The Intermediate Accounting Series Volume 3 2016 Empleo Robes Solman PDF

Chapter 1
CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING
Discussion Question 17
1. Understandability
2. Faithful representation, neutrality
3. Faithful representation, completeness
4. Completeness, relevance, comparability
5. Faithful representation, verifiability
6. Faithful representation, completeness
7. Understandability
8. Relevance, timeliness
1. Correct
2. Incorrect, no particular presentation requirements are discussed in the Framework.
3. Correct
4. Incorrect, understandability is not an excuse to omit complex information in the financial
statements. Users are expected to possess basic business knowledge and to exercise
diligence.
5. Correct
6. Correct
7. Incorrect, expenses do not involve transactions with owners.
8. Incorrect, an entity shall not leave its accounting policy unchanged if management
assesses that another method of accounting will more relevantly and reliably present
enterprise performance and financial position.
9. Incorrect, understandability depends on two factors: the quality of the information and
the characteristics of the users.
10. Incorrect, an information loses its relevance if it is not communicated early enough for
decision making needs of the users.
11. Correct
12. Incorrect, there is no standard form for the presentation of financial statements; the
management prepares the financial statements using form that will best communicate to
users the enterprise’s financial position, performance and other changes in financial
position.
13. Incorrect, the main objective of consistency is to present actual similarities and differences
between reporting periods and between enterprises, and not to smooth profit.
14. Incorrect, the financial capital concept does not limit the measurement basis of financial
statement elements to only one type.
15. Correct
1. Fair value (current cost)
2. Present value
3. Historical cost and net realizable value
4. Historical cost and current cost
6. Current cost
7. Current cost
8. Present value
10. Historical cost and net realizable value
11. Present value
12. Present value
13. Combination of historical cost, current cost, present value and realizable value
14. Historical cost
15. Present value
1
Multiple Choice Questions
MC1 B MC11 B MC21 B MC31 C MC41 A

MC2 C MC12 C MC22 B MC32 A MC42 B
MC3 C MC13 A MC23 A MC33 C MC43 C
MC4 B MC14 C MC24 C MC34 B MC44 B
MC5 D MC15 C MC25 C MC35 A MC45 B
MC6 C MC16 A MC26 B MC36 D MC46 D
MC7 A MC17 D MC27 A MC37 D MC47 C
MC8 B MC18 D MC28 A MC38 D MC48 D
MC9 C MC19 C MC29 A MC39 B
MC10 A MC20 A MC30 B MC40 B
2
CHAPTER 2
REVIEW OF THE ACCOUNTING PROCESS
PROBLEMS
2-1. (TIGER COMPANY)
a. Adjusting entries at December 31, 2016:
a. Supplies expense 16,500

Supplies 16,500
25,000-8,500
b. Insurance expense 8,000
Prepaid insurance 8,000
24,000 x 8/24
c. Prepaid rent 40,000
Rent expense 40,000
20,000 x 2 mos.
d. Rent revenue 9,000
Unearned rent revenue 9,000
27,000/3
e. Depreciation expense 100,000
Accumulated depreciation 100,000
(360,000 x 5/15 x 10/12
f. Uncollectible accounts expense 6,000
Allowance for uncollectible accounts 6,000
2% x 450,000 – 3,000 = 6,000
g. Interest expense 2,000
Interest payable 2,000
200,000 x .12 x 30/360
h. Merchandise inventory 480,000
Purchase returns and allowances 25,000
Cost of goods sold 415,000
Purchases 900,000
Freight-in 20,000
b. Reversing entries at January 1, 2017

c. Rent expense 40,000
Prepaid rent 40,000
d. Unearned rent revenue 9,000
Rent revenue 9,000
g. Interest payable 2,000
Interest expense 2,000
2-2. (DRAGON COMPANY)
Adjusting entries at December 31, 2015:

a. Salary expense 32,000
Salaries payable (80,000 x 2/5) 32,000
b. Depreciation expense 35,000
Accumulated depreciation (420,000/12) 35,000
c. Interest receivable 1,800
Interest revenue (60,000 x .12 x 3/12) 1,800
3
Chapter 2 – Review of the Accounting Process
d. Supplies expense 28,400

Store supplies 12,800
Office supplies 15,600
e. Uncollectible accounts expense 47,500
Allowance for uncollectible accounts 47,500
(5% x 650,000 )+ 15,000
f. Insurance expense 5,280
g. Prepaid travel expense 8,100
Travel expense 8,100
h. Prepaid rent 6,000
Rent expense 6,000
18,000 x 2/6
i. Interest expense 8,400
Discount on notes payable 8,400
14,400 x 7/12
i. Income tax expense 363,396
Income tax payable 363,396
Reported net income 1,352,000
Adjustments: (a) (32,000)
(b) (35,000)
(c) 1,800
(d) (28,400)
(e) (47,500)
(f) (5,280)
(g) 8,100
(h) 6,000
(i) (8,400)
Correct net income 1,211,320 x 30% =363,396
2-3. (MONKEY CORPORATION)
a. Financial assets at FVPL 2,150

Unrealized gain on FA at FVPL 2,150
b. Bad debts expense 1,700
Allowance for bad debts 1,700
c. Insurance expense 1,250
d. Interest receivable 250
Interest revenue 250
e. Prepaid rent 1,550
Rent expense 1,550
f. Depreciation expense 25,000
g. Salary expense 8,000
Salaries payable 8,000
h. Interest expense 200
Interest payable 200
i. Rent revenue 20,000
4
b. Closing entries (partial)
a. Unrealized gain on FA at FVPL 2,150

Rent revenue 80,000
Interest revenue 3,850
Income summary 86,000
b. Income summary 864,700
Rent expense 7,450
Salaries expense 828,000
Bad debts expense 1,700
Depreciation expense 25,000
Insurance expense 1,250
c. Reversing entries at January 1, 2017

d. Interest revenue 250
Interest receivable 250
e. Rent expense 1,550
Prepaid rent 1,550
g. Salaries payable 8,000
Salary expense 8,000
h. Interest payable 200

Interest expense 200
i. Unearned rent revenue 20,000
Rent revenue 20,000
2-4. (ROOSTER COMPANY)
Amount of Amount that would appear

Adjustment in Statement of FP
a. Salaries Payable 16,800 16,800
b. Interest Payable 6,750 6,750
c. Advertising Payable 60,000 60,000
d. Accumulated Depreciation 20,000 30,000
e. Office Supplies 58,000 28,000
f. Unearned Plumbing Revenue 108,000 36,000
g. Prepaid Insurance 20,000 40,000
2-5. (SNAKE COMPANY)
a. Financial assets at FVPL 13,000

Unrealized gain on FVPL 13,000
b. Operating expenses 15,200
Prepaid expenses 15,200
Req. bal in prepaid expenses:
144,000 x 4/12 48,000
Office supplies on hand 39,000
Store supplies on hand 23,000
Total 110,000
Reported amount 125,200
Req. decrease in PE 15,200
d. Operating expenses 156,000
e. No entry required. The required balance in accrued interest is
P22,500, computed as 200,000 x 15% x 9/12. This amount is
already included in the Trade and Other Payables balance.
5
g. Rent revenue 64,000

Required balance in unearned rent
192,000 x 9/12 144,000
Reported balance 80,000
Required increase 64,000
2-6.
a. Insurance expense 25,500
84,000 + 37,500 – 96,000
b. Depreciation expense 14,100
133,050 + 8,850 – 127,800
c. Unearned rent 25,000
Rent revenue 25,000
55,000 + 45,000 – 75,000
d. Salaries payable 4,050
Salary expense 4,050
21,430 – 17,380
2-7
a. P1,200,000 Same as given total. The transaction will increase office supplies
and decrease cash whose balances are both reflected in total
debit amount.
b. P698,000 Accounts Payable 157,000

R. Abbit, Capital 200,000
Interest Payable 5,000
Accumulated Depreciation 20,000
Notes Payable 220,000
Salaries Payable 96,000
TOTAL 698,000
c. P2,220,000 Accounts Payable 245,000

Accumulated Depreciation (810,000+27,000) 837,000
B. Ox, Capital (1,100,000+410,000-15,000-
27,000-190,000) 1,138,000
TOTAL 2,220,000
d. P744,000 729,000 + 15,000 = 744,000; The use of P12,000 office supplies

does not affect the trial balance total.
e. P243,500 Total debits is P243,500 consisting of Cash–P48,000; Accounts

receivable–P27,500; Prepaid insurance– P8,000; Equipment–
P80,000; Salaries expense–P42,000; Advertising expense–
P14,000; Property tax expense–P9,000; and Hoe Rose, Drawing–
P15,000.
Total credits is P243,500 consisting of Accounts payable–
P44,000; Property tax payable–P5,600; Service revenue–P66,900;
and Hoe Rose, Capital – P127,000.
6
MULTIPLE CHOICE QUESTIONS

Theory
MC1 D MC7 A MC13 C

MC2 B MC8 C MC14 B
MC3 A MC9 D MC15 C
MC4 A MC10 C MC16 D
MC5 B MC11 B MC17 A
MC6 C MC12 D MC18 B
Problems
MC19 B 16,000 + 29,000 – 21,000 = 24,000

MC20 A
MC21 D 122,500 + 437,500 – 105,000 = 455,000
MC22 C 990,000 + 50,000 – 60,000 = 980,000
MC23 A 400,000 + (15% x 3.0M) = 850,000
MC24 C 36,000 x 34/36 = 34,000; 44,100 – 33,100 = 11,000
MC25 D 60,000 – 17,000 = 43,000
MC26 C 12,350 + 1,850 - 5,300 = 8,900
MC27 A P0. The post-closing trial balance includes real accounts only.
MC28 B 24,900 - 4,500 + 3,600 = 24,000
MC29 A (14,400 x 5/12) + 9,600 + (11,200 x 12/16) = 24,000
MC30 C 30,000 + 45,000 + 20,000 = 95,000
MC31 B 144,000 – 95,000 = 49,000
MC32 A 36,000 x 4/12 = 12,000
MC33 B 159,250 – 650 + 2,000= 160,600 or 153,200 + 2,000 + 5,400 = 160,600
MC34 C 117,000 – (108,000 – 9,000) = 18,000; 18,000 – 9,000 = 9,000
MC35 A 1,337,100 + 274,000 – 120,000 + 67,000 = 1,558,100
MC36 B (7,200 X 21/24) + (3,600 X 2/6) + (24,000 X 27/36) = 25,500 – 28,200 =
2,700 Decrease
MC37 A 45,000 x 10% x 30/360 = 375
MC38 B (27,000 x 3/12) + (22,200 x 6/12) + (28,800 x 9/12) + (10,700 x 12/12) =
60,150 – 56,250 = 3,900 Increase
MC39 B 11,250 x 2/5 = 4,500
MC40 C 117,000 – (108,000 – 9,000) = 18,000
7
CHAPTER 3
THE STATEMENT OF FINANCIAL POSITION
AND NOTES TO THE FINANCIAL STATEMENTS
1. C 11 C 21. E
2. C 12. B 22. B
3. B 13 A 23. E
4. E 14 F 24. A
5. A 15 B 25. F
6. B 16. B 26. B
7. E 17. E 27. D
8. A 18. A
9. D 19. B
10. E 20 F
Problems
3-1. (GARNET COMPANY)

Garnet Company
Statement of Financial Position
December 31, 2016
Assets
Current assets Note

Cash and cash equivalents P 35,000
Financial assets at FVPL 61,000
Trade and other receivables (5) 107,000
Inventory 322,000 P 525,000
Non-current assets
Property, plant and equipment (6) P1,483,000
Investment property 1,000,000
Investments in associates 250,000
Intangibles (7) 141,000 2,874,000
TOTAL ASSETS P3,399,000
Liabilities and Shareholders’ Equity
Current liabilities
Trade and other payables (8) P 336,000
Income tax payable 150,000 P 486,000
Noncurrent liabilities
Bonds payable (9) 701,000
Deferred tax liability 50,000 751,000
Shareholders’ equity
Share capital (10) P 1,534,000
Additional paid in capital (11) 321,000
Accumulated profits (12) 307,000 2,162,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P3,399,000
8
Chapter 3 – The Statement of Financial Position
9 and Notes to the Financial Statements
Note 5 – Trade and other receivables
Accounts receivable P115,000
Less allowance for bad debts 8,000
Net trade and other receivables P107,000
Note 6 – Property, plant and equipment

Land P 300,000
Buildings P1,440,000
Less accumulated depreciation 530,000 910,000
Equipment P 624,000
Total property, plant and equipment P1,483,000
Note 7 – Intangibles
Patents P120,000
Less accumulated amortization 22,000 P 98,000
Trademarks P 60,000
Less accumulated amortization 17,000 43,000
Total P141,000
Note 8 – Trade and other payables

Accounts payable P236,000
Withholding taxes payable 80,000
Total P336,000
Note 9 – Bonds payable

Bonds payable (due 2018) P 770,000
Less discount on bonds payable 69,000
Total P701,000
Note 10 – Share capital

Preference share capital, P100 par P 210,000
Ordinary share capital, P10 par 1,300,000
Share dividends distributable 24,000
Total P1,534,000
Note 11 – Additional paid-in capital

Share premium -preference P 81,000
Share premium -ordinary 240,000
Total P321,000
Note 12 – Accumulated profits

Appropriated P 45,000
Unappropriated 262,000
Total retained earnings P307,000
3-2. (RUBY CORPORATION)
Ruby Corporation
December 31, 2016
Assets
Current assets
Financial assets through profit or loss (Note 5) 160,000
Trade and other receivables (Note 6) 308,000
Inventories (Note 7) 985,000
Non-current assets held for sale (Note 8) 210,000 P1,810,000
9
Non-current assets
Property, plant and equipment (Note 9) P3,248,000
Other financial assets (Note 10) 339,000
Intangible assets (Note 11) 182,000 3,769,000
Current liabilities
Trade and other payables P 580,000
Unearned revenues 62,000
Provision for product warranty 73,000 P 962,000
Bonds payable (Note 12) 848,000
Share capital (Note 13) P2,028,000
Share premium (Note 14) 537,000
Retained earnings 1,204,000 3,769,000
Note 5 – Financial assets through profit or loss

Financial assets through profit or loss, costing P150,000, are reported at market values.

Less Allowance for bad debts 15,000
Net trade receivables P308,000
Note 7 – Inventories (at lower of cost and NRV)

Finished goods P416,000
Goods in process 347,000
Raw materials 222,000
Total P985,000
Note 8 – Non-current assets held for sale

This classification represents a unit of machinery with carrying amount of P240,000
and fair value less cost to sell of P210,000. The sale is expected to be consummated in
May 2015.

Land P1,320,000
Land held for future use* 195,000
Less accumulated depreciation 622,000 1,202,000
Machinery P 319,000
Equipment P 530,000
Total P3,248,000
 Land held for future use, which conventionally was classified as long-term investment,
is not qualified to be reported as Investment Property under par. 9 of IAS 40. Thus,
property held for future development and subsequent use as owner-occupied property is
part of property, plant and equipment.
Note 10 – Other financial assets

Debt investments at amortized cost P250,000
Cash surrender value of life insurance 89,000
Total P339,000
10
Note 11 – Intangible assets
Patents P200,000
Less Accumulated amortization 18,000
Total P182,000

Bonds payable P800,000
Add Premium on bonds payable 48,000
Total P848,000
Note 13 – Share Capital

Preference share capital P 400,000
Ordinary share capital 1,628,000
Total P2,028,000
Note 14 – Share premium

Share premium - preference P234,000
Share premium - ordinary 303,000
Total P537,000
Retained earnings is adjusted by a decrease of P30,000 representing loss from

measurement to fair value less cost to sell of asset held for sale, thus retained earnings
balance is P1,204,000.
3-3. (DIAMOND COMPANY)

Diamond Company
December 31, 2016
Assets
Current assets
Cash P 230,000
Financial assets at fair value through profit or loss 320,000
Trade and other receivables (Note 5) 510,000
Inventory 600,000
Prepaid expenses (Note 6) 130,000 P1,790,000
Noncurrent assets
Property, plant and equipment (Note 7) P3,450,000
Financial assets at fair value through OCI 1,030,000
Intangible assets 470,000
Deferred tax asset 70,000 5,020,000
Current liabilities
Trade and other payables (Note 8) P1,390,000
Unearned rent 90,000 P1,480,000
Bonds payable (Note 9) 1,000,000
Ordinary share capital, P10 par P1,200,000
Share Premium 1,040,000
Retained earnings 2,300,000
Total 4,540,000
Treasury shares, at cost (330,000)
Accumulated holding gains (losses) – investments
through other comprehensive income 120,000
11
Note 5 – Trade receivables
Less Allowance for uncollectible accounts 80,000
Net trade receivables P510,000
Note 6 – Prepaid expenses

Office supplies P 80,000
Total P130,000

Land P 810,000
Buildings and equipment P3,560,000
Less accumulated depreciation 920,000 2,640,000
Total P3,450,000

Accounts payable P 990,000
Taxes payable 250,000
Total P1,390,000

Bonds payable (due 2018) P1,100,000
Less discount on bonds payable 100,000
Net P1,000,000
3-4. (EMERALD COMPANY)
Emerald Company
December 31, 2016
Assets
Current assets Note

Cash P 380,000
Equity securities through profit or loss (5) 485,000
Trade and other receivables (6) 2,780,000
Inventories 450,000
Non-current asset held for sale (7) 1,200,000 P 5,585,000
Noncurrent assets
Property, plant and equipment (8) P 5,600,000
Investment property (9) 2,900,000
Other financial assets (10) 1,600,000
Intangibles (11) 960,000 11,060,000
Current liabilities
Trade and other payables (12) P 1,750,000
Income taxes payable 720,000
Provision for warranties 200,000 P 2,670,000
Notes payable (13) 1,000,000
Bonds payable (14) P 4,430,000
Mortgage payable 1,600,000 7,030,000
Total Liabilities P 9,700,000
12
Share capital (15) P 1,700,000
Share premium 1,820,000
Retained earnings 3,605,000
Total P 7,125,000
Treasury shares, at cost (180,000) 6,945,000
Retained earnings before adjustment P3,580,000

Unrealized gain on equity securities through profit or loss 25,000
Retained earnings after recognition of gain P3,605,000
Note 5 – Equity securities through profit or loss
The equity securities are intended for immediate trading in the future. The
securities cost P460,000 and are reported at fair value.

Accounts receivable P1,850,000
Notes receivable (due July 1, 2017) 1,000,000
Allowance for uncollectible accounts (70,000)
Net trade and other receivables P2,780,000
Note 7 – Noncurrent asset held for sale

The non-current asset held for sale represents land that is available for immediate sale
and its carrying amount will be recovered through a sale transaction. The sale is
highly probable as the plan for its sale has already been completed at yearend. Its fair
value less cost to sell at December 31, 2016 was P1,400,000.
Land P1,400,000
Less accumulated depreciation 1,800,000 2,540,000
Equipment P2,960,000
Less accumulated depreciation 1,300,000 1,660,000
Total P5,600,000
Note 9 – Investment property

Land P1,200,000
Building P2,000,000
Accumulated depreciation (300,000) 1,700,000
Total P2,900,000
Note 10 – Other financial assets

Investment in Day Corporation bonds (fair value P906,000) P 900,000
Sinking fund for bond retirement 700,000
Total P1,600,000
Note 11 – Intangibles
Patents P820,000
Less accumulated amortization 230,000 P 590,000
Trademarks P520,000
Less accumulated amortization 150,000 370,000
Total P 960,000

Wages payable 410,000
Current portion of mortgage payable 400,000
Total P1,750,000
13
Note 13 – Notes payable
The notes payable was issued on June 30, 2015 and are supposed to mature on June
30, 2017. As of December 31, 2016, the company has negotiated with the lender to
extend the maturity date to June 30, 2018.

Bonds payable P4,000,000
Add premium on bonds payable 430,000
Total P4,430,000
Note 14 – Share capital

Preference share capital P 600,000
Ordinary share capital 1,100,000
Total P1,700,000
3-5. (SAPPHIRE COMPANY)
Current assets consist of

Cash (1,240,000 – 500,000) P 740,000
Securities held for trading
900,000 + 500,000+ (500,000 x 4.8% x 105/360) 1,407,000
Trade accounts receivable (net of P60,000 allowance for bad debts)
1,220,000 + 50,000 – 60,000 1,210,000
Notes receivable 920,000
Creditor’s account with debit balance 100,000
Merchandise inventory 1,360,000
Total current assets P 5,737,000
Current liabilities consist of

Trade accounts payable (750,000 + 150,000 + 100,000) 1,000,000
Customer deposit 50,000
Notes payable (1,500,000 – 300,000) 1,200,000
Current portion of bonds payable 500,000
Accrued interest on bonds payable (2.5M x .10 x 6/12) 125,000
Income taxes payable 280,000
Employees income tax withheld 40,000
Total current liabilities P 3,195,000
3-6. (TURQUOISE COMPANY)
Current liabilities consist of

Mortgage notes payable 1,300,000
Bank notes payable 100,000
Interest payable 7,500
VAT payable (2,688,000/1.12) x .12 288,000
Withholding tax payable 120,000
Income taxes payable (186,500 – 70,000) 116,500
Provision for damages 650,000
Total current liabilities P2,852,000
Note: The entire amount of mortgage notes payable is classified as current liabilities
because as of December 31, 2016, the company has no discretion yet to refinance the
obligation on a long-term basis. The refinancing of the mortgage payable in 2017 is non-
adjusting event that requires disclosure in the notes to the financial statements.
14
3-7. (OPAL COMPANY)
Current assets consists of

Cash (400,000 + 20,000 - 30,000 + 25,000 + 540,000) P 955,000
Accounts receivable (net) 800,000 + 30,000 – 150,000 680,000
Inventories (1,200,000 – 40,000) 1,160,000
Prepaid insurance (250,000 – 50,000) 200,000
Total current assets at December 31, 2016 P2,995,000
OR
Reported total current assets P4,580,000
Bank overdraft 20,000
Cash for purchase of plant site (1,500,000)
Unreplenished petty cash expenses (15,000)
Goods held on consignment (40,000)
Cash surrender value of life insurance (50,000)
Total current assets at December 31, 2016 P2,995,000
3-8. (AQUAMARINE COMPANY)

Current Non-current Current Non-current
assets assets liabilities liabilities
Reported totals P3,500,000 P8,000,000 P2,400,000 P2,700,000
(a) Sinking fund cash 380,000 380,000
(b) Treasury shares (500,000)
(b) NCA held for sale 3,000,000 (3,000,000
(c) Cash fund for taxes 140,000 140,000
(d) Advances and
commissions payable 210,000 210,000
(e) Provision for damages (12,000)
Correct totals P6,850,000 P4,880,000 P2,738,000 P3,080,000
3-9. (PERIDOT COMPANY)

FA Accounts
Cash at FVPL receivable Inventory
Reported amounts P536,000 P500,000 P3,285,000 P3,500,000
(a) Post dated check recorded 80,000
(b) Increase in market value 50,000
(c) Goods shipped FOB
destination (180,000) 120,000
(d) Goods out on consignment 135,000
Correct balances, Dec. 31, 2016 P616,000 P550,000 P3,105,000 P3,755,000
3-10. (ZIRCON COMPANY)
Current assets:
Accounts receivable (net)148,000 – 12,000 P136,000
Citibank current account 98,000
Inventories 217,500
Office supplies 3,500
Total current assets P455,000
Current liabilities:
Accounts payable P124,000
Advances from customers 150,000
Accrued interest on bonds payable 17,000
Provision for warranties 60,000 367,000
Working capital P 88,000
15
3-11.
1. C 5. B 9. A
2. A 6. C 10. B
3. C 7. A
4. A 8. A

Theory
MC1 C MC11 B MC21 D

MC2 B MC12 D MC22 B
MC3 A MC13 C MC23 C
MC4 A MC14 D MC24 D
MC5 A MC15 C MC25 C
MC6 C MC16 C MC26 B
MC7 C MC17 C MC27 C
MC8 D MC18 D
MC9 C MC19 A
MC10 C MC20 C
Problems
MC28 A (200,000-50,000) + 120,000 + 79,000 + (280,000– 60,000) =569,000

MC29 B 3,740,000 + 50,000 – 4,000 + 100,000 – 180,000 + 50,000 = 3,756,000
MC30 B 2,680,000 + 50,000 + 100,000 +50,000 – 1,000,000 = 1,880,000
MC31 D 4,014,000 – 9,000 - 150,000 = 3,855,000
MC32 C 137,000+90,000+92,000+(122,000+7,000–6,000)+136,000+12,000=590,000
MC33 B 13,000+ 102,000+ 7,000 + 120,000 +4,000+50,000+28,000 = 324,000
MC34 C 376,000 + (2,000,000+100,000 – 8,000) = 2,468,000
MC35 B (1,125,000+65,000) + 136,000 + 96,000 + 150,000 + (750,000/5)=1,722,000
MC36 A 360,000 + 480,000 – 30,000 – 12,000 + 90,000 + 120,000 = 1,008,000
MC37 A 450,000 + 750,000 – 90,000 + 240,000 = 1,350,000
MC38 A 2,160,000 – 250,000 + 224,000 + 830,000 + 970,000 = 3,934,000
MC39 C 980,000 + 108,000 + 720,000 = 1,808,000
MC40 D 160,000 + 50,000 + 110,000 + 300,000 + 10,000 = 630,000
MC41 A (490,000 – 25,000) + (380,000 – 200,000) + (1,250,000 – 500,000) + 100,000 +
900,000 + 80,000 = 2,475,000
MC42 A 25,000 + 500,000 + 200,000 + 3,750,000 = 4,475,000
MC43 D 675,000 + (2,695,000 – 500,000) + 2,185,000 = 5,055,000
MC44 A 1,801,000 + (654,000 – 475,000) = 1,980,000
MC45 C 13,360,000–11,180,000–654,000=1,526,000; 1,526,000+3,350,000=4,876,000
MC46 B (1,200,000 – 200,000) + 1,500,000 + 25,000 = 2,525,000
MC47 C 500,000 + 550,000 – 250,000 = 800,000 + 1,000,000 + 250,000 + 450,000 = 2.5M
MC48 B 150,000 + (2,100,000 – 500,000 – 80,000) + (1,600,000 – 200,000)=3,070,000
MC49 B (550,000 – 95,000) + 800,000 + (800,000 X 12% X 7/12) + 6,500 = 1,317,500
MC50 C 8,700,000 – (4,000,000 – 2,000,000 + 5,000,000 – 1,000,000) =2,700,000
MC51 B 175,000 + 136,000 + 820,000 + 153,000 + 366,000 = 1,650,000
MC52 A 250,000 + 140,000 + 228,000 + 248,000 = 866,000
MC53 C 525,000 – 400,000 + 300,000 + 1,020,000 + 1,200,000 + 450,000=3,095,000
MC54 B (950,000 x 2.50) + 2.5M + (10M x 12% x 3/12) + (12M + 30M – 25M) = 22,175,000
MC55 B AR: 247,000 – 40,000 + (58,000 x 1.25) = 179,500
Invy: 220,000 + (40,000 x 75%) + 22,000 = 272,000
PPE: 3,200,000 – 1,200,000 = 2,000,000
16
CHAPTER 4
THE STATEMENT OF COMPREHENSIVE INCOME
AND THE STATEMENT OF CHANGES IN EQUITY
PROBLEMS
4-1. (LAS VEGAS COMPANY)
Capital, December 31, 2016

Total assets P1,218,000
Less total liabilities 276,000 P942,000
Capital, December 31, 2015
Total assets P 970,000
Less total liabilities 202,000 768,000
Increase in capital P174,000
Withdrawals by the owner 250,000
Additional investments by the owner (100,000)
Net income P324,000
4-2. (BELLAGIO TRADING COMPANY)
Profit for the year P445,000

Less dividends paid 120,000
Increase in retained earnings (Credit change) P125,000
Increase in share capital 400,000
Increase in share premium 125,000
Total credit changes P850,000
Less increase in assets (debit change) 600,000
Decrease in liabilities (debit change) P250,000
4-3. (VENETIAN COMPANY)
Raw material purchases P430,000

Increase in raw materials inventory (15,000)
Raw materials used P415,000
Direct labor 200,000
Factory overhead 300,000
Total manufacturing costs P915,000
Increase in work in process inventory (20,000)
Cost of goods manufactured P895,000
Decrease in finished goods 35,000
Cost of goods sold for 2016 P930,000
4-4. (EXCALIBUR PRODUCTS)

Excalibur Products
Income Statement
For the Year Ended December 31, 2016
Sales P895,000
Cost of sales
Beginning inventory P126,000
Purchases 466,250
Ending inventory (189,500) (402,750)
Gross profit P492,250
Selling expenses (161,100)
General and administrative expenses (128,880)
Profit before income tax P202,270
17
Chapter 4 – The Statement of Comprehensive Income
and the Statement of Changes in Equity
Income tax (60,681)

Profit P141,589
4-5. (LUXOR COMPANY)
Requirement a (nature of expense method)
Luxor Company
Statement of Comprehensive Income
For Year Ended December 31, 2016
Note Total
PROFIT OR LOSS
Net sales revenue (11) P3,359,000
Rent revenue 105,000
Total revenues P3.464.000
Operating Expenses
Net purchases (12) 1,762,000
Increase in inventory (13) (105,000)
Delivery expense 77,000
Advertising expense 170,000
Salaries and commissions (14) 502,000
Depreciation expense (15) 241,000
Supplies expense (16) 75,000
Bad debts expense 27,000
Insurance and taxes 85,000
Other operating expenses (17) 170,000
Total Operating Expenses 3,004,000
Profit from Operations P460,000
Interest expense ( 37,000)
Profit before income tax from continuing operations P423,000
Income tax expense 126,900
Profit from continuing operations P296,100
Discontinued operations, net of tax (18) (245,000)
Profit P 51,100
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through other
comprehensive income, net of P24,000 income tax P 56,000
Actuarial Gains Taken to Equity, net of P12,000 income
tax 28,000
Total Other Comprehensive Income P 84,000
TOTAL COMPREHENSIVE INCOME P135,100
Notes to Financial Statements (after presenting notes for basis of presentation and summary
of significant accounting policies)
Note11 – Net sales revenue

Sales P3,529,000
Less sales discounts P 49,000
Sales returns and allowances 121,000 170,000
Net sales revenue P3,359,000
Note 12 – Net purchases

Purchases P1,730,000
Add freight-in 135,000
Total P1,865,000
Less purchase discounts P41,000
Purchase returns and allowances 62,000 103,000
Net purchases P1,762,000
Note 13 – Increase in inventory
18
Inventory, December 31 P446,000

Inventory, January 1 341,000
Increase in inventory P105,000
Note 14 – Salaries and commissions

Sales commissions and salaries P182,000
Office salaries 320,000
Total salaries and commissions P502,000
Note 15 – Depreciation expense

Depreciation – Buildings and office equipment P145,000
Depreciation – Store equipment 96,000
Total depreciation expense P241,000
Note 16 – Supplies expense

Store supplies expense P56,000
Office supplies expense 19,000
Total supplies expense P75,000
Note 17 – Other operating expenses

Loss on sale of equipment P 50,000
Loss from typhoon 120,000
Total other operating expenses P170,000
Note 18 – Discontinued Operations

Revenues P 900,000
Expenses (1,050,000)
Profit (loss) before income tax P (150,000)
Income tax benefit 45,000
Profit (loss) from operations of discontinued operations P (105,000)
Loss on sale of assets, net of tax benefit of P60,000 (140,000)
Discontinued Operations P (245,000)
(function of expense method)

Luxor Company
Note Total
Net sales revenue (11) P3,359,000
Cost of goods sold (12) 1,657,000
Gross profit P1,702,000
Other Operating Income
Rent Revenue 105,000
Total Income P 1,807,000
Operating Expenses
Selling Expenses (12) P581,000
General and Administrative Expenses (13) 596,000
Other Operating Expenses (14) 170,000
Total Operating Expenses P1,347,000
Profit from Operations P460,000
Profit before income tax from continuing operations P423,000
Discontinued operations, net of tax (18) (245,000)
Profit P 51,100
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through
19
other comprehensive income, net of P24,000 income

tax P 56,000
Actuarial Gains Taken to Equity, net of P12,000 income
tax 28,000
Total Other Comprehensive Income P 84,000
TOTAL COMPREHENSIVE INCOME P135,100
Notes to Financial Statements (after presenting notes for basis of presentation and summary
of significant accounting policies)
Note 11– Net sales revenue

Sales P3,529,000
Less sales discounts P 49,000
Sales returns and allowances 121,000 170,000
Net sales revenue P3,359,000
Note 12 – Cost of goods sold
Inventory, January 1 P341,000
Add freight-in 135,000
Total P1,865,000
Less purchase discounts (41,000)
Purchase returns and allowances (62,000) 1,762,000
Cost of goods available for sale P2,103,000
Less Inventory, December 31 446,000
Cost of goods sold P1,657,000
Note 13 – Selling expenses
Sales commissions and salaries P182,000
Store supplies expense 135,000
Delivery expense 77,000
Advertising expense 170,000
Depreciation expense – store equipment 96,000
Total selling expenses P581,000
Note 14 – General and Administrative expenses

Bad debts expense P27,000
Office supplies expense 19,000
Insurance and taxes 85,000
Office salaries 320,000
Depreciation – buildings and office equipment 145,000
Total administrative expenses P596,000
Note 15 – Other operating expenses (continuing operations)

Loss on sale of equipment P 50,000
Loss from typhoon 120,000
Total other operating expenses P170,000
Note 16 – Discontinued Operations

Revenues P 900,000
Expenses (1,050,000)
Profit (loss) before income tax P (150,000)
Profit (loss) from operations of discontinued operations P (105,000)
Loss on sale of assets, net of tax benefit of P60,000 (140,000)
Discontinued Operations P (245,000)
20
Requirement b
Luxor Company
Statement of Changes in Equity
Ordinary Retained
Share Reserves Earnings Total
Balances, January 1 P700,000 P660,000 P1,785,000 P3,145,000
Correction of prior year’s income due to
understated depreciation, net of
P54,000 income tax (126,000) (126,000)
Restated balances, January P700,000 P660,000 P1,659,000 P3,019,000
Issuance of ordinary shares 100,000 40,000 140,000
Comprehensive Income 84,000 51,100 135,100
Dividends declared (60,000) (60,000)
Balances, December 31 P800,000 P784,000 P1,650,100 P3,234,100
Reserves at January 1 included the share premium (P610,000) and unrealized gain on investments
carried at fair value through OCI (P50,000). The amounts may be reported in separate columns.
4-6. (TRUMP COMPANY)
a.
Revenues P5,000,000
Selling and Administrative Expenses 5,080,000
Disposal costs (75,000)
Operating Profit (Loss) before income tax P(155,000)
Operating Profit (loss) P(108,500)
Fair value less cost to sell is P830,000 (980,000 – 150,000) which is greater than the
carrying amount of P800,000.
b.
Revenues P5,000,000
Selling and Administrative Expenses 5,080,000
Disposal costs (75,000)
Operating Profit (Loss) before income tax P(155,000)
Operating Profit (loss) P(108,500)
Loss from measurement to NRV, net of income tax benefit
of P54,000 (126,000)
Discontinued Operations P(234,500)
Fair value less cost to sell is P620,000 which is P180,000 lower than the carrying amount
of P800,000, which is reported as loss from measurement to NRV.
21
4-7. (CAESARS PALACE COMPANY)
Caesars Palace Company

For the Years Ended December 31, 2016 and 2015
Share Retained
Capital Earnings Total
January 1, 2015, balances as previously reported P2,000,000 P1,500,000 P3,500,000
Prior period adjustment
2014 expense charged erroneously to Equipment,
net of income tax of P24,000 ___________ (56,000) (56,000)
January 1, 2015 balances, as restated P2,000,000 P1,444,000 P3,444,000
2015 Changes
Profit 514,000* 514,000
Dividends ___________ (200,000) (200,000)
Balances, December 31, 2015 P2,000,000 P1,758,000 P3,758,000
2016 Changes
Profit 750,000 750,000
Dividends ___________ (500,000) (500,000)
*2015 Restated profit = P500,000 + depreciation erroneously recognized (20,000 x 70%).
4-8. (TUSCANY COMPANY)
Tuscany Company
Comparative Income Statements
2016 2015
Sales P3,000,000 P2,540,000
Cost of goods sold (1,420,000) (1,143,000)
Gross profit 1,580,000 1,397,000
Selling expenses (350,000) (210,000)
General and administrative expenses (260,000) (220,000)
Profit before income tax P970,000 P967,000
Income tax (291,000) (290,100)
Profit P 679,000 P 676,900
Ending inventory, 2015, as reported P 355,000

Cost of goods sold, as reported in 2015 1,140,000
Goods available for sale P1,495,000
Beginning inventory, as reported in 2015 250,000
Purchases in 2015 P1,245,000
Inventory, beg (weighted average) 210,000
Inventory, end (weighted average) (312,000)
Restated cost of sales in 2015, weighted average P1,143,000
22
Tuscany Company
Share Retained
Capital Earnings Total
January 1, 2015, balances as previously reported P1,000,000 P 600,000 P1,600,000
Cumulative effect of changing from FIFO to weighted
average method of inventory costing, net of income
tax of P12,000* (28,000) (28,000)
January 1, 2015 balances, as restated P1,000,000 P572,000 P1,572,000
2015 Changes
Profit 676,900 676,900
Dividends (400,000) (400,000)
December 31, 2015 balances P1,000,000 P848,900 P1,848,900
2016 Transactions
Profit 679,000 679,000
* based on 30% income tax rate
Cumulative effect shown on the statement of changes in equity

Difference in beginning inventory of 2015 (250,000-210,000) P40,000
Applicable tax (30% x 40,000) 12,000
Net adjustment (deduction) from retained earnings, January 1, 2015 P28,000
The cumulative effect, however, is taken up in the books during 2016, when the change was
decided upon by the management. The following 2016 entry: is made:
Retained earnings 30,100

Inventory, beginning (or cost of sales) 43,000
Thus, the retained earnings at December 31, 2016 is P879,000 - 30,100 + 679,000 = P1,527,900.
4-9. (RIVIERA COMPANY)
Riviera Company
For Year Ended December 31, 2016 and 2015
(In million pesos)
(a) 2016 2015
Revenue P2,000 P1,800
Raw materials and consumables used (850) (745)
Employee benefit expense (100) (95)
Depreciation and amortization (40) (40)
Other expenses (2) (3)
Income from operations P1,008 P917
Finance costs (4) (5)
Profit before income tax P1,004 P912
Income tax expense (301.2) (273.6)
Profit for the year P702.8 P638.4
Other comprehensive income
Unrealized gains (losses) on investments measured at fair value
through other comprehensive income, net of applicable tax .56 (.84)
Total comprehensive income P703.36 P637.56
23
Riviera Company
Statement of Changes in Equiy
For Year Ended December 31, 2016 and 2015
(In million pesos)
(b) Share Share Retained Unrealized

Capital Premium Earnings GainLoss Total
January 1, 2015 balances P75 P22.0 P 30.00 P2.4 P129.40
2015 Changes
Profit for the year 638.40 638.40
Unrealized losses on investments
measured at FV net of tax (.84) (.84)
Dividends declared (25.00) (25.00)
December 31, 2015 balances P75 P22.0 P643.40 P1.56 P741.96
Prior period adjustment
Overstatement of prior year’s
profit net of P150,000 tax (.35) (.35)
Restated January 1, 2016 balances P75 P22.0 P643.05 P1.56 P741.61
2016 Changes
Issue of share capital 8 2.8 10.80
Profit for the year 702.80 702.80
Dividends declared (20.00) (20.00)
Unrealized gains on investments
measured at FV net of tax .56 .56
December 31, 2016 balances P83 P24.8 P1,325.85 P2.12 P1,435.77
24

Theory
MC1 D MC8 A MC15 D MC22 B MC29 C

MC2 D MC9 C MC16 B MC23 B
MC3 C MC10 B MC17 B MC24 C
MC4 D MC11 D MC18 A MC25 B
MC5 B MC12 A MC19 D MC26 C
MC6 D MC13 A MC20 B MC27 C
MC7 A MC14 D MC21 D MC28 B
Problems
MC30 D 210,000 Assets, end– 50,000 Liabilities, end = 160,000 Capital, end
260,000 Assets, beg – 60,000 Liabilities, beg = 200,000 Capital. beg
200,000 – 160,000 = 40,000 + 12,000 – 50,000 = 78,000 Loss
MC31 C 225,000 + 100,000 + 10,000 + 15,000 = 350,000;
150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000
350,000 – 335,000 = 15,000 + 25,000 – 125,000 = 85,000 Loss
MC32 A 21,000+25,000–10,000+70,000+5,000–(5,000 x 8)+15,000–50,000–1,000–
20,000=15,000
MC33 A 150,000 + 80,000 + (220,000 x ½) + 140,000 = 480,000
MC34 A 170,000 + (240,000 x ½) = 290,000
MC35 C 5,800,000–(4,800,000+650,000–550,000)=900,000–(7.5%,x900,000)=532,500
MC36 D 600,000+900,000 – 1,000,000 = 500,000
MC37 B P1,550,000 – P1,100,000 = 450,000
MC38 C 5,000,000 + 28,000 + 520,000 – 2,800,000 – 500,000 – 720,000 – 110,000 + 16,000
+ 100,000–400,000+55,000–70,000–50,000–80,000– 120,000 – 450,000 = 419,000
MC39 D 500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000
MC40 C 450,000 + 2,800,000 + 80,000 – 520,000 = 2,810,000
MC41 B 419,000 – 180,000 = 239,000; 239,000 x 70% = 167,300 + (88,000 x 70%) = 228,900
MC42 D (2,000,000 + 100,000) – (1,800,000 + 300,000) = 0
MC43 D 0 + gain of P1,000,000 on disposal – income tax of P300,000 = 700,000
MC44 C (3,500,000 – 500,000) x 70% = 2,100,000
MC45 B
MC46 C (440,000 – 350,000) x 70% = P63,000
MC47 B 400,000 – 84,000 + 40,000 – 4,000 – 280,000 = 72,000; 72,000 x 70% = 50,400
Total profit = P50,400 + (40,000 x 70%) =78,400
1,600,000 + (16,000 x 70%) – (24,000 x 70% )+ 78,400 ) – 12,000 = P1,660,800
MC48 D 400,000 – 84,000 + 40,000 – 4,000 – 280,000 + 40,000 = 112,000
112,000 x 70% = 78,400
25
CHAPTER 5
THE STATEMENT OF CASH FLOWS
PROBLEMS
5-1. (CURRENCY COMPANY)
Cash flows from operating activities

Profit before income tax (780,000 +1,820,000) P2,600,000
Adjustments for
Patent amortization expense 270,000
Income from investment in subsidiary (480,000)
Operating income before working capital changes P3,240,000
Increase in accounts receivable (340,000)
Decrease in accounts payable ( 26,000)
Cash generated from operations P2,874,000
Interest paid (100,000 – 18,000) (82,000)
Income tax paid (780,000 – 60,000) (720,000)
Net cash from operating activities P2,072,000
5-2. (YEN COMPANY)

Collections from customers P983,000
Payments to suppliers and employees (675,000)
Cash generated from operations P308,000
Interest paid (82,000)
Income taxes paid (154,000)
Net cash from operating activities P 72,000
5-3. (PESO COMPANY)
(a) Indirect method

Adjustments for
Operating income before working capital changes P300,000
Decrease in accounts receivable 50,000
Increase in inventories (89,000)
Decrease in accounts payable (46,000)
Increase in salaries payable 24,000
Income tax paid (66,000 – 12,000) (54,000)
Net cash from operating activities P185,000
(b) Direct method

Collections from customers P1,050,000
Payments to trade creditors (715,000)
Payments for salaries (96,000)
Cash generated from operations P 239,000
Income taxes paid 54,000
Computations:
Collections: 1,000,000 + 50,000 = 1,050,000
Payments to trade creditors: 580,000 + 89,000 + 46,000 = 715,000
Salaries paid:120,000 - 24,000 = 96,000
Income taxes paid: 66,000 - 12,000 = 54,000
26
Chapter 5 – The Statement of Cash Flows
5-4. (SWISS FRANC COMPANY)
(a) Direct method

Collections from customers P6,220,000
Payments to trade creditors (4,140,000)
Payments for salaries (720,000)
Payments for insurance (560,000)
Cash generated from operations P 800,000
Interest paid (175,000)
Computations:
Collections from customers: 6,100,000 + 120,000 = 6,220,000
Payments to trade creditors: 3,700,000 + 280,000 + 160,000 = 4,140,000
Salaries paid: 820,000 - 100,000 = 720,000
Insurance paid: 380,000 + 180,000 = 560,000
Income taxes paid: 288,000 – 18,000 – 40,000 + 22,000 = 252,000
Interest paid: 120,000 + 30,000 + 25,000 = 175,000
(b) Indirect method

Profit before income tax P1,080,000
Adjustments for
Gain on sale of equipment (100,000)
Increase in inventory (280,000)
Increase in prepaid insurance (180,000)
Interest paid (175,000
5-5. Items that would be reported in the Statement of Cash Flows (indirect method)
1. Under operating activities, depreciation expense of P120,000 is added to profit
before income taxes.
2. Under operating activities, net gain of P5,000 from sale of machine is deducted
from profit before income taxes. (Gain of P9,000 from sale of machine A less loss of
P4,000 from sale of machine B).
3. Under investing activities section, P29,000 is reported as a cash inflow of sale of
machine (27,000 from machine A plus P2,000 from machine B).
4. Under investing activities, P250,000 is reported as a cash outflow for purchase of
machine.
5-6. (DOLLAR COMPANY)

(Indirect method)
Dollar Company
Statement of Cash Flows
For year ended December 31, 2016

Adjustments for
27

Increase in inventory (200,000)
Cash generated from operating activities P998,500
Income taxes paid 223,350
Cash flows from investing activities
Purchase of equipment (1,880,000)
Cash flows from financing activities
Issue of ordinary share capital P550,000
Issue of bonds at par 1,000,000
Cash dividends paid (259,950) 1, 290,050
Net increase in cash P185,200
Add cash balance, January 1 42,000
Cash balance, December 31 P227,200
Profit before tax is 828,500, computed as 579,950/70%

Dividends paid is 259,950, computed as 579,950 – 320,000
Income taxes paid is 30% x 828,500 = 248,550 -25,200 = 223,350
5-7. (EURO COMPANY)
Euro Company

Profit before income taxes P2,955,000
Adjustments for
Gain on sale of plant assets (300,000)
Income before working capital changes P3,505,000
Increase in inventories (150,000)
Increase in prepaid rent (6,000)
Interest paid ( 80,000)
Income taxes paid (281,800) P2,222,200

Proceeds from sale of plant assets P 800,000
Payments for purchase of plant assets (7,600,000)
Payments for purchase of investment in associate (4,000,000) (10,800,000)

Receipts from issuance of ordinary share capital P5,000,000
Receipts from issuance of notes 6,000,000
Payments for dividends (1,200,000) 9,800,000
Increase in cash P1,222,200
Add cash balance, beginning 430,000
Cash balance, end P1,652,200
28
(Direct method) Euro Company

Cash flows from operating activities:

Cash receipts from customers P8,600,000
Cash payments for merchandise purchases (3,635,000)
Cash payments for salaries (1,980,000)
Cash payments for rent (131,000)
Cash payments for miscellaneous expenses (270,000)
Interest paid ( 80,000)
Net cash from operating activities P2,222,200

Proceeds from sale of plant assets P 800,000
Payments for purchase of plant assets (7,600,000)
Payments for purchase of investment in associate (4,000,000) (10,800,000)

Receipts from issuance of notes 6,000,000
Payments for dividends (1,200,000) 9,800,000
Increase in cash P1,222,200
Add Cash balance, beginning 430,000
Cash balance, end P1,652,200
5-8. (RIYAL COMPANY)

Riyal Company

Profit for the year P 860,000
Adjustments for
Loss on sale of equipment 80,000
Amortization of patents 100,000
Gain on sale of long-term investments (30,000)
Decrease in inventory 150,000
Increase in accounts payable 300,000
Increase in financial assets at FVPL (100,000)
Interest paid (480,000) P1,230,000
Sale of equipment P420,000
Purchase of property and equipment (1,900,000)
Sale of long-term investment 280,000
Net cash flows from investing activities (1,200,000)
Payments for dividends (750,000)
Net cash flows from financing activities 250,000
Increase in cash P 280,000
Cash balance, end P 900,000
29
Profit before tax: 1,122,000 + 750,000 – 1,270,000 = 602,000; 602,000/70% = 860,000

Depreciation expense: 2,200,000 + 400,000 – 2,000,000 = 600,000
Income taxes paid: 30% x 860,000 = 258,000; 258,000 +45,000 – 34,500 = 268,500
Interest paid: 12% x 4M = 480,000 or 530,000 – 50,000 amort of disc = 480,000
5-9. (RUPIAH COMPANY)
Purchase of treasury shares (1,000,000)

Increase in long-term debt 5,000,000
Depreciation expense 1,000,000
Amortization of intangibles 500,000
Gain on sale of land (200,000)
Proceeds from issue of ordinary share 4,500,000
Proceeds from sale of equipment 1,000,000
Proceeds from sale of land 1,800,000
Payment of cash dividend (2,000,000)
Profit 5,950,000
Increase in accounts receivable (2,000,000)
Decrease in inventory 2,400,000
Increase in trade payables 4,200,000
Increase in income tax payable 1,300,000
Decrease in interest payable (700,000)
Impairment loss on equipment 300,000
Increase in cash and cash equivalents 16,350,000
Cash balance, January 1, 2016 2,000,000
Cash balance, December 31, 2016 18,350,000
A properly prepared statement of cash flows may also be done, as follows:

Profit before income tax P8,500,000
Adjustments for
Depreciation expense 1,000,000
Amortization of intangibles 500,000
Gain on sale of land (200,000)
Increase in accounts receivable (2,000,000)
Decrease in inventory 2,400,000
Increase in trade payable 4,200,000
Impairment loss on equipment 300,000
Income taxes paid (1,250,000)
Interest paid (1,575,000) P13,050,000
Sale of equipment P1,000,000
Sale of land 1,800,000
Net cash flows from investing activities (3,200,000)
Issue of shares P4,500,000
Issue of long term debt 5,000,000
Purchase of treasury shares (1,000,000
Payment of cash dividends (2,000,000)
Net cash flows from financing activities 6,500,000
Increase in cash P 16,350,000
Add cash balance, January 1, 2016 2,000,000
Cash balance, December 31, 2016 P 18,350,000
30
5-10. (BAHT COMPANY)

Baht Company

Profit (loss) for the year P (20,000)
Adjustments for
Amortization of premium on bonds (5,000)
Gain on equipment sale (4,000)
Gain on bond retirement (10,000)
Dividends on investment in associate 40,000
Income from associates (65,000)
Increase in accounts payable 18,000
Increase in revenue received in advance 7,000
Decrease in prepayments 6,000
Decrease in inventory 5,000 P(13,000)
Purchase of property and equipment (30,000)
Retirement of bonds (80,000)
Issue of share capital 60,000
Purchase of treasury shares (16,000)
Payment of dividends (25,000) (61,000)
Decrease in cash P(104,000)
31

Theory
MC1 D MC7 A MC13 A MC19 B

MC2 C MC8 A MC14 B MC20 C
MC3 C MC9 D MC15 C MC21 D
MC4 A MC10 C MC16 D MC22 D
MC5 D MC11 C MC17 C MC23 A
MC6 C MC12 A MC18 D MC24 A
Problems
MC25 D 870,000 + 10,000 – 510,000 – 110,000 = 260,000

MC26 C 4,380,000 + 216,000 – 304,000 = 4,292,000
MC27 C 550,000 –500,000 + 125,000 = 175,000
MC28 B 250,000 + 550,000 – 600,000 – 450,000 = 250,000
MC29 B 200,000 + 500,000 – 250,000 = 450,000
MC30 D 750,000 – 29,000 + 21,000 + 15,000 = 757,000
MC31 C 260,000+40,000=300,000; 400,000–300,000=100,000;
100,000 +120,000-102,000 = 280,000
MC32 D 3,200,000 + 400,000 – 2,500,000 = 1,100,000
MC33 D 690,000+10,000=700,000;
700,000-80,000+250,000+10,000+25,000+80,000=985,000
MC34 A 1,600,000 + 400,000 – 1,000,000 = 1,000,000
MC35 A 220,000 + 325,000 – 240,000 = 305,000
MC36 C 5,130,000 – 4,700,000 =430 ,000;1,820,000+80,000-1,700,000=200,000;
430,000–200,000=230,000+30,000 = 260,000
MC37 A 149,000-17,000+13,000=145,000; 840,000-53,000+32,000=819,000
MC38 B 3,600,000 + 2,500,000 – 1,550,000 – 2,910,000 = 1,640,000
MC39 D 910,000-40,000+70,000+50,000 = 990,000
990,000 – 60,000 – 50,000 – 90,000 + 30,000 = 820,000
MC40 C 30,000 – 5,000 = 25,000
MC41 A 264,000 + 25,000 = 289,000
MC42 D 820,000 – 25,000 -289,000 = 506,000
MC43 B 8,000,000 – (7,200,000 +-150,000 - 20,000) = 970,000
MC44 C 240,000-120,000= 120,000; 120,000 + 280,000 = 400,000
MC45 A 3M+960,000–400,000=3,560,000;1M+300,000–280,000=1,020,000;
3,560,000 – 1,020,000 = 2,540,000
MC46 B 380,000 + 160,000 = 540,000
MC47 C 1,200,000 + 1,000,000 – 300,000 = 1,900,000
MC48 B 1.3M + 740,000 + 610,000 – 125,000 = 2,525,000
MC49 C 975,000 + 48,000 – 72,000 = 951,000
MC50 A Acc. Depreciation of equipment sold = 300,000 + 74,000 – 25,000 – 283,000 = 66,000
Cost of equipment sold = 66,000 + 100,000 = 166,000
Equipment purchased = 925,000 + 166,000 – 780,000 = 311,000
MC51 D Dividends declared = 500,000 + 1,000,000 – 710,000 – 20,000 = 770,000
Dividends paid = 22,000 + 770,000 – 34,000 = 758,000
32
CHAPTER 6
CASH TO ACCRUAL ACCOUNTING/ SINGLE ENTRY SYSTEM
PROBLEMS
6-1. (BRAIN COMPANY)
Capital, end
Assets P609,000
Less liabilities 138,000 P471,000
Capital, beginning
Assets P485,000
Less liabilities 94,000 391,000
Increase in capital P 80,000
Additional investments (70,000)
Withdrawals 120,000
Profit P130,000
6-2.
a. Prepaid Insurance, beg.: 38,900 + 13,480 – 48,200 = 4,180
b. Sales revenue: 1,160,000 + 980,000 – 700,000 = 1,440,000 collections;
1,440,000 + 1,660,000 + 30,000 – 1,200,000 = 1,930,000
c. Depreciation expense: 210,000 + 80,000 – 40,000 – 206,000 = 44,000
d. Collections of rent: 440,000 – 80,000 + 100,000 + 54,000 – 30,000 = 484,000
6-3. (GRAIN COMPANY)
Requirement 1
Capital, end
Assets P352,800
Less liabilities (including P8,000 unrecorded purchase) 123,500 P229,300
Capital, beginning
Assets P293,200
Less liabilities 117,800 175,400
Increase in capital P 53,900
Withdrawals 20,000
Profit P 73,900
Requirement 2
Grain Company
Sales (net of P21,000 returns) – Schedule 1 P725,000

Cost of goods sold
Merchandise inventory, January 1 P 97,200
Purchases (net of P13,000 returns) – Schedule 2 551,200
Merchandise inventory, December 31 (105,800) 542,600
Gross profit on sales P182,400
Other income 8,000
Operating expenses – Schedule 3 (114,000)
Operating income P 76,400
Profit P 73,900
Schedule 1 – Sales
Receipts from customers P697,500
Accounts receivable, beginning ( 59,400)
Accounts receivable, ending 76,100
Accounts written off 10,800
Sales returns 21,000
Gross sales P746,000
33
Chapter 6 – Cash to Accrual/ Single Entry System
Schedule 2 – Purchases
Payments to trade creditors P536,600
Accounts payable, beginning ( 63,300)
Accounts payable, ending 69,900
Unrecorded purchases 8,000
Purchase returns 13,000
Gross purchases P564,200
Schedule 3 – Operating expenses

Bad debts expense P 10,800
Depreciation expense (85,000 + 20,000 – 95,500) 9,500
Other operating expenses:
Payments for operating expenses P94,100
Prepaid expenses, beginning 6,000
Prepaid expenses, ending ( 7,500)
Accrued expenses, beginning ( 4,500)
Accrued expenses, ending 5,600
Total operating expenses P 114,000
6-4. (TRAIN FASTFOOD)

Train Fastfood
For Six Months Ended December 31, 2016
Sales P2,100,000
Cost of sales:
Less Inventory, end 450,000 1,400,000
Gross profit P 700,000
Depreciation expense ( 24,000)
Other operating expenses ( 556,000)
Net profit P 120,000
Train Fastfood
December 31, 2016
Assets Liabilities and Capital

Current Assets Current Liabilities
Cash P 24,000 Accounts payable P230,000
Accounts receivable 200,000 Bank loan 200,000
Inventory 450,000 Total current liabilities P430,000
Total current assets P674,000
Non-current assets Tom Cruz, Capital
Equipment P400,000 Initial investment P500,000
Less accum. depr 24,000 376,000 Add profit 120,000 620,000
Total assets P1,050,000 Total liabilities and capital P1,050,000
Computation of cash balance:

Cash receipts from
Initial investment by owner P 300,000
Collections from sales 1,900,000
Bank loan 500,000 P2,700,000
Less cash payments for
Bank loan 300,000
Equipment 200,000
Cash operating expenses 556,000 2,676,000
34
6-5. (DAVID ROSALES)
a. Total assets, December 31 P2,104,000

Less total liabilities, December 31 1,116,000 P988,000
Total assets, January 1 P1,833,200
Less total liabilities, January 1 1,020,000 813,200
Increase in capital during the period P174,800
Withdrawals 24,000
Net income P198,800
b. 1. Sales: 760,000 + 2,656,000 – 260,000 + 340,000 = 3,496,000

2. Purchases: 420,000 + 1,880,000 + 960,000 – 780,000 = 2,480,000
3. Interest revenue: 8,000 + 1,200 – 1,600 = 7,600
4. Depreciation expense: 24,000 + 10,000 = 34,000
Rent expense: (24,000 – 12,000) + (12,000 – 9,000) = 15,000
Other operating expenses: 940,000 + 20,000 – 16,000 = 944,000
Total operating expenses: 34,000 + 15,000 + 944,000 = 993,000
5. Interest expense: 50,000 + 16,000 - 24,000 = 42,000
6-6. (HORN CORPORATION)

(Cash Basis)
Horn Corporation
Income Statement
2016 2015
Revenues P 528,000 P515,000
Expenses (298,000) (272,000)
Profit P 230,000 P 243,000
2016 sales = P160,000 + 355,000 = 515,000
2015 sales = 295,000
2016 expenses = 67,000 + 160,000 + 45,000 = 272,000
2015 expenses = 185,000 + 40,000 = 225,000
(Accrual Basis)
Horn Corporation
Income Statement
2016 2015
Revenues P408,000 P445,000
Expenses (263,000) (255,000)
Profit P145,000 P190,000
2016 sales = 355,000 + 90,000 = 445,000
2015 sales = 295,000 + 160,000 + 30,000 = 485,000
2016 expenses = 40,000 + 160,000 + 55,000 = 255,000
2015 expenses = 185,000 + 67,000 + 25,000 = 277,000
6-7. (BORN AND CORN)

Cash Basis Accrual Basis
Sales P750,000 P1,057,500
Cost of Sales ( 669,375) ( 637,500)
Salaries Expense ( 96,000) ( 126,000)
Rent Expense ( 60,000) ( 20,000)
Other Operating Expenses ( 84,000 ) (104,000)
Profit P(159,375) P 170,000
35
6-7. (ATTY. D. MACAPANALO)
Atty. D Macapanalo
Profit and Loss
Professional Fees P 1,242,200

Expenses 727,300
Profit P 514,900
Professional Fees
2016 Collection P1,250,000
Fees Receivable, January 1 ( 52,000)
Fees Receivable, December 31 47,000
Unearned Fees, January 1 26,200
Unearned Fees, December 31 ( 29,000)
Professional Fees, Accrual Basis P 514,900
Expenses
2016 Payments P 722,400
Accrued expenses, January 1 ( 18,000)
Accrued expenses, December 31 21,500
Prepaid expenses, January 1 6,400
Prepaid expenses, December 31 ( 5,000)
Expenses, accrual basis P 727,300
6-9. (JACK AND JILL COMPANY)
Jack and Jill Company

Sales P 7,440,000
Cost of sales 4,670,000
Gross Profit P 2,770,000
Other operating income
Gain on sale of automobile 20,000
Total income P 2,790,000
Operating expenses
Depreciation 298,667
Others 1,003,600
Total expenses 1,302,667
Profit before interest 1,487,733
Profit P 1,383,733

Statement of Changes in Partners’ Equity
Jack Jill
Equity, January 1 P1,750,000 P1,815,000
Withdrawals (500,000) (250,000)
Share in profit 691,867 691,866
Equity, December 31 P1,941,867 P2,256,866
36

December 31, 2016
Assets
Current Assets
Cash P 736,000
Accounts receivable 1,782,500
Allowance for bad debts (60,000 – 17,500) (42,500)
Receivable from employees 30,000
Deposit on merchandise purchases 75,000
Merchandise inventory 3,750,000
Total current assets P 6,339,000
Non-current Assets
Property, plant and equipment
Furniture and fixtures P 220,000
Accumulated depreciation – furniture and fixtures (87,000)
Automobiles 940,000
Accumulated depreciation - automobiles (421,667)
Total property, plant and equipment P 651,333
Total Assets P 6,990,333
Liabilities
Current Liabilities
Accounts Payable P 1,875,000
Accrued Expenses 16,600
Bank loan, including accrued interest 900,000
Total current liabilities P 2,791,600
Equity
Jack, Capital P 1,941,867

Jill, Capital 2,256,866
Total partners’ equity 4,198,733
Total liabilities and partners’ equity P 6,990,333
Sales
Collections in 2016 (6,500,000 -60,000) P6,440,000
Accounts receivable, end (1,800,000 – 17,500) 1,782,500
Write off 17,500
Accounts receivable, beginning ( 800,000)
Sales P7,440,000
Purchases
Payments to merchandise creditors P4,500,000
Accounts payable, end 1,875,000
Returned merchandise (to be applied to future purchases) ( 75,000)
Accounts payable, beginning (1,380,000)
Net purchases P4,920,000
Cost of sales
Inventory, beginning P3,500,000
Net purchases 4,920,000
Inventory, end ( 3,750,000)
Cost of sales P4,670,000
37
Depreciation expense
On old furniture and fixtures (P220,000/10) P 22,000
On old automobiles (P780,000 – 280,000)/ 3 166,667
On new automobile 440,000 / 3 x 9/12 110,000
Depreciation expense P 298,667
Expenses other than depreciation

Payments for selling and general expenses P1,000,000
Prepaid insurance, beginning 15,000
Prepaid insurance, end ( 8,000)
Accrued expenses, beginning ( 20,000)
Accrued expenses, end 16,600
Expenses other than depreciation P1,003,600
Interest Expense
On bank loan obtained on 01/02/15 and paid 05/02/15 P 32,000
Accrued on bank loan obtained on 05/01/15 72,000
Total interest expense P 104,000
Theory
MC1 D MC4 A MC7 A MC10 A

MC2 A MC5 D MC8 B MC11 A
MC3 C MC6 B MC9 B MC12 C
Problems
MC13 D 210,000 – 50,000 = 160,000 capital, end; 260,000 – 60,000 = 200,000 beg cap
160,000 – 200,000 = 40,000 dec in capital + 50,000 – 12,000 = 78,000 net loss.
MC14 A (80,000–4,000) + (120,000– 6,000+ 40,000 – 30,000) = 200,000
MC15 D 800,000 + 320,000 + 124,000 – 240,000 – 96,000 = 908,000
MC16 B 189,000 + 12,000 – 8,000 + 36,000 + 7,000 – 10,500 = 225,500
MC17 A 30,000 + 3,000 – 21,000 = 12,000 + 60,000 – 58,000 = 14,000
MC18 D 600,000 + 400,000 – 200,000 + 300,000 – 150,000 = 950,000
MC19 D 794,000 + 51,000 – 45,000 = 800,000
MC20 A 715,000 – 144,000 – 96,000 – 7,000 = 468,000 + 60,000 – 33,000 = 495,000
MC21 A 800,000 – (144,000/45%) = 480,000
MC22 B 890,000 – 270,000 – 600,000 – 60,000 + 130,000 = 90,000
MC23 D 310,000 + 85,000 + 4,000 + 66,000 = 465,000
MC24 B 280,000 + 67,000 + 5,000 = 352,000
MC25 C 352,000 – 5,000 – 21,700 = 325,300
MC26 C 45,000 + 3,500 + (200,000 x 2%) + (4,000/20% = 20,000 x 5%) = 53,500
MC27 A 45,000+280,000+140,000–110,000=355,000+10,000+50,000–60,000 =355,000
MC28 C 800,000 – 96,000 + 124,000 + 320,000 – 908,000 = 240,000
MC29 B 2M+960,000+100,000+800,000+120,000+320,000–400,000–
1.6M+1.2M+2M=5.5M
MC30 C 7.5M – 5.8M = 1.7M – 1.5M + .28M = 480,000
MC31 C 320,000 – 650,000 – 400,000 = 730,000
MC32 B 400,000+3,000,000-485,000=2,915,000 + 200,000 = 3,115,000
MC33 B 42,500+202,500+630,000+172,500 = 1,147,500
30,000+375,000+300,000+45,000 = 750,000
1,147,500 – 750,000 = 397,500 + 82,500 = 480,000
MC34 C 60,000 – 5,000 + 7,500 +3,000 – 4,000 = 61,500
38
CHAPTER 7
EARNINGS PER SHARE
PROBLEMS
7-1. Case A (SUPERIOR, INC.)
600,000 x 110% 660,000

60,000 x 3/12 (15,000)
645,000
No potential ordinary shares.
Case B (WHITE, INCORPORATED)
For BEPS
40,000,000 x 12/12 40,000,000
5,000,000 x 9/12 3,750,000
1,000,000 x 6/12 500,000
44,250,000
For DEPS
WA number for BEPS 44,250,000
Potential ordinary shares (10,000 x 10 x 3/12) 25,000
44,275,000
Case C (LEFTON, INC.)
For BEPS
600,000 x 12/12 600,000
180,000 x 9/12 135,000
735,000
For DEPS
WA number for BEPS 735,000
Potential ordinary shares (5,000 x 5) 25,000
760,000
Case D (BRAVE COMPANY)
For BEPS
30,000 x 12/12 30,000
2,000 x 3/12 500
30,500
For DEPS
WA number for BEPS 30,500
Potential ordinary shares
3,000 x 7/25 x 9/12 630
1,000 x 7/25 x 3/12 70
31,200
7-2. (MURDOCK COMPANY)
Numerator = P525,000 – P300,000 = P225,000

Denominator
150,000 x 12/12 150,000
30,000 x 9/12 22,500
172,500
BEPS = 225,000 / 172,500 = P1.30
39
Chapter 7 – Earnings Per Share
7-3. Case A (WORLEY COMPANY)
BEPS = P2,500,000 / 50,000 = P50.00

DEPS = P2,514,000 / 55,000 = P45.71
Numerator for DEPS = P2,500,000 + (500,000 x 4% x 70%) = P2,514,000
Denominator for DEPS = 50,000 + 5,000 =55,000
Case B (RICHARD WHOLESALERS)
BEPS = P40,000/ 50,000 P0.80

DEPS = P40,000/ 50,000 P0.80
Note: The convertible preference is antidilutive as P60,000 avoidable dividends

divided by 10,000 shares is P6, which is more than P0.80 BEPS ; hence, the
convertible preference is ignored in the computation of DEPS.
Case C (ROBERTS COMPANY)
Weighted average # of shares

700,000 x 12/12 700,000
300,000 x 4/12 100,000
100,000 x 3/12 25,000
825,000
BEPS = P6,000,000 / 825,000 P7.27
DEPS = P6,980,000 / 1,000,000 P6.98
Avoidable interest
10M x 8% x 70% P 560,000
10M x 8% x 9/12 x 70% 420,000
P 980,000
Numerator = P6M + P980,000 P6,980,000

Denominator:
For BEPS 825,000
100,000 x 9/12 150,000
100,000 x 3/12 25,000
1,000,000
7-4. Case A (KISSES COMPANY)
(For both basic and diluted earnings per share)
50,000 x 12/12 x 1.2 x 2 120,000

20,000 x 11/12 x 1.2 x 2 44,000
15,000 x 8/12 x 1.2 x 2 (24,000)
10,000 x 4/12 x 2 6,667
Weighted average no. of shares 146,667
Case B (NESTLE COMPANY)
(For both basic and diluted earnings per share)
Work back to find beginning outstanding shares

585,900/1.80 = 325,500/1.05 = 310,000 – 25,000 = 285,000/3 = 95,000
95,000 + 5,000 – 20,000 = 80,000 shares
80,000 x 3 x 1.05 x 12/12 252,000
20,000 x 3 x 1.05 x 11/12 57,750
5,000 x 3 x 1.05 x 9/12 (11,812)
25,000 x 1.05 x 6/12 13,125
Weighted average no. of shares 311,063
40
Case C (FERRERO COMPANY)
For basic EPS

2014
200,000 x 1.10 x 2 x 12/12 440,000
125,000 x 1.10 x 2 x 9/12 206,250
8,000 x 2 x 3/12 __4,000
650,250
2015
325,000 x 1.10 = 357,500+8,000=365,500 shares, beginning
365,500 x 2 x 12/12 731,000
80,000 x 3/12 20,000
751,000
For diluted EPS

2014
For basic EPS 650,250
125,000 x 1.10 x 2 x 3/12 68,750
125,000 x 1.10 x 2 275,000
8,000 x 5
25 x 1.10 x 2 x 9/12 2,640
996,640,
2015
125,000 x 1.10 x 2 275,000
1,026,000
7-5. (BAY CORPORATION)
(a) Basic EPS

180,000 – (2,000 x 100 x 4%) = 172,000 = 0.86
200,000 200,000
(b) Diluted EPS

180,000 = 180,000 = 0.857
200,000+(2,000 x5) 210,000
(c) Basic EPS

180,000 – (2,000 x 100 x 12%) = 156,000 = 0.78
200,000 200,000
Diluted EPS (same as BEPS) = 0.78
Preference share is considered to be antidilutive as shown below:

180,000 = 0.857 (considered antidilutive; only a single presentation
210,000 of EPS is reported in the financial statements)
(OR 24,000/10,000 shares = 2.40 which is greater than the basic EPS
7-6. (COSMIC, INC.)
Basic EPS
376,950 = 376,950 = 31.41
10,000 + (4,000 x 6/12) 12,000
Diluted EPS
376,950 + (70,000 x .70) = 425,950 = 30.43
12,000 + (4,000 x 6/12) 14,000
41
7-7. (LASER COMPANY)
a. Basic EPS
156,700 = 156,700 = 5.11
30,000 + (2,000 x 4/12) 30,667
Diluted EPS
156,700 = 4.60
34,080*
6,000 x (25-9) x 8/12 2,560
25
4,000 x (25-9) x 4/12 853
25
34,080
b. Basic EPS
156,700 = 156,700 = 4.90
30,000 + (6,000 x 4/12) 32,000
Diluted EPS
156,700 = 4.53
34,560
For BEPS 32,000
6,000 x (25-9)
25 x 8/12 2,560
34,560
7-8. (CATHERINE INVESTMENT COMPANY)
Increase in
earnings
attributable to Earnings per
ordinary Increase in number of incremental
shareholders ordinary shares share
Options Nil 100,000 (20-15) = 25,000 Nil
20
Convertible P1,250,000 x 25,000 x 10 P0.425
preference 8.5% = 250,000
shares = P106,250
7% convertible P5,000,000 x 7% x 5,000 x 50 = P0.98
bonds 70%= P245,000 250,000
The sequence to include potential ordinary shares is as follows

(1) options
(2) convertible preference shares
(3) convertible bonds
Basic earnings per share =(P1,500,000 – P106,250) / 1,000,000 shares = P1.39
When only options are considered, the dilutive earnings per share is
P1,500,000 - P106,250 = P 1.36
1,000,000 + 25,000
When convertible preference shares are then considered, the dilutive earnings per share is
______P1,500,000____ = P1.18 thus, the convertible preference is dilutive.
1,025,000 + 250,000
When 7% convertible bonds are also considered, the dilutive earnings per share is
P1,500,000 + 245,000 = P1.14 ; thus, the convertible bonds are dilutive
1,275,000 + 250,000
The dilutive earnings per share is P1.14
OR (1.5M + 245,000)/(1M + 25,000 + 250,000 + 250,000) = 1.14
42
Theory
MC1 C MC7 D MC13 C

MC2 C MC8 B MC14 A
MC3 B MC9 C MC15 B
MC4 D MC10 C MC16 C
MC5 C MC11 C MC17 B
MC6 B MC12 C MC18 A
Problems
MC19 C 1,000,000 – (20,000 x 100 x 5%) = 900,000/200,000 = 4.50

MC20 C 300,000 – 30,000 = 270,000; 270,000/30,000+(6,000x6/12) = 8.18
MC21 B 290,100 – (30,000 x 4) = 170,100/60,000+(31,500x 8/12) = 2.10
MC22 B 1,100,000 = 1,100,000 = 4.82
(200,000 x 1.10) + 40,000 x 5 228,000
25
MC23 D 250,000 + (60,000x3/12) + 50,000 = 315,000
MC24 B 1,000,000 – (5% x 10,000 x 100)/100,000 = 9.50
MC25 D 2,500,000 + (500,000 x 9/12) + (250,000 x 6/12) = 3,000,000
3,000,000 + (5,000 x 40 x 3/12) = 3,050,000
MC26 B 600,000 – (20,000 x 3) = 540,000/200,000 = 2.70
MC27 C 600,000 + (1,000,000 x 10% x 70%) = 2.35
200,000 + 40,000 + (1,000 x 45)
MC28 D 30,000 x (25-20)/25 = 6,000
MC29 B 495,000/4.95 = 100,000 shares; 2009: 495,000/(100,000 x 1.10) = 4.50
2010: 825,000/(110,000 + (12,000 x 4/12) = 7.24
MC30 B 850,000/130,000 = 6.54
MC31 B 150,000 + (15,000 x 6/12) + (15,000 x 2/12) = 160,000
MC32 B (770,000 – 140,000) / 160,000 = 3.94
MC33 A 770,000/(160,000+40,000) = 3.85
MC34 B 100,000 + (10,000 x 3/12) = 102,500
MC35 C (177,500 – 20,000) / 102,500 = 1.54
MC36 B 177,500 / (102,500 + 20,000) = P1.45
MC37 C (100,000 x 2 x 120%) + (30,000 x 120% x 7/12) = 261,000
MC38 A Numerator: 2,000,000 – (1,000,000 x 7.5%) = 1,925,000
Denominator: 100,000 + (60,000 x 4/12) = 120,000
BEPS = 1,925,000/120,000 = P16.04
MC39 D 250,000 + (6,000 x 40 x 3/12) = 310,000; 4M/310,000 = 12.90
MC40 B 4M + (6M x 10% x 9/12 x 70%) = 4.315,000
310,000 + (6,000 x 40 x 9/12) = 490,000
4,315,000/490,000 = 8.81
MC41 C 40,000 + (3,000 x 4/12) = 41,000; 296,500/41,000 = 7.23
MC42 D 41,000+ (1,000 x 10/25) + (3,000 x 10/25 x 8/12) = 42,200
296,500/42,200 = 7.03
MC43 A (15,000 x 3/12) + (12,500 x 2/12) + (17,000 x 7/12) = 15,750
15,750 + (6,000 x 5/30) = 16,750
MC44 A 2.8M/200,000 = 14
MC45 A Options: dilutive; option price (30) is lower than the ave. market price (48)
Preference sh: (20,000 x 100 x 12%)/(20,000 x 2) = 6
Bonds: (10% x 2M x 70%)/ 40,000 = 3.50
Sequence: Options, Bonds, Preference shares
43
CHAPTER 8
ERRORS AND THEIR CORRECTIONS
PROBLEMS
8-1.
2015 profit 2016 profit
a. Understated Overstated
b. Overstated Understated
c. Overstated Understated
d. No effect No effect
e. Understated Overstated
f. Understated (gross profit) Overstated (gross profit)
g. No effect No effect
h. Overstated No effect
i. No effect No effect
j. Overstated Understated
k. Overstated Understated
l. Understated Overstated
m. Overstated Understated
8-2. (JOY COMPANY)

Understatement (overstatement)
12/31/16 12/31/16
Working Retained
2016 Profit Capital Earnings
Understatement of 12/31/15 inventory (148,000) -- --
Overstatement of 12/31/16 inventory (140,500) (140,500) (140,500)
Understatement of 2015 depreciation expense -- -- (11,500)
3-year ins. premium charged to expense in 2015 (120,000) 120,000 120,000
Unrecorded sale of fully depreciated machine in 2016 75,000 75,000 75,000
Net understatement (overstatement) P(333,500) P54,500 P43,000
8-3. (TOY COMPANY)

2015 2016
Reported profit P295,000 P210,000
Overstatement of 2015 ending inventory ( 36,000) 36,000
Understated 2015 accrued expenses ( 40,000) 40,000
Unrecognized supplies inventory, end of 2016 _ - 15,000
Corrected profit P219,000 P301,,000
8-4. (BOY, INC.)

Effect on 12/31/16 Retained Earnings
Understated (Overstated)
Understated 2015 ending inventory 0
Overstated 2015 depreciation expense 12,500
Understated 2016 ending inventory 5,000
Understated 2016 depreciation expense ( 4,000)
Net understatement in retained earnings P13,500
8-5. (COY COMPANY)
(a)
a. Prepaid insurance 9,300
Operating expenses 3,100
b. Retained Earnings 16,750
Unrealized Gains on FVPL 24,250
202,500 – 178,250 = 24,250
44
Chapter 8 – Errors and their Corrections
c. Operating Expenses 5,500

Allowance for Bad Debts 5,500
98,000 – 92,500 = 5,500
d. Retained earnings 37,750

Inventory 49,500
e. Machinery 75,000
(b)
2015 2016
Adjustments: a. 12,400 ( 3,100)
b. (16,750 24,250
c. (5,500)
d. (37,750) 37,750
(49,500)
e. 68,750 ( 6,250)
Corrected profit P514,150 P547,650
8-6. (SOY COMPANY)

2015 2016
(a)Rent income of 2016 recorded in 2015 (6,500) 6,500
(b)Omission of unused supplies
End of 2014 (6,500)
End of 2015 3,700 (3,700)
End of 2016 7,100
(c) Omission of accrued salaries
End of 2014 5,500
End of 2015 (7,500) 7,500
End of 2016 (4,700)
(d) Commissions earned but not yet collected
End of 2014 (12,000)
End of 2015 9,000 (9,000)
End of 2016 15,000
Corrected profit P130,700 P203,700
8-7. (FELLOW COMPANY)
a. Equipment 120,000
b. Profit from self-construction 500,000
Warehouse 500,000
c. Operating expenses 100,000
1.2M – (60,000 x 5 yrs) =900,000
900,000/(14-5) = 100,000
d. Operating expenses 20,000
Gain on sale of machine 30,000
Machine 120,000
45
8-8. (DOY CORPORATION)
Inventory Accounts Payable Net Sales

Initial amounts P1,750,000 P1,200,000 P8,500,000
Adjustments: 1. - - (35,000)
2. 50,000 50,000 -
3. 20,000 - -
4. 26,000 - (40,000)
5. 25,000 - -
6. 30,000 - -
7. - 60,000 -
8. 2,000 4,000 -
Adjusted amounts P1,903,000 P1,314,000 P8,425,000
8-9. (SOY COMPANY)
(a) 2014 2015 2016

Reported profit (loss) P490,000 P670,000 P(320,000)
a. Failure to record accrued expenses
2014 (34,000) 34,000
2015 (28,000) 28,000
2016 (43,000)
b. Overstated ending inventories
2014 (63,000) 63,000
2015 (28,000) 28,000
2016 (43,000
c. Failure to record accrued interest revenue
2014 12,000 (12,000)
2015 6,000 (6,000)
2016 8,000
d. Failure to recognize unearned rent
2014 (24,000) 24,000
2015 (20,000) 20,000
2016 (18,000)
e. Failure to record purchases on account
2015 (25,000) 25,000
2016 (20,000)
f. Repairs expense erroneously capitalized
2015 (120,000 – 12,000) (108,000)
2016 (80,000 – 8,000) (72,000)
g. Failure to recognize prepaid insurance
2014 4,800 (4,800)
2015 6,200 (6,200)
2016 ________ ________ 7,800
Correct profit P385,800 P577,400 P(411,400)
(b)
Correcting entries
a. Retained earnings 28,000
Expenses 15,000
Accrued expenses 43,000
b. Retained earnings 28,000
Inventory 43,000
c. Interest receivable 8,000
Interest revenue 2,000
d. Retained earnings 20,000
Rent revenue 2,000
Unearned rent 18,000
46
e. Retained earnings 25,000

Accounts payable 20,000
f. Retained earnings 108,000
Expenses 72,000
Property, plant and equipment 200,000
g. Prepaid insurance 7,800
Expenses 1,600
MC1 B
MC2 C
MC3 B
MC4 A
MC5 A
MC6 A
MC7 B 200,000/5 = 40,000
MC8 A 30,000 over + 27,000 over + 7,500 over – 48,000 under = 16,500 net overstatement.
MC9 A 27,000 over – 7,500 under – 48,000 under = 28,500 net understatement.
MC10 C 27,000 over + 6,000 over – 48,000 under – 7,500 under = 22,500 net
understatement.
MC11 A 250,000 – 100,000 + 150,000 – 50,000 – (30,000 x 4/6) + (120,000 x 18/24 =
320,000
MC12 A 1,550,000 + 10,000 – 80,000 + 120,000 – 55,000 – 100,000 = 1,445,000
MC13 D 312,500 + 25,000 - 4,000 – 50,000 – 18,000 – 30,000 = 235,500
MC14 A 10,000 – 8,000 = 2,000 net understated
MC15 D 10,000 + 25,000 – 8,000 = 27,000 net understated
MC16 C
MC17 C 2012 profit : 8,000 overstated – 2,000 understated ; 2013 profit 8,000
understated – 2,000 overstated.
MC18 B 2,300,000 + 60,000 – 40,000 – 50,000 + 100,000 = 2,370,000
MC19 B 10,000 – 7,700 = 2,300
MC20 D 258,000 – 7,700 = 250,300
MC21 B 589,500 – 112,500 – 16,000 = 461,000
MC22 C
MC23 D 613,400 + 90,000 + 12,000 – 28,000 = 687,400
MC24 A 20,000 + 13,500 – 8,000 = 25,500
MC25 A The shares are treasury shares and not investment in shares
MC26 A
MC27 D
MC28 D
MC29 A
MC30 A 300,00 – 80,000 = 220,000
MC31 A 60,000 – 4,000 – 12,000 = 44,000
MC32 C 434,900 + 12,000 = 446,900
MC33 D 60,000 + 15,000 = 75,000
MC34 C 1,500,000 X 12% x 10/12 = 150,000
MC35 C
MC36 D
MC37 D
MC38 D Retained earnings beginning of 430,000 as reported – correction of prior period
errors of
P20,500 ( - 36,000 + 31,500 – 16,000) + 2011 corrected profit of 298,800
MC39 D
MC40 D 2,500,000 – 112,500 – 50,000 – 80,000 = 2,257,500
47
MC41 B 1,300,000 – 90,000 – 36,000 + 28,000 = 1,202,000

MC42 C 500,000 + 7,700 + 30,000 + 18,000 + 8,000 – 4,000 – 16,000 + 15,000 = 558,700
MC43 A 80,000 + 18,000 + Accrued interest of 150,000 * ( although finance costs should be
presented separately, as required by PAS 1, total interest cost included in other
losses and expenses is 190,000); thus, other losses and expenses = 248,000 –
190,000 = 58,000
MC44 B 30,000 – 4,000 = 26,000
MC45 A 20,000 + 31,500 = 51,500
MC46 D 75,000 + 16,000 = 91,000
MC47 B 430,000 – 36,000 + 31,500 – 16,000 = 409,500
MC48 A 950,000 + 36,000 = 986,000
MC49 C 450,000 – 31,500 + 16,000 = 434,500
Correcting entries in 2016 for Take One Corporation (MC 17 – 47)
Operating Expenses 7,700

Cash 7,700
Sales 112,500
Accounts receivable 112,500
Inventories 90,000
Cost of Sales 90,000

Accounts Receivable 16,000

Inventories 12,000
Accounts Payable 12,000
Retained Earnings 36,000


Inventories 28,000
Treasury Stock 260,000

Investments in Stock 260,000

Prepaid Expenses 13,500

Prepaid Expenses 8,000
Accumulated Depreciation – Equipment 4,000

Sales 50,000
Accumulated Depreciation – Equipment 12,000
Loss on Sale of Equipment 18,000
Equipment 80,000
Interest Expense (Other Losses and Expenses) 150,000

Interest Payable 150,000
48
Mortgage Payable 500,000

Current Portion of Mortgage Payable 500,000


Sales 80,000
Advances from Customers 80,000
Working Paper adjustments to restate 2015 financial statements

Inventory 36,500


Mortgage Payable 500,000

Current Portion of Mortgage Payable 500,000
49
CHAPTER
50 9
INTERIM REPORTING AND OPERATING SEGMENTS
9-1. Angel Company
Angel Company
For the Quarter Ended September 30, 2016
Net sales (30% x 9,000,000) P 2,700,000

Cost of goods sold 1,620,000
Gross profit (40% x 2,700,000) P 1,080,000
Operating expenses * (255,000)
Gain on sale of equipment 100,000
Profit from Continuing Operations P 925,000
Income Tax (277,500)
Net profit (loss) P 647,500
*Operating Expenses:
Variable = 30% x 600,000 P180,000
Fixed = (900,000 – 600,000) /4 75,000
Total P255,000
9-2. ABC Corporation
P30 million x 12% P3,600,000

P25 million x 4% 1,000,000
Commission expense for the second quarter P4,600,000
9-3. Galaxy Company
Galaxy Company
For the Month of October 2016
Net sales P 239,100
Cost of goods sold:
Merchandise Inventory, October 1 P 280,000
Purchases 215,000
Total goods available for sale 495,000
Merchandise inventory, October 31 372,600
Cost of sales P 122,400
Selling expenses (54,700)
General and administrative expenses (19,000)
Net profit P 43,000
9-4. Red Company
Minimum required revenues P3,275,000

Minimum required operating profit 580,000
Minimum required identifiable assets 6,800,000
Identified reportable segments, based on any of the above tests: A, B, C, D and E
9-5. Blue Bay
Minimum required assets (10% x P50M) P5,000,000

Minimum required revenue (20% x P86M) 8,600,000
Minimum required operating result (10% x P20M) 2,000,000
Reportable segments are A, B, C, D and E. The 75% test has also been met.
50
Chapter 9 – Interim Reporting and Operating Segments
9-6. Minimum operating result (profit or loss) P1,100,000

Reportable segments based on the above test are B, D and E.
9-7. Oliver Company
Revenue (40% x 7,500,000) P3,000,000

Traceable costs (1,750,000)
Allocated common costs (1,250,000/2,500,000) x 1,500,000) ( 750,000)
Profit – Segment 1 P 500,000
9-8. Ebony Company
Sales P4,000,000
Traceable cost P2,200,000
Allocated common costs:
1,800,000 x (1,800/3,000) 1,080,000 3,280,000
Operating profit – Segment 1 P 720,000
51
Chapter 9 – Interim Reporting and Operating Segments
Interim Reporting
MC1 A
MC2 D
MC3 D
MC4 B
MC5 B
MC6 B
MC7 B
MC8 C
MC9 C
MC10 A
MC11 D
MC12 C
MC13 C 300,000 x ¼ = 75,000
MC14 B 240,000/4 = 60,000; 600,000 + 60,000 = 660,000
MC15 A End of January = 200,000 + 50,000 – 192,000 = 58,000
End of February = 58,000 + 380,000 – 408,000 = 30,000
End of March = 30,000 + 704,000 – 604,000 = 130,000
MC16 C (600,000 x ½) + (1,500,000 x ½) = 1,050,000
MC17 A Entire amount of P60,000 loss is recognized in the quarter incurred.
MC18 D P2M advertising and P7M staff bonuses
MC19 A (25,000,000 X 10%) – (10,000,000 X 5%) = 2,000,000
MC20 A 100,000 x 12 = 1,200,000, which is lower than the cost of P1,400,000
Operating Segments
MC21 A
MC22 C
MC23 C
MC24 B
MC25 C
MC26 --- Should be 75% of total external revenue ©
MC27 B
MC28 D
MC29 A
MC30 B
MC31 C 10% (1,000,000 + 300,000) = 130,000
MC32 D 500,000 – 225,000 – (240,000 x 500,000/1,500,000) = 195,000
MC33 A 2,000,000 – 900,000 – (3,000,000 x 2M/10M) = 500,000
MC34 A 10% x 25M = 2,500,000; (10M+6M+9M = 25M)
MC35 C Assets
MC36 C A, D, and E
MC37 D
MC38 C
52
CHAPTER 10
FINANCIAL STATEMENTS OF SMALL AND MEDIUM-SIZED ENTITIES
PROBLEMS
10-1. Brook Corporation

Brooks Corporation
Statement of Income and Retained Earnings
Sales P 400,000
Cost of goods sold (280,000)
Operating expenses (84,000)
Profit from operations P 36,000
Profit from continuing operations before income tax P32,000
Discontinued operations, net of income tax of P12,000 28,000
Profit P50,400
Retained earnings, January 1, 2016 1,600,000
Correction of prior period error, net of income tax of P4,800 11,200
Cumulative effect of change in accounting policy, net of income tax of P7,200 (16,800)
Dividends declared in 2016 (12,000)
Retained earnings, December 31, 2016 P1,632,800
10-2. SME Company

SME Company
December 31, 2016
Assets
Non-current Assets
Property, plant and equipment, net of accumulated depreciation of
P1,450,000 P2,874,000
Investment property, at fair value 2,500,000
Total Non-current Assets P5,374,000
Current Assets
Accounts receivable, net of allowance for doubtful receivables of P200,000 1,700,000
Inventory 1,180,000
Total Current Assets P3,110,000
Total Assets P8,484,000
Liabilities
Non-current Liabilities
Long-term debt P1,800,000
Environmental provision 281,000
Total Non-current Liabilities P2,081,000
Current Liabilities
Trade payables and accrued expenses P 253,000
Dividends payable 100,000
Current portion of long-term debt 500,000
Interest accrued on long-term debt 230,000
Warranty provision 400,000
Total Current Liabilities P1,613,000
Total Liabilities P3,694,000
53
Chapter 10 – Financial Statements of SMEs
Shareholders’ Equity
Share Capital P1,500,000

Retained Earnings (2,390,000 + 1,000,000 – 100,000) 3,290,000
Total Shareholders’ Equity P4,790,000
Total Liabilities and Shareholders’ Equity P8,484,000
10-3. Company Y
Restated
2016 2015
Sales P1,040,000 P735,000
Cost of goods sold (2015 as previously reported 435,000) (724,000)* (500,000)
Gross profit P 316,000 P235,000
Other income – Change in fair value of investment in associate
(2015 as previously stated P0) 50,000 20,000
Selling expenses (80,000) (50,000)
Administrative expenses (50,000) (50,000)
Profit before income tax P236,000 P155,000
Income tax expense (2015 as previously reported P60,000) (70,800) (46,500)
Profit P 165,200 P108,500
Retained earnings, January 1
-as previously stated 340,000 P200,000
-effect of correction of prior period cost of goods sold (45,500)
-effect of change in accounting policy for investment in 14,000
associate
Retained earnings, December 31 P473,700 P308,500
*Revised annual depreciation effective 2016

Cost P60,000
Accumulated depreciation, 1/1/15 (60,000/4 x 2) 30,000
Carrying value 1/1/16 P 30,000
Remaining revised life (7-2) 5 years
Revised depreciation 6,000
Recorded depreciation for 2016 P15,000
Effect on cost of goods sold P( 9,000)
Cost of goods sold, before change in estimate 735,000
Revised cost of goods sold for 2016 P724,000
MULTIPLE CHOICE
MC1 E MC7 C
MC2 A MC8 B
MC3 C MC9 A
MC4 A MC10 B
MC5 A MC11 C
MC6 C MC12 B
MC13 C (4,600,000 – 4,500,000) + (4,800,000 – 5,200,000) = - 300,000 net decrease in FV

MC14 A 5,000,000/20 years = 250,000 depreciation
MC15 A Cost: 101,000 Recoverable amounts: 2014: 102,000 – 4,000 = 98,000
(impaired); 2015: 110,000 -4,000 = 106,000 (not impaired) and 2016: 90,000 –
4,000 = 86,000 (impaired) The investment is measured at cost because there is no
published price quotation; and is required to be tested for impairment. The
investment is impaired at Dec. 31, 2014 (P98,000 being lower than P101,000) and
2016 (86,000 is lower than 101,000).
MC16 C CV of equipment is P150,000 – Recoverable amount of P120,000 = P30,000
impairment loss; P2,000,000 carrying value before impairment – P30,000
impsirment = adjusted carrying amount is P1,970,000
54

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Chapter 1

CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

MC1 B MC11 B MC21 B MC31 C MC41 A

2-1. (TIGER COMPANY)

a. Adjusting entries at December 31, 2016:

a. Supplies expense 16,500

b. Reversing entries at January 1, 2017

2-2. (DRAGON COMPANY)

Adjusting entries at December 31, 2015:

d. Supplies expense 28,400

2-3. (MONKEY CORPORATION)

a. Adjusting entries at December 31, 2016:

a. Financial assets at FVPL 2,150

b. Closing entries (partial)

a. Unrealized gain on FA at FVPL 2,150

c. Reversing entries at January 1, 2017

h. Interest payable 200

2-4. (ROOSTER COMPANY)

Amount of Amount that would appear

2-5. (SNAKE COMPANY)

a. Adjusting entries at December 31, 2016:

a. Financial assets at FVPL 13,000

g. Rent revenue 64,000

b. P698,000 Accounts Payable 157,000

c. P2,220,000 Accounts Payable 245,000

d. P744,000 729,000 + 15,000 = 744,000; The use of P12,000 office supplies

e. P243,500 Total debits is P243,500 consisting of Cash–P48,000; Accounts

MULTIPLE CHOICE QUESTIONS

MC1 D MC7 A MC13 C

MC19 B 16,000 + 29,000 – 21,000 = 24,000

3-1. (GARNET COMPANY)

Current assets Note

Liabilities and Shareholders’ Equity

Note 6 – Property, plant and equipment

Note 8 – Trade and other payables

Note 9 – Bonds payable

Note 10 – Share capital

Note 11 – Additional paid-in capital

Note 12 – Accumulated profits

3-2. (RUBY CORPORATION)

Liabilities and Shareholders’ Equity

Note 5 – Financial assets through profit or loss

Note 6 – Trade and other receivables

Note 7 – Inventories (at lower of cost and NRV)

Note 8 – Non-current assets held for sale

Note 9 – Property, plant and equipment

Note 10 – Other financial assets

Note 12 – Bonds payable

Note 13 – Share Capital

Note 14 – Share premium

Retained earnings is adjusted by a decrease of P30,000 representing loss from

3-3. (DIAMOND COMPANY)

Liabilities and Shareholders’ Equity

Note 6 – Prepaid expenses

Note 7 – Property, plant and equipment

Note 8 – Trade and other payables

Note 9 – Bonds payable

3-4. (EMERALD COMPANY)

Current assets Note

Liabilities and Shareholders’ Equity

Retained earnings before adjustment P3,580,000

Note 6 – Trade and other receivables

Note 7 – Noncurrent asset held for sale