PROBLEMS 4-1. (LAS VEGAS COMPANY)
Capital, December 31, 2012
Total assets P1,218,000
Less total liabilities 276,000 P942,000 Capital, December 31, 2011
Total assets P 970,000
Less total liabilities 202,000 768,000
Increase in capital P174,000
Withdrawals by the owner 250,000
Additional investments by the owner (100,000)
Profit P324,000
4-2. (BELLAGIO TRADING COMPANY)
Debit changes
Increase in assets P600,000
Decrease in liabilities 250,000 P850,000
Credit changes
Increase in share capital P400,000
Increase in share premium 125,000 525,000 Increase (decrease) in retained earnings P325,000
Dividends 120,000
Profit for the year P445,000
4-3. (VENETIAN COMPANY)
Raw material purchases P430,000
Increase in raw materials inventory (15,000)
Raw materials used P415,000
Direct labor 200,000
Factory overhead 300,000
Total manufacturing costs P915,000
Increase in work in process inventory (20,000)
Cost of goods manufactured P895,000
Decrease in finished goods 35,000
Cost of goods sold for 2008 P930,000
4-4. (MGM COMPANY)
Cost of goods manufactured P2,720,000
Finished goods, beginning 380,000
Finished goods, end (418,000)
Cost of goods sold P2,682,000
Gross profit 962,000
4-5. (MANDALAY COMPANY)
Let x = cost of sales .30x = .18 sales x = .18/.30 sales x = .60 sales Therefore, 100% - 60% - 18% - 12% = 10% Sales = 280,000/10%; Sales = 2,800,000 Cost of sales = 60% x 2,800,000 = 1,680,000 Income tax is ignored.
4-6. (EXCALIBUR PRODUCTS)
Excalibur Products Income Statement
For the Year Ended December 31, 2012
Sales P895,000 Cost of sales Beginning inventory P126,000 Purchases 466,250 Ending inventory (189,500) (402,750) Gross profit P492,250 Selling expenses (161,100)
General and administrative expenses (128,880)
Profit before income tax P202,270
Income tax (60,681)
Profit P141,589
4-7. (LUXOR COMPANY)
Requirement a (nature of expense method)
Luxor Company
Statement of Comprehensive Income For Year Ended December 31, 2012
Note Total
PROFIT OR LOSS
Net sales revenue (11) P3,359,000
Rent revenue 105,000 Total revenues P3.464.000 Operating Expenses Net purchases (12) 1,762,000 Increase in inventory (13) (105,000) Delivery expense 77,000 Advertising expense 170,000
Salaries and commissions (14) 502,000
Depreciation expense (15) 241,000
Supplies expense (16) 75,000
Bad debts expense 27,000
Insurance and taxes 85,000
Profit from Operations P460,000
Interest expense ( 37,000)
Profit before income tax from continuing operations P423,000
Income tax expense 126,900
Profit from continuing operations P296,100
Discontinued operations, net of tax (18) (245,000)
Profit P 51,100
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through other
comprehensive income, net of P24,000 income tax P 56,000 Actuarial Gains Taken to Equity, net of P12,000 income
tax 28,000
Total Other Comprehensive Income P 84,000
TOTAL COMPREHENSIVE INCOME P135,100
Notes to Financial Statements (after presenting notes for basis of presentation and summary of significant accounting policies)
Note11 – Net sales revenue
Sales P3,529,000
Less sales discounts P 49,000
Sales returns and allowances 121,000 170,000
Net sales revenue P3,359,000
Note 12 – Net purchases
Purchases P1,730,000
Add freight-in 135,000
Total P1,865,000
Less purchase discounts P41,000
Purchase returns and allowances 62,000 103,000
Net purchases P1,762,000
Note 13 – Increase in inventory
Inventory, December 31 P446,000
Inventory, January 1 341,000
Increase in inventory P105,000
Note 14 – Salaries and commissions
Sales commissions and salaries P182,000
Office salaries 320,000
Total salaries and commissions P502,000 Note 15 – Depreciation expense
Depreciation – Buildings and office equipment P145,000 Depreciation – Store equipment 96,000 Total depreciation expense P241,000 Note 16 – Supplies expense
Store supplies expense P56,000
Office supplies expense 19,000
Note 17 – Other operating expenses
Loss on sale of equipment P 50,000
Loss from typhoon 120,000
Total other operating expenses P170,000 Note 18 – Discontinued Operations
Revenues P 900,000
Expenses (1,050,000)
Profit (loss) before income tax P (150,000)
Income tax benefit 45,000
Profit (loss) from operations of discontinued operations P (105,000) Loss on sale of assets, net of tax benefit of P60,000 (140,000)
Discontinued Operations P (245,000)
(function of expense method)
Luxor Company
Statement of Comprehensive Income For Year Ended December 31, 2012
Note Total
Net sales revenue (11) P3,359,000
Cost of goods sold (12) 1,657,000
Gross profit P1,702,000
Other Operating Income
Rent Revenue 105,000
Total Income P 1,807,000
Operating Expenses
Selling Expenses (12) P581,000
General and Administrative Expenses (13) 596,000
Other Operating Expenses (14) 170,000
Total Operating Expenses P1,347,000
Profit from Operations P460,000
Interest expense ( 37,000)
Profit before income tax from continuing operations P423,000
Income tax expense 126,900
Profit from continuing operations P296,100
Discontinued operations, net of tax (18) (245,000)
Profit P 51,100
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through other comprehensive income, net of P24,000 income
tax P 56,000
Actuarial Gains Taken to Equity, net of P12,000 income
tax 28,000
Total Other Comprehensive Income P 84,000
TOTAL COMPREHENSIVE INCOME P135,100
Notes to Financial Statements (after presenting notes for basis of presentation and summary of significant accounting policies)
Note 11– Net sales revenue
Sales P3,529,000
Less sales discounts P 49,000
Sales returns and allowances 121,000 170,000
Net sales revenue P3,359,000
Note 12 – Cost of goods sold
Inventory, January 1 P341,000
Purchases P1,730,000
Add freight-in 135,000
Total P1,865,000
Less purchase discounts (41,000)
Purchase returns and allowances (62,000) 1,762,000 Cost of goods available for sale P2,103,000
Less Inventory, December 31 446,000
Cost of goods sold P1,657,000
Note 13 – Selling expenses
Sales commissions and salaries P182,000
Store supplies expense 135,000
Delivery expense 77,000
Advertising expense 170,000
Depreciation expense – store equipment 96,000
Total selling expenses P581,000
Note 14 – General and Administrative expenses
Bad debts expense P27,000
Office supplies expense 19,000
Insurance and taxes 85,000
Office salaries 320,000
Depreciation – buildings and office equipment 145,000 Total administrative expenses P596,000 Note 15 – Other operating expenses (continuing operations)
Loss on sale of equipment P 50,000
Loss from typhoon 120,000
Total other operating expenses P170,000 Note 16 – Discontinued Operations
Revenues P 900,000
Expenses (1,050,000)
Profit (loss) before income tax P (150,000)
Income tax benefit 45,000
Profit (loss) from operations of discontinued operations P (105,000) Loss on sale of assets, net of tax benefit of P60,000 (140,000)
Requirement b
Luxor Company
Statement of Changes in Equity For the Year Ended December 31, 2012
Ordinary
Share Reserves Retained Earnings Total Balances, January 1 P700,000 P660,000 P1,785,000 P3,145,000 Correction of prior year’s income due to
understated depreciation, net of
P54,000 income tax (126,000) (126,000)
Restated balances, January P700,000 P660,000 P1,659,000 P3,019,000 Issuance of ordinary shares 100,000 40,000 140,000
Comprehensive Income 84,000 51,100 135,100
Dividends declared (60,000) (60,000)
Balances, December 31 P800,000 P784,000 P1,650,100 P3,234,100 Reserves at January 1 included the share premium (P610,000) and unrealized gain on investments carried at fair value through OCI (P50,000). The amounts may be reported in separate columns.
4-8. (TRUMP COMPANY) a.
Revenues P5,000,000
Selling and Administrative Expenses 5,080,000
Disposal costs (75,000)
Operating Profit (Loss) before income tax P(155,000)
Income tax benefit 46,500
Operating Profit (loss) P(108,500)
Fair value less cost to sell is P830,000 (980,000 – 150,000) which is greater than the carrying amount of P800,000.
b.
Revenues P5,000,000
Selling and Administrative Expenses 5,080,000
Disposal costs (75,000)
Operating Profit (Loss) before income tax P(155,000)
Income tax benefit 46,500
Operating Profit (loss) P(108,500)
Loss from measurement to NRV, net of income tax
benefit of P54,000 (126,000)
Discontinued Operations P(234,500)
Fair value less cost to sell is P620,000 which is P180,000 lower than the carrying amount of P800,000, which is reported as loss from measurement to NRV.
4-9. (CAESARS PALACE COMPANY)
Caesars Palace Company Statement of Changes in Equity
For the Years Ended December 31, 2012 and 2011 Share
Capital
Retained
Earnings Total January 1, 2011, balances as previously reported P2,000,000 P1,500,000 P3,500,000 Prior period adjustment
2010 expense charged erroneously to Equipment,
net of income tax of P24,000 (56,000) (56,000) January 1, 2011 balances, as restated P2,000,000 P1,444,000 P3,444,000 2011 Changes Profit 514,000* 514,000 Dividends (200,000) (200,000) Balances, December 31, 2011 P2,000,000 P1,758,000 P3,758,000 2012 Changes Profit 750,000 750,000 Dividends (500,000) (500,000) Balances, December 31, 2012 P2,000,000 P2,008,000 P4,008,000 Note: The solution above disregards the effect of income tax.
2011 Restated profit = P500,000 + depreciation erroneously recognized (20,000 x 70%).
4-10. (TUSCANY COMPANY)
Tuscany Company Comparative Income Statements
For the Years Ended December 31, 2012 and 2011
2012 2011
Sales P3,000,000 P2,540,000
Cost of goods sold (1,420,000) (1,143,000)
Gross profit 1,580,000 1,397,000
Selling expenses (350,000) (210,000)
General and administrative expenses (260,000) (220,000)
Profit before income tax P970,000 P967,000
Income tax (291,000) (290,100)
Profit P 679,000 P 676,900
Ending inventory, 2011, as reported P 355,000 Cost of goods sold, as reported in 2011 1,140,000 Goods available for sale P1,495,000 Beginning inventory, as reported in 2011 250,000 Purchases in 2011 P1,245,000 Purchases P1,245,000 Inventory, beg (weighted average) 210,000 Inventory, end (weighted average) (312,000) Restated Cost of sales in 2011, weighted average P1,143,000
Tuscany Company Statement of Changes in Equity
For the Years Ended December 31, 2012 and 2011 Share
Capital Retained Earnings Total January 1, 2011, balances as previously reported P1,000,000 P 600,000 P1,600,000 Cumulative effect of changing from FIFO to weighted
average method of inventory costing, net of income
tax of P12,000* (28,000) (28,000)
January 1, 2011 balances, as restated P1,000,000 P572,000 P1,572,000
2011 Changes Profit 676,900 676,900 Dividends (400,000) (400,000) December 31, 2011 balances P1,000,000 P848,900 P1,848,900 2012 Transactions Profit 679,000 679,000 Balances, December 31, 2012 P1,000,000 P1,527,900 P2,527,900 * based on 30% income tax rate
Cumulative effect shown on the statement of changes in equity
Difference in beginning inventory of 2011 (250,000-210,000) P40,000 Applicable tax (30% x 40,000) 12,000 Net adjustment (deduction) from retained earnings, January 1, 2011 P28,000
The cumulative effect, however, is taken up in the books during 2012, when the change was decided upon by the management. The following 2012 entry: is made:
Retained earnings 30,100
Income tax payable 12,900
Inventory, beginning (or cost of sales) 43,000
Thus, the retained earnings at December 31, 2012 is P879,000 - 30,100 + 679,000 = P1,527,900.
4-11. (RIVIERA COMPANY)
Riviera Company
Comparative Statement of Comprehensive Income For Year Ended December 31, 2012 and 2011
(In million pesos)
2012 2011
Revenue P2,000 P1,800
Raw materials and consumables used (850) (745)
Employee benefit expense (100) (95)
Depreciation and amortization (40) (40)
Other expenses (2) (3)
Income from operations P1,008 P917
Finance costs (4) (5)
Profit before income tax P1,004 P912
Income tax expense (301.2) (273.6)
Profit for the year P702.8 P638.4
Other comprehensive income
Unrealized gains (losses) on investments measured at fair value through other comprehensive income, net of
applicable tax .56 (.84)
MULTIPLE CHOICE Theory MC1 D MC7 A MC13 B MC19 B MC2 C MC8 A MC14 B MC20 B MC3 D MC9 A MC15 A MC21 B MC4 A MC10 D MC16 D MC22 D MC5 A MC11 D MC17 B MC23 C MC6 B MC12 B MC18 D MC24 C Problems MC25 D 210,000 – 50,000 = 160,000; 260,000 – 60,000 = 200,000 200,000 – 160,000 = 40,000 + 12,000 – 50,000 = 78,000 LOSS MC26 C 225,000 + 100,000 + 10,000 + 15,000 = 350,000; 150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000 350,000 – 335,000 = 15,000 + 25,000 – 125,000 = 85,000 LOSS MC27 A 21,000+25,000–10,000+70,000+5,000–(5,000 x 8)+15,000–50,000–1,000– 20,000=15,000 MC28 A 150,000 + 80,000 + (220,000 x ½) + 140,000 = 480,000 MC29 A 170,000 + (240,000 x ½) = 290,000 MC30 D 150,000 x 8 = 1,200,000 + 80,000 = 1,280,000 MC31 B 272,000 + 36,000 – 41,600 = 266,400 + 76,800 = 343,200 MC32 B .125/.25 = .50; 100% - 50% - 12.5% - 17.5% - 5% = 15% 750,000/15% = 5,000,000 x 50% = 2,500,000 MC33 C 5,800,000–(4,800,000+650,000–550,000)=900,000–(7.5%,x900,000)=532,500 MC34 C .15/.25=60%; 100%-60%-10% - 15% - 3% = 12%; 480,000/12% = 4.0M MC35 B 1,080000/80% = 1,350,000/90% = 1,500,000 x 30% = 450,000 MC36 C 3,500,000/70% = 5,000,000 MC37 C 5M-3.5M=1.5M – (60% x 1.5M) = 600,000 MC38 B 3,500,000 – 500,000 = 3,000,000 MC39 D 600,000+900,000 – 1,000,000 = 500,000 MC40 B P1,550,000 – P1,100,000 = 450,000 MC41 D 450,000 + 600,000 – 250,000 = 800,000;
ending inventory before write off is P100,000 + 150,000 = 250,000
MC42 C 5,000,000 + 28,000 + 520,000 – 280,000 – 500,000 – 720,000 – 110,000 + 16,000 + 100,000–400,000+55,000–70,000–50,000–80,000– 120,000 – 450,000 = 419,000 MC43 D 500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000
MC44 C 450,000 + 2,800,000 + 80,000 – 520,000 = 2,810,000 MC45 B Cost of sales = 20/50 = 40%
100%-40% = 60% - 20%-5% = 35% Profit before tax
2,450,000/70% = 3.5M; 3.5M/35% = 10M;10M x 40% = 4M CGS x 130%=5.2M MC46 D 2,000,000 + 100,000 – 2,100,000 = 0
MC47 D 0 + gain of P1,000,000 on disposal – income tax of P300,000 = 700,000 MC48 C (3,500,000 – 500,000) x 70% = 2,100,000 MC49 B MC50 A (360,000 – 320,000) x 70% = P28,000 MC51 B 400,000 – 84,000 + 40,000 – 4,000 – 280,000 = 72,000; 72,000 x 70% = 50,400 Total profit = P50,400 + (40,000 x 70%) =78,400 1,600,000 + (16,000 x 70%) – (24,000 x 70% )+ 78,400 ) – 12,000 = P1,660,800 MC52 400,000 – 84,000 + 40,000 – 4,000 – 280,000 + 40,000 = 112,000 112,000 x 70% = 78,400
