QUIZ #1

Solve each problem and show your corresponding solution.

1. The adjusted trial balance of Lotus Company included the following accounts on December 31, 2021:
Sales 9,075,000
Share of profit of associate   100,000
Other income 300,000
Decrease in inventory of finished goods 250,000
Raw materials and consumables used 3,500,000
Employee benefit expense 1,500,000
Translation gain on foreign operation 300,000
Depreciation 450,000
Impairment loss on property 800,000
Finance cost 350,000
Other expenses 450,000
Income tax expense   900,000
Unrealized gain on option contract
designated as cash flow hedge 200,000

REQUIRED: PREPARE AN INCOME STATEMENT.

Lotus Company
Income Statement
December 31, 2021
Sales P 9,075,000
Cost of sales (250,000+3,500,000) (3,750,000)
Gross income P 5,325,000
Other income 300,000
Share of profit of associate 100,000
Total income P 5,725,000
Less Expenses:
Employee benefit expense 1,500,000
Depreciation 450,000
Finance costs 350,000
Other expenses 450,000
Impairment loss 800,000 ( 3,550,000 )
Income before income tax P 2,175,000
Income tax expense (900,000)
Net income P 1,275,000
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2. On December 31, 2020, Ice Company had P40,000,000 note payable due on February 1, 2021. On
December 31, 2020, the entity arranged a line credit with BDO which allows the entity to borrow up to
P37,000,000 at 2% above the prime rate for two years. On February 15, 2021, the entity borrowed
P30,000,000 from BDO and used P4,000,000 additional cash to liquidate P34,000,000 note payable. The
financial statements were issued on March 31, 2021.

WHAT AMOUNT OF NOTE PAYABLE SHOULD BE REPORTED AS CURRENT LIABILITY ON DECEMBER 31,
2020?

Answer: P 40,000,000 since the due date of note payable is within the reporting period such the financial statements were issued.

3. Dear Company was incorporated on January 1, 2021 with proceeds from the issuance of P6,500,000 in
share capital and borrowed funds of P1,500,000. During the first year, the revenue from sale amounted
to P8,000,000 and operating cost and expenses were 30% of sale resulted to a net income of
P4,400,000. On December 8, 2021, the entity declared a P250,000 dividend, payable to shareholders on
January 4, 2022. The liabilities increased to P2,200,000 by December 31, 2021.

WHAT AMOUNT SHOULD BE REPORTED AS TOTAL ASSET?

Total assets = P 12,850,000

Liability P 2,200,000
+
Equity
Share issuance P 6,500,000
Retained earnings 4,150,000

Retained earnings = net income - dividends payable

= P 4,400,000 - P 250,000

4. Sagada Company provided the following information at year-end:

Share capital 11,000,000

Share premium 3,900,000
Treasury share, at cost 2,200,000
Actuarial gain on defined benefit plan 1,000,000
Retained earnings, unappropriated 6,000,000
Retained earnings, appropriated 3,000,000
Revaluation surplus 3,500,000
Cumulative translation adjustment – debit 1,800,000

WHAT AMOUNT SHOULD BE REPORTED AS TOTAL SHAREHOLDER’S EQUITY?

 Share capital P 11,000,000
Share premium 3,900,000
Treasury share, at cost (2,200,000)
Actuarial gain on defined benefit plan (1,000,000)
Retained earnings, unappropriated 6,000,000
Retained earnings, appropriated 3,000,000
Revaluation surplus 3,500,000
Cumulative translation adjustment – debit ( 1,800,000)
Total shareholder’s Capital P 22,400,000

5. Kami Company reported the following current assets on December 31, 2021:

Cash 4,500,000
Accounts Receivable 6,900,000
Inventory 4,000,000
Deferred Tax Asset 1,000,000
16,400,000

The accounts receivable is composed of trade receivable amounted to 4,000,000 and allowance for
doubtful accounts of P100,000 and the remaining balance is for the selling price of unsold goods sent to
another company on consignment at 150% of cost, these goods were excluded from Kami’s ending
inventory.
WHAT AMOUNT SHOULD BE REPORTED AS TOTAL CURRENT ASSETS?

Trade Receivables 4,000,000

ADA (100,000)
Selling Price on Consignment 3,900,000
X 1.5%
Excluded inventory 2,600,000

Cash P 4,500,000
Accounts Receivable 6,900,000
Less: ADA (100,000)
Inventory ( 4M + 2.6M) 6,600,000
Total Current Assets P 17,900,000

6. Song Company reported the following data for the current year:
Legal and audit fees 1,500,000
Rent for office space 2,800,000
Interest on inventory loan 2,000,000
Impairment loss 1,000,000

The office space is used equally by the sales and accounting department.
WHAT AMOUNT SHOULD BE CLASSIFIED AS GENERAL AND ADMINISTRATIVE EXPENSES?

Legal and audit fees P 1,500,000

Rent for office space 2,800,000
GENERAL AND ADMINISTRATIVE EXPENSES P 4,300,000

7. Bell Company provided the following information for the current year:
Purchases 5,100,000
Purchase discount 180,000
Beginning Inventory 1,400,000
Ending inventory 2,000,000
Freight out 330,000
WHAT IS THE COST OF GOODS SOLD FOR THE CURRENT YEAR?

Beginning Inventory P 1,400,000

ADD: PURCHASES 5,100,000
LESS: Purchase discount (180,000)
Net purchases 4,920,000
Ending inventory (2,000,000)
Cost of goods sold P 4,320,000

8. Mars Company provided the following data for the current year
Inventory, beginning 1,900,000
Purchases 7,400,000
Purchase returns and allowances 400,000
Sales returns and allowances 740,000
Inventory, ending 2,700,000
Gross profit rate on net sales 20%

WHAT IS THE AMOUNT OF GROSS SALES FOR THE CURRENT YEAR?

 Inventory, beginning P 1,900,000
Add: Purchases 7,400,000
Less: Purchase returns and allowance 400,000 7,000,000
Goods availabale for sale 8,900,000
Ending Inventory (2,700,000)
Cost of goods Sold P 6,200,000

Net sales ( 100%-20%) P 6,200,000/ 80% 7,750,000

Add: Sales returns and allowances 740,000
Gross Sales P 8,490,000

9. Hometown Company provided the following information for the current year:
Beginning inventory 400,000
Freight in 300,000
Purchase discount 900,000
Ending inventory 500,000
Selling expenses 1,250,000
Sales returns 250,000

The cost of goods sold is five times the selling expenses

WHAT IS THE AMOUNT OF GROSS PURCHASES?

Beginning inventory 400,000

GROSS PURCHASE 6,950,000
Freight in 300,000
Purchase discount (900,000)
Ending inventory (500,000)
Cost of goods sold ( 1,250,000 x 5) 6,250,000

10. Lala Company provided the following information for the current year:
Net Sale 1,500,000
Freight in 50,000
Purchase discount 25,000
Ending inventory 120,000
Gross margin on cost 40%

WHAT IS THE COST OF GOODS AVAILABLE FOR SALE?

Net Sale 1,500,000

COST OF SALES
Freight in 50,000
Purchase discount ( 25,000)
Ending inventory ( 120,000)
(95,000)

GROSS ON MARGIN (40%) =cOST OF SALES (60%) - NET SALE (100%)

COST OF SALES (60%) = P 1,500,000 X 60%
= P 900,000 + 120,000
COST OF GOODS AVAILABLE FOR SALE = = P 1,020,000