Chapter 2

Statement of Financial Position

Problem 2-1
Dilemma Company provided the following information on December 31, 2019:
Cash 800,000
Accounts receivable 750,000
Allowance for doubtful accounts 50,000
Prepaid expenses 160,000
Inventory 1,000,000
Financial asset at fair value 690,000
Land 500,000
Building in process 5,000,000
Patent 200,000
Machinery and equipment 1,500,000
Accumulated depreciation 300,000
Discount on bonds payable 200,000
Accounts payable 900,000
Accrued expenses 150,000
Note payable due July 1, 2021 250,000
Bonds payable 2,000,000
Share capital 3,000,000
Retained earnings 4,000,000
Retained earnings appropriated for contingencies 150,000
 The financial assets at fair value include Dilemma Company shares acquired at
cost of P250,000.
 The bonds pay 10% interest semiannually on April 1 and October 1 and mature
on April 1, 2022. No interest has been accrued on the bonds
 Forty thousand shares, P100 par, are authorized, of which 30,000 shares are
issued including 2,000 shares in the treasury
 The retained earnings appropriated balance of P150,000 was created in
anticipation for the result of a pending lawsuit

Shortly after the end of reporting period, the suit was amicably settled and the
entity paid P100,000
Required:
Prepare statement of financial position

Answer:
 Dilemma Company
Statement of Financial Position
December 31, 2019

ASSETS

Current assets: Note

Cash 800,000
Financial asset at fair value 440,000
Trade and other receivables (1) 700,000
Inventory 1,000,000
Prepaid expenses 160,000
Total current assets 3,100,000

Noncurrent assets:
Property, plant and equipment (2) 6,700,000
Intangible asset (3) 200,000
Total noncurrent assets 6,900,000
Total assets 10,000,000

EQUITY AND LIABILITIES

Current liabilities:
Trade and other payables (4) 1,200,000

Noncurrent liabilities:
Bonds payable (5) 1,800,000
Note payable to bank, due July 1, 2021 250,000
Total noncurrent liabilities 2,050,000

Shareholders’ equity:
Share capital, P100 par, 40,000 shares authorized
30,000 shares issued 3,000,000
Reserves (6) 250,000
Retained earnings (7) 3,750,000
Treasury shares, at cost, 2,000 shares ( 250,000)
Total shareholders’ equity 6,750,000
Total liabilities and shareholders’ equity 10,000,000

Note 1 - Trade and other receivables

Accounts receivable 750,000
Allowance for doubtful accounts ( 50,000)
Total 700,000

Note 2 - Property, plant and equipment

Cost Accum. depr. Book value

Land 500,000 - 500,000

Building in process 5,000,000 - 5,000,000
Machinery and equipment 1,500,000 300,000 1,200,000
Total 7,000,000 300,000 6,700,000

Note 3 - Intangible asset

Patent 200,000

Note 4 - Trade and other payables

Accounts payable 900,000

Accrued expenses 150,000
Accrued interest on bonds payable (2,000,000 x 10% x 3/12) 50,000
Liability for loss on lawsuit 100,000
Total 1,200,000

Note 5 - Bonds payable

Bonds payable 2,000,000

Discount on bonds payable ( 200,000)
1,800,000

Note 6 - Reserves

Retained earnings appropriated for treasury shares 250,000

Note 7 - Retained earnings

Unadjusted balance 4,000,000
Add: Cancelation of appropriation for contingencies 150,000
Total 4,150,000
Less: Interest accrued on bonds payable 50,000
Appropriated for treasury stock 250,000
Actual loss on lawsuit 100,000 400,000
Unappropriated retained earnings 3,750,000

Problem 2-2

Socorro Company provided the following information on December 31, 2019:

Current assets 3,100,000 Current liabilities 1,000,000

Other assets 5,900,000 long term liabilities 1,000,000
Capital 7,000,000

Cash (including P200,000 invested in money market and

Restricted foreign deposit of P300,000) 1,000,000
Land held for undetermined use 500,000
Accounts receivable less allowance of P50,000 700,000
Inventories 600,000
Socorro Corporation share capital, at cost 300,000

Total current assets 3,100,000

Store supplies 50,000

Building less allowance of P500,000 3,000,000
Equipment less allowance of P250,000 750,000
Financial asset at amortized cost 1,000,000
Trademark 300,000
Advances to officers-indefinite repayment 150,000
Patent 250,000
Land 400,000

Total other assets 5,900,000

Accounts payable 500,000

Note payable, due December 31, 2020 100,000
Income tax payable 150,000
Share premium 250,000

Total current liabilities 1,000,000

Unearned leased hold income (five years starting 2020) 350,000
Stock dividend payable 150,000
Serial bonds payable (P100,000 maturing annually) 500,000

Total long-term liabilities 1,000,000

Retained earnings 1,500,000

Share capital,P100 par 5,000,000
Retained earnings appropriated for plant expansion 500,000

Total capital 7,000,000

Required:

Prepare statement of financial position with supporting notes and computations.

Answer:
Socorro Corporation
Statement of Financial Position
December 31, 2019

ASSETS

Current assets: Note

Cash and cash equivalents (1) 700,000
Trade and other receivable (2) 700,000
Inventories 600,000
Prepaid expenses (3) 50,000
Total current assets 2,050,000

Noncurrent assets:
Property, plant and equipment (4) 4,150,000
Long-term investment (5) 1,000,000
Investment property (6) 500,000
Intangible assets (7) 550,000
Other noncurrent assets (8) 450,000
Total noncurrent assets 6,650,000
Total assets 8,700,000

EQUITY AND LIABILITIES

Current liabilities:
Trade and other payables (9) 820,000
Serial bonds payable-current portion 100,000
Total current liabilities 920,000

Noncurrent liabilities:
Serial bonds payable-remaining portion 400,000
Unearned leasehold income-remaining portion 280,000
Total noncurrent liabilities 680,000

Equity:
Share capital (10) 5,150,000
Reserves (11) 1,050,000
Retained earnings (12) 1,200,000
Treasury shares, at cost ( 300,000)
Total equity 7,100,000
Total liabilities and equity 8,700,000

Note 1 - Cash and cash equivalents

Cash 500,000
Money market placement 200,000
Total 700,000

Note 2 - Trade and other receivable

Accounts receivable 750,000

Allowance for doubtful accounts ( 50,000)
Total trade and other receivable 700,000

Note 3 - Prepaid expenses

Store supplies 50,000

Note 4 - Property, plant and equipment

Cost Accum. depr. Book value

Land 400,000 - 400,000
Building 3,500,000 500,000 3,000,000
Equipment 1,000,000 250,000 750,000
Total 4,900,000 750,000 4,150,000
Note 5 – Long-term investment

Investment in bonds 1,000,000

Note 6 – Investment property

Land for undetermined use 500,000

Note 7 - Intangible assets

Trademark 300,000
Patent 250,000
Total 550,000

Note 8 - Other noncurrent assets

Advances to officers 150,000

Restricted foreign deposit 300,000
Total 450,000

Note 9 - Trade and other payables

Accounts payable 500,000

Note payable 100,000
Income tax payable 150,000
Unearned leasehold income-current portion 70,000
Total 820,000

Note 10 - Common stock

Share capital issued 5,000,000

Stock dividend payable 150,000
Total 5,150,000
Note 11 - Reserves

Share premium 250,000

Retained earnings appropriated for plant expansion 500,000
Retained earnings appropriated for treasury share 300,000
Total reserves 1,050,000

Note 12 - Retained earnings

Retained earnings unappropriated 1,500,000

Appropriation for treasury share ( 300,000)
Adjusted balance 1,200,000

Problem 2-3
Magna Company reported the following statement of financial position on December
31,2019.

Current assets 2,000,000 Current liabilities 1,500,000

Investments 400,000 Long term liabilities 2,000,000
Tangible assets 7,150,000 Equity 6,450,000
Intangible assets 400,000
9,950,000 9,950,000

 Equity has preference share capital, no par value, P5 stated value, authorized
300,000 shares, issued 150,000 shares for P1,000,000, and ordinary share
capital, P20 par value, authorized 400,000 shares issued 100,000 shares of P30
per share.
 Tangible assets include building P5,000,000 less accumulated depreciation
P1,600,000, equipment P1,400,000 less accumulated depreciation P400,000,
land P1,250,000, and land held for future plant site P1,500,000.
 The current assets include : Cash P4,000,000, accounts receivable P750,000
less P50,000 for allowance for doubtful accounts, inventories P800,000, and
prepaid expenses P100,000
 The investments include the cash surrender value of a life insurance contract
P50,000, investment in securities, short-term, P100,000, and long-term,
P250,000
 Intangible assets include a franchise P100,000, goodwill P200,000 and discount
on bonds payable P100,000.
 Current liabilities include accounts payable P400,000, notes payable-short-term
debt P450,000, and long-term P300,000, taxes payable P150,000, and
appropriation for contingencies P200,000.
 Long-term liabilities comprised solely of 12% bonds payable due on December
31, 2022.
Required:

Prepare in good form a properly classified statement of financial position with

appropriate notes.

Answer:

Magna Company
 Statement of Financial Position
December 31, 2019

ASSETS

Current assets: note

Cash 400,000
Financial assets at fair value 100,000
Trade accounts receivable (1) 700,000
Inventories 800,000
Prepaid expenses 100,000
Total current assets 2,100,000

Noncurrent assets:
Property, plant and equipment (2) 7,150,000
Long-term investments (3) 300,000
Intangible assets (4) 300,000
Total noncurrent assets 7,750,000
Total assets 9,850,000

EQUITY AND LIABILITIES

Current liabilities
Trade and other payables (5) 550,000
Note payable-short-term 450,000
Total current liabilities 1,000,000

Noncurrent liabilities:
Bonds payable (6) 1,900,000
Notes payable-long-term debt 300,000
Total noncurrent liabilities 2,200,000

Equity:
Share capital (7) 2,750,000
Reserves (8) 1,450,000
Retained earnings 2,450,000
Total equity 6,650,000
Total liabilities and equity 9,850,000

Note 1 – trade accounts receivable

Accounts receivable 750,000

Allowance for doubtful accounts (50,000)
Net realizable value 700,000
Note 2 – Property, plant and equipment

Cost Accum. depr. Carrying amount

Land 1,250,000 - 1,250,000
Land for future plant site 1,500,000 - 1,500,000
Building 5,000,000 1,600,000 3,400,000
Equipment 1,400,000 400,000 1,000,000
Total 9,150,000 2,000,000 7,150,000

Note 3 – long-term investments

Investment in equity securities 250,000

Cash surrender value 50,000
Total 300,000

Note 4 – intangible assets

Franchise 100,000
Goodwill 200,000
Total 300,000

Note 5 – trade and other payables

Account payable 400,000

Taxes payable 150,000
Total 550,000

Note 6 – bonds payable

Bonds payable, due December 31, 2015 2,000,000

Discount on bonds payable (100,000)
1,900,000

Note 7 – share capital

Preference share capital, P5 stated value,

300,000 shares authorized, 150,000 shares issued 750,000
Ordinary share capital, P20 par value,
400,000 shares authorized, 100,000 shares issued 2,000,000
Total 2,750,000

Note 8 – reserves
Share premium-preference 250,000
Share premium-ordinary 1,000,000
Retained earnings appropriated for contingencies 200,000
Total 1,450,000

Problem 2-4
Boracay Company prepared the following condensed statement of financial position of
December 31, 2019.

Current asset 4,000,000

Current liabilities 1,500,000

Working capital 2,500,000

Add other assets 1,800,000

Working capital plus other assets 4,300,000

Deduct other liabilities 100,000

Net assets 4,200,000

Money market placement – three months 500,000

Cash in bank 700,000
Accounts receivable 800,000
Notes receivable 200,000
Financial assets at fair value 400,000
Inventory 1,300,000
Goodwill 100,000

Total current assets 4,000,000

The inventory account was found to include the cost of office supplies of P50,000 and
office equipment acquired at the end of 2019 at a cost of P250,000.

Other assets included land and building acquired on January 1, 2018 for P4,000,000,
less mortgage of P200,000. At the time of purchase, the land was worth P1,000,000.
The building on December 31, 2019 has a remaining life of 18 years.

Current liabilities represented balances that were payable to trade creditors. Other
liabilities consisted of withholding tax payable. However, no recognition was given to
accrued salaries of P250,000.

The entity was originally organized in 2018 when 30,000 ordinary shares with par value
of P100 were issued in exchange for assets with fair value of P3,200,000.

Required:

Prepare a statement of financial position

Answer:
 Boracay Company
Statement of Financial Position
December 31, 2019

ASSETS

Current assets: Note

Cash and cash equivalents (1) 1,200,000
Financial assets at fair value 400,000
Trade receivables (2) 1,000,000
Inventory (1,300,000 -50,000
-250,000) 1,000,000
Prepaid expenses (3) 50,000
Total current assets 3,650,000

Noncurrent assets:
Property, plant and equipment (4) 3,950,000
Goodwill 100,000
Total noncurrent assets 4,050,000
Total assets 7,700,000

EQUITY AND LIABILITIES

Current liabilities:
Trade and other payables (5) 2,050,000

Noncurrent liability:
Mortgage payable 2,000,000

Equity:
Ordinary share capital, P100 par 3,000,000
Share premium 200,000
Retained earnings (6) 450,000
Total equity 3,650,000
Total liabilities and equity 7,700,000

Note 1 – cash and cash equivalent

Cash in bank 700,000

Money market placement 500,000
Total 1,200,000

Note 2 – trade receivables

Accounts receivable 800,000
Notes receivable 200,000
Total 1,000,000

Note 3 – prepaid expenses

Office supplies 50,000

Note 4 – property, plant and equipment

Cost Accum. depr. Carrying amount

Land 1,000,000 - 1,000,000
Building 3,000,000 300,000 2,700,000
Office equipment 250,000 - 250,000
Total 4,250,000 300,000 3,950,000

Note 5 – trade accounts and other payables

Accounts payable 1,500,000

Withholding tax payable 100,000
Accrued salaries payable 250,000
Accrued interest payable 200,000
Total 2,050,000

Note 6 – retained earnings

Net assets per book 4,200,000

Contributed capital 3,200,000
Unadjusted retained earnings 1,000,000
Unrecorded expenses:
Salaries 250,000
Depreciation on building (3,000,000/20x2) 300,000 550,000
450,000

Problem 2- 5
Dakak Company provided the following statement of financial position on December 31,
2019:
Current assets 2,700,000 Current liabilities 2,500,000
Other assets 6,000,000 Other liabilities 2,000,000
Equity 4,800,000
9,300,000 9,300,000

 Analysis of current assets disclose the following:

 Cash and cash equivalents 500,000
Financial assets held for trading 600,000
Accounts receivable 750,000
Inventories 850,000
2,700,000

 Other assets include:

Property, plant and equipment, cost P6,000,000 4,000,000

Advances to subsidiary 2,250,000
Goodwill recorded on the books to cancel losses
Incurred by the entity in prior years 350,000
6,600,000

 Current liabilities include:

Accrued expenses 100,000

Customers deposit 400,000
Advances from officer, not payable currently 200,000
Accounts payable 1,000,000
Note payable-bank due December 31,2021 800,000
2,500,000

 Other liabilities include:

Bonds payable in annual installment of P500,000 2,000,000

 Share capital, 50,000 shares, P100 par, was originally issued and credited for a
total consideration of P5,500,000 but losses of the entity for past years were
charged against the share capital balance.

Required:

Prepare a properly classified statement of financial position.

Answer:
 Dakak Company
Statement of Financial Position
December 31, 2019

ASSETS

Current assets: Note

Cash and cash equivalents 500,000
Financial assets held for trading 600,000
Accounts receivable 750,000
Inventories 850,000
Total current assets 2,700,000

Noncurrent assets:
Property, plant and equipment (1) 4,000,000
Long-term investment (2) 2,250,000
Total noncurrent assets 6,250,000
Total assets 8,950,000

LIABILITIES AND EQUITY

Current liabilities:
Trade and other payables (3) 1,500,000
Bonds payable-current portion 500,000
Total current liabilities 2,000,000

Noncurrent liabilities:
Bonds payable-remaining portion 150,000
Note payable, due December 31, 2019 800,000
Other noncurrent liability (4) 200,000
Total noncurrent liabilities 2,500,000

Equity:
Share capital, P100 par, 50,000 shares 5,000,000
Share premium 500,000
Retained earnings (deficit) (5) (1,050,000)
Total equity 4,450,000
Total liabilities and equity 8,950,000
Note 1 – property, plant and equipment

Property, plant and equipment 6,000,000

Accumulated depreciation (2,000,000)
Carrying amount 4,000,000

Note 2 – long term investment

Advances to subsidiary 2,250,000

Note 3 – trade and other payables

Account payables 1,000,000

Accrued expenses 100,000
Customers’ deposit 400,000
Total 1,500,000

Note 4 – other noncurrent liability

Advances from officer, not repayable currently 200,000

Note 5 – retained earnings

Equity per book 4,800,000

Contributed capital 5,500,000
Unadjusted retained earnings (700,000)
Writeoff of goodwill (350,000)
Deficit (1,050,000)

Problem 2-6

Darwin Company provided the following information at year-end:

Cash 1,500,000
Accounts receivable 1,200,000
Inventory, including inventory expected in the ordinary
course of preparations to be sold beyond
12 months amounting to P700,000 1,000,000
Financial asset held for trading 300,000
Equity investment at fair value through other
Comprehensive income 800,000
Equipment held for sale 2,000,000
Deferred tax asset 150,000

What amount should be reported as total current assets at year-end?

a. 6,000,000
b. 4,000,000
c. 6,800,000
d. 4,800,000

Answer: d
Cash 1,500,000
Accounts receivable 1,200,000
Inventory, including inventory expected in the ordinary
course of preparations to be sold beyond
12 months amounting to P700,000 1,000,000
Financial asset held for trading 300,000
Equity investment at fair value through other
Comprehensive income 800,000
Total current asset 4,800,000

Problem 2-7

At year-end, the current assets of Hazel Company revealed cash and cash equivalent of
P700,000, accounts receivable of P1,200,000 and inventories of P600,000. The
examination of accounts receivable disclosed the following:
Trade accounts 930,000
Allowance for doubtful accounts (20,000)
Claim against shipper for goods lost in transit 30,000
Selling price of unsold goods sent by hazel
On consignment at 130% of cost and not
Included in ending inventory 260,000
1,200,000
What total amount should be reported as current assets at year-end?
a. 2,412,000
b. 2,440,000
c. 2,240,000
d. 2,500,000

Answer: b
Cash and cash equivalent 700,000
Accounts receivable (1,200,000-260,000) 940,000
Inventories (600,000+200,000) 800,000
2,440,000

Problem 2-8
Petite Company reported the following current assets on December 31, 2019:

Cash 5,000,000
Accounts receivable 2,000,000
Inventory, including goods received on
Consignment P200,000 800,000
Prepaid expenses, including a deposit of P50,000
Made on inventory to be delivered in 18months 150,000

Total current assets 7,950,000

Cash in general checking account 3,500,000
Cash fund to be used to retire bonds payable in 2021 1,000,000
Cash held to pay value added taxes 500,000

Total cash 5,000,000

What total amount of current assets should be reported on December 31, 2019?

a. 6,750,000
b. 6,700,000
c. 7,700,000
d. 7,750,000

Answer: b

Cash in general checking account 3,500,000

Cash fund to be used to retire bonds payable in 2021 (1,000,000)
Cash held to pay value added taxes 500,000

Total cash 4,000,000

Cash 4,000,000
Accounts receivable 2,000,000
Inventory, 800,000 less including goods received on
Consignment (P200,000) 600,000
Prepaid expenses,150,000 less including a deposit of
P50,000 Made on inventory to be delivered in 18months 100,000

Total current assets 6,700,000

Problem 2-9
Rice Company was incorporated on January 1, 2019 with P5,000,000 from issuance of
share capital and borrowed funds of P1,500,000. During the year, net income was
P2,500,000.

On December 15, the entity paid a P500,000 cash dividend.

On December 31, 2019, the liabilities had increased to P1,800,000

On December 31, 2019, what amount should be reported as total assets?

a. 6,500,000
b. 9,300,000
c. 8,800,000
d. 6,800,000

Answer: c

Issuance of share capital (5,000,000 – paid cash

dividend 500,000) 4,500,000
Net income 2,500,000
Liabilities increased 1,800,000
Total assets 8,800,000

Problem 2-10

Arabian Company reported the following at year-end:

Cash 4,500,000
Accounts receivable 7,500,000
Notes receivable, net of discounted note P500,000 2,000,000
Inventory 4,000,000
18,000,000

An analysis disclosed that accounts receivable comprised the following:

Trade accounts receivable 5,000,000

Allowance for doubtful accounts (500,000)
Selling price of Arabian Company’s unsold good sent
To Tar company on consignment at 150% of
Cost and excluded from Arabian’s ending inventory 3,000,000
7,500,000

What amount should be reported as total current assets at year-end?

a. 17,000,000
b. 17,500,000
c. 15,000,000
 d. 16,500,000

Answer: c

Cash 4,500,000
Accounts receivable 7,500,000
Selling price of Arabian Company’s unsold good sent
To Tar company on consignment at 150% of
Cost and excluded from Arabian’s ending inventory 3,000,000
Total assets 15,000,000

Problem 2-11

Mirr Company was incorporated on January 1, 2019 with proceeds from the issuance of
P7,500,000 in share capital and borrowed funds of P1,100,000

During the first year, revenue from sales and consulting amounted to P8,200,000, and
operating costs and expenses totaled P6,400,000.

On December 15, 2019, the entity declared a P300,000 dividend, payable to

shareholders on January 15, 2020. The liabilities increased to P2,000,000 by December
31, 2019.

On December 31, 2019, what should be reported as total assets?

a. 11,000,000
b. 11,300,000
c. 10,100,000
d. 12,100,000

Answer: a

Issuance of share capital 7,500,000

Revenue from sales and consulting 8,200,000
Cost and expenses (6,400,000)
Dividend payable (300,000)
Liabilities increased 2,000,000
Total assets 11,000,000

Problem 2-12
Gar Company reported the following account balances on December 31, 2019:

Accounts payable 1,900,000

Bonds payable 3,400,000
Premium on bonds payable 200,000
Deferred tax liability 400,000
Dividend payable 500,000
Income tax payable 900,000
Note payable, due January 31, 2020 600,000

On December 31, 2019, what total amount should be reported as current liabilities?

a. 7,100,000
b. 4,300,000
c. 3,900,000
d. 4,100,000

Answer: c

Accounts payable 1,900,000

Premium on bonds payable 200,000
Deferred tax liability 400,000
Dividend payable 500,000
Income tax payable 900,000
Total current liabilities 3,900,000

Problem 2-13

Burma Company disclosed the following liabilities:

Accounts payable, after deducting debit balances

In suppliers’ accounts amounting to P100,000 4,000,000
Accrued expenses 1,500,000
Credit balances of customers’ accounts 500,000
Share dividend payable 1,000,000
Claims for increase in wages and allowance by
Employees, covered in a pending lawsuit 400,000
Estimated expenses in redeeming prize coupons 600,000

What total amount should be reported as current liabilities?

a. 6,700,000
b. 6,600,000
 c. 7,100,000
d. 7,700,000

Answer: a

Accounts payable 4,000,000

Accrued expenses 1,500,000
Share dividend payable 1,000,000
Claims for increase in wages and allowance by
Employees, covered in a pending lawsuit (400,000)
Estimated expenses in redeeming prize coupons 600,000
Total current liabilities 6,700,000

Problem 2-14

Ronna Company provided the following information on December 31, 2019:

Accounts payable, net of creditors’ debit

Balances P200,000 2,000,000
Accrued expenses 800,000
Bonds payable due December 31, 2021 4,500,000
Premium on bonds payable 500,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividends payable 600,000
Share dividend payable 400,000
Note payable – 6%, due March 1, 2020 1,500,000
Note payable – 8%, due October 1, 2020 1,000,000

The financial statements for 2019 were issued on March 31, 2020.

On December 31, 2019, the 6% note payable was refinanced on a long-term basis.

Under the loan agreement for the 8% note payable, the entity has the discretion to
refinance the obligation for at least twelve months after December 31, 2019.

1. What amount should be reported as total current liabilities?

a. 7,200,000
b. 4,700,000
c. 6,200,000
d. 5,100,000

Answer: b
Accounts payable 2,000,000
Accrued expenses 800,000
Income tax payable 1,100,000
Cash dividends payable 600,000
Share dividend payable 400,000
Net of creditors’ debit balances (200,000)
Total current liabilities 4,700,000

2. What amount should be reported as total noncurrent liabilities?

a. 8,400,000
b. 5,500,000
c. 8,000,000
d. 7,500,000

Answer: c

Bonds payable due December 31, 2021 4,500,000

Premium on bonds payable 500,000
Deferred tax liability 500,000
Note payable – 6%, due March 1, 2020 1,500,000
Note payable – 8%, due October 1, 2020 1,000,000
Total noncurrent liabilities 8,000,000

Problem 2-15

Gold Company provided the following trial balance on June 30, 2019:

Cash overdraft 100,000

Accounts receivable 350,000
Inventory 580,000
Prepaid expenses 120,000
Land held for sale 1,000,000
Property, plant and equipment, net 950,000
Accounts payable 200,000
Accrued expenses 150,000
Share premium 250,000
Share capital 1,500,000
Retained earnings 800,000
3,000,000 3,000,000

Checks amounting to P300,000 were written to vendors and recorded on June 29, 2019
resulting in a cash overdraft of P100,000. The checks were mailed on July 9, 2019
Land held for sale was sold for cash on July 15, 2019.

The entity issued the financial statements on July 31, 2019.

1. What total amount should be reported as current assets?

a. 2,250,000
b. 2,050,000
c. 1,950,000
d. 1,250,000

Answer: a

Cash 200,000
Accounts receivable 350,000
Inventory 580,000
Prepaid expenses 120,000
Land classified as held for sale 1,000,000
Total current assets 2,250,000

2. What total amount should be reported as current liabilities?

a. 450,000
b. 350,000
c. 650,000
d. 300,000

Answer: a

Cash overdraft 100,000

Accounts payable 200,000
Accrued expenses 150,000
Total current liabilities 450,000

3. What amount should be reported as shareholders’ equity?

a. 2,550,000
b. 1,750,000
c. 1,500,000
d. 2,300,000

Answer: a
Share premium 250,000
Share capital 1,500,000
Retained earnings 800,000
Shareholders’ equity 2,550,000

Problem 2-16

Trey Company provided the following trial balance on December 31, 2019 which had
been adjusted except for income tax expense:

Cash 5,000,000
Accounts receivable, net 8,000,000
Prepaid taxes 1,500,000
Inventory 6,000,000
Property, plant and equipment 17,000,000
Accounts payable 10,000,000
Share capital 20,000,000
Retained earnings 5,000,000
Foreign currency translation adjustment 2,500,000
Revenue 15,000,000
Expenses 10,000,000
50,000,000 50,000,000

During 2019, estimated tax payments of P1,500,000 were charged to prepaid taxes.
The entity has not yet recorded income tax expense. The tax rate is 30%.

The accounts receivable included P3,000,000 due from a customer. Special terms
granted to this customer require payment in equal semiannual installments of P500,000
every April 1 and October 1.

1. On December 31, 2019, what total amount should be reported as current assets?

a. 21,000,000
b. 18,500,000
c. 17,000,000
d. 19,500,000

Answer: c

Cash 5,000,000
Accounts receivable, net (8,000,000- 2,000,000) 6,000,000
Inventory 6,000,000
Total current assets 17,000,000
2. On December 31, 2019 what amount should be reported as total retained
earnings?
 a. 10,000,000
b. 8,500,000
c. 5,750,000
d. 6,000,000

Answer: b

Income before tax 5,000,000

Income tax (30% x 5,000,000) (1,500,000)
Net income 3,500,000
Retained earnings 5,000,000
Total 8,500,000

Problem 2-17

Mint Company provided the following account balances on December 31, 2019 which
had been adjusted except for income tax expense:

Cash 600,0000
Accounts receivable, net 3,500,000
Cost in excess of billings on long-term contracts 1,600,000
Billing in excess of cost on long-term contracts 700,000
Prepaid taxes 450,000
Property, plant and equipment, net 1,510,000
Note payable – noncurrent 1,620,000
Share capital 750,000
Share premium 2,030,000
Retained earnings unappropriated 900,000
Retained earnings restricted for note payable 160,000
Earnings from long-term contracts 6,680,000
Costs and expenses 5,180,000

All receivables on long-term contracts are considered to be collectible within 12 months.

During the year, estimated tax payments of P450,000 were charged to prepaid taxes.
The entity has not recorded income tax expenses. The tax rate is 30%.

On December 31, 2019, what amount should be reported as

1. Total retained earnings?

a. 1,950,000
b. 2,110,000
c. 2,400,000
 d. 2,560,000

Answer: b

Earnings from long-term contracts 6,680,000

Costs and expenses 5,180,000
Income before income tax 1,500,000
Less: income tax (30% x 1,500,000) 450,000
Net income 1,050,000
Retained earnings unappropriated 900,000
Retained earnings restricted 160,000
Total retained earnings 2,110,000

2. Total noncurrent liabilities?

a. 1,620,000
b. 1,780,000
c. 2,320,000
d. 2,480,000

Answer: a

Note payable- noncurrent 1,620,000

3. Total current assets?

a. 5,000,000
b. 4,100,000
c. 5,700,000
d. 6,150,000

Answer: c

Cash 600,000
Accounts receivable 3,500,000
Cost in excess of billings 1,600,000
Total current assets 5,700,000

4. Total shareholders’ equity?

a. 2,940,000
b. 2,780,000
c. 4,890,000
d. 4,730,000
Answer: c

Total retained earnings 2,110,000

Share capital 750,000
Share premium 2,030,000
Shareholders’ equity 4,890,000

Problem 2-18

Shaw Company provided the following trial balance on December 31, 2019 which had
been adjusted except for income tax expense:

Cash 600,000
Accounts receivable 2,800,000
Inventory 2,000,000
Property, plant and equipment (net) 10,500,000
Accounts payable and accrued liabilities 1,800,000
Income tax payable 1,500,000
Deferred tax liability 700,000
Share capital 2,500,000
Share premium 3,000,000
Retained earnings, January 1 3,500,000
Net sales and other revenue 15,000,000
Costs and expenses 10,000,000
Income tax expense 2,100,000
28,000,000 28,000,000

The accounts receivable included P1,000,000 due from a customer and payable in
quarterly installments of P125,000. The last payment is due December 30, 2021.

During the year, estimated tax payment of P600,000 was charged to income tax
expense. The income tax rate is 30%.

On December 31, 2019, what amount should be reported as

1. Total current assets?

a. 3,400,000
b. 4,400,000
c. 5,400,000
d. 4,900,000

Answer: d
Cash 600,000
Accounts receivable 2,800,000
Inventory 2,000,000
Account receivable- installments (125,000 x 4) (500,000)
Total current assets 4,900,000

2. Total current liabilities?

a. 2,700,000
b. 3,300,000
c. 4,050,000
d. 3,450,000

Answer: a

Accounts payable and accrued liabilities 1,800,000

Income tax payable (1,500,000- 600,000) 900,000
Total current liabilities 2,700,000

3. Retained earnings?

a. 8,500,000
b. 6,400,000
c. 7,000,000
d. 3,500,000

Answer: c

Net sales and other revenue 15,000,000

Costs and expenses (10,000,000)
Income before income tax 5,000,000
Income tax (30% x 5,000,000) (1,500,000)
Net income 3,500,000
Retained earnings – January 1 3,500,000
Retained earnings – December 31 7,000,000

Problem 2-19
Charice Company provided the following information on December 31, 2019

 Accounts payable for goods and services purchased on open account amounted
to P500,000 and accrued expenses totaled P300,000 on December 31, 2019.
 On December 15, 2019, the entity declared a cash dividend of P7 per share,
payable on January 15, 2020, to shareholders of record on December 31, 2019.

The entity had 100,000 shares issued and outstanding throughout 2019.

 On July 1, 2019, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield
10 %. The bonds mature on June 30 ,2024, and pay interest annually every June
30.

On December 31, 2019, the bonds were trading in the open market at 86 to yield
12%. The entity used the effective interest method to amortize bond discount.

 The pretax financial income was P8,500,000 and taxable income was
P6,000,000.

The difference is due to P1,000,000 permanent difference and P1,500,000 of

taxable temporary difference which is expected to reverse in 2020.

 The entity is subject to income tax rate of 30% and made estimated income tax
payments during the year of P1,000,000.

What total amount should be reported as current liabilities on December 31, 2019?

a. 3,500,000
b. 2,700,000
c. 2,300,000
d. 2,500,000

Answer: d

Accounts payable 500,000

Accrued expenses 300,000
Dividend payable (100,000 x 7) 700,000
Accrued interest payable (5,000,000 x 8% x 6/12) 200,000
Income tax payable
(30% x 6,000,000=1,800,000-1,000,000) 800,000
Total current liabilities 2,500,000

Problem 2-20
Kaye Company reported the following liabilities on December 31, 2019:
Accounts payable 6,500,000
Bank note payable – 10% 3,000,000
Bank note payable – 11% 5,000,000
Mortgage note payable – 10% 2,000,000
Bonds payable 4,000,000

 The P3,000,000. 10% note was issued March 1, 2019 payable on demand.
Interest is payable every six months.
 The one-year P5,000,000. 11% note was issued January 15, 2019.

On December 31, 2019 the entity negotiated a written agreement with the bank
to replace the note with a 2-year, P5,000,000. 10% note to be issued January 15,
2020.
 The 10% mortgage note was issued October 1, 2017, with a term of 10 years.

Terms of the note give the holder the right to demand immediate payment if the
entity fails to make a monthly interest payment within 10 days from the date the
payment is due.
On December 31, 2019, the entity is three-months behind in paying the required
interest payment.
 The bonds payable are ten-year, 8% bonds issued June 30, 2010. Interest is
payable semi-annually on June 30 and December 31.
 The entity has not prepared the adjustment for any accrued interest on the
liabilities.
What total amount should be reported as current liabilities on December 31, 2019?
a. 15,650,000
b. 11,650,000
c. 20,650,000
d. 13,650,000

Answer: b

Accounts payable 6,500,000

Bank note payable-10% 3,000,000
Mortgage note payable 2,000,000
Bonds payable 4,000,000
Interest payable (3,000,000 x 10% x 6/12) 150,000
Total current liabilities 15,650,000

Problem 2-21
1. Which of the following is not a noncurrent investment?

a. Cash surrender value of life insurance

b. Franchise
c. Land held for speculation
d. A sinking fund

Answer: c. Land held for speculation

2. The term deficit refers to

a. An excess of current assets over current liabilities.

b. An excess of current liabilities over current assets.
c. A debit balance in retained earnings.
d. A loss reported as a prior period error.

Answer: c. A debit balance in retained earnings.

3. Which should be classified as a noncurrent asset?

a. Plant expansion fund

b. Prepaid rent
c. Supplies
d. Goods in process

Answer: a. Plant expansion fund

4. Which of the following items would normally be excluded from the computation of
working capital?

a. Advances from customers

b. The portion of long-term debt that matures within one year after reporting
period
c. Prepaid insurance
d. Goodwill

Answer: d. Goodwill

5. Accrued revenue would normally appear in the statement of financial position

under

a. Noncurrent assets
b. Current liabilities
c. Noncurrent liabilities
d. Current assets
 Answer: d. Current assets

6. For a liability to exist

a. There must be a past events

b. The exact amount must be known
c. The identity of the party to whom the liability is owed must be known
d. There must be an obligation to pay cash in the future.

Answer: a. There must be a past events

7. Which statement best describes the term liability?

a. An excess of equity over current assets

b. Resources to meet financial commitments when due
c. The residual interest in the assets of the entity after deduction all of the
liabilities
d. A present obligation arising from past event

Answer: d. A present obligation arising from past event

8. Which item is not a current liability?

a. Unearned revenue
b. Share dividend payable
c. The currently maturing portion of long-term debt
d. Trade accounts payable

Answer: c. The currently maturing portion of long-term debt

9. Noncurrent liabilities include

a. Bonds payable
b. Short-term obligation refinanced on a long-term basis at the end of reporting
period
c. Deferred tax liability
d. All of these are noncurrent liabilities

Answer: d. All of these are noncurrent liabilities

10. Which is not within the definition of a liability?

a. The signing of a three-year employment contract at a fixed annual salary

b. An obligation to provide goods or services in the future
c. A note payable with no specified maturity date
d. A present obligation that is estimated in amount

Answer: a. The signing of a three-year employment contract at a fixed

annual salary