CHAPTER 4

THE STATEMENT OF COMPREHENSIVE INCOME

AND THE STATEMENT OF CHANGES IN EQUITY
PROBLEMS
4-1. (LAS VEGAS COMPANY)
Capital, December 31, 2012
Total assets
Less total liabilities
Capital, December 31, 2011
Total assets
Less total liabilities
Increase in capital
Withdrawals by the owner
Additional investments by the owner
Profit

P1,218,000
276,000
P 970,000
202,000

4-2. (BELLAGIO TRADING COMPANY)

Debit changes
Increase in assets
Decrease in liabilities
Credit changes
Increase in share capital
Increase in share premium
Increase (decrease) in retained earnings
Dividends
Profit for the year

P600,000
250,000
P400,000
125,000

4-3. (VENETIAN COMPANY)

Raw material purchases
Increase in raw materials inventory
Raw materials used
Direct labor
Factory overhead
Total manufacturing costs
Increase in work in process inventory
Cost of goods manufactured
Decrease in finished goods
Cost of goods sold for 2008
4-4.

P942,000

768,000
P174,000
250,000
(100,000)
P324,000

P850,000
525,000
P325,000
120,000
P445,000

P430,000
(15,000)
P415,000
200,000
300,000
P915,000
(20,000)
P895,000
35,000
P930,000

(MGM COMPANY)
Cost of goods manufactured
Finished goods, beginning
Finished goods, end
Cost of goods sold
Gross profit
Sales

P2,720,000
380,000
(418,000)
P2,682,000
962,000
P3,644,000

18

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
4-5.

(MANDALAY COMPANY)
Let x = cost of sales
.30x = .18 sales
x = .18/.30 sales
x = .60 sales
Therefore, 100% - 60% - 18% - 12% = 10%
Sales = 280,000/10%; Sales = 2,800,000
Cost of sales = 60% x 2,800,000 = 1,680,000
Income tax is ignored.

4-6.

(EXCALIBUR PRODUCTS)
Excalibur Products
Income Statement
For the Year Ended December 31, 2012
Sales
Cost of sales
Beginning inventory
Purchases
Ending inventory
Gross profit
Selling expenses
General and administrative expenses
Profit before income tax
Income tax
Profit

P895,000
P126,000
466,250
(189,500)

(402,750)
P492,250
(161,100)
(128,880)
P202,270
(60,681)
P141,589

4-7. (LUXOR COMPANY)

Requirement a (nature of expense method)
Luxor Company
Statement of Comprehensive Income
For Year Ended December 31, 2012
Note
PROFIT OR LOSS
Net sales revenue
Rent revenue
Total revenues
Operating Expenses
Net purchases
Increase in inventory
Delivery expense
Advertising expense
Salaries and commissions
Depreciation expense
Supplies expense
Bad debts expense
Insurance and taxes
Other operating expenses
Total Operating Expenses

(11)

P3,359,000
105,000
P3.464.000

(12)
(13)

1,762,000
(105,000)
77,000
170,000
502,000
241,000
75,000
27,000
85,000
170,000
3,004,000

(14)
(15)
(16)
(17)

19

Total

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
Profit from Operations
Interest expense
Profit before income tax from continuing operations
Income tax expense
Profit from continuing operations
Discontinued operations, net of tax
(18)
Profit
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through other
comprehensive income, net of P24,000 income tax
Actuarial Gains Taken to Equity, net of P12,000 income
tax
Total Other Comprehensive Income
TOTAL COMPREHENSIVE INCOME

P460,000
( 37,000)
P423,000
126,900
P296,100
(245,000)
P 51,100

P 56,000
28,000
P 84,000
P135,100

Notes to Financial Statements (after presenting notes for basis of presentation and
summary of significant accounting policies)
Note11 Net sales revenue
Sales
Less sales discounts
Sales returns and allowances
Net sales revenue

P3,529,000
P 49,000
121,000

Note 12 Net purchases

Purchases
Add freight-in
Total
Less purchase discounts
Purchase returns and allowances
Net purchases

170,000
P3,359,000

P1,730,000
135,000
P1,865,000
P41,000
62,000

103,000
P1,762,000

Note 13 Increase in inventory

Inventory, December 31
Inventory, January 1
Increase in inventory

P446,000
341,000
P105,000

Note 14 Salaries and commissions

Sales commissions and salaries
Office salaries
Total salaries and commissions

P182,000
320,000
P502,000

Note 15 Depreciation expense

Depreciation Buildings and office equipment
Depreciation Store equipment
Total depreciation expense

P145,000
96,000
P241,000

Note 16 Supplies expense

Store supplies expense
Office supplies expense
Total supplies expense

P56,000
19,000
P75,000

20

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
Note 17 Other operating expenses
Loss on sale of equipment
Loss from typhoon
Total other operating expenses

P 50,000
120,000
P170,000

Note 18 Discontinued Operations

Revenues
Expenses
Profit (loss) before income tax
Income tax benefit
Profit (loss) from operations of discontinued operations
Loss on sale of assets, net of tax benefit of P60,000
Discontinued Operations

P 900,000
(1,050,000)
P (150,000)
45,000
P (105,000)
(140,000)
P (245,000)

(function of expense method)

Luxor Company
Statement of Comprehensive Income
For Year Ended December 31, 2012
Net sales revenue
Cost of goods sold
Gross profit
Other Operating Income
Rent Revenue
Total Income
Operating Expenses
Selling Expenses
General and Administrative Expenses
Other Operating Expenses
Total Operating Expenses
Profit from Operations
Interest expense
Profit before income tax from continuing operations
Income tax expense
Profit from continuing operations
Discontinued operations, net of tax
Profit
OTHER COMPREHENSIVE INCOME
Unrealized Gains on Investments at fair value through
other comprehensive income, net of P24,000 income
tax
Actuarial Gains Taken to Equity, net of P12,000 income
tax
Total Other Comprehensive Income
TOTAL COMPREHENSIVE INCOME

Note
(11)
(12)

Total
P3,359,000
1,657,000
P1,702,000
105,000
P 1,807,000

(12)
(13)
(14)

(18)

P581,000
596,000
170,000
P1,347,000
P460,000
( 37,000)
P423,000
126,900
P296,100
(245,000)
P 51,100

P 56,000
28,000
P 84,000
P135,100

Notes to Financial Statements (after presenting notes for basis of presentation and summary
of significant accounting policies)

21

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
Note 11 Net sales revenue
Sales
Less sales discounts
Sales returns and allowances
Net sales revenue

P3,529,000
P 49,000
121,000

Note 12 Cost of goods sold

Inventory, January 1
Purchases
Add freight-in
Total
Less purchase discounts
Purchase returns and allowances
Cost of goods available for sale
Less Inventory, December 31
Cost of goods sold

170,000
P3,359,000
P341,000

P1,730,000
135,000
P1,865,000
(41,000)
(62,000)

1,762,000
P2,103,000
446,000
P1,657,000

Note 13 Selling expenses

Sales commissions and salaries
Store supplies expense
Delivery expense
Advertising expense
Depreciation expense store equipment
Total selling expenses

P182,000
135,000
77,000
170,000
96,000
P581,000

Note 14 General and Administrative expenses

Bad debts expense
Office supplies expense
Insurance and taxes
Office salaries
Depreciation buildings and office equipment
Total administrative expenses

P27,000
19,000
85,000
320,000
145,000
P596,000

Note 15 Other operating expenses (continuing operations)

Loss on sale of equipment
Loss from typhoon
Total other operating expenses

P 50,000
120,000
P170,000

Note 16 Discontinued Operations

Revenues
Expenses
Profit (loss) before income tax
Income tax benefit
Profit (loss) from operations of discontinued operations
Loss on sale of assets, net of tax benefit of P60,000
Discontinued Operations

22

P 900,000
(1,050,000)
P (150,000)
45,000
P (105,000)
(140,000)
P (245,000)

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
Requirement b
Luxor Company
Statement of Changes in Equity
For the Year Ended December 31, 2012
Ordinary
Share
Reserves
Balances, January 1
P700,000 P660,000
Correction of prior years income due to
understated depreciation, net of
P54,000 income tax
Restated balances, January
P700,000 P660,000
Issuance of ordinary shares
100,000
40,000
Comprehensive Income
84,000
Dividends declared
Balances, December 31
P800,000 P784,000

Retained
Earnings
P1,785,000
(126,000)
P1,659,000
51,100
(60,000)
P1,650,100

Total
P3,145,000
(126,000)
P3,019,000
140,000
135,100
(60,000)
P3,234,100

Reserves at January 1 included the share premium (P610,000) and unrealized gain on investments
carried at fair value through OCI (P50,000). The amounts may be reported in separate columns.
4-8.

(TRUMP COMPANY)
a.
Revenues
Selling and Administrative Expenses
Disposal costs
Operating Profit (Loss) before income tax
Income tax benefit
Operating Profit (loss)

P5,000,000
5,080,000
(75,000)
P(155,000)
46,500
P(108,500)

Fair value less cost to sell is P830,000 (980,000 150,000) which is greater than the
carrying amount of P800,000.
b.
Revenues
Selling and Administrative Expenses
Disposal costs
Operating Profit (Loss) before income tax
Income tax benefit
Operating Profit (loss)
Loss from measurement to NRV, net of income tax
benefit of P54,000
Discontinued Operations

P5,000,000
5,080,000
(75,000)
P(155,000)
46,500
P(108,500)
(126,000)
P(234,500)

Fair value less cost to sell is P620,000 which is P180,000 lower than the carrying amount
of P800,000, which is reported as loss from measurement to NRV.

23

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
4-9. (CAESARS PALACE COMPANY)
Caesars Palace Company
Statement of Changes in Equity
For the Years Ended December 31, 2012 and 2011

January 1, 2011, balances as previously reported

Prior period adjustment
2010 expense charged erroneously to Equipment,
net of income tax of P24,000
January 1, 2011 balances, as restated
2011 Changes
Profit
Dividends
Balances, December 31, 2011
2012 Changes
Profit
Dividends
Balances, December 31, 2012

Share
Capital
P2,000,000

Retained
Earnings
P1,500,000

Total
P3,500,000

P2,000,000

(56,000)
P1,444,000

(56,000)
P3,444,000

P2,000,000

514,000*
(200,000)
P1,758,000

514,000
(200,000)
P3,758,000

P2,000,000

750,000
(500,000)
P2,008,000

750,000
(500,000)
P4,008,000

Note: The solution above disregards the effect of income tax.

2011 Restated profit = P500,000 + depreciation erroneously recognized (20,000 x 70%).

4-10.

(TUSCANY COMPANY)
Tuscany Company
Comparative Income Statements
For the Years Ended December 31, 2012 and 2011
2012
P3,000,000
(1,420,000)
1,580,000
(350,000)
(260,000)
P970,000
(291,000)
P 679,000

Sales
Cost of goods sold
Gross profit
Selling expenses
General and administrative expenses
Profit before income tax
Income tax
Profit
Ending inventory, 2011, as reported
Cost of goods sold, as reported in 2011
Goods available for sale
Beginning inventory, as reported in 2011
Purchases in 2011

P 355,000
1,140,000
P1,495,000
250,000
P1,245,000

Purchases
P1,245,000
Inventory, beg (weighted average)
210,000
Inventory, end (weighted average)
(312,000)
Restated Cost of sales in 2011, weighted average P1,143,000

24

2011
P2,540,000
(1,143,000)
1,397,000
(210,000)
(220,000)
P967,000
(290,100)
P 676,900

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
Tuscany Company
Statement of Changes in Equity
For the Years Ended December 31, 2012 and 2011
Share
Capital
P1,000,000

Retained
Earnings
P 600,000

Total
January 1, 2011, balances as previously reported
P1,600,000
Cumulative effect of changing from FIFO to weighted
average method of inventory costing, net of income
tax of P12,000*
(28,000)
(28,000)
January 1, 2011 balances, as restated
P1,000,000
P572,000
P1,572,000
2011 Changes
Profit
676,900
676,900
Dividends
(400,000)
(400,000)
December 31, 2011 balances
P1,000,000
P848,900
P1,848,900
2012 Transactions
Profit
679,000
679,000
Balances, December 31, 2012
P1,000,000
P1,527,900
P2,527,900
* based on 30% income tax rate
Cumulative effect shown on the statement of changes in equity
Difference in beginning inventory of 2011 (250,000-210,000)
P40,000
Applicable tax (30% x 40,000)
12,000
Net adjustment (deduction) from retained earnings, January 1, 2011
P28,000
The cumulative effect, however, is taken up in the books during 2012, when the change was
decided upon by the management. The following 2012 entry: is made:
Retained earnings
30,100
Income tax payable
12,900
Inventory, beginning (or cost of sales)
43,000
Thus, the retained earnings at December 31, 2012 is P879,000 - 30,100 + 679,000 = P1,527,900.
4-11. (RIVIERA COMPANY)
Riviera Company
Comparative Statement of Comprehensive Income
For Year Ended December 31, 2012 and 2011
(In million pesos)

Revenue
Raw materials and consumables used
Employee benefit expense
Depreciation and amortization
Other expenses
Income from operations
Finance costs
Profit before income tax
Income tax expense
Profit for the year
Other comprehensive income
Unrealized gains (losses) on investments measured at fair
value through other comprehensive income, net of
applicable tax
Total comprehensive income

25

2012
P2,000
(850)
(100)
(40)
(2)
P1,008
(4)
P1,004
(301.2)
P702.8

2011
P1,800
(745)
(95)
(40)
(3)
P917
(5)
P912
(273.6)
P638.4

.56
P703.36

(.84)
P637.56

Chapter 4 The Statement of Comprehensive Income

and the Statement of Changes in Equity
MULTIPLE CHOICE
Theory
MC1
MC2
MC3
MC4
MC5
MC6

D
C
D
A
A
B

Problems
MC25 D
MC26

MC27

MC28
MC29
MC30
MC31
MC32

A
A
D
B
B

MC33
MC34
MC35
MC36
MC37
MC38
MC39
MC40
MC41

C
C
B
C
C
B
D
B
D

MC42

MC43
MC44
MC45

D
C
B

MC46
MC47
MC48
MC49
MC50
MC51

D
D
C
B
A
B

MC52

MC7
MC8
MC9
MC10
MC11
MC12

A
A
A
D
D
B

MC13
MC14
MC15
MC16
MC17
MC18

B
B
A
D
B
D

MC19
MC20
MC21
MC22
MC23
MC24

B
B
B
D
C
C

210,000 50,000 = 160,000; 260,000 60,000 = 200,000

200,000 160,000 = 40,000 + 12,000 50,000 = 78,000 LOSS
225,000 + 100,000 + 10,000 + 15,000 = 350,000;
150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000
350,000 335,000 = 15,000 + 25,000 125,000 = 85,000 LOSS
21,000+25,00010,000+70,000+5,000(5,000 x 8)+15,00050,0001,000
20,000=15,000
150,000 + 80,000 + (220,000 x ) + 140,000 = 480,000
170,000 + (240,000 x ) = 290,000
150,000 x 8 = 1,200,000 + 80,000 = 1,280,000
272,000 + 36,000 41,600 = 266,400 + 76,800 = 343,200
.125/.25 = .50; 100% - 50% - 12.5% - 17.5% - 5% = 15%
750,000/15% = 5,000,000 x 50% = 2,500,000
5,800,000(4,800,000+650,000550,000)=900,000(7.5%,x900,000)=532,500
.15/.25=60%; 100%-60%-10% - 15% - 3% = 12%; 480,000/12% = 4.0M
1,080000/80% = 1,350,000/90% = 1,500,000 x 30% = 450,000
3,500,000/70% = 5,000,000
5M-3.5M=1.5M (60% x 1.5M) = 600,000
3,500,000 500,000 = 3,000,000
600,000+900,000 1,000,000 = 500,000
P1,550,000 P1,100,000 = 450,000
450,000 + 600,000 250,000 = 800,000;
ending inventory before write off is P100,000 + 150,000 = 250,000
5,000,000 + 28,000 + 520,000 280,000 500,000 720,000 110,000 + 16,000
+ 100,000400,000+55,00070,00050,00080,000 120,000 450,000 = 419,000
500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000
450,000 + 2,800,000 + 80,000 520,000 = 2,810,000
Cost of sales = 20/50 = 40%
100%-40% = 60% - 20%-5% = 35% Profit before tax
2,450,000/70% = 3.5M; 3.5M/35% = 10M;10M x 40% = 4M CGS x 130%=5.2M
2,000,000 + 100,000 2,100,000 = 0
0 + gain of P1,000,000 on disposal income tax of P300,000 = 700,000
(3,500,000 500,000) x 70% = 2,100,000

(360,000 320,000) x 70% = P28,000

400,000 84,000 + 40,000 4,000 280,000 = 72,000; 72,000 x 70% = 50,400
Total profit = P50,400 + (40,000 x 70%) =78,400
1,600,000 + (16,000 x 70%) (24,000 x 70% )+ 78,400 ) 12,000 = P1,660,800
400,000 84,000 + 40,000 4,000 280,000 + 40,000 = 112,000
112,000 x 70% = 78,400

26