LICEO DE CAGAYAN UNIVERSITY

Rodolfo N. Pelaez Boulevard, Kauswagan

Cagayan de Oro City, Misamis Oriental

Preparation of Balance Sheet

and Income Statement

Submitted By:

Charrysah T. Tabaosares

BSBA – FM4

Submitted To:

Mario E. Temporada

Date Submitted:

February 10, 2021

CHAPTER 2 (P. 23)

CONCEPT APPLICATION
PROBLEM 1: SURF CORPORATION

From the account balances given below for Surf Corp. you are tasked to prepare the
statement of financial position. Observe proper classifications. In thousand pesos.

Accounts Receivable P 400

Advances to officers not currently collectible 100
Sinking fund 400
Building 5,000
Long-term refundable deposit 50
Cash and cash equivalent 500
Cash surrender value 60
Equipment 1,000
Lease rights 100
Accrued interest income 10
Inventories 1,300
Land 1,500
Land held for speculation 500
Notes receivable 250
Computer software 3,250
Prepaid expenses 70
Trading securities 280
Unearned rent income 40
Retained earnings (deficit) (1,800)
Share premium-preference shares 500
Premium on bonds payable 1,000
Preference share capital 2,000
Share premium – ordinary 200
Notes payable 300
SSS Payable 10
Accounts payable 400
Accrued salaries 100
Accumulated depreciation – building 2,000
Accumulated depreciation – equipment 200
Allowance for doubtful accounts 20
Bonds payable 5,000
Dividends payable 120
Ordinary share capital 5,000
Withholding tax payable 30
Preference share redemption fund 350

Surf Corporation
Statement of Financial Position
As of December 31, 2021

ASSETS

Current Assets
Cash and Cash equivalents P 500,000.00
Trading securities 280,000.00
Trade and other receivables (Note 1) 640,000.00
Inventories 1,300,000.00
Prepaid Expenses 70,000.00
Total Current Assets P 2,790,000.00

Non-Current Assets
Property, Plant and Equipment (Note 2) P 5,300,000.00
Long-term Investments (Note 3) 1,310,000.00
Intangible Assets (Note 4) 3,350,000.00
Other Non-current Assets (Note 5) 150,000.00
Total Non-Current Assets P 10,110,000.00

TOTAL ASSETS P 12,900,000.00

LIABILITIES

Current Liabilities
Trade and Other Payables (Note 6) P 1,000,000.00

Non-Current Liabilities
Bonds Payable 5,000,000.00
 Premium on Bonds Payable 1,000,000.00
TOTAL LIABILITIES P 7,000,000.00

EQUITY

Share Capital (Note 7) P 7,000,000.00

Reserves (Note 8) 700,000.00
Retained Earnings (Deficit) (1,800,000.00)
TOTAL SHAREHOLDER’S EQUITY P 5,900,000.00

TOTAL LIABILITIES AND EQUITY P 12,900,000.00

NOTE 1 – Trade and Other Receivables

Accounts Receivable P 400,000.00
Notes Receivable 250,000.00
Accrued Interest Income 10,000.00
Allowance for Doubtful Accounts (20,000.00)
Total P 640,000.00

NOTE 2 – Property, Plant, and Equipment

Cost Accumulated Depreciation Book Value
Land P 1,500,000.00 ------- P 1,500,000.00
Building 5,000,000.00 2,000,000.00 3,000,000.00
Equipment 1,000,000.00 200,000.00 800,000.00
Total P 7,500,000.00 P 2,200,000.00 P 5,300,000.00

NOTE 3 – Long Term Investment

Land held for speculation P 500,000.00
Sinking Fund 400,000.00
Preference Share Redemption Fund 350,000.00
Cash Surrender Value 60,000.00
Total P 1,310,000.00

NOTE 4 – Intangible Assets

Computer Software P 3,250,000.00
Lease Rights 100,000.00
Total P 3,350,000.00

NOTE 5 – Other Non-Current Assets

Advances to Officers Not Currently Collectible P 100,000.00
Long-term Refundable Deposits 50,000.00
Total P 150,000.00

NOTE 6 – Trade and Other Payables

Accounts Payable P 400,000.00
Notes Payable 300,000.00
Unearned Rent Income 40,000.00
SSS Payable 10,000.00
 Accrued Salaries 100,000.00
Dividends Payable 120,000.00
Withholding Tax Payable 30,000.00
Total P 1,000,000.00

NOTE 7 – Share Capital

Preference Share Capital P 2,000,000.00
Ordinary Share Capital 5,000,000.00
Total P 7,000,000.00

NOTE 8 – Reserves
Share Premium - Preference Share P 500,000.00
Share Premium - Ordinary Share 200,000.00
Total P 700,000.00

PROBLEM 2: KARLA CORPORATION

From the 2015 account balances given below for Karla Corporation you are tasked
to prepare the income statement (functional approach). Observe proper classifications.

Freight – in P 1,000,000
Income Tax 500,000
Purchases 10,500,000
Purchase returns 150,000
Purchase allowances 150,000
Rent income 500,000
Freight – out 350,000
Salesmen’s commission 1,300,000
Depreciation Expense – Store equipment 250,000
Inventory (January 1) 2,000,000
Inventory (December 31) 3,000,000
Sales 15,700,000
Sales Returns 250,000
Sales Allowances 30,000
Sales discounts 20,000
Officers’ Salaries 1,000,000
Depreciation expense – Office equipment 600,000
Purchase Discounts 200,000
Dividend Income 300,000
Loss on sale of equipment 100,000
Loss on sale of investment 100,000

Karla Corporation
Income Statement
For the Year Ended December 31, 2015

NOTE
Net Sales Revenue (1) P 15,400,000
Cost of Sales (2) (10,000,000)
Gross Income 5,400,000
Other Income (3) 800,000
Total Income 6,200,000
Expenses:
Selling Expenses (4) P 1,900,000
Administrative Expenses (5) 1,600,000
Other Expenses (6) 200,000 (3,700,000)
 Net Income Before Income Tax 2,500,000
Income Tax (500,000)
Net Income After Tax P 2,000,000

Supporting Notes

Note 1 – Net Sales Revenue

Sales P 15,700,000
Less: Sales Returns and Allowances (280,000)
Sales Discounts (20,000)
Net Sales P 15,400,000

Note 2 – Cost of Sales

Inventory, January 1 P 2,000,000
Add: Net Purchases
Purchases 10,500,000
Freight – in 1,000,000
Total 11,500,000
Less: Purchase Returns and Allowances (300,000)
Purchase Discounts (200,000) 11,000,000
Total Merchandise Available for Sale 13,000,000
Less: Inventory December 31 (3,000,000)
Cost of Sales P 10,000,000
Note 3 – Other Income
Rental Income P 500,000
Dividend Income 300,000
Total P 800,000

Note 4 – Selling Expenses

Freight – out P 350,000
Salesmen’s Commission 1,300,000
Depreciation Expense – Store Equipment 250,000
Total P 1,900,000

Note 5 – Administrative Expenses

Officers’ Salaries P 1,000,000
Depreciation Expense – Office Equipment 600,000
Total P 1,600,000

Note 6 – Other Expenses

Loss on Sale of Equipment P 100,000
Loss on Sale of Investment 100,000
Total P 200,000