SAMSON, Alyssa Gabrielle M.

BSA 3A

Intermediate Accounting 3 Part 1

Problem part 2 - Statement of Comprehensive Income

Problem 2-16: Profit or Loss Computation. Presented below is selected information pertaining to the Bone Company:
Cash Balance January 1, 2014, 13,000; Accounts Receivable, January 1, 2014, 19,000; Collections from customers
in 2014, 210,000; Capital account balance, January 1, 2014, 38,000; Total Assets, January 1, 2014, 75,000; Cash
Investments added, July 1, 2014, 5,000; Total Assets, December 31, 2014, 101,000; Cash Balance, December 31,
2014, 20,000; Accounts Receivable, December 31, 2014, 36,000; Merchandise taken for personal use during 2014,
11,000; Total liabilities, December 31, 2014, 41,000. How much is the net income for 2014?

ANS: 101,000-41,000-38,000+11,000-5,000= 28,000

Problem 2-17: Profit or Loss Computation. Super Corporation reported the following real accounts for the past 2
years of operation(2015 vs 2014): Current Asset, P450,000; P365,000; Non-Current Asset, P1,350,000; P1,435,000
Total Asset, P1,800,000; P1,800,000; Current Liabilities, P200; P400; Non-Current Liabilities, P500; P400; Total
Liabilities, P700; P800. During 2015, the company issued additional shares receiving a total proceed of P1,200,000
and paid dividends amounting to P900,000. What is the amount of net loss for the calendar year 2015?

ANS: 1,800,000-700,000-1,800,000+800,000+900,000-1,200,000= (200,000)

Problem 2-18: Profit or Loss Computation: Happy Company keeps a limited record. Its assets and liabilities at the
beginning and end of the current year are as follows (Beginning balance vs. Ending balance): Cash in bank, P30,000;
P50,000; Accounts receivable, net, P50,000; P70,000; Merchandise Inventory, P100,000; P80,000; Accounts
Payable, P40,000; P20,000; Notes Payable, P20,000; P25,000; Equipment, Net, P80,000; P60,000. During the year
the owner withdrew cash of P120,000 and made additional investment of 50,000. How much is the net income/ loss
for the year?

ANS:
Beg bal: 30,000+50,000+100,000+80,000-40,000-20,000= 200,000
End bal: 50,000+70,000+80,000+60,000-20,000-25,000= 215,000

215,000+120,000-200,000-50,000= 85,000

Problem 2-19: Profit or Loss Computation

Jungle Company's account balances during 2014 showed the following changes all increases
Assets, P3,560,000
Liabilities, P1,080,000
Ordinary Shares, 2,400,000
Share Premium 240,000
There were no change in accumulated profits for 2014 other than a P 520,000 dividend payment and years'
earnings.How much is Jungle's net income/loss f0r 2014?

ANS: 3,560,000+1,080,000=2,480,000-2,400,000-240,000+520,000= 360,000

Problem 2-20: Profit or Loss Computation

Presented below are certain account balances of Home Products Company:
Ending Inventory 48,000
Rental Income 6,500
Interest Expense 12,700
Purchase Returns & Allowances 10,500
Beginning Accumulated Profits 114,400
Ending Accumulated Profits 134,000
Freight-in 10,100
Dividends Income 71,000
Sales Return 12,400
Sales Discounts 7,800
Selling Expenses 99,400
Sales 390,000
Income tax 21,856
Beginning Inventory 45,300
Purchases 190,000
Purchase Discounts 2,500
Administrative Expenses 82,500
Base on the data given above, How much would be the net income during the current year?
ANS:
Cost of sales
45,300+(190,000+10,100-2,500-10,500)-48,000= 184,400
390,000-12,400-7,800-184,400-99,400-82,500+71,000+6,500-12,700-21,856= 46,444

Problem 2-21: Profit or Loss Computation

The financial records of Food, Inc were destroyed by fire at the end of 2014. Fortunately, the Controller had kept
certain statistical data related to the income statement as presented below:The Beginning merchandise inventory
was P92,000 and decrease by 20% during the year
Sales Discounts amount of P17,000
20,000 ordinary shares were outstanding for the entire year
Interest Expense was P 20,000
The Income-tax rate is 35%
The cost of good sold amounts to P500,000
Administrative expenses are 20% of cost of goods sold but only 8% of gross sales
four-fifths(4/5) of the operating expenses related to sales activities
How much is the net profit in the year 2014?

ANS: 100,000/8%= 1,250,000

100,000/1/5= 500,000
1,250,000-17,000-500,000-400,000-100,000-20,000-74,550= 138,450

Problem 2-22: Profit or Loss Computation

Below are selected account balances of the Flower company with additional information as of December 31, 2014:
Accumulated Profits, Jan 1 2014 P 540,000
Sales (net) 8,375,000
Dividend Income 15,000
Dividends 140,000
Loss on Sale of debt & Equity Securities 40,000
Loss from write down of obsolete inventory 115,000
Merchandise Inventory, Jan 1, 2014 1,040,000
Purchase(Net) 4,720,400
Salaries 1,540,000
Contribution to employees Pension Fund 280,000
(defined contribution plan)
Delivery Expenses 205,000
Miscellaneous Expense 125,000
Doubtful Account Expenses 12,000
Depreciation Expense 86,000
Income Tax 2014 115,000
Inventory at the end of the year was valued at P760,000 (P875,000 less P115,000) write-down of obsolete inventory.
How much would be the net income after income tax for the year ended December 31, 2014?

ANS:
Cost of sales
1,040,000+4,720,400-875,000= 4,885,400
8,375,000+15,000-4,885,400-40,000-115,000-1,540,000-280,000-205,000-125,000-12,000-86,000-115,000=
986,600

Problem 2-23: Profit or Loss Computation

The net sales of Grass Manufacturing Company in 2014 is P580,000. The Cost of goods manufactured is P480,000.
The beginning inventories of Goods in process and Finished good are P82,000 and P65,000, respectively. The
Ending Inventories are Goods in process P75,000, Finished Goods P55,000. The Selling Expenses and general and
administrative expenses are 5% and 2.5 % of cost of sales, respectivelyHow much would be the net profit before tax
in the year 2014?

ANS:
490,000x5%= 24,500
490,000x2.5%= 12,250
580,000-(65,000+480,000-55,000)-24,500-12,250= 53,250

Problem 2-24: Cost of Goods Sold

The Following information was taken from the accounting records of Gomez Company for year ended December 31,
2014
Decrease in finished Goods Inventory P 700,000
Increase in raw materials inventory 300,000
Freight-out 900,000
Factory Overhead 6,000,000
Direct Labor 4,000,000
Raw materials Purchased 8,600,000
There was no work in process inventory at the beginning or at the end of year. The cost of good sold is-
:

ANS: 8600000 + 300000 + 6000000 + 4000000 + 700000 = 19000000

Problem 2-25: Cost of Sales

The Following information pertains to Burgos company's 2014 cost of Sales
Inventory, January 1 P 3,000,000
Inventory, December 31 900,000
Purchases 9,000,000
Write-off of Obsolete Inventory 1,050,000
The Company has chosen an accounting policy to include obsolete amount of inventory in other expense category,
what amount should the company repost as cost of sales

ANS: 3000000 + 9000000 – 900000 – 1050000 = 10050000

Problem 2-26: Cost of Goods Manufactured

Banana Corporation's trial balance of income statement accounts for the year ended December 31, 2014 included
the following
Debit Credit
Sales 600,000
Cost of sales 240,000
Administrative Expenses 60,000
Loss On sale of Equipment 36,000
Commissions to sales persons 40,000
Interest revenue 20,000
Freight Out 12,000
Loss due to expropriation of company assets 40,000
Bad debts expense 12,000

Additional Information
Finished Goods inventory
January 1, 2014 400,000
December 31, 2014 360,000

How much is the cost of goods manufactured?

A.P 200,000 C.P 280,000
B.P 212,000 D.P 292,000

ANS: A
240,000+360,000-400,000= 200,000

Problem 2-27: Distribution Cost

Trunk Corp reports operating expenses in two categories: 1 selling and 2 general and administrative. The adjusted
trial balance at December 31, 2014 included the following expenses and loss accounts:

Accounting and legal fees P 240,000

Advertising 300,000
Freight-out 160,000
Interest 140,000
Loss on sale of long-term investment 60,000
Officer’s Salaries 450,000
Rent for office space 440,000
Sales salaries and commission 280,000
One-half(1/2) of the rented premises are occupied by the sales department. How much is the total distribution costs?

ANS:
440,000x1/2= 220,000
300,000+160,000+280,000+220,000= 960,000

Problem 2-28: Distribution Cost

Factor Company creates a provision of P200,000 for an onerous contract on disused distribution warehouse on
December 31, 2011. The contract has one year outstanding as of December 31, 2011 and the company includes the
profit or loss charge in distribution cost when then totaled P800,000. The distribution cost in year 2012 before the
release of the provision are P700,000 which includes the rental charge for the disused warehouse
What amount of distribution cost should the company report in its December 31, 2012 profit or loss?

Note:
When an entity has set up a provision for future expenditure, the provision will be released when the expenditure is
incurred, to ensure that line items reflect the true cost of particular expenses or functions overtime, the release of the
provision should be included in the same line item as the original income statement charge that set up the provision.
This is important to ensure that the current period cost reflect only those cost that are attributable to that period and
not to an earlier period.

ANS: 700,000-200,000= 500,000

Problem 2-29: Administrative Cost

The Following items were among those that were reported on Jealousy Company's income statement for the year
ended December 31, 2014:
Legal and audit fees P 340,000
Rent for office space 480,000
Interest Expense 420,000
Loss on Sales of Equipment 70,000
Office Staff Salaries 400,000

The office space is used equally by Jealousy's sales and accounting departments. What amount should be classified
as general and administrative expenses in Jealousy's income statements?

ANS:
480,000x1/2= 240,000
240,000+340,000+400,000= 980,000

Problem 2-30: Change in Estimate

Video Company began business operation in 2012. An examination of the company's allowance for bad debts
account reveal the following:
Estimated Bad Debts Actual Bad Debts
2012 44,000 27,000
2013 52,000 40,800
2014 66,000 53,700
2015 No adjustment yet 57,000

In the past, the company estimated that 3% of credit sales will be uncollectible. The company has determined that
the percentage use in estimating bad debts has been inappropriate, the new estimate revealed that bad debts should
be 1.5% of sales what is the net amount of adjustment to the beginning balance of the accumulated profits on
January 1, 2015, as a result of the Change in accounting estimate?

Note:
Change in accounting estimate (for uncollectible) does not require retroactive adjustment as a result accumulated
profits and not just for the difference in the estimated bad debts against the actual bad debts because any time one is
dealing with estimates there will always be a difference between the estimate and the actual occurrence

PAS#8 paragraph 36 -" the effect of change in an accounting estimate other paragraph 37 applies shall be
recognized prospectively including it in the profit or loss in:
A. The period of change,if the change affects the period only
B.The period of change, and future periods if the change affects both

PAS#8 paragraph 37- To the extent that a change in an accounting estimate gives rise to changes in assets and
liabilities or relates to an item of equity shall be recognized by adjusting the carrying amount of the related asset
liability or equity in the period of change

ANS: none

Problem 2-31: Change In estimate

Jaguar Company has recorded bad debts expense in the past at a rate of 1.5 % of net sales. In 2014, Jaguar decides
to increase its estimate to 2% if the new rate had been used in prior years cumulative bad debt expense would have
been P380,000 instead of P 235,000. In 2014 bad debt expense will be P120,000 instead of P90,000.What amount
of bad debt should the company report in its statement of comprehensive income as a resulte of the change in
estimate?

ANS: 120,000
Problem 2-32: Change in Estimate
Mango company bought a machine on January 1, 2012, for P240,000 at which time it had an estimated useful life of
eight years with no residual value straight line method of depreciation is used for all Mango's depreciable assets. On
January 1, 2014, the machine's estimated useful life was determined to be only 6 years from the acquisition date. In
Mango's 2014 statement of comprehensive income what amount of depreciation should the company recognize as a
result of the change in estimate?

ANS:
240,000/8x2= 60,000
240,000-60,000= 180,000
180,000/4 yrs= 45,000

Problem 2-33: Change in Estimate

On January 1, 2011 Café company purchased heavy equipment for P10,560,000, and it is the company's policy to
depreciate under the straight-line method. The heavy equipment has a useful life of eight years On Jan1, 2014 due to
the Physical wear on the equipment Café Company determined that the heavy equipment had a remaining useful
economic life of 3 years from, and will the company reliably determined that the have a salvage value would be
P960,000 An Accounting change was made in 2014 to reflect these additional data how much should be the balance
of the accumulated depreciation for this equipment on December 31 2014

ANS:
10,560,000x3/8= 3,960,000
10,560,000-3,960,000-960,000/3yrs= 1,880,000
3,960,000+1,880,000= 5,840,000

Problem 2-34: Change in Estimate

Goliath Company purchased an equipment on January 2, 2009 for P3,000,000. At the Date of acquisition the
equipment had life of 6 years with no salvage. The equipment is being depreciated on a straight-line basis. In
January 2014 Goliath Company determined that the equipment had a useful life of 8 years from the date of
acquisition with no salvage value. What should be the amount of depreciation for the year 2014?

ANS: 3,000,000x3/6= 1,500,000/5yrs= 300,000

Problem 2-35: Change in Estimate

Mustang Company change from straight line depreciation to double declining balance method at the beginning of
2014. The plant asset originally cost P1,500,000 in 2009 using straight line depreciation. Periodic depreciation using
straight line is P60,000 what amount of depreciation Mustang company should recognize for the year 2014?

ANS:
1,500,000-30,000= 1,200,000
1,200,000x10%= 120,000

Problem 2-36: Change in Policy

On December 31 2014 Sunkist Company appropriately changed its inventory valuation method to the FIFO cost
method from the average cost method for financial statement and income tax purposes. the change will result in
P350,000 increase in the beginning inventory at January 1, 2014
Assuming an income tax rate of 35 % how much should be adjusted to the beginning balance of the retained earning
for the year 2014?

Note:
Change in the method of inventory costing is a change in accounting principle requiring retroactive adjustment by
adjusting the beginning balance of the accumulated profits and therefore the retained earnings should be credited by
the amount of the adjustment on the beginning inventory net of the applicable income tax. The adjustment should be
made as follows
Inventory Beginning P350,000
Tax payable P122,500
Retained Earnings 227500

A change in accounting policy should be made if

A The Change is required by a standard or an interpretation or
B if the change will result in the financial statement providing reliable and more relevant information about the effects
of transactions other events or conditions on the entity's financial position financial performance or cash flow

Changes in accounting policies may be categorized according to the 3 basic processes applied in preparation of
financial statements
1. 1.recognition
2. 2.measurement of bases
3. 3.presentation
For changes in accounting policy:
1. the peso effect of charge should be applied retroactively by adjusting the beginning balance of the
accumulated profits that relates to the prior period. For comparative statement purposes the accounts are
restated unless impracticable to do so
2. The peso effect is accounted prospectively if the peso effect of change cannot be meassured reliably

Require Disclosure for Change in policy

1. The reason for change
2. the amount of adjustment relating to periods prior to those included in the comparative information
3. the amount of the adjustment for the current period and for each period presented
4. the fact that comparative information has been restated or that it is impracticable to do so

ANS: 350,000x65%=227,500

Problem 2-37: Change in Policy

On January 2, 2014 Simon Company changed its inventory cost flow method to FIFO from average for both financial
statements and income tax reporting purposes. the change resulted in a P900,000 increase in the beginning
inventory at January 1, 2014. ignoring income tax the accounting change should be reported by the company in its
year 2014 as?
A. income statement as a P900,000 credit
B. Accumulated profits statements as P900,000 credit adjustment to the beginning balance
C. Accumulated profits statements as P900,000 debit adjustment to the beginning balance
D. income statement as a P900,000 debit

Note:
Change in the inventory cost flow is a change in accounting principle requiring retroactive adjustment by adjusting the
beginning balance of the accumulated profits; an increase in the beginning inventory as a result of the change would
also be an increase or credit to the accumulated profits

ANS:

Problem 2-38: Profit or Loss Computation

During 2014, Tricky Company decided to change from FIFO method of inventory valuation to the weighted-average
method. Inventory Balances under each method were as follows:
FIFO Weighted-average Method
January 1 1,420,000 1,540,000
December 31 1,580,000 1,650,000
Income tax rate is 35%
In its year 2014 statement of retained earnings, What amount should Tricky report as the effect of this accounting
change?

Note: Change from Fifo to average method of inventory costing requires retroactive adjustment since this is a
change in accounting principle. The amount to be adjusted to the accumulated profits is the difference between the
beginning balances of inventory under FIFO and weighted average method (1,420,000less1,540,000x65%)

ANS: 1,420,000-1,540,000x65%= (78,000)

Problem 2-39: Change in Policy

On January 1, 2015 Monster Company changed to the percentage of completion method of income recognition for
financial statement reporting but not for income tax reporting. Monster can justify this change in accounting principle.
As of December 31, 2014, Monster complied data showing that income under the completed contract method
aggregated P700,000 if the percentage of completion method had been used the accumulated income through
December 31, 2014 would have been P880,000. Assuming an income tax rate of 35 % for all years, the cumulative
effect of this accounting change that should be reported by Monster in 2015 shall be:
A. Accumulated profits statement as a P180,000 credit adjustment to the beginning balance
B. Income statement as P180,000 balance credit
C. Accumulated profits as a P117,000 credit adjustment to the beginning balance
D. Income statement as P117,000 debit

Note:
Change from the completed contract to percentage of completion method is a change in accounting principle which
requires retroactive adjustment. the peso effect of the change should be adjusted to the beginning balance of the
accumulated profits.

ANS:

Problem 2-21: Profit or Loss Computation

Vignette Construction Company change from completed method to the percentage of completion method of
accounting for long term construction contracts during 2015. For tax purposes the company employs the completed
contract method and will continue this approach in the future.
The appropriate information related to this change is as follows :
pretax income from
Percentage of completion Completed contact
2014 2,028,000 1,534,000
2015 1,820,000 1,248,000

What is the amount of net income after tax that Vignette Company should report for the year 2015

Note:
The change from completed to percentage of completion is a change in accounting principle for which retroactive
adjustment is required Accumulated profits should be retoractively adjusted by (2,028,000 1534000x65%) P321,100
Net income to be reported at the date of change should be under the new method

ANS: 1,820,000-(1,820,000x35%)= 1,183,000

Problem 2-41: Interim Reporting

Grapes Company's P 190,000 net income for the quarter ended September 30, 2014 included the following after tax
items
A P120,000 gain on disposal of equipment realized on April 30,3009 was allocated equally to the 2nd #rd and 4th
quarters.
A P32,000 culminative effect loss resulting from a change in inventory valuation method was recognized in Aug 4
2014.
In addition, Grapes paid P96,000 on February 1,2014 for 2013 calendar year property tax of this amount P24,000
was allocated the 3rd quarter of 2014 for the quarter ended September 30 2014 how much should Grapes report as
net income

Contents of an Interim Financial Report

A. balance sheet
B. income statement
C. statement of changes in equity either (1) all changes in equity (2) changes in equity other than arising from
transactions with equity holders acting in their capacity as equity holders
D. a cashflow statement
E. notes comprising a summary of significant accounting policies and other explanatory notes

Minimum components of an interim financial report

A. condensed balance sheet
B. condensed income statement
C. condensed statement showing either 1) all changes in equity or 2) changes in equity other than those
arising from capital transactions with owners and distribution owners
D. condensed cash flow statement
E. selected explanatory notes

ANS: 190,000-(120,000/3)+32,000= 182,000

Problem 2-42: Interim Reporting

On March 15, 2014 Chico company paid property taxes of P180,000 on its factory building for calendar year 2014.
Chico Made P300,00 in unanticipated repairs o its plant equipment therepairs will benefit operation for the remainder
of the calendar year. How much should be the total expenses to be included in Chico's quarterly statement for the 3
months ended June 30, 2014?

ANS:
180,000/4= 45,000
300,000/3= 100,000
45,000+100,000= 145,000

Problem 2-43: Interim Reporting

During the second quarter of 2014, Rhine Company sold a piece of equipment at a P12,000 gain What portion of the
gain should Rhine company report in its income statement for the second quarter of 2014?

Note: The gain on sale of equipment is reported in the interim period in which it is realized.

ANS: 12,000
Problem 2-44: Interim Reporting
On July 1, 2014 Bull's company incurred a loss of P300,000 on the disposal of an investment. the operating income
for full year ending December 31, 2014 was expected to be P500,000. In the Income statement for the quarterly
ended September 30, 2014 How much of this loss should be disclosed separately?

Note: The loss on the disposal of an asset is reported in the period in which it is incurred and should not be allocated
among interim periods

ANS: 300,000

Problem 2-45: Interim Reporting

An inventory loss from a permanent market decline of P360,000 occurred in May 2014. Lakers Company
appropriately recorded this loses in May 2014 after its March 31,2014 quarterly report was issued.What amount of
inventory loss should be reported in the quarterly income statement for the 3 months ended in June 30 2014?

Note: Inventory loss from the permanent market decline shall be reported in the interim period which the decline
occurs.However, if the market decline at Interim date can be reasonably expected to be restored in the fiscal year the
decline need not be recognized. Again shall be recognized in the later interim period if there is recovery of such loss
on the same inventory in later interim period

ANS: 360,000

END