Intermediate accounting by robles empleo ch 4 answers 2008

Notes to Financial Statements after presenting notes for basis of presentation and summary of significant accounting policies Note11 – Net sales revenue Sales returns and allowances 121

CHAPTER 4 THE INCOME STATEMENT AND THE STATEMENT OF CHANGES IN EQUITY

PROBLEMS 4-1 (Army Company)

Capital, December 31, 2007

Less total liabilities 276,000 P942,000 Capital, December 31, 2006

Less total liabilities 202,000 768,000

Additional investments by the owner (140,000)

4-2 (General Trading Company)

Debit change

Credit changes

Increase in liabilities P250,000

Increase in capital stock 400,000

Increase in paid-in capital in excess of par 125,000 775,000 Increase (decrease) in retained earnings (P175,000)

4-3 (Ray Company)

Less increase in raw materials inventory 15,000

4.4 (Lay Company)

4-5 (Mel Company)

Let x = cost of sales

.30x = 18 sales

x = 18/.30 sales

x = 60 sales

Therefore, 100% - 60% - 18% - 12% = 10%

Sales = 28,000/10%; Sales = 280,000

Cost of sales = 60% x 280,000 = 168,000

4-6 (Five Star Products)

Five Star Products Income Statement For the Year Ended December 31, 2007

Cost of sales

Beginning inventory P126,000

Ending inventory (189,500) (402,750)

General and administrative expenses (128,880)

4-7 (Green Company)

Requirement a (nature of expense method)

Green Company Income Statement For Year Ended December 31, 2007

Operating Expenses

Profit before income tax from continuing operations P423,000

Notes to Financial Statements (after presenting notes for basis of presentation and summary of significant accounting policies)

Note11 – Net sales revenue

Sales returns and allowances 121,000 170,000

Note 12 – Net purchases

0

0

Purchase returns and allowances 62,000 103,000

0 Note 13 – Increase in inventory

Note 14 – Salaries and commissions

Note 15 – Depreciation expense

Depreciation – Buildings and office equipment P145,000

Note 16 – Supplies expense

Note 17 – Other operating expenses

Note 18 – Discontinued Operations

Profit (loss) before income tax P (150,000)

Profit (loss) from operations of discontinued operations P (97,500)

Loss on sale of assets, net of tax benefit of P70,000 (130,000)

(function of expense method)

Green Company Income Statement For Year Ended December 31, 2007

Other Operating Income

Operating Expenses

General and Administrative Expenses (13) 596,000

Profit before income tax from continuing operations P423,000

Notes to Financial Statements (after presenting notes for basis of presentation and summary of significant accounting policies)

Note 11– Net sales revenue

Sales returns and allowances 121,000 170,000

Note 12 – Cost of goods sold

Purchase returns and allowances (62,000) 1,762,000

Cost of goods available for sale P2,103,000

Note 13 – Selling expenses

Depreciation expense – store equipment 96,000

Note 14 – General and Administrative expenses

Doubtful accounts expense P27,000

Depreciation – buildings and office equipment 145,000

Note 15 – Other operating expenses (continuing operations)

Note 16 – Discontinued Operations

Profit (loss) from operations of discontinued operations P (97,500)

Loss on sale of assets, net of tax benefit of P64,000 (130,000)

Requirement b

Green Company Statement of Changes in Equity For the Year Ended December 31, 2007

Common Stock

Additional Paid-in Capital

Retained Earnings Total Balances, January 1 P700,000 P610,000 P1,785,000 P3,095,000 Correction of prior year’s

income due to

understated

depreciation, net of

P63,000 income tax

(117,000) (117,000) Restated balances, January P700,000 P610,000 P1,668,000 P2,978,000

Balances, December 31 P800,000 P650,000 P1,655,450 P3,105,450

4-8 (Private Company)

a

Selling and Administrative Expenses 5,080,000

Operating Profit (Loss) before income tax P(155,000)

b

Selling and Administrative Expenses 5,080,000

Operating Profit (Loss) before income tax P(155,000)

Loss from measurement to NRV, net of income tax

4-9 Masagana Company

Masagana Company Statement of Changes in Equity For the Years Ended December 31, 2007 and 2006

Share Capital

Retained Earnings Total January 1, 2006, balances as previously

reported

P2,000,00

0

P1,500,000 P3,500,00

0 Prior period adjustment :

2005 expense charged erroneously to

January 1, 2006 balances, as restated P2,000,00

0

P1,420,000 P3,420,00

0

2006 Changes

Balances, December 31, 2006 P2,000,00

0 P1,740,000 P3,740,000

2007 Changes

Balances, December 31, 2007 P2,000,00

0

P1,990,000 P3,990,00

0 Note: The solution above disregards the effect of income tax

2006 Restated net income = P500,000 + depreciation erroneously recognized (due to error in 2005)

4-10 (LTC Company)

LTC Company Comparative Income Statements For the Years Ended December 31, 2007 and 2006

Sales P3,000,000 P2,540,000

General and administrative expenses (260,000) (220,000)

LTC Company Statement of Changes in Equity For the Years Ended December 31, 2007 and 2006

Share Capital

Retained Earnings Total January 1, 2006, balances as previously

Cumulative effect of changing from FIFO to

weighted average method of inventory

costing, net of income tax of P10,500* 19,500 19,500 January 1, 2006 balances, as restated P1,000,000 P619,500 P1,619,500

2006 Transactions:

December 31, 2006 balances P1,000,000 P843,500 P1,843,500

2007 Transactions

Balances, December 31, 2007 P1,000,000 P1,474,000 P2,474,000

* based on 35%

Cumulative effect shown on the statement of changes in equity

Difference in beginning inventory of 2006 (385,000-355,000) P30,000

Net adjustment (addition) to retained earnings, January 1, 2006 P19,500

The cumulative effect, however, is taken up in the books during 2007, when the change was decided upon by the management The following 2007 entry: is made:

Inventory, beginning (or cost of sales) 20,000

Income tax payable (based on 32%) 7,000

Thus, the retained earnings at December 31, 2007 is P830,500 + 13,000 + 630,500 = P1,474,000

MULTIPLE CHOICE Theory

MC2 C MC12 D

Problems

MC21 D 210,000 – 50,000 = 160,000; 260,000 – 60,000 = 200,000

200,000 – 160,000 = 40,000 + 12,000 – 50,000 = 78,000 LOSS MC22 C 225,000 + 100,000 + 10,000 + 15,000 = 350,000;

150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000 350,000 – 335,000 = 15,000 + 25,000 – 125,000 = 85,000 LOSS MC23 A 21,000 + 25,000 – 10,000 + 70,000 + 5,000 – (5,000 X 8) + 15,000 –

50,000 – 1,000 – 20,000 = 15,000 MC24 A 150,000 + 80,000 + (220,000 x ½) + 140,000 = 480,000

MC25 A 170,000 + (240,000 x ½) = 290,000

MC26 D 150,000 x 8 = 1,200,000 + 80,000 = 1,280,000

MC27 B 272,000 + 36,000 – 41,600 = 266,400 + 76,800 = 343,200

MC28 B 125/.25 = 50; 100% - 50% - 12.5% - 17.5% - 5% = 15%

750,000/15% = 5,000,000 x 50% = 2,500,000 MC29 C 5,800,000–(4,800,000+650,000–550,000)=900,000–

(7.5%,x900,000)=532,500 MC30 C 15/.25=60%; 100%-60%-10% - 15% - 3% = 12%; 480,000/12% =

4.0M MC31 B 1,080000/80% = 1,350,000/90% = 1,500,000 x 30% = 450,000

MC32 C 3,500,000/70% = 5,000,000

MC33 B 5M-3.5M=1.5M – (60% x 1.5M) = 600,000 x 65% = 390,000

MC34 C 3,500,000 – 500,000 = 3,000,000

MC35 D 600,000+900,000 – 1,000,000 = 500,000

MC36 B P1,550,000 – P1,100,000 = P450,000

MC37 D 450,000 + 600,000 – 250,000 = 800,000; ending inventory before

write off is P100,000 + 150,000 = 250,000 MC38 C 5,000,000 + 28,000 + 520,000 – 280,000 – 500,000 – 720,000 –

110,000 + 16,000 + 100,000 – 400,000 + 55,000 – 70,000 – 50,000 – 80,000 – 120,000 – 450,000 = 419,000

MC39 D 500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000

MC40 C 450,000 + 2,800,000 + 80,000 – 520,000 = 2,810,000

MC41 B Sales 100%

Cost of sales 40% ( 20% / 50%) Gross profit 60%

Operating expenses (20%)

Finance costs ( 5%)

Profit before tax 35%

Income tax (35% x 32%) ( 11.2%) Profit 23.8%

Sales = 2,380,000 / 23.8% = 10,000,000 Purchases = 10,000,000 x 40% x 130% = 5,200,000 MC42 D 2,000,000 + 100,000 – 2,100,000 = 0

MC43 C 0 + gain of P1,000,000 on disposal – income tax of P350,000 =

P650,000 MC44 C (3,500,000 – 500,000) x 65% = 1,950,000

MC45 B

MC46 A (360,000 – 320,000) x 65% = P26,000

MC47 Net income from continuing operations= P46,800

400,000 – 84,000 + 40,000 – 4,000 – 280,000 = 72,000 before income tax; Income from continuing operations = P72,000 x 65% = P46,800 Total net income = P46,800 + (40,000 x 65%); total net income is 72,800

RE = 1,600,000 + (16,000 x 65%) – (24,000 x 65% )+ 72,800 ) –

12,000 = P1,655,600 Note: If income tax rate is 32%, the answer would have been

b, P1,658,720.