Ateneo de Zamboanga University

School of Management and Accountancy

Accounting 315: Financial Accounting III
CASE PROBLEM 1: Preparation of the Statement of Comprehensive Income

Account balances that may or may not relevant in the preparation of Dracarys Inc.’s Statement of Comprehensive Income for
the year ended December 31, 2016 are presented below:

Retained earnings, 1/1/16 P440,670 Allowance for bad debts (Cr. Balance) 370
Sales salaries and commissions 35,000 Financial assets at FVPL, 1/1/16 10,000
Revaluation surplus, 1/1/2016 310,000 Financial assets at FVPL, 12/31/16 12,000
Revaluation surplus, 12/31/16 500,000 Officers’ salaries expense 36,600
Advertising expense 16,000 Sales 595,200
Legal services 2,225 Sales returns and allowances 11,200
Insurance and licenses 8,500 Sales discounts 880
Travel expense – sales representative 4,560 Loss on fire 56,000
Interest income 700 Gain on sales of equipment 18,500
Light expense 16,400 Inventory, 1/1/16 89,700
Telephone and postage expense 1,475 Inventory, 12/31/16 20,550
Supplies inventory 2,180 Purchases 193,000
Miscellaneous selling expense 2,200 Freight-in 5,525
Financial assets at FVOCI, 1/1/16 21,000 Accounts receivable 261,000
Financial assets at FVOCI, 12/31/16 19,100 Remeasurement gain on net defined 13,200
Cash dividends declared 33,000 benefit liability
Cash dividends received from associate 7,150 Prepaid advertising 1,200
Cash dividends received from subsidiary 10,200 Machinery and equipment (cost) 375,000
Interest expense 4,520 Building (cost) 800,000

Adjusting information:

 Cost of inventory in the possession of consignee as of December 31, 2016 where Dracarys Inc. is the consignor was
not included in the ending inventory balance, P33,600.
 After preparing an analysis of aged accounts receivable, a decision was made to increase the allowance for bad debts
to a percentage of the ending account receivable balance to 3%.
 Sales commission for the last day of the year had not been accrued. Total sales for the last day was P3,600. Average
sales commission as a percent of sales is 3%.
 The prepaid advertising was paid on November 1, 2016 and was good for 3 months.
 Interest earned but not accrued, P690.
 The machinery and equipment has an average remaining life of 15 years, while the building has a remaining life of 20
years. The machinery and equipment is used for production and distribution of goods, while the building is occupied
as follows – 40% by the sales department, and the rest is occupied by departments with administrative functions.
 Supplies on hand at year-end is P1,600.
 Income tax rate (on all items) is 30%.

Other information:

 The financial statements are expected to be authorized for issuance on April 15, 2017.
 The depreciation charge for last year was understated by P10,000 due to an error in computation made by the
bookkeeper.
 On February 14, 2017, a tornado caused significant damage to the building, totaling P53,000.
 On March 1, 2017, an existing lawsuit was settled for P50,000. The lawsuit was filed on November 1, 2016 and a
provision for P50,000 was made as of December 31, 2016.

REQUIRED: PREPARE THE STATEMENT OF COMPREHENSIVE INCOME OF DRACARYS INC. FOR THE YEAR THEN ENDED.