APPLIED AUDITING With Comprehensive Review of Philippine Financial Reporting Standards (PFRSs) A guide in applying auditing procedures to specific accounts of the financial statements.
TEACHERS MANUAL 2017 Edition By
DARRELL JOE O. ASUNCION, MBA, CPA MARK ALYSON B. NGINA, CMA, CPA RAYMUND FRANCIS A. ESCALA, MBA, CPA
Dear fellow teacher,
This “Teacher’s Manual” should be used solely by the teacher and for classroom purposes only. This manual should NOT be reproduced either manually (e.g., printing or photocopy) or electronically (e.g., copying or uploading in the net) without our written consent (or the publisher’s written authorization). If you have comments, queries or suggestions, please do not hesitate to contact us at: Telephone: 074-2441894 Mobile No.: Darrell Joe O. Asuncion – 0923-424-8286 Mark Alyson B. Ngina – 0915-510-7281 Raymund Francis A. Escala – 0917-715-1226 Email ad:
[email protected].
Thanks and God bless.
Sincerely, Darrell Joe O. Asuncion, MBA, CPA Mark Alyson B. Ngina, CMA, CPA Raymund Francis A. Escala, MBA, CPA
Table of Contents CHAPTER 5: CASH TO ACCRUAL.................................... ............................................ 4 CHAPTER 6: CORRECTION OF ERRORS ..................................... ...........................19 CHAPTER 8: CASH AND CASH EQUIVALENTS ..................................... ..............28 CHAPTER 10: LOANS AND RECEIVABLES ...................................... .....................46 CHAPTER 12: INVENTORIES ....................................... ..............................................75 CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT IN EQUITY SECURITIES ..................................... ....................................................... 100 CHAPTER 15: INVESTMENT IN DEBT SECURITIES ..................................... . 117 CHAPTER 16 INVESTMENT IN ASSOCIATE...................................................... 133 CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT....................................148 CHAPTER 19 WASTING ASSETS............... ..................................................... ........ 172 CHAPTER 20 INVESTMENT PROPERTY ..................................... ....................... 178 CHAPTER 22 INTANGIBLE ASSETS ...................................... ............................... 184 CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET HELD FOR SALE ...................................... ................................................................ ..... 195 CHAPTER 25 INTRODUCTION TO LIABILITIES....... . .. .. . . ..... .................. 212 CHAPTER 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING.. 226 CHAPTER 27 LEASE ..................................... ..............................................................245 CHAPTER 29 SHAREHOLDERS’ EQUITY................. .......................................... .271 CHAPTER 30 BOOK VALUE AND EARNINGS PER SHARE ......................... .293 CHAPTER 32 STATEMENT OF FINANCIAL POSITION AND COMPREHENSIVE INCOME .................................................................................... .305 CHAPTER 33 STATEMENT OF CASH FLOWS..................................... ............. .324
Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL PROBLEM 5-1 (Computation of Sales under cash basis) Accounts receivable/Notes receivable trade/Advances from customers Beg. balance – AR 200,000 180,000 Balance end - AR Beg. balance – NR 240,000 170,000 Balance end - NR Balance end - Advances 40,000 55,000 Beg. balance - Advances Sales on account 600,000 4,000 Sales ret. and allowance Recoveries 2,000 Salesdiscounts
Total
666,000 3,000 1,080,000 1,080,000
Collections recoveries Write-off
including
Suggested answer: A PROBLEM 5-2 Computatio n of Bad Debts Allowance for bad debts Ending balance Write-off
40,000 8,000
25,000 21,000 2,000
Total
48,000
48,000
Beginning balance Bad debts expense Recoveries
Suggested answer: C
PROBLEM 5-3 (Computation of Purchases) Accounts Payable / Notes Payable / Advances to Suppliers Payments 800,000 200,000 Beg. balance - AP Purchase ret. and allow. 6,000 400,000 Beg. balance - NP Purchase discount 3,000 68,000 Balance end - Advances Beg. balance - Advances 50,000 651,000 Purchases (gross) Balance end – AP 250,000 Balance end – NP 210,000 Total 1,319,000 1,319,000 Suggested answer: A
4
Chapter 5: Cash to Accrual
PROBLEM 5-4 Computatio n of Cost of Sales Accounts Payable (AP) / Notes Payable (NP) Payments 800,000 200,000 Beg. balance - AP Purchase ret. and allow. 6,000 - Beg. balance - NP Purchase discount 3,000 859,000 Purchases (gross) Balance end - AP 250,000 Balance end-NP Total 1,059,000 1,059,000
Beginning balance Net purchases Total
Merchandise Inventory 400,000 210,000 Ending balance 860,000 1,050,000 Cost of sales 1,260,000 1,260,000
Computation of the net purchases: Grossp urchases onaccount Addcash purchases Total Less: Purchase returns and allowances Purchase discount Netpurchases
859,000 10,000 869,000 6,000 3,000 860,000
Suggested answer: B PROBLEM 5-5 (Computation of Income Other Than Sales) Rent Receivable/Unearned rent income Beg. Balance - Rent Receivable Balance end - Unearned rent income Rent Income (squeeze) Total
200,000
250,000
Balance end - Rent Receivable 90,000 Beg. Balance – Unearned rent income 660,000 Collections
30,000
770,000 1,000,000
1,000,000
Suggested answer: B PROBLEM 5-6 (Computation of Expenses in General) Prepaid Rent/Rent payable Beg. Balance - Prepaid Salaries Balance end - Accrued Salaries Payments Total
200,000
250,000
Balance end - Prepaid Rent 80,000 Beg. Ba lance – Re nt payable 785,000 Rent Expense
65,000
850,000 1,115,000
1,115,000 5
Chapter 5: Cash to Accrual
Suggested answer: C PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold) Question No. 1 Carrying amount of equipment sold Add: Accumulated depreciation Cost
25,000 15,000 40,000
Question No. 2 Equipment Beg. Balance Cost of PPE (squeeze)
acquired
Total
100,000 60,000
120,000 40,000
160,000
160,000
Balance end Cost of PPE disposed
Accumulated depreciation Balancee nd Accumulated depreciation ofP PE disposed
18,000 15,000
Total
33,000
15,000 Beg. Balance 18,000 Depreciation expense 33,000
SUMMARY OF ANSWERS: 1. 2. D A
PROBLEM 5-8 Question No. 1 Prepaid Insurance Beg.Balance Payments
7,500 41,500
Total
49,000
6,000 Balancee nd 43,000 Expenses (squeeze) 49,000
Question No. 2 Interest Receivable Beg.Balance Income (squeeze)
14,500 112, 700
3,700 Balancee nd 123,500 Collections
Total
127,200
127,200
6
Chapter 5: Cash to Accrual
Question No. 3 Salaries payable Balancee nd Payments
61,500 481,000
Total
542,500
53,000 Beg. Balance 489,500 Expenses 542,500
Question No. 4 Accounts receivable trade Beg. Balance Sales
415,000 1,980,000
550,000 Balance end 1,845,000 Collections (squeeze)
Total
2,395,000
2,395,000
Question No. 5 Accounts receivable trade Beg. Balance Sales
415,000 1,980,000
550,000 Balance end 1,820,000 Collections (squeeze) 25,000 Write-off
Total
2,395,000
2,395,000
Question No. 6 Accounts receivable trade Beg. Balance Sales Recoveries
415,000 1,980,000 20,000
550,000 Balance end 1,840,000 Collections (squeeze) 25,000 Write-off
Total
2,415,000
2,415,000
SUMMARY OF ANSWERS: 1. 2. 3. C B
C
4.
A
5.
6.
A
B
PROBLEM 5-9 Question No. 1 Accounts/Notes receivable trade Decrease in A/R Sales on account (squeeze)
100,000 100,000 I ncrease in N/R 10,000 Write-off 4,260,000 4,200,000 Collections 30,000 20,000
Total
4,360,000
4,360,000
7
Sales discounts Sales ret. and allow.
Chapter 5: Cash to Accrual
Question No. 2 Accounts payable Cash paid to creditors
2,800,000
Purchase discounts
200,000
Decrease in Accounts payable purchases 2,650,000Gross (squeeze)
40,000
Purchase returns
10,000
Total
2,850,000
2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory Gross purchases
25,000 2,650,000
40,000 P urchase discounts 10,000 Purchase returns 2,625,000 Cost of sales (squeeze)
Total
2,675,000
2,675,000
Question No. 4 Rental receivable/Unearned Rent Income Rental (squeeze)
revenue
Total
14,000 I ncrease in Rental receivable 40,000 Decrease in Unearned rental 400,000 Collections from tenants
454,000
454,000
454,000
Question No 5 Prepaid interest/Interest Payable Decrease in interest Increase in payable Interestpaid Total
Prepaid
5,500
Interest
8,500
114,000Interest (squeeze)
100,000 114,000
SUMMARY OF ANSWERS: 1. D 2. D 3. A 4. A
114,000
5.
8
D
expense
Chapter 5: Cash to Accrual
PROBLEM 5-10 Question No. 1 Accounts Receivable/Notes receivable trade Beg. Balance – A/R Beg. Balance – N/R Sales on account (squeeze)
200,000 300,000 1,000,000
Total
1,500,000
250,000 Bal. end – A/R 100,000 Bal. end – N/R 20,000 Sales ret. and allow. 10,000 Sales discount 1,120,000 Collections 1,500,000
Question No. 2 Accounts payable/Notes payable Balance end – A/P Balance end – N/P Purchase returns allow Purchase discount Payments
and
Total
25,000 75,000 40,000
50,000 Beg. Balance – A/P 100,000 Beg. Balance – N/P 650,000 Gross purchases (squeeze)
10,000 650,000 800,000
800,000
Gross purchases Less: Purchase ret and allow Purchased iscounts
650,000 40,000 10,000
Net Purchases
50,000
600,000
Question No. 3 Sales Less:Salesret and allow Salesdiscounts Net Sales Less: Cost of Sales Merchandiseinventorybeg. Add: Net Purchases Purchases Add:Freight-in GrossPurchases Less: Purch.R et and allow Purchase discounts
1,000,000 20,000 10,000
30,000 970,000
200,000 600,000 650,000 40,000 10,000
Totalg oodsavailablefors ale Less: Merchandisei nventory,e nd Gross Income / Gross Profit
6 00,000 800,000 100,000
9
700,000 270,000
Chapter 5: Cash to Accrual
Question No. 4 Prepaid/Accrued Salaries Beg. Balance -Prepaid Salaries Balance end - Accrued Salaries Payments
100,000
350,000
Total
500,000
125,000
Balance end - Pr epaid Salaries 75,000 Beg. Balance - Accrued Salaries expense 300,000Salaries (squeeze)
50,000
500,000
Question No. 5 Accrued rent/Unearned rent Beg. Balance - Accrued rent Balance end - Unearned rent Rent income (squeeze)
70,000
40,000
490,000
Balance end - Accrued rent 80,000 Beg. Balance - Unearned rent 300,000 Collection of rent
Total
600,000
600,000
40,000
SUMMARY OF ANSWERS: 1. A 2. B 3. C 4. B
5.
B
PROBLEM 5-11 Question No. 1 Beg. Balance Recoveries Sales (squeeze)
Total Sales Less: Sales discount Net Sales
Accounts receivable trade 200,000 300,000 Balance end 8,000 20,000 Sales discounts 1,570,000 1,408,000 Collections including recoveries (1,498,00080,000+20,00-30,000) 50,000 Accounts written-off 1,778,000
1,778,000
1,570,000 20,000 1,550,000
Question No. 2 Payment (1,210,00020,000+30,000) Purchase ret. and allow. Balance end
Accounts payable trade 150,000 Beg. Balance 1,210,000 1 ,170,000 Purchases (squeeze) 10,000 100,000 10
Chapter 5: Cash to Accrual
Total
1,320,000
Purchases Less: Purchases discount Net Purchases
1,320,000
1,170,000 10,000 1,160,000
Question No. 3 Merchandise inventory Beg. Balance
380,000
Net Purchases (1,170,000-10,000) Total
330,000 Balancee nd
1,160,000
1,210,000 Cost of Sales (squeeze)
1,540,000
1,540,000
Question No. 4 Rent Receivable Beg. Balance Rent income (squeeze)
70,000 130, 000
80,000 Balancee nd 120,000 Collections
Total
200,000
200,000
Question No. 5 Allowance for Doubtful accounts Accounts written off
50,000
20,000
Beg. Balance
Balancee nd
30,000
account 52,000Doubtful expense (squeeze) 8,000 Recoveries
Total
80,000
SUMMARY OF ANSWERS: 1. 2. 3. B B
B
80,000
4.
A
5.
A
PROBLEM 5-12 Comprehensive Question No. 1 Accounts receivable trade Beg. Balance Professional
fees
500,000 5,250,000
750,000 5,000,000
5,750,000
5,750,000
(squeeze) Total
11
Balance end Collections
Chapter 5: Cash to Accrual
Question No. 2 ProfessionalFees(SeeN o.1) Less: Rent expense (1.2M +100,000) Supplies expense (800,000+300,000-250,000) Othero peratingexpense Interest expense (1M x 12% x 9/12) Depreciation expense (2,500,000/10) Net income Question No. 3 Cash AccountsReceivable Supplies Total Current Assets
850,000 750,000 90,000 250,000
3,240,000 2,010,000
1,500,000 750,000 250,000 2,500,000
Question No. 4 Furniture and fixtures Less: Accumulated Depreciation (125,000+ 250,000) Total Noncurrent Assets
2,500,000 375,000 2,125,000
Question No. 5 Total current assets (See No. 3) Total noncurrent assets (See No. 4)
2,500,000 2,125,000
Total Assets
4,625,000
Question No. 6 NotesPayable Accruedrent Accrued interest on notes payable (1,000,000 x1 2% x9/12) Total Current Liabilities
1,000,000 100,000 90,000 1,190,000
Question No. 7 Total assets (See No.5 ) Less: Total liabilities (See No. 6) – all are current Total Owner’s Equity SUMMARY OF ANSWERS: 1. 2. 3. B B A
5,250,000 1,300,000
4.
A
12
4,625,000 1,190,000 3,435,000
5.
A
6.
C
7.
B
Chapter 5: Cash to Accrual
PROBLEM 5-13 Question No. 1 Accounts receivable trade Beg. Balance Salesonaccount (squeeze)
124,000 1,535,000
Total
146,000 Balancee nd 13,000 Salesdiscount 1,500,000 Collections
1,659,000
1,659,000
Salesonaccount
1,535,000
Add: sales TotalCash sales
160,000 1,695,000
Question No. 2 Grosss ales(seeNo.1) Less:Sales discount Net sales
1,695,000 13,000 1,682,000
Question No. 3 Accounts Payable Payments Balancee nd
1,206,000 410,000
382,000 1,234,000
Total
1,616,000
1,616,000
Beg. Balance Purchases (squeeze)
Purchasesona ccount
1,234,000
Add:C ashp urchases Total Purchases
120,000 1,354,000
Question No. 4 Merchandise Inventory Beg. Balance Net purchases
186,000 1,354,000
190,000 Balance end 1,350,000 Cost of sales (squeeze)
Total
1,540,000
1,540,000
Question No. 5 Prepaid G&A/Accrued G&A Beg. Balance - Prepaid Interest Balance end – Accrued Interest Payments
9,600
204,000
Total
222,600
8,400
Balance end - Prepaid Interest 7,000 Beg. Balance – Accrued Interest 207,200 Expenses
9,000
222,600 13
Chapter 5: Cash to Accrual
Question No. 6 General and administrative expense (see No. 5) Depreciationexpense Warrantyexpense Total operating expense
207,200 84,000 6,400 297,600
Question No. 7 Sellingprice of land Less:Bookvalue of land Gain on sale of land
20,000 16,000 4,000
Question No. 8 SellingPrice Less Book value Cost Less: Accumulated depreciation Gain on sale of warehouse equipment
12,000 25,000 16,000
Question No. 9 SellingPrice Less: Book value Cost Less: Accumulated depreciation Gain on sale of boiler
9,000 3,000 42,000
48,000 20,000
28,000 14,000
Question No. 10 NetSales
1,682,000
Less:Cost ofSales Gross Profit Less:Operatingexpenses Gain on sale (14,000+3,000+4,000) Net income
1,350,000 332,000 297,600 21,000 55,400
SUMMARY OF ANSWERS: 1. 2. 3. B C 6. 7. 8. A A
D C
4. 9.
A B
5. 10.
B A
PROBLEM 5-14 Comprehensive Question No. 1 Accounts receivable trade Beg. Balance
150,000
Sales (squeeze)
800, 000
Total
950,000
200,000
Balancee nd
10,000 Sales returns 740,000 Collections 950,000
14
Chapter 5: Cash to Accrual
Question No. 2 Salesonaccount Add:Cash sales Total sales Less: Salesr eturns anda llowances Net sales Less:Costo fsales( squeeze) Grossprofit(200,000/40%)
800,000 100,000 900,000 10,000 890,000 390,000 500,000
Merchandise inventory Beg. Balance Net Purchase s (squeeze)
190,000 420,000
220,000 390,000
Total
610,000
610,000
Balancee nd Cost of Sales
Question No. 3 Accounts Payable trade Payments (squeeze) Purchase returns and allowances Balance end – Accounts payable Total
230,000
Beg. Ba lance - Accounts payable 428,000 Gross purchases (420,000+8,000)
470, 000 8,000 180,000 658,000
658,000
Question No. 4 Total payment of Accounts payable and admin expenses Less: Payment ofA ccounts payable Payment of admin expe nses Question No. 5 Paymentof adminexpenses Divided by: Percentage of cash expenses to total admin expense Totaladminexpenses Add:Sellingexpenses Total selling and administrative expense Question No. 6 Totaladministrativeexpenses Less: Payment of administrative expense Non-cash administrative expenses Less: Depreciation for building (440,000 x60%x 5% x9/12) 15
518,000 470,000 48,000
48,000 80% 60,000 200,000 260,000
60,000 48,000 12,000 9,000
Chapter 5: Cash to Accrual
Depreciation for furniture andf ixtures Divided by: Number of months used over 12 months Annual depreciation Dividedby: Depreciationrate Cost of Furniture and Fix tures (no res idual value )
SUMMARY OF ANSWERS: 1. A 2. A 3. B
4. A
5. C
PROBLEM 5-15 Question No. 1 Cash Receipts: Fromcustomers From issue of ordinary shares Frombankloan Cash disbursements: Purchaseo fi nventory Rent Salaries Utilities Insurance Purchase of equipment and furniture Cash
3,000 6/12 6,000 10% 60,000
6.
360,000 100,000 100,000 300,000 15,000 30,000 5,000 3,000 40,000
Question N os. 2 and 3 Current assets Cash Inventories Prepaidrent(1,000x3) Total current assets (No. 2) Noncurrent assets Property, plant and equipment Less accumulated depreciation Total assets (No. 3)
A
560,000
393,000 167,000
167,000 100,000 3,000 270, 000 40,000 4,000
Question No. 4 Accountspayable Utilitiespayable Loanspayable
36,000 306, 000
20,000 1,000 100,000
Interest on loans payable (100,000 x 12% x 9/12) Total current liabilities
16
9,000 130,000
Chapter 5: Cash to Accrual
Question No. 5 Ordinary shares Retained earnings (net income) Shareholders’ equity SUMMARY OF ANSWERS: 1. 2. 3. B B
100,000 176,000 176,000
A
4.
D
5.
A
PROBLEM 5-16 Question No. 1 Notesreceivable–December3 1 Accountsreceivable– December31 Collectiono fnotesandaccounts Notereceivablediscounted Total Less: Notes receivable – January 1 Accounts receivable– January1 Sales on account
210,000 950,000 2,950,000 200,000 4,310,000 200,000 740,000
Question No. 2 Notespayable –December31 Less:Notepayable–bank Notespayable –trade Accountspayable–December31 Paymentofn otesanda ccounts Total Less: Notes payable – January 1 Accounts payable – January 1 Purchases on account
940,000 3,370,000
580,000 300,000 280,000 750,000 2,100,000 3,130,000 750,000 600,000
Question No. 3 Equipment –January1 Add:Acquisition Total Less:Equipment–December3 1 Depreciation
1,350,000 1,780,000
1,000,000 280,000 1,280,000 1,200,000 80,000
Question No. 4 Interest accrued on note issued to bank (300,000 x 12% x 10/12) Interest expense Question No. 5 Volks Company Income Statement Year ende d Decembe r 31, 2016 17
30,000 30,000
Chapter 5: Cash to Accrual
Sales Cost of sales: Inventory – January1 Purchases Goods available for sale Less: Inventory – December 31 Gross income Expenses: *Expenses
3,370,000 1,600,000 1,780,000 3,380,000 1,500,000
820,000
Depreciation **Losso ns ale ofi nvestment ***Loss on note receivable discounted Interestexpense Net income
80,000 50,000 10,000 30,000
*Expensespaid Add:Prepaidexpenses–January1 Accruedexpenses–December31 Total Less: Prepaid expenses – December 31 Accrued expenses – January 1 Expenses
990,000 500,000 790,000 120,000 50,000 960,000
100,000 40,000 140,000 820,000
**Salesprice Less:Cost ofinvestmentsold Loss on saleof investment
250,000 300,000 ( 50,000)
***Loss on note receivable discounted (200,000 – 190,000) OR Retained earnings – December 31 Add:Dividends Total Less: Retained earnings – January1 Net income
SUMMARY OF ANSWERS: 1. 2. 3. A A
1,880,000 1,490,000
C
10,000
600,000 400,000 1,000,000 500,000 500,000
4.
18
C
5.
D
Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS PROBLEM 6-1 Income Statement and SFP Errors Que stions Nos. 1-6 2016
Unadjusted balances 1 2 Adjusted balances
2017 RE, end of the year
Net income 160,000
260,000
360,000
160,000
260,000
360,000
Net income
Workin g capital
200,000
180,000
200,000
-
-
-
-
200,000
-
180,000
Workin g capital
-
200,000
Questions No. 7 Assuming errors were discover ed in 2016 ADJUSTING ENTRIES Debit 1) Miscellaneousi ncome 25,000 Rent income
25,000
2) Notespayable Accountspayable
28,000
Credit
28,000
Assuming errors were discover ed in 2017 1)
ADJUSTING ENTRIES Noentry
2)
Noentry
Assuming errors were discover ed in 2018 ADJUSTING ENTRIES 1) Noentry 2)
Debit
Credit
Debit
Credit
Noentry
SUMMARY OF ANSWER S: 1. A 2. B 3.
A
4.
RE, end of the year
C
19
5.
C
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-2 Counterb alancing Erro rs Que stions Nos. 1-6 2016 Workin g capital
Net income
Net income
R/E
2017 Workin g capital
R/E
Unadjusted balances 1 2 3 4
200,000 (15,000) 20,000 6,000 (7,500)
180,000 200,000 160,000 (15,000) (15,000) 15,000 2 0,000 2 0,000 (20,000) 6,000 6,000 (6,000) (7,500) (7,500) 7,500
260,000 -
360,000
Adjusted balances
203,500
183,500
260,000
360,000
203,500
Question No. 7 A. Errors were dis covered in 2016 ADJUSTING ENTRIES 1) Interestexpense Interestpayable 2)
156,500
Debit 15,000
Credit 15,000
Interestreceivable Interestincome
20,000 20,000
3) Prepaidi nsurance Insuranceexpense
6,000 6,000
4) Rentrevenue Unearnedrentrevenue
7,500 7,500
B. Errors were dis covered in 2017 Assuming errors are discovered when the cash flows related to the transactions were processed and books are still open ADJUSTING ENTRIES Debit Credit 1) Retainedearnings 15,000 Interestexpense 15,000 2) Interestincome Retainedearnings
20,000
3) Insuranceexpense Retainedearnings
6,000
4) Retainedearnings Rentrevenue
7,500
20,000 6,000 7,500
When books are already closed, no necessary adjusting entries to be made. C. Errors were dis covered in 2018 No necessary adjusting entries to be made.
SUMMARY OF ANSWER S: 1. C 2. B 3.
C
4.
C 20
5.
B
6.
C
Chapter 6: Correction of Errors
PROBLEM 6-3 Counterb alancing Erro rs Que stions Nos. 1-6 Net income Unadjusted balances 1 2 3
200,000 (60,000) 80,000 (20,000)
Adjusted balances
200,000
2015 Workin g capital
R/E, end
180,000 200,000 160,000 (60,000) (60,000) 6 0,000 80,000 80,000 (80,000) (20,000) (20,000) 2 0,000
180,000
200,000
Question No. 7 A. Errors were dis covered in 2016 ADJUSTING ENTRIES 1) Purchases Accountspayable 2)
Net income
160,000
2016 Workin g capital
R/E, end
260,000 -
360,000 -
260,000
360,000
Debit 60,000
Credit 60,000
Accountsreceivable Sales
80,000 80,000
3) Cost of sales Inventory
20,000 20,000
B. Errors were dis covered in 2017
Assuming errors are discovered when the cash flows related to the transactions were processed and books are still open ADJUSTING ENTRIES Debit Credit 1) Retainedearnings 60,000 Purchases 60,000 2) Sales Retainedearnings 3)
80,000 80,000
Retainedearnings Inventory,beginning
20,000 20,000
If books are already closed, no necessary adjusting entries to be made. C. Errors were dis covered in 2018 No ne cessa ry adjusting entries to be made .
SUMMARY OF ANSWER S: 1. 2. 3. C B
C
4.
B
21
5.
C
6.
B
Chapter 6: Correction of Errors
PROBLEM 6-4 Noncount erba lancing Errors Que stions Nos. 1-6 2016
2017
Net income
Workin g capital
RE, end of the year
Net income
Unadjusted balances 1. 2. 3.
200,000 (30,000) 20,000 12,000
180,000 200,000 ( 30,000) ( 30,000) 20,000 20,000 12,000
160,000 (6,000) 10,000 -
4. 5. 6.
150,000 (12,000) (15,000)
Adjusted balances
325,000
- 150,000 - (12,000) - (15,000)
170,000
325,000
Question No. 7 A. Errors were discovered in 2016 ADJUSTING ENTRIES 1) Insuranceexpense Prepaidinsurance 2)
Accumulated depreciation
4)
Depreciationexpense Building improvements Repairsexpense
260,000 360,000 ( 36,000) ( 36,000) 30,000 30,000 12,000 -
-
100,000 (12,000) - (10,000)
254,000
444,000
Credit 30,000
20,000 20,000 12,000 12,000 200,000 200,000
Depreciation expense Accumulatedd epreciation
50,000 50,000
5) Other income Accumulated depreciation Gain on sale Building
20,000 48,000
6) Repairsexpense Building
20,000
8,000 60,000 20,000
Accumulated depreciation Depreciationexpense B.
119,000
Debit 30,000
Unearned rent income Rent income
3)
(50,000) 5,000
RE, end of the year
Workin g capital
5,000 5,000
Errors were discovered in 2017 ADJUSTING ENTRIES 1) Retainedearnings Insuranceexpense Prepaidinsurance
Debit 30,000 6,000
Credit
36,000 22
Chapter 6: Correction of Errors
2)
3) 4)
Unearned rent income Retainedearnings Rent income
30,000 20,000 10,000
Accumulated depreciation Retainedearnings
12,000 12,000
Building improvements Retainedearnings
200,000 200,000
Depreciation expense
50,000
Retained earnings Accumulatedd epreciation 5)
6)
50,000
Retainedearnings Accumulated depreciation Building
12,000 48,000
Retainedearnings Building
20,000
60,000 20,000
Accumulated depreciation Retainedearnings Depreciationexpense C.
10,000 5,000 5,000
Errors were discovered in 2018 ADJUSTING ENTRIES 1) Retainedearnings Prepaidinsurance
Debit 36,000
2)
30,000
3) 4)
5)
6)
100,000
Credit 36,000
Unearned rent income Retainedearni gs
30,000
Accumulated depreciation Retainedearnings
12,000 12,000
Building improvements Retainedearnings
200,000
Depreciation expense Retained earnings Accumulatedd epreciation
50,000 100,000
200,000
150,000
Retainedearnings Accumulated depreciation Building
12,000 48,000
Retained earnings Building
20,000
60,000
Accumulated depreciation Retainedearnings
20,000
10,000 10,000 23
Chapter 6: Correction of Errors
SUMMARY OF ANSWER S: 1. 2. 3. D A
D
4.
A
5.
6.
A
D
PROBLEM 6-5 Comprehen sive Que stions Nos. 1-3 Effects of error in Net income Working 2015 2016 Capital 10,000 (10,000) (8,000) ( 8,000)
1)M Iover,N Iover MIunder, NIunder 2) Purchases over, NI under
(20,000)
3)S aleso ver,NIover
20,000
4) Expenses over, NI under Depreciation exp under, NI over 5)O therincomeover *Lossu nder,N Iover Adjustment
20,000 (40,000) (20,000) 70,000
(40,000) 70,000
(80,000) 20,000 20,000 5,000 (45,000)
Computation of loss: SellingPrice Less: Book value Cost Less: Accumulated depreciation Loss on sale
32,000
22,000
20,000 40,000 15,000
Question No. 4 Effect of errors to Retained Earnings in 2016 Understatement to2 015 net income Overstatementto2 016net income Net understatement to 2016 retained earnings Questions No. 5 ADJUSTING ENTRIES 1) Retainedearnings,beg Merchandiseinventory,beg Merchandisei nventory, end CostofSales
25,000 (5,000)
45,000 32,000 13,000
Debit 10,000
Credit 10,000
8,000 8,000
2) Purchases Retainedearnings
20,000 20,000
Advances supplier Purchases
40,000
3) Retainedearnings,beg Sales
40,000
20,000 20,000 24
Chapter 6: Correction of Errors
Sales Advances customers
70,000
4) Depreciationexpense Improvements Accumulatedd epreciation Retainedearnings
20,000 100,000
5)
70,000
40,000 80,000
Accumulatedd epreciation Retained earnings, beg Equipment
SUMMARY OF ANSWER S: 1. 2. 3. A A
A
15,000 25,000 40,000 4.
5.
A
C
PROBLEM 6-6 Comprehen sive Que stions Nos. 1-5 2015 Net Workin Income g capital Ending Inventory 2015 understated, NI understated Ending Inventory 2016 overstated, NI overstated Depreciation exp. 2015 overstated, NI understated Depreciation exp. 2016 over tated, NI understated Accrued expense understated, NI overstated 2015 Accrued expense understated, NI overstated 2016 Prepaid expense understated, NI understated 2015 Prepaid expense understated, NI understated 2016 Accrued revenues understated, NI understated 2016 Deferred revenues understated, NI overstated 2015 Total
(6,000)
(6,000)
Net Income
-
Workin g capital
6,000
10,000 (11,000)
12/31/2 016
2016
10,000
-
4,500
(4,500)
7,500
(5,000)
1,200 (16,300)
(5,000)
5,000
10,000
-
(7,000)
4,500
R/E
(11,000)
-
( 7,000)
-
-
7,500
7,500
-
-
(12,000)
(12,000)
(12,000)
(3,000)
(3,000)
(3,000)
1,200
(1,200)
-
-
5,300
800
2,500
(15,500)
25
Chapter 6: Correction of Errors
SUMMARY OF ANSWER S: 1. D 2. D 3.
A
A
4.
5.
C
PROBLEM 6-7 Note to pro fessor: Item letter b - On December 31, “f” should be December 31, 2016. Item letter e - Additional industrial robots were acquired at the beginning of 20X0 (should be 2015). Adjusting entries: a) PrepaidI nsurance( InsuranceExpense( RetainedEarnings( b) c) d)
14,000 7,000 21,000
Retained earnings, beginning MerchandiseI nventory, beginning
25,000 25,000
Retained earnings,beg Commissionexpense
15,500 15,500
This is not an error, rather it is a change in accounting estimate.
e) Equipment Accumulated depreciation ( Retainedearnings
100,000 20,000 80,000
Depreciation expense ( Accumulatedd epreciation
10)
10,000
Question No. 5 Item a Item b Item c dItem Item e Net adjustment to retained e arnings SUMMARY OF ANSWER S: 1. 2. 3. B B
A
10,000
4.
21,000 (25,000) (15,500) 80,000 60,500
(E)
B
26
5.
(E)
Chapter 6: Correction of Errors
PROBLEM 6-8 Net Income Unadjusted balances 1. Advtg exp over, NI under 2. Advances rec. as sales 2016 2017 3. Advances rec. as purchases 2016 2017 4. Gain understated Cost under Accumulated depreciation Depr. Over, NI under 5. Rent revenue under 6. Bad debts exp under (5% x 480K)16,000) 7. Purchases under EI under 8. Ins. Exp. Under, NIover Adjusted balances
CA
200,000
NCA
1 ,570,400
CL
1 ,365,600
636,000
RE 300,000
50,000
60,000 (100,000)
100,000 (100,000)
(50,000) 80,000
80,000
80,000
64,000
64,000 (336,000) 400,000
13,600
13,600
13,600
20,000
(60,000)
(8,000)
(8,000)
60,000
(8,000) 20,000
20,000 15,000
15,000
344,600
SUMMARY OF ANSWER S: 1. C 2. C 3.
1 ,662,400
D
4.
A
27
1 ,443,200
5.
D
696,000
424,600
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS PROBLEM 8-1 Cash and Cash Equivalents CurrentaccountatM etrobank Payrollaccount Pettycashfund( Postalmoneyorder Traveler’scheck Treasury bills, due 3/31/2018 (purchased 12/31/2017) Treasurywarrants Undeliveredcheck Company’spostdatedcheck Stale checkissued Total cash and cash equivalents (E)
1,000,000 250,000 2,000 15,000 25,000 100,000 150,000 100,000 50,000 25,000 1,717,000
PROBLEM 8-2 Cash and Cash Equivalents Reportedc ashandc ash equivalents Certificate of deposits with maturity of 120 days Postdated check Adjusted cash and cash equiva lents
6,325,000 (500,000) (125,000) P5,700,000
Suggested answer: A
Cash and Cash Equivalents PRO BLEcoins M 8-3 Billsand onhand Checking Account Balance in Bank of Philippine Island Money order Pettycash ( - 1,650) Traveler’scheck Total
105,560 44,000 1,600 2,350 44,800 198,310
Suggested answer: (E) PROBLEM 8-4 Cash and Cash Equival ents Cash on hand CheckingaccountNo.1 43-BPI CheckingaccountNo.1 55-BPI *Securities classified as cash equivalents Checking account No. 155 - BPI
80,000 200,000 (30,000) 3,600,000 3,850,000
*Breakdown of securities classified as cash equivalents Date Maturity Securities: Acquired Date 120-day Certificate of Deposit 12/10/2016 01/31/2017 BSP-Treasury Bills (No.2) 10/31/2016 01/20/2017 28
Amount P 600,000 1,000,000
Chapter 8: Cash and Cash Equivalents
Money Market Funds
11/21/2016
02/10/2017
2,000,000
Suggested answer: A
PROBLEM 8-5 Cash and Cash Equival ents Bank cheque account Bank savings account (collectible immediately) Cash Treasury bonds – maturing in 2 months Cash and cash equi valents
P
P
58,400 23,440 10,000 8,500 100,340
Suggested answer: B
PROBLEM 8-6 Cash and Cash Equival ents Petty cash fund (70,000-15,000-5,000) Current account – Metro Bank (4,000,000+100,000) Cash and cash equi valents
50,000 4,100,000 P4,150,000
Suggested answer: C
PROBLEM 8-7 Effective Interest Rate Question No. 1 Let X = Principal amount of the loan Principal Less: Compensating balance Add:Currentbalance Amountneeded X-.05X+50,000 .95X .95X/.95 X
= = = =
X 5%X 50,000 P3,375,000
3,375,000 3,375,000-50,000 3,325,000/.95 3,500,000
Question No. 2 Annual interest payment (3,500,000 x 12%) Interest income on the loan proceeds in the compensating balance [3.5M-3,375,000) x 4%] Netinterest Divide by loan proceeds (3,500,000-175,000) Effective interest rate
420,000 5,000 415,000 3,375,000
12.30%
Suggested answers: 1.C 2C.
29
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-8 Petty Cash Fund
Requirement No. 1: Wor king Paper for the Petty Cash Fund
Petty Cash Count Sheet January 3, 2017; 9:00 AM Bills
Denomination Quantity 200 10 100 20 20 40
Coins
10 10 59 1 804 .25 1,410 .10 1,520 .05 810
100 45 804 352.50 152 40.5 6,258
TotalBillsandCoins Checks for Deposits: Maker Date W. Ally, Cashier 12/28/17
Total 2,000 2,000 800
Payee Amount ABC Company 500
I.O.U's D at e Amount A. Braham, janitor 12/19/17 250 R. Tica, clerk 12/20/17 150 P. Du, Bookkeeper 12/22/17 200 Total Vouchers: Payee J. Cruz, messenger CidBookstore DalinLiner Bureau of Posts (stamps) A. Bala, carpenter Total
600 Date 12/14/17 12/15/17 12/19/17 12/20/17 12/21/17
Accountcharged Advances to employees Supplies Freight-out Supplies Repairs
Billsandcoins Checksfordeposit I.O.U’s Voucherspaid Unusedstamps
6,258 500 600 1,217 50
TotalPettyCashAccounted Less: Petty cash Accountabilities PettyCashShortage
8, 625 12,600 (3,975)
30
Amount 125.00 150.00 192.00 300.00 450.00 1,217.00
Chapter 8: Cash and Cash Equivalents
Petty cash accountabilities Pettycashimprestbalance Unclaimedpayroll Pettycashaccountabilities
12,000 600 12,600
Acknowledgment I hereby acknowledge that the above petty cash fund items were counted in my presence and the same were returned to me intact. I further acknowledge a petty cash short of three thousand nine hundred seventy-five ( 3,975). I have no other fund accountabilities. W. Ally Petty Cash Custodian Requirement No. 2 ADJUSTING ENTRIES 1) Employeea dvances Petty cashfund 2) Expenses Officesupplies Petty cashfund
Debit 600
Credit 600
1,217 50 1,267
3) Cashs hortorover Petty cashfund
3,975
4) Cashs hortorover
3,975
3,975
Petty cashfund
3,975
Requirement No 3 Billsand coins Checksfordeposit TotalPetty CashFund
6,258 500 6,758
PROBLEM 8-11 Bank Reconciliation Oct.3 1 Receipts Unadjusted bank bal 18,005 17,709 Erroneousbank credit (500) DIT:October 1,790 (1,790) November 3,600 OC: October (6,681) Nov.(760+1,868)
13,114
Unadjusted book bal Creditmemo Oct. Nov.
11,534 1,600
19,019 18,269 750 31
Disb 25,620
Nov.3 0 10,094 (500) 3,600
(6,681) 2,628 21,567 21,575
(2,628) 10,566 8,228 1,600 750
Chapter 8: Cash and Cash Equivalents
NSF-Nov BSC: Oct Nov Check No. overstated disbursement Check No. understated disbursement
665
(665) (20) 22 (22) 35 (35)
(20)
148 (1,000)
1,000
150 270 13,114
SUMMARY OF ANSWERS: 1. 2. 3. B A
B
4.
19,019
D
PROBLEM 8-12 Deposit in Transit Depositin transit,beg Add: Book debits for the month Less: CM recorded this month Error – check received (Jan) Error – check issued (Jan) Add: Error – check received (Feb) Total Less: Bank debits for this month Less:CMforthismonth
5.
21,567
(270) 10,566
A
P 50,000 P 400,000 5,000 36,000 27,000 16,000
348,000 398,000
P 360,000 6,000
Erroneous bank credit - Feb Erroneous bank charge - Jan Deposit in tran it, end
2,500 1,000 350,500 P 47,500
Suggested answer: A PROBLEM 8-13 Outstanding Checks Outstanding checks, beg (squeeze) Add: Book credits for the month Less: Errorin recording Servicec hargerecorded Total Less: Bank debits for this month Less: NSF check returned DMforthismonth Outstanding checks, end
P 12,880 P8 5,800 1,800 30 83,970 96,850 P 97,650 2,300 3,000 92,350 P 4,500
Suggested answer: A
32
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-14 Proof of Cash Question No. 1 Outstanding checks, beg. Add:Checksissued Total Less: Checks paid by the bank Outstanding checks, end
100,000 2,500,000 2,600,000 2,200,000 400,000
Question No. 2 Deposits intransit, beg Add:Depositsmade Total Less: Deposits acknowledged by the bank Deposits intransit, end
300,000 1,800,000 2,100,000 1,600,000 500,000
31-May Receipts Unadjusted bal-bank 2,600,000 *2,190,000 Deposit in transit-May 31 300,000 (300,000) -June30 500,000 Outstanding checksMay31 (100,000) -June30 Erroneous bank credit (60,000) Erroneous bank charge 40,000 (40,000)
Disb. 30-Jun **2,410,000 2,380,000
500,000 (100,000) 400,000 (400,000) (60,000)
Adjusted balances 2,780,000 2,350,000 *(1,600,000+40,000+550,000) **(2,200,000+60,000+50,000+100,000) Unadjusted bal-book Bank service chargeMay31 -June30 CM for collection-May 31 -June30 NSFchecksforJune30 Adjusted balances
31-May 2,190,000
2,650,000
Receipts ***2,400,000
50,000 (600,000) 550,000
2,780,000
A
4.
(10,000) (50,000)
550,000 100,000 (100,000) 2,350,000 2, 650,000 2,480,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS: 1. 2. 3. A B
Disb. 30-Jun 2,500,000 2,090,000
(10,000)
600,000
2,480,000
A
33
5.
A
Chapter 8: Cash and Cash Equivalents
PROBLEM 8-15 Proof of Cash Question No. 2 Outstandingchecks, beg. Add Checks issued Bookdisb. LessDMlastmo Error last mo. C T M Under ofCD OverofCR Total Less checks issued Bank disb. lessDMthismo Error last mo. C T M Under ofCD Erroneous B Cr-LM Erroneous BC H-TM Outstandingchecks, end
150,000 1,500,000 110,000 -
1,390,000 1,540,000
1,300,000 75,000 45,000 30,000
Deposits intransit, beg Add deposits made Book receipts 1,300,000 Less: CM last month 125,000 Error last mo. C T M Under of CR (21K-12K) 9,000 OverofCD Total Less: Deposits acknowledged by the bank Bankr eceipts 1400000 Less: CM this month 150,000 Error last mo. C T M Under of CR Erroneous B CH-LM 20,000 Erroneous B Cr-TM 17,000 Deposits intransit, end
1,150,000 390,000
200,000
1,166,000 1,366,000
1,213,000 153,000
31-May Receipts Disb. 30-Jun BANK Unadjusted bal-bank 1,250,000 1,400,000 1,300,000 1,350,000 Deposit in transit-May 31 200,000 (200,000) -June30 153,000 153,000 Outstanding checks-May 31 (150,000) (150,000) -June30 390,000 (390,000) Erroneous bank credit-May 31 (45,000) (45,000) -June30 (17,000) (17,000) 34
Chapter 8: Cash and Cash Equivalents
Erroneous bank chargeMay31 -June30 Adjusted balances
20,000
(20,000) (30,000) 30,000 1,465,000 1, 126,000
1,275,000 1, 316,000
31-May Receipts Disb. 30-Jun BOOK Unadjusted bal-book 1,251,000 1, 300,000 1,500,000 1,051,000 NSF-May31 (110,000) (110,000) -June30 75,000 (75,000) CM for collection-May 31 125,000 (125,000) -June30 150,000 150,000 Undero fC R-May Adjusted balances
9,000 (9,000) 1,275,000 1, 316,000
SUMMARY OF ANSWERS: 1. 2. 3. C D
C
4.
D
5.
PROBLEM 8-16 Proof of Cash Question No. 1 Beg.Bal.,7/1 Add:CashreceiptsforJuly Cash receiptsfor Aug. Total Less: Cashd isbursementf or July Cashd isbursementforAug. Bankreconciliationitem Unadjusted balance
Unadjusted balances Outstanding checks July31 August31 Deposit in transit July31
31-Jul 180,250
D
P 67,122 P1,702,830 1,166 4,950
P
Receipts 1,830,752
( 50,944)
32,844
6.
A
P 128,384 1,364,858 1,839,744 P3,332,986 1,330,882 1,712,892 750 P 288,462
Question No 2 Outstandingcheck,Aug.31 Add: Checks paid by the bank Bank debits except serv. charge Less: Erroneous bankc harge DM on Interest on note Total Less: Checks issued by the company thisAugust Outstanding check, July 31
Questions No 3 to 5 BANK
1,465,000 1, 126,000
1,696,714 P1,763,836
1,712,892 50,944
Disb. *1,702,918 ( 50,944) 67,122
( 32,844) 35
Aug.3 1 308,084
(67,122)
Chapter 8: Cash and Cash Equivalents
August31 Erroneousbank charge Adjusted Balances (*1,702,830 + 88) BOOK Unadjusted balances Error in recording check no. 216 taken up as P1,930 but should be P1,390 (1,930-1,390) DM forint.onnote Bank service charge July 31 ( August 31 NSF forJuly 31 ( Adjusted balances **(1,712,892+750)
SUMMARY OF ANSWERS: 1. 2. 3. A C
162,150
31-Jul P162,360
41,836 - ( 1,166) 1,839,744 1,717,930
Receipts P1,839,744
Disb. Aug. 31 **P1,713,642 P288,462
540
540 4,950 ( 4,950)
52)
(
698) P162,150
A
4.
41,836 1,166 283,964
52)
88 ( 88) ( 698) P1,839,744 P1,717,930 P283,964
B
5.
A
PROBLEM 8-17 Proof of Cash Question No 1 Outstanding check Check Nos. 144 P 1,500 149 8,000 150 12,000 Total P 21,500 Alternatively, it may also be computed as f ollows: Outstandingcheck,beg P 7,000 Add:Checksissued 75,000 Total P82,000 Less: Checks paid by the bank Bank Debits P 113,000 Less: DM for this month NSF checks (10,000+40,000) 50,000 Banks ervicecharge 2,000 ErrorCorrection 500 60,500 Outstanding checks, end P 21,500
Question No 2 Unadjustedrec.perbank Deposit in transit: November30 December 31
P171,500 (11,000) 20,000 36
Chapter 8: Cash and Cash Equivalents
Error correction NSF check, no entry on the books when ret urned andredeposited Adjusted balance 140,000
Question No 3 Unadjusted disbursement, per bank Outstanding checks November30 December 31 Error correction NSF check, no entry on the books on the returned and redeposit Adjusted balance
(500) ( 40,000) P P1 13,000 (7,000) 21,500 (500)
( 40,000) P 87,000
Question No 4 Unadjustedbank bal. Deposit in transit November 30 December 31 Outstanding checks November 30 December 31 Adjusted bal.
P 127,500
20,000
( 21,500) P126,000
Question No 5 Zero, adjusted bank and book balance on December 31 is the same. PROOF OF CASH Unadjusted bank balance Deposit in transit November30 December 31 Outstanding checks November30 December 31 Error correction NSF check, no entry on the books on the return and redeposit Adjusted bal.
Nov.3 0 69,000
Receipts 171,500
11,000
(11,000) *20,000
(7,000)
Disb. 113,000
Dec. 31 *127,500
20,000
(500)
(7,000) 21,500 (500)
73,000
(40,000) 140,000
(40,000) 87,000
Nov.3 0 66,000
Receipts 113,800
Disb. 85,000
(21,500)
126,000
* (69,000+171,500-113,000) ** (18,000+2,000) Unadjusted book balance Credit memo for note collected
37
Dec. 31 94,800
Chapter 8: Cash and Cash Equivalents
November30 December 31 Bank service charge November30 December 31 Adjusted bal.
SUMMARY OF ANSWERS: 1. 2. 3. A A
8,800
(8,800) 35,000
35,000
(1,800) 73,000
B
4.
2,000 87,000
140,000
B
PROBLEM 8-18 Proof of Cash Question No. 1 Outstandingchecks,beg Add: Check s issued this mont h Book disbursements (squeeze) Less: DM recorded this month Total Less: Checks paid by the bank Erroneousbank charge Outstandingchecks,end
5.
(1,800) (2,000) 126,000
A
P 16,250
P128,750 2,500 P 133,750 3,750
Question No. 2 Depositin transit,beg Add: Deposits made by the company Total
126,250 142,500 130,000 P 12,500
P 12,500 152,500 165,000
Less: Deposits acknowledged by the bank Deposit in transit, end
Question No. 3 Unadjusted cash in bank balance per ledger Add: Under-footing ofc ash receipts Total Less: Unrecorded bank service charges (3,250 +1,500-2,500) Adjusted cash in bank balance, 12/31 Question No. 4 Bank service charges per bankstatementi nD ecember Less: Bank service charge in December
145,000 P 20,000
P 37,500 2,500 40,000 2,250 P 37,750
P 3,250
recorded in December Total BSC recorded in the books Dec Less: BSC in Nov. recordedi nD ec. Unrecorded BSC charge in December
P 2, 500 1,500 1,000 P 2,250
38
Chapter 8: Cash and Cash Equivalents
Question No. 5 Unadjusted cash in bank, November (squeeze) Add: BookR eceipts (152,500 - 2,500) Total Less:Bookdisbursements Unadjusted cash in bank, December
P 16,250 150,000 166,250 128,750 P 37,500
Unadjusted cash in bank, November (squeeze) Less:BSCinNovember Adjusted cash in bank, December
P 16,250 1,500 P 14,750
SUMMARY OF ANSWERS: 1. 2. 3. C D
4.
C
D
PROBLEM 8-19 Proof of Cash Question No. 1 Outstanding checks, beg (squeeze) Add: Check s issued this mont h Book disbursements Less: DM recorded this month Total Less:B ankd isbursements Add: Paid out in currency Less:NSF redeposited DMforthismonth Outstandingchecks, end Question Nos 2 to 5 BANK Unadj. balance - bank Undeposited collections: September3 0 October 31 Outstanding checks: September 30 October 31 Paidoutincurrency Adjusted balances BOOK Unadj. balance - book Customer’s notes collected: September3 0 October 31 Bank service charge:
5.
B
P 8,000 P 148,000 2,500
145,500 153,500
P1 50,000 2,000 3,000 1,500
Sept.3 0 100,000
R eceipts 200,000
5,000
(5,000) 7,000
(8,000) 2,000 201,000
97, 000 Sept.3 0 91,500
R eceipts 196,000
8,000
39
(8,000) 13,000
147,500 P 6,000
Disb. 150,000
Oct.3 1 150,000
7,000 (8,000) 6,000 (6,000) 2,000 147, 000 151, 000
Disb. 148,000
Oct.3 1 139,500
13,000
Chapter 8: Cash and Cash Equivalents
September 30 October 31 Adjusted balances
SUMMARY OF ANSWERS: 1. 2. 3. B A
(2,500) 97,000 4.
A
(2,500) 1,500 147,000
201,000
A
5.
1,500 151,000
A
PROBLEM 8-20 Proof of Cash Question No. 1 Account No. 143: Bank Book Unadjusted balances P1,000,000 P1,099,400 Depositin transit *80,000 Misplaced check ( 20,000) Outstandingcheck (**60,000) Undeliveredcheck 15,000 Note chargedbythebank ( 74 400) Adjusted balance P1,020,000 P1,020,000 *(100,000 - 20 ,000, Misplaced check) **(75,000 - 15,000, Undelivered check) Question No. 2 Total Outstanding checks: AccountNo.143 *Account No.144 Total outstanding check
P
60,000 1,860,000 1,92 P 0,000
*Outstanding check for Account No. 144 is computed as follows: Outstandingchecks, beg P 250,000 Add: Check s issued this mont h Book Credits P3,500,000 Less: BSC November 10,000 3,490,000 Total P 3,740,000 Less: Checks paid by the bank BankD ebits P2,000,000 Less: BSC December 20,000 NSF check 100,000 1,880,000 Outstanding checks, end P1,860,000
Question Nos. 3 to 4 December Unadjusted bank balance Deposit in transit: November 30 December 31
Nov.3 0 2,200,000 90,000
R eceipts 1,000,000 ( 90,000) **240,00 40
Disb. 2,000,000
Dec.3 1 1,200,000
240,000
Chapter 8: Cash and Cash Equivalents
0 Outstanding check: November30 December 31 Erroneous bank charge November Adjusted balances Unadjusted balance
(250,000)
(250,000) 1,860,000
(1,860,000)
20,000 2,060,000
(20,000) 1,130,000
3,610,000
(420,000)
1,980,000
1,420,000
3,500,000
(100,000)
(10,000) 20,000
(20,000)
book
Bank service charge: November30 (10,000) December 31 Unrecorded collections November3 0 90,000 Uncollected customer's note already recorded ascashreceipt (200,000) NSF-December31 Adjusted balances 2,060,000
(90,000)
(200,000) 100,000 (100,000) 1,130,000 3,610,000 (420,000)
**Depositi ntransit,beg P Add: Deposit made by the co. this month BookDebits P1,420,000 Less: Unrecorded collection 90,000
90,000
Customer’s cash receiptsnote recorded as 200,000 1,130,000 Total P1,22000 Less: Deposits acknowledged by the bank BankC redits P1,000,000 Less: Erroneous bank charge 20,000 980,000 Outstandingchecks,end P 240,000
Question No. 5 Adjusted balances: AccountNo.1 43 AccountNo.1 44 Total adjusted balances SUMMARY OF ANSWERS: 1. 2. 3. A A
P1,020,000 ( 420,000) P 600,000
B
4.
B
PROBLEM 8-21 Proof of Cash Question No. 1 RCBC Account Unadjustedbalance
5.
C
Book P 165,000 41
Bank P 125,000
Chapter 8: Cash and Cash Equivalents
Creditmemof ornotec ollected Bank service charge Depositin transit Outstanding checks (25,000+20,000) Unrecordeddisbursement Adjusted balance
6,000 (1,000) 60,000 (45,000) ( 30,000) P 140,000 P 140,000
Question Nos. 2-3 Book Bank Equitable PCI Bank Unadjusted bal. (squeeze) P 93,000 P 62,000 Creditmemof ornotec oll. 10,000 Bank service charge ( 2,000) Deposit int ransit (15,000+20,000+50,000*) 85,000 Outstandingchecks (28,000) Unrecorded transfer (30,000+50,000*) 80,000 Adjusted balance P 150,000 P150, 00 0 *fund transfer No. 4 (Included both as unrecorded transfer and deposit in transit) Question No. 4 Outstanding checks: RCBC Account (25,000+20,000) EquitablePCI Bank Total outstanding checks
P 45,000 28,000 P 73,000
Question No. 5 Fund transfer No. 1 is recorded in the disbursing book during December while it only cleared in the disbursin g bank in January. SUMMARY OF ANSWERS: 1. 2. 3. 4. 5. A A B B
PROBLEM 8-22 Proof of Cash BOOK Unadjusted balances-books CreditMemo-January CreditMemo-February BSCcheck-January BSCcheck-February Check of the company issued in January was muti lated and returned by the payee. A replacement check was issued. Both checks were entered in the Check register but no entry was made to cancel the mutilated check, P700.
B
Jan. 31 R eceipts 200,000 150,000 9,000 (9,000) 13,000 (100) 700 -
42
Disb Feb. 28 80,000 270,000 13,000 (100) 150 ( 150) 700
Chapter 8: Cash and Cash Equivalents
The company issued a sto p payment order to the bank in February for check issued in February which was not received by the payee. A new check was written and recorded in the Check register in February. The old check was written off by a journal entry also in February, P1,200. Adjusted balances
-
209,600
(1,200)
(1,200)
-
1 52,800
78,850
2 83,550
BANK Jan.3 1 Receipts Disb Feb.2 8 Unadjusted balances-bank 206,600 159,000 276,950 88,650 Deposit int ransit-January 10,000 (10,000) Depositint ransit-February 11,000 11,000 Outstanding checks-January (4,200) ( 4,200) Outstanding checks-February 1,800 ( 1,800) Erroneous bankc redit-January (6,000) (6,000) Erroneous bankc redit-February (4,000) (4,000) Erroneous bankc harge-January 3,200 (3,200) Erroneous bank charge(1,400) 1,400 February Adjusted balances 209,600 152,800 78,850 283,550 SUMMARY OF ANSWERS: 1. 2. 3. D C
C
4.
A
5.
C
PROBLEM 8-23 Computation of Cash Shortage Question No. 1 Unadjustedbank bal. Less: Outstanding checks (8,434+4,300+ 6,524+ 9,551.50+4,577+5,961) Add:Undepositedreceipts Adjustedbankbalance
(39,347.50) 35,000 P221,052.50
Question No. 2 Unadjustedbookbal. Creditmemof ornotescollection
P242,310.50 30,000
Creditmemo for int. Balance( cash accountability)
P
225,400
900 P273,210.50
43
Chapter 8: Cash and Cash Equivalents
Question No. 3 Adjusted bank bal. (Cash accounted) Less: Cash in bank bal. (cash accountability) Shortage SUMMARY OF ANSWERS: 1. 2. 3. B D
P221,052.50 273,210.50 (P52,158.00)
B
PROBLEM 8-24 Computation of Cash Shortage Question No. 1 Unadjustedbank bal. P 42,400 Outstandingchecks ( 11,500) Undeposited collections 5,000 Adjusted bank balance P 35,900 Question No. 2 Unadjustedbookbal. Creditmemop roceedscleandraft Debit memo for bank servicec harge Balance (cash accountability)
P 46,500 900 ( 100) P 47,300
Question No. 3 Adjusted bank bal.( Cash accounted) Cash inb ank bal.( cash accountability) Shortage asofJune30
(
Question No. 4 Additional cas shortage from July 1-15 JulycollectionperduplicateO.R. Less: collections in July that were deposited in July Collection per duplicates lips Less :Undeposited collection, June 30 Casht hatshouldb eo nh andonJuly1 5 Less:Actualc ashonh andonJuly1 5 Cash shortage from July 1-15
P3 5,900 47,300 P11,400)
P 18,800
P1 1,000 5,000
Question No. 5 Understatement of cash in bank per books (46,500-45,600) Overstatement of cash in bank per bank (44,000-42,400) Understatement of outstanding checks (11,500-3600) Overstatement of undeposited collections (5,100-5,000) Non-recording of credit memo-proceeds of clean draft Cash shortage as of Jun e 30 SUMMARY OF ANSWERS: 44
6,000 P 12,800 4,800 P 8, 000
P
900 1,600 7,900 100 900 P11,400
Chapter 8: Cash and Cash Equivalents
1.
C
2.
D
3.
B
4.
D
5.
D
PROBLEM 8-25 Computation of Cash Shortage Question No. 1 Deposit int ransit,u nadjustedb al. Less:C ustomer's Post-dated check Adjusted Deposit in transit 125,250
P 175,250 50,000 P
Question No. 2 Outstanding checks, unadjusted balance Less:Unreleased check Company's post-dated check Adjusted Outstanding checks
194,790
Question No. 3 Unadjustedbal.perbank Add:Deposit intransit( No. 1) Less: Outstanding checks (No.2 ) Erroneousbankcredit Adjusted cash in bank bal.
250,460
Question No. 4 Unadjustedbal.perbooks Add:Creditmemofornotecoll. Unreleasedcheck Company'spost-datedcheck Total Less: Customer s post-dated check Cashi nb ankperbooksbal. Less: Adjusted cash in bank balance Cash shortage
B
P350,000 125,250 (194,790) ( 30,000) P
P 293,500 15,000 14,750 37,210 360 P 460 (50,000) P310,360 250,460 (P60,000)
Question No. 5 Unadjustedbal.perbooks Less: Adjusted cash in bank balance Net adjustments SUMMARY OF ANSWERS: 1. 2. 3. B D
P 246,760 ( 14,750) ( 37,210) P
P293,500 250,460 P 43,040 4.
C
45
5.
A
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES Note to pro fessor: Page 257. ILLUSTRATION : Sales Disco unt (PAS 18 vs. PFRS 15) SOLUT ION: (PAS 18 ) Accountsreceivable 100,000 Sales (inst ead of allowance for sales discount )
100,000
PROBLEM 10-1 Trade and oth er receiva bles Trade Trade and other Noncurrent Receivables receivables Asset 1 277,000 277,000 2 150,000 150,000 3 10,000 4 30,000 5 110,000 6 15,000 7 70,000 70,000 8 80,000 220,000 9 100,000 100,000 Adjusted bal. 597,000 1. C 732,000 2. C 330,000 PROBLEM 10-2 Different Fre ight terms Question No. 1 FOB Destination, freight prepaid Invoicepriceofmerchandisesold 300,000 Less:Invoicep riceof merchandisereturned Netinvoiceprice 300,000 Less:Salesdiscount( 300,000x 2%) 6,000 Collectionbeforefreight 294,000 Less: Freight payment - FOB Destination, freight collect Add: Freight payment - FOB shipping point, freight prepaid Total Net Cash Collection ( B) 294,000
Question No. 2 FOB Destination, freight collect Invoicepriceofmerchandisesold Less:Invoicep riceof merchandisereturned Netinvoiceprice Less:Salesdiscount( 300,000x 2%)
300,000 300,000 6,000
NetPayment freight 294,000 Less: Freightbefore payment - FOB Destination, freight collect 5,000 Add: Freight payment - FOB shipping point, freight prepaid Total Net Cash Collection(A) 289,000 46
Chapter 10: Loans and Receivables
Question No. 3 FOB Shipping point, freight prepaid Invoicepriceofmerchandisesold 300,000 Less:Invoicep riceofm erchandisereturned Netinvoiceprice 300,000 Less:Salesdiscount( 300,000x 2%) 6,000 NetReceiptbefore freight 294,000 Less: Freight payment - FOB Destination, freight collect Add: Freight payment - FOB shipping point, freight prepaid 5,000 Total Net Cash Collection(C) 299,000 Question No. 4 FOB Shipping point, freight prepaid Invoicepriceofmerchandisesold 300,000 Less:Invoicep riceofm erchandisereturned Netinvoiceprice 300,000 Less:Salesdiscount( 300,000x 2%) 6,000 Collectionbeforefreight 294,000 Less: Freight payment - FOB Destination, freight collect Add: Freight payment - FOB shipping point, freight prepaid Total Net Cash Collection(B) 294,000 SUMMARY OF ANSWER S: 1. B 2. A 3.
C
4.
B
PROBLEM 10-3 Gross method and Net method List price P100 000 Less: Trade discounts 15%: (100,000 x1 5%) 15,000 20%: (100,000 – 15,000) x 20% 17,000 32,000 Invoice price, gross of discount (C) 68,000 Less: Sales discount (68,000 x3 %) 2,040 Invoice price, net of discount P 65,960 (D) SUMMARY OF ANSWER S: 1. C 2. D PROBLEM 10-4 Compu tatio n of Percentage of Bad Debts Expens e Credit Sales 2013 2014 2015
2,000,000 3,500,000 7,000,000
CASE 1 Accounts written off 40,000 270,000 330,000 47
Recoveries 20,000 15,000 50,000
Chapter 10: Loans and Receivables
2016 2017
2,000,000 9,000,000 3,000,000 12,000,000
65,000 395,000 85,000 480,000
30,000 80,000 40,000 120,000
Question No. 1 Percentage
Accounts written off minus Recoveries Total credit sales
=
Total years fr om 2013 to 2017: Percentage
480,000 - 120,000 12,000,000
=
Percentage = 3.00 %
Question No. 2 Bad debts expense
= 3% x 3,000,000 = 90,000
Question No. 3 Allowance for Bad debts 85,000 400,000 Beg.Balance 90,000 Bad debts exp 445,000 40,000 Recovery 520,000 520,000
Writeoff Balance end (squeeze)
CASE 2
Question No.4 Percentage
Accounts written off minus Recoveries Total credit sales
=
Total years from 2013 to 2015 (years should exclude the last two years ): 330,000 - 50,000 Percentage = 7,000,000 Percentage = 4 %
Question No. 5 Bad debts expense
= 4% x P3,000,000 = 0,000
Question No. 6 Credit Sales
BD exp
2016 2017
80,000 1 20,000
2,000,000 3,000,000
Recoveries
Write-off
65,000 30,000 85,000 40,000 Allowance for BD (D) 48
Net AB 1 15,000 165,000 280,000
Chapter 10: Loans and Receivables
CASE 3 Question No. 7 Percentage of bad debts to AR
=
Accounts written off minus Recoveries Total credit sales
Total years fr om 2013 to 2016: Percentage of bad = debts to AR
395,000 - 80,000 9,000,000
Percentage = 3.5% Percentage debts to of ARbad
=
Accounts written minus Total off credit sales Recoveries
Total years fr om 2013 to 2017: Percentage of bad = debts to AR
480,000 12,000,000
Percentage = 3 %
Question Nos. 8 and 9 Allowance for Bad deb ts Balance end (3,400,000 x 3%) 102,000 105,000 Writeoff 85,000 (D)42,000 40,000 187,000 187,000 SUMMARY OF ANSWER S: Case 1 1. B 2. B 3. B
Beg. Balance (3,000,000 x 3.5%) Bad debts exp (squeeze) Recovery
Case 2 4. D 5. D 6. D
PROBLEM 10-5 Aging Based on Out standin g Receivab les Question No. 1 Categories Balance (No. of Days) 0-30d ays 500,000 31-60d ays 600,000 61-90d ays 750,000 over 91 days 300,000 Totals 2,150,000 Balancee nd
Uncollectible Percent Amount 2% 10,000 3% 18,000 5% 37,500 10% 30,000 95,500
Allowance for Bad debts 95,500 40,000 Beg. balance 49
Case 3 7. C 8. D 9. C
Chapter 10: Loans and Receivables
(see above table) Writeoff (23,000+100,000)
123,000 218,500
12,000 Recoveries 166,500 Bad debts exp (squeeze) 218,500
Question No. 2 Accounts receivable, end (see above table) Less: Allowance for doubtful accounts, end Net Realizable Value
2,150,000 95,500 2,054,500
SUMMARY OF ANSWER S: 1.
A
2.
A
PROBLEM 10-6 Aging Base d On Days Past Due Question No. 1 Overdue accounts % uncollectible Balance Forl ess than 31 days 5.00% 300,000 From31-60days 6.00% 220,000 From61-90days 8.00% 150,000 From91-120d ays 15.00% 60,000 For over121days 20.00% Required allowance for doubtful accounts
Al lowance 15,000 13,200 12,000 9,000 49,200
Question No. 2 Balance end
Allowance for Bad debts 49,200 20,000 Beg. balance 29,200 Bad debts exp (squeeze) 158 000 158,000
SUMMARY OF ANSWER S: 1. A 2. A
PROBLEM 10-7 Interest -bearing Not e with Realistic Intere st Rate Requirement No. 1 *Selling price P100,000 Less: Carrying amount of machinery Cost 500,000 Less: Accumulated depreciation 350,000 150,000 Loss on sale 50,000) (P The selling price is equal to the face amount, which is likewise equal to *Note: the present value of the note since the note bears an annual interest rate that is similar with the market rate.
50
Chapter 10: Loans and Receivables
Requirement No. 2 Interest income = (100,000 x 10%) = P10,000 Requirement No. 3 Zero. The principal amount is collectible beyond one year from the reporting date and thus, reported as non-cu rrent. Requirement No. 4 P100,000. The entire principal amount of notes receivable is treated as noncurrent asset since it i s collect ible beyond one year from the reporting date. Journ al entries are as follows: 01/01/2016 Notes receivable Accumulated depreciation Losson sale Machinery
100,000 350,000 50,000 500,000
\
12/31/2016 Cash Interestincome
10,000 10,000
PROBLEM 10-8 Interest-bearing Note with Unrealistic Interest Rate, Interes t Is Payable Ann ually, One-Ti me Col lection of Principa l Question No. 1 Present value of principal (2,000,000 x 0.7118) Add: Present value of interest payments (2,000,000x 10%x2.4018) Total present value/ Selling price Less: Carrying amount of machinery Cost Less: Accumulated depreciation Gain on sale Question Nos. 2 to 5 Amortization table Date Interest Collections 01/01/2016 12/31/2016 200,000 12/31/2017 200,000 12/31/2018 200,000
P 1,423,600 480,366 1,903,966 1,000,000 150,000
Interest Income
Discount Amortization
228,475 231,892 235,704
28,475 31,892 35,672
850,000 P1,053,966
Carrying amount 1,903,960 1,932,435 1,964,327 2,000,000
The total 1,932,435 is reported it is noncurrent receivable due to be amount coll ectedofbeyond twelve m onthsas from the end of the reportingsince period.
SUMMARY OF ANSWER S: 1. B 2. B 3.
A
4.
A 51
5.
C
Chapter 10: Loans and Receivables
PROBLEM 10-9 Interest-bearing Note with Unrealistic Interest Rate, Interes t Is Payable Semi-A nnu ally, One-Time Collecti on of Principa l Question No. 1 Present value of principal (2,000,000 x 0.7050) Add: Present value of interest payments (2,000,000x 5%x4.9173) Total present value/ Selling price Less: Carrying amount of machinery Cost Less: Accumulated depreciation Gain on sale Amortization table Date Interest Collections 01/01/2016 07/31/2016 100,000 12/31/2016 100,000 07/31/2017 100,000 12/31/2017 100,000 07/31/2018 100,000 12/31/2018 100,000
Interest Income 114,104 114,950 115,847 116,796 117,804 118,602
Question No. 2 Interest income up to 07/31/2016 Interest income up to 12/31/2016 Total interest income
P 1,410,000 491,730 1,901,730 1,000,000 150,000
Discount Amortization 4,104 1 14,950 15,815 16,796 17,804 18,802
850,000 P1,051,730
Carrying amount 1,901,730 1,915,834 1,930,784 1,946,599 1,963,395 1,981,198 2,000,000
114,104 114,950 229,054
Question No. 3 1,930,784. See amortization table above. Que stion No .s 4 and 5 The total amount of 1,932,435 is reported as noncurrent receivable since it is due to be collecte d beyond twe lve month s from the end of the reporting period. SUMMARY OF ANSWER S: 1. B 2. B 3.
B
4.
A
5.
D
PROBLEM 10-10 Interest -bearing Note with Unrea listic Interest Rate, Uniform Coll ection of Principal Question No. 1 52
Chapter 10: Loans and Receivables
Computation of present value of all payments: Present Interest Principal value fact or collections 0.8929 600,000 180,000 0.7972 600,000 120,000 0.7118 600,000 60,000 Totalpresentvalue Total present value / Selling price Less: Carrying amount of machinery Cost Less: Accumulated depreciation Gain on sale
Amortization table Interest Date Collections 01/01/16 12/31/16 180,000 12/31/17 120,000 12/31/18 60,000
Total collections 780,000 720,000 660,000
To tal PV 696,462 573,984 469,788 1,740,234
1,740,234 1,000,000 150,000
Interest Income
850,000 P890,234
Amortizatio n
208,828 140,287 70,651
Principal collections
28,828 20,287 10,651
600,000 600,000 600,000
Carrying amount 1,740,234 1,169,062 589,350 -
Question No. 2 208,828. See amortization table above. Question No. 3 1,169,062. See amortization table above. Question N . 4 Principal collections – 2017 Less: Amortization – 2017 Current portion – 12/31/2016
600,000 20,287 579,713
Question No. 4 Carrying value – 12/31/2016 Less: Current portion – 12/31/2016 Non-current portion – 12/31/2016 SUMMARY OF ANSWER S: 1. 2. 3. B B
A
4.
1,169,062 579,713 589,350
B
5.
A
PROBLEM 10-11 Non-interest-bearing Note with Unrealistic Interest Rate, Non-Uniform Collection of Principal Question No. 1 Computation of present value of all payments: 53
Chapter 10: Loans and Receivables
Total PV facto r collections 0.8929 1,000,000 0.7972 600,000 0.7118 200,000 Total present value of the notes
TotalP V 892,900 478,320 142,360 1,513,580
Total present value / Selling price Less: Carrying amount of machinery Cost Less: Accumulated depreciation Gain on sale
Question Nos. 2 to 5 Amortization table Interest Date income 01/01/16 12/31/16 181,630 12/31/17 83,425 12/31/18 21,382
1,513,580 1,000,000 150,000
850,000 P663,580
Amortizatio n
Principal Collections
181,630 83,425 21,365
1,000,000 600,000 200,000
Carrying amount 1,513,580 695,210 178,635 -
Question No. 2 181,630. See amortization table above. Question No. 3 695,210. See amortization table above. Question No. 4 Principal collections – 2017 Less: Amortization – 2017 Current portion – 12/31/2016
600,000 83,425 516,575
Question No. 5 Carrying value – 12/31/2016 Less: Current portion – 12/31/2016 Non-current portion – 12/31/2016
695,210 516,575 178,635
SUMMARY OF ANSWER S: 1. 2. 3. B B
A
4.
B
5.
D
PROBLEM 10-12 Noninterest-bearing Note, One-T ime Collection of Principal Question No. 1 Total present value (1,800,000 x 0.7118) 54
1,281,240
Chapter 10: Loans and Receivables
Less: Carrying amount of machinery Cost Less: Accumulated depreciation Gain on sale
Amortization table Date Inter est Income 01/01/16 12/31/16 153,749 12/31/17 172,199
1,000,000 150,000
Amortization 153,749 172,199
850,000 P431,240
Carrying amount 1,281,240 1,434,989 1,607,187
12/31/18 192,812 192,812 Question No. 2 153,749. See amortization table above.
1,800,000
Question No. 3 1,434,989. See amortization table above. Que stion No . 4 and 5 The total amount of 1,434,989 is reported as noncurrent receivabl e since it is due to be coll ected beyond twelve m onths from the end of the reporting period. SUMMARY OF ANSWER S: 1. B 2. B 3.
A
4.
B
5.
A
PROBLEM 10-13 Com putation of Annual Payment or Collection Requirement No. 1
CASE 1: Based on the original data
Annual collection
=
Present value of the notes Present value of ordinary annuity for 3 periods
Annual collection
=
1,500,000 2.4018
Annual collection
= P624,532
Requirement No. 2 Interest income (1,500,000 x 12%)
= P180,000
CASE 2 Requirement No. 1 Annual collection
=
Present value of the notes Present value of annuity due for 3 periods
Annual collection
=
1,500,000 2. 6901
Annual collection
= P557,600 55
Chapter 10: Loans and Receivables
Requirement No. 2 Interest income (1,500,000 – 557,600) x 12%
= P113,088
PROBLEM 10-14 Accountsreceivable Sales
250,000 250,000
Sales discount 250,000 x 3% x4 0%)
3,000
Allowanceforsalesdiscount Cash( 250,000x 50%x97%) Allowancef ors alesdiscount Sales discount [ 250,000 x (50% - 40%) x 3%] Accounts receivable ( 250,000x 50%)
121,250 3,000 750
3,000
125,000
On December 31, 2016, the receivable then is included in the statement of financial position as follows: Accountsreceivable,end 250,000 Less: Allowancef ors ales discount 3,000 Netrealizablevalue 247,000
SOL UTION: (PFRS 15) Accountsreceivable Refund liability Sales [ 100,000 – ( 100,000x2 %x 50%) Cash( 100,000x 60%x9 8%) Sales discount [ 100,000 x (60% - 50%) x 2%] Refundliability Accountsreceivable( 100,000x 60%)
100,000 1,000 99,000 58,800 200 1,000 60,000
On December 31, 2016, the receivable then is included in the statement of financial position as follows: Accounts receivable = Net realizable value 100,000
PROBLEM 10-15 SOLUTION: Requirement No. 1 PAS 18 2017: Dec.3 1 Accountsreceivable Sales
550,000 550,000
Cost of sales Merchandiseinventory
300,000
Sales returns ( 550,000 x 30%)
165,000
300,000
56
Chapter 10: Loans and Receivables
Allowancefors alesreturn
2018: Jan. 5
165,000
Cash [ 550,000 - (45% x 550,000)] Sales returns [(45%-30%) x 550,000] Allowance for sales returns Accountsreceivable
302,500 82,500 165,000 550,000
Requirement No. 2 PAS 18 2017: Dec. 31 No journal entry. No revenue is recognized because the company cannot estimate reliably any future returns. 2018: Feb.1
Accountsreceivable Sales
550,000 550,000
Cost of sales 300,000 Merchandiseinventory 300,000 Note: Revenue is recognized since the time period for rejecting/accepting has elapsed.
Requirem ent No. 1 PFRS 15 2017: Dec.3 1 Accountsreceivable Sales[ 550,000x (100%-30%)] Cost of sales ( 300,000 x 70%) Asset for right to recover product to be returned Merchandise inventory
2018: Jan. 5
Cash [ 550,000 - (45% x 550,000)] Sales returns [(45%-30%) x 550,000] Accountsreceivable Merchandisei nventory Costof sales Asset for right to recover product to be returned
Requirem ent No. 2 PFRS 15 2017: Dec. 31 Asset for right to recover product to be returned
5,000 5,000 210,000 90,000 300,000 302,500 82,500 5,000 135,000 45,000 90,000
300,000
Merchandiseinventory
2018: Feb.1
300,000
Accountsreceivable Sales
550,000 550,000 57
Chapter 10: Loans and Receivables
Cost of sales Asset for right to recover product to be returned
300,000 300,000
PROBLEM 10-16 Impairment of Receivable, One-time Collection of Principal CAS E NO. 1 Question No. 1 Principal 16,000,000 Add: Accrued interest receivable 1,600,000 17,600,000 Less: *Present value of expected cash flows 7,705,280 Loan impairment ( A) 9,894,720 *Computation of prese nt value of all payments: PV factor Total collections Total PV 0.9091 1,600,000 1,454,560 0.8264 3,200,000 2,644,480 0.7513 4,800,000 3,606,240 Total present value of the notes 7,705,280
Question Nos. 2 to 3 Amortization table Date 12/31/2015 12/31/2016 12/31/2017 12/31/2018
Collections
Interest Income
Amortization
1,600,000 3, 200,000 4,800,000
770,528 687,581 436,339
829,472 2,512,419 4,363,389
CAS E NO. 2 Question No. 4 Carrying value – 12/31/2015 (see table below) Less: *Present value of expected cash flows Loan impairment (B) Amortization table Interest Received Date Or Accrued 01/01/2013 12/31/2013 1 ,600,000 12/31/2014 1 ,600,000 12/31/2015 1,600,000* *Interest accrued .
Interest Income 1,781,530 1,803,313 1,827,711 58
Carrying amount 7,705,280 6,875,808 4,363,389 -
15,458,634 7,705,280 9,894,720
Amortization 181,530 203,313 227,710
Carrying amount 14,846,080 15,027,610 15,230,923 15,458,634
Chapter 10: Loans and Receivables
12/31/2015
Accrued interest receivable Interestincome
1,600,000 1,600,000
Unearned interest income Interestincome
227,710 227,710
CAS E NO. 3 Question No. 5 Carrying value – 12/31/2015 (see table below) Less: *Present value of expected cash flows Loan impairment ( C) Amortization table Interest Received Date Or Accrued 01/01/2013 12/31/2013 1 ,600,000 12/31/2014 1 ,600,000 12/31/2015 12/31/2015
17,058,634 7,705,280
9,353,354
Interest Income
Amortization
1,781,530 1,803,313 1,827,711
181,530 203,313 1 ,827,711
Unearned interest income Interestincome
Carrying amount 14,846,080 15,027,610 15,230,923 17,058,634
1,827,711 1,827,711
CAS E NO. 4 Question No. 6 Carrying value – 12/31/2015 (see table below) Less: *Present value of expected cash flows Loan impairment C)
Amortization table Interest Received Date Or Accrued 01/01/2013 12/31/2013 1 ,600,000 12/31/2014 1 ,600,000 12/31/2015 1 ,600,000
Interest Income 1,781,530 1,803,313 1,827,711
12/31/2015 Cash Interestincome
15,458,634 7,705,280 9,894,720
Amortization 181,530 203,313 227,710
Carrying amount 14,846,080 15,027,610 15,230,923 15,458,634
1,600,000 1,600,000
Unearned interest income Interestincome
SUMMARY OF ANSWER S: 59
227,710
227,710
Chapter 10: Loans and Receivables
1.
A
2.
B
3.
B
4.
B
5.
C
6.
PROBLEM 10-17 Rev ersal of Impairment Loss Question No. 1 Present value of expected cash flows vs. Would have been present value if there was no impairment Lower Less:Actualamortizedcost Gain on reversal of impairment loss (A) Question No. 2 Present value of expected cash flows Less:Actuala mortizedc ost Gain on reversal of impairment loss (D)
P6 54,552 600,000 600,000 396,681
P 2 03 ,319 P6 54,552 396,681 P 2 57 ,871
Question No. 3 Interest inc ome (600, 000 x 10%)
( B)
P 60,000
Question No. 4 Interest inc ome (654, 552 x 10%)
(A)
P 65,4 55
SUMMARY OF ANSWER S: 1. A 2. D 3.
B
4.
C
A
PROBLEM 10-18 Pledge of Receiv able Principalamountborrowed P900,000 Less: One year interest deducted in advance (900,000 x 10%) ( 90,000) Cash received on December 1 ( B) P810,000
PROBLEM 10-19 Assignment of Accounts Receivable Question No. 1 Principalamountborrowed P150,000 Less: Finance fee (150,000 x 5%) ( 7 ,500) Cash received on December (1D) P 142,50 0 Question No. 2 Notespayable Less: Princip al payment Remittance Less: Interest (150,000 x 12% x 3/12) Notes payable – Decemb er 31 (C) Question No. 3 60
P150,000 95,000 ( 1,500) 93,500 P56,500
Chapter 10: Loans and Receivables
Accounts receivable – assigned (200,000 – 100,000) P 100,000 Less:Notespayable ( 56,500) Equity in assigned account (C) P 43,500
SUMMARY OF ANSWER S: 1. D 2. C 3.
C
PROBLEM 10-20 Factorin g of Rec eivables Entries to reco rd transactions Option Accounts Debit Credit One Cash( 400,000x90%) 360,000 Receivable from factor (25,000 – [5% x 400,000]) 5,000 Loss on sale of receivables (squeeze) 35,000 Notespayable 400,000 Two Cash( 400,000x90%) 360,000 Receivable from factor (25,000 – [4% x 400,000]) 9,000 Loss on sale of receivables (squeeze) 34,000 Notespayable 400,000 Estimatedr ecoursel iability 3,000
SUMMARY OF ANSWER S: 1. B 2. C
PROBLEM 10-21 Notes Receivab le Discounting and Notes Receiv able Dishonored CASE NO. 1 Question No. 1 Principal P 600,000.00 Add: Interest over full credit period (600,000 x 9% x 90/360) 13,500.00 Maturity value 613,500.00 Less: Discount (613,500 x 12% x6 5/360) 13,292.50 Net proceeds from discounting ( C) P 600,207.50 Question No. 2 Netproceeds fromdiscounting Less: Carrying amount on date of discounting Principal Add: Interest (600,000 x 9% x 25/360) Loss on notes receivable discounting ( A)
CASE NO. 2 Question No. 3 61
P 600,207.50 600,000.00 3,750.00(P 3,5603,750.00 4 2.50)
Chapter 10: Loans and Receivables
Loss of P3,524.50. The amount of loss to be recognized is computed in a similar way as to th at of discounted note without recourse. (A) Question No. 4 Maturityv alue oft he note Add: Protest fee and other bank charges Cash received on December 1 (C)
P 613,500 5,000 P618,500
CASE NO. 3 Question No. 5 Interest expense of P3,524.50 . The amoun t of interest ex pense is compute d in a similar sale. (A)way as to that of discounted note without recourse or conditional
Question No. 6 Maturityv alue oft he note Add: Protest fee and other bank charges Cash received on December 1 (C) SUMMARY OF ANSWER S: 1. C 2. A 3.
A
4.
P 613,500 5,000 P618,500
C
5.
A
PROBLEM 10-22 Discount ing “Own” Note Question No. 1 Notepayable Less: Discount on note payable (250,000 x 12%) Carrying amount – Date ofi ssuance Effective interest rate
6.
P250,000 ( 30,000) P2 20,000
= Discount/Net proceeds = 3 ,000/220,000 = 1 3.60% (D)
Question No. 2 Entry to record trans action Cash 220,000 Discount on notes payable 30,000 Notespayable 250,000 SUMMARY OF ANSWER S: 1. 2. D B COMPREHENSIVE PROBLEMS PROBLEM 10-23 Question No. 1 2013 2014 2015
Credit Sa les 2,220,000 2,450,000 2,930,000
Accounts written off 52,000 59,000 60,000 62
C
Recoveries 4,300 7,500 7,200
Chapter 10: Loans and Receivables
7,600,000
171,000
19,000
Accounts written off minus Recoveries Total credit sales Total years fr om 2013 to 2015: 171,000 - 19,000 Percentage = 7,600,000 Percentage
=
Percentage = 0.02 or 2%
Question No. 2 Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3 Reported doubtful account expense (bad debts written off) P 62,000 Less: Correct doubtful account expense (see No. 2 ) ( 60,000) Overstatement in doubtful account expenses P 2,000 Question No. 4 Accounts receivable trade Beg. Balance Sales on account
418,000 3,000,000
Total
3,418,000
645,600 Balance end 62,000 Write-off 2,710,400 Collections excluding advance from customers 3,418,000
Question No. 5 All wa nce for Doubtful accounts Accounts written off Balance end
62,000 15,200 Beg. Balance 21,600 60,000 Doubtful accounts expense 8,400 Recoveries
Total
83,600 83,600
SUMMARY OF ANSWER S: 1. A 2. A 3.
B
4.
B
5.
A
PROBLEM 10-24 Question No. 1 Unadjusted accounts receivable, Dec. 1 (squeeze) Add:Adjustednet sales Total Less: Collections, net of discounts 63
21,800 P 255,000 276,800 156,800
Chapter 10: Loans and Receivables
Estimated uncollectible accounts charged to AR in Dec. 30,000 Unadjusted accounts receivable, Dec. 31 P 90,000 Subsidiary ledgerb alance, Dec. 1 Less: AR controlling account, Dec. 1 (see above) Add: Estimated uncollectible account chargedtoARin Dec. Customers’ credit balance (D)
Question No. 2 Collection, net of discount Divideby:(100%-2%) Total credit to AR for collection (A)
P 59,000 21,800 6,000 27,800 P31,200
P1 56,800 98% P160,000
Question No. 3 Customer credit balance, Dec. 1 Less: sale to customer with credit balance Customer Credit balance, Dec. 31(A)
P 31,200 10,000 P 21,200
Question No. 4 Unadjusted Sales, balance P2 60,000 b) Sales, FOB shipping pt., not yet recorded 10,000 c)S ales,F OB destination ( 15,000) Adjusted Sales balance ( A) P 255,000 Question No. 5 Subsidiary ledger, balance, 12/1 Add: Adjusted Sales in December Freight prepaid by the company Total Less: total credit to AR for coll. Adjusted accounts receivable in Dec. (B)
SUMMARY OF ANSWER S: 1. D 2. A 3.
A
4.
P 59,000 255,000 1,000 P315,000 160,000 P1 55,000
A
64
5.
B
Chapter 10: Loans and Receivables
PROBLEM 10-25 Question No. 1 Balance De c. 31 1 12,000 2 22,000 4 20,000 5 55,000 6 7,500 116,500
Accounts Not due 3,000 22,000
1 - 6 0 da y s 8,000
61-120 d ays 1,000
Over 120
10,000 2,220
52,780 7,500 68,280
27,220
Multiply by:
0.50% 136.10
11,000
2% 1,365.60
10,000
10,000
5% 550
Question Nos. 2 and 3 Required balance (P136.10+P1,365.60+P550+P5,000) Less: Allowance for doubtful accounts, beginning Doubtful accounts expense 2,051.70
50% 5,000.00
P 7,051.70 5,000.00 P
Question Nos. 4 and 5 Interest income (120,000X6 %X2 /12) (100,000X 6%X 1/12) Interest income SUMM 1. DARY OF 2. ANSWER C 3.S:
Interest income P 1,200 500 P 1,700
B
4.
Accrued interest income P 500 P 500
D
PROBLEM 10-26 Question No. 1 Principal Originationf ees received Direct origination cost incurred Initial Carrying amount of the loan
5.
A
4,000,000 (342,100) 150,020 3,807,920
Question No. 2 By trial and error, 12% interest rate will have a present value equal to the initial carrying amount of the loan. Present value of Prin. (4,000,000 x .7118) 2,847,200 Present value of Int. (4M x 10% x 2.4018) 960,720 Present value of Loan Receivable 3,807,920
65
Chapter 10: Loans and Receivables
Question N os. 3 and 4 Date 01/01/2016 31/12/2016 31/12/2017 31/12/2018
Collections
Interest Income
Amortization
400,000 400,000 400,000
456,950 463,784 471,439
56,950 63,784 71,346
Carrying amount 3,807,920 3,864,870 3,928,655 4,000,000
Question No. 5 Zero, As of December 31, 2016, the entire loan proceeds will be collectible on December 31, 2018, that is two years from the repor ting date. SUMMARY OF ANSWER S: 1. 2. 3. A C
4.
B
PROBLEM 10-27 Question No. 1 Annual Cash Date flows Dec. 31, 2015 P1,750,000 Dec. 31, 2016 2,000,000 Dec. 31, 2017 1,750,000 Total
5.
A
A
PV factor Amount 0.9091 P 1,590,925 0.8264 1,652,800 0.7513 1,314,775 4,55P8,500
Question No. 2 Carrying amount oft he loan Less: Present value of the loan Impairment loss
P
P 5,500,000 4,558,500 941,500
Question Nos. 3 to 5 Date 12/31/2014 12/31/2015 12/31/2016 12/31/2017
P a y me n t
Interest Income
P1,750,000 2,000,000 1,750,000
P455,850 326,435 159,079
SUMMARY OF ANSWER S: 1. C 2. A 3.
B
4.
66
Reduc tion to Principal P1 ,294,150 1,673,565 1,590,785
A
5.
C
Carrying amount P4,558,500 3,264,350 1,590,785 -
Chapter 10: Loans and Receivables
PROBLEM 10-28 Question Nos. 1 to 4
Unadjusted balances 2)Salereturn Cost of return Merchandise (30,000 x80%) 3)Sales FOB shipping point not Salerecorded as Cost of mdse sold (40,000 x80%) 4) Goods shipped FOB Destination recorded assale Cost of goods (50,000 x 80%) 6)D oubtful accts exp Adjusted bal.
Accounts Receivable 300,000 (30,000)
Allow for DA 3,000
Mdse. Net Inventory Sales 400,000 1, 000,000 (30,000)
24,000
40,000
(24,000)
40,000 (32,000)
(50,000)
32,000
(50,000) 40,000
260,000
Cost of Sales 800,000
(12,000) 15,000
432,000
(40,000)
960,000
768,000
Question No. 5 Accounts receivable P 260,000 Less: Allowance for doubtful accounts ( 15,000) Net realizable value P245,000 SUMMARY OF ANSWER S: 1 B 2 B 3.
B
4.
B
5.
C
PROBLEM 10-29 Question No. 1 Classification 1-60 days 61-120days 121-180days 181-360days More than oney ear Totals
Balance P1 ,000,000 400,000 300,000 200,000 60,000 P1 ,960,000
Estimated Percentage Amount 1% P 10,000 5% 20,000 10% 30,000 25% 50,000 80% 48,000 P 158,000
Question No. 2 Accounts receivable, adjusted (see no. 1) Less: Allowance for doubtful accounts, end (see no. 1) Net realizable value 67
P 1,960,000 158,000 P1,802,000
Chapter 10: Loans and Receivables
Question No. 3 Doubtful accounts per books (9,000,000 x 2%) Less: *Adjusted doubtful accounts expense Understatement of doubtful accounts
P 180,000 188,000 (P 8,000)
*Adjusted doubtful account expense Allowance for Dou btful accounts Write off (100,000+40,000) Balance end (required)
140,000 158,000
90,000 20,00 188,000
Total
Beg. Balance Recoveries Doubtful account expense
298,000 298,000
Question No. 4 Totalcarryingv alue Less: **Present value of the loan Impairment loss 210,000
P3,000,000 2,790,000 P
*Computation of present value Annual Cash flow PV factor Total P1,000,000 1.00 P 1,000,000 1,000,000 0.93 930,000 1,000,000 0.86 860,000 Total Present value of the loan P 2,790,000
Question No. 5 Date 01/01/2016 12/31/2016 12/31/2017
Collections
Interest Income
1,000,000 1,000,000
143,200
SUMMARY OF ANSWER S: 1. A 2. B 3.
D
B
4.
Amortizatio n 1,000,000 856,800 5.
Carrying amount 2,790,000 1,790,000 933,200
B
PROBLEM 10-30 Question No. 1 Accounts receivable, unadjusted balance Per subsidiary ledger Note receivablei ncluded in theA R Factored Accounts receivable SalesFOBshipping point Adjusted AR balance
P1,660,000 (200,000) (160,000) 100,000 P1,400,000
68
Chapter 10: Loans and Receivables
Question No. 2 Allowancef ord oubtfula ccts,b eg. Add: Doubtful accounts (P15,000,000 + P100,000) x 1% Total Less:Accountswrittenoff Allowance for doubtful accts, end 223,000 Question No. 3 UnadjustedNetSales Add:Sales,FOBshippingpoint TotalSales Multiply by: rate Doubtful accounts
P 100,000 151,000 251,000 P 28,000 P
P15,000,000 100,000 P 15,100,000 1% 15 1,000
P
Question No. 4 No effect . The audit adjustmen ts did not result to any changes to inventory account. Question No. 5 Sales, FOB shipping point SUMMARY OF ANSWER S: 1. D 2. A 3.
100,000 D
4.
D
PROBLEM 10-31 Question No. 1 Accountsreceivablef actored Less: Service charge (400,000x 5%) Receivable from factor (400,000 x 20%) Customers’ credit balance
5.
P
A
P 400,000 20,000 80,000
Question No. 2 Principal Add: Interest over full credit period (300,000 x 12% x 6/12) Maturity value Less:D iscount(318,000x1 2%x3 /12) Net proceeds from discounting 306,075 Question No. 3 Maturity value of the notes (see item in No. 2) Add:Protest fee Total cash paid/Amount to be debited to AR Question No. 4 Notep ayable( 80% xP600,000) Less: Service fee (5% x P600,00) Cash received
450,000 69
100,000 P300,000 P 300,000 18,000 318,000 11,925 P
318,000 12,000 330,000 P 480,000 30,000 P
Chapter 10: Loans and Receivables
Question No. 5 TotalCash paid(see No.3) Add: Interest income (P330,000x 12% x2 /12) Cash received 336,600
330,000 6,600 P
Question No. 6 Accounts receivable-unassigned (2,000,000-3000,000-400,000-600,000) Add:Accountsreceivableassigned Total Less: Less: Allowance for doubtful accounts (1,300,000 x 5%) Net realizable value
P 700,000 600,000 1,300,000 65,000 P1,235,000
SUMMARY OF ANSWER S: 1. B 2. C 3.
A
4.
B
D
5.
6.
D
PROBLEM 10-32 Question Nos. 1 to 3 Total Unadjusted Balance, 12/31/2016 Adjustments: WriteOff Unrecordedsale
60 days and below
61 to 90 days
1,000,000
5 00,000
1,900,000 (40,000) 50,000
NSF Check shipment – 20,000 In transit FOB Destination (45,000) Consignment (45,000) Erroneous unit price (7,500) Adjusted balance, 12/31/2016 1,832,500 PercentageofU ncollectibility Required allowance, 12/31/2016 108,825
Over 90 days 4 00,000 (40,000) 50,000
20,000 (45,000) (45,000) (7,500) 49 2,500 5%
930,000 4% 37,200
24,625
410,000 10% 41,000
Question No. 4 Allowance for Dou btful accounts Write off Balance end (required)
40,000 100,000 Beg. Balance 102,825 - Recoveries
42,825 Total
142,825 142,825 70
Doubtful account expense (squeeze)
Chapter 10: Loans and Receivables
Item 1
Accounts Allowancef orb ad debts Accountsreceivable
Debit 40,000
Accountsreceivable Sales
50,000
3
Accountsreceivable Cash inbank
20,000
4
Sales Accountsreceivable
45,000
Sales Accountsreceivable
45,000
Sales Accountsreceivable
7,500
2
5 6
SUMMARY OF ANSWER S: 1. C 2. D 3.
Credit 40,000 50,000 20,000 45,000 45,000 7,500
D
D
4.
C
5.
PROBLEM 10-33 Question Nos. 1 and 3 Adjusting entries for Accounts receivable Item Accounts 1 Accountsreceivable Allowance for doubtful accounts
Debit 20,000
20,000
2
Salesdiscount Accountsreceivable
16 00
3
Accountsreceivable Allowance for doubtful accounts
120,000
Accountsreceivable Allowance for doubtful accounts
30,000
4
Credit
16,000
Miscellaneous income Accountsreceivable
120,000 30,000 30,000 30,000
Accounts receivable Beg. Balance (20,000+200,000) Sales Recoveries
220,000
4,000,000 30,000
71
2,720,000
Balance end
30,00 Recoveries *1,500,000 Collections, gross of discount
Chapter 10: Loans and Receivables
Total
4,250,000
4,250,000
*Collections from customers excludin g recoveries Collections withoutdiscount Add:Collections withd iscount Cash discount availed (784,000/98% x 2%) Total collections excluding recoveries
700,000 784,000 16,000 P 1,500,000
Allowance for Doubtful accoun ts 20,000 Beg. Balance 30,000 Recoveries 120,000 Doubtful account expense
Balancee nd
170,000
Total
170,000 170,000
Accounts receivable 2,720,000 Less: Allowance for bad debts 170,000 Net realizable value 2,55P0,000
Question N os. 2, 4 and 5 Adjusting entries for Loans receivable Item Accounts Debit 1 LoanR eceivable 400,000 Interestincome 2
Unearned interest income Interestincome
45,382 4,000,000 11,520 (300,000) 3,711,520
Amortization table at 12% Effective Rate Interest Date Collections Income 01/01/2015 12/31/2015 400,000 445,382 12/31/2016 400,000 450,828 12/31/2017 400,000 456,928 400,000 400,000
SUMMARY OF ANSWER S: 1. B 2. C 3.
D
400,000
45,382
Principal Direct origination cost incurred Direct origination fees received Initial carrying amount
12/31/2018 12/31/2019
Credit
463,759 471,410 4.
D 72
45,382 50,828 56,928
Carrying amount 3,711,520 3,756,902 3,807,731 3,864,658
63,759 71,583
3,928,417 4,000,000
Amortization
5.
A
Chapter 10: Loans and Receivables
PROBLEM 10-34 Question No. 1 Unrecorded gain on sale of machinery – 2015 (see below) 90,183 Unrecorded interest income – receivable from sale of machinery (240,183 x12%) 28,822 Unrecorded accrued interest – receivable from sale of plant (1,500,000x 12%x9/12) 135,000 Net adjustment to R/E – 01/01/16 (B) 254,005 Cash consideration Add: Present value of future cash flows (2.4018 x 100,000) Totalsellingprice Less: Carrying value of machine (800,000 – 450,000) Gain on sale of machine
200,000 240,183 440,183 350,000 90,183
Amortization table (receivable from s ale of machinery): Interest Carrying Date Collections Income Amortization amount 01/01/2015 240,183 12/31/2015 100,000 28,822 71,178 169,005 12/31/2016 100,000 20,281 79,719 89,286 12/31/2017 100,000 10,714 89,286 Question No. 2 Interest income from note receivable: Saleofmachinery( 169,005x1 2%) Sale of plant [(1,500,000 x 12% 3/12) + (1M x 12% x 9/12) Sale of equipment (170,750 x 10% x 9/12) Total interest income (C) 168,087 Question No. 3 Current portion of note receivable fr om: Sale of machinery (see amortization table above) Sale of plant Total current portion (B)
20,281 135,000 12,806
89,286 500,000 589,286
Question No. 4 Non-current portion of note receivable from: Sale of plant Sale of equipment( 170,750 + 12,806) Total non-current portion ( D)
500,000 183,556 683,556 73
Chapter 10: Loans and Receivables
Question No. 5 Interestincomefroms aleofmachine Interest income from sale of plant (180,000 – 135,000) Interest income froms ale of equipment Net overs tatement of income ( D) SUMMARY OF ANSWER S: 1. B 2. C 3.
B
4.
D
74
5.
D
20,281 (45,000) 12,806
(11,912)
Chapter 12: Inventories
CHAPTER 12: INVENTORIES PROBLEM 12-1 Cost of Purchase
Purchasep rice basedo n vendors’ invoices 1,250,000 Brokerage commission paid to agents for arranging imports 50,000 Import duties 100,000 Freightandinsuranceonpurchases 250,000 Otherh andling costs relatingt oimports 25,000 Total cost of purchase (B) P1,675,000 Note that the trade discount was already deducted in arriving at the vendor’s invoice.
PROBLEM 12-2 Inventoriable Cost Materials Irrecoverablepurchasetaxes Labor Variableproduction overhead Fixedproduction costs Cartage in Total
350,000 30,000 120,000 50,000 40,000 8,000 (C )
PROBLEM 12-3 Rebates Question No. 1 Invoice price ( o VAT is charged on these goods) Less: Rebate offered to the entity by the supplier Inventoriable cost (B) Question No. 2 Inventoriable cost
10,000
(C)
PROBLEM 12-4 FREIGHT TERMS & FOREIGN EXCHANGE Question No . 1 Free o n Board Cost of inventory ($100,000 x ForEx loss ( -
(A)
187,500
Qu esof tion No. 2 Co st, Insuraxnce and Freight Cost inventory ($100,000 ForEx loss ( (D)
125,000
75
Chapter 12: Inventories
PROBLEM 12-5 MANUFACTURING COST Question No. 1 Variable cost: Direct labor ( Directmaterials( Fixed Cost ( Total cost
/ 100,000 normal capacity) x 100,000 actual (C)
200,000 100,000
Question No. 2 Variable cost:
Directlabor( 120,000units) Direct materials ( 2 excluding VAT x 120,000 units) Fixed Cost ( Total cost (C) Question No. 3 Variable cost: Direct labor ( Directmaterials( Fixed Cost ( Total cost
(D)
PROBLEM 12-6 Items to b e Included in th e Inventory 1 Items in the warehouse during the count 2 Items out on consignment at another company's store
4 5
7 10 14 15 17 18 19 20
1,080,000 200,000 100,000 420,000
160,000 80,000 960,000
P1,090,000 70,000
Items purchased FOB shipping point that are in transit at December 31 500,000 Freight charges on goods purchased above 13,000 Items sold to another company, for which our company has signed an agreement to repurchase at a set price that covers all costs related to the invent ory. Total cost of merchandiseis 200,000 Items sold FOB destination that are in transit at December 31, at cost 75,000 Items currently being used for window display 100,000 Itemsoncounterfor sale 400,000 Items included in the count, damaged and unsalable (150,000) Items in receiving dept., returned by customer, in good condition( not includedi nt hec ount) 50,000 Merchandise inventories out on approval, at cost 100,000 Finished special article goods, made to order (included in the count) (78,000) Total (A) P2,370,000
76
Chapter 12: Inventories
The following items would not be reported as inventory: 3 Cost of goods sold in the income statement 6 Not reported int he financial statements 8 Cost of goods sold in the income statement 9 Cost of goods sold in the income statement 11 A dvertising exp. In the income statement 12 Not reported in the financial statements 13 Temporary investments in the current assets section oft he balance sheet 16 N ot reported in the financial statements 21
40,000 300,000 30,000 50,000 10,000 100,000 125,000 360,000
Office supplies in thesheet current asset section ofthebalance
40,000
PROBLEM 12-7 Accounts Payable
Unadjustedbalance Goods acquired in transit, FOB shipping point Goodslost intransit Adjusted Accounts Payable (A)
1,800,000 100,000 50,000 P 1, 95 0, 000
The journal entry on item 2 would include the following: Purchases/Inventory 50,000 AccountsPayable
50,000
To record the purchase on December 20.
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventor y? Answer: No, since the inventories were lost in transit and it is improper to report inventories that is not existing (i.e. it violates the existence assertion). Thus the journal entry at December 31 if no claim was filed and the common carrier has yet to acknowledge the claim may include a: Loss on goods lost in transit (preferably presented as
50,000
other expense and not as cost of goods sold)
Inventory /Purchases
50,000
And on the next year (January 5), when the claim was filed and acknowledged by the common carrier, the journal entry will be: Claimsfromc ommonc arrier 50,000 Gaino n reimbursement of lost inventory 50,000 To record the claim against common carrier on January 5.
77
Chapter 12: Inventories
PROBLEM 12-8 Consigned Goods
Inventory shipped on consignment to Lomasoc FreightbyDesireetoLomasoc Total Inventoriable cost (D)
360,000 18,000 P 378,000
PROBLEM 12-9 Gross method vs. Net method CASE NO 1: Gross method Accounts
Date
Debit
01/02
Purchases (100,000 x [1-20%]) Accountspayable
01/12
Accountspayable Cash (80,000x[1-98%]) Purchase discount
80,000
Accountspayable Cash
80,000
01/14
Date 01/02
80,000
Credit
80,000 78,400 1,600 80,000
CASE NO 2: Net method Accounts Debit Credit Purchases (100,000 x [1-20%] x[1-2%]) 78,400 Accountspayable 78,400
01/12Accountspayable
78,400
Cash (80,000x[1-98%]) 01/14Accountspayable Purchased iscountlost Cash
78,400 78,400 1,600 80,000
SUMMARY OF ANSWERS: CASE NO. 1 1. B 2. C 3. D 4. A
CASE NO. 2 5. C 6. C 7. A 8. D
PROBLEM 12-10 Cost Formulas - Diffe rent Methods Question No s. 1 and 2 Weighted average Weighted average = unit cost
Weightedaverage
Total goods available for sale (in peso value) Total goods available for sale (in units)
=
1,105,000 78
Chapter 12: Inventories
unit cost
85,000
Weighted average unit cost = P13/unit Inventoryend(40,000x13) = P520,000 Cost of goods sold (20,000+5,000+21,000–1,000) x 13 = P585,000
(C) (C)
Question N os. 3 and 4 Moving average Units
April1 balance Apr. 2 Balance Apr. 4 Balance Apr. 10 Balance Apr. 15 Balance Apr. 17 Apr. 28 Apr.2 8
Purchase Sale Purchase Sales Salesreturn Balance Purchase Balance
Unit cost
20,000 30,000 50,000 (25,000) 25,000 15,000 40,000 (21,000) 19,000 1,000 20,000 20,000 40,000
10 12 11 11 11 14 12 12 12 12
200,000 360,000 560,000 (280,000) 280,000 210,000 490,000 (257,250) 232,750 12,250 245,000 335,000
16.75 15
Inventory end Cost of goods sold (280,000 + 257,250 – 12,250)
Total cost
580,000
=
P580,000 = P525,000
(A) (A)
Question N os. 5 and 6 FIFO April 1balance Apr.2 Apr. 4 (25,000 units sold) Balance from Apr. 2 Apr.10 Apr. 15 (21,000 units sold) Balance from April 2 Balance from April 10 Apr.17 Balance Balance from April 2 Balance from April 10 Apr.28 Total
Units
Purchase From Apr. 1 FromApr.2 Purchase From Apr. 2
Salesreturn
Purchase Balance
Unit cost
Total cost
20,000 30,000 (20,000) (5,000) 25,000 15,000 (21,000) 4,000 15,000 1,000
10 1 2 10 12 12 14 12 12 14 12
200,000 360,000 (200,000) (60,000) 300,000 210,000 (252,000) 48,000 210,000 12,000
5,000 15,000 20,000 40,000
12 14 17
60,000 210,000 335,000 605,000
Inventory end = P605,000 Cost of goods sold (200,000 + 60,000 + 252,000 – 12,000) = P500,000
(B) (B)
Question N os. 7 and 8 Note that inventory and cost of goods sold under FIFO periodic and perpetual is the same. 79
Chapter 12: Inventories
SUMMARY OF ANSWERS: 1. C 2. C 3. A
4.
5.
A
6.
B
B
7. B
8. B
PROBLEM 12-11 Lower of Cost or Net Realizable Value Question No. 1 Raw Mater ials Supply of steel (used for motorbikes) Cost Moreprofitable( asis)
Write-down 40,000 25,000
Supply of aluminum (used for bicycles) Cost More profitable (completed product) Total write-down
60,000 50,000 (C)
Question No. 2 Work-in- process Incompletemotorbikes Cost More profitable (completed product)
15,000
10,000 5,000
Write-down 30,000 25,000
Incomplete bicycles Cost Moreprofitable (asis) Total write-down
50,000 60,000 (D)
5,000
5,000
Question No. 3 Finished goods
Motorbikes Cost More profi able (completed product)
0,000 60 000
Bicycles Cost More profitable (completed product) Total write-down
80,000 110,000 (C)
Question No. 4 Adju sted COGS Cost of goods sold before write-down Add: Write-down Raw materials Work-in-process Finished goods Adjusted cost of goods sold
Write-down 20,000
,000
25,000 5,000 20,000 (C)
PROBLEM 12-12 Purchase Commitment CASE NO. 1 Date
Accounts 80
Debit
Credit
Chapter 12: Inventories
11/15
No entry
12/31
Loss on purchase commitment (20,000 x [25-20]) Estimated liability for purchase commitment
03/15
Purchases(25,000x2 5) Estimated liability for purchase commitment Accountspayable/Cash Gainonp urchasecommitment
100,000 100,000 500,000 100,000 500,000 100,000
CASE NO. 2 Date
Accounts
11/15 12/31
No entry No entry
03/15
Purchases(25,000x2 5) Accountspayable/Cash
Debit
Credit
500,000 500,000
PROBLEM 12-15 Purchase Commitment Date
Accounts
Debit
3/31
No entry
12/31
Loss on purchase commitment (1,200,000-1,000,000) Estimated liability for purchase commitment
04/30 Purchases Estimated liability for purchase commitment Accountspayable/Cash
Credit
200,000 200,000 1,200,000 200,000 1,200,000
Gainonpurchasec ommitment
200,000
SUMMARY OF ANSWERS: 1. B 2. A
PROBLEM 12-13 Inventory Estimation - Gross Profit Rate Method
Sales Less: Salesreturns Net Sales excluding Sales discount Multiplyb y:C ost ratio (1-30%) Cost of Goodssold
3,400,000 (30,000) 3,370,000 70% 2,359,000
Inventory,January 1 Add: Net Purchases
650,000
Purchases Add:Freight-in Less: Purchaser eturns TotalGoodsavailableforsale Less: Cost ofgoodssold
2,300,000 60,000 (80,000)
81
2,280,000 2,930,000 (2,359,000)
Chapter 12: Inventories
Merchandise inventory that should be on hand Less: Actual merchandise inventory on hand Cost of Missing inventory (A)
571,000 (420,000) 151,000
PROBLEM 12-14 Inve ntory Estimation: Average Method - Retail Method
Computation of cost ratio: Cost Retail 250,000 375,000 1,325,000 1,750,000 200,000 (75,000) 1,575,000 2,250,000
Inventorya t January 1 Purchases Netmarkups Netmarkdowns Totals Cost ratio (1,575,000 / 2,250,000) = 70%
Computation of Inventory end at retail Balance up to markdowns (see above computation) 2,250,000 Less:Sales 1,500,000 Estimated normal shrinkage (1,500,000 x 5%) 75,000 Estimated normal shoplifting losses 50,000 Inventoryendat retail P 625,000 Computation of Cost of goods sold Total goods available for sale at cost Less: Inventory end at cost (625,000 x 70%) Cost of Sales
(B)
1,575,000 437,500 1,137,500
PROBLEM 12-15 Inventory Estimation: FIFO Method - Retail Method
Computation of cost ratio: Cost 292,500 292,500
Purchases Net markups Netmarkdowns Totals
Retail 400,000 75,000 (25,000) 450,000
Cost ratio (292,500 / 450,000) = 65% Computation of Inventory end at retail Balance up to markdowns (see above computation) 450,000 Add:Inventorybeginning 100,000 Less:Sales 375,000 Inventoryendat retail P 175,000 Multiply: Costratio 65% Inventory end at cost (A) P113,750 82
Chapter 12: Inventories
PROBLEM 12-16
PROBLEM 12-17 Question No. 1 A EI over (P129-P119)x 4,000 B EI under C EI over Overstatement of ending inventory
40,000 (70,000) 100,000 70,000
Question No. 2 D. Ending inventory understated
(140,000)
(C) (B)
Question N os. 3 and 4
A. B. C. D.
2015 2016 1,000,000 1,200,000 (40,000) 40,000 70,000 (70,000) (100,000) 100,000 140,000 930,000 1,410,000 (A) (C)
Unadjustedbalance EI over, NI over (P129-P119) x 4,000 EI under,NIunder EI over, NI over EI under,NIunder Adjusted balances
Question No. 5 Unadjusted net income (1,000,000+1,200,000)
2,200,000
Less: Adjusted net income (930,000+1,410,000) Net adjustment to income-understated SUMMARY OF ANSWERS: 1. C 2. B 3.
A
4.
C
5.
2,340,000 (D) (140,000) D
PROBLEM 12-18 Question No s. 1 and 2
Balances priort o adjustment Add: Goods in transit sold, FOB destination Less:unrecorded sale Less:unrecordedp urchasereturns
Ledger Balance P3 14,800 3,200 ( 8,400) ( 6,000)
Physical Count P 293,600 3,200 -
Less: goodsheldonc onsignment Add:unrecorded purchase 3,640-- ( 8,800)Add: Goods in transit purchased, FOB shipping point 1,600 Add:Goodsoutonconsignment 14,800 Adjusted balances P 307,240 P 304,400 83
Chapter 12: Inventories
(A) Question No. 3 Adjusted balances, perl edger Adjusted balances, physical count Inventory shortage SUMMARY OF ANSWERS: 1. A 2. C 3.
P
(C)
P 307,240 304,400 2 , 84 0 (B)
B
PROBLEM 12-19 Note to the professor: Use the following guide questions in answering this question: 1. Accounts Payable and related accounts Was there a valid purchase? Was the purchase recorded? Were the inventories INCLUDED in the count? 2. Accounts Receivable and related accounts Was there a valid sale? Was the sale recorded? Were the inventories EXCLUDED in the count? SOLUTION: Ending Inventory
679 680 681 682
683 684 685 686 310 311
312
313
314 315 316
Unadjusted balances
Purch over, COS over, NI under EI over, COS under, NI over EI ov er, COS un der, NI over Purchunder, NI over No, No, No No, No, No Yes, Yes, Yes Sales over, NI over EI under, NI under (560 x 70%) Sales over, NI over EI under, NI under (31,940 x 70%) Sales over, NI over EI under, NI under (6,350 x 70%) Sales over, NI over No, No, No No, No, No
550,000
Sales
1 ,000,000
Purchases
600,000
AP
Net Income
450,000
120,000
(46,740) (46,740) (46,740)
(46,740) 46,740
(4,500) 1,060
(560) 392
1,060
(4,500) (1,060)
(560)
(31,940)
392 (31,940)
(6,350)
22,358 (6,350)
(1,930)
4,445 (1,930)
22,358
4,445
84
Chapter 12: Inventories 317 318
No,No , No Net adjustment Adjusted balances
(24,045) (40,780) 525,955 959,220 (A) (A)
SUMMARY OF ANSWERS: 1. A 2. A 3.
A
4.
(45,680) (45,680) 554,320 404,320 (A) (A)
5.
A
(19,145) 100,855 (D)
D
PROBLEM 12-20 Ending inventory
Unadjusted balance P220,000 A B (10,000) C 50,000 D 14,000 E ( 24,000) Adjusted P 250,000
Accounts receivable
Accounts payable
P104,000
P138,000 (20,000) (10,000)
Sales
Neti ncome
P 1,010,000
P180,400 20,000
(64,000) (16,000) P24,000 (C)
(A)
SUMMARY OF ANSWERS: 1. A 2. C 3.
D
4.
(64,000) (16,000) P108,000 (D)
D
5.
(14,000) (2,000) ( 24,000)
P930,000 (D)
P160,400 (A)
A
PROBLEM 12-21 Inventory
Unad usted balances A B C D E F G H I J Adjusted b alan ce s
250,000 35,000 4,000 (25,000) 10,000 34,000 60,000 3 68 , 00 0
Accounts payable
400,000 4,000 60,000
Accounts Re ce iv ab le
1,000,000 4,000,000 40,000 40,000 (30,000) (30,000) ( 68,000) (68,000) (10,000) (10,000) (90,000) -
4 64 , 00 0
SUMMARY OF ANSWERS: 1. C 2. C 3.
A
932 ,000
4.
A
PROBLEM 12-22 Questions No. 1 to 5 85
Net Pu r chase s
Ne t Sa le s
2,500,000 4,000
D
600,000
35,000
15,000 10,000 (30,000) (34,000) (10,000) (90,000) 60,000 -
3 , 8 42 ,0 0 0
5.
N etin c o me
2 , 5 64 ,0 0 0
6.
D
4 96 , 00 0
Chapter 12: Inventories
R /E
2016 Purchases under, CGS under, NI over, RE over 2017 Purchases over, CGS over 2016 EI under, NI under, RE under 2017 BI under, CGS under Salesunder Purchasesu nder,C GSu nder EIunder, CGSover Purchases under,C GS under EIunder, CGSover
Sales
EI
A /P
CGS
36,000 36,000 (32,000) (32,000) (20,000) (24,000) (8,000) (4,000) (4,000)
Total
4,000
(20,000)
(12,000)
(28,000)
(24,000) 8,000 (4,000) 4,000 (12,000)
Legend: BI - Beginning inventory EI - Ending inventory NI - Net Income CGS - Cost of goods sold RE - Retained earnings – 12/31/2016 or 01/01/2017 4,000 – overstated (4,000) – understated Note: The effect of errors on December 2016 and January 2017 has no effect on the ending balance of the accounts payable on December 31, 2017 since the payable is expected to be settled before the end of the year. SUMMARY OF ANSWERS: 1. C 2. B 3.
B
4.
D
5.
C
PROBLEM 12-23 Question No. 1 Sales (475,000/80%) Less:Cost ofsales Grossprofit
P593,750 475,000 118,750
100% 80% 20%
Inventory (in units)
Beg. Balance (60,000/P3) Purchases Total
20,000
100,000
25,000
Balance end (squeeze) or (125,000/5) 95,000 Cost of sales (475,000/5)
120,000 120,000 Inventory (in peso amount)
Beg. Balance (squeeze) Purchases
60,000 540,000 86
125,000 Balance end (squeeze) 475,000 Costo fs ales
Chapter 12: Inventories
Total
600,000
600,000
Weighted average unit cost = TGAS (peso) / TGAS (units) Weighted average unit cost (P600,000/120,000) = P5/unit SUMMARY OF ANSWERS: 1. A 2. A 3.
B
4.
A
5.
B
PROBLEM 12-24 Question No. 1 The cumulative effect on change in accounting policy on January 1, 2016 or December 31, 2015 Retained Earnings is understatement of 100,000, which is the understatement of Ending Inventory on December 31, 2015. (B) Question No. 2 Netincome– weightedaverage Beginning inventory under, CGS under, Net income over Ending inventory under, CGS over, Net income under Adjusted net income – FIFO Question No. 3 Computation of units sold: Beginninginventory–units Add:Total purchases–units Totalgoodsavailablef ors ale–units Less: Units sold (P6,400,000 / P80/unit) Ending inventory inunits
(B)
P3,250,000 (150,000) 100,000 P3,200,000
10,000 100,000 110,000 80,000 30,000
The 30,000 ending inventory comes from the last two purchases as follows: Units Unit cost Total cost From 4th quarterpurchases 10,000 68 680,000 From 3rd quarter purchases 20,000 66 1,320,000 Total 30,000 (B) 2,000,000 Question No. 4 Cost (refer tono.3) Net realizable value [(P70 – P5) x 30,000] Loss on inventory write-down Question No. 5 Beginninginventory–FIFO Add: Net Purchases (P6,480,000 – 980,000) Totalgoodsavailablef ors ale Less: Ending inventory at cost (see no. 3) 87
(B)
2,000,000 1,950,000 50,000
500,000 5,500,000 6,100,000 2,000,000
Chapter 12: Inventories
Cost of goodssoldat cost Add: Loss on inventory write-down (see no. 4) Cost of goods sold afte r inventory write-down SUMMARY OF ANSWERS: 1. B 2. B 3.
B
4.
B
(A)
5.
4,100,000 50,000 4, 150,000
A
PROBLEM 12-25 Question No. 1 (10,500 - 1,000 + 3,000) = 12,000 units No. of units 3,000 2,000 4,000 3,000 12,000
Unit cost Total 14 P 42,000 13 26,000 15 60,000 16 48,000 P 176,000 (A)
Question No. 2 (4,500+700+600)=5,800 units No. of units 1,800 1,800 1,200
Unit cost 19 20 21
1,000 5,800
22
Total P 34,200 36,000 25,200
22,000 P 117,400 (A)
Question No. 3 T-shirts: Net realizable value (12,000 x (P16-(10% x P16)) Jackets: (5,800 x (P22-(10%xP22) Lower of cost or NRV
NRV Cost Lower P172,800 P176,000 P 172,800
114,840 117,400 P287,640 P 293,400
Question No. 4 Totalcost (seeno. 3) Less: Lower ofc ost or NRV( see no. 3) Loss on inventory write-down (B)
114,840 P287,640
P 293,400 287,640 P 5, 760
Question No. 5
Beginning inventories: T-shirts(9,000xP11) Jackets(5,000xP15) Add:*Total purchases (299,500 + 183,900) Totalgoodsavailablef ors ale 88
P 99,000 75,000
P 174,000 483,400 P 657,400
Chapter 12: Inventories
Less: Merchandise inventory atc ost Cost of sales before inventory write-down Add: Lossoninventory write-down Cost of sales after inventory write-down (B) *T-shirts 4,000 3,000 2,500 3,500 2,000
4,000 3,000 22,000 Jackets 900 1,100 1,500 2,000 1,800 1,200 1,000 9,500
P12 12 13 14 13 15 16
P 48,000 36,000 32,500 49,000 26,000 60,000 48,000 P 299,500
P16 18 19 19 20 21 22
P 14,400 19,800 28,500 38,000 36,000 25,200 22,000 P1 83,900
293,400 P 364,000 5,760 P369,760
SUMMARY OF ANSWERS:
1.
A
2.
A
3.
A
4.
5.
B
B
PROBLEM 12-26
This T-Account of Raw Materials will be the same under the three different cases: Raw Materials Beginning balance Net Purchases
600,000 2,200,000
1,200,000 B alance end 1,600,000 Direct materials used
Total
2,800,000
2,800,000
CASE NO. 1 Question No. 1 GP Rate: Gross Profit Divide by: Sales GrossProfit Rate
2013 2,000,000 1,700,000 0. 15
89
2014 3,500,000 2,800,000 0.20
2015 2016 4,000,000 3,000,000 0.25 0.30
Chapter 12: Inventories
The trend of gross profit for the past three years increases by 5% each year; thus, if the trend continues, the gross profit for 2016 will be 30%. The cost ratio then would be 70% (100% - 30%). Therefore, the cost of goods sold is computed as follows: Sales Multiplyb y:C ostRatio Cost of goods sold
6,000,000 0.70 4,200,000 (B)
Question No. 2 Finished Goods
Beginning balance Cost of goods manufactured
2,800,000
2,000,000 Balance end 4,200,000 Cost of goods sold
Total
6,200,000
Beginning balance Direct materials used Direct labor Factory overhead
2,000,000 1,600,000 1,600,000 800,000
Balance end Cost of goods 3,400,000 manufactured
Total
6,000,000
6,000,000
3,400,000 6,200,000
Work in Process 2,600,000
Computation of factory overhead: Directlaborcost Multiply by: Predetermined rate Factory overhead
(A)
1,600,000 50% 800,000 CASE NO. 2:
Question No. 3 GP Rate: GrossProfit Divide by: Sales GrossProfit Rate
2013 340,000 2,000,000 0.17
2014 630,000 3,500,000 0 . 18
2015 2016 1,000,000 4,000,000 0.25 0.20
The GP rate in 2016 is computed as follows: 16% + 18% + 25% Gross Profit Rate = 3 = 20% The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods sold is computed as follows: Sales 6,000,000 Multiplyb y:C ostRatio 0.80 Cost of goods sold 4,800,000 (B) 90
Chapter 12: Inventories
Question No. 4 Finished Goods
Beginning balance Cost of goods manufactured
2,800,000
Total
6,800,000
2,000,000 Balance end 4,800,000 Cost of goods sold
4,000,000 6,800,000
Work in Process
Beginning balance Direct materials used Direct labor Factory overhead
2,000,000 1,600,000 1,600,000 800,000
Balance end Cost of goods 4,000,000 manufactured
Total
6,000,000
6,000,000
2,000,000
(A)
CASE NO. 3: Question No. 5 The gross profit for 2016 is computed based on the overall gross profit for 2014 and 2015: 800,000 + 1,000,000 Gross Profit Rate = 3,500,000 + 4,000,000 1,800,000 = 7,500,000 Gross Profit Rate = 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods sold is computed as follows: Sales Multiplyb y:C ostRatio Cost of goods sold
6,000,000 0.76 4,560,000 (A)
Question No. 6 Finished Goods
Beginning balance Cost of goods manufactured
2,800,000
Total
6,560,000
2,000,000 Balance end 4,560,000 Cost of goods sold
3,760,000 6,560,000
Work in Process
Beginning balance Direct materials used Direct labor Factory overhead
2,000,000 1,600,000 1,600,000 800,000
2,240,000 Cost Balanofcegoods end 3,760,000 manufactured
Total
6,000,000
6,000,000 91
(A)
Chapter 12: Inventories
SUMMARY OF ANSWERS: 1. B 2. A 3.
4.
B
A
5.
A
6.
A
PROBLEM 12-27 Question No. 1 Accounts payable
Balancee nd
250,000
555,000 Beg. Balance
Purchase ret. and allow. Purchase discounts Payments to supplier (squeeze)
70,000 80,000 3,000,000 100,000 3,255,000
Total
3,655,000 3,655,000
Purchases Freight-in
Question No. 2 Direct materials inventor y
Beg. Balance Net purchases
200,000 2,950,000
320,000 Balancee nd 2,830,000 Direct materials used
Total
3,150,000
3,150,000
Purchases Add:Freight-in
3,000,000 100,000
GrossPurchase Purchasesreturns and allow Less: Purchasediscounts NetPurchases
3,100,000 70,000 80,000 2,950,000
Question No. 3 Work in process
Beg. Balance Direct materials used Directlabor Factoryo verhead
250,000 2,950,000 900,000 675,000
280,000 Balancee nd 4,375,000 Cost of goods manufactured
Total
4,655,000
4,655,000
Question No. 4 Sales
P5,100,000 120%
Less: Cost of sales (5,000,000/120%) Grossprofit
4,250,000 100% 850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount does not constitute actual return of merchandise. 92
Chapter 12: Inventories
Question No. 5 Finished goods
Beg. Balance Cost of goods manufactured
400,000 4,375,000
525,000 Balancee nd 4,250,000 Cost of goods sold
Total
4,775,000 4,775,000
Estimated finished goods Less: Cost of goods out on consignment
525,000 20,000
Salvage Inventory firevalue loss
10,000 495,000
Question No. 6 Cost of goods sold (80% x P5,100,000)
= P4,080,000
Question No. 7 Sales (5,100,000-100,000) Less: Cost of sales (80% x P5,100,000) Grossprofit
P5,000,000 100% 4,080,000 80% 1,000,000 20%
Finished goods
Beg. Balance Cost of goods manufactured
400,000 4,375,000
695,000 Balancee nd 4,080,000 Cost of goods sold
Total
4,775,000 4,775,000
Estimated finished goods Less: Cost of goods out on consignment Salvagevalue Inventory fire loss SUMMARY OF ANSWERS: 1. A 2. A 3. A
4.
B
695,000 20,000 10,000 665,000
5.
B
6.
A
7.
A
PROBLEM 12-28 Question No. 1 Accountspayable,March3 1
2,370,000
Less: TotalPaymentinApril Accounts payable for April Purchases Totalpurchases Less:PaymentinA pril
300,000 2,070,000 600,000 200,000 93
400,000
Chapter 12: Inventories
Total
2,470,000
(B)
Question No. 2 Purchases,a s of March3 1 Add:PurchasesinApril Grosspurchases Less:Purchasereturns Net purchases
4,200,000 600,000 4,800,000 12,000 4,788,000
(B)
Question No. 3
Beg. Balance Sales on account Recoveries
Accounts receivable 2,700,000 3,000,000 Bal. end Collections including 1,488,000 938,000 recoveries 0 250,000 Writeoff 0 Sales returns 4,188,000 4,188,000
Net Sales SalesasofMarch3 1 AprilSales Less: Sales return Net Sales
9,040,000 1,488,000 100,000 (C)
1,388,000 10,428,000
Question No. 4
NetSales Multiply by:Costratio Cost of Sales
10,428,000 60% 6,256,800
(C)
Costo f Sales Divide by: Gross Profit
9,000,000 10,500,000 9,000,000 4,500,000 50.000% 30.000%
Average gross profit = (50%+30%)/2 = 40% Cost ratio = 100% - 40% = 60% Question No. 5 Estimatedinventory Less:Shipment int ransit Undamaged goods at cost Salvagevalue
Inventory fire loss SUMMARY OF ANSWERS: 1 . B 2 . B 3. C 4.
3,031,200 40,000 120,000 25,000 2,846,200
(C)
C
5.
C 94
Chapter 12: Inventories
PROBLEM 12-29 Questions No. 1 and 2 Purchases ending 11m os 12m os 2,700,000 3,200,000 30,000 (4,000) (6,000) (8,000) (8,000) (22,000) -
Unadjustedbalance Shipment in Nov. included in December purchases Unsalables hipmentsreceived Deposits in October shipped February Depositsmadev endorinNovember Adjustedbalance
2,696,000 1.( D)
2,186,000 2.( D)
Question No. 3 Beginning inventory – January 1, 2015 350,000 Add: Purchases for 11 months (see No. 1) 2,696,000 Less: Ending inventory – Nov. 30, 2015 (360,000358,000 22,000 + 20,000) Cost of sales 2,688,000 (A)
Cost ratio (5,736,000 / 6,720,000) = 80% Question No. 4 Sales endingD ecember 31, 2015 Less: Sales ending Nov. 30, 2015 (3.4M-40,000)
SalesSales –December Less: at cost 2015 Sales in December 2015 made at a profit Multiply: Cost ratio (2,688,000 / 3,360,000) Cost ofs alesmadeat profit Add:Costo fs alesmadea tc ost Total Cost of Sales -December
3,840,000 3,360,000 480,000 40,000 440,000 80% 352,000 40,000 392,000 (A)
Question No. 5 Beginning inventory – Nov. 30, 2015 358,000 Add: Purchases for December (3,186,000 – 2,696,000) 490,000 Less:Costo fSales–December 392,000 Ending inventory – December 31, 2015 456,000 (A) SUMMARY OF ANSWERS: 1. D 2. D 3. A 4. A
5.
A
PROBLEM 12-30 Cost 300,000
Inventory,Jan1 95
Retail 1,200,000
Chapter 12: Inventories
Purchases Purchasereturns Purchase discounts Purchase allowance Freight-in Departmental Transfer-In Departmental Transfer-Out Totals
6,000,000 (400,000) (150,000) (50,000) 20,000 600,000 (560,000) 5,760,000
8,500,000 (800,000) 1,100,000 (1,334,000) 8,666,000
5,760,000
8,666,000 600,000 (50,000) 9,216,000 (316,000) 100,000 9,000,000
Basis of computation of cost ratios
Totals Markups Markupcancellations Basis of computation (conservative) Markdown Markdowncancellations Basis of computation (average)
5,760,000
5,760,000
Cost ratios: Conservative
Cost ratio Cost ratio
5,760,000 9,216,000 = 62,50% =
Average
Cost ratio Cost ratio
=
5,760,000 9,000,000 = 64%
FIFO
Cost ratio Cost ratio
5,760,000 – 300,000 9,000,000 – 1,200,000 = 70% =
Estimated ending inventory @ ret ail – for all methods TGAS @ retail under average method 9,000,000 Sales (7,000,000) Salereturns 700,000 NormalShrinkage (500,000) Estimated ending inventory @ retail 2,200,000 Question Nos. 1 to 6 Cost method Conservative (62.5%)
Ending inventory at cost (EI @ retail x cost ratio) P1 ,375,000 96
Cost of goods sold (TGAS @cost – EI @cost) 4,385,000
Chapter 12: Inventories
FIFO (70%) Average (64%)
1,540,000 1,408,000
SUMMARY OF ANSWERS: 1 . A 2 . B 3. B 4.
C
5.
4,220,000 4,352,000
C
6.
D
PROBLEM 12-31 Question No. 1 Subsidiary General Ledger Ledger Unadjustedbal. P 760,000 P 1,020,000 Undeliveredsales ( 100,000) Valid Sales 60,000 SalesFOBdestination ( 100,000) NSFcheck 50,000 50,000 Collectionbyt hebank ( 60,000) ( 60,000) Sales in 2015 recorded in 2016 DR No. 38740 3,360 3,360 Receivable ins. Co DR No. 38741 ( 10,080) ( 10,080) Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200) ( 19,200) Adjusted balance (D) P 784,080 P 784,080 Question No. 2 Current: UnadjustedbeginningBalance Add: ValidS ales in 2015 (60,000+ 3,360) Total Less:Receivablei ns Co(DR#3 8741) Sales in 2016 recorded in 2015 (DR # 38743) Current Accounts Receivable balance
97,500 63,360 160,860 10,080 19,200 131,580
Past Due: Adjusted Accounts Receivable balance (see no. 1) Less: Current Accounts Receivable balance Past due Accounts Receivable *or (662,500+50,000-60,000)
784,080 131,580 *652,500
Age classification
Total
Amount
Percentage
Current 131,580 Past due 652,500 Allowance for doubtful accounts
6 10 (A)
Question No. 3 Allowance for doubtful accounts, beginning Less:Accountswrittenoff Less: Allowance for doubtful accounts, ending 97
7,894.80 65,250.00 73, 144. 80 7,000.00 73,144.80
Chapter 12: Inventories
Doubtful accounts expense
(A)
66,144.80
Question No. 4 Unadjusted Merchandise Inventory, ending 316,000 Add: Cost of merchandise sold of DR # 38743(19,200/120%) 16,000 Doubtful accounts expense (B) 332, 000 Question No. 5 UnadjustedNetSalesbalance Undeliveredsales SalesFOBdestination
P3,000,000 ( 100,000) ( 100,000)
Sales in 2015 recorded in 2016D R No. 38740 Sales in 2016 recorded in 2015 DR No. 38743 Adjusted balance (B) SUMMARY OF ANSWERS: 1 . D 2 . A 3. A 4.
B
5.
3,360 ( 19,200) P2 ,784,160
B
PROBLEM 12-33
Unadj.
Adj.
Inventory 625,000 (77,500) (11,000) -
Accounts payable 500,000 (77,500) -
105,000 12,500 1,000 (2,650) 652,350
12,5001,000 (2,650) 433,350
SUMMARY OF ANSWERS: 1 . D 2 . B 3. B 4.
Accts. Net Net Receivable Net Sales Purchases income 500,000 4,500,000 1,607,500 1,086,000 - (77,500) - (11,000) 20,000 20,000 20,000 -520,000
B
5.
A
5.
D
5.
C
PROBLEM 12-34 SUMMARY OF ANSWERS: 1 . C 2 . A 3. A 4. PROBLEM 12-35 SUMMARY OF ANSWERS: 1 . C 2 . D 3. D 4.
B
PROBLEM 12-36 98
--
- 105,000 1 2,500 1,000 (2,650) 4,520,000 1,540,850 1,200,000
Chapter 12: Inventories
SUMMARY OF ANSWERS: 1 . A 2 . A 3. C 4.
C
5.
B
99
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT IN EQUITY SECURITIES PROBLEM 14-1 Financial Assets and Financial Liabilities FA NFA FL Accountspayable 450,000 Accounts receivable 300,000 Accruedinterestexpense 54,000 Accumulated depreciation (150,000) Advances customers Allowancefrom for bad debts Biologicalassets Bonds payable Cash and cash equivalents Cash dividendspayable Cash surrender value Claimsf ort axrefund Deferredtaxassets Deferredtaxliabilities Discountonbondspayable Finance leaseliability Income taxes payable Intangibleassets Interest receivable Investment in associate Investment in bonds Investment in equity instruments Investment in subsidiary Issued redeemable preference shares (with mandatoryredemption) Merchandisei nventories Notes receivable PHILHEALTH contributions payable Prepaid interest (not a valuation account to financial liability) Prepaidrent
(30,000)
Security deposit Sinkingfund SSScontributionspayable Stock appreciation rights payable (SARs Payable)
90,000 120,000
NFL
48,000 360,000 360,000
210,000 81,000 180,000 135,000 180,000 57,000 (45,000) 135,000 27,000 90,000 63,000 135,000 510,000 375,000 210,000
300,000 399,000 450,000 18,000
60,000 60,000
15,000 360,000 101
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Unearned interest on receivables Unearnedrentincome Utilitiespayable Warrantyobligations
15,000 24,000 750,000 2,673 (E)
1,074 (C)
2,445 (E)
39,000 243 (D)
Legend: FA – Financial Asset NFA – Non-Financial Asset FL – Financial Liabilities NFL – Non-Financial Liabilities SHE: Shareholders equity SUMMARY OF ANSWERS: 1. E 2. C 3.
E
4.
D
PROBLEM 14-2 Acquisition of Investment Journal entries are: 1) FVTPL 1/5/2017 Financial Asset at FVTPL Brokeragefee CommissionExpense Cash 1/10/2017 2/14/2017 2) FVTOCI 1/5/2017 1/10/2017 2/14/2017
Dividend receivable
1,000,000 20,000 5,000 1,025,000 20,000
Dividendincome Cash Dividendreceivable
20,000 20,000 20,000
Financial Asset at FVTOCI Cash Dividend receivable Dividendincome
1,025,000 1,025,000 20,000 20,000
Cash Dividendreceivable
20,000 20,000
The difference between FVTPL and FVTOCI is the treatment of transaction cost.
102
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-3 Basic Journal Entries- Acquisitions in Between Dates of Declaration and Record 1) Trading securities 1/5/2017 Financial Asset at FVTPL (Squeeze) Dividends receivable Brokerageexpense CommissionExpense Cash 2/14/2017
Cash
980,000 20,000 20,000 5,000 1,025,000 20,000
Dividendreceivable 12/31/2017 12/31/2018
20,000
Unrealized Loss – P&L FinancialAssetat FVTPL
30,000
Financial Asset at FVTPL Unrealizedgain–P&L
250,000
30,000 250,000
2) Fair Val ue through Other Comprehensive Income securities 1/5/2017 FVTOCIs ecurities 1,005,000 Dividendreceivable 20,000 Cash 1,025,000 2/14/2017 12/31/2017
Cash Dividendreceivable
20,000
Unrealized loss - OCI FVTOCI securities
30,000
20,000 30,000
12/31/2018 FVTOC secur ties Unrealizedloss–OCI Unrealizedgain–OCI
250,000 30,000 220,000
PROBLEM 14-4 Derecognition of Financial Assets - Sale of Investment CASE NO. 1: FVTPL Question No. 1 Nil, since the above securities are FVTPL unrealized gain or loss is recognized in the profit or loss. (A) Question No. 2 Consideration received (
x 15,000 x 1/2)
Less: Brokerage andc ommission NetSellingPrice Less: Carrying value( 1,600,000x ½) Realized loss on sale – P&L (B) 103
750,000 20,000 730,000 800,000 (70,000)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CASE NO. 2: FVTOCI Question No. 3 Fairvalue,12/31/2016 Less:Cost Unrealized gain - P&L
1,600,000 1,500,000 100,000
(B)
Question No. 4 Considerationreceived Less: Brokerage andc ommission NetSellingPrice
750,000 20,000 730,000
Less: Carrying value (1,600,000 x ½) Realized loss on sale – P&L (B) Question No. 5 Journal entries for the sale are : 1) FVTPL 12/31/2016 FVTPL Unrealizedgain-P&L 1/2/2017
100,000 100,000
Cash Loss on sale FVPTL To record the sale
730,000 70,000 800,000
2) FVTOCI 12/31/2016 FVTOCI 1/2/2017
800,000 (70,000)
100,000
Unrealizedgain-OCI Cash Loss on sale FVTOCI To record the sale
730,000 70,000
100,000
800,000
Unrealized Gain (100,000 x ½) 50,000 Retainedearnings 50,000 To record transfer of unrealized gain to Retained earnin gs SUMMARY OF ANSWERS: 1. A 2. B 3. B 4. B
PROBLEM 14-5 Share Dividends 1.
Memo entry: Received from Pulsate Company.1,500 ordinary shares
2.
Investment in Preference shares - FVTOCI Investment in Ordinary shares - FVTOCI 104
250,000 250,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Allocation:
Total Fair value 300,000 1,500,000 1,800,000
Pref. shares (1,500 x P200) Ordinary shares (15,000 x P100) Total
Fraction 3/18 15/18
Allocated cost 250,000 1,250,000 1,500,000
Share dividends is not regarded as an income., however different type of shares received from the shares held is allocated using the relative fair value. Comments on share dividends: Accounting treatment for share dividends is actually a gray area, no clear cut rules is provided under PFRS or other accounting standard setting body. However, the authors believe that share dividends will onl y be accounted as an increase in number of shares held and a decrease on the price per unit.
PROBLEM 14-6 Cash Dividends Question No. 1 The dividend income to be recognized in 2016 is P30,000 (15,000 x P2). Question No. 2 December 1 Dividend Receivable (15,000 x P2) Dividendincome December 15
(B)
30,000 30,000
No formal accounting entry
December31 Cash DividendReceivable
30,000 30,000
PROBLEM 14-7 Property Dividends Question No. 1 Property dividends are as income at fair value at date of declaration (250,000 x 15%) = P37,500. (B) Question No. 2 November 1 Dividend Receivable (250,000 x 15%) Dividendincome December 31
No journal entry
February 15
NoncashAsset DividendReceivable
105
37,500 37,500
37,500
37,500
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-8 Cash Received in Lieu of Share dividends Question No. 1 Nil. The share divide nd is not considered an income. Question No. 2 NetSelling Price( 15,000x 15%xP36) Less: Carrying amount of the investment sold [(345,000/(15,000+(15% x 15,000)] x 2,250 Gain (or loss) on sale
(A) 81,000 45,000 36,000
(D)
Question No. 3 October 1 Memo entry October31
Cash Gain on sale FAatFVTOCI
81,000 36,000 45,000
PROBLEM 14-9 Shares Received in Lieu of Cash Div idends Question No. 1 Shares received in lieu of cash dividends are in effect recorded at the fair value of shares received on date of payment. Since the date of declaration and date of payment is within the same period, the dividend income is computed as follows: (15,000/5 x P44) = P132,000 (C) Question No. 2 Journal entries are: October 1 Dividend Receivable (15,000 x P8) Dividendincome October 31
FA at FVTOCI (15,000/5 x P44) Dividendreceivable Dividendincome
120,000 120,000 132,000 120,000 12,000
PROBLEM 14-10 Dividends Out Of Capital Questions No. 1 and 2 Cash (P100 x 15% x 20,000) Investment Questions No. 3 and 4 Cash Losso nl iquidation Investment
300,000 300,000
300,000 110,000
SUMMARY OF ANSWERS: 1. A 2. D 3. B 4. C 106
440,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-11 Stock Split and Special Assessment Question No. 1 Date
No. of shares 10,000 15,000 25,000
1/1 3/1stock split Total(10,000 x5/2) 11/1 Special assessment (P3.2 x 25,000) Total
25,000 (D)
Question No. 2 Fair value( P30 x 25,000) Less:Carryingv alue Unrealized gain-OCI
P750,000 500,000 P250,000
Questions No. 3 an d 4 Journal entries are: 1/1 Financial Asset atF VTOCI Cash 3/1
Received `5,000 shares as a result of 5 for 2 share split.
11/1
FinancialAssetatF VTOCI
12/31
Finan ialAssetatF VTOCI Unrealized gain – OCI [(P30 x 25,000) – P500,000]
Cost per Total share Cost P42 P420,000 P16.80
P420,000 80,000 500,000
P20
(D)
P420,000
(B) P420,000
80,000
Cash (P3.20 x25,000)
80,000 2500 00 (C)
250,000
SUMMARY OF ANSWERS: 1. D 2. D 3. B 4. C
PROBLEM 14-12 Stock Rig ht Question No. 1 Nil. The company will only make a memo entry to record the receipt of stock right on a financial asset at FVTPL. (A) Question No. 2 The stock right should be initially recorded at fair values as follows: (P20 x 10,000) = P200,000. (B)
107
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 3 The cost of the investment will only include the subscription price of P400,000 (5,000 x P80). (B) Question No. 4 The cost of the investme nt will include the subscription price of P400,000 and cost of stock rights exercised of P200,000 = P600,000. (C) The journal entries under the two classifications are as follows: Fair Value through profit and loss securities June 15 Memo entry (Received 10,000 stock July15
rights) FVTPL(P80 x1 0,000/2) Cash
400,000 400,000
Fair Value Through Other Comp rehensive Income June 15 Stock rights( P20 x 10,000) Unrealizedgain-P/L July 15
FVTOCI (P80 x 10,000/2)+ 200,000 Cash Stockrights
200,000 200,000 600,000 400,000 200,000
SUMMARY OF ANSWERS: 1. A 2. B 3. B 4. C
PROBLEM 14-13 Theoretical Value of Rights Question No. 1 When the stock is selling right on
Value of one right
= =
P320 – P200 5+1 P20
Question No. 2 When the stock is selling ex-right
Value of one right
= =
P320 – P100 5 P24
SUMMARY OF ANSWERS: 1. B 2. C
PROBLEM 14-13 Dividend Income Cash dividend Shares in lieu of cash dividends (5,000 x P150) 108
1,500,000 750,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Total dividend income
(C)
2,250,000
PROBLEM 14-15 Dividend Income The dividend income to be recorded is equal to P2,400,000 (300,000 / 1,000,000 x P8,000,000). The base is on actual dividends declar ed. A share dividend is not regarded as an income. (A)
PROBLEM 14-16 Reclassifications of Investments in Equity Securities Question No. 1 Not allowed. The only allowed reclassification is from Financial Asset at Amortized Cost (FAAC) to held for trading Financial Asset at Fair Value Through Profit or Loss debt securities (FVTPL), or vice versa. Therefore the securities remain as FVTPL. Since reclassification is not allowed, there is no reclassification gain or loss. (A) Question No. 2 Not allowed (see discussion on no. 1). Therefore the securities remain as FVTOCI. Since reclassification is not allowed, there is no reclassification gain or loss. (A)
PROBLEM 14-17 Purchase: Trade Date vs. Settlement Date Accounting SUMMARY OF ANSWERS: 1. B 2. D
PROBLEM 14-18 Sale: Trade Date vs. Settlement Date Accounting SUMMARY OF ANSWERS: 1. D 2. A
PROBLEM 14-19 Exchange of One Financial Asset into Another Financial Asset Question No. 1 Fair value- Ordinary Shares (6,000 x P40) Less: Carrying value- Pref. Shares (P425,000/8,000 x 4,000) Gain on exchange (C) Question No. 2 Journal entry would be: Investment in Trading- Ordinary Shares (6,000 x P30) 109
240,000 212,500 27,500
240,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Gain onexchange Investment in Trading- Pref. Shares (P425,000/8,000 x 4,000)
27,500 212,500
SUMMARY OF ANSWERS: 1. C 2. B
PROBLEM 14-20 Exch ange of a PPE for Financial Asse t Question No. 1 Fair valueo f the financiala sset Less: Carryingv alue oft hel and Gain onexchange
820,000 600,000 220,000
Question No. 2 Journal entries are: March3 1 Financial asset at FVTOCI Land Gain on exchange (820,000-600,000)
(B)
820,000 600,000 220,000
SUMMARY OF ANSWERS: 1. B 2. D
PROBLEM 14-21 Exch ange of a Financial Asset for PPE Question No. 1 Fair valueo f the financiala sset Less: Carrying value of the financial asset Gain onexchange Question No. 2 Journal entries are: March 31 Land (at fair value of the asset given up) FVTOCI Gain on exchange (650,000-600,000) Retainedearnings Unrealized loss (625,000-600,000) SUMMARY OF ANSWERS: 1. B 2. B
110
650,000 600 000 50,000
(B)
650,000 600,000 50,000 25,000 25,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
PROBLEM 14-22 Trading Securities Question No. 1 (A) The cost of investment is P880,000. The brokerage fee and commission of P10,000 and P10,000 respectively is charged to expense since the investment acquired is a trading security. The investments are also acquired prior to the declaration of dividends on January 10, 2016 so they are not purchased dividend on. Question No. 2 Dividend income (P2 x 6,000 + P16,000) =P28,000 Question No. 3 Sellingprice Less:Commission andtaxes Netsellingprice Less: Carrying value [2,500x(P90,000/6,000)] Gain on sale (C)
(A) P50,000 5,000 45,000 37,500 P7,5 00
Question No. 4 EDA Corp. shares [P50 – (P30,000/1,000)] DJOA,Inc. [P15– (P90,000/6,000)] RVFE, Co. [P45– (P80,000/2,000)] ARP, Co. [P100 – (P880,000/8,000)] Loss chargeable to income statement
x 1 ,000 x 3,500 x 2,000 x 8,000 (B)
Question No. 5 EDAC orporationshares
1,000
P50
x
DJOA,Inc. P15 x 3,500 RVFE,Co. P45 x 2,000 ARP, Co. P100 x 8,000 Total balance of financial asset at profit or loss (A)
= = = =
= = = =
P20,000 10,000 ( 80,000) (P50,000) P50,000 52,500 90,000 800,000 P992,500
(Note: Reclassification of equity securities are not allowed.) SUMMARY OF ANSWERS: 1. A 2. A 3. C 4. B
5.
A
PROBLEM 14-23 Fair Value through Other Comprehensive Income Question No. 1 1/1/2016BookValue Brokeragefee Commission Dividendsreceivable Cost ofFVTOCI
P
880,000 10,000 10,000 ( 16,000) P 884,000
111
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2 Dividend income (P2 x 6,000) = P12,000 (D) Question No. 3 Proceeds(P35x 500) P 17,500 Carrying value (P500 x (P88,000/(2,000 x 110%)) ( 20,000) Loss on sale P (2,500) Net Proceeds (P40,000 – P5,000) Carrying value (2,500 x (P90,000/6,000))
P (
35,000 37,500)
Dividends on stocks sold (P2 x 2,500) Loss on sale
(P
5,000)* (7,500)
Total loss on sale (P2,500 + P7,500)
P
(10,000) (D)
*This was sold dividend-on. Question No. 4 March3 1 June15 Gain/(Loss) on Exchange
(65,000-50,000) (50,000-20,000) (A)
15,000 30,000 45,000
Question No. 5 EDA Corporation preference shares (500 x P50) P 25,000 DJOA,Inc.(3,500xP15) 52,500 RVFE Co. ((2,000 x 110% - 500) x P45) 76,500 ARPCo.(8,000xP100) 800,000 LCC(1,000x 60) 60,000 Adjustedbalance P 1 014,000 SUMMARY OF ANSWERS: 1. C 2. D 3. D 4. A
5.
(D)
D
PROBLEM 14-24 Question No. 1 Stockrights( 11,000xP6)
P
Question No. 2 Cashp aid (P90 x( 10,000/5)) Cost of stock rights used (P4 x 10,000) Totalinvestmentc ost
P P
Question No. 3 Proceeds(P5.5x1 ,000) Costo fs tockrights( P4x 1,000) Gaino nsaleofstockrights
P P 112
66,000
(D)
180,000 40,000 220,000
(B)
5,500 4,000 1,500
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 4 Proceeds Cost of shares sold (P76 ** x 4,000) Gain onsaleofstocks
P 440,000 304,000 P 136,000
Question No. 5 Original investment cost Costa llocated to stock rights* Additionali nvestment**
(
Sale ofinvestment Adjusted cost of investment
P 880,000 44,000) 220,000
( P 304,000) 752,000
SUMMARY OF ANSWERS: 1. D 2. B 3. C 4. D
5.
D
PROBLEM 14-25 Question No. 1 Cashp aid(400K+20K) Less:dividends Correctcost
420,000 10,000 410,000
Question No. 2 Feb. 10 Nov. 2 (10,000+(11,000/5) x 1 Totaldividendi ncome
(D)
30,000 13,200 43,200
(C)
Question No. 3 Fair value of new FA (10,000 x 40) Less: Carrying value (975,000/15K x 5K) Gain onconversion
325,000 75,000
(C)
Question No. 4 Consideration received (2,000 x 70) Less: Dividends (2,000 xP 1) NetSellingPrice Less:Carryingv alue Gain onsale
140,000 2,000 138,000 99,000 39,000
(C)
10-Feb
Shares 10000 1,000
Carrying value 451,000 113
(D)
400,000
(D)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Total 1-May (11,000/5) Total 15-Nov Total
11,000
451,000
2,200 13,200 (2,000) 11,200
202,400 653,400 (99,000) 554,400
Cost of stocks on May 1 Subs. Price( 11,000/5x P62) Add cost of stock rights (6 x 11,000)
136,400 66,000
Costo fs tocksonM ay1
10-Feb Total 1-May (11,000/5) Total 15-Nov Total
202,400
Shares 10000 1,000 11,000
Cost 550,000 550,000
2,200 13,200 (2,000) 11,200
202,400 752,400 (114,000) 638,400
Question No. 5 Gerrit-PS (70 x 10,000) -OS (45 x 10,000) Loesch (72 x 11,200) Barr( 20 x2 0,000)
Fairv alues 700,000 450,000 806,400 400,000 2,356,400
Cost Difference 600,000 (900,000/15K x 10K) 400,000 638,400 410,000 2,048,400 308,000 (A)
Note: Use bid price on asse t held, asked price for asset to be purchased. SUMMARY OF ANSWERS: 1. D 2. C 3. A 4. B
5.
PROBLEM 14-26 Question No. 1 FVTOCI Portfolio – 12/31/2015 ColomaCompany Soliman
A
3,070,000 2,737,500
VillanuevaCompany Less: FVTOCI Portfolio – 01/01/2015 ColomaCompany Soliman VillanuevaCompany 114
1,871,000
7,678,500
3,050,000 2,725,000 1,875,000
7,650,000
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Unrealized gain – SFP
28,500
(C)
Question No. 2 Fairvalue ofshares Less: Carrying amount of Soliman portfolio Gain onexchange
2,797,500 2,737,500 60,000
(B)
Note that the carrying amount is equal to the fair value previous remeasurement date (12/31/2015). Question No. 3 Proceeds from sale of Aquino shares Less: Carrying amount of Aquino portfolio Loss on sale Question No. 4 FVTOCI Portfolio – 12/31/2016 ColomaCompany VillanuevaCompany Less: FVTOCI Portfolio – 01/01/2015 ColomaCompany VillanuevaCompany Unrealized gain – SFP (cumulative)
2,590,000 2,600,000 (10,000)
(B)
3,080,000 1,867,500
4,947,500
3,050,000 1,875,000 (C)
4,925,000 22,500
SUMMARY OF ANSWERS: 1. C 2. B 3. B 4. C
PROBLEM 14-27 Question No. 1 Adjusted balance (5,000 – 4,000) x P50 = P200,000 Question No. 2 Type of stocks # shares Ordinary 10,000 Preference 2,000 Totalcost
Fair value P30 10
Total fair value P300,000 20,000 P320,000
(A)
Allocated cost P234,375 15, 625 P250,000
(B )
Question No. 3 Allocate part of the investment cost to the prefe rence shares. Question No. 4 Proceeds(1,000xP17) P 17,000 Carrying amount [(P15,625/(10,000/5)) x 1,000)( 7,812.50) Gain onsale P 9,187.50 115
(C)
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 5 Proceeds, exclusive of interest Carrying amount (250 x 1,000 x 110%) Gain onsale SUMMARY OF ANSWERS: 1. A 2. B 3. B 4. C
P ( P
5.
2 80,000 275,000) 5,000
(A)
A
PROBLEM 14-28 Question No. 1 NetSellingprice Less: Carrying value (740,000/40,000 x 5,000) Gain on sale
(D)
Question No. 2 Considerationreceived Less: Dividend income of the investment sold (6,000 x *P20 x 20%) NetSellingprice Less: Carrying value (740,000/40,000 x 6,000) Gain on sale (D)
250,000 92,500 157,500
270,000 24,000 248,000 111,000 137,000
*The par value after 2 for 1 share split is equal to P40 x ½= P20 Question No. 3 6/1/2016(35,000x4) 12/1/2016(35,000x 20%xP20) Total dividend income
(A)
Question N os. 4 and 5 Fairvalue( 29,000xP43) Less: Cost (700,000/40,000 x 29,000) Unrealizedgain SUMMARY OF ANSWERS: 1. D 2. D 3. A 4. D
1,247,000 507,500 739,500
5.
116
D
140,000 140,000 280,000
4.(D) 5.(D)
Chapter 15: Investment in Debt Securities
CHAPTER 15: INVESTMENT IN DEBT SECURITIES PROBLEM 15-1 Acquisition of FAAC Term Bonds on Interest Date Question No. 1 Present value of Principal (1,200,000 x 0.6355 ) 762,600 Add: Present Value of interest payments (120,000 x 3.0373 ) 364,476 Present value of the investment bonds (C) 1,127,076 Question No. 2 Amortization table: Interest Date Collection 01/01/2015 12/31/2015 120,000
Interest Income )(B135,249
Premium Amortization 5,249 1
Present value 1,127,076 1,142,325
PROBLEM 15-2 Acquisition of FAAC Term Bonds in Between Interest Dates Question No. 1 Present value oft hei nvestment bonds Add: Discount amortization Effectiveinterest Nominalinterest Present value of the investment bonds, April 1 AddAccruedinterest Total Present value of the bonds Question No. 2 Amortization table: Interest Date Collection 01/01/2015 12/31/2015 200,000
Interest Income 225,415
1,878,460 56,354 50,000
(D)
Discount Amortization 25,415
Total interest income (P225,425 x 9/12) = P169,061
6,354 1,884,814 50,000 1,934,814
Present value 1,878,460 1,903,875
(B)
PROBLEM 15-3 Interpolation of Effective Interest Rate of FAAC - Term Bonds and Computation of Interest Income Purchase price Add:Transactioncost Initialcarryingamount
P1,100,000 44,752 P1,144,752
117
Chapter 15: Investment in Debt Securities
Since there is transaction cost incurred, effective rate must be computed. The effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the textbook for example of interpolation). Interest income (11.5% x P1,144,752) =1 31,646
(B)
PROBLEM 15-4 Acquisition of FAAC - Serial Bonds Question No. 1 Interest
Total
Principal Collection Collection 450,000 180,000 630,000 450,000 135,000 585,000 450,000 90,000 540,000 450,000 45,000 495,000 Total Pre sent Value of the serial bond s Question No. 2 Interest income (1,727,834 x 12%) = 207,340
Present
Total Present
Val ue Factor 0.8929 0.7972 0.7118 0.6355 (C)
Value 562,527 466,362 384,372 314,573 1,727,834
(B)
PROBLEM 15-5 Reclassification Note to Teacher: The requi rement shoul d be “ Under each item described above, prepare the necessary entries on January 1, 2016 and December 31, 2018.” SCENARIO 1: Securities are properly classified as FVTPL under PFRS 9 208,985 Dec. 31, Investment in bonds - FVTPL nrealized U gain ( 208,985 2016 1,855,809) Unrealizedloss Dec. 31, Investment in bonds -FVTPL 2017 ( -
113,668 113,668
Cash Interestincome To record the receipt of interest.
0,000 0,000
SCENARIO 1: CASE NO. 1: Financial asse t at FVT OCI Investment in Bonds - FVTOCI 1,951,126 Jan. 1, 2018
Investment in Bonds – FVTPL 1,951,126 To record the transfer of financial asset at FVTPL to FVTOCI.
Cash De c. 31, Interestincome 2018 To record the receipt of interest. 118
0,000 0,000
Chapter 15: Investment in Debt Securities
Interestincome 14,624 InvestmentinBonds –FVTOCI 14,624 To record premium amortizati on using 11% revised effectiv e rate.
Amortization table-based on the 11% effective rate on the date of reclassification is: Interest Interest Present Date Collection Income Amortization Value December31,2017 1,951,126 December 31, 2018 200,000 214,624 14,624 1,965,750 December 31, 2019 December 31, 2020
200,000 200,000
216,233 218,018
16,233 18,018
1,981,983 2,000,000
SCENARIO 1: CASE NO. 2: Financial Ass et at amor tized cost (FAAC) Investment in Bonds - FAAC 1,951,126 Jan. 1, Investment in Bonds – FVTPL 1,951,126 2018 To record the transfer of financial asset at FVTPL to amortized cost. Cash De c. 31, Interestincome 2018 To record the receipt of interest.
0,000 0,000
Interestincome 14,624 InvestmentinBonds–FAAC 14,624 To record premium amortizati on using 11% revised effectiv e rate.
SCENARIO 2: Securities are properly classified as FVTOCI Dec. 31, 2016
nvestment I in bonds - FVTOCI nrealized U gain ( )
186,288 -
Dec. 31, Unrealizedgain-OCI Investment in bonds - FVTOCI 2017 ( )–186,288
186,288 139,089 139,089
Cash Interestincome To record the receipt of interest.
0,000 0,000
SCENARIO 2: CASE NO. 1: Financial asset at FVTPL Investment in Bonds - FVTPL 1,951,126 Jan. 1, Investment in Bonds – FVTOCI 1,951,126 2018 To record the transfer of financial asset at FVTOCI to FVTPL. Unrealizedgain-OCI Reclassificationgain
47,199
Cash De c. 31, Interestincome 2018 To record the receipt of interest. 119
0,000 0,000
47,199
Chapter 15: Investment in Debt Securities
SCENARIO 2: CASE NO. 2: Financial Ass et at amortized cost (FA AC) Investment in Bonds - FAAC 1,903,927 Jan. 1, 47,199 2018 Unrealizedgain–OCI Investment in Bonds – FVTOCI 1,951,126 To record the transfer of financial asset at FVTOCI to FAAC. Cash De c. 31, Interestincome 2018 To record the receipt of interest.
0,000 0,000
Interestincome 28,471 InvestmentinBonds–FAAC 28,471 To record premium amortizati on using 11% revised effectiv e rate.
Amortization table-based on the 12% ORIGINAL effective rate on the date of reclassification is: Interest Interest Present Date Collection Income Amortization value January 1, 2016 December 31, 2016 December 31, 2017 December 31, 2018 December 31, 2019 December 31, 2020
200,000 200,000 200,000 200,000 200,000
222,697 225,421 228,471 231,888 235,714
1,855,809 1,878,506 1,903,927 1,932,398 1,964,286 2,000,000
22,697 25,421 28,471 31,888 35,714
SCENARIO 3: Securities are properly classified as FAAC Cash 0,000 De c. 31, Interestincome 0,000 2016 To record the receipt of interest. Investment in Bonds – FAAC Interestincome Cash De c. 31, Interestincome 2017 To record the receipt of interest.
22,697 22,697 0,000 0,000
Investment in Bonds – FAAC Interestincome
25,421 25,421
SCENARIO 3: CASE NO. 1: Financial asset at FVTPL Investment in Bonds - FVTPL Jan. 1, Reclassificationgain–P&L 47,199 2018 Investmentin Bonds –FAAC 1,903,927 To record the transfer of financial asset at FAAC to FVTPL. Cash De c. 31, Interestincome 2018
0,000 0,000 120
Chapter 15: Investment in Debt Securities
To record the receipt of interest.
SCENARIO 3: CASE NO. 2: Financial ass et at FVT OCI Investment in Bonds – FVTOCI Jan. 1, Reclassificationgain–OCI 47,199 2018 Investmentin Bonds –FAAC 1,903,927 To record the transfer of financial asset at FAAC to FVTOCI. Cash De c. 31, Interestincome 2018 To record the receipt of interest.
0,000 0,000
PROBLEM 15-6 (Initial and Subsequent measurement, Derecognition and Reclassification of Trading Debt Secu rities) Question No. 1 Face value Multiplyb y:N ominalr ate Multiply by: Months outstanding Interest Income (C)
5,000,000 12% 12/12 600,000
Question No. 2 Fair value of the bonds (5M X 104) Less:Carryingv alue Unrealized gain (or loss)-P&L (B)
5,200,000 5,379,079 (179,079)
Question No. 3 Ne Selling Price (5M x ½ x 05) Less: Carrying value (5M x ½ x 104) Gain (or loss) on sale (B)
2,625,000 2,600,000 25,000
Question No. 4 Facev alue( 5M x½) Multiplyb y:N ominalr ate Multiply by: Months outstanding Interest Income (B)
2,500,000 12% 12/12 300,000
Note that interest income is computed for the whole year even though the business model was changed on July 1, 2016 since reclassification date will be on the first day of the next repor ting period (January 1, 2017). The investment therefore would be continued to be reported as held for trading on December 31, 2016.
121
Chapter 15: Investment in Debt Securities
Question No. 5 Fair value of the bond s on the reclassification date, 1/1/ 17 (2.5M X 104) Less: Carrying value (2.5M X 1.02) Unrealized gain (or loss)-P&L (C)
2,600,000 2,550,000 50,000
Question No. 6 Fair value of the bond s on the reclassification date, 1/1/17 (2.5M X 104) Less: Carrying value (2.5M X 1.02) Unrealized gain (or loss)-OCI
2,600,000 2,550,000 50,000
(A)
SUMMARY OF ANSWERS: 1. C 2. B 3. B 4. B
5.
C
6.
A
PROBLEM 15-7 (Initial and Subsequent measurement, Derecognition and Reclassification of FAAC Securities) CASE NO. 1 Question No. 1 Face value 5,379,079 Multiplyb y:N ominalr ate 10% Multiply by: Months outstanding 12/12 Interest Income 537,908 (B) The present value of the bonds is computed as follows: Present value of Pr ncipal (5,000,000 x 0.6209 ) Add: Present Value of interest payments (600,000 X 3.7908) Present value oft hei nvestment bonds
3,104,607 2,274,472 5,379,079
(Please carry all the decimal places in the comp utation) Amortization table (srcinal): Interest Date Collection 01/01/2015 12/31/2015 600,000 12/31/2016 600,000 12/31/2017 600,000 12/31/2018 600,000 12/31/2019
600,000
Interest Income
Premium Amortization
53 7,908 (C) 531,699 524,869 517,355
2,092 6 68,301 75,131 82,645
Present value 5,379,079 5,316,987 5,248,685 5,173,554 5,090,909
509,091
90,909
5,000,000
Question No. 2 Nil. No unrealized gain or loss is recognized if the financial asset is classified as financial asset at amortized cost. (A) 122
Chapter 15: Investment in Debt Securities
Question No. 3 Net Selling Price (5M x ½ x 105) Less: Car rying value (see amort ization table) (5,316,987 x ½) Gain (or loss) on sale (C)
2,625,000 2,658,494 (33,494)
Question No. 4 Carrying value, 12/31/16 (5,316,987 x ½) Multiplyb y:N ominalr ate
2,658,494 10%
Multiply by: Months outstanding Interest Income (A)
12/12 265,849
Note that interest income is computed for the whole year even though the business model was changed on July 1, 2016 since reclassification date will be on the first day of the next reporting period (January 1, 2017). The investment therefore would be continued to be reported as Financial Assets at Amortized Cost on Dec ember 31, 201 6.
Question No. 5 Fair value of the bond s on the reclassification date, 1/1/ 17 (2.5M X 104) Less: Carrying value (2,658,494 X 1. 10) 300,000) Reclassificati on loss- P&L (B) SUMMARY OF ANSWERS: 1. B 2. A 3. C 4. A
5.
2,600,000 2,624,343 (24,343)
B
CASE NO. 2 Note to teacher: You may ignore this since there is incomplete information to answer some of the questions under this case.
PROBLEM 15-8 Requirement No. 1 Annual expected loss Multiply by: Present value of ordinary annuity for 5 years using 12% Lifetime expected credit losses Requirement No. 2 Annual expected loss Multiply by: Present value of 1 for 5 years using 12% 12-month expected credit losses 123
3.6048
.5674
Chapter 15: Investment in Debt Securities
Requirement No. 3 On initial recognition, Bank Company records the foll owing journal entries: January1 , LoanR eceivable 1,500,000 2017 Cash 1,500,000 To recognize loan asset at gross amount. Impairment loss – P&L Loss allowance in SFP To recognize 12-month expected credit losses.
11,348 11,348
Requirement No. 4 If, at the end of 2017, there is no significant deterioration of the credit quality, there would be no change to the recognition of the 12-month expected credit losses. Requirement No. 5 If, at the end of 2017, there is a significant deterioration of the credit quality, the company should record lifetime expected credit loss. The amount to be recognized is computed as follows: Annual expected loss Multiply by: Present value of ordinary annuity for 4 years using 12% 3.0373 Lifetime expected credit losses Less: 12-m onth expect ed credit loss recognized January 1 11,348 Impairment loss – P&L The journal entry therefore to record the increase in allowance is as follows: Dec.3 1, Impairmentloss–P&L 49,398 2017 Loss allowance inSFP 49,398 To recognize lifetime expected credit losses
PROBLEM 15-9 Requirement No. 1 Since the expected probability of default is only 2%, this is not considered significant. Therefore the Company will only recognize 12-month expected loss. Requirement No. 2 12-month expected credi t loss is computed as follows : = 2% x ,000
PROBLEM 15-10 Requirement No. 1 70%probability(4.8M–4.8M) 20%probability(4.8M–3.6M)
0 1,200,000 124
Chapter 15: Investment in Debt Securities
10%probability(4.8M–3M) Totalexpectedcashshortf all
1,800,000 2,000,000
Requirement No. 2 70%probability(4.8M–4.8M)x 70% 20%probability(4.8M –3.6M)x2 0% 10%probability(4.8M–3M)x 10% Probability weightedcashshortfall
0 340,000 180,000 420,000
Requirement No. 3 Annual cashshortfall Multiply by: Present value of annuity using 6.4% for 5 years Present value – lifetime expected credit loss
420,000 4.1669 1,750,098
Requirement No. 4 Annual cashshortfall Multiply by: Present value of 1 using 6.4% for 1 year Present value – 12 month expected credit loss
Requirement No. 5 Jan.1, Loan receivable 2017 Cash To recognize the loan at gross amount
420,000 .9398 394,716
20M 20M
Impairmentloss- P&L 394,716 Loss allowance–SFP To recognize 12-month expected credit loss.
394,716
PROBLEM 15-11 Requirement No. 1 Customer: Group A Not pastdue 1-30d ayspastdue 31-60d ayspastdue 61-90d ays past due >90daysp astdue Total
Customer: Group B Notpastdue
Gross carrying amount ,700,000 3,000,000 1,000,000 2,200,000 800,000 12,700,000 Gross carrying amount 3,700,000 125
Expected credit loss 0.3% 1.2% 3.3% 8.0% 11.5%
Expected credit loss 0.3%
Lifetime Expected Credit Loss 17,100 36,000 33,000 176,000 92,000 354,100 Lifetime Expected Credit Loss 11,100
Chapter 15: Investment in Debt Securities
1-30d ayspastdue 31-60d ayspastdue 61-90d ayspastdue >90daysp astdue Total
1,200,000 1,500,000 800,000 900,000
1.5% 3.9% 7.2% 8.3%
18,000 58,500 57,600 74,700 219,900
The total lifetime expected credit loss is 574,000 ( 354,100+ 219,900).
Requirement No. 2 Gross carrying amount( Less:Lifetimeexpectedcreditl oss
+
)
20,800,000 574,000
Amortizedcost
20,226,000
PROBLEM 15-12 Amortization Table @ 6.1932% Interest Date Collection January 1, 2017 December 31, 2017 100,000 December 31, 2018 100,000 December 31, 2019 100,000 December 31, 2020 100,000 December 31, 2021 100,000
Interest Income
Amortization
117,670 118,766 119,928 121,162 122,472
17,670 18,766 19,928 21,162 22,472
Present value 0,000 1,917,670 1,936,436 1,956,364 1,977,524 2,000,000
Requirement No. 1 Investment in Bonds – FVTOCI Cash
1,900,000
Impairmentloss–P&L Loss allowance -OCI
1,900,000
10,000 10,000
Requirement No. 2 Cash ( 2,000,000x 5%) InvestmentinBonds–FVTOCI Interest income( 1,900,000 x6 .1932%) To record interest collection and amortization.
100,000 17,670 117,670
Requirement No. 3 If interest has not changed Discountrate Present value: Principal Interest TotalPV
If only prime rate changed by 25%
If both prime rate and credit risk changed
6.1932%
6.4432%
6.9432%
1,572,690 344,980 *1 ,917,670
1,557,968 343,022 1,900,990
1,529,034 339,156 1,868,190
126
Chapter 15: Investment in Debt Securities
*Based on the amortization table. The change in fa ir value may be analyzed as follows: Accretion due to time factor as interest income (Discount amortization) Decrease due to prime rate ( 1,917,674 - 1,900,990) Decrease due to credit risk ( 1,900,990 - 1,868,190) Total change in fair value ( 1,900,000 - 1 ,868,190)
17,670 (16,684) (32,800) 31,810
Requirement No. 4 Unrealized loss – OCI ( 16,684 + ,000) 26,684 Impairment loss – P&L ( 32,800 - 10,000) 22,800 Loss allowance ( ,000) 22,800 InvestmentinBonds–FVTOCI 26,684 To record impairment loss in profit or loss and decrease in fair value of asset. Fairvalue –12/31/2017 Less: Amortized cost (see amortization table) Decreaseinfairvalue Less: Decrease in fair value due to credit risk = impairment Decreaseinfairvalue–OCI
1,868,190 1,917,670 (49,480) 22,800 26,680)
Requirement No. 5 Investment in Bonds – FVTOCI – 01/01/2017 Add:DiscountAmortization Less:Decreaseinfair value
1,900,000 17,670 26,684
Less:Impairmentloss Carrying amount = Fair value 12/31/2017
22,800 1,868,186
PROBLEM 15-13 Requirement No. 1 Cash Lossa llowance– SFP Investmentin Bonds –FAAC
433,000 ,000,000
Requirement No. 2 Cash Investment in Bonds – FAAC Lossa llowance– SFP
5,000,000 5,000,000 433,000
Gaino n reversalo f impairment
Requirement No. 3 Cash Lossa llowance– SFP
433,000 ,500,000 433,000 127
Chapter 15: Investment in Debt Securities
Impairmentloss – P&L Investment in Bonds – FAAC
67,000 5,000,000
PROBLEM 15-13 Impairment of Financial Asset at Amortized Cost SOLUTION: Question No. 1 Carrying amount of the investment – 12/31/2015 Less: Present value of expected cash flows (get the present value computed using srcinal effective rate ) Impairment loss (B) Question No. 2 Interest income (3,188,800 x 12%) = 382,656
3,864,680 3,188,800 675,880
(D)
PROBLEM 15-14 Reversal of Impairment on Financial Asset at Amortized Cost Present Value of Principal (5,000,000 x 0.8929) Add: Present Value of interest payments (500,000 x 2 x 0.8929) Present value oft hei nvestment bonds
4,464,500 892,900 5,357,400
CASE NO. 1 PAS 39 Present value expected cash flows, date of reversal Would have been present value had there been no impairment
5,357,400 4,910,521
Lowerofthe two above Less: Actual amortized cost (P3,986,000 x 1.12) Gain onreversalof impairment
CASE NO. 2 PFRS 9 Present value expected cash flows, date of reversal Less: Actual amortized cost (P3,986,000 x 1.12) Gain onreversalof impairment
4,910,521 4,464,320 446,201
5,357,400 4,464,320 893,080
COMPREHENSIVE PROBLEMS PROBLEM 15-15 Question No. 1 Cost of investment – Jan. 21(P2,000,000 x 102%) =P2,040,000 Question No. 2 Proceeds Less: Accrued interest (P1,000,000 x 9% x 3/12) NetProceeds Less: Carrying amount (P2,000,000 x 102%) 128
(A)
P 1,060,000 22,500 1,037,500 1,020,000
Chapter 15: Investment in Debt Securities
Gain on sale
(A)
P
17,500
Question No. 3 Proceeds Less: Accrued interest (P400,000 x 9% x 5/12) Net proceeds Carrying amount(P400,000 x102%) Loss on sale
P 419,000 15,000 404,000 408,000 4,000) (A) (
Question No. 4 Sold bonds: x9%x 38/360 P1,000,000 P400,000x 9%x280/360 Outstanding bonds: P600,000x 9%x340/360 Total interest income
P
(A)
9,500 28,000 51,000 P 88,500
Question No. 5 Carrying value – 12/31/20 16 (P600, 000 x 102%) = P612,000 The market value is equal to its cos t. SUMMARY OF ANSWERS: 1. A 2. A 3. A 4. A
5.
(A)
A
PROBLEM 15-16 Impairment and Reversal of Impairment Loss CASE NO. 1 PAS 39 Question No. 1 Present value of Principal (5,000,000 x 0.6209 ) Add: Present Value of interest payments (600,000 X 3.7908) Present value oft hei nvestment bonds
3,104,607 2,274,472 5,379,079
(Please carry all the decimal places in the comp utation) Question No. 2 Amortization table (srcinal): Interest Date Collection 01/01/2015 12/31/2015 600,000 12/31/2016 600,000
537,908 531,699
12/31/2017 12/31/2018 12/31/2019
524,869 517,355 509,091
600,000 600,000 600,000
Interest Income
129
Premium Amortization 62,092 68,301 75,131 82,645 90,909
Present value 5,379,079 5,316,987 5,248,685 5,173,554 5,090,909 5,000,000
Chapter 15: Investment in Debt Securities
Question No. 3 Carrying amount of the investment 12/31/2016 (see table above) Less: Present value of expected cash flows Impairmentloss
5,248,685 3.756,574 1,492,111
Present value of Principal (5,000,000 x 0.7513 ) Add: PV of interest payments (No interest will be recovered) Present value of the investment bonds
3,756,574 3,756,574
Question No. 4 Interest income (P3,756,574 x 10%) = 375,657 The interest income was computed using the srcinal effective rate and the impaired value as of 12/31/2016.
Question No. 5 Present value expected cash flows, date of reversal Would have been present value had there been no impairment (see srcinal amortization table) Lowerofthe two above Less: Actual amortized cost (P3,756,574 x 1.10) Gaino nreversalofi mpairment
5,619,835 5,173,554 5,173,554 4,132,231 1,041,322
Present value of Principal (5,000,000 x 0.8264 ) Add: Present value of interest payments (600,000 x 3 x 0.8264) Present value oft hei nvestment bonds
4,132,231 1,487,603 5,619,835
CASE NO. 2 PFRS 9 Question No 1 Present value of Principal (5,000,000 x 0.6209 ) Add: Present Value of interest payments (600,000 X 3.7908) Present value oft hei nvestment bonds
3,104,607 2,274,472 5,379,079
(Please carry all the decimal places in the comp utation) Question No. 2 Amortization table (srcinal): Interest Date Collection 01/01/2015 12/31/2015 600,000 12/31/2016 600,000 12/31/2017 600,000 12/31/2018 600,000 12/31/2019 600,000
Interest Income 537,908 531,699 524,869 517,355 509,091
130
Premium Amortization 62,092 68,301 75,131 82,645 90,909
Present value 5,379,079 5,316,987 5,248,685 5,173,554 5,090,909 5,000,000
Chapter 15: Investment in Debt Securities
Question No. 3 Carrying amount of the investment 12/31/2016 (see table above) Less: Present value of expected cash flows Impairmentloss
5,248,685 3.756,574 1,492,111
Present value of Principal (5,000,000 x 0.7513 ) Add: PV of interest payments (No interest will be recovered) Present value oft hei nvestment bonds
3,756,574 3,756,574
Question No. 4 Interest income (P3,756,574 x 10%) = 375,657 The interest income was computed using the srcinal effective rate and the impaired value as of 12/31/2016.
Question No. 5 Present value expected cash flows, date of reversal Less: Actual amortized cost (P3,756,574 x 1.10) Gaino nreversalofi mpairment
5,619,835 4,132,231 1,487,604
Present value of Principal (5,000,000 x 0.8264 ) Add: Present value of interest payments (600,000 x 3 x 0.8264) Present value oft hei nvestment bonds
4,132,231 1,487,603 5,619,835
PROBLEM 15-17 Question No. 1 Proceeds Less: Carrying amount [(P432,000/24,000) x 12,000) Loss on sale (B) Question No. 2 Cost,1/1/2015 Less:Amortizedcost,1 2/31/2015 Premiumamortization Less: Nominal interest( 5,000,000x 12%) InterestIncome
P204,000 216,000 (12,000)
P 5,311,400 5,242,540 68,860 600,000 531,140
Effective interest (P531,400/5,311,140) = 10% Interest income (P5,242,540 x 10%) = P524,254 (B)
Questi on No. 3amortization (P1,903,150 – P1,881,000) 2015 discount Nominalinterest(P2,000,000x 13%) Effective interest Divide by: 1/1/2015 amortizedc ost 131
P
22,500 260,000 P 282,500 P 1,881,000
Chapter 15: Investment in Debt Securities
Effective interest rate
15%
2016 Interest Inc ome = 12/31/2015 amortized cost x Effective inte rest rate = P1,903,150 x 15% = P285,472.50 (C)
Question No. 4 Fair value, 1/1/2017 (2,000,000x 101) P 2,020,000 Less: Amortized cost – 01/01/2017 Book value, 12/31/2015 P 1,903,150 Add: Discount amortization Nominalinterest 260,000 Less: Effective interest 282,473 22,473 1,928,623 Gain on reclassification (C) P 91,377 Question No. 5 Trading securities: Panaghoy, Inc. (14,400 x P22) P 316,800 Lamentation, Inc. [(24,000 – 12,000) x P15] 180,000 Total P 496,800 FVTOCI: Zephaniah, Inc. ( x 360,000) Genesis bonds (1.04 x 5,000,000) Total SUMMARY OF ANSWERS: 1. B 2. B 3. C 4. C
P10,080,000 5,200,000 P15,280,000
5.
132
A
Chapter 16: Investment in Associate
CHAPTER 16: INVESTMENT IN ASSOCIATE PROBLEM 16-1 Investment securities and equity method investments compared Question No. 1 Cost of Investment Less: Book value of net asset acquired (P120M x 20%) Excesso fc ostoverbookvalue Less: Overvalued depreciable asset (P6M x 20%) Goodwill
Question No. 2 Dividendsdeclared andpaid Multiplyb y:Percentageofownership Dividends Revenue
30,000,000 24,000,000 6,000,000 1,200,000
(A)
4,800,000
(C)
5,000,000 20% 1,000,000
Question No. 3 Shareinnetincome(P8Mx20%) Less: Amortization of Undervalued valued asset (see below) Adjusted net investment income (A)
1,600,000 200,000 1,400,000
Amortization of Undervalued asset Depreciable Asset Divideby:Averageremainingusefullife Amortization ofU ndervalued valued asset
1,200,000 6 200,000
Question No. 4 Cost of Investment Add: Net investment income (see no. 3) Less: Dividends received (P1 x 1M shares) Carrying value – 12/31/2015
30,000,000 1,400,000 1,000,000 30,400,000
(B)
Question No. 5 Investment using Fair Value ( 32 x 1,000,000) = 32,000,000 SUMMARY OF ANSWERS: 1. A 2. C 3. A 4. B
5.
(D)
D
PROBLEM 16-2 Question No. 1 Cost of Investment Less: Book value of net asset acquired (P10M x 30%) Excesso fc ostoverbookvalue 133
5,000,000 3,000,000 2,000,000
Chapter 16: Investment in Associate
Over or (under )valued asset: Inventory[ (P900,000 – P800,000) x 30%] Machinery [(P2,200,000 – P2,500,000) x 30%] Goodwill
(30,000) 90,000 2,060,000
(C)
Question No. 2 Shareinnetincome(P2Mx30%) Less: Amortization of undervalued valued asset (see below) Add: amortization ofovervalued asset Adjusted net investment income (A) Amortization of asset: Inventory
2016
600,000 30,000 18,000 588,000
2017 (30,000)
Machinery Divideby:Remaininglife Amortization of overvalued machinery
90,000 5 18,000
90,000 5 18,000
2016 2017 2,000,000 4,500,000 30% 30% 600,000 1,350,000
Net incomeo ft hea ssociate Multiplyb y: Percentage of ownership Shareinthenetincome Dividends declareda nd paid Multiplyb y: Percentage of ownership Dividendsreceived
800,000 30% 240,000
Question No. 3 Cost of Investment Add: Net investmenti ncome (see no. 2) Less: Dividends received (P800,000x 30%) Carrying value – 12/31/2016
(A)
1,600,000 30% 480,000
5,000,000 588,000 240,000 5,348,000
Question No. 4 Sharein netincome(P4.5M x3 0%) Add: Amortization of Overvalued valued asset (see no. 2) Adjusted net investment income (C)
1,350,000 18,000 1,368,000
Question No. 5 Carryingvalue– 01/01/2017 Add: Net investment income (see no. 4) Less: Dividends received( P1.6M x3 0%)
5,348,000 1,368,000 480,000
Carrying value – 12/31/2017
SUMMARY OF ANSWERS: 1. C 2. A 3. A 4. C
(A) 5.
134
A
6,236,000
Chapter 16: Investment in Associate
PROBLEM 16-3 Investment in Associate with Inventories, Machinery and Land - Land Was Subsequently Sold Question No. 1 Cost of Investment Less: Book value of net asset acquired (P12M x 20%) Excesso fc ostoverbookvalue Over or (under) valued asset Inventory((P50,000)x20%) Machinery((P500,000)x2 0%) Land(P300,000 x20%) Goodwill (A)
5,000,000 2,400,000 2,600,000 (10,000) (100,000) 60,000 2,550,000
Amortization of Over (Under) valued asse t Inventory
2016 (10,000)
2017
Machinery Divideby:Remaininglife Amortization of Under (over) valued asset
(100,000) 10 (10,000)
(100,000) 10 (10,000)
Land
-
60,000
2016 2017 8,000,000 10,000,000 20% 20% 1,600,000 2 ,000,000
Net incomeo ft hea ssociate Multiplyb y: Percentage of ownership Sharein thenetincome Dividends declareda nd paid
2,000,000
3,000,000
20% 400,000
20% 600,000
Multiplyb y: Percentage of ownership Dividendsreceived
Question No. 2 Shareinnetincome(P8Mx20%) 1,600,000 Less: Amortization of Undervalued valued asset (see table 20,000 above) Adjusted net investment income 1,580,000 (A) Question No. 3 Cost of Investment Add: Net investment income (see no. 2) Less:Dividends received( P2M x20%) Carrying value – 12/31/2016
(A)
6,000,000 1,580,000 400,000 6,180,000
Question No. 4 Sharein netincome(P10Mx20%) 2,000,000 Less: Amortization of Undervalued valued asset (see table 10,000 above) Add: amortization ofovervalued asset 60,000 135
Chapter 16: Investment in Associate
Adjusted net investment income
Question No. 5 Carryingvalue– 01/01/2017 Add: Net investment income (see no. 4) Less:Dividends received (P3Mx2 0%) Carrying value – 12/31/2017 SUMMARY OF ANSWERS: 1. A 2. A 3. A 4. C
5.
(C)
2,050,000
(A)
6,180,000 2,050,000 600,000 7,630,000
A
PROBLEM 16-4 Associate with Outstanding Cumulative Preference Shares When an investee has outstanding cumulative preference share capital, an investor should compute its share of earnings after deducting the investee’s preference dividends, whether or not such dividends are declared. Net income Less: Preference dividend (10% x 1,000,000) Net income toordinaryshares
600,000 ( 100,000) 500,000
Share in net income – ordinary shares (80% x 500,000)
(A)
400,000
PROBLEM 16-5 Associate with Outstanding Preference Shares CASE NO. 1 Question No. 1 Netincome P2,500,000 Less: Total preference dividends ( 3,000,000 x 10%) 300,000 Netincomet oordinaryshares P2,200,000 Multiplyb y:Percentageofownership 30% Sharein thenetincomeofa ssociate 660,000 Less: Amortization of undervalued asset ( 1,000,000/8) 125,000 Net investment income 535,000 (B) Question No. 2 Cost of Investment Add: Net investment income (see no. 1) Less:Dividendsreceived Carrying value – 12/31/2016
(B)
CASE NO. 2 Question No. 1 Netincome Less: Total actual preference dividends declared Netincomet oordinaryshares 136
6,000,000 535,000 6,535,000
P2,500,000 450,000 P2,050,000
Chapter 16: Investment in Associate
Multiplyb y:Percentageofownership Sharein thenetincomeofa ssociate Less: Amortization of undervalued asset (1,000,000/8) Net investment income (A)
30% 615,000 125,000 490,000
Question No. 2 Cost of Investment Add: Net investment income (see no. 1) Less:Dividendsreceived Carrying value – 12/31/2016
6,000,000 490,000 6,490,000
(A)
CASE NO. 3 Question No. 1 Netincome Multiplyb y:Percentageofownership Sharein thenetincomeofa ssociate Less: Amortization of undervalued asset ( 1,000,000/8) Net investment income (C) Although the answe r shoul d be 500,000.
P2,500,000 30% 750,000 125,000 625,000
400,000, the next best poss ible answer is
Question No. 2 Cost of Investment Add: Net investment income (see no. 1)
6,000,000 625,000
Less:Dividendsreceived Carrying value – 12/31/2016
(C)
SUMMARY OF ANSWERS: CASEN O.1 CASEN O.2 1. B 2. B 1. A 2. A 1.
C
2.
6,625,000
CASEN O.3 C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity Method - Step Acquisition Question No. 1 Fairvalue –12/31/2017 Less: Carrying value (Fair value – 12/31/2016) Unrealized loss – P&L
(B)
Question No. 2 Investment income ( 550,000 x 15%)
(C)
137
3,600,000 (3,900,000) (300,000)
82,500
Chapter 16: Investment in Associate
Question No. 3 Nil. No catch-up adjustment on retained earn ings. (A) Fair valueo f previously held interest Acquisitioncost Totalcost ofinvestment Less: Book value of net asset acquired (12.5m x 30%) Excesso fa ttributablet o machinery Divideby:Remaininglife AmortizationofU ndervaluedasset
3,600,000 3,600,000 7,200,000 3,750,000 3,450,000 10 345,000
Netincomeo ft hea ssociate-2018 Multiply by: Percentage of ownership (15% + 15%) Shareinthenetincome
1,600,000 30% 480,000
Dividendsdeclared andpaid Multiplyb y:Percentageofownership Dividendsreceived
700,000 30% 210,000
Question No. 4 Shareinnetincome Less: Amortization of Undervalued asset (see table above) Adjusted net investment income (A) Question No. 5 Cost of Investment Add: Net investment income (see no. 4)
7,200,000 135,000
Less:Dividendsreceived Carrying value – 12/31/2018
SUMMARY OF ANSWERS: 1. B 2. C 3. A 4. A
480,000 345,000 135,000
5.
(A)
210,000 7,125,000
(A)
P5,200,000 400,000 4,800,000 5,000,000 (P200,000)
B
PROBLEM 16-7 Cost To Equity Method Question No. 1 Consideration received (40,000 x 130) Less:Dividendincome(10x 40,000) Netsellingprice Less:Carryingv alue( 5,000,000) Loss on sale (Assuming FIFO Method) Question No. 2 Considerationreceived Less:Dividendincome(5x 40,000) Netsellingprice
P5,200,000 200,000 5,000,000 138
Chapter 16: Investment in Associate
Less: Carrying value [12M-(P5 x 100,000)/100,000] x 40,000) Gain on sale (B)
Question No. 3 Fair value (P140 x 60,00 0)
4,600,000 P400,000 P8,400,000
(A)
Question No. 4 Costo fI nvestment–01/01/2015 Add: Net investment income - 2015 (5,000,000 x 30%) Less: Dividends received -2015 (30% x 2,000,000)
2,400,000 1,500,000 600,000
Carrying 12/31/2015 Add: Netvalue– investment income - 2016 (6,000,000 x 30%) Less: Dividends received -2016 (30% x 3,200,000) Carryingvalue– 12/31/2016
3,300,000 1,800,000 960,000 4,140,000
Netsellingprice LessC arrying amount (P4,140,000 x ½) Gain on sale
(B)
Question No. 5 Investment in Kababain – FVTOCI: Fairvalue( P150x1 5,000) Less:Carryinga mount Investment in Passing Rate – FVTOCI: Fairvalue( P140x60,000) Less Cost (12M-(10 x 100,000))/100,000 x 60,000) Total Unrealized Gain –OCI to SFP
SUMMARY OF ANSWERS: 1. A 2. B 3. A 4. B
2,400,000 2,070,000 P330,000
2,250,000 2,070,000
180,000
8,400,000 6,600,000
1,800,000
(C) 5.
1,980,000
C
PROBLEM 16-8 Change From Equity to Cost Method Question No. 1 Cost of Investment Add: Net investment income [(1.8M-840,000) x 20%] Less: Dividends received (P100,000 + P100,000) Carrying value – 12/31/2015 (B)
4,000,000 192,000 200,000 3,992,000
Note: The dividend received on August 1, 2015 need not be prorated even though the investment was acquired on July 1, 2015 since dividends is considered when the investor has the righ t to recei ve paymen t (i.e. date of declara tion). The P1.8M net income wa s for a peri od of 12 months en ding Dece mber 31.
139
Chapter 16: Investment in Associate
Question No. 2 Salesprice (P25x50,000) Carrying value of shares (P3,992,000 x 50,000/200,000) Gain on sale of inve stment (B)
1,250,000 998,000 252,000
Question No. 3 Fair value of retained investment (P25 x 150, 000) Less: Carrying amount of retained investment (P3,992,000 x 150,000/200,000) Gain on reclassification to P&L (C)
3,750,000 2,994,000 756,000
Question No. 4 Fair value, Dec.3 1, 2016 (P30 x 150,000) Fair value, Jan. 1, 2016 (P25 x1 50,000) Unrealized gain, Dec. 31, 2016
(B)
4,500,000 3,750,000 750,000
Question No. 5 Fair value, Dec. 31, 2016 (P30 x 150,000)
(A)
4,500,000
SUMMARY OF ANSWERS: 1. B 2. B 3. C 4. B
5.
A
PROBLEM 16-9: Discontinuance of Equity Method Question No. 1 Cost (300,000x100) Add:Income(4,000,000x. 3) Less:Dividends (2,500,000x 3) Carrying Amount - 2015
(C)
30,000,000 1,200,000 (750,000) 30,450,000
Question No. 2 Netproceeds(160,000x120) Less: Carrying amount (30,450,000x(160,000/300,000)) Gain on Sale (C)
19,200,000 (16,240,000) 2,960,000
Question No. 3 FVTOCI (140000x120) Less: Carrying amount (30,450,000x(140,000/300,000) Gain on Reclassification (B)
17,080,000 14,210,000 2,870,000
Question No. 4 Dividend Income (2,000,000x .14)
(A)
140
280,000
Chapter 16: Investment in Associate
Question No. 5 Investment in FVTOCI (140,000x125) SUMMARY OF ANSWERS: 1. C 2. C 3. B 4. A
17,500,000
(B)
5.
B
PROBLEM 16-10 Associate Having Heavy Losses Originalcost Cash advances Totalinterest Net loss from 2015 to 2017 (40% x 4,000,000) Carrying amount of investment – 12/31/2017 Share in net loss of 2018 (40% x 800,000) Loss to be reported in 2018 should be equal to the investment balance only (C)
1,400,000 400,000 1,800,000 (1,600,000) 200,000 320,000 200,000
PAS 28, paragraph 29, provides that if under equity method an investor’s share of losses of an associate equals or exceeds the carrying amount of an investment, the investor discontinues recognizing its share of further losses. The investment is reported at NIL or zero value.
PROBLEM 16-11 Downstream Sale of Inventory 2015 Netincomey: Percentage of ownership Multiplyb Share in the net income before adjustment Less: Unrealized profit on downstream sale of inventory Share in the net income after adjustment
2016
1,000,000 25% 250,000
1,500,000 25% 375,000
(30,000) 220,000 (B)
30,000 405,000 (D)
2015 1,000,000 25% 250,000
2016 1,500,000 25% 375,000
(9,000) 241,000 (B)
9,000 384,000 (D)
PROBLEM 16-12 Upstream Sale of Inventory Netincome Multiplyb y: Percentage of ownership Share in the net income before adjustment Less: Unrealized profit on upstream sale of inventory Share in the net income after adjustment
141
Chapter 16: Investment in Associate
PROBLEM 16-13 Downstream Sale of Depreciable Asset 2015 2016 Netincome 1,000,000 1,500,000 Multiplyb y: Percentage of ownership 25% 25% Share in the net income before adjustment 250,000 375,000 Less: Unrealized gain on downstream sale of PPE (160,000) 40,000 Share in the net income after adjustment 90,000 415,000 (B) (D)
PROBLEM 16-14 Upstream Sale of Depreciable Asset Netincome Multiplyb y: Percentage of ownership Share in the net income before adjustment Less: Unrealized gain on upstream sale of PPE Share in the net income after adjustment
2015 2016 1,000,000 1,500,000 25% 25% 250,000 375,000 (40,000) 10,000 210,000 385,000 (B) (D)
COMPREHENSIVE PROBLEMS PROBLEM 16-15 Question Nos. 1 and 2 2015 2,500,000
Net incomeo ft hea ssociate Multiplyb ShareinNI y: Percentage of ownership Less: Gaino sale of equipment Add:Depreciationo fExcess Gain on sale of inventory (upstream) (50,000x .3) Less: Gain on sale of inventory (Downstream) NetshareinNI
Question No. 3 Cost Add:Investment Income2015 Less:Dividends(900,000x.3) Carrying amount 2015 Question No. 4 Carryingamount01/01/2016 Add:Income Less:Dividends(2,000,000x.3) Carrying Amount - 2015 142
2016 4,000,000
30% 1,200,000 30% 750,000 (100,000) 20,000 20,000 (15,000) 15,000 (150,000) 655,000 1,085,000 1.( B) 2.( B)
(A)
5,000,000 655,000 270,000 5,385,000
(B)
5,385,000 1,085,000 600,000 5,870,000
Chapter 16: Investment in Associate
Question No. 5 Carryingamount01/01/2016 Add:Income Less:Dividends(2,000,000x.3) Less: Amortization of goodwill (400,000 x 2/10) Carrying Amount - 2015 (A)
5,385,000 1,085,000 600,000 80,000 5,790,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over their useful life. If an entity canno t determine reliably the useful life, it is assumed to be 10 yea rs.
SUMMARY OF ANSWERS: 1. B 2. B 3. A 4. B
5.
A
PROBLEM 16-16 Question No. 1 Cost Less:Equityinnetassets Implied goodwill
(D)
Question No. 2 Proceeds(2,500xP13) Less: Carrying amount [(P60,000/6,000) x 2,500] Gain on sale
P1,700,000 1,400,000 300,000
P 32,500 25,000 7,500
(C)
Question No. 3 Proceeds(500 xP21) Less: Carrying amount [(P66,000/(2,000 x 110%)) x 500] Loss on sale (D) Question No. 4 FV off inancial asset received (1,500 xP 21) Less: Carrying amount [(P45,000/1,000) x 500] Gain on conversion
(A)
Question No. 5 Investment in Roque Corporation: 3/9 1,000 x P1.2
P 10,500 15,000 4,500
P 31,500 22,500 9,000
1,200
9/9 1,000 x P1.2 Investment in Ocampo Corporation: 6/30 (6,000 –2,500)xP1 Total dividen d income
1,200
(D) 143
3,500 5,900
Chapter 16: Investment in Associate
Question No. 6 1/2/2016 AcquisitionCost Add: Share in net income of associate (P1,200,000 x 30%) Less:Dividends(P.50x4x100,000) 12/31/2016 carrying amount (D)
1,700,000 360,000 200,000 P1,860,000
Question No. 7 Roquepref.(1,000–500)xP56 Roqueordinary(1,500xP20) Ocampo(6,000-2,500)xP11
28,000 30,000 38,500
Dagumboy Co.( 2,000 x 110% -500) x P22 12/31/2016 FVTOCI Balance
SUMMARY OF ANSWERS: 1. D 2. C 3. D 4. A
5.
37,400 133,900
(C)
D
6.
D
7.
C
PROBLEM 16-17 Question No. 1 Solano (264,500-250,000) Castaneda (280,000-320,000) (70,000-195,000) Unrealized G/(L)
(C)
Question No. 2 Zero, gain or loss on reclassifi cation is NOT allowed Question No. 3 Fair value previously held interest (50,000 x 30) Less:Carrying value Gain on reclassificati on-P&L
Question No. 5 Fair value previously held interest (50,000 x 30) Add:Acquisitioncost Initial carrying amount – investment in associate Add: investment income (see No.4 ) Less:Net Dividends declared (P2x 150,000) Investment balance end
4. D
5.
C
1,500,000 1,350,000 150,000
(D)
270,000
1,500,000 3,000,000 4,500,000
(C)
144
(A)
(C)
Question No. 4 Net investment income = July 1- Dec. 31 (30% x 900,000)
SUMMARY OF ANSWERS: 1. C 2. A 3. C
14,500 (40,000) (125,000) (150,500)
270,000 300,000 4,470,000
Chapter 16: Investment in Associate
PROBLEM 16-18 Question No. 1 Consideration received (P230 x4 ,000) Less: Dividend of the investment sold (P8 x 4,000) NetSellingPrice Less: Carrying value of the investment sold (*1,970,000/10,000 x 4,000) Gain on sale (B)
920,000 32,000 888,000 788,000 100,000
*(10,000 x P200) -(P8 x 10,00 0) + P50,000 The dividend that was paid and sold is not classified as dividend income since the company did not ow n the shar es when the dividend was declared.
Question No. 2 Net Selling Price( P450 x 50,000x 1/2) 11,250,000 Less: Carrying value of the investment sold (P20,800,000 x 1/2) 10,400,000 Gain on sale 850,000 (C) Beg. Balance of Investment in Associate Add: Share in the net income of associate (25% x P20M) Total Less: Amortization (P2,000,000/10) Dividends received( P40x 50,000) Ending balance of investment in associate – 12/31/2016
18,000,000 5,000,000 23,000,000 200,000 2,000,000 20,800,000
Question N . 3 Nil. (A) The dividend that was paid and sold in Boy-ot shares is not classified as dividend income since the company did not own the shares when the dividend was declared. The dividend received in Cleo Shares is not regarded as income, but as a deduction of the initial carryin g amount of the investment in associate. Question Nos. 4 and 5 Rodolfo (P46 x 20,000) Boy-ot (P192 x 6,000) Gene (P28 x 40,000) Cleo( P450 x2 5,000) Total
Fair value Cost (UL)/ UG 920,000 1 ,000,000 (80,000) 1,152,000 *1,182,000 (30,000) 1,120,000 1,280,000 (160,000) 11,250,000 11,250,000 14,442,000 14,712,000 (C)
* (1,970,000/10,000 x 6,000)
145
(270,000) (C)
Chapter 16: Investment in Associate
SUMMARY OF ANSWERS: 1. B 2. C 3. A 4. C
5.
C
PROBLEM 16-19 Impairment losses recognized by an associate or joint venture Question No. 1 In accounting for its associate, Mark Co. should recognize impairment loss. However, it is generally not acceptable to simply multiply the amount of impairment recognized in the investee’s own books by the investor’s percentage of ownership, because the investor should initially measure its interest in an associate’s identifiable net ownership at fair value at the date of acquisition of an associate. Accordingly, appropriate adjustments based on those fair values are made for impair ment losses recognized by the associa te. Carrying amount reflecting fair values made by Mark Co. CGU A CGUB CGUC Netassets
100,000 320,000 560,000
Recoverable amount (40%) 180,000 160,000 460,000
Impairment loss n/a 160,000 180,000 (A)
Question No. 2 The carrying amount refl ecting fair values made by Mark Co. after imp airment: CGU A CGUB 100,000 CGUC 160,000 Netassets 380,000 Goodwill 40,000 Investment in associate (A)
PROBLEM 16-20: PFRS for SME: Jointly Controlled Entity CASE NO. 1 Question No. 1 Cost model Total dividend paid by Entity Z’s Multiply by:Percentage Dividend income – P&L to SCI
(B)
Question No. 2 Cost model Carrying amount
(D)
30%
146
Chapter 16: Investment in Associate
CASE NO. 2 Question No. 3 Fair value mode l Fair value – Decemb er 31 Less:Acquisition cost Gain on change in fair value – P&L to SCI Add:Dividendincome( Total to P&L (A) Question No. 4 Fair value mode l Carrying amount = Fair value Dec. 31
300,000 45,000
(A)
CASE NO. 3 Question No. 5 Equity method Entity Z’s reported profit Multiply by:Percentage Share in net income
30%
(C)
Question No. 6 Equity method Acquisition cost Add:Shareinnetincome Less:Dividendsreceived (( Carrying value – December 31
120,000 45,000
(B)
147
Chapter 18: Property, Plant and Equipment
CHAPTER 18: PROPERTY, PLANT AND EQUIPMENT PROBLEM 18-1 Capitalizable Cost of Machinery Machinery Others Purchase price including VAT (1,568,000/1.12) 1,400,000 Costo f waterd evice to keep machine cool. 8,000 Cost of safety rail and platform surrounding machine 12,000 Installation cost, including site preparation and assembling. 20,000 Fees paid to consultan ts for advice on acquisition of themachinery. 13,000 PV of estimated dismantling cost of the new machine 10,000 Repair cost of the ma chine damaged while i n the processof installation 5,000 Losso np remature retirement-old machine 18,000 Other nonrefundable salestax 13,000 Cost of training for personnel who will use the machine 25,000 Adjusted balances 1,476,000 48,000 (A)
PROBLEM 18-2 Improvements
Capitalizable
Cost
of
Question No. 1 Purchase Price Title Insurance Legal feestopurchaseland Property taxes, January 1, 2016 -June 30, 2016 Costo fg rading and filling building site Total Cost of t he land Question No. 2 Costo fbuildingconstruction Interestonconstruction loan Costo frazingoldbuildingonlot Proceeds from sale of salvageable materials Total cost of the building Question No. 3 Cost of constructingdriveway Cost ofparkinglot and fencing Total cost of the land improvements
148
Land,
Building
and
Land
(A)
925,000 7,500 5,000 15,000 45,000 997,500
(A)
3,100,000 60,000 42,500 (6,000) 3,196,500
(B)
400,000 60,000 460,000
Chapter 18: Property, Plant and Equipment
PROBLEM 18-3 Deferred Settlement Terms (With or Without Cash Price Equivalent) Question No. 1 Cash price equivale nt Question No. 2 Principal Multiply by:Presentvalueof1 Cost of the equipment
(A)
800,000
(B)
1,000,000 0.7972 797,200
PROBLEM 18-4 Exchange (With or Without Commercial Substance) Question No. 1 Fairvalue oftheassetgiven Add:Cash payment Cost of equipment Question No. 2 Fairvalue oftheassetgiven Less:Carrying amount Gain on exchange
(D)
1,200,000 200,000 1,400,000
(B)
1,200,000 800,000 400,000
Question No. 3 Carryingamountoft heassetgiven Add:Cash payment
800,000 200,000
Cost of equipment
(B)
1,000,000
Question No 4 Zero, the transaction lacks c ommercial substance. (A)
PROBLEM 18-5 Trade–in Question No. 1 Cash price witho ut trade in Question No. 2 Cash pricewithout tradein Less:Cash pricewithtradein Trade in value Less:Carrying amount Loss on trade in
149
(A)
340,000
(B)
340,000 270,000 70,000 230,000 (160,000)
Chapter 18: Property, Plant and Equipment
PROBLEM 18-6 Acquisition through Issuance of Equity Instrument Question No. 1 Fair value of the equipment received
4,000,000
(D)
Question No. 2 Zero, the difference between the fair value and its par value is recognized as share premium in the equit y. (A)
PROBLEM 18-7 Acquisition through Issuance of Bonds Payable Question No. 1 Fair value of the bonds (10,200 x 500)
(C)
5,100,000
Question No. 2 Zero, the difference between the fair value and its par value is recognized as premium on bonds payable. (A)
PROBLEM 18-8 Acquisition by Donation Question No. 1 Fair value Add:Directcost Total cost
(B)
4,000,000 40,000 4,040,000
Question No. 2 Fair value
(C)
4,000,000
The registration and transfer of title is charged to Donated Capital / Share Premium.
PROBLEM 18-9 Subsequent Expenditure on PPE Question No. 1 Beginningbalance –Jan 1 Add:Overhaul–June30 Total cost of motor veh icle
(C)
Question No. 2 Beginningbalance –Jan 1
790,000 60,000 850,000
1,900,000
Add: Rearrangement and installation – March 2 Improvement that extend the life – December Total cost of machine (B)
150
45,000 60,000 2,005,000
Chapter 18: Property, Plant and Equipment
Question No. 3 Beginningbalance –Jan 1 Add:Unloadingand set upcost Total cost of precision machine
(C)
Question No. 4 Beginningbalance –Jan 1 Add: Installation of sprinkler system – part of blue print Add:Cost of attic Total cost of building (B) Question No. 3 Routine repairs and maintenance SUMMARY OF ANSWERS: 1. C 2. B 3. C 4. B
(D)
5.
600,000 48,000 648,000
4,100,000 130,000 500,000 4,730,000
26,000
D
PROBLEM 18-10 Question No. 1 Interest paid(2,000,000 x1 4% x1 2/12) Less: Investment income 1,400,000x 10%x 6/12 200,000 x10%x 2/12 Capitalizable borrowingcost
280,000 70,000 3,333 206,667
Note that capitalization of borrowing costs does not cease during a temporary de ay in construct on
Question No. 2 Interest paid (2,000,000 x 14% x 12/12) Less:Capitalizedborrowingcost Interestexpense
280,000 206,667 73,333
Note that the interest paid and investment income is used to compute for the capitalizable borrowing cost. However, the amount recognized as an interest expense is the difference between the total interest paid and capitalizable borrowing cost. Also, the amount recognized as interest income is 73,333.
Question No. 3 Totalprogresspayments
20,000,000
Add:Capitalizedborrowingcost Totalcost ofthe stadium
206,667 20,206,667
151
Chapter 18: Property, Plant and Equipment
PROBLEM 18-11 Question No. 1 Interest expense under effective interest method (5,000,000 x .176319 x 11/12) Less: Investment income (250,000 x 11/12) Capitalizable borrowingcost Question No. 2 Interest expense under effective interest method (5,000,000 x .176319 x 12/12) Less:Capitalizedborrowingcost Interestexpense
808,129 229,167 578,962
881,595 578,962 302,633
Question No. 3 Totalexpenditures Add:Capitalizedborrowingcost Totalcost ofthebuilding
2,700,000 578,962 3,278,962
Question No. 3 Totalcost ofthe building Less:Residualvalue Depreciable amount Divideby:Useful life Multiply by: Months Depreciation -2016
3,278,962 1,000,000 2,278,962 10 1/12 18,991
Note depreciation will start when the asset is available for use.
PROBLEM 18-12 Question No. 1 Rate 15% 20% Total
Principal Interest 4,000,000 600,000 2,000,000 400,000 6,000,000 1,000,000
Capitalization Rate (P1,000,000 / P6,000,000) = 16.67% January 1 (600,000 + 2,100,000) July1 December Averagea 1 ccumulatedexpenditure Multiply by: Rate Capitalizable borrowingcost
2,700,000 1,200,000 240,000
152
x 12/12 2,700,000 x6/12 600,000 x 1/12
20,000 3,320,000 16.67% 553,334
Chapter 18: Property, Plant and Equipment
Note that investment income is not considered since the two loans are considered general borrowings.
Question No. 2 Totalinterestexpense Less:Capitalizedborrowingcost Interestexpense
1,000,000 553,334 446,667
Question No. 3 Expenditures capitalized – previous period
600,000
Add: Expenditures during the current year Add:Capitalizedborrowingcost Totalcosto fthef actorybuilding
3,540,000 553,334 4,693,334
PROBLEM 18-13 Specific and General Borrowings Questions No. 1 & 2 January 1,2 015 September1,2 015 December31,2015 Average accumulated expenditure Multiply by: Rate Capitalizable borrowing cost
200,000 300,000 300,000 (A)
(D)
x 12/12 x4 /12 x0/12 1.
2.
200,000 100,000 0 300,000 12% P36,000
Since the average accumulated expenditure did not exceed the principal of the specific borrowing, the specific rate was used in determining the capitalizable borrowing cost.
Question No. 3 & 4 Accumulated expenditures – 836,000 12/31/2015 (P800,000 + 36,000) March 31, 2016 300,000 September30,2016 200,000 Average accumulated expenditure (D) Less:Specificborrowing Excessa ttributablet og eneralb orrowing Multiply by: Rate Multiply by: Monthsoutstanding Capitalizable borrowing cost – general borrowings Add: Specific borrowings (750,000 x 12% x 9/12) Total capitalizable borrowing cost
(B)
153
x 9/9 x 6/9 x 0/12 3.
4.
836,000 200,000 0 1,036,000 750,000 286,000 9% 9/12 19,305 67,500 86,805
Chapter 18: Property, Plant and Equipment
PROBLEM 18-14 Specific Borrowing Used For General Purposes Totalexpenditures Divide by Total Less: Investment income (50,000x 3/12) Weightedaverageexpenditures Multiply by: Rate Capitalizable borrowing cost
(A)
6,000,000 2 3,000,000 12,500 2,987,500 10% 298,750
PROBLEM 18-15 Different Depreciation Methods Cost Less:Residualvalue Depreciable amount
P3,300,000 300,000 P3,000,000
Requirement No. 1 Straight Line 2016(P3,000,000/ 5x 12/12)
600,000
2017(P3,000,000/ 5x 12/12)
600,000
Requirement No. 2 Service Hours Depreciation rate per hour (P3,000,000 / 60,000 hours) = P50/hour 2016(P50/hourx 3,000hours)
150,000
2017(P50/hourx 3,500hours)
175,000
Requirement No. 3 Units of Output Method Depreciation rate per unit (P3,000, 000 / 50,000 units) = P60/unit 2016(P60/unitx 5,000units)
300,000
2017(P60/unitx 4,500units)
270,000
Requirement No. 4 Sum-of the Years’ Digits Sum-of-years-digits [5 x ((5+1)/2)] = 15 2016(P3,000,000x 5/15)
1,000,000
2017(P3,000,000x 4/15)
800,000
Requirement No. 5 Sum-of the Years’ Digits Sum-of-years-digits [5 x ((5+1)/2)] = 15 2016(P3,000,000x5 /15x 3/12)
250,000 154
Chapter 18: Property, Plant and Equipment
2017 (P3,000,000 x 5/15 x 9/12) + (P3,000,000 x 4/15 x 9/12)
950,000
Requirement No. 6 Double-declining balance Double declining rate (2/5) = 40% 2016(P3,300,000x 40%)
1,820,000
2017 [(P3,300,000 – 1,820,000) x4 0%]
792,000
Requirement No. 7 Double-declining balance Double declining rate (2/5) = 40% 2016(P3,300,000x4 0%x3/12)
990,000
2017 [(P3,300,000 – 990,000) x 40% x 12/12)]
924,000
Requirement No. 8 150% declining balance 150% declining rate (1.5/5) = 30% 2016(P3,300,000x 30%)
990,000
2017 [(P3,300,000 – 990,000) x 30% x 12/12)]
693,000
PROBLEM 18-16 Composite Method Salvage MachineA MachineB Machine C Total
Cost 275,000 100,000 20,000 395,000
Depreciable
Value 25,000 10,000 35,000
Amount 250,000 90,000 20,000 360,000
Estd. Life 20 15 5
Annual Depreciation 12,500 6,000 4,000 22,500
Composite Life = (Depreciable amount / Total annual depreciation) = P360,000 / P22,500 = 16 years (B)
PROBLEM 18-17 Retirement Method Original cost Less:Salvage proceeds Depreciation
(B)
155
5,000 600 4,400
Chapter 18: Property, Plant and Equipment
PROBLEM 18-18 Change in Estimate Cost Less: Accumulated depreciation – 12/31/2016 [(P3,300,000 – P300,000) / 8 x4 ] Carryingvalue– 12/31/2016
3,300,000 1,500,000 1,800,000
CASE NO. 1 Requirement No. 1 Carryingvalue– 12/31/2015 Less:Residualvalue
1,800,000 300,000
Depreciable amount Dividedby:R evisedremainingusefull ife Depreciation –2016
1,500,000 2 750,000
Requirement No. 2 Carryingvalue– 12/31/2015 Less: Depreciation –2016 Carryingvalue– 12/31/2016
1,800,000 750,000 1,050,000
CASE NO. 2 Requirement No. 1 Carryingvalue– 12/31/2015 Less:Residualvalue Depreciable amount Dividedby:R emainingusefullife(8 –4)
1,800,000 150,000 1,650,000 4
Depreciation –2016
412,500
Requirement No 2 Carryingvalue– 12/31/2015 Less: Depreciation –2016 Carryingvalue– 12/31/2016
1,800,000 412,500 1,387,500
CASE NO. 3 Requirement No. 1 Carryingvalue– 12/31/2015 Less:Residualvalue Depreciable amount Multiply by: Fraction (SYD=10) Depreciation –2016
1,800,000 300,000 1,500,000 4/10 600,000
Requirement No. 2 Carryingvalue– 12/31/2015 Less: Depreciation–2016 Carryingvalue– 12/31/2016
1,800,000 600,000 1,200,000
156
Chapter 18: Property, Plant and Equipment
PROBLEM 18-19 Replacement Method Replacementcost Less:Salvage proceeds Depreciation
(C)
6,000 600 5,400
PROBLEM 18-20 Fixed Asset Turnover Let X = Net Fixed Asset at the end of 2016 Sales Fixed asset tur nover = Average Fixed Asset P1,480,000 4= .5 (P320,000 + X) P1,480,000 4= P160,000 + .5x P1,480,000 = P640,000 + 2x X= P420,000 (C)
COMPREHENSIVE PROBLEMS PROBLEM 18-21 Question No. 1 Beg.Balanceofthe Land Cash paid Mortgage assumed
P 700,000 2,500,000 4,000,000
Realtor's commission Legal fees, realty taxes and documentation expenses Amount paid to rel cate persons squatting on the property Total Cost of t he Land (B)
Question No. 2 Beginning balanceo f theL and Improvement Cost offencingproperty Total cost of Land Improve ment Question No. 3 Beg.Balanceofthe Building Amount recovered from salvage of building Costo ft earingdownanoldbuilding Amountpaidto contractor Buildingpermit Excavationexpenses Architects'fees Total cost of building
157
(A)
(A)
300,000 50,000 100,000 P7,650,000 P 10,000 110,000 P 120,000 P 900,000 (150,000) 120,000 2,000,000 20,000 50,000 50,000 P2,990,000
Chapter 18: Property, Plant and Equipment
Question No. 4 Beg.BalanceoftheM achinery Invoicecostofmachinery Freight,unloading Customs duties Allowancesduringinstallations Total cost of machin ery
(B)
P 980,000 2,000,000 60,000 140,000 400,000 P3,580,000
Question No. 5 Totalcosto fLandImprovement
P 120,000
Totalcost ofbuilding Totalcost ofmachinery Total depreciable property
2,990,000 3,580,000 P6,690,000
(A)
Royalty payment on machines purchased in the amount of P120,000 should be included as part of manufacturing overhead in the company’s income statement, if the same is based on units produced. However, if royalty payment is based on units produced and sold, it sho uld be treated as a selling ex pense.
SUMMARY OF ANSWERS: 1. B 2. A 3. A 4. B
5.
A
PROBLEM 18-22 Specific and General Borrowings Question No . 1 an d 2 WEIGHTED AVERAGE INMonths 2014 Date Expenditures 01/01/2015 3,000,000 07/01/2015 7,000,000 11/01/2015 6,000,000 Total 16,000,000 Divide by Weighted averagec arryinga mount Specific borrowings (2,000,000 x 10%) General borrowings: Rate 14% 12%
Principal 2,000,000 18,000,000
outstanding Average 12 36,000,000 6 42,000,000 2 12,000,000 90,000,000 12 7,500,000 200,000
Interest 280,000 2,160,000
Total 20,000,000 2,440,000 Capitalization Rate (P2,440,000 / P20,000,000) = 12.20% Weighted average borrowing cost: Specific borrowings 158
Chapter 18: Property, Plant and Equipment
Actualborrowing cost Less:Investmentincome General borrowings: Weighted average carrying amount Less: Principal amount of Specific borrowings Weighted average related to General borrowings Multiplyb y: Capitalization rate Multiply by: Months/12 Weightedaverageb orrowingcost: vs.Actual borrowingcost
200,000 13,000 7,500,000 2,000,000 5,500,000 12.20% 1
187,000
671,000 858,000 2,640,000
Capitalizable borrowing cost 858,000 (lower) (A) WEIGHTED AVERAGE IN 2015 Months Date Expenditures outstanding Average 01/01/2016 *16,858,000 8 134,864,000 07/01/2016 1,000,000 2 2,000,000 08/01/2016 2,000,000 1 2,000,000 Total 19,858,000 138,864,000 Divide by 8 Weighted averagec arryinga mount 17,358,000 *Total expenditures in 2015 plus capitalized borrowing cost in 2015. Weighted average borrowing cost: Specific borrowings Actual borrowing cost (P2,000,000 x 10% x 8/12) Less:Investmentincome General borrowings: Weighted average carrying amount Less: Principal amount of Specific borrowings Weighted average related to General borrowings Multiplyb y: Capitalization rate Multiply by:M onths/12 Weightedaverageb orrowingcost: vs. Actual borrowing cost (2,640,000 x 8/12) Capitalizable borrowing cost (lower)
Question No. 3 Actualborrowingcost-2015 Less: Capitalizable borrowingc ost - 2015 Interest expense Question No. 4 Actualborrowingcost-2016 Less: Capitalizable borrowing cost - 2016 Interest expense 159
133,333 17,358,000 2,000,000 15,358,000 12.20% 8/12
(B)
133,333
1,249,117 1,382,451 1,760,000 1,382,451
(C)
2,640,000 858,000 1,782,000
(C)
2,640,000 1,382,451 1,257,550
Chapter 18: Property, Plant and Equipment
Question No. 5 Totalcost,2015 Expendituresin2016 Add: Capitalizable borrowing cost - 2016 Total cost of the building SUMMARY OF ANSWERS: 1. A 2. B 3. C 4. C
5.
(B)
16,858,000 3,000,000 1,382,451 21,240,451
B
PROBLEM 18-23 Question No. 1 The computation of the income from government grant is as follows: Totalcashreceived 20,000,000 Divideby:Usefullifeof thebuilding 20 Incomef romgovernmentgrant 1,000,000 Question No. 2 Cost ofbuilding Divideby:Usefullifeof thebuilding Depreciation
24,000,000 20 1,200,000
Question No. 3 Cost ofbuilding
24,000,000
Less:Governmentgrant Total Divideby Usefu lifeof thebuilding Depreciation
20,000,000 4,000,000 20 200,000
Question No. 4 Cost ofbuilding Less:Depreciation–2016 Carryingamount–12/31/2016
24,000,000 1,200,000 22,800,000
Question No. 5 Netcostofbuilding Less:Depreciation–2016 Carryingamount–12/31/2016
4,000,000 200,000 3,800,000
PROBLEM 18-24 Grants Related to Nondepreciable Assets Question No. 1 The computation of the income from government grant is as follows: Totalfair valueoftheland 10,000,000 160
Chapter 18: Property, Plant and Equipment
Dividebyusefullifeof thebuilding Incomef romgovernmentgrant
10 1,000,000
Question No. 2 Cost offactorybuilding Divideby:Usefullifeof thebuilding Depreciation
15,000,000 10 1,500,000
Question No. 3 Cost offactorybuilding
15,000,000
Less:Governmentgrant Total Divideby:Usefullifeof thebuilding Depreciation
10,000,000 5,000,000 10 500,000
Question No. 4 Cost offactorybuilding Less:Depreciation–2016 Carryingamount–12/31/2016
15,000,000 1,500,000 13,500,000
Question No. 5 Netcostoff actorybuilding Less:Depreciation–2016 Carryingamount–12/31/2016
5,000,000 500,000 4,500,000
PROBLEM 18-25 Question No. 1 Cost( 800,000+45,000-5,000) Less ResidualValue Depreciable cost Divide by Depreciation
(B)
840,000 40,000 800,000 5 160,000
Question No. 2 Cost( 800,000+45,000-5,000) Less Accumulated Depreciation (160,000 x 3) Carryingamount Less newresidualvalue Depreciable cost Dividebyremainingusefull ife (5-2) Depreciation (A)
840,000 320,000 520,000 70,000 450,000 3 150,000
161
Chapter 18: Property, Plant and Equipment
Question No. 3 Cost Less Accumulated depreciation (270,000/4 x 8/12) Total Carrying amount of old tires (12,000-(12,000/4 x 8/12) Cost ofnewtires Total
270,000 45,000 225,000 (10,000) 24,000 239,000
Depreciation Motor vehicle: Sept.1 -May 30, 2019( 270,000/4 x8 /12) June 1-Sept. 30 (215,000/4 x 12 mos-8 mos x 4 mos) Tyres from June 1- Sept 30 (24,000/24 mos x 4 mos) Depreciation expense (D)
45,000 21,500 4,000 70,500
Question No. 4 Depreciable cost Cost
Residual Value
800,000
0
100,000
0
Airframe
800,000
Interior Engines
100,000 and
rotary blades Inspection Total
Divide by Useful life 10 years 10 years
370,000 400,000 240,000
30,000 0
240,000
Question No. 5 Cost Less ResidualValue Depreciable cost Divide by Multiply by Depreciation SUMMARY OF ANSWERS: 1. B 2. A 3. D 4. D
(B)
5.
Depreciation exp
80.000 10,000 74,000
5 years 3y ears 80,000 244 000
280,000 40,000 240,000 3 8/12 53,333
B
PROBLEM 18-26 Question No. 1 SellingPrice Less Book value
P52,000 162
Chapter 18: Property, Plant and Equipment
Cost Less: Accumulated Depreciation Upto 1/1 From Jan. 1-May 1 [(140,000 -12,400) x 5/55]* Gain on sale of mac hinery D
P140,000 P92,800 11,600 (A)
(104,400)
35,600 P 16,400
Note: No depreciation is recorded in the year an asset is purchased, and full year depreciation is provided in the year an asset is disposed of
Question No. 2 Accumulatedd epreciation,RJan1 P1 40,800 Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100] 26,880 Accumulated depreciation, R Dec. 31 167,680 P (B) Question No. 3 Accumulatedd epreciation,IJan1 Add: Depreciation expense [(320,000-60,000-20,000)/10] Accumulated depreciation, I Dec. 31 (C) Question No. 4 Accumulatedd epreciation,AJan1 Add: Depreciation expense (320,000-64,000) x 20% Accumulated depreciation, A Dec. 31 (A)
P60,000 24,000 84,000 P
P 64,000 51,200 115,200 P
Question No. 5 Depreciation expense on D (seecomputation inno. 1)Machinery: R(seecomputationinno.2) I(seecomputationinno.3) A(seecomputationinno.4) N(88,000/20%) Total depreciation expense
SUMMARY OF ANSWERS: 1. A 2. B 3. C 4. A
(D)
5.
P 11,600 26,880 24,000 51,200 17,600 P 131,280
D
PROBLEM 18-27 Component Depreciation Question No. 1 Purchase of bottling plant Delivery and installation (750,000x 1/3) Testing (33,000/3) Total cost of engine
163
(C)
P1,500,000 250,000 11,000 P1,761,000
Chapter 18: Property, Plant and Equipment
Question No. 2 Purchase of bottling plant Delivery and installation (750,000x 1/3) Testing (33,000/3) Total cost of conveyor belt and fittings
P2,000,000 250,000 11,000 P2,261,000
(C)
Question No. 3 Purchase of bottling plant Delivery and installation (750,000x 1/3) Testing (33,000/3) Total cost of outer struc ture
P 800,000 250,000 11,000 P1,061,000
(C)
Question No. 4 Depreciation of component of plant: Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years x 11/12 231,183 Conveyor belt etc = (2,000,000 + 250,000 + 11,000 – 0) / 8 years 11/12 x 259,073 Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3 years 11/12 x 308,917 Total depreciation of plant P 799,173 (A) Depreciation starts from the date that the asset was available for use: February 1, 2016.
Question No. 5 Depreciation of component of plant: Engine = (1,500,000 + 250,000 + 11,000 – 500,000) / 5 years 252,200 Conveyor bel t etc = (2,0 00 000 + 250,000 + 11 000 – 0) / 8 years 282,625 Outer structure = (800,000 + 250,000 + 11,000 – 50,000) / 3 years 337,000 Total depreciation of plant P 871,825 (A)
SUMMARY OF ANSWERS: 1. C 2. C 3. C 4. A
5.
B
PROBLEM 18-28 Question No. 1 Fair value
1,400,000
Legal fees cost Remodeling Total cost of building
(C)
164
50,000 100,000 1,550,000
Chapter 18: Property, Plant and Equipment
Question No. 2 Fairvalueo ftheassetreceived Less:Cash paid Fairvalue oftheassetgiven Less: Book value of the asset giv en Cost Less: Accumulated depreciation (1M/10 x 3.5) Gain on exchange
1,200,000 400,000 800,000 1,000,000 350,000 (A)
650000 150,000
Question No. 3 OfficebuildingNo.1 (940,000/7) Office building No.2 (1,000,000/10 x 6/12) Office building No.3 (1,200,000/4 x 6/12) Factoryb uilding(1,550,000/10) Total Depreciation expense Costo foffice building No. 1 Less: Accumulated Depreciation Bookvalue Add:Majorimprovements Total
135,000 50,000 150,000 155,000 490,000
(C) 1,000,000 300,000 700,000 245,000 945,000
Question No. 4 Income from government grant (1,400,000/10)
Questi on No. 5 cost Total depreciable Less:Subsequentd epreciation Book value SUMMARY OF ANSWERS: 1. C 2. A 3. C 4. A
5.
(A)
140,000
(A)
945,000 135,000 810,000
A
PROBLEM 18-29 Question No. 1 Date January1 ,2 015 July1, 2015
Exp enditures 2,000,000 4,000,000
November1 ,2015 Total Divide by Weightedaveragec arryinga mount
3,000,000 9,000,000
165
Months outstanding Average 12 24,000,000 6 24,000,000 2
6,000,000 54,000,000 8 4,500,000
Chapter 18: Property, Plant and Equipment
Weighted average borrowing cost: Specific borrowings Actual borrowing cost (2M x 10% x 12/12) Less:Investmentincome General borrowings: Weighted average carrying amount Less: Principal amount of Specific borrowings Weighted average related to General borrowings Multiplyb y:Capitalizationrate Multiply by: Months/12 Weightedaverageb orrowingcost: vs.Actual borrowingcost Capitalizable borrowing cost (lower)
200,000 -
200,000
4,500,000 2,000,000 2,500,000 12% 12/12
300,000 500,000 2,000,000 500,000
(D)
Question No. 2 Totalexpenditures–2015 Totalexpenditures-2016 Capitalizedborrowingcost-2015 Capitalized borrowing cost – 2016 (see computation below) Total cost of building (C)
9,000,000 1,000,000 500,000 1,160,000 11,660,000
Exp enditures *9,500,000 1,000,000
Months outstanding Average 12 114,000,000 6 6,000,000
Total 10,500,000 Divide by Weig tedaveragec arryinga mount
120,000,000 12 10,000,000
Date January1 ,2 016 July1, 2016
Total of expenditure in 2015 of P9M and capitalized borrowing cost of P500,000. Weighted average borrowing cost: Specific borrowings Actual borrowing cost (2M x 10% x 12/12) Less:Investmentincome General borrowings: Weighted average carrying amount Less: Principal amount of Specific borrowings Weighted average related to General borrowings Multiplyb y:Capitalizationrate Multiply by: Months/12 Weightedaverageborrowingc ost: vs.Actual borrowingcost Capitalizable borrowing cost (lower) 166
200,000 10,000,000 2,000,000 8,000,000 12% 12/12
200,000
960,000 1,160,000 2,000,000 1,160,000
Chapter 18: Property, Plant and Equipment
Question No. 3 Totalexpenditures–2015 Totalexpenditures-2016 Total cost of building
(A)
9,000,000 1,000,000 10,000,000
Borrowing cos t under PFRS for SME is expens ed outrig ht.
Question No. 4 Costo fM achineryandEquipment Multiply by: Fraction Depreciation
(A)
3,000,000 3/15 600,000
Question No. 5 Depreciation – remaining delivery truck (see below) Depreciation – overhauled delivery truck (see below) Depreciation – new delivery truck (see below) Total depreciation on delivery truck (B)
114,000 30,000 24,000 168,000
SYD is 15 yea rs and useful life is 5 year s.
Delivery truck: Cost Less:Accumulateddepreciation Carryingvalue –12/31/2015 Less: Carryingv alue ofo verhauled truck Balance Divide by:Remaining usefullife (8-3) ruck Depreciation on remaining deliveryt
Overhauled delivery truck: Cost Less: Accumulated depreciation (P240,000 / 8 x 3) Carryingvalue –12/31/2015 Add:Overhaulingcost Adjusted carrying value – 01/01/2016 Divide by: Revised remaining usefull ife( 5 +2 ) Depreciation on overhauled delivery truck
1,152,000 432,000 720,000 150,000 570,000 5 114,000
P240,000 90,000 150,000 60,000 210,000 7 30,000
New Delivery truck: Invoice cost Freight
400,000 20,800
Installation andtesting Totalcosto fnew deliverytruck Divideby:Useful life Annual depreciation Multiply by: Number of months used (July 26 to December 31)
40,000 460,800 8 57,600 5/12
167
Chapter 18: Property, Plant and Equipment
Depreciation on remaining deliveryt ruck
24,000
Question No. 6 Beginningbalance Add:Overhaulingcost Add:Cost ofnewdelivery truck Adjustedcostofdeliverytruck Less: Accumulated depreciation (432,000 + 168,000) Carrying value – 12/31/2016 (C) SUMMARY OF ANSWERS: 1. D 2. C 3. A 4. A
5.
B
5.
B
6.
C
PROBLEM 18-29 SUMMARY OF ANSWERS: 1. C 2. B 3. B 4. C
PROBLEM 18-31 Question No. 1 SYD
=(5 (5+1)/2 = 15
Date 4/1/06-4/1/07 4/1/07-4/1/08
Fraction tob e used (5/15) (4/15)
Depreciation exp: Jan 1-4/1/08 (4/15*1,500,000*3/12) Add: depreciation from 4/1-12/31 Of the 1.2M (3/15*1,200,000*9/12) Of the 300,000 (see computation below) Total depreciation expense
180,000 30,000 P3 10,000
Depreciation exp. from (4/1/-12/31): Cost 300,000 Less: Accumulated Depreciation 5/15*300,000 100,000 4/15*300,000) 80,000 Book Value, 4/1/08 120,000 Divide by remaining Life (5-2) 3 Total 40,000 Multiply by: 9/12 Depreciation 30,000
Question No. 2 Accumulated depreciation, beg. Add depreciation expense
800,000 320,000 168
1,152,000 60,000 460,800 1,672,800 600,000 1,072,800
Chapter 18: Property, Plant and Equipment
Accumulated depreciation, End
P 1,120,000
Question No. 3 Beg.Balofland Add: Acquisition on Nov 4 Total cost of the land Question No. 4 Directcost Fixedc ost Variable cost Total Cost of bldg.
550,000 700,000 1,250,000
2,220,000 375,000
(15,000 X 25) (15,000 X 27)
405,000 3,000,000
Question No. 5 Depreciation on the beginning balance (6M-4,427,136-1,300,000) Add: Depre ciation on new bldg. (3,000,000X 20%) Totaldepreciation Question No. 6 Cost of the machinery-beg bal. Addmajoroverhaul Add: Cost of the new machinery Invoicec ost Concrete embedding Walldemolition Rebuilding ofw all Total costo fm achinery
272,864 600,000 872,864
3,000,000 600,000 356,000 18,000 7,000 19,000
4000 00 P4 ,000,000
Question No. 7 Depreciation of machinery Depreciation of the beg bal of machinery OriginalCost Add:Major overhaul Total Accum. depreciation (3,000,000/20*10) Adjustedbookvalue Dividedby:r evisedremaininglife Depreciation of the beg bal of machinery Depreciation on the (400,000/20*6/12) Depreciationofm achinery
new
SUMMARY OF ANSWERS: 1. A 2. C 3. B 4. A
5.
P 3,000,000 600,000 3,600,000 P1,500,000 P 2,100,000 15 P 140,000
machinery
D 169
6.
10,000 P 150,000
C
7.
B
Chapter 18: Property, Plant and Equipment
PROBLEM 18-32 Question No. 1 Property-cost Less: Accumulated depreciation Depreciation (3,400,000 x 4%) Carrying value of property (C)
3,400,000 (1,360,000) (136,000) 1,904,000
Question No. 2 Cost at 30June2016 Less:Disposal1July2 016
360,000 32,000
Accumulatedd epreciation Disposal 1 July 2016 (32,000 x 20% x 2yrs) Carrying value1 July 2016a fter disposal Less:Depreciation(214,800 x1 5%) Additions1 April2017 Less: Depreciation (78,000 x 15% x 3/12) Carrying value – 30 June 2017 (C)
(126,000) 12,800 (113,200) 214,800 (32,220) 78,000 (2,925) 75,075 257,655
Question No. 3 Constructioncosts Professionalfees Sitepreparation costs Total cost of retai l outlet
3 28,000
1,200,000 7,800 90,000 1,297,800
(B)
Question No. 4 Intangible–brand( cost) Less: Accumulated amortization – 30 June 2016 Less: Amortization – 2017 (290,000 / 10) Capitalized development cost (96,000 / 6 x 4) Less: Amortization (64,000 /4 x3 /12) Carrying value – 30 June 2017 (C) Land Property-cost Less: Accumulated depreciation Depreciation (3,400,000 x 4%)
290,000 101,500 29,000 64,000 4,000
159,500 60,000 219,500
1,500,000 3,400,000 (1,360,000) (136,000)
Constructions costs Fixtures&fittings Carryingvalue of PPE
1,904,000 1,297,800 257,655 4,959,455
170
Chapter 18: Property, Plant and Equipment
Question No. 5 Depreciation: Property Fixtures and fittings (32,220 + 2,925) Amortization(29,000+4,000) Total depreciation and amortization SUMMARY OF ANSWERS: 1. C 2. C 3. B 4. C
5.
136,000 35,145
(D)
D
171
171,145 33,000 204,145
Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS PROBLEM 19-1 Depletion with Change in Estimate Question No. 1 Acquisitioncost Less:Estimatedresidualvalue Depletable costo f then aturalr esource Divide by: Tons estimatedt o be extracted Depletion perton Multiplyb y:Tonsextracted-2015 Depletion – 2015 Question No. 2 Acquisitioncost Less: Accumulated depletion – 12/31/2015 Carryingvalue –01/01/2016 Divide by: Tons estimatedt o be extracted Depletion perunit Multiplyb y:Tonsextracted–2016 Depletion – 2016
(B)
P164,000 P164,000 20,000 P8.20 4,000 P32,800
(C)
P164,000 32,800 131,200 20,000 P6.56 8,000 P52,480
PROBLEM 19-2 Depletion with Change in Estimate Acquisitioncost
20,000,000
Exploration cost. Intangibledevelopmentcost To al cos oft henaturalresources lesse stimatedresidualvalue Total depletable cost of the natural resources divideby unitsest.t o be extracted Depletion perunit x unitsextracted Depletion from2015to 2017
15,000,000 4,000,000 390 00,000 1,000,000 38,000,000 2,000,000 19.00 500,000 9,500,000
Question No. 1 Cost ofnatural resource Accumulated depletion Carryingamount,12/31/2017 Residualvalue
39,000,000 9,500,000 29,500,000 600,000
Depletablecost Divideby revisedr emainingunits Depletion rateper unit Multiply by: Unitsextracted Depletion
28,900,000 400,000 72.25 200,000 14,450,000
(D) 172
Chapter 19: Wasting Assets
Question No. 2 Cost ofnaturalresource Accumulated depletion Carrying amount, 12/31/2018
(D)
39,000,000 23,950,000 15,050,000
PROBLEM 19-3 Depreciation of Movable and Immovable Equipment – Useful Life of the Immovabl e Equipment is Shorter Question No. 1 Acquisitioncost Exploration cost. Intangibledevelopmentcost Total costo ft he natural resources less estimatedresidualvalue Total depletable cost of the natural resources divide by units est.t o be extracted Depletion perunit Multiply by: Unitsextracted Depletion (D)
8,000,000 12,000,000 5,000,000 25,000,000 25,000,000 2,000,000 12.50 500,000 6,250,000
Question No. 2 Costoft hemovableequipment Divideby:Usefullife Depreciation
(A)
4,000,000 10 400,000
(B)
2,000,000 4 500,000
Question No. 3 Costo ft hemovableequipment Divideby:Usefullife(shorter) Depreciation
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life of the Wasting Asset is Shorter Question No. 1 Acquisitioncost Exploration cost. Intangibledevelopmentcost Total costo ft he natural resources less estimatedresidualvalue
8,000,000 12,000,000 5,000,000 25,000,000 -
Total depletable cost of the natural resources divide by units est.t o be extracted Depletion perunit x unitsextracted Depletion (D)
25,000,000 2,000,000 12.50 500,000 6,250,000
173
Chapter 19: Wasting Assets
Question No. 2 costo ft hemovableequipment dividebyunitsest. tobeextracted Depreciation
(A)
Question No. 3 Costo ft hemovableequipment Divide by: Units estimated to be extracted (shorter)* Depreciationrateperunit Multiplyb y:A ctualunitse xtracted Depreciation - 2016
(B)
4,000,000 20 200,000
P2,000,000 2,000,000 P1 500,000 500,000
*Estimated useful li fe using output method (2,000, 000 / 500,000) = 4 years
PROBLEM 19-5 Depreciation –No Production Costo fi mmovableequipment Divide by: Units est. to be extracted Depreciationper unit x unitsextracted Accum. Depreciation
4,000,000 2,000,000 2.00 500,000 1,000,000
Question No. 1 Costo fi mmovableequipment
4,000,000
Less:Accumulatedd epreciation Bookvalue,Dec. 31,2017 Divideby Unitsest.t beextracted Depreciation in 2018
(B)
1,000,000 3,000,000 12 250,000
Question No. 2 Costo fi mmovableequipment Less:Accumulateddepreciation Bookvalue,Dec. 31,2018 Divide by: Remaining units to be extracted Depreciationper unit Multiply by: Unitsextracted Depletion (A)
4,000,000 1,250,000 2,750,000 1,500,000 1.83 100,000 183,333
PROBLEM 19-6 Liquidating Dividends Accumulated profits -unappropriated 9,000,000 Accumulated depletion 4,000,000 Total 13,000,000 less: Capital liquidated 850,000 174
Chapter 19: Wasting Assets
Depletion in the ending inventory (150,000 units X4 ) 600,000 1,450,000 Maximum Dividend (C ) 11,550,000
PROBLEM 19-7 Question No. 1 Acquisitioncost Divide by: Tons estimated to be extracted Depletion perton Multiplyb y:A ctual tons extracted – 2016 Depletion - 2016 Question No. 2 Cost of Installation Divide by: Tons estimated to be extracted Depreciationper ton Multiplyb y:A ctual tons extracted – 2016 Depreciation - 2016 Question No. 3 Cost ofminingequipment Divideby:Useful life Depreciation – 2016 Question No. 4 Acquisitioncost Less:Accumulated Depletion Carryingvalue– 12/31/2016 Add: Additionald evelopment cost - 2017 Remainingdepletable cost Divide by: Estimatedt ons to be extracted Depletion per ton Multiplyb y:Tonsextracted–2017 Depletion - 2017 Question No. 5 Installation ((P1,925,000/1.1M) x 150,000 tons) Miningequipment(P4,400,000/8) Total depreciation expense SUMMARY OF ANSWERS: 1. D 2. B 3. A 4. C
5.
175
C
(D)
P9,075,000 1,100,000 P8.25 100,000 825,000
(B)
1,925,000 1,100,000 1.75 100,000 175,000
(A)
4,400,000 8 550,000
(C)
P9,075,000 825,000 P8,250,000 750,000 P9,000,000 1,000,000 P 9 150,000 P1,350,000
(C)
P 262,500 550,000 P 812,500
Chapter 19: Wasting Assets
PROBLEM 19-8 Cost of Wasting Asset with Estimated Restoration Cost, Depletion, Depreciation of Movable and Immovable Equ ipment Question No. 1 Acquisition costo ft he wastinga ssets Explorationa nd intangible devt.C ost Estimated decommissioning and restoration costs-at PV Initial cost (A)
150,000,000 8,000,000 8,196,161 166,196,162
Estimatedrestorationcost
P12,000,000
Multiply by: Present value of 1 for four periods Present value oft he restorationc ost
0.6830 P 8,196,161
Question No. 2 Totalcosto fthew astingassets Divide by: Total units estimated to be extracted Depletion perunit Multiply by:U nitsextracted Depletion expense (B) Question No. 3 Costoft hemovableequipment Divideby:Usefullife Depreciation
(A)
166,196,162 12,000,000 13.85 1,600,000 22,159,488
6,000,000 20 300,000
Question No. 4 Costo ft hemovableequipment 9,000,000 Divide by: Total units estimated to be extracted 12,000,000 Depreciationperunit .75 Multiply by:U nitsextracted 1,600,000 Depletion expense 1,200,000 (B) Note: Units of output method was used since the useful life in years using the estimated units to be extracted each year (8 years) is shorter than the useful life of the immovab le equipmen t. *Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years Question No. 5 Date Interest expense 01/01/2015 12/31/2015 819,612 (A) SUMMARY OF ANSWERS: 1. A 2. B 3. A 4. B
Present value 8,196,161 9,015,777
5.
176
A
Chapter 19: Wasting Assets
PROBLEM 19-9 Cost of Wasting Asse t with Est imated Restor ation Cost, Deple tion, Depre ciation of Movable and Immov able Equip ment Question No. 1 Acquisition costo ft he wastinga ssets Explorationa nd intangible devt.C ost Estimated decommissioning and restoration costs-at PV Initial cost (A)
120,000,000 6,000,000 6,355,181 132,355,181
Estimatedrestorationcost
P10,000,000
Multiply by: Present value of 1 for four periods Present value oft he restorationc ost
0..6355 P 6,355,181
Question No. 2 Totalcosto fthew astingassets Divide by: Total units estimated to be extracted Depletion perunit Multiply by:U nitsextracted Depletion expense (B)
132,355,181 12,000,000 11.03 1,600,000 17,647,357
Question No. 3 Costoft hemovableequipment Divideby:Usefullife Depreciation Question No. 4 Costoft hemovableequipment Divideby:Usefullife(shorter) Depreciation
(A)
6,000,000 6 1,000,000
(A)
9,000,000 5 1,800,000
*Estimated useful life using output method (11,000, 000 / 1,500,000) = 8years
Question No. 5 Date Interest expense 01/01/2016 12/31/2016 2,6 7622 (A) SUMMARY OF ANSWERS: 1. A 2. B 3. A 4. A
Present value 6,355,181 7,117,803
5.
177
A
Chapter 20: Investment Property
CHAPTER 20: INVESTMENT PROPERTY PROBLEM 20-1: Classificat ion Issu e Question No. 1 Farming land was purchased for its investment potential. Planning permission has not been obtained for building constructions of any kind. A building that is held under mixed use; half is to earn rentals A building leased to an associate under an operating lease Total investment property (D) Question No. 2 A new office building used by one of its subsidiaries as its head office which was purchased specifically in the center of Makati City in orde r to exploi t its capital gains potential. Owner-occupiedproperties Buildings occupied by employees, including Ms. Munda – the accountant. The employees pays rent on the building they occupied A building occupied by employees, the employees do not pay market rent on the building they occupied. A building that is held under mixed use; half of it is owneroccupied A property wherein significant ancillary services are provided to occupants Land and building leased to a subsidiary A new machine leased to another associate under an operating lease A building that is being constructed for future use as administration building. Total PPE (B)
Question No. 3 A property that is in the process of construction for sale A property intended for sale in the ordinary course of business Total inventories (C) Question No.4
(C)
Question No.5
SUMMARY OF ANSWERS: 1. D
2. B
3. C
4. C
5.
178
C
(C)
800,000
860,000 1,620,000 3,280,000 1,200,000
1,600,000 760,000
240,000 860,000 960,000 2,100,000 530,000 870,000 9,120,000
950,000 450,000 1,400,000
Chapter 20: Investment Property
PROBLEM 20-2: Classificati on Issue Question No. 1 Separate if portions can be sold or leased out separately. (C) Question No. 2
(A )
Question No. 3
(B )
Question No. 4
(C )
PROBLEM 20-3: Ancillary services Question No.1
(C )
Question No.2
(D)
PROBLEM 20-4: Intracompany rentals Question No.1
(B)
Question No.2
(D)
PROBLEM 20-5: Initial measurement - Investment property leased under finance lease Lower of fair val ue or present value of minim um lease pay ments.
Suggested answer: (B)
PROBLEM 20-6: Subsequent measurement: Cost model vs Fair value model SUMMARY OF ANSWERS: 1. D 2. B 3. D 4. B
5.
D
6.
A
PROBLEM 20-7: Transfer from PPE to Investment Property – Fair value vs Cost model Question No. 1 (D) No gain or loss is recognized if the transfer is made at cost model. Question No. 2 (D) No gain or loss is re cognized if the transfer is m ade at cost mo del. Question No . 3 an d 4 Fair value date of trans fer Less: Carryingv alue– 12/31/2016( Revaluationsurplus–OCI Less: Transfer of revaluation surplus to R/E as a result of reclassification 179
80,000,000 6,000,000 6,000,000
Chapter 20: Investment Property
Gain (loss) on transfe r
(D)
SUMMARY OF ANSWERS: 1. D 2. D 3. D
4. D
PROBLEM 20-8: Transfer from inventory to investment property – Fair value vs Cos t model Question No. 1 Cost Netrealizablevalue(
(B) -
2,700,000
Lower of cos t and net re alizable value
Question No. 2 (B) The initial carrying amount under the new classification is the previous carryin g amount of Question No. 3 (D) No gain or loss is recognized if the transfer is made at cost model. Question No. 4 (A) 2,880,000. Fair value at the date of transfe r. Don’t deduc t cost to sell. Question No. 5 (A) Fair value at the date of transfer Less:Carrying value Gain on transfer
2,600,000
PROBLEM 20-9: Derecognition of investment property – Fair value vs Cost Model Question No. 1 Gross selling price Less:Disposalcost Netsellingprice Less:Carryingv alue– 12/31/2015( Gain on sale (D)
120,000 2,870,000 2,700,000
Question No. 2 Gross selling price Less:Disposalcost Netsellingprice Less: Carrying value – 12/31/2015 (fair value) Gain on sale (C) 180
120,000 2,870,000 2,450,000 420,000
Chapter 20: Investment Property
PROBLEM 20-10 Question No. 1 Cost Less:Residualvalue Depreciable cost Dividedby: Usefullife Annual depreciation Multiply by: Monthsoutstanding Depreciation – 2010 (D) Question No. 2 Depreciation [( – Impairmentloss Total amount to SCI
1,000,000 13,000,000 10 years 1,300,000 8/12
480,000
(A)
Question No. 3 Cost Accumulated depreciation Carrying value, beforei mpairment Impairmentloss Carrying value, after impairment - 12/31/2012 Less:Residualvalue Depreciable amount Divide by: Remaining useful life (120 – 32) Multiply by: Numberof months Depreciation – 2013 (to SCI) (B)
3,466,667 10,533,333 480,000 10,053,333 1,000,000 9,053,333 88 months 12 1,234,545
Question No. 4 Cost Accumulated depreciation Carrying value, beforei mpairment Impairmentloss Carrying value, after impairment - 12/31/2012 Depreciation -2013[( Depreciation –2014 [( Carrying value, 10/31/2014 Depreciation –2014 [( Gaino ntransfer( 10,050,000Unrealized gain - change in fair value( Total amount to SCI
(A) 181
3,466,667 10,533,333 480,000 10,053,333 1,234,545 1,028,788
-
1,028,788 2,260,000 950,000
Chapter 20: Investment Property
Question No. 5 Fair value - 12/31/2015 Fairvalue -12/31/2014 Gain on change in fair valu e Question No. 6 Reclassification loss: Fairvalue- 05/01/2016 Carrying value, 05/01/2016 Depreciation -2016 [( Total
11,000,000 450,000
(B)
9,500,000 11,450,000 -
2,322,222
(A)
PROBLEM 20-11 Various investments No. of shares 10,000 15,000 25,000
Date 1/1 3/1stock split Total(10,000x5/2) 11/1 Special assessment 25,000) Total
( 1.60
Cost per Total share Cost 21 210,000 8.4 210,000
x
25,000
Question No. 1 Fair value ( Less:Carrying value Unrealized gain-OCI
(D)
Question No. 2 Broker’s expense over, net income under Operating expense over, NI under ( 1. 60 x 25,000 shares) Net income understated (B)
10
40,000 250,000
375,000 250,000 125,000
( 10,000) (40,000) ( 50,000)
Question No. 3 Netincome ofassociate 3,000,000 Multiplyb y:Percentageofownership 30% Share in the net income before adjustment 900,000 Less: Unrealized gain on downstream sale of PPE 320,000 [( Less: Unrealized profit on upstream sale of inventory ( 30,000 Share in the ne t income after adjustment (C) 550,000
182
Chapter 20: Investment Property
Question No. 4 Costo fI nvestment–01/01/2016 Add: Net investment income - 2016 (see No. 3) Less: Dividends received -2016 (30% x 800,000) Add: Share in the translation gain (30% x 1,000,000) Carrying value – 12/31/2016 (B)
4,000,000 550,000 240,000 300,000 4,610,000
Question No. 5 Costo fI nvestment–01/01/2016 Add: Net investment income - 2016 (see No. 3)
4,000,000 550,000
Less: Dividends received -2016 (30% x 800,000) Add: Share in the translation gain (30% x 1,000,000) Less: Amortization of goodwill ( 200,000/10) Carrying value – 12/31/2016 (C)
240,000 300,000 20,000 4,590,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over their useful life. If an entity canno t determine reliably the useful life, it is assumed to be 10 yea rs. Question No. 6 Fairvalue ofbuildingA Less:Carrying value Unrealized gain - P&L SUMMARY OF ANSWERS: 1. D 2. B 3. C 4. B
1,500,000 1,000,000 500,000
(B)
5.
183
C
6.
B
Chapter 22: Intangible Assets
CHAPTER 22: INTANGIBLE ASSETS PROBLEM 22-1 Research and Development Cost R&D Cost of activities aimed at obtaining new knowledge Marketingr esearch to study consumert astes Cost of developing and producing a prototype model Cost of testing the prototype model for safety and environmentalfriendliness Cost revising designs for flaws in the prototype model Salaries of employees, consultants, and technicians involvedinR&D Amount paid for conference for the introduction of the newly developed product including fee of a model hiredasendorser Advertising to establish recognition of the newly developed product Cost incurred on search for alternatives for materials, devices, products, processes, systems or services Cost of final selection of possible alternatives for a new process Periodic or routine design changes to existing products Modification of design for a specific customer Cost of design, constru ction and operation of a pilot plant that is not of a scale economically feasible for commercialproduction Cost of routine, seasonal, and periodic design of tools,jigs,moldsanddies Cost of quality control during commercial production Cost of purchased building to be used in various R&D projects Depreciation on the building described above Personnel costs of persons involved in research and development projects Design, construction, and testing of preproduction prototypesandmodels Adjusted balances
184
Others
700,000 23,000
16,000 -
80,000 15,000
-
120,000
-
-
102,000 -
43,000
30,000 96,000
-
-
2,500 10,000
5,000 -
18,000
100,000
41,200 96,000 1,306,200 (A)
32,000 1,000,000 -
1,223,500
Chapter 22: Intangible Assets
PROBLEM 22-2 Research and Development Question No. 1 Subsequent expenditure on research Development expenditures not qualifying for recognition ( 5/12) Research and development expense (A) Question No. 2 Acquisition cost of research and develop ment Development expen ditures qualifyi ng for recognition ( Intangible Asset under Development (A)
200,000
280,000
In-process research and development acquired is recorded as intangible asset at cost. Subsequent expenditure on an in-process research and development project recognized as usually done: research is expensed and development costs capitalized only if all criteria for capit alization of development costs are met.
PROBLEM 22-3 Purchased computer software Purchase price excluding refundable purchase tax Add:Customizationc ost( 120,000+ Testing cost ( Amortization (D)
550,000 135,000 37,000 722,000
PROBLEM 22-4 Website Cost Question No. 1 Zero. All cost s are charged to expense.
(A)
Question No. 2 Obtainingadomainname Installing developed applications on the web server Stress testing Designing the appearance (e.g. layout and color) of web pages Creating, purchasing, preparing (e.g. creating links and identifying tags), and uploading information Updating graphics and revisingc ontent Adding new functions, features and content Reviewing securityaccess Total intangible asset (B)
185
32,000 80,000 12,000 160,000 60,000 32,000 12,000 36,000 424,000
Chapter 22: Intangible Assets
PROBLEM 22-5 Renewable Rights Question No. 1 As the costs associated with the renewal are insignificant, the asset must be amortized over the 10 year useful life. The entity intends to renew the license and the government intends to re-issue the license to Bangus Co., and therefore it must be treated as an asset with a 10 year useful life. Amortization (
(D)
Question No. 2 As the cost costsofassociated with renewal areamortized significant, andthe almost equaling the initial the license, thethe asset must be over 5 year useful life. Although the entity intends to renew the license, the renewed license, when it is acquired, must be treated a separate asset and amortiz ed over a useful life of 5 years. Amortization (
(C)
COMPREHENSIVE PROBLEMS PROBLEM 22-6 Goodwill Computation Current Assets ( 6,000,000 + 800,000) Investments PPE( 13,000,000+ 1,850,000) Currentliabilities Noncurrent liabilities Fairvalueo fnetassetacquired
6,800,000 2,000,000 14,850,000 (3,500,000) (2,500,000) 17,650,000
Fairvalueo fnetassetacquired Multiply by: Normal rateofreturn Normalearnings
176 50,000 10% 1,765,000
Totalearnings Losso n sale(or Gain)onsale Bonus ( 150,000 x4years) Operating income Divideby:No. ofyears Averageearnings
9,000,000 (100,000) 600,000 9,500,000 4 2,375,000
Question No. 1 Averageearnings Less:Normal earning Averageexcessearnings Multiply by: Capitalization period Goodwill Add: Fair value ofn eta sseta cquired Purchase price
(A) (A) 186
2,375,000 1,765,000 610,000 4 2,440,000 17,650,000 20,090,000
Chapter 22: Intangible Assets
Question No. 2 Averageearnings Less:Normal earning Averageexcessearnings Divideby:Capitalizationrate Goodwill Add: Fair value of net asseta cquired Purchase price
(B) (B)
Question No. 3 Averageearnings Divideby:Capitalizationrate Purchase price Less:Fairvalueo f netasset Goodwill
(B) (B)
Question No. 4 Averageearnings Less:Normal earning Averageexcessearnings Multiply by: Present value of ordinary annuity Goodwill Add: Fair value of net asset acquired Purchase price
2,375,000 1,765,000 610,000 10% 6,100,000 17,650,000 23,750,000
2,375,000 8% 29,687,500 17,650,000 12,037,500
(C)
2,375,000 1,765,000 610,000 3.0373 1,852,753 17,650,000 19,502,753
Question No. 1 NetPatent,January1 Divideby: Remaininglife(8years-2y ears) Amortization
(A)
336,000 6 56,000
Question No. 2 None, the tradem ark has an indefinite life.
(B)
(C)
SUMMARY OF ANSWERS: 1 A 2. B 3. B 4. C
PROBLEM 22-7
Question No. 3 Cost of noncompetition agreement (1,600,000 x 1/4) Divideby:Useful life Amortization expense (A)
187
400,000 5 80,000
Chapter 22: Intangible Assets
Question No. 4 Purchase price Less: Fair valueo fn et assets acquired Goodwill (carrying amount)
2,400,000 1,600,000 800,000
(A)
The goodwill shall not be amortized because its useful life is indefinite. However, goodwill shall be tested for impairment at least annually, or more frequently if events or changes in circumstances indicate a possible impairment.
Question No. 5 Cost-Patent Less: Accumulated Amortization (48,000 + 56,000) Cost - Trademark (no amortization) (1.6M x 3/4) Cost- Noncompetition agreement Less: Accumulated Amortization (see no. 3) Total carrying amount of the Intangible assets
384,000 104,000 400,000 80,000 (B)
280,000 1,200,000 320,000 1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not identifiable. SUMMARY OF ANSWERS: 1. A 2. B 3. A 4. A
5.
B
PROBLEM 22-8 Question No. 1 Legal cost Payment of licenses to author excluding refund able purchase taxes (100,000-10,000) Total cost of intangible assets (D) Question No ’s 2, 3 and 5 Cost Less: Amortization in 2016 (97,000/5 x 6/12) Carryingvalue,12/31/2 016 Less: Amortization in 2017 (97,000/5 ) Carryingvalue,12/31/2 017 Question No. 4 Generalstart-upcost Amortization Cost of printing Advertisingexpense(20,000x6 /12) Total Expense SUMMARY OF ANSWERS: 1. D 2. C 3. C 4. B
97,000 9,700 87,300 19,400 67,900
(B) 5. 188
D
7,000 90,000 97,000
No. 2 (C) No. 3 (C) No. 5 (D)
1,500 9,700 100 10,000 21,300
Chapter 22: Intangible Assets
PROBLEM 22-9 Patent, Competitive, Related Pate nt Question No. 1 Cost Divideby:Remaining usefullife Amortization
(C)
500,000 10 50,000
Question No. 2 Cost of theoldPatent Less: Accumulated Amortization (500,000 / 10 x 2) Carryingvalue,1/1/2014 Competitive Patent Total Divideby:Remaininglife Amortization (D)
500,000 100,000 400,000 240,000 640,000 8 80,000
Question No. 3 Carryingvalue,1/1/2014 Less:Amortization2014 Carrying value, 12/31/2014 Question No. 4 Carryingvalue,12/31/2014 Add:Related patent TotalCarryingvalue,1/1/2015 Divideby:Extendedlife Amortization
(D)
640,000 80,000 560,000
(A)
560,000 200,000 760,000 20 38,000
(A)
760,000 38,000 722,000
Question No. 5 TotalCarryingvalue,1/1/2015 Less:Amortization,2015 Carrying value, 1/1/2016 = Loss
SUMMARY OF ANSWERS: 1. C 2. D 3. D 4. A
5.
A
PROBLEM 22-10 Comprehensive Question No. 1 Acquisitioncost Costs of employee benefit s arising directl y from bringing the assettoi tsi ntendedcondition Professional fees arising directly from bringing the asset to its intended condition Total cost of the trademark
(C)
600,000 60,000 13,000 673,000
Question No. 2 None, the trademark has an indefinite life and is not subject to amortization. (A) 189
Chapter 22: Intangible Assets
Question No. 3 Amortization-Trademark Amortization-Customerlist Total a mortization
(B)
Question No. 4 Amortization-Trademark Amortization-Customerlist Amortization-Franchise
60,000 165,416
Total a mortization
(A)
Downpayment Add: Present Value of notes payable (600,000 x .7118) Cost offranchise
Question No. 5 Cost of trademark Cost of customer list Less: AccumulatedA mortization Cost offranchise Less: Accumulated Amortization Total carryin g value SUMMARY OF ANSWERS: 1. C 2. A 3. B 4. A
60,000 60,000
225,416 400,000 427,080 827,080
673,000 300,000 120,000 827,080 165,416 (A)
5.
180,000 661,664 1,514,664
A
PROBLEM 22-11 Question No. 1 Zero, organiz ation cost is treated as outrig ht expense .(A) Question No. 2 Designcosts Add:Legalfees Registration fee with Patent office Total cost of tradem ark
(B)
Question No. 3 Cash
3,000,000 300,000 100,000 3,400,000
400,000
Add Present value of the note (200,000 x 2.91) Cost of Franchise
Question No. 4 Cost (seeno. 3) Less:Amortization(982,000/20)
(B)
582,000 982,000 982,000 49,100
190
Chapter 22: Intangible Assets
Carrying value, 12/31/2016
(A)
Question No. 5 Amortization of the franchise P49,100
932,900
(D)
The trademark has no amortization because it has an indefinite life. It is only tested for possible impairment .
SUMMARY OF ANSWERS: 1. A 2. B 3. B 4. A
5.
D
PROBLEM 22-12 Question No. 1 Cost-Patent Less: Amortization for the year (136,000/20) Carrying value of the Patent Question No. 2 Licensing agreement No. 1 Unadjustedbalance Less: Amortization for 2 years (100,000/20 x 2) Total Less: Reduction inv alue (90,000x 60%) Carrying value Question No 3 Unadjustedbalance Add: Amount creditedf ora dvancec ollection Total cost Less:Amortization(120,000/10) Carrying value - Licensing agreement No. 2 Question No. 4 Carrying values: Patent(seeno.1) LicensingAgreementNo.1(No.2) LicensingAgreementNo.2(No.3) Total carryin g value
(C)
136,000 6,800 129,200
(B)
100,000 10,000 90,000 54,000 36,000
(C)
118,000 2,000 120,000 12,000 108,000
(C)
129,200 36,000 108,000 273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for incorporation should be charged to expense when it were incurred.
Question No. 5 Nonamortization of Licensing Agreement No 1 (100,000/20 x 1) Expenses capitalized: 191
5,000
Chapter 22: Intangible Assets
Goodwill(16,000+32,000) Organization cost Overstatement of Retained earnings
(A)
48,000 58,000 111,000
All the expenses above were understated thereby overstating the net income and retained ea rnings.
SUMMARY OF ANSWERS: 1. C 2. B 3. C 4. C
5.
A
PROBLEM 22-13 Question No. 1 Unadjustedbalance Less: Unamortized portion of improvements debited Cost P75,000 Less: Amortization (P75,000 / 10 x 3) 22,500 Adjustedbalance–01/01/2016 Less: Amortization 2016 (P52,500 + P56,071) – see below Carrying value – 12/31/2016 (A) Computation of amortization: Adjustedbalance–01/01/2016 Less: CV of Patent with remaining UL of 2 years – 01/ 01/2016 Cost 210,000 Less: Accumulated amortization 01/01/2016 (P210,000/14x7 ) 105,000 CV of Patent with remaining UL of 7 years – 01/01/2016 Amortization of: Patent with remaining UL of 2 years (105,000 / 2) Patent with remaining UL of 7 years (392,500 / 7) TotalAmortization
Question No. 2 Franchise cost Less:Amortization(50,000/ 5) Carrying value 12/31/2016
550,000
52,500 497,500 108,571 388,929 497,500
105,000 392,500 52,500 56,071 108,571
(A)
50,000 10,000 40,000
Question No. 3 The amount to be rep orted as goodwill is the excess of cost over the fair va lue of net asset acquired. Goodwill is not amortized but only subject to impairment testing. Therefore, the amount to be repor ted is P200,000. (A) Question No. 4 Other coding costs after establishment of feasibility 192
technological 240,000
Chapter 22: Intangible Assets
Other testing costs after establishment of technological feasibility Costs of producing master for training materials Total Software Cost (A)
Question No. 5 Completion of detailedp rogram design Costs incurred for coding and testing to establish technological feasibility Total Cost charged to Expense (A) Question No. 6 Amortization: Patent(seeNo. 1) Franchise(see No.2) Software cost–noneyet Total Cost charged to Expense SUMMARY OF ANSWERS: 1. A 2. A 3. A 4. A
(C) 5.
A
6.
200,000 150,000 590,000
130,000 100,000 230,000
108,571 10,000 118,571
C
PROBLEM 22-14 Inventories, PPE and Intangible Asse ts Question No. 1 Unadjustedbalance
4,300,000
Add: Goods purchased FOB Shipping Point Adjusted balance
Question No. 2 Totalacquisitioncost Add:Mortgageassumed Totalcosto flandandb uilding Multiplyb y: Percentage allocated to building Total Purchase Price allocated to Building Add: Remodeling Cost( 300,000 – 20,000) Total Cost of Building
(B)
40,000 4,340,000
(A)
4,000,000 800,000 4,800,000 80% 3,840,000 280,000 4,120,000
Question No. 3 Cost of improvement Less: Accumulated depreciation (500,000/8 x 9/12) Carrying value
(B)
Question No. 4 Carryingvalue –01/01/2016 Less: Amortization 2016 (432,000 / 3 years remaining UL) 193
500,000 46,875 453,125
432,000 144,000
Chapter 22: Intangible Assets
Carrying value
Question No. 5 Building( 4,120,000-120,000)/50 Leasehold Improvements (500,000/8 x 9/12) Furnitureand Fixtures Franchise (500,000/10) Licensingagreement Total depreciation and amortization expense SUMMARY OF ANSWERS: 1. B 2. A 3. B 4. C
5.
194
A
(C)
288,000
(A)
80,000 46,875 150,000 50,000 144,000 P470,875
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
CHAPTER 23: REVALUATION, IMPAIRMENT AND NONCURRENT ASSET HELD FOR SALE PROBLEM 23-1 Revaluation, No Change in Estimate Question No. 1
Machinery Accumulated depreciation (25%) CA/DRC/RS
Historical Cost 8,000,000 2,000,000 6,000,000
Replacement Cost 15,000,000 3,750,000 12,250,000
Increase 7,000,000 1,750,000 5,250,000 (C)
Carrying amount/Depreciated R eplacement Cost/Revaluation Surplus
Question No. 2 DepreciatedReplacementcost Divideby:Remainingusefullife(20–5) Depreciation Expense – 2017
(C)
11,250,000 15 750,000
Question No. 3 Revaluationsurplus,b eginning Less: Piecemeal realization – 2017 (5,250,000 / 15) Remaining revaluation surplus end of 2017 (B)
5,250,000 350,000 4,900,000
Que stionPrice No. 4 Net Selling Less: Carrying amount – 01/02/2018 Depreciated Replacement Cost, date of revaluation Less: Subsequent depreciation (P750,000 x 2 years) Gain on sale
10,000,000 11,250,000 1,500,000
(A)
Question No. 5 Revaluationsurplus,b eginning Less: Piecemeal realization for two years (5,250,000/ 15 x 2) Remaining revaluation surplus to R/E (B) SUMMARY OF ANSWERS: 1. C 2. C 3. B 4. A
5.
195
B
9,750,000 250,000
5,250,000 700,000 4,550,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-2 Revaluation, With Change in Useful Life Question No. 1
Machinery Accumulated depreciation (25%) CA/DRC/RS
Replacement Cost 14,000,000 2,800,000 11,200,000
Cost 12,000,000 2,400,000 9,600,000
Increase 2,000,000 400,000 1,600,000 (B)
Carrying amount/Depreciated R eplacement Cost/Revaluation Surplus
Question No. 2 DepreciatedR eplacementcost Divideby:Remainingusefullife Depreciation Expense – 2016
(B)
11,200,000 25 448,000
Question No. 3 Revaluationsurplus,01/01/2016 Less: Piecemeal realization – 2016 (1,600,000/ 25) Remaining revaluation surplus end of 2016 (C)
1,600,000 64,000 1,536,000
Question No. 4 NetSellingPrice Less: Carrying amount – 01/02/2017 Depreciated Replacement Cost, date of revaluation
11,200,000
Less: Subsequent depreciation (P11.2M / 25 x 2) Gain on sale
896,000 (A)
10,000,000
Question No. 5 Revaluationsurplus,b eginning Less: Piecemeal realization for two years (1,600,000 / 25 x 2) Remaining revaluation surplus to R/E (B) SUMMARY OF ANSWERS: 1. B 2. B 3. C 4. A
5.
10,304,000 (304,000)
1,600,000 128,000 1,472,000
B
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value Replacement Machinery Less: Accumulated depreciation CA/DRC/RS
Cost 4,550,000 *1,125,000 3,425,000
196
Cost 9,100,000 **2,250,000 6,850,000
Increase 4,550,000 1,125,000 3,425,000 (C)
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Carrying amount/Depreciated R eplacement Cost/Revaluation Surplus *This amount should be the actual amount of accumulated depreciation (i.e. using the original residual value) ** (9,100,000 – 100,000) / 20 x 5. This is computed using the revised residual value.
Question No. 2 DepreciatedR eplacementcost
6,850,000
Less: Revisedamount residualvalue Depreciable Divideby:Remainingusefullife Depreciation Expense – 2016
(B)
100,000 6,7500,000 25 270,000
Question No. 3 Revaluationsurplus,0 1/01/2016 Less: Piecemeal realization – 2016 (3,425,000 / 25) Remaining revaluation surplus end of 2016 (B)
3,425,000 137,000 3,288,000
Question No. 4 NetSellingPrice Less: Carrying amount – 01/02/2018 Depreciated Replacement Cost, date of revaluation Less: Subsequent depreciation (P540,000 x 2) Gain on sale
7,000,000 6,850,000 540,000
(C)
Question No. Revaluationsurplus,b eginning Less: Piecemeal realization for two years (P274,000 x 2) Remaining revaluation surplus to R/E (B) SUMMARY OF ANSWERS: 1. C 2. B 3. B 4. C
5.
6,310,000 690,000 3,425,000 274,000 3,151,000
B
PROBLEM 23-4 Impairment and Revaluation of PPE CASE NO. 1 COST MODEL Question No. 1 Cost Less:Residualvalue Depreciable amount Divideby:Estimated usefullife Depreciation - 2016 (B) 197
2,200,000 200,000 2,000,000 10 200,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2 Zero. The company is usin g the cost model . (A) Question No. 3 Cost Less:Accumulatedd epreciation Carryingamount Less:Revised residualvalue Depreciable amount
2,200,000 200,000 2,000,000 290,000 1,710,000
Divideby:Remainingusefullife Depreciation - 2017
9 190,000
(D)
Question No. 4 Cost Less: Accumulated Depreciation (200,000 + 190,000 + 190,000) Carryingamount–12/31/2019 Less: Recoverable amount, date of impairment Impairment loss (C) Question No. 5 Recoverable amount Less:Revised residualvalue Depreciable amount Divideby:Remainingusefullife
939,500 40,000 899,500 7
Depreciation
SUMMARY OF ANSWERS: 1. B 2. A 3. D 4. C
2,200,000 1,620,000 1,620,000 939,500 680,500
128,500
(B) 5.
B
CASE NO. 2 REVALUATION MODE L Question No. 1 Cost Less:Residualvalue Depreciable amount Divideby:Estimated usefullife Depreciation - 2016 (B) Question No. 2 Recoverablea mount/fairv alue
2,200,000 200,000 2,000,000 10 200,000
2,990,000
Less: Carr ying amount Machinery at cost Less: Accumulated depreciation Revaluation surplus
2,200,000 200,000
(D)
198
2,000,000 990,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3 Recoverablea mount/fairv alue Less:Revised residualvalue Depreciable amount Divideby:Remainingusefullife Depreciation
2,990,000 290,000 2,700,000 9 300,000
(C)
Question No. 4 Recoverablea mount, date of revaluation Less: Subsequentd epreciationf or 2y ears
2,990,000 600,000
Carryingamount Less: Recoverable amount, date of impairment Decreaseinvalue Less: Remaining r evaluation Revaluation surplus, date of revaluation Less: Piecemeal realization for two years Impairment loss (C)
Question No. 5 Recoverable amount Less:Revised residualvalue Depreciable amount Divideby:Remainingusefullife Depreciation-2019
2,390,000 939,500 1,450,500 990,000 220,000
770,000 680,500
939,500 40,000 899,500 7 128,500
(B)
PROBLEM 23-5 Impairment and Revaluation of PPE CASE NO. 1 COST MODEL Question No. 1 Cost Less:Residualvalue Depreciable amount Divideby:Estimated usefullife Depreciation - 2016 (C)
2,300,000 200,000 2,100,000 10 210,000
Question No. 2 Cost Less:AccumulatedD epreciation Carryingamount–12/31/2017
2,300,000 210,000 2,090,000
Less: Recoverable amount, date of impairment Impairment loss
199
(C)
1,850,000 240,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3 Recoverable amount Less:Revised residualvalue Depreciable amount Divideby:Remainingusefullife Depreciation
1,850,000 50,000 1,800,000 9 200,000
(B)
Question No. 4 Recoverablea mount –01/01/2017 Less: Accumulated Depreciation – 12/31/2018
1,850,000 400,000
Carryingamount–12/31/2018 Lower of: Would have been carrying amount no impairment Less: Recoverable amount – 01/01/2019 Gaino nimpairmentrecovery–P&L The increase in fai r value is recogniz ed in P&L.
1,450,000 2,300,000 630,000
1,670,000 49,400
(A)
Would have been carrying amoun t had been there no impairmen t: Cost 2,300,000 Less: Depreciation 2016 210,000 2017 210,000 2018 210,000 Would have been carrying value – 12/31/2018 1,670,000
Question No. 5 Lower between Recoverable amount and would have been book value – 01/01/2019 Less:Newresidual value Depreciable amount Divideby:Remainingusefullife( 10–3) Depreciation (D) SUMMARY OF ANSWERS: 1. C 2. C 3. B 4. A
5.
1,499,400 0 1,499,400 7 214,200
D
CASE NO. 2 REVALUATION MODE L Question No. 1 Cost Less:Residualvalue
2,300,000 200,000
Depreciable amount Divideby:Estimated usefullife Depreciation - 2016
(C)
200
2,100,000 10 210,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2 Cost Less:AccumulatedD epreciation Carryingamount–12/31/2017 Less: Recoverable amount, date of impairment Impairment loss
2,300,000 210,000 2,090,000 1,850,000 240,000
(C)
Question No. 3 Recoverable amount Less:Revised residualvalue
1,850,000 50,000
Depreciable amount Divideby:Remainingusefullife Depreciation
1,800,000 9 200,000
(B)
Question No. 4 Recoverablea mount –01/01/2017 Less: Accumulated Depreciation – 12/31/2018 Carryingamount–12/31/2018 Lower of: Would have been carrying amount no impairment Less: Recoverable amount – 01/01/2019 Gaino nimpairmentrecovery–P&L The increase in fai r value is recogni zed in P&L.
1,850,000 400,000 1,450,000 2,300,000 630,000
1,670,000 49,400
(A)
Would have been carrying amoun t had been there no impairmen t: Cost Less: Depreciation 2016 2017 2018 Would have been carrying value – 12/31/2018
2,300,000 210,000 210,000 210,000 1,670,000
Zero, since recoverable amount is lower than the would have been book value if there is no impairment loss. Question No. 5 Recoverablea mount –01/01/2019 Less:Revised residualvalue Depreciable amount Divideby:Remainingusefullife( 10–3) Depreciation SUMMARY OF ANSWERS: 1. C 2. C 3. B 4. A
(D)
5.
201
D
1,499,400 1,499,400 7 214,200
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-6 Impairment of Intangible Assets Question No. 1 Patent(200,000/10) Computer software(100,000x6 0/120) Total a mortization
20,000 50,000 70,000
(A)
The copyright and tradename is not amortized because they have indefinite useful life.
Question No. 2 Copyright: Carryingvalue Less: Recoverable amount (80,000 / .05) Tradename: Carryingvalue Less: Recoverable amount (15,000 / .05) Goodwill: Carrying value of reporting unit Less: Recoverable amount (200,000 x 14.0939) Total impairment loss Question No. 3 Carrying valueo fg oodwill – 12/31/2015 Less: Allocated impairment loss of reporting unit Carrying value of goodwill – 12/31 /2016
400,000 160,000
240,000
350,000 300,000
50,000
3,000,000 2,818,780 (C)
181,220 471,220
(B)
900,000 181,220 718,780
Question No 4 Patent(P200,000–P20,000) Copyright(recoverableamount) Tradename(recoverableamount) Computer software (100,000 – 50,000) Carrying value of intangible assets – 12/31/2016 (A)
180,000 160,000 300,000 50,000 690,000
Note that goodwill is not rep orted as an intan gible asset.
SUMMARY OF ANSWERS: 1. A 2. C 3. B 4. A
202
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-7 Amortization and Impair ment of Intangible Assets Questions 1 and 2 Trademark-Unadjustedbalance Less: Unamortized cost of improvement that should have been expensed Cost Less: Accum. amortization (150,000/10 x 2) Total Add: Competitive patent debited to expense
1,430,000
150,000 30,000
120,000 1,310,000
Cost 135,000 Less: Accum. amortization (135,000/9 x 1) 15,000 120,000 Adjustedbalance,January1.2016 1,430,000 Less: Amortization during the year Patent with remaining life of 4 years *(160,000/4) 40,000 1() A Remaining patent (1,430,000-160,000)/15-7) 158,750 198,750 Carrying value of the Patent, 12/31/2016 1,231,250 2) A ( Computation of the P160,000: Original cost Less: Accumulated amortization (300,000/15) x 7 years)) Remainingc arryingv alue,1/1/2016
300,000 140,000 160,000
The 7 years age is from January 1, 2009 to January 1, 2016.
Questions 3 Carrying value of the trademark (no amortization) Less: Recoverable amount (P75,000/10%) Impairment loss (B)
800,000 750,000 50,000
Questions 4 Adjusted carrying value of the trademark is equal to its recoverable amount of P750,000. (See no. 3) (B) Questions 5 Downpayment Add:Presentvalue ofthenote Totalcost ofthe franchise Divideby:Useful life Amortization expense SUMMARY OF ANSWERS: 1. A 2. A 3. B 4. B
(D)
5.
203
D
500,000 874,000 1,374,000 10 137,400
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-8 Impairment of Cash Generating Unit Question No. 1 Total carrying amount before impairment Less:Fairv aluel esscosts to sell Impairmentloss Less: Impairment loss allocated to Goodwill Impairment loss allocated to other assets
(D)
72,000,000 60,000,000 12,000,000 2,000,000 10,000,000
Questions No. 2 and 3 (A) Other assets in this case would include only PPE and Patent. Impairment of inventories (i.e. write-down to NRV) is covered by PAS 2 while impairment of FA at FVTOCI will be covered by PAS 39 / PFRS 9. Questions No. 4 and 5
PPE (atc ost model) Patent Total
Carryinga mount before impairment 30,000,000 10,000,000 40,000,000
SUMMARY OF ANSWERS: 1. D 2. A 3. A 4. D
5.
Ratio 0.75 0.25
Allocated Impairment loss 7,500,000 (D) 2,500,000 (D) 10,000,000(D)
D
PROBLEM 23-9 Impairment and Reversal of Impairment of Cash Generating Unit Cash Inventory Accountsreceivable Plant andequipment Less:Accumulateddepreciation Trademark Patent Goodwill TotalCarryingamountof CGU Less:Value inuse Impairmentloss Less: Impairment allocated to goodwill Impairment loss allocatedt o othera sset
204
100,000 800,000 1,200,000 24,000,000 10,400,000 2,550,000 850,000 400,000 19,500,000 16,300,000 3,200,000 400,000 2,800,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Plant and equipment Trademark Patent Total
Plant and equipment Trademark Patent Total
Balance before Impairment 13,600,000 2,550,000 850,000 17,000,000
Fraction 13.6/17 2.55/17 .85/17
Balance after Impairment
Reallocation
11,360,000 2,130,000 710,000 14,200,000
(40,000) (7,500) 47,500 -
Plant and Equipment: Would have been BV, no impairment Cost Less: Accumulated depreciation (2.6M +300,000) Actual Book value Impairedvalue Less: Subsequent depreciation Maximumg aino n reversal ofi mpairment
Trademark: Would have been BV, no impairment Cost Less: Subsequent amortization
Balance after Reallocation 11,320,000 2,122,500 757,500 3,520,000
24,000,000 11,600,000
11,320,000 1,000,000
2,550,000 120,000
Actual Book value Impairedvalue Less: Subsequent depreciation Maximumg aino n reversal ofi mpairment
Patent: Would have been BV, no impairment Cost Less: Subsequenta mortization
2,122,500 112,000
850,000 80,000
Actual Book value Impaired value Less: Subsequent depreciation Maximumg aino n reversal ofi mpairment
205
Balance after Impairment 11,360,000 2,130,000 710,000 14,200,000
Impairment Loss (2,240,000) (420,000) (140,000) 2,800,000
757,500 60,000
1. (B) 2. (B) 3. (B)
12,400,000
10,320,000 2,080,000
2,430,000
2,010,500 419,500
770,000
697,500 72,500
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Plant and equipment Trademark Patent Total
Balance before Reversal 10,320,000 2,010,500 697,500 13,028,000
Allocated Gain Max gain 1,901,136 1,901,136 370,372 370,372 1 28,492 72,500 2,400,000 2,344,008
Fraction 10320/13028 2010.5/13028 697.5/13028
Balance after
Balance Plant and equipment Trademark Patent Total
Max gain 1,901,136 370,372 72,500 2,344,008
SUMMARY OF ANSWERS: 1. B 2. B 3. B 4. C
bef. Reall 12,221,136 2 ,380,872 825,992 15,428,000
5.
C
6.
Reallocatio n reallocation 46,863 12,267,999 9,130 2,390,001 (55,992) 770,000 15,428,000
A
PROBLEM 23-10 Noncurrent Assets Held for Sale -Sing le Asset Question No. 1 Cost Less:Accumulatedd epreciation Carryingamount
1,200,000 480,000 720,000
Less: Initial amount recognized– lower of: Carryingamount Fairvalue lesscosttosell Impairment loss
720,000 600,000 (C)
600,000 120,000
Question No. 2 Zero. Non-current asset hel d for sale should not be depreciated.
(A)
Question No. 3 Lower of: Carryingamount FVLCTS Less: Carrying amount at initial recognition Gain on reversal – P &L
720,000 600,000 120,000
Question No. 4 Net Selling Price( 1,800,000 – 50,000) Less:Carrying amount Gain on sale
720,000 790,000
(C)
(B) 206
750,000 720,000 30,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5 Cost Accumulated depreciation Carryingamount Less: Initial amount recognized– lower of: Carryingamount Fairvalue lesscosttosell Impairment loss
1,200,000 480,000 720,000 720,000 800,000 (A)
720,000 -
SUMMARY OF ANSWERS: 1. C
2. A
3. C
4. B
5.
A
PROBLEM 23-11 Noncurrent Assets held for Sale- Disposal Group Question No. 1 C P8,800,000. Question No. 2 (C) P6,000,000. Question No. 3 Total carrying amount before impairment Less:Fairv aluel esscoststosell Impairmentloss Less: Impairment loss allocated to Goodwill
59,600,000 52,000,000 7,600,000 6,000,000
(B)
Impairment loss allocated to othera ssets
1,600,000
Questions No. 4 & 5
PPE(atc ostmodel) PPE (at revaluation model) Total
Carrying amount as remeasured 22,800,000 0.59 16,000,000 0.41 38,800,000 Revaluation surplus
PPE(atc ostmodel) PPE Total(at revaluation model)
400,000 400,000
Remaining revaluation surplus is (P3,000,000 minus (P32M-P30M)
Allocated Decrease 940,206 659,794 1,600,000
Carrying amount Impairment after loss impairment 940,206 21,859,794 259,794 1,200,000
P1,000,000 207
Revaluation surplus 400,000 1,000,000
15,340,206 37,200,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Decrease in value of the PPE (at revalu ation model) is allocat ed to 1. First, remaining revaluation surplus 2. Balance to impairment loss.
SUMMARY OF ANSWERS: 1. C 2. E 3. D 4. B
5.
A
PROBLEM 23-12 Noncurrent Assets held for Sale – Investment in Associate Question No. 1 Sharein netincome(900,000x 30%) Less: Amortization of undervalued asset Net investment income Question No. 2 Beginningbalance– 01/01/2016 Add: Net investmentincome (see No.1 ) Less: Dividends received( 150,000 x 30%) Carrying amount – 12/31/2016 Question No. 3 Carryingamount–12/31/2016 Less: Initial amount recognized– lower of: Carryingamount
(B)
270,000 10,000 260,000
(A)
5,000,000 260,000 45,000 5,215,000
5,215,000 5,215,000
Fair value less cost to sell Impairment loss
4,900,000 (B)
4,900,000 315,000
Question No. 4 Zero. No Share in the profit or loss and amortization shall be recognized when the investment in associate is classified as noncurrent held for sale. The cash dividend shall be recognized as income. (A) Question No. 5 Net Selling Price (P4,900,000 – P100,000) Less:Carrying amount Loss on sale SUMMARY OF ANSWERS: 1. B 2. A 3. B 4. A
5.
208
(D)
D
4,800,000 4,900,000 (100,000)
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-13 Question No. 1 Irrigation Equipment Freight in Installation cost Total Machinery and Equipment, end
(A)
Question No. 2 Tradeinallowance Book Value: Cost Less: Accum. Depreciation (P660,000+ P165,000) Loss on trade in
P 740,000 10,000 192,000 P 942,000
400,000 1,300,000 825,000 (B)
Question No. 3 Before addition [(P3,100,000 – P100,000)/20 x 3/12) After addition: [(P3,100,000 – (P562,500 + P37,500) + 980,000 P200,000)/20)x9/12) Depreciation expense (B)
475,000 75,000
37,500 123,000 160,500
Remaining life (20 – 4 + 4) = 20 ye ars
Question No. 4 Turf cutter [{(P1,300,000 – P200,00 0)/5} x 9/12] + {(P800,000 – P50,000)/6 x3 /12)}] Water desalinator [(P3,780,000 – P270,000)/10] Irrigation equipment [(942,000/4) x 6/12] Officebuilding Total Depreciation expense
P
(B)
P
196,250 351,000 117,750 160,500 825,500
Question No. 5 Fairvalueo ninitialr evaluation P 3,780,000 Book value on initial revaluation: Cost P4,000,000 Accumulated d epreciation [(P4,000,000 – P200,000)/10 x 2) ( 760,000) 3,240,000 12/31/2016RevaluationS urplus P 540,000 Less: Piecemeal realization in 2017 (P540,000/10) 54,000 12/31/2017Revaluations urplus P 486,000 12/31/2017Fairvalue
P 3,400,000
12/31/2017 Book value: Adjustedcost P 3,780,000 Accumulated Depreciation [(P3,780,000 – P270,000)/10] ( 351,000) Revaluation decrease – charged to Revaluation Surplus (A) P 209
3,429,000 29,000
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS: 1. A 2. B 3. B 4. B
5.
A
PROBLEM 23-14 Question N os. 1 and 2 Cost-beginningbalance Less Accumulated depreciation, beginning Heldfor sale-carryingamount Total Depreciation charge for the year Held fors ale(8,200x20%x6/12) Remaining balance (232,425 x 20%) Classified as held for sale: Depreciationfor theyear Carrying amount
Question No. 3 Carryingamountat1Oct2015 Lessvaluationa t1 October2015 Revaluationsurplus
126,000 144.375 8,200 232,425 820 46,845
(A 1.) 47,305 820 185,940 (A)
372,000 449,500 77,500
Valuation at1October2015
449,500
Less Depreciation expense (449,500/(40-9) Revaluation surplus (B)
Question No. 4 Carryingamountat1Oct2015 Lessvaluationa t1 October2015 Decreaseinvalue
14,500 435,000
1,080,000 600,000 480,000
Valuation at1October2015 Less Depreciation expense (600,000/(50-20) Revaluation surplus (B)
Question No. 5 C Carryingamountat1Oct2015 Lessvaluationa t1 October2015
600,000 20,000 580,000
1,080,000 600,000
Decrease invaluerevaluations urplus Lessremaining Impairmentloss-PropertyB Impairment loss-held for sale (8,200-820)-6,500
480,000 456,000 24,000 880 210
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Total impairment loss
24,880
(C)
Question No. 6 Depreciation expense based on revalued amount Less depreciation expense based on historical cost (400,000/40) Piecemeal realization (D)
14,500 10,000 4,500
Or Revaluation surplus,b eginning( Prop. A) Addrevaluations urplus,Oct.1 ,2 015
62,000 77,500
Totalrevaluation surplus Dividebyremaininglife Piecemeal realization
SUMMARY OF ANSWERS: 1. A 2. A 3. B 4. B
139,500 31 4,500
(D)
5.
211
C
6.
D
Chapter 25: Introduction to Liabilities
CHAPTER 25: INTRODUCTION TO LIABILITIES PROBLEM 25-1 Total Liabilities Total liabilities Current Accountspayable Loanp ayable– currentportion Unearnedrent income Income taxpayable
P 1,000,000 1,000,000 300,000 250,000
Dividends payable Totalcurrent liabilities
100,000 P 2,650,000
Non-current Bonds payable Discountonbondspayable Loanp ayable– non-current portion Deferredtax liability Totalnon-currentliabilities Total liabilities
(
(B)
P 5,000,000 500,000) 1,500,000 15,000 P 6,015,000
P8 ,665,000
Below items shall be presented as part of entity’s assets: Current asset
Advances toemployees
P
45,000
Non-current asset
Cash surrender value of officers’ life insurance Patent
75,000 50,000
Below ite m shall be pre sented in the shareholder’s equity: Sharedividendspayable P
150,000
Below item shall be disclosed in the not es to financial stateme nts: Contingent liability – guarantee to James P 500,000 The bank overdraft, which is part of cash management, is offset to an y bank balance with posi tive bala nce as provided under PAS 7.
PROBLEM 25-2 Current Liabilities Current liabilities Accounts payable –unadjusted
P 4,000,000
Add/(Deduct): Adjustments Debit balances in suppliers’ accounts Postdated checksof Accountspayable–adjusted Credit balances in customers’a ccounts 212
100,000 50,000 P 4,150,000 500,000
Chapter 25: Introduction to Liabilities
Premiumspayable Accruedexpenses Total current liabilities
(A)
600,000 150,000 P5 ,400,000
Below items shall be presented as part of entity’s non-cur rent liabilities: Bonds payable 1,000,000 Premiumonbondspayable 100,000 Mortgage payable 850,000 Deferredtaxliability 200,000 Deferredrevenue 175,000 Below item shall be presented as part of shareholders’ equity: Stockdividendspayable 750,000
PROBLEM 25-3 Refinancing Current liabilities 10% note payable, maturing 03/3 1/2015 Annuals inkingfund requirement Total current liabilities (C)
P10,000,000 500,000 10,500,000
Below items shall be presented as part of entity’s non-cur rent liabilities: 12% note payable, maturing 06/30/2015 6,000,000 7% guaranteed debentures, due2 018 2,000,000
PROBLEM 25-4 Refinancing (A) The amount to be reported as current liabilities in 2014 is P2,000,000 since the refinancing agreement was completed af ter the reporting date.
PROBLEM 25-5 Refinancing (A) The amount to be reported as current liabilities in 2014 is P2,000,000 since the grace period was gran ted after the reporting date.
PROBLEM 25-6 Accounts payable Accounts payable Accounts payable –unadjusted Cost of goodslostintransit Cost ofreturnedgoods
P 8,000,000 500,000 ( 200,000)
Accounts payable – adjusted
(B)
213
P8 ,300,000
Chapter 25: Introduction to Liabilities
PROBLEM 25-7 Accounts payable Amount of cash to eliminate accou nts payable Accounts payable from: *Purchases through March 15 (gross)(P4,900,000 / 98%) P 5,000,000 Merchandise inventory at cost(P1,500,000 / 150%) 1,000,000 Accounts payable (B) P6 ,000,000 *The amount was gros sed-up since the entity is no longer enti tled to cash discount. The liability as of March 15, 2015 has been outstanding for more than 10 days.
PROBLEM 25-8 Bonus payable Amount of bonus Net income before bonus and income tax Less: Required income to earn bonus Basis of bonus Multiply by: Bonusrate Total current liabilities
(C )
PROBLEM 25-9 Bonus payable Amount of bonus Net income before bonus and income tax Less: Required income to earn bonus Amount of income subject to bonus (125%) Less: Bonus (25%) (squeeze) (D) Basis of bonus (100%) (P600,000/125%)
PROBLEM 25-10 Unearned Revenue Unearned revenue – gift certificates Unearned revenue 1,500,000 Gift certificate redeemed 4,000,000 5,000,000 Expired gift certificate 300,000 4,300,000 6,500,000 Balance, End (B) 2,200,000 6,500,000 6,500,000
214
P 2,200,000 880,000 P 1,320,000 10% P 132,000
P 1,600,000 1,000,000 P 600,000
120,000 P 480,000
Balance, Beg. Cash receipts from gift certificate sold
Chapter 25: Introduction to Liabilities
PROBLEM 25-11 Advances from Customers Unearned rev enue – Advance s from customers Unearned revenue 1,100,000 Advances applied to shipments 1,600,000 1,800,000 Ordersc ancelled 100,000 1,700,000 2,900,000 Balance, End (C) 1,200,000 2,900,000 2,900,000
PROBLEM 25-12 Escrow Liability Deposits received – Escrow account Escrow liability 600,000 Cash payments nine months 4,200,000 4,500,000 4,200,000 5,100,000 Balance, End (C) 900,000 5,100,000 5,100,000
PROBLEM 25-13 Container’s Deposits Deposits received – Escrow account Liability for Deposits 100,000 Cash refunds for container returned in 2014 92,000 100,000
Balance, End (C)
92,000 108, 000 200,000
Balance, Beg. Advances received
Balance, Beg. Cash receipts for nine months
Balance, Beg. Cash deposits from d eliveries
200,000 200,000
PROBLEM 25-14 VAT payable Provision - VAT payable VAT Payable Payment made
Balance, End (A)
120,000
120,000 84,000 96,000 300,000
120,000 180, 000 300,000
300,000 215
Balance, Beg. For October For November For December
Chapter 25: Introduction to Liabilities
PROBLEM 25-15 Provision: Continuous range of outcome means that the contingency (D) A range between 10,000 and cannot be reliab ly estimated, hence no pro vision is recognized.
PROBLEM 25-16 Provision: Expected value with adjustment factor 70% chance that outcome will occur × 20% × 200,000 70% chance that outcome will occur × 80% × 100,000 Expectedvalue Multiply by: Riskadjustment Risk adjustedexpected value Multiplyb y:Presentvaluefactor Provision (D)
28,000 56,000 84,000 1.07 89,880 89,000 81,709
PROBLEM 25-17 Restructuring Provisions Wagesofretrenchedemployees Salary ( 50,000x 60%) Retrenchmentpackage Restructuring provision
1,000,000 30,000 150,000 1,180,000
(D)
Note that 60% (administering the closure and transfer of employees of Factory A) is only included in computing the restructuring provision since it is directly related to the restructuring.
PROBLEM 25 18 Continge ncies (C) Since the outcome of the lawsuit remains uncertain, disclosure of the contingency in the notes to financial statements would be the necessary.
PROBLEM 25-19 Continge ncies (B) Since it is probable that De rick will be liab le to pay the 3,000,000 as supported by Rose’s filing of a petition for bankruptcy, Derick should accrue and disclose the provision for guarantee on a loan of 3,000,000.
PROBLEM 25-20 Premiums Payable Provision – Premiums liability Premiums liability **Coupons redeemed Balance, End (D)
50,000 50,000 30,000 216
Balance, Beg.
80,000 *Premiums expense 80,000
Chapter 25: Introduction to Liabilities
80,000
80,000
*(20,000 x 80%)/5 x (P30 + P5 - P1 0) **(10,000/5) x (P30 + P5 - P10)
PROBLEM 25-21 Premiums Premiums liability (2015) **Balance,E nd 200,000 *Coupons redeemed
**Balance, End *Coupons redeemed
800,000 1,000,000
1,000,000 1,000,000
Premiums liability (2016) 120,000 200,000
2,000,000 2,120,000
1,920,000 2,120,000
Balance,Beg. Premiums expense (squeeze)
Balance, Beg. Premiums expense (squeeze) (D)
*Number of towels distributed x net cost of P40 **Number of towels yet to be distributed x net cost of P40 The beginning balance of the 5,000 towels is included as part of the 50,000 towels distributed in 2016. If the actual towels distributed from 2016 is different from that was recorded as of the end of 2015, this is considered as a change in accounting estimate which should be taken into account during 2016 and fo r the succeeding accounting period.
PROBLEM 25-22 Warranty Liability Warranties liability (2015) Balance, Beg. Actual expenditures 150,000 500,000 * Warranties expense 150,000 500,000 Balance,End 350,000 500,000 500,000 Warranties liabil ity (2016) 350,000 Balance, Beg. Actual expenditures 550,000 600,000 *Warranties expense 550,000 950,000 Balance, End (A) 400,000 950,000 950,000 *Sales x Total estimated warranty cost of 10%
PROBLEM 25-23 Warranty Liability 217
Chapter 25: Introduction to Liabilities
Warranties liability Actual expenditures Balance, End (C)
Balance, Beg. 480,000 Warranties expense 480,000
140,000 140,000 340,000 480,000
480,000
PROBLEM 25-24 Warranty - Sales are Made Evenly Pattern of Realized Revenues: 2015 SALES Fromsalesi n: 2015 1st (40%x½) 0.20 2nd (36%x½) 3rd (24%x½) Total 0.20 2016 SALES Fromsalesi n: 1st (40%x½) 2nd (36% x½ 3rd (24%x½) Total
2016 0.20
0.20
2016 0.20 0.18
2017
2017 0.20 0.18
2018
0.18 0.12 .30 0 0.38
0.38
0.18 0.12 0.30
2018
Total 0.40 0.36 0.12 0.24 0.12 1 2019
0.12 0.12
Requirement No. 1 (A) Warranty Sales in 2015 earned in 2016 (38% x 1,000 x P1,500) Warranty Sales in 2016 earned in 2016 (20% x 1,200 x P1,500) Total warranty sales revenue earned in 2016
Total 0.40 0.36 0.24 1
570,000 360,000 930,000
Notes: The 38% repre sents the reali zed reven ue in 2016 from 2015 Sales. The 20% repre sents the reali zed reven ue in 2016 from 2016 Sales. Requirement No. 2 (B) Total warranty sales revenue earned in 2016 (see No. 1) Expenses relating to computer warranties Profitfromsales warranty Requirement No. 3 (A) Unearned sales warranty from 2015 [(30% + 12% x 1,000 x P1,500)] Unearned sales warranty from 2016 [(100%-20%) x 1,200 x P1,500)] Totalunearnedsalesw arranty Notes: 218
930,000 60,000 870,000
630,000 1,440,000 2,070,000
Chapter 25: Introduction to Liabilities
The 30% and 12% repr esent the unrealized revenues in 2016 fro m 2015 Sales. The 20% rep resents the realized revenue in 2016 from 2016 Sales. So 100% minus 20% realized is equal to 80% unrealized revenue in 2016 from 2016 Sales.
SUMMARY OF ANSWERS: 1 . A 2. B 3 . A
PROBLEM 25-25 Refinancing 1. P2,000,000 (Letter B). The entire amount is payable within one year from the report ing date thus presen ted as current liabi lity. 2. Nil (Letter A). Since both parties are financially capable of honoring the agreement’s provisions and the debtor has the discretion to refinance or roll over the loan for at least twelve months from December 31, 2014 the entire amount is treated as Noncurrent liabili ty. 3. Nil (Letter A). Since the company entered into a refinancing agreement with a bank to refinance the loan on a long-term basis before the reporting date, the entire amount of liabilit y is treated as noncurren t. 4. P2,000,000 (Lett er B). Since the company entered into a refinancing agreement with a bank to refinance the loan on a long-term basis after the reporting date, the entire amount of liability is treated as current.
PROBLEM 25-26 Obligations Payable on Demand, Breach of Loan Agreement 1. P2,000,000 (Letter C). Only if an enforceable promise is received by the end of the reporting period from the creditor not to demand payment for at least 12 months from the end of the reporting period that the note may be classified as noncurrent. 2. Nil (Letter A). The entire amount of loan is noncurrent liability since there was an agreement on the reporting date not to demand payment in order for the debtor to rectify the breach with 12 months from the reporting date. 3. P2,000,000 (Letter B). The entire amount of loan is current liability since the agreement not to demand payment happened after the reporting period.
PROBLEM 25-27 Continge ncies 1. 2. 3. 4.
A D B B
219
Chapter 25: Introduction to Liabilities
5. 6.
A (Amount of accrual is P2,040,000 using expected value method which is calculated as (P1.6M x 20 + (2M x 50%) + (2.4M x 30%) A (Amount of accrual is P2,250,000 using midpoint of the range which is calculated as (P1.5M+3M)/2)
PROBLEM 25-28 Continge ncies 1. A 2. B (Disclose an amount of P1,500,000) 3. B (Disclose an amount of P1,500,000) 4. 5. 6.
B (Disclose an amount of P1,000,000) D A (It is virtually certain that the company will be receiving the P1,5000,000.)
PROBLEM 25-29 Bonus Computation 1.
Net income before bonus but before tax
B
= = =
NY 3,090,000 618,000
x x
BR 20%
2.
Net income after bonus but before tax NY B = BR x 100% + BR = 20% x 3,090,000 100% + 20% = 515,000
3.
Net income after bonus and tax B BR (NY – B – T) = X B = 20% x (3,090,000-B-(927,000-3.B) B = 20% x (3,090,000-B-927,000+.3B) B = 618,000-.2B-185,400+.06B 1B+.2B-.06B = 618,000-185,400 1.14B 432,600 = 1.14 1.14 B = 379,474
T
B
= = =
30%
X (3,090,000 – B) 927,000-.3B
OR BR x [NY x (1-TR)] 1 + [BR x (1-TR)] 220
Chapter 25: Introduction to Liabilities
=
20% x (3,090,000 x (1-30%) 1+[20% x (1-30%)] 20% x (3,090,000 x 70%) 1+(20% x 70%) 20% x (2,163,000) 1.14 379,474
= = =
Where: NY B BR T TR
= Net income before bonus and tax = Bonus = Bonus Rate =T ax = Tax Rate
SUMMARY OF ANSWERS: 1 . D 2. B 3 . C
PROBLEM 25-30 Question N os. 1 and 2 Estimated liability from Warranties
Disbursement warranties
for
Balance end Total
44,800
Beginning balance
164,000 212,000 240,000 Warranty expense. 376,000
Warrantyexpense Divideby% ageofwarranty Sales from musical instruments and sound reproduction equipment ( Question No. 1)
Question No. 3 Premium expense = P2,000,000
X
1c oupon P2
200 coupons
=
P63,000
221
240,000 4%
6,000,000
x
9 0%
P34-P20
Chapter 25: Introduction to Liabilities
Question No. 4 Inventory of Premium Beg.Balance Net Purchases (6,500 x P34)
39,950 221,000
56,950
204,000 Total
Balance end Cost of issued premium (1.2M coupons.200 coupons x P34
260,950
Question No. 5 Estimated liability for Premiums Disbursement for premiums (1.2M coupons/200 coupons x P(34-P20) Balance end Total
44,800 84,000 23,800 63,000
Beginning balance
Premium expense.
107,800
SUMMARY OF ANSWERS: 1 . A 2. A 3 . C 4 . D
5.
D
PROBLEM 25-31 Refinancing of Loan, Notes Payable Interest and NonInterest Bearing Note to the Professor: This problem should be discussed after the discussion in Chapter 26. Question No. 1 (A) Periodic payment-NP Deli very equipment (P2M/4) Multiplyb y PV of ordinarya nnuity Present value of NP-delivery equipment Amortization table: Payment Date 01/01/2015 12/31/2015 500,000 12/31/2016 500,000
500,000 3.0373 1,518,650
Interest Expense 182,238 144,107
Discount Amortization 317,762 355,893
Question N os. 2 and 3 12% Note payable 10% note payable Note payable-del.
Noncurrent 1,400,000 2,000,000 844,995 222
Current 700,000 355,893
Present value 1,518,650 1,200,888 844,995
Chapter 25: Introduction to Liabilities
Equipment Total
4,244,995
1,055,893
Question No. 4 Accrued interest payable-12% Note payable =P2,100,000 x 12% x 8/12 =P168,000 Question No. 5 Interest expense: 12% Note payable 1/1-5/1 (2.8M x 12% x 4/12) 5/1-12/31 (2.1M x 12% x 8/12) 10% Note payable (2M x 10%) Note payable - Delivery. Equipment (seea mortization table) Total SUMMARY OF ANSWERS: 1 . A 2. B 3 . B 4 . B
5.
112,000 168,000 200,000 182,238 662,238
C
PROBLEM 25-32 Warranty, Premiums and Bonus Question No. 1 Warrantyexpense(P150x1,200) Less:Warrantypaid
180,000 85,000
Estimated Premiums payable (A) Question No 2 Premium expense (P1,200,000 x 1 coupon/P1)/400 x 60% x (P45-P20) Less: Net cost of redeemed coup ons (500,000/400)x(P45-P20) Estimated Premiums payable (C)
95,000
45,000 31,250 13,750
Question No. 3 Unadjustednetincome 1,935,000 Warranty expense under, Net income over (P180,000-P85,000) (95,000) Premium expense over, Net income under (P270,000-P45,000) 225,000 Adjusted Net income 2,065,000 (C) Question No. 4 Net income after bonus but be fore tax NY B = BR x 100% + BR = 20% x 2,065,000 100% + 20% 223
Chapter 25: Introduction to Liabilities
=
344,167
(B)
Question No. 5 Net income after bonus and tax B = BR (NY – B – T) x T
=
B
=
TR
(NY – B) x OR BR x [NY x (1-TR)] 1 + [BR x (1-TR)]
Net income after bonus and tax B BR (NY – B – T) = X B = 20% x (2,065,000-B-(9619,500-3.B) B = 20% x (2,065,000-B-619,500+.3B) B = 413,000-.2B-123,900+.06B 1B+.2B-.06B = 413,000-123,900 1.14B 289,100 = 1.14 1.14 B = 253,596 (C) T
= =
30%
X (2,065,000 – B) 619,500-.3B
OR BR x [NY x (1-TR)] B
= = = = =
1 + [BR x (1-TR)] 20% x (2,065,000 x (1-30%) 1+[20% x (1-30%)] 20% x (2,065,000 x 70%) 1+(20% x 70%) 20% x (1,445,500) 1.14 253,596
Where: NY = Net income before bonus and tax B = Bonus BR = Bonus Rate T =T ax TR = Tax Rate SUMMARY OF ANSWERS: 1 . A 2. C 3 . C 4 . B
5.
C
224
Chapter 25: Introduction to Liabilities
PROBLEM 25-33 Comprehensive Question No. 1 SSS Payable Philhealth payable Estimated liabilities under guarantee agreement Estimatedwarrantieso ng oodss old Utilities payable Trade payables (170,000+30,000+20,000+12,000-8,000) Notesp ayablea risingf rom purchaseo fg oods Convertibleb ondsp ayable due July1 ,2 014 Serial bonds payable(40,000 x 2) Accrued interestexpense Advances from customers Unearned rent income Unearned interestonreceivables Incometaxes payables Cashdividends payable Property dividends payable Creditbalanceof notes payable Overdraft with PNB Container's deposit Loans payable-12% Financiall iabilityd esignateda s FVTPL Current liabilities (B)
10,000 9,000 110,000 120,000 6,000 224,000 200,000 1,000,000 80,000 4,000 25,000 36,000 3,500 45,000 100,000 120,000 40,000 80,000 45,000 270,000 200,000 2,727,500
Question No. 2 Deferred taxliability Notes payable Arsingfrom 4-year bankloan Arising from advances by officers, dune in 3 years Serial bonds payable (800,000 minus (40,000 x 2) Security deposit received froml essee Loanspayable-10% Total noncurrent liabilities (A)
Question No. 3 Total liabilities Currentliabilities Totalnoncurrentl iabilities Total liabilities
40,000 400,000 300,000 720,000 89,000 150,000 1,699,000
2,727,500 1,699,000 4,426,500
(B)
SUMMAR AN : 1. B 2. Y OF A 3 . SWERS B
225
Chapter 26: Financial Liabilities and Debt Restructuring
CHAPTER 26 FINANCIAL LIABILITIES AND DEBT RESTRUCTURING BONDS PAYABLE PROBLEM 26-1 Financial Liabil ities at FVTPL (Interest Expense and Unrealized gains or losses) Question No. 1 Face value Multiply by:nominal rate Multiplyb y: months outstanding/12 Interest expense Question No. 2 Fairvalue ofthebonds Less:Carryingvalue Unrealized loss (or gain)-P&L Question No. 3 RetirementP rice(3M x 104) Less: Carryingv alue( 3M x1 03) Realized loss on derecognition- P&L
(A)
3,000,000 8% 12/12 P240,000
(B)
3,090,000 2,850,756 239,244
(D)
3,120,000 3,090,000 30,000
SUMMARY OF ANSWERS: 1. A
2. B 3 . D
PROBLEM 26-2 Unrealized Gain or Loss of FVTPL with Change Due To Credit Risk Question No. 1 Market price of the liability, end of the period 4,000,000 Less: Fair value of liability using the sum observed interest rate andinstruments pecificIRR 4,155,480 Unrealized gain - OCI ( C) 155,480 Internal rate of return at the start of the period - yield or effective rate Less: Observed (benchmark) interest rate, date of inception InstrumentspecificIRR Observed (benchmark) interest rate, end of period Add:Instrumentspecific-IRR Discount rate
226
10% 9% 1% 8% 1% 9%
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-3 Financial Liabilities at Amortized Cost-Term Bonds Question No. 1 Present value of Principal (1,200,000 X 0.7513 ) Add: PV of interest payments (96,000 X 2.4869 ) Present value of the investment bonds (C) Que stion No. 2Table Amortization Interest Date payment 01/01/2016
Interest expense
227
901,560 238,742 1,140,302
Premium Amortization
Present value 1,140,302
Chapter 26: Financial Liabilities and Debt Restructuring
12/31/2016 12/31/2017 12/31/2018
96,000 96,000 96,000
114,030 115,833 117,867
18 ,030 19,833 21,835
(B)
1,158,333 1,178,166 1,200,000
SUMMARY OF ANSWERS: 1. C 2. B PROBLEM 26-4 Financial Liabilities at Amortized Cost- Serial Bonds Question No. 1 Interest Principal payment 400,000 96,000 400,000 64,000 400,000 32,000 Total PV of the bonds
Total payment 496,000 464,000 432,000 (A)
Preset value factor TotalP V 0.9091 450,914 0.8264 383,450 0.7513 324,562 P1,1 58,925
Question No. 2 Date 01/01/2016 12/31/2016 12/31/2017 12/31/2018
Interest Payment
Interest Expense
96,000 64,000 3 2,000
115,892 77,882 39,301
Discount Amortization 19,892 13,882 7,301
Principal 400,000 400,000 400,000
Present value 1,158,925 778,817 392,699 -
SUMMARY OF ANSWERS: 1. A
2. A
PROBLEM 26-5 Financial Liabilities at Amortized Cost - Term Bonds with Transaction Costs IssueP rice (5,000,000x98%) Less:Bondissue cost PresentvalueonJanuary1,2015 Add: Discount amortization Nominalinterest(5Mx1 0%) Effective interest (4,760,000 x 12%) Carrying value – 12/31/2015
4,900,000 140,000 4,760,000 500,000 571,200
(D)
71,200 4,831,200
PROBLEM 26-6 Financial Liabilities at Amortized Cost - Term Bonds with Transaction Costs IssueP rice( 5,000,000x110%) Less:Bondissue cost PresentvalueonJanuary1,2015
5.500,000 80,000 5,420,000 228
Chapter 26: Financial Liabilities and Debt Restructuring
Less: Premium amortization Nominalinterest(5Mx8 %) Effective interest (5,420,000 x 6%) Carrying value – 12/31/2016
400,000 325,200
(B)
74,800 5,345,200
PROBLEM 26-7 Bonds payable wi th warr ants Market value of the bonds without the warr ants
(B)
4,800,000
PROBLEM 26-8 Issuance of Convertible Bonds Question No. 1 TotalProceeds( P1,000x1,000) Less: Fair value of the bonds without conversion privilege Total Share Premium (A)
1,000,000 900,000 100,000
Using 7.48% Present value of Principal (1,000,000 x 0.7 ) Add: Present value of interest payments (50,000 x 4 ) Totalpresentvalue
700,000 200,000 900,000
Question No. 2 See amortization table below. Amortization Table Interest Date 01/01/2016 12/31/2016
Payment 500 00
Interest
Discount
Expense
Amortization
67,320
173 20
Present value 900,000 917,320
SUMMARY OF ANSWERS: 1 . A 2. B
PROBLEM 26-9 Retirement of Bonds Pay able Retirementp rice( 5,000,000 x. 98) Less: Carrying value ( 5,000,000 - 50 0,000 - 30 0,000) Loss on retirement (A)
4,900,000 4,200,000 700,000
PROBLEM 26-10 Conversion of Convertible Bonds Question No. 1 – Case No. 1 Nil. (A) No gain or loss on conversion of convertible bonds unless the conversion is induced by the company. The journal entry to record the transaction would then be: Bonds payable 1,500,000 229
Chapter 26: Financial Liabilities and Debt Restructuring
Share premium-conversion option Premiumonbondspayable Ordinarys hares(20000X50) SharePremium
60,000 52,049 1,000,000 612,049
Question No. 2 - Case No. 2 Fairvalue ofliability Less: Carrying amount of the bonds payable Loss on settlement (convers ion) of liabi lity (B)
1,600,000 1,552,049 47,951
Fairvalue ofliability
1,600,000
Less: Totalp arv alueo ft he shares issued SharePremium
1,000,000 600,000
The journal entry to record the transaction would then be : Bonds payable 1,500,000 Losso ns ettlementofliability 47,951 Premiumonbondspayable 52,049 Ordinarys hares(20,000X50) SharePremium
1,000,000 600,000
SUMMARY OF ANSWERS: 1 . A 2. B
PROBLEM 26-11 Induced Conversion Facea mount of debts ecurities converted
1,500,000
Divideby:New conversionprice Number ofs haresi ssued upon conversion Multiply by: Fair value of shares on the conversion date Fairvalueo fsharesconverted
20 75,000 30 2,250,000
Facea mount of debts ecurities converted Divideby:Old conversion price Number of shares issued under original conversion Multiply by: Fair value of shares on the conversion date Fair value of shares under original conversion
1,500,000 25 60,000 30 1,800,000
Fairvalueo fsharesconverted Less: Fair value of shares under original conversion Debt conv ersion expense or loss on induced conversion
2,250,000 1,800,000 450,000
(B)
Journal entry is: Bonds payable Debt conv ersion expense or loss on inducedconversion Premiumonbondspayable Ordinaryshares(75,000x10 )
1,500,000 450,000 52,049 750,000 230
Chapter 26: Financial Liabilities and Debt Restructuring
Sharepremium
1,252,049
PROBLEM 26-12 Interest-Bearing Note Accrued interest 2015 ( 0,000 x 12% x 9/12) Accrued interest 2016 ( 5,450,000 x 12% x 12/12) Total accrued interest (C)
450,000 654,000 1,104,000
PROBLEM 26-13 Non-Interest Bearing Note Principal Less: Discount on notes payable (2M x 10.8% x 12/12) Amortization (216,000/12x 5) Carrying amount of the note payable
2,000,000 216,000 (90,000)
(B)
126,000 1,874,000
PROBLEM 26-14 Interest-Bearing Note Accrued interest [( 1,350,000 - 450,000) x 12% x 4/12] (B)
36,000
PROBLEM 26-15 Loans Payable Principal Less: Directo riginationf ees paid (1.5M x4 %) Initial carryin g amount of the loans payable
(D)
1,500,000 60,000 1,440,000
PROBLEM 26-16 Debt Restructuring Carrying value of liability ( 6,000,000 + Less: Cost orcarryingvalueofl and Gain on extingui shment
00,000)
(D)
6,600,000 3,500,000 3,100,000
Fair value of equity securities ( 70 x 50,000) Less:Par value( Share premium (D)
3,500,000 2,500,000 1,000,000
PROBLEM 26-17 Debt Restructuring
PROBLEM 26-18 Debt Restructuring Question No. 1 Present value of Principal ( 4,000,000 x 0.75) 231
3,000,000
Chapter 26: Financial Liabilities and Debt Restructuring
Add: Present value of interest payments (320,000 x 2.49) Presentvalueoft he notespayable Less: Carrying value of the notes ( 5,000,000 + 00,000) Gain on extingui shment (B)
796,800 3,796,800 5,500,000 1,203,200
The gain is recognized since the restructuring results in a substantial modification (i.e., 21.88% = 1,203,200 / 5,500,000)
Question No. 2 Interest expense (3,796,800 x 10%)
(B)
379,680
Principal Add: Accrued interest – January 1,2 015 Accruedinterest–2015 Carryingamountofo ldl iability Less: Present value of new liability Present value of principal (P5M x .6209) Present value of interest (P5M x .08 x 3.7908) Gain on extinguishment of liability (A)
P6,000,000 600,000 600,000 7,200,000
SUMMARY OF ANSWERS: 1 . B 2. B
PROBLEM 26-19 Debt Restructuring
3,104,500 1,516,320
4,620,820 2,579,180
COMPREHENSIVE PROBLEMS PROBLEM 26-20 Interest-Bearing Note – Lump Sum Question No. 1 Present value of Principal (4,000,000 x 0.6830 ) Add: Present value of interest payments (600,000 x 3.1699) Present value of the notes payable (D) Amortization Table: Interest Date Payment 01/01/2017 12/31/2017 600,000 12/31/2018 600,000 12/31/2019 600,000
Interest Expense 463,397 449,737 434,711
Question No. 2 Interest Expense (4,633,973x .10) =463,397 Question No. 3 P4,497,370. See amortiz ation table above. 232
Discount Amortization 136,603 150,263 165,289
(C)
(C)
2,732,054 1,901,919 4,633,973
Present value 4,633,973 4,497,370 4,347,107 4,181,818
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 4 Nil. (A) The entire note payab le is noncurr ent liability. Question No. 5 P4,497,370. (D) The entir e note payable is current liabil ity. SUMMARY OF ANSWERS: 1 . D 2. C 3 . C 4 . A
5.
D
PROBLEM 26-21 interest-be aring note – non-uniform installments Question No. 1 Interest Principal payment 1,200,000 60,000 400,000 24,000 400,000 12,000 Total PV of notes payable Amortization Table Date Date 01/01/2016 12/31/2016 60,000 12/31/2017 24,000 12/31/2018 12,000
Total payment 1,260,000 424,000 412,000 (D)
Preset value Present factor Value 0.8929 1,125,054 0.7972 338,013 0.7118 293,262 1,756,328
Interest Expense
Discount on N/P
210,759 84,851 44,079
150,759 1,200,000 60,851 400,000 32,062 400,000
Question No. 2 Interest expense (1,756,328 x .12)
Principal Payment
Present Value 1,756,328 707,088 367,938 -
P210,759
Question No. 3 Carrying amount – December 31, 2016
P707,088
Question No. 4 Principal payable Dec. 31,2 017 Less: Discount on notes payable Carrying amount-current liability Question No. 5 Principal payable Dec.3 1,2 018 Less: Discount on notes payable Carrying amount-noncurrent liability SUMMARY OF ANSWERS: 233
(C)
P400,000 60,851 P339,149
(C)
P400,000 32,062 P367,938
(D)
(C)
Chapter 26: Financial Liabilities and Debt Restructuring
1. D
2. D 3. C 4. C
5.
C
PROBLEM 26-22 Interest-Bearing Note –Uniform Installments Question No. 1 Interest Principal payment 1,000,000 600,000 1,000,000 450,000 1,000,000 300,000 1,000,000 150,000 Total PV of notes payable Amortization Table Interest Date Payment 01/01/2017 12/31/2017 600,000 12/31/2018 450,000 12/31/2019 30 0,000 12/31/2020 150,000
Total payment 1,600,000 1,450,000 1,300,000 1,150,000 (C)
Interest Expense
Premium Amortization
441,507 325,657 213,223 104,545
P441,507
Question No. 3 Carrying amount – December 31, 2017
3,256,573
Question No. 4 Principal (payable Dec. 31, 2018) Add: Premium on notes payable Carrying amount-current liability Question No. 5 Carrying amount – December 31, 2017 Add: Premium on notes payable Carrying amount-noncurrent liability
5.
Principal Payment
158,493 1,000,000 124,343 1,000,000 86,777 1,000,000 45,455 1,000,000
Question No. 2 Interest expense (4,415,066 x .10)
SUMMARY OF ANSWERS: 1. C 2. B 3 . B 4 . C
Preset value Present factor Value 0.9091 1,454,545 0.8264 1,198,347 0.7513 976,709 0.6830 785,465 4,415,066
(C)
P1,000,000 124,343 P1,124,343
(D)
P3,256,573 1,124,343 P2,132,230
Present Value 4,415,066 3,256,573 2,132,230 1,045,453 0
(B)
(B)
D
PROBLEM 26-23 Noninterest-Bearing Note – With Cash Price Equivalent Question No. 1 234
Chapter 26: Financial Liabilities and Debt Restructuring
The carrying amount of the note on initial recognition is equal to its cash price equivalent of P994,760 . (C) Coincidentally, the effective rate using the cash price equivalent is 12% and the amortization table is as follows:
Amortization Table at 12% Principal Date payment 01/01/2016 12/31/2016 400,000 12/31/2017 400,000 12/31/2018 400,000
Interest expense
Amortization
99,476 69,424 36,340
300,524 330,576 363,660
Question No. 2 Interest expense (994,760x .12)
Present value 994,760 694,236 363,660 -
P99,476
Question No. 3 Carrying amount – December 31, 2016
(A)
P694,236
Question No. 4 Principal (payableD ec.3 1,2 017 Less: Discount on notes payable Carrying amount-current liability
(A)
(B)
P400,000 69,424 P330,576
(C)
P400,000 36,340 P363,660
Question No. 5 Principal (payableD ec.3 1,2 018 Less: Discount on notes payable Carrying amount noncurrent liabi lity
SUMMARY OF ANSWERS: 1. C 2. A 3 . A 4 . B
5.
C
PROBLEM 26-24 Noninterest-Bearing Note – Lump Sum Question No. 1 Present value of Principal (1,200,000 x 0.7118 ) Amortization Table Date Intereste xpense 01/01/2016 12/31/2016 102, 499 12/31/2017 114,799 12/31/2018 128,542
(B)
Presentv alue 854,160 956, 659 1,071,458 1,200,000
235
854,160
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 2 Interest expense (854,160 x .12)
P102,499
Question No. 3 Carrying amount – December 31, 2016
(B)
P956,659
(A)
Question No. 4 Nil. The entire note payable is noncurrent liability since it is due beyond 12 months from the reporting date. (B) Que onentire No. 5 carrying amount of note payable is presented as noncurrent The sti total liability. See Question No. 4. (A) SUMMARY OF ANSWERS: 1 . B 2. B 3 . A 4 . B
5.
A
PROBLEM 26-25 Noninterest-Bearing Note – Installments Question No. 1 Present valu e of Princi pal (400,000 X 2.4018 ) Amortization Table Date Inte rest Payment
Interest expense
01/01/2016 12/31/2016 12/31/2017 12/31/2018
115,286 81,121 42,873
400,000 400,000 400,000
(D)
Amortization 284,714 318,879 357,127
960,720
Present value 960,720 676,006 357,127 -
Question No. 2 P115,286. See amortization table above. (A) Question No. 3 P676,006. See amortization table above. (A) Question No. 4 Principal (payableD ec.3 1,2 017 Less: Discount on notes payable Carrying amount-current liability Question No. 5 Principal (payableD ec.3 1,2 018 Less: Discount on notes payable Carrying amount-noncurrent liability 236
(B)
P400,000 81,121 P318,879
(C)
P400,000 42,873 P357,127
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS: 1 . D 2. A 3 . A 4 . B
5.
C
PROBLEM 2 6-26 Issuance, Retirement and Conversion of Non-Convertible Bonds Question No. 1 Present value of Principal (3,000,000 X 0.6499 ) Add: Present value of interest payments (3,000,000 x12%x3.8897) Present value of the bonds payable (B) Amortization Table Date Inte rest payment 01/01/2014 12/31/2014 360,000 12/31/2015 360,000
Interest expense
1,949,794 1,400,274 3,350,068
Discount Amortization
301,506 296,242
Question No. 2 RetirementPrice Less: Carrying amount (3,227,816 x 1/2) Loss on retirement QuestionNo. 3 Amortization table: Interest Date payment 12/31/2015 12/31/2016 180,000
58,494 63,758
Present value 3,350,068 3,291,574 3,227,816
1,900,000 1,613,908 286,092
(B) (B )
Interest expense 145,252
Amortization 4,748 3
Question No. 4 Fair value of the ordinary shares issued (460 x 5,000) Less: Carryinga mount oft he liability Loss on conversion (D)
Present value 1,613,908 1,579,160
P2,300,000 1,579,160 P720,840*
Or P720,839*
Question No. 5 Fair thevalue ordinary shares issued (460 5,000) Less:value Totalof par of the shares issued (40 x x 5,000) Share Premium (D)
SUMMARY OF ANSWERS: 1 . B 2. B 3 . B 4 . D
5.
D 237
P2,300,000 200,000 P2,100,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-27 Issuance, Retirement and Conversion of Convertible Bonds Question No. 1 TotalProceeds Less: Present value of the bonds without the conversion option Present value of Principal (3,000,000 x 0.5674 ) Present value of interest payments (300,000 x 3.6048 ) Residual amount to equity (B) Amortization Table Date Inte rest payment 01/01/2015 12/31/2015 300,000 12/31/2016 300,000
Interest expense 334,046 338,131
Question No. 2 Fair value of liability using current rate Less: Carryinga mount (2,817,759 x ½) Loss on settlement of liability
P3,000,000
1,702,281 1,081,433
Discount Amortization (34,046) (38,131)
(B)
2,783,713 216,287
Present value 2,783,713 2,817,759 2,855,890
1,537,969 1,427,945 110,024
Present value using 9% for 3 per iods Present value of Principal (1,500,000 X 0.7722) Add: Present value of interest payments (150,000 X 2.5313)
1,158,275 379,694
Presentvalueoft he bondsp ayable
1,537,969
Question No. 3 Retirement Price Less: Fair value of liability using current rate Decrease in equity (C)
1,600,000 1,537,969 62,031
Question No. 4 Interest expense is P338,131 based on the amor tization table above. Question No. 5 Shares to be issued based on amended terms (1.5M/400) Less: Shares to be issued based on original terms (1.5M/500) Incrementalshares Multiply by: Fairvalue Debt settlement expense
SUMMARY OF ANSWERS: 1 . B 2. B 3 . C 4 . D
(C)
5.
C 238
(D)
3,750 3,000 750 420 315,000
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-28 Redeemable Preference Shares and De bentures Present value of the redeemable preference shares Present value of Principal (15,000 x 1.05 x 0.72161 ) Add: Present value of interest payments (1,500 x 2.42308 ) Present valueoft he preferences hares Amortization table: Date Inte rest Payment 01/01/2016 12/31/2016 1,500 12/31/2017 1,500 12/31/2018 1,500
Interest Expense 1,723 1,749 1,778
Amortization 223 249 246
Question No. 1 P1,723. See amortization table above.
(B)
Question No. 2 P1,749. See amortization table above.
(C)
Question No. 3 P1,778. See amortization table above.
(D)
Present value of the debentures Present value of Principal (20,000 x 1.02 x 0.53884 ) Add: Present value of interest payments (2400 x 3.5032 ) Presentvalueofbonds payable
Amortization Table Date Inte rest Payment 12/31/2018 12/31/2019 2,400
Interest Expense 2,554
(154)
Question No. 4 P2,554. See amortization table above.
(B)
Question No. 5 P19,554. See amortization table above.
(B)
SUMMARY OF ANSWERS: 1 . B 2. C 3 . D 4. B
5.
B
239
Amortization
11,365 3,635 15,000
Present value 15,000 15,223 15,472 15,718
10,992 8,408 19,400
Present value 19,400 19,554
Chapter 26: Financial Liabilities and Debt Restructuring
PROBLEM 26-29 Question No. 1 Accounts payable, unadjusted Good in transitF OB shippingp oint Undeliveredcheck Accounts payable, adjusted
(D)
P1,350,000 75,000 60,000 P1,485,000
Question No. 2 14% Note payable (1,250,000 x 14%) 16% Note payable (3,000,000 x 16%) 10% Note payable (2,000,000 x 10% x 6/12) Interest expense (D)
P175,000 480,000 100,000 P755,000
Question No. 3 14% Note payable (1,250,000 x 14% x 3/12) 16% Note payable (3,000,000 x 16% x 9/12) 10% Note payable (2,000,000 x 10% x 6/12) Interest expense (C)
P43,750 360,000 100,000 P503,750
Question N os. 4 and 5 Current 1,485,000 1,250,000
Accountspayable 14%Notepayable 16%Notepayable 10%Notepayable Accruedinterestpayable Total
SUMMARY OF ANSWERS: 1 . D 2. D 3. C 4. C
Noncurrent
3,000,000 2,000,000 503,750 P3 238,750 (C)
5.
P5,000,000 (C)
C
PROBLEM 26-30 (Comprehensive) Question No. 1 Present value of Principal (10,000,000 X 0.3118 ) Add: Present value of interest payments (500,000 X 11.46992 ) Present value of the bonds payable (A)
3,118,000 5,734,960 8,852,960
Question No. 2 April 2016 July 1,1,2016 October1,2016 January 1, 2017 Notes payable-current liability
P400,000 600,000
(B) 240
300,000 300,000 P1,600,000
Chapter 26: Financial Liabilities and Debt Restructuring
Question N os. 3 and 4 Estimated liability from Warranties Disbursement fo r warranties Balance end (A)
180,000 358,000 342,000 520,000
Total
Beginning balance Warranty expense (C)
700,000
Question No. 5 (a)
A B C Total
Fixed salary 10,000 14,000 18,000
(b)
( c)
d =b x c
Comm. Rate 4% 6% 6% (C)
Net Sales 200,000 4 00,000 600,000
E =d - a
Comm. Expense 8,000 24,000 36,000 P28,000
Accrued Salaries Payable 0 10,000 18,000
Question No s. 6 and 7 Int. payable - Bonds (10M x 10% x 3/12) Int.payable-Notepayable Notespayable Estimated warranties payable Tradepayable Salescommissionspayable Cash dividends payable (6M x P.2) Bonds payable Total
Current 250,000 600,000 1,600,000 342,000 740,000
Noncurrent
5,400,000*
28,000 1,200,000 8,970,751 P4,760,000 P14,370,751** (B) (C)
*(P7M-1.6M) ** or P14,370,783 which is the same as P8,952,185 x 100% +(Effective rate x months outstanding/12) minus payment Or [(P8,952,185 x 103%) - P250,000] Amortization Table Interest Date Payment
Interest Expense
07/01/2014 01/01/2015 07/01/2015 01/01/2016 03/31/2016
531,178 533,048 535,031 268,566
500,000 500,000 500,000 250,000
241
Amortization 31,178 33,048 34,999 18,566
Present value 8,852,960 8,884,138 8,917,186 8,952,185 8,970,751
Chapter 26: Financial Liabilities and Debt Restructuring
(8,952,185 x 12% x 3/12) SUMMARY OF ANSWERS: 1 . A 2. B 3 . A 4 . C 5.
C
6
B
7
C
PROBLEM 26-31 Financial liabilities , Investment in associate and research and development cost Question No. 1 Totalproceeds(P100x2M) Less: Present value of the convertible debt (see No. 2) Share premium – conversionp rivilege Less:Shareissuancecost Net amount allocated to equity (C)
200,000,000 181,635,200 18,364,800 4,000,000 14,364,800
Question No. 2 Present value of convertibl e debt without conversion option at 11.81% Present value of Principal (200M x .7154) 143,080,000 Add: Present value of interest payments (200M x .08 x 2.4097) 38,555,200 Present value of the convertible debt 181,635,200 (B) Question No. 3 Interest expense (181,635,200 x .1181)
(D)
21,451,117
(C)
380,000,000 370,000,000 10,000,000 20% 2,000,000
Question No. 4 Netassetof GL Less:Recoverableamount ImpairmentlossofGL Multiply by:Percentageshare Impairment loss
Question No. 5 1. Researcho n sizeo fp otential market 6. Stafftraining costs 7. Advertisementcosts Total amount expensed (B)
800,000 600,000 3,400,000 4,800,000
Question No. 6 2. Productsdesigning 3. 4.
1,500,000
Laborc osts in refinement of productsto finalize the Development work undertaken productdesign Total Development cost capitalized (C)
242
950,000 11,000,000 13,450,000
Chapter 26: Financial Liabilities and Debt Restructuring
SUMMARY OF ANSWERS: 1 . C 2. B 3 . D 4. C
5.
B
6
C
PROBLEM 26-32 Financial Liability at FVTPL vs. FLAC
CASE NO. 1 Question No. 1 Initial carrying amount is fair value or issuance price of
1,898,205.
Transaction cost is expensed outright. (D) Question No. 2 Interest expense ( 2,000,000 x 8%)=
160,000 (A)
Question No. 3 Fair value 12/31/2015 (1.02 x 2,000,000) Less:Initialcarryingamount Unrealized loss (C)
Question No. 4 Carrying value ( 2,000,000 x .98)=
2,040,000 1,898,205 141,795
1,960,000 (C)
Question No. 5 Fair value1 2/31/2017 (.99 x 2,000,000) Less:Carrying value (.98x Unrealized loss (D)
1,980,000 1,960,000 20,000
Question No. 6 Retirementp rice (1.05 x 2,000,000) Add:Transactioncost Totalretirementprice Less:Carrying value (.98x Loss on derecognition
SUMMARY OF ANSWERS: 1 . D 2. A 3 . C 4 . C
5.
D
(A)
6.
2,100,000 20,000 2,120,000 1,980,000 140,000
A
CASE NO. 2 Question No. 7 Issue price Less:Transactioncost Initial carrying amount
(C) 243
1,898,205 25,000 1,873,205
Chapter 26: Financial Liabilities and Debt Restructuring
Question No. 8 Effective interest rate = 10% (B) Please refer to discussion on interp olation. Question No. 9 Interest expense (
x 10%)=
187,321 (B)
Question No. 10 No gain or loss due to change in fair value is not recognized . (D) Question No. 11 Carrying value 12/31/2016
(A)
1,930,579
Retirementp rice (1.05 x 2,000,000) Add:Transactioncost Totalretirementprice Less:Carryingv alue– 01/01/2018 Loss on derecognition
(B)
2,100,000 20,000 2,120,000 1,963,636 156,364
SUMMARY OF ANSWERS: 7. C 8. B 9. B 10. D
12. B
Question No. 12
11. A
244
Chapter 27 – Lease
CHAPTER 27: LEASE PROBLEM 27-1 Uneq ual rental paym ents 2014 2015 2016 2017 Totalrent Divideby:Numberofyears Rent expense per year
20,000 18,000 16,000 14,000 68,000 4 17,000
(C)
PROBLEM 27-2 Ope rating Lea se - Une qual rental payme nts 07/01/2014 to 06/30/2015 07/01/2015 to 06/30/2016 07/01/2016 to 06/30/2017 Total Divideby:Leaseterm Rentincomepery ear
60,000 90,000 210,000 360,000 3 120,000
Rent income to date (120,000 x 2) Less: Collection to date (60,000 + 90,000) Rent receivable (A)
240,000 150,000 90,000
PROBLEM 27-3 Ope rating Lease - Comprehensive CAS E NO. 1 Question No. 1 Periodic rent-one year (
(B)
300,000
CAS E NO. 2 Question No. 2 Periodicrent-oneyear Amortization of lease bonus (180,000 / 3 ) Rent expense (C)
300,000 60,000 360,000
CAS E NO. 3 Question No. 3 Total lease payments [(3 x 12) – 6) x 25,000]
750,000
Divide by:Leaseterm Rent expense per year
3 250,000
(D)
245
Chapter 27 – Lease
Question No. 4 Total payments to date, 2016 (6 x 25,000 ) Less: Total expenset o date, 2016 Accrued rent payable (D)
150,000 250,000 100,000
CAS E NO. 4 Question No. 5 Total lease payments (25,000x 2x 12) (30,000x1x12) Divideby:Leaseterm Rent expense per year Question No. 6 Totalpayments todate, 2016 Less: Total expenset o date, 2016 Accrued rent payable
600,000 360,000
(A)
960,000 3 320,000
(D)
300,000 320,000 (20,000)
CAS E NO. 5 Question No. 7 Rent Revenue Less: Amortization of Direct Cost (120,000 / 3) Insurance and property tax expense on leased asset Depreciationo ft he leased asset Net income (A) CAS E NO. 6 Question No. 8 Periodrentforoneyear Add: Contingent rent 1st [(2,500,000 – 1,500,000) x 10%] 100,000 2nd [(6,000,000 – 2,500,000) x 8%] 280,000 Total rent expense (A) SUMMARY OF ANSWER S: 1. B 2. C 3. D 4. (D) 5 . 6 . D 7. A 8. A
300,000 40,000 40,000 30,000 190,000
300,000
380,000 680,000
A
PROBLEM 27-4 Finance Lea se - Lea se Liabil ity (A) The capitalized lease liability should be the annual lease payments less the executory taxes) the present valuebe: factor for an- ordinary annuity of cost 1 for(real nineestate years at 9%. times The calculation would (P26,000 1,000) × 6.0 = P150,000. The real estate taxes are a period cost and should be charged to expense.
246
Chapter 27 – Lease
PROBLEM 27-5 Finance Lea se with Bargain Purchas e Option QuestionNo. 1 ( A) Present value of periodic payment (120,000 x 3.4018) Add: Present value of bargain purchase option (20,000 x 0.6355) Present value ofm inimuml ease payments Amortization Table Annual Date payment 12/31/2016 12/31/2016 12/31/2017 12/31/2018 12/31/2019 12/31/2020
120,000 120,000 120,000 120,000 20,000
Interest expen se 36,111 26,044 14,770 2,142
Amortization
408,220 12,710 420,926
Present value 420,926
120,000 300,926 83,889 2 17,037 93,956 123,082 105,230 17,851 17,858 (6)
QuestionNo. 2 ( B) P36,111. See amortization table above. QuestionNo. 3 (C) P83,889. See amortization table above. QuestionNo. 4 ( B) P217,037. See amortization table above. SUMMARY OF ANSWER S: 1. A
2. B
3. C
4. B
PROBLEM 27-6 With Gua ranteed Residual Value And Initial Direct Cost CAS E NO. 1 Question No. 1 Present value of periodic payment (130,000 x 3.4869) Add: Present value of guaranteed residual value (50,000 x 0.683) Present value ofm inimuml ease payments Add:Initialdirect cost Cost of the Machinery (C) Amortization Table Annual Date payment 12/31/2016 12/31/2016 130,000 12/31/2017 130,000 12/31/2018 130,000 12/31/2019 130,000 12/31/2020 50,000
Interest expen se 35,745 26,319 15,951 4,538 247
Present value 487,447 357,447 2 63,192 159,511 45,462 0
Amortization 130,000 94,255 103,681 114,049 45,462
453,297 34,150 487,447 40,000 527,447
Chapter 27 – Lease
QuestionNo. 2 ( B) P35,745. See amortization table above. QuestionNo. 3 ( C) P94,255. See amortization table above. QuestionNo. 4 ( B) P263,192. See amortization table above. CAS E NO. 2 Question No. 5 Present value of periodic payment (130,000 x 3.4226) Add: Present value of guaranteed residual value (50,000 x 0.647) Present value of minimum lease payments = Fair value Add:Initialdirect cost Cost of the Machinery (D)
444,938 32,350 477,288 40,000 517,288
Amortization Table: Effective rate = 11.50% Annual Interest Present Date payment expen se Amortization value 12/31/2016 477,288 12/31/2016 130,000 130,000 347,288 12/31/2017 130,000 39,938 90,062 2 57,226 12/31/2018 130,000 29,581 100,419 156,807 12/31/2019 130,000 18,033 111,967 44,840 12/31/2020
50,000
5,160
44,840
(0)
QuestionNo 6 (D) P39,938. See amortization table above. QuestionNo. 7 ( A) P90,062. See amortization table above. QuestionNo. 8 (D) P257,226. See amortization table above. SUMMARY OF ANSWER S: 1. C 2. B 3. C 4. B
5.
D
6.
248
D
7.
A
8. D
Chapter 27 – Lease
PROBLEM 27-7 Finance Lea se - Deprecia tion Question No. 1 Cost of the lease asset Less: Estimated residual value end of the useful life of the asset Depreciable cost Divideby:Useful life Depreciation (A)
487,447 60,000 427,447 8 53,431
Question No. 2 Cost of the lease asset Less: Gross amount of guaranteed residual value Depreciable amount Divideby:Leaseterm Depreciation (B)
487,447 50,000 437,447 4 109,362
PROBLEM 27-8 Compu tatio n of Periodic Lease Payments Fair value Less: Present Value of Guaranteed Residual Value Total Divide by: Present valueo f Annuity Due Periodic lease payments (B)
PROBLEM 27-9 Direct Financing Lease - Lessor Question No. 1 Gross Investment: Total Periodic Lease Payment (261,692 x 4) Add: Unguaranteed Residual value (URV) Less:Cost oftheequipment Unearned interest income (C)
800,000 59,630 740,370 4.8897 151,414
*1,046,775 150,000
1,196,775 1,000,000 196,775
*1,046,770 OR 1,046,775 Amortization Table Annual Date Collection 12/31/2016 12/31/2016 261,692 12/31/2017 261,692 12/31/2018 12/31/2019 12/31/2020
261,692 261,692 150,000
Interest Income
Amortization -
261,692 180,479
61,361 39,325 14,864
200,331 222,368 135,136
81,214
249
Present value 1,000,000 738,308 557,829 357,498 135,130 (6)
Chapter 27 – Lease
QuestionNo. 2 (C) P81,214. See amortization table above. QuestionNo. 3 ( A) P180,479. See amortization table above. SUMMARY OF ANSWER S: 1. C 2. C 3. A
PROBLEM 27-10 Direct Financing Lea se - With Initial Direct Cost Question No. 1 Gross Investment: Total Periodic Lease Payment (251,600 X 4) *1,006,402 Add Unguaranteed Residual value (URV) - 1,006,402 Less:Cost oftheequipment 924,128 Unearned interest income 82,273 (A) *4,796,278 OR *4,796,28 0 Costo ft heequipment Add: Initialdirectc ost Net cost ofi nvestment
Amortization Table Annual Date Collection 12/31/2016 12/31/2016 251,600 12/31/2017 251,600 12/31/2018 251,600 12/31/2019 251,600
900,000 24,128 924,128
Interest Income
Amortization
51,872 35,894 18,637
251,600 199,728 215,707 232,963
QuestionNo. 2 ( A) P51,872. See amortization table above. QuestionNo. 3 ( B) P199,728. See amortization table above. SUMMARY OF ANSWER S: 1 . A 2 . A 3. B
250
Present value 900,000 648,400 448,671 232,964 1
Chapter 27 – Lease
PROBLEM 27-11 Direct Financing Lea se - Sale Of Lea sed Asset CAS E NO. 1 Question No. 1 Gross Investment: Total periodic lease payments (300,000 x 4) Add:ResidualValue Present value of the leased asset Present value of minimum lease payments (300,000 x3.3121) Add: Present value of residual value (50,000 x .735) Unearned interest income ( A)
Amortization Table Annual Date Collection 01/01/2016 12/31/2016 300,000 12/31/2017 300,000 12/31/2018 300,000 12/31/2019 350,000
993,630 36,750 1,030,380 219,620
Interest Income
Amortization
82,430 65,025 46,227 25,906
217,570 234,975 253,773 324,094
Question No. 2 P82,430. See amortization table above. Question No. 3: Guarant eed Sales Less: Costo f goods sold Initialdirectcost Dealer's profit
(B)
Question No. 4 Nil.
(A)
The journal ent ry is: Inventory Cash Leasereceivable
1,200,000 50,000 1,250,000
1,030,380 900,000 10,000 120,380
44,000 6,000 50,000
SUMMARY OF ANSWER S: 1. A 2 . B 3. B 4. A
251
Present value 1,030,380 812,810 577,835 324,062 (32)
Chapter 27 – Lease
CAS E NO. 2 Question No. 1 Gross Investment: Total periodic lease payments (300,000 x 4) Add:ResidualValue Present value of the leased asset Present value of minimum lease payments (300,000 x3.3121) Add: Present value of residual value (50,000 x .735) Unearned interest income ( A)
QuestionNo. 2 Amortization Table Annual Date Collection 01/01/2016 12/31/2016 300,000 12/31/2017 300,000 12/31/2018 300,000 12/31/2019 350,000
The journal ent ry is: Inventory Lossons alestype Leasereceivable
993,630 36,750 1,030,380
219,620 (B) Interest Income
Amortization
82,430 65,025 46,227 25,906
Question No. 3: Ungua ranteed Sales Less: Net cost Costo fgoodssold Less: Present value of URV Initialdirectcost Dealer's profit (B) QuestionNo. 4 P6,000.
1,200,000 50,000 1,250,000
217,570 234,975 253,773 324,094
Present value 1,030,380 812,810 577,835 324,062 (32)
993,630 900,000 36,750
863,250 10,000 120,380
( B)
44,000 6,000 50,000
SUMMARY OF ANSWER S: 1. A 2 . B 3. B 4. B
PROBLEM 27-12 Sales-Typ e Lease NetSellingPrice Less: Present value of lease receivable Gain on sale (D)
400,000 150,000 250,000 252
Chapter 27 – Lease
PROBLEM 27-13 Sale and Leaseback as Finance Lease Question No. 1 SalesPrice Less:Carryinga mount Loss on sale and le aseback
(B)
993,630 1,100,000 (106,370)
Question No. 2 SalesPrice Less:Carrying amount Deferred gain on sale and leaseback Divideby:Leaseterm Gain on sale an d leaseb ack (D)
993,630 900,000 93,630 4 23,408
PROBLEM 27-14 Sale and Leaseback as Operating Lease - Treatment of Gain QuestionNo. 1 ( B) SalesPrice =Fair value Less:Carrying amount Gain on sale - recognize immediately QuestionNo. 2 Salesprice Less:Carryinga mount
800,000 500,000 300,000
( B) 800,000 1,000,000
Loss on sale - recognize immediately
(200,000)
Question No. Salesprice Less:Fair value DeferredGain
800,000 600,000 200,000
Fairvalue Less:Carrying amount Outright gain
600,000 450,000 150,000
(D)
QuestionNo. 4 ( B) SalesPrice =Fair value Less:Carrying amount Gain on sale - recognize immediately
800,000 400,000 400,000
QuestionNo. 5 SalesPrice =Fair value Less:Carrying amount Lossons aleandleaseback
800,000 880,000 (80,000)
( B)
253
Chapter 27 – Lease
Question No. 6 Nil. The loss is compensate d by future lease rental below the market r ate. SUMMARY OF ANSWER S: 1. B 2. D 3. D 4. B
5.
B
6.
A
COMPREHENSIVE PROBLEMS PROBLEM 27-16 QuestionNo. 1 (ACAS ) E NO. 1 “Substantially all” test Present value of Periodic Payment (200,000 x 6.75902) % age
1,351,805
1,351,805 =68% 2,000,000
Not substantially all.
Major part test %age
10 20
=50%
The lease term does not amount to major part of the economic life of the asset. Answer: Nil. The lease do not classify as finance lease.
QuestionNo. 2 Rente xpense
( B) P200,000
QuestionNo. 3 Nil.
( A)
QuestionNo. 4 Nil.
( A)
QuestionNo. 5 (D) Depreciation expense overstated, net income understated Interest expense overstated, net income understated Rent expense understated, net income overstated Netincome understated SUMMARY OF AN SWERS – CAS E NO. 1: 1. A 2. B 3. A 4. A 5. D
QuestionNo. 1 “Substantially all” test
CAS E NO. 2 ( B) 254
(115,181) (135,181) 200,000 (50,362)
Chapter 27 – Lease
% age
1,351,805 =90% 1,500,000
The lease is a finance lease. The cost of the leased asset is lower between the fair value and the present value of minimum lease payment which is P1,351,805.
Amortization Table Annual Date Payment 01/01/2015 12/31/2015 200,000 12/31/2016 200,000 12/31/2017 200,000 12/31/2018 200,000
Interest Expense 115,181 106,699 97,368
QuestionNo. 2 (D) Depreciation expense (1,351,805/10) Interestexpense Total lease- related expenses
Amortization 200,000 84,819 93,301 102,632
Present value 1,351,805 1,151,805 1,066,986 973,684 871,052
135,181 115,181 250,362
QuestionNo. 3 (C) P93,301. See amortization table above. QuestionNo. 4 ( B) P1,066,986. See amortization table above. QuestionNo. 5
( A)
Nil. The company did not commit any error.
SUMMARY OF AN SWERS – CAS E NO. 2: 1. B 2. D 3. C 4. B 5. A
PROBLEM 27-17 QuestionNo. 1 ( B) Lease is a finance lease thus any gain should be deferred and amortize over the lease term. SellingPrice Less:Carrying amount Deferred gain on sale and leaseback Less: Amortization in 2014 (29,695/10) Deferred gain on sale and leaseback, end
QuestionNo. 2 (D) Interestexpense Depreciation expense (379,695/10) Rentexpense(5,000x1 2)
379,695 350,000 29,695 2,970 26,725
38,363 37,970 60,000 255
Chapter 27 – Lease
Totalleaserelated expenses
Amortization Table Annual Date Payment 01/02/2016 01/02/2016 60,000 01/02/2017 60,000 QuestionNo. 3
136,333
Interest Expense 38,363
Amortization 60,000 21,637
Present value 379,695 319,695 298,058
( C)
Sale and leaseback as finance lea se Leaseliability, 01/02/2016 Add:Accruedinterest Totallease-relatedl iability
319,695 38,363 358,058
QuestionNo. 4 ( B) Amortization of deferred gain on sale and leaseback (see No. 1) Add: Gain on sale and leaseback as operating lease (P400,000P350,000) Totalgainonsale andleaseback
2,970 50,000 52,970
QuestionNo. 5 ( B) The deferred gain on sale and leaseback should be recognized immediately. SUMMARY OF ANSWER S: 1. B
2. D
3. C
4. B
5.
B
PROBLEM 27-18 QuestionNo. 1 ( C) Present value of Periodic Payment (50,000 x 4.0373) - LOWER FairValue ofthe leasedasset
201,865 P213,213
PAR. 20 OF PAS 17 States that: At the commen cement of the lease term, lessees shall recognise finance leases as assets and liabilities in their balance sheets at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. The discount rate to be used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if not, the lessee’s incremental borrowing rate shall be used. Any initial direct costs of the lessee are added to the amount recognized as an asset. Question Nos. 2-4 Amortization Table Annual Interest Present Date Payment Expense Amortization value 256
Chapter 27 – Lease
12/31/2015 12/31/2015 12/31/2016 12/31/2017 12/31/2018 12/31/2019
5 0,000 50,000 50,000 50,000 50,000
50,000 31,776 35,589 39,860 44,639
18,224 14,411 10,140 5,361
201,865 1 51,865 120,089 84,499 44,639 0
QuestionNo. 2 (D) P120,089. See amortization table above. QuestionNo. 3 ( C) P35,589. See amortization table above. QuestionNo. 4 ( C) P18,224. See amortization table above. QuestionNo. 5 ( A) Depreciation expense (201,865/5) SUMMARY OF ANSWER S: 1. C 2. D 3. C 4. C
5.
P40,373
A
PROBLEM 27-19 QuestionNo. 1
( A)
Annual lease payments
=
Annual lease payments
=
=
Fair market value – Present value of Unguaranteed R esidual Value Annuity due 286,420 - (.5066 X 20,000) 4.6048 60,000
QuestionNo. 2 ( C) Total minimum lease payments(60,000 x 6) Add: Unguaranteedr esidual value Totalleasereceivable Less: Fair market value of thele ased asset TotalFinancialrevenue
257
360,000 20,000 380,000 286,420 93,580
Chapter 27 – Lease
QuestionNo. 3 Amortization Table Annual Date Collection 01/01/2016 01/01/2016 6 0,000 12/31/2016 60,000
( A) Interest Income
Amortization
Present value 286,420 2 26,420 193,590
27,170
60,000 32,830
QuestionNo. 4 (C) Present value of periodic lease payments (60,000 x 4.6048) Amortization Table Annual Date Collection 01/01/2015 01/01/2015 6 0,000 12/31/2015 60,000
Interest Income
25,955
Amortization 60,000 34,045
Depreciation expense (276,288/6) Add:Interestexpense Totalexpenses
P 276,288
Present value 276,288 2 16,288 182,243
46,048 25,955 72,003
QuestionNo. 5 ( C) P182,243. See amortization table in No. 4. SUMMARY OF ANSWER S: 1. A 2. C 3. A 4. C
5.
C
PROBLEM 27-20 QuestionNo. 1 ( B) Periodic rent(12,000x12) Amortization of lease bonus (300,000/6) Rentexpense QuestionNo. 2 ( C) Periodicrent Contingent rent: 1st(4Mx4%) 160,000 2nd( 6M-4M)x5%) 100,000 Amortization of lease bonus (500,000/5) Totalrentexpense
144,000 50,000 194,000
480,000
260,000 100,000 840,000
258
Chapter 27 – Lease
QuestionNo. 3 Rent expense
=
Rent expense
=
( B) [(3 x 12)-6] x 10,000 3 100,000
QuestionNo. 4 ( B) Lease No. 1 (Rent expense overstated, asset understated) (P444,000-P194,000) Lease No. 2 (Rent expense overstated, asset understated) Assetunderstated Rentexpenseperyear-Lease3 Less:Payment(10,000x6 months) Accrued rent payable under, Liability understated
100,000 60,000 (40,000)
QuestionNo. 5 ( C) Lease no. 1 (Rent expense overstated, net income understated) Lease No. 2 (Rent expense overstated, net income understated) Lease No. 3 (Rent expense understated, net income overstated) (100,000-60,000) Netincome understated SUMMARY OF ANSWER S: 1. B 2. C 3. B 4. B
5.
(250,000) (400,000) (650,000)
(250,000) (400,000) 40,000 (610,000)
C
PROBLEM 27-21 QuestionNo. 1 ( B) The present value of annuity due of 12% for 10 periods can be computed as: [1 – (1+12%) -9] + 1 = 6.33 12% Annual rentals Executory costs Minimumleasepayment Multiply by: Present value of annuity due Present value of minimum lease payments
P1,440,000 (49,410) P1,390,590 6.33 P8,802,438
Fairvalueo ftheproperty P8,800,000 (The difference is immaterial, implicit rate is 12% at P8.8M)
QuestionNo. 2
(D)
[12/31/2015 balance x (1+Effective rate)] – annual payments = 12/31/15 balance [(P8,800,000 – P1,390,590) x 1.12%] - P1,390,590 = P 6,907,949 The current portion as of 12/31/2016 can be compu ted as: (P6,907,949 - P1,390,590) x 12% = P561,636 259
Chapter 27 – Lease
QuestionNo. 3 ( B) 12/31/2016 balance – current portion(no.2) = Non-current portion = P6,907,9 49 - P561,636 = P6,346,313 QuestionNo. 4 P8,800,000/10 = P880,000
( A)
QuestionNo. 5 Depreciationexpense
( A) P 880,000
Interest expense Executory costs (P8,800,000 – P1,390,590) x 12 Total lease-related expenses
SUMMARY OF ANSWER S: 1. B 2. D 3. B 4. B
5.
889,129 49,410 P1,818,539
A
PROBLEM 27-22 QuestionNo. 1 07/01/2015 to 06/30/2016 07/01/2016 to 06/30/2017 07/01/2017 to 06/30/2018 Total Divideby:Numberofyears Rent expense per year
( B) 60,000 90,000 210,000 360,000 3 120,000
Rent expense to date (120,000 x 1) Less:Payment odate Accrued rent payable
120,000 60,000 60,000
QuestionNo. 2 ( B) Present value of Periodic Payment (400,000 x 5.9500) Fairvalue ofleasedasset
2,380,000 P2,380,000
Cost is equal to P2,380,000 (Fair value which is the same as the Present value of minimum lease payments .)
Amortization Table Annual Date Payment 06/30/2016 06/30/2016 400,000 06/30/2017 400,000
Interest Expense 277,200
260
Amortization 400,000 122,800
Present value 2,380,000 1,980,000 1,857,200
Chapter 27 – Lease
QuestionNo. 3 ( A) Firstl ease( SeeN o.1) Second lease (see amortization table) Current liabilities
60,000 122,800 182,800
QuestionNo. 4 ( A) Rent expense (First lease) Interestexpense Depreciation expense (2,380,000/10) Total lease-related expenses
120,000 277,200 238,000 635,200
SUMMARY OF ANSWER S: 1. B 2 . B 3. A 4. A
PROBLEM 27-23 Exercise of Gua ranteed Residual Value QuestionNo. 1 ( C) Present value of periodic payment (120,000 x 3.4437) Add: Present value of bargain purchase option (30,000 x 0.6587) Present value ofm inimuml ease payments Add:Initialdirect cost Cost of the Machinery QuestionNo. 2 Interestexpense
( B) 34,431
Executory cost Depreciation Total lease related expenses
Question Nos. 3 to 4 Amortization Table Annual Date Payment 12/31/2016 12/31/2016 120,000 12/31/2017 120,000 12/31/2018 120,000 12/31/2019 120,000 12/31/2020 30,000
413,244 19,761 433,005 20,000 453,005
20,000 105,751 160,182
Interest Expense
Amortization
34,431 25,018 14,570 2,977
120,000 85,569 94,982 105,430 27,023
QuestionNo. 3 (C) P85,569. See amortization table above. QuestionNo. 4 ( B) P227,436. See amortization table above. 261
Present value 433,005 313,005 227,436 132,453 27,023 (0)
Chapter 27 – Lease
QuestionNo. 5 ( B) Gross amount of guaranteed residual value Less:Fairvalue Losson finance lease QuestionNo. 6 Zero
( A)
QuestionNo. 7 Cost of leased asset
( C)
30,000 25,000 5,000
453,005
Less: Accumulatedd epreciation Carryingamount Add:Cashpayment Totalconsideration Less:Leaseliability Costo fequipmentpurchased
SUMMARY OF ANSWER S: 1. C 2. B 3. C 4. B
211,503 241,503 200,000 441,503 227,436 214,067
5.
B
6.
A
7.
C
PROBLEM 27-24 Direct Financing Lea se QuestionNo. 1 ( C) Annual payment = P3,224,000 = P750,000 4.312 Total interest to be earned = [(P750,000 x 5) – P3,234,000] = P516,000
QuestionNo 2 ( B) (P3,234,000 – P750,000) x 8% = P198,720 QuestionNo. 3 ( A) The PV annuity due of 12% ov er 8 years can be com puted as: [1 – (1+12%) -7 ] + 1= 5.5638 12% The present value of 12% f or 8 years can also be computed as: (1+12%) -8 = 0.4039 The total interest revenue is the difference the lease receivable and the present value of the minimum lease payments. Lease receivable (P959,500 x 8 + P400,000) Present value of the lease Unguaranteed residual value (P400,000 x 0.4039) Present value of lease payments (P959,500 x5 .5638) Total interest over the lease term
P 8,076,000
P 161,560 5,338,466 262
5,499,966 P2,576,034*
Chapter 27 – Lease
Since the lease is a direct financing lease (meaning, present value of the minimum lease payments approximates the value of the property upon the commencement of the lease), this can b e solved alternatively as: [(P959,500 x 8 + P400,000) – P5,500,000)] = P2,576,000
QuestionNo. 4 ( B) (P5,500,000 – P959,500) x 12% = P544,860 SUMMARY OF ANSWER S: 1. C 2. B 3. A 4. B
PROBLEM 27-25 Sales-Typ e Lease QuestionNo. 1 ( A) Lease receivable (P3,000,000 x 5 + P1,000,000) Present value of minimum lease payments: Rental (3.60 x P3,000,000) P10,800,000 Unguaranteed residual value (0.57 x P1,000,000) 570,000 Total unearned interest income QuestionNo. 2 ( B) Present value of minimum lease payments Cost of goods sold (P8,000,000 + P300,000) QuestionNo. x312% = P1,364,400(A) P11,370,000 QuestionNo. 4 Selling price Book value Gaino n sale
( B) P 7,040,000 ( 5,600,000) P1 ,440,000
QuestionNo. 5 ( B) P7,040,000 x 10% x 6/12 = P352,000 SUMMARY OF ANSWER S: 1. A 2. B 3. A 4. B
5.
B
263
P16,000,000
(11,370,000) P 4,630,000
11,370,000 (8,300,000) P3,070,000
Chapter 27 – Lease
PROBLEM 27-26 Financial Liability, Sale and Leaseback, Impairment loss on PPE and Inv estment in Associate QuestionNo. 1 ( B) Interestcostpaid(50Mx1 2%) Less: Interest expense for the year (47,078,000 x 14%) Understatedfinancecost
6,000,000 6,590,920 (590,920)
Rounded off to P59 1,000
QuestionNo. 2 ( C) Profit accounted for on disposal of plant Profittobebooked(10M/5X. 5) Overstated profit on sale and leaseback
10,000,000 1,000,000 9,000,000
QuestionNo. 3 (C ) Depreciationperbook(30M/15) Depreciation to be booked Apr. 1, 2015 to Sept. 30, 2015 (30M/15X.5) 1,000,000 Depreciation to be boo ked Oct . 1, 2015 to Mar ch 31, 201 6 (16M/5 X.5) 1,600,000 Understateddepreciation
2,000,000
2,600,000 (600,000)
QuestionNo. 4 ( C) Carrying value as of October 1, 2015 (30M/15 X 10.5)
21,000,000
Recoverable amount Impairmentloss
16,000,000 5,000,000
QuestionNo. 5 ( C) Acquisitioncost Dividend income( P20x 50,000) Share in the net income( P10M x2 5%) Share in the comprehensive income (P2M x 25%) Investmentinassociate SUMMARY OF ANSWER S: 1. B 2. C 3. C 4. C
5.
C
264
6,000,000 (1,000,000) 2,500,000 500,000 8,000,000
Chapter 27 – Lease
PROBLEM 27-27 Inves tment Property QuestionNo. 1 ( A) Nil, since the property should be investment property and not property, plant and equipment. Present value of periodic payment (500,000 x 4.97) Add: Present value of bargain purchase option (400,000 x 0.40) Present value of Minimum lease payments
2,485,000 160,000 2,645,000
Present value of minimum lease payments Less: Fair value of the land at the inception of the lease
2,645,000 200,000
Cost of the building as investment property
2,445,000
Amortization Table Annual Date Payment 01/01/2016 12/31/2016 500,000 12/31/2017 500,000
Interest Expense
Amortization
Present value 2,645,000 2,462,400 2,257,888
317,400 295,488
182,600 204,512
QuestionNo. 2 ( C) P317,400. See amortization table above. QuestionNo. 3 ( C) P204,512. See amortization table above. QuestionNo. 4 ( C) P2,257,888. See amortization table above. Que stion No . 5 and 6 Total rent income (40,000 x 24) + (50,000 x 24) x 20 Divideby:Numberofyears Rentincomeper year Periodicrent Add: Amortization of lease bonus (30,000 x 20)/4 Gross Ren tal income (No. 5) (A) Less: Expenses Amortization of initial direct cost (5,000 x 20)/4 Annualmaintenancecost Interestexpense Depreciation *(2,645,000-200,000/10) Net rental income (B)
SUMMARY OF ANSWER S: 1. A 2. C 3. C 4. C
5.
A
6.
265
B
43,200,000 4 10,800,000 10,800,000 150,000 10,950,000 25,000 40,000 317,400 244,500 10,323,100
Chapter 27 – Lease
PROBLEM 27-28 QuestionNo. 1 (900,000+50,000+25,000)
(D) P
QuestionNo. 2 (D) Total warranty expense (1.4M x 12%) Less: Total actuale xpenditures Warranty liability end of 2015 QuestionNo. 3
P P
P
P
QuestionNo. 4 (D) Fair value (equal to present value MLP) Less:First payment Total Add: Interest accrued( 420,000x 9%) Totallease liability
SUMMARY OF ANSWER S: 1. D 2. D 3. C 4. D
168,000 63,000 1 05,000
( C)
Legal services Add:Medicalservices Payroll(14,400/12 x8) Royalties Totalaccrual
QuestionNo. 5 (3,875,902 x1 11%)-400,000
975,000
P
P
4,600 5,500 9,600 3,900 23,600
490,000 70,000 420,000 37,800 457,800
( A) P 3,902,251
5.
A
PROBLEM 27-29 QuestionNo. 1 ( C) Unadjusted balance – Accounts Payable 2 3 Adjustedbalance QuestionNo. 2 Units sold: October
450,000 60,000 45,000 555,000
( A) 32,000
November December Total Multiply by Totalfailuresexpected
28,000 40,000 100,000 2% 2,000 266
Chapter 27 – Lease
Less: Failures already recorded: October sales Novembersales December sales Expectedfuturefailures Multiply by Estimatedcost
640 360 180
Warrantyexpense Estimated warranty liability
1,180 820 150 123,000
123,000 123,000
QuestionNo. 3 (C) Notes payable is (200,000 x 3.6048 ) = 720,960 Amortization Table Annual Date Payment 01/01/2016 12/31/2016 200,000 12/31/2017 200,000
Interest Expense 86,515 72,897
Amortization 113,485 127,103
QuestionNo. 4 ( A) Present value ofp rincipal (4M x .6830) Present value of interest payments (480,000 x 3.1699) TotalPresentvalue
Present value 720,960 607,475 480,372
2,732,000 1,521,552 4,253,552
Amortization Table Date 01/01/2016 12/31/2016
Interest Payment
Interest Expense
480,000
425,355
QuestionNo. 5
Premium Amortization 54,645
(D)
Present value of minimum lease payments (200,000 x 6.759)
Amortization Table Annual Date Payment 01/01/2016 01/01/2016 200,000 12/31/2016
Interest Expense 115,180
SUMMARY OF ANSWER S: 1. C
2. A
Present value 4,253,552 4,198,907
3. C
4. A
5.
D
267
Amortization 200,000
P1,351,800
Present value 1,351,800 1,151,800 1,266,980
Chapter 27 – Lease
PROBLEM 27-30 QuestionNo. 1 (D) Zero, the two notes payable should be presented as noncurrent liabi lities. QuestionNo. 2 (D) FINANCE LEASE: Amortization Table Annual Interest Date Payment Expense 12/31/2015 12/31/2015 60,000 12/31/2016 60,000 38,363 12/31/2017 60,000 35,767
Present value 379,692 319,692 298,055 273,822
Amortization 60,000 21,637 24,233
Answer: P273,822. Refer to amortization table above.
QuestionNo. 3 (B) Answer: P38,363. Refer to amortization table above. QuestionNo. 4
( D)
Annual rent expe nse = P720,000/3=P240,000
Operating lease Date Expense 1/1-12/31/16 1/1-12/31/17
240,000 240,000
Expense To date 240,000 480,000
1/1-12/31/18
2 40,000
720,000
Payment to date 120,000 300,000
Accrued rent (Prepaid) 120,000 180,000
720,000
-
QuestionNo 5 ( C) CONTINGENCIES Answer: P400,000 (P200,000+P200,000) 1.
Only a disclo sure is necessary because it is not p robable that the com pany will be liable, alth ough the a mount can be measured reliably.
2. Retainedearnings Estimated liability for income tax
200,000
3. Accounts receivable – Innova Lossonguaranty Notepayable –bank
120,000 80,000
SUMMARY OF ANSWER S: 1. D 2. D 3. B 4. (D) 5 .
200,000
200,000
C
268
Chapter 27 – Lease
PROBLEM 27-31 Question No. 1 Date 04/01/2011 03/31/2012 03/31/2013 03/31/2014 03/31/2015 03/31/2016 Revised Date 04/01/2016 09/30/2016
Finance cost 1,900,000 2,090,000 2,299,000 2,528,900 2,781,790
Finance cost
Present Value 19,000,000 20,900,000 22,990,000 25,289,000 27,817,900 30,599,690
Present Value 25,000,000
1,250,000
10/1/2016 to 3/31/2016 (2,781,790 x 6/12) 04/01/2016 to 9/30/2016 (25,000,000 x 10% x 6/12 Finance cost (C)
1,390,895 1,250,000 2,640,895
Question No. 3 Cost of theplant Add: Present value of decommissioning cost Total Less: Accumulated depreciation (149M/20 x 5) Carryingvalue,3/31/2016
130,000,000 19,000,000 149,000,000 37,250,000 111,750,000
Less: Decrease due to revision of decom liability Present value of decommissioning liability Less Revisedestima e Total Less: Depreciation April to Sept 2016 (106,160,310/15 x 6/12) Carrying value, 9/30/2016 (B)
30,599,690 25,000,000
Question No. 2 DepreciationOctober1 to March31 Depreciation April to Sept 2016 (106,160,310/15 x 6/12) Total depreciation (B) Question No. 4 2016
5,599,690 106,150,310 3,538,344 102,611,966
3,725,000 3,538,344 7,263,344
6,000,000
2017 2018 Total Divideby:Totalsemi-annualpayments Semi-annual income (B)
6,300,000 6,615,000 18,915,000 6 3,152,500 269
Chapter 27 – Lease
Question No. 5 Totalincometodate Less:Totalcollectiontodate Rent receivable SUMMARY OF ANSWER S: 1. C 2. B 3. B 4. B
3,152,500 3,000,000 152,500
(B)
5.
B
270
Chapter 29 – Shareholders’ Equity
CHAPTER 29: SHAREHOLDERS’ EQUITY PROBLEM 29-1 Question No.1 ( A) Authorized ordinary shares at P10 stated value Less: Unissued ordinarys hares OrdinarySharesissued Question No.2
1,200,000 650,000 550,000
( B)
Authorized preference shares at P50 par value Less: Unissued preference shares PreferenceSharesi ssued
800,000 150,000 650,000
Question No.3 (D) Share Premium on ordinary shares Share Premium conversion option-bonds payable Share premium on preference shares Gaino nsale oftreasuryshares Ordinary share warrants outstanding Donatedcapital Ordinary shares options outstanding TotalShare Premium
300,000 40,000 150,000 60,000 35,000 40,000 25,000 650,000
Question No.4 (D) OrdinarySharesissued PreferenceSharesi ssued SubscribedO rdinarys hares Subscription receivable – ordinary shares SubscribedP reference shares Subscription receivable – preference TotalShare Premium ContributedCapital
550,000 650,000 200,000 (20,000) 50,000 (15,000) 650,000 2,075,000
Question No.5 ( C) PreferenceSharesi ssued SubscribedP reference shares OrdinarySharesissued SubscribedO rdinaryshares Share Premium on ordinary shares TotalLegal Capital
650,000 60,000 550,000 200,000 300,000 1,760,000
271
Chapter 29 – Shareholders’ Equity
Question No.6 (D) ContributedCapital Accumulated profits – unappropriated Unrealized increase in value of FVTOCI securities Reserve for bond sinking fund Revaluationsurplus Total Shareholders' Equity SUMMARY OF ANSWER S: 1. A 2. B 3. D 4. D
5.
C
6.
2,075,000 500,000 10,000 320,000 130,000 3,035,000
D
PROBLEM 29-2 1.
2.
3.
Cash (2,000x P50) Share capital To record share issuance at a premium
100,000
Cash (5,000x P60) Share capital (5,000 x P50) Share premium To record share issuance at a premium
300,000
100,000
250,000 50,000
Share premium Retained earnings Cash To record payment of share issue cost
50,000 20,000
Cash (4,000x P40) Discount onshare capital Share capital (4,000 x P50) To record share issuance at a discount
160,000 40,000
70,000
200,000
PROBLEM 29-3 1. Machinery Share capital (2,500 x P50) Share premium To record share issuance for machinery
180,000
2. Patent(1,000x P65) Share capital (1,000 x 50) Share premium To record share issuance for patent
65,000
3.
125,000 55,000
50,000 15,000
Organization expense Share capital (400 xP50)
40,000 20,000
premium ToShare record share issuance for organization services.
272
20,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-4 Loanspayable-bank Share capital Share premium** Gain on settlement on liability To record issuance of shares for liability
150,000 100,000 40,000 10,000
*Computation of loss on extinguishment of liability Fair value of equity instruments issued (or if not reliably determinable, use the fair value of liability) (2,000 x P70) Less:Carryinga mountofliability Gainonsettlementof liability **Computation of increase in share premium Fair value of equity instruments issued (or if not reliably determinable, use the fair value of liability) (2,000 x P70) Less: Total par or stated value of equity issued (2,000 x P50) Share premium(or Discount)
140,000 150,000 10,000 140,000 100,000 40,000
PROBLEM 29-5 1.
2.
Cash (2,500x P216) Preferenceshares( 2,500x P200) Share premium-pref.share To record issuance of preference shares Cash (500x P120) Ordinary shares (500x P100) Share premium -ordinary shares To record issuance of ordinary shares
540,000 500,000 40,000 60,000 50,000 10,000
PROBLEM 29-6 Allocation of the lump-sum price: Preferences hares( 2,500x P216) Ordinarys hares( 500x1 20) Total
Total Fair value 540,000 60,000 600,000
The transaction will then be recorded as follows: Cash Preferenceshares (2,500 x P200) Share premium-preference share (810,000-500,000) Ordinary shares (500x 100) Sharepr emium - ordinary share (90,000-50,000)
Fraction 54/60 6/60
Allocated proceeds 810,000 90,000 900,000
900,000 500,000 310,000 50,000 40,000
PROBLEM 29-7 Allocation of the lump-sum price: Total proceeds Less: Total fair value of preference shares (2,500 x P216) 273
900,000 540,000
Chapter 29 – Shareholders’ Equity
Amounta llocatedtotheordinaryshares
360,000
The transaction will then be recorded as follows: Cash Preferenceshares (2,500 xP200) Share premium-preference share (540,000-500,000) Ordinary shares (500x P100) Share premium-ordinary share (360,000-50,000) To record issuance of preference and ordinary shares
900,000 500,000 40,000 50,000 310,000
PROBLEM 29-8 1.
Subscription receivable (4,000 xP 60) Subscribedsharec apital( 4,000xP 50) Share premium To record subscriptions of share capital
240,000 200,000 40,000
2. Cash (240,000x 40%) Subscriptionreceivable To record cash collection 3.
96,000 96,000
Cash (240,000x 60%) Subscriptionreceivable To record cash collection
144,000 144,000
Subscribedsharecapital ShareCapital(4,000x 50) To record issuance of share certificate
200,000 200,000
PROBLEM 29-9 1.
2.
3.
Subscriptions receivable (5,000 xP 60) Subscr bedo rdinarys hares( 5,000xP 50) Sharepremium-ordinary share To record subscriptions of 10,000 shares at P110
300,000 250,000 50,000
Cash (300,000x 40%) Subscriptionsreceivable To record receipt of cash for subscriptions
120,000
Subscribedordinaryshares Sharep remium-ordinarys hare Subscriptions receivable (300,000x 60%) Sharep remiumf orfeited down-payment
250,000 50,000
120,000
180,000 120,000
PROBLEM 29-10 Journal entries to record the transactions would be: To record the expenses incurred related to the auction Receivable from highest bidder P 10,000 Cash To record the collection from highest bidder Cash Subscriptionreceivable 274
P 10,000
300,000 290,000
Chapter 29 – Shareholders’ Equity
Receivablefromh ighestbidder To record the issuance of share capital Subscribed share capital (7,500 x P50) Share capital
10,000 375,000 375,000
PROBLEM 29-11 To record the expenses incurred related to the auction Receivable from highest bidder P 10,000 Cash P
10,000
To record the acquisition of entity’s own shares Treasuryshares 300,000 Subscriptionreceivable Receivablefromh ighestbidder
290,000 10,000
To record the issuance of share capital Subscribed share capital (7,500 x P50) 375,000 Share capital
375,000
PROBLEM 29-12 1)
Treasuryshares( 15,000x 24) Cash
360,000 360,000
2) Cash (5,000x P26) Treasuryshares (5,000x P24) Share premium-Treasuryshares
130,000 120,000 10,000
3) Cash (4,000x 20) Sharep remium-Treasuryshares Retained earnings Treasuryshares (4,000x 24)
80,000 10,000 6,000
4) Ordinarys hares( 6,000x2 0) Share premium (600,000/100,000) x 6,000 Share premium-Treasuryshares Treasuryshares (6,000x P24)
120,000 36,000
5)
96,000
Memo entry: Received 5,000 shares from a stockholder as a donation. Cash (2,000x 28) Donated capital
12,000 144,000
56,000 56,000
PROBLEM 29-13 a.
Preferences hares( 100) Share Premium on 3,000xP Preference shares [(300,000/30,000) x 3,000] Accumulated profits (balancing figure) Cash (3,000x P140)
b. Preference shares
300,000 30,000 90,000 420,000 300,000
275
Chapter 29 – Shareholders’ Equity
Share Premiumo n Preferences hares Cash (95 x 3,000) Share premium retirement of shares (balancing figure)
30,000 285,000 45,000
PROBLEM 29-14 1)
Preferences hares( 4,000xP 100) Share Premium on Preference shares [(300,000/30,000) x 4,000] Ordinary shares (4,000x P50) Sharep remium-ordinaryshares
2)
Preference shares( 4,000xP 100) Share Premium on Preference shares [(300,000/30,000) x 4,000] Accumulatedprofits Ordinarys hares( 4,000x5 /1xP 50)
400,000 40,000 200,000 240,000 400,000 40,000 560,000 1,000,000
PROBLEM 29-15 1a.
Ordinarys hares( 50,000xP 50) Share Premium on Ordinary shares Ordinarys hares( 50,000x P40) Sharep remium-recapitalization
2,500,000 100,000
1b.
Ordinary shares Share Premium on Ordinary shares Accumulatedprofits Ordinarys hares( 50,000x P140)
2,500,000 100,000 4,400,000
2.
Ordinary shares ((P50-P40) x5 0,000) Sharep remium-recapitalization
2,000,000 600,000
7,000,000 500,000 500,000
3. Share split OrdinaryS harec apital issued Subscribedsharecapital Total Less:Treasuryshares Outstandingshares
Before 100,000 100,000 100,000
Multiplyb y 5/1 5/1 5/1 5/1 5/1
After 500,000 500,000 500,000
Before P50
multiply by 1/5
After P10
Par valueper share Memo entry: Changes:
increase number of shares Same SHE Decrease number in Par value
276
Chapter 29 – Shareholders’ Equity
PROBLEM 29-16
Preferences hares( 2,000x P80) Warrants (2,000 x P20) Total *(150 x 4,000)
CASE NO. 1 Total Fair value 160,000 40,000 200,000
Cash PreferenceSharecapital( 2,000xP 50)
Fraction 80% 20%
Allocated cost 320,000 80,000 400,000*
400,000 100,000
ShareP remium(320,000-100,000) Ordinarys harewarrantsoutstanding
220,000 80,000
When the warrants are exercised: Cash(1,000x 80% x P40) Ordinary share warrants outstanding (80,000 x 80%) OrdinaryS hare capital( 1,000x 80% xP 20) Share Premium–ordinaryshare
32,000 64,000 16,000 80,000
CASE NO. 2 Total proceeds Less: Total fair value of the preference shares (2,000 x P80) Valueofthewarrants Cash PreferenceSharecapital( 2,000xP 50) Share Premium(160,000-100,000) Ordinarys harewarrantsoutstanding
400,000 160,000 240,000 400,000 100,000 60,000 240,000
CASE NO. 3 Marketvalueofordinary shares Less:Option price/exercise price Intrinsic valueof warrant Multiply: # of ordinary shares claimable under warrants Marketvalueofshare warrants
P
50
P
40 10 1,000 1 0,000
Total proceeds Less:ValueofSharewarrants Valueassignedt oPreferenceS hare
400,000 10,000 390,000
Cash PreferenceSharecapital( 2,000xP 50) Share Premium(390,000-100,000) Ordinarys harewarrantsoutstanding
400,000 100,000 290,000 10,000
PROBLEM 29-17 Ordinarys haresi ssued Less:Treasury shares Outstandingshares a.
40,000 2,000 38,000
Retainede arnings( 38,000x P5)
190,000 277
Chapter 29 – Shareholders’ Equity
Dividends payable b. c.
190,000
No formal accounting entry Dividends payable Cash
190,000 190,000
PROBLEM 29-18 Cash dividends for Preference Shares-Semi-annual Payment July1: RetainedEarnings Dividends Payable (9,000 x P100 x 10% x6 /12) Dec. 31: Retained Earnings Dividends Payable (9,600 x P100 x 10% x 6/12)
45,000 45,000 48,000 48,000
Computation of outstanding shares: July1 December 31 Preference shares issued 10,000 Preference shares issued Less: Treasury shares 1,000 Less: Treasury shares (1,000-600) Outstanding shares 9,000 Outstanding shares
10,000 400 9,600
PROBLEM 29-19 Feb.15, 2017
Retained earnings Dividends payable
Dec. 31, 2016
Retained earnings Dividends payable
450,000 450,000 150,000 150,000
Fair value,Dec.31 Less:PreviousF airv alue Increase ind ividendsp ayable Feb.15, 2017
Dividends payable Retained earnings
600,000 450,000 150,000 60,000 60,000
Fair value,Feb. 15 Less:PreviousF airv alue Decrease ind ividendsp ayable
540,000 600,000 (60,000)
Dividends payable Inventory Gain on distribution - prop.d ividends
540,000
Carrying amount of dividend payable = Fair value Less: Carrying amount of noncash assets Gain on distribution of prop. Dividends
540,000 500,000 40,000
500,000 40,000
PROBLEM 29-20 Nov. 1, 2017
Retained earnings Dividends payable
450,000 450,000
Equipment-noncurrent asset for distribution* 278
450,000
Chapter 29 – Shareholders’ Equity
Impairment loss (P500,000 – P450,000) Equipment Dec. 31, 2017
50,000 500,000
Retained earnings Dividends payable
150,000 150,000
Fair value,Dec.31 Less:PreviousF airv alue Increase ind ividendsp ayable
600,000 450,000 150,000
Equipment-noncurrent asset for distribution** Gain onrecoveryo fi mpairmentl oss Feb.15, 2018
50,000 50,000
Dividends payable Retainedearnings
60,000 60,000
Fair value,Feb. `5 Less:PreviousF airv alue Decrease ind ividendsp ayable
540,000 600,000 (60,000)
Dividends payable Equipment-noncurrent asset for distribution Gain on distribution of prop.D ividends
540,000 500,000 40,000
Carrying amount of dividend payable = Fair value 540,000 Less: Carrying amount of noncash assets 500,000 Gain on distribution of prop. Dividends 40,000 *(Lower between P500,000 and P450,000) **(P800,000 minus P600,000) but the gain shall not exceed the amount of impairment loss of P100,000. Alternative Computation: *Computation of the impairment loss is as follows: Original carryingamount Less: Lower between these two amounts FV LessC ost To Distribute (FVLCTD) Originalc arryinga mount Impairment loss
500,000 450,000 500,000
450,000 50,000
**Computation of the gain on reversal of the impairment loss is as follows: Lower between subsequent FVLTCD and srcinal carrying amount Original carrying amount 500,000 FVLCTD, Dec. 31 600,000 500,000 Carryingamounta ti nitialrecognition 450,000 Gain on reversal 50,000
PROBLEM 29-21 Cash and Noncash Altern ative Retainede arnings
P
Dividends payable Supporting computation: Casha lternative(10x6 0%x P8,000) Non-casha lternative( 10x 40%x P9,000) Totaldividends
84,000 P
84,000 P
P 279
48,000 36,000 84,000
Chapter 29 – Shareholders’ Equity
Date of payment: If the shareholders opted to receive cash, the journal entry is: a. Dividends payable Cash (10 X 8,000) Retainede arnings(balancingf igure)
84,000 80,000 4,000
If the shareholders opted to receive noncash, the journal entry is: b. Dividends payable 84,000 Loss on distribution of dividends (balancing figure) 6,000 Noncash(10x 9,000)
90,000
PROBLEM 29-22 Share Divid ends: Small, Large and Tre asury Shares Computation of outstanding shares: Ordinarys haresi ssued 53,000 Less:Treasuryshares 3,000 Outstandingshares 50,000 1)
Accumulated Profits [(50,000) x 10% x P80] Share dividends payable [(50,000) x 10% x P50] Sharep remiumo nOrdinaryshares
400,000
2)
Accumulated Profits [(50,000) x 20% x P50] Share dividends payable [(50,000) x 20% x P50]
500,000
3)
Capital Liquidated (P2 x 50,000 shares) Cash
4)
AccumulatedProfits Treasuryshares
250,000 150,000
500,000 100,000 100,000 120,000 120,000
PROBLEM 29-23 Fra ctional Share right s 1.
Date of declaration of share dividends Retained earnings (100,000 x 30% x 50) Sharedividendspayable
1,500,000 1,500,000
2.
Issuance of full share dividends and the fractional share warrants or rights Share dividends payable 1,500,000 Sharec apital (27,000x 50) 1,350,000 Fractional warrants outstanding 150,000
3.
Issuance of full shar es as a result of the exe rcise of the frac tional share warrants Fractional warrants outstanding 150,000 Sharec apital(2,800x 50) Share premium-unexercised warrants
280
140,000 10,000
Chapter 29 – Shareholders’ Equity
PROBLEM 29-24 Comprehens ive Problem Questions 1 to 3 Date A. Jan.2,2012 B. Jan.3,2013 (10,000/50x2) C. May1, 2014 BAL Dec. 31, 2014 (D ) 1. D. Jan. 1, 2015 [(30,400/2 x 3) - 30,400] BAL E. BAL
Dec. 31, 2015 Jan. 1, 2016 July 1,2 016 Dec. 31, 2016
(B) 2. [(45,600/1 x 2) - 45,600] (10,000x 2 x 20%) (A) 3.
Question No. 4 June 30 ( 1.50 x 45,600) Dec.3 1 ( 2.50 x 45,600) Total Dividends Question No. 5 June 30 ( 1.25 x9 1,200) Dec.3 1 ( 1.00 x 95,200) Total Dividends SUMMARY OF ANSWER S: 1. D 2. B 3. A 4. A
Ordinary shares 20,000 400 10,000 30,400 15,200 45,600 45,600 4,000 95,200
(A)
68,400 114,000 182,400
(D)
114,000 95,200 209,200
5.
Preference shares 10,000
10,000 10,000 (10,000) -
D
PROBLEM 29-25 Questions 1 to 3
*in ‘000s Beginning Jan.5 Jan. 28 Feb. 2 Feb. 14
Pref. shares 1,400
Ord. shares 3,500 600
Total Share Retained Premium earnings 1,925 4,500 60 (20) (60)
Treasury shares
Subs. Ord. share
Subs. Receivable
1,000 Memo 50
(500) 880
Jul. 15 Oct.15 Nov. 15 Nov. 27 Dec. 31 Total
800
100
200 2,250
1,500
1,000 2,200
5,200
(1,000) 5,305
1,000 5,480 281
500
500
3,750 (1,500) (1,500) 750
Chapter 29 – Shareholders’ Equity
1.( B)
2.( C)
3.( C)
Question No.4 ( C) Retainedearnings,total Outstanding balance of treasury stocks Retained earnings – unappropriated
P 5,480,000 ( 50 0,000) P 4,980,000
Question No.5 Preferenceshares Ordinary shares
P 2,200,000 5,200,000
(B )
Subscribedo rdinarys hares Subscriptionsr eceivable Sharepremium Retained Earnings Treasurystocks Total SUMMARY OF ANSWER S: 1. B 2. C 3. C 4. C
500,000 (750,000) 5,305,000 5,480,000 ( 500,000) P17,435,000
5.
B
PROBLEM 29-26
Beg. Balances 2.) 3) 4.) 5.) 6.) 8.) 9.) Total
Pref. shares 400,000
Ord. shares 200,000
400,000 6,000 38,200
800,000 244,200 1 . ( C) 2. ( D)
Beginningbalance 2.T reasuryshares 3. Reissuance of treasury shares 4. Issuance of P/S 5.E xercise of warrants 6.S hared ividends
Share Prem 250,000
20,000 80,000 30,000
Retained earnings 900,000
Treasury shares
200,000 (80,000)
(38,200) 2,400,000 (80,000) (91,680) 380,000 3,090,120 120,000 4. (D) Number of Shares Ordinary Preference 40,000 4,000 (5,000) 2,000 4,000 1,200 7,640 282
Chapter 29 – Shareholders’ Equity
Balance Dividendpershare Dividends
45,840 x2 91,680
8,000 x 10 80,000
Question No.3 (D) Retained earnings (see table above) Less:Treasury shares Retained earnings - unappropriated Question No.5
P 3,090,120 120,000 P 2,970,120
(A )
Preferenceshares Ordinary shares Sharepremium Retainedearnings-total Treasuryshares Totalshareholder’sequity
P 800,000 244,200 380,000 3,090,120 (120,000) P 4,394,320
SUMMARY OF ANSWER S: 1. C 2. D 3. D 4. D
5.
A
PROBLEM 29-27
Pref. Shares
Beg. 1.) 2.) 3.) 4.) 5.) 6.) 7.) Total
4,000 (200)
3,800 1 . ( D)
Ord. Shares
840 80 40 1,350
2,310 2 . ( C)
Subscri bed share Capital
Subscri ption Receiva ble
100 (100)
52 (52)
0
Total Share Premiu m
968 9.6 160 675 27
0 1,839.6 3 . ( C)
Beginningbalance -issued Beginningbalance -treasury 1.) February 1,2 016 Issuance ofshares 2.) March 1, 2016 Conversion of preference shares 3.) April 1, 2016 Exercise of stock rights (67,500 x 2) Balance –April30 4. ) September 30, 2016 Reissuance of treasury shares 283
Retaine d Earnin gs
15,000
Treasu ry Shares
44
(33) 280 2,500 (1,217) 16,563
11 Ordinary Shares 84,000 (4,000) 8,000 4,000 135,000 227,000 3,000
Chapter 29 – Shareholders’ Equity
Balance –October 31
230,000 Preference Shares 40,000 (2,000) 38,000
Beginning balance– issued ando utstanding 2.) March 1, 2016 Conversion into ordinary shares Balance –April30&October 31 Compu tation of dividends: Ordinary shares: April30 (227,000x P1) October31(230,000 xP1) Preference shares: April30 (38,000xP100x10%) October31(38,000xP100x10%) Totaldividends
227,000 230,000 380,000 380,000 1,217,000
QuestionNo. 4 (B) Retained earnings (see table above) Less:Treasury shares Retained earnings - unappropriated
P16,563,000 11,000 P16,552,000
QuestionNo. 5 (B) Preferenceshares OrdinaryShares SharePremium Retained Earnings - Unappropriated Retained Earnings - Appropriated Less: Treasury Shares Shareholder’s Equity
3,800,000 2,310,000 1,839,600 16,552,000 11,000 11,000 24,501,600
SUMMARY OF ANSWER S: 1 . D 2 . C 3 . C 4 . ( B) 5 .
( B)
PROBLEM 29-28 Preference Shares Beginning A.) B.) C.) D.) E.)
Ordinary Shares 840,000
Total Share Premium 4 20,000 13,500
SPLIT2 for1
Retained Earnings 15,000,000
(650,000)
200,000
340,000 60,000 16,000
8,000 284
Treasury Shares 44,000 (16,500)
Chapter 29 – Shareholders’ Equity
F.) G.) H.) Total
(10,000)
(5,000)
838,000 2 . ( D)
844,500 3.( C)
200,000 1.( C)
(25,000) (650,400) 2,400,000 16,074,600
Computationo fc ashdivid ends:
Ordinary Shares 84,000 (4,000) 1,500 81,500 81,500 1,600 (2,000) 162,600 P4 650,400
Beginningbalance -issued Beginningbalance -treasury a.J an1 5R eissuanceo ft reasuryshares Balance b. March 12for1sharesplit e. October 1 Exercise of warrants (80% x 2,000) f.N ovember2Retirementofshares Balance –December 31 Multiply: Dividendpershare Totaldividends QuestionNo. 4 ( A) Retained earnings (see table above) Less:Treasury shares Retained earnings - unappropriated QuestionNo. 5 Preferenceshares
27,500
P16,074,600 27,500 P16,047,100
(A) 200,000
OrdinaryShares SharePremium Retained earnings unappropriated Retained earnings - appropriated Less:Treasury Shares Shareholders’E quity SUMMARY OF ANSWER S: 1. C 2. D 3. C 4. A
5.
838,000 844,500 16,047,100 27,500 27,500 17,929,600 A
PROBLEM 29-29
Beg. Jan.4 Mar. 2 May 7 Jun. 15 Jul.2
Preferenc e Shares 1,200,000 400,000
Ordinary Shares 1,800,000 300,000
Total Share Retained Premium Earnings 4,116,000 2,300,000 750,000 500,000 18,000
274,400 285
Treasury Shares 420,000
(126,000)
2-for-1 split 98,000
OCI 61,740
(274,400)
Chapter 29 – Shareholders’ Equity
Oct.1 Oct. 1 Oct. 15 Nov. 1 Dec. 31
Total
61,740 (61,740) (329,280) 400,000
5,000
800,000
2,000,000 2,203,000 6,458,400 1.( D) 2.( C) 3.( B)
(82,320) (825,200) (224,000) 2,250,000 2,876,540
0
294,000
Ordinary Shares 180,000 (20,000) 30,000 190,000 6,000 196,000 196,000 392,000 19,600 1,000 412,600
Beginningbalance -issued Beginningbalance -treasury Jan.4Issuanceof shares Balance –January30 May7R eissuanceoftreasuryshares Balance beforesharesplit Add:Sharesplit–2 for1 Balance July2 5%sharedividends Oct. 15Issuance of shares Balance –December 31
Preference Shares Beginning balance– issued ando utstanding Mar.2 Issuanceof shares October15 Iss ance ofshares Balance –December 31
12,000 4,000 4,000 20,000
Compu tation of cash dividen ds: Ordinary shares: Dec31(P2x412,600) Preference shares: Dec31 (8%xP2,800,000) Totaldividends
825,200 224,000 1,049,200
Question No. 4 (E) Retainedearnings-total Less: Appropriated for Treasury shares
2,876,540 294,000
Retained earnings-unappropriated
2,582,540
Question No. 5 Preferenceshare Ordinary share
(E) 2,000,000 2,203,000 286
Chapter 29 – Shareholders’ Equity
Totalsharepremium Retained earnings - unappropriated Retained earnings – appropriated Less:TreasuryShares Total Shareholders’ equity SUMMARY OF ANSWER S: 1 . D 2. C 3. B 4.
(E)
6,458,400 2,582,540 294,000 294,000 13,243,940
5.
(E)
PROBLEM 29-30 Jan.1 Land Organizationexpense Ordinarys hares( 1,000x P100 SharePremium-O/S Feb. 23
Mar. 10
Apr. 10
July14
Aug.3
2,850,000
Cash (6,000 x 390)-50,000 Ordinarys hares( 6,000x P10) Sharepremium-OS
2,290,000
Subscriptions receivable (8,000 x P450) Subs.O rdinary shares( 8,000x P10) Sharepremium-OS Building Preferences hares( 2,800 x P100) Share Premium-PS (460,000-280,000) Ordinarys hares( 1,400x P10) Share premium-OS (560,000-14,000)
Cash Ordinarys hares( 1,200x P10) SharePremium-OS Cash
2,000,000 850,000 60,000 2,230,000 3,600,000 80,000 3,520,000 1,080,000 280,000 180,000 14,000 546,000 1,020,000 560,000 460,000 480,000 12,000 468,000 2,800,000
Subscriptionsreceivable Subs. Ordinary shares (8,000 x ½ x P10) Ordinary shares Dec.1
10,000 470,000
Cash (20,000 x 150)-150,000 Preference shares (20,000 x P100) Sharepremium-PS
Fair valueo f the building Less: Fair value of the ordinary shares (480,000/1,200 x 1,400) Valueo f the pref. shares July14
340,000 140,000
Retainedearnings
2,800,000 40,000 40,000 580,000
287
Chapter 29 – Shareholders’ Equity
Dividendspayable
580,000
Pref.d ividends (2,280,000 x 10%)
228,000
OSI ssued (136,000/10) Add:SubscribedOS Outstandingshares Multiplyb y:D ividend pers hare Totaldividends Dec.3 1
1/1 2/23 3/10 4/10 7/14 7/14 8/3 12/1
13,600 4,000 17,600 20
Dividendspayable Cash
228,000 228,000
Ordinar P/S SP– P/S y Shares P - P P10 P 470 2,000 850 60 280
180
14 12 40
Subs. Subscrib Receiv SP – O/S ed O/S able P P 2,230 3,520 80 3,600 546 468 (40) (2,800)
50 Total
P2,280 1 . ( B)
P1,030 2. (C)
352,000 580,000
P136 3. (C)
P7,234
P 40
P800
4. (C)
QuestionN o.6 (C) Preference shares Ordinary shares Subscribed ordinary shares Less: Subscriptions receivable Paidi nc apital-Pref.s hares Paidi nc apital-Ordinarys hares Retained earnings Totalshareholders’equity
R/E
(228) (352) 1,280 P700 5. (B)
2,280,000 136,000 40,000 800,000
(760,000) 1,030,000 7,234,000 700,000 10,620,000
Note: Sec. 43 of the Corporation Code of the Philippines states that “ The board of directors of a stock corporation may declare dividends out of the unrestricted retained earnings which shall be payable in cash, in property, or in stoc k to all stockholders on the basis of outstanding stock held by them: Provided, That any cash dividends due on delinquent stock shall first be applied to the unpaid balance on the subscription plus costs and expenses, while stock dividends shall be withheld from the delinquent stockholder until his unpaid subscription is fully paid”
288
Chapter 29 – Shareholders’ Equity
Thus, the dividend on the subscribed share capital is paid to that shareholder because he was not yet declared delinquent by corporation.
SUMMARY OF ANSWER S: 1. B 2. C 3. C 4. C
5.
B
6.
C
PROBLEM 29-31 Question No.1 Preferenceshares,beg.
( C) P
800,000
Additionali ssue (20,000x P10) Total
200,000 P1,000,000
Question No.2 ( A) Ordinary shares,beg. Stockdividend(3,480sharesx P5)* Total
P 200,000 17,400 P 217,400
Outstandingshares,beginning Treasurysharesacquisition Treasurysharesre-issue Totaloutstandingshares Multiplied by: Dividendshares Question No.3
40,000 (8,000) 2,800 34,800 10% 3,480
( A)
Sharepremium,beg. P 384,000 Premium on treasury share re-issue (100,000 – (2,800 x P20) 44,000 Premium on preference share ssue (P15 – P10) x 20,000 shares 100,000 Premium on stock dividends (P12 – P5) x 3,480 shares 24,360 Totalsharepremium,end P 552,360 Question No.4 (D) Retainedearnings,beg. P 2,400,000 Add: Net Income UnadjustedN etIncome P 1,780,000 Overstatement in operating expenses 100,000 1,880,000 Less: Dividends Stock dividends (3,480 x P12) P 41,760 Cash dividends* 119,140 (160,900) Retainedearnings,adjusted P 4,119,100 Retained earnings, appropriated for treasury shares (104,000) Retained earnings, appropriated for plant expansion (1,200,000) Retained earnings, unappropriated P 2,815,100 * Cash dividends Preferred stock dividends (80,000 + 20,000) x P1 289
P
100,000
Chapter 29 – Shareholders’ Equity
Ordinarys hares (34,800+ 3,480) x P.50 Totalcashdividends
19,140 P 119,140
Question No.5 ( B) Treasury shares acquired (8,000x P20) Treasury shares reissued (2,800x P20) Treasuryshares,end
P 160,000 ( 56,000) P 104,000
* Computation of the Cash dividends Preferred stock dividends (80,000 + 20,000) x P1
P
Ordinarys hares (34,800+ 3,480) x P.50 Totalcashdividends
19,140 P 119,140
Computation of the net income: Net Income Unadjusted NetIncome Overstatement in operatinge xpenses Adjustednet income SUMMARY OF ANSWER S: 1. C 2. A 3. A 4. D
5.
100,000
P 1,780,000 100,000 P 1,880,000
B
ADJUSTING JOURNAL ENTRIES: a .
EntriesM ade Other 100 operating expense Cash
b .
c .
Ordinary shares Cash
160
Equipment
100
Ordinary shares (2,800 x P5) Share Premium
d .
Cash Preference shares
Shouldb ee ntries Dividends 100 payable 100
Cash
160
Treasury shares Cash
100
Equipment 14
86
300
Treasury shares (2,800 x 20) Share Premium-TS
Cash 300
Adjustinge ntries Dividends 100 payable
Other operation exp 160 Treasury shares 160 Ordinary shares 1 00 Ordinary shares 56 Share Premium 44
300
Preference shares (20,000 x P10) Share Premium-PS 290
200
100
Treasury shares (2,800 x 20) Share Premium-TS Preference shares Share Premium-PS
100 160 160 14 86
56
44 100 100
Chapter 29 – Shareholders’ Equity e .
f.
g .
h .
i.
Memoe ntry
Share Premium Ordinary shares No journal entry
Retained earningsunappropria ted Retained earnings appropriate d for plant expansion No journal entry
No journal entry
17.4 17.4
1,20 0
Retained earnings (40K-5,200) x 10% x P12) Share div. payable (34,800 x 10% x P5) Share premium Share div. payable Ordinary shares Retained* earnings Dividends payable Same
41,7 60
Retained earningsunappropria ted Retained earnings appropriate d for Treasury shares Income summary Retained earningsunappropria ted
104
17.4
24.3 6 17.4 17.4 119. 14 119. 14 AJE
Retained earnings (40K-5,200) x 10% x P12) Share div. payable (34,800 x 10% x P5) Share premium Share div. payable Share Premium Retained earnings Dividends payable NO
41,7 60
Retained earningsunappropria ted Retained earnings appropriate d for Treasury shares Income summary Retained earningsunappropria ted
104
17.4
24.3 6 17.4 17.4 119. 14 119. 14
1,20 0
* Computation of the Cash dividends Preferred stock dividends (80,000 + 20,000) x P1 Ordinary shares (34,800+ 3,480) xP .50 Total cash dividends Computation of the net income: Net Income UnadjustedN et Income Overstatement in
104
1,88 0 1,88 0
P
100,000
P
19,140 119,140
P
1,780,000
291
104
1,88 0 1,88 0
Chapter 29 – Shareholders’ Equity
operatingexpenses Adjustedneti ncome
P
292
100,000 1,880,000
Chapter 30 – Book Value and Earnings Per Share
CHAPTER 30: BOOK VALUE AND EARNINGS PER SHARE PROBLEM 30-1 One Class of Shares Totalshareholders'equity Add:Subscriptionreceivable Total SHE excluding subscription receivable Divided by:O rdinarys hares outstanding* Book value per share
16,220,000 1,200,000 17,420,000 200,000 87.10
(A)
Sharesissued Add: Subscribed shares (P1,000,000 / P50 par) Less:Treasury shares Ordinary sharesoutstanding
200,000 20,000 20,000 200,000
PROBLEM 30-2 Two Classes of Shares - Pre ference and Ordinary Shares Total Preference shares: Shares par value Preference share capital issued 12,500 P5,000,000 Add:Subscribedpreferenceshares Total 12,500 P5,000,000 Less:Treasurysharesatpar Shares outstanding and total par value 12,500 P5,000,000 Total Shares par value 75,000 P3,000,000 75,000 P3,000,000 75,000 P3,000,000
Ordinaryshares: Ordinarys harec apitali ssued Add:Subscribedordinaryshares Total Less:Treasury sharesatpar Shares outstanding and total par value Totalshareholders'equity Less: Par value of outstanding preference shares Par value of outstanding ordinary shares Excessoverpar
15,000,000 5,000,000 3,000,000 7,000,000
CASE NO. 1 Question No. 1 & 2
Balances Preference dividend (5,000,000 x 8% x 4) Balancet o ordinarys hares
Excess
Preference
over par P7,000,000
shares P5,000,000
(1,600,000) 5,400,000
1,600,000
293
Ordinary shares P3,000,000
5,400,000
Chapter 30 – Book Value and Earnings Per Share
Total shareholders’ equity Divide by: Outstanding shares Book value per share
6,600,000 8,400,000 12,500 75,000 P528. 00 P112.00 CASE NO. 2
Question No. 3 & 4 Excess over par P7,000,000
Balances Preference dividend (5,000,000 x 8% x 4) Liquidation premium [(P420P400)x 12,500] Balancet o ordinarys hares Total shareholders’ equity Divide by: Outstanding shares Book value per share
Preference Ordinary shares shares P5,000,000 P3,000,000
(1,600,000)
1,600,000
(250,000) 5,150,000
250,000
5,150,000 6,850,000 8,150,000 12,500 75,000 P548. 00 P108.67
CASE NO. 3 Question No. 4 & 5 Excess over par P7,000,000
Balances Preference dividend (5,000,000 x 8% x 1) Balancet o ordinarys hares
Preference Ordinary shares shares P5,000,000 P3,000,000
(400,000) 6,600,000
Total shareholders’ equity Divide by: Outstanding shares Book value per share
4 00,000 6,600,000 5,400,000 9,600,000 12,500 75,000 P128.00
P432. 00 CASE NO. 4
Question No. 7 & 8 Excess over par P7,000,000
Balances Preference dividend (5,000,000 x 8% x 4) Ordinary dividend (3,000,000 x8%x 1) Balance for participation Preference (5/8 x 5,160,000) Balancet o ordinarys hares
(1,600,000)
1,600,000
(240,000) 5,160,000 (3,225,000) 1,935,000
Total shareholders’ equity Divide by: Outstanding shares Book value per share SUMMARY OF ANSWERS: 1. A 2. A 3. B 4. D
Preference Ordinary shares shares P5,000,000 P3,000,000
240,000 3,225,000 1,935,000
9,825,000 5,175,000 12,500 75,000 P786. 00 P69.00 5.
C
6.
294
B
7.
D
8. C
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-3 Book Valu e per Share Preference shares: Preference share capital issued Add:Subscribedpreferenceshares Total Less:Treasury sharesatpar Shares outstanding and total par value
Total Shares par value 40,000 P4,000,000 40,000 P4,000,000 40,000 P4,000,000
Ordinaryshares: Ordinarys harec apitali ssued Add:Subscribedordinaryshares Total Less:Treasurys haresatpar Shares outstanding and total par value
Shares par value 26,000 P1,040,000 26,000 P1,040,000 1,000 40,000 25,000 P1,000,000
Total
Totalshareholders'equity Less: Par value of outstanding preference shares Par value of outstanding ordinary shares Excessoverpar
11,970,000 4,000,000 1,000,000 6,970,000
CASE NO. 1 Question No. 1 & 2
Balances dividend Preference (40 00,000x 8% x4 ) Balancet o ordinarys hares Total shareholders’ equity Divide by: Outstanding shares Book value per share
Excess over par
Preference shares
P6,970,000
P4,000,000
(1,280,000) 5,690,000
12 80,000
Ordinary shares P1,000,000
5,690,000 5,280,000 6,690,000 40,000 25,000 P132. 00 P2 67. 6 0
CASE NO. 2 Question No. 3 & 4
Balances Preference dividend (4,000,000 x 8% x 4) Liquidation premium [(P105-P100) x 40,000] Balancet o ordinarys hares Total shareholders’ equity Divide by: Outstanding shares Book value per share
Excess over par P6,970,000
Preference Ordinary shares shares P4,000,000 P1,000,000
(1,280,000)
1,280,000
(200,000) 5,490,000
200,000
5,490,000 5,480,000 6,490,000 40,000 25,000 P137. 00 P259.60
295
Chapter 30 – Book Value and Earnings Per Share
CASE NO. 3 Question No. 5 & 6 Excess over par P6,970,000
Balances Preference dividend (4,000,000x 8% x 1) Balancet o ordinarys hares Total shareholders’ equity Divide by: Outstanding shares
Preference Ordinary shares shares P4,000,000 P1,000,000
(320,000) 6,650,000
320,000 4,320,000 40,000
Book value per share
P108. 00 CASE NO. 4
6,650,000 7,650,000 25,000
P306.00
Question No. 7 & 8 Excess over par P6,970,000
Balances Preference dividend (4,000,000x 8% x 1) Balancet o ordinarys hares Total shareholders’ equity Divide by: Outstanding shares Book value per share
(320,000) 6,650,000
320,000
6,650,000 4,320,000 7,650,000 40,000 25,000 P108. 00 P306.00
Excess over par P6,970,000
Balances Preference dividend (4,000,000x 8% x 1) Ordinary dividend (1,000,000 x8%x 1) Balance for participation Preference (4/5 x 6,570,000) Balancet o ordinarys hares Total shareholders’ equity Divide by: Outstanding shares Book value per share SUMMARY OF ANSWERS: 1. B 2. C 3. B 4. B
Preference Ordinary shares shares P4,000,000 P1,000,000
Preference Ordinary shares shares P4,000,000 P1,000,000
(320,000)
320,000
(80,000) 6,570,000 (5,256,000) 1,314,000
80,000 5,256,000
1,314,000 9,576,000 2,394,000 40,000 25,000 P239. 40 P95. 76
5.
C
6.
296
A
7.
D
8. D
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-4 Weighted Average with Bonus Issue Outstanding Date Shares 01/01/2015 200,000 x 120% 240,000 03/01/2015 15,000x 120% 18,000 07/01/2015 (10,000) (10,000) 10/01/2015 4,000 4,000 Weighted average outstanding shares (A)
Fraction Average 12/12 240,000 10/12 15,000 6/12 (5,000) 3/12 1,000 251, 000
PROBLEM 30-5 Weighted Average with Share Split Outstanding Date Shares 01/01/2015 220,000 x 4/1 880,000 03/01/2015 12,000 x 4/1 48,000 04/01/2015 9,000 9,000 10/01/2015 6,000 6,000 Weighted average outstanding shares (A)
Fraction Average 12/12 880,000 10/12 40,000 9/12 6,750 3/12 1,500 928, 250
PROBLEM 30-6 Basic Earnings per Share QuestionNo. 1 (B) Basic EPS = [P3,000,000 / 40,000] = P75 per share QuestionNo. 2 (C) Basic EPS = [P3,000,000 - (10,000 x 10% x P50)]/40,000= P73.75 per share QuestionN . 3 (C) Basic EPS = [P3,000,000 - (1 0,000 x 10% x P50)]/40,000= P73.75 per share
PROBLEM 30-7 Basic Loss per Share QuestionNo. 1 (B) Basic LPS = [P2,000,000 / 30,000] = P66.67 per share QuestionNo. 2 (C) Basic LPS = [P2,000,000 + (5,000 x 10% x P100)]/30,000= 68.33 per share QuestionNo. 3 (D) Basic LPS = [P2,000,000 + (60,000)]/30,000= P68.67 per share
PROBLEM 30-8 Basic and Diluted EPS with Convertible Bonds Payable Question No. 1 Basic EPS = P3,000,000 / 120,000 = P25 p er share
297
Chapter 30 – Book Value and Earnings Per Share
Question No. 2 P3,000,000 + [(P1,800,000 x 10%) x (1 – 30%)] Diluted = EPS 129,000 shares * Diluted EPS = P2 4.23 per share Weighted average of actual ordinary shares Add: Weighted average of potentia l ordinary shares from assumed conversion (1,800 x 5 x 12/12) Total weighted averageo f ordinary shares
120,000 9,000 129,000
Question No. 3 Diluted = P3,000,000 + [(P1,800,000 x 10% 8/12) x (1 – 30%)] EPS 126,000 shares * Diluted EPS = P2 4.48 per share Weighted average of actual ordinary shares Add: Weighted average of potentia l ordinary shares from assumed conversion (1,800 x 5 x 8/12) Total weighted averageo f ordinary shares
120,000 6,000 126,000
Question No. 4 Basic EPS
P3,000,000 123,750* P24.24
= =
Weighted averageo f actual ordinary shares Add: Issuance of shares related to conversion (1,800 x5x5/12) Total weighted average of actual ordinary shares issued Add: Assumed converted ordinary shares x months outstanding(1,800x5x7/12) Total weighted average outstanding ordinary shares
120,000 3,750 123,750 5,250 129,000
Question No. 5 P3,000,000 + [(P1,800,000 x 10% x 7/12) x (1 – 30%)] 129,000 shares * Diluted EPS = P2 3.83 per share Diluted EPS
=
SUMMARY OF ANSWERS: 1. A 2. D 3. B 4. D
5.
B
PROBLEM 30-9 Basic and Diluted EPS with Convertible Bonds Payable Question No. 1 Basic EPS = P4,000,000 / 200,000 = P20 p er share
298
Chapter 30 – Book Value and Earnings Per Share
Question No. 2 P4,000,000 + [(P1,123,910 x 10% x 8/12) x (1 – 30%)] 210,000 shares* Diluted EPS = P1 9.30 per share Diluted EPS
=
Weighted averageo f actual ordinary shares Add: Weighted average of potential ordinary shares from assumedc onversion(15,000 x8 /12) Total weighted averageo f ordinary shares
200,000 10,000 210,000
PROBLEM 30-10 Basic and Diluted EPS with Convertible Preference Shares Question No. 1 Basic EPS Basic EPS
P4,000,000 - [5,000 x P100 x 10%] 200,000 shares = P19.75 per share =
Question No. 2 Diluted EPS Diluted EPS
P4,000,000 225,000 shares* = P17.78 per share
=
*[200,000 + (5 x 5,000 x 12/12)] Question No. 3 P4,000,000
Diluted EPS
=
Diluted EPS
= P18.2218,750 9 per shshares are
*[200,000 + (5 x 5 000 x 9/12)] Question No. 4 Basic EPS Basic EPS
P4,000,000 – (5,000 x P100 x 10% x 9/12)] 206,250 shares = P19.21 per share =
*[200,000 + (5 x 5,000 x 3/12)] Question No. 5 Diluted EPS Diluted EPS
P4,000,000 225,000 shares = P17.78 per share
=
*[200,000 + (5 x 5,000 x 3/12) + (5 x 5,000 x 9/12)] SUMMARY OF ANSWERS: 1. A 2. D 3. C 4. C
5.
D 299
Chapter 30 – Book Value and Earnings Per Share
PROBLEM 30-11 Basic and Diluted EPS with Warrants and Options Question No. 1 Basic EPS = P4,000,000 / 100,000 = P40 p er share Question No. 2 Diluted EPS Diluted EPS
P4,000,000 101,200 shares * = P39.53 per share =
Weighted averageo f actual ordinary shares Add: Weighted average of incremental shares from assumed exercise of options (1,200 x 12/12) Total weighted averageo f ordinary shares
100,000 1,200 101,200
Note: Months outstanding for assumed exercise of options is 12 months, which is from date of issu ance up to the reporting date. Option shares Multiplyb y: Totale xercise price( 120+10) Proceeds from assumed exercise of options Divided by: Average market price during the year Assumed treasuryshares Option shares Less:Assumedtreasuryshares Incrementalshares
9,000 130 1,170,000 150 7,800 9,000 7,800 1,200
Question No. 3 Diluted EPS Diluted EPS
P4,000,000 100 900 shares * = P39.64 per share =
Weighted averageo f actual ordinary shares Add: Weighted average of incremental shares from assumed exercise of options (1,200 x 9/12) Total weighted averageo f ordinary shares
100,000 900 100,900
Question No. 4 Diluted EPS Diluted EPS
P4,000,000 104,667 shares * = P38.22 per share =
Weighted average of actual beginning ordinary shares Add: Weighted average number of shares from issuance of
100,000
options (9,000of x4/12) Totalshare weighted average actual ordinary shares issued Add: Weighted average of incremental shares from assumed exercise of options (2,500 x 8/12) Total weighted average outstanding ordinary shares
3,000 103,000
300
1,667 104,667
Chapter 30 – Book Value and Earnings Per Share
Option shares Multiplyb y: Totale xercise price( 120+10) Proceeds from assumed exercise of options Divided by:M arketp riceatexercise date Assumedtreasuryshares Option shares Less:Assumedtreasury shares Incrementalshares
9,000 130 1,170,000 180 6,500 9,000 6,500 2,500
SUMMARY OF ANSWERS: 1. A
2. C
3. B
4. D
PROBLEM 30-12 Multiple Potential Dilutive Securities QuestionNo. 1
Basic EPS Basic EPS
(A)
P2,360,000 – (60,000 x P100 x 6%) = 200,000 = P10 per share
Question No. 2 1) Check for initial test of dilution a. Options Dilutive. The exercise price (P50) is less than the average market price (P100). b.
Convertible preference . Theshares incremental EPS (P1.2) is less than the basic Probably dilutive EPS (P10). (P6,000,000 x 6%) Incremental EPS = (60,000 x 5) Incremental EPS = P1.2 per share
c.
Convertible bonds Probably dilutive. The incremental EPS (P.84 ) is less than the basi c EPS (P10). (P2,000,000 x 12%) x (1-30%) Incremental EPS = (P2,000,000/P1,000) x 100 Incremental EPS = P.84 per share
`
2) Rank the dilutive potential diluters from the most dilutive to the leas t dilutive. 1st Options 2nd Convertible bonds (incremental EPS of P.84 per share) 3rd Convertible preference share (incremental EPS of P1.2 per share) 3) Include potentially dilutive convertible securities one by one. Every time an item is included, calculate new earnings per share or new loss per share amount as follows: 301
Chapter 30 – Book Value and Earnings Per Share
Basic EPS from continuing operations Options Total Convertible Bonds payable Total Convertible Preference share Total
Profit *2,000,000
Ordinary shares 200,000
0 2,000,000 168,000 2,168,000 360,000 2,528,000
10,000 210,000 9.52 200,000 410,000 5.29 300,000 710,000 3.56
EPS 10
*Net Income less preference dividends [(P2,360,000 –(60,000 x P100 x 12%)] Answer: The final diluted EPS would be P3.56 per share. QuestionNo. 3
BasicE PS BasicE PS Q u e st i o n N o . 4
Diluted EPS Diluted EPS
(D)
(B)
P500,000 = 200,000 = P2.5 per share ( C) P500,000 = 710,000 = P. 70 per share
SUMMARY OF ANSWERS: 1 . A 2 . D 3. B 4. C
PROBLEM 30-13 Rights Is sue Fairvalue pershare–righton Less:Theoreticalvalueofoneright* Theoretical ex-rights fair valuep er share *Value of one right
=
150 –40 4* + 1
P P =
150 22 128
22
Adjustmentfactor (150/128)
1.17
Question No. 1 2014: Weighted average outstanding shares (40,000 x 1.17 x 12/12) Basic EPS (P562,500 /46,800)
(D)
302
46,800
P12.02 / sh are
Chapter 30 – Book Value and Earnings Per Share
Question No. 2 2015: Weighted average outstanding shares (40,000x1.17x3 /12) [(40,000+ 10,000)x9/12]
11,700 37,500
Basic EPS (P800,000/49,200)
(B)
Question No. 3 2016: Weighted average outstanding shares[(40,000 + 10,000) x 12/12] Basic EPS (P1,000,000 /50,000)
(A)
PROBLEM 30-14 Written Put Options Incremental shares
=
(P350 – P280) x 10,000 P280
(C) =
2,500 shares
Retained NetI ncome Earnings 2015 2016 12/31/16 Unadjusted **1,300,000 *500,000 1,800,000 1) (50,000) 50,000 (30,000) (30,000) 2) 3) 45,000 (45 000) 4) ***28,000 (28,000) 5) 5,000 (5,000) 6) (20,000) (20,000) 7) 8) 9) 1,328,000 422,000 1,750,000 Adjusted Item
* (P5 EPS x P1 ,000,000 / P10 par) ** (1,800,000 – 500,000 2015 net income) *** (P48,000 / 12 x 7 months) Question No. 1 (D) Refer to table above. Adjusted Net Income in 2016 is P422,000. (C)
303
50,000
P20p ers hare
PROBLEM 30-15 Comprehensive Problem
Question No. 2 Refer to table above.
49,200
P16.26 / sh are
Chapter 30 – Book Value and Earnings Per Share
Question No. 3 (C) EPS 2016 (P42 2,000 / 100,000 shares) = P4.22 Question No. 4 (B) Ordinarys harec apital,P10par Sharepremium Retained earnings, 12/31/2016 (as adjusted) Totalshareholders'equity Question No. 5
(B)
BVPS (P3,250,000 / 100,000) = P32.50 SUMMARY OF ANSWERS: 1. D 2. C 3. C 4. B
5.
B
304
1,000,000 500,000 1,750,000 3,250,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
CHAPTER 32: STATEMENT OF FINANCIAL POSITION AND COMPREHENSIVE INCOME PROBLEM 32-1 Current and Noncurrent Assets Question No. 1 Cash Tradereceivables Inventory, including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P800,000 Prepaid insurance Financial assets at fair value through profit or loss NoncurrentA ssets held fors ale building Total Current Assets (D)
400,000 1,500,000 1,200,000 240,000 300,000 650,000 4,290,000
Question No. 2 Financial assets at fair value through other comprehensive income 600,000 Financialassetsatamortizedc ost 1,000,000 Deferredtaxasset 150,000 Machinery 800,000 Accumulated depreciation (200,000) Landusedasaplant site 920,000 Total Noncurrent Assets 3,270,000 (C)
PROBLEM 32-2 Current and Noncurrent Assets Question No 1 Cash (1M+300,000+100,000-50,000-280,000) Accounts receivable (3M-200,000+50,000) Investments securities held for trading (1.8M-500,000) Inventories (800,000-200,000+(450,000/125%) Prepaid Expenses (only the prepaid insurance) Total Current Assets (A) Question No. 2 Cash in sinking fund Long-term investments Deposit to supplier for inventories to be delivered in 16 months Cash surrender value Property,plantandequipment Total noncurrent Assets
(A)
305
1,070,000 2,850,000 1,300,000 960,000 48,000 6,228,000
280,000 500,000 23,000 20,000 5,000,000 5,823,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-3 Current and Noncurrent Liabilities Question No. 1 Bank overdraft Accounts payable (1M+25,000+100,000) Property dividendspayable Income taxpayable Notepayable,d ueJanuary31,2 016 Cash dividendspayable Financial liabilities at fair value through profit or loss Estimated expenses of meeting warranties Estimated damages as a result of unsatisfactory performance on a contract Loanspayable-current Total current liabilities (A) Question No. 2 Bondspayable Premiumonbondspayable Deferredtaxliability Mortgage payable Loanspayable-noncurrent Total noncurrent liabilities
(C)
300,000 1,125,000 400,000 300,000 500,000 80,000 130,000 335,000 268,000 100,000 3,538,000 3,400,000 200,000 400,000 1,000,000 400,000 5,400,000
PROBLEM 32-4 Shareholders’ Equity Ordinary share capital Sharepremium Subscribed ordinary share Subscriptionsreceivable Retained earnings unappropriated (6M-2M cost of treasury) Reserves: Retained earnings appropriated for treasury shares Reserveforcontingencies Unrealizedgain onFVTOCI Revaluationsurplus Cumulative translation adjustment – debit Total Less:Treasuryshares Total Shareholders' Equity (C)
306
10,000,000 1,000,000 100,000 (120,000) 4,000,000 2,000,000 3,000,000 1,000,000 4,000,000 (1,500,000) 23,480,000 2,000,000 21,480,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-5 Adjusting and Nonadjusting events Lossonexpropriation Impairment loss on Accounts Receivable Litigationloss Total adjusting events
(A)
100,000 600,000 1,000,000 1,700,000
All other data are nonadjusting events.
PROBLEM 32-6: Related Party Relationship Requirement No. 1 The following companies are considered to be related parties of Frozen Throne Company in accordance with PAS 24 Related Party Disclosures: Name Description 1) Sand King Co. Post-employment benefit plan established by Frozen Throne 2) Shadow Fiend Co. Associate 4) Harbringer Co. Subsidiary 5) Night Crawler Co. Subsidiary of Harbringer 6) Disruptor Co. Associate of Harbringer 7) Geomancer Co. Parent 8) Jakiro Co. Parent ofG eomancer 9) Rylai Co. Sister company of Frozen Throne Company 10) Medusa Co. Key Management personnel of Frozen Throne Company. 11) BarathrumC o. Bank 16) Pudge Co. Joint venturer of Frozen Throne Company 17) Invoker Co. Joint venture of Frozen Throne Company Requirement No. 2 Regardless of whether there have been transactions between a parent and a subsidiary, an entity must disclose the name of its parent and, if different, the ultimate controlling party. Therefore, Frozen Throne Company should disclose Jakiro Co., its ultima te parent or controlling party.
PROBLEM 32-7 (Distribution costs and gener al and administrative expenses) Question No. 1 Advertising
500,000
Deliveryexpense Rentforo ffices pace(500,000X1 /2) Salescommissions Depreciationondeliverytruck Total distribution costs
(B) 307
300,000 250,000 1,075,000 14,000 2,139,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 2 AuditingandAccounting fees Officers’salaries Rentforo ffices pace(500,000X1 /2) Insurance Depreciationonofficeequipment Total general and administrative expenses (D)
300,000 625,000 250,000 200,000 15,000 1,390,000
PROBLEM 32-8 Comprehensive Income Net Sales Cost of goodssold Grossincome Other income Shareofprofitof associate Totalincome Expenses: Distribution costs Administrativeexpenses Financecost Otherexpense Income beforeincome tax Income taxexpense Incomef romc ontinuingo perations Incomef rom discontinued operations
4,000,000 2,500,000 1,500,000 30,000 125,000 1,655,000 60,000 120,000 35,000 50,000
Net Income Other comprehensive income: Revaluationsurpus Translationgain Unrealized gain on FVTOCI securities Comprehensive income (C) Other income: Interestincome Other expense: Lossonsaleofequipment
1,082,000 300,000 50,000 200,000
30,000 50,000
308
265,000 1,390,000 408,000 982,000 100,000
550,000 1,632,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
COMPREHENSIVE PROBLEMS PROBLEM 32-9
Unadjusted balance 1. Notes receivable – maturity date July 1, 2018 Land 2. FVTOCI 3. Inventory 4. Treasuryshares 5. Prepaid insurance 10. Accumulated depreciation – Building Accumulated depreciation – Equipment Allowance for baddebts Adjustedbalance
Unadjusted balance 4. Treasuryshares 6 Bondspayable 7. Accruedwages 8. Mortgage – current portion 9. P remiumonbondspayable 10. Allowance for baddebts Accumulated depreciation – Building Accumulated depreciation – Equipment Adjustedbalance
SUMMARY OF ANSWERS: 1. B 2. A 3. A 4. B
5.
Current Asset 44,300 (10,000) (12,000) 4,600 30,500 2,900
(700) 59,600 1. (B)
Current Liabilities 66,600 (40,000) 4,100 4,000
34,700 3. (A)
A
309
Noncurrent asset 158,400 10,000
Total Asset 202,700 -
12,000 (4,600) (30,500) (1,800) (2,900) (21,000)
(1,800) (21,000)
(13,000)
(13,000)
106,600
Noncurrent liabilities 24,100 40 000 (4,100) (4,000) 4,300
-
(700) 166,200 2. (A)
Equity 112,000 (1,800)
(21,000)
(4,300) (700) (21,000)
(13,000)
(13,000)
60,300 4. (B)
71,200 5. (A)
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-10
Unadjusted balances 1 2 3 4 5 6 7 8 9 10 11 Adjusted balances
Cash in bank 100 -
4(15) --
(14) 20 (5) -
-
-
-
-
-
-
- 101 1. (B)
-
-
1,849
-
-
500
112.5
112.5
-
-
-
Depreciation -
-
-
-
-
-
5 -
Accum. Depr 400
PPE 1,000
-
-60
-
-
-
Accts. Receivable 2,500
Inventory 1,800
(20) (4) 2,505 1,480
(4) 508.5
108.5
Continuation…
Unadjusted balances 1 2 3 4 5 6 7 8 9 10 11 Adjusted balances
Advances from customers -
4 -
5 -
Accounts payable 320 -
-
Interest Bonds payable payable 1,924,144 -
Discount -
Amortization -
-
14 20 (5) - - 60 180 75,856 63.442 12.414 5 413 180 1, 936,558 63.442 12,414 2. (B)
*000 Current Assets: Cash inbank Inventory Accounts Receivable Noncurrent assets: PPE Less: Accumulated Depreciation Totalassets
101,000 1,849,000 2,505,000 1,480,000 508,500
310
4,455,000
3.(A)
971,500 5,426,500
4.(B)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Current liabilities: Advances from customers Accountspayable Interestpayable
5,000 413,000 180,000
Noncurrent liabilities: Bondspayable Discount on bonds payable Totalliabilities
SUMMARY OF ANSWERS: 1. B 2. B 3. A 4. B
2,000,000 63,442
5.
B
6.
598,000
5.(B)
1,936,558 2,534,558
6.(C)
C
PROBLEM 32-11
1. EI over, COS under 2015 2016 2. Salaries expense under 2015 2016 3. Sales ov erstated 2015 2016 4 Expe nse ov rstated 2015 2016 5. Purch. Over, COS over 2015 2016 6. Sales und er 2015 2016 7. Bad debt under 2015(32.4+2.5) x2% 2016 (66.1+4) x 2%-698 8. Dep. Expense under 2015 2016 Adjusted bal.
Sales 385,000
2015 COS EI 157,600 98,500 6,200 (6,200)
OPEX 69,300
14,600
(1,700) (180)
(3,200)
2,500
698
14,500 385,800
311
160,600
92,300
98,918
Chapter 32 – Statement of Financial Position and Comprehensive Income
1. EI over, COS under 2015 2016 2. Salaries expense under 2015 2016 3. Sales ov erstated 2015 2016 4. Expense overstated 2015 2016 5. Purch. Over, CO S over 2015 2016 6. Sales und er 2015 2016 7. Bad debt under 2015 (32.4+2.5) x 2% 2016(66.1+4) x2%-698 8. Dep. Expense under 2015 2016 Adjusted bal.
Sales 420,000
2016 COS EI 203,800 164,900 (6,200) 8,500 (8,500)
OPEX 76,700
(14,600) 17,300 1,700 (800) 180 (200) 3,200 (4,600) (2,500) 4,000
704
422,400
2 04,700
1 56,400
Question No. 6 (A) Sales LessCost ofsales GrossProfit LessOperatingexpenses AddOther income Netprofit Add: Retained earnings, beginning Retained earnings, December 31, 2015 )
385,800 160,600 225,200 98,918 2,100 128,382 23,400 151,782
Question No. 7 (C) Cost Less Accumulated depreciation (14,500 x 2) Book value of machinery, December 31, 2016
145,000 29,000 116,000
312
14,500 94,584
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 9 (B) Accounts receivable, 2015 (32,400+2,500) Less: Allowance for bad debts (32,400+2,500) * 2% Netrealizablevalue
34,900 698 34,202
Question No. 10 (B) Sales2016 Less:Cost ofsales GrossProfit Less:Operatingexpenses Add:Otherincome Netincome
422,400 204,700 217,700 94,584 1100 124,216
SUMMARY OF ANSWERS: 1. C 2. C 3. D 4. A 5. C 6 . A 7. C 8. B 9. B 1 0. B
PROBLEM 32-12 Question No. 1 Unadjustedsales Less:Advances Adjusted Sales
4,323,600 132,000 4,191,600
(A)
Question No. 2 Carryingvalue( 100,000x70%^4*) Less:Recoverableamount(higher) Impairment loss (B) *future value after 4 periods = carry ing value after 4 periods. Question No. 3 Sales Add: Increase in raw materials (75,800 – 56,800) Increase in finished goods (130,700 – 105,800) Less: Purchaseo fr awm aterials Othere xpenses(seebelow) Wages and salaries (890,400 + 33,000) Amortization of development cost (648,000 / 3 x 4/12) Impairmentloss Depreciation [(567,000 – 402,000) x 30%] Tax expense (52,000 + 35,000 – 30,000) Net income (A)
313
24,010 23,000 1,010
4,191,600 19,000 24,900 (2,056,500) (522,100) (923,400) (72,000) (1,010) (49,500) (57,000) 553,990
Chapter 32 – Statement of Financial Position and Comprehensive Income
UnadjustedOther Expense Add: Rent expense [10,000+ (4,000/4)**] Increase in accrued expense (26,700 - 17,000) Less: Taxsettlement Increase in prepaid expense (45,000 – 11,500) AdjustedOtherExpense
569,900 11,000 9,700 (35,000) (33,500) 522,100
**Since the deposit is non-refundable, this is recognized as additional expense over the lease term.
Questions No. 4 to No. 7 Current assets: Cashi nbank(41,850–33,000) Trade receivables and other receivables Raw materials Finished goods Prepaidexpense
8,850 245,800 75,800 130,700 45,000
Non-current assets: Intangible asset (648,000 – 72,000) Plant (567,000 – 402,000 – 49,500 – 1,010) Leasedeposit(4,000 –1,000) Total assets . (C
576,000 114,490 3,000 ) 5
Current liabilities: Tradeandotherpayables
693,490 1,199,640
156,700
Incometaxfromc payable Advances ustomers A cruedpurchases
52,000 132,000 26,700
Non-current liabilities: None Totalliabilities
-
367,400 6. (C)
367,400
Equity: Ordinary shares Retained earnings (553,990 – 1,750 deficit – 20,000) Total liabilities and shareholders’ equity SUMMARY OF ANSWERS: 1. A 2. B 3. A 4. B
506,150 4. (B)
5.
C
6.
314
300,000 532,240
C
7.
A
7. (A) 832,240 1,199,640
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-13 Question N os. 1 and 2 Unadjustednetincome 1) BD expense under, NI over (392,000 x 10% )37,000 2) Unreal. Gain (Loss) (81,000-78,000) and (62,000-81,000) 3) EI overstated, NI over EI overstated, NIover 4) *Expenseo ver,NIunder Depreciation expense under, NI over 5) **Gainon saleunder, NIunder 6) Exp.Over Adjustednet income
2015 195,000
2016 220,000 (2,200)
3,000 (4,000) 10,900
1,800 206,700 1.( B)
(19,000) 4,000 (6,100) (1,100) 2,500 (900) 197,200 2.( B)
*(Expenses recorded P12,000 should be (12,000-1,000)/10= 12,000-1,000) **NetSellingPrice 2,500 Less carrying amount Cost 17,500 Less Accumulated depreciation 17,500 0 Gain on sale 2,500
Question No. 3 Cash Accounts receivable (296,000-18,000) Tradings ecurities at Fairv alue Merchandise inventory (202,000-4,000) Prepaidi nsurance( 2,700-900) Total current assets (D) Question No. 4 Cash Accounts receivable (392,000 x 90%) Tradings ecurities at Fairv alue Merchandise inventory (207,000-6,100) Prepaid insurance Totalcurrentassets Property, plant and equipment (169,500+12,000-17,500) Less: Accumulated. Depreciation (121,600+1,100+1,100-17,500) NetBook value Total Assets
163,000 352,800 62,000 200,900 900 779,600 164,000
(B) 315
82,000 278,000 81,000 198,000 1,800 640,800
106,300 57,700 837,300
Chapter 32 – Statement of Financial Position and Comprehensive Income
Question No. 5 Sharec apital(20,000xP10) Sharepremium Retained earnings (206,700+197,200+*52,000) Adjusted Shareholders' equity (A)
200,000 60,000 455,900 715,900
*(247,000-195,000)
SUMMARY OF ANSWERS: 1. B 2. B 3. C 4. B
5.
A
PROBLEM 32-14 Question No. 1 Unadjustedsales Less: Sale with a repurchase agreement (selling price) Adjusted Sales (B)
550,000 (10,000) 540,000
Note: The transaction should be reported as a financing arrangement, rather than sale. Hence, the company will instead report a liability and interest. Also, the cost sho uld be included as part of inventory. Question No. 2 Unadjustedcost ofsales Less: Sale with a repurchase agreement (cost) Add: Depreciation on Plant (see below) Depreciation onB uilding (35,000/ 14) Adjusted cost of sales (D) Depreciation of plant asset is com puted as follows: Plant asset classified as held for sale [(9,000 – 5,000) x 20% x 6/12] Remaining plant asset [(70,000 – 4,000) x 20%] Totalplant assetdepreciation Non-current asset held for sale: Fairvalue lesscosttosell Carrying value date of classification (4,000 – 400) Initial carryin g amount - LOWER Question No. 3 Sales Less:Cost ofsales Gross profit Less: Distribution cost Administrativeexpenses Interest [(700 + (10,000 x 10% x6 /12*)] 316
411,500 (7,000) 13,600 2,500 420,600
400 13,200 13,600
4,200 3,600 3,600
540,000 420,600 119,400 (21,500) (30,900) (1,200)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Provision for bonus (540,000 x1 %) Tax expense (increase in DTL an d CTL) – (27, 200 + 9,400 –1,200–6,200) Net income (A)
Question No. 4 Net income Add: Revaluation surplus (see computation below) Total comprehensive income (B) Land: Appraisedvalue Carryingamount
Questions No. 4 to No. 9 Current assets: Tradereceivables Inventory(43,700+7,000) Non-currentasset held for sale
35,000 30,000
42,200 50,700 3,600
Non-cur Land rent assets: Building( 35,000–2,500) Plant (66,000–13,200) Total assets
12,000 32,500 52,800
Current liabilities: Tradepayables Bank overdraft Currenttaxliability Provision –bonus
35,100 6,800 27,200 5,400
Non-current liabilities: Deferredtax liability Bank loan Interestpayable
9,400 10,000 500
Totalliabilities Equity: Equityshares Sharepremium Revaluationsurplus
(29,200) 31,200
31,200 7,000 38,200
12,000 10,000
Building: Appraisedvalue Less: Carrying amount (50,000 – 20,000) Totalrevaluation surplus
(5,400)
2,000
5,000 7,000
96,500 5. (D)
) (6. C 97,300 193,800
74,500 7. (C) (D 8.) 19,900 94,400
50,000 20,000 7,000 317
Chapter 32 – Statement of Financial Position and Comprehensive Income
Retained earnings (11,200 + 31,200 – 20,000) Total liabilities and shareholders’ equity
22,400
9. (B) 99,400 1,199,640
Question No. 10 Net income Divided by: Weighted average shares (see below) Earnings per share (A)
31,200 96,739 3225
April 1 to July 1 (80,000* x 2 / 1.84** x3/12) July1t oMarch31(100,000x9/12) Weightedaveragen umberofs hares
21,739 75,000 96,739
*The number of shares before the exercise of the rights may be computed by dividing the ( ¼rights). **Adjustment factor. Value of one right
=
Value of one right
=
Fair value per share – right on minus exercise price Number of rights to purchase one share plus 1 -
4+ 1
= Fair value per share – rig ht on Less:T heoreticalvalueof oneright Theoretical ex-rights fair value per share
.16
SUMMARY OF ANSWERS: 1. B 2. D 3. A 4. B 5. D 6 . C 7. C 8. D 9. B 1 0. A
PROBLEM 32-15 Question No. 1 Inventoriesat30September2015 Add:Purchases Less: Inventories at 30 September 2016 Add: Depreciation – plant and machinery (see below) Add: Depreciation – ma chine classi fied as held for sale (8,2 00 x 20% 6/12) x Add: Impairment loss – noncurrent asset held for sale [(8,200 – 820) 6,500] – Adjusted Cost of Sales
31,800 344,000 27,300 46,485 820 880 396,685
(B)
Plant and Machinery Cost –balanceforward Less: Accumulated depreciation – balance forward 318
385,000 144,375
Chapter 32 – Statement of Financial Position and Comprehensive Income
Less: Held fors ale asset – carrying amount Balance Less: Depreciation during the year (232,425 x 20%) Carryingamount–year end
8,200 232,425 46,485 185,940
Question No. 2 Trial balance Add: Depreciation – Property (14,500 + 30,000) - see below Add: Downward Valuation (480,000 – 456,000) Adjusted Admin Expense (C)
216,200 34,500 24,000 274,700
Property Valuations Property A Property B 372,000 1,080,000 (449,500) (600,000) (77,500) 480,000
Carrying amount – October 1, 2015 Valuation– October 1,2 015 Revaluation(gain)/loss Valuation– October1,2 015 Less: Depreciation (Property A: 31 years; PropertyB :3 0y ears) Carrying amount – October 1, 2016
449,500
600,000
(14,500) 435,000
(20,000) 580,000
Question No. 3 Trial balance Add:Provisioncharge( seebelow) Add:LeaseOther expense (seebelow) Adjusted Operating Costs
86,900 33,600 27,600 148,100
(C)
Provision – Onerous Lease Current liabilities [(3,000 – 2,300)x 12] Non-current liabilities (8,4000 x3 years) Total
8,400 25,200 33,600
Operating Lease Total Payments [(18,000 x 7 years) + (36,000 x 8 years)] Divided by: Operatingl easeexpensep eryear
414,000 15 years 27,600
Question No. 4 Revenue Less:Cost ofsales
1,057,000 396,685
Gross profit Less: Administrative expenses ( see No. 2) Other operating costs (see No. 3) Profitbefore tax Less: Tax
660,315 274,700 148,100 237,515 56,000
319
Chapter 32 – Statement of Financial Position and Comprehensive Income
Profit after tax
181,815
(A)
Questions No. 4 to No. 8 Current assets: Inventories Tradeandotherreceivables Cash in bank
27,300 61,500 5,100 93,900 6,500
Non-currentassetheldf ors ale
Non-current assets: PPE (185,940 + 400,000 + 435,000 + 580,000) Total assets (D)
1,600,940 6.
Current liabilities: Tradeandotherpayables Incometax payable Provisions
199,800 56,000 8,400
Non-current liabilities: Leaseliability( 27,600–18,000) Provision Totalliabilities
9,600 25,200
Equity: Ordinary share capital
1,600,940 1,701,340
264,200 7. (A) 34,800 299,000
672,600
Revaluationsurplus Retainedearnings Total liabilities and shareho ders’ equity
135,000 594,740
Retained Earnings 576,875 181,515
Beginningbalance Total comprehensive income for the year (77,500 – 456,000) Dividend on ordinary shares Piecemeal realization of revaluation surplus Ending balance
SUMMARY OF ANSWERS: 1. A 2. C 3. D 4. A
100,400 5. (D)
5.
D
6.
320
(168,150) 4,500 594,740
D
7.
A
8. B
(B 8.) 1,402,340 1,701,340 Revaluation Surplus 518,000 (378,500)
(4,500) 135,000
Chapter 32 – Statement of Financial Position and Comprehensive Income
PROBLEM 32-16 SUPPORTING COMPUTATIONS: Cost of Sales: Unadjustedbalance Add: Amortization of leased property [36,000 / (12 – 4)] Add: Amortization of leased plant (25,000 / 5) Add: Depreciation of other plant and equipment [(47,500 – 33,500) 20%] x AdjustedCostof Sales
2,800 311,000
Leased Property: Carrying amount – April 1, 2015 (48,000 – 16,000) Add: Revaluation surplus (36,000 – 32,000) Revaluedamount–April1,2015 Less: Amortization (36,000 / remaining life 8 years) Carryingamount–March3 1,2016
32,000 4,000 36,000 (4,500) 311,000
Leased Liability: Amortization Table: Principal Date Payment April 1, 2015 April1,2015 2,000 March3 1,2 016 6,000 March3 1,2 017 6,000
Interest Expense 2,300 1,930
Amortization 2,000 3,700 4,070
Leased Plant: Fairvalue –April1, 2015 Less:Amort zation(25,000 /5years) Carryingamount–March3 1,2016
298,700 4,500 5,000
Present value 25,000 23,000 19,300 15,230 25,000 5,000 20,000
Deferred Tax: Deferred tax liability – March 31, 2016 (12,000 x 25%) Deferredtaxliability–April1,2 015 Decreaseindeferredtaxliability Question No. 1 Revenue Less:Cost ofsales Gross profit Less: Distribution costs Administrative expense (26,900 + 3,000 fraud) Finance cost (300 + 2,300 interest in the lease) Lossbeforetax Incomet ax benefit [(9,600 x 25%) + 200 – 800] Loss after tax (D) 321
3,000 3,200 200
350,000 311,000 39,000 16,100 29,900 2,600 (9,600) 1,800 (7,800)
Chapter 32 – Statement of Financial Position and Comprehensive Income
Questions No. 2 to 5 Current assets: Inventory Trade receivables (28,500 – 4,000) Current tax refund (9,600x 25%)
25,200 24,500 2,400
Non-current assets: Leasedproperty Leased plant (25,000 –5,000) Owned plant (47,500 – 33,500 – 2,800) Total assets
31,500 20,000 11,200
Current liabilities: Tradepayables Bank overdraft Financel ease liability – current
62,700 114,800
27,300 1,400 4,070
Non-current liabilities: Finance lease liability – noncurrent Deferredtax liability Totalliabilities
32,770
15,230 3,000
Equity: Share capital Reserves: Sharepremium Revaluationsurplus
18,230 51,000 54,000
9,500 3,500
earnings TotalRetained shareholders’ equity
Statement of Changes in Equity: Share Capital Begbal 45,000 Prior period adjustment fraud – Restatedbalance Rights issue (see below) 9,000 Net loss Revaluationsurplus Piecemeal realization of R/S . Ending bal. 54,000
52,100
(3,200)
Share Premium 5,000
9,800 63,800
Revaluation Retained Surplus Earnings 5,100 (1,000) 4,100
4,500 (7,800) 4,000 . 9,500
(500)
500 3,500
(3,200)
The rights issue was 18 million shares (45,000/50 cents each x 1/5) at 75 cents = 13·5 million. Thi s equates to the balance on the susp ense account. Thi s should be recorded as 9 million equity shares (18,000 x 50 cen ts) and 4.5 million share pr emium (18,000 x (75 cents – 50 cents)). 322
Chapter 32 – Statement of Financial Position and Comprehensive Income
The discovery of the fraud represents an error part of which is a prior period adjustment ( 1 million) in accor dance with PAS 8 Accounti ng policies, chan ges in accounting estimates and errors.
Question No. 6 Loss after tax Divided by: Weighted average shares (see below) Loss per share (B)
7,800 99,000
April 1 to December 31 (90,000 x 1.20 / 1.125* x 9/12) January1 toMarch31( 108,000x3/12) Weightedaveragen umberofs hares
72,000 27,000 99,000
*Adjustment factor. Value of one right
=
Value of one right
=
Fair value per share – right on minus exercise price Number of rights to purchase one share plus 1 -.
5+ 1
= Fair value per share–right on Less:T heoretical valueof one right Theoretical ex-rights fair value per share SUMMARY OF ANSWERS: 1. D 2. D 3. B 4. A
5.
B
6.
323
1.20 .075
B
Chapter 33 – Statement of Cash Flows
CHAPTER 33: STATEMENT OF CASH FLOWS PROBLEM 33-1 Cash flows and non-cash activities 1) Sale of common stock 2) Sale of land 3) Purchase of treasury stock 4) Merchandise sales 5) Issuance of long-term note payable 6) Purchase of merchandise 7) 8) 9) 10) 11) 12) 13)
Repayment of note payable Receipts from sale of half of investment in associate Employee salaries Sale of equipment at a gain Issuance of bonds Acquisition of bond of another corporation Acquisition of a 60-day treasury bills
14) 15) 16) 17) 18) 19) 20)
Purc hase of building Acquisition of a land und er a finance lease Collection of nontrade note receivable (principal amount) Loan to another firm Declaration of cash dividend Retirement of common stock Income taxes paid
F I F O F O FI O I F I Not reported** I NC I I NC F O
21) 22) 23) 24) 25) 26)
Issuance of short-term note p ayable to a supplier NC Sale of a copyright I Purchase of a treasury share of another corporat on I Payment of cash dividends F Receipt of dividends O Payment for the acquisition of additio nal 10% interest in a F** subsidiary 27) Payment of semiannual interest on bon ds payable F 28) Receipt of interest O 29) Increase in shareholders’ equity from a dividend NC reinvestment plan 30) Declaration of share dividend NC 31) Interest paid capitalized under PAS 23 I *Acquisition of 60-day treasury bills is transaction reclassifying cash to cash equivalent. **PFRS 10.23 Changes in a parent’s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity transactions (ie transactions with owners in their capacity as owners). PAS 7 par 42A Cash flows arising from changes in ownership interests in a subsidiary that do not
324
Chapter 33 – Statement of Cash Flows
result in a loss of control shall be classified as cash flows from financing activities.
PROBLEM 33-2 Indirect Method - Operating Activities Net income Decreaseinaccountsreceivable Increaseinaccountspayable Depreciationexpense Net cash provided by operating activities
(A)
668,000 96,000 44,000 20,000 828,000
PROBLEM 33-3 Indirect Method - Operating Activities Net income Increaseinaccountsreceivable Decreaseinprepaidexpenses Increase in accumulated depreciation-depreciation expense Decreaseinaccountspayable Net cash provided by operating activities (A)
292,000 (40,000) 12,000 64,000 (16,000) 312,000
PROBLEM 33-4 Investing Activities Cash acquisition of fair value through other comprehensive securities Proceeds from sale of the company’s used equipment Purchase of equipment Net cash provided by investing activities
(B)
(100,000) 1,000,000 (560,000) 340,000
PROBLEM 33-5 Financing Activities Issuance of shares of the company’s own ordinary shares Dividends paid to the company’s own shareholders Repayment of principal on the company’s own bonds Net cash provided by financing activities (A)
680,000 (28,000) (160,000) 492,000
PROBLEM 33-6 Question No. 1 Cash receipts from receivable (216 + 800 – 324) Cash payment for purchases [(321 + 300 – 425) + 117 – 210] Cashd isbursement – (66 +4 0––102) 88) Cash disbursement –insurance salaries (93 + 120 Cashd isbursement–interest( 50–10) Cashd isbursement–tax(78+5 2– 60) Net cash provided by operating activities 325
(D)
692 (103) (18) (111) (40) (70) 350
Chapter 33 – Statement of Cash Flows
Question No. 2 Net Income Depreciation Gain onsaleofbuilding Losson saleof machinery Increase in A/R DecreaseinInventory Decreaseinprepaidinsurance IncreaseinAccountsPayable
88 123 (11) 12 (108) 104 22 93
Increase insalariespayable Increase in DTL Bonddiscountamortization Net cash provided by operating activities
(D)
8 9 10 350
Note that cash flows for operating activities using direct or indirect method is the same.
COMPREHENSIVE PROBLEMS PROBLEM 33-7 Question No. 1
(B) Accounts receivable
Beg. balance – AR Sales on account
125,0000 1,000,000
Recoveries
-
Total
Question No. 2
1,125,000
0 150,000
Total
675,000
Beg. Balance Net Purchases (squeeze)
525,000 0
and
- Sales discounts Collections (squeeze) 990,000 - W ite-off 1,125,000
(C) Accounts Payable Trade
Payments (squeezed) Purchase returns and allow. Purchased iscounts Balance end – AP
Total
135,000 Balance end - AR - Sales returns allowance*
190,000 485,000
Beg. balance – AP Purchases
Merchandise Inventory 175,000 160,000 Balance end 485,000 500,000 Cost of Sales 660,000 326
Chapter 33 – Statement of Cash Flows
Question No. 3
(D) Deferred income taxes
Payments (squeezed)
190,000
Balance end
85,000
Total
Question No. 4
175,000 Beg. balance 100,000 Income tax expense
275,000
(D)
Collectiono fa ccountsreceivable Paymentof accountspayable Paymentof income taxes* Paymentofo peratingexpenses Net cash prov ided by (or used in) Operating activit ies
990,000 (525,000) (190,000) (180,000) 95,000
*Computation of Payment of income taxes
Prepaid insurance Beg. Balance Payment (squeezed)
Total
25,000 40,000 Balance end 180,000 165,000 Operating expenses excluding depreciation (260,000-95,000) 205,000
Depreciation expense=245,000-150,000 =95,000
Question No. 5 Receipt of cash from note payable-bank (200,000-160,000) Issuance for cash of ordinary shares(225,000-200,000) Dividendspaid Net cash provided used in Financing activities (A)
40,000 25,000 (75,000) (10,000)
Question No. 6 *ProceedsfromSaleofi nvestment Cash acquisition of PPE (540,000-460,000) Net cash provided used in investing activ ities (B)
20,000 (80,000) (60,000)
Costo fi nvestment sold (190,000-180,000) Add:Gainon sale Proceedsfroms aleofi nvestment SUMMARY OF ANSWERS: 1. B 2. C 3. D 4. D 5.
10,000 10,000 20,000
A
6.
327
B
Chapter 33 – Statement of Cash Flows
PROBLEM 33-8 Question No. 1 Beg. Balance Sales on account
Question No. 2
(A) Accounts receivable 600,000 1,250,000 Bal. end 5,000,000 4,330,000 Collections 20,000 Write-off 5,600,000 5,600,000 (B)
Bal. end Payment
Accounts payable 4,800,000 4,500,000 Beg. Balance 1,900,000 2,200,000 Net purchases 6,700,000 6,700,000
Beg. Balance Net purchases
Merchandise inventory 2,000,000 2,200,000 Bal. end 2,200,000 2,000,000 Cost of goods sold 4,200,000 4,200,000
Question No. 3 (A) Net income Amortization of premium of Investment in Bonds Depreciation Gain onsaleofequipment
700,000 60,109 900,000 (220,000)
Amortizationof franchise Decrease (or increase) in Trading securities De rease(ori ncrease)inNetAR Decrease (ori ncrease) in Inventories Increase(ordecrease)inAP Increase(ordecrease) in DTL Net cash prov ided by (or used in) Operating activit ies
100,000 (450,000) (530,000) (200,000) 300,000 200,000 860,109
Computation of accumulated depreciation: Beg.Balance Add:Depreciationexpense Less: Accumulated depreciation of asset sold Balance end Gain or (loss) on sale NetSellingPrice Less: Carry ing amount Cost Less: Accumulated Depreciation Gain on sale
3,200,000 900,000 200,000 3,900,000 500,000 480,000 200,000
328
280,000 220,000
Chapter 33 – Statement of Cash Flows
Amortization table: Interest Date Collection 01/01/2015 12/31/2015 480,000 12/31/2016 480,000 Question No. 4 AcquisitionofPPE Sale of PPE
Interest Income
Premium Amortization
425,355 419,891
54,645 60,109
Present value 4,253,552 4,198,907 4,138,798
(B) (1,000,000) 500,000
Net cash provided by (or used in) investing activities
Question No. 5 (D) Dividendspaid Cash receipts-issuance of OS (10,000 x 120) Cashp aidforT reasuryshares Net cash provided by (or used in) Financing activities SUMMARY OF ANSWERS: 1. A 2. B 3. A 4. B
5.
(500,000) (300,000) 1,200,000 (500,000) 400,000
D
PROBLEM 33-9 Question No. 1 Bal. end Payment
Beg. Balance Net purchases
(D) Accounts payable 3,400,000 3,500,000 Beg. Balance 1,900,000 1,800,000 Net purchases 5,300,000 5,300,000
Merchandise inventory 2,000,000 1,800,000 Bal. end 1,800,000 2,000,000 Cost of goods sold 3,800,000 3,800,000
Question No. 2 (B) Income tax payable/Deferred tax liability Bal. end-ITP 150,000 200,000 Beg. Balance-ITP Bal. end-DTL 700,000 500,000 Beg. Balance-DTL Payment 150,000 300,000 Income tax expense 1,000,000 1,000,000 Question No. 3 (A) Net income Share in the net income ofa ssociate Cash dividendsfromassociate
700,000 (1,024,000) 280,000 329
Chapter 33 – Statement of Cash Flows
Depreciation Losson saleofequipment Amortizationof franchise Decrease (or increase) in Tradin g securities Decrease(ori ncrease)inNetAR Decrease(ori ncrease)in Inventories Increase(ordecrease)inAP Increase(ordecrease)inITP Increase(ordecrease)inDTL Net cash provided by (or used in) Operating activities
Year of Acquisition Percentageof ownership Cost of Investment Less: Book value of net asset acquired Excess ofc ost over book value Over or (under) valued asset Inventory Machinery Land Goodwill
200,000 100,000 100,000 (90,000) 200,000 (100,000) (50,000) 200,000 516,000
20% 4,000,000 2,400,000 1,600,000 (40,000) 240,000 1,800,000
Amortization of Over (Under) valued asset Inventory
2015 40,000
Machinery Divideby:Remaining life
(240,000) 10
Amortization of Under (over) valued asset No of monthsdivideby12(1st year) Amortization of Under (over) valued asset
(24,000) 1 (24,000)
2016
(24,000) 1 (24,000)
Net incomeo ft hea ssociate Multiplyb y: Percentage of ownership Shareinthenetincome
2015 2016 4,000,000 5,000,000 1,000,000 1,400,000 2015 2016 4,000,000 5,000,000 20% 20% 800,000 1,000,000
Dividends declareda nd paid Multiplyb y: Percentage of ownership Dividendsreceived
1,000,000 20% 200,000
Net incomeo ft hea ssociate Dividends declareda nd paid
2016 Investment Income ShareintheNetIncome Add: Amortization ofo vervalued machinery Netinvestmentincome-2016 Investment in Associate 330
1,400,000 20% 280,000 1,000,000 24,000 1,024,000
Chapter 33 – Statement of Cash Flows
Beg.Balance Add:Netinvestmentincome Less:Dividendsreceived Balance end
4,584,000 1,024,000 280,000 5,328,000
Question No. 4 (B) Cashr eceiptfromloanreceivable AcquisitionofPPE Sale of PPE Net cash provided by (or used in) investing activities
120,000 (2,000,000) 500,000 (1,380,000)
Question No. 5 (D) Dividendspaid Cash receipts-issuance ofO rdinary shares Cash receipts-reissuance of Treasury shares Net cash provided by (or used in) Financing activities
(350,000) 1,120,000 105,000 875,000
SUMMARY OF ANSWERS: 1. D 2. B 3. A 4. B
5.
D
PROBLEM 33-10 Question No. 1 Bal. end
(D) Accounts payable 4,000,000 3,500,000
Payment
15,700,000 ,700,000 2,200,000 5,700,000 Net purchases
Beg. Balance Net purchases
Merchandise inventory 1,500,000 1,700,000 Bal. end 2,200,000 2,000,000 Cost of goods sold 3,700,000 3,700,000
Beg. Balance
Question No. 2 (B) Income tax payable/Deferred tax liability Bal. end-ITP 150,000 200,000 Beg. Balance-ITP Bal. end-DTL 700,000 500,000 Beg. Balance-DTL Payment 270,000 420,000 Income tax expense 1,120,000 1,120,000 Question No. 3 (A) Net income Share in thenet income ofa ssociate Cashd ividendsfromassociate Depreciation
980,000 (630,000) 225,000 200,000 331
Chapter 33 – Statement of Cash Flows
Losson saleofequipment Amortizationof franchise Amortization of disc on investment in bonds Decrease (or increase) in Net Accounts Receivable Decrease (ori ncrease) in Inventories Increase (or decrease) in Accounts Payable Increase (or decrease) in Income Tax Payable Increase (or decrease) in Deferred Tax Liability Net cash provided by (or used in) Operating activities
Amortization table: Interest Date Collection 01/01/2016 12/31/2016 100,000 12/31/2017 100,000
Interest Income 112,708 114,233
Year of Acquisition Percentageof ownership Cost ofInvestment Less: Book value of net asset acquired Excess ofc ost over book value Over or (under) valued asset Inventory Machinery Land Goodwill
150,000 100,000 (12,708) (90,000) (200,000) 500,000 (50,000) 200,000 1,372,292
Premium Amortization 12,708 14,233
Present value 939,230 951,938 966,170
25% 3,500,000 2,500,000 1,000,000 (50,000) 300,000 1,250,000
Amortization of Over (Under) valued asset Inventory
2015 50,000
Machinery Divideby:Remaining life Amortization of Under (over) valued asset No of monthsdivideby12(1st year) Amortization of Under (over) valued asset
(300,000) 10 (30,000) 1 (30,000)
2016
(30,000) 1 (30,000)
2015 2016 2,000,000 2,400,000 800,000 900,000 2015 2016 2,000,000 2,400,000 25% 25% 500,000 600,000
Net incomeo ft hea ssociate Dividends declareda nd paid Net incomeo ft hea ssociate Multiplyb y: Percentage of ownership Shareinthenetincome Dividends declareda nd paid Multiplyb y: Percentage of ownership Dividendsreceived
800,000 25% 200,000
2015 Investment Income 332
900,000 25% 225,000
Chapter 33 – Statement of Cash Flows
ShareintheNetIncome Add: Amortization ofo vervalued machinery Less:Undervaluationofinventory Netinvestmentincome-2015
500,000 30,000 50,000 480,000
Investment in Associate Cost of investment Add:Netinvestmentincome Less:Dividendsreceived Balance end, 12/31/2015
3,500,000 480,000 200,000 3,780,000
2016 Investment Income ShareintheNetIncome Add: Amortization ofo vervalued machinery Netinvestmentincome-2016
600,000 30,000 630,000
Investment in Associate Beginningbalance,01/01/2016 Add:Netinvestmentincome Less:Dividendsreceived Balance end, 12/31/2016
Beg. Balance Acquisition cost Present value of MLP
3,780,000 630,000 225,000 4,185,000
Property, Plant and Equipment 9,000,000 900,000 C ost of equipment sold 600,000 9 ,069,180 bal. end 369,180 9,969,180 9,969,180
Accumulated depreciation Bal.e nd 3,000,000 3,200,000 Beg. Balance Accumulated depreciation of asset sold 400,000 200,000 Depreciation expense 3,400,000 3,400,000 NetSellingPrice Less: Carry ing amount Cost Less: Accumulated Depreciation Loss on sale
350,000 900,000 400,000
Question No. 4 (B) Casha cquisition ofI nvestment inB onds AcquisitionofPPE Sale of PPE Net cash provided by (or used in) investing activities Present Value of Periodic Payment (100,000 x 3.4869) Add: Present Value of Bargain Purchase option(30,000 x 0.683) 333
500,000 (150,000)
(939,230) (600,000) 350,000 (1,189,230) 348,690 20,490
Chapter 33 – Statement of Cash Flows
Present Value ofM inimuml ease payments
Amortization table: Interest Date Payment 12/31/2016 12/31/2016 100,000 12/31/2017 100,000 Question No. 5
Interest Expense 26,918
369,180
Amortization 100,000 73,082
Present value 369,180 269,180 196,098
(D)
Payment of principal finance lease liability Dividendspaid Cash receipts-issuance ofO rdinary Shares Net cash provided by (or used in) Financing activities
(100,000) (350,000) 720,000 270,000
Share Capital Beginningbalance Issuancefor cash IssuancethruSDP Balance end
10,000,000 600,000 1,910,000 12,510,000
Share Premium Beginningbalance Issuancefor cash Balance end
1,000,000 120,000 1,120,000
Retained Earnings Beginningbalance Add:Netincome Less:Dividendsdeclared-cash Less:Sharedividend Balance end SUMMARY OF ANSWERS: 1. D 2. B 3. A 4. B
3,740,000 980,000 350,000 1,910,000 2,460,000
5.
D
PROBLEM 33-11 Question No. 1 Collection from customers (202M + 410M – 200M – 6M) Proceeds from investment income (4M + 5M – 6M) Proceedsfroms aleofc ash equivalent Payment of purchases [(205M + 180M -200M) + 65M – 50M] Paymentofi nsurance(4M+7M-8M) Paymentofs alaries(11M+65M–6M) Paymentofi nterest( 4M+25M–8M) Payment oft ax( 14M + 8M + 36M – 12M – 11M) 334
406M 3M 2M (200M) (3M) (70M) (21M) (35M)
Chapter 33 – Statement of Cash Flows
(C)
82M
Question No. 2 Purchase of land(196M–150M) Proceeds from sale of major components of machine Purchase of long-term investment Proceeds froms ale ofl ong-term investment Net cash used from investing activities (C)
(46M) 17M (25M) 23M (31M)
Net cash provided from operating activities
Long-term Investment Beg.Balance Investment income (associate) Acquisition (Tory) Total
125M 6M 48M 179M
156M Bal.e nd 23M Disposal 179M
Question No. 3 Retirement ofbonds Proceeds fromi ssuanceofp referreds tock Acquisitionoftreasuryshares Dividends paid Net cash used from financing activities
Balancee nd
(60M) 75M (9M) (22M) (16M)
(A)
Retained Earnings 242M 227M Beg.Balance
Dividends Total
52M 294M
67M Netincome 294M
Total dividends Less: Stock dividends – small (4M shares x 7.50 fair value) Cash dividendspaid
52M 30M 22M
SUMMARY OF ANSWERS: 1. C 2. C 3. A
PROBLEM 33-11 Question No. 1 Overdraft end – Add:Bank,beginning Netc asho utflow
110 120 (230)
(A)
Question No. 2 Profitfor the year
135 335
Chapter 33 – Statement of Cash Flows
Depreciation Amortization Increaseininventory( 200–110) Increase in trade receivable (195 – 75) Increaseintradepayable(210–160) Decrease in current tax payable( 80 – 110) Net cash from operating activities (D)
Question No. 3 Acquisition of PPE (see computation below) Acquisition of intangible assets (see computation below) Acquisitionofinvestment Net cash used in investing activities (A)
115 25 (90) (120) 50 (30) 85
(305) (125) (230) (660)
Balanceb eginning Acquisition Revaluation Total
PPE, net 410 680 Endingb alance - Disposal 305 80 115 Depreciation 795 795
Balanceb eginning Acquisition Revaluation Total
Intangible asse t, net 200 300 Endingb alance - Disposal 125 25 Amortization 325 325
Question No. 4 10%securedloannotes Issuanceofshares Dividends paid (seec omputation below) Net cash from financing activities Balancee nd Dividends Total
(C)
Retained Earnings 375 295 Beg.Balance 55 135 Net income 430 430
SUMMARY OF ANSWERS: 1 . A 2 . D 3. A 4. C
336
300 100 (55) 345
Chapter 33 – Statement of Cash Flows
PROBLEM 33-13 Question No. 1 Cash Accountsreceivable Allowancef ord oubtfula ccounts Inventories Total current assets (A)
5,639,900 1,000,000 (180,000) 2,200,000 8,659,900
Question No. 2 Investment in bonds - FA at amortized cost Propertyp lant and equipment Accumulatedd epreciation Franchise -net Total noncurrent assets (A)
3,861,105 9,520,000 (3,900,000) 500,000 9,981,105
Totalassets
18,641,005
Question No. 3 Liabilities and equity Accountspayable Dividendspayable Total current liabilities
(A)
4,800,000 400,000 5,200,000
Question No. 4 Deferredtaxliability Total noncurrent liabilities
(C)
700,000 700,000
Totalliabilities
5,900,000
Question No. 5 Ordinary shares, P100 parv alue SharePremium Treasurysharesatc ost Retainedearnings Total shareholders' equity
11,000,000 1,200,000 (500,000) 1,041,005 12,741,005
(C)
Total liabilities and equity Beg. Balance Sales on account
Bal.e nd Write-off
18,641,005
Accounts receivable 600,000 1,000,000 Bal. end 5,000,000 4,600,000 Collections - Write-off 5,600,000 5,600,000 Allowance for doubtful accounts 180,000 40,000 Beg. Balance 140,000 Baddebts 180,000 180,000 337
Chapter 33 – Statement of Cash Flows
Beg. Balance Net purchases
Merchandise inventory 2,000,000 2,200,000 Bal. end 2,200,000 2,000,000 Cost of goods sold 4,200,000 4,200,000
Bal. end Payment
Accounts payable 4,800,000 4,500,000 Beg. Balance 1,900,000 2,200,000 Net purchases 6,700,000 6,700,000
Amortization table: Interest Date Collection 01/01/2015 12/31/2015 320,000 12/31/2016 320,000 12/31/2017 320,000 12/31/2018 320,000
Beg. Balance Acquisition cost PresentvalueofM LP
Interest Income 374,637 380,100 386,111 392,816
Discount Amortization 54,637 60,100 66,079 72,816
Present value 3,746,368 3,801,005 3,861,105 3,927,184 4,000,000
Property, Plant and Equipment 9,000,000 480,000 Cost of equipment sold 1,000,000 9,520,000 bal. end 10,000,000 10,000,000
Accumulated depreciation Bal.e nd 3,900,000 3,200,000 Beg. Balance Accumulated depreciation of asset sold 200,000 900,000 Depreciation expense 4,100,000 4,100,000 NetSellingPrice Less: Carry ing amount Cost Less: Accumulated Depreciation Gain on sale
500,000 480,000 200,000
280,000 220,000
Ordinary shares Beginningbalance Issuancefor cash Balance end
10,000,000 1,000,000 11,000,000
Share Premium Beginningbalance Issuancefor cash
1,000,000 200,000 338
Chapter 33 – Statement of Cash Flows
Balance end
1,20,000
Retained Earnings Beginningbalance Add:Netincome Less:Dividendsdeclared-cash Balance end SUMMARY OF ANSWERS: 1. A 2. A 3. A 4. C
461,005 980,000 400,000 1,041,005
5.
C
PROBLEM 33-14 QuestionNo. 1 Ending balance Payment Total
QuestionNo. 2 Balance beginning Acquired–cash Acquired – lease Acquired – business combination Total
(C) Income tax payable 143,700 65,000 76,000 154,700 219,700 219,700
Beg. Balance Income tax expense
(C ) PPE, net 791,500 805,300 Ending balance 50,000 - Disposal 12,130 153,330 Depreciation 105,000 958,630
958,630
QuestionNo. 3 (A) Profitfor the year 471,440 Depreciation 153,330 Amortization 8,200 Shareinprofitofassociate (24,700) Increase in inventory (57,300 – 46,900) (10,400) Increase in trade and other receivables (excluding receivable (17,520) from business combination) – (75,900 – 51,930 – 6,450) Decrease in trade and other payab les (excluding re ceivable from (43,758) business combination) – (82,600 + 9,950 – 48,792) Increaseinincome taxpayable 87,800 Net cash provided by operatinga ctivities 615,292 QuestionNo. 4 (C) Proceeds from sale of license (see computation below) AcquisitionofPPE AcquisitionofHey Jude 339
21,600 (50,000) (10,000)
Chapter 33 – Statement of Cash Flows
AcquisitionofYesterday Cash and cash equivalents acquired in business combination Net cash used by investing activities
Balance beginning Acquisition Goodwill* Total
(58,800) 8,700 (88,500)
Intangible asse t, net 33,450 28,800 Ending balance 8,200 Amortization 25,150 21,600 Disposal 58,600 58,600
Consideration transferred [(58,500 + (35,000 x 1.4)] Less:FVNAA(110,200x 75) Goodwill
QuestionNo. 5
107,800 82,650 25,150
()
PROBLEM 33-15 QuestionNo. 1 Beg. Balance Interestincome Total
QuestionNo. 2 Ending balance Payment Total
(A) Interest receivable – investing 10,500 1 2,500 Endingb alance 52,000 50,000 Collection 62,500 62,500 (A) Income tax payable 170,000 130,000 140,000 180,000 310,000 310,000
Beg. Balance Income tax expense
QuestionNo. 3 (B) Increase in cash and cash equivalents (12,500 – 400) Add:Decrease inbankoverdraft Netcashinflows Net income Depreciation Gaino nsale(450,000–324,500) Interest income – investing activities
12,100 3,500 15,600 834,900 560,000 (125,500) (52,000)
Decreaseininventory Decrease in trade and other r eceivables (exclud ing interest related to investing) – (495,100 – 415,600) Decrease in trade and other payables Decreaseinwarranty 340
56,400 79,500 (122,600) (30,000)
Chapter 33 – Statement of Cash Flows
Increaseinincome taxpayable Net cash provided by operating activities
QuestionNo. 4 (A) Interest collected – investing activity Proceedsfroms aleofm achinery Proceeds froms ale off actory building Loans to unrelated parties (1,000,000 – 850,000) Acquisition of PPE (see computation below) Net cash used by investing activities
Balance beginning Acquisition Revaluation Total
Ending balance Transfer to R/E Total
40,000 1,240,700
50,000 450,000 340,000 (150,000) (2,022,500) (1,332,5000
PPE, net 1,594,400 2,567,400 Ending balance 324,500 Disposal - Machinery 2,022,500 220,000 340,000 Disused factory 560,000 Depreciation 3,791,900 3,791,900 Revaluation surplus 350,000 250,000 Balance beginning 120,000 220,000 R/S – current period 470,000 470,000
QuestionNo. 5 (C) Dividends paid (seec omputation below)
(42,600)
Proceeds from issuance of shares (100,000 x 1.50) Net cash provided from financing activities
150,000 107,400
Balance end Bonus issue* Transfer to R/E Dividends Total
Retained Earnings 1,478,300 876,000 Beg. Balance 310,000 834,900 Net income 120,000 42,600 1,830,900 1,830,900
*Total increase in share capital and share premium Less:Issuanceofshareforc ash Bonus issue
341
460,000 150,000 310,000