PROBLEM 1: Accounts Receivable Related Transactions and Valuation

Since the start of its operations, NAHIDA INC. provided for uncollectible accounts receivable using
allowance method. Provisions were made monthly at 2% of credit sales; bad debts written were charged to
the allowance account; recoveries of bad debts previously written off were credited to the allowance
account; and no year-end adjustments to the allowance account was made. NAHIDA’s usual credit term is
30 days.

Allowance for uncollectible accounts reported on December 31, 2020 was P120,000. During 2021, credit
sales totaled P8,000,000, interim provisions for bad debts were made at 3% of credit sales; P80,000 of
doubtful accounts were considered worthless, and recoveries of previously written off amounted to P 60,000.
In 2021, historical data analysis shows the rate of collectability of the past due accounts receivables as
follows:

Age Collection %
0 to 30 days 95%
31 to 60 days 80%
61 to 90 days 75%
91 to 120 days 55%
121 to 180 days 40%
181 to 365 days 30%
Over 365 days 10%

Ageing analysis prepared by the AR clerk for the year 2021 follows:

Age Amount
0 to 30 days 1,000,000
31 to 60 days 800,000
61 to 90 days 650,000
91 to 120 days 500,000
121 to 180 days 450,000
181 to 365 days 300,000
Over 365 days 150,000

Further audit procedures revealed that the balance under the category “61 to 90 days” included a P50,000
customer credit balance and that additional receivables under the category “Over 365 days” amounting to
P75,000 is deemed worthless and must be written off.

REQUIRED:
1. Correct balance of allowance for doubtful account as of December 31, 2021
2. Correct bad debt expense in 2021
3. Net realizable value of the accounts receivable as of December 31, 2021
4. Assuming the company sets up allowance for doubtful accounts equal to 5% of the outstanding
receivable, how much is the reportable amount for accounts receivable
 s receivable using Age Amount Correction
en were charged to
d to the allowance
0 to 30 days 1,000,000
usual credit term is 31 to 60 days 800,000
61 to 90 days 650,000 50,000
During 2021, credit 91 to 120 days 500,000
t sales; P80,000 of
mounted to P 60,000. 121 to 150 days 450,000
unts receivables as Over 150 days 150,000 -75,000

Accounts receivable 3,525,000

Allowance for CL 612,500
Net realizable value 2,912,500

Allowance for CL
80,000.00 120,000.00
75,000.00 240,000.00 (8,000,000 x 3%)
60,000.00
347,500.00

612,500.00
included a P50,000
days” amounting to
4. Allowance based on 5% of AR

Accounts receivable 3,525,000

Allowance for CL 176,250
outstanding Net realizable value 3,348,750
Adjusted Collectability NRV
1,000,000 100% 1,000,000
800,000 95% 760,000
700,000 80% 560,000
500,000 75% 375,000
450,000 45% 202,500
75,000 20% 15,000
3,525,000 2,912,500

Credit Loss

240,000.00

347,500.00

587,500.00
PROBLEM 2: Classification of Inventories
Presented below is a list of items that may or may not reported as inventory in a company’s December 31
balance sheet.

Goods out on consignment at another company’s store 40,000

Goods held on consignment from another company 22,500
Goods sold to another company, for which our company has signed an agreement to
repurchase at a set price that covers all costs related to the inventory 15,000
Goods sold on installment basis 5,000
Goods purchased f.o.b. shipping point that are in transit at December 31 6,000
Goods purchased f.o.b. destination that are in transit at December 31 10,000
Goods sold f.o.b. shipping point that are in transit December 31 6,000
Goods sold where large returns are predictable 14,000
Costs incurred to advertise goods held for resale 1,000
Interest cost incurred for inventories that are routinely manufactured 2,000
Freight charges on goods purchased 4,000
Insurance on goods purchased while in transit 3,000
Freight charges on goods sold 1,500
Insurance on goods available for sale while in storage 4,000
Factory labor costs incurred on goods still unsold 2,500
Materials on hand not yet placed into production 17,500
Raw materials on which a the company has started production, but which are not
completely processed 14,000
Costs identified with units completed but not yet sold 13,000
Goods sold f.o.b. destination that are in transit at December 31 2,000
Temporary investment in stocks and bonds that will be resold in the near future 25,000
Factory supplies 1,000
Other general and administrative supplies supplies 500
Inventoriable
40,000

15,000

6,000

4,000
3,000

2,500
17,500

14,000
13,000
2,000

1,000

118,000
PROBLEM 3

Class No. of Units Cost per Unit

January 1, 2022 X 100 500
Y 50 200
January 18, 2022 Y 25 180
February 6, 2022 X 60 450
July 3, 2022 (sale) Y 30 ?
September 3, 2022 (sale) X 80 ?
November 24, 2022 Y 36 250
December 17, 2022 (sale) X 40 ?

CLASS X
Class No. of Units Cost per Unit
January 1, 2022 X 100 500
February 6, 2022 X 60 450
September 3, 2022 (sale) X - 80 ?
December 17, 2022 (sale) X - 40 ?
Inventory remaining 40

COS INVENTORY NRV

FIFO 59,000 18,000 19,000
LIFO 57,000 20,000 18,500
WA 57,750 19,250 19,000
MA 57,750 19,250 19,000

Weighted Average
Unit Cost per unit Total
TGAS 160 481.25 77,000
Ending Inventory 40 481.25 19,250
COGS 120 481.25 57,750
-

Moving Average

Class No. of Units Cost per Unit

January 1, 2022 X 100 500.00
April 6, 2022 X 60 450.00
Updated balance 160 481.25
August 15, 2022 (sale) X 80 481.25
Updated balance 80 481.25
December 7, 2022 (sale) X 40 481.25
Inventory remaining 40 481.25
Total Costs Class X Class Y
50,000 - Estimated selling price 31,000 16,000
10,000 - Estimated cost to sell 12,000 1,500
4,500 - NRV 19,000 14,500
27,000 - Replacement costs 18,500 15,000
– Normal profit 800 500
–
9,000 -
–

CLASS Y
Total Costs Class No. of Units Cost per Unit
50,000 January 1, 2022 Y 50 200
27,000 January 18, 2022 Y 25 180
- July 3, 2022 (sale) Y - 30 ?
- November 24, 2022 Y 36 250
Inventory remaining 81

LOSS COS INVENTORY NRV

- FIFO 6,000 17,500 14,500
1,500 LIFO 5,500 18,000 14,500
250 WA 6,351 17,149 14,500
250 MA 5,800 17,700 14,500

Weighted Average
UnitCost per unit Total
TGAS 111 211.71 23,500
Ending Inventory 81 211.71 17,149
COGS 30 211.71 6,351
-

Total Costs Class No. of Units Cost per Unit

50,000 January 1, 2022 Y 50 200.00
27,000 February 18, 2022 Y 25 180.00
77,000 Updated balance 75 193.33
38,500 June 12, 2022 (sale) Y 30 193.33
38,500 Updated balance 45 193.33
19,250 November 26, 2022 Y 36 250.00
19,250 Inventory remaining 81 218.52
Total Costs
10,000
4,500
-
9,000

LOSS
3,000
3,500
2,649
3,200

Total Costs
10,000 -
4,500 -
14,500 -
5,800 -
8,700 -
 9,000 -
17,700
1. In December 31, 2018, Arama Corp. acquired the following portfolio of equity instruments and reported
the following information.

Fair Value Fair Value

Security Purchase Price Broker’s Fee 12/31/19 12/31/20
Araja P3,000,000 P50,000 P3,500,000 P3,450,000
Arabalika 4,500,000 100,000 4,100,000 4,000,000
Arana 5,400,000 125,000 6,400,000 3,500,000
Araji 6,100,000 150,000 6,500,000 7,000,000

On October 1,2020, Arama sold half of the investment to Arana for P3,250,000 and paid commission
and broker’s fee of P75,000. Assuming Arama classified the foregoing securities as investments at fair
value through profit of loss, determine the net amount recorded to profit or loss for the year ended
December 31, 2020.
a. 625,000
b. 650,000
c. 700,000
d. 2,550,000

1. During 2023, Aranara Company purchased marketable equity securities for P185,000 to be held as
trading investments. In 2023, the entity appropriately reported an unrealized loss of P20,000 in the
income statement. There were no changes during 2023 in the composition of the portfolio of trading
securities. Pertinent data on December 31, 2024 are:

Security Cost Market value

X 60,000 70,000
Y 45,000 40,000
C 80,000 90,000

What amount of unrealized gain on these securities should be included in the 2024 income statement?
a. 35,000
b. 15,000
c. 55,000
d. 0

1. In January 1, 2019, Arama Corp. acquired the following portfolio of equity instruments and reported the
following information.

Fair Value Fair Value

Security Purchase Price Broker’s Fee 12/31/19 12/31/20
Araja P3,000,000 P50,000 P3,500,000 P3,450,000
Arabalika 4,500,000 100,000 4,100,000 4,000,000
Arana 5,400,000 125,000 6,400,000 3,500,000
Araji 6,100,000 150,000 6,500,000 7,000,000

On October 1,2020, Arama sold half of the investment to Arana for P3,250,000 and paid commission
and broker’s fee of P75,000. Assuming Arama classified the foregoing securities as investments at fair
value through other comprehensive income, how much is the unrealized gain or losses from changes
in fair value to be recognized in the other comprehensive income during 2019?
a. 625,000
b. 650,000
c. 700,000
d. 2,550,000
On October 1,2020, Arama sold half of the investment to Arana for P3,250,000 and paid commission
and broker’s fee of P75,000. Assuming Arama classified the foregoing securities as investments at fair
value through other comprehensive income, how much is the unrealized gain or losses from changes
in fair value to be recognized in the other comprehensive income during 2019?
a. 625,000
b. 650,000
c. 700,000
d. 2,550,000
 Fair Value Fair Value
UG
12/31/19 12/31/20
3,500,000 3,450,000 -50,000
4,100,000 4,000,000 -100,000
6,400,000 3,500,000 300,000
6,500,000 7,000,000 500,000

Total unrealized gains 650,000

Net realized gains/loss

Net proceeds 3,175,000

Carrying amount 3,200,000 -25,000

Net effect to profit or loss 625,000

Total market value (70,000+40,000+90,000) 200,000

Total carrying amount (60,000+45,000+80,000-20,000) 165,000
Unrealized gain 35,000

Carrying value Fair Value

Purchase Price Broker’s Fee
12/31/2019 12/31/19
3,000,000 50,000 3,050,000 3,500,000
4,500,000 100,000 4,600,000 4,100,000
5,400,000 125,000 5,525,000 6,400,000
6,100,000 150,000 6,250,000 6,500,000
19,000,000 425,000 19,425,000 20,500,000
1,925,000
 Unrealized
gains/losses
450,000
-500,000
875,000
250,000
1,075,000 -
437500
1. On January 1, 2022, Sumeru Company purchased marketable debt securities, to be held as financial
asset at fair value through profit or loss, for P4,038,800. The entity also paid commission, taxes and
other transaction costs amounting to P125,000. The principal amount of the debt security is P4,000,000
paying annual interest of 10% every December 31. The securities have a market value of P4,418,800
on December 31, 2022. No securities were sold during 2022. The transaction cost that would be
incurred on the disposal of the investments are estimated at P75,000. What is the Sumeru’s unrealized
gain on financial asset at fair value through profit or loss?
a. 75,000
b. 125,000
c. 380,000
d. 338,800

(Use the following information for the next items)

On January 1, 2023, Deepwood Company purchased bonds with a face amount of P5,000,000 for
P4,760,000 including transaction cost of P160,000. The bonds mature on December 31, 2024 and pay 10%
interest annually on December 31 with a 12% effective rate.

The bonds are quoted at 102 on December 31, 2023 and 105 on December 31, 2024. The bonds are sold
at 110 on June 30, 2025 plus accrued interest.

The business model is to collect contractual cash flows and to sell the financial asset.

2. What amount of unrealized gain – OCI, should be reported in the statement of comprehensive income
for 2023?
a. 268,800
b. 100,000
c. 340,000
d. 0

3. Assuming the present value of remaining cash flows as at December 31, 2023 is P4,631,200 and the
quoted price of the bonds is 90, how much is the unrealized loss - OCI to be reported in the statement
of comprehensive income

4. What amount of unrealized gain should be reported in the statement of financial position as at
December 31, 2024?
a. 339,056
b. 221,200
c. 70,256
d. 0

5. What amount should be recognized as gain on sale of the bond investment on June 30, 2025?
a. 544,528
b. 794,528
c. 250,000
d. 589,056
d as financial
n, taxes and 1. SUMERU COMPANY
s P4,000,000
P4,418,800
at would be Ending balance 4,418,800.00
’s unrealized
Beginning balance 4,038,800.00
Changes in fair value 380,000.00

2. DEEPWOOD COMPANY
,000,000 for
and pay 10%
DATE INT. INC. INT. PAID
nds are sold
2023 571,200 500,000
2024 579,744 500,000
2025 589,056 500,000
nsive income

Required 1: Unrealized gain - OCI 2023

Fair value (5M x 1.02) 5,100,000

,200 and the
he statement Amortized costs - 2023 4,831,200
Unrealized gain - OCI 268,800
osition as at

Required 2: Unrealized loss - OCI to Statement of Comprehensive Income

Fair value (5M x 0.90) 4,500,000

025? Amortized costs - 2023 4,831,200
Total Loss - 331,200

Present value of CF 4,631,200

Amortized costs - 2023 4,831,200
Credit Loss - 200,000

Unrealized Loss - OCI - 131,200

Required 3: Unrealized gain - OCI 2024

Fair value (5M x 1.05) 5,250,000
Amortized costs - 2023 4,910,944
Unrealized gain - OCI 339,056

Required 4: Realized gain 2025

Proceeds (5M x 1.10) 5,500,000

Amortized costs - 2023 4,955,472
Unrealized gain - OCI 544,528
 AMORTIZATION CV
4,760,000
71,200 4,831,200
79,744 4,910,944
89,056 5,000,000

nt of Comprehensive Income
PROBLEM 6: Property, Plant and Equipment

1. At year-end, Bija Company has an equipment with the following cost and accumulated depreciation:

Equipment 900,000
Accumulated depreciation 300,000

Due to obsolescence and physical damage, the equipment is found to be impaired.

At year-end, the entity has determined the following information related to the equipment:

Fair value less cost of disposal 450,000

Value in use or discounted net cash inflows 400,000
Undiscounted net cash inflows 550,000

What amount should be reported as impairment loss for the year?

a. 150,000
b. 200,000
c. 50,000
d. 0

2. Deepwood Memories acquired a machine for P10M at the beginning of 2031. Deepwood Memories
estimated that the machine has a useful life of 10 years and a residual value equal to 5% of the cost.
At normal capacity, the machine's estimated service life is 28,000 hours or total productive capacity of
84,000 units of a product. In 2031 and 2032, the actual manufacturing hours were 3,000 and 2,800,
respectively, and the actual units produced were 12,000 and 9,800, respectively. What amount of
depreciation is recognized in 2032 under each of the following depreciation methods?

SLM SYD DDB Service Hours Production Output

a. 950,000 1,554,545 1,600,000 1,108,333 950,000
b. 950,000 1,636,364 1,520,000 1,108,333 950,000
c. 1,000,000 1,554,545 1,520,000 1,000,000 1,166,667
d. 950,000 1,554,545 1,600,000 950,000 1,108,333

SLM = straight line method; SYD = sum-of-the-years' digits: DDB = double declining balance
1. Impairment Loss

US GAAP IFRS (IAS 36)

Assessment Impairment

Carrying amount (900k - 300k) 600,000 Recoverable*

Undiscounted VIU 550,000 Carrying amount
Impaired? Yes Impairment

Impairment *higher between FVLCTS and VIU

To use To sell
Basis 400,000 450,000
Carrying amount 600,000 600,000
Impairment - 200,000 - 150,000

2. Depreciation Method

SLM = (1M x 95%) ÷ 10 = 95,000

SYD denominator = {10 x [(10 + 1) ÷ 2]} = 55

SYD depreciation in 2022 = 950,000 x 9/55 = 155,455

DDB rate = 2 ÷ 10 = 20%

DDB depreciation in 2022 = 1M x 80% x 20% = 160,000

UOPM (input) depreciation in 2022 = 950,000 x (2,800/28,000) = 95,000

UOPM (output) depreciation in 2022 = 950,000 x (9,800/84,000) = 110,833

 450,000
600,000
- 150,000

between FVLCTS and VIU

= 95,000

0) = 110,833
PROBLEM 7: Intangible Asset (AICPA Adapted)
Tabibito Research Solutions, Inc. holds a valuable patent (No. 011894) on a device that prevents certain
types of air pollution. Tabibito does not manufacture or sell the products and processes it develops; it
conducts research and develops products which it patents, and then assigns the patents to manufacturers
on a royalty basis. The history of Patent No. 011894 is as follows:

Date Activity Cost

2006-2008 Research conducted to develop device 465,080
Jan. 2009 Design and construction of a prototype 70,041
Mar. 2010 Testing of models 49,000
Legal and other fees to process patent application; patent
Jan. 2010 68,000
granted
Engineering activity necessary to advance the design of the
Nov. 2011 109,000
device to the manufacturing stage
Research aimed at modifying the design of the patented
April - 2013 device 67,800
Legal fees paid in a successful patent infringement suit
May - 2017
against a competitor 30,000

Tabibito assumed a useful life of 17 years when it received the initial device patent. On January 1, 2015,
it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full year if
the cost is incurred prior to July 1 and no amortization for the year if the cost is incurred after June 30.
Tabibito’s reporting date is December 31, 2017.

REQUIRED: Compute the carrying value of Patent No. 011894 on each of the following dates (US GAAP
and IFRS)
1. December 31, 2010
2. December 31, 2014
3. December 31, 2017
SOLUTION - IFRS

Cost to obtain patent (January 2010)

2010 amortization (P68,000/17)
Carrying value, Dec. 31, 2010

Carrying value, Jan. 1, 2011

Amortization, 2011-2014 (P4,000 x 4 years)
Carrying value, Dec. 31, 2014

Carrying value, Jan. 1, 2015

Amortization, 2015-2017 (P48,000 x 3/5)
Carrying value, Dec. 31, 2017

SOLUTION - US GAAP

Cost to obtain patent (January 2010)

2010 amortization (P68,000/17)
Carrying value, Dec. 31, 2010

Carrying value, Jan. 1, 2011

Amortization, 2011-2014 (P4,000 x 4 years)
Carrying value, Dec. 31, 2014

Carrying value, Jan. 1, 2015

Amortization, 2015-2016 (P48,000 x 2/5)
Carrying value, Dec. 31, 2016
Legal fees paid in successful patent suit
New Carrying Value
2017 amortization (P58,800/3)
Carrying value, Dec. 31, 2017
68,000
4,000
64,000

64,000
16,000
48,000

48,000
28,800
19,200

68,000
4,000
64,000

64,000
16,000
48,000

48,000
19,200
28,800
30,000
58,800
19,600
39,200
PROBLEM 8: Accounting for Various Liabilities

White Floaty Inc. Corporation is selling home and theatre appliances. The company’s fiscal year ends on
December 31, 2022. The following information relates to the obligations of the company as of
December 31, 2022:

Estimated warranties
White Floaty Inc. Corporation has a one-year product warranty on some selected items. The estimated
warranty liability on sales made during the 2020 – 2021 fiscal year and still outstanding as of December
31, 2021, amounted to P80,000. The warranty costs on sales made from January 1, 2022 to December
31, 2022, are estimated at P350,000. The actual warranty costs incurred during 2021 – 2022 fiscal year
are as follows:

Warranty claims honored on 2020 – 2021 sales P80,000

Warranty claims honored on 2021 – 2022 sales 220,000
Total P300,000

Trade payables and other payables

Accounts payable for supplies, goods, and services purchases on open account amount to P60,000 as of
December 31, 2022. Moreover, it was discovered that included in the accounts receivable balances as at
December 31, 2022 is a credit balance due to customer as a result of price changes amounting to P20,000.

Dividends
On December 21, 2022, White Floaty Inc. Corporation’s board of directors declared a cash dividend of
P3.00 per common share and a 20% common stock dividend. Both dividends were to be distributed on
January 15, 2021 to common stockholders on record at the close of business on December 31, 2020. As
of December 31, 2022, White Floaty Inc. Corporation has 50,000, P100 par value, common shares issued
and outstanding.

Bonds payable
White Floaty Inc. Corporation issued P5,000,000, 8% bonds, on July 1, 2022 at its fair value amounting
to P5,262,545. The prevailing market rate of interest for this instrument is 6%. The bond is payable in five
equal annual instalments for 5 years, starting July 1, 2023.

REQUIRED:
1. Current liabilities
2. Noncurrent liabilities

Bonds payable
Xuanyuan Corporation issued P5,000,000, 8% bonds, on July 1, 2022 at its fair value amounting to
P5,262,545. The prevailing market rate of interest for this instrument is 6%. The bond is payable in five
equal annual instalments for 5 years, starting July 1, 2023.

Lease liability
Xuanyuan Corporation signed a 10-year lease contract with Hanxian Incorporated on December 31, 2022.
The parties to the contract agreed on the following terms:
1. Annual rent will be P1,000,000
2. Xuanyuan to enjoy a 3-year rent free period
3. Xuanyuan to pay P1,000,000 as lease bonus and a P1,000,000 as security deposit
4. Xuanyuan to enjoy exclusive rights to make use of the property in any purpose it wishes to do
throughout the rent period
5. Xuanyuan to return the property on its original condition before it entered the aforementioned lease
contract.

The implicit rate for the lease is 10% while the incremental borrowing rate is 12%. The cost of dismantling
the asset at the end of lease term is estimated at P500,000. The useful life of the asset is 12 years

REQUIRED:
4. Xuanyuan to enjoy exclusive rights to make use of the property in any purpose it wishes to do
throughout the rent period
5. Xuanyuan to return the property on its original condition before it entered the aforementioned lease
contract.

The implicit rate for the lease is 10% while the incremental borrowing rate is 12%. The cost of dismantling
the asset at the end of lease term is estimated at P500,000. The useful life of the asset is 12 years

REQUIRED:
1. Current liabilities
2. Noncurrent liabilities
 SOLUTION
cal year ends on
Current Non-current
company as of Warranty payable 130,000 -
Trade payable 60,000 -
Advances from customers 20,000 -
Dividends 150,000
. The estimated Bonds payable 1,042,124 4,178,298
as of December
22 to December Interest payable 200,000
2022 fiscal year Total 1,602,124 4,178,298

BONDS

6% 8%
Interest Exp Interest Pay Installment
to P60,000 as of July 1, 2022
le balances as at July 1, 2023 315,753 400,000 1,000,000
unting to P20,000.
July 1, 2024 250,698 320,000 1,000,000
July 1, 2025 186,540 240,000 1,000,000
cash dividend of July 1, 2026 123,332 160,000 1,000,000
e distributed on
ber 31, 2020. As July 1, 2027 61,132 80,000 1,000,000
on shares issued

July 1, 2022 - CA 5,262,545

value amounting Interest expense 157,876
s payable in five Interest payable 200,000 - 42,124
December 31, 2022 5,220,422

ue amounting to
s payable in five

cember 31, 2022.

e it wishes to do

ementioned lease

ost of dismantling
s 12 years
e it wishes to do

ementioned lease

ost of dismantling
s 12 years
(80k+350k-300k)

(50k x 3)

Amortization Carrying Amount

5,262,545
- 84,247 4,178,298
- 69,302 3,108,996
- 53,460 2,055,536
- 36,668 1,018,868
- 18,868 0
PROBLEM 9: Accounting for Income Taxes
Vanarana Incorporated reported net income for the year ended December 31, 2022 at P20,000,000 before
income taxes. Included in the determination of the said net income were:

Permanent differences:
Non-deductible expenses P200,000
Non-taxable income 1,000,000

Temporary differences:
Accrued warranty costs 500,000
Advanced rental payments 800,000
Advances from customers 1,000,000
Provision of litigation losses 1,800,000

The current enacted tax rate is 40% and not expected to change in the future. However, only 80% of any
deferred tax assets to be recognized are deemed to be recoverable.

REQUIRED:
1. Total income tax expenses
2. Deferred tax benefit
3. Deferred tax liability
4. Current income tax expenses
 SOLUTIONS
P20,000,000 before

Pre-tax accounting income 20,000,000

Non-taxable income 1,000,000
000 Non-deductible income - 200,000
000 Accounting income subject to tax 20,800,000
Accrued warranty costs 500,000
000
Advanced rental payments - 800,000
000 Advances from customers 1,000,000
000 Provision for litigation losses 1,800,000
000 Taxable income 23,300,000

er, only 80% of any

Current income tax expense 9,320,000
Deferred tax expense 320,000
Deferred tax benefit 1,056,000
Total income tax expenses 8,584,000

Income tax expense 8,584,000

Deferred tax asset 1,320,000
Valuation allowance - DTA 264,000
Deferred tax liability 320,000
Income tax payable 9,320,000
PROBLEM 10: Accounting for Equity Transactions
ARARAKALI Corporation was authorized at the beginning of 2024 with 540,000 authorized shares of P100,
par value common stock. At December 31, 2024, the stockholders’ equity section of ARARAKALI was as
follows:

Common stock, par value P100 per share; authorized

540,000 shares; issued 54,000 shares P5,400,000
Additional paid-in capital 540,000
Retained earnings 810,000
Total stockholders’ equity P6,750,000

On May 10, 2025, ARARAKALI issued 90,000 shares of its common stock for P10,800,000. A 5% stock
dividend was declared on September 30, 20x5 and issued on November 10, 2025 to stockholders of record
on October 31, 2025. Market value of common stock was P110 per share on declaration date. The net
income of ARARAKALI for the year ended December 31, 2025 was P855,000.

During 2026, ARARAKALI had the following transactions;

Feb. 15 ARARAKALI reacquired 5,400 shares of its common stock for P95 per share.
May 15 ARARAKALI sold 2,700 shares of its treasury stock for P120 per share.
Jun 30 Issued to stockholders one stock right for each share held to purchase two additional shares
of common stock for P125 per share. The rights expire on December 31, 2026.
Aug. 15 45,000 stock rights were exercised when the market value of common stock was P130 per
share.
Sep. 30 72,000 stock rights were exercised when the market value of the common stock was P140
per share.
Dec. 01 ARARAKALI declared a cash dividend of P2 per share payable on January 15, 2007 to
stockholders of record on December 31, 2026.
Dec. 15 ARARAKALI retired 1,800 shares of its treasury stock and reverted them to an unused
basis. On this date, the market value of the common stock was P150 per share.
Dec. 31 Net income for 2026 was P900,000.

Based on the above and the result of your audit, determine the following as of December 31, 20x6:

1. Common stock
a. P38,520,000
b. P38,340,000
c. P26,640,000
d. P38,250,000

2. Additional paid-in capital

a. P8,329,500
b. P5,413,500
c. P8,338,500
d. P8,266,500

3. Retained earnings
a. P1,080,000
b. P1,017,000
c. P1,002,600
d. P1,008,000
 ares of P100,
SOLUTION
AKALI was as Common Stock
Balances, 1/1/05 P 5,400,000
May 10, 20x5 9,000,000
000 Sept. 30, 20x5 720,000
000
000 Net income-20x5
000 Balances, 12/31/05 15,120,000
A 5% stock
Feb. 15
ders of record May. 15
ate. The net
Aug. 15 9,000,000
Sep. 30 14,400,000
Dec. 01
Dec. 15 -180,000
Net income-20x6
onal shares Balances, 12/31/06 P38,340,000
as P130 per

k was P140

15, 2007 to

an unused

20x6:
APIC Retained Earnings TS
P 540,000 P 810,000 P 0
1,800,000
72,000 -792,000
855,000
2,412,000 873,000 0
513,000
67,500 -256,500
2,250,000
3,600,000
-765,000
9,000 -171,000
900,000
P8,338,500 P1,008,000 P 85,500
PROBLEM 11: Statement of Comprehensive Income
An entity reported the following data for the year ended 2021:

Net sales
Cost of goods sold
Selling expenses
Administrative expenses
Interest expense
Gain on sale of equipment
Income tax
Income from discontinued operations
Unrealized gain on debt securities held for indefinite purpose
Unrealized loss on futures contract designated as a cash flow hedge
Increase in projected benefit obligation due to actuarial assumptions
Foreign translation adjustment – debit
Revaluation surplus

REQUIRED:

1. Income from continuing operations

2. Net amount to be recognized in the OCI during the year.

3. Net income for the year
4. Total comprehensive income
 Solution:

1,900,000 Net sales

800,000 Cost of goods sold
200,000 Gross Profit
240,000 Selling expenses
140,000 Administrative expenses
100,000 Operating income
160,000 Other income (expense)
120,000 Interest expense
180,000 Gain on sale of equipment
80,000 Income from operations before tax
60,000 Tax expense
20,000 Income from operations
500,000 Income from discontinued operations
Net income
Other comprehensive income:
Unrealized gain on debt securities held for
indefinite purpose
Unrealized loss on futures contract designated as
a cash flow hedge
Increase in projected benefit obligation due to
actuarial assumptions
Foreign translation adjustment – debit
Comprehensive income - US GAAP
Revaluation surplus
Comprehensive income - IFRS
1,900,000
800,000
1,100,000
200,000
240,000
660,000

140,000
100,000
620,000
160,000
460,000
120,000
580,000

180,000

-80,000

-60,000
-20,000
600,000
500,000
1,100,000
PROBLEM 12: Statement of Financial Position (AICPA Adapted)
The following trial balance of an entity on December 31, 2021 has been adjusted except for income tax
expense.

Cash P1,200,000
Accounts receivable 2,800,000
Inventory 2,000,000
Property, plant and equipment 5,000,000
Accounts payable P1,800,000
Income tax payable 1,200,000
Preference share capital 600,000
Ordinary share capital 3,000,000
Share premium 800,000
Retained earnings – January 1 1,800,000
Revenues 16,000,000
Cost of goods sold 9,600,000
Expenses 2,400,000
Income tax expense 2,200,000 __________
P25,200,000 P25,200,000

During the year, estimated tax payments of P1,000,000 were charged to income tax expense. The tax rate
is 32%. Inventory and accounts payable included goods purchased in transit, FOB destination, costing
P100,000, and unsold goods held on consignment at year-end, costing P60,000. The perpetual system is
used. The preference share capital is redeemable mandatorily on December 31, 2022.

REQUIRED:
1. Total current assets
2. Total current liabilities
3. Net income for the year
4. Total shareholder’s equity
 SOLUTION
pt for income tax

Cash
Accounts receivable
Inventory (2M - 100,000 - 60,000)
Total current assets
800,000
200,000
600,000
000,000
Accounts payable (1.8M - 100,000 - 60,000)
800,000
800,000 Income tax payable
000,000 Preference share capital
Total current liabilities
______
200,000

nse. The tax rate Revenues

stination, costing Cost of goods sold
petual system is
Gross profit
Expenses
Profit before tax
Income tax
Profit after tax

Income tax expense

Income tax paid
Income tax payable - 12/31

Ordinary share capital

Share premium
Retained earnings
Total SHE
 1,200,000
2,800,000
1,840,000
5,840,000

1,640,000
280,000
600,000
2,520,000

16,000,000
9,600,000
6,400,000
2,400,000
4,000,000
1,280,000
2,720,000

1,280,000
- 1,000,000
280,000

3,000,000
800,000
4,520,000
8,320,000
PROBLEM 13: Statement of Cash Flows (AICPA Adapted)
An entity provided the following increases (decreases) in the balance sheet accounts.

Cash and cash equivalents 24,000

Available for sale securities 60,000
Accounts receivable, net -
Inventory 16,000
HTM investments (20,000)
Plant assets 140,000
Accumulated depreciation -
Accounts payable (1,000)
Dividend payable 32,000
Short-term loan 65,000
Long-term bonds 22,000
Share capital, P10 par 20,000
Share premium 24,000
Retained earnings 58,000

Other relevant information is available as follows:

 Net income for the current year was P158,000.
 Cash dividend of P100,000 was declared.
 Building costing P120,000 and with carrying amount of P70,000 was sold for P70,000.
 Equipment costing P22,000 was acquired through issuance of long-term debt.
 A HTM investment was settled for P27,000. There were no other transactions affecting long-term
investment.
 The shares were issued for cash.

REQUIRED:
1. Net cash flows arising from operating activities
2. Net cash flows arising from investing activities
3. Net cash flows arising from financing activities
SOLUTION:

Net income
Add: Depreciation
Less: Gain on sale of HTM securities
Add(Less) Changes in WC
Increase in inventory
Decrease in accounts payable

Operating Cash Flows

Cash purchase of AFS securities

Cash purchase of plant assets
Sale of building
Settlement price of HTM
Investing Cash Flows

Increase in paid in capital

Increase in short-term loan
Dividends paid
Financing Cash Flows
 158,000
50,000
- 7,000

- 16,000
- 1,000

184,000

- 60,000
- 238,000
70,000
27,000
- 201,000

44,000
65,000
- 68,000
41,000