Applied Auditing: With Comprehensive Review of Philippine Financial Reporting Standards (PFRSS)
Applied Auditing: With Comprehensive Review of Philippine Financial Reporting Standards (PFRSS)
Applied Auditing: With Comprehensive Review of Philippine Financial Reporting Standards (PFRSS)
AUDITING
With Comprehensive
Review of Philippine Financial
Reporting Standards (PFRSs)
PARTI
A guide in applying auditing procedures to specific
accounts of the financial statements.
TEACHERS MANUAL
2015
Edition
By
Sincerely,
Suggested answer: B
PROBLEM 5-2 (Computation of Purchases)
Accounts Payable/Notes payable trade
Payments 200,000 250,000 Beg. Balance - A/P
Balance end - A/P 200,000 150,000 Beg. Balance - N/P
Balance end - N/P 140,000 165,000 Purchases (squeeze)
Suggested answer: A
PROBLEM 5-3 (Computation of Income Other Than Sales) Rent Receivable/Rent in
advance
Beg. Balance - Rent 15,900 14,500 Balance end - Rent
Receivable Receivable
Balance end - Rent in 3,600 2,700 Beg. Balance - Rent in
advance advance
Rent Income (squeeze) 130,000 132,300 Collections
1
PROBLEM 5-4 (Computation of Expenses in General)
Prepaid Salaries/Accrued Salaries
Beg. Balance - Prepaid 2,200 2,600 Balance end - Prepaid
Chapter
Salaries5: Cash to Accrual Salaries
Balance end - Accrued 1,600 1,800 Beg. Balance - Accrued
Salaries Salaries
Payments 249,350 248,750 Expenses
Question No. 2
Accumulated depreciation
Balance end 18,000 15,000 Beg. Balance
Accumulated depreciation Depreciation expense
18,000
of PPE disposed 15,000
Total 33,000 33,000
Cost 40,000
Equipment
SUMMARY OF ANSWERS:
1. D 2. A
Prepaid Insurance
Beg. Balance 7,500 1 6,000 Balance end
Payments 41,500 | 43,000 Expenses(squeeze)
PROBLEM 5-6
Question No. 1
2
Chapter 5: Cash to Accrual
Question No. 2
Interest Receivable
Question No. 3
Salaries payable
Balance end 61,500 53,000 Beg. Balance
Payments 481,000 489,500 Expenses
Total 542,500 542,500
Question No. 4
Accounts rec eivable trade
Beg. Balance 415,000 1 550,000 Balance end
Sales 1,980,000 | 1,845,000 Collections (squeeze)
Question No. 5
Accounts receivable trade
Beg. Balance 415,000 1 550,000 Balance end
Sales 1,980,000 1 1,820,000 Collections (squeeze) Write-
25,000 off
Question No. 6
Accounts receivable trade
Beg. Balance 415,000 1 1 550,000 Balance end
Sales 1,980,000 1,840,000 | Collections (squeeze) Write-
Recoveries 20,000 | 25,000 off
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4.
A 5. A 6. B
PROBLEM 5-7
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R Increase in N/R
100,000 II 100,000 Write-off
Sales on account 4,260,000 || 10,000
3
Chapter 5: Cash to Accrual
(squeeze) II 4,200,000 Collections
30,000 Sales discounts || 20,000
Sales ret. and allow.
Question No. 2
Accounts payable
Cash paid to creditors 2,800,000
200,000 Decrease in Accounts payable
2,650,000 Gross purchases
Purchase discounts 40,000
(squeeze)
Purchase returns 10,000
Total 2,850,000 2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory 25,000 40.0 Purchase discounts
1 10.0 Purchase returns
Gross purchases 2,650,000 1 | 2,625,000 Cost of sales (squeeze)
Question No. 5
Prepaid interest /Interest Payable
114,000 Interest expense
Decrease in Prepaid 5,500
(squeeze)
interest
Increase in Interest 8,500
payable
Interest paid 100,000
Total 114,000 114,000
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. D
4
Chapter 5: Cash to Accrual
PROBLEM 5-8
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance - A/R 200,000
250.000 Bal. end - A/R
Beg. Balance - N/R 300,000
1,000,000 100.0 Bal. end - N/R
Sales on account 20,000 Sales ret. and allow.
(squeeze) 10,000 Sales discount
1,120,000 Collections
Question No. 2
Accounts payabl e/Notes payable
50,000 Beg. Balance - A/P
Balance end - A/P
100,000 Beg. Balance - N/P
Balance end - N/P 25.000
650,000 Gross purchases
Purchase returns 75.0 (squeeze)
allow and 40,000
Purchase discount
Payments 10.0 650,000
Total 800,000 800,000
Question No. 3
Sales 1,000,000
Less: Sales ret and allow 20,000
Sales discounts Net Sales 10,0 30,000
Less: Cost of Sales 970,000
Merchandise inventory beg.
Add: Net Purchases Purchases Add: 200,000
Freight-in Gross Purchases Less:
Purch. Ret and allow Purchase 600,000
discounts Total goods available for
sale Less: Merchandise inventory, 650,000
end Gross Income / Gross Profit 40.000
10.0 600,000
800,000
100,0 700,000
270,000
5
Chapter 5: Cash to Accrual
Question No. 4
6
Chapter 5: Cash to Accrual
Prepaid/Accrued Salaries
Beg. Balance -Prepaid 100,000 125,000 Balance end - Prepaid
Salaries Salaries
Balance end - Accrued 50,000 75,000 Beg. Balance - Accrued
Salaries Salaries
Payments 350,000 300,000 Salaries expense
(squeeze)
Question No. 5
Accrued rent/ Unearned rent
Beg. Balance - Accrued 70,000 40,000 Balance end - Accrued
rent rent
Balance end - Unearned 40,000 80,000 Beg. Balance - Unearned
rent rent
Rent income (squeeze) 490,000 300,000 Collection of rent
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. B 5. B
PROBLEM 5-9
Question No. 1
Accounts rec eivable trade
Beg. Balance 200,000 300,000 Balance end
Recoveries 8,000 20,000 Sales discounts
Sales (squeeze) 1,570,000 1,408,000 Collections including
recoveries (1,498,000-
80,000+20,00-30,000)
50,000 Accounts written-off
Sales 1,570,000
Less: Sales discount 20,000
Net Sales
1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,000- II 150,000 Beg. Balance
20,000+30,000) 1,210,000 1,170,000 Purchases (squeeze)
Purchase ret. and allow. 10,000
Balance end 100,000
7
Chapter 5: Cash to Accrual
8
Chapter 5: Cash to Accrual
Total 1,320,000 1,320,000
Purchases 1,170,000
Less: Purchases discount 10,000
Net Purchases 1,160,000
Question No. 3
Merchandise inventory
380,000 1 330,000 Balance end
Beg. Balance 1 1,210,000 Cost of Sales (squeeze)
Net Purchases 1,160,000
(1,170,000-10,000)
Total 1,540,000 1,540,000
Question No. 4
Rent Re eivable
Beg. Balance
Accounts written off 70,000 1
50,000 80,000
20,000 Beg.Balance
Balanceend
Rent income
Balance end (squeeze) 130,000
30,000 | 120,000 Collections
52,000 Doubtful account
Total expense(squeeze)
200,000 200,000
8,000 Recoveries
Total 80,000 80,000
Question No. 5
Allowance for Doubtful accounts
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. A
9
Chapter 5: Cash to Accrual
Question No. 2
Professional Fees (See No. 1) 5,250,000
1,300,000
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000) 850,000
Other operating expense 750,000
Interest expense (1M x 12% x 9/12) 90,000
Depreciation expense (2,500,000/10) 250,000 3,240,000
Net income 2,010,000
Question No. 3
Cash 1,500,000
Accounts Receivable 750.000
Supplies 250.000
Total Current Assets 2,500,000
Question No. 4
Furniture and fixtures Less: 2.500.000
Accumulated Depreciation
(125,000 + 250,000) 375,000
Total Noncurrent Assets 2.125.000
Question No. 5
Total current assets (See No. 3) Total 2.500.000
noncurrent assets (See No. 4) Total 2.125.000
Assets 4,625,000
Question No. 6
Notes Payable Accrued 1,000,000
rent 100,000
Accrued interest on notes payable
(1,000,000 x 12% x 9/12) 90,000
Total Current Liabilities 1,190,000
Question No. 7
Total assets (See No. 5) 4,625,000
Less: Total liabilities (See No. 6) - all are current 1,190,000
Total Owner's Equity 3,435,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. A 5. A 6. C 7. B
10
Chapter 5: Cash
PROBLEM 5-11to Accrual
Question No. 1
Accounts receivable trade
Beg. Balance 124,000 1 1 146,000 Balance end
Sales on account 13,000 Sales discount
(squeeze) 1,535,000 | | 1,500,000 Collections
Question No. 2
Gross sales (see No. 1) 1,695,000
Less: Sales discount 13,000
Net sales 1,682,000
Question No. 3
Accounts Payable
Payments 1,206,000 1 382,000 Beg. Balance
Balance end 1 410,000 | | 1,234,000 Purchases (squeeze)
Question No. 4
Merchandis eInventory
Beg. Balance 186,000 190,000 Balance end
Net purchases 1
1,354,000 | 1,350,000 Cost of sales (squeeze)
Question No. 5
Prepaid G&A/ 'Accrued G&A
Beg. Balance - Prepaid 9,600 8,400 Balance end - Prepaid
Interest Interest
Balance end - Accrued 9,000 7,000 Beg. Balance - Accrued
Interest Interest
Payments 204,000 207,200 Expenses
Question No. 7
Selling price of land 20,000
Less: Book value of land 16,000
Gain on sale of land ____4,000
Question No. 8
Selling Price 12,000
Less Book value
Cost 25,000
Less: Accumulated depreciation 16,000 ______9,000
Gain on sale of warehouse equipment ____3,000
Question No. 9
Selling Price 42,000
Less: Book value
Cost 48,000
Less: Accumulated depreciation 20,000 ______28,000
Gain on sale of boiler 14,000
Question No. 10
Net Sales 1,682,000
Less: Cost of Sales 1,350,000
Gross Profit 332,000
Less: Operating expenses 297,600
Gain on sale (14,000+3,000+4,000) 21,000
Net income 55,400
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
6. A 7. A 8. C 9. B 10. A
12
Merchandise inventory
Beg. Balance 190.0 II 220.0 Balance end
Net Purchases (squeeze) 420.0 || 390.0 Cost of Sales
Chapter 5: Cash to Accrual
Total 610,000 610,000
Question No. 3
Accounts Payable trade
Payments (squeeze) 470,000 230.0 Beg. Balance - Accounts
Question No. 2 payable
428.0 Gross purchases
Sales on account 800,000
(420,000+8,000)
Add: Cash sales 100,000
Total sales 900,000
Less: Sales returns and allowances 10,000
Net sales 890,000
Less: Cost of sales (squeeze) 390,000
Gross profit (200,000/40%) 500,000
Purchase returns and 8,000
allowances
Balance end - Accounts 180,000
payable
Question No. 4
Total payment of Accounts payable and admin expenses 518,000 Less:
Payment of Accounts payable 470,000
Payment of admin expenses 48,000
Question No. 5
Payment of admin expenses 48,000
Divided by: Percentage of cash expenses to total admin
expense 80%
Total admin expenses 60,000
Add: Selling expenses 200,000
Total selling and administrative expense 260,000
Question No. 6
Total administrative expenses 60,000
Less: Payment of administrative expense 48,000
Non-cash administrative expenses 12,000
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12) 9,000
13
Chapter 5: Cash
Depreciation for to Accrualand fixtures
furniture 3,000
Divided by: Number of months used over 12 months ____________ 6/12
Annual depreciation 6,000
Divided by: Depreciation rate 10%
Cost of Furniture and Fixtures (no residual value) 60,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. C 6. A
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance 800,000 700,000 Balance end
Sales on account 930,000 30,000 Sales returns and
(squeeze) allowances
Collections
1,000,000
Total 1,730,000 1,730,000
Sales 900,000
Less: Sales returns and allowances 30,000
Net sales 900,000
Question No. 2
Merchandise inventory
150.000 144.000 Balance end
Beg. Balance 434.000 440.000 Cost of Sales
Net Purchases (484,000 -
50,000)
Total 584,000 584,000
Payment
Total to suppliers was computed as follows:
644,000 644,000
Reported cost of sales 400,000
Add: Merchandise inventory, beginning 144,000
Less: Merchandise inventory, end 150,000
Payments to suppliers 394,000
14
Chapter 5:No.
Question Cash
3 to Accrual
Prepaid Interest/Accrued Interest
Beg. Balance - Prepaid 10,000 14,000 Balance end - Prepaid
Interest Interest
Balance end - Accrued 17,000 15,000 Beg. Balance - Accrued
Interest Interest
Interest payments 40,000 38,000 Interest expense
Question No. 4
Accrued Rent/ Unearned Rent
Beg. Balance - Accrued 22,000 19,000 Balance end - Accrued
Rent Rent
Balance end - Unearned 18,000 20,000 Beg. Balance Unearned
Rent Rent
Rent income 49,000 50,000 Collections
Question No. 5
Net sales (see No. 1) 900,000
Less: Cost of sales (see No. 2) 440,000
Gross income 460,000
Less: Operating expense (including interest expense ofP38,000) 198,000
Add: Rent Income 49,000
Net Income 311,000
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. B 5. B
PROBLEM 5-14
Question No. 1
Accounts receivabl e/Notes Receivable
Beg. Balance - A/R 1,600,000 2,000,000 Balance end - A/R
Beg. Balance - N/R 400,000 1,200,000 Balance end - N/R
Sales on account 3,000,000 Collections of A/R
(squeeze) 5,660,000 1,000,000 Collections of N/R
100,000 Sales discounts
300,000 Sales returns
60,000 Accounts written-off
Total 7,660,000 7,660,000
15
5,660,000
800,000
Chapter
Sales on5:account
Cash toAdd:
Accrual
Cash sales Total Sales 6,460,000
Question No. 2
Accounts payable/Notes payable
Balance end - N/P 500,000 700,000 Beg. Balance - N/P
Balance end - A/P 1,000,000 1.200.0 Beg. Balance - A/P
Payments of A/P 1.500.000 Purchase on account
Payments of N/P 1.300.0 2.480.0 (squeeze)
Purchase discount 80,000
Question No. 3
Accrued interest payable
Balance end 40,000 1 80,000 Beg. Balance
Interest paid 60,000 Interest expense
100,000 1
(squeeze)
Question No. 4
Unearnedi ■ent income
Balance end 40,000 1 120,000 Beg. Balance
Rent income (squeeze) 240,000 | 160,000 Collections from tenants
Question No. 5
Merchandise inventory
Beg. Balance 1,600,000 1 1,000,000 Balance end
Purchases (see No. 2) 1
3,080,000 80,000 Purchase discount | 3,600,000 Cost
of sales (squeeze)
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. D 5. A
16
Chapter 6: Correction
CHAPTER of Errors
6: CORRECTION OF ERRORS
Note to professor:
Page Existing data: Change to:
109 Omission of deferred expense
The entire amount was debited to asset The entire amount was debited to
account and no adjustment was made at expense account and no adjustment
the end of 2015. was made at the end of 2015.
17
PROBLEM 6-1 Income Statement and SFP Errors Questions Nos. 1-6
2015 2016
RE, end of RE, end of
of Errors Workin g
Chapter 6: CorrectionNet the Net Workin g the
income capital year income capital year
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 - - - - - -
2 - - - - - -
Adjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
Question No. 7
Assuming errors were discovered in 2015
ADJUSTING ENTRIES Debit Credit
1) Interest expense 20,000
Rent expense 20,000
2) Accounts receivable 30,000
Notes receivable 30,000
Assuming errors were discovered in 2016
ADJUSTING ENTRIES Debit Credit
1) No entry
2) Accounts receivable 30,000
Notes receivable 30,000
Assuming errors were discovered in 2017
ADJUSTING ENTRIES Debit Credit
1) No entry
2) Accounts receivable 30,000
Notes receivable 30,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. D 6. A
PROBLEM 6-2 Counterbalancing Errors Questions Nos. 1-6
2015 2016
Net Workin g Net Workin g
income capital R/E income capital R/E
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 (10,000) (10,000) (10,000) 10,000 -
2 15,000 15,000 15,000 (15,000) -
3 6,000 6,000 6,000 (6,000) -
4 (16,000) (16,000) (16,000) 16,000 -
Adjusted
balances 95,000 295,000 95,000 155,000 400,000 250,000
18
Question No. 7
A. Errors were discovered in 2015
ADJUSTING ENTRIES Debit Credit
1) Rent expense 10,000
Chapter 6: Correction
Rent payable of Errors
10,000
2) ADJUSTING ENTRIES 15,000 Debit Credit
Interest receivable
1)Interest
Retained
incomeearnings 10,000
Rent expense 15,000
3) Prepaid insurance 10,000
2)Insurance expense 15,000
6,000
Interest income 6,000
Retained earnings 15,000
4) 3)Rent Insurance
revenue expense 16,000
Unearned rent earnings
Retained revenue 6,000 16,000
6,000
4)
Retained earnings 16,000
Rent revenue 16,000
B. Errors were discovered in 2016
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. B 6. A
PROBLEM 6-3 Counterbalancing Errors Questions Nos. 1-6
2015 2016
Net Workin g Net Workin g
income capital R/E, end income capital R/E, end
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 (50,000) (50,000) (50,000) 50,000 - -
2 70,000 70,000 70,000 (70,000) - -
3 20,000 20,000 20,000 (20,000) - -
Adjusted
balances 140,000 340,000 140,000 110,000 400,000 250,000
19
Question No. 7
A. Errors were discovered in 2015
ADJUSTING ENTRIES Debit Credit
1) Purchases 50,000
Chapter 6: Correction
Accounts of Errors
payable
50,000
2) ADJUSTING ENTRIES 70,000Debit Credit
Accounts receivable
Retained earnings 50,000
Sales 70,000
Purchases 50,000
3)
Inventory 20,000
CostSales
of sales 70,000 20,000
Retained earnings
7,000
Inventory, beginning 6,000
Retained earnings 6,000
B. Errors were discovered in 2016
Assuming errors are discovered when the cash flows related to the transactions
were processed and books are still open
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. B 6. A
PROBLEM 6-4 Noncounterbalancing Errors Questions Nos. 1-6
2015 2016
RE, end of RE, end of
Net Workin g the Net Workin g the
income capital year income capital year
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1. (18,000) (18,000) (18,000) (6,000) (24,000) (24,000)
2. 32,000 32,000 32,000 16,000 48,000 48,000
3. (12,000) - (12,000) - - (12,000)
4. 160,000 - 160,000 (40,000) - 120,000
5. (25,000) - (25,000) - - (25,000)
6. 4,000 - 4,000 4,000 - 8,000
(20,000) (20,000) (20,000)
Adjusted
balances 221,000 314,000 221,000 124,000 424,000 345,000
20
ChapterQuestion
6: Correction
No. of
7 Errors
A. Errors were discovered in 2015
ADJUSTING ENTRIES Debit Credit
1) Insurance expense 18,000
Prepaid insurance 18,000
2) Unearned rent income 32,000
Rent income 32,000
21
Chapter6)6: Correction of Errors
Retained earnings 20,000
Building
20,000
8,000
Accumulated depreciation Retained 4,000
earnings 4,000
Depreciation expense
Errors were discovered in 2017
ADJUSTING ENTRIES Debit Credit
1) Retained earnings 24,000
Prepaid insurance 24,000
2) Unearned rent income 48,000
Retained earnings
48,000
3)
Retained earnings
12,000
Accumulated depreciation
12,000
4)
Building improvements
200,000
Retained earnings
200,000
Depreciation expense 40.000
Retained earnings 80.000
Accumulated depreciation
120,000
5) Retained earnings 25.000
Accumulated depreciation Building 15.000
40,000
6)
Retained earnings
20,000
Building
20,000
Accumulated depreciation Retained 8,000
earnings 8,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. B 6. C
PROBLEM 6-5 (COMPREHENSIVE) Questions Nos. 1-3
Effects of error in
Net income Working
2014 2015 Capital
1) MI over, NI over 10,000 (10,000)
MI under, NI under (8,000) (8,000)
2) Purchases over, NI under (20,000) 20,000
(40,000) (40,000)
3) Sales over, NI over 20,000 (20,000)
70,000 70,000
4) Expenses over, NI under (80,000)
Depreciation exp under, NI over 20,000
22
Chapter 6: Correction of Errors
5) Other income over 20,000
*Loss under, NI over 5,000
Adjusted balance (45,000) 32,000 22,000
Computation of loss:
Selling Price 20,000
Less: Book value
Cost 40,000
Less: Accumulated depreciation 15,000 25,000
Loss on sale (5,000)
Questions No. 4
Effect of errors to Retained Earnings in 2015
Understatement to 2014 net income 45,000
Overstatement to 2015 net income 32,000
Net understatement to 2015 retained earnings 13,000
Questions No. 5
ADJUSTING ENTRIES Debit Credit
1) Retained earnings, beg 10,000
Merchandise inventory, beg 10,000
Merchandise inventory, end 8,000
Cost of Sales 8,000
2) Purchases 20,000
Retained earnings 20,000
Advances supplier 40,000
Purchases 40,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. C
23
Chapter 6: Correction of Errors
PROBLEM 6-6 Comprehensive Questions Nos. 1-5
12/31/2
2014 2015 015
Net Workin g Net Workin
Income capital Income g capital R/E
Ending Inventory 2014
understated, NI (6,000) (6,000) 6,000 - -
understated
Ending Inventory 2015
overstated, NI overstated 10,000 10,000 10,000
Depreciation exp. 2014
(11,000) - - - (11,000)
overstated, NI understated
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. C
24
Chapter 6: Correction of Errors
PROBLEM 6-7 Questions Nos. 1, 2 and 4
2013 2014 2015
Unadjusted balances 3,000,000 (1,000,000) 3,500,000
1 Overstatement of ending inventory - 2013 (120,000) 120,000
25
Chapter 6: Correction of Errors
"Should be” entry: Debit Credit
Cash 30,000
Accumulated depreciation 60,000
Loss on sale 10,000
Equipment 70,000
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. D 6. D 7. A
26
Chapter 8: Cash and Cash Equivalents
Suggested answer: B
PROBLEM 7-2 Cash and Cash Equivalents
Reported cash and cash equivalents 6,325,000
Certificate of deposits with maturity of 120 days (500,000)
Postdated check (125,000)
Compensating balance - legally restricted (500,000)
Adjusted cash and cash equivalents P5.200.000
Suggested answer: C
Suggested answer: D
PROBLEM 7-4 Cash and Cash Equivalents
Cash on hand P 80,000
Checking account No. 143 - BPI 200,000
27
Chapter 8: Cash and Cash Equivalents
Suggested answer: B
Suggested answer: C
28
X-.05X+50,000
Chapter 8: Cash and Cash Equivalents
.95X
.95X/.95 3.375.0 3,375,000-50,000
X 3,325,000/.95
3.500.000
Question No. 2
420.000
Annual interest payment (3,500,000 x 12%) Interest
income on the loan proceeds in the compensating 5,000
balance [3.5M-3,375,000) x4%] Effective interest 415.0
Divide by loan proceeds (3,500,000-175,000) Effective 3,375,000
interest rate 12.30%
Suggested answers:
1. C 2. C
3,800
1,200
500 11,200
29
Chapter 8: Cash and Cash Equivalents
2) Unused stamps 50
Postage 50
Suggested answer: C
30
Chapter 8: Cash and Cash Equivalents
The following are the adjusting entries to be recorded in the company’s books. Note
that only book reconciling items are recorded.
ADJUSTING ENTRIES Debit Credit
1] Cash 360
Utilities expense 360
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
31
Chapter 8: Cash and Cash Equivalents
Suggested answer: A
Suggested answer: A
32
Chapter 8: Cash and Cash Equivalents
Question No. 3
Outstanding checks, beg (squeeze) Add: P 8,007
Book credits for the month Less: DM P 111,423
recorded (526+50) 576 110.847
Total 118,854
Less: Bank debits for this month P 110,098
Less: Erroneous bank debits-Oct 900
Erroneous bank credits-Sep DM for this 1,000
month (700+65) Outstanding checks, end ) 765 107,433
P 11.421
Question Nos. 1,4 and 5
BANK 30-Sep
Unadjusted bal - bank 130,560 Receipts Disb. 31-Oct
Deposit in transit: 149,951 110,098 *170,413
September 30 5,200
October 31 Outstanding checks: (5,200)
September 30 (8,007) 12,856 12,856
October 31
Erroneous bank credit (1,000)
(8,007)
Erroneous bank credit 11,421 (11,421)
Erroneous bank debit- Oct (1,000)
Erroneous bank debit- (3,000) (3,000)
Sep _______600
Adjusted balances 127,353 (900) 900
*(130,560+149,651-110,098)
BOOK 30-Sep (600)
Receipts Disb. 31-Oct
Unadjusted bal - book **126,429 154,007
151,230 111,423
111,612 169,748
166,236
Bank service charge:
September 30 (50) (50)
October 31 65 (65)
NSF checks:
September 30 (526) (526)
October 31 700 (600)
CM for collection:
September 30 1,500 (1,500)
October 31 4,277 4,277
Adjusted balances 127,353 154,007 111,612 169,748
:(166,236+111,423-151,230)
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. D
33
Chapter 8: Cash and Cash Equivalents
PROBLEM 7-15 Proof of Cash
Question No. 1
Outstanding checks, beg. 100,000
Add: Checks issued 2,500,000
Total 2,600,000
Less: Checks paid by the bank 2,200,000
Outstanding checks, end 400,000
Question No. 2
Deposits in transit, beg Add: Deposits made 300.0
Total 1,800,000
Less: Deposits acknowledged by the bank 2,100,000
Deposits in transit, end 1,600,000
Question No. 3 to 5 500.000
BANK 31-May Receipts Disb. 30-Jun
Unadjusted bal - bank 2,600,000 *2,190,000 **2,410,000 2,380,000
Deposit in transit:
May 31 300,000 (300,000)
June 30 500,000 500,000
Outstanding checks:
May31 (100,000) (100,000)
June 30 400,000 (400,000)
Erroneous bank credit (60,000) (60,000)
Erroneous bank charge 40,000 (40,000)
Adjusted balances 2,780,000 2,350,000 2,650,000 2,480,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
BOOK 31-May Receipts Disb. 30-Jun
Unadjusted bal - book 2,190,000 ***2,400,000 2,500,000 2,090,000
Bank service charge:
May31 (10,000)
(10,000)
June 30 (50,000)
CM for collection: 50,000
May31 600,000 (600,000)
June 30 550,000 550,000
NSF checks - June 30 100,000 (100,000)
Adjusted balances 2,780,000 2,350,000 2,650,000 2,480,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
34
Chapter 8: Cash and Cash Equivalents
PROBLEM 7-16 Proof of Cash
Question No. 1
Outstanding checks, beg P 16,250
Add: Checks issued this month
Book disbursements (squeeze] P128,750
Less: DM recorded this month 2,500 126,250
142,500
Total
Less: Checks paid by the bank P 133,750
130,000
Erroneous bank charge 3,750
P 12.500
Outstanding checks, end
Question No. 2
Deposit in transit, beg P 12,500
Add: Deposits made by the company 152,500
Total 165.000
Less: Deposits acknowledged by the bank 145.000
Deposit in transit, end P 20.000
Question No. 3
Unadjusted cash in bank balance per ledger P 37,500
Add: Under-footing of cash receipts Total 2,500
Less: Unrecorded bank service charges 40,000
(3,250 +1,500-2,500]
Adjusted cash in bank balance, 12/31 2,250
P 37.750
Question No. 4
Bank service charges per bank statement in
December Less: Bank service charge in
December recorded in December P 3,250
Total BSC recorded in the books Dec P 2,500
Less: BSC in Nov. recorded in Dec. 1,500
Unrecorded BSC charge in December
Question No. 5 1,000
P 2.250
Unadjusted cash in bank, November (squeeze]
Add: Book Receipts (152,500 - 2,500]
Total P 16,250
Less: Book disbursements Unadjusted cash in 150,000
bank, December 166,250
128,750
Unadjusted cash in bank, November (squeeze]
P 37,500
Less: BSC in November Adjusted
cash in bank, December P 16,250
1,500
SUMMARY OF ANSWERS:
P 14.750
1. C 2. D 3. C 4. D 5. B
35
PROBLEM 7-17 Proof of Cash
Question No. 1
Beg. Bal., 7/1 P 128,384
Chapter 8: Cash and Cash Equivalents
Add: Cash receipts for July 1,364,858
Cash receipts for Aug. 1,839,744
Total P3,332,986
Less: Cash disbursement for July 1,330,882
Cash disbursement for Aug. 1,712,892
Bank reconciliation item 750
Unadjusted balance P 288,462
Question No. 2
Outstanding check, Aug. 31 Add: Checks P 67,122
paid by the bank Bank debits except serv.
charge Less: Erroneous bank charge DM P1,702,830
on Interest on note 1,166
Total 4,950 1.696.714
Less: Checks issued by the company this P1,763,836
August
1,712,892
P .50.944
36
Chapter 8: Cash and Cash Equivalents
Questions No 3 to 5
BANK 31-Jul Receipts Disb. Aug. 31
Unadjusted balances 180,250 1,830,752 *1,702,918 308,084
Outstanding checks July
31 August 31 Deposit in
( 50,944) ( 50,944)
transit July31 August 31 ( 67,122)
67,122
Erroneous bank charge
Adjusted Balances ( 32,844)
(*1,702,830 + 88) 32,844
41,836 41,836
BOOK 1,166
Unadjusted balances Error 162,150 1,839,744 ( 1,1661 283,964
in recording check no. 216 1,717,930
taken up as P1,930 but
should be P1,390 (1,930- 31-Jul Receipts Disb. Aug. 31
1,390) P162,360 P1,839,744 **P1,713,642 P288,462
DM for int. on note Bank
service charge July 31
August 31 NSF for July 31 540
Adjusted balances 540
**(1,712,892+750) 4,950 ( 4,950)
( 52) ( 52)
88 ( 88)
( 698) - ( 6981
P162,150 P1,839,744 P1.717.930 P283,964
37
Chapter 8: Cash and Cash Equivalents
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. A
PROBLEM 7-18 Proof of Cash Question No. 1
Beg. Balance, Nov. 30 P 50,900
Add: Total Collections from customers on Dec. 165,000
November bank coll. for customer note 8,000
Total 223,900
Less: Checks drawn for December 98,000
Bank service charges - November 100
Unadjusted cash balance, Dec. 31 P 125,800
38
Chapter 8: Cash and Cash Equivalents
SUMMARY OF ANSWERS:
1. B 2. D 3. D 4. B 5. B
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. A 5. A
39
Chapter 8: Cash and Cash Equivalents
Question No. 2
Total Outstanding checks:
P 60,000
Account No.143
1,860,000
*AccountNo.144 Total
P 1.920.000
outstanding check
40
Unadjusted book
balance 1,980,000 1,420,000 3,500,000 (100,000)
Bank service charge:
November
Chapter 30and Cash Equivalents
8: Cash (10,000) (10,000)
December 31 20,000 (20,000)
Unrecorded collections -
90,000 (90,000)
November 30
Uncollected customer's
note already recorded as
cash receipt (200,000) (200,000)
NSF - December 31 100,000 (100,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
P 90,000
**Deposit in transit, beg
Add: Deposit made by the co. this month
Book Debits P1,420,000
Less: Unrecorded collection 90,000 Customer’s
note recorded as cash receipts 200,000
Total 1.130.000
P1,220,000
Less: Deposits acknowledged by the bank
Bank Credits P1,000,000
Less: Erroneous bank charge 20.000
Outstanding checks, end 980,000
P 240,000
Question No. 5
Adjusted balances:
Account No. 143 P1,020,000
Account No. 144 ( 420,000)
Total adjusted balances P 600.000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C
PROBLEM 7-21 Proof of Cash Question No. 1
RCBC Account Book Bank
Unadjusted balance P 165,000 P 125,000
Credit memo for note collected 6,000
Bank service charge (1,000)
Deposit in transit 60,000
Outstanding checks (25,000+20,000) (45,000)
Unrecorded disbursement ( 30,000) -
Adjusted balance P 140.000 P 140.000
41
Question Nos. 2-3 Bank P
Equitable PCI Bank Book 93,000
Unadjusted bal. (squeeze] P 62,000
Chapter 8: Cash ( 28,000)
Credit memo for and
noteCash
coll. Equivalents 10,000
Bank service charge ( 2,000)
P1 50.000
Deposit in transit (15,000+20,000+50,000*) 85,000 and deposit in
*fund transfer No. 4 (Included both as unrecorded transfer transit)
Outstanding checks
Unrecorded transfer (30,000+50,000*) 80,000
Adjusted balance P 150.000
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000) P 45,000
Equitable PCI Bank 28,000
Total outstanding checks P 73.000
Question No. 5
Fund transfer No. 2 is recorded in the disbursing bank during December while it was
only recorded in the disbursing book in January. This is an unrecorded disbursement
for fund transfer.
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. B
42
Chapter 8: Cash and Cash Equivalents
Question No. 3
Unadjusted bank disbursements P7,000,000
Outstanding checks:
November 30 (900,000)
December 31 600,000
Bank service charge-Dec. 31 NSF (10,000) (
check-Dec. 31 Unadjusted book 140,000)
disbursements P6.550.000
Question No. 4
Currencies P 40,000
Coins 4,000
Check drawn payable to petty cash custodian Total 30,000
Petty cash fund P 74.000
Question No. 5
Cash in bank (See No. 1) P 5,400,000
Petty cash fund (See No. 4) 74,000
Cash on hand (1,725,000-1,600,000) Total 125,000
Cash and cash equivalents P5,599,000
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. C 5. C
43
Question No 2
Unadjusted rec. per bank P 171,500
Deposit in transit:
Chapter 8: Cash
November 30and Cash Equivalents (11,000)
December 31 20,000
Error correction (500)
NSF check, no entry on the books when returned
and redeposited ( 40,000)
Adjusted balance P 140.000
Question No 3
Unadjusted disbursement, per bank P 113,000
Outstanding checks November 30
December 31 Error correction NSF check, (7,000)
no entry on the books on the returned and 21,500
redeposit Adjusted (500)
balance
( 40,000)
Question No 4 P 127,500
P 87.000
Unadjusted bank
bal Deposit in
transit November 20,000
30 December 31
Outstanding
checks November ( 21,500)
P126,000
30 December 31
Adjusted bal.
Question No 5
PROOF OF CASH
Unadjusted bank balance 69,000
Deposit in transit
November 30 11,000
December 31
Outstanding checks
November 30 (7,000)
December 31
Error correction
NSF check, no entry on the books on the
return and redeposit
44
Chapter 8: Cash and Cash Equivalents
Nov. 30 Receipts Disb. Dec
171,500 113,000 *127
(11,000)
*20,000 20
(7,000)
21,500 (21,
(500) (500)
(40,000) (40,000)
45
Chapter 8: Cash and Cash Equivalents
Adjusted bal. 73,000 140,000 87,000 126,000
* (69,000+171,500-113,000) **
(18,000+2,000)
Nov. 30 Receipts Disb. Dec. 31
Unadjusted book balance 66,000 113,800 85,000 94,800
Credit memo for note collected
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. A
PROBLEM 7-24 Computation of Cash Shortage
SOLUTION:
Question No. 1
Unadjusted bank bal. P 225,400
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961) (39,347.50)
Add: Undeposited receipts 35,000
Adjusted bank balance P221,052.50
Question No. 2
Unadjusted book bal. P242,310.50
Credit memo for notes collection 30,000
Credit memo for int. 900
Balance (cash accountability) P273,21 0.50
Question No. 3
Adjusted bank bal. (Cash accounted) P221,052.50
Less: Cash in bank bal. (cash accountability) 273,210.50
Shortage (P52,1 58.00)
SUMMARY OF ANSWERS:
1. B 2. D 3. B
46
Chapter 8: Cash and Cash Equivalents
PROBLEM 7-25 Computation of Cash Shortage
Question No. 1
Unadjusted bank bal. P 42,400
Outstanding checks ( 11,500]
Undeposited collections 5,000
Adjusted bank balance P 35,900
Question No. 2
Unadjusted book bal. P 46,500
Credit memo proceeds clean draft 900
Debit memo for bank service charge ( 100]
Balance (cash accountability] P 47,300
Question No. 3
Adjusted bank bal. (Cash accounted] P 35,900
Cash in bank bal. (cash accountability] 47,300
Shortage as of June 30 (P11,400]
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R. P 18,800
Less: collections in July that were deposited in July
Collection per duplicate slips
P 11,000
Less :Undeposited collection, June 30 5,000 6,000
Cash that should be on hand on July 15 P 12,800
Less: Actual cash on hand on July 15 4,800
Cash shortage from July 1-15 P 8,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600] P 900
Overstatement of cash in bank per bank (44,000-42,400] 1,600
Understatement of outstanding checks (11,500-3600] 7,900
Overstatement of undeposited collections (5,100-5,000] 100
Non-recording of credit memo-proceeds of clean draft 900
Cash shortage as of June 30 P11.400
SUMMARY OF ANSWERS:
1. C 2. D 3. B 4. D 5. D
47
Chapter 8: Cash and Cash Equivalents
PROBLEM 7-26 Computation of Cash Shortage Question No. 1
Deposit in transit, unadjusted bal. P 350,500 100,000
Less: customer's Post-dated check P 250,500
Adjusted Deposit in transit
Question No. 2
P 493,500
Outstanding checks, unadjusted balance
( 29,500] (
Less: Unreleased check
74,420)
Company's post-dated check
P 389,580
Adjusted Outstanding checks
Question No. 3
Unadjusted bal. per bank
P 700,000 250,500
Add: Deposit in transit (No. 1]
(389,580] ( 60,000)
Less: Outstanding checks (No. 2]
P.500,920
Erroneous bank credit
Adjusted cash in bank bal.
Question No. 4
Unadjusted bal. per books
Add: Credit memo for note coll. P 587,000
30,000
Unreleased check
29,500
Company's post-dated check
74,420
Total
P 720,920 (100,000)
Less: Customer's post-dated check
P 620,920 500,920
Cash in bank per books bal.
fP120,0001
Less: Adjusted cash in bank balance
Cash shortage
Question No. 5
P587,000
Unadjusted bal. per books
500,920
Less: Adjusted cash in bank balance
P 86,080
Net adjustments
SUMMARY OF ANSWERS:
1. B 2. D 3. B 4. C 5. A
48
Chapter 8: Cash and Cash Equivalents
Purchases P 81,160
Less: Accounts payable, end 11.571
Total payment of Accounts payable P 69,589
Question No. 2
Sales on account P 80,752
Less: Accounts receivable, end 21,345
Collection to customers P 59,407
Question No. 3
Receipts:
Proceeds of issuance of stocks P 80,000
Collection from customers 59,407
Loan proceeds 28,000 P 167,407
Disbursements:
Payment of real property
P 50,000
Payment of furniture and equipment
(7,250-1,500) 5,750
Payment of AP 69,589
Payment of operating expenses 1 5,1 89 140,528
Cash accountability P 26,879
Question No. 4
Unadjusted bank bal. P 6,582
Outstanding checks ( 463)
Undeposited collections 1,285
Adjusted cash in bank bal. P 7,404
Question No. 5
Adjusted cash in bank bal. P 7,404
Less Cash accountability 26,879
Cash shortage (P19,475)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. B 5. A
49
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES
Note to professor:
Page Existing data: Replace to:
256 Requirement No. 1
Net Selling price = Present value of Disregard (25,000 x 3.5493)
notes receivable (25,000 x 3.5493)
259
Illustration
The note is a non-interest bearing note The note is a non-interest bearing note
and the prevailing rate of interest for a and the prevailing rate of interest for a
note of this type is 16% and the principal note of this type is 14% and the
amount... principal amount.
269
Requirement No. 1
Add: Accrued interest 600,000 Add: Accrued interest 500,000
Carrying amount of receivable: Carrying amount of receivable:
5,600,000 5,500,000
Loan impairment - 12/31/2014 Loan impairment - 12/31/2014
2,594,800 2,494,800
270
Journal entries 12/31/14 Loan impairment 2,494,800
Loan impairment 2,594,800 Accrued interest 500,000
Accrued interest 600,000 Allowance for loan impairment
Allowance for loan impairment 1,994,800
1,994,800
286 Solution
Maturity Value = Principal + Interest =
P60,000+ (P600,000 x 10% x 90/360)
Maturity Value = Principal + Interest
= P600,000+ (P600,000 x 10% x
90/360)
288 Illustration
On July 1, 2015, Boy Co. discounted its On July 1,2015, Boy Co. discounted its
"own" P50,000, 1-year note at a bank, at "own" P500,000, 1-year note at a bank,
a discount rate of 12%, when the prime at a discount rate of 12.
rate is 10%.
PROBLEM 10-1 Trade and other receivables
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
Question No. 2
FOB Destination, freight collect
Invoice price of merchandise purchased 300,000
Less: Invoice price of merchandise returned _________ -
Net invoice price 300,000
Less: Purchase discount (300,000 x 2%) 6,000
Net Payment before freight 294,000
Less: Freight payment - FOB Destination, freight collect 5,000
Add: Freight payment - FOB shipping point, freight prepaid _______________ -
Total Net Cash payment 289,000
Question No. 3
FOB Shipping point, freight prepaid
Invoice price of merchandise purchased 300,000
Less: Invoice price of merchandise returned _________ -
Net invoice price 300,000
Less: Purchase discount (300,000 x 2%) 6,000
Net Payment before freight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid ___________ 5,000
Total Net Cash payment 299,000
Question No. 4
FOB Shipping point, freight prepaid
Invoice price of merchandise purchased 300,000
Less: Invoice price of merchandise returned _________ -
Net invoice price 300,000
Less: Purchase discount (300,000 x 2%) 6,000
Net Payment before freight 294,000
Less: Freight payment - FOB Destination, freight collect -
51
Chapter
Add: 10: Loans
Freight and -Receivables
payment FOB shipping point, freight prepaid _______________ -
Total Net Cash payment 294,000
SUMMARY OF ANSWERS:
1. B 2. A 3. C 4. B
SUMMARY OF ANSWERS:
1. C 2. D
PROBLEM 10-4 Computation of Percentage of Bad Debts Expense Note to
Professor:
Existing data: Change to:
Accounts written off for 2015 - Accounts written off for 2015 -
80,000 113,000
52
Chapter 10: Loans and Receivables
Question No. 2
Bad debts expense = 2.25% x P2,000,000
= P45.000
Question No. 3
Allowance for Bad debts
Write off 113,000 400,000 Beg. Balance
Balance end (squeeze) 372,000 45,000 Bad debts exp
40,000 Recovery
485,000 485,000
CASE 2
Question No.4
Accounts written off minus Recoveries
Percentage
Total credit sales
Total years from 2011 to 2013 (years should exclude the last two years):
190,000 - 40,000
Percentage
6,000,000
Question No. 5
Bad debts expense = 2.50% x P2,000,000
= P50■000
Question No. 6
Credit Sales BD exp Recoveries Write-off NetAB
2014 2,000,000 50,000 20,000 22,000 48,000
2015 2,000,000 50,000 40,000 113,000 (23,000)
Allowance for BD 25,000
CASE 3
Question No. 7
Percentage of bad _ ________ Accounts written off minus Recoveries
debts to AR Total credit sales
53
Chapter 10: Loans and Receivables
Total years from 2011 to 2014:
Percentage of bad _ __________________ 212,000 - 60,000 _________
debts to AR 8,000,000
SUMMARY OF ANSWERS:
Case 1 Case 2 Case 3
1. D 4. A 7. D
2. C 5. A 8. C
3. A 6. A 9. C
PROBLEM 10-5 Aging Based on Outstanding Receivables Note to professor:
__________________________________________________
Existing data: Change to:
(P100,000 definitely collectible, (P100,000 definitely uncollectible,
balance is 90%) balance is 90%)
Question No. 1
Categories Balance Uncollectible
(No. of Days) Percent Amount
0-30 days 500,000 2% 10,000
31-60 days 600,000 3% 18,000
61-90 days 750,000 5% 37,500
over 91 days 300,000 10% 30,000
Totals 2,150,000 95,500
Allowance for Bad debts
54
Chapter 10: Loans and Receivables
Balance end
(see above table) 95,500 40,000 Beg. balance
Write off 12,000 Recoveries
(23,000+100,000) 123,000 166,500 Bad debts exp (squeeze)
218,500 218,500
Question No. 2
Accounts receivable, end (see above table) 2,150,000
Less: Allowance for doubtful accounts, end _______ 95,500
Net Realizable Value 2,054,500
SUMMARY OF ANSWERS:
1. A 2. A
Question No. 2
PROBLEM 10-6 Aging Based On Days Past Due Allowance for Bad debts
Question No. 1end
Balance 49,200 20,000 Beg. balance
Overdue accounts % uncollectible Balance
29,200 Bad debts exp (squeeze)
Allowance
For less than 31 days 158,000
5.00% 158,000 300,000 15.0
From 31-60 days 6.00% 220,000 13,200
From 61-90 days 8.00% 150,000 12.0
From 91-120 days 15.00% 60,000 9,000
For over 121 days 20.00%
Required allowance for doubtful accounts 49,200
SUMMARY OF ANSWERS:
1. A 2. A
Requirement No. 2
55
Chapter 10: Loans and Receivables
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-current.
Requirement No. 4
P100.000. The entire principal amount of notes receivable is treated as noncurrent
asset since it is collectible beyond one year from the reporting date.
Journal entries are as follows:
1/1/2015 Notes receivable 100,000
Accumulated depreciation 350,000
Loss on sale 50,000
Machinery 500,000
\
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. A 5. C
56
Chapter 10: Loans and Receivables
PROBLEM 10-9 Interest-bearing Note with Unrealistic Interest Rate, Interest Is
Note to professor:
Existing data: Change to:
Choices for question No. 2
a. 100,000 c. 115,847 a. 200,000 c. 215,847
b. 114,104 d. 141,104 b. 229,054 d. 232,643
Payable Semi-Annually, One-Time Collection of Principal
Question No. 2
Interest income up to 07/31/2015 114,104
Interest income up to 12/31/2015 114,950
Total interest income 229,054
Question No. 3
1,930,784. See amortization table above.
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. D
57
Chapter 10: Loans and Receivables
PROBLEM 10-10 Interest-bearing Note with Unrealistic Interest Rate, Uniform
Collection of Principal
Note to professor:
Existing data: Change to:
Problem 10-10
Principal is due in equal annual Principal is due in equal annual
payments, starting December 31, payments, starting December 31,
2017. 2015.
Question No. 1
Computation of present value of all payments:
Present value Interest Total
Principal collections Total PV
factor collections
0.8929 600,000 180,000 780,000 696,462
0.7972 600,000 120,000 720,000 573,984
0.7118 600,000 60,000 660,000 469,788
Total present value 1,740,234
1,740,234
Total present value / Selling price Less:
Carrying amount of machinery Cost 1,000,000
Less: Accumulated depreciation 150,000 850,000
Gain on sale
P890.234
Amortization table
Date Interest Interest Amortizatio Principal Carrying
Collections Income n collections amount
01/01/15 1,740,234
12/31/15 180,000 208,828 28,828 600,000 1,169,062
12/31/16 120,000 140,287 20,287 600,000 589,350
12/31/17 60,000 70,651 10,651 600,000 -
Question No. 2
Question No. 4
600,000
Principal collections - 2016 Less:
20,287
Amortization - 2016 Current
579,713
portion -12/31/2015
58
Chapter 10: Loans and Receivables
Question No. 4
Carrying value - 12/31/2015 1,169,062
Less: Current portion - 12/31/2015 579,713
Non-current portion - 12/31/2015 589,350
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
Question No. 2
181,630. See amortization table above.
Question No. 3
695,210. See amortization table above.
Question No. 4
Principal collections - 2016 Less: 600,000
Amortization - 2016 Current 83,425
portion -12/31/2015 516,575
59
Chapter 10: Loans and Receivables
Question No. 4
Carrying value - 12/31/2015 695,210
Less: Current portion - 12/31/2015 516,575
Non-current portion - 12/31/2015 178,635
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. D
Question No. 2
153,749. See amortization table above.
Question No. 3
1,434,989. See amortization table above.
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
1,500,000
Annual collection = ----------------------------------------- „ ----------------------------
2.4018
60
= P624.532
Chapter 10: Loans
Requirement No. 2
Interest income (1,500,000 - 557,600) x 12% = P113.088
61
Chapter 10: Loans and Receivables
Computation of present value of all payments: PV Total PV
factor Total collections 1,454,560
0.9091 1,600,000 2,644,480
0.8264 3,200,000 3,606,240
0.7513 4,800,000 ___ 7,705,280
Total present value of the notes ___
Question Nos. 2 to 3 Amortization table
Interest Carrying
Date Collections Income Amortization amount
12/31/2014 7,705,280
12/31/2015 1,600,000 770,528 829,472 6,875,808
12/31/2016 3,200,000 687,581 2,512,419 4,363,389
12/31/2017 4,800,000 436,339 4,363,389 -
SUMMARY OF ANSWERS:
1. A 2. B 3. B
SUMMARY OF ANSWERS:
1. A 2. B 3. B
62
Chapter 10: Loans and Receivables
PROBLEM 10-17 Reversal of Impairment Loss
Question No. 1
Present value of expected cash flows P 654,552
vs. Would have been present value if there was no impairment 600,000
Lower 600,000
Less: Actual amortized cost Gain on reversal of impairment loss 396,681
P 203,319
Question No. 2
Interest income (600,000 x 10%) P 60,000
SUMMARY OF ANSWERS:
1. A 2. B
SUMMARY OF ANSWERS: 1. D 2. A
63
Chapter 10: Loans and Receivables
Question No. 2
Notes payable P150,000
Less: Principal payment
Remittance 95,000
Less: Interest (150,000 x 12% x 3/12) ( 1,500) 93,500
Notes payable - December 31 P 56.500
Question No. 3
Accounts receivable - assigned (200,000 - 100,000) P 100,000
Less: Notes payable Equity in assigned account ( 56,500)
P 43.500
SUMMARY OF ANSWERS:
1. D 2. C 3. C
PROBLEM 10-21 Factoring of Receivables Entries to record transactions
Option Accounts Debit Credit
One Cash (400,000x90%) 360,000
Receivable from factor
(25,000- [5% x 400,000]) 5,000
Loss on sale ofreceivables (squeeze) 35,000
Notes payable 400,000
Two 360,000
Cash (400,000x90%)
Receivable from factor
(25,000- [4% x 400,000]) 9,000
Loss on sale ofreceivables (squeeze) 34,000
Notes payable 400,000
Estimated recourse liability 3,000
SUMMARY OF ANSWERS:
1
.
PROBLEM 10-22 Factoring
SOLUTION: B
Sales price
Less: Carrying amount of accounts receivable (300,000 -
2
Loss on factoring
.
C
64
Chapter 10: Loans and Receivables
Suggested answer: B
65
Chapter 10: Loans and Receivables
SUMMARY OF ANSWERS:
1. D 2. B
COMPREHENSIVE PROBLEMS
PROBLEM 10-25 Question No. 1
Allowance for Doubtful accounts
Question No. 2
Age Group Amount Percent Uncollectible Allowance
0 - 60 days P 1,650,000 2% 33,000
61 - 90 days 440,000 10% 44,000
91 - 120 days 100,000 30% 30,000
Over 120 days 256,000 40% 102,400
Total P 2,446,000 209,400
Question No. 3
164,000
Accounts written off 1 212,000 Beg. Balance
Balance end 209,400 | 161,400 DA expense (squeeze)
Question No. 4
Accounts receivable, December 31, 2013 2,446,000
Less Allowance for doubtful accounts, December 31, 2013 209,400
Net realizable value 2,236,600
Question No. 5
Accounts receivable trade
Beg. Balance 2,500,000 2,446,000 Balance end
Sales 7,600,000 164,000 Write-off
7,490,000 Collections (squeeze)
62
Chapter 10: Loans and Receivables
Total 10,100,000 10,100,000
SUMMARY OF ANSWERS:
1. A 2. C 3. D 4. B 5. D
PROBLEM 10-26 Question
No. 1
Credit Sales Accounts written off Recoveries
2012 2,220,000 52,000 4,300
2013 2,450,000 59,000 7,500
2014 2,930,000 60,000 7,200
7,600,000 171,000 19,000
Percentage = 0.02 or 2%
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60.000
Question No. 3
Reported doubtful account expense (bad debts written P 62,000
off) 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 418,000 645,600 Balance end
Sales on account 3,000,000 62,000 Write-off
2,710,400 Collections excluding advance
from customers
Question No. 5
Allowance for Doubtful accounts
Accounts written off 62,000 15,200 Beg. Balance
Balance end 21,600 1 60,000 Doubtful accounts expense
8,400 Recoveries
Total 83,600
1 83,600
SUMMARY OF ANSWERS:
63
1. A 2. A 3. B 4. B 5. A
PROBLEM 10-27
Question No.
Chapter 10: 1 and Receivables
Loans
Year Credit sales Write-off Recoveries
2011 3,000,000 30,000 -
2012 4,500,000 76,000 5,400
2013 5,900,000 104,000 5,000
2014 6,600,000 130,000 9,600
Total 20,000,000 340,000 20,000
2015 8,100,000 125,550 10,000
Total 28,100,000 465,550 30,000
Question No. 2
465,550 - 30,000
Total years from 2011
to 2015 Percentage 28,100,000
=
2015
Percentage = 0.0155 or
1.55%
64
Chapter 10: Loans and Receivables
Question No. 5
Accounts receivable (4,000,000+100,000+40,450) P 4,140,450
Less: Allowance for doubtful accounts ( 64,177)
Net realizable value P4.076.273
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. A
PROBLEM 10-28
Question Nos. 1 to 4
Accounts Allow Mdse. Net Cost of
Receivable for DA Inventory Sales Sales
Unadjusted balances 300,000 3,000 400,000 1,000,000 800,000
2) Sale return (30,000) (30,000)
Cost of return
Merchandise
(30,000 x 80%) 24,000 (24,000)
3)Sales FOB
shipping point
not recorded as
Sale 40,000 40,000
Cost of mdse sold (32,000) 32,000
(40,000 x 80%)
4) Goods shipped
FOB
Destination
recorded as sale (50,000) (50,000)
Cost of goods
(50,000 x 80%) 40,000 (40,000)
6) Doubtful accts exp (12,000)
Adjusted bal. 260,000 15,000 432,000 960,000 792,000
Question No. 5
Accounts receivable P 260,000
Less: Allowance for doubtful accounts ( 15,000)
Net realizable value P245,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. C
PROBLEM 10-29
Question No. 1
Unadjusted accounts receivable, Dec.1 (squeeze) P 21,800
Add: Adjusted net sales 255,000
Total 276,800
Less: Collections, net of discounts 156,800
Estimated uncollectible accounts charged to AR in Dec. 30,000
Unadjusted accounts receivable, Dec. 31 P 90,000
65
Chapter 10: Loans and Receivables
Subsidiary ledger balance, Dec. 1 P 59,000
Less: AR controlling account, Dec. 1 (see above) 21,800
Add: Estimated uncollectible account
charged to AR in Dec. 6,000 27,800
Customers' credit balance P31.200
Question No. 2
Collection, net of discount P 156,800
Divide by: (100%-2%) 98%
Total credit to AR for collection P160.000
Question No. 3
Customer credit balance, Dec. 1 P 31,200
Less: sale to customer with credit balance 10,000
Customer Credit balance, Dec. 31 P 21.200
Question No. 4
Unadjusted Sales, balance P 260,000
b) Sales, FOB shipping pt., not yet recorded 10,000
c) Sales, FOB destination ( 15,000)
Adjusted Sales balance P 255.000
Question No. 5
Subsidiary ledger, balance, 12/1 P 59,000
Add: Adjusted Sales in December 255,000
Freight prepaid by the company 1,000
Total P 315,000
Less: total credit to AR for coll. 160,000
Adjusted accounts receivable in Dec. P 155.000
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. A 5. B
PROBLEM 10-30
Note to professor:
S Replace JOSHIA to Joanna in Item I.
S Remove “P” sign in Question No. 5
Question Nos. 1 to 4
Accounts Merchandise Net Sales Cost of
receivable Inventory Sales
Unadjusted bal. 200,000 300,000
1,000,000 600,000
1 (14,800)
3 (47,400) 32,600 (47,400) (32,600)
4 (30,000) (90,000)
5 (8,000) (8,000)
66
Chapter 10: Loans and Receivables
6 (36,000) 24,000 (36,000) (24,000)
7 (1,200) ___________________ (1,200) ____________
62,600 356,600 817,400 543,400
Question No. 5
Original bill (P200 x 100) P 20,000
Divided by: Selling price per unit 200
Number of units sold ____100
Question No. 6
Item Accounts Debit Credit
B Accounts payable 14,800
Accounts receivable 14,800
C 32,400
Accounts receivable - D
Accounts receivable - C 32,400
E 47,400
Sales
Accounts receivable 47,400
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. B
67
Chapter 10: Loans and Receivables
PROBLEM 10-31 Question Nos. 1 to 3
Total 0-31 days 31-60 61-90 91-120 Over 120
Rose P 87,950 35,000 52,950
Gerry 52,300 30,000 22,300
Ram 50,000 50,000
Ria 84,350 57,850 26,500
Mar 79,000 31,000 48,000
Sun 43,500 43,500
West -
P 397,100 116,000 110,800 74,500 73,500 22,300
0.01 0.015 0.04 0.10 0.60
1,160 1,662 2,980 7,350 13,380
Question No. 4
Allowance for doubtful accounts, end:
(P1,160 + P1,662 + P2,980 + P7,350 + P13,380) P 26,532
Question No. 5
Allowance for Doubtful accounts
15,000
Accounts written off 1 22,450 Beg. Balance
Balance end 26,532 | 19,082 Doubtful accounts expense
PROBLEM 10-32
Question No. 1
Balance Accounts
Dec. 31 Not due 1-60 days 61-120 days Over 120
1 12,000 3,000 8,000 1,000
2 22,000 22,000
4 20 10,000 10,000
,000 2,220
52,780
5 55 7,500
,000 116,500 27,220 68,280 11,000 10,000
6 7,
500 Multiply by: 0.50% 2% 5% 50%
136.10 1,365.60 550 5,000.00
68
Question
Chapter 10:Nos. 4 and
Loans and5Receivables
Interest Accrued interest
Interest income income income
(120,000 X 6% X 2/12) P 1,200 P - 500
(100,000 X 6% X 1/12) 500 P 500
Interest income P 1,700
SUMMARY OF ANSWERS:
1. D 2. C 3. B 4. D 5. A
PROBLEM 10-33
Question No. 1
Amount Percent Allowance
Days outstanding Uncollectible
0 - 60 days P 960,000 2% 19,200
61 - 120 days 720,000 4% 28,800
Over 120 days 1,000,000 6% 60,000
Total P 2,680,000 108,000
Question No. 2
Allowance for Doubtful accounts
Accounts written off 184,000 120,000 Beg. Balance
Balance end 108,000 48,000 Recovery
124,000 Doubtful accounts expense
(squeeze)
Question No. 3
Allowance for Doubtful accounts
Accounts written off 184,000 120,000 Beg. Balance
Unadjusted balance 144,000 48,000 Recovery
160,000 Doubtful accounts expense
(squeeze)
Question No. 4
Reported Bad debts expense (see No. 3) P 160,000
Divided by: Bad debts rate 2%
Net credit sales 8,000,000
Add: Sales return 100,000
Unadjusted accounts receivable, Dec. 31 P 8,100,000
69
Chapter 10: Loans and Receivables
Accounts receivable
Beg. Balance 2,000,000 2,680,000 Balance end
Sales 8,100,000 184,000 Write-off
Recoveries 48,000 100,000 Sales return
7,184,000 Collections including
recoveries
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. B 5. C
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
Presentvalue of Int. (4M x 10% x 2.4018) 960,720
Present value of Loan Receivable 3,807,920
Question Nos. 3 and 4
Interest Carrying
Date Collections Income Amortization amount
01/01/2015 3,807,920
31/12/2015 400,000 456,950 56,950 3,864,870
31/12/2016 400,000 463,784 63,784 3,928,655
31/12/2017 400,000 471,439 71,346 4,000,000
Question No. 5
Zero, As of December 31, 2015, the entire loan proceeds will be collectible on
December 31, 2017, that is two years from the reporting date.
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A 5. A PROBLEM 10-35
70
Question
ChapterNo.
10: 1
Loans and Receivables
Principal 4,000,000
Origination fees received (282,100)
Direct origination cost incurred 39,020
Initial Carrying amount of the loan 3,756,920
Question No. 4
Carrying Amount (see above amortization table) 3,864,680 Less:
*Present value of expected cash flows 3,201,620
Loan Impairment 663,060
SUMMARY OF ANSWERS:
1. B 2. C 3. B 4. B 5. B
PROBLEM 10-36 Question
Nos. 1 and 3
Carrying amount of the loan, December 31, 2015 8,277,606
Less Carrying amount of the loan, December 31, 2016 8,145,367
Amortization in 2016 132,239
Less Interest collection in 2016 960,000
Interest income in 2015 (3) 827,761
Divide by Carrying amount of the loan, 12/31/2015 8,277,606
Effective interest rate (1) 10%
71
Question
ChapterNo.
10: 2
Loans and Receivables
Carrying amount of the loan, January 1,2015 8,397,824
Multiply by: Effective interest rate _____10%
Interest income in 2015 839,782
Question No. 3
Carrying amount of the loan, 12/31/2015 8,277,606
Multiply by: Effective interest rate _____10%
Interest income in 2015 827,761
Question No. 4
Carrying amount of the loan, December 31, 2015 8,277,606
Add: Interest collection (8M x 12%) 960,000
Total 9,237,606
Divide by: 100% plus effective rate _____1.10
Carrying amount of the loan, January 1,2015 8,397,824
Question No. 5
Carrying amount of the loan, January 1,2015 8,397,824
Direct origination fees received 100,000
Principal 8,000,000
Direct origination cost incurred 497,824
Interest Carrying
Date Collections Income Amortization amount
01/01/2015 8,397,824
12/31/2015 960,000 839,782 120,218 8,277,606
12/31/2016 960,000 827,761 132,239 8,145,367
12/31/2017 960,000 814,537 145,367 8,000,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. D 5. D
72
PROBLEM
Chapter 10:10-37
Loans and Receivables
Question No. 1
Annual Cash PV
Question No. 2
Carrying amount of the loan P 5,500,000
Less: Present value of the 4,558,500
loan Impairment loss P 941,500
Date flows factor Amount
Question Nos. 3 to 5
Interest Reduction to Carrying
Date Payment Income Principal amount
12/31/2013 P4,558,500
12/31/2014 P1,750,000 P455,850 P1,294,150 3,264,350
12/31/2015 2,000,000 326,435 1,673,565 1,590,785
12/31/2016 1,750,000 159,079 1,590,785 -
SUMMARY OF ANSWERS:
1. AorC 2. A 3. B 4. A 5. C
PROBLEM 10-38
SOLUTION:
Question No. 1
Age ofAccts Balance %uncollectible Allowance
1-10 days 960,000 1% 9,600
11-30 days 270,000 2.5% 6,750
Past due 31-60 120,000 5% 6,000
Past due 61-120 75,000 20% 15,000
Past due 121-180 45,000 35% 15,750
Past due over 180 days 30,000 80% 24,000
Allowance for BD 77,100
292,500
Accounts written off 1 27,300 Beg. Balance
Unadjusted balance 54,800 | 320,00 DA expense (8M x 4%)
73
Question No.Loans
Chapter 10: 2 and Receivables
Allowance for Doubtful accounts
74
77,100
Chapter 10:
Allowance forLoans and Receivables
doubtful accounts, 54,800
adjusted Allowance for doubtful 22,300
accounts, unadjusted Credit to
Allowance for BD
4,000,000
11,520
Question Nos. 3 to 5
(300,000)
Principal
3,711,520
Direct origination cost incurred
Origination fees received Carrying amount, Jan. 1, 2015
Amortization table at 12% Effective Rate
Interest Carrying
Date Collections Income Amortization amount
01/01/2015 3,711,520
12/31/2015 400,000 445,382 45,382 3,756,902
12/31/2016 400,000 450,828 50,828 3,807,731
12/31/2017 400,000 456,928 56,928 3,864,658
12/31/2018 400,000 463,759 63,759 3,928,417
12/31/2019 400,000 471,410 71,583 4,000,000
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. D 5. A
75
Question No.
Chapter 10: 4 and Receivables
Loans
Carrying amount of loan 3,807,731
Less: Present value of expected cash flows 12/31/2015
(1,750,000 x .8929) 1,562,575
12/31/2017 (1,750,000x.7118) 1,245,650 2,808,225
Impairment loss ___ 999,506
Question No. 5
Interest Carrying
Date Collections Income Amortization amount
12/31/2014 2,808,225
12/31/2015 1,750,000 336,987 1413,013 1,395,212
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. C 5. B
Question No. 3
Doubtful accounts per books (9,000,000 x 2%) P 180,000
Less: *Adjusted doubtful accounts expense 188,000
Understatement of doubtful accounts (P 8,000) *Adjusted
doubtful account expense
76
Question
ChapterNo.
10: 4
Loans and Receivables
Total carrying value P3,000,000
Less: **Present value of the loan 2,790,000
Impairment loss P 210.000
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
Interest Amortizatio Carrying
Date Collections Income n amount
01/01/2015 2,790,000
12/31/2015 1,000,000 1,000,000 1,790,000
12/31/2016 1,000,000 143,200 856,800 933,200
SUMMARY OF ANSWERS:
1. A 2. B 3. D 4. B 5. B
PROBLEM 10-41
Question No. 1
Accounts receivable factored P 400,000
Less: Service charge (400,000 x 5%) 20,000
Receivable from factor (400,000 x 20%) 80,000 100,000
Customers' credit balance P300,000
Question No. 2
Principal P 300,000
Add: Interest over full credit period (300,000 x 12% x 6/12) 18,000
Maturity value 318,000
Less: Discount (318,000 x 12% x 3/12) 11,925
Net proceeds from discounting P 306,075
Question No. 3
Maturity value of the notes (see item in No. 2) 318,000
Add: Protest fee 12,000
Total cash paid/Amount to be debited to AR P 330,000
Question No. 4
Note payable (80% x P600,000) 480,000
Less: Service fee (5% x P600,00) 30,000
Cash received P 450,000
77
Question No.Loans
Chapter 10: 5 and Receivables
Total Cash paid (see No. 3) 330,000
Add: Interest income (P330,000 x 12% x 2/12) ____ 6,600
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000) P 700,000
Add: Accounts receivable assigned 600,000
Total 1,300,000
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%) 65,000
Net realizable value P1,235,000
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4.
B 5. D 6. D
PROBLEM 10-42
Note to professor:
Existing data: Change to:
T-Account of Allowance for bad debts:
Question
Beg. No. 1
Bal-01/01/2014 Beg. Bal-01/01/2015
Accounts receivable, unadjusted
bal
Cash received P 336,600
Per subsidiary ledger P1,660,000
Note receivable included in the AR (200,000)
Factored Accounts receivable (160,000)
Sales FOB shipping point 100,000
Adjusted AR balance P1.400.000
Question No. 2
eg. P 100,000
00,000+ P100,000)x1%
151,000
Allowance for doubtful accts, b Add: Doubtful accounts (P15,0I
P 251,000
Total
28,000
Less: Accounts written off
P 223,000
Allowance for doubtful accts,
nd
e
Question No. 3
Unadjusted Net Sales Add: P15,000,000
Sales, FOB shipping point 100,000
Total Sales Multiply by: rate P 15,100,000
Doubtful accounts _______ 1%
P __ 151,000
Question No. 4
No effect. The audit
adjustments did not result to any changes to inventory account.
78
Question No.
Chapter 10: 5 and Receivables
Loans
Sales, FOB shipping point
P 100.000
SUMMARY OF ANSWERS:
1. D 2. A 3. D 4. D 5. A
Question No. 4
Allowance for Doubtful accounts
Write off 63,000
Balance end (required) 37,258 50.000 Beg. Balance
45.000 Recoveries
4,134 Adjustment to Doubtful
account expense (squeeze)
Total 100,258 100,258
Item Accounts Debit Credit
Allowance for doubtful accounts 50,000
1
Accounts receivable 50,000
40,000
2 Sales return
Accounts receivable 40,000
3 55,000
Claim from insurance
Accounts receivable 55,000
79
5
ChapterSales
10: Loans and Receivables 45,000
Accounts receivable 45,000
6 Delivery expense 3,800
Accounts receivable 3,800
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. C
Question Nos. 1 and 3
Adjusting entries for Accounts receivable
Item Accounts Debit Credit
PROBLEM 10-44
1 Accounts receivable 20,000
Note to
Allowance for doubtful accounts 20,000
professor: Existing data: Change to:
KayaSales
Co. incurred
discount and paid P11,520 of Kaya Co. incurred and paid P11,520
2 16,000
Accounts receivable
direct origination cost was debited to of direct origination cost was debited
16,000
direct
3 origination income. Kaya Co. to unearned interest income. Kaya
Accounts receivable
charged P300,000 120,000
nonrefundable Co. charged P300,000 nonrefundable
Allowance for doubtful accounts
origination fees which was credited to origination fees which 120,000
was credited
4
direct origination income. 30,000
to unearned interest income.
Accounts receivable
Allowance for doubtful accounts 30,000
Miscellaneous income
Accounts receivable 30,000
30,000
NOTE: The accounts receivable account was incorrectly footed. The
unadjusted balance should have been P2,596,000 instead of
P2,636,000.
Accounts receivable
Balance end
Beg. Balance 220,000 2,720,000
(20,000+200,000)
Sales 4,000,000 30,00 Recoveries
Recoveries 30,000 *1,500,000 Collections, gross of
discount
80
Collections from customers
Chapter 10: Loans excluding recoveries
and Receivables
Collections without discount 700,000
Add: Collections with discount 784,000
Cash discount availed (784,000/98% x 2%) 16,000
Total collections excluding recoveries P 1,500,000
Allowance for Doubtful accounts
20,000 Beg. Balance
Balance end 170,000 30,000 Recoveries
Doubtful account expense
120,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. D 5. A
81
PROBLEM 10-45
Chapter 10: Loans and Receivables
Question No. 1
Nonrecording of gain on sale 180,360
Nonrecording of interest income
NR from sale of Machinery 57,643
NR from sale of plant (3,000,000 x 12% x 9/12) 270,000
Understatement of Ret. Earnings on 12/31/2015 508,003
NR sale of machinery:
Downpayment
400,000
Add: Present value of the note (200,000x2.4018*) 480.360
Total Selling Price Less: Book value Cost
880.360
Less: Accumulated depreciation Gain that
should have been recognized *PV of ordinary 1,600,000
annuity 900,000 700,000
Amortization table 1 180.360
Interest Reduction to Carrying
Date Collections
Income principal amount
01/01/2014 480,360
12/31/2014 200,000 57,643 142,357 338,003
12/31/2015 200,000 40,560 159,440 178,564
12/31/2016 200,000 21,437 178,563 -
Question No. 2
Interest Income:
NR from sale of machinery 40,560
NR from sale of plant
(3M x 12% x 3/12) 90,000
(2M x 12% x 9/12) 180,000
NR from sale of equipment 25,613
Total Int. Income 336,173
Amortization table 2
Interest Unearned Interest Carrying
Date Income Income amount
04/01/2015 158,500 341,500
12/31/2015 25,613 132,888 367,113
Question No. 3
NR from sale of machinery (see amortization table 1) 178,564
NR from sale of plant 1,000,000
Total current portion 1,178,564
82
Question
ChapterNo.
10: 4
Loans and Receivables
NR from sale of plant 1,000,000
NR from sale of equipment (see amortization table 2) 367,113
Total noncurrent portion 1,367,113
Question No. 5
Nonrecording of loss 158,500
Overstatement of Int. income
Per books 360,000
Per audit 336,173 23,827
Total overstatement of net income in 2015 182,327
NR sale of equipment:
Downpayment 700,000
Add: Present value of the note(500,000x0.6830*) 341,500
Total Selling Price 1,041,500
Less: Book value
Cost 2,000,000
Less: Accumulated depreciation 800,000 1,200,000
Loss that should have been recognized (158,500)
*PV of 1
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. C 5. B
83
CHAPTER 12: INVENTORIES
Chapter 12: Inventories
Note to professor:
358 Requirement No. 4 T-Account Beginning
balance - 90,000 Change 90,000 to 190,000
359 SOLUTION:
S S Items counted in the warehouse
(bodega)
Items (P4,000,000 - P32,000 -
P80,000) P3,888,000
warehouse (bodega) S Total P4,636,000
373 count(P4,000,000 - P32,000) Notes:
ed
Notes: P3,968,000 1. The invoice price is computed by deducting the
1. The invoice price P4,716,000
is computed by deducting the trade discount of 20 and 10.
S Total List Price P 150,000
trade discount of 20 and 10.
in List Price P 150,000 Less: Trade 30,000
Less: Trade discount 30,000 discount - 20%
- 20% Net 120,000
the Net 120,000 Less: Trade
discount -10% 12,000
wLess: Trade discount 1.200
Invoice price P 108,000
a-10% Note that the total trade discount of
Invoice price P 108,000
r
Note that the total trade discount of P42,000 is not recorded in the
e
P31.200 is not recorded in the books. books.
2. . h 2. .
3. . 3. .
o
4. The cash to be paid under the net method is 4. The cash to be paid under the net method is
u
computed as follows: computed as follows:
sPurchases P 83,420 Purchases P 83,420
Less: Purchase 9,700
eLess: Purchase 9,700
returns returns
(bodega) Cash paid P 73,720
Net purchases 76,000
Less: Purchase 2.280
discount
Cash paid P 73,720
84
Chapter 12: Inventories commitment price of P3,000.
| price of P3,200.
Query: For F/S presentation on December 31, is the goods lost in transit be presented as
part of inventory?
Answer: No, since the inventories were lost in transit and it is improper to report
inventories that is not existing (i.e. it violates the existence assertion). Thus the journal
entry at December 31 if no claim was filed and the common carrier has yet to
acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as 50,000 other expense and not as cost of goods sold)
Inventory / Purchases 50,000
85
Chapter
And on 12:
theInventories
next year (January 5), when the claim was filed and acknowledged by the
common carrier, the journal entry will be:
Claims from common carrier 50,000
Gain on reimbursement of lost inventory 50,000
To record the claim against common carrier on January 5.
Note to the professor: Use the following guide questions in answering this question:
1. Was there a valid sale?
2. Was the sale recorded?
3. Were the inventories EXCLUDED in the count?
Guide Sales Inventories
Unadjusted balances Questions 700,000 150,000
100 Yes, Yes, Yes - -
101 No, No, Yes - 2,000
102 No, Yes, Yes (1,800) 1,200
103 Yes, Yes, Yes - -
104 Yes, No, Yes 9,200 -
105 No, Yes, No (6,500) -
106 No, No, No - -
107 Yes, No, Yes 3,900 -
108 No, Yes, No (8,600) -
109 No, No, No
Adjusted balances 696,200 153,200
(A) (A)
SUMMARY OF ANSWERS: 1.
A 2. A
86
PROBLEM
Chapter 12-10 Gross method vs. Net method
12: Inventories
CASE NO 1: Gross method
Date Accounts Debit Credit
01/02 Purchases (100,000 x [1-20%]) 80,000
Accounts payable 80,000
01/12 Accounts payable 80,000
Cash (80,000 x [1-98%]) 78,400
Purchase discount 1,600
01/14 Accounts payable 80,000
Cash 80,000
CASE
2: Net method
NO
Date Accounts Debit Credit
01/02 Purchases (100,000 x [1-20%]
x [1-2%]) 78,400
Accounts payable 78,400
01/12
Accounts payable 78,400
Cash (80,000 x [1-98%]) 78,400
Under FIFO method, inventories at the end of the period shall be measured using the
most recent purchase price.
From third purchase (15 x 60) 900
From second purchase (5 x 54) ______ 270
Total inventoriable cost (A) P 1,170
87
PROBLEM
Chapter 12-11 Cost Formulas - FIFO Method
12: Inventories
Cost of
Purchases Merchandise Sold Inventory
Date Qty Unit Total Qty Unit Total Qty Unit Total
Cost Cost Cost Cost Cost Cost
Feb 3 12 15.00 180
Feb 11 13 17.00 221.00 12 15.00 180
13 17.00 221
Feb 14 12 15.00 180 7 17.00 119
6 17.00 102
Feb 21 9 20 180.00 7 17.00 119
9 20.00 180
Feb 25 7 17.00 119 6 20.00 120
3 20.00 60
88
Inventory
Question
Moving average
PROBLEM Nos.
end 1 and
12-15 Cost2 Formulas - Different Methods = P580.000 (A)
Cost of goods sold (280,000 + 257,250 -Units 12,250) Unit cost Total cost
= P525.000 (A)
April 1 balance 20,000 10 200,000
Apr. 2 Purchase 30,000 12 360,000
Chapter 12: Inventories
Balance 50,000 11 560,000
Apr. 4 Sale (25,000) 11 Unit cost(280,000)Total cost
Balance
April 1 balance Apr. 2 25,000 Units11 10 280,000200,000
Apr.410
Apr. Purchase Purchase 15,000 20,00014
(25,000 units sold) 12 210,000360,000
30,000
Balance From Apr. 1 40,000 (20,000)12 10 490,000(200,000)
Apr. 15from Apr. 2 Apr.
Balance Sales
10 From Apr. 2(21,000) (5,000)12 12(257,250)(60,000)
Apr. 15 (21,000 units sold)
Balance 19,000 25.00012 12 232,750300,000
Balance
Apr. 17from April 2 Balance
Sales returnPurchase 1,000 15.00012 14 12,250210,000
from
Apr.April
28 10 Apr. 17 Balance
Balance From Apr. 2 20,000 (21,000) 12 245,000(252,000)
Balance from April 2 Balance 12
Apr. 28 Purchase 4.0
20,000 17 335,000 48,000
from April 10 Apr. 28 Total 14 580,000210,000
Balance 40,000 15,00015
1.000 12 12,000
Sales return
5,000 12 60,000
15.000 14 210,000
Purchase 20.000 17 335,000
Balance 40,000 605,000
Question Nos. 3 and 4 FIFO
Inventory end = P605.000 (B)
Cost of goods sold (200,000 + 60,000 + 252,000 - 12,000) = P500.000 (B )
89
Weighted
Chapter 12:average unit cost = P13/unit
Inventories
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C 6. C
SUMMARY OF ANSWERS:
1. C 2. D 3. B
90
PROBLEM
Chapter 12-18 Purchase Commitment
12: Inventories
Date Accounts Debit Credit
3/31 No entry
12/31 Loss on purchase commitment (1,200,000-1,000,000)
200,000
Estimated liability for purchase commitment 200,000
04/30 1,200,000
Purchases 200,000
Estimated liability for purchase commitment
Accounts payable/Cash 1,200,000
Gain on purchase commitment 200,000
SUMMARY OF ANSWERS: 1. B 2. A
Question No. 2
A loss in inventory writedown should also be recognized on December 31, 2011 in the
amount of P100.000 (1,250 units x [P100-P20]). (B)
SUMMARY OF ANSWERS:
1. C 2. B
91
PROBLEM 12-21 Inventory Estimation - Gross Profit Rate Method
Sales
Chapter 12: Inventories 3,400,000
Less: Sales returns (30,000)
Net Sales excluding Sales discount 3,370,000
Multiply by: Cost ratio (1-30%) 70%
Cost of Goods sold 2,359,000
CASE NO. 2
Sales 1,552,000
Multiply by: Cost ratio 75%
Cost of Sales 1,164,000
SUMMARY OF ANSWERS: 1.
A 2. D
92
PROBLEM 12-23 Inventory Estimation: LCM - Retail Method
Computation
Chapter 12: of cost ratio
Inventories
Cost Retail
Inventory at January 1 640.0 1,600,000
1,100,000 2,000,000
Purchases Freight-in Net
152.0 _ - -
markups Totals
800,000
Cost ratio (1,892,000 / 1,892,000 4,400,000
4.400.000) = 43%
Computation of Inventory end at retail
Balance up to markups (see above computation) 4,400,000
Less: Markdowns 400,000
Sales 1,600,000
Inventory end at retail P2,400,000
Multiply: Cost ratio 43%
Inventory end at cost (C) _E1i03.2i00Q
PROBLEM 12-24
Inventory Estimation: Cost Retail
Average Method - Retail 250,000 375,000
Method 1.325.0 1
Computation of cost ratio ,750,000
- 200,000
Inventory at January 1 _______ - (75,000)
Purchases Net markups 1.575.0 2
Net markdowns Totals ,250,000
Cost ratio
(1,575,000/2,250,000)
=ZQ%
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 Inventory end 50.0 P
at retail 625,000
93
PROBLEM 12-25 Inventory Estimation: FIFO Method - Retail Method
Computation
Chapter 12: of
Inventories
cost ratio Cost Retail
292,500 400,000
Purchases Net - 7
markups Net 5,000
markdowns Totals - (
25,000)
Cost ratio (292,500
/ 450,000) = 65% 292,500 450,000
PROBLEM 12-26
Question No. 1
A EI over (P129-P119)x 4,000 40,000
B EI under (70,000)
C EI over 100,000
Overstatement of ending inventory 70,000 (C)
Question No. 2
D. Ending inventory understated (140,000) (B)
Question No. 5
Unadjusted net income (1,000,000+1,200,000) 2,200,000
Less: Adjusted net income (930,000+1,410,000) 2,340,000
Net adjustment to income-understated (140,000) (D)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. C 5. D
94
Direct materials inventory
Beg. Balance 9,000 7,000 Balance end
DM purchased (squeeze) 70,000 72,000 Direct materials used
Chapter 12: Inventories
1 (B)
Total 79,000 79,000
Question No. 2
Total cost added to work in process (72,000+80,000+24,000) = P176.000 (C)
Question No. 3
Applied overhead to job 3 (24,000/10,000 x 120 hours) = P288 (D)
Question No. 4
Work in process inventory
Beg. Balance 17,000 31,000 Balance end
DM used 72,000 162,000 Cost ofgoods
Direct labor 80,000 (B) manufacture
Factory overhead 24,000 (squeeze)
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. B
95
Chapter 12: Inventories
Question No. 3
Adjusted balances, per ledger P 307,240
Adjusted balances, physical count 304,400
Inventory shortage P 2.840 (B)
SUMMARY OF ANSWERS:
1. A 2. C 3. B
PROBLEM 12-29
Accounts
Inventory _____ Payable ______ Sales
Unadjusted balances P 800,000 P335,000 P5,000,000
1 Parts held on consignment ( 18,000) ( 18,000)
2 Parts sold included in the count ( 30,000)
3 Parts in transit to customers,
FOB shipping pt. 22,000
4 Parts on conditional sale - - -
5 Goods out on consignment 100,000
6 Parts in transit purchased,
FOB shipping pt. 16,000 16,000
7 Mdse. Hold for shipping inst.
excluded in the count 160,000
8 Finished special article, incl.
in the count and sale not rec. ( 30,000) - 50,000
Adjusted balances P1,020,000 P333.000 P5,050,000
(A) (A) (B)
SUMMARY OF ANSWERS:
1. A 2. A 3. B
PROBLEM 12-30
Note to the professor: Use the following guide questions in answering this question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts Was
there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
96
SOLUTION:
Chapter 12: Inventories
Ending Net
Inventory Sales Purchases AP Income
Unadjusted balances 550,000 1,000,000 600,000 450,000 120,000
679
680
681
682
Purch over, COS over, NI under (46,740) (46,740) (46,740)
EI over, COS under, NI
over (46,740) 46,740
683 EI over, COS under, NI
over (4,500) (4,500)
684 Purch under, NI over 1,060 1,060 (1,060)
685 No, No, No
686 No, No, No
310 Yes, Yes, Yes
311 (560) (560)
Sales over, NI over
EI under, NI under (560 x
70%) 392 392
312 (31,940) (31,940)
Sales over, NI over
EI under, NI under (31,940
x 70%) 22,358 22,358
313 (6,350) (6,350)
Sales over, NI over
EI under, NI under (6,350
x 70%) 4,445 4,445
314 Sales over, NI over (1,930) (1,930)
315 No, No, No
316 No, No, No
317 No, No, No
318
Net adjustment (24,045) (40,780) (45,680) (45,680) (19,145)
Adjusted balances 525,955 959,220 554,320 404,320 100,855
(A) (A) (A) (A) (E)
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. E
PROBLEM 12-31
Ending Accounts Accounts
inventory receivable payable Sales Net income
Unadjusted
balance P220,000 P104,000 P138,000 P1,010,000 P180,400
A (20,000) 20,000
B (10,000) (10,000)
C 50,000 (64,000) (64,000) (14,000)
D 14,000 (16,000) (16,000) (2,000)
E ( 24,000) ( 24,000)
Adjusted P 250,000 P24,000 P108,000 P930,000 P160,400
(A) (E) (D) (D) (A)
SUMMARY OF ANSWERS:
1. A 2. E 3. D 4. D 5. A
97
PROBLEM
Chapter 12-32
12: Inventories
Accounts Accounts Net
Inventory payable Receivable Net Sales Purchases Net income
Unadjusted
balances 250,000 2,500,000
400,000 1,000,000 4,000,000 600,000
B 35,000 - - - - 35,000
C 4,000 4,000 - - 4,000 -
D (25,000) - 40,000 40,000 - 15,000
E 10,000 - - - - 10,000
F - - (30,000) (30,000) - (30,000)
G 34,000 - (68,000) (68,000) - (34,000)
H - - (10,000) (10,000) - (10,000)
I - - - (90,000) - (90,000)
J 60,000 60,000 - - 60,000 -
Adjusted
balances
368,000 464,000 932,000 3,842,000 2,564,000 496,000
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4. A 5. D 6. D
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. A
PROBLEM 12-33
Ending Accounts Accounts
inventory Sales receivable Purchases payable
Unadjusted P3,900,00 P2,870,00
balance P280,000 P5,000,000 P2,800,000
0 0
100 (10,000)
101 (12,500) (12,500)
102
103
104 (11,200) (11,200)
105 (15,000)
106
107 (12,500) 15,000 15,000
108
109
110 13,500 13,500
A (11,750) (11,750)
B 8,350 8,350
Adjusted P 242,500 P5,004,800 P3,904,800 P2,796,600 P2,866,600
98
Chapter 12: Inventories
PROBLEM 12-34
Ending Cost of Net Retained
inventory Net Sales Sales Income Earnings
Unadjusted
balance P500,000 P1,000,000 P550,000 P200,000 P1,500,00
a. Sales under 64,000 64,000 0 64,000
b EI under 19,000 (19,000) 19,000 19,000
c Purchase over (23,500) 23,500 23,500
d Sales under 28,500 28,500 28,500
EI over ( 25,800) 25,800 (25,800) (
Adj. P 493,200 P1,092,500 P533,300 P309,200 25,800
P1,609,20
)
0
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. D 5. B
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. C
99
Chapter 12: Inventories
PROBLEM 12-36
Question No. 1
Sales (475,000/80%) P593,750 100%
Less: Cost of sales 475,000 ______ 80%
Question No. 2
Net income - weighted average P3,250,000
Beginning inventory under, CGS under, Net income over (150,000)
Ending inventory under, CGS over, Net income under 100,000
Adjusted net income - FIFO (B) P3,200,000
1. A 2. A 3. B 4. A 5. B
PROBLEM 12-37
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2015 or December
31, 2014 Retained Earnings is understatement of 100,000, which is
Question No. 3
Computation ofunits sold:
Beginning inventory - units 10,000
Add: Total purchases - units 100,000
Total goods available for sale - units 110,000
Less: Units sold (P6,400,000 / P80/unit) 80,000
Ending inventory in units 30,000
100
Chapter 12: Inventories
The 30,000 ending inventory comes from the last two purchases as follows:
Units Unit cost Total cost
From 4th quarter purchases 10,0 68 680,000
rd
From 3 quarter purchases 20.0 66 1,320,000
Total 30.0 (B) 2,000,000
Question No. 4
Cost (refer to no. 3) 2,000,000
Net realizable value [(P70 - P5) x 30,000] 1,950,000
Loss on inventory write-down (B) 50,000
Question No. 5
Beginning inventory - FIFO 500,000
Add: Net Purchases (P6,480,000 - 980,000) 5,500,000
Total goods available for sale 6,100,000
Less: Ending inventory at cost (see no. 3) 2,000,000
Cost of goods sold at cost 4,100,000
Add: Loss on inventory write-down (see no. 4) 50,000
Cost of goods sold after inventory write-down (A) 4,150,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. A
PROBLEM 12-38
Question No. 1
Beginning balance 100,000
Add: Purchases of raw materials 970,000
Transport inwards of raw materials 100,000
Total raw materials available for use 1,170,000
Less: Raw materials used [1,170,000 x (100% - 30%)] 819,000
Ending balance (1,170,000 x 30%) (A) 351,000
Question No. 2
Beginning balance 250,000
Add: Raw materials used (see no. 1) 819,000
Wages (3,000,000 x 60%) 1,800,000
Variable overhead (1,000,000 x 60%) 600,000
Wooden boxes (purchased and used) 300,000
Fixed manufacturing overhead (see computation below) 1,200,000
Total manufacturing cost put into process 4,969,000
Less: Work-in-process completed [4,969,000 x (100% - 20%)] 3,975,200
Ending balance (4,969,000,000x20%) (A) 993,800
101
Chapter 12: Inventories
Fixed manufacturing overheads are allocated to the products at year end using the
normal production (unless actual production is higher than normal):
Fixed manufacturing _ Fixed manufacturing overheads
overhead per box Budgeted production
Question No. 4
Finished goods and work-in-process (see no. 5) 1,406,320
Raw materials process (see no. 5) 250,000
Total lower of cost and net realizable value (C) 1,656,320
Question No. 5
F/G WIP FG & WIP RM
Net realizable value:
Expected selling price 1,300,000 700,000 2,000,000 300,000
Less: Cost to complete - 100,000 100,000 -
Cost to sell 80,000 20,000 100,000 50,000
Net realizable value 1,220,000 580,000 1,800,000 250,000
Cost:
Ending balance 412,520 993,800 1,406,320 351,000
SUMMARY OF ANSWERS:
102
Chapter 12: Inventories
1. A 2. A 3. A 4. C 5. C
Question No. 2
(4,500+700+600) =5,800 units
No. of units Unit cost Total
1,800 19 P 34,200
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
5,800 P 117,400 (A)
Question No. 3 T-shirts:
Net realizable value NRV Cost Lower
(12,000 x (P16-(10% x P16)) P172,800 P176,000 P 172,800
Jackets:
(5,800 x (P22-(10%xP22) 114,840 117,400 114,840
Lower of cost or NRV P287,640 P 293,400 P 287,640
Question No. 4
Total cost (see no. 3) P 293,400
Less: Lower of cost or NRV (see no. 3) 287,640
Loss on inventory write-down (B) P 5,760
Question No. 5
Beginning inventories:
T-shirts (9,000 x P11) P 99,000
Jackets (5,000 x P15) 75,000 P 174,000
Add:*Total purchases (299,500 + 183,900) 483,400
Total goods available for sale P 657,400
103
Chapter 12: Inventories
Less: Merchandise inventory at cost 293,400
Cost of sales before inventory write-down P 364,000
Add: Loss on inventory write-down 5,760
Cost of sales after inventory write-down (B) P369.760
*T-shirts
4,000 P12 P 48,000
3,000 12 36,000
2,500 13 32,500
3,500 14 49,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
22,000 P 299,500
Jackets
900 P16 P 14,400
1,100 18 19,800
1,500 19 28,500
2,000 19 38,000
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
9,500 P 183,900
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B
PROBLEM 12-40
Note to professor: Change “Data for 2012 were:” to 2015.
This T-Account of Raw Materials will be the same under the three different cases:
Raw Materials
Beginning balance Balance end
Net Purchases 600,000 1 1,200,000 Direct materials used
2,200,000 | 1,600,000
Total 2,800,000 | 2,800,000
CASE NO. 1
Question No. 1
GP Rate: 2012 2013 2014 2015
Gross Profit 2,000,000 3,500,000 4.0. 000
Divide by: Sales 1,700,000 2,800,000 3.0. 000
Gross Profit Rate 0.15 0.20 0.25 0.30
104
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 2015 will be 30%. The cost ratio then would be 70%
(100% - 30%). Therefore, the cost of goods sold is computed as follows:
Sales 6,000,000
Multiply by: Cost Ratio 0.70
Cost of goods sold 4,200,000 (B)
Work in Process
Beginning balance 2,000,000 Balance end (A)
Direct materials used 1 1 2,600,000 Cost ofgoods
Direct labor 1,600,000 manufactured
Factory overhead 1,600,000 3,400,000
800,000 |
Total 6,000,000 | 6,000,000
CASE NO. 2:
Question No. 3
GP Rate: 2012 2013 2014 2015
Gross Profit 340,000 630,000 1,000,000
Divide by: Sales 2,000,000 3,500,000 4,000,000
Gross Profit Rate 0.17 0.18 0.25 0.20
105
Chapter 12: Inventories
Question No. 2
Finished Goods
20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods sold is
computed as follows:
Sales 6,000,000
Multiply by: Cost Ratio 0.80
Cost of goods sold 4,800,000 (B)
106
Chapter 12: Inventories
Question No. 4
Finished Goods
2,800,000
Beginning balance 1 1 2,000,000 Balance end
Cost ofgoods 4,800,000 Cost of goods sold
manufactured 4,000,000 |
Total 6,800,000 | 6,800,000
Work in Process
Beginning balance 2,000,000 1 2,000,000 Balance end (A)
Direct materials used 1
1,600,000 Cost ofgoods
Direct labor 1,600,000 4,000,000 manufactured
Factory overhead 800,000 |
CASE NO. 3:
Question No. 5
The gross profit for 2015 is computed based on the overall gross profit for 2013 and
2014:
________ 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 6,000,000
Multiply by: Cost Ratio 0.76
Question No. 6
2,800,000
Beginning balance 1 1 2,000,000 Balance end
Cost ofgoods 4,560,000 Cost of goods sold
manufactured 3,760,000 |
Work in Process
Beginning balance 2,000,000 1 2,240,000 Balance end (A)
Direct materials used 1
1,600,000 Cost ofgoods
Direct labor 1,600,000 3,760,000 manufactured
Factory overhead 800,000 |
Finished Goods
107
Chapter 12: Inventories
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. A 6. A
PROBLEM 12-41
Direct materials inventory
Beg. Balance 32,000 1 130,000 Balance end (squeeze)
DM purchased 340,000 242,000 Direct materials used (602,00-
360,000)
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. A
PROBLEM 12-42
Note to the professor: The following corrections should be made to this problem:
• The ending accounts payable (Dec. 31) should be P250,000, instead of P200,000.
• Add Direct Labor of P900,000 and Factory Overhead of P675,000.
108
Chapter 12: Inventories
Question No. 1
Accounts payable
250,000 555.0 Beg. Balance
Balance end 70.000 3,000,000 Purchases
Purchase ret. and allow. 80.0 100.000 Freight-in
Purchase discounts 3,255,000
Payments to supplier
(squeeze)
Total 3,655,000 3,655,000
Question No. 2
Direct materials inventory
Beg. Balance 200,000 1 320,000 Balance end
Net purchases 2,950,000 | 2,830,000 Direct materials used
Purchases 3,000,000
Add: Freight-in 100,000
Gross Purchases 3,100,000
Less: Purchase returns and allow Purchase 70.000
discounts 80.000
Net Purchases 2,950,000
Question No. 3
Work in process
Beg. Balance 250.0 II 280,000 Balance end
Direct materials used 2,950,000 4,375,000 Cost ofgoods
Direct labor 900.000 manufactured
Factory overhead 675.000
Question No. 4
Sales P5,100,000 120%
Less: Cost of sales (5,000,000/120%) 4,250,000 100%
Gross profit 850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount does not
constitute actual return of merchandise.
Question No. 5
Finished oods
Beg. Balance 400,000 525,000 Balance end
Cost ofgoods 4,375,000 4,250,000 Cost of goods sold
manufactured
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Chapter 12: Inventories
Question No. 6
Cost of goods sold (80% x P5,100,000) = P4.080.000
Question No. 7
Sales (5,100,000-100,000) P5,000,000 100%
Less: Cost of sales (80% x P5,100,000) 4,080,000 80%
Gross profit 1,000,000 20%
Finished joods
Beg. Balance 400,000 695,000 Balance end
Cost of goods 4,375,000 4,080,000 Cost of goods sold
manufactured
SUMMARY OF ANSWERS:
A 7. A
1. A 2. A 3. A 4. B 5. B 6.
PROBLEM 12-43
Question No. 1
Accounts payable - March 31,2015 1,185,000
Add: Unrecorded obligation - April 25 April 425.000
Shipments 100.000
Less: Payment from April 1 to 25 (285,000 + 100,000) 385,000
Adjusted balance - April 25 1,325,000 (C)
Note: The P22,500 of purchase return should not be deducted from the accounts
payable since it was refunded.
110
Chapter 12: Inventories
Question No. 2
Purchases - March 31, 2015 2,100,000
Add: Unrecorded obligation - April 25 425,000
April Shipments 100,000
Less: Purchase return 22,500
Adjusted Net Purchases - April 25 2,602,500 (B)
Question No. 3
Sales - March 31, 2015 4,520,000
Add: Sales April 1 to 25 (see computation below) 730,000
Adjusted Sales - April 25 5,250,000 (D)
Computation of sales:
Accounts Receivable
Beg. Bal.- 03/31/2015 1,250,000
Sales (squeeze) 730,000 1,320,000 Bal. end (acknowledged)
Write-off (never be
250.0 acknowledged)
Collections
510.0 (P532,500 -22,500)
Total 2,080,000 2,080,000
SUMMARY OF ANSWERS:
1. C 2. B 3. D 4. D 5. B
111
Chapter 12: Inventories
PROBLEM 12-44
Note to professor: The purchases for the element months should be eleven.
Question No. 4
Sales ending December 31, 2015 Less: Sales
ending Nov. 30, 2015 Sales - December 2015 3.840.0
Less: Sales at cost 3,360,000
Sales in December 2015 made at a profit 480.0
Multiply: Cost ratio (2,688,000 / 3,360,000) 40,000
Cost of sales made at profit Add: Cost of sales 440.0
made at cost Total Cost of Sales -December 80%
352.0
Question No. 5 40,000
392.0 (A)
Beginning inventory - Nov. 30, 2015 380,000
Add: Purchases for December (3,186,000 - 2,718,000) 468,000
Less: Cost of Sales - December 392,000
Ending inventory - December 31,2015 456,000 (A)
SUMMARY OF ANSWERS:
1. C 2. D 3. A 4. A 5. A
112
Chapter 12: Inventories
PROBLEM 12-45
Cost Retail
Inventory, Jan 1 300,000 1,200,000
Purchases 6,000,000 8,500,000
Purchase returns (400,000) (800,000)
Purchase discounts (150,000) -
Purchase allowance (50,000) -
Freight-in 20,000 -
Departmental Transfer-In 600,000 1,100,000
Departmental Transfer-Out (560,000) (1,334,000)
Totals 5,760,000 8,666,000
Cost ratios:
Conservativ
e _ 5,760,000
Cost ratio _
9,216,000
Cost ratio = 62,50%
5,760,000
Average 9,000,000
Cost ratio
= 64%
Cost ratio
FIFO 5,760,000-300,000
Cost ratio 9,000,000 - 1,200,000
= 70%
Cost ratio ending inventory @ retail - for all methods
Estimated
113
Chapter 12: Inventories
Question Nos. 1 to 6
Ending inventory at cost (EI Cost ofgoods sold (TGAS
Cost method @ retail x cost ratio) @cost - EI @cost)
Conservative (62.5%) P 1,375,000 4,385,000
FIFO (70%) 1,540,000 4,220,000
Average (64%) 1,408,000 4,352,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. C 6. D
PROBLEM 12-46
Question No. 1
Subsidiary General
Ledger _____ Ledger
Unadjusted bal. P 760,000 P 1,020,000 (
Undelivered sales Valid 100,000)
Sales 60,000
Sales FOB destination ( 100,000)
NSF check 50,000 50,000
Collection by the bank ( 60,000) ( 60,000)
Sales in 2015 recorded in 2016 DR No. 38740 3,360 3,360
Receivable ins. Co DR No. 38741 Sales in 2016 ( 10,080) ( 10,080)
recorded in 2015 DR No. 38743 Adjusted ( 19,200) ( 19.200)
balance (D) P 784,080 P 784,080
Question No. 2
Current:
Unadjusted beginning Balance 97,500
Add: Valid Sales in 2015 (60,000 + 3,360) 63,360
Total 160,860
Less: Receivable ins. Co (DR # 38741) 10,080
Sales in 2016 recorded in 2015 (DR # 38743) 19,200
Current Accounts Receivable balance 131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1) 784,080
Less: Current Accounts Receivable balance Past due 131,580
Accounts Receivable *or (662,500+50,000-60,000) *652,500
114
Chapter 12: Inventories
ge
115
Chapter 12: Inventories
Question No. 3
Allowance for doubtful accounts, beginning 7,000.00
Less: Accounts written off
Less: Allowance for doubtful accounts, ending 73.144.80
Doubtful accounts expense (A) 66.144.80
Question No. 4
Unadjusted Merchandise Inventory, ending 316.0
Add: Cost of merchandise sold of DR # 38743(19,200/120%) 16,000
Doubtful accounts expense (B) 332.000
Question No. 5
Unadjusted Net Sales balance P3,000,000 (
Undelivered sales Sales FOB 100,000) (
destination 100,000)
Sales in 2015 recorded in 2016 DR No. 38740 Sales in 3,360 (
2016 recorded in 2015 DR No. 38743 Adjusted balance(B) 19,200)
P 2.784.160
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. B 5. B
(C)
116
Chapter 12: Inventories
Question No. 4
Unadjusted balance, AP 120,000
Unrecorded disbursement (10,000)
Unrecorded purchase 30,000
Adjusted accounts payable 140,000 (C)
Question No. 5
Cash 88,000
Net realizable value 219,480
Merchandise inventory 340,000
Prepayments 12,000
Current Assets 659,480
Accounts payable 140,000
Notes payable 180,000
Current liabilities 320,000
Working capital 339,480 (B)
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. B
117
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Note to professor:
Page 461: Total FL (Financial Liab) should be 1,690 instead of 1,450.
473 Requirement No. 2 FVTPL
Net Selling Price (10,000 x % x P48) Kindly disregard the (10,000 x % x
238,000 P48)
Requirement No. 2 FVTOCI
Net Selling Price (10,000 x % x P48) Kindly disregard the (10,000 x % x
238,000 P48)
Financial asset through other
comprehensive income (FVTOCI) -
Cash 238,000
Journal entry on 01/02/15
Loss on sale 37,000
Cash 238,000
FVTOCI 275,000
Loss on sale 12,000
FVTOCI 250,000
SHE
(23)
118
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
119
Cash dividends payable 100
27 - -
Finance lease liability 861 858 72545 62 3,712 -
-
Bonds payable 120 - -
(E) (A) (B) (A)
Discount on Introduction
Chapter 14: bonds payable (15)Securities-
to Financial Asset and Investment in Equity -
Security deposit 30 - -
Advances from customers - 16 -
Unearned rent - 8 -
Warranty obligations - 13 -
Unearned interest on receivables - 5 -
Income taxes payable - 9 -
SSS contributions payable - 5 -
PHILHEALTH contributions payable - 6 -
Share Premium - - 35
Accumulated Profits-appropriated for
plant expansion Accumulated Profits- - - 500
unappropriated
Issued redeemable preference - - 3,200
shares (with mandatory
redemption)
Issued Preference shares capital
Adjusted balances
SUMMARY OF ANSWERS:
1. E 2. A 3. B 4. A
120
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
2) FVTOCI
1/5/2015 Financial Asset at FVTOCI 1,615,000
1,615,000
Cash
1/10/2015 Dividend receivable 32,000
Dividend income 32,000
121
PROBLEM 14-4 Derecognition of Financial Assets - Sale of Investment
CASE NO. 1: FVTPL
Question No. 1
Chapter
Nil, since14:
theIntroduction to Financial
above securities Asset and
are FVTPL Investment
unrealized gaininorEquity Securities
loss is recognized in
the profit or loss. (A)
Question No. 2
Consideration received 375,000
Less: Brokerage and commission 10,000
Net Selling Price 365,000
Less: Carrying value (800,000 x %) 400,000
Realized loss on sale - P&L (B) (35,000)
Question No. 4
Consideration received Less: 375.0
Brokerage and commission Net 10,000
365.000
Selling Price
400.0
Less: Carrying value (800,000 x %)
(B) (35,000)
Realized loss on sale - P&L
Question No. 5
Journal entries for the sale are:
2) FVTOCI
50,000
12/31/2014 FVTOCI
Unrealized gain-OCI 50,000
1/2/2015 Cash 365,000
Loss on sale (if any) 35,000
FVTOCI 400,000
To record the sale
1) FVTPL
122
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B
Question No. 2
December 1 Dividend Receivable (15,000 x P4) 60,000
123
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Dividend income 60,000
December 15 No formal accounting entry
December 31 Cash 60,000
Dividend Receivable 60,000
Question No. 2
November 1 Dividend Receivable
(500,000 x 15%) 75,000 75,000
Dividend income
Question No. 1
Nil. The share dividend is not considered an income. (A)
Question No. 2
Net Selling Price (2,250 x P18) 40,500
Less: Carrying amount of the investment sold
(P172,500/(15,000+(15% x 15,000) x 2,250 22,500
Gain (or loss) on sale (E) 18,000
Question No. 3
October 1 Memo entry
October 31 Cash 45,000
Gain on sale 18,000
FA at FVTOCI 22,500
124
Question No. 2
Journal entries are:
October 1 Dividend Receivable (15,000 x P4) 60,000
Dividend
Chapter 14: Introduction incomeAsset and Investment in Equity Securities
to Financial 60,000
October 31 66,000
FA at FVTOCI (15,000/5 x P22) Dividend
receivable 60,000
Dividend income 6,000
PROBLEM 14-12 Dividends Out Of Capital
Questions No. 1 and 2
Cash (P100x 15% x 10,000) 150,000
Investment 150,000
Questions No. 3
and 4 150,000
Cash 70,000
Loss on liquidation 220,000
Investment
SUMMARY OF ANSWERS:
1. A 2. D 3. B 4. C
Question No. 2
Fairvalue(P15x 25,000) P375,000
Less: Carrying value 250,000
Unrealized gain-OCI P125,000 (D)
125
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
10/1 Financial Asset at FVTOCI 60,000
Cash (P1.60x 25,000)
60,000
12/31
Financial Asset at FVTOCI 125,000
Unrealized gain - OCI (C) 125,000
[(P25x 25,000) -P250,000]
SUMMARY OF ANSWERS:
1. D 2. D 3. B 4. C
126
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
P10
Question No. 2
When the stock is selling ex-right
P160-P100
Value or one right = 5
P12
SUMMARY OF ANSWERS:
1. B 2. C
Question No. 2
Dividend income (P2 x 6,000 + P16,000) = P28.000 (A)
Question No. 3
Selling price P50,000
Less: Commission and taxes 5,000
Net selling price 45,000
Less: Carrying value [2,500x(P90,000/6,000)] 37,500
Gain on sale (C) P7.500
127
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 4
EDA Corp. shares [P50- (P30,000/1,000)] x 1,000 = P20,000
DJOA, Inc. [P15 - (P90,000/6,000)] x 3,500 = -
RVFE, Co. [P45 - (P80,000/2,000)] x 2,000 = 10,000
ARP, Co. [P100 - (P880,000/8,000)] x 8,000 = ( 80,000)
Loss chargeable to income statement (B) (P50,000)
Question No. 5
EDA Corporation shares P50 x 1,000 = P50,000
DJOA, Inc. P15 x 3,500 = 52,500
RVFE, Co. P45 x 2,000 = 90,000
ARP, Co. P100 x 8,000 = 800,000
Total balance of financial asset at profit or loss (A) P992,500
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. A
Question No. 3
P 17,500
Proceeds(P35 x 500)
( 20,000)
Cost (P500 x (P88,000/(2,000 x 110%)) Loss
P (2,500) (B)
on sale
Question No. 4
P 35,000 (
Net Proceeds (P40,000 - P5,000)
37,500)
Carrying value (2,500 x (P90,000/6,000))
( 5,000)*
Dividends on stocks sold (P2 x 2,500) Loss
P (7,500) (E)
on sale
*This was sold dividend-on.
Question No. 5
EDA Corporation preference shares (1,000 x P50) P 50,000 DJOA, Inc. (3,500 x P15)
52,500
RVFE Co. ((2,000 x 110% - 500) x P45) 76,500
128
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
ARP Co. (8,000 xP100) 800,000
Adjusted balance P 979,000 (A)
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. E 5. A
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P80) 480,000
Gain on exchange 55,000
Investment in Trading- Pref. Shares (P800,000/8,000 x 4,000) 425,000
SUMMARY OF ANSWERS:
1. C 2. BorC
129
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 2
Journal entries are:
March 31 Land (at fair value of the asset given up) 650,000
FVTOCI 600,000
Gain on exchange (650,000-600,000) 50,000
SUMMARY OF ANSWERS:
1. B 2. B
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as FVTOCI.
Since reclassification is not allowed, there is no reclassification gain or loss. (A)
PROBLEM 14-24
Question No. 1
Stock rights (11,000 x P6) P 66,000 (D)
Question No. 2
Cash paid (P90 x (10,000/5)) P 180,000
Cost of stock rights used (P4 x 10,000) 40,000
Total investment cost P 220,000 (B)
Question No. 3
Proceeds (P5.5 x 1,000) P 5,500
Cost of stock rights (P4 x 1,000) 4,000
Gain on sale of stock rights P 1,500 (C)
Question No. 4
Proceeds P 440,000
Cost of shares sold (P76 ** x 4,000) 304.000
Gain on sale of stocks 136.000
P (D)
130
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Question No. 5
Original investment cost P 880,000 44,000)
Cost allocated to stock rights* ( 220,000 304,000)
Additional investment ** 752.000 (D)
Sale of investment (_
Adjusted cost of investment P
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. D 5. D
PROBLEM 14-25
Question No. 1
Cash paid (400K+20K) 420,000
Less: dividends 10,000
Correct cost 410,000 (D)
Question No. 2
Feb. 10 30,000
Nov. 2
(10,000+(11,000/5)x1 13,200
Total dividend income 43,200 (C)
Question No. 3
Fair value of new FA (10,000 x 40) 400,000
Less: Cost (900,000/15K x 5K) 300,000
Gain on conversion 100,000 (A)
Question No. 4
Consideration received (2,000 x 70) 140.0
Less: Dividends (2,000 x P1) 2,000
Net Selling Price Less: Cost Gain on 138.000
sale 114.000
Shares Cost 24,000 (B)
10000 550,000
10-Feb 1,000
Total 11,000 550,000
1-May
(11,000/5) 2,200 202,400
Total 13,200 752,400
15-Nov (2,000) (114,000)
Total 11,200 638,400
Cost of stocks on May 1
131
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Subs. Price (11,000/5 x P62) 136,400
Add cost of stock rights (6 x 11,000) 66,000
Cost of stocks on May 1 202,400
Question No. 5
Fair values Cost Difference
Gerrit-PS (70 x 10,000) 700,000 600.0 (900,000/15Kx 10K)
-OS (45x10,000) 450,000 400.0
Loesch (72x11,200) 806,400 638,400
Barr (20x20,000) 400,000 410.000
2,356,400 2,048,400 308,000 (A)
Note: Use bid price on asset held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. B 5. A
Question No. 3
Proceeds from sale ofAquino shares 2.590.000
Less: Carrying amount of Aquino portfolio 2.600.0
Loss on sale (10,000) (B)
Question No. 4
FVTOCI Portfolio -12/31/2015 Coloma
Company Villanueva Company Less: 3,080,000
FVTOCI Portfolio - 01/01/2014 1,867,500 4,947,500
132
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Coloma Company 3,050,000
Villanueva Company 1,875,000 4,925,000
Unrealized gain - SFP (cumulative) (C) 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 (A)
Question No. 2
Type of Fair Total fair Allocated
stocks # shares value value cost
Ordinary 10,000 P30 P300,000 P234,375
Preference 2,000 10 20,000 15,625 (B)
Total cost P320,000 P250,000
Question No. 3
Allocate part of the investment cost to the preference shares.
Question No. 4
Proceeds (1,000 xP17) P 17,000
Carrying amount [(P15,625/(10,000/5)) x 1,000)(^_7J812J50)
Gain on sale P 9,187.50 (C)
Question No. 5
Proceeds, exclusive of interest Carrying P 280,000 (
amount (250 x 1,000 x 110%) 275,000)
Gain on sale P 5,000 (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. A
PROBLEM 14-28
Question No. 1
Net Selling price 250,000
Less: Carrying value (740,000/40,000 x 5,000) 92,500
Gain on sale (D) 157,500
Question No. 2
Consideration received 270,000
Less: _________
133
Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
Dividend income of the investment sold (6,000 x *P20 x 20%) 24,000
Net Selling price 248,000
Less: Carrying value (740,000/40,000 x 6,000) 111,000
Gain on sale (D) 137,000
*The par value after 2 for 1 share split is equal to P40 x %= P20
Question No. 3
6/1/2015 (35,000 x 4) 140,000
12/1/2015 (35,000 x 20% xP20) 140,000
Total dividend income (A) 280,000
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. D 5. D
134
Chapter 15: Investment in Debt Securities
Note to professor:
537 SOLUTION # 1
The carrying value as of December 31, 2013 is computed using Change
the market interest of 9% for 8 periods as follows: P120,000 to
Fair value-12/31/2014 (8M x 1.04) P8,320,000 P80,000
Less: Fair value-12/31/2013 8Mx 1.05) 8,400,000
Loss on changes in fair value-FVTPL-P&L P120,000
CHAPTER 15: INVESTMENT IN DEBT SECURITIES
Question No. 2
Fair value of the bonds (3M x 104) 3,120,000
Less: Carrying value 2,855,940
Unrealized gain - P&L (E) 264,060
135
Chapter 15: Investment in Debt Securities
PROBLEM 15-4 Acquisition of FAAC Term Bonds in Between Interest Dates
Question No. 1
Present value of the investment bonds 1,878,460
Add: Discount amortization
Effective interest 56,354
Nominal interest 50,000 _______ 6,354
Present value of the investment bonds, April 1 1,884,814
Add: Accrued interest 50,000
Total Present value of the bonds (E) 1,934,814
Question No. 2 Amortization table:
Interest Interest Discount Present
Date Collection Income Amortization value
01/01/2015 1,878,460
12/31/2015 200,000 225,415 25,415 1,903,875
Total interest income (P225,425 x 9/12) = P169.061 (B)
PROBLEM 15-5 Interpolation of Effective Interest Rate of FAAC - Term Bonds and
Computation of Interest Income
Purchase price P1,100,000
Add: Transaction cost ____ 44,752
Initial carrying amount P1,144,752
Since there is transaction cost incurred, effective rate must be computed. The effective
rate therefore is computed at 11.5% (refer to page 530 and 531 of the textbook for
example of interpolation).
Interest income (11.5% x P1,144,752) = 131.646 (B)
Question No. 2
Interest income (1,727,834 x 12%) = 207.340 (B)
136
Chapter 15: Investment in Debt Securities
PROBLEM 15-7 Reclassification from Financial Assets at Amortized Cost to Held
for Trading
Question No. 1
Interest income (P2,855,940 x 12%) = 342,713 (B)
Note that interest income is computed for the whole year even though the business
model was changed on July 1, 2014 since reclassification date will be on the first day of
the next reporting period (January 1, 2015). The investment therefore would be
continued to be reported as Financial Assets at Amortized Cost on December 31,2014.
Question No. 2
Fair value of the bonds, reclassification date (104% x P3,000,000) 3,120,000
Less: Carrying value, reclassification date [(P2,855,940 x 1.12) - (10% x P3,000,000)
2,898,653
Gain on reclassification (B) 221,347
Question No. 1
Interest income (P3,000,000 x 10%) = 300.000 (A)
Note that interest income is computed for the whole year and is based on the nominal
rate since this is a held for trading investment. The investment will be continued to be
measured at fair value and reported as Financial Assets at Fair Value Through Profit or
loss on December 31, 2014.
Question No. 2
Fair value of the bonds, reclassification date (104% x P3,000,000) 3,120,000
Less: Carrying value, reclassification date (103% x P3,000,000) 3,090,000
Gain on reclassification (D) 30,000
Question No. 1
Carrying amount of the investment - 12/31/2015 3,864,680
Less: Present value of expected cash flows (get the present value
computed using original effective rate) 3,188,800
Impairment loss (B) 675,880
Question No. 2
Interest income (3,188,800 x 12%) = 382.560 (D)
137
Chapter 15: Investment in Debt Securities
PROBLEM 15-10 Reversal of Impairment on Financial Asset at Amortized
Cost
Present Value of Principal (5,000,000 x 0.8929) 4,464,500
Add: Present Value of interest payments (500,000 x 2 x 0.8929) 892,900
Present value of the investment bonds 5,357,400
COMPREHENSIVE PROBLEMS
PROBLEM 15-11
Question No. 1
Cost of investment - Jan. 21(P2,000,000 x 102%) = P2.040.000 (A)
Question No. 2
Proceeds P1,060,000
Less: Accrued interest (P1,000,000 x 9% x 3/12) 22,500
Net Proceeds 1,037,500
Less: Carrying amount (P2,000,000 x 102%) 1,020,000
Gain on sale (A) P 17,500
Question No. 3
Proceeds P 419,000
Less: Accrued interest (P400,000 x 9% x 5/12) 15,000
Net proceeds 404.000
Carrying amount (P400,000 x 102%) 408.000
Loss on sale (A) ( 4,000)
Question No. 4
Sold bonds:
P1,000,000 x 9% x 38/360 P400,000 x 9% x P 9,500
280/360 Outstanding bonds: 28,000
P600,000 x 9% x 340/360
Total interest income (A) 51,000
P 88,500
Question No. 5
Carrying value- 12/31/2014 rP600.000 x 102%) = P612,000 (A)
The market value is equal to its cost.
138
Chapter 15: Investment in Debt Securities
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A
Question No. 3
Carrying amount of the investment 12/31/2015 (see table above) 4,138,798 Less:
Present value of expected cash flows 3,305,600
Impairment loss (B) 833,198
Question No. 4
Interest income (P3,305,600 x 10%) = 330,560 (D)
The interest income was computed using the original effective rate and the impaired
value as of 12/31/2015.
Question No. 5
Present value expected cash flows, date of reversal 4,509,136
Would have been present value had there been no impairment 4,072,646
Question No. 2
Cost, 1/1/2014 P5,311,400
Less: Amortized cost, 12/31/2014 5,242,540
Premium amortization 68,860
Less: Nominal interest (5,000,000 x 12%) 600,000
Interest Income 531,140
Effective interest (P531,400/5,311,140) = 10% Interest
income (P5,242,540 x 10%) = P524.254 (B)
Question No. 3
2014 discount amortization (P1,903,150 - P1,881,000) P 22,500
Nominal interest (P2,000,000 x 13%) 260.000
Effective interest P 282,500
Divide by: 1/1/2014 amortized cost P1.881.000
Effective interest rate 15%
2015 Interest Income = 12/31/2014 amortized cost x Effective interest rate =
P1,903,150x15% = P285.472.50 (C)
Question No. 4 P2,020,000
Fair value, 1/1/2016 (2,000,000x101)
Less: Amortized cost - 01/01/2016
Bookvalue, 12/31/2014
Add: Discount amortization P 1,903,150
Nominal interest 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:
Genesis bonds P 5,166,794
Exodus bonds 1,928,263
Total P 7,095,417
Genesis Bonds
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2014 5,311,400
12/31/2014 600,000 531,140 68,860 5,242,540
12/31/2015 600,000 524,254 75,746 5,166,794
140
Chapter 15: Investment in Debt Securities
Exodus Bonds
Interest Interest Discount Present
Date Collection Income Amortization value
01/01/2014 1,881,000
12/31/2014 260,000 282,150 22,150 1,903,150
12/31/2015 260,000 285,473 25,473 1,928,623
Question No. 1
Present value of Principal (P5,000,000 x .621) 3,105,000
Add: PV of interest payments (P5,000,000 x 12% x 3.791) 2,274,600
Presentvalue of the investment bonds - 01/01/2014 5,379,600
Amortization up to 7/1/2014
P5,379,600 x 10% 6/12 P 268,980
P5,000,000 x 12% 6/12 ( 300,000) (31,020)
Accrued interest up to 7/1/2014 (P5,000,000 x 12% 6/12 ) 300,000
Purchase price - 7/1/2014 (C) 5,648,580
Question No. 2
Question No. 3
Fair value date of reclassification 5,121,400
Less: Carrying amount 12/31/2015 or 01/01/2016 5,249,316
Loss on reclassification (B) (127,916)
Question No. 4
Question No. 5
ANSWERS:
1. C 2. B 3. B 4. A 5. C
141
Chapter 15: Investment in Debt Securities
PROBLEM 15-15 Investment in Associate - Change from Equity Method to Fair
Value Method and Impairment of Financial Assets at Amortized Cost
Question No. 1
Acquisition cost 2,140,000
Share in the Net income in 2014 (1.7Mx25%) 425,000
Share in the dividend (25% x 320,000) (80,000)
Understatement of depreciation (160,000/4 years) (40,000)
Balance end, 12/31/2014 (A) 2,445,000
Question No. 2
Fair value of investment, date of date of transfer (25,000 x P120) 3,000,000
Less: Carrying value of investment -12/31/2014 2,445,000
Unrealized gain - P&L (C) 555,000
Question No. 3 and 4
(See Amortization table below):
Interest Interest Discount Present
Date Collection Income Amortization value
01/01/2014 4,621,006
12/31/2014 400,000 462,101 (B) 62,101 4,683,107
12/31/2015 400,000 468,311 (C) 68,311 4,751,418
12/31/2016 400,000 475,142 75,142 4,826,560
3,755,000
Question No. 5
Present value of the principal (5M x .751)
Add: Present value of interest payments (only principal will be
3,755,000
recovered) 4,751,418
Total Present value of future cash inflows (996,418)
Less: Amortized cost - 12/31/2015(see amortization table)
Impairment loss (C)
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. C 5. C
142
Chapter 16: Investment in Associate
CHAPTER 16: INVESTMENT IN ASSOCIATE
Question No. 2
Dividends declared and paid 5,000,000
Multiply by: Percentage of ownership ____ 20%
Dividends Revenue (C) 1,000,000
Question No. 3
Share in net income (P8M x 20%) 1,600,000
Less: Amortization of Undervalued valued asset (see below) 200,000
Adjusted net investment income (A) 1,400,000
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. D
PROBLEM 16-2
Question No. 1
Cost of Investment (P3.9M + 100,000) 4,000,000
Less: Book value of net asset acquired (P12M x 25%) 3,000,000
Excess of cost over book value 1,000,000
143
Chapter 16: Investment in Associate Over or (under)valued asset:
Inventory [(P600,000 - P400,000) x 25%] (50,000)
Machinery [(P3,000,000 - P1,500,000) x 25%] (375,000)
Goodwill (A) 1,425,000
Question No. 2
Share in net income (P4M x 25%) 1,000,000
Add: Amortization of Overvalued valued asset (see below) 87,500
Adjusted net investment income (A) 1,087,500
2015 2016
Net income of the associate 4,000,000 5,000,000
Multiply by: Percentage of ownership 25% 25%
Share in the net income 1,000,000 1,250,000
Dividends declared and paid
1,000,000 1,400,000
Multiply by: Percentage of ownership
25% 25%
Dividends received 250,000 350,000
Question No. 3
Cost of Investment 4,000,000
Add: Net investment income (see no. 2) 1,087,500
Less: Dividends received (P1M x 25%) 250,000
Carrying value -12/31/2015 (C) 4,837,500
Question No. 4
Share in net income (P5M x 25%) 1,250,000
Add: Amortization of Overvalued valued asset (see no. 2) 37,500
Adjusted net investment income (B) 1,287,500
Question No. 5
Carrying value - 01/01/2016 4.837.500
Add: Net investment income (see no. 4) 1.287.500
Less: Dividends received (P1.4M x 25%) 350,000
Carrying value -12/31/2016 (B) 5,775,000
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. B
144
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 4.0. 000
Less: Book value of net asset acquired (P12M x 25%) 3.0. 000
Excess of cost over book value 1,000,000
Over or (under)valued asset
Inventory (P200,000 x 25%) (50,000)
Machinery (P1,500,000 x 25%) (375,000)
Land (P600,000 x 25%) 150,000
Goodwill (A) 1,275,000
Land - 150,000
2015 2016
Net income of the associate 4,000,000 5,000,000
Multiply by: Percentage of ownership 25% 25%
Share in the net income 1,000,000 1,250,000
Dividends declared and paid
1,000,000 1,400,000
Multiply by: Percentage of ownership
25% 25%
Dividends received 250,000 350,000
Question No. 2
Share in net income (P4M x 25%) 1,000,000
Add: Amortization of Overvalued valued asset (see table above) 87,500
Adjusted net investment income (C) 1,087,500
Question No. 3
Cost of Investment 4,000,000
Add: Net investment income (see no. 2) 1,087,500
Less: Dividends received (P1M x 25%) 250,000
Carrying value -12/31/2015 (C) 4,837,500
Question No. 4
Share in net income (P5M x 25%) 1,250,000
Less: Net Amortization of Undervalued valued asset (see no. 1) 112,500
Adjusted net investment income (B) 1,137,500
Question No. 5
145
Chapter 16: Investment in Associate 4.837.500
Carrying value - 01/01/2016
Add: Net investment income (see no. 4) 1.137.500
Less: Dividends received (P1.4M x 25%) 350,000
Carrying value -12/31/2016 (E) 5,625,000
SUMMARY OF ANSWERS:
1. A 2. C 3. C 4. B 5. E
Question No. 2
Cost of Investment 5,000,000
Add: Net investment income (see no. 1) 300,000
Less: Dividends received -
Carrying value-12/31/2015 (A) 5,300,000
CASE NO. 2
Question No. 1
Net income P2,000,000
Less: Total actual preference dividends declared 450,000
Net income to ordinary shares P1,550,000
Multiply by: Percentage of ownership ______ 25%
Share in the net income of associate 387,500
Less: Amortization of undervalued asset (800,000/8) 100,000
146
(D) 287,500
Chapter 16: Investment in Associate
CASE NO. 3
Question No. 1
Net income P2,000,000
Multiply by: Percentage of ownership _______ 25%
Share in the net income of associate 500,000
Less: Amortization of undervalued asset (800,000/8) ____ 100,000
Net investment income (E) ____ 400,000
Although the answer should be P400,000, the next best possible answer is P500,000.
Question No. 2
Cost of Investment 5,000,000
Add: Net investment income (see no. 1) 400,000
Less: Dividends received -
Carrying value-12/31/2015 (C) 5,400,000
SUMMARY OF ANSWERS:
CASE NO. 1 CASE NO. 2 CASE NO. 3
1. A 2. A 1. D 2. B 1. E 2. C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity Method -
Step Acquisition
Question No. 1
Fair value- 12/31/2016 2,200,000
Less: Carrying value (Fair value - 12/31/2015) 2,500,000
Unrealized loss - P&L (B) (300,000)
Question No. 2
Investment income (P500,000 x 10%) (E) 50,000
Question No. 3
Nil. No catch-up adjustment on retained earnings. (A)
147
Chapter 16: Investment in Associate
Fair value of previously held interest 2,200,000
Acquisition cost 3,075,000
Total cost of investment 5,275,000
Less: Book value of net asset acquired 3,500,000
Excess of attributable to machinery 1,775,000
Divide by: Remaining life 8
Amortization of Undervalued asset 221,875
Question No. 4
Share in net income 375,000
Less: Amortization of Undervalued asset (see table above) 221,875
Adjusted net investment income (B) 153,125
Question No. 5
Cost of Investment 5,275,000
Add: Net investment income (see no. 4) 153,125
Less: Dividends received Carrying value - 137,500
12/31/2015 (B) 5,290,625
SUMMARY OF ANSWERS:
1. B 2. E 3. A 4. B 5. B
Question No. 2
Consideration received P2,600,000
Less: Dividend income (5 x 40,000) 200,000
Net selling price 2,400,000
Less: Carrying value [6M-(P5 x 100,000)/100,000] x 40,000) 2,200,000
Gain on sale (B) P200,000
148
Chapter 16: Investment in Associate
Question No. 3 ___________
Fair value (P70 x 60,000) (A) P4,200,000
Question No. 4
Cost of Investment - 01/01/2015 1,200,000
Add: Net investment income - 2015 (2,500,000x30%) 750,000
Less: Dividends received -2015 (30% x 1,000,000) 300,000
Carrying value - 12/31/2015 1,650,000
Add: Net investment income - 2016 (3,000,000x30%) 900,000
Less: Dividends received -2016 (30% x 1,600,000) 480,000
Carrying value - 12/31/2016 2,070,000
Question No. 5
Investment in Kababain - FVTOCI:
Fair value (P75 x 15,000) 1.125.000
Less: Carrying amount 1.035.0 90,000
Investment in Passing Rate - FVTOCI:
Fair value (P70 x 60,000) 4.200.000
Less Cost (6M-(5 x 100,000))/100,000 x 60,000) Total 3.300.0 900,000
Unrealized Gain -OCI to SFP (C) P990,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. C
Note:
S The dividend received on August 1, 2015 need not be prorated even though the
investment was acquired on July 1, 2015 since dividends is considered when the
investor has the right to receive payment (i.e. date of declaration). S The P1.8M net
income was for a period of 12 months ending December 31.
Question No. 2
Sales price (P25 x 50,000) 1,250,000
Carrying value of shares (P3,992,000 x 50,000/200,000) 998,000
Gain on sale of investment (B) 252,000
149
Chapter 16: Investment in Associate
Question No. 3
Fair value of retained investment (P25 x 150, 000) 3,750,000
Less: Carrying amount of retained investment (P3,992,000 x 150,000/200,000)
2,994,000
Gain on reclassification to P&L (C) 756,000
Question No. 4
Fair value, Dec. 31, 2016 (P30 x 150,000) 4,500,000
Fair value, Jan. 1, 2016 (P25 x 150,000) 3,750,000
Unrealized gain, Dec. 31,2016 (B) 750,000
Question No. 5
Fair value, Dec. 31,2016 (P30x 150,000) (A) 4,500,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. B 5. A
Question No. 1
Acquisition Cost( P66 x 250, 00) 16,500,000
Add: Share of net income [(P7,200,000 - P3,360,000) x 25%] 960,000
Less: Dividends received (P420, 000 x 2) (840,000)
Investment balance, December 31, 2015 (A) 16,620,000
Question No. 2
Sales price (68 x 100,000) 6,800,000
Less: Carrying value of shares (P16,620,000 x 100,000/250,000) 6,648,000 Gain on
sale of investment 152,000
150
Chapter 16: Investment in Associate
Question No. 4
Fair value, Dec. 31, 2015 (P70x 150,000) (D) 10,500,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. D
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.
151
PROBLEM 16-13 Downstream Sale of Depreciable Asset Note to professor:
Change Josiah
Chapter 16: to Eldon.
Investment in Associate
2015 2016
Net income 1,000,000 1,500,000
Multiply by: 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)
152
Chapter 16: Investment in Associate (E) 4,170,000
Carrying value -12/31/2015
Add: Net investment income - 2016 (see No. 2) 925.000
Less: Dividends received -2016 (30% x P1,200,000) 360.0
Carrying value -12/31/2016 (E) 4,735,000
Question No. 5
Cost of Investment - 01/01/2015 4,000,000
Add: Net investment income - 2015 (see No. 1) 410.0
Less: Amortization of Goodwill (P200,000 / 10) Less: 20,000
Dividends received -2015 (30% x P800,000) Carrying 240.0
value -12/31/2015 Add: Net investment income - 2016 4,150,000
(see No. 2) 925.0
Less: Amortization of Goodwill (P200,000 / 10) Less: 20,000
Dividends received -2016 (30% x P1,200,000) Carrying 360.0
value -12/31/2016 (C) 4,695,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over their
useful life. If an entity cannot determine reliably the useful life, it is assumed to be 10
years.
SUMMARY OF ANSWERS:
1. C 2. D 3. E 4. E 5. C
PROBLEM 16-16
Question No. 1
Cost P1,700,000
Less: Equity in net assets 1,400,000
Implied goodwill (A) 300,000
Question No. 2
Proceeds (2,500 xP13) P 32,500
Less: Carrying amount [(P60,000/6,000) x 2,500] 25,000
Gain on sale (A) ___ 7,500
Question No. 3
Proceeds (500 xP21) P 10,500
Less: Carrying amount [(P55,000/(2,000 x 110%)) x 500] 12,500
Loss on sale (A) ___ 2,000
Question No. 4
Proceeds (1,500 xP21) P 31,500
Less: Carrying amount [(P40,000/1,000) x 500] 20,000
Gain on conversion (C) 11,500
153
Chapter 16: Investment in Associate
Question No. 5
Investment in Roque Corporation:
3/9 1,000 xP1.2 1,200
9/9 1,000 xP1.2 1,200
Investment in Ocampo Corporation:
6/30 (6,000-2,500) xP1 3,500
Total dividend income (A) _____ 5,900
Question No. 6
1/2/2016 Acquisition Cost Add: Share in net 1,700,000
income of associate (P1, Less: Dividends 200,000x30%) 360,000
(P.50 x 4 x 100,000) 12/31/2016 carrying 200,000
amount (A) P1,860,000
Question No. 6
Roque pref. (1,000 - 500) x P56 Roque 28,000
ordinary (1,500 x P20) 30,000 38,500
Ocampo (6,000 -2,500) x P11 Dagumboy Co. 37,400 (A) 133,900
(2,000 x 110% -500) x P22 12/31/2016
FVTOCI Balance
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. C 5. A 6. A
7. A
PROBLEM 16-17
Question No. 2
Net Proceeds
75,000
Less: Carrying value (P3
x 20,000) 60,000
Gain on sale
(A) 15,000
Question No. 3
Zero, gain or loss on reclassification is recognized in the profit or loss. (D)
154
Chapter 16: Investment in Associate
Fair value previously held interest (50,000 x 30) 1,500,000
Less: Carrying value 1,350,000
Gain on reclassification-P&L 150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D) 270,000
Question No. 5
Fair value previously held interest (P3M / 20%x10%) 1,500,000
Add: Acquisition cost 3,000,000
Initial carrying amount - investment in associate 4,500,000
Add: Net investment income (see No. 4) 270,000
Less: Dividends declared (P2 x 150,000) 300,000
PROBLEM 16-18
Note to professor: The investment in associate was acquired on January 1,
Investment balance end (B) 4,470,000
SUMMARY OF ANSWERS:
1. BorD 2. A 3. D 4. D 5. B
2016 should be on January 1, 2015.
Question No. 1
Consideration received (P115 x 4,000) 460,000
Less: Dividend of the investment sold (P4 x 4,000) 16,000
Net Selling Price 444,000
Less: Carrying value of the investment sold (*985,000/10,000 x 4,000) 394,000
Gain on sale (B) 50,000
*(10,000 x P100)-(P4 x 10,000) + 25,000
The dividend that was paid and sold is not classified as dividend income since the
company did not own the shares when the dividend was declared.
Question No. 2
Net Selling Price (P225 x 50,000 x 1/2) 5,625,000
Less: Carrying value of the investment sold (P10,400,000 x 1/2) 5,200,000
Gain on sale (D) 425,000
Beg. Balance of Investment in Associate 9,000,000
Add: Share in the net income of associate (25% x P10M) 2,500,000
Total 11,500,000
Less: Amortization (P1,000,000/10) 100,000
Dividends received (P20 x 50,000) 1,000,000
Ending balance of investment in associate - 12/31/2016 10,400,000
155
Chapter 16: Investment in Associate
Question No. 3
Nil. (A)
S 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.
S The dividend received in Cleo Shares is not regarded as income, but as a deduction of
the initial carrying amount of the investment in associate.
SUMMARY OF ANSWERS:
1. B 2. D 3. A 4. A 5. B
156
Chapter 18: Property, Plant and Equipment
157
Chapter 18: Property, Plant and Equipment
Cost of grading and filling building site 45,000
Total Cost of the land (A) 997,500
Question No. 2
Cost of building construction 3,100,000
Interest on construction loan 60,000
Cost of razing old building on lot 42,500
Proceeds from sale of salvageable materials (6,000)
Total cost of the building (A) 3,196,500
Question No. 3
Cost of constructing driveway 400,000
Cost of parking lot and fencing 60,000
Total cost of the land improvements (B) 460,000
Question No. 2
Allocated purchase price (6/10 x P11M) 6,600,000
Interest, liens and other encumbrances on the building assumed by the buyer.21,000
Payments to tenants of the building to induce them to vacate the premises. 50,000
Repairs and renovation costs before the building is occupied 66,400
Unpaid taxes on the building up to the date of acquisition 2,000
Legal Fees and other expenses incurred in connection with the
purchase of the building 8,000
Total cost of building (D) 6,747,400
Question No. 3
Cost of shrubs, trees, and other landscaping (C) 53,000
Real Property taxes on the land accrued after acquisition of P5,000 shall be treated as
expense.
PROBLEM 18-4 Acquisition on Cash Basis
Question No. 1
Cash paid 800,000
Commissions paid to brokers 80,000
Non-refundable sales taxes 40,000
158
Chapter 18: Property, Plant and Equipment
Total cost 920,000
Multiply by: Ratio (200,000 / 500,000) 0.40
Allocated cost of the land (B) 368,000
Question No. 2
Total cost 920,000
Multiply by: Ratio (300,000 / 500,000) ______ 0^
Allocated purchase price 552,000
Demolition cost 60,000
Proceeds from sale of demolition scrap (15,000)
Total cost of the building (C) 597,000
Question No. 1
Cash price equivalent (A) 800,000
Question No. 2
Principal 1,000,000
Multiply by: Present value of 1 0.7972
Cost of the equipment (B) 797,200
159
Chapter 18: Property, Plant and Equipment
PROBLEM 18-8 Exchange (With or Without Commercial Substance)
Question No. 2
Fair value of the asset given 1,200,000
Less: Carrying amount 800,000
Gain on exchange (B) 400,000
Question No. 3
Carrying amount of the asset given 800,000
Add: Cash payment 200,000
Cost of equipment (B) 1,000,000
Question No. 4
Zero, the transaction lacks commercial substance. (A)
Question No. 2
Cash price without trade in 340,000
Less: Cash price with trade in 270,000
Trade in value 70,000
Less: Carrying amount 230,000
Loss on trade in (B) (160,000)
PROBLEM 18-10 Acquisition through Issuance of Equity Instrument Question No.
1
Fair value of the equipment received (D) 4,000,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as share
premium in the equity. (A)
160
Chapter 18: Property, Plant and Equipment
Question No. 2
Zero, the difference between the fair value and its par value is recognized as premium
on bonds payable. (A)
Question No. 2
Fair value (C) 4,000,000
The registration and transfer of title is charged to Donated Capital / Share Premium.
Question No. 2
Purchase price 400,000
Legal and other fees to close escrow 12,000
Total cost (A) 412,000
161
Chapter 18: Property, Plant and Equipment
PROBLEM 18-14 Specific Borrowings
Question No. 1
Loan received Multiply by: Interest rate Actual borrowing cost 1,000,000
Less: Investment income 20%
Capitalizable borrowing cost (B) 200,000
60,000
Question No. 2 140,000
Loan received
Multiply by: Interest rate
Actual borrowing cost 1,000,000
Less: Investment income (60,000 x 4/12) 20%
Capitalizable borrowing cost (D) 200,000
20,000
Question No. 3 180,000
Loan received
Multiply by: Future value of 1 for 4 periods Future value of the
loan - 12/31/2015 Less: Principal amount of the loan Actual 1,000,000
borrowing cost Less: Investment income 1.2155
Capitalizable borrowing cost (C) 1,215,500
1,000,000
Question No. 4 215.500
60,000
Loan received
155.500
Add: Expenditures incurred on Jan. 1 Balance at Jan 1
162
Chapter 18: Property, Plant and Equipment
PROBLEM 18-15 Specific Borrowings - Expenditures Incurred Evenly
Question No. 1
Loan at January 1, 2015 1,000,000
Loan at December 31, 2015(1,000,000 - 800,000) 200,000
Average used during the year (1,000,000 + 200,000) /2 600,000
Question No. 2
Average expenditures (800,000 /2 ) 400,000
Capitalizable borrowing cost (400,000 x 0.2 ) (C) 80,000
With a loan, the total proceeds are received on day 1 and any surplus funds are invested
until needed (as shown in the example above).
With a facility (e.g. overdraft facility), cash is withdrawn as needed. As a result there are
no surplus funds to invest and interest is paid only on those amounts withdrawn.
163
Chapter 18: Property, Plant and Equipment
Question No. 3 & 4
Accumulated expenditures - 836,000 x 9/9 836,000
12/31/2015 (P800,000 + 36,000)
March31,2016 300,000 x 6/9 200,000
September 30, 2016 200,000 x 0/12 0
Average accumulated expenditure 3. (D) 1,036,000
Less: Specific borrowing 750,000
Excess attributable to general borrowing 286,000
Multiply by: Rate 9%
Multiply by: Months outstanding 9/12
Capitalizable borrowing cost - general borrowings 19,305
Add: Specific borrowings (750,000 x 12% x 9/12) 67,500
Total capitalizable borrowing cost 4. (B) 86,805
Cost P3,300,000
Less: Residual value 300,000
Depreciable amount P3,000,000
164
Chapter 18: Property, Plant and Equipment
300,000
2015 (P60/unitx 5,000 units)
360,000
2016 (P60/unitx 6,000 units)
165
Chapter 18: Property, Plant and Equipment
PROBLEM 18-21 Composite Method
Salvage Depreciable Estd. Annual
Cost Value Amount Life Depreciation
Machine A 275,000 25,000 250,000 20 12,500
Machine B 100,000 10,000 90,000 15 6,000
Machine C 20,000 - 20,000 5 4,000
Total 395,000 35,000 360,000 22,500
PROBLEM 18-22
The balancing figure is accumulated depreciation under the group method of
depreciation. (D)
1Maximum depreciation. The carrying amount should not be reduced below its
residual value.
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Chapter 18: Property, Plant and Equipment
PROBLEM 18-26 Double Declining Balance
Double declining rate (2/10) = 20%
2015 [(P480,000x20%x 12/12] 96,000
2016 [(P480,000-P90,000)x 20% x 12/12] (B) 76,800
167
Chapter 18: Property, Plant and Equipment
PROBLEM 18-32 Change in Estimate
Cost 3.300.000
Less: Accumulated depreciation - 12/31/2014 [(73,300,000 -
P300,000) / 8 x 4] 1.500.000
Carrying value -12/31/2014 1.800.000
CASE NO. 1
Requirement No. 1
Carrying value -12/31/2014
Less: Residual value 1,800,000
Depreciable amount
300.0 1,500,000
Divided by: Revised remaining useful life
2
Depreciation - 2015
750.000
Requirement No. 2
Carrying value -12/31/2014
Less: Depreciation - 2015 1,800,000
Carrying value -12/31/2015 750,000
1,050,000
CASE NO. 2
Requirement No. 1
Carrying value - 12/31/2014
Less: Residual value 1,800,000
Depreciable amount 150,000
Divided by: Remaining useful life ( 8 - 4 ) 1,650,000
Depreciation - 2015 4
412,500
Requirement No. 2
Carrying value -12/31/2014
Less: Depreciation - 2015 1,800,000
Carrying value - 12/31/2015 412,500
1,387,500
CASE NO. 3
Requirement No. 1
Carrying value - 12/31/2014
Less: Residual value
1,800,000
Depreciable amount
300.0 1,500,000
Multiply by: Fraction (SYD = 10)
Depreciation - 2015 4/10
600.000
Requirement No. 2
Carrying value -12/31/2014 1,800,000
Less: Depreciation - 2015 600,000
Carrying value - 12/31/2015 1,200,000
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Chapter 18: Property, Plant and Equipment
__________ P1,480,000
= .5 (P320,000 + X)
__________ P1,480,000
4= P160,000 + .5x
P1,480,000 = P640,000 + 2x
X= P420,000 (C)
169
Chapter 18: Property, Plant and Equipment
Question No. 3
Beg. Balance of the Building P 900,000
Amount recovered from salvage of building (150,000)
Cost of tearing down an old building 120,000
Amount paid to contractor 2,000,000
Building permit 20,000
Excavation expenses 50,000
Architects' fees 50,000
Total cost of building (A) P2,990,000
Question No. 4
Beg. Balance of the Machinery P 980,000
Invoice cost of machinery 2,000,000
Freight, unloading 60,000
Customs duties 140,000
Allowances during installations 400,000
Total cost of machinery (B) P3,580,000
Question No. 5
Total cost of Land Improvement P 120,000
Total cost of building Total cost of 2.990.000
machinery Total depreciable 3.580.0
property (A) P6,690,000
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 should be treated as a selling expense.
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. B 5. A
170
General borrowings:
Rate Principal Interest
14% 2,000,000 280,000
12% 18,000,000
Chapter 18: Property, Plant and Equipment 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
Actual borrowing cost 200,000
Less: Investment income 13,000 187,000
General borrowings:
Weighted average carrying amount 7,500,000
Less: Principal amount of Specific borrowings 2,000,000
Weighted average related to General borrowings 5,500,000
Multiply by: Capitalization rate 12.20%
Multiply by: Months/12 1 671.000
Weighted average borrowing cost: vs. 858.0
Actual borrowing cost 2,640,000
Capitalizable borrowing cost (lower) (A) 858,000
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Chapter 18: Property, Plant and Equipment
Question No. 3
Actual borrowing cost - 2014 2,640,000
Less: Capitalizable borrowing cost - 2014 858,000
Interest expense (C) 1,782,000
Question No. 4
Actual borrowing cost - 2015 2,640,000
Less: Capitalizable borrowing cost - 2015 1,382,451
Interest expense (C) 1,257,550
Question No. 5
16,858,000
Total cost, 2014
3,000,000
Expenditures in 2015
1,382,451
Add: Capitalizable borrowing cost - 2015
21,240,451
Total cost of the building (B)
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. B
Question No. 1
The computation of the income from government grant is as follows:
Question No. 2
Cost of building 30,000,000
Divide by: Useful life of the building ________20
Depreciation (C) 1,500,000
Question No. 3
Cost of building 30,000,000
Less: Government grant 25,000,000
Total 5,000,000
Divide by: Useful life of the building 20
Depreciation (B) 250,000
Question No. 4
Cost of building 30,0, 0
Less: Depreciation - 2015 00
Carrying amount -12/31/2015 1,500,0
(D) 28,500,000
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Chapter 18: Property, Plant and Equipment
Question No. 5
Net cost of building 5,000,000
Less: Depreciation - 2015 250,000
Carrying amount-12/31/2015 (C) 4,750,000
SUMMARY OF ANSWERS:
1. D 2. C 3. B 4. D 5. C
Question No. 2
Cost of factory building 20,000,000
Divide by: Useful life of the building _______ 10
Depreciation (C) 2,000,000
Question No. 3
Cost of factory building 20,000,000
Less: Government grant 5,000,000
Total 15,000,000
Divide by: Useful life of the building 10
Depreciation (D) 1,500,000
Question No. 4
Cost of factory building Less: 20,0, 0
Depreciation - 2015 Carrying 00
amount -12/31/2015 2,0, 00
0 (A) 18,000,000
Question No. 5
Net cost of factory building Less: 15,0, 0
Depreciation - 2015 Carrying 00
amount -12/31/2015 1,500,0
(B) 13,500,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
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Chapter 18: Property, Plant and Equipment
PROBLEM 18-40
Question No. 1
Cost of land and old building P1,200,000
Real estate broker's commission 72,000
Legal fees 12,000
Title insurance 36,000
Cost of land (C) P1,320,000
Question No. 2
Months
Date Expenditures outstanding Average
January 1,2014 April 1,000,000 12 12,000,000
1,2014 October 1, 500.000 9 4.500.000
2014 December 31, 800.0 3 2.400.000
2014 Total 900,000 0
3,200,000 18,900,000
Divide by ______ 12
Weighted average carrying amount 1,575,000
Capitalization Rate (P840,000 / P8,000,000) = 10.50%
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (P1M x 12% x 12/12) Less: 120,000
Investment income General borrowings: ______ - 120,000
Weighted average carrying amount
Less: Principal amount of Specific borrowings 1,575,000
Weighted average related to General borrowings 1,000,000
Multiply by: Capitalization rate 575,000
Multiply by: Months/12 10.50%%
Weighted average borrowing cost: 12/12 60,375
vs. Actual borrowing cost (P120,000 + P840,000) 180,375
Capitalizable borrowing cost (lower) 960,000 (A) 180,375
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Chapter 18: Property, Plant and Equipment
Weighted average borrowing cost:
Specific borrowings
Actual borrowing cost (P1,000,000 x 12% x 8/12) 80,000
Less: Investment income ________ ^ 80,000
General borrowings:
Weighted average carrying amount 4,680,375
Less: Principal amount of Specific borrowings 1,000,000
Weighted average related to General borrowings 3,680,375
Multiply by: Capitalization rate 10.50%%
Multiply by: Months/12 8/12 257,626
Weighted average borrowing cost: 337,626
vs. Actual borrowing cost (P960,000 x 8 / 12) 640,000
Capitalizable borrowing cost (lower) (A) 337,626
Question No. 4
Fixed construction contract price P6,000,000
Plans, specifications, and blueprints 42,000
Architects' fees 164,000
Removal of old building 108,000
Interest capitalized during 2014 180,375
Interest capitalized during 2015 337,626
Cost of building (C) P6,832,001
Question No. 5
Interest cost in 2015:
Specific borrowing P 120,000
General borrowing 840,000
Total interest P 960,000
Less: Capitalizable borrowing cost in 2015 337,626.25
Interest expense in 2015 (C) P622,373.75
Question No. 6
Depreciation rate (150%/40 years) = 3.75%
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. C 5. C
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Chapter 18: Property, Plant and Equipment
PROBLEM 18-41
Question No. 1
SYD [5x(5+1)/2] = 15
Date Fraction to be used
4/1/2013-4/1/2014 (5/15)
4/1/2014-4/1/2015 (4/15)
Depreciation expense:
Jan. 1 - 4/1/2015 (4/15 x 1,500,000 x 3/12) P100,000
Add: depreciation from 4/1 -12/31
Of the 1.2M (3/15 x 1,200,000 x 9/12) 180,000
Of the 300,000 (see computation below) 30,000 P
Total depreciation expense (A) 310,000
Question No. 2
Accumulated depreciation, beg.
Add: Depreciation expense - 2015 P 800,000
Accumulated depreciation, 12/31/2015 (A) 310,000
P1,110,000
Question No. 3
Beginning balance of land
Add: Acquisition on Nov 4 P 550,000
Total cost of the land (B) 700,000
P1,250,000
Question No. 4
Direct cost
Fixed cost (15,000 x 25) P2,220,000
Variable cost (15,000 x 27) 375.000
Total Cost of building (A) 405.0
P3,000,000
Question No. 5
Depreciation on the beginning balance
(6M - 4,427,136 -1,300,000)
Add: Depreciation on new building (3,000,000 x 20%) P 272,864
Total depreciation (D) 600,000 P
872,864
176
Chapter 18: Property, Plant and Equipment
Question No. 6
Cost of the machinery-beg P3,000,000
bal.
Add: Cost of the new P 356,000
machinery Invoice cost 18,000
Concrete embedding Wall 7,000
demolition Rebuilding of wall 19,000 400,000
Total cost of machinery (A) P3,400,000
Question No. 7
Depreciation ofmachinery
Depreciation of the beginning balance of machinery
Original Cost P3,000,000
Accumulated depreciation (3,000,000/20*10) P1,500,000
Less: Major overhaul 600,000 ____ 900,000
Adjusted book value P2,100,000
Divided by: Revised remaining life ( 2 0 - 1 0 + 5) ________ 15
Depreciation of the beginning balance of machinery P 140,000
Depreciation on the new machinery (400,000/20 x 6/12) 10,000
Depreciation of machinery (E) P 150,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. D 6. A 7. E
PROBLEM 18-42
Question No. 1
Selling Price Less Book value Cost P 52,000
Less: Accumulated Depreciation
Up to 1/1 From Jan. 1-May 1 P140,000
[(140,000 -12,400) x 5/55]* Gain
on sale of machinery D P 92,800
11,600 (104.400) 35,600
Note: No depreciation is recorded
(A) P 16,400
in the year an asset is purchased,
and full year depreciation is provided in the year an asset is disposed of
Question No. 2
Accumulated depreciation, R Jan 1 P 140,800
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100] 26,880
Accumulated depreciation, R Dec. 31 (B) P 167,680
177
Question No. 3
Accumulated depreciation, I Jan 1 P 60,000
Add: Depreciation expense [(320,000-60,000-20,000)/10] 24,000
Accumulated depreciation,
Chapter 18: Property, I Dec.
Plant and 31
Equipment (C) P 84,000
Question No. 4
Accumulated depreciation, A Jan 1 P 64,000
Add: Depreciation expense (320,000-64,000) x 20% 51,200
Accumulated depreciation, A Dec. 31 (A) P 115,200
Question No. 5
Depreciation expense on
Machinery D (see computation P 11,600
in no. 1) 26,880
R (see computation in no. 2) 24,000
51,200
I (see computation in no. 3)
17,600
A (see computation in no. 4)
(D) P 131,280
N (88,000/20%)
Total depreciation expense
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. A 5. D
Question No. 2
Machine 101 (70,000-7,000)/10 x 3/12 12,775
Machine 102 (80,000-8,000)/9 x 3/12 2,000
Machine 103 (30,000-3,000)/8 3,375
Total depreciation (C) 18,150
Machine 101
Cost 70,000
Less: Accumulated Depreciation,Jan 1, 2016 18,900
Bookvalue, January 1, 2016 51,100
Divide by: Remaining useful life (7-3) 4
Depreciation in 2016 12,775
Question No. 3
Office equipment 330,000
Less: Accumulated depreciation, Dec 31,2015 204,000
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Chapter 18: Property, Plant and Equipment
Book value, December 31,2015 126,000
Divide by: Remaining useful life (10-4) 6
Depreciation - office equipment 21,000
Depreciation of the building (200,000/5) 40,000
Total depreciation expense (C) 61,000
Question No. 4
Net Selling price 52,500
Less: Book value of the Machine
Cost 80,000
Less: Accumulated depreciation
(80,000-8,000)/9x 19/12 14,000 66,000
Loss on sale (A) (13,500)
Question No. 5
Cost of the office equipment 330,000
Less: Accumulated depreciation
Accumulated depreciation, Dec 31, 2015 204,000
Depreciation expense in 2016 21,000 225,000
Book value, December 31,2016 (B) 105,000
SUMMARY OF ANSWERS:
1. C 2. C 3. C 4. A 5. B
PROBLEM 18-44
Question No. 1
Fair value 1,400,000
Legal fees 50,000
Remodeling cost 100,000
Total cost of building (C) 1,550,000
Question No. 2
Fair value of the asset received 1,200,000
Less: Cash paid 400,000
Fair value of the asset given 800,000
Less: Book value of the asset given
Cost 1,000,000
Less: Accumulated depreciation (1M/10 x 3.5) 350,000 650000
Gain on exchange (A) 150,000
Question No. 3
Office building No. 1 (940,000/7) 135,000
Office building No. 2 (1,000,000/10 x 6/12) 50,000
Office building No. 3 (1,200,000/4 x 6/12) 150,000
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Chapter 18: Property, Plant and Equipment
155,000
(C) 490,000
Factory building (1,550,000/10)
Total Depreciation expense 1,000,000
300.000
Cost of office building No. 1 Less:
700.000
Accumulated Depreciation Book
245.000
value
945.000
Add: Major improvements Total
Question No. 4
Income from government grant (1,400,000/10) (A) 140,000
Question No. 5
Total depreciable cost 945,000
Less: Subsequent depreciation 135,000
Book value (A) 810,000
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. A 5. A
Weighted average borrowing cost:
180
Chapter 18: Property, Plant and Equipment
Question No. 2
Total expenditures - 2015 9.0. 000
Total expenditures - 2016 1.0. 000
Capitalized borrowing cost - 2015 500,000
Capitalized borrowing cost - 2016 (see computation below) 1,160,000
Total cost of building (C) 11,660,000
Months
Date Expenditures outstanding Average
January 1,2016 *9,500,000 12 114,000,000
July 1,2016 1,000,000 6 6,000,000
Total 10,500,000 120,000,000
Divide by 12
Weighted average carrying amount 10,000,000
Question No. 3
Total expenditures - 2015 9.0. 000
Total expenditures - 2016 1.0. 000
Total cost of building (A) 10,000,000
Borrowing cost under PFRS for SME is expensed outright.
Question No. 4
Cost of Machinery and Equipment 3,000,000
Multiply by: Fraction 3/15
Depreciation (A) 600,000
SYD is 15 years and useful life is 5 years.
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Chapter 18: Property, Plant and Equipment
Question No. 5
Depreciation - remaining delivery truck (see below) 114,000
Depreciation - overhauled delivery truck (see below) 30,000
Depreciation - new delivery truck (see below) ___ 24,000
Total depreciation on delivery truck (B) 168,000
Delivery truck:
1,152,000
Cost
432.000
Less: Accumulated depreciation Carrying value -12/31/2015 Less:
720.000
Carrying value of overhauled truck Balance
150.000
Divide by: Remaining useful life (8-3)
570.0
Depreciation on remaining delivery truck
______ 5
114.000
Overhauled delivery truck:
Cost
Less: Accumulated depreciation (P240,000 / 8 x 3)
P240,000
Carrying value -12/31/2015 Add: Overhauling cost Adjusted
90.000
carrying value - 01/01/2016 Divide by: Revised remaining useful
150.000
life (5 + 2)
60.000
Depreciation on overhauled delivery truck
210.0__
______ 7
New Delivery truck: 30,000
Invoice cost Freight
Installation and testing Total cost of new delivery truck Divide by:
Useful life Annual depreciation Multiply by: Number of months
used (July 26 to December 31) Depreciation on remaining delivery 400,000
truck 20,800
40.0
460,800
Question No. 6
_____ 8
Beginning balance 1,152,000
Add: Overhauling cost 57,600
60,000
Add: Cost of new delivery truck 5/12
460,800
Adjusted cost of delivery truck 24.000
1,672,800
Less: Accumulated depreciation (432,000 + 168,000) 600,000
Carrying value-12/31/2015 (C) 1,072,800
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. A 5. B 6. C
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Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS
Question No. 2
Acquisition cost P164,000
Less: Accumulated depletion - 12/31/2015 32,800
Carrying value - 01/01/2016 131,200
Divide by: Tons estimated to be extracted 20,000
Depletion per unit P6.56
Multiply by: Tons extracted - 2016 8,000
Depletion-2016 (C) P52,480
183
Chapter 19: Wasting Assets
Question No. 2
Cost of natural resource 30,000,000
Less: Accumulated depletion (P2,910,000 + P10,596,000) 13.506.000
Carrying amount-12/31/2018 (A) 16.494.000
Question No. 2
Cost of the movable equipment 2,000,000
Divide by: Useful life in years _______ 10
Depreciation - 2015 (A) 200,000
Question No. 3
Cost of the movable equipment Divide by: Useful life in 1,000,000
______ 5
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life
200,000
years (shorter)
Depreciation - 2015 (A)
of the Wasting Asset is Shorter
Question No. 1
Acquisition cost 4,000,000
Exploration cost 6,000,000
Intangible development cost 5,000,000
Total cost of the natural resource 15,000,000
Less: Estimated residual value -
Total depletable cost of the natural resource 15,000,000
Divide by: Units estimated to be extracted 4,000,000
Depletion per unit 3.75
Multiply by: Units extracted - 2015 500,000
Depletion-2015 (A) 1,875,000
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Chapter 19: Wasting Assets
Question No. 2
Cost of the movable equipment 2,000,000
Divide by: Useful life in years _______ 20.
Depreciation - 2015 (A) 100,000
Question No. 3
Cost of the movable equipment P1,000,000
Divide by: Units estimated to be extracted (shorter)* 4,000,000
Depreciation rate per unit P.25
Multiply by: Actual units extracted 500,000
Depreciation - 2015 (C) 125,000
*Estimated useful life using output method (4,000,000 / 500,000) = 8 years
Question No. 1
Cost of immovable equipment 5,000,000
Less: Accumulated depreciation - 12/31/2017 1,550,000
Bookvalue-12/31/2017 3,450,000
Divide by: Remaining useful life ( 1 5 - 3 ) 12
Depreciation - 2018 (A) 287,500
Question No. 2
Cost of immovable equipment 5,000,000
Less: Accumulated depreciation - 12/31/2018 1,837,500
Bookvalue-12/31/2018 3,162,500
Divide by: Remaining units to be extracted 1,380,000
Depreciation per unit 2.29
Multiply by: Actual units extracted - 2019 150,000
Depreciation - 2019 (A) 343,750
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Chapter 19: Wasting Assets
PROBLEM 19-6
Question No. 1
Acquisition cost P9,075,000
Divide by: Tons estimated to be extracted 1,100,000
Depletion per ton P8.25
Multiply by: Actual tons extracted - 2016 Depletion - 2016 100,000
(D) 825,000
Question No. 2
1.925.000
Cost of Installation
Divide by: Tons estimated to be extracted Depreciation per 1.100.0
ton Multiply by: Actual tons extracted - 2016 Depreciation - 1.75
2018 (B) 100,000
175,000
Question No. 3
Cost of mining equipment Divide by: Useful life
Depreciation - 2016 (AorD) 4,400,000
_______ 8
550,000
Question No. 4
Acquisition cost
Less: Accumulated Depletion
Carrying value -12/31/2016 P9,075,000
Add: Additional development cost - 2017 825.0
Remaining depletable cost P8,250,000
Divide by: Estimated tons to be extracted 750.0
Depletion per ton P9,000,000
Multiply by: Tons extracted - 2017 1,000,000
Depletion - 2017 (C) P 9
150.0
Question No. 5 P1,350,000
Installation ((P1,925,000/1.1M) x 150,000 tons)
Mining equipment (P4,400,000/8)
Total depreciation expense (C) P 262,500
550,000 P
SUMMARY OF ANSWERS: 812,500
1. D 2. B 3. AorD 4. C 5. C
186
Chapter 19: Wasting Assets
PROBLEM 19-7 Cost Of Wasting Asset with Estimated Restoration Cost,
Depletion, Depreciation of Movable and Immovable Equipment
Question No. 1
Acquisition cost of the wasting assets Add: Exploration 150,000,000
and intangible development cost Add: Estimated 8,000,000
decommissioning and restoration costs Initial cost (A) 8,196,161
166,196,161
Estimated restoration cost
Multiply by: Present value of 1 for four periods P 12,000,000
Present value of the restoration cost 0.683013455 P
8,196,161
Question No. 2
Total cost of the wasting assets 166,196,161
Divide by: Estimated units to be extracted 12,000,000
Depletion per unit 13.85
Multiply by: Units extracted 1,600,000
Depletion expense - 2015 (B) 22,159,488
Question No. 3
6,000,000
Cost of the movable equipment Divide by: Useful life
______ 20
Depreciation - 2015 (A)
300,000
Question No. 4
Cost of the movable equipment 9,000,000
Divide by: Units estimated to be extracted (shorter) 12,000,000
Depreciation rate per unit 0.75
Multiply by: Units extracted 1,600,000
Depletion expense - 2015 (B) 1,200,000
*Estimated useful life using output method (12,000,000 / 1,500,000) = 8 years
Question No. 5
Date Interest expense Present value
01/01/2015 8,196,161
12/31/2015 819,616 9,015,778
12/31/2016 901,578 (E) 9,917,355
12/31/2017 991,736 10,909,091
12/31/2018 1,090,909 12,000,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. E
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Chapter 19: Wasting Assets
PROBLEM 19-8 Cost Of Wasting Asset with Estimated Restoration Cost,
Depletion, Depreciation of Movable and Immovable Equipment
Question No. 1
Acquisition cost of the wasting assets Add: Exploration and 120,000,000
intangible development cost Add: Estimated 6,000,000
decommissioning and restoration costs Initial cost (A) 6,355,181
132,355,181
Estimated restoration cost
Multiply by: Present value of 1 for four periods P 10,000,000
Present value of the restoration cost 0.635518078 P
6,355,181
Question No. 2
Total cost of the wasting assets 132,355,181
Divide by: Estimated units to be extracted 12,000,000
Depletion per unit 11.03
Multiply by: Units extracted 1,600,000
Depletion expense - 2015 (B) 17,647,357
Question No. 3
6,000,000
Cost of the movable equipment Divide by: Useful life
_______ 6
Depreciation - 2015 (A)
1,000,000
Question No. 4
Cost of the movable equipment 9,000,000
Divide by: Useful life _______ 5
Depreciation - 2015 (A) 1,800,000
Question No. 5
Date Interest expense Present value
01/01/2015 6,355,181
12/31/2015 762,622 7,117,802
12/31/2016 854,136 (E) 7,971,939
12/31/2017 956,633 8,928,571
12/31/2018 1,071,429 10,000,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. E
188
Chapter 20: Investment Property
PROBLEM 20-7: Transfer under Cost model - PPE to IP Question No. 1 (D)
PROBLEM 20-8: Transfer from PPE to Investment Property - Fair value vs Cost
model
SUMMARY OF ANSWERS:
1. D 2. 3. 4. C
Chapter 20: Investment Property
189
Question No. 3
P2,880,000. Fair value at the date of transfer. Don't deduct cost to sell.
190
CHAPTER 22: INTANGIBLE ASSETS
Chapter 22: Intangible Assets
*The present value factor is the present value of ordinary annuity using 14% for 4
periods.
2Shorter of useful life of 10 years and extended lease term (12 - 3 + 6) = 15.
192
Chapter 22: Intangible Assets
Average earnings (see table above) 1,400,000
Less: Normal earnings (4,250,000 x 20%) 850,000
Average excess earnings 550,000
Divide by: Capitalization rate 25%
Goodwill 2,200,000
Add: Fair value of net asset acquired 4,500,000
Purchase price (A) 6,700,000
Question No. 1
Other coding costs after establishment of technological
feasibility 1,000,000
Other testing costs after establishment of technological
feasibility 750,000
Costs of producing product masters 1,250,000
Total Software Cost (A) 3,000,000
Question No. 2
Duplication of computer software and training materials from product master
1,500,000
Packaging product 250,000
Total Inventoriable Cost (A) 1,750,000
Question No. 3
Total Software Cost 3,000,000
Multiply by: (10M / 40M) 25%
Amortization (A) 750,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A
193
Chapter 22: Intangible Assets
Question No. 2
Obtaining a domain name 32,000
Installing developed applications on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information 60,000
Updating graphics and revising content 32,000
Adding new functions, features and content 12,000
Reviewing security access 36,000
Total intangible asset (B) 424,000
COMPREHENSIVE PROBLEMS
PROBLEM 22-10 Goodwill
6,800,000
Computation
2,000,000
Current Assets (6,000,000 + 800,000) 14.850.000
Investments (3.500.000)
PPE (13,000,000 + 1,850,000) (2.500.000)
Current liabilities 17.650.000
Noncurrent liabilities
Fair value of net asset acquired 17,650,000
10%
Fair value of net asset acquired Multiply 1,765,000
by: Normal rate of return Normal
earnings 9,000,000
(100,000)
Total earnings 600,000
Loss on sale (or Gain) on sale Bonus 9.500.0 _
(150,000 x 4years) _______ 4
Operating income Divide by: No. of years 2.375.000
Average earnings
Question No. 1
Average earnings 2,375,000
Less: Normal earning 1,765,000
Average excess earnings 610,000
Multiply by: Capitalization period 4_
194
Chapter 22: Intangible Assets
Question No. 2
Average earnings Less: Normal earning Average excess 2.375.000
earnings Divide by: Capitalization rate 1.765.0
Goodwill (B) 610,000
Add: Fair value of net asset acquired 10%
Purchase price (B) 6.100.000
17.650.000
Question No. 3 23.750.000
Average earnings
Divide by: Capitalization rate
Purchase price (B) 2,375,000
Less: Fair value of net asset 8%
Goodwill (B) 29.687.500
17,650,000
Question No. 4 12.037.500
Average earnings
Less: Normal earning
Average excess earnings 2.375.000
Multiply by: Present value of ordinary annuity 1.765.0
Goodwill (C) 610,000
Add: Fair value of net asset acquired 3.0373
Purchase price (C) 1,852,753
17,650,000
SUMMARY OF ANSWERS: 19,502,753
1. A 2. B 3. B 4. C
PROBLEM 22-11
Question No. 1
Net Patent, January 1
Divide by: Remaining life (8years -2 years) Amortization(A)
336,000
Question No. 2 _____ 6
None, the trademark has an indefinite life. (B)
56,000
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4)
Divide by: Useful life
Amortization expense (A)
400,000
_____ 5
80,000
195
Chapter 22: Intangible Assets
Question No. 4
Purchase price 2,400,000
Less: Fair value of net assets acquired 1,600,000
Goodwill (carrying amount) (A) 800,000
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 384,000
Less: Accumulated Amortization (48,000 + 56,000) 104,000 280,000
Cost - Trademark (no amortization) (1.6Mx3/4) 1,200,000
Cost - Noncompetition agreement 400,000
Less: Accumulated Amortization (see no. 3) 80,000 320,000
Total carrying amount of the Intangible assets (B) 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 22-12
Question No. 1
Legal cost 7,000
Payment of licenses to author excluding refundable purchase taxes (100,000-10,000)
90,000
Total cost of intangible assets (D) 97,000
Question No's 2, 3 and 5
Cost 97,000
Less: Amortization in 2015 (97,000/5 x 6/12) 9,700 No. 2 (C)
Carrying value, 12/31/2015 87,300 No. 3 (C)
Less: Amortization in 2016 (97,000/5 ) 19,400
Carrying value, 12/31/2016 67,900 No. 5 (D)
Question No. 4
General start-up cost 1,500
Amortization 9,700
Cost of printing 100
Advertising expense (20,000 x 6/12) 10,000
Total Expense (B) 21,300
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. B 5. D
PROBLEM 22-13 Patent, Competitive, Related Patent
196
Chapter 22: Intangible Assets
Question No. 1
Cost 500,000
Divide by: Remaining useful life 10
Amortization (C) 50,000
Question No. 2
Cost of the old Patent 500,000
Less: Accumulated Amortization (500,000 / 10x2) 100,000
Carrying value, 1/1/2013 400,000
Competitive Patent 240,000
Total 640,000
Divide by: Remaining life 8
Amortization (D) 80,000
Question No. 3
Carrying value, 1/1/2013 640,000
Less: Amortization 2013 80,000
Carrying value, 12/31/2013 (D) 560,000
Question No. 4
Carrying value, 12/31/2013 560,000
Add: Related patent 200,000
Total Carrying value, 1/1/2014 760,000
Divide by: Extended life 20
Amortization (A) 38,000
Question No. 5
Total Carrying value, 1/1/2014 760,000
Less: Amortization, 2014 38,000
Carrying value, 1/1/2015 = Loss (A) 722,000
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. A 5. A
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
Question No. 3
Amortization - Trademark -
197
Chapter 22: Intangible Assets
Amortization - Customer list 60,000
Total amortization (B) 60,000
Question No. 4
Amortization - Trademark -
Amortization - Customer list 60,000
Amortization - Franchise 165,416
Total amortization (A) 225,416
Downpayment 400,000
Add: Present Value of notes payable (600,000 x .7118) 427,080
Cost of franchise 827,080
Question No. 5
Cost of trademark 673,000
Cost of customer list 300,000
Less: Accumulated Amortization 120,000 180,000
Cost of franchise 827,080
Less: Accumulated Amortization 165,416 661,664
Total carrying value (A) 1,514,664
SUMMARY OF ANSWERS:
1. C 2. A 3. B 4. A 5. A
PROBLEM 22-15
Question No. 1
Zero, organization cost is treated as outright expense.(A)
Question No. 2
Design costs 3,000,000
Add: Legal fees 300,000
Registration fee with Patent office 100,000
Total cost of trademark (B) 3,400,000
Question No. 3
Cash 400,000
Add Present value of the note (200,000x2.91) 582,000
Cost of Franchise (B) 982,000
Question No. 4
Cost (see no. 3) 982,000
Less: Amortization (982,000/20) 49,100
Carrying value, 12/31/2015 (A) 932,900
Question No. 5
Amortization of the franchise P49,100 (D)
198
Chapter 22: Intangible Assets
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 22-16
Question No. 1
Cost-Patent 136,000
Less: Amortization for the year (136,000/20) _____ 6,800
Carrying value of the Patent (C) 129,200
Question No. 2
Licensing agreement No. 1
Unadjusted balance 100,000
Less: Amortization for 2years (100,000/20 x 2) 10,000
Total 90,000
Less: Reduction in value (90,000 x 60%) 54,000
Carrying value (B) 36,000
Question No. 3
Unadjusted balance 118,000
Add: Amount credited for advance collection 2,000
Total cost 120,000
Less: Amortization (120,000/10) 12,000
Carrying value - Licensing agreement No. 2 (C) 108,000
Question No. 4
Carrying values:
Patent (see no. 1) 129,200
Licensing Agreement No. 1 (No. 2) 36,000
Licensing Agreement No. 2 (No. 3) 108,000
Total carrying value (C) 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) 5,000
Expenses capitalized:
Goodwill (16,000+32,000) 48,000
Organization cost 58,000
Overstatement of Retained earnings (A) 111,000
All the expenses above were understated thereby overstating the net income and
retained earnings.
199
Chapter 22: Intangible Assets
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. C 5. A
PROBLEM 13-17
Question No. 1
Unadjusted balance 550,000
Less: Unamortized portion of improvements debited Cost P75,000
Less: Amortization (P75,000 / 10 x 3) 22,500 _____ 52,500
Adjusted balance - 01/01/2015 497,500
Less: Amortization 2015 (P52,500 + P56,071) - see below 108,571
Carrying value-12/31/2015 (A) 388,929
Computation of amortization:
Adjusted balance - 01/01/2015 497,500
Less: CV of Patent with remaining UL of 2 years - 01/01/2015 Cost 210,000
Less: Accumulated amortization 01/01/2015
(P210,000 /14 x 7) 105,000 105,000
CV of Patent with remaining UL of 7 years - 01/01/2015 392,500
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2) 52,500
Patent with remaining UL of 7 years (392,500 / 7) 56,071
Total Amortization 108,571
Question No. 2
Franchise cost 50,000
Less: Amortization (50,000 / 5) 10,000
Carrying value 12/31/2015 (A) 40,000
200
Question No. 3
The amount to be reported as goodwill is the excess of cost over the fair value of net
asset acquired.
Chapter Goodwill
22: Intangible is not amortized but only subject to impairment
Assets
testing. Therefore, the amount to be reported is P200,000. (A)
Question No. 4
Other coding costs after establishment of technological
feasibility 240,000
Other testing costs after establishment of technological
feasibility 200,000
Costs of producing master for training materials 150,000
Total Software Cost (A) 590,000
Question No. 5
Completion of detailed program design 130,000
Costs incurred for coding and testing to establish technological feasibility 100,000
Total Cost charged to Expense (A) 230,000
Question No. 6
Amortization:
Patent (see No. 1) 108,571
Franchise (see No. 2) 10,000
Software cost - none yet -
Total Cost charged to Expense (C) 118,571
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A 6. C
Question No. 2
Total acquisition cost 4,000,000
Add: Mortgage assumed 800,000
Total cost of land and building 4,800,000
Multiply by: Percentage allocated to building ______ 80%
Total Purchase Price allocated to Building 3,840,000
Add: Remodeling Cost (300,000 - 20,000) 280,000
Total Cost of Building (A) 4,120,000
201
Chapter 22: Intangible Assets
Question No. 3
Cost of improvement 500,000
Less: Accumulated depreciation (500,000/8 x 9/12) Carrying 46,875
value (B) 453,125
Question No. 4
Carrying value - 01/01/2015 432.000
Less: Amortization 2015 (432,000 / 3 years remaining UL) 144.000
Carrying value (C) 288.000
Question No. 5
Building (4,120,000-120,000)/50 Leasehold Improvements 80,000
(500,000/8 x 9/12) 46,875
Furniture and Fixtures Franchise (500,000 /10) 150.0
Licensing agreement 50,000
Total depreciation and amortization expense (A) 144.0
P470,875
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. C 5. A
202
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
CHAPTER 23: REVALUATION, IMPAIRMENT AND
NONCURRENT ASSET HELD FOR SALE
Note to professor:
Page: Existing data: Change to:
828 Additional credit to
Revaluation Surplus in No. 1 under
Proportional.
Elimination No. 1 Additional
Journal Entry
Debit: Accumulated depreciation
Credit: Equipment
830
Case No. 2
Appreciation = P900,000 Appreciation = P825,000
858 Illustration: Noncurrent Assets Held
for Sale -Single Asset
On January 1, 2015, Raycie-Fe Co. Change 2015 to 2016.
decided to sell a machinery with a cost
of
On July 1, 2017, Marga Co. sold the On July 1, 2017, Marga Co. sold the
862
machinery... investment in associate.
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
(A)
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus
Question No. 2
Depreciated Replacement cost 15,000,000
Divide by: Remaining useful life (20-5) ______ 15
Depreciation Expense - 2016 (B) 1,000,000
203
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 3
Revaluation surplus, beginning 10,500,000
Less: Piecemeal realization - 2016 (10,500,000 / 15) 700,000
204
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Remaining revaluation surplus end of 2016 (B) 9,800,000
Question No. 4
15,000,000
Net Selling Price
Less: Carrying amount - 01/02/2018 Depreciated
15,000,000
Replacement Cost, date of revaluation Less:
2,000,000 13,000,000
Subsequent depreciation (P1M x 2 years) Gain on sale
(A) 2,000,000
Question No. 5
10,500,000
Revaluation surplus, beginning 1.400.000
Less: Piecemeal realization for two years (10,500,000 / 15 x 2) 9.100.000
Remaining revaluation surplus to R/E (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
Question No. 2
Depreciated Replacement cost 15,000,000
Divide by: Remaining useful life ______ 25
Depreciation Expense - 2015 (B) 600,000
Question No. 3
Revaluation surplus, 01/01/2015 8,250,000
Less: Piecemeal realization - 2015 (8,250,000 / 25) 330,000
Remaining revaluation surplus end of 2015 (B) 7,920,000
Question No. 4
Net Selling Price 15,000,000
Less: Carrying amount - 01/02/2017
Depreciated Replacement Cost, date of revaluation 15,000,000
Less: Subsequent depreciation (P15M / 25 x 2) 1,200,000 13,800,000
Gain on sale (A) 1,200,000
205
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Revaluation surplus, beginning 8.250.0
Less: Piecemeal realization for two years (8,250,000 / 25 x 2) 660,000
Remaining revaluation surplus to R/E (A) 7.590.000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Replacement
Cost Cost Increase
Machinery 9,100,000 18,200,000 9,100,000
Less: Accumulated depreciation *2,250,000 **4,500,000 2,250,000
CA/DRC/RS 6,850,000 13,700,000 6,850,000
(A)
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus
*This amount should be the actual amount of accumulated depreciation (i.e. using the
original residual value)
** (18,200,000 - 200,000) / 20 x 5. This is computed using
the revised residual value.
Question No. 4
14,000,000
Net Selling Price
Less: Carrying amount - 01/02/2017 Depreciated
13,700,000
Replacement Cost, date of revaluation Less:
1,080,000 12,620,000 (A)
Subsequent depreciation (P540,000 x 2)
1,380,000
Gain on sale
Question No. 5
Revaluation surplus, beginning 6,850,000
Less: Piecemeal realization for two years (P274,000 x 2) 548,000
Remaining revaluation surplus to R/E (A) 6,302,000
206
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
Question No. 2
Zero. The company is using the cost model. (A)
Question No. 3
Cost 1,200,000
Less: Accumulated depreciation 100,000
Carrying amount 1,000,000
Less: Revised residual value 155.000
Depreciable amount 845.0 _
Divide by: Remaining useful life _______9
Depreciation - 2016 (E) 93,888
Question No. 4
Cost 1,200,000
Less: Accumulated Depreciation (100,000 + 93,888 + 93,888) 287,776
Carrying amount -12/31/2017 Less: Recoverable amount, date of 912.224
impairment Impairment loss (E) 600,000
312.224
Question No. 5
Recoverable amount
Less: Revised residual value
600,000
Depreciable amount
40.0 __
Divide by: Remaining useful life
560,000
Depreciation (C)
______ 7
80.000
SUMMARY OF ANSWERS:
1. A 2. A 3. E 4. E 5. C
207
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
CASE NO. 2 REVALUATION MODEL
Question No. 1
Cost 1,200,000
Less: Residual value 200,000
Depreciable amount 1,000,000
Divide by: Estimated useful life 10
Depreciation - 2015 (A) 100,000
Question No. 2
Recoverable amount/fair value - 01/01/2016 1,280,000
Less: Carrying amount - 01/01/2016 Machinery at cost 1,200,000
Less: Accumulated depreciation - 01/01/2016 100,000 1,100,000
Revaluation surplus - 01/01/2016 (D) 180,000
Question No. 3
Recoverable amount/fair value - 01/01/2016 1,280,000
Less: Revised residual value 155,000
Depreciable amount 1,125,000
Divide by: Remaining useful life 9
Depreciation - 2016 (C) 125,000
Question No. 4
Recoverable amount, date of revaluation - 01/01/2018 1,280,000
Less: Subsequent depreciation for 2 years 250,000
Carrying amount - 01/01/2018 1,030,000
Less: Recoverable amount, date of impairment 600,000
Decrease in value 430,000
Less: Remaining revaluation
Revaluation surplus, date of revaluation 180,000
Less: Piecemeal realization for two years 40,000 140,000
Impairment loss (D) 290,000
Question No. 5
Recoverable amount 600,000
Less: Revised residual value 40,000
Depreciable amount 560,000
Divide by: Remaining useful life 7
Depreciation (C) 80,000
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. D 5. C
PROBLEM 23-5 Impairment and Revaluation of PPE
208
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Less: Residual value 200,000
Depreciable amount 1,000,000
Divide by: Estimated useful life 10
Depreciation - 2015 (A) 100,000
Question No. 2
Cost 1,200,000
Less: Accumulated Depreciation 100,000
Carrying amount - 12/31/2015 1,100,000
Less: Recoverable amount, date of impairment 900,000
Impairment loss (D) 200,000
Question No. 3
Recoverable amount 900,000
Less: Revised residual value 90,000
Depreciable amount 810,000
Divide by: Remaining useful life 9
Depreciation (D) 90,000
Question No. 4
Recoverable amount - 01/01/2016 900,000
Less: Accumulated Depreciation - 12/31/2017 180,000
Carrying amount - 12/31/2017 720,000
Lower of:
Would have been carrying amount no impairment 875,555 Less: Recoverable amount -
01/01/2018 770,000 770,000
Gain on impairment recovery - P&L 50,000
Question No. 5
Carrying value - 01/01/2018 770,000
Less: Revised residual value _________ -
209
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Depreciable amount 770,000
Divide by: Remaining useful life (10-3) ________ 7
Depreciation (C) 110,000
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. A 5. C
Question No. 2
Cost 1,200,000
Less: Accumulated Depreciation 100,000
Carrying amount -12/31/2015 1,100,000
Less: Recoverable amount, date of impairment 900.000
Impairment loss (D) 200.000
Question No. 3
Recoverable amount 900,000
Less: Revised residual value 90,000
Depreciable amount 810,000
Divide by: Remaining useful life 9
Depreciation (D) 90,000
Question No. 4
Recoverable amount - 01/01/2016 900,000
Less: Accumulated Depreciation - 12/31/2017 180,000
Carrying amount - 12/31/2017 720,000
Lower of:
Would have been carrying amount no impairment 875,555 Less: Recoverable amount -
01/01/2018 770,000 770,000
Gain on impairment recovery - P&L 50,000
210
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 5
Carrying value - 01/01/2018 770,000
Less: Revised residual value -
Depreciable amount 770,000
Divide by: Remaining useful life (10-3) 7
Depreciation (C) 110,000
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. A 5. C
Question No. 1
Patent (200,000 / 10) 20,000
Computer software (100,000 x 60/120) 50,000
Total amortization (A) 70,000
Question No. 3
Carrying value of goodwill - 12/31/2015 900,000
Less: Allocated impairment loss of reporting unit 181,220
Carrying value of goodwill -12/31/2016 (B) 718,780
Question No. 4
Patent (P200,000 - P20,000) 180,000
Copyright (recoverable amount) 160,000
Tradename (recoverable amount) 300,000
Computer software (100,000 - 50,000) 50,000
Carrying value ofintangible assets - 12/31/2016 (A) 690,000
211
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A
and 2
Trademark - Unadjusted balance 1,430,000
Less: Unamortized cost of improvement that should have been expensed
Cost 150,000
Less: Accum. amortization (150,000/10 x 2) 30,000 120,000
Total 1,310,000
Add: Competitive patent debited to expense
Cost 135,000
Less: Accum. amortization (135,000/9 x 1) 15,000 120,000
Adjusted balance, January 1. 2016 1,430,000
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4) 40,000 (2) A
Remaining patent (1,430,000-160,000)/15-7) 158,750 198,750
Carrying value ofthe Patent, 12/31/2016 (1) A 1,231,250
Questions 3
Carrying value of the trademark (no amortization) 800,000
Less: Recoverable amount (P75,000/10%) 750,000
Impairment loss (B) 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 500,000
Add: Present value of the note 874,000
Total cost of the franchise 1,374,000
Divide by: Useful life 10
Amortization expense (D) 137,400
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. D
212
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
105,000,000
Less: Fair value less costs to sell 85,000,000
Impairment loss 20,000,000
Less: Impairment loss allocated to Goodwill (B) 5,000,000
Impairment loss allocated to other assets 15,000,000
SUMMARY OF ANSWERS:
D
1. B 2. A 3. A 4. D 5.
Cash 100,000
Inventory 800,000
Accounts receivable 1,200,000
Plant and equipment 24,000,000
Less: Accumulated depreciation 10,400,000
Trademark 2,550,000
Patent 850,000
Goodwill 400,000
Total Carrying amount of CGU 19,500,000
Less: Value in use 16,300,000
Impairment loss 3,200,000
Less: Impairment allocated to goodwill 400,000
Impairment loss allocated to other asset 2,800,000
213
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance Balance
before Impairment after
Impairment Fraction Loss Impairment
Plant and equipment 13,600,000 13.6/17 (2,240,000) 11,360,000
Trademark 2,550,000 2.55/17 (420,000) 2,130,000
Patent 850,000 .85/17 (140,000) 710,000
Total 17,000,000 2,800,000 14,200,000
Balance Balance
after after
Impairment Reallocation Reallocation
Plant and equipment 11,360,000 (40,000) 11,320,000 1.(B)
Trademark 2,130,000 (7,500) 2,122,500 2. (B)
Patent 710,000 47,500 757,500 3. (B)
Total 14,200,000 - 3,520,000
Trademark:
Would have been BV, no impairment
Cost 2,550,000
Less: Subsequent amortization 120,000 2,430,000
Patent:
Would have been BV, no impairment
Cost 850,000
Less: Subsequent amortization 80,000 770,000
214
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Balance
before Allocated
Reversal Fraction Gain Max gain
Plant and equipment 10,320,000 10320/13028 1,901,136 1,901,136
Trademark 2,010,500 2010.5/13028 370,372 370,372
Patent 697,500 697.5/13028 128,492 72,500
Total 13,028,000 2,400,000 2,344,008
Balance
Balance after
Max gain bef. Reall Reallocation reallocation
Plant and equipment 1,901,136 12,221,136 46,863 12,267,999
Trademark 370,372 2,380,872 9,130 2,390,001
Patent 72,500 825,992 (55,992) 770,000
Total 2,344,008 15,428,000 - 15,428,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. C 5. C 6. A
Question No. 2
Zero. Non-current asset held for sale should not be depreciated. (A)
Question No. 3
Lower of:
Carrying amount 1,200,000
FVLCTS 1,500,000 1,200,000
Less: Carrying amount at initial recognition 1,100,000
Gain on reversal - P&L (B) 100,000
Question No. 4
Net Selling Price (1,800,000 - 50,000) 1,750,000
Less: Carrying amount 1,200,000
Gain on sale (D) 550,000
215
Question No. 5 1,200,000 2,000,000
Cost 1,300,000 1,200,000
800,000
Accumulated depreciation (A) 1,200,000
Carrying amount
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Less: Initial amount recognized- lower of:
Carrying amount Fair value less cost to sell
Impairment loss
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
Revaluation Carrying
surplus amount
Impairment after
loss impairment
PPE (at cost model) 1.840.000 18,160,000
PPE (at revaluation model) 1,000,000 1.760.000 27.240.000
Total 1,000,000 3.600.000 45.400.000
(P3,000,000 minus (P32M-P30M) P1,000,000
Decrease in value of the PPE (at revaluation model) is allocated to
1. First, remaining revaluation surplus
2. Balance to impairment loss.
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. D
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Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-12 Noncurrent Assets held for Sale - Investment in Associate
Note to professor: Change "On July 1, 2017, Honorato Co. sold the machinery for to
...” to investment in
associate.
Question No. 2
3,800,000
Beginning balance - 01/01/2016 Add: Net
190,000
investment income (see No. 1) Less:
37,500
Dividends received (150,000 x 25%) Carrying
(A) 3,952,500
amount -12/31/2016
Question No. 3
3,952,500
Carrying amount -12/31/2016 Less: Initial
amount recognized- lower of: Carrying
3,952,500
amount Fair value less cost to sell Impairment 4,000,000 3,952,500
loss (A) -
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when the
investment in associate is classified as noncurrent held for sale. The cash dividend shall
be recognized as income. (A)
Question No. 5
Net Selling Price (P4,260,000 - P60,000) 4,200,000
Less: Carrying amount Gain on sale 3,952,500 (D) 247,500
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. A 5. D
PROBLEM 23-13
Question No. 1
Irrigation Equipment Freight in P 740,000
Installation cost 10,000
Total Machinery and Equipment, end 192,000
(A) P 942,000
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Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
Question No. 2
Trade in allowance 400,000
Book Value:
Cost 1,300,000
Less: Accum. Depreciation (P660,000+ P165,000) 825,000 475,000
Loss on trade in (B) 75,000
Question No. 3
Before addition [(P3,100,000 - P100,000)/20 x 3/12) 37,500
After addition: [(P3,100,000 - (P562,500 + P37,500) + 980,000 P200,000)/20) x 9/12)
123,000
Depreciation expense (B) 160,500
Question No. 4
Turf cutter [{(P1,300,000 - P200,000)/5} x 9/12] +
{(P800,000 - P50,000)/6 x 3/12)}] P 196,250
Water desalinator [(P3,780,000 - P270,000)/10] 351,000
Irrigation equipment [(942,000/4) x 6/12] 117,750
Office building 160,500
Total Depreciation expense (B) P 825,500
Question No. 5
Fair value on initial revaluation Book value on initial P 3,780,000
revaluation:
Cost P 4,000,000
Accumulated depreciation
[(P4,000,000 - P200,000)/10 x 2) ( 760,000) 3,240,000
12/31/2016 Revaluation Surplus Less: Piecemeal realization in 2017 P 540,000
(P540,000/10) 54,000
12/31/2017 Revaluation surplus P 486,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B 5. A
218
Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
PROBLEM 23-14
Question No. 1
Revalued amount - 01/01/2016 31,500,000
Divided by: Remaining useful life ( 2 0 - 6 ) ______ 14
Depreciation (C) 2,250,000
Question No. 2
Revaluation
Cost Fair value Surplus
Land P 5,000,000 P 7,000,000 P 2,000,000
Building 30,000,000
Accum. Depreciation ( 9,000,000)
Book value P21,000,000 31,500,000 10,500,000
Total Revaluation surplus, Jan. 1 Less: P12,500,000
Excess of depreciation on revalued amt.
over the cost Depreciation on revalued
amount(no. 1) Depreciation on cost Total P 2,250,000
Revaluation surplus, Dec. 31 1,500,000 750,000
(B) P11.750.000
Question No. 3
Annual depreciation rate (200%/2) = 100%
Cost P 600,000
Less: Accumulated Depreciation 300,000
Book value 300,000
Less: Salvage value 60,000
Maximum depreciation (B) P 240,000
Question No. 4
Cost 900,000
Divided by: Useful life ______ 9
Annual depreciation (D) P 100,000
Question No. 5 D
Cost P 900,000
Less: Accumulated Depreciation (300,000 +100,000 (no. 4) 400,000
Book value, Dec. 31 500,000
Less: Recoverable amount - value in use (125,000 x 3.60) 450,000
Impairment loss (B) P 50,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. B
219