CLASSROOM EXERCISES ON INTERIM REPORTING

1. Trisha Company prepares quarterly and year to date interim reports. The interim income statement for the quarter
ended March 31, 2020 is as follows:
Sales P 7,500,000
Cost of sales (4,500,000)
Gross income 3,000,000
Dividend Income 300,000
Total income 3,300,000
Selling expenses (900,000)
General expenses (500,000)
Depreciation (400,000)
Interest Expense (100,000)
Income tax 400,000)
Net income P 1,000,000
On June 30, 2020, the company accountant completed a worksheet in preparing the year-to-date income statement.
The worksheet showed the following income statement accounts:
Sales P 20,000,000
Interest revenue 250,000
Dividend revenue 500,000
Cost of sales 11,500,000
Selling expenses 2,500,000
General expenses 1,100,000
Depreciation 700,000
Interest expense 300,000
Income tax expense 1,300,000
Required: Prepare (a) a year-to-date income statement for the first 6 months of 2020 and (b) an interim income
statement for the second quarter of 2020.

2. Marciana Company reported it’s income statement for the year ended December 31, 2020 as follows:
Sales P6,000,000
Cost of sales (2,800,000)
Gross income 3,200,000
Gain on sale of equipment 100,000
Total income 3,300,000
Operating expenses (500,000)
Casualty loss (300,000)
Income before tax 2,500,000
Income tax (35%) (875,000)
Net income P1,625,000
 The third quarter sales were 30% of the total sales.
 For interim purposes, a gross profit rate of 40% can be justified.
 Variable expenses are allocated in the same proportion as sales. Fixed operating expenses are allocated based on
the expiration of time. Of the total operating expenses, P400,000 represents variable expenses.
 The equipment was sold on June 1. 2020.
 The casualty loss occurred on September 1, 2020.
Required: Prepare an interim income statement for the third quarter ended September 30, 2020.

3. Aina Company is preparing the interim financial statements for the first quarter ended March 31, 2020. Expenses per
records in the first quarter totaled P10,000,000 of which 25% was variable. The fixed expenses included advertising
expense of P2,500,000 representing television airtime to be incurred evenly during 2020 and depreciation expense of
P1,500,000 for 2020 for an equipment that was available for intended use on March 1, 2020. How much should be
reported as total expenses for the first quarter ended March 31, 2020?
4. Shaina Company reported P9,500,000 net income for the quarter ended September 30, 2020 which included the
following items:
 A P600,000 gain from expropriation realized on April 30, 2020 was allocated equally to the second, third and
fourth quarters of 2020.
 A P150,000 loss resulting from a change in inventory valuation method was recognized in August 1. 2020.
In addition, the entity paid P480,000 on February 1, 2020 for 2020 calendar year property taxes. Of this amount,
P120,000 was allocated to the third quarter of 2020.
On March 1, 2020, the entity also paid P120,000 worth of radio and television advertisement incurred in march. The
manager believed that the company would benefit from this advertising and promotion campaign for the rest of the
year so an amount of P36,000 was allocated for the third quarter.
The entity properly recognized warranty provision of P1,000,000 for the first two quarters equivalent to 5% of sales.
However, in the third quarter, a design fault was found and warranty claims were expected to be 10% for the whole
year. The sales for the third quarter amounted to P8,000,000. The provision for the third quarter was not yet
recognized.
Salaries paid in October amounted to P350,000, 20% of which was related to the services rendered by its employees
during the last month of the third quarter. No accrual was made as of the end of the third quarter.
For the quarter ended September 30, 2020, how much should be the reported net income?

5. Psalm Company is in the process of developing its first quarter interim report. It has developed the following
condensed trial balance as of March 31, 2020:
Cash P 1,000,000
Accounts Receivable 2,000,000
Inventory 1,500,000
Prepaid Insurance 400,000
Notes Receivable 5,000,000
Land 1,500,000
Building and Equipment 18,000,000
Accounts Payable P 8,500,000
Share Capital 5,000,000
Share Premium 4,000,000
Accumulated Profits 9,500,000
Sales 25,000,000
Purchases 17,000,000
Selling expenses 3,200,000
Administrative expenses 2,400,000
TOTAL P 52,000,000 P 52,000,000

Additional information:
a. Uncollectible accounts typically average 8.5% of Accounts Receivable.
b. On January 1, 2020, building and equipment have an average life of 10 years. One-fourth of the account balance
consists of assets related to selling activities. The company uses the straight line method.
c. The Notes Receivable is dated January 1, 2020, matures on January 1, 2021, and carries 15% interest rate.
Interest will be collected annually starting January 1, 2021.
d. On January 1, 2020, the company had purchased a 24-month insurance policy and debited the payment to Prepaid
Insurance.
e. The gross profit method is used to determine the interim inventory. Historical gross profit has averaged 40% of
net sales.
f. Assume the income tax rate is 32% and the income tax will be paid on or before April 15, 2020.
Required: Prepare the (a) Income Statement for the first quarter ended March 31, 2020 and (b) Statement of Financial
Position on March 31, 2020 for Psalm Company.