Chapter 1

Statement of Financial Position

PROBLEM 1: TRUE OR FALSE

1. TRUE 6. TRUE
2. FALSE 7. TRUE
3. TRUE 8. FALSE
4. FALSE 9. TRUE
5. TRUE 10. FALSE

PROBLEM 3: EXERCISE

1. Solutions:

Requirement (a):
Evening Co.
Statement of financial position
As of December 31, 20x1

ASSETS Notes
Current assets:
Cash and cash equivalents 6 1,100,000
Trade and other receivables 7 1,770,000
Inventories 200,000
Total current assets 3,070,000

Noncurrent assets:
Biological assets 1,200,000
Investment property 900,000
Property, plant and equipment 8 4,400,000
Intangible assets 9 560,000
Other noncurrent assets 10 800,000
Total noncurrent assets 7,860,000

TOTAL ASSETS 10,930,000

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 LIABILITIES AND EQUITY
Current liabilities:
Trade and other payables 11 920,000
Loans payable - net 12 1,760,000
Provisions 430,000
Total current liabilities 3,110,000

Noncurrent liabilities:
Net defined benefit liability 13 1,700,000
Total noncurrent liabilities 1,700,000

TOTAL LIABILTIES 4,810,000

Equity:
Ordinary share capital 4,000,000
Share premium 14 970,000
Retained earnings 15 1,220,000
Other components of equity 30,000
Treasury shares (100,000)
TOTAL EQUITY 6,120,000
 
TOTAL LIABILITIES & EQUITY 10,930,000

Requirement (b):

Note 6: Cash and cash equivalents

This line item consists of the following:
Cash on hand 120,000
Cash in bank 980,000
Cash and cash equivalents 1,100,000

Note 7: Trade and other receivables

This line item consists of the following:
Accounts receivable 2,000,000
Allowance for doubtful accounts (300,000)
Advances to employees 40,000
Advances to suppliers 30,000
Trade and other receivables 1,770,000

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Note 8: Property, plant and equipment
This line item consists of the following:
Land 1,200,000
Building 4,800,000
Accumulated depreciation - Bldg. (1,600,000)
Property, plant and equipment 4,400,000

Note 9: Intangible assets

This line item consists of the following:
Patent 440,000
Accumulated amortization - Patent (80,000)
Web site costs 250,000
Accumulated amortization - Web site (50,000)
Intangible assets 560,000

Note 10: Other noncurrent assets

This line item consists of the following:
Advances to officers 130,000
Advances to affiliates 670,000
Other noncurrent assets 800,000

Note 11: Trade and other payables

This line item consists of the following:
Accounts payable 720,000
Utilities payable 80,000
Deposit liability for returnable containers 120,000
Trade and other payables 920,000

Note 12: Loans payable - net

This line item consists of the following:
Loans payable 2,500,000
Discount on loan payable (740,000)
Loans payable - net 1,760,000

Note 13: Net defined benefit liability

This line item consists of the following:
Present value of defined benefit obligation 2,700,000
Fair value of plan assets (1,000,000)

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 Net defined benefit liability 1,700,000

Note 14: Share premium

This line item consists of the following:
Share premium 600,000
Share premium - Share warrants outstanding 300,000
Share premium - Treasury shares 70,000
Share premium 970,000

Note 14: Retained earnings

This line item consists of the following:
Retained earnings 1,030,000
Reserves for contingencies 190,000
Retained earnings 1,220,000

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PROBLEM 4: CLASSROOM ACTIVITY

1. Solutions:

Requirement (a):
FRIENDSHIPS CO.
STATEMENT OF FINANCIAL POSITION
AS OF DECEMBER 31, 20X1

ASSETS Notes
Current assets:
Cash and cash equivalents 4 4,240,975
Trade and other receivables 5 9,033,111
Inventories 6 22,117,615
Held for trading securities 2,834,079
Prepaid income tax 234,125
Prepaid supplies 890,239
Total current assets 39,350,144

Noncurrent assets:
Loans receivable - net 7 8,592,522
Investment in FVOCI securities 987,234
Investment in associate 1,290,347
Property, plant and equipment 8 12,370,960
Deferred tax asset 1,092,387
Total noncurrent assets 24,333,450

TOTAL ASSETS 63,683,594

LIABILITIES AND EQUITY

Current liabilities:
Trade and other payables 9 10,302,733
Loans payable - net 10 7,253,748
Income tax payable 721,346
Provision for warranty obligations 432,187
Total current liabilities 18,710,014

Noncurrent liabilities:
Deferred tax liability 918,732
Deferred credits 712,788
Total noncurrent liabilities 1,631,520

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 TOTAL LIABILTIES 20,341,534

Equity:
Ordinary share capital 20,000,000
Share premium 6,000,000
Retained earnings 11 16,344,664
Other components of equity 12 997,396
TOTAL EQUITY 43,342,060
 
TOTAL LIABILITIES & EQUITY 63,683,594

Requirement (b):

Note 4: Cash and cash equivalents

This line item consists of the following:

Cash on hand 62,350

Cash in bank - BPI (Savings) 1,720,500
Cash in bank - BPI (Current) 1,890,234
Cash in bank - BDO (Current) 567,891
Cash and cash equivalents 4,240,975

Note 5: Trade and other receivables

This line item consists of the following:

Accounts receivable 8,341,689

Allowance for doubtful accounts (347,182)
Advances to employees 57,610
Advances to suppliers 34,981
Interest receivable (due on Mar. 1, 20x2) 946,013
Trade and other receivables 9,033,111

Note 6: Inventories
This line item consists of the following:

Raw materials inventory 1,237,398

Work in process inventory 7,987,908
Finished goods inventory 12,892,309
Inventories 22,117,615

Note 7: Loans receivable - net

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This line item consists of the following:

Loans receivable 9,827,341

Unearned interest income (1,234,819)
Loans receivable - net 8,592,522

Note 8: Property, plant and equipment

This line item consists of the following:

Land 8,980,751
Building 3,419,877
Accumulated depreciation - Bldg. (712,930)
Equipment 917,387
Accumulated depreciation - Equipt. (234,125)
Property, plant and equipment 12,370,960

Note 9: Trade and other payables

This line item consists of the following:

Accounts payable 9,071,239

Accrued liabilities 889,712
Interest payable 341,782
Trade and other payables 10,302,733

Note 10: Loans payable - net

This line item consists of the following:

Loans payable 8,000,000

Discount on loan payable (746,252)
Loans payable - net 7,253,748

Note 11: Retained earnings

This line item consists of the following:

Retained earnings - unrestricted 15,144,664

Retained earnings - appropriated 1,200,000
Retained earnings 16,344,664

Note 12: Other components of equity

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This line item consists of the following:

Revaluation surplus 873,984

Unrealized gains on FVOCI 123,412
Other components of equity 997,396

PROBLEM 5: MULTIPLE CHOICE – THEORY

1. D
2. C
3. C
4. B
5. B
6. D
7. A
8. B
9. B
10. B
11. D
12. C
13. C
14. A
15. C

PROBLEM 6: MULTIPLE CHOICE – COMPUTATIONAL

1. C

Solution:
Cash 70,000
Accounts receivable (120,000 - 26,000) 94,000
Inventories [60,000 + (26,000 / 130%)] 80,000
Total current assets 244,000

2. A

Solution:
Accounts payable 15,000
Bonds payable, due 20x4 25,000
Discount on bonds payable, due 20x4 (3,000)
Dividends payable 1/31/x4 8,000
Total current liabilities 45,000

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3. B

Solution:
Earnings from long-term contracts 6,680,000
(5,180,000
Costs and expenses
)
Profit before tax 1,500,000
(450,000
Income tax expense (1,500,000 x 30%) )
Profit after tax 1,050,000
Retained earnings - unappropriated (Jan. 1) 900,000
Retained earnings - restricted for note payable (Jan.
160,000
1)
Total retained earnings (Dec. 31) 2,110,000

4. A – Note payable - noncurrent

5. C

Solution:
The year-end adjustment to record income tax expense is as follows:
Dec. Income tax expense (see solution 450,000
31, above) 450,000
20x3
Prepaid taxes

Cash 600,000
Accounts receivable, net 3,500,000
Cost in excess of billings on longterm contracts 1,600,000
Prepaid taxes -
Total current assets 5,700,000

6. A

Solution:
Unadjusted net assets 875,000
Treasury share of Mont erroneously included in
assets (24,000)
Adjusted net assets 851,000

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