Intermediate Accountig Akuntansi

ACCOUNTING LAB MODULE
UPH BUSINESS SCHOOL
Reviewed by: Meiliana Jaunanda, SE., M.Ak.
INTERMEDIATE
ODD TERM 2020 / 2021
ACCOUNTING 2
9th Edition
Arranged by:
Venetta Betha Berlinda
Annette Karaniya Sutedjo
REFERENCE BOOK:
KIESO , D.E., JERRY, J.W., & TERRY D.W. 2018. INTERMEDIATE ACCOUNTING IFRS
EDITION, 3RD EDITION, NEW JERSEY: JOHN WILEY & SONS.

FOREWORD
Intermediate Accounting 2 is a continuation of Intermediate Accounting 1 which is a crucial subject in

the first level of accounting principles. Intermediate Accounting 2 helps student to broader the
accounting knowledge and at the same time determines the performance in the next step, Advanced
Accounting 1.
A tool for students to be more competent in comprehending and applying the knowledge taught in
Intermediate Accounting 2 theory classes is Accounting Lab. This course helps students to become
more actively involved by independent problem solving.
This module has been compiled in a way that these purposes might be achieved. It contains the key
elements of each chapter, followed by specific comprehensive exercises to be solved and discussed
each meeting with a lab assistant.
After accomplishing this course, we hope that students are able to apply and analyze accounting
principles in business activities and to be firmly ready for Advanced Accounting 1.
May God bless all of you and grant you wisdom throughout the journey.
Sincerely,
Assistant Lab. Team
1
TABLE OF CONTENTS
FOREWORD ............................................................................................................................. 1
TABLE OF CONTENTS ........................................................................................................... 2
INTRODUCTION ..................................................................................................................... 3
OUTLINE OF THE INSTRUCTION PROGRAM (SAP) ........................................................ 5
MODULE 1 CHAPTER 15: EQUITY ..................................................................................... 6
MODULE 2 CHAPTER 16: DILUTIVE SECURITIES AND EARNINGS PER SHARE .. 11
MODULE 3 CHAPTER 17: INVESTMENTS ...................................................................... 16
MODULE 4 CHAPTER 18: REVENUE ............................................................................... 22
MODULE 5 CHAPTER 19: ACCOUNTING FOR INCOME TAXES ................................ 26
MODULE 6 CHAPTER 21: ACCOUNTING FOR LEASES ............................................... 31
MODULE 7 CHAPTER 22: ACCOUNTING CHANGES AND ERROR ANALYSIS ....... 36
MODULE 8 CHAPTER 24: PRESENTATION AND DISCLOSURE IN FINANCIAL
REPORTING ........................................................................................................................... 42
Intermediate Accounting 2 Module | Odd Term 2020-2021 | 2

INTRODUCTION
A. Description
Accounting lab is linked and inseparable with each of its main course (theory). Accounting lab
is intended for students to better comprehend the concepts related to its main course through
exercises and cases.
Every accounting lab is worth 0 credits and has a duration of 130 minutes, scheduled face-to-
face and equaling 2 credits.
B. General Instructional Objective
After taking this course and finishing all the materials, students are expected to be able to
identify/explain/calculate/analyze the following concepts:
1. Equity
2. Dilutive Securities and Earnings per Share
3. Investments
4. Revenue
5. Accounting for Income Taxes
6. Accounting for Leases
7. Accounting Changes and Error Analysis
8. Presentation and Disclosure in Financial Reporting
C. Lecturing Activities
1. Students are directed to be actively involved during the learning activity in class.
2. To facilitate the teaching and learning activity, students are required to read the reference
book or related materials. Students can also read the summarized theory available in every
module.
3. The exercises compiled in this module are just a part of what is taught in theory class.
4. Students are obligated to individually finish each exercise given in this module, according
to the lab assistant’s instructions, do quizzes as well as the mid and final test according to
the schedule given.
D. Class Rules
 Attendance
At least attend 14 sessions from 16 sessions or equal to 85% attendance. (included
Midterm and Final Exam).
 Lateness
>15 Minutes regarded as absent
 Permission Exception
1. Formal permission from university or faculty

2. Hospitalized (maximum 2 weeks)
3. Sudden pass away of core family member (with supported documents).
E. Grading Composition
The final grade is the sum of the student’s theory and lab score with a composition of 85%
theory class and 15% lab course.
Below are the components of the lab course grading:
Mid-Test : 35% Absence : 10%

Final-Test : 35% KAT : 10%
Quiz : 10%
F. Grading Scale
Score Grade
90 - 100 A
85 – 89.99 A-
80 – 84.99 B+
75 – 79.99 B
70 – 74.99 B-
65 – 69.99 C+
60 – 64.99 C
55 – 59.99 C-
40 – 54.99 D
0 – 39.99 E

OUTLINE OF THE INSTRUCTION PROGRAM (SAP)
Below is the SAP of accounting lab for Intermediate Accounting 2:
Meeting Module Chapter Material

1 Class Introduction
2 1 15 Equity
3 2 16 Dilutive Securities and Earning per Share
4 2 16 Dilutive Securities and Earning per Share
5 3 17 Investments
6 3 17 Investments
7 4 18 Revenue
8 Mid-Test
9 Mid-Test Review
10 5 19 Accounting for Income Taxes
12 6 21 Accounting for Leases
12 6 21 Accounting for Leases
13 7 22 Accounting Changes and Error Analysis
14 8 24 Presentation and Disclosure in Financial Reporting
15 Review and Quiz
16 Final-Test

MODULE 1
CHAPTER 15: EQUITY
Equity is the residual interest in the assets of the company after deducting all liabilities.
Equity is often subclassified on the statement of financial position into the following
categories.
 Share capital.
 Share premium.
 Retained earnings.
 Accumulated other comprehensive income.
 Treasury shares.
 Non-controlling interest.
Contributed capital is the total amount paid on capital shares for use in the business.
Earned capital is the capital that develops from profitable operations, consists of all
undistributed income that remains invested in the company.
Retained earnings represent the earned capital of the company.

Issuing 1000 shares with $ 10 par value at $ 10 per share:
Cash $ 10,000
Share Capital – Ordinary $ 10,000
Issuing 1000 shares with $ 10 par value at $ 15 per share:
Cash $ 15,000
Share Premium – Ordinary $ 5,000
Acquiring 10,000 shares at $ 15 per share.
Treasury Shares $ 150,000

Cash $ 150,000
Recorded as deduction to determine total equity in the equity section (Statement of

Financial Position).
Sale of Treasury Shares

Cash $ 150,000
Treasury Shares $ 150,000
If the selling price exceeds cost, credit the difference to Share Premium – Treasury.
Otherwise, it’s debited. If the debited exceeds the Share Premium – Treasury, it debits the
remainder to Retained Earnings.
Issuing 100 additional shares at fair value $ 130 per share, par value $100 to declares a 10
percent share dividend.
Retained Earnings (Share Dividend Declared) $ 10,000

(100 x $100 par value)
When issuing the shares, the entry is:
Ordinary Share Dividend Distributable $ 10,000

Two important should be noted about this entry:

First, the par value, not the fair value is used to record the share dividend.
Second, the share dividend does not affect any asset or liability.

P 1-1
Tavern Corporation was organized on January 1, 2020. It is authorized to issue 15,000
shares of 8%, $50 par value preference shares, and 500,000 shares of no-par ordinary shares
with a stated value of $5 per share. The following shares transactions were completed
during the first year.
Jan 10 Issued 40,000 ordinary shares for cash at $9 per share

Mar 1 Issued 3,200 shares of preferred stock for cash at $95 per share.
Apr 1 Issued 9,000 shares of common stock for land. The asking price of the land was
$80,000. The fair market value of the land was $125,000.
May 1 Issued 8,500 shares of common stock for cash at $10 per share.
Aug 1 Issued 10,000 shares of common stock to attorneys in payment of their bill of
$75,000 for services provided in helping the company organize.
Sept 1 Issued 12,000 shares of common stock for cash at $8 per share.
Nov 1 Issued 1, 500 shares of preferred stock for cash at $110 per share.
Instructions :
Prepare the journal entries to record the above transactions.
P 1-2
King Corporation is authorized to issue 100,000 shares of $25 par value common stock.
During 2020, King took part in the following selected transactions.
1. Issued 9,000 shares of stock at $55 per share, less costs related to the issuance of the
stock totaling $10,500.
2. Issued 1,300 shares of stock for land appraised at $105,000. The stock was actively
traded on a national stock exchange at approximately $45 per share on the date of
issuance.
3. Purchased 800 shares of treasury stock at $40 per share. The treasury shares purchased
were issued in 2015 at $33 per share.
Instructions :
a. Prepare thejournal entry to record item 1.
b. Prepare the journal entry to record item 2.
c. Prepare the journal entry to record item 3 using the cost method.

P 1-3
Harris Company provides you with the following condensed statement of financial position
information.
Assets Equity and Liabilities

Equipment $250,000 Equity
Intangibles 60,000 Share Capital – ordinary ($5 $ 20,000
par)
Investments in ABC 70,000 Share premium –ordinary 110,000
shares (10,000 shares at
cost)
Current Assets 40,000 Retained earnings 180,000 $ 310,000
Total Assets $ 420,000 Non-current and current $ 110,000
liabilities
Total equity and liabilities $420,000
a. Harris declares and pays a $1.5 per share cash dividend.

b. Harris declares and issues a 15% stock dividend when the market price of the stock is
$11 per share.
c. Harris declares and issues a 25% stock dividend when the market price of the stock is
$17 per share.
d. Harris declares and distributes a property dividend. Harris gives one share of ABC
stock for every two shares of Harris Company stock held. ABC is selling for $13 per
share on the date the property dividend is declared.
e. Harris declares a 2-for-1 stock split and issues new shares.
Instructions :
For each transaction, indicate the dollar impact (if any) on the following five items:
(1) total assets,
(2) share capital-ordinary,
(3) share premium-ordinary,
(4) retained earnings, and
(5) stockholders' equity. (Each situation is independent.)

HOMEWORK
Avengers Corporation has outstanding 2,000,000 shares of common stock of a par value of
$15 each. The balance in its retained earnings account at January 1, 2020, was $30,000,000,
and it then had Additional Paid-in Capital (Share Premium) of $7,500,000. During 2020,
the company's net income was $6,000,000. A cash dividend of $1 a share was declared on
May 5, 2020, and was paid June 30, 2020, and a 10% stock dividend was declared on
November 30, 2020, and distributed to stockholders of record at the close of business on
December 31, 2020. You have been asked to advise on the proper accounting treatment of
the stock dividend.
The existing stock of the company is quoted on a national stock exchange. The market price
of the stock has been as follows.
October 31, 2020 $35
November 30, 2020 $38
December 31, 2020 $42
Instructions :
a. Prepare the journal entry to record the declaration and payment of the cash dividend.
b. Prepare the journal entry to record the declaration and distribution of the stock
dividend.
c. Prepare the stockholders' equity section (including schedules of retained earnings

and additional paid-in capital) of the balance sheet of Avengers Corporation for the
year 2020 on the basis of the foregoing information.

MODULE 2
CHAPTER 16: DILUTIVE SECURITIES AND EARNINGS PER
SHARE
CONVERTIBLE DEBT
Convertible bonds can be changed into other corporate securities during some specified period
of time after issuance.
PV of principal + PV of the interest payment = PV of the liability component.
Face Value of convertible debt – PV of liability component = FV of equity component (All

values in the date of issuance)
The journal entry should be:

Cash xx
Bonds Payable xx
Share Premium - Conversion Equity (C) xx
If the bond is repurchased at maturity, then it debits the bonds payable for cash.
If it’s converted at maturity / before maturity, the entry:
Share Premium – Conversion Equity FV of equity component
Bonds Payable Bonds amount at Maturity/Carrying Amount
Share Capital – Ordinary Shares Converted x Par Value
Share Premium – Ordinary Remainder
Repurchased before maturity, the entry:

Share Premium – Conversion Equity xx
Bonds Payable xx
Loss on Repurchase xx
Cash xx
CONVERTIBLE PREFERENCE SHARES

Convertible preference shares include an option for the holder to convert preference shares into
a fixed number of ordinary shares.
Issuing 1000 convertible preference shares, par value $ 1 per share. The shares were issued at
a price of $ 200 per share. Journal entry:
Cash $ 200,000
Share Capital – Preference $ 1,000
Share Premium – Conversion Equity $ 199,000
The share is converted into 25 each ordinary shares ($ 2 par value) that have a fair value of
$ 410,000, journal entry:

FV is ignored in this computation. BV is used instead of FV, and doesn’t recognize a gain /
loss. If the convertible preference shares are repurchased instead of converted, the entry:
Retained Earnings $ 210,000
Cash $ 410,000
Gain / loss are not reported on repurchase. Instead, any excess paid above BV is debited to
Retained Earnings.
SHARE WARRANTS
Warrants are certificates entitling the holder to acquire shares at a certain price within a stated
period.
Assume TOP Company issued bonds with detachable five-year warrants to buy one ordinary
share (par value $5) at $25. At the time, an ordinary share was selling for $50. Top was able to
sell the bonds plus the warrants for $10,200,000. TOP determines the present value of the bonds
without the warrants is $9,700,000.
Cash $ 10,200,000
Bonds Payable $ 9,700,000
Share Premium-Share Warrants $ 500,000
SHARE-OPTION PLANS
Share option gives key employees the option to purchase ordinary shares at a given price over
an extended period of time. Share–Option plan involve two main accounting issues:
1. How to determine compensation expense.
2. Over what periods to allocate compensation expense.
Assume the shareholders approve a plan that grants company’s five executives options to
purchase 2,000 shares each of the company’s $ 100 par value ordinary shares, that may be
exercised in the next 10 years. The option price per share is $ 6,000. Total compensation
expense will be $ 22,000,000 with two year benefit.
At date of grant: No entry

Compensation expense for year 1 and year 2:
Compensation Expense $ 11,000,000
Share Premium – Share Options S 11,000,000
The executive exercise 2,000 of the 10,000 options on the next year (20% of the options), the
journal entry:
Cash $ 12,000,000
Share Premium – Share Options $ 4,400,000
Share Premium – Ordinary $ 16,200,000
Expiration, fail to exercise before the expiration date (10 years), journal entry:
Share Premium – Share Options $ 17,600,000
Share Premium – Expired Share Options $ 17,600,000
P 2-1
Cloud Corporation issues 5,000 convertible bonds at January 1, 2020. The bonds have a five-
year life, and are issued at par with a face value of $2,000 per bond, giving total proceeds of
$10,000,000. Interest is payable annually at 5%. Each bond is convertible into 450 ordinary
shares (par value of $1). When the bonds are issued, the market rate of interest for similar debt
without the conversion option is 10%.
Instructions:
a. Compute the liability and equity component of the convertible bond on
January 1, 2020.
b. Prepare the journal entry to record the issuance of the convertible bond on
January 1, 2020.
c. Prepare the journal entry to record the repurchase of the convertible bond for cash at
January 1, 2025, its maturity date.
P 2-2
Minion Inc issued $5,000,000 of 12%, 8 year convertible bond on January 1, 2020 at 95. The
bonds were dated January 1, 2017 with interest payable June 30 and December 31. Bond
discount is amortized semiannually using the effective-interest method. Market rate at 14%.
On December 31, 2021 $1,000,000 of these bonds were converted into 30,000 shares of $20
par value ordinary shares. Accrue interest was paid in cash at the time of convertion.
Instructions:
a. Prepare the journal entry to record the issuance of the convertible bond on January 1, 2020
b. Prepare the bond amortization schedule and prepare journal entry to record the interest expense
at June 30, 2020, December 31, 2020, June 30, 2021 and December 31, 2021.
c. Prepare the journal entry to record the conversion on December 31,2021
P 2-3
On June 1, 2020, Pear Company and Goodies Company merged to form Quill Inc. A total of
1,200,000 shares were issued to complete the merger. The new corporation reports on a
calendar-year basis. On April 1, 2020, the company issued an additional 950,000 shares of
stock for cash. All 2,000,000 shares were outstanding on December 31, 2020. Quill Inc. also
issued $800,000 of 10-year, 4% convertible bonds at par on July 1, 2020. Each $1,000 bond
converts to 60 shares of common at any interest date. None of the bonds have been converted
to date. Quill Inc. is preparing its annual report for the fiscal year ending December 31, 2020.
The annual report will show earnings per share figures based upon a reported after-tax net
income of $3,500,000. (The tax rate is 40%.)
Instructions:
Determine the following for 2020.
a. The number of shares to be used for calculating:
i. Basic earnings per share.
ii. Diluted earnings per share.
b. The earnings figures to be used for calculating:
i. Basic earnings per share.
ii. Diluted earnings per share.
P 2-4

The information below pertains to Olympic Corp for 2020.
Net income in 2019 $2.000,000
8% convertible bonds issued at par ($1,000 per 2,000,000
bond); each bond is convertible into 30 shares of
ordinary shares; the liability component of the
bonds is $1,800,000 based on a market rate of
9%
6% convertible, cumulative preference shares, 4,500,000
$100 par value; each share is convertible into 3
shares of ordinary shares
Ordinary shares, $15 par value 9,000,000
Tax rate for 2019 40%
Average market price of ordinary shares Average market price of ordinary shares $30 per
share
There were no changes during 2020, in the number of ordinary shares, preference shares, or
convertible bonds outstanding. There are no treasury shares. The company also has ordinary
share options (granted in a prior year) to purchase 75,000 ordinary shares at $20 per share.
Instructions:
a. Compute basic earnings per share for 2020.
b. Compute diluted earnings per share for 2020.
HOMEWORK
Nelson Corp. had $800,,000 net income in 2020. On January 1, 2020 there were 400,000
ordinary shares outstanding. On April 1, 50,000 shares were issued and on September 1, Nelson
bought 30,000 treasury shares. There are 40,000 options to buy ordinary shares at $35 a share
outstanding. The market price of the ordinary shares averaged $40 during 2020. The tax rate is
40%.
During 2020, there were 55,000 shares of cumulative convertible preference shares
outstanding. The preference is $100 par, pays $2,75 a year dividend, and is convertible into 4
ordinary shares.
Nelson issued $3,000,000 of 7% convertible bonds at face value during 2020. Each $1,000
bond is convertible into 20 ordinary shares.
COMPOSITOR: FILL THIS PAGE BY MOVING MATERIAL BELOW UP.
Securit Net Adjust Adjusted Shares Adjust Adjusted EPS

y Income ment Net ment Shares
Income
Instructions:

Compute diluted earnings per share for 2017. Complete the schedule and show all
computations.

MODULE 3
CHAPTER 17: INVESTMENTS
A. Debt Investments
- Character: Contractual payments on specified dates of principal and interest on the
principal amount outstanding.
- Measurement: At amortized cost if held-for-collection; at fair value if otherwise.
- Example:
1. Amortized Cost
Robinson Company purchased $100,000 of 8 percent bonds of Evermaster Corporation
on January 1, 2011, at a discount, paying $92,278. The bonds mature January 1, 2016,
and yield 10 percent; interest is payable each July 1 and January 1.
8% Bonds Purchased to Yield 10%

Bond Carrying
Cash Interest Discount Amount of
Date Received Revenue Amortization Bonds
1/1/11 92,278
a b c
7/1/11 4,000 4,614 614 92,892 d
1/1/12 4,000 4,645 645 93,537
7/1/12 4,000 4,677 677 94,214
(...) (...) (...) (...) (...)
1/1/16 4,000 4,952 952 100,000
40,000 47,722 7,722
a) 4,000 = 100,000 x 0.08 x 6/12 c) 614 = 4,614 - 4,000

b) 4,614 = 92,278 x 0.10 x 6/12 d) 92,892 = 92,278 + 614
Journal Entries:
a) Purchase of Investment, on January 1, 2011:
Debt Investment 92,278
Cash 92,278
b) First Semiannual Interest Payment, on July 1, 2011:
Cash 4,000
Debt Investment 614
Interest Revenue 4,614
c) Accrued Interest and Discount Amortization, on December 31, 2011:
Interest Receivable 4,000
Debt Investment 645
Interest Revenue 4,645
2. Fair Value

- Same accounting entries as debt investment held-for-collection, however at each
reporting date, companies adjust amortized cost to fair value, with any unrealized
holding gain or loss reported as part of net income, in the other income and expense
section.
- Example:
Assume the same information as in the previous example and Robinson determines
that the fair value of the debt investment increased to $95,000 at December 31, 2011.
Computation of Unrealized Gain on Fair Value Debt Investment:

Fair Value at December 31. 2011 $ 95,000
Amortized cost at December 31, 2011 (table) 93,537
Unrealized holding gain or (loss) $ 1,463
Journal Entry of the Adjustment:

Securities Fair Value Adjustment 1,463
Unrealized Holding Gain or Loss – Income 1,463
B. Equity Investment
Represents ownership interest, such as ordinary, preference, or other capital shares.
Accounting and reporting for equity investments:
Unrealized Holding Other Income
Category Valuation
Gains or Losses Effects
Holdings <20%
1. Trading Fair Value Recognized in net Dividends declared;
income gains and losses
from sale.
2. Non-Trading Fair Value Recognized in
"Comprehensive Other Dividends declared;
Income" and as separate gains and losses
component of equity from sale.
Holdings 20%- Equity Proportionate share
50% or investee's net
Not recognized income
Consolidatio
Holdings >50% Not recognized Not applicable
n

Journal Entries:
a) Acquire / Purchase Investment
Equity Investment XXX
Cash XXX
b) Receipt of Cash Dividend

*(Fair Value Method)
Cash/Dividend Receivable XXX
Dividend Revenue XXX
*(Equity Method)
Cash/Dividend Receivable XXX
c) Net Income from Investee (for Equity Method)

Investment Income XXX
d) Fair Value Adjustment (for Fair Value Method) :

*Trading
Fair Value Adjustment XXX
Unrealized Holding Gain or Loss – Income XXX
*Non-Trading
Fair Value Adjustment XXX
Unrealized Holding Gain or Loss – Equity XXX
(Notes: Fair value adjustment = Loss on Debit, Gain or Credit)

P 3-1
On January 1 2020, Mickey Company purchased $600,000, 8% bonds of M&M Company for
$553,667,52 yield 10% interest. Interest is payable semiannually on July 1 and January 1.
Bonds mature on January 1, 2025. Mickey Company plans to hold the bonds to collect
contractual cash flow. On January 1, 2023, after receiving interest, Mickey Company decided
to sold the bonds for $557,721.52.
Instructions:
a. Prepare the journal entry to record the purchase of the bonds.
b. Prepare a bond amortization schedule.
c. Prepare journal entry to record the semiannual interest on July 1 2020 and December
31 2020.
d. Prepare the journal entry to record the sale of the bonds.
P 3-2
On December 31, 2019, Fuji Company provided you with the following information regarding
its trading investments:
Fair Unrealized gain
Investments (Trading) Cost
Value (Loss)
Muji Corp. shares $ 25,000 $20,000 $ (5000)
Saint Co. shares 20,000 17,000 (3,000)
Seiya Co. shares 19,000 19,700 700
Total of portfolio $ 64,000 $ 56,700 (7,300)
Previous securities fair value adjustment
-0-
balance
Securities fair value adjustment - Cr. $ (7,300)
During 2020, Saint Company shares were sold for $21,000. The fair value of the shares on
December 31, 2020, was: Muji Corp. shares – $22,500; Seiya Co. shares – $17,000.
Instructions:
a. Prepare the adjusting journal entry needed on December 31, 2019.
b. Prepare the journal entry to record the sale of the Saint Company shares (2020).
c. Prepare the adjusting entry needed on December 31, 2020.
P 3-3
Salsa Corp invested $ 1,750,000 in Ocean Inc for 35% of its outstanding shares. Ocean Inc
pays out 40% of net income in dividends each year.

Instructions:
Use the information in the following T-account for the investment in Pumbaa to answer
the following questions.
Investment in Ocean Inc..

1,750,000 110,000
275,000
a. How much was Salsa Corp’s share of Ocean Inc.'s net income for the year?
b. How much was Salsa Corp's share of Ocean Inc’s dividends for the year?
c. What was Ocean Inc.'s total net income for the year?
d. What was Ocean Inc.'s total dividends for the year?

HOMEWORK
Jay Holdings, Inc. had the following investment portfolio at January 1, 2020.
John Company 1,500 shares @ $23 each $34,500
Peter Company 800 shares @ $30 each 24,000
Charlie Company 750 shares @ $14 each 10,500
Trading investment @ cost 69,000
Securities fair value adjustment (10,600)
Trading investment @ fair value 58,400
During 2020, the following transactions took place.

1. On April 1, Peter Company paid a $2.6 per share dividend.
2. On April 30, Jay Holdings, Inc. sold 350 shares of Charlie Company for $21 per share.
3. On June 15, Jay Holdings, Inc. purchased 250 more shares of John Co. at $25 per share.
4. At December 31, 2019, the shares had the following price per share values: John $29,
Peter $27, and Charlie $11.
During 2021, the following transactions took place.

5. On February 1, Jay Inc. sold the remaining Charlie shares for $12 per share.
6. On April 1, Peter Company paid a $3.4 per share dividend.
7. On December 21, John Company declared a cash dividend of $4.1 per share to be paid
in the next month.
8. At December 31, 2021, the shares had the following price per shares values: John $30
and Peter $33.
Instructions:
(a) Prepare journal entries for each of the above transactions.
(b) Prepare a partial statement of financial position showing the Investments account at
December 31, 2020 and 2021.

MODULE 4
CHAPTER 18: REVENUE
Sale of Sale of asset
Type of Rendering a Permitting use
product from other than
transaction service of an asset
inventory inventory
Revenue Revenue from

Description Revenue from Gain or loss on
from fees or interest, rents,
of revenue sales disposition
services and royalties
Timing of Date of sale Services As time passes

Date of sale or
revenue (date of performed or assets are
trade-in
recognition delivery) and billable used
Revenue Recognition Principle: Revenue is recognized when it is probable that the economic
benefits will flow to the company and the benefits can be measured reliably.
A. Revenue Recognition at Point of Sale

Revenue is measured at fair value of consideration received or receivable. Trade discounts or
volume rebates reduce consideration received/receivable and the related revenue. Delayed
payments cause an interest rate for the difference between the cash and the differed amount to
the buyer. Revenue is recognized at the critical point - when risks and benefits of ownership
are transferred to the buyer.
Example: Volume Discount
Company ABC provides a 3% volume discount to customers if they purchase at least $2 million
of its products in a calendar year. Company XYZ purchased $700,000 on March 31 and is
predicted to fall under this condition since it purchased over $3 million in the period April 1 to
December 31.
a) Revenue report:
Accounts Receivable 697,000
Sales 697,000
b) Cash received:
- If discount threshold is met
Cash 697,000
- If discount threshold is not met

Cash 700,000
Sales Discounts Forfeited 21,000
B. Long-term Contracts (Construction)

Long-term contracts frequently provide that the seller (builder) may bill the purchaser at
intervals, as it reaches various points in the project; in other words – before the point of
sale/critical point.
Two accounting methods to recognize long-term contracts:
1. Percentage-of-completion method: Companies recognize revenues and gross profits each
period based upon the progress of the construction. Construction costs plus gross profit
earned to date is accumulated in an inventory account (Construction in Process), and
progress billings in a contra inventory account (Billings in Construction in Progress).
2. (Cost-recovery (zero profit) method: Contract revenue is recognized only to the extent of
costs incurred that is expected to be recoverable. Inventory and contra inventory accounts
are the same as the above method.
1. Percentage-of-completion Method
Basic Formulas:
1) Percent complete = Costs incurred to date/Most recent estimate of total costs
2) Revenue to be recognized to date = Percent complete x Estimates total revenue
3) Current period revenue = Revenue to be recognized to date – Revenue recognized in
prior periods
Journal Entries:
a) Construction: Dr. Construction in Process; Cr. Materials, Cash, Payables, etc.
b) Progress billings: Dr. Accounts Receivable; Cr. Billings on Construction in Process
c) Collection: Dr. Cash; Cr. Accounts Receivable
d) Revenue and gross profit: Dr. Construction in Process; Dr. Construction Expenses; Cr.
Revenue from Long-Term Contracts
e) Completion of contract: Dr. Billings on Construction in Process, Cr. Construction in
Process
2. Cost-Recovery (Zero-Profit) Method

Financial Statement Presentation:
a) Income Statement
Revenue from long-term contracts xxx
Cost of construction (xxx)
Gross profit xxx
b) Statement of Financial Position

Current assets
Inventories
Construction in Process xxx
Less: Billings xxx
Costs in excess of billings xxx
Accounts receivable xxx
Current Liabilities
Billings xxx
Less: Construction in process xxx
Billings in excess of costs and recognized profits xxx
P 4-1

On July 2020, Jasa Marga Construction Company contacted to construct a factory building for
Natsume Manufacturing Inc.for a total contract price of $12,000,000. the building was
completed by October 2022 The following data pertain to the construction period.
2020 2021 2022
Costs to date $3,000,000 $7,540,000 $11,200,000
Estimated costs to complete 7,000,000 4,060,000 0
Progress billings during the year 3,600,000 6,000,000 2,400,000
Cash collected during the year 3,000,000 5,600,000 3,400,000
Instructions:
Using the percentage-of-completion method, compute the estimated gross profit that would
be recognized during each year of the construction period and make a journal.
P 4-2
Maju Jaya Construction Company has entered into a contract to construct a $5,500,000 bridge
at an estimated cost $5,000,000. The contract is start in July 2019, and the bridge is to be
completed in October 2021. The following data pertain to the construction period. ( Note that
by the end of 2020, Dolton has revised the estimated total cost from $5,000,000 to $5,050,000.)
2019 2020 2021
Costs incurred during the year $2,000,000 $1,916,000 $1,134,000
Estimated costs to complete 3,000,000 1,084,000 0
Progress billings during the year 1,900,000 2,400,000 2,200,000
Cash collected during the year 1,750,000 2,750,000 3,000,000
Instructions:
a. Using the percentage-of-completion method, compute the estimated gross profit that
would be recognized during each year of the construction period.
b. Using the cost-recovery method, compute the estimated gross profit that would be
recognized during each year of the construction period.

HOMEWORK
On July 1, 2019, Sisca Construction Company Inc. contracted to build an office building for
VIP Corp. for a total contract price of $2,100,000. On July 1, Sisca estimated that it would take
between 2 and 3 years to complete the building. On December 31, 2021, the building was
deemed substantially completed. Following are accumulated contract loss incurred, estimated
costs to complete the contract, and accumulated billings to VIP for 2019, 2020, and 2021.
At 12/31/19 At 12/31/20 At 12/31/21
Contract loss incurred to date $ 400,000 $ 1,600,000 $ 2,300,000
Estimated costs to complete the contract 1,600,000 400,000 0
Billings to VIP Corp 300,000 1,100,000 1,850,000
Instructions:
a. Using the percentage-of-completion method, prepare schedules to compute the profit or
loss to be recognized as a result of this contract for the years ended December 31, 2019,
2020, and 2021. (Ignore income taxes.)
b. Using the cost-recovery method, prepare schedules to compute the profit or loss to be
recognized as a result of this contract for the years ended December 31, 2019, 2020, and
2021. (Ignore income taxes.)

MODULE 5
CHAPTER 19: ACCOUNTING FOR INCOME TAXES
Pretax financial Income (Income Tax Expense) vs Taxable income (Income Tax Payable)
Temporary difference (The cumulative tax amount will eventually balance out)
1. Deferred tax liability (happens because in pretax financial income we use accrual
method and for taxable income they use modified cash basis). Sometimes we find it
different because we have accounts receivable for our revenues.
Example: for 2011 in the book basis the revenue is $130,000 ($30,000 of it still on
account). The expense is $60,000, so the income for book basis is $70,000. Because in
tax basis the revenue that still on account doesn’t included yet, the income will be
$40,000 ($130,000-$30,000-$60,000) for tax basis. The tax rate is 40%.
The entry:
Income Tax Expense $28,000
Income Tax Payable $16,000
Deferred Tax Liability $12,000
2. Deferred Tax Asset

Example: A Company accrues a loss and a related liability of $50,000 in 2011 for
financial reporting purposes because of pending litigation. A can’t deduct this amount
for tax purposes until the period it pays the liability, expected in 2012.
Assuming the income tax payable is $100,000, so the income tax expense will be:
*deferred tax benefit: deferred tax asset at the beginning – at the end
The entry:
Income Tax Expense $80,000

Deferred Tax Asset $20,000
Income Tax Payable $100,000
It can be adjusted when that is probability that it will not realized. The entry:
Income Tax Expense xxx
Deferred Tax Asset xxx
Or it’s expected to be realize, the entry:

Deferred Tax Asset xxx
Permanent Difference
(Some items are included in the pretax financial income but never into taxable income, or vice
versa). Thus the difference will be permanent and it should be adjusted into the pretax financial
income to revise the company’s Income tax expense.
Income Statement formula to compute income tax expense (benefit):
Revision of future tax rates:

If the total decrease, the entry:
Deferred Tax Liability xxx
If the total increase, the entry:
Deferred Tax Liability xxx
Accounting for Net Operating Losses (IFRS)

● Loss carry back (2 years back)
● Loss carry forward (max 20 years forward)
● For Indonesian law only 5 years of Loss carry forward is allowed
Example:
Carry back
In 2010, A company incurs a NOL that it decides to carryback.
Tax benefit of loss carry back: $110,000 ($30,000 + $80,000).
The journal entry:

Income Tax Refund Receivable 110,000
Benefit Due to Loss Carryback (Income Tax Expense) 110,000
Since the $500,000 NOL for 2010 exceeds the $300,000 total taxable income from the two
preceding years, A carries forward the remaining $200,000 loss.
Carry forward
Tax benefit of loss carry forward: $200,000 (remaining amount of loss) x 40% = $80,000
(assuming future tax rate is 40%)
Journal entry after the benefit of loss carryback in 2010:

Deferred Tax Asset 80,000
Benefit Due to Loss Carry forward (Income Tax Expense) 80,000
If the income for 2011 is $250,000, A will record the income taxes in 2011 as follow:
Income Tax Expense 100,000
Income Tax Payable 20,000
If A didn’t recognize a deferred tax for loss carry forward, then he will record it in the time he
realized the deferred tax asset. Assume that he realize it in 2011, then the journal entry for loss
carry forward will be recorded in 2011.
Income Tax Expense 80,000
P 5-1
Irene Co reports its pretax financial income in 2020 for $12,000, but from the pretax financial
income, there are some problems between tax and the financial recording process of Irene Co,
where the differences are listed below:
● Depreciation on tax return is $3,500 greater than book

● Rent on machine revenue is $5,000 greater according to tax rather than book
● Charitable donation for $2,400 is not allowed by tax law
● If the tax rate apply is 25% and no beginning deffered tax asset and liability
Instructions :
Compute the taxable income for 2020 and the entries related
P 5-2
The records for Dream Co. show this data for 2019.
- Gross profit on installment sales recorded on the books was $450,000. Gross profit for
tax purposes from collection of installment receivables was $360,000.
- Machinery was acquired in January for $240,000. Straightline depreciation over a ten
year life ($3,000 residual value) is used. For tax purposes, Accelerated depreciation is
used and Bosch may deduct 15% for 2019.
- Interest received on governmental obligations was $8,500
- The estimated warranty liability related to 2019 sales was $17,200. Repair costs under
warranties during 2019 were $15,400. The remainder will be incurred in 2021
- Pre tax financial income is $600,000. The tax rate is 30%
Instructions
a. Prepare a schedule starting with pretax financial income and compute taxable income.
b. Prepare the journal entry to record income taxes for 2019.

P 5-3
Ryan Corp. Reports the following pretax income (loss) for both financial reporting purposes
and tax purposes. (assume the carryback provision is used for a net operating loss.)
Year Pretax Income (Loss) Tax Rate
2017 $ 210,000 32%
2018 $ 190,000 32%
2019 ($ 520,000) 36%
2020 $ 425,000 36%
The tax rated listed were all enacted by the beginning of 2016
Instructions:
a. Prepare the journal entries for the years 2017-2020 to record income tax expense (benefit)
and income tax payable (refundable) and the tax effect of the loss carryback and
carryforward, assuming that the end of 2019 it is probable that the benefits of the loss
carryforward will be realized in the future.
b. Using the assumption in (a), prepare the income tax section of the 2019 income statement,
beginning with the line “operating loss before income taxes.”
c. Prepare the journal entries for 2019 and 2020, assuming that based on the weight of
available evidence, it is probable that one fourth of the benefits of the loss carryforward
will not be realized.

MODULE 6
CHAPTER 21: ACCOUNTING FOR LEASES
A lease is a contractual agreement between a lessor and a lessee that conveys to the lessee the
right to use specific property (real or personal), owned by the lessor, for a specified period of
time. In return, the lessee periodically pays cash (rent) to the lessor.
The advantages of lease transactions are:

(1) 100 percent financing,
(2) protection against obsolescence,
(3) flexibility,
(4) less costly financing,
(5) possible tax advantages,
(6) off-balance-sheet financing.
A lease is a Financial Lease if it meets one or more of the following criteria:

(1) The lease transfers ownership of the property to the lessee.
(2) The lease contains a bargain-purchase option.
(3) The lease term is for a major part of the estimated economic life of the leased
property.
(4) The present value of the minimum lease payments (excluding executory costs)
amounts to substantially all of the fair value of the leased property. For a finance
lease, the lessee records an asset and a liability at the present value of the minimum
lease payments at the inception of the lease.
Several effects of using a financial lease instead of an operating lease is:

(1) an increase in the amount of reported debt (both short-term and long-term),
(2) an increase in the amount of total assets (specifically long-lived assets)
(3) lower income early in the life of the lease and, therefore, lower retained earnings.
A lessor may classify leases for accounting purposes as follows: (1) operating leases, (2) direct-
financing leases, and (3) sales-type leases. The lessor should classify and account for an
arrangement as a direct-financial lease or a sales-type lease if, at the date of the lease
arrangement, the lease meets one or more of the lease capitalization criteria.
The lessor classifies and accounts for all leases that fail to meet the criteria as operating leases.
Leases that are in substance the financing of an asset purchase by a lessee require the lessor to
substitute a “lease receivable” for the leased asset. “Lease receivable” is the present value of
the minimum lease payments plus the present value of the unguaranteed residual value.
Therefore, lessors include the residual value, whether guaranteed or unguaranteed, as part of
lease receivable.
Direct Financial Lease

Lease Receivable xxxxx
Leased Asset xxxxxx
For Sales type

Lease Receivable xxxxx
Cost of Goods Sold xxxxx
Sales Revenue xxxxx
Inventory xxxxx
The features of lease arrangements that cause unique accounting problems are (1) residual
values, (2) sales-type leases (lessor), (3) bargain-purchase options, (4) initial direct costs, (5)
current versus non-current, and (6) disclosure.
The disclosure requirements for lessees and lessors vary based upon the type of lease (finance
or operating) and whether the issuer is the lessor or lessee. These disclosure requirements
provide investors with the following information: (1) general description of the nature of
leasing arrangements; (2) the nature, timing, and amount of cash inflows and outflows
associated with leases, including payments to be paid or received in the next year, in years 2-5
and years thereafter; and (3) amounts receivable and unearned revenues under lease agreements
Residual Values
If the asset is not automatically passed to the lessee, or a bargain – purchase option is forgone
usually there would be a substantial amount of residual value that must be returned to the lessor.
Guaranteed vs. Unguaranteed residual Value for Lessee

In an unguaranteed residual value deal lessee only capitalize the PV of the payment schedule
and at the end of the period removes the asset with the usual journal entry.
In a guaranteed a guaranteed residual value deal lessee capitalizes the PV of the payment
schedule and at the residual value. At the End of the period removes the asset with the usual
journal entry and recognized loss or gain based on the actual residual value compared to the
guaranteed one.
Lessor residual value

The lessor always realizes the residual value at the end of the lease term.
For Sales type leases the lessor will deduct their sales revenue and Cost of Goods sold by the
PV of unguaranteed residual value because of the uncertainty.
P 6-1

The following facts pertain to a non-cancellable lease agreement between Scouts Leasing
Company and Fireflies Company, a lessee.
Inception date: May 1, 2020
Annual lease payment due at the beginning of
each year, beginning with May 1, 2020 £ 34,855.585
Bargain-purchase option price at end of lease term £ 7,500.00
Lease term 5 years
Economic life of leased equipment 8 years
Lessor’s cost £ 132,000.00
Fair value of asset at May 1, 2020 £ 150,000.00
Lessor’s implicit rate 10%
Lessee’s incremental borrowing rate 10%
The lessee assumes responsibility for all executory costs.
Instructions:
a. Discuss the nature of this lease to Fireflies Company.
b. Discuss the nature of this lease to Scouts Company.
c. Prepare a lease amortization schedule for Fireflies Company for the 5-year lease term.
d. Prepare the journal entries on the lessee’s books to reflect the signing of the lease
agreement and to record the payments and expenses related to this lease for the years
2018 and 2019. Fireflies Co annual accounting period ends on December 31. Reversing
entries are used by Titanium.
P 6-2
JYP Entertainment leases its milking equipment from SM Finance Company under the
following lease terms.
1. The lease term is 10 years, non-cancelable, and requires equal rental payments of
$30,300 due at the beginning of each year starting January 1, 2020.
2. The equipment has a fair value at the commencement of the lease (January 1, 2020.) of
$242,741 and a cost of $180,000 on SM Finance’s books. It also has an estimated
economic life of 15 years and an expected residual value of $45,000, though JYP
Entertainment has guaranteed a residual value of $50,000 to SM Finance
3. The lease contains no renewal options, and the equipment reverts to SM Finance upon
termination of the lease. The equipment is not a specialized use.
4. JYP Entertainment’s incremental borrowing rate is 8% per year. The implicit rate is
also 8%
5. JYP Entertainment depreciates similar equipment that it owns on a straight-line basis.
6. Collectibility of the payments is probable
Instructions:
a. Evaluate the criteria for classification of the lease by the lessor and describe the nature
of the lease. In general, discuss how the lessee and lessor should account for the lease
transaction
b. Prepare the journal entries for the lessee and lessor at January 1, 2020 and December
31, 2020 (the lessee’s and lessor’s year end). Assume no reversing entries

P 6-3
Ardan Machinery Works entered into a lease agreement on January 1, 2020, to provide Aiko
SA with a piece of machinery. The terms of the lease agreement were as follows.
1. The lease is to be for 3 years with rental payment of €10,521 to be made at the beginning
at each year
2. The machinery has a fair value of €55,000, a book value of €40,000, and an economic
life of 8 years
3. At the end of lease term, both parties expect the machinery to have a residual value of
€30,000, none of which is guaranteed
4. The lease does not transfer ownership at the end of the lease term, does not have a
bargain purchase option, and the asset is not of a specialized nature
5. The implicit rate is 6%, which is known by Aiko SA
6. Collectability of the payments is probable
Instructions:
a. Evaluate the criteria for classification of the lease, and describe the nature of the lease
b. Prepare the amortization schedules Aiko SA will use over the lease term
c. Prepare the 2019 journal entries for Aiko SA
d. Prepare the 2019 journal entries for Ardan Machinery Works
HOMEWORK
Alea Leasing Company signs a lease agreement on January 1, 2020, to lease electronic
equipment to Sasha Company. The term of the non-cancellable lease is 2 years. Payments are
required at the end of each year. The following information relates to this agreement.
1. Sasha has the option to purchase the equipment for £7,000 upon termination of the
lease.
2. The equipment has a cost and fair value of £90,000 to Alea Leasing Company. The
useful economic life is 2 years, with a residual value of £7,000.
3. Sasha Company is required to pay £2,500 each year to the lessor for executory costs.
4. Alea Leasing Company desires to earn a return of 10% on its investment.
Instructions:
(a) Prepare the journal entries on the books of Alea Leasing to reflect the payments
received under the lease and to recognize income for the years 2020 and 2021.
(b) Assuming that Sasha Company exercises its option to purchase the equipment on
December 31, 2021, prepare the journal entry to reflect the sale on Alea’s book.

MODULE 7
CHAPTER 22: ACCOUNTING CHANGES AND ERROR
ANALYSIS
The IASB has established a reporting framework that involves two types of accounting
changes. The two types are:
1. Change in accounting policy: a change from one accepted accounting policy to another
one.
2. Change in accounting estimate : a change that occurs as the result of new information
or additional experience
a third category necessitates changes in accounting, though it is not classified as an accounting

change
3. Errors in financial statements. Errors result from mathematical mistakes, mistakes in
applying accounting policies, or oversight or misuse of facts that existed when
preparing the financial statements.
By definition, a change in accounting policy involves a change from one accepted accounting
policy to another. Adoptions of a new policy in recognition of events that have occured for the
first time or that were previously immaterial is not a change in accounting policy. This type of
change is a correction of an error.
There are 3 possible approaches for reporting changes in accounting policies :

1. Report changes currently : in this approach, comapnies report the cumulative effect of
the change in the current year’s income statement
2. Report changes retrospectively. Retrospective application refers to the application of a
different accounting policy to recast previously issued financial statement- as if the new
policy had always been used. In other words, the company goes back and adjusts prior
years statements on a basis consistent with the newly adopted policy.
3. Report changes prospectively ( in the future). In this approach, previously reported
results remain. As a result, companies do not adjust opening balance to reflect the change
in policy.
IASB requires that companies use the retrospective approach because it provides financial
statement users with more useful information than the cumulative effect or propective
approaches. The rationale is that changing the prior statements to be on the same basis as the
newly adopted policy results in greater consistency across accounting periods. Users can then
better compare results from one period to the next.
Restrospective accounting change approach.

A presumption exists that one a company adopts an accounting policy, it should not change.
IASB permits companies to change an accounting policy if :
1. It is required IFRS
2. It result in the financial statements providing more reliable and relevant information about a
company financial position, financial performance and cash flow
In general terms when a company will change an accounting policy:

a. Adjust (recast) its financial statements for each prior period presented.
b. Adjust the carrying amounts of assets and liabilities as of beginning of the first year
presented
Retrospective Accounting Change: Long-Term Contracts
Illustration: Denson Company has accounted for its income from long-term construction
contracts using the cost-recovery method. In 2015, the company changed to the percentage-of-
completion method. Management believes this approach provides a more appropriate measure
of the income earned. For tax purposes, the company uses the cost-recovery method and plans
to continue doing so in the future. (Assume a 40 percent enacted tax rate.)
Journal entry beginning of 2015

Construction in Process 220,000
Deferred Tax Liability 88,000
Retained Earnings 132,000
Retained Earnings Adjustment

Retained earnings balance is €1,360,000 at the beginning of 2016.

After Change
Direct and Indirect Effects of Changes
Direct Effects - IASB takes the position that companies should retrospectively apply the direct
effects of a change in accounting policy.
Indirect Effect is any change to current or future cash flows of a company that result from
making a change in accounting principle that is applied retrospectively.
Impracticability
Companies should not use retrospective application if one of the following conditions exists:
1. Company cannot determine the effects of the retrospective application.
2. Retrospective application requires assumptions about management’s intent in a prior
period.
3. Retrospective application requires significant estimates that the company cannot
develop.

CHANGES IN ACCOUNTING ESTIMATE
Examples of Estimates
1. Bad debts.
2. Inventory obsolescence.
3. Useful lives and residual values of assets.
4. Periods benefited by deferred costs.
5. Liabilities for warranty costs and income taxes.
6. Recoverable mineral reserves.
7. Change in depreciation estimates.
8. Fair value of financial assets or financial liabilities
Prospective Reporting: Changes in accounting estimates are reported prospectively.

Account for changes in estimates in
1. the period of change if the change affects that period only, or
2. the period of change and future periods if the change affects both.
ACCOUNTING ERRORS
Types of Accounting Errors:
1. A change from an accounting principle that is not generally accepted to an
accounting policy that is acceptable.
2. Mathematical mistakes.
3. Changes in estimates that occur because a company did not prepare the
estimates in good faith.
4. Failure to accrue or defer certain expenses or revenues.
5. Misuse of facts.
6. Incorrect classification of a cost as an expense instead of an asset, and vice
versa.

P 7-1
On January 1, 2013, Neo Company purchased a building and machinery that have the following
useful life, residual value, and costs.
Building, 25-year estimated useful life, $4,500,000 cost, $350,000 residual value
Machinery, 10-year estimated useful life, $470,000 cost, no residual value
The building has been depreciated under the straight-line method through 2017. In 2018, the
company decided to switch to the double-declining balance method of depreciation for the
building. Neo Company also decided to change the total useful life of the machinery to 7 years,
with a residual value of $25,000 at the end of that time. The machinery is depreciated using the
straight-line method.
Instructions:
(a) Prepare the journal entry necessary to record the depreciation expense on the
building in 2018.
(b) Compute depreciation expense on the machinery for 2018.
P 7-2
On December 31, 2019 Summer Corp found the following error transaction after closed the
book for 2019:
1. On December 31, 2018 Summer Corp did not accrue wages in the amount of $ 2,750.
2. In January 2018, Summer Corp purchased a 2 year insurance policy costing $ 1,000. It
debited Insurance Expense and Credited Cash. The company made no adjusting entries
at the end of 2018.
3. On December 31, 2018 Summer Corp received $ 75,000 as a prepayment for renting
certain office space for the following year. At the time of receipt of the rent payment,
the company recorded a debit cash and credit to rent revenue. It made no adjusting entry
as of December 31, 2018.
4. On December 31, 2018 Summer Corp accrued as interest revenue $9,750 that applied
to 2019. On that date, the company recorded a debit to Interest Receivable and credit
to interest revenue.
5. Summer’s Accountant recorded a purchase of merchandise for $ 5,000 in 2018 that
applied to 2019. The physical inventory for 2018 was correctly stated. The company
uses the periodic inventory method.
6. Assume that on January 1, 2018 Summer Corp purchased a machine for $35,000 that
had an estimated useful life of 7 years. The accountant incorrectly expensed this
machine in 2018 but discovered the error in 2019.
Instruction:
Prepare necessary correcting journal entries for the error transaction listed above.

P 7-3
On December 31, 2020 Joy Company had many error transactions during the preparation of
the financial statement.
1. In October 2, 2020 Joy Company purchased an equipment with that cost $80,000,
Purchase journal have been recorded, but the depreciation of the equipment hasn’t been
recorded. The equipment has a useful life of 4 years with $5,000 residual value and Joy
company uses straight-line method to depreciate the equipment.
2. Joy Company didn’t accrue their sales commision of $ 2,000 in 2019 and $ 3,500 in
2020.
3. In December 4, 2020 Joy Company received $ 6,400 from a customer in cash for a
service that will start in December 31, 2021. The transaction has been recorded by
debiting Cash and crediting Service revenue.
4. In December 31, 2019, Joy Company didn’t accrue the wages and salaries for $ 9,800
5. In December 27, 2019 Joy Company received a payment of $ 13,500 for office rent that
began in January 1, 2020. At the date of payment, Joy Company recorded the
transaction by debiting Cash and crediting Rent revenue.
6. In January 1, 2019, Joy Company bought an equipment at a price of $ 50,000 and it had
a 5-year useful life. Joy Company recorded this transaction with equipment expense.
7. Joy Company has a patent of $ 48,000 from 2019. That patent hasn’t been amortized.
It has a 10-year useful life.
8. In December 28, 2020 Joy collected a payment of Receivables from a customer of
$ 6,400 but the transaction hasn’t been recorded.
9. In September 5, 2020 Joy Company sold a vehicle that costed $ 60,000 and with an
accumulated depreciation of $ 54,000 for $9,500. Joy Company recorded the
transaction by debiting cash and crediting vehicle at $ 9,500.
10. Prepaid Insurance from July 1, 2019 for 3 years at $6,000 was recorded as Insurance
expense.
Instruction:
Prepare the Correction Journal for the error transaction with assumption Joy Company
have not closed the book in 2020.

MODULE 8
CHAPTER 24: PRESENTATION AND DISCLOSURE IN FINANCIAL
REPORTING
A. Full Disclosure Principle

The full disclosure principle calls for financial reporting for all facts, which are
significant enough to influence the judgment of an informed reader.
The requirements for disclosure have increased substantially because of:
 The growing complexity of companies,
 The necessity for timely information, and
 The use of accounting as a control/monitory device.
B. Disclosure Issues
Disclosure of Special Transaction or Events
Some transactions pose difficult problems in disclosure:
 Related-party transactions -- These transactions arise, when one of the parties
has the ability to influence the policies of the other party. In these transactions,
the following is disclosed:
1) The nature of the related-party relationship,
2) The amount of the transactions and outstanding balances, including
commitments, the nature of considerations, and details of any guarantees
given or received,
3) Provisions for doubtful debts related to the amount of outstanding balances,
4) The expense recognized during the period in respect of bad or doubtful debts
due from related parties.
 Errors - Unintentional mistakes - and Fraud - Intentional distortions - Notes
provide some indication of the existence and nature of these transactions of
users of the financial statements.
Events after the Reporting Period (Subsequent Events)

Subsequent events, are events which occur after the statement of financial position
date, and before the authorization date.
Two types of events occurring after the statement of financial position date may have a
material effect on the statements or may need disclosure:
1. Events that provide additional evidence about conditions that existed at the
statement of financial position date (referred to as adjusted subsequent events)
and require adjustments.
2. Events that provide evidence about conditions that did not exist at the statement
of financial position date, but arise after (referred to as non-adjusted subsequent
events) and do not require adjustments.
Reporting for Diversified (Conglomerate) Companies

An operating segment is significant, as it satisfies one or more of the following:
 Revenue is >10% of the combined revenue of all the company’s operating
segments.
 Profit/loss is >10% of the (a) combined operating profit of all operating
segments that did not incur a loss, or (b) combined loss of all operating segments
that did not report a loss.

 Identifiable assets >10% of the combined assets of all operating segments.
In addition, the segment sales must be >75% of the combined sales and there is a
maximum of ten segments for disclosing.
Interim Reports
Interim reports provide information over periods of less than a year:
1. Discrete approach – treat each interim period as a separate accounting period (IFRS
requirement).
2. Integral approach – reat each interim period as an integral part of the annual report.
C. Perspective on Financial Statement Analysis

- Logical approach:
o Know the questions for which you want to find answers.
o Know the questions that particular ratios and comparison
o Match 1 and 2
D. Ratio Analysis
- Liquidity Ratios: Measures of the company’s short-run ability to pay its maturing
obligations.
- Activity Ratios: Measures of how effectively the company is using the assets
employed.
- Profitability Ratios: Measures of the degree of success or failure of a given
company or division for a given period of time.
- Coverage Ratios: Measures of the degree of protection for long-term creditors and
investors.
E. Comparative Analysis
- Definition: Presents the same information for two or more different dates or periods,
so that like items may be compared. The comparative data, includes two years of
statement of financial position information and three years of income statement
information. Sometimes, companies also include long-term summaries (for 5 or 10
years) to analyze and discover trends.
F. Percentage Analysis
- Definition: Consists of reducing a series of related amounts to a series of
percentages of a given base. Percentage analysis is used to evaluate and compare
different companies. There are two approaches:
 Horizontal Analysis: indicates the proportionate change over a period of
time to evaluating trends.
 Common-Size Analysis (or Vertical Analysis): presents the proportional
expression of each financial statement item in a given period to a base
figure.

P 8-1
Presented below are comparative statements of financial position for the Velvet, Ltd.
(in thousand dollars).
Dec-31
Assets 2020 2019
Fixed assets 4,100 3,560
Accumulated Depreciation -1,250 -960
Inventory 3,750 2,450
Accounts receivable (net) 640 475
Cash 1,680 1,550
Total assets 8,920 7,075
Equity and Liabilities

Share capital – ordinary 3,000 3,000
Retained earnings 1,050 750
Bonds payable 870 970
Accrued expenses 1,688 1,345
Accounts payable 2,312 1,010
Total Equity and Liabilities 8,920 7,075
Instructions:
a. Prepare a comparative statement of financial position of Velvet, Ltd. showing the
percent each item is of the total assets or total liabilities and equity.
b. Prepare a comparative statement of financial position of Velvet, Ltd. showing the
dollar change and the percent change for each item.
P 8-2
La Rouge Textile Company is involved in four separate industries. The following information
is available for each of the four segments.
Operating Profit
Operating Segment Total Revenue Identifiable Assets
(Loss)
Spinning $65,000 $17,500 $185,000
Weaving $36,000 $(3,600) $45,000
Finishing $12,500 $1,950 $19,000
Garment $22,200 $4,800 $65,000
Instructions:
Determine which of the operating segments are reportable based on the:
a. Revenue Test.
b. Operating Profit (Loss) Test.
c. Identifiable Assets Test.
P 8-3
The commercial loan officer of Asean Bank requested financial reports for the last two fiscal
years of Redmare Corporation. These reports are reproduced below (in thousand Rupiah).

Redmare Corporation
Statement of Financial Position
March 31
Assets 2020 2019
Plant and equipment Rp 2.656.250 Rp 2.065.000
(net of depreciation)
Inventories (at cost) Rp 114.375 Rp 93.750
Accounts receivable Rp 296.250 Rp 268.750
(net)
Notes receivable Rp 138.750 Rp 118.750
Cash Rp 49.063 Rp 31.875
Total Assets Rp 3.254.688 Rp 2.578.125
Equity and Liabilities

Share capital – ordinary Rp 2.250.000 Rp 1.875.000
Retained Earnings Rp 629.375 Rp 401.250
Accrued Liabilities Rp 12.813 Rp 8.750
Notes Payable Rp 112.500 Rp 97.500
Accounts Payable Rp 250.000 Rp 195.625
Total Equity and Rp 3.254.688 Rp 2.578.125
Liabilities
Redmare Corporation
Income Statement
For the Fiscal Year Ended March 31
2020 2019
Sales Revenue Rp 4.062.500 Rp 3.125.000
Cost of Goods Sold Rp 2.343.750 Rp 1.968.750
Gross Margin Rp 1.718.750 Rp 1.156.250
Operating Expenses Rp 1.000.000 Rp 781.250
Income before Income
Taxes Rp 718.750 Rp 375.000
Income Taxes (30%) Rp 215.625 Rp 112.500
Net Income Rp 503.125 Rp 262.500
Instructions:
Compute the following item for Redmare Corporation.
a. Current ratio for fiscal years 2019 and 2020.
b. Acid-test (quick) ratio for fiscal years 2019 and 2020.
c. Inventory turnover for fiscal year 2020.
d. Return on Assets for fiscal years 2020
e. Percentage change in sales, cost of goods sold, gross margin, and net income after
taxes from fiscal year 2019 to 2020.


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ACCOUNTING LAB MODULE

UPH BUSINESS SCHOOL

Reviewed by: Meiliana Jaunanda, SE., M.Ak.

EDITION, 3RD EDITION, NEW JERSEY: JOHN WILEY & SONS.

Intermediate Accounting 2 is a continuation of Intermediate Accounting 1 which is a crucial subject in

Assistant Lab. Team

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 2

B. General Instructional Objective

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 3

Mid-Test : 35% Absence : 10%

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 4

Below is the SAP of accounting lab for Intermediate Accounting 2:

Meeting Module Chapter Material

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 5

Retained earnings represent the earned capital of the company.

Issuing 1000 shares with $ 10 par value at $ 15 per share:

Acquiring 10,000 shares at $ 15 per share.

Treasury Shares $ 150,000

Recorded as deduction to determine total equity in the equity section (Statement of

Sale of Treasury Shares

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 6

Retained Earnings (Share Dividend Declared) $ 10,000

When issuing the shares, the entry is:

Ordinary Share Dividend Distributable $ 10,000

Two important should be noted about this entry:

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 7

Jan 10 Issued 40,000 ordinary shares for cash at $9 per share

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 8

Assets Equity and Liabilities

a. Harris declares and pays a $1.5 per share cash dividend.

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 9

November 30, 2020 $38

December 31, 2020 $42

c. Prepare the stockholders' equity section (including schedules of retained earnings

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 10

Face Value of convertible debt – PV of liability component = FV of equity component (All

The journal entry should be:

Repurchased before maturity, the entry:

CONVERTIBLE PREFERENCE SHARES

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 11

At date of grant: No entry

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 13

COMPOSITOR: FILL THIS PAGE BY MOVING MATERIAL BELOW UP.

Securit Net Adjust Adjusted Shares Adjust Adjusted EPS

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 14

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 15

8% Bonds Purchased to Yield 10%

a) 4,000 = 100,000 x 0.08 x 6/12 c) 614 = 4,614 - 4,000

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 16

Computation of Unrealized Gain on Fair Value Debt Investment:

Journal Entry of the Adjustment:

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 17

b) Receipt of Cash Dividend

c) Net Income from Investee (for Equity Method)

d) Fair Value Adjustment (for Fair Value Method) :

(Notes: Fair value adjustment = Loss on Debit, Gain or Credit)

Intermediate Accounting 2 Module | Odd Term 2020-2021 | 18