consignment 200,000 800,000

Chapter 1 Bond investment at fair value through

Statement of Financial Position other comprehensive income 1,000,000
Basic Problems Prepaid expenses, including a deposit of 50,000
Problem 1-1(IFRS) made on inventory to be delivered in 18 months 150,000
Darwin Company provided the following information at year-end: Total current assets 8,950,000
Cash 300,000
Accounts Receivable 1,200,000 Cash in general checking account 3,500,000
Inventory including inventory Cash fund to be used to retire bonds payable in 2018 1,000,000
expected in the ordinary course Cash held to pay value added taxes 500,000
of operations to be sold Total cash 5,000,000
beyond 12 months amounting to 700,000 1,000,000
Prepaid Expenses 100,000 What total amount of current assets should be reported on December 31,
Financial asset held for trading 200,000 2016?
Equity investment at fair value through a. 6,750,000
other comprehensive income 800,000 b. 6,700,000
Deferred tax asset 150,000 c. 7,700,000
d. 7,750,000
What amount should be reported as total current assets at year-end?
a. 2,800,000 Answer: B
b. 2,550,000 Cash (3,500,000 + 500,000) 4,000,000
c. 3,600,000 Accounts receivable 2,000,000
d. 2,100,000 Inventory (800,000- 200,000) 600,000
Prepaid expenses (150,000-50,000) 100,000
Answer: A Total current assets 6,700,000
Cash 300,000
Accounts Receivable 1,200,000 Problem 1-4
Inventory 1,000,000 Rice Company was incorporated on January 1, 2016 with 5,000,000 from the
Prepaid Expenses 100,000 issuance of share capital and borrowed funds of 1,500,000. During the first
Financial asset held for trading 200,000 year, net income was 2,500,000.
Total Current Assets 2,800,000 On December 15, the entity paid a 500,000 cash dividend. On December 31,
2016, the liabilities had increased to 1,800,000.
Problem 1-2 On December 31, 2016, what amount should be reported as total assets?
Violago Company provided the following account balance at year-end: A. 6,500,000
Cash 1,100,000 B. 9,300,000
Accounts Receivable 1,600,000 C. 8,800,000
Inventory 3,000,000 D. 6,800,000
Financial asset at fair value through Answer: C
profit or loss 500,000 Liabilities 1,800,000
Bond investment at amortized cost 1, 300,000 Share capital 5,000,000
Investment in associate 1,500,000 Retained earnings (2,500,000-500,000) 2,000,000
Equipment and furniture 2,500,000 Total liabilities and shareholders’ equity 8,800,000
Accumulated depreciation 1,500,000
Patent 400,000 Problem 1-5
Deferred charges 100,000 Mirr Company was incorporated on January 1, 2016 with proceeds from the
Equipment 2,000,000 issuance of 7,500,000 in share capital and borrowed funds of 1,100,000.
During the first year, revenue from sales and consulting amounted to
What total amount should be reported as current assets at year-end? 8,200,000, and operating costs and expenses totaled 6,400,000.
a. 6,300,000 On December 31, 2016, the entity declared a 300,000 dividend payable to
b. 8,300,000 shareholders on January 15, 2017. The liabilities increased to 2,000,000 by
c. 8,200,000 December 31, 2016.
d. 9,800,000 On December 31, 2016, what amount should be reported as total assets?
a. 11,000,000
Answer: C b. 11,300,000
Cash 1,100,000 c. 10,100,000
Accounts Receivable 1,600,000 d. 12,100,000
Inventory 3,000,000
Financial asset at fair value through Answer: A
profit or loss 500,000 Liabilities 2,000,000
Equipment 2,000,000 Share capital 7,500,000
Total current assets 8,200,000 Retained earnings (2,500,000-500,000) 1,500,000
Total liabilities and shareholders’ equity 11,000,000
Problem 1-3
Petite Company reported the following current assets on December 31, Problem 1-6
2016: Arabian Company reported the following current assets on December 31,
Cash 5,000,000 2016:
Accounts Receivable 2,000,000 Cash 4,500,000
Inventory, including goods received on Accounts receivable 7,500,000
Notes receivable, net of discounted note 500,000 2,000,000 Equity of assignee in accounts receivable assigned 500,000
Inventory 4,000,000 Inventory, including 600,000 cost of goods sold
18,000,000 in transit purchased FOB destination.
The goods were received on January 3, 2017 2,800,000
An analysis disclosed that accounts receivable comprised the following:
Trades accounts receivable 5,000,000 What total amount of current assets should be reported on December 31,
Allowance for doubtful accounts (500,000) 2016?
Selling price of Arabian Company’s unsold a. 7,900,000
goods sent to Tar Company on consignment b. 8,000,000
at 150% of cost and excluded from Arabian’s c. 7,400,000
ending inventory 3,000,000 d. 7,700,000
7,500,000 Answer: A
Cash (2,000,000-500,000) 1,500,000
On December 31, 2016, what amount should be reported as total current Notes receivable 1,200,000
assets? Notes receivable discounted (700,000)
a. 17,000,000 Accounts receivable-unassigned 3,000,000
b. 17,500,000 Accounts receivable-assigned 800,000
c. 15,000,000 Allowance for doubtful accounts (100,000)
d. 16,500,000 Inventory (2,800,000-600,000) 2,200,000
Total current assets 7,900,000
Answer: A
Cash 4,500,000 Problem 1-9 (AICPA Adapted)
Accounts receivable 5,000,000 East Company reported the following current assets at year end:
Allowance for doubtful accounts (500,000) Cash 3,200,000
Notes receivable 2,000,000 Accounts receivable 3,000,000
Inventory (4,000,000+2,000,000) 6,000,000 Inventory 2,800,000
Total current assets 17,000,000 Prepaid insurance 200,000
Total current assets 9,200,000
Problem 1-7
On December 31, 2016, Statue Company reported the following current The accounts receivable consisted of the following:
assets: Customers’ accounts 1,420,000
Employees’ account-current 240,000
Cash 700,000 Advances to subsidiary 260,000
Accounts receivable 1,200,000 Allowance for uncollectible accounts (120,000)
Inventory 600,000 Subscription receivable, not collectible currently 1,200,000
Total accounts receivable 3,000,000

An examination of the accounts receivable revealed the following: What total amount should be reported as current assets at year-end?
Trades accounts receivable 930,000 a. 8,000,000
Allowance for doubtful accounts (20,000) b. 9,200,000
Claim against shipper for goods lost in transit 30,000 c. 7,740,000
Selling price of unsoldgoods sent to Tar Company d. 8,940,000
on consignment at 130% of cost and not included
inending inventory 260,000 Solution 1-9 Answer C
1,200,000 Cash 3,200,000
What is the correct amount of current assets on December 31, 2016? Accounts receivable 1,420,000
a. 2,440,000 Allowance for uncollectible accounts (120,000)
b. 2,210,000 Receivable from employees 240,000
c. 2,500,000 Inventory 2,800,000
d. 2,240,000 Prepaid insurance 200,000
Total current assets 7,740,000
Answer: A
Problem 1-10 (AICPA Adapted)
Cash 700,000 Gar Company reported the following liability account balances on December
Accounts receivable 930,000 3 l, 2016:
Allowance for doubtful accounts (20,000)
Claims receivable 30,000 Accounts Payable 1,900,000
Inventory (600,000+200,000) 800,000 Bonds Payable due December 31, 2017 3,400,000
Total current assets 2,440,000 Discount on bonds payable 200,000
Deferred tax liability 400,000
Problem 1-8 Dividends payable 500,000
Caticlan Company provided the following data on December 31, 2016: Income tax payable 900,000
Cash, including sinking fund of 500,000 2,000,000 Note payable, due January 31, 2018 600,000
Notes receivable 1,200,000
Notes receivable discounted 700,000 The deferred tax liability is based on temporary differences that will reverse
Accounts receivable- unassigned 3,000,000 in 2018.
Accounts receivable- assigned 800,000 On December 31, 2016, what total amount should be reported as current
Allowance for doubtful accounts 100,000 liabilities?
 a. 7,100,000
b. 6,700,000 Problem 1-13 (AICPA Adapted)
c. 6,500,000
d. 6,900,000 Mazda Company reported the following liability balances on December 31,
2016:
Solution 1-10 Answer c
10% note payable issued on October 1, 2015,
Accounts payable 1,900,000 maturing October 1, 2017 2,000,000
Dividends payable 500,000 12% note payable issued on March 1, 2015,
Income tax payable 900,000 maturing on March 1, 2017 4,000,000
Bonds payable 3,400,000
Discount on bonds payable (200,000) The 2016 financial statements were issued on March 3 1, 2017. Under the
Total current liabilities 6,500,000 loan agreement for the 10% note payable, the entity has the discretion to
refinance the obligation for at least twelve months after December 31, 2016.
Problem 1-11 (AICPA Adapted)
On March 1, 2017, the entire P4,000,000 balance of the 12% note payable
Brite Company provided the following information on December 3 1, 2016: was refinanced through issuance of a long-term obligation payable lump
sum.
Accounts payable 550,000 What amount of the notes payable should be classified as current on
Unsecured note payable, 8%, due July 1, 2017 4,000,000 December 31, 2016?
Accrued expenses 350,000
Contingent liability 450,000 a. 6,000,000 b. 4,000,000 c. 2,000,000 d. 0
Deferred tax liability 250,000
Senior bonds payable, 7%, due March 31, 2017 5,000,000 Solution 1-13 Answer B
The 10% note payable is classified as noncurrent.
The contingent liability is an accruaI for possible loss on a P1, 000,000 lawsuit
filed against the entity. Problem 1-14 (AICPA Adapted)
The legal counsel expects the suit to be settled in 2017 and has estimated Willem Company reported the following liabilities on December 31, 2016:
that the entity will be liable for damages in the range of P450,000 to Accounts payable 750,000
P750,000. Short-term borrowings 400,000
The deferred tax liability is not related to an asset for financial reporting and Bonds payable due 2017 3,000,000
is expected to reverse in 2017. Premium on bonds payable 200,000
Mortgage payable, current portion P500,000 3,500,000
What total amount should be reported as current liabilities? Bank loan, due June 30, 2017 1,000,000

a. 10,350,000 b. 10,150,000 c. 9,900,000, d. 4,900,000 The P1,000,000 bank loan was refmanced with a 5-year loan on January 15,
2017. The financial statements were issued March 1, 2017.
Solutioh 1-11 Answer c
Accounts payable 550,000 What total amount should be reported as current liabilities on December 31,
Unsecured note payable 4,000,000 2016?
Accrued expenses 350,000 a. 2,650,000 b. 5,850,000 c. 5,350,000 d. 4,850,000
Senior bonds payable 5,000,000
Total current liabilities 9,900,000 Solution 1-14 Answer b
Accounts payable 750,000
Short-term borrowings 400,000
Problem 1-12 PHILCPA Adapted) Bonds payable 3,000,000
Premium on bonds payable 200,000
Burma Company disclosed the following information: Mortgage payable current portion 500,000
Accounts payable, after deducting debit balances Bank loan 1,000,000
in suppliers’ accounts amounting to P100,000 4,000,000 Total current liabilities 5,850,000
Accrued expenses 1,500,000
Credit balances of customers’ accounts 500,000 Problem 1-15 (1AA)
Stock dividend payable 1,000,000
Claims for increase in wages and allowance On December 31, 2016, Ace Company had P40,000,000 note payable due on
by employees of the entity, covered in a February 28, 2017. On December 31, 2016, the entity arranged a line of
pending lawsuit 400,000 credit with City Bank which allows the entity to borrow up to P35,000,000 at
Estimated expenses in redeeming prize coupons 600,000 one percent above the prime rate for three years.

What amount should be reported as total current liabilities? On February 15, 2017, the entity borrowed P25,000,000 from City Bank and
used P5,000,000 additional cash to liquidate P3 0,000,000 note payable. The
a. 6,700,000 b. 6,600,000 c. 7,100,000 d. 7,700,000 financial statements were issued on March 31, 2017.

Solution 1-12 Answer a What amount of note payable should be reported as current liability on
Accounts payable (4,000,000 + 100,000) 4,100,000 December 31, 2016?
Accrued expenses 1,500,000
Credit balances in customers’ accounts 500,000 a. 40,000,000 b. 10,000,000 0. 5,000,000 d. 0
Estimated liability for coupons 600,000
Total current liabilities 6,700,000 Solution 1-15 Answer A
The refinancing occurred on February 15, 2017, which is atter the end of the Problem 1-19 (IAA)
reporting period and before issuance of the 2016 financial statement. Thus, Silver Company provided the following information at year-end:
the note payable is classfied totally as current. Share premium 1,000,000
Accounts payable 1,100,000
Problem 1-16 (IAA) Preference share capital, at par 2,000,000
Ordinary share capital, at par 3,000,000
Jam Company had P2,000,000 note payable that is due on February 28, 2017. Sales 10,000,000
The entity borrowed P1 ,600,000 on February 25, 2017 which has a five year Total expenses 7,800,000
term and used the proceeds to pay down the note and used other cash to Treasury shares at cost ordinary 500,000
pay the balance. Dividends 700,000
Retained earnings-January 1 1,000,000
How much of the note payable is classified as current in the December 31,
2016 financial statements that were issued on March 31, 2017? What total shareholders’ equity should be reported on December 31?
a. 2,000,000 b. 1,600,000 c. 400,000 d. 0 a. 8,000,000 b. 8,500,000 c. 5,800,000 d. 8,700,000

Solution 1-16 Answer A Solution 1-19 Answer a

Sales 10,000,000
Problem 1-17 (AICPA Adapted) Total expenses (7,800,000)
United Company provided the following current assets and shareholders’ Net income 2,200,000
equity on December 31, 2016: Retained earnings January 1 1,000,000
Dividends (700,000)
Cash 600,000 Retained earnings -December 31 2,500,000
Financial assets at fair value through profit or loss, Preference share capital 2,000,000
including cost of P3 00 000 of United Company shares, 1,000,000 Ordinary share capital 3,000,000
Accounts receivable 3,500,000 Share premium 1,000,000
Inventory 1,500,000 Retained earnings 2,500,000
Total current assets 6,600,000 Treasury shares at cost (500,000)
Share capital 5,000,000 Total shareholders’ equity 8,000,000
Share premium 2,000,000
Retained earnings 500,000 Problem 1-20 (AICPA Adapted)
Total shareholders’ equity 7 500 000 Mont Company reported net assets totaling P8, 750, 000 at year-end which
included the following:
What amount should be reported as total shareholders’ equity? Treasury shares of Mont Company at cost 250,000
a. 7, 200, 000 Idle machinery 100,000
b. 7, 500, 000 Trademark 150,000
c. 7,800,000 Allowance for inventory write-down 200,000
d. 5,200,000
Solution 1 –17 Answer A What amount should be reported as net assets at year-end?
Share capital 5,000,000 a. 8,500,000 b. 8,400,000 c. 8,300,000 d. 8,200,000
Share premium 2,000,000
Retained earnings 500,000 Solution 1-20 Answer a
Treasury shares, at cost (300 000) Reported net assets 8,750,000
Total shareholders’ equity 7,200,000 Treasury shares (250,000)
Adjusted net assets 8,500,000
Problem 1-18 (AICPA Adapted)
Kalinga Company provided the following information at year-end: Problem 1-21 (PHILCPA Adapted)
Share capital 15,000,000 Peach Company reported total assets of P8,500,000 at year-end which
Share premium 5,000,000 included the following:
Treasury shares, at cost 2,000,000 Treasury shares of Peach Company at cost 500,000
Actuarial loss on defined benefit plan 1,000,000 Unamortized patent 300,000
Retained earnings unappropriated 6,000,000 Cash surrender value of life insurance 150,000
Retained earnings appropriated 3,000,000 Cumulative translation loss 250,000
Revaluation surplus 4,000,000
Cumulative translation adjustment -credit 1,500,000 What amount should be reported as total assets at year-end?

What amount should be reported as total shareholders’ equity? a. 8,000,000 b. 7,750,000 c. 8,500,000 d. 8,250,000
a. 3 1,500,000 b. 32,500,000 c. 28,500,000 d. 25,500,000
Solution 1-21 Answer b
Solution 1-18 Answer a Adjusted total assets (8,500,000 -500,000 250,000) 7,750,000
Share capital 15,000,000
Share premium 5,000,000 Problem 1-22 (IAA)
Retained earnings unappropriated 6,000,000 Alena Company provided the following information at yw-end:
Retained earnings appropriated 3,000,000
Revaluation surplus 4,000,000 Property, plant and equipment 35,000,000
Cumulative translation adjustment credit 1,500,000 Land 20,000,000
Actuarial loss on defined benefit plan (1,000,000) Cash 5,000,000
Treasury shares, at cost (2,000,000) Accounts receivable 20,000,000
Total shareholders’ equity 31,500,000 Allowance for doubtful accounts 1,000,000
Merchandise inventory 13,000,000
Prepaid insurance 2,500,000 4. What total amount should be reported as current assets?
Financial asset at fair value through
other comprehensive income 7,000,000 a. 6,900,000 b. 7,050,000 c. 7,350,000 d. 7,400,000
Accounts payable 8,000,000
Wages payable 2,000,000 Solution 2-1 Question 1 Answer a
Short-term note payable 3,000,000 Cash on hand 500,000
Bonds payable 40,000,000 Customer postdated check (50,000)
Premium on bonds payable 3,000,000 Employees IOUs (50,000)
Adjusted balance 400,000
What is the working capital? Cash in bank per bank statement 2,700,000
a. 46,500,000 b. 33,500,000 c. 26,500,000 d. 35,500,000 Outstanding checks (200,000)
b. Adjusted cash in bank balance 2,500,000
Solution 1-22 Answer C
Question 2 Answer b
Current assets: Accounts receivable 1,900,000
Cash 5,000,000 Customer deposit incorrectly “netted”
Accounts receivable 20,000,000 against accounts receivable 50,000
Allowance for doubtful accounts (1,000,000) Customer postdated check 50,000
Merchandise inventory 13,000,000 Adjusted balance 2,000,000
Prepaid insurance 2,500,000 39,500,000
The customer deposit is not “netted” against accounts receivable but should
Current liabilities: be reported as current liability.
Accounts payable 8,000,000 The customer postdated check should be reverted to accounts receivable.
Wages payable 2,000,000 13,000,000
Short-term note payable 3,000,000 ________ Question 3 Answer c
Working capital 26,500,000 Inventory 2,000,000
Cost of undelivered goods (750,000 / 150%) 500,000
CHAPTER 2 Adjusted balance 2,500,000

STATEMENT OF FINANCIAL POSITION Question 4 Answer d

Comprehensive problems Cash on hand 400,000
Cash in bank 2,500,000
Problem 2-1 (AICPA Adapted) Accounts receivable 2,000,000
Allowance for doubtful accounts (150,000)
On December 31, 2016, Ivan Company showed the following current assets. Advances to employees 50,000
Cash 3,200,000 Inventory 2,500,000
Accounts receivable 2,500,000 Prepaid expenses 100,000
Inventory 2,000,000 Total current assets 7,400,000
Prepaid expenses 100,000
Total current assets 7,800,000 Problem 2-2 (AICPA Adapted)
Gold Company provided the following trial balance on December 31, 2016:
Cash on hand, including customer Cash overdraft 100,000
postdated check P50,000 and Accounts receivable 350,000
employees IOUs P50,000 500,000 Inventory 580,000
Cash in bank per bank statement Prepaid expenses 120,000
(outstanding checks on December 31, 2016 P200,000) 2,700,000 Land classified as held for sale 1,000,000
Total cash 3,200,000 Property, plant and equipment 950,000
Customers’ debit balances, net of customer Accounts payable 200,000
deposit of P50,000 1,900,000 Accrued expenses 150,000
Allowance for doubtful accounts (150,000) Ordinary share capital 1,500,000
Share premium 250,000
Sale price of goods invoiced to customers at Retained earnings 800,000
150% of cost on December 29, 2016 but
delivered on January 5, 2017 and excluded from Checks amounting to P3 00,000 were written to vendors and recerded on
reported inventory 750,000 December 29, 2016 resulting in a cash overdraft of P 1 00,000. The checks
Total accounts receivable 2,500,000 were mailed on January 15, 2017.
Land classified as held for sale was sold for cash on J anuary 31, 2017. The
1. What is the adjusted cash balance? entity issued the financial statements on March 31, 2017.
a. 2,900,000 b. 2,500,000 c. 2,950,000 d. 3,200,000
1. What total amount should be reported as current assets?
2. What is the adjusted balance of accounts receivable? a. 2,250,000 b. 2,050,000 c. 1,950,000 d. 1,250,000

a. 1,950,000 b. 2,000,000 c. 1,850,000 d. 1,800,000 2. What total amount should be reported as current liabilities?
a. 450,000 b. 350,000 c. 200,000 d. 300,000
3. What is the adjusted inventory?
3. What is the total shareholders’ equity?
a. 1,500,000 b. 2,000,000 c. 2,500,000 d. 2,750,000 a. 2,550,000 b. 1,750,000 c. 1,500,000 d. 2,300,000
Solution 2-2 Question 1 Answer a Petty cash (50, 000-10,000) 40,000
Notes receivable 4,000,000
Cash 200,000 Accounts receivable (6, 000, 000 + 1,500 000) 7,500,000
Accounts receivable 350,000 Inventory 3,000,000
Inventory 580,000 Bond sinking fund 3,000,000
Prepaid expenses 120,000 Debit balances in accounts payable 1,000,000
Land classified as held for sale 1,000,000 Total current assets 24,040,000
Total current assets 2,250,000
The bank overdraft is not netted against the cash in bank but should be
The undelivered checks should be adjusted as follows: classified as current liability.
The customers’ credit balances are not netted against accounts receivable
Cash 300,000 but should be classified as current liability.
Accounts payable 300,000 The bond sinking fund is classified as current asset because the bond payable
Cash (overdraft) (100,000) is already classified as current liability.
Debit adjustment 300,000 The classification of the bond sinking fund should parallel the classification of
Adjusted cash balance 200,000 the related liability.

Under PFRS 5, the land classified as held for sale should be reported as Question 2 Answer a
current asset. Bank overdraft 500,000
Credit balances in accounts receivable 1,500,000
Question 2 Answer b Accounts payable (7,000,000 + 1,000,000) 8,000,000
Accounts payable 200,000 Notes payable 4,000,000
Accrued expenses 150,000 Bond payable 3,000,000
Total current liabilities 350,000 Accrued expenses 2,000,000
Total current liabilities 19, 000, 000
Question 3 Answer a
Ordinary share capital 1,500,000 The debit balances in suppliers’ accounts are not netted against accounts
Share premium 250,000 payable but should be classified as current asset.
Retained earnings 800,000
Total shareholders’ equity 2,550,000 Problem 2-4 (AICPA Adapted)

Trey Company provided the following trial balance on December 31, 2016
Problem 2-3 (PHILCPA Adapted) which had been adjusted except for income tax expense:
Kabugao Company provided the following information on December 31,
2016: Cash 600,000
Accounts receivable, net of allowance of P100,000 1,650,000
Cash in bank, net of bank overdraft of P500,000 5,000,000 Prepaid taxes 300,000
Petty cash, unreplenished petty cash expenses P10,000 50,000 Accounts payable 140,000
Notes receivable 4,000,000 Share capital 500,000
Accounts receivable, net of customers’ accounts with Share premium 680,000
credit balances of P1,500,000 6,000,000 Retained earnings 630,000
Inventory 3,000,000 Foreign currency translation adjustment 400,000
Bond sinking fund 3,000,000 Revenue 3,600,000
Total current assets 21,050,000 Expenses 2,600,000
Accounts payable, net of suppliers’ accounts 5,550,000 5,550,000
with debit balances of P1,000,000 7,000,000
Notes payable 4,000,000 During 2016, estimated tax payments of P300,000 were charged to prepaid
Bond payable due June 30, 2017 3,000,000 taxes. The entity has not yet recorded income tax expense.
Accrued expenses 2,000,000
Total current liabilities 16,000,000 There were no differences between financial and taxable income. The tax
rate is 30%.
1. What amount should be reported as total current assets on December31,
2016? Included in accounts receivable is P500,000 due from a customer. Special
a. 19,040,000 terms granted to this customer require payment in equal semiannual
b. 20,040,000 installments of P125,000 every April 1 and October 1.
c. 20,050,000
d. 24,040,000 1. On December 31, 2016, what amount should be reported as total current
assets?
2. What amount should be reported as total current liabilities on December a. 2,000,000 b. 2,200,000 c. 2,300,000 d. 2,250,000
31, 2016?
a. 19,000,000 2. On December31, 2016, what amount should be reported as total retained
b. 1 6,000,000 earnings?
c. 15,500,000 a. 1,680,000 b. 1,200,000 c., 1,330,000 d. 1,630,000
d. 15,000,000
Solution 2-4 Question 1 Answer a
Solution 2-3 Question 1 Answer d Cash 600,000
Accounts receivable 1,400,000
Cash in bank (5,000,000 + 500,000) 5,500,000 Total current assets 2,000,000
 The billings inexcess of cost on long term contracts account is a current
Accounts receivable 1,650,000 liability.
Noncurrent portion (125,000 + 125,000) (250,000)
Current portion 1,400,000 Question 3 Answer c
Cash 600,000
The prepaid taxes of P3 00,000 actually represent the current tax expense for Accounts receivable 3,500,000
2016 and therefore should be charged to income tax expense. Cost in excess of billings on long term contracts 1,600,000
Total current assets 5,700,000
Question 2 Answer c
Revenue 3,600,000 The prepaid taxes of P450,000 represent the tax expense for the current
Expenses (2,600,000) year.
Income before income tax 1,000,000
Income tax (30% x 1,000,000) (300,000) Question 4 Answer c
Net income 700,000 Share capital 50,000
Retained earnings-January 1 630,000 Share premium 2,030,000
Total retained earnings 1,330,000 Retained earnings 2,110,000
Total shareholders’ equity 4,890,000
Problem 2-5 (AICPA Adapted)
Mint Company provided the following account balances on December 31, Problem 2-6 (AICPA Adapted)
2016 which had been adjusted except for income tax expense: Shaw Company provided the following trial balance on December 31, 2016
which had been adjusted except for income tax expense:
Cash 600,000
Accounts receivable 3,500,000 Cash 675000
Cost in excess of billings on long-term contracts 1,600,000 Accounts receivable (net) 2,695,000
Billings in excess of cost on long-term contracts 700,000 Inventory 2,135,000
Prepaid taxes 450,000 Property, plant and equipment (net) 10,245,000
Property, plant, and equipment, at carrying amount 1,510,000 Accounts payable and accrued liabilities 1,800,000
Note payable noncurrent 1,620,000 Income tax payable 1,500,000
Share capital 750,000 Deferred tax liability 750,000
Share premium 2,030,000 Share capital 2,500,000
Retained earnings unappropriated 900,000 Share premium 3,000,000
Retained earnings restricted for note payable 160,000 Retained earnings, January 1 3,350,000
Earnings from long-term contracts 6,680,000 Net sales and other revenue 15,000,000
Costs and expenses 5,180,000 Costs and expenses 10,000,000
Income tax expense 2,100,000 ___________
All receivables on long-term contracts are considered to be collectible within 27,900,000 27,900,000
12 months. During the year, estimated tax payments of 450,000 were
charged to prepaid taxes. The entity has not recorded income tax expense. The accounts receivable included P1,000 000 due from a customer and
The tax rate is 30%. payable in quarterly installments of P 125,000. The last payment is due
December 30, 2018.
On December 31, 2016, what amount should be reported as During the year, estimated tax payment of P600 000 was charged to income
tax expense. The income tax rate is 30% on all types of income.
1. Total retained earnings? On December 31, 2016, what amount should be reported as
a. 1,950,000 b. 2,110,000 c. 2,400,000 d. 2,560,000
1. Total current assets?
2. Total non-current liabilities? a. 6,030,000 b. 5,555,000 0. 5,530,000 d. 5,055,000
a. 1,620,000 b. 1,780,000 c. 2,320,000 d. 2,480,000
2. Total current liabilities?
3. Total current assets? a. 2, 700, 000 b. 3,300, 000 c. 4,050 000 d. 3,450,000
a. 5,000,000 b. 4,100,000 c. 5,700,000 d. 6,150,000
3. Retained earnings?
4. Total shareholders’ equity?
a. 8,350,000
a. 2,940,000 b. 2,780,000 c. 4,890,000 d. 4,730,000 b. 7,750,000
c. 6,850,000
Solution 2-5 Question 1 Answer b d. 6,250,000
Earnings from long term contracts 6,680,000 e.
Costs and expenses (5 180 000) Solution 2-6
Income before income tax 1,500,000
Income tax (30% x 1,500,000) (450,000) Question 1 Answer d
Net income 1,050,000 Cash 675,000
Retained earnings unappropriated 900,000 Accounts receivable 2,195,000
Retained earnings restricted 160,000 Inventory 2,185,000
Total retained earnings 2,110,000 Total current assets 5,055,000

Question 2 Answer a Accounts receivable 2,695,000

Note payable noncurrent 1,620,000 Noncurrent portion (125,000 x 4) (500,000)
Adjusted current portion 2,195,000
 Under the loan agreement for the 8% note payable, the entity has the
Question 2 Answer a discretion to refinance the obligation for at least twelve months after
Accounts payable and accrued liabilities 1,800,000 December 31, 2016.
Income tax payable (1,500,000 -600,000) 900,000 1. What amount should be reported as total current liabilities?
Total current liabilities 2,700,000
a. 7,200,000 b. 4,700,000 c. 6,200,000 d. 5,100,000
Question 3 Answer c
Net sales and other revenue 15,000,000 2. What amount should be reported as total noncurrent liabilities?
Costs and expenses (10,000,000)
Income before income tax 5,000,000 a. 3,400,000 b. 5,500,000 c. 8,000,000 d. 7,500,000 .
Income tax (30% x 5,000,000) (1,500,000)
Net income 3,500,000 Solution 2-8
Retained earnings-January 1 3,350,000 Question 1 Answer b
Retained earnings -December 31 6,850,000 Accounts payable (2,000,000 + 200,000) 2,200,000
Accrued expenses 800,000
Income tax payable 1,100,000
Problem 2-7 (AICPA Adapted) Cash dividend payable 600,000
Charice provided the following information on December 31, 2016: Total current liabilities 4,700,000
* Accounts payable amounted to P5 00,000 and accrued expenses totaled
P300,000 on December 31, 2016. The creditors’ debit balances are not netted against accounts payable but
*On December 15, 2016, the entity declared a cash dividend of P7 per share should be reported as current asset.
on 100,000 outstanding shares, payable on January 15, 2017. The stock dividend payable is part of shareholders’ equity as an addition to
*On July 1, 2016, the entity issued P5,000,000, 8% bonds for P4,400,000 to share capital.
yield 10%. The bonds mature on June 30, 2021, and pay interest annually
every June 30. Question 2 Answer c
*The pretax financial income was P8,500,000 and taxable income was
P6,000,000. The difference is due to P1,000,000 permanent difference and Bonds payable 4,500,000
P1,500,000 of taxable temporary difference to reverse in 201 7. Premium on bonds payable 500,000
*The income tax rate is 30%. The entity made estimated income tax Deferred tax liability 500,000
payments during the year of P1 ,000,000. Note payable 6% 1,500,000
Note payable 8% 1,000,000
What amount should be reported as total current liabilities on December 31, Total noncurrent liabilities 8,000,000
2016?
a. 3,500,000 Problem 2-9 (AICPA Adapted)
b. 2,700,000 Cara Company provided the following information for the current year;
c. 2,300,000 January 1 December 31
d. 2,500,000 Current asset 240,000 ?
Property, plant, and equipment 1,600,000 1,700,000
Solution 2-7 Answer d Current liabilities ? 130,000
Noncurrent liabilities 580,000 ?
Accounts payable 500,000
Accrued expenses 300,000 All assets and liabilities are reported at year-end. Working capital of P90,000
Dividends payable (100,000 shares x 7) 700,000 remained unchanged.
Accrued interest payable (5,000,000 x 8% x 6/12) 200,000
Income tax payable 800,000 Net income for the current year was P60, 000. No dividends were declared
Total current liabilities 2,500,000 during the year and there were no other changes shareholders’ equity.
Current tax expense (6,000,000 x 30%) 1,800,000
Estimated tax payment 1,000,000 1. What is the amount of current assets on December 31?
Income tax payable 800,000 s
a. 220,000 b. 130,000 c. 90,000 d. 40,000
Problem 2-8 (AlCPA Adapted)
2. What is the shareholders’ equity on December 31?
Ronna’s Company provided the following information on December 31 2016: a. 1,170,000 b. 1,110,000 c. 1,050,000 d. 1,080,000

Accounts payable, net of creditors’ 3. What IS the amount of noncurrent liabilities on December 31?
debit balances P200,000 2,000,000 a. 540,000 b. 480,000 c. 620,000 d. 750,000
Accrued expenses 800,000
Bonds payable due December 31, 2018 4,500,000 Solution 2-9
Premium on bonds payable 500,000 Question 1 Answer a
Deferred tax liability 500,000 Current assets -December 31 (SQUEEZE) 220,000
Income tax payable 1,100,000 Current liabilities- December 31 130,000
Cash dividend payable 600,000 Working capital -December 31 90,000
Stock dividend payable 400,000
Note payable 6%, due March 1, 2017 1,500,000 Question 2
Note payable 8%, due October 1, 2017 1,000,000 Answer a
The financial statements for 2016 were issued on March 31, 2017. On Current assets -January 240,000
December 31, 2016, the 6% note payable was refinanced on a long-term Property, plant and equipment January 1 1,600,000
basis. Total assets January 1 1,840,000
Current liabilities (150,000) Deferred serial bonds, issued at par and
Noncurrent liabilities (580,000) bearing interest at 12%, payable semiannual
Shareholders’ equity January 1 1,110,000 installments of P500,000 due April 1 and
Net income for current year 60,000 October 1 of each year, the last bond to be paid
Shareholders’ equity December 31 1,170,000 on October 1, 2022. Interest is also paid
Current assets January 1 240,000 semiannually 5,000,000
Current liabilities-January 1 (SQUEEZE) 150,000
Working capital January 1 90,000 What amount should be reported as total current liabilities on December 31,
2016?
Question 3 Answer c
a. 8,1 00,000
Current assets December 31 220,000 b. 7,950,000
Property, plant and equipment -December 31 1,700,000 c. 9,100,000
Total assets December 31 1,920,000 d. 7,350,000
Current liabilities December 31 (130,000)
Noncurrent liabilities December 31 (SQUEEZE) (620,000) Solution 2-11 Answer a
Shareholders’ equity December 31 1,170,000 Employee income taxes withheld 900,000
Cash overdraft 1,300,000
Accounts receivable with credit balance 750,000
Problem 2-10 (IAA) Estimated warranty liability 500,000
Kumaykay Company provided the following information on December Estimated damages payable 1,500,000
31, 2016: Accounts payable 3,000,000
Accounts payable Accrued interest on bonds payable from October 1 to
Bank note payable 10% December 31, 2016 (5,000,000 x 12% x 3/ 12) 150,000
Bank note payable 11% Total current liabilities 8,100,000
Interest payable
Mortgage note payable 10%
Bonds payable
Problem 2-12 (IAA)
* The P3,000,000, 10% note was issued March 1, 2016, payable on demand.
Interest is payable every six months. Aroma Company provided the following information on December 31 2016:
* The one-year P5,000,000, 11% note was issued January 15, 2016. On
December 31, 2016, the entity negotiated a written agreement with the bank Cash 300,000
to replace the note with a 2-year, P5, 000, 000, 10% note to be issued Accounts receivable 800,000
January 15, 2017. Inventory 1,650,000
* The 10% mortgage note was issued October 1, 2013, with a term ' of 10 Prepaid expenses 250,000
years. Terms of the note give the holder the right to demand immediate Property, plant and equipment 8,800,000
payment if the entity fails to make a monthly interest payment within 10 Accumulated depreciation 800,000
days from the date the payment is due. On December 31, 2016, the entity is Accounts payable 1,250,000
three months behind in making the required interest payment. Accrued expenses 250,000
* The bonds payable are ten-year, 8% bonds, issued June 30, 2007. Interest is Bonds payable 4,000,000
payable semiannually on June 30 and December 31. Share capital 5,000,000
Retained earnings 500,000
What amount should be reported as total current liabilities?
A P500, 000 note payable to bank, due on June 30, 2017, was deducted from
a. 15,650,000 b. 11,650,000 c. 20,650,000 d. 13,650,000 the balance on deposit in the same bank.
The entity recorded checks of P200, 000 in payment of accounts payable on
Solution 2-10 Answer a December 31, 2016. These checks were still on hand on January 20, 2017.
Accounts payable An advance payment of P100, 000 from a customer for goods to be delivered
Bank note payable 10% in 2016 was deducted from accounts receivable.
Interest payable
Mortgage note payable 1. What total amount should be reported as current assets on December.31,
Bonds payable due June 30, 2017 2016?
a. 3,800,000 b. 3,600,000 c. 3,700,000 d. 3,900,000
Total current liabilities
2. What total amount should be reported as current liabilities on December
Problem 2-11 (IAA) 31, 2016?
Manchester Company provided the following information on December 31, a. 2,100,000 b. 2,300,000 6. 1,900,000 d. 2,200,000
2016:
Employee income taxes withheld 900 000 Solution 2-12
Cash balance at First State Bank 2,500,000 Question 1 Answer a
Cash overdraft at Harbor Bank 1,300,000 Cash 1,000,000
Accounts receivable with credit balance 750,000 Accounts receivable 900,000
Estimated expenses of meeting warranties 500,000 Inventory 1,650,000
Estimated damages as a result of unsatisfactory Prepaid expenses 250,000
performance on a contract 1,500,000 Total current assets 3,800,000
Accounts payable 3,000,000
Cash 300,000 4. What total amount should be reported as current assets on December 31,
Note payable deducted from cash in bank 500,000 2016?
Undelivered checks 200,000 a. 5,400,000
Adjusted cash balance 1,000,000 b. 5,1 00,000
c. 5,300,000
The note payable due June 30, 2017 should be shown as current liability. d. 5,200,000
The undelivered checks should be adjusted by debiting cash and crediting
accounts payable. Solution 2-13
Question 1 Answer a
Accounts receivable 800,000
Advance payment from customer erroneously Cash in bank 1,333,000
deducted from accounts receivable 100,000 Petty cash fund 10,000
Adjusted carrying amount 900,000 Cash withheld from wages 190,000
General cash 500,000
The cash advance from the customer is shown as current liability. Total cash 2,000,000

Question 2 Answer b The bank overdraft 'is not “netted” but reported as current liability, The cash
set aside for plant addition is shown as non-current asset.
Accounts payable 1,450,000
Accrued expenses 250,000 Question 2 Answer b
Note payable-bank 500,000 Accounts receivable 1,500,000
Advances from customers 100,000 Account to be written off (100 000)
Total current liabilities 2,300,000 Adjusted balance 1,400,000
Accounts payable 1,250,000 Allowance for doubtful accounts 200,000
Undelivered checks 1,303,303 Account to be written off (100,000)
Adjusted balance 1 450 000 Adjusted balance 100,000

Problem 2-13 (AICPA Adapted) Question 3 Answer c

Daet Company provided the following account balances and related Inventory 2,000,000
information on December 31, 2016: Goods held on consignment (150,000)
Cash 3,700,000 Adjusted balance 1, 850, 000
Accounts receivable 1,500,000
Allowance for doubtful accounts 200,000 The goods of P200, 000 purchased and received are properly included in
Inventory 2,000,000 inventory.
Prepaid insurance 300,000
Total current assets 7,700,000 Question 4 Answer a
Cash 2,000,000
Analysis of cash Accounts receivable 1,400,000
Cash in bank 1,300,000 Allowance for doubtful accounts (100,000)
Bank overdraft in another bank (300,000) Inventory 1,850,000
Cash set aside for plant addition 2,000,000 Prepaid insurance (300, 000-50000) 250,000
Petty cash fund 10,000 Total current assets 5 400 000
Cash withheld from wages 190,000
General cash 500,000 Problem 2-14 (PHILCPA Adapted)
Total cash 3,700,000
Multinational Company provided the following balances on December 31,
The accounts receivable included past due account in the amount of 2016:
P100,000. The account is deemed uncollectible and should be written off. Accounts payable 500,000
The inventory included goods held on consignment amounting to P150, 000 Accrued taxes 100,000
and goods of P200, 000 purchased and received on December 31, 2016. Ordinary share capital 5,000,000
Neither of these items has been recorded as a purchase. Dividends ordinary share 1,000,000
Dividends preference share 500,000
The prepaid insurance included cash surrender value of life insurance of Mortgage payable, P500,000 due in six months 4,000,000
P50,000. Note payable, due January 31, 2018 2,000,000
Share premium 500,000
Preference share capital 3,000,000
1. What is the adjusted cash balance? Premium on note payable 200,000
a. 2,000,000 Income summary -credit balance 4,000,000
b. 1,700,000 Retained earnings January 1 2,500,000
c. 4,000,000 Unearned rent income 150,000
d. 2,300,000
1. What is the amount of non-current, liabilities on December 31, 2016?
2. What is the adjusted balance of accounts receivable? a. 5,700,000 b. 6,200,000 c. 5,500,000 d. 6,000,000
a. 1,200,000 b. 1,400,000 c. 1,300,000 d. 1,500,000
2. What is the amount of retained earnings on December 31, 2016?
3. What is the adjusted inventory? a. 6,500,000 b. 2,500,000 c. 1,000,000 d. 5,000,000
a. 2,200,000 b. 2,000,000 c. 1,850,000 d. 1,600,000
3. What is the total shareholders’ equity on December 31, 2016?
a. 15,000,000 b. 13,500,000 c. 9,500,000 d. 8,500,000 c. 5,550,000
d. 6,100,000
Solution 2-14
Question 1 Answer a 2. What amount should be reported as total current liabilities?
Mortgage payable 3,500,000 a. 3,450,000
Note payable due January 31, 2018 2,000,000 b. 3,400,000
Premium on note payable 200,000 c. 3,950,000
Total noncurrent liabilities 5,700,000 d. 3,700,000

Mortgage payable 4,000,0000 Solution 2-15 Answer d

Current portion due in six months (500,000)
Noncurrent portion 3,500,000 Cash in bank 1,650,000
Accounts receivable 1,700,000
Question 2 Answer d Allowance for doubtful accounts (100,000)
Retained earnings January 1 2,500,000 Advances to employee -IOU 50,000
Net income 4,000,000 Advances to officers due currently 300,000
Dividends ordinary share (1,000,000) Advances to suppliers 200,000
Dividends preference share (500,000) Inventory 2,400,000
Retained earnings December 31 5,000,000 Prepaid expenses 100,000
Debit balance in accounts payable 50,000
The net income is derived from the credit balance of the income summary Total current assets 6,100,000
account.
Accounts receivable 1,600,000
Needless to say, if the income summary account has debit balance, it is a net Customer check marked NSF 100,000
loss. Adjusted balance 1,700,000

Question 3 Answer b The customer check marked NSF should be reverted to accounts receivable.
The cash deposit with court is classified as noncurrent.
Preference share capital 3,000,000
Ordinary share capital 5,000,000 Inventory 1,900,000
Share premium 500,000 Cost of undelivered inventory (600,000/120%) 500,000
Retained earnings 5,000,000 Adjusted balance 2,400,000
Total shareholders’ equity 13,500,000
The selling pride of undelivered inventory is excluded from accounts
receivable but the cost should be included in inventory.
Problem 2-15 (PHILCPA Adapted)
Camarines Company provided the following data on December 31, 2016: Question 2 Answer a
Cash 2,000,000
Accounts receivable 3,000,000 Accounts payable (2,450,000 + 50,000) 2,500,000
Inventory 1,900,000 Interest payable 150,000
Prepaid expenses 100,000 Income tax payable 300,000
Accounts payable, net of debit balance of P50, 000 2,450,000 Mortgage payable current portion-(2,000,000/4) 500,000
Interest payable 150,000 Total current liabilities 3,450,000
Income tax payable 300,000
Money claim of the union pending final decision 500,000 The debit balance in accounts payable is not netted against accounts payable
Mortgage payable, due in four annual installments 2,000,000 but should be classified as current asset.

Analysis of cash The money claim of the union pending final decision should be disclosed as
Cash in bank 1,650,000 contingent liability.
Customer check marked NSF 100,000
Employee IOU 50,000 CHAPTER 3
Deposit with court for case under litigation 200,000 NOTES TO FINANCIAL STATEMENTS
Total cash 2,000,000 Problem 3-1 (AICPA Adapted)

Analysis of accounts receivable Dean Company acquired 100% of Morey Company in the prior year. During
the current year, the individual entities included in their financial statements
Customers' debit balances 1,600,000 the following:
Advances to subsidiary 400,000 Dean Morey
Advances to suppliers 200,000 Key officers’ salaries 750,000 50,000
Advances to officers due currently 300,000 Officers’ expenses 200,000 100,000
Allowance for doubtful accounts (100,000) Loans to officers 1,250,000 500,000
Selling price of merchandise invoiced at 120% Intercompany sales 1,500,000
of cost, undelivered and excluded from inventory 600,000
Total accounts receivable 3,000,000 What total amount should be reported as related party disclosures in the
notes to Dean Company’s consolidated financial statements for the current
1. What amount should be reported as total current assets? year?
a. 6, 050, 000
b. 6 350, 000 a. 1,500,000 b. 1,550,000 c. 1,750,000 d. 3,000,000
Solution 3-1 Answer d What total amount should be reported as “adjusting events” on December
Loans to officers: 31, 201 6?
Dean 1,250,000 a. 1,300,000
Morey 500,000 b. 1,200,000
c. 3,800,000
Key officers’ salaries: d. 3,700,000
Dean 750,000
Morey 500,000 Solution 3-4 Answer b
Total 3,000,000 Doubtful accounts (900,000 100,000) 800,000
Loss on claim receivable 400,000
Problem 3-2 (AICPA Adapted) Total adjusting events 1,200,000

During the current year, Jane Company engaged in the following Problem 3-5 (IFRS)
transactions: The end of reporting period of Norway Company is December 31,
2016 and the financial statements for 2016 are authorized for issue on March
Key management personnel compensation 2,000,000 15, 2017.
Sales to affiliated entities 3, 000,000 On December 31, 2016, Norway Company had a receivable of
P400, 000 from a customer that is due 60 days after the end of reporting
What total amount should be included as related party disclosures in Jane period. On January 15, 2017, a receiver was appointed for the said customer.
Company’s separate financial statements for the current year? The receiver informed Norway that the P400,000 would be paid in full by
a. 5,000,000 June 30, 2017.
b. 3,000,000 Norway Company had equity investments held for trading on
c. 2,000,000 December 3 1, 2016, these investments were recorded at the fair value of
d. 0 P5,000,000. During the period up to February 15, 2017, there was a steady
decline in the fair value of all the shares in the portfolio, and on February 15,
Solution 3-2 Answer a 5,000,000 2017, the fair value had fallen to P2,000,000.
PAS 24, paragraph 16, requires disclosure of key management personnel
compensation. Norway Company had reported a contingent liability on
The sales to affiliated entities shall be disclosed in Jane Company’s separate December 31, 2016 related to a court case in which Norway Company was
financial statements but eliminated in consolidated financial statements. the defendant. The case was not heard until the fast week of February 2017.
On February 11, 2017, the judge handed down a decision against Norway
Problem 3-3 (IFRS) Company. The judge determined that Norway Company was liable to pay
Gibson Company reported that remuneration and other payments made to damages and costs totaling P3,000,000.
the entity’s chief-executive officer during the current year were: On December 31, 2016, Norway Company had a receivable from a
large customer in the amount of P3,500,000. On January 31, 201 7, Norway
Annual salary 2,000,000 Company was advised in writing by the liquidator of the said customer that
Share options and other share-based payments 1,000,000 the customer was insolvent and that only 10% of the receivable will be paid
Contributions to retirement benefit plan 500,000 on April 30, 2017.
Reimbursement of travel expenses for business trips 1,200,000
What total amount should be reported as “adjusting events” on December3l,
What total amount should be disclosed as “compensation” to key 2016?
management personnel?
a. 3,500,000 b. 4,700,000 c. 3,000,000 d. 2,500,000 a. 6,150,000
b. 9,150,000
Solution 3-3 Answer a c. 9,550,000
All, except reimbursement of travel expenses. d. 6,500,000

Problem 3-4 (IFRS) Solution 3-5 Answer a

The audit of Anne Company for the year ended December 31, 2016 was Litigation loss 3,000,000
completed on March 1, 2017. Bad debt expense (3,500,000 x 90%) 3,150,000
The financial statements were signed by the managing director on March 15, Total amount of adjusting events 6,150,000
2017 and approved by the shareholders on March 31, 2017.
The next events have occurred. Problem 3-6 (IFRS)
*On January 15, 2017, a customer owing P900, 000 to Anne Company filed Ginger Company is completing the preparation of the draft financial
for bankruptcy. The financial statements included an allowance for doubtful statements for the year ended December 31, 2016. The financial statements
accounts pertaining to this customer onlylofP100, 000. are authorized for issue on March 31, 2017.
*Anne Company’s issued share capital comprised 100,000 ordinary shares *On March 15, 2017, a dividend of P 1,750,000 was declared and a
with P100 par value. The entity issued additional 25,000 shares on March 1, contractual profit share payment of P350,000 was made, both based on the
2017 at par value. profit for the year ended December 31, 2016.
*Equipment with carrying amount of P525, 000 was destroyed by fire on * On February 1, 2017, a customer went into liquidation having owed the
December 15, 2016. Anne Company has booked a receivable of P400 000 entity P340,000 for the past 5 months. .
from the insurance entity on December 31, 2016.
No allowance had been made against this debt in the draft financial
*After the insurance entity completed an investigation on February 1, 2017, statements.
it was discovered that the fire took place due to negligence of the machine * On March 20, 2017, a manufacturing plant was destroyed by fire resulting
operator. As a result, the insurer’s liability was zero on this claim. in a financial loss of P2 600, 000.
 2/14/2017 A shipping vessel of the entity with carrying amount of
What total amount should be recognized in profit or loss for the year ended P5,000,000 was completely lost at sea because of a hurricane.
December 31, 2016 to reflect adjusting events alter the end of reporting
period? 3/11/2017 A court case involving the entity as the defendant was settled
and the entity was obligated to pay the plaintiff P1,500,000. The entity
a. 1,750,000 previously has not recognized a liability for the suit because management
deemed it possible that the entity would lose the case.
b. 3,290,000
3/15/2017 One of entity’s factories with a carrying amount of P4,000,000
c. 2,600,000 was completely razed by forest fire that erupted in the vicinity.

d. 690,000 The management completed the draft of the financial statements for 2016
on February 10, 2017. On March 20, 2017, the board of directors authorized
Solution 3-6 Answer d the financial statements for issue.
Contractual profit share payment 350,000
Bad debt loss 340,000 The entity announced the profit and other selected information on March 22,
Total adjusting events 690,000 2017. The financial statements were approved by shareholders on April 2,
2017 and filed with the regulatory agency the very next day.
Problem 3-7 (IFRS)
What total amount should be reported as adjusting events on December3l,
Caress Company carried a provision of P2,000,000 in the draft financial 2016?
statements on December 3 , 2016 in relation to an unresolved court case.
On January 31, 2017, when the financial statements on December 31, a. 9,500,000 b. 8,500,000 c. 9,000,000 d. 4,500,000
2016hadnotyetbeenauthorizedforissue, the case was settled and the court
decided the final total damages payable by Caress to be P2,800,000, Solution 3-9 Answer d
What amount should be adjusted on December 31, 2016 in relation to this Accounts written off 3,000,000
event? Provision for lawsuit 1,500,000
a. 2,800,000 Total adjusting events 4,500,000
b. 2,000,000
c. 800,000
d. 0 CHAPTER 4

Solution 3-7Answer c STATEMENT OF COMPREHENSIVE INCOME

Cost of goods sold and operating expenses
Actual liability 2,800,000
Provision already recognized 2,000,000 Problem 4-1 AICPA Adapted
Increase in liability 800,000 Brock Company reported operating expenses in two categories, namely
distribution and general and administrative.
Problem 3-8 (IFRS) The adjusted trial balance at year-end included the following expense and
loss accounts for current year:
During 2016, Marian Company was sued by a competitor for P5,000,000 for Accounting and legal fee 1,200,000
infringement of a patent. Based on the advice of the entity’s legal counsel, Advertising 1,500,000
the entity accrued the sum of P3,000,000 as a provision in the financial Freight out 800,000
statements for the year ended December 31, 2016. Subsequently, on March Interest 700,000
15, 2017, the Supreme Court decide in favor of the party alleging Loss on sale of long-term investment 300,000
infringement of the patent and ordered the defendant to pay the aggrieved Officers’ salaries 2,250,000
party a sum of P3,500,000. The financial statements were prepared by the Rent for office space 2,200,000
entity’s management on February 15, 2017 and approved by the board of Sales salaries and commissions 1,400,000
directors on March 31, 2017.
One-half of the rented premises are occupied by the sales department. What
What amount should be recognized as accrued liability on December 31, amount should be reported as total distribution costs?
2016? a. 4,800,000
a. 5,000,000 b. 4,000,000
b. 3,500,000 c. 3,700,000
c. 3,000,000, d. 3,600,000
d. 1,500,000
Solution 4-1 Answer a
Solution 3-8 Answer b Advertising 1 500 000
Freight out 800,000
Accrued liability -December 31, 2016 3 500 000 Rent (2,200,000 x 1/2) 1,100,000
Sales salaries and commissions 1,400,000
Problem 3-9 (IFRS) Total distribution costs 4,800,000
Caroline Company provided the following events that occurred after
December 31, 2016:
1/15/2017 P3,000,000 of accounts receivable was written off due to the
bankruptcy of a major customer. Problem 4-2 (AICPA Adapted)
Lee Company reported the following data for the current year:
Legal and audit fees 1,700,000
Rent for office space 2,400,000 Ending inventory (500,000)
Interest on inventory loan 2,100,000 Cost of goods sold (1,250,000 x 6) 7,500,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000 Problem 4-5 (PHILCPA Adapted)
Freight out 1,600,000 Bicolano Company provided the following data for the current year:
Officers’ salaries 1,500,000 Inventory, January 1 2,000,000
Insurance 850,000 Purchases 7,500,000
Sales representative salaries 2,150,000 Purchase returns and allowances 500,000
Research and development expense 1,000,000 Sales returns and allowances 750,000
Inventory on December 31 2,300,000
The office space is used equally by the sales and accounting departments. Gross profit rate on net sales 20%
What amount should be classified as general and administrative expenses? What is the amount of gross sales for the current year? ‘
a. 5,250,000 a. 7,750,000
b. 6,450,000 b. 8,500,000
c. 5,600,000 c. 7,000,000
d. 6,250,000 d. 9,125,000

Solution 4-2 Answer a Solution 4-5 Answer b

Inventory January 1 2,000,000
Legal and audit fees 1,700,000 Purchases 7,500,000
Rent for office space (2,400,000 x 1/2) 1,200,000 Purchase returns and allowances 500 000
Officers’ salaries 1,500,000 Goods available for safe 9,000,000
Insurance 850,000 Inventory December 31 2 800 000
Total general and administrative expenses 5,250,000 Cost of goods sold 6,200,000
Net sales (6,200,000 / 80%) 7,750,000
Sales returns and allowances 750,000
Problem 4-3 (AICPA Adapted) Gross sales 8,500,000
Vigor Company provided the following information for the current year:
Net accounts receivable at January 1 900,000 Problem 4-6 (AICPA Adapted)
Net accounts receivable at December 31 1,000,000 Carmela Company provided the following information for the current year.
Account receivable turnover 5 to 1 Net sales 1,800,000
Inventory at January 1 1,100,000 Ending inventory 120,000
Inventory at December 31 1,200,000 Gross margin on sales 40%
Inventory turnover 4 to 1
What is the cost of goods available for sale?
What is the gross margin for the current year?
a. 150,000 b. 200,000 c. 300,000 d. 400,000 a. 1,200,000 b. 1,220,000 c. 1,080,000 d. 960,000

Solution 4-3 Answer a Solution 4-6 Answer a

Net sales = Average accounts receivable x accounts receivable turnover (1,800,000 x 60% = 1,080,000 + 120,000) 1,200,000
=950,000 x 5
= 4,750,000 Problem 4-7(IAA)
Cost of sales = Average inventory x inventory turnover
= 1,150,000x4 Sheraton Company reported the following information for the current year.
= 4,600,000
Ending goods in process 1,000,000
Gross margin = 4,750,000 4,600,000 Depreciation on factory building 320,000
= 150,000 Beginning raw materials 400,000
Direct labor 1,980,000
Problem 4-4 (PHILCPA Adapted) Factory supervisor’s salary 560,000
Hiligaynon Company provided the following information for the current year: Depreciation on headquarters building 210,000
Beginning inventory 400,000 Beginning goods in process 760,000
Freight in 300,000 Ending raw materials 340,000
Purchase returns 900,000 Indirect labor 360,000
Ending inventory 500,000 Purchases of raw materials 2,300,000
Selling expenses 1,250,000
Sales discount 250,000 What is the cost of goods manufactured for the current year?

The cost of goods sold is six times the selling expenses. What is the amount a. 5,340,000 b. 5,580,000 c. 5,550,000 d. 5,820,000
of gross purchases?
a. 6,500,000 b. 6,700,000 c. 8,000,000 d. 3,200,000 Solution 4-8 Answer a
Beginning raw materials 400,000
Solution 4-4 Answer d Purchases of raw materials 2,300,000
Beginning inventory 400,000 Raw materials available for use 2,700,000
Gross purchases (SQUEEZE) 8,200,000 Ending raw materials (340,000)
Freight in 300,000 Raw materials used 2,360,000
Purchase returns (900,000) Direct labor 1,980,000
Goods available for sale 8,000,000
Factory overhead: Question 3 Answer b
Depreciation on factory building 320,000 Beginning finished goods 500,000
Factory supervisor’s salary 560,000 Cost of goods manufactured 7,100,000
Indirect labor 360,000 1,240,000 Goods available for sale 7,600,000
Total manufacturing cost 5,580,000 Ending finished goods (700,000)
Beginning goods in process 760,000 Cost of goods sold 6,900,000
Total goods in process 6,340,000
Ending goods in process (1,000,000) Problem 4-10 (PHILCPA Adapted)
Cost of goods manufactured 5,340,000
Mercury Company showed cost of goods sold of P4,320,000 in the statement
Problem 4-9 (PHILCPA Adapted) of comprehensive income after the first year of operations.

Argentina Company incurred the following costs and expenses during the The total manufacturing cost comprised the following:
current year:
Raw material purchases 4,000,000 Materials used 50%
Direct labor 1,500,000 Direct labor incurred 30%
Indirect labor –factory 800,000 Manufacturing overhead 20%
Factory repairs and maintenance 200,000
Taxes on factory building 100,000 Goods in process at year-end amounted to 10% of the total manufacturing
Depreciation factory building 300,000 cost.
Taxes on salesroom and general office 150,000 Finished goods at year-end amounted to 20% of the cost of goods
Depreciation sales equipment 50,000 manufactured.
Advertising 400,000
Sales salaries 500,000 What is the amount of the direct labor cost incurred?
Office salaries 700,000 a. 1,800,000 b. 2,400,000 c. 3,000,000 d. 5,400,000
Utilities- 60% applicable to factory 500,000
Solution 4-10 Answer-a
Beginning Ending
Raw materials 300,000 450,000 Total manufacturing cost: 100% 6,000,000
Work in process 400,000 350,000 Less: Goods in process 12/31 10% 600,000
Finished goods 500,000 700,000 Cost of goods manufactured 90% 5,400,000
Less: Finished goods 12/31 (20% x 90%) 18% 1,080,000
1. What is the cost of raw materials used? Cost of goods sold 72% 4,320,000
a. 3,850,000 b. 4,000,000 c. 4,150,000 d. 4,750,000 Total manufacturing cost (4,320,000 / 72%) 6,000,000

2. What is the cost of goods manufactured for the current year? Direct labor cost (30% x 6,000,000) 1,800,000
a. 7,450,000 b. 7,200,000 c. 7,100,000 d. 7,300,000
Problem 4-11 (IAA)
3. What is the cost of goods sold for the current year? Tactful Company reported that the operating cost other than the interest
a. 7,300,000 expense for the year amount to 40% of cost of goods sold but 20% of sales. 5
b. 6,900,000 sold. Interest expense is 5% of sales.
c. 7,600,000 The amount of purchases is 120% of cost of goods sold. Ending inventory is
d. 8,300,000 twice as much as the beginning inventory. The net income for the year is
P560,000. The income tax rate is 30%.
4-9 Question 1 Answer a What is the amount of sales for the year?
a. 2,080,000
Beginning raw materials 300,000 b. 1,485,000
Raw material purchases 4,000,000 c. 2,285,000
Raw materials available for use 4,300,000 d. 3,200,000
Ending raw materials (450,000)
Raw materials used 3,850,000 Solution 4-11 Answer d
Income before income tax (560,000 / 70%) 800,000
Question 2 Answer c Sales (800,000 / 25%) 3,200,000
Sales 100%
Raw materials used 3,850,000 Cost of goods sold (20% / 40%) 50%
Direct labor 1,500,000 Operating expenses 20%
Factory overhead Interest expenses 5%
Indirect labor 800,000 Income before income tax 25%
Factory repairs and maintenance 200,000
Taxes on factory building 100,000 Problem 4-12 (PHILCPA Adapted)
Depreciation -factory building 300,000 Jericho Company showed net income of P480,000 for the year. Selling
Utilities (60% x 500,000) 300,000 1,700,000 expenses were equal to 15% of sales and also 25% of cost of goods sold. All
Total manufacturing cost’ 7,050,000 other expenses were 13% of sales.
Beginning work in process 400,000 What is the gross profit for the year?
Ending work in process (350,000) a. 4,000,000 b. 2,400,000 c. 1,600,000 d. 2,000,000
Cost of goods manufactured 7,100,000
Solution 4-12 Answer c CHAPTER 5
Sales 100% STATEMENT OF COMPREHENSIVE INCOME
Cost of goods sold (15% / 25%) 60% Net income and comprehensive income
Selling expenses 15%
Other expenses 13% Problem 5-1 (AICPA Adapted)
Net income 12% Thorpe Company reported net income of P7,410,000 for the current year.
The auditor raised questions about the following amounts that had been
Sales (480,000/12%) 4,000,000 included in net income:
Cost of goods sold 60% x 4,000,000 2,400,000
Gross profit 1,600,000 Unrealized loss on foreign currency translation (540,000)
Gain on early retirement of bonds payable 2,200,000
Problem 4-13 (PHILCPA Adapted) Adjustment of profit of prior year for error
Ronalyn Company reported that the financial records were destroyed by fire in depreciation (net of tax effect) ( 750,000)
at the end of the current year. Loss from fire (1,400,000)
However, certain statistical data related to the income statement are
available. What amount should be reported as adjusted net income?
a. 6,500,000 b. 6,610,000 c. 8,160,000 d. 8,700,000
Interest expense 20,000
Cost of goods sold 2,000,000 Solution 5-1 Answer d
Sales discount 100,000 Net income per book 7,410,000
Add: Unrealized loss as component of
The beginning inventory was P400,000 and decreased 20% during the year. other comprehensive income 540,000
Administrative expenses are 25% of cost of goods sold but only 10% gross Adjustment of profit of prior year 750,000 1,290,000
sales. Adjusted net income 8,700,000

Four-fifths of the operating expenses relate to sale activities. Problem 5-2 (AICPA Adapted)
Pearl Company reported income before tax of 5,000,000 for the current year.
1. What is the amount of gross sales? The auditor questioned the following amounts that had been included in
a. 5,000,000 b. 7,000,000 c. 3,000,000 d. 4,000,000 income before tax:

2. What is the total amount of operating expenses? Equity in earnings of Cinn Company-40% interest 1,600,000
a. 2,000,000 b. 2,500,000 c. 1,500,000 d. 2,520,000 Dividend received from Cinn Company 320,000
Adjustment of profit of prior year for
3. What is the income before tax for the current year? arithmetical error in depreciation (1,400,000)
a. 380,000 b. 480,000 c. 330,000 d. 400,000 Gain on sale of equity investment at F VOCI 1,000,000

Solution 4-13 What amount should be reported as income before tax?

a. 3,400,000
Question 1 Answer a b. 4,680,000
Cost of goods sold (10% / 25%) 40% c. 5,080,000
Cost of goods sold 2,000,000 d. 6,080,000
Divide by cost ratio 40%
Gross sales 5,000,000 Solution 5-2 Answer c

Question 2 Answer b Reported income before tax 5,000,000

Administrative expenses (10% x 5,000,000) 500,000 Add: Adjustment of profit of prior year 1,400,000
Operating expenses (500,000 /1/5) 2,500,000 Total 6,400,000
Administrative expenses (500,000) Less: Dividend received from Cinn 320,000
Distribution costs 2,000,000 Gain on sale of equity investment 1,000,000 1,320,000
Corrected Income before tax 5,080,000
Question 3 Answer a
Sales 5,000,000 Problem 5-3 (AICPA Adapted)
Sales discount (100,000)
Net sales 4,900,000 Ocean Company has a comprehensive Insurance policy that allows assets to
Cost of goods sold (2,000,000) be replaced at current value. The policy has a P250, 000 deductible clauses.
Gross profit 2,900,000 One of the entity’s waterfront warehouses was destroyed in a storm surge.
Administrative expenses (500,000) Such storm occurs approximately every four years.
Distribution costs (2,000,000) The entity incurred 100,000 in dismantling the warehouse and intended to
Interest expense (20,000) replace it.
Income before income tax 380,000 The following data relate to the warehouse:

Current carrying amount 1,500,000

Replacement cost 5,500,000

What amount of gain on involuntary conversion should be reported as a

component of income from continuing operations?
a. 5,150,000
b. 3,900,000
c. 3,650,000 Solution 5-5 Answer a
d. 0 Sales 5,000,000
Cost of goods sold 2,800,000
Solution 5-3 Answer c Gross income 2,200,000
Replacement cost 5,500,000 Other income 450,000
Deductible clause (250,000) Total income 2,650,000
Proceeds of insurance policy 5,250,000 Expenses:
Less: Carrying amount 1,500,000 Selling expenses 700,000
Cost of dismantling 100,000 1,600,000 General and administrative expenses 600,000 1,300,000
Gain on involuntary conversion 3,650,000 Income before income tax 1,350,000
Income tax expense (150,000)
Problem 5-4 (IAA) Income from continuing operations 1,200,000
Bangladesh Company provided the following information for the current Unusual and infrequent gain 400,000
year: Gain on sale of investment 50,000
Other income 450,000
Sales 50,000,000
Cost of goods sold 30,000,000 Problem 5-6 (IAA)
Distribution costs 5,000,000 Corazon Company provided the following information for the current year:
General and administrative expenses 4,000,000 Sales 7,000,000
Interest expense 2,000,000 Sales returns and allowances 100,000
Gain on early extinguishment of long-term debt 500,000 Cost of goods sold 2,300,000
Correction of inventory error, net of income tax-credit 1,000,000 Utilities expense 1,000,000
Investment income- equity method 3,000,000 Interest revenue 150,000
Gain on expropriation 2,000,000 Income tax expense 800,000
Income tax expense 5,000,000 Casualty loss due to earthquake 50,000
Dividends declared 2,500,000 Finance cost 200,000
Salaries expense 600,000
What is the income from continuing operations? Loss on sale of investments 50 000
a. 9,000,000 b. 8,000,000 c. 9,500,000 d. 7,000,000
What amount should be reported as income from continuing operations?
Solution 5-4 Answer c a. 1,550,000 b. 1,600,000 c. 2,350,000 d. 1,400,000
Sales 50,000,000
Cost of goods sold (30,000,000) Solution 5-6 Answer a
Gross income 20,000,000 Net sales (7,000,000-100,000) 6,900,000
Gain on expropriation 2,000,000 Cost of goods sold (2,800,000)
Investment income 3,000,000 Gross income 4,100,000
Total income expense 25,000,000 Interest revenue 150,000
Distribution costs 5,000,000 Total income 4,250,000
General and administrative 4,000,000 Expenses:
Finance cost 1,500,000 10,500,000 Utilities expense 1,000,000
Income before tax 14,500,000 Salaries expense 600,000
Income tax expense (5,000,000) Casualty loss 50,000
Net income 9,500,000 Loss on sale of investments 50,000
Interest expense 2,000,000 Finance Cost 200,000 1,900,000
Gain on early extinguishment (500,000) Income before income tax 2,350,000
Finance cost 1,500,000 Income tax expense (800 000)
Income from continuing operations 1,550,000
Problem 5-5 (IAA)
Rosebud Company provided the following information for the current year: Problem 5-7 (AICPA Adapted)
Vane Company provided the following information for the current year:
Sales 5,000,000 Debit Credit
Cost of goods sold 2,800,000 Sales 5,750,000
Foreign translation adjustment credit 400,000 Cost of goods sold 2,400,000
Selling expenses 700,000 Administrative expenses 700,000
Unusual and infrequent gain 400,000 Sales commissions 500,000
Correction of inventory error 200,000 Interest revenue 250,000
General and administrative expenses 600,000 Freight out 150,000
Income tax expense 150,000 Uncollectible accounts expense 150,000
Gain on sale of investment 50,000 Loss on sale of equipment 100,000
Proceeds from sale of land at cost 800,000 Loss on early retirement of long-term debt 200,000 ___________
Dividends 300,000 4,200,000 6,000,000
Finished goods inventory:
What amount should be reported as income from continuing operations? January 1 4,000,000
a. 1,200,000 b. 1,350,000 c. 1,600,000 d. 2,000,000 December 31 3,600,000
Income tax rate 30%
1. What amount should be reported as cost of goods manufactured?
a. 2,000,000 b, 2,150,000 c. 2,800,000 d. 2,950,000
2. What amount should be reported as income from continuing operations? Solution 5-9 Answer b
a. 1,260,000 b. 1,295,000. c. 1,400,000 d. 1,470,000 Net income 3,500,000
Other comprehensive income:
Solution 5-7 Unrealized gain on derivative contract 250,000
Question 1 Answer a Foreign currency translation loss (50,000)
Finished goods inventory January 1 4,000,000 Revaluation surplus 1,000,000 1,200,000
Cost of goods manufactured (SQUEEZE) 2,000,000 Comprehensive income 4,700,000
Goods available for sale 6,000,000
Finished goods inventory -December 31 3,600,000 Problem 5-10 (IFRS)
Cost of goods sold 2,400,000 Rose Company, an investment entity, provided the following income and
expenses for the current year:
The cost of goods manufactured is “squeezed” by working back from the cost Dividend income from investments 9,200,000
of goods sold. Distribution income from trusts 500,000
Interest income on deposits 700,000
Question 2 Answer a Income from bank treasury bills 100,000
Sales 5,750,000 Unrealized gain on derivative contract
Cost of goods sold (2,400,000) as cash flow hedge 400,000
Gross income 3,350,000 Income from dealing in securities and derivatives
Interest revenue 250,000 held for trading 600,000
Total income 3,600,000 Write-down of securities and derivatives
held for trading 150,000
Expenses: Other income 250,000
Administrative expenses 700,000 Finance cost 300,000
Sales commissions 500,000 Administrative staff costs 3,300,000
Freight out 150,000 Sundry administrative costs 1,200,000
Uncollectible accounts expense 150,000 Income tax expense 1,700,000
Loss on sale of equipment 100,000
Loss on early retirement 200,000 1,800,000 1. What is the total income before tax?
Income before tax 1,800,000 a. 1 1,200,000 b. 1 1,350,000 c. 10,700,000 d. 10,750,000
Income tax (30% x 1,800,000) (540,000)
Net income 1,260,000 2., What is the total amount of expenses before tax?
a. 5,450,000 b. 5,300,000 c. 5,000,000 d. 5,150,000
Problem 5-8 (IAA)
Remy Company had the following events and transactions during 2016: 3. What is the net income for the current year?
a. 5,900,000 b. 3,700,000 c. 4,200,000 d. 5,500,000
*Depreciation for 2014 was understated by, P300,000.
*A litigation settlement resulted in a loss of P250,000. 4. What is the comprehensive income for the current year?
*The inventory on December 31, 2014 was overstated by P200,000. a. 4,200,000 b. 4,600,000 c. 3,800,000 d. 9,200,000
*The entity disposed of a recreational division at a loss of P500,000.
*The income tax rate is 30%. Solution 5-10
Question 1 Answer a
What is the effect of these events on the income from continuing operations Dividend income from investments 9,200,000
for 2016? Distribution income from trusts 500,000
a. 175,000 b. 385,000 c. 665,000 d. 525,000 Interest income on deposits 700,000
Income from bank treasury bills 100,000
Solution 5-8 Answer a Income from dealing in securities and
After-tax effect of litigation loss (250,000 x 70%) 175,000 derivatives held for trading net amount 450,000
The depreciation error is treated retrospectively. Other income 250,000
The inventory error is counterbalancing. Total income 11,200,000
The loss on disposition is part of discontinued operations.
Income from dealing in securities and derivatives 600,000
Problem 5-9 (IAA) Write-down of securities and derivatives (150,000)
Alladin Company provided the following for the current year: Net amount 450,000
Net income 3,500,000
Unrealized gain on derivative contract 250,000 Question 2 Answer b
Foreign currency translation adjustment-debit 50,000 Administrative staff costs 3,300,000
Revaluation surplus during the year 1,000,000 Sundry administrative costs 1,200,000
Finance cost 300,000
What is the comprehensive income for the current year? Total expenses 5,300,000
a. 3,700,000
b. 4,700,000 Question 3 Answer c
c. 4,800,000 Total income 1 1,200,000
d. 4,500,000 Total expenses (5,300,000)
Income before income tax 5,900,000
Income tax expense (1,700,000)
Net income 4,200,000
Question 4 Answer b 2. What is the total amount of expenses before income tax?
Net income 4,200,000 a. 2, 285, 000 b. 2, 005, 000 c. 2, 390, 000 d. 2,485,000
Other comprehensive income:
Unrealized gain on derivative contract 400,000 3. What is the net income for the current year?
Comprehensive income 4,600,000 a. 2,000,000
b. 2, 500, 000
c. 1,500, 000
Problem 5-11 (IFRS) d. 2, 650, 000
Dahlia Company provided the following information for the current year:
Sales 9,500,000 4.What is the balance of retained earnings on December 31?
Interest revenue 250,000 a. 4, 000, 000 b. 4,500,000 c. 3, 500, 000 d. 4, 650, 000
Gun sale of equipment 100,000
Revaluation surplus during the year 1,200,000 Solution 5-12
Share of profit of associate 350,000 Question 1 Answer b
Cost of goods sold 6,000,000 Inventory January 1 1,040,000
Finance cost 150,000 Purchases 3,720,000
Distribution costs 500,000 Goods available for sale 4,760,000
Administrative expenses 300,000 Inventory -December 31 at cost (850,000)
Translation loss on foreign operation 200,000 Cost of goods sold before inventory write-down 3,910,000
Income tax expense 950,000 Loss on inventory writedown 150,000
Cost of goods sold after inventory writedown 4,060,000
What is the net income for the current year?
a. 2,300,000 b. 3,300,000 c. 4,200,000 d. 2,100,000 Question 2 Answer a
Salaries 1,540,000
Solution 5-11 Answer a Contribution 280,000
Sales 9,500,000 Delivery 205,000
Cost of goods sold 6,000,000 Miscellaneous expense 125,000
Gross income 3,500,000 Doubtful accounts 10,000
Other income (250,000 + 100,000) 350,000 Depreciation 85,000
Share of profit of associate 350,000 Loss on sale of securities 40,000
Total income 4,200,000 Total expenses 2,285,000
Expenses:
Distribution costs 500,000 Question 3 Answer b
Administrative expenses 300,000 Sales 8,350,000
Finance cost 150,000 950,000 Cost of goods sold (4,060,000)
Income before income tax 3,250,000 Gross income 4,290,000
Income tax expense 950,000 Dividend income 100,000
Net income 2,300,000 Total income 4,390,000
Revaluation surplus during the year 1,200,000 Total expenses (2,285,000)
Translation loss on foreign operation 200,000 Income before income tax 2,105,000
Other comprehensive income 1,000,000 Income tax expense (105,000)
Income from continuing operations 2,000,000
Comprehensive income (2,300,000 + 1,000,000) 3,300,000 Income from discontinued operation 500,000
Net income 2,500,000
Problem 5-12 (IAA)
Empress Company provided the following data for the current year: Question 4 Answer b
Retained earnings-January 1 3,000,000 Retained earnings January 1 3,000,000
Dividends declared 1,000,000 Net income 2,500,000
Sales 8,350,000 Total 5,500,000
Dividend income 100,000 Dividends declared (1,000,000)
Inventory, January 1 1,040,000 Retained earnings December 31 4,500,000
Purchases 3,720,000
Salaries 1,540,000 Problem 5-13 (IFRS)
Contribution to employees’ pension fund 380,000 Divina Company provided the following information for the current year.
Delivery 205,000
Miscellaneous expense 125,000 Income from continuing operations 4,000,000
Doubtful accounts expense 10,000 Income from discontinued operation 500,000
Depreciation expense 85,000 Unrealized gain on financial asset -FVPL 800,000
Loss on sale of securities 40,000 Unrealized loss on equity investment FVOCI 1,000,000
Loss on inventory write-down 150,000 Unrealized gain on debt investment FVOCI 1,200,000
Income from discontinued operation, net of tax 500,000 Unrealized gain on futures contract designated as a
Income tax expense 105,000 cash flow hedge 400,000
Inventory on December 31 at cost 850,000 Translation loss on foreign operation 200,000
Net realizable value of inventory 700,000 Net “re-measurement” gain on defined benefit plan 600,000
Loss on credit risk of a financial liability at FVPL 300,000
1. What is the cost of goods sold? Revaluation surplus during the year 2,500,000
a. 4,760,000 b. 4,060,000 c. 3,910,000 d. 4,210,000
1. What amount should be reported as net income for the current year?
a. 4,000,000 b. 4,500,000 c. 5,300,000 d. 4,800,000 a. 550,000 b. 700,000 c. 150,000 d. 0

2. What net amount should be reported as OCI for the current year? Solution 6-2 Answer c
a. 4,000,000 b. 3,500,000 c. 3,200,000 d. 700,000 Carrying amount 1,500,000
Fair value less cost of disposal (1,100,000-150,000) 950,000
3. What amount should be reported as comprehensive income for the Impairment loss 550,000
current year?
a. 5,200,000 b. 7,700,000 c. 8,500,000 d. 7,200,000 Sale price 800,000
Carrying amount on November 20, 2016, date of sale 950,000
Loss on disposal (150,000)
Solution 5-13
Question 1 Answer b Problem 6-3 (IFRS)
Income from continuing operations 4,000,000 Coral Company accounts for noncurrent assets using the cost model. On
Income from discontinued operation 500,000 December 1, 2016, the entity classified a noncurrent asset as held for sale.
Net income 4,500,000
At that date, the carrying amount was P1,450,000, the fair value was
The unrealized gain on financial asset at FVPL is already included in income estimated at P2,150,00 and the cost of disposal at P150,000. The asset was
from continuing operations. sold on March 31, 2017 for P2,120,000.

Question 2 Answer c At what amount should the asset be measured on December 31, 2016?
Unrealized loss on equity investment at FVOCI (1,000,000) a. 2,000,000 b. 2,150,000 c. 2,120,000 d. 1,450,000
Unrealized gain on debt investment at FVOCI 1,200,000
Unrealized gain on futures contract designated Solution 6-3 Answer d
as cash flow hedge 400,000 Carrying amount December 31, 2016 1,450,000
Translation loss on foreign operation (200,000) Fair value less cost of disposal (2,150,000-150,000) 2,000,000
Net re-measurement gain on defined benefit plan 600,000 Measurement on December 31, 2016 -lower amount 1,450,000
Loss on credit risk of a financial liability at FVPL (300,000)
Revaluation surplus during the year 2,500,000 Problem 6-4 (IFRS)
Net amount of OCI -gain 3,200,000 On January 1, 2016, Racelle Company purchased land at a cost of P6,000,000.
The entity used the revaluation model for this asset.
Question 3 Answer b The fair value of the land was P7,000,000 on December 31, 2016 and
Net income 4,500,000 P8,500,000 on December 31, 2017. .
Other comprehensive income 3,200,000 On July 1, 2018, the entity decided to sell the land and therefore classified
Comprehensive income 7,700,000 the asset as held for sale.
The fair value of the land on this date is P7,600,000. The estimated cost of
CHAPTER 6 disposal is very minimal.
On December 31, 2018, the land was sold for P8,000,000.
NONCURRENT ASSET HELD FOR SALE
Problem 6-1 (IFRS) 1. What amount in OCI should be recognized in the statement of
comprehensive income for the year ended December 31, 2017?
Dana Company accounts for noncurrent assets using the cost model. On a. 2,500,000 b. 1,500,000 c. 400,000 d. 900,000
October 1, 2016, the entity classified as noncurrent asset as held for sale.
2. What amount of gain or loss on sale of land is recognized in 2018?
At that date, the carrying amount was P3,200,000, the fair value was a. 2,000,000 gain
estimated at P2,200,000 and the cost of disposal at P200,000. b. 1,000,000 gain
c. 400,000 gain
On December 15, 2016, the asset was sold for net proceeds of P1,850,000. d. 500,000 loss

What amount should be included as an impairment loss in the statement of 3. What amount of OCI is recycled to retained earnings in 2018?
comprehensive income for the year ended December 31, 2016? a. 1,000,000 b. 1,600,000 c. 2,500,000 d. 2,000,000
a. 1,000,000 b. 1,200,000 c. 1,350,000 d. 0
Solution 6-4
Solution 6-1 Answer b
Carrying amount 3,200,000 Question 1 Answer b
Fair value less cost of disposal (2, 200,000-200,000) 2,000,000 Fair value-December 31, 2017 8,500,000
Impairment loss 1,200,000 Fair value-December 31, 2016 7,000,000
Revaluation surplus in 2017-OCI 1,500,000
Problem 6-2 (IFRS)
Question 2 Answer c
Arlene Company accounts for noncurrent assets using the cost model. On Sale price 8,000,000
October 30, 2016, the entity classified a noncurrent asset as held for sale. Carrying amount equal to fair value on July 1, 2018 7,600,000
Gain on sale of land 400,000
At that date, the carrying amount was P1,500,000, the fair value was
estimated at P1,100,000 and the cost of disposal at P150,000. On November Problem 6-5 (1AA)
20, 2016, the asset was sold for net proceeds of P800,000.
On April 1, 2016, Brandy Company has a machine with a cost of P5,000,000
What amount should be included as loss on disposal in the statement of and accumulated depreciation of P3,750,000.
comprehensive income for the year ended December 31, 2016?
On April 1, 2016, the entity classified the machine as held for sale and Question 3 Answer c
decided to sell the machine within one year.
Adjusted carrying amount per book December 31, 2016 4,400,000
0n April 1, 2016, the machine has an estimated selling price of 500,000 and a Measurement of equipment on December 31, 2017 4,000,000
remaining useful life of 2 years. Loss on reclassification on 2017 400,000
It is estimated that the selling cost associated with the disposal of the
machine will be 50,000. PFRS 5, paragraph 28, states that any adjustment to the carrying amount of a
On December 31, 2016, thee estimated selling price of the machine had noncurrent asset that ceases to be classified as held for sale should be
increased to 750,000 with estimated selling cost of P100,000. included in profit or loss.

1. What amount of impairment loss should be recognized in 2016? Problem 6-7 (IFRS)
a. 1 250,000 b. 800,000 c. 750,000 d. 0 Clara Company purchased equipment for P5,000,000 on January 1, 2016 with
a useful life of 10 years and no residual value.
2. What amount should be recognized as gain on reversal of impairment on On December 3 1 , 201 7, the entity classified the asset as held for sale. The
December 31, 2016? fair value of the equipment on December 3 l, 2016 is P3,300,000 and the cost
of disposal is P100,000.
a. 468,750 b. 368,750 c. 300,000 d. 200,000 On December 31, 2018, the fair value of the equipment is P3,800,000 and the
cost of disposal is P200,000.
Solution 6-5 On December 31, 201 8, the entity believed that the criteria for classification
Question 1 Answer b as held for sale can no longer be met.
Cost 5,000,000 Accordingly, the entity decided not to sell the asset but to continue to use it.
Accumulated depreciation 3,750,000
Carrying amount- April 1, 2016, 1,250,000 What is the impairment loss to be recognized on December 31, 2017?
Fair value less cost of disposal -April 1, 2016 a. 1,300,000
(500,000-50,000) 450,000 b. 800,000
Impairment loss April 1, 2016 800,000 c. 700,000
d. 0
Question 2 Answer d
Fair value less cost of disposal December 31, 2016 2. What IS the measurement of the equipment that ceases as held for sale on
(750,000-100,000) 650,000 December31, 2018?
Fair value less cost of disposal April 1, 2016 450,000 a. 3,200,000 b. 4,000,000 c. 3,500,000 d. 3, 600,000
Gain on reversal of impairment 200,000
What amount should be recognized m profit or loss as a result of the
Problem 6-6 (IFRS) reclassification in 2018?
On December 31, 2016, Villa Company classified as held for sale an a. 800,000 b. 300,000 c. 400,000 d. 0
equipment with a carrying amount of P5,000,000.
On this date, the equipment is expected to be sold for P4,600,000. Solution 6-7 Question 1 Answer b
Reasonable disposal cost to be incurred on sale is expected at P200,000. Cost January 1, 2016 5,000,000
By December 31, 2017, the equipment had not been sold and management Accumulated depreciation December 31, 2017
decided to place back the equipment into operations. (5,000,000/10x2years) 1,000,000
On same date, the entity estimated that the equipment is expected to be Carrying amount December 31, 2017 4,000,000
sold at P4, 300, 000 with disposal cost of P50 000. Fair value less cost of disposal December 31, 2017
The carrying amount of the equipment is P4,000,000 on December 31, 2017 (3,300,000-100,000 cost of disposal) 3,200,000
if the noncurrent asset is not classified as held for sale. Impairment loss 800,000

1. What is the impairment loss in 2016? Question 2 Answer c

a. 600,000 b. 400,000 c. 200,000 d. 0 Carrying amount December 31, 2017 4,000,000
Depreciation that would have been recognized in 2018
2. What is the measurement of equipment that should be reported on (5, 000, 000/ 10) 500,000
December 31, 2017? Carrying amount December 31, 2018 3,500,000
a. 4,300,000 b. 4,000,000 c. 4,400,000 d. 4250,000 Fair value December 31, 2018 3,800,000
Cost of disposal 200,000
3. What amount should be recognized in profit or loss as a result of Recoverable amount December 31, 2018 3,600,000
reclassification in 2017?
a. 300,000 b. 250,000 c. 400,000 d. 150,000 Question 3 Answer b
Measurement of equipment 3,500,000
Solution 6-6 Carrying amount per book December 31, 2018 3,200,000
Question 1 Answer a Gain on reclassification 300,000
Carrying amount December 31, 2016 5,000,000
Fair value less cost of disposal (4,600,000-200,000) 4,400,000
Impairment loss in 2016 600,000 Chapter 7
Discontinued Operation
Question 2 Answer b
Carrying amount December 31, 2017 4,000,000 Problem 7-1 (IFRS)
Fair value less cost of disposal December 31, 2017 On September 30, 2016, when the carrying amount of the net assets of a
(4,300,000 -50,000) 4,250,000 business segment was 70,000,000, Young Company signed a legally binding
The equipment is measured at P4,000,000 on December 31, 2017 because contract to sell the business segment.
this amount is lower than the fair value less cost of disposal.
The sale is expected to be completed by January 31, 2017 at a sale price of The food distribution had revenue of P35,000,000 and expenses of
60,000,000. P27,000,000 for the period January 1 to September 30, and revenue of
In addition, prior to January 31, 201, the sale contract obliged Young P15,000,000 and expenses of P10,000,000 for the period October 1 to
Company to terminate the employment of certain employees of the business December 31.
segments incurring an expected termination cost of 2,000,000 to be paid on The carrying amount of the division’s net assets on December 31, 2016 was
June 30, 2017. P56,000,000 and the fair value less cost of disposal was P58,000,000.
The segment revenue and expenses for 2016 were 40,000,000 and The sale contract requires Zebra to terminate certain employees incurring an
45,000,000 respectively. expected termination cost of P4,000,000 to be paid by December 15, 2017.
Before income tax, what amount should be reported as loss from The income tax rate is 30%.
discontinued operation for 2016? What amount should be reported as income from discontinued operation for
a. 17,000,000 2016?
b. 12,000,000
c. 15,000,000 a. 7,700,000
d. 7,000,000 b. 8,300,000
c. 9,000,000
Solution 7-1 Answer a d. 6,300,000

Revenue 40,000,000 Solution 7-3 Answer d

Expenses (45,000,000) Revenue January 1 to December 31 50,000,000
Impairment loss (10,000,000) Expenses January 1 to December 31 (37,000,000)
Termination cost (2,000,000) Termination cost (4,000,000)
Loss from discounted operation (17,000,000) Income before tax 9,000,000
Income tax (30% x 9,000,000) 2,700,000
Selling price 60,000,000 Income from discontinued operation 6,300,000
Carrying amount (70,000,000) Fair value less cost of disposal 58,000,000
Impairment loss (10,000,000) Carrying amount of net assets 56,000,000
Expected gain not recognized 2,000,000

Problem 7-2 (IFRS) Problem 7-4 (1AA)

Booker Company committed to sell the comic book division component of
Xavier Company has three segments, A, B and C. Segment C, the closing the business, on September 1, 2016.
division, is deemed inconsistent with the long-term d1rectlon of the entity. The carrying amount of the division was P4, 000, 000 and the fair value was
Management has decided to dispose of Segment C. P3, 500, 000.
On November 15, 2016, the board of directors of Xavier Company voted to The disposal date is expected on June 1, 2017. The division reported an
approve the disposal and an announcement was made. operating loss of P200,000 for the year ended December 31, 2016.
On that date the carrying amount of Segment C’s net assets was P90,000,000 Before income tax, what amount should be reported as loss from
and the fair value less cost of disposal was P70,000,000. discontinued operation in 2016?
Segment C’s revenue and expenses for 2016, respectively, were P50,000,000
and P32,000,000, including an interest of P5,000,000 attributable to Segment a. 500,000 b. 200,000 c. 700,000 d. 0
C.
There was no further impairment of assets between November 15 and Solution 7-4 Answer c
December 31, 2016. Operating loss for the year 200,000
Before income tax, what amount of income or loss from discontinued Impairment loss (4,000,000 -3,500,000) 500,000
operation should be reported for 2016? Loss from discontinued operation 700,000
a. 13,000,000 income
b.18,000,000 income Problem 7-5 (IAA)
c. 30,000,000 income
d. 2,000,000 loss Enron Company decided on August 1, 2016 to dispose of a component of
business. The component was sold on November 30, 2016.
Solution 7-2 Answer d The net income for 2016 included income of P5 ,000,000 from operating the
Revenue 50,000,000 discontinued segment from January 1 to the date of disposal. The entity
Expenses (32,000,000) incurred a loss on the November 30 sale of P4,500,000.
Impairment loss (20,000,000) What amount should be reported as pretax income or loss from discontinued
Loss from discontinued operation (2,000,000) operation for 2016?
Carrying amount 90,000,000
Fair value less cost of disposal 70 000,000 a. 4,500,000 loss
Impairment loss 20 000,000 b. 5,000,000 income
c. 500,000 loss
Problem 7-3 (IFRS) d. 500,000 income

Zebra Company is diversified entity with nationwide interests in commercial Solution 7-5 Answer d
real estate development, banking, mining and food distribution. The food Operating income of discontinued segment 5,000,000
distribution division was deemed to be inconsistent with the long-term Loss on disposal (4,500,000)
direction of the entity. Income from discontinued operation 500,000
On October 1, 2016 the board of directors voted to approve the disposal of
this division. The sale is expected to occur in August 2017.
Problem 7-6 (AICPA Adapted) Problem 7-9 (IFRS)

On December 1, 2016, Greer Company committed to a plan to dispose of a Purple Company has correctly classified the packaging operation as disposal
business component’s assets. The disposal meets the requirements to be group held for sale and as discontinued operation.
classified as discontinued operation. For the year ended December 31 2016, this disposal group incurred trading
On that date, the entity estimated that the loss from the disposition of the loss after tax 2,000,000 and the loss on re-measuring it to fair value less cost
assets would be P700,000 and the component’s operating loss was P200,000. of disposal was P1,500 000.
Before income tax, what amount of loss should be reported for discontinued What total amount of the disposal group's losses should be included in profit
operation for 2016? or loss for the year ended December 31, 2016?
a.900,000 a. 3,500,000 b. 2,000,000 c. 1,500,000 d. 0
b. 200,000
c. 700,000 Solution 7-9 Answer a
d. 0 Operating loss 2,000,000
Loss on re-measurement to fair value less cost of disposal 1,500,000
Solution 7-6 Answer a Included in profit or loss 3 500 000
Loss from disposition of assets 700,000
Operating loss 200,000 Problem 7-10 (IAA)
Total loss from discontinued operation 900,000 Sky Company reported the following data for the current year:
Income from continuing operations 700,000
Problem 7-7 (AICPA Adapted) Net income 500,000
On January 1, 201 6, Deer Company had a division that met the criteria for Selling and administrative expenses 2,250,000
discontinuance of a business component. Income before income tax 1,000,000
For the period January 1 through October 15, 2016, the component had
revenue of 500,000 and expenses of P800,000. What amount should be reported as income or loss from discontinued
The assets of the component were sold on October 15, 2016 at a loss of P operations?
100,000. a. 700,000 income
b. 500,000 income
How should Deer report the component’s operation for 2016? c. 100,000 loss
a. 500,000 and 800,000 should be included in continuing operations d. 200,000 loss
b. 400,000 should be reported as loss on discontinued operations
c. 400,000 should be reported as an extraordinary loss Solution 7-10 Answer d
d. 300,000 should be reported as loss on discontinued operations Income from continuing operations 700,000
Loss from discontinued operations (SQUEEZE) (200,000)
Solution 7-7 Answer b Net income 500,000
Revenue 500,000
Expenses 800,000 Problem 7-11 (AICPA Adapted)
Operating loss 300,000 On December 31, 2016, Max Company committed to a plan to discontinue
Loss on disposal 100,000 the operations of Underwear Division.
Total loss on discontinued operations 400,000 The entity estimated that the division’s operating loss for 2017 would be
P500, 000.
Problem 7-8 (1AA) The fair value of the facilities was P300, 000 less than carrying amount on
In 2016, Isuzu Company decided to discontinue the Electronic Division, a December 31, 2016.
separately identifiable component of Isuzu’s business. On December 31, The division’s operating loss for 2016 was P1,400,000 and the division was
2016, the division has not been completely sold. actually sold for P400,000 less than carrying amount in 2017. The income tax
However, negotiations for the final and complete sale are progressing in a rate is 30%.
positive manner and it is probable that the disposal will be completed within
a year. Analysis of the records for the year disclosed the following relative to What amount should be reported as loss from discontinued operation in
the Electronics Division: 2016?
a 1,700,000 b. 1,190,000 0. 1,400,000 d. 980,000.
Operating loss for the year 8,000,000
Loss on disposal of some Electronics Division assets during 2016 500,000 Solution 7-11 Answer b
Expected operating loss in 2017 preceding final disposal 1,000,000 Operating loss in 2016 1,400,000
Expected gain in 2017 on disposal of division 2,000,000 Impairment loss in 2016 300,000
Total 1,700,000
What amount should be reported as pretax loss from discontinued operation Tax benefit (1,700,000 x 30%) (510,000)
in 2016? Loss from discontinued operation 1,190,000

a. 8,000,000 b. 8,500,000 0. 9,500,000 d. 7,500,000 Problem 7-12 (1AA)

Flame Company has two divisions, North and South. Both qualify as business
Solution 7-8 Answer b components. In 2016, the entity decided to dispose of the assets and
Operating loss for the year 8,000,000 liabilities of division South and it is probable that the disposal will be
Loss on disposal in 2016 500,000 completed early next year.
Pretax loss from discontinued operation 8,500,000 The revenue and expenses of Flame Company are as follows:
2016 2015
The expected operating loss in 2017 and expected gain on disposal in 2017 Sales-North 5,000,000 4,600,000
are not recognized in 2016. Total non-tax expenses-North 4,400,000 4,100,000
Sales-South 3,500,000 5,100,000
Total nontax expenses-South 3,900,000 4,500,000
During the later part of 2016, the entity disposed of a portion of division On December 31, 2016, what is the measurement of the subsidiary which is
South and recognized a pretax loss of P2,000,000 on the disposal. considered as a “disposal group classified as held for sale”?
The income tax rate is 30%. a. 15,000,000 b. 10,000,000 c. 9,000,000 d. 8,500,000

What amount should be reported as loss from discontinued Operation in Solution 7-14 Answer d
2016? Carrying amount 15,000,000
a. 2,000,000 b. 2,400,000 c. 1,400,000 d. 1,680,000 Fair value 9,000,000
Cost of disposal (500,000)
Sales- South 3,500,000 Fair value less cost of disposal 8,500,000
Expenses- South 3,900,000
Operating loss (400,000) A non-current asset or disposal group classified as held for sale shall be
Loss on disposal (2,000,000) measured at the lower of carrying amount and fair value less cost of disposal.
Total loss (2,400,000)
Tax saving (30% x 2,400,000) 720,000 CHAPTER 8
Loss from discontinued operation 1,680,000 CHANGE IN ACCOUNTING POLICY

Problem 7-13 (IAA) Problem 8-1 (AICPA Adapted)

Jazz Company operates two restaurants, one in Boracay and one in Dakak. During 2016, Orca Company decided to change from the FIFO method of
The operations and cash flows of each of the two restaurants are clearly inventory valuation to the weighted average method.
distinguishable.
During 2016, the entity decided to close the restaurant in Dakak and sell the FIFO Weighted average
property. It is probable that the disposal will be completed early next year.
The revenue and expenses for 2016 and for the preceding two years are as January 1 inventory 7,100,000 7,700,000
follows: December 31- inventory 7,900,000 8,300,000
2016 2015 2014
Sales-Boracay 60,000 48,000 40,000 In the statement of retained earnings for 2016, what amount should be
Cost of goods sold-Boracay 26,000 22,000 18,000 reported as the pretax cumulative effect of this accounting change?
Other expenses-Boracay 14,000 13,000 12,000 a. 1,000,000 addition
Sales-Dakak 23,000 30,000 52,000 b. 1,000,000 deduction
Cost of goods sold-Dakak 14,000 19,000 20,000 c. 600,000 addition
Other expenses-Dakak 17,000 16,000 15,000 d. 600,000 deduction

The other expenses do not include income tax expense. During the later part Solution 8-1 Answer c
of 20 1 6, the entity sold some of the kitchen equipment of the Dakak
restaurant and recognized a pretax gain of P15, 000 on the disposal. The FIFO inventory-January 1 7,100,000
income tax rate is 30%. Weighted average inventory January 1 7,700,000
What amount should be reported as income or loss from discontinued Cumulative effect 600,000
operation for 2016?
Problem 8-2 (AICPA Adapted)
a. 8,000 loss b. 7,000 gain c. 5,600 loss d. 4,900 gain
Goddard Company had used the FIFO method of inventory valuation since it
Solution 7-13 Answer d began operations in 2013. The entity decided to change to the weighted
Sales -Dakak 23,000 average method for determining inventory costs at the beginning of 2016.
Cost of goods sold-Dakak (14,000)
Other expenses Dakak (17,000) The following schedule shows year-end inventory balances:
Gain on disposal 15,000 Year FIFO Weighted average
Income before tax 7,000 2013 4,500,000 5 400 000
Income tax (30%x 7,000) (2,100) 2014 7,800,000 7,100,000
Income from discontinued operation 4,900 2015 8,300,000 7,800,000

What pretax amount should be reported in the statement of retained

Problem 7-14 (IFRS) earnings for 2016 as the cumulative effect of the change in accounting
policy?
Marquee Company, a parent entity, approved on December 1, 2016 a plan to a. 500,000 decrease
sell a subsidiary. The sale is expected to be completed on March 3 1, 2017. b. 300,000 decrease
The year-end is December 31, 2016 and the financial statements were c. 500,000 increase
approved on March 1, 2017. d. 300,000 increase
The subsidiary had net assets with carrying amount of P15,000,000 including
goodwill of P1 ,500,000 on December 31, 2016. Solution 8-2 Answer a
The subsidiary made a loss of P3,000,000 from January 1 to March 1, 2017
and is expected to make a further loss of P2,000,000 up to the date of sale. Inventory-December 31,2015
At the date of approval of the financial statements, the entity was in
negotiation for the sale of the subsidiary but no contract had, been signed. FIFO 8,300,000
Weighted average 7,800,000
The entity expected to sell the subsidiary for P9,000,000 and to incur cost of Decrease in inventory 500,000
disposal of P500,000. The value in use of the subsidiary was estimated to be
P10,000,000.
Problem 8-3 (AICPA Adapted) Problem 8-5 (IAA)

On January 1, 2016, Folk Company changed from the average cost method to During 2016, Build Company changed from the cost recovery method to the
the FIFO method to account for inventory. Ending inventory for each method percentage of completion method. The tax rate is 30%. Gross profit figures
was as follows: are as follows:
2014 2015 2016
2015 2016 Cost recovery method 950,000 1,250,000 1,400,000
Average cost 500,000 900,000 Percentage of completion 1,600,000 1,900,000 2,100,000
FIFO cost 700,000 1,400,000
How should this accounting change be reported in 2016?
The income statement information calculated by the average cost method a. 1,400,000 increase in profit or loss
was as follows: b. 1,400,000 increase in retained earnings
2015 2016 c. 910,000 increase in profit or loss
Sales 10,000,000 13,000,000 d. 910,000 increase in retained earnings
Cost of goods sold 7,000,000 9,000,000
Operating expenses 1,500,000 2,000,000 Solution 8-5 Answer d
Income before tax 1,500,000 2,000,000 Cumulative gross profit for 2014 and 2015 percentage
Tax expense 450,000 600,000 of completion 3,500,000
Cumulative gross profit for 2014 and 2015 cost recovery 2,200,000
The entity accrued tax expense on December 31 of each year and paid the Cumulative increase 1,300,000
tax in April of the following year. The income tax rate is 30%. Tax effect (1,300,000 x 30%) (390,000)
Addition to retained earnings on January 1, 2016 910,000
What amount of net income should be reported in 2016 after-the change to
the FIFO inventory method? Problem 8-6 (AICPA Adapted)

a. 1,610,000 During 2016, Foster Company appropriately changed to the FIFO method
b. 2,300,000 00111 the weighted average method for financial statement and income tax
c. 1,750,000 purposes. The change will result in P150, 000 increase in the beginning
d. 1,890,000 inventory on January 1, 2016. The tax rate is 30%. What is the prior period
specific effect of this accounting change?
Solution 8-3 Answer a a. 150,000 b. 105,000 c. 45,000 d. 0
Income before tax for 2016 Average 2,000,000
Understatement of beginning inventory (200,000) Solution 8-6 Answer b
Understatement of ending inventory 500,000 Journal entry on January 1, 2016 150,000
Income before tax for 2016 FIFO 2,300 000 Inventory Retained earnings (150,000 x 70%) 105,000
Income tax -30% 690,000 Income tax payable (150,000 x 30%) 45,000
Net income for 2016 FIFO 1 610 000

Problem 8-4 (IAA)

Banko Company used the cost recovery method of accounting since it began
operations in 2013. In 2016, management decided to adopt the percentage CHAPTER 9
of completion method. CHANGE IN ACCOUNTING ESTIMATE
2013 2014 2015
Revenue from completed Problem 9-1 (IAA)
contracts 25,000,000 42,000,000 40,000,000
Cost of completed contracts 18,000,000 29,000,000 28,000,000 Blue Company purchased a machine on January 1, 2013 for P6,000,000. At
Income from operations 7,000,000 13,000,000 12,000,000 the date of acquisition, the machine had a life of six years with no residual
Casualty loss 0 0 2,000,000 value. The machine is being depreciated on a straight line basis.
Income 7,000,000 13,000,000 10,000,000 On January 1, 2016, the entity determined that the machine had a useful life
of eight years from the date of acquisition with no residual value.
Analysis of the accounting records disclosed the following income by What is the depreciation of the machine for 2016?
contracts using the percentage of completion method. a. 750,000
2013 2014 2015 b. 600,000
Contract 1 7,000,000 c. 375,000
Contract 2 5,000,000 8,000,000 d. 500,000
Contract 3 3,000,000 7,000,000 2,000,000
Contract 4 1,000,000 6,000,000 Solution 9-1 Answer b
Contract 5 (1,000,000) Cost 6,000,000
Accumulated depreciation (6,000,000 / 6 x 3) 3,000,000
Before income tax, what is the cumulative effect of change in accounting Carrying amount January 1, 2016 3,000,000
policy that should be reported in the statement of retained earnings for Depreciation for 2016 (3,000,000 / 5-years) 600,000
2016? Revised life 8 years
a. 6,000,000 Years expired 3
b. 8,000,000 Remaining revised life 5 years
c. 7,000,000
d. 0
Solution 8-4 Answer a (38,000,000-32,000,000) 6,000,000
Problem 9-2 (AICPA Adapted) Original cost Useful life
On January 1, 2013, Flax Company purchased a machine for P5, 280, 000 and Building 15,000,000 15 years
depreciated it by the straight line method using an estimated useful life of Machinery 10,500,000 10 years
eight years with no residual value Furniture 3,500,000 7 years
On January 1, 2016, the entity determined that the machine had a useful life
of six years from the date of acquisition and the residual value was P480,000. On January 1, 2016, the entity determined that the remaining useful life is 10
An accounting change was made in 2016 to reflect these additional data. years for the building, 7 years for the machinery and 5 years for the
What is the accumulated depreciation for the machine on December 31, furniture.
2016? The entity used the straight line method of depreciation with no residual
a. 2,920,000 b. 3,080,000 c. 3,200,000 d. 3,520,000 value.
What is the total depreciation for 2016?
Solution 9-2 Answer a a. 2,650,000 b. 3,700,000 c. 2,550,000 d. 3,500,000

Acquisition cost January 1, 2013 5,280,000 Solution 9-5 Answer a

Accumulated depreciation for 2013,2014 and 2015 Building Machinery Furniture
(5, 280, 000 / 8 x 3) 1,980,000 Cost January 1, 2013 15,000,000 10,500,000 3,500,000
Carrying amount January 1, 2016 3,300,000 Accumulated depreciation:
Accumulated depreciation January 1, 2016 1,980,000 (15,000,000/ 15 x 3) 3,000,000
Depreciation for 2016 (2,820,000 / 3 years) 940,000 (10,500,000/10 x 3) 3,150,000
Accumulated depreciation December 31, 2016 2,920,000 (3,500,000 7 x 3) 1,500,000
Carrying amount January 1, 2016 3,300,000 Carrying amount
Residual value (480,000) January 1, 2016 12,000,000 7,350,000 2,000,000
Depreciable amount 2,820,000
Revised life 6 years Depreciation for 2016
Years expired 3 years Building (12,000,000 /10) 1,200,000
Remaining revised life 3 years Machinery (7,350,000/ 7) 1050 000
Furniture (2,000,000/ 5) 3,100,000
Problem 9-3 (IAA) Total depreciation for 2016 2,650,000

On January 1, 2014, Milan Company purchased an equipment for P6,000,000. Problem 9-6 (IAA)
The equipment had been depreciated using the straight line with residual On January 1, 2016, Canyon Company decided to decrease the estimated
value of P600,000 and useful life of 20 years. useful life of an existing patent from 10 years to 8 years.
On January 1, 2016, the entity determined that the remaining useful life is 10 The patent was purchased on January 1, 2011 for P3, 000, 000. The
years and the residual value is P800,000. estimated residual value is zero.
The entity decided on January 1, 2016 to change the depreciation method
What is the depreciation for 2016? from an accelerated method to the straight line method.
a. 270,000 b. 546,000 c. 466,000 d. 582,500 On January 1, 2016, the cost of an equipment is P8,000,000 and the
accumulated depreciation is P3,400,000.
Solution 9-3 Answer c The remaining useful life of the equipment on January 1, 2016 is 10 years and
Cost -January 1, 2014 6,000,000 the residual value is P200, 000.
Accumulated depreciation -January 1, 2016 What is the total charge against income for 2016 as a result of the accounting
(6,000,000 600,000 / 20 x 2) 540 000 changes?
Carrying amount January 1, 2016 5,460,000 a. 940,000 b. 960,000 c. 627,500 d. 647,500
Depreciation for 2016 (5,460,000 4 800,000 / 10) 466,000
Solution 9-6 Answer a
Problem 9-4 (IFRS) Patent-January 1, 2011 3,000,000
On January 1, 2012, Roma Company purchased equipment for P4,000,000. Accumulated amortization (3,000,000 / 10 x 5) 1,500,000
The equipment has a useful life of 10 years and a residual value of P40,000. Carrying amount January 1, 2016 1,500,000
On January 1, 2016, the entity determined that the useful life of the Amortization of patent for 2016 (1,500,000 / 3) 500,000
equipment was 12 years from the date of acquisition and the residual value Depreciation for 2016 (4,600,000 -200,000 / 10) 440,000
was P460,000. Total charge against income for 2016 940,000
What is the depreciation of the equipment for 2016? Revised estimated life of patent 8 years
a. 175,000 b. 262,500 c. 360,000 d. 300,000 Years expired (5)
Remaining revised life of patent 3 years
Solution 9-4 Answer b
Cost-January 1, 2012 6,000,000 Problem 9-7 (AICPA Adapted)
Accumulated depreciation -January 1, 2016 0n January 1, 2014, Brazilia Company purchased for P4,800 000 a machine
(4,000,000 -400,000 / 10 x 4) 1,440,000 with a useful life of ten years and a residual value of P200,000.
Carrying amount January 1, 2016 2,560,000 The machine was depreciated by the double declining balance and the
Depreciation for 2016 (2,560,000 -460,000 / 8) 262,500 carrying amount of the machine was P3,072,000 on December 3 1, 2015 .
The entity changed to the straight line method on January 1, 2016. The
Problem 9-5 (IFRS) residual value did not change.
Acute Company was incorporated on January 1, 2013. In preparing the What is the depreciation expense on this machine for the year-ended
financial statements for the year ended December 31, 2015, the entity used December 31, 2016?
the following original cost and useful life for the property, plant and a. 287,200 b. 384,000 0. 460,000 d. 359,000
equipment:
Solution 9-7 Answer d CHAPTER 10
Depreciation for 2016 (2,872,000 / 8 years remaining) 359,000 PRIOR PERIOD ERRORS
Carrying amount -January 1, 2016 3,072,000
Residual value 200,000 Problem 10-1 (IAA)
Depreciable amount 2,872,000
Straight line rate (100% / 10) 10% Effective January 1, 2016, King Company adopted the accounting policy of
Double declining rate (10% x 2) 20% expensing advertising and promotion costs when incurred. Previously,
Acquisition cost January 1, 2014 4,800,000 advertising and promotion costs applicable to future periods were recorded
Accumulated depreciation January 1, 2016 in repaid expenses. The entity can justify the change, which was made or
2014 (20% x 4,800,000) 960,000 both financial statement and income tax reporting purposes. The prepaid
2015 (20% x 3,840,000) 768,000 1,728,000 advertising and promotion costs totaled P600,000 on December 3 1, 2016.
Carrying amount January 1, 2016 3,072,000 The income tax rate is 30%.

Problem 9-8 (AICPA Adapted) What is the net charge against income for 2016 as a result of the change?
On January 1, 2015, Miller Company purchased a machine for P2, 750, 000. a. 600,000 b. 180,000 c. 420,000 d. 0
The machine was depreciated using the sum of years digits method based on
a useful life of 10 years with no residual value. Solution 10-1 Answer d
On January 1, 2016, the entity changed to the straight line method of The entity omitted an error of deferring advertising and promotion costs.
depreciation. The entity can justify the change. A prior period error is not included in profit or loss but treated as an
adjustment of the beginning balance of retained earnings. .
1. What is the carrying amount of the machine on January 1, 2016?
a. 2,750,000 b. 2,250,000 c. 2,475,000 d. 1,800,000 Problem 10-2 (AICPA Adapted)
On January 1, 2015, Aker Company acquired a machine at a cost of
2. What is the depreciation for 2016? P2,000,000. The machine is depreciated on the straight line method over a
a. 180,000 b. 220,000 c. 250,000 d. 275,000 five-year period with no residual value. Because of a bookkeeping error, no
depreciation was recognized in the 2015 financial statements. The oversight
Solution 9-8 was discovered during the preparation of the 2016 financial statements.
Question 1 Answer b What is the depreciation expense on the machine for 2016?
S Y D (1+2+3+4+5+6+7+8+9+10) 55 a. 800,000
Cost -January 1, 2015 2,750,000 b. 400,000
Accumulated depreciation -January 1, 2016 c. 500,000
(10/55 x 2,750,000) (500,000) d. 0
Carrying amount-January 1, 2016 2,250,000
Solution 10-2 Answer b
Question 2 Answer 6 Depreciation for 2016 (2,000,000 / 5) 400,000
Straight line depreciation for 2016
(2,250,000 / 9 years remaining) 250 000 Problem 10-3 (IFRS)
Harbor Company reported the following events during 2016:
Problem 9-9 (IAA) * It was decided to write off P800,000 from inventory which was over two
Xavier Company purchased a machinery on January 1, 2013 for P7,200,000. years old as it was obsolete.
The machinery had useful life of 10 years with no residual value and was * Sales of P600,000 had been omitted from the financial statements for the
depreciated using the straight line method. year ended December 31, 2015.
In 2016, a decision was made to change the depreciation method from What total amount should be reported as prior period error in the financial
straight line to sum of years digits method. The useful life and residual value statements for the year ended December 3 1, 2016?
remained unchanged. a. 1,400,000
b. 600,000
1. What is the carrying amount of the machinery on January 1, 2016? c. 800,000
a. 7,200,000 b. 5,040,000 c. 5,760,000 d. 6,480,000 d. 200,000

2. What is the depreciation for 2016? Solution 10-3 Answer b

a. 1,260,000 b. 1,440,000 c. 91 6,360 d. 720,000
Only the unrecorded sale of P600,000 on December 31, 2015 is treated as
Solution 9-9 prior period error in the financial Statements for 2016.
Question 1 Answer b The write-off of the inventory of P800,000 is included in profit or loss for
Cost January 1, 2013 2016.
Accumulated depreciation-January 1, 2016 7,200,000
(7, 200,000/10x3) 2,160,000 Problem 10-4 (PHILCPA Adapted)
Carrying amount-January 1, 2016 5,040,000 Universal Company failed to accrue warranty cost of P100,000 on December
31, 2015. In addition, a change from straight line to accelerated depreciation
Question 2 Answer a made at the beginning of 2016 resulted in a cumulative effect of P60,000 on
SYD for the remaining life of 7 years (1 +2+3+4+5+6+7) 28 retained earnings.
Depreciation for 2016 (5,040,000 x 7/28) 1,260,000 What pre-tax amount should be reported as prior period error in 2016?
a. 100,000 b. 160,000 c. 60,000 d. 0

Solution 10-4 Answer a

Only the unrecorded warranty cost of P 100,000 on December 31, 2015
should be accounted for as a prior period error.
The change in depreciation method is a change in accounting estimate. Question 2 Answer d

Problem 10-5 (IFRS) The increase in the provision for inventory obsolescence in 2016 is ignored
Extracts from the statement of financial position of Ammus Company because this is considered a change in accounting estimate.
showed the following:
December 31, 2017 December 31, 2016 Problem 10-7 (IFRS)
Development costs 8,160,000 5,840,000 Samar Company reported the following events during the year ended
Amortization (1,800,000) (1,200,000) December 31, 2017:
*A counting error relating to the inventory on December 31, 2016 was
The capitalized development costs relate to a single project that commenced discovered.
in 2014. This required a reduction in the carrying amount of Inventory at the date of
It has now been discovered that one of the criteria for capitalization has P280,000.
never been met. *The provision for uncollectible accounts receivable on December 312016
was P300,000.
1. What adjustment is required to restate retained earnings on January 1, During 2017, P500,000 was written off related to the December 3 1,2016
2017? accounts receivable.
a. 6,360,000 b. 1,720,000 c. 4,640,000 d. 0 What adjustment is required to restate retained earnings on January 1,
2017?
2. What amount of the development costs should be expensed in 2017‘? a. 280,000
a. 5,840,000 b. 6,360,000 c. 1,720,000 d. 0 b. 300,000
c. 580,000
Solution 10-5 d. 0
Question 1 Answer c
Development costs December 31, 2016 5,840,000 Solution 10-7 Answer a
Amortization 1,200,000
Carrying amount December 31, 2016 4,640,000 The reduction in the carrying amount of inventory on December 31, 2016 of
P280,000 is a prior period error to be presented in the statement of retained
The entity committed an error in capitalizing development costs. earnings for 2017.
Thus, the carrying amount of P4,640,000 on December 31, 2016 is treated as The provision for uncollectible accounts receivable is a change in accounting
a prior period error in the statement of retained earnings for 2017. estimate and therefore has no effect on retained earnings
The change in accounting estimate should be treated currently and
Question 2 Answer 6 prospectively.
The remainder of the carrying amount of the development costs on
December 31, 2017 should be expensed in 2017. Problem 10-8 (AICPA Adapted)
Development costs December 31, 2017 8,160,000
Amortization (1,800,000) After the issuance of the 2016 financial statements, Narra Company
Carrying amount December 31, 2017 6,360,000 discovered a computational error of P1 50,000 in the calculation of the
Carrying amount December 31, 2016 4,640,000 December 31, 2016 inventory.
Remaining carrying amount 1 720 000 The error resulted in a P150,000 overstatement in the cost of goods sold for
the year ended December 31, 2016.
Problem 10-6 (IFRS) In October 2017, the entity paid the amount of P500,000 in settlement of
In reviewing the draft financial statements for the year ended December 31, litigation instituted against it during 2016.
2017, Bituin Company decided that market conditions were such that the In the financial statements for 2017, what is the pretax adjustment of the
provision for inventory obsolescence on December 3 l, 2017 should be retained earnings on January 1, 2017?
increased by P3,000,000. a. 150,000 credit b. 350,000 debit c. 500,000 debit d. 650,000 credit
If the same basis of calculating inventory obsolescence had been applied on
December 31, 2016, the provision would have been P1,800,000 higher than Solution 10-8 Answer a
the amount recognized in the statement of comprehensive income.
Problem 10-9 (IFRS)
1. What adjustment should be made to the net income of 20 1 7?
a. 3,000,000 decrease Natasha Company reported net income of P7 00,000 for 2017. The entity
b. 3,000,000 increase declared and paid dividend of P1 50,000 in 2017.
c. 1,200,000 decrease In the financial statements for the year ended December 3 l, 2016, the entity
d. 1,200,000 increase reported retained earnings of P 1 ,100,000 on January 1, 2016.
The net income for 2016 was P600,000 and the entity declared and paid
2. What adjustment should be made to the net income of 2016 presented as dividend of P300,000 in 2016.
a comparative figure in the 2017 financial statements? In 2017, after the 2016 financial statements were approved for issue, the
a. 1,800,000 decrease entity discovered an error in the December 31, 2015 financial statements.
b. 1,800,000 increase The effect of the error was a P650,000 overstatement of net income for the
c. 3,000,000 decrease year ended December 3 l, 2015 due 'to under depreciation.
d. 0
What amount should be reported as retained earnings on December 31,
Solution 10-6 2017?
Question 1 Answer a a. 1,300,000 b. 1,400,000 c. 1,650,000 d. 1,950,000
The increase in the provision for inventory obsolescence on December 31,
2017 of P3,000,000 is deducted heat the net income of 2017.
Solution 10-9 Answer a CHATER 11
OPERATING SEGMENT
Retained earnings -January 1, 2016 1,100,000
Net income for 2016 600,000 Problem 11-1 (ACP)
Dividend declared and paid in 2016 (300,000) Aroma Company and its divisions are engaged solely in manufacturing
Retained earnings December 31, 2016 1,400,000 operations. The entity reported the following segment profit (loss) for the
Net income for 2017 700,000 current year:
Prior period error in 2015 due to under depreciation (650,000)
Dividend declared and paid in 2017 (150,000) V 3,400,000
Retained earnings December 31, 2017 1,300,000 W 1,000,000
X (2,000,000)
Problem 10-10 (AICPA Adapted) Y 400,000
Z (200,000)
While preparing the 2016 financial statements, Dek Company discovered 2,600,000
computational errors in the 2014 and 2015 depreciation expense. In the segment information for the current year, what are the reportable
These errors resulted in overstatement of each year’s income by P100, 000, segments?
net of income tax. a. V, W, X and Y
The following amounts were reported in the previously issued financial b. V, W and X
statements: c. V and W
d. V, W, X, Y and Z
2014 2015
Retained earnings-Jan 1 2,000,000 2,800,000 Solution 11-1 Answer b
Net income 800,000 600,000
Retained earnings December 31 2,800,000 3,400,000 Segment profit Segment loss
V 3,400,000
The net income for 2016 is correctly reported at P700, 000. W 1,000,000
What is the correct balance of retained earnings on December 31, 2016? X 2,000,000
a. 3,900,000 Y 400,000
b. 4,100,000 Z 200,000
c. 4,300,000 4,800,000 2,200,000
d. 4,000,000
The total profit figure is the basis for identifying the reportable segments
Solution 10-10 Answer a because it is higher than the total loss figure.
Retained earnings-January 1, 2016 3,400,000
Prior period error: Accordingly, those segments with a profit or loss of at least 10% of P4, 800,
Underdepreciation in 2014 and 2015 (100,000 X 2) (200,000) 000 or P480, 000 are reportable. Thus, V, W and X are reportable.
Corrected beginning balance 3,200,000
Net income for 20 16 700,000 Problem 11-2 (AICPA Adapted)
Retained earnings December 31, 2016 3,900,000 Coney Company and its divisions are engaged solely in manufacturing
operations.
Problem 10-11 (AICPA Adapted) The following data pertain to the industries in which operations were
On January 1, 2016, Raven Company discovered that it had incorrectly conducted for the current year:
expensed a P2,100,000 machine purchased on January 1, 2013. Industry Revenue Profit Assets
The entity estimated the machine’s original useful life to be 10 years and the A 10,000,000 1,750,000 20,000,000
residual value at P 100,000. B 8,000,000 1,400,000 17,500,000
The entity used the straight line method of depreciation and is subject to a C 6,000,000 1,200,000 12,500,000
30% income tax rate. D 3,000,000 550,000 7,500,000
In the December 31, 2016 financial statements, what amount should be E 4,250,000 675,000 7,000,000
reported as a prior period error? F 1,500,000 225,000 3,000,000
a. 1,659,000 32,750,000 5,800,000 67,500,000
b. 1,029,000
c. 1,050,000 How many reportable segments does Correy have?
d. 1,680,000 a. Three
b. Four
Solution 10-11 Answer c c. Five
Machine incorrectly expensed 2,100,000 d. Six
Unrecorded depreciation for 2013, 2014 and 2015
(2,000,000/ 10 x 3 years) 600,000 Solution 11-2 Answer c
Net overstatement of expense 1,500,000 Under PFRS 8, an entity shall disclose information about an operating
Tax effect (30% x 1,500,000) (450,000) segment that meets any of the following quantitative thresholds:
Net understatement of retained earnings 1,050,000
Cost 2,100,000 1. The segment revenue, including both sales to external customers and
Residual value (100,000) intersegment sales or transfers, is 10% or more of the combined revenue,
Depreciable amount 2 000,000 internal and external, of all operating segments.
2. The segment profit or loss is 10% or more of the greater of the following in
absolute amount:
a. The combined profit of all operating segments with profit.
b. The combined 035 of all operating segments with loss.
3. The assets of the segment are 10% or more of the combined assets of all Problem 11-5 (AICPA Adapted)
operating segments. Timmy Company provided the following information pertaining to revenue
Accordingly, A, B, C, D and E are reportable segments because their revenue earned by operating segments for the current year:
or profit or asset is at least 10% of the combined amount.
Sales to
Problem 11-3 (IFRS) unaffiliated Intersegment Total
Segment customers sales revenue
Macbeth Company, an entity listed on a recognized stock exchange, reports Alo 5,000 3,000 8,000
operating results from its North American division to the chief operating Bix 8,000 4,000 12,000
decision maker. Cee 4,000 4,000
The segment information for the current year is as follows: Dil 43,000 16,000 59,000
Revenue 3,800,000 Combined 60,000 23,000 83,000
Profit 1,200,000 Elimination (23,000) (23,000)
Assets 1,800,000 Consolidated 60,000 60,000
Number of employees 2,500
In conformity with the revenue test, what is the total revenue of the
The results for all of the operating segments in total are: reportable segments?
Revenue 40,000,000 a. 83,000 b. 71,000 c. 51,000 d. 60,000
Profit 10,000,000
Assets 20,000,000 Solution 11-5 Answer b
Number of employees 25,000 Total revenue Percent
Alo 8,000 9.64%
Which piece of information determines that the North American division is a Bixx (reportable) 12,000 14.46%
reportable segment? Cee 4,000 4.82%
Dil (reportable) 59,000 71.08%
a. Revenue 83,000 100.00%
b. Profit
c. Assets Problem 11-6(AICPA Adapted)
d. Number of employees Grum Company, a publicly owned entity, is subject to the requirements of
segment reporting.
Solution 11-3 Answer b In the income statement for the year ended December 31, 2016, the entity
Profit threshold (1,200,000/10,000,000) 12% reported revenue of P50,000,000, excluding intersegment sales of
P10,000,000, expenses of P47,000,000 and net income of P3,000,000.
Problem 11-4 (AICPA Adapted) Expenses included payroll costs of P 1 5,000,000.
Aria Company and its divisions provided the following information from the The combined identifiable assets of all operating segments on December 31,
current year: 2016 totaled P40,000,000.
Sales to unaffiliated customers 20,000,000
Intersegment sales of products similar to those 1. In the financial statements, the entity should disclose major customer data
sold to unaffiliated customers 6,000,000 if sales to any single customer amount to at least
Interest earned on loans to other operating segments 400,000 a. 5,000,000 b. 4,000,000 c. 6,000,000 d. 4,700,000

Aria Company and all of its divisions are engaged solely in manufacturing 2. External revenue of reportable operating segments must be what amount?
operations. a. 22,500,000 b. 30,000,000 c. 33,750,000 d. 37,500,000
What is the minimum amount of segment revenue in order that a division
can be considered a reportable segment? Solution 11-6
a. 2,640,000 Question 1 Answer a
b. 2,600,000 10% x 50,000,000 5,000,000
c. 2,040,000 PFRS 8, paragraph 34, provides that a major customer disclosure is required
d. 2,000,000 if an entity derives 10% or more of its external revenue from a single
customer or group of entities under common control.
Solution 11-4 Answer b
Sales to unaffiliated customers 20,000,000 Question 2 Answer d
Intersegment sales 6,000,000 75% x 50,000,000 37,500,000
Combined revenue 26,000,000
Test of reportable segment (10% of 26,000,000) 2,600,000 Problem 11-7 (AICPA Adapted)
Graf Company discloses supplemental operating segment information. The
Under PFRS 8, paragraph 13, segment revenue includes sales to external following information is available for the current year.
customers and intersegment sales of operating segments engaged solely in
manufacturing. Segment Sales Traceable expenses
X 5,000,000 3,000,000
Y 4,000,000 2,500,000
Z 3,000,000 1,500,000
12,000,000 7,000,000
Additional expenses are as follows:
Indirect expenses 1,800,000
General corporate expenses 1,200,000
Interest expense 600,000
Income tax expense 400,000
 Problem 11-10 (AICPA Adapted)
The interest expense and income tax expense are regularly reviewed by the Taylor Company, a publicly owned entity, assesses performance and makes
chief operating decision maker as a measure of profit or loss. operating decisions using the following information for the reportable
Appropriate common expenses are allocated to segments based on the ratio segments:
of a segment’s sales to total sales. Total revenue 7,680,000
Total profit 406,000
What is Segment Z’s profit for the current year?
a. 900,000 b. 950,000 c. 800,000 d. 500,000 The total profit included intersegment profit of P61,000. In addition, the
entity has P5,000 of common costs for the reportable segments that are not
Solution 11-7 Answer c allocated in reports reviewed by the chief operating decision maker.
Sales--Segment Z 3,000,000 What amount should be reported as segment profit?
Expenses: a. 350,000 b. 345,000 c. 411,000 d, 406,000
Traceable expenses 1,500,000
Indirect expenses (3/12x1,800,000) 450,000 Solution 11-10 Answer d
Interest expense (3/12 x 600,000) 150,000 An entity shall report a measure of profit and loss based on the measure
Income tax (3/12 x 400,000) 100,000 2,200,000 report to the chief operating decision maker. Common costs are not
Segment profit 800,000 allocated to segments when assessing performance.

Problem 11-8 (AICPA Adapted) Problem 11-11 (AICPA Adapted)

Clay Company has three lines of business to be reportable segment. Riley Company assesses performance and makes operating decisions using
The entity sales aggregated P7,500,000 in the current year of which Segment the following information for reportable segments:
No. 1 contributed 40%. Total revenue 9,250,000
Traceable costs were P1,750,000 for Segment No. 1 out a total of 5,000,000 Total profit 830,000
for the entity as a whole.
For external reporting, the entity allocated common cost of 1,500,000 based Included in the total profit is interest expense P100,000. In addition, the
on the ratio of a segment’s income before common cost to the total income entity has P15,000 of interest income for reportable segments that is not
before common costs. included in the reports used internally.
For purposes of segment reporting, what amount should be reported as
In the financial statements for the current year, what amount should be segment total profit?
reported as profit for Segment No. 1? a. 930,000
a. 1,250,000 b. 1,000,000 c. 650,000 d. 500,000 b. 830,000
c. 845,000
Solution 11-8 Answer d d. 730,000

Segment 1 Total Solution 11-11 Answer b

Sales (40% x 7,500,000) 3,000,000 7,500,000 Segment total profit830,000
Traceable costs 1,750,000 5,000,000
Segment profit before common cost 1,250,000 2,500,000 Problem 11-12 (IAA)
Common cost Eagle Company Operates in several different industries. Total sales for Eagle
(1,250,000/2,500,000 x 1,500,000) 750,000 1,500,000 Company totaled P14,000,000, and total common costs amounted to
Segment profit 500,000 1,000,000 P6,500,000 for the current year.
For internal reporting purposes, Eagle Company allocated common costs
Problem 11-9 (AICPA Adapted) based on the ratio of f a segment’s sales to total sales.
Colt Company has four manufacturing divisions, each of which has been Additional information regarding the different segments follows:
determined to be a reportable segment. Contribution to total sales Costs specific to the segment
Common costs are appropriately allocated on the basis of each division’s Segment 1 25% 1,100,000
sales in relation to Colt’s aggregate sales. 2 12% 1,000,000
Colt’s Delta division accounted for 40% of Colt’s total sales in the current 3 31% 1,300,000
year. 4 23% 880,000
For the current year, Delta division had sales of P8, 000, 000 and traceable 5 9% 400,000
costs of P4 800, 000. In addition, the Delta division incurred interest expense
of P640,000. What is the profit of Segment 1?
In the current year, Colt incurred costs of P800,000 that were not directly a. 3,500,000
traceable to any of the divisions. b. 1,875,000
It is an entity policy that interest expense is included in the measure of profit c. 2,400,000
or loss that is reviewed by the chief operating decision maker. d. 11 775,000

What amount should be disclosed as Delta’s prom for the current year? Solution 11-12 Answer d
a. 3,200,000 b. 3,000,000 c. 2,880,000 d. 2,240,000
Sales -Segment 1 (25% x14,000,000) 3,500,000
Solution 11-8 Answer d Specific costs -Segment 1 (1,100,000)
Sales Delta division 8,000,000 Allocated common costs (25% x 6,500,000) (1,625,000)
Expenses: Segment profit 775,000
Traceable costs 4,800,000
Allocated indirect costs (40% x 800,000) 320,000
Interest expense 640,000 5,760,000
Segment profit 2,240,000
Problem 11-13 (IAA) Segment Revenue Profit(loss) Assets
Congo Company provided the following data for the current year: 1 620,000 200,000 400,000
2 100,000 20,000 80,000
Sales 60,000,000 3 340,000 70,000 300,000
Cost of goods sold 28,000,000 4 190,000 (30,000) 140,000
Expenses 14 000,000 5 180,000 (25,000) 180,000
Depreciation 4,000,000 6 70,000 10,000 120,000
Income tax expense 4,000,000 7 120,000 (20,000) 140,000
Others 380,000 (25,000) 140,000
The entity has two major reportable segments, X and Y. An analysis revealed Total 2,000,000 200,000 1,500,000
that P1,000,000 of the total depreciation expense and P2,000,000 of the
expenses are related to general corporate activities. CHAPTER 12
INTERIM REPORTIN G
The remaining expenses and sales are directly allocable to segment activities
according to the following percentages: Problem 12-1(AICPA Adapted)
Segment X Segment Y Others Farr Company had the following transactions during the quarter ended
Sales 40% 45% 15% March 31, 2016.
Cost of goods sold 35 50 15
Expenses 40 40 20 Loss from typhoon 700,000
Depreciation 40 45 15 Payment of fire Insurance premium for calendar year 2016 100,000

What amount should be reported as profit of Segment X? What total amount of expenses should be included in the income statement
a. 8,200,000 b. 6,600,000 c. 7,000,000 d. 5,400,000 for the quarter ended March 31, 2016?
a. 800,000
Solution 11-13 Answer a b. 725,000
Sales (40% x60,000,000) 24,000,000 c. 200,000
Cost of good sold (35% x28,000,000) (9,800,000) d. 0
Gross income 14,200,000
Expenses (40% x12,000,000) (4,800,000) Solution 12-1 Answer b
Depreciation (40% x 3,000,000) (1,200,000) Casualty loss 700,000
Segment profit-Segment X 8,200,000 Insurance expense (100,000 / 4) 25,000
Total expenses 725,000
Problem 11-14 (IAA)
Revlon Company had no intersegment sales and provided the following data Problem 12-2 (AICPA Adapted)
for the current year: Harper Company incurred an inventory loss from market decline of P840,000
Segment Revenue Profit(loss) Assets on June 30, 2016.
1 620,000 200,000 400,000 What amount of the inventory loss should be recognized in the quarterly
2 100,000 20,000 80,000 income statement for the three months ended June 30, 2016?
3 340,000 70,000 300,000 a. 210,000 b. 280,000 c. 420,000 d. 840,000
4 190,000 (30,000) 140,000
5 180,000 (25,000) 180,000 Solution 12-2 Answer d
6 70,000 10,000 120,000 Inventories shall be measured at the lower of cost and net realizable value
7 120,000 (20,000) 140,000 even for interim purposes.
Others 380,000 (25,000) 140,000 Accordingly, if the net realizable value is lower than cost, a loss on inventory
write-down shall be recognized regardless of whether the write-down is
* The “others” category includes five operating segments, none of which has temporary or non-temporary.
revenue or assets greater than P80,000 and none with an operating profit.
Problem 12-3 (AICPA Adapted)
* Operating Segments 1 and 2 produce very similar products and use very Wilma Company experienced a P500,000 decline in the market value of
similar production processes, but serve different customer types and use inventory at the end of the first quarter. The entity had expected this decline
quite different product distribution system. to reverse in the second quarter, and in fact, the second quarter recovery
exceeded the previous decline by P100,000.
These differences are due in part to the fact that Segment 2 operates in a
regulated environment while Segment 1 does not. What amount of gain or loss should be reported in the interim statements
for the first and second quarters?
* Operating Segments 6 and 7 have very similar products, production First quarter Second quarter
processes, product distribution systems, but are organized as separate a. 500,000 loss 500,000 gain
divisions since they serve substantially different types of customers. b. 500,000 loss 600,000 gain
c. 500,000 loss 100,000 gain
Neither Segments 6 nor 7 operate in a regulated environment. d. 0 0

What are the reportable segments for the current year? Solution 12-3 Answer a
a. Segments 1, 3, 4 and 5 Inventory loss from market decline is reported in the interim period m which
b. Segments 1, 3, 4, 5 and 7 the decline occurs.
c. Segments 1, 2, 3, 4 and 5
d. Segments 1, 3, 4, 5 and Segments 6 and 7 combined as one segment

Solution 11-14 Answer d

Problem 12-4(A1CPA Adapted) However, in the second quarter, a design fault was found and warranty
On June 30, 2016, Mill Company incurred a P1,000,000 net loss from disposal claims were expected to be 10% for the whole year. Sales for the second
of a business segment. Also, on June 30, 2016, the entity paid P400,000 for quarter amounted to P15,000,000.
property taxes assessed for the calendar year 2016.
What total amount should be included in the determination of the net 1. What amount of provision should be charged in the interim income
income or loss for the six-month interim period ended June 30, 2016? statement for the tint quarter?
a. 1,400,000 a. 1,000,000 b. 750,000 c. 500,000 d. 250,000
b. 1,200,000
c. 900,000 2. What amount of provision should be charged in the interim income
d. 700,000 statement for the second quarter?
Solution 12-4 Answer b a. 2,000,000 b. 1,250,000 c. 1,500,000 d. 750,000

Net loss from disposal of segment 1,000,000 Solution 12-7

Property taxes (400,000 x 6/ 12) 200,000 Question 1 Answer c
Total amount 1,200,000
Warranty expense for first quarter (5% x 10,000,000) 500,000
The effects of a disposal of segment of business are reported separately in
the interim periods in which they occur. Question 2 Answer a
The pro taxes clearly benefit the entire year. Therefore, the property taxes Total warranty expense first and second quarter
are allocated over the interim periods reported. (10% x 25,000,000) 2,500,000
Warranty expense recognized in first quarter
Problem 12-5 (IFRS) (5% x 10,000,000) 500,000
Mount Apucao Company operates in the travel industry and incurs costs Warranty expense -second quarter 2,000,000
unevenly throughout the year. Advertising costs of P2,000,000 were incurred
on March 1, 2016, and staff onuses are paid at year-end based on sales. Problem 12-8 (AICPA Adapted)
Staff bonuses are expected to be around P20,000,000 for the year. Of that Kell Company reported P950,000 net income for the quarter ended
sum, P3,000,000 would relate to the period ending March 3 1, 2016. September 30, 2016 which included the following after tax items:
. A P600,000 expropriation gain, realized on April 30, 2016, was allocated
What total amount of expenses should be included in the quarterly financial equally to the second, third, and fourth quarters of 2016.
report ending March 31, 2016? . A P160,000 cumulative-effect loss resulting from a change in inventory
a. 7,000,000 b. 5,500,000 c. 5,000,000 d. 3,500,000 valuation method was recognized on August 1, 2016.
In addition, the entity paid P480,000 on February 1, 2016, for 2016 calendar-
Solution 12-5 Answer c year property taxes. Of this amount, P120000 was allocated to the third
quarter of2016.
Advertising P2,000,000 and bonuses P3,000,000 are reported in the Interim
period when incurred. For the quarter ended September 30, 2016, what amount should be reported
as net income?
Problem 12-6 (IAA) a. 910,000
Everest Company historically reported bad debt expense of 5% of sales in b. 1,030,000
each quarter. For the current year, the entity followed the same procedure in c. 1,110,000
the three quarters of the year. d. 1,150,000
However, in the fourth quarter, the entity determined that bad debt expense
for the entire year should be P450,000. Solution 12-8 Answer a
Sales in each quarter of the year were first quarter P2,000,000, second Net income per book 950,000
quarter 1,500,000, third quarter P2 500 ,000 and fourth quarterP4,000,000. Expropriation gain incorrectly included (600,000 /3) (200,000)
Balance 750,000
What amount of bad debt expense should be recognized for the fourth Add back- Cumulative effect loss 160,000
quarter? Adjusted net income 910,000
a. 200,000
b. 150,000 Problem 12-9 (IFRS)
c. 300,000
d. 400,000 The terms and conditions of employment with Pauline Company include
entitlement to share in the staff bonus system, under Which 5% of the profit
Solution 12-6 Answer b for the year before charging the bonus is allocated to the bonus pool,
Bad debt expense for the entire year 450,000 provided the annual profit exceeds P50,000,000.
Bad debt expense: The profit before accrual of any bonus for the first half of 2015 amounted to
First quarter (5% x 2,000,000) 100,000 P40,000,000 and the latest estimate of the profit before accrual of any bonus
Second quarter (5% x 1,500,000) 75,000 for the year as a whole is P60,000,000.
Third quarter (5% x 2,500,000) 125,000 300,000
Bad debt expense for fourth quarter 150,000 What amount should be recognized in profit or loss in respect of the staff
bonus for the half year ended June 30, 2016?
Problem 12-7 (IFRS) a. 1,500,000 b. 3,000,000 c. 2,000,000 d. 0
Davao Company prepares quarterly interim financial reports. The entity sells
electrical goods and normally 5% of customers claim on their warranty. Solution 12-9 Answer 6
The provision in the first quarter was calculated at 5% of sales to date which Bonus for half year ended June 30, 2016 (5% x 40,000,000) 2,000,000
amounted to P10,000,000.
Problem 12-10 (AICPA Adapted) Solution 12-12
Vilo Company has estimated that total depreciation expense for 2016 will
amount to P600,000 and the year-end bonuses to employees for 2016 will Question 1 Answer c
total P1,200,000. Quarter 11
In the interim income statement for the six months ended June 30, 2016, Contract price 20,000,000
what total amount of expenses should be reported? Estimated cost 15,000,000
a. 1,800,000 b. 300,000 c. 900,000 d. 0 Gross Income 5,000,000
Multiply by Percentage of completion 10%
Solution 12-1 0 Answer c Contract revenue 500,000
Depreciation (600,000 x6/12) 300,000
Bonuses (1, 200 ,000 x 6/12) 600,000 Question 2 Answer d
Total expenses 900,000 Quarter 2
No income is reported because the estimated cost and percentage of
Problem 12-11 (1AA) completion are the same as Quarter 1 and therefore no work was done in
Quarter 2.
Snider Company is preparing interim financial statements for the first quarter
ended March 31, 2016. Question 3 Answer d
Expenses in the first quarter totaled 4,000,000 of which 25% was variable. Quarter 3
The fixed expenses included television advertising expense of 1,500,000 Contract price 20,000,000
representing air time to be incurred evenly during 2016, and depreciation Estimated cost 19,200,000
expense of 600,000 for 2016 for equipment that was available for use on Gross income 800,000
March 1, 2016. Multiply by percentage of completion 25%
What amount should be reported as total expenses in the first quarter ended Cumulative contract revenue 200,000
March 31, 2016? Contract revenue in Quarter 1 (500,000)
a. 4,000,000 b. 2,875,000 c. 2,325,000 d. 2,335,000 Realized loss in Quarter 3 (300,000)

Solution 12-11 Answer d Question 4 Answer d

Variable expenses (4,000,000 x 25%) 1,000,000 Quarter 4
Fixed expenses, excluding advertising and depreciation No income is reported because the estimated cost and percentage of
(3,000,000-1,500,000-600,000) 900,000 completion are the same as Quarter 3 and therefore no work was done in
Advertising allocated to the first quarter (1,500,000/ 4) 375,000 Quarter 4.
Depreciation from March 1 to March 31
(600,000 x 1/10) 60,000 Problem 12-13 (PHILCPA Adapted)
Total expenses in the first quarter 2,335,000 On January 1, 2016 Akron Company paid real estate tax calendar year 2016 in
the amount of 600,000.
Problem 12-12 (AICPA Adapted) In the first week of April 2016, the entity made an unanticipated ordinary
repair to plant equipment at a cost of 900,000.
On January 1, 2016, Builder Company entered into a P20,000,000 long-term What total amount of expenses should be reflected in the interim income
fixed price contract to construct a factory building. statement for the second quarter?
a. 1,050,000
The entity accounted for this contract under the percentage of completion at b. 450,000
the end of each quarter for 2016. c. 150,000
d. 900,000
Quarter Percentage of completion Estimated cost
1 10% 15,000,000 Solution 12-13 Answer a
2 10% 15,000,000 Property taxes (600,000 /4) 150,000
3 25% 19,200,000 Repairs 900,000
4 25% 19,200,000 Total expenses -second quarter 1,050,000

No work was performed in the second and fourth quarters. Problem 12-14 (AICPA Adapted)
Bailar Company, a calendar-year entity, reported the following income
1. What amount of income should be reported in the first quarter? before income tax and effective tax rate for the first three quarters of the
a. 2,000,000 b. 200,000 c. 500,000 d. 0 current year:
Income before tax Effective tax rate
2. What amount of income should be reported in the second quarter? First quarter 6,000,000 30%
a. 500,000 b. 250,000 c. 750,000 d. 0 Second quarter 7,000,000 30%
Third quarter 8,000,000 25%
3. What amount of income or loss should be reported in the third quarter?
a. 200,000 income b. 200,000 loss c. 300,000 income d. 300,000 loss What amount should be reported as income tax provision in the interim
income statement for the third quarter?
4. What amount of income should be reported in the fourth quarter? a. 5,250,000 b. 1,350,000 c. 2,400,000 d. 2,000,000
a. 800,000 b. 400,000 c. 200,000 d. 0
Solution 12-14 Answer b
Cumulative income tax (25% x 21,000,000) 5,250,000
Previously reported income tax (30% x 13,000,000) 3 900 000
Income tax provision for third quarter 1,350,000
Problem 12-15 (IFRS)
CHAPTER 13
Sigma Company has a financial reporting year that begins July 1, 2016 and CASH AND CASH EQUIVALENTS
ends on June 30, 2017. The tax year ends every December 31. Basic problems
The entity reports quarterly for interim purposes and the quarterly income
for financial reporting is as follows: Problem 13-1 (AICPA Adapted)
First quarter 1,000,000 Tranvia Company had the following balances on December 31, 2016:
Second quarter 1,500,000 Cash in checking account 350,000
Third quarter 2,500,000 Cash in money market account 750,000
Fourth quarter 4,000,000 Treasury bill, purchased November 1, 2016
maturing January 31, 2017 3,500,000
The annual effective tax rate is 30% for 2016 and 40% for 2017. Time deposit purchased December 1, 2016
What is the total income tax expense for the year ended June 30, 2017? maturing March 31, 2017 4,000,000
a. 3,350,000
b. 2,700,000 What amount should be reported as cash and cash equivalents on December
c. 3,600,000 31, 2016?
d. 3,150,000 a. 1,100,000 b. 3,850,000 c. 4,600,000 d. 8,600,000

Solution 12-15 Answer a Solution 13-1 Answer c

First quarter July 1, 2016 to September 30, 2016 Cash in checking account 350,000
(1, 000, 000 x 30%) 300,000 Cash in money market account 750,000
Second quarter October 1, 2016 to December 31,2016 Treasury bill purchased November 1, 2016
(1,500,000 x 30%) 450,000 maturing January 31, 2017 3,500,000
Third quarter January 1, 2017 to March 31, 2017 Total cash and cash equivalents 4,600,000
(2,500,000 x 40%) 1,000,000
Fourth quarter-April 1, 2017 to June 30, 2017 Problem 13-2 (AICPA Adapted)
(4,000,000 x 40%) 1,600,000 Pygmalion Company had the following balances on December 31,2016:
Total income tax expense 3,350,000 Cash in bank current account 5,000,000
Cash in bank payroll account 1,000,000
The effective tax rate of a particular year is applied to the pretax income of Cash on hand 500,000
the interim period in the same tax year. Cash in bank restricted account for building
construction expected to be disbursed in 2017 3,000,000
Problem 12-16 (IAA) Time deposit, purchased December 15, 2016 and
Hyper Company prepared the following income statement for the year- due March 15, 2017 2,000,000
ended December 31, 2016:
Sales 6,000,000 The cash on hand included a P200,000 check payable to Pygmalion, dated
Cost of goods sold (2,800,000) January 15,2017.
Gross income 3,200,000
Gain on sale of equipment 100,000 What total amount should be reported as cash and cash equivalents on
Total income 3,300,000 December 31, 2016?
Operating expenses (500,000) a. 6,300,000 b. 8,300,000 c. 6,500,000 d. 8,700,000
Casualty loss (300,000)
Income before tax 2,500,000 Solution 13-2 Answer b
Income tax 30% 750,000 Cash in bank current account 5,000,000
Net income 1,750,000 Cash In bank payroll account 1,000,000
Third quarter sales were 30% of total sales. Cash on hand (500,000-200,000) 300,000
Time deposit 2,000,000
* For interim reporting purposes, a gross profit rate of 40% can be justified. Total cash and cash equivalents 8,300,000
* Variable operating expenses are allocated in the same proportion as sales.
* Fixed operating expenses are allocated based on the expiration of time. Problem 13-3 (AICPA Adapted)
*Of the total operating expenses, P400,000 relate to variable expenses and Thor Company provided the following data on December 31, 2016:
P100,000 relate to fixed expenses. Checkbook balance 4,000,000
* The equipment was sold on June 1, 2016. Bank statement balance 5,000,000
* The casualty loss occurred on September 1, 2016. Check drawn on Thor’s account, payable to supplier,
dated and recorded on December 31, 2016 but,
What amount should be reported as income before tax for the third quarter not mailed until January 15, 2017 500,000
ended September 30, 2016? Cash in sinking fund 2,000,000
a. 275,000 b. 375,000 c. 500,000 d. 300,000
On December 31, 2016, what amount should be reported as “cash” under
Solution 12-16 Answer a current assets?
Sales (30% x 6,000,000) 1,800,000 a. 4,500,000 b. 5,500,000 c. 3,500,000 d. 6,500,000
Cost of goods sold (60% x 1,800,000) (1,080,000)
Gross Income 720,000 Solution 13-3 Answer a
Variable expenses ( 30% x 400,000) (120,000 Checkbook balance 4,000,000
Fixed expenses (100,000 / 4) (25,000) Undelivered check drawn on Thor’s account 500,000
Casualty loss (300,000) Adjusted cash balance 4,500,000
Income before tax 275,000
Problem 13-4 (IAA) On December 31, 2016, what total cash should be reported under current
assets?
At year-end, Myra Company reported cash and cash equivalents which a. 1,775,000
comprised the following: b. 2,250,000
c. 2, 375,000
Cash on hand 500,000 d. 3,975,000
Demand deposit 4,000,000
Certificate of deposit 2,000,000 Solution 13-6 Answer c
Postdated customer check 2,000,000
Petty cash fund 300,000 Cash in bank 2,250,000
Traveler’s check 50,000 Cash on hand 125,000
Manager’s check 200,000 Total cash 2,375,000
Money order 150,000
Problem 13-7 (AICPA Adapted)
What total amount should be reported as “cash” at year-end?
a. 7,000,000 On December 31, 2016, West Company had the following cash balances:
b. 4,800,000
c. 6,800,000 Cash in bank 1,800,000
d. 5,000,000 Petty cash fund-all funds were reimbursed on 12/31/2016 50,000
Time deposit due February 1,2017 250,000
Solution 13-4 Answer d
Cash in bank included P600,000 of compensating balance against short-term
Cash on hand 500,000 borrowing arrangement on December 31, 2016. The compensating balance is
Demand deposit 4,000,000 legally restricted as to withdrawal.
Petty cash fund 50,000
Traveler’s check 200,000 On December 312016, what total amount should be reported as cash and
Manager’s check 100,000 cash equivalents?
Money order 150,000 a. 1,850,000 b. 1,250,000 c. 2,100,000 d. 1,500,000
Total cash 5,000,000
Solution 13-7 Answer d
Problem 13-5 (IAA) Cash in bank (1,800,000 -600,000) 1,200,000
Petty cash fund 50,000
Everlast Company reported the following information at the current year- Time deposit 250,000
end: Total cash 1,500,000
*Share investments of P 1 ,000,000 that are very actively traded in the stock
market. Problem 13-8 (PHILCPA Adapted)
* Government treasury bills of P2,000,000 with a 10-year term but purchased
on December 31 at which time they had two months to go until maturity. ABC Company reported cash account per ledger on December 31, 2016 at
*Cash of P3 ,400, 000 in the form of com, currency, saving account and P4,700,000 which consisted of the following:
checking account. Petty cash fund 20,000
* Commercial papers of P1,5 00,000 with term of nine months but purchased Undeposited receipts,
on December 31 at which time they had three months to go until maturity. including a postdated customer check for P100,000 1,500,000
Cash in bank per bank statement, with a
1. What total amount should be reported as cash? check for P200,000 still outstanding 2,500,000
a. 3,400, 00 b. 4,900, 000 c. 4,400,000 d. 5,400,000 Deposit in bank closed by BSP 500,000
Vouchers paid out of collections, not yet recorded 150,000
2. What total amount should be reported as cash equivalents? IOUs signed by employees, taken from collections 30,000
a, 2,000,000 b. 1,500,000 c. 3,500,000 d. 4,500,000 4,700,000

Solution 13-5 Question 1 Answer a Question 2 Answer c What amount should be reported as cash on December 31, 2016?
a. 3,720,000 b. 3,900,000 c. 4,220,000 d. 4,020,000
Cash -Coin, currency, saving and checking 3,400,000
Solution 13-8 Answer a
Government treasury bills 2,000,000 Petty cash fund 20,000
Commercial Papers 1,500,000 Undeposited receipts (1,500,000 100,000) 1,400,000
Total cash equivalents 3,500,000 Cash in bank (2,500,000 200,000) 2,300,000
3,720,000
Problem 13-6 (AICPA Adapted)
Burr Company had the following account balances on December 31, 2016: Problem 13-9 (AICPA Adapted)

Cash in bank 2,250,000 Ral Company reported the checkbook balance on December 31, 2016 at
Cash on hand 125,000 P5,000,000. In addition, the entity held the following items on same date:
Cash restricted for addition to plant and Check payable to Ral, dated January 2, 2017 in
expected to be disbursed in 2017 1,600,000 payment of a sale made in December 2016, not
included in December 31 checkbook balance 2,000,000
Cash in bank included P600,000 of compensating balance against short-term Check payable to Ra], deposited December 15
borrowing arrangement. The compensating balance is not legally restricted and included in December 31 checkbook balance,
as to withdrawal. but returned by bank on December 30 stamped
“NSF.” The check was re-deposited on January 2, 2017 Solution 13-11 Answer c
and cleared on January 9, 2017 500,000
Check drawn on Ral’s account, payable to a vendor, Currencies 20,000
dated, and recorded in Ral’s books on December 31, Coins 2,000
2016 but not mailed until January 10, 2017 300,000 Check drawn to the order of the petty cash custodian 15,000
Money market placement 1,000,000 37,000

What amount should be reported as cash on December 31, 2016? CHAPTER 14

a. 4,800,000 b. 5,300,000 c. 6,500,000 d. 5,800,000 CASH AND CASH EQUIVALENTS
Comprehensive problems
Solution 13-9 Answer a
Checkbook balance 5,000,000 froblem 14-1(AICPA_ Adapted)
NSF customer check (500,000)
Undelivered company check 300,000 Campbell Company had the following account balances on December 31,
Adjusted cash balance 4,800,000 2016:
Petty cash fund 50,000
Problem 13-10 (PHILCPA Adapted) Cash in bank -current account 4,000,000
Timex Company reported petty cash fund which comprised the following: Cash in bank payroll account 1,200,000
Cash in bank sinking fund 2,000,000
Coins and currency 3,300 Cash on hand 500,000
Paid vouchers: Cash in bank restricted account for plant addition
Transportation 600 and expected to be disbursed in 2017 1,500,000
Office supplies 500 Treasury bills 1,000,000
Postage stamps 300
Due from employees 1,200 3,000 The petty cash fund included unreplenished December 2016 petty cash
Manager’s check returned by bank marked “NSF” 1,000 expense vouchers P5,000 and employee IOU P5,000.
Check drawn by the entity to the order of
petty cash custodian 2,700 The cash on hand included a P100, 000 customer check payable to Campbell
dated January 15, 2017.
What is the correct amount of petty cash fund for statement presentation In exchange for a guaranteed line of credit the entity has agreed to maintain
purposes? a minimum balance of P200, 000 1n the unrestricted current bank account.
The sinking fund is set aside to settle a bond payable that is due on June 30,
a. 10,000 b. 7,000 c. 6,000 d. 9,000 2017.
What total amount should be reported as cash and cash equivalents on
Solution 13-10 Answer c December 31, 2016?
Coins and currency 3,300
Check drawn by the entity to the order a. 8,640,000 b. 7,440,000 c. 7,640,000 d. 5,640,000
of the petty cash custodian 2,700
Correct amount of petty cash 6,000 Solution 14-1 Answer a

Problem 13-11 (PHILCPA Adapted) Petty cash fund 40,000

Liwanag Company reported an imprest petty cash fund of P50,000 with the Cash on hand 400,000
following details: Current account 4,000,000
Currencies 20,000 Payroll account 1,200,000
Coins 2,000 Sinking fund 2,000,000
Petty cash vouchers: Treasury bills 1,000,000
Gasoline payments for delivery equipment 3,000 Total cash and cash equivalents 8,640,000
Medical supplies for employees 1,000
Repairs of office equipment 1,500 Problem 14-2 (IAA)
Loans to employees 3,500 Yasmin Company provided the following information on December 31, 2016:
A check drawn by the entity payable to .the order
of Grace de la Cruz, petty cash custodian, Petty cash fund 50,000
representing her salary 15,000 Current account-First Bank 4,000,000
An employee’s check returned by the bank Current account- Second Bank (overdraft) (250,000)
for insufficiency of funds 3,000 Money market placement-Third Bank 1,000,000
Time deposi- Fourth Bank 2,000,000
A sheet of paper with names of several
employees together with contribution for a The petty cash mud included unreplenished December 2016 petty cash
birthday gift of a co-employee. Attached to the expense vouchers for P15,000 and an employee check for P5,000 dated
sheet of paper is a currency of 5,000 January 31, 2017.
A check for P100,000 was drawn against First Bank current account dated
What amount of petty cash fund should be reported in the statement of and recorded December 29, 2016 but delivered to payee on January 15,
financial position? 2017.
a. 42,000 The Fourth Bank time deposit is set aside for land acquisition in early January
b. 27,000 2017.
c. 37,000
d. 22,000
What total amount should be reported as cash and cash equivalents on Solution 14-4 Answer a
December 31, 2016?
a. 5,130,000 b. 5,150,000 c. 4,130,000 d. 4,880,000 Cash in bank demand deposit 1,450,000
Time deposit 30 days 500,000
Solution 14-2 Answer a Saving deposit 50,000
Petty cash fund (50,000-15,000-5,000) 30,000 Petty cash fund 10,000
Current account -First Bank (4,000,000 + 100,000) 4,100,000 Total cash and cash equivalents 2,010,000
Money market placement 1,000,000
Total cash and cash equivalents 5,130,000 Cash in bank demand deposit 1,500,000
Undelivered check dated and recorded on
Problem 14-3 (PHILCPA Adapted) December 31, 2016 but mailed on January 31, 2017 100,000
Check postdated January 31, 2017 recorded on
Karla Company provided the following information on December 3 l, 2016: December 31, 2016 50,000
Cash on hand 500,000 Collections during January 2017 recorded on
Petty cash fund 20,000 December 31, 2016 (200,000)
Security Bank current account 1,000,000 Adjusted cash in bank 1,450,000
PNB Current account No. 1 400,000
PNB Current account No. 2 (overdraft) (50,000)
BSP Treasury bill 60 days 3,000,000 Problem 14-5 (PHILCPA Adapted)
Celine Company provided the following information on December 31, 2016:
* The cash on hand included a customer postdated check of P 100,000 and Cash on hand 200,000
postal money order of P40,000. Philippine Bank current account 5,000,000
* A check for P200,000 was drawn against Security Bank account, dated Manila Bank current account 4,000,000
January 15, 2016, delivered to the payee and recorded December 31,2016. City Bank current account (bank overdraft) (100,000)
Asia Bank saving account for equipment acquisition 250,000
What total amount of cash and cash equivalents should be reported on Asia Bank time deposit, 90 days 2,000,000
December 31, 2016?
Included among the checks drawn by Celine against the Philippine Bank
a. 4,970,000 b. 6,970,000 c. 4,770,000 d. 1,970,000 current account and recorded in December 2016 are:
Check written and dated December 23, 2016 and delivered to payee on
Solution 14-3 Answer a January 3, 2017, P100,000.
Cash on hand (500,000-100,000 postdated check) 400,000 Check written December 26, 2016, dated January 30, 2017, delivered to
Petty cash fund 20,000 payee on December 28, 2016, P150,000.
Security Bank current account (1,000,000 + 200,000) 1,200,000
PNB current account No. 1 400,000 What total amount should be reported as cash and cash equivalents on
PNB current account No. 2 (50,000) December 31, 2016?
BSP Treasury bill 60 days 3,000,000
Total cash and cash equivalents 4,970,000 a. 11,200,000 b. 11,450,000 c. 10,950,000 d. 11,700,000

Problem 14-4 (IAA) Solution 14-5 Answer b

Cash on hand 200,000
On December 31, 2016, Erika Company reported cash account balance per Philippine Bank current (5,000,000 + 100,000 + 150,000) 5,250,000
ledger of P3,600,000 which included the following: Manila Bank current 4,000,000
Cash in bank demand deposit 1,500,000 Asia Bank time deposit 2,000,000
Time deposit-30 days 500,000 Total cash and cash equivalents 11,450,000
NSF check of customer 20,000
Money market placement due on June 30, 2017 1,000,000 Problem 14-6 (IAA)
Saving deposit 50,000
IOU from an employee 30,000 On December 31, 2016, Roma Company reported cash of P3,350,000 with
Pension fund 400,000 the following details:
Petty cash fund 10,000
Customer check dated January 31, 2017 60,000 Undeposited collections 60,000
Customer check outstanding for 18 months 30,000 Cash in bank BDO checking account 500,000
3,600,000 Cash in bank PNB (overdraft) (50,000)
Undepositcd NSF check received from customer,
* Check of P 100,000 in payment of accounts payable was dated and dated December 1, 2016 15,000
recorded on December 31, 2016 but mailed to creditors on January 15, 2017. Undeposited check from a customer,
dated January 15, 2017 25,000
* Check of P50,000 dated January 31, 2017 in payment of accounts payable Cash In bank -BDO fund for payroll 150,000
was recorded and mailed December31, 2016. Cash in bank -BDO saving deposit 100,000
Cash in bank-BDO money market instrument, 90 days 2,000,000
* The cash receipts journal was held open until January 15, 2017, during Cash in foreign bank restricted 100,000
which time P200,000 was collected and recorded on December 31, 2016. Cash in bank -BDO value added tax account 450,000
Total 3,350,000
What total amount should be reported as cash and cash equivalents on
December 31, 2016?

a. 2,010,000 b. 1,960,000 c. 1,860,000 d. 1,510,000

On December 31, 2016, what total amount should be reported as cash and c. 1,785,000
cash equivalents? d. 1,755,000
a. 2,910,000 Answer: A
b. 2,810,000 Balance per bank 1,805,000
c. 2,760,000 Deposit in transit 325,000
d. 3,260,000 Total 2,130,000
Outstanding checks (275,000)
Solution 14-6 Answer d Adjusted bank balance 1,855,000
Undeposited collections 60,000
BDO checking account 500,000 Problem 15-2
BDO payroll fund 150,000 In preparing the bank reconciliation for the month of December, Case
BDO saving deposit 100,000 Company provided the following data:
BDO money market 2,000,000 Balance per bank statement 3,800,000
BDO value added tax account 450,000 Deposit in transit 520,000
Total cash and cash equivalents 3,260,000 Amount erroneously credited by bank to Case’s account 40,000
Bank service charge for December 5,000
Problem 14-7 (ACP) NSF Check 50,000
Outstanding checks 675,000
Dove Company reported checkbook balance on December 31, 2016 at
P4,000,000. 1. What is the adjusted cash in bank?
a. 3,685,000
*A customer check amounting to P200,000 dated January 2, 2017 was b. 3,645,000
included in the December 31, 2016 checkbook balance. c. 3,600,000
*Another customer check for P500,000 deposited on December 22, 2016 was
d. 3,605,000
included in the checkbook balance but returned by the bank for insufficiency
2. What is the unadjusted cash in bank balance per book?
of fund. This check was redeposited on December 26, 2016 and cleared two
a. 3,550,000
days later.
b. 3,660,000
*A P400,000 check payable to supplier dated and recorded on December 30,
2016 was mailed on January 16, 2017. c. 3,610,000
*A petty cash fund of P50,000 comprised the following on December 31, d. 3,655,000
2016: Answer 1: D
Coins and currencies 5,000 Balance per bank statement 3,800,000
Petty cash vouchers 43,000 Deposit in transit 520,000
Return value of 20 cases of soft drinks 2,000 Bank error- erroneous bank credit (40,000)
50,000 Outstanding checks (675,000)
Adjusted bank balance 3, 605,000
A check of P43,000 was drawn on December 31, 2016 payable to petty cash. Answer 2: B
Unadjusted book balance (squeeze) 3,660,000
What total amount should be reported as cash on December 31,2016? Bank service charge (5,000,000)
NSF check (50,000)
a. 4,248,000 b. 4,200,000 c. 4,205,000 d. 3,748,000 Adjusted cash in bank balance 3,605,000

Solution 14-7 Answer a Problem 15-3

Checkbook balance 4,000,000 Mindanao Company provided the following data for the month of December:
Postdated customer check (200,000) Balance per book
Undelivered check payable to supplier 400,000
Adjusted cash in bank 4, 200,000 Balance per book 1,000,000
Petty cash: Bank service charges 3,000
Coins and currencies 5,000 Outstanding checks 235,000
Replenishment check 43,000 48,000 Deposit in transit 300,000
Total 4,248,000 Customer note collected by bank 375,000
Interest on customer note 15,000
Customer check returned NSF 62,000
Chapter 15 Depositor’s payment of note payable charged to account 250,000
Bank Reconciliation
Basic Problems 1. What is the adjusted cash in bank?
a. 1,575,000 b. 1,065,000 c. 1,075,000 d. 1,325,000
Problem 15-1
In preparing the bank reconciliation for the month of August, Apex Company 2. What is the unadjusted cash in bank per bank statement?
provided the following information: a. 1,310,000
Balance per bank 1,805,000 b. 1,010,000
Deposit in transit 325,000 c. 775,000
Return of customer’s check for insufficient fund 60,000 d. 945,000
Outstanding checks 275,000
Bank service charge for August 10,000
What is the adjusted cash in bank?
a. 1,855,000
b. 1,795,000
Solution 15-3 Question 1 Answer c Question 2 Answer 1 Solution 15-5 Answer a
Per book 1,000,000 Balance per book 8,500,000
Bank service charges (3,000) Note collected by bank 950,000
Note collected by bank 375,000 Total 9,450,000
Interest on note 15,000 Bank error (200,000-20,000) (180,000)
NSF (62,000) NSF check (250,000)
Note charged to account (250,000) Service charge (20,000)
Adjusted book balance 1,075,000 Adjusted book balance 9,000,000
Unadjusted balance per bank (SQUEEZE) 1,010,000
Deposit in transit 300,000 Problem 15-6 (AICPA Adapted)
Outstanding checks (235,000) Able Company received the bank statement for the month of March.
Adjusted cash in bank 1 075,000 However, the closing balance of the account was unreadable.
Attempts to contact the bank after hours did not secure the desired
Problem 15-4 (IAA) information.
February 28 book balance 1,460,000
Core Company provided the following data for the purpose of reconciling the Note collected by bank 100,000
cash balance per book with the balance per bank statement on December31, Interest earned on note 10,000
2016: NSF check of customer 130,000
Balance per book 850,000 Bank service charge on NSF check 2,000
Balance Per bank Statement 2,000,000 Other bank service charges 3000
Outstanding cheeks, Including certified check ofP100,000 500,000 Outstanding checks 202,000
Deposit in transit 200,000 Deposit of February 28 placed in night depository 85,000
December NSF cheecks (of which P50,000 had Check issued by Axle Company charged to Able’s account 20,000
been redeposited and cleared on December 27) 150,000
Erroneous credit to Core’s account, representing What is the cash balance per bank statement?
proceeds of loan granted to another company 300,000 a. 1,435,000 b. 1,532,000 c. 1,338,000 d. 1,557,000
Proceeds of note collected by bank for Core,
net of service charge of P20,000 750,000 Solution 15-6 Answer b
February 28 book balance 1,460,000
What amount should be reported as cash in bank on December 31, 2016? Note collected by bank 100,000
a. 1,500,000 b. 1,400,000 c. 1,800,000 d. 1,450,000 Interest earned on note 10,000
NSF check (130,000)
Solution 15-4 Answer a Bank service charges (2,000 + 3,000) (5,000)
Balance per bank 2,000,000 Adjusted book balance 1,435,000
Deposit in transit 200,000 Balance per bank statement (SQUEEZE) 1,532,000
Outstanding checks (500,000-100,000) (400,000) Deposit in transit 85,000
Erroneous bank credit 300,000 Bank error erroneous charge 20,000
Adjusted bank balance 1,500,000 Outstanding checks (202,000)
Adjusted bank balance 1,435,000

Problem 15-5 (IAA) Problem 15-7 (1AA) Stellar Company provided the bank statement for the
month of December which included the following information:
Aries Company kept all cash in a checking account. An examination of the
accounting records and bank statement for the month of June revealed the Ending balance, December 31 2,800,000
following information: Bank service charge for December 12,000
Interest paid by bank to Stellar Company for December 10,000
*The cash balance per book on June 30 is P8,500,000. A deposit of
P1,000,000 that was placed in the bank’s night depository on June 30 does In comparing the bank statement to its own cash records, the entity found
not appear on the bank statement. the following:
*The bank statement shows on June 30, the bank collected note for Aries
and credited the proceeds of P950,000 to the entity’s account. Checks Deposits made but not yet recorded by the bank 350,000
outstanding on June 30 amount to P3 00,000. Checks written and mailed but not yet recorded by the bank 650,000
*Aries discovered that a check written in June for P200, 000 in payment of an
account payable, had been recorded 1n the entity’ s records as P20, 000. In addition, the entity discovered that it had drawn and erroneously recorded
Included with the June bank statement was NSF check for P250,000 that a check for P46,000 that should have been recorded for P64,000.
Aries had received from a customer on June 26. The bank statement shows a
P20,000 service charge for June. What is the cash balance per ledger on December 31?
a. 2,500,000
What amount should be reported as cash in bank on June 30? b. 2,520,000
a. 9,000,000 c. 2,540,000
b. 8,300,000 d. 2,800,000
c. 9,360,000
d. 9,180,000
Solution 15-7 Answer b CHAPTER 16
Balance per bank 2,800,000
Deposits in transit 350,000 BANK RECONCILIATION
Outstanding checks (650,000) Comprehensive problems
Adjusted bank balance 2,500,000
Balance per ledger (SQUEEZE) 2,520,000 Problem 16-1 (PHILCPA Adapted)
Interest income 10,000 Divine Company prepared the following bank reconciliation on December 3
Service charge (12,000) 1, 2016:
Book error (64,000-46,000) (18,000) Balance per bank statement 2,800,000
Adjusted book balance 2,500,000 Add: Deposit in transit 195,000
Checkbook printing charge 5,000
Problem 15-8 (IAA) Error made by Divine in recording
Letty Company provided the bank for the month of April which included the check issued in December 35,000
following information: NSF check 110,000 345,000
Bank service charge for April 15,000 Total 3,145,000
Check deposited by Letty during April was not collectible, Less: Outstanding check 100,000
and has been marked “NSF” by the bank and returned 40,000 Note collected by bank including
P15,000 interest 215,000 315,000
In comparing the bank statement to its own records, the entity found the Balance per book 2,830,000
following:
Deposits made but not yet recorded by bank 130,000 The entity had cash on hand P500,000 and petty cash fund P50, 000 on
Checks written and mailed but not yet recorded by bank 100,000 December 31, 201 6.

A deposit in transit end outstanding checks have been properly recorded in 1. What amount should be reported as cash in bank on December 31, 2016?
the entity’s books. a. 2,930,000 b. 3,095,000 c. 2,895,000 d. 3,130,000
A customer check for P35,000 payable to Letty Company had not yet been
deposited and had not been recorded by the entity. 2. What total amount of cash should be reported on December 31, 20 16?
a. 3,395, 000 b. 3,350,000 c. 3,445, 000 d. 3,380,000
The cash in bank account balance per ledger is P920,000.
Solution 16-1
What is the adjusted cash in bank on April 30?
a. 900,000 Question 1 Answer c
b. 86,000
c. 930,000 Balance per bank 2,800,000
d. 965,000 Deposit in transit 195,000
Outstanding check (100,000)
Solution 15-8 Answer a Adjusted cash in bank 2,895,000
Balance per ledger 920,000
Unrecorded customer check 35,000 Balance per book 2,830,000
Bank service charge (15,000) Note collected by bank 215,000
NSF check (40,000) NSF check (110,000)
Adjusted book balance 900,000 Book error (35,000)
Checkbook printing charge (5,000)
Problem 15-9 (IAA) Adjusted cash in bank 2,895,000

Gallant Company showed a cash account balance of P4,500,000 at the Question 2 Answer C
month-end.
The bank statement did not include a deposit of P230 000 made on the last Adjusted cash in bank 2,895,000
day of the month. Cash on hand 500,000
The bank statement showed a collection by the bank of P94,000 for the Petty cash fund 50 000
depositor and a customer check for P32,000 returned because it was NSF. Total cash 3,445,000
A customer check for P45,000 was recorded by the depositor as P54,000, and
a check written for P79,000 was recorded as P97,000. Problem 16-2 (PHILCPA Adapted)

What amount should be reported as cash in hank? Margar Company kept all cash in a checking account. An examination of of
a. 4,765,000 the accounting records and bank statement for the month of December
b. 4,571,000 revealed a bank statement balance of 8,740,000, and a book balance of
c. 4,819,000 8,525,000.
d. 4,801,000 A deposit of P950 000 placed in the bank ‘s night depository on December 29
does not appear on the bank statement.
Solution 15-9 Answer b Checks outstanding on December 31 amount to P270,000.
Balance per book 4,500,000 The bank statement showed that on December 25 the bank collected a note
Collection by bank 94,000 for Margar Company and credited the proceeds of P935,000 to the entity’s
NSF customer check (32,000) account which included P35,000 interest.
Book error -customer check (54,000-45,000) (9,000) Margar Company discovered that a check written in December for P183,000
Book error check written (97,000 -79,000) 18,000 in payment of an account had been recorded as P138,000.
Adjusted book balance 4,571,000
Included with the December 3 1 bank statement was an NSF check for Proceeds of bank loan, December 1,
P250,000 that Margar Company had received from a customer on December discounted for 6 months at 12%, not
20. The bank statement showed a P15,000 service charge for December. recorded on Sam Company’s books 940,000
Customer check charged back by bank
What is the adjusted cash in bank on December? for absence of counter signature 50,000
a. 9,150,000 Deposit of P100,000 incorrectly recorded by bank as 10,000
b. 9,240,000 Check of Sim Company charged by bank
c. 9,195,000 against Sam account 150,000
d. 9,215,000
Customer’s note collected by bank in favor of Sam Company.
Solution 16-2 Answer a Face 400,000
Book balance 8,525,000 Interest 40,000
Note collected by bank for the depositor 935,000 Total 440,000
Book error in recording check (183,000-138,000) (45,000) Collection fee 5,000 435,000
NSF check (250,000)
Service charge (15,000) Erroneous debit memo of December 28,
Adjusted book balance 9,150,000 to charge Sam account with settlement of bank loan 200,000
Deposit of Sim Company credited to Sam account 300,000
Balance per bank 8,470,000
Deposit in transit 950,000 What is the adjusted cash in bank on December 31?
Checks outstanding (270,000) a. 4,315,000 b. 3,925,000 c. 3,075,000 d. 4,015,000
Adjusted bank balance 9,150,000
Solution 16-4 Answer d
Problem 16-3 (IAA)
Balance per book 2,700,000
Ron Company provided the following data for the month of January: Add: Proceeds of bank loan 940,000
Customer note collected by bank 435,000 1,375,000
Balance per book, January 31 3,130,000 Total 4,075,000
Balance per bank statement, January 31 3,500,000 Less: Service charge 10,000
Collections on January 31 but undeposited 550,000 Customer check charged back 50,000 60,000
NSF check received from a customer returned by the Adjusted book balance 4,015,000
bank on February 5 with the January bank statement 50,000
Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box rental not Balance per bank 4,000,000
recorded by depositor 5,000 Add: Deposit in transit 475,000
A creditor check for P30,000 was incorrectly Incorrect deposit 90,000
recorded in the depositor’s book as 300,000 Erroneous bank charge 150,000
A customer check for P200,000 was recorded Erroneous debit memo 200,000 915,000
by the depositor as 20,000 Total 4,915,000
The depositor neglected to make an entry in its Less: Outstanding checks 600,000
books for a check drawn in payment of an account payable 125,000 Erroneous bank credit 300,000 900,000
Adjusted bank balance 4,015,000
What is the adjusted cash in bank on January 31?
a. 3,130,000 b. 3,500,000 c. 3,400,000 d. 2,950,000
Problem 16-5 (IAA)
Solution 16-3 Answer 6 Susan Company showed the following information on August 31:
Balance per book 3,130,000 Balance of cash in bank account 1,300,000
Overstatement of creditor check 270,000 Balance of bank statement 1,200,000
Understatement of customer check 180,000 Outstanding checks, August 31:
NSF check (50,000) Number 555 10,000
Bank debit memo for safety deposit box (5,000) 761 55,000
Unrecorded check (125,000) 762 40,000
Adjusted book balance 3,400,000 763 25,000
764 65,000
Balance per bank 3,500,000 765 70,000
Undeposited collections 550,000
Checks outstanding (650,000) Receipts of August 31, deposited September 1,275,000
Adjusted Bank balance 3,400,000 Service charge for August 5,000
NSF check received from a customer 85,000
Problem 16-4 (IAA)
In reconciling the cash balance on December 31 with that shown in the bank The cashier-bookkeeper had misappropriated P30,000 and an additional
statement, Sam Company provided the following information: P10,000 by charging sales discounts and crediting accounts receivable.
Balance per bank statement 4,000,000 The stub for check number 765 and the invoice relating thereto showed that
Balance per book 2,700,000 it was for P50,000. It was recorded incorrectly in the cash disbursements
Outstanding checks 600,000 journal as P70,000.
Deposit in transit 475,000 This check was drawn in payment of an account payable.
Service charge 10,000
Payment has been stopped on check number 555 which was drawn in Balance per bank 3,195,000
payment of an account payable. The payee cannot be located. Outstanding checks (685,000)
Deposit in transit 500,000
What is the adjusted cash in bank on August31? Bank error in recording check (90,000)
a. 1,240,000 b. 1,230,000 c. 1,210,000 d. 1,200,000 Stolen check deducted by bank in error 80,000
Adjusted bank balance 3,000,000
Solution 16-5 Answer a
Balance per book 130,000 Problem 16-7 (IAA)
Add: Overstatement of check number 765 20,000 Grass Company provided the following information:
Check number 555 stopped for payment 10,000 30,000 Balance per bank statement July 31 1,240,000
Total 1,330,000 Balance per ledger, July 31 750,000
Less: Service charge 5,500 Deposit of July 30 not recorded by bank 280,000
NSF check 85,000 90,000 Debit memo service charges 10,000
Adjusted book balance 1,240,000 Credit memo collection of note by bank for Grass 300,000
Outstanding checks 550,000
Balance per bank 1,200,000
Add: Undeposited collections 275,000 An analysis of the canceled checks returned with the Bank statement
Total 1,475,000 revealed the following:
Less: Outstanding checks: *Check for purchase of supplies was drawn for P60,000 but was recorded as
Number 761 55,000 P90,000.
762 40,000 *The manager wrote a check for traveling expenses of P 1 00,000 while out
763 25,000 of town. The check was not recorded.
764 65,000 What amount of cash in bank should be reported on July 31?
765 50,000 235,000 a. 970,000 b. 270,000 c. 550,000 d. 610,000
Adjusted bank balance 1,240,000
Solution 16-7 Answer a
Problem 16-6 (PHILCPA Adapted)
Balance per ledger 750,000
Mcbride Company provided the following data pertaining to the cash Service charges (10,000)
transactions and bank account for the month of May: Collection of note 300,000
Book error in recording check (90,000-60,000) 30,000
Cash balance per accounting record 1,719,000 Unrecorded check for traveling expenses (100,000)
Cash balance per bank statement 3 195 000 Adjusted book balance 970,000
Bank service charge 10,000 Balance per bank 1,240,000
Debit memo for the cost of printed checks delivered Deposit in transit 280,000
by the bank; the charge has not been recorded in Outstanding checks (550,000)
the accounting record 12,000 Adjusted bank balance 970,000
Outstanding checks 685,000
Deposit of May 30 not recorded by bank until June1 500,000
Proceeds of a bank loan on May 30, not recorded in CHAPTER 17
the accounting record, net of interest of P30,000 570,000 PROOF OF CASH
Proceeds from a customer promissory note, principal
amount P800,000 collected by the bank not taken Problem 17-1 (AICPA Adapted)
up in the accounting record with interest 810,000 Law Company had the following bank reconciliation on June 30:
Check No. 1086 issued to a supplier entered in the
accounting record as P210,000 but deducted in the Balance per bank statement, June 30 3,000,000
bank statement at an erroneous amount of 120,000 Deposit in transit 400 000
Stolen check lacking an authorized signature deducted Total 3,400,000
from Mcbride’s account by the bank in error 80,000 Outstanding checks (900 000)
Customer check returned by the bank marked NSF, Balance per book, June 30 2,500,000
indicating that the customer balance was not adequate to
cover the check; no entry has been made in the accounting The bank statement for the month of July showed the following:
record to record the returned check 77,000 Deposits, including P200,000 note collected for Lazar 9,000,000
Disbursements, including P140,000 NSF customer check
What is the adjusted cash in bank? and P10,000 service charge 7,000,000
a. 3,000,000 b. 2,910,000 c. 3,080,000 d. 2,990,000
All reconciling items on June 30 cleared through the bank in July. The
Solution 16-6 Answer a outstanding checks totaled P600,000 and the deposit in transit amounted to
Balance per book 1,719,000 P1,000,000 on July 31.
Service charge (10,000)
Debit memo for printed checks (12,000) 1. What is the adjusted cash in bank on July 31?
Proceeds of bank loan 570,000 a. 2,500,000 b. 5,400,000 c. 2,900,000 d. 5,000,000
Proceeds of customer note 810,000
NSF customer check (77,000) 2. What is the cash balance per book on July 31?
Adjusted book balance 3,000,000 a. 5,400,000 b. 5,350,000 c. 5,550,000 d. 4,500,000

3. What is the amount of cash receipts per book on July?

a. 9,400,000 b. 9,600,000 c. 8,600,000 d. 9,800,000
 3. What is the amount of cash disbursements per book in July? 1. What is the adjusted cashinbankonDecember31?
a. 6,550,000 b. 6 ,700,000 c. 7,300,000 d. 6,850,000 a. 4,700,000
b. 4,900,000
Solution 17-1 c. 4,500,000
d. 3,200,000
Question 1 Answer b
Balance per bank June 30 3,000,000 2. What is the cash balance per ledger on December 31?
July bank deposits 9,000,000 a. 4,100,000 b. 4,900,000 c. 4,700,000 d. 4,300,000
July bank disbursements (7,000,000)
Balance per bank July 31 5,000,000 3. What is the amount of cash receipts per book in December?
July deposit in transit 1,000,000 a. 5,400,000 b. 4,400,000 c. 5,500,000 d. 6,400,000
July outstanding checks (600,000)
Adjusted bank balance 5,400,000 4.What is the amount of cash disbursements per book in December?
a. 3,700,000 b. 3,300,000 c. 3, 100,000 d. 3,500,000
Question 2 Answer b
Solution 17-2
Balance per book -July 31 SQUEEZE 5,350,000 Question 1 Answer b
Note collected by bank in July 200,000 Balance per bank November 30 3,600,000
NSF customer check in July (140,000) December deposits 5,500,000
Service charge in July (10,000) Total 9,100,000
Adjusted book balance 5,400,000 December disbursements (4,400,000)
Balance per bank December 31 4,700,000
Question 3 Answer a Deposit in transit December 700,000
Outstanding checks December (500,000)
Deposits per bank statement for July 9,000,000 Adjusted bank balance -December 31 4,900,000
Note collected by bank in July (200,000)
Deposit in transit June 30 (400,000) Question 2 Answer d
Deposit in transit July 3 11,000,000 Balance per book December 31 SQUEEZE 4,300,000
Cash receipts per book for July 9,400,000 Note collected by bank 1,000,000
NSF customer check (350,000)
Question 4 Answer a Service charge (50,000)
Adjusted book balance 4,900,000
Disbursements per bank statement for July 7,000,000
NSF check in July (140,000) Question 3 Answer b
Service charge in July (10,000) December bank deposits 5,500,000
Outstanding checks June 30 (900,000) Note collected by bank in December (1,000,000)
Outstanding checks July 31 600,000 Deposit in transit November 30 (800,000)
Cash disbursements per book for July 6,550,000 Deposit in transit December 31 700,000
December book receipts 4,400,000
Proof of the cash balance per book -July 31
Balance per book June 30 2,500,000 Question 4 Answer c
Book receipts for July 9,400,000
Book disbursements for July 6,550,000 December bank disbursements 4,400,000
Balance per book July 31 5,350,000 NSF check in December (350,000)
Service charge in December (50,000)
Problem 17-2 (AICPA Adapted) Outstanding checks November 30 (1,200,000)
Chris Company presented the following bank reconciliation for the month of Erroneous bank credit in November (200,000)
November: Outstanding checks December 31 500,000
December book disbursements 3,100,000
Balance per bank statement, November 30 3,600,000
Add: Deposit in transit 800,000 Proof of cash balance per book December 31
4,400,000 Balance per book November 30 3,100,000
Less: Outstanding checks 1,200,000 December book receipts 4,400,000
Bank credit recorded in error 200,000 1,400,000 December book disbursements (3,100,000)
Balance per book, November 30 3,000,000 Balance per book December 31 4,300,000

Data per bank statement for the month of December follow: Problem 17-3 (AICPA Adapted)
December deposits, including note Lira Company prepared the following bank reconciliation on June 30:
collected ofP1,000,000 for Chris 5,500,000 Balance per bank 9,800,000
December disbursements, including NSF customer check Deposits in transit 400,000
P3 50,000 and service charge P50,000 4,400,000 Outstanding checks (1,400,000)
Balance per book 8 800 000
All items that were outstanding on November 30 cleared through the bank In
December, including the bank credit. There were total deposits of P6,500,000 and charges for disbursemem3 of
P9,000,000 for July per bank statement. A11 reconciliation items on June 30
In addition, checks amounting to P500,000 were outstanding and deposits of cleared the bank on July 31.
P700,000 were in transit on December 31. Checks outstanding amounted to P1,000,000 and deposits in transits totaled
P1,200,000 on July 31.
 In addition, checks of P250,000 were outstanding on December 31.

1. What is the amount of cash disbursements per book in July? What is the balance of cash per book on December 31?
a. 8,600,000 b. 7,600,000 c. 9,400,000 d. 8,400,000 a. 1,922,000 b. 1,924,000 c. 2,172,000 d. 2,422,000

2. What is the adjusted cash in bank on July 31? Solution 17-5 Answer a
a. 7,300,000 b. 6,300,000 c. 7,500,000 d. 6,500,000 Balance per bank November 30 1,804,000
December bank deposits 2,610,000
Solution 17-3 December bank disbursements (2,242,000)
Question 1 Answer a Question 2 Answer c Balance per bank December 31 2,172,000
Outstanding checks December 31 (250,000)
Bank disbursements for July 9,000,000 Adjusted cash in bank December 31 1,922,000
Outstanding checks June 30 (1,400,000)
Outstanding checks July 31 1,000,000 Problem 17-6 (PHILCPA Adapted)
Book disbursements for July 8,600,000 Jam Company provided the following bank reconciliation on May 31:
Balance per bank July 31 Balance per bank statement 2,100,000
(9,800,000 + 6,500,000 9,000,000) 7,300,000 Deposits outstanding 300,000
Deposits in transit July 31 1,200,000 Checks outstanding (30,000)
Outstanding checks July 31 (1,000,000) Correct cash balance 2,370,000
Adjusted cash in bank July 31 7,500,000
Balance per book 2,372,000
Problem 17-4 (AICPA Adapted) Bank service charge (2,000)
Oro Company had the following bank reconciliation on March 31: Correct cash balance 2,370,000

Balance per bank statement, March 31 4,650,000 1. What is the amount of checks outstanding on June 30?
Add: Deposits in transit 1,030,000 a. 30,000 b. 90,000 c. 60,000 d. 0
Total 5,680,000
Less: Outstanding checks 1,260,000 2. What is the amount of deposits in transit on June 30?
Balance per book, March 31 4,420,000 a. 480,000 b. 120,000 c. 180,000 d. 680,000

Data per bank statement for the month of April: 3. What is the adjusted cash in bank on June 30?
a. 1,810,000 b. 2,220,000 c. 2,240,000 d. 2.780.000
Deposits 5,840 000
Disbursements 4,970,000 Solution 17-6
Question 1 Answer b
All reconciliation items on March 31 cleared through the bank in April. Checks outstanding May 31 30,000
Outstanding checks on April 30 totaled P700,000 and there were no deposits Checks recorded by book in June 2,360,000
in transit on April 30. Total 2,390,000
Checks recorded by bank in June (2,300,000)
What is the cash balance per book on April 30? Checks outstanding June 30 90,000
a. 4,820,000 b. 5,290,000 c. 5,520,000 0 5,850,000
Question 2 Answer a
Solution 1 7-4 Answer a Deposits in transit May 31 300,000
Balance per bank March 31 4,650,000 Deposits recorded by book June 1,800,000
Bank deposits April 5,840,000 Total 2,100,000
Bank disbursements -April (4,970,000) Deposits recorded by bank June (1,620,000)
Balance per bank April 30 5,520,000 Deposits in transit -June 30 480,000
Outstanding checks -April 30 (700,000)
Adjusted cash in bank April 30 4,820,000 Question 3 Answer b
Balance per bank June 30 1,830,000
Problem 17-5 (AICPA Adapted) Deposits in transit June 30 480,000
Outstanding checks June 30 (90,000)
Queen Company reported the following bank reconciliation from the month Adjusted bank balance 2,220,000
of November:
Balance per book 1,810,000
Balance per bank statement November 30 1,804,000 Note collected by bank 420,000
Deposit in transit 415,000 NSF check (10,000)
Outstanding checks (630,000) Adjusted book balance 2,220,000
Bank credit recorded in error 2 000
Balance per book, November 30 1,587,000 Problem 17-7 (IAA)

Data per bank for the month of December: Bayside Company provided the following information for October and
December deposits 2,510,000 November:
December disbursements 2,242,000 Checks and charges recorded by bank In November,
including a November service charge of P4, 000
All items that were outstanding on November 30 cleared through the bank in and NSF check of P20, 000 550,000
December, including the bank credit. Service charge made by bank m October and
recorded by depositor in November 2,000
Total credits to cash in all journals during November 620,000
Customer NSF check returned in October and

redeposited in November (no entry made by

depositor in either October or November) 40,000
Outstanding checks on October 31 that
cleared in November 230,000

What is the amount of outstanding checks on November 30?

a. 282,000
b. 300,000
c. 322,000
d. 302,000

Solution 1 7-7 Answer c

Checks and charges by bank in November 550,000
Service charge in November (4,000)
NSF check in November (20,000)
Checks paid by bank in November 526,000

Total credits to cash in all journals during November 620,000

Service charge in October recorded in November (2,000)
Checks issued by depositor in November 618,000
Outstanding checks October 31 230,000
Total checks to be paid by bank 848,000
Checks paid by bank in November (526,000)
Outstanding checks November 30 322,000