CHAPTER 3
THE STATEMENT OF FINANCIAL POSITION AND NOTES TO THE FINANCIAL STATEMENTS Discussion Question 16 1. C 11 C 21. E 2. C 12. B 22. B 3. B 13 A 23. E 4. E 14 F 24. A 5. A 15 B 25. F 6. B 16. B 26. B 7. E 17. E 27. D 8. A 18. A 9. D 19. B 10. E 20 F Problems 3-1. (GARNET COMPANY) Garnet Company Statement of Financial Position
December 31, 2016 Assets
Current assets Note
Cash and cash equivalents P 35,000
Financial assets at FVPL 61,000
Trade and other receivables (5) 107,000
Inventory 322,000 P 525,000
Non-current assets
Property, plant and equipment (6) P1,483,000
Investment property 1,000,000
Investments in associates 250,000
Intangibles (7) 141,000 2,874,000
TOTAL ASSETS P3,399,000
Liabilities and Shareholders’ Equity
Current liabilities
Trade and other payables (8) P 336,000
Income tax payable 150,000 P 486,000
Noncurrent liabilities
Bonds payable (9) 701,000
Deferred tax liability 50,000 751,000
Shareholders’ equity
Share capital (10) P 1,534,000
Additional paid in capital (11) 321,000
Accumulated profits (12) 307,000 2,162,000
Note 5 – Trade and other receivables
Accounts receivable P115,000
Less allowance for bad debts 8,000
Net trade and other receivables P107,000
Note 6 – Property, plant and equipment
Land P 300,000
Buildings P1,440,000
Less accumulated depreciation 530,000 910,000
Equipment P 624,000
Less accumulated depreciation 351,000 273,000 Total property, plant and equipment P1,483,000 Note 7 – Intangibles
Patents P120,000
Less accumulated amortization 22,000 P 98,000
Trademarks P 60,000
Less accumulated amortization 17,000 43,000
Total P141,000
Note 8 – Trade and other payables
Accounts payable P236,000
Salaries payable 20,000
Withholding taxes payable 80,000
Total P336,000
Note 9 – Bonds payable
Bonds payable (due 2018) P 770,000
Less discount on bonds payable 69,000
Total P701,000
Note 10 – Share capital
Preference share capital, P100 par P 210,000
Ordinary share capital, P10 par 1,300,000
Share dividends distributable 24,000
Total P1,534,000
Note 11 – Additional paid-in capital
Share premium -preference P 81,000
Share premium -ordinary 240,000
Total P321,000
Note 12 – Accumulated profits
Appropriated P 45,000
Unappropriated 262,000
Total retained earnings P307,000
3-2. (RUBY CORPORATION)
Ruby Corporation Statement of Financial Position
December 31, 2016 Assets Current assets
Cash and cash equivalents P 116,000 Financial assets through profit or loss (Note 5) 160,000 Trade and other receivables (Note 6) 308,000
Inventories (Note 7) 985,000
Prepaid expenses 31,000
Non-current assets
Property, plant and equipment (Note 9) P3,248,000 Other financial assets (Note 10) 339,000
Intangible assets (Note 11) 182,000 3,769,000
TOTAL ASSETS P5,579,000
Liabilities and Shareholders’ Equity
Current liabilities
Trade and other payables P 580,000
Income tax payable 247,000
Unearned revenues 62,000
Provision for product warranty 73,000 P 962,000 Noncurrent liabilities
Bonds payable (Note 12) 848,000
Shareholders’ equity
Share capital (Note 13) P2,028,000
Share premium (Note 14) 537,000
Retained earnings 1,204,000 3,769,000
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P5,579,000 Note 5 – Financial assets through profit or loss
Financial assets through profit or loss, costing P150,000, are reported at market values. Note 6 – Trade and other receivables
Accounts receivable P323,000
Less Allowance for bad debts 15,000
Net trade receivables P308,000
Note 7 – Inventories (at lower of cost and NRV)
Finished goods P416,000
Goods in process 347,000
Raw materials 222,000
Total P985,000
Note 8 – Non-current assets held for sale
This classification represents a unit of machinery with carrying amount of P240,000 and fair value less cost to sell of P210,000. The sale is expected to be consummated in May 2015.
Note 9 – Property, plant and equipment
Land P1,320,000
Land held for future use* 195,000
Buildings P1,824,000
Less accumulated depreciation 622,000 1,202,000
Machinery P 319,000
Less accumulated depreciation 106,000 213,000
Equipment P 530,000
Less accumulated depreciation 212,000 318,000
Total P3,248,000
Land held for future use, which conventionally was classified as long-term investment, is not qualified to be reported as Investment Property under par. 9 of IAS 40. Thus, property held for future development and subsequent use as owner-occupied property is part of property, plant and equipment.
Note 10 – Other financial assets
Debt investments at amortized cost P250,000
Cash surrender value of life insurance 89,000
Note 11 – Intangible assets
Patents P200,000
Less Accumulated amortization 18,000
Total P182,000
Note 12 – Bonds payable
Bonds payable P800,000
Add Premium on bonds payable 48,000
Total P848,000
Note 13 – Share Capital
Preference share capital P 400,000
Ordinary share capital 1,628,000
Total P2,028,000
Note 14 – Share premium
Share premium - preference P234,000
Share premium - ordinary 303,000
Total P537,000
Retained earnings is adjusted by a decrease of P30,000 representing loss from measurement to fair value less cost to sell of asset held for sale, thus retained earnings balance is P1,204,000.
3-3. (DIAMOND COMPANY)
Diamond Company Statement of Financial Position
December 31, 2016 Assets Current assets
Cash P 230,000
Financial assets at fair value through profit or loss 320,000 Trade and other receivables (Note 5) 510,000
Inventory 600,000
Prepaid expenses (Note 6) 130,000 P1,790,000 Noncurrent assets
Property, plant and equipment (Note 7) P3,450,000 Financial assets at fair value through OCI 1,030,000
Intangible assets 470,000
Deferred tax asset 70,000 5,020,000
TOTAL ASSETS P6,810,000
Liabilities and Shareholders’ Equity
Current liabilities
Trade and other payables (Note 8) P1,390,000
Unearned rent 90,000 P1,480,000
Noncurrent liabilities
Bonds payable (Note 9) 1,000,000
Shareholders’ equity
Ordinary share capital, P10 par P1,200,000
Share Premium 1,040,000
Retained earnings 2,300,000
Total 4,540,000
Treasury shares, at cost (330,000)
Accumulated holding gains (losses) – investments
through other comprehensive income 120,000
Note 5 – Trade receivables
Accounts receivable P590,000
Less Allowance for uncollectible accounts 80,000
Net trade receivables P510,000
Note 6 – Prepaid expenses
Office supplies P 80,000
Prepaid insurance 50,000
Total P130,000
Note 7 – Property, plant and equipment
Land P 810,000
Buildings and equipment P3,560,000
Less accumulated depreciation 920,000 2,640,000
Total P3,450,000
Note 8 – Trade and other payables
Accounts payable P 990,000
Salaries payable 150,000
Taxes payable 250,000
Total P1,390,000
Note 9 – Bonds payable
Bonds payable (due 2018) P1,100,000
Less discount on bonds payable 100,000
Net P1,000,000
3-4. (EMERALD COMPANY)
Emerald Company Statement of Financial Position
December 31, 2016 Assets
Current assets Note
Cash P 380,000
Equity securities through profit or loss (5) 485,000 Trade and other receivables (6) 2,780,000
Inventories 450,000
Prepaid expenses 290,000
Non-current asset held for sale (7) 1,200,000 P 5,585,000 Noncurrent assets
Property, plant and equipment (8) P 5,600,000 Investment property (9) 2,900,000 Other financial assets (10) 1,600,000
Intangibles (11) 960,000 11,060,000
TOTAL ASSETS P16,645,000
Liabilities and Shareholders’ Equity
Current liabilities
Trade and other payables (12) P 1,750,000
Income taxes payable 720,000
Provision for warranties 200,000 P 2,670,000 Noncurrent liabilities
Notes payable (13) 1,000,000
Bonds payable (14) P 4,430,000
Mortgage payable 1,600,000 7,030,000
Shareholders’ equity
Share capital (15) P 1,700,000
Share premium 1,820,000
Retained earnings 3,605,000
Total P 7,125,000
Treasury shares, at cost (180,000) 6,945,000 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY P16,645,000
Retained earnings before adjustment P3,580,000
Unrealized gain on equity securities through profit or loss 25,000 Retained earnings after recognition of gain P3,605,000 Note 5 – Equity securities through profit or loss
The equity securities are intended for immediate trading in the future. The securities cost P460,000 and are reported at fair value.
Note 6 – Trade and other receivables
Accounts receivable P1,850,000
Notes receivable (due July 1, 2017) 1,000,000 Allowance for uncollectible accounts (70,000)
Net trade and other receivables P2,780,000
Note 7 – Noncurrent asset held for sale
The non-current asset held for sale represents land that is available for immediate sale and its carrying amount will be recovered through a sale transaction. The sale is highly probable as the plan for its sale has already been completed at yearend. Its fair value less cost to sell at December 31, 2016 was P1,400,000.
Note 8 – Property, plant and equipment
Land P1,400,000
Buildings P4,340,000
Less accumulated depreciation 1,800,000 2,540,000
Equipment P2,960,000
Less accumulated depreciation 1,300,000 1,660,000
Total P5,600,000
Note 9 – Investment property
Land P1,200,000
Building P2,000,000
Accumulated depreciation (300,000) 1,700,000
Total P2,900,000
Note 10 – Other financial assets
Investment in Day Corporation bonds (fair value P906,000) P 900,000
Sinking fund for bond retirement 700,000
Total P1,600,000
Note 11 – Intangibles
Patents P820,000
Less accumulated amortization 230,000 P 590,000
Trademarks P520,000
Less accumulated amortization 150,000 370,000
Total P 960,000
Note 12 – Trade and other payables
Accounts payable P 940,000
Wages payable 410,000
Current portion of mortgage payable 400,000
Note 13 – Notes payable
The notes payable was issued on June 30, 2015 and are supposed to mature on June 30, 2017. As of December 31, 2016, the company has negotiated with the lender to extend the maturity date to June 30, 2018.
Note 13 – Bonds payable
Bonds payable P4,000,000
Add premium on bonds payable 430,000
Total P4,430,000
Note 14 – Share capital
Preference share capital P 600,000
Ordinary share capital 1,100,000
Total P1,700,000
3-5. (SAPPHIRE COMPANY)
Current assets consist of
Cash (1,240,000 – 500,000) P 740,000
Securities held for trading
900,000 + 500,000+ (500,000 x 4.8% x 105/360) 1,407,000 Trade accounts receivable (net of P60,000 allowance for bad debts)
1,220,000 + 50,000 – 60,000 1,210,000
Notes receivable 920,000
Creditor’s account with debit balance 100,000
Merchandise inventory 1,360,000
Total current assets P 5,737,000
Current liabilities consist of
Trade accounts payable (750,000 + 150,000 + 100,000) 1,000,000
Customer deposit 50,000
Notes payable (1,500,000 – 300,000) 1,200,000
Current portion of bonds payable 500,000
Accrued interest on bonds payable (2.5M x .10 x 6/12) 125,000
Income taxes payable 280,000
Employees income tax withheld 40,000
Total current liabilities P 3,195,000
3-6. (TURQUOISE COMPANY) Current liabilities consist of
Accounts payable P 270,000
Mortgage notes payable 1,300,000
Bank notes payable 100,000
Interest payable 7,500
VAT payable (2,688,000/1.12) x .12 288,000
Withholding tax payable 120,000
Income taxes payable (186,500 – 70,000) 116,500
Provision for damages 650,000
Total current liabilities P2,852,000
Note: The entire amount of mortgage notes payable is classified as current liabilities because as of December 31, 2016, the company has no discretion yet to refinance the obligation on a long-term basis. The refinancing of the mortgage payable in 2017 is non-adjusting event that requires disclosure in the notes to the financial statements.
3-7. (OPAL COMPANY) Current assets consists of
Cash (400,000 + 20,000 - 30,000 + 25,000 + 540,000) P 955,000 Accounts receivable (net) 800,000 + 30,000 – 150,000 680,000
Inventories (1,200,000 – 40,000) 1,160,000
Prepaid insurance (250,000 – 50,000) 200,000 Total current assets at December 31, 2016 P2,995,000
OR
Reported total current assets P4,580,000
Bank overdraft 20,000
Cash for purchase of plant site (1,500,000)
Unreplenished petty cash expenses (15,000)
Goods held on consignment (40,000)
Cash surrender value of life insurance (50,000) Total current assets at December 31, 2016 P2,995,000 3-8. (AQUAMARINE COMPANY)
Current
assets Non-current assets liabilities Current Non-current liabilities Reported totals P3,500,000 P8,000,000 P2,400,000 P2,700,000
(a) Sinking fund cash 380,000 380,000
(b) Treasury shares (500,000)
(b) NCA held for sale 3,000,000 (3,000,000
(c) Cash fund for taxes 140,000 140,000 (d) Advances and
commissions payable 210,000 210,000
(e) Provision for damages (12,000)
Correct totals P6,850,000 P4,880,000 P2,738,000 P3,080,000
3-9. (PERIDOT COMPANY)
Cash at FVPL FA receivable Accounts Inventory Reported amounts P536,000 P500,000 P3,285,000 P3,500,000
(a) Post dated check recorded 80,000
(b) Increase in market value 50,000 (c) Goods shipped FOB
destination (180,000) 120,000
(d) Goods out on consignment 135,000
Correct balances, Dec. 31, 2016 P616,000 P550,000 P3,105,000 P3,755,000 3-10. (ZIRCON COMPANY)
Current assets:
Accounts receivable (net)148,000 – 12,000 P136,000 Citibank current account 98,000
Inventories 217,500
Office supplies 3,500
Total current assets P455,000
Current liabilities:
Accounts payable P124,000
Income tax payable 16,000
Advances from customers 150,000 Accrued interest on bonds payable 17,000
Provision for warranties 60,000 367,000
3-11.
1. C 5. B 9. A
2. A 6. C 10. B
3. C 7. A
4. A 8. A
MULTIPLE CHOICE QUESTIONS Theory MC1 C MC11 B MC21 D MC2 B MC12 D MC22 B MC3 A MC13 C MC23 C MC4 A MC14 D MC24 D MC5 A MC15 C MC25 C MC6 C MC16 C MC26 B MC7 C MC17 C MC27 C MC8 D MC18 D MC9 C MC19 A MC10 C MC20 C Problems MC28 A (200,000-50,000) + 120,000 + 79,000 + (280,000– 60,000) =569,000 MC29 B 3,740,000 + 50,000 – 4,000 + 100,000 – 180,000 + 50,000 = 3,756,000 MC30 B 2,680,000 + 50,000 + 100,000 +50,000 – 1,000,000 = 1,880,000 MC31 D 4,014,000 – 9,000 - 150,000 = 3,855,000 MC32 C 137,000+90,000+92,000+(122,000+7,000–6,000)+136,000+12,000=590,000 MC33 B 13,000+ 102,000+ 7,000 + 120,000 +4,000+50,000+28,000 = 324,000 MC34 C 376,000 + (2,000,000+100,000 – 8,000) = 2,468,000 MC35 B (1,125,000+65,000) + 136,000 + 96,000 + 150,000 + (750,000/5)=1,722,000 MC36 A 360,000 + 480,000 – 30,000 – 12,000 + 90,000 + 120,000 = 1,008,000 MC37 A 450,000 + 750,000 – 90,000 + 240,000 = 1,350,000 MC38 A 2,160,000 – 250,000 + 224,000 + 830,000 + 970,000 = 3,934,000 MC39 C 980,000 + 108,000 + 720,000 = 1,808,000 MC40 D 160,000 + 50,000 + 110,000 + 300,000 + 10,000 = 630,000 MC41 A (490,000 – 25,000) + (380,000 – 200,000) + (1,250,000 – 500,000) + 100,000 + 900,000 + 80,000 = 2,475,000 MC42 A 25,000 + 500,000 + 200,000 + 3,750,000 = 4,475,000 MC43 D 675,000 + (2,695,000 – 500,000) + 2,185,000 = 5,055,000 MC44 A 1,801,000 + (654,000 – 475,000) = 1,980,000 MC45 C 13,360,000–11,180,000–654,000=1,526,000; 1,526,000+3,350,000=4,876,000 MC46 B (1,200,000 – 200,000) + 1,500,000 + 25,000 = 2,525,000 MC47 C 500,000 + 550,000 – 250,000 = 800,000 + 1,000,000 + 250,000 + 450,000 = 2.5M MC48 B 150,000 + (2,100,000 – 500,000 – 80,000) + (1,600,000 – 200,000)=3,070,000 MC49 B (550,000 – 95,000) + 800,000 + (800,000 X 12% X 7/12) + 6,500 = 1,317,500 MC50 C 8,700,000 – (4,000,000 – 2,000,000 + 5,000,000 – 1,000,000) =2,700,000 MC51 B 175,000 + 136,000 + 820,000 + 153,000 + 366,000 = 1,650,000 MC52 A 250,000 + 140,000 + 228,000 + 248,000 = 866,000 MC53 C 525,000 – 400,000 + 300,000 + 1,020,000 + 1,200,000 + 450,000=3,095,000 MC54 B (950,000 x 2.50) + 2.5M + (10M x 12% x 3/12) + (12M + 30M – 25M) = 22,175,000 MC55 B AR: 247,000 – 40,000 + (58,000 x 1.25) = 179,500 Invy: 220,000 + (40,000 x 75%) + 22,000 = 272,000 PPE: 3,200,000 – 1,200,000 = 2,000,000
