Intermediate Accounting

QUIZ NO. 3
Statement of Comprehensive Income and Statement of Changes in Equity

NAME: ________________________________________________ DATE: _____________________

COURSE/YEAR/BLOCK: __________________________________ SCORE: ___________________
PART I.
For the following questions, analyze each problem and compute for the correct answer. Provide your
computations in good form. No computation, no credit.
1. Wynd Company reported operating expenses in two categories, namely distribution and general and
administrative. The adjusted trial balance at year-end included the following expense and loss accounts for the
current year:

Accounting and legal fees P 1,200,000

Advertising 1,500,000
Freight out 800,000
Interest 700,000
Loss on sale of long-term investment 300,000
Officers’ salaries 2,250,000
Rent for office space 2,200,000
Sales salaries and commissions 1,400,000

One-half of the rented premises is occupied by the sales department.

What amount should be reported as total distribution costs?

2. Autumn Company reported the following data for the current year:

Legal and audit fees P 1,700,000

Rent for office space 2,400,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000
Freight out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Research and development expense 1,000,000

The office space is used equally by the sales and accounting departments.

What amount should be classified as general and administrative expenses?

3. Hurricane Company provided the following information for the current year:

Beginning inventory P 400,000

Freight in 300,000
Purchase returns 900,000
Ending inventory 500,000
Selling expenses 1,250,000
Sales discount 250,000

The cost of goods sold is six times the selling expenses.

What is the amount of gross purchase?

4. Summer Company provided the following information for the current year:

Increase in raw materials inventory P 150,000

Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
Freight in 250,000

What is the cost of goods sold for the current year?

5 & 6. Wynter Company provided the following information for the current year:

Debit Credit
Sales P 5,750,000
Cost of goods sold P 2,400,000
Administrative expenses 700,000
Sales commissions 500,000
Interest revenue 250,000
Freight out 150,000
Uncollectible accounts expense 150,000
Loss on sale of equipment 100,000
Loss on early retirement of long-term debt 200,000 _________
P 4,200,000 P 6,000,000

Finished goods inventory:

January 1 P 4,000,000
December 31 3,600,000
Income tax rate 30%

5. What amount should be reported as cost of goods manufactured?

6. What amount should be reported as income from continuing operations?

7 – 10. Rain Company provided the following data for the current year:

Retained earnings, January 1 P 3,000,000

Dividends declared 1,000,000
Sales 8,400,000
Dividend income 100,000
Inventory, January 1 1,000,000
Purchases 3,700,000
Salaries 1,540,000
Contribution to employees’ pension fund 300,000
Delivery 200,000
Miscellaneous expense 120,000
Doubtful accounts expense 10,000
Depreciation expense 80,000
Loss on sale of investment 100,000
Income from discontinued operation, net of tax 500,000
Income tax expense 150,000
Inventory on December 31 at cost 850,000
Net realizable value of inventory 700,000

7. What is the cost of goods sold?

8. What is the total amount of expenses before income tax?

9. What is the net income for the current year?

10. What is the balance of retained earnings on December 31?

11. Ice Company showed cost of goods sold of P 4,320,000 in the statement of comprehensive income after the
first year of operations. The total manufacturing cost comprised the following:
Material used 50%
Direct labor incurred 30%
Manufacturing overhead 20%

Goods in process at year-end amounted to 10% of the total manufacturing cost. Finished goods at year-
end amounted to 20% of the cost of goods manufactured.

What is the amount of the direct labor cost incurred?

12. Poseidon Company provided the following data at year-end:

Authorized share capital P 5,000,000

Unissued share capital 2,000,000
Subscribed share capital 1,000,000
Subscription receivable 400,000
Share premium 500,000
Retained earnings unappropriated 600,000
Retained earnings appropriated 300,000
Revaluation surplus 200,000
Treasury shares, at cost 100,000

What total amount should be reported as shareholders’ equity?

13 & 14. On January 1, 2023, Reese Company began operations by issuing at P 15 per share one-half of the
950,000 ordinary shares of P 1 par value that had been authorized for issue. In addition, the entity had 500,000
authorized preference shares of P 5 par value.
During 2023, the entity had P 1,025,000 of net income and declared P 230,000 of dividend. During 2024,
the entity had the following transactions:
▪ Issued 100,000 ordinary shares for P 17 per share.
▪ Issued 150,000 preference shares for P 8 per share.
▪ Authorized the purchase of a custom – made machine to be delivered in January 2025. The entity
restricted P 300,000 of retained earnings for the purchase of the machine.
▪ Issued additional 50,000 preference shares for P 9 per share.
▪ Reported P 1,215,000 net income and declared on December 31, 2024 a dividend of P 635,000 to
shareholders of record on January 15, 2025 to be paid on February 1, 2025.

13. What is the total shareholders’ equity on December 31, 2023?

14. What is the total shareholders’ equity on December 31, 2024?

15. Snow Company began operations on January 1, 2020. During the first three years of operations, the entity
reported following net income and dividends declared:

Net Income Dividends declared

2020 1,500,000 0
2021 2,500,000 1,000,000
2022 3,000,000 1,000,000

The entity provided the following information for 2018:

Income before income tax 5,000,000
Prior period error – understatement of 2022 depreciation before tax 500,000
Cumulative decrease in income from change in inventory method before tax 1,000,000
Dividend declared 2,000,000
Income tax rate 30%

What amount should be reported as retained earnings on December 31, 2023?

16 – 19. Phoenix Company had the following shareholders’ equity on January 1, 2023:

Preference share capital, P 100 par, 10% cumulative P 2,000,000

Ordinary share capital, no par, P 5 stated value 5,150,000
Share premium 3,500,000
Retained earnings 4,000,000
Treasury ordinary shares 400,000

• On January 15, 2023, the entity formally retired all the 30,000 treasury shares. The treasury shares were
originally issued at P 10 per share.
• The entity owned 10,000 shares of Erebus Company purchased for P 800,000. The Erebus Company
shares were included in noncurrent equity securities. On December 31, 2023, the entity declared a
dividend in kind of one share of Erebus Company for every hundred ordinary shares held by a
shareholder.

The fair value of the Erebus Company share is P 90 on December 31, 2023. The dividend in kind was
distributed on March 15, 2024 when the fair value of Erebus Company share is P 95.

• On December 31, 2023, the entity declared the yearly cash dividend on preference share, payable on
January 15, 2024.
• On January 15, 2024, before the accounting records were closed for 2023, the entity became aware that
rent income for the year ended December 31, 2022 was overstated by P 1,000,000. The after – tax effect
on 2022 net income was P 700,000.
• After correcting the rent income, the net income for 2023 was P 3,000,000.

16. What amount should be charged to retained earnings for the retirement of treasury shares on January
15, 2023?

17. What amount should be charged to retained earnings for the property dividend on ordinary shares
on December 31, 2023?

18. What amount should be charged to retained earnings for the preference dividend declared on
December 31, 2023?

19. What amount should be reported as retained earnings on December 31, 2023?

20. Nyx Company reported the following shareholders’ equity on January 1, 2023:

Preference share capital (P 150 par value, 20,000 shares) P 3,000,000

Ordinary share capital (P 50 par value, 100,000 shares) 5,000,000
Share premium 6,000,000
Retained earnings 4,500,000

• On January 1, 2023, the entity sold 20,000 additional ordinary shares for P 90 per share.

• Late in 2023, it was learned that because of mathematical error, an overstatement of depreciation
expense by P 500,000 had occurred in 2022.

• The entity reported net income of P 4,000,000 for 2023.

• The entity declared cash divided of P 1,000,000 on preference shares and P 2,000,000 on ordinary
shares during 2023.

• The income tax rate is 30%.

What is the balance of retained earnings on December 31, 2023?

PART II.
1. Ice Company’s equity as of December 31, 2021 consist of the following:

Share Capital P 1,000,000

Retained Earnings 700,000
Revaluation Surplus 300,000
Total Shareholder’s Equity P 2,000,000

The following occurred in 2022 and 2023:

2022
• Ice Company reported profit of P 200,000 and total comprehensive income of P 220,000.

2023
• Ice Company issued additional shares with an aggregate par value of P 500,000.
• Ice Company reported other comprehensive income of P 50,000 and total comprehensive
income of P 350,000.
• Ice Company declared dividends of P 100,000.

Requirement: Prepare the comparative Statement of Changes in Equity for the year ended
December 31, 2023.

2. The records of Storm Company on December 31, 2023 showed the following information:

Debit Credit
Sales P 22,000,000
Beginning inventory P 1,700,000
Purchases 5,600,000
Purchase returns 500,000
Freight in 400,000
Salaries of sales personnel 670,000
Interest expense 340,000
Advertising expense 320,000
Research and development expense 180,000
Directors’ remuneration 2,000,000
Salaries of administrative personnel 520,000
Rent expense 280,000
Depreciation expense 160,000
Commission expense 1,100,000
Impairment loss on financial assets 190,000
Insurance expense 50,000
Income tax expense 2,000,000
Unrealized gain on equity securities – FVOCI 200,000
Gain on change in fair value – Cash flow hedge ___________ 30,000
Totals P 15,510,000 P 22,730,000

Additional information:
• Ending inventory amounts to P 1,200,000.
• One-half of the rent expense pertains to the sales department.
• The impairment loss on financial assets pertains to impairment of receivables recognized on
contracts with customers.
• The items of other comprehensive income are net of tax.
• The gain on change in fair value on the cash flow hedge represents the effective portion.

Requirements:
a. Prepare the Statement of Profit or Loss and Other Comprehensive Income of Storm Company using
the single statement presentation and the function of expense method. Make a proper heading
for the financial statement. Apply the general feature of “materiality and aggregation.”
b. Make additional disclosures for the breakdown of line items in the financial statement. Make proper
cross-referencing of those notes; use “Note 12” as your first reference.