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NDEA Company purchased 250,000 shares of Simultaneous Corp. common stock on July 1,
2006, at P16.50 per share, which reflected book value as of that date. At the time of the
purchase, Simultaneous had 1,000,000 common shares outstanding. NDEA had no
ownership interest in Simultaneous prior to this purchase. Simultaneous reported net
income of P840,000 for the six months ended June 30, 2006. NDEA received a dividend of
P105,000 from Simultaneous on August 1, 2006, Simultaneous reported net income of
P1,800,000 for the year ended December 31, 2006, and again paid NDEA Company
dividends of P105,000.
On January 1, 2007, NDEA sold 100,000 shares of Simultaneous Corp. common stock for
P17 per share and reclassified the remaining stock as noncurrent. Simultaneous reported
net income of P1,860,000 for the year ended December 31, 2007, paid NDEA Company
dividends of P60,000.
Questions:
1.
2.
d. P4,260,000
3. The cumulative effect of the change from equity to cost method of accounting for the
investment in common stock to be reported in the statement of changes in equity should
be
a. P30,000 credit
b. P240,000 debit
c. P30,000 debit
d. P0
4. The share in net income of Simultaneous to be recognized by NDEA in its income
statement for 2007 should be
a. P219,000
b. P60,000
c. P279,000
d. P0
5. What is the investment balance on December 31, 2007?
a. P2,493,000
b. P2,763,000
c. P4,125,000
d. P4,155,000
PROBLEM 7
You are engaged in the regular annual examination of the accounts and records of Buddy
Manufacturing Company for the year ended December 31, 2004. To reduce the work load at
year-end, the company, upon your recommendation, took its annual physical inventory on
November 30, 2004. You observed the taking of the inventory and made tests of the
inventory count and the inventory records.
The companys inventory account, which includes raw materials and work-in-process is on a
perpetual basis. Inventories are valued at cost, first-in, first-out method. There is no
finished goods inventory.
The companys physical inventory revealed that the book inventory of P4,239,900 was
understated by P210,000. To avoid delay in completing its monthly financial statements,
the company decided not to adjust the book inventory until year end except for obsolete
inventory.
You examination disclosed the following information regarding the November 30 inventory:
1. Pricing tests showed that physical inventory was overstated by P154,000.
2. An understatement of the physical inventory by P10,500 due to errors in footings
and extensions.
3. Direct labor included in the inventory amounted to P700,000.
Overhead was
included at the rate of 200% of direct labor. You have ascertained that the amount
of direct labor was correct and that the overhead rate was proper.
4. The physical inventory included obsolete materials with a total cost of P17,500.
During December, the obsolete materials were written off by a change to cost of
sales.
Your audit also disclosed the following information about the December 31 inventory:
1. Total debits to the following accounts during December were:
Cost of sales
Direct labor
Manufacturing expense
Purchases
4,802,000 *
847,000
1,764,000
1,729,000
d. P 3,756,900
8. The raw materials included in the ending inventory at December 31, 2004 is:
a. P 1,961,400
b. P 2,013,900
c. P 2,031,400
d. P 2,188.900
9. The direct labor included in the ending inventory at December 31, 2004 is:
a. P 581,000
b. P 847,000
c. P 700,000
d. P 966,000
10. The total cost of sales for December 31, 2004 is:
a. P 4,854,500
b. P 4,802,000
c. P 4,784,500
d. P 4,714,500
Problem 3
During your audit of the records of the Chivas Corporation for the year ended December 31,
2005, the following facts were disclosed:
Raw materials inventory, 1/1/2005
P 720,200
Raw materials purchases
5,232,800
Direct labor
6,300,000
9,450,000
1,240,000
8,112,800
7,377,200
b)
Units
55,000
45,000
25,000
35,000
45,000
60,000
265,000
Unit Price
P17.76
20.00
19.60
20.00
20.40
20.80
Amount
P976,800
900,000
490,000
700,000
918,000
1,248,000
P5,232,800
1/1/05
35,000
0
15,000
15,000
12/31/05
?
25,000
40,000
40,000
c)
Raw materials are issued at the beginning of the manufacturing process. during the year, no
returns, spoilage, or wastage occurred. Each unit of finished goods contains one unit of raw
materials.
d)
2.
3.
4.
a.
c.
a.
c.
a.
c.
The cost of goods sold for the year ended December 31, 2005 is
a.
5.
P16,568,304
P16,897,000 b. P15,857,000
d. P16,875,000
c.
Solution:
Question no. 11 b
Raw materials, 1/1/05
Add purchases
Raw materials available for use
Less raw materials, 12/31/05 (squeeze)
Goods placed in process
Less work-in-process, 12/31/05
Goods manufactured
Finished goods, 1/1/05
Total goods available for sale
Less finished goods, 12/31/05
Goods sold
Units
35,000
265,000
300,000
45,000
255,000
25,000
230,000
15,000
245,000
40,000
205,000
936,000
Question no. 12 d
Work in process, 12/31/05 (25,000 units)
- 80% complete for direct labor and factory overhead
- 100% complete for direct materials
Raw materials [(15,000 units x P20.80) + (10,000 units x P20.40)]
Direct labor (25,000 units x 80% x P25.20*)
Factory overhead (25,000 units x 80% x P37.80**)
Work in process, 12/31/05
Equivalent production for labor and overhead
Started, finished and sold [(205,000 units 15,000 units) x 100%]
Started, finished and on hand (40,000 units x 100%)
Started, and in process (25,000 units x 80%)
Total
Labor unit cost P6,300,000/250,000 units)
Overhead unit cost (P9,450,000/250,000 units)
25.20
37.80
516,000
504,000
756,000
1,776,000
190,000
40,000
20,000
250,000
Question no. 13 c
Raw materials {(35,000 units x P20.40) + (5,000 units x P20)}
Direct labor (40,000 units x P25.20*)
Factory overhead (40,000 units x P37.80**)
814,000
1,008,000
1,512,000
3,334,000
Question no. 14 a
Raw materials, 1/1/05
Add purchases
Raw materials available for use
Less raw materials, 12/31/05 (see no. 11)
Direct materials used
Direct labor
Factory overhead
Total manufacturing cost
Work-in-process, 1/1/05
Total cost placed in process
Less work-in-process
Cost of goods manufactured
Finished goods, 1/1/05
Total goods available for sale
Less finished goods, 12/31/05 (see no.13)
Cost of goods sold
720,200
5,232,800
5,953,000
936,000
5,017,000
6,300,000
9,450,000
20,767,000
20,767,000
1,716,000
18,991,000
1,240,000
20,231,000
3,334,000
16,897,000
Problem no. 4
In connection with your audit of Napoleon Companys financial statements, you were able to
gather the following subsidiary account which reflect the marketable securities of the
company for the year 2005:
Date
Sep. 05
28
Oct. 01
05
Nov. 30
Dec. 15
Kinse
Transactions
Purchase
Cash dividends to
Stockholders of record
Sept. 15, declared Aug. 15
Purchase
Sale at P65
Cash collected for sale
Made on Nov. 10 , after a
Nov. 1 declaration of P5
Cash dividend per share to
Stockholders on record as
Of December 1
Cash dividend received
Totals
Anyos Corp.
Shares
Ref
40,000
CD
100,000
40,000
40,000
CR
CD
CR
CR
CR
Debit
P2,000,000
5,000,000
Credit
P 100,000
2,000,000
6,600,000
__________
300,000
P7,000,000 P9,000,000
Napoleon, Inc. acquired 30% of VOSP corporations voting stock on January 1, 2004 for
P5,000,000. During 2004, VOSP earned P2,000,000 and paid dividends of P1,250,000
Napoleons 30% interest in VSOP gives Napoleon the ability to exercise significant influence
over VSOPs operating and financial policies. During 2005, VSOP earned P2,500,000 and
paid dividends of P750,000 on October 1 On July 1, 2005, Napoleon sold half of its
investment in VSOP for P3,300,000 cash.
Questions:
Based on the above and the result of your audit, answer the following:
6.
a.
a.
7.
8.
9.
10.
c.
Solution:
Question no. 16 c
Sales proceeds (40,000 shares x P65)
Less cost of investment sold:
Cash paid
Less purchased dividend
Gain on sale
Question no. 17 a
2,600,000
2,000,000
100,000
1,900,000
700,000
Cash received
Less dividends sold (40,000 shares x P5)
Net selling price
Less Cost of Investment sold (P5,000,000 x 40/100)
6,600,000
200,000
6,400,000
2,000,000
4,400,000
Question no. 18 d
Acquisition cost, Oct. 1 purchase
Less cost of investment sold on Nov. 10 (see no. 17)
Balance, 12/31/05
5,000,000
2,000,000
3,000,000
Question no. 19 d
Proceeds on sale on investment
Less carrying amount of investment sold:
Acquisition cost, 1/1/04
Share in net income for 2004 (P2,000,000 x 30%)
Dividends received in 2004 (P1,250,000 x 30%)
Carrying value, 12/31/04
Carrying value, 7/1/05
Multiply by
Gain on sale
3,300,000
5,000,000
600,000
(375,000)
5,225,000
5,375,000
2,887,500
612,500
January 1, 2003
P60,000
200,000
280,000
June 1, 2003
P120,000
240,000
Sales from January 1 to May 31, were P546,750. Purchases of raw materials were P200,000
and freight on purchases, P30,000. Direct labor during the period was P160,000. It was
agreed with the insurance adjusters that an average gross profit rate of 35% based on cost
be used and that the direct labor cost was 160% of factory overhead.