Income Statement – Problems

1. On July 1,2011, Morgana Company, a manufacturer of office furniture, supplied goods to Kayle
Company for P1,200,000 on condition that this amount is paid in full on July 1, 2012. Kayle had earlier
rejected an alternative offer from Morgana whereby it could have bought the same goods by paying cash
of P1,080,000 on July 1,2011. What amoun should be respectively be recognized as sales revenue and
interest income for the year ended June 30, 2011?
a. 1,080,000 and 120,000
b. 1,200,000 and 120,000
c. 1,080,000 and 0
d. 1,200,000 and 0

Solution
Sales price 1,200,000

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Cash price - actual sales revenue 1,080,000

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Implied interest income 120,000

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2. The following information is available for Titan Company for the current year:

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Net sales 3,600,000
Freight In
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90,000
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Purchase discounts 50,000
Ending Inventory 240,000
The gross margin is 40% of sales. What is the cost of goods available for sale?
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a. 1,680,000
b. 1,920,000
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c. 2,400,000
vi y re

d. 2,440,000
ed d

Solution:
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Cost of goods sold ( 60% × 3,600,000 ) 2,160,000

Ending inventory 240,000
Cost of goods available for sale 2,400,000
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3. Information regarding Kuroko Company's portfolio of financial assets at fair value through other
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comprehensive income is as follows:

Aggregated cost -- December 31, 2011 1,700,000
Unrealized gains -- December 31, 2011 40,000
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Unrealized losses -- December 31, 2011 260,000

Unrealized gains during 2011 300,000

On January 1, 2011, Kuroko reported an unrealized losses of P15,000 as a component of other

comprehensive income. In its 2011 statement of changes in equity, Kuroko Company should report what
amount of unrealized loss on these securities?
a. 260,000

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 b. 220,000
c. 205,000
d. 0

Solution
Unrealized losses 260,000
Unrealized gains 40,000
Net unrealized losses -- December 31, 2011 220,000
Unrealized loss -- January 1, 2011 15,000
Increase in unrealized loss 205,000

4. Alphabet Company provided the following information for the current year:
Increase in raw materials inventory 150,000

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Decrease in goods in process inventory 200,000

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Decrease in finished goods inventory 350,000

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Raw materials purchased 4,300,000

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Direct labor payroll 2,000,000

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Factory overhead 3,000,000
Freight out
rs e 450,000
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Freight in 250,000
What is the cost of goods sold for the current year?
a. 9,950,000
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b. 9,550,000
c. 9,250,000
aC s

d. 9,150,000
vi y re
ed d

Solution:
ar stu

150,000
(200,000)
4,300,000
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2,000,000
3,000,000
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450,000
250,000
9,950,000
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5. Devil Corporation committed to sell the fountain area, a component of the business, on November 2,
2020. The carrying amount of the division was 7,200,000 and the fair value was 3,250,000. The disposal
date is expected on June 1, 2019. The division reported an operating loss of 750,000 for the year ended
December 31, 2018.
What amount should be reported as pretax loss from discontinued operation in 2018?

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 a. 3,950,000
b. 4,700,000
c. 750,000
d. 0

Solution:
7,200,000 – 3,250,000 = 3,950,000 + 750,000 = 4,700,000

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rs e
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aC s
vi y re
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