Teachers Manual: Edition

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
Dear fellow teacher,

This Teachers 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
publishers 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
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
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
Beg. Balance N/R
Sales
on
account
(squeeze)
450,000
350,000
300,000
400,000
340,000
350,000
10,000
Total
Sales on Account
Add: Cash Sales
Total Gross Sales
1,100,000
Balance end A/R

Balance end N/R
Collections
Write-off
1,100,000
300,000
300,000
600,000
Suggested answer: B
PROBLEM 5-2 (Computation of Purchases)
Accounts Payable/Notes payable trade
Payments
Balance end A/P
Balance end N/P
200,000
200,000
140,000
250,000
150,000
165,000
Total
565,000
565,000
Purchase on Account
Add: Cash Purchases
Total Gross Purchases
Beg. Balance A/P

Beg. Balance N/P
Purchases (squeeze)
165,000
500,000
665,000
Suggested answer: A
PROBLEM 5-3 (Computation of Income Other Than Sales)
Rent Receivable/Rent in advance
Beg. Balance - Rent
Receivable
Balance end - Rent in
advance
Rent Income (squeeze)
Total
15,900
14,500
3,600
2,700
130,000
132,300
149,500
149,500
Suggested answer: A
Balance end - Rent

Receivable
Beg. Balance - Rent in
advance
Collections
PROBLEM 5-4 (Computation of Expenses in General)

Prepaid Salaries/Accrued Salaries
Beg. Balance - Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
Total
2,200
2,600
1,600
1,800
249,350
248,750
253,150
253,150
Balance end - Prepaid

Salaries
Beg. Balance - Accrued
Salaries
Expenses
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
Cost of PPE acquired
(squeeze)
100,000
60,000
120,000
40,000
Total
160,000
160,000
Balance end
Cost of PPE disposed
Accumulated depreciation
Balance end
of PPE disposed
18,000
Total
33,000
15,000
18,000
15,000
Beg. Balance
Depreciation expense
33,000
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 5-6
Question No. 1
Prepaid Insurance
Beg. Balance
Payments
7,500
41,500
6,000
43,000
Total
49,000
49,000
Balance end
Expenses (squeeze)
Question No. 2
Interest Receivable
Beg. Balance
Income (squeeze)
14,500
112,700
3,700
123,500
Total
127,200
127,200
Balance end
Collections
Question No. 3
Salaries payable
Balance end
Payments
61,500
481,000
53,000
489,500
Total
542,500
542,500
Question No. 4
Beg. Balance
Expenses
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000
1,845,000
Total
2,395,000
2,395,000
Balance end
Collections (squeeze)
Question No. 5
Beg. Balance
Sales
415,000
1,980,000
550,000
1,820,000
25,000
Total
2,395,000
2,395,000
Question No. 6
Balance end
Write-off
Beg. Balance
Sales
Recoveries
415,000
1,980,000
20,000
550,000
1,840,000
25,000
Total
2,415,000
2,415,000
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
5.
Balance end
Write-off
6.
PROBLEM 5-7
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R
Sales on account
100,000
4,260,000
100,000
10,000
Increase in N/R
Write-off
(squeeze)
4,200,000
30,000
20,000
Total
4,360,000
Question No. 2
Collections
Sales discounts
Sales ret. and allow.
4,360,000
Accounts payable
Cash paid to creditors
2,800,000
200,000
Purchase discounts
40,000
2,650,000
Purchase returns
10,000
Total
2,850,000
Question No. 3
Decrease in Accounts
payable
Gross
purchases
(squeeze)
2,850,000
Merchandise inventory
Decrease in Inventory
Gross purchases
25,000
2,650,000
40,000
10,000
2,625,000
Total
2,675,000
2,675,000
Purchase discounts
Purchase returns
Cost of sales (squeeze)
Question No. 4
Rental receivable/Unearned Rent Income
Rental
(squeeze)
revenue
454,000
14,000
40,000
400,000
Total
454,000
Increase
in
Rental
receivable
Decrease in Unearned
rental
Collections from tenants
454,000
Question No. 5
Prepaid interest/Interest Payable
Decrease in
interest
Increase in
payable
Interest paid
Total
Prepaid
5,500
Interest
8,500
114,000
Interest
(squeeze)
100,000
114,000
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
114,000
A
5.
expense
PROBLEM 5-8
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance A/R

Beg. Balance N/R
Sales on account
(squeeze)
200,000
300,000
1,000,000
250,000
100,000
20,000
10,000
1,120,000
1,500,000
1,500,000
Total
Bal. end A/R

Bal. end N/R
Sales ret. and allow.
Sales discount
Collections
Question No. 2
Accounts payable/Notes payable
Balance end A/P
Balance end N/P
Purchase returns
allow
Purchase discount
Payments
and
Total
25,000
75,000
40,000
50,000
100,000
650,000
Beg. Balance A/P

Beg. Balance N/P
Gross
purchases
(squeeze)
10,000
650,000
800,000
800,000
Gross purchases
Less: Purchase ret and allow
Purchase discounts
Net Purchases
650,000
40,000
10,000
Question No. 3
Sales
Less: Sales ret and allow
Sales discounts
Net Sales
Less: Cost of Sales
Merchandise inventory beg.
Add: Net Purchases
Purchases
Add: Freight-in
Gross Purchases
Less: Purch. Ret and allow
Purchase discounts
Total goods available for sale
Less: Merchandise inventory, end
Gross Income / Gross Profit
50,000
600,000
20,000
10,000
1,000,000
30,000
970,000
200,000
600,000
650,000
40,000
10,000
600,000
800,000
100,000
700,000
270,000
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid
Salaries
Salaries
Payments
100,000
125,000
50,000
75,000
350,000
300,000
Total
500,000
500,000
Question No. 5

Salaries
Salaries
Salaries
expense
(squeeze)
Accrued rent/Unearned rent

rent
Balance end - Unearned
rent
Rent income (squeeze)
Total
SUMMARY OF ANSWERS:
1. A
2. B
3. C
70,000
40,000
40,000
80,000
490,000
300,000
600,000
600,000
4.
5.

rent
Beg. Balance - Unearned
rent
Collection of rent
PROBLEM 5-9
Question No. 1
Beg. Balance
Recoveries
Sales (squeeze)
200,000
8,000
1,570,000
300,000
20,000
1,408,000
50,000
Total
Sales
Less: Sales discount
Net Sales
Question No. 2
Payment (1,210,00020,000+30,000)
Purchase ret. and allow.
Balance end
1,778,000
Balance end
Sales discounts
Collections
including
recoveries (1,498,00080,000+20,00-30,000)
Accounts written-off
1,778,000
1,570,000
20,000
1,550,000
Accounts payable trade
1,210,000
10,000
100,000
150,000
1,170,000
Beg. Balance
Purchases (squeeze)
Total
1,320,000
Purchases
Less: Purchases discount
Net Purchases
1,320,000
1,170,000
10,000
1,160,000
Question No. 3
Beg. Balance
Net
Purchases
(1,170,000-10,000)
380,000
1,160,000
330,000
1,210,000
Total
1,540,000
1,540,000
Balance end
Cost of Sales (squeeze)
Question No. 4
Rent Receivable
Beg. Balance
70,000
130,000
80,000
120,000
Total
200,000
200,000
Balance end
Collections
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
50,000
30,000
20,000
52,000
8,000
Total
80,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
Beg. Balance
Doubtful
account
expense(squeeze)
Recoveries
80,000
5.
PROBLEM 5-10 Comprehensive

Question No. 1
Beg. Balance
Professional
(squeeze)
Total
fees
500,000
5,250,000
750,000
5,000,000
5,750,000
5,750,000
Balance end
Collections
Question No. 2
Professional Fees (See No. 1)
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000)
Other operating expense
Interest expense (1M x 12% x 9/12)
Depreciation expense (2,500,000/10)
Net income
Question No. 3
Cash
Accounts Receivable
Supplies
Total Current Assets
1,300,000
850,000
750,000
90,000
250,000
3,240,000
2,010,000
1,500,000
750,000
250,000
2,500,000
Question No. 4
Furniture and fixtures
Less: Accumulated Depreciation
(125,000 + 250,000)
Total Noncurrent Assets
375,000
2,125,000
Question No. 5
Total current assets (See No. 3)
Total noncurrent assets (See No. 4)
Total Assets
2,500,000
2,125,000
4,625,000
2,500,000
Question No. 6
Notes Payable
Accrued rent
Accrued interest on notes payable
(1,000,000 x 12% x 9/12)
Total Current Liabilities
1,000,000
100,000
90,000
1,190,000
Question No. 7
Total assets (See No. 5)
Less: Total liabilities (See No. 6) all are
current
Total Owners Equity
SUMMARY OF ANSWERS:
1. B
2. B
3. A
5,250,000
4.
4,625,000
1,190,000
3,435,000
5.
6.
7.
PROBLEM 5-11
Question No. 1
Beg. Balance
Sales on account
(squeeze)
124,000
1,535,000
146,000
13,000
1,500,000
Total
1,659,000
1,659,000
Balance end
Sales discount
Collections
Sales on account
Add: Cash sales
Total sales
1,535,000
160,000
1,695,000
Question No. 2
Gross sales (see No. 1)
Less: Sales discount
Net sales
1,695,000
13,000
1,682,000
Question No. 3
Accounts Payable
Payments
Balance end
1,206,000
410,000
382,000
1,234,000
Total
1,616,000
1,616,000
Purchases on account
Add: Cash purchases
Total Purchases
Beg. Balance
Purchases (squeeze)
1,234,000
120,000
1,354,000
Question No. 4
Merchandise Inventory
Beg. Balance
Net purchases
186,000
1,354,000
190,000
1,350,000
Total
1,540,000
1,540,000
Question No. 5
Balance end
Prepaid G&A/Accrued G&A

Interest
Balance end Accrued
Interest
Payments
Total
9,600
8,400
9,000
7,000
204,000
207,200
222,600
222,600

Interest
Beg. Balance Accrued
Interest
Expenses
Question No. 6
General and administrative expense (see No. 5)
Warranty expense
Total operating expense
207,200
84,000
6,400
297,600
Question No. 7
Selling price of land
Less: Book value of land
Gain on sale of land
20,000
16,000
4,000
Question No. 8
Selling Price
Less Book value
Cost
Less: Accumulated depreciation
Gain on sale of warehouse equipment
12,000
25,000
16,000
Question No. 9
Selling Price
Less: Book value
Cost
Gain on sale of boiler
42,000
48,000
20,000
Question No. 10
Net Sales
Less: Cost of Sales
Gross Profit
Less: Operating expenses
Gain on sale (14,000+3,000+4,000)
Net income
SUMMARY OF ANSWERS:
1. B
2. C
3. D
6. A
7. A
8. C
9,000
3,000
4.
9.
A
B
28,000
14,000
1,682,000
1,350,000
332,000
297,600
21,000
55,400
5.
10.
B
A

Question No. 1
Beg. Balance
Sales (squeeze)
150,000
800,000
200,000
10,000
740,000
Total
950,000
950,000
10
Balance end
Sales returns
Collections
Question No. 2
Sales on account
Add: Cash sales
Total sales
Less: Sales returns and allowances
Net sales
Less: Cost of sales (squeeze)
Gross profit (200,000/40%)
800,000
100,000
900,000
10,000
890,000
390,000
500,000
Beg. Balance
Net Purchases (squeeze)
190,000
420,000
220,000
390,000
Total
610,000
610,000
Balance end
Cost of Sales
Question No. 3
Accounts Payable trade
Payments (squeeze)
Purchase returns and
allowances
Balance end Accounts
payable
Total
470,000
230,000
8,000
428,000
Beg. Balance - Accounts

payable
Gross
purchases
(420,000+8,000)
180,000
658,000
658,000
Question No. 4
Total payment of Accounts payable and admin expenses
Less: Payment of Accounts payable
Payment of admin expenses
Question No. 5
Payment of admin expenses
Divided by: Percentage of cash expenses to total admin
expense
Total admin expenses
Add: Selling expenses
Total selling and administrative expense
Question No. 6
Total administrative expenses
Less: Payment of administrative expense
Non-cash administrative expenses
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12)
11
518,000
470,000
48,000
48,000
80%
60,000
200,000
260,000
60,000
48,000
12,000
9,000
Depreciation for furniture and fixtures

Divided by: Number of months used over 12 months
Annual depreciation
Divided by: Depreciation rate
Cost of Furniture and Fixtures (no residual value)
SUMMARY OF ANSWERS:
1. A
2. A
3.
4.
3,000
6/12
6,000
10%
60,000
5.
6.
PROBLEM 5-13
Question No. 1
Beg. Balance
Sales
on
(squeeze)
account
800,000
930,000
700,000
30,000
1,000,000
Total
1,730,000
Balance end
Sales
returns
allowances
Collections
and
1,730,000
Sales
Less: Sales returns and allowances
Net sales
900,000
30,000
900,000
Question No. 2
Beg. Balance
Net Purchases (484,000
50,000)
150,000
434,000
144,000
440,000
Total
584,000
584,000
Balance end
Cost of Sales
Accounts Payable trade

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

Reported cost of sales
Add: Merchandise inventory, beginning
Payments to suppliers
12
Beg. Balance
Purchases
400,000
144,000
150,000
394,000
Question No. 3
Prepaid Interest/Accrued Interest
Interest
Interest
Interest payments
10,000
14,000
17,000
15,000
40,000
38,000
Total
67,000
67,000

Interest
Interest
Interest expense
Unadjusted operating expense

Less: Adjustment of overstated interest expense
Adjusted total operating expense
Question No. 4
200,000
2,000
198,000
Accrued Rent/Unearned Rent

Rent
Balance end - Unearned
Rent
Rent income
Total
22,000
19,000
18,000
20,000
49,000
50,000
89,000
89,000

Rent
Beg. Balance - Unearned
Rent
Collections
Question No. 5
Net sales (see No. 1)
Less: Cost of sales (see No. 2)
Gross income
Less: Operating expense (including interest expense of P38,000)
Add: Rent Income
Net Income
SUMMARY OF ANSWERS:
1. A
2. D
3.
4.
5.
900,000
440,000
460,000
198,000
49,000
311,000
PROBLEM 5-14
Question No. 1
Accounts receivable/Notes Receivable
Beg. Balance A/R
Beg. Balance N/R
Sales on account
(squeeze)
1,600,000
400,000
5,660,000
2,000,000
1,200,000
3,000,000
1,000,000
100,000
300,000
60,000
Total
7,660,000
7,660,000
13
Balance end A/R

Balance end N/R
Collections of A/R
Collections of N/R
Sales discounts
Sales returns
Accounts written-off
Sales on account
Add: Cash sales
Total Sales
5,660,000
800,000
6,460,000
Question No. 2
Accounts payable/Notes payable
Balance end N/P
Balance end A/P
Payments of A/P
Payments of N/P
Purchase discount
500,000
1,000,000
1,500,000
1,300,000
80,000
700,000
1,200,000
Total
4,380,000
4,380,000
2,480,000
Purchases on account
Add: Cash purchases
Total purchases
Question No. 3
Beg. Balance N/P

Beg. Balance A/P
Purchase on account
(squeeze)
2,480,000
600,000
3,080,000
Accrued interest payable
Balance end
Interest paid
40,000
100,000
80,000
60,000
Total
140,000
140,000
Beg. Balance
Interest
(squeeze)
expense
Question No. 4
Unearned rent income
Balance end
40,000
240,000
120,000
160,000
Total
280,000
280,000
Question No. 5
Beg. Balance
Collections from tenants
Beg. Balance
Purchases (see No. 2)
1,600,000
3,080,000
1,000,000
80,000
3,600,000
Total
4,680,000
4,680,000
SUMMARY OF ANSWERS:
1. A
2. A
3.
4.
14
Balance end
Purchase discount
5.
Chapter 6: Correction of Errors
CHAPTER 6: CORRECTION OF ERRORS

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

expense account and no adjustment
was made at the end of 2015.
109
Omission of Deferred Income

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

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

Accrued salaries expense of P4,000 was
not recorded at the end of 2016.
Accrued salaries expense of P4,000

was not recorded at the end of 2015.
Omission of Accrual of Revenues

Accrued rent receivable of P8,000 was
not recorded at the end of 2016.
Accrued rent receivable of P8,000

was not recorded at the end of 2015.
Error affecting ending inventory (e.g.

overstatement)
Effect of the error in 2016 Net Income X
Effect of the error in 2016 Net Income

-U
Additional information # 4
Accrued interest receivable of P8,000
was
Accrued interest receivable of

P15,000 was
110
111
112
113
Requirement No. 1
Total 2015 Adjusted Income 399,000
114
Requirement No. 1
Total 2015 Adjusted Income 345,000
117
Improper capitalizing of expense

Effect of error in 2016 Net income O
Improper expensing of capital
expenditure
Effect of error in 2016 Net income U
15
Change to:
Total 2015 Adjusted Income

181,000
Total 2015 Adjusted Income
235,000
Effect of error in 2016 Net income
U
Effect of error in 2016 Net income
O
PROBLEM 6-1 Income Statement and SFP Errors

Questions Nos. 1-6
2015
Unadjusted
balances
1
2
Adjusted
balances
2016
Net
income
Workin
g capital
RE, end
of the
year
Net
income
Workin
g capital
RE, end
of the
year
100,000
-
300,000
-
100,000
-
150,000
-
400,000
-
250,000
-
100,000
300,000
100,000
150,000
400,000
250,000
Question No. 7
Assuming errors were discovered in 2015
ADJUSTING ENTRIES
Debit
1) Interest expense
20,000
Rent expense
2)
Accounts receivable
Notes receivable
30,000
Accounts receivable
Notes receivable
Credit
30,000
30,000

ADJUSTING ENTRIES
Debit
1) No entry
2)
20,000
30,000

ADJUSTING ENTRIES
Debit
1) No entry
2)
Credit
Accounts receivable
Notes receivable
30,000
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
5.
Credit
30,000
6.
PROBLEM 6-2 Counterbalancing Errors

Questions Nos. 1-6
Unadjusted
balances
1
2
3
4
Adjusted
balances
Net
income
2015
Workin
g capital
R/E
Net
income
2016
Workin
g capital
100,000
(10,000)
15,000
6,000
(16,000)
300,000
(10,000)
15,000
6,000
(16,000)
100,000
(10,000)
15,000
6,000
(16,000)
150,000
10,000
(15,000)
(6,000)
16,000
400,000
-
250,000
95,000
295,000
95,000
155,000
400,000
250,000
16
R/E
Question No. 7
A. Errors were discovered in 2015
ADJUSTING ENTRIES
1) Rent expense
Rent payable
2)
Debit
10,000
Credit
10,000
Interest receivable
Interest income
15,000
3)
Prepaid insurance
Insurance expense
6,000
4)
Rent revenue
Unearned rent revenue
15,000
6,000
16,000
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
ADJUSTING ENTRIES
Debit
Credit
1) Retained earnings
10,000
Rent expense
10,000
2)
3)
4)
Interest income
Retained earnings
15,000
Insurance expense
Retained earnings
6,000
Retained earnings
Rent revenue
16,000
15,000
6,000
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.
5.
6.
PROBLEM 6-3 Counterbalancing Errors

Questions Nos. 1-6
Unadjusted
balances
1
2
3
Adjusted
balances
Net
income
2015
Workin
g capital
R/E, end
Net
income
2016
Workin
g capital
R/E, end
100,000
(50,000)
70,000
20,000
300,000
(50,000)
70,000
20,000
100,000
(50,000)
70,000
20,000
150,000
50,000
(70,000)
(20,000)
400,000
-
250,000
-
140,000
340,000
140,000
110,000
400,000
250,000
17
Question No. 7
ADJUSTING ENTRIES
1) Purchases
Accounts payable
2)
3)
Debit
50,000
Credit
50,000
Accounts receivable
Sales
70,000
Inventory
Cost of sales
20,000
70,000
20,000

Assuming errors are discovered when the cash flows related to the
transactions were processed and books are still open
ADJUSTING ENTRIES
Debit
Credit
50,000
Purchases
50,000
2)
3)
Sales
Retained earnings
70,000
7,000
Inventory, beginning
Retained earnings
6,000
6,000
If books are already closed, no necessary adjusting entries to be made.

C.

No necessary adjusting entries to be made.
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
5.
6.
PROBLEM 6-4 Noncounterbalancing Errors

Questions Nos. 1-6
2015
Unadjusted
balances
1.
2.
3.
4.
5.
6.
Adjusted
balances
Net
income
Workin
g capital
100,000
(18,000)
32,000
(12,000)
160,000
(25,000)
4,000
(20,000)
300,000
(18,000)
32,000
-
221,000
314,000
2016
RE, end
of the
year
RE, end
of the
year
Net
income
Workin
g capital
100,000
(18,000)
32,000
(12,000)
160,000
(25,000)
4,000
(20,000)
150,000
(6,000)
16,000
(40,000)
4,000
400,000
(24,000)
48,000
-
250,000
(24,000)
48,000
(12,000)
120,000
(25,000)
8,000
(20,000)
221,000
124,000
424,000
345,000
18
Question No. 7
ADJUSTING ENTRIES
1) Insurance expense
Prepaid insurance
2)
Debit
18,000
18,000

Rent income
32,000
3)
12,000
4)
Building improvements
Repairs expense
5)
6)
32,000
12,000
200,000
200,000
40,000
Other income
Loss on sale
Building
20,000
15,000
5,000
Repairs expense
Building
20,000
40,000
40,000
20,000
4,000
4,000

ADJUSTING ENTRIES
Insurance expense
Prepaid insurance
Debit
18,000
6,000
2)

Retained earnings
Rent income
48,000
3)
Retained earnings
12,000
4)
Retained earnings
5)
Credit
Credit
24,000
32,000
16,000
12,000
200,000
200,000
Retained earnings
40,000
40,000
Retained earnings
Building
25,000
15,000
80,000
40,000
19
6)
Retained earnings
Building
20,000
20,000
Retained earnings
C.
8,000
4,000
4,000

ADJUSTING ENTRIES
Prepaid insurance
Debit
24,000
2)

Retained earnings
48,000
Retained earnings
12,000
3)
4)
5)
6)
24,000
48,000
12,000
Retained earnings
200,000
200,000
Retained earnings
40,000
80,000
Retained earnings
Building
25,000
15,000
Retained earnings
Building
20,000
120,000
40,000
20,000
Retained earnings
SUMMARY OF ANSWERS:
1. A
2. A
3. A
Credit
4.
8,000
5.
8,000
6.
PROBLEM 6-5 (COMPREHENSIVE)

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

*Loss under, NI over
Adjusted balance
20,000
5,000
(45,000)
Computation of loss:
Selling Price
Less: Book value
Cost
Loss on sale
32,000
20,000
40,000
15,000
Questions No. 4
Effect of errors to Retained Earnings in 2015
Understatement to 2014 net income
Overstatement to 2015 net income
Net understatement to 2015 retained earnings
Questions No. 5
ADJUSTING ENTRIES
1) Retained earnings, beg
Merchandise inventory, beg
Merchandise inventory, end
Cost of Sales
2)
3)
4)
5)
25,000
(5,000)
45,000
32,000
13,000
Debit
10,000
Credit
10,000
8,000
Purchases
Retained earnings
Advances supplier
Purchases
20,000
Retained earnings, beg

Sales
20,000
Sales
Advances customers
70,000
40,000
8,000
20,000
40,000
20,000
Improvements
Retained earnings
20,000
100,000
Retained earnings, beg
Equipment
SUMMARY OF ANSWERS:
1. A
2. A
3. A
22,000
70,000
40,000
80,000
15,000
25,000
40,000
4.
21
5.

Questions Nos. 1-5
2014
Net
Workin
Income
g capital
Ending Inventory 2014
understated, NI
understated
Ending Inventory 2015
overstated, NI overstated
Depreciation exp. 2014
overstated, NI
understated
Depreciation exp. 2015
overstated, NI
understated
Accrued expense
understated, NI
overstated 2014
Accrued expense
understated, NI
overstated 2015
Prepaid expense
understated, NI
understated 2014
Prepaid expense
understated, NI
understated 2015
Accrued revenues
understated, NI
understated 2015
Deferred revenues
understated, NI
overstated 2014
Total
(6,000)
2015
Net
Workin
Income
g capital
(6,000)
(11,000)
4,500
(5,000)
(5,000)
R/E
6,000
10,000
10,000
10,000
(11,000)
(7,000)
(7,000)
(4,500)
7,500
7,500
7,500
5,000
(12,000)
(12,000)
(12,000)
(3,000)
(3,000)
(3,000)
4,500
12/31/2
015
1,200
1,200
(1,200)
(16,300)
5,300
800
2,500
(15,500)
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
22
5.
PROBLEM 6-7
Questions Nos. 1, 2 and 4
1
2
3
4
5
6
7
Unadjusted balances
Overstatement of ending inventory - 2013
Understatement of ending inventory 2015
Understatement of accrued expense - 2013
Overstatement of accrued exp.
Understatement of Depreciation Expense
Overstatement of Depreciation Expense
Overstatement of Purchases
2013
2014
Overstatement of other income
Correct gain
20,000
Less: Per record
5,000
Adjusted balances
2013
3,000,000
(120,000)
2014
(1,000,000)
120,000
(40,000)
40,000
210,000
90,000
(180,000)
30,000
30,000
(30,000)
2,870,000
Computation of correct gain:

Selling Price
Less: Book value
Cost
Loss on sale
40,000
(40,000)
(15,000)
(1,025,000)
3,790,000
20,000
40,000
25,000
Questions Nos. 3 and 5

Adjusted net income (loss):
2013
2014
Total RE, 12/31/2014
Adjusted net income 2015
Total RE, 12/31/2015
SUMMARY OF ANSWERS:
1. B
2. B
3. B
2015
3,500,000
2,870,000
(1,025,000)
1,845,000
3,790,000
5,635,000
4.
PROBLEM 6-8
Question No. 1
Entry made:
Cash
Equipment
5.
15,000
5,000
No. 3
No. 5
Debit
30,000
Credit
30,000
Accumulated depreciation (70,000 x 10%)
23
7,000
7,000
Should be entry:
Cash
Loss on sale
Equipment
Debit
30,000
60,000
10,000
Adjusting entry in 2015:

Retained earnings
Equipment
Debit
67,000
3,000
Credit
70,000
Credit
70,000
Question Nos. 2-7
Unadjusted
balances
Exp over, NI
under, WC
under
2013
2014
2015
Income over,
WC over:
2013
2015
EI under, NI
under, WC
under:
2013
2014
EI over, NI
over, WC
over
Loss under,
NI over
Depreciation
exp. Over, NI
under
Adjusted bal.
2013
Workin
Net
g
income
capital
Over/
600,000 (under)
1,000
(2,000)
10,000
2014
Net
income
(1,000)
2,000
700,000
Working
capital
Over/
(under)
(1,000)
1,500
(1,500)
2015
Workin
Net
g
income
capital
Over/
800,000 (under)
(1,500)
600
(600)
(3,000)
3,000
2,000
(10,000)
(10,000)
20,000
(20,000)
(20,000)
(25,000)
25,000
751,100
(6)
27,400
(7)
(10,000)
609,000
(2)
7,000
709,500
(4)
(9,000)
(3)
SUMMARY OF ANSWERS:
1. A
2. A
3. D
4.
24
(21,500)
(5)
5.
6.
7.
Chapter 8: Cash and Cash Equivalents
CHAPTER 8: CASH AND CASH EQUIVALENTS

Note to professor:
Page
179
Existing data:
1. Customers NSF check returned by
bank in January and redeposited in
February (no entry in January and
February), P 3,400
181
Requirement No. 2
Erroneous bank charge October
7,000
Erroneous bank charge November
18,000
182
Requirement No. 6: Adjusting entries

#3
3) Salaries payable
120,000
Beg
(3,400)
Change to:
Rec. Disb.
3,400
End
Erroneous bank charge October

18,000
7,000
3) Rent payable
120,000
PROBLEM 7-1 Cash and Cash Equivalents

Postal money order
Correct cash balance in a general checking account with BPI
Treasury warrants
Currency and coins in a petty cash fund
Cash and cash equivalents
50,000
320,000
20,000
1,000
P 391,000
Suggested answer: B
Reported cash and cash equivalents
Certificate of deposits with maturity of 120 days
Postdated check
Compensating balance legally restricted
Adjusted cash and cash equivalents
6,325,000
(500,000)
(125,000)
(500,000)
P5,200,000
Suggested answer: C
Bills and coins on hand
Travelers check
Petty cash excluding paid cash vouchers of P1,650
Money order
Checking Account Balance in Bank of Philippine Island
Total
Suggested answer: D
25
P 52,780
22,400
350
800
22,000
P 98,330

Cash on hand
Checking account No. 143 - BPI
*Securities classified as cash equivalents
80,000
200,000
(30,000)
3,600,000
P 3,850,000
*Breakdown of securities classified as cash equivalents

Date
Maturity
Securities:
Acquired
Date
120-day Certificate of Deposit
12/10/2014 01/31/2015
BSP-Treasury Bills (No.2)
10/31/2014 01/20/2015
Money Market Funds
11/21/2014 02/10/2015
Amount
P 600,000
1,000,000
2,000,000
Suggested answer: A
Cash in bank checking account
Cash in bank payroll account
Cash on hand
Treasury bills, purchased December 15, 2013 and
due March 15, 2014
Unreleased checks
Postdated checks
5,000,000
1,000,000
500,000
2,000,000
100,000
( 200,000)
P8,400,000
Suggested answer: B
Petty cash fund (70,000-15,000-5,000)
Current account Metro Bank (4,000,000+100,000)
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
26
50,000
4,100,000
P4,150,000
X-.05X+50,000
.95X
.95X/.95
X
=
=
=
=
3,375,000
3,375,000-50,000
3,325,000/.95
3,500,000
Question No. 2
Annual interest payment (3,500,000 x 12%)
Interest income on the loan proceeds in the
compensating balance [3.5M-3,375,000) x 4%]
Effective interest
Divide by loan proceeds (3,500,000-175,000)
Effective interest rate
Suggested answers:
1. C
420,000
5,000
415,000
3,375,000
12.30%
2. C
PROBLEM 7-8 Petty Cash Fund

Requirement No. 1
Currencies
Coins
A check drawn by the company payable to the order
of the petty cash custodian, representing her salary
Adjusted Petty Cash Fund
Requirement No. 2
Petty cash Accounted:
Currencies
Coins
Petty cash vouchers:
Transportation
Office supplies
Repair of computer
Loans to employees
Miscellaneous expenses
Postage
A check drawn by the company payable to the
order of the petty cash custodian, representing her
salary
An employees check returned by the bank because
of insufficient funds
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
27
3,000
450
3,800
7,250
3,000
450
650
160
400
600
240
200
3,800
1,200
500
11,200
Less: Petty Cash Accountabilities

PCF imprest balance
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
Petty cash overage
Requirement No. 3: Adjusting Entries
1) Transportation expense
Office supplies expense
Repairs expense
Advances to employees
Miscellaneous expense
Postage
Petty Cash fund
10,000
500
Debit
650
160
400
600
240
200
2)
Unused stamps
Postage
50
3)
Petty cash fund

Miscellaneous Income
700
4)
Advances to employees
Petty cash fund
1,200
PROBLEM 7-9 Petty Cash Fund

Coins and currencies
Check drawn by the company payable to the order of the petty
cash custodian, representing salary for the month
Petty cash
10,500
700
Credit
2,250
50
700
1,200
17,000
18,000
P 35,000
Suggested answer: C
PROBLEM 7-10 Bank Reconciliation
Unadjusted balances
Outstanding check, net of certified checks
Deposit in transit (Undeposited collections)
Book error disbursement for utilities
Note charged by the bank, including interest
Bank service charge
Erroneous bank credit
NSF check
Adjusted balance
28
Bank
P126,300
(12,300)
7,850
(5,670)
P116,180
Book
P123,310
360
(6,500)
(240)
(
750)
P116,180
The following are the adjusting entries to be recorded in the companys

books. Note that only book reconciling items are recorded.
ADJUSTING ENTRIES
Debit
Credit
1) Cash
360
Utilities expense
360
2)
3)
4)
Notes payable
Interest expense
Cash
6,000
500
6,500
Bank service charge

Cash
240
Accounts receivable
Cash
750
240
750
PROBLEM 7-11 Bank Reconciliation

Unadjusted bank bal
DIT: October
November
OC: October
Nov. (760+1,868)
Unadjusted book bal
Credit memo Oct.
Nov.
NSF-Nov
BSC: Oct
Nov
Check
No.
overstated
disbursement
Check
No.
understated
disbursement
Oct. 31
18,005
1,790
Receipts
17,709
(500)
(1,790)
3,600
Disb
25,620
Nov. 30
10,094
(500)
3,600
(6,681)
13,114
19,019
(6,681)
2,628
21,567
11,534
1,600
18,269
21,575
22
35
8,228
1,600
750
(665)
(20)
(22)
(35)
(1,000)
1,000
270
21,567
(270)
10,566
750
665
(20)
(2,628)
10,566
148
150
13,114
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
19,019
29
5.
PROBLEM 7-12 Deposit in Transit

Deposit in transit, beg
Add: Book debits for the month
Less: CM recorded this month
Error check received (Jan)
Error check issued (Jan)
Add: Error check received (Feb)
Total
Less: Bank debits for this month
Less: CM for this month
Erroneous bank credit - Feb
Erroneous bank charge - Jan
Deposit in transit, end
P 400,000
5,000
36,000
27,000
16,000
P 360,000
6,000
2,500
1,000
P 50,000
348,000
398,000
350,500
P 47,500
Suggested answer: A
PROBLEM 7-13 Outstanding Checks
Outstanding checks, beg (squeeze)
Add: Book credits for the month
Less: Error in recording
Service charge recorded
Total
Less: NSF check returned
DM for this month
Outstanding checks, end
P 85,800
1,800
30
P 97,650
2,300
3,000
P 12,880
83,970
96,850
92,350
P 4,500
Suggested answer: A
PROBLEM 7-14 Proof of Cash
Question No. 2
Add: Book debits for the month
Less: CM recorded this month
Total
Less: CM for this month
Erroneous bank credit - Oct
Erroneous bank debit - Sep
30
P 151,230
1,500
P 149,951
4,277
3,000
600
P 5,200
149,730
154,930
142,074
P 12,856
Question No. 3
Add: Book credits for the month
Less: DM recorded (526+50)
Total
Less: Erroneous bank debits-Oct
Erroneous bank credits-Sep
DM for this month (700+65)
P 8,007
P 111,423
576
P 110,098
900
1,000
765
110,847
118,854
107,433
P 11,421
Question Nos. 1, 4 and 5

BANK
30-Sep
Unadjusted bal - bank
130,560
Deposit in transit:
September 30
5,200
October 31
Outstanding checks:
September 30
(8,007)
October 31
(1,000)
Erroneous bank debitOct
Erroneous bank debitSep
600
Adjusted balances
127,353
*(130,560+149,651-110,098)
BOOK
Unadjusted bal - book
Bank service charge:
September 30
October 31
NSF checks:
September 30
October 31
CM for collection:
September 30
October 31
Adjusted balances
Receipts
149,951
Disb.
110,098
(5,200)
12,856
12,856
(8,007)
11,421
(1,000)
(11,421)
(900)
900
111,612
169,748
(3,000)
(600)
154,007
30-Sep
**126,429
Receipts
151,230
(3,000)
Disb.
111,423
31-Oct
166,236
(50)
(50)
65
(65)
(526)
(526)
700
(600)
111,612
4,277
169,748
1,500
(1,500)
4,277
154,007
127,353
*(166,236+111,423-151,230)
SUMMARY OF ANSWERS:
1. B
2. A
3. B
31-Oct
*170,413
4.
31
5.

Question No. 1
Outstanding checks, beg.
Add: Checks issued
Total
Less: Checks paid by the bank
100,000
2,500,000
2,600,000
2,200,000
400,000
Question No. 2
Deposits in transit, beg
Add: Deposits made
Total
Less: Deposits acknowledged by the bank
Deposits in transit, end
300,000
1,800,000
2,100,000
1,600,000
500,000
Question No. 3 to 5
BANK
31-May
Receipts
Unadjusted bal - bank
2,600,000 *2,190,000
Deposit in transit:
May 31
300,000
(300,000)
June 30
500,000
Outstanding checks:
May 31
(100,000)
June 30
(60,000)
Erroneous bank charge
40,000
(40,000)
Adjusted balances
2,780,000 2,350,000
*(1,600,000+40,000+550,000)
**(2,200,000+60,000+50,000+100,000)
BOOK
Unadjusted bal - book
May 31
June 30
CM for collection:
May 31
June 30
NSF checks - June 30
Adjusted balances
31-May
2,190,000
Disb.
**2,410,000
500,000
Receipts
***2,400,000
(100,000)
400,000
(60,000)
(400,000)
2,650,000
2,480,000
Disb.
2,500,000
30-Jun
2,090,000
50,000
(10,000)
(50,000)
100,000
2,650,000
550,000
(100,000)
2,480,000
(10,000)
600,000
(600,000)
550,000
2,780,000
2,350,000
***(1,800,000+600,000)
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
32
5.
30-Jun
2,380,000

Question No. 1
Outstanding checks, beg
Add: Checks issued this month
Book disbursements (squeeze)
Less: DM recorded this month
Total
P 16,250
P128,750
2,500
P 133,750
3,750
Question No. 2
Add: Deposits made by the company
Total
130,000
P 12,500
P 12,500
152,500
165,000
145,000
P 20,000
Question No. 3
Unadjusted cash in bank balance per ledger
Add: Under-footing of cash receipts
Total
Less: Unrecorded bank service charges
(3,250 +1,500-2,500)
Adjusted cash in bank balance, 12/31
Question No. 4
Bank service charges per
bank statement in December
Less: Bank service charge in December
recorded in December
Total BSC recorded in the books Dec
Less: BSC in Nov. recorded in Dec.
Unrecorded BSC charge in December
126,250
142,500
P 37,500
2,500
40,000
2,250
P 37,750
P 3,250
P 2,500
1,500
1,000
P 2,250
Question No. 5
Unadjusted cash in bank, November (squeeze)
Add: Book Receipts (152,500 - 2,500)
Total
Less: Book disbursements
Unadjusted cash in bank, December
P 16,250
150,000
166,250
128,750
P 37,500
Unadjusted cash in bank, November (squeeze)

Less: BSC in November
Adjusted cash in bank, December
P 16,250
1,500
P 14,750
SUMMARY OF ANSWERS:
1. C
2. D
3. C
4.
33
5.

Question No. 1
Beg. Bal., 7/1
Add: Cash receipts for July
Cash receipts for Aug.
Total
Less: Cash disbursement for July
Cash disbursement for Aug.
Bank reconciliation item
Unadjusted balance
P 128,384
1,364,858
1,839,744
P3,332,986
1,330,882
1,712,892
750
P 288,462
Question No. 2
Outstanding check, Aug. 31
Add: Checks paid by the bank
Bank debits except serv. charge
Less: Erroneous bank charge
DM on Interest on note
Total
Less: Checks issued by the company
this August
Outstanding check, July 31
P
P1,702,830
1,166
4,950
67,122
1,696,714
P1,763,836
1,712,892
P 50,944
Questions No 3 to 5
BANK
Unadjusted balances
Outstanding checks
July 31
August 31
Deposit in transit
July 31
August 31
Adjusted Balances
(*1,702,830 + 88)
BOOK
Unadjusted balances
Error in recording check
no. 216 taken up as
P1,930 but should be
P1,390 (1,930-1,390)
DM for int. on note
Bank service charge
July 31
August 31
NSF for July 31
Adjusted balances
**(1,712,892+750)
31-Jul
180,250
Receipts
1,830,752
( 50,944)
32,844
162,150
31-Jul
P162,360
( 32,844)
41,836
1,839,744
Receipts
P1,839,744
Disb.
*1,702,918
Aug. 31
308,084
( 50,944)
67,122
( 67,122)
( 1,166)
1,717,930
41,836
1,166
283,964
Disb.
**P1,713,642
Aug. 31
P288,462
540
4,950
(
52)
(
698)
P162,150
540
4,950)
P1,839,744
34
52)
88
(
698)
P1,717,930
(
(
88)
P283,964
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
5.

Question No. 1
Beg. Balance, Nov. 30
Add: Total Collections from customers on Dec.
November bank coll. for customer note
Total
Less: Checks drawn for December
Bank service charges November
Unadjusted cash balance, Dec. 31
Question Nos. 2-5
BANK
Unadjusted bank balance
NSF check, no entry on the books
for return and redeposit
Erroneous bank charge in
December
Undeposited collection
November 30
December 31
Bank service charge charged to
another client
Outstanding check
Nov. 30
Dec. 31
Adjusted balances
BOOK
Unadjusted balance
NSF check recorded as reduction
of cash receipts returned in
December but also recorded in
December
Error in recording check No. 7159
entered as P30,000 but should be
3,000
Cancellation of check No. 7767
Bank service charge
Nov. 30
Dec. 31
Bank collection for customer's
note:
Nov. 30
Dec. 31
Adjusted balances
Nov. 30
90,800
P 50,900
165,000
8,000
223,900
98,000
100
P 125,800
December
Receipts
Disb.
171,272
99,072
(
472)
Dec. 31
163,000
( 472)
( 1,500)
5,000
1,500
( 5,000)
8,000
( 5,000)
8,000
150
( 150)
( 7,700)
164,650
125,800
90,800
173,800
( 5,000)
7,700
99,950
50,900
173,000
98,100
1,800
1,800
27,000
5,000
27,000
5,000
( 100)
8,000
90,800
35
( 100)
150
(8,000)
7,000
173,800
99,950
150)
7,000
164,650
SUMMARY OF ANSWERS:
1. B
2. D
3. D
4.

Question No. 1
Book disbursements
Less: DM recorded this month
Total
Less: Bank disbursements
Add: Paid out in currency
Less: NSF redeposited
DM for this month
5.
P 8,000
P 148,000
2,500
P 150,000
2,000
3,000
1,500
145,500
153,500
147,500
P 6,000
Question Nos. 2 to 5
BANK
Unadj. balance - bank
Undeposited collections:
September 30
October 31
Outstanding checks:
September 30
October 31
Paid out in currency
Adjusted balances
Sept. 30
100,000
Receipts
200,000
5,000
(5,000)
7,000
BOOK
Unadj. balance - book
Customers notes
collected:
September 30
October 31
September 30
October 31
Adjusted balances
(8,000)
Disb.
150,000
Oct. 31
150,000
7,000
97,000
2,000
201,000
(8,000)
6,000
2,000
147,000
151,000
Sept. 30
91,500
Receipts
196,000
Disb.
148,000
Oct. 31
139,500
8,000
(8,000)
13,000
SUMMARY OF ANSWERS:
1. B
2. A
3. A
(2,500)
97,000
4.
201,000
36
5.
(6,000)
13,000
(2,500)
1,500
147,000
1,500
151,000

Question No. 1
Account No. 143:
Unadjusted balances
Deposit in transit
Misplaced check
Outstanding check
Undelivered check
Note charged by the bank
Adjusted balance
*(100,000 - 20,000, Misplaced check)
**(75,000 - 15,000, Undelivered check)
Question No. 2
Total Outstanding checks:
Account No.143
*Account No.144
Total outstanding check
Bank
P1,000,000
*80,000
Book
P1,099,400
( 20,000)
(**60,000)
P1,020,000
15,000
( 74,400)
P1,020,000
60,000
1,860,000
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
Bank Debits
P2,000,000
Less: BSC December
20,000
NSF check
100,000
1,880,000
P1,860,000
Deposit in transit:
November 30
December 31
Outstanding check:
November 30
December 31
Adjusted balances
Nov. 30
2,200,000
90,000
December
Receipts
Disb.
1,000,000 2,000,000
(90,000)
**240,00
0
(250,000)
20,000
2,060,000
37
(20,000)
1,130,000
Dec. 31
1,200,000
240,000
(250,000)
1,860,000
(1,860,000)
3,610,000
(420,000)
Unadjusted
book
balance
November 30
December 31
Unrecorded collections November 30
Uncollected customer's
note already recorded
as cash receipt
NSF - December 31
Adjusted balances
1,980,000
1,420,000
3,500,000
(100,000)
(10,000)
20,000
(20,000)
(200,000)
100,000
3,610,000
(100,000)
(420,000)
(10,000)
90,000
(90,000)
(200,000)
2,060,000
1,130,000
**Deposit in transit, beg

Add: Deposit made by the co. this month
Book Debits
P1,420,000
Less: Unrecorded collection 90,000
Customers note recorded as
cash receipts
200,000
Total
Bank Credits
P1,000,000
Less: Erroneous bank charge
20,000
Question No. 5
Adjusted balances:
Account No. 143
Account No. 144
Total adjusted balances
SUMMARY OF ANSWERS:
1. A
2. A
3. B
90,000
1,130,000
P1,220,000
980,000
P 240,000
P1,020,000
( 420,000)
P 600,000
4.

Question No. 1
RCBC Account
Unadjusted balance
Credit memo for note collected
Bank service charge
Deposit in transit
Outstanding checks (25,000+20,000)
Unrecorded disbursement
Adjusted balance
38
5.
Book
P 165,000
6,000
(1,000)
( 30,000)
P 140,000
Bank
P 125,000
60,000
(45,000)
P 140,000
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)
Equitable PCI Bank
Total outstanding checks
P 45,000
28,000
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.
5.

Question No. 1
Unadjusted bank statement balance - Dec. 31
Add: Deposit in transit
Less: Outstanding checks
Adjusted cash in bank balance, December 31
Less: Credit memo December
Add: Bank service charge December
NSF check, December
Unadjusted book balance - December 31
*(3,000,000+9,000,000-7,000,000)
Question No. 2
Unadjusted bank receipts
Deposit in transit-Nov. 30
November 30
December 31
Credit Memo - December 31
Unadjusted book receipts
*P5,000,000
1,000,000
600,000
P 5,400,000
200,000
10,000
140,000
P 5,350,000
P 9,000,000
(400,000)
1,000,000
( 200,000)
P9,400,000
39
Question No. 3
Unadjusted bank disbursements
Outstanding checks:
November 30
December 31
Bank service charge-Dec. 31
NSF check-Dec. 31
Unadjusted book disbursements
P7,000,000
(900,000)
600,000
(10,000)
( 140,000)
P6,550,000
Question No. 4
Currencies
Coins
Check drawn payable to petty cash custodian
Total Petty cash fund
Question No. 5
Cash in bank (See No. 1)
Petty cash fund (See No. 4)
Cash on hand (1,725,000-1,600,000)
Total Cash and cash equivalents
SUMMARY OF ANSWERS:
1. B
2. A
3. A
4.
P 40,000
4,000
30,000
P 74,000
P 5,400,000
74,000
125,000
P5,599,000
5.

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
Add: Checks issued
Total
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
40
7,000
75,000
P 82,000
60,500
P 21,500
Question No 2
Unadjusted rec. per bank
Deposit in transit:
November 30
December 31
Error correction
NSF check, no entry on the books when returned
and redeposited
Adjusted balance
Question No 3
Unadjusted disbursement, per bank
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the returned and redeposit
Adjusted balance
P 171,500
(11,000)
20,000
(500)
( 40,000)
P 140,000
P 113,000
(7,000)
21,500
(500)
( 40,000)
P 87,000
Question No 4
Unadjusted bank bal.
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
Adjusted bal.
P 127,500
20,000
( 21,500)
P126,000
Question No 5
Zero, adjusted bank and book balance on December 31 is the same.
PROOF OF CASH
Deposit in transit
November 30
December 31
Outstanding checks
November 30
December 31
Error correction
NSF check, no entry on the
books on the return and
redeposit
Nov. 30
69,000
Receipts
171,500
11,000
(11,000)
*20,000
(7,000)
41
Disb.
113,000
Dec. 31
*127,500
20,000
(500)
(7,000)
21,500
(500)
(40,000)
(40,000)
(21,500)
Adjusted bal.
* (69,000+171,500-113,000)
** (18,000+2,000)
Unadjusted book balance
Credit memo for note
collected
November 30
December 31
Bank service charge
November 30
December 31
Adjusted bal.
73,000
140,000
87,000
126,000
Nov. 30
66,000
Receipts
113,800
Disb.
85,000
Dec. 31
94,800
8,800
(8,800)
35,000
35,000
(1,800)
73,000
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
2,000
87,000
140,000
5.
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)
Add: Undeposited receipts
Adjusted bank balance
225,400
(39,347.50)
35,000
P221,052.50
Question No. 2
Unadjusted book bal.
Credit memo for notes collection
Credit memo for int.
Balance (cash accountability)
P242,310.50
30,000
900
P273,210.50
Question No. 3
Adjusted bank bal. (Cash accounted)
Less: Cash in bank bal. (cash accountability)
Shortage
P221,052.50
273,210.50
(P52,158.00)
SUMMARY OF ANSWERS:
1. B
2. D
3. B
42
(1,800)
(2,000)
126,000

Question No. 1
Outstanding checks
Undeposited collections
Adjusted bank balance
P 42,400
( 11,500)
5,000
P 35,900
Question No. 2
Unadjusted book bal.
Credit memo proceeds clean draft
Debit memo for bank service charge
Balance (cash accountability)
P 46,500
900
(
100)
P 47,300
Question No. 3
Adjusted bank bal. (Cash accounted)
Cash in bank bal. (cash accountability)
Shortage as of June 30
P 35,900
47,300
(P11,400)
Question No. 4
Additional cash shortage from July 1-15
July collection per duplicate O.R.
Less: collections in July that were deposited
in July
Collection per duplicate slips
Less :Undeposited collection, June 30
Cash that should be on hand on July 15
Less: Actual cash on hand on July 15
Cash shortage from July 1-15
P 18,800
P 11,000
5,000
Question No. 5
Understatement of cash in bank per books (46,500-45,600)
Overstatement of cash in bank per bank (44,000-42,400)
Understatement of outstanding checks (11,500-3600)
Overstatement of undeposited collections (5,100-5,000)
Non-recording of credit memo-proceeds of clean draft
Cash shortage as of June 30
SUMMARY OF ANSWERS:
1. C
2. D
3. B
4.
43
5.
6,000
P 12,800
4,800
P 8,000
P
900
1,600
7,900
100
900
P11,400

Question No. 1
Deposit in transit, unadjusted bal.
Less: customer's Post-dated check
Adjusted Deposit in transit
P 350,500
100,000
P 250,500
Question No. 2
Outstanding checks, unadjusted balance
Less: Unreleased check
Company's post-dated check
Adjusted Outstanding checks
P 493,500
( 29,500)
( 74,420)
P 389,580
Question No. 3
Unadjusted bal. per bank
Add: Deposit in transit (No. 1)
Less: Outstanding checks (No. 2)
Adjusted cash in bank bal.
P 700,000
250,500
(389,580)
( 60,000)
P 500,920
Question No. 4
Unadjusted bal. per books
Add: Credit memo for note coll.
Unreleased check
Company's post-dated check
Total
Less: Customer's post-dated check
Cash in bank per books bal.
Less: Adjusted cash in bank balance
Cash shortage
P 587,000
30,000
29,500
74,420
P 720,920
(100,000)
P 620,920
500,920
(P120,000)
Question No. 5
Unadjusted bal. per books
Less: Adjusted cash in bank balance
Net adjustments
P587,000
500,920
P 86,080
SUMMARY OF ANSWERS:
1. B
2. D
3. B
4.
5.

Question No. 1
Purchases (squeeze)
P 81,160
23,480
Cost of Sales (80,752/140%)
P 57,680
44
Purchases
Less: Accounts payable, end
Total payment of Accounts payable
P 81,160
11,571
P 69,589
Question No. 2
Sales on account
Less: Accounts receivable, end
Collection to customers
P 80,752
21,345
P 59,407
Question No. 3
Receipts:
Proceeds of issuance of stocks
Collection from customers
Loan proceeds
Disbursements:
Payment of real property
Payment of furniture and equipment
(7,250-1,500)
Payment of AP
Payment of operating expenses
Cash accountability
P 80,000
59,407
28,000
P 50,000
5,750
69,589
15,189
Question No. 4
Outstanding checks
Undeposited collections
140,528
P 26,879
P
(
P
Question No. 5
Less Cash accountability
Cash shortage
SUMMARY OF ANSWERS:
1. C
2. B
3. A
P 167,407
6,582
463)
1,285
7,404
7,404
26,879
(P19,475)
4.
45
5.
Chapter 10: Loans and Receivables
CHAPTER 10: LOANS AND RECEIVABLES

Note to professor:
Page
256
259
269
Existing data:
Requirement No. 1
Net Selling price = Present value
of notes receivable (25,000 x 3.5493)
Disregard (25,000 x 3.5493)
Illustration
The note is a non-interest bearing note
and the prevailing rate of interest for a
note of this type is 16% and the
principal amount
The note is a non-interest bearing

note and the prevailing rate of
interest for a note of this type is 14%
and the principal amount
Requirement No. 1
Add: Accrued interest
600,000
Carrying
amount
of
receivable:
5,600,000
Loan impairment 12/31/2014
2,594,800

500,000
Carrying amount of receivable:
5,500,000
Loan impairment 12/31/2014
2,494,800
270
Journal entries 12/31/14

Loan impairment
2,594,800
Accrued interest
600,000
Allowance for loan impairment
1,994,800
286
Solution
Maturity Value
= Principal + Interest
= P60,000+ (P600,000 x 10% x
90/360)
288
Replace to:
Illustration
On July 1, 2015, Boy Co. discounted its
own P50,000, 1-year note at a bank,
at a discount rate of 12%, when the
prime rate is 10%.
Loan impairment 2,494,800

Accrued interest 500,000
Allowance for loan impairment
1,994,800
Maturity Value
=
Principal
+
Interest
= P600,000+ (P600,000 x 10% x
90/360)
On July 1, 2015, Boy Co. discounted its
own P500,000, 1-year note at a
bank, at a discount rate of 12
PROBLEM 10-1 Trade and other receivables

Trade
Trade and other
Receivables
receivables
1
277,000
277,000
2
150,000
150,000
3
10,000
4
30,000
5
6
15,000
7
70,000
70,000
8
80,000
46
Noncurrent
Asset
110,000
220,000
9
Adjusted bal.
100,000
597,000 1. C
100,000
732,000 2. C
PROBLEM 10-2 Different Freight terms

Question No. 1
FOB Destination, freight prepaid
Invoice price of merchandise purchased
Less: Invoice price of merchandise returned
Net invoice price
Less: Purchase discount (300,000 x 2%)
Net Payment before freight
Less: Freight payment - FOB Destination, freight collect
Add: Freight payment - FOB shipping point, freight prepaid
Total Net Cash payment
330,000
300,000
300,000
6,000
294,000
294,000
Question No. 2
FOB Destination, freight collect
Net invoice price
300,000
300,000
6,000
294,000
5,000
289,000
Question No. 3
FOB Shipping point, freight prepaid
Net invoice price
300,000
300,000
6,000
294,000
5,000
299,000
Question No. 4
FOB Shipping point, freight prepaid
Net invoice price
300,000
300,000
6,000
294,000
-
47

SUMMARY OF ANSWERS:
1. B
2. A
3. C
4.
294,000
PROBLEM 10-3 Gross method and Net method

List price
Less: Trade discounts
15%: (100,000 x 15%)
15,000
20%: (100,000 15,000) x 20%
17,000
Invoice price, gross of discount
Less: Sales discount (68,000 x 3%)
Invoice price, net of discount
P 100,000
32,000
68,000
2,040
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
December 31, 2015 is as follows:
From 2014
1,000,000
From 2015
1,200,000
2,200,000
2011
2012
2013
2014
2015
Credit Sales
2,100,000
1,850,000
2,050,000
6,000,000
2,000,000
8,000,000
2,000,000
10,000,000
The year-end balances of accounts

Receivable are as follows:
December 31, 2014 1,000,000
December 31, 2015 1,200,000
CASE 1
20,000
40,000
130,000
190,000
22,000
212,000
113,000
325,000
Recoveries
15,000
20,000
5,000
40,000
20,000
60,000
40,000
100,000
Question No. 1
Percentage
Accounts written off minus Recoveries

Total credit sales
48
Total years from 2011 to 2015:

Percentage
325,000 - 100,000
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
Write off
Balance end (squeeze)
Allowance for Bad debts

113,000
400,000
372,000
45,000
40,000
485,000
485,000
Beg. Balance
Bad debts exp
Recovery
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
2014
2,000,000
2015
2,000,000
BD exp
50,000
50,000
Recoveries
Write-off
20,000
22,000
40,000
113,000
Allowance for BD
Net AB
48,000
(23,000)
25,000
CASE 3
Question No. 7
Percentage of bad
debts to AR

Total credit sales
49

Percentage of bad
=
debts to AR
212,000 - 60,000
8,000,000

Percentage of bad
debts to AR

Total credit sales

Percentage of bad
=
debts to AR
325,000 - 100,000
10,000,000

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

Note to professor:
Existing data:
Change to:
(P100,000 definitely collectible,
(P100,000 definitely uncollectible,
balance is 90%)
balance is 90%)
Question No. 1
Categories
Balance
(No. of Days)
0-30 days
500,000
31-60 days
600,000
61-90 days
750,000
over 91 days
300,000
Totals
2,150,000
Uncollectible
Percent Amount
2%
10,000
3%
18,000
5%
37,500
10%
30,000
95,500
50
Balance end
(see above table)
Write off
(23,000+100,000)
95,500
123,000
218,500
40,000
12,000
166,500
218,500
Question No. 2
Accounts receivable, end (see above table)
Less: Allowance for doubtful accounts, end
Net Realizable Value
Beg. balance
Recoveries
2,150,000
95,500
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
For less than 31 days
5.00%
300,000
From 31-60 days
6.00%
220,000
From 61-90 days
8.00%
150,000
From 91-120 days
15.00%
60,000
For over 121 days
20.00%
Required allowance for doubtful accounts
Question No. 2
Balance end

49,200
20,000
29,200
158,000
158,000
Allowance
15,000
13,200
12,000
9,000
49,200
Beg. balance
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
350,000
150,000
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
51
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
Loss on sale
Machinery
\
12/31/2015
100,000
350,000
50,000
500,000
Cash
Interest income
10,000
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
150,000
850,000
Gain on sale
P1,053,966
Amortization table
Date
Interest
Collections
01/01/2015
12/31/2015
200,000
12/31/2016
200,000
12/31/2017
200,000
Interest
Income
Discount
Amortization
228,475
231,892
235,704
28,475
31,892
35,672
Carrying
amount
1,903,960
1,932,435
1,964,327
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.
52
5.

Interest Is Payable Semi-Annually, One-Time Collection of Principal
Note to professor:
Existing data:
Choices for question No. 2
a. 100,000
c. 115,847
b. 114,104
d. 141,104
Change to:
a. 200,000
b. 229,054
Question No. 1
Present value of principal (2,000,000 x 0.7050)
Add: Present value of interest payments
(2,000,000 x 5% x 4.9173)
Cost
Gain on sale
Amortization table
Date
Interest
Collections
01/01/2015
07/31/2015
100,000
12/31/2015
100,000
07/31/2016
100,000
12/31/2016
100,000
07/31/2017
100,000
12/31/2017
100,000
c. 215,847
d. 232,643
P 1,410,000
491,730
1,901,730
1,000,000
150,000
Interest
Income
Discount
Amortization
114,104
114,950
115,847
116,796
117,804
118,602
14,104
14,950
15,815
16,796
17,804
18,802
Question No. 2
Interest income up to 07/31/2015
Interest income up to 12/31/2015
Total interest income
850,000
P1,051,730
Carrying
amount
1,901,730
1,915,834
1,930,784
1,946,599
1,963,395
1,981,198
2,000,000
114,104
114,950
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.
53
5.

Uniform Collection of Principal
Note to professor:
Existing data:
Problem 10-10
Principal is due in equal annual
payments, starting December 31,
2017.
Change to:
Principal is due in equal annual
payments, starting December 31,
2015.
Question No. 1
Computation of present value of all payments:
Present
Interest
Principal
value factor
collections
0.8929
600,000
180,000
0.7972
600,000
120,000
0.7118
600,000
60,000
Total present value
Cost
Gain on sale
Amortization table
Interest
Date
Collections
01/01/15
12/31/15
180,000
12/31/16
120,000
12/31/17
60,000
Total
collections
780,000
720,000
660,000
Total PV
696,462
573,984
469,788
1,740,234
1,740,234
1,000,000
150,000
850,000
P890,234
Interest
Income
Amortizatio
n
Principal
collections
208,828
140,287
70,651
28,828
20,287
10,651
600,000
600,000
600,000
Question No. 2
208,828. See amortization table above.
Question No. 3
Question No. 4
Principal collections 2016
Less: Amortization 2016
Current portion 12/31/2015
600,000
20,287
579,713
54
Carrying
amount
1,740,234
1,169,062
589,350
-
Question No. 4
Carrying value 12/31/2015
Less: Current portion 12/31/2015
Non-current portion 12/31/2015
SUMMARY OF ANSWERS:
1. B
2. B
3. A
1,169,062
579,713
589,350
4.
5.
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
Gain on sale
Amortization table
Interest
Date
income
1/1/15
12/31/15
181,630
12/31/16
83,425
12/31/17
21,382
1,513,580
1,000,000
150,000
Amortizatio
n
181,630
83,425
21,365
850,000
P663,580
Principal
Collections
1,000,000
600,000
200,000
Question No. 2
Question No. 3
Question No. 4
Principal collections 2016
Current portion 12/31/2015
600,000
83,425
516,575
55
Carrying
amount
1,513,580
695,210
178,635
-
Question No. 4
Less: Current portion 12/31/2015
Non-current portion 12/31/2015
SUMMARY OF ANSWERS:
1. B
2. B
3. A
695,210
516,575
178,635
4.
5.
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
150,000
850,000
Gain on sale
P431,240
Amortization table
Date
Interest Income
01/01/15
12/31/15
153,749
12/31/16
172,199
12/31/17
192,812
Amortization
Carrying amount
1,281,240
1,434,989
1,607,187
1,800,000
153,749
172,199
192,812
Question No. 2
Question No. 3
Question No. 4 and 5
SUMMARY OF ANSWERS:
1. B
2. B
3. A
4.
5.
PROBLEM 10-13 Computation of Annual Payment or Collection

CASE 1: Based on the original data
Requirement No. 1
Annual collection
Present value of the notes

Present value of ordinary annuity for 3 periods
Annual collection
1,500,000
2.4018
56
Annual collection
= P624,532
Requirement No. 2
Interest income (1,500,000 x 12%)
= P180,000
CASE 2
Requirement No. 1
Annual collection
Present value of the notes

Present value of annuity due for 3 periods
Annual collection
1,500,000
2. 6901
Annual collection
= P557,600
Requirement No. 2
Interest income (1,500,000 557,600) x 12%
PROBLEM 10-14 Loan Receivable
SOLUTION:
Loan receivable (principal amount)
Less: Unearned interest income
Origination fee received
342,100
Less: Direct origination cost
( 150,000)
Carrying amount January 1, 2015
= P113,088
P4,000,000
192,100
P3,807,900
Interest income for 2015 (12% x 3,807,900)

Interest received for 2015 (10% x 4,000,000)
Amortization of unearned interest income
P456,948
400,000
P 56,948
Loan receivable
Unearned interest income December 31, 2015
(192,100 56,948)
Carrying amount December 31, 2015
P 4,000,000
( 135,152)
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
57
*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
7,705,280
Amortization table
Date
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Collections
Interest
Income
Amortization
1,600,000
3,200,000
4,800,000
770,528
687,581
436,339
829,472
2,512,419
4,363,389
Carrying
amount
7,705,280
6,875,808
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
0.9091
160,000
160,000
0.8264
320,000
320,000
0.7513
480,000
480,000
Total PV
145,456
264,448
360,624
770,528
Amortization table
Date
12/31/2014
12/31/2015
12/31/2016
12/31/2017
Collections
Int. Income
Amortization
160,000
320,000
480,000
77,053
68,758
43,661
82,947
251,242
436,339
SUMMARY OF ANSWERS:
1. A
2. B
3. B
58
Carrying
amount
770,528
687,581
436,339
-
PROBLEM 10-17 Reversal of Impairment Loss

Question No. 1
Present value of expected cash flows
vs. Would have been present value if there was no impairment
Lower
Less: Actual amortized cost
Gain on reversal of impairment loss
Question No. 2
Interest income (600,000 x 10%)
P 654,552
600,000
600,000
396,681
P 203,319
60,000
SUMMARY OF ANSWERS:
1. A
2. B
PROBLEM 10-18 Pledge of Receivable
SOLUTION:
Principal amount borrowed
Less: One year interest deducted in advance (900,000 x 10%)
Cash received on December 1
P 900,000
( 90,000)
P810,000
Suggested answer: B
PROBLEM 10-19 Assignment of Receivable
Entries to record transactions
Date
Accounts
10/1/2015
Cash
Finance charge expense
Notes payable
12/31/2015
Debit
395,000
5,000
400,000
Cash
Accounts receivable
300,000
Interest expense (400,000 x 12% x 3/12)

Notes payable
Cash
12,000
300,000
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)
P142,500
59
Credit
300,000
312,000
Question No. 2
Notes payable
Less: Principal payment
Remittance
Less: Interest (150,000 x 12% x 3/12)
Notes payable December 31
P150,000
95,000
( 1,500)
Question No. 3
Accounts receivable assigned (200,000 100,000)
Less: Notes payable
Equity in assigned account
93,500
P 56,500
P 100,000
( 56,500)
P 43,500
SUMMARY OF ANSWERS:
1. D
2. C
3. C
PROBLEM 10-21 Factoring of Receivables
Entries to record transactions
Option
Accounts
One
Cash (400,000 x 90%)
Receivable from factor
(25,000 [5% x 400,000])
Loss on sale of receivables (squeeze)
Notes payable
Two
Cash (400,000 x 90%)

Receivable from factor
(25,000 [4% x 400,000])
Loss on sale of receivables (squeeze)
Notes payable
Estimated recourse liability
Debit
360,000
Credit
5,000
35,000
400,000
360,000
9,000
34,000
400,000
3,000
SUMMARY OF ANSWERS:
1. B
2. C
PROBLEM 10-22 Factoring
SOLUTION:
Sales price
Less: Carrying amount of accounts receivable (300,000 12,500)
Loss on factoring
Suggested answer: B
60
P 265,000
( 287,500)
P 22,500
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
Less: Carrying amount on date of discounting
Principal
Add: Interest (600,000 x 9% x 25/360)
Loss on notes receivable discounting
P 600,207.50
600,000.00
3,750.00
603,750.00
(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
Add: Protest fee and other bank charges
P 613,500
5,000
P618,500
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
Add: Protest fee and other bank charges
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
P 613,500
5,000
P618,500
C
5.
PROBLEM 10-24 Discounting Own Note

Question No. 1
Note payable
Less: Discount on note payable (250,000 x 12%)
Carrying amount Date of issuance
= Discount/Net proceeds
= 30,000/220,000
61
6.
P 250,000
( 30,000)
P 220,000
= 13.60%
Question No. 2
Entry to record transaction
Cash
220,000
Discount on notes payable
30,000
Notes payable
250,000
SUMMARY OF ANSWERS:
1. D
2. B
COMPREHENSIVE PROBLEMS
PROBLEM 10-25
Question No. 1
164,000
200,000
212,000
152,000
Total
364,000
364,000
Question No. 2
Age Group
Amount
0 - 60 days
P 1,650,000
61 - 90 days
440,000
91 - 120 days
100,000
Over 120 days
256,000
Total
P 2,446,000
Beg. Balance
DA expense (7.6M x 2%)
Percent Uncollectible
2%
10%
30%
40%
Allowance
33,000
44,000
30,000
102,400
209,400
Question No. 3
Balance end
164,000
209,400
212,000
161,400
Total
373,400
373,400
Beg. Balance
DA expense (squeeze)
Question No. 4
Accounts receivable, December 31, 2013
Less Allowance for doubtful accounts, December 31, 2013
Net realizable value
2,446,000
209,400
2,236,600
Question No. 5
Beg. Balance
Sales
2,500,000
7,600,000
2,446,000
164,000
7,490,000
62
Balance end
Write-off
Total
10,100,000
SUMMARY OF ANSWERS:
1. A
2. C
3. D
PROBLEM 10-26
Question No. 1
Credit Sales
2012
2,220,000
2013
2,450,000
2014
2,930,000
7,600,000
Percentage
10,100,000
4.
5.

52,000
59,000
60,000
171,000
Recoveries
4,300
7,500
7,200
19,000

Total credit sales

Percentage
171,000 - 19,000
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)
Less: Correct doubtful account expense (see No. 2)
Overstatement in doubtful account expenses
Question No. 4
P 62,000
( 60,000)
P 2,000
Beg. Balance
Sales on account
418,000
3,000,000
645,600
62,000
2,710,400
Total
3,418,000
3,418,000
Balance end
Write-off
Collections excluding
advance from customers
Question No. 5
Balance end
62,000
21,600
15,200
60,000
8,400
Total
83,600
83,600
SUMMARY OF ANSWERS:
63
Beg. Balance
Doubtful accounts expense
Recoveries
1.
2.
3.
PROBLEM 10-27
Question No. 1
Year
Credit sales
2011
3,000,000
2012
4,500,000
2013
5,900,000
2014
6,600,000
Total
20,000,000
2015
8,100,000
Total
28,100,000
Percentage
4.
Write-off
30,000
76,000
104,000
130,000
340,000
125,550
465,550
5.
Recoveries
5,400
5,000
9,600
20,000
10,000
30,000

Total credit sales

Percentage
=
2014
340,000 - 20,000
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
=
2015
465,550 - 30,000
28,100,000

(166,000-40,450)
Balance end (4,000,000 +
100,000+40,450)x1.55%
125,550
40,000
64,177
139,727
Total
189,727
10,000
64
189,727
Beg. Balance
Doubtful account
expense (squeeze)
Recoveries
Question No. 5
Accounts receivable (4,000,000+100,000+40,450)
Less: Allowance for doubtful accounts
P 4,140,450
(
64,177)
P4,076,273
SUMMARY OF ANSWERS:
1. A
2. C
3. A
PROBLEM 10-28
Unadjusted balances
2) Sale return
Cost of return
Merchandise
(30,000 x 80%)
3)Sales FOB shipping
point
not recorded as
Sale
Cost of mdse sold
(40,000 x 80%)
4) Goods shipped
FOB
Destination recorded
as sale
Cost of goods
(50,000 x 80%)
6) Doubtful accts exp
Adjusted bal.
Accounts
Receivable
300,000
(30,000)
4.
Allow
for DA
3,000
5.
Mdse.
Inventory
400,000
Net
Sales
1,000,000
(30,000)
24,000
Cost of
Sales
800,000
(24,000)
40,000
40,000
(32,000)
(50,000)
32,000
(50,000)
40,000
260,000
(12,000)
15,000
432,000
Question No. 5
Accounts receivable
Less: Allowance for doubtful accounts
P 260,000
( 15,000)
P245,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
5.
(40,000)
960,000
PROBLEM 10-29
Question No. 1
Unadjusted accounts receivable, Dec. 1 (squeeze)
Add: Adjusted net sales
Total
Less: Collections, net of discounts
Estimated uncollectible accounts charged to AR in Dec.
Unadjusted accounts receivable, Dec. 31
65
792,000
P 21,800
255,000
276,800
156,800
30,000
P 90,000
Subsidiary ledger balance, Dec. 1

Less: AR controlling account, Dec. 1 (see above)
Add: Estimated uncollectible account
charged to AR in Dec.
Customers credit balance
P 59,000
21,800
6,000
Question No. 2
Collection, net of discount
Divide by: (100%-2%)
Total credit to AR for collection
P 156,800
98%
P160,000
Question No. 3
Customer credit balance, Dec. 1
Less: sale to customer with credit balance
Customer Credit balance, Dec. 31
P 31,200
10,000
P 21,200
Question No. 4
Unadjusted Sales, balance
b) Sales, FOB shipping pt., not yet recorded
c) Sales, FOB destination
Adjusted Sales balance
P 260,000
10,000
( 15,000)
P 255,000
Question No. 5
Subsidiary ledger, balance, 12/1
Add: Adjusted Sales in December
Freight prepaid by the company
Total
Less: total credit to AR for coll.
Adjusted accounts receivable in Dec.
P 59,000
255,000
1,000
P 315,000
160,000
P 155,000
SUMMARY OF ANSWERS:
1. D
2. A
3. A
4.
5.
27,800
P31,200
PROBLEM 10-30
Note to professor:
Replace JOSHIA to Joanna in Item I.
Remove P sign in Question No. 5
Accounts
receivable
Unadjusted bal.
200,000
1
(14,800)
3
(47,400)
4
(30,000)
5
(8,000)
Merchandise
Inventory
300,000
32,600
66
Net Sales
1,000,000
(47,400)
(90,000)
(8,000)
Cost of
Sales
600,000
(32,600)
6
7
(36,000)
(1,200)
62,600
Question No. 5
Original bill (P200 x 100)
Divided by: Selling price per unit
Number of units sold
24,000
356,600
Debit
14,800
32,400
Sales
Accounts receivable
47,400
Cost of sales
32,600
Sales
Accounts receivable
Customers deposit on orders
90,000
Sales
Accounts receivable
*8,000
Sales
Accounts receivable
36,000
Cost of sales
24,000
Credit
32,400
47,400
32,600
30,000
60,000
8,000
36,000
24,000
Sales returns and allowances

1,200
Accounts receivable
*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
543,400
14,800
Accounts receivable D
Accounts receivable C
(24,000)
P 20,000
200
100
Question No. 6
Item
Accounts
B
Accounts payable
Accounts receivable
C
(36,000)
(1,200)
817,400
4.
67
5.
1,200
PROBLEM 10-31
Total
0-31 days 31-60
61-90
91-120
Rose
P 87,950
35,000
52,950
Gerry
52,300
30,000
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
0.01
0.015
0.04
0.10
1,160
1,662
2,980
7,350
Question No. 4
Allowance for doubtful accounts, end:
(P1,160 + P1,662 + P2,980 + P7,350 + P13,380)
P 26,532
Over 120
22,300
22,300
0.60
13,380
Question No. 5
Balance end
15,000
26,532
22,450
19,082
Total
41,532
41,532
SUMMARY OF ANSWERS:
1. A
2. C
3. C
4.
5.
Beg. Balance
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)
Less: Allowance for doubtful accounts, beginning
68
P 7,051.70
5,000.00
P 2,051.70

Interest income
(120,000 X 6% X 2/12)
(100,000 X 6% X 1/12)
Interest income
Interest
income
P 1,200
500
P 1,700
SUMMARY OF ANSWERS:
1. D
2. C
3. B
PROBLEM 10-33
Question No. 1
Days
0 - 60 days
61 - 120 days
Over 120 days
Total
Amount
outstanding
P 960,000
720,000
1,000,000
P 2,680,000
4.
Accrued interest
income
P
500
P 500
5.
Percent
Uncollectible
2%
4%
6%
Allowance
19,200
28,800
60,000
108,000
Question No. 2
Balance end
184,000
108,000
120,000
48,000
124,000
Total
292,000
292,000
Beg. Balance
Recovery
(squeeze)
Question No. 3
Unadjusted balance
184,000
144,000
120,000
48,000
160,000
Total
328,000
328,000
Question No. 4
Reported Bad debts expense (see No. 3)
Divided by: Bad debts rate
Net credit sales
Add: Sales return
Unadjusted accounts receivable, Dec. 31
69
Beg. Balance
Recovery
(squeeze)
P 160,000
2%
8,000,000
100,000
P 8,100,000
Question No. 5
Accounts receivable
Beg. Balance
Sales
Recoveries
2,000,000
8,100,000
48,000
2,680,000
184,000
100,000
7,184,000
Total
3,418,000
3,418,000
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
PROBLEM 10-34
SOLUTION:
Question No. 1
Principal
Origination fees received
Direct origination cost incurred
Initial Carrying amount of the loan
5.
Balance end
Write-off
Sales return
Collections including
recoveries
4,000,000
(342,100)
150,020
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
Date
01/01/2015
31/12/2015
31/12/2016
31/12/2017
Collections
Interest
Income
Amortization
400,000
400,000
400,000
456,950
463,784
471,439
56,950
63,784
71,346
Carrying
amount
3,807,920
3,864,870
3,928,655
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.
PROBLEM 10-35
70
5.
Question No. 1
Principal
Initial Carrying amount of the loan
4,000,000
(282,100)
39,020
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
Date
01/01/2014
31/12/2014
31/12/2015
31/12/2016
Collections
Interest
Income
Amortization
400,000
400,000
400,000
450,830
456,930
463,762
50,830
56,930
63,762
Question No. 4
Carrying Amount (see above amortization table)
Less: *Present value of expected cash flows
Loan Impairment
Carrying
amount
3,756,920
3,807,750
3,864,680
3,928,442
3,864,680
3,201,620
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
Date
12/31/2015
12/31/2016
12/31/2017
Collections
Interest
Income
Amortization
1,800,000
2,000,000
384,194
214,298
1,415,806
1,785,814
SUMMARY OF ANSWERS:
1. B
2. C
3. B
4.
71
5.
Carrying
value
3.201,620
1,785,814
-
PROBLEM 10-36
Carrying amount of the loan, December 31, 2015
Less Carrying amount of the loan, December 31, 2016
Amortization in 2016
Less Interest collection in 2016
Interest income in 2015 (3)
Divide by Carrying amount of the loan, 12/31/2015
Effective interest rate (1)
8,277,606
8,145,367
132,239
960,000
827,761
8,277,606
10%
Question No. 2
Carrying amount of the loan, January 1, 2015
Multiply by: Effective interest rate
Interest income in 2015
8,397,824
10%
839,782
Question No. 3
Carrying amount of the loan, 12/31/2015
Multiply by: Effective interest rate
Interest income in 2015
8,277,606
10%
827,761
Question No. 4
Carrying amount of the loan, December 31, 2015
Add: Interest collection (8M x 12%)
Total
Divide by: 100% plus effective rate
8,277,606
960,000
9,237,606
1.10
8,397,824
Question No. 5
Direct origination fees received
Principal
Date
01/01/2015
12/31/2015
12/31/2016
12/31/2017
8,397,824
100,000
8,000,000
497,824
Collections
Interest
Income
Amortization
960,000
960,000
960,000
839,782
827,761
814,537
120,218
132,239
145,367
SUMMARY OF ANSWERS:
1. B
2. B
3. C
4.
72
5.
Carrying
amount
8,397,824
8,277,606
8,145,367
8,000,000
PROBLEM 10-37
Question No. 1
Annual Cash
Date
flows
Dec. 31, 2014
P1,750,000
Dec. 31, 2015
2,000,000
Dec. 31, 2016
1,750,000
Total
PV
factor
0.9091
0.8264
0.7513
Amount
P 1,590,925
1,652,800
1,314,775
P 4,558,500
Question No. 2
Carrying amount of the loan
Less: Present value of the loan
Impairment loss
P 5,500,000
4,558,500
P 941,500
Date
12/31/2013
12/31/2014
12/31/2015
12/31/2016
Payment
Interest
Income
P1,750,000
2,000,000
1,750,000
P455,850
326,435
159,079
SUMMARY OF ANSWERS:
1. A or C
2. A
3.
PROBLEM 10-38
SOLUTION:
Question No. 1
Age of Accts
1-10 days
11-30 days
Past due 31-60
Past due 61-120
Past due 121-180
Past due over 180 days
4.
Balance
960,000
270,000
120,000
75,000
45,000
30,000
Reduction to
Principal
P1,294,150
1,673,565
1,590,785
5.
Carrying
amount
P4,558,500
3,264,350
1,590,785
-
%uncollectible
1%
2.5%
5%
20%
35%
80%
Allowance for BD
Allowance
9,600
6,750
6,000
15,000
15,750
24,000
77,100
Question No. 2
Unadjusted balance
292,500
54,800
27,300
320,00
Total
347,300
347,300
73
Beg. Balance
DA expense (8M x 4%)
Allowance for doubtful accounts, adjusted

Allowance for doubtful accounts, unadjusted
Credit to Allowance for BD
Principal
Carrying amount, Jan. 1, 2015
4,000,000
11,520
(300,000)
3,711,520
Amortization table at 12% Effective Rate

Interest
Date
Collections
Income
01/01/2015
12/31/2015
400,000
445,382
12/31/2016
400,000
450,828
12/31/2017
400,000
456,928
12/31/2018
400,000
463,759
12/31/2019
400,000
471,410
SUMMARY OF ANSWERS:
1. C
2. D
3. D
77,100
54,800
22,300
4.
PROBLEM 10-39
Question No. 1
Principal
Initial carrying amount
Amortization
45,382
50,828
56,928
63,759
71,583
5.
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
4,000,000
11,520
(300,000)
3,711,520

Interest
Date
Collections
Income
01/01/2013
12/31/2013
400,000
445,382
12/31/2014
400,000
450,828
12/31/2015
400,000
456,928
12/31/2016
400,000
463,759
12/31/2017
400,000
471,410
74
Amortization
45,382
50,828
56,928
63,759
71,583
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
Question No. 4
Carrying amount of loan
12/31/2015 (1,750,000 x .8929)
12/31/2017 (1,750,000 x .7118)
Impairment loss
3,807,731
1,562,575
1,245,650
2,808,225
999,506
Question No. 5
Date
12/31/2014
12/31/2015
Collections
Interest
Income
Amortization
1,750,000
336,987
1413,013
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
PROBLEM 10-40
Question No. 1
Classification
Balance
1-60 days
61-120 days
121-180 days
181-360 days
More than one year
Totals
P 1,000,000
400,000
300,000
200,000
60,000
P 1,960,000
5.
Carrying
amount
2,808,225
1,395,212
Estimated
Percentage
Amount
1%
P 10,000
5%
20,000
10%
30,000
25%
50,000
80%
48,000
P 158,000
Question No. 2
Accounts receivable, adjusted (see no. 1)
Less: Allowance for doubtful accounts, end (see no. 1)
Question No. 3
Doubtful accounts per books (9,000,000 x 2%)
Less: *Adjusted doubtful accounts expense
Understatement of doubtful accounts
P 1,960,000
158,000
P1,802,000
P 180,000
188,000
(P 8,000)
*Adjusted doubtful account expense

Write off (100,000+40,000)
Balance end (required)
140,000
158,000
90,000
20,00
188,000
Total
298,000
298,000
75
Beg. Balance
Recoveries
Doubtful account expense
Question No. 4
Total carrying value
Less: **Present value of the loan
Impairment loss
*Computation of present value
Annual Cash flow PV factor
P1,000,000
1.00
1,000,000
0.93
1,000,000
0.86
Total Present value of the loan
P3,000,000
2,790,000
P 210,000
Total
P 1,000,000
930,000
860,000
P 2,790,000
Question No. 5
Date
01/01/2015
12/31/2015
12/31/2016
Collections
Interest
Income
Amortizatio
n
1,000,000
1,000,000
143,200
1,000,000
856,800
SUMMARY OF ANSWERS:
1. A
2. B
3. D
4.
PROBLEM 10-41
Question No. 1
Accounts receivable factored
Less: Service charge (400,000 x 5%)
Receivable from factor (400,000 x 20%)
Customers credit balance
5.
Carrying
amount
2,790,000
1,790,000
933,200
P 400,000
20,000
80,000
100,000
P300,000
Question No. 2
Principal
Add: Interest over full credit period (300,000 x 12% x 6/12)
Maturity value
Less: Discount (318,000 x 12% x 3/12)
P 300,000
18,000
318,000
11,925
P 306,075
Question No. 3
Maturity value of the notes (see item in No. 2)
Add: Protest fee
Total cash paid/Amount to be debited to AR
318,000
12,000
P 330,000
Question No. 4
Note payable (80% x P600,000)
Less: Service fee (5% x P600,00)
Cash received
480,000
30,000
P 450,000
76
Question No. 5
Total Cash paid (see No. 3)
Add: Interest income (P330,000 x 12% x 2/12)
Cash received
330,000
6,600
P 336,600
Question No. 6
Accounts receivable-unassigned
(2,000,000-3000,000-400,000-600,000)
Add: Accounts receivable assigned
Total
Less: Less: Allowance for doubtful accounts (1,300,000 x 5%)
P 700,000
600,000
1,300,000
65,000
P1,235,000
SUMMARY OF ANSWERS:
1. B
2. C
3. A
4.
PROBLEM 10-42
Note to professor:
Existing data:
T-Account of Allowance for bad debts:
Beg. Bal - 01/01/2014
5.
6.
Change to:
Beg. Bal - 01/01/2015
Question No. 1
Accounts receivable, unadjusted bal
Per subsidiary ledger
Note receivable included in the AR
Factored Accounts receivable
Sales FOB shipping point
Adjusted AR balance
P1,660,000
(200,000)
(160,000)
100,000
P1,400,000
Question No. 2
Allowance for doubtful accts, beg.
Add: Doubtful accounts (P15,000,000 + P100,000) x 1%
Total
Less: Accounts written off
Allowance for doubtful accts, end
P 100,000
151,000
P 251,000
28,000
P 223,000
Question No. 3
Unadjusted Net Sales
Add: Sales, FOB shipping point
Total Sales
Multiply by: rate
Doubtful accounts
P15,000,000
100,000
P 15,100,000
1%
P
151,000
Question No. 4
No effect. The audit adjustments did not result to any changes to inventory
account.
77
Question No. 5
Sales, FOB shipping point
P 100,000
SUMMARY OF ANSWERS:
1. D
2. A
3. D
4.
5.
PROBLEM 10-43
Total
60 days and
below
61 to 90
days
800,000
400,000
Unadjusted
Balance,
12/31/2015
1,450,000
Adjustments:
Write Off
(50,000)
Failure to record Sales
Return
(40,000)
Failure
to
record
Employee Discount
(4,000)
Consignment
(45,000)
Freight collect
(3,800)
Adjusted
balance,
12/31/2015
1,307,200
Percentage of Uncollectibility
Required
allowance,
12/31/2015
37,258
Over 90
days
250,000
(63,000)
(36,000)
(3,600)
(54,000)
(4,500)
701,900
2%
400,000
3%
187,000
6%
14,038
12,000
11,220
Question No. 4
Write off
Balance end (required)
Total
Item
1
63,000
37,258
50,000
45,000
4,134
100,258
100,258
Beg. Balance
Recoveries
Adjustment to Doubtful
account expense (squeeze)
Accounts
Accounts receivable
Debit
50,000
Sales return
Accounts receivable
40,000
Claim from insurance

Accounts receivable
55,000
Sales discount
Accounts receivable
4,000
Credit
50,000
40,000
55,000
4,000
78
5
6
Sales
Accounts receivable
45,000
Delivery expense
Accounts receivable
3,800
45,000
3,800
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
PROBLEM 10-44
Note to professor:
Existing data:
Kaya Co. incurred and paid P11,520 of
direct origination cost was debited to
direct origination income. Kaya Co.
charged P300,000 nonrefundable
origination fees which was credited to
direct origination income.
5.
Change to:
Kaya Co. incurred and paid P11,520
of direct origination cost was
debited to unearned interest
income. Kaya Co. charged P300,000
nonrefundable origination fees
which was credited to unearned
interest income.

Adjusting entries for Accounts receivable
Item
Accounts
1
Accounts receivable
2
3
4
Sales discount
Accounts receivable
Debit
20,000
Credit
20,000
16,000
16,000
Accounts receivable
120,000
Accounts receivable
30,000
120,000
30,000
Miscellaneous income
30,000
Accounts receivable
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
(20,000+200,000)
Sales
Recoveries
220,000
2,720,000
4,000,000
30,000
30,00
*1,500,000
Total
4,250,000
4,250,000
79
Balance end
Recoveries
Collections, gross of
discount
*Collections from customers excluding recoveries

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

Balance end
170,000
20,000
30,000
120,000
Total
170,000
170,000
Accounts receivable
Less: Allowance for bad debts
2,720,000
170,000
P 2,550,000
Question Nos. 2, 4 and 5

Adjusting entries for Loans receivable
Item
Accounts
Debit
1
Loan Receivable
400,000
Interest income
2
Unearned interest income

Interest income
Credit
400,000
45,382
45,382
Principal
4,000,000
11,520
(300,000)
3,711,520

Interest
Date
Collections
Income
01/01/2015
12/31/2015
400,000
445,382
12/31/2016
400,000
450,828
12/31/2017
400,000
456,928
12/31/2018
400,000
463,759
12/31/2019
400,000
471,410
SUMMARY OF ANSWERS:
1. B
2. C
3. D
Beg. Balance
Recoveries
Doubtful account expense
4.
80
Amortization
45,382
50,828
56,928
63,759
71,583
5.
Carrying
amount
3,711,520
3,756,902
3,807,731
3,864,658
3,928,417
4,000,000
PROBLEM 10-45
Question No. 1
Nonrecording of gain on sale
Nonrecording of interest income
NR from sale of Machinery
NR from sale of plant (3,000,000 x 12% x 9/12)
Understatement of Ret. Earnings on 12/31/2015
180,360
57,643
270,000
508,003
NR sale of machinery:
Downpayment
Add: Present value of the note (200,000 x 2.4018*)
Total Selling Price
Less: Book value
Cost
Gain that should have been recognized
*PV of ordinary annuity
400,000
480,360
880,360
1,600,000
900,000
700,000
180,360
Amortization table 1
Date
01/01/2014
12/31/2014
12/31/2015
12/31/2016
Collections
Interest
Income
Reduction to
principal
200,000
200,000
200,000
57,643
40,560
21,437
142,357
159,440
178,563
Question No. 2
Interest Income:
NR from sale of machinery
NR from sale of plant
(3M x 12% x 3/12)
(2M x 12% x 9/12)
NR from sale of equipment
Total Int. Income
Amortization table 2
Interest
Date
Income
04/01/2015
12/31/2015
25,613
40,560
90,000
180,000
25,613
336,173
Unearned Interest
Income
158,500
132,888
Question No. 3
NR from sale of machinery (see amortization table 1)
Total current portion
81
Carrying
amount
341,500
367,113
178,564
1,000,000
1,178,564
Carrying
amount
480,360
338,003
178,564
-
Question No. 4
NR from sale of equipment (see amortization table 2)
Total noncurrent portion
Question No. 5
Nonrecording of loss
Overstatement of Int. income
Per books
360,000
Per audit
336,173
Total overstatement of net income in 2015
158,500
23,827
182,327
NR sale of equipment:
Downpayment
Add: Present value of the note (500,000 x 0.6830*)
Total Selling Price
Less: Book value
Cost
Loss that should have been recognized
*PV of 1
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
82
1,000,000
367,113
1,367,113
5.
700,000
341,500
1,041,500
2,000,000
800,000
1,200,000
(158,500)
Chapter 12: Inventories
CHAPTER 12: INVENTORIES

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

Cost of merchandise sold Aug.
12
Unit Cost
Qty
200
379
Items
counted
in
the
warehouse
(bodega)
(P4,000,000 - P32,000
P80,000) P3,888,000
Total
P4,636,000
Notes:
1. The invoice price is computed by
deducting the trade discount of 20
and 10.
List Price
P 150,000
Less:
Trade
30,000
discount 20%
Net
120,000
Less:
Trade
discount - 10%
12,000
Invoice price
P 108,000
Note that the total trade discount of
P42,000 is not recorded in the
books.
2. .
3. .
4. The cash to be paid under the net
method is computed as follows:
Purchases
P 83,420
Less:
Purchase
9,700
returns
Cash paid
P 73,720
Unit
Cost
21.60
Total Cost
Qty
200
Qty
1,900
Unit
Cost
26.92
Total Cost
4,320
4,000
Total inventory
Qty
1,900
390
20.00
Total Cost
Unit Cost
26.58
Total Cost
50,498
Additional information No. 3

To record the purchase of the
aviation fuel on March 23, 2016,
being the lower of the commitment
83
51,139
To record the purchase of the

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

Purchase price based on vendors invoices
Brokerage commission paid to agents for arranging imports
Import duties
Freight and insurance on purchases
Other handling costs relating to imports
Total cost of purchase
(B)
1,250,000
50,000
100,000
250,000
25,000
P1,675,000
Note that the trade discount was already deducted in arriving at the vendors
invoice.
PROBLEM 12-2 Inventoriable Cost
Materials
Irrecoverable purchases taxes
Total cost of inventory
PROBLEM 12-3 Inventoriable Cost
Direct materials and labor
Variable production overhead
Factory administrative costs
Fixed production costs
Total Inventoriable cost
(B)
350,000
30,000
P 380,000
(D)
180,000
25,000
15,000
20,000
P 240,000
PROBLEM 12-4 Items to be Included in the Inventory

1
2
4
5
7
10
14
15
17
18
19
20
Items in the warehouse during the count

Items out on consignment at another company's store
Items purchased FOB shipping point that are in transit at
December 31
Freight charges on goods purchased above
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
merchandise is
Items sold FOB destination that are in transit at December
31, at cost
Items currently being used for window display
Items on counter for sale
Items included in the count, damaged and unsalable
Items in receiving dept., returned by customer, in good
condition (not included in the count)
Merchandise inventories out on approval, at cost
Finished special article goods, made to order (included in
the count)
Total
(A)
84
P1,090,000
70,000
500,000
13,000
200,000
75,000
100,000
400,000
(150,000)
50,000
100,000
(78,000)
P2,370,000
The following items would not be reported as inventory:

3
Cost of goods sold in the income statement
6
Not reported in the financial statements
8
9
11 Advertising exp. In the income statement
12 Not reported in the financial statements
13 Temporary investments in the current
assets section of the balance sheet
16 Not reported in the financial statements
21 Office supplies in the current asset
section of the balance sheet
40,000
300,000
30,000
50,000
10,000
100,000
125,000
360,000
40,000

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

Unadjusted balance
Goods acquired in transit, FOB shipping point
Goods lost in transit
Adjusted Accounts Payable
(A)
The journal entry on item 2 would include the following:
Purchases / Inventory
Accounts Payable
To record the purchase on December 20.
1,800,000
100,000
50,000
P1,950,000
50,000
50,000
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
other expense and not as cost of goods sold)
Inventory / Purchases
85
50,000
50,000
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
Freight by Desiree to Lomasoc
(D)
360,000
18,000
P 378,000

Merchandise out on consignment at cost [150,000 x (100%-35%)]
Goods purchased in transit, FOB shipping pt.
Goods out on approval at cost
Total Cost of inventory
(D)
97,500
60,000
40,000
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?
Unadjusted balances
100
101
102
103
104
105
106
107
108
109
Adjusted balances
Guide
Questions
Yes, Yes, Yes

No, No, Yes
No, Yes, Yes
Yes, Yes, Yes
Yes, No, Yes
No, Yes, No
No, No, No
Yes, No, Yes
No, Yes, No
No, No, No
SUMMARY OF ANSWERS:
1. A
2. A
86
Sales
700,000
(1,800)
9,200
(6,500)
3,900
(8,600)
696,200
(A)
Inventories
150,000
2,000
1,200
153,200
(A)
PROBLEM 12-10 Gross method vs. Net method

CASE NO 1: Gross method
Date
Accounts
01/02
Purchases (100,000 x [1-20%])
Accounts payable
01/12
01/14
Debit
80,000
80,000
Accounts payable
Cash (80,000 x [1-98%])
Purchase discount
80,000
Accounts payable
Cash
80,000
78,400
1,600
80,000
CASE NO 2: Net method

Date
Accounts
01/02
Purchases (100,000 x [1-20%]
x [1-2%])
Accounts payable
01/12
01/14
Credit
Debit
Credit
78,400
78,400
Accounts payable
Cash (80,000 x [1-98%])
78,400
Accounts payable
Purchase discount lost
Cash
78,400
1,600
78,400
80,000
SUMMARY OF ANSWERS:
CASE NO. 1
1. B
2. C
3. D
4. A
CASE NO. 2
5. C
6. C
7. 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)
From second purchase (5 x 54)
Total inventoriable cost
900
270
P 1,170
(A)
87
PROBLEM 12-11 Cost Formulas - FIFO Method
Date
Qty
Purchases
Unit
Total
Cost
Cost
Feb 3
Feb 11
13
17.00
Cost of
Merchandise Sold
Qty
Unit
Total
Cost
Cost
221.00
Feb 14
Feb 21
12
6
9
20
15.00
17.00
180
102
180.00
Feb 25
7
3
17.00
20.00
119
60
Cost of merchandise sold = P461 (180+102+119+60)

Ending Inventory = P120 (6 units @ P20)
12
12
13
7
Inventory
Unit
Total
Cost
Cost
15.00
180
15.00
180
17.00
221
17.00
119
7
9
6
17.00
20.00
20.00
Qty
(C)
PROBLEM 12-13 Cost Formulas - Weighted Average Method

Weighted average
unit cost
Total goods available for sale (in peso value)

Total goods available for sale (in units)
Weighted average
unit cost
(10 x 61) + (25 x 63) + (30 x 64) + (15 x 73)

10 + 25 + 30 + 15
Weighted average
unit cost
5,200
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
Dec. 1
Dec. 15
Balance
Dec. 26
Balance
Units
20,000
(17,500)
2,500
10,000
12,500
Unit cost
25
25
40
Total cost
500,000
(437,500)
62,500
400,000
462,500
88
(B)
119
180
120
PROBLEM 12-15 Cost Formulas - Different Methods

Moving average
April 1 balance
Apr. 2
Balance
Apr. 4
Balance
Apr. 10
Balance
Apr. 15
Balance
Apr. 17
Apr. 28
Apr. 28
Units
20,000
30,000
50,000
(25,000)
25,000
15,000
40,000
(21,000)
19,000
1,000
20,000
20,000
40,000
Purchase
Sale
Purchase
Sales
Sales return
Balance
Purchase
Balance
Unit cost
10
12
11
11
11
14
12
12
12
12
Total cost
200,000
360,000
560,000
(280,000)
280,000
210,000
490,000
(257,250)
232,750
12,250
245,000
335,000
580,000
17
15
Inventory end
Cost of goods sold (280,000 + 257,250 12,250)
= P580,000
= P525,000
(A)
(A)

FIFO
April 1 balance
Apr. 2
Apr. 4 (25,000 units sold)
Balance from Apr. 2
Apr. 10
Apr. 15 (21,000 units sold)
Balance from April 2
Apr. 17
Balance
Apr. 28
Total
Units
20,000
30,000
(20,000)
(5,000)
25,000
15,000
(21,000)
4,000
15,000
1,000
Purchase
From Apr. 1
From Apr. 2
Purchase
From Apr. 2
Sales return
Unit cost
10
12
10
12
12
14
12
12
14
12
5,000
15,000
20,000
40,000
Purchase
Balance
12
14
17
Total cost
200,000
360,000
(200,000)
(60,000)
300,000
210,000
(252,000)
48,000
210,000
12,000
60,000
210,000
335,000
605,000
Inventory end
= P605,000
Cost of goods sold (200,000 + 60,000 + 252,000 12,000) = P500,000
Weighted average
Weighted average
=
unit cost
Weighted average
unit cost
Total goods available for sale (in peso value)

Total goods available for sale (in units)
1,105,000
85,000
89
(B)
(B)
Weighted average unit cost = P13/unit

Inventory end (40,000 x 13)
Cost of goods sold (20,000+5,000+21,0001,000) x 13
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
5.
= P520,000
= P585,000
6.
(C)
(C)
PROBLEM 12-16 Lower of Cost or Net Realizable Value

Markers
120,000
Pens
94,400
Highlighters
150,000
Selling price
Less: Estimated cost to complete
180,000
24,000
156,000
180,000
24,000
156,000
180,000
34,000
146,000
Lower of cost-or-NRV
120,000
94,400
146,000
Historical cost
SUMMARY OF ANSWERS:
1. C
2. D
3. B
PROBLEM 12-17 Purchase Commitment
CASE NO. 1
Date
11/15
No entry
Accounts
Debit
12/31
Loss on purchase commitment (20,000 x [25-20])

Estimated liability for purchase commitment
100,000
03/15
Purchases (25,000 x 25)

Accounts payable/Cash
Gain on purchase commitment
500,000
100,000
CASE NO. 2
Date
11/15
No entry
Accounts
12/31
No entry
03/15

Credit
100,000
500,000
100,000
Debit
Credit
500,000
500,000
90

Date
3/31
12/31
04/30
No entry
Accounts
Debit
Loss on purchase commitment (1,200,000-1,000,000)

Purchases
Credit
200,000
200,000
1,200,000
200,000
1,200,000
200,000
SUMMARY OF ANSWERS:
1. B
2. A
Gain on purchase commitment [50,000 x (55 - 40)]
To record the actual purchase on March 31, 2016:
= P750,000
2,750,000
750,000
(A)
2,750,000
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)
2017 (500 x 100)
Total
Less: Estimated realizable value (1,000 x 20)
Probable loss from purchase commitment
(C)
P 50,000
50,000
P 100,000
20,000
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
91
PROBLEM 12-21 Inventory Estimation - Gross Profit Rate Method

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

CASE NO. 1
Sales
Divide by: Sales ratio
Cost of Sales
1,552,000
125.00%
1,241,600
Purchases, January 1 through April 19
Less: Cost of sales
160,000
1,120,000
1,280,000
1,241,600
P 38,400
CASE NO. 2
Sales
Multiply by: Cost ratio
Cost of Sales
1,552,000
75%
1,164,000
Purchases, January 1 through April 19
Less: Cost of sales
160,000
1,120,000
1,280,000
1,164,000
P 116,000
SUMMARY OF ANSWERS:
1. A
2. D
92
(A)
(D)
PROBLEM 12-23 Inventory Estimation: LCM - Retail Method

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

Cost
250,000
1,325,000
1,575,000
Inventory at January 1
Purchases
Net markups
Net markdowns
Totals
Retail
375,000
1,750,000
200,000
(75,000)
2,250,000
Cost ratio (1,575,000 / 2,250,000) = 70%

Balance up to markdowns (see above computation)
Less: Sales
Estimated normal shrinkage (1,500,000 x 5%)
Estimated normal shoplifting losses
2,250,000
1,500,000
75,000
50,000
P 625,000
Computation of Cost of goods sold

Total goods available for sale at cost
Less: Inventory end at cost (625,000 x 70%)
Cost of Sales
(B)
1,575,000
437,500
1,137,500
93
PROBLEM 12-25 Inventory Estimation: FIFO Method - Retail Method

Cost
292,500
292,500
Purchases
Net markups
Net markdowns
Totals
Retail
400,000
75,000
(25,000)
450,000
Cost ratio (292,500 / 450,000) = 65%

Balance up to markdowns (see above computation)
Add: Inventory beginning
Less: Sales
Multiply: Cost ratio
Inventory end at cost
(A)
450,000
100,000
375,000
P 175,000
65%
P113,750
PROBLEM 12-26
Question No. 1
A EI over (P129-P119) x 4,000
B EI under
C EI over
Overstatement of ending inventory
Question No. 2
D. Ending inventory understated
40,000
(70,000)
100,000
70,000
(C)
(140,000)
(B)

A.
B.
C.
D.
2015
1,000,000
(40,000)
70,000
(100,000)
Unadjusted balance
EI over, NI over (P129-P119) x 4,000
EI under, NI under
EI over, NI over
EI under, NI under
Adjusted balances
Question No. 5
Unadjusted net income (1,000,000+1,200,000)
Less: Adjusted net income (930,000+1,410,000)
Net adjustment to income-understated
SUMMARY OF ANSWERS:
1. C
2. B
3. A
4.
94
5.
930,000
(A)
2016
1,200,000
40,000
(70,000)
100,000
140,000
1,410,000
(C)
2,200,000
2,340,000
(140,000)
(D)
PROBLEM 12-27
Question No. 1
Direct materials inventory
Beg. Balance
DM purchased (squeeze)
9,000
70,000
(B)
7,000
72,000
Total
79,000
79,000
Balance end
Direct materials used
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
Question No. 4
(D)
Work in process inventory
Beg. Balance
DM used
Direct labor
Factory overhead
Total
SUMMARY OF ANSWERS:
1. B
2. C
3. D
17,000
72,000
80,000
24,000
31,000
162,000
(B)
193,000
193,000
4.
Balance end
Cost of goods
manufacture
(squeeze)
PROBLEM 12-28
Balances prior to adjustment
Add: Goods in transit sold, FOB destination
Less: unrecorded sale
Less: unrecorded purchase returns
Less: goods held on consignment
Add: unrecorded purchase
Add: Goods in transit purchased, FOB shipping point
Add: Goods out on consignment
Adjusted balances
95
Ledger
Balance
P 314,800
3,200
( 8,400)
( 6,000)
3,640P 307,240
(A)
Physical
Count
P 293,600
3,200
( 8,800)
1,600
14,800
P 304,400
(C)
Question No. 3
Adjusted balances, per ledger
Adjusted balances, physical count
Inventory shortage
P 307,240
304,400
P 2,840
(B)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
PROBLEM 12-29
1
2
3
4
5
6
7
8
Unadjusted balances
Parts held on consignment
Parts sold included in the count
Parts in transit to customers,
FOB shipping pt.
Parts on conditional sale
Goods out on consignment
Parts in transit purchased,
FOB shipping pt.
Mdse. Hold for shipping inst.
excluded in the count
Finished special article, incl.
in the count and sale not rec.
Adjusted balances
Accounts
Payable
P335,000
( 18,000)
Sales
P5,000,000
22,000
100,000
16,000
16,000
Inventory
P 800,000
( 18,000)
( 30,000)
160,000
( 30,000)
P1,020,000
(A)
P333,000
(A)
50,000
P5,050,000
(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?
96
SOLUTION:
679
680
681
682
683
684
685
686
310
311
312
313
314
315
316
317
318
Unadjusted balances
Ending
Inventory
550,000
Purch over, COS over, NI

under
EI over, COS under, NI
over
EI over, COS under, NI
over
Purch under, NI over
No, No, No
No, No, No
Yes, Yes, Yes
Sales over, NI over
EI under, NI under (560 x
70%)
Sales over, NI over
EI under, NI under (31,940
x 70%)
Sales over, NI over
EI under, NI under (6,350
x 70%)
Sales over, NI over
No, No, No
No, No, No
No, No, No
Sales
1,000,000
Purchases
600,000
AP
450,000
Net
Income
120,000
(46,740)
(46,740)
(46,740)
(46,740)
46,740
(4,500)
1,060
392
22,358
1,060
(560)
(560)
(31,940)
392
(31,940)
(6,350)
22,358
(6,350)
(1,930)
4,445
(1,930)
4,445
Net adjustment
Adjusted balances
(24,045)
525,955
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. A
(40,780)
959,220
(A)
4.
(4,500)
(1,060)
5.
(45,680)
554,320
(A)
(45,680)
404,320
(A)
(19,145)
100,855
(E)
PROBLEM 12-31
Ending
inventory
Unadjusted
balance
A
B
C
D
E
Adjusted
P220,000
Accounts
receivable
Accounts
payable
P104,000
(10,000)
50,000
14,000
( 24,000)
P 250,000
(A)
SUMMARY OF ANSWERS:
1. A
2. E
3. D
(64,000)
(16,000)
P24,000
(E)
4.
97
Sales
Net income
P138,000
(20,000)
(10,000)
P1,010,000
P180,400
20,000
(64,000)
(16,000)
P108,000
(D)
P930,000
(D)
(14,000)
(2,000)
( 24,000)
P160,400
(A)
5.
PROBLEM 12-32
Unadjusted
balances
A
B
C
D
E
F
G
H
I
J
Adjusted
balances
Inventory
Accounts
payable
Accounts
Receivable
250,000
35,000
4,000
(25,000)
10,000
34,000
60,000
400,000
4,000
60,000
1,000,000
40,000
(30,000)
(68,000)
(10,000)
-
4,000,000
40,000
(30,000)
(68,000)
(10,000)
(90,000)
-
2,500,000
4,000
60,000
600,000
35,000
15,000
10,000
(30,000)
(34,000)
(10,000)
(90,000)
-
368,000
464,000
932,000
3,842,000
2,564,000
496,000
SUMMARY OF ANSWERS:
1. C
2. C
3. A
4.
PROBLEM 12-33
Ending
inventory
Unadjusted
balance
100
101
102
103
104
105
106
107
108
109
110
A
B
Adjusted
P280,000
(10,000)
Net Sales
5.
Net
Purchases
6.
Net income
Accounts
receivable
Purchases
Accounts
payable
P5,000,000
P3,900,000
P2,800,000
P2,870,000
(12,500)
(12,500)
(11,200)
(11,200)
15,000
15,000
13,500
13,500
(11,750)
8,350
P2,796,600
(11,750)
8,350
P2,866,600
Sales
(15,000)
(12,500)
P 242,500
P5,004,800
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
P3,904,800
98
5.
PROBLEM 12-34
Ending
inventory
Unadjusted
balance
a. Sales under
b EI under
c Purchase over
d Sales under
EI over
Adj.
Net Sales
P500,000
P1,000,000
64,000
Cost of
Sales
Net
Income
Retained
Earnings
P550,000
P200,000
64,000
19,000
23,500
28,500
(25,800)
P309,200
P1,500,000
64,000
19,000
23,500
28,500
( 25,800)
P1,609,200
19,000
(19,000)
(23,500)
28,500
( 25,800)
P 493,200
SUMMARY OF ANSWERS:
1. C
2. D
3. D
P1,092,500
4.
25,800
P533,300
5.
PROBLEM 12-35
Questions No. 1 to 5
2015 Purchases under, CGS
under, NI over, RE over
2016 Purchases over, CGS
over
2015 EI under, NI under, RE
under
2016 BI under, CGS under
Sales under
Purchases under, CGS under
EI under, CGS over
Purchases under, CGS under
EI under, CGS over
Total
R/E
36,000
Sales
EI
A/P
CGS
36,000
(32,000)
(32,000)
(20,000)
(8,000)
(24,000)
(4,000)
4,000
(20,000)
(4,000)
(12,000)
(28,000)
(24,000)
8,000
(4,000)
4,000
(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.
99
5.
PROBLEM 12-36
Question No. 1
Sales (475,000/80%)
Less: Cost of sales
Gross profit
P593,750
475,000
118,750
100%
80%
20%
Inventory (in units)

Beg. Balance (60,000/P3)
20,000
25,000
Purchases
100,000
95,000
Total
120,000
120,000
Balance end (squeeze) or

(125,000/5)
Cost of sales (475,000/5)
Inventory (in peso amount)

Beg. Balance (squeeze)
Purchases
60,000
540,000
125,000
475,000
Total
600,000
600,000

Cost of sales
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.
5.
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
Beginning inventory under, CGS under, Net income over
Ending inventory under, CGS over, Net income under
Adjusted net income FIFO
Question No. 3
Computation of units sold:
Beginning inventory units
Add: Total purchases units
Total goods available for sale units
Less: Units sold (P6,400,000 / P80/unit)
Ending inventory in units
100
(B)
P3,250,000
(150,000)
100,000
P3,200,000
10,000
100,000
110,000
80,000
30,000
The 30,000 ending inventory comes from the last two purchases as follows:
Units
Unit cost Total cost
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)
Net realizable value [(P70 P5) x 30,000]
Loss on inventory write-down
(B)
2,000,000
1,950,000
50,000
(A)
500,000
5,500,000
6,100,000
2,000,000
4,100,000
50,000
4,150,000
(A)
100,000
970,000
100,000
1,170,000
819,000
351,000
Question No. 2
Beginning balance
Add: Raw materials used (see no. 1)
Wages (3,000,000 x 60%)
Variable overhead (1,000,000 x 60%)
Wooden boxes (purchased and used)
Fixed manufacturing overhead (see computation below)
Total manufacturing cost put into process
Less: Work-in-process completed [4,969,000 x (100% - 20%)]
Ending balance (4,969,000,000 x 20%)
(A)
250,000
819,000
1,800,000
600,000
300,000
1,200,000
4,969,000
3,975,200
993,800
Question No. 5
Beginning inventory FIFO
Add: Net Purchases (P6,480,000 980,000)
Less: Ending inventory at cost (see no. 3)
Cost of goods sold at cost
Add: Loss on inventory write-down (see no. 4)
Cost of goods sold after inventory write-down
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
5.
PROBLEM 12-38
Question No. 1
Beginning balance
Add: Purchases of raw materials
Transport inwards of raw materials
Total raw materials available for use
Less: Raw materials used [1,170,000 x (100% - 30%)]
Ending balance (1,170,000 x 30%)
101
Fixed manufacturing overheads are allocated to the products at year end using
the normal production (unless actual production is higher than normal):
Fixed manufacturing overheads
Fixed manufacturing
=
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
Beginning balance
Add: Work-in-process completed (see no. 2)
Less: Cost of goods sold [4,125,200 x (100% - 10%)]
Ending balance (4,125,200 x 10%)
Question No. 4
Finished goods and work-in-process (see no. 5)
Raw materials process (see no. 5)
Total lower of cost and net realizable value
(A)
150,000
3,975,200
4,125,200
819,000
412,520
(C)
1,406,320
250,000
1,656,320
Question No. 5
F/G
Net realizable value:
Expected selling price
Less: Cost to complete
Cost to sell
Cost:
Ending balance
WIP
FG & WIP
1,300,000
80,000
1,220,000
700,000
100,000
20,000
580,000
2,000,000
100,000
100,000
1,800,000
300,000
50,000
250,000
412,520
993,800
1,406,320
351,000
1,406,320
-
250,000
101,000
Lower of cost or NRV

Write-down
(C)
102
RM
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.
5.
PROBLEM 12-39
Question No. 1
(10,500 - 1,000 + 3,000) = 12,000 units
No. of units
3,000
2,000
4,000
3,000
12,000
Unit cost
14
13
15
16
Total
P 42,000
26,000
60,000
48,000
P 176,000
(A)
Question No. 2
(4,500+700+600)=5,800 units
No. of units
1,800
1,800
1,200
1,000
5,800
Unit cost
19
20
21
22
Total
P 34,200
36,000
25,200
22,000
P 117,400
Question No. 3
T-shirts:
(12,000 x (P16-(10% x P16))
Jackets:
(5,800 x (P22-(10%xP22)
Lower of cost or NRV
(A)
NRV
P172,800
Cost
P176,000
Lower
P 172,800
114,840
P287,640
117,400
P 293,400
114,840
P 287,640
Question No. 4
Total cost (see no. 3)
Less: Lower of cost or NRV (see no. 3)
Loss on inventory write-down
P 293,400
287,640
P 5,760
(B)
Question No. 5
Beginning inventories:
T-shirts (9,000 x P11)
Jackets (5,000 x P15)
Add:*Total purchases (299,500 + 183,900)
103
P 99,000
75,000
P 174,000
483,400
P 657,400
Less: Merchandise inventory at cost

Cost of sales before inventory write-down
Add: Loss on inventory write-down
Cost of sales after inventory write-down (B)
*T-shirts
4,000
3,000
2,500
3,500
2,000
4,000
3,000
22,000
P12
12
13
14
13
15
16
P 48,000
36,000
32,500
49,000
26,000
60,000
48,000
P 299,500
Jackets
900
1,100
1,500
2,000
1,800
1,200
1,000
9,500
P16
18
19
19
20
21
22
P 14,400
19,800
28,500
38,000
36,000
25,200
22,000
P 183,900
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
293,400
P 364,000
5,760
P369,760
5.
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
Net Purchases
600,000
2,200,000
1,200,000
1,600,000
Total
2,800,000
2,800,000
Question No. 1
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
Balance end
CASE NO. 1
2012
2,000,000
1,700,000
0.15
104
2013
3,500,000
2,800,000
0.20
2014
4,000,000
3,000,000
0.25
2015
0.30
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
Multiply by: Cost Ratio
Cost of goods sold
Question No. 2
6,000,000
0.70
4,200,000
(B)
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,200,000
2,000,000
4,200,000
Balance end
Cost of goods sold
3,400,000
6,200,000
Work in Process
Beginning balance
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,600,000
Total
6,000,000
6,000,000
Computation of factory overhead:

Direct labor cost
Multiply by: Predetermined rate
Factory overhead
3,400,000
Balance end
Cost of goods
manufactured
(A)
2014
1,000,000
4,000,000
0.25
2015
1,600,000
50%
800,000
CASE NO. 2:
Question No. 3
GP Rate:
Gross Profit
Divide by: Sales
Gross Profit Rate
2012
340,000
2,000,000
0.17
2013
630,000
3,500,000
0.18
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
Cost of goods sold
6,000,000
0.80
4,800,000
105
(B)
Question No. 4
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,800,000
4,000,000
2,000,000
4,800,000
Balance end
Cost of goods sold
6,800,000
Work in Process
Beginning balance
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,000,000
Total
6,000,000
6,000,000
4,000,000
Balance end
Cost of goods
manufactured
(A)
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
Cost of goods sold
6,000,000
0.76
4,560,000
(A)
Question No. 6
Finished Goods
Beginning balance
Cost of goods
manufactured
2,800,000
Total
6,560,000
3,760,000
2,000,000
4,560,000
Balance end
Cost of goods sold
6,560,000
Work in Process
Beginning balance
Direct labor
Factory overhead
2,000,000
1,600,000
1,600,000
800,000
2,240,000
Total
6,000,000
6,000,000
106
3,760,000
Balance end
Cost of goods
manufactured
(A)
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
5.
6.
PROBLEM 12-41
Beg. Balance
DM purchased
32,000
340,000
130,000
242,000
Total
372,000
372,000

(602,00 - 360,000)
Work in process inventory

Beg. Balance
DM used
Direct labor
Factory overhead
(360,000/60% x 40%)
68,000
242,000
360,000
240,000
50,000
860,000
Total
910,000
910,000
Balance end(squeeze)
Cost of goods manufacture
Conversion cost = Direct labor + Factory overhead

Prime cost = DM used + Direct Labor
Finished goods
Beg. Balance
Cost of goods manufactured
(squeeze)
60,000
860,000
120,000
800,000
Total
920,000
920,000

Cost of sales (1,000,000 x
80%)
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.
5.
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.
107
Question No. 1
Accounts payable
Balance end
Purchase ret. and allow.
Purchase discounts
Payments to supplier
(squeeze)
Total
250,000
70,000
80,000
3,255,000
555,000
3,000,000
100,000
3,655,000
3,655,000
Beg. Balance
Purchases
Freight-in
Question No. 2
Beg. Balance
Net purchases
200,000
2,950,000
320,000
2,830,000
Total
3,150,000
3,150,000
Purchases
Add: Freight-in
Gross Purchases
Less: Purchase returns and allow
Purchase discounts
Net Purchases
Balance end
3,000,000
100,000
3,100,000
70,000
80,000
2,950,000
Question No. 3
Work in process
Beg. Balance
Direct labor
Factory overhead
250,000
2,950,000
900,000
675,000
280,000
4,375,000
Total
4,655,000
4,655,000
Question No. 4
Sales
Less: Cost of sales (5,000,000/120%)
Gross profit
P5,100,000
4,250,000
850,000
Balance end
Cost of goods
manufactured
120%
100%
20%
Note: Do not deduct sales discount from the gross sales since sales discount
does not constitute actual return of merchandise.
Question No. 5
Beg. Balance
Cost of goods
manufactured
Finished goods
400,000
4,375,000
108
525,000
4,250,000
Balance end
Cost of goods sold
Total
4,775,000
4,775,000
Estimated finished goods

Less: Cost of goods out on consignment
Salvage value
Inventory fire loss
525,000
20,000
10,000
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)
Less: Cost of sales (80% x P5,100,000)
Gross profit
P5,000,000
4,080,000
1,000,000
100%
80%
20%
Finished goods
Beg. Balance
Cost of goods
manufactured
400,000
4,375,000
695,000
4,080,000
Total
4,775,000
4,775,000
Estimated finished goods

Less: Cost of goods out on consignment
Salvage value
Inventory fire loss
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
Balance end
Cost of goods sold
695,000
20,000
10,000
665,000
5.
6.
7.
PROBLEM 12-43
Question No. 1
Accounts payable March 31, 2015
Add: Unrecorded obligation April 25
April Shipments
Less: Payment from April 1 to 25 (285,000 + 100,000)
Adjusted balance April 25
1,185,000
425,000
100,000
385,000
1,325,000
(C)
Note: The P22,500 of purchase return should not be deducted from the
accounts payable since it was refunded.
109
Question No. 2
Purchases March 31, 2015
Add: Unrecorded obligation April 25
April Shipments
Less: Purchase return
Adjusted Net Purchases April 25
2,100,000
425,000
100,000
22,500
2,602,500
(B)
Question No. 3
Sales March 31, 2015
Add: Sales April 1 to 25 (see computation below)
Adjusted Sales April 25
4,520,000
730,000
5,250,000
(D)
Computation of sales:
Accounts Receivable
Beg. Bal. 03/31/2015
Sales (squeeze)
1,250,000
730,000
Bal. end (acknowledged)
1,320,000
Write-off (never be
acknowledged)
Collections
(P532,500 22,500)
250,000
510,000
Total
2,080,000
2,080,000
Questions No. 4 and 5

Beginning inventory March 31, 2014
Add: Purchases
Less: Cost of sales (55% x 5,250,000)
Estimated ending inventory
Less: Salvaged value of inventory worth P325,000
Inventory in transit
Inventory loss
2,500,000
2,602,500
5,102,500
2,887,500
2,215,000
150,000
65,000
2,000,000

Beginning inventory
Add: Net purchases
Less: Ending inventory
Cost of sales
Net sales
Year Ended
2014
2013
2,250,000
1,750,000
11,300,000
8,700,000
2,500,000
2,250,000
8,200,000
11,050,000
P20,000,000
P15,000,000
Cost Ratio (19,250,000 / 35,000,000) = 55%

SUMMARY OF ANSWERS:
1. C
2. B
3. D
4.
110
5.
Total
19,250,000
35,000,000
4. (D)
5. (B)
PROBLEM 12-44
Note to professor: The purchases for the element months should be eleven.
Purchases ending
11 mos
12 mos
2,700,000 3,200,000
30,000
(4,000)
(6,000)
(8,000)
(8,000)
2,718,000 3,186,000
1. (C)
2. (D)
Unadjusted balance
Shipment in Nov. included in December purchases
Unsalable shipments received
Deposits in October shipped February
Adjusted balance
Question No. 3
Beginning inventory January 1, 2015
Add: Purchases for 11 months (see No. 1)
Less: Ending inventory Nov. 30, 2015
Cost of sales
350,000
2,718,000
380,000
2,688,000
(A)
3,840,00
3,360,000
480,000
40,000
440,000
80%
352,000
40,000
392,000
(A)
380,000
468,000
392,000
456,000
(A)
Cost ratio (2,688,000 / 3,360,000) = 80%

Question No. 4
Sales ending December 31, 2015
Less: Sales ending Nov. 30, 2015
Sales December 2015
Less: Sales at cost
Sales in December 2015 made at a profit
Multiply: Cost ratio (2,688,000 / 3,360,000)
Cost of sales made at profit
Add: Cost of sales made at cost
Total Cost of Sales -December
Question No. 5
Beginning inventory Nov. 30, 2015
Add: Purchases for December (3,186,000 - 2,718,000)
Less: Cost of Sales December
Ending inventory December 31, 2015
SUMMARY OF ANSWERS:
1. C
2. D
3. A
4.
111
5.
PROBLEM 12-45
Inventory, Jan 1
Purchases
Purchase returns
Purchase discounts
Purchase allowance
Freight-in
Departmental Transfer-In
Departmental Transfer-Out
Totals
Basis of computation of cost ratios
Totals
Markups
Markup cancellations
Basis of computation (conservative)
Markdown
Markdown cancellations
Basis of computation (average)
Cost
300,000
6,000,000
(400,000)
(150,000)
(50,000)
20,000
600,000
(560,000)
5,760,000
Retail
1,200,000
8,500,000
(800,000)
1,100,000
(1,334,000)
8,666,000
5,760,000
8,666,000
600,000
(50,000)
9,216,000
(316,000)
100,000
9,000,000
5,760,000
5,760,000
Cost ratios:
Conservative
Cost ratio
Cost ratio
5,760,000
9,216,000
= 62,50%
=
Average
Cost ratio
Cost ratio
5,760,000
9,000,000
= 64%
=
FIFO
Cost ratio
Cost ratio
5,760,000 300,000
9,000,000 1,200,000
= 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
112
Cost method
Conservative (62.5%)
FIFO (70%)
Average (64%)
Ending inventory at cost

(EI @ retail x cost ratio)
P 1,375,000
1,540,000
1,408,000
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
Cost of goods sold

(TGAS @cost EI @cost)
4,385,000
4,220,000
4,352,000
6.
PROBLEM 12-46
Question No. 1
Unadjusted bal.
Undelivered sales
Valid Sales
Sales FOB destination
NSF check
Collection by the bank
Sales in 2015 recorded in 2016 DR No. 38740
Receivable ins. Co DR No. 38741
Adjusted balance
(D)
Subsidiary
Ledger
P 760,000
60,000
(
(
(
P
50,000
60,000)
3,360
10,080)
19,200)
784,080
Question No. 2
Current:
Unadjusted beginning Balance
Add: Valid Sales in 2015 (60,000 + 3,360)
Total
Less: Receivable ins. Co (DR # 38741)
Sales in 2016 recorded in 2015 (DR # 38743)
Current Accounts Receivable balance
Amount
100,000)
50,000
(
60,000)
3,360
(
10,080)
(
19,200)
P 784,080
97,500
63,360
160,860
10,080
19,200
131,580
Past Due:
Adjusted Accounts Receivable balance (see no. 1)
Less: Current Accounts Receivable balance
Past due Accounts Receivable
*or (662,500+50,000-60,000)
Age classification
General
Ledger
P 1,020,000
( 100,000)
784,080
131,580
*652,500
Percentage
Total
6
10
7,894.80
65,250.00
73,144.80
Current
131,580
Past due
652,500
(A)
113
Question No. 3
Allowance for doubtful accounts, beginning
Less: Accounts written off
Less: Allowance for doubtful accounts, ending
7,000.00
73,144.80
66,144.80
(A)
Question No. 4
Unadjusted Merchandise Inventory, ending
Add: Cost of merchandise sold of DR # 38743(19,200/120%)
(B)
Question No. 5
Unadjusted Net Sales balance
Undelivered sales
Sales FOB destination
Adjusted balance
SUMMARY OF ANSWERS:
1. D 2. A
3. A
4.
5.
P 3,000,000
100,000)
100,000)
3,360
(
19,200)
P 2,784,160
(
(
(B)
PROBLEM NO. 6-47

Question No. 1
Cash, unadjusted balance
NSF check
Adjusted balance-cash
100,000
(10,000)
(2,000)
88,000
(A)
Question No. 2
Accounts receivable, unadjusted
NSF check
Invalid sales already recorded
Adjusted Accounts receivable
x percent uncollectible
(100%-5% +2%)
93%
219,480
(A)
Question No. 3
Unadjusted balance, MI
Goods shipped FOB shipping pt.
Cost of goods in transit to customer
Adjusted merchandise inventory
300,000
30,000
10,000
340,000
(C)
250,000
2,000
(16,000)
236,000
114
316,000
16,000
332,000
Question No. 4
Unadjusted balance, AP
Unrecorded purchase
Adjusted accounts payable
120,000
(10,000)
30,000
140,000
(C)
Question No. 5
Cash
Prepayments
Current Assets
Accounts payable
Notes payable
Current liabilities
Working capital
88,000
219,480
340,000
12,000
659,480
140,000
180,000
320,000
339,480
(B)
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
5.
115
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 x P48)
238,000
Requirement No. 2 FVTOCI
Net Selling Price (10,000 x x P48)
238,000
Financial
asset
through
other
comprehensive income (FVTOCI)
Journal entry on 01/02/15
Cash
238,000
Loss on sale
12,000
FVTOCI
250,000
Kindly disregard the (10,000 x x

P48)
Kindly disregard the (10,000 x x
P48)
Cash
Loss on sale
FVTOCI
PROBLEM 14-1 Financial Assets and Financial Liabilities

FA
NFA
FL
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
(50)
Intangible assets
30
Prepaid rent
20
Treasury shares
Claims for tax refund
45
Deferred tax assets
60
Accounts payable
150
Utilities payable
250
Accrued interest expense
18
116
238,000
37,000
275,000
NFL
SHE
-
(23)
-
Cash dividends payable

Finance lease liability
Bonds payable
Discount on bonds payable
Security deposit
Advances from customers
Unearned rent
Warranty obligations
Unearned interest on receivables
Income taxes payable
SSS contributions payable
PHILHEALTH contributions payable
Share Premium
Accumulated Profits-appropriated
for plant expansion
Accumulated
Profitsunappropriated
Issued
redeemable
preference
shares
(with
mandatory
redemption)
Issued Preference shares capital
Adjusted balances
27
45
120
(15)
30
-
16
8
13
5
9
5
6
-
35
500
3,200
861
(E)
858
(A)
100
725
(B)
62
(A)
3,712
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.
PROBLEM 14-2 Acquisition of Investment

Journal entries are:
1) FVTPL
1/5/2015
Financial Asset at FVTPL
Brokerage fee
Commission Expense
Cash
1/10/2015
2/14/2015
1,600,000
10,000
5,000
1,615,000
Dividend receivable
Dividend income
32,000
Cash
Dividend receivable
32,000
32,000
32,000
117
2) FVTOCI
1/5/2015
1/10/2015
2/14/2015
Financial Asset at FVTOCI

Cash
1,615,000
1,615,000
Dividend receivable
Dividend income
32,000
Cash
Dividend receivable
32,000
32,000
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)
Dividends receivable
Brokerage expense
Commission Expense
Cash
2/14/2015
12/31/2015
12/31/2016
1,584,000
16,000
10,000
5,000
1,615,000
Cash
Dividend receivable
16,000
Unrealized Loss PL
64,000

Unrealized gain PL
400,000
16,000
64,000
400,000
2) Fair Value through Other Comprehensive Income securities

1/5/2015
FVTOCI securities
1,599,000
Dividend receivable
16,000
Cash
2/14/2015
12/31/2015
12/31/2016
Cash
Dividend receivable
16,000
Unrealized loss - equity

FVTOCI securities
79,000
1,615,000
16,000
FVTOCI securities
Unrealized loss equity
Unrealized gain equity
118
79,000
400,000
79,000
321,000
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
Less: Brokerage and commission
Net Selling Price
Less: Carrying value (800,000 x )
Realized loss on sale P&L
Question No. 3
Fair value, 12/31/2014
Less: Cost
Unrealized gain - P&L
(B)
CASE NO. 2: FVTOCI
Question No. 4
Less: Brokerage and commission
Net Selling Price
Less: Carrying value (800,000 x )
Realized loss on sale P&L
Question No. 5
Journal entries for the sale are:
1) FVTPL
12/31/2014 FVTPL
Unrealized gain-P&L
1/2/2015
2) FVTOCI
12/31/2014
1/2/2015
375,000
10,000
365,000
400,000
(35,000)
(B)
800,000
750,000
50,000
(B)
375,000
10,000
365,000
400,000
(35,000)
50,000
Cash
Loss on sale
FVPTL
To record the sale
50,000
365,000
35,000
400,000
FVTOCI
Unrealized gain-OCI
50,000
50,000
Cash
Loss on sale (if any)
FVTOCI
To record the sale
365,000
35,000
400,000
Unrealized Gain (50,000 X )

25,000
Retained earnings
25,000
To record transfer of unrealized gain to Retained earnings
119
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
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

Investment in Ordinary shares - FVTOCI
Allocation:
Total
Fair value
100,000
750,000
850,000
Pref. shares (1,000 x P100)

Ordinary shares (15,000 x P50)
Total
88,235
88,235
Fraction
10/85
75/85
Allocated
cost
88,235
661,765
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).
Question No. 2
December 1
Dividend Receivable (15,000 x P4)
120
60,000
(B)
Dividend income
60,000
December 15
No formal accounting entry
December 31
Cash
Dividend Receivable
60,000
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%)
Dividend income
December 31
No journal entry
February 15
Noncash Asset
Dividend Receivable
75,000
75,000
75,000
75,000
PROBLEM 14-10 Cash Received in Lieu of Share dividends

Question No. 1
Nil. The share dividend is not considered an income.
Question No. 2
Net Selling Price (2,250 x P18)
Less: Carrying amount of the investment sold
(P172,500/(15,000+(15% x 15,000) x 2,250
Gain (or loss) on sale
(A)
40,500
22,500
18,000
(E)
Question No. 3
October 1
Memo entry
October 31
Cash
Gain on sale
FA at FVTOCI
45,000
18,000
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)
121
Question No. 2
October 1
Dividend Receivable (15,000 x P4)
Dividend income
60,000
60,000
October 31
FA at FVTOCI (15,000/5 x P22)

Dividend receivable
Dividend income
PROBLEM 14-12 Dividends Out Of Capital
Cash (P100 x 15% x 10,000)
Investment
150,000

Cash
Loss on liquidation
Investment
150,000
70,000
SUMMARY OF ANSWERS:
1. A
2. D
3. B
66,000
60,000
6,000
150,000
220,000
4.
PROBLEM 14-13 Stock Split and Special Assessment

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

1/1
Cash
3/1
Received `5,000 shares as a result of 5

for 2 share split.
122
(D)
210,000
210,000
10/1
12/31

Cash (P1.60 x 25,000)
Unrealized gain OCI
[(P25 x 25,000) P250,000]
SUMMARY OF ANSWERS:
1. D
2. D
3. B
4.
60,000
60,000
125,000
(C)
125,000
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)

Cash
400,000
Fair Value Through Other Comprehensive Income

June 15
Stock rights (P20 x 10,000)
Unrealized gain - P/L
200,000
July 15
600,000
FVTOCI (P80 x 10,000/2)+ 200,000

Cash
Stock rights
PROBLEM 14-15 Theoretical Value of Rights

Question No. 1
When the stock is selling right-on
Value of one right
P160 P100
5+1
123
400,000
200,000
400,000
200,000
P10
Question No. 2
When the stock is selling ex-right
Value of one right
=
=
P160 P100
5
P12
SUMMARY OF ANSWERS:
1. B
2. C
PROBLEM 14-16 Dividend Income

Cash dividend
Shares in lieu of cash dividends (5,000 x P150)
Total dividend income
1,500,000
750,000
2,250,000
(C)
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
Question No. 3
Selling price
Less: Commission and taxes
Net selling price
Less: Carrying value [2,500x(P90,000/6,000)]
Gain on sale
124
(C)
(A)
P50,000
5,000
45,000
37,500
P7,500
Question No. 4
EDA Corp. shares [P50 (P30,000/1,000)]
DJOA, Inc.
[P15 (P90,000/6,000)]
RVFE, Co.
[P45 (P80,000/2,000)]
ARP, Co.
[P100 (P880,000/8,000)]
Loss chargeable to income statement
x 1,000
x 3,500
x 2,000
x 8,000
(B)
Question No. 5
EDA Corporation shares
P50
x
DJOA, Inc.
P15
x
RVFE, Co.
P45
x
ARP, Co.
P100
x
Total balance of financial asset at profit or loss
1,000
3,500
2,000
8,000
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
5.
=
=
=
=
=
=
=
=
P20,000
10,000
( 80,000)
(P50,000)
P50,000
52,500
90,000
800,000
P992,500
PROBLEM 14-19 Fair Value through Other Comprehensive Income

Question No. 1
1/1/2015 Book Value
Brokerage fee
Commission
Dividends receivable
Cost of FVTOCI
P
(
P
880,000
10,000
10,000
16,000)
884,000
(A)
17,500
20,000)
(2,500)
(B)
Question No. 2
Dividend income (P2 x 6,000) = P12,000 (D)
Question No. 3
Proceeds (P35 x 500)
Cost (P500 x (P88,000/(2,000 x 110%))
Loss on sale
Question No. 4
Net Proceeds (P40,000 P5,000)
Carrying value (2,500 x (P90,000/6,000))
Dividends on stocks sold (P2 x 2,500)
Loss on sale
P
(
P
(
(
P
P
35,000
37,500)
5,000)*
(7,500)
(E)
*This was sold dividend-on.

Question No. 5
EDA Corporation preference shares (1,000 x P50) P
DJOA, Inc. (3,500 x P15)
RVFE Co. ((2,000 x 110% - 500) x P45)
125
50,000
52,500
76,500
ARP Co. (8,000 x P100)

Adjusted balance
SUMMARY OF ANSWERS:
1. A
2. D
3. C
800,000
979,000
P
4.
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)
Less: Carrying value- Pref. Shares (P850,000/8,000 x 4,000)
Gain on exchange
(C)
480,000
425,000
55,000
Question No. 2
Journal entry would be:
Investment in Trading- Ordinary Shares (6,000 x P80)
480,000
Gain on exchange
Investment in Trading- Pref. Shares (P800,000/8,000 x 4,000)
55,000
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
Less: Carrying value of the land
Gain on exchange
820,000
600,000
220,000
Question No. 2
March 31
Financial asset at FVTOCI
Land
Gain on exchange (820,000-600,000)
820,000
(B)
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
Less: Carrying value of the financial asset
Gain on exchange
126
650,000
600,000
50,000
(B)
Question No. 2
March 31
Land (at fair value of the asset given up)
FVTOCI
Gain on exchange (650,000-600,000)
Retained earnings
Unrealized loss (625,000-600,000)
650,000
600,000
50,000
25,000
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)
Question No. 2
Cash paid (P90 x (10,000/5))
Cost of stock rights used (P4 x 10,000)
Total investment cost
Question No. 3
Proceeds (P5.5 x 1,000)
Cost of stock rights (P4 x 1,000)
Gain on sale of stock rights
66,000
(D)
180,000
40,000
220,000
(B)
5,500
4,000
1,500
(C)
440,000
304,000
136,000
(D)
P
P
P
Question No. 4
Proceeds
Cost of shares sold (P76 ** x 4,000)
Gain on sale of stocks
P
P
127
Question No. 5
Original investment cost
Cost allocated to stock rights*
Additional investment **
Sale of investment
Adjusted cost of investment
P 880,000
44,000)
220,000
(
304,000)
P 752,000
(
SUMMARY OF ANSWERS:
1. D
2. B
3. C
4.
5.
(D)
PROBLEM 14-25
Note to professor: Question No. 5 should be 2015 instead of 2014.
Question No. 1
Cash paid (400K+20K)
Less: dividends
Correct cost
420,000
10,000
410,000
Question No. 2
Feb. 10
Nov. 2
(10,000+(11,000/5) x 1
(D)
30,000
13,200
43,200
(C)
Question No. 3
Fair value of new FA (10,000 x 40)
Less: Cost (900,000/15K x 5K)
Gain on conversion
400,000
300,000
100,000
(A)
Question No. 4
Consideration received (2,000 x 70)
Less: Dividends (2,000 x P1)
Net Selling Price
Less: Cost
Gain on sale
140,000
2,000
138,000
114,000
24,000
(B)
10-Feb
Total
1-May
(11,000/5)
Total
15-Nov
Total
Shares
10000
1,000
11,000
Cost
550,000
550,000
2,200
13,200
(2,000)
11,200
202,400
752,400
(114,000)
638,400
Cost of stocks on May 1
128
Subs. Price (11,000/5 x P62)

Add cost of stock rights (6 x 11,000)
Cost of stocks on May 1
136,400
66,000
202,400
Question No. 5
Gerrit-PS (70 x 10,000)
-OS (45 x 10,000)
Loesch (72 x 11,200)
Barr (20 x 20,000)
Fair values
700,000
450,000
806,400
400,000
2,356,400
Cost
600,000
400,000
638,400
410,000
2,048,400
Difference
(900,000/15K x 10K)
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.
PROBLEM 14-26
Question No. 1
FVTOCI Portfolio 12/31/2014
Coloma Company
Soliman
Villanueva Company
Less: FVTOCI Portfolio 01/01/2014
Coloma Company
Soliman
Villanueva Company
Unrealized gain SFP
Question No. 2
Fair value of shares
Less: Carrying amount of Soliman portfolio
Gain on exchange
5.
3,070,000
2,737,500
1,871,000
7,678,500
3,050,000
2,725,000
1,875,000
(C)
7,650,000
28,500
2,797,500
2,737,500
60,000
(B)
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
Less: Carrying amount of Aquino portfolio
Loss on sale
Question No. 4
FVTOCI Portfolio 12/31/2015
Coloma Company
Villanueva Company
Less: FVTOCI Portfolio 01/01/2014
129
2,590,000
2,600,000
(10,000)
(B)
3,080,000
1,867,500
4,947,500
Coloma Company
Villanueva Company
Unrealized gain SFP (cumulative)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
3,050,000
1,875,000
(C)
4.
4,925,000
22,500
PROBLEM 14-27
Question No. 1
Adjusted balance (5,000 4,000) x P50 = P200,000
Question No. 2
Type of
stocks
# shares
Ordinary
10,000
Preference
2,000
Total cost
Fair
value
P30
10
Total fair
value
P300,000
20,000
P320,000
(A)
Allocated
cost
P234,375
15,625
P250,000
(B)
Question No. 3
Allocate part of the investment cost to the preference shares.
Question No. 4
Proceeds (1,000 x P17)
P
Carrying amount [(P15,625/(10,000/5)) x 1,000)(
Gain on sale
P
17,000
7,812.50)
9,187.50
(C)
Question No. 5
Proceeds, exclusive of interest
Carrying amount (250 x 1,000 x 110%)
Gain on sale
280,000
275,000)
5,000
(A)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
P
(
P
C
5.
PROBLEM 14-28
Question No. 1
Net Selling price
Less: Carrying value (740,000/40,000 x 5,000)
Gain on sale
Question No. 2
Less:
(D)
250,000
92,500
157,500
270,000
130
Dividend income of the investment sold (6,000 x *P20 x 20%)

Net Selling price
Less: Carrying value (740,000/40,000 x 6,000)
Gain on sale
(D)
24,000
248,000
111,000
137,000
*The par value after 2 for 1 share split is equal to P40 x = P20
Question No. 3
6/1/2015 (35,000 x 4)
12/1/2015 (35,000 x 20% x P20)
(A)

Fair value (29,000 x P43)
Less: Cost (700,000/40,000 x 29,000)
Unrealized gain
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
1,247,000
507,500
739,500
131
5.
140,000
140,000
280,000
4. (D)
5. (D)
Chapter 15: Investment in Debt Securities
CHAPTER 15: INVESTMENT IN DEBT SECURITIES

Note to professor:
SOLUTION # 1
537
The carrying value as of December 31, 2013 is computed

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

Fair value of the bonds
Gain on sale
3,120,000
3,090,000
30,000
(D)
PROBLEM 15-3 Acquisition of FAAC Term Bonds on Interest Date

Question No. 1
Present value of Principal (1200000 x 0.6355 )
Add: Present Value of interest payments (120000 x 3.0373 )
Present value of the investment bonds
(C)
Question No. 2
Amortization table:
Interest
Date
Collection
01/01/2015
12/31/2015
120,000
Interest
Income
Premium
Amortization
(B) 135,249
15,249
132
762,600
364,476
1,127,076
Present
value
1,127,076
1,142,325
PROBLEM 15-4 Acquisition of FAAC Term Bonds in Between Interest Dates

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

Bonds and Computation of Interest Income
Purchase price
Add: Transaction cost
P1,100,000
44,752
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
Principal
Collection
Collection
450,000
180,000
630,000
450,000
135,000
585,000
450,000
90,000
540,000
450,000
45,000
495,000
Total Present Value of the serial bonds
Question No. 2
Interest income (1,727,834 x 12%) = 207,340
133
Present
Value Factor
0.8929
0.7972
0.7118
0.6355
(C)
(B)
Total Present
Value
562,527
466,362
384,372
314,573
1,727,834
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)
Less: Carrying value, reclassification date [(P2,855,940 x 1.12)
(10% x P3,000,000)
Gain on reclassification
(B)
3,120,000
2,898,653
221,347
PROBLEM 15-8 Reclassification: Held for Trading to Financial Asset at

Amortized Cost
Question No. 1
(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)
Less: Carrying value, reclassification date (103% x P3,000,000)
(D)
3,120,000
3,090,000
30,000
PROBLEM 15-9 Impairment of Financial Asset at Amortized Cost

SOLUTION:
Question No. 1
Carrying amount of the investment 12/31/2015
Less: Present value of expected cash flows (get the present value
computed using original effective rate)
Impairment loss
(B)
Question No. 2
Interest income (3,188,800 x 12%) = 382,560
134
(D)
3,864,680
3,188,800
675,880
PROBLEM 15-10 Reversal of Impairment on Financial Asset at Amortized

Cost
Present Value of Principal (5,000,000 x 0.8929)
Add: Present Value of interest payments (500,000 x 2 x 0.8929)
4,464,500
892,900
5,357,400
Present value expected cash flows, date of reversal

Would have been present value had there been no impairment
5,357,400
4,910,521
Lower of the two above

Less: Actual amortized cost (P3,986,000 x 1.12)
Gain on reversal of impairment
4,910,521
4,464,320
446,201
(D)
PROBLEM 15-11
Question No. 1
Cost of investment Jan. 21(P2,000,000 x 102%) = P2,040,000
Question No. 2
Proceeds
Less: Accrued interest (P1,000,000 x 9% x 3/12)
Net Proceeds
Less: Carrying amount (P2,000,000 x 102%)
Gain on sale
Question No. 3
Proceeds
Less: Accrued interest (P400,000 x 9% x 5/12)
Net proceeds
Carrying amount (P400,000 x 102%)
Loss on sale
(A)
(A)
P1,060,000
22,500
1,037,500
1,020,000
P 17,500
(A)
P 419,000
15,000
404,000
408,000
(
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
P400,000 x 9% x 280/360
Outstanding bonds:
P600,000 x 9% x 340/360
Total interest income
(A)
Question No. 5
Carrying value 12/31/2014 (P600,000 x 102%) = P612,000
The market value is equal to its cost.
135
P
(A)
9,500
28,000
51,000
88,500
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
5.
PROBLEM 15-12 Impairment and Reversal of Impairment Loss

Question No. 1
Present value of Principal (4,000,000 x 0.683 )
Add: Present Value of interest payments (480,000 X 3.1699)
(C)
Question No. 2
Amortization table (original):
Interest
Interest
Date
Collection
Income
01/01/2014
12/31/2014
480,000
425,355 (B)
12/31/2015
480,000
419,891
12/31/2016
480,000
413,880
12/31/2017
480,000
407,355
Premium
Amortization
54,645
60,109
66,152
72,645
2,732,000
1,521,552
4,253,552
Present
value
4,253,552
4,198,907
4,138,798
4,072,646
4,000,000
Question No. 3
Carrying amount of the investment 12/31/2015 (see table above)
Impairment loss
(B)
4,138,798
3,305,600
833,198

Add: PV of interest payments (No interest will be recovered)
3,305,600
3,305,600
Question No. 4
(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
Would have been present value had there been no impairment
4,509,136
4,072,646
Lower of the two above

Less: Actual amortized cost (P3,305,600 x 1.10)
Gain on reversal of impairment
(D)
4,072,646
3,636,160
436,486

Add: Present value of interest payments (480,000 x 2 x 0.9091)
3,636,400
872,736
4,509,136
136
PROBLEM 15-13
Question No. 1
Proceeds
Less: Carrying amount [(P432,000/24,000) x 12,000)
Loss on sale
(B)
Question No. 2
Cost, 1/1/2014
Less: Amortized cost, 12/31/2014
Premium amortization
Less: Nominal interest (5,000,000 x 12%)
Interest Income
P 204,000
216,000
(12,000)
P5,311,400
5,242,540
68,860
600,000
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)
Nominal interest (P2,000,000 x 13%)
Effective interest
Divide by: 1/1/2014 amortized cost
22,500
260,000
P 282,500
P1,881,000
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)
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
(C)
Question No. 5
Trading securities:
Panaghoy, Inc. (14,400 x P22)
Lamentation, Inc. [(24,000 12,000) x P15]
Total
P 316,800
180,000
P 496,800
FVTOCI:
Genesis bonds
Exodus bonds
Total
P 5,166,794
1,928,263
P 7,095,417
137
P2,020,000
1,928,623
91,377
Genesis Bonds
Date
01/01/2014
12/31/2014
12/31/2015
Interest
Collection
Interest
Income
Premium
Amortization
600,000
600,000
531,140
524,254
68,860
75,746
Interest
Collection
Interest
Income
Discount
Amortization
260,000
260,000
282,150
285,473
22,150
25,473
Present
value
5,311,400
5,242,540
5,166,794
Exodus Bonds
Date
01/01/2014
12/31/2014
12/31/2015
Present
value
1,881,000
1,903,150
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)
Add: PV of interest payments (P5,000,000 x 12% x 3.791)
Present value of the investment bonds 01/01/2014
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)
Accrued interest up to 7/1/2014 (P5,000,000 x 12% 6/12 )
Purchase price 7/1/2014
(C)
Question No. 2
Interest income 2014 (P5,379,600 x 10% x 6/12) = P268,980
Question No. 3
Fair value date of reclassification
Less: Carrying amount 12/31/2015 or 01/01/2016
Loss on reclassification
(B)
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.
138
5.
3,105,000
2,274,600
5,379,600
(31,020)
300,000
5,648,580
(B)
5,121,400
5,249,316
(127,916)
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
Share in the Net income in 2014 (1.7M x 25%)
Share in the dividend (25% x 320,000)
Understatement of depreciation (160,000/4 years)
Balance end, 12/31/2014
(A)
Understatement of Plant and equipment
x Percent of interest
Understatement of Net asset acquired
640,000
25%
160,000
Question No. 2
Fair value of investment, date of date of transfer (25,000 x P120)
Less: Carrying value of investment - 12/31/2014
Unrealized gain P&L
(C)
(See Amortization table below):
Interest
Interest
Date
Collection
Income
01/01/2014
12/31/2014
400,000
462,101 (B)
12/31/2015
400,000
468,311 (C)
12/31/2016
400,000
475,142
Discount
Amortization
62,101
68,311
75,142
Question No. 5
Present value of the principal (5M x .751)
Add: Present value of interest payments (only principal will be
recovered)
Total Present value of future cash inflows
Less: Amortized cost - 12/31/2015(see amortization table)
Impairment loss
(C)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
2,140,000
425,000
(80,000)
(40,000)
2,445,000
139
5.
3,000,000
2,445,000
555,000
Present
value
4,621,006
4,683,107
4,751,418
4,826,560
3,755,000
3,755,000
4,751,418
(996,418)
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
Less: Book value of net asset acquired (P120M x 20%)
Excess of cost over book value
Less: Overvalued depreciable asset (P6M x 20%)
Goodwill
(A)
Question No. 2
Dividends declared and paid
Multiply by: Percentage of ownership
Dividends Revenue
30,000,000
24,000,000
6,000,000
1,200,000
4,800,000
5,000,000
20%
1,000,000
(C)
Question No. 3
Share in net income (P8M x 20%)
Less: Amortization of Undervalued valued asset (see below)
Adjusted net investment income
(A)
1,600,000
200,000
1,400,000
Amortization of Undervalued asset

Depreciable Asset
Divide by: Average remaining useful life
Amortization of Undervalued valued asset
1,200,000
6
200,000
Question No. 4
Cost of Investment
Add: Net investment income (see no. 3)
Less: Dividends received (P1 x 1M shares)
30,000,000
1,400,000
1,000,000
30,400,000
(A)
Question No. 5
Investment using Fair Value (P32 x 1,000,000) = P32,000,000
SUMMARY OF ANSWERS:
1. A
2. C
3. A
4.
5.
(D)
PROBLEM 16-2
Question No. 1
Cost of Investment (P3.9M + 100,000)
140
4,000,000
3,000,000
1,000,000
Over or (under)valued asset:

Inventory [(P600,000 P400,000) x 25%]
Machinery [(P3,000,000 P1,500,000) x 25%]
Goodwill
(50,000)
(375,000)
1,425,000
(A)
Question No. 2
Add: Amortization of Overvalued valued asset (see below)
(A)
Amortization of Overvalued asset:
Inventory
1,000,000
87,500
1,087,500
2015
(50,000)
2016
Machinery
Divide by: Remaining life
Amortization of overvalued machinery
(375,000)
10
(37,500)
(375,000)
10
(37,500)
Net income of the associate

Share in the net income
Dividends received
2015
4,000,000
25%
1,000,000
1,000,000
25%
250,000
2016
5,000,000
25%
1,250,000
1,400,000
25%
350,000
Question No. 3
Cost of Investment
Less: Dividends received (P1M x 25%)
4,000,000
1,087,500
250,000
4,837,500
(C)
Question No. 4
Add: Amortization of Overvalued valued asset (see no. 2)
(B)
1,250,000
37,500
1,287,500
Question No. 5
Less: Dividends received (P1.4M x 25%)
4,837,500
1,287,500
350,000
5,775,000
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
(B)
141
5.
PROBLEM 16-3 Investment in Associate with Inventories, Machinery and

Land - Land Was Subsequently Sold
Question No. 1
Cost of Investment
Over or (under)valued asset
Inventory (P200,000 x 25%)
Machinery (P1,500,000 x 25%)
Land (P600,000 x 25%)
Goodwill
(A)
4,000,000
3,000,000
1,000,000
(50,000)
(375,000)
150,000
1,275,000
Amortization of Over (Under) valued asset

Inventory
2015
(50,000)
2016
Machinery
Amortization of Under (over) valued asset
(375,000)
10
(37,500)
(375,000)
10
(37,500)
150,000
2015
4,000,000
25%
1,000,000
1,000,000
25%
250,000
2016
5,000,000
25%
1,250,000
1,400,000
25%
350,000
Land
Net income of the associate
Dividends received
Question No. 2
Add: Amortization of Overvalued valued asset (see table above)
(C)
1,000,000
87,500
1,087,500
Question No. 3
Cost of Investment
Less: Dividends received (P1M x 25%)
4,000,000
1,087,500
250,000
4,837,500
(C)
Question No. 4
Less: Net Amortization of Undervalued valued asset (see no. 1)
(B)
Question No. 5
142
1,250,000
112,500
1,137,500

Less: Dividends received (P1.4M x 25%)
SUMMARY OF ANSWERS:
1. A
2. C
3. C
4.
4,837,500
1,137,500
350,000
5,625,000
(E)
5.
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 investees
preference dividends, whether or not such dividends are declared.
Net income
Less: Preference dividend (10% x 1,000,000)
Net income to ordinary shares
600,000
( 100,000)
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
P1,600,000
25%
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
Cost of Investment
Less: Dividends received
(A)
CASE NO. 2
Question No. 1
Net income
Less: Total actual preference dividends declared
143
5,000,000
300,000
5,300,000
P2,000,000
450,000
P1,550,000
25%
387,500
100,000
(D)
287,500
(B)
5,000,000
287,500
5,287,500
CASE NO. 3
Question No. 1
Net income
(E)
P2,000,000
25%
500,000
100,000
400,000
Question No. 2
Cost of Investment
Although the answer should be P400,000, the next best possible answer is
P500,000.
Question No. 2
Cost of Investment
SUMMARY OF ANSWERS:
CASE NO. 1
CASE NO. 2
1. A
2. A
1. D
2. B
(C)
1.
5,000,000
400,000
5,400,000
CASE NO. 3
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
Less: Carrying value (Fair value 12/31/2015)
Unrealized loss P&L
(B)
2,200,000
2,500,000
(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)
144
Fair value of previously held interest

Acquisition cost
Total cost of investment
Less: Book value of net asset acquired
Excess of attributable to machinery
Amortization of Undervalued asset
2,200,000
3,075,000
5,275,000
3,500,000
1,775,000
8
221,875
Net income of the associate - 2017

Multiply by: Percentage of ownership (10% + 15%)
Dividends received
1,500,000
25%
375,000
550,000
25%
137,500
Question No. 4
Share in net income
Less: Amortization of Undervalued asset (see table above)
(B)
Question No. 5
Cost of Investment
SUMMARY OF ANSWERS:
1. B
2. E
3. A
4.
(B)
5.
375,000
221,875
153,125
5,275,000
153,125
137,500
5,290,625
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)
Less: Dividend income (5 x 40,000)
Net selling price
Less: Carrying value (2,500,000/40,000 x 40,000)
Loss on sale
(A)
P2,600,000
200,000
2,400,000
2,500,000
(P100,000)
Question No. 2
Less: Dividend income (5 x 40,000)
Net selling price
Less: Carrying value [6M-(P5 x 100,000)/100,000] x 40,000)
Gain on sale
(B)
P2,600,000
200,000
2,400,000
2,200,000
P200,000
145
Question No. 3
(A)
P4,200,000
Question No. 4
Cost of Investment 01/01/2015
Add: Net investment income - 2015 (2,500,000 x 30%)
Less: Dividends received -2015 (30% x 1,000,000)
Add: Net investment income - 2016 (3,000,000 x 30%)
Less: Dividends received -2016 (30% x 1,600,000)
1,200,000
750,000
300,000
1,650,000
900,000
480,000
2,070,000
Net selling price

Less Carrying amount (P2,070,000 x )
Gain on sale
1,200,000
1,035,000
P165,000
(B)
Question No. 5
Investment in Kababain FVTOCI:
Less: Carrying amount
Investment in Passing Rate FVTOCI:
Less Cost (6M-(5 x 100,000))/100,000 x 60,000)
Total Unrealized Gain OCI to SFP
(C)
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
5.
1,125,000
1,035,000
4,200,000
3,300,000
90,000
900,000
P990,000
PROBLEM 16-8 Change From Equity to Cost Method

Question No. 1
Cost of Investment
Add: Net investment income [(1.8M-840,000) x 20%]
Less: Dividends received (P100,000 + P100,000)
(B)
4,000,000
192,000
200,000
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)
Carrying value of shares (P3,992,000 x 50,000/200,000)
Gain on sale of investment
(B)
146
1,250,000
998,000
252,000
Question No. 3
Fair value of retained investment (P25 x 150, 000)
Less: Carrying amount of retained investment (P3,992,000 x
150,000/200,000)
Gain on reclassification to P&L
(C)
3,750,000
2,994,000
756,000
Question No. 4
Fair value, Dec. 31, 2016 (P30 x 150,000)
Fair value, Jan. 1, 2016 (P25 x 150,000)
Unrealized gain, Dec. 31, 2016
(B)
4,500,000
3,750,000
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.
5.
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)
Add: Share of net income [(P7,200,000 - P3,360,000) x 25%]
Less: Dividends received (P420, 000 x 2)
Investment balance, December 31, 2015
(A)
Question No. 2
Sales price (68 x 100,000)
Less: Carrying value of shares (P16,620,000 x 100,000/250,000)
Gain on sale of investment
Fair value of retained investment (P69 x 150, 000)
Less: Carrying amount of retained investment (P16,620,000 x
150,000/250,000)
Gain on reclassification to P&L
Total Gain (152,000+378,000)
Question No. 3
Fair value, Dec. 31, 2016 (P70 x 150,000)
Fair value, Jan. 1, 2016 (P69 x 150,000)
Unrealized gain, Dec. 31, 2016 OCI
147
16,500,000
960,000
(840,000)
16,620,000
6,800,000
6,648,000
152,000
10,350,000
9,972,000
378,000
(C)
530,000
(B)
10,500,000
10,350,000
150,000
Question No. 4
Fair value, Dec. 31, 2015 (P70 x 150,000)
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
(D)
10,500,000
PROBLEM 16-10 Associate Having Heavy Losses

Original cost
Cash advances
Total interest
Net loss from 2015 to 2017 (40% x 4,000,000)
Carrying amount of investment 12/31/2017
Share in net loss of 2018 (40% x 800,000)
Loss to be reported in 2018 should be equal to the investment
balance only
(C)
1,400,000
400,000
1,800,000
(1,600,000)
200,000
320,000
200,000
PAS 28, paragraph 29, provides that if under equity method an investors 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
Net income
Share in the net income before adjustment
Less: Unrealized profit on downstream sale of
inventory
Share in the net income after adjustment
2015
1,000,000
25%
250,000
2016
1,500,000
25%
375,000
(30,000)
220,000
(B)
30,000
405,000
(D)
2015
1,000,000
25%
250,000
2016
1,500,000
25%
375,000
(9,000)
241,000
(B)
9,000
384,000
(D)
PROBLEM 16-12 Upstream Sale of Inventory

Net income
Less: Unrealized profit on upstream sale of
inventory
148
PROBLEM 16-13 Downstream Sale of Depreciable Asset

Note to professor: Change Josiah to Eldon.
Net income
Less: Unrealized gain on downstream sale of PPE
2015
1,000,000
25%
250,000
(160,000)
90,000
(B)
2016
1,500,000
25%
375,000
40,000
415,000
(D)
PROBLEM 16-14 Upstream Sale of Depreciable Asset

Note to professor: Change Josiah to Stalion.
Net income
Less: Unrealized gain on upstream sale of PPE
2015
1,000,000
25%
250,000
(40,000)
210,000
(B)
2016
1,500,000
25%
375,000
10,000
385,000
(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
Net income
Unrealized gain on downstream sale of PPE
Unrealized profit on upstream sale of inventory
Unrealized profit on upstream sale of inventory
Questions No. 3 & 4

Add: Net investment income - 2015 (see No. 1)
Less: Dividends received -2015 (30% x P800,000)
149
2015
2,000,000
30%
600,000
(160,000)
(30,000)
410,000
(C)
2016
3,000,000
30%
900,000
40,000
30,000
(45,000)
925,000
(D)
4,000,000
410,000
240,000

Less: Dividends received -2016 (30% x P1,200,000)
(E)
Question No. 5
Less: Amortization of Goodwill (P200,000 / 10)
Less: Dividends received -2015 (30% x P800,000)
Less: Amortization of Goodwill (P200,000 / 10)
Less: Dividends received -2016 (30% x P1,200,000)
(E)
4,170,000
925,000
360,000
4,735,000
(C)
4,000,000
410,000
20,000
240,000
4,150,000
925,000
20,000
360,000
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.
5.
PROBLEM 16-16
Question No. 1
Cost
Less: Equity in net assets
Implied goodwill
(A)
P1,700,000
1,400,000
300,000
(A)
P 32,500
25,000
7,500
Question No. 3
Proceeds (500 x P21)
Less: Carrying amount [(P55,000/(2,000 x 110%)) x 500]
Loss on sale
(A)
P 10,500
12,500
2,000
Question No. 4
Less: Carrying amount [(P40,000/1,000) x 500]
Gain on conversion
P 31,500
20,000
11,500
Question No. 2
Less: Carrying amount [(P60,000/6,000) x 2,500]
Gain on sale
150
(C)
Question No. 5
Investment in Roque Corporation:
3/9
1,000 x P1.2
9/9
1,000 x P1.2
Investment in Ocampo Corporation:
6/30 (6,000 2,500) x P1
1,200
1,200
(A)
3,500
5,900
Question No. 6
1/2/2016 Acquisition Cost
Add: Share in net income of associate (P1,200,000 x 30%)
Less: Dividends (P.50 x 4 x 100,000)
12/31/2016 carrying amount
(A)
1,700,000
360,000
200,000
P1,860,000
Question No. 6
Roque pref. (1,000 500) x P56
Roque ordinary (1,500 x P20)
Ocampo (6,000 -2,500) x P11
Dagumboy Co. (2,000 x 110% -500) x P22
12/31/2016 FVTOCI Balance
SUMMARY OF ANSWERS:
1. A
2. A
3. A
4.
28,000
30,000
38,500
37,400
133,900
(A)
5.
6.
7.
PROBLEM 16-17
Question No. 1
Solano:
Fair values (11,000 x 23)
Less: Cost
253,000
250,000
3,000
A. Castaneda
Fair values (20,000 x 14)
Less: Cost
Net unrealized loss
280,000
320,000
(B or D)
(40,000)
(37,000)
Question No. 2
Net Proceeds
Less: Carrying value (P3 x 20,000)
Gain on sale
(A)
Question No. 3
Zero, gain or loss on reclassification is recognized in the profit or loss.
151
75,000
60,000
15,000
(D)
Fair value previously held interest (50,000 x 30)

Gain on reclassification-P&L
1,500,000
1,350,000
150,000
Question No. 4
Net investment income = July 1- Dec. 31 (30% x 900,000) (D)
Question No. 5
Fair value previously held interest (P3M / 20% x 10%)
Add: Acquisition cost
Initial carrying amount investment in associate
Add: Net investment income (see No. 4)
Less: Dividends declared (P2 x 150,000)
Investment balance end
SUMMARY OF ANSWERS:
1. B or D
2. A
3.
4.
5.
(B)
270,000
1,500,000
3,000,000
4,500,000
270,000
300,000
4,470,000
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)
Less: Dividend of the investment sold (P4 x 4,000)
Net Selling Price
Less: Carrying value of the investment sold (*985,000/10,000 x
4,000)
Gain on sale
(B)
460,000
16,000
444,000
394,000
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)
Less: Carrying value of the investment sold (P10,400,000 x 1/2)
Gain on sale
(D)
Beg. Balance of Investment in Associate
Add: Share in the net income of associate (25% x P10M)
Total
Less: Amortization (P1,000,000/10)
Dividends received (P20 x 50,000)
Ending balance of investment in associate 12/31/2016
152
5,625,000
5,200,000
425,000
9,000,000
2,500,000
11,500,000
100,000
1,000,000
10,400,000
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.
Rodolfo (P23 x 20,000)
Boy-ot (P96 x 6,000)
Gene (P14 x 40,000)
Cleo (P225 x 25,000)
Total
Fair value
460,000
576,000
560,000
5,625,000
7,221,000
(A)
Cost
500,000
*591,000
640,000
5,625,000
7,356,000
* (985,000/10,000 x 6,000)
SUMMARY OF ANSWERS:
1. B
2. D
3. A
4.
153
5.
(UG) / UL
40,000
15,000
80,000
135,000
(B)
Chapter 18: Property, Plant and Equipment
CHAPTER 18: PROPERTY, PLANT AND EQUIPMENT

Note to professor:
Page
Existing Data:
683
Requirement No. 3
Credit to Machine M
Change to:
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

Purchase price including VAT (1,568,000/1.12)
Cost of water device to keep machine cool.
Cost of safety rail and platform surrounding
machine
Installation cost, including site preparation and
assembling.
Fees paid to consultants for advice on acquisition
of the machinery.
Dismantling cost of the machine
Repair cost of the machine damaged while in the
process of installation
Loss on premature retirement-old machine
Other nonrefundable sales tax
Cost of training for personnel who will use the
machine
Adjusted balances
(A)
PROBLEM 18-2
Improvements
Capitalizable
Cost
of
Question No. 1
Purchase Price
Title Insurance
Legal fees to purchase land
Property taxes, January 1, 2015 -June 30, 2015
154
Machinery
1,400,000
8,000
Land,
Others
12,000
20,000
13,000
10,000
13,000
5,000
18,000
-
1,476,000
25,000
48,000
Building
and
Land
925,000
7,500
5,000
15,000
Cost of grading and filling building site

Total Cost of the land
Question No. 2
Cost of building construction
Interest on construction loan
Cost of razing old building on lot
Proceeds from sale of salvageable materials
Total cost of the building
Question No. 3
Cost of constructing driveway
Cost of parking lot and fencing
Total cost of the land improvements
(A)
45,000
997,500
(A)
3,100,000
60,000
42,500
(6,000)
3,196,500
(B)
400,000
60,000
460,000
PROBLEM 18-3 Old Building Is Not To Be Demolished

Question No. 1
Allocated purchase price (4/10 x P11M)
Draining cost and filling the land.
Cost of grading and leveling the land
Brokers fee on the land
Cost of option of the acquired land
Registration fees and transfer of title.
Mortgages, encumbrances on the land assumed by buyer.
Total cost of land
(C)
Question No. 2
Allocated purchase price (6/10 x P11M)
Interest, liens and other encumbrances on the building assumed
by the buyer.
Payments to tenants of the building to induce them to vacate the
premises.
Repairs and renovation costs before the building is occupied
Unpaid taxes on the building up to the date of acquisition
Legal Fees and other expenses incurred in connection with the
purchase of the building
Total cost of building
(D)
Question No. 3
Cost of shrubs, trees, and other landscaping
(C)
4,400,000
33,000
6,000
6,500
8,000
13,000
13,500
4,480,000
6,600,000
21,000
50,000
66,400
2,000
8,000
6,747,400
53,000
Real Property taxes on the land accrued after acquisition of P5,000 shall be
treated as expense.
155
PROBLEM 18-4 Acquisition on Cash Basis

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

Invoice Price
Multiply by: (1 - discount rate)
Net invoice price
Additional cost:
Freight and insurance
Cost of testing and trial runs
Cost of the equipment
500,000
97%
485,000
(B)
15,000
12,000
512,000
PROBLEM 18-6 Acquisition on Account

Invoice Price
Multiply by: (1 - discount rate)
Net invoice price
Additional cost:
Installation cost
Present value of estd. decommissioning and restoration cost
Total cost of the equipment
(B)
500,000
0.97
485,000
Estimated decommissioning and restoration cost

Multiply by: Present value of 1
Present value of estd. decommissioning and restoration cost
100,000
0.6209
62,090
156
50,000
62,090
597,090
PROBLEM 18-7 Deferred Settlement Terms (With or Without Cash Price

Equivalent)
Question No. 1
Cash price equivalent
Question No. 2
Principal
Multiply by: Present value of 1
Cost of the equipment
(A)
800,000
(B)
1,000,000
0.7972
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
Add: Cash payment
Cost of equipment
Question No. 2
Gain on exchange
Question No. 3
Carrying amount of the asset given
Add: Cash payment
Cost of equipment
(D)
1,200,000
200,000
1,400,000
(B)
1,200,000
800,000
400,000
(B)
800,000
200,000
1,000,000
Question No. 4
Zero, the transaction lacks commercial substance. (A)
PROBLEM 18-9 Tradein
Question No. 1
Cash price without trade in
Question No. 2
Cash price without trade in
Less: Cash price with trade in
Trade in value
Loss on trade in
157
(A)
340,000
(B)
340,000
270,000
70,000
230,000
(160,000)
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
Add: Direct cost
Total cost
(B)
4,000,000
40,000
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
Demolition of existing building on site
Legal and other fees to close escrow
Less: Proceeds from sale of demolition scrap
Total cost
Question No. 2
Purchase price
Legal and other fees to close escrow
Total cost
158
(C)
400,000
75,000
12,000
10,000
477,000
(A)
400,000
12,000
412,000
PROBLEM 18-14 Specific Borrowings

Question No. 1
Loan received
Multiply by: Interest rate
Actual borrowing cost
Less: Investment income
Capitalizable borrowing cost
Question No. 2
Loan received
Multiply by: Interest rate
Less: Investment income (60,000 x 4/12)
Question No. 3
Loan received
Multiply by: Future value of 1 for 4 periods
Future value of the loan 12/31/2015
Less: Principal amount of the loan
(B)
1,000,000
20%
200,000
60,000
140,000
(D)
1,000,000
20%
200,000
20,000
180,000
(C)
1,000,000
1.2155
1,215,500
1,000,000
215,500
60,000
155,500
Question No. 4
Loan received
Add: Expenditures incurred on Jan. 1
Balance at Jan 1
1,000,000
400,000
600,000
Interest on surplus funds on June 1 (600,000 x 15% x 5/12)

Balance at June 1
Less: Expenditure incurred on June 1
Balance at December 31
37,500
600,000
250,000
350,000
Interest on surplus funds on December 31 (350,000 x 15% x

7/12)
Total interest on surplus funds
Less: Investment income (see above)
(C)
159
30,625
68,125
200,000
68,125
131,875
PROBLEM 18-15 Specific Borrowings - Expenditures Incurred Evenly

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

Less: Interest on surplus funds (600,000 x 0.15 )
(A)
200,000
90,000
110,000
Question No. 2
Average expenditures (800,000 /2 )
Capitalizable borrowing cost (400,000 x 0.2 )
400,000
80,000
(C)
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:
701
Kendall borrowed P750,000 on a construction
loan at 12% interest on January 1, 2013. This
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
September 1, 2015
December 31, 2015
Average accumulated expenditure
Multiply by: Rate
200,000
300,000
300,000
Change To:
Change 2013 to 2015
Change 2014 to 2016
x 12/12
x 4/12
x 0/12
1. (A)
2. (D)
200,000
100,000
0
300,000
12%
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.
160
Question No. 3 & 4

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

Total expenditures
Divide by
Total
Less: Investment income (50,000 x 3/12)
Weighted average expenditures
Multiply by: Rate
(A)
6,000,000
2
3,000,000
12,500
2,987,500
10%
298,750
PROBLEM 18-18 Different Depreciation Methods

Cost
Less: Residual value
Depreciable amount
P3,300,000
300,000
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
161
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
Less: Accumulated depreciation 12/31/2014
[(P102,750 P6,750) / 6 x 2)
Less: Revised residual value
Depreciable amount
Divide by: Remaining useful life (7-2)
102,750
(B)
32,000
70,750
4,500
66,250
5
13,250
(A)
P308,000
10,000
298,000
10
29,800
PROBLEM 18-20 Straight-Line

Cost (P300,000 + P8,000)
Depreciable amount
Divide by: Useful life
162
PROBLEM 18-21 Composite Method
Machine A
Machine B
Machine C
Total
Cost
275,000
100,000
20,000
395,000
Salvage
Value
25,000
10,000
35,000
Depreciable
Amount
250,000
90,000
20,000
360,000
Estd.
Life
20
15
5
Annual
Depreciation
12,500
6,000
4,000
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
2014 (P18,000 x 50%)
2015 (P18,000 9,000 P4,700) *
Book value 12/31/2015
18,000
(B)
9,000
4,300
4,700
*Maximum depreciation. The carrying amount should not be reduced below its
residual value.
163
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
(D)
300,000
210,000
510,000
(C)
36,000
PROBLEM 18-27 150% Declining Balance

150% declining rate (1.5/5) = 30%
2014 (P1,000,000 x 30%)
2015 [(P1,000,000 300,000) x 30%]
Accumulated depreciation 12/31/2015
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)
PROBLEM 18-29 Component Depreciation

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

Cost
Less: Depreciation first year (8,000 / 4)
Carrying value end of first year
Divided by: Revised remaining useful life (5 1)
Depreciation 2nd year
(C)
8,000
2,000
6,000
4
1,500
(B)
5,000
600
4,400
PROBLEM 18-31 Retirement Method

Original cost
Less: Salvage proceeds
Depreciation
164

Cost
[(P3,300,000 P300,000) / 8 x 4]
3,300,000
1,500,000
1,800,000
CASE NO. 1
Requirement No. 1
Depreciable amount
Divided by: Revised remaining useful life
Depreciation 2015
1,800,000
300,000
1,500,000
2
750,000
Requirement No. 2
Less: Depreciation 2015
1,800,000
750,000
1,050,000
CASE NO. 2
Requirement No. 1
Depreciable amount
Divided by: Remaining useful life ( 8 4)
Depreciation 2015
1,800,000
150,000
1,650,000
4
412,500
Requirement No. 2
1,800,000
412,500
1,387,500
CASE NO. 3
Requirement No. 1
Depreciable amount
Multiply by: Fraction (SYD = 10)
Depreciation 2015
1,800,000
300,000
1,500,000
4/10
600,000
Requirement No. 2
1,800,000
600,000
1,200,000
165
PROBLEM 18-33 Replacement Method

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

Let X = Net Fixed Asset at the end of 2014
Sales
Average Fixed Asset
Fixed asset turnover =

4=
4=
P1,480,000 =
X=
P1,480,000
.5 (P320,000 + X)
P1,480,000
P160,000 + .5x
P640,000 + 2x
P420,000
(C)
PROBLEM 18-35 Derecognition of PPE

Note to professor: Change Pine to Jeremy.
Insurance Proceeds
Less: Carrying value [P160,000 (P20,000 x 6/12)]
Gain on disposal
(D)
200,000
150,000
50,000
PROBLEM 18-36
Question No. 1
Beg. Balance of the Land
Cash paid
Mortgage assumed
Realtor's commission
Legal fees, realty taxes and documentation expenses
Amount paid to relocate persons squatting on the property
Total Cost of the Land
(B)
P 700,000
2,500,000
4,000,000
300,000
50,000
100,000
P7,650,000
Question No. 2
Beginning balance of the Land Improvement
Cost of fencing property
Total cost of Land Improvement
P 10,000
110,000
P 120,000
166
(A)
Question No. 3
Beg. Balance of the Building
Amount recovered from salvage of building
Cost of tearing down an old building
Amount paid to contractor
Building permit
Excavation expenses
Architects' fees
Question No. 4
Beg. Balance of the Machinery
Invoice cost of machinery
Freight, unloading
Customs duties
Allowances during installations
Total cost of machinery
Question No. 5
Total cost of Land Improvement
Total depreciable property
(A)
P 900,000
(150,000)
120,000
2,000,000
20,000
50,000
50,000
P2,990,000
(B)
P 980,000
2,000,000
60,000
140,000
400,000
P3,580,000
(A)
P 120,000
2,990,000
3,580,000
P6,690,000
Royalty payment on machines purchased in the amount of P120,000 should be

included as part of manufacturing overhead in the companys 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.
5.
PROBLEM 18-37 Specific and General Borrowings

WEIGHTED AVERAGE IN 2014
Months
Expenditures outstanding
3,000,000
12
7,000,000
6
6,000,000
2
16,000,000
Date
01/01/2014
07/01/2014
11/01/2014
Total
Divide by
Weighted average carrying amount
Specific borrowings (2,000,000 x 10%)
167
200,000
Average
36,000,000
42,000,000
12,000,000
90,000,000
12
7,500,000
General borrowings:
Rate
14%
12%
Total
Principal
2,000,000
18,000,000
20,000,000
Interest
280,000
2,160,000
2,440,000
Capitalization Rate (P2,440,000 / P20,000,000) = 12.20%

Weighted average borrowing cost:
Specific borrowings
General borrowings:
Less: Principal amount of Specific borrowings
Weighted average related to General borrowings
Multiply by: Capitalization rate
Multiply by: Months/12
vs. Actual borrowing cost
Capitalizable borrowing cost (lower)
200,000
13,000
7,500,000
2,000,000
5,500,000
12.20%
1
(A)
WEIGHTED AVERAGE IN 2015

Months
Expenditures outstanding
*16,858,000
8
1,000,000
2
2,000,000
1
19,858,000
Date
01/01/2015
07/01/2014
08/01/2014
Total
Divide by
187,000
671,000
858,000
2,640,000
858,000
Average
134,864,000
2,000,000
2,000,000
138,864,000
8
17,358,000
*Total expenditures in 2014 plus capitalized borrowing cost in 2014.

Specific borrowings
Actual borrowing cost (P2,000,000 x 10% x 8/12)
General borrowings:
vs. Actual borrowing cost (2,640,000 x 8/12)
168
133,333
17,358,000
2,000,000
15,358,000
12.20%
8/12
(A)
133,333
1,249,117
1,382,451
1,760,000
1,382,451
Question No. 3
Actual borrowing cost - 2014
Less: Capitalizable borrowing cost - 2014
Interest expense
Question No. 4
Actual borrowing cost - 2015
Less: Capitalizable borrowing cost - 2015
Interest expense
Question No. 5
Total cost, 2014
Expenditures in 2015
Add: Capitalizable borrowing cost - 2015
SUMMARY OF ANSWERS:
1. A
2. A
3. C
4.
5.
(C)
2,640,000
858,000
1,782,000
(C)
2,640,000
1,382,451
1,257,550
(B)
16,858,000
3,000,000
1,382,451
21,240,451
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
Depreciation
Question No. 3
Cost of building
Less: Government grant
Total
Depreciation
Question No. 4
Cost of building
Carrying amount 12/31/2015
169
(C)
30,000,000
20
1,500,000
(B)
30,000,000
25,000,000
5,000,000
20
250,000
(D)
30,000,000
1,500,000
28,500,000
Question No. 5
Net cost of building
SUMMARY OF ANSWERS:
1. D
2. C
3. B
(C)
4.
5.
5,000,000
250,000
4,750,000
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
Depreciation
Question No. 3
Less: Government grant
Total
Depreciation
Question No. 4
Question No. 5
Net cost of factory building
SUMMARY OF ANSWERS:
1. B
2. C
3. D
4.
170
5.
(C)
20,000,000
10
2,000,000
(D)
20,000,000
5,000,000
15,000,000
10
1,500,000
(A)
20,000,000
2,000,000
18,000,000
(B)
15,000,000
1,500,000
13,500,000
PROBLEM 18-40
Question No. 1
Cost of land and old building
Real estate broker's commission
Legal fees
Title insurance
Cost of land
P1,200,000
72,000
12,000
36,000
P1,320,000
(C)
Question No. 2
Date
Expenditures
January 1, 2014
1,000,000
April 1, 2014
500,000
October 1, 2014
800,000
December 31, 2014
900,000
Total
3,200,000
Divide by
Months
outstanding
12
9
3
0
Average
12,000,000
4,500,000
2,400,000
18,900,000
12
1,575,000
Capitalization Rate (P840,000 / P8,000,000) = 10.50%

Specific borrowings
Actual borrowing cost (P1M x 12% x 12/12)
General borrowings:
vs. Actual borrowing cost (P120,000 + P840,000)
120,000
1,575,000
1,000,000
575,000
10.50%%
12/12
(A)
120,000
60,375
180,375
960,000
180,375
Question No. 3
Date
Expenditures
January 1, 2015
*4,380,375
May 1, 2015
600,000
September 1, 2015
1,200,000
Total
3,200,000
Divide by
*(3,200,000+180,375+1,000,000)
171
Months
outstanding
8
4
-
Average
35,043,000
2,400,000
37,443,000
8
4,680,375

Specific borrowings
Actual borrowing cost (P1,000,000 x 12% x 8/12)
General borrowings:
vs. Actual borrowing cost (P960,000 x 8 / 12)
Question No. 4
Fixed construction contract price
Plans, specifications, and blueprints
Architects' fees
Removal of old building
Interest capitalized during 2014
Interest capitalized during 2015
Cost of building
80,000
4,680,375
1,000,000
3,680,375
10.50%%
8/12
257,626
337,626
640,000
337,626
(A)
(C)
Question No. 5
Interest cost in 2015:
Specific borrowing
General borrowing
Total interest
Less: Capitalizable borrowing cost in 2015
Interest expense in 2015
80,000
P6,000,000
42,000
164,000
108,000
180,375
337,626
P6,832,001
(C)
120,000
840,000
P 960,000
337,626.25
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)
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
172
5.
84,500
PROBLEM 18-41
Question No. 1
SYD [5 x (5+1)/2] = 15
Date
4/1/2013 - 4/1/2014
4/1/2014 - 4/1/2015
Fraction to be used
(5/15)
(4/15)
Depreciation expense:
Jan. 1 - 4/1/2015 (4/15 x 1,500,000 x 3/12)
Add: depreciation from 4/1 - 12/31
Of the 1.2M (3/15 x 1,200,000 x 9/12)
Of the 300,000 (see computation below)
Total depreciation expense
P 100,000
(A)
Depreciation exp. from (4/1/-12/31):

Cost
2013 to 2014 - 5/15 x 300,000
2014 to 2015 - 4/15 x 300,000)
Book Value, 4/1/2015
Divide by: Remaining Life (5-2)
Total
Multiply by: Number of months
Depreciation
180,000
30,000
P 310,000
P 300,000
100,000
80,000
P 120,000
3
P 40,000
9/12
P 30,000
Question No. 2
Accumulated depreciation, beg.
Add: Depreciation expense - 2015
Accumulated depreciation, 12/31/2015
(A)
P 800,000
310,000
P1,110,000
(B)
P 550,000
700,000
P1,250,000
(A)
P2,220,000
375,000
405,000
P3,000,000
Question No. 5
Depreciation on the beginning balance
(6M - 4,427,136 - 1,300,000)
Add: Depreciation on new building (3,000,000 x 20%)
Total depreciation
(D)
P 272,864
600,000
P 872,864
Question No. 3
Beginning balance of land
Add: Acquisition on Nov 4
Total cost of the land
Question No. 4
Direct cost
Fixed cost (15,000 x 25)
Variable cost (15,000 x 27)
Total Cost of building
173
Question No. 6
Cost of the machinery-beg bal.
Add: Cost of the new machinery
Invoice cost
Concrete embedding
Wall demolition
Rebuilding of wall
P3,000,000
P 356,000
18,000
7,000
19,000
(A)
Question No. 7
Depreciation of machinery
Depreciation of the beginning balance of
machinery
Original Cost
Accumulated depreciation (3,000,000/20*10)
P1,500,000
Less: Major overhaul
600,000
Adjusted book value
Divided by: Revised remaining life (20 10 + 5)
Depreciation of the beginning balance of machinery
Depreciation on the new machinery (400,000/20 x 6/12)
Depreciation of machinery
(E)
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
5.
6.
400,000
P3,400,000
P3,000,000
900,000
P2,100,000
15
P 140,000
10,000
P 150,000
7.
PROBLEM 18-42
Question No. 1
Selling Price
Less Book value
Cost
Up to 1/1
From Jan. 1-May 1
[(140,000 -12,400) x 5/55]*
Gain on sale of machinery D
P 52,000
P140,000
P 92,800
11,600
(A)
(104,400)
35,600
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
Add: Depreciation expense [(204,000-12,000)/15,000 x 2,100]
Accumulated depreciation, R Dec. 31
(B)
174
P 140,800
26,880
P 167,680
Question No. 3
Accumulated depreciation, I Jan 1
Add: Depreciation expense [(320,000-60,000-20,000)/10]
Accumulated depreciation, I Dec. 31
(C)
P 60,000
24,000
P 84,000
Question No. 4
Accumulated depreciation, A Jan 1
Add: Depreciation expense (320,000-64,000) x 20%
Accumulated depreciation, A Dec. 31
(A)
P 64,000
51,200
P 115,200
Question No. 5
Depreciation expense on Machinery:
D (see computation in no. 1)
R (see computation in no. 2)
I (see computation in no. 3)
A (see computation in no. 4)
N (88,000/20%)
P 11,600
26,880
24,000
51,200
17,600
P 131,280
SUMMARY OF ANSWERS:
1. A
2. B
3. C
4.
(D)
A
5.
PROBLEM 18-43
Question No. 1
SYD
55
Cost of the office equipment

Multiply by: Used fractions (10/55+9/55+8/55+7/55)
Accumulated depreciation, December 31, 2015
(C)
Question No. 2
Machine 101 (70,000-7,000)/10 x 3/12
Machine 102 (80,000-8,000)/9 x 3/12
Machine 103 (30,000-3,000)/8
Total depreciation
Machine 101
Cost
Less: Accumulated Depreciation, Jan 1, 2016
Book value, January 1, 2016
Depreciation in 2016
Question No. 3
Office equipment
Less: Accumulated depreciation, Dec 31, 2015
175
(C)
330,000
34/55
204,000
12,775
2,000
3,375
18,150
70,000
18,900
51,100
4
12,775
330,000
204,000
Book value, December 31, 2015

Depreciation - office equipment
Depreciation of the building (200,000/5)
(C)
Question No. 4
Net Selling price
Less: Book value of the Machine
Cost
(80,000-8,000)/9 x 1 9/12
Loss on sale
52,500
80,000
14,000
(A)
Question No. 5
Cost of the office equipment
Accumulated depreciation, Dec 31, 2015
Depreciation expense in 2016
Book value, December 31, 2016
SUMMARY OF ANSWERS:
1. C
2. C
3. C
4.
126,000
6
21,000
40,000
61,000
5.
66,000
(13,500)
330,000
204,000
21,000
(B)
225,000
105,000
PROBLEM 18-44
Question No. 1
Fair value
Legal fees
Remodeling cost
1,400,000
50,000
100,000
1,550,000
(C)
Question No. 2
Fair value of the asset received
Less: Cash paid
Less: Book value of the asset given
Cost
Less: Accumulated depreciation (1M/10 x 3.5)
Gain on exchange
Question No. 3
Office building No. 1 (940,000/7)
Office building No. 2 (1,000,000/10 x 6/12)
Office building No. 3 (1,200,000/4 x 6/12)
176
1,200,000
400,000
800,000
1,000,000
350,000
(A)
650000
150,000
135,000
50,000
150,000
Factory building (1,550,000/10)

Total Depreciation expense
155,000
490,000
(C)
Cost of office building No. 1

Book value
Add: Major improvements
Total
1,000,000
300,000
700,000
245,000
945,000
Question No. 4
Income from government grant (1,400,000/10)
Question No. 5
Total depreciable cost
Less: Subsequent depreciation
Book value
SUMMARY OF ANSWERS:
1. C
2. A
3. C
4.
5.
(A)
140,000
(A)
945,000
135,000
810,000
PROBLEM 18-45
Question No. 1
Date
Expenditures
January 1, 2015
2,000,000
July 1, 2015
4,000,000
November 1, 2015
3,000,000
Total
9,000,000
Divide by
Specific borrowings
Actual borrowing cost (2M x 10% x 12/12)
General borrowings:
177
Months
outstanding
12
6
2
200,000
4,500,000
2,000,000
2,500,000
12%
12/12
(D)
Average
24,000,000
24,000,000
6,000,000
54,000,000
8
4,500,000
200,000
300,000
500,000
2,000,000
500,000
Question No. 2
Total expenditures 2015
Total expenditures - 2016
Capitalized borrowing cost - 2015
Capitalized borrowing cost 2016 (see computation below)
(C)
Date
Expenditures
January 1, 2016
*9,500,000
July 1, 2016
1,000,000
Total
10,500,000
Divide by
Months
outstanding
12
6
9,000,000
1,000,000
500,000
1,160,000
11,660,000
Average
114,000,000
6,000,000
120,000,000
12
10,000,000
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)
General borrowings:
Question No. 3
Total expenditures 2015
Total expenditures - 2016
200,000
10,000,000
2,000,000
8,000,000
12%
12/12
(A)
200,000
960,000
1,160,000
2,000,000
1,160,000
9,000,000
1,000,000
10,000,000
Borrowing cost under PFRS for SME is expensed outright.

Question No. 4
Cost of Machinery and Equipment
Multiply by: Fraction
Depreciation
(A)
SYD is 15 years and useful life is 5 years.
178
3,000,000
3/15
600,000
Question No. 5
Depreciation remaining delivery truck (see below)
Depreciation overhauled delivery truck (see below)
Depreciation new delivery truck (see below)
Total depreciation on delivery truck
(B)
114,000
30,000
24,000
168,000
Delivery truck:
Cost
Less: Carrying value of overhauled truck
Balance
Depreciation on remaining delivery truck
1,152,000
432,000
720,000
150,000
570,000
5
114,000
Overhauled delivery truck:

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

Invoice cost
Freight
Installation and testing
Total cost of new delivery truck
Annual depreciation
Multiply by: Number of months used (July 26 to December 31)
Depreciation on remaining delivery truck
400,000
20,800
40,000
460,800
8
57,600
5/12
24,000
Question No. 6
Beginning balance
Add: Overhauling cost
Add: Cost of new delivery truck
Adjusted cost of delivery truck
Less: Accumulated depreciation (432,000 + 168,000)
(C)
SUMMARY OF ANSWERS:
1. D
2. C
3. A
4.
179
5.
1,152,000
60,000
460,800
1,672,800
600,000
1,072,800
6.
Chapter 19: Wasting Assets
CHAPTER 19: WASTING ASSETS

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

Acquisition cost
Exploration cost
Intangible development cost
Total cost of the natural resource
Total depletable cost of the natural resource
Divide by: Units estimated to be extracted
Depletion per unit
Multiply by: Units extracted from 2015 to 2017
Depletion from 2015 to 2017
8,000,000
12,000,000
10,000,000
30,000,000
900,000
29,100,000
4,000,000
7.275
400,000
2,910,000
Question No. 1
Cost of natural resource
Less: Accumulated depletion 12/31/2017
Depletable cost
Divide by: Revised remaining units
Depletion rate per unit
Multiply by: Units extracted - 2018
Depletion 2018
30,000,000
2,910,000
27,090,000
600,000
26,490,000
500,000
52.98
200,000
10,596,000
180
(A)
Question No. 2
Cost of natural resource
Less: Accumulated depletion (P2,910,000 + P10,596,000)
(A)
30,000,000
13,506,000
16,494,000
PROBLEM 19-3 Depreciation of Movable and Immovable Equipment

Useful Life of the Immovable Equipment is Shorter
Question No. 1
Acquisition cost
Exploration cost
Depletion per unit
Depletion 2015
Question No. 2
Cost of the movable equipment
Divide by: Useful life in years
Depreciation - 2015
Question No. 3
Divide by: Useful life in years (shorter)
Depreciation - 2015
(A)
4,000,000
6,000,000
5,000,000
15,000,000
15,000,000
4,000,000
3.75
500,000
1,875,000
(A)
2,000,000
10
200,000
(A)
1,000,000
5
200,000
PROBLEM 19-4 Depreciation of Movable and Immovable Equipment - Life

of the Wasting Asset is Shorter
Question No. 1
Acquisition cost
Exploration cost
Depletion per unit
Depletion 2015
181
(A)
4,000,000
6,000,000
5,000,000
15,000,000
15,000,000
4,000,000
3.75
500,000
1,875,000
Question No. 2
Divide by: Useful life in years
Depreciation - 2015
(A)
2,000,000
20
100,000
Question No. 3
Divide by: Units estimated to be extracted (shorter)*
Depreciation rate per unit
Multiply by: Actual units extracted
Depreciation - 2015
(C)
P1,000,000
4,000,000
P.25
500,000
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
Depreciation per unit
Multiply by: Actual units extracted from 2015 to 2017
Accumulated Depreciation 12/31/2017
5,000,000
2,000,000
3
620,000
1,550,000
Question No. 1
Divide by: Remaining useful life (15 3)
Depreciation - 2018
(A)
5,000,000
1,550,000
3,450,000
12
287,500
(A)
5,000,000
1,837,500
3,162,500
1,380,000
2.29
150,000
343,750
Question No. 2
Divide by: Remaining units to be extracted
Depreciation per unit
Multiply by: Actual units extracted - 2019
Depreciation 2019
PROBLEM 19-5 Liquidating Dividends
Accumulated profits -unappropriated

Add: Accumulated depletion
Total
Less: Capital Liquidated
Depletion in the ending inventory (P6 x 120,000)
Maximum Dividend
(D)
182
9,000,000
7,000,000
16,000,000
800,000
720,000
14,480,000
PROBLEM 19-6
Question No. 1
Acquisition cost
Depletion per ton
Multiply by: Actual tons extracted 2016
Depletion - 2016
Question No. 2
Cost of Installation
Depreciation per ton
Multiply by: Actual tons extracted 2016
Depreciation - 2018
Question No. 3
Cost of mining equipment
Depreciation 2016
Question No. 4
Acquisition cost
Less: Accumulated Depletion
Add: Additional development cost - 2017
Remaining depletable cost
Divide by: Estimated tons to be extracted
Depletion per ton
Multiply by: Tons extracted 2017
Depletion - 2017
(D)
P9,075,000
1,100,000
P8.25
100,000
825,000
(B)
1,925,000
1,100,000
1.75
100,000
175,000
(A or D)
4,400,000
8
550,000
(C)
P9,075,000
825,000
P8,250,000
750,000
P9,000,000
1,000,000
P
9
150,000
P1,350,000
Question No. 5
Installation ((P1,925,000/1.1M) x 150,000 tons)
Mining equipment (P4,400,000/8)
(C)
P 262,500
550,000
P 812,500
SUMMARY OF ANSWERS:
1. D
2. B
3. A or D
4.
183
5.
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
Add: Exploration and intangible development cost
Add: Estimated decommissioning and restoration costs
Initial cost
(A)
150,000,000
8,000,000
8,196,161
166,196,161
Estimated restoration cost

Multiply by: Present value of 1 for four periods
Present value of the restoration cost
P 12,000,000
0.683013455
P 8,196,161
Question No. 2
Total cost of the wasting assets
Divide by: Estimated units to be extracted
Depletion per unit
Multiply by: Units extracted
Depletion expense 2015
(B)
166,196,161
12,000,000
13.85
1,600,000
22,159,488
(A)
6,000,000
20
300,000
Question No. 4
Divide by: Units estimated to be extracted (shorter)
Depreciation rate per unit
(B)
9,000,000
12,000,000
0.75
1,600,000
1,200,000
Question No. 3
Depreciation 2015
*Estimated useful life using output method (12,000,000 / 1,500,000) = 8 years

Question No. 5
Date
Interest expense
01/01/2015
12/31/2015
819,616
12/31/2016
901,578 (E)
12/31/2017
991,736
12/31/2018
1,090,909
Present value
8,196,161
9,015,778
9,917,355
10,909,091
12,000,000
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
184
5.
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
Add: Exploration and intangible development cost
Add: Estimated decommissioning and restoration costs
Initial cost
(A)
120,000,000
6,000,000
6,355,181
132,355,181
Estimated restoration cost

Multiply by: Present value of 1 for four periods
Present value of the restoration cost
P 10,000,000
0.635518078
P 6,355,181
Question No. 2
Total cost of the wasting assets
Divide by: Estimated units to be extracted
Depletion per unit
(B)
132,355,181
12,000,000
11.03
1,600,000
17,647,357
(A)
6,000,000
6
1,000,000
(A)
9,000,000
5
1,800,000
Question No. 3
Depreciation 2015
Question No. 4
Depreciation 2015
Question No. 5
Date
Interest expense
01/01/2015
12/31/2015
762,622
12/31/2016
854,136 (E)
12/31/2017
956,633
12/31/2018
1,071,429
Present value
6,355,181
7,117,802
7,971,939
8,928,571
10,000,000
SUMMARY OF ANSWERS:
1. A
2. B
3. A
4.
185
5.
Chapter 20: Investment Property
CHAPTER 20: INVESTMENT PROPERTY

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

Item
Owneroccupied
property
Investment
Property
Inventory
Others
1,260,000
1,110,000
2)
6)
9)
10)
2,100,000
530,000
11)
420,000
2,160,000
1. (A)
7,740,000
Remarks
Covered by PAS 11
Derecognized since
it is leased out
under a finance
lease
IP in the separate
FS
Cannot qualify as
IP since it is not
land or building
Not reported since
it is leased under
operating lease
450,000
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.
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.
186
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. Dont deduct cost to sell.
PROBLEM 20-9: Derecognition of investment property Fair value vs Cost
Model
Question No. 2
(C)
187
Chapter 22: Intangible Assets
CHAPTER 22: INTANGIBLE ASSETS

PROBLEM 22-1 Research and Development Cost
R&D
Cost of activities aimed at obtaining new
knowledge
Marketing research to study consumer tastes
Cost of developing and producing a prototype
model
Cost of testing the prototype model for safety and
environmental friendliness
Cost revising designs for flaws in the prototype
model
Salaries of employees, consultants, and technicians
involved in R&D
Amount paid for conference for the introduction of
the newly developed product including fee of a
model hired as endorser
Advertising to establish recognition of the newly
developed product
Cost incurred on search for alternatives for
materials, devices, products, processes, systems or
services
Cost of final selection of possible alternatives for a
new process
Periodic or routine design changes to existing
products
Modification of design for a specific customer
Cost of design, construction and operation of a pilot
plant that is not of a scale economically feasible for
commercial production
Cost of routine, seasonal, and periodic design of
tools, jigs, molds and dies
Cost of quality control during commercial
production
Cost of purchased building to be used in various
R&D projects
Depreciation on the building described above
Personnel costs of persons involved in research
and development projects
Design, construction, and testing of preproduction
prototypes and models
Adjusted balances
188
Others
700,000
-
16,000
23,000
80,000
15,000
120,000
102,000
43,000
30,000
96,000
2,500
10,000
5,000
18,000
32,000
100,000
1,000,000
-
41,200
96,000
1,306,200
(A)
1,223,500
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
Less: Amortization, 12/31/2014 (300,000/15 x 2)
Carrying value, 1/1/2015
Divided by: Remaining useful life (10 2)
Amortization 2015
(A)
300,000
40,000
260,000
8
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
Present value of installment receivable (*2.91x 1,000,000)
Total cost of franchise
(D)
2,000,000
2,910,000
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
Less: Accumulated depreciation (2,250,000 / 10*)
(B)
2,250,000
225,000
2,025,000
*Shorter of useful life of 10 years and extended lease term (12 3 + 6) = 15.
189
PROBLEM 22-7 Goodwill

2013
2014
2015
Total
Divide by: Number of periods
Average
Net income
1,000,000
1,250,000
1,950,000
4,200,000
3
1,400,000
Average earnings (see table above)

Less: Normal earnings (4,250,000 x 20%)
Average excess earnings
Divide by: Capitalization rate
Goodwill
Add: Fair value of net asset acquired
Purchase price
Net assets
3,900,000
4,350,000
4,500,000
12,750,000
3
4,250,000
(A)
1,400,000
850,000
550,000
25%
2,200,000
4,500,000
6,700,000
PROBLEM 22-8 Internally Developed Computer Software Cost

Question No. 1
Other coding costs after establishment of technological
feasibility
Other testing costs after establishment of technological
feasibility
Costs of producing product masters
Total Software Cost
(A)
1,000,000
750,000
1,250,000
3,000,000
Question No. 2
Duplication of computer software and training materials from
product master
Packaging product
Total Inventoriable Cost
(A)
1,500,000
250,000
1,750,000
Question No. 3
Total Software Cost
Multiply by: (10M / 40M)
Amortization
3,000,000
25%
750,000
(A)
SUMMARY OF ANSWERS:
1. A
2. A
3. A
190
PROBLEM 22-9 Website Cost

Question No. 1
Zero. All costs are charged to expense.
(A)
Question No. 2
Obtaining a domain name
Installing developed applications on the web server
Stress testing
Designing the appearance (e.g. layout and color) of web pages
Creating, purchasing, preparing (e.g. creating links and
identifying tags), and uploading information
Updating graphics and revising content
Adding new functions, features and content
Reviewing security access
Total intangible asset
(B)
32,000
80,000
12,000
160,000
60,000
32,000
12,000
36,000
424,000
PROBLEM 22-10 Goodwill Computation
Current Assets (6,000,000 + 800,000)
Investments
PPE (13,000,000 + 1,850,000)
Current liabilities
Noncurrent liabilities
Fair value of net asset acquired
6,800,000
2,000,000
14,850,000
(3,500,000)
(2,500,000)
17,650,000
Fair value of net asset acquired

Multiply by: Normal rate of return
Normal earnings
17,650,000
10%
1,765,000
Total earnings
Loss on sale (or Gain) on sale
Bonus (150,000 x 4years)
Operating income
Divide by: No. of years
Average earnings
9,000,000
(100,000)
600,000
9,500,000
4
2,375,000
Question No. 1
Average earnings
Less: Normal earning
Multiply by: Capitalization period
Goodwill
Purchase price
(A)
(A)
191
2,375,000
1,765,000
610,000
4
2,440,000
17,650,000
20,090,000
Question No. 2
Average earnings
Goodwill
Purchase price
(B)
(B)
Question No. 3
Average earnings
Purchase price
Less: Fair value of net asset
Goodwill
(B)
(B)
Question No. 4
Average earnings
Multiply by: Present value of ordinary annuity
Goodwill
Purchase price
2,375,000
1,765,000
610,000
10%
6,100,000
17,650,000
23,750,000
2,375,000
8%
29,687,500
17,650,000
12,037,500
(C)
2,375,000
1,765,000
610,000
3.0373
1,852,753
17,650,000
19,502,753
Question No. 1
Net Patent, January 1
Divide by: Remaining life (8years -2 years)
Amortization
(A)
336,000
6
56,000
Question No. 2
None, the trademark has an indefinite life.
(B)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
(C)
PROBLEM 22-11
Question No. 3
Cost of noncompetition agreement (1,600,000 x 1/4)
Amortization expense
(A)
192
400,000
5
80,000
Question No. 4
Purchase price
Less: Fair value of net assets acquired
Goodwill (carrying amount)
2,400,000
1,600,000
800,000
(A)
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
Less: Accumulated Amortization (48,000 + 56,000)
Cost - Trademark (no amortization) (1.6M x 3/4)
Cost - Noncompetition agreement
Less: Accumulated Amortization (see no. 3)
Total carrying amount of the Intangible assets
384,000
104,000
400,000
80,000
(B)
280,000
1,200,000
320,000
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.
5.
PROBLEM 22-12
Question No. 1
Legal cost
Payment of licenses to author excluding refundable purchase
taxes (100,000-10,000)
Total cost of intangible assets
(D)
Question Nos 2, 3 and 5
Cost
Less: Amortization in 2015 (97,000/5 x 6/12)
Carrying value, 12/31/ 2015
Less: Amortization in 2016 (97,000/5 )
Carrying value, 12/31/ 2016
97,000
9,700
87,300
19,400
67,900
Question No. 4
General start-up cost
Amortization
Cost of printing
Advertising expense (20,000 x 6/12)
Total Expense
SUMMARY OF ANSWERS:
1. D
2. C
3. C
4.
(B)
B
193
5.
7,000
90,000
97,000
No. 2 (C)
No. 3 (C)
No. 5 (D)
1,500
9,700
100
10,000
21,300
PROBLEM 22-13 Patent, Competitive, Related Patent

Question No. 1
Cost
Divide by: Remaining useful life
Amortization
(C)
500,000
10
50,000
Question No. 2
Cost of the old Patent
Less: Accumulated Amortization (500,000 / 10 x 2)
Competitive Patent
Total
Amortization
(D)
500,000
100,000
400,000
240,000
640,000
8
80,000
Question No. 3
(D)
640,000
80,000
560,000
(A)
560,000
200,000
760,000
20
38,000
(A)
760,000
38,000
722,000
Question No. 4
Add: Related patent
Total Carrying value, 1/1/2014
Divide by: Extended life
Amortization
Question No. 5
Total Carrying value, 1/1/2014
Less: Amortization, 2014
Carrying value, 1/1/2015 = Loss
SUMMARY OF ANSWERS:
1. C
2. D
3. D
4.
5.

Question No. 1
Acquisition cost
Costs of employee benefits arising directly from bringing the
asset to its intended condition
Professional fees arising directly from bringing the asset to its
intended condition
Total cost of the trademark
(C)
600,000
60,000
13,000
673,000
Question No. 2
None, the trademark has an indefinite life and is not subject to amortization.
(A)
194
Question No. 3
Amortization - Trademark
Amortization - Customer list
Total amortization
(B)
60,000
60,000
(A)
60,000
165,416
225,416
Downpayment
Add: Present Value of notes payable (600,000 x .7118)
Cost of franchise
400,000
427,080
827,080
Question No. 4
Amortization - Trademark
Amortization - Customer list
Amortization - Franchise
Total amortization
Question No. 5
Cost of trademark
Cost of customer list
Less: Accumulated Amortization
Cost of franchise
Less: Accumulated Amortization
SUMMARY OF ANSWERS:
1. C
2. A
3. B
300,000
120,000
827,080
165,416
(A)
4.
5.
673,000
180,000
661,664
1,514,664
PROBLEM 22-15
Question No. 1
Zero, organization cost is treated as outright expense.(A)
Question No. 2
Design costs
Add: Legal fees
Registration fee with Patent office
Total cost of trademark
Question No. 3
Cash
Add Present value of the note (200,000 x 2.91)
Cost of Franchise
Question No. 4
Cost (see no. 3)
Less: Amortization (982,000/20)
(B)
3,000,000
300,000
100,000
3,400,000
(B)
400,000
582,000
982,000
982,000
49,100
195

Question No. 5
Amortization of the franchise
(A)
P49,100
932,900
(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.
5.
PROBLEM 22-16
Question No. 1
Cost-Patent
Less: Amortization for the year (136,000/20)
Carrying value of the Patent
Question No. 2
Licensing agreement No. 1
Unadjusted balance
Less: Amortization for 2 years (100,000/20 x 2)
Total
Less: Reduction in value (90,000 x 60%)
Carrying value
Question No. 3
Unadjusted balance
Add: Amount credited for advance collection
Total cost
Less: Amortization (120,000/10)
Carrying value - Licensing agreement No. 2
Question No. 4
Carrying values:
Patent (see no. 1)
Licensing Agreement No. 1 (No. 2)
Licensing Agreement No. 2 (No. 3)
(C)
136,000
6,800
129,200
(B)
100,000
10,000
90,000
54,000
36,000
(C)
118,000
2,000
120,000
12,000
108,000
(C)
129,200
36,000
108,000
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)
Expenses capitalized:
196
5,000
Goodwill (16,000+32,000)
Organization cost
Overstatement of Retained earnings
(A)
48,000
58,000
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.
5.
PROBLEM 13-17
Question No. 1
Unadjusted balance
Less: Unamortized portion of improvements debited
Cost
P75,000
Less: Amortization (P75,000 / 10 x 3)
22,500
Adjusted balance 01/01/2015
Less: Amortization 2015 (P52,500 + P56,071) see below
(A)
Computation of amortization:
Adjusted balance 01/01/2015
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
CV of Patent with remaining UL of 7 years 01/01/2015
Amortization of:
Patent with remaining UL of 2 years (105,000 / 2)
Patent with remaining UL of 7 years (392,500 / 7)
Total Amortization
Question No. 2
Franchise cost
Less: Amortization (50,000 / 5)
(A)
197
550,000
52,500
497,500
108,571
388,929
497,500
105,000
392,500
52,500
56,071
108,571
50,000
10,000
40,000
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
Other testing costs after establishment of technological
feasibility
Costs of producing master for training materials
Total Software Cost
(A)
240,000
200,000
150,000
590,000
Question No. 5
Completion of detailed program design
Costs incurred for coding and testing to establish technological
feasibility
Total Cost charged to Expense
(A)
Question No. 6
Amortization:
Patent (see No. 1)
Franchise (see No. 2)
Software cost none yet
Total Cost charged to Expense
SUMMARY OF ANSWERS:
1. A
2. A
3. A
130,000
100,000
230,000
108,571
10,000
118,571
(C)
4.
5.
6.
PROBLEM 22-18 Inventories, PPE and Intangible Assets

Question No. 1
Unadjusted balance
Add: Goods purchased FOB Shipping Point
Adjusted balance
Question No. 2
Total acquisition cost
Add: Mortgage assumed
Total cost of land and building
Multiply by: Percentage allocated to building
Total Purchase Price allocated to Building
Add: Remodeling Cost (300,000 20,000)
Total Cost of Building
198
(B)
4,300,000
40,000
4,340,000
(A)
4,000,000
800,000
4,800,000
80%
3,840,000
280,000
4,120,000
Question No. 3
Cost of improvement
Less: Accumulated depreciation (500,000/8 x 9/12)
Carrying value
(B)
500,000
46,875
453,125
Question No. 4
Less: Amortization 2015 (432,000 / 3 years remaining UL)
Carrying value
(C)
432,000
144,000
288,000
Question No. 5
Building (4,120,000-120,000)/50
Leasehold Improvements (500,000/8 x 9/12)
Furniture and Fixtures
Franchise (500,000 / 10)
Licensing agreement
Total depreciation and amortization expense
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
199
(A)
5.
80,000
46,875
150,000
50,000
144,000
P470,875
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:
828
830
858
862
Change to:
Additional credit to
Revaluation Surplus in No. 1
under Proportional.
Elimination No. 1 Additional
Journal Entry
Debit: Accumulated depreciation
Credit: Equipment
Case No. 2
Appreciation = P900,000
Appreciation = P825,000
Illustration: Noncurrent Assets

Held for Sale -Single Asset
On January 1, 2015, Raycie-Fe Co.
decided to sell a machinery with a
cost of
Change 2015 to 2016.
On July 1, 2017, Marga Co. sold the

machinery
On July 1, 2017, Marga Co. sold

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
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
Historical
Cost
6,000,000
1,500,000
4,500,000
Replacement
Cost
20,000,000
5,000,000
15,000,000
Increase
14,000,000
3,500,000
10,500,000
(A)
Carrying amount/Depreciated Replacement Cost/Revaluation Surplus

Question No. 2
Depreciated Replacement cost
Depreciation Expense 2016
(B)
Question No. 3
Revaluation surplus, beginning
Less: Piecemeal realization 2016 (10,500,000 / 15)
200
15,000,000
15
1,000,000
10,500,000
700,000
Remaining revaluation surplus end of 2016
(B)
Question No. 4
Net Selling Price
Less: Carrying amount 01/02/2018
Depreciated Replacement Cost, date of revaluation
Less: Subsequent depreciation (P1M x 2 years)
Gain on sale
15,000,000
15,000,000
2,000,000
(A)
Question No. 5
Less: Piecemeal realization for two years (10,500,000 / 15 x 2)
Remaining revaluation surplus to R/E
(A)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
9,800,000
13,000,000
2,000,000
10,500,000
1,400,000
9,100,000
PROBLEM 23-2 Revaluation, With Change in Useful Life

Question No. 1
Machinery
Accumulated depreciation (25%)
CA/DRC/RS
Replacement
Cost
20,000,000
5,000,000
15,000,000
Cost
9,000,000
2,250,000
6,750,000
Increase
11,000,000
2,750,000
8,250,000
(A)

Question No. 2
(B)
15,000,000
25
600,000
Question No. 3
Revaluation surplus, 01/01/2015
(B)
8,250,000
330,000
7,920,000
Question No. 4
Net Selling Price
Less: Subsequent depreciation (P15M / 25 x 2)
Gain on sale
201
15,000,000
15,000,000
1,200,000
(A)
13,800,000
1,200,000
Question No. 5
Less: Piecemeal realization for two years (8,250,000 / 25 x 2)
(A)
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
8,250,000
660,000
7,590,000
PROBLEM 23-3 Revaluation, With Change in Useful Life and Residual Value
Machinery
CA/DRC/RS
Replacement
Cost
18,200,000
**4,500,000
13,700,000
Cost
9,100,000
*2,250,000
6,850,000
Increase
9,100,000
2,250,000
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
Depreciable amount
(B)
15,000,000
200,000
13,500,000
25
540,000
Question No. 3
Revaluation surplus, 01/01/2015
(B)
6,850,000
274,000
6,576,000
Question No. 4
Net Selling Price
Less: Subsequent depreciation (P540,000 x 2)
Gain on sale
14,000,000
13,700,000
1,080,000
(A)
Question No. 5
Less: Piecemeal realization for two years (P274,000 x 2)
(A)
202
12,620,000
1,380,000
6,850,000
548,000
6,302,000
SUMMARY OF ANSWERS:
1. A
2. B
3. B
4.
5.
PROBLEM 23-4 Impairment and Revaluation of PPE

CASE NO. 1 COST MODEL
Question No. 1
Cost
Depreciable amount
Divide by: Estimated useful life
Depreciation - 2015
(A)
Question No. 2
Zero. The company is using the cost model.
(A)
Question No. 3
Cost
Carrying amount
Depreciable amount
Depreciation - 2016
1,200,000
100,000
1,000,000
155,000
845,000
9
93,888
(E)
Question No. 4
Cost
Less: Accumulated Depreciation (100,000 + 93,888 + 93,888)
Less: Recoverable amount, date of impairment
Impairment loss
(E)
Question No. 5
Recoverable amount
Depreciable amount
Depreciation
SUMMARY OF ANSWERS:
1. A
2. A
3. E
203
5.
1,200,000
287,776
912,224
600,000
312,224
600,000
40,000
560,000
7
80,000
(C)
4.
1,200,000
200,000
1,000,000
10
100,000
CASE NO. 2 REVALUATION MODEL

Question No. 1
Cost
Depreciable amount
Depreciation - 2015
(A)
Question No. 2
Recoverable amount/fair value 01/01/2016
Machinery at cost
Revaluation surplus 01/01/2016
Question No. 3
Recoverable amount/fair value 01/01/2016
Depreciable amount
Depreciation 2016
1,280,000
1,200,000
100,000
(D)
Question No. 4
Recoverable amount, date of revaluation 01/01/2018
Less: Subsequent depreciation for 2 years
Decrease in value
Less: Remaining revaluation
Revaluation surplus, date of revaluation
180,000
Less: Piecemeal realization for two years
40,000
Impairment loss
(D)
SUMMARY OF ANSWERS:
1. A
2. D
3. C
204
5.
1,280,000
250,000
1,030,000
600,000
430,000
140,000
290,000
600,000
40,000
560,000
7
80,000
(C)
4.
1,100,000
180,000
1,280,000
155,000
1,125,000
9
125,000
(C)
Question No. 5
Recoverable amount
Depreciable amount
Depreciation
1,200,000
200,000
1,000,000
10
100,000
PROBLEM 23-5 Impairment and Revaluation of PPE

CASE NO. 1 COST MODEL
Question No. 1
Cost
Depreciable amount
Depreciation - 2015
(A)
1,200,000
200,000
1,000,000
10
100,000
Question No. 2
Cost
Impairment loss
(D)
1,200,000
100,000
1,100,000
900,000
200,000
(D)
900,000
90,000
810,000
9
90,000
Question No. 3
Recoverable amount
Depreciable amount
Depreciation
Question No. 4
Recoverable amount 01/01/2016
Less: Accumulated Depreciation 12/31/2017
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount 01/01/2018
Gain on impairment recovery P&L
The increase in fair value is recognized in P&L.
900,000
180,000
720,000
875,555
770,000
(A)
Would have been carrying amount had been there no impairment:

Cost
Less: Depreciation
2015
2016 [(1,200,000 90,000 100,000) / 9)
2017
Would have been carrying value 12/31/2017
Question No. 5
770,000
50,000
1,200,000
100,000
112,222
112,222
875,555
770,000
-
205
Depreciable amount
Depreciation
SUMMARY OF ANSWERS:
1. A
2. D
3. D
4.
770,000
7
110,000
(C)
5.
CASE NO. 2 REVALUATION MODEL

Question No. 1
Cost
Depreciable amount
Depreciation - 2015
(A)
1,200,000
200,000
1,000,000
10
100,000
Question No. 2
Cost
Impairment loss
(D)
1,200,000
100,000
1,100,000
900,000
200,000
(D)
900,000
90,000
810,000
9
90,000
Question No. 3
Recoverable amount
Depreciable amount
Depreciation
Question No. 4
Recoverable amount 01/01/2016
Less: Accumulated Depreciation 12/31/2017
Lower of:
Would have been carrying amount no impairment
Less: Recoverable amount 01/01/2018
Gain on impairment recovery P&L
The increase in fair value is recognized in P&L.
900,000
180,000
720,000
875,555
770,000
(A)
Would have been carrying amount had been there no impairment:

Cost
Less: Depreciation
2015
2016 [(1,200,000 90,000 100,000) / 9)
2017
Would have been carrying value 12/31/2017
206
770,000
50,000
1,200,000
100,000
112,222
112,222
875,555
Question No. 5
Depreciable amount
Depreciation
SUMMARY OF ANSWERS:
1. A
2. D
3. D
4.
770,000
770,000
7
110,000
(C)
5.
PROBLEM 23-6 Impairment of Intangible Assets

Question No. 1
Patent (200,000 / 10)
Computer software (100,000 x 60/120)
Total amortization
20,000
50,000
70,000
(A)
The copyright and tradename is not amortized because they have indefinite
useful life.
Question No. 2
Copyright:
Carrying value
Less: Recoverable amount (80,000 / .05)
Tradename:
Carrying value
Less: Recoverable amount (15,000 / .05)
Goodwill:
Carrying value of reporting unit
Less: Recoverable amount (200,000 x 14.0939)
Total impairment loss
400,000
160,000
240,000
350,000
300,000
50,000
3,000,000
2,818,780
(C)
181,220
471,220
Question No. 3
Carrying value of goodwill 12/31/2015
Less: Allocated impairment loss of reporting unit
Carrying value of goodwill 12/31/2016
(B)
900,000
181,220
718,780
Question No. 4
Patent (P200,000 P20,000)
Copyright (recoverable amount)
Tradename (recoverable amount)
Computer software (100,000 50,000)
Carrying value of intangible assets 12/31/2016 (A)
180,000
160,000
300,000
50,000
690,000
Note that goodwill is not reported as an intangible asset.
207
SUMMARY OF ANSWERS:
1. A
2. C
3. B
4.
PROBLEM 23-7 Amortization and Impairment of Intangible Assets

Questions 1 and 2
Trademark - Unadjusted balance
Less: Unamortized cost of improvement
that should have been expensed
Cost
Less: Accum. amortization (150,000/10 x 2)
Total
Add: Competitive patent debited to expense
Cost
Less: Accum. amortization (135,000/9 x 1)
Adjusted balance, January 1. 2016
Less: Amortization during the year
Patent with remaining life of 4 years *(160,000/4)
Remaining patent (1,430,000-160,000)/15-7)
Carrying value of the Patent, 12/31/2016
1,430,000
150,000
30,000
135,000
15,000
40,000
158,750
(1) A
Computation of the P160,000:

Original cost
Less: Accumulated amortization (300,000/15) x 7 years))
Remaining carrying value, 1/1/2016
120,000
1,310,000
120,000
1,430,000
(2) A
198,750
1,231,250
300,000
140,000
160,000
The 7 years age is from January 1, 2009 to January 1, 2016.

Questions 3
Carrying value of the trademark (no amortization)
Less: Recoverable amount (P75,000/10%)
Impairment loss
(B)
800,000
750,000
50,000
Questions 4
Adjusted carrying value of the trademark is equal to its recoverable amount of
P750,000. (See no. 3)
(B)
Questions 5
Downpayment
Add: Present value of the note
Total cost of the franchise
Amortization expense
(D)
208
500,000
874,000
1,374,000
10
137,400
SUMMARY OF ANSWERS:
1. A
2. A
3. B
4.
5.
PROBLEM 23-8 Impairment of Cash Generating Unit

Question No. 1
Total carrying amount before impairment
Less: Fair value less costs to sell
Impairment loss
Less: Impairment loss allocated to Goodwill
Impairment loss allocated to other assets
(B)
105,000,000
85,000,000
20,000,000
5,000,000
15,000,000

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

Generating Unit
Cash
Inventory
Accounts receivable
Plant and equipment
Trademark
Patent
Goodwill
Total Carrying amount of CGU
Less: Value in use
Impairment loss
Less: Impairment allocated to goodwill
Impairment loss allocated to other asset
209
100,000
800,000
1,200,000
24,000,000
10,400,000
2,550,000
850,000
400,000
19,500,000
16,300,000
3,200,000
400,000
2,800,000
Plant and equipment

Trademark
Patent
Total
Balance
before
Impairment
13,600,000
2,550,000
850,000
17,000,000
Plant and equipment

Trademark
Patent
Total
Balance
after
Impairment
11,360,000
2,130,000
710,000
14,200,000
Fraction
13.6/17
2.55/17
.85/17
Reallocation
(40,000)
(7,500)
47,500
-
Plant and Equipment:

Would have been BV, no impairment
Cost
Less: Accumulated depreciation (2.6M +300,000)
Actual Book value
Impaired value
Maximum gain on reversal of impairment
Trademark:
Cost
Less: Subsequent amortization
Balance
after
Reallocation
11,320,000
2,122,500
757,500
3,520,000
24,000,000
11,600,000
11,320,000
1,000,000
2,550,000
120,000
Actual Book value

Impaired value
Patent:
Cost
Less: Subsequent amortization
2,122,500
112,000
850,000
80,000
Actual Book value

Impaired value
210
Balance
after
Impairment
11,360,000
2,130,000
710,000
14,200,000
Impairment
Loss
(2,240,000)
(420,000)
(140,000)
2,800,000
757,500
60,000
1. (B)
2. (B)
3. (B)
12,400,000
10,320,000
2,080,000
2,430,000
2,010,500
419,500
770,000
697,500
72,500
Plant and equipment

Trademark
Patent
Total
Plant and equipment

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

Question No. 1
Cost
Carrying amount
Less: Initial amount recognized lower of:
Carrying amount
Fair value less cost to sell
Impairment loss
2,000,000
800,000
1,200,000
1,200,000
1,100,000
(B)
Question No. 2
Zero. Non-current asset held for sale should not be depreciated.
Question No. 3
Lower of:
Carrying amount
FVLCTS
Less: Carrying amount at initial recognition
Gain on reversal P&L
Question No. 4
Net Selling Price (1,800,000 50,000)
Gain on sale
1,200,000
1,500,000
(B)
(D)
211
1,100,000
100,000
(A)
1,200,000
1,100,000
100,000
1,750,000
1,200,000
550,000
Question No. 5
Cost
Carrying amount
Carrying amount
Impairment loss
SUMMARY OF ANSWERS:
1. B
2. A
3. B
4.
2,000,000
800,000
1,200,000
1,200,000
1,300,000
(A)
5.
1,200,000
-
PROBLEM 23-11 Noncurrent Assets held for Sale- Disposal Group

Question No. 3
Total carrying amount before impairment
Less: Fair value less costs to sell
Impairment loss
Less: Impairment loss allocated to Goodwill
Impairment loss allocated to other assets
64,600,000
55,000,000
9,600,000
5,000,000
4,600,000
(B)
Questions No. 4 & 5
PPE (at cost model)

PPE (at revaluation model)
Total
Carrying
amount as
remeasured
20,000,000
30,000,000
50,000,000
Revaluation
surplus
PPE (at cost model)

PPE (at revaluation model)
Total
1,000,000
1,000,000
Remaining revaluation surplus is

(P3,000,000 minus (P32M-P30M)
0.40
0.60
Allocated
Decrease
1,840,000
2,760,000
4,600,000
Impairment
loss
1,840,000
1,760,000
3,600,000
Carrying
amount
after
impairment
18,160,000
27,240,000
45,400,000
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.
212
5.
Revaluation
surplus
1,000,000
1,000,000
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%)
Less: Amortization of undervalued asset
Question No. 2
Beginning balance 01/01/2016
Add: Net investment income (see No. 1)
Less: Dividends received (150,000 x 25%)
Question No. 3
Carrying amount
Impairment loss
(C)
200,000
10,000
190,000
(A)
3,800,000
190,000
37,500
3,952,500
3,952,500
3,952,500
4,000,000
(A)
3,952,500
-
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)
Gain on sale
SUMMARY OF ANSWERS:
1. C
2. A
3. A
4.
4,200,000
3,952,500
247,500
(D)
5.
PROBLEM 23-13
Question No. 1
Irrigation Equipment
Freight in
Installation cost
Total Machinery and Equipment, end
P
(A)
213
740,000
10,000
192,000
942,000
Question No. 2
Trade in allowance
Book Value:
Cost
Less: Accum. Depreciation (P660,000+ P165,000)
Loss on trade in
400,000
1,300,000
825,000
(B)
475,000
75,000
Question No. 3
Before addition [(P3,100,000 P100,000)/20 x 3/12)
After addition: [(P3,100,000 (P562,500 + P37,500) + 980,000
P200,000)/20) x 9/12)
(B)
37,500
123,000
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)}]
Water desalinator [(P3,780,000 P270,000)/10]
Irrigation equipment [(942,000/4) x 6/12]
Office building
Total Depreciation expense
(B)
196,250
351,000
117,750
160,500
825,500
Question No. 5
Fair value on initial revaluation
P 3,780,000
Book value on initial revaluation:
Cost
P 4,000,000
[(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.
214
5.
PROBLEM 23-14
Question No. 1
Revalued amount 01/01/2016
Divided by: Remaining useful life (20 6)
Depreciation
31,500,000
14
2,250,000
(C)
Annual depreciation = P30,000,000/20 = P1,500,000

Age of the building = P9,000,000/P1,500,000 = 6 years
Question No. 2
Cost
Land
P 5,000,000
Building
30,000,000
Accum. Depreciation
( 9,000,000)
Book value
P21,000,000
Total Revaluation surplus, Jan. 1
Less: Excess of depreciation on
revalued amt. over the cost
Depreciation on revalued amount(no. 1)
Depreciation on cost
Total Revaluation surplus, Dec. 31
Fair value
P 7,000,000
31,500,000
Revaluation
Surplus
P 2,000,000
10,500,000
P12,500,000
P 2,250,000
1,500,000
(B)
750,000
P11,750,000
Question No. 3
Annual depreciation rate (200%/2) = 100%
Cost
Book value
Less: Salvage value
Maximum depreciation
Question No. 4
Cost
Divided by: Useful life
Annual depreciation
(B)
P 600,000
300,000
300,000
60,000
P 240,000
(D)
900,000
9
P 100,000
Question No. 5 D
Cost
Less: Accumulated Depreciation (300,000 +100,000 (no. 4)
Book value, Dec. 31
Less: Recoverable amount value in use (125,000 x 3.60)
Impairment loss
(B)
SUMMARY OF ANSWERS:
1. C
2. B
3. B
4.
215
5.
P 900,000
400,000
500,000
450,000
P 50,000

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A guide in applying auditing procedures to specific

accounts of the financial statements.

DARRELL JOE O. ASUNCION, MBA, CPA

Dear fellow teacher,

Chapter 5: Cash to Accrual

CHAPTER 5: CASH TO ACCRUAL

Balance end A/R

Beg. Balance A/P

Balance end - Rent

Chapter 5: Cash to Accrual

PROBLEM 5-4 (Computation of Expenses in General)

Balance end - Prepaid

Chapter 5: Cash to Accrual

Accounts receivable trade

Accounts receivable trade

Chapter 5: Cash to Accrual

Cash paid to creditors

Chapter 5: Cash to Accrual

Accounts Receivable/Notes receivable trade

Beg. Balance A/R

Bal. end A/R

Beg. Balance A/P

Chapter 5: Cash to Accrual

Balance end - Prepaid

Accrued rent/Unearned rent

Beg. Balance - Accrued

Balance end - Accrued

Chapter 5: Cash to Accrual

PROBLEM 5-10 Comprehensive

Chapter 5: Cash to Accrual

Chapter 5: Cash to Accrual

Accounts receivable trade

Prepaid G&A/Accrued G&A

Beg. Balance - Prepaid

Balance end - Prepaid

Chapter 5: Cash to Accrual

PROBLEM 5-12 Comprehensive

Chapter 5: Cash to Accrual

Beg. Balance - Accounts

Chapter 5: Cash to Accrual

Depreciation for furniture and fixtures

Accounts Payable trade

Payment to suppliers was computed as follows:

Chapter 5: Cash to Accrual

Balance end - Prepaid

Unadjusted operating expense

Accrued Rent/Unearned Rent

Beg. Balance - Accrued

Balance end - Accrued

Balance end A/R

Chapter 5: Cash to Accrual

Beg. Balance N/P

Accrued interest payable

Chapter 6: Correction of Errors

CHAPTER 6: CORRECTION OF ERRORS

The entire amount was debited to

Omission of Deferred Income

Collection of rent was credited to rent

Omission of Accrual of Expenses

Accrued salaries expense of P4,000

Omission of Accrual of Revenues

Accrued rent receivable of P8,000

Error affecting ending inventory (e.g.