2015 Solman Asuncion

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Asuncion, Escala & Ngina - Applied Auditing 1 2015
Accountancy (Bulacan State University)
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A guide in applying auditing procedures to specific

accounts of the financial statements.
TEACHERS MANUAL
2015
Edition
By
DARRELL JOE O. ASUNCION, MBA, CPA

RAYMUND FRANCIS A. ESCALA, MBA, CPA
MARK ALYSON B. NGINA, CMA, CPA

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Dear fellow teacher,
This “Teacher’s Manual” should be used solely by the

teacher and for classroom purposes only. This manual
should NOT be reproduced either manually (e.g.,
printing or photocopy) or electronically (e.g., copying or
uploading in the net) without our written consent (or the
publisher’s written authorization).
If you have comments, queries or suggestions, please do

not hesitate to contact us at:
Telephone: 074-2441894
Mobile No.: Darrell Joe O. Asuncion – 0923-424-8286
Raymund Francis A. Escala – 0917-715-1226
Mark Alyson B. Ngina – 0915-510-7281
Email ad: appliedauditingnea@gmail.com.
Thanks and God bless.
Sincerely,
Darrell Joe O. Asuncion, MBA, CPA

Raymund Francis A. Escala, MBA, CPA
Mark Alyson B. Ngina, CMA, CPA

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Table of Contents
CHAPTER 5: CASH TO ACCRUAL................................................................................ 1

CHAPTER 6: CORRECTION OF ERRORS................................................................15
CHAPTER 8: CASH AND CASH EQUIVALENTS ...................................................25
CHAPTER 10: LOANS AND RECEIVABLES ...........................................................46
CHAPTER 12: INVENTORIES .....................................................................................83
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET AND INVESTMENT
IN EQUITY SECURITIES ............................................................................................ 116
CHAPTER 15: INVESTMENT IN DEBT SECURITIES ...................................... 132
CHAPTER 16 INVESTMENT IN ASSOCIATE...................................................... 140
CHAPTER 18 PROPERTY, PLANT AND EQUIPMENT.................................... 154
CHAPTER 19 WASTING ASSETS............................................................................ 180
CHAPTER 20 INVESTMENT PROPERTY ............................................................ 186
CHAPTER 22 INTANGIBLE ASSETS ..................................................................... 188
CHAPTER 23 REVALUATION, IMPAIRMENT AND NONCURRENT ASSET
HELD FOR SALE ........................................................................................................... 200

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Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL

PROBLEM 5-1 (Computation of Sales)
Accounts receivable/Notes receivable trade
Beg. Balance – A/R 450,000 400,000 Balance end – A/R
Beg. Balance – N/R 350,000 340,000 Balance end – N/R
Sales on account 300,000 350,000 Collections
(squeeze)
10,000 Write-off
Total 1,100,000 1,100,000
Sales on Account 300,000

Add: Cash Sales 300,000
Total Gross Sales 600,000
Suggested answer: B
PROBLEM 5-2 (Computation of Purchases)

Accounts Payable/Notes payable trade
Payments 200,000 250,000 Beg. Balance – A/P
Balance end – A/P 200,000 150,000 Beg. Balance – N/P
Balance end – N/P 140,000 165,000 Purchases (squeeze)
Total 565,000 565,000
Purchase on Account 165,000

Add: Cash Purchases 500,000
Total Gross Purchases 665,000
Suggested answer: A
PROBLEM 5-3 (Computation of Income Other Than Sales)

Rent Receivable/Rent in advance
Beg. Balance - Rent 15,900 14,500 Balance end - Rent
Receivable Receivable
Balance end - Rent in 3,600 2,700 Beg. Balance - Rent in
advance advance
Rent Income (squeeze) 130,000 132,300 Collections
Total 149,500 149,500
Suggested answer: A

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PROBLEM 5-4 (Computation of Expenses in General)

Prepaid Salaries/Accrued Salaries
Beg. Balance - Prepaid 2,200 2,600 Balance end - Prepaid
Salaries Salaries
Balance end - Accrued 1,600 1,800 Beg. Balance - Accrued
Salaries Salaries
Payments 249,350 248,750 Expenses
Total 253,150 253,150
Suggested answer: C
PROBLEM 5-5 (Computation of Cost of Machine Acquired and Sold)

Question No. 1
Carrying amount of equipment sold 25,000
Add: Accumulated depreciation 15,000
Cost 40,000
Question No. 2
Equipment
Beg. Balance 100,000 120,000 Balance end
Cost of PPE acquired 60,000 40,000 Cost of PPE disposed
(squeeze)
Total 160,000 160,000
Accumulated depreciation
Balance end 18,000 15,000 Beg. Balance
Accumulated depreciation 18,000 Depreciation expense
of PPE disposed 15,000
Total 33,000 33,000
SUMMARY OF ANSWERS:
1. D 2. A
PROBLEM 5-6
Question No. 1
Prepaid Insurance
Payments 41,500 43,000 Expenses (squeeze)
Total 49,000 49,000

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Question No. 2
Interest Receivable
Income (squeeze) 112,700 123,500 Collections
Total 127,200 127,200
Question No. 3
Salaries payable
Total 542,500 542,500
Question No. 4
Accounts receivable trade
Sales 1,980,000 1,845,000 Collections (squeeze)
Total 2,395,000 2,395,000
Question No. 5
25,000 Write-off
Total 2,395,000 2,395,000
Question No. 6
Recoveries 20,000 25,000 Write-off
Total 2,415,000 2,415,000
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. A 5. A 6. B
PROBLEM 5-7
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R 100,000 100,000 Increase in N/R
Sales on account 4,260,000 10,000 Write-off

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(squeeze) 4,200,000 Collections

30,000 Sales discounts
20,000 Sales ret. and allow.
Total 4,360,000 4,360,000
Question No. 2
Accounts payable
Cash paid to creditors 2,800,000 200,000 Decrease in Accounts
payable
Purchase discounts 40,000 2,650,000 Gross purchases
(squeeze)
Purchase returns 10,000
Total 2,850,000 2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory 25,000 40,000 Purchase discounts
Gross purchases 2,650,000 10,000 Purchase returns
2,625,000 Cost of sales (squeeze)
Total 2,675,000 2,675,000
Question No. 4
Rental receivable/Unearned Rent Income
Rental revenue 454,000 14,000 Increase in Rental
(squeeze) receivable
40,000 Decrease in Unearned
rental
400,000 Collections from tenants
Total 454,000 454,000
Question No. 5
Prepaid interest/Interest Payable
Decrease in Prepaid 5,500 114,000 Interest expense
interest (squeeze)
Increase in Interest 8,500
payable
Interest paid 100,000
Total 114,000 114,000
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. D

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PROBLEM 5-8
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R 200,000 250,000 Bal. end – A/R
Beg. Balance – N/R 300,000 100,000 Bal. end – N/R
Sales on account 1,000,000 20,000 Sales ret. and allow.
(squeeze) 10,000 Sales discount
1,120,000 Collections
Total 1,500,000 1,500,000
Question No. 2
Accounts payable/Notes payable
Balance end – A/P 25,000 50,000 Beg. Balance – A/P
Balance end – N/P 75,000 100,000 Beg. Balance – N/P
Purchase returns and 40,000 650,000 Gross purchases
allow (squeeze)
Purchase discount 10,000
Payments 650,000
Total 800,000 800,000
Gross purchases 650,000

Less: Purchase ret and allow 40,000
Purchase discounts 10,000 50,000
Net Purchases 600,000
Question No. 3
Sales 1,000,000
Less: Sales ret and allow 20,000
Sales discounts 10,000 30,000
Net Sales 970,000
Less: Cost of Sales
Merchandise inventory beg. 200,000
Add: Net Purchases
Purchases 600,000
Add: Freight-in -
Gross Purchases 650,000
Less: Purch. Ret and allow 40,000
Purchase discounts 10,000 600,000
Total goods available for sale 800,000
Less: Merchandise inventory, end 100,000 700,000
Gross Income / Gross Profit 270,000

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Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid 100,000 125,000 Balance end - Prepaid
Salaries Salaries
Salaries Salaries
Payments 350,000 300,000 Salaries expense
(squeeze)
Total 500,000 500,000
Question No. 5
Accrued rent/Unearned rent
Beg. Balance - Accrued 70,000 40,000 Balance end - Accrued
rent rent
Balance end - Unearned 40,000 80,000 Beg. Balance - Unearned
rent rent
Rent income (squeeze) 490,000 300,000 Collection of rent
Total 600,000 600,000
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. B 5. B
PROBLEM 5-9
Question No. 1
Recoveries 8,000 20,000 Sales discounts
Sales (squeeze) 1,570,000 1,408,000 Collections including
recoveries (1,498,000-
80,000+20,00-30,000)
50,000 Accounts written-off
Total 1,778,000 1,778,000
Sales 1,570,000
Less: Sales discount 20,000
Net Sales 1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,000- 150,000 Beg. Balance
20,000+30,000) 1,210,000 1,170,000 Purchases (squeeze)
Purchase ret. and allow. 10,000
Balance end 100,000

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Total 1,320,000 1,320,000
Purchases 1,170,000
Less: Purchases discount 10,000
Net Purchases 1,160,000
Question No. 3
Net Purchases 1,160,000 1,210,000 Cost of Sales (squeeze)
(1,170,000-10,000)
Total 1,540,000 1,540,000
Question No. 4
Rent Receivable
Rent income (squeeze) 130,000 120,000 Collections
Total 200,000 200,000
Question No. 5
Allowance for Doubtful accounts
Accounts written off 50,000 20,000 Beg. Balance
Balance end 30,000 52,000 Doubtful account
expense(squeeze)
8,000 Recoveries
Total 80,000 80,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. A
PROBLEM 5-10 Comprehensive

Question No. 1
Professional fees 5,250,000 5,000,000 Collections
(squeeze)
Total 5,750,000 5,750,000

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Question No. 2
Professional Fees (See No. 1) 5,250,000
Less: Rent expense (1.2M +100,000) 1,300,000
Supplies expense
(800,000+300,000-250,000) 850,000
Other operating expense 750,000
Interest expense (1M x 12% x 9/12) 90,000
Depreciation expense (2,500,000/10) 250,000 3,240,000
Net income 2,010,000
Question No. 3
Cash 1,500,000
Accounts Receivable 750,000
Supplies 250,000
Total Current Assets 2,500,000
Question No. 4
Furniture and fixtures 2,500,000
Less: Accumulated Depreciation
(125,000 + 250,000) 375,000
Total Noncurrent Assets 2,125,000
Question No. 5
Total current assets (See No. 3) 2,500,000
Total noncurrent assets (See No. 4) 2,125,000
Total Assets 4,625,000
Question No. 6
Notes Payable 1,000,000
Accrued rent 100,000
Accrued interest on notes payable
(1,000,000 x 12% x 9/12) 90,000
Total Current Liabilities 1,190,000
Question No. 7
Total assets (See No. 5) 4,625,000
Less: Total liabilities (See No. 6) – all are
current 1,190,000
Total Owner’s Equity 3,435,000
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. A 5. A 6. C 7. B

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PROBLEM 5-11
Question No. 1
Sales on account 13,000 Sales discount
(squeeze) 1,535,000 1,500,000 Collections
Total 1,659,000 1,659,000
Sales on account 1,535,000

Add: Cash sales 160,000
Total sales 1,695,000
Question No. 2
Gross sales (see No. 1) 1,695,000
Less: Sales discount 13,000
Net sales 1,682,000
Question No. 3
Accounts Payable
Payments 1,206,000 382,000 Beg. Balance
Balance end 410,000 1,234,000 Purchases (squeeze)
Total 1,616,000 1,616,000
Purchases on account 1,234,000

Add: Cash purchases 120,000
Total Purchases 1,354,000
Question No. 4
Merchandise Inventory
Net purchases 1,354,000 1,350,000 Cost of sales (squeeze)
Total 1,540,000 1,540,000
Question No. 5
Prepaid G&A/Accrued G&A
Interest Interest
Balance end – Accrued 9,000 7,000 Beg. Balance – Accrued
Interest Interest
Total 222,600 222,600

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Question No. 6
General and administrative expense (see No. 5) 207,200
Depreciation expense 84,000
Warranty expense 6,400
Total operating expense 297,600
Question No. 7
Selling price of land 20,000
Less: Book value of land 16,000
Gain on sale of land 4,000
Question No. 8
Selling Price 12,000
Less Book value
Cost 25,000
Less: Accumulated depreciation 16,000 9,000
Gain on sale of warehouse equipment 3,000
Question No. 9
Less: Book value
Cost 48,000
Gain on sale of boiler 14,000
Question No. 10
Net Sales 1,682,000
Less: Cost of Sales 1,350,000
Gross Profit 332,000
Less: Operating expenses 297,600
Gain on sale (14,000+3,000+4,000) 21,000
Net income 55,400
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
6. A 7. A 8. C 9. B 10. A

Question No. 1
Sales (squeeze) 800,000 10,000 Sales returns
740,000 Collections
Total 950,000 950,000
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Question No. 2
Sales on account 800,000
Total sales 900,000
Less: Sales returns and allowances 10,000
Net sales 890,000
Less: Cost of sales (squeeze) 390,000
Gross profit (200,000/40%) 500,000
Net Purchases (squeeze) 420,000 390,000 Cost of Sales
Total 610,000 610,000
Question No. 3
Accounts Payable trade
Payments (squeeze) 470,000 230,000 Beg. Balance - Accounts
payable
Purchase returns and 8,000 428,000 Gross purchases
allowances (420,000+8,000)
Balance end – Accounts 180,000
payable
Total 658,000 658,000
Question No. 4
Total payment of Accounts payable and admin expenses 518,000
Less: Payment of Accounts payable 470,000
Payment of admin expenses 48,000
Question No. 5
Payment of admin expenses 48,000
Divided by: Percentage of cash expenses to total admin
expense 80%
Total admin expenses 60,000
Add: Selling expenses 200,000
Total selling and administrative expense 260,000
Question No. 6
Total administrative expenses 60,000
Less: Payment of administrative expense 48,000
Non-cash administrative expenses 12,000
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12) 9,000
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Depreciation for furniture and fixtures 3,000

Divided by: Number of months used over 12 months 6/12
Annual depreciation 6,000
Divided by: Depreciation rate 10%
Cost of Furniture and Fixtures (no residual value) 60,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. C 6. A
PROBLEM 5-13
Question No. 1
Sales on account 930,000 30,000 Sales returns and
(squeeze) allowances
1,000,000 Collections
Total 1,730,000 1,730,000
Sales 900,000
Less: Sales returns and allowances 30,000
Net sales 900,000
Question No. 2
Net Purchases (484,000 – 434,000 440,000 Cost of Sales
50,000)
Total 584,000 584,000
Accounts Payable trade

Payments 394,000 160,000 Beg. Balance
Purchase ret. and allow 50,000 484,000 Purchases
Balance end 200,000
Total 644,000 644,000
Payment to suppliers was computed as follows:

Reported cost of sales 400,000
Add: Merchandise inventory, beginning 144,000
Less: Merchandise inventory, end 150,000
Payments to suppliers 394,000
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Question No. 3
Prepaid Interest/Accrued Interest
Interest Interest
Interest Interest
Interest payments 40,000 38,000 Interest expense
Total 67,000 67,000
Unadjusted operating expense 200,000

Less: Adjustment of overstated interest expense 2,000
Adjusted total operating expense 198,000
Question No. 4
Accrued Rent/Unearned Rent
Beg. Balance - Accrued 22,000 19,000 Balance end - Accrued
Rent Rent
Balance end - Unearned 18,000 20,000 Beg. Balance - Unearned
Rent Rent
Rent income 49,000 50,000 Collections
Total 89,000 89,000
Question No. 5
Net sales (see No. 1) 900,000
Less: Cost of sales (see No. 2) 440,000
Gross income 460,000
Less: Operating expense (including interest expense of P38,000) 198,000
Add: Rent Income 49,000
Net Income 311,000
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. B 5. B
PROBLEM 5-14
Question No. 1
Accounts receivable/Notes Receivable
Beg. Balance – A/R 1,600,000 2,000,000 Balance end – A/R
Beg. Balance – N/R 400,000 1,200,000 Balance end – N/R
Sales on account 3,000,000 Collections of A/R
(squeeze) 5,660,000 1,000,000 Collections of N/R
100,000 Sales discounts
300,000 Sales returns
60,000 Accounts written-off
Total 7,660,000 7,660,000
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Sales on account 5,660,000

Total Sales 6,460,000
Question No. 2
Accounts payable/Notes payable
Balance end – N/P 500,000 700,000 Beg. Balance – N/P
Balance end – A/P 1,000,000 1,200,000 Beg. Balance – A/P
Payments of A/P 1,500,000 Purchase on account
Payments of N/P 1,300,000 2,480,000 (squeeze)
Total 4,380,000 4,380,000
Purchases on account 2,480,000

Add: Cash purchases 600,000
Total purchases 3,080,000
Question No. 3
Accrued interest payable
Interest paid 100,000 60,000 Interest expense
(squeeze)
Total 140,000 140,000
Question No. 4
Unearned rent income
Rent income (squeeze) 240,000 160,000 Collections from tenants
Total 280,000 280,000
Question No. 5
Beg. Balance 1,600,000 1,000,000 Balance end
Purchases (see No. 2) 3,080,000 80,000 Purchase discount
3,600,000 Cost of sales (squeeze)
Total 4,680,000 4,680,000
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. D 5. A
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Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS

Note to professor:
Page Existing data: Change to:
109 Omission of deferred expense
The entire amount was debited to asset The entire amount was debited to
account and no adjustment was made expense account and no adjustment
at the end of 2015. was made at the end of 2015.
109 Omission of Deferred Income

Collection of rent was credited to Collection of rent was credited to rent
unearned rent revenue account. At revenue account. At the end of 2015,
the end of 2015, no entry was made to no entry was made to take up the
take up the earned portion of the unearned portion of the amount
amount collected. collected.
110 Omission of Accrual of Expenses

Accrued salaries expense of P4,000 was Accrued salaries expense of P4,000
not recorded at the end of 2016. was not recorded at the end of 2015.
110 Omission of Accrual of Revenues

Accrued rent receivable of P8,000 was Accrued rent receivable of P8,000
not recorded at the end of 2016. was not recorded at the end of 2015.
111 Error affecting ending inventory (e.g.

overstatement)
Effect of the error in 2016 Net Income - Effect of the error in 2016 Net Income
X -U
112 Additional information # 4

Accrued interest receivable of P8,000 Accrued interest receivable of
was … P15,000 was …
113 Requirement No. 1

Total 2015 Adjusted Income – 399,000 Total 2015 Adjusted Income –
181,000

Total 2015 Adjusted Income – 345,000 Total 2015 Adjusted Income –
235,000
117 Improper capitalizing of expense

Effect of error in 2016 Net income O Effect of error in 2016 Net income
U
Improper expensing of capital
expenditure Effect of error in 2016 Net income
Effect of error in 2016 Net income U O
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PROBLEM 6-1 Income Statement and SFP Errors

Questions Nos. 1-6
2015 2016
RE, end RE, end
Net Workin of the Net Workin of the
income g capital year income g capital year
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 - - - - - -
2 - - - - - -
Adjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
Question No. 7
Assuming errors were discovered in 2015
ADJUSTING ENTRIES Debit Credit
1) Interest expense 20,000
Rent expense 20,000
2) Accounts receivable 30,000
Notes receivable 30,000
1) No entry
1) No entry
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. D 6. A
PROBLEM 6-2 Counterbalancing Errors

Questions Nos. 1-6
2015 2016
Net Workin Net Workin
income g capital R/E income g capital R/E
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 (10,000) (10,000) (10,000) 10,000 -
2 15,000 15,000 15,000 (15,000) -
3 6,000 6,000 6,000 (6,000) -
4 (16,000) (16,000) (16,000) 16,000 -
Adjusted
balances 95,000 295,000 95,000 155,000 400,000 250,000
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Question No. 7
A. Errors were discovered in 2015
1) Rent expense 10,000
Rent payable 10,000
2) Interest receivable 15,000
Interest income 15,000
3) Prepaid insurance 6,000
Insurance expense 6,000
4) Rent revenue 16,000
Unearned rent revenue 16,000
B. Errors were discovered in 2016
Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
1) Retained earnings 10,000
Rent expense 10,000
2) Interest income 15,000
Retained earnings 15,000
3) Insurance expense 6,000
Rent revenue 16,000
When books are already closed, no necessary adjusting entries to be
made.
C. Errors were discovered in 2017
No necessary adjusting entries to be made.
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. B 6. A
PROBLEM 6-3 Counterbalancing Errors
Questions Nos. 1-6
2015 2016
income g capital R/E, end income g capital R/E, end
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1 (50,000) (50,000) (50,000) 50,000 - -
2 70,000 70,000 70,000 (70,000) - -
3 20,000 20,000 20,000 (20,000) - -
Adjusted
balances 140,000 340,000 140,000 110,000 400,000 250,000
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Question No. 7
1) Purchases 50,000
Accounts payable 50,000
Sales 70,000
3) Inventory 20,000
Cost of sales 20,000

Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
Purchases 50,000
2) Sales 70,000
3) Inventory, beginning 6,000
If books are already closed, no necessary adjusting entries to be made.
No necessary adjusting entries to be made.
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. B 6. A
PROBLEM 6-4 Noncounterbalancing Errors
Questions Nos. 1-6
2015 2016
RE, end RE, end
Net Workin of the Net Workin of the
income g capital year income g capital year
Unadjusted
balances 100,000 300,000 100,000 150,000 400,000 250,000
1. (18,000) (18,000) (18,000) (6,000) (24,000) (24,000)
2. 32,000 32,000 32,000 16,000 48,000 48,000
3. (12,000) - (12,000) - - (12,000)
4. 160,000 - 160,000 (40,000) - 120,000
5. (25,000) - (25,000) - - (25,000)
6. 4,000 - 4,000 4,000 - 8,000
(20,000) (20,000) (20,000)
Adjusted
balances 221,000 314,000 221,000 124,000 424,000 345,000
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Question No. 7
1) Insurance expense 18,000
Prepaid insurance 18,000
2) Unearned rent income 32,000
Rent income 32,000
3) Depreciation expense 12,000
Accumulated depreciation 12,000
4) Building improvements 200,000
Repairs expense 200,000
5) Other income 20,000
Loss on sale 5,000
Building 40,000
6) Repairs expense 20,000
Building 20,000
Insurance expense 6,000
Rent income 16,000
Building 40,000
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Building 20,000
Building 40,000
Building 20,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. B 6. C
PROBLEM 6-5 (COMPREHENSIVE)

Questions Nos. 1-3
Effects of error in
Net income Working
2014 2015 Capital
1) MI over, NI over 10,000 (10,000)
MI under, NI under (8,000) (8,000)
2) Purchases over, NI under (20,000) 20,000
(40,000) (40,000)
3) Sales over, NI over 20,000 (20,000)
70,000 70,000
4) Expenses over, NI under (80,000)
Depreciation exp under, NI over 20,000
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5) Other income over 20,000

*Loss under, NI over 5,000
Adjusted balance (45,000) 32,000 22,000
Computation of loss:
Less: Book value
Cost 40,000
Loss on sale (5,000)
Questions No. 4
Effect of errors to Retained Earnings in 2015
Understatement to 2014 net income 45,000
Overstatement to 2015 net income 32,000
Net understatement to 2015 retained earnings 13,000
Questions No. 5
1) Retained earnings, beg 10,000
Merchandise inventory, beg 10,000
Merchandise inventory, end 8,000
Cost of Sales 8,000
2) Purchases 20,000
Advances supplier 40,000
Purchases 40,000
3) Retained earnings, beg 20,000
Sales 20,000
Sales 70,000
Advances customers 70,000
4) Depreciation expense 20,000
Improvements 100,000
5) Accumulated depreciation 15,000
Retained earnings, beg 25,000
Equipment 40,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. C
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Questions Nos. 1-5
12/31/2
2014 2015 015
Income g capital Income g capital R/E
Ending Inventory 2014
understated, NI (6,000) (6,000) 6,000 - -
understated
Ending Inventory 2015
10,000 10,000 10,000
overstated, NI overstated
Depreciation exp. 2014
overstated, NI (11,000) - - - (11,000)
understated
Depreciation exp. 2015
overstated, NI (7,000) - (7,000)
understated
Accrued expense
understated, NI 4,500 4,500 (4,500) - -
overstated 2014
Accrued expense
understated, NI 7,500 7,500 7,500
overstated 2015
Prepaid expense
understated, NI (5,000) (5,000) 5,000 - -
understated 2014
Prepaid expense
understated, NI (12,000) (12,000) (12,000)
understated 2015
Accrued revenues
understated, NI (3,000) (3,000) (3,000)
understated 2015
Deferred revenues
understated, NI 1,200 1,200 (1,200) - -
overstated 2014
Total (16,300) 5,300 800 2,500 (15,500)
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. A 5. C
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PROBLEM 6-7
Questions Nos. 1, 2 and 4
2013 2014 2015
Unadjusted balances 3,000,000 (1,000,000) 3,500,000
1 Overstatement of ending inventory - 2013 (120,000) 120,000
Understatement of ending inventory -
2 2015 210,000
3 Understatement of accrued expense - 2013 (40,000) 40,000
4 Overstatement of accrued exp. 90,000
5 Understatement of Depreciation Expense (180,000)
6 Overstatement of Depreciation Expense 30,000
7 Overstatement of Purchases
2013 30,000 (30,000)
2014 40,000 (40,000)

8 Overstatement of other income
Correct gain 20,000
Less: Per record 5,000 (15,000)
Adjusted balances 2,870,000 (1,025,000) 3,790,000
Computation of correct gain:

Less: Book value
Cost 40,000
Loss on sale 5,000
Questions Nos. 3 and 5

Adjusted net income (loss):
2013 2,870,000
2014 (1,025,000)
Total RE, 12/31/2014 1,845,000 No. 3
Adjusted net income 2015 3,790,000
Total RE, 12/31/2015 5,635,000 No. 5
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. C 5. D
PROBLEM 6-8
Question No. 1
Entry made: Debit Credit
Cash 30,000
Equipment 30,000

Accumulated depreciation (70,000 x 10%) 7,000
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“Should be” entry: Debit Credit

Cash 30,000
Loss on sale 10,000
Equipment 70,000
Adjusting entry in 2015: Debit Credit
Equipment 70,000
Question Nos. 2-7

2013 2014 2015
Workin Workin
Net g Net Working Net g
income capital income capital income capital
Unadjusted Over/ Over/ Over/
balances 600,000 (under) 700,000 (under) 800,000 (under)
Exp over, NI
under, WC
under
2013 1,000 (1,000) (1,000)
2014 1,500 (1,500) (1,500)
2015 600 (600)
Income over,
WC over:
2013 (2,000) 2,000 2,000
2015 (3,000) 3,000
EI under, NI
under, WC
under:
2013 10,000 (10,000) (10,000)
2014 20,000 (20,000) (20,000)
EI over, NI
over, WC
over (25,000) 25,000
Loss under,
NI over (10,000)
Depreciation
exp. Over, NI
under 7,000
Adjusted bal. 609,000 (9,000) 709,500 (21,500) 751,100 27,400
(2) (3) (4) (5) (6) (7)
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. D 6. D 7. A
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Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS

Note to professor:
Page Existing data: Change to:
179 1. Customer’s NSF check returned by Beg Rec. Disb. End
bank in January and redeposited in (3,400) 3,400
February (no entry in January and
February), P 3,400
Erroneous bank charge – October Erroneous bank charge – October
7,000 18,000
Erroneous bank charge – November Erroneous bank charge – November
18,000 7,000
182 Requirement No. 6: Adjusting entries
#3 3) Rent payable
3) Salaries payable 120,000
120,000
PROBLEM 7-1 Cash and Cash Equivalents

Postal money order 50,000
Correct cash balance in a general checking account with BPI 320,000
Treasury warrants 20,000
Currency and coins in a petty cash fund 1,000
Cash and cash equivalents P 391,000
Suggested answer: B
Reported cash and cash equivalents 6,325,000
Certificate of deposits with maturity of 120 days (500,000)
Postdated check (125,000)
Compensating balance – legally restricted (500,000)
Adjusted cash and cash equivalents P5,200,000
Suggested answer: C

Bills and coins on hand P 52,780
Traveler’s check 22,400
Petty cash excluding paid cash vouchers of P1,650 350
Money order 800
Checking Account Balance in Bank of Philippine Island 22,000
Total P 98,330
Suggested answer: D
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Cash on hand P 80,000
Checking account No. 143 - BPI 200,000
Checking account No. 155 - BPI (30,000)
*Securities classified as cash equivalents 3,600,000
Checking account No. 155 - BPI P 3,850,000
*Breakdown of securities classified as cash equivalents
Date Maturity
Securities: Acquired Date Amount
120-day Certificate of Deposit 12/10/2014 01/31/2015 P 600,000
BSP-Treasury Bills (No.2) 10/31/2014 01/20/2015 1,000,000
Money Market Funds 11/21/2014 02/10/2015 2,000,000
Suggested answer: A

Cash in bank – checking account 5,000,000
Cash in bank – payroll account 1,000,000
Cash on hand 500,000
Treasury bills, purchased December 15, 2013 and
due March 15, 2014 2,000,000
Unreleased checks 100,000
Postdated checks ( 200,000)
Cash and cash equivalents P8,400,000
Suggested answer: B

Petty cash fund (70,000-15,000-5,000) 50,000
Current account – Metro Bank (4,000,000+100,000) 4,100,000
Cash and cash equivalents P4,150,000
Suggested answer: C
PROBLEM 7-7 Effective Interest Rate

SOLUTION:
Question No. 1
Let X = Principal amount of the loan
Principal X
Less: Compensating balance 5%X
Add: Current balance 50,000
Amount needed P3,375,000
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X-.05X+50,000 = 3,375,000
.95X = 3,375,000-50,000
.95X/.95 = 3,325,000/.95
X = 3,500,000
Question No. 2
Annual interest payment (3,500,000 x 12%) 420,000
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%] 5,000
Effective interest 415,000
Divide by loan proceeds (3,500,000-175,000) 3,375,000
Effective interest rate 12.30%
Suggested answers:
1. C 2. C
PROBLEM 7-8 Petty Cash Fund

Requirement No. 1
Currencies 3,000
Coins 450
A check drawn by the company payable to the order
of the petty cash custodian, representing her salary 3,800
Adjusted Petty Cash Fund 7,250
Requirement No. 2
Petty cash Accounted:
Currencies 3,000
Coins 450
Petty cash vouchers:
Transportation 650
Office supplies 160
Repair of computer 400
Loans to employees 600
Miscellaneous expenses 240
Postage 200
A check drawn by the company payable to the
order of the petty cash custodian, representing her
salary 3,800
An employee’s check returned by the bank because
of insufficient funds 1,200
A piece of paper with names of several employees
together with a contribution for a wedding gift for
an employee. Attached to the sheet of paper is a
currency of 500 11,200
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Less: Petty Cash Accountabilities

PCF imprest balance 10,000
A piece of paper with names of several employees
together with a contribution for a wedding gift
for an employee. Attached to the sheet of paper
is a currency of 500 10,500
Petty cash overage 700
Requirement No. 3: Adjusting Entries Debit Credit
1) Transportation expense 650
Office supplies expense 160
Repairs expense 400
Advances to employees 600
Miscellaneous expense 240
Postage 200
Petty Cash fund 2,250
2) Unused stamps 50
Postage 50
3) Petty cash fund 700
Miscellaneous Income 700
4) Advances to employees 1,200
Petty cash fund 1,200
PROBLEM 7-9 Petty Cash Fund

Coins and currencies 17,000
Check drawn by the company payable to the order of the petty
cash custodian, representing salary for the month 18,000
Petty cash P 35,000
Suggested answer: C
PROBLEM 7-10 Bank Reconciliation

Bank Book
Unadjusted balances P126,300 P123,310
Outstanding check, net of certified checks (12,300) -
Deposit in transit (Undeposited collections) 7,850 -
Book error – disbursement for utilities - 360
Note charged by the bank, including interest - (6,500)
Bank service charge - (240)
Erroneous bank credit (5,670) -
NSF check - ( 750)
Adjusted balance P116,180 P116,180
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The following are the adjusting entries to be recorded in the company’s

books. Note that only book reconciling items are recorded.
1) Cash 360
Utilities expense 360
2) Notes payable 6,000
Interest expense 500
Cash 6,500
3) Bank service charge 240
Cash 240
4) Accounts receivable 750
Cash 750
PROBLEM 7-11 Bank Reconciliation

Oct. 31 Receipts Disb Nov. 30
Unadjusted bank bal 18,005 17,709 25,620 10,094
Erroneous bank credit (500) (500)
DIT: October 1,790 (1,790)
November 3,600 3,600
OC: October (6,681) (6,681)
Nov. (760+1,868) 2,628 (2,628)
13,114 19,019 21,567 10,566
Unadjusted book bal 11,534 18,269 21,575 8,228

Credit memo Oct. 1,600 1,600
Nov. 750 750
NSF-Nov 665 (665)
BSC: Oct (20) (20)
Nov 22 (22)
35 (35)
Check No. 148
overstated
disbursement (1,000) 1,000
Check No. 150
understated
disbursement 270 (270)
13,114 19,019 21,567 10,566
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
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PROBLEM 7-12 Deposit in Transit

Deposit in transit, beg P 50,000
Add: Book debits for the month P 400,000
Less: CM recorded this month 5,000
Error – check received (Jan) 36,000
Error – check issued (Jan) 27,000
Add: Error – check received (Feb) 16,000 348,000
Total 398,000
Less: Bank debits for this month P 360,000
Less: CM for this month 6,000
Erroneous bank credit - Feb 2,500
Erroneous bank charge - Jan 1,000 350,500
Deposit in transit, end P 47,500
Suggested answer: A
PROBLEM 7-13 Outstanding Checks

Outstanding checks, beg (squeeze) P 12,880
Add: Book credits for the month P 85,800
Less: Error in recording 1,800
Service charge recorded 30 83,970
Total 96,850
Less: NSF check returned 2,300
DM for this month 3,000 92,350
Outstanding checks, end P 4,500
Suggested answer: A
PROBLEM 7-14 Proof of Cash

Question No. 2
Add: Book debits for the month P 151,230
Less: CM recorded this month 1,500 149,730
Total 154,930
Less: CM for this month 4,277
Erroneous bank credit - Oct 3,000
Erroneous bank debit - Sep 600 142,074
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Question No. 3
Add: Book credits for the month P 111,423
Less: DM recorded (526+50) 576 110,847
Total 118,854
Less: Erroneous bank debits-Oct 900
Erroneous bank credits-Sep 1,000
DM for this month (700+65) 765 107,433
Question Nos. 1, 4 and 5

BANK 30-Sep Receipts Disb. 31-Oct
Unadjusted bal - bank 130,560 149,951 110,098 *170,413
Deposit in transit:
September 30 5,200 (5,200)
October 31 12,856 12,856
Outstanding checks:
September 30 (8,007) (8,007)
October 31 11,421 (11,421)
Erroneous bank credit (1,000) (1,000)
Erroneous bank debit-
Oct (900) 900
Erroneous bank debit-
Sep 600 (600)
Adjusted balances 127,353 154,007 111,612 169,748
*(130,560+149,651-110,098)
BOOK 30-Sep Receipts Disb. 31-Oct

Unadjusted bal - book **126,429 151,230 111,423 166,236
Bank service charge:
September 30 (50) (50)
October 31 65 (65)
NSF checks:
September 30 (526) (526)
October 31 700 (600)
CM for collection:
September 30 1,500 (1,500)
October 31 4,277 4,277
*(166,236+111,423-151,230)
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. D
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Question No. 1
Outstanding checks, beg. 100,000
Add: Checks issued 2,500,000
Total 2,600,000
Less: Checks paid by the bank 2,200,000
Outstanding checks, end 400,000
Question No. 2
Deposits in transit, beg 300,000
Add: Deposits made 1,800,000
Total 2,100,000
Less: Deposits acknowledged by the bank 1,600,000
Deposits in transit, end 500,000
Question No. 3 to 5
BANK 31-May Receipts Disb. 30-Jun
Unadjusted bal - bank 2,600,000 *2,190,000 **2,410,000 2,380,000
Deposit in transit:
May 31 300,000 (300,000)
June 30 500,000 500,000
Outstanding checks:
May 31 (100,000) (100,000)
June 30 400,000 (400,000)
Erroneous bank charge 40,000 (40,000)
Adjusted balances 2,780,000 2,350,000 2,650,000 2,480,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
BOOK 31-May Receipts Disb. 30-Jun
Unadjusted bal - book 2,190,000 ***2,400,000 2,500,000 2,090,000
May 31 (10,000) (10,000)
June 30 50,000 (50,000)
CM for collection:
May 31 600,000 (600,000)
June 30 550,000 550,000
NSF checks - June 30 100,000 (100,000)
Adjusted balances 2,780,000 2,350,000 2,650,000 2,480,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. A
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Question No. 1
Outstanding checks, beg P 16,250
Add: Checks issued this month
Book disbursements (squeeze) P128,750
Less: DM recorded this month 2,500 126,250
Total 142,500
Less: Checks paid by the bank P 133,750
Erroneous bank charge 3,750 130,000
Question No. 2
Add: Deposits made by the company 152,500
Total 165,000
Less: Deposits acknowledged by the bank 145,000
Question No. 3
Unadjusted cash in bank balance per ledger P 37,500
Add: Under-footing of cash receipts 2,500
Total 40,000
Less: Unrecorded bank service charges
(3,250 +1,500-2,500) 2,250
Adjusted cash in bank balance, 12/31 P 37,750
Question No. 4
Bank service charges per
bank statement in December P 3,250
Less: Bank service charge in December
recorded in December
Total BSC recorded in the books Dec P 2,500
Less: BSC in Nov. recorded in Dec. 1,500 1,000
Unrecorded BSC charge in December P 2,250
Question No. 5
Unadjusted cash in bank, November (squeeze) P 16,250
Add: Book Receipts (152,500 - 2,500) 150,000
Total 166,250
Less: Book disbursements 128,750
Unadjusted cash in bank, December P 37,500
Unadjusted cash in bank, November (squeeze) P 16,250
Less: BSC in November 1,500
Adjusted cash in bank, December P 14,750
SUMMARY OF ANSWERS:
1. C 2. D 3. C 4. D 5. B
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Question No. 1
Beg. Bal., 7/1 P 128,384
Add: Cash receipts for July 1,364,858
Cash receipts for Aug. 1,839,744
Total P3,332,986
Less: Cash disbursement for July 1,330,882
Cash disbursement for Aug. 1,712,892
Bank reconciliation item 750
Unadjusted balance P 288,462
Question No. 2
Outstanding check, Aug. 31 P 67,122
Add: Checks paid by the bank
Bank debits except serv. charge P1,702,830
Less: Erroneous bank charge 1,166
DM on Interest on note 4,950 1,696,714
Total P1,763,836
Less: Checks issued by the company
this August 1,712,892
Outstanding check, July 31 P 50,944
Questions No 3 to 5
BANK 31-Jul Receipts Disb. Aug. 31
Unadjusted balances 180,250 1,830,752 *1,702,918 308,084
Outstanding checks
July 31 ( 50,944) ( 50,944)
August 31 67,122 ( 67,122)
Deposit in transit
July 31 32,844 ( 32,844)
August 31 41,836 41,836
Erroneous bank charge - - ( 1,166) 1,166
Adjusted Balances 162,150 1,839,744 1,717,930 283,964
(*1,702,830 + 88)
BOOK 31-Jul Receipts Disb. Aug. 31
Unadjusted balances P162,360 P1,839,744 **P1,713,642 P288,462
Error in recording check
no. 216 taken up as
P1,930 but should be
P1,390 (1,930-1,390) 540 540
DM for int. on note 4,950 ( 4,950)
Bank service charge
July 31 ( 52) ( 52)
August 31 88 ( 88)
NSF for July 31 ( 698) - ( 698) -
Adjusted balances P162,150 P1,839,744 P1,717,930 P283,964
**(1,712,892+750)
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SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. A
Question No. 1
Beg. Balance, Nov. 30 P 50,900
Add: Total Collections from customers on Dec. 165,000
November bank coll. for customer note 8,000
Total 223,900
Less: Checks drawn for December 98,000
Bank service charges – November 100
Unadjusted cash balance, Dec. 31 P 125,800
Question Nos. 2-5
December
Nov. 30 Receipts Disb. Dec. 31
BANK 90,800 171,272 99,072 163,000
Unadjusted bank balance
NSF check, no entry on the books
for return and redeposit ( 472) ( 472)
Erroneous bank charge in
December ( 1,500) 1,500
Undeposited collection
November 30 5,000 ( 5,000)
December 31 8,000 8,000
Bank service charge charged to
another client 150 ( 150)
Outstanding check
Nov. 30 ( 5,000) ( 5,000)
Dec. 31 7,700 ( 7,700)
BOOK
Unadjusted balance 50,900 173,000 98,100 125,800
NSF check recorded as reduction
of cash receipts returned in
December but also recorded in
December 1,800 1,800
Error in recording check No. 7159
entered as P30,000 but should be
3,000 27,000 27,000
Cancellation of check No. 7767 5,000 5,000
Bank service charge
Nov. 30 ( 100) ( 100)
Dec. 31 150 ( 150)
Bank collection for customer's
note:
Nov. 30 8,000 (8,000)
Dec. 31 7,000 7,000
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SUMMARY OF ANSWERS:
1. B 2. D 3. D 4. B 5. B
Question No. 1
Book disbursements P 148,000
Less: DM recorded this month 2,500 145,500
Total 153,500
Less: Bank disbursements P 150,000
Add: Paid out in currency 2,000
Less: NSF redeposited 3,000
DM for this month 1,500 147,500
Question Nos. 2 to 5
BANK Sept. 30 Receipts Disb. Oct. 31
Unadj. balance - bank 100,000 200,000 150,000 150,000
Undeposited collections:
September 30 5,000 (5,000)
October 31 7,000 7,000
Outstanding checks:
September 30 (8,000) (8,000)
October 31 6,000 (6,000)
Paid out in currency 2,000 2,000
BOOK Sept. 30 Receipts Disb. Oct. 31

Unadj. balance - book 91,500 196,000 148,000 139,500
Customer’s notes
collected:
September 30 8,000 (8,000)
October 31 13,000 13,000
September 30 (2,500) (2,500)
October 31 1,500 1,500
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. A 5. A
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Question No. 1
Account No. 143: Bank Book
Unadjusted balances P1,000,000 P1,099,400
Deposit in transit *80,000
Misplaced check ( 20,000)
Outstanding check (**60,000)
Undelivered check 15,000
Note charged by the bank - ( 74,400)
Adjusted balance P1,020,000 P1,020,000
*(100,000 - 20,000, Misplaced check)
**(75,000 - 15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
Account No.143 P 60,000
*Account No.144 1,860,000
Total outstanding check P 1,920,000
*Outstanding check for Account No. 144 is computed as follows:

Outstanding checks, beg P 250,000
Book Credits P3,500,000
Less: BSC November 10,000 3,490,000
Total P 3,740,000
Less: Checks paid by the bank
Bank Debits P2,000,000
Less: BSC December 20,000
NSF check 100,000 1,880,000
Outstanding checks, end P1,860,000
December
Unadjusted bank balance 2,200,000 1,000,000 2,000,000 1,200,000
Deposit in transit:
November 30 90,000 (90,000)
**240,00
December 31 0 240,000
Outstanding check:
November 30 (250,000) (250,000)
December 31 1,860,000 (1,860,000)
Erroneous bank charge -
November 20,000 (20,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
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Unadjusted book
balance 1,980,000 1,420,000 3,500,000 (100,000)
November 30 (10,000) (10,000)
December 31 20,000 (20,000)
Unrecorded collections -
November 30 90,000 (90,000)
Uncollected customer's
note already recorded
as cash receipt (200,000) (200,000)
NSF - December 31 100,000 (100,000)
Adjusted balances 2,060,000 1,130,000 3,610,000 (420,000)
**Deposit in transit, beg P 90,000

Add: Deposit made by the co. this month
Book Debits P1,420,000
Less: Unrecorded collection 90,000
Customer’s note recorded as
cash receipts 200,000 1,130,000
Total P1,220,000
Less: Deposits acknowledged by the bank
Bank Credits P1,000,000
Less: Erroneous bank charge 20,000 980,000
Question No. 5
Adjusted balances:
Account No. 143 P1,020,000
Account No. 144 ( 420,000)
Total adjusted balances P 600,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C

Question No. 1
RCBC Account Book Bank
Unadjusted balance P 165,000 P 125,000
Credit memo for note collected 6,000
Bank service charge (1,000)
Deposit in transit 60,000
Outstanding checks (25,000+20,000) (45,000)
Unrecorded disbursement ( 30,000) -
Adjusted balance P 140,000 P 140,000
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Question Nos. 2-3

Equitable PCI Bank Book Bank
Unadjusted bal. (squeeze) P 62,000 P 93,000
Credit memo for note coll. 10,000
Bank service charge ( 2,000)
Deposit in transit (15,000+20,000+50,000*) 85,000
Outstanding checks ( 28,000)
Unrecorded transfer (30,000+50,000*) 80,000 -
Adjusted balance P 150,000 P150,000
*fund transfer No. 4 (Included both as unrecorded transfer and deposit in
transit)
Question No. 4
Outstanding checks:
RCBC Account (25,000+20,000) P 45,000
Equitable PCI Bank 28,000
Total outstanding checks P 73,000
Question No. 5
Fund transfer No. 2 is recorded in the disbursing bank during December
while it was only recorded in the disbursing book in January. This is an
unrecorded disbursement for fund transfer.
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. B

Question No. 1
Unadjusted bank statement balance - Dec. 31 *P5,000,000
Add: Deposit in transit 1,000,000
Less: Outstanding checks 600,000
Adjusted cash in bank balance, December 31 P 5,400,000
Less: Credit memo December 200,000
Add: Bank service charge December 10,000
NSF check, December 140,000
Unadjusted book balance - December 31 P 5,350,000
*(3,000,000+9,000,000-7,000,000)
Question No. 2
Unadjusted bank receipts P 9,000,000
Deposit in transit-Nov. 30
November 30 (400,000)
December 31 1,000,000
Credit Memo - December 31 ( 200,000)
Unadjusted book receipts P9,400,000
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Question No. 3
Unadjusted bank disbursements P7,000,000
Outstanding checks:
November 30 (900,000)
December 31 600,000
Bank service charge-Dec. 31 (10,000)
NSF check-Dec. 31 ( 140,000)
Unadjusted book disbursements P6,550,000
Question No. 4
Currencies P 40,000
Coins 4,000
Check drawn payable to petty cash custodian 30,000
Total Petty cash fund P 74,000
Question No. 5
Cash in bank (See No. 1) P 5,400,000
Petty cash fund (See No. 4) 74,000
Cash on hand (1,725,000-1,600,000) 125,000
Total Cash and cash equivalents P5,599,000
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. C 5. C

Question No 1
Outstanding check
Check Nos. 144 P 1,500
149 8,000
150 12,000
Total P 21,500
Alternatively, it may also be computed as follows:
Outstanding check, beg P 7,000
Add: Checks issued 75,000
Total P 82,000
Less: Checks paid by the bank
Bank Debits P 113,000
Less: DM for this month
NSF checks (10,000+40,000) 50,000
Bank service charge 2,000
Error Correction 500 60,500
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Question No 2
Unadjusted rec. per bank P 171,500
Deposit in transit:
November 30 (11,000)
December 31 20,000
Error correction (500)
NSF check, no entry on the books when returned
and redeposited ( 40,000)
Adjusted balance P 140,000
Question No 3
Unadjusted disbursement, per bank P 113,000
Outstanding checks
November 30 (7,000)
December 31 21,500
Error correction (500)
NSF check, no entry on the
books on the returned and redeposit ( 40,000)
Adjusted balance P 87,000
Question No 4
Unadjusted bank bal. P 127,500
Deposit in transit
November 30
December 31 20,000
Outstanding checks
November 30
December 31 ( 21,500)
Adjusted bal. P126,000
Question No 5
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Unadjusted bank balance 69,000 171,500 113,000 *127,500
Deposit in transit
November 30 11,000 (11,000)
December 31 *20,000 20,000
Outstanding checks
November 30 (7,000) (7,000)
December 31 21,500 (21,500)
Error correction (500) (500)
NSF check, no entry on the
books on the return and
redeposit (40,000) (40,000)
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Adjusted bal. 73,000 140,000 87,000 126,000

* (69,000+171,500-113,000)
** (18,000+2,000)
Unadjusted book balance 66,000 113,800 85,000 94,800
Credit memo for note
collected
November 30 8,800 (8,800)
December 31 35,000 35,000
Bank service charge
November 30 (1,800) (1,800)
December 31 2,000 (2,000)
Adjusted bal. 73,000 140,000 87,000 126,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. A
PROBLEM 7-24 Computation of Cash Shortage

SOLUTION:
Question No. 1
Less: Outstanding checks (8,434+4,300+
6,524+ 9,551.50+4,577+5,961) (39,347.50)
Add: Undeposited receipts 35,000
Adjusted bank balance P221,052.50
Question No. 2
Unadjusted book bal. P242,310.50
Credit memo for notes collection 30,000
Credit memo for int. 900
Balance (cash accountability) P273,210.50
Question No. 3
Adjusted bank bal. (Cash accounted) P221,052.50
Less: Cash in bank bal. (cash accountability) 273,210.50
Shortage (P52,158.00)
SUMMARY OF ANSWERS:
1. B 2. D 3. B
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Question No. 1
Outstanding checks ( 11,500)
Undeposited collections 5,000
Adjusted bank balance P 35,900
Question No. 2
Unadjusted book bal. P 46,500
Credit memo proceeds clean draft 900
Debit memo for bank service charge ( 100)
Balance (cash accountability) P 47,300
Question No. 3
Adjusted bank bal. (Cash accounted) P 35,900
Cash in bank bal. (cash accountability) 47,300
Shortage as of June 30 (P11,400)
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R. P 18,800
Less: collections in July that were deposited
in July
Collection per duplicate slips P 11,000
Less :Undeposited collection, June 30 5,000 6,000
Cash that should be on hand on July 15 P 12,800
Less: Actual cash on hand on July 15 4,800
Cash shortage from July 1-15 P 8,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600) P 900
Overstatement of cash in bank per bank (44,000-42,400) 1,600
Understatement of outstanding checks (11,500-3600) 7,900
Overstatement of undeposited collections (5,100-5,000) 100
Non-recording of credit memo-proceeds of clean draft 900
Cash shortage as of June 30 P11,400
SUMMARY OF ANSWERS:
1. C 2. D 3. B 4. D 5. D
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Question No. 1
Deposit in transit, unadjusted bal. P 350,500
Less: customer's Post-dated check 100,000
Adjusted Deposit in transit P 250,500
Question No. 2
Outstanding checks, unadjusted balance P 493,500
Less: Unreleased check ( 29,500)
Company's post-dated check ( 74,420)
Adjusted Outstanding checks P 389,580
Question No. 3
Unadjusted bal. per bank P 700,000
Add: Deposit in transit (No. 1) 250,500
Less: Outstanding checks (No. 2) (389,580)
Erroneous bank credit ( 60,000)
Adjusted cash in bank bal. P 500,920
Question No. 4
Unadjusted bal. per books P 587,000
Add: Credit memo for note coll. 30,000
Unreleased check 29,500
Company's post-dated check 74,420
Total P 720,920
Less: Customer's post-dated check (100,000)
Cash in bank per books bal. P 620,920
Less: Adjusted cash in bank balance 500,920
Cash shortage (P120,000)
Question No. 5
Unadjusted bal. per books P587,000
Less: Adjusted cash in bank balance 500,920
Net adjustments P 86,080
SUMMARY OF ANSWERS:
1. B 2. D 3. B 4. C 5. A

Question No. 1
Purchases (squeeze) P 81,160
Less: Merchandise inventory, end 23,480
Cost of Sales (80,752/140%) P 57,680
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Purchases P 81,160
Less: Accounts payable, end 11,571
Total payment of Accounts payable P 69,589
Question No. 2
Sales on account P 80,752
Less: Accounts receivable, end 21,345
Collection to customers P 59,407
Question No. 3
Receipts:
Proceeds of issuance of stocks P 80,000
Collection from customers 59,407
Loan proceeds 28,000 P 167,407
Disbursements:
Payment of real property P 50,000
Payment of furniture and equipment
(7,250-1,500) 5,750
Payment of AP 69,589
Payment of operating expenses 15,189 140,528
Cash accountability P 26,879
Question No. 4
Outstanding checks ( 463)
Undeposited collections 1,285
Question No. 5
Less Cash accountability 26,879
Cash shortage (P19,475)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. B 5. A
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Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES

Note to professor:
Page Existing data: Replace to:
Net Selling price = Present value Disregard (25,000 x 3.5493)
of notes receivable (25,000 x 3.5493)
259 Illustration
The note is a non-interest bearing note The note is a non-interest bearing
and the prevailing rate of interest for a note and the prevailing rate of
note of this type is 16% and the interest for a note of this type is 14%
principal amount… and the principal amount…
Add: Accrued interest 600,000 Add: Accrued interest 500,000
Carrying amount of receivable: Carrying amount of receivable:
5,600,000 5,500,000
Loan impairment – 12/31/2014 Loan impairment – 12/31/2014
2,594,800 2,494,800
270 Journal entries 12/31/14 Loan impairment 2,494,800
Loan impairment 2,594,800 Accrued interest 500,000
Accrued interest 600,000 Allowance for loan impairment
Allowance for loan impairment 1,994,800
1,994,800
286 Solution
Maturity Value = Principal + Interest Maturity Value = Principal +
= P60,000+ (P600,000 x 10% x Interest
90/360) = P600,000+ (P600,000 x 10% x
90/360)
288 Illustration
On July 1, 2015, Boy Co. discounted its On July 1, 2015, Boy Co. discounted its
“own” P50,000, 1-year note at a bank, “own” P500,000, 1-year note at a
at a discount rate of 12%, when the bank, at a discount rate of 12…
prime rate is 10%.
PROBLEM 10-1 Trade and other receivables

Trade Trade and other Noncurrent
Receivables receivables Asset
1 277,000 277,000 -
2 150,000 150,000 -
3 - 10,000 -
4 - 30,000 -
5 - - 110,000
6 - 15,000 -
7 70,000 70,000 -
8 - 80,000 220,000
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9 100,000 100,000 -
Adjusted bal. 597,000 1. C 732,000 2. C 330,000
PROBLEM 10-2 Different Freight terms

Question No. 1
FOB Destination, freight prepaid
Invoice price of merchandise purchased 300,000
Less: Invoice price of merchandise returned -
Net invoice price 300,000
Less: Purchase discount (300,000 x 2%) 6,000
Net Payment before freight 294,000
Less: Freight payment - FOB Destination, freight collect -
Add: Freight payment - FOB shipping point, freight prepaid -
Total Net Cash payment 294,000
Question No. 2
FOB Destination, freight collect
Less: Freight payment - FOB Destination, freight collect 5,000
Question No. 3
FOB Shipping point, freight prepaid
Add: Freight payment - FOB shipping point, freight prepaid 5,000
Question No. 4
FOB Shipping point, freight prepaid
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SUMMARY OF ANSWERS:
1. B 2. A 3. C 4. B
PROBLEM 10-3 Gross method and Net method

List price P 100,000
Less: Trade discounts
15%: (100,000 x 15%) 15,000
20%: (100,000 – 15,000) x 20% 17,000 32,000
Invoice price, gross of discount 68,000
Less: Sales discount (68,000 x 3%) 2,040
Invoice price, net of discount P 65,960
SUMMARY OF ANSWERS:
1. C 2. D
PROBLEM 10-4 Computation of Percentage of Bad Debts Expense

Note to Professor:
Existing data: Change to:
Accounts written off for 2015 – Accounts written off for 2015 –
80,000 113,000
The accounts Receivable as of The year-end balances of accounts
December 31, 2015 is as follows: Receivable are as follows:
From 2014 1,000,000 December 31, 2014 1,000,000
From 2015 1,200,000 December 31, 2015 1,200,000
2,200,000
CASE 1
Credit Sales Accounts written off Recoveries
2011 2,100,000 20,000 15,000
2012 1,850,000 40,000 20,000
2013 2,050,000 130,000 5,000
6,000,000 190,000 40,000
2014 2,000,000 22,000 20,000
8,000,000 212,000 60,000
2015 2,000,000 113,000 40,000
10,000,000 325,000 100,000
Question No. 1
Accounts written off minus Recoveries
Percentage =
Total credit sales
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Total years from 2011 to 2015:

325,000 - 100,000
Percentage =
10,000,000
Percentage = 0.0225 or 2.25%
Question No. 2
Bad debts expense = 2.25% x P2,000,000
= P45,000
Question No. 3
Allowance for Bad debts
Write off 113,000 400,000 Beg. Balance
Balance end (squeeze) 372,000 45,000 Bad debts exp
40,000 Recovery
485,000 485,000
CASE 2
Question No.4
Percentage =
Total credit sales
Total years from 2011 to 2013 (years should exclude the last two years):
190,000 - 40,000
Percentage =
6,000,000
Question No. 5
Bad debts expense = 2.50% x P2,000,000
= P50,000
Question No. 6
Credit Sales BD exp Recoveries Write-off Net AB
2014 2,000,000 50,000 20,000 22,000 48,000
2015 2,000,000 50,000 40,000 113,000 (23,000)
Allowance for BD 25,000
CASE 3
Question No. 7
Percentage of bad Accounts written off minus Recoveries
=
debts to AR Total credit sales
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Percentage of bad 212,000 - 60,000
=
debts to AR 8,000,000
Percentage of bad Accounts written off minus Recoveries

=
debts to AR Total credit sales

Percentage of bad 325,000 - 100,000
=
debts to AR 10,000,000
Question Nos. 8 and 9

Balance end Beg. Balance
(1,200,000 x 2.25%) 27,000 19,000 (1,000,000 x 1.90%)
Write off 113,000 81,000 Bad debts exp (squeeze)
40,000 Recovery
140,000 140,000
SUMMARY OF ANSWERS:
Case 1 Case 2 Case 3
1. D 4. A 7. D
2. C 5. A 8. C
3. A 6. A 9. C
PROBLEM 10-5 Aging Based on Outstanding Receivables

Note to professor:
(P100,000 definitely collectible, (P100,000 definitely uncollectible,
balance is 90%) balance is 90%)
Question No. 1
Categories Uncollectible
Balance
(No. of Days) Percent Amount
0-30 days 500,000 2% 10,000
31-60 days 600,000 3% 18,000
61-90 days 750,000 5% 37,500
over 91 days 300,000 10% 30,000
Totals 2,150,000 95,500
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Balance end
(see above table) 95,500 40,000 Beg. balance
Write off 12,000 Recoveries
(23,000+100,000) 123,000 166,500 Bad debts exp (squeeze)
218,500 218,500
Question No. 2
Accounts receivable, end (see above table) 2,150,000
Less: Allowance for doubtful accounts, end 95,500
Net Realizable Value 2,054,500
SUMMARY OF ANSWERS:
1. A 2. A
PROBLEM 10-6 Aging Based On Days Past Due

Question No. 1
Overdue accounts % uncollectible Balance Allowance
For less than 31 days 5.00% 300,000 15,000
From 31-60 days 6.00% 220,000 13,200
From 61-90 days 8.00% 150,000 12,000
From 91-120 days 15.00% 60,000 9,000
For over 121 days 20.00% -
Required allowance for doubtful accounts 49,200
Question No. 2
Balance end 49,200 20,000 Beg. balance
29,200 Bad debts exp (squeeze)
158,000 158,000
SUMMARY OF ANSWERS:
1. A 2. A
PROBLEM 10-7 Interest-bearing Note with Realistic Interest Rate

SOLUTION:
Requirement No. 1
*Selling price P 100,000
Less: Carrying amount of machinery
Cost 500,000
Loss on sale (P 50,000)
*Note: The selling price is equal to the face amount, which is likewise equal to
the present value of the note since the note bears an annual interest rate that is
similar with the market rate.
Requirement No. 2
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Interest income = (100,000 x 10%) = P10,000
Requirement No. 3
Zero. The principal amount is collectible beyond one year from the reporting
date and thus, reported as non-current.
Requirement No. 4
P100,000. The entire principal amount of notes receivable is treated as
noncurrent asset since it is collectible beyond one year from the reporting date.
Journal entries are as follows:
1/1/2015 Notes receivable 100,000
Loss on sale 50,000
Machinery 500,000
\
12/31/2015 Cash 10,000

PROBLEM 10-8 Interest-bearing Note with Unrealistic Interest Rate,

Interest Is Payable Annually, One-Time Collection of Principal
SOLUTION:
Question No. 1
Present value of principal (2,000,000 x 0.7118) P 1,423,600
Add: Present value of interest payments
(2,000,000 x 10% x 2.4018) 480,366
Total present value / Selling price 1,903,966
Cost 1,000,000
Gain on sale P1,053,966
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2015 1,903,960
12/31/2015 200,000 228,475 28,475 1,932,435
12/31/2016 200,000 231,892 31,892 1,964,327
12/31/2017 200,000 235,704 35,672 2,000,000
The total amount of 1,932,435 is reported as noncurrent receivable since it is
due to be collected beyond twelve months from the end of the reporting period.
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. A 5. C
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Interest Is Payable Semi-Annually, One-Time Collection of Principal
Note to professor:
Choices for question No. 2
a. 100,000 c. 115,847 a. 200,000 c. 215,847
b. 114,104 d. 141,104 b. 229,054 d. 232,643
Question No. 1
Present value of principal (2,000,000 x 0.7050) P 1,410,000
Add: Present value of interest payments
(2,000,000 x 5% x 4.9173) 491,730
Cost 1,000,000
Gain on sale P1,051,730
Amortization table
Date Interest Interest Discount Carrying
Collections Income Amortization amount
01/01/2015 1,901,730
07/31/2015 100,000 114,104 14,104 1,915,834
12/31/2015 100,000 114,950 14,950 1,930,784
07/31/2016 100,000 115,847 15,815 1,946,599
12/31/2016 100,000 116,796 16,796 1,963,395
07/31/2017 100,000 117,804 17,804 1,981,198
12/31/2017 100,000 118,602 18,802 2,000,000
Question No. 2
Interest income up to 07/31/2015 114,104
Interest income up to 12/31/2015 114,950
Total interest income 229,054
Question No. 3
1,930,784. See amortization table above.
Question No.s 4 and 5

SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. D
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Uniform Collection of Principal
Note to professor:
Problem 10-10
Principal is due in equal annual Principal is due in equal annual
payments, starting December 31, payments, starting December 31,
2017. 2015.
Question No. 1
Computation of present value of all payments:
Present Interest Total
Principal Total PV
value factor collections collections
0.8929 600,000 180,000 780,000 696,462
0.7972 600,000 120,000 720,000 573,984
0.7118 600,000 60,000 660,000 469,788
Total present value 1,740,234

Cost 1,000,000
Gain on sale P890,234
Amortization table
Interest Interest Amortizatio Principal Carrying
Date
Collections Income n collections amount
01/01/15 1,740,234
12/31/15 180,000 208,828 28,828 600,000 1,169,062
12/31/16 120,000 140,287 20,287 600,000 589,350
12/31/17 60,000 70,651 10,651 600,000 -
Question No. 2
208,828. See amortization table above.
Question No. 3
Question No. 4
Principal collections – 2016 600,000
Less: Amortization – 2016 20,287
Current portion – 12/31/2015 579,713
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Question No. 4
Carrying value – 12/31/2015 1,169,062
Less: Current portion – 12/31/2015 579,713
Non-current portion – 12/31/2015 589,350
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
PROBLEM 10-11 Non-interest-bearing Note with Unrealistic Interest Rate,

Non-Uniform Collection of Principal
Question No. 1
Computation of present value of all payments:
Total
PV factor collections Total PV
0.8929 1,000,000 892,900
0.7972 600,000 478,320
0.7118 200,000 142,360
Total present value of the notes 1,513,580

Cost 1,000,000
Amortization table
Interest Amortizatio Principal Carrying
Date
income n Collections amount
1/1/15 1,513,580
12/31/15 181,630 181,630 1,000,000 695,210
12/31/16 83,425 83,425 600,000 178,635
12/31/17 21,382 21,365 200,000 -
Question No. 2
Question No. 3
Question No. 4
Principal collections – 2016 600,000
Less: Amortization – 2016 83,425
Current portion – 12/31/2015 516,575
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Question No. 4
Carrying value – 12/31/2015 695,210
Less: Current portion – 12/31/2015 516,575
Non-current portion – 12/31/2015 178,635
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. D
PROBLEM 10-12 Noninterest-bearing Note, One-Time Collection of

Principal
SOLUTION:
Question No. 1
Total present value (1,800,000 x 0.7118) 1,281,240
Cost 1,000,000
Amortization table
Date Interest Income Amortization Carrying amount
01/01/15 1,281,240
12/31/15 153,749 153,749 1,434,989
12/31/16 172,199 172,199 1,607,187
12/31/17 192,812 192,812 1,800,000
Question No. 2
Question No. 3
Question No. 4 and 5
SUMMARY OF ANSWERS:
1. B 2. B 3. A 4. B 5. A
PROBLEM 10-13 Computation of Annual Payment or Collection

CASE 1: Based on the original data
Requirement No. 1
Present value of the notes
Annual collection =
Present value of ordinary annuity for 3 periods
1,500,000
Annual collection =
2.4018
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Annual collection = P624,532

Requirement No. 2
Interest income (1,500,000 x 12%) = P180,000
CASE 2
Requirement No. 1
Present value of the notes
Annual collection =
Present value of annuity due for 3 periods
1,500,000
Annual collection =
2. 6901
Annual collection = P557,600
Requirement No. 2
Interest income (1,500,000 – 557,600) x 12% = P113,088
PROBLEM 10-14 Loan Receivable

SOLUTION:
Loan receivable (principal amount) P4,000,000
Less: Unearned interest income
Origination fee received 342,100
Less: Direct origination cost ( 150,000) 192,100
Carrying amount – January 1, 2015 P3,807,900
Interest income for 2015 (12% x 3,807,900) P456,948

Interest received for 2015 (10% x 4,000,000) 400,000
Amortization of unearned interest income P 56,948
Loan receivable P 4,000,000
Unearned interest income – December 31, 2015
(192,100 – 56,948) ( 135,152)
Carrying amount – December 31, 2015 P3,864,848
Suggested answer: C
PROBLEM 10-15 Impairment of Receivable, One-time Collection of

Principal
Question No. 1
Principal 16,000,000
Add: Accrued interest receivable 1,600,000 17,600,000
Less: *Present value of expected cash flows 7,705,280
Loan impairment 9,894,720
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*Computation of present value of all payments:

PV factor Total collections Total PV
0.9091 1,600,000 1,454,560
0.8264 3,200,000 2,644,480
0.7513 4,800,000 3,606,240
Total present value of the notes 7,705,280
Amortization table
Interest Carrying
Date Collections Income Amortization amount
12/31/2014 7,705,280
12/31/2015 1,600,000 770,528 829,472 6,875,808
12/31/2016 3,200,000 687,581 2,512,419 4,363,389
12/31/2017 4,800,000 436,339 4,363,389 -
SUMMARY OF ANSWERS:
1. A 2. B 3. B
PROBLEM 10-16 Impairment of Receivable, Principal is Collectible Every

Year
Question No. 1
Principal 960,000
Add: Accrued interest receivable 160,000 1,120,000
Less: Present value of expected cash flows 770,528
Loan impairment 349,472
*Computation of present value of all payments:
PV factor Principal Total collections Total PV
0.9091 160,000 160,000 145,456
0.8264 320,000 320,000 264,448
0.7513 480,000 480,000 360,624
Total present value of the notes 770,528
Amortization table
Carrying
Date Collections Int. Income Amortization amount
12/31/2014 770,528
12/31/2015 160,000 77,053 82,947 687,581
12/31/2016 320,000 68,758 251,242 436,339
12/31/2017 480,000 43,661 436,339 -
SUMMARY OF ANSWERS:
1. A 2. B 3. B
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PROBLEM 10-17 Reversal of Impairment Loss

Question No. 1
Present value of expected cash flows P 654,552
vs. Would have been present value if there was no impairment 600,000
Lower 600,000
Less: Actual amortized cost 396,681
Gain on reversal of impairment loss P 203,319
Question No. 2
Interest income (600,000 x 10%) P 60,000
SUMMARY OF ANSWERS:
1. A 2. B
PROBLEM 10-18 Pledge of Receivable

SOLUTION:
Principal amount borrowed P 900,000
Less: One year interest deducted in advance (900,000 x 10%) ( 90,000)
Cash received on December 1 P810,000
Suggested answer: B
PROBLEM 10-19 Assignment of Receivable

Entries to record transactions
Date Accounts Debit Credit
10/1/2015 Cash 395,000
Finance charge expense 5,000
Notes payable 400,000
12/31/2015 Cash 300,000
Accounts receivable 300,000
Interest expense (400,000 x 12% x 3/12) 12,000
Cash 312,000
SUMMARY OF ANSWERS:
1. D 2. A
PROBLEM 10-20 Assignment of Accounts Receivable

Question No. 1
Principal amount borrowed P 150,000
Less: Finance fee (150,000 x 5%) ( 7,500)
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Question No. 2
Notes payable P150,000
Less: Principal payment
Remittance 95,000
Less: Interest (150,000 x 12% x 3/12) ( 1,500) 93,500
Notes payable – December 31 P 56,500
Question No. 3
Accounts receivable – assigned (200,000 – 100,000) P 100,000
Less: Notes payable ( 56,500)
Equity in assigned account P 43,500
SUMMARY OF ANSWERS:
1. D 2. C 3. C
PROBLEM 10-21 Factoring of Receivables

Entries to record transactions
Option Accounts Debit Credit
One Cash (400,000 x 90%) 360,000
Receivable from factor
(25,000 – [5% x 400,000]) 5,000
Loss on sale of receivables (squeeze) 35,000
Two Cash (400,000 x 90%) 360,000
Receivable from factor
(25,000 – [4% x 400,000]) 9,000
Loss on sale of receivables (squeeze) 34,000
Estimated recourse liability 3,000
SUMMARY OF ANSWERS:
1. B 2. C
PROBLEM 10-22 Factoring

SOLUTION:
Sales price P 265,000
Less: Carrying amount of accounts receivable (300,000 – 12,500) ( 287,500)
Loss on factoring P 22,500
Suggested answer: B
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PROBLEM 10-23 Notes Receivable Discounting and Notes Receivable

Dishonored
CASE NO. 1
Question No. 1
Principal P 600,000.00
Add: Interest over full credit period (600,000 x 9% x 90/360) 13,500.00
Maturity value 613,500.00
Less: Discount (613,500 x 12% x 65/360) 13,292.50
Net proceeds from discounting P 600,207.50
Question No. 2
Net proceeds from discounting P 600,207.50
Less: Carrying amount on date of discounting
Principal 600,000.00
Add: Interest (600,000 x 9% x 25/360) 3,750.00 603,750.00
Loss on notes receivable discounting (P 3,542.50)
CASE NO. 2
Question No. 1
Loss of P3,524.50. The amount of loss to be recognized is computed in a
similar way as to that of discounted note without recourse.
Question No. 2
Maturity value of the note P 613,500
Add: Protest fee and other bank charges 5,000
CASE NO. 3
Question No. 1
Interest expense of P3,524.50. The amount of interest expense is computed
in a similar way as to that of discounted note without recourse or conditional
sale.
Question No. 2
Maturity value of the note P 613,500
Add: Protest fee and other bank charges 5,000
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. C 5. A 6. C
PROBLEM 10-24 Discounting “Own” Note

Question No. 1
Note payable P 250,000
Less: Discount on note payable (250,000 x 12%) ( 30,000)
Carrying amount – Date of issuance P 220,000
Effective interest rate = Discount/Net proceeds
= 30,000/220,000
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= 13.60%
Question No. 2
Entry to record transaction
Cash 220,000
Discount on notes payable 30,000
SUMMARY OF ANSWERS:
1. D 2. B
COMPREHENSIVE PROBLEMS
PROBLEM 10-25
Question No. 1
Balance end (squeeze) 200,000 152,000 DA expense (7.6M x 2%)
Total 364,000 364,000
Question No. 2
Age Group Amount Percent Uncollectible Allowance
0 - 60 days P 1,650,000 2% 33,000
61 - 90 days 440,000 10% 44,000
91 - 120 days 100,000 30% 30,000
Over 120 days 256,000 40% 102,400
Total P 2,446,000 209,400
Question No. 3
Balance end 209,400 161,400 DA expense (squeeze)
Total 373,400 373,400
Question No. 4
Accounts receivable, December 31, 2013 2,446,000
Less Allowance for doubtful accounts, December 31, 2013 209,400
Net realizable value 2,236,600
Question No. 5
Sales 7,600,000 164,000 Write-off
7,490,000 Collections (squeeze)
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Total 10,100,000 10,100,000
SUMMARY OF ANSWERS:
1. A 2. C 3. D 4. B 5. D
PROBLEM 10-26
Question No. 1
Credit Sales Accounts written off Recoveries
2012 2,220,000 52,000 4,300
2013 2,450,000 59,000 7,500
2014 2,930,000 60,000 7,200
7,600,000 171,000 19,000

Percentage =
Total credit sales
171,000 - 19,000
Percentage =
7,600,000
Percentage = 0.02 or 2%
Question No. 2
Doubtful accounts expense (3,000,000 x 2%) = P60,000
Question No. 3
Reported doubtful account expense (bad debts written off) P 62,000
Less: Correct doubtful account expense (see No. 2) ( 60,000)
Overstatement in doubtful account expenses P 2,000
Question No. 4
Sales on account 3,000,000 62,000 Write-off
2,710,400 Collections excluding
advance from customers
Total 3,418,000 3,418,000
Question No. 5
Balance end 21,600 60,000 Doubtful accounts expense
8,400 Recoveries
Total 83,600 83,600
SUMMARY OF ANSWERS:
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1. A 2. A 3. B 4. B 5. A
PROBLEM 10-27
Question No. 1
Year Credit sales Write-off Recoveries
2011 3,000,000 30,000 -
2012 4,500,000 76,000 5,400
2013 5,900,000 104,000 5,000
2014 6,600,000 130,000 9,600
Total 20,000,000 340,000 20,000
2015 8,100,000 125,550 10,000
Total 28,100,000 465,550 30,000

Percentage =
Total credit sales

Percentage 340,000 - 20,000
=
2014 20,000,000
Entry to set up the beginning allowance for doubtful accounts

Retained earnings (2,500,000 x 1.6%) 40,000
Allowance for doubtful accounts 40,000
Question No. 2
Percentage 465,550 - 30,000
=
2015 28,100,000

(166,000-40,450)
Balance end (4,000,000 + 64,177 139,727 Doubtful account
100,000+40,450)x1.55% expense (squeeze)
10,000 Recoveries
Total 189,727 189,727
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Question No. 5
Accounts receivable (4,000,000+100,000+40,450) P 4,140,450
Less: Allowance for doubtful accounts ( 64,177)
Net realizable value P4,076,273
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. A
PROBLEM 10-28
Accounts Allow Mdse. Net Cost of
Receivable for DA Inventory Sales Sales
Unadjusted balances 300,000 3,000 400,000 1,000,000 800,000
2) Sale return (30,000) (30,000)
Cost of return
Merchandise
(30,000 x 80%) 24,000 (24,000)
3)Sales FOB shipping
point
not recorded as
Sale 40,000 40,000
Cost of mdse sold
(40,000 x 80%) (32,000) 32,000
4) Goods shipped
FOB
Destination recorded
as sale (50,000) (50,000)
Cost of goods
(50,000 x 80%) 40,000 (40,000)
6) Doubtful accts exp (12,000)
Adjusted bal. 260,000 15,000 432,000 960,000 792,000
Question No. 5
Accounts receivable P 260,000
Less: Allowance for doubtful accounts ( 15,000)
Net realizable value P245,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. C
PROBLEM 10-29
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze) P 21,800
Add: Adjusted net sales 255,000
Total 276,800
Less: Collections, net of discounts 156,800
Estimated uncollectible accounts charged to AR in Dec. 30,000
Unadjusted accounts receivable, Dec. 31 P 90,000
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Subsidiary ledger balance, Dec. 1 P 59,000

Less: AR controlling account, Dec. 1 (see above) 21,800
Add: Estimated uncollectible account
charged to AR in Dec. 6,000 27,800
Customers’ credit balance P31,200
Question No. 2
Collection, net of discount P 156,800
Divide by: (100%-2%) 98%
Total credit to AR for collection P160,000
Question No. 3
Customer credit balance, Dec. 1 P 31,200
Less: sale to customer with credit balance 10,000
Customer Credit balance, Dec. 31 P 21,200
Question No. 4
Unadjusted Sales, balance P 260,000
b) Sales, FOB shipping pt., not yet recorded 10,000
c) Sales, FOB destination ( 15,000)
Adjusted Sales balance P 255,000
Question No. 5
Subsidiary ledger, balance, 12/1 P 59,000
Add: Adjusted Sales in December 255,000
Freight prepaid by the company 1,000
Total P 315,000
Less: total credit to AR for coll. 160,000
Adjusted accounts receivable in Dec. P 155,000
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. A 5. B
PROBLEM 10-30
Note to professor:
 Replace JOSHIA to Joanna in Item I.
 Remove “P” sign in Question No. 5
Accounts Merchandise Net Sales Cost of
receivable Inventory Sales
Unadjusted bal. 200,000 300,000 1,000,000 600,000
1 (14,800)
3 (47,400) 32,600 (47,400) (32,600)
4 (30,000) (90,000)
5 (8,000) (8,000)
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6 (36,000) 24,000 (36,000) (24,000)

7 (1,200) (1,200)
62,600 356,600 817,400 543,400
Question No. 5
Original bill (P200 x 100) P 20,000
Divided by: Selling price per unit 200
Number of units sold 100
Question No. 6
Item Accounts Debit Credit
B Accounts payable 14,800
C Accounts receivable – D 32,400
Accounts receivable – C 32,400
E Sales 47,400
Merchandise inventory 32,600
F Sales 90,000
Customers’ deposit on orders 60,000
H Sales *8,000
I Sales 36,000
J Sales returns and allowances 1,200
*Computation of overstatement of sales for item H
Original bill (P200 x 100) P 20,000
Per audit: (P120 x 100) 12,000
Overstatement P 8,000
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. B
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PROBLEM 10-31
Total 0-31 days 31-60 61-90 91-120 Over 120
Rose P 87,950 35,000 52,950
Gerry 52,300 30,000 22,300
Ram 50,000 50,000
Ria 84,350 57,850 26,500
Mar 79,000 31,000 48,000
Sun 43,500 43,500
West -
P 397,100 116,000 110,800 74,500 73,500 22,300
0.01 0.015 0.04 0.10 0.60
1,160 1,662 2,980 7,350 13,380
Question No. 4
Allowance for doubtful accounts, end:
(P1,160 + P1,662 + P2,980 + P7,350 + P13,380) P 26,532
Question No. 5
Balance end 26,532 19,082 Doubtful accounts expense
Total 41,532 41,532
SUMMARY OF ANSWERS:
1. A 2. C 3. C 4. C 5. C
PROBLEM 10-32
Question No. 1
Balance Accounts
Dec. 31 Not due 1-60 days 61-120 days Over 120
1 12,000 3,000 8,000 1,000
2 22,000 22,000
4 20,000 10,000 10,000
5 55,000 2,220 52,780
6 7,500 7,500
116,500 27,220 68,280 11,000 10,000
Multiply by: 0.50% 2% 5% 50%
136.10 1,365.60 550 5,000.00
Required balance (P136.10+P1,365.60+P550+P5,000) P 7,051.70
Less: Allowance for doubtful accounts, beginning 5,000.00
Doubtful accounts expense P 2,051.70
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Interest Accrued interest
Interest income income income
(120,000 X 6% X 2/12) P 1,200 P -
(100,000 X 6% X 1/12) 500 500
Interest income P 1,700 P 500
SUMMARY OF ANSWERS:
1. D 2. C 3. B 4. D 5. A
PROBLEM 10-33
Question No. 1
Amount Percent Allowance
Days outstanding Uncollectible
0 - 60 days P 960,000 2% 19,200
61 - 120 days 720,000 4% 28,800
Over 120 days 1,000,000 6% 60,000
Total P 2,680,000 108,000
Question No. 2
Balance end 108,000 48,000 Recovery
124,000 Doubtful accounts expense
(squeeze)
Total 292,000 292,000
Question No. 3
Unadjusted balance 144,000 48,000 Recovery
160,000 Doubtful accounts expense
(squeeze)
Total 328,000 328,000
Question No. 4
Reported Bad debts expense (see No. 3) P 160,000
Divided by: Bad debts rate 2%
Net credit sales 8,000,000
Add: Sales return 100,000
Unadjusted accounts receivable, Dec. 31 P 8,100,000
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Question No. 5
Accounts receivable
Sales 8,100,000 184,000 Write-off
Recoveries 48,000 100,000 Sales return
7,184,000 Collections including
recoveries
Total 3,418,000 3,418,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. B 5. C
PROBLEM 10-34
SOLUTION:
Question No. 1
Principal 4,000,000
Origination fees received (342,100)
Direct origination cost incurred 150,020
Initial Carrying amount of the loan 3,807,920
Question No. 2
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .7118) 2,847,200
Present value of Int. (4M x 10% x 2.4018) 960,720
Present value of Loan Receivable 3,807,920

Interest Carrying
01/01/2015 3,807,920
31/12/2015 400,000 456,950 56,950 3,864,870
31/12/2016 400,000 463,784 63,784 3,928,655
31/12/2017 400,000 471,439 71,346 4,000,000
Question No. 5
Zero, As of December 31, 2015, the entire loan proceeds will be collectible on
December 31, 2017, that is two years from the reporting date.
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A 5. A
PROBLEM 10-35
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Question No. 1
Principal 4,000,000
Initial Carrying amount of the loan 3,756,920
By trial and error, 12% interest rate will have a present value equal to the
initial carrying amount of the loan.
Present value of Prin. (4,000,000 x .6355) 2,542,000
Present value of Int. (4M x 10% x 3.0373) 1,214,920
Present value of Loan Receivable 3,756,920
Amortization table
Interest Carrying
01/01/2014 3,756,920
31/12/2014 400,000 450,830 50,830 3,807,750
31/12/2015 400,000 456,930 56,930 3,864,680
31/12/2016 400,000 463,762 63,762 3,928,442
Question No. 4
Carrying Amount (see above amortization table) 3,864,680
Less: *Present value of expected cash flows 3,201,620
Loan Impairment 663,060
*Computation of present value of expected cash flows
Date Cash flow PV factor at 12% Present value
12/31/2016 1,800,000 0.8929 1,607,220
12/31/2017 2,000,000 0.7972 1,594,400
3,201,620
Question No. 5
Interest Carrying
Date Collections Income Amortization value
12/31/2015 3.201,620
12/31/2016 1,800,000 384,194 1,415,806 1,785,814
12/31/2017 2,000,000 214,298 1,785,814 -
SUMMARY OF ANSWERS:
1. B 2. C 3. B 4. B 5. B
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PROBLEM 10-36
Carrying amount of the loan, December 31, 2015 8,277,606
Less Carrying amount of the loan, December 31, 2016 8,145,367
Amortization in 2016 132,239
Less Interest collection in 2016 960,000
Interest income in 2015 (3) 827,761
Divide by Carrying amount of the loan, 12/31/2015 8,277,606
Effective interest rate (1) 10%
Question No. 2
Carrying amount of the loan, January 1, 2015 8,397,824
Multiply by: Effective interest rate 10%
Interest income in 2015 839,782
Question No. 3
Carrying amount of the loan, 12/31/2015 8,277,606
Multiply by: Effective interest rate 10%
Interest income in 2015 827,761
Question No. 4
Carrying amount of the loan, December 31, 2015 8,277,606
Add: Interest collection (8M x 12%) 960,000
Total 9,237,606
Divide by: 100% plus effective rate 1.10
Question No. 5
Direct origination fees received 100,000
Principal 8,000,000
Interest Carrying
01/01/2015 8,397,824
12/31/2015 960,000 839,782 120,218 8,277,606
12/31/2016 960,000 827,761 132,239 8,145,367
12/31/2017 960,000 814,537 145,367 8,000,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. D 5. D
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PROBLEM 10-37
Question No. 1
Annual Cash PV
Date flows factor Amount
Dec. 31, 2014 P1,750,000 0.9091 P 1,590,925
Dec. 31, 2015 2,000,000 0.8264 1,652,800
Dec. 31, 2016 1,750,000 0.7513 1,314,775
Total P 4,558,500
Question No. 2
Carrying amount of the loan P 5,500,000
Less: Present value of the loan 4,558,500
Impairment loss P 941,500
Interest Reduction to Carrying
Date Payment Income Principal amount
12/31/2013 P4,558,500
12/31/2014 P1,750,000 P455,850 P1,294,150 3,264,350
12/31/2015 2,000,000 326,435 1,673,565 1,590,785
12/31/2016 1,750,000 159,079 1,590,785 -
SUMMARY OF ANSWERS:
1. A or C 2. A 3. B 4. A 5. C
PROBLEM 10-38
SOLUTION:
Question No. 1
Age of Accts Balance %uncollectible Allowance
1-10 days 960,000 1% 9,600
11-30 days 270,000 2.5% 6,750
Past due 31-60 120,000 5% 6,000
Past due 61-120 75,000 20% 15,000
Past due 121-180 45,000 35% 15,750
Past due over 180 days 30,000 80% 24,000
Allowance for BD 77,100
Question No. 2
Unadjusted balance 54,800 320,00 DA expense (8M x 4%)
Total 347,300 347,300
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Allowance for doubtful accounts, adjusted 77,100

Allowance for doubtful accounts, unadjusted 54,800
Credit to Allowance for BD 22,300
Principal 4,000,000
Carrying amount, Jan. 1, 2015 3,711,520
Amortization table at 12% Effective Rate

Interest Carrying
01/01/2015 3,711,520
12/31/2015 400,000 445,382 45,382 3,756,902
12/31/2016 400,000 450,828 50,828 3,807,731
12/31/2017 400,000 456,928 56,928 3,864,658
12/31/2018 400,000 463,759 63,759 3,928,417
12/31/2019 400,000 471,410 71,583 4,000,000
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. D 5. A
PROBLEM 10-39
Question No. 1
Principal 4,000,000
Direct origination fees received (300,000)
Initial carrying amount 3,711,520

Interest Carrying
01/01/2013 3,711,520
12/31/2013 400,000 445,382 45,382 3,756,902
12/31/2014 400,000 450,828 50,828 3,807,731
12/31/2015 400,000 456,928 56,928 3,864,658
12/31/2016 400,000 463,759 63,759 3,928,417
12/31/2017 400,000 471,410 71,583 4,000,000
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Question No. 4
Carrying amount of loan 3,807,731
Less: Present value of expected cash flows
12/31/2015 (1,750,000 x .8929) 1,562,575
12/31/2017 (1,750,000 x .7118) 1,245,650 2,808,225
Impairment loss 999,506
Question No. 5
Interest Carrying
12/31/2014 2,808,225
12/31/2015 1,750,000 336,987 1413,013 1,395,212
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. C 5. B
PROBLEM 10-40
Question No. 1
Estimated
Classification Balance
Percentage Amount
1-60 days P 1,000,000 1% P 10,000
61-120 days 400,000 5% 20,000
121-180 days 300,000 10% 30,000
181-360 days 200,000 25% 50,000
More than one year 60,000 80% 48,000
Totals P 1,960,000 P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1) P 1,960,000
Less: Allowance for doubtful accounts, end (see no. 1) 158,000
Question No. 3
Doubtful accounts per books (9,000,000 x 2%) P 180,000
Less: *Adjusted doubtful accounts expense 188,000
Understatement of doubtful accounts (P 8,000)
*Adjusted doubtful account expense

Write off (100,000+40,000) 140,000 90,000 Beg. Balance
Balance end (required) 158,000 20,00 Recoveries
188,000 Doubtful account expense
Total 298,000 298,000
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Question No. 4
Total carrying value P3,000,000
Less: **Present value of the loan 2,790,000
Impairment loss P 210,000
*Computation of present value

Annual Cash flow PV factor Total
P1,000,000 1.00 P 1,000,000
1,000,000 0.93 930,000
1,000,000 0.86 860,000
Total Present value of the loan P 2,790,000
Question No. 5
Interest Amortizatio Carrying
Date Collections Income n amount
01/01/2015 2,790,000
12/31/2015 1,000,000 1,000,000 1,790,000
12/31/2016 1,000,000 143,200 856,800 933,200
SUMMARY OF ANSWERS:
1. A 2. B 3. D 4. B 5. B
PROBLEM 10-41
Question No. 1
Accounts receivable factored P 400,000
Less: Service charge (400,000 x 5%) 20,000
Receivable from factor (400,000 x 20%) 80,000 100,000
Customers’ credit balance P300,000
Question No. 2
Principal P 300,000
Add: Interest over full credit period (300,000 x 12% x 6/12) 18,000
Maturity value 318,000
Less: Discount (318,000 x 12% x 3/12) 11,925
Net proceeds from discounting P 306,075
Question No. 3
Maturity value of the notes (see item in No. 2) 318,000
Add: Protest fee 12,000
Total cash paid/Amount to be debited to AR P 330,000
Question No. 4
Note payable (80% x P600,000) 480,000
Less: Service fee (5% x P600,00) 30,000
Cash received P 450,000
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Question No. 5
Total Cash paid (see No. 3) 330,000
Add: Interest income (P330,000 x 12% x 2/12) 6,600
Cash received P 336,600
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000) P 700,000
Add: Accounts receivable assigned 600,000
Total 1,300,000
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%) 65,000
SUMMARY OF ANSWERS:
1. B 2. C 3. A 4. B 5. D 6. D
PROBLEM 10-42
Note to professor:
T-Account of Allowance for bad debts:
Beg. Bal - 01/01/2014 Beg. Bal - 01/01/2015
Question No. 1
Accounts receivable, unadjusted bal
Per subsidiary ledger P1,660,000
Note receivable included in the AR (200,000)
Factored Accounts receivable (160,000)
Sales FOB shipping point 100,000
Adjusted AR balance P1,400,000
Question No. 2
Allowance for doubtful accts, beg. P 100,000
Add: Doubtful accounts (P15,000,000 + P100,000) x 1% 151,000
Total P 251,000
Less: Accounts written off 28,000
Allowance for doubtful accts, end P 223,000
Question No. 3
Unadjusted Net Sales P15,000,000
Add: Sales, FOB shipping point 100,000
Total Sales P 15,100,000
Multiply by: rate 1%
Doubtful accounts P 151,000
Question No. 4
No effect. The audit adjustments did not result to any changes to inventory
account.
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Question No. 5
Sales, FOB shipping point P 100,000
SUMMARY OF ANSWERS:
1. D 2. A 3. D 4. D 5. A
PROBLEM 10-43
60 days and 61 to 90 Over 90
Total below days days
Unadjusted Balance,
12/31/2015 1,450,000 800,000 400,000 250,000
Adjustments:
Write Off (50,000) (63,000)
Failure to record Sales
Return (40,000) (36,000)
Failure to record
Employee Discount (4,000) (3,600)
Consignment (45,000) (54,000)
Freight collect (3,800) (4,500)
Adjusted balance,
12/31/2015 1,307,200 701,900 400,000 187,000
Percentage of Uncollectibility 2% 3% 6%
Required allowance,
12/31/2015 37,258 14,038 12,000 11,220
Question No. 4
Write off 63,000 50,000 Beg. Balance
Balance end (required) 37,258 45,000 Recoveries
4,134 Adjustment to Doubtful
account expense (squeeze)
Total 100,258 100,258

1 Allowance for doubtful accounts 50,000
2 Sales return 40,000
3 Claim from insurance 55,000
4 Sales discount 4,000
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5 Sales 45,000
6 Delivery expense 3,800
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. C
PROBLEM 10-44
Note to professor:
Kaya Co. incurred and paid P11,520 of Kaya Co. incurred and paid P11,520
direct origination cost was debited to of direct origination cost was
direct origination income. Kaya Co. debited to unearned interest
charged P300,000 nonrefundable income. Kaya Co. charged P300,000
origination fees which was credited to nonrefundable origination fees
direct origination income. which was credited to unearned
interest income.
Adjusting entries for Accounts receivable
1 Accounts receivable 20,000
2 Sales discount 16,000
Miscellaneous income 30,000
NOTE: The accounts receivable account was incorrectly footed. The unadjusted
balance should have been P2,596,000 instead of P2,636,000.
Accounts receivable
Beg. Balance 220,000 2,720,000 Balance end
(20,000+200,000)
Sales 4,000,000 30,00 Recoveries
Recoveries 30,000 *1,500,000 Collections, gross of
discount
Total 4,250,000 4,250,000
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*Collections from customers excluding recoveries

Collections without discount 700,000
Add: Collections with discount 784,000
Cash discount availed (784,000/98% x 2%) 16,000
Total collections excluding recoveries P 1,500,000

20,000 Beg. Balance
Balance end 170,000 30,000 Recoveries
120,000 Doubtful account expense
Total 170,000 170,000
Accounts receivable 2,720,000

Less: Allowance for bad debts 170,000
Net realizable value P 2,550,000
Question Nos. 2, 4 and 5
Adjusting entries for Loans receivable
1 Loan Receivable 400,000
2 Unearned interest income 45,382
Principal 4,000,000
Direct origination fees received (300,000)
Initial carrying amount 3,711,520
Interest Carrying
01/01/2015 3,711,520
12/31/2015 400,000 445,382 45,382 3,756,902
12/31/2016 400,000 450,828 50,828 3,807,731
12/31/2017 400,000 456,928 56,928 3,864,658
12/31/2018 400,000 463,759 63,759 3,928,417
12/31/2019 400,000 471,410 71,583 4,000,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. D 5. A
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PROBLEM 10-45
Question No. 1
Nonrecording of gain on sale 180,360
Nonrecording of interest income
NR from sale of Machinery 57,643
NR from sale of plant (3,000,000 x 12% x 9/12) 270,000
Understatement of Ret. Earnings on 12/31/2015 508,003
NR sale of machinery:
Downpayment 400,000
Add: Present value of the note (200,000 x 2.4018*) 480,360
Total Selling Price 880,360
Less: Book value
Cost 1,600,000
Gain that should have been recognized 180,360
*PV of ordinary annuity
Amortization table 1
Interest Reduction to Carrying
Date Collections
Income principal amount
01/01/2014 480,360
12/31/2014 200,000 57,643 142,357 338,003
12/31/2015 200,000 40,560 159,440 178,564
12/31/2016 200,000 21,437 178,563 -
Question No. 2
Interest Income:
NR from sale of machinery 40,560
NR from sale of plant
(3M x 12% x 3/12) 90,000
(2M x 12% x 9/12) 180,000
NR from sale of equipment 25,613
Total Int. Income 336,173
Amortization table 2
Interest Unearned Interest Carrying
Date Income Income amount
04/01/2015 158,500 341,500
12/31/2015 25,613 132,888 367,113
Question No. 3
NR from sale of machinery (see amortization table 1) 178,564
NR from sale of plant 1,000,000
Total current portion 1,178,564
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Question No. 4
NR from sale of plant 1,000,000
NR from sale of equipment (see amortization table 2) 367,113
Total noncurrent portion 1,367,113
Question No. 5
Nonrecording of loss 158,500
Overstatement of Int. income
Per books 360,000
Per audit 336,173 23,827
Total overstatement of net income in 2015 182,327
NR sale of equipment:
Downpayment 700,000
Add: Present value of the note (500,000 x 0.6830*) 341,500
Total Selling Price 1,041,500
Less: Book value
Cost 2,000,000
Less: Accumulated depreciation 800,000 1,200,000
Loss that should have been recognized (158,500)
*PV of 1
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. C 5. B
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Chapter 12: Inventories
CHAPTER 12: INVENTORIES

Note to professor:
358 Requirement No. 4 T-Account
Beginning balance – 90,000 Change 90,000 to 190,000
359 SOLUTION:
 Items counted in the  Items counted in the
warehouse (bodega) warehouse (bodega)
(P4,000,000 - P32,000) (P4,000,000 - P32,000 –
P3,968,000 P80,000) P3,888,000
 Total P4,716,000  Total P4,636,000
373 Notes: Notes:
1. The invoice price is computed by 1. The invoice price is computed by
deducting the trade discount of 20 and deducting the trade discount of 20
10. and 10.
List Price P 150,000 List Price P 150,000
Less: Trade discount 30,000 Less: Trade 30,000
– 20% discount – 20%
Net 120,000 Net 120,000
Less: Trade discount 1,200 Less: Trade
- 10% discount - 10% 12,000
Invoice price P 108,000 Invoice price P 108,000
Note that the total trade discount of Note that the total trade discount of
P31,200 is not recorded in the books. P42,000 is not recorded in the
2. . books.
3. . 2. .
4. The cash to be paid under the net 3. .
method is computed as follows: 4. The cash to be paid under the net
Purchases P 83,420 method is computed as follows:
Less: Purchase 9,700 Purchases P 83,420
returns Less: Purchase 9,700
Net purchases 76,000 returns
Less: Purchase 2,280 Cash paid P 73,720
discount
Cash paid P 73,720
378 2. Moving Average Method

Cost of merchandise sold – Aug.
12 Unit Total Cost
Unit Cost Total Cost Qty Cost
Qty 200 21.60 4,320
200 20.00 4,000
379 Total inventory

Unit Cost Total Cost Unit Total Cost
Qty Qty Cost
1,900 26.58 50,498 1,900 26.92 51,139
390 Additional information No. 3

To record the purchase of the To record the purchase of the
aviation fuel on March 23, 2016, aviation fuel on March 23, 2016,
being the lower of the commitment being the lower of the
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price of P3,200. commitment price of P3,000.
PROBLEM 12-1 Cost of Purchase

Purchase price based on vendors’ invoices 1,250,000
Brokerage commission paid to agents for arranging imports 50,000
Import duties 100,000
Freight and insurance on purchases 250,000
Other handling costs relating to imports 25,000
Total cost of purchase (B) P1,675,000
Note that the trade discount was already deducted in arriving at the vendor’s
invoice.
PROBLEM 12-2 Inventoriable Cost

Materials 350,000
Irrecoverable purchases taxes 30,000
Total cost of inventory (B) P 380,000
PROBLEM 12-3 Inventoriable Cost

Direct materials and labor 180,000
Variable production overhead 25,000
Factory administrative costs 15,000
Fixed production costs 20,000
Total Inventoriable cost (D) P 240,000
PROBLEM 12-4 Items to be Included in the Inventory

1 Items in the warehouse during the count P1,090,000
2 Items out on consignment at another company's store 70,000
Items purchased FOB shipping point that are in transit at
4 December 31 500,000
5 Freight charges on goods purchased above 13,000
Items sold to another company, for which our company
has signed an agreement to repurchase at a set price that
covers all costs related to the inventory. Total cost of
7 merchandise is 200,000
Items sold FOB destination that are in transit at December
10 31, at cost 75,000
14 Items currently being used for window display 100,000
15 Items on counter for sale 400,000
17 Items included in the count, damaged and unsalable (150,000)
Items in receiving dept., returned by customer, in good
18 condition (not included in the count) 50,000
19 Merchandise inventories out on approval, at cost 100,000
Finished special article goods, made to order (included in
20 the count) (78,000)
Total (A) P2,370,000
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The following items would not be reported as inventory:

3 Cost of goods sold in the income statement 40,000
6 Not reported in the financial statements 300,000
11 Advertising exp. In the income statement 10,000
13 Temporary investments in the current
assets section of the balance sheet 125,000
21 Office supplies in the current asset
section of the balance sheet 40,000

Unadjusted balance 325,000
Goods acquired in transit, FOB shipping point 30,000
Goods sold in transit, FOB Destination 38,000
Goods out on consignment 12,000
Total Inventoriable cost (C) P 405,000
PROBLEM 12-6 Accounts Payable

Unadjusted balance 1,800,000
Goods acquired in transit, FOB shipping point 100,000
Goods lost in transit 50,000
Adjusted Accounts Payable (A) P1,950,000
The journal entry on item 2 would include the following:
Purchases / Inventory 50,000
Accounts Payable 50,000
To record the purchase on December 20.
Query: For F/S presentation on December 31, is the goods lost in transit be
presented as part of inventory?
Answer: No, since the inventories were lost in transit and it is improper to
report inventories that is not existing (i.e. it violates the existence assertion).
Thus the journal entry at December 31 if no claim was filed and the common
carrier has yet to acknowledge the claim may include a:
Loss on goods lost in transit (preferably presented as 50,000
other expense and not as cost of goods sold)
Inventory / Purchases 50,000
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And on the next year (January 5), when the claim was filed and acknowledged
by the common carrier, the journal entry will be:
Claims from common carrier 50,000
Gain on reimbursement of lost inventory 50,000
To record the claim against common carrier on January 5.
PROBLEM 12-7 Consigned Goods

Inventory shipped on consignment to Lomasoc 360,000
Freight by Desiree to Lomasoc 18,000
Total Inventoriable cost (D) P 378,000

Merchandise out on consignment at cost [150,000 x (100%-35%)] 97,500
Goods purchased in transit, FOB shipping pt. 60,000
Goods out on approval at cost 40,000
Total Cost of inventory (D) P197,500
PROBLEM 12-9 Items to Be Included In the Inventory

Note to the professor: Use the following guide questions in answering this
question:
1. Was there a valid sale?
2. Was the sale recorded?
3. Were the inventories EXCLUDED in the count?
Guide Sales Inventories
Unadjusted balances Questions 700,000 150,000
100 Yes, Yes, Yes - -
101 No, No, Yes - 2,000
102 No, Yes, Yes (1,800) 1,200
103 Yes, Yes, Yes - -
104 Yes, No, Yes 9,200 -
105 No, Yes, No (6,500) -
106 No, No, No - -
107 Yes, No, Yes 3,900 -
108 No, Yes, No (8,600) -
109 No, No, No - -
Adjusted balances 696,200 153,200
(A) (A)
SUMMARY OF ANSWERS:
1. A 2. A
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PROBLEM 12-10 Gross method vs. Net method

CASE NO 1: Gross method
01/02 Purchases (100,000 x [1-20%]) 80,000
01/12 Accounts payable 80,000
Cash (80,000 x [1-98%]) 78,400
Cash 80,000
CASE NO 2: Net method
01/02 Purchases (100,000 x [1-20%]
x [1-2%]) 78,400
Cash (80,000 x [1-98%]) 78,400
Purchase discount lost 1,600
Cash 80,000
SUMMARY OF ANSWERS:
CASE NO. 1 CASE NO. 2
1. B 5. C
2. C 6. C
3. D 7. A
4. A 8. D
PROBLEM 12-11 Cost Formulas - FIFO Method

Under FIFO method, inventories at the end of the period shall be measured
using the most recent purchase price.
From third purchase (15 x 60) 900
From second purchase (5 x 54) 270
Total inventoriable cost (A) P 1,170
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PROBLEM 12-11 Cost Formulas - FIFO Method

Cost of
Purchases Merchandise Sold Inventory
Date Qty Unit Total Qty Unit Total Qty Unit Total
Cost Cost Cost Cost Cost Cost
Feb 3 12 15.00 180
Feb 11 13 17.00 221.00 12 15.00 180
13 17.00 221
Feb 14 12 15.00 180 7 17.00 119
6 17.00 102
Feb 21 9 20 180.00 7 17.00 119
9 20.00 180
Feb 25 7 17.00 119 6 20.00 120
3 20.00 60
Cost of merchandise sold = P461 (180+102+119+60)

Ending Inventory = P120 (6 units @ P20) (C)
PROBLEM 12-13 Cost Formulas - Weighted Average Method

Weighted average Total goods available for sale (in peso value)
=
unit cost Total goods available for sale (in units)
Weighted average (10 x 61) + (25 x 63) + (30 x 64) + (15 x 73)
=
unit cost 10 + 25 + 30 + 15
Weighted average 5,200
=
unit cost 80
Weighted average unit cost = P65/unit
Inventory end = Weighted average unit cost x Number of units
Inventory end = 65 x 20
Inventory end = P1,300 (A)
PROBLEM 12-14 Cost Formulas - Moving Average Method

Date Units Unit cost Total cost
Dec. 1 20,000 25 500,000
Dec. 15 (17,500) 25 (437,500)
Balance 2,500 62,500
Dec. 26 10,000 40 400,000
Balance 12,500 462,500 (B)
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PROBLEM 12-15 Cost Formulas - Different Methods

Moving average
Units Unit cost Total cost
April 1 balance 20,000 10 200,000
Apr. 2 Purchase 30,000 12 360,000
Balance 50,000 11 560,000
Apr. 4 Sale (25,000) 11 (280,000)
Balance 25,000 11 280,000
Apr. 10 Purchase 15,000 14 210,000
Balance 40,000 12 490,000
Apr. 15 Sales (21,000) 12 (257,250)
Balance 19,000 12 232,750
Apr. 17 Sales return 1,000 12 12,250
Apr. 28 Balance 20,000 245,000
Apr. 28 Purchase 20,000 17 335,000
Balance 40,000 15 580,000
Inventory end = P580,000 (A)

Cost of goods sold (280,000 + 257,250 – 12,250) = P525,000 (A)

FIFO
April 1 balance 20,000 10 200,000
Apr. 2 Purchase 30,000 12 360,000
Apr. 4 (25,000 units sold) From Apr. 1 (20,000) 10 (200,000)
From Apr. 2 (5,000) 12 (60,000)
Balance from Apr. 2 25,000 12 300,000
Apr. 10 Purchase 15,000 14 210,000
Apr. 15 (21,000 units sold) From Apr. 2 (21,000) 12 (252,000)
Balance from April 2 4,000 12 48,000
Apr. 17 Sales return 1,000 12 12,000
Balance
Apr. 28 Purchase 20,000 17 335,000
Total Balance 40,000 605,000
Inventory end = P605,000 (B)

Cost of goods sold (200,000 + 60,000 + 252,000 – 12,000) = P500,000 (B)

Weighted average
Weighted average Total goods available for sale (in peso value)
=
unit cost Total goods available for sale (in units)
Weighted average 1,105,000
=
unit cost 85,000
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Weighted average unit cost = P13/unit

Inventory end (40,000 x 13) = P520,000 (C)
Cost of goods sold (20,000+5,000+21,000–1,000) x 13 = P585,000 (C)
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. C 6. C
PROBLEM 12-16 Lower of Cost or Net Realizable Value

Markers Pens Highlighters
Historical cost 120,000 94,400 150,000
Selling price 180,000 180,000 180,000
Less: Estimated cost to complete 24,000 24,000 34,000
Net realizable value 156,000 156,000 146,000
Lower of cost-or-NRV 120,000 94,400 146,000
SUMMARY OF ANSWERS:
1. C 2. D 3. B
PROBLEM 12-17 Purchase Commitment

CASE NO. 1
11/15 No entry
12/31 Loss on purchase commitment (20,000 x [25-20]) 100,000
Estimated liability for purchase commitment 100,000
03/15 Purchases (25,000 x 25) 500,000
Accounts payable/Cash 500,000
Gain on purchase commitment 100,000
CASE NO. 2
11/15 No entry
12/31 No entry
03/15 Purchases (25,000 x 25) 500,000
Accounts payable/Cash 500,000
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3/31 No entry
12/31 Loss on purchase commitment (1,200,000-1,000,000) 200,000
04/30 Purchases 1,200,000
Accounts payable/Cash 1,200,000
SUMMARY OF ANSWERS:
1. B 2. A

Gain on purchase commitment [50,000 x (55 - 40)] = P750,000 (A)
To record the actual purchase on March 31, 2016:
Purchases (50,000 x 55) 2,750,000
Accounts payable/Cash 2,750,000
The gain to be recognized is limited to the loss on purchase commitment
previously recorded.

Question No. 1
Remaining contract – minimum of 500 units each year
2016 (500 x 100) P 50,000
2017 (500 x 100) 50,000
Total P 100,000
Less: Estimated realizable value (1,000 x 20) 20,000
Probable loss from purchase commitment (C) P 80,000
Question No. 2
A loss in inventory writedown should also be recognized on December 31, 2011
in the amount of P100,000 (1,250 units x [P100-P20]). (B)
SUMMARY OF ANSWERS:
1. C 2. B
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PROBLEM 12-21 Inventory Estimation - Gross Profit Rate Method

Sales 3,400,000
Less: Sales returns (30,000)
Net Sales excluding Sales discount 3,370,000
Multiply by: Cost ratio (1-30%) 70%
Cost of Goods sold 2,359,000
Inventory, January 1 650,000
Add: Net Purchases
Purchases 2,300,000
Add: Freight-in 60,000
Less: Purchase returns (80,000) 2,280,000
Total Goods available for sale 2,930,000
Less: Cost of goods sold (2,359,000)
Merchandise inventory that should be on hand 571,000
Less: Actual merchandise inventory on hand (420,000)
Cost of Missing inventory (A) 151,000
PROBLEM 12-22 Inventory Estimation - Gross Profit Rate Method

CASE NO. 1
Sales 1,552,000
Divide by: Sales ratio 125.00%
Cost of Sales 1,241,600
Purchases, January 1 through April 19 1,120,000
Total goods available for sale 1,280,000
Less: Cost of sales 1,241,600
Cost of Missing inventory P 38,400 (A)
CASE NO. 2
Sales 1,552,000
Multiply by: Cost ratio 75%
Cost of Sales 1,164,000

Purchases, January 1 through April 19 1,120,000
Less: Cost of sales 1,164,000
Cost of Missing inventory P 116,000 (D)
SUMMARY OF ANSWERS:
1. A 2. D
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PROBLEM 12-23 Inventory Estimation: LCM - Retail Method

Computation of cost ratio:
Cost Retail
Inventory at January 1 640,000 1,600,000
Purchases 1,100,000 2,000,000
Freight-in 152,000 -
Net markups - 800,000
Totals 1,892,000 4,400,000
Cost ratio (1,892,000 / 4,400,000) = 43%
Computation of Inventory end at retail
Balance up to markups (see above computation) 4,400,000
Less: Markdowns 400,000
Sales 1,600,000
Inventory end at retail P2,400,000
Multiply: Cost ratio 43%
Inventory end at cost (C) P1,032,000
PROBLEM 12-24 Inventory Estimation: Average Method - Retail Method

Cost Retail
Inventory at January 1 250,000 375,000
Purchases 1,325,000 1,750,000
Net markdowns - (75,000)
Totals 1,575,000 2,250,000
Cost ratio (1,575,000 / 2,250,000) = 70%
Balance up to markdowns (see above computation) 2,250,000
Less: Sales 1,500,000
Estimated normal shrinkage (1,500,000 x 5%) 75,000
Estimated normal shoplifting losses 50,000
Inventory end at retail P 625,000
Computation of Cost of goods sold
Total goods available for sale at cost 1,575,000
Less: Inventory end at cost (625,000 x 70%) 437,500
Cost of Sales (B) 1,137,500
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PROBLEM 12-25 Inventory Estimation: FIFO Method - Retail Method

Cost Retail
Purchases 292,500 400,000
Net markdowns - (25,000)
Totals 292,500 450,000
Cost ratio (292,500 / 450,000) = 65%
Balance up to markdowns (see above computation) 450,000
Add: Inventory beginning 100,000
Less: Sales 375,000
Inventory end at retail P 175,000
Multiply: Cost ratio 65%
Inventory end at cost (A) P113,750
PROBLEM 12-26
Question No. 1
A EI over (P129-P119) x 4,000 40,000
B EI under (70,000)
C EI over 100,000
Overstatement of ending inventory 70,000 (C)
Question No. 2
D. Ending inventory understated (140,000) (B)
2015 2016
Unadjusted balance 1,000,000 1,200,000
A. EI over, NI over (P129-P119) x 4,000 (40,000) 40,000
B. EI under, NI under 70,000 (70,000)
C. EI over, NI over (100,000) 100,000
D. EI under, NI under 140,000
Adjusted balances 930,000 1,410,000
(A) (C)
Question No. 5
Unadjusted net income (1,000,000+1,200,000) 2,200,000
Less: Adjusted net income (930,000+1,410,000) 2,340,000
Net adjustment to income-understated (140,000) (D)
SUMMARY OF ANSWERS:
1. C 2. B 3. A 4. C 5. D
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PROBLEM 12-27
Question No. 1
Direct materials inventory
DM purchased (squeeze) 70,000 72,000 Direct materials used
(B)
Total 79,000 79,000
Question No. 2
Total cost added to work in process (72,000+80,000+24,000) = P176,000 (C)
Question No. 3
Applied overhead to job 3 (24,000/10,000 x 120 hours) = P288 (D)
Question No. 4
Work in process inventory
DM used 72,000 162,000 Cost of goods
Direct labor 80,000 (B) manufacture
Factory overhead 24,000 (squeeze)
Total 193,000 193,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. B
PROBLEM 12-28
Ledger Physical
Balance Count
Balances prior to adjustment P 314,800 P 293,600
Add: Goods in transit sold, FOB destination 3,200 3,200
Less: unrecorded sale ( 8,400) -
Less: unrecorded purchase returns ( 6,000) -
Less: goods held on consignment - ( 8,800)
Add: unrecorded purchase 3,640- -
Add: Goods in transit purchased, FOB shipping point 1,600
Add: Goods out on consignment - 14,800
Adjusted balances P 307,240 P 304,400
(A) (C)
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Question No. 3
Adjusted balances, per ledger P 307,240
Adjusted balances, physical count 304,400
Inventory shortage P 2,840 (B)
SUMMARY OF ANSWERS:
1. A 2. C 3. B
PROBLEM 12-29
Accounts
Inventory Payable Sales
Unadjusted balances P 800,000 P335,000 P5,000,000
1 Parts held on consignment ( 18,000) ( 18,000)
2 Parts sold included in the count ( 30,000)
3 Parts in transit to customers,
FOB shipping pt. 22,000
4 Parts on conditional sale - - -
5 Goods out on consignment 100,000
6 Parts in transit purchased,
FOB shipping pt. 16,000 16,000
7 Mdse. Hold for shipping inst.
excluded in the count 160,000
8 Finished special article, incl.
in the count and sale not rec. ( 30,000) - 50,000
Adjusted balances P1,020,000 P333,000 P5,050,000
(A) (A) (B)
SUMMARY OF ANSWERS:
1. A 2. A 3. B
PROBLEM 12-30
Note to the professor: Use the following guide questions in answering this
question:
1. Accounts Payable and related accounts
Was there a valid purchase?
Was the purchase recorded?
Were the inventories INCLUDED in the count?
2. Accounts Receivable and related accounts
Was there a valid sale?
Was the sale recorded?
Were the inventories EXCLUDED in the count?
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SOLUTION:
Ending Net
Inventory Sales Purchases AP Income
Unadjusted balances 550,000 1,000,000 600,000 450,000 120,000
679
680
681
682 Purch over, COS over, NI
under (46,740) (46,740) (46,740)
EI over, COS under, NI
over (46,740) 46,740
683 EI over, COS under, NI
over (4,500) (4,500)
684 Purch under, NI over 1,060 1,060 (1,060)
685 No, No, No
686 No, No, No
310 Yes, Yes, Yes
311 Sales over, NI over (560) (560)
EI under, NI under (560 x
70%) 392 392
312 Sales over, NI over (31,940) (31,940)
EI under, NI under (31,940
x 70%) 22,358 22,358
EI under, NI under (6,350
x 70%) 4,445 4,445
315 No, No, No
316 No, No, No
317 No, No, No
318
Net adjustment (24,045) (40,780) (45,680) (45,680) (19,145)
Adjusted balances 525,955 959,220 554,320 404,320 100,855
(A) (A) (A) (A) (E)
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. E
PROBLEM 12-31
Ending Accounts Accounts
inventory receivable payable Sales Net income
Unadjusted
balance P220,000 P104,000 P138,000 P1,010,000 P180,400
A (20,000) 20,000
B (10,000) (10,000)
C 50,000 (64,000) (64,000) (14,000)
D 14,000 (16,000) (16,000) (2,000)
E ( 24,000) ( 24,000)
Adjusted P 250,000 P24,000 P108,000 P930,000 P160,400
(A) (E) (D) (D) (A)
SUMMARY OF ANSWERS:
1. A 2. E 3. D 4. D 5. A
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PROBLEM 12-32
Accounts Accounts Net
Inventory payable Receivable Net Sales Purchases Net income
Unadjusted
balances 250,000 400,000 1,000,000 4,000,000 2,500,000 600,000
A - - - - - -
B 35,000 - - - - 35,000
C 4,000 4,000 - - 4,000 -
D (25,000) - 40,000 40,000 - 15,000
E 10,000 - - - - 10,000
F - - (30,000) (30,000) - (30,000)
G 34,000 - (68,000) (68,000) - (34,000)
H - - (10,000) (10,000) - (10,000)
I - - - (90,000) - (90,000)
J 60,000 60,000 - - 60,000 -
Adjusted
balances 368,000 464,000 932,000 3,842,000 2,564,000 496,000
SUMMARY OF ANSWERS:
1. C 2. C 3. A 4. A 5. D 6. D
PROBLEM 12-33
Ending Accounts Accounts
inventory Sales receivable Purchases payable
Unadjusted
balance P280,000 P5,000,000 P3,900,000 P2,800,000 P2,870,000
100 (10,000)
101 (12,500) (12,500)
102
103
104 (11,200) (11,200)
105 (15,000)
106
107 (12,500) 15,000 15,000
108
109
110 13,500 13,500
A (11,750) (11,750)
B 8,350 8,350
Adjusted P 242,500 P5,004,800 P3,904,800 P2,796,600 P2,866,600
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. A
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PROBLEM 12-34
Ending Cost of Net Retained
inventory Net Sales Sales Income Earnings
Unadjusted
balance P500,000 P1,000,000 P550,000 P200,000 P1,500,000
a. Sales under 64,000 64,000 64,000
b EI under 19,000 (19,000) 19,000 19,000
c Purchase over (23,500) 23,500 23,500
d Sales under 28,500 28,500 28,500
EI over ( 25,800) 25,800 (25,800) ( 25,800)
Adj. P 493,200 P1,092,500 P533,300 P309,200 P1,609,200
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. D 5. B
PROBLEM 12-35
Questions No. 1 to 5
R/E Sales EI A/P CGS
2015 Purchases under, CGS 36,000
under, NI over, RE over
2016 Purchases over, CGS 36,000
over
2015 EI under, NI under, RE (32,000)
under
2016 BI under, CGS under (32,000)
Sales under (20,000)
Purchases under, CGS under (24,000) (24,000)
EI under, CGS over (8,000) 8,000
Purchases under, CGS under (4,000) (4,000)
EI under, CGS over (4,000) 4,000
Total 4,000 (20,000) (12,000) (28,000) (12,000)
Legend:
BI - Beginning inventory
EI - Ending inventory
NI - Net Income
CGS - Cost of goods sold
RE - Retained earnings – 12/31/2015 or 01/01/2016
4,000 – overstated
(4,000) – understated
Note: The effect of errors on December 2015 and January 2016 has no effect on
the ending balance of the accounts payable on December 31, 2016 since the
payable is expected to be settled before the end of the year.
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. C
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PROBLEM 12-36
Question No. 1
Sales (475,000/80%) P593,750 100%
Less: Cost of sales 475,000 80%
Gross profit 118,750 20%
Inventory (in units)
Beg. Balance (60,000/P3) 20,000 25,000 Balance end (squeeze) or
(125,000/5)
Purchases 100,000 95,000 Cost of sales (475,000/5)
Total 120,000 120,000
Inventory (in peso amount)

Beg. Balance (squeeze) 60,000 125,000 Balance end (squeeze)
Purchases 540,000 475,000 Cost of sales
Total 600,000 600,000
Weighted average unit cost = TGAS (peso) / TGAS (units)

Weighted average unit cost (P600,000/120,000) = P5/unit
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. B
PROBLEM 12-37
Question No. 1
The cumulative effect on change in accounting policy on January 1, 2015 or
December 31, 2014 Retained Earnings is understatement of 100,000, which is
the understatement of Ending Inventory on December 31, 2014. (B)
Question No. 2
Net income – weighted average P3,250,000
Beginning inventory under, CGS under, Net income over (150,000)
Ending inventory under, CGS over, Net income under 100,000
Adjusted net income – FIFO (B) P3,200,000
Question No. 3
Computation of units sold:
Beginning inventory – units 10,000
Add: Total purchases – units 100,000
Total goods available for sale – units 110,000
Less: Units sold (P6,400,000 / P80/unit) 80,000
Ending inventory in units 30,000
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The 30,000 ending inventory comes from the last two purchases as follows:
From 4th quarter purchases 10,000 68 680,000
From 3rd quarter purchases 20,000 66 1,320,000
Total 30,000 (B) 2,000,000
Question No. 4
Cost (refer to no. 3) 2,000,000
Net realizable value [(P70 – P5) x 30,000] 1,950,000
Loss on inventory write-down (B) 50,000
Question No. 5
Beginning inventory – FIFO 500,000
Add: Net Purchases (P6,480,000 – 980,000) 5,500,000
Less: Ending inventory at cost (see no. 3) 2,000,000
Cost of goods sold at cost 4,100,000
Add: Loss on inventory write-down (see no. 4) 50,000
Cost of goods sold after inventory write-down (A) 4,150,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. B 5. A
PROBLEM 12-38
Question No. 1
Beginning balance 100,000
Add: Purchases of raw materials 970,000
Transport inwards of raw materials 100,000
Total raw materials available for use 1,170,000
Less: Raw materials used [1,170,000 x (100% - 30%)] 819,000
Ending balance (1,170,000 x 30%) (A) 351,000
Question No. 2
Add: Raw materials used (see no. 1) 819,000
Wages (3,000,000 x 60%) 1,800,000
Variable overhead (1,000,000 x 60%) 600,000
Wooden boxes (purchased and used) 300,000
Fixed manufacturing overhead (see computation below) 1,200,000
Total manufacturing cost put into process 4,969,000
Less: Work-in-process completed [4,969,000 x (100% - 20%)] 3,975,200
Ending balance (4,969,000,000 x 20%) (A) 993,800
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Fixed manufacturing overheads are allocated to the products at year end using
the normal production (unless actual production is higher than normal):
Fixed manufacturing Fixed manufacturing overheads
=
overhead per box Budgeted production
800 000 depreciation + 700 000 rent
=
250,000
1,500,000
=
250,000
= P6 per box
Fixed overheads allocated to work-in-progress:
= 6 x 200,000
= 1 200,000
Fixed overheads expensed (unallocated):
= 800,000 + 700,000 – 1,200 000
= 300,000
Question No. 3
Add: Work-in-process completed (see no. 2) 3,975,200
Less: Cost of goods sold [4,125,200 x (100% - 10%)] 819,000
Ending balance (4,125,200 x 10%) (A) 412,520
Question No. 4
Finished goods and work-in-process (see no. 5) 1,406,320
Raw materials process (see no. 5) 250,000
Total lower of cost and net realizable value (C) 1,656,320
Question No. 5
F/G WIP FG & WIP RM
Net realizable value:
Expected selling price 1,300,000 700,000 2,000,000 300,000
Less: Cost to complete - 100,000 100,000 -
Cost to sell 80,000 20,000 100,000 50,000
Net realizable value 1,220,000 580,000 1,800,000 250,000
Cost:
Ending balance 412,520 993,800 1,406,320 351,000
Lower of cost or NRV 1,406,320 250,000
Write-down (C) - 101,000
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Normally it is considered to be inappropriate to calculate the net realizable

value per classification of inventory, but since the raw materials is to be sold as
is, it becomes its own product line and must be evaluated separately.
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. C 5. C
PROBLEM 12-39
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units Unit cost Total
3,000 14 P 42,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
12,000 P 176,000 (A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units Unit cost Total
1,800 19 P 34,200
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
5,800 P 117,400 (A)
Question No. 3
T-shirts:
Net realizable value NRV Cost Lower
(12,000 x (P16-(10% x P16)) P172,800 P176,000 P 172,800
Jackets:
(5,800 x (P22-(10%xP22) 114,840 117,400 114,840
Lower of cost or NRV P287,640 P 293,400 P 287,640
Question No. 4
Total cost (see no. 3) P 293,400
Less: Lower of cost or NRV (see no. 3) 287,640
Loss on inventory write-down (B) P 5,760
Question No. 5
Beginning inventories:
T-shirts (9,000 x P11) P 99,000
Jackets (5,000 x P15) 75,000 P 174,000
Add:*Total purchases (299,500 + 183,900) 483,400
Total goods available for sale P 657,400
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Less: Merchandise inventory at cost 293,400

Cost of sales before inventory write-down P 364,000
Add: Loss on inventory write-down 5,760
Cost of sales after inventory write-down (B) P369,760
*T-shirts
4,000 P12 P 48,000
3,000 12 36,000
2,500 13 32,500
3,500 14 49,000
2,000 13 26,000
4,000 15 60,000
3,000 16 48,000
22,000 P 299,500
Jackets
900 P16 P 14,400
1,100 18 19,800
1,500 19 28,500
2,000 19 38,000
1,800 20 36,000
1,200 21 25,200
1,000 22 22,000
9,500 P 183,900
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B
PROBLEM 12-40
Note to professor: Change “Data for 2012 were:” to 2015.
This T-Account of Raw Materials will be the same under the three different
cases:
Raw Materials
Beginning balance 600,000 1,200,000 Balance end
Net Purchases 2,200,000 1,600,000 Direct materials used
Total 2,800,000 2,800,000
CASE NO. 1
Question No. 1
GP Rate: 2012 2013 2014 2015
Gross Profit 2,000,000 3,500,000 4,000,000
Divide by: Sales 1,700,000 2,800,000 3,000,000
Gross Profit Rate 0.15 0.20 0.25 0.30
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The trend of gross profit for the past three years increases by 5% each year;
thus, if the trend continues, the gross profit for 2015 will be 30%. The cost ratio
then would be 70% (100% - 30%). Therefore, the cost of goods sold is
computed as follows:
Sales 6,000,000
Multiply by: Cost Ratio 0.70
Cost of goods sold 4,200,000 (B)
Question No. 2
Finished Goods
Beginning balance 2,800,000 2,000,000 Balance end
Cost of goods 4,200,000 Cost of goods sold
manufactured 3,400,000
Total 6,200,000 6,200,000
Work in Process
Beginning balance 2,000,000 2,600,000 Balance end (A)
Direct materials used 1,600,000 Cost of goods
Direct labor 1,600,000 3,400,000 manufactured
Factory overhead 800,000
Total 6,000,000 6,000,000
Computation of factory overhead:

Direct labor cost 1,600,000
Multiply by: Predetermined rate 50%
CASE NO. 2:
Question No. 3
GP Rate: 2012 2013 2014 2015
Gross Profit 340,000 630,000 1,000,000
Divide by: Sales 2,000,000 3,500,000 4,000,000
Gross Profit Rate 0.17 0.18 0.25 0.20
The GP rate in 2015 is computed as follows:
16% + 18% + 25%
Gross Profit Rate =
3
= 20%
The cost ratio then would be 80% (100% - 20%). Therefore, the cost of goods
sold is computed as follows:
Sales 6,000,000
Cost of goods sold 4,800,000 (B)
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Question No. 4
Finished Goods
Total 6,800,000 6,800,000
Work in Process
Total 6,000,000 6,000,000
CASE NO. 3:
Question No. 5
The gross profit for 2015 is computed based on the overall gross profit for 2013
and 2014:
800,000 + 1,000,000
Gross Profit Rate =
3,500,000 + 4,000,000
1,800,000
=
7,500,000
Gross Profit Rate = 24%
The cost ratio then would be 76% (100% - 24%). Therefore, the cost of goods
sold is computed as follows:
Sales 6,000,000
Cost of goods sold 4,560,000 (A)
Question No. 6
Finished Goods
Total 6,560,000 6,560,000
Work in Process
Total 6,000,000 6,000,000
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SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. A 5. A 6. A
PROBLEM 12-41
Beg. Balance 32,000 130,000 Balance end (squeeze)
DM purchased 340,000 242,000 Direct materials used
(602,00 - 360,000)
Total 372,000 372,000
Work in process inventory

Beg. Balance 68,000 50,000 Balance end(squeeze)
DM used 242,000 860,000 Cost of goods manufacture
Direct labor 360,000
(360,000/60% x 40%)
Total 910,000 910,000
Conversion cost = Direct labor + Factory overhead

Prime cost = DM used + Direct Labor
Finished goods
Beg. Balance 60,000 120,000 Balance end (squeeze)
Cost of goods manufactured 860,000 800,000 Cost of sales (1,000,000 x
(squeeze) 80%)
Total 920,000 920,000
Note: The beginning balance on January 1, 2015 is the ending balance as of

December 31, 2014.
SUMMARY OF ANSWERS:
1. A 2. A 3. D 4. B 5. A
PROBLEM 12-42
Note to the professor: The following corrections should be made to this
problem:
 The ending accounts payable (Dec. 31) should be P250,000, instead of
P200,000.
 Add Direct Labor of P900,000 and Factory Overhead of P675,000.
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Question No. 1
Accounts payable
Purchase ret. and allow. 70,000 3,000,000 Purchases
Purchase discounts 80,000 100,000 Freight-in
Payments to supplier 3,255,000
(squeeze)
Total 3,655,000 3,655,000
Question No. 2
Net purchases 2,950,000 2,830,000 Direct materials used
Total 3,150,000 3,150,000
Purchases 3,000,000
Add: Freight-in 100,000
Gross Purchases 3,100,000
Less: Purchase returns and allow 70,000
Purchase discounts 80,000
Net Purchases 2,950,000
Question No. 3
Work in process
Direct materials used 2,950,000 4,375,000 Cost of goods
Direct labor 900,000 manufactured
Total 4,655,000 4,655,000
Question No. 4
Sales P5,100,000 120%
Less: Cost of sales (5,000,000/120%) 4,250,000 100%
Gross profit 850,000 20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
Question No. 5
Finished goods
Cost of goods 4,375,000 4,250,000 Cost of goods sold
manufactured
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Total 4,775,000 4,775,000
Estimated finished goods 525,000

Less: Cost of goods out on consignment 20,000
Salvage value 10,000
Inventory fire loss 495,000
Question No. 6
Cost of goods sold (80% x P5,100,000) = P4,080,000
Question No. 7
Sales (5,100,000-100,000) P5,000,000 100%
Less: Cost of sales (80% x P5,100,000) 4,080,000 80%
Gross profit 1,000,000 20%
Finished goods
Cost of goods 4,375,000 4,080,000 Cost of goods sold
manufactured
Total 4,775,000 4,775,000
Estimated finished goods 695,000

Less: Cost of goods out on consignment 20,000
Salvage value 10,000
Inventory fire loss 665,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. B 5. B 6. A 7. A
PROBLEM 12-43
Question No. 1
Accounts payable – March 31, 2015 1,185,000
Add: Unrecorded obligation – April 25 425,000
April Shipments 100,000
Less: Payment from April 1 to 25 (285,000 + 100,000) 385,000
Adjusted balance – April 25 1,325,000 (C)
Note: The P22,500 of purchase return should not be deducted from the
accounts payable since it was refunded.
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Question No. 2
Purchases – March 31, 2015 2,100,000
Add: Unrecorded obligation – April 25 425,000
April Shipments 100,000
Less: Purchase return 22,500
Adjusted Net Purchases – April 25 2,602,500 (B)
Question No. 3
Sales – March 31, 2015 4,520,000
Add: Sales April 1 to 25 (see computation below) 730,000
Adjusted Sales – April 25 5,250,000 (D)
Computation of sales:
Accounts Receivable
Beg. Bal. – 03/31/2015 1,250,000 1,320,000 Bal. end (acknowledged)
Sales (squeeze) 730,000 Write-off (never be
250,000 acknowledged)
Collections
510,000 (P532,500 – 22,500)
Total 2,080,000 2,080,000
Questions No. 4 and 5

Beginning inventory – March 31, 2014 2,500,000
Add: Purchases 2,602,500
Less: Cost of sales (55% x 5,250,000) 2,887,500 4. (D)
Estimated ending inventory 2,215,000
Less: Salvaged value of inventory worth P325,000 150,000
Inventory in transit 65,000
Inventory loss 2,000,000 5. (B)
Year Ended
2014 2013 Total
Beginning inventory 2,250,000 1,750,000
Add: Net purchases 11,300,000 8,700,000
Less: Ending inventory 2,500,000 2,250,000
Cost of sales 8,200,000 11,050,000 19,250,000
Net sales P20,000,000 P15,000,000 35,000,000
Cost Ratio (19,250,000 / 35,000,000) = 55%
SUMMARY OF ANSWERS:
1. C 2. B 3. D 4. D 5. B
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PROBLEM 12-44
Note to professor: The purchases for the element months should be eleven.

Purchases ending
11 mos 12 mos
Unadjusted balance 2,700,000 3,200,000
Shipment in Nov. included in December purchases 30,000 -
Unsalable shipments received (4,000) (6,000)
Deposits in October shipped February (8,000) (8,000)
Adjusted balance 2,718,000 3,186,000
1. (C) 2. (D)
Question No. 3
Beginning inventory – January 1, 2015 350,000
Add: Purchases for 11 months (see No. 1) 2,718,000
Less: Ending inventory – Nov. 30, 2015 380,000
Cost of sales 2,688,000 (A)
Cost ratio (2,688,000 / 3,360,000) = 80%
Question No. 4
Sales ending December 31, 2015 3,840,00
Less: Sales ending Nov. 30, 2015 3,360,000
Sales – December 2015 480,000
Less: Sales at cost 40,000
Sales in December 2015 made at a profit 440,000
Multiply: Cost ratio (2,688,000 / 3,360,000) 80%
Cost of sales made at profit 352,000
Add: Cost of sales made at cost 40,000
Total Cost of Sales -December 392,000 (A)
Question No. 5
Beginning inventory – Nov. 30, 2015 380,000
Add: Purchases for December (3,186,000 - 2,718,000) 468,000
Less: Cost of Sales – December 392,000
Ending inventory – December 31, 2015 456,000 (A)
SUMMARY OF ANSWERS:
1. C 2. D 3. A 4. A 5. A
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PROBLEM 12-45
Cost Retail
Inventory, Jan 1 300,000 1,200,000
Purchases 6,000,000 8,500,000
Purchase returns (400,000) (800,000)
Purchase discounts (150,000) -
Purchase allowance (50,000) -
Freight-in 20,000 -
Departmental Transfer-In 600,000 1,100,000
Departmental Transfer-Out (560,000) (1,334,000)
Totals 5,760,000 8,666,000
Basis of computation of cost ratios

Totals 5,760,000 8,666,000
Markups 600,000
Markup cancellations (50,000)
Basis of computation (conservative) 5,760,000 9,216,000
Markdown (316,000)
Markdown cancellations 100,000
Basis of computation (average) 5,760,000 9,000,000
Cost ratios:
Conservative
5,760,000
Cost ratio =
9,216,000
Cost ratio = 62,50%
Average
5,760,000
Cost ratio =
9,000,000
Cost ratio = 64%
FIFO
5,760,000 – 300,000
Cost ratio =
9,000,000 – 1,200,000
Cost ratio = 70%
Estimated ending inventory @ retail – for all methods

TGAS @ retail under average method 9,000,000
Sales (7,000,000)
Sale returns 700,000
Normal Shrinkage (500,000)
Estimated ending inventory @ retail 2,200,000
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Ending inventory at cost Cost of goods sold
Cost method (EI @ retail x cost ratio) (TGAS @cost – EI @cost)
Conservative (62.5%) P 1,375,000 4,385,000
FIFO (70%) 1,540,000 4,220,000
Average (64%) 1,408,000 4,352,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. C 6. D
PROBLEM 12-46
Question No. 1
Subsidiary General
Ledger Ledger
Unadjusted bal. P 760,000 P 1,020,000
Undelivered sales ( 100,000)
Valid Sales 60,000
Sales FOB destination ( 100,000)
NSF check 50,000 50,000
Collection by the bank ( 60,000) ( 60,000)
Sales in 2015 recorded in 2016 DR No. 38740 3,360 3,360
Receivable ins. Co DR No. 38741 ( 10,080) ( 10,080)
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200) ( 19,200)
Adjusted balance (D) P 784,080 P 784,080
Question No. 2
Current:
Unadjusted beginning Balance 97,500
Add: Valid Sales in 2015 (60,000 + 3,360) 63,360
Total 160,860
Less: Receivable ins. Co (DR # 38741) 10,080
Sales in 2016 recorded in 2015 (DR # 38743) 19,200
Current Accounts Receivable balance 131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1) 784,080
Less: Current Accounts Receivable balance 131,580
Past due Accounts Receivable *652,500
*or (662,500+50,000-60,000)
Age classification Amount Percentage Total
Current 131,580 6 7,894.80

Past due 652,500 10 65,250.00
Allowance for doubtful accounts (A) 73,144.80
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Question No. 3
Allowance for doubtful accounts, beginning 7,000.00
Less: Accounts written off -
Less: Allowance for doubtful accounts, ending 73,144.80
Doubtful accounts expense (A) 66,144.80
Question No. 4
Unadjusted Merchandise Inventory, ending 316,000
Add: Cost of merchandise sold of DR # 38743(19,200/120%) 16,000
Doubtful accounts expense (B) 332,000
Question No. 5
Unadjusted Net Sales balance P 3,000,000
Undelivered sales ( 100,000)
Sales FOB destination ( 100,000)
Sales in 2015 recorded in 2016 DR No. 38740 3,360
Sales in 2016 recorded in 2015 DR No. 38743 ( 19,200)
Adjusted balance (B) P 2,784,160
SUMMARY OF ANSWERS:
1. D 2. A 3. A 4. B 5. B
PROBLEM NO. 6-47

Question No. 1
Cash, unadjusted balance 100,000
Unrecorded disbursement (10,000)
NSF check (2,000)
Adjusted balance-cash 88,000 (A)
Question No. 2
Accounts receivable, unadjusted 250,000
NSF check 2,000
Invalid sales already recorded (16,000)
Adjusted Accounts receivable 236,000
x percent uncollectible
(100%-5% +2%) 93%
Net realizable value 219,480 (A)
Question No. 3
Unadjusted balance, MI 300,000
Goods shipped FOB shipping pt. 30,000
Cost of goods in transit to customer 10,000
Adjusted merchandise inventory 340,000 (C)
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Question No. 4
Unadjusted balance, AP 120,000
Unrecorded disbursement (10,000)
Unrecorded purchase 30,000
Adjusted accounts payable 140,000 (C)
Question No. 5
Cash 88,000
Net realizable value 219,480
Prepayments 12,000
Current Assets 659,480
Current liabilities 320,000
Working capital 339,480 (B)
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. B
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Chapter 14: Introduction to Financial Asset and Investment in Equity Securities
CHAPTER 14: INTRODUCTION TO FINANCIAL ASSET

AND INVESTMENT IN EQUITY SECURITIES
Note to professor:
Page 461: Total FL (Financial Liab) should be 1,690 instead of 1,450.
473 Requirement No. 2 FVTPL

Net Selling Price (10,000 x ½ x P48) Kindly disregard the (10,000 x ½ x
238,000 P48)
Requirement No. 2 FVTOCI
Net Selling Price (10,000 x ½ x P48) Kindly disregard the (10,000 x ½ x
238,000 P48)
Financial asset through other
comprehensive income (FVTOCI) –
Journal entry on 01/02/15 Cash 238,000
Cash 238,000 Loss on sale 37,000
Loss on sale 12,000 FVTOCI 275,000
FVTOCI 250,000
PROBLEM 14-1 Financial Assets and Financial Liabilities

FA NFA FL NFL SHE
Cash and cash equivalents 70 - - - -
Accounts receivable 100 - - - -
Allowance for bad debts (10) - - - -
Notes receivable 150 - - - -
Interest receivable 21 - - - -
Prepaid interest (not a valuation
account to financial liability) 20 - - - -
Investment in equity instruments 125 - - - -
Investment in associate 45 - - - -
Investment in subsidiary 70 - - - -
Investment in bonds 170 - - - -
Cash surrender value 60 - - - -
Sinking fund 40 - - - -
Merchandise inventories - 133 - - -
Biological assets - 120 - - -
Building - 500 - - -
Accumulated depreciation - (50) - - -
Intangible assets - 30 - - -
Prepaid rent - 20 - - -
Treasury shares - - - - (23)
Claims for tax refund - 45 - - -
Deferred tax assets - 60 - - -
Accounts payable - - 150 - -
Utilities payable - - 250 - -
Accrued interest expense - - 18 - -
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Cash dividends payable - - 27 - -

Finance lease liability - - 45 - -
Bonds payable - - 120 - -
Discount on bonds payable - - (15) - -
Security deposit - - 30 - -
Advances from customers - - - 16 -
Unearned rent - - - 8 -
Warranty obligations - - - 13 -
Unearned interest on receivables - - - 5 -
Income taxes payable - - - 9 -
SSS contributions payable - - - 5 -
PHILHEALTH contributions payable - - - 6 -
Share Premium - - - - 35
Accumulated Profits-appropriated
for plant expansion - - - - 500
Accumulated Profits-
unappropriated - - - - 3,200
Issued redeemable preference
shares (with mandatory
redemption) - - 100 - -
Issued Preference shares capital - - -
Adjusted balances 861 858 725 62 3,712
(E) (A) (B) (A)
Legend: FA – Financial Asset NFA – Non-Financial Asset
FL – Financial Liabilities NFL – Non-Financial Liabilities
SHE: Shareholders equity
SUMMARY OF ANSWERS:
1. E 2. A 3. B 4. A
PROBLEM 14-2 Acquisition of Investment

Journal entries are:
1) FVTPL
1/5/2015 Financial Asset at FVTPL 1,600,000
Brokerage fee 10,000
Commission Expense 5,000
Cash 1,615,000
1/10/2015 Dividend receivable 32,000
Dividend income 32,000
2/14/2015 Cash 32,000
Dividend receivable 32,000
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2) FVTOCI
1/5/2015 Financial Asset at FVTOCI 1,615,000
Cash 1,615,000
1/10/2015 Dividend receivable 32,000
2/14/2015 Cash 32,000
The difference between FVTPL and FVTOCI is the treatment of transaction cost.
PROBLEM 14-3 Basic Journal Entries- Acquisitions in Between Dates of

Declaration and Record
Note to professor: Received dividends from Defray Co. declared January 2,
2007 to. 2007 should be replaced with 2015.
1) Trading securities
1/5/2015 Financial Asset at FVTPL (Squeeze) 1,584,000
Dividends receivable 16,000
Brokerage expense 10,000
Commission Expense 5,000
Cash 1,615,000
2/14/2015 Cash 16,000
12/31/2015 Unrealized Loss – PL 64,000
Financial Asset at FVTPL 64,000
12/31/2016 Financial Asset at FVTPL 400,000
Unrealized gain – PL 400,000
2) Fair Value through Other Comprehensive Income securities

1/5/2015 FVTOCI securities 1,599,000
Cash 1,615,000
2/14/2015 Cash 16,000
12/31/2015 Unrealized loss - equity 79,000
FVTOCI securities 79,000
12/31/2016 FVTOCI securities 400,000
Unrealized loss – equity 79,000
Unrealized gain – equity 321,000
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PROBLEM 14-4 Derecognition of Financial Assets - Sale of Investment

CASE NO. 1: FVTPL
Question No. 1
Nil, since the above securities are FVTPL unrealized gain or loss is recognized in
the profit or loss. (A)
Question No. 2
Consideration received 375,000
Less: Brokerage and commission 10,000
Net Selling Price 365,000
Less: Carrying value (800,000 x ½) 400,000
Realized loss on sale – P&L (B) (35,000)
CASE NO. 2: FVTOCI
Question No. 3
Fair value, 12/31/2014 800,000
Less: Cost 750,000
Unrealized gain - P&L (B) 50,000
Question No. 4
Less: Brokerage and commission 10,000
Less: Carrying value (800,000 x ½) 400,000
Realized loss on sale – P&L (B) (35,000)
Question No. 5
Journal entries for the sale are:
1) FVTPL
12/31/2014 FVTPL 50,000
Unrealized gain-P&L 50,000
1/2/2015 Cash 365,000
Loss on sale 35,000
FVPTL 400,000
To record the sale
2) FVTOCI
12/31/2014 FVTOCI 50,000
Unrealized gain-OCI 50,000
1/2/2015 Cash 365,000
Loss on sale (if any) 35,000
FVTOCI 400,000
To record the sale
Unrealized Gain (50,000 X ½) 25,000
To record transfer of unrealized gain to Retained earnings
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SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B
PROBLEM 14-5 Purchase: Trade Date vs. Settlement Date Accounting

SUMMARY OF ANSWERS:
1. B 2. D
PROBLEM 14-6 Sale: Trade Date vs. Settlement Date Accounting

SUMMARY OF ANSWERS:
1. D 2. A
PROBLEM 14-7 Share Dividends

1. Memo entry: Received 1,500 ordinary shares
from Pulsate Company.
2. Investment in Preference shares - FVTOCI 88,235
Investment in Ordinary shares - FVTOCI 88,235
Allocation: Total Fraction Allocated
Fair value cost
Pref. shares (1,000 x P100) 100,000 10/85 88,235
Ordinary shares (15,000 x P50) 750,000 75/85 661,765
Total 850,000 750,000
Share dividends is not regarded as an income., however different type of
shares received from the shares held is allocated using the relative fair
value.
Comments on share dividends:
Accounting treatment for share dividends is actually a gray area, no clear
cut rules is provided under PFRS or other accounting standard setting
body. However, the authors believe that share dividends will only be
accounted as an increase in number of shares held and a decrease on the
price per unit.
PROBLEM 14-8 Cash Dividends

Question No. 1
The dividend income to be recognized in 2015 is P60,000 (15,000 x P4). (B)
Question No. 2
December 1 Dividend Receivable (15,000 x P4) 60,000
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December 15 No formal accounting entry
December 31 Cash 60,000
Dividend Receivable 60,000
PROBLEM 14-9 Property Dividends

Question No. 1
Property dividends are as income at fair value at date of declaration (500,000 x
15%) = P75,000. (B)
Question No. 2
November 1 Dividend Receivable (500,000 x 15%) 75,000
December 31 No journal entry
February 15 Noncash Asset 75,000
Dividend Receivable 75,000
PROBLEM 14-10 Cash Received in Lieu of Share dividends

Question No. 1
Nil. The share dividend is not considered an income. (A)
Question No. 2
Net Selling Price (2,250 x P18) 40,500
Less: Carrying amount of the investment sold
(P172,500/(15,000+(15% x 15,000) x 2,250 22,500
Gain (or loss) on sale (E) 18,000
Question No. 3
October 1 Memo entry
October 31 Cash 45,000
Gain on sale 18,000
FA at FVTOCI 22,500
PROBLEM 14-11 Shares Received in Lieu of Cash Dividends

Question No. 1
Shares received in lieu of cash dividends are in effect recorded at the fair value
of shares received on date of payment. Since the date of declaration and date of
payment is within the same period, the dividend income is computed as follows:
(15,000/5 X P22) = P66,000 (C)
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Question No. 2
October 1 Dividend Receivable (15,000 x P4) 60,000
October 31 FA at FVTOCI (15,000/5 x P22) 66,000
PROBLEM 14-12 Dividends Out Of Capital
Cash (P100 x 15% x 10,000) 150,000
Investment 150,000

Cash 150,000
Loss on liquidation 70,000
Investment 220,000
SUMMARY OF ANSWERS:
1. A 2. D 3. B 4. C
PROBLEM 14-13 Stock Split and Special Assessment

Question No. 1
Date No. of Cost per Total
shares share Cost
1/1 10,000 P21 P210,000
3/1 stock split 15,000
Total (10,000 x 5/2) 25,000 P8.40 P210,000
11/1 Special assessment (P1.60 x
25,000) 40,000
Total 25,000 P10 250,000
(D)
Question No. 2
Fair value (P15 x 25,000) P375,000
Less: Carrying value 250,000
Unrealized gain-OCI P125,000 (D)

1/1 Financial Asset at FVTOCI 210,000
Cash 210,000
3/1 Received `5,000 shares as a result of 5
for 2 share split.
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Cash (P1.60 x 25,000) 60,000
Unrealized gain – OCI (C) 125,000
[(P25 x 25,000) – P250,000]
SUMMARY OF ANSWERS:
1. D 2. D 3. B 4. C
PROBLEM 14-14 Stock Right

Question No. 1
Nil. The company will only make a memo entry to record the receipt of stock
right on a financial asset at FVTPL. (A)
Question No. 2
The stock right should be initially recorded at fair values as follows:
(P20 x 10,000) = P200,000. (B)
Question No. 3
The cost of the investment will only include the subscription price of P400,000
(5,000 x P80). (B)
Question No. 4
The cost of the investment will include the subscription price of P400,000 and
cost of stock rights exercised of P200,000 = P600,000. (B)
The journal entries under the two classifications are as follows:
Fair Value through profit and loss securities
June 15 Memo entry (Received 10,000 stock
rights)
July 15 FVTPL (P80 x 10,000/2) 400,000
Cash 400,000
Fair Value Through Other Comprehensive Income
June 15 Stock rights (P20 x 10,000) 200,000
Unrealized gain - P/L 200,000
July 15 FVTOCI (P80 x 10,000/2)+ 200,000 600,000
Cash 400,000
Stock rights 200,000
PROBLEM 14-15 Theoretical Value of Rights

Question No. 1
When the stock is selling right-on
P160 – P100
Value of one right =
5+1
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= P10
Question No. 2
When the stock is selling ex-right
P160 – P100
Value of one right =
5
= P12
SUMMARY OF ANSWERS:
1. B 2. C
PROBLEM 14-16 Dividend Income

Cash dividend 1,500,000
Shares in lieu of cash dividends (5,000 x P150) 750,000
Total dividend income (C) 2,250,000
PROBLEM 14-17 Dividend Income

Note to professor: The question should be dividend income in its 2015 income
statement, not 2008.
The dividend income to be recorded is equal to P2,400,000 (300,000 /

1,000,000 x P8,000,000). The base is on actual dividends declared. A share
dividend is not regarded as an income. (A)
PROBLEM 14-18 Trading Securities

Question No. 1
(A) The cost of investment is P880,000. The brokerage fee and commission of
P10,000 and P10,000 respectively is charged to expense since the investment
acquired is a trading security. The investments are also acquired prior to the
declaration of dividends on January 10, 2015 so they are not purchased
dividend on.
Question No. 2
Dividend income (P2 x 6,000 + P16,000) = P28,000 (A)
Question No. 3
Selling price P50,000
Less: Commission and taxes 5,000
Net selling price 45,000
Less: Carrying value [2,500x(P90,000/6,000)] 37,500
Gain on sale (C) P7,500
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Question No. 4
EDA Corp. shares [P50 – (P30,000/1,000)] x 1,000 = P20,000
DJOA, Inc. [P15 – (P90,000/6,000)] x 3,500 = -
RVFE, Co. [P45 – (P80,000/2,000)] x 2,000 = 10,000
ARP, Co. [P100 – (P880,000/8,000)] x 8,000 = ( 80,000)
Loss chargeable to income statement (B) (P50,000)
Question No. 5
EDA Corporation shares P50 x 1,000 = P50,000
DJOA, Inc. P15 x 3,500 = 52,500
RVFE, Co. P45 x 2,000 = 90,000
ARP, Co. P100 x 8,000 = 800,000
Total balance of financial asset at profit or loss (A) P992,500
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. A
PROBLEM 14-19 Fair Value through Other Comprehensive Income

Question No. 1
1/1/2015 Book Value P 880,000
Brokerage fee 10,000
Commission 10,000
Dividends receivable ( 16,000)
Cost of FVTOCI P 884,000 (A)
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds (P35 x 500) P 17,500
Cost (P500 x (P88,000/(2,000 x 110%)) ( 20,000)
Loss on sale P (2,500) (B)
Question No. 4
Net Proceeds (P40,000 – P5,000) P 35,000
Carrying value (2,500 x (P90,000/6,000)) ( 37,500)
Dividends on stocks sold (P2 x 2,500) ( 5,000)*
Loss on sale P (7,500) (E)
*This was sold dividend-on.
Question No. 5
EDA Corporation preference shares (1,000 x P50) P 50,000
DJOA, Inc. (3,500 x P15) 52,500
RVFE Co. ((2,000 x 110% - 500) x P45) 76,500
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ARP Co. (8,000 x P100) 800,000

Adjusted balance P 979,000 (A)
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. E 5. A
PROBLEM 14-20 Exchange of One Financial Asset into Another Financial

Asset
Question No. 1
Fair value- Ordinary Shares (6,000 x P80) 480,000
Less: Carrying value- Pref. Shares (P850,000/8,000 x 4,000) 425,000
Gain on exchange (C) 55,000
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P80) 480,000
Gain on exchange 55,000
Investment in Trading- Pref. Shares (P800,000/8,000 x 4,000) 425,000
SUMMARY OF ANSWERS:
1. C 2. B or C
PROBLEM 14-21 Exchange of a PPE for Financial Asset

Question No. 1
Fair value of the financial asset 820,000
Less: Carrying value of the land 600,000
Gain on exchange 220,000 (B)
Question No. 2
March 31 Financial asset at FVTOCI 820,000
Land 600,000
Gain on exchange (820,000-600,000) 220,000
SUMMARY OF ANSWERS:
1. B 2. B
PROBLEM 14-22 Exchange of a Financial Asset for PPE

Question No. 1
Fair value of the financial asset 650,000
Less: Carrying value of the financial asset 600,000
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Question No. 2
March 31 Land (at fair value of the asset given up) 650,000
FVTOCI 600,000
Gain on exchange (650,000-600,000) 50,000
Unrealized loss (625,000-600,000) 25,000
SUMMARY OF ANSWERS:
1. B 2. B
PROBLEM 14-23 Reclassifications of Investments in Equity Securities

Question No. 1
Not allowed. The only allowed reclassification is from Financial Asset at
Amortized Cost (FAAC) to held for trading Financial Asset at Fair Value Through
Profit or Loss debt securities (FVTPL), or vice versa. Therefore the securities
remain as FVTPL. Since reclassification is not allowed, there is no
reclassification gain or loss. (A)
Question No. 2
Not allowed (see discussion on no. 1). Therefore the securities remain as
FVTOCI. Since reclassification is not allowed, there is no reclassification gain or
loss. (A)
PROBLEM 14-24
Question No. 1
Stock rights (11,000 x P6) P 66,000 (D)
Question No. 2
Cash paid (P90 x (10,000/5)) P 180,000
Cost of stock rights used (P4 x 10,000) 40,000
Total investment cost P 220,000 (B)
Question No. 3
Proceeds (P5.5 x 1,000) P 5,500
Cost of stock rights (P4 x 1,000) 4,000
Gain on sale of stock rights P 1,500 (C)
Question No. 4
Proceeds P 440,000
Cost of shares sold (P76 ** x 4,000) 304,000
Gain on sale of stocks P 136,000 (D)
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Question No. 5
Original investment cost P 880,000
Cost allocated to stock rights* ( 44,000)
Additional investment ** 220,000
Sale of investment ( 304,000)
Adjusted cost of investment P 752,000 (D)
SUMMARY OF ANSWERS:
1. D 2. B 3. C 4. D 5. D
PROBLEM 14-25
Note to professor: Question No. 5 should be 2015 instead of 2014.
Question No. 1
Cash paid (400K+20K) 420,000
Less: dividends 10,000
Correct cost 410,000 (D)
Question No. 2
Feb. 10 30,000
Nov. 2
(10,000+(11,000/5) x 1 13,200
Total dividend income 43,200 (C)
Question No. 3
Fair value of new FA (10,000 x 40) 400,000
Less: Cost (900,000/15K x 5K) 300,000
Gain on conversion 100,000 (A)
Question No. 4
Consideration received (2,000 x 70) 140,000
Less: Dividends (2,000 x P1) 2,000
Less: Cost 114,000
Gain on sale 24,000 (B)
Shares Cost
10000 550,000
10-Feb 1,000 -
Total 11,000 550,000
1-May
(11,000/5) 2,200 202,400
Total 13,200 752,400
15-Nov (2,000) (114,000)
Total 11,200 638,400
Cost of stocks on May 1

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Subs. Price (11,000/5 x P62) 136,400

Add cost of stock rights (6 x 11,000) 66,000
Cost of stocks on May 1 202,400
Question No. 5
Fair values Cost Difference
Gerrit-PS (70 x 10,000) 700,000 600,000 (900,000/15K x 10K)
-OS (45 x 10,000) 450,000 400,000
Loesch (72 x 11,200) 806,400 638,400
Barr (20 x 20,000) 400,000 410,000
2,356,400 2,048,400 308,000 (A)
Note: Use bid price on asset held, asked price for asset to be purchased.
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. B 5. A
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio – 12/31/2014
Coloma Company 3,070,000
Soliman 2,737,500
Villanueva Company 1,871,000 7,678,500
Less: FVTOCI Portfolio – 01/01/2014
Soliman 2,725,000
Unrealized gain – SFP (C) 28,500
Question No. 2
Fair value of shares 2,797,500
Less: Carrying amount of Soliman portfolio 2,737,500
Note that the carrying amount is equal to the fair value previous
remeasurement date (12/31/2014).
Question No. 3
Proceeds from sale of Aquino shares 2,590,000
Less: Carrying amount of Aquino portfolio 2,600,000
Loss on sale (10,000) (B)
Question No. 4
FVTOCI Portfolio – 12/31/2015
Less: FVTOCI Portfolio – 01/01/2014
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Unrealized gain – SFP (cumulative) (C) 22,500
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. C
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 – 4,000) x P50 = P200,000 (A)
Question No. 2
Type of Fair Total fair Allocated
stocks # shares value value cost
Ordinary 10,000 P30 P300,000 P234,375
Preference 2,000 10 20,000 15,625 (B)
Total cost P320,000 P250,000
Question No. 3
Allocate part of the investment cost to the preference shares.
Question No. 4
Proceeds (1,000 x P17) P 17,000
Carrying amount [(P15,625/(10,000/5)) x 1,000)( 7,812.50)
Gain on sale P 9,187.50 (C)
Question No. 5
Proceeds, exclusive of interest P 280,000
Carrying amount (250 x 1,000 x 110%) ( 275,000)
Gain on sale P 5,000 (A)
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C 5. A
PROBLEM 14-28
Question No. 1
Net Selling price 250,000
Less: Carrying value (740,000/40,000 x 5,000) 92,500
Gain on sale (D) 157,500
Question No. 2
Less:
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Dividend income of the investment sold (6,000 x *P20 x 20%) 24,000

Less: Carrying value (740,000/40,000 x 6,000) 111,000
*The par value after 2 for 1 share split is equal to P40 x ½= P20
Question No. 3
6/1/2015 (35,000 x 4) 140,000
12/1/2015 (35,000 x 20% x P20) 140,000
Total dividend income (A) 280,000

Fair value (29,000 x P43) 1,247,000 4. (D)
Less: Cost (700,000/40,000 x 29,000) 507,500
Unrealized gain 739,500 5. (D)
SUMMARY OF ANSWERS:
1. D 2. D 3. A 4. D 5. D
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Chapter 15: Investment in Debt Securities
CHAPTER 15: INVESTMENT IN DEBT SECURITIES

Note to professor:
537 SOLUTION # 1
The carrying value as of December 31, 2013 is computed Change
using the market interest of 9% for 8 periods as follows: P120,000 to
Fair value-12/31/2014 (8M x 1.04) P8,320,000 P80,000
Less: Fair value-12/31/2013 8M x 1.05) 8,400,000
Loss on changes in fair value-FVTPL-P&L P120,000
PROBLEM 15-1 Held for Trading Interest Income and Unrealized Gains or
Losses
Question No. 1
Face value 3,000,000
Multiply by: Nominal rate 10%
Multiply by: Months outstanding 12/12
Interest Income (A) 300,000
Question No. 2
Fair value of the bonds (3M x 104) 3,120,000
Less: Carrying value 2,855,940
Unrealized gain - P&L (E) 264,060
PROBLEM 15-2 Derecognition of Held for Trading Debt Securities

Fair value of the bonds 3,120,000
PROBLEM 15-3 Acquisition of FAAC Term Bonds on Interest Date

Question No. 1
Present value of Principal (1200000 x 0.6355 ) 762,600
Add: Present Value of interest payments (120000 x 3.0373 ) 364,476
Present value of the investment bonds (C) 1,127,076
Question No. 2
Amortization table:
Interest Interest Premium Present
Date Collection Income Amortization value
01/01/2015 1,127,076
12/31/2015 120,000 (B) 135,249 15,249 1,142,325
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PROBLEM 15-4 Acquisition of FAAC Term Bonds in Between Interest Dates

Question No. 1
Present value of the investment bonds 1,878,460
Add: Discount amortization
Effective interest 56,354
Nominal interest 50,000 6,354
Present value of the investment bonds, April 1 1,884,814
Add: Accrued interest 50,000
Total Present value of the bonds (E) 1,934,814
Question No. 2
Amortization table:
Interest Interest Discount Present
01/01/2015 1,878,460
12/31/2015 200,000 225,415 25,415 1,903,875
Total interest income (P225,425 x 9/12) = P169,061 (B)
PROBLEM 15-5 Interpolation of Effective Interest Rate of FAAC - Term

Bonds and Computation of Interest Income
Purchase price P1,100,000
Add: Transaction cost 44,752
Initial carrying amount P1,144,752
Since there is transaction cost incurred, effective rate must be computed. The
effective rate therefore is computed at 11.5% (refer to page 530 and 531 of the
textbook for example of interpolation).
Interest income (11.5% x P1,144,752) = 131,646 (B)
PROBLEM 15-6 Acquisition of FAAC - Serial Bonds

Question No. 1
Interest Total Present Total Present
Principal Collection Collection Value Factor Value
450,000 180,000 630,000 0.8929 562,527
450,000 135,000 585,000 0.7972 466,362
450,000 90,000 540,000 0.7118 384,372
450,000 45,000 495,000 0.6355 314,573
Total Present Value of the serial bonds (C) 1,727,834
Question No. 2
Interest income (1,727,834 x 12%) = 207,340 (B)
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PROBLEM 15-7 Reclassification from Financial Assets at Amortized Cost to

Held for Trading
Question No. 1
Interest income (P2,855,940 x 12%) = 342,713 (B)
Note that interest income is computed for the whole year even though the
business model was changed on July 1, 2014 since reclassification date will be
on the first day of the next reporting period (January 1, 2015). The investment
therefore would be continued to be reported as Financial Assets at Amortized
Cost on December 31, 2014.
Question No. 2
Fair value of the bonds, reclassification date (104% x P3,000,000) 3,120,000
Less: Carrying value, reclassification date [(P2,855,940 x 1.12) –
(10% x P3,000,000) 2,898,653
Gain on reclassification (B) 221,347
PROBLEM 15-8 Reclassification: Held for Trading to Financial Asset at

Amortized Cost
Question No. 1
Interest income (P3,000,000 x 10%) = 300,000 (A)
Note that interest income is computed for the whole year and is based on the
nominal rate since this is a held for trading investment. The investment will be
continued to be measured at fair value and reported as Financial Assets at Fair
Value Through Profit or loss on December 31, 2014.
Question No. 2
Fair value of the bonds, reclassification date (104% x P3,000,000) 3,120,000
Less: Carrying value, reclassification date (103% x P3,000,000) 3,090,000
Gain on reclassification (D) 30,000
PROBLEM 15-9 Impairment of Financial Asset at Amortized Cost

SOLUTION:
Question No. 1
Carrying amount of the investment – 12/31/2015 3,864,680
Less: Present value of expected cash flows (get the present value
computed using original effective rate) 3,188,800
Impairment loss (B) 675,880
Question No. 2
Interest income (3,188,800 x 12%) = 382,560 (D)
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PROBLEM 15-10 Reversal of Impairment on Financial Asset at Amortized

Cost
Present Value of Principal (5,000,000 x 0.8929) 4,464,500
Add: Present Value of interest payments (500,000 x 2 x 0.8929) 892,900
Present value expected cash flows, date of reversal 5,357,400
Would have been present value had there been no impairment 4,910,521
Lower of the two above 4,910,521
Less: Actual amortized cost (P3,986,000 x 1.12) 4,464,320
Gain on reversal of impairment (D) 446,201
PROBLEM 15-11
Question No. 1
Cost of investment – Jan. 21(P2,000,000 x 102%) = P2,040,000 (A)
Question No. 2
Proceeds P1,060,000
Less: Accrued interest (P1,000,000 x 9% x 3/12) 22,500
Net Proceeds 1,037,500
Less: Carrying amount (P2,000,000 x 102%) 1,020,000
Gain on sale (A) P 17,500
Question No. 3
Proceeds P 419,000
Less: Accrued interest (P400,000 x 9% x 5/12) 15,000
Net proceeds 404,000
Carrying amount (P400,000 x 102%) 408,000
Loss on sale (A) ( 4,000)
The question should be gain or loss on November 1, 2014.
Question No. 4
Sold bonds:
P1,000,000 x 9% x 38/360 P 9,500
P400,000 x 9% x 280/360 28,000
Outstanding bonds:
P600,000 x 9% x 340/360 51,000
Total interest income (A) P 88,500
Question No. 5
Carrying value – 12/31/2014 (P600,000 x 102%) = P612,000 (A)
The market value is equal to its cost.
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SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A
PROBLEM 15-12 Impairment and Reversal of Impairment Loss

Question No. 1
Present value of Principal (4,000,000 x 0.683 ) 2,732,000
Add: Present Value of interest payments (480,000 X 3.1699) 1,521,552
Present value of the investment bonds (C) 4,253,552
Question No. 2
Amortization table (original):
01/01/2014 4,253,552
12/31/2014 480,000 425,355 (B) 54,645 4,198,907
12/31/2015 480,000 419,891 60,109 4,138,798
12/31/2016 480,000 413,880 66,152 4,072,646
12/31/2017 480,000 407,355 72,645 4,000,000
Question No. 3
Carrying amount of the investment 12/31/2015 (see table above) 4,138,798
Less: Present value of expected cash flows 3,305,600
Add: PV of interest payments (No interest will be recovered) -
Question No. 4
Interest income (P3,305,600 x 10%) = 330,560 (D)
The interest income was computed using the original effective rate and the
impaired value as of 12/31/2015.
Question No. 5
Present value expected cash flows, date of reversal 4,509,136
Would have been present value had there been no impairment 4,072,646
Lower of the two above 4,072,646
Less: Actual amortized cost (P3,305,600 x 1.10) 3,636,160
Gain on reversal of impairment (D) 436,486
Add: Present value of interest payments (480,000 x 2 x 0.9091) 872,736
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PROBLEM 15-13
Question No. 1
Proceeds P 204,000
Less: Carrying amount [(P432,000/24,000) x 12,000) 216,000
Loss on sale (B) (12,000)
Question No. 2
Cost, 1/1/2014 P5,311,400
Less: Amortized cost, 12/31/2014 5,242,540
Premium amortization 68,860
Less: Nominal interest (5,000,000 x 12%) 600,000
Interest Income 531,140
Effective interest (P531,400/5,311,140) = 10%
Interest income (P5,242,540 x 10%) = P524,254 (B)
Question No. 3
2014 discount amortization (P1,903,150 – P1,881,000) P 22,500
Nominal interest (P2,000,000 x 13%) 260,000
Effective interest P 282,500
Divide by: 1/1/2014 amortized cost P1,881,000
Effective interest rate 15%
2015 Interest Income = 12/31/2014 amortized cost x Effective interest rate
= P1,903,150 x 15% = P285,472.50 (C)
Question No. 4
Fair value, 1/1/2016 (2,000,000 x 101) P2,020,000
Less: Amortized cost – 01/01/2016
Book value, 12/31/2014 P 1,903,150
Add: Discount amortization
Nominal interest 260,000
Less: Effective interest 282,473 22,473 1,928,623
Gain on reclassification (C) P 91,377
Question No. 5
Trading securities:
Panaghoy, Inc. (14,400 x P22) P 316,800
Lamentation, Inc. [(24,000 – 12,000) x P15] 180,000
Total P 496,800
FVTOCI:
Genesis bonds P 5,166,794
Exodus bonds 1,928,263
Total P 7,095,417
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Genesis Bonds
01/01/2014 5,311,400
12/31/2014 600,000 531,140 68,860 5,242,540
12/31/2015 600,000 524,254 75,746 5,166,794
Exodus Bonds
01/01/2014 1,881,000
12/31/2014 260,000 282,150 22,150 1,903,150
12/31/2015 260,000 285,473 25,473 1,928,623
PROBLEM 15-14 Reclassification from FAAC to FVTPL

Note to professor: 3rd bullet - The dividend was distributed on January 31,
2016 instead of 2015..
Question No. 1
Present value of Principal (P5,000,000 x .621) 3,105,000
Add: PV of interest payments (P5,000,000 x 12% x 3.791) 2,274,600
Present value of the investment bonds – 01/01/2014 5,379,600
Amortization up to 7/1/2014
P5,379,600 x 10% 6/12 P 268,980
P5,000,000 x 12% 6/12 ( 300,000) (31,020)
Accrued interest up to 7/1/2014 (P5,000,000 x 12% 6/12 ) 300,000
Purchase price – 7/1/2014 (C) 5,648,580
Question No. 2
Interest income – 2014 (P5,379,600 x 10% x 6/12) = P268,980 (B)
Question No. 3
Fair value date of reclassification 5,121,400
Less: Carrying amount 12/31/2015 or 01/01/2016 5,249,316
Loss on reclassification (B) (127,916)
Question No. 4
Dividend income (cash dividend) = P40,000 (A)
Question No. 5
Investment in Sta. Ana (20,000 x 110% x P40) = P880,000 (C)
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. A 5. C
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PROBLEM 15-15 Investment in Associate - Change from Equity Method to

Fair Value Method and Impairment of Financial Assets at Amortized Cost
Question No. 1
Acquisition cost 2,140,000
Share in the Net income in 2014 (1.7M x 25%) 425,000
Share in the dividend (25% x 320,000) (80,000)
Understatement of depreciation (160,000/4 years) (40,000)
Balance end, 12/31/2014 (A) 2,445,000
Understatement of Plant and equipment 640,000

x Percent of interest 25%
Understatement of Net asset acquired 160,000
Question No. 2
Fair value of investment, date of date of transfer (25,000 x P120) 3,000,000
Less: Carrying value of investment - 12/31/2014 2,445,000
Unrealized gain – P&L (C) 555,000

(See Amortization table below):
01/01/2014 4,621,006
12/31/2014 400,000 462,101 (B) 62,101 4,683,107
12/31/2015 400,000 468,311 (C) 68,311 4,751,418
12/31/2016 400,000 475,142 75,142 4,826,560
Question No. 5
Present value of the principal (5M x .751) 3,755,000
Add: Present value of interest payments (only principal will be
recovered) -
Total Present value of future cash inflows 3,755,000
Less: Amortized cost - 12/31/2015(see amortization table) 4,751,418
Impairment loss (C) (996,418)
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. C 5. C
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Chapter 16: Investment in Associate
CHAPTER 16: INVESTMENT IN ASSOCIATE

PROBLEM 16-1 Investment securities and equity method investments
compared
Question No. 1
Cost of Investment 30,000,000
Less: Book value of net asset acquired (P120M x 20%) 24,000,000
Excess of cost over book value 6,000,000
Less: Overvalued depreciable asset (P6M x 20%) 1,200,000
Goodwill (A) 4,800,000
Question No. 2
Dividends declared and paid 5,000,000
Multiply by: Percentage of ownership 20%
Dividends Revenue (C) 1,000,000
Question No. 3
Share in net income (P8M x 20%) 1,600,000
Less: Amortization of Undervalued valued asset (see below) 200,000
Adjusted net investment income (A) 1,400,000
Amortization of Undervalued asset
Depreciable Asset 1,200,000
Divide by: Average remaining useful life 6
Amortization of Undervalued valued asset 200,000
Question No. 4
Add: Net investment income (see no. 3) 1,400,000
Less: Dividends received (P1 x 1M shares) 1,000,000
Carrying value – 12/31/2015 (A) 30,400,000
Question No. 5
Investment using Fair Value (P32 x 1,000,000) = P32,000,000 (D)
SUMMARY OF ANSWERS:
1. A 2. C 3. A 4. B 5. D
PROBLEM 16-2
Question No. 1
Cost of Investment (P3.9M + 100,000) 4,000,000
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Over or (under)valued asset:

Inventory [(P600,000 – P400,000) x 25%] (50,000)
Machinery [(P3,000,000 – P1,500,000) x 25%] (375,000)
Question No. 2
Add: Amortization of Overvalued valued asset (see below) 87,500
Adjusted net investment income (A) 1,087,500
Amortization of Overvalued asset: 2015 2016
Inventory (50,000)
Machinery (375,000) (375,000)
Divide by: Remaining life 10 10
Amortization of overvalued machinery (37,500) (37,500)
2015 2016
Net income of the associate 4,000,000 5,000,000
Multiply by: Percentage of ownership 25% 25%
Share in the net income 1,000,000 1,250,000
Dividends declared and paid 1,000,000 1,400,000
Dividends received 250,000 350,000
Question No. 3
Less: Dividends received (P1M x 25%) 250,000
Carrying value – 12/31/2015 (C) 4,837,500
Question No. 4
Add: Amortization of Overvalued valued asset (see no. 2) 37,500
Adjusted net investment income (B) 1,287,500
Question No. 5
Carrying value – 01/01/2016 4,837,500
Less: Dividends received (P1.4M x 25%) 350,000
Carrying value – 12/31/2016 (B) 5,775,000
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. B 5. B
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PROBLEM 16-3 Investment in Associate with Inventories, Machinery and

Land - Land Was Subsequently Sold
Question No. 1
Over or (under)valued asset
Inventory (P200,000 x 25%) (50,000)
Machinery (P1,500,000 x 25%) (375,000)
Land (P600,000 x 25%) 150,000
Amortization of Over (Under) valued asset 2015 2016

Inventory (50,000)
Machinery (375,000) (375,000)
Divide by: Remaining life 10 10
Amortization of Under (over) valued asset (37,500) (37,500)
Land - 150,000
2015 2016
Net income of the associate 4,000,000 5,000,000
Share in the net income 1,000,000 1,250,000
Dividends declared and paid 1,000,000 1,400,000
Dividends received 250,000 350,000
Question No. 2
Add: Amortization of Overvalued valued asset (see table above) 87,500
Adjusted net investment income (C) 1,087,500
Question No. 3
Less: Dividends received (P1M x 25%) 250,000
Carrying value – 12/31/2015 (C) 4,837,500
Question No. 4
Less: Net Amortization of Undervalued valued asset (see no. 1) 112,500
Adjusted net investment income (B) 1,137,500
Question No. 5
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Carrying value – 01/01/2016 4,837,500

Less: Dividends received (P1.4M x 25%) 350,000
Carrying value – 12/31/2016 (E) 5,625,000
SUMMARY OF ANSWERS:
1. A 2. C 3. C 4. B 5. E
PROBLEM 16-4 Associate with Outstanding Cumulative Preference Shares

When an investee has outstanding cumulative preference share capital, an
investor should compute its share of earnings after deducting the investee’s
preference dividends, whether or not such dividends are declared.
Net income 600,000
Less: Preference dividend (10% x 1,000,000) ( 100,000)
Net income to ordinary shares 500,000
Share in net income – ordinary shares (80% x 500,000) (A) 400,000
PROBLEM 16-5 Associate with Outstanding Preference Shares

CASE NO. 1
Question No. 1
Net income P2,000,000
Less: Total preference dividends (4,000,000 x 10%) 400,000
Net income to ordinary shares P1,600,000
Share in the net income of associate 400,000
Less: Amortization of undervalued asset (800,000/8) 100,000
Net investment income (B) 300,000
Question No. 2
Add: Net investment income (see no. 1) 300,000
Less: Dividends received -
Carrying value – 12/31/2015 (A) 5,300,000
CASE NO. 2
Question No. 1
Less: Total actual preference dividends declared 450,000
Net income to ordinary shares P1,550,000
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Net investment income (D) 287,500
Question No. 2
Carrying value – 12/31/2015 (B) 5,287,500
CASE NO. 3
Question No. 1
Net investment income (E) 400,000
Although the answer should be P400,000, the next best possible answer is
P500,000.
Question No. 2
Carrying value – 12/31/2015 (C) 5,400,000
SUMMARY OF ANSWERS:
CASE NO. 1 CASE NO. 2 CASE NO. 3
1. A 2. A 1. D 2. B 1. E 2. C
PROBLEM 16-6 Change From Fair Value through Profit or Loss to Equity
Method - Step Acquisition
Question No. 1
Fair value – 12/31/2016 2,200,000
Less: Carrying value (Fair value – 12/31/2015) 2,500,000
Unrealized loss – P&L (B) (300,000)
Question No. 2
Investment income (P500,000 x 10%) (E) 50,000
Question No. 3
Nil. No catch-up adjustment on retained earnings. (A)
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Fair value of previously held interest 2,200,000

Total cost of investment 5,275,000
Less: Book value of net asset acquired 3,500,000
Excess of attributable to machinery 1,775,000
Divide by: Remaining life 8
Amortization of Undervalued asset 221,875
Net income of the associate - 2017 1,500,000
Multiply by: Percentage of ownership (10% + 15%) 25%
Share in the net income 375,000
Dividends declared and paid 550,000
Dividends received 137,500
Question No. 4
Share in net income 375,000
Less: Amortization of Undervalued asset (see table above) 221,875
Adjusted net investment income (B) 153,125
Question No. 5
Less: Dividends received 137,500
Carrying value – 12/31/2015 (B) 5,290,625
SUMMARY OF ANSWERS:
1. B 2. E 3. A 4. B 5. B
PROBLEM 16-7 Cost To Equity Method

Note to professor: Total credit should be P5,500,000 instead of P9,500,000.
Question No. 1
Consideration received (40,000 x 65) P2,600,000
Less: Dividend income (5 x 40,000) 200,000
Net selling price 2,400,000
Less: Carrying value (2,500,000/40,000 x 40,000) 2,500,000
Loss on sale (A) (P100,000)
Question No. 2
Consideration received P2,600,000
Less: Dividend income (5 x 40,000) 200,000
Less: Carrying value [6M-(P5 x 100,000)/100,000] x 40,000) 2,200,000
Gain on sale (B) P200,000
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Question No. 3
Fair value (P70 x 60,000) (A) P4,200,000
Question No. 4
Cost of Investment – 01/01/2015 1,200,000
Add: Net investment income - 2015 (2,500,000 x 30%) 750,000
Less: Dividends received -2015 (30% x 1,000,000) 300,000
Carrying value – 12/31/2015 1,650,000
Add: Net investment income - 2016 (3,000,000 x 30%) 900,000
Less: Dividends received -2016 (30% x 1,600,000) 480,000
Carrying value – 12/31/2016 2,070,000
Less Carrying amount (P2,070,000 x ½) 1,035,000
Gain on sale (B) P165,000
Question No. 5
Investment in Kababain – FVTOCI:
Fair value (P75 x 15,000) 1,125,000
Less: Carrying amount 1,035,000 90,000
Investment in Passing Rate – FVTOCI:
Fair value (P70 x 60,000) 4,200,000
Less Cost (6M-(5 x 100,000))/100,000 x 60,000) 3,300,000 900,000
Total Unrealized Gain –OCI to SFP (C) P990,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. C
PROBLEM 16-8 Change From Equity to Cost Method

Question No. 1
Add: Net investment income [(1.8M-840,000) x 20%] 192,000
Less: Dividends received (P100,000 + P100,000) 200,000
Carrying value – 12/31/2015 (B) 3,992,000
Note:
 The dividend received on August 1, 2015 need not be prorated even though
the investment was acquired on July 1, 2015 since dividends is considered
when the investor has the right to receive payment (i.e. date of declaration).
 The P1.8M net income was for a period of 12 months ending December 31.
Question No. 2
Sales price (P25 x 50,000) 1,250,000
Carrying value of shares (P3,992,000 x 50,000/200,000) 998,000
Gain on sale of investment (B) 252,000
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Question No. 3
Fair value of retained investment (P25 x 150, 000) 3,750,000
Less: Carrying amount of retained investment (P3,992,000 x
150,000/200,000) 2,994,000
Gain on reclassification to P&L (C) 756,000
Question No. 4
Fair value, Dec. 31, 2016 (P30 x 150,000) 4,500,000
Fair value, Jan. 1, 2016 (P25 x 150,000) 3,750,000
Unrealized gain, Dec. 31, 2016 (B) 750,000
Question No. 5
Fair value, Dec. 31, 2016 (P30 x 150,000) (A) 4,500,000
SUMMARY OF ANSWERS:
1. B 2. B 3. C 4. B 5. A
PROBLEM 16-9: Discontinuance of Equity Method

Note to professor: Change available-for-sale securities to FVTOCI.
Question No. 1
Acquisition Cost( P66 x 250, 00) 16,500,000
Add: Share of net income [(P7,200,000 - P3,360,000) x 25%] 960,000
Less: Dividends received (P420, 000 x 2) (840,000)
Investment balance, December 31, 2015 (A) 16,620,000
Question No. 2
Sales price (68 x 100,000) 6,800,000
Less: Carrying value of shares (P16,620,000 x 100,000/250,000) 6,648,000
Gain on sale of investment 152,000
Fair value of retained investment (P69 x 150, 000) 10,350,000

Less: Carrying amount of retained investment (P16,620,000 x
150,000/250,000) 9,972,000
Gain on reclassification to P&L 378,000
Total Gain (152,000+378,000) (C) 530,000
Question No. 3
Fair value, Dec. 31, 2016 (P70 x 150,000) 10,500,000
Fair value, Jan. 1, 2016 (P69 x 150,000) 10,350,000
Unrealized gain, Dec. 31, 2016 – OCI (B) 150,000
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Question No. 4
Fair value, Dec. 31, 2015 (P70 x 150,000) (D) 10,500,000
SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. D
PROBLEM 16-10 Associate Having Heavy Losses

Original cost 1,400,000
Cash advances 400,000
Total interest 1,800,000
Net loss from 2015 to 2017 (40% x 4,000,000) (1,600,000)
Carrying amount of investment – 12/31/2017 200,000
Share in net loss of 2018 (40% x 800,000) 320,000
Loss to be reported in 2018 should be equal to the investment
balance only (C) 200,000
PAS 28, paragraph 29, provides that if under equity method an investor’s share
of losses of an associate equals or exceeds the carrying amount of an
investment, the investor discontinues recognizing its share of further losses.
The investment is reported at NIL or zero value.
PROBLEM 16-11 Downstream Sale of Inventory

2015 2016
Net income 1,000,000 1,500,000
Share in the net income before adjustment 250,000 375,000
Less: Unrealized profit on downstream sale of
inventory (30,000) 30,000
Share in the net income after adjustment 220,000 405,000
(B) (D)
PROBLEM 16-12 Upstream Sale of Inventory

2015 2016
Net income 1,000,000 1,500,000
Less: Unrealized profit on upstream sale of
inventory (9,000) 9,000
(B) (D)
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PROBLEM 16-13 Downstream Sale of Depreciable Asset
Note to professor: Change Josiah to Eldon.

2015 2016
Net income 1,000,000 1,500,000
Less: Unrealized gain on downstream sale of PPE (160,000) 40,000
(B) (D)
PROBLEM 16-14 Upstream Sale of Depreciable Asset
Note to professor: Change Josiah to Stalion.

2015 2016
Net income 1,000,000 1,500,000
Less: Unrealized gain on upstream sale of PPE (40,000) 10,000
(B) (D)
PROBLEM 16-15
Note to professor:
 However, it was sold by Myrah Company in 2012 should be 2016.
 Josiah Company is the associate.
Questions No. 1 & 2

2015 2016
Net income 2,000,000 3,000,000
Unrealized gain on downstream sale of PPE (160,000) 40,000
Unrealized profit on upstream sale of inventory (30,000) 30,000
Unrealized profit on upstream sale of inventory - (45,000)
(C) (D)
Questions No. 3 & 4

Add: Net investment income - 2015 (see No. 1) 410,000
Less: Dividends received -2015 (30% x P800,000) 240,000
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Carrying value – 12/31/2015 (E) 4,170,000

Less: Dividends received -2016 (30% x P1,200,000) 360,000
Carrying value – 12/31/2016 (E) 4,735,000
Question No. 5
Less: Amortization of Goodwill (P200,000 / 10) 20,000
Less: Dividends received -2015 (30% x P800,000) 240,000
Carrying value – 12/31/2015 4,150,000
Less: Amortization of Goodwill (P200,000 / 10) 20,000
Less: Dividends received -2016 (30% x P1,200,000) 360,000
Carrying value – 12/31/2016 (C) 4,695,000
Note: Under PFRS for SMEs, Intangible Assets and Goodwill is amortized over
their useful life. If an entity cannot determine reliably the useful life, it is
assumed to be 10 years.
SUMMARY OF ANSWERS:
1. C 2. D 3. E 4. E 5. C
PROBLEM 16-16
Question No. 1
Cost P1,700,000
Less: Equity in net assets 1,400,000
Implied goodwill (A) 300,000
Question No. 2
Proceeds (2,500 x P13) P 32,500
Less: Carrying amount [(P60,000/6,000) x 2,500] 25,000
Gain on sale (A) 7,500
Question No. 3
Proceeds (500 x P21) P 10,500
Less: Carrying amount [(P55,000/(2,000 x 110%)) x 500] 12,500
Loss on sale (A) 2,000
Question No. 4
Proceeds (1,500 x P21) P 31,500
Less: Carrying amount [(P40,000/1,000) x 500] 20,000
Gain on conversion (C) 11,500
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Question No. 5
Investment in Roque Corporation:
3/9 1,000 x P1.2 1,200
9/9 1,000 x P1.2 1,200
Investment in Ocampo Corporation:
6/30 (6,000 – 2,500) x P1 3,500
Total dividend income (A) 5,900
Question No. 6
1/2/2016 Acquisition Cost 1,700,000
Add: Share in net income of associate (P1,200,000 x 30%) 360,000
Less: Dividends (P.50 x 4 x 100,000) 200,000
12/31/2016 carrying amount (A) P1,860,000
Question No. 6
Roque pref. (1,000 – 500) x P56 28,000
Roque ordinary (1,500 x P20) 30,000
Ocampo (6,000 -2,500) x P11 38,500
Dagumboy Co. (2,000 x 110% -500) x P22 37,400
12/31/2016 FVTOCI Balance (A) 133,900
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. C 5. A 6. A 7. A
PROBLEM 16-17
Question No. 1
Solano:
Fair values (11,000 x 23) 253,000
Less: Cost 250,000 3,000
A. Castaneda
Fair values (20,000 x 14) 280,000
Less: Cost 320,000 (40,000)
Net unrealized loss (B or D) (37,000)
Question No. 2
Net Proceeds 75,000
Less: Carrying value (P3 x 20,000) 60,000
Gain on sale (A) 15,000
Question No. 3
Zero, gain or loss on reclassification is recognized in the profit or loss. (D)
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Fair value previously held interest (50,000 x 30) 1,500,000

Gain on reclassification-P&L 150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D) 270,000
Question No. 5
Fair value previously held interest (P3M / 20% x 10%) 1,500,000
Add: Acquisition cost 3,000,000
Initial carrying amount – investment in associate 4,500,000
Add: Net investment income (see No. 4) 270,000
Less: Dividends declared (P2 x 150,000) 300,000
Investment balance end (B) 4,470,000
SUMMARY OF ANSWERS:
1. B or D 2. A 3. D 4. D 5. B
PROBLEM 16-18
Note to professor: The investment in associate was acquired on January 1,
2016 should be on January 1, 2015.
Question No. 1
Consideration received (P115 x 4,000) 460,000
Less: Dividend of the investment sold (P4 x 4,000) 16,000
Less: Carrying value of the investment sold (*985,000/10,000 x
4,000) 394,000
Gain on sale (B) 50,000
*(10,000 x P100)-(P4 x 10,000) + 25,000
The dividend that was paid and sold is not classified as dividend income since
the company did not own the shares when the dividend was declared.
Question No. 2
Net Selling Price (P225 x 50,000 x 1/2) 5,625,000
Less: Carrying value of the investment sold (P10,400,000 x 1/2) 5,200,000
Beg. Balance of Investment in Associate 9,000,000
Add: Share in the net income of associate (25% x P10M) 2,500,000
Total 11,500,000
Less: Amortization (P1,000,000/10) 100,000
Dividends received (P20 x 50,000) 1,000,000
Ending balance of investment in associate – 12/31/2016 10,400,000
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Question No. 3
Nil. (A)
 The dividend that was paid and sold in Boy-ot shares is not classified as
dividend income since the company did not own the shares when the
dividend was declared.
 The dividend received in Cleo Shares is not regarded as income, but as a
deduction of the initial carrying amount of the investment in associate.

Fair value Cost (UG) / UL
Rodolfo (P23 x 20,000) 460,000 500,000 40,000
Boy-ot (P96 x 6,000) 576,000 *591,000 15,000
Gene (P14 x 40,000) 560,000 640,000 80,000
Cleo (P225 x 25,000) 5,625,000 5,625,000 -
Total 7,221,000 7,356,000 135,000
(A) (B)
* (985,000/10,000 x 6,000)
SUMMARY OF ANSWERS:
1. B 2. D 3. A 4. A 5. B
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Chapter 18: Property, Plant and Equipment
CHAPTER 18: PROPERTY, PLANT AND EQUIPMENT

Note to professor:
Page Existing Data: Change to:
Credit to Machine M Credit to Machine A
685 Requirement No. 4: Sum of the Years’ Digits
Also the accumulated depreciation Change 2016 to 2015.
as of December 31, 2015 may…
686 Requirement No. 5: SYD acquired on April 1, 2015
12/31/2016: 12/31/2016:
Depreciation = 300,000 Depreciation = 325,000
Accumulated depreciation = Accumulated depreciation =
700,000 625,000
Book value = 400,000 Book value = 475,000
PROBLEM 18-1 Capitalizable Cost of Machinery

Machinery Others
Purchase price including VAT (1,568,000/1.12) 1,400,000 -
Cost of water device to keep machine cool. 8,000 -
Cost of safety rail and platform surrounding
machine 12,000 -
Installation cost, including site preparation and
assembling. 20,000 -
Fees paid to consultants for advice on acquisition
of the machinery. 13,000 -
Dismantling cost of the machine 10,000 -
Repair cost of the machine damaged while in the
process of installation - 5,000
Loss on premature retirement-old machine - 18,000
Other nonrefundable sales tax 13,000 -
Cost of training for personnel who will use the
machine - 25,000
Adjusted balances (A) 1,476,000 48,000
PROBLEM 18-2 Capitalizable Cost of Land, Building and Land

Improvements
Question No. 1
Purchase Price 925,000
Title Insurance 7,500
Legal fees to purchase land 5,000
Property taxes, January 1, 2015 -June 30, 2015 15,000
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Cost of grading and filling building site 45,000

Total Cost of the land (A) 997,500
Question No. 2
Cost of building construction 3,100,000
Interest on construction loan 60,000
Cost of razing old building on lot 42,500
Proceeds from sale of salvageable materials (6,000)
Total cost of the building (A) 3,196,500
Question No. 3
Cost of constructing driveway 400,000
Cost of parking lot and fencing 60,000
Total cost of the land improvements (B) 460,000
PROBLEM 18-3 Old Building Is Not To Be Demolished

Question No. 1
Allocated purchase price (4/10 x P11M) 4,400,000
Draining cost and filling the land. 33,000
Cost of grading and leveling the land 6,000
Broker’s fee on the land 6,500
Cost of option of the acquired land 8,000
Registration fees and transfer of title. 13,000
Mortgages, encumbrances on the land assumed by buyer. 13,500
Total cost of land (C) 4,480,000
Question No. 2
Allocated purchase price (6/10 x P11M) 6,600,000
Interest, liens and other encumbrances on the building assumed
by the buyer. 21,000
Payments to tenants of the building to induce them to vacate the
premises. 50,000
Repairs and renovation costs before the building is occupied 66,400
Unpaid taxes on the building up to the date of acquisition 2,000
Legal Fees and other expenses incurred in connection with the
purchase of the building 8,000
Total cost of building (D) 6,747,400
Question No. 3
Cost of shrubs, trees, and other landscaping (C) 53,000
Real Property taxes on the land accrued after acquisition of P5,000 shall be
treated as expense.
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PROBLEM 18-4 Acquisition on Cash Basis

Question No. 1
Cash paid 800,000
Commissions paid to brokers 80,000
Non-refundable sales taxes 40,000
Total cost 920,000
Multiply by: Ratio (200,000 / 500,000) 0.40
Allocated cost of the land (B) 368,000
Question No. 2
Total cost 920,000
Multiply by: Ratio (300,000 / 500,000) 0.60
Allocated purchase price 552,000
Demolition cost 60,000
Proceeds from sale of demolition scrap (15,000)
Total cost of the building (C) 597,000
PROBLEM 18-5 Acquisition on Account

Invoice Price 500,000
Multiply by: (1 - discount rate) 97%
Additional cost:
Freight and insurance 15,000
Cost of testing and trial runs 12,000
Cost of the equipment (B) 512,000
PROBLEM 18-6 Acquisition on Account

Invoice Price 500,000
Multiply by: (1 - discount rate) 0.97
Additional cost:
Installation cost 50,000
Present value of estd. decommissioning and restoration cost 62,090
Total cost of the equipment (B) 597,090
Estimated decommissioning and restoration cost 100,000
Multiply by: Present value of 1 0.6209
Present value of estd. decommissioning and restoration cost 62,090
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PROBLEM 18-7 Deferred Settlement Terms (With or Without Cash Price

Equivalent)
Question No. 1
Cash price equivalent (A) 800,000
Question No. 2
Principal 1,000,000
Multiply by: Present value of 1 0.7972
Cost of the equipment (B) 797,200
PROBLEM 18-8 Exchange (With or Without Commercial Substance)
Note to professor: Change Brayden to Jane Co.

Question No. 1
Fair value of the asset given 1,200,000
Add: Cash payment 200,000
Cost of equipment (D) 1,400,000
Question No. 2
Fair value of the asset given 1,200,000
Less: Carrying amount 800,000
Gain on exchange (B) 400,000
Question No. 3
Carrying amount of the asset given 800,000
Add: Cash payment 200,000
Cost of equipment (B) 1,000,000
Question No. 4
Zero, the transaction lacks commercial substance. (A)
PROBLEM 18-9 Trade–in

Question No. 1
Cash price without trade in (A) 340,000
Question No. 2
Cash price without trade in 340,000
Less: Cash price with trade in 270,000
Trade in value 70,000
Less: Carrying amount 230,000
Loss on trade in (B) (160,000)
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PROBLEM 18-10 Acquisition through Issuance of Equity Instrument

Question No. 1
Fair value of the equipment received (D) 4,000,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
share premium in the equity. (A)
PROBLEM 18-11 Acquisition through Issuance of Bonds Payable

Question No. 1
Fair value of the bonds (10,200 x 500) (C) 5,100,000
Question No. 2
Zero, the difference between the fair value and its par value is recognized as
premium on bonds payable. (A)
PROBLEM 18-12 Acquisition by Donation

Question No. 1
Fair value 4,000,000
Add: Direct cost 40,000
Total cost (B) 4,040,000
Question No. 2
Fair value (C) 4,000,000
The registration and transfer of title is charged to Donated Capital / Share
Premium.
PROBLEM 18-13 Capitalizable Cost of Land

Question No. 1
Purchase price 400,000
Demolition of existing building on site 75,000
Legal and other fees to close escrow 12,000
Less: Proceeds from sale of demolition scrap 10,000
Total cost (C) 477,000
Question No. 2
Purchase price 400,000
Legal and other fees to close escrow 12,000
Total cost (A) 412,000
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PROBLEM 18-14 Specific Borrowings

Question No. 1
Loan received 1,000,000
Multiply by: Interest rate 20%
Actual borrowing cost 200,000
Less: Investment income 60,000
Capitalizable borrowing cost (B) 140,000
Question No. 2
Multiply by: Interest rate 20%
Less: Investment income (60,000 x 4/12) 20,000
Capitalizable borrowing cost (D) 180,000
Question No. 3
Multiply by: Future value of 1 for 4 periods 1.2155
Future value of the loan – 12/31/2015 1,215,500
Less: Principal amount of the loan 1,000,000
Less: Investment income 60,000
Capitalizable borrowing cost (C) 155,500
Question No. 4
Add: Expenditures incurred on Jan. 1 400,000
Balance at Jan 1 600,000
Interest on surplus funds on June 1 (600,000 x 15% x 5/12) 37,500
Balance at June 1 600,000
Less: Expenditure incurred on June 1 250,000
Balance at December 31 350,000
Interest on surplus funds on December 31 (350,000 x 15% x
7/12) 30,625
Total interest on surplus funds 68,125
Less: Investment income (see above) 68,125
Capitalizable borrowing cost (C) 131,875
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PROBLEM 18-15 Specific Borrowings - Expenditures Incurred Evenly

Question No. 1
Loan at January 1, 2015 1,000,000
Loan at December 31, 2015(1,000,000 – 800,000) 200,000
Average used during the year (1,000,000 + 200,000 ) /2 600,000
Total actual borrowing cost 200,000

Less: Interest on surplus funds (600,000 x 0.15 ) 90,000
Capitalizable borrowing cost (A) 110,000
Question No. 2
Average expenditures (800,000 /2 ) 400,000
Capitalizable borrowing cost (400,000 x 0.2 ) (C) 80,000
With a loan, the total proceeds are received on day 1 and any surplus funds are
invested until needed (as shown in the example above).
With a facility (e.g. overdraft facility), cash is withdrawn as needed. As a result
there are no surplus funds to invest and interest is paid only on those amounts
withdrawn.
PROBLEM 18-16 Specific and General Borrowings
Note to professor:
Page Existing Data: Change To:
701 Kendall borrowed P750,000 on a construction Change 2013 to 2015
loan at 12% interest on January 1, 2013. This Change 2014 to 2016
loan was outstanding throughout the
construction period. The company had
P4,500,000 in 9% bonds payable outstanding
in 2013 and 2014.
Questions No. 1 & 2
January 1, 2015 200,000 x 12/12 200,000
September 1, 2015 300,000 x 4/12 100,000
December 31, 2015 300,000 x 0/12 0
Average accumulated expenditure 1. (A) 300,000
Multiply by: Rate 12%
Capitalizable borrowing cost 2. (D) P36,000
Since the average accumulated expenditure did not exceed the principal of the
specific borrowing, the specific rate was used in determining the capitalizable
borrowing cost.
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Question No. 3 & 4

Accumulated expenditures – 836,000 x 9/9 836,000
12/31/2015 (P800,000 + 36,000)
March 31, 2016 300,000 x 6/9 200,000
September 30, 2016 200,000 x 0/12 0
Average accumulated expenditure 3. (D) 1,036,000
Less: Specific borrowing 750,000
Excess attributable to general borrowing 286,000
Multiply by: Months outstanding 9/12
Capitalizable borrowing cost – general borrowings 19,305
Add: Specific borrowings (750,000 x 12% x 9/12) 67,500
Total capitalizable borrowing cost 4. (B) 86,805
PROBLEM 18-17 Specific Borrowing Used For General Purposes

Total expenditures 6,000,000
Divide by 2
Total 3,000,000
Less: Investment income (50,000 x 3/12) 12,500
Weighted average expenditures 2,987,500
Capitalizable borrowing cost (A) 298,750
PROBLEM 18-18 Different Depreciation Methods

Cost P3,300,000
Less: Residual value 300,000
Depreciable amount P3,000,000
Requirement No. 1 Straight Line

2015 (P3,000,000 / 5 x 3/12) 150,000
2016 (P3,000,000 / 5 x 12/12) 600,000
Requirement No. 2 Service Hours

Depreciation rate per hour (P3,000,000 / 60,000 hours) = P50/hour
2015 (P50/hour x 6,100 hours) 305,000
2016 (P50/hour x 8,200 hours) 410,000
Requirement No. 4 Units of Output Method

Depreciation rate per unit (P3,000,000 / 50,000 units) = P60/unit
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2015 (P60/unit x 5,000 units) 300,000

2016 (P60/unit x 6,000 units) 360,000
Requirement No. 4 Sum-of the Years’ Digits

Sum-of-years-digits [5 x ((5+1)/2)] = 15
2015 (P3,000,000 x 5/15 x 3/12) 250,000
2016 (P3,000,000 x 5/15 x 9/12) + (P3,000,000 x 4/15 x 9/12) 950,000
Requirement No. 5 Double-declining balance

Double declining rate (2/5) = 40%
2015 (P3,300,000 x 40% x 3/12) 330,000
2016 [(P3,300,000 – 330,000) x 40% x 12/12)] 1,188,000
Requirement No. 6 150% declining balance

150% declining rate (1.5/5) = 30%
2015 (P3,300,000 x 30% x 3/12) 247,500
2016 [(P3,300,000 – 247,500) x 30% x 12/12)] 915,750
PROBLEM 18-19 Straight-Line

Cost – 01/01/2013 102,750
Less: Accumulated depreciation – 12/31/2014
[(P102,750 – P6,750) / 6 x 2) 32,000
Carrying value – 01/01/2015 70,750
Less: Revised residual value 4,500
Depreciable amount 66,250
Divide by: Remaining useful life (7-2) 5
Depreciation expense (B) 13,250
PROBLEM 18-20 Straight-Line

Cost (P300,000 + P8,000) P308,000
Divide by: Useful life 10
Depreciation expense (A) 29,800
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PROBLEM 18-21 Composite Method

Salvage Depreciable Estd. Annual
Cost Value Amount Life Depreciation
Machine A 275,000 25,000 250,000 20 12,500
Machine B 100,000 10,000 90,000 15 6,000
Machine C 20,000 - 20,000 5 4,000
Total 395,000 35,000 360,000 22,500
Composite Life = (Depreciable amount / Total annual depreciation)
= P360,000 / P22,500
= 16 years (B)
PROBLEM 18-22
The balancing figure is accumulated depreciation under the group method of
depreciation. (D)
PROBLEM 18-23 Units of Output Method

Depreciation rate per unit [(P600,000 – P60,000) / 200,000 units) = P2.7/unit
2015 (P2.7/unit x 30,000 units) (C) 81,000
PROBLEM 18-24 Working Hours Method

Depreciation rate per hour [(P600,000 – P60,000) / 100,000 hours) =
P5.4/hour
2015 (P5.4/hour x 15,000 hours) (C) 81,000
PROBLEM 18-25 Double Declining Balance

Depreciation rate (2/4) = 50%
Cost 18,000
Less: Accumulated depreciation
2014 (P18,000 x 50%) 9,000
2015 (P18,000 – 9,000 – P4,700) * 4,300
Book value – 12/31/2015 (B) 4,700
*Maximum depreciation. The carrying amount should not be reduced below its
residual value.
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PROBLEM 18-26 Double Declining Balance

Double declining rate (2/10) = 20%
2015 [(P480,000 x 20% x 12/12] 96,000
2016 [(P480,000 – P90,000) x 20% x 12/12] (B) 76,800
PROBLEM 18-27 150% Declining Balance

150% declining rate (1.5/5) = 30%
2014 (P1,000,000 x 30%) 300,000
2015 [(P1,000,000 – 300,000) x 30%] 210,000
Accumulated depreciation – 12/31/2015 (D) 510,000
PROBLEM 18-28 Sum of the Years’ Digits

Sum-of-years-digits [5 x ((5+1)/2)] = 15
2015 [(P50,000 + 100,000) x 4/15 x 12/12) (C) 36,000
PROBLEM 18-29 Component Depreciation

Residual Depreciable Useful Dep’n
Component Cost value cost Life expense
A 550,000 50,000 500,000 10 50,000
B 420,000 20,000 400,000 9 44,444
C 360,000 10,000 350,000 8 43,750
D 190,000 30,000 160,000 7 22,857
E 235,000 40,000 195,000 6 32,500
Total 1,755,000 150,000 1,605,000 (E) 193,551
PROBLEM 18-30 Change in Estimate

Cost 8,000
Less: Depreciation – first year (8,000 / 4) 2,000
Carrying value – end of first year 6,000
Divided by: Revised remaining useful life (5 – 1) 4
Depreciation – 2nd year (C) 1,500
PROBLEM 18-31 Retirement Method

Original cost 5,000
Less: Salvage proceeds 600
Depreciation (B) 4,400
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Cost 3,300,000
Less: Accumulated depreciation – 12/31/2014
[(P3,300,000 – P300,000) / 8 x 4] 1,500,000
Carrying value – 12/31/2014 1,800,000
CASE NO. 1
Requirement No. 1
Carrying value – 12/31/2014 1,800,000
Depreciable amount 1,500,000
Divided by: Revised remaining useful life 2
Depreciation – 2015 750,000
Requirement No. 2
Carrying value – 12/31/2014 1,800,000
Less: Depreciation – 2015 750,000
Carrying value – 12/31/2015 1,050,000
CASE NO. 2
Requirement No. 1
Carrying value – 12/31/2014 1,800,000
Divided by: Remaining useful life ( 8 – 4) 4
Requirement No. 2
Carrying value – 12/31/2014 1,800,000
Carrying value – 12/31/2015 1,387,500
CASE NO. 3
Requirement No. 1
Carrying value – 12/31/2014 1,800,000
Multiply by: Fraction (SYD = 10) 4/10
Requirement No. 2
Carrying value – 12/31/2014 1,800,000
Carrying value – 12/31/2015 1,200,000
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PROBLEM 18-33 Replacement Method

Replacement cost 6,000
Less: Salvage proceeds 600
Depreciation (C) 5,400
PROBLEM 18-34 Fixed Asset Turnover

Let X = Net Fixed Asset at the end of 2014
Sales
Fixed asset turnover =
Average Fixed Asset
P1,480,000
4=
.5 (P320,000 + X)
P1,480,000
4=
P160,000 + .5x
P1,480,000 = P640,000 + 2x
X= P420,000 (C)
PROBLEM 18-35 Derecognition of PPE
Note to professor: Change Pine to Jeremy.

Insurance Proceeds 200,000
Less: Carrying value [P160,000 – (P20,000 x 6/12)] 150,000
Gain on disposal (D) 50,000
PROBLEM 18-36
Question No. 1
Beg. Balance of the Land P 700,000
Cash paid 2,500,000
Mortgage assumed 4,000,000
Realtor's commission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to relocate persons squatting on the property 100,000
Total Cost of the Land (B) P7,650,000
Question No. 2
Beginning balance of the Land Improvement P 10,000
Cost of fencing property 110,000
Total cost of Land Improvement (A) P 120,000
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Question No. 3
Beg. Balance of the Building P 900,000
Amount recovered from salvage of building (150,000)
Cost of tearing down an old building 120,000
Amount paid to contractor 2,000,000
Building permit 20,000
Excavation expenses 50,000
Architects' fees 50,000
Total cost of building (A) P2,990,000
Question No. 4
Beg. Balance of the Machinery P 980,000
Invoice cost of machinery 2,000,000
Freight, unloading 60,000
Customs duties 140,000
Allowances during installations 400,000
Total cost of machinery (B) P3,580,000
Question No. 5
Total cost of Land Improvement P 120,000
Total cost of building 2,990,000
Total cost of machinery 3,580,000
Total depreciable property (A) P6,690,000
Royalty payment on machines purchased in the amount of P120,000 should be
included as part of manufacturing overhead in the company’s income statement,
if the same is based on units produced. However, if royalty payment is based on
units produced and sold, it should be treated as a selling expense.
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. B 5. A
PROBLEM 18-37 Specific and General Borrowings

WEIGHTED AVERAGE IN 2014
Months
Date Expenditures outstanding Average
01/01/2014 3,000,000 12 36,000,000
07/01/2014 7,000,000 6 42,000,000
11/01/2014 6,000,000 2 12,000,000
Total 16,000,000 90,000,000
Divide by 12
Weighted average carrying amount 7,500,000
Specific borrowings (2,000,000 x 10%) 200,000
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General borrowings:
Rate Principal Interest
14% 2,000,000 280,000
12% 18,000,000 2,160,000
Total 20,000,000 2,440,000
Capitalization Rate (P2,440,000 / P20,000,000) = 12.20%
Weighted average borrowing cost:
Specific borrowings
Less: Investment income 13,000 187,000
General borrowings:
Less: Principal amount of Specific borrowings 2,000,000
Weighted average related to General borrowings 5,500,000
Multiply by: Capitalization rate 12.20%
Multiply by: Months/12 1 671,000
Weighted average borrowing cost: 858,000
vs. Actual borrowing cost 2,640,000
Capitalizable borrowing cost (lower) (A) 858,000
WEIGHTED AVERAGE IN 2015
Months
01/01/2015 *16,858,000 8 134,864,000
07/01/2014 1,000,000 2 2,000,000
08/01/2014 2,000,000 1 2,000,000
Total 19,858,000 138,864,000
Divide by 8
*Total expenditures in 2014 plus capitalized borrowing cost in 2014.

Specific borrowings
Actual borrowing cost (P2,000,000 x 10% x 8/12) 133,333
Less: Investment income - 133,333
General borrowings:
Multiply by: Capitalization rate 12.20%
Multiply by: Months/12 8/12 1,249,117
Weighted average borrowing cost: 1,382,451
vs. Actual borrowing cost (2,640,000 x 8/12) 1,760,000
Capitalizable borrowing cost (lower) (A) 1,382,451
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Question No. 3
Actual borrowing cost - 2014 2,640,000
Less: Capitalizable borrowing cost - 2014 858,000
Interest expense (C) 1,782,000
Question No. 4
Actual borrowing cost - 2015 2,640,000
Less: Capitalizable borrowing cost - 2015 1,382,451
Interest expense (C) 1,257,550
Question No. 5
Total cost, 2014 16,858,000
Expenditures in 2015 3,000,000
Add: Capitalizable borrowing cost - 2015 1,382,451
Total cost of the building (B) 21,240,451
SUMMARY OF ANSWERS:
1. A 2. A 3. C 4. C 5. B
PROBLEM 18-38 Grants Related To Depreciable Assets

Question No. 1
The computation of the income from government grant is as follows:
Total cash received 25,000,000
Divide by: Useful life of the building 20
Income from government grant (D) 1,250,000
Question No. 2
Cost of building 30,000,000
Depreciation (C) 1,500,000
Question No. 3
Less: Government grant 25,000,000
Total 5,000,000
Depreciation (B) 250,000
Question No. 4
Less: Depreciation – 2015 1,500,000
Carrying amount – 12/31/2015 (D) 28,500,000
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Question No. 5
Net cost of building 5,000,000
Carrying amount – 12/31/2015 (C) 4,750,000
SUMMARY OF ANSWERS:
1. D 2. C 3. B 4. D 5. C
PROBLEM 18-39 Grants Related to Nondepreciable Assets

Question No. 1
The computation of the income from government grant is as follows:
Total fair value of the land 5,000,000
Divide by useful life of the building 10
Income from government grant (B) 500,000
Question No. 2
Cost of factory building 20,000,000
Question No. 3
Less: Government grant 5,000,000
Total 15,000,000
Depreciation (D) 1,500,000
Question No. 4
Carrying amount – 12/31/2015 (A) 18,000,000
Question No. 5
Net cost of factory building 15,000,000
Carrying amount – 12/31/2015 (B) 13,500,000
SUMMARY OF ANSWERS:
1. B 2. C 3. D 4. A 5. B
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PROBLEM 18-40
Question No. 1
Cost of land and old building P1,200,000
Real estate broker's commission 72,000
Legal fees 12,000
Title insurance 36,000
Cost of land (C) P1,320,000
Question No. 2
Months
January 1, 2014 1,000,000 12 12,000,000
April 1, 2014 500,000 9 4,500,000
October 1, 2014 800,000 3 2,400,000
December 31, 2014 900,000 0 -
Total 3,200,000 18,900,000
Divide by 12
Capitalization Rate (P840,000 / P8,000,000) = 10.50%
Specific borrowings
Actual borrowing cost (P1M x 12% x 12/12) 120,000
General borrowings:
Weighted average related to General borrowings 575,000
Multiply by: Capitalization rate 10.50%%
Multiply by: Months/12 12/12 60,375
vs. Actual borrowing cost (P120,000 + P840,000) 960,000
Question No. 3
Months
January 1, 2015 *4,380,375 8 35,043,000
May 1, 2015 600,000 4 2,400,000
September 1, 2015 1,200,000 - -
Total 3,200,000 37,443,000
Divide by 8
*(3,200,000+180,375+1,000,000)
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Specific borrowings
Actual borrowing cost (P1,000,000 x 12% x 8/12) 80,000
General borrowings:
Multiply by: Capitalization rate 10.50%%
vs. Actual borrowing cost (P960,000 x 8 / 12) 640,000
Question No. 4
Fixed construction contract price P6,000,000
Plans, specifications, and blueprints 42,000
Architects' fees 164,000
Removal of old building 108,000
Interest capitalized during 2014 180,375
Interest capitalized during 2015 337,626
Cost of building (C) P6,832,001
Question No. 5
Interest cost in 2015:
Specific borrowing P 120,000
General borrowing 840,000
Total interest P 960,000
Less: Capitalizable borrowing cost in 2015 337,626.25
Interest expense in 2015 (C) P622,373.75
Question No. 6
Depreciation rate (150%/40 years) = 3.75%
Total depreciation expense (6,832,001.25 x 3.75% x 4/12) = (B) P 84,500
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. C 5. C
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PROBLEM 18-41
Question No. 1
SYD [5 x (5+1)/2] = 15
Date Fraction to be used
4/1/2013 - 4/1/2014 (5/15)
4/1/2014 - 4/1/2015 (4/15)
Depreciation expense:
Jan. 1 - 4/1/2015 (4/15 x 1,500,000 x 3/12) P 100,000
Add: depreciation from 4/1 - 12/31
Of the 1.2M (3/15 x 1,200,000 x 9/12) 180,000
Of the 300,000 (see computation below) 30,000
Total depreciation expense (A) P 310,000
Depreciation exp. from (4/1/-12/31):
Cost P 300,000
2013 to 2014 - 5/15 x 300,000 100,000
2014 to 2015 - 4/15 x 300,000) 80,000
Book Value, 4/1/2015 P 120,000
Divide by: Remaining Life (5-2) 3
Total P 40,000
Multiply by: Number of months 9/12
Depreciation P 30,000
Question No. 2
Accumulated depreciation, beg. P 800,000
Add: Depreciation expense - 2015 310,000
Accumulated depreciation, 12/31/2015 (A) P1,110,000
Question No. 3
Beginning balance of land P 550,000
Add: Acquisition on Nov 4 700,000
Total cost of the land (B) P1,250,000
Question No. 4
Direct cost P2,220,000
Fixed cost (15,000 x 25) 375,000
Variable cost (15,000 x 27) 405,000
Total Cost of building (A) P3,000,000
Question No. 5
Depreciation on the beginning balance
(6M - 4,427,136 - 1,300,000) P 272,864
Add: Depreciation on new building (3,000,000 x 20%) 600,000
Total depreciation (D) P 872,864
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Question No. 6
Cost of the machinery-beg bal. P3,000,000
Add: Cost of the new machinery
Invoice cost P 356,000
Concrete embedding 18,000
Wall demolition 7,000
Rebuilding of wall 19,000 400,000
Total cost of machinery (A) P3,400,000
Question No. 7
Depreciation of machinery
Depreciation of the beginning balance of
machinery
Original Cost P3,000,000
Accumulated depreciation (3,000,000/20*10) P1,500,000
Less: Major overhaul 600,000 900,000
Adjusted book value P2,100,000
Divided by: Revised remaining life (20 – 10 + 5) 15
Depreciation of the beginning balance of machinery P 140,000
Depreciation on the new machinery (400,000/20 x 6/12) 10,000
Depreciation of machinery (E) P 150,000
SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. A 5. D 6. A 7. E
PROBLEM 18-42
Question No. 1
Selling Price P 52,000
Less Book value
Cost P140,000
Up to 1/1 P 92,800
From Jan. 1-May 1
[(140,000 -12,400) x 5/55]* 11,600 (104,400) 35,600
Gain on sale of machinery D (A) P 16,400
Note: No depreciation is recorded in the year an asset is purchased, and full
year depreciation is provided in the year an asset is disposed of
Question No. 2
Accumulated depreciation, R Jan 1 P 140,800
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100] 26,880
Accumulated depreciation, R Dec. 31 (B) P 167,680
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Question No. 3
Accumulated depreciation, I Jan 1 P 60,000
Add: Depreciation expense [(320,000-60,000-20,000)/10] 24,000
Accumulated depreciation, I Dec. 31 (C) P 84,000
Question No. 4
Accumulated depreciation, A Jan 1 P 64,000
Add: Depreciation expense (320,000-64,000) x 20% 51,200
Accumulated depreciation, A Dec. 31 (A) P 115,200
Question No. 5
Depreciation expense on Machinery:
D (see computation in no. 1) P 11,600
R (see computation in no. 2) 26,880
I (see computation in no. 3) 24,000
A (see computation in no. 4) 51,200
N (88,000/20%) 17,600
Total depreciation expense (D) P 131,280
SUMMARY OF ANSWERS:
1. A 2. B 3. C 4. A 5. D
PROBLEM 18-43
Question No. 1
SYD 55
Cost of the office equipment 330,000
Multiply by: Used fractions (10/55+9/55+8/55+7/55) 34/55
Accumulated depreciation, December 31, 2015 (C) 204,000
Question No. 2
Machine 101 (70,000-7,000)/10 x 3/12 12,775
Machine 102 (80,000-8,000)/9 x 3/12 2,000
Machine 103 (30,000-3,000)/8 3,375
Total depreciation (C) 18,150
Machine 101
Cost 70,000
Less: Accumulated Depreciation, Jan 1, 2016 18,900
Book value, January 1, 2016 51,100
Depreciation in 2016 12,775
Question No. 3
Office equipment 330,000
Less: Accumulated depreciation, Dec 31, 2015 204,000
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Book value, December 31, 2015 126,000

Depreciation - office equipment 21,000
Depreciation of the building (200,000/5) 40,000
Total depreciation expense (C) 61,000
Question No. 4
Less: Book value of the Machine
Cost 80,000
(80,000-8,000)/9 x 1 9/12 14,000 66,000
Loss on sale (A) (13,500)
Question No. 5
Cost of the office equipment 330,000
Accumulated depreciation, Dec 31, 2015 204,000
Depreciation expense in 2016 21,000 225,000
Book value, December 31, 2016 (B) 105,000
SUMMARY OF ANSWERS:
1. C 2. C 3. C 4. A 5. B
PROBLEM 18-44
Question No. 1
Fair value 1,400,000
Legal fees 50,000
Remodeling cost 100,000
Total cost of building (C) 1,550,000
Question No. 2
Fair value of the asset received 1,200,000
Less: Cash paid 400,000
Fair value of the asset given 800,000
Less: Book value of the asset given
Cost 1,000,000
Less: Accumulated depreciation (1M/10 x 3.5) 350,000 650000
Gain on exchange (A) 150,000
Question No. 3
Office building No. 1 (940,000/7) 135,000
Office building No. 2 (1,000,000/10 x 6/12) 50,000
Office building No. 3 (1,200,000/4 x 6/12) 150,000
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Factory building (1,550,000/10) 155,000

Total Depreciation expense (C) 490,000
Cost of office building No. 1 1,000,000
Less: Accumulated Depreciation 300,000
Book value 700,000
Add: Major improvements 245,000
Total 945,000
Question No. 4
Income from government grant (1,400,000/10) (A) 140,000
Question No. 5
Total depreciable cost 945,000
Less: Subsequent depreciation 135,000
Book value (A) 810,000
SUMMARY OF ANSWERS:
1. C 2. A 3. C 4. A 5. A
PROBLEM 18-45
Question No. 1
Months
January 1, 2015 2,000,000 12 24,000,000
July 1, 2015 4,000,000 6 24,000,000
November 1, 2015 3,000,000 2 6,000,000
Total 9,000,000 54,000,000
Divide by 8
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12) 200,000
General borrowings:
Multiply by: Capitalization rate 12%
Capitalizable borrowing cost (lower) (D) 500,000
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Question No. 2
Total expenditures – 2015 9,000,000
Total expenditures - 2016 1,000,000
Capitalized borrowing cost - 2015 500,000
Capitalized borrowing cost – 2016 (see computation below) 1,160,000
Total cost of building (C) 11,660,000
Months
January 1, 2016 *9,500,000 12 114,000,000
July 1, 2016 1,000,000 6 6,000,000
Total 10,500,000 120,000,000
Divide by 12
Total of expenditure in 2015 of P9M and capitalized borrowing cost of
P500,000.

Specific borrowings
Actual borrowing cost (2M x 10% x 12/12) 200,000
General borrowings:
Multiply by: Capitalization rate 12%
Weighted average borrowing cost: 1,160,000
Capitalizable borrowing cost (lower) 1,160,000
Question No. 3
Total expenditures – 2015 9,000,000
Total expenditures - 2016 1,000,000
Total cost of building (A) 10,000,000
Borrowing cost under PFRS for SME is expensed outright.
Question No. 4
Cost of Machinery and Equipment 3,000,000
Multiply by: Fraction 3/15
Depreciation (A) 600,000
SYD is 15 years and useful life is 5 years.
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Question No. 5
Depreciation – remaining delivery truck (see below) 114,000
Depreciation – overhauled delivery truck (see below) 30,000
Depreciation – new delivery truck (see below) 24,000
Total depreciation on delivery truck (B) 168,000
Delivery truck:
Cost 1,152,000
Less: Accumulated depreciation 432,000
Carrying value – 12/31/2015 720,000
Less: Carrying value of overhauled truck 150,000
Balance 570,000
Depreciation on remaining delivery truck 114,000
Overhauled delivery truck:

Cost P240,000
Less: Accumulated depreciation (P240,000 / 8 x 3) 90,000
Carrying value – 12/31/2015 150,000
Add: Overhauling cost 60,000
Adjusted carrying value – 01/01/2016 210,000
Divide by: Revised remaining useful life (5 + 2) 7
Depreciation on overhauled delivery truck 30,000
New Delivery truck:

Invoice cost 400,000
Freight 20,800
Installation and testing 40,000
Total cost of new delivery truck 460,800
Annual depreciation 57,600
Multiply by: Number of months used (July 26 to December 31) 5/12
Depreciation on remaining delivery truck 24,000
Question No. 6
Beginning balance 1,152,000
Add: Overhauling cost 60,000
Add: Cost of new delivery truck 460,800
Adjusted cost of delivery truck 1,672,800
Less: Accumulated depreciation (432,000 + 168,000) 600,000
Carrying value – 12/31/2015 (C) 1,072,800
SUMMARY OF ANSWERS:
1. D 2. C 3. A 4. A 5. B 6. C
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Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS

PROBLEM 19-1 Depletion with Change in Estimate
Question No. 1
Acquisition cost P164,000
Less: Estimated residual value -
Depletable cost of the natural resource P164,000
Divide by: Tons estimated to be extracted 20,000
Depletion per ton P8.20
Multiply by: Tons extracted - 2015 4,000
Depletion – 2015 (B) P32,800
Question No. 2
Acquisition cost P164,000
Less: Accumulated depletion – 12/31/2015 32,800
Carrying value – 01/01/2016 131,200
Divide by: Tons estimated to be extracted 20,000
Depletion per unit P6.56
Multiply by: Tons extracted – 2016 8,000
Depletion – 2016 (C) P52,480
PROBLEM 19-2 Depletion with Change in Estimate

Exploration cost 12,000,000
Intangible development cost 10,000,000
Total cost of the natural resource 30,000,000
Less: Estimated residual value 900,000
Total depletable cost of the natural resource 29,100,000
Divide by: Units estimated to be extracted 4,000,000
Depletion per unit 7.275
Multiply by: Units extracted from 2015 to 2017 400,000
Depletion from 2015 to 2017 2,910,000
Question No. 1
Cost of natural resource 30,000,000
Less: Accumulated depletion – 12/31/2017 2,910,000
Carrying amount – 12/31/2017 27,090,000
Depletable cost 26,490,000
Divide by: Revised remaining units 500,000
Depletion rate per unit 52.98
Multiply by: Units extracted - 2018 200,000
Depletion – 2018 (A) 10,596,000
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Question No. 2
Cost of natural resource 30,000,000
Less: Accumulated depletion (P2,910,000 + P10,596,000) 13,506,000
PROBLEM 19-3 Depreciation of Movable and Immovable Equipment –

Useful Life of the Immovable Equipment is Shorter
Question No. 1
Depletion – 2015 (A) 1,875,000
Question No. 2
Cost of the movable equipment 2,000,000
Divide by: Useful life in years 10
Depreciation - 2015 (A) 200,000
Question No. 3
Divide by: Useful life in years (shorter) 5
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life

of the Wasting Asset is Shorter
Question No. 1
Depletion – 2015 (A) 1,875,000
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Question No. 2
Divide by: Useful life in years 20
Question No. 3
Cost of the movable equipment P1,000,000
Divide by: Units estimated to be extracted (shorter)* 4,000,000
Depreciation rate per unit P.25
Multiply by: Actual units extracted 500,000
Depreciation - 2015 (C) 125,000
*Estimated useful life using output method (4,000,000 / 500,000) = 8 years
PROBLEM 19-5 Depreciation –No Production

Cost of immovable equipment 5,000,000
Depreciation per unit 3
Multiply by: Actual units extracted from 2015 to 2017 620,000
Accumulated Depreciation – 12/31/2017 1,550,000
Question No. 1
Less: Accumulated depreciation – 12/31/2017 1,550,000
Book value – 12/31/2017 3,450,000
Divide by: Remaining useful life (15 – 3) 12
Question No. 2
Less: Accumulated depreciation – 12/31/2018 1,837,500
Book value – 12/31/2018 3,162,500
Divide by: Remaining units to be extracted 1,380,000
Depreciation per unit 2.29
Multiply by: Actual units extracted - 2019 150,000
Depreciation – 2019 (A) 343,750
PROBLEM 19-5 Liquidating Dividends

Accumulated profits -unappropriated 9,000,000
Add: Accumulated depletion 7,000,000
Total 16,000,000
Less: Capital Liquidated 800,000
Depletion in the ending inventory (P6 x 120,000) 720,000
Maximum Dividend (D) 14,480,000
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PROBLEM 19-6
Question No. 1
Acquisition cost P9,075,000
Divide by: Tons estimated to be extracted 1,100,000
Depletion per ton P8.25
Multiply by: Actual tons extracted – 2016 100,000
Depletion - 2016 (D) 825,000
Question No. 2
Cost of Installation 1,925,000
Divide by: Tons estimated to be extracted 1,100,000
Depreciation per ton 1.75
Multiply by: Actual tons extracted – 2016 100,000
Depreciation - 2018 (B) 175,000
Question No. 3
Cost of mining equipment 4,400,000
Depreciation – 2016 (A or D) 550,000
Question No. 4
Acquisition cost P9,075,000
Less: Accumulated Depletion 825,000
Carrying value – 12/31/2016 P8,250,000
Add: Additional development cost - 2017 750,000
Remaining depletable cost P9,000,000
Divide by: Estimated tons to be extracted 1,000,000
Depletion per ton P 9
Multiply by: Tons extracted – 2017 150,000
Depletion - 2017 (C) P1,350,000
Question No. 5
Installation ((P1,925,000/1.1M) x 150,000 tons) P 262,500
Mining equipment (P4,400,000/8) 550,000
Total depreciation expense (C) P 812,500
SUMMARY OF ANSWERS:
1. D 2. B 3. A or D 4. C 5. C
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PROBLEM 19-7 Cost Of Wasting Asset with Estimated Restoration Cost,

Depletion, Depreciation of Movable and Immovable Equipment
Question No. 1
Acquisition cost of the wasting assets 150,000,000
Add: Exploration and intangible development cost 8,000,000
Add: Estimated decommissioning and restoration costs 8,196,161
Initial cost (A) 166,196,161
Estimated restoration cost P 12,000,000
Multiply by: Present value of 1 for four periods 0.683013455
Present value of the restoration cost P 8,196,161
Question No. 2
Total cost of the wasting assets 166,196,161
Divide by: Estimated units to be extracted 12,000,000
Multiply by: Units extracted 1,600,000
Depletion expense – 2015 (B) 22,159,488
Question No. 3
Depreciation – 2015 (A) 300,000
Question No. 4
Divide by: Units estimated to be extracted (shorter) 12,000,000
Depreciation rate per unit 0.75
*Estimated useful life using output method (12,000,000 / 1,500,000) = 8 years
Question No. 5
Date Interest expense Present value
01/01/2015 8,196,161
12/31/2015 819,616 9,015,778
12/31/2016 901,578 (E) 9,917,355
12/31/2017 991,736 10,909,091
12/31/2018 1,090,909 12,000,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. B 5. E
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PROBLEM 19-8 Cost Of Wasting Asset with Estimated Restoration Cost,

Depletion, Depreciation of Movable and Immovable Equipment
Question No. 1
Acquisition cost of the wasting assets 120,000,000
Add: Exploration and intangible development cost 6,000,000
Add: Estimated decommissioning and restoration costs 6,355,181
Initial cost (A) 132,355,181
Estimated restoration cost P 10,000,000
Multiply by: Present value of 1 for four periods 0.635518078
Present value of the restoration cost P 6,355,181
Question No. 2
Total cost of the wasting assets 132,355,181
Divide by: Estimated units to be extracted 12,000,000
Question No. 3
Depreciation – 2015 (A) 1,000,000
Question No. 4
Depreciation – 2015 (A) 1,800,000
Question No. 5
Date Interest expense Present value
01/01/2015 6,355,181
12/31/2015 762,622 7,117,802
12/31/2016 854,136 (E) 7,971,939
12/31/2017 956,633 8,928,571
12/31/2018 1,071,429 10,000,000
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. E
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Chapter 20: Investment Property
CHAPTER 20: INVESTMENT PROPERTY

Note to professor:
Page Existing Data: Change to:
747 Solution to Requirement No. 1
Investment Property Cost
12/31/14 – P2,700,000 12/31/14 – P3,000,000
12/31/15 – P2,550,000 12/31/15 – P3,000,000
PROBLEM 20-1: Classification Issue

Item Owner-
occupied Investment
property Property Inventory Others Remarks
2) 1,260,000 Covered by PAS 11
6) 1,110,000 Derecognized since
it is leased out
under a finance
lease
9) 2,100,000 IP in the separate
FS
10) 530,000 Cannot qualify as
IP since it is not
land or building
11) 420,000 Not reported since
it is leased under
operating lease
2,160,000 7,740,000 450,000
1. (A) 2. (C) 3. (C)
PROBLEM 20-4: Intracompany rentals

Question No. 2 (D)
PROBLEM 20-6: Subsequent measurement: Cost model vs Fair value model

SUMMARY OF ANSWERS:
1. D 2. 3. D 4. 5. 6. A
PROBLEM 20-7: Transfer under Cost model – PPE to IP

Question No. 1 (D)
PROBLEM 20-8: Transfer from PPE to Investment Property – Fair value vs

Cost model
SUMMARY OF ANSWERS:
1. D 2. 3. 4. C
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Chapter 20: Investment Property
PROBLEM 20-8: Transfer from inventory to investment property – Fair

value vs Cost model
Question No. 3
P2,880,000. Fair value at the date of transfer. Don’t deduct cost to sell.
PROBLEM 20-9: Derecognition of investment property – Fair value vs Cost

Model
Question No. 2 (C)
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Chapter 22: Intangible Assets
CHAPTER 22: INTANGIBLE ASSETS

PROBLEM 22-1 Research and Development Cost
R&D Others
Cost of activities aimed at obtaining new
knowledge 700,000 -
Marketing research to study consumer tastes - 16,000
Cost of developing and producing a prototype
model 23,000 -
Cost of testing the prototype model for safety and
environmental friendliness 80,000 -
Cost revising designs for flaws in the prototype
model 15,000 -
Salaries of employees, consultants, and technicians
involved in R&D 120,000 -
Amount paid for conference for the introduction of
the newly developed product including fee of a
model hired as endorser - 102,000
Advertising to establish recognition of the newly
developed product - 43,000
Cost incurred on search for alternatives for
materials, devices, products, processes, systems or
services 30,000 -
Cost of final selection of possible alternatives for a
new process 96,000 -
Periodic or routine design changes to existing
products - 2,500
Modification of design for a specific customer - 10,000
Cost of design, construction and operation of a pilot
plant that is not of a scale economically feasible for
commercial production 5,000 -
Cost of routine, seasonal, and periodic design of
tools, jigs, molds and dies - 18,000
Cost of quality control during commercial
production - 32,000
Cost of purchased building to be used in various
R&D projects - 1,000,000
Depreciation on the building described above 100,000 -
Personnel costs of persons involved in research
and development projects 41,200 -
Design, construction, and testing of preproduction
prototypes and models 96,000 -
Adjusted balances 1,306,200 1,223,500
(A)
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PROBLEM 22-2 Issuance of Treasury Shares

Issuance of treasury shares in exchange for non-cash asset is simply recorded
just like an issuance from unissued shares. Hence, the transaction should be
accounted in the following order of priority:
1. Fair value of asset received
2. Fair value of shares (i.e., treasury shares) issued
3. Cost of treasury shares
Cost (P110 x 2,000) = P220,000 (D)

Cost of the Patent 300,000
Less: Amortization, 12/31/2014 (300,000/15 x 2) 40,000
Carrying value, 1/1/2015 260,000
Divided by: Remaining useful life (10 – 2) 8
Amortization – 2015 (A) 32,500
PROBLEM 22-4 Trademark

Since the trademark is considered to have an indefinite useful life, it is only
subject to impairment and not amortized. Hence the amount to be reported in
its December 31, 2015 SFP is P500,000. (A)
PROBLEM 22-5 Franchise

Downpayment 2,000,000
Present value of installment receivable (*2.91x 1,000,000) 2,910,000
Total cost of franchise (D) 4,910,000
*The present value factor is the present value of ordinary annuity using 14% for
4 periods.
PROBLEM 22-6 Leasehold Improvement

Cost of the improvement 2,250,000
Less: Accumulated depreciation (2,250,000 / 10*) 225,000
Carrying value – 12/31/2015 (B) 2,025,000
*Shorter of useful life of 10 years and extended lease term (12 – 3 + 6) = 15.
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PROBLEM 22-7 Goodwill

Net income Net assets
2013 1,000,000 3,900,000
2014 1,250,000 4,350,000
2015 1,950,000 4,500,000
Total 4,200,000 12,750,000
Divide by: Number of periods 3 3
Average 1,400,000 4,250,000
Average earnings (see table above) 1,400,000
Less: Normal earnings (4,250,000 x 20%) 850,000
Average excess earnings 550,000
Divide by: Capitalization rate 25%
Goodwill 2,200,000
Add: Fair value of net asset acquired 4,500,000
Purchase price (A) 6,700,000
PROBLEM 22-8 Internally Developed Computer Software Cost
Question No. 1
Other coding costs after establishment of technological
feasibility 1,000,000
Other testing costs after establishment of technological
feasibility 750,000
Costs of producing product masters 1,250,000
Total Software Cost (A) 3,000,000
Question No. 2
Duplication of computer software and training materials from
product master 1,500,000
Packaging product 250,000
Total Inventoriable Cost (A) 1,750,000
Question No. 3
Total Software Cost 3,000,000
Multiply by: (10M / 40M) 25%
Amortization (A) 750,000
SUMMARY OF ANSWERS:
1. A 2. A 3. A
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PROBLEM 22-9 Website Cost

Question No. 1
Zero. All costs are charged to expense. (A)
Question No. 2
Obtaining a domain name 32,000
Installing developed applications on the web server 80,000
Stress testing 12,000
Designing the appearance (e.g. layout and color) of web pages 160,000
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information 60,000
Updating graphics and revising content 32,000
Adding new functions, features and content 12,000
Reviewing security access 36,000
Total intangible asset (B) 424,000
PROBLEM 22-10 Goodwill Computation
Current Assets (6,000,000 + 800,000) 6,800,000
Investments 2,000,000
PPE (13,000,000 + 1,850,000) 14,850,000
Current liabilities (3,500,000)
Noncurrent liabilities (2,500,000)
Fair value of net asset acquired 17,650,000
Fair value of net asset acquired 17,650,000
Multiply by: Normal rate of return 10%
Normal earnings 1,765,000
Total earnings 9,000,000
Loss on sale (or Gain) on sale (100,000)
Bonus (150,000 x 4years) 600,000
Operating income 9,500,000
Divide by: No. of years 4
Average earnings 2,375,000
Question No. 1
Less: Normal earning 1,765,000
Multiply by: Capitalization period 4
Purchase price (A) 20,090,000
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Question No. 2
Goodwill (B) 6,100,000
Purchase price (B) 23,750,000
Question No. 3
Purchase price (B) 29,687,500
Less: Fair value of net asset 17,650,000
Goodwill (B) 12,037,500
Question No. 4
Multiply by: Present value of ordinary annuity 3.0373
Goodwill (C) 1,852,753
Purchase price (C) 19,502,753
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. C
PROBLEM 22-11
Question No. 1
Net Patent, January 1 336,000
Divide by: Remaining life (8years -2 years) 6
Question No. 2
None, the trademark has an indefinite life. (B)
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4) 400,000
Amortization expense (A) 80,000
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Question No. 4
Purchase price 2,400,000
Less: Fair value of net assets acquired 1,600,000
Goodwill (carrying amount) (A) 800,000
The goodwill shall not be amortized because its useful life is indefinite.
However, goodwill shall be tested for impairment at least annually, or more
frequently if events or changes in circumstances indicate a possible impairment.
Question No. 5
Cost-Patent 384,000
Less: Accumulated Amortization (48,000 + 56,000) 104,000 280,000
Cost - Trademark (no amortization) (1.6M x 3/4) 1,200,000
Cost - Noncompetition agreement 400,000
Less: Accumulated Amortization (see no. 3) 80,000 320,000
Total carrying amount of the Intangible assets (B) 1,800,000
Note: Goodwill should not be reported as part of intangible asset since it is not
identifiable.
SUMMARY OF ANSWERS:
1. A 2. B 3. A 4. A 5. B
PROBLEM 22-12
Question No. 1
Legal cost 7,000
Payment of licenses to author excluding refundable purchase
taxes (100,000-10,000) 90,000
Total cost of intangible assets (D) 97,000
Question No’s 2, 3 and 5

Cost 97,000
Less: Amortization in 2015 (97,000/5 x 6/12) 9,700 No. 2 (C)
Carrying value, 12/31/ 2015 87,300 No. 3 (C)
Less: Amortization in 2016 (97,000/5 ) 19,400
Carrying value, 12/31/ 2016 67,900 No. 5 (D)
Question No. 4
General start-up cost 1,500
Amortization 9,700
Cost of printing 100
Advertising expense (20,000 x 6/12) 10,000
Total Expense (B) 21,300
SUMMARY OF ANSWERS:
1. D 2. C 3. C 4. B 5. D
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PROBLEM 22-13 Patent, Competitive, Related Patent

Question No. 1
Cost 500,000
Divide by: Remaining useful life 10
Amortization (C) 50,000
Question No. 2
Cost of the old Patent 500,000
Less: Accumulated Amortization (500,000 / 10 x 2) 100,000
Competitive Patent 240,000
Total 640,000
Divide by: Remaining life 8
Amortization (D) 80,000
Question No. 3
Less: Amortization 2013 80,000
Carrying value, 12/31/2013 (D) 560,000
Question No. 4
Carrying value, 12/31/2013 560,000
Add: Related patent 200,000
Total Carrying value, 1/1/2014 760,000
Divide by: Extended life 20
Question No. 5
Total Carrying value, 1/1/2014 760,000
Less: Amortization, 2014 38,000
Carrying value, 1/1/2015 = Loss (A) 722,000
SUMMARY OF ANSWERS:
1. C 2. D 3. D 4. A 5. A

Question No. 1
Acquisition cost 600,000
Costs of employee benefits arising directly from bringing the
asset to its intended condition 60,000
Professional fees arising directly from bringing the asset to its
intended condition 13,000
Total cost of the trademark (C) 673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
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Question No. 3
Amortization - Trademark -
Amortization - Customer list 60,000
Total amortization (B) 60,000
Question No. 4
Amortization - Trademark -
Amortization - Customer list 60,000
Amortization - Franchise 165,416
Total amortization (A) 225,416
Downpayment 400,000
Add: Present Value of notes payable (600,000 x .7118) 427,080
Cost of franchise 827,080
Question No. 5
Cost of trademark 673,000
Cost of customer list 300,000
Less: Accumulated Amortization 120,000 180,000
Cost of franchise 827,080
Less: Accumulated Amortization 165,416 661,664
Total carrying value (A) 1,514,664
SUMMARY OF ANSWERS:
1. C 2. A 3. B 4. A 5. A
PROBLEM 22-15
Question No. 1
Zero, organization cost is treated as outright expense.(A)
Question No. 2
Design costs 3,000,000
Add: Legal fees 300,000
Registration fee with Patent office 100,000
Total cost of trademark (B) 3,400,000
Question No. 3
Cash 400,000
Add Present value of the note (200,000 x 2.91) 582,000
Cost of Franchise (B) 982,000
Question No. 4
Cost (see no. 3) 982,000
Less: Amortization (982,000/20) 49,100
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Carrying value, 12/31/2015 (A) 932,900
Question No. 5
Amortization of the franchise P49,100 (D)
The trademark has no amortization because it has an indefinite life. It is only

tested for possible impairment.
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. D
PROBLEM 22-16
Question No. 1
Cost-Patent 136,000
Less: Amortization for the year (136,000/20) 6,800
Carrying value of the Patent (C) 129,200
Question No. 2
Licensing agreement No. 1
Less: Amortization for 2 years (100,000/20 x 2) 10,000
Total 90,000
Less: Reduction in value (90,000 x 60%) 54,000
Carrying value (B) 36,000
Question No. 3
Add: Amount credited for advance collection 2,000
Total cost 120,000
Less: Amortization (120,000/10) 12,000
Carrying value - Licensing agreement No. 2 (C) 108,000
Question No. 4
Carrying values:
Patent (see no. 1) 129,200
Licensing Agreement No. 1 (No. 2) 36,000
Licensing Agreement No. 2 (No. 3) 108,000
Total carrying value (C) 273,200
The P16,000 cost incurred for advertising and the P32,000 legal expenses for
incorporation should be charged to expense when it were incurred.
Question No. 5
Nonamortization of Licensing Agreement No 1 (100,000/20 x 1) 5,000
Expenses capitalized:
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Goodwill (16,000+32,000) 48,000

Organization cost 58,000
Overstatement of Retained earnings (A) 111,000
All the expenses above were understated thereby overstating the net income
and retained earnings.
SUMMARY OF ANSWERS:
1. C 2. B 3. C 4. C 5. A
PROBLEM 13-17
Question No. 1
Less: Unamortized portion of improvements debited
Cost P75,000
Less: Amortization (P75,000 / 10 x 3) 22,500 52,500
Adjusted balance – 01/01/2015 497,500
Less: Amortization 2015 (P52,500 + P56,071) – see below 108,571
Carrying value – 12/31/2015 (A) 388,929
Computation of amortization:
Adjusted balance – 01/01/2015 497,500
Less: CV of Patent with remaining UL of 2 years – 01/01/2015
Cost 210,000
Less: Accumulated amortization 01/01/2015
(P210,000 / 14 x 7) 105,000 105,000
CV of Patent with remaining UL of 7 years – 01/01/2015 392,500
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2) 52,500
Patent with remaining UL of 7 years (392,500 / 7) 56,071
Total Amortization 108,571
Question No. 2
Franchise cost 50,000
Less: Amortization (50,000 / 5) 10,000
Carrying value 12/31/2015 (A) 40,000
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Question No. 3
The amount to be reported as goodwill is the excess of cost over the fair value of
net asset acquired. Goodwill is not amortized but only subject to impairment
testing. Therefore, the amount to be reported is P200,000. (A)
Question No. 4
Other coding costs after establishment of technological
feasibility 240,000
Other testing costs after establishment of technological
feasibility 200,000
Costs of producing master for training materials 150,000
Total Software Cost (A) 590,000
Question No. 5
Completion of detailed program design 130,000
Costs incurred for coding and testing to establish technological
feasibility 100,000
Total Cost charged to Expense (A) 230,000
Question No. 6
Amortization:
Patent (see No. 1) 108,571
Franchise (see No. 2) 10,000
Software cost – none yet -
Total Cost charged to Expense (C) 118,571
SUMMARY OF ANSWERS:
1. A 2. A 3. A 4. A 5. A 6. C
PROBLEM 22-18 Inventories, PPE and Intangible Assets

Question No. 1
Unadjusted balance 4,300,000
Add: Goods purchased FOB Shipping Point 40,000
Adjusted balance (B) 4,340,000
Question No. 2
Total acquisition cost 4,000,000
Add: Mortgage assumed 800,000
Total cost of land and building 4,800,000
Multiply by: Percentage allocated to building 80%
Total Purchase Price allocated to Building 3,840,000
Add: Remodeling Cost (300,000 – 20,000) 280,000
Total Cost of Building (A) 4,120,000
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Question No. 3
Cost of improvement 500,000
Less: Accumulated depreciation (500,000/8 x 9/12) 46,875
Carrying value (B) 453,125
Question No. 4
Carrying value – 01/01/2015 432,000
Less: Amortization 2015 (432,000 / 3 years remaining UL) 144,000
Carrying value (C) 288,000
Question No. 5
Building (4,120,000-120,000)/50 80,000
Leasehold Improvements (500,000/8 x 9/12) 46,875
Furniture and Fixtures 150,000
Franchise (500,000 / 10) 50,000
Licensing agreement 144,000
Total depreciation and amortization expense (A) P470,875
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. C 5. A
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Chapter 23: Revaluation, Impairment and Noncurrent Asset Held for Sale
CHAPTER 23: REVALUATION, IMPAIRMENT AND

NONCURRENT ASSET HELD FOR SALE
Note to professor:
Page: Existing data: Change to:
828 Additional credit to
Revaluation Surplus in No. 1
under Proportional.
Elimination No. 1 Additional
Journal Entry
Debit: Accumulated depreciation
Credit: Equipment
830 Case No. 2
Appreciation = P900,000 Appreciation = P825,000
858 Illustration: Noncurrent Assets
Held for Sale -Single Asset
On January 1, 2015, Raycie-Fe Co. Change 2015 to 2016.
decided to sell a machinery with a
cost of
862 On July 1, 2017, Marga Co. sold the On July 1, 2017, Marga Co. sold
machinery… the investment in associate…
PROBLEM 23-1 Revaluation, No Change in Estimate

Note to professor: Change 2017 to 2018 in Question No. 5
Question No. 1
Historical Replacement
Cost Cost Increase
Machinery 6,000,000 20,000,000 14,000,000
Accumulated depreciation (25%) 1,500,000 5,000,000 3,500,000
CA/DRC/RS 4,500,000 15,000,000 10,500,000
(A)
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus
Question No. 2
Depreciated Replacement cost 15,000,000
Depreciation Expense – 2016 (B) 1,000,000
Question No. 3
Revaluation surplus, beginning 10,500,000
Less: Piecemeal realization – 2016 (10,500,000 / 15) 700,000
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Remaining revaluation surplus end of 2016 (B) 9,800,000
Question No. 4
Net Selling Price 15,000,000
Less: Carrying amount – 01/02/2018
Depreciated Replacement Cost, date of revaluation 15,000,000
Less: Subsequent depreciation (P1M x 2 years) 2,000,000 13,000,000
Gain on sale (A) 2,000,000
Question No. 5
Less: Piecemeal realization for two years (10,500,000 / 15 x 2) 1,400,000
Remaining revaluation surplus to R/E (A) 9,100,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
PROBLEM 23-2 Revaluation, With Change in Useful Life

Question No. 1
Replacement
Cost Cost Increase
Machinery 9,000,000 20,000,000 11,000,000
Accumulated depreciation (25%) 2,250,000 5,000,000 2,750,000
CA/DRC/RS 6,750,000 15,000,000 8,250,000
(A)
Question No. 2
Depreciation Expense – 2015 (B) 600,000
Question No. 3
Revaluation surplus, 01/01/2015 8,250,000
Question No. 4
Less: Subsequent depreciation (P15M / 25 x 2) 1,200,000 13,800,000
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Question No. 5
Less: Piecemeal realization for two years (8,250,000 / 25 x 2) 660,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Replacement
Cost Cost Increase
Machinery 9,100,000 18,200,000 9,100,000
Less: Accumulated depreciation *2,250,000 **4,500,000 2,250,000
CA/DRC/RS 6,850,000 13,700,000 6,850,000
(A)
*This amount should be the actual amount of accumulated depreciation (i.e.
using the original residual value)
** (18,200,000 – 200,000) / 20 x 5. This is computed using the revised residual
value.
Question No. 2
Depreciation Expense – 2015 (B) 540,000
Question No. 3
Revaluation surplus, 01/01/2015 6,850,000
Question No. 4
Less: Subsequent depreciation (P540,000 x 2) 1,080,000 12,620,000
Question No. 5
Less: Piecemeal realization for two years (P274,000 x 2) 548,000
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SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. A 5. A
PROBLEM 23-4 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL

Question No. 1
Cost 1,200,000
Divide by: Estimated useful life 10
Question No. 2
Zero. The company is using the cost model. (A)
Question No. 3
Cost 1,200,000
Carrying amount 1,000,000
Depreciation - 2016 (E) 93,888
Question No. 4
Cost 1,200,000
Less: Accumulated Depreciation (100,000 + 93,888 + 93,888) 287,776
Carrying amount – 12/31/2017 912,224
Less: Recoverable amount, date of impairment 600,000
Impairment loss (E) 312,224
Question No. 5
Recoverable amount 600,000
SUMMARY OF ANSWERS:
1. A 2. A 3. E 4. E 5. C
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CASE NO. 2 REVALUATION MODEL

Question No. 1
Cost 1,200,000
Question No. 2
Recoverable amount/fair value – 01/01/2016 1,280,000
Machinery at cost 1,200,000
Less: Accumulated depreciation – 01/01/2016 100,000 1,100,000
Revaluation surplus – 01/01/2016 (D) 180,000
Question No. 3
Recoverable amount/fair value – 01/01/2016 1,280,000
Depreciation – 2016 (C) 125,000
Question No. 4
Recoverable amount, date of revaluation – 01/01/2018 1,280,000
Less: Subsequent depreciation for 2 years 250,000
Carrying amount – 01/01/2018 1,030,000
Decrease in value 430,000
Less: Remaining revaluation
Revaluation surplus, date of revaluation 180,000
Less: Piecemeal realization for two years 40,000 140,000
Impairment loss (D) 290,000
Question No. 5
SUMMARY OF ANSWERS:
1. A 2. D 3. C 4. D 5. C
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PROBLEM 23-5 Impairment and Revaluation of PPE
CASE NO. 1 COST MODEL

Question No. 1
Cost 1,200,000
Question No. 2
Cost 1,200,000
Carrying amount – 12/31/2015 1,100,000
Question No. 3
Depreciation (D) 90,000
Question No. 4
Recoverable amount – 01/01/2016 900,000
Less: Accumulated Depreciation – 12/31/2017 180,000
Carrying amount – 12/31/2017 720,000
Lower of:
Would have been carrying amount no impairment 875,555
Less: Recoverable amount – 01/01/2018 770,000 770,000
Gain on impairment recovery – P&L 50,000
The increase in fair value is recognized in P&L. (A)
Would have been carrying amount had been there no impairment:

Cost 1,200,000
Less: Depreciation
2015 100,000
2016 [(1,200,000 – 90,000 – 100,000) / 9) 112,222
2017 112,222
Would have been carrying value – 12/31/2017 875,555
Question No. 5
Carrying value – 01/01/2018 770,000
Less: Revised residual value -
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SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. A 5. C
CASE NO. 2 REVALUATION MODEL

Question No. 1
Cost 1,200,000
Question No. 2
Cost 1,200,000
Carrying amount – 12/31/2015 1,100,000
Question No. 3
Depreciation (D) 90,000
Question No. 4
Recoverable amount – 01/01/2016 900,000
Less: Accumulated Depreciation – 12/31/2017 180,000
Carrying amount – 12/31/2017 720,000
Lower of:
Would have been carrying amount no impairment 875,555
Less: Recoverable amount – 01/01/2018 770,000 770,000
Gain on impairment recovery – P&L 50,000
The increase in fair value is recognized in P&L. (A)
Would have been carrying amount had been there no impairment:
Cost 1,200,000
Less: Depreciation
2015 100,000
2016 [(1,200,000 – 90,000 – 100,000) / 9) 112,222
2017 112,222
Would have been carrying value – 12/31/2017 875,555
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Question No. 5
Carrying value – 01/01/2018 770,000
Less: Revised residual value -
SUMMARY OF ANSWERS:
1. A 2. D 3. D 4. A 5. C
PROBLEM 23-6 Impairment of Intangible Assets

Question No. 1
Patent (200,000 / 10) 20,000
Computer software (100,000 x 60/120) 50,000
Total amortization (A) 70,000
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carrying value 400,000
Less: Recoverable amount (80,000 / .05) 160,000 240,000
Tradename:
Carrying value 350,000
Less: Recoverable amount (15,000 / .05) 300,000 50,000
Goodwill:
Carrying value of reporting unit 3,000,000
Less: Recoverable amount (200,000 x 14.0939) 2,818,780 181,220
Total impairment loss (C) 471,220
Question No. 3
Carrying value of goodwill – 12/31/2015 900,000
Less: Allocated impairment loss of reporting unit 181,220
Carrying value of goodwill – 12/31/2016 (B) 718,780
Question No. 4
Patent (P200,000 – P20,000) 180,000
Copyright (recoverable amount) 160,000
Tradename (recoverable amount) 300,000
Computer software (100,000 – 50,000) 50,000
Carrying value of intangible assets – 12/31/2016 (A) 690,000
Note that goodwill is not reported as an intangible asset.
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SUMMARY OF ANSWERS:
1. A 2. C 3. B 4. A
PROBLEM 23-7 Amortization and Impairment of Intangible Assets
Questions 1 and 2
Trademark - Unadjusted balance 1,430,000
Less: Unamortized cost of improvement
that should have been expensed
Cost 150,000
Less: Accum. amortization (150,000/10 x 2) 30,000 120,000
Total 1,310,000
Add: Competitive patent debited to expense
Cost 135,000
Less: Accum. amortization (135,000/9 x 1) 15,000 120,000
Adjusted balance, January 1. 2016 1,430,000
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4) 40,000 (2) A
Remaining patent (1,430,000-160,000)/15-7) 158,750 198,750
Carrying value of the Patent, 12/31/2016 (1) A 1,231,250
Computation of the P160,000:

Original cost 300,000
Less: Accumulated amortization (300,000/15) x 7 years)) 140,000
Remaining carrying value, 1/1/2016 160,000
The 7 years age is from January 1, 2009 to January 1, 2016.
Questions 3
Carrying value of the trademark (no amortization) 800,000
Less: Recoverable amount (P75,000/10%) 750,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3) (B)
Questions 5
Downpayment 500,000
Add: Present value of the note 874,000
Total cost of the franchise 1,374,000
Amortization expense (D) 137,400
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SUMMARY OF ANSWERS:
1. A 2. A 3. B 4. B 5. D
PROBLEM 23-8 Impairment of Cash Generating Unit

Question No. 1
Total carrying amount before impairment 105,000,000
Less: Fair value less costs to sell 85,000,000
Impairment loss 20,000,000
Less: Impairment loss allocated to Goodwill (B) 5,000,000
Impairment loss allocated to other assets 15,000,000
Questions No. 2 and 3 (A)
Other assets in this case would include only PPE and Patent. Impairment of
inventories (i.e. write-down to NRV) is covered by PAS 2 while impairment of
FA at FVTOCI will be covered by PAS 39 / PFRS 9.

Carrying amount Allocated
before impairment Ratio Impairment loss
PPE (at cost model) 32,000,000 0.53 8,000,000 (D)
Patent 28,000,000 0.47 7,000,000 (D)
Total 60,000,000 15,000,000 (D)
SUMMARY OF ANSWERS:
1. B 2. A 3. A 4. D 5. D
PROBLEM 23-9 Impairment and Reversal of Impairment of Cash

Generating Unit
Cash 100,000
Inventory 800,000
Accounts receivable 1,200,000
Plant and equipment 24,000,000
Less: Accumulated depreciation 10,400,000
Trademark 2,550,000
Patent 850,000
Goodwill 400,000
Total Carrying amount of CGU 19,500,000
Less: Value in use 16,300,000
Less: Impairment allocated to goodwill 400,000
Impairment loss allocated to other asset 2,800,000
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Balance Balance
before Impairment after
Impairment Fraction Loss Impairment
Plant and equipment 13,600,000 13.6/17 (2,240,000) 11,360,000
Trademark 2,550,000 2.55/17 (420,000) 2,130,000
Patent 850,000 .85/17 (140,000) 710,000
Total 17,000,000 2,800,000 14,200,000
Balance Balance
after after
Impairment Reallocation Reallocation
Plant and equipment 11,360,000 (40,000) 11,320,000 1. (B)
Trademark 2,130,000 (7,500) 2,122,500 2. (B)
Patent 710,000 47,500 757,500 3. (B)
Total 14,200,000 - 3,520,000
Plant and Equipment:

Would have been BV, no impairment
Cost 24,000,000
Less: Accumulated depreciation (2.6M +300,000) 11,600,000 12,400,000
Actual Book value

Impaired value 11,320,000
Less: Subsequent depreciation 1,000,000 10,320,000
Maximum gain on reversal of impairment 2,080,000
Trademark:
Cost 2,550,000
Less: Subsequent amortization 120,000 2,430,000
Actual Book value

Impaired value 2,122,500
Less: Subsequent depreciation 112,000 2,010,500
Maximum gain on reversal of impairment 419,500
Patent:
Cost 850,000
Less: Subsequent amortization 80,000 770,000
Actual Book value

Impaired value 757,500
Less: Subsequent depreciation 60,000 697,500
Maximum gain on reversal of impairment 72,500
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Balance
before Allocated
Reversal Fraction Gain Max gain
Plant and equipment 10,320,000 10320/13028 1,901,136 1,901,136
Trademark 2,010,500 2010.5/13028 370,372 370,372
Patent 697,500 697.5/13028 128,492 72,500
Total 13,028,000 2,400,000 2,344,008
Balance
Balance after
Max gain bef. Reall Reallocation reallocation
Plant and equipment 1,901,136 12,221,136 46,863 12,267,999
Trademark 370,372 2,380,872 9,130 2,390,001
Patent 72,500 825,992 (55,992) 770,000
Total 2,344,008 15,428,000 - 15,428,000
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. C 5. C 6. A
PROBLEM 23-10 Noncurrent Assets Held for Sale -Single Asset

Question No. 1
Cost 2,000,000
Less: Initial amount recognized– lower of:
Fair value less cost to sell 1,100,000 1,100,000
Question No. 2
Zero. Non-current asset held for sale should not be depreciated. (A)
Question No. 3
Lower of:
FVLCTS 1,500,000 1,200,000
Less: Carrying amount at initial recognition 1,100,000
Gain on reversal – P&L (B) 100,000
Question No. 4
Net Selling Price (1,800,000 – 50,000) 1,750,000
Less: Carrying amount 1,200,000
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Question No. 5
Cost 2,000,000
Impairment loss (A) -
SUMMARY OF ANSWERS:
1. B 2. A 3. B 4. D 5. A
PROBLEM 23-11 Noncurrent Assets held for Sale- Disposal Group

Question No. 3
Total carrying amount before impairment 64,600,000
Less: Fair value less costs to sell 55,000,000
Less: Impairment loss allocated to Goodwill (B) 5,000,000
Impairment loss allocated to other assets 4,600,000
Questions No. 4 & 5

Carrying
amount as Allocated Revaluation
remeasured Decrease surplus
PPE (at cost model) 20,000,000 0.40 1,840,000 -
PPE (at revaluation model) 30,000,000 0.60 2,760,000 1,000,000
Total 50,000,000 4,600,000 1,000,000
Revaluation Carrying
surplus amount
Impairment after
loss impairment
PPE (at cost model) - 1,840,000 18,160,000
PPE (at revaluation model) 1,000,000 1,760,000 27,240,000
Total 1,000,000 3,600,000 45,400,000
Remaining revaluation surplus is
(P3,000,000 minus (P32M-P30M) P1,000,000
Decrease in value of the PPE (at revaluation model) is allocated to
1. First, remaining revaluation surplus
2. Balance to impairment loss.
SUMMARY OF ANSWERS:
1. B 2. B 3. B 4. A 5. D
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PROBLEM 23-12 Noncurrent Assets held for Sale – Investment in Associate

Note to professor: Change “On July 1, 2017, Honorato Co. sold the machinery
for to …” to investment in associate.
Question No. 1
Share in net income (800,000 x 25%) 200,000
Less: Amortization of undervalued asset 10,000
Net investment income (C) 190,000
Question No. 2
Beginning balance – 01/01/2016 3,800,000
Add: Net investment income (see No. 1) 190,000
Less: Dividends received (150,000 x 25%) 37,500
Question No. 3
Carrying amount – 12/31/2016 3,952,500
Impairment loss (A) -
Question No. 4
Zero. No Share in the profit or loss and amortization shall be recognized when
the investment in associate is classified as noncurrent held for sale. The cash
dividend shall be recognized as income. (A)
Question No. 5
Net Selling Price (P4,260,000 – P60,000) 4,200,000
Less: Carrying amount 3,952,500
SUMMARY OF ANSWERS:
1. C 2. A 3. A 4. A 5. D
PROBLEM 23-13
Question No. 1
Irrigation Equipment P 740,000
Freight in 10,000
Installation cost 192,000
Total Machinery and Equipment, end (A) P 942,000
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Question No. 2
Trade in allowance 400,000
Book Value:
Cost 1,300,000
Less: Accum. Depreciation (P660,000+ P165,000) 825,000 475,000
Loss on trade in (B) 75,000
Question No. 3
Before addition [(P3,100,000 – P100,000)/20 x 3/12) 37,500
After addition: [(P3,100,000 – (P562,500 + P37,500) + 980,000
P200,000)/20) x 9/12) 123,000
Depreciation expense (B) 160,500
Remaining life (20 – 4 + 4) = 20 years
Question No. 4
Turf cutter [{(P1,300,000 – P200,000)/5} x 9/12] +
{(P800,000 – P50,000)/6 x 3/12)}] P 196,250
Water desalinator [(P3,780,000 – P270,000)/10] 351,000
Irrigation equipment [(942,000/4) x 6/12] 117,750
Office building 160,500
Total Depreciation expense (B) P 825,500
Question No. 5
Fair value on initial revaluation P 3,780,000
Book value on initial revaluation:
Cost P 4,000,000
Accumulated depreciation
[(P4,000,000 – P200,000)/10 x 2) ( 760,000) 3,240,000
12/31/2016 Revaluation Surplus P 540,000
Less: Piecemeal realization in 2017 (P540,000/10) 54,000
12/31/2017 Revaluation surplus P 486,000
12/31/2017 Fair value P 3,400,000

12/31/2017 Book value:
Adjusted cost P 3,780,000
Accumulated Depreciation
[(P3,780,000 – P270,000)/10] ( 351,000) 3,429,000
Revaluation decrease – charged to Revaluation Surplus (A) P 29,000
SUMMARY OF ANSWERS:
1. A 2. B 3. B 4. B 5. A
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PROBLEM 23-14
Question No. 1
Revalued amount – 01/01/2016 31,500,000
Divided by: Remaining useful life (20 – 6) 14
Annual depreciation = P30,000,000/20 = P1,500,000
Age of the building = P9,000,000/P1,500,000 = 6 years
Question No. 2
Revaluation
Cost Fair value Surplus
Land P 5,000,000 P 7,000,000 P 2,000,000
Building 30,000,000
Accum. Depreciation ( 9,000,000)
Book value P21,000,000 31,500,000 10,500,000
Total Revaluation surplus, Jan. 1 P12,500,000
Less: Excess of depreciation on
revalued amt. over the cost
Depreciation on revalued amount(no. 1) P 2,250,000
Depreciation on cost 1,500,000 750,000
Total Revaluation surplus, Dec. 31 (B) P11,750,000
Question No. 3
Annual depreciation rate (200%/2) = 100%
Cost P 600,000
Book value 300,000
Less: Salvage value 60,000
Maximum depreciation (B) P 240,000
Question No. 4
Cost 900,000
Divided by: Useful life 9
Annual depreciation (D) P 100,000
Question No. 5 D
Cost P 900,000
Less: Accumulated Depreciation (300,000 +100,000 (no. 4) 400,000
Book value, Dec. 31 500,000
Less: Recoverable amount – value in use (125,000 x 3.60) 450,000
Impairment loss (B) P 50,000
SUMMARY OF ANSWERS:
1. C 2. B 3. B 4. D 5. B
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Asuncion, Escala & Ngina - Applied Auditing 1 2015

Accountancy (Bulacan State University)

StuDocu is not sponsored or endorsed by any college or university

A guide in applying auditing procedures to specific

DARRELL JOE O. ASUNCION, MBA, CPA

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Dear fellow teacher,

This “Teacher’s Manual” should be used solely by the

If you have comments, queries or suggestions, please do

Thanks and God bless.

Darrell Joe O. Asuncion, MBA, CPA

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CHAPTER 5: CASH TO ACCRUAL................................................................................ 1

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Chapter 5: Cash to Accrual

CHAPTER 5: CASH TO ACCRUAL

Sales on Account 300,000

PROBLEM 5-2 (Computation of Purchases)

Purchase on Account 165,000

PROBLEM 5-3 (Computation of Income Other Than Sales)

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Chapter 5: Cash to Accrual

PROBLEM 5-4 (Computation of Expenses in General)

PROBLEM 5-5 (Computation of Cost of Machine Acquired and Sold)

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Chapter 5: Cash to Accrual

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Chapter 5: Cash to Accrual

(squeeze) 4,200,000 Collections

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Chapter 5: Cash to Accrual

Gross purchases 650,000

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Chapter 5: Cash to Accrual

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Chapter 5: Cash to Accrual

Total 1,320,000 1,320,000

PROBLEM 5-10 Comprehensive

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Chapter 5: Cash to Accrual

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Chapter 5: Cash to Accrual

Sales on account 1,535,000

Purchases on account 1,234,000

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Chapter 5: Cash to Accrual

PROBLEM 5-12 Comprehensive

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Chapter 5: Cash to Accrual

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Chapter 5: Cash to Accrual

Depreciation for furniture and fixtures 3,000

Accounts Payable trade

Payment to suppliers was computed as follows:

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Chapter 5: Cash to Accrual

Unadjusted operating expense 200,000

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Chapter 5: Cash to Accrual

Sales on account 5,660,000

Purchases on account 2,480,000

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Chapter 6: Correction of Errors