
610,000
4
2,440,000
17,650,000
20,090,000
Question No. 2
Average earnings
Less: Normal earning
Average excess earnings
Divide by: Capitalization rate
Goodwill
Add: Fair value of net asset acquired
Purchase price
(B)
(B)
Question No. 3
Average earnings
Divide by: Capitalization rate
Purchase price
Less: Fair value of net asset
Goodwill
(B)
(B)
Question No. 4
Average earnings
Less: Normal earning
Average excess earnings
Multiply by: Present value of ordinary annuity
Goodwill
Add: Fair value of net asset acquired
Purchase price
2,375,000
1,765,000
610,000
10%
6,100,000
17,650,000
23,750,000
2,375,000
8%
29,687,500
17,650,000
12,037,500
(C)
2,375,000
1,765,000
610,000
3.0373
1,852,753
17,650,000
19,502,753
Question No. 1
Net Patent, January 1
Divide by: Remaining life (8years -2 years)
Amortization
(A)
336,000
6
56,000
Question No. 2
None, the trademark has an indefinite life.
(B)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
(C)
PROBLEM 22-11
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4)
Divide by: Useful life
Amortization expense
(A)
192
400,000
5
80,000
Question No. 4
Purchase price
Less: Fair value of net assets acquired
Goodwill (carrying amount)
2,400,000
1,600,000
800,000
(A)
The goodwill shall not be amortized because its useful life is indefinite.
However, goodwill shall be tested for impairment at least annually, or more
frequently if events or changes in circumstances indicate a possible impairment.
Question No. 5
Cost-Patent
Less: Accumulated Amortization (48,000 + 56,000)
Cost - Trademark (no amortization) (1.6M x 3/4)
Cost - Noncompetition agreement
Less: Accumulated Amortization (see no. 3)
Total carrying amount of the Intangible assets
384,000
104,000
400,000
80,000
(B)
280,000
1,200,000
320,000
1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not
identifiable.
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
5.
PROBLEM 22-12
Question No. 1
Legal cost
Payment of licenses to author excluding refundable purchase
taxes (100,000-10,000)
Total cost of intangible assets
(D)
Question Nos 2, 3 and 5
Cost
Less: Amortization in 2015 (97,000/5 x 6/12)
Carrying value, 12/31/ 2015
Less: Amortization in 2016 (97,000/5 )
Carrying value, 12/31/ 2016
97,000
9,700
87,300
19,400
67,900
Question No. 4
General start-up cost
Amortization
Cost of printing
Advertising expense (20,000 x 6/12)
Total Expense
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4.
(B)
B
193
5.
7,000
90,000
97,000
No. 2 (C)
No. 3 (C)
No. 5 (D)
1,500
9,700
100
10,000
21,300
(C)
500,000
10
50,000
Question No. 2
Cost of the old Patent
Less: Accumulated Amortization (500,000 / 10 x 2)
Carrying value, 1/1/2013
Competitive Patent
Total
Divide by: Remaining life
Amortization
(D)
500,000
100,000
400,000
240,000
640,000
8
80,000
Question No. 3
Carrying value, 1/1/2013
Less: Amortization 2013
Carrying value, 12/31/2013
(D)
640,000
80,000
560,000
(A)
560,000
200,000
760,000
20
38,000
(A)
760,000
38,000
722,000
Question No. 4
Carrying value, 12/31/2013
Add: Related patent
Total Carrying value, 1/1/2014
Divide by: Extended life
Amortization
Question No. 5
Total Carrying value, 1/1/2014
Less: Amortization, 2014
Carrying value, 1/1/2015 = Loss
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4.
5.
600,000
60,000
13,000
673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
194
Question No. 3
Amortization - Trademark
Amortization - Customer list
Total amortization
(B)
60,000
60,000
(A)
60,000
165,416
225,416
Downpayment
Add: Present Value of notes payable (600,000 x .7118)
Cost of franchise
400,000
427,080
827,080
Question No. 4
Amortization - Trademark
Amortization - Customer list
Amortization - Franchise
Total amortization
Question No. 5
Cost of trademark
Cost of customer list
Less: Accumulated Amortization
Cost of franchise
Less: Accumulated Amortization
Total carrying value
SUMMARY OF ANSWERS:
1. C
2. A
3. B
300,000
120,000
827,080
165,416
(A)
4.
5.
673,000
180,000
661,664
1,514,664
PROBLEM 22-15
Question No. 1
Zero, organization cost is treated as outright expense.(A)
Question No. 2
Design costs
Add: Legal fees
Registration fee with Patent office
Total cost of trademark
Question No. 3
Cash
Add Present value of the note (200,000 x 2.91)
Cost of Franchise
Question No. 4
Cost (see no. 3)
Less: Amortization (982,000/20)
(B)
3,000,000
300,000
100,000
3,400,000
(B)
400,000
582,000
982,000
982,000
49,100
195
(A)
P49,100
932,900
(D)
4.
5.
PROBLEM 22-16
Question No. 1
Cost-Patent
Less: Amortization for the year (136,000/20)
Carrying value of the Patent
Question No. 2
Licensing agreement No. 1
Unadjusted balance
Less: Amortization for 2 years (100,000/20 x 2)
Total
Less: Reduction in value (90,000 x 60%)
Carrying value
Question No. 3
Unadjusted balance
Add: Amount credited for advance collection
Total cost
Less: Amortization (120,000/10)
Carrying value - Licensing agreement No. 2
Question No. 4
Carrying values:
Patent (see no. 1)
Licensing Agreement No. 1 (No. 2)
Licensing Agreement No. 2 (No. 3)
Total carrying value
(C)
136,000
6,800
129,200
(B)
100,000
10,000
90,000
54,000
36,000
(C)
118,000
2,000
120,000
12,000
108,000
(C)
129,200
36,000
108,000
273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for
incorporation should be charged to expense when it were incurred.
Question No. 5
Nonamortization of Licensing Agreement No 1 (100,000/20 x 1)
Expenses capitalized:
196
5,000
Goodwill (16,000+32,000)
Organization cost
Overstatement of Retained earnings
(A)
48,000
58,000
111,000
All the expenses above were understated thereby overstating the net income
and retained earnings.
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
5.
PROBLEM 13-17
Question No. 1
Unadjusted balance
Less: Unamortized portion of improvements debited
Cost
P75,000
Less: Amortization (P75,000 / 10 x 3)
22,500
Adjusted balance 01/01/2015
Less: Amortization 2015 (P52,500 + P56,071) see below
Carrying value 12/31/2015
(A)
Computation of amortization:
Adjusted balance 01/01/2015
Less: CV of Patent with remaining UL of 2 years 01/01/2015
Cost
210,000
Less: Accumulated amortization 01/01/2015
(P210,000 / 14 x 7)
105,000
CV of Patent with remaining UL of 7 years 01/01/2015
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2)
Patent with remaining UL of 7 years (392,500 / 7)
Total Amortization
Question No. 2
Franchise cost
Less: Amortization (50,000 / 5)
Carrying value 12/31/2015
(A)
197
550,000
52,500
497,500
108,571
388,929
497,500
105,000
392,500
52,500
56,071
108,571
50,000
10,000
40,000
Question No. 3
The amount to be reported as goodwill is the excess of cost over the fair value of
net asset acquired. Goodwill is not amortized but only subject to impairment
testing. Therefore, the amount to be reported is P200,000.
(A)
Question No. 4
Other coding costs after establishment of technological
feasibility
Other testing costs after establishment of technological
feasibility
Costs of producing master for training materials
Total Software Cost
(A)
240,000
200,000
150,000
590,000
Question No. 5
Completion of detailed program design
Costs incurred for coding and testing to establish technological
feasibility
Total Cost charged to Expense
(A)
Question No. 6
Amortization:
Patent (see No. 1)
Franchise (see No. 2)
Software cost none yet
Total Cost charged to Expense
SUMMARY OF ANSWERS:
1. A
2. A
3. A
130,000
100,000
230,000
108,571
10,000
118,571
(C)
4.
5.
6.
198
(B)
4,300,000
40,000
4,340,000
(A)
4,000,000
800,000
4,800,000
80%
3,840,000
280,000
4,120,000
Question No. 3
Cost of improvement
Less: Accumulated depreciation (500,000/8 x 9/12)
Carrying value
(B)
500,000
46,875
453,125
Question No. 4
Carrying value 01/01/2015
Less: Amortization 2015 (432,000 / 3 years remaining UL)
Carrying value
(C)
432,000
144,000
288,000
Question No. 5
Building (4,120,000-120,000)/50
Leasehold Improvements (500,000/8 x 9/12)
Furniture and Fixtures
Franchise (500,000 / 10)
Licensing agreement
Total depreciation and amortization expense
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
199
(A)
5.
80,000
46,875
150,000
50,000
144,000
P470,875
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
830
858
862
Change to:
Additional credit to
Revaluation Surplus in No. 1
under Proportional.
Elimination No. 1 Additional
Journal Entry
Debit: Accumulated depreciation
Credit: Equipment
Case No. 2
Appreciation = P900,000
Appreciation = P825,000
Historical
Cost
6,000,000
1,500,000
4,500,000
Replacement
Cost
20,000,000
5,000,000
15,000,000
Increase
14,000,000
3,500,000
10,500,000
(A)
(B)
Question No. 3
Revaluation surplus, beginning
Less: Piecemeal realization 2016 (10,500,000 / 15)
200
15,000,000
15
1,000,000
10,500,000
700,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
(B)
Question No. 4
Net Selling Price
Less: Carrying amount 01/02/2018
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P1M x 2 years)
Gain on sale
15,000,000
15,000,000
2,000,000
(A)
Question No. 5
Revaluation surplus, beginning
Less: Piecemeal realization for two years (10,500,000 / 15 x 2)
Remaining revaluation surplus to R/E
(A)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
9,800,000
13,000,000
2,000,000
10,500,000
1,400,000
9,100,000
Replacement
Cost
20,000,000
5,000,000
15,000,000
Cost
9,000,000
2,250,000
6,750,000
Increase
11,000,000
2,750,000
8,250,000
(A)
(B)
15,000,000
25
600,000
Question No. 3
Revaluation surplus, 01/01/2015
Less: Piecemeal realization 2015 (8,250,000 / 25)
Remaining revaluation surplus end of 2015
(B)
8,250,000
330,000
7,920,000
Question No. 4
Net Selling Price
Less: Carrying amount 01/02/2017
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P15M / 25 x 2)
Gain on sale
201
15,000,000
15,000,000
1,200,000
(A)
13,800,000
1,200,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Revaluation surplus, beginning
Less: Piecemeal realization for two years (8,250,000 / 25 x 2)
Remaining revaluation surplus to R/E
(A)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
8,250,000
660,000
7,590,000
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Machinery
Less: Accumulated depreciation
CA/DRC/RS
Replacement
Cost
18,200,000
**4,500,000
13,700,000
Cost
9,100,000
*2,250,000
6,850,000
Increase
9,100,000
2,250,000
6,850,000
(A)
(B)
15,000,000
200,000
13,500,000
25
540,000
Question No. 3
Revaluation surplus, 01/01/2015
Less: Piecemeal realization 2015 (6,850,000 / 25)
Remaining revaluation surplus end of 2015
(B)
6,850,000
274,000
6,576,000
Question No. 4
Net Selling Price
Less: Carrying amount 01/02/2017
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P540,000 x 2)
Gain on sale
14,000,000
13,700,000
1,080,000
(A)
Question No. 5
Revaluation surplus, beginning
Less: Piecemeal realization for two years (P274,000 x 2)
Remaining revaluation surplus to R/E
(A)
202
12,620,000
1,380,000
6,850,000
548,000
6,302,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
(A)
Question No. 2
Zero. The company is using the cost model.
(A)
Question No. 3
Cost
Less: Accumulated depreciation
Carrying amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation - 2016
1,200,000
100,000
1,000,000
155,000
845,000
9
93,888
(E)
Question No. 4
Cost
Less: Accumulated Depreciation (100,000 + 93,888 + 93,888)
Carrying amount 12/31/2017
Less: Recoverable amount, date of impairment
Impairment loss
(E)
Question No. 5
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
SUMMARY OF ANSWERS:
1. A
2. A
3. E
203
5.
1,200,000
287,776
912,224
600,000
312,224
600,000
40,000
560,000
7
80,000
(C)
4.
1,200,000
200,000
1,000,000
10
100,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
1,280,000
1,200,000
100,000
(D)
Question No. 4
Recoverable amount, date of revaluation 01/01/2018
Less: Subsequent depreciation for 2 years
Carrying amount 01/01/2018
Less: Recoverable amount, date of impairment
Decrease in value
Less: Remaining revaluation
Revaluation surplus, date of revaluation
180,000
Less: Piecemeal realization for two years
40,000
Impairment loss
(D)
SUMMARY OF ANSWERS:
1. A
2. D
3. C
204
5.
1,280,000
250,000
1,030,000
600,000
430,000
140,000
290,000
600,000
40,000
560,000
7
80,000
(C)
4.
1,100,000
180,000
1,280,000
155,000
1,125,000
9
125,000
(C)
Question No. 5
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
1,200,000
200,000
1,000,000
10
100,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
1,200,000
200,000
1,000,000
10
100,000
Question No. 2
Cost
Less: Accumulated Depreciation
Carrying amount 12/31/2015
Less: Recoverable amount, date of impairment
Impairment loss
(D)
1,200,000
100,000
1,100,000
900,000
200,000
(D)
900,000
90,000
810,000
9
90,000
Question No. 3
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
Question No. 4
Recoverable amount 01/01/2016
Less: Accumulated Depreciation 12/31/2017
Carrying amount 12/31/2017
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount 01/01/2018
Gain on impairment recovery P&L
The increase in fair value is recognized in P&L.
900,000
180,000
720,000
875,555
770,000
(A)
770,000
50,000
1,200,000
100,000
112,222
112,222
875,555
770,000
-
205
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Depreciable amount
Divide by: Remaining useful life (10 3)
Depreciation
SUMMARY OF ANSWERS:
1. A
2. D
3. D
4.
770,000
7
110,000
(C)
5.
1,200,000
200,000
1,000,000
10
100,000
Question No. 2
Cost
Less: Accumulated Depreciation
Carrying amount 12/31/2015
Less: Recoverable amount, date of impairment
Impairment loss
(D)
1,200,000
100,000
1,100,000
900,000
200,000
(D)
900,000
90,000
810,000
9
90,000
Question No. 3
Recoverable amount
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life
Depreciation
Question No. 4
Recoverable amount 01/01/2016
Less: Accumulated Depreciation 12/31/2017
Carrying amount 12/31/2017
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount 01/01/2018
Gain on impairment recovery P&L
The increase in fair value is recognized in P&L.
900,000
180,000
720,000
875,555
770,000
(A)
206
770,000
50,000
1,200,000
100,000
112,222
112,222
875,555
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Carrying value 01/01/2018
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life (10 3)
Depreciation
SUMMARY OF ANSWERS:
1. A
2. D
3. D
4.
770,000
770,000
7
110,000
(C)
5.
20,000
50,000
70,000
(A)
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carrying value
Less: Recoverable amount (80,000 / .05)
Tradename:
Carrying value
Less: Recoverable amount (15,000 / .05)
Goodwill:
Carrying value of reporting unit
Less: Recoverable amount (200,000 x 14.0939)
Total impairment loss
400,000
160,000
240,000
350,000
300,000
50,000
3,000,000
2,818,780
(C)
181,220
471,220
Question No. 3
Carrying value of goodwill 12/31/2015
Less: Allocated impairment loss of reporting unit
Carrying value of goodwill 12/31/2016
(B)
900,000
181,220
718,780
Question No. 4
Patent (P200,000 P20,000)
Copyright (recoverable amount)
Tradename (recoverable amount)
Computer software (100,000 50,000)
Carrying value of intangible assets 12/31/2016 (A)
180,000
160,000
300,000
50,000
690,000
207
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
1,430,000
150,000
30,000
135,000
15,000
40,000
158,750
(1) A
120,000
1,310,000
120,000
1,430,000
(2) A
198,750
1,231,250
300,000
140,000
160,000
800,000
750,000
50,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3)
(B)
Questions 5
Downpayment
Add: Present value of the note
Total cost of the franchise
Divide by: Useful life
Amortization expense
(D)
208
500,000
874,000
1,374,000
10
137,400
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
5.
(B)
105,000,000
85,000,000
20,000,000
5,000,000
15,000,000
Carrying amount
before impairment
32,000,000
28,000,000
60,000,000
SUMMARY OF ANSWERS:
1. B
2. A
3. A
4.
5.
Ratio
0.53
0.47
Allocated
Impairment loss
8,000,000 (D)
7,000,000 (D)
15,000,000 (D)
209
100,000
800,000
1,200,000
24,000,000
10,400,000
2,550,000
850,000
400,000
19,500,000
16,300,000
3,200,000
400,000
2,800,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance
before
Impairment
13,600,000
2,550,000
850,000
17,000,000
Balance
after
Impairment
11,360,000
2,130,000
710,000
14,200,000
Fraction
13.6/17
2.55/17
.85/17
Reallocation
(40,000)
(7,500)
47,500
-
Balance
after
Reallocation
11,320,000
2,122,500
757,500
3,520,000
24,000,000
11,600,000
11,320,000
1,000,000
2,550,000
120,000
2,122,500
112,000
850,000
80,000
210
Balance
after
Impairment
11,360,000
2,130,000
710,000
14,200,000
Impairment
Loss
(2,240,000)
(420,000)
(140,000)
2,800,000
757,500
60,000
1. (B)
2. (B)
3. (B)
12,400,000
10,320,000
2,080,000
2,430,000
2,010,500
419,500
770,000
697,500
72,500
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance
before
Reversal
10,320,000
2,010,500
697,500
13,028,000
Balance
bef. Reall
12,221,136
2,380,872
825,992
15,428,000
Max gain
1,901,136
370,372
72,500
2,344,008
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
Allocated
Gain
1,901,136
370,372
128,492
2,400,000
Fraction
10320/13028
2010.5/13028
697.5/13028
5.
Reallocation
46,863
9,130
(55,992)
-
6.
Max gain
1,901,136
370,372
72,500
2,344,008
Balance
after
reallocation
12,267,999
2,390,001
770,000
15,428,000
2,000,000
800,000
1,200,000
1,200,000
1,100,000
(B)
Question No. 2
Zero. Non-current asset held for sale should not be depreciated.
Question No. 3
Lower of:
Carrying amount
FVLCTS
Less: Carrying amount at initial recognition
Gain on reversal P&L
Question No. 4
Net Selling Price (1,800,000 50,000)
Less: Carrying amount
Gain on sale
1,200,000
1,500,000
(B)
(D)
211
1,100,000
100,000
(A)
1,200,000
1,100,000
100,000
1,750,000
1,200,000
550,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Cost
Accumulated depreciation
Carrying amount
Less: Initial amount recognized lower of:
Carrying amount
Fair value less cost to sell
Impairment loss
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
2,000,000
800,000
1,200,000
1,200,000
1,300,000
(A)
5.
1,200,000
-
64,600,000
55,000,000
9,600,000
5,000,000
4,600,000
(B)
Carrying
amount as
remeasured
20,000,000
30,000,000
50,000,000
Revaluation
surplus
1,000,000
1,000,000
0.40
0.60
Allocated
Decrease
1,840,000
2,760,000
4,600,000
Impairment
loss
1,840,000
1,760,000
3,600,000
Carrying
amount
after
impairment
18,160,000
27,240,000
45,400,000
P1,000,000
4.
212
5.
Revaluation
surplus
1,000,000
1,000,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
(C)
200,000
10,000
190,000
(A)
3,800,000
190,000
37,500
3,952,500
3,952,500
3,952,500
4,000,000
(A)
3,952,500
-
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when
the investment in associate is classified as noncurrent held for sale. The cash
dividend shall be recognized as income.
(A)
Question No. 5
Net Selling Price (P4,260,000 P60,000)
Less: Carrying amount
Gain on sale
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
4,200,000
3,952,500
247,500
(D)
5.
PROBLEM 23-13
Question No. 1
Irrigation Equipment
Freight in
Installation cost
Total Machinery and Equipment, end
P
(A)
213
740,000
10,000
192,000
942,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Trade in allowance
Book Value:
Cost
Less: Accum. Depreciation (P660,000+ P165,000)
Loss on trade in
400,000
1,300,000
825,000
(B)
475,000
75,000
Question No. 3
Before addition [(P3,100,000 P100,000)/20 x 3/12)
After addition: [(P3,100,000 (P562,500 + P37,500) + 980,000
P200,000)/20) x 9/12)
Depreciation expense
(B)
37,500
123,000
160,500
196,250
351,000
117,750
160,500
825,500
Question No. 5
Fair value on initial revaluation
P 3,780,000
Book value on initial revaluation:
Cost
P 4,000,000
Accumulated depreciation
[(P4,000,000 P200,000)/10 x 2)
( 760,000)
3,240,000
12/31/2016 Revaluation Surplus
P 540,000
Less: Piecemeal realization in 2017 (P540,000/10)
54,000
12/31/2017 Revaluation surplus
P 486,000
12/31/2017 Fair value
P 3,400,000
12/31/2017 Book value:
Adjusted cost
P 3,780,000
Accumulated Depreciation
[(P3,780,000 P270,000)/10]
( 351,000)
3,429,000
Revaluation decrease charged to Revaluation Surplus (A)
P
29,000
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
214
5.
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-14
Question No. 1
Revalued amount 01/01/2016
Divided by: Remaining useful life (20 6)
Depreciation
31,500,000
14
2,250,000
(C)
Fair value
P 7,000,000
31,500,000
Revaluation
Surplus
P 2,000,000
10,500,000
P12,500,000
P 2,250,000
1,500,000
(B)
750,000
P11,750,000
Question No. 3
Annual depreciation rate (200%/2) = 100%
Cost
Less: Accumulated Depreciation
Book value
Less: Salvage value
Maximum depreciation
Question No. 4
Cost
Divided by: Useful life
Annual depreciation
(B)
P 600,000
300,000
300,000
60,000
P 240,000
(D)
900,000
9
P 100,000
Question No. 5 D
Cost
Less: Accumulated Depreciation (300,000 +100,000 (no. 4)
Book value, Dec. 31
Less: Recoverable amount value in use (125,000 x 3.60)
Impairment loss
(B)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
215
5.
P 900,000
400,000
500,000
450,000
P 50,000