URDANETA CITY UNIVERSITY

San Vicente West, Urdaneta City Pangasinan

College of Business Management and Accountancy

FIRST SEMESTER - A.Y. 2021-2022

PQ5

Problem 1
The unadjusted trial balance of Buddies Co. on December 31, 20x1 is shown below:
Debits Credits
Revenue from service fees 12,000,000
Contract costs 4,000,000
Salaries expense 3,000,000
Advertising expense 680,000
Defined benefit cost 840,000
Dividend income from Hangout Co. 90,000

Totals 8,520,000 12,090,000

Additional Information:
a. On July 28, 20x1, Buddies Co. sold its investment in bonds measured at amortized
cost for P1,000,000. Buddies incurred P50,000
The carrying amount of the investment as at the date of sale is P800,000. Buddies
inadvertently recorded the transaction as a net debit to cash for P950,000 and a
credit to investment account for P950,000.

b. The year-
year-end fair value of the biological assets is P2,640,000. Costs to sell the biological
assets at year-end are estimated at P140,000.

c. On September 1, 20x1, Buddies Co. acquired 30% interest in Hangout Co. for
P8,000,000. The interest acquired gives Buddies significant influence over Hangout.
Hangout reported profit of P1,000,000 and other comprehensive income of P120,000
in 20x1. Hangout declared P300,000 dividends at year-end. The profit was earned

revaluation increase recognized on November 1, 20x1.

d. The actuarial valuation report shows the following information:

Service cost 336,000
Net interest cost in net defined benefit liability (asset) 252,000
Remeasurements to the net defined benefit liability (asset) 252,000
Defined benefit cost 840,000

e. Buddies Co. is subject to an income tax rate of 30%. (Assume there are no
temporary differences. Assume items of other comprehensive income are already
stated net of tax.)
Requirements:

1. Prepare the year-end adjusting/correcting/reclassification entries.

2. Prepare the Statement of Profit or Loss and Other Comprehensive Income of

Buddies Co. using the single statement presentation and the function of expense
method. Make a proper heading for the financial statement. Apply the concepts of
PAS 1 and other PFRSs on the separate presentation of items.