PAS 1 Presentation of Financial Statement:

Statement of Comprehensive Income

Income statement is a formal statement showing the financial performance of an entity for a given period of times

Financial performance of an entity is primarily measured in terms of the level of income earned by the entity through the effective
and efficient utilization of its resources.
 The financial performance is also known as the results of operations of the entity.
 The transaction approach is the traditional preparation of the income statements in conformity with accounting standards.
 Information about financial performance is useful in predicting future performance and ability to generate future cash flows

Comprehensive income is the change in equity during a period resulting from transactions and other events, other than changes
resulting from transactions with owners in their capacity as owners.
 Profit or Loss
o Total of income less expenses, excluding the components of other comprehensive income.
o Bottom line in the traditional income statement
o An entity may use “net income” or “net loss” to describe profit or loss
 Other Comprehensive Income
o Comprises items of income and expenses including reclassification adjustments that are not recognized in profit or
loss as required or permitted by PFRS.

Presentation of other comprehensive income

The statement of comprehensive income shall present line items for amounts of other comprehensive income during the period
classified by nature.

Presentation of comprehensive income

1. Two statements
 Income statement showing the components of profit or loss
 Statement of comprehensive income beginning with profit or loss as shown in the income statement plus or minus
the components of other comprehensive income
2. Single statement of comprehensive income/ statement of financial performance
 Combined statement showing the components of profit or loss and components of other comprehensive income in a
single statement.

Sources of income
a) Sales of merchandise to customers
 Sales return, allowances and discounts shall be deducted from gross sales to arrive at net sales
b) Rendering of services
 Professional fees, media advertising commission, insurance agency commissions, admission fees for artistic
performance and tuition fees
c) Use of entity resources
 Interest, rent, royalty and dividend income
d) Disposal of resources other than product
 Gain on sale of investments, gain on sale of PPE and gain on sale of intangible assets.

Components of expense
a) Cost of goods sold or cost of sales
b) Distribution costs or selling expenses
c) Administrative expenses
d) Other expenses
e) Income tax expenses

Cost of goods sold of merchandising concern

Beginning inventory xx
Net purchases xx
Goods available for sale xx
 Ending inventory (xx)
Cost of goods sold xx
Gross purchases xx
Freight in xx
Total xx
Purchase returns, allowances and discounts (xx)
Net purchase xx

Cost of goods sold of manufacturing concern

Beginning raw materials xx
Net purchases xx
Raw materials available for use xx
Ending raw materials (xx)
Raw materials used xx
Direct labor xx
Factory overhead xx
Total manufacturing cost xx
Beginning goods in process xx
Total cost of goods in process xx
Ending goods in process (xx)
Cost of goods manufactured xx
Beginning finished goods xx
Goods available for sale xx
Ending finished goods (xx)
Cost of goods sold xx

Distribution costs constitute costs which are directly related to selling, advertising and delivery of goods to customers.
 Salesmen’s salaries
 Salesmen’s commissions
 Traveling and marketing expenses
 Advertising and publicity
 Freight out
 Depreciation of delivery equipment and store equipment

Administrative expenses constitute cost of administering the business.

 Doubtful accounts
 Office salaries
 Expenses of general executives
 Expenses of general accounting and credit department
 Office supplies used
 Certain taxes
 Contribution
 Professional fees
 Depreciation of office building and office equipment
 Amortization of intangible assets

Other expenses are those expenses which are not directly related to the selling and administrative function.
 Loss on sale of trading investments
 Loss on disposal of PPE
 Loss on sale of noncurrent investment
 Casualty loss – loss, earthquake, fire

Forms of income statement

1. Functional presentation
 This form classifies expenses according to their function as part of cost of goods sold, distribution cost,
administrative expenses and other expenses.
 The functional presentation is also known as the cost of goods sold method
 An entity classifying expenses by function shall disclose additional information on the nature of expenses, including
depreciation, amortization and employee benefit costs.
2. Natural presentation
 Referred to as the nature of expense method
  This form, expenses are aggregated according to their nature and not allocated among the various functions within
the entity.
 The expenses which are of the same nature are grouped or aggregated and presented as one item
 For example, depreciation, purchases of raw materials, transport costs, employee benefit costs and advertising costs
are presented separately.

Statement of comprehensive income

 The purpose of this statement is to provide a more comprehensive information on financial performance measured more
broadly than the income as traditionally computed.

Statement of retained earnings

 Shows the changes affecting directly the retained earnings of an entity and relates the income statement to the statement of
financial position.

Statement of changes in equity

 Basic statement that shows the movements in the elements or components of the shareholders’ equity
 The statement of retained earnings is no longer a required basic statement but it is a part of the statement of changes in
equity.

Statement of cash flows

 Basic component of the financial statements which summarizes the operating, investing and financing activities of an entity
 Provides information about the cash receipts and cash payments of an entity during a period

Problem 1
Karla Company provided the following information for the current year:

Purchases 5,250,000
Purchase returns and allowances 150,000
Rental income 250,000
Selling expenses:
Freight out 175,000
Salesmen’s commission 650,000
Depreciation – store equipment 125,000
Merchandise inventory, January 1 1,000,000
Merchandise inventory, December 31 1,500,000
Sales 7,850,000
Sales returns and allowances 140,000
Sales discounts 10,000
Administrative expenses:
Officers’ salaries 500,000
Depreciation – office equipment 300,000
Freight in 500,000
Income tax 250,000
Loss on sale of equipment 50,000
Purchase discounts 100,000
Dividend revenue 150,000
Loss on sale of investment 50,000

Required:
a) Prepare an income statement for the year using the “functional” method with supporting notes
b) Prepare an income statement for the year using the “natural” method with supporting notes

Problem 1 Answer
Karla Company
Income Statement
Year ended December 31, 2008

Note
Net sales revenue (1) 7,700,000
Cost of sales (2) (5,000,000)
Gross income 2,700,000
Other income (3) 400,000
Total income 3,100,000
Expenses:
Selling expenses (4) 950,000
 Administrative expenses (5) 800,000
Other expenses (6) 100,000 1,850,000
Income before tax 1,250,000
Income tax ( 250,000)
Net income 1,000,000

Note 1 – Net sales revenue

Gross sales 7,850,000
Sales returns and allowances ( 140,000)
Sales discounts ( 10,000)
Net sales revenue 7,700,000

Note 2 – Cost of sales

Inventory, January 1 1,000,000
Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances ( 150,000)
Purchase discounts ( 100,000)
Net purchases 5,500,000
Goods available for sale 6,500,000
Inventory, December 31 (1,500,000)
Cost of sales 5,000,000

Note 3 – Other income

Rental income 250,000
Dividend revenue 150,000
Total other income 400,000

Note 4 – Selling expenses

Freight out 175,000
Salesmen’s commission 650,000
Depreciation – store equipment 125,000
Total selling expenses 950,000

Note 5 – Administrative expenses

Officers’ salaries 500,000
Depreciation – office equipment 300,000
Total administrative expenses 800,000

Note 6 – Other expenses

Loss on sale of equipment 50,000
Loss on sale of investment 50,000
Total other expenses 100,000

Natural method

Karla Company
Income Statement
Year ended December 31, 2008

Note
Net sales revenue (1) 7,700,000
Other income (2) 400,000
Total 8,100,000
Expenses:
Increase in inventory (3) ( 500,000)
Net purchases (4) 5,500,000
Freight out 175,000
Salesmen’s commission 650,000
Depreciation (5) 425,000
Officers’ salaries 500,000
Other expenses (6) 100,000 6,850,000
Income before tax 1,250,000
Income tax ( 250,000)
Net income 1,000,000

Note 1 – Net sales revenue

Gross sales 7,850,000
Sales returns and allowances ( 140,000)
Sales discounts ( 10,000)
Net sales revenue 7,700,000

Note 2 – Other income

Rental income 250,000
Dividend revenue 150,000
Total other income 400,000

Note 3 – Increase in inventory

Inventory, December 31 1,500,000
Inventory, January 1 1,000,000
Increase in inventory 500,000

Note 4 – Net purchases

Purchases 5,250,000
Freight in 500,000
Purchase returns and allowances ( 150,000)
Purchase discounts ( 100,000)
Net purchases 5,500,000

Note 5 – Depreciation
Depreciation – store equipment 125,000
Depreciation – office equipment 300,000
Total 425,000

Note 6 – Other expenses

Loss on sale of equipment 50,000
Loss on sale of investment 50,000
Total 100,000

Problem 2
Masay Company provided the following information for the current year:

Sales 7,500,000
Inventories – January 1:
Raw materials 200,000
Goods in process 240,000
Finished goods 360,000
Inventories – December 31:
Raw materials 280,000
Goods in process 170,000
Finished goods 300,000
Purchases 3,000,000
Direct labor 950,000
Indirect labor 250,000
Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Sales salaries 400,000
Advertising 160,000
Depreciation – store equipment 70,000
Office salaries 150,000
Depreciation – office equipment 40,000
Depreciation – machinery 60,000
Sales returns and allowances 50,000
Interest income 10,000
Gain on sale of equipment 100,000
Delivery expenses 200,000
Accounting and legal fees 150,000
Office expenses 250,000
Earthquake loss 300,000
Gain from expropriation of asset 100,000
Income tax expense 320,000

Required:
a) Statement of cost of goods manufactured
b) Income statement using the “cost of goods sold” method
c) Income statement using the “nature of expense” method

Problem 2 Answer
Masay Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008

Raw materials – January 1 200,000

Purchases 3,000,000
Raw materials available for use 3,200,000
Less: Raw materials – December 31 280,000
Raw materials used 2,920,000
Direct labor 950,000
Factory overhead:
Indirect labor 250,000
Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Depreciation – machinery 60,000 1,120,000
Total manufacturing cost 4,990,000
Goods in process – January 1 240,000
Total Cost of goods in process 5,230,000
Less: Goods in process – December 31 (170,000)
Cost of goods manufactured 5,060,000

Cost of sales method

Masay Company
Income Statement
Year ended December 31, 2008

Note
Net sales revenue (1) 7,450,000
Cost of goods sold (2) (5,120,000)
Gross income 2,330,000
Other income (3) 210,000
Total income 2,540,000
Expenses:
Selling expenses (4) 830,000
Administrative expenses (5) 590,000
Other expense (6) 300,000 1,720,000
Income before tax 820,000
Income tax expense ( 320,000)
Net income 500,000

Note 1 – Net sales revenue

Sales 7,500,000
Sales returns and allowances ( 50,000)
Net sales revenue 7,450,000

Note 2 – Cost of goods sold

Finished goods – January 1 360,000

Cost of goods manufactured 5,060,000
Goods available for sale 5,420,000
Finished goods – December 31 ( 300,000)
Cost of goods sold 5,120,000

Note 3 – Other income

Gain from expropriation 100,000

Interest income 10,000
Gain on sale of equipment 100,000
210,000

Note 4 – Selling expenses

Sales salaries 400,000
Advertising 160,000
Depreciation – store equipment 70,000
Delivery expenses 200,000
Total 830,000

Note 5 – Administrative expenses

Office salaries 150,000

Depreciation – office equipment 40,000
Accounting and legal fees 150,000
Office expenses 250,000
Total 590,000

Note 6 – Other expense

Earthquake loss 300,000

Nature of expense method

Masay Company
Income Statement
Year Ended December 31, 2008

Note
Net sales revenue (1) 7,450,000
Other income (2) 210,000
Total income 7,660,000
Expenses:
Decrease in finished goods
and goods in process (3) 130,000
Raw materials used (4) 2,920,000
Direct labor 950,000
Factory overhead (5) 1,120,000
Salaries (6) 550,000
Advertising 160,000
Depreciation (7) 110,000
Delivery expenses 200,000
Accounting and legal fees 150,000
Office expenses 250,000
Other expense (8) 300,000 6,840,000
Income before tax 820,000
Income tax expense ( _320,000)
Net income 500,000

Note 1 – Net sales revenue

Sales 7,500,000
Sales returns and allowances ( 50,000)
Net sales revenue 7,450,000
Note 2 – Other income

Gain from expropriation 100,000

Interest income 10,000
Gain on sale of equipment 100,000
210,000
Note 3 – Decrease in finished goods and goods in process

January 1 December 31 Decrease

Finished goods 360,000 300,000 60,000
Goods in process 240,000 170,000 70,000
Total 600,000 470,000 130,000

Note 4 – Raw materials used

Raw materials – January 1 200,000

Purchases 3,000,000
Raw materials available for use 3,200,000
Raw materials – December 31 280,000
Raw materials used 2,920,000

Note 5 – Factory overhead

Indirect labor 250,000
Superintendence 210,000
Light, heat and power 320,000
Rent – factory building 120,000
Repair and maintenance – machinery 50,000
Factory supplies used 110,000
Depreciation – machinery 60,000
Total 1,120,000

Note 6 – Salaries

Sales salaries 400,000

Office salaries 150,000
Total 550,000

Note 7 – Depreciation

Depreciation – store equipment 70,000

Depreciation – office equipment 40,000
Total 110,000

Note 8 – Other expense

Earthquake loss 300,000

Problem 3
Christian Company provided the following data for the current year:

Sales 8,000,000
Sales salaries 520,000
Advertising 120,000
Indirect labor 600,000
Delivery expense 160,000
Freight in 80,000
Depreciation – machinery 50,000
Factory taxes 130,000
Purchases 1,600,000
Direct labor 1,480,000
Factory supplies expense 120,000
Office supplies expense 30,000
Office salaries 800,000
Factory superintendence 480,000
Doubtful accounts 100,000
Factory maintenance 150,000
Factory heat, light and power 220,000
Income tax expense 170,000

Inventory balances at the end of the fiscal period as compared with balances at the beginning of the fiscal period were as
follows:

Finished goods 200,000 decrease

Goods in process 90,000 decrease
Raw materials 100,000 increase

Required: Prepare an income statement for the current year supported by a schedule of cost goods manufactured.

Problem 3 Answer
Christian Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008

Purchases 1,600,000
Freight in 80,000
Total 1,680,000
Increase in raw materials ( 100,000)
Raw materials used 1,580,000
Direct labor 1,480,000
Factory overhead:
Indirect labor 600,000
Depreciation – machinery 50,000
Factory taxes 130,000
Factory supplies expense 120,000
Factory superintendence 480,000
Factory maintenance 150,000
Factory heat, light and power 220,000 1,750,000
Total manufacturing cost 4,810,000
Decrease in goods in process 90,000
Cost of goods manufactured 4,900,000

Christian Company
Income Statement
Year Ended December 31, 2008

Note
Sales revenue 8,000,000
Cost of goods sold (1) (5,100,000)
Gross income 2,900,000
Expenses:
Selling expenses (2) 800,000
Administrative expenses (3) 930,000 1,730,000
Income before tax 1,170,000
Income tax expense ( 170,000)
Net income 1,000,000
Note 1 – Cost of goods sold

Cost of goods manufactured 4,900,000

Decrease in finished goods 200,000
Cost of goods sold 5,100,000

Note 2 – Selling expenses

Sales salaries 520,000

Advertising 120,000
Delivery expense 160,000
Total 800,000

Note 3 – Administrative expenses

Office supplies expense 30,000

Office salaries 800,000
Doubtful accounts 100,000
Total 930,000
Problem 4
Ronald Company prepared the following statement for the current year:

Sales 7,120,000
Increase in inventories 380,000 7,500,000

Cost of goods sold:

Sundry manufacturing costs 5,300,000
Depreciation of factory building 280,000
Freight on purchases 220,000 5,800,000

Gross income 1,700,000

Other income:
Purchase discounts 20,000
Interest revenue 160,000
Total 180,000
Other expenses:
Sales returns and allowances 140,000 40,000

Operating income 1,740,000

Administrative expenses 340,000
Selling expenses 200,000
Income tax 200,000 740,000
Net income 1,000,000

Inventories, January 1:
Materials 1,120,000
Factory supplies 660,000
Goods in process 360,000
Finished goods 420,000 2,560,000

Inventories, December 31:

Materials 1,560,000
Factory supplies 540,000
Goods in process 320,000
Finished goods 520,000 2,940,000
Increase in inventories 380,000

The sundry manufacturing costs include the following:

Materials purchases 1,600,000
Direct labor 2,000,000
Heat, light and power 600,000
Repairs and maintenance 100,000
Indirect labor 360,000
Other factory overhead 340,000
Factor supplies purchase 300,000
Total sundry manufacturing costs 5,300,000

Required: Prepare an income statement in good form supported by schedule of cost of goods manufactured.

Problem 4 Answer
Ronald Company
Statement of Cost of Goods Manufactured
Year Ended December 31, 2008
Materials – January 1 1,120,000
Purchases 1,600,000
Freight on purchases 220,000
Purchase discounts ( 20,000) 1,800,000
Materials available for use 2,920,000
Less: Materials – December 31 1,560,000
Materials used 1,360,000
Direct labor 2,000,000
Factory overhead
Heat, light and power 600,000
Repairs and maintenance 100,000
Indirect labor 360,000
Other factory overhead 340,000
Factory supplies used (300,000 + 660,000 – 540,000) 420,000
Depreciation – factory building 280,000 2,100,000
Total manufacturing cost 5,460,000
Goods in process – January 1 360,000
Total cost of goods in process 5,820,000
Less: Goods in process – December 31 (320,000)
Cost of goods manufactured 5,500,000

Ronald Company
Income Statement
Year Ended December 31, 2008

Note
Net sales revenue (1) 6,980,000
Cost of goods sold (2) (5,400,000)
Gross income 1,580,000
Other income (3) 160,000
Total income 1,740,000
Expenses:
Selling expenses 200,000
Administrative expenses 340,000 540,000
Income before tax 1,200,000
Income tax expense ( 200,000)
Net income 1,000,000

Note 1 – Net sales revenue

Sales 7,120,000
Sales returns and allowances ( 140,000)
Net sales revenue 6,980,000

Note 2 – Cost of goods sold

Finished goods – January 1 420,000
Cost of goods manufactured 5,500,000
Goods available for sale 5,920,000
Finished goods – December 31 ( 520,000)
Cost of goods sold 5,400,000

Note 3 – Other income

Interest revenue 160,000

Problem 5
Brock Company reported operating expenses in two categories, namely distribution and administrative. The
adjusted trial balance at year-end included the following expense and loss accounts for current year. One-half of
the rented premises is occupied by the sales department.

Accounting and legal fees 1,200,000

Advertising 1,500,000
Freight out 800,000
Interest 700,000
Loss on sale of long-term investment 300,000
Officers’ salaries 2,250,000
Rent for office space 2,200,000
Sales salaries and commissions 1,400,000

What amount should be reported as distribution costs?

Problem 5 Answer
Advertising 1,500,000
Freight out 800,000
Rent for office space 1,100,000
Sales salaries and commissions 1,400,000
4,800,000
Problem 6
Lee Company reported the following data for the current year:

Legal and audit fees 1,700,000

Rent for office space equally shared by sales and accounting 2,400,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000
Freight out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Research and development expense 1,000,000

What amount should be classifies as administrative expenses?

Problem 6 Answer
Legal and audit fees 1,700,000
Rent for office space equally shared by sales and accounting 1,200,000
Officers’ salaries 1,500,000
Insurance 850,000
5,250,000
Problem 7
Sheraton Company reported the following information for the current year.

Ending goods in process 1,000,000

Depreciation on factory building 320,000
Beginning raw materials 400,000
Direct labor 1,980,000
Factory supervisor’s salary 560,000
Depreciation on headquarters building 210,000
Beginning goods in process 760,000
Ending raw materials 340,000
Indirect labor 360,000
Purchases of raw materials 2,300,000

What is the cost of goods manufactured for the current year?

Problem 7 Answer
Beginning raw materials 400,000
Purchases of raw materials 2,300,000
Raw materials available for use 2,700,000
Ending raw materials (340,000)
Raw materials used 2,360,000
Direct labor 1,980,000
Factory overhead:
Depreciation on factory building 320,000
Factory supervisor’s salary 560,000
Indirect labor 360,0001,240,000
Total manufacturing cost 5,580,000
Beginning goods in process 760,000
Total goods in process 6,340,000
Ending goods in process (1,000,000)
5,340,000

Problem 8
Kay Company provided the following information for the current year:

Increase in raw materials inventory 150,000

Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
Freight in 250,000

What is the cost of goods sold for the current year?

Problem 8 Answer
Raw materials purchased 4,300,000
Freight in 250,000
Increase in raw materials inventory (150,000)
Raw materials used 4,400,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Total manufacturing cost 9,400,000
Decrease in goods in process inventory 200,000
Cost of goods manufactured 9,600,000
Decrease in finished goods inventory 350,000
Cost of goods sold 9,950,000

Problem 9
Argentina Company incurred the following costs and expenses during the current year:

Raw material purchases 4,000,000

Direct labor 1,500,000
Indirect labor – factory 800,000
Factory repairs and maintenance 200,000
Taxes in factory building 100,000
Depreciation – factory building 300,000
Taxes on salesroom and general office 150,000
Depreciation – sales equipment 50,000
Advertising 400,000
Sales salaries 500,000
Office salaries 700,000
Utilities – 60% applicable to factory 500,000

Beginning Ending
Raw materials 300,000 450,000
Work in process 400,000 350,000
Finished goods 500,000 700,000

What is the cost of raw materials used?

Beginning raw materials 300,000
Raw material purchases 4,000,000
Raw materials available for use 4,300,000
Ending raw materials (450,000)
3,850,000

What is the cost of goods manufactured for the current year?

Total materials used during the year 3,850,000
Direct labor 1,500,000
5,350,000
Manufacturing Overhead:
Indirect labor – factory 800,000
Factory repairs and maintenance 200,000
Taxes in factory building 100,000
Depreciation – factory building 300,000
Utilities (500,000 x 60%) 300,0001,700,000
7,050,000

Total manufacturing Cost 7,050,000

Work in process, beginning 400,000
7,450,000
Work in process, ending (350,000)
7,100,000

What is the cost of goods sold for the current year?

Beginning finished goods 500,000
Cost of goods manufactured 7,100,000
Goods available for sale 7,600,000
Ending finished goods (700,000)
6,900,000

Problem 10
Thorpe Company reported net income of P7,410,000 for the current year which included the following amounts:

Unrealized loss on foreign currency translation (540,000)

Gain on early retirement of bonds payable 2,200,000
Adjustment of profit or prior year for error in depreciation, net of tax effect (750,000)
Loss from fire (1,400,000)

What amount should be reported as adjusted net income?

Net income 7,410,000
Unrealized loss on foreign currency translation 540,000
Adjustment of profit or prior year for error in depreciation, net of tax effect 750,000
Adjusted net income 8,700,000

Problem 11
Bangladesh Company provided the following information for the current year:

Sales 50,000,000
Cost of goods sold 30,000,000
Distribution costs 5,000,000
General and administrative expenses 4,000,000
Interest expense 2,000,000
Gain on early extinguishment of long-term debt 500,000
Correction of inventory error, net of income tax – credit 1,000,000
Investment income – equity method 3,000,000
Gain on expropriation 2,000,000
Income tax expense 5,000,000
Dividends declared 2,500,000

What is the income from continuing operations?

Sales 50,000,000
Cost of goods sold (30,000,000)
Gross profit 20,000,000
Operating Expense:
Distribution costs 5,000,000
General and administrative expenses 4,000,000 (9,000,000)
Operating income 11,000,000
Interest expense (2,000,000)
Investment income – equity method 3,000,000
EBT 12,000,000
Income tax expense (5,000,000)
Income from continuing operation 7,000,000
Problem 12
Rosebud Company provided the following information for the current year:

Sales 5,000,000
Cost of goods sold 2,800,000
Foreign translation adjustment – credit 400,000
Selling expenses 700,000
Unusual and infrequent gain 400,000
Correction of inventory error 200,000
Administrative expenses 600,000
Income tax expense 150,000
Gain on sale of investment 50,000
Proceeds from sale of land at cost 800,000
Dividends paid 300,000

What amount should be reported as income from continuing operations?

Problem 12 Answer
Sales 5,000,000
Cost of goods sold (2,800,000)
Gross income 2,200,000
Other income 450,000
Total income 2,650,000
Expenses:
Selling expenses 700,000
Administrative expenses 600,0001,300,000
Income before income tax 1,350,000
Income tax expenses (150,000)
Income from continuing operations 1,200,000

Problem 13
Corazon Company provided the following information for the current year:

Sales 7,000,000
Sales returns and allowances 100,000
Cost of goods sold 2,800,000
Utilities expense 1,000,000
Interest revenue 150,000
Income tax expense 800,000
Casualty loss due to earthquake 50,000
Finance cost 200,000
Salaries expense 600,000
Loss on sale of investments 50,000

What amount should be reported as income from continuing operations?

Sales 7,000,000
Sales returns and allowances (100,000)
Cost of goods sold (2,800,000)
Utilities expense (1,000,000)
Interest revenue 150,000
Income tax expense (800,000)
Finance cost (200,000)
Salaries expense (600,000)
Loss on sale of investments (50,000)
1,600,000
Problem 14
Vane Company provided the following information for the current year:

Debit Credit
Sales 5,750,000
Cost of goods sold 2,400,000
Administrative expenses 700,000
Sales commissions 500,000
Interest revenue 250,000
Freight out 150,000
Uncollectible accounts expense 150,000
Loss on sale of equipment 100,000
Loss on early retirement of long-term debt 200,000
4,200,000 6,000,000

Finished goods inventory:

January 1 4,000,000
December 31 3,600,000
Income tax rate 30%

What amount should be reported as cost of goods manufactured?

Cost of goods sold 2,400,000
Beginning finished goods inventory (4,000,000)
Ending finished goods inventory 3,600,000
2,000,000

What amount should be reported as income from continuing operations?

Sales 5,750,000
Interest revenue 250,000
Total 6,000,000
Cost of goods sold 2,400,000
Administrative expenses 700,000
Sales commissions 500,000
Freight out 150,000
Uncollectible accounts expense 150,000
Loss on sale of equipment 100,000
Loss on early retirement of long-term debt 200,000
Total (4,200,000)
Income from continuing operations before taxes 1,800,000
Tax payable @30% (540,000)
Income from continuing operations after taxes 1,260,000

Theories:
1. What is the two -statement approach of presenting comprehensive income?
a. A comparative statement of comprehensive income
b. A combined statement of comprehensive income and retained earnings
c. A combined income statement and a statement of changes in equity
d. A separate income statement and a separate statement of comprehensive income
2. Earnings
a. Include certain gains excluded from comprehensive income
b. Are the same as comprehensive income
c. Exclude certain gains and losses included in comprehensive income
d. Include certain losses excluded from comprehensive income

3. Other comprehensive income includes all, except

a. Gain and loss arising from translating the financial statements of a foreign operation
b. Gain and loss from debt investment measured at fair value through OCI
c. Gain and loss on hedging instrument in a cash flow hedge
d. Dividend paid to shareholders.
4. All of the following components of OCI should be reclassified to profit or loss, except
a. Translation of financial statements of a foreign operation
b. Remeasurement of equity investment at FVOCI
c. The effective portion of gain and loss on hedging instrument in a cash flow hedge
d. Remeasurement of debt investment at FVOCI
5. Total comprehensive income for the period is presented
a. Showing separately the total amount attributable to owners of the parent and the noncontrolling interest
b. Showing separately an analysis of expenses by function
c. Showing separately an analysis of expenses by nature
d. Showing separately profit or loss and the total of other comprehensive income
6. Which of the following components of OCI should be reclassified to retained earnings?
a. Revaluation surplus
b. Remeasurements of defined benefit plan
c. Gain or loss attributable to credit risk of a financial liability designated at FVPL
d. All of these components of OCI should be reclassified to retained earnings.
7. Separate line items in an analysis of expenses by function include
a. Purchases, employee benefits, depreciation, extraordinary items
b. Purchases, distribution cost, employee benefits, employee benefits
c. Depreciation, purchases, employee benefits, advertising costs
d. Cost of goods sold, administrative expenses, and distribution expense
8. Separate line items in an analysis of expenses by nature include
a. Purchases, employee benefits, depreciation, extraordinary items
b. Purchases, distribution cost, employee benefits, employee benefits
c. Depreciation, purchases, transport costs, employee benefits
d. Cost of goods sold, administrative costs, transport costs and distribution expense
9. Under IFRS, the extraordinary item presentation
a. Has not changes from current rules
b. Has been eliminated
c. Has been eliminated from net of tax presentation
d. Has been eliminated from EPS reporting
10. Which is not generally accepted in presenting the income statement?
a. Including prior period error in determining income
b. The condensed income statement
c. The consolidated income statement
d. Including income tax in determining income
11. The income statement reveals.
a. Resources and equity at a point in time
b. Resources and equity for a period of time
c. Net earnings at a point in time
d. Net earnings for a period of time
12. Conceptually, net income is a measure of
a. Wealth
b. Change of wealth
c. Capital maintenance
d. Cash flow
13. Which term cannot be used to describe a line in the statement of comprehensive income?
a. Revenue
b. Gross income
c. Income before tax
d. Extraordinary item

14. Items of other comprehensive income should be analyzed

a. By nature
b. By nature
c. Either by nature or by function
d. Neither by nature nor by function
15. All of the following are components of other comprehensive income, except
a. Foreign currency translation adjustment
b. Unrealized gain and loss on financial asset held for trading
c. Deferred loss on derivative financial instrument designated as a cash flow hedge
d. Change in revaluation surplus
16. Comprehensive income includes all of the following, except
a. Revenue and gain
b. Expense and loss
c. Preference share dividend
d. Unrealized gain and loss on derivative contract
17. Comprehensive income includes all of the following, except
a. Dividend revenue
b. Loss on disposal of asset
c. Investment by owners
d. Unrealized gain on trading investment
18. Corrections of errors in prior period are included in
a. Retained earnings
b. Other comprehensive income
c. Net income
d. Share premium
19. Which of the following does not appear in a statement of retained earnings?
a. Net loss
b. Prior period error
c. Preference share dividend
d. Other comprehensive income
20. Which of the following would appear first in a statement of retained earnings?
a. Net income
b. Prior period error
c. Cash dividend
d. Share dividend
21. Income determination is arrived at by
a. Measuring the change in owners’ equity
b. Identifying the change in the purchasing power
c. Using a transaction approach
d. Applying the value added concept
22. Net income equals
a. Assets minus liabilities
b. Revenue minus cost of goods sold
c. Revenue minus expenses
d. Cash receipts minus cash payments
23. Comprehensive income always
a. Is the same as net income
b. Is greater than net income
c. Is less than net income
d. Could be greater than or less than net income.
24. Gains are 
a. Inflows from selling a product to a customer
b. Increases in equity resulting from transfers of assets to the entity from owners
c. Increases in equity from peripheral transactions
d. All of these can be considered gains

25. Change in equity from nonowner sources is

a. Comprehensive income
b. Revenue
c. Expense
d. Gain or loss
26. What is the purpose of reporting comprehensive income?
a. To report changes in equity due to transactions with owners
b. To report measure of overall entity performance.
c. To replace net income with a better measure
d. To combine income from continuing operation with income from discounted operation
27. Which of the following changes during a period is not a component of other comprehensive income?
a. Actuarial gain on defined benefit plan
b. Treasury share
c. Foreign currency translation adjustment
d. Unrealized gain on equity instrument measured at fair value through other comprehensive income
28. Which of the following items would cause net income to differ from comprehensive income?
a. Unrealized loss on equity investment measured at fair value through other comprehensive income.
b. Unrealized loss on investment held for trading
c. Loss on exchange of similar assets
d. Loss on exchange of dissimilar assets
29. Which of the following is not an acceptable option in presenting other comprehensive income?
a. In a separate income statement
b. In a single statement of comprehensive income
c. In the notes to financial statements
 d. In a statement of changes in equity
30. When a complete set of financial statements is preempted, comprehensive income and its components should
a. Appear in the statement of retained earnings
b. Be reported net of related income tax effect, in total and individually
c. Appear in a supplemental schedule in the notes to financial statements
d. Be displayed in a statement that has the same prominence as other financial statements.
31. The limitation of the income statement includes all of the following, except
a. Items that cannot be measured reliably are not reported
b. Only actual amounts are reported in net income
c. Income measurement involves judgment
d. Income numbers are affected by the accounting method
32. Which of the following would represent the least likely use of the income statement?
a. Use of customers to determine an entity’s ability to provide needed goods and services
b. Use by labor unions to examine earnings closely as a basis for salary discussions
c. Use by government to formulate tax policy
d. Use by investors interested in financial position
33. The income statement would help in which of the following?
a. Evaluate liquidity
b. Evaluate solvency
c. Estimate amount, timing and uncertainty of future cash flows
d. Estimate future financial flexibility
34. Investors and creditors use the income statement for all of the following, except
a. To evaluate the future performance of an entity.
b. To provide a basis for predicting future performance
c. To help assess the risk and uncertainty of achieving future cash flows
d. To evaluate the past performance of an entity
35. The income statement would help in which of the following?
a. Assess capital structure
b. Determine financial position
c. Estimate future cash flows
d. Estimate need for additional financing