Section B:

1. Are the following balance sheet items (A) assets, (L) liabilities,
or (E) stockholders’ equity?

Cash, Patents, Inventory, Retained-earnings, Tax payable, Accounts

receivable, Good will, Buildings, Account payable, Investments in stock,
Land, Capital stock, Copyrights, Bond payables, Prepaid expenses.

(A) Assets (L) Liabilities (E) Stockholder’s Equity

Cash, patents, inventory, Accounts payable, tax Retained earnings,

accounts receivable, payable, bond payables capital stock,
buildings, land, good will, investments in stock.
copyrights, prepaid
expenses.

2. The following information was obtained from the accounts of

Company X dated December 31, 2020.

Account payable 87,916

Account receivable 77,551

Salary payable 53,952

Accumulated depreciation 220,541

Allowance for doubtful account 248

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 Capital in excess of par 72,913

Cash 58,837

Common stock 7,152

Current debt 36,875

Deferred income tax liability (long 52,070

term)

Inventory 26,643

Investment and special fund (long 11,901

term)

Long-term debt 390,808

Marketable securities 7,042

Other assets 10, 727

Prepaid expenses 3,963

Property, plant and equipment 829,980

Retained earnings 87,361

Unearned transportation revenue 16,808

Required: Prepare a classified balance sheet in report form

Solution:

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 Company X
Balance sheet
As at December 31,2020
Assets
Current asset:
Cash 58,837
Inventory 26,643
prepaid expenses 3,963
Marketable securities 7,042

Accounts receivable 77,551

Less: allowance for doubtful
account 248

Total current assets 173,788

Fixed assets:
Property, plant and equipment 829,980
Less: Accumulated depreciation 220,541
Total PPE 609,439
Long- term investment
Investment and special fund 11,901

Other assets 10, 727 22,628 632,067

Total assets 805,855
Liabilities and stockholders'
equity
Current liabilities
Accounts payable 87,916
Current debt 36,875

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 Deferred income tax liability 52,070
Unearned transportation revenue 16,808
Salary payable 53,952
Total current liabilities 247,621
Long-term debt 390,808
Total liabilities 638,429
Stockholders' equity
Common stock 7,152
Capital in excess of par 72,913
Retained earnings 87,361
Total equity 167,426
Total liabilities+ Total equity 805,855

3. The following information for ABC company covers the year

ended 2020:

Advertising expenses 3,100

Commission expenses 8,600

Cost of goods sold 110,000

Other selling expenses 3,700

Income tax expenses 8,150

Insurance expense 2,000

Interest expense 12,000

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Dividend income 2,000

Rent expenses of administration 9,000

building

Salary expenses for office staff 11,000

Sale revenue 190,000

Required: Prepare a multiple-step income statement

Solution:

Multiple- step income

statement
Year ended 2020
Sale 190,000

COGS 110,000

Gross profit 80,000

Operating expenses

Selling expense

Advertising expense 3,100

Commission expense 8,600

Other selling expense 3,700

Administrative expense

Salary expense for office staff 11,000

Insurance expense 2,000

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 Rent expense of administration
building 9,000
Total operating expenses 37,400
Operating income 42,600
Non- operating or either

Dividend income 2,000

Investment expenses (12,000)
Income before tax 32,600
Income tax expenses (8,150)
Net income 24,450

4. Required in each case a, b, c:

Prepare the statements of financial position of Mother Ltd and the

consolidated statement of financial position as at 1 January 2020 after each
transaction, using for each question the statements of financial position of
Mother Ltd and Son Ltd as at 1 January 2020 which were as follows:

Items Mother Ltd Son Ltd

($) ($)

Cash 30,000 10,000

Other net assets 25,000 2,800

Total assets 55,000 12,800

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 Ordinary shares of $1 45,500 3,000
each

Retained earnings 9,500 9,800

Total equity 55,000 12,800

a. On 1 January 2020 Mother Ltd acquired all the ordinary share in Son Ltd
for $15,000 cash. The fair value of the net assets in Son Ltd was their book
value.

b. Assume the purchase in case a was satisfied by the issue of 5,000 new
ordinary shares in Mother Ltd. The fair value of a $1 ordinary share in
Mother Ltd was $3. The fair value of the net assets in Son Ltd was their
book value.

Solution:

Part a:

 Mother Ltd statement of financial position as at 1 January 2020

Ordinary shares of $1 each 45,500

Retained earnings 9,500
55,000
Investment in Son Ltd 15,000
Cash( 30,000-15,000) 15,000

Other net assets 25,000

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 55,000

 Consolidated statement of financial position as at 1 January, 2020

Mother Son Add Elimilate SOFP

Ordinary share of $1
each 45,500 3,000 48,500 (3,000) 45,500
Retained earing 9,500 9,800 19,300 (9,800) 9,500
55,000 12,800 67,800 55,000
Investment in Son
Ltd 15,000 15,000 12,800 2,200
Cash 15,000 10,000 25,000 25,000
Other net assets 25,000 2,800 27,800 27,800
55,000 12,800 67,800 0 55,000

 Mother Ltd statement of financial position as at 1 January 2020:

Business
Other net assets 25,000
Inventory
Investment in Son Ltd 15,000
Financing
Financing assets
Cash 15,000
55,000
Equity

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 Share capital 45,500
Retained earning 9,500
Share premium 0
55,000

 Consolidated statement of financial position as at 1 January, 2020:

Business
Other net assets 27,800
Good will 2,200
Finance
Financing assets
Cash 25,000
55,000
Equity
Share capital 45,500
Retained earnings 9,500
Share premium 0
55,000

Part b:

+Mother Ltd statement of financial position as at 1 January 20200:

(45,500+
Ordinary share of $1 each 50,500 15,000/3)
Share premium 10,000
Retained earning 9,500

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 70,000
Investment in Son Ltd 15,000
Cash 30,000
Other net assets 25,000
70,000

+ Consolidated statement of financial position as at 1 January, 2020:

Eliminat
Mother Son Add e SOFP
Ordinary share 50,500 3,000 53,500 (3,000) 50,500
Share premium 10,000 0 10,000 10,000
Retained earning 9,500 9,800 19,300 (9,800) 9,500
70,000 12,800 82,800 70,000
Investment in Son Ltd 15,000 15,000 12,800 2,200
Cash 30,000 10,000 40,000 40,000
Other net assets 25,000 2,800 27,800 27,800
70,000 12,800 82,800 0 70,000

+ Mother Ltd statement of financial position as at 1 January 2020:

Business
Other net assets 25,000
Inventory
Investment in Son Ltd 15,000
Financing
Financing assets

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 Cash 30,000
70,000
Equity
Share capital 50,500
Retained earning 9,500
Share premium 10,000
70,000

+ Consolidated statement of financial position as at 1 January, 2020:

Business
Other net assets 27,800
Good will 2,200
Finance
Financing assets
Cash 40,000
70,000
Equity
Share capital 50,500
Retained earnings 9,500
Share premium 10,000
70,000

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