Chatto Interim Financial Reporting

Name: JULLIE CARMELLE H.
CHATTO
Date: April 07, 2021
Subject: ACCTG 5aN
Time: 4:30-5:30 PM
Email: [email protected]
Email Subject: INTERIM FINANCIAL REPORTING
PROBLEM 1
Snider Company is preparing interim financial statements for the first quarter ended March 31.
Expenses in the first quarter totaled P4,000,000 of which 25% was variable.
The fixed expenses included television advertising expense of P1,600,000 representing air time
to be incurred evenly during the current year and depreciation expense of P600,000 for the year
for an equipment that was available for use on January 1.
What amount should be reported as total expenses for the first quarter ended March 31?
a. 4,000,000
b. 2,800,000
c. 4,150,000
d. 2,350,000
ANSWER: 2, 550,000
SOLUTION:
Variable Expense (P 4,000,000.00 x 25%) P 1,000,000.00

Fixed Expenses [(P 4,000,000.00 x 75%) –
800,000.00
1,600,000.00 – 600,000.00]
Television Advertising Expense (1st quarter)
400,000.00
(P 1,600,000.00 / 4)
Depreciation (January 1 to March 31)
150,000.00
(P 600,000.00 x 3/12)
st
Total expenses (1 quarter) P 2,350,000.00
Name: JULLIE CARMELLE H. CHATTO
Subject: ACCTG 5aN
Time: 4:30-5:30 PM
PROBLEM 2
At the beginning of current year, Builder Company entered into a P20,000,000 long-term fixed
price contract to construct a factory building.
The entity accounted for this contract under the percentage of completion at the end of each
quarter for the current year.
Quarter Percentage of completion Estimated cost
1 10% 15,000,000
2 10% 15,000,000
3 25% 19,200,000
4 25% 19,200,000
No work was performed in the second and fourth quarters.
1. What amount of income should be reported in the first quarter?

a. 2,000,000
b. 200,000
c. 500,000
d. 0
ANSWER: c. 500,000
SOLUTION:
Long-term fixed price P 20,000,000.00

Less: Estimated cost 15,000,000.00
Gross income-1st quarter P 5,000,000.00
x percentage of completion 10%
Income reported in 1st quarter P 500,000.00
2. What amount of income should be reported in the second quarter?

a. 500,000
b. 250,000
c. 750,000
d. 0
ANSWER: d. 0
SOLUTION:
No work performed in the second quarter.
3. What amount of income or loss should be reported in the third quarter?
a. 200,000 income
b. 200,000 loss
c. 300,000 income
d. 300,000 loss
ANSWER: d. 300,000 loss

SOLUTION:
Long-term fixed price P 20,000,000.00

Less: Estimated cost 19,200,000.00
Gross income- 3rd quarter P 800,000.00
x percentage of completion 25%
Cumulative income P 200,000.00
Less: Income reported in 1st quarter 500,000.00
Loss reported in 3rd quarter (P 300,000.00)
4. What amount of income should be reported in the fourth quarter?

a. 800,000
b. 400,000
c. 200,000
d. 0
ANSWER: d. 0
SOLUTION:
No work performed in the fourth quarter.
Subject: ACCTG 5aN
Time: 4:30-5:30 PM
PROBLEM 3
Kell Company reported P950,000 net income for the quarter ended September 30, 2018 which
included the following after tax items:
 A P600,000 expropriation gain, realized on April 30, 2018, was allocated equally to the
second, third, and fourth quarters of 2018.
 A P150,000 cumulative-effect loss resulting from a change in inventory valuation method
was recognized on August 1, 2018.
In addition, the entity paid P480,000 on February 1, 2018, for 2018 calendar-year property taxes.
Of this amount, P120,000 was allocated to the third quarter of 2018.
For the quarter ended September 30, 2018, what amount should be reported as net income?
a. 1,100,000
b. 1,020,000
c. 950,000
d. 900,000
ANSWER: d. 900,000
SOLUTION:
Net income – September 30, 2018 P 950,000.00
Expropriation Gain (P 600,000.00 / 3) (200,000.00)
Balance for 1st quarter P 750,000.00
Cumulative-Effect Loss Recognized 150,000.00
Adjusted Net Income – September 30, 2019 P 900,000.00

Subject: ACCTG 5aN
Time: 4:30-5:30 PM
PROBLEM 4
Davao Company prepares quarterly interim financial reports. The entity sells electrical goods
and normally 5% of customers claim on their warranty.
The provision in the first quarter was calculated at 5% of sales to date which amounted to
P10,000,000.
However, in the second quarter, a design fault was found and warranty claims were expected to
be 10% for the whole year. Sales for the second quarter amounted to P15,000,000.
1. What amount of provision should be charged in the interim income statement for the first
quarter?
a. 1,000,000
b. 750,000
c. 500,000
d. 250,000
ANWER:
SOLUTION:
2. What amount of provision should be charged in the interim income statement for the second
quarter?
a. 2,000,000
b. 1,250,000
c. 1,500,000
d. 750,000
ANSWER: a. 2,000,000
SOLUTION:
Sales
1st quarter P 10,000,000
2nd quarter 15,000,000
Total sales P 25,000,000
Multiplied by: 10%
Total Warranty P 2,500,000
Less: Warranty recognition in 1st quarter
(P 10,000,000 x 5%) 500,000
Warranty expense for 2nd quarter P 2,000,000

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Name: JULLIE CARMELLE H.

Variable Expense (P 4,000,000.00 x 25%) P 1,000,000.00

No work was performed in the second and fourth quarters.

1. What amount of income should be reported in the first quarter?

Long-term fixed price P 20,000,000.00

2. What amount of income should be reported in the second quarter?

ANSWER: d. 300,000 loss

Long-term fixed price P 20,000,000.00

4. What amount of income should be reported in the fourth quarter?

Net income – September 30, 2018 P 950,000.00

Expropriation Gain (P 600,000.00 / 3) (200,000.00)

Balance for 1st quarter P 750,000.00

Cumulative-Effect Loss Recognized 150,000.00

Adjusted Net Income – September 30, 2019 P 900,000.00

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