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Chapter 1 Statement of Financial Position Basic Problems Problem 1-1 (IFRS) Darwin Company provided the following information at year-end: Cash Accounts Receivable Inventory, including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P700,000 Prepaid expenses Financial asset held for trading Equity investment at fair value through other comprehensive income Deferred tax asset
300,000 1,200,000 1,000,000 100,000 200,000 800,000 150,000
What amount should be reported as total current assets at year-end? a. b. c. d.
2,800,000 2,550,000 3,600,000 2,100,000
Solution 1-1 Answer a Cash Accounts Receivable Inventory Prepaid expenses Financial assets held for trading
300,000 1,200,000 1,000,000 100,000 200,000
Total current assets
2,800,000
In the absence of statement to the contrary, equity investment at fair value through other comprehensive income shall be classified as noncurrent. PAS 1 and PAS 12 provide that deferred tax asset is a noncurrent asset.
Problem 1-2 (AICPA Adapted) Violago Company provided the following account balances at year-end: Cash Accounts receivable Inventory Financial assets at fair value through profit or loss Bonds investment at amortized cost Investment in associate Equipment and furniture Accumulated depreciation Patent Deferred charges Equipment classified as held for sale
1,100,000 1,600,000 3,000,000 500,000 1,300,000 1,500,000 2,500,000 1,500,000 400,000 100,000 2,000,000
What total amount should be reported as current assets at year-end? a. b. c. d.
6,300,000 8,300,000 8,200,000 9,800,000
Solution 1-2 Answer c Cash Accounts receivable Inventory Financial assets at fair value through profit or loss Equipment classified as held for sale
1,100,000 1,600,000 3,000,000 500,000 2,000,000
Total current asset
8,200,000
The bond investment at amortized cost is classified as noncurrent. The investment in associate is a noncurrent asset. Under PFRS 5, a noncurrent asset classified as held for sale should be reported as current asset. The deferred charges are considered noncurrent because technically These expire in more than one year from the end of reporting period.
Problem 1-3 (AICPA Adapted) Petite Company reported the following current assets on December 31 , 2016: Cash Accounts receivable Inventory, including goods received on Consignment P200,000 Bond investment at fair value through other comprehensive income Prepaid expenses, including including a deposit of P50,000 made on inventory to be delivered in 18 months
5,000,000 2,000,000
Total current assets
8,950,000
Cash in general checking account Cash fund to be used to retire bonds payable in 2018 Cash held to pay value added taxes
3,500,000 1,000,000 500,000
Total cash
5,000,000
800,000 1,000,000 150,000
What total amount of current assets should be reported on December 31, 2016? a. b. c. d.
6,750,000 6,700,000 7,700,000 7,750,000
Solution 1-3 Answer b Cash Accounts Receivable Inventory Prepaid expenses Total current assets
(3,500,000 + 500,000) (800,000 – 200,000) (150,000-50,000)
4,000,000 2,000,000 600,000 100,000 6,700,000
The goods received on consignment should be excluded from inventory. The cash fund to be used to retire bonds payable in 2018 should be classified as noncurrent. The bond investment at fair value through other comprehensive income is a noncurrent asset.
Problem 1-4 (AICPA Adapted) Rice Company was incorporated on January 1, 2016 with P5,000,000 from the issuance of share capital and borrowed funds of P1,500,000. During the first year, net income was P2,500,000. On December 15, the entity paid a P500,000 cash dividend. On December 31, 2016, the liabilities had increased to P1,800,000. On December 31, 2016, what amount should be reported as total assets? a. b. c. d.
6,500,000 9,300,000 8,800,000 6,800,000
Solution 1-4 Answer c Liabilities Share Capital Retained Earnings (P2,500,000 less dividend P500,000)
1,800,000 5,000,000 2,000,000
Total liabilities and shareholders’ equity
8,800,000
Problem 1-5 (AICPA Adapted) Mirr Company was incorporated on January 1, 2016 with proceeds from the issuance of P7,500,000 in share capital and borrowed funds of P1,100,00. During the first year, revenue from sales and consulting amounted to P8,200,000, and operating costs and expenses totaled P6,400,000. On December 15, 2016, the entity declared a P300,000 dividend, payable to shareholders on January 15,2017. The liabilities increased to P2,000,000 by December 31,2016. On December 31, 2016, what amount should be reported as total assets? a. b. c. d.
11,000,000 11,300,000 10,100,000 12,100,000
Solution 1-5 Answer a Liabilities Share Capital Retained Earnings (8,200,000-6,400,000-300,000)
2,000,000 7,500,000 1,500,000
Total liabilities and shareholders’ equity
11,000,000
Problem 1-6 (AICPA Adapted) Arabian Company reported the following current assets on December 31,2016: Cash Accounts Receivable Notes Receivable, net of discounted note P500,000 Inventory
4,500,000 7,500,000 2,000,000 4,000,000 18,000,000
An analysis disclosed that accounts receivable compromised the following: Trade accounts receivable Allowance for doubtful accounts Selling price of Arabian Company’s unsold goods sent to Tar Company on consignment at 150% of cost and excluded from Arabian’s ending inventory
5,000,000 (500,000) 3,000,000 7,500,000
On December 31, 2016, what amount should be reported as total current assets? a. b. c. d.
17,000,000 17,500,000 15,000,000 16,500,000
Solution 1-6 Answer a Cash Accounts Receivable Allowance for doubtful accounts Notes receivable Inventory (4,000,000 + 2,000,000)
4,500,000 5,000,000 (500,000) 2,000,000 6,000,000
Total current assets
17,000,000
The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost of goods should be included in inventory. The cost of goods out on consignment is P3,000,000 divided by 150% or P2,000,000 The discounted note receivable is properly netted against the total notes receivable.
Problem 1-7 (AICPA Adapated) On December 31, 2016, Statute Company reported the following current assets: Cash Accounts Receivable Inventory
700,000 1,200,000 600,000
An examination of the accounts receivable revealed the following: Trade accounts Allowance for doubtful accounts Claim against shipper for goods lost in transit Selling prices of unsold goods sent out on consignment at 130% of cost and not included In ending inventory
930,000 (20,000) 30,000
Total accounts receivable
1,200,000
260,000
What is the correct amount of current assets on December 31, 2016? a. b. c. d.
2,440,000 2,210,000 2,500,000 2,240,000
Solution 1-7 Answer a Cash Accounts receivable Allowance for doubtful accounts Claim receivable Inventory (600,000 + 200,000)
700,000 930,000 (20,000) 30,000 800,000
Total current assets
2,440,000
The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost of goods should be included in inventory. The cos of goods out on consignment is P260,000 divided by 130% or P200,000.
Problem 1-8 (PHILCPA Adapted) Caticlan Company provided the following data on December 31, 2016:
Cash, including sinking fund of P500,000 Notes receivable Notes receivable discounted Accounts receivable – unassigned Accounts receivable – assigned Allowance for doubtful accounts Equity of assignee in accounts receivable assigned Inventory, including P600,000 cost of goods in transit purchased FOB destination. The goods were received on January 3, 2017
2,000,000 1,200,000 700,000 3,000,000 800,000 100,000 500,000 2,800,000
What total amount of current assets should be reported on December 31, 2016? a. b. c. d.
7,900,000 8,000,000 7,400,000 7,700,000
Solution 1-8 Answer a Cash (2,000,000 – 500,000) Notes receivable Notes receivable discounted Accounts receivable – unassigned Accounts receivable – assigned Allowance for doubtful accounts Inventory (2,800,000 – 600,000)
1,500,000 1,200,000 (700,000) 3,000,000 800,000 (100,000) 2,200,000
Total current assets
7,900,000
The sinking fund is a noncurrent asset. The equity of the assignee in assigned accounts shall not be offset against the assigned accounts receivable but included in current liabilities. The note receivable discounted should be deducted from the total notes receivable with disclosure of contingent liability.
Problem 1-9 (AICPA Adapted) East Company reported the following current assets ar year-end: Cash Accounts receivable Inventory Prepaid insurance
3,200,000 3,000,000 2,800,000 200,000
Total current assets
9,200,000
The accounts receivable consisted of the following: Customers’ accounts Employees’ account-current Advances to subsidiary Allowance for uncollectible accounts Subscription receivable, not collectible currently
1,420,000 240,000 260,000 (120,000) 1,200,000
Total accounts receivable
3,000,000
What total amount should be reported as current assets at year-end? a. b. c. d.
8,000,000 9,200,000 7,740,000 8,940,000
Solution 1-9 Answer c Cash Accounts receivable Allowance for uncollectible accounts Receivable from employees Inventory Prepaid insurance
3,200,000 1,420,000 (120,000) 240,000 2,800,000 200,000
Total current assets
7,740,000
The advances to subsidiary should be classified as noncurrent. The subscription receivable should be reported as a deduction from subscribed share capital because it is not collectible currently.
Problem 1-10 (AICPA Adapted) Gar Company reported the following liability account balances on December 31, 2016: Accounts payable Bonds payable, due December 31, 2017 Discount on bonds payable Deferred tax liability Dividends payable Income tax payable Note payable
1,900,000 3,400,000 200,000 400,000 500,000 900,000 600,000
The deferred tax liability is based in temporary differences that will reverse in 2018. On December 31, 2016, what total amount should be reported as current liabilities? a. b. c. d.
7,100,000 6,700,000 6,500,000 6,900,000
Solution 1-10 Answer c Accounts payable Dividends payable Income tax payable Bonds payable Discount on bonds payable
1,900,000 500,000 900,000 3,400,000 (200,000)
Total current liabilities
6,500,000
Under PAS 1 and PAS 12, a deferred tax liability should be classified as noncurrent. The bonds payable minus the discount on bonds payable should be classified as current because the bonds are due within one year. The dividends payable and income tax payable are normally classified as current. The note payable is classified as noncurrent because it matures in more than one year from the end of reporting period.
Problem 1-11 (AICPA Adapted) Brite Company provided the following information on December 31, 2016: Accounts payable Unsecured note payable, 8%, due in July 1, 2017 Accrued expenses Contingent liability Deferred tax liability Senior binds payable, 7%, due March 31, 2017
550,000 4,000,000 350,000 450,000 250,000 5,000,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit against the entity. The legal counsel expects the suit to be settled in 2017 and has estimated that the entity will be liable for damages in the range of P450,000 to P750,000. The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2017. What total amount should be reported as current liabilities? a. b. c. d.
10,350,000 10,150,000 9,900,000 4,900,000
Solution 1-11 Answer c Accounts payable Unsecured note payable Accrued expenses Senior bonds payable
550,000 4,000,000 350,000 5,000,000
Total current liabilities
9,900,000
The contingent liability is only disclosed because it is a possible loss. Under IFRS, the deferred tax liability is classified as noncurrent regardless of the reversal period.
Problem 1-12 (PHILCPA Adapted) Burma Company disclosed the following information: Accounts payable, after deducting debit balances in suppliers’ accounts amounting to P100,000 Accrued expenses Credit balances of customers’ accounts Stock dividend payable Claims for increase in wages and allowance by employees of the entity, covered in a pending lawsuit Estimated expenses in redeeming prize coupons
4,000,000 1,500,000 500,000 1,000,000 400,000 600,000
What amount should be reported as total current liabilities? a. b. c. d.
6,700,000 6,600,000 7,100,000 7,700,000
Solution 1-12 Answer a Accounts payable (4,000,000 + 100,000) Accrued expenses Credit balances in customers’ accounts Estimated liability for coupons
4,100,000 1,500,000 500,000 600,000
Total current liabilities
6,700,000
The debit balances in suppliers’ accounts are not “netted” against accounts payable but should be reported as current asset. The stock dividend payable is not an accounting liability but presented as part of shareholders’ equity as an additional to share capital. The claims for increase in wages and allowance should be disclosed as contingent liability.
Problem 1-13 (AICPA Adapted) Mazda Company reported the following liability balances on December 31, 2016: 10% note payable issue on October 1, 2015, maturing October 1, 2017 12% note payable issued on March 1, 2015, maturing on March 1, 2017
2,000,000 4,000,000
The 2016 financial statements were issued on March 31, 2017. Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the obligation for at least twelve months after December 31, 2016. On March 1, 2017, the entire P4,000,000 balance of the 12% note payable was refinanced through issuance of a long-term obligation payable lump sum. What amount of the notes payable should be classified as current on December 31, 2016? a. b. c. d.
6,000,000 4,000,000 2,000,000 0
Solution 1-13 Answer b The 10% note payable is classified as noncurrent. PAS 1, paragraph 73, provides that if an entity has the discretion to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility, the obligation shall be classified as noncurrent, even if it would otherwise be due within a shorter period. The 12% note payable is classified as current. PAS 1, paragraph 72, provides that an obligation that matures within one year from the end of the reporting period is classified as current even if it is refinanced on a long-term basis after the reporting period and before issuance of the financial statements. The 12% note payable is refinanced on March 1, 2017 and therefore classifies as current.
Problem 1-14 (AICPA Adapted) Willem Company reported the following liabilities on December 31, 2016: Accounts Payable Short-term borrowings Bonds payable due 2017 Premium on bonds payable Mortgage payable, current portion P500,000 Bank loan, due June 30, 2017
750,000 400,000 3,000,000 200,000 3,500,000 1,000,000
The P1,000,000 bank loan was refinanced with a 5-year loan on January 15,2017. The financial statements were issued March 1, 2017. What total amount should be reported as current liabilities on December 31, 2016? a. b. c. d.
2,650,000 5,850,000 5,350,000 4,850,000
Solution 1-14 Answer b Accounts payable Short-term borrowings Bonds payable Premium on bonds payable Mortgage payable - current portion Bank loan
750,000 400,000 3,000,000 200,000 500,000 1,000,000
Total current liabilities
5,850,000
The bank loan is classified as current because it is refinanced on January 15, 2017 after the end of the reporting period. The bonds payable plus the premium on bonds payable should be classified as current because the bonds are due in one year from the end of reporting period. Problem 1-15 (IAA) On December 31, 2016, Ace Company had P40,000,000 note payable due on February 28, 2017. On December 31, 2016, the entity arranged a line of credit with City Bank which allows the entity to borrow up to P35,000,000 at one percent above the prime rate for three years. On February 15, 2017, the entity borrowed P25,000,000 from City Bank and used P5,000,000 additional cash to liquidate P30,000,000 note payable. The financial statements were issued on March 31, 2017. What amount of note payable should be reported as current liability on December 31, 2016? a. b. c. d.
40,000,000 10,000,000 5,000,000 0
Solution 1-15 Answer a The refinancing occurred on February 15, 2017, which is after the end of the reporting period and before issuance of the 2016 financial. Thus, the note payable is classified totally as current.
Problem 1-16 (IAA) Jam Company had P2,000,000 note payable that is due on February 28, 2017. The entity borrowed P1,600,000 on February 25, 2017 which has a five year term and used the proceeds to pay down the note and used other cash to pay the balance. How much of the note payable is classified is classified as current in the December 31, 206 financial statements that were issued on March 31, 2017? a. b. c. d.
2,000,000 1,600,000 400,000 0
Solution 1-16 Answer a The note payable is entirely classified as current because it is refinanced on February 25, 2017 which is after the end of reporting period. Problem 1-17 (AICPA Adapted) United Company provided the following current assets and shareholders’ equity on December 31, 2016: Cash 600,000 Financial assets at fair value through profit or loss, including cost of P300,000 of United Company shares 1,000,000 Accounts receivable 3,500,000 Inventory 1,500,000 Total current assets
6,600,000
Share capital Share premiuim Retained earnings Total shareholders’ equity
5,000,000 2,000,000 500,000 7,500,000
What amount should be reported as total shareholders’ equity? a. b. c. d.
7,200,000 7,500,000 7,800,000 5,200,000
Solution 1-17 Answer a Share capital Share premium Retained earnings Treasury shares, at cost Total shareholders’ equity
5,000,000 2,000,000 500,000 (300,000) 7,200,000
The treasury shares are excluded from financial assets at fair value through profit or loss but should be reported as a deduction from shareholders’ equity. Cash Financial assets at fair value (1,000,000 – 300,000) Accounts receivable Inventory
600,000 700,000 3,500,000 1,500,000
Total current assets
6,300,000
Problem 1-18 Kalinga Company provided the following information at year-end: Share capital Share premium Treasury shares, at cost Actuarial loss on defined benefit plan Retained earnings unappropriated Retained earnings appropriated Revaluation surplus Cumulative translation adjustment – credit
15,000,000 5,000,000 2,000,000 1,000,000 6,000,000 3,000,000 4,000,000 1,500,000
What amount should be reported as total shareholders’ equity? a. 31,500,000 b. 32,500,000 c. 28,500,000 d. 25,500,000 Solution 1-18 Answer a Share capital Share premium Retained earnings unappropriated Retained earnings appropriated Revaluation surplus Cumulative translations adjustment – credit Actuarial loss on defined benefit plan Treasury shares, at cost
15,000,000 5,000,000 6,000,000 3,000,000 4,000,000 1,500,000 (1,000,000) (2,000,000)
Total shareholders’ equity
31,500,000
The actuarial loss on defined benefit plan is reported as component of other comprehensive income. The credit in the cumulative translation adjustment account is a translation gain reported as component of other comprehensive income. If the cumulative translation adjustment account has debit balance, it is a translation loss.
Problem 1-19 (IAA) Silver Company provided the following information at year-end: Share premium Accounts payable Preference share capital, at par Ordinary share capital, at par Sales Total expenses Treasury shares at cost – ordinary Dividends Retained earnings – January 1
1,000,000 1,100,000 2,000,000 3,000,000 10,000,000 7,800,000 500,000 700,000 1,000,000
What total shareholders’ equity should be reported on December 31? a. b. c. d.
8,000,000 8,500,000 5,800,000 8,700,000
Solution 1-19 Answer a Sales Total expenses
10,000,000 (7,800,000)
Net income Retained earnings – January 1 Dividends
2,200,000 1,000,000 (700,000)
Retained earnings – December 31
2,500,000
Preference share capital Ordinary share capital Share premium Retained earnings Treasury shares at cost
2,000,000 3,000,000 1,000,000 2,500,000 (500,000)
Total shareholders’ equity
8,000,000
Problem 1-20 (AICPA Adapted) Mont Company reported net assets totaling P8,750,000 at year-end which included the following: Treasury shares of Mont Company at cost Idle machinery Trademark Allowance for inventory writedown
250,000 100,000 150,000 200,000
What amount should be reported as net assets at year-end? a. b. c. d.
8,500,000 8,400,000 8,300,000 8,200,000
Solution 1-20 Answer a Reported net assets Treasury shares
8,750,000 (250,000)
Adjusted net assets
8,500,000
Problem 1-21 (PHILCPA Adapted) Peach Company reported total assets of P8,500,000 at year-end which included the following: Treasury shares of Peach Company at cost Unamortized patent Cash surrender value of life insurance Cumulative transaction loss
500,000 300,000 150,000 250,000
What amount should be reported as total assets at year-end? a. b. c. d.
8,000,000 7,750,000 8,500,000 8,250,000
Solution 1-21 Answer b Adjusted total assets (8,500,000 – 500,00 – 250,000)
7,750,000
Problem 1-22 (IAA) Alena Company provided the following information at year-end: Property, plant, and equipment Land Cash Accounts receivable Allowance for doubtful accounts Merchandise inventory Prepaid insurance Financial asset at fair value through other comprehensive income Accounts payable Wages payable Short-term note payable Bonds payable Premium on bonds payable
35,000,000 20,000,000 5,000,000 20,000,000 1,000,000 13,000,000 2,500,000 7,000,000 8,000,000 2,000,000 3,000,000 40,000,000 3,000,000
What is the working capital? a. b. c. d.
46,500,000 33,500,000 26,500,000 35,500,000
Solution 1-22 Answer c Current assets: Cash Accounts receivable Allowance for doubtful accounts Merchandise Inventory Prepaid insurance
5,000,000 20,000,000 (1,000,000) 13,000,000 2,500,000
39,500,000
Current liabilities: Accounts payable Wages payable Short-term note payable
8,000,000 2,000,000 3,000,000
13,000,000
Working Capital
26,500,000
300,000 1,200,000 1,000,000 100,000 200,000 800,000 150,000
What amount should be reported as total current assets at year-end? a. b. c. d.
2,800,000 2,550,000 3,600,000 2,100,000
Solution 1-1 Answer a Cash Accounts Receivable Inventory Prepaid expenses Financial assets held for trading
300,000 1,200,000 1,000,000 100,000 200,000
Total current assets
2,800,000
In the absence of statement to the contrary, equity investment at fair value through other comprehensive income shall be classified as noncurrent. PAS 1 and PAS 12 provide that deferred tax asset is a noncurrent asset.
Problem 1-2 (AICPA Adapted) Violago Company provided the following account balances at year-end: Cash Accounts receivable Inventory Financial assets at fair value through profit or loss Bonds investment at amortized cost Investment in associate Equipment and furniture Accumulated depreciation Patent Deferred charges Equipment classified as held for sale
1,100,000 1,600,000 3,000,000 500,000 1,300,000 1,500,000 2,500,000 1,500,000 400,000 100,000 2,000,000
What total amount should be reported as current assets at year-end? a. b. c. d.
6,300,000 8,300,000 8,200,000 9,800,000
Solution 1-2 Answer c Cash Accounts receivable Inventory Financial assets at fair value through profit or loss Equipment classified as held for sale
1,100,000 1,600,000 3,000,000 500,000 2,000,000
Total current asset
8,200,000
The bond investment at amortized cost is classified as noncurrent. The investment in associate is a noncurrent asset. Under PFRS 5, a noncurrent asset classified as held for sale should be reported as current asset. The deferred charges are considered noncurrent because technically These expire in more than one year from the end of reporting period.
Problem 1-3 (AICPA Adapted) Petite Company reported the following current assets on December 31 , 2016: Cash Accounts receivable Inventory, including goods received on Consignment P200,000 Bond investment at fair value through other comprehensive income Prepaid expenses, including including a deposit of P50,000 made on inventory to be delivered in 18 months
5,000,000 2,000,000
Total current assets
8,950,000
Cash in general checking account Cash fund to be used to retire bonds payable in 2018 Cash held to pay value added taxes
3,500,000 1,000,000 500,000
Total cash
5,000,000
800,000 1,000,000 150,000
What total amount of current assets should be reported on December 31, 2016? a. b. c. d.
6,750,000 6,700,000 7,700,000 7,750,000
Solution 1-3 Answer b Cash Accounts Receivable Inventory Prepaid expenses Total current assets
(3,500,000 + 500,000) (800,000 – 200,000) (150,000-50,000)
4,000,000 2,000,000 600,000 100,000 6,700,000
The goods received on consignment should be excluded from inventory. The cash fund to be used to retire bonds payable in 2018 should be classified as noncurrent. The bond investment at fair value through other comprehensive income is a noncurrent asset.
Problem 1-4 (AICPA Adapted) Rice Company was incorporated on January 1, 2016 with P5,000,000 from the issuance of share capital and borrowed funds of P1,500,000. During the first year, net income was P2,500,000. On December 15, the entity paid a P500,000 cash dividend. On December 31, 2016, the liabilities had increased to P1,800,000. On December 31, 2016, what amount should be reported as total assets? a. b. c. d.
6,500,000 9,300,000 8,800,000 6,800,000
Solution 1-4 Answer c Liabilities Share Capital Retained Earnings (P2,500,000 less dividend P500,000)
1,800,000 5,000,000 2,000,000
Total liabilities and shareholders’ equity
8,800,000
Problem 1-5 (AICPA Adapted) Mirr Company was incorporated on January 1, 2016 with proceeds from the issuance of P7,500,000 in share capital and borrowed funds of P1,100,00. During the first year, revenue from sales and consulting amounted to P8,200,000, and operating costs and expenses totaled P6,400,000. On December 15, 2016, the entity declared a P300,000 dividend, payable to shareholders on January 15,2017. The liabilities increased to P2,000,000 by December 31,2016. On December 31, 2016, what amount should be reported as total assets? a. b. c. d.
11,000,000 11,300,000 10,100,000 12,100,000
Solution 1-5 Answer a Liabilities Share Capital Retained Earnings (8,200,000-6,400,000-300,000)
2,000,000 7,500,000 1,500,000
Total liabilities and shareholders’ equity
11,000,000
Problem 1-6 (AICPA Adapted) Arabian Company reported the following current assets on December 31,2016: Cash Accounts Receivable Notes Receivable, net of discounted note P500,000 Inventory
4,500,000 7,500,000 2,000,000 4,000,000 18,000,000
An analysis disclosed that accounts receivable compromised the following: Trade accounts receivable Allowance for doubtful accounts Selling price of Arabian Company’s unsold goods sent to Tar Company on consignment at 150% of cost and excluded from Arabian’s ending inventory
5,000,000 (500,000) 3,000,000 7,500,000
On December 31, 2016, what amount should be reported as total current assets? a. b. c. d.
17,000,000 17,500,000 15,000,000 16,500,000
Solution 1-6 Answer a Cash Accounts Receivable Allowance for doubtful accounts Notes receivable Inventory (4,000,000 + 2,000,000)
4,500,000 5,000,000 (500,000) 2,000,000 6,000,000
Total current assets
17,000,000
The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost of goods should be included in inventory. The cost of goods out on consignment is P3,000,000 divided by 150% or P2,000,000 The discounted note receivable is properly netted against the total notes receivable.
Problem 1-7 (AICPA Adapated) On December 31, 2016, Statute Company reported the following current assets: Cash Accounts Receivable Inventory
700,000 1,200,000 600,000
An examination of the accounts receivable revealed the following: Trade accounts Allowance for doubtful accounts Claim against shipper for goods lost in transit Selling prices of unsold goods sent out on consignment at 130% of cost and not included In ending inventory
930,000 (20,000) 30,000
Total accounts receivable
1,200,000
260,000
What is the correct amount of current assets on December 31, 2016? a. b. c. d.
2,440,000 2,210,000 2,500,000 2,240,000
Solution 1-7 Answer a Cash Accounts receivable Allowance for doubtful accounts Claim receivable Inventory (600,000 + 200,000)
700,000 930,000 (20,000) 30,000 800,000
Total current assets
2,440,000
The selling price of the unsold goods out on consignment is excluded from accounts receivable but the cost of goods should be included in inventory. The cos of goods out on consignment is P260,000 divided by 130% or P200,000.
Problem 1-8 (PHILCPA Adapted) Caticlan Company provided the following data on December 31, 2016:
Cash, including sinking fund of P500,000 Notes receivable Notes receivable discounted Accounts receivable – unassigned Accounts receivable – assigned Allowance for doubtful accounts Equity of assignee in accounts receivable assigned Inventory, including P600,000 cost of goods in transit purchased FOB destination. The goods were received on January 3, 2017
2,000,000 1,200,000 700,000 3,000,000 800,000 100,000 500,000 2,800,000
What total amount of current assets should be reported on December 31, 2016? a. b. c. d.
7,900,000 8,000,000 7,400,000 7,700,000
Solution 1-8 Answer a Cash (2,000,000 – 500,000) Notes receivable Notes receivable discounted Accounts receivable – unassigned Accounts receivable – assigned Allowance for doubtful accounts Inventory (2,800,000 – 600,000)
1,500,000 1,200,000 (700,000) 3,000,000 800,000 (100,000) 2,200,000
Total current assets
7,900,000
The sinking fund is a noncurrent asset. The equity of the assignee in assigned accounts shall not be offset against the assigned accounts receivable but included in current liabilities. The note receivable discounted should be deducted from the total notes receivable with disclosure of contingent liability.
Problem 1-9 (AICPA Adapted) East Company reported the following current assets ar year-end: Cash Accounts receivable Inventory Prepaid insurance
3,200,000 3,000,000 2,800,000 200,000
Total current assets
9,200,000
The accounts receivable consisted of the following: Customers’ accounts Employees’ account-current Advances to subsidiary Allowance for uncollectible accounts Subscription receivable, not collectible currently
1,420,000 240,000 260,000 (120,000) 1,200,000
Total accounts receivable
3,000,000
What total amount should be reported as current assets at year-end? a. b. c. d.
8,000,000 9,200,000 7,740,000 8,940,000
Solution 1-9 Answer c Cash Accounts receivable Allowance for uncollectible accounts Receivable from employees Inventory Prepaid insurance
3,200,000 1,420,000 (120,000) 240,000 2,800,000 200,000
Total current assets
7,740,000
The advances to subsidiary should be classified as noncurrent. The subscription receivable should be reported as a deduction from subscribed share capital because it is not collectible currently.
Problem 1-10 (AICPA Adapted) Gar Company reported the following liability account balances on December 31, 2016: Accounts payable Bonds payable, due December 31, 2017 Discount on bonds payable Deferred tax liability Dividends payable Income tax payable Note payable
1,900,000 3,400,000 200,000 400,000 500,000 900,000 600,000
The deferred tax liability is based in temporary differences that will reverse in 2018. On December 31, 2016, what total amount should be reported as current liabilities? a. b. c. d.
7,100,000 6,700,000 6,500,000 6,900,000
Solution 1-10 Answer c Accounts payable Dividends payable Income tax payable Bonds payable Discount on bonds payable
1,900,000 500,000 900,000 3,400,000 (200,000)
Total current liabilities
6,500,000
Under PAS 1 and PAS 12, a deferred tax liability should be classified as noncurrent. The bonds payable minus the discount on bonds payable should be classified as current because the bonds are due within one year. The dividends payable and income tax payable are normally classified as current. The note payable is classified as noncurrent because it matures in more than one year from the end of reporting period.
Problem 1-11 (AICPA Adapted) Brite Company provided the following information on December 31, 2016: Accounts payable Unsecured note payable, 8%, due in July 1, 2017 Accrued expenses Contingent liability Deferred tax liability Senior binds payable, 7%, due March 31, 2017
550,000 4,000,000 350,000 450,000 250,000 5,000,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit against the entity. The legal counsel expects the suit to be settled in 2017 and has estimated that the entity will be liable for damages in the range of P450,000 to P750,000. The deferred tax liability is not related to an asset for financial reporting and is expected to reverse in 2017. What total amount should be reported as current liabilities? a. b. c. d.
10,350,000 10,150,000 9,900,000 4,900,000
Solution 1-11 Answer c Accounts payable Unsecured note payable Accrued expenses Senior bonds payable
550,000 4,000,000 350,000 5,000,000
Total current liabilities
9,900,000
The contingent liability is only disclosed because it is a possible loss. Under IFRS, the deferred tax liability is classified as noncurrent regardless of the reversal period.
Problem 1-12 (PHILCPA Adapted) Burma Company disclosed the following information: Accounts payable, after deducting debit balances in suppliers’ accounts amounting to P100,000 Accrued expenses Credit balances of customers’ accounts Stock dividend payable Claims for increase in wages and allowance by employees of the entity, covered in a pending lawsuit Estimated expenses in redeeming prize coupons
4,000,000 1,500,000 500,000 1,000,000 400,000 600,000
What amount should be reported as total current liabilities? a. b. c. d.
6,700,000 6,600,000 7,100,000 7,700,000
Solution 1-12 Answer a Accounts payable (4,000,000 + 100,000) Accrued expenses Credit balances in customers’ accounts Estimated liability for coupons
4,100,000 1,500,000 500,000 600,000
Total current liabilities
6,700,000
The debit balances in suppliers’ accounts are not “netted” against accounts payable but should be reported as current asset. The stock dividend payable is not an accounting liability but presented as part of shareholders’ equity as an additional to share capital. The claims for increase in wages and allowance should be disclosed as contingent liability.
Problem 1-13 (AICPA Adapted) Mazda Company reported the following liability balances on December 31, 2016: 10% note payable issue on October 1, 2015, maturing October 1, 2017 12% note payable issued on March 1, 2015, maturing on March 1, 2017
2,000,000 4,000,000
The 2016 financial statements were issued on March 31, 2017. Under the loan agreement for the 10% note payable, the entity has the discretion to refinance the obligation for at least twelve months after December 31, 2016. On March 1, 2017, the entire P4,000,000 balance of the 12% note payable was refinanced through issuance of a long-term obligation payable lump sum. What amount of the notes payable should be classified as current on December 31, 2016? a. b. c. d.
6,000,000 4,000,000 2,000,000 0
Solution 1-13 Answer b The 10% note payable is classified as noncurrent. PAS 1, paragraph 73, provides that if an entity has the discretion to refinance or roll over an obligation for at least twelve months after the reporting period under an existing loan facility, the obligation shall be classified as noncurrent, even if it would otherwise be due within a shorter period. The 12% note payable is classified as current. PAS 1, paragraph 72, provides that an obligation that matures within one year from the end of the reporting period is classified as current even if it is refinanced on a long-term basis after the reporting period and before issuance of the financial statements. The 12% note payable is refinanced on March 1, 2017 and therefore classifies as current.
Problem 1-14 (AICPA Adapted) Willem Company reported the following liabilities on December 31, 2016: Accounts Payable Short-term borrowings Bonds payable due 2017 Premium on bonds payable Mortgage payable, current portion P500,000 Bank loan, due June 30, 2017
750,000 400,000 3,000,000 200,000 3,500,000 1,000,000
The P1,000,000 bank loan was refinanced with a 5-year loan on January 15,2017. The financial statements were issued March 1, 2017. What total amount should be reported as current liabilities on December 31, 2016? a. b. c. d.
2,650,000 5,850,000 5,350,000 4,850,000
Solution 1-14 Answer b Accounts payable Short-term borrowings Bonds payable Premium on bonds payable Mortgage payable - current portion Bank loan
750,000 400,000 3,000,000 200,000 500,000 1,000,000
Total current liabilities
5,850,000
The bank loan is classified as current because it is refinanced on January 15, 2017 after the end of the reporting period. The bonds payable plus the premium on bonds payable should be classified as current because the bonds are due in one year from the end of reporting period. Problem 1-15 (IAA) On December 31, 2016, Ace Company had P40,000,000 note payable due on February 28, 2017. On December 31, 2016, the entity arranged a line of credit with City Bank which allows the entity to borrow up to P35,000,000 at one percent above the prime rate for three years. On February 15, 2017, the entity borrowed P25,000,000 from City Bank and used P5,000,000 additional cash to liquidate P30,000,000 note payable. The financial statements were issued on March 31, 2017. What amount of note payable should be reported as current liability on December 31, 2016? a. b. c. d.
40,000,000 10,000,000 5,000,000 0
Solution 1-15 Answer a The refinancing occurred on February 15, 2017, which is after the end of the reporting period and before issuance of the 2016 financial. Thus, the note payable is classified totally as current.
Problem 1-16 (IAA) Jam Company had P2,000,000 note payable that is due on February 28, 2017. The entity borrowed P1,600,000 on February 25, 2017 which has a five year term and used the proceeds to pay down the note and used other cash to pay the balance. How much of the note payable is classified is classified as current in the December 31, 206 financial statements that were issued on March 31, 2017? a. b. c. d.
2,000,000 1,600,000 400,000 0
Solution 1-16 Answer a The note payable is entirely classified as current because it is refinanced on February 25, 2017 which is after the end of reporting period. Problem 1-17 (AICPA Adapted) United Company provided the following current assets and shareholders’ equity on December 31, 2016: Cash 600,000 Financial assets at fair value through profit or loss, including cost of P300,000 of United Company shares 1,000,000 Accounts receivable 3,500,000 Inventory 1,500,000 Total current assets
6,600,000
Share capital Share premiuim Retained earnings Total shareholders’ equity
5,000,000 2,000,000 500,000 7,500,000
What amount should be reported as total shareholders’ equity? a. b. c. d.
7,200,000 7,500,000 7,800,000 5,200,000
Solution 1-17 Answer a Share capital Share premium Retained earnings Treasury shares, at cost Total shareholders’ equity
5,000,000 2,000,000 500,000 (300,000) 7,200,000
The treasury shares are excluded from financial assets at fair value through profit or loss but should be reported as a deduction from shareholders’ equity. Cash Financial assets at fair value (1,000,000 – 300,000) Accounts receivable Inventory
600,000 700,000 3,500,000 1,500,000
Total current assets
6,300,000
Problem 1-18 Kalinga Company provided the following information at year-end: Share capital Share premium Treasury shares, at cost Actuarial loss on defined benefit plan Retained earnings unappropriated Retained earnings appropriated Revaluation surplus Cumulative translation adjustment – credit
15,000,000 5,000,000 2,000,000 1,000,000 6,000,000 3,000,000 4,000,000 1,500,000
What amount should be reported as total shareholders’ equity? a. 31,500,000 b. 32,500,000 c. 28,500,000 d. 25,500,000 Solution 1-18 Answer a Share capital Share premium Retained earnings unappropriated Retained earnings appropriated Revaluation surplus Cumulative translations adjustment – credit Actuarial loss on defined benefit plan Treasury shares, at cost
15,000,000 5,000,000 6,000,000 3,000,000 4,000,000 1,500,000 (1,000,000) (2,000,000)
Total shareholders’ equity
31,500,000
The actuarial loss on defined benefit plan is reported as component of other comprehensive income. The credit in the cumulative translation adjustment account is a translation gain reported as component of other comprehensive income. If the cumulative translation adjustment account has debit balance, it is a translation loss.
Problem 1-19 (IAA) Silver Company provided the following information at year-end: Share premium Accounts payable Preference share capital, at par Ordinary share capital, at par Sales Total expenses Treasury shares at cost – ordinary Dividends Retained earnings – January 1
1,000,000 1,100,000 2,000,000 3,000,000 10,000,000 7,800,000 500,000 700,000 1,000,000
What total shareholders’ equity should be reported on December 31? a. b. c. d.
8,000,000 8,500,000 5,800,000 8,700,000
Solution 1-19 Answer a Sales Total expenses
10,000,000 (7,800,000)
Net income Retained earnings – January 1 Dividends
2,200,000 1,000,000 (700,000)
Retained earnings – December 31
2,500,000
Preference share capital Ordinary share capital Share premium Retained earnings Treasury shares at cost
2,000,000 3,000,000 1,000,000 2,500,000 (500,000)
Total shareholders’ equity
8,000,000
Problem 1-20 (AICPA Adapted) Mont Company reported net assets totaling P8,750,000 at year-end which included the following: Treasury shares of Mont Company at cost Idle machinery Trademark Allowance for inventory writedown
250,000 100,000 150,000 200,000
What amount should be reported as net assets at year-end? a. b. c. d.
8,500,000 8,400,000 8,300,000 8,200,000
Solution 1-20 Answer a Reported net assets Treasury shares
8,750,000 (250,000)
Adjusted net assets
8,500,000
Problem 1-21 (PHILCPA Adapted) Peach Company reported total assets of P8,500,000 at year-end which included the following: Treasury shares of Peach Company at cost Unamortized patent Cash surrender value of life insurance Cumulative transaction loss
500,000 300,000 150,000 250,000
What amount should be reported as total assets at year-end? a. b. c. d.
8,000,000 7,750,000 8,500,000 8,250,000
Solution 1-21 Answer b Adjusted total assets (8,500,000 – 500,00 – 250,000)
7,750,000
Problem 1-22 (IAA) Alena Company provided the following information at year-end: Property, plant, and equipment Land Cash Accounts receivable Allowance for doubtful accounts Merchandise inventory Prepaid insurance Financial asset at fair value through other comprehensive income Accounts payable Wages payable Short-term note payable Bonds payable Premium on bonds payable
35,000,000 20,000,000 5,000,000 20,000,000 1,000,000 13,000,000 2,500,000 7,000,000 8,000,000 2,000,000 3,000,000 40,000,000 3,000,000
What is the working capital? a. b. c. d.
46,500,000 33,500,000 26,500,000 35,500,000
Solution 1-22 Answer c Current assets: Cash Accounts receivable Allowance for doubtful accounts Merchandise Inventory Prepaid insurance
5,000,000 20,000,000 (1,000,000) 13,000,000 2,500,000
39,500,000
Current liabilities: Accounts payable Wages payable Short-term note payable
8,000,000 2,000,000 3,000,000
13,000,000
Working Capital
26,500,000
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