PSBA - Manila

Financial Accounting and Reporting (Accounting 15)

FINANCIAL STATEMENTS
Statement of Financial Position

Problem 1. The following elements of Financial Statements are provided from the Trial Balance of Ford Inc. for the year
ended December 31,2011:

Preference Share at par P 100,000

Cash and cash equivalents (net of P200,000 overdraft) 1,000,000
Land Held for Sale 2,000,000
Bonds Payable due on December 31,2013 1,500,000
Deferred Tax Liability (P100,000 each to be realized in 2012, 2013, and 2014) 300,000
Revaluation Surplus 200,000
Salaries Payable 100,000
Cash surrender value of insurance 50,000
Note payable - payable in four installments semiannually on June 30 and December 31 400,000
Interest Payable 30,000
Inventory – (P200,000 will be realized in 15 months) 600,000
Investment Property 500,000
Biological Assets 200,000
Prepaid Asset and Office Supplies 300,000
Accounts Payable (net of P100,000 with debit balance) 400,000
Accounts Receivable – (P500,000 will be realized in 15 months) (net of P200,000 with Cr. Balance) 1,500,000
Contingent Asset 300,000
Contingent Liability 200,000
Provision for lawsuit (payable on December 31,2012) 500,000
Unamortized Premium on Bonds Payable 300,000
Investment in Trading Securities 3,000,000
Ordinary Share at par 500,000
Donated Capital 200,000
Deferred tax asset (P100,000 each to be realized in 2012, 2013 and 2014) 300,000
Income tax payable 100,000
Allowance for bad debts 200,000
Intangible Assets 2,000,000
Property, Plant and Equipment 5,000,000
Additional Paid In Capital in excess of par – Ordinary Shares 1,000,000
Investment in Available for Sale Securities 2,000,000
Unamortized Discount on Bonds Payable 100,000
Unamortized Discount on Bonds Receivable 400,000
Investment in Preference Shares of SM @ cost method 3,000,000
Investment in Ordinary Shares of BDO @ equity method 4,000,000
Share options 500,000
Treasury Shares 600,000
Accumulated Depreciation – PPE 800,000
Accumulated Amortization – Intangible Assets 200,000
Conversion Option 400,000
Cumulative translation debit – foreign operation 300,000
Subscribed Ordinary Share @ par 200,000
Retained Earnings appropriated for plant expansion – December 31,2011 5,000,000
Bond Sinking Fund for the Bonds Payable 1,500,000
Plant Expansion Fund – to be disbursed on January 30,2012 5,000,000
Cumulative unrealized gain on FAFVOCI debt instrument 200,000
Cumulative unrealized loss on FAFVOCI equity instrument (100,000)
Additional Paid in Capital in excess of par – Preference Shares 2,000,000
Utilities Payable 300,000
Share Dividends Payable @ par (large share dividend) 1,000,000
Cash Dividends Payable on January 10,2012 100,000
Cumulative Unrealized loss on derivative designated in cash flow hedge (effective portion) 300,000
Net remeasurement Loss – Defined Benefit Plan 400,000
Dividends Receivable from Investment in Associate 200,000
Interest Receivable from Notes Receivable 300,000
Investment in Joint Venture 2,000,000
Investment in Subsidiary 3,000,000
Notes Receivable – due on December 31,2012 2,000,000
Loan Receivable – realizable in in five equal annual installments every June 30 5,000,000
Investment in Bonds Receivable – Held to Maturity Securities due on December 31,2013 2,400,000
Cumulative unrealized gain on FLFVPL due to credit risk 100,000
Total Lease Liability (P200,000 principal will be due on September 31,2012) 1,200,000
Retained Earnings unappropriated – January 1,2011 2,000,000

Note: The only transactions that affect the retained earnings unappropriated for the year are the net income for 2011 and
dividends declared.

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Required: Based on the result of your audit, determine the following as of December 31,2011:
____________1. Total Current Assets
____________2. Total Noncurrent Assets
____________3. Total Assets
____________4. Total Current Liabilities
____________5. Total Noncurrent Liabilities
____________6. Total Liabilities
____________7. Total Shareholder’s Equity
____________8. Total Retained Earnings – December 31,2011
____________9. Total Retained Earnings – Appropriated - December 31,2011
____________10. Total Retained Earnings – Unappropriated – December 31,2011
____________11. Profit or Loss for the year ended December 31,2011

ACCOUNTING EQUATION

Problem 2. DLSU Co. provided the following data regarding its financial position:
January 1,2013
Current Asset P2,000,000
Current Liability ?
Noncurrent Asset 5,000,000
Noncurrent Liability 3,000,000

The following additional data are provided:

1. The current ratio of DLSU Co. at the start of the year is 2:1.
2. The debt ratio at the end of the year is 40%.
3. Current Assets increased to P3,000,000 during the year.
4. Noncurrent assets increased by P2,000,000 during the year.
5. Noncurrent liability decreased to P1,000,000 during the year.
Required: Determine the following:
__________1. Current Liability on January 1,2013
__________2. Equity on January 1,2013
__________3. Current Liability on December 31,2013
__________4. Equity on December 31,2013

EVENTS AFTER REPORTING PERIOD: (Adjusting and Non-adjusting Events)

Problem 3. The financial statements of Benz Inc. are submitted to the external auditor on February 15,2012. The external
auditor issued the unqualified audit opinion on February 28,2012. The board of directors approved and authorized the
issuance of financial statements on March 15,2012. The stockholder’s ratified the issuance on March 31,2012. The
following events after reporting period of Benz Inc. are presented for the year ended December 31,2011:

a. On December 10,2011, Benz was charged by DENR of Environmental Regulation Violation. On December
31,2011, the defense counsel of Benz believed that it is probable that Benz will lose in the law suit and will be
liable in the range of P1,000,000 to P3,000,000. At that time, there is no best estimate of liability. On March
10,2012, the Supreme Court of the Philippines decided against the defendant Benz and award P2,500,000
amount of damages to DENR.
b. On December 15,2011, Benz was charged by the Benz Labor Union for Unfair Labor Practice in the Labor
Arbitrer. On December 31,2011, the defense counsel of Benz believed that it is reasonably possible that Benz will
lose in the labor dispute. The reasonable estimate of the liability is P1,000,000. On March 20,2012, the Supreme
Court decided in favor of the Benz Labor Union and awarded P1,500,000 amount of damages.
c. On January 10,2012, Benz was charged by Ford of Patent Infringement. On such date, the defense counsel of
Benz believed that it is probable that Benz will lose in the case. On March 12,2012, the Supreme Court ruled in
favor of Ford and awarded P500,000 of damages to the plaintiff.
d. On December 25,2011, Benz filed a civil case against Honda. The defense counsel of Benz believed that it is
probable that Benz will prevail in the civil case. The reasonable amount of damages is P3,000,000. The case was
decided by the Supreme Court on April 1,2012 and awarded P4,000,000 amount of damages to Benz.
e. On November 15,2011, Benz filed a civil case against Toyota. The defense counsel of Benz believed that it is
reasonably possible that Benz will prevail in the civil case. The reasonable amount of damages is P1,800,000.
The case was decided by the Supreme Court on April 10,2012 and awarded P2,500,000 amount of damages to
Benz.
f. On September 30,2011, an employee of Benz filed a civil case against Benz. The defense counsel of Benz
believed that it is remote that Benz will lose the case and the reliable estimate of liability is P200,000. The case
was decided by Supreme Court on March 30,2012 and awarded P300,000 amount of damages to the employee
of Benz.
g. On December 31,2011, Benz has an outstanding receivable from Way Inc. in the amount of P5,000,000. On
March 14,2012, Way Inc. declared bankruptcy and the Court placed the company under receivership. On such
date, the receiver declared that only 40% of the payable of Way will be liquidated.
h. On March 10,2012, the Investment Property of Benz Inc. was razed by fire. The carrying value of such property
on December 31,2011 is P10,000,000.
i. On March 16,2012, the warehouse containing the inventory of Benz Inc. was destroyed by earthquake. The total
from such calamity is P25,000,000.

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 j. On January 20,2012, Benz Inc. acquired 100% interest of Ferrari Inc. for P100,000,000.

Required: Based on the result of your audit, provide the treatment of the preceding events after reporting period:

________________________1. Event A
________________________2. Event B
________________________3. Event C
________________________4. Event D
________________________5. Event E
________________________6. Event F
________________________7. Event G
________________________8. Event H
________________________9. Event I
________________________10. Event J

Statement of Comprehensive Income

Problem 4. The income tax rate for the year is 30%. The following income and expense accounts are obtained from the
Trial Balance of Ferrari Inc., which is a diversified company, for the year ended December 31,2011:

Deferred Tax Expense P1,200,000

Impairment loss on Non-current Asset Held for Sale, before tax 300,000
Gain on sale of Non-current Asset Held for sale, before tax 400,000
Sales 40,000,000
Purchases of Raw Materials 10,000,000
Bad debts expense 100,000
Impairment loss on Loans Receivable 200,000
Gain on factoring of Accounts Receivable 400,000
Loss on Notes Receivable Discounting 100,000
Purchase discount and allowance on Raw Materials 300,000
Sales discount and allowance 400,000
Purchase return on Raw Materials 500,000
Sales return 200,000
Freight In on Raw Materials 300,000
Direct Labor 1,000,000
Factory Overhead – 50% of Direct Labor ?
Raw Materials, January 1 2,000,000
Raw Materials, December 31 3,000,000
WIP, January 1 1,500,000
WIP, December 31 2,500,000
Finished Goods, January 1 5,000,000
Finished Goods, December 31 3,000,000
Gain on changes in Fair Value less cost to sell of Biological Assets 1,000,000
Share dividend received from Investment in SMC @ cost method(fair value of OS) 500,000
Cash and property dividend received from Investment in SMC @ cost method 300,000
Cash and property dividend received from Investment in BDO @ equity method 200,000
Share in net loss from Investment in BDO @ equity method 500,000
Interest received from Investment in Held to Maturity Securities 300,000
Amortization of Premium on Held to Maturity Securities 20,000
Realized loss on sale of Investment in Held to Maturity Securities 400,000
Loss on changes in far value of Investment Property 500,000
Realized gain on sale of Investment Property 100,000
Realized deferred income from government grant 400,000
Depreciation on Property, Plant and Equipment 3,000,000
Depletion of Wasting Asset 2,000,000
Loss on sale of an item of Property, Plant and Equipment 1,000,000
Impairment loss of Property, Plant and Equipment 500,000
Amortization of Intangible Asset 400,000
Pre-organization cost 200,000
Research and development cost 300,000
Stock issuance cost of Ordinary Shares 200,000
Warranty Expense 500,000
Premium Expense 200,000
Current Tax Expense 2,000,000
Interest Paid on Bonds Payable 200,000
Amortization of Discount on Bonds Payable 50,000
Amortization of Bonds Payable Issue cost 50,000
Gain on debt restructuring – asset swap 200,000
Gain on debt restructuring – equity swap 300,000
Gain on debt restructuring – modification of terms (5% of original liability) 100,000
Interest Expense on Finance Lease 200,000
Gain on sale and leaseback – operating lease 300,000
Loss on sale and leaseback – finance lease 400,000

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 Compensation Expense – Share Options 100,000
Compensation Expense – Share appreciation rights 200,000
Revenue from discontinued operation, before tax 1,000,000
Expenses from discontinued operation, before tax 500,000
Impairment loss of assets of discontinued operation, before tax 300,000
Realized gain on sale of assets of discontinued operation, before tax 400,000
Expense from Law Suit 500,000
Freight Out 200,000
Sales Commission 100,000
Salary of Marketing Department’s employees 100,000
Advertising Expense 500,000
Salary of legal counsel 500,000
Salary of directors and executives 900,000
Salary of accounting department 200,000
Office Supplies used 100,000
Rental Expense on Main building 1,000,000
Utilities Expense 100,000
Extraordinary loss from calamity 300,000
Unrealized holding loss from FLFVPL – due to credit risk 400,000
Realized loss from FLFVPL – due to credit risk 100,000
Unrealized holding loss from FLFVPL – not due to credit risk 200,000
Unrealized holding gain on derivatives designated as fair value hedge 100,000
Unrealized holding loss on derivates designated as cash flow hedge (effective) 300,000
Realized loss on derivatives designated as cash flow hedge (effective) 100,000
Unrealized holding gain on derivatives designated as cash flow hedge (ineffective) 200,000
Unrealized holding gain on derivatives designated as hedge of net investment in
Foreign operation (effective) 500,000
Realized gain on derivatives designated as hedge of net investment in
Foreign operation (effective) 300,000
Translation adjustment debit – Foreign Operation 2,000,000
Transaction gain from foreign exchange transaction 500,000
Unrealized holding gain on Trading Securities 2,000,000
Realized loss on sale of Trading Securities 500,000
Unrealized holding loss on FAFVOCI equity instrument 3,000,000
Realized holding loss on FAFVOCI equity instrument 1,000,000
Unrealized holding gain on FAFVOCI Debt Instruments 2,000,000
Realized gain on sale of FAFVOCI Debt Instruments 1,500,000
Net Remeasurement Gain or Actuarial Gain under Defined Benefit Plan 100,000
Employee Benefit Expense 200,000
Increase in Revaluation Surplus during 2011 2,000,000
Realized Revaluation Surplus during 2011 200,000

Additional notes during 2011 are also provided as follows:

1. The depreciation of Property, Plant and Equipment is 60% administrative and 40% selling.
2. The depletion of Wasting Asset is considered part of Other Expenses.
3. The employee benefit expense is 80% administrative and 20% selling.
4. The compensation expense from share option is for administrative department employees while that from share
appreciation rights is for selling department employees.
5. The rental, utilities and office supplies expense is equally divided between administrative and selling departments.
6. Finance cost is separated from other expenses.
7. Ferrari uses the functional or cost of sale format in preparing its Statement of Comprehensive Income.

Required: Based on the result of your audit, determine the following for the year ended December 31,2011:

____________1. Cost of Sales

____________2. Gross Profit
____________3. Total Other Income
____________4. Administrative Expense
____________5. Selling Expense
____________6. Total Other Expense
____________7. Total Income Tax Expense
____________8. Income from Continued Operation
____________9. Income or (loss) from discontinued operation
____________10. Profit or Loss
____________11. Net Other Comprehensive Income with Reclassification Adjustment
____________12. Net Other Comprehensive Income without Reclassification Adjustment
____________13. Net Other Comprehensive Income
____________14. Total Comprehensive Income

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CAPITAL MAINTENANCE APPROACH
Problem 5. On January 1, 2013, the total assets of LLB Inc. is P2,000,000 while its total liabilities is P1,200,000. During
the year, the corporation issued 20,000 ordinary shares with par value of P10 for P20/share. The corporation also
declared and paid cash dividends in the amount of P100,000 and distributed property dividends with book value of
P100,000 and fair value of P500,000.
During 2013, the total assets increased to P5,000,000 while the total liabilities increased by P1,800,000. Nothing
affects the total stockholder’s equity accounts except the transactions provided and profit or loss. What is the profit/
(loss) of LLB Inc. for the year ended December 31,2013?

NON-CURRENT ASSET HELD FOR SALE

Problem 6. On January 1, 2013, JD Inc. constructed a building classified as owner-occupied property for a total cost of
P2,200,000 with useful life of 10 years and residual value of P200,000. It is the company’s policy to use the cost method
of valuation for property, plant and equipment. On December 31, 2013, the company determined that the carrying amount
of the building will be recovered principally through a sale transaction rather than through continuing use. The following
amounts are provided by a qualified appraiser:
12/31/2013 12/31/2014 12/31/2015
Value in Use P2,500,000 P2,300,000 P2,000,000
Fair Value less Cost to Sell 1,500,000 1,400,000 1,300,000
On December 31, 2015, JD Inc. decided not to sell the building and it no longer met the criteria for being classified
as held for sale.
Required: Based on the result of your audit, determine the following:
____________1. Carrying amount of building on 12/31/2013
____________2. Impairment loss of building for the year ended 12/31/2013
____________3. Carrying amount of building on 12/31/2014
____________4. Impairment loss of building for the year ended 12/31/2014
____________5. Depreciation expense of building for the year ended 12/31/2014
____________6. Carrying amount of building on 12/31/2015
____________7. Reversal of impairment loss for the year ended 12/31/2015

DISCONTINUED OPERATION
Problem 7. On January 1,2013, ABS-CBN, a communication entity, has decided to dispose one of its radio operations
known as DZMM SAIS TRENTA. During 2013, the total revenues from the operation of DZMM is P50,000,000 while its
total operating expenses is P40,000,000. During 2013, the post-tax impairment loss of the assets of DZMM amounts to
P5,000,000. On December 31,2013, DZMM sold one of its satellites with a cost of P5,000,000 and accumulated
depreciation of P2,000,000. The selling price of the satellite is P6,000,000 and its fair value is P4,000,000. During 2013,
DZMM also incurred pre-tax termination costs of P1,000,000 as a result of the discontinuance. The normal corporate
income tax for year 2013 is 30%. What is the single amount to be presented in the line item-discontinued operation
of the 2013 Statement of Comprehensive Income of ABS-CBN?

Change in Accounting Estimate

Problem 8. On January 1,2013, Wayne Inc. acquired a machine for P530,000 with useful life of 5 years and residual
value of P30,000. It is the company’s policy to use SYD method for depreciation of its property, plant and equipment. On
January 1, 2015, due to new information, Wayne Inc. changed its depreciation method from SYD to Straight Line Method.
Aside from that, the revised useful life is 7 years from the date of acquisition. There is no change in the residual value.
Required: Based on your audit, determine the following:
____________1. Depreciation expense for the year ended December 31,2015
____________2. Carrying value of the machine as of December 31,2015

Problem 9. On January 1,2013, Queen Inc. purchased an equipment for P120,000 with useful life of 4 years and residual
value of P20,000.It is the company’s policy to use 200% Double Declining Balance Method for depreciation of its property,
plant and equipment. On January 1,2014, due to new information, Queen changed its depreciation method from Double
Declining Balance Method to SYD Method. The remaining useful life as of January 1,2014 is 2 years. The residual value is
also revised to P15,000. What is the cumulative effect of these accounting changes in the January 1,2014 Retained
Earnings to be presented in the 2014 Statement of Changes in Equity assuming the tax rate is 30%?

Change in Accounting Policy

Problem 10. On January 1,2013, Arrow Inc. started its operation. It is the company’s policy to provide bad debts expense
based on 5% of its ending receivables. The following data are also provided on December 31,2013:
Accounts Receivable P1,000,000
Allowance for Bad Debts 50,000
Credit Sales 3,000,000
Written off Receivables 30,000
On January 1,2014, the company changed its accounting policy for providing bad debts expense from 5% of
ending receivables to 10% of credit sales. During 2014, the following data are also provided:
Accounts Receivable 12/31/2014 P2,000,000
Credit Sales 5,000,000
Recovery of previously written off AR 20,000
Written off Receivables 40,000
What is the cumulative effect of this accounting change in the January 1,2014 Retained Earnings to be presented
in 2014 Statement of Changes in Equity assuming the tax rate is 30%?

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Problem 11. On January 1,2014, IRON Inc. decided to change its accounting policy for costing of its inventory from FIFO
to Weighted Average. The following data are provided:
FIFO WEIGHTED AVERAGE
12/31/2012 P1,000,000 P1,500,000
12/31/2013 2,000,000 1,000,000
12/31/2014 3,000,000 5,000,000
What is the cumulative effect of this accounting change in the January 1,2014 Retained Earnings to be presented
in 2014 Statement of Changes in Equity assuming the tax rate is 30%?

Problem 12. On January 1,2013, THOR Inc. acquired a building to be held as investment property in the amount of
P3,300,000. The building has a residual value of P300,000 and has a useful life of 6 years. It is the company’s policy to
use cost method for the valuation of its investment property. On January 1,2015, THOR Inc. decided to change its
accounting treatment of its investment property from cost method to fair value method. The following fair values are also
provided:
December 31,2013 P3,500,000
December 31,2014 3,000,000
December 31,2015 3,200,000
What is the cumulative effect of this accounting change in the January 1,2015 Retained Earnings to be presented
in 2015 Statement of Changes in Equity assuming the tax rate is 30%?

Classification of Operating, Investing and Financing Activities. Indicate the proper classification of the following cash
flows by using O for Operating, I for Investing and F for financing.
___Cash paid for the acquisition of merchandise inventory
___Cash received from the sale of available for sale securities
___Cash received from the sale of trading securities
___Cash paid for the acquisition of treasury shares
___Cash paid for salaries of employees and officers
___Cash paid to stockholders as distribution of earnings
___Cash received from investment in associate
___Cash paid for interest on loans payable
___Cash received for interest on notes receivable
___Cash paid for acquisition of call option
___Cash received from the sale of investment property
___Cash paid for acquisition of land to be classified as property, plant and equipment
___Cash received from bank loan
___Cash paid for advances to subsidiary
___Cash received from customers
___Cash paid for utilities
___Cash paid for taxes
___Cash received from investment of stockholders
___Cash paid for acquisition of held to maturity securities
___Cash paid for acquisition of patent
___Cash paid for the disposal of trademark
___Cash paid for acquisition of prepaid insurance
___Cash received from the sale of factory equipment

Direct Method.

A. Collection from Customers.

Problem 13. The following data are provided by James Inc. for the year ended December 31,2013:
Total Sales P20,000,000
Cash received from cash customers 5,000,000
Factored accounts receivable 1,000,000
Dishonored notes receivable 3,000,000
Interest on dishonored notes receivable 500,000
Recovery of previously written off accounts receivable 300,000
Written off accounts receivable during the year 200,000
Sales discount availed by customers during the year 100,000
Credit memo issued by James Inc. during the year 400,000
Bad debt expense during the year 800,000
The following balances are provided:
Accounts Receivable, January 1,2013 P10,000,000
Net realizable value of AR, January 1,2013 9,500,000
Net realizable value of AR, December 31,2013 12,000,000
What is the total collection from customers for the year ended December 31, 2013?

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Problem 14. The following data are provided by Lebron Inc. for the year ended December 31,2013:
12/31/2012 12/31/2013
Trade AR P1,000,000 P2,000,000
Trade NR 3,000,000 3,500,000
Unearned Revenue 5,000,000 2,000,000
The total revenue reported by Lebron Inc. on its Income Statement for the year ended December 31,2013 is P10,000,000.
What is the total cash collected from customers for the year ended December 31, 2013?

B. Cash Paid to Suppliers

Problem 15. The following data are provided by Dwayne Inc. for the year ended December 31,2013:
12/31/2012 12/31/2013
Merchandise Inventory P2,000,000 P2,500,000
Accounts payable 3,000,000 4,000,000
Purchase discount 500,000
Credit memo issued by suppliers 300,000
Note payable issued for some accounts payable 200,000
Cost of goods sold for year 2013 9,000,000
What is the total cash paid to suppliers for the year ended December 31, 2013?

C. Cash Paid for Operating Expense

Problem 16. The following data are provided by Wade Inc. for the year ended December 31,2013:
12/31/2012 12/31/2013
Prepaid salary P1,000,000 P1,500,000
Accrued salary 2,500,000 5,000,000
Salary expense for year 2013 7,000,000
What is the total cash paid for salaries for the year ended December 31, 2013?

Problem 17. The following information are provided concerning the operating expenses of TY Inc.:

12/31/2010 12/31/2011
Prepaid Expenses 1,000,000 3,000,000
Accrued Expenses 2,000,000 2,500,000
Total Operating Expenses 10,000,000
Acc. Depreciation 3,000,000 4,000,000
Acc. Amortization 2,000,000 2,500,000

The following notes are also provided:

a. Non-cash expenses such as amortization expense and depreciation expense are included in the total operating
expenses.
b. During the year, TY sold equipment with a cost of P2,000,000. The net proceeds from the sale of equipment is
P2,100,000 and the gain on disposal is P500,000.
c. During the year, TY sold patent with a cost of P1,000,000. The net proceeds from the sale of patent is P600,000
and the loss on disposal is P200,000.

What is the cash basis operating expenses for the year ended December 31, 2011?

Problem 18. The following information are provided by LA Inc. concerning its interest expense:
12/31/2010 12/31/2011
Prepaid Interest 100,000 150,000
Accrued Interest Payable 250,000 100,000
Discount on Bonds Payable 300,000 150,000
Premium on Bonds Payable 250,000 50,000
The following data are also provided:
a. During 2011, LA extinguished some Bonds Payable originally issued at a discount with a face value of P1,000,000
through asset swap. The book value of the land given up is P1,100,000 and the fair value is P1,200,000. The
extinguishment of Bonds Payable resulted to a loss of P150,000.
b. During 2011, LA extinguished some Bonds Payable originally issued at a premium with a face value of
P2,000,000 by payment of P2,000,000. The extinguishment resulted to a gain of P100,000.
c. The total interest expense for the year is P2,000,000.
What is the cash paid for interest for the year ended December 31, 2011?

D. Cash Paid for Taxes

Problem 19. The following data are provided by Chris Inc. for the year ended December 31,2013:
12/31/2012 12/31/2013
Prepaid taxes P1,500,000 P1,000,000
Income tax payable 2,000,000 3,000,000
Deferred tax asset 2,000,000 4,000,000

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 Deferred tax liability 3,000,000 2,000,000
Current Tax Expense for year 2013 5,000,000
Deferred Tax Expense for year 2013 6,000,000

What is the total cash paid for taxes for the year ended December 31, 2013?

E. Cash Collected from Interest

Problem 20. The following data are provided by Bosh Inc. for the year ended December 31,2013:
12/31/2012 12/31/2013
Interest receivable P3,000,000 P2,000,000
Unearned interest 2,000,000 2,500,000
Interest revenue for year 2013 12,000,000
What is the total collected interest for the year ended December 31, 2013?

Problem 21. The following information are provided concerning the interest income of AT Inc. for 2011:

12/31/2010 12/31/2011
Unearned Interest Income 200,000 100,000
Accrued Interest Income 400,000 500,000
Discount on Bonds Rec. 500,000 300,000
Premium on Bonds Rec. 400,000 100,000

The following data are also provided:

a. During 2011, AT sold the Bonds Rec. with a face value of P1,000,000 and which was originally purchased at a
discount. The net proceeds of the sale was P950,000. Gain on derecognition of Bonds Receivable was P100,000.
b. During 2011, AT sold the Bonds Rec. with a face value of P1,000,000 and which was originally purchased at a
premium. The net proceeds of the sale was P1,100,000. Loss on derecognition of Bonds Receivable was
P50,000.
c. The total interest revenue for the year was P3,000,000.

What is the total cash collected from interest for the year ended December 31, 2011?

F. Cash Paid for Dividends

Problem 22. The following information are provided regarding the Retained Earnings of AIM Inc.:

12/31/2010 12/31/2011
Retained Earnings 2,500,000 2,000,000
Cash Dividends Payable 3,500,000 1,000,000

The following notes are also provided:

1. On January 1,2011, AIM changed its inventory costing method from FIFO to Weighted Average. The FIFO cost on
January 1, 2011 is P1,000,000 while the Weighted Average Cost is P2,000,000. The tax rate is 30%.
2. On June 1,2011, AIM reissued treasury shares with a total cost of P1,000,000 in the amount of P500,000. There
was no share premium arising from treasury shares transaction at the time of re-issuance of treasury shares.
3. On December 31,2011, AIM declared cash dividends and property dividends. The book value of property
dividends at that date is P400,000 while the fair value is P600,000.
4. The adjusted net income for 2011 was P1,500,000.

What is the amount of dividends paid in cash for 2011?

G. Investing Activity
Problem 23. The following information are provided affecting JT’s Land:
12/31/2010 12/31/2011
Land 2,000,000 1,000,000
The following notes are also provided:
1. On January 1,2011, JT purchased land by paying P100,000 in cash.
2. On February 1,2011, JT received a land from government with a book value P200,000 and fair value of P300,000.
3. On March 1,2011, JT issued 10,000 ordinary shares in exchange of a land with a fair value of P400,000. The fair
value of ordinary shares is P30 per share and the par value is P10.
4. On April 1, 2011, JT sold land to another company. In exchange to the lan, JT received a promissory note of
P500,000.
5. On May 1,2011, JT sold land to the government for cash. JT realized P200,000 gain on disposal of land.

What is the net cash inflow (outflow) from investing activitiy for 2011?

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Problem 24. The following information are provided affecting DV’s Noncurrent Asset:
12/31/2010 12/31/2011
Machinery & Equip. 3,500,000 1,500,000
Patent 3,000,000 1,000,000
Accumulated Dep. 500,000 300,000
Accumulated Amort. 600,000 200,000

The following notes are also provided:

1. On January 1,2011, DV purchased machinery by paying P500,000 in cash.
2. On February 1,2011, DV purchased patent by paying P300,000 in cash.
3. On March 1,2011, DV received equipment as dividend from an investee company with a book value of P300,000
and fair value of P400,000.
4. On April 1,2011, DV purchased a patent in the amount of P600,000. DV issued a promissory note in that amount.
5. On May 1,2011, DV issued 5,000 Preference Shares with a fair value of P20 per share and par value of P10 in
exchange for a machinery. The fair value of the machinery is P300,000.
6. On June 1,2011, DV sold a patent for cash. The total amortization expense for the year was P400,000. The loss
on disposal of patent was P600,000.
7. On July 1,2011, DV sold an equipment for cash. The total depreciation expense for the year was P800,000. The
gain on disposal was P500,000.

What is the net cash inflow (outflow) from investing activity for 2011?

Problem 25. The following information are provided affecting JD’s Investment in Associate with a 20% ownership:

12/31/2010 12/31/2011
Investment in Associate 2,000,000 1,000,000

The following notes are also provided:

1. The investee company reported a net income of P1,000,000 and total other comprehensive income with a debit
balance of P500,000 as of December 31,2011.
2. The investment was acquired in the beginning of 2009 and the total fair value of consideration given up is higher
than book value of net assets acquired. The differences are attributed to the following:
Book Value Fair value
Land 1,000,000 1,100,000
Building 1,200,000 1,700,000
Equipment 1,200,000 1,100,000
Inventory 1,200,000 1,400,000
All beginning inventories of Investee in 2009 were sold in that year. The building has a useful life of 10 years
from January 1,2009 while the equipment has 4 years useful life.

3. JD Inc. received a property dividend and cash dividend for the year. The book value of the property dividend is
P200,000 while the fair value is P300,000.

Assuming the company presents dividend received as part of Operating Activity, What is the amount of cash
received from Investment in Associate?

Indirect Method
Problem 26. The following summarized data are provided from the Statement of Financial Position and Income Statement
of Miami Heat Inc. STATEMENT OF FINANCIAL POSITION
Current Asset Section Current Liability Section
12/31/2012 12/31/2013 12/31/2012 12/31/2013
Cash and CE P1,000,000 P2,000,000 Accounts Payable P2,000,000 P3,000,000
Trading Securities 300,000 200,000 Accrued Expenses 1,000,000 500,000
AR, net 500,000 300,000 Income tax payable 500,000 600,000
Inventory 1,500,000 2,500,000 Interest payable 300,000 100,000

INCOME STATEMENT
Net Sales P10,200,000
Less: Cost of Goods Sold (5,000,000)
Gross Profit P 5,200,000
Less: Operating Expenses (including P200,000 depreciation
and bad debt expense of P100,000) ( 2,000,000)
Net Operating Income P 3,200,000
Add: Gain on sale of investment property 700,000
Holding gain on trading securities 200,000
Less: Amortization of patent (300,000)
Realized loss on sale of trading securities (100,000)

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 Loss on sale of factory equipment (400,000)
Income before interest and tax P 3,300,000
Less: Loss on interest expense (100,000)
Net income before tax P 3,200,000
Less income tax expense 960,000
Net Income P 2,240,000
What is the net cash flow from operating activities for the year ended December 31, 2013?

Problem 27. ASUS Corporation has recently decided to go public and has hired you as an independent CPA. One
statement that the entity is anxious to have prepared is a statement of cash flows. Financial statements of ASUS for
2010 and 2009 are provided below.
Statement of Financial Position
12/31/2010 12/31/2009
Cash 153,000 72,000
Accounts Receivable 135,000 81,000
Merchandise Inventory 144,000 180,000
PPE (net of Acc. Dep. of P120,000 and P114,000 as
of 12/31/2010 and 12/31/2009, respectively) 108,000 246,000
540,000 579,000

Accounts payable 66,000 36,000

Income taxes payable 132,000 147,000
Bonds payable 135,000 225,000
Share capital 81,000 81,000
Retained earnings 126,000 90,000
540,000 579,000

Income Statement
For the Year Ended December 31,2010

Sales 3,150,000
Cost of sales 2,682,000
Gross profit 468,000
Selling expenses 225,000
Administrative expenses 72,000 297,000
Income from operations 171,000
Interest expense 27,000
Profit before taxes 144,000
Income taxes 36,000
Profit or loss 108,000

The following additional data were provided:

1. Dividends for the year 2010 were P72,000.

2. During the year, equipment was sold for P90,000. This equipment cost P132,000 originally and had a book
value of P108,000 at the time of sale. The loss on sale was incorrectly charged to cost of sales.
3. All depreciation expense is in the selling expense category.

1. What is the net cash provided by operating activities?

a. 153,000 c. 108,000
b. 90,000 d. 75,000

2. Assuming the same data provided in number 59, what is the net cash provided (used) by investing
activities?
a. (132,000) c. 18,000
b. 90,000 d. (108,000)

3. Assuming the same data provided in number 59, what is the net cash provided (used) by financing
activities?
a. (90,000) c. 18,000
b. (162,000) d. 72,000

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Interim Reporting

Problem 28. NYY Inc. prepares quarterly interim financial reports. On February 14, 2013, the company incurred a
calamity loss resulting from an earthquake in the amount of P200,000. The calamity loss was paid by the company on
November 1,2013. How much calamity loss shall be recognized in the interim income statements for the 1 st
quarter, 2nd quarter, 3rd quarter and 4th quarter, respectively?

Problem 29. NYM Inc. prepares quarterly interim financial reports. On the March 31,2013, the following data for inventory
are provided:
Cost P2,000,000
Estimated selling price 2,500,000
Gross profit rate based on sale 20%
Estimated cost to complete 300,000
Estimated cost to sell 400,000
On June 30,2013, the following data for inventory are also provided:
Cost P2,000,000
Estimated selling price 3,000,000
Gross profit rate based on sale 20%
Estimated cost to complete 200,000
Estimated cost to sell 400,000

How much loss on inventory writedown shall be recognized in the interim income statements for the 1 st
quarter, 2nd quarter, 3rd quarter and 4th quarter, respectively? How much gain on reversal of loss on inventory
writedown shall be recognized in the interim income statements for the 1 st quarter, 2nd quarter, 3rd quarter and 4th
quarter, respectively?

Problem 30. BYN Inc. prepares quarterly interim financial reports. On January 1, 2013, the company paid P200,000 for
advertisement which will benefit the whole year 2013. On April 1,2013, the company incurred repairs and maintenance in
the amount of P300,000 and paid it on December 15,2013. The repairs and maintenance will only benefit the remainder of
the year. How much advertising expense shall be recognized in the interim income statements for the 1 st quarter,
2nd quarter, 3rd quarter and 4th quarter, respectively? How much repairs and maintenance expense shall be
recognized in the interim income statements for the 1 st quarter, 2nd quarter, 3rd quarter and 4th quarter,
respectively?

Problem 31. LAA Inc. prepares quarterly interim financial reports. The company provides bad debt expense 10% based
on credit sales for the quarter. The company estimated that the total bad debt expense for year 2013 is P200,000. The
company recognized bad debt expense for the 1 st, 2nd, and 3rd quarter in the amount of P30,000, P50,000 and P80,000
respectively. During the 4th quarter, the total credit sales is P600,000 and the company wrote off P50,000 accounts
receivables. How much bad debt expense shall be recognized in the 4 th quarter income statement?

Operating Segment

Problem 32. LAD Inc. has several operating segments. The following data are provided concerning its segments:
Segment Total Assets Total External Revenue Total Internal Revenue Profit/(Loss)
A P2,000,000 P 50,000 P 550,000 P 50,000
B 100,000 200,000 100,000 20,000
C 200,000 30,000 270,000 (100,000)
D 3,000,000 20,000 180,000 30,000
E 700,000 100,000 1,900,000 (200,000)

Required: Determine the following amounts:

__________1. Quantitative threshold in assets to be considered as reportable segment
__________2. Quantitative threshold in revenues to be considered as reportable segment
__________3. Quantitative threshold in profit or loss to be considered as reportable segment
__________4. 75% Quantitative threshold for reportable segments
__________5. How many reportable segments should LAD Inc. disclose?

Problem 33. TBR Inc. is considering providing disclosures for its major customers. The following data are provided
concerning its operating segments:
Segment T Total External Revenue Total Internal Revenue
A P 500,000 P 100,000
B 200,000 50,000
C 300,000 150,000
D 100,000 180,000
E 400,000 20,000

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 What is the minimum revenue to be provided by a customer to be considered a major customer which will
require disclosures from TBR Inc.?

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