Answers 2014 Vol 3 Ch 4.pdf

CHAPTER 4 THE STATEMENT OF COMPREHENSIVE INCOME AND THE STATEMENT OF CHANGES IN EQUITY PROBLEMS 4-1.

(LAS VEGAS COMPANY) Capital, December 31, 2014 Total assets Less total liabilities Capital, December 31, 2013 Total assets Less total liabilities Increase in capital Withdrawals by the owner Additional investments by the owner Net income

P1,218,000 276,000 P 970,000 202,000

4-2. (BELLAGIO TRADING COMPANY) Debit changes Increase in assets Decrease in liabilities Credit changes Increase in share capital Increase in share premium Increase (decrease) in retained earnings Dividends Profit for the year

P600,000 250,000 P400,000 125,000

4-3. (VENETIAN COMPANY) Raw material purchases Increase in raw materials inventory Raw materials used Direct labor Factory overhead Total manufacturing costs Increase in work in process inventory Cost of goods manufactured Decrease in finished goods Cost of goods sold for 2014 4-4.

4-5.

P942,000 768,000 P174,000 250,000 (100,000) P324,000

P850,000 525,000 P325,000 120,000 P445,000

P430,000 (15,000) P415,000 200,000 300,000 P915,000 (20,000) P895,000 35,000 P930,000

(MGM COMPANY) Cost of goods manufactured Finished goods, beginning Finished goods, end Cost of goods sold Gross profit Sales

P2,720,000 380,000 (418,000) P2,682,000 962,000 P3,644,000

(MANDALAY COMPANY) Let x = cost of sales .30x = .18 sales x = .18/.30 sales x = .60 sales Therefore, 100% - 60% - 18% - 12% = 10% (Profit) Sales = 280,000/10%; Sales = 2,800,000 Cost of sales = 60% x 2,800,000 = 1,680,000 Income tax is ignored.

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Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity 4-6.

(EXCALIBUR PRODUCTS) Excalibur Products Income Statement For the Year Ended December 31, 2014 Sales Cost of sales Beginning inventory Purchases Ending inventory Gross profit Selling expenses General and administrative expenses Profit before income tax Income tax Profit

4-7.

P895,000 P126,000 466,250 (189,500)

(402,750) P492,250 (161,100) (128,880) P202,270 (60,681) P141,589

(LUXOR COMPANY) Requirement a (nature of expense method) Luxor Company Statement of Comprehensive Income For Year Ended December 31, 2014 Note PROFIT OR LOSS Net sales revenue (11) Rent revenue Total revenues Operating Expenses Net purchases (12) Increase in inventory (13) Delivery expense Advertising expense Salaries and commissions (14) Depreciation expense (15) Supplies expense (16) Bad debts expense Insurance and taxes Other operating expenses (17) Total Operating Expenses Profit from Operations Interest expense Profit before income tax from continuing operations Income tax expense Profit from continuing operations Discontinued operations, net of tax (18) Profit OTHER COMPREHENSIVE INCOME Unrealized Gains on Investments at fair value through other comprehensive income, net of P24,000 income tax Actuarial Gains Taken to Equity, net of P12,000 income tax Total Other Comprehensive Income TOTAL COMPREHENSIVE INCOME

Total P3,359,000 105,000 P3.464.000 1,762,000 (105,000) 77,000 170,000 502,000 241,000 75,000 27,000 85,000 170,000 3,004,000 P460,000 ( 37,000) P423,000 126,900 P296,100 (245,000) P 51,100 P 56,000 28,000 P 84,000 P135,100

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

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Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Note11 – Net sales revenue Sales Less sales discounts Sales returns and allowances Net sales revenue

P3,529,000 P 49,000 121,000

Note 12 – Net purchases Purchases Add freight-in Total Less purchase discounts Purchase returns and allowances Net purchases

170,000 P3,359,000

P1,730,000 135,000 P1,865,000 P41,000 62,000

103,000 P1,762,000

Note 13 – Increase in inventory Inventory, December 31 Inventory, January 1 Increase in inventory

P446,000 341,000 P105,000

Note 14 – Salaries and commissions Sales commissions and salaries Office salaries Total salaries and commissions

P182,000 320,000 P502,000

Note 15 – Depreciation expense Depreciation – Buildings and office equipment Depreciation – Store equipment Total depreciation expense

P145,000 96,000 P241,000

Note 16 – Supplies expense Store supplies expense Office supplies expense Total supplies expense

P56,000 19,000 P75,000

Note 17 – Other operating expenses Loss on sale of equipment Loss from typhoon Total other operating expenses

P 50,000 120,000 P170,000

Note 18 – Discontinued Operations Revenues Expenses Profit (loss) before income tax Income tax benefit Profit (loss) from operations of discontinued operations Loss on sale of assets, net of tax benefit of P60,000 Discontinued Operations

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P 900,000 (1,050,000) P (150,000) 45,000 P (105,000) (140,000) P (245,000)

Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity (function of expense method) Luxor Company Statement of Comprehensive Income For Year Ended December 31, 2014 Net sales revenue Cost of goods sold Gross profit Other Operating Income Rent Revenue Total Income Operating Expenses Selling Expenses General and Administrative Expenses Other Operating Expenses Total Operating Expenses Profit from Operations Interest expense Profit before income tax from continuing operations Income tax expense Profit from continuing operations Discontinued operations, net of tax Profit OTHER COMPREHENSIVE INCOME Unrealized Gains on Investments at fair value through other comprehensive income, net of P24,000 income tax Actuarial Gains Taken to Equity, net of P12,000 income tax Total Other Comprehensive Income TOTAL COMPREHENSIVE INCOME

Note (11) (12)

Total P3,359,000 1,657,000 P1,702,000 105,000 P 1,807,000

(12) (13) (14)

(18)

P581,000 596,000 170,000 P1,347,000 P460,000 ( 37,000) P423,000 126,900 P296,100 (245,000) P 51,100

P 56,000 28,000 P 84,000 P135,100

Notes to Financial Statements (after presenting notes for basis of presentation and summary of significant accounting policies) Note 11– Net sales revenue Sales Less sales discounts Sales returns and allowances Net sales revenue

P3,529,000 P 49,000 121,000

Note 12 – Cost of goods sold Inventory, January 1 Purchases Add freight-in Total Less purchase discounts Purchase returns and allowances Cost of goods available for sale Less Inventory, December 31 Cost of goods sold

170,000 P3,359,000 P341,000

P1,730,000 135,000 P1,865,000 (41,000) (62,000)

Note 13 – Selling expenses Sales commissions and salaries Store supplies expense Delivery expense Advertising expense Depreciation expense – store equipment Total selling expenses

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1,762,000 P2,103,000 446,000 P1,657,000 P182,000 135,000 77,000 170,000 96,000 P581,000

Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Note 14 – General and Administrative expenses Bad debts expense Office supplies expense Insurance and taxes Office salaries Depreciation – buildings and office equipment Total administrative expenses

P27,000 19,000 85,000 320,000 145,000 P596,000

Note 15 – Other operating expenses (continuing operations) Loss on sale of equipment Loss from typhoon Total other operating expenses

P 50,000 120,000 P170,000

Note 16 – Discontinued Operations Revenues Expenses Profit (loss) before income tax Income tax benefit Profit (loss) from operations of discontinued operations Loss on sale of assets, net of tax benefit of P60,000 Discontinued Operations

P 900,000 (1,050,000) P (150,000) 45,000 P (105,000) (140,000) P (245,000)

Requirement b Luxor Company Statement of Changes in Equity For the Year Ended December 31, 2014 Ordinary Retained Share Reserves Earnings Total Balances, January 1 P700,000 P660,000 P1,785,000 P3,145,000 Correction of prior year’s income due to understated depreciation, net of P54,000 income tax (126,000) (126,000) Restated balances, January P700,000 P660,000 P1,659,000 P3,019,000 Issuance of ordinary shares 100,000 40,000 140,000 Comprehensive Income 84,000 51,100 135,100 Dividends declared (60,000) (60,000) Balances, December 31 P800,000 P784,000 P1,650,100 P3,234,100 Reserves at January 1 included the share premium (P610,000) and unrealized gain on investments carried at fair value through OCI (P50,000). The amounts may be reported in separate columns. 4-8.

(TRUMP COMPANY) a. Revenues P5,000,000 Selling and Administrative Expenses 5,080,000 Disposal costs (75,000) Operating Profit (Loss) before income tax P(155,000) Income tax benefit 46,500 Operating Profit (loss) P(108,500) Fair value less cost to sell is P830,000 (980,000 – 150,000) which is greater than the carrying amount of P800,000. b. Revenues P5,000,000 Selling and Administrative Expenses 5,080,000 Disposal costs (75,000) Operating Profit (Loss) before income tax P(155,000) Income tax benefit 46,500 Operating Profit (loss) P(108,500) Loss from measurement to NRV, net of income tax benefit of P54,000 (126,000) Discontinued Operations P(234,500)

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Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity Fair value less cost to sell is P620,000 which is P180,000 lower than the carrying amount of P800,000, which is reported as loss from measurement to NRV. 4-9.

(CAESARS PALACE COMPANY) Caesars Palace Company Statement of Changes in Equity For the Years Ended December 31, 2014 and 2013 Share Retained Capital Earnings January 1, 2013, balances as previously reported P2,000,000 P1,500,000 Prior period adjustment 2012 expense charged erroneously to Equipment, net of income tax of P24,000 ___________ (56,000) January 1, 2013 balances, as restated P2,000,000 P1,444,000 2013 Changes Profit 514,000* Dividends ___________ (200,000) Balances, December 31, 2013 P2,000,000 P1,758,000 2014 Changes Profit 750,000 Dividends ___________ (500,000) Balances, December 31, 2014 P2,000,000 P2,008,000 2013 Restated profit = P500,000 + depreciation erroneously recognized (20,000 x 70%). 4-10.

Total P3,500,000 (56,000) P3,444,000 514,000 (200,000) P3,758,000 750,000 (500,000) P4,008,000

(TUSCANY COMPANY)

Tuscany Company Comparative Income Statements For the Years Ended December 31, 2014 and 2013 2014 Sales P3,000,000 Cost of goods sold (1,420,000) Gross profit 1,580,000 Selling expenses (350,000) General and administrative expenses (260,000) Profit before income tax P970,000 Income tax (291,000) Profit P 679,000 Ending inventory, 2013, as reported P 355,000 Cost of goods sold, as reported in 2013 1,140,000 Goods available for sale P1,495,000 Beginning inventory, as reported in 2013 250,000 Purchases in 2013 P1,245,000 Purchases P1,245,000 Inventory, beg (weighted average) 210,000 Inventory, end (weighted average) (312,000) Restated cost of sales in 2013, weighted average P1,143,000 Tuscany Company Statement of Changes in Equity For the Years Ended December 31, 2014 and 2013 Share Retained Capital Earnings January 1, 2013, balances as previously reported P1,000,000 P 600,000 Cumulative effect of changing from FIFO to weighted average method of inventory costing, net of income tax of P12,000* (28,000) January 1, 2013 balances, as restated P1,000,000 P572,000 2013 Changes Profit 676,900 Dividends (400,000) December 31, 2013 balances P1,000,000 P848,900

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2013 P2,540,000 (1,143,000) 1,397,000 (210,000) (220,000) P967,000 (290,100) P 676,900

Total P1,600,000 (28,000) P1,572,000 676,900 (400,000) P1,848,900

Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity 2014 Transactions Profit 679,000 679,000 Balances, December 31, 2014 P1,000,000 P1,527,900 P2,527,900 * based on 30% income tax rate Cumulative effect shown on the statement of changes in equity Difference in beginning inventory of 2013 (250,000-210,000) P40,000 Applicable tax (30% x 40,000) 12,000 Net adjustment (deduction) from retained earnings, January 1, 2013 P28,000 The cumulative effect, however, is taken up in the books during 2014, when the change was decided upon by the management. The following 2014 entry: is made: Retained earnings 30,100 Income tax payable 12,900 Inventory, beginning (or cost of sales) 43,000 Thus, the retained earnings at December 31, 2014 is P879,000 - 30,100 + 679,000 = P1,527,900. 4-11.

(RIVIERA COMPANY) Riviera Company Statement of Comprehensive Income For Year Ended December 31, 2014 and 2013 (In million pesos)

(a) Revenue Raw materials and consumables used Employee benefit expense Depreciation and amortization Other expenses Income from operations Finance costs Profit before income tax Income tax expense Profit for the year Other comprehensive income Unrealized gains (losses) on investments measured at fair value through other comprehensive income, net of applicable tax Total comprehensive income Riviera Company Statement of Changes in Equiy For Year Ended December 31, 2014 and 2013 (In million pesos) (b) Share Share Retained Capital Premium Earnings January 1, 2013 balances P75 P22 P30 2013 Changes Profit for the year 638.4 Unrealized losses on investments measured at FV net of tax Dividends declared (25) December 31, 2013 balances P75 P22 P643.4 Prior period adjustment Overstatement of prior year’s profit net of P150,000 tax (.35) Restated January 1, 2014 balances P75 P22 P643.05 2014 Changes Issue of share capital 8 2.8 Profit for the year 702.8 Dividends declared (20) Unrealized gains on investments measured at FV net of tax December 31, 2014 balances P83 P24.8 P1,325.85

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2014 P2,000 (850) (100) (40) (2) P1,008 (4) P1,004 (301.2) P702.8

2013 P1,800 (745) (95) (40) (3) P917 (5) P912 (273.6) P638.4

.56 P703.36

(.84) P637.56

Unrealized GainLoss P2.4

Total P129.4 638.4

(.84) P1.56

(.84) (25) P741.96

P1.56

(.35) P741.61 10.8 702.8 (20)

.56 P2.12

.56 P1,435.77

Chapter 4 – The Statement of Comprehensive Income and the Statement of Changes in Equity MULTIPLE CHOICE Theory MC1 MC2 MC3 MC4 MC5

D C D A A

MC6 MC7 MC8 MC9 MC10

Problems MC26 D MC27

C

MC28

A

MC29 MC30 MC31 MC32 MC33

A A D B B

MC34 MC35 MC36 MC37 MC38 MC39 MC40 MC41 MC42 MC43

C C B C C B D B D C

MC44 MC45 MC46 MC47

D C B B

MC48 MC49 MC50 MC51 MC52 MC53

D D C B C B

MC54

D

C B A A A

MC11 MC12 MC13 MC14 MC15

D D B B B

MC16 MC17 MC18 MC19 MC20

A D B D B

MC21 MC22 MC23 MC24 MC25

B C D C C

210,000 Assets, end– 50,000 Liabilities, end = 160,000 Capital, end 260,000 Assets, beg – 60,000 Liabilities, beg = 200,000 Capital. beg 200,000 – 160,000 = 40,000 + 12,000 – 50,000 = 78,000 Loss 225,000 + 100,000 + 10,000 + 15,000 = 350,000; 150,000 + 50,000 + 20,000 + 100,000 + 15,000 = 335,000 350,000 – 335,000 = 15,000 + 25,000 – 125,000 = 85,000 Loss 21,000+25,000–10,000+70,000+5,000–(5,000 x 8)+15,000–50,000–1,000– 20,000=15,000 150,000 + 80,000 + (220,000 x ½) + 140,000 = 480,000 170,000 + (240,000 x ½) = 290,000 150,000 x 8 = 1,200,000 + 80,000 = 1,280,000 272,000 + 36,000 – 41,600 = 266,400 + 76,800 = 343,200 .125/.25 = .50; 100% - 50% - 12.5% - 17.5% - 5% = 15% 750,000/15% = 5,000,000 x 50% = 2,500,000 5,800,000–(4,800,000+650,000–550,000)=900,000–(7.5%,x900,000)=532,500 .15/.25=60%; 100%-60%-10% - 15% - 3% = 12%; 480,000/12% = 4.0M 1,080000/80% = 1,350,000/90% = 1,500,000 x 30% = 450,000 3,500,000/70% = 5,000,000 5M-3.5M=1.5M – (60% x 1.5M) = 600,000 3,500,000 – 500,000 = 3,000,000 600,000+900,000 – 1,000,000 = 500,000 P1,550,000 – P1,100,000 = 450,000 450,000 + 600,000 – 250,000 = 800,000 5,000,000 + 28,000 + 520,000 – 2,800,000 – 500,000 – 720,000 – 110,000 + 16,000 + 100,000–400,000+55,000–70,000–50,000–80,000– 120,000 – 450,000 = 419,000 500,000 + (400,000 X 60%) + 70,000 + 120,000 = 930,000 450,000 + 2,800,000 + 80,000 – 520,000 = 2,810,000 419,000 – 180,000 = 239,000; 239,000 x 70% = 167,300 + (88,000 x 70%) = 228,900 Cost of sales = 20/50 = 40% 100%-40% = 60% - 20%-5% = 35% Profit before tax 2,450,000/70% = 3.5M; 3.5M/35% = 10M;10M x 40% = 4M CGS x 130%=5.2M (2,000,000 + 100,000) – (1,800,000 + 300,000) = 0 0 + gain of P1,000,000 on disposal – income tax of P300,000 = 700,000 (3,500,000 – 500,000) x 70% = 2,100,000 (440,000 – 350,000) x 70% = P63,000 400,000 – 84,000 + 40,000 – 4,000 – 280,000 = 72,000; 72,000 x 70% = 50,400 Total profit = P50,400 + (40,000 x 70%) =78,400 1,600,000 + (16,000 x 70%) – (24,000 x 70% )+ 78,400 ) – 12,000 = P1,660,800 400,000 – 84,000 + 40,000 – 4,000 – 280,000 + 40,000 = 112,000 112,000 x 70% = 78,400 (Assume a tax rate of 30%)

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