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PRETAX FINANCIAL STATEMENTS

20X1 20X2 Remarks


Cash 100,000.00 240,000.00
Accounts receivable 450,000.00 787,500.00
Allowance for doubtful accounts (22,500.00) (39,375.00) 5% of AR
Interest receivable 7,560.00 14,680.00
Inventory 345,000.00 414,000.00
Investment in time deposit - 5% 189,000.00 367,000.00
Total current assets 1,069,060.00 1,783,805.00

Property Plant and Equipment


Land 1,000,000.00 1,650,000.00
Building 2,550,000.00 2,550,000.00
20 years estimated life, SL for Financial
Accumulated depreciation - building (127,500.00) (255,000.00) Accounting, DDB for tax
Equipment 560,000.00 560,000.00
5 years estimated life, SL for Financial
Accumulated depreciation - equipment (112,000.00) (224,000.00) Accounting, SYD for tax
Total non-current assets 3,870,500.00 4,281,000.00
Total assets 4,939,560.00 6,064,805.00

Accounts payable and accrued expenses 400,625.00 332,501.00


Unearned revenue 230,875.00 190,000.00
Interest payable 80,000.00 80,000.00
Long term payable 1,000,000.00 1,000,000.00

Common stock 1,000,000.00 1,000,000.00


APIC 2,000,000.00 2,000,000.00
Retained earnings 228,060.00 812,304.00
Revaluation surplus 650,000.00
4,939,560.00 6,064,805.00 -

Sales 2,250,000.00 5,287,500.00


Cost of sales (900,000.00) (2,379,375.00)
Gross profit 1,350,000.00 2,908,125.00

Year 2, recovery of previously written off


Bad debt expense (22,500.00) (22,375.00) account of 1,200
Depreciation expense (239,500.00) (239,500.00)
Operating expense (787,500.00) (1,850,625.00)
Operating expenses (1,049,500.00) (2,112,500.00)

Interest income 7,560.00 14,680.00 Subject to 20% withholding tax


Interest expense (80,000.00) (80,000.00)

Earnings before tax 228,060.00 730,305.00


BIR TAX FORM APPROACH 32%
20X1 20X2
Sales 2,480,875.00 5,246,625.00
Cost of sales (900,000.00) (2,379,375.00)
Gross profit 1,580,875.00 2,867,250.00

Bad debt expense 0 (5,500.00)


Depreciation expense (441,666.67) (378,833.33)
Operating expense (787,500.00) (1,850,625.00)
Operating expenses (1,229,166.67) (2,234,958.33)

Interest income 0 0
Interest expense (76,456.25) (73,118.75)

Taxable income 275,252.08 559,172.92


Income tax payable 88,080.67 178,935.33
Depreciation - Building Interest income, net 7,560.00 14,680.00
0.1 2,550,000.00 Year net of 20% final tax 80% 80%
255,000.00 2,295,000.00 1 Interest income, gross of final tax 9,450.00 18,350.00
229,500.00 2,065,500.00 2 % non-deductible interest expense 37.5% 37.5% non-deductible interest
206,550.00 1,858,950.00 3 Non-deductible interest expense 3,543.75 6,881.25 expense as a % of interest
185,895.00 1,673,055.00 4 Interest expense 80,000.00 80,000.00
167,305.50 1,505,749.50 5 Deductible interest expense 76,456.25 73,118.75
150,574.95 1,355,174.55 6
135,517.46 1,219,657.10 7
121,965.71 1,097,691.39 8
109,769.14 987,922.25 9
98,792.22 889,130.02 10
88,913.00 800,217.02 11
80,021.70 720,195.32 12
72,019.53 648,175.79 13
64,817.58 583,358.21 14
58,335.82 525,022.39 15
52,502.24 472,520.15 16
47,252.01 425,268.13 17
42,526.81 382,741.32 18
38,274.13 344,467.19 19
344,467.19 - 20

Depreciation - Equipment
560,000.00
0.3333333 186,666.67 1
0.2666667 149,333.33 2
0.2000000 112,000.00 3
0.1333333 74,666.67 4
0.0666667 37,333.33 5
INCOME STATEMENT APPROACH Journal entries
20X1 32% 20X2 32% 20X1 20X2
Earnings before tax 228,060.00 730,305.00 ITE-C ITE-D DTA DTL ITP ITE-C ITE-D DTA DTL ITP
Permanent differences
Interest income (7,560.00) (14,680.00)
Non-deductible interest expense 3,543.75 6,881.25
Income tax
Financial income subject to tax 224,043.75 71,694.00 722,506.25 231,202.00 expense
Temporary differences - -
Bad debts expense 22,500.00 7,200.00 22,375.00 7,160.00 Establishment (7,200.00) 7,200.00 (7,160.00) 7,160.00
Write-off, net of recovery - (5,500.00) (1,760.00) Reversal 1,760.00 (1,760.00)
Depreciation per books 239,500.00 76,640.00 239,500.00 76,640.00 64,693.33 (64,693.33) 44,586.67 (44,586.67)
Depreciation per tax (441,666.67) (141,333.33) (378,833.33) (121,226.67)
Unearned revenue 230,875.00 73,880.00 190,000.00 60,800.00 Establishment (73,880.00) 73,880.00 (60,800.00) 60,800.00
Earned revenue - (230,875.00) (73,880.00) Reversal 73,880.00 (73,880.00)
Taxable income 275,252.08 88,080.67 559,172.92 178,935.33 88,080.67 (88,080.67) 178,935.33 (178,935.33)
88,080.67 (16,386.67) 81,080.00 (64,693.33) (88,080.67) 178,935.33 52,266.67 (7,680.00) (44,586.67) (178,935.33)
Summary 81,080.00 (7,680.00) DTA beginning balance 0 0 beginning balance 81,080.00 (64,693.33)
Net change balance, Dec 31, balance, Dec 31,
(64,693.33) (44,586.67) DTL 20X1 81,080.00 (64,693.33) 20X2 73,400.00 (109,280.00)
in
71,694.00 231,202.00
Income tax Should be paid Should be paid
Reported in 88,080.67 178,935.33 ITE-C expense by April 15, Income tax expense by April 15,
the income (16,386.67) 52,266.67 ITE-D 20X2
statement 71,694.00 231,202.00 ITE
INCOME STATEMENT APPROACH Journal entries
20X1 32% 20X2 32% 20X1 20X2
Earnings before tax 228,060.00 730,305.00 ITE-C ITE-D DTA DTL ITP ITE-C ITE-D DTA DTL ITP
Permanent differences
Interest income (7,560.00) (14,680.00)
Non-deductible interest expense 3,543.75 6,881.25
Income tax
Financial income subject to tax 224,043.75 71,694.00 722,506.25 231,202.00 expense
Temporary differences - -
Bad debts expense 22,500.00 7,200.00 22,375.00 7,160.00 Establishment (7,200.00) 7,200.00 (7,160.00) 7,160.00
Write-off, net of recovery - (5,500.00) (1,760.00) Reversal 1,760.00 (1,760.00)
Depreciation per books 239,500.00 76,640.00 239,500.00 76,640.00 64,693.33 (64,693.33) 44,586.67 (44,586.67)
Depreciation per tax (441,666.67) (141,333.33) (378,833.33) (121,226.67)
Unearned revenue 230,875.00 73,880.00 190,000.00 60,800.00 Establishment (73,880.00) 73,880.00 (60,800.00) 60,800.00
Earned revenue - (230,875.00) (73,880.00) Reversal 73,880.00 (73,880.00)
Taxable income 275,252.08 88,080.67 559,172.92 178,935.33 88,080.67 (88,080.67) 178,935.33 (178,935.33)
88,080.67 (16,386.67) 81,080.00 (64,693.33) (88,080.67) 178,935.33 52,266.67 (7,680.00) (44,586.67) (178,935.33)
Summary 81,080.00 (7,680.00) DTA beginning balance 0 0 beginning balance 81,080.00 (64,693.33)
Net change balance, Dec 31, balance, Dec 31,
(64,693.33) (44,586.67) DTL 20X1 81,080.00 (64,693.33) 20X2 73,400.00 (109,280.00)
in
71,694.00 231,202.00
Income tax Should be paid Should be paid
Reported in 88,080.67 178,935.33 ITE-C expense by April 15, Income tax expense by April 15,
the income (16,386.67) 52,266.67 ITE-D 20X2
statement 71,694.00 231,202.00 ITE
BALANCE SHEET APPROACH 20X1 20X2
Pre-tax CV Tax DTA DTL Pre-tax CV Tax DTA DTL
Cash 100,000.00 100,000.00 240,000.00 240,000.00
Accounts receivable 450,000.00 450,000.00 787,500.00 787,500.00
Allowance for doubtful accounts (22,500.00) (39,375.00)
427,500.00 450,000.00 7,200.00 748,125.00 787,500.00 12,600.00
Interest receivable 7,560.00 7,560.00 14,680.00 14,680.00
Inventory 345,000.00 345,000.00 414,000.00 414,000.00
Investment in time deposit - 5% 189,000.00 189,000.00 367,000.00 367,000.00
Total current assets 1,069,060.00 1,091,560.00 1,783,805.00 1,823,180.00

Property Plant and Equipment


Land 1,000,000.00 1,000,000.00 1,650,000.00 1,000,000.00 (208,000.00) charged to revaluation su
Building 2,550,000.00 2,550,000.00 2,550,000.00 2,550,000.00
Accumulated depreciation - building (127,500.00) (255,000.00) (255,000.00) (484,500.00)
2,422,500.00 2,295,000.00 (40,800.00) 2,295,000.00 2,065,500.00 (73,440.00)
Equipment 560,000.00 560,000.00 560,000.00 560,000.00
Accumulated depreciation - equipment (112,000.00) (186,666.67) (224,000.00) (336,000.00)
448,000.00 373,333.33 (23,893.33) 336,000.00 224,000.00 (35,840.00)
Total non-current assets 3,870,500.00 4,281,000.00
Total assets 4,939,560.00 6,064,805.00 1,823,180.00

Accounts payable and accrued expenses 400,625.00 400,625.00 332,501.00 332,501.00


Unearned revenue 230,875.00 - 73,880.00 190,000.00 60,800.00
Interest payable 80,000.00 80,000.00 80,000.00 80,000.00
Long term payable 1,000,000.00 1,000,000.00 1,000,000.00 1,000,000.00

Common stock 1,000,000.00 1,000,000.00


APIC 2,000,000.00 2,000,000.00
Retained earnings 228,060.00 812,304.00
Revaluation surplus 650,000.00
4,939,560.00 81,080.00 (64,693.33) 6,064,805.00 73,400.00 (317,280.00)
(109,280.00) (208,000.00)
beginning balance - - beginning balance 81,080.00 (64,693.33) 0
Adjustments 81,080.00 (64,693.33) (7,680.00) (44,586.67) (208,000.00)

Journal entry Dr Cr Journal entry Dr Cr


DTA 81,080.00 ITE-Deferred 7,680.00
ITE-Deferred 81,080.00 DTA 7,680.00

ITE-Deferred 64,693.33 Revaluation surplus 208,000.00


DTL 64,693.33 ITE-Deferred 44,586.67
DTL 252,586.67
AFTER TAX FINANCIAL STATEMENTS
20X1 20X2
20X2 was adjusted for payment of
Cash 100,000.00 151,919.33 20X1 Income tax payable
Accounts receivable 450,000.00 787,500.00
Allowance for doubtful accounts (22,500.00) (39,375.00)
427,500.00 748,125.00
Interest receivable 7,560.00 14,680.00
Inventory 345,000.00 414,000.00
Investment in time deposit - 5% 189,000.00 367,000.00
Total current assets 1,069,060.00 1,695,724.33

Land 1,000,000.00 1,650,000.00


Building 2,550,000.00 2,550,000.00
Accumulated depreciation - building (127,500.00) (255,000.00)
2,422,500.00 2,295,000.00
Equipment 560,000.00 560,000.00
Accumulated depreciation - equipment (112,000.00) (224,000.00)
448,000.00 336,000.00
Deferred tax assets 81,080.00 73,400.00
Total non-current assets 3,951,580.00 4,354,400.00
Total assets 5,020,640.00 6,050,124.33

Accounts payable and accrued expenses 400,625.00 332,501.00


Unearned revenue 230,875.00 190,000.00
Interest payable 80,000.00 80,000.00
Income taxes payables 88,080.67 178,935.33
Total current liabilities 799,580.67 781,436.33

Long term payable 1,000,000.00 1,000,000.00


Deferred tax liabilities 64,693.33 317,280.00
Total non-current liabilities 1,064,693.33 1,317,280.00

Common stock 1,000,000.00 1,000,000.00


APIC 2,000,000.00 2,000,000.00
Retained earnings 156,366.00 509,408.00
Revaluation surplus 442,000.00
Total stockholders' equity 3,156,366.00 3,951,408.00
Total liabilities and Stockholders' equity 5,020,640.00 6,050,124.33
-
Sales 2,250,000.00 5,287,500.00
Cost of sales (900,000.00) (2,379,375.00)
Gross profit 1,350,000.00 2,908,125.00

Bad debt expense (22,500.00) (22,375.00)


Depreciation expense (239,500.00) (239,500.00)
Operating expense (787,500.00) (1,850,625.00)
Operating expenses (1,049,500.00) (2,112,500.00)

Interest income 7,560.00 14,680.00


Interest expense (80,000.00) (80,000.00)

Earnings before tax 228,060.00 730,305.00

Income tax expense - current (88,080.67) (178,935.33)


Income tax expense - deferred 16,386.67 (52,266.67)
Income tax expense (71,694.00) (231,202.00)

Net income 156,366.00 499,103.00


Retained earnings, beginning - 156,366.00
Dividends - (146,061.00)
Retained earnings, end 156,366.00 509,408.00

Note: 20X1 was first year of operations