CHAPTER 3

Exercises
1. Coca Cola Liabilities $64.05
PepsiCo Assets $74.13
Dr. Pepper OE $ 2.13
Carlsberg OE $ 7.97
Coca Cola has the highest net worth.
2. Coca Cola 26.607%
Pepsico 15.108%
Dr Pepper 21.76%
Carlsberg 42.26%
Carlsberg is most solvent

3. Coca Cola owner’s equity $25.76 28.59% increase by 1.98%

PepsiCo Assets $69.67 17.12% increase by 2.015%
Dr. Pepper Liabilities $ 6.69 23.103% increase by 1.03%
Carlsberg OE $ 7.71 38.76% down by 3.497%
Carlsberg is still most solvent.

4. a. Owner’s equity P183,000

b. P1,409,000 – P1,189,000= Owner’s Equity P220,000
or increase in net assets by 37,000 in 2017 + 183,000 equity in 2016= owner’s equity in 2017 P220,000.

5. Financial Position:
Cash P 60,000 Accounts Payable P100,000
Accounts Receivable 10,000 Note Payable 250,000
Equipment (500-120) 380,000
Car 120,000 Blu, Capital ?220,000
P570,000 P570,000

Capital Beginning P150,000

?????? 70,000
Capital Ending P220,000
6. a. Capital increased by P70,000
b. Increase will represent additional investment.
c. Increase will represent net income.

7. Cash 120,000 Accounts Payable 360,000

Accounts Receivable 280,000 Loans Payable 400,000
Furniture & Fixtures 150,000 Total Liabilities P760,000
Equipment 500,000
Car 890,000
Supplies 10,000
Total Assets P1,950,000
Net Worth (1,950,000-760,000) P1,190,000

8. Total assets and liabilities will both increase by P50,000. No change in owner’s equity.

9. Assets and liabilities will both decrease by P40,000 but no effect on owner’s equity.

10 Assets and Owner|s equity will decrease by P50,000.

11.
A L OE
A +500,000 NA +500,000
B NA NA NA
C NA NA NA
D -350,000 NA NA
+350,000
E +120,000 +120,000 NA
f) -40,000 - 40,000 NA
g) -5,000
+5,000
12. a) No. Transaction b) car is not for the business and c) no exchange of value yet.
b) Transactions e) and f) following entity principle since this is a business liability.
c) Yes, also following the entity principle since the cash withdrawn belongs to the business and the owner
took it and bought supplies for the business. If supplies is intended for personal use, then the analysis will
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 be: -asset cash and – owner’equity April, Drawings

13.
Cash Office Office Furniture & Accounts Notes Vera,
Supplies Equipment Fixtures Payable Payable Capital
A P 105,000 P+ 15,000 + P 95,000 + P215,000
B - 25,000 + 50,000 25,000
C -1,500 +1,500
D - 750 -750
E -15,000 -15,000
F +100,000 +100,000

163,500 750 65,000 95,000 10,000 100,000 214,750

324,250= 110,000 + 214,750
14.
Date Cash Furn Equipt Supplies Leasehold Imp Dep for Rent Notes Pay De Jesus Captl
1) 350,000 350,000
10) (10,000) 10,000
15) (15,000) 15,000
(8,000) 8,000
(45,000) 45,000
20) (1,500) 1,500
25) (150,000) 300,000 150,000

120,500 8,000 345,000 1,500 15,000 10,000 150,000 P350,000

Assets P500,000 = Liabilities P150,000 + Owner's Equity P350,000

15. Assets = Liabilities + Owner’s Equity
Furn. Account Notes Kalaw, Capital
Feb. Cash Equipment Supplies & Fix. Payable Payable
05 150,000 150,000
09 ( 15,000) 15,000
16 ( 35,000) 105,000 70,000
20 6,000 6,000
22 ( 1,500) 1,500
25 8,000 8,000
28 ( 35,000) ______ _____ _____ (70,000) 35,000 ______
P 63,500 P111,000 P16,500 P8,000 14,000 P35,000 P150,000

b) P150,000 using the Entity Concept.

c) P6,000 using the Cost Principle

d) Straight & True Advertising

Balance Sheet
Feb. 28, 2018
Cash P 63,500 Accounts Payable 14,000
Supplies 16,500 Notes Payable 35,000
Equipment 111,000 Kalaw, Capital 150,000
Furniture & Fixtures 8,000 Total Liabilities & _______
Total Assets P199,000 Owner's Equity P199,000
16.
Furn. Accts Notes Loans Valdez,
Date Cash Supplies Lot & Fix. Bldg. Equipt Payable Payable Payable Capital
June 4 1,500,000 250,000 1,750,000
8 ( 915,000) 15,000 900,000
10 80,000 80,000
14 (2,000) ( 2,000)
15 2,500,000 2,500,000
17 ( 40,000) (40,000)
30 (1,200,000) 2,400,000 1,200,000
1,845,000 13,000 250,000 80,000 2,400,000 900,000 40,000 1,200,000 2,500,000 1,748,000

b. Entity Concept for June 4, 10, 14 and 30.

c. Jo’s Health Spa
Balance Sheet
June 30, 2018
Cash P 1,845,000 Accounts Payable P 40,000
Supplies 13,000 Notes Payable 1,200,000
Equipment 900,000 Loans Payable 2.500,000
Furniture & Fixtures 80,000 Total Liabilities P3,740,000
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 Land 250,000 Valdez, Capital 1,748,000
Building 2,400,000
Totals P 5,488,000 Total Liabilities * Owner’s E P5,488,000

17 a) Assets Liabilities Owner’s Equity

Notes Accounts Narvaez, Narvaez,
June Cash Supplies Equipment Furn. & Fix Car Payable Payable Capital Drawing
1 300,000 300,000
2 (50,000) 100,000 50,000
10 300,000 300,000
15 (100,000) 100,000
20 ( 25,000) 25,000
23 ( 75,000) 150,000 75,000
25 ( 500) (500)
30 ( 10,000) _____ ______ ______ ______ (10,000) ______ ____
40,000 24,500 400,000 100,000 200,000 40,000 75,000 P600,000 (500)

b) Cavite Day Care Center

Statement of Financial Position
April 30, 2015
Assets Liabilities & Owner’s Equity
Cash P 40,000 Notes Payable P 40,000
Supplies 24,500 Accounts Payable 75,000
Equipment 400,000 Narvaez, Capital 599,500
Furniture & Fixtures 100,000
Car 150,000 ______
Total P714,500 Total P714,500

18. a. Relevance and materiality prescribe that information must be pertinent and useful to statement users.
The waste basket, brooms, etc. should be immediately expensed as the amounts are not material to
warrant recognition as assets.
b. Understandability and disclosure prescribe that information must be presented in such a way that users
will be informed properly and completely so as to be able to come up with a correct judgment. Details
of the assets and liabilities should be disclosed either within the income statement or as footnotes.
c. Representational faithfulness dictates that this be recorded as owner’s drawing not business asset.
d. Relevance and timeliness
e. Understandability .
f. Comparability show figures also for the previous period to determine trend or progress
g. Cost and Going Concern
h. Representational faithfulness since it does not represent what it purports to be
19. a. Only business transactions under the Entity Principle should be recognized as assets of the business.
b. Unit of measure should be consistent expressed in Philippine peso.
c. Time Period assumption & IAS1 prescribes preparation of FS annually.
d. Entity prescribes separate financial statements. Or if combined, use segment reporting.
e. Materiality is violated.
f. Accrual is violated. Accrual relates to the time assets, liabilities, revenues and expenses must be
recognized and recorded.
g. Cost is violated since the amount paid is only P50,000. Also objectivity is also violated since the
supporting receipt will show the actual payment made.
Problems

1. a. P70,000 b. P80,000 c, Beg P40,000 and End P130,000

2. A. Assets = Liabilities + Owner’s Equity

6,150,000 2,650,000
1,500,000 1,500,000
( 750,000)
750,000
( 750,000) ( 750,000) ________
6,900,000 - 3,400,000 = 3,500,000

B. Assets = Liabilities + Owner’s Equity

2,200,000 1,050,000 1,150,000
700,000 300,000 400,000
2,900,000 1,350,000 1,550,000

C. Assets = Liabilities + Owner’s Equity

Beg. 1,380,000 660,000 720,000
During 800,000 (100,000) 900,000
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 End 2,180,000 = 560,000 + 1,620,000

3. a. Zobel invested cash of P500,000 and electronic equipment of P1,500,000.

b. Purchased supplies on account P15,000.
c. Purchased furniture and fixtures, P25,000. Terms: P5,000 down, balance with a note.
d. Additional investment in office equipment for P80,000.
e. Total cash paid P15,000 for the note P10,000 and for the account P5,000.
f. Zobel withdrew supplies worth P1,000 for personal use.
Assets P2,099,000 less Liabilities of P20,000= Owner’s Equity of P2,079,000.

4. Rent Furn. & Notes Accounts Eow,

Cash Supplies Deposit Equipment Fixtures Payable Payable Capital
May
1 500,000 500,000
2 (150,000) 150,000
3 68,500 68,500
4 ( 45,000) 245,000 200,000
8 ( 15,000) 15,000
10 ( 25,000) 50,000 25,000
19 ( 500) ( 500)
25 ( 25,000) (25,000)
30 (100,000) (100,.000)
139,500 15,000 150,000 313,500 50,000 0 100,000 568,000

Claire’s Step and Sway

Statement of Financial Position
May 31, 2013
Assets Liabilities & Owner’s Equity
Cash P139,500 Accounts Payable P 100,000
Supplies 15,000
Equipment 313,500 Eow, Capital 568,000
Furniture & Fixtures 50,000 1
Rent Deposit 150,000 ______
Total P668,000 Total P668,000

5. Lease Furniture Loans Notes Ocampo,

May Cash Equipment Right & Fixture Payable Payable Capital
1 500,000 500,000
2 250,000 250,000
9 ( 60,000) 200,000 140,000
10 ( 10,000) ( 10,000)
15 250,000 250,000
20 (215,000) 215,000
25 (130,000) (130,000)
95,000 215,000 190,000 250,000 0 250,000

Green Golf Lane

Statement of Financial Position
March 31, 2013
Assets Liabilities & Owner’s Equity
Cash P 95,000 Loans Payable P 250,000
Equipment 215,000
Furniture & Fixtures 190,000 Ocampo, Capital ___750,00
Lease Right 500,000
Total P1,000,000 Total P1,000,000

6.
Bersoza Playhouse
Statement of Financial Position
Sept 30, 2015
Cash P16,900 Accounts Payable 19,000
Accounts Receivable 7,200 Notes Payable 20,000
Props & Costumes 50,000 Salaries Payable 29,200
68,200
Capital 5,900
Total Assets P74,100 Total Liabilities & Capital P74,100

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 The business is unstable with liabilities of P68,200 vs. cash of P16,900 only plus receivable of P7,200.
Debt ratio is already very high (68,200/74,100) x 100= 92%
1. P5,000 is personal and should be excluded.
2. P125,000 is a violation of the accrual rule. It cannot be recognized immediately.
3. This should be recognized in full with a corresponding liability for the unpaid portion.
4. The P270,000 are expired costs to be recognized as expenses.
5. The automobile should be recognized at the purchase price.
6. Personal liability should be excluded.
7. a. substance over form is violated b. comparability is violated
c. reliability is violated d. reliability is violated, prudence dictates that liability should be
recognized.
8. a. Going concern and cost is violated. Should still be P830,000 and P750,000 not the installment price
b. Yes, following objectivity.
c. Yes, following unit of measure, all values should use one unit of measurement.
d. Yes, following the entity concept.
e. Yes, following cost and unit of measure principles. These information are not measurable values.

CASE STUDY

1. Cash 5,000 2. Cash Investment 50,000

Furniture & Fixtures 30,000 Less amount to be used as working fund 10,000
Equipment 60,000 Cash balance to be used to acquire assets 40,000
Supplies 5,000 Assets to be acquired:
Car 500,000 Furniture & Fixtures 30,000
P100,000 Equipment 60,000
The business Entity Concept Principle Supplies 5,000 95,000
was applied in recording the assets of Amount to be borrowed P55,000
the Eatery.

3. You stand for what is right and ethical and that is reporting what is true . Concealing this info is tantamount to
fraud which may catch up on you later. One fraud will lead to another. You are conniving with the president and
in the future it may roll into a bigger ball of fraud which you may not be able to escape. President will have a
hold on you and you may not be able to get out of this mess forever.