Problem 1 TRUEor FALSE

1 1 6 1
2 0 7 1
3 1 8 0
4 0 9 1
5 1 10 0

Problem 2 CLASSROOM DISCUSSION

1 A 4 C
2 C 5 C
3 C 6 D

7 Requirement (a):
Morning Co.
Statement of Financial Position
As of December 31, 20x1
ASSETS Notes
Current Assets
Cash and cash equivalents 6 ₱ 1,060,000
Trade and other receivables 7 1,770,000
Inventories 1,200,000
Held for trading securities 800,000
Total current assets ₱ 4,830,000
Noncurrent Assets
Investment in FVOCI securities ₱ 300,000
Investment property 900,000
Property, plant and equipment 8 4,900,000
Total noncurrent assets ₱ 6,100,000

TOTAL ASSETS ₱ 10,930,000

LIABILITIES AND EQUITY

Current Liabilities
Trade and other payables 9 ₱ 1,140,000
Income tax payable 500,000
Provisions 430,000
Total current liabilities ₱ 2,070,000
Noncurrent Liabilities
Loans payable - net 10 ₱ 2,260,000
Deferred tax liability 300,000
Total noncurrent liabilities ₱ 2,560,000
TOTAL LIABILTIES ₱ 4,630,000
Equity
 Ordinary share capital ₱ 4,000,000
Share premium 600,000
Retained earnings 1,640,000
Other components of equity 11 60,000
Total Equity ₱ 6,300,000
TOTAL LIABILTIES and EQUITY ₱ 10,930,000 ₱ -

7 Requirement (b):

Note 6: Cash and cash equivalents

This line item consists of the following:
Cash on hand ₱ 60,000
Cash in bank 1,000,000
Total Cash and cash equivalents ₱ 1,060,000
Note 7:Trade and other receivables
This line item consists of the following:
Accounts receivable ₱ 2,000,000
Allowance for doubtful accounts (300,000)
Advances to employees 40,000
Advances to suppliers 30,000
Total Trade and other receivables 1,770,000
Note 8: Property, plant and equipment
This line item consists of the following:
Land ₱ 2,200,000
Building 3,400,000
Accumulated depreciation - Bldg. (700,000)
Total Property, plant and equipment ₱ 4,900,000
Note 9: Trade and other payables
This line item consists of the following:
Accounts payable ₱ 720,000
Accrued liabilities 80,000
Interest payable 340,000
Total Trade and other payables ₱ 1,140,000
Note 10: Loans payable - net
This line item consists of the following:
Loans payable ₱ 3,000,000
Discount on loan payable (740,000)
Total Loans payable - net ₱ 2,260,000
Note 11: Other components of equity
This line item consists of the following:
Revaluation surplus ₱ 90,000
Translation loss on foreign operation (30,000)
 Other components of equity ₱ 60,000

Problem 3 EXERCISE

Requirement (a): Evening Co.

Statement of Financial Position
As of December 31, 20x1
ASSETS Notes
Current Assets
Cash and cash equivalents 6 ₱ 1,100,000
Trade and other receivables 7 1,770,000
Inventories 200,000
Total current assets ₱ 3,070,000

Noncurrent Assets
Biological assets ₱ 1,200,000
Investment property 900,000
Property, plant and equipment 8 4,400,000
Intangible assets 9 560,000
Other noncurrent assets 10 800,000
Total noncurrent assets ₱ 7,860,000
TOTAL ASSETS ₱ 10,930,000

LIABILITIES AND EQUITY

Current Liabilities

Trade and other payables 11 ₱ 920,000

Loans payable - net 12 1,760,000
Provisions 430,000
Total current liabilities ₱ 3,110,000
Noncurrent Liabilities
Defined benefit liability - net 13 ₱ 1,700,000
Total noncurrent liabilities ₱ 1,700,000

TOTAL LIABILTIES ₱ 4,810,000

Equity
Ordinary share capital ₱ 4,000,000
Share premium 14 970,000
Retained earnings 15 1,220,000
Other coponents of equity 30,000
Treasury shares (100,000)
Total Equity ₱ 6,120,000

TOTAL LIABILTIES and EQUITY ₱ 10,930,000 ₱ -

Requirement (b):
Note 6: Cash and cash equivalents

This line item consists of the following:

Cash on hand ₱ 120,000

Cash in bank 980,000
Total Cash and cash equivalents ₱ 1,100,000

Note 7:Trade and other receivables

This line item consists of the following:

Accounts receivable ₱ 2,000,000

Allowance for doubtful accounts (300,000)
Advances to employees 40,000
Advances to suppliers 30,000
Total Trade and other receivables 1,770,000

Note 8: Property, plant and equipment

This line item consists of the following:

Land ₱ 1,200,000
Building 4,800,000
Accumulated depreciation - Bldg. (1,600,000)
Total Property, plant and equipment ₱ 4,400,000

Note 9: Intangible assets

This line item consists of the following:

Patent ₱ 440,000
Accumulated amortization - Patent (80,000)
Web site costs 250,000
Accumulated amortization -Web site (50,000)
Total intangible assets ₱ 560,000

Note 10: Other noncurrent assets

This line item consists of the following:

Advances to officers ₱ 130,000

Advances to affilliates 670,000
Total Other noncurrent assets ₱ 800,000

Note 11: Trade and other payables

This line item consists of the following:

Accounts payable ₱ 720,000

Utility payables 80,000
Deposit liability for returnable containers 120,000
Total Trade and other payables ₱ 920,000

Note 12: Loans payable - net

This line item consists of the following:

 Loans payable ₱ 2,500,000
Discount on loan payable (740,000)
Loans payable - net ₱ 1,760,000

Note 13: Defined benefit liability - net

This line item consists of the following:

Present value of defined benefit obligation ₱ 2,700,000

Fair value of plan assets (1,000,000)
Defined benefit liability - net ₱ 1,700,000

Note 14: Share premium

This line item consists of the following:

Share premium ₱ 600,000

Share premium - Share warrants outstanding ₱ 300,000
Share premium - Treasury shares 70,000
Defined benefit liability - net ₱ 970,000

Note 15: Retained earnings

This line item consists of the following:

Loans payable ₱ 1,030,000

Discount on loan payable 190,000
Total share premium ₱ 1,220,000

Problem 5 MULTIPLE CHOICE - THEORY

1 D 9 B
2 C 10 B
3 C 11 D
4 B 12 C
5 B 13 C
6 D 14 A
7 A 15 C
8 B

Problem 4 CLASSROOM ACTIVITY

Problem 6 MULTIPLE CHOICE - COMPUTATIONAL

Problem 1 TRUEor FALSE
1 0
2 0
3 1
4 0
5 0

Problem 2 CLASSROOM DISCUSSION

1 C 4 D
2 D 5 D
3 D 6 B
7 Requirement (a):

Lunch Co.
Statement of Profit or Loss and Other Comprehensive Income
For the Year Ended December 31, 20x1
Notes
Sales ₱ 22,000,000
Cost of goods sold 12 (6,000,000)
Gross profit ₱ 16,000,000

Distribution costs 13 (2,230,000)

Administrative expenses 14 (3,050,000)
Impairment loss on financial assets (190,000)
Finance costs (340,000)
Profit before tax ₱ 10,190,000
Income tax expense (2,000,000)
Profit for the year ₱ 8,190,000
Other comprehensive income
Items that will not be reclassified subsequently:
Investment in equity instruments 200,000
Items that may be reclassified subsequently to profit or loss:
Cash flow hedges 30,000
Other comprehensive income for the year -net of tax ₱ 230,000
TOTAL COMPREHENSIVE INCOME FOR THE YEAR ₱ 8,420,000

7 Requirement (b):
Note 12: Cost of Goods Sold
This line item consists of the following:
Beginning inventory ₱ 1,700,000
Purchases 5,600,000
Purchase returns (500,000)
Freight in 400,000
Total goods available for sale ₱ 7,200,000
Ending inventory (1,200,000)
 Cost of goods sold ₱ 6,000,000
Note 13: Distribution Costs
This line item consists of the following:
Salaries of sales personnel ₱ 670,000
Advertising expense 320,000
Rent expense (280,000 x ½) 140,000
Commission expense 1,100,000
Distribution Costs ₱ 2,230,000
Note 14: Administrative Expenses
This line item consists of the following:
Research and development expense ₱ 180,000
Directors' remuneration 2,000,000
Salaries of administrative personnel 520,000
Rent expense 140,000
Depreciation expense 160,000
Insurance expense 50,000
Administrative Expenses ₱ 3,050,000

Problem 5 MULTIPLE CHOICE - THEORY

1 D 6 C
2 D 7 S
3 A 8 D
4 B 9 B
5 C 10 B

Problem 6 MULTIPLE CHOICE - COMPUTATIONAL

P25,000 gross of tax – 10,000 tax effect = P 15,000 net of tax
D reclassification adjustment
1
Reclassification adjustment of cumulative unrealized gains (losses) on
FVOCI securities is prohibited. The cumulative unrealized gains (losses)
A on FVOCI securities are transferred directly in equity when the FVOCI
securities are derecognized.
2

3 A
Actuarial gain or loss on defined benefit plan ₱ (6,000)
Unrealized gain on FVOCI securities 30,000
Reclassification adjustment for cumulative gain
on translation of foreign operation included in
profit or loss (5,000)
Profit for the year 154,000
Total comprehensive income ₱ 173,000

4 C (P146,000 less 15,0000 plus 9,000 = P140,000)

5 A (P250,000 plus 140,000 less 80,000 = P310,000)

6 A
Cost of sales ₱ 240,000
 Finished goods December 31, 20x1 360,000
Finished goods January1, 20x1 (400,000)
Cost of goods manaufactured ₱ 200,000

7 A
Sales ₱ 575,000
Interest revenue 25,000
Cost of sales (240,000)
Sales commissions (50,000)
Freight out (15,000)
Administrative expenses (70,000)
Loss on sale of equipment (10,000)
Loss on early retirement of lont-term debt (20,000)
Uncollectible accounts (15,000)
Income before tax ₱ 180,000
Income tax expense (54,000)
Income after tax from continuing operation ₱ 126,000

8 A
Advertising ₱ 150,000
Freight-out 80,000
Rent for office space (220,000 x 1/2) 110000
Sales salaries and commissions 140000
Total selling expenses ₱ 480,000

9 A
Accounting and legal fees ₱ 25,000
Officers' salaries 150,000
Insurance 85000
Total selling expenses ₱ 260,000

Problem 4 CLASSROOM ACTIVITIES

ACTIVITY #1 Requirement (a):

Best Friends Co.

Adjusting/Correcting Entries
For the Year Ended December 31, 20x1

Debit
a Inventory - end ₱ 386,000
Income Summary
(P370,000 plus [(370K/7.4M) times 320K]

b Loss on inventory writedown 116,000

Inventory - end
(P386,000 less 270,0000)

c Bad debts expense 50,000

Allowance for bad debts

Allowance for bad debts - beginning ₱ 280,000

Recoveries 28,000
 Write-offs (120,000)
Allowance for bad debts before adjustments ₱ 188,000
Required allowance (5% times P4,760,000) 238,000
Bad debts expense ₱ 50,000

d Loss on reclasification 200,000

Held for trading securities
(P1,000,000 less 800,000)

d1 Held for trading securities 180,000

Unrealized gain
(P980,000 less 800,000)

e Income tax expense 1,572,000

Income tax payable

ACTIVITY #1 Requirement (b):

Best Friends Co.

Statement of Profit or Loss and Other Comprehensive Income
For the Year Ended December 31, 20x1

Notes

Sales ₱ 22,800,000
Cost of goods sold 12 (9,664,000)
Gross profit ₱ 13,136,000
Distribution costs 13 (1,470,000)
Administrative expenses (6,400,000)
Gain on impairment recovery of property, plant and equipment 720,000
Loss on inventory write-down (116,000)
Bad debts expense (50,000)
Reclassification of financial asset (200,000)
Unrealized gains on financial assets 180,000
Finance costs (560,000)
Profit before tax ₱ 5,240,000
Income tax expense (1,572,000)
Profit for the year ₱ 3,668,000
Other comprehensive income
Items that will not be reclassified subsequently:
Revaluation increased during the period ₱ 130,000
Items that may be reclassified subsequently to profit or loss:
Other comprehensive income for the year - net of tax ₱ 130,000

TOTAL COMPREHENSIVE INCOME FOR THE YEAR ₱ 3,798,000

Supporting coputations

Note 12: Cost of Goods Sold

This line item consists of the following:

Beginning inventory ₱ 3,000,000

Purchases 7,400,000
 Purchase returns (670,000)
Freight in 320,000
Total goods available for sale ₱ 10,050,000
Ending inventory (386,000)
Cost of goods sold ₱ 9,664,000

Note 13: Distribution Costs

This line item consists of the following:

Salaries of sales personnel ₱ 670,000

Advertising expense 320,000
Sales commissions 480,000
Distribution Costs ₱ 1,470,000

ACTIVITY #2 Requirement (a):

Buddies Co.
Adjusting/Correcting Entries
For the Year Ended December 31, 20x1
Debit
a Investment in bonds ₱ 150,000
Gain on derecognition of financial asset
(P950,000 less 800,000)
b Unrealized loss 300,000
Biological Assets
[P2,800,000 less (2,640,000-140,000)]
c Investment in associate 46,000
Dividend income 90,000
Share in the profit of associate
Share in revaluation increase
Share in profit - [P1,000,000 times 30% times 4/12] and Share
in revaluation increase - [P120,000 times 30%]

d Retirement benefit expense 588,000

Reameasurements to the net defined benefit liability (asset) 252,000
Defined benefit cost
Retirement benefit expense - (P336,000 plus 252,000)
e Income tax expense 1,104,600
Income tax payable
ACTIVITY #2 Requirement (b):

Buddies Co.
Statement of Profit or Loss and Other Comprehensive Income
For the Year Ended December 31, 20x1

Revenue from service fees

Contract costs
Employee benefits
Advertising expense
Gain on derecognition of financial asset measured at cost
Unrealized losses on biological assets
Share in profit of associate
Retirement benefits expense
Profit before tax
Income tax expense
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently:
Share in revaluation increase of associate
Remeasurements to net defined benefit liability (asset)
Items that may be reclassified subsequently to profit or loss:
Other comprehensive income for the year, net of tax

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

TB drs less TB crs
₱ 600,000

(420,000)
₱ 180,000
(54,000)
₱ 126,000

Credit

₱ 386,000

116,000

50,000
 200,000

180,000

1,572,000
 Credit

₱ 150,000

300,000

100,000
36,000

840,000

1,104,600

₱ 12,000,000
(4,000,000)
 (3,000,000)
(680,000)
150,000
(300,000)
100,000
(588,000)
₱ 3,682,000
(1,104,600)
₱ 2,577,400

₱ 36,000
(252,000)

₱ (216,000)

₱ 2,361,400