CHAPTER 1

THE NEED FOR FINANCIAL REPORTING

1-1.

1. e 6. f
2. a 7. i
3. g 8. a
4. b, d 9. b, c
5. f 10. h

Multiple Choice
MC1 C MC11 C
MC2 D MC12 B
MC3 A MC13 C
MC4 C MC14 C
MC5 D MC15 B
MC6 D MC16 C
MC7 B MC17 C
MC8 D MC18 C
MC9 C MC19 D
MC10 D MC20 A

CHAPTER 2
THE CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

Discussion Question number 16.

1. Fair value
2. Amortized cost or fair value
3. Lower of cost and net realizable value (historical cost and current value)
4. Historical cost and current value (adjusted for depreciation)
5. Historical cost and current value (adjusted for amortization)
6. Current value (fair value)
7. Current value (fair value)
8. Historical cost, adjusted for interest and payment (amortized cost)
9. Cost or current value (cost adjusted for depreciation or fair value)
10. Cost, adjusted for depreciation or amortization or current value
11. Amortized cost or fair value
12. Amortized cost or fair value
13. mixture of values, as a result of different measurement bases for Assets and liabilities
14. Historical cost
15. Amortized cost or current value

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 Multiple Choice

MC1 B MC16 A MC31 C MC46 A

MC2 C MC17 D MC32 A MC47 C
MC3 C MC18 C MC33 D MC48 C
MC4 B MC19 A MC34 D MC49 A
MC5 D MC20 D MC35 B MC50 D
MC6 C MC21 B MC36 B MC51 C
MC7 A MC22 A MC37 A MC52 I, II, IV
MC8 B MC23 C MC38 B
MC9 C MC24 C MC39 C
MC10 C MC25 B MC40 D
MC11 B MC26 A MC41 C
MC12 C MC27 A MC42 D
MC13 A MC28 B MC43 C
MC14 C MC29 C MC44 D
MC15 C MC30 A MC45 B

CHAPTER 3
BASIS FOR THE PRESENTATION OF THE FINANCIAL STATEMENTS

MC1 C MC11 D MC21 B

MC2 B MC12 B MC22 A
MC3 A MC13 C MC23 A
MC4 A MC14 D MC24 E
MC5 A MC15 B MC25 A
MC6 C MC16 D
MC7 C MC17 C
MC8 B MC18 A
MC9 A MC19 C
MC10 C MC20 C

CHAPTER 4
PREPARING THE FINANCIAL STATEMENTS

True or False

1. T 11. F 21. T 31. F

2. F 12. F 22. T 32. T
3. T 13. T 23. T 33. F
4. F 14. F 24. T
5. F 15. T 25. F
6. T 16. T 26. F
7. T 17. T 27. T
8. F 18. F 28. F
9. F 19. T 29. F
10. T 20. F 30. T

Problems
1.

1. D 6. C, D 11. A 16. B 21. A, D

2. A 7. A, D 12. C 17. E 22. B, D

2
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 3. A 8. A, D 13. B 18. E 23. B, D
4. C 9. B, C for 14. A 19. E 24. A, D
indirect
method
5. A 10. C 15. C 20. A 25 B

2.

1. F 6. O 11. I 16. F
2. I 7. F 12. O 17. F
3. F 8. O 13. F 18. O
4. O 9. I 14. I, N 19. N
5. F 10. F 15. I 20. I

3. (Ambiance Company)

(a) Current assets consist of:

Inventory P1,000,000
Listed investments in shares of other companies
held for trading, at fair value 200,000
Cash 300,000
Accounts receivable, net of allowance for
uncollectible accounts of P24,000 380,000
Prepaid rent 60,000
Receivable from officers, collectible on 6/30/19 195,000
Receivable arising from sale of land, due 1/31/19 2,000,000
Total current assets P4,135,000

(b) Non-current assets consist of:

Equipment, net of accumulated depreciation

of P160,000 P 390,000
Patents, net of accumulated amortization of P18,000 36,000
Total non-current assets P 426,000

3
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 4. (Celeste Corporation)
(a) Account form

Celeste Corporation
Statement of Financial Position
December 31, 2018

Current Assets Current Liabilities

Cash 410,000 Accounts Payable 437,300
Shares Held as Trading Notes Payable due
Securities 167,800 8/1/19 200,000
Accounts Receivable 475,000 Bonds Payable due
Inventory 514,500 6/30/19 2,500,000
Total Current Assets 1,567,300 Total Current Liabilities 3,137,300
Non-current Assets Non-current Liabilities
Land 2,000,000 Notes Payable 800,000
Building, net 1,400,000 Total Liabilities 3,937,300
Equipment, net 1,830,000 Shareholders’ Equity
Land Held as Share Capital 1,800,000
Investment Property 1,000,000 Share Premium 1,200,000
Total Noncurrent Assets 6,230,000 Retained Earnings 860,000
Total Shareholders’ Equity 3,860,000
Total Liabilities &
Total Assets 7,797,300 Shareholders’ Equity 7,797,300

(b) Report form

Celeste Corporation
Statement of Financial Position
December 31, 2018

Assets

Current Assets
Cash 410,000
Shares Held as Trading Securities 167,800
Accounts Receivable 475,000
Inventory 514,500
Total Current Assets 1,567,300
Non-current Assets
Land 2,000,000
Building, net 1,400,000
Equipment, net 1,830,000
Land Held as Investment Property 1,000,000
Total Noncurrent Assets 6,230,000
Total Assets 7,797,300

Liabilities

Current Liabilities
Accounts Payable 437,300
Notes Payable due 8/1/19 200,000
Bonds Payable due 6/30/19 2,500,000
Total Current Liabilities 3,137,300
Non-current Liabilities
Notes Payable 800,000
Total Liabilities 3,937,300

4
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 Shareholders’ Equity
Contributed Capital
Share Capital 1,800,000
Share Premium 1,200,000
Total contributed capital 3,000,000
Retained Earnings 860,000
Total Shareholders’ Equity 3,860,000
Total Liabilities & Shareholders’ Equity 7,797,300

(c) Financial position form

Celeste Corporation
Statement of Financial Position
December 31, 2018

Current Assets
Cash 410,000
Shares Held as Trading Securities 167,800
Accounts Receivable 475,000
Inventory 514,500
Total Current Assets 1,567,300

Less Current Liabilities

Accounts Payable 437,300
Notes Payable due 8/1/19 200,000
Bonds Payable due 6/30/19 2,500,000
Total Current Liabilities 3,137,300
Working capital (1,570,000)
Non-current Assets
Land 2,000,000
Building, net 1,400,000
Equipment, net 1,830,000
Land Held as Investment Property 1,000,000
Total Noncurrent Assets 6,230,000
Total assets, net of current liabilities 4,660,000
Less Non-current Liabilities
Notes Payable 800,000
Net Assets 3,860,000

Contributed Capital
Share Capital 1,800,000
Share Premium 1,200,000
Total contributed capital 3,000,000
Retained Earnings 860,000
Total Shareholders’ Equity 3,860,000

5
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 5. (Celeste and Clyde)
Celeste and Clyde
Statement of Financial Position
December 31, 2018

Assets

Current Assets
Cash 410,000
Shares Held as Trading Securities 167,800
Accounts Receivable 475,000
Inventory 514,500
Total Current Assets 1,567,300
Non-current Assets
Land 2,000,000
Building, net 1,400,000
Equipment, net 1,830,000
Land Held as Investment Property 1,000,000
Total Noncurrent Assets 6,230,000
Total Assets 7,797,300

Liabilities

Current Liabilities
Accounts Payable 437,300
Notes Payable due 8/1/19 200,000
Total Current Liabilities 637,300
Non-current Liabilities
Notes Payable 800,000
Mortgage Payable due 6/30/24 2,500,000
Total Non-current Liabilities 3,300,000
Total Liabilities 3,937,300

Partners’ Equity

Celeste, Capital 1,800,000

Clyde, Capital 2,060,000
Total Partners’ Equity 3,860,000
Total Liabilities and Partners’ Equity 7,797,300

6. (Goodwill Trading Corporation)

(a) Cash 35,000

Trading Securities 130,000
Accounts Receivable 320,000
Less Allowance for Uncollectible Accounts 34,000 186,000
Finished Goods Inventory 350,000
Goods in Process Inventory 280,000
Materials Inventory 120,000
Total current assets 1,101,000

(b) Total current assets 1,101,000

Less current liabilities
Accounts Payable 240,000
Income Tax Payable 87,000
Interest Payable 10,000
Unearned Rent 24,000
Mortgage Payable, current 100,000 461,000

6
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 Working capital 640,000

(c) Mortgage Payable, non-current 400,000

(d) Working capital 640,000

Add Non-current assets
Land 3,000,000
Buildings 5,000,000
Accumulated Depreciation-Buildings (1,200,000)
Investment Property 900,000 7,700,000
Total assets less current liabilities 8,340,000
Less Non-current Liabilities 400,000
Net Assets (or Total shareholders’ equity) 7,940,000

7. (Excalibur Products)
Excalibur Products
Income Statement
For the Year Ended December 31, 2017

Sales P895,000
Cost of sales
Beginning inventory P126,000
Purchases 466,250
Ending inventory (189,500) (402,750)
Gross profit P492,250
Selling expenses (161,100)
General and administrative expenses (128,880)
Profit before income tax P202,270
Income tax (60,681)
Profit for the year P141,589

8. (Willy Enterprises)

(a) Function of Expense Method

Willy Enterprises
Income Statement
For Year Ended December 31, 2018

Sales revenue P500,000

Cost of sales 240,000
Gross profit on sales P260,000
Other operating income
Interest income 24,000
Gain on trading securities 20,000
Total Income P304,000
Selling expenses P73,000
Administrative expenses 107,000
Other operating expenses 8,000 188,000
Profit before finance expense and income tax P116,000
Finance expense 9,000
Profit before income tax P107,000
Income tax 32,100
Profit P 74,900

7
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 (b) Nature of Expense Method

Willy Enterprises
Income Statement
For Year Ended December 31, 2018

Sales revenue P500,000

Other operating income
Interest income 24,000
Gain on trading securities 20,000
Total Income P544,000
Operating expenses
Net purchases P290,000
Increase in inventories (50,000)
Salaries and commissions 114,000
Supplies expense 11,000
Rent expense 40,000
Depreciation expense 15,000
Other operating expenses 8,000
Total operating expense 428,000
Profit before finance expense and income tax P116,000
Finance expense 9,000
Profit before income tax P107,000
Income tax 32,100
Profit P 74,900

9. (Masuerte Corporation)

(a.1) Purchases P2,150,000

Purchase returns and allowances (70,000)
Net purchases P2,080,000
Increase in inventories (80,000)
Cost of goods sold P2,000,000

(a.2) Sales P3,348,000

Sales returns and allowances (95,000)
Net sales P3,253,000
Cost of goods sold 2,000,000
Gross profit P1,253,000

(a.3) Sales salaries and commissions P 185,000

Advertising 78,000
Delivery expense 35,000
Depreciation – Store Equipment 30,000
Miscellaneous selling 16,000
Total selling expenses P 159,000

(a.4) Office salaries P 202,000

Utilities 56,000
Taxes and licenses 44,000
Depreciation-office equipment 36,000
Insurance expense 12,000
Repairs and maintenance 14,000
Uncollectible accounts expense 23,000
Miscellaneous administrative expenses 5,000
Total administrative expenses P 392,000

8
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 (a.5) Gross profit P 1,253,000
Gain on sale of equipment 30,000
Total selling expenses (159,000)
Total administrative expenses (392,000)
Interest expense ( 46,000)
Profit before income tax P1,046,000

(b) Profit after tax (1,046,000 x 70%) P 732,200

Earnings per share (732,200/40,000 shares) P18.305

10. (Lunatic Company)

(a)
Lunatic Company
Statement of Changes in Equity
For Years Ended December 31, 2018 and 2019

Share Share Retained Treasury

Capital Premium Earnings Shares
Balances, December 31, 2017 P200,000 P 80,000 P100,000 P24,000
Transactions in 2018
Sale of treasury shares 3,000 (12,000)
Profit for the year 80,000
Dividends declared (22,000) --------
Balances, December 31, 2018 P200,000 P83,000 P158,000 P12,000
Transactions in 2019
Sale of treasury shares 6,000 (12,000)
Profit for the year 98,000
Dividends declared (35,000)-____________
Balances, December 31, 2019 P200,000 P89,000 P221,000 ------

(b)
Lunatic Company
Shareholders’ Equity
December 31, 2019

Share Capital, P10 par (20,000 shares outstanding) P200,000

Share Premium 89,000
Total Contributed Capital P289,000
Retained Earnings 221,000
Total Shareholders’ Equity P510,000

9
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