INTERMEDIATE FINANCIAL REPORTING (ACC5115)

SCE AND SCF REVIEWER

Prepared by the Mentors’ Circle Committee of the UST – Junior Philippine Institute of Accountants

Problem Solving.
PROBLEM 1
NUBSIB COMPANY acquired an intangible asset on January 01, 2018 for P1,500,000 that was to be
amortized over its estimated useful life of 10 years using the straight-line method. However, on January 01,
2021, the company decided to switch to the sum-of-years-digit method of amortization as it believes this
would result to more relevant and faithfully representative information. The tax rate of the company is 30%.

1. How much is the adjustment to the beginning retained earnings of 2021?

PROBLEM 2
AKASO COMPANY incorrectly expensed its total expenditures for insurance in the amount of P500,000
during 2019. The insurance supposedly covers a period of five years. The company also failed to accrue
interest earned on its notes receivable in 2020 amounting to P25,000. These errors were only discovered in
2021 after the financial statements for 2020 were issued.
The 2019 ending balance of retained earnings as previously reported was P450,000 and the net income for
2020 as previously reported was P650,000. Dividends declared during 2020 amounted to P150,000 but was
not yet paid until January 13, 2021. For 2021, the company earned a net income of P350,000 which was
already adjusted for any errors. The tax rate of the company is 30%.
2. How much should be the balance of retained earnings on December 31,
2021?

PROBLEM 3
MACHIDA COMPANY started operations on January 1, 2020. Inventory was measured using the FIFO
method. At the beginning of 2022, the company decided to switch to the weighted average method as this
is more prevalent in the industry the company is operating in and making the switch would result to more
relevant information being presented. The following were the ending balances of the company’s inventory
for the following years under the FIFO and the weighted average method:

2021 2020
FIFO Method P750,000 P600,000
Weighted Average Method 690,000 550,000

The tax rate of the company is 30%.

3. How much is the amount of adjustment to the beginning retained earnings

of 2021?

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PROBLEM 4
MIX COMPANY had the following movements in account balances for 2021: increase in accounts
receivable of P500,000; increase in inventory of P200,000; decrease in accounts payable of P100,000;
decrease in prepaid rent of P30,000; increase in accrued salaries of P260,000; decrease in income tax
payable of P50,000; decrease in dividends payable of P20,000.

The company had total sales (cash and credit) of P6,300,000 for the year and net income of P350,000 for
the year. The company sells its products at a markup of 50%. Depreciation, rent, and salaries expense for
the year amounted to P500,000, P300,000, and P400,000, respectively. The remainder of the operating
expenses were paid in cash.

The company declared dividends of P150,000 during 2021. The tax rate of the company is 30%.

4. How much is to be presented as Cash Generated from Operations in the

statement of cash flows?

5. How much is to be presented as Net Cash from Operating Activities in the

statement of cash flows?

6. How much is the total cash paid for rent during 2021?

PROBLEM 5
EARTH COMPANY had the following account balances for the year 2021:

December 31, 2021 January 01, 2021

Property, Plant, and Equipment P 8,500,000 P 6,000,000
Accumulated Depreciation (1,200,000) (1,000,000)
Trading Securities (FVPL) 850,000 1,200,000

During 2021, the company sold a piece of property, plant, and equipment originally acquired for P1,000,000
at a gain of P150,000. The only other transaction affecting property, plant, and equipment was an acquisition
during the year. Throughout the year, the fair value of the company’s trading securities remained the same,
and the only transaction affecting them was a sale of securities at the end of the year. Depreciation for the
year amounted to P600,000.

7. How much is to be presented as Net Cash from (used in) Investing Activities
in the statement of cash flows?

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PROBLEM 6
DÉJÀ VU COMPANY reported the following opening balances for 2021:

Cash P 340,000
Trading Securities 400,000
Accounts Receivable 500,000
Allowance for Bad Debts (50,000)
Inventory 750,000
Equipment 1,250,000
Accumulated Dep – Equipment (500,000)
Building `1,800,000
Accumulated Dep – Building (450,000)
Land 2,000,000
Accounts Payable (200,000)
Salaries Payable (120,000)
Ordinary Share Capital, P100 par (5,000,000)
Share Premium – Ordinary (100,000)
Retained Earnings (620,000)

• The equipment had a useful life of 5 years with no salvage value. Similarly, the building had a useful
life of 20 years also with no salvage value. Both had been depreciated using the straight-line method.
• The company’s income tax rate is 30%.
• Half of the equipment is attributable to the store of the company while the other half is attributable to
the offices of the company.
• Half of the building is attributable to the offices of the company while the other half is attributable to
the store of the company.

The following transactions occurred during the year.

• The company acquired an additional piece of equipment at the beginning of the year worth P300,000.
The company estimated that the equipment had a useful life of 5 years with no salvage value. The
equipment was intended for office use and depreciated using the straight-line method.
• The company made inventory purchases of P1,500,000, all on credit.
• The company’s sales for the year amounted to P5,600,000, all on credit.
• An additional piece of store equipment was also acquired by the company during the year for P400,000.
At the end of the year, the equipment had a carrying value of P360,000.
• During the year, the company bought for cash P700,000 worth of additional equity securities for trading
purposes. The fair value of all trading securities remained the same all throughout the year.
• All additional equipment are paid in cash.

The following information pertaining to the company is available.

• The ending balance of the gross accounts receivable is P650,000.
• The company prepared an aging of accounts receivable to determine the amount of the bad debts
allowance.
No. of Days Outstanding Amount % Collectible
0 – 30 days 300,000 98%
31 – 45 days 200,000 95%
46 – 60 days 50,000 90%
More than 60 days 100,000 50%

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• The ending balance of the accounts payable was P350,000.
• The ending balance of the salaries payable account was half of its beginning balance. The salaries
expense for the year was 640,000, 40% of which pertained to the workers in the store.
• At year-end, a physical count determined P630,000 worth of goods remaining in inventory.
• Other operating expenses for the year not listed above amounted to P1,000,000, with half pertaining to
store operations and the other pertaining to office operations. All were paid in cash.
• Income taxes were paid for cash during the year.

The following equity-related transactions occurred for the company during the year.
• On February 1, the company issued 3,000 ordinary shares for P115 each.
• On April 30, the company reacquired 2,000 of its outstanding ordinary shares for P120 each.
• On July 1, the company issued 2,500 ordinary shares for P105 each.
• On September 1, the company reissued half of its treasury shares at cost.
• The company declared total cash dividends of P27,250 for the year, payable next year.

8. How much is to be presented as Net Cash from (used in) Operating

Activities?

9. How much is to be presented as Net Cash from (used in) Investing Activities?

10. How much is to be presented as Net Cash from (used in) Financing
Activities?

11. How much is the ending balance of cash?

12. How much is the total Shareholders’ Equity at the end of the year?

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 ANSWER KEY

Problem Solving.
1. 0
2. 1,527,500
3. (35,000)
4. 490,000
5. 290,000
6. 270,000
7. (2,750,000)
8. 1,136,300
9. (700,000)
10. 487,500
11. 1,263,800
12. 7,495,550

“Stick to the fight when you’re hardest hit —

It’s when things seem worse that you must not quit.”
– Don’t Quit by John Greenleaf Whittier
Prepared by:

Francis Matthew Obligacion

Jerald Patrick Reyes
Ghoseph Aleckzander Monzon
Jen Margaret Hilario